June 5, 2008
Fred L. Smith, Jr.
President and Founder, Competitive Enterprise Institute
in a lively conversation
Addressing the Schumpeterian Challenge
Revitalizing the Fight for Liberty
Fred Smith, a Junto guest on several past occasions, will address the gauntlet thrown down by the famed Austrian economist, Joseph Schumpeter, long ago in his essay, "Can Capitalism Survive?" and Schumpeter's gloomy answer: "No, I do not think it can."
Fred Smith writes:
Schumpeter's argument was that capitalism would succeed, creating a major increase in the middle class, those not forced to work from sunup to sundown.
Many would enjoy that surplus but some would become entrepreneurs (doers), others intellectuals (thinkers). The former would increase further the middle class; the latter would ponder the meaning of life, contrasting their utopian hopes with flawed reality.
Gadflies are useful; we do need some intellectuals. But, eventually, many of this class would look up from their scribblings, note the growing wealth of their entrepreneurial counterparts and ask: If we're so smart and moral, why are they so rich?
Envy not being a noble feeling; intellectuals would soon find ways of arguing the immorality of the market, of the entrepreneurial class, arguing that their wealth was ill-begotten, stemming from various forms of exploitation -- of the poor, minorities, women, the peoples of the developing world, the ecology.
Since most people learn about most of the world via the narratives created by the Chattering Class, most of us come to see the world through pink-colored glasses.
Not surprisingly, this steady drumbeat of attacks gradually undermines the moral and intellectual foundations of the market. And, as the market loses its moral authority, entrepreneurial politicians will find it profitable to engage in economic predation, expanding statist control over business.
Over time, such predation, such political intervention in the market via regulations and government providers of services would create a vast political bureaucracy, a modern Mandarinate, with powerful, well-paying jobs for modern Mandarins.
And who better to fill these slots than our under-paid and under-appreciated intellectuals? To Schumpeter, the combination of psychological and economic rewards would ensure that most intellectuals would come to view statism as in their class interest.
As a first approximation of western history for the last century plus, I see this schema as highly accurate.
But, of course, it is a bit too pessimistic (Schumpeter, after all, was of Germanic stock.) Not all intellectuals succumb to the statist virus as evidenced by the major growth in conservative, free market, and libertarian groups around the globe (CEI being but one).
Moreover, the fallacies of collectivist intervention don't disappear because statism becomes popular. Failures become ever more frequent and--with proper treatment--can lead to awareness that government can retreat as well as advance. But, still, the war of ideas will likely always be economic liberal platoons against statist divisions.
If the war is to be won, free market forces must seek out allies. In my view, those can best be found in the wealth- creating economic sphere, those business who actually recognize their comparative advantage lies in the market, not in politics.
But reaching those individuals and persuading them to ally themselves with economic liberals will not be easy. Businessmen aren't even aware that they're engaged in a cultural war, often find accommodation simpler than strategic defense much less offense, and have little understanding of how their involvement--and the resources they can bring to bear in this struggle--might prove decisive.
Indeed, the irony is that such intellectual/alliances as have emerged over the last decades have more often been of the rent-seeker/statist variety, rather than the economic liberal/entrepreneur type.
I will explore these challenges and provide a (mildly) optimistic outline of how the war for economic liberty may yet be won.
Competitive Enterprise Institute is a non-profit public policy organization dedicated to advancing the principles of free enterprise and limited government.
believes that individuals are best helped not by government intervention, but by making their own choices in a free marketplace. Since its founding in 1984, CEI has grown into a $3,000,000 institution with a team of over 20 policy experts and other staff.
last spoke at Junto
in March 2006.
more information on this Junto event, including time,
location, and other features of the meeting see the June