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[Music]

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Hello. I'm Philip Coelho,

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I'm an economic historian at 
Ball State University.

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Today, I'm here to talk about

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creative destruction.

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Economists talk a great deal 
about the term

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creative destruction. Creative destruction

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is a centerpiece for modern thinking

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about how economies evolve, but

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what is creative destruction?

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It seems somewhat of an oxymoron.

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[Shattering glass] [Quiet music]

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Well, not quite. Creative destruction is

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an economic principle

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that an economist, Joseph Schumpeter,

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observed in 1942.

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The opening up of new markets, foreign

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or domestic, the organizational 
development

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from the craft shop and factory

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illustrate the same process of industrial

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mutation that incessantly 
revolutionizes the

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economic structure from within,

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incessantly destroying the old one,

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incessantly creating a new one. The

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process of creative destruction is the

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essential fact about capitalism.

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It is what capitalism consists of

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and what evert capitalist concern

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has got to live in. What do you mean 
by that?

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Step back a second and see if

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what Schumpeter said over

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70 years ago can still be applied today.

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Take the ice industry in the 
United States,

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for example. Ice production has had

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a very interesting and unique history

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over the past 700 years. Today,

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Americans consume tens of thousands

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of tons of ice every day.

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Ice consumption has become a regular

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part of the American daily life, as ice

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has hundreds of uses, including

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keeping food and drinks cold and icing

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injuries. Ice has not always been

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this readily available to the 
average person.

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Back in the 16th century, 
wealthy individuals

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would build personal ice houses

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on their property, cutting ice from

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nearby lakes and ponds in the 
winter months

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and transporting them to ice houses,

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storing it for use during the 
summer months.

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The commercial ice trade then began around

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1800 in the United States. Large-scale

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ice mining operations sprang up,

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concentrated mostly in New England.

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These ice producers transferred ice

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throughout the United States and much

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of the Caribbean. By 1818, 
ice was fetching

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nearly 25 cents per pound in the

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United States. That seems kind of

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affordable, 25 cents per pound. Well,

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compare that with what ice costs today.

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Ice currently costs about 
10 cents per pound,

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even though we've seen inflation

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approximately 1,800% since then.

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The average income per capita

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in the United States in 1818 was

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$1,919 per year. Comparing that with the

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United States today it is

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$49,965. What does it mean?

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Well, if we look at the price

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of ice as a percentage of income today

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compared to 1818, we found that one pound

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of ice took more than 65 times

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more income in 1818 than it does today.

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That is, if you buy ice commercially.

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In-home ice production is even cheaper.

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This means that in 1800's, ice

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could only be afforded by the wealthiest

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of individuals, and even then, only in a

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limited capacity.

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Well, now that we've established how much

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cheaper ice is than it was 200 years ago,

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let's look at how many people are employed

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in the industry over the years.

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In 1914, near the height of the commercial

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ice industry, there were more than 2,500

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companies producing ice, employing

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approximately 30,000 Americans.

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Then, in 1950, the automatic ice maker was

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developed. By 1965, its use was widespread

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throughout the United States. 
This innovation

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dramatically changed ice production in

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the commercial ice industry. 
Today, the ice

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industry is vastly different. The majority

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of ice is now being produced by personally

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owned ice makers. With the onset of home

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ice makers, thousands of ice workers lost

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their jobs. Today, there are about 500

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commercial ice producers

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that employ just over 7,000 workers.

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That is more than a 75% decrease 
in employment

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in the ice industry from 1914 to today.

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This is creative destruction on 
full display

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in the modern day. The massive ice

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industry of the early 1900's would

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be replaced through innovation,

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and now we enjoy a much higher standard

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of living because of it.

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Consuming more ice at a lower price

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and a higher quality than we ever have

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had before. Even though thousands

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of jobs were lost in the process,

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society as a whole has been made

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better off. Schumpeter knew that

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at times the process of 
creative destruction

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would be painful, 
especially in the short run.

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Creative destruction occurs in all

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kinds of industries today,

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and some individuals might be 
made worse off,

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not just in the short-term

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but perhaps throughout their lives.

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But he also knew that without creative

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destruction that our economies

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would stagnate and we would never

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experience the growth and

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higher living standards

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that this process enables.

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[Music]