assure innovative efficiency, and the profits are needed to keep the challengers trying. (In fact, says Schumpeter, when the losses of the failures are combined with the profits of the successes, the net cost to the consumer of all this may be zero—or less.)
Neither the Yankees nor IBM nor General Motors need be dismembered; time and tide and “creative destruction” will operate on each and bring a demotion in rank—unless they behave as if they face immediate and equal rivals, i.e. unless they behave “competitively.” And, of course, unless they receive governmental assistance in maintaining their market positions.
Schumpeter concludes his work in this area by saying that “long-run cases of pure monopoly must be of the rarest occurrence.... The power to exploit at pleasure a given pattern of demand ... can under the conditions of intact capitalism hardly persist for a period long enough to matter ... unless buttressed by public authority.”7
My own conviction, deriving largely from Schumpeter, is that competition does not have to be created or protected; it inheres in the very nature of man. It can be reduced or eliminated only by coercive acts of governments. All that a government need do to encourage competition is not to get in its way.
I agree with Schumpeter’s words in his preface to the second edition of Capitalism, Socialism and Democracy, when he writes, “I believe that most of the current talk about monopoly is nothing but radical ideology....”
In my opinion the antitrust laws of this country are anticapitalist in intent and in effect and, in addition, constitute one of the major sources of confusion and unwarranted guilt feelings on the part of the businessman. These laws brand as antisocial precisely those achievements by which the businessman evaluates his performance—growth in size, superiority over rivals, increasing market share, profits above average, etc.
They also produce such absurdities as the case brought a few years ago against Topps Chewing Gum for monopolizing the baseball picture card industry. In the words of the FTC examiner, Topps had been “hustling around getting the players’ signatures, pretty well cornering the major league players.” He added, in a dramatic after-climax, that “players were paid $5.00 for a five-year contract.” Who could possibly compete with a company that was willing to throw money around like that? (That was ten years ago; today, under the influence of potential rivals, the figure has gone up to no less than $250 a year!)
(4) Schumpeter’s case for capitalism is now complete and it is impressive indeed. Why does this not assure the public and political acceptance of the system? Because, says Schumpeter, “it is an error to believe that political attack arises primarily from grievance and that it can be turned by justification.... In no case is [rational argument] a match for the extra-rational determinants of conduct.”8
In effect if capitalism is to survive, it must defend itself in the arena of values and emotions—and here its very success as an economic system reduces its chances of victory. We can best see Schumpeter’s analysis of this by examining the impact of capitalism on each of the groups in society that might serve as a bulwark against the system.
(5) We begin with the principal beneficiaries of capitalism—the masses. Why do they not defend the system that has made them the most affluent people in the history of man? Because they do not connect their affluence with the capitalist system, because they are incapable of understanding any economic system as such, because they are more aware of their daily frustrations and insecurities under the system than they are of their long-run gains from the system, and because they are taught by the intellectuals in society to resent the capitalist system and its central figure—the businessman.
This same point is eloquently made by another distinguished social observer, Ortega y Gasset. In Revolt of the Masses, he writes:
The common man, finding himself in a world so excellent, technically and socially, believes it has been produced by nature, and never thinks of the personal efforts of highly endowed individuals which the creation of this new world presupposed. Still less will he admit the notion that all these facilities still require the support of certain difficult human virtues, the least failure of which would cause the rapid disappearance of the whole magnificent edifice.9
(6) The traditional aristocratic element in society that in the nineteenth century tended to protect the liberal capitalist system from its radical critics is itself a victim of the capitalist success. Capitalism is rationalistic in nature and creates an unfriendly climate for the tradition-based class system of the precapitalist society.
(7) But why does any of this matter? Can’t the businessman be his own defender? Why must he rely on others? Why indeed. The response is that even if he were fully aware of the problem and determined to do something about it, the businessman lacks the capacity to capture the imagination of the society. In the words of Schumpeter,
A genius in the business office may be, and often is, utterly unable outside of it to say boo to a goose—both in the drawing room and on the platform. Knowing this he wants to be left alone and to leave politics alone.... There is surely no trace of any mystic glamor about him which is what counts in the ruling of men. The stock exchange is a poor substitute for the Holy Grail.10
But this is not all. As capitalism matures, the form of the business firm and the role of the businessman change in such ways as to weaken the businessman’s will to resist the critics of capitalism. Most importantly (to Schumpeter), with the growth of the large organization so essential to economic efficiency, the role of the individual entrepreneur is replaced by the work of the team, and innovation itself is reduced to routine. Personality is blotted out and with it the gut sense of ownership of the means of production that characterized the self-made man of early capitalism. Capitalism creates the organization man—and the organization man is indifferent to the fate of capitalism. He eventually comes to care little whether he reports to the anonymous stockholders or the anonymous citizen-owners of socialism.
A case in point from my own experience: As a college student, I was employed one summer by the privately owned gas distribution system in Hastings, Nebraska, to try to persuade the citizens of the city that it would be a most unwise action for them to vote yes on a referendum proposal for the city to take over that system. Each Monday morning we “customer relations” men were given an impassioned lecture by the manager of the system on the evils of socialism. In spite of our eloquence (or because of it), the good burghers voted four to one to take over the system. One week later the manager of the now socialized enterprise was appointed, and who was it? Old God-how-I-hate-socialism himself! (This illustrates a point I have long argued: the kind of aggressive, ambitious, effective person who succeeds under capitalism is also likely to rise to power under most other economic arrangements. It is only under capitalism that his drive is harnessed in service to the interests of the consumers.)
(8) The result of all this is to make of capitalism a virtually undefended fortress, but this alone would not mean its destruction. What is needed is an enemy force—and this too capitalism provides, in the form of the intellectuals.
How is the intellectual defined?
Intellectuals are people who wield the power of the spoken and written word, and one of the touches that distinguishes them from other people who do the same is the absence of direct responsibility for practical affairs.... The critical attitude [arises] no less from the intellectual’s situation as an onlooker—in most cases, also an outsider—than from the fact that his main chance of asserting himself lies in his actual or potential nuisance value.11
The intellectual tends always to be a critic of the system, of the establishment, whether he is in Russia or the U.S. In Russia he is not tolerated—or is attuned solely to serving the current rulers and their ideology. But the businessman is by nature tolerant. He wants to
