Versuchsstation des Weltuntergangs”: Viennese Origins of the Debate on Capitalist Decline in Schumpeter, Polanyi, and Hayek

Please cite the paper as:
Alexander Ebner, (2024), “Versuchsstation des Weltuntergangs”: Viennese Origins of the Debate on Capitalist Decline in Schumpeter, Polanyi, and Hayek, World Economics Association (WEA) Conferences, No. 1 2024, Capitalism, Socialism and Democracy 80 years later, Looking at capitalism today in light of its past and possible future


This paper addresses the Viennese intellectual origins of the debate on the decline of contemporary capitalism in the key works of Joseph A. Schumpeter (1883-1950), Karl Polanyi (1886-1964), and Friedrich A. von Hayek (1899-1992). Schumpeter, Polanyi and Hayek have each provided major impulses to the theory of capitalist development, which remain of utmost relevance for current discourses on this subject. Their work is characterized by a common interest in the institutional conditions and long-run perspectives of modern capitalism. Also, they have been decidedly concerned with the advent of socialism and its inherent tendencies of bureaucratisation and authoritarianism. Related to this issue, the relationship between capitalism, socialism, and democracy proved to be a key issue in their major works that were published in the mid-1940s, at the height of World War II: Schumpeter’s “Capitalism, Socialism, and Democracy” (1942), Polanyi’s “Great Transformation” (1944), and Hayek’s “Road to Serfdom” (1944). In fact, in view of these majorworks, their contributions stand for specific paradigmatic visions that were informed by the contemporary crisis of classical political and economic liberalism, pragmatically approximated in terms of Schumpeterian conservatism, Polanyian social democratic institutionalism, and Hayekian liberalism.

Even in outlining the differences between their approaches, one needs to account for complementary orientations. Schumpeter highlighted the historically specific role of entrepreneurship and innovation in economic development. According to him, the economic process would breed an institutional and cultural decomposition of modern capitalism. Democracy would prove to be incompatible with the rise of socialism due to its bureaucratic character. Polanyi’s work contributed to the groundwork of institutionalist reasoning on the relationship between market, state and social community. Its key concern addressed the embeddedness of market processes in non-market institutions as a means of societal stabilisation in the face of market-driven uncertainty. State bureaucracies, however, might hinder participatory democratic approaches in the formation ofwelfare states. Hayek put a focus on rule-based based market competition as a mechanism of knowledge coordination. An interventionist state would hinder the functioning of the market systemand thus threaten the liberal order. In this way, authoritarian socialism would contradict classical democratic ideals.

2 comment

  • Arturo Hermann says:

    The paper identifies significant parallels indeed, which I see in particular between Schumpeter and Hayek. There is a central difference, however: whereas Schumpeter considers ineluctable, although not necessarily desirable, the “march into socialism”, Hayek sees the same process as “a road to serfdom” that, however, can be stopped by neoliberal policies. And in fact he was a leading exponent of the Mont Pelerin society that also inspired the neoliberal policies the 1980s. The points that Hayek have not considered are that (i) the ineluctability of that “march” is not “into socialism” but “into mixed economies” characterised by growing pubblic spending and intervention, even in the countries of most neoliberal persuasion, and this not only for “Schumpeterian” but also for “Keynesian” reasons. And, relatedly, (ii) that market competition is also an institutional phenomenon that requires for its working – as highlighted by, among others, the books of John R. Commons, “Legal Foundation of Capitalism” and “Institutional Economics: Its Place in Politcal Economy” – a well defined set of laws, institutions and policies. So the question becomes how to turn such mixed economies towards a sustainable and equitable society. In this analysis also Karl Polanyi’s theories of “double movement” is very interesting.

  • John Willoughby says:

    Very interesting paper, but note that Schumpeter’s vision of an efficient form of socialism (which he thought was possible) is very different from Stalinist central planning. I think he thought that a more advanced Western Europe would create a superior form of socialism, although he was skeptical that such a system would work well. It would have been interesting to discuss the actual political economic actions of the Red Viennese governments of the interwar era and how Polanyi, Schumpeter and Hayek reacted to them.
    I am not a Hayek scholar, but my impression of his work is that he identifies democracy with economic liberalism, and that he is not at all committed to a system which promotes the contestation for political power among political entrepreneurs if some of the political activists want to suppress the market. He would trade the authoritarian rule of Pinochet for the constitutional governance of Allende as long as the authoritarian supported the disembedded market.

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