Joseph Schumpeter’s Capitalism, Socialism and Democracy is (apparently) “the third most cited book in the social sciences published before 1950, behind Marx’s Capital and The Wealth of Nations by Adam Smith“. (Schumpeter has two entries in the top five).
The first section of the book is a response to Marx: who Marx’s economic mentors were (in particular Ricardo), what Marx was right about, what he was wrong about, what his followers – even Engels – got wrong that Marx actually had something interesting to say about.
I like this passage for the way it points at three things: the unproven foundation of Marx’s theory of primitive accumulation; Marx’s employment of the “guffaw” method of sidestepping relevant arguments; and the discomfort that many of us feel in acknowledging the “supernormal intelligence and extraordinary energy” of the successful entrepreneur.*
Marx tries to show how in that class war capitalists destroy each other and eventually will destroy the capitalist system too. He also tries to show how the ownership of capital leads to further accumulation. But this way of arguing as well as the very definition that makes the ownership of something the constituent characteristic of a social class only serves to increase the importance of the question of “primitive accumulation,” that is to say, of the question how capitalists came to be capitalists in the first instance or how they acquired that stock of goods which according to the Marxian doctrine was necessary in order to enable them to start exploiting.
On this question Marx is much less explicit. He contemptuously rejects the bourgeois nursery tale (Kinderfibel) that some people rather than others became, and are still becoming every day, capitalists by superior intelligence and energy in working and saving. Now he was well advised to sneer at that story about the good boys. For to call for a guffaw is no doubt an excellent method of disposing of an uncomfortable truth, as every politician knows to his profit.
Nobody who looks at historical and contemporaneous fact with anything like an unbiased mind can fail to observe that this children’s tale, while far from telling the whole truth, yet tells a good deal of it. Supernormal intelligence and energy account for industrial success and in particular for the founding of industrial positions in nine cases out of ten. And precisely in the initial stages of capitalism and of every individual industrial career, saving was and is an important element in the process though not quite as explained in classic economics.
It is true that one does not ordinarily attain the status of capitalist (industrial employer) by saving from a wage or salary in order to equip one’s factory by means of the fund thus assembled. The bulk of accumulation comes from profits and hence presupposes profits—this is in fact the sound reason for distinguishing saving from accumulating. The means required in order to start enterprise are typically provided by borrowing other people’s savings, the presence of which in many small puddles is easy to explain or the deposits which banks create for the use of the would-be entrepreneur. Nevertheless, the latter does save as a rule: the function of his saving is to raise him above the necessity of submitting to daily drudgery for the sake of his daily bread and to give him breathing space in order to look around, to develop his plans and to secure cooperation.
As a matter of economic theory, therefore, Marx had a real case—though he overstated it—when he denied to saving the role that the classical authors attributed to it. Only his inference does not follow. And the guffaw is hardly more justified than it would be if the classical theory were correct. The guffaw did its work, however, and helped to clear the road for Marx’s alternative theory of primitive accumulation. But this alternative theory is not as definite as we might wish. Force—robbery—subjugation of the masses facilitating their spoliation and the results of the pillage in turn facilitating subjugation—this was all right of course and admirably tallied with ideas common among intellectuals of all types, in our day still more than in the day of Marx. But evidently it does not solve the problem, which is to explain how some people acquired the power to subjugate and to rob. Popular literature does not worry about it. I should not think of addressing the question to the writings of John Reed. But we are dealing with Marx…
Joseph Schumpeter – Capitalism, Socialism and Democracy
*The story of the successful entrepreneur usually includes large helpings of privilege and luck, yes… but there are plenty of downwardly-mobile people who had privileged starts in life. What makes a Ford, a Gates, a Musk, different?