Schumpeter The Transition From Capitalism Term Paper

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" (Raines and Leather, 2007) This goal was achievable through wealth acquisition derived from "monopoly profits from successful innovations."(Raines and Leather, 2007) Schumpeter held that the ability of these businessmen is that which determines how far they will rise "because in that schema rising to a position and doing well in it is one and the same thing." (1950: as cited in Raines and Leather, 2007) Schumpeter also discussed the 'human element' in the political democratic decision-making in his work "Capitalism, Socialism and Democracy" and in one section which he entitled 'Human Nature in Politics' he stressed that the mindset of capitalism was one of rationalism and held a view of individual rationality as "consumers and in political activities as being quite limited." (Raines and Leathers, 2007) Schumpeter rejected the "idea of the human personality that is a homogeneous unit and the idea of the definite will that is the prim mover of action." (1950: as cited in Raines and Leather, 2007) Consumers were described by Schumpeter as being "so amenable to the influence of advertising and other methods of persuasion that producers often seem to dictate to them instead of being direct by them." (1950: as cited in Raines and Leather, 2007) Schumpeter writes: "There is for everyone, within a much wider horizon, a narrower field -- widely differing in extent as between different groups and individuals and bound by a broad zone rather than a sharp line -- which is distinguished by a sense of reality or familiarity or responsibility. And this field harbors relatively definite individual volitions." (1950: as cited in Raines and Leather, 2007) the "little field" of the individual is held by Schumpeter to be those things, which are the most directly concerned with that individual and include the individual's family, business, community and other social organizations in which the individual is involved. Schumpeter states specifically: "...the typical citizen drops down to a lower level of mental performance as soon as he enters the political field. He argues and analyzes in a way, which he would readily recognize as infantile within the sphere of his real interests. He becomes a primitive again. His thinking becomes associative and affective." (1950: as cited in Raines and Leather, 2007) Therefore, it is easy in matters that are political for the individual to give in to "extra-rational or irrational prejudice and impulse" and to the political and special interest group manipulation. Raines and Leathers state: "Schumpeter's views on behavior with respect to political issues would seem to apply to some degree to behavior within large bureaucratic corporations, expanding his depiction of entering into and rising within the corporate hierarchy as similar to political behavior. In such organizational environments, individuals are highly likely to experience the same reduced sense of reality, responsibility, and volition as they do in the political arena. As the bureaucratic management structure becomes larger and more complex, each individual working in that environment may increasingly feel that he is a member of an "unworkable committee" over which he has no influence." (Raines and Leather, 2007) Schumpeter noted the individual negative impact of the bureaucratic organization stating: "The bureaucratic method of transacting business and the moral atmosphere it spreads doubtless often exert a depressing influence on the most active minds. Mainly, this is due to the difficulty, inherent in the bureaucratic machine, of reconciling individual initiative with the mechanics of its working. Often the machine gives little scope for initiative and much scope for vicious attempts at smothering it. From this a sense of frustration and futility may result which in turn induces a habit of mind that revels in blighting criticism of the efforts of others. This need not be so; many bureaucracies gain on closer acquaintance with their work. But it is difficult to avoid and there is no simple recipe for doing so." (1950: as cited in Raines and Leather, 2007)


The work of David S. Pena entitled: "Tasks of Working-Class Governments under the Socialist-Oriented Market Economy" states that the question for Marxist-Leninists includes questions concerning the "problems and prospects of socialist-oriented market economies" and how those are "bound up with our understanding of the proper tasks of the proletarian state." Specifically a basic concern is "whether markets are compatible with the political supremacy of the working class, a supremacy that is entailed by the notion of proletarian rule during the transition period between capitalism and socialism." (Pena, 2007) the classical theory of Marx holds that that the working class "take control of the state, and use state power in the interest of the majority to abolish capitalism and defeat all attempts at capitalist restoration."

Pena states: "If capitalist society can be described as a dictatorship of the minority (the bourgeoisie) over the majority (the proletariat), then the proletarian state is a "dictatorship" of the working class majority over the capitalist minority that lasts until socialism is established and classes are abolished." (2007) Marx described the proletarian state as "the necessary transit point to the abolition of class distinctions generally, to the abolition of all the relations of production on which they rest, to the abolition of the social relations that correspond to these relations of production, to the revolutionizing of all the ideas that result from these social relations." (1978) This passage notes four tasks of the proletarian state which are referred to as the 'four alls' and include abolition of:

1) All economic classes;

2) All relations of production that support class society;

3) All social relations arising from these relations of production; and 4) the revolutionary transformation of all ideas resulting from these social relationships. (Pena, 2007)


The work of Wood (2001) states that the theory of competition which was developed first by Marx and then later in the work of Schumpeter "is quite distinct from the notion of perfect competition in neoclassical general equilibrium theory." Marx holds that competition is a "dynamic process of rivalry among large capitalist firms" whereas Schumpeter considers competition to be a "dynamic and evolutionary process" (Wood, 2001) the theory of Marx can be summarized in three points:

1) Competition is a derived concept and is not a self-contained starting point for his economic theory;

2) Competition is not only a force of equilibrium, but also a force that produces disequilibria, distortions, and a misallocation of resources;

3) Marx's concept is one of moving centers of gravitation and is an elaboration on the relation of competition, capital accumulation and technical change and the long-run changes of the centers of gravitation as either direct and indirect labor requirements or market values or as process of production. (Wood, 2001)

Wood holds that the concept of competition by Schumpeter is one that "deviates from the neoclassical conception" in much the same manner and in three specific ways:

competition is not limited to price or quantity adjustments;

Schumpeter stresses that competition is not necessarily and equilibrating force; and Competition is an evolutionary process characterized by rivalry of firms that derive motivation in the 'search for surplus profit'. This is also referred to as monopoly profit. (Wood, 2001)


In the examination of how capitalism can be constrained by the creation of a welfare state and a constriction on entrepreneurship, the work of Held (1999) is examined who posits that in economics terms as international trade grows, resulting, is greater interrelation among economies. Because of this, " protection and the welfare state play an important role in ameliorating the impact of structural change arising from trade." (Shackman, Liu, and Wang, 2002) Democracy has been defined by Giddens (2000) as "a system involving effective competition between political parties for positions of power." (Shackman, Liu, and Wang, 2002) Democracy makes a requirements of fair elections on a regular basis in which all individuals take part. The primary feature in society is the demographic makeup of that society including population, size, age, and race/ethic breakdown and urbanization." (Shackman, Liu, and Wang, 2002) Creation of the welfare state has categorized these demographics into groups within society through a perpetual type of osmosis of certain ethnic groups into the welfare recipient group thereby discouraging entrepreneurship among these groups and further perpetuating the state of welfare in the lives of these individuals and ethnic groups within society.


The work of Schumpeter fails toward the theoretical development of changes that occur in the long-run on gravitational centers effectuated by technological process. Marx does however, very specifically develops theoretically the change development in technology render upon the gravitational centers and holds that competition of: "...capitals, capital accumulation and technical progress produce changes in the direct and indirect labor requirements of commodities and their prices of production. Labor…[continue]

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