Commentary on Political Economy

Tuesday 22 April 2014

At the Origins of the Concept of 'Rationalisierung' - Max Weber's Entwurf

This is the first section of our 'Weberbuch'. Here we trace the political history and meaning of the concept of "rationalization" that plays a central role in Weber's work and, after him, in that of countless social theoreticians and economists, no less than philosophers, from Lukacs to Schumpeter to the Frankfurt School. Although he never used this term, the philosophical antecedents of this concept and the historical unfolding of the political reality it contains were expounded originally in the work of Friedrich Nietzsche. Although a most powerful elaboration can be found also in Karl Marx's critique of political economy and of capitalism, the limitation of Marx's insight in this specific respect is that he failed to see how a "scientific framework of analysis" can be much more than "merely" ideological. Unlike Nietzsche, Marx always believed in "reality" and "science" - which is why he could not see how "science", like "history", is a praxis that is always conducted and written by those who happen to hold power in human societies. Economic "science", as Schumpeter knew, is "a box of tools": but it is not a "value-neutral" box of tools (contra Weber) because the "regularities and patterns", the "data", that it seemingly records  or discovers are not objective or spontaneous reflections of "reality"; rather, they reflect the state of affairs imposed and coerced upon the polity by the people who lead it - as Nietzsche put it, "we find what we already put there"! This, in a nutshell, is the "truth" and the "lie" of scientific positivism.
To make the reading of this piece a little easier, we can summarise its thesis quite simply as follows: the essence of capitalism is "the exact calculation" of profit made possible by the violent "rational organization of formally free labour through the regular discipline of the factory". The modality of this violence, its "scientific" application, cannot be comprehended by economic analysis because this analysis serves only to sanction as "science" what is instead the product of social and political antagonism the conduct and administration of which has become the overriding purpose of what we call "the  nation State", that is, a specific form of political command that has been refined since the rise of government bureaucracies and modern armies dating back to 17th century Europe, especially in Stuart England and in Absolutist France - and whose great theoreticians are, of course, Machiavelli and Hobbes.

Introduction: State and Capitalist Bureaucracy as ‘Trennung


In a modern state real rule, which becomes effective in everyday life

neither through parliamentary speeches nor through the pronouncements

of monarchs but through the day-to-day management of the

administration, necessarily and inevitably lies in the hands of officialdom,

both military and civilian. The modern high-ranking officer even

conducts battles from his ‘office’. (‘Parliament and Government’, p.145 in CWP)


In statistical terms the numbers of office workers in private firms are growing

faster than manual workers, and it is quite ridiculous for our litterateurs

to imagine that there is the slightest difference between the

mental work done in the office of a private firm and that performed

in an office of the state.

Fundamentally they are both exactly the same kind of thing.

Looked at from a social-scientific point of view, the modern state is

an ‘organisation’ (Betrieb) in exactly the same way as a factory; indeed

this is its specific historical characteristic. (p.146)



Weber’s approach to and theorization of the Rationalisierung experiences a marked and dramatic evolution between the year 1917 when he writes and publishes the articles on Parlament und Regierung and the year 1920 when he completes the Vorbemerkung to the Aufsatzes zur Religionssoziologie. This last contains a definition of the Rationalisierung encompassing its origins in both state administration and in industrial capitalism that reveals a marked deviation from its abstract “ideal type” sociology prior to 1917 traceable back to the Protestantische Ethik. The tide of events – the worsening of the military position of the Reich and apprehension over its domestic political repercussions together with the revolutionary tumults in Russia and their significant echoes in Western Europe – had forced Weber to turn his attention sharply to the re-structuring of “Parliament and Government in a ‘Newly-Ordered’ [neu-geordneten] Germany”, and particularly to “the nature of political parties” (Parteienwesen) and of the existing bureaucracy (Beamtentum, officialdom) within the overall problematic of the Demokratisierung of the old European absolutist regimes that followed the rise of the industrial working class. The evolution of Weber’s thought over this period offers a unique vantage point from which to trace this entire Problematik of the relationship between capitalist social relations of production, their intrinsic social antagonism in the dynamic context of “economic growth and development”, and the mode of political organization and representation of the antagonistic forces it pro-duces.


To be sure, “looked at from a social-scientific point of view, the modern state is an ‘organisation’ [Betrieb] in exactly the same way as a factory” – which is why it is of fundamental importance to understand their symbiosis and “con-currence” in the fact that if indeed it is the “specific historical characteristic” of the “modern state” to be “organized in exactly the same way as a factory”, it was also the new asset of the European absolutist nation-state that made possible the concentration of political power that enabled the bourgeoisie to impose “the rational organization of free labor under the regular discipline of the factory” on the rest of society!


The literati, the nostalgics and apologists for the aristocratic status quo, for the “republique des notables”, overlook the reality that “there is [not] the slightest difference between the mental work done in the office of a private firm and that performed in an office of the state”. Indeed, “the number of office workers in private firms is growing faster than that of manual workers”. There is a profound and urgent need to understand the transformation of capitalist industry and labor process because it is this that forms the foundation of the modern nation-state – it is its “model” that must be examined closely so that the “machinery of State” may adapt to the “needs” of society, of its “economy” in such a way that the “political will” of the economically decisive parts of society may be expressed “powerfully” – for there to be “positive politics” and not the present “negative politics” whereby Parliament is “prevented or impeded” from exercising the vital functions of “leadership” that the “national economy” – the economy understood in terms of the Machtsstaat – demands and requires.


The capitalist “entrepreneur” here has been already side-lined. It is not that his “function” is unimportant: it is rather that the entrepreneurial function itself is incapable of “mediating” and “realizing” the trans-formation of the economy, of capitalist “development” in the broadest sense, even in the manner championed by Joseph Schumpeter! The genial Austrian economist had sought to identify and describe precisely the “mechanism of transformation” that is specific to the capitalist economy and that leads to its “development”. But this “development” is dependent on society not just in the sense that it occurs in a social context but also in the far more important sense that the “trans-formations” that capitalist industry generates have far-reaching political implications and consequences that need themselves to be mediated and mustered to maximize the Macht of the Nationaloekonomie, the power of the nation-state and of its leading class, and not only “profits”. The differentiation between the “dynamic” role of the “entrepreneur” and the “static” or passive one of the rentier or “capitalist” is duplicated at the political level by the pressing need to by-pass the passive and abulic inertia of the machinery of bureaucratic state administration with the active powerful leadership of a parliamentary elite that is not imposed on the country from above but that rises instead from its midst as the powerful expression of the political will of the nation, of its industrially relevant components - “the representatives of the truly important powers in the economic world today”(PuR, in Political Writings, p.93).


This “problematic” had been completely missing in Weber’s earlier studies on the Protestant Ethic and the “entrepreneurial spirit of capitalism”. Armed with the insights of Schumpeter’s Theorie, however, Weber is now able to integrate the Austrian’s “theory of economic development” with a much more powerful Nietzschean account of parliamentary politics “in a society that is destined to remain capitalistic for a long time to come”! The essential and urgent task is how to co-ordinate the Demokratisierung of social forces within the institutional framework of the Parlamentarisierung. The problem is no longer so much to interpret the role of the entrepreneur as the herald of capitalist development within the “organisation” that is the capitalist factory. Instead, the essential and pressing task is that of preserving the rule of the bourgeoisie and of invigorating the nation-state by understanding whereupon and wherefrom capitalist industry derives its explosive dynamic “power” – a power that drives the national economy and therefore its “Macht” a lot more efficiently and “rationally” than does the state administration. It is not the specific role of the entrepreneur within the “congealed spirit” represented by the capitalist machine that interests Weber, but rather the “source” of the energy, of the productive power that the entrepreneur musters and channels in the direction of “development”. And if, as Schumpeter argues, “development” is really the entrepreneurial channeling or use of crisis, then the state bureaucracy must learn in equal measure how to muster and channel its own “crisis”, how to relinquish the romantic utopian dreams of “social equilibrium” in order to utilize social conflict, to mediate and to govern it so as to preserve the power of the nation in the global arena.


That the capitalist economy can occasion and provoke “crises” cannot be put in doubt. Weber had already experienced the economic convulsions of 1905 and their political complications reverberating from Russia to Germany – prompting him even to engage in a rapid study of the Russian language! But now the Great War and the October revolution of 1917 in Russia bring prepotently to the fore this “problematic” of capitalism, of how to “guide” its development within a social body that is dramatically more “interdependent” and “interconnected” than ever before – in which capitalist “development” can provoke “crises” that threaten and traverse the entire “fabric” of society by reason of its own “socialization” (Vergesellschaftung). The Bolshevik “leap forward” to the dictatorship of the proletariat in conditions that Lenin himself admits are “premature” (see The Development of Capitalism in Russia) shows that “socialization” need not mean “evolution” – that it can portend revolution! - and that it poses “problems” not just for capitalism but also for socialism itself! Capitalist development poses the Problematik of “rational Socialism”.



The central problem of Socialism is one posed by capitalist industry itself - the “anarchy of production”, the unequal distribution of wealth in society; and both are a direct result of the “separation” (the Marxian Trennung) of the worker from the means of production.


The relative independence of the craftsman or the home-worker, the

freehold farmer, the Commendatar, the knight and the vassal, rested in (147)

each case on the fact that they themselves owned the tools, provisions,

finances or weapons which they used to perform their economic,

political or military functions, and lived off them while they were

carrying out those functions. Conversely, the hierarchical dependency

of the worker, clerk, technical employee, the assistant in an academic

institution and also of the official and soldier of the state rests in every

case on the fact that the tools, provisions and finances which are

indispensable both for the performance of his work and for his economic

existence are concentrated in the hands of an entrepreneur in

the one case, and in those of a political master in the other. (146-7)


The former “autonomy” of the artisanal skilled worker, of the Gelernte, belonged to a stage of society in which communities were relatively self-reliant and controlled the “totality” of the labour process. But this is exactly what capitalist industrial “development” has changed – what occasions its “crises” in the explosive “socialization” of the reproduction of society itself! The concentration of industry by capitalism with the Taylorisation of the labor process has determined the massification of society to such an extent that all pining for a lost paradise of “artisanal” control over the labour process, of “totality”, all resentment and ranting against the “dis-enchantment” (Ent-zauberung) engendered by the rise of capitalist industrialisation are sheer “romantic fantasy”.


Whether an organisation is a modern state

apparatus engaging in power politics or cultural politics (Kulturpolitik)

or pursuing military aims, or a private capitalist business, the same

decisive economic basis is common to both, namely the ‘separation

of the worker from the material means of conducting the activity of

the organisation - the means of production in the economy, the

means of war in the army, or the means of research in a university

institution or laboratory, and the financial means in all of them. (147)


“The same decisive economic basis is common to both”! Common to the “modern state apparatus” and to “private capitalist business”. Both are “organizations”; they are “businesses” or “factories” – and what distinguishes them is precisely “the ‘separation’ of the worker from the material means of conducting the activity of the organization”. This “separation”, this Marxian Trennung, then, may well seem peculiar to capitalist industry but in reality it extends to the rest of society and in especial mode to the “modern state apparatus” that we call “bureaucracy”, including the army and indeed even “scientific research”.


This apparatus is the common feature shared

by all these formations, its existence and function being inseparably

linked, both as cause and effect, with the 'concentration of the material

means of operation'. Or rather this apparatus is the form taken

by that very process of concentration. Today increasing 'socialisation’ [Sozialisierung]

inevitably means increasing bureaucratisation.

Historically, too 'progress’ towards the bureaucratic state which

adjudicates in accordance with rationally established law and administers

according to rationally devised regulations stands in the closest

relation to the development of modem capitalism.


Bureaucratisation is the “inevitable” outcome of “socialization” which, in turn, is engendered by “the concentration of the material means of operation” – and of course also of “the material means of production”. Now, this “apparatus is the form taken by that very process of concentration”: it is this extensive and pervasive parcelisation of social labor, the very inter-connectedness of social functions that cater to “the most basic needs of social life” that make a nostalgic return to the “artisanal ownership of the means of production” on the part of the individual worker more than just a fantasy – but a dangerous one as well! With one fell swoop, Weber exposes the sheer “reactionary” content of the utopian ramblings of the Sozialismus.


The modern state emerges when the prince takes this business into his

own household, employs salaried officials and thereby brings about

the 'separation' of the officials from the means of conducting their

duties. Everywhere we find the same thing: the means of operation

within the factories, the state administration, the army and university

departments are concentrated by means of a bureaucratically structured

human apparatus in the hands of the person who has command

over (beherrscht) this human apparatus. This is due partly to purely

technical considerations, to the nature of modern means of operation

- machines, artillery and so on - bur partly simply to the greater

efficiency of this kind of human cooperation: to the development of

'discipline" the discipline of the army, office, workshop and business.

In any event it is a serious mistake to think that this separation of

the worker from the means of operation is something peculiar to

industry, and, moreover, to private industry. The basic state of affairs

remains the same when a different person becomes lord and master

of this apparatus, when, say, a state president or minister controls it

instead of a private manufacturer. The ‘separation' from the means of

operation continues in any case. (“Der Sozialismus”, p.281, CPW)


To seek a remedy to “the anarchy of private production” in a “socialism” whereby the ownership of the means of production is “socialized” by the State is a pathetic and reactionary chimaera for the simple reason that – as Weber blithely intuits here without perhaps realizing the full implications of what he is writing – it was the State in the first place that effected the “separation” of soldiers from their means of operation, and the State that enabled a class of capitalists “to separate” the workers from the means of production! Indeed, Weber may well have argued here that it was some of the workers themselves who rose from the ranks of artisanry to become accumulators of capital thereby “separating” or “expropriating” their erstwhile fellow workers and huddling them into factories!


Weber does make this last point in the Vorbermerkungen, quoted later here [Maurice Dobb makes it a central plank of his Studies in the Development of Capitalism]. In Politik als Beruf, he is even more explicit about the first point:


Everywhere the development of the modern state is initiated through

the action of the prince. He paves the way for the expropriation of the

autonomous and 'private' bearers of executive power who stand beside

him, of those who in their own right possess the means of administration,

warfare, and financial organization, as well as politically usable goods of

all sorts. The whole process is a complete parallel to the development

of the capitalist enterprise through gradual expropriation of the independent

producers. In the end, the modern state controls the total means

of political organization, which actually come together under a single

head. No single official personally owns the money he pays out, or the

buildings, stores, tools, and war machines he controls. In the contemporary

'state' — and this is essential for the concept of state - the 'separation'

of the administrative staff, of the administrative officials, and of the

workers from the material means of administrative organization is completed.

Here the most modern development begins, and we see with our

own eyes the attempt to inaugurate the expropriation of this expropriator

of the political means, and therewith of political power. (‘PaB’, p.82).


Lukacs, who quotes and discusses some of these passages from Weber (at pp.95-6 of Geschichte und Klassenbewusstsein), can only lament further on [at p.103] that “[t]he specialisation of skills leads to the destruction of every image of the whole”. Totally lost to him are the far-reaching political implications of Weber’s observations about the role of the State administration in Western Europe after the Great Crisis of the early seventeenth century in the development of capitalist industry (a topic closely canvassed in M. Tronti et alii, Stato e Rivoluzione in Inghilterra). Nor can it be doubted that this deficiency has its roots in Marx’s own insistence on the “superstructural” role of the State as against the “determinant” role of “the social relations of production”. Evidently, somewhere along the line, Marx lost sight of the fact that there is no such thing as a “capitalist economy” or an “Economics” with a “market” functioning according to an objectively definable “Law of Value” that can be abstracted from Politics – and that indeed “the State” is part and parcel of those “social relations of production”, as we are seeking to demonstrate with this study (on Marx’s theory of the State, cf. N. Bobbio, “Marx e lo Stato” in Bobbio et al. Dizionario di Politica).


But yet again Weber assumes that the nature and substance of the “labor” that goes into production can be aggregated into a homogeneous mass and be “divided” into “separate individual labors” subject to the rational discipline of the factory for the maximization of industrial production and ultimately profit. Weber fails to theorize and to specify what the “content”, the historical “substance”, of this entity called “labor” is: he continues to skirt the edges of the question, describing the rise of “the bureaucratic state” as a “‘progress’ toward rationally devised regulations [which] stands in the closest relation to the development of modern capitalism”. We are still none the wiser as to the “content” of this “rationality” and, in causal regressus, of bureaucracy, of socialization, and then of concentration of both the means of production and operation.


The main inner foundation of the modern capitalist business is calculation. In order

to exist, it requires a system of justice and administration which in


principle at any rate, function in a rationally calculable manner according to stable,

general norms just as one calculates the predictable performance of a machine.


The fact of the matter is that “calculation”, however “rational”, is not and can never be more than a “mathematical” or logical form of behaviour. But it is as clear as daylight that “behaviour” itself can never be “rationally calculable” unless it first assumes a “content”, a substantive purpose that is capable of being calculated, that makes this behaviour “calculable”! For it is simply impossible to calculate or to rationalize the “incalculable” or the “irrational”! Mathematics and logic all by themselves are mere “form”: they cannot be “applied” to human behaviour and “functions” unless these are first reduced to operations or tasks that can be “meaningfully quantified”! But such “quantification” cannot be in and of itself “calculable and rational” precisely because it is the “pre-condition” of the “mathesis”, of the “Rationalisierung” that Weber says is “the inner foundation of modern capitalist business” and of “the modern state apparatus” that make them both akin to (but not “identical with”!) “the predictable performance of a machine”. The entire sociological meaning of the Rationalisierung, then, hinges on its being a certain “practical conduct” whose content is exquisitely political and can never be reduced to “science” whilst its form can be made “rationally calculable” within broad parameters of that “practical conduct”. (We have examined in our Nietzschebuch the far-reaching consequences of these Nietzschean insights on the entire logico-mathematical foundations of Western “values”.)


We need to go further, to dig deeper and find out what are the “stable, general norms” that allow such “predictable performance”.


Bureaucracy is certainly far from being the only modern form of organisation,

just as the factory is far from being the only form in which manufacture can be

conducted. But these are the two forms which have put their stamp on the present

age and the foreseeable future. The future belongs to bureaucratization…

Compared with all these older forms, modern bureaucracy is distinguished by a

characteristic which makes its inescapability much more absolute than theirs,

namely rational, technical specialisation and training. (156)


Yet, specialization and training may well make the “inescapability” of bureaucracy “much more absolute” than previous forms of organization; they certainly cannot account for it in the first place.


But wherever the trained, specialised, modern official has once begun to rule,

his power is absolutely unbreakable, because the entire organisation of providing

even the most basic needs in life [Organisation der elementarsten Lebensversorgung] then depends on his performance of his duties.


In other words, what makes “the power of the modern official and of bureaucracy absolutely unbreakable” is the fact that “the entire organization of providing even the most basic needs in life then depends on the performance of his duties”. At last, we are now able to join the dots of Weber’s circuitous definitions to conclude that the “socialization” on which bureaucracy rests depends in turn on the “concentration” of the means of production and operation of society itself that are “organized” in such a manner that “even the most basic needs in social life” depend on the rational, technical specialization and training of modern bureaucracy and, a fortiori, of modern capitalism on which it is founded or at least “stands in closest relation”.

Tuesday 1 April 2014

Joseph Schumpeter's Entwicklung: Capitalist Innovation as Development-through-Crisis (A Humble Homage to Professor Michael Pettis)

  I have had occasion many times on this blog to extol the quality of Professor Michael Pettis's work. This is Section 3 of Part One of my 'Weberbuch', a book dedicated to Max Weber, and I am publishing it here as a tribute to Prof. Pettis for his most kind appreciation of my humble efforts. (This is what Pettis had to say:

"Belbruno is too polite to post the address [of his blog], so I will:
And while it is not beach-side reading, he exaggerates the difficulty. I strongly recommend it to readers who want to understand economics in the context of the history of economic thought.... His is one of the best blogs out there.")                         

Joseph Schumpeter's Entwicklung: Capitalist Innovation as Development-through-Crisis
Schumpeter is a contemporary of Weber, but he is also the heir of Mach. Through Weber he is linked to Nietzsche, but he is already too much under the spell of Machism fully to comprehend the significance of Nietzsche's radical critique of bourgeois society through the tracing of the “completion” (Heidegger’s Vollendung) of Western metaphysics into “science”. Schumpeter looks at capitalism through the "scientific" prism of Machian empiricism. The task of the "scientist" is not to look "beyond" or "behind" mere phenomena, it is not to discover “substances” or “values” behind “events” (Geschehen), but rather to find the simplest mathematical "con-nection" between them; it is to describe reality, not to explain it: indeed, description that is mathematically regular is or amounts to explanation. The task of science is to describe phenomena in the simplest and most "predictable" manner: simplex sigillum veri (simplicity is the seal of truth). (A discussion of Nietzsche’s vehement critique of the ontological assumptions behind Machian and Newtonian science is in our Nietzschebuch.) Just as Menger’s theory of marginal utility does not inquire about the “value” of “utility”, its “substance”, its quidditas, relegating these matters to the realm of “metaphysics”, but relies instead on the observable behavior of individuals to formalize mathematically an Aristotelian logic of human economic action, so Mach’s philosophy of science does not question the empirical validity of Newtonian physics, its ability to predict real events by con-necting them by means of mathematical equations: what it questions is instead the cosmology of the Newtonian system, its reliance on “absolute frames of reference” to explain the cosmos, the uni-verse or “reality” (the res, the “thing-iness” of the Kantian “thing-in-itself”, the noumenon that pro-duces the empirical phenomena) that are dis-covered as “the laws of nature”. That is why Schumpeter never goes beyond the simple "observation" and "analysis" (literally, retrospective dissection) of the empirical behaviour of capitalist institutions and adopts uncritically the Machian presuppositions of his Viennese academic training:


According to this conception the purely economic plays only a passive role

in development. Pure economic laws describe a particular behavior of

economic agents, whose goal is to reach a static equilibrium and to re-establish

such a state after each disturbance. Pure economic laws are similar to the

laws of mechanics which tell us how bodies with mass behave under the

influence of any external "forces", but which do not describe the nature of

those "forces".


It shows [471] how the economy responds to changes in those conditions

coming from the outside. Therefore, in such a conception, pure economics almost

by definition excludes the phenomenon of a "development of the economy from



It is the conception that there is an independent element in technical and

organizational progress, which carries its law of development in itself and

mainly rests on the progress of our knowledge. (Schumpeter, ch.7, Theorie)




In the Theorie der wirtschaftlichen Entwicklung, Schumpeter seeks to enucleate scientifically “the mechanism of transformation” that can account for “the phenomenon of a ‘development of the economy from within’”, that can elevate the capitalist economy from one “level” or “Gravitationszentrum” (centre of gravity) to another – from one “equi-librium” to another. Granted that there is a “system of forces” that at any given time allow “the economic system” to operate and function, it may then be possible to define for that given moment in time an “equilibrium state” that does not “explain why” the economic system is “in equilibrium” but that may yet allow us to identify those “forces” that, when altered, “caeteris paribus”, determine a corresponding alteration in other “forces” affecting the “system”. An “equi-librium” is therefore “a balance of forces” whose nature we do not know but around which the economic system tends to gravitate. Equi-librium is literally a “Gleich-gewicht”, an “equal weight”, a balance of forces around which the economy gravitates: hence, for Schumpeter, economic equilibrium is not an eternally fixed mathematical identity, as it is for Walras, but rather a Gravitations-zentrum, “a centre of gravity” around which an economic system revolves but one from which this system may well move or diverge, in a direction that completely upsets and trans-forms the “balance of forces” and even the nature of the “forces” that determined the previous “state of equilibrium”, the previous “centre of gravity”!


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

[wirtschaftliche Entwicklung]. (Schumpeter, TwE, ch.7, pp465-6)


But by insisting on the existence of a scientifically ascertainable “centre of gravity” for the capitalist economy and of its equally scientific “mechanism of transformation”, Schumpeter ends up oscillating between two untenable antinomic positions: - on one hand, the scientific hypothesis of the tendency of the economic system toward “equilibrium” (hence the notion of “centre of gravity”) or “circular flow” (Kreislauf); and on the other hand the historical experience of the proneness of the economy to grow and develop, to change from one “ideal type” to another – an “experience” that is both “empirical” as well as “necessary” for the simple reason that an “economy” is and must be subject to historical transformation, but a transformation that is nevertheless impossible to formalize as a “mechanism”!


“Equilibrium” is either “static” or it is not an “equi-librium” at all! For the “system” to change, it must be subject to “forces” that are not the “mathematical” or “mechanical” ones of “equilibrium”. In short, “dynamic equilibrium” is a contradiction in terms! Schumpeter himself rightfully contends as much:


It follows from the entire outline of our line of reasoning that there is no such

thing as a dynamic equilibrium. Development, in its deepest character,

constitutes a disturbance of the existing static equilibrium and shows no

tendency at all to strive again for that or any other state of equilibrium.

Development has a tendency to move out of equilibrium. This is quite

different from what we could call organic development; it leads to quite

different pathways that lead somewhere else. If the economy does reach a new

state of equilibrium then this is achieved not by the motive forces of development,

but rather by a reaction against it. Other forces bring development to an end, and

by so doing create the first precondition for regaining a new equilibrium.

Actually, what happens first is that when a new development begins, there is again a new

disturbance in the equilibrium of the economy. Thus, development and

equilibrium in the sense that we have given these terms are therefore opposites,

the one excludes the other. Neither is the static economy being characterized by a

static equilibrium, nor is the dynamic economy characterized by a dynamic

equilibrium; an equilibrium can only exist at all in the one sense mentioned before.

The equilibrium of the economy is essentially a static one.`19


And not only is “the equilibrium of the economy… essentially a static one”, but it is also above all a stagnant one! Yet we know that one of the vital features of capitalist industry is – precisely – its ability “to grow”, “to develop”. It follows therefore that there must be some internal feature of capitalism that forces it to trans-cresce and that therefore constitutes its differentia specifica. Orthodox economic theory, both Classical and Neoclassical, treats the “forces of development” as “essentially” exogenous to the capitalist “system” of production:


It is the conception that there is an independent element in technical

and organizational progress, which carries its law of development in

itself and mainly rests on the progress of our knowledge, (Schumpeter, ibid.)


Here Schumpeter seizes on the realization that in point of fact there can be no such “independent element in technical and organizational progress” and that both of these must be treated as part and parcel of the social relations of production, and not be attributed to “an independent element”, a purely mechanical and adventitious factor – “independent” of what Weber styles “capitalist economic action”. It comes as no surprise, then, that because Schumpeter takes “the economy” and “economics” as “objects or phenomena of scientific analysis” that are separate and distinct from the rest of social reality, including those “technical and organizational” forces (!), he must then necessarily isolate them from the “trans-formation mechanism” of the capitalist economy! When Schumpeter looks for a "trans-formation mechanism" (Veranderungsmechanismus) to explain the "meta-morphosis" of capitalist industry - its "development, evolution and growth" (Entwicklung) – he can find it only in a subjective, voluntary factor, something that closely resembles Weber’s own thesis of the “spirit of capitalism” (der Geist des Kapitalismus) expounded in the Ethik published in 1904, that is, only seven years before the publication of Schumpeter’s path-breaking Theorie!


Following Weber’s lead, Schumpeter finds “the carrier” (Trager) of the “transformation mechanism”, the “driver” of capitalist Entwicklung, (the expressions have a curious Hegelian-Marxist ring) in the "entrepreneurial spirit" (Unternehmer-geist) without noticing the contra-diction between "mechanism" and "spirit"! His search immediately contra-dicts itself – because the “factors of development”, the forces that “trans-form” the economy, that buffet it from crisis to crisis and therefore “elevate” or “lower” it from “level” to “level” can quite evidently not themselves constitute a “trans-formation mechanism”! A “mechanism” will always be “static” because whatever “factors” cause it to develop must be “endogenous” and therefore, by definition, “re-conducible” to the existing definition of the system! An endogenous or internal “mechanism of trans-formation” would always be re-definable in terms of those “equi-librium conditions” that Schumpeter’s “theory” was supposed to confute and discard! There can be no freedom in a system of economic analysis or “science”. There can be no “trans-formation” in a “mechanism”- no internally-generated scientifically measurable “development” or “growth” from one equilibrium to another. And that is the exact reason why Schumpeter is unable to com-prehend in his “theory” the “real subsumption” of the “technical and organizational processes”, which he erroneously relegates to the Statik or exogenous components of “the mechanism”, within the social relations of capitalism itself, within the “Dynamik” of the “system of needs and wants” (Weber’s “iron cage”) that “drives” or pro-pels the “modern industrial work” or “the lifeless machine” of capitalist industry (the Simmelian “Form”) which in turn is guided by the capitalistic “rational conduct of business” – the living machine (Simmel’s “Soul”).


One can almost feel the agony of Schumpeter’s theoretical contortions as he grapples and fumbles with these complex conceptual matters:


[490] Economic development is not an organic entity that forms a whole;

it rather consists of relatively separate partial developments that follow

one upon the other. Here we build on what has been said in the chapter on

crises. Accordingly, development of the economy occurs in a wavelike

fashion. Each of these waves has a life of its own.


With this we really get closer to reality. In particular, we win a clearer

insight into that peculiar jumble of conditioning and freedom, which

economic life shows us. The static circular flow and the static

phenomena of adaptation are dominated by a logic of things, while it is

completely irrelevant for the general problem of freedom of will,

nevertheless in practice - with fixed given social relationships - it leaves

as good as no maneuvering room for individual freedom of will. This can

be demonstrated and yet it was always a point of criticism, since the creative

work of the individual was so obviously visible. We know now that the

latter observation is correct. Yet, this observation does not contradict the

theorems of statics. We can precisely describe the place and function of this

work. Of course, in development the logic of things is not missing; and just as

one cannot demonstrate with the static conception the case for philosophical

determinism, one cannot maintain the case against it with the dynamic

conception. But despite this we have shown that an element is present in the

economy, which cannot be explained by objective conditions and we have put

it in a precise relationship to those objective conditions.23 (Theorie, ch.7)



By identifying a subjective factor as the historical “carrier” (Trager) of the meta-morphosis of the capitalist economic system, of the “trans-crescence” of capitalist industry – the “entrepreneurial spirit” and the “process of innovation” (Innovationsprozess) that it unleashes “subjectively” (!) on the scientifically and mathematically definable static equilibrium of the capitalist economy to move it from one “centre of gravity” to another, to transport it “like a wave” from one ocean level to another -, Schumpeter is also validating and sharpening Weber’s original thesis in the Ethik of the “religious ascetic origins of capitalism” in the “entrepreneurial spirit”.


But the reason for Schumpeter’s agonising ambi-valence and ambiguity over the dualism of “freedom and necessity” and his acquiescence in his own theoretical answer to it can be found once again in Ernst Mach's philosophy of science. The "empirical observation" of entrepreneurs in capitalist industry and their empirical connection to the provision of "finance" by "capitalists" is all that counts: both factors can be reconciled as parts of “one mechanism" for the trans-formation of capitalist industry through "innovation" and "creative destruction". Just as in marginalist theory the axiomatic assumption of “utility” (a “metaphysical” notion at best, by Menger’s own admission, an inscrutable Aristotelian “entelechy”) does not and cannot explain the determination of “market prices”, and yet the mere proof of a simple mathematical connection between individual prices and the axiomatically assumed marginal utilities of individuals is sufficient to prove the mathematical existence of an economic equilibrium and to found the new “science of Neoclassical Economics”, so now Schumpeter concludes that the empirical derivation by the "entrepreneur" of a "profit" from his "innovative leadership", from his "enterprise", combined with the existence of a pool of financial capital made available by “capitalists” is sufficient to establish the existence of a “Mechanismus” that trans-forms the capitalist economy. Indeed, the Unternehmer-Gewinn (the entrepreneurial profit) is the only "profit" that is worthy of the name for him. All other "profits", as the subtitle to the Theorie loudly suggests, are simply "interest" or “rents” charged by "capitalists" for advancing their "working capital" to the entrepreneur.


In other words, Schumpeter never even attempts to locate the source of "profits" beyond the mere "innovation process" of the entrepreneur, beyond the "reward" for his "enterprise". Schumpeter does not look at the "motive" behind the activity of the entrepreneur except to allude to a vague Nietzschean "will to conquer", to the simple "pleasure of success". Again, this failure is largely due to the fact that, unlike Weber, Schumpeter does not see the Rationalisierung as a political process but simply as a "scientific development", as the supersession of the Enlightenment notion of "progress", understood in a teleological or moral sense, and its replacement with the strictly empirical scientific principles of the Economics applicable to human organisation and industry.


Put differently, Schumpeter interprets "profits" as a function of and reward for the "entrepreneurial spirit". Yet he does not even suspect that it may be "profitability" that makes the "entrepreneurial spirit" a matter of life or death for every "capitalist", whether an “entrepreneur” or not!




The timeless mathematical “scientific” description of the capitalist economy clashes irremediably here with the living experience of its existence! This is a leitmotiv of the period that will preoccupy Wilhelmine culture from Nietzsche to Husserl, Lukacs and Heidegger – that is to say, the Neo-Kantian dualism of “knowledge” and “experience”, of “living spirit” and “objective process” or “machine”, between “Soul” and “Forms”, and between “Forms” and “content”. Weber himself will mock the evident contra-diction between the scientific proof of capitalist collapse proffered in The Communist Manifesto with its prophecy of the inevitable advent of human socialist freedom – applying thus the Nietzschean demolition of Western metaphysical transcendentalism and “subjectivity”, of the Freiheit that Weber’s initial formulation of the Rationalisierung in the Ethik and in Roscher und Knies had failed fully to comprehend but that – what is one of our central theses in this piece – he will begin to tackle seriously with the articulation of the interaction between the Political and the Economics in “the triptych” of 1917 to 1919 formed by Parlament und Regierung and the two Munich lectures, in the lecture on ‘Der Sozialismus’ delivered in June 1918, and then finally with the Vorbermerkungen written in 1920.


The profound, almost absurd in-comprehension of this vital reality – the overwhelming, conditioning necessity of the “system of wants and needs” and the social antagonism of the capitalist wage relation - on the part of Schumpeter, he himself exhibits in this blunt statement in the Theorie:


The leader personality… never happens as a response to present or revealed needs.

The issue is always to obtrude the new, which until recently had been mocked or

rejected or had just remained unnoticed. Its acceptance is always a case of

compulsion being exercised on a reluctant mass, which is not really interested in

the new, and often does not even know [545] what it is all about….


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. ….

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,

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



It is at this fateful juncture that Weber takes his distance from Schumpeter, even as he obviously “stands on the shoulders” of the Austrian’s evolutionary problematic. For whilst he accepts that “the economy” can never be in “equilibrium”, Weber correctly rejects the proposition that in any case “science” could ever explain “rationally” the “trans-crescence” of the economic system, its “Entwicklung”. Weber rejects dismissively Schumpeter’s thesis that it is the “entrepreneur” with his “creativity and energetic activity” who is solely or even chiefly “responsible” for the meta-morphosis of “the system” and that new needs and desires as such mean nothing”! To the Nietzschean Weber, this proposition would smack unacceptably of the jejune “subjectivism” and “emanationism” of the German Historical School’s Historismus – of the Hegelian “Providence” (Weis-heit) and of the idolatry of “Freiheit”, the “freedom of the will” whose dialectical reconciliation in German Idealism leads to the “freedom from the will” of the Demokratisierung and its “Socialist utopia”, that triumph of the Individualitat against which Nietzsche had devoted much of his critical genius with devastating effect! It is this Individualitat, the “personality” of the “entrepreneur” that Weber could never entertain approvingly.


(The concept of ‘freedom’ in German Idealism is canvassed with supreme mastery from the viewpoint of the negatives Denken by Heidegger in his Schelling’s ‘Essence of Human Freedom’. It is interesting to advert here to the incomprehension of Weber’s entire theoretical orientation on the part of those critics – of all persuasions – who wave his concept of “charisma” as conclusive evidence of a ‘voluntaristic streak’ or ‘subjectivism’ in Weber’s methodology, and the even greater incomprehension of those epigones who make “charisma” the central concept in Weber’s entire sociology! However much these quite erroneous views may be justified on the basis of the static typology contained in the Ethik and in Weber’s later classificatory efforts, it is very wide of the mark when it comes to his incisive reformulation of the Problematik of capitalism in his later writings. There is no “charismatic voluntarism” in this methodological stance, no ‘Caesarism’! There is only a coherent application of Nietzschean immanentist “ontology of thought” to the phenomenology of the social world. Nor is there any ‘irrationalism’ in the post-Nietzschean “De-struktion” [Heidegger’s term] of the philosophia perennis and scientism of the Aufklarung and its German Idealist apotheosis.)



Not only does Weber realize with unmatchable acuity that the “creative entrepreneur” is not “responsible” for the phenomenon of capitalist “development” and the concomitant crises that it ineluctably inflicts on the “economic system”; but also and above all else he sees that the “entrepreneur” is “responsible” instead in a Nietzschean sense diametrically opposed to the one suggested by Schumpeter! For the entrepreneur can be merely the “carrier” of a “trans-formation” of the economy that must originate endogenously from its very foundations, from its “ground” – that is to say, from its “Wants and Provisions”, from its “system of needs and wants”. But not as a “mechanism of transformation” such as Schumpeter had sought on the mistaken assumption that “wants” are “static”! On the contrary, it is the conflict inherent and intrinsic to the very notion of “want” and of “self-interest” that creates the “objective con-ditions and circum-stances” that allow the emergence of the “entrepreneurial spirit”, of his “Will to Power” at the very crest of this surging wave of conflict that transports with itself the entrepreneur and the rest of the capitalist “economy and society”!



“The nature of the matter”, the essence of capitalism and of the Economics, must consist then in the historically novel and specific manner in which capitalism “organizes” this “conflict”! This signifies the end of Political Economy not only as the market-based mirage entertained by Neoclassical Theory of a “rigorous science of Economics” devoid of political conflict, but also as the utopia embraced by liberalism and socialism of a “free public sphere of Politics” devoid of economic antagonism.


The “personality” that truly counts, the Individualitat that “drives” the “system”, the “machine” – the “motor” of the “mechanism of transformation” that Schumpeter was so desperately seeking - is emphatically not the “entrepreneur” with his “creative individuality” causing the inertia of “the system of needs and wants” - the “rentier” capitalist, finance capital, “trustified” capitalism, the “passive” consumer - to change through the Innovationsprozess facilitated by the mechanism of capitalist financial institutions. A million times “No!” The real “motor”, the true “spirit” of capitalism (however “soul-less” it may have become now) is exactly and precisely that “conflict” inherent to “the system of needs and wants”, to the “iron cage”, that capitalism has “freed”, has “unleashed”, has “vented and released” by institutionalizing bureaucratically “the rational organization of free labor”! The most effective way to organize a society is to utilize its “labor”, intended as “labor force” or “labor power”, in a manner that responds “rationally” to the politically “free” specification of their conflicting “needs and wants” by the workers through the market mechanism (filter, osmosis, synthesis) so that these may be “provided for” most efficiently.


In regard to this point, Weber can detect now another major fallacy or oversight in Schumpeter’s limited and flawed analysis in the fact that the “entrepreneur” may well be the “material functional carrier” of “trans-formations” to the structure and orientation of “enterprise”, but that these “trans-formations” occasion profound “shocks” and “crises” that cannot be limited or confined to “the economy” alone, and that therefore require a form of mediation and governance – of “political responsibility”! - that is absolutely inaccessible to the “entrepreneur” or indeed even to the “bureaucracy”! In fact, it is not merely “the entrepreneurial function” that loses its “autonomy”, its “individuality” under the iron law of “socialization”, but it is also that “scientific research” that becomes increasingly subsumed to the “political needs and wants” of “the system” rather than be dictated by the narrow needs of industry or the exogeneity of “pure research”. In other words, there may well be no scientifically ascertainable “mechanism of development” for the simple reason that scientific activity itself (!) has lost its “autonomy” from that “rational organization of free labor” that is capitalist enterprise.


This is the more so, the “freer” that “free labor” becomes – precisely by reason of its Demokratisierung and the constitution of the proletariat as a class (!) with its own “socialist democratic” political parties that defies and prongs the state bureaucracy out of its inertia, out of its myopic search for “scientific equilibrium”! It is no accident that the sub-title to Parlament und Regierung refers specifically to the binary interplay, the antithetical dualism between “Parteienwesen” (the nature of parties or party system) and “Beamtentum” (bureaucracy)! To be sure, Schumpeter himself had foreshadowed this problem during his discussion of his “problematic” in the quotations we selected above:


In other words, there is no true economic development, no development

emanating from the economy itself, but only development that conforms

to one pattern of imagination or does not conform to it. Yet, in any event

economic development brings about extraeconomic effects in the social

realm that have further repercussions within the economy. This kind of

development expresses itself everywhere in national life. (Schumpeter, ibidem)


But in pointing to the “personality” and “leadership” of the entrepreneur, even within the confines of the Innovations-prozess, as the differentia specifica of capitalism, Schumpeter neglected these essential “extraeconomic effects” of modern capitalist industry and society that Weber is already theorizing from the standpoint of political sociology and that Keynes will start to dress up in economic garb after the Paris Conference of 1919: – (a) the ineluctable presence of “conflict” in the relationship between market effective demand (or “wants”) and its “provision” through development and growth; (b) the problematic of bureaucratic-technical and scientific-technological capitalist organization of this irreducible and irrepressible conflict; and then (c) the articulation of the forms of political organization able to mediate the inevitable “dis-equilibria” and  “crises” that “development” inevitably engenders so as to “govern” these effectively. This is the gigantic task that Weber would now tackle with his overall “program” or Entwurf of Parlamentarisierung for the effective Regierung of a “re-constructed Germany” (neu-geordneten Deutschland).