In his 1942 book
Capitalism, Socialism and Democracy, the Austrian-born
economist Joseph Schumpeter famously likened the capitalist system
to a “perennial gale of creative destruction.” Capitalism,
Schumpeter wrote, “is by nature a form or method of economic change
and not only never is but never can be stationary.” This dynamic
process, he argued, “incessantly revolutionizes the economic
structure from within, incessantly destroying the old one,
incessantly creating a new one.”

It was a
powerful observation then, and it remains no less relevant to our
world today, as the French economist Guy Sorman illustrates in an
engaging essay entitled “Schumpeter
in the White House” appearing in the latest issue of City
Journal. As Sorman observes:

Schumpeter believed that progress in a capitalist economy
requires that the old give way constantly to the new: production
technologies in a free economy improve constantly, and new products
and services are always on offer. But this creative transformation
also has a destructive side, since it makes earlier products and
services—and the workers who provided them—obsolete. Today’s
consumers have little reason to buy an oil lamp instead of a
lightbulb, or a Sony Walkman instead of an iPod—which can be bad
news for the people who manufacture the oil lamp and the
Walkman.

Looking back at the history of Western capitalism, we can see
how the discovery of new energy sources, new communications
systems, and new financial instruments regularly demolished old
ways of doing things. When this happened, the result was typically
short-term pain, as certain workers found themselves displaced, and
sometimes even what appeared to be economic crises; but there was
also substantial long-term gain, as the economy became more
efficient and productive.

When it comes to explaining Schumpeter and his ideas, Sorman’s
essay is a great resource. But Sorman stands on shakier ground when
he turns his attention to the 2012 U.S. presidential election,
which he frames as a partial referendum on Schumpeterian economics.
Here’s Sorman again:

The 2012 presidential race will be, in part, a showdown between
two different models of economic growth. President Barack Obama and
his Democratic administration will defend the once-discredited and
now-resurgent theory that government must act as the economy’s
“tutor” and use public funds to stimulate it. The Republican
nominee, presumably Mitt Romney, will advance the free-market
argument that the main source of new growth is the innovative
energy of American entrepreneurs and that government needs to get
out of the way.

It’s nice to imagine a major party presidential candidate
advancing a genuine free-market agenda rooted in the idea of
creative destruction—but where’s the evidence that this unlikely
event will actually occur this calendar year? Sure, Romney and
other Republicans will mouth the usual pro-capitalist platitudes,
but as my colleague Peter Suderman
observed yesterday, “As for gutting government, Republican
legislators may talk a big game about federal spending, but that
doesn’t mean they vote accordingly.” And let’s not forget that
Republican President George W. Bush also used
public funds to stimulate the economy. Regardless of how the
2012 election turns out, I’m afraid we won’t be seeing Schumpeter
in the White House anytime soon.