Prophet of Innovation: Joseph Schumpeter and Creative Destruction, by Thomas K. McCraw, Cambridge: Harvard University Press, 719 pages, $35
The New Industrial State, by John K. Galbraith, Princeton:
Princeton University Press, 518 pages, $24.95
Most of us get our politics in our early 20s and then never change. Saul Bellow said of his youthful Trotskyism, “Like everyone else who invests in doctrines at a young age, I couldn’t give them up.” A young adult hates the bourgeoisie or loves capitalism or believes passionately in the welfare state. Her politics becomes a cherished identity, a faith. Here I stand. I can no other.
The vintage matters. Someone who invested in doctrines when world capitalism seemed to be working just fine—on the eve of World War I, say—had a good chance of keeping for life an optimistic opinion of markets and entrepreneurs. So it was with one of the best-known economists of the last century, Joseph Alois Schumpeter (1883–1950) of Vienna, Bonn, and Harvard.
But someone who invested in his human capital when things were dismal and chaotic—early in the Great Depression, say—was likely to take a less cheerful view. So it was with another of the century’s best-known economists, Schumpeter’s younger colleague John Kenneth Galbraith (1908–2006) of Ontario, Berkeley, Fortune magazine, and then, at the very end of Schumpeter’s two decades there, Harvard.
Both tried political power early, Schumpeter as a pro-market minister of finance in Austria’s brief socialist government after World War I and Galbraith as a New Dealish deputy director of the U.S. Office of Price Administration during World War II. Experience in government had opposite effects on the two. Schumpeter became permanently suspicious of state power. Galbraith became permanently delighted with it.
These two men of clever words, both master rhetoricians, laid out the case for and the case against unregulated markets. Half a century on, you can review their efforts in a new biography of Schumpeter and a new reissue of Galbraith’s most famous book, The New Industrial State. Schumpeter’s pro-capitalist and conservative case looks better, Galbraith’s anti-market and regulatory case looks worse.
Regulated or not, as Schumpeter almost understood, capitalism hangs on words. In the end that’s what both men missed, Schumpeter only narrowly. Case-making with sweet words is how business decisions are made. It’s how regulatory agencies do their jobs. It’s how you shop for furniture. It’s how economic scientists persuade. It’s how managers in a free society manage. Rhetoric rules.
As Thomas McCraw, a professor of business history at Harvard Business School, explains in Prophet of Innovation, a charming new life of the man in full, Joseph Schumpeter from first to last defended the entrepreneur with his own talk, talk, talk. A free economy, Schumpeter claimed from his earliest important book, The Theory of Economic Development (1911), runs on innovation, not routine. “Schumpeter turned Karl Marx on his head,” McCraw writes. “Hateful gangs of parasitic capitalists become, in Schumpeter’s hands, innovative and beneficent entrepreneurs.”
Emotionally speaking, Schumpeter had always been attracted to the aristocratic side of the bourgeoisie. “The innovating entrepreneur,” noted one of Schumpeter’s colleagues at Harvard, “did have glamour”—which Schumpeter sought—“and was not dominated by middle-class values,” which Schumpeter viewed as stuffy conventionality without heroism. The aristocratic bourgeois: There’s your Schumpeterian entrepreneur.
In public Schumpeter liked “to play the part of an aristocrat,” McCraw writes, “even though his origins were middle-class and his eminence self-made.” At his first academic job in 1909 he fought a literal duel with swords against, of all people, the librarian, because he wouldn’t make books available to his students. The librarian got an honorable scar out of it, and the two became the best of friends.
Schumpeter “liked to disrupt faculty meetings by turning up late, still clad in jodhpurs and helmet from his daily horseback ride.” He would say in later years that his ambition was to become the world’s greatest economist, the world’s greatest lover, and the world’s greatest horseman. “Things are not going so well,” he would add, smiling, “with the horses.”
Schumpeter’s best-known book is his hastily written but glittering Capitalism, Socialism, and Democracy, which received scant notice when it first appeared in 1942. It contained his usual praise for the businessperson, but it also predicted that capitalism would not survive, and that democracy might not either. The book “admits, and rather cheerfully, that the patient is dying,” the economist Paul Samuelson wrote in a 1970 Newsweek column, “but of a psychosomatic ailment. No cancer, but neurosis is [the capitalist’s] complaint. Filled with self-hate, he has lost his will to live.”
Most intellectuals in the 1930s and early ’40s had the same neurosis, and the same pessimism. Schumpeter believed that capitalism was raising up its own grave diggers—not in the proletariat, as Marx had expected, but in the sons and daughters of the bourgeoisie itself. Lenin’s father, after all, was a high-ranking education official, Lenin himself a lawyer. It wasn’t the children of autoworkers who pulled up the paving stones on the Left Bank in 1968. The most radical anti-globalists today are socialist children of capitalist parents.
Schumpeter’s cultural pessimism about capitalism has proven wrong. The American economy has continued to show startling entrepreneurial vigor, though both Schumpeter and Galbraith thought that committees would kill it. The capitalist idea has flourished worldwide.
By 1967, when Galbraith published The New Industrial State, his most considered book (he revised it three times down to 1985), he was already famous among general readers for The Affluent Society (1958). In that book he pointed out that we Americans have grown affluent in private goods, loaded down with refrigerators and finned automobiles. Splendid. But we have neglected the public goods of education and public parks and decent provision for the poor. In Sweden, he averred, they do things better.