On FNS this morning, Chris Wallace asked Ron Paul about his belief in Austrian Economics. Specifically, Wallace asked Paul whether the country needs “creative destruction,” an idea Wallace attributed to the Austrian School. While Paul fumbled through an answer about the need to clear out bad investment before there can be meaningful economic growth. “Creative destruction” was actually coined by Joseph Schumpeter, an economist who came from Austria and emigrated to the United States (to take a position at Harvard) but is not normally considered a central figure in the Austrian school. In any event, the answer to Wallace’s question is: Yes, we do need more creative destruction. As Schumpeter explained, “creative destruction” — the process of constantly “revolutioniz[ing] the economic structure from within, incessantly destroying the old one, incessantly creating a new one” is “the essential fact about capitalism.” This process is what leads to innovation and economic growth, but it entails “destruction” because uncompetitive firms and industries necessarily fail. In market competition, just as some firms succeed, others need to fail.
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