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 … The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as US Steel illustrate the same process of industrial mutation - if I may use the 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.
Kronos Cycle
Open systems consolidate into monopoly, then repeat.
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The worries of other economists about the sclerosis of spreading monopolization are similarly sent flying with a description of capitalist innovation as a “perennial gale of creative destruction” in which the agents for innovatory change are the “monopolies” themselves. The stage is thus set for what appears to be a direct refutation of Marx. Plausible capitalism is a reasoned model of an economic system that is caught up in a process of continuous self-renewing growth.
The fear of creative destruction is the main reason why there was no sustained increase in living standards between the Neolithic and Industrial revolutions. Technological innovation makes human societies prosperous, but also involves the replacement of the old with the new, and the destruction of the economic privileges and political power of certain people.
Schumpeter’s cycle of industrial life and death is an inspiration for this book. His thesis is that in the natural course of things, the new only rarely supplements the old; it usually destroys it. The old, however, doesn’t, as it were, simply give up but rather tries to forestall death or co-opt its usurper—à la Kronos—with important implications.
By replacing turmoil with stability, a monopoly “may make fortresses out of what otherwise might be centers of devastation” and “in the end produce not only steadier but also greater expansion of total output than could be secured by an entirely uncontrolled onward rush that cannot fail to be studded with catastrophes.” Schumpeter imagined that entrepreneurs wouldn’t commit large sums to risky ventures if the future seemed cloudy and new competitors could easily spoil their plans. “On the one hand, largest-scale plans could in many cases not materialize at all if it were not known from the outset that competition will be discouraged by heavy capital requirements or lack of experience, or that means are available to discourage or checkmate it so as to gain the time and space for further developments.”
Strangely enough, however, it may not have been in Mervin Kelly or in some of his disciples—perhaps because the monopoly, at least for a time, guaranteed that the phone company’s business would remain sturdy even in the face of drastic technological upheaval. Kelly, for instance, who toiled for decades to improve and perfect the vacuum tube, effectively lobbied for a research program on the transistor that, when it succeeded, rendered his entire previous career in science irrelevant. And an array of other technologies at Bell Labs had a similar effect of discarding the old in favor of the new.
If the tendency of monopoly businesses were to hold back progress, they would be dangerous and we’d be right to oppose them. But the history of progress is a history of better monopoly businesses replacing incumbents.