Tuesday, September 22, 2009

The Spirit Of My Favorite Economist, Joseph Schumpeter, Will Guide National Economic Policy

To read about this, go to A Vision for Innovation, Growth, and Quality Jobs by Lawrence H. Summers, head of the National Economic Counsel. Here are some brief exerpts:

"During the past two years, the ideas propounded by John Maynard Keynes have assumed greater importance than most people would have thought in the previous generation.

An important aspect of any economic expansion is the role innovation plays as an engine of economic growth. In this regard, the most important economist of the twenty-first century might actually turn out to be not [Adam] Smith or Keynes, but Joseph Schumpeter.

One of Schumpeter’s most important contributions was the emphasis he placed on the tremendous power of innovation and entrepreneurial initiative to drive growth through a process he famously characterized as "creative destruction." His work captured not only an economic truth, but also the particular source of America’s strength and dynamism."

"Why is this blog called The Dangerous Economist? Back in the early 1990s, I wrote a paper called "The Creative-Destroyers: Are Entrepreneurs Mythological Heroes?" It compares the entrepreneur in capitalism to the hero in mythology. I was never able to get it published in an academic journal. One referee even said the idea was dangerous. I doubt much harm would have befallen the U.S. economy had this paper been published. It is now online at

Creative Destroyers

A shorter version is at

Shorter Version

If you clicked on the link about why I chose this name for my blog and then these articles and read them you would have discovered some of the things that I list below and they would have pointed you to Schumpeter.

The process whereby innovations occur was called "Creative Destruction" by Schumpeter in his bookd Capitalism, Socialism, and Democracy. "Creative Destruction" was

"The opening of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U. S. Steel illustrate the same process of industrial mutation if I may use that biological term-that incessantly revolutionizes the economic structure from with in, incessantly destroying the old one, incessantly creating the new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in" (p. 83).

In his book The Hero with a Thousand Faces, Joseph Campbell described the action of the hero with

"The standard path of the mythological adventure of the hero is a magnification of the formula represented in the rites of passage: separation-initiation-return: which might be named the nuclear unit of the monomyth. A hero ventures forth from the world of common day into a region of supernatural wonder: fabulous forces are there encountered and a decisive victory is won: the hero comes back from this mysterious adventure with the power to bestow boons on his fellow man. "(p. 30)

Campbell (1968) also has a section called "The Cosmogonic Cycle" which "unrolls the great vision of the creation and destruction of the world which is vouchsafed as revelation to the successful hero" (p. 38). The connection to Schumpeter's theory of creative destruction is clear. A successful entrepreneur simultaneously destroys and creates a new world, or at least a new way of life. Henry Ford, for example, destroyed the horse and buggy age while creating the age of the automobile. But even more to the point is the fact that the hero finds that the world "suffers from a symbolical deficiency" (p. 37) and that "the hero appears on the scene in various forms according to the changing needs of the race" (p. 38). The changing needs and the deficiency may directly correspond to the changing market conditions or the changing desires for products. The entrepreneur IS the first person to perceive the need or opportunity for market profits.

Joseph Campbell's book inspired George Lucas to make the Star Wars movies.

3 comments:

Christopher B. Pugh said...

That article was a great read, and I stumbled upon this:

http://finance.yahoo.com/tech-ticker/article/337340/The-Real-Problem-with-the-Economy-Is-That-It-Doesn't-Need-You-Anymore?tickers=dia,spy,xlf

Which I think ties into the same theory Schumpeter was surmising that innovation not only destroys the old ways, but also creates a world where we're far less dependent on the working class citizens.

The author infers that we're evolving to a state where less human involvement is required to meet our everyday needs for manufacturing, and that eventually these roles can be phased out (or outsourced) altogether.

From my understanding Schumpeter was sympathetic to Marxist theories, and that capitalism would lead to corporatism. The end result would be a world where few control everything.

I just purchased his book on Amazon for my Kindle... hope it's a good read! :)

Cyril Morong said...

Chris

Thanks again for dropping by and commenting. Technology can cause short run pain. But in the long run, we are usually better off (at least job wise). Look at all of the labor saving inventions in the last 200 years. Yet we still have jobs and they are not as physically demanding as they used to be. Also, read this article by Paul Krugman. He shows that new technologies don't necessarily cost us jobs.

You are right about Schumpeter. Yes, I hope you enjoy his book.

Cy

Cyril Morong said...

Here is the link

http://www.slate.com/id/1916/