Academic journal article History of Economics Review

Schumpeter and Steindl on Growth and the Transformation to Maturity in Capitalism

Academic journal article History of Economics Review

Schumpeter and Steindl on Growth and the Transformation to Maturity in Capitalism

Article excerpt

Abstract: Joseph Schumpeter and Josef Steindl provide distinctive contributions to the analysis of growth and development under capitalism. They each analyse the evolution of competition and use this analysis to determine the growth prospects of mature capitalism. Both reach pessimistic conclusions, although for different reasons. This paper critically examines the analysis of each author and makes suggestions for building on their work to provide a richer theory of economic growth and transformation within advanced capitalist economies.

Scientific analysis is not simply a logically consistent process that starts with some primitive notions and then adds to the stock in some straight-line fashion. It is not simply progressive discovery of some objective reality--as is, for example, discovery in the basin of the Congo. Rather it is an incessant struggle with creations of our own and our predecessors' minds and it 'progresses', if at all, in a criss-cross fashion, not as logic, but as the impact of new ideas or observations or needs, and also as the bents and temperaments of new men, dictate. (Schumpeter 1954, p. 4)

1 Introduction

In Capitalism, Socialista and Democracy, Joseph Schumpeter (1942 [1975]) examines the history of capitalism and discusses its future prospects. In particular, he notes the evolutionary nature of capitalism, identifying its inherent tendency to transform itself through entrepreneurial action leading to innovation. Competition is in the form of the 'perennial gale of creative destruction', in which the market-power positions of established firms are destroyed by innovators. These innovations provide an impetus for growth. However, Schumpeter worries that growth prospects of capitalism will eventually diminish because of a decline in entrepreneurial activity as capitalism becomes 'civilized'.

In Maturity and Stagnation in American Capitalism, Josef Steindl (1956 [1972]) analyses the evolution of the American economy in the twentieth century. He argues that industrialisation and technical progress are associated with cost differentials across firms, leading to a pattern of competition that raises industry concentration. With high concentration an industry reaches 'maturity', which inhibits further competition and reduces investment in the expansion of productive capacity, thereby impeding further growth.

In the present paper, we argue Schumpeter and Steindl each capture important aspects of the analysis of transformation as well as growth under capitalism. By growth we mean the expanded reproduction of a range of economic activities, while by transformation we mean reordering or restructuring of broadly economic phenomena, such as firms and the connections between firms in industries. In Schumpeter's analysis, innovations lead to a reordering of the competitive positions of firms as well as providing an impetus for expansion of production. An ensuing process of creative destruction then leads to restructuring of production. In Steindl's analysis, the emergence of cost differentials is a reordering of competitive positions and the pattern of competition leads to both expansion of production and industry restructuring.

While Schumpeter and Steindl each provide a framework in which transformation can be analysed, we argue that their analyses suffer because neither the transformation to 'civilized' capitalism in Schumpeter nor the transformation to 'maturity' in Steindl is based on an adequate theory of the firm. In particular neither author deals adequately with the creation of new firms and the internal development of established firms. We identify this weakness with a tendency by both authors to attribute calculation and adjustment to the economy and to economic actions, and entrepreneurship and creativity to non-economic factors and processes. The firm straddles this boundary of economic and non-economic and so the tensions of adjusting and creating are pertinent to the firm. …

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