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Crowd at New York’s American Union Bank during a bank run early in the Great Depression. Marx argued that the devaluation of wealth during capitalism’s periodic financial crises was an inevitable outcome of the processes of wealth creation.
Creative destruction (German: schöpferische Zerstörung), sometimes known as Schumpeter’s gale, is a concept in economics which since the 1950s has become most readily identified with the Austrian economist Joseph Schumpeter[1] who derived it from the work of Karl Marx and popularized it as a theory of economic innovation and the business cycle.
According to Schumpeter, the “gale of creative destruction” describes the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”.[2] In Marxian economic theory the concept refers more broadly to the linked processes of the accumulation and annihilation of wealth under capitalism.[3][4][5]
The German Marxist sociologist Werner Sombart has been credited[1] with the first use of these terms in his work Krieg und Kapitalismus (War and Capitalism, 1913).[6] In the earlier work of Marx, however, the idea of creative destruction or annihilation (German: Vernichtung) implies not only that capitalism destroys and reconfigures previous economic orders, but also that it must ceaselessly devalue existing wealth (whether through war, dereliction, or regular and periodic economic crises) in order to clear the ground for the creation of new wealth.[3][4][5]
In Capitalism, Socialism and Democracy (1942), Joseph Schumpeter developed the concept out of a careful reading of Marx’s thought (to which the whole of Part I of the book is devoted), arguing (in Part II) that the creative-destructive forces unleashed by capitalism would eventually lead to its demise as a system (see below).[7] Despite this, the term subsequently gained popularity within mainstream economics as a description of processes such as downsizing in order to increase the efficiency and dynamism of a company. The Marxian usage has, however, been retained and further developed in the work of social scientists such as David Harvey,[8] Marshall Berman,[9] Manuel Castells[10] and Daniele Archibugi.[11]
History
In Marx’s thought
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 (whom Engels described as the only German professor who understood Marx’s Capital),[12] 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”:
Modern bourgeois society, with its relations of production, of exchange and of property, a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells. … It is enough to mention the commercial crises that by their periodical return put the existence of the whole of bourgeois society on trial, each time more threateningly. In these crises, a great part not only of existing production, but also of previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity – the epidemic of over-production. Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions. … And how does the bourgeoisie get over these crises? On the one hand by enforced destruction of a mass of productive forces; on the other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.[3]
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”.[4] 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:
These contradictions lead to explosions, cataclysms, crises, in which … momentaneous suspension of labour and annihilation of a great portion of capital … violently lead it back to the point where it is enabled [to go on] fully employing its productive powers without committing suicide.[4][13]
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.[8] 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:
the destruction of capital through crises means the depreciation of values which prevents them from later renewing their reproduction process as capital on the same scale. This is the ruinous effect of the fall in the prices of commodities. It does not cause the destruction of any use-values. What one loses, the other gains. Values used as capital are prevented from acting again as capital in the hands of the same person. The old capitalists go bankrupt. … A large part of the nominal capital of the society, i.e., of the exchange-value of the existing capital, is once for all destroyed, although this very destruction, since it does not affect the use-value, may very much expedite the new reproduction. This is also the period during which moneyed interest enriches itself at the cost of industrial interest.[14]
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”.[15]
Other early usage
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In Hinduism, the god Shiva is simultaneously destroyer and creator, portrayed as Shiva Nataraja (Lord of the Dance), which is proposed as the source of the Western notion of “creative destruction”.[1]
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.
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:[16]
Again, however, from destruction a new spirit of creation arises; the scarcity of wood and the needs of everyday life… forced the discovery or invention of substitutes for wood, forced the use of coal for heating, forced the invention of coke for the production of iron.
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.[1] 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.[1] 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”.[17] In the following passage from On the Genealogy of Morality (1887), Nietzsche argues for a universal principle of a cycle of creation and destruction, such that every creative act has its destructive consequence:
But have you ever asked yourselves sufficiently how much the erection of every ideal on earth has cost? How much reality has had to be misunderstood and slandered, how many lies have had to be sanctified, how many consciences disturbed, how much “God” sacrificed every time? If a temple is to be erected a temple must be destroyed: that is the law – let anyone who can show me a case in which it is not fulfilled! – Friedrich Nietzsche, On the Genealogy of Morality
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!”[18] Note, however, that this earlier formulation might more accurately be termed “destructive creation”,[original research?] 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).