Neo‐Marshellian Equilibrium versus Schumpeterian Creative Destruction: Its Impact on Business Research and Economic Policy

Abstract

A cold war exists in faculties of business and economics. It is fought between the neo‐Marshellians that advocate the elegant simplifying assumption of equilibrium and the Schumpeteriansthat believe that economic growth is driven by the recognition of new opportunities and thecapture of associated benefits through innovation. This fundamental disagreement is referred toas a cold war because the battles are fought indirectly with discussions of wealth transfer (insteadof wealth creation), big firms versus small firms (instead of innovative firms versus noninnovative),and stability and managed earnings versus Sarbanes‐Oxley and full disclosure. This notepoints out that this conflict does in fact exist and then provides a review of the literature andsupport for the Schumpeterian position as it relates to small business and associated economicpolicy. The literature is provided by one of the pioneers in this field, Professor Bruce Kirchhoff, ashis last direct contribution to the field that he championed for decades.