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Capitalism, then, is by nature a form or method
of economic change and not only never is but never can be
stationary. And this evolutionary character of the capitalist
process is not merely due to the fact that economic life goes
on in a social and natural environment which changes and by
its change alters the data of economic action; this fact is
important and these changes (wars, revolutions and so on)
often condition industrial change, but they are not its prime
movers. Nor is this evolutionary character due to a quasi-automatic
increase in population and capital or to the vagaries of monetary
systems, of which exactly the same thing holds true. The fundamental
impulse that sets and keeps the capitalist engine in motion
comes from the new consumers, goods, the new methods of production
or transportation, the new markets, the new forms of industrial
organization that capitalist enterprise creates.
As we have seen in the preceding chapter, the
contents of the laborer's budget, say from 1760 to 1940, did
not simply grow on unchanging lines but they underwent a process
of qualitative change. Similarly, the history of the productive
apparatus of a typical farm, from the beginnings of the rationalization
of crop rotation, plowing and fattening to the mechanized
thing of today–linking up with elevators and railroads–is
a history of revolutions. So is the history of the productive
apparatus of the iron and steel industry from the charcoal
furnace to our own type of furnace, or the history of the
apparatus of power production from the overshot water wheel
to the modern power plant, or the history of transportation
from the mailcoach to the airplane. The opening
up of new markets, foreign or domestic, and the organizational
development from the craft shop and factory to such concerns
as U.S. Steel illustrate the same process of industrial mutation–if
I may use that biological term–that incessantly revolutionizes
the economic structure from within, incessantly destroying
the old one, incessantly creating a new one. 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. . . .
Every piece of business strategy acquires its
true significance only against the background of that process
and within the situation created by it. It must be seen in
its role in the perennial gale of creative destruction; it
cannot be understood irrespective of it or, in fact, on the
hypothesis that there is a perennial lull. . . .
The first thing to go is the traditional conception
of the modus operandi of competition. Economists are
at long last emerging from the stage in which price competition
was all they saw. As soon as quality competition and sales
effort are admitted into the sacred precincts of theory, the
price variable is ousted from its dominant position. However,
it is still competition within a rigid pattern of invariant
conditions, methods of production and forms of industrial
organization in particular, that practically monopolizes attention.
But in capitalist reality as distinguished from its textbook
picture, it is not that kind of competition which counts but
the competition from the new commodity, the new technology,
the new source of supply, the new type of organization (the
largest-scale unit of control for instance)–competition which
commands a decisive cost or quality advantage and which strikes
not at the margins of the profits and the outputs of the existing
firms but at their foundations and their very lives. This
kind of competition is as much more effective than the other
as a bombardment is in comparison with forcing a door, and
so much more important that it becomes a matter of comparative
indifference whether competition in the ordinary sense functions
more or less promptly; the powerful lever that in the long
run expands output and brings down prices is in any case made
of other stuff.
It is hardly necessary to point out that competition
of the kind we now have in mind acts not only when in being
but also when it is merely an ever-present threat. It disciplines
before it attacks. The businessman feels himself to be in
a competitive situation even if he is alone in his field or
if, though not alone, he holds a position such that investigating
government experts fail to see any effective competition between
him and any other firms in the same or a neighboring field
and in consequence conclude that his talk, under examination,
about his competitive sorrows is all make-believe. In many
cases, though not in all, this will in the long run enforce
behavior very similar to the perfectly competitive pattern.
(pp. 82-85)
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