Schumpeter comes to town


The melange that is contemporary ideology surely finds no clearer expression than in the odd truth that Communist China has appointed a clique of Schumpeterian capitalists to oversee the final transformation of its economy to free markets, just as the greatest bastion of American capitalism, the Federal Reserve, has ascended to a role of post-apocalyptic Keynesian triumph.

Still, both sides are closing in on precisely the same spot from opposite sides of the ring and the outcome may get bloody!

Let us define our terms, lest I be misunderstood. Joseph Schumpeter is a doyen of the Austrian school of economics and most famous for defining the notion of “creative destruction”. Purists will be horrified to learn that the term actually derives from Karl Marx but Schumpeter  adapted it to, in his mind, the capitalist engine of growth as innovation and productivity drive new capital to supplant old. Monopolies are toppled, efficiencies ruthlessly achieved, dead-wood removed and wealth expanded. Creative destruction is, above all, a business cycle theory of economic development. Take the pain and you will prosper!

A fact that contemporary Austrians tend to forget is that Schumpeter was so taken by the perpetual motion of his own idea that he saw it ultimately destroying capitalism itself as it chopped up, commoditised, sold off and consumed the very values that underpinned its rise. Judeo-Christianity, liberal democracy, even common decency, all ultimately get creatively destroyed as the entrepreneur rises to an heroic materialism right before his fall. Institute of Public Affairs take note!

That bring us to Keynes, the doyen of his own school. It was Keynes who took the simplistic models of free markets and built upon the rather obvious point that if left to their own devises markets will, inevitably, destroy themselves. It was Keynes who most popularised the notion that government should step in and stabilise the creative destruction of the business cycle from time to time, lest it devour the aggregate demand that underpinned it.

What is often forgotten is that Keynes too was a classic liberal and believed that even as government stepped in from time-to-time it should do so while preserving the moral underpinnings of capitalist individualism.

These are rude summarises of course but this is a blog post not treatise, after all!

Back to our contemporary world and where do we find ourselves within the sweep of these two broad ideas? China’s leadership is sounding very Schumpeterian right now. From the FT:

China’s premier warned on Thursday that future defaults on bonds and other financial products were “unavoidable” as the failure of a steel mill in the north of the country to pay off loans risks triggering a cascade of bad debt.

And more from Angus Grigg at the AFR:

…“We are going to declare war against our own inefficient and unsustainable model of growth and way of life,” he said on Wednesday at his annual press conference in Beijing.

…In addressing the economic challenges ahead, China’s second-ranked leader said last year’s growth rate of 7.7 per cent was achieved without using any “additional” short-term stimulus measures. “Why can’t we do this this year?” he said.

The Premier reiterated the Chinese economy would grow at “about 7.5 per cent” this year, stressing the new leadership was more concerned about employment than a fixed growth target.

Hmmm, well , there was stimulus last year even if it was planned the year before! Even so, China seems determined to inflict more creative destruction upon its economy. It has reined in corruption, centralised power around the Schumpeterian reformers, and is now spending that political capital. I still say stimulus will come (couched as more reform). Indeed, Chinese interbank rates are already very low, suddenly, and the yuan has fallen a little. But it will not be as commodity-centric as it has been in the past and the Schumpeterian  project of reform will march on.

This is a very large change for Australia. Since the West’s own Schumpeterian disintegration in 2008, when free markets blew themselves sky high, China has pursue an explicitly Keynesian program of monetary and fiscal stimulus on a scale that Keynes himself would probably have balked at. It is that reason above all others that we have sailed through the past four years so relatively well.

China’s post-GFC Keynesian moment has passed. Over the medium term that will mean considerably lower growth and commodity prices, especially in the bulks. We have seen the leading edge of this in the past month with Chinese growth falling, iron ore and copper tumbling and relative indifference among authorities.

Meanwhile, in the US, over the post-GFC period a similar Keynsian course was struck. Struggling to revive poor aggregate demand, authorities embarked upon a huge bailout of the economy. Leading that project has been the Federal Reserve, which has not only kept interest rates at zero, it has also purchased closing in on $4 trillion in US government and mortgage bonds.

Some will argue that Keynes would not agree with this policy (and they may be right) but in the broad brush-stroke funding huge government deficits during a time of weak aggregate demand in this manner can rightly be described as Keynesian.

But as in China, the US Federal Reserve is now revoking its largess. Quantitative easing is being “tapered” as it is thought that the recovery in aggregate demand now has self-sustaining strength. The fallout there has been immediate too, with housing markets slowing materially and a bad winter also denting demand in the short term.

Yet US authorities have also kept their chins up. The US Treasury has forecast the strongest growth since 2005 and the Federal Reserve shows no signs of stopping the taper.

It is over to the private sectors of both countries to put their shoulders to the grind stone and push this business cycle forward. The most dynamic 37% of global output is having its Keynesian training wheels removed.

As often happens, Australian trends are following those of our hegemons. We have ourselves just elected a Schumpeterarian government. We are embarked upon the end of the age of entitlement with fiscal austerity and creative destruction the touchstones of our new parliamentarians.

But Australia uniquely straddles the Occidental and Oriental worlds. On one hand, we live off the income generated by exports to China. On the other, we leverage those gains up using the magic of US-style financial capitalism. The first is going to fall, the second is going to get more expensive.

Given the Schumpeterarian shift in our two great and powerful friends, one wonders how far behind Keynes can be for us.


44 Responses to “ “Schumpeter comes to town”

  1. Janet says:

    I’d rather hoped for a bit of early Keatingism rather than Keynesism for you. But I’m sure many would disagree.

    • coastybloke says:

      “Since the West’s own Schumpeterian disintegration in 2008, when free markets blew themselves sky high”

      ‘Free markets’? You have to be kidding. There has never been an economy operating as a free market because bone-headed politicians, central bankers, and bureaucrats keep sticking their noses in, and with the aid of their super-inflated egos, think they can do a better job than allowing markets to determine their own course. And despite the fact that they only make things worse they continue to keep trying……..and that’s the definition of insanity.

  2. PhilBest says:

    I’ve read Schumpeter’s “Capitalism, Socialism and Democracy” three times. It is incredibly insightful, and really should be 3 or 4 separate books, each of which should be famous for a different insight. Creative destruction is one of them.

    H&H; you are right; the trend of “capitalism” to evolve towards a state ripe for nationalisation is another Schumpeter insight. As you put it so quotably:

    “….. fact that contemporary Austrians tend to forget is that Schumpeter was so taken by the perpetual motion of his own idea that he saw it ultimately destroying capitalism itself as it chopped up, commoditised, sold off and consumed the very values that underpinned its rise. Judeo-Christianity, liberal democracy, even common decency, all ultimately get creatively destroyed as the entrepreneur rises to an heroic materialism right before his fall……”

    I agree too that people forget Keynes was a classical liberal. I have always had nothing but scorn for the idea that Keynes meant a State that already was 45% of the economy, could “stimulate” it by growing to 50%+ of the economy. He was talking specifically about growing the State to 25%-30% in tough times AND shrinking it back to 20%-25% in the good times.

    • Jake89 says:

      Phil do you have any thoughts on where Schumpeter sits in the Austrian school, ie how the mainstream Austrians currently view/have viewed his contributions?

      • Frederic Bastiat says:

        Hey Jake – this is not a bad article on the place of Schumpter within the Austrian school

        On a side note, but related to this article…I think a terrific example of creative destruction at work is what has happened to Mt Gox….this example also combines notions of Taleb’s recent work on antifragility, in his recnet book Antifragile.

        Mt Gox has been allowed to go bankrupt…just like the TBTF banks in US should have been allowed.

        The Bitcoin community will evolve to become stronger now that the player that didnt have the reserves neccesary have gone bust. The void will be filled by better exchanges.

        This is creative destruction at work…clear as day and in all its beauty.

        The fact that Schumpter was not the Austrian pin up boy like mises or rothbard doesnt make his insight any less important or any less relevant to the Austrian School. Its not as if everyone int he Keynsian school agrees with every thing Keynes wrote.

        Although HnH, I do love the contrast you have shown…the Chinese embracing Schumpter’s ideas and the US Fed embracing price controls and money printing….what a FUBAR’d world we live in!

  3. PhilBest says:

    Regarding where China is headed; I suspect there is a deliberate ploy long planned, where there will be defaults and investors will lose their shirts. There will be no bailouts. Think “Iceland” on a HUGE scale.

    If I am right, I kind of admire the CCP geniuses who thought it up.

    A huge difference between the Chinese bubble and everyone else’s bubble, is that the massive capital gains in urban land that have accompanied their speculative frenzy, have largely been captured BY GOVERNMENT in the form of land sales revenue. This has enabled far lower tax levels for years. Think of investors money that will be lost when the crash comes, as de facto taxation payments, and you will start to grasp how clever the CCP has been.

    Corruption has been a major perverse by-product though; you can’t systematically create “economic rent” by gaming urban land supply, without anyone in certain positions trying to grab a slice of the action for themselves. But is China any different to Australia or any other land-rent-plagued country, in this regard? We just sanitise the process as legitimate “property rights” and so on. At least in China most of the gain is falling to government, almost like a 100% capital gains tax; and a few officials grab some of this for themselves. Here, the gains are almost all going to private actors in the first place and it is the government trying to capture a share of it.

    • Pfh007 says:


    • Gunnamatta says:

      I’ve actually had broadly the same view put to me by a Chinese guy I know well….That the government will drive the default process because it has captured be benefit of the economic activity and has nothing inherently to gain from propping it up – except public perception. It was actually put to me as a key factor in driving those Chinese who can to speculate/buy Australian RE, in the context of it being a reasonably widespread view in China.

    • Hunson Abadeer says:

      This is a great perspective that I had not heard before. It certainly makes a lot of sense.

    • davel says:

      But how does this sit with the fact that local govts in China have leveraged massively on the collateral value of their land, in order to build more stuff that then theoretically supports the value of that land (with the main goal of pumping their GDP)? Will this not become a cascading default?

      The central govt may be OK with this but the local govts are also part of the CCP.

      • Pfh007 says:

        Once you have wasted resources by making poor investments the only issue is whether you acknowledge that and write them down.

        Nothing can change the poor investment into a good investment. Pretending otherwise is a recipe for drawn out misery and under performance. The dead hand of bad investments strangles future potential.

        The main obstacle to writing off the bad investments, for most economies, is that the process of writing them down is extremely unpleasant for the private banking sector.

        If the government owns the banking sector (or is prepared to ‘own’) and has control of the currency and has an activist mindset towards managing the process of liquidating the accounting entries recording the poor investments (i.e a welfare safety net), then fixing the problem is doable.

        China has the capacity and just might have the will.

        More importantly it doesn’t have a private banking system prepared to throw everyone else under the bus to secure its position.

    • davel says:

      PfH007 – but is the central govt prepared to throw all the local govt officials under the bus because they’ve decided its reckoning time?

      • PhilBest says:

        The corruption by local officials will never have been anything but a nuisance to be stamped out, as far as the CCP major power players are concerned.

        The endless leveraging into further infrastructure and construction makes sense because there was still half the Chinese population needing decent “formal” housing. Hugh Pavletich suspects they might nearly have built enough now to actually house everyone (of course a lot of it is empty right now).

        Yes, there will be cascading defaults – Pfh007 has it right – those who suffer the pain of their investments being wiped out will find themselves up against a wall being pumped full of bullets if they get too stroppy on the general subject of the government (future taxpayers and earners) owing them a bailout. This will make a major difference between them and the West, regarding the ongoing impact of the crash.

        Iceland just let everything “reset to zero” and they appear to not be doing too bad a few years down the track. China has the advantage that resetting to zero, including property prices resetting to near zero, will get everyone housed, and everyone sadder and wiser for the next few generations regarding zero-sum asset value speculative inflation. I bet the tax structure they set up to substitute for the near-permanent end of land sales revenue will be a productivity-maximising one.

        Personally I would have advised the Chinese to go the Levittown route to getting everyone housed and economic rent minimised right from the start. But if my suspicions are right about the CCP deliberately choosing the path of maximised economic rent captured by GOVERNMENT as revenue, followed by a total “caveat emptor” on investors and a “reset to zero”, then I would quite like to know more about the white-hot genius who thought of it. As with other white-hot geniuses like George Soros, we are probably not likely to ever be let into much of the secret.

        I do wonder whether any developing nation will get away with the same ploy again. I reckon it would be worth a try. The mainstream economics profession and punditry generally around the world is so ignorant, and people such suckers for mindless spruiking. Especially, perhaps, the nuevo-middle-class in developing countries who take a lot of their cues from western sucker behaviour.

  4. Pfh007 says:

    The GFC was ‘solved’ with ‘easy options’ generated by economists who did not understand the true message of the great moderation – that there are no easy options and too much debt is dangerous.

    6 years down the track the easy options are no longer working and more economists are starting to ‘get’ the message about the great moderation.

    Of course easy options remain fish of the day for liberal democracy but will that be the case for those with a more authoritarian approach to public administration.

    Whoever is prepared to embrace the ‘hard options’ will position themselves for the next century.

    China just might have the focus to do what it takes.

    It is debatable that the US can still do that with a central bank still determined to strive for easy options and its politics mired in the cynicism of careerists, but it remains the pick of the liberal democratic crop.

    One advantage of the infatuation our pollies have for Washington is that if the yanks do pursue some hard options, we will imitate them (in a milder less brutal form) without too much hesitation.

    Ironically, it is the Europeans who with the most experience are least likely to learn from it.

    • KeenEyeKen says:

      I find that regardless of which transition you chose those who suffer the most are those who are least responsible for causing the problems. Namely, young people.

      In Southern Europe, we see shockingly high youth unemployment as a means to bring down real wages (while those who caused the problems still have sticky pre-GFC wages, with bonuses)… The USA, we see equities reach record levels. Benefits flow to a select few (again, largely those who are to blame for causing the mess), while the median is left to wallow..

      I dont know what the end game is, but if previous economic events are anything to learn from the next 5-10 years are not going to be fun. Arab Springs, Ukraine, Venezuela.. etc.

      I’m yet to see compelling reasons why our youth shouldn’t riot. They’re getting screwed, every which way you turn

      • Pfh007 says:


        By ‘hard options’ I am referring to taking a stick to the teflon coated banking sector. The ‘easy options’ are those ones that kept the banks happy but did not resolve the mess created by the banks in the first place.

        Those ‘hard options’, are in my view likely to result in fewer ‘hard outcomes’ for the groups you are referring to.

        I agree – Non violent civil disturbances are likely to be only way to get the point across.

      • PhilBest says:

        Pfh007, you and I are absolutely on the same page. The Chinese approach, if it is doing what we suspect it is, will actually be doing a massive favour to the currently “unhoused” and to future generations of young. They will get affordable decent dwellings and will not be on the hook for their entire taxpaying life, for the cost of bailing out the financiers this time round (let alone the next time and the time after, etc etc).

        And even the “unhoused” in China, mostly own a rural dwelling and/or live in something “informal” – which are not fallbacks that the West’s young have.

        My favourite proposed civil disobedience would be a well-co-ordinated “informal settlement” with plenty of participants, that would be too big to send the cops and bulldozers in to. This is how it works in third world countries where the bottom half of the population can’t afford formal housing. They do mostly actually buy a large site legally through an agent who specialises in such things; then move onto it overnight en mass with rudimentary building materials to enable them to stay there and stay dry. Then a long slow process of site and dwelling “improvements” begins. Yes, even drainage, sewerage, utilities, etc. There is an entire “black market” civil contracting sector in some cities.

        Many of the resulting slums are ultimately more pleasant to live in than the disgraceful concrete-cell tenements that are the “formal” market’s offering to those at the bottom end. Motorcycles are now the main means of enabling “sprawling” slums of reduced density, on greenfields. Their transport mode share is 70-80% in some cities. Check out YouTube vids for traffic in Ho Chi Minh city, for example.

        Another interesting phenomenon I have read accounts of, is the well-dressed workers emerging from many of these slums, heading off to an office job in suit and briefcase, on a motorbike. You can be “middle class” income and still unable to afford better accommodation out in the “formal” housing market, than what you have in the “slum”.

        As urban land rent in first world countries reverts to Victorian-era pre-automobile levels, thanks to “save the planet” urban planning, we really need a reversion back to the “informal housing” solution of pre-automobile society.

    • RobW says:

      I agree there are no simple solutions to too much debt, but what if growing debt and debt fuelled asset inflation is the only way we can grow consumer economies, especially those that are producing and exporting less and less and have lost so many jobs to developing economies? Maybe the current economic paradigm is just broken, and we’re all in denial? I guess time will tell..

  5. migtronix says:

    Great piece and I like the expose of the economic schools but I deny that left to themselves markets blow up. Case in point :

    A self regulated market that just keeps coming back despite intervention of the “state” to meddle in its affairs.

    • RobW says:

      Like I was saying yesterday, markets and economies have been spectacularly booming and busting for centuries, both with and without government help. Yes markets tend to bounce back eventually, but not necessarily before social and political instability.

      The sad fact is there are no prefect human systems or institutions. Humans are far from perfect or rational and our markets, governments and institutions merely reflect that reality. I say pick your poison, or combination of poisons, but expect it to eventually implode.

    • migtronix says:

      MPS are seriously dodgy characters. Cheers skip.

    • skippy says:

      Have a rather long comment stuck in the filter it seems, so I just chucked that link in till it clears and offer one more.

      Skippy… suffice to say… Austrian sociopolitical theory is a quasi religious philosophy built on synthetic a priori and redundant reductionist axioms plucked out of thin air. Both forensic anthropology and neuroscience – psychology refute their validity.

      • PhilBest says:

        Ahem. This is really a question of rentier crony capitalism versus principled advocacy of free markets. Austrian economics is a significant challenge to what is possibly the worst rentier racket in the world today, the finance sector and its relationship with central banking.

        For an alternative view, this is quite convincing to me:

        Especially note:

        “… of the green movement’s most outrageous lies: that all the money is on the capitalist side of the argument and that green campaign groups are just cute little mom and pop operations living from hand to mouth.

        Yeah, right. When it comes to funding climate change alarmism, spending on Warmist causes outweighs that of spending on Skeptical causes by a factor of around 3,500 to 1. What applies to “climate change” will certainly apply at least as strongly to all those other green causes so beloved by philanthrophic rich people with nothing more sensible to do with their money, such as “biodiversity,” “sustainability,” and the rest…..”

        And note my comment on that article (my skepticism about “save the planet” urban planning and enviro alarmism are quite closely connected):

      • skippy says:

        Give it break Phil, the Austrian school of sociopolitical theroy is nothing more than a PR – Lobbying firm for moneyed interests and nothing more.

        skippy… they took Bernays to a whole new level.

      • PhilBest says:

        I don’t think you have a clue what Austrian economics is, and if you are defending Keynesianism and QE against the Austrians, you are just part of the contemporary problem.

      • skippy says:


        “I don’t think you have a clue what Austrian economics”

        Assumption is the mother of all f*%kups…

        You could be no more wrong if you tried Phil, From C. Munger, M. Friedman (son included), the obvious conclusions my link draws out, synthetic a priori dripping with Kantian jargon, ex nihilio axioms, Hopple fleeing it [to socialist now], to a neoliberal coven that has adapted to a almost stalinesque authority like administrative architecture, all the way back to St Augustine to PIE, the attempt at reconsidering PIE mythology and atomistic views was a badly botched job, still living the nightmare imo.

        “Now we can again return to Mises. If Kant’s project was doomed from the outset due to inflexibility what does this tell us about Mises’ project? Simple. It was complete and utter nonsense. Trying to stuff peoples’ actions and their reasons for doing various things into a tiny box of concepts is not only suffocating, it is borderline delusional. What Mises was really engaged in was the setting up of language traps that he then had people fall into. He tries to section off or limit the basis on which people can act and then purges everything else from his worldview. If an action doesn’t fit in with Mises schema it simply disappears.

        Mises’ project was quite manifestly the product of a sick mind but it can tell us something about more mainstream theories. Neoclassical microeconomic theories, for example, seek to do something similar in a slightly less inflexible and dogmatic way, as I have pointed out elsewhere. And for this reason they too are doomed to fail. Human beings are infinitely mutable and changeable. There are very, very few constants under the sun when it comes to human behavior (the incest taboo being a notable exception) and the moment any constancy or regularity is found and articulated it is likely already on the way out.”

        Skippy…. for the road –

        PS. care to revise your view point?

  6. Jono says:

    “A fact that contemporary Austrians tend to forget is that Schumpeter was so taken by the perpetual motion of his own idea that he saw it ultimately destroying capitalism itself as it chopped up, commoditised, sold off and consumed the very values that underpinned its rise. Judeo-Christianity, liberal democracy, even common decency, all ultimately get creatively destroyed as the entrepreneur rises to an heroic materialism right before his fall. Institute of Public Affairs take note!”

    Is there any source for this wild claim ?

    Some of us don’t accept the self-evident claim that markets are self-destructive. The free and voluntary exchange of goods and services does not have any instability built in to it.

    However, it is all too common for lazy commentators to confuse government created central banks operating under ponzi fractional reserve lending and fiat currency as some aspect of free markets.

    • FYI, Australia doesn’t have fractional reserve lending

      • skippy says:

        Neolilberals do enjoy flights verbosity with personalized labeling and a spray and pray style of discourse, that and fetishes.

      • migtronix says:

        @skippy I concur with Jono so count me among the ill articulate, but I posted earlier an example of a perfectly well functioning free and unfettered market, and have evidence of the markets of Champagne and Ypres functioning for hundreds of years so I fail to see how the assertion that free markets blow themselves up stands up to scrutiny.

      • Explorer says:

        So how does Australia’s credit and money system work and what are the limits to credit creation?

        How does it fit with MMT/MMR/chantalism?

        Are we a sovereign issuer of a non-convertible fiat currency in a floating exchange rate environment?

        If so, is the federal government ever revenue constrained?

        Is taxation and transfer payments merely a way to control income and wealth inequality?

      • skippy says:


        The operating environment and resulting human activity during your examples has little in common with our present, so much so, that if we could go back and attempt to duplicate their longevity, it is no longer possible due to our modern activity’s and their externalities. Hell just look at the anthro from each epoch, stone to iron, and the sociopolitical – environmental effects. Everyone keep spreading out in search of un – under utilized resources, those days are over.

        FYI I view the term Free Markets as a bit of an oxymoron, be it Gov or dominate private sector actors a market is never free. Through my readings and experience I view Austrian – neoclassical with neoliberal which in totality is just Naked Corporatism [non sovereign extra judicial agency] by any other name. This ideology along with a tightly coupled global market w/ long and fragile logistics and diminishment of common pool resources are manifesting as increasing national and geopolitical friction.

        All of this whilst the developed worlds population is fixated on a kinda myopic numerology, by which we view each other through and order our activity’s. Irrespective of the observable changes taking place on this orb.

        Longer – Shorter – Humans take low entropy resources and convert them into high entropy waste for quasi religious ideological reasons w/ increasing speed. Something that can not persist without huge ramifications.

        Skippy… personally I don’t do isms or ologys but, Toynbee put together a compelling narrative wrt our woes… methinks.

        “Civilization is a movement and not a condition, a voyage and not a harbor.” – Arnold J. Toynbee

        Then he opined

        “Of the twenty-two civilizations that have appeared in history, nineteen of them collapsed when they reached the moral state the United States is in now.”

        PS. it seems problematic i.e. describing the nature of human kind and how we should act accordance, as Con the Fruitier said…. infinity.

      • skippy says:


        Some are of the opinion that most agency can be attributed to what asset classes receive the most seignorage and why.

        As far as MMT goes taxation on a sovereign level is to imbue fiat with value and another lever to adjust the hot cold taps.

      • Rusty Penny says:

        hehe, always love that moment.

        Austrians asserting “fix fractional reserve lending, and you fix all problems”

        Then you inform them that we don’t employ fractional reserve lending.

        So in effect, they’re giving an answwer to a questin that isn’t being asked.

      • Pfh007 says:


        The difference between fractional reserve banking and zero reserve banking is only a matter of degree.

        One is bad and the other is worse.

        In zero reserve banking all that happens is that the Central Bank (aka the public) is the ‘reserve’.

        The moral hazard of that arrangement is abundantly clear.

        Oh but of course the banks are constrained by Basel and that is why no one knows for sure:

        1. What Basel in its various flavours means

        2. Whether it is actually being followed.

        Handcuffs made of heavy fog.

    • Ronin8317 says:

      Jono. Let’s be honest here : have you read Schumpeter’s work? If you didn’t, then who is the lazy one?

    • PhilBest says:

      Jono, as I said above, I have read Schumpeter’s “Capitalism, Socialism and Democracy” three times, and my abiding impression of it does not contradict what H&H said.

      I think it is one of the best books on economics that everyone should read.

      Schumpeter was really predicting and warning, not advocating. I think he is extremely relevant to our day. Of course he was condemning the tendency to cronyism that is inherent in capitalism – NOT in free markets. He saw creative destruction as a good thing, on the “free market” side of the ledger, but crony capitalism and the “bureaucratization” of capitalism as bad things.

      Of course free markets and a political culture of freedom are the antidote to Schumpeter’s gloomy prediction that Marx would turn out to be right for different reasons to what Marx himself said. Marx held that “labour” would be increasingly defrauded by “capital” and would rise up in revolt. Schumpeter said nonsense, labour will be turned into “petit-bourgeoise” and won’t be bothered with revolution. BUT the political culture of freedom would wither due to the new prosperity, apathy, and materialism’s destruction of CULTURAL institutions that once underlay broader political intelligence and vigilance.

      The drudgery of production would be ended by technology, and the “bureaucratisation” of much employment within capitalism would lead to an easy transition to State control at any moment the time was ripe.

      If you haven’t actually read the book, I recommend it, because it is so full of insights on a massive range of points. Schumpeter was a historian and a student of human nature as well as an economist – something that is sadly lacking in many economists today.

      • skippy says:

        The thing about Marx was he never saw the equity offer capitalists would use as an enticement, which now has turned into codified law via super and 401 K type of end of life funds.

      • PhilBest says:

        There is a LOT Marx never saw. He never saw the income increases from productivity gains actually filtering into real income increases for labour. He never saw the near-elimination of economic land rent and the arrival of increasing “consumer surplus” in most products. He never saw the advent of falling real economic land rent in urban land and the democratisation of ownership of decent housing. (Of course we are turning the clock back on this latter thanks to the “save the planet” urban planning economic WMD).

      • skippy says:


        Have you seen the productivity gains vs wage ratios since the 70s?

        skippy,.. the timing of this divergence coincides with a particular economic theory becoming dominate imo.

  7. Willy2 says:

    I don’t agree. What we see in China is not “Schumpeter comes to town” but it’s a Post-Keynes approach.

    I agree with these words:
    “Schumpeter saw it ultimately destroying capitalism itself as it chopped up, commoditised, sold off and consumed the very values that underpinned its rise. Judeo-Christianity, liberal democracy, even common decency, all ultimately get creatively destroyed as the entrepreneur rises to an heroic materialism right before his fall.”