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On the Laws of Capitalism
1. Insights from the
Sweezy-Schumpeter Debate
John Bellamy Foster
In February 2011, while I was
drafting what was to become “Monopoly and Competition in Twenty-First Century
Capitalism,” written with Robert W. McChesney and R. Jamil Jonna (Monthly
Review, April 2011), I decided to take a look at Paul Sweezy’s copy of the
original 1942 edition of Joseph Schumpeter’s Capitalism, Socialism, and
Democracy, which I had in my possession. In doing so, I came across a folded,
two-page document, “The Laws of Capitalism,” tucked into the pages. It was
written in ink in Sweezy’s very compact handwriting. In the upper-right-hand
corner, Sweezy had jotted (clearly much later) in pencil: “(A debate with
J.A.S. before the Harvard Graduate Students’ Economics Club, Littauer Center,
probably 1946 or 1947.)” The document consisted of a detailed outline, in full
sentences, of a contribution to a debate. I immediately realized that this was
Sweezy’s opening talk in the now legendary Sweezy-Schumpeter debate. Until that
moment, I, along with everybody else, assumed that no detailed records of the
actual talks had survived.1
Early in the winter 1946-47
term, the Socialist Party of Boston wrote to the Harvard economics department,
proposing a debate on capitalism and socialism. The department turned the
letter over to Schumpeter, who replied that the classroom was an inappropriate
place for such an exchange, but said that he would arrange for the Harvard
Graduate Students’ Club to sponsor the event. The Graduate Students’ Club,
however, declined. Nevertheless, the debate was held, in the end, without a
sponsor, with Sweezy and Schumpeter as the two protagonists, before a packed
audience in Harvard’s Littauer Auditorium.2
Decades later, Paul Samuelson,
writing in the April 13, 1970, issue of Newsweek, remembered it
as an occasion of almost mythic proportions:
In order to understand this
legendary debate and its historical significance, it is necessary to know
something about the intellectual and personal relations between the two
protagonists. Sweezy and Schumpeter first met in the fall of 1933. Sweezy, who
had done his undergraduate work in economics at Harvard, had just spent a year
studying at the London School of Economics, and was returning to do graduate
work at Harvard—now deeply influenced by his initial exposure to Marxist
thought. In the meantime, Schumpeter had accepted a post as professor of
economics at Harvard. Although Sweezy was never in any real sense Schumpeter’s
student, he joined a small seminar on economic theory led by Schumpeter,
consisting of around five participants in which Wassily Leontief, Oskar Lange,
and Elizabeth Boody (later to be Schumpeter’s wife) also took part. Schumpeter
was unique among the Harvard faculty in that his entire system of economics
reflected a serious engagement with Marx’s thought, although his own
conservative views were diametrically opposite. He paid Marxism the compliment
of considering it to be perhaps the most important intellectual movement of the
day. Schumpeter’s classic work, The Theory of Economic Development (1911),
was written with an aim that he saw as similar to that of Marx, in the sense of
providing “a vision of economic evolution as a distinct process generated by
the economic system itself.”5
Sweezy and Schumpeter soon
became close personal friends—part of a social as well as intellectual community
in Cambridge at the time. For two years in the mid-1930s, Sweezy was
Schumpeter’s assistant in the latter’s introductory graduate economics theory
course. Their relationship, however, was more personal than intellectual. As
Sweezy explained in a letter to his friend, the economist Sol Adler (September
29, 1987), “As to my relationship with Joe, I don’t know if there is much of
real interest. In an intellectual sense, there wasn’t much to it. I was curious
about and interested in his theories but I think hardly at all influenced by
them. We never discussed such matters at any length. The personal relationship
was something else but not at all easily described or classified. Perhaps I was
something of an ersatz son—incidentally, if I was his Harvard ersatz son,
Taussig was his ersatz Harvard father—and we were certainly very fond of
each other.”6
Their close connection lasted until Sweezy joined the army in 1942—the year
that Sweezy’s The Theory of Capitalist Development and Schumpeter’s Capitalism,
Socialism, and Democracy were published.
Sweezy’s The Theory of
Capitalist Development derived its title from Schumpeter’s The Theory of
Economic Development, symbolizing the complex, dialectical relation between
two very different views of economic development.7
The Theory of Economic Development starts with Schumpeter’s famous
concept of “the circular flow.” This is an economic process in which there is
no growth—and from which the entrepreneur, who, for Schumpeter, is the source
of all economic development, has been abstracted. In Schumpeter’s conception of
the circular flow, consumption is the primary motive of economic activity,
profit and interest are absent, and the whole economy conforms to a perfectly
(or freely) competitive model (largely in line with Walrasian general
equilibrium theory). Society consists of two classes: landlords (who receive
rents) and all others. Everyone has equal access to “capital.” Employees can
turn themselves into employers, if they wish. The assumptions of Schumpeter’s
model are more than sufficient to generate a stationary economy. But they also
remove all the institutional features of capitalism. By then introducing the
innovating entrepreneur into this static model, Schumpeter was able to argue
that the entrepreneur is the source of all economic development and the
business cycle.8
In contrast, Sweezy’s account
of Marxian political economy in The Theory of Capitalist Development argues
that accumulation, as opposed to the entrepreneur, is the prime mover of the economy,
and that the logic of the system runs from accumulation to innovation, and not
the other way around. In Marx’s reproductive schemes at the end of volume 2 of Capital,
a model of the economy, referred to as “simple reproduction” is presented, from
which all development is abstracted. All the institutional characteristics of
capitalism remain, but the assumption is made that all surplus is consumed
through increased capitalist consumption, rather than invested in the form of
new net investment (which does not exclude replacement investment out of
depreciation funds). This creates an economy that simply reproduces itself at
the same level, year in and year out. Yet Marx’s whole point is that this is,
in reality, impossible for any length of time in a capitalist system, whose
credo is “Accumulate, accumulate! That is Moses and the prophets.”9
Hence, he quickly turns from the abstract model of simple reproduction, to the
more realistic model of “expanded reproduction,” in which accumulation takes
place.
As Sweezy summed up the
difference between the Marxian and Schumpeterian systems in his article
“Professor Schumpeter’s Theory of Innovation” (published in 1943 in honor of
Schumpeter’s sixtieth birthday), for Schumpeter: “Profits result from
the innovating process, and hence accumulation is a derivative phenomenon. The
alternative view maintains that profits exist in a society with a capitalist
class structure even in the absence of innovation. From this standpoint, the
form of the profit-making process itself produces the pressure to accumulate,
and accumulation generates innovation as a means of preserving the
profit-making mechanism and the class structure on which it rests.”10
Rather than a minor issue, this constituted the principal difference between
Marxian (and classical) and orthodox or neoclassical economics.
Schumpeter’s notion of economic
development, arising from the individual entrepreneur, had a certain claim to
plausibility in the nineteenth-century era of free competition. But, with the
rise of the giant corporation and monopoly capitalism, the ideas of both free
competition and of the entrepreneur as the leading force in economic change
were obviously less and less relevant. Schumpeter was the first mainstream
(non-radical) economist to address theoretically the rise of a new stage of
concentrated capital, in his 1928 essay, “The Instability of Capitalism,”
directed at what he called “trustified capitalism”—under which firms no longer
acted as competitors but rather, as what he termed “corespectors” (a reference
to oligopolistic markets). Recognizing the difficulties that this presented for
his analysis of the entrepreneur, he took the big step in this article of
placing the innovative function, no longer in the hands of the entrepreneur,
but in the big corporation, and seeing it as routinized by an army of
specialists, if without the entrepreneurial dynamism of before.11
But this change in his model was little noticed in economics as a whole—until
1942, when he advanced it again in Capitalism, Socialism, and Democracy,
in the context of a conflict with New Deal economics.
The key economic argument of Capitalism,
Socialism, and Democracy was developed in Part II, entitled “Can Capitalism
Survive?” (Schumpeter’s famous answer was: “No. I do not think it can.”) Here
he was concerned with refuting New Deal criticisms of capitalism for its
monopolistic and stagnationist tendencies. Although Schumpeter did not deny—in
the great stagnation debate of the late 1930s and early 1940s brought on by the
Great Depression—that the system was, in fact, stagnating, he insisted that the
causes were more sociological than economic.
In his chapter, “Monopolistic
Practices” in Capitalism, Socialism, and Democracy, Schumpeter advanced
arguments designed explicitly to counter New Deal criticism of the large firm
in the context of the Great Depression. Yet this defense of monopoly was
weakened by his view that, while the monopolistic corporation was in some ways
more efficient than its competitive predecessor, it also took the life out of
the capitalist process. Here he reintroduced his notion that the corporation
had now taken over the entrepreneurial function, automatizing progress. As he
had noted in Business Cycles: “The mechanization of ‘progress’ may for entrepreneurs,
capitalists, and capitalist returns produce effects similar to those which
cessation of technological progress would have. Even now, the private
entrepreneur is not nearly so important a figure as he has been in the past.”12
For Schumpeter, the vanishing entrepreneur became an explanation for
capitalism’s “crumbling walls.” “Economically and sociologically, directly and
indirectly,” he wrote in Capitalism, Socialism, and Democracy, “the
bourgeoisie…depends on the entrepreneur and, as a class, lives and will die
with him….The perfectly bureaucratized giant industrial unit now only ousts the
small or medium-sized firm and ‘expropriates’ its owners, but in the end it
also ousts the entrepreneur and expropriates the bourgeoisie as a class which
in the process stands to lose not only its income but also what is infinitely
more important, its function.”13
Schumpeter’s approach to
economic stagnation, i.e., the failure of the economy to reach a full recovery
by the late 1930s, rejected the whole Keynesian analysis of effective demand
associated with a tendency toward oversavings in relation to what Schumpeter
dubbed “vanishing investment opportunities.” The argument here was principally
directed at the work of Schumpeter’s Harvard colleague Alvin Hansen, as
advanced in Full Recovery or Stagnation? (1938) and Fiscal
Policy and Business Cycles (1941). Schumpeter simply denied that intended
savings could, under conditions of growing capitalist maturity (where industry
had been built up and capital-saving innovations had become more important),
exceed profitable investment outlets. Since he saw innovation as the critical
element determining investment, an analysis that viewed investment as in some
sense self-limiting was one that he could neither fully understand nor fully
accept.14
Paul Sweezy (on left) with
literary historian and MR benefactor F.O. Matthiessen in the 1940s. Monthly
Review Archives.
In contrast to an
accumulation-based explanation of stagnation, Schumpeter focused instead on
what Sweezy was later to refer to as a “New Deal theory of stagnation”—of the
kind advanced by political conservatives generally. In this view, it was the
New Deal legislation that was the primary cause of continuing economic
stagnation, not the accumulation (or savings-and-investment) process. In
effect, the state, by intervening in the economy and attempting “to run
capitalism in an anticapitalist way,” had interfered with the entrepreneurial
function, which was the key to the business cycle. For Schumpeter, the growth
of anticapitalist attitudes, fed by intellectuals, was a crucial element in
capitalism’s decline.15
Joseph A. Schumpeter debating
Paul M. Sweezy at Harvard’s Littauer Center, Courtesy of the Harvard University
Archives, call # HUGBS 276.90p(40)
Schumpeter, as he indicated
numerous times, admired Sweezy’s The Theory of Capitalist Development as
the first successful attempt to synthesize the Marxian system in terms of
modern economics. He viewed Sweezy himself as a symbol of the crisis of
capitalism—an accomplished Marxian economic theorist, who challenged
capitalism, particularly in relation to monopoly and stagnation.16
Sweezy, who served in the
Second World War, first in the army, and then in the Research and Analysis
Branch of the Office of Strategic Services (OSS) and as editor of its European
Political Report, was discharged from the service (with a Bronze Star) in
October 1945. He had two and a half years remaining in his contract as an
assistant professor of economics at Harvard prior to coming up for tenure. But,
given the repressive political-ideological climate of the time, prospects for
his eventually obtaining tenure—despite Schumpeter’s strong backing—were bleak,
and Sweezy resigned his position in 1946, at about the time of his famous
debate with Schumpeter, to take up full-time research and writing.17
All of this forms the
background against which we can view Sweezy’s “Laws of Capitalism” and the
entire Sweezy-Schumpeter debate. Sweezy’s detailed outline of his talk is
printed below, together with commentary that I have provided to assist the
reader.
Sweezy’s argument focused
principally on the issue of the laws of motion of capitalism, that is, what
constituted capitalism’s prime mover. For Schumpeter, as we have seen, it was
the entrepreneur. For Sweezy, it was accumulation: a process that
transcended the individual capitalist. For Schumpeter, all the specific
economic characteristics of capitalism—profits, savings and investment,
interest, the business cycle, even the capitalist, along with economic
development—derived from the entrepreneurial function. For Sweezy, in contrast,
the main institutional characteristics of capitalism should be seen as coming
first and generating an accumulation dynamic (M-C-M′), to which
innovation (Schumpeter’s creative destruction and Marx’s revolutionization of
the means of production) was a response.
These different conceptions
resulted in radically different theories of capitalism and crisis. In
Schumpeter’s case, the business cycle was principally related to cycles of
innovation; for Sweezy, it had principally to do with cycles of accumulation.
It followed that for Schumpeter, crises were not essentially about failures in
the accumulation (savings-and-investment) process, which tended to equilibrate
on its own. While for Sweezy, it was precisely the accumulation process that
was fundamentally at issue in any crisis.
Finally, there was the question
of monopoly, stagnation, and the transition from capitalism to socialism.
Schumpeter had argued in 1928 that “trustified capitalism” generated greater economic
stability by attenuating creative destruction and hence crises (through a
process of the automatization of innovation), while at the same time
undermining the sociological foundations of capitalism by displacing the
individual entrepreneur. Sweezy, in the debate, invited Schumpeter, in the
aftermath of the Great Depression, to rethink the notion that monopoly
capitalism was a force for economic stability.
In one sense, the
Sweezy-Schumpeter debate was a disappointment to many of the economists and interested
parties who crowded into the Littauer Auditorium that night. Schumpeter, as all
of his closest friends and colleagues have noted, was extraordinarily reticent
about discussing his own work and ideas in public. He simply refrained from
doing so in the face of every request—in line with what was clearly a deeply
felt personal and intellectual principle, which, for some reason, he never
articulated.18
On this occasion too he remained true to form in this respect, and despite
Sweezy’s attempt to draw him out and to erect a debate based on the differences
between the Marxian (and Keynesian) and Schumpeterian systems, Schumpeter
refused to respond directly by commenting on his own system of thought. As
Eduard März, who was present on the occasion, wrote in his Joseph
Schumpeter: Scholar, Teacher, and Statesman, “During a public discussion on
the current significance of socialism, Paul M. Sweezy, then the youngest member
of the Harvard economics faculty, discussed the main points of the
Schumpeterian theory and asked his eminent colleague to give an opinion on some
of the controversial questions expressis verbis. Schumpeter ignored
Sweezy’s challenge and began a long-winded panegyric on the US economic system,
paying no attention to provocative remarks from the students.”19
As Allen put it, “Schumpeter ‘lost’ the debate. Samuelson’s romanticized
version of the debate does not reveal Schumpeter’s usual discomfort in
propounding and defending his views. Failing to present an adequate statement
of his theory of development, he allowed Sweezy to seize and maintain the
initiative; on the defensive, Schumpeter then did not counteract or perform
well.”20
If Schumpeter did not reply
directly to Sweezy’s criticisms of his system, what was the general nature of
his response? Given März’s comments, we can presume that Schumpeter
concentrated on the question of the U.S. economy. He had just finished writing
in July 1946 a new chapter 28 to Capitalism, Socialism, and Democracy,
entitled, “The Consequences of the Second World War,” which dealt with the
economic situation as the war ended. The new edition of his book was published
in 1947, and was in press but had not yet been released at the time of his
debate with Sweezy. It therefore seems a reasonable assumption that he drew
from his section on “The Economic Possibilities in the United States,” and
particularly from his subsection on “The Stagnationist Thesis,” as presented in
that new chapter. There Schumpeter engaged in an assault—much less restrained
than in the first edition of his work—on Keynes and those he labeled
“stagnationists.” Specifically, he denied that there could be a persistent
problem of “oversaving.” There was “nothing to fear,” he wrote, “from people’s
propensity to save.” At the same time, he argued that state action and
high-wage rates had produced a “dislocation of entrepreneurial planning,”
weakening the real possibilities for rapid economic growth—opening the way to
the eventual demise of the system.21
The electric atmosphere in the
Littauer Auditorium on that occasion, however, seems to have moved the debate
beyond the initial intentions of its two protagonists, leading them—in the give
and take that ensued—to proffer general assessments of capitalism and the
prospects for socialism. Leontief, as chair, summarized the views expressed:
The patient is capitalism. What
is to be his fate? Our speakers are in fact agreed that the patient is
inevitably dying. But the bases of their diagnoses could not be more different.
On the one hand there is
Sweezy, who utilizes the analysis of Marx and of Lenin to deduce that the
patient is dying of a malignant cancer. Absolutely no operation can help. The
end is foreordained.
On the other hand, there is
Schumpeter. He, too, and rather cheerfully, admits that the patient is dying.
(His sweetheart already died in 1914 and his bank of tears has long since run
dry.) But to Schumpeter, the patient is dying of a psychosomatic ailment. Not
cancer but neurosis is his complaint. Filled with self-hate, he has lost the
will to live.
In this view capitalism is an
unlovable system, and what is unlovable will not be loved. Paul Sweezy himself
is a talisman and omen of that alienation which will seal the system’s doom.22
Schumpeter thus referred to the
growing anticapitalist influences in society as a reason for the system’s
decline, playfully pointing to Sweezy himself as an example. It was this, in
fact, that induced Samuelson to recall the debate in his Newsweek column
in 1970, at a time when the New Left had emerged on college campuses. The Union
for Radical Political Economics had been established in 1968, challenging the
orthodox economics profession—with Paul Sweezy then representing a source of
inspiration and guidance for a younger generation of radical political
economists. For Samuelson, dismayed by the revolt in the academy, this only seemed
to confirm Schumpeter’s point in the Harvard debate more than two decades
earlier that the “alienation of privileged youth” constituted a threat to the
system.23
One incident stood out that
night in the Littauer Auditorium, contributing to the general sense of
merriment. As Sweezy later recalled: “In the discussion period Elizabeth
Schumpeter intervened at considerable length—I think with an argument citing
Japanese experience—and I answered in mock distress, complaining that I thought
it was unfair for the Schumpeter family to bring up their big guns. That
brought down the house, as it was intended to do.”24
In Allen’s words, “The crowd roared [in response] and enjoyed the evening
immensely.”25
Sweezy, in his later years, had
no inclination to romanticize the debate with Schumpeter. Rather, what
significance it had for him was simply as a part of a much larger debate on
stagnation that took place from the late 1930s into the 1940s—and that had all
the signs of “becoming one of the classic controversies in the history of
economic thought.” The whole question of the stagnation of capital
accumulation, however, was to be buried prematurely, due to the economic
stimulus offered by the Second World War, followed by the relative prosperity
in the early postwar years.26
Ironically, when stagnation eventually did reemerge in the 1970s and ’80s, the
Schumpeterian supply-side view was to triumph over what remained of Keynesian
demand-side economics.
In “Why Stagnation?”—a talk
delivered to the Harvard Economics Club in 1982—and in numerous articles and
books in the 1980s and early 1990s, Sweezy insisted that it was high time to resume
the debate on stagnation. Hence, he continually returned (together with his Monthly
Review coeditor Harry Magdoff) to the classic dispute between Keynes-Hansen
and Schumpeter—as well as to the Marxian contributions to the debate in the
work of Michal Kalecki and Josef Steindl, and in Sweezy’s own joint work with
Paul Baran in Monopoly Capital.27
In line with this, I would
argue that today, in a time of deepening stagnation, a resumption of the debate
over “The Laws of Capitalism”—focusing on capitalism’s tendency to
overaccumulation and stagnation—is a necessity, if we are to develop a
realistic assessment of the present as history. For this, if for no other reason,
the Sweezy-Schumpeter debate deserves our close attention.
2. The Laws of Capitalism
Paul M. Sweezy
Commentary (right column): John
Bellamy Foster
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1. The “Roman holiday” reason for choosing to lead off the
discussion.
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(i)
Sweezy
was here providing a light-hearted opening to the debate, saying that, by
going first, he was setting up the gladiatorial combat for the “wicked”
pleasure of the audience: the meaning of “Roman holiday.”
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2. The genesis of the title. Schumpeter’s interpretation: “mechanisms
and long-run tendencies of capitalist development.” This is just what I meant
and I think makes unnecessary any methodological or philosophical discussion
of the meaning of “laws.”
|
(ii) Here the point was that, in using the term
“laws,” both Sweezy and Schumpeter were agreed that these should be viewed,
in the manner of Marx, as historical “tendencies” and in a historically
specific context. Thus, it was common for Schumpeter to raise the issue of
“long-run tendencies” and their relation to “causes inherent in the
capitalist mechanism.” See Schumpeter, Capitalism,
Socialism, and Democracy (hereafter, CSD), 70.
|
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3. In the first place, he and I will probably find wide areas of
agreement. Let me quote a passage from his latest book with which I entirely
agree:
Capitalism…is by nature a
form or method of economic change and not only never is but never can be
stationary. And this evolutionary character of the capitalist process is not
merely due to the fact that economic life goes on in a social and natural
environment which changes and by its change alters the data of economic
action; this fact is important and these changes (wars, revolutions and so
on) often condition industrial change, but they are not its prime movers. Nor
is this evolutionary character due to a quasi-automatic increase in
population and capital or the vagaries of monetary systems of which exactly
the same thing holds true.
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(iii) Schumpeter, CSD, 82-83. This passage was referred to in Sweezy’s outline
and was marked in his copy of the book.
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4. But there is an important disagreement about what sets this
process in motion. Schumpeter’s theory, as I understand it, is that the motor
force comes from the “entrepreneur.” (iv) The entrepreneur is an innovator, a
recognizable sociological type (“leader” type) which comes from all strata of
society. The type presumably exists in other societies, but it is only in
capitalism that its representatives predominantly devote themselves to the
economic sphere.
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(iv) In
the sentence following the passage that Sweezy quoted from Schumpeter’s CSD, Schumpeter had gone on to say:
“The fundamental impulse that
sets and keeps the capitalist engine in motion comes from the new consumers’
goods, the new methods of production or transportation, the new markets, the
new forms of industrial organization that capitalist enterprise creates”
(emphasis added by Sweezy in his copy of Schumpeter’s book). Schumpeter’s
argument here is that entrepreneurial innovation is the prime mover of
capitalism: the very thing that Sweezy seeks to dispute.
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5. It is probably not usually realized how crucial the entrepreneur
is to Schumpeter’s conception of the capitalist process. Take him away and
you have the “circular flow” from which there is absent not only innovation
but also many of the other most characteristic features of the system. For
example, profits and interest and hence savings and investment—i.e. the most
important forms of capitalist income and the typical manner of its disposal. These
are derived from the activity of the entrepreneur. In addition of course,
it is more generally realized that the business cycle has such an origin in
Schumpeter’s theory.
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(v) Sweezy indicates here that, in the
Schumpeterian system, not only economic development is derived from the
leadership of the entrepreneur in carrying out innovation (new methods and
combinations of production) but that all the institutional characteristics of
capitalism are derived from this too.
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6. Contrast to this the Marxian standpoint. Profit has its origin in
the institutional structure of the economy. This in turn shapes the behavior
of capitalists. Illustrate with the formula M-C-M′. The drive for profits implies
accumulation and innovation. There is no reason to deny the existence of
Schumpeter’s entrepreneurial type, but its significance is quite differently
evaluated. For him the entrepreneur occupies the center of the stage; the
accumulation process is derivative. For me the accumulation process is
primary; the entrepreneur falls in with it and plays a part in it.
|
(vi) Here Sweezy refers to the accumulation
process in Marx’s terms (see Capital, vol. 1, Part 2: “The Transformation of
Money into Capital”), as a process of M[oney]-C[ommodity]-M[oney]′—with the ′
standing for the Δm or surplus value gained at the end of the exchange.
Capital is thus defined as self-expanding value in which M′ in one period of
production gives rise to M′′ in the next, and M′′′ in the period after that,
and so on—with no end to the process. For Sweezy “M-C-M′ is the heartbeat
that pumps the system’s monetary lifeblood through its arteries and veins. In
the one case as in the other, the health of the system depends on the proper
functioning of the heart: irregularity or weakness causes systemic illness
and in extreme cases threatens life itself.” Magdoff
and Sweezy, Stagnation
and the Financial Crisis, 158.
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7. Let me go on to point out some of the consequences of these two
approaches for cycle theory. Schumpeter’s theory of clustering and absorption
of innovations is familiar to you. Generally speaking, it denies—or at least
strongly discounts—what may be called savings-and-investment troubles. These
are, so to speak, created by entrepreneurs; they are incidental to the
innovation process. In principle, the economy adapts itself to the activity
of entrepreneurs. They can force a high rate of saving and investment. But if
they don’t, the economy will be content with a high level of consumption. In
the long-run there is simply no problem here; the economy is fundamentally
self-adjusting.
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(vii) Sweezy’s argument here suggests that in
Schumpeter’s supply-side approach, which focuses on entrepreneurial
innovation as the primary cause of business cycle fluctuations, there is an
implicit adoption of Say’s Law (supply creates its own demand), whereby the
system automatically equilibrates (at least in the long run) with respect to
savings and investment, with no contradictions arising. In this way,
Schumpeter’s view stands opposed to that of both Marx and Keynes. Schumpeter
argued that Keynes’s (and Marx’s) critique of Say’s Law was exaggerated, and
really only related to a “special case.” See Schumpeter, History of Economic Analysis, 624. Indeed, Schumpeter’s main objection
to Keynes was that he had provided “a doctrine that may not actually say but
can easily be made to say both that ‘who tries to save destroys real capital’
and that, via saving, ‘the
unequal distribution of income is the ultimate cause of unemployment.’ This is what the Keynesian Revolution
amounts to.” Joseph A. Schumpeter, Ten
Great Economists (New
York: Oxford University Press, 1951), 290.
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8. If, on the other hand, accumulation is the primary factor, this is
no longer so. There is no mechanism in the system for adjusting investment
opportunities to the way capitalists want to accumulate and no reason to
suppose that if investment opportunities are inadequate capitalists will turn
to consumption—quite the contrary. Hence, on this view,
savings-and-investment troubles are endemic to the capitalist system.
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(viii) This argument is not only the main
conclusion of the Keynesian Revolution, but is also presented here by Sweezy
in a way that is integrated with the Marxian analysis of accumulation,
generating a theory of overaccumulation. This constituted a direct challenge
to Schumpeter’s point of view, since he explicitly downplayed “disturbances
in the savings-investment process,” which he claimed it was “the fashion [in
economics] to exaggerate.” Schumpeter, CSD,
120.
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9. This implies a very different view of the cycle problems. I don’t
intend to go into the question, but I will say I can’t see why it is
considered so important to have a uniform cycle theory. I believe there are
several reasons why a boom can break down, and it is easy to explain why a
depression should be followed by a revival. I would be glad to hear some
discussion of this view which may even be considered heretical from a Marxist
standpoint.
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(ix) Here Sweezy seems to be saying that there is
no reason to suppose that the business cycle shows some mathematical
uniformity between the boom and slump phases of the cycle, but that a great
deal of variation is possible—precisely because accumulation (or the
savings-and-investment process) is subject to all sorts of fits and starts.
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10. Finally, one more point, though I have probably started already
enough hares for us to chase all evening. Already in the “Instability of Capitalism,”
Schumpeter took the position that the trustification of capitalism was
radically altering the nature of the entrepreneur and his traditional role in
the direction of rationalizing and routinizing and institutionalizing it.
This should lead to greater stability. The same view of what is happening to
entrepreneurship is expressed even more strongly in Capitalism, Socialism,
and Democracy. But I submit that capitalism has not shown any signs of
becoming more stable. What has Professor Schumpeter to say about this problem
now? Does he regard the theory I have attributed to him as no longer
applicable? If so, what takes its place? If not, how account for the apparent
discrepancy between the expectation to which it gives rise and the observed
facts?
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(x) For
Sweezy, Schumpeter’s 1928 essay, “The Instability of Capitalism,” was
crucial, since it raised the issue of the shift from competitive to monopoly
(referred to by Schumpeter as “trustified”) capitalism, the relation of this
to economic stability, and the question of the transition from capitalism to
socialism. Schumpeter had concluded in this essay that trustified capitalism,
in automatitizing innovation within the large corporation, had produced “the
result that the only fundamental [economic] cause of instability inherent to
the capitalist system is losing its importance as time goes on, and may even
be expected to disappear.” In other words, the effect of creative destruction
in generating big business cycle swings that destabilized the system was
ebbing. Schumpeter, Essays, 71. At the same time, Schumpeter argued
that the sociological foundations of capitalism were being removed, as a
result of the disappearance of the entrepreneur as a social type, pointing in
the direction of socialism. Although Schumpeter took up this problem again in
1942, in CSD, the economic
part of the argument was not, in Sweezy’s view, developed any further, with
Schumpeter failing to address consistently and coherently the relation
between growing monopolization and the increasing economic instability of
capitalism. Sweezy’s final point in his talk was therefore directed at
getting Schumpeter to respond to the issues of monopoly capitalism,
structural economic crisis, and the instability of the system as a whole.
These issues were, of course, central to Sweezy’s own work, to be developed
most fully in Paul M. Sweezy and Paul A. Baran, Monopoly Capital (New York:
Monthly Review Press, 1966).
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1.
↩
In a January 16, 1984, letter to Schumpeter biographer Robert Loring Allen on
the 1946 debate, and on other occasions in the 1980s and ‘90s, Sweezy indicated
that he did not have a good recollection of the detailed intellectual content
of the debate, though he had vivid memories of the event as a whole,
which was, in his words, a “good-natured occasion, which everyone seemed to
enjoy.” It seems reasonable to assume from this that Sweezy had forgotten all
about his manuscript left in his 1942 edition of Schumpeter’s book.
2.
↩
Robert Loring Allen, Opening Doors: The Life and
Work of Joseph Schumpeter (New Brunswick, New Jersey: Transaction
Publishers, 1991), 170. The information on the origins of the debate was
taken by Allen from correspondence in the Schumpeter papers in the Harvard
University Archive.
3.
↩
Samuelson was mistaken on this point. Sweezy’s father was not an officer in
Morgan’s bank but a vice president in George F. Baker’s bank, the old First
National Bank of New York—one of the predecessors of City Bank. Baker was a
close ally of Morgan and one of the financial giants of the early twentieth
century. On Everett B. Sweezy (Paul’s father) see
Sheridan A. Logan, George F. Baker and His Bank (St. Joseph, Mo.: S.A.
Logan, 1981), 376-79.
4.
↩
Paul A. Samuelson, Collected Scientific Papers,
vol. 3 (Cambridge, Massachusetts: MIT Press, 1972), 710.
6.
↩
Paul M. Sweezy (Larchmont) to Sol Adler (Beijing), September 29, 1987.
7.
↩
Paul M. Sweezy, The Theory of Capitalist Development
(New York: Monthly Review Press, 1970), ix.
8.
↩
Joseph A. Schumpeter, The Theory of Economic
Development (New York: Oxford University Press, 1961); Paul M. Sweezy, The Present as History (New York:
Monthly Review Press, 1953), 267-73; John
Bellamy Foster, “Theories of Capitalist Transformation: Critical Notes on the
Comparison of Marx and Schumpeter,” Quarterly Journal of Economics 98,
no. 2 (May 1983): 327-31.
9.
↩
Karl Marx, Capital, vol. 1 (London: Penguin, 1976), 742, and Marx, Capital,
vol. 2 (London: Penguin, 1978), 468-599.
11.
↩
Schumpeter, Essays, 47-72; Paul M. Sweezy, Modern Capitalism and Other Essays (New
York: Monthly Review Press, 1972), 32.
12.
↩
Joseph A. Schumpeter, Business Cycles, vol. 2
(New York: McGraw Hill, 1939), 1034. What is known in the economic and
sociological literature as the “Schumpeter Thesis,” according to which large
firms are more innovative than smaller, more competitive ones, is a gross
distortion of Schumpeter’s own argument both with respect to its economic
specifics and even more so when taking into account his entire analysis (both
economic and sociological) of the effects of the decline of the entrepreneur. For an excellent treatment see Anne Mayhew, “Schumpeterian
Capitalism versus the ‘Schumpeterian Thesis,’” Journal of Economic Issues 14,
no. 2 (June 1980): 583-92.
13.
↩
Joseph A. Schumpeter, Capitalism, Socialism, and
Democracy (New York: Harper and Row, 1942), 134. On Schumpeter’s
entire theory of the rise and decline of capitalism see John Bellamy Foster, “The Political Economy of Joseph Schumpeter: A Theory
of Capitalist Development and Decline,” Studies in Political Economy 15
(Fall 1984): 5-42.
14.
↩
Schumpeter, Capitalism, Socialism, and Democracy,
111-20; Alvin H. Hansen, Full Recovery or
Stagnation? (New York: W.W. Norton, 1938), and Fiscal Policy and
Business Cycles (New York: W.W. Norton, 1941); and William E. Stoneman, A History of the Economic Analysis of
the Great Depression in America (New York: Garland Publishing, 1979),
151-66. In an April 10, 1991, letter to Schumpeter biographer Wolfgang Stolper,
who had asked Sweezy for comments on the manuscript of his biography, Sweezy
wrote: “Perhaps my biggest difference with you (and Joe) is touched on in
various passages….You both, it seems to me, identify innovations with
profitable investment opportunities and draw the conclusion that since the
supply of innovations is theoretically inexhaustible the same also holds for
profitable investment opportunities.” Paul M. Sweezy to Wolfgang Stolper, April
10, 1991; Wolfgang Stolper, Joseph A. Schumpeter:
The Public Life of a Private Man (Princeton: Princeton University Press,
1994).
15.
↩
Schumpeter, Business Cycles, vol. 2, 1036-37, and Capitalism,
Socialism, and Democracy, 145-55; Harry Magdoff and
Paul M. Sweezy, Stagnation and the Financial Explosion (New York:
Monthly Review Press, 1987), 30-32.
16.
↩
On Schumpeter’s view of Sweezy’s book see Joseph A.
Schumpeter, History of Economic Analysis (New York: Oxford University
Press, 1954), 392, 884-85, and Richard Swedberg,
Schumpeter: A Biography (Princeton, New Jersey: Princeton University
Press, 1991), 140.
17.
↩
See John Bellamy Foster, “The Commitment of an
Intellectual: Paul M. Sweezy (1910-2004),” Monthly Review 56, no. 5
(October 2004): 14-15.
18.
↩
On Schumpeter’s enormous reticence to speak on his own theoretical
contributions, even when directly requested to do so, see Paul M. Sweezy, “Introduction,” in Joseph A. Schumpeter, Imperialism
and Social Classes (New York: Augustus M. Kelley, 1951), viii-ix.
19.
↩
Eduard März, Joseph Schumpeter: Scholar, Teacher,
and Politician (New Haven: Yale University Press, 1991), 165. März
does not specifically say on what occasion the debate he witnessed occurred.
But he arrived at Harvard in 1941, and Sweezy was in the OSS in Europe from
1942 to fall 1945—so it is almost certain these remarks relate to the winter
term 1946-1947 debate in the Littauer Auditorium. His comments, moreover, match
those of other reports on the debate.
20.
↩
Allen, Opening Doors, 171.
21.
↩
Schumpeter, Capitalism, Socialism, and Democracy, 380-98.
22.
↩
Leontief quoted in Samuelson, Collected Scientific Papers, 710.
23.
↩
Samuelson, Collected Scientific Papers, vol. 3, 710.
24.
↩
Sweezy to Allen, January 16, 1984. That this was all in fun, especially with
respect to the parties most concerned, is evident in the fact that Elizabeth
Boody Schumpeter and Sweezy were also good friends, and Sweezy had played a
role “witting and unwitting,” as he later said, in helping her with her plans
to become more intimately acquainted with Schumpeter. When he married Elizabeth
in 1937, Schumpeter wrote to Sweezy good-naturedly that (as Sweezy later
recalled) “it was all my fault, damn me [laughter]. I had to disclaim all
responsibility. I certainly didn’t do anything to promote it willingly.”
Sweezy, Interview, Columbia University Oral History Project, December 10, 1986,
session 3, 81-82. Sweezy subsequently assisted Elizabeth Schumpeter in her
editing of her husband’s posthumous History of Economic Analysis.
25.
↩
Allen, Opening Doors, 171.
26.
↩
Magdoff and Sweezy, Stagnation and the Financial Explosion, 332.
27.
↩
See Magdoff and Sweezy, Stagnation and the Financial Explosion, 7-10,
29-38, 43-45.
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