Creative Destruction

Creative destruction according to Investopedia is a "term coined by Joseph Schumpeter in his work entitled "Capitalism, Socialism and Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."^[1]

Investopedia gives the following explanation of the economic benefit of creative destruction:

Creative destruction occurs when something new kills something older. A great example of this is personal computers. The industry, led by Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created one of the most important inventions of this century.^[2]

In economics[edit]

Creative destruction is the force through which new innovations (or old innovations after conditions change) topple entrenched interests. While there is an amount of destruction (it is very rare to find a buggy whip manufacturer) the increased efficiency leads to increased resources, and the benefits far outweigh the costs. Creative destruction is a major component of the invisible hand and interfering with creative destruction lead to development of value negative firms and the death by ignorance experienced by the Soviet Union.

Schumpeter famously described how capitalist production affected the lives of ordinary people in contrast to Marxist theory;

"There are no doubt some things available to the modern workman that Louis XIV himself would have been delighted to have yet was unable to have—modern dentistry for instance. On the whole, however, a budget on that level had little that really mattered to gain from capitalist achievement. Even speed of traveling may be assumed to have been a minor consideration for so very dignified a gentleman. Electric lighting is no great boon to anyone who has money enough to buy a sufficient number of candles and to pay servants to attend to them. It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort."

External links[edit]

Videos:

• Ben Wattenberg's Corporate Graveyard Scene from "In Search of the Real America"
• Creative destruction

References[edit]