Innovation and Capitalism

Posted on October 23, 2013 · Posted in Newsletters

“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.” – Joseph Schumpter, Capitalism, Socialism and Democracy, 1942

The concept of creative destruction, which is commonly identified with Schumpter, was derived by him through the works of Karl Marx and his Communist Manifesto written in 1848. Originally composed by Marx as a criticism of capitalism’s tendency towards ceaseless self-destruction, Schumpter spun the concept around and pronounced it as the force of innovation that is essential to longer term economic growth.

The innovation we have been experiencing is the massive increase in processing speed and power of technology and this has enabled businesses to exist that were barely imaginable three decades ago. Unfortunately, this has come at a price, but first, we would like to review the year just ended and its implications on the new one. This past year certainly was notable for the strong dispersion of returns in capital markets. As we remarked in a previous letter, flows into equity mutual funds turned positive in 2013.

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