Creative destruction, sometimes known as Schumpeter's gale, is a term in economics which has since the 1950s become most readily identified with the Austrian American economist Joseph Schumpeter,[1] who adapted it from the work of Karl Marx and popularized it as a theory of economic innovation and the business cycle. The term is derived from Marxist economic theory, where it refers to the linked processes of the accumulation and annihilation of wealth under capitalism. These processes were first described in The Communist Manifesto (Marx and Engels, 1848)[2] and were expanded in Marx's Grundrisse (1857)[3] and "Volume IV" (1863) of Das Kapital.[4]
At its most basic, "creative destruction" (German: schpferische Zerstrung) describes the way in which capitalist economic development arises out of the destruction of some prior economic order, and this is largely the sense implied by the German Marxist sociologist Werner Sombart who has been credited[1] with the first use of these terms in his work Krieg und Kapitalismus ("War and Capitalism", 1913).[5] In the earlier work of Marx, however, the idea of creative destruction or annihilation (German: Vernichtung) implies not only that capitalism destroys and reconfigures previous economic orders, but also that it must ceaselessly devalue existing wealth (whether through war, dereliction, or regular and periodic economic crises) in order to clear the ground for the creation of new wealth.[2][3][4]
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