Creative Destruction
1. Introduction
This following article uses the foundations of classical and neoclassical economic theories as derived by Smith, Ricardo, J.S. Mills, Walras, Marshall and Clark, in order to contrast and analyze Joseph A. Schumpeter’s theory of “creative destruction” that is a key feature of capitalism as we understand it today. The claim that this paper is aiming to raise is that despite the realism of classical competitive theory and Schumpeter’s “creative destruction”, they have been replaced by the neoclassical assumptions that competition remains in a stationary state. It is neoclassical thought that is utilized to explain derivations of this steady state in modern economics. In order to achieve this, this article starts off with a critical analysis of competition under classical, and in the second part, neoclassical assumptions. In a third part, Joseph A. Schumpeter will be introduced and his most critical works analyzed. It is in this instance where brief interpretations and criticisms of Karl Marx will be made in order to fully understand the evolution of Schumpeter’s thought process. It is one of this articles prime objectives to contrast and reason between the stationary state of perfect competition and Schumpeter’s proclaimed optimal alternative; oligopolistic competition. Thus, the article will end with a critical and out looking assessment of the arguments provided to reach a conclusion about the optimal state of competition.
2. Classical Competition and Marx
In a classical economists view, competition is a mechanism that allocates the rivaling self-interests of competing firms in a dynamic sense that – in a never ending cyclical process of eliminating losses and profits – creates natural prices that act as a center of gravitation for market prices. This leads to Smiths conclusion that, although every individual is driven by his own self-interest, everyone “is led by an invisible hand to promote an end which was no
This following article uses the foundations of classical and neoclassical economic theories as derived by Smith, Ricardo, J.S. Mills, Walras, Marshall and Clark, in order to contrast and analyze Joseph A. Schumpeter’s theory of “creative destruction” that is a key feature of capitalism as we understand it today. The claim that this paper is aiming to raise is that despite the realism of classical competitive theory and Schumpeter’s “creative destruction”, they have been replaced by the neoclassical assumptions that competition remains in a stationary state. It is neoclassical thought that is utilized to explain derivations of this steady state in modern economics. In order to achieve this, this article starts off with a critical analysis of competition under classical, and in the second part, neoclassical assumptions. In a third part, Joseph A. Schumpeter will be introduced and his most critical works analyzed. It is in this instance where brief interpretations and criticisms of Karl Marx will be made in order to fully understand the evolution of Schumpeter’s thought process. It is one of this articles prime objectives to contrast and reason between the stationary state of perfect competition and Schumpeter’s proclaimed optimal alternative; oligopolistic competition. Thus, the article will end with a critical and out looking assessment of the arguments provided to reach a conclusion about the optimal state of competition.
2. Classical Competition and Marx
In a classical economists view, competition is a mechanism that allocates the rivaling self-interests of competing firms in a dynamic sense that – in a never ending cyclical process of eliminating losses and profits – creates natural prices that act as a center of gravitation for market prices. This leads to Smiths conclusion that, although every individual is driven by his own self-interest, everyone “is led by an invisible hand to promote an end which was no