Summary: Joseph A. Schumpeter, “International Cartels and their Relation to World Trade” (1928)

Schumpeter’s 1928 essay explains why international cartels had become attractive in the unsettled postwar economy and asks how they relate to world trade, tariffs, consumers, and industrial development. He begins from a paradox: international combines were gaining prestige even though large-scale business organization still provoked hostility.

It is really astonishing how strong a hold the idea of international combines has got on the public mind.

He treats this enthusiasm not as a sudden ideological conversion but as a symptom of exceptional postwar conditions. War had displaced firms from markets, patents, and commercial networks; other firms had entered those places without feeling secure in them. Expanded productive capacity, unstable currencies, reparations, debts, and fears of dumping all encouraged producers to seek private agreements where governments could not easily create open economic accommodation. Cartels thus appear first as instruments for stabilizing positions that war and postwar policy had made precarious.

Schumpeter’s deeper argument is that these circumstances accelerate, rather than create, a structural movement within capitalism. International cartels extend the national tendency toward concentration. As production units grow larger, competitive organization becomes harder to sustain; national trusts arise, and protected national industries then confront one another in world markets.

The fundamental trend towards international combines is rooted much more deeply.

This gives the essay its distinctive balance. Schumpeter does not present cartels simply as conspiracies imposed on an otherwise competitive order. Nor does he romanticize them as a return to liberal free trade. They are private mechanisms for regulating contradictions produced by tariffs, overcapacity, and industrial scale. A tariff may disappear, but its protective function can survive inside the cartel itself.

The tariff is done away with, but what the tariff is calculated to do, is done much more efficiently by the combine, so the free-trader has little reason to rejoice.

The practical content of cartelization is therefore not vague international understanding but control: prices, output, and market territories. Agreements over technical matters or selling conditions are secondary to the central purpose of dividing and securing markets.

The end must be agreement about price, about output, and about dividing up the market into well-defined, sheltered, safeguarded provinces.

Schumpeter is clear about the costs. International cartels may restrict production, worsen terms for consumers, shift burdens onto domestic markets, and reproduce the familiar abuses of trusts on a larger scale. Yet he refuses a purely moral denunciation. In the long run, such combinations might also reduce waste, coordinate inventions, avoid duplicated services, and support a new phase of technical development. The essay’s method is evolutionary: cartels are judged as institutional forms emerging from industrial concentration, not merely as legal offenses.

The final emphasis is practical feasibility. Schumpeter argues that many industries are not yet ripe for durable international combination. Firms cannot easily divide world markets before their relative strengths have been tested, and business leaders do not act from abstract principles so much as from immediate strategic pressures. The likely future is therefore uneven: many schemes will fail, but the tendency toward private international organization will persist wherever protected national industries collide in global markets.

The essay remains significant because it interprets international cartels as responses to the failures of both unregulated competition and nationalist economic policy. For Schumpeter, they are neither accidental scandals nor simple remedies, but structural products of monopoly capitalism under unstable world-trade conditions.