Can the Dead (Capitalism) Be Brought Back to Life?

I pose this question seriously, not as a physiologist, but as an economic historian. I am provoked to raise the question by an advertisement that Amazon sent me recently, calling my attention a book titled Can Capitalism Survive? Creative Destruction and the Future of the Global Economy. Seeing this sales pitch, my immediate reaction was my usual sadly amused reply to such a question: Can capitalism survive? What an odd question! Assuming that capitalism ever existed at all, it has been dead for at least a century.

At first glance, I did not recognize that the book being advertised is one for which, in a sense, I am responsible. It turns out that the “new” book is only an old (portion of a) book, now adorned by a new subtitle and two new introductory paragraphs by the Newsweek columnist Robert J. Samuelson. If I reveal that the book’s author is Joseph A. Schumpeter, many readers will recognize it immediately as Part II of that famous economist’s best-known work Capitalism, Socialism and Democracy, first published in 1942, with subsequent editions in 1947 and 1950.

The new book’s front cover has a blurb from Fortune that declares Schumpeter to have been “the most influential economist of the twentieth century . . . a major prophet.” The back cover has an embarrassingly superficial blurb by publisher Steve Forbes that, among other things, describes Schumpeter as “the twentieth century’s foremost economist.”

I do not consider Schumpeter entitled to be called the most influential economist of the past century―that distinction unfortunately belongs to John Maynard Keynes, and Milton Friedman surely deserves the second place. As for Schumpeter’s rank as a prophet or as the intellectually foremost economist, I would place him below Ludwig von Mises and F. A. Hayek.

Nevertheless, Schumpeter was unquestionably one of the most important economists of his day, and his work has continued for good reason to attract readers ever since his death in 1950. His analysis of the historical dynamics of classic capitalism, which makes up Part II of Capitalism, Socialism, and Democracy, though contestable on various grounds, may be, all in all, the best ever written, and it certainly remains among the most thought-provoking. (My own thoughts on Schumpeter’s analysis appear briefly in my book Crisis and Leviathan, pp. 239-44.)

In the mid-1970s, having read Capitalism, Socialism and Democracy repeatedly and having used it to good effect in my teaching, I sent a proposal to Harper & Row, the publisher. I proposed that Part II of the book be published as a separate work with an introduction by me. I asked for a reasonable royalty on sales of this proposed book. Harper & Row declined my offer. The publisher liked the idea of a stand-alone publication of Part II, with my introduction, but did not want to pay me a royalty. Not long afterward, in 1978, I was surprised to find in the bookstores the very volume I had proposed, with an introduction by Robert Lekachman, who evidently had been willing to work for less than I when he was approached by the publisher. Somewhat pushed out of shape by this pilfering of my idea, I wrote a letter to Harper & Row to let their managers know how unprofessional, at best, I considered their action to be. As I recall―although my memory is foggy in this regard―Harper then sent me a nominal “finder’s fee.”

(This episode, by the way, was but one of many that led me to propound Higgs’s Law of Publishing, which states: All publishers strive to maximize losses, but by virtue of sheer stupidity, some of them screw up so royally that they earn enough income to remain in business.)

Returning from the foregoing personal digression, what are we to make of the idea that capitalism might survive, indeed, of the idea that it has survived to date, when in fact it has scarcely ever existed and, even when prevailing economic conditions and institutions verged most closely on the capitalist model, sometime between the 1830s and World War I in the United States, they suffered a variety of government interventions and distortions that made the prevailing economic order, like nearly all such orders in reality, a form of “mixed economy”?

My friend Sheldon Richman has been on something of a crusade recently against the defense of capitalism by those who favor a free society, which of course includes a free-market economy. He prefers that defenders of freedom avoid the defense of something called capitalism because, first, the term derives in large part from enemies of the free society, such as the Marxists, and, second, because it has always served and continues to serve the enemies of a free society as a perennial object of misplaced responsibility, a (nonexistent) malefactor to be blamed for every economic problem the government’s countless interventions bring about.

Thus, most recently, by undertaking a series of decisive interventions stretching from the Fed‘s mismanagement of monetary policy, to Fannie and Freddie’s subsidies of unqualified home buyers, to the self-serving idiocies of Barney Frank, Chris Dodd, and Co., among other ill-fated actions, the government created the complex of interrelated disasters that includes the housing boom and bust, the financial debacle of 2008, and the economic recession since 2007. And who’s to blame? That’s right: capitalism. Which must then be “reformed” by mountains of additional government interventions laid atop the previously existing mountain, leaving, of course, Barney and Chris sitting pretty as the reformers, and the key troublemakers―the Fed, Fannie, and Freddie―smelling like roses, with the Fed being given even more power, and Fannie and Freddie being fed a diet of hundreds of billions of dollars in ongoing taxpayer-funded bailouts to continue doing the damage they do.

Perhaps, if we all frankly admitted that capitalism has been as dead as a dodo since 1914, if not even longer, then such factually absurd, ideologically inspired, politically tactical blame-casting would be precluded. It would make no more sense than blaming our economic troubles on the divine right of absolute monarchs, centuries after that doctrine has been abandoned. Perhaps.

So far, however, I have refrained from coming completely onboard Richman’s crusade ship. For many proponents of the free society, capitalism has always signified the ideal of the free-market society more than it has referred to any of its deeply compromised and distorted instantiations that have occurred historically. These people are understandably reluctant to give up still another cherished shibboleth to their enemies, as they previously surrendered their most positive and important ideological identity as liberals. So, even though I rarely use the term capitalism, and I strive to make as clear as I can the difference between the ideal free society (which I defend) and the realities of any existing or previously existing society (which I only study), for now, I decline to condemn those who continue to defend capitalism. They may be making a rhetorical mistake, as Richman insists, yet their hearts are in the right place. It will be easier to straighten out people’s rhetoric in due course than to bring about the change of heart that so many misguided people must experience, if even a shred of freedom is to be preserved.