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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.


The Competitive Enterprise Institute is a non-profit public policy organization dedicated to advancing the principles of free enterprise and limited government.

It 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.

Smith last spoke at Junto in March 2006.

For more information on this Junto event, including time, location, and other features of the meeting see the June Junto page.


Celebrations of Ayn Rand's 100th, 101st, 102nd, 103rd, 104th and 105th birthdays

Memorial for John Perry, a NYC police officer & Junto attendee, lost on 9/11

Charles Adams

Dennis Ainsworth

Bruce Ames

June Arunga

George B.N. Ayittey

John Baden

Michael Balboa

Sallie Baliunas

Randy E. Barnett

Caroline Baum

Tom Bethell

Robert Bidinotto

Terry Blodgett

David Boaz

Donald J. Boudreaux

James Bovard

Bill Bradford

Barbara Branden

Harry Browne

David Ciocca

Tyler Cowen

Eugene R. Dattel

James DeLong

Francis X. Diebold

Tom DiLorenzo

Richard Ebeling

Marty Edelston

Ivan Eland

Marsha Familaro Enright

Richard Epstein

Harold Evans

Peter Ferrara

Thomas Fleming

Murray Franck

Judge Marvin Frankel

"Benjamin Franklin"

David Friedman

Jeffrey Friedman

Patri Friedman

Marshall Fritz

Michael Fumento

John Fund

Arthur E. Gandolfi

John Taylor Gatto

Scott Douglas Gerber

Henry Gifford

George Gilder

Mike Godwin

Bettina Bien Greaves

Gary Greenberg

Aubrey de Grey

Martin Gross

Dan Grossman

Thor Halvorssen

Milo Hamilton

Robin Hanson

Dean Hazel

Stephen Hicks

Robert Higgs

Jeremy Hildreth

Erica Holzer

Gary Hoover

Jacob G. Hornberger

Peter Huber

Edward L. Hudgins

Jeffrey Rogers Hummel

Jerome Huyler

Mitchell Jones

Stephen Kagann

Steve Keeley

David Kelley

Laurel Kenner

Saul Kent

Yasuhiko Genku Kimura

Thomas L. Knapp

Alan Charles Kors

Richard Kostelanetz

Lawrence Kudlow

Steven Landsburg

Sarah Lawrence

Pierre Lemieux

Jules Leopold

Peter Lewin

Marty Lewinter

Will Lewis

Carl Liedhom

Seth Lipsky

Felix Livingston

Herbert London

John R. Lott Jr.

Cathy Luchetti

Tibor Machan

Marisa Manley

Steve Mariotti

Stanley Mason

Megan McArdle

Bill McCarthy

John McCormack

John L. McCormack

Wendy McElroy

John McGinnis

Lawrence McQuillan

Gabriella Megyesi

Perry Metzger

Jeffrey Miron

Stephen Moore

Deroy Murdock

Robert Murphy

Charles Murray

Victor Niederhoffer

Walter Olson

Jane Orient

Roger Pilon

Virginia Postrel

Benjamin Powell

Jim Powell

Ronald Radosh

Douglas Rasmussen

Greg Rehmke

George Reisman

Kenneth Rendell

Adam Robinson

Arthur Robinson

Jim Rogers

Michael Rothschild

Candida Royalle

Linda Russell

Robert Schrade

Jack Schwartzman

Todd Seavey

Larry Sechrest

Hans F. Sennholz

Amity Shlaes

Tim Slagle

Susan Slyman

Fred L. Smith Jr.

David Ramsay Steele

Brett Steenbarger

Richard W. Stevens

Stephen Stigler

John Stossel

Michael Strong

Jacob Sullum

Alexander Tabarrok

Joan Kennedy Taylor

Peter Thiel

Frank Tipler

William Tucker

Jesse Walker

George Walsh

Peter Lamborn Wilson

Stephanie Winston

Jim Wynne