Saturday, 10 May 2014

Equilibrium and History: Conceptual and Political Aspects of Bourgeois Economic Theory

This is the first part of my Schumpeter-buch, a book dedicated to Schumpeter's attempt to integrate equilibrium theory and capitalist economic history. I believe that something like this ought to be required reading in all economics faculties. I hope you agree.

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



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 manoeuvering 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)



A. Equilibrium and History: Conceptual and Political Aspects of Bourgeois Economic Theory


Classical and Neoclassical Political Economy from Adam Smith to Leon Walras is founded on the axiomatic static equilibrium of the marketplace economic system. Yet this clashes most violently with the empirically evident instability of the capitalist economy and its equally violent convulsions and, worse still, its transformations intended not just in the sense of quantitative growth (Wachstum) but actual qualitative evolution (Entwicklung), with its meta-morphoses and mutations, with its trans-crescence and crises. The static-stationary, axiomatic-analytical, anatomical and objective schema of bourgeois equilibrium economic theory is evidently and empirically shattered then by the dynamic-historical, metabolic and subjective unfolding or evolution of its real operation. The end of history that the bourgeoisie always desperately seeks has been “greatly exaggerated” yet again. The question here is: can history be reduced to science? And then again, is it indeed science or logic that is opposed to history in the bourgeois interpretation of economic systems?


The con-fusion of science and logic in the sphere of economic analysis was evident already in Adam Smith’s theorization of market capitalism. Smith’s “invisible hand” was a necessary Eskamotage or deus absconditus (hidden god) because the circularity of his reasoning reduced science to logic - to a tautology in fact: prices are determined by value which is determined by the quantity of labour, whose price is determined by the market which determines prices. The problem lies in the definition of “market”: if indeed the “market” is made up of entirely self-interested atomistic individuals, then it is impossible to see how such in-dividuals could ever reach the “agreement” that is indispensable to determine “prices”! In other words, “the rules of market competition” have to be set or agreed upon by market agents even before market competition takes place. But this is impossible by definition, because any restriction on the “self-interest” of market agents turns the entire exercise into a meaningless and purposeless tautology!


G. Myrdal insightfully seized on this point, in The Political Element in the Development of Economic Theory. Myrdal, however, like all economics theoreticians after him, totally failed to see the “purpose” or “political element” behind the tautology of equilibrium theory – a political element that was to be the very object of his study!


Thus, just like equilibrium analysis, Smith’s theorization of market capitalism left no space at all for the “co-ordination” of the actions of are axiomatically atomic in-dividual market agents – which is why, just as Leibniz needed a divine “pre-established harmony” to co-ordinate his “windowless monads”, so did Smith need his “invisible hand” to co-ordinate the actions of his “windowless”, “monadic” market agents.  General equilibrium analysis, too, will later dispense with this requirement, without thereby resolving it, by postulating the “syn-chronicity” of all “actions” in market exchange. But the formal equivalence of all axiomatic market agents in both theories means that they are left without a “purpose” once the “frozen” state of equilibrium is reached. In other words, equilibrium is a state of complete in-action, given that at equilibrium market agents no longer have any need or space to change their decisions. At equilibrium there is and there can be no “market”.


Arrow and Hahn were demonstrably right to insist, pace Lawson in “The Confused State of Equilibrium Analysis”, that Adam Smith is the father of equilibrium analysis [in General Competitive Analysis]. The fact that, as Lawson argues, Smith constructed his theory from historical and sociological observations does not cure its “closedness” or tautological nature. Hypocrisy was written all over the author of The Theory of Moral Sentiments – something that Mandeville delighted in exposing: his penchant for sociological observation, based mostly on Adam Ferguson’s An Essay on Civil Society, only served to disguise the aporetic and apologetic character of his economic theory. Incidentally, Lawson’s definition of a “closed system” as one that can be reduced to the proposition “whenever x, then y” is manifestly wrong because this kind of proposition is essential to the testing of scientific hypotheses in both natural and social science (one need only read any book on the philosophy of science to understand this point). Quite contrary to Lawson’s contention, a “closed system” must be of the type “whenever x, then y, where x is a function of y”: it is the classic circulus vitiosus or tautology, - nothing more nothing less.


The problem with equilibrium analysis is that it reduces economic “science” to “logic” – literally, to ana-lysis (retrospective examination or autopsy or anatomy), that is to say, to the formal mathematical equivalence of all its elements, which leads to the meaningless paralysis of tautology. The essential aim of any economic theory worthy of the name must be to explain how economic actions can be co-ordinated and to point to the “what”, the “thing”, the common substance or “value” that allows this “co-ordination” to take place. Co-ordination is not meant here as “static exchange” and is not meant to be confined to “quantitative values”. If we read Walrasian equilibrium, which is made up of a series of simultaneous equations, as a simple functional plan or classification of an economy, then it is not tautological but purely classificatory or illustrative. If instead it is intended to show how a real economy functions, that is to say, how the independent decisions of individual market agents can be co-ordinated by “the market”, then it is entirely tautological because, as Hayek showed, “its conclusions are implicit in its assumptions”.


As I have suggested elsewhere in this volume,2 the tautological method which is appropriate and indispensable for the analysis of individual action seems in this instance to have been illegitimately extended to problems in which we have to deal with a social process in which the decisions of many individuals influence one another and necessarily succeed one another in time. The economic calculus (or the Pure Logic of Choice) which deals with the first kind of problem consists of an apparatus of classification of possible human attitudes and provides us with a technique for describing the interrelations of the different parts of a single plan. Its conclusions are implicit in its assumptions: the desires and the knowledge of the facts, which are assumed to be simultaneously present to a single mind, determine a unique solution. The relations discussed in this type of analysis are logical relations, concerned solely with the conclusions which follow for the mind of the planning individual from the given premises. (Individualism and Economic Order, p.93.)


Even so, Hayek’s analysis of general equilibrium is still incorrect because for “a single mind” Walrasian equilibrium is merely “classificatory” but not “tautological”. Even for a single mind no decisions can be made in equilibrium analysis because simultaneous equations involve a “semaphoric”, logical “re-classification” of information that is independent of “time” as a concept. Walrasian equilibrium is tautological only if it pretends to explain, as it does, how “many minds” can co-ordinate their economic decisions. Where a single mind is concerned, however, equilibrium theory does not involve a “single plan” or any “plan” at all (!) because that would imply the possibility of decision! But the point to a “classificatory” or “semaphoric” (or functional or illustrative or anatomical) schema is that no “decision” is involved because there is and there can be no “time” involved in such an ana-lytical “sketch” or “blueprint” or “map”. A map is “timeless”: it is not a “plan” in the sense of “a sequence of decisions”!


But Hayek and all equilibrium theoreticians after him, have shifted the subject-matter, the ground, the sub-stance, the substratum and quidditas, the “whatness” of economics from “prices and quantities”, which involve those material human interests that are and must be the indispensable foundation of all theories that even pretend to be “economic”, to the mere “semaphoric” world of “information” and “co-ordination”! In the words of Brian Loasby,


The co-ordination of economic activities, of course, is what economics is overwhelmingly about, (Equilibrium and Evolution, p.9).


The problem with this is that economics can never be reduced to a simple matter of “co-ordination” because it must always explain the real material object of “co-ordination”, what makes it “economic co-ordination”! And the “economic” here stands for pro-duction, the actual creation of “goods and services” which ultimately involve human living labour and therefore social relations of production that relate to the interaction of human beings amongst themselves as well as with their living environment!


Hayek correctly captures the point that Walrasian equilibrium cannot “co-ordinate” a “market” in which different individuals decide; the market action of that “single mind” would still depend on the decisions of at least one other “single mind” to make an “economic decision”. For the single mind to make an economic decision and to evade tautology, it needs to be confronted with the independent plan of “another mind”, which is what general equilibrium is constitutionally incapable of doing because “its conclusions are [logico-mathematically] implicit in its assumptions” and no “time” can logico-conceptually be present! This explains the retreat of equilibrium theoreticians like Frank Hahn from the sphere of “prices and quantities” of real goods and services performed by human living labour to the semaphoric or semiotic sphere of “ideas and actions”. For Hahn,


an economy is in equilibrium when it generates messages which do not cause [its] agents to change the theories which they hold or the policies which they pursue, (quoted in Loasby, op.cit. at pp.13-4).


But here the legerdemain, the subtle trick that Hahn has performed becomes absolutely evident – because Hahn has not specified a decision but rather an in-decision, a “not-changing of theories and policies”! In other words, not only does equilibrium now exclude even the most phantomatic exchange of “goods and services”, which require human living labour, but it even requires the ultimate in-action and in-decision: equilibrium finally assumes the stagnant and stationary position not just of tautology but of the most unthinkable rigor mortis – sheer death! For the modern bourgeoisie and its idiotic charlatans, economic equilibrium is the most perfect Nirvana in which absolutely Nothing happens!


To be perfectly histrionically brutal, recent equilibrium theory has surged to the intellectual status of a “Seinfeld” episode – that is, a comedy series “about nothing” in which “absolutely nothing happens”! Indeed, once economic theory has become so detached from any real material human activity of production in which human beings interact not only with one another but also with their environment, bourgeois economic theory can easily conceive of an economic system in perfect equilibrium, perfectly “co-ordinated”, that has completely destroyed its living environment! This insidious danger was already implicit in Adam Smith’s theorization of “the wealth of nations” as a perfect logico-mathematical “exchange” that because of its very “perfection” no longer had anything to do with “wealth” itself! Not until Alec Pigou theorized the problem of “externalities” (in The Economics of Welfare) did this aspect of capitalist production enter the sphere of bourgeois economic analysis, and then only as “externality”, that is, as something “external” to the presumed “purity” of the capitalist economic system. Contrary to the stooges of equilibrium analysis, Pigou never forgot that "[e]conomic the subject-matter of economic science," (bid., p.9).


Up until Adam Smith set out to formalize the operation or functioning of “the market”, economics had not existed as a “science” separate from theories of society or indeed of “the body politic”. Yet in this very separation of “economic science” from other aspects of social life and from its history lies the fatal flaw of this “science”, because once its methodology leads it to exclude non-economic social forces as “exogenous factors” or as “externalities”, then it becomes a “closed system” of pure logico-mathematical formulae in which “economic facts” are completely deprived of all sociological and environmental content. Consequently, “economic science” is incapable of explaining historical change, including the transformation of economic reality itself, totally extruding thus the very “positive empirical experience” on which so-called “economic science” is supposedly founded.


In his review of Comte and Mach, in Knowledge and Human Interests, Jurgen Habermas emphasises one aspect of positivism as his crucial objection to it - namely, that positivism as a philosophy of science is incapable of understanding and explaining the “historical evolution” of “science” itself. We partly agree with Habermas; but this can only serve as an “internal” critique of positivism in terms of its internal consistency, whereas as we will discuss more fully below this type of criticism of positivist methods entirely misses the point about their “external” real practical political effectuality! In short, Habermas criticizes positivism in the name of “science”, when in fact bourgeois “science” is a real political practice that cannot be “contradicted” in purely “scientific” terms! “Science” simply  does not have the politically-independent epistemological status that Habermas’s neo-Kantism assigns to it – as Max Weber showed conclusively, although only obliquely (cf. “Science as Vocation”).



Put in simpler terms, science must be the combination of theory and facts: theory without facts is empty, and facts without theory are blind. But the “facts” that “economic science” pretends to theorise are the very violent reality that the capitalist bourgeoisie has already imposed on human society! Bourgeois economic science therefore pretends merely “to observe empirically” its misdeeds or “facts”, and then to dress them up as “human nature” that gives rise to “natural human rights”. This miserable combination of scientific positivism and ethical jusnaturalism is the very essence of bourgeois economic science!


At the hands of positivism and empiricism, the Statik of equilibrium theory contradicts the Dynamik of capitalist reality: hence, equilibrium expels history, stasis stymies metabole, necessity chains freedom. How then to reconcile these irreconcilable opposites? How to evade and escape these antinomies and apories?



Schumpeter offers a preliminary way out:


But despite this we have shown that [a subjective] 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.


The task of “science”, then, is not to jettison logic; it is rather to marry logic with nomothetic observations about the operation of “the social process” and then place these “objective conditions….in a precise relationship” with the equally necessary idiographic “leadership” role of human agency. There is no paradox here: the subjective element that leads or initiates the “transformation” of the economic system must act within the boundaries of the objective conditions specified by logic and science: this necessity is what gives the phenomenon of capitalist trans-formation its mechanical or procedural character: it is the “trans-formation mechanism” (Veranderungs-mechanismus) that is the engine or “source of energy” (dynamis) of the Innovations-prozess.


The “freedom” of the leader or of the entrepreneur who leads this mechanism and this process is not an abstract concept: individual freedom operates within the objective conditions imposed by the “free-doms” of every other individual agent involved in economic activity. The subjective trans-formation of the capitalist economic system takes place within the boundaries and limits imposed by the specific historical “institutional framework” of this economic system: transformation and mechanism stand in geometric relation to innovation and process.


This cardinal quasi-Euclidean axiom of the absolute atomicity or in-dividuality and self-seeking self-interest of human beings is the most indispensable postulate of all bourgeois social, economic and political theories. Fittingly, it was the English translator of Euclid’s Elements, Thomas Hobbes, who first devised this worldview. In this worldview, there is no space for common human interests (inter esse, common being): therefore, the syllogistic conclusion is that “freedom” can be defined and exist not as a common human goal but only as “free-dom”, that is to say, as an equilibrium of opposing, conflicting and irreconcilable individual forces and wills. This equilibrium, the equilibrium of Greek stasis or civil war (bellum civium), can be overcome by political convention (totalitarian, democratic or elitarian) only because the atomized human individuals postulated in Hobbes’s theory know that the only outcome of such static equilibrium, of this stasis, will be the war of all against all (bellum omnium contra omnes) that will lead fatally (fate here turns into death) to the extinction of humanity. Even in its “free-dom” - indeed, as Weber had shown, especially in its “free-dom” – human action and leadership will obey that “conditioning” constituted by the dira necessitas (the dire necessity), the extrema ratio of self-preservation. The ultimate foundation of mechanical rationality both for the Hobbesian political system and for its neoclassical progeny in equilibrium theory is quite simply self-preservation, the “dire necessity” of surviving in the state of nature where homo homini lupus, man is a wolf to man. Free-dom consists not in acting irrationally but in acting rationally: in short, that decision is “free” that is taken rationally, by respecting the “precise relationship” between subjectively intended ideal goals and the objective “con-ditions”, the available means, for the implementation of those goals starting from the axiomatic postulate of the irreconcilable self-interests of individual human beings.


This is how Hobbes managed for the rising capitalist bourgeoisie an epistemological feat that has not been equaled since he wrote: - he managed, that is, to combine the positivist scientific hypothesis of Galileo-Newtonian mechanics with the jusnaturalist political convention of innate human rights, and thereby to erect bourgeois political practice on effectual scientific grounds. Hobbes begins with the positivist scientific hypothesis of the “universal conflict” between human beings taken as atomic individuals, and from there he develops “rationally” – that is, with the “rationality” of the “laws” of mechanics - the jusnaturalist political convention (common-wealth) that will make social life possible based on the “natural rights” of these conflicting individuals. (This astute twining of positivist authoritarianism and jusnaturalist contractualism is masterfully unjumbled by N. Bobbio in Da Hobbes a Marx.)


In order to erect his political theory, Hobbes starts from the Euclidean axiom that each human being represents a “point” or “body” entirely unconnected to other human “points” or “bodies” and entirely self-interested or, mechanically put, having its own momentum or “appetite” or “conatus” – which Hobbes calls “Power”. From this axiom he deduces that the original, most “natural” state of human beings, the “state of nature” or status naturae, is a state of civil war (bellum civium) or “the war of all against all” (bellum omnium contra omnes). This “clash of wills” or appetites, this “war of all against all”, can lead logically only to a deterministic mechanical equilibrium in which there is no “room for manoeuvre for the individual freedom of the will” because each individual will is bound by the wills and boundless appetites of other wills,  or else to the assured self-destruction of human beings. This is Hobbes’s scientific hypothesis taken directly out of Galileo-Newtonian mechanics.


The way out of equilibrium or stasis is provided by the ultima ratio, the absolutely indispensable need for self-preservation, which leads these atomic self-interested individuals to reach freely a political con-vention, an agreement or “social contract” that can avert mutually assured destruction. Here the positive empirical evidence of a society that the bourgeoisie has reduced coercively to little more than a moral jungle from which all notion of “natural law” has been expunged meets with and satisfies the jusnaturalist (natural-law) requirement that individuals must agree freely and rationally to a political regime that will protect them from civil war. Hobbes acknowledges that what coerces individuals to accept this bourgeois political regime based on “the laws of the marketplace” is the metus mortis, the fear of death at the hands of any other individual. And given that each individual is axiomatically defined as being “equal” in the ability to harm another in the state of nature, then it follows axiomatically that each individual decides freely (by political convention, otherwise known as “social contract”) and rationally (by scientific hypothesis, following the definition of in-dividuals in conflict) to erect a “common wealth” or State or status civilis that will protect them from certain death.


The central feature of capitalism is that the bourgeoisie has tried as far as is humanly possible without tearing asunder the very fabric of human society to reduce this society to the state of absolute possessive individualism. That is why all accounts of bourgeois economic theory must start with the axiomatic postulate of this possessive individualism. Hobbes did not neglect to include in the “possessive” part the ability of individuals to buy or sell their own “power”, meaning both their physical possessions and their labour-power, in exchange for physical possessions. In the Leviathan, he describes “the value or worth or price of a man” as “so much as would be given for the use of his power”. Clearly, Hobbes had already an embryonic notion of what Marx would theorize later as “labour-power”, the commodified form of living labour in capitalist industry.


As Loasby has very perceptively pointed out (in Equilibrium and Evolution), the “complete decentralization” of economic decisions that is implicit in Hobbesian political theory and then in Walrasian equilibrium economic theory makes the co-ordination of economic decisions “a matter of life and death”. This is indeed another factor that makes the Hobbesian-Walrasian schema or blueprint absolutely axiomatic for the analysis of capitalism. But this interdependence of human economic action is still subordinated to the axiomatic primacy of individual self-interest; consequently, it cannot form part of equilibrium theory except as a Hobbesian ultima ratio or dira necessitas ob metum mortis, dire necessity upon fear of death, as we explained above.


The locus classicus of “possessive individualism” is CB Macpherson’s towering study by that name. Alchian-Demsetz, to give yet another example of the rampant stupidity of Nobel prize laureates in economics, quite incorrectly select a negative definition of capitalism – the absence of government in the economic process - and completely leave out the “individual”:


The mark of a capitalistic society is that resources are owned and allocated by such non-governmental organizations as firms, households, and markets. [First sentence of “Production, Information Costs and Economic Organization”.]


This is quite clearly nonsense because, in practice and in reality, governments have historically played a crucial role in “the ownership and allocation of [social] resources”; and in bourgeois economic theory, it is individuals, not “firms and households”, that must axiomatically take precedence over “firms and households and markets”! It is possible, of course, that by “markets” Alchian-Demsetz mean the economic exchange of atomistic individuals. Demsetz in any case will later take a fresh look at competition as “perfect decentralization”, which requires the postulate of possessive individualism (cf. above all his “Freedom and Coercion” and “Fallacies in the Economic Doctrine of Externalities”).


Although our treatment of Hobbes’s political theory is perhaps more systematic than Hannah Arendt’s, we simply could not resist drawing on her devastating prose and quote in full what is truly one of the most moving and inspiring passages in her entire work which stands as a lasting indictment not only of the capitalist bourgeoisie but also of its venal intellectual apologists, among whom we count first and foremost professional economists:


It is significant that modern believers in power are in complete accord
with the philosophy of the only great thinker who ever attempted to derive
public good from private interest and who, for the sake of private good,
conceived and outlined a Commonwealth whose basis and ultimate end is
accumulation of power. Hobbes, indeed, is the only great philosopher to
whom the bourgeoisie can rightly and exclusively lay claim, even if his principles
were not recognized by the bourgeois class for a long time. Hobbes's
Leviathan ^^•' exposed the only political theory according to which the state
is based not on some kind of constituting law—whether divine law, the law
of nature, or the law of social contract—which determines the rights and
wrongs of the individual's interest with respect to public affairs, but on the
individual interests themselves, so that "the private interest is the same with
the publique." ^'^
There is hardly a single bourgeois moral standard which has not been anticipated
by the unequaled magnificence of Hobbes's logic. He gives an
almost complete picture, not of Man but of the bourgeois man, an analysis
which in three hundred years has neither been outdated nor excelled. "Reason
... is nothing but Reckoning"; "a free Subject, a free Will . . .
[are] words . . . without meaning; that is to say, Absurd." A being without
reason, without the capacity for truth, and without free will—that is,
without the capacity for responsibility—man is essentially a function of
society and judged therefore according to his "value or worth ... his
price; that is to say so much as would be given for the use of his power."
This price is constantly evaluated and re-evaluated by society, the "esteem of
others," depending upon the law of supply and demand.
Power, according to Hobbes, is the accumulated control that permits the
individual to fix prices and regulate supply and demand in such a way that
they contribute to his own advantage. The individual will consider his advantage
in complete isolation, from the point of view of an absolute minority,
so to speak; he will then realize that he can pursue and achieve his
interest only with the help of some kind of majority. Therefore, if man is
actually driven by nothing but his individual interests, desire for power must
be the fundamental passion of man. It regulates the relations between individual
and society, and all other ambitions as well, for riches, knowledge,

and honor follow from it.


Hobbes points out that in the struggle for power, as in their native capacities

for power, all men are equal; for the equality of men is based on the

fact that each has by nature enough power to kill another. Weakness can be

compensated for by guile. Their equality as potential murderers places all

men in the same insecurity, from which arises the need for a state. The

raison d'etre of the state is the need for some security of the individual, who

feels himself menaced by all his fellow-men.

[146….Hobbes was the true, though never fully recognized, philosopher of the
bourgeoisie because he realized that acquisition of wealth conceived as a
never-ending process can be guaranteed only by the seizure of political power,
for the accumulating process must sooner or later force open all existing
territorial limits. He foresaw that a society which had entered the path of
never-ending acquisition had to engineer a dynamic political organization
capable of a corresponding never-ending process of power generation….
For a Commonwealth based on the accumulated and monopolized power
of all its individual members necessarily leaves each person powerless, deprived
of his natural and human capacities. It leaves him degraded into a
cog in the power-accumulating machine, free to console himself with sublime
thoughts about the ultimate destiny of this machine, which itself is
constructed in such a way that it can devour the globe simply by following

its own inherent law.


Make no mistake: the Hobbesian-Weberian mechanical science we mean here is not an “objective science”, - for as Nietzsche demonstrated, there is and there can be no such “thing”! The science we intend here is a political practice based on the inflexible application of axiomatic rules to human society by a historically specific social class – the capitalist bourgeoisie. The bourgeoisie would be blind deaf and mute without this inflexible science, which is why it has erected the most fabled monuments to it. This science consists for the bourgeoisie in placing political decisions in a precise relationship to the existing relations of power in society that it has imposed to its own advantage so as to be able to reproduce them according to its own axiomatic postulates or schema. And then, of course, in presenting these political decisions as “that peculiar jumble of conditioning and freedom, which economic life shows us”, which is how Schumpeter defines “economic science”.


The question now is: what is this “precise relationship….of conditioning and freedom”, and how can it escape its evident apories and become effectual? It simply will not do, it entirely misses the point, to conclude that Schumpeter has failed in his attempt “to integrate theory and history” and to reconcile freedom and necessity (this is Moura’s claim in his homonymous essay based on Lawson’s epistemology): - because the crucial point, the key to the enigma, is to understand this “precise relationship [of subjective] to objective conditions”: that is the task and also the limit of science.


From the outset, Schumpeter’s aim is not so much to find out empirically the “mechanism” that impels the capitalist economy to change and mutate spasmodically; rather, his aim is to discover the conceptual requirements for the practical implementation of the axiomatic postulates of Neoclassical equilibrium analysis on which the very idea of a bourgeois civil society and of its economic system are founded. The “mechanism” is capable of being embodied by an “institutional framework” in which decisions are made within the limits and boundaries set by the axiomatic schema of the bourgeois system of social power so as “to put it in motion” or “energize” (the literal meaning of dynamis in Greek) it. In other words, the subjective, historical “force” or “source of energy” of the bourgeois social system must be placed in a “precise relationship” to the “objective conditions” or boundaries or strictures that are necessary for the expanded reproduction of human society in a bourgeois form. Schumpeter’s aim then is to find out the reason why capitalist society cannot stand still. This reason cannot be the result of experience because human experience could lead to uncertain outcomes. Instead, this reason has to be deduced from the very conceptual framework of a capitalist economy acquiring its own dynamic, from its axiomatic postulates “coming into being” or ec-sisting. Schumpeter’s science must be, as he styles it, a histoire raisonnee – a marriage of equilibrium and history.


The axiomatic postulates - the “reasoning” schema of this “history”, the logical basis for its “scientific hypothesis” - are formalized in Neoclassical political economy, of which Walrasian equilibrium theory is the most “perfect” expression. Now, a dynamic equilibrium is impossible if by equilibrium we intend a predictable state, because then any position of equilibrium is inescapable. It is possible to understand how an economy can reach equilibrium, but it is unimaginable that it can ever move out of equilibrium without the intervention of “external or exogenous factors”. As Schumpeter put it: “An equilibrium can only exist at all… [as] a static one. A dynamic equilibrium is a contradiction in terms.


The ec-sistence of equilibrium is not at all a pure mathematical concept. The requirements for the “pure” mathematical “existence” of economic equilibrium are entirely different from those of its real, practical ec-sistence. And this is so not just from the standpoint of practical experience itself, but indeed also and above all from the very conceptual requirements or implications of the practical ec-sistence of a concept. On one side, we have the formal conceptual elements of a concept; but on the other we have also the conceptual implications of its coming-into-being, of the ec-sistence of the concept, of its extrinsication or embodiment from ideal concept to conceptual reality! The two sets of conceptual requirements are simply not the same. Yet, it is absolutely evident that the practical requirements for the ec-sistence of a concept are just as much a part of its conceptual being as are the purely formal logical requirements of the internal consistency of the concept! But whereas the formal axiomatic definition of a concept can only be self-referential and “closed”, and therefore “totalitarian” or “tautologous” (cf. Hayek, Demsetz, Loasby, Langlois), the conceptual requirements for the ec-sistence of the concept turn it into an “open” concept because its practical implementation is subject to the minimal intuitive requirements of empirical experience and observation. At that point, the concept may be said to form a “scientific hypothesis” and it may be said to be “scientific”.


What turns Schumpeter’s “science” into “bourgeois science” is not this methodology but rather the necessary practical implications of the “axioms” adopted by bourgeois Neoclassical economic science, that is to say, the “precise relationship” between the axioms of the theory and their practical implementation or ec-sistence. If then we wish to find out what are the internal or endogenous factors that move the economy out of equilibrium we must separate the logical concept of equilibrium from the dynamic concept, which includes the practical implications of its real implementation. In this light, the concept of equilibrium serves only a schematic heuristic purpose but it can never be said to reflect the reality of a capitalist economy. Science is the meeting point of schematic formalism and empirical experience: the one cannot exclude the other, science must combine both. (To paraphrase Kant’s famous dictum, “intuition without concepts is blind, and concepts without intuition are empty”. Kant’s dictum is often misconstrued as: “thoughts without content are empty, intuition without concepts is blind”. But by “thoughts” Kant obviously means “concepts”, and by “content” he means “intuition”.) This is why a conceptual analysis of equilibrium shows that it cannot exist except as a closed stationary system, but also that it cannot ec-sist except as an open dynamic system.


Let us see how Schumpeter squares this circle. If we are successful in our attempt, we would have made perhaps the greatest leap in critical social theory since Nietzsche aphoristically and anti-systematically pointed the way to a solution of these apories, antinomies, enigmas and conundrums of bourgeois thought.

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