Joseph Schumpeter (1883–1950)

This chapter discusses Schumpeter’s theory of creative destruction and his views on the future of capitalism. Schumpeter has been described as the prophet of capitalism who deeply understood its inner workings and how it evolved. As opposed to Walras, Schumpeter had a dynamic view of capitalism in which the entrepreneur played a leadership role in innovation and growth. In his view, stationary capitalism was a contradiction in terms as capitalism by its very nature was always dynamic. But in its next trustified phase, capitalism would evolve into a more rigid and bureaucratic structure where monopoly houses would dominate the landscape. While Marx was of the view that capitalism would be destroyed by its contradictions, Schumpeter thought that it would be destroyed because of its successes. Schumpeter did not view monopoly capitalism or business cycles as contradictions of the system but as necessary phases for its continued growth. Like Marx, Schumpeter believed that competitive capitalism would first evolve into monopoly capitalism and would ultimately be replaced by socialism. But this will happen not because capitalism has flaws but because capitalism as a system has been too successful. Unlike Marx, change in the system does not come from below but from a rationalizing mentality of its intellectual class.