Creative Destruction

When you think about creative destruction, maybe you think about burning books. Or punching an artist right in his face.

But it’s really an important part of economic progress and broader economic theory.

The term was coined by a guy named Joseph Schumpeter in his book Capitalism, Socialism and Democracy way back in 1942. The destruction he described had nothing to do with World War II and everything to do with the impact of new technology on markets and an economy.

Simply put, creative destruction comes when a major change comes economically and alters the previous structures that existed. Innovation replaces the old way of thinking and frees up resources so that they can be allocated to other areas of the economy.

For example, think of Amazon. The company’s ecommerce platform has destroyed the old brick-and-mortar model for retail. Amazon enables people to buy their products online and have them delivered to their homes. This frees up resources massively. First, consumers now have more time to allocate toward other activities aside from shopping, and can save gasoline and other associated costs. Second, storefronts can be reallocated to other industries. Third, associated labor with the previous model can now shift to other existing or emerging industries.