ABSTRACT
The basic nature of capitalist economic reality is viewed from dynamic interactions between market participants and continuous change. Like the Austrian school, evolutionary school also provides a general theory of profit and profit differentials when dealing with the problem of economic change. These prime movers of dynamic process 'incessantly revolutionise the economic structure from within, incessantly destroying the old one, incessantly creating a new one'. This innovative process is a 'process of Creative Destruction', and 'is the essential fact about capitalism'. Nelson and Winter interpret search to cover the activities of innovation and imitation. And in turn, they interpret the search behaviour itself as a routine behaviour of firms. The search-and-selection framework should be taken as the basis for the explanation of firm performance differentials and their persistency in the evolutionary theory. In other words, innovative search behaviour of firms, taken together with selection effects in the market, determines the profitability of firms.
