WEBVTT 00:00:00.000 --> 00:00:02.020 Okay, so let's set the scene. I want you to picture 00:00:02.020 --> 00:00:04.459 it. It's the turn of the 20th century. Right. 00:00:04.559 --> 00:00:07.059 We're in Vienna. It's this incredible moment, 00:00:07.179 --> 00:00:09.640 the twilight of the Austro -Hungarian Empire, 00:00:09.900 --> 00:00:14.650 and the city is just... It really is a pressure 00:00:14.650 --> 00:00:16.989 cooker of ideas. Totally. I mean, you've got 00:00:16.989 --> 00:00:20.410 Freud in one coffeehouse completely redefining 00:00:20.410 --> 00:00:22.510 how we think about the human mind. And in another, 00:00:22.609 --> 00:00:24.850 you've got Klimt basically inventing a new kind 00:00:24.850 --> 00:00:28.050 of art. Exactly. And, you know, Trotsky's supposedly 00:00:28.050 --> 00:00:31.510 playing chess in the corner somewhere. And walking 00:00:31.510 --> 00:00:34.530 through this city, this absolute hotbed of intellect, 00:00:34.750 --> 00:00:38.030 is this young man. And he isn't just confident. 00:00:38.229 --> 00:00:42.380 He is... Well, he's spectacularly, almost aggressively 00:00:42.380 --> 00:00:45.020 arrogant. That's a very fair description. Arrogant 00:00:45.020 --> 00:00:46.780 might even be putting it mildly for the person 00:00:46.780 --> 00:00:49.359 we're about to discuss. I think so. So this young 00:00:49.359 --> 00:00:52.100 man, he decides to set three life goals for himself. 00:00:52.320 --> 00:00:54.240 And he tells people this. He announces them. 00:00:54.320 --> 00:00:56.520 This is what's going to define his legacy. Okay. 00:00:56.600 --> 00:00:59.340 Goal number one, to be the greatest economist 00:00:59.340 --> 00:01:02.439 in the world. Which is an incredibly high bar. 00:01:02.579 --> 00:01:04.420 I mean, especially given the company he was keeping 00:01:04.420 --> 00:01:06.689 in Vienna at that moment. Right. Goal number 00:01:06.689 --> 00:01:09.650 two, to be the best horseman in all of Austria. 00:01:09.849 --> 00:01:13.189 A very different ambition. A pivot to the physical, 00:01:13.450 --> 00:01:15.890 the aristocratic. And then goal number three, 00:01:15.930 --> 00:01:18.730 to be the greatest lover in all of Vienna. Of 00:01:18.730 --> 00:01:21.829 course. The classic tripartite. The mind, the 00:01:21.829 --> 00:01:24.909 body, and the heart. It's like something out 00:01:24.909 --> 00:01:27.150 of a novel. It really is. And this is where the 00:01:27.150 --> 00:01:30.099 story gets so good. Decades later, when he's 00:01:30.099 --> 00:01:32.500 an old man, he's teaching at Harvard. He reportedly 00:01:32.500 --> 00:01:34.780 tells his students he'd successfully achieved 00:01:34.780 --> 00:01:37.640 two of those three goals. Wow. But he never said 00:01:37.640 --> 00:01:40.359 which two. He never explicitly said which two. 00:01:40.500 --> 00:01:44.019 But he did let it slip with this very coy, winking 00:01:44.019 --> 00:01:46.299 admission that, well, there were just too many 00:01:46.299 --> 00:01:49.280 fine horsemen in Austria for him to really claim 00:01:49.280 --> 00:01:51.799 that particular title. So he leaves us with a 00:01:51.799 --> 00:01:53.799 rather stunning implication that he believed 00:01:53.799 --> 00:01:56.900 he'd conquered both global economic theory and 00:01:56.900 --> 00:01:59.659 the romantic scene of Vienna. precisely. But 00:01:59.659 --> 00:02:03.200 today, we are going to focus mostly on that first 00:02:03.200 --> 00:02:06.120 goal. We are doing a deep dive into the life, 00:02:06.159 --> 00:02:10.439 the mind, and the legacy of Joseph Alois Schumpeter. 00:02:10.620 --> 00:02:12.419 And I just want to frame this right from the 00:02:12.419 --> 00:02:15.439 top. This is not some dry, dusty academic we're 00:02:15.439 --> 00:02:18.300 talking about. This is a story about a flamboyant, 00:02:18.319 --> 00:02:21.919 tragic, and deeply influential figure who saw 00:02:21.919 --> 00:02:25.439 economics not as a set of equations, but as a 00:02:26.090 --> 00:02:29.229 A violent living, breathing process. And that's 00:02:29.229 --> 00:02:31.689 the absolute key to understanding him. You know, 00:02:31.689 --> 00:02:33.430 he's often called the prophet of innovation. 00:02:33.909 --> 00:02:35.889 And if you look around today in the 21st century, 00:02:35.990 --> 00:02:38.189 our obsession with startups, the way tech giants 00:02:38.189 --> 00:02:40.310 seem to rise and fall overnight, this constant 00:02:40.310 --> 00:02:42.509 churn of the market, we're basically living in 00:02:42.509 --> 00:02:44.930 a world that Schumpeter described over 100 years 00:02:44.930 --> 00:02:47.330 ago. He saw it coming. He saw the chaos of capitalism 00:02:47.330 --> 00:02:49.610 and he understood its engine, maybe better than 00:02:49.610 --> 00:02:52.210 almost anyone before or since. So here's the 00:02:52.210 --> 00:02:54.169 mission for this deep dive. We've got a mountain 00:02:54.169 --> 00:02:56.729 of sources, biographies, his own incredibly dense 00:02:56.729 --> 00:02:59.210 economic work, modern analyses. And we're going 00:02:59.210 --> 00:03:01.650 to try to unpack his most famous concept, creative 00:03:01.650 --> 00:03:03.849 destruction, which I. I feel like everyone uses 00:03:03.849 --> 00:03:06.449 that phrase now. It's a buzzword. Oh, it's completely 00:03:06.449 --> 00:03:09.009 a buzzword. Yeah. And it's one of the most misused 00:03:09.009 --> 00:03:11.990 terms in, I'd say, all of business history. I 00:03:11.990 --> 00:03:14.009 think so. We're also going to look at his theory 00:03:14.009 --> 00:03:17.050 of the entrepreneurial spirit, that great German 00:03:17.050 --> 00:03:20.830 word Unternehmergeist, and importantly, how his 00:03:20.830 --> 00:03:23.229 view of that actually changed over his lifetime. 00:03:23.430 --> 00:03:26.210 Mark I versus the Mark II. Exactly. And then 00:03:26.210 --> 00:03:28.229 maybe the most surprising part of his entire 00:03:28.229 --> 00:03:31.469 legacy, his prediction about the death of capitalism. 00:03:32.299 --> 00:03:34.300 Because he didn't think it would die from failure. 00:03:34.419 --> 00:03:36.199 He thought it would die from its own success. 00:03:36.300 --> 00:03:38.840 It's a really dark paradox, but it's essential. 00:03:39.159 --> 00:03:41.099 You have to get your head around that to understand 00:03:41.099 --> 00:03:43.659 his worldview. He wasn't a cheerleader for the 00:03:43.659 --> 00:03:47.620 system. He was more like a pathologist, you know. 00:03:48.069 --> 00:03:50.169 examining a patient that he loved, but whose 00:03:50.169 --> 00:03:52.669 prognosis he was deeply, deeply worried about. 00:03:52.810 --> 00:03:55.009 I like that analogy, a pathologist. Okay, so 00:03:55.009 --> 00:03:56.909 let's start with the man himself, because I think 00:03:56.909 --> 00:03:58.469 with Schumpeter, more than most, you have to 00:03:58.469 --> 00:04:00.370 understand the psychology to understand the theory. 00:04:00.569 --> 00:04:03.310 He was born in 1883 in a town called Triesch 00:04:03.310 --> 00:04:05.669 in Moravia. Right, which back then was part of 00:04:05.669 --> 00:04:07.590 the Habsburg Empire. Today, it's in the Czech 00:04:07.590 --> 00:04:10.360 Republic. And his life starts with a really significant 00:04:10.360 --> 00:04:13.259 trauma. It does. His father, who was a factory 00:04:13.259 --> 00:04:16.120 owner, a cloth manufacturer, he died when Joseph 00:04:16.120 --> 00:04:18.600 was only four years old. Wow. And that, you know, 00:04:18.600 --> 00:04:20.759 that creates a huge void. But his mother was 00:04:20.759 --> 00:04:22.959 this incredibly determined, very ambitious woman. 00:04:23.360 --> 00:04:27.120 And in 1893, she moves them both to Vienna. And 00:04:27.120 --> 00:04:29.600 she manages to marry a very high ranking general 00:04:29.600 --> 00:04:32.420 in the Austro -Hungarian army. So this is a huge 00:04:32.420 --> 00:04:35.600 step up socially. It's catapult. It takes young 00:04:35.600 --> 00:04:38.639 Joseph from this sort of provincial middle class 00:04:38.639 --> 00:04:41.160 background and drops him right into the heart 00:04:41.160 --> 00:04:43.740 of the Viennese aristocracy. So he's growing 00:04:43.740 --> 00:04:46.730 up in this world of, you know. Rigid hierarchies, 00:04:46.730 --> 00:04:50.209 military uniforms, strict etiquette. But he has 00:04:50.209 --> 00:04:53.490 this wild outsider intellect. Exactly. He goes 00:04:53.490 --> 00:04:55.750 to the University of Vienna and his main teacher 00:04:55.750 --> 00:04:58.430 is a man named Eugen von Bumbowerk. Now, for 00:04:58.430 --> 00:05:00.269 anyone listening who isn't deep in the weeds 00:05:00.269 --> 00:05:03.410 of economic history, Bumbowerk is a giant. He's 00:05:03.410 --> 00:05:05.370 one of the godfathers of what we call the Austrian 00:05:05.370 --> 00:05:07.949 School of Economics. He absolutely is. And the 00:05:07.949 --> 00:05:11.079 Austrian school had a very specific flavor. They 00:05:11.079 --> 00:05:13.980 were very philosophical, very focused on logic 00:05:13.980 --> 00:05:16.699 and the idea of human action. And they were generally 00:05:16.699 --> 00:05:19.939 pretty skeptical of using a ton of math to describe 00:05:19.939 --> 00:05:22.480 human behavior. Why? They just felt the economy 00:05:22.480 --> 00:05:25.660 was too complex, too subjective. You know, human 00:05:25.660 --> 00:05:27.899 choice couldn't be reduced to a neat little formula. 00:05:28.120 --> 00:05:30.360 But Schumpeter didn't quite buy into that, did 00:05:30.360 --> 00:05:32.259 he? He was a bit of a rebel in his own school. 00:05:32.420 --> 00:05:34.240 He was the black sheep. I mean, he respected 00:05:34.240 --> 00:05:36.620 his Austrian teachers immensely, but he became 00:05:36.620 --> 00:05:39.230 obsessed with a rival school. the Lausanne School, 00:05:39.490 --> 00:05:41.930 and particularly a French economist named Leon 00:05:41.930 --> 00:05:44.730 Walrus. And Walrus was the opposite of the Austrians. 00:05:44.949 --> 00:05:48.250 Completely. Walrus's dream was to turn economics 00:05:48.250 --> 00:05:51.310 into a hard science, like physics. He built these 00:05:51.310 --> 00:05:53.949 incredibly complex, beautiful systems of equations 00:05:53.949 --> 00:05:56.750 to show how an economy could reach a general 00:05:56.750 --> 00:05:59.610 equilibrium, where everything, supply, demand, 00:05:59.910 --> 00:06:02.430 prices, all perfectly balanced out. And Schumpeter 00:06:02.430 --> 00:06:05.430 loved this. He adored it. He famously called 00:06:05.430 --> 00:06:08.139 Walrus the greatest of all economists. So Schumpeter 00:06:08.139 --> 00:06:10.939 himself is this kind of bridge. He's got the 00:06:10.939 --> 00:06:13.660 sociological depth of the Austrians. He understands 00:06:13.660 --> 00:06:17.560 history, institutions, human psychology, but 00:06:17.560 --> 00:06:20.519 he craves the mathematical precision of Walrus. 00:06:20.759 --> 00:06:23.860 He wants to explain the messiness of the world 00:06:23.860 --> 00:06:26.519 with the elegance of an equation. That's a perfect 00:06:26.519 --> 00:06:29.480 way to put it. That tension, that desire to synthesize 00:06:29.480 --> 00:06:32.379 two opposing worldviews, it really defines his 00:06:32.379 --> 00:06:34.939 entire career. But here's the thing that sets 00:06:34.939 --> 00:06:37.959 him apart. Unlike most economists who are content 00:06:37.959 --> 00:06:40.879 to just sit in their study and theorize, Shepard 00:06:40.879 --> 00:06:42.839 wanted to be a man of action. He wanted to get 00:06:42.839 --> 00:06:44.879 out there and actually play the game. And this 00:06:44.879 --> 00:06:47.000 is the part of his story that I find just endlessly 00:06:47.000 --> 00:06:49.930 fascinating because it's a catalog of. Frankly, 00:06:50.009 --> 00:06:52.529 spectacular failure. It really is. We're talking 00:06:52.529 --> 00:06:54.829 about a man who literally wrote the book on how 00:06:54.829 --> 00:06:57.290 the economy works and then got absolutely run 00:06:57.290 --> 00:06:59.689 over by the real economy. A tragic comedy is 00:06:59.689 --> 00:07:02.529 the best way to describe it. So it's 1919. World 00:07:02.529 --> 00:07:05.329 War I is over. The Austro -Hungarian Empire has 00:07:05.329 --> 00:07:07.949 shattered into pieces. There's this new, fragile 00:07:07.949 --> 00:07:11.550 republic of German Austria. And Schumpeter gets 00:07:11.550 --> 00:07:14.290 appointed. Minister of Finance. His big moment. 00:07:14.370 --> 00:07:16.670 His big moment. He walks in with all these grand 00:07:16.670 --> 00:07:19.250 theories, you know, ready to stabilize the currency, 00:07:19.410 --> 00:07:22.110 pay off the war debt and fix the world. So how 00:07:22.110 --> 00:07:24.350 did that go? How long did he last? He lasted 00:07:24.350 --> 00:07:26.810 less than a year. Oh, wow. It was a complete 00:07:26.810 --> 00:07:29.870 debacle. He proposed a capital levy, a big tax 00:07:29.870 --> 00:07:33.170 on wealth to pay down the war debts. That made 00:07:33.170 --> 00:07:35.649 all the wealthy industrialists and aristocrats 00:07:35.649 --> 00:07:37.810 hate him. Okay, that makes sense. But at the 00:07:37.810 --> 00:07:40.509 same time, he vehemently opposed the socialist 00:07:40.509 --> 00:07:44.850 plan to nationalize major industries, like the 00:07:44.850 --> 00:07:47.129 Alpine Mountain Plan. So the socialists hated 00:07:47.129 --> 00:07:49.829 him too. So he managed to alienate everybody. 00:07:50.519 --> 00:07:52.779 The left and the right. Simultaneously. It's 00:07:52.779 --> 00:07:55.680 a rare political gift. He was fired. But he didn't 00:07:55.680 --> 00:07:58.199 give up. He thought, OK, politics is too messy. 00:07:58.259 --> 00:08:00.319 It's irrational. I understand money. I'll go 00:08:00.319 --> 00:08:03.000 into banking. A logical next step. So in 1921, 00:08:03.120 --> 00:08:05.379 he becomes the president of a private bank, the 00:08:05.379 --> 00:08:08.060 Biederman Bank. And let me guess, this did not 00:08:08.060 --> 00:08:11.379 go well either. This went even worse. The bank 00:08:11.379 --> 00:08:13.899 got caught up in the hyperinflation of the era. 00:08:14.000 --> 00:08:16.639 It made a series of terrible investments. Schubert 00:08:16.639 --> 00:08:19.000 himself engaged in some pretty wild personal 00:08:19.000 --> 00:08:21.180 speculation that went completely south. So he 00:08:21.180 --> 00:08:23.720 was in debt himself. He ended up in massive personal 00:08:23.720 --> 00:08:26.480 debt, which took him years to pay off. And by 00:08:26.480 --> 00:08:29.560 1924, the bank had to be bailed out and taken 00:08:29.560 --> 00:08:32.740 over by another institution. And one of the explicit 00:08:32.740 --> 00:08:35.980 written conditions of that takeover was that 00:08:35.980 --> 00:08:37.700 Joseph Schumpeter had to resign immediately. 00:08:37.980 --> 00:08:40.360 That is just crushing. It has to be so humiliating. 00:08:40.399 --> 00:08:42.120 I mean, you've positioned yourself as the great 00:08:42.120 --> 00:08:44.720 theorist of the entrepreneur, the man who understands 00:08:44.720 --> 00:08:47.340 the very engine of capitalism, and you just personally 00:08:47.340 --> 00:08:49.940 bankrupted a bank. It was beyond humiliating. 00:08:49.940 --> 00:08:52.679 It was a defining failure. But I would actually 00:08:52.679 --> 00:08:55.379 argue that this failure is the secret key to 00:08:55.379 --> 00:08:59.039 his genius. Think about it. Many other famous 00:08:59.039 --> 00:09:01.360 economists of that era, people like Ricardo, 00:09:01.519 --> 00:09:03.620 even Keynes, they were successful investors. 00:09:03.840 --> 00:09:06.039 They made fortunes. So they tended to see the 00:09:06.039 --> 00:09:07.919 market as something rational, something you could 00:09:07.919 --> 00:09:10.519 master if you were smart enough. Right. A puzzle 00:09:10.519 --> 00:09:13.899 to be solved. Exactly. Schumpeter learned the 00:09:13.899 --> 00:09:16.899 hard way that the market is not a puzzle. It's 00:09:16.899 --> 00:09:19.860 a beast. It's a wild, unpredictable force that 00:09:19.860 --> 00:09:22.080 can chew you up and spit you out no matter how 00:09:22.080 --> 00:09:24.659 brilliant you are. So he understood risk in his 00:09:24.659 --> 00:09:27.220 bones. He felt the consequences. He felt it. 00:09:27.259 --> 00:09:30.019 He realized the economy isn't a smooth, predictable 00:09:30.019 --> 00:09:33.659 machine. It's inherently dangerous. It's volatile. 00:09:34.120 --> 00:09:37.279 And that personal failure gave his later theories 00:09:37.279 --> 00:09:40.370 a kind of weight. and a darkness that you just 00:09:40.370 --> 00:09:42.250 don't find in the work of his more successful 00:09:42.250 --> 00:09:44.789 peers. So he's battered, he's bruised, he's in 00:09:44.789 --> 00:09:47.090 debt. He retreats back to the one place that 00:09:47.090 --> 00:09:50.250 will have him, academia. He teaches in Bonn, 00:09:50.250 --> 00:09:52.330 Germany, for a while. But then, you know, the 00:09:52.330 --> 00:09:54.590 1930s start to roll around. The political climate 00:09:54.590 --> 00:09:56.850 in Germany is getting very ugly. The shadow of 00:09:56.850 --> 00:09:59.190 Nazism is falling over Europe. And he looks west. 00:09:59.549 --> 00:10:01.830 He looks west. He emigrates to the United States 00:10:01.830 --> 00:10:04.269 in 1932 to take up a prestigious post at Harvard 00:10:04.269 --> 00:10:06.950 University. But before we get to his American 00:10:06.950 --> 00:10:09.610 career, we have to talk about what happened just 00:10:09.610 --> 00:10:12.049 before he left. This is the personal tragedy 00:10:12.049 --> 00:10:13.830 that really defined the rest of his emotional 00:10:13.830 --> 00:10:16.990 life. This part of the biography is just brutal. 00:10:17.570 --> 00:10:19.990 It's hard to read. It's almost too much to comprehend 00:10:19.990 --> 00:10:23.289 in one go. Around 1926, while he was still in 00:10:23.289 --> 00:10:25.730 Europe, his mother died. And she had been his 00:10:25.730 --> 00:10:28.570 rock, his champion, his whole life. Okay. Then, 00:10:28.570 --> 00:10:31.230 just a few weeks later, his second wife, Anna 00:10:31.230 --> 00:10:33.659 Reisinger, who's 20 years younger than him, and 00:10:33.659 --> 00:10:35.519 by all accounts the absolute love of his life, 00:10:35.679 --> 00:10:38.240 died in childbirth. Oh. And then the newborn 00:10:38.240 --> 00:10:40.519 son died as well. All within a matter of weeks. 00:10:40.620 --> 00:10:43.120 All within a single season. He lost his past, 00:10:43.360 --> 00:10:46.440 his mother, and his entire future, his wife and 00:10:46.440 --> 00:10:48.960 his child, all at once. He was completely hollowed 00:10:48.960 --> 00:10:51.039 out by it. I can't even imagine. And friends 00:10:51.039 --> 00:10:53.409 said he was never the same. He reportedly never 00:10:53.409 --> 00:10:56.070 spoke their names out loud again to anyone, but 00:10:56.070 --> 00:10:59.330 he channeled that grief, that immense pain, into 00:10:59.330 --> 00:11:01.990 his work. He threw himself into it with this 00:11:01.990 --> 00:11:05.350 manic, almost terrifying intensity, working 80, 00:11:05.490 --> 00:11:08.490 90 hours a week. He basically used economic theory 00:11:08.490 --> 00:11:11.090 to try and outrun his own sorrow. So when this 00:11:11.090 --> 00:11:13.610 guy arrives at Harvard in 1932, he's not your 00:11:13.610 --> 00:11:16.350 typical, quiet, tweed -wearing professor with 00:11:16.350 --> 00:11:18.850 elbow patches. Oh, not at all. He was a character, 00:11:19.029 --> 00:11:23.279 a diva. He still wore these immaculate custom 00:11:23.279 --> 00:11:26.100 tailored European suits. He'd sweep into the 00:11:26.100 --> 00:11:28.740 classroom, hold court, take an entire hour to 00:11:28.740 --> 00:11:31.580 answer a single student's question and just dazzle 00:11:31.580 --> 00:11:34.230 everyone with his erudition. And he. taught some 00:11:34.230 --> 00:11:36.809 future giants. He taught titans. I mean, his 00:11:36.809 --> 00:11:38.549 students included people like Paul Samuelson, 00:11:38.649 --> 00:11:41.610 Robert Salo, James Tobin, Alan Greenspan. He 00:11:41.610 --> 00:11:44.269 fundamentally shaped the next generation of American 00:11:44.269 --> 00:11:46.889 economic thought, even though he was always seen 00:11:46.889 --> 00:11:49.169 as a bit of an outsider, always viewed with a 00:11:49.169 --> 00:11:51.590 bit of suspicion. Suspicion because he was European. 00:11:52.200 --> 00:11:54.360 Because of his accent. That was part of it. But 00:11:54.360 --> 00:11:56.879 it was also his politics. He was a staunch conservative 00:11:56.879 --> 00:12:00.039 who absolutely detested Franklin D. Roosevelt 00:12:00.039 --> 00:12:02.460 and the New Deal. He thought it was dangerous 00:12:02.460 --> 00:12:04.360 government meddling in the economy. And this 00:12:04.360 --> 00:12:05.860 was during the Great Depression and World War 00:12:05.860 --> 00:12:07.659 II. That must have been a very unpopular position 00:12:07.659 --> 00:12:10.019 to hold at Harvard. It was an incredibly lonely 00:12:10.019 --> 00:12:12.200 position. In fact, he was actually investigated 00:12:12.200 --> 00:12:15.419 by the FBI during the war, along with his third 00:12:15.419 --> 00:12:18.980 wife, Elizabeth Booty, for potential pro -Nazi 00:12:18.980 --> 00:12:21.600 sympathies. Seriously, was there any truth to 00:12:21.600 --> 00:12:24.090 that? No, not at all. It was completely baseless. 00:12:24.210 --> 00:12:27.210 He despised the Nazis. He saw them as thuggish 00:12:27.210 --> 00:12:30.210 barbarians. But he was an old -world European 00:12:30.210 --> 00:12:33.389 aristocrat who criticized American populism in 00:12:33.389 --> 00:12:36.830 the middle of a patriotic war. He just didn't 00:12:36.830 --> 00:12:39.740 fit in. Okay, so that's the man. Flamboyant, 00:12:39.740 --> 00:12:42.639 tragic, a failure in the real world, but a giant 00:12:42.639 --> 00:12:45.500 in the world of ideas. Now let's get into those 00:12:45.500 --> 00:12:48.159 ideas. Because if you say the name Schumpeter 00:12:48.159 --> 00:12:50.600 at a dinner party, the first and probably only 00:12:50.600 --> 00:12:52.080 thing the person next to you is going to say 00:12:52.080 --> 00:12:54.259 is creative destruction. It's his great legacy. 00:12:54.440 --> 00:12:56.559 Yeah. It's one of the very few economic terms 00:12:56.559 --> 00:12:59.539 that has truly crossed over from academia into 00:12:59.539 --> 00:13:01.980 pop culture. But I feel like it's used so loosely, 00:13:02.080 --> 00:13:04.379 it just gets used to mean breaking things. You 00:13:04.379 --> 00:13:07.679 know, a tech CEO lays off a third of his workforce 00:13:07.679 --> 00:13:10.250 and puts out a press release talking about embracing 00:13:10.250 --> 00:13:12.269 creative destruction. What did Schumpeter actually 00:13:12.269 --> 00:13:15.009 mean by it? He meant something much more specific 00:13:15.009 --> 00:13:18.950 and much more biological. Schumpeter's core argument 00:13:18.950 --> 00:13:21.669 was that capitalism is not like a building that 00:13:21.669 --> 00:13:23.590 you construct once and then live in peacefully. 00:13:23.789 --> 00:13:27.730 Right. He said it's a living organism. And it's 00:13:27.730 --> 00:13:31.330 essential fact, his words, is that it is an evolutionary 00:13:31.330 --> 00:13:34.129 process. It is constantly mutating from within. 00:13:34.350 --> 00:13:38.429 Mutating from within. I like that. Yes. It incessantly 00:13:38.429 --> 00:13:40.750 revolutionizes the economic structure from within, 00:13:40.909 --> 00:13:43.490 incessantly destroying the old one, incessantly 00:13:43.490 --> 00:13:45.830 creating a new one. Think of it like a forest. 00:13:46.049 --> 00:13:48.669 For a forest to stay healthy and vibrant, old 00:13:48.669 --> 00:13:51.289 trees have to fall and die. Sometimes a fire 00:13:51.289 --> 00:13:52.929 has to sweep through. Right, the forest fire. 00:13:53.370 --> 00:13:55.070 Clears out all the dead undergrowth. Exactly. 00:13:55.289 --> 00:13:57.509 It clears the brush, it releases nutrients back 00:13:57.509 --> 00:14:00.509 into the soil, and it makes space for new, stronger 00:14:00.509 --> 00:14:03.049 saplings to grow. If you prevent all the fires, 00:14:03.129 --> 00:14:05.129 if you try to prop up every single old dying 00:14:05.129 --> 00:14:07.629 tree, the forest eventually stagnates and dies. 00:14:07.830 --> 00:14:11.580 So in the economy, the fire is innovation. A 00:14:11.580 --> 00:14:13.559 new technology. Correct. And this is what leads 00:14:13.559 --> 00:14:15.559 him to his most controversial and I think most 00:14:15.559 --> 00:14:17.580 brilliant point, which is about competition. 00:14:17.820 --> 00:14:20.519 If you open a standard economics 101 textbook, 00:14:20.799 --> 00:14:22.799 what does it tell you is the ideal state of the 00:14:22.799 --> 00:14:25.259 market? Perfect competition. Perfect competition. 00:14:25.559 --> 00:14:27.620 Right. Where you have a thousand little lemonade 00:14:27.620 --> 00:14:30.580 stands all selling identical lemonade and no 00:14:30.580 --> 00:14:33.379 one has any market power and the price gets driven 00:14:33.379 --> 00:14:36.480 down to the absolute bare minimum cost of production. 00:14:36.759 --> 00:14:38.940 Exactly. And Schumpeter looked at that model 00:14:38.940 --> 00:14:43.220 and said. That's nonsense. That's death. He argued 00:14:43.220 --> 00:14:46.340 that perfect competition is static. It's a stalemate. 00:14:46.379 --> 00:14:49.059 If everyone is selling the exact same thing for 00:14:49.059 --> 00:14:52.059 the cheapest possible price, nobody makes any 00:14:52.059 --> 00:14:54.860 real profit. And if there's no profit? There's 00:14:54.860 --> 00:14:57.100 no money to invest in the future. You can't fund 00:14:57.100 --> 00:14:59.019 a research and development lab on the margins 00:14:59.019 --> 00:15:01.440 from a lemonade stand. There's no progress. So, 00:15:01.460 --> 00:15:04.899 wait, he was actually an advocate for... Monopolies? 00:15:04.899 --> 00:15:07.360 That sounds completely wrong. Not monopolies. 00:15:07.740 --> 00:15:09.980 Temporary monopolies. This is the crucial, crucial 00:15:09.980 --> 00:15:12.860 nuance that everyone misses. He argued that the 00:15:12.860 --> 00:15:14.860 only reason an entrepreneur would risk their 00:15:14.860 --> 00:15:17.000 life savings and years of their life to invent, 00:15:17.139 --> 00:15:20.159 say, the first light bulb, is the promise that 00:15:20.159 --> 00:15:22.379 for a few years, they will be the only person 00:15:22.379 --> 00:15:25.019 selling light bulbs. The monopoly profit is the 00:15:25.019 --> 00:15:28.159 prize. It's the reward for taking the huge risk. 00:15:28.279 --> 00:15:32.110 It is the bait. Those abnormal profits are what 00:15:32.110 --> 00:15:35.309 allow you to recoup your massive investment and, 00:15:35.429 --> 00:15:40.590 more importantly, fund the next big thing. Schumpeter 00:15:40.590 --> 00:15:43.090 said the competition that really matters isn't 00:15:43.090 --> 00:15:45.370 price competition. It's not about one candle 00:15:45.370 --> 00:15:47.450 maker selling their candle for 90 cents instead 00:15:47.450 --> 00:15:49.549 of a dollar. It's the competition from the new 00:15:49.549 --> 00:15:51.330 thing. It's the competition from the light bulb. 00:15:51.740 --> 00:15:53.679 It's the competition for the new commodity, the 00:15:53.679 --> 00:15:55.919 new technology, the new source of supply. It's 00:15:55.919 --> 00:15:57.960 not about making a cheaper candle. It's about 00:15:57.960 --> 00:16:01.639 making the candle completely obsolete. Yes. He 00:16:01.639 --> 00:16:03.720 has this amazing line. He says, this kind of 00:16:03.720 --> 00:16:06.600 competition strikes not at the margins of the 00:16:06.600 --> 00:16:09.799 profits, but at their foundations and their very 00:16:09.799 --> 00:16:13.779 lives. It's not a skirmish. It's a bombardment. 00:16:13.879 --> 00:16:16.139 And sure, that's terrifying if you happen to 00:16:16.139 --> 00:16:17.879 own the biggest candle factory in the world. 00:16:18.200 --> 00:16:21.279 But for society as a whole, it brings us out 00:16:21.279 --> 00:16:23.659 of the darkness and into the light. But this 00:16:23.659 --> 00:16:25.840 does raise the modern question, right? What about 00:16:25.840 --> 00:16:28.379 the tech giants today? People are terrified that 00:16:28.379 --> 00:16:30.019 they become too powerful, that they're permanent 00:16:30.019 --> 00:16:31.899 monopolies. Schumpeter would look at them and 00:16:31.899 --> 00:16:35.799 say, just wait. His theory predicts that these 00:16:35.799 --> 00:16:38.580 monopoly positions are inherently unstable. The 00:16:38.580 --> 00:16:40.679 very moment you start making those billions in 00:16:40.679 --> 00:16:43.379 profit, you paint a giant target on your back. 00:16:43.539 --> 00:16:46.159 Everyone comes for you. Every ambitious engineer, 00:16:46.360 --> 00:16:48.659 every hungry venture capitalist in the world 00:16:48.659 --> 00:16:51.080 starts thinking, how can I build something that 00:16:51.080 --> 00:16:55.159 makes that obsolete? The monopoly, in his view, 00:16:55.320 --> 00:16:58.940 contains the seeds of its own destruction. That 00:16:58.940 --> 00:17:01.200 is, unless the government steps in and passes 00:17:01.200 --> 00:17:04.119 laws to protect it from competition. So he wasn't 00:17:04.119 --> 00:17:06.119 afraid of a company like Standard Oil getting 00:17:06.119 --> 00:17:09.180 big on its own. He was afraid of Standard Oil 00:17:09.180 --> 00:17:11.839 using its power to get the government to outlaw 00:17:11.839 --> 00:17:14.119 its competitors. That's the critical distinction. 00:17:14.750 --> 00:17:17.250 He trusted the gale of creative destruction to 00:17:17.250 --> 00:17:19.549 eventually blow down even the mightiest castle. 00:17:19.710 --> 00:17:21.529 He just didn't want the government building a 00:17:21.529 --> 00:17:23.509 permanent stone wall around it. This is a perfect 00:17:23.509 --> 00:17:25.509 transition to the person who actually lights 00:17:25.509 --> 00:17:28.049 the match for this fire, the entrepreneur. And 00:17:28.049 --> 00:17:29.910 I love that Schumpeter really had two different 00:17:29.910 --> 00:17:31.869 versions of this theory, which scholars call 00:17:31.869 --> 00:17:34.450 Mark III and Mark II. It's like he saw the world 00:17:34.450 --> 00:17:36.410 change and he had to patch his own software. 00:17:36.650 --> 00:17:38.789 He did, which is the sign of a great thinker. 00:17:38.809 --> 00:17:41.789 He wasn't dogmatic. He was an empiricist. When 00:17:41.789 --> 00:17:44.640 the facts changed. He changed his mind. So let's 00:17:44.640 --> 00:17:46.579 start with Mark Ford. This is the early Schumpeter, 00:17:46.720 --> 00:17:49.380 right? The European Schumpeter before the failures 00:17:49.380 --> 00:17:51.559 and the tragedy? Yes. This comes from his early 00:17:51.559 --> 00:17:53.599 book, The Theory of Economic Development, published 00:17:53.599 --> 00:17:56.339 in 1911. And in this version, the entrepreneur 00:17:56.339 --> 00:18:00.640 is a true hero, a solitary romantic figure. And 00:18:00.640 --> 00:18:03.420 he used that great German word. Unternehmergeist. 00:18:03.680 --> 00:18:05.859 Entrepreneur spirit. It's more than just spirit. 00:18:06.279 --> 00:18:09.279 It implies this incredible force of will, a drive. 00:18:10.139 --> 00:18:12.740 In the Marx party, the economy naturally wants 00:18:12.740 --> 00:18:14.940 to settle into what he called that Walrasian 00:18:14.940 --> 00:18:18.579 equilibrium, that boring static state. The entrepreneur 00:18:18.579 --> 00:18:21.539 is the wild spirit who comes along and shatters 00:18:21.539 --> 00:18:23.579 that peace. They disrupt things. They disrupt 00:18:23.579 --> 00:18:25.220 everything. They fight against social resistance, 00:18:25.400 --> 00:18:27.819 against the bankers who say no, against the public 00:18:27.819 --> 00:18:29.980 who says, we like our horses, we don't need your 00:18:29.980 --> 00:18:33.170 noisy automobile. They are the Henry Fords, the 00:18:33.170 --> 00:18:35.170 Thomas Edisons, the Steve Jobs of the garage. 00:18:35.369 --> 00:18:38.230 They force the new thing into reality through 00:18:38.230 --> 00:18:40.950 sheer personality and vision. It's a very romantic 00:18:40.950 --> 00:18:43.450 view, almost a Nietzschean great man of history 00:18:43.450 --> 00:18:45.789 theory of economics. It is. It's very heroic. 00:18:45.869 --> 00:18:49.390 But then Schumpeter moves to America. He lives 00:18:49.390 --> 00:18:51.950 through the 30s and 40s. He spends two decades 00:18:51.950 --> 00:18:54.549 at Harvard and he looks at the American economy 00:18:54.549 --> 00:18:57.670 and he sees General Motors. He sees U .S. Steel. 00:18:58.389 --> 00:19:00.549 DuPont, General Electric. And these are not just 00:19:00.549 --> 00:19:02.730 one guy in a garage. These are not wild spirits. 00:19:03.009 --> 00:19:06.250 These are massive, sprawling bureaucracies with 00:19:06.250 --> 00:19:08.670 tens of thousands of employees, committees, and 00:19:08.670 --> 00:19:11.049 formal procedures. And so we get the update, 00:19:11.170 --> 00:19:14.470 the patch, Mark II. Exactly. This is the view 00:19:14.470 --> 00:19:16.430 that comes out in his later, and I think greater, 00:19:16.829 --> 00:19:18.869 masterpiece capitalism, socialism, and democracy. 00:19:19.150 --> 00:19:22.089 He had this profound realization that in a mature, 00:19:22.289 --> 00:19:25.410 modern industrial economy, the process of innovation 00:19:25.410 --> 00:19:28.069 itself becomes institutionalized. So it moves 00:19:28.069 --> 00:19:29.990 out of the garage and into the corporate R &D 00:19:29.990 --> 00:19:32.609 department. Precisely. He wrote that the trail 00:19:32.609 --> 00:19:35.289 of modern economic progress leads precisely to 00:19:35.289 --> 00:19:37.990 the door of the large concerns. He realized that 00:19:37.990 --> 00:19:40.369 these giant corporations, which everyone at the 00:19:40.369 --> 00:19:42.410 time was criticizing as stagnant monopolies, 00:19:42.450 --> 00:19:44.630 were actually becoming the primary engines of 00:19:44.630 --> 00:19:46.980 innovation. Why? Because they had the money. 00:19:47.079 --> 00:19:49.220 Because they had the capital to absorb failure. 00:19:49.769 --> 00:19:52.430 Think about it. If you're a lone inventor in 00:19:52.430 --> 00:19:54.950 your garage and your one big prototype explodes, 00:19:55.250 --> 00:19:58.069 you're done. You starve. But if you're Bell Labs 00:19:58.069 --> 00:20:02.789 or IBM or Google X today and one project fails 00:20:02.789 --> 00:20:05.430 spectacularly. You just shrug and move the funding 00:20:05.430 --> 00:20:07.509 to the next project on the list. You can afford 00:20:07.509 --> 00:20:10.569 to fail a hundred times to get one success. The 00:20:10.569 --> 00:20:12.849 large corporation can manage a portfolio of risks 00:20:12.849 --> 00:20:15.650 in a way an individual never could. So Mark II 00:20:15.650 --> 00:20:18.170 is the corporate engine. The wild spirit gets 00:20:18.170 --> 00:20:20.829 tamed. It's a salary, a security badge, and a 00:20:20.829 --> 00:20:22.769 pension plan. And Schumpeter wrote about this 00:20:22.769 --> 00:20:25.390 with a real sense of ambivalence, a kind of sadness. 00:20:25.869 --> 00:20:28.329 He respected the sheer efficiency of the corporation. 00:20:28.690 --> 00:20:30.829 He saw that it was what created the incredible 00:20:30.829 --> 00:20:33.430 American standard of living. But he missed the 00:20:33.430 --> 00:20:36.269 romance of the individual hero. He saw that innovation 00:20:36.269 --> 00:20:38.490 was becoming just another bureaucratized job, 00:20:38.730 --> 00:20:40.769 something a committee in a boardroom decides 00:20:40.769 --> 00:20:43.650 to approve for the next fiscal quarter. We have 00:20:43.650 --> 00:20:46.170 reviewed the proposal for market disruption and 00:20:46.170 --> 00:20:49.269 have greenlit it for Q3. Exactly. It loses its 00:20:49.269 --> 00:20:51.490 soul, even as it gains in power and efficiency. 00:20:51.849 --> 00:20:54.609 Which is a perfect segue to how these innovations, 00:20:54.869 --> 00:20:56.630 whether from the wild spirit or the corporation, 00:20:57.029 --> 00:20:59.670 actually ripple through the economy. Because 00:20:59.670 --> 00:21:01.990 Schumpeter didn't see economic growth as a nice, 00:21:01.990 --> 00:21:04.230 smooth, straight line going up and to the right. 00:21:04.390 --> 00:21:08.630 No, he saw waves, storms and seasons. The business 00:21:08.630 --> 00:21:11.359 cycles. This is the really technical part of 00:21:11.359 --> 00:21:13.059 his work, but it's so fascinating when you get 00:21:13.059 --> 00:21:15.859 into it. He believed that innovations don't just 00:21:15.859 --> 00:21:18.180 happen randomly, sprinkled evenly over time. 00:21:18.359 --> 00:21:21.099 He said they cluster. They cluster in swarms. 00:21:21.119 --> 00:21:23.759 Why do they cluster? Why not just a steady stream 00:21:23.759 --> 00:21:26.380 of new inventions every year? It's about psychology 00:21:26.380 --> 00:21:30.720 and finance. One pioneer takes the enormous risk. 00:21:31.160 --> 00:21:33.920 Say, building the first... commercially viable 00:21:33.920 --> 00:21:36.819 railroad. It's hugely expensive. Everyone thinks 00:21:36.819 --> 00:21:39.019 they're crazy. But once it's proven to work and 00:21:39.019 --> 00:21:41.400 make money, what happens? A herd of imitators 00:21:41.400 --> 00:21:44.400 rushes in. A herd rushes in. Suddenly every banker 00:21:44.400 --> 00:21:47.140 who said no is now desperate to lend money for 00:21:47.140 --> 00:21:49.339 any project that has the word railroad in it. 00:21:49.420 --> 00:21:52.119 You get this massive boom in investment, a speculative 00:21:52.119 --> 00:21:54.460 frenzy, all centered on this one new technology. 00:21:54.819 --> 00:21:57.319 And then, inevitably, the market gets saturated. 00:21:57.380 --> 00:21:59.240 You have too many railroads going to the same 00:21:59.240 --> 00:22:02.279 place, companies go bankrupt, and you get a bust. 00:22:02.519 --> 00:22:06.369 Right. boom and bust but schumpeter's true insight 00:22:06.369 --> 00:22:09.130 the thing that set him apart was that he didn't 00:22:09.130 --> 00:22:11.829 think there was just one cycle he saw a whole 00:22:11.829 --> 00:22:15.779 symphony of different waves all overlapping all 00:22:15.779 --> 00:22:17.819 operating on completely different timelines. 00:22:18.200 --> 00:22:19.920 This is the part of his work that really blew 00:22:19.920 --> 00:22:22.339 my mind when I was reading the sources. He's 00:22:22.339 --> 00:22:25.200 literally stacking cycles on top of cycles. Can 00:22:25.200 --> 00:22:27.480 we try and break down the four main types that 00:22:27.480 --> 00:22:29.940 he identified? Absolutely. Think of it like a 00:22:29.940 --> 00:22:32.599 set of gears in a giant complex watch, all turning 00:22:32.599 --> 00:22:35.539 at different speeds. At the bottom, the smallest, 00:22:35.559 --> 00:22:37.779 fastest turning gear, you have what he called 00:22:37.779 --> 00:22:40.200 the kitchen cycle. The kitchen cycle? This is 00:22:40.200 --> 00:22:42.599 a short one. About three to five years. It's 00:22:42.599 --> 00:22:45.730 driven almost entirely by... You know, a company 00:22:45.730 --> 00:22:48.009 produces too much stuff, then they realize they 00:22:48.009 --> 00:22:49.650 have too much in the warehouse, so they cut back 00:22:49.650 --> 00:22:52.109 on production to sell off the stock. The economy 00:22:52.109 --> 00:22:54.049 dips a little, then they sell it all, they start 00:22:54.049 --> 00:22:56.549 ordering again, and it goes back up. It's the 00:22:56.549 --> 00:22:58.970 surface noise of the economy. Okay, so that's 00:22:58.970 --> 00:23:01.779 the smallest gear. What's the next one up? The 00:23:01.779 --> 00:23:03.880 next gear is the juggler cycle. Yeah. This is 00:23:03.880 --> 00:23:05.859 the one we're most familiar with. It runs for 00:23:05.859 --> 00:23:08.660 about 7 to 11 years. This is driven by investment 00:23:08.660 --> 00:23:11.720 in fixed capital, new machinery, retooling a 00:23:11.720 --> 00:23:14.099 factory, companies replacing their fleets of 00:23:14.099 --> 00:23:16.539 trucks. This is what we typically think of as 00:23:16.539 --> 00:23:18.980 the business cycle when we see it in the news. 00:23:19.180 --> 00:23:22.440 Okay, kitchen, juggler, getting bigger. Now we 00:23:22.440 --> 00:23:24.900 get to the Kuznets swing. This is a much longer 00:23:24.900 --> 00:23:28.400 wave, about 15 to 25 years. This cycle is tied 00:23:28.400 --> 00:23:30.660 to big infrastructural projects and demographics, 00:23:31.079 --> 00:23:34.039 building out the electrical grid, waves of immigration 00:23:34.039 --> 00:23:36.619 that require new housing and schools, constructing 00:23:36.619 --> 00:23:39.200 the national highway system, big generational 00:23:39.200 --> 00:23:41.660 projects. And then there's the big one, the monster 00:23:41.660 --> 00:23:44.200 wave that everything else rides on top of. That's 00:23:44.200 --> 00:23:47.019 the Kondratiev wave, named after a Russian economist, 00:23:47.259 --> 00:23:50.180 Nikolai Kondratiev. This is the long one, 45 00:23:50.180 --> 00:23:53.180 to 60 years from peak to peak. This wave isn't 00:23:53.180 --> 00:23:54.859 just about investment. It's about the fundamental 00:23:54.859 --> 00:23:57.579 technological basis of the entire economy. So 00:23:57.579 --> 00:24:00.279 like the age of steam and railways. That's one. 00:24:00.799 --> 00:24:04.059 Then the age of steel and electricity. Then the 00:24:04.059 --> 00:24:07.420 age of the automobile and oil. And the one we've 00:24:07.420 --> 00:24:09.599 just been living through. The information age. 00:24:09.940 --> 00:24:12.779 The age of the microchip. Each of these technological 00:24:12.779 --> 00:24:16.680 revolutions drives a multi -decade boom. So at 00:24:16.680 --> 00:24:18.660 any given moment, we could be sitting on top 00:24:18.660 --> 00:24:21.799 of a little kitchen inventory dip inside a larger 00:24:21.799 --> 00:24:24.619 juggler investment broom, but maybe at the very 00:24:24.619 --> 00:24:27.279 tail end of a massive conjurative technological 00:24:27.279 --> 00:24:30.859 wave. Precisely. All of these waves are rippling 00:24:30.859 --> 00:24:33.339 through the economy at the same time, sometimes 00:24:33.339 --> 00:24:36.079 adding to each other, making the boom feel incredible, 00:24:36.220 --> 00:24:38.819 and sometimes canceling each other out, or worse. 00:24:39.000 --> 00:24:41.299 And this led Schumpeter to his most terrifying 00:24:41.299 --> 00:24:43.910 realization. Which was what? What happens when 00:24:43.910 --> 00:24:47.170 the troughs, the absolute bottom points of all 00:24:47.170 --> 00:24:49.329 four of these waves, line up at the exact same 00:24:49.329 --> 00:24:51.210 time? You get the perfect storm. You get the 00:24:51.210 --> 00:24:53.630 danger zone. He came to believe that this synchronization 00:24:53.630 --> 00:24:55.890 of the cycles is what caused the Great Depression 00:24:55.890 --> 00:24:58.730 of the 1930s. It wasn't just a stock market crash 00:24:58.730 --> 00:25:01.529 or bad government policy. It was the statistical, 00:25:01.690 --> 00:25:04.730 mathematical inevitability of all the cycles 00:25:04.730 --> 00:25:07.329 aligning in a downward phase at once. It makes 00:25:07.329 --> 00:25:09.670 you feel very small. Like we're all just these 00:25:09.670 --> 00:25:12.089 little boats bobbing on these massive, invisible 00:25:12.089 --> 00:25:14.829 tidal forces that we have absolutely no control 00:25:14.829 --> 00:25:16.789 over. And Schumpeter would say, that's right. 00:25:16.829 --> 00:25:20.470 So don't even try to control them. He deeply 00:25:20.470 --> 00:25:22.829 disliked the Keynesian idea that the government 00:25:22.829 --> 00:25:25.829 could manage the economy and smooth out the waves. 00:25:26.480 --> 00:25:29.859 He believed the depression, the bust, is a necessary 00:25:29.859 --> 00:25:32.400 part of the process. It's the forest fire. It's 00:25:32.400 --> 00:25:34.779 the forest fire. It's the cold shower that cleanses 00:25:34.779 --> 00:25:37.039 the system of all the bad investments and inefficient 00:25:37.039 --> 00:25:40.339 companies that grew up during the boom. If you 00:25:40.339 --> 00:25:43.259 use government policy to stop the bust, you prevent 00:25:43.259 --> 00:25:46.259 the adaptation. You create a zombie economy where 00:25:46.259 --> 00:25:48.579 the old dying trees are kept alive on life support 00:25:48.579 --> 00:25:51.140 and they crowd out the new saplings. That is 00:25:51.140 --> 00:25:53.859 a very, very hard thing to sell to a voter who 00:25:53.859 --> 00:25:56.369 has just lost their job and their home. Don't 00:25:56.369 --> 00:25:58.349 worry, you're just part of the cleansing mechanism 00:25:58.349 --> 00:26:01.289 of the condortee of wave. It is a terrible political 00:26:01.289 --> 00:26:04.269 slogan. But Schemperer wasn't running for office 00:26:04.269 --> 00:26:06.309 anymore. He was trying to describe the mechanism 00:26:06.309 --> 00:26:09.369 as he saw it, no matter how brutal it was. Which 00:26:09.369 --> 00:26:11.970 brings us to what is maybe the most provocative 00:26:11.970 --> 00:26:14.930 and frankly, the most gloomy part of his entire 00:26:14.930 --> 00:26:17.369 body of work. We've talked about how innovation 00:26:17.369 --> 00:26:19.769 drives capitalism, how it creates these waves 00:26:19.769 --> 00:26:23.809 of progress. But then in his 1942 book, Capitalism, 00:26:23.809 --> 00:26:27.579 Socialism and Democracy. He asks a stunning question. 00:26:27.779 --> 00:26:31.140 He asks point blank, can capitalism survive? 00:26:31.819 --> 00:26:35.660 And his answer is equally blunt. No, I do not 00:26:35.660 --> 00:26:37.680 think it can. No, when I first read that, my 00:26:37.680 --> 00:26:39.839 immediate assumption was, OK, he means it's going 00:26:39.839 --> 00:26:41.740 to collapse the way Karl Marx said it would, 00:26:41.799 --> 00:26:44.039 you know, with riots in the streets, mass poverty, 00:26:44.240 --> 00:26:47.119 the proletariat rising up to overthrow the evil 00:26:47.119 --> 00:26:49.380 factory owners. And this is what makes Schumpeter 00:26:49.380 --> 00:26:51.690 so unique and so unsettling. He actually agrees 00:26:51.690 --> 00:26:53.890 with Marx on the outcome. He believed, just like 00:26:53.890 --> 00:26:56.490 Marx, that socialism or something very much like 00:26:56.490 --> 00:26:59.170 it would eventually replace capitalism. But he 00:26:59.170 --> 00:27:01.450 disagreed 100 percent on the mechanism. On how 00:27:01.450 --> 00:27:04.109 it would happen. Completely. Marx thought capitalism 00:27:04.109 --> 00:27:06.650 would die because it failed, because it would 00:27:06.650 --> 00:27:09.289 create so much misery and inequality that people 00:27:09.289 --> 00:27:12.359 would violently tear it down. Schumpeter made 00:27:12.359 --> 00:27:14.960 the exact opposite argument. He thought capitalism 00:27:14.960 --> 00:27:17.420 would die precisely because it succeeded. OK, 00:27:17.500 --> 00:27:18.940 you have to walk me through that. That seems 00:27:18.940 --> 00:27:20.900 completely counterintuitive. How does winning 00:27:20.900 --> 00:27:23.440 the game so thoroughly cause you to forfeit? 00:27:23.500 --> 00:27:26.000 It's a brilliant and chilling sociological argument. 00:27:26.140 --> 00:27:30.079 It happens in stages. Step one, capitalism works. 00:27:30.509 --> 00:27:33.730 It works unbelievably well. It generates an unprecedented 00:27:33.730 --> 00:27:36.589 amount of wealth and surplus. So much surplus, 00:27:36.750 --> 00:27:38.569 in fact, that for the first time in human history, 00:27:38.710 --> 00:27:41.670 we can afford to create a massive system of higher 00:27:41.670 --> 00:27:44.089 education. We can send millions of people to 00:27:44.089 --> 00:27:46.490 university. Okay, so far so good. We have a society 00:27:46.490 --> 00:27:48.789 full of smart, literate, wealthy people. Sounds 00:27:48.789 --> 00:27:50.710 great. But what do all these educated people 00:27:50.710 --> 00:27:53.329 do for a living? A large number of them become 00:27:53.329 --> 00:27:55.609 what Schumpeter called the intellectual class. 00:27:56.250 --> 00:27:58.349 These are people who work with words and ideas. 00:27:59.049 --> 00:28:02.309 Journalists, academics, pundits, artists, commentators, 00:28:02.390 --> 00:28:06.190 but who, crucially, have no direct practical 00:28:06.190 --> 00:28:08.890 responsibility for running anything. They don't 00:28:08.890 --> 00:28:10.890 have to meet a payroll. They don't manage the 00:28:10.890 --> 00:28:13.369 factories. They write essays critiquing the factories. 00:28:13.609 --> 00:28:15.950 I feel like he's describing us right now. I feel 00:28:15.950 --> 00:28:18.769 personally attacked. He absolutely intended it 00:28:18.769 --> 00:28:20.890 as a critique. He argued that this intellectual 00:28:20.890 --> 00:28:24.250 class develops a vested interest in social discontent. 00:28:24.450 --> 00:28:27.250 Their status, their prestige, their very careers 00:28:27.250 --> 00:28:30.049 depend on finding flaws in the existing system. 00:28:30.170 --> 00:28:33.250 They analyze. They deconstruct. They chip away 00:28:33.250 --> 00:28:35.390 at the moral foundations of the bourgeois order. 00:28:35.769 --> 00:28:37.890 So capitalism generates the wealth that funds 00:28:37.890 --> 00:28:40.049 the very people who then proceed to talk it to 00:28:40.049 --> 00:28:42.630 death. That's it in a nutshell. This system pays 00:28:42.630 --> 00:28:46.069 for its own gravediggers. The intellectuals slowly 00:28:46.069 --> 00:28:49.089 but surely delegitimize the core concepts of 00:28:49.089 --> 00:28:52.049 profit, of private property, of the very inequality 00:28:52.049 --> 00:28:55.220 that drives ambition. They make entrepreneurial 00:28:55.220 --> 00:28:58.039 success look less like a social contribution 00:28:58.039 --> 00:29:00.599 and more like a form of theft. But it's not just 00:29:00.599 --> 00:29:02.859 the fault of the intellectuals, right? It's also 00:29:02.859 --> 00:29:04.740 something that happens inside the corporations 00:29:04.740 --> 00:29:07.339 themselves. This goes back to the Mark II theory. 00:29:07.500 --> 00:29:09.619 Yes. This is the second pincer in the attack. 00:29:09.720 --> 00:29:12.380 The bureaucratization of innovation. Schumpeter 00:29:12.380 --> 00:29:15.200 argued that as companies grow into these giant, 00:29:15.299 --> 00:29:17.460 faceless, professionally managed corporations, 00:29:17.859 --> 00:29:20.599 the owners, the actual capitalists, lose their 00:29:20.599 --> 00:29:22.960 will to fight. What does he mean by that? Think 00:29:22.960 --> 00:29:25.789 about it. A 19th century factory owner who built 00:29:25.789 --> 00:29:27.829 his company from scratch with his own hands. 00:29:27.869 --> 00:29:30.410 His name is on the building. He has a visceral 00:29:30.410 --> 00:29:32.569 emotional connection to his property. He will 00:29:32.569 --> 00:29:34.769 fight to the death, politically and physically, 00:29:34.990 --> 00:29:36.910 if the government tries to take it away from 00:29:36.910 --> 00:29:38.730 him. Right. But what about a salaried middle 00:29:38.730 --> 00:29:42.630 manager, CEO of a massive publicly traded conglomerate 00:29:42.630 --> 00:29:45.609 who maybe owns 0 .1 % of the stock? They don't 00:29:45.609 --> 00:29:47.490 have that same connection. They're just an employee. 00:29:47.670 --> 00:29:50.210 They want a quiet life and a good bonus. Exactly. 00:29:50.390 --> 00:29:53.549 They lose that deep passion. passionate, almost 00:29:53.549 --> 00:29:56.970 religious belief in the sanctity of private property. 00:29:57.450 --> 00:30:00.670 So when the government comes along with new regulations, 00:30:00.829 --> 00:30:04.589 new taxes, a slow creep of socialization, they 00:30:04.589 --> 00:30:07.480 don't fight back. They just comply. They hire 00:30:07.480 --> 00:30:09.819 a chief compliance officer and fill out the paperwork. 00:30:10.099 --> 00:30:13.220 So the wild spirit of the entrepreneur gets replaced 00:30:13.220 --> 00:30:16.400 by the checklist of the bureaucrat. And Schempeter 00:30:16.400 --> 00:30:19.000 predicted that this slow rot from within the 00:30:19.000 --> 00:30:21.579 external attack from the intellectuals and the 00:30:21.579 --> 00:30:23.920 internal softening of the business class would 00:30:23.920 --> 00:30:26.599 lead to a gradual, almost imperceptible drift 00:30:26.599 --> 00:30:29.940 into what he called laborism. Parliaments will 00:30:29.940 --> 00:30:32.960 be dominated by social democratic parties. Regulatory 00:30:32.960 --> 00:30:35.440 agencies will multiply and grow more powerful, 00:30:35.559 --> 00:30:38.019 will slide from liberal capitalism into a kind 00:30:38.019 --> 00:30:40.259 of centrally planned bureaucratic state that 00:30:40.259 --> 00:30:42.359 is functionally socialist, even if it doesn't 00:30:42.359 --> 00:30:44.460 call itself that. Not with a bang, but with the 00:30:44.460 --> 00:30:46.980 whimper of a thousand new regulations being filed. 00:30:47.140 --> 00:30:50.339 That's the prophecy. And it's so haunting because 00:30:50.339 --> 00:30:54.430 it feels so plausible. He is... essentially predicting 00:30:54.430 --> 00:30:57.369 the rise of the modern administrative state that 00:30:57.369 --> 00:30:59.789 we see all around us in the West. And the tragedy 00:30:59.789 --> 00:31:01.849 of it is that he wasn't happy about this. He 00:31:01.849 --> 00:31:04.630 wasn't advocating for it. He hated it. He was 00:31:04.630 --> 00:31:06.809 a conservative who cherished individual liberty. 00:31:07.309 --> 00:31:10.250 He was prophesying this future with a sense of 00:31:10.250 --> 00:31:13.670 profound despair. He was basically saying, look, 00:31:13.829 --> 00:31:16.230 this is the logical endpoint of the story, whether 00:31:16.230 --> 00:31:18.740 we like it or not. So if the economy is this 00:31:18.740 --> 00:31:21.460 complex, evolving and ultimately self -undermining 00:31:21.460 --> 00:31:23.599 system, what does that mean for how we should 00:31:23.599 --> 00:31:26.700 govern ourselves? This brings us to Schumpeter's 00:31:26.700 --> 00:31:29.440 very cynical but very interesting views on politics. 00:31:29.779 --> 00:31:32.700 And spoiler alert for anyone listening, he was 00:31:32.700 --> 00:31:34.900 not a big fan of the will of the people. No, 00:31:34.960 --> 00:31:36.920 he had absolutely no time for what he called 00:31:36.920 --> 00:31:39.359 the classical doctrine of democracy. You know, 00:31:39.380 --> 00:31:41.180 the one we're all taught in school. A fairytale 00:31:41.180 --> 00:31:43.380 version. The fairytale version where the noble 00:31:43.380 --> 00:31:45.460 informed citizens gather together in the town 00:31:45.460 --> 00:31:48.400 square. They deliberate. They rationally identify 00:31:48.400 --> 00:31:51.279 the common good. And then they elect wise leaders 00:31:51.279 --> 00:31:53.579 to go and carry it out. The New England town 00:31:53.579 --> 00:31:56.339 hall ideal. Schumpeter thought that was utter 00:31:56.339 --> 00:32:00.259 nonsense. He argued pretty bluntly that the average 00:32:00.259 --> 00:32:03.559 citizen is politically ignorant, irrational and 00:32:03.559 --> 00:32:06.059 easily manipulated. They just don't have the 00:32:06.059 --> 00:32:09.200 time or the mental bandwidth to understand deeply 00:32:09.200 --> 00:32:11.799 complex policy issues like, say, the Kuznets 00:32:11.799 --> 00:32:14.599 swing or international monetary policy. So if 00:32:14.599 --> 00:32:16.900 democracy isn't the expression of the will of 00:32:16.900 --> 00:32:19.430 the people, what is it to him? It's just a market. 00:32:19.509 --> 00:32:22.430 That's all it is. He defined democracy as, and 00:32:22.430 --> 00:32:24.650 I'm quoting here, an institutional arrangement 00:32:24.650 --> 00:32:27.390 for arriving at political decisions in which 00:32:27.390 --> 00:32:30.349 individuals acquire the power to decide by means 00:32:30.349 --> 00:32:32.289 of a competitive struggle for the people's vote. 00:32:32.470 --> 00:32:35.190 He's using that market analogy again. The politicians 00:32:35.190 --> 00:32:37.609 are the sellers, the entrepreneurs. And the voters 00:32:37.609 --> 00:32:39.970 are the consumers. The election is just the marketplace. 00:32:40.230 --> 00:32:42.970 The politicians sell promises and brands and 00:32:42.970 --> 00:32:45.170 the voters buy them with their votes. It's a 00:32:45.170 --> 00:32:47.230 competition between elites for power. And what 00:32:47.230 --> 00:32:49.470 about the common good? He didn't think it existed 00:32:49.470 --> 00:32:51.609 as a tangible thing that everyone could agree 00:32:51.609 --> 00:32:53.450 on, or at the very least he didn't think the 00:32:53.450 --> 00:32:56.369 voters could ever identify it. His goal was to 00:32:56.369 --> 00:32:58.690 lower our expectations of what democracy can 00:32:58.690 --> 00:33:02.710 achieve. He said basically, stop expecting democracy 00:33:02.710 --> 00:33:05.809 to produce wisdom or truth. Just accept it for 00:33:05.809 --> 00:33:09.410 what it is, a useful, peaceful method to hire 00:33:09.410 --> 00:33:11.910 and fire your rulers without having to resort 00:33:11.910 --> 00:33:15.099 to a civil war. That is a very minimalist view. 00:33:15.240 --> 00:33:17.380 It really strips all the glory and romance away 00:33:17.380 --> 00:33:19.759 from it. Democracy isn't some holy communion 00:33:19.759 --> 00:33:22.539 of the national spirit. It's just the H .R. department 00:33:22.539 --> 00:33:25.759 for the state. Wow. But I guess it's also a very 00:33:25.759 --> 00:33:27.799 stable view. If you accept that it's just a hiring 00:33:27.799 --> 00:33:30.319 mechanism, you don't get quite as existentially 00:33:30.319 --> 00:33:32.619 disappointed when your leaders turn out to be 00:33:32.619 --> 00:33:35.240 flawed human beings. Exactly. It manages expectations. 00:33:35.880 --> 00:33:37.640 Before we move to his legacy, I just want to 00:33:37.640 --> 00:33:39.759 touch on his methodology one last time. We mentioned 00:33:39.759 --> 00:33:42.279 he loved Walrus and his math, but in his huge 00:33:42.279 --> 00:33:44.579 posthumous book, History of Economic Analysis, 00:33:44.980 --> 00:33:47.279 he spent a lot of time attacking some of the 00:33:47.279 --> 00:33:49.440 biggest names in economics for what he called 00:33:49.440 --> 00:33:52.700 the Ricardian vice. What was that? This is such 00:33:52.700 --> 00:33:55.230 a crucial point. For anyone who wants to understand 00:33:55.230 --> 00:33:58.309 why economic models and predictions so often 00:33:58.309 --> 00:34:01.410 get it wrong, the vice was named after David 00:34:01.410 --> 00:34:04.670 Ricardo, a famous 19th century economist. But 00:34:04.670 --> 00:34:07.670 Schumpeter also accused Keynes of it. It's the 00:34:07.670 --> 00:34:11.550 habit of building these very neat, tidy, abstract 00:34:11.550 --> 00:34:13.650 models of the economy. The kind of thing you 00:34:13.650 --> 00:34:16.170 do on a blackboard. Exactly. The model builder 00:34:16.170 --> 00:34:18.929 will say, okay, let's assume variables A, B, 00:34:19.110 --> 00:34:21.789 and C are held constant. Now, what happens if 00:34:21.789 --> 00:34:24.789 I just change variable D? Classic Ceteris Paribus, 00:34:24.789 --> 00:34:27.230 all other things being equal. Right. And Schumpeter 00:34:27.230 --> 00:34:29.719 hated that. He called it a vice because in the 00:34:29.719 --> 00:34:32.659 real living, breathing economy, nothing is ever 00:34:32.659 --> 00:34:35.360 constant. All other things are never equal. The 00:34:35.360 --> 00:34:37.880 moment you change variable D, that causes A to 00:34:37.880 --> 00:34:40.179 move, which makes B explode and C disappear entirely. 00:34:40.519 --> 00:34:42.440 Everything is connected. Everything is in motion 00:34:42.440 --> 00:34:44.679 all the time. So he thought those static models 00:34:44.679 --> 00:34:47.139 were not just simplistic but actively misleading? 00:34:47.599 --> 00:34:50.780 Yes. They give a false sense of precision and 00:34:50.780 --> 00:34:53.980 control. He wanted a theory that was dynamic, 00:34:54.019 --> 00:34:56.719 that captured the chaos in the evolution. He 00:34:56.719 --> 00:35:00.019 wanted a video of the economy, not a single posed 00:35:00.019 --> 00:35:03.199 snapshot. Because the moment you freeze all the 00:35:03.199 --> 00:35:05.699 other variables to make your math easy, your 00:35:05.699 --> 00:35:08.119 conclusion becomes irrelevant to the real world. 00:35:08.260 --> 00:35:09.900 Okay, so let's try to pull this all together. 00:35:10.079 --> 00:35:13.250 We've covered the flamboyant man. The idea of 00:35:13.250 --> 00:35:15.250 creative destruction, the symphony of waves, 00:35:15.429 --> 00:35:18.130 the prophesied doom of capitalism and his cynical 00:35:18.130 --> 00:35:21.690 view of democracy. What is his legacy today? 00:35:21.809 --> 00:35:23.849 Because as we said at the start, after decades 00:35:23.849 --> 00:35:26.469 of being in the shadow, he's kind of a rock star 00:35:26.469 --> 00:35:28.849 in economics now. His influence is absolutely 00:35:28.849 --> 00:35:31.840 everywhere. For a long time, he was totally overshadowed 00:35:31.840 --> 00:35:34.440 by Keynes. Keynes gave governments a practical 00:35:34.440 --> 00:35:36.500 toolkit to fix the economy, which, of course, 00:35:36.519 --> 00:35:38.800 politicians loved. Schumpeter basically told 00:35:38.800 --> 00:35:40.659 them, you can't fix it. The fire is necessary, 00:35:40.900 --> 00:35:43.519 which politicians absolutely hated. Not a great 00:35:43.519 --> 00:35:46.519 campaign slogan. No. But as we moved out of the 00:35:46.519 --> 00:35:48.539 industrial age and into the information age, 00:35:48.679 --> 00:35:51.719 with its rapid technological churn, Schumpeter's 00:35:51.719 --> 00:35:54.179 theories suddenly felt incredibly relevant again. 00:35:54.590 --> 00:35:57.090 You mentioned the Nobel Prize earlier. Yes. The 00:35:57.090 --> 00:36:00.110 2025 Nobel Prize in Economics was awarded to 00:36:00.110 --> 00:36:03.110 Philip Aguillon and Peter Howitt. Their entire 00:36:03.110 --> 00:36:05.469 body of work is what's called Schumpeterian growth 00:36:05.469 --> 00:36:08.690 theory. They essentially took Schumpeter's core 00:36:08.690 --> 00:36:11.570 idea of creative discussion and finally built 00:36:11.570 --> 00:36:13.789 the rigorous mathematical models that Schumpeter 00:36:13.789 --> 00:36:16.610 himself always wanted to build but didn't quite 00:36:16.610 --> 00:36:19.130 have the tools for. They brought him right back 00:36:19.130 --> 00:36:21.710 to the absolute center of modern economic theory. 00:36:22.010 --> 00:36:23.909 And it's not just in the ivory tower. It affects 00:36:23.909 --> 00:36:26.849 real world policy. For sure. The World Bank, 00:36:26.969 --> 00:36:29.090 for many years, published a very influential 00:36:29.090 --> 00:36:31.949 doing business report, which ranked every country 00:36:31.949 --> 00:36:34.510 on how easy it is to start a new business, enforce 00:36:34.510 --> 00:36:37.250 a contract, and crucially, how easy it is for 00:36:37.250 --> 00:36:39.530 a failed business to go through bankruptcy. So 00:36:39.530 --> 00:36:42.050 clearing away the dead trees. That's pure Schumpeterian 00:36:42.050 --> 00:36:44.530 thinking. The idea is that the government's job 00:36:44.530 --> 00:36:46.909 isn't to pick winners, but to remove the barriers 00:36:46.909 --> 00:36:49.489 and impediments to the process of creative destruction. 00:36:50.400 --> 00:36:52.539 Let the new firms rise and the old ones fall 00:36:52.539 --> 00:36:55.360 as quickly and painlessly as possible. The European 00:36:55.360 --> 00:36:57.840 Union's Lisbon strategy for innovation had his 00:36:57.840 --> 00:36:59.980 fingerprints all over it, too. And then, of course, 00:37:00.039 --> 00:37:01.980 there's the entire culture of Silicon Valley. 00:37:02.119 --> 00:37:04.519 Oh, Silicon Valley is basically a temple built 00:37:04.519 --> 00:37:06.679 in his honor. The whole gospel of disruption 00:37:06.679 --> 00:37:09.880 that is 100 percent Schumpeter. Every time you 00:37:09.880 --> 00:37:11.760 hear a startup founder on stage talking about 00:37:11.760 --> 00:37:15.320 eating the incumbent's lunch or moving fast and 00:37:15.320 --> 00:37:17.599 breaking things, they are channeling the ghost 00:37:17.599 --> 00:37:19.619 of Joseph Schumpeter. whether they know his name 00:37:19.619 --> 00:37:22.780 or not. So if we had to synthesize this all down, 00:37:22.900 --> 00:37:25.119 we have this incredible character who failed 00:37:25.119 --> 00:37:27.820 at the practice of capitalism, but understood 00:37:27.820 --> 00:37:31.099 its soul maybe better than anyone. What are the 00:37:31.099 --> 00:37:34.159 big essential takeaways for you, the listener? 00:37:34.320 --> 00:37:36.199 If you're at that dinner party and someone drops 00:37:36.199 --> 00:37:38.860 his name, what are the core ideas you need to 00:37:38.860 --> 00:37:41.239 have? I think you can boil it down to three main 00:37:41.239 --> 00:37:43.940 points. First, innovation is not a smooth, gentle 00:37:43.940 --> 00:37:47.320 process. It is inherently destructive. You cannot 00:37:47.320 --> 00:37:49.800 have progress without pain. The candle maker 00:37:49.800 --> 00:37:51.659 must go out of business for the light bulb to 00:37:51.659 --> 00:37:54.219 illuminate the world. We have to accept the destruction 00:37:54.219 --> 00:37:56.719 to get the creation. Okay, number two. Second, 00:37:56.880 --> 00:37:59.539 the entrepreneur is the engine of the whole system. 00:37:59.960 --> 00:38:02.059 Whether that's the wild spirit in the garage 00:38:02.059 --> 00:38:05.079 or the highly paid R &D team at a massive corporation, 00:38:05.539 --> 00:38:08.780 it is the constant introduction of new ideas, 00:38:08.820 --> 00:38:11.699 new ways of doing things that drives our standard 00:38:11.699 --> 00:38:14.000 of living forward. It's not just about competing 00:38:14.000 --> 00:38:16.500 on price. It's about making the old way of life 00:38:16.500 --> 00:38:19.780 obsolete. And the third and final takeaway. Third, 00:38:20.000 --> 00:38:22.699 and this is the dark one. Capitalism is fragile, 00:38:22.800 --> 00:38:24.940 not because it's weak or because it fails, but 00:38:24.940 --> 00:38:27.159 because it's so successful that it creates a 00:38:27.159 --> 00:38:29.380 culture and a social structure that might eventually 00:38:29.380 --> 00:38:31.659 choose to dismantle it. It builds the comfortable 00:38:31.659 --> 00:38:34.159 cage of bureaucracy that suffocates the very 00:38:34.159 --> 00:38:36.000 entrepreneurial spirit that built the cage in 00:38:36.000 --> 00:38:38.079 the first place. That brings me right to my final 00:38:38.079 --> 00:38:40.400 thought for everyone listening. Schumpeter made 00:38:40.400 --> 00:38:42.559 this prediction almost a century ago that the 00:38:42.559 --> 00:38:44.480 intellectual class and the bureaucratization 00:38:44.480 --> 00:38:46.619 of business would undermine the very foundations 00:38:46.619 --> 00:38:49.550 of the system. I mean, look around today. We 00:38:49.550 --> 00:38:52.789 see massive corporate consolidation. We see a 00:38:52.789 --> 00:38:55.150 political and cultural climate that is often 00:38:55.150 --> 00:38:58.030 deeply hostile to the disruption and inequality 00:38:58.030 --> 00:39:01.030 that capitalism creates. You could argue that 00:39:01.030 --> 00:39:03.449 in many sectors, compliance has become a bigger 00:39:03.449 --> 00:39:05.469 and more profitable industry than invention. 00:39:05.829 --> 00:39:08.110 It really does raise the fascinating and slightly 00:39:08.110 --> 00:39:10.849 terrifying question. Are we living through the 00:39:10.849 --> 00:39:13.349 slow, quiet transition that Schumpeter predicted? 00:39:13.849 --> 00:39:17.550 Are we drifting toward that laborist, bureaucratized, 00:39:17.570 --> 00:39:20.010 managed state where the fire of creative destruction 00:39:20.010 --> 00:39:22.769 has finally been put out for good? Or is there 00:39:22.769 --> 00:39:25.510 a new Kondratiev wave coming? Will a new swarm 00:39:25.510 --> 00:39:28.150 of wild spirits, maybe in artificial intelligence, 00:39:28.389 --> 00:39:31.530 maybe in biotechnology, maybe in space exploration, 00:39:31.789 --> 00:39:33.429 maybe in something we don't even have a word 00:39:33.429 --> 00:39:36.289 for yet, come along and prove his gloomy forecast 00:39:36.289 --> 00:39:39.590 wrong and reset the whole chaotic, violent, and 00:39:39.590 --> 00:39:42.119 brilliant cycle one more time? That's the beauty 00:39:42.119 --> 00:39:44.639 and the terror of creative destruction. You never 00:39:44.639 --> 00:39:47.659 see the tidal wave that's coming to destroy the 00:39:47.659 --> 00:39:50.519 status quo until it's already towering over you. 00:39:50.619 --> 00:39:53.159 And on that note, keep your eyes on the horizon. 00:39:53.420 --> 00:39:55.360 Thanks for listening to The Deep Dive.