Overview
Schumpeter described the process by which entrepreneurs invented new products and processes. This process of invention continually disrupts the current economy. In the long run, it leads to higher living standards. However, in the short run, it can disrupt a given industry and lead to current firms going bankrupt, leading to unemployment and a possible economic downturn.
This process was believed by some to explain the typical business as well as long term growth. The existence of severe recessions, and ultimately depressions indicated that creative destruction can only play a part in explaining business cycles.