Capitalism, Socialism and Democracy

Introduction

Part I: The Marxian Doctrine

Schumpeter devotes the first 56 pages of the book to an analysis of Marxian thought and the place within it for entrepreneurs. Noteworthy is the way that Schumpeter points out the difference between the capitalist and the entrepreneur, a distinction that he claims Karl Marx would have been better served to have made (p. 52). The analysis of Marx is broken down into four roles which Schumpeter ascribes to him (prophet, sociologist, economist, and teacher). The section on Marx the Prophet explains that, if nothing else, Marx would have been received well by people who needed a theory to explain what was happening in their society. The section on Marx the Sociologist focuses on how Marx's theory of class fits with the larger intellectual traditions of the day, and how it superseded them in at least its ability to synthesize sociological thought. The section on Marx the Economist then focuses on Marx's economic theory; Schumpeter judges it excessively "stationary" (pp. 27, 31). He also deals with the concept of crisis and business cycle, two economic theories that Marx pioneered (p. 39).

The final section, Marx the Teacher, evaluates the usefulness of Marx's thought for interpreting the events of his time and those between his death and Schumpeter's time. Schumpeter claims that any theory of crisis gains support when crises occur, and points to some developments that Marx's theories have failed to predict. On page 53, he argues that Marx's theory better predicts English and Dutch colonial experiences in the tropics, but fails when applied elsewhere, for example in New England.

Part II: Can Capitalism Survive?

Schumpeter answers "no" in the prologue to this section. But he says, “If a doctor predicts that his patient will die presently,” he wrote, “this does not mean that he desires it.” The section consists of 100 pages with the following ten topics:

1. The Rate of Increase of Total Output
2. Plausible Capitalism
3. The Process of Creative Destruction
4. Monopolistic Practices
5. Closed Season
6. The Vanishing of Investment Opportunity
7. The Civilization of Capitalism
8. Crumbling Walls
9. Growing Hostility
10. Decomposition

Of these, creative destruction has been absorbed into standard economic theory. This section constructs a view of capitalism which ultimately tends toward corporatism which, he suggests, will be its own undoing.

Part III: Can Socialism Work?

In this section comparative analysis of known theories of socialism are explored. The five sections in this Part are: Clearing Decks, The Socialist Blueprint, Comparison of Blueprints, The Human Element, and Transition. Although some readers have expressed surprise at what they see as Schumpeter's excessively rosy appraisal of a hypothetical future socialist republic and its chances of success, others disagree. Thomas K. McCraw, Schumpeter's biographer, saw Schumpeter's analysis of socialism in this section as almost satirical, observing that Schumpeter stipulated so many unrealistic preconditions for the future success of socialism, that he was essentially saying that it couldn't possibly succeed under any circumstances.

Part IV: Socialism and Democracy

This section debates the nature of democracy, beginning from its compatibility with socialism, and proposes an elite model of democracy in which the sole role of voters is to select or reject potential governments. In so doing he rejects the notions of the 'common good' and 'common will' of the people. The four sections of this Part include, The Setting of the Problem, The Classical Doctrine of Democracy, Another Theory of Democracy, and The Inference.

Schumpeter's argument in this section centres on his belief that direct popular rule is not feasible in complex modern societies. instead, he develops what has become known as competitive elitism, where democratic governance is understood primarily as a method for selecting political leaders through free and competitive elections. In this model, voters do not directly determine policy outcomes but rather choose between rival elites who then make decisions on behalf of the public.

Part V: A Historical Sketch of Socialist Parties

This part develops five periods of socialist thought. Before Marx, Marx's time, 1875 to 1914 (prior to WWI), the interwar period, and Schumpeter's contemporary post-war period.