In 1942, the eminent economist Joseph Schumpeter coined one of the most profound terms in modern economic theory: "creative destruction." In his book Capitalism, Socialism, and Democracy, he argued that free market capitalism is always a messy work-in-progress. It is an economic system that is inherently unstable due to the dynamics of entrepreneurship, competition, technological discoveries, innovations, and productivity improvements. These systemic characteristics destroy existing products and markets while providing greater value to consumers. Because he approved of thses characteristics as modes of positive economic behavior, he said that in the long run such destruction of old businesses was creative of new and better products. It was actually creative, even though some interests and individuals were damaged, while on the whole many people benefitted. He saw economic growth as spurts of creative destruction along with entrepreneurship and innovation.
Unfortunately, history tells us of many negative modes of economic behavior. The free market system is unstable for many bad reasons, too. Businessmen can destroy their own enterprises along with the whole free market economic system with absolutely no creativity. Schumpeter ignored the dark side of American capitalism: the abuses and stupidity of too many bad business practices, personal greed, and the creation of monopolies to eliminate competition and fix higher prices. In the American economic system there is extraordinary pressure on enterprises to show attractive short-term profits -- to make money, as much and as soon as possible. Americans prize immediate successes. The fixation on short-term goals often leads to short-sighted decisions and corporate policies, and investments. Managers get bonuses for quarterly profits even at the expense of long-term business growth. There also have been corrupt businessmen who have deceived customers and investors through false claims and down-right lies. They often cover up their greed and selfishness with false reports and falsified tax returns. In he pocess they can destroy customer and investor confidence with ripples through the entire economic system. Consumers will stop spending and investors will sell off stocks when they lose trust in business.
In a national democracy with a nation-wide economy where individuals are workers, consumers, investors, voters, and taxpayers all at the same time, does the government have the responsibility to protect the people by regulating business practices and policing non-creative destruction of the free market econmy as though they were victimized by common criminals or attacked by hostile foreign invaders? Too many conservatives and business people would say "no way" and "over my dead body." Along with plenty of innocent dead bodies as well. If left entirely on its own, the greed, selfishness, and stupidity of a few players would make the free market system so unstable that it might destroy itself.
Copyright 2018 Stephen M. Millett (all rights reserved)
