"Economic progress, in capitalist society, means turmoil"
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Joseph Schumpeter argued that capitalist growth does not proceed smoothly; it advances through waves of innovation that upend existing structures. Economic progress, therefore, is inseparable from turbulence. He called this process creative destruction: new technologies and business models displace the old, reallocating resources and rewriting the economic map. The result is rising productivity and living standards over the long run, but also bankruptcy for incumbents, job loss in declining sectors, regional dislocation, and financial volatility along the way.
This view emerged against the backdrop of early 20th-century upheavals and in reaction to equilibrium models that treated the economy as a machine tending toward rest. Schumpeter shifted attention to the entrepreneur and the credit system, the pair that mobilizes capital for risky ventures and triggers clusters of innovation. Monopoly profits are not merely market failures in his framework; they are temporary prizes that entice firms to innovate, only to be eroded by the next wave of entrants. Stability is not the normal state of capitalism but a lull between surges.
Turmoil is not simply a synonym for crisis. It is the constant churn of entry and exit, the obsolescence of skills, the pressure on institutions to adapt. Railroads, electricity, automobiles, semiconductors, the internet, and AI each illustrate how transformative advances destabilized existing markets and social arrangements before becoming the new normal. Every leap forward imposes costs on some as benefits accrue to others, creating political conflicts over regulation, protection, and redistribution.
Schumpeter also warned that capitalism’s very success might undermine its social support. As large firms routinize innovation and intelligentsia critique its disruptions, demands for security and control can mount, threatening the open-ended dynamism that created progress in the first place. The line underscores a hard bargain: attempts to eliminate turmoil risk freezing the system, while harnessing its energy requires institutions that cushion shocks without smothering change.
This view emerged against the backdrop of early 20th-century upheavals and in reaction to equilibrium models that treated the economy as a machine tending toward rest. Schumpeter shifted attention to the entrepreneur and the credit system, the pair that mobilizes capital for risky ventures and triggers clusters of innovation. Monopoly profits are not merely market failures in his framework; they are temporary prizes that entice firms to innovate, only to be eroded by the next wave of entrants. Stability is not the normal state of capitalism but a lull between surges.
Turmoil is not simply a synonym for crisis. It is the constant churn of entry and exit, the obsolescence of skills, the pressure on institutions to adapt. Railroads, electricity, automobiles, semiconductors, the internet, and AI each illustrate how transformative advances destabilized existing markets and social arrangements before becoming the new normal. Every leap forward imposes costs on some as benefits accrue to others, creating political conflicts over regulation, protection, and redistribution.
Schumpeter also warned that capitalism’s very success might undermine its social support. As large firms routinize innovation and intelligentsia critique its disruptions, demands for security and control can mount, threatening the open-ended dynamism that created progress in the first place. The line underscores a hard bargain: attempts to eliminate turmoil risk freezing the system, while harnessing its energy requires institutions that cushion shocks without smothering change.
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