Saturday, 14 June 2014

Schumpeter and Heidegger (Part One)

This is the first part of a chapter of the Schumpeter-buch that we have been posting over the last few weeks. At the cost of sounding "quite contrary", we certainly do not agree with the "Heidegger=Schumpeter" notion (quite a stupid idea, to be perfectly blunt). "Heidegger" here stands for the phenomenological application of Nietzsche's ontological insights - which were far "deeper" than Heidegger's, but at the same time less "sociological". This is why I thought it more appropriate to refer to Heidegger rather than Nietzsche even though Schumpeter developed his own sociological ideas far more profoundly and eruditely (at least in the "socio-logical" sphere, clearly not in the philosophical one!) long before Heidegger even dreamed up Sein und Zeit! Schumpeter's now famous "Chapter 7" of the Theorie dates back to at least just after the publication of Das Wesen in 1908. But again, to have con-fronted (contrasted and compared) Schumpeter's socio-economic theses with those of Nietzsche seemed far more difficult than doing so with Heidegger, if for no other reason than that Heidegger's views are delineated far more "systematisch" than those of the great "Anti-Systematizer" himself - Nietzsche. Cheers.

The commonsense of this tool of analysis may be formulated as follows: first, if we deal with, say, the organism of a dog, the interpretation of what we observe divides readily into two branches. We may be interested in the processes of life going on in the dog, such as the circulation of the blood, its relation to the digestive mechanism, and so on. But however completely we master all their details, and however satisfactorily we succeed in linking them up with each other, this will not help us to describe or understand how such things as dogs
Joseph Schumpeter, Business Cycles. (1939) 29
have come to exist at all. Obviously, we have here a different process before us, involving different facts and concepts such as selection or mutation or, generally, evolution. In the case of biological organisms nobody takes offense at the distinction. There is nothing artificial or unreal about it and it comes naturally to us; the facts indeed impose it on us.
It is incessant change in the data of the situations, rather than the inadequacy of the data of any given situation, which creates what looks like indeterminateness of pricing. We conclude, on the one hand, that we must take account of this pattern when dealing with the process of change which it is our task to analyze in this book and which must be expected to create precisely such situations, and, on the other hand, that it does not paralyze the tendency toward equilibrium [Gleichgewichtstendenz](Business Cycles, p.43)

There comes a time when even the bourgeoisie must contemplate its own surcease. In this revealing passage, Schumpeter canvasses with Heideggerian Entschlossenheit (or, as the Freiburg philosopher would put it, with “resoluteness” in confronting “being-toward-death”) the eventual demise of capitalism. The very reality of social change and of economic evolution contains the certainty of capitalist extinction: “The facts indeed impose it on us.” This is a reality that equilibrium analysis by its very formal character quite simply cannot countenance. There is no “being-toward-death” in equilibrium, no Da-sein – and no “extinction”. But the important realization in Schumpeter’s reflection above is not so much this “existential” dread, the fact that formal theory can never encompass existence (cf. Kierkegaard’s vehement critique of Hegel’s dialectic); it is rather the fact that equilibrium theory completely neglects the most essential aspect of economics – the “pro-duction” of goods and services and therefore the “metabolism” of the economic system with the physical environment of which human beings are part (this is indeed the very first concern of Schumpeter’s intellectual mentor, Eugen Bohm-Bawerk, at the beginning of The Positive Theory of Capital).

The certainty that equilibrium theory affords lies in the axiomatic determination of prices. Yet, once we allow the market participants of equilibrium, which as we have shown are merely mechanical inert bodies, to become political “economic agents”, then the prices of the economic system become wholly “indeterminate”, precisely because the system undergoes “incessant transformation” or mutation. For Schumpeter, the problem with both Classical and Neoclassical economic theories is that their formalization of the relations between the component parts or functions of the economy (supply, demand, investment, consumption, interest, monetary mass), is entirely “static” or “closed” or “self-referential”, and is therefore entirely incapable of accounting for the equally observable fact of the “dynamic” movement of the capitalist economy, for its mutation “from one equilibrium to another”, - equilibria that are quite different not only in quantitative but also in qualitative terms! Capitalist development is not just horizontal quantitative growth or development (Wachstum); it is above all vertical qualitative mutation or evolution (Entwicklung). Schumpeter’s initial objection to the translation of Entwicklung with “development” rather than “evolution” is all here: “development” refers to incremental change; “evolution” points starkly at the possibility of extinction. Of course, the term “evolution” has its own problems in the sense, first, that capitalism is not a “dog” (however much we Marxists woud like to think of it as such), in other words it is not an animal species with genes so that the analogy is very imperfect; and second that “evolution”, as Schumpeter himself pointed out, has a tone of “complacency” about it. Indeed, it is even possible to challenge the status of equilibrium economics as “science” given that, to reprise Schumpeter’s metaphor of the “circular flow” or Kreislauf, equilibrium analysis is just that – mere ana-lysis! It is, as it were, a descriptive or “ana-tomical” schema that can only “photograph” or sketch an economic system and “classify” its individual organs. It relies exclusively on “pure exchange” and on the maximization of welfare or utility from the redistribution of “given endowments”. Above all else, because equilibrium is quite simply a formal descriptive schema, it exists only logically, but it does not ec-sist in the sense that it does not face the certainty of death, in the case of its “individuals”, or the certainty of “extinction”, in the case of the capitalist economic system. Once the certainty of ontogenetic death and phylogenetic extinction are taken into account, then we understand that the “individuals” that make up the economic system must deal with their physical environment, with their physis: – this is the “metabolism” that is entirely and conceptually absent from the equilibrium schema and that is instead essential to the notion of market process, that is, to the unfolding or extrinsication of an economic system in the physical world.

What equilibrium analysis cannot do is understand and explain how the economic system metabolises, how it interacts with its social, political, and physical environment, how it grows, mutates, and dies – or, phylogenetically, how it evolves and becomes extinct. Seen from the point of view of “market process” – which, as we explained earlier, is the quasi-logical or dialectical conceptual extrinsication or unfolding of the concept of equilibrium, its Heideggerian ec-sistence – seen from this perspective, equilibrium is a purely descriptive or classificatory exercise: it merely describes the logical and functional relation of each component of an economic system to other components, and then determines the price matrix that will maximize the individual utility schedules of its self-interested individuals.

But two essential points must be made and understood: first, the “prices” or exchange rates of goods at equilibrium are mathematical identities that do not tell us “what” is being exchanged except for the purely metaphysical notion of “utility”. The equi-valence of the “exchange” in a static framework merely destroys or dissolves in the identity of the objects exchanged, in their formal equi-valence, their difference (cf. Heidegger, Identity and Difference) - in such a way that the “exchange is not “pro-ductive”, it is not meta-bolicthere is no “change” in this “ex-change”! Even then, this “exchange” of “utilities” is quite simply impossible when we consider the “atomicity” of the “self-interested individuals” of equilibrium theory. For it is quite absurd to imagine that such absolutely “self-interested” and “in-dividual” entities – Aristotelian entelechies! – could ever be able to exchange anything at all! For any “exchange” to be possible or meaningful, there must be a sub-stance that makes the objects of exchange “equi-valent” – “of the same value”. But it is precisely this Objective Value that is utterly absent in equilibrium analysis because of the bottomless “in-dividuality” and irreconcilable “self-interest” of its market entities, of its “individuals”! The only “value” present in equilibrium is Subjective Value which, as an inevitable result of its “subjectivity”, is quite simply “incommensurable”. But every self-interest must share some common element with other self-interests to give meaning to the conflict of interests (the difference) that makes exchange possible. Every com-petition must have an “object” over which competitors “com-pete” (seek together)! This “object”, this sub-stance or quidditas, this subject-matter that forms the communion of the exchange (the contractual “meeting of the minds” over an “object”, its syn-allagmatic [to bring the different together] or cat-allactic [to turn enemy into friend through exchange] character) is entirely missing in the theory of equilibrium!

Second, as a corollary of the first point, equilibrium theory allows only for the “exchange” of goods and services: it tells us nothing about how they are “pro-duced”, that is, it tells us about the “subjective” estimations by market participants of their goods for exchange with respect to one another, but tells us nothing about the relation of market participants to their natural environment. Third, market participants are mere inert bodies that obey the axiomatic conditions imposed by equilibrium theory: they are certainly not “economic agents” making their own spontaneous decisions. And finally these economic agents are not allowed to interact with one another or with their physical environment – an exclusion that automatically removes the “object”, the subject-matter of economics and eschews politics from the field of economic inquiry because (a) there is no “object” over which to haggle (there is no disputandum, no com- of com-petition and no con- of con-flict), and (b) atomic “in-dividuals” cannot form “friends” with whom to fight “foes” (cf. Carl Schmitt’s definition of the Political in The Concept of the Political).

In other words, seen from the perspective of the market process, equilibrium (a) is internally inconsistent because it contains aporetic and antinomic concepts, (b) does not allow for the ontological and phylogenetic ec-sistence of its “individuals” in the sense that their “existence” is purely logico-mathematical , (c) does not allow for pro-duction, that is, for the metabolic interaction of human beings (alone or together) with their physical environment, and (d) is entirely devoid of Politics because of its “individualistic” existential or ontogenetic axioms which exclude phylogenetic reality. As we have seen, without this metabolic or frictional interaction with themselves (the Political) and with the world (phylogenesis) – without the physis -, capitalist competition or enterprise is unthinkable because innovation and profit-making are unimaginable, and so too therefore is economic “change”. The self-interested individuals that make up the market mechanism of equilibrium analysis are “inert bodies” that obey mechanically the axiomatic “pure laws of competition” imposed externally and logico-mathematically on them.

There are two essential aspects to metabolism here that are entirely different from and make it incompatible with equilibrium analysis. The first is that the economic system is trans-formed “from within” by the spontaneous actions of its “economic agents”. And the other aspect is that these economic agents transform the economic system not merely relatively to one another as atomistic individuals, that is, considered ontogenetically – as they must do axiomatically in equilibrium theory which involves only “relative prices” or “exchange rates” and therefore only “pure exchange” – indeed an exchange so “pure” that it lacks an “object” -; but they also transform the economic system by interacting (a) with one another as aspects of being human, that is to say, phylogenetically, and (b) with their physical environment, which includes not just surrounding nature, but also their own physical being, their physis.

We have therefore two questions: the first is the transcendental question of existence, and the second is the immanent question of metabolism. The former involves for the study of economics the ontological question of why is there an economic system at all and not nothing (cf. Heidegger’s question “why is there something and not nothing at all?” in Einfuhrung in die Metaphysik); and the latter involves the question of why the economic system is what it actually is now – what is its material history. These are the crucial questions that Schumpeter attempts to consider and fails because he limits himself to the transcendental question but never even remotely tackles the most important question – the historico-materialist one of metabolism.

It is simply irrelevant and incorrect to accuse Schumpeter of failing “to integrate theory and history”. Given that Schumpeter never even considers the question of immanent metabolism, given that he considers only the question of transcendental existence – that is to say, the application of an abstract formal schema to empirical facts -, there was simply no way in which these antithetical concepts could ever be “integrated”! Such a criticism of Schumpeter is a lucus a non lucendo – a fire that will not light – because of the antithetical terms in which the question is posed by Schumpeter. And Schumpeter poses the question in these terms precisely because he is attempting “to make whole” – the literal meaning of “to integrate”! – the social reality of capitalism that is broken and fragmented! As a result, Schumpeter’s theory must forever oscillate, like a pendulum, between logico-mathematical formalism constituted by the functional-analytical, descriptive-anatomical schema of equilibrium theory, on one side, and the subjective-voluntarist, ethico-political hypostasis of the Innovationsprozess on the other.

To deplore the absence of “reality” in equilibrium theory (vedi Lawson, Economics and Reality) or Schumpeter’s failure to integrate theory and history (vedi Moura’s homonymous essay) is to make the biggest error of all! And that is that no economic theory, however sociologically or historically informed, will be able to reflect the antagonistic “reality” of capitalism scientifically! No theory - as theory! - will be able to integrate what is the broken, fragmented antagonistic reality of capitalist society! Lawson and Moura have completely misconstrued the ineluctable ethico-political instrumental purpose of bourgeois economic theory behind its “scientific mask” – and indeed the instrumental purpose of any “economic” theory, that is, of any theory that attempts to present as “scientific” what is necessarily a “partisan” (Schmitt), non-neutral account of social reality! (Cf. Weber’s Objektivitat for what is decidedly the greatest attempt from a bourgeois social theoretician to com-prehend these paramount issues.)


Lawson and Moura make precisely this mistake of confusing political antagonism with “existential human choice”, which is a purely “individual” category that conceptually obscures the sphere of politics because the Political cannot be reduced to the humanistic abstractions of individual existence and free will (not to mention the theological one of “the soul” – cf. Jaeger’s The Theology of the Early Greeks). Like Schumpeter, in their attempt to outline and prescribe a “historically-conscious” or “reflective” economics - they confine themselves to transcendence – and therefore fail to consider what is the real problem with Schumpeter’s “pure economic theory of economic change” - namely, the complete neglect of metabolism, that is, of the sphere of pro-duction and of the social and political antagonism that is the very essence of the capitalist mode of production.


To be sure, Schumpeter’s theory does rest on the ineluctability of conflict, the universal Eris, not just in capitalism but in the entirety of existence – that is the entire point of his Dynamik and, as we are about to see, of his entire “rationalisation” of the scientific need for a Statik! Like Nietzsche, Weber and finally Heidegger, Schumpeter presents and understands social and political and economic conflict as an absolutely ineliminable reality not only of human, but indeed of all existence. As we remarked above, there is no “dialectical spiral” in Schumpeter and in the entirety of the negatives Denken from Schopenhauer to Hayek: there is only the “eristic pendulum” of stark opposition (Gegensatz, Gegen-stand) between human self-interests that are transcendental and ontogenetic (cf. Heidegger’s notion of Da-sein and Nietzsche’s notion of “exploitation”) and therefore admit of no immanentistic phylogenetic and dialectical “reconciliation” (cf. Hegel’s notion of Versohnung). That is the whole point to the “methodological individualism” of the Austrian School.

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