SCHUMPETER’S VIEWS ON CAPITALISM

Prof. Prabha PanthOsmania University,

Hyderabad

2Role of Entrepreneur

• Schumpeter gives central role to the “entrepreneur” as the principal agent of capitalist development.

Definition: “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.”The individuals who carry out their innovations are called “entrepreneurs”.They create a credit based society.

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Prabha Panth

3Innovation• The fundamental phenomenon of economic development – the

entrepreneur is the “captain of industry.”• Capitalist economy is never stationary.• The Entrepreneur is inspired to find new products, processes, forms

of organisations, raw materials, markets, etc. to bring the economy out of the rut. • Innovations may take the form of --

1. New combinations started by new firms – e.g. railways distinct from horse drawn carriages,

2. New combinations of materials and forces in the sphere of production. 3. Command over means of production, chiefly credit, characteristic of the

capitalist society, forcing the economy into new channels,01/05/2023Prabha Panth

4Innovations

• Innovations do not appear at regular intervals – but in bursts. • Discontinuous. When they appear there is economic activity,

otherwise stagnation.• Competitive capitalism experiences regular booms and recessions,• Because innovation is not ever lasting – it leads to “creative

destruction”, new industries, new products, new technologies destroy old industries.• The success of capitalism brings about its destruction.• The entrepreneur becomes superfluous and unnecessary.

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5Decline of Capitalism

1. Obsolescence of the entrepreneurial function. Growth of large corporations and managers instead of entrepreneurs.

2. They get paid jobs as managers, reduces entrepreneurial energy.1. Economic progress is depersonalised and automatized,2. Giant firms oust small and medium firms,3. Entrepreneur is ousted,4. Bourgeois is expropriated as a class, loses its will to defend capitalism

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3. Gradual destruction of the protecting strata and institutional framework.- Entrepreneur (like the feudal lord) earlier showed the way – he was the protecting master.- Bourgeois is an unheroic and non-charismatic class,- Social framework is broken down,- Large corporations – salaried workers, on contractual basis.- Freedom under capitalism vanishes.

Decline of Capitalism

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4. Rationality and critical attitude of capitalism destroys it.- rational attitude criticises first feudalism then capitalism,- ownership of private property and bourgeois values,- intellectuals verbalise, organise, and create social unrest.- growth of labour movement,- functions of innovation and entrepreneurship taken over by

bureaucratic form of government.- rational, critical attitude directed against capitalist social order.

Thus Capitalism is decomposed and destroyed, and is replaced by Socialism.

01/05/2023Prabha Panth

Decline of Capitalism