Tag Archives: Capitalism Socialism and Democracy

Schumpeter’s Gale: Creative Destruction

In Grundrisse, Karl Marx stated that capitalism reshape and destroy previous economic orders and it also continuously devalues existing wealth. Devaluing existing wealth can happen with wars, economic crises, entrepreneurial activities, constructing a building or railways etc. But what is the destructive point of these activities? Joseph Schumpeter, who was an Austrian American economist, developed a concept about creative destruction, considering Karl Marx’s ideas which were stated in Grundrisse and also in Communist Manifesto. Schumpeter was interested with innovative ideas and technological innovations. Considering these two points, in 1939 he published a book called Business Cycles, which represented the starting point of creative destruction idea. Joseph Schumpeter stated this concept in his book called Capitalism, Socialism and Democracy (1942).

Considering economic growth, investments made by entrepreneurs have to increase welfare and growth within the society. But because of the capitalist system, entrepreneurs lead to disrupt growth and they also decrease the value of existing companies. Schumpeter thought that companies who produce something, it has to cause innovation within the market. In other words a company should sustain innovation and development in economy. He thought that capitalist system require non-stop productivity and innovation.

Describing the process of eliminating things in order to increase efficiency and dynamism of an institution made “creative destruction” concept popular considering neoliberal or free-market economics. Midwestern to Gulf Coast Americans built a railway which is also known as Main Line Of Mid-America was an example of creative destruction given by Joseph Schumpeter. Schumpeter (1949) in one of his examples used “the railroadization of the Middle West as it was initiated by the Illinois Central.” He wrote, “The Illinois Central not only meant very good business whilst it was built and whilst new cities were built around it and land was cultivated, but it spelled the death sentence for the [old] agriculture of the West.”

Karl Marx and Joseph Schumpeter have converged idea about capitalism. A Social geographer David Harvey stated that Marx & Schumpeter believed that capitalism has strong power about to creating something. It reinforces creativity but when it came to conclusion, they have different ideas. While Karl Marx believed that, creativity in capitalism is good but it makes self-destruction, Schumpeter believed that this destructiveness is normal and this is the cost of doing a business in capitalist system.