Is there rebirth through destruction ?: the law of creative destruction.

Few know that Darwin would never have reached the understanding of evolutionary theory had it not been for economics.

It is well known that this scientific theory is at the level of the theories of Newton or those of Copernicus and is one of the favorite works of atheists.

Darwin inspired by the theories of the economist Thomas Maltus, imagined a world in which the most apt species survived and evolved into new, more sophisticated and better specimens.

"At last I had a theory to work for," and when you analyze and observe carefully you realize that the forces that shape the free market economy and the natural world are strikingly similar.

You do not find in which these two things can be similar, right?

In economics there is something called "the law of the economic jungle" and gives meaning to these similarities, as in the jungle or in nature, free markets can be hostile, unpleasant and sometimes cause individuals to fail or triumph over have more or less talent and merit than others.

Free markets are intolerant and a good idea that does not succeed can lead anyone to bankruptcy, if you make a bad investment you can lose everything.

On the other hand, according to the law of creative destruction, such mistakes can, after all, contribute to the construction of more solid companies, more advanced economies and richer societies because they put aside the old, inefficient and uncompetitive, to give way to the new, the efficient and the strong.

The law of creative destruction is a derivation of the law of supply and demand of Adam Smith but that goes further. It states that in a recession or an economic contraction, in which unemployment increases and the profits of companies plummet, it can, however crazy it may seem, be positive for the economy in the long term.

Joseph Schumpeter who affirmed that we should not avoid recessions was criticized so much in his time as in the present, since the doctrine that most economists and most politicians supported at that time was that the government was in the obligation to avoid recessions and depressions everywhere, something that was supported by John Maynard Keynes, one of the most influential economists of the twentieth century, this one in particular claimed that the effects they caused collaterally in terms of unemployment and loss of confidence in The economy was so harmful that this problem had to be tackled with all the forces and resources available to the government, such as lowering interest rates, modifying public spending or investing to stimulate the economy.

Most economists learn to rely on complex economic models, statistics, mathematics or automated econometrics through computers that "take it for granted" that supply and demand remain more or less constant over time. However, our friend Schumpeter argued that these models bear little resemblance to economic reality and the volatility of markets and societies.

In Venezuela, in the midst of the crisis, one often hears a somewhat cliché phrase that says "in crises there are those who mourn and those who sell handkerchiefs" then it makes us think:

Is there rebirth through destruction?

Economies tend to suffer periods of boom and crisis, is something natural and rarely progress at a steady pace, during a boom period people tend to consume and spend more than usual so making money is much easier for companies, which leads to the creation of inefficient companies that in times of crisis could not even have been created.

On the contrary when the economy contracts, inefficient companies go bankrupt because people tend to consume and spend less, although this sounds painful in the short term, it is the best, because the process of creative destruction creates an industrial mutation throughout the economic structure from within and forces investors to think better about which parts of the economy put their money, and this in turn generates the rate of growth of the country in the long term.

Schumpeter argued strongly that governments should not make adjustments in interest rates to prevent recessions because these as well as the invisible hand shows us how hostile the market can be, they served to give lessons to those who had made unproductive investments by letting themselves be carried away by the boom periods and they had to learn their lesson and suffer the consequences of their actions, because the one who does not make mistakes does not learn, and if so, the same mistakes would continue to be made in the future.

The message is that yes, from the ashes, from the dust, from the destruction of an economy, a stronger, more efficient and healthier economy can emerge, and as expected this logic does not only apply to the economy but also to the economy. life, everything is a matter of perception, but Darwin says it.

Research shows that most economies that have suffered recessions in history have tended to increase and improve their productivity rather than diminish it, and that evolution over time leaves only species more prepared to adapt to new environments, creative destruction is the essential fact of capitalism itself and consequently to create economies with a better functioning.

What does not kill you makes you stronger. Do you support this idea?

Thanks for taking the time to read this post.
If you have any questions leave it in the comments I will gladly respond.
Greetings and good vibes to all.
Collaboration: Antony Hudson

#crecevenezuela
@crecevenezuela