creative destruction

DEFINITION: The phrase “creative destruction” refers to the failure of inefficient business enterprises under the capitalist system of free-market competition, which then opens up opportunities for entrepreneurs to found new and potentially more-profitable enterprises.

ETYMOLOGY: The adjective “creative” derives, via Middle English and Middle French, from the Latin past participle, creātus, of the verb, creo, creare, meaning “to make,” “to create,” or “to produce.”

The noun “destruction” derives, via Middle English and Middle French, from the post-classical Latin noun dēstrūctio, dēstrūctiōnis, meaning “destruction.”

Dēstrūctio, in turn, derives from the past participle, dēstrūctus, of the classical Latin verb, dēstruo, dēstruere, meaning “to pull down,” “to dismantle,” “to destroy,” or “to ruin.”

USAGE: The phrase “creative destruction” was coined by the Austrian school economist, Joseph A. Schumpeter, in 1942 in his classic study, Capitalism, Socialism, and Democracy.

Schumpeter claimed to have been inspired by reading Karl Marx, who also discussed the “destructive” aspects of capitalism in his 1867 magnum opus, the first volume of Capital.

However, Marx’s idea was much broader than Schumpeter’s.

As a communist, Marx believed not just that the capitalist system inevitably results in individual business failures, but that the only way in which capitalism creates wealth and ultimately survives is by destroying existing wealth, whether through the pursuit of war or the intentional and frequent instigation of economic crises.

A few other authors used the phrase before Schumpeter, as well, notably the German sociologist Werner Sombart.

However, it was Schumpeter who focused on the concept of creative destruction as an inherent and significant feature of capitalism and it was through his work that the phrase became generally known.