Article | Journal of Economic History | December 2003

Why Schumpeter Was Right: Innovation, Market Power and Creative Destruction in 1920s America

by Tom Nicholas

Abstract

Are firms with strong market positions powerful engines of technological progress? Joseph Schumpeter thought so, but his hypothesis has proved difficult to verify empirically. This article highlights Schumpeterian market-power and creative-destruction effects in a sample of early-twentieth-century U.S. industrial firms; his contention that an efficiently functioning capital market has a positive effect on the rate of innovation is also confirmed. Despite market power abuses by incumbents, the extent of innovation stands out: 21 percent of patents assigned to the firms sampled between 1920 and 1928 are cited in patents granted between 1976 and 2002.

Keywords: Innovation and Invention; Power and Influence; Emerging Markets; Rank and Position; Status and Position; Capital Markets; Capital Structure; Technology; Patents; Creativity; Economic Systems; Development Economics; United States;

Citation:

Nicholas, Tom. "Why Schumpeter Was Right: Innovation, Market Power and Creative Destruction in 1920s America." Journal of Economic History (December 2003).