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Economics and the new economy: the invisible hand meets creative destruction

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  • Leonard I. Nakamura

Abstract

In the 18th century, Adam Smith offered his theory of the invisible hand and the view that perfect competition is the main spur to economic efficiency. The theory of the invisible hand, as it has evolved in modern economic thought, treats creative activity as being outside the scope of economic theory. In the 20th century, Joseph Schumpeter offered an alternative perspective: creativity is an economic activity. He argued that a capitalist market system rewards change by allowing those who create new products and processes to capture some of the benefits of their creations in the form of short-term monopoly profits, a situation that promotes what Schumpeter called \\"creative destruction.\\" What should the fundamental paradigm of economics be: creative destruction or the invisible hand? In this article, Leonard Nakamura offers some possible answers to this question.[Adobe Acrobat (.pdf)

Suggested Citation

  • Leonard I. Nakamura, 2000. "Economics and the new economy: the invisible hand meets creative destruction," Business Review, Federal Reserve Bank of Philadelphia, issue Jul, pages 15-30.
    • Handle: RePEc:fip:fedpbr:y:2000:i:jul:p:15-30
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    References listed on IDEAS

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    Cited by:

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    2. Elena P. Antonacopoulou & Andri Georgiadou, 2021. "Leading through social distancing: The future of work, corporations and leadership from home," Gender, Work and Organization, Wiley Blackwell, vol. 28(2), pages 749-767, March.
    3. Haydar Akyazi & Seyfettin Artan, 2006. "Reflections of the New Economy on the Monetary Policy and Central Banking," Papers of the Annual IUE-SUNY Cortland Conference in Economics, in: Oguz Esen & Ayla Ogus (ed.), Proceedings of the Conference on Human and Economic Resources, pages 373-387, Izmir University of Economics.
    4. McCauley, Joseph l., 2004. "Thermodynamic analogies in economics and finance: instability of markets," MPRA Paper 2159, University Library of Munich, Germany.
    5. McCauley, Joseph L., 2003. "Thermodynamic analogies in economics and finance: instability of markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 329(1), pages 199-212.
    6. Leonard I. Nakamura, 2001. "Education and training in an era of creative destruction," Working Papers 00-13, Federal Reserve Bank of Philadelphia.
    7. Krzysztof Drachal, 2014. "Is There a Feedback Mechanism in Accounting?," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2014(1), pages 85-95.
    8. Thomas M. Fullerton, 2001. "Educational attainment and border income performance," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q III, pages 2-10.
    9. Tomasz Ordysiñski, 2012. "Net Readiness Of Sme Enterprises From West Pomeranian Voivodeship," Polish Journal of Management Studies, Czestochowa Technical University, Department of Management, vol. 5(1), pages 324-333, June.

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