Joseph Alois Schumpeter's Impact on Democratic Theory
Schumpeter, a maverick economist of the 20th century, challenged norms with his views on democracy and capitalism. From envisioning them as dynamic systems to critiquing classical theories, his legacy sparks intellectual debates, urging us to rethink the link between politics and economics.
Joseph Alois Schumpeter (1883–1950) was a renowned economist whose work greatly influenced the field of economics. He lived during significant historical events such as the First and Second World Wars, the Great Depression, and the Cold War, which shaped his perspectives on capitalism and political analysis. This article delves into the life and contributions of Joseph Schumpeter, highlighting his early years, education, career, and key influences.
Joseph Schumpeter was born on February 8 in Triesch Moravia, which is now part of the Czech Republic. He was the only son of a textile manufacturer; however, his father passed away when he was just four years old. Seven years later, his mother remarried Sigismund von Kéler, a lieutenant in the Austro-Hungarian army, who played a crucial role in Joseph's education. He attended the prestigious Theresianum, a school for aristocratic children, where he received a quality education. Later, he pursued studies in law and economics at the University of Vienna.
After completing his studies, Joseph Schumpeter lived a comfortable life in London, where he experienced what he referred to as “the apotheosis of the civilization of capitalism.” In 1909, he began his teaching career at various universities, including Vienna, Czernowitz (Ukraine), Graz, and Bonn. Additionally, he served as the Austrian Minister of Finance from March to October 1919. It is worth noting that Schumpeter faced a major crisis in 1926 when he lost his mother, wife, and newborn son in a short span of time. This tragic event plunged him into depression, leading to a suicide attempt. This period of his life greatly impacted his subsequent scientific work, shaping his perspective as a sad, pessimistic, and depressive person.
In 1932, Joseph Schumpeter settled in the United States, where he became a professor at Harvard University. His time in the U.S. marked a significant phase in his career. Schumpeter's work was heavily influenced by economists Friedrich von Wieser and Eugen von Böhm-Bawerk, who, along with Carl Menger, founded the Austrian School of Economics. This school of thought formed the foundation of Schumpeter's economic theories. Additionally, his works demonstrate the influence of other notable economists such as John Maynard Keynes, Karl Marx, and Léon Walras.
Joseph Schumpeter's contributions to economics were groundbreaking and have left a lasting impact on the field. He is best known for his theory of economic development, which emphasized the role of innovation and entrepreneurship in driving economic growth. Schumpeter introduced the concept of “creative destruction,” which refers to the continuous cycle of old industries being replaced by new ones through innovative processes. His ideas challenged conventional economic theories and provided a fresh perspective on capitalism and economic progress.
Schumpeter's Insights on Democracy
In his seminal work “Capitalism, Socialism and Democracy” published in 1942, Joseph Schumpeter made significant contributions to our understanding of the capitalist system and its potential evolution. Schumpeter drew an interesting analogy between democracy in the public sector and market mechanisms in the private sector. He saw both as forms of horizontal coordination, where consumers and suppliers play crucial roles. In the political process, voters are akin to consumers, while politicians and public officials act as suppliers (Policonomics, n.d.).
Turriago (2001) highlights Schumpeter's work as a significant contribution to understanding the future of capitalism. Schumpeter identified sociological and psychological changes that could lead to the transformation of the capitalist system. He emphasized the role of private property and the rationalization of economic agents as primary factors influencing economic change. These changes would later manifest in what Sanchis i Marco (2015) referred to as state monopoly capitalism.
According to Remo (2012), Schumpeter believed that the decomposition of the capitalist system was unavoidable and would pave the way for the emergence of socialism. He identified the fundamental pillars of the capitalist system, which include private property, entrepreneurial initiative, production for the market, subdivision of labor, and the creation of credit by banking institutions. Based on these foundations, Schumpeter argued that the capitalist system could sustain itself indefinitely due to the stable mentality and way of life of society. However, economic cycles and changes in mentality could disrupt this stability, leading to the eventual demise of capitalism.
In his analysis, Schumpeter challenges the classical democratic theory's perspective on the realization of the “common good” and the existence of a “general will.” According to him, these notions are fallacious and simplistic, unable to withstand the complexities of society and the influence of political propaganda.
Schumpeter argues that the conciliation of diverse interests into a single common good is impossible in practice. The complexity of society makes it difficult to rationalize and reconcile the multitude of conflicting interests. Hence, the idea of a unified “common good” becomes an unattainable ideal rather than a practical reality.
Similarly, Schumpeter dismisses the concept of a “general will” due to the intricate and diverse interests within society. He highlights how political propaganda and disinformation can sway public opinion, making the notion of a unified and rational “general will” susceptible to manipulation. Schumpeter's realistic stance emphasizes that the people's will is not an objective and rational entity but rather subject to external influences.
In contrast to the classical theory, Schumpeter proposes a different understanding of democracy. He views democracy as an institutional system for arriving at political decisions through a competitive struggle for the people's votes. In this sense, democracy becomes a method rather than an ideal. It acknowledges the complexity of society and the influence of individual interests, while still providing a framework for political decision-making.
The Impact of Joseph Schumpeter's Thought
Schumpeter was a staunch critic of state interventionism to revive the economy, a viewpoint that put him in direct opposition to the ideas put forward by John Maynard Keynes. While Keynes believed that government intervention was necessary to stimulate economic growth during times of recession, Schumpeter argued that such interventions were ineffective and ultimately detrimental to the capitalist system. His belief was that capitalism needed to be left to its devices, allowing market forces to drive innovation and economic development.
Ironically, despite his opposition to state interventionism, Schumpeter recognized that capitalism was not without its flaws. He famously predicted the socio-political disintegration of capitalism as a result of its success. In other words, Schumpeter argued that the very forces that drive capitalism – entrepreneurship, creative destruction, and technological innovation – would eventually lead to the demise of the system. He believed that capitalism's success would breed complacency, leading to a decline in entrepreneurial spirit and stifling innovation, ultimately undermining the system's vitality.
While Schumpeter is primarily known for his economic theories, his contribution to democratic theory is equally noteworthy. According to Vidal de la Rosa (2010), Schumpeter's ideas are instrumental in understanding the role of civil society and the expansion of civil liberties, human rights, and labor rights in democratization processes. He argued that democracy is not just a form of government but, more importantly, a method of forming government through electoral competition. Schumpeter emphasized the crucial role of political parties and the electoral process in translating the will of the people into policy decisions.
Key Works by Joseph Alois Schumpeter
Throughout his career, Schumpeter produced several influential works that continue to shape economic and political thought. Some of his notable publications include:
The Theory of Economic Development: An inquiry into profits, capital, credit, interest, and the business cycle (1911): In this seminal work, Schumpeter explores the role of entrepreneurship and innovation in driving economic development and overcoming the business cycle.
Capitalism, Socialism and Democracy (1942): This book examines the relationship between capitalism and democracy, highlighting the tensions and challenges that arise when these two systems coexist.
Can Capitalism Survive? (1947): Schumpeter delves into the potential threats and vulnerabilities facing capitalism and questions its long-term sustainability.
Ten Great Economists: From Marx to Keynes (1951): In this work, Schumpeter provides an overview of the contributions made by ten influential economists, including Karl Marx and John Maynard Keynes.
Imperialism and Social Classes (1951): Schumpeter explores the relationship between imperialism, social classes, and economic development, shedding light on the complex dynamics at play in societies.
History of Economic Analysis (1954): This posthumously published work is a comprehensive overview of the history of economic thought, showcasing Schumpeter's profound understanding of economic theory and his ability to synthesize diverse ideas.
Conclusion
Joseph Schumpeter's impact on the factual world cannot be overstated. His ideas on state interventionism, the socio-political disintegration of capitalism, and the role of democracy continue to shape economic and political discourse. Through his influential works, Schumpeter challenged conventional wisdom, offering unique insights into the workings of the capitalist system and the dynamics of democracy. His contributions have left a lasting legacy, inspiring researchers, policymakers, and scholars to further explore and refine our understanding of economic development, democracy, and the role of civil society.
In-Text Citation: UNAM. “Joseph Alois Schumpeter.” árbol de la democracia, 29 Sept. 2022, https://arboldelademocracia.cuaieed.unam.mx/autor/joseph-alois-schumpeter/.
