Creative Destruction

Joseph Schumpeter was one of the most influential economists of the twentieth century, notable, among other things, for his advocacy of the importance of the entrepreneur in economic growth. His most famous phrase is probably "creative destruction," his name for the process whereby entrepreneurial innovations displace and destroy established businesses and business models.

It's not surprising that both the phrase and the ideas are more popular among economists than among those in the crosshairs of the destruction end of this meme.

The notion of creative destruction is hardly unique to capitalism. Lenin and Pol Pot no doubt thought they were engaged in creative destruction.

Nor is the idea new. The Hindu Goddess Kali is the goddess of creation and destruction. The process of destruction linked to creation is inherent in life, and indeed even in the evolution of stars, galaxies, and perhaps the universe. Negative entropy (or free energy) is exported by stars, the product of their destruction of Hydrogen in the process of creating Helium. That free energy is grabbed by plants which destroy CO2 and water to produce their essential molecules and oxygen. And so on.

By some accounts, Kali is also Goddess of preservation. It's preservation, indeed, that is the focus of our hopes and our fears. We have many examples of the creation-destruction cycle which terminate in barren emptiness, like Chaco Canyon in New Mexico. If capitalism is to remain successful as an economic system, it needs to be able to harness the process of creative destruction without unleashing the ultimate destruction.

Despite his belief in the virtues of capitalism, Schumpeter was not very optimistic about its future. He thought it likely to fall victim to corporatism. We can certainly see many seeds of that in Bushworld.

Tyler Cowen has some thoughts on a new biography of Schumpeter.

Via Brad DeLong.

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