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Management Matters

Uncanny Predictions

MMN
Posted: 08/03/2016

Editor's Note:

Both celebrated Harvard economist Joseph Schumpeter and famed author Ayn Rand made uncanny predictions about societal and economic trends that would inevitably threaten capitalism and destroy democracies.

Schumpeter (1883 – 1950) was named Austria's finance minister after World War I. He experienced, firsthand, the horrific consequences of runaway inflation; was an outspoken critic of age-old politically driven root causes of inflation; was dismissed from government service; and became a deservedly famed Harvard professor.

Ayn Rand (1905 – 1982) was a Russian-born American novelist, philosopher, playwright, and screenwriter. She is best known for her two best-selling novels The Fountainhead and Atlas Shrugged.

Without doubt, Rand's writings and philosophy are guaranteed to provoke controversy. Every argument she stirs, however, is relevant to building and sustaining a functioning society.

After we present the uncanny predictions of both Schumpeter and Rand, we provide readers (who may become depressed) with a series of follow-up articles detailing how we got into this mess and why it's quite possible to reignite economic growth and dramatically reduce result-less government spending if the right economic policies are put into place.

Peter F. Drucker's principles and practices provide the methodologies to help all Democracies to re-think and to re-form to stop and reverse the corrosion and spreading decay caused by the failure of the so-called Neo-Keynesian Welfare State.

In associated articles Drucker as Economist: Part I – Venezuela's Slide into Crisis & Its Lesson for America and Strength of U.S. Economy Depends on Re-strategizing and Permanent Cost-Cutting, readers should gain a full understanding of what's happened and what's apt to happen.

The Uncanny Predictions of Joseph Schumpeter

Here’s an excerpt from Peter F. Drucker's article Schumpeter and Keynes, originally published in Forbes in May 1983:

In 1942, when everyone was scared of a World-wide deflationary depression, Schumpeter published his best-known book, Capitalism, Socialism and Democracy, still, and deservedly, read widely. In this book he argued that capitalism would be destroyed by its own success.

This would breed what we would now call the “new class”: bureaucrats, intellectuals, professors, lawyers, journalists, all of them beneficiaries of capitalism’s economic fruits and, in fact, parasitical on them, and yet all of them opposed to the ethos of wealth production, of saving and of allocating resources to economic productivity.

The 40 years since this book appeared have surely proved Schumpeter to be a major prophet.

And then he proceeded to argue that capitalism would be destroyed by the very democracy it had helped create and made possible.

For in a democracy, to be popular, government would increasingly become the “tax state,” would increasingly shift income from producer to non-producer, would increasingly move income from where it would be saved and become capital for tomorrow to where it would be consumed.

Government in a democracy would thus be under increasing inflationary pressure. Eventually, he prophesied, inflation would destroy both democracy and capitalism.

Now Ayn Rand's Prophetic Vision

Ayn Rand in her best-selling book, Atlas Shrugged, captured the essence of Schumpeter's prediction when she described a society in which its most productive citizens refuse to be exploited any longer by increasing taxation and mounting government regulations.

Rand describes how business leaders rebel by shutting down their enterprises and join a rebel leader named John Galt who is spearheading a rebellion to demonstrate that the "war on profits" will inevitably lead to the destruction of a functioning civil society.

Only if these leaders return to society, will a vibrant, growing economy continue to provide the highest possible standard living for the bulk of its members.

Rand infuses the idea (originally credited to Schumpeter by economic historians) that profit is part of a moral and ethical system.

Profit in this sense is a future cost, that is, the surplus to cover today's unintended operating crisis and tomorrow's uncertain, risky innovative decisions.

The political elite still talk about the evils of "profit maximization." Rand—in a roundabout way—demonstrates why profit maximization is not the way most organizations survive and thrive. Trading off short-term profits for long-term growth is the only way most organizations sustain themselves.

Rand attributes the pending collapse of society to the "looters and moochers" created by politicians who appear to be motivated by the the spirit of collectivism, but, in essence, are actually fueled by the need to gain power over others and riches for themselves.

Looters appropriate property belonging to contributing members of society (i.e., producers) through force and fear tactics.

Moochers just mooch; they create no value. In essence, moochers take away the property of others by taxation to support their "mooching."

Rand's point? Politicians have substituted "handouts" for what was intended to be "a helping hand."

Of late, many have interpreted Rand's major thesis as an attack on the modern welfare system and political ineptitude.

In Rand's view the welfare system (in many Democracies worldwide) was now focused on creating dependence instead of competence. Welfare was created to end poverty.

But by all measures that has not happened. Welfare instead (for a host of reasons) has turned into degradation and dependence.

Mooching is encouraged when able people are financially rewarded for staying on welfare and financially penalized for getting off it.

Rand put a spotlight on Progressive/Socialist agendas that could lead to never-ending taxation in order to pay for limitless social programs – based on "iffy" moral causes–designed to help the less fortunate.

Whenever there develops in any area of activity or taste or values a strong movement in one direction, we may expect in its wake a strongly opposite movement.

This has been called a concept of "opposites." In the beginning there was darkness and light, and good and evil.

The prevalence of competing opposites is a prevailing theme in recorded history. And that's what Ayn Rand was predicting would happen if current trends (as she viewed them) would continue.

The 2016 election is, unquestionably, about competing opposites. Rand was, in the final analysis, extending trends that were beneath the threshold of awareness into tomorrow.

Atlas shrugged was an instant success. Of course, it drew it share of outspoken critics, who appeared horrified (and expressed what could be called "injured innocence") concerning Rand's major thesis. A thesis that's proving remarkably true.

But Rand to this day has a astonishing number of followers who view the world from an individualistic, self-reliant lens…and believe that capitalism has been a success story in improving the lives of people and has delivered more growth and freedom than any other system.

Free! A Two Part Mini-Book Related To The Economic Teachings of Peter F. Drucker!

If you enjoyed this article and want a complete understanding of all-important economic policy decisions and their potential consequences, we've prepared a two-part mini e-book series. 

The series contains a collection of MMN articles related to making America grow again.

Further, we've added very important value-adds, including a bibliography of Peter F. Drucker's astonishing contributions to the fields of economic theory, effective government, and economic policymaking.

Click here to receive: Clinton vs. Trump, Who's Better For The Economy, Business & Maintaining Social Security/Medicare?– Part I 

MMN
Posted: 08/03/2016