The process of creative destruction

Citation: Joseph Alois Schumpeter (1949) The process of creative destruction. Capitalism, socialism, and democracy (RSS)
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Tagged: Economics (RSS) Austrian school (RSS), competition (RSS), creative destruction (RSS), innovation (RSS), entrepreneurship (RSS)

Summary

Schumpeter introduces the term, and the metaphor, creative destruction. Through the Austrian economic process of entrepreneurship finding new areas, changing environments, and changing (see Kirzner, 1997), Schumpeter describes the way that innovation (through novel recombination of ideas as he described in his early work. The real addition to his previous work on recombinations and the power of innovation is that he adds an element of competition.

Schumpeter argues that, "in capitalist reality as distinguished from its textbook picture, it is not the kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type or organization (the largest-scale unit of control for example -- competition which commands a decision cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives" (84).

Schumpeter argues that economics are driven by competition which "unfair" competition and which is based around radical new innovations.

Theoretical and Practical Relevance

The book Capitalism, socialism, and democracy is, by far, most widely known and widely cited for its very short (5-6 page) chapter introducing the metaphor of creative destruction.

The idea of compeition had made Schumpeter the central citation in the literature in innovation broadly and innovation in any competitive settings.