Can Socialism Work? Of Course it Can’t! Schumpeter on Capitalism, Socialism and Economic Change

In Capitalism, Socialism and Democracy, Schumpeter famously predicts the likely replacement of capitalism by socialism and claims that a socialist economy could be perfectly workable. While most commentators have interpreted the book as a neutral or even favorable assessment of socialism’s feasibility, a few of them have noted the ironic tone that pervades parts of the book. Yet, the implications of this irony for Schumpeter’s assessment of socialism remain largely unexplored. This article argues that Schumpeter’s apparent defense of socialism is best understood as a sustained ironic demonstration designed to expose the limits of socialist planning rather than to endorse its superiority over capitalism. Drawing on concepts that lie at the heart of Schumpeter’s theoretical framework, notably the distinction between growth and development, the opposition between perfect competition and plausible capitalism, and the central role of the entrepreneur in the emergence of novelty, we show that Schumpeter could not consistently maintain that a socialist economy would be capable of reproducing the developmental performance of capitalism. Behind an explicit but mostly ironic claim asserting the viability of socialism, CSD provides in fact a demonstration that socialism cannot match capitalism’s ability to generate the stream of discontinuous innovations that constitute economic development.