Creative Destruction: From Schumpeter to AI (1/3)

June 2025 

The Tools of Progress and the Arc of Civilization

The story of civilization is, in large part, the story of our tools. From flint and obsidian to silicon and neural nets, the advance of humanity has proceeded not through divine revelation or blind chance, but by the steady accumulation of knowledge transmuted into matter. These instruments—stone axes, steam engines, microprocessors—are not passive conveniences but the distilled essence of human insight. They are the frozen expressions of ideas, ambitions, and the restless urge to understand and to reshape the world.

It is a grave error to consider technology as a neutral or extraneous adjunct to human society. The history of economics, and indeed of the human enterprise, teaches us that the tools we fashion in turn fashion us. Our institutions, our modes of thought, even our moral vocabularies, do not stand apart from the material instruments of our time; they are shaped by them. This relationship is not linear, but dialectical—each innovation provokes a transformation, and each transformation demands new tools in its wake.

The anthropologist may trace epochs through the medium of matter—the Stone Age, the Bronze Age, the Iron Age. But the true measure of an age lies not in its substances, but in its organizing principles. We, today, dwell in what may be called the Digital Age—though the term scarcely captures the deeper shift underway. It is not mere data or electronics that define our moment, but the emergence of an intelligence embedded in machines, and a mode of production governed less by the rhythm of muscle and more by the cadence of algorithms.

If some Olympian intelligence were to observe our planet, it might find less interest in our creeds and quarrels, and more in the complexity of our artefacts—the lattices of code, the invisible networks of computation, the peculiar partnership between human judgment and machinic logic. These, rather than our art or metaphysics, might seem the truest index of our species’ progress.

Economists, for their part, have not been blind to these currents. Nikolai Kondratiev, in a work too little known to the English-speaking world, discerned in the flux of modern capitalism a long-wave pattern—forty to sixty years of rising and falling tides, each propelled by a technological revolution. It was not prices or policy alone that governed these waves, but the subterranean force of invention: the steam engine, the railway, the electric motor, the telephone.
It was left to Joseph Schumpeter to give this insight its most eloquent expression. Capitalism, he wrote, does not evolve through equilibrium, but through what he called creative destruction—a phrase now worn thin by repetition, yet still potent in its original clarity. Each wave of innovation sweeps away the old, not gently but with violence; and in its wake, a new order emerges, shaped by the logic of its new tools.

And now, perhaps, we stand again at such an inflection. Artificial intelligence, quantum computation, and the biotechnological reprogramming of life itself—these are not incremental enhancements, but challenges to the very foundations of production, knowledge, and even agency. We are entering not an age of tools, but an age where the tools think with us, sometimes for us.
Whether this augurs a golden age or a disquieting servitude is not yet clear. But of this we may be certain: the arc of technology continues to bend history, and as ever, it does not bend it gently.

On the Dynamic Character of Capitalism

Capitalism is not a condition of repose, nor does it tend naturally toward equilibrium. Rather, it is an economy in motion—an incessant striving forward propelled by the pursuit of gain and the ceaseless application of the novel to the useful. Its essence lies not in the conservation of the known but in the discovery of the unknown. And it is in this process—this unfurling of new methods, new desires, new combinations—that the capitalist order reveals both its vigour and its violence.

Joseph Schumpeter, with considerable insight, captured this truth in his now-famous formulation of creative destruction: that innovation does not gently amend the old but rather dismantles it; that capitalism is not a gentle tide but a tempest. It proceeds not through the harmonies of Walrasian symmetry but through rupture and renewal. The balance sheet of progress, in this view, records not only gains in productivity and prosperity, but also losses in stability, security, and sentiment.

This interpretation of economic development—capitalism as an evolutionary process—is not merely a technical thesis; it is a moral one. For the gains of innovation are frequently delayed and diffusely distributed, while the costs are immediate and acutely felt. A new technology may enrich the distant future, but it may impoverish the present. The weaving machine may enhance output, but it renders the hand-loom weaver redundant. The railways brought efficiency to transport, but they also obliterated entire ways of life. Thus the march of innovation is not without casualties, and it would be callous to dismiss the dislocation as incidental.

Schumpeter was right to distinguish between invention and innovation. Many a bright idea has languished in notebooks or laboratories. What transforms such ideas into engines of social change is the figure of the entrepreneur: the restless spirit who perceives, assembles, and dares. These agents do not merely operate within markets; they alter their contours. Their work, at its best, is creative in the truest sense—giving form to what did not yet exist—and in doing so, they often garner a temporary ascendancy, a monopoly born not of privilege but of foresight.

Yet such monopolies are ephemeral. As each innovation ripens, it attracts imitators, and its profits—what Schumpeter termed innovation rents—erode. In this fashion, capitalism consumes its own creations to feed its further growth. It is, in a sense, a system that lives by renewal but cannot abide contentment.

To conceive of this process as stable or self-correcting, as in the classical tradition, is to misread its nature. The economic world is not governed by immutable laws tending to equilibrium, as celestial bodies are by gravity. It is a human construct, animated by hopes, fears, fashions, and fortunes. In truth, the market is not a mechanism but a mood.

Periods of rapid innovation are followed by turbulence: by overreach, by malinvestment, by collapse. But the collapse is not the end. It clears the field for the next advance. The cycle of boom and bust, while wasteful, has proven over time to be generative. And herein lies the paradox: the very instability of capitalism is what has made it the most fecund economic system in history.

The long arc of economic development is marked by such waves. The steam engine, electrification, mass production, information technology—each epoch ushered in a new economic order and displaced the one before. We now stand upon the threshold of another such transformation. Artificial intelligence and algorithmic governance are not mere tools; they are foundations of a new mode of production, with implications that reach into the structure of employment, the organisation of the firm, and the very notion of human work.

What we must therefore consider is not whether to resist these waves—they are not amenable to resistance—but how to shape their course. For the task of economic statesmanship is not to arrest change, but to domesticate it: to make its fruits abundant and its costs bearable. The aim is a capitalism that does not merely destroy in order to create, but creates in such a way that its destruction is not cruel.

It is not enough to believe that the future will be better. One must design institutions that ensure it. That, in the end, is the proper concern of political economy.