Tuesday, May 22, 2012

Creative Destruction?

Can capitalism survive? No. I do not think it can.
     [Joseph Schumpeter, Capitalism, Socialism and Democracy, 1942, in the Prologue to Part II]

What’s interesting about this quote is that it comes from the well-known economist, Joseph Schumpeter (1883-1950) who made the phrase creative destruction widely known. Since then it has graduated to become the all-purpose explanation and justification for whatever chaos comes down to us from the business sector. The phrase is used as if it were a law of nature. Hey, things fall down. It’s gravity. Throw up the hands, look heaven-ward—by way of saying, What can we do? It’s written in the stars. All of our blessings come by its way, as all life comes from the sun—that also rises.

David Brooks got me thinking about that. For the last two weeks or so, he has been invoking the Holy Words on radio, television, and today in an op-ed piece in the New York Times, each time defending the likes of Bain Capital.

Although the phrase is his, Schumpeter got the idea from Marx. Marx repeatedly pointed to economic crises and their destructive tendency—not only destroying production but also productive forces. A relevant summary comes from the Communist Manifesto (1848): “And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other by the conquest of new markets, and by the more thorough exploitation of the old ones.” The first is Schumpeter’s “destruction,” the second his “creative.” But while Schumpeter streamlined Marx’s diagnosis, he also noted that the destruction of capitalism reaches beyond the economic; it also destroys and transforms the social. And in the long run capitalism therefore destroys itself.

Law of nature it isn’t, actually, creative destruction. If I look around for somewhat analogous actual laws, what I see is birth and death, growth and decay, and interwoven living systems well-known for their stability and resistance to destruction: ecosystems. When a person lives a healthy and well-adapted life, that life will end in death. And yes, What can you do? It’s written in the stars. But when a person dies because of an overdose of heroin, after a brief life of absolute frenzy, that’s creative destruction. But should we really call it that?


  1. Wonderful! I find it very interesting how single phrases from renowned economists of the past are often used in the way you so nicely state here, laws of nature.

    1. This process illustrates how accurate-enough observations by experts are compressed until they lose all precision they once might have had and then, in the end, morph into "wisdom."