chapter  3
7 Pages

Schumpeter’s View of Capitalist Dynamism and Decline

Schumpeter’s theory of capitalism has evident affinities on one side with Marx’s ideas (and with some later Marxist views, notably those of the Austro-Marxists) and on the other side with those of Max Weber. Its distinctive feature, however, is Schumpeter’s emphasis upon the role of the entrepreneur as the principal agent of capitalist development. In The Theory of Economic Development (1911, revised edition 1926) he conceives development or change as resulting from ‘new combinations’ of materials and forces in the sphere of production, a process which has three aspects. First, these new combinations ‘are, as a rule, embodied…. in new firms which generally do not arise out of the old ones but start producing beside them’, and he gives as an example that ‘in general it is not the owner of stage coaches who builds railways’. (p. 66). Second, ‘command over means of production is necessary to the carrying out of new combinations’, and this is achieved above all by the use of credit, which Schumpeter sees as ‘the characteristic method of the capitalist type of society…. for forcing the economic system into new channels’. (pp. 68-9). The third element is ‘the fundamental phenomenon of economic development’, namely, the entrepreneur or ‘captain of industry’. Schumpeter summarizes his conception in the following terms

He then goes on to give a comprehensive description of the characteristic features of this ‘special type’ of individual, the captain of industry or business leader (pp. 83-94).1 In a later work, Business Cycles (1939), Schumpeter summarized his view of capitalism as follows: ‘Capitalism is that form of private property economy in which innovations are carried out by means of borrowed money, which in general, though not by logical necessity, implies credit creation’ (Vol. 1, p. 223); and the individuals who carry out these innovations ‘we call entrepreneurs’.