“A final aspect of all open access orders is Schumpeter’s notion of creative destruction, one of the most powerful descriptions of a competitive, open access economy. When Schumpeter wrote Capitalism, Socialism, and Democracy in the early 1940s, the economic theory of perfect competition among atomistic firms (i. e., firms too small to have market power) had come under sustained attack as unrealistic. Large and powerful economic organizations dominated the new economy, and their behavior did not match the textbooks. Despite this dominance, the economy produced historically unprecedented, sustained economic development. Schumpeter asked, How could large businesses that were supposed to choke off competition and growth nonetheless generate such spectacular productivity increases in a world that seemed ever more competitive?”

— Douglass C. North

Source: Violence and Social Orders (2009), Ch. 4 : Open Access Orders

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Douglass C. North 18

American Economist 1920–2015

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“Schumpeter’s approach has an important implication for political behavior. If the constellation of economic interests regularly changes because of innovation and entry, politicians face a fundamentally different world than those in a natural state: open access orders cannot manipulate interests in the same way as natural states do. Too much behavior and formation of interests take place beyond the state’s control. Politicians in both natural states and open access orders want to create rents. Rent-creation at once rewards their supporters and binds their constituents to support them. Because, however, open access orders enable any citizen to form an organization for a wide variety of purposes, rents created by either the political process or economic innovation attract competitors in the form of new organizations. In Schumpeterian terms, political entrepreneurs put together new organizations to compete for the rents and, in so doing, reduce existing rents and struggle to create new ones. As a result, creative destruction reigns in open access politics just as it does in open access economies. Much of the creation of new interests is beyond the control of the state. The creation of new interests and the generation of new sources of rents occur continuously in open access orders.”

Douglass C. North (1920–2015) American Economist

Source: Violence and Social Orders (2009), Ch. 1 : The Conceptual Framework

“In principle, every social situation involves strategic interaction among the participants. Thus, one might argue that proper understanding of any social situation would require game-theoretic analysis. But in actual fact, classical economic theory did manage to sidestep the game-theoretic aspects of economic behavior by postulating perfect competition, i. e., by assuming that every buyer and every seller is very small as compared with the size of the relevant markets, so that nobody can significantly affect the existing market prices by his actions.”

John Harsanyi (1920–2000) hungarian economist

Source: "Games with Incomplete Information," 1997, p. 136

“Perfect competition must hold in product and factor markets, and also (and importantly) in capital markets. The assumption has two essential features: economic agents must be price takers; and they must have equal power.”

Nicholas Barr (1943) British economist

Source: Economics Of The Welfare State (Fourth Edition), Chapter 4, State Intervention, p. 73

“Schumpeter’s work, his dynamic view of the entrepreneur and creative destruction has had a great impact on me. He indeed wrote a book, Capitalism, Socialism and Democracy, which intended to give a complex analysis of the two systems. But these two books, and a few others (e. g., some of Mises’s and Hayek’s works) are rather exceptional. A typical American textbook on economic systems is not written with the same ambition about capitalism with which I wrote about socialism. It doesn’t give you a general model of capitalism, including the characterization of the political, ideological, and social spheres.”

János Kornai (1928) Hungarian economist

János Kornai, in "An Interview with János Kornai : Interviewed by Olivier Blanchard", Macroeconomic Dynamics, 1999

“Writers after Coase have referred to the authority structure of the firm as a "visible hand" that works in combination with Smith's invisible hand. The everyday fact that employers exercise power over their employees — not news to most employees — had been a central theme in Marx's economics, but it was (and generally continues to be) overlooked by most neoclassical economists. Early in his studies Coase noted the similarity between the hierarchical organization of capitalist firms, with their reliance on command relations, and the then-existing system of centralized economic planning in the Communist countries, where production was carried out in accordance with orders from higher authorities and where market competition played little role.”

Samuel Bowles (1939) American economist

Source: Understanding Capitalism: Competition, Command, and Change, 2005, p. 85

“We are far from understanding how to achieve adaptively efficient economies because allocative efficiency and adaptive efficiency may not always be consistent. Allocatively efficient rules would make today's firms and decisions secure - but frequently at the expense of the creative destruction process that Schumpeter had in mind.”

Douglass C. North (1920–2015) American Economist

Source: Institutions (1990), p. 81; Ch. 9 : Organizations, learning, and institutional change

“Over the years and against conventional wisdom, utopians sustained a vision of life beyond the market. … Georg Lukács set forth a theory of the “old and new culture” in which he argued that the socialist economy was not the goal; it was simply a precondition for humanity to advance to a new and humane culture. Most radicals do not understand that political power and economic reorganization is not the end-all, stated Lukács. The goal is not a new economic order, but freedom from an obsession with economics.”

Russell Jacoby (1945) American historian

Source: The End of Utopia (1999), p. 27

“I think that this is Schumpeter’s main legacy to economics: the role of technological and organizational innovation in driving and shaping the growth trajectory of capitalist economies.”

Robert Solow (1924) American economist

"Heavy Thinker" (2007)

“I believe democracy is the foundation of a healthy economy. Without genuine democracy you cannot have a genuine market economy. And, under the market economy, one must fully open doors to allow free trade and investment.”

Kim Dae-jung (1924–2009) South Korean politician

"Interview: President Kim Dae Jung" in TIME Asia http://www.cnn.com/ASIANOW/time/magazine/99/0913/interview.html (13 September 1999)

“The first dimension is called "competition," and it refers to that aspect of an economic system in which exchanges of one sort or another play the most important part. In capitalism, of course, competition and exchange occur primarily in markets.”

Samuel Bowles (1939) American economist

Source: Understanding Capitalism: Competition, Command, and Change, 2005, p. 54

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