Maggie's Farm

Schumpeter also rejected Smith's view of accumulation.  While accumulation acts as a driving force within Schumpeter's work, it isn't the primary force.  In fact, Schumpeter agreed with Smith that accumulation for the sake of accumulation was misguided.  Accumulation should promote progress via the process of "creative destruction" - entrepreneurialism.  Those who accumulated for no other reason than the desire to have more represented a oddity in the system.  They also represented a threat to the system which allowed them to have what they wanted.  Without a process of recirculation of profits and gains, entrepreneurial activity is choked off, and the system withers.

More importantly, it was the government which could close this spigot to growth, in Schumpeter's view.  Specifically, he viewed the intellectual elite, the people who believed they knew more than others by the very nature of their education, as a threat.

"Capitalist evolution produces a labor movement which obviously is not the creation of the intellectual group.  But it is not surprising that such an opportunity and the intellectual demiurge should find each other.  Labor never craved intellectual leadership but intellectuals invaded labor politics.  They had an important contribution to make: they verbalized the movement, supplied theories and slogans for it—class war is an excellent example—made it conscious of itself….They naturally radicalized it, eventually imparting a revolutionary bias to the most bourgeois trade-union practices….Having no genuine authority and feeling always in danger of being unceremoniously told to mind his own business,…[the intellectual] must flatter, promise and incite, nurse left wings…appeal to fringe ends.  Thus, though intellectuals have not created the labor movement, they have yet worked it up into something that differs substantially from what it would be without them….[This]…explains why public policy grows more and more hostile to capitalist interests.  Intellectuals rarely enter professional politics and still more rarely conquer responsible office.  But they staff political bureaus, write party pamphlets and speeches, act as secretaries and advisers, make the…politician’s…reputation….In doing these things they…impress their mentality on almost everything that is being done."
Capitalism, Socialism and Democracy, 153–54.

Is there any way to disagree with his commentary, in light of recent events?  Schumpeter saw the drive of the intellectual to take over the 'cause' of labor and the poor, driving public policy to undermine and destroy the competitive and innovative structure of the economy.  The term 'intellectual', for Schumpeter, denotes a class of persons in a position to develop critiques of societal matters for which they are not directly responsible.  Nor are they part of the classes which they are supplying the critique.  Their status allows them to stand up for others and act as self-appointed 'leaders'.  Schumpeter viewed education as the great advantage of a capitalist society.  In pre-capitalist periods, education was a privilege of the few.  Under capitalism, more and more people acquire higher education.  However, he recognized a corporatist structure (driven by public policy and government interference) develops over time, limiting fulfilling work opportunities.  As this couples with an experience of unemployment, discontent increases. The intellectual class is then able to organize protest and develop ideas and movements designed to undermine the market.

The US has, in the last 235 years, been the most innovative nation the world has ever seen because of the risk-taking and adventurous nature of its population.  Efforts to alter this drive for progress is coming from a group that ironically utilizes the word "progress" in their description of themselves.  They seek to remove the process of incentive.  Among the 99%ers is a group who are unhappy with their position in life, no matter how hard they worked to attain it, because they assume they have somehow deprived others of their 'rights'.  This element of self-loathing drives Schumpeter's view of the people who work to end capitalism.  These people reject the very system which allowed them to achieve a high level of success.

I was lucky to have a wonderful professor, Robert Heilbroner, in grad school.  Heilbroner taught the history of economics and disagreed with much of what Schumpeter wrote (Heilbroner was a Socialist until shortly before his death).  On the other hand, he readily admitted that Schumpeter was an amazing intellect, a man who created the strongest case for the support and defense of Capitalism and Free Markets.  However, he pointed out Schumpeter also sought to warn people of how Capitalism might be undermined.  Awareness of the need to fight the incursions of government, promoted by non-professional intellectuals and academics (as well as corporate interests), was essential to keeping free markets alive.  The role of the entrepreneur had to be held up as a standard for all, even those without the will or desire to become entrepreneurs.

As we watch Zucotti Park, there are some who may feel Marx's vision is playing out.  If they believe this, they are very likely wrong.  It may seem like the working classes are taking the reins, as Marx suggested.  But as Bastiat once pointed out, sometimes it's what we don't see that is important.  What we don't see is the support these people are getting from various intellectual, political and media actors.  If we seek to determine the source of the discontent, it may seem to be organically derived from the 99%ers.  This is deceiving.  It's what is going on behind the scenes that is important.  There are a class of people, self-appointed, who are lending their support, however indirect it seems to be, justifying the Schumpeterian view.  It may be the 'proletariat' doing the marching and speaking.  But were it not for the support and guidance they receive from the press, politicians, and academics, they would soon enough disappear.

"Capitalism inevitably…educates and subsidizes a vested interest in social unrest." Joseph Schumpeter