Production rather than preferences should play the leading role in the theory of markets, as in the book’s analysis of volatility and policymaking. Production is not only the fount of social wealth, it is organized by firms whose decisions are guided by a clear ordering principle, their profitability. There is moreover an institution, the market, that can weed out the firms that fail to pursue profits effectively. But the purging of inefficiency by the market confronts policymakers with the dilemmas of Schumpeterian creative destruction. Policies that compensate firms and their owners for any declines in profitability will also dampen the threat of bankruptcy; the enforcement of productive efficiency can require unfettered competition. An application to international trade illustrates some of the challenges: For foreign competition to lead to productive efficiency, domestic prices must be aligned with world prices, which will push some firms into liquidation.

The problems that afflict Pareto efficiency can be overcome if the criterion is rebuilt on preference-free foundations. A policy change passes the ‘availability test’ if it allows agents to afford whatever they purchased originally: Agents might not then be better off but no one can legitimately object to the change. One way to pass the availability test is to give agents the right to repeat their original transactions; a reform of rent control serves as an example. A second strategy stabilizes prices for consumers while letting the prices that firms face promote efficiency in production. A deregulation of a public utility, for example, can preserve consumer prices while giving firms an incentive to innovate. These policy alternatives show how to resolve the Schumpeterian dilemma of creative destruction: They harness the progressive feature of capitalism, that it fosters technological change, while protecting the individuals who can be harmed by the same forces. Conventional laissez-faire policies are in contrast difficult to justify even from within the orbit of traditional economic theory and can generate bitter social conflict. An application to opening an economy to free trade shows how to combine the advantages of technological change while satisfying the availability test.

This chapter studies economic growth. We first introduce two versions of the Solow model. The first is without technological progress. We show that there would be no sustained growth in per capita terms in a steady state. The second Solow model assumes exogenous technological progress, which makes sustained growth possible in a steady state. Next, we introduce an endogenous growth model that produces sustained growth without assuming exogenous technological progress. We then study how to account for the contribution of factor accumulation and technological progress to growth. Finally, we introduce two verbal theories. The first is Schumpeter’s creative destruction. The second is the Lewis model of economic development.

Chapter 6 shows how false Stories help to perpetuate the economic imbalance described in Chapter 4. These Stories include those of economic growth, comparative advantage, creative destruction, and ceaseless innovation. Most of them originate in mainstream economics, including praise for shareholder interests and insistence on social choice theory. Karl Polanyi claimed that such Stories, which endorse a society roiled by constant change, ignore what he called community welfare.

Gentrification has become a widespread form of urban transformation during the last decades. While gentrification has been vastly theorised and studied from the point of view of its economic, sociological, cultural or geographical underpinnings, the psychosocial implications of gentrification have been seldom explored. In this chapter, we argue that changing senses of place implicated in gentrification processes can be interpreted not as a mere, even less neutral, effect of capitalist logics of creative destruction of the city, but as one of its main subjective catalysers. Based on the empirical analysis of a study conducted in the neighbourhood of Gràcia (Barcelona, Spain), we discuss the symbolic mechanisms that renew senses of place, transforming them while re-creating them, to channel, re-produce and capture place-based profitable value, i.e. the creative destruction of senses of place. The study advances empirically based knowledge on the ‘semiocapitalist’ processes that reshape sense of place by capitalising on place-related meanings, affect, desire and identification with the urban symbolic environment.