Creative destruction

Creative destruction (German: schöpferische Zerstörung) is a concept in economics that describes a process in which new innovations replace and make obsolete older innovations.^[1]

The concept is usually identified with the Austrian economist Joseph Schumpeter,^[2]^[3]^[4] who derived it from the work of Karl Marx and popularized it as a theory of economic innovation and the business cycle. It is also sometimes known as Schumpeter's gale. In Marxian economic theory, the concept refers more broadly to the linked processes of the accumulation and annihilation of wealth under capitalism.^[5]^[6]^[7]

The German sociologist Werner Sombart has been credited^[4] with the first use of these terms in his work Krieg und Kapitalismus (War and Capitalism, 1913).^[8] In the earlier work of Marx, however, the idea of creative destruction or annihilation (German: Vernichtung) implies not only that capitalism destroys and reconfigures previous economic orders, but also that it must continuously devalue existing wealth (whether through war, dereliction, or regular and periodic economic crises) in order to clear the ground for the creation of new wealth.^[5]^[6]^[7]

In Capitalism, Socialism and Democracy (1942), Joseph Schumpeter developed the concept out of a careful reading of Marx's thought. In contrast with Marx - who argued that the creative-destructive forces unleashed by capitalism would eventually lead to its demise as a system - Schumpeter reinforced the evolutionary nature of capitalist economies, downplaying the concerns of static competition analysis (i.e., market concentration), and reinforcing the importance of dynamic competition analysis (i.e., threat of entry, new technologies and means of production, competition in dimensions different than price). In his words, "This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in [...] The problem that is usually being visualized is how capitalism administers existing structures, whereas the relevant problem is how it creates and destroys them. As long as this is not recognized, the investigator does a meaningless job. As soon as it is recognized, his outlook on capitalist practice and its social results changes considerably."^[9] Despite this, the term subsequently gained popularity within mainstream economics as a description of processes such as downsizing to increase the efficiency and dynamism of a company. The Marxian usage has, however, been retained and further developed in the work of social scientists such as David Harvey,^[10] Marshall Berman,^[11] Manuel Castells^[12] and Daniele Archibugi.^[13]

In modern economics, creative destruction is one of the central concepts in the endogenous growth theory.^[14] In Why Nations Fail, a popular book on long-term economic development, Daron Acemoglu and James A. Robinson argue the major reason countries stagnate and go into decline is the willingness of the ruling elites to block creative destruction, a beneficial process that promotes innovation.^[15]

^ "Schumpeter's Theory of Creative Destruction - Engineering and Public Policy - College of Engineering - Carnegie Mellon University". www.cmu.edu. Retrieved 2023-08-13.
^ Ulgen, Faruk (2017). "Creative Destruction". Encyclopedia of Creativity, Invention, Innovation and Entrepreneurship. pp. 1–8. doi:10.1007/978-1-4614-6616-1_407-2. ISBN 978-1-4614-6616-1. S2CID 240686671.
^ Loesche, Frank; Torre, Ilaria (2020). "Creative Destruction". Encyclopedia of Creativity (Third Edition): 226–231. doi:10.1016/B978-0-12-809324-5.23696-1. ISBN 9780128156155. S2CID 242692186.
^ ^a ^b Reinert, Hugo; Reinert, Erik S. (2006). "Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter". Friedrich Nietzsche (1844–1900). The European Heritage in Economics and the Social Sciences. Vol. 3. pp. 55–85. doi:10.1007/978-0-387-32980-2_4. ISBN 978-0-387-32979-6.
^ ^a ^b Marx, Karl; Engels, Friedrich (2002) [1848]. The Communist Manifesto. Moore, Samuel (trans. 1888). Harmondsworth, UK: Penguin. p. 226. ISBN 978-0-14-044757-6. Retrieved 2010-11-07.
^ ^a ^b Marx, Karl (1993) [1857]. Grundrisse: Foundations of the Critique of Political Economy (rough draft). Nicolaus, Martin (trans. 1973). Harmondsworth, UK: Penguin. p. 750. ISBN 978-0-14-044575-6. Retrieved 2010-11-07.
^ ^a ^b Marx, Karl (1969) [1863]. Theories of Surplus-Value: "Volume IV" of Capital. Vol. 2. London: Lawrence & Wishart. pp. 495–96. ISBN 9780853151944. Retrieved 2010-11-10.
^ Describing the way in which the destruction of forests in Europe laid the foundations for nineteenth-century capitalism, Sombart writes: "Wiederum aber steigt aus der Zerstörung neuer schöpferischer Geist empor" ("Again, however, from destruction a new spirit of creation arises").Sombart, Werner (1913). Krieg und Kapitalismus (in German). München. p. 207. ISBN 978-0-405-06539-2. Retrieved 2010-11-07. {{cite book}}: ISBN / Date incompatibility (help)CS1 maint: location missing publisher (link)
^ Schumpeter, Joseph A. (1994) [1942]. Capitalism, Socialism and Democracy. London: Routledge. p. 139. ISBN 978-0-415-10762-4. Retrieved 23 November 2011.
^ Harvey, David (2007) [1982]. Limits to Capital (2nd ed.). London: Verso. pp. 200–03. ISBN 978-1-84467-095-6. Retrieved 2010-11-07.
^ Berman, Marshall (1988). All that is Solid Melts into Air: The Experience of Modernity. Ringwood, Vic: Viking Penguin. ISBN 978-0-86091-785-4. Retrieved 2010-11-07.
^ Castells, Manuel (2000) [1996]. The Rise of the Network Society (2nd ed.). Oxford: Blackwell Publishers. ISBN 978-0-631-22140-1. Retrieved 2010-11-07..
^ Archibugi, Daniele; Filippetti, Andrea (2003). Innovation and Economic Crisis. Lessons and Prospects from the Economic Downturn. London: Routledge. ISBN 978-0-415-74559-8. Retrieved 2016-06-25..
^ Aghion, Philippe; Howitt, Peter (1998). Endogenous growth theory. Cambridge, MA.: MIT Press. ISBN 9780262011662. Retrieved 29 December 2023.
^ Acemoglu, Daron; Robinson, James A. (2012). Why nations fail: the origins of power, prosperity and poverty (1st ed.). New York: Crown Publishers. p. 100. ISBN 978-0307719218. Retrieved 2 November 2024.

[1] "Schumpeter's Theory of Creative Destruction - Engineering and Public Policy - College of Engineering - Carnegie Mellon University". www.cmu.edu. Retrieved 2023-08-13.

[2] Ulgen, Faruk (2017). "Creative Destruction". Encyclopedia of Creativity, Invention, Innovation and Entrepreneurship. pp. 1–8. doi:10.1007/978-1-4614-6616-1_407-2. ISBN 978-1-4614-6616-1. S2CID 240686671.

[3] Loesche, Frank; Torre, Ilaria (2020). "Creative Destruction". Encyclopedia of Creativity (Third Edition): 226–231. doi:10.1016/B978-0-12-809324-5.23696-1. ISBN 9780128156155. S2CID 242692186.

[reinert-4] Reinert, Hugo; Reinert, Erik S. (2006). "Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter". Friedrich Nietzsche (1844–1900). The European Heritage in Economics and the Social Sciences. Vol. 3. pp. 55–85. doi:10.1007/978-0-387-32980-2_4. ISBN 978-0-387-32979-6.

[isbn0-14-044757-1-5] Marx, Karl; Engels, Friedrich (2002) [1848]. The Communist Manifesto. Moore, Samuel (trans. 1888). Harmondsworth, UK: Penguin. p. 226. ISBN 978-0-14-044757-6. Retrieved 2010-11-07.

[isbn0-14-044575-7-6] Marx, Karl (1993) [1857]. Grundrisse: Foundations of the Critique of Political Economy (rough draft). Nicolaus, Martin (trans. 1973). Harmondsworth, UK: Penguin. p. 750. ISBN 978-0-14-044575-6. Retrieved 2010-11-07.

[Marx1863-7] Marx, Karl (1969) [1863]. Theories of Surplus-Value: "Volume IV" of Capital. Vol. 2. London: Lawrence & Wishart. pp. 495–96. ISBN 9780853151944. Retrieved 2010-11-10.

[Krieg_Kapitalismus-8] Describing the way in which the destruction of forests in Europe laid the foundations for nineteenth-century capitalism, Sombart writes: "Wiederum aber steigt aus der Zerstörung neuer schöpferischer Geist empor" ("Again, however, from destruction a new spirit of creation arises").Sombart, Werner (1913). Krieg und Kapitalismus (in German). München. p. 207. ISBN 978-0-405-06539-2. Retrieved 2010-11-07. {{cite book}}: ISBN / Date incompatibility (help)CS1 maint: location missing publisher (link)

[Schumpeter1942-9] Schumpeter, Joseph A. (1994) [1942]. Capitalism, Socialism and Democracy. London: Routledge. p. 139. ISBN 978-0-415-10762-4. Retrieved 23 November 2011.

[isbn1-84467-095-3-10] Harvey, David (2007) [1982]. Limits to Capital (2nd ed.). London: Verso. pp. 200–03. ISBN 978-1-84467-095-6. Retrieved 2010-11-07.

[isbn0-86091-785-1-11] Berman, Marshall (1988). All that is Solid Melts into Air: The Experience of Modernity. Ringwood, Vic: Viking Penguin. ISBN 978-0-86091-785-4. Retrieved 2010-11-07.

[isbn0-631-22140-9-12] Castells, Manuel (2000) [1996]. The Rise of the Network Society (2nd ed.). Oxford: Blackwell Publishers. ISBN 978-0-631-22140-1. Retrieved 2010-11-07..

[13] Archibugi, Daniele; Filippetti, Andrea (2003). Innovation and Economic Crisis. Lessons and Prospects from the Economic Downturn. London: Routledge. ISBN 978-0-415-74559-8. Retrieved 2016-06-25..

[AghionHowitt-14] Aghion, Philippe; Howitt, Peter (1998). Endogenous growth theory. Cambridge, MA.: MIT Press. ISBN 9780262011662. Retrieved 29 December 2023.

[15] Acemoglu, Daron; Robinson, James A. (2012). Why nations fail: the origins of power, prosperity and poverty (1st ed.). New York: Crown Publishers. p. 100. ISBN 978-0307719218. Retrieved 2 November 2024.

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