I’ve been doing a lot of reading of material written late in the Depression as part of my research on bureaucracy (partially explored over on my substack). A late entry in that effort was Joseph Schumpeter’s work of the same title as this post. I picked this up because in reading Mises book Bureaucracy, I noted that his theory of the firm was brutally idealized – to the point that you would think he never noticed the then nascent corporate bureaucracies (as described by Burnham, The Managerial Revolution). His commitment to his praxeology also meant he overlooked some other confounding historical reality. I pondered – was he completely ignorant of Schumpeter and creative destruction? They were both Austrians that ended up in America – how could that be? As it turned out, though both had studied under Böhm von Bawerk, Mises stuck with the Austrian School whereas Schumpeter swung over to the rival Historical (Germany based) school. So, my guess became that Mises probably knew but considered it beneath intellectual notice; proves that Marxists aren’t the only factionalists.
As it turns out, Schumpeter didn’t really originate the notion he is best known for, creative destruction – he picked it up from Werner Sombart (who is credited with originating “late capitalism”) and extended and popularized it. While this is noteworthy, as it addresses innovation and dynamism, Schumpeter tended to believe that ultimately it was self-destructive (as Marx would expect). Schumpeter believed that the destructive aspect was too powerful (again, a rather Marxian view) if unabated. The problem with abatement is that ruling elites would stagnate the economy to close off innovation (since innovation is the engine that is creating and thus displacing/destroying what exists) as a self-preservation strategy. That might offer a short-term solution, but the longer-term price would be destroying their own wealth. The WEF would do well to read him.
Now it is important to remember when he was writing. The book was published, first edition, in 1942 and he had begun writing in ’39. He speaks to the remarkable achievements in wealth creation that capitalism had wrought in particular from roughly 1870 up to the outbreak of WWI, and even the post war boom up to the crisis of the day (since it wasn’t being called the Great Depression then). Of all the extant economic theory, only one came close to predicting what the world was experiencing, and that was Marx. Even if you are wrong, you look pretty smart when everyone else is looking pretty dumb. So yes, Schumpeter agreed with Marx about that aspect of capitalism being prone to fail due to its internal contradictions (at least as capitalism was understood at the time). Schumpeter does hedge his bet though – he does see that there could be a path to a more expansive future1, he just thought it rather unlikely. As it happens we got the more expansive future, but not via the means he expected (and he died early in 1950, so the third edition [which I have] is updated to that point but obviously not the picture we have now). He does fairly accurately depict corporatist capitalism – the mutual interest of large corporations with the regulatory state. His error there was in assuming that all sectors of the economy would consolidate thus. It is also worth considering that fascism is also a form of corporatism, just with a little firmer hierarchy of political control.
Schumpeter held contradictory views on bureaucracy – corporate is bad, government is good. I can only assume he held the latter because he was a European and Germanic at that. His deference to government expertise is extremely cultural as you would expect for that heritage and his actual experience (he was the first Austrian finance minister after the creation of the modern state post WWI but was not astute politically and his tenure was brief). He went into banking, focusing on investing and in some three years made a small fortune, which in turn was wiped out by the Austrian stock market collapse in 1924. Unlike Drucker who later taught that entrepreneurship is a skill, Schumpeter tended to the ‘spirit’ that moves innovation (something like the great man approach in history just filtered through economics); though he did later argue that large corporations, despite their other faults, had the capital to make large R&D investments which would also result in innovation.
If there is a categorical error we can find in his thinking, it is that socialism (and not necessarily the Marxist branch2) is an inevitable successor to capitalism. As with Marx, he assumed that socialism couldn’t be brought into existence before capitalism had run its course. However he wasn’t actually an advocate of socialism, he just thought it was the logical successor, and he also recognized the inherent conflicts in socialism and democracy. He attempted to reconcile those conflicts, but he tended to fall back on his belief in the efficacy of government bureaucracy (colored by his favorable beliefs toward the European bureaucratic classes as he had known them) over what is inevitable in democracy – that people will choose badly, in politics just as in their personal lives.
Effectiveness and/or efficiency is a great bugbear of Schumpeter’s mind. Particularly when applied to macro-economics (and politics, which tells you why he was a bad politician). He believed not just that capitalism delivered great advances – and that it probably can’t do it continuously3 – but when it fails to do so, it will become inefficient (as if this was a really great sin). It’s another case where his Germanic character seems to come through, in this instance as though he were an engineer and not a lawyer/economist. It is the bias of viewing the economy as a mechanical system (as though governed by physics). One reason I think Jane Jacobs’ The Nature of Economies is so valuable is that it takes a more organic approach to economics (as sharing the same root as ecology). Although nature has a certain sense of efficiency, it isn’t what our rationalistic, mechanical sense of efficiency is.
So, Schumpeter believes capitalism can’t work indefinitely and that when it has built a sufficient stock of wealth, distribution via socialism will be more important than continuing to build more wealth. Efficient decision making in the bureaucracy governing production will assure replenishment of necessary capital – enough to keep the machine running but not growing – and provision of all material needs for the masses. You can all stop laughing now.
Schumpeter’s criticism of democracy is more accurate, even to this day. The chapter The Classical Doctrine of Democracy is a brilliant takedown of the inherent flaws within democracy and most pertinently – the problem of equality (empirically an unsupported assertion, but eloquently addressed within Protestant Christian dogma). I have always been skeptical of the claim that democracy is reliant on Judeo-Christian values since the actual model of governance was derived from pagan Greece and Rome and this, brief as it is, is the best answer to that I’ve seen. On the other hand, the reliance on an informed and rational demos is exposed as unsupported by either empirical evidence or faith, and equality (without God) is a non-starter4.
- In his theoretical future, incomes (in real terms) would at least double in the next growth cycle such that by 1978 there would be no poverty as it was then known (in 1928). Which is in a sense true, but of course we know that poverty is never eradicated as it is literally defined as the bottom end of the income distribution curve. ↩︎
- Though easily forgotten, Marx was a late-comer to socialism and there are other older schools of thought. He dismissed them as non-scientific of course, even as there was nothing scientific in his approach. Thus we have the first instance of appropriating the authoritative mantle of Science to mask nonsense. In Schumpeter’s case, he vehemently disagreed with Marx, and revolution, to get to socialism. ↩︎
- His preceding work was two volumes on business cycles and he introduced Kondratiev waves as the long cycle of prosperity driven by a burst of innovation. It is still a pretty good theory. ↩︎
- I was pretty much at this position from reading Nietzsche. Also, I finally figured out how to properly footnote after I had done them manually and incorrectly. Other than that, the block editor isn’t much of an impediment. ↩︎
Editor’s Note: This seemed timely, with Independence Day coming up – the clock will be back next week.
JI, just wanted to say I’m really enjoying your SubStack. I, too, am a proud class traitor.
Since you won’t pimp it in your post, here ya go:
https://rathercurmudgeonly.substack.com/
Thank you kindly.
Thanks for the write up JI
And Thanks RC for posting his sub
That I don’t shamelessly self promote means my ‘stack will probably never be a paying proposition.
Your ‘stack is pretty good, and I enjoy it. What I also enjoy is you NOT taking every comment you make on every other ‘stack I see you on as a chance to toot your own horn.
I hate the impulse to say “I wrote about it here” that shows up.
“Though easily forgotten, Marx was a late-comer to socialism”
Just finished the Hardcore History account of the Anabaptist uprising in Muenster. Aside from the virtual note-by-note replay in modern times of the cult dynamic (right down to the cult leaders are ordered by God to fuck as many women as they can), there was the social/economic program of the radical Anabaptists, which is almost indistinguishable from modern leftism (reflected still in the progressive/socialist/communist spectrum). Truly, nothing new under the sun.
real Anabaptist of Muenster uprisings have not really been tried. They were just sabotaged by CIA otherwise it would have totally worked
Best to hang the tortured bodies high; like on a church steeple. To this day the cages are still there.
Pic
So many are partially right and few are completly right about things. I enjoyed this post, though i am two distilery visits in today, from rainy Scotland.
I would do a more paragraph by paragraph comment but I am on my phone and slightly buzzed
Pic pictured, taking a break.
https://photos.app.goo.gl/fDHdFf4sA44AjBWA9
Which distilleries? Glendronach by any chance?
Nope. Benriach and glenallachie today. I dont remember why i decided against glendronach. I wantwd glenfarclas but they did not have the tastings i wanted on the day i could be there
I eagerly await your write-up for the site.
I need to get around the writeup about Buffalo Trace Distillery too
I don’t know what to think when reality has proven that so wrong. Is it just hindsight? Or was it always obvious even to those of us who aren’t big-brain economist types? It comes across as something dopey I probably believed in my college years before I entered the real world.
Interesting. I haven’t read that but as a huge fan of her biggest hit – and its sensible approach to things like “affordable housing” that her soi-disant fans could learn a thing or two from instead of completely ignoring – maybe I should.
The title was always a turn-off. 🙂
Or was it always obvious even to those of us who aren’t big-brain economist types – there are many past authors writing about inefficiency of government bureacracy i would say
It can’t be completely hindsight. After all, the businessmen interviewed in the Vampire Economy complained all day long about it…
I’m inclined to believe that it’s also due to his status as an academic. I know JI mentioned he played in the stock market, but that’s probably nowhere near the same as actually dealing with the bureaucracy in a value-adding type of business (not sure of the word. Maybe just industry? Ones that involve physical processes that require a non-trivial amount of capital goods).
And frankly, if his analysis managed to miss just how inefficient government bureaucracy is and how terrible it can be for us milk cattle by the late 30’s, then is his analysis worth bothering with?
Part of it, maybe most, I think can be attributed to his European upbringing. They simply had/have a different cultural viewpoint. It may be the same reason that Mises refused to see business bureaucracy.
Sure, part. I’m just saying it’s one heck of a blind spot considering other Europeans could easily see it at the time.
Not sure what to think about Mises’ blind spot.
I wish I had the attention span and IQ to do this justice. Thanks, JI!
Capitalism/socialism are distributive means. Democracy, on the other hand is political by nature and always leads to socialism or worse.
Enjoyed your dissertation, JI, sometimes a little tough for me to wrap my head around some of the concepts.
The ride is going to get bumpy, I’m afraid, and lead us astray.
Government bureaucrats are imbued with angelic selflessness. That’s why government is so efficient.
https://www.youtube.com/watch?v=Wqc5O-fZS-c
I can understand why they believed it inevitable that socialism would follow capitalism. For over a century, governments have been trying to prevent the worst abuses of the free-market. Trust-busting, anti-monopoly rules, bank regulations, etc.
“I can understand why they believed it inevitable that socialism would follow capitalism”
Caused by political democracy, we see Joe/Trump out promising the other with a total disregard of the deficit. Superlatives for the win!
I think the idea of a “well-designed” system is also a big part. The blossoming of scientific thought, a true hallmark of the Enlightenment, leads to belief in systems, vice organic traditions. Socialism is the attempt to systematize society. Capitalism particularly as laid out by Smith can hardly be called a system.
Fascism seemed more logical on the national scale. War obviously ended that experiment in Italy and Germany. Probably not as hardcore in Spain, where it seems to have just faded away into the typical Euro liberal socialism.
Well, Capitalism isn’t a system. It is the name given for the ecology of money.
What scares people is that capitalism, when allowed to run on its own, is red in tooth and claw, and will fuck and kill anything in its path. And that, rightfully, scares the hell out of people. So, of course they are going to put together a system to, at best, curb its excesses, and at worst destroy everything that makes it work for people. Like the clean up from the Exxon Valdez, leaving the world sterile.
Typical liberal socialism, from what I can tell, IS fascism economically. So there it is.
Honestly, I don’t really see why it’s more logical. It’s just the same collectivist garbage on a smaller scale with better clothes.
Not necessarily more logical, but more consistent with the deep values.
“Though easily forgotten, Marx was a late-comer to socialism”
I am ashamed to say that I don’t remember the author’s name but some years back at TOS one of their writers penned a bit about Fredrick Douglass (coincidentally born the same year as Karl Marx) that included the ideas of some of Douglas’ contemporary nemeses. They were hard-core socialists, of course and just as tone-deaf as the ones today. They did not succeed at that time because their core complaint was that slavery was restricted to race and not universal. They were agitating for a rule of philosopher kings. Today their spokesman appears to be ‘ol Klaus Von Evil “You will own nothing and be happy”.
I also remember a political cartoon from…17th century?….showing a rich man peering into the window of a hovel where a morbidly obese, lackadaisical family were demanding more welfare. The rich man’s pockets are turned inside out, empty.
We are now what we have always been – herd animals where the herd is led by a few strong/brave/smart individuals and the bulk wait to be told what to do and expect manna from heaven in return. This seems to be a core part of our nature…yes, socialism or some equivalent mentality has always been with us. I would say the chances of shedding it approaches zero.
Marx at least recognized that his perfect system had to be tightly contained. Limited immigration and tightly controlled foreign trade, or else it wouldn’t work.
Today’s open border leftists are idiots or ideologues on a Cloward–Piven suicide run.
They don’t care about anything working; all that matters to them is the incessant masturbatory satisfaction.
https://www.telegraph.co.uk/us/politics/2024/07/02/trump-sentencing-delayed-after-landmark-immunity-ruling/
Prosecutors accept Trump’s call to delay sentencing after immunity ruling
Former president’s legal team says Supreme Court ruling undermines trial convictions
They got their headline — convicted felon — which is all they needed anyway.
Joshua Steinglass, one of the assistant district attorneys who tried the case against the former president, wrote: “Although we believe defendant’s arguments to be without merit, we do not oppose his request for leave to file and his putative request to adjourn sentencing pending determination of his motion.”
Huh…I thought after the other cases are pretty much done they’d had gone for the throat next week. Color me actually surprised.
They thought that this would make Trump look bad in peoples eyes. It didn’t, and in fact had the opposite effect.
If they are smart, they are running away and down playing this. But, alas, the TDS brigades think it is the best thing ever.
The sentencing was going to be a trap for them anyway. Lock him up with his lifetime SS protection? Sure, no problems with that, never mind the backlash from the substantial fraction of the country that thinks it was a setup from the jump. Let him walk – yeah, that’ll fly with the lefties.
reliant on Judeo-Christian values since the actual model of governance was derived from pagan Greece and Rome
Doesn’t this, as an argument against the proposition, imply (require?) that Judeo-Christian values sprung up fully formed independent of ‘pagan’ Greek/Roman roots? In other words, democracy might still require Judeo-Christian values even if democracies origins were in pagan Greek and Roman value structures, it’s just that Judeo-Christian values inherited/integrated those same values into its structure.
And of course depending on what means by ‘democracy’. Using it has a short-hand for the individual has some interest and authority in his own governance, I’m inclined to think it does benefit (if not ‘need’) a Judeo-Christian underpinning, or at least a system that contains the same value structures that Judeo-Christian thought integrated into its system – the spark of the divine in man – that embody the idea that the individual has some sovereignty independent of the state/society.
You can get some very interesting arguments about the Hellenization of Judaism. There is no argument that Christianity is deeply Hellenic. None of that pertains to Roman republicanism. The fusion of Roman law and early Christian values is what guided the early Medieval. Modern republican thought is built on the pagan Roman model. The problem is it is also built on the Protestant derived notion of equality.
Christianity was built of the same bricks stacked in a slightly different order as the greek and roman pagans and judaism. They were simply painted a different color and…voila! New religion same as the old religion (albeit the concept of redemption was used as the foundation).
The problem with abatement is that ruling elites would stagnate the economy to close off innovation (since innovation is the engine that is creating and thus displacing/destroying what exists) as a self-preservation strategy. That might offer a short-term solution, but the longer-term price would be destroying their own wealth.
I cannot help thinking the collapse of “society” under its own weight is well underway.
See Theory of inventive problem solving: Ask Genrich Altshuller what happens to innovators who can solve problems.
*Stalin and co. could see right away that TRIZ would allow their enemies to be more powerful…simple as that. Innovation and problem solving must be smothered.
https://www.timesofisrael.com/report-says-idf-brass-backing-truce-even-if-it-leaves-hamas-in-power-pm-wont-happen/
Seems like the Israeli brass isn’t happy with Netanyahu. Probably not so much with the Gaza campaign as his plans to invade Lebanon. Trying to take out Hezbollah would be very risky.
Let’s wait and see what happens when we have a shiny new president and what their stance is on this. I would say the existence of Israel may hang in the balance.
Great piece JI! This is excellent work.
Thanks. My interest and strength has always been in synthesis of disparate sources. This has been fun.
capitalism, when allowed to run on its own, is red in tooth and claw
In my usual careless and haphazard way, I will blame ’80s business school “management theory” for much of this.
Capitalism does not necessarily require the winners to kill and eat the losers.
When does capitalism become conquest? Is economic conquest actually capitalism?
The market is amoral, the question is what social mechanism and values govern that. This is a big reason the export of our capitalism tends to fail, it doesn’t work with different values.
That is what I mean by “allowed to run on its own.” And it does work in export, see China, Japan, etc. They are both examples of it being reined in by various means, but it does work. “Red in tooth and claw” merely refers to the fact that money does not care about your retirement, your lame leg, you child. You might care about those things, but a market does not. Like water, it runs to the lowest point.
And the market industrialists of the 18th century, such as the railroad owners, did not spend a second in “’80s business school”.
This, exactly.
Also, I take issue with the word ‘capitalism’. It is a bit nebulous, meant to conjure in the mind Marxist parodies of free markets.
Also, I take issue with the word ‘capitalism’.
This. This is why I usually talk in terms of “private property ownership and freedom of association”. This particular corporatist system we live in isn’t all that great at those two principles. There are certainly worse systems, but there are better ones, as well.
Confucius say, “The beginning of wisdom is to call a thing by it’s right name.”
EvilSheldon: Unashamedly calling things what they are is a bit hazardous, not very lucrative and will not win you any popularity contests.
“Let the good work go on. We must ever remember we are refining oil for the poor man and he must have it cheap and good.” “Hope we can continue to hold out with the best illuminator in the world at the lowest price.”
-John Rockefeller
The best at the lowest price. Rockefeller drove the price of oil from 58cents bbl to 8cents bbl. People everywhere we able to light their homes at 1cent per hour.
Also, he saved the whales.
I prefer the term ‘captain of industry’ to ‘robber barron’.
Fun fact “Robber Baron” was originally a term for minor nobles along the Rhine who literally robbed shipping as it went past.
It was propaganda to ever apply it to a businessman without the same jackboot.
Is there an official glibertarian view on Tom Holland’s claim that enlightement, humanism, liberalisam, socialism are all rooted in christianity and are basically christian heresies?
That’s a badly formed Nietzschean argument. State it as Christian values and the loss of meaning as they drift from the divine to the secular and you are closer.
I don’t think I’d be listening to the kid who played Spider-Man’s views on politics or religion.
You should not dismiss a man just because he banged Zendaya
Server error blocked my link/comment.
NPR is concerned by rising numbers of young (18-30) people opting for surgical sterilization in wake of Dobbs. Of course, their poster child is a hobnail boot lesbian.
Am I supposed to be overcome with remorse that people are removing themselves from the gene cesspool of their own volition?
Sterilization from gender transition: Good
Sterilization as birth control: Bad
How many Nigerians are sterilizing themselves? How many Guatemalans?
I’m all for folks doing what they need to do to avoid unwanted pregnancies. I just don’t want to hear it when they get baby fever 8 years later.
…nor do I want to hear about my obligation to pay for other people’s life choices.
Just steal a baby like a normal person
do I want to hear about my obligation to pay for other people’s life choices – it is your fundamental responsibility to contribute to the Pie needs whisky fund
PieInTheSky:
And be basic like the Romani?
No, you’re supposed to be consumed with anxiety about this and everything else.
Well, if they are sterilized, how will they celebrate the sacrament of abortion?
Sterilization is the ultimate abortion. It is a thousand abortions at once. It’s the abort-ularity.
The Urbort?
Ick at both of you.
Even with that increase, women are still getting sterilized much more often than men. Vasectomies have leveled off at the new higher rate, while tubal ligations still appear to be increasing.
No way. It’s inexplicable.
Link, maybe
So you’re saying women should be forced to give birth?
You are saying they shouldn’t be?
Just like you can never reach peak FL Man you can never reach peak Ford. Is this proof that capitalism doesn’t work?
Why 2023 Ford Broncos Came With Non-Functional ‘Dummy’ Subwoofers And Amps
These things aren’t foam pieces or black plastic block offs. They are wired cased amplifier modules with wires to and from an no components within. Bonus for the magnet free woofer!
The assumption is they wanted zero change to the line, but this seems crazy expensive and wasteful.
“…proof that capitalism doesnt work..” invariably refers to entities that depart from free market principles, in this case fraud.
No fraud. Covid supply chains. Ford notified buyers and gave them a $250 credit on ordered vehicles.
I imagine Ford corporate bureaucracy is as bad as the FedGov’s. See: Gaza pier and subsidized EV charging stations.
“Ford reasonably figured it could cut the subwoofer without unduly harming sound output.”
*shakes head in disgust* I mean, I’m more than half deaf, and I know that’s bullshit.
Are you a beancounter?
Hey, at least it’s not a monthly subscription fee to access the subwoofers.
And the market industrialists of the 18th century, such as the railroad owners, did not spend a second in “’80s business school”.
And not all 19th century “robber barons” were responsible for the Johnstown Flood.
So you’re saying women should be forced to give birth?
No. Just the ones with exceptional genes; thoroughbred blondes.
I don’t understand the fixation with blondes.
No kidding. What are redheads, chopped liver?
More like soulless
which would make them something like houris, with non-perpetual virginity.
It must be very frustrating that the hard core lefties are sterilizing themselves while the deplorables just keep on having kids.
I don’t understand the fixation with blondes.
You don’t have to.
Variety is the spice of life.
A blonde, a redhead, and a brunette walk into a bar. Dear Penthouse I never thought this would happen to me….,
A blonde, a brunette, and a redhead . . . .
https://www.youtube.com/watch?v=cL3XhQjfXfc
Correct.
Besides, brunettes are far superior anyway.
**narrows gaze**
The assumption is they wanted zero change to the line, but this seems crazy expensive and wasteful.
You don’t want chaos on the assembly line. You can’t expect UAW members to deviate from established procedures.
A blonde, a brunette, and a redhead . . . .
I’ll take the one in the turban…
Which of course applies directly to the UAW, and not a great comedy film.
What’s this, not an “SF”… is it a Brooks to on a Brooks? Meta.
Bureaucracy is often a horrible byproduct of time; whether it is corporate or government. The last place I worked had VPs with only one person reporting to them. And on top of that the HR department was much larger than it needed to be, especially with DEI included. Someone has to run those horrible classes that no one wants to go to.
Government, however, has a much stronger boot. You can leave the company if it gets unbearable but you can’t (easily) leave government. Especially these days where people like my brother, who has Canadian citizenship, also pays taxes in the US. For what reason? Don’t know other than east of entering/leaving the country.
Bureaucracy is an inevitable, even essential, feature of organizations above a fairly small size. At some point, you need a hierarchy, a chain of command, somebody in charge. Also, division of labor and expertise requires coordination. To believe otherwise is to fall into the most puerile form of communism.
These lead to some kind of an org chart, and bingo bango, you have a bureaucracy.
Which of course becomes self-interested in the protection and expansion of the bureaucracy itself, as a natural extension of the self-interest of the bureaucrats. Who are, like it or not, essential to the functioning of the organization.
All the more incentive to starve the beast.
Something something servant, something something master.
Karine J-P is assuring the press corps that Joe just had a bad night, for no reason she can specify, but he is undoubtedly the sharpest mind in the White House since Thomas Jefferson.
And like Jefferson, is hiding an unwanted love child
The official line is it was a cold. But he took no meds before or after, did not consult a doctor, and went on to other meetings and fundraisers.
It will be fun to hear her tell in the (near?) future how she was coerced at gunpoint to say such stupid things.
It’ll be in her tell all book.
I saw at least one story that clarified that Biden was tested for COVID, and came up negative.
So he’s raring for a rematch, I suppose.
Trump should say, hey, anyone can have an off day. Let’s do this again in a couple weeks.
Thanks, JI. I should probably read the book, but I appreciate you doing the heavy lifting.