THE STATE IN ECONOMIC THEORY - Prelude

This is a prelude to the next piece which will be an unmissable study of the role of the State in economic theory. We ask our friends to watch out for what I think is a most instructive and enlightening study of the problem of the State in society.

 

THE STATE IN ECONOMIC THEORY

 

“Property is theft.” – Proudhon, Philosophie de la Misere

 

“They say that patriotism

Is the last refuge

To which a scoundrel clings.

Steal a little and they

Throw you in jail,

Steal a lot and

They make you King,” – Bob Dylan in What’s a Sweetheart like You doing in a Dump like This.

 

Property, as we are learning increasingly now that it is concentrated in ever-fewer hands, is the exclusion of others from what are unavoidably “social” human resources. Resources or “use values” are “social” not in the sense that they are shared by “individuals” – by human beings understood as “atoms” – but rather in the sense that they affect single human beings in their very “being human” – just as the Ebola virus does not afflict “individuals” but attacks us as specimens of the one species. Marx’s discovery of the Doppelcharakter of production in capitalism, contrasting the “use value” of human production with its “exchange value” under capitalism, was meant to highlight the fact that “use values” point well beyond the uni-verse of “economics” with its “exchange value” toward the multi-verse of human values. That is why Marx thought Proudhon’s famous motto about “property” (more than just an aphorism encapsulating Rousseau’s thesis in De l’Inegalite’) was so worthy of approbation. Yet even though the notion of property is so obviously “legal” and requires of necessity the existence of a State apparatus to enforce it, even Marx could conceive in his own “critique of political economy” that it was possible to isolate the role of the State from that of “property” or “the market” or “the economy” as an object of “scientific” inquiry.

 

In what could only be the heightened perceptiveness of a poet, Bob Dylan instead brings together the existence of the State, of the “re-public” or “public thing”, which is shared by all “citizens”, which should be the acme of our sense of duty and devotion to it as the objectification of our social existence – hence of our “patriotism” – becomes in reality “the last refuge of scoundrels” who end up being made “kings” or members of Congress or Parliament because they own the most “property” and therefore “steal a lot”, whereas it is those with the least property – those who “steal a little” – who end up in jail! What this reveals is that only “scoundrels” have every right to be “patriotic” – because the rest of us have very little stake in the defence of the “public thing”, of the “republic”, and therefore of the State!

 

The twin crises of the Ebola virus and of the ISIS – two most virulent diseases that threaten our very humanity from opposite ends, the microscopic and the macroscopic -; these twin crises bring prepotently before our eyes what is the real “disease” of capitalist society: the utter and devastating impossibility of true “patriotism” for those living under the rule of the capitalist State. It is this collapse of the legitimacy of the capitalist State as “re-public” that requires imperiously a re-assessment of its role in economic theory so that we may elaborate a strategy of attack against a “machine”, an “apparatus” that grows more leaden and obsolescent, corrupt and corrosive with every passing hour – and that finally, as in Hong Kong right now, threatens our most basic needs for freedom and fulfilment or, as in Mexico with the obscene hecatomb of our student comrades at the hands of corrupt police and gangsters, threatens our very lives!

Schumpeter's Wirthschafts-subjekte

The entrepreneurial Spirit is “un-ethical” or “extra-moral” (Nietzsche) in this sense: its “innovation” is also a breaking of the rules, a making of Value without “being valued”. The entrepreneur is an initiator, an “author” possessing a Nietzschean “extra-morality” (aussermoralischen Sinne), a Heideggerian “authenticity” (Eigentlichkeit) – the recognition of the Zuhandenheit of the world, of its “mundanity” - that therefore, in its “resolve” (Entschlossenheit) is able to rise above the “quotidianity” (Alltaglichkeit) of “the masses” and their Sartrean mauvaise foi (bad faith).

 

The “State” of equilibrium represents the Ethics of “formal equality”, of equi-valence, identity not difference: the bourgeois liberal State is  bureaucracy (Hegel), Rationalisierung and Entzauberung (Weber) – a “Positivity” (Heidegger’s “presence”) that is shattered by the negativity (“creative Destruction”, not “destructive Creation”) of the Entrepreneur – who represents the dynamic creative Individualitat opposed to the “tranquility” of the body politic. Again, the polemos of the state of nature is turned into the “dynamic energy” (dynamisch, energisch) of the captain of industry, of leadership – against the “statisch, hedonisch Impuls der rationalistischen Typus”, of the “capitalist owner”, the banker and financier reliant not on “entrepreneurial profit” but on passive “interest”. (See Joseph A. Schumpeter: ein Sozialökonom zwischen Marx und Walras by Heinz D. Kurz, p.46.)

The bourgeois liberal State – the “State” of equilibrium – is the true political State of capitalism. But the Schumpeterian entrepreneur is not the pro-duct of this “ethical” and “hedonistic” State! Capitalism creates the con-ditions, the institutional ingredients for the emergence of the entrepreneur – but the entrepreneur must not be confused with and mistaken for a “capitalist”! The entrepreneur is the antithesis of the “capitalist” – as we have sought to demonstrate throughout our study of Schmpeter and his “capitalist metaphysics”. The capitalist seeks the “tranquility” of the economy – its “equi-librium” on the economic side. And the homologation, the equi-valence of Economic equilibrium and Political “tranquility” is the “social Peace” of bourgeois liberal society – its Kantian-Hegelian Ethics. It is not capitalism that induces “creative destruction”: it is the entrepreneur that does so against the “hedonism” of the capitalist financier, against the “social Peace” of the bourgeois liberal State!

These innovations occur whenever the entrepreneur needs them, and if it were not the case that an entrepreneur, in his particular role as an entrepreneur, would already be waiting in order to use any new invention, then these innovations would never be realized in practice. It is not the innovations that have created capitalism, but capitalism that has created the innovations needed for its existence. One could gain the opposite impression only from the fact that we know only of an economy replete with development, and here, everything takes place so fast and immediately, that we cannot always distinguish between cause and effect…. The process of development itself and its driving force would in this case also lie somewhere else, particularly in the personality of the entrepreneur. In the absence of people with such leadership qualities these kinds of innovations would never come alive.[479-80]

In other words, capitalism has created the conditions for the emergence of the entrepreneur: but the entrepreneur is distinct and separate from “capitalism” and its Ethical Ideal of an equilibrated, static and hedonistic liberal bourgeois societyin which the capitalist market economy provides the underpinnings for the Political liberal public sphere of freedom of expression. This neat homologation or equivalence of capitalist Economy and bourgeois Politics is absolutely impossible for Schumpeter because the real essence of capitalism is not “equilibrium” but quite to the contrary it is “permanent crisis”, it is “creative Destruction” – conflict, not “social peace”!

A minority of people with a sharper intelligence and with a more agile

imagination perceive new combinations. … Then there is an even smaller

minority—and this one acts. … It is this type [the Entrepreneur] that scorns the hedonic

equilibrium and faces risk without timidity. He does not consider the

implications a failure will inflict upon him, or care whether everyone depending

upon him will lose their keep for old age. … The decisive moment is therefore

energy and not merely ‘insight’. (Schumpeter, 2002b, 413–14; cf. 1912, 163–4)

Most people tend to their usual daily business and have enough to do at that.

Most of the time such people are on slippery ground and the effort to stand

straight exhausts their energies and suppresses all appetite for further

exploration. … [Furthermore, t]hey do not have the force and the leisure to

think the matter through. The daily work keeps them down, organization as well

as the influence of their colleagues inflict untearable chains on them. This is the

masses. (Schumpeter, 2002b, 412–13; cf. 1912, 162–3)

In each sector there are statically disposed individuals and there are leaders. Statically disposed individuals are characterized by essentially doing what they have learnt, by moving within the received boundaries and by having in a determining way their opinion, dispositions and behaviour influenced by the given data of their sector. Leaders are characterized by perceiving new things, by changing the received boundaries to their behaviour and by changing the given data of their sector. (Schumpeter, 2002b, 428; cf. 1912, 542–3)

 

Es gibt Wirtschaftssubjekte …deren Verhalten durch den hedonische Impuls definitive charakterisiert ist, Wirtschaftssubjekte die man als “statisch” kat Esochen bezeichnen kann. [Theorie, 35]

 

By Schumpeter’s own admission, the trans-crescence of the capitalist economy gives rise to profoundly revolutionary and unsettling “crises” or “extraeconomic effects” through the “creative destruction” brought about by the competitive innovation of entrepreneurs that quite simply cannot be “governed” by them and that therefore require exquisitely “politico-institutional” intervention on the operation of the market economy by capitalist State institutions. In other words, far from being a self-regulating mechanism at or near any form of “equilibrium” - whether “static” or “dynamic” or “evolutionary” -, the capitalist economy needs to be constantly guided and governed by a central political institution such as the modern State that necessarily invalidates the notion of entrepreneurial competition and innovation as pure scientific economic categories!

Schumpeter theorises the entrepreneurial spirit and the process of innovation in isolation from the political institutions of capitalism, which he belittles as the “hedonic and static” state of equilibrium. As we saw earlier in this study, the chief objection moved by Max Weber against Schumpeter’s theory was precisely that it unduly neglected the paramount relation between state bureaucracy and private capitalist factory – both of which Weber saw as aspects of “enterprise” (Betrieb). In the words of Cacciari,

 

“Ecco perche’ Weber parla del Politiker, non dell’ Imprenditore. Egli non dimentica l’ Imprenditore: ne aveva gia’ ricercato le origini. Ma, tra il 1905 e il 1918, il problema decisivo diviene la scelta politica sulla forma e sui tempi del rapporto scienza-sviluppo, le istituzioni politiche atte a assumere gli effetti dell’ innovazione. In realta’, nessun mercato puo’ piu’ funzionare in forma schumpeteriana “pura”. In termini espliciti: nessun Imprenditore potrebbe piu’ esistere senza Stato,” (Pensiero Negativo e Razionalizzazione, pp.158-9).

[That is why Weber speaks of the Politiker, not of the Entrepreneur. He does not neglect the Entrepreneur – he had already traced his origins {in the ‘Protestant Ethic’}. But for Weber the decisive problem between 1905 and 1918 became that of the political choice of the modality and timing of the relationship science-development, of the political institutions able to govern the effects of innovation. In reality, no market could function any longer in ‘pure’ Schumpeterian fashion. Explicitly put: no entrepreneur can exist any longer without the intervention of the State.]

The final point then becomes a question: why, when all is said and done, must capitalist society proceed or evolve or develop or trans-cresce through crises? And what does that tell us about the nature of “innovation” or “technological progress” and its motivation, that is to say, profit?

Homage To Hong Kong's Freedom-Fighters -- Weber and Schumpeter on the Capitalist Rationalisierung

The heroic uprising of Hong Kong's youth against the dark forces of capitalist coercion currently manipulated by that most vile and truculently murderous dictatorship - the Chinese Communist Party, aided and abetted hypocritically by the so-called "Western democracies" - brings prepotently to the fore the question of what kind of State, what kind of democracy, is consistent with the profoundest and noblest aspirations of our humanity. Two things are obvious: it is sheer brutal coercion for a State to presume to rule over us unless it is or becomes the expression of our innermost needs. And on the other side, it is clear that our needs must have become such that their true fulfilment must be consistent with the existence of a democratic State. The State must therefore be the expression of these individual needs, and individual needs must be in conformity with a politically democratic State. These are not the two horns of a dilemma - which is how both the Chinese dictatorship and the Western bourgeoisie would like to present them: they are rather the two necessary conditions for the establishment of a true human community.

From the rise of ISIS to the spread of the ebola virus, to the myriad "systemic risks", including the steady annihilation of eco-biological diversity on earth occasioned by the need of capitalist industry to over-populate the planet so as to enforce the wage relation - all these evils lay before our eyes the undeniable truth that what the capitalist bourgeoisie and its miserable hounds call "rationality" is instead the blind and thoughtless violence and coercion of the wage relation.

The essay below (an extract from our 'Weberbuch') seeks to enucleate the error common to both Weber's and Schumpeter's social theories in that they see "rationality" and "rationalization" as a logico-mathematical truth separate from the practice of capitalist bourgeois violence. To be sure, Weber extends the problematic of "the system of needs" far beyond Schumpeter's narrow neo-Kantian and Machist "economicist" mould: yet both remain chained to a view of "rationality" that veils and conceals rather than reveal and unmask the capitalist coercion that is its true matrix. To that extent, their work represents a backward step from the more incisive critique of bourgeois society and the wage relation undertaken by Nietzsche and Marx respectively. Enjoy reading!

But first, let me quote from this article in the Australian Financial Review about the Chinese dictatorship's tactics against our heroic friends in Hing Kong:

Angus Grigg
In the dictators’ handbook, sending thugs to respond to a peaceful demonstration is a well used play. The thinking is simple. Provoke just enough violence and fear to deter the less committed protesters, while giving authorities the excuse to move in and break up the protest.
These tactics were on display over the weekend in Hong Kong as authorities try to bring the week-long demonstrations to a head.
In his statement late on Saturday, Hong Kong chief executive Leung Chun-ying was quick to point out the “chaos” and “injuries” of the previous evening. He said the situation was quickly getting “beyond control”.
This will be used to justify any police action and has Beijing’s fingerprints all over it.
The pro-democracy protesters have been worried about such tactics. On Thursday, when The Australian Financial Review was on Queensway in central Hong Kong, a lone driver tried to pass through a barricade set up by the demonstrators. When they refused him access, the driver began yelling and pushing the protesters, clearly trying to provoke a conflict.
A tense stand-off resulted, in which students sat in front of the man’s car. The driver eventually left.
This tactic was taken to a new level on Friday night when pro-Beijing groups began tearing down tents and openly pushing protesters, while throwing punches and water bottles.
They singled out school girls and shouted abuse at them. There were reports of some female protesters being sexually assaulted. The media was also targeted, another favourite tactic of Beijing.– in 2011 a reporter from Bloomberg was badly beaten while covering a tiny protest in Beijing.
The police were noticeably absent during these early exchanges, before finally moving in to make arrests.
In a damning admission, the police said some of the 19 people arrested were suspected to be members of criminal gangs known as triads.
Whether they were paid to stir up trouble will never be known, but such groups have often been linked to the security services in Beijing and benefit from the multibillion dollar smuggling trade between Hong Kong and the mainland.
This only happens because Chinese authorities allow it to, often taking a cut along the way. Using these groups to confront protesters is a highly cynical tactic and will be used to justify whatever police action takes place over the coming days.

The Australian Financial Review

 

 

 

 

 

 

We open Schumpeter’s Theorie at the very start of chapter two:

 

The social process which rationalizes our life and thought has led us away

from the metaphysical treatment of social development and taught us to see

the possibility of an empirical treatment; but it has done its work so

imperfectly that we must be careful in dealing with the phenomenon itself,

still more with the concept with which we comprehend it, and most of all with

the word by which we designate the concept and whose associations may lead

us astray in all manner of directions. Closely connected with the metaphysical

preconception…. is every search for a ‘meaning’ of history. The same is true

of the postulate that a nation, a civilization, or even the whole of mankind must

show some kind of uniform unilinear development, as even such a matter-of-fact

mind as Roscher assumed… (Schumpeter, Theorie, p.57)

 

The footnote at “rationalizes” was expanded for the English translation and reads as follows:

 

This is used in Max Weber’s sense. As the reader will see, “rational” and

“empirical” here mean, if not identical, yet cognate, things. They are equally

different from, and opposed to, “metaphysical”, which implies going beyond

the reach of both “reason” and “facts”, beyond the realm, that is, of science.

With some it has become a habit to use the word “rational” in much the same

sense as we do “metaphysical”. Hence some warning against misunderstanding

may not be out of place.

 

Evident here is the maladroit manner and dis-comfort (not aided, and perhaps exacerbated, by the disjoint prose) with which Schumpeter approaches the question of the “meaning” of history. The Rationalisierung, which Schumpeter adopts from Weber, has made “possible” a scientific “empirical treatment” of “social development (Entwicklung)”, but has done so only “imperfectly”, not to such a degree that we are able to free ourselves entirely of “metaphysical” concepts – which is why “we must be careful in dealing with the phenomenon [of Entwicklung] itself”. Nevertheless, Schumpeter believes that it is possible to leave “metaphysics” behind and to focus on “both ‘reason’ and ‘facts’”, and therefore on the “realm of science”. In true Machian empiricist fashion, Schumpeter completely fails to see the point that Weber was making in adopting the ante litteram Nietzschean concept of Rationalisierung to which he gave the name. “The social process which rationalizes” is an exquisitely Weberian expression: far from indicating that there is a “rational science” founded on “reason” and “facts” that can be opposed epistemologically and uncritically to a non-scientifc idealistic and “metaphysical rationalism”, Weber is saying what Nietzsche intended by the ex-ertion of the Will to Power as an ontological dimension of life and the world that “imposes” the “rationalization” of social processes and development in such a manner that they can be subjected to mathesis, to “scientific control”! What Weber posits as a “practice”, one that has clear Nietzschean onto-logical (philosophical) and onto-genetic (biological) origins, Schumpeter mistakes for an “empirical” and “objective” process that is “rational” and “factual” at once – forgetting thus the very basis of Nietzsche’s and Weber’s critique of Roscher and the Historismus - certainly not that they are founded on metaphysics (!), but rather that they fail to “question critically” the necessarily meta-physical foundations of their “value-systems”, of their “historical truth” or “meaning”, of their scientificity!

 

Far from positing a scientific-rational, ob-jective and empirical methodology from which Roscher and the German Historical School have “diverged” with their philo-Hegelian “rationalist teleology”, Nietzsche and Weber attack the foundations of any “scientific” study of “the social process” or “social development” that does not see it for what it is – Rationalisierung, that is, “rationalization of life and the world”, the ex-pression and mani-festation of the Wille zur Macht! By contrast, Schumpeter believes that the mere abandonment of any “linearity” in the interpretation of history, of any “progressus” (as Nietzsche calls it), is sufficient to “free” his “rational science” from the pitfalls of “metaphysics”! But he would certainly have been enticed into this misapprehension by Weber’s own equivocal notion of “ideal type” (a Simmelian Form), which was intended to preserve the historicity of sociological inquiry by confining the reach of its categories to a specific situation (Simmel’s “content”) requiring the selection of specific means to achieve specific ends – whence the distinction between Zweck-rationalitat and Wert-rationalitat (purpose and goal, Sein and Sollen, “soul” and “forms”, content and form, form and norm) - whilst simultaneously insisting within this limited historical domain on the scientificity or rational basis of the sociological procedure and methodology utilized for such selection.

 

Weber’s central failure was not that he mistook “scientificity” for “science”, for its corresponding “practical conduct” – which mostly he did not! Weber’s failure was rather that his insistence on “categorizing” his “scientific pursuit” with the introduction of the “ideal types” distracted him from the fundamental question of how the Rationalisierung is possible! This failure led him to reify, to hypostatize the historical object of his studies into the “scientific categories or forms” that he presumed to adopt for that study – ignoring thereby Nietzsche’s famous warning against “systematizers”! Essentially, Weber mis-interpreted (!) Nietzsche’s Umwertung (trans-valuation of all values) to mean that “all values are interpretations of reality”, and that therefore it is possible for the “scientific observer” of a given historical reality to select a hermeneutic code of interpretation (the ideal types) linking rationally the means available to its “actors” with the “pro-jected ends” that they may envisage. Yet, as Nietzsche would have promptly reminded Weber, this framework of analysis (Entwurf), this “phenomenalism and relativism” starts from the pre-supposition that such a “rational code” of interpretation is both possible and applicable – which Nietzsche would vehemently deny on the ground that it is the very possibility and applicability of this “rational code” itself to a given historical reality – its effectuality -  that needs to be interpreted and explained as the mathesis universalis (Leibniz), as the rationalization of the world that is based on human needs, on the “system of needs and wants”! In Nietzsche’s own words,

“It is our needs that interpret the world; our instincts and their impulses for and against,” (Aphorism 481, Wille zur Macht).

 

Weber’s Neo-Kantian hypostatization not only of his sociology but above all of “the scientific fields of knowledge” to which he sought to apply it – from economics, to law, to music – is induced fatefully from this inability to com-prehend Nietzsche’s Umwertung, namely, his thoroughgoing De-struktion (Heidegger) of Western metaphysics and science and the related critique of Western Kultur and Zivilisation. It should come as no surprise, then, that Weber remains suspended, as we noted earlier, between the Dezisionismus of “charisma” derived from his individualist relativism and the Neo-Kantian formalism of the “ideal types” necessitated by Weber’s need to ground this hermeneutic relativism on logico-mathematical – hence, “rational and systematic”, “scientific” - bases. What Weber fails to com-prehend above all else is precisely the historical character of “the metaphysical foundations of logico-mathematical rationality” whose political origins Nietzsche had made all but evident.

 

A brilliant illustration of these points is provided by Norberto Bobbio who, in reviewing Kelsen’s attack on Weber’s theory of the State and sociology of law in ‘Max Weber e Hans Kelsen’ (p.72), concedes that Weber’s Neo-Kantian or Simmelian ‘formalism’ enticed him to his detriment into the Kelsenian ‘Norms’, but that at the same time Weber’s “positivism” was premised on the fact that capitalism represents a historically specific intensification of this ‘positivization’ of the juridical norm, in line with its exasperation of the Rationalisierung (p.77) – which would be theoretically a far more consistent and Nietzschean position for Weber to take. Commenting on Kelsen’s requirement that ‘co-action’ be added to the definition of ‘legal norm’ (the famous Grundnorm) so as to equiparate the concepts of ‘Right’ with ‘Law’ and therefore also with that of ‘State’, Bobbio goes on to reason (at p.71) that Weber’s notion of ‘apparatus’ (bureaucracy) must be added to Kelsen’s ‘co-action’ for this equiparation of Right, Law and State to have any historical effectuality! Bobbio then comes uncannily close (at p.76) to the central thesis of this study on the meaning of Rationalisierung, which we have enucleated in our Nietzschebuch and will illustrate more incisively in Parts Two and Three of this study on Weber. In a nutshell, Bobbio perceives without actually comprehending that the notion of Right or Law or the State requires the existence of appropriate "institutions" that "en-force" these abstract concepts and that indeed both enforcement and its requisite State apparatus are part and parcel of the conceptual content of the categories of Right, Law and State! The question that needs to be answered is how political enforcement can "crystallize" or "congeal" into abstract concepts and how abstract concepts "dis-solve" themselves into political institutions. This is what Nietzsche attempted by challenging the scientificity of Western science from the dawn of the bourgeois era, by exposing the immanent materiality of its “scientific categories and laws” – whilst all others, including Marx, did not.

 

Separately, by discussing Kelsen’s claim that his jurisprudence is intended to apply both to capitalist and to socialist States, Bobbio helps us highlight the link that we are about to trace in the following sections, dealing with the claim on the part of Neoclassical Theory to apply equally to both capitalist and socialist ‘economies’, between Neo-Kantism and Neoclassical Economics!

 

                                                ***************

 

 

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

within".

 

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).