Pat asked that I give a quotation. In this chapter of my book, I begin with Wells, then run through the gamut of economists. Here is the short Wells section. _David Wells and the Theory of Creative Destruction_ Wells reversed his former master's analysis of competition. Where Carey deplored foreign competition, Wells viewed it in a positive light. For the mature Wells, foreign competition was benign, because it posed little threat to the advanced technology of the United States. In contrast, unlike Carey, who viewed the domestic economy as a system of harmonies, Wells warned that domestic competition was rife with danger. Unlike Carey, who saw shrinking capital values as a sign of progress, Wells worried that the combination of violent competition coupled with rapid technological advances was destroying capital values too rapidly. This process was driving the economy into chaos. In order to avert disaster, Wells called for an even more dramatic break with the market than Carey had ever considered. He reasoned that the combination of the extraordinary rate of investment in modern technologies, together with an inadequate rate of exit on the part of inefficient producers, made overproduction the inevitable consequence of modern industry. These conditions destroyed business's ability to earn adequate profits. Wells cited a German professor, Wilhelm Lexis, in this regard: It was formerly a general assumption that, when price no longer equaled the cost of production and a fair profit on capital, production would be restricted or suspended; and that the less favored producers would be crowded out, and by the relief thus afforded to the market normal prices would be restored. But this doctrine is no longer applicable to modern methods of production. Those engaged in great industrial enterprises, whether they form joint-stock companies or are simply wealthy individuals, are invested with such economic powers that none of them can be easily pushed to the wall, inasmuch as they can continue to work under conditions that would not permit a small producer to exist. Examples are familiar of joint-stock companies that have made no profit and paid no dividends for years, and yet continue active operation. The shareholders are content if the plant is kept up and the working capital preserved intact, and even when this is not done, they prefer to submit to assessments, or issue preference shares and take them up themselves rather than go into liquidation, with the chance of losing their whole capital. [Wells 1889, p. 73] [N]o other means of avoiding such results [over-production] than that the great producers should come to some understanding among themselves as to the prices they will ask; which in turn naturally implies agreements as to the extent to which they will produce. [ibid., p. 74] In short, Wells realized that competitive forces would not allow producers to recover their investments in fixed capital. As a result, the market would self-destruct. He recommended that industry be allowed to organize itself into trusts, monopolies and cartels. Nothing could be further from the teachings of Adam Smith and the merchants! David Wells realized that overproduction was not the only threat to capitalism; rapid technical progress also destroys capital values. Although Wells failed to link this phenomenon to Carey's insight about falling reproduction costs, in other respects he went far beyond Carey. Wells wrote of "the relentless impartiality with which the destructive influences of material progress coincidentally affect capital (property) as well as labor" (Wells 1889, p. 369). He concluded: It seems to be in the nature of a natural law that no advanced stage of civilization can be attained, except at the expense of destroying in a greater or less degree the value of the instrumentalities by which all previous attainments have been affected. [ibid.] For Wells, anticipating Joseph Schumpeter's widely acclaimed idea of creative destruction (1950), the measure of the technical success of any invention was the extent to which it could destroy capital values (Wells 1889, p. 369). He offered the example of "[t]he notable destruction or great impairment in the value of ships consequent upon the opening of the [Suez] Canal" (Wells 1889, p. 30). He asserted that each generation of ships becomes obsolete within a decade. Generalizing from the shipping industry, he concluded, "nothing marks more clearly the rate of material progress than the rapidity with which that which is old and has been considered wealth is destroyed by the results of new inventions and discoveries" (ibid., p. 31). In slighting Carey, Wells claimed no originality for his work. Instead, he credited his idea a friend: by an economic law, which Mr. [Edward] Atkinson, of Boston, more than others, has recognized and formulated, all material progress is effected through the destruction of capital by invention and discovery, and the rapidity of such destruction is the best indicator of the rapidity of progress. [Wells 1885, p. 146; see Atkinson 1889] Wells may have had a good reason for not linking his theory with that of Carey. For Wells, Carey's theory might have some long-run relevance, but Wells was writing in the midst of the immediate threat of a crisis of overproduction. At the time, falling capital values compounded the problems created by the tendency of competition to drive prices toward marginal costs, threatening, rather than reinforcing prosperity. Wells's analysis was not lost on the generation of influential economists who were most actively confronting the nature of the economics of railroads. During the second half of the nineteenth century, railroading was the most dynamic industry in the United States. It attracted economists who were accustomed to being close to the seat of power. Michael Perelman