Let us look afresh at the lengthy quotation from Schumpeter’s Business Cycles with which we started this review of his theory of economic development.
As we can see, Schumpeter discusses in the same breath two matters that he does not link explicitly but whose link is necessary nonetheless: and the reason that he fails to make this link explicit is that he does not see that the link is indeed necessary! First, there is the fact that his shift in approach to economic theory from static analysis (Statik) to dynamic theory (Dynamik) involves the examination of “the economic system” not as an aggregate of inert mechanical bodies governed by pure economic laws that mirror exactly the laws of mechanics, so that any “change” to that system must be due to “exogenous factors”, but rather as a living organism made up of component members that interact meta-bolically both with one another and with their physical environment. But then, again discussed “in the same breath”, there is the fact that this novel approach of treating the economic system as a living organism so that there is “incessant change” in economic data means also that now “prices are indeterminate”, although Schumpeter hastens to add that this “does not paralyze the tendency to equilibrium”, falling thus into the error that we pointed out previously, namely, that of treating Dynamik and Statik as a categorical continuum when he himself had admits throughout his oeuvre that the two processes, evolution and equilibrium, are categorically incompatible.
As we saw in an earlier section of this review, the real reason why prices must be indeterminate in Schumpeter’s novel approach – the Dynamik - is not so much that there is “incessant change” in economic data, as Schumpeter seems to believe, but rather that the economic system is now seen as a living organism that interacts metabolically with its physical environment- with its “physis”. Schumpeter does not see that his “economic agents” (Wirthschafts-subjekte) cannot be treated as “atomistic individuals” because these presumed “in-dividuals” are now able to pro-duce, “to innovate”, rather than merely to exchange existing “endowments”. In other words, in the Dynamik, the individual component members of the economic system become economic agents able to initiate economic activity, that is to say, they can pro-duce new economic resources and needs rather than merely exchange existing or “given” economic resources - the “endowments” of neoclassical equilibrium theory. These presumed “individuals” are now theoretically able to produce for exchange and to exchange for production, and not simply “to exchange”. Because of this, it is impossible to attribute a “scientifically objective” or “determinate” or “absolute” value or price to production because prices regulate the distribution of the product and it is quite impossible to attribute both the “ownership” of the product and the economic claim to the pro-duct on the part of different pro-ducers because pro-duction involves the metabolic interaction of individual economic agents, singly and collectively, with their physical environment. And this metabolic interaction is impossible to measure – to value and to price – because it constantly changes the relations among individual producers in both a quantitative and a qualitative sense. To repeat, it is impossible to attribute “ownership” and economic claims by producers to production because “economic agents” are now considered not merely to exchange existing resources (endowments) with one another, but instead are also able to produce new resources by interacting meta-bolically with the physical environment in which “the economic system” operates.
And they interact metabolically with the physical environment not ontogenetically, as atomistic individuals; insteqd, they must so interact phylogenetically, as component members of a living organic community. For it is impossible for an economic system that is a living organism to attribute ownership claims to its individual members given that, as a living organism, it must interact metabolically with its “physical environment”! Indeed, although it is tempting to refer to this physical environment as “the external physical environment”, it is quite misleading to do so because there is nothing “external” to a living organism about the physical environment in which it must metabolize.
This is why prices are indeterminate in this new framework of social analysis: if we treat the economic system not as a “closed totality” but rather as a living organism metabolizing with its physical environment it is quite impossible to calculate at all, through any “price mechanism”, the contribution of individual members to the production or welfare of the living organic community.
We can see therefore that by moving away from Statik to Dynamik Schumpeter ought to have added three new inter-related theoretical components to his analytical framework: the first is “social labour”, the second is “production”, and the third is “metabolism”. It can be objected that Schumpeter meant to include all three elements in his overall category of “innovation”, but we will show presently that although the concept of “innovation” certainly includes that of “pro-duction”, intended as the making of fresh resources and needs, Schumpeter fails to theorize “pro-duction” explicitly as “metabolism” or “living activity”, and the other two elements he either confuses (“individual labours” with “social labour”) or wholly neglects (metabolism) because of his obsessive focus on “the economic system” as “totality” and on metabolic production as “individual labour” rather than “social labour”.