“Can Capitalism Survive?” Ch. 2 – Plausible Capitalism by Joseph Schumpeter (1942)

Spilling the beans…

“Can Capitalism Survive?” Ch. 2 – Plausible Capitalism by Joseph Schumpeter (1942)

  • We’ve projected average increase of total available production forward from 1928 o show the significance of past development & that it wouldn’t be shocking to see
    • But there’s no justification for that projection/extrapolation especially so far into the future – mostly to give a quantitative idea of what the Capitalistic engine can achieve
    • Data aren’t enough to show a causal link between performance & capitalist engine
      • Must show the engine causing performance
      • With the relation, rate of increase was due to it & not to good conditions independent of Capitalism
        • Solve those 2 before you can repeat the experiment
      • Any reason why the engine should fail to work in the future as it has done
  • Problems with statistical description of rate of progress versus facts on how the structure of the economy & its function – model of Capitalist system
  • Unlike feudal lords, Capitalists rose through business
    • Bourgeois class from economic & commercial growth – all in terms of money
      • Making money = winning & Losing money = losing
      • Also has an effect on social arrangement
    • Promises of wealth, threats of destitution prove productive motives & attract brightest minds & success, addressed to ability, energy, large capacity for work
      • The prize are greater than necessary to attract ability but big prizes go to a few, most successful, more so than a “just distribution” would
      • Threats to incompetence & obsolete methods not phased out yet
        • failure makes people move more than equality or fairness
    • Private enterprise effectively changed the bourgeois to its tasks by selecting individuals & families that will rise into or fall out of the class – a selective function
    • Most methods of social selection, unlike biological selection don’t guarantee performance of a selected individual & their failure to do so is a problem of a social organization
    • A man who rises into the business class & then within the class is a successful business man. Success is based on ability
      • All encouraged by Capitalist regime/machine
  • Performance isn’t geared toward social service but profits
    • Also increased knowledge & analytic powers to questions we have today than ever before
    • Classical economist fought against interests & institutions not along lines of laissez-faire economics
      • Self-interest of manufacturer & trader would lead to maximum utility for all & would attribute increase in production capacity to unfettered enterprise & profit motive – maybe beneficial legislation to remove fetters
      • Typical of English bourgeois class – blinkered to the rest of the world – & they have riled up antipathy from abroad because it’s against their interests
      • But profit motive may run counter to consumers’ interests & social goals
    • Classical economists correctly saw saving & accumulation as the driver for economic progress, especially in the long-term
    • Gap between the profit-motive & desire for maximum productive performance & theories have been a house of cards to explain pet hypotheses
  • 1st stride in Production Analysis was by Marshall & Wicksell in Perfect Competition analysis & production/profit
    • When corrected or adding components to the model, it loses a lot of its power, i.e. when leaving out production pricing power, production produces at P = Marginal Cost (Max. Profit, Min. Cost, Min. Social waste)
  • 2nd stride – not all cases conform to Perfect Competition model – monopolies, price flexibility, competition restrictions
    • Most firms’ markets have special circumstances of setting price, not accepting them
    • Only agricultural mass production has Perfect Competition, finished products have smaller, more variable markets, product differentiation & different market structures (Monopolistic Competition)
    • Large scale firms, individually or in concert, manipulate prices without differentiation (Oligopoly) – worse than Monopolistic Competition – changes in market equilibrium
    • Perfect Competition is very hard to maintain in non-agricultural markets & beneficial aspects turn predatory/cutthroat & produce social waste & rent-seeking
      • Necessarily limits maximum production capacity through profit-maximizing strategies, impossible Perfect Competition conditions
      • Very similar to extortion & evil behavior to the man in the street

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