progressivism, individualism, and the public ... - Telmarc Group

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PROGRESSIVISM, INDIVIDUALISM, AND THE PUBLIC
INTELLECTUAL
always underscored—was a crucial flaw in their analysis of capitalism. The prior
possession of money makes it easier to become an entrepreneur, of course, and successful
ones do usually become wealthy.
But the historical record shows unmistakably that, in the countries Schumpeter is
discussing, entrepreneurs come from all income groups. (He had a deep interest in social
classes, a topic he often wrote about.) “Risk bearing is no part of the entrepreneurial
function. It is the capitalist who bears the risk. The entrepreneur does so only to the
extent to which . . . he is also capitalist, but qua entrepreneur he loses other people’s
money.”
Having staked out the distinctive role of the Entrepreneur, Schumpeter identifies
entrepreneurial Profit as the prime motivator—“the premium put upon successful
innovation.” When other participants in the same industry see the new level of Profit,
they try to duplicate the Innovation. In turn, the Entrepreneur tries to preserve his high
Profit for as long as possible—through further innovation, the use of patents, secret
processes, advertising, and “aggression directed against actual and would-be
competitors.”
Schumpeter recognize the entrepreneur as the key element of capitalism, and suppression
of that function would doom capitalism in the long run. What Schumpeter got wrong is
that the entrepreneur in today's market must initially come to the table with the idea and
the seed capital through their own resources. The venture capitalist did not exist at the
time Schumpeter wrote this and thus he is looking at the early 20th century view of
financing entity and entrepreneur. The 21st century view is more complex and more
reliant on the entrepreneur. Yet if the Government takes actions to suppress any of the
functions in the food chain of the entrepreneur it will kill it off and thus all innovation.
McCraw details that well.
These are forms of what, three years later, Schumpeter famously called “creative
destruction” in Capitalism, Socialism and Democracy."
Schumpeter was in many ways similar to Hayek. He introduced the concept of Creative
Destruction, the process where businesses have natural lifetimes and are replaced by the
next best thing. He states 143 :
"The opening of new markets, foreign or domestic, and the organizational development
from the craft shop and factory to such concerns as U.S. Steel illustrate the same process
of industrial mutation - if I may use that biological term - that incessantly revolutionizes
the economic structures from within, incessantly destroying the old one, incessantly
creating a new one. This process of Creative Destruction is the essential fact about
capitalism."
143 Schumpeter, Capitalism, p 83.
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