Commentary on Political Economy

Tuesday 8 November 2011

Wille und Welle* – Schumpeter’s Entwicklung

*This refers to Hannah Arendt’s discussion of this section of ‘Zarathustra’ in her essay on “Nietzsche’s Refutation of Free Will”.

Unlike the waves of the ocean, the waves of the economy do not return to the same level. They always tend to swing like a pendulum around a certain level, but the level itself is not always the same. It is not just the observable facts that change. The explanatory pattern, i.e. the ideal type, changes as well. Let us grant that the first problem of economics was: how, based on its entire circumstances of life, does a population reach a particular level of the economy? Then [466] the second problem is the following: how does an economy make the transition from one level-which itself was viewed as the final point and point of equilibrium-to another level? This question takes us to the very essence of economic development [wirtschaftlichen Entwicklung]. (Schumpeter, TwE, ch.7, pp465-6)

It is quite simply impossible to over-estimate the importance of this paragraph in the famous unpublished “Seventh Chapter” of the Theorie der wirtschaftlichen Entwicklung that Schumpeter “suppressed” for its second edition and the English translation, owing to its “sociological” content – already sharply criticized by Bohm-Bawerk, and liable to adverse review from the academic censors at Harvard College whom he was lobbying for a job! [An infamous example of the kind of “thought-policing” that goes on in academia when the interests of the bourgeoisie are at stake!]

“It is not just the observable facts that change” as the capitalist economy “does not return to the same level”. It is “the explanatory pattern - that is, the ideal type - that changes as well”! The phenomenon of capitalist “growth” is not one of a simple “quantitative, cumulative increment”, or even of a homogeneous “steady-state” expansion as in the Cobb-Douglas function. There is no “continuity”, no “smoothness” in this “growth”, in this “development”. The phenomenon of capitalist “growth” is not a “quantitative” one at all! It is not a problem of “magnitude”! It is a “qualitative leap”! It is a “quantum leap” that challenges the incremental laws of physics and our notion of “continuous space”! It is not an “increment” but much rather a “trans-form-ation”, a “becoming other than before” – a Ver-ander-ung!... It is a “meta-morphosis” whereby the “change” cannot be described in the same terms as what existed before the change! Capitalist growth-development-evolution is a “change”, a “trans-formation”, a “meta-morphosis”, a “trans-crescence” that destroys as much as it creates!! It is a “creative destruction” (schopferische Zerstorung) that dis-integrates the entities that it trans-forms into the new “creation”!

The “growth” of the capitalist economy cannot be homologated, it is quite simply not “com-parable” or “equalisable” (the Nietzschean term is “Ver-gleich-ung”, as-simil-ation) – it cannot be “equated” with the “economy out of which it has grown”! The Weberian ideal type applicable to it, its “key of interpretation” or “understanding” (the Weberian-Diltheyan Verstehen) has changed as well! Swelling to a crest of almost Nietzschean inspiration that recalls the Wille und Welle (Will and Wave) in the Zarathustra, Schumpeter poetically describes how “the waves of the economy, unlike those of the ocean, do not return to the same level” – “level” understood here in a “quantum”, not “quantitative” (!) sense . Like the “wave” that sweeps the “will” in Zarathustra, so does the “static” economy here carry the “spirit”, the “will to conquer”, the “will to power” – the “entrepreneurial Spirit” (Unternehmer-geist) that will trans-form the Statik economy into the Dynamik.

No economic “equi-librium” is possible in reality, then. Equilibrium analysis is valid only for ana-lytical, for heuristic and illustrative purposes! In reality instead the capitalist economy is in a state of constant crisis, in continuous trans-formation! Indeed, this is its differentia specifica – its historical specificity: - that the capitalist economy is in a constant state of qualitative transformation, of meta-morphosis, of “change” that destroys in the process of creating! And this “process of creating” is called Innovations-prozess, a process of “innovation” through which the “Will to Power” of the “entrepreneur” – the “entrepreneurial Spirit” - utilizes the swelling, surging energy of the existing economy – “the waves of the economy”! – to destroy and “overcome” (uber-winden) the old “level” of the economy, its status quo ante.

Schumpeter it is who makes “crisis” the specific difference, the historical peculiarity of capitalist economies with the publication of the ‘Theorie’ in 1911. Like Keynes, he perceives that Classical and Neoclassical theories are “static” analyses because they cannot account for the transformation of the means of production (intermediate goods) and of consumption goods (primary goods) – and this is quite apart from the fact that “want” is a purely passive and negative notion that must assume the exogeneity of production techniques and of changes in consumption patterns. Here he is:

What we want to show now becomes obvious. The development of wants, which we observe in reality, is a consequential creation of the economic development that has already been present. It is not its motor. The fact that the human economy has remained constant over centuries heavily weighs in favor of our argument. But if the development is already under way, then it can, in a concrete case, certainly be preceded by the development of needs and desires which can trigger special economic transactions. In principle, needs sustain their own demand through economic development, and it is economic development that stirred them up in the first place. The amplification of needs is a consequence and symptom of development. Insofar as truly new needs and desires exist they will not have a practical effect on the economy. As has already been shown in the discussion above, new needs and desires as such mean nothing. But even then, if there were an original cause in the development of needs and desires, this would still require creativity and energetic activity in order to create anything new of importance, so that even the assumption of such a Law of the Heterogeneity of Social Purposes would not have much to offer in the field of economics. It is beyond doubt that in a single case a concrete demand can bring forth an entire industry. [486] (TwE, 1st edition, ch.7)

What then can explain “growth”?

1 comment:

  1. Social economics has various factors. It's really about understanding how it works in the real world.