I let the following quote speak for itself, and hope to return soon to draw out more substantive points relating to policy during a recession. Schumpeter was writing in 1941.
Note in passing, Barry Eichengreen’s remark that Schumpeter “was a skeptic of all things Keynesian, given his self-conscious competition with Keynes for the mantle of greatest economist of the 20th century”.
The readiness to let a budget run into a deficit in a depression by keeping up expenditures in the face of shrinking revenues is a policy which will alleviate much suffering and keep many things going which would otherwise crash. This is so and cannot be denied, and action along these lines has been taken consciously or unconsciously for more than a hundred years…
The interesting thing is not so much the degree to which remedial effects can be attained in that way; the interesting fact is the spirit in which the policy was entered into… and the way in which it was made permanent. I shall put aside the question, for want of time, whether there is something in the ruthless principle that the budget ought to be balanced under any circumstances. Action on that principle makes things worse in a depression, but who knows whether the patient is not healthier when he gets along without it than with it…
I want to discuss the implications of the fact that the policy has come to stay… Interests have been brought up, people who are profiting from it and living on it, which will never let it go. I should like to see the political hero who can break that phalanx...
This [deficit] spending is so administered as to be incapable of effecting a capitalist recovery. Combined with certain tax and wage policies it will keep up the system, but it will never allow those morals to grow which will make the system run again. So the same policy which keeps up permanent spending at the same time sees to it that that the permanent spending will be permanently necessary unless people are prepared to put up with a serious relapse. What was no doubt originally meant to be a temporary measure has become a lever in the process of transforming society. In such a situation in which the state will always control the most important part of the total expenditure in the nation, this state will not only be master of the monetary quantities, it will be master of the economic process in general...
Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.
Subscribe Now
Anyone familiar with Schumpeter’s writing knows that when the state becomes “master of the economic process in general” he means socialism. Schumpeter predicted capitalism would eventually morph into socialism not only or necessarily because of innate intellectual hostility toward capitalism but because market innovation (the perennial gale of creative destruction) becomes “automated” and reduced to a “routine”. He viewed with suspicion the administration of monetary quantities, the "morphine" of deficits, and pump priming expenditure in the light of that self-destructive trend in capitalism which is easily accentuated during recessions.
To have unlimited access to our content including in-depth commentaries, book reviews, exclusive interviews, PS OnPoint and PS The Big Picture, please subscribe
Iran’s mass ballistic missile and drone attack on Israel last week raised anew the specter of a widening Middle East war that draws in Iran and its proxies, as well as Western countries like the United States. The urgent need to defuse tensions – starting by ending Israel’s war in Gaza and pursuing a lasting political solution to the Israeli-Palestinian conflict – is obvious, but can it be done?
The most successful development stories almost always involve major shifts in the sources of economic growth, which in turn allow economies to reinvent themselves out of necessity or by design. In China, the interplay of mounting external pressures, lagging household consumption, and falling productivity will increasingly shape China’s policy choices in the years ahead.
explains why the Chinese authorities should switch to a consumption- and productivity-led growth model.
Designing a progressive anti-violence strategy that delivers the safety for which a huge share of Latin Americans crave is perhaps the most difficult challenge facing many of the region’s governments. But it is also the most important.
urge the region’s progressives to start treating security as an essential component of social protection.
I let the following quote speak for itself, and hope to return soon to draw out more substantive points relating to policy during a recession. Schumpeter was writing in 1941.
Note in passing, Barry Eichengreen’s remark that Schumpeter “was a skeptic of all things Keynesian, given his self-conscious competition with Keynes for the mantle of greatest economist of the 20th century”.
The readiness to let a budget run into a deficit in a depression by keeping up expenditures in the face of shrinking revenues is a policy which will alleviate much suffering and keep many things going which would otherwise crash. This is so and cannot be denied, and action along these lines has been taken consciously or unconsciously for more than a hundred years…
The interesting thing is not so much the degree to which remedial effects can be attained in that way; the interesting fact is the spirit in which the policy was entered into… and the way in which it was made permanent. I shall put aside the question, for want of time, whether there is something in the ruthless principle that the budget ought to be balanced under any circumstances. Action on that principle makes things worse in a depression, but who knows whether the patient is not healthier when he gets along without it than with it…
I want to discuss the implications of the fact that the policy has come to stay… Interests have been brought up, people who are profiting from it and living on it, which will never let it go. I should like to see the political hero who can break that phalanx...
This [deficit] spending is so administered as to be incapable of effecting a capitalist recovery. Combined with certain tax and wage policies it will keep up the system, but it will never allow those morals to grow which will make the system run again. So the same policy which keeps up permanent spending at the same time sees to it that that the permanent spending will be permanently necessary unless people are prepared to put up with a serious relapse. What was no doubt originally meant to be a temporary measure has become a lever in the process of transforming society. In such a situation in which the state will always control the most important part of the total expenditure in the nation, this state will not only be master of the monetary quantities, it will be master of the economic process in general...
Subscribe to PS Digital
Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.
Subscribe Now
Anyone familiar with Schumpeter’s writing knows that when the state becomes “master of the economic process in general” he means socialism. Schumpeter predicted capitalism would eventually morph into socialism not only or necessarily because of innate intellectual hostility toward capitalism but because market innovation (the perennial gale of creative destruction) becomes “automated” and reduced to a “routine”. He viewed with suspicion the administration of monetary quantities, the "morphine" of deficits, and pump priming expenditure in the light of that self-destructive trend in capitalism which is easily accentuated during recessions.