1.
The “Roman holiday” reason for choosing to lead
off the discussion.
2.
The genesis of the title. Schumpeter’s interpretation:
“mechanisms and long-run tendencies of capitalist development.” This is just
what I meant and I think makes unnecessary any methodological or philosophical
discussion of the meaning of “laws.”
3.
In the first place, he and I will probably find
wide areas of agreement. Let me quote a passage from his latest book with which
I entirely agree:
Capitalism … is by nature a form or method of economic
change and not only never is but never can be stationary. And this evolutionary
character of the capitalist process is not merely due to the fact that economic
life goes on in a social and natural environment which changes and by its
change alters the data of economic action; this fact is important and these
changes (wars, revolutions and so on) often condition industrial change, but
they are not its prime movers. Nor is this evolutionary character due to a
quasi-automatic increase in population and capital or the vagaries of monetary
systems of which exactly the same thing holds true.
4.
But there is an important disagreement about
what sets this process in motion. Schumpeter’s theory, as I understand it, is
that the motor force comes from the “entrepreneur.” (iv) The entrepreneur is an
innovator, a recognizable sociological type (“leader” type) which comes from
all strata of society. The type presumably exists in other societies, but it is
only in capitalism that its representatives predominantly devote themselves to
the economic sphere.
5.
It is probably not usually realized how crucial
the entrepreneur is to Schumpeter’s conception of the capitalist process. Take
him away and you have the “circular flow” from which there is absent not only
innovation but also many of the other most characteristic features of the
system. For example, profits and interest and hence savings and investment—i.e.
the most important forms of capitalist income and the typical manner of its
disposal. These are derived from the activity of the entrepreneur. In addition
of course, it is more generally realized that the business cycle has such an
origin in Schumpeter’s theory.
6.
Contrast to this the Marxian standpoint. Profit
has its origin in the institutional structure of the economy. This in turn
shapes the behavior of capitalists. Illustrate with the formula M-C-M′. The
drive for profits implies accumulation and innovation. There is no reason to
deny the existence of Schumpeter’s entrepreneurial type, but its significance
is quite differently evaluated. For him the entrepreneur occupies the center of
the stage; the accumulation process is derivative. For me the accumulation
process is primary; the entrepreneur falls in with it and plays a part in it
7.
Let me go on to point out some of the
consequences of these two approaches for cycle theory. Schumpeter’s theory of
clustering and absorption of innovations is familiar to you. Generally
speaking, it denies—or at least strongly discounts—what may be called
savings-and-investment troubles. These are, so to speak, created by
entrepreneurs; they are incidental to the innovation process. In principle, the
economy adapts itself to the activity of entrepreneurs. They can force a high
rate of saving and investment. But if they don’t, the economy will be content
with a high level of consumption. In the long-run there is simply no problem
here; the economy is fundamentally self-adjusting.
8.
If, on the other hand, accumulation is the
primary factor, this is no longer so. There is no mechanism in the system for
adjusting investment opportunities to the way capitalists want to accumulate and
no reason to suppose that if investment opportunities are inadequate
capitalists will turn to consumption—quite the contrary. Hence, on this view,
savings-and-investment troubles are endemic to the capitalist system.
9.
This implies a very different view of the cycle
problems. I don’t intend to go into the question, but I will say I can’t see
why it is considered so important to have a uniform cycle theory. I believe
there are several reasons why a boom can break down, and it is easy to explain
why a depression should be followed by a revival. I would be glad to hear some
discussion of this view which may even be considered heretical from a Marxist
standpoint.
10.
Finally, one more point, though I have probably
started already enough hares for us to chase all evening. Already in the
“Instability of Capitalism,” Schumpeter took the position that the
trustification of capitalism was radically altering the nature of the
entrepreneur and his traditional role in the direction of rationalizing and
routinizing and institutionalizing it. This should lead to greater stability.
The same view of what is happening to entrepreneurship is expressed even more
strongly in Capitalism, Socialism, and
Democracy. But I submit that capitalism has not shown any signs of becoming
more stable. What has Professor Schumpeter to say about this problem now? Does
he regard the theory I have attributed to him as no longer applicable? If so,
what takes its place? If not, how account for the apparent discrepancy between
the expectation to which it gives rise and the observed facts?
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