In the first week of January, 1950, Harvard economist Joseph Schumpeter was completing the final edits of a manuscript which he had delivered as a speech on December 30, 1949. The title was: “The March into Socialism.” He died before he finished the editing.
The article became a classic. It was reprinted in the third edition of his 1942 book: Capitalism, Socialism, and Democracy (1950). The book has never been out of print.
In his article, he argued that the success of the business class is in fact its own destruction. It had created a massive, centralized industrial structure, and the government was now going to come in and regulate it. He had seen this during World War II. Capitalist civilization was undermining the traditional Western family. It was going to be regulated by socialists. World War I killed laissez-faire, he said. Now World War II had completed the transition. Perennial inflation was weakening the social fabric of society. Price controls were universal. “In other words, price control may result in a surrender of private enterprise to public authority, that is, in a big stride toward the perfectly planned economy.” At that point, he died.
Others who had heard him deliver his 1949 speech worked on putting together this final entry, which they thought they had heard him say:
Marx was wrong in his diagnosis of the manner in which capitalist society would break down; he was not wrong in the prediction that it would break down eventually. The stagnationists are wrong in their diagnosis of the reasons why capitalist process should stagnate; they make still turn out to be right in their prognosis that it will stagnate–with sufficient help from the public sector (pp. 424-25).
Schumpeter was startlingly wrong. Economic growth has not declined. Economic growth was about to enjoy an extraordinary increase. What happened in Japan, Hong Kong, and South Korea after 1950, and in China after 1979, has completely and utterly refuted Schumpeter.
Socialism as an ideology is finished today. There is almost nobody who calls himself a socialist, although Bernie Sanders is one.
Marxism is finished. Outside of North Korea, nobody calls himself a Marxist, except for the political elite in Communist China. But the economy over which they reign is not Communist, but basically Keynesian.
Maybe Fidel Castro and his brother still call themselves Communists, but the handwriting is on the wall in Havana. They have been weighed in the balance and found wanting.
The triumph of the Keynesian version of capitalism is so comprehensive that Schumpeter’s prediction looks silly in retrospect. How could he have been so blind?
(For the rest of my article, click the link.)