Analysis of Joseph A.Schumpeter's

1. Identify at least one point in this paper that the author claims is important for understanding what role entrepreneurship plays in society.

The main point which Schumpeter emphasizes is that capitalism is an evolutionary process. He describes how it is an always moving concept and it “not only is but never can be stationary.” Schumpeter goes on to state that the evolutionary process of capitalism is not due to the fact that the “economic life goes on in a social and natural environment,” meaning that the main reason for capitalism’s constant evolution is not because of the things like wars and revolutions that pick up or bring now the economy. The reason capitalism is an evolutionary process, he says, is because of the constant spew of new consumers’ goods that are put on the market, new systems of production and/or transportation of all goods, creation of new markets, and new methods of industrial organization. All of these things are creating new goods, or different ways of using and handling them. Schumpeter states that all of these things are ways that capitalism transforms the formation of the economic structure “from within,” which continuously creates new structures of the economy while at the same time destroys the old, previous structure that stood before it. Schumpeter emphasizes that this happens every time something new is created or a new way of producing, packaging, transporting or organizing something is created. He coins the term Creative Destruction for this process that he describes and believes it is “the essential fact about capitalism.” Furthermore, Schumpeter believes that one cannot assess the economy or capitalism “ex visu” or at one certain point in time. This is because everything that happens does not always make it’s effects clear right away, changes in the economy take “considerable time” to expose their true effects, and he believes that when theorists or government commissioned reports are created they do not try to see the effects of the situation over a period of time. He believes most of these reports only try to understand how “capitalism administers existing structures” but what they should really be doing is understanding how capitalism creates and destroys the existing structures. It is more powerful to understand the capitalistic economy through how something is created and replaced or destroyed over a period of time then it is to understand how it is run when it is existing. Also, he believes a problem is that economists for too long have only considered “modus operandi” for competition, or the same old mode of operation for competition, which is focusing only on price competition. Schumpeter thinks that when “quality competition and sales effort” are put into the equation then price will not seem as important in comparison. This is because price competition, might be the “textbook” competition that is normally studied in the economy but it’s the new goods, more effective production, creation of new supply sources that will effectively destroy the competition to make room for the new. Essentially, price competition can only be effective so far, it takes the creation of these new things to bring about the Creative Destruction that is capitalism, and in the end it is this which will control the prices, usually going down, rather than price being the main factor by itself. Lastly, Schumpeter believes that Creative Destruction will make the capitalist economy prevail because it is an omnipresent threat to every good, person and company in the economy. This is because even though there may be a person in a certain field that has no competition at one point there is always the possibility or threat of something or someone coming out with something better, or a more effective way of producing that good. This keeps competition constantly on its feet, in fear of never knowing when the next strike of a better good or service will pop up and destroy the pervious good or service.

2. Summarize what evidence the paper itself presents to support this claim.

Schumpeter does not have any concrete data or numbers to support his ideas. With this said he does, although have a few examples and his ideas could be applied to relevant situations of the economy, as it was then. This article was written originally in 1942 when there were many monopolies and oligopolies at the time,(i.e. car manufactures, gas and electric companies, telecommunications companies) which could have been applied to his theories of Creative Destruction through entrepreneurship, although he does not mention the word entrepreneurship it is implied, in a capitalistic economy compared to monopolies and “their popular varients.”

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