Creative Destruction

DEFINITION of 'Creative Destruction'

A term coined by Joseph Schumpeter in his work entitled "Capitalism, Socialism and Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."

BREAKING DOWN 'Creative Destruction'

Creative destruction occurs when something new kills something older. A great example of this is personal computers. The industry, led by Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created one of the most important inventions of this century.

Schumpeter goes so far as to say that the "process of creative destruction is the essential fact about capitalism." Unfortunately, while a great concept, this became one of the most overused buzzwords of the dotcom boom (and bust), with nearly every technology CEO talking about how creative destruction would replace the old economy with the new.

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