creative destruction

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Schumpeter (Schumpeter, 1942) theorized that profit motivates the innovation which is the precursor to creative destruction that is the key to his theories. Profit is ""the premium put upon successful innovation in a capitalist society and is temporary by nature: it will vanish with subsequent process of competition and adaptation.""

Schumpeter's key points (Schumpeter, 1942)--

  • evolutionary economics -- "" dealing with capitalism we are dealing with an evolutionary process."" (pp 82)
  • fundamental economic impulse -- ""The fundamental impulse that sets and keeps the capitalist engine in motion comes form the new consumers' goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates."" (pp 83)
  • creative destruction -- ""...industrial mutation...incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process or Creative Destruction is the essential fact about capitalism."" (pp 83)
  • essential problem for economics -- ""...the problem that is usually being visualized is how capitalism administers existing structures, whereas the relevant problem is how it creates and destroys them."" (pp 84)
  • business organization optimization -- ""A system - any system, economic or other - that at every given point of time fully utilizes its possibilities to the best advantage may yet in the long run be inferior to a system that does so at no given point of time, because the latter's failure to do so may be a condition for the level or speed of long-run performance."" (pp 83)