![]() ![]() If a firm becomes unprofitable, then it should close down so that resources, (labour and capital) can move into more productive and profitable firms and industries.Free market justification for creative destruction Some economists even go so far as to argue that if banks fail, the government should not intervene as it is better to allow bad banks to fail and avoid the government artificially propping up the financial system. Ironically, for a concept derived from Marxist thought, free-market economists have seen creative destruction as a necessary and inevitable process of economic development and generally oppose government attempts to hold back this process of decline and renewal. – Joseph Schumpeter, ‘ Capitalism, Socialism and Democracy‘ (1942) Creative destruction and laissez-faire economics. 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.” “Capitalism is by nature a form or method of economic change and not only never is but never can be stationary. However, whilst Marx believed capitalists crisis and destruction would lead to its demise, Schumpeter saw creative destruction as a necessary and natural way to enable new markets and new growth. He derived his ideas from a close reading of Marx. He used the phrase ‘gale of Creative Destruction’ and the concept is sometimes known as Schumpeter’s Gale. Joseph Schumpeter popularised the concept of creative destruction in ‘ Capitalism, Socialism and Democracy‘ (1942). – Karl Marx, Communist Manifesto Creative destruction and Schumpeter ![]() “In these crises, a great part not only of existing production, but also of previously created productive forces, are periodically destroyed.” Although Marx saw how Capitalism could reinvent itself, he also felt it’s inherent tendency to self-destruction would eventually lead to its end. Marx saw wars and economic crisis as methods for destroying production and enabling capitalism to start a new round of wealth creation for the owners. Karl Marx wrote at length about the nature of capitalism causing large-scale loss, which enabled new wealth to be created. ![]() It can be seen from both a negative and positive perspective. Old industries and firms, which are no longer profitable, close down enabling the resources (capital and labour) to move into more productive processes.Ĭreative destruction means that the company closures and job losses are good for the long-term well-being of the economy. Definition of creative destruction This refers to the process of how capitalism leads to a constantly changing structure of the economy. ![]()
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