Creative Destruction: How Capitalism Undermines Rule of Law

24 Pages Posted: 19 Oct 2021 Last revised: 10 Mar 2022

Date Written: October 14, 2021


Joseph Schumpeter described capitalism as a system of creative destruction. Innovative new ideas, new products, and new production methods displace the old. This works to the advantage of entrepreneurial individuals who bring innovations to market, enabling them to get ahead by producing more value for consumers. After those entrepreneurs get ahead, the forces of creative destruction work against them, threatening to displace them in the economic hierarchy. The system that helps those who want to get ahead threatens those who want to stay ahead. An examination of the institutional framework that supports capitalism shows that it contains incentives for the political elite to cooperate with the economic elite for their mutual benefit. An extensive literature on rent-seeking, rent extraction, regulatory capture, and interest group activity explains why the legal system that supports capitalism is susceptible to capture itself, for the benefit of the elite. Capitalists are the biggest threat to capitalism.

Keywords: Capitalism, Rule of Law, Creative Destruction, Joseph Schumpeter, Cronyism, Political Capitalism

JEL Classification: K0 Law & Economics, P1 Capitalist Systems

Suggested Citation

Holcombe, Randall, Creative Destruction: How Capitalism Undermines Rule of Law (October 14, 2021). Law & Economics Center at George Mason University Scalia Law School Research Paper Series No. 22-012, Available at SSRN: or

Randall Holcombe (Contact Author)

Florida State University

Tallahasse, FL 32306
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics