Commentary on Political Economy

Tuesday 18 October 2011

The Entrepreneurial Spirit From Schumpeter To Steve Jobs

A quick "gift" to our friends joining us, before a longer piece tomorrow from my "Nietzschebuch". Cheers!

As we have seen in our interventions on "the Science of Choice", the attempt to define a methodology and a domain for an "economic science" foundered on the inability of neoclassical theoreticians (which includes Keynesians, given that they share most of the fundamental assumptions of neoclassical theory) to avoid the mathematical formalism or self-referentiality or circuitousness - in short, the tautology - of their approach to economic reality. Given that for the neoclassics the economy is a complex web of "exchanges" by "individuals" in a "free market", it soon becomes "immaterial" what the "content" of the "exchanges" might be. Even the notion of "marginal utility" - and consequently of the "utility" that stands behind it - becomes "inscrutable" and purely "metaphysical".

Classical Political Economy, from Adam Smith onwards to JS Mill, had sought to identify and measure "the substance" of economic activity - an objective "wealth" or "value" that depended on the "material resources" that went into pro-ducing goods and services. What the Neoclassical Revolution achieved was to stand this "objectivism" on its head and completely to turn it into a thoroughgoing "subjectivism". The impossibility to determine "objectively" the nature of wealth and to "quantify" it, meant that market prices were left as the only "indicators" of the "utility" of economic activity. At the same time, this seemed to remove (as we argued at the beginning) the very "corpus", the aim, goal and substance of economic activity - its "purpose". Worse still, such a theory of generalised exchange - formally theorised by Walras - failed to explain the phenomenon of "growth" - of the increase in "value" of economic pro-duction - and indeed of the existence of "money" which, understood as a pure "means of exchange", could not be incorporated in neoclassical theory as a "store of value".

It is from these theoretical premises that Joseph Schumpeter attempts to tackle the evolutionary "dynamic" features and properties of the capitalist economy. For heuristic purposes, economic analysis (of any economy) represents a "circular flow" that can be "analysed" anatomically or physiologically, like the circulation of the blood; but such analysis cannot "explain" or account for the "evolution" of the economy, its "development", its "trans-formation". Like the neoclassicals, Schumpeter does not even tackle the problem of "value": he relies on the theories of his Viennese teacher Bohm-Bawerk who explains "interest" in terms of the "renunciation" of immediate consumption by savers in favour of investors and consumers who therefore pay "interest" in natura based on the greater productivity of "roundabout" methods of production.

Like Bohm-Bawerk, Schumpeter interprets the operation of the "circular flow" in these terms of simple "utility" - the "renunciation of immediate consumption". But, he wistfully observes, this still does not explain how the capitalist economy "progresses" from one stage of development to another, and how it seems to do so in "cycles" that contain a fairly predictable sequence of booms and busts, of expansion and "crisis" and then recession or depression. Schumpeter needs a way to escape from the "circularity", from the self-referentiality, the sterile, "static" formalism of neoclassical theory so as to be able to account - just like Karl Marx - for the "dynamism" of the capitalist economy. Marx, of course, had attributed this "dynamism" to the growing capitalist exploitation of workers' labour-power. For Schumpeter instead, whose intellectual upbringing did not admit of "metaphysical" concepts such as "value" and "exploitation", the dynamism of the capitalist economy had to come from a "creative" force, a "spirit", an "individuality" that capitalism produced or engendered, that was internal to its operari, that could even be likened to a "mechanism", but not to a "system" - indeed, one that was the very antithesis of "systems", of "circularity", of "static". He found it in the figure of the captain of industry, in the entrepreneur.

It is wasy to criticise, even to deride, the blithe "voluntarism" of Schumpeter's Innovationsprozess - so much does it reek of mysticism, so alike is it to a "deus ex machina", literally! And yet... And yet...

And yet it can be conceded that a residuum of truth remains in Schumpeter's adventurous schema of the Unternehmergeist - of the flamboyant condottiere, the genius that innovates guides and inspires. And this residuum or kernel of truth lies precisely in the fact that, as we have argued in the preceding interventions, capitalism remains a system of "political command over living labour": it relies therefore, whether in reality or even only mythically, on the "leadership" of captains of industry, of entrepreneurs who can come out of the capitalist "machine" or "system" and infuse it with the spark of vitality, of innovation and dynamism and...."growth". That is why those who had announced the demise of the entrepreneur in capitalist society were "greatly exaggerating". Capitalism thrives on conflict, on antagonism. And conflict and antagonism produce, alas, deified heroes!

[A cursory review of bourgeois theory followed by "crises" is in this Jean-Marc Vittori editorial (in French) at Les Echos:
We will continue this discussion soon.]

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