Joseph Schumpeter’s Anti-Utopian Quotation

Joseph Schumpeter’s Anti-Utopian Quotation.

[Disclaimer: The objective of this piece is to get things off my chest, to engage the three people I mention herein, possibly at the risk of weirding out others who do not know the background of the piece, and to show that a voluntary society is both moral and workable.]

A few weeks or maybe more than a month ago, I came across a quotation from Joseph Schumpeter (1883-1950) that I thought made a lot of sense.

Schumpeter is one of those long-dead Austrian economists that you read about every so often. He was a pupil, along with Ludwig von Mises, of Eugen von Böhm-Bawerk, the Austrian Finance Minister. Though he was influenced to a great extent by the Austrian school of economics, he is generally considered to be a member of the Historical school of economics. In reality, he was a little of both (in addition to being enamored of the Lausanne school of economics and influenced by Weberian sociology), as he attempted to solve the two schools’ differences in methodology.

I haven’t read any of his books, and I don’t plan on doing so any time soon, but I recommend to anyone interested in economics or political philosophy from either a classical liberal or heterodox perspective, that they consider at least perusing some of them. I had to do this myself just the other day trying to find his quotation again. I couldn’t find it in any of the books I scanned through.

All the while I was looking myself, I asked some others to help me out. I emailed no less personages than Walter Block (got back to me), Gary North (got back to me), Roderick LongMark Thornton (got back to me), Thomas DiLorenzoDavid GordonRobert HiggsHans HoppeRobert Murphy (got back to me), Ralph RaicoJoseph SalernoP.J. Hill, and Thomas Woods (got back to me), with the message:

I read a quote from Joseph Schumpeter just the other day that I thought was pretty good. But for the life of me I can’t recall where exactly I read it, and am unable to find it using google or the lists of Schumpeter quotes I found. It basically states that consumers aren’t really rational, but instead their decisions approach the rational, and it maybe also had something to do with price system or the allocation of resources. I am working on something right now and feel that this quote would be a perfect fit for the point I am trying to get across. I would greatly appreciate your help if you can point me in the right direction, perhaps if you know the exact quotation or the work it is found in. I am emailing a few other knowledgeable people about this quote, so if you are unable to help, that is fine too.

Thank you very much,

Henry Moore

For the record, I do not put Schumpeter on as high a pedestal as I would a Mises or a Hayek or a Rothbard. I find some of the things he wrote to be questionable and some of the things he said to be reprehensible. But he was a very intelligent, well-informed man who has contributed much insight to the fields of economics, sociology, political science, and philosophy, and so there is still wisdom to be extracted from his voluminous body of work. Hence my fixation with just one measly quotation.

I must have originally read it here, though this is not where I eventually found it again. I thought it was worth keeping, so I copied and pasted it to one of my files, just in case I needed it for something.

Sure enough, a few days, maybe weeks later, it came time to post some rebuttals (something I promised I was going to do) to one, Barry Germansky and a comment he left on an earlier post, and one of the phrases I was using just seemed like it needed some backing up by some intellectual authority figure. The phrase was “near-rational”, and again, “quasi-rational”. I wasn’t able to find the quotation at that time, which is why I feel compelled to write about it now.

The reason the particular phrase needed some additional fire power (while certain other phrases and ideas did not) has to do with the its relation to the central issue in my “discussion” with Germansky. Germansky’s op-ed makes several statements and draws several conclusions that I fundamentally disagree with, but I felt it absolutely necessary to convey (though unfortunately not emphasize, as I couldn’t find the quotation), that I did accept at least some of his premises. It is very hard to argue with someone without agreeing with them on a few basics. In spite of Germansky’s straw man arguments to the contrary, advocates of the free market (I speak mainly for libertarians of Austrian persuasion, albeit as a layman) do not have Utopian ideals, and reject the idea of mankind’s and society’s perfectability.

The premise that we all agree on is that of man’s imperfectability, more or less the same as his fallibility. He is unable to create Utopia (Greek for “No Place,” though true Utopians think it is Greek for “Good Place”). There are, of course, different ways of putting this idea to words. The Christians have their Doctrine of Original Sin. A number of other religions also acknowledge that man, while confined to earth, cannot create his own heaven. The secular humanist might think more in terms of man being a superior being, but an evolved (perhaps still evolving) animal nonetheless, and that when push comes to shove, survival, at least in the subconscious of the individual, trumps any notion of moral duty or value.

[Let me briefly pause here, before going on to show how Germansky and Schumpeter each have their own version of the above premise, to say that this piece, came largely out of the blue as several things came together right before me. I have already explained some of this, but while the iron is still hot, I would like to strike it again. That’s why I am giving a shout out to Rick Searle and Giulio Caperchi, two fellow bloggers with whom I have had similar (but less one-sided) discourses, more on which is hopefully to come in September. Searle has gotten me interested in the topic of Utopia of late, and Caperchi has some similarities to Germansky, in that they both argue for a separation of the political sphere from the economic, though the latter is much more rigid.]

Barry Germansky has his own philosophy, which he dubs Pseudo-Practicality (though what little I know of it would better be described as Quasi-Practicality) states that all human thoughts are mere abstractions, that all abstractions are inherently contradictory, but that some (perhaps to be determined through trial and error, or just logical deduction) are less contradictory than others. He also maintains (quite rightly) that societies based on the least contradictory abstract concepts, though still imperfect, are preferable to more contradictory forms of societal conduct or structure.

Clearly, at least in his philosophy, Barry Germansky rejects Utopianism. But then comes the rub. What he advocates in terms of societal behavior and hierarchy violates his own philosophy. Hyperdemocracy and legal positivism, and their products (ranging from the socialist dictatorship to the special-interest oligarchy to the “benign” welfare state) are among the most highly contradictory (and therefore Utopian relative to the claims made for them by their apologists) societal configurations imaginable. I feel that I (will) have shown this (in due time), hopefully within the scope of my discussion(s) with Germansky.

Not to be outdone, Schumpeter also had something to say on this, the imperfectability of man and society. Which brings me at long last to the quotation (Which I did eventually find, buried deep in my files, as it was in a format that made it impossible for my internal search application to find it using any keywords. I basically just happened upon it after becoming demoralized and giving up entirely.) itself, which was first published in 1911:

The assumption that conduct is prompt and rational is in all cases a fiction. But it proves to be sufficiently near to reality, if things have had time to hammer logic into men. Where this has happened, and within the limits in which it has happened, one may rest content with this fiction and build theories upon it.

The implication is that people are not perfectly rational, though they are capable of rational thought and action. The take-away from this is that even though mankind can come apparently close to perfection in so many of his decisions and endeavors, he still can not know and consider every possible facet of every possible detail of his actions and their possible consequences, long enough or hard enough for them to truly be considered infallible. There is a constant falling short, even if in practice this is of little concern.

For those that accept them (what I suspect is the majority of informed free market advocates) these notions preclude all Utopian aspirations on their part. For even if the free market were Utopian on the same grounds (their unworkability) that hyperdemocracy and legal positivism are, it still wouldn’t be Utopian in its ideals or goals, outside of perhaps a few ideological circles. So, a free market might still be Utopian to the extent that it is not all that it is claimed to be. But a great deal of the claims as to what those claims are, are exaggerations. More straw men.

The free market’s advocates do not claim for it the same types of things that other Utopian ideas (including those masquerading as non-Utopian) claim. Take social justice and equality. For even those Market Anarchists who emphasize the value of these two things recognize that even within their preferred system, perfect social justice and perfect equality are just as unattainable as perfect rationality. This is because the benefits of a free society and free economy are still conferred on merits (how valuable a producer, and not just in the sense of a manufacturer or other entrepreneur, each person is to society, to consumers). Discrimination still exists, but it is not, at root, irrational. So there is social justice.

Because what discrimination that manifests itself is rooted in the choices of individuals and their responsibility for themselves, it creates alignments rather than distortions. That is, those with a low time preference and high motivation get what they desire, and those with a high time preference and low motivation get what they desire. Both groups would contain free riders (those with low time preference wait to do things at lower cost than those with a higher time preference, and those who are less motivated do not have as much at risk in relation to the benefit they reap in the form of increased capacity or standard of living brought on by the more highly motivated) on the others, but none of them is complicit in fraud or coercion in so doing. So there is equality (in addition to equality before the law).

The imperfections of society do not reflect the structure of that society, in a free, voluntary, or unanimous consent society, so much as they reflect each individual’s responsibility for himself. Bad choices are the responsibility of the chooser.

This does not mean that there is no spill-over effect. But the negative impact can be lessened if distortions are not present. And where others are wrongly affected, there is room for reparation, compensation, justice to be meted out.

Nor does it mean that others are prohibited from protecting the bad decision maker from some of the consequences of his actions, or helping him to deal with them. For these acts (of protecting or helping) are themselves choices which may be bad or good and come with their own sets of consequences.


6 thoughts on “Joseph Schumpeter’s Anti-Utopian Quotation

  1. Great piece Hank.

    I might note that many of the people, such as those in the Occupy Movement promoting participatory democracy are not in favor of “hyper-democracy” if it means “majority rule” or Majoritarianism as your link would suggest.

    Here is David Graeber:

    Majority democracy, we might say, can only
    emerge when two factors coincide:

    1. a feeling that people should have equal say in
    making group decisions, and
    2. a coercive apparatus capable of enforcing those

    For most of human history, it has been extremely unusual to have both at the same time. Where egalitarian societies exist, it is also usually considered wrong to impose systematic coercion. Where a
    machinery of coercion did exist, it did not even occur to those wielding it that they were enforcing any sort of popular will.

    • Thanks, Rick. I went a little heavy on the links. Hyperdemocracy is not really a word, but it is a term I have seen (somewhere) before. I linked to the word twice (once to “Majoritarianism”, its purported good side, and once to “Ochlocracy”, its bad side). I guess what I mean by it is tyranny by the majority. Perhaps that is a cliche, but I do think it exists, particularly where the participants have no real connection to each other, i.e., on a national scale. You touched on this in the second original paragraph of your Sophists.

      But the majority is not usually the same group twice, so it could, in effect, be tyranny by a minority. That’s the dirty little secret that is buried deep within the soul of even a republic or representative democracy. In fact, the benefit that is a republic’s softening touch on majority/minority rule tyranny may not always outweigh the detriment that is a republic’s obscuration of the same. Sometimes well-intentioned policies and forms of government may be worth the moral hazard they enable, and other times they absolutely are not.

      The question is, ON which side should we err? Were it possible to know all possible outcomes, this “erring” could easily be done on a case by case basis. But since it is not possible (because none of us is perfectly rational and there are more pieces of information and probabilities than can be satisfactorily processed by even a supercomputer), it is necessary to come down on side or the other to avoid arbitrariness.

      Of course, I do like Democracy. I like its history and I like its many uses. As many people as possible should not only have their SAY, but also their WAY, just not at someone else’s expense.

      I am especially fascinated by the concept of the agora, a marketplace and a democratic assembly. Some want to completely sever the two (Barry Germansky types on the one end, crony-capitalist types on the other), which in reality subordinates one to the other. Others (Giulio and I both, but to varying degrees) want to see what could be termed a more organic connection, some (such as myself) going so far as to make them virtually indistinguishable (because they would both be entirely voluntary), which is admittedly further than even the Greeks went.

      I don’t think of this idea as a new synthesis, but a fortification of the original thesis. Maybe I am cracked.

  2. Pingback: Joseph Schumpeter's Anti-Utopian Quotation « keimh3regpeh2umeg | Schumpeter |

  3. Ok I will (say it to your face, that’s cute!) There’s a grammar error in: “The take-away from this is that mankind is that even though mankind can”

    Also I’m not sure what the objective of your treatise is, can you put a summary at the beginning or end for the kids in the back of the class that *love* the teacher but *partied* instead of doing their homework?! :)

    So what you’re saying is… people don’t know what they want and can’t control what they get anyway? Lol that’s what I took home from reading it. Sorry I’m a bit of a bimbo this late at night!

    Overout! April

    • Thank you for pointing that out. I don’t mind at all. I like things to be tidy.

      People know what they want. But the that they want it at all may not be an entirely rational thought on their part. In that the reason they want it is because they are unaware of better alternatives or because they think something of it that is not true (this is what advertising does). In any case, no decision can be made knowing all the facts and consequences. If it could, there is no reason a planned society wouldn’t work. Ben Bernanke could, in theory, know the exact amount of dollars that should be in the economy at any given moment, and with the click of a computer, make it so. Maybe most of the major facts and consequences, and in most cases that is all that counts. Which is why near-rationality is sufficient to build theories upon.

      If you could know every fact and consequence, then in theory (if technology permits, and someday it will), so could society planners. Take Bernanke. There is no reason he wouldn’t be able to know the exact amount of dollars that should be in existence at any given moment, and, make it so. But there is simply no way (not even with futuristic technology) to know all the information about even a simple thing and the desire to have it, let alone to run an economy smoothly from on high. Problems don’t usually arise with one person wanting one thing. But when it is millions of people each wanting millions of things, planning does not work. The free market, because it does not make impositions like an economic plan, does work.

      The objective is a few things. To get things off my chest. To engage the three people I mentioned, possibly at the risk of weirding out others who do not know the background of the piece. And to show that a voluntary society is both moral and workable.

      Maybe I will post that at the top as a sort of disclaimer.

      In any case, I am so glad that you are interested. Blogging can be so tedious at times.

  4. Pingback: Joseph Schumpeter's Anti-Utopian Quotation « keimh3regpeh2umeg | Austro-Libertarianism |

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