Schumpeter’s Market

Schumpeter’s Market

Enterprise and Evolution

David Reisman

Schumpeter was an interdisciplinary political economist who made institutional transformation the centrepiece of his theory of supply and demand. This comprehensive monograph reconstructs and assesses Schumpeter’s contribution to the restless economics of entrepreneurship, disequilibrium and search. Examining the evidence from all of Schumpeter’s published work, the book fills a significant gap in the literature of economic thought. Partly because Schumpeter was so prolific, partly because he touched on so many interrelated topics, there have been few books that have sought to span the whole of this important author's influential insights.

Chapter 8: Market and Plan

David Reisman

Subjects: business and management, entrepreneurship, economics and finance, methodology of economics


Socialism is the superior tool: ‘Solution of the problems confronting the socialist management would be not only just as possible as is the practical solution of the problems confronting commercial managements: it would be easier.’ (Schumpeter, 1942a:186). Seldom has a case for socialism been argued so strongly by an anti-socialist who had no liking for it. The inference to be drawn from Schumpeter on systems is in the circumstances a reassuring one. Not only is socialism inevitable, it is good economics as well. The subject of this chapter is the comparative performance of the institutional alternatives. The ingredients are always and everywhere the same: local scarcity, unit cost, next-best foregone, calculation, coordination, signalling. It is the combinations and permutations that differ so radically. Hayek and Mises favoured decentralised decision-making: they attacked the disciplined goose-step of distorting command. The Stalinist Plan had no room for supply and demand: unfocused search could only dissipate the people’s niggardly endowment. Barone and Lange modelled the ‘best of both worlds’ of the systemic cross-breed: in market socialism the lion of flexible pricing would lie down with the lamb of the sheltering State. Schumpeter, predicting the tendencies and assessing the implications, knew that market and plan was a mansion with many wings and many hidden doors. No one knew better than Schumpeter that the institutional alternatives were not a simple either/or. This chapter is concerned with the kaleidoscope functioning of market and plan. Section 1, Productive efficiency, explains why Schumpeter believed that centralist socialism would...

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