Has "Capitalism" Destroyed Itself?
Joseph Schumpeter famously predicted that capitalist society would be destroyed by its own success, and the recent student protests around the US are a sign he may have been right.
Although the protests don’t always have the same motivations, a troubling feature of them all is a growing hostility to the institutions of a free society, and especially, to freedom of speech. This trend would have been especially important for Schumpeter, as he considered this kind of ideological movement key to understanding how capitalism “inevitably” transforms into socialism.
His basic argument goes like this: an entrepreneurial market economy generates tremendous growth and increases living standards. Ironically though, it becomes so prosperous and innovative it loses sight of the source of its wealth, and even becomes hostile toward it. Entrepreneurship enriches society so much that people forget how necessary and how fragile the market economy really is. They even start to believe that markets—and the liberal social order that supports them—are inferior to government bureaucracy and central planning. Eventually, society embraces socialism.
Yet this transformation requires more than simply the accumulation of wealth: someone must actively stir up hostility to the institutions of the free-market economy. This role is played by the intellectual classes, who often harbour deep resentment toward entrepreneurial institutions.
The intellectuals incite discontent among a growing class of people whose wealth ultimately rests on productive entrepreneurship, but who are mostly disconnected from market competition in practice. Younger people are particularly vulnerable to anti-market bias, which is often instilled through formal schooling. Yet while it’s true there’s often explicitly anti-liberal ideology embedded in (higher) education, there are also subtler ways that young minds are turned against the ideals of a free society through the schooling process.
When higher education fails to communicate the knowledge or skills necessary to succeed in the marketplace, it nudges students toward suspicion of the entire economic system, which they believe undervalues their talents, and in which they have little place. Schumpeter put it brilliantly:
The man who has gone through a college or university easily becomes psychically unemployable in manual occupations without necessarily acquiring employability in, say, professional work. His failure to do so may be due either to lack of natural ability—perfectly compatible with passing academic tests—or to inadequate teaching; and both cases will, absolutely and relatively, occur more frequently as ever larger numbers are drafted into higher education and as the required amount of teaching increases irrespective of how many teachers and scholars nature chooses to turn out…
All those who are unemployed or unsatisfactorily employed or unemployable drift into the vocations in which standards are least definite or in which aptitudes and acquirements of a different order count. They swell the host of intellectuals in the strict sense of the term whose numbers hence increase disproportionately. They enter it in a thoroughly discontented frame of mind. Discontent breeds resentment. And it often rationalizes itself into that social criticism which as we have seen before is in any case the intellectual spectator’s typical attitude toward men, classes and institutions especially in a rationalist and utilitarian civilization.
Actually, Schumpeter’s argument makes much more sense in the context of interventionism than it does in a genuinely free society. When the public sector increases, entrepreneurs are simultaneously crowded out of the market and blamed for the problems created by policymakers. Most importantly though, as intervention expands, the “bourgeois virtues” that support a free society disappear as well. Accumulating wealth becomes a matter of rent-seeking and redistribution rather than satisfying consumers. Entrepreneurs, isolated from the profit and loss test of the market, begin to lose touch with the division of labor and its philosophy of innovation and wealth creation.
This slippery slope leads to disaster. However, contra Schumpeter, socialism is not inevitable. As Mises argued tirelessly, the cause of liberalism can triumph, but only if we win the battle of ideas. Yet this battle will only be won through calm, careful reasoning and a firm commitment to peacefully spreading the truth, even when others are hostile to it. That means extending to opponents of liberalism the same tolerance they so often deny its supporters. In Mises’ words, “Against what is stupid, nonsensical, erroneous, and evil, liberalism fights with the weapons of the mind, and not with brute force and repression.”