Creative destruction

History

By Karl Marx

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, and of Joseph Schumpeter, who discussed at length the origin of the idea in Marx's work (see below).

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

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 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:

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:

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

By Werner Sombart

In philosophical terms, the concept of "creative destruction" is close to Hegel's concept of sublation. In German economic discourse it was taken up from Marx's writings by Werner Sombart, particularly in his 1913 text Krieg und Kapitalismus:

Other early usage

In the Origin of Species, which was published in 1859, Charles Darwin wrote that the "extinction of old forms is the almost inevitable consequence of the production of new forms". One notable exception to this rule is how the extinction of the dinosaurs facilitated the adaptive radiation of mammals. In this case creation was the consequence, rather than the cause, of destruction.

Hugo Reinert has argued that Sombart's formulation of the concept was influenced by Eastern mysticism, specifically the image of the Hindu god Shiva, who is presented in the paradoxical aspect of simultaneous destroyer and creator. Conceivably this influence passed from Johann Gottfried Herder, who brought Hindu thought to German philosophy in his Philosophy of Human History (Ideen zur Philosophie der Geschichte der Menschheit) (Herder 1790–92), specifically volume III, pp. 41–64. via Arthur Schopenhauer and the Orientalist Friedrich Maier through Friedrich Nietzsche's writings.

Nietzsche represented the creative destruction of modernity through the mythical figure of Dionysus, a figure whom he saw as at one and the same time "destructively creative" and "creatively destructive".{{Cite book | author1-link = Malcolm Bradbury | author2-link = James McFarlane

Other nineteenth-century formulations of this idea include Russian anarchist Mikhail Bakunin, who wrote in 1842, "The passion for destruction is a creative passion, too!" Note, however, that this earlier formulation might more accurately be termed "destructive creation", and differs sharply from Marx's and Schumpeter's formulations in its focus on the active destruction of the existing social and political order by human agents (as opposed to systemic forces or contradictions in the case of both Marx and Schumpeter).

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.{{cite book |author-link=Thomas K. McKraw |archive-url=https://web.archive.org/web/20080226211528/http://hbswk.hbs.edu/pdf/20070207_Schumpeter.pdf |url-status=dead |archive-date=26 February 2008 |access-date=23 February 2012

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:

Examples

Companies that once revolutionized and dominated new industries – for example, Xerox in copiers or Polaroid in instant photography – have seen their profits fall and their dominance vanish as rivals launched improved designs or cut manufacturing costs. In technology, the cassette tape replaced the 8-track, only to be replaced in turn by the compact disc, which was undercut by downloads to MP3 players, which is now being usurped by web-based streaming services. Companies that made money out of technology which eventually becomes obsolete do not necessarily adapt well to the business environment created by the new technologies.

One such example is how online ad-supported news sites such as The Huffington Post are leading to creative destruction of the traditional newspaper. The Christian Science Monitor announced in January 2009 that it would no longer continue to publish a daily paper edition, but would be available online daily and provide a weekly print edition. The Seattle Post-Intelligencer became online-only in March 2009. At a national level in USA, employment in the newspaper business fell from 455,700 in 1990 to 225,100 in 2013. Over that same period, employment in internet publishing and broadcasting grew from 29,400 to 121,200. Traditional French alumni networks, which typically charge their students to network online or through paper directories, are in danger of creative destruction from free social networking sites such as LinkedIn and Viadeo.

In fact, successful innovation is normally a source of temporary market power, eroding the profits and position of old firms, yet ultimately succumbing to the pressure of new inventions commercialised by competing entrants. Creative destruction is a powerful economic concept because it can explain many of the dynamics or kinetics of industrial change: the transition from a competitive to a monopolistic market, and back again. It has been the inspiration of endogenous growth theory and also of evolutionary economics.

David Ames Wells (1890), who was a leading authority on the effects of technology on the economy in the late 19th century, gave many examples of creative destruction (without using the term) brought about by improvements in steam engine efficiency, shipping, the international telegraph network, and agricultural mechanization.

Later developments

Ludwig Lachmann

David Harvey

Geographer and historian David Harvey in a series of works from the 1970s onwards (Social Justice and the City, 1973; The Limits to Capital, 1982; The Urbanization of Capital, 1985; Spaces of Hope, 2000; Spaces of Capital, 2001; Spaces of Neoliberalization, 2005; The Enigma of Capital and the Crises of Capitalism, 2010{{cite book |author-link=David Harvey (geographer) |access-date=2010-11-10 |author-link=David Harvey (geographer) |access-date=2010-11-10

Globalization can be viewed as some ultimate form of time-space compression, allowing capital investment to move almost instantaneously from one corner of the globe to another, devaluing fixed assets and laying off labour in one urban conglomeration while opening up new centres of manufacture in more profitable sites for production operations. Hence, in this continual process of creative destruction, capitalism does not resolve its contradictions and crises, but merely "moves them around geographically".{{Cite video |access-date=12 November 2010 |archive-date=18 July 2011 |archive-url=https://web.archive.org/web/20110718165216/http://comment.rsablogs.org.uk/2010/06/28/rsa-animate-crisis-capitalism/ |url-status=dead

Marshall Berman

In his 1987 book All That is Solid Melts into Air: The Experience of Modernity, particularly in the chapter entitled "Innovative Self-Destruction" (pp. 98–104), Marshall Berman provides a reading of Marxist "creative destruction" to explain key processes at work within modernity. The title of the book is taken from a well-known passage from The Communist Manifesto. Berman elaborates this into something of a Zeitgeist which has profound social and cultural consequences:

Here Berman emphasizes Marx's perception of the fragility and evanescence of capitalism's immense creative forces, and makes this apparent contradiction into one of the key explanatory figures of modernity.

In 2021, Berman's younger son applied the elder's conception of creative destruction to the field of art history, writing in Hunter College's graduate art history journal. The essay reconsiders the modern media of photography, photomontage, and collage through the lens of "creative destruction". In doing so, the younger Berman attempts to show that in certain works of art of the above-mentioned media, referents (such as nature, real people, other works of art, newspaper clippings, etc.) can be given new and unique significance even while necessarily being obscured by the very nature of their presentation.

Manuel Castells

The sociologist Manuel Castells, in his trilogy on The Information Age: Economy, Society and Culture (the first volume of which, The Rise of the Network Society, appeared in 1996), reinterpreted the processes by which capitalism invests in certain regions of the globe, while divesting from others, using the new paradigm of "informational networks". In the era of globalization, capitalism is characterized by near-instantaneous flow, creating a new spatial dimension, "the space of flows". While technological innovation has enabled this unprecedented fluidity, this very process makes redundant whole areas and populations who are bypassed by informational networks. Indeed, the new spatial form of the mega-city or megalopolis, is defined by Castells as having the contradictory quality of being "globally connected and locally disconnected, physically and socially". Castells explicitly links these arguments to the notion of creative destruction:

Daniele Archibugi

Developing the Schumpeterian legacy, the school of the Science Policy Research Unit of the University of Sussex further detailed the importance of creative destruction. In particular, new technologies are often incompatible with the existing productive regimes and will bankrupt companies and even industries that change too slowly. Chris Freeman and Carlota Perez developed these insights. More recently, Daniele Archibugi and Andrea Filippetti associated the 2008 economic crisis with the slow-down of opportunities offered by information and communication technologies (ICTs). Archibugi used the 1982 film Blade Runner as a metaphor to argue that of the innovations shown, all those associated with ICTs have become part of everyday life. However, none in the field of biotechnology have been fully commercialized. A new economic recovery will occur when some key technological opportunities are identified and sustained.

Others

In 1992, the idea of creative destruction was put into formal mathematical terms by Philippe Aghion and Peter Howitt, giving an alternative model of endogenous growth compared to Paul Romer's expanding varieties model. For their work, they were awarded with the Nobel Prize in Economic Sciences in 2025.

In 1995, Harvard Business School authors Richard L. Nolan and David C. Croson released a book advocating downsizing to free up slack resources, which could then be reinvested to create competitive advantage.

The idea of "creative destruction" was utilized by Max Page in his 1999 book, The Creative Destruction of Manhattan, 1900–1940. The book traces Manhattan's constant reinvention, often at the expense of preserving a concrete past. Describing this process as "creative destruction". Page describes the complex historical circumstances, economics, social conditions and personalities that have produced crucial changes in Manhattan's cityscape.

In addition to Max Page, others have used the term "creative destruction" to describe the process of urban renewal and modernization. T.C. Chang and Shirlena Huang referenced "creative destruction" in their paper Recreating place, replacing memory: Creative Destruction at the Singapore River. The authors explored the efforts to redevelop a waterfront area that reflected a vibrant new culture while paying sufficient homage to the history of the region. Rosemary Wakeman chronicled the evolution of an area in central Paris, France known as Les Halles. Les Halles housed a vibrant marketplace starting in the twelfth century. Ultimately, in 1971, the markets were relocated and the pavilions torn down. In their place, now stand a hub for trains, subways and buses. Les Halles is also the site of the largest shopping mall in France and the controversial Centre Georges Pompidou.

The term "creative destruction" has been applied to the arts. Alan Ackerman and Martin Puncher (2006) edited a collection of essays under the title Against Theater: Creative destruction on the modernist stage. They detail the changes and the causal motivations experienced in theater as a result of the modernization of both the production of performances and the underlying economics. They speak of how theater has reinvented itself in the face of anti-theatricality, straining the boundaries of the traditional to include more physical productions, which might be considered avant-garde staging techniques.

Additionally within art, Tyler Cowen's book Creative Destruction describes how art styles change as artists are simply exposed to outside ideas and styles, even if they do not intend to incorporate those influences into their art. Traditional styles may give way to new styles, and thus creative destruction allows for more diversified art, especially when cultures share their art with each other.

In his 1999 book, Still the New World, American Literature in a Culture of Creative Destruction, Philip Fisher analyzes the themes of creative destruction at play in literary works of the twentieth century, including the works of such authors as Ralph Waldo Emerson, Walt Whitman, Herman Melville, Mark Twain, and Henry James, among others. Fisher argues that creative destruction exists within literary forms just as it does within the changing of technology.

Neoconservative author Michael Ledeen argued in his 2002 book The War Against the Terror Masters that America is a revolutionary nation, undoing traditional societies: "Creative destruction is our middle name, both within our own society and abroad. We tear down the old order every day, from business to science, literature, art, architecture, and cinema to politics and the law". His characterization of creative destruction as a model for social development has met with fierce opposition from paleoconservatives.

Creative destruction has also been linked to sustainable development. The connection was explicitly mentioned for the first time by Stuart L. Hart and Mark B. Milstein in their 1999 article Global Sustainability and the Creative Destruction of Industries, in which he argues new profit opportunities lie in a round of creative destruction driven by global sustainability. (They would strengthen this argument later in their 2003 article Creating Sustainable Value and, in 2005, with Innovation, Creative Destruction and Sustainability.) Andrea L. Larson agreed with this vision a year later in Sustainable Innovation Through an Entrepreneurship Lens, stating entrepreneurs should be open to the opportunities for disruptive improvement based on sustainability. In 2005, James Hartshorn (et al.) emphasized the opportunities for sustainable, disruptive improvement in the construction industry in his article Creative Destruction: Building Toward Sustainability.

Some economists argue that the destructive component of creative destruction has become more powerful than it was in the past. They claim that the creative component does not add as much to growth as in earlier generations, and innovation has become more rent-seeking than value-creating.

Alternative name

The following text appears to be the source of the phrase "Schumpeter's Gale" to refer to creative destruction:

Impediments

Politicians often impose impediments to the forces of creative destruction by regulating entry and exit rules that make it difficult for churning to take place. In a series of papers Andrei Shleifer and Simeon Djankov illustrate the effects of such regulation on slowing down competition and innovation.

In building economic resilience against black swan events by means of systemic policy, Federal Reserve researchers warned in May 2025 against conflating creative destruction with a black swan, stating "[s]ystemic policies do not prevent the harms that can arise from routine events such as firm bankruptcies, financial institution failures, and job losses as part of traditional Schumpeterian creative-destruction dynamics. Instead, systemic policies enable the key functions of the financial system to persist during periods of severe distress".

In popular culture

The film Other People's Money (1991) provides contrasting views of creative destruction, presented in two speeches regarding the takeover of a publicly traded wire and cable company in a small New England town. One speech is by a corporate raider, and the other is given by the company CEO, who is principally interested in protecting his employees and the town.

References

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