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The Fraser Institute, Essential Schumpeter: Creative Destruction

Essential Schumpeter: Creative Destruction

Welcome to the essential ideas of Joseph Schumpeter.

The phrase “creative destruction” was popularized by economist Joseph

Schumpeter to describe the entrepreneurial process. What Schumpeter

observed is that entrepreneurship simultaneously creates something new...

while destroying something old. Consider this example: in the late 1800s the horse

and buggy was the most widespread form of transportation and it included a vast

array of businesses and workers: people who raised horses... leather shops that

made the harnesses and equipment... blacksmiths who forged and repaired the

metal fittings, and so on. One day Jane, an entrepreneur, saw the vast potential for

profit if a horse could be replaced by a machine.

Jane created a prototype that attracted some attention. At first these

"automobiles" were an interesting novelty that attracted a few customers. But Jane

made enough profit to pay her workers and other costs – the first sign she was

onto something. As Jane continued to innovate, more people wanted to buy her

automobiles. With the additional revenue, Jane hired more workers to speed up

production and moved into a larger space, which helped her lower prices, making

the automobile accessible to more people. Soon, other entrepreneurs entered the

automobile industry and added further innovations, This eventually lowered the

price, and demand for automobiles increased… while demand for horse-and-

buggies declined. This transfer of resources from the horse and buggy

industry to the automobile industry had far reaching implications for the entire

economy.Stables that raised horses began laying off staff… leather shops switched

switched to making leather car seats… and blacksmiths started fashioning parts for

automobiles. Eventually many of the old industry's workers found employment in

the new industry, or elsewhere in the growing economy. One of Schumpeter's

greatest contributions to economics was his observation that the destructive

element to entrepreneurship was necessary to reap the rewards of new,

creative entrepreneurship and innovation. For more information on Joseph

Schumpeter, visit EssentialSchumpeter.org and to learn about more essential

scholars, visit EssentialScholars.org

and to learn about more essential

scholars visit essential scholars org


Essential Schumpeter: Creative Destruction

Welcome to the essential ideas of Joseph Schumpeter.

The phrase “creative destruction” was popularized by economist Joseph

Schumpeter to describe the entrepreneurial process. What Schumpeter

observed is that entrepreneurship simultaneously creates something new...

while destroying something old. Consider this example: in the late 1800s the horse

and buggy was the most widespread form of transportation and it included a vast

array of businesses and workers: people who raised horses... leather shops that

made the harnesses and equipment... blacksmiths who forged and repaired the

metal fittings, and so on. One day Jane, an entrepreneur, saw the vast potential for

profit if a horse could be replaced by a machine.

Jane created a prototype that attracted some attention. At first these

"automobiles" were an interesting novelty that attracted a few customers. But Jane

made enough profit to pay her workers and other costs – the first sign she was

onto something. As Jane continued to innovate, more people wanted to buy her

automobiles. With the additional revenue, Jane hired more workers to speed up

production and moved into a larger space, which helped her lower prices, making

the automobile accessible to more people. Soon, other entrepreneurs entered the

automobile industry and added further innovations, This eventually lowered the

price, and demand for automobiles increased… while demand for horse-and-

buggies declined. This transfer of resources from the horse and buggy

industry to the automobile industry had far reaching implications for the entire

economy.Stables that raised horses began laying off staff… leather shops switched

switched to making leather car seats… and blacksmiths started fashioning parts for

automobiles. Eventually many of the old industry's workers found employment in

the new industry, or elsewhere in the growing economy. One of Schumpeter's

greatest contributions to economics was his observation that the destructive

element to entrepreneurship was necessary to reap the rewards of new,

creative entrepreneurship and innovation. For more information on Joseph

Schumpeter, visit EssentialSchumpeter.org and to learn about more essential

scholars, visit EssentialScholars.org

and to learn about more essential

scholars visit essential scholars org