Paper Money Collapse: The Folly of Elastic Money, 2nd Edition

Foreword

Joseph Schumpeter is well known for his brilliant analysis of the role of the entrepreneur in the capitalist economy. Perhaps this is why the British magazine The Economist has labeled its weekly column on entrepreneurship after him. Many readers will be familiar with Schumpeter’s formula of “creative destruction” as the driver of progress in a capitalist economy. Less well known may be that Schumpeter forecast the downfall of capitalism, and that he blamed our monetary system for this.

In the war year of 1942, Schumpeter published his seminal work entitled Capitalism, Socialism, and Democracy.¹ There, he described capitalism as the brute force that creates economic progress. The fundamental drivers that keep the capitalist machine going are the new consumer goods, the new production and transportation technologies, the new markets, and the new forms of industrial organization, which the capitalist company creates. The economy is continually revolutionized from within. The process of creative destruction is at the heart of capitalism. The creation of credit and money out of nothing is the adrenaline that carries creative destruction forward. Schumpeter says that the issuance of new means of payments corresponds to the commands of the central planning office of the socialist state, because companies lack their own means of payment, and there are no savings at the beginning of the investment process. The banking sector has a central role to generate growth in a capitalist ...