In the second post here, I will simply concentrate on Chapter VII of Capitalism, Socialism, and Democracy, and try to tie together some themes for the weekend. For our purposes, I have numbered the paragraphs 1-13.
As we proceed into this chapter, it is probably useful to keep in mind that at the time of this writing, the national income accounts and measurement of economic output were even more primitive than they are today. So, one question is how did economists in 1942 think about “growth” and “output”?
The null hypothesis is immediately stated in the opening sentence of the chapter — that there is some question that “capitalist reality” stifles economic growth. I take “capitalist reality” to mean the consolidation of firms and increasing concentration of industries as they mature. This is going to get at the essence of a “Schumpeterian Hypothesis,” (see the last sentence of paragraph two for a germination of this idea — “big business may have had more to do with creating that standard of life than keeping it down.” We’ll get to the efficiency implications of this in a bit, but for the moment note that he offers two possible rationales for the antagonism toward large firms. One is the idea that growth occurs despite the “managing bourgeoisie” (that is, monopolists restricting output and jacking prices). The second is that this worked for a while, but it cannot proceed indefinitely.