“Can Capitalism Survive?” Ch. 5 – Closed Season by Joseph Schumpeter (1942)

Spilling the beans…

“Can Capitalism Survive?” Ch. 5 – Closed Season by Joseph Schumpeter (1942)

  • Economics is a science of observation & interpretation
    • Implies in our questions, room for difference of opinion can be narrowed but not reduced to zero
    • Leads to new problems – doesn’t happen in experimental science
  • We asked for an understandable relation between the structure of Capitalism (seen through analytic models) & economic performance (measured by total output)
    • Monopolistic control has an influence
      • I strayed from orthodoxy of the idea that perfect competition must be put into place for markets for fairness, public good & efficiency
      • No was to test this, so who’ll ever know?
      • But Capitalistic markets tend to increase output over time
    • It’s possible to attribute the increase in output to exceptional circumstances that could’ve been put into place by institutions
      • Check with economic & political history for comparison & see if circumstances weren’t a part of the Capitalist structure
  • 5 Candidates for roles of exceptional circumstances not inherent in Capitalism
    • 1 – Government Action
      • I agree with Marx that politics & policies aren’t independent facts but elements of the social process – external to Capitalism
      • 1870-1914 – best time period to test
      • Removal of fetters from entrepreneurial activity, industry & trade had been done before
      • New fetters – social legislation imposed – not major factors for the economic situation
      • Wars happened but not drastic enough (except Franco-Prussian War)
      • Zollverein was most relevant in helping the situation
      • Armament expenditure rose but dropped 3 decades before 1914 – handicap, not stimulus
    • 2 – Gold
      • In first 20 years of the period, gold was scarce & its total output increase was steady
      • Gold production wasn’t a major factor in Capitalism’s performance, despite its relation to booms & busts
      • Same is true with monetary management
    • 3 – Increase in Population
      • Was a dominating factor of economic situation
      • We have to be ready to say it was wholly consequential & we’ll have to assume variation in output would have a corresponding variation in population to think they’re related
      • But it’s clear more people working will produce more than fewer people working
        • So, it could’ve happened under any system
        • Population can be seen as an external factor
      • Also any system will see a decreasing return to scale – i.e. more people will produce less per capita than fewer
    • 4 – Land
      • There was an increase of raw material & foodstuffs
        • Cities grew during that increase
        • That would’ve happened no matter what the system was
        • Some socialist believe the exploitation of virgin environments accounting for lack of further exploitation of labor
          • Proletariat was closed for the season
      • Objective opportunities exist independent of social arrangements & each country is historically unique
      • Whole Capitalist process, like every evolutionary process is nothing but exploitation of opportunities as they present themselves
        • But opening the lands for business was a part of the Capitalist system & should be included in the analysis
    • 5 – Technological Prgress
      • Was observed performance due to the stream of inventions that revolutionized the technique of production rather his pure desire for profit. Obviously…
      • Capitalist process was responsible for mental habits that produce invention
        • Wrong to say that Capitalist enterprise one &  technological progress a second distinct factor in observed development of output
          • They are the same thing. The former propelled the latter
  • Land & technological progress can’t be repeated like a production process & therefore can’t be extrapolated
    • We can see evolution of Capitalism ran alongside observed behavior of output per head & it wasn’t an accident
  • Question remains: How reasonable is it to expect the Capitalist engine to continue as successfully in the future as it did in the past?

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