Schumpeter Capitalist Economy Summary

Schumpeter’s work considered the role of entrepreneurs in creating profit as well as building on Weber’s examination of credit-money. He focused on these areas as an attempted to solve two problems with Smith’s circular-flow model. First, that it did not contain profits and secondly, it did not contain the element of bank credit-money. Schumpeter explained that the role of the entrepreneur was not passive, simply responding to price signals. He argued that in reality the entrepreneur’s actual role was to, “constantly revolutionize the system by restructuring the factors of production in new ways that yield a profit for the initiator either by an increase in their productivity or by the production of new goods,” (Ingham, 38). Schumpeter …show more content…
The monetary system, firms, market exchange, and capital and financial markets, “are all produced and maintained by state law, norms, and cultural beliefs,” (Ingham, 59). Capitalism was able to develop due to coexistence and mutual dependence of private economic power and coercive state power. The relationship and limits of these two powers have been debated since early modern times when property rights allowed private economic power to get strong enough to claim more opportunity to seek profits. What came out of the development of capitalist society are two spheres, the state and the economy. These two social structures are, “relatively autonomous but interdependent,” the state assists and manages the economy, which creates wealth that provides loans and taxes for the state to use as support, (Ingham, 177). The state uses its legitimate authority to intervene in the economy in multiple …show more content…
This coercive power allows the state to control laws, military, police, etc, while also allowing it to punish individuals who do not follow the rules that the state sets. Modern state capitalism is a combination of state coercion and the consent of the population. With its authority the state provides, “physical security and a degree of social order which permits peaceful economic activity,” (Ingham, 178). Also, it creates a framework of rules of competition and exchange in order to protect property rights. This allows property owners to organize production within firms in order to make profits. The government also provides procedural rules, which regulate areas such; externalities, finance, transportation, communication, and energy. For example, states attempt to control monopolies, regulate capital-labor relations, and prevent fraud. Regulations limit rights and assign responsibly to keep the economy stable and protect public