The Myth-Busting Economist by Larry Malone
Is Captialism Creative?
My two previous columns referenced the 200th anniversary of the Erie Canal last fall. When opened in 1825, it was one of the human-built marvels of the world. The canal was the creation of the government of New York State, just 29 years old when the first shovel was turned on July 4, 1817. Capitalism and its expanding markets had surely motivated the need for a canal into the American West, but no group of individuals or business enterprises would have brought it forward on their own.
Joseph Schumpeter (1883-1950), an immigrant from what is now Czech Republic, was one of our most important American economists. Schumpeter’s contributions to the economics profession celebrated the creativity of capitalism, an organizing system for society that constantly brings forward new technologies, new ideas, and new ways of organizing work and production.
Economists had enthusiastically lauded the virtues of capitalism in the first decades of the 20th century. But the onset of the Great Depression in 1929, and the total collapse of the economy and human suffering that went with it, called into question whether capitalism could still deliver the goods for the benefit of all.
Schumpeter’s reaction was published in 1939 in his lengthy two-volume masterpiece “Business Cycles: A Theoretical, Historical” and “Statistical Analysis of the Capitalist Process.” Therein he coined the phrase “creative destruction” to describe the true nature of capitalism; a system that he suggested moves forward by constantly renewing itself. But those new technologies, ideas and ways of organizing work also, simultaneously, destroy what comes before them.
Schumpeter argued that innovations under capitalism come in waves, where busts follow booms as the process of creative destruction plays out. In the end, it is workers who unfortunately pay the ultimate price when their job is destroyed as capitalism undertakes another reinvention.
It’s worth a look to consider some of the ways Schumpeter’s creative destruction has played out in the last couple of decades.
Self-scanners have destroyed employment for cashiers and store clerks. Drawing your own drink at McDonald’s, Burger King, and Wendy’s has reduced employment opportunities for teenagers. Ironically, these innovations have meant that you now do the work once performed by a paid employee!
Remember how DVDs replaced VHS, and streaming replaced DVDs? In the process, Blockbuster, a one-time Fortune 500 company, had a short 29-year lifespan. Their managers and employees, and the moms and pops once owning and running small video stores in our towns, lost their jobs. Similarly, with smartphones replacing cameras, the few places you can still print photos are taking their last breathes.
Other jobs that have vanished recently include typists and secretaries, data entry keyers, switchboard and telephone operators, customer service representatives, bank tellers, loan processors, real estate appraisers, insurance and travel agents, toll booth operators, and parking lot attendants.
Capitalism’s ongoing destruction of jobs to drive economic progress and growth is not a new development. You can sign up for a class this summer at the Fenimore Farm (previously branded as The Farmers’ Museum), to learn how brooms were made in 1850. It will take you the better part of a day to make a single broom, which would make such brooms very expensive in 2026. With automation and sophisticated machinery, capitalism long ago solved broom production so that only a few hands are needed today to make tens of thousands of brooms.
Professionals in the financial world who follow changes in employment have been baffled by recent trends in the labor market. The last four monthly job reports from the U.S. Department of Labor show that the U.S. economy added just 52,000 jobs over that time. And the current unemployment rate of 4.4 percent is the highest since October 2021.
Last month, at a time when hiring normally surges from holiday spending, the economy added just 50,000 jobs. That number pales in comparison to the previous three Decembers, where new job creation was over four times greater: 223,000 (2022), 216,000 (2023) and 256,000 (2024).
The lack of job creation points to the possibility of more job destruction. Today’s busted myth is that those jobs eventually come back. They do not. Instead, in this young new year, we just might be seeing more of a strong ongoing trend where AI is joining up with automation to eliminate employment in all sorts of work environments.
Some will say that new types of jobs are created when the old jobs are destroyed. That has certainly been true at various times over the history of our nation and is deserving of attention. That’s why I’ll have more to say about Schumpeter’s creative destruction and its workings next time.
Larry Malone is professor emeritus of economics at Hartwick College.
