Thursday, December 18, 2008

Schumpeter and entrepreneurship

"Schumpeter criticized John Maynard Keynes and David Ricardo for the "Ricardian vice." According to Schumpeter, Ricardo and Keynes reasoned in terms of abstract models, where they would freeze all but a few variables. Then they could argue that one caused the other in a simple monotonic fashion. This led to the belief that one could easily deduce policy conclusions directly from a highly abstract theoretical model."

Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism... He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure."

ac(a Calculated Risk commenter) on Schumpeter:
"The Wikipedia article doesn't really make it clear whether Schumpeter is advocating socialism or capitalism. The way it's written sounds like he's trying to promote capitalism by hiding it behind a socialistic message.

Of course the problem with the socialist outcome still remains - we haven't figured out how to motivate people to work in a socialist environment. That leads me to believe that a transition from capitalism to socialism with the operating overhead and debt created by a capitalism economy will fail because the socialist economy will not be able to generate the activity to sustain these costs of operation (because people are less motivated to produce). To me this suggests that in order to sustain itself the government will attempt to compensate by yet another transition, this time to a more coercive authoritarian fascist type state."
Intriguing ideas...

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