Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter. Hugo Reinert, Cambridge University &

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Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter.

Hugo Reinert, Cambridge University &

Erik S. Reinert
From the heart of all matter

Comes the anguished cry -

Wake, wake, great Siva,

Our body grows weary

Of its law-fixed path,

Give us new form.

Sing our destruction,

That we gain new life…’

Rabindranath Tagore, Indian Poet.

Forthcoming in Backhaus, Jürgen and Wolfgang Drechsler (editors): Friedrich Nietzsche 1844-2000: Economy and Society, Series The European Heritage in Economics and the Social Sciences, Boston, Kluwer.

Table of Contents:

Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter. 1

1. Creative Destruction in Vogue.

The 1990’s brought Joseph Alois Schumpeter (1883-1950) into the center stage of the economic debate. The Austrian-born economist had been teaching at Harvard from 1932 until his death. As the phenomena surrounding the ‘New Economy’ temporarily seemed to have cancelled the normal laws of economic gravity, Alan Greenspan heralded Schumpeter as the theoretician and prophet of the events1. At the core of the phenomenon was the process of creative destruction that had become associated with the name of Schumpeter. This concept seemed tailor-made to describe the process by which information and communication technology destroyed previous technological solutions and laid waste old companies in order to make room for the new.
In today’s standard economic theory, Schumpeter stands out as being highly original. However, his great intellectual independence is generally misinterpreted as meaning that his ideas appear on the scene only with him. This is far from the truth (see Reinert 2002), also as it applies to the key concept of ‘creative destruction’. This idea itself is a very old one. In this paper we shall argue that the idea of ‘creative destruction’ enters the late 19th Century

Zeitgeist through the works of Friedrich Nietzsche. Going back further in time, the process of creation and destruction plays a central role in Hinduism, the religion which so inspired Nietzsche’s Erzieher (educator) Arthur Schopenhauer. Nietzsche’s own ideas about creative destruction, as popularized through his Also Sprach Zarathustra, had a profound and wide-ranging influence on generations of German-speaking artists and intellectuals (Sokel 1959). We shall further argue that – contrary to the firm beliefs of the economics profession – the term ‘creative destruction’ was brought into economics not by Schumpeter but by Werner Sombart (1863-1941), the economist who was probably most influenced by Nietzsche.
Nietzsche saw it as his task to bring about the regeneration of Western culture. This he sought to achieve by attacking its decadent institutions and philosophical foundations. Perceiving the impossibility of basing a modern moral system on God, and the imminent danger of nihilism, Nietzsche sought to set up an alternative, immanent morality of the ‘super-human’, or the Übermensch, to replace the old transcendental morality. In order to create this new morality, it was necessary for Nietzsche to destroy the old one: the new morality must quite literally stand on the ruins of the old. We shall argue that this new morality is based on a concept of creative destruction, insofar as it demands of each individual human being that it ‘write its own tablets’, thereby destroying the ‘old tablets’. Nietzsche’s central work Zarathustra is thus at the same time both a meditation on creative destruction, because it presents this new ‘morality of innovation’, and a practical example of the same, insofar as it attacks the existing morality and seeks to replace it with this new morality.
To Hegel certain people epitomize the spirit of the age they live in. He cites Alexander the Great, Caesar and Napoleon as examples. Although he would himself strongly have disliked the reference, Nietzsche was decidedly one of these world-historical individuals who shaped the zeitgeist in a decisive way, individuals about whom Hegel says that their ‘…own particular purpose contain the substantial will of the World Spirit’. (Hegel 1953:39-40). The influence of such individuals on their time goes beyond references and footnotes.
Schumpeter was himself somewhat of an Übermensch, which was definitely also an image he wished to project. In his obituary to Schumpeter, his Harvard colleague Gottfried Haberler indeed quotes Nietzsche’s laudatory remark on Schopenhauer: ‘Seht ihn nur an – Niemandem war er untertan’ (Haberler 1950:344). At the age of 25 Schumpeter published a book on the methodology of the economics profession (1908), at 29 he wrote his celebrated Theory of Economic Development (1912) and at the age of 31 he published a history of the economics profession (1914). Schumpeter was never a beginner. The most popular anecdote about Schumpeter is that he is said to have remarked that he only had three ambitions in life: to be Vienna’s best lover, Austria’s best horseman, and the world’s best economist. With hindsight he admitted having had some problems with the horses.
Schumpeter left no school of economics, and in spite of his encyclopedic writing on the history of economic thought and the filiations of economic ideas over time, he was himself very unclear as to the origins of his own ideas. He is therefore, somewhat mistakenly, generally seen as an isolated and highly original thinker. Although Schumpeter usually is classified as a member of the Austrian school of economics, in many ways his views were not those prevailing in Vienna at the time. Schumpeter did not wish to take sides in the famous Methodenstreit between Carl Menger and Gustav Schmoller; in fact, in his first book the 25-year-old Schumpeter solomonically attempts to settle the dispute by suggesting, in effect, that theories at different levels of abstractions ought to be seen as complementary rather than in conflict with each other (Schumpeter 1908).
Technological innovation and the role of the entrepreneur had been standard features of German economics since its inception with Gottfried von Leibniz and Christian Wolff (Reinert & Daastøl 1997). With Nietzsche’s Übermensch and Zarathustra’s ‘creative destruction’, however, these ideas were brought into focus in a wider societal context, and they acquired both new heroic dimensions and a new vocabulary. Indeed, the main features of Schumpeter’s economics, both the entrepreneur, the instigator of change, and his ‘will to power’ and creative destruction, are truly Nietzschean creatures. In the social sciences, bestsellers like Oswald Spengler’s Untergang des Abendlandes (The Decline of the West, 1939) – influencing the intellectual climate in the period between the World Wars – and Ayn Rand’s Atlas Shrugged (1957) – influencing the Cold War debate – reflect the Nietzschean moral value of ‘create or decay’. In contrast to Schumpeter, Oswald Spengler specifically mentions Nietsche’s influence on his Decline…(Spengler 1939:xiv).

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