Capitalism, Socialism and Democracy by {author}: summary and why it matters

What it argues

Schumpeter begins with Marx, whom he treats seriously as a prophet and an economist, before turning to capitalism. His core insight is that capitalism is an evolutionary process driven by entrepreneurs who introduce new products, methods and organizations, and that this process of creative destruction constantly demolishes old structures. Competition that matters comes from the new commodity or technology, not price cutting among existing firms.

His surprising claim is that capitalism will not die of failure but of success. It creates a class of intellectuals hostile to it, wears away the family and bourgeois values that supported it, and shifts toward large corporations managed by salaried bureaucrats. He expected a gradual drift toward socialism, which he did not welcome but regarded as probable.

The book also gives an account of democracy as competition among elites for votes.

Why it matters

The idea of creative destruction is central to the modern understanding of innovation, and the thesis about intellectual hostility has been echoed by conservative writers like Irving Kristol. Schumpeter's forecast has proved partly right and partly wrong, which makes it a rewarding subject of argument.

About the author

Joseph Schumpeter (1883-1950) was an Austrian economist who was briefly finance minister of Austria after the First World War and later moved to Harvard, where he taught until his death. He wrote the book in the early 1940s as a sort of popular summary of his views. His idea of creative destruction is still the best-known expression of his thought.

Who should read it

Readers of economics and politics who like ideas that cut across party lines.