Creative destruction

Creative destruction, sometimes known as Schumpeter's gale, is a concept in economics which since the 1950s has become most readily identified with the Austrian economist Joseph Schumpeter who derived it from the work of Karl Marx and popularized it as a theory of economic innovation and the business cycle. 

According to Schumpeter, the "gale of creative destruction" describes the "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one". In Marxian economic theory the concept refers more broadly to the linked processes of the accumulation and annihilation of wealth under capitalism. 

The German Marxist sociologist Werner Sombart has been credited with the first use of these terms in his work War and Capitalism, 1913. In the earlier work of Marx, however, the idea of creative destruction or annihilation implies not only that capitalism destroys and reconfigures previous economic orders, but also that it must ceaselessly devalue existing wealth (whether through war, dereliction^[각주:1], or regular and periodic economic crises) in order to clear the ground for the creation of new wealth. 

In Capitalism, Socialism and Democracy (1942), Joseph Schumpeter developed the concept out of a careful reading of Marx's thought (to which the whole of Part I of the book is devoted^[각주:2]), arguing (in Part II) that the creative-destructive forces unleashed by capitalism would eventually lead to its demise as a system. Despite this, the term subsequently gained popularity within neoliberal or free-market economies as a description of processes such as downsizing in order 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, Marshall Berman, Manuel Castells and Daniele Archibugi. 

History

In Marx's thought 

Although the modern term "creative destruction" is not used explicitly by Marx, it is largely derived from his analyses, particularly in the work of Werner Sombart (whom Engles described as the only German professor who understood Marx's Capital), and of Joseph Schumpeter, who discussed at length the origin of the idea in Marx's work. 

In The Communist Manifesto of 1848, Karl Marx and Friendrich Engles described the crisis tendencies of capitalism in terms of "the enforced destruction of a mass of productive forces":

Modern bourgeois^[각주:3] society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom^[각주:4] he has called up by his spells. [...] It is enough to mention the commercial crises that by their periodical return put the existence of the whole of bourgeois society on trial, each time more threateningly. In these crises, a great part not only of existing production, but also of previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity - the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence^[각주:5]; industry and commerce seem to be destroyed; and why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions. [...] And how does the bourgeoisie^[각주:6] 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. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby^[각주:7] crises are prevented. 

A few years later, in the Grundrisse, marx was writing of "the violent destruction of capital not by relations external to it, but rather as a condition of its self-preservation". In other words, he establishes a necessary link between the generative^[각주:8] or creative forces of production in capitalism and the destruction of capital value as one of the key ways in which capitalism attempts to overcome its internal contradictions: 

These contradictions lead to explosions, cataclysms^[각주:9], crises, in which [...] momentaneous suspension of^[각주:10] labour and annihilation of a great portion of capital [...] violently lead it back to the point where it is enabled [to go on] fully employing its productive powers without committing suicide. 

In the Theories of Surplus Value ("Volume IV of Das Kapital, 1863), Marx refines this theory to distinguish between scenarios where the destruction of (commodity) values affects either use values or exchange values or both together. The destruction of exchange value combined with the preservation of use value presents clear opportunities for new capital investment and hence for the repetition of the production-devaluation cycle: 

the destruction of capital through crises means the depreciation of values which prevents them from later renewing their reproduction process as capital on the same scale. This is the ruinous effect of the fall in the prices of commodities. It does not cause the destruction of any use-values. What one loses, the other gains. Values used as capital are prevented from acting again as capital in the hands of the same person. The old capitalists go bankrupt. [...] A large part of the nominal capital of the society^[각주:11], i.e., of the exchange-value of the existing capital, is once for all destroyed, although this very destruction, since it does not affect the use-value, may very much expedite the new reproduction^[각주:12]. This is also the period during which moneyed interest^[각주:13] enriches itself at the cost of industrial interest. 

Social geographer David Harvey sums up the differences between^[각주:14] Marx's usage of these concepts and Schumpeter's: "Both Karl Marx and Joseph Schumpeter wrote at length^[각주:15] on the 'creative-destructive tendencies inherent in capitalism. While Marx clearly admired capitalism's creativity he [...] strongly emphasized its self-destructiveness. The Schumpeterians have all along gloried in^[각주:16] capitalism's endless creativity while treating the destructiveness as mostly a matter of the normal costs of doing business". 

Association with Joseph Schumpeter 

The expression "creative destruction" was popularized by and is most associated with Joseph Schumpeter, particularly in his book Capitalism, Socialism and Democracy, first published in 1942. Already in his 1939 book Business Cycles, he attempted to refine the innovative ideas of Nikolai Kondratieff and his long-wave cycle which Schumpeter believed was driven by technological innovation. Three years later, in Capitalism, Socialism and Democracy, Schumpeter introduced the term "creative destruction", which he explicitly derived from Marxist thought (analysed extensively in Part I of the book) and used it to describe the disruptive process of transformation that accompanies such innovation: 

Capitalism [...] is by nature a form or method of economic change and not only never is but never can be stationary. [...] The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers' goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates. 

[...] The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the process of industrial mutation that incessantly revolutionize the economic structure from within, incessantly destroying the old one, incessantly creating a new one. 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. 

[... Capitalism requires] the perennial gale of Creative Destruction. 

In Schumpeter's vision of capitalism, innovative entry by entrepreneurs was the disruptive force that sustained economic growth, even as it destroyed the value of established companies and laborers that enjoyed some degree of monopoly power derived from previous technological, organizational, regulatory, and economic paradigms. However, Schumpeter was pessimistic about the sustainability of this process, seeing it as leading eventually to the undermining of capitalism's own institutional frameworks: 

In breaking down the pre-capitalist framework of^[각주:17] society, capitalism thus broke not only barriers that impeded its progress but also flying buttresses that prevented its collapse. That process, impressive in its relentless necessity, was not merely a matter of removing institutional deadwood, but of removing partners of the capitalist stratum^[각주:18], symbiosis with whom was^[각주:19] an essential element of the capitalist schema^[각주:20]. [...] The capitalist process in much the same way in which it destroyed the institutional framework of feudal society^[각주:21] also undermines its own. 

Schumpeter nevertheless elaborated the concept, making it central to his economic theory, and it was later taken up as a major doctrine of the so-called Austrian School of free-market economic thought. 

1. dereliction ; (격식) 1. [U] (대지·건물 등의) 포기[퇴락] ;; 2. [U, sing.] ~ of duty (격식 또는 법률) (특히 직무) 유기[태만] ;; 미국∙영국 [ˌderəˈlɪkʃn] [본문으로]
2. be devoted to sth ; ~에 관해 이야기하다, ~관한 것을 주제로 하다, ~을 주로 다루다. [본문으로]
3. bourgeois ; [명사] (pl. ~) 1. 중산 계급의 시민; 상공업자 ((지주나 농가·봉급 생활자에 대하여)) ;; 2. (자본주의 사회의) 지배 계급의 구성원, 부르주아, 유산자, 자본가(cf. PROLETARIAN) ; 미국식 [ˌbʊrˈʒ-; ˈbʊrʒ-] 영국식 [ˈbʊəʒwɑː; ˌbʊəˈʒwɑː] [본문으로]
4. nether ; [A]문어·익살 1. 지하의, 지옥의 ;; 2. 아래의(opp. upper) ;; [ADJ] Nether means the lower part of a thing or place. ;; 미국∙영국 [ˈneðə(r)] [본문으로]
5. subsistence ; [U] 최저 생활, 호구 ;; [NOUN] Subsistence is the condition of just having enough food or money to stay alive. [본문으로]
6. bourgeoisie ; [U] (the bourgeoisie) 《단·복수 양용》 1. (상공업에 종사하는) 중산 계급. ;; 2. 유산 계급, 자본가[부르주아] 계급. ; <참고> proletariat ;; 미국식 [ˌbʊrʒ-] 영국식 [ˌbʊəʒwɑːˈziː] [본문으로]
7. whereby ; 2. [관계사로서] (그것으로 …하는) 바의 (by which) ; 그것에 의하여, 그래서, 그러니까(on account of which, where upon). [본문으로]
8. generative ; [형용사] (격식) 발생의, 생성의 ;; [ADJ] If something is generative, it is capable of producing something or causing it to develop. [본문으로]
9. cataclysm ; [명사] (격식) (홍수·전쟁 등의) 대재앙, 대변동 ;; 미국∙영국 [ˈkætəklɪzəm] [본문으로]
10. momentaneous ; 1. momentary ; continuing only a moment : FLEETING ;; 2. instantaneous [본문으로]
11. nominal capital ; [명사] (경제) 공칭(公稱) 자본. ;; Nominal capital, also known as authorized capital, represents the securities that are designated for shareholders. Companies that release nominal capital to shareholders do so in order to generate income through traded shares. Ideally, the traded shares increase in value, thus increasing the overall capital for the company. Of course, the shares can also decrease in value, and as a result, nominal capital is clearly designated to protect the company's other assets. [본문으로]
12. expedite ; [타동사][VN] (격식) 더 신속히 처리하다 ; 유의어 speed up ;; [VERB] If you expedite something, you cause it to be done more quickly. ;; 미국∙영국 [ˈekspədaɪt] [본문으로]
13. moneyed interest ; 1 . 금전상의 이해[권리] ;; 2 . 재계, 금융계. ;; the moneyed interest ; 금전적인 이해;[집합적] 재계(財界), 자본가들 [본문으로]
14. sum sb/sth up ; 1. ~을 압축해서 보여주다[묘사하다] ;; 2. ~에 대해 파악[판단]하다 ; 참조 summing-up ;; to describe or show the most typical characteristics of somebody/something, especially in a few words [본문으로]
15. at length ; 1. 길게[상세히] [본문으로]
16. glory ; [자동사] 1. (…을, …하는것을) 기뻐하다, 자랑으로 여기다(in, in doing). [본문으로]
17. precapitalist ; [형용사] Pertaining to precapitalism, a time before capitalism. [본문으로]
18. stratum ; (pl. strata[-tə]) 2. (격식) (사회) 계층 ;; 미국식 [ˈstreɪtəm] 영국식 [ˈstrɑːtəm] [본문으로]
19. symbiosis ; [U, C] (pl. sym·bi·oses[-ˈəʊsiːz; 美 -ˈoʊsiːz] 1. (생물) (서로 다른 생물체 간의) 공생(共生) ;; 2. (사람들·기업들 등 사이의) 공생 ;; [NOUN] Symbiosis is a close relationship between two organisms of different kinds which benefits both organisms. [본문으로]
20. schema ; [명사] pl. sche·mas 또는 sche·mata[-mətə; skiːˈmɑːtə] (전문 용어) (계획·이론의) 개요[윤곽] ;; 미국∙영국 [ˈskiːmə] [본문으로]
21. feudal ; [형용사] (주로 명사 앞에 씀) 봉건적인, 봉건 제도의 ;; 미국∙영국 [ˈfjuːdl] [본문으로]