Tuesday, October 4, 2011

Creative Destruction

He who will not economize will have to agonize.

Those words were written by Confucius over 2,200 years ago. Confucius was not a religious leader or the founder of a political party; he was a social philosopher and thinker. His philosophy was based on sincerity, personal and governmental morality, justice, and correctness in social relationships. Confucius believed in strong family loyalty. He believed that a strong family bond was the basis for an ideal government. The family in his mind was a group of relatives, friends, and associates that took responsibility for themselves and had the desire to develop and share the common good.

His golden rule, Do not do to others what you do not want done to yourself, still applies to social and personal prudence, but our democratic system has altered the meaning of that rule. Our own version of capitalistic Creative Destruction has eroded the Confucius rule. Economic erosion is gaining momentum and the world tastes the bitter pill of agony because of it.

Joseph Schumpeter, the 20th century Austrian-American political scientist and economist coined the phrase Creative Destruction in his 1942 work, Capitalism, Socialism and Democracy. Schumpeter wrote:

Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase in population and capital or to the vagaries of monetary systems, of which exactly the same thing holds true. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.

Our global hybrid capitalistic system is also creating some of the agony we feel about our economy. This hybrid system is based on several fabricated economic structures, which are put in place by political appointees, not the people, and that creates waves of uncertainty. We are caught in mounting waves of rhetoric that is filled with inflated political egos and those waves have been pounding our economic system for decades. Each political system recognizes the waves. They try to push against their own creations in order to reshape them in an acceptable image, but that resistance only distorts the waves and they grow in strength and the economy suffers. Schumpeter put it this way:

We are incessantly revolutionizing the economic structure from within, incessantly destroying the old one, and incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in. . . .

Schumpeter goes on to say: that the success of capitalism leads to a form of corporatism which fosters values that are hostile to capitalism, especially among intellectuals. The social climate needed for entrepreneurship to expand does not exist in advanced capitalism; it is replaced by socialism in one form or another. The trend in government is to elect social democratic parties of one stripe or another using its own survival tactics.

He continues by saying: the collapse of capitalism from within develops when democratic majorities vote for restrictions that impact entrepreneurship and thus destroy the capitalist structure. Schumpeter disputed the idea that democracy was a process where the people identified the common good, and politicians incorporate it into the system. He says it’s unrealistic, because of the people's ignorance and superficiality; they were in fact manipulated by politicians, who set the agenda. That fact makes the 'rule by the people' concept both unlikely and undesirable once the political machine gains power.


We have a hard time understanding that we are the creators of our dualistic world of creative destruction. We must constantly recreate the self and democracy in order to effectively function as we change from a debt based mentality to a positive cash flow reality. That means accepting where we are and where we have been, and then moving to where we want to go using personal and governmental morality, sincerity, correct social relationships and family loyalty.

But, our family loyalty has been fragmented by the actions of our own political system. The tail is wagging the dog of regulatory democracy. We are the dog and the politicians are the tail, but the tail has developed its own rules for survival, and those rules conflict with the golden rule.

Perhaps it’s time for a new Know Nothing Party that knows nothing about the politics or religious separatism of a democracy, but knows everything about the virtue of fulfilling one's responsibilities toward others. It is time to develop a moral system that is based on understanding and empathy for others, rather than so-called divinely ordained rules. That system of democracy will champion our vision of taking the agony out of economizing by giving the people a true voice in their own creations. Politicians could then return to the family and function effectively in a blended form of creative destruction.

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hal@shortsleeves.net

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