[Music]
Hello. I'm Philip Coelho,
I'm an economic historian at Ball State University.
Today, I'm here to talk about
creative destruction.
Economists talk a great deal about the term
creative destruction. Creative destruction
is a centerpiece for modern thinking
about how economies evolve, but
what is creative destruction?
It seems somewhat of an oxymoron.
[Shattering glass] [Quiet music]
Well, not quite. Creative destruction is
an economic principle
that an economist, Joseph Schumpeter,
observed in 1942.
The opening up of new markets, foreign
or domestic, the organizational development
from the craft shop and factory
illustrate the same process of industrial
mutation that incessantly revolutionizes the
economic structure from within,
incessantly destroying the old one,
incessantly creating a new one. The
process of creative destruction is the
essential fact about capitalism.
It is what capitalism consists of
and what evert capitalist concern
has got to live in. What do you mean by that?
Step back a second and see if
what Schumpeter said over
70 years ago can still be applied today.
Take the ice industry in the United States,
for example. Ice production has had
a very interesting and unique history
over the past 700 years. Today,
Americans consume tens of thousands
of tons of ice every day.
Ice consumption has become a regular
part of the American daily life, as ice
has hundreds of uses, including
keeping food and drinks cold and icing
injuries. Ice has not always been
this readily available to the average person.
Back in the 16th century, wealthy individuals
would build personal ice houses
on their property, cutting ice from
nearby lakes and ponds in the winter months
and transporting them to ice houses,
storing it for use during the summer months.
The commercial ice trade then began around
1800 in the United States. Large-scale
ice mining operations sprang up,
concentrated mostly in New England.
These ice producers transferred ice
throughout the United States and much
of the Caribbean. By 1818, ice was fetching
nearly 25 cents per pound in the
United States. That seems kind of
affordable, 25 cents per pound. Well,
compare that with what ice costs today.
Ice currently costs about 10 cents per pound,
even though we've seen inflation
approximately 1,800% since then.
The average income per capita
in the United States in 1818 was
$1,919 per year. Comparing that with the
United States today it is
$49,965. What does it mean?
Well, if we look at the price
of ice as a percentage of income today
compared to 1818, we found that one pound
of ice took more than 65 times
more income in 1818 than it does today.
That is, if you buy ice commercially.
In-home ice production is even cheaper.
This means that in 1800's, ice
could only be afforded by the wealthiest
of individuals, and even then, only in a
limited capacity.
Well, now that we've established how much
cheaper ice is than it was 200 years ago,
let's look at how many people are employed
in the industry over the years.
In 1914, near the height of the commercial
ice industry, there were more than 2,500
companies producing ice, employing
approximately 30,000 Americans.
Then, in 1950, the automatic ice maker was
developed. By 1965, its use was widespread
throughout the United States. This innovation
dramatically changed ice production in
the commercial ice industry. Today, the ice
industry is vastly different. The majority
of ice is now being produced by personally
owned ice makers. With the onset of home
ice makers, thousands of ice workers lost
their jobs. Today, there are about 500
commercial ice producers
that employ just over 7,000 workers.
That is more than a 75% decrease in employment
in the ice industry from 1914 to today.
This is creative destruction on full display
in the modern day. The massive ice
industry of the early 1900's would
be replaced through innovation,
and now we enjoy a much higher standard
of living because of it.
Consuming more ice at a lower price
and a higher quality than we ever have
had before. Even though thousands
of jobs were lost in the process,
society as a whole has been made
better off. Schumpeter knew that
at times the process of creative destruction
would be painful, especially in the short run.
Creative destruction occurs in all
kinds of industries today,
and some individuals might be made worse off,
not just in the short-term
but perhaps throughout their lives.
But he also knew that without creative
destruction that our economies
would stagnate and we would never
experience the growth and
higher living standards
that this process enables.
[Music]