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

Tom Nicholas

The Journal of Economic History, 2003, vol. 63, issue 4, 1023-1058

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.

Date: 2003
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