Summers and Schumpeter

http://www.futureofcapitalism.com/2009/09/summers-and-schumpeter

The chief of the National Economic Council, Lawrence Summers, writes on the White House blog: "the most important economist of the twenty-first century might actually turn out to be not Smith or Keynes, but Joseph Schumpeter. One of Schumpeter's most important contributions was the emphasis he placed on the tremendous power of innovation and entrepreneurial initiative to drive growth through a process he famously characterized as 'creative destruction.' His work captured not only an economic truth, but also the particular source of America's strength and dynamism." Interesting stuff. Mr. Summers writes all this to contextualize a speech of President Obama. The closest Mr. Obama came to mentioning Schumpeter's name was a reference to the "tremendous leadership" of "Senator Chuck Schumer, who couldn't be here today." Alas, about all that Mr. Schumer and Schumpter have in common is the first five letters of their last names. No mention in the speech of "creative destruction," either. Just a lot of justification of government programs. "The private sector generally under-invests in basic science. That's why the public sector must invest instead," Mr. Obama said. He made the case for government investment by saying that the government investment in the Erie Canal was "what led a pretty good inventor and a pretty good businessman named Thomas Edison to come to Schenectady and open what is today a thriving mom-and-pop operation known as General Electric." In fact Edison did most of his innovating in West Orange and Menlo Park, New Jersey, not in Schenectady, notwithstanding the government's investment in canal technology that has since been made obsolete by railroads and interstate highways (admittedly, another government investment). The Library of Economics and Liberty has more on Schumpeter, who was a fan of capitalism but warned it would be replaced by socialism. In fact, some of Schumpeter may be more relevant than either Mr. Obama or Mr. Summers quite realizes. Here is one particularly nifty, if perhaps overly pessimistic, quote:

Perhaps the most striking feature of the picture is the extent to which the bourgeoisie, besides educating its own enemies, allows itself in turn to be educated by them. It absorbs the slogans of current radicalism and seems quite willing to undergo a process of conversion to a creed hostile to its very existence. ... This is verified by the very characteristic manner in which particular capitalist interests and bourgeoisie as a whole behave when facing direct attack. They talk and plead—or hire people to do it for them; they snatch at every chance of compromise; they are ever ready to give in; they never put up a fight under the flag of their own ideals and interests—in this country there was no real resistance anywhere against the imposition of crushing financial burdens during the last decade or against labor legislation incompatible with the effective management of industry.... Means of defense were not entirely lacking and history is full of examples of the success of small groups who, believing in their cause, were resolved to stand by their guns. The only explanation for the meekness we observe is that the bourgeois order no longer makes any sense to the bourgeoisie itself and that, when all is said and nothing is done, it does not really care.

by Editor  |  Sep 21, 2009 at 5:36 pm Related Topics:  Goldman Sachs, Lawrence Summers receive the latest by email: subscribe to the free futureofcapitalism.com mailing list