Schumpeter’s Moment

Carl Schramm has a good article on Joseph Schumpeter in today’s WSJ. Here’s a taste:

From Schumpeter’s vantage point, capitalism’s very success allows rich societies to use government to relax the impersonal rules that govern markets, creating new rules that buffer citizens from the rigors of risk-taking and failure. In that sense, government invents for itself the task of mediating market outcomes. Schumpeter had seen the dangers of this play out in Bismarck’s conception of Prussia’s welfare state. In the face of the Marxist threat, the elite secured its position by causing government to dispense social benefits. Political entrenchment, not charity, had motivated Bismarck. When distorted in such a way, free-market capitalism is seen to suppress — rather than to encourage — social and economic mobility.
Since the New Deal, Americans have come to see government as somehow the ultimate protector of their financial welfare. In reality, though, the evidence of the U.S. government behaving in this way during the New Deal is thin to say the least. Although it is largely forgotten now, much of the government’s action during the Depression actually had a marginal impact on individual lives. Monetary expansion and technological innovation boosted the economy, while the “second” depression of 1937-1938 is widely understood as having been induced by Roosevelt’s attempt to manipulate credit markets.

Posted by on May 29th, 2009 at 9:16 am


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