In 1942, economist Joseph Schumpeter coined the term “creative destruction” for the process of incessant product and process innovation mechanism by which new production units (jobs, businesses, industries) replace outdated ones.
Schumpeter said this process was the “essential fact about capitalism.” This essential fact is also one of the essential reasons people oppose capitalism. Creative destruction sounds wonderful when it’s replacing things like rotary phones with iPhones and typewriters with laptop computers. Unless, that is, you’re in business of making typewriters and rotary phones. When it’s your job, business, or industry that is being lost and replaced by innovation, it’s much harder to appreciate the benefits of creative destruction.
While we need to find ways to help those who are harmed by creative destruction, we also need to make it clear to everyone why the process is necessary and eventually helps mankind far more than it hurts. Don Boudreaux has a very helpful metaphor for explaining how the process benefits everyone in the long run: Creative destruction is like an anti-casino.
Suppose a trustworthy someone offers you the opportunity to gamble in a special casino – a casino whose rules are such that the house losses over time but the players win. Call it the anti-casino. As in real casinos, the outcome of any one spin of the roulette wheel or toss of the dice might result in a victory for the casino or for the player. But unlike in real casinos, over time the players will win. The anti-casino’s rules, we might say, are stacked in favor of the playing public and against the house.
Because the more you play the wealthier you become over time, you’d be foolish to refuse to play in this anti-casino. And while you feel undoubted pain on those particular plays when you lose rather than win, you should be mature enough to recognize the good fortune you enjoy by being able to play in this anti-casino. You should be called out if and when, in an attempt to reverse any particular loss you suffer in this anti-casino, you demand a change in the rules of the anti-casino, or even if you merely moan that the anti-casino is detrimental to ordinary players because from time to time some of them suffer losses.
Innovative market capitalism is a great anti-casino. Unlike in real casinos and lotteries, the more you play the more you really do win. A job of the economist is to reveal this reality to the general public, because it is easy to lose sight of it when, on a particular play, someone does lose.
