Commentary on Political Economy

Tuesday 23 September 2014

Schumpeter and Classical Political Theory

To be sure, the analytical framework of Walrasian equilibrium is also beset with “unscientific” ethico-political and indeed metaphysical problems. It is hard to imagine, for instance, a more metaphysical notion than that of “utility”, which is essential to neoclassical economic theory. Or indeed even the notions of “individual” and “self-interest” that form the mechanical elements of equilibrium theory. Yet equilibrium theory, exactly like Hobbes’s notion of the state of nature or state of civil war, begins with the formal equality of individual market participants who are unequal or different only in the “endowments” with which they conduct their perfectly competitive market exchange.


Indeed, it could be argued that the differences in “initial endowments” do not constitute “inequality” given that no two individual human beings are alike! The central ethico-political assumption of equilibrium theory is that individual market participants have a legal right to their initial endowments. Once this initial legal right is accepted, then the entire “settlement” of equilibrium exchange transactions in accordance with utility schedules is mathematically determined. The absence of “profit” or “surplus value” in neoclassical equilibrium theory means that the problem of the Dynamik, that is, the problem of the mutation or trans-formation of the economic system, of its “evolution”, is not even posed.




Just as in Hobbes’s theory it is the necessary (to preserve one’s life) yet free and rational (free because rational) decision of individuals to alienate their “free-dom” in exchange for the totalitarian rule of the State, which establishes civil society and proclaims positive laws, so in equilibrium theory self-interested individuals are governed “from outside” by the quasi-Euclidean totalitarian axioms of the theory which, as we saw earlier, transform “economic agents” into the “inert bodies” of mechanical physics. Just as in Hobbes’s state of nature individuals transfer mechanically their de facto possessions or power to the civil state so that they may be socially recognized as “legal possessions”, so in equilibrium theory the “endowments” of individuals are sanctioned axiomatically without any question being posed about how and with what right they came to acquire these “initial endowments”. Neoclassical equilibrium theory is entirely analogous to Hobbesian political theory in that its “government” is entirely external to its governed individuals who therefore acquire their possessions and formal equality before the law from the State. The conflicting “free-doms” of individuals lead them to agree, on pain of mutually assured destruction, to alienate their individual “free-doms” to the State. Because the “government” is mechanically imposed on its “subjects” – because the contractum unionis becomes instantly or mechanically a contractum subjectionis – we call this equilibrium state or political state a “state by institution”.


By contrast, in the case of Schumpeter’s Dynamik, given the “indeterminateness of prices” caused by the fact that the economic system is changing endogenously (“from within” and not “from outside” as in equilibrium) through the innovative actions of “economic agents” (Withschafts-subjekte) and changing “incessantly”, the question that comes up immediately is not just how initial entitlements or endowments are to be settled between economic agents, but also how present and future endowments or entitlements are justified! In other words, the ethico-political questions raised by the Dynamik relate not just to the initial acquisition of property rights, to their transfer from the state of nature to the civil state, but also and especially to the present and future legal claim over the pricing of all goods and services for exchange on “the market”. In this case we have a Lockean “state by acquisition”.


The contrast between John Locke’s political theory and the Hobbesian theory lies centrally in the fact that the first relies on the existence of “natural rights” possessed by individuals in the state of nature which are then transferred to the civil state by agreement or social contract so that they may be protected by the State. In other words, for Locke, unlike Hobbes, “natural rights” exist already in the state of nature, and it is only for protection that individuals contractually acquire a State to preserve these natural rights from violent acts that would lead to a civil war. Unlike Hobbes, then, Locke does not believe that the state of nature is a state of war of all against all in which no “natural rights” can be said to exist, except for the right to preserve one’s life! As a result, the Hobbesian State is totalitarian in the sense that its citizens have alienated all their freedoms and possessions to the State and the State is the sole source and guarantor of positive laws. By contrast, the Lockean State is a liberal “state by acquisition” in the sense that the state of nature is already one with natural rights that precede the formation of the State: therefore the State is subordinate to these natural rights which it acquired from the state of nature, and its role is merely that of protecting its citizens - their “life, liberty and estate” - from eventual infringements that might arise in the state of nature. Unlike the Hobbesian State, the Lockean State does not determine the content of positive laws: it merely safeguards or guarantees pre-existing natural rights: it is strictly Police – the protector and enforcer of the salus publica – but subject to the division of powers. Whereas the rationale of the Hobbesian State contains a genial mixture of both jusnaturalist (the preservation of life) and therefore contractual, as well as positivist (it is the sole source of law) and therefore totalitarian elements (there is no division of powers), because it is the last resort, the ultima ratio, the Lockean State instead is entirely a jusnatural and contractual or liberal institution meant to protect natural rights already acquired in the state of nature.


It is easy to see, thus, the close analogy between the Hobbesian state and Walrasian Statik equilibrium theory, on one side, and the Lockean state and Schumpeter’s Dynamik, on the other side. Schumpeter’s Dynamik resembles the Lockean liberal State in the sense that the claims laid by entrepreneurs to profits, by capitalists to interest, and by workers to wages, as well as by landlords to rent, are based entirely on ethico-political grounds and not on an axiomatic mechanical exchange derived from the logico-mathematical matching of given individual utility schedules! Unlike the Walrasian Statik, in the Schumpeterian Dynamik nothing is “given” – there are no “data” – because everything is “acquired” ethico-politically by virtue of the “actions” of economic agents – Schumpeter’s Wirthschafts-subjekte – who are no longer the unconscious inert bodies of equilibrium theory but are rather free and creative individuals whose innovative acts enliven an incessantly changing and mutating economic system.

Just as in Hobbes, who is the archetype of bourgeois social and economic “science” (cf. the lyrical rendition of a masterly intuition on the part of Hannah Arendt in Volume 2 of The Origins of Totalitarianism quoted above), we find, on one side, the positive “scientific hypothesis” or rationale provided by the framework of equilibrium whereby the capitalist system can be ana-lysed as a “balance of competitive and conflicting forces” whose ultima ratio is that metus mortis (fear of death) that pushes atomic self-interested individuals out of the status naturae (state of nature), out of its stasis (civil war), and out of its “gravitational centre” or equilibrium, into the metabolic orbit of the political convention or status civilis (civil society). The conflict of the state of nature is transformed into entrepreneurial activity under the protection of the State. But under this commercial “continuation of civil war by other means” (Constant), an ethical or political or rational-efficient productive-scientific rationale must be found for the determination of prices (for the theory of distribution) – considering the “separation” between “worker/product” and employer/worker/product. Thus, on the other side we find the jusnaturalist “political convention” or rationalization of the status civilis (civil society) that takes into account the political and bureaucratic “frictions and fictions” and compromises, the conventions and atavisms, all guaranteed by the “Common-wealth”, that is to say, the State, that drive the political system back into the paralysis, stagnation or sclerosis and finally the stasis (civil war) of the status naturae. Thus, jusnaturalism and positivism become Janus-faced or enigmatic concepts, the one entering the other as it exits itself. The profit-seeking of pure competition (jusnaturalism) drives out of equilibrium, but the profit-making of imperfect competition (positivism) pulls back into equilibrium. The tendency here is toward “entropy” or paralysis – due to the proliferation of protective measures and to the easier reliance on conservatism – leading to civil war (stasis or bellum civium).


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