In
‘Statik’ classical and neoclassical economic theory, the capitalist economy was
seen as founded entirely on the operation of the “self-regulating market”. It
was “the market” which, by assuming the formal equality of all economic agents,
ensured the orderly, “balanced”, “equilibrium” (also in German, Gleichwichtigkeit – ‘equal-weight’) of
the economy by allowing the equi-valence of producers’ supply with consumers’
demand. In this institutional universe, “growth” was seen as a quantitative
phenomenon reliant on the horizontal expansion (Wachstum) of the market. The factors of “growth” were seen as
“external data” or “disturbances” (Storungen)
that could jolt the economy out of its “equilibrium” but only temporarily.
Above all, scientific-technological processes were interpreted as “exogenous”
factors, as independent and autonomous “progress” extraneous to the functioning
of the capitalist economy and therefore outside the purview of “economic
analysis”.
This
is in large part what allowed the “homologation” of the Economic
(scientific-technological Zivilisation
reflected in the productive process and its “division of labour”) with the
Political (the equitable allocation of value and social resources through the
self-regulating market). This “homologation” was the foundation of the
“neutrality” of the State of Law (Rechtsstaat
or ‘night-watchman state’) whose only function was to guarantee individual
property rights as the basis of “free competitive exchange in the (therefore)
‘self-regulating’ market”. The market is “self-regulating” so long as the
property rights of its “free competitive participants” are respected and
protected.
To
its credit, Classical Political Economy had stressed the “quantitative”
importance of “wealth-creation” by focusing on the subordination of the market
to the process of production and distribution of objective (yet ultimately
metaphysical/essentialist) “value” in the classical “labour theory of value”.
But the Neoclassical Revolution shifted
the focus of “economic inquiry” even further away from the sphere of production
by substituting “value” with the “subjective” exchange of “endowments” through
the “market mechanism” that alone, “by definition” (tautologously, in Hayek’s
definitive analysis) ensured the optimal allocation of these
“endowment/resources” according to (metaphysical) “marginal utility”.
Schumpeter’s
theoretical greatness lies perhaps in breaking definitively with this liberal synthesis of classical and
neoclassical “Political Economy”. For him, no such “reconciliation” between
economic value and politically neutral claims to it is possible because, as he
rightly noted, both Classical and Neoclassical Political Economy failed to
confront the ‘Entwicklungs-problem’: they never tackled the reality of the
“trans-formation” of the methods of production – their ‘trans-crescence’ - both
in an “organizational” and in a “technological” sense. It is this “incessant
change” which is the differentia specifica of the capitalist economy that
determines the irreconcilability of economic theory and politico-economic
praxis. And theory and practice are irreconcilable precisely because capitalism
is an economic system based on the conflict of individual interests, because
capitalism is a society in permanent crisis.
As we have sought to demonstrate
throughout this study of Schumpeter’s work, two levels of scientific analysis are present then: an analytical or
anatomical level where the “schema” or “skeleton” or the “organs” of the
economic system are studied in their static
functional relation to one another; and a sociological-historical or politico-physiological
level at which the capitalist economic system is seen “in flesh and blood” as a
dynamic or metabolic organism propelled by internal and antagonistic forces
already axiomatically implicit in the
theoretical schema of static equilibrium but now examined in their explicit
practical ex-pression or extrinsication or manifestation, as in innovation,
monopoly and bureaucracy. This “institutional
framework”, as Schumpeter calls it, is the practical historical ex-pression
or manifestation of the “tendencies” implicit in the axiomatic definitions of
the equilibrium schema. (I have argued in a separate study that von Mises’s own
concept of “praxeology” involves precisely this “practico-logical” requirement
of the apparently “static” notions of equilibrium theory. This emphasis on the
“procedural” aspects or moments of neo-classical equilibrium and marginal
utility theory – against the more “static” side stressed by the “Aristotelian”
Menger and Walras – is what provoked Schumpeter’s “evolutionary” theory in the first
place.)
On
one side, therefore, we have the “form”, the schema, the frame-work, and on the
other we have the force, the substance, the energy. The most essential question
of “economics” as a socio-theoretical discipline, then – one that is never
posed by bourgeois economic “science” - is: how can the form be reconciled with
the force? How can the equilibrium schema which is seemingly irreconcilable
with the dynamic force of innovation and development, actually be “effectual”
in guiding or containing its “source of energy”? The answer is quite simply
that the form cannot be reconciled with its substance and that the content of
the form can only be “contained” or guided by the form at the expense of the
force of innovation itself! In other words, capitalism can survive only to the
extent that it can curtail or contain or chain the dynamic force of innovation
within the static form of the market mechanism: only to the extent that its
source of energy, which is living labour, can be politically reduced to and
“fitted” into its institutional “forms” – of which the most crucial is the wage
relation measured through the monetary form. The monetary form furnishes the
strict inflationary numerical limits within which the money wage must be
contained and beyond which wage settlements cannot go – on pain of losing the
“effectuality” of the money wage or monetary form as a “measure” of social
antagonism. Here the bourgeoisie is truest to its positivist praxis of turning
“truth” into “certainty” (cf. Book Four of Heidegger’s “Nietzsche”). Because Schumpeter
leaves out the antagonism of the wage relation, the two “levels” of his work,
the Statik form and the Dynamik content, have to be kept separate and cannot be unified. But, as we shall see in the
next section linking and comparing Schumpeter’s Unternehmer-geist with Weber’s leitender
Geist, to see just this separation or disjunction in Schumpeter’s
theoretical framework and methodology and to dismiss it as “contradictory” or
“flawed” (as do Lawson and Moura, for instance) would be to miss the entire
point of his modus operandi!
(On the crucial interplay of form
and substance, the important references, by no means exhaustive, are to
Simmel’s sociological studies, Lukacs’s Die
Seele und die Formen, and even Derrida’s L’Ecriture et la Difference, chapter on “Force et Signification”.
Of course, Lukacs’s masterly Destruktion
of “the antinomies of bourgeois thought” in History
and Class Consciousness is inconceivable without Schopenhauer’s critique of
Kantian epistemology in “On the Four-fold Root” which is the real theoretical
springboard for not just the negatives
Denken from Kierkegaard and Nietzsche but also for the post-Hegelian
materialist reconstruction of ontology initiated by Marx. Our own attempt to go
beyond the fictitious dualism of form and substance, mind and matter, is in
“The Philosophy of the Flesh” on scribd.com)
Given that this
“force of innovation” or “source of energy of capitalism” is both “endogenous”
and “internal” (innersystematisch) to
the operation of the capitalist economy and that it operates “incessantly”, and
given that the effects of its operation are “spontaneous and discontinuous”, it
is clear that all existing economic theories, founded as they are on the notion
of “economic equilibrium”, are conceptually quite inadequate to provide “a box
of tools” for understanding such a spasmodic and inharmonious movement between
positions of “equilibrium” – which is why, contrary to all experience and
empirical observation, they must attribute its origin to “exogenous factors”
such as “external shocks” or to “events” such as political interference,
notably by the State, or even to “exogenous” techno-scientific and
organizational advances.
Nevertheless, Schumpeter treats
the Dynamik and the Statik as if they were separate points
in one uninterrupted logical line despite what we have shown, and Schumpeter
himself accepted, to be their categorical
inconsistency:
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](BC, p.43)
As we amply demonstrated in the
sections above, and as Schumpeter himself often admitted, either we have a stationary
equilibrium with determinate,
although relative, prices; or else we
have a metabolic process of change with indeterminate
prices: Either we have a static schema with mechanically inert
bodies; or else we have a dynamic process with economic agents
capable of “innovative” actions. Tertium
non datur! The state of equilibrium
is one that does not admit of innovation.
It is a state of “stagnation” because neither metabolic change nor therefore
profit are possible. And the dynamic process is one that does not admit of
equilibrium precisely because profit and metabolic change – which are possible
only through innovation – are inconsistent with equilibrium.
But in the quotation above, Schumpeter
has surely mixed up his metaphors: it is most certainly not “innovation” that “paralyzes
the tendency toward equilibrium”: it is rather the other way around: it is
the “forces [of reaction against
development] that paralyze innovation” and lead instead to the static,
stationary, stagnant “state” (!) of
equilibrium! By contrast, far from “paralyzing” the Gleichgewichtstendenz, innovation certainly provides “an opposing tendency out 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.[Ch.7, 489]
Thus, we have a dyadic, aporetic and anti-thetical, pendular dynamic to capitalism: it is
the leadership of the entrepreneur,
his Spirit of Innovation, that forces out,
that provides the centrifugal push away from stationary equilibrium, which
is instead “paralyzed” by the competitive rivalry of self-interested atomistic
individuals, as required implicitly by the axiom of pure competition. But in
the process of escaping from the paralysis of stationary equilibrium – an
escape required by the very “purity” of competition -, the need to preserve any
temporary advantage leads the
entrepreneur from leadership back to ownership, back to the state of imperfect
competition which provides instead the centripetal
“gravitational pull” of equilibrium stagnation to which the original
axiomatic pure competition had led.
Conversely, it is the ownership of capital on the part of
finance capital that leads to the restriction of competition and the search of
rent-seeking interest, which lowers the rate of interest, providing thus the centripetal pull driving the capitalist
economic system back toward its “gravitational centre” (Schumpeter’s Gravitationszentrum) of equilibrium
stagnation - from which the profit-seeking of pure competition will seek to
free it with a renewed centrifugal
push out of equilibrium into the leadership
of innovation. Here once again is the dyadic, pendular motion of Schumpeter’s
theory of economic “evolution” – a motion that, as we saw earlier, cannot be
said to be “dialectical” for the simple reason that the forces at play (profit
and interest, leadership and ownership, innovation and adaptation, evolution
and stagnation) do not supersede each
other but instead perpetuate themselves
indefinitely!
To repeat, it is not innovation that “paralyzes” the tendency toward
equilibrium (Gleichgewichtstendenz) –
but much rather the other way around: it is the tendency toward equilibrium that paralyzes innovation; and it does so by immobilizing its “author”,
the Entrepreneur. Innovation is dynamism
fighting paralysis; equilibrium is a state of paralysis. Indeed, because “the
reaction against innovation” is – almost by definition – most likely to come
from the established order, from the competitors currently in power and in
charge of the status quo, that is to
say, from the existing status quo of
distribution of political power – then, it is evident that “the state of
equilibrium” is institutionally represented by just that – by the State! Equilibrium is literally a “State”! The “tendency” is
always toward equilibrium, toward a State of rest and stagnation because, as we
saw above, the “friction” that is necessary for innovation ends up restricting
the political and social room-to-manoeuvre (Weber’s Ellenbongsraum) required by pure competition. A political State is
a “state” to the extent that it holds and contains political antagonism in the
double sense of “holding within itself” and therefore “re-presenting” that
antagonism, and of seeking to hold and contain that antagonism from destroying
the State itself by bursting its legal and political boundaries, the establish
order, the status quo.
Innovation is auctoritas, it is “initiative”, it is potentia, whereas the State is passive potestas. The State reigns
but does not rule; and to the extent
that it “rules” it only “administers” or “polices” its subjects but is quite
incapable of mustering the productive forces of society! (Schumpeter may have
had in mind here the work of Max Weber on Parlament
und Regierung and that of Carl Schmitt, from the early research on The Crisis of Parliamentarism to the
more philosophical Political Theology.)
It is the innovative entrepreneur who
has the authority to rule: to the
Entrepreneur goes the “premium” – literally, the prize or spoils – of
economic activity represented by “profit” (Unternehmer-gewinnen, literally,
“entrepreneurial winnings”), just like the consuls of the Roman Republic who
had the “auctoritas” to introduce laws in the Senate and its victorious
generals who were eligible to receive the spolia
opima. In other words, it is the State, the bureaucracy, the existing
powers that be that wish to preserve the status
quo, the established order, and therefore wish also “to bring development to an end”. Equilibrium is bureaucracy, it is Sozialisierung,
it is Rationalisierung. These are “the forces of reaction”. Worse still, it
is not just those who are “disrupted” or “threatened” by innovation who
constitute the “reaction” that re-establishes the Gleichgewichts-tendenz: it is
the innovators themselves (!), the Entrepreneurs, who now have an interest
in restricting and restraining “pure competition” so as to protect their
“advantage”! This “tendency toward equilibrium” Schumpeter calls “adaptation”.
Equilibrium is rigor mortis or death – which is “not allowed” to prevail by the
“creative destruction” of the entrepreneurial Spirit - just like the whittling down of surplus value or profit,
which are the “motive” behind innovation, that is “constantly recreated” by innovative acts. This is
the Individualitat that sparks and
revives the “static reason” of the economic system back into the “dynamic
movement” or “creative destruction” of history! For Schumpeter, in stark opposition
to both Classical and Neo-classical Political Economy, it is not “equilibrium”
that is the goal of economic
activity: the goal of economic
activity in its specific historical capitalist manifestation is “innovation”;
its force and source of energy or inspiration is “the entrepreneurial Spirit”; its hero or “carrier” or
“economic Subject” is the Entrepreneur. Only the Entrepreneur has the authority
of authorship: the Entrepreneur destroys
the state of equilibrium, the bureaucratic status quo, so as to be able to lay
claim to profits. Here therefore we
have finally the distinctive elitist view of capitalist industry and society
that Schumpeter inherited from Pareto and Weber against the egalitarian
position of the “socialist” Walras and the “communist” Marx. Profit is not a
“fixed quantity” that can ever be “equitably” distributed! Instead, profit is a
“social relation” in that it is simply a legal-ethical claim to social resources
by atomistic individuals in continual conflict with one another!
Once again, the originality of Schumpeter’s
approach to “methodology” in economics rests almost entirely on his “un-dialectical”
insistence on the irreconcilability of theoretical schema and political
practice due to the utter irreconcilability of human conflict! Only by
insisting on such irreconcilability of formal theory and historical content is
it possible to do justice to their separate polar indispensability for the
study and practice of “economics”:
There is however one thing of
fundamental importance for the
methodology of economics which he [Marx] actually achieved. Economists
always have either themselves done work in economic history or else used the
historical work of others. But the facts of economic history were assigned to a
separate compartment. They entered theory, if at all, merely in the role of
illustrations, or possibly of verifications of results. They mixed with it only mechanically.
Now Marx’s mixture is a chemical
one; that is to say, he introduced them into the very argument that produces
the results. He was the first economist of top rank to see and to teach
systematically how economic theory may be turned into historical analysis and
how the historical narrative may be turned into histoire raisonnee. (CS&D, p.44)
Not that, indeed, Marx or anyone else could ever
offer a “unified” reasoned history: Marx’s “mixture” may have been “chemical”
rather than “mechanical”, but Marx’s claim to have reconciled theory and
practice remains for Schumpeter a vacuous “prophetic” and deeply “unscientific”
boast! As we explained earlier in this work, Schumpeter’s notion of equilibrium
as Kreislauf is indeed more
consistent with Joan Robinson’s own concept of “tranquility” – which is
instructively adopted and adapted from Marsilius of Padua’s Defensor Pacis, a mediaeval theory of
human society based on its interpretation as an organism that is either
“healthy” or “unhealthy”. Specifically, Marsilius of Padua spoke of “tranquilitas”, meaning a period of
social peace and prosperity (see O. von Gierke, The Political Theory of the Middle Age.) Interestingly, both
Antiquity and the Middle Ages lacked the notion of “revolution”, which is a
modern European concept originating in the 17th century (see H.
Arendt, On Revolution). Antiquity
knew only of “metabole”, meaning
social change, of “stasis”, meaning
civil war, and of “homo-noia”,
meaning harmony or agreement, and “corruptio”,
obviously meaning corruption, that is, degeneration from a perfect state (a perfectione ad defectum, from
perfection to defect). (On all this, see S. Mazzarino’s invaluable and
irreplaceable Il Pensiero Storico
Classico.)
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