xvi towards the end of his life Schumpeter was still convinced that the main thesis of Capitalism, Socialism
and Democracy was correct: capitalism was about to be replaced by socialism.
xvi His main assertion was that mainstream economics had failed to understand that basically capitalism
consists of change and cannot be analyzed in static terms. "Capitalist reality is first and last a process
of change", as he phrased it. It is in this context that Schumpeter introduces his concept of "creative destruction."
p.3 Most of the creations of the intellect or fancy pass away for good after a time that varies between
an after-dinner hour and a generation. Some, however, do not. They suffer eclipses but they come back again... These we may
well call the great ones - it is no disadvantage of this definition that it links greatness to vitality... But there is an
additional advantage to defining greatness by revivals: it thereby becomes independent of our love or hate... such adverse
judgment or even exact disproof, by its very failure to injure fatally, only serves to bring out the power of the structure.
p.61 The process of social life is a function of so many variables many of which are not amenable to anything
like measurement that even mere diagnosis of a given state of things becomes a doubtful matter quite apart from the formidable
sources of error that open up as soon as we attempt prognosis... We shall see that the dominant traits of the picture clearly
support certain inferences which, whatever the qualifications that may have to be added, are too strong to be neglected on
the ground that they cannot be proved in the sense in which a proposition of Euclid's can.
Can Capitalism Survive?
Chapter VII
The Process of Creative Destruction
p.82 The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary
process.
p.82-83 Capitalism, then, is by nature a form or method of economic
change and not only never is but never can be stationary. And this evolutionary character of the capitalist process
is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change
alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition
industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase
in population and capital or to the vagaries of monetary systems, of which exactly the same thing holds true. 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.
As we have seen in the preceding chapter, the contents of the laborer's budget, say from 1760 to
1940, did not simply grow on unchanging lines but they underwent a process of qualitative change. Similarly, the history of
the productive apparatus of a typical farm, from the beginnings of the rationalization of crop rotation, plowing and fattening
to the mechanized thing of today–linking up with elevators and railroads–is a history of revolutions. So is the
history of the productive apparatus of the iron and steel industry from the charcoal furnace to our own type of furnace, or
the history of the apparatus of power production from the overshot water wheel to the modern power plant, or the history of
transportation from the mailcoach to the airplane. 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 same process of industrial mutation–if
I may use that biological term–that incessantly revolutionizes 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.
p.83-84 Every piece of business strategy acquires its true significance only against the background
of that process and within the situation created by it. It must be seen in its role in the perennial gale of creative destruction;
it cannot be understood irrespective of it or, in fact, on the hypothesis that there is a perennial lull.
p.84-85 The first thing to go is the traditional conception of the modus operandi of competition.
Economists are at long last emerging from the stage in which price competition was all they saw. As soon as quality
competition and sales effort are admitted into the sacred precincts of theory, the price variable is ousted from its dominant
position. However, it is still competition within a rigid pattern of invariant conditions, methods of production
and forms of industrial organization in particular, that practically monopolizes attention. But in capitalist reality as distinguished
from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the
new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance)–competition
which commands a decisive 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. This kind of competition is as much more effective than
the other as a bombardment is in comparison with forcing a door, and so much more important that it becomes a matter of comparative
indifference whether competition in the ordinary sense functions more or less promptly; the powerful lever that in the long
run expands output and brings down prices is in any case made of other stuff.
It is hardly necessary to point out that competition of the kind we now have in mind acts not only
when in being but also when it is merely an ever-present threat. It disciplines before it attacks. The businessman feels himself
to be in a competitive situation even if he is alone in his field or if, though not alone, he holds a position such that investigating
government experts fail to see any effective competition between him and any other firms in the same or a neighboring field
and in consequence conclude that his talk, under examination, about his competitive sorrows is all make-believe. In many cases,
though not in all, this will in the long run enforce behavior very similar to the perfectly competitive pattern.
p.103 Dynamic analysis is the analysis of sequences in time. In explaining why a certain
economic quantity, for instance a price, is what we find it to be at a given moment, it takes into consideration not only
the state of other economic quantities at the same moment, as static theory does, but also their state at preceding points
of time, and the expectations about their future values. Now the first thing we discover in working out the propositions that
thus relate quantities belonging to different points of time is the fact that, once equilibrium has been destroyed by some
disturbance, the process of establishing a new one is not so sure and prompt and economical as the old theory of perfect competition
made it out to be; and the possibility that the very struggle for adjustment might lead such a system farther away from instead
or nearer to a new equilibrium. This will happen in most cases unless the disturbance is small. In many cases, lagged adjustment
is sufficient to produce this result.
p.104 dynamic theory... is a general method of analysis rather than a study of a particular process.
We can use it to analyze a stationary economy, just as an evolving one can be analyzed by means of the methods of statics
p.173 Viewed from the economists' standpoint, production - including transportation and all operations incident
to marketing - is nothing but the rational combination of the existing "factors" within the constraints imposed by technological
conditions.
p.279 When two armies operate against each other, their individual moves are always centered upon particular
objects that are determined by their strategical or tactical situations. They may contend for a particular stretch of country
or for a particular hill. But the desirability of conquering that stretch or hill must be derived from the strategical or
tactical purpose, which is to beat the enemy. It would be obviously absurd to attempt to derive it from any extra-military
properties the stretch or hill may have.
