The effect of technical progress in one part of the economy in lowering the value of existing capital in other parts. If a new good displaces demand for an old one, the capital used in making the old good may become worthless; if a new method of production has lower costs even including any necessary capital costs than the variable costs of producing on old equipment, the price of the product is likely to fall so far that operating the old machines becomes uneconomic. This destroys the livelihood of the owners of old equipment. If they had anticipated this they might never have invested in the industry. In general, the fear of losses though creative destruction forces firms to write off capital goods faster than they are expected to wear out, and discourages investment in equipment which is not expected to pay for itself fairly quickly. Technical progress creates similar problems for human capital: new products and techniques may make old skills worthless and cause technological unemployment.

• living, standard of
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• loan
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• loan-loss reserve
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