Just Curious

Bravo Schumpeter!

Joseph Schumpeter really spoke my mind in his chapter on "creative destruction." (Part II, Ch. 7, "Capitalism, Socialism & Democracy"). I have long been sick and tired of neo-classical economists doing their little static analysis of the market at different time instances.

Here're some wonderful quotes re why oligopoly and monopolistic competition could be beneficial to the economy:

"The essential point...is that in dealing with capitalism we are dealing with an evolutionary process...Capitalism then, is by nature a form or method of economic change and not only never is but never can be stationary...not merely due to the fact that economic life goes on in a social and natural environment which changes and by its changes alters the data of economic actions...nor is this evolutionary character due to a quasi-automatic increase in population or capital or to the vagaries of monetary systems...The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers' goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates."

Thus, these impulses "incessanrly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of creative destruction is the essential fact about capitalism."

Therefore, true competition is not about price, or capital, or labor supply. It is about, according to Scumpeter, new modes of production (sorry again for this Marxian term). Thus, firms are always facing the threat of the destruction of old methods. There must always be on guard, always ready to discover and embrace new methods of production. This means that oligopolistic or monopolistic conditions do not necessarily affect long run economic performance in a negative fashion at all. When economists argue that monopoly is nasty, they refer to its impact on the market at separate instances of time. In doing so, they "accept the data of momentary situation as if there were no past or future to it..." In doing so, they are visualizing "how capitalism administers existing structures, whereas the relevant problem is how it creates and detroy them."

Wonderful! I remember it was my mother who first raised these points to me some years ago, when I was still all idealistic about things, believing in every word my econ 1 professor taught me. Oh well...

posted by James Chang @ 7:55 PM