Schumpeter viewed the entrepreneur as central to capitalist development. Capitalism involves entrepreneurs carrying out innovations through borrowed money and credit creation. Entrepreneurs inspire economic development by introducing new products, processes, organizations, and markets. However, their innovations are discontinuous and create "creative destruction" as new industries replace old ones. Over time, the role of the entrepreneur declines as large corporations and managers replace them. Innovation and entrepreneurship become depersonalized and bureaucratized, leading to the eventual decline and decomposition of capitalism.

1. SCHUMPETER’S VIEWS ON
CAPITALISM
Prof. Prabha Panth
Osmania University,
Hyderabad

2. Role of Entrepreneur
• Schumpeter gives central role to the “entrepreneur” as the principal
agent of capitalist development.
Definition:
“Capitalism is that form of private property economy in which
innovations are carried out by means of borrowed money, which in
general, though not by logical necessity, implies credit creation.”
The individuals who carry out their innovations are called
“entrepreneurs”.
They create a credit based society.
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3. Innovation
• The fundamental phenomenon of economic development – the entrepreneur
is the “captain of industry.”
• Capitalist economy is never stationary.
• The Entrepreneur is inspired to find new products, processes, forms of
organisations, raw materials, markets, etc. to bring the economy out of the
rut.
• Innovations may take the form of --
1. New combinations started by new firms – e.g. railways distinct from horse drawn
carriages,
2. New combinations of materials and forces in the sphere of production.
3. Command over means of production, chiefly credit, characteristic of the capitalist
society, forcing the economy into new channels,
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4. Innovations
• Innovations do not appear at regular intervals – but in bursts.
• Discontinuous. When they appear there is economic activity, otherwise
stagnation.
• Competitive capitalism experiences regular booms and recessions,
• Because innovation is not ever lasting – it leads to “creative destruction”,
new industries, new products, new technologies destroy old industries.
• The success of capitalism brings about its destruction.
• The entrepreneur becomes superfluous and unnecessary.
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5. Decline of Capitalism
1. Obsolescence of the entrepreneurial function. Growth of large
corporations and managers instead of entrepreneurs.
2. They get paid jobs as managers, reduces entrepreneurial energy.
1. Economic progress is depersonalised and automatized,
2. Giant firms oust small and medium firms,
3. Entrepreneur is ousted,
4. Bourgeois is expropriated as a class, loses its will to defend capitalism
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6. 3. Gradual destruction of the protecting strata and institutional
framework.
- Entrepreneur (like the feudal lord) earlier showed the way – he was the
protecting master.
- Bourgeois is an unheroic and non-charismatic class,
- Social framework is broken down,
- Large corporations – salaried workers, on contractual basis.
- Freedom under capitalism vanishes.
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7. 4. Rationality and critical attitude of capitalism destroys it.
- rational attitude criticises first feudalism then capitalism,
- ownership of private property and bourgeois values,
- intellectuals verbalise, organise, and create social unrest.
- growth of labour movement,
- functions of innovation and entrepreneurship taken over by
bureaucratic form of government.
- rational, critical attitude directed against capitalist social order.
Thus Capitalism is decomposed and destroyed, and is replaced by
Socialism.
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