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.