There is no such thing as Science; still less is there Technology: there is only praxis. "Science and Technology" are simply techniques that some human beings apply to others. It is in the context of the Political that we have to situate the capitalist use of machinery, otherwise known as "Innovation". This may be a propitious moment, then, to reflect on the notions of Innovation and the Entrepreneurial Spirit that Joseph Schumpeter expounded at length - exposing in the process the intricate nature and character of capitalist command over living labour.
Capitalism,
Equilibrium and History: A Theoretical and Practical Analysis of Schumpeter’s
Methodology and Innovationsprozess
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[Theorie, ch.7]
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 manoeuvering
room for individual freedom of will. This can be demonstrated and yet it was
always a point of criticism, since the free 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 creative 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,1912, ch.7)
Damit kommen wir der Wirklichkeit tatsachlich naher.
Besonders gewinnen wir einen klarern Einblick in das eigenturmliche Gemisch von
Bedingtheit und Freiheit das uns das Wirtschaftsleben zeigt. Der statische
Kreislauf und die statischen Anpassungserscheinungen sind von einer Logik der
Dinge beherrscht, die fur das Problem der Willensfreiheit zwar ganz irrelevant
ist, aber praktisch – bei fest gegebenen sozialen Verhaltnissen – so gut wie
keinen Spielraum fur individuelle Willkur lasst. Das ist nachweisbar und war
doch stets ein Stein der Antstosses, das man das individuelle freie Schaffen
ganz deutlich am werken sah. Wir wissen nun dass der letztre Beobachtung
richtig ist und [36] den Theoremen der Statik nicht wiederspricht, wir vermogen
prazise Platz und Funktion dieses Schaffens anzugeben. Naturlich fehlt auch in
der Entwicklung die Logik der Dinge nicht; und ebensowenig man mit der
statischen Auffassung etwas fur philosophischen Determinismus beweisen kann,
kann man mit der dynamischen etwas gegen ihr ausrichten. Aber dennoch haben wir
ein durch sachlichen Bedingungen nicht erklarbares Element in der
Wirtschftlichen nachgewiesen und mit diesen sachlichen Bedingungen in eine
prazise Beziehung gebracht. (From G. Backhaus)
A.
Equilibrium and History: Conceptual and Political Aspects of Bourgeois Economic
Theory
Classical and
Neoclassical Political Economy from Adam Smith to Leon Walras is founded on the
axiomatic static equilibrium of the marketplace economic system. Yet this
clashes most violently with the empirically evident instability of the
capitalist economy and its equally violent convulsions and, worse still, its
transformations intended not just in the sense of quantitative growth (Wachstum) but actual qualitative evolution (Entwicklung), with
its meta-morphoses and mutations, with its trans-crescence and crises.
The static-stationary, axiomatic-analytical, anatomical and objective schema of
bourgeois equilibrium economic theory is evidently and empirically shattered
then by the dynamic-historical, metabolic and subjective unfolding or evolution
of its real operation. The end of history that the bourgeoisie always
desperately seeks has been “greatly exaggerated” yet again. The question here
is: can history be reduced to science? And then again, is it indeed science or
logic that is opposed to history in the bourgeois interpretation of economic
systems?
The con-fusion of science and logic in the
sphere of economic analysis was evident already in Adam Smith’s theorization of
market capitalism. Smith’s “invisible hand” was a necessary Eskamotage or deus absconditus (hidden god)
because the circularity of his reasoning reduced science to logic - to a
tautology in fact: prices are determined by value which is determined by the
quantity of labour, whose price is determined by the market which determines
prices which determine value. The problem lies in the definition of “market”:
if indeed the “market” is made up of entirely self-interested atomistic
individuals, then it is impossible to see how such in-dividuals could ever
reach the “agreement” that is indispensable to determine “prices”! In other
words, “the rules of market competition” have to be set or agreed upon by
market agents even before market competition takes place. But this is
impossible by definition, because any restriction on the “self-interest” of
market agents turns the entire exercise into a meaningless, though not purposeless, tautology.
G. Myrdal insightfully seized on
this point, in The Political Element in
the Development of Economic Theory. Myrdal, however, like all economics
theoreticians after him, totally failed to see the purpose or political element
behind the tautologous schema of
equilibrium theory – a “political element” that was to be the very object of
his study!
Thus, just like
equilibrium analysis, Smith’s theorization of market capitalism left no space
at all for the “co-ordination” of the actions of what are axiomatically atomic
in-dividual market agents – which is why, just as Leibniz needed a divine
“pre-established harmony” to co-ordinate his “windowless monads”, so did Smith
need his “invisible hand” to co-ordinate the actions of his “windowless”,
“monadic” market agents. General
equilibrium analysis, too, will later dispense
with this requirement, without thereby resolving
it, by postulating the “syn-chronicity” of all “actions” in market exchange.
But the formal equivalence of all axiomatic market agents in both theories
means that they are left without a “purpose” once the “frozen” state of
equilibrium is reached. In other words, equilibrium is a state of complete in-action, given that at equilibrium
market agents no longer have any need or space to change their decisions. At
equilibrium there is and there can be no “market”.
Arrow and Hahn were demonstrably
right to insist, pace Lawson in “The
Confused State of Equilibrium Analysis”, that Adam Smith is the father of
equilibrium analysis [in General
Competitive Analysis]. The fact that, as Lawson argues, Smith constructed
his theory from historical and sociological observations does not cure its
“closedness” or tautological nature. Hypocrisy was written all over the author
of The Theory of Moral Sentiments – something that Mandeville delighted in
exposing: his penchant for sociological observation, based mostly on Adam
Ferguson’s An Essay on Civil Society,
only served to disguise the aporetic and apologetic character of his economic
theory. Incidentally, Lawson’s definition of a “closed system” as one that can
be reduced to the proposition “whenever x, then y” is manifestly wrong because
this kind of proposition is essential to the testing of scientific hypotheses
in both natural and social science (one need only read any book on the
philosophy of science to understand this point). Quite contrary to Lawson’s
contention, a “closed system” must be of the type “whenever x, then y, where x
is a function of y”: it is the classic circulus
vitiosus or tautology, - nothing more nothing less. (Cf. in this precise
context, Robert Clower’s scathing labeling of neowalrasian equilibrium theory
as “fraudulent” – in “Economics as Inductive Science”.)
The problem with
equilibrium analysis is that it reduces economic “science” to “logic” –
literally, to ana-lysis
(retrospective examination or autopsy
or anatomy), that is to say, to the
formal mathematical equivalence of all its elements,
which leads to the meaningless paralysis of tautology. The essential aim of any
economic theory worthy of the name must be to explain how economic actions can
be co-ordinated and to point to the “what”, the “thing”, the common substance
or “value” that allows this “co-ordination” to take place. Co-ordination is not
meant here as “static exchange” and is not meant to be confined to
“quantitative values”. If we read Walrasian equilibrium, which is made up of a
series of simultaneous equations, as a simple functional plan or classification
of an economy, then it is not tautological but purely classificatory or
illustrative. If instead it is intended to show how a real economy functions,
that is to say, how the independent decisions of individual market agents can
be co-ordinated by “the market”, then
it is entirely tautological because, as Hayek showed, “its conclusions are implicit in its assumptions”.
As I have suggested elsewhere in this volume,2 the tautological method which is
appropriate and indispensable for the analysis of individual action seems in
this instance to have been illegitimately extended to problems in which we have
to deal with a social process in which the decisions of many individuals influence one another and necessarily succeed one another in time. The
economic calculus (or the Pure Logic of
Choice) which deals with the first kind of problem consists of an apparatus of classification of
possible human attitudes and provides us with a technique for describing the interrelations of the different parts of
a single plan. Its conclusions are
implicit in its assumptions: the desires and the knowledge of the facts, which
are assumed to be simultaneously present to a single mind, determine a unique solution. The relations
discussed in this type of analysis are logical relations, concerned solely with
the conclusions which follow for the mind of the planning individual from the
given premises. (Individualism
and Economic Order, p.93.)
Even so, Hayek’s
analysis of general equilibrium is still incorrect because for “a single mind”
Walrasian equilibrium is merely “classificatory” but not “tautological”. Even
for a single mind no decisions can be
made in equilibrium analysis because simultaneous equations involve a
“semaphoric”, logical “re-classification” of information that is independent of
“time” as a concept. Walrasian equilibrium is tautological only if it pretends
to explain, as it does, how “many minds” can co-ordinate their economic
decisions. Where a single mind is concerned, however, equilibrium theory does
not involve a “single plan” or any “plan” at all (!) because that would imply
the possibility of decision! But the
point to a “classificatory” or “semaphoric” (or functional or illustrative or
anatomical) schema is that no “decision” is involved because there is and there
can be no “time” involved in such an ana-lytical “sketch” or “blueprint” or
“map”. A map is “timeless”: it is not a “plan” in the sense of “a sequence of
decisions”!
But Hayek and all
equilibrium theoreticians after him, have shifted the subject-matter, the
ground, the sub-stance, the substratum and quidditas,
the “whatness” of economics from “prices and quantities”, which involve those
material human interests that are and must be the indispensable foundation of
all theories that even pretend to be “economic”, to the mere “semaphoric” world
of “information” and “co-ordination”! In the words of Brian Loasby,
The co-ordination
of economic activities, of course, is what economics is overwhelmingly about, (Equilibrium and Evolution, p.9).
The problem with
this is that economics can never be reduced to a simple matter of
“co-ordination” because it must always explain the real material object of “co-ordination”, what makes it
“economic co-ordination”! And the
“economic” here stands for pro-duction,
the actual creation of “goods and services” which ultimately involve human
living labour and therefore social relations of production that relate to the
interaction of human beings amongst themselves as well as with their living
environment. Hayek correctly captures the point that Walrasian equilibrium
cannot “co-ordinate” a “market” in which different individuals decide; the
market action of that “single mind” would still depend on the decisions of at
least one other “single mind” to make an “economic decision”. For the single
mind to make an economic decision and to evade tautology, it needs to be
confronted with the independent plan of “another mind”, which is what general
equilibrium is constitutionally incapable of doing because “its conclusions are
[logico-mathematically] implicit in
its assumptions” and no “time” can logico-conceptually be present! This
explains the retreat of equilibrium theoreticians like Frank Hahn from the
sphere of “prices and quantities” of real goods and services performed by human
living labour to the semaphoric or semiotic sphere of “ideas and actions”. For
Hahn,
an economy is in
equilibrium when it generates messages which do not cause [its] agents to
change the theories which they hold or the policies which they pursue, (quoted
in Loasby, op.cit. at pp.13-4).
But here the
legerdemain, the subtle trick that Hahn has performed becomes absolutely
evident – because Hahn has not specified a decision
but rather an in-decision, a “not-changing of theories and policies”!
In other words, not only does equilibrium now exclude even the most phantomatic
exchange of “goods and services”, which require human living labour, but it even
requires the ultimate in-action and in-decision: equilibrium finally assumes
the stagnant and stationary position not just of tautology but of the most
unthinkable rigor mortis – sheer
death! For the modern bourgeoisie and its idiotic charlatans, economic
equilibrium is the most perfect Nirvana in which absolutely Nothing happens!
To be perfectly
histrionically brutal, recent equilibrium theory has surged to the intellectual
status of a “Seinfeld” episode – that is, a comedy series “about nothing” in
which “absolutely nothing happens”! Indeed, once economic theory has become so
detached from any real material human activity of production in which human
beings interact not only with one another but also with their environment, bourgeois
economic theory can easily conceive of an economic system in perfect
equilibrium, perfectly “co-ordinated”, that has completely destroyed its living
environment! This insidious
danger was already implicit in Adam Smith’s theorization of “the wealth of nations” as a perfect
logico-mathematical “exchange” that because of its very “perfection” no longer
had anything to do with “wealth” itself! Not until Alec Pigou theorized the
problem of “externalities” (in The
Economics of Welfare) did this aspect of capitalist production enter the
sphere of bourgeois economic analysis, and then only as “externality”, that is,
as something “external” to the presumed “purity” of the capitalist economic
system. Contrary to the stooges of equilibrium analysis, Pigou never forgot
that "[e]conomic welfare...is
the subject-matter of economic
science," (ibid., p.9).
Up until Adam Smith
set out to formalize the operation or functioning of “the market”, economics
had not existed as a “science” separate from theories of society or indeed of
“the body politic”. Yet in this very separation
of “economic science” from other aspects of social life and from its history
lies the fatal flaw of this “science”, because once its methodology leads it to
exclude non-economic social forces as
“exogenous factors” or as “externalities”, then it becomes a “closed system” of
pure logico-mathematical formulae in which “economic facts” are completely
deprived of all sociological and environmental content. Consequently, “economic
science” is incapable of explaining historical change, including the
transformation of economic reality itself, totally extruding thus the very
“positive empirical experience” on which so-called “economic science” is
supposedly founded.
In his review of Comte and Mach,
in Knowledge and Human Interests,
Jurgen Habermas emphasises one aspect of positivism as his crucial objection to
it - namely, that positivism as a philosophy of science is incapable of
understanding and explaining the “historical evolution” of “science” itself. We
partly agree with Habermas; but this can only serve as an “internal” critique
of positivism in terms of its internal consistency, whereas as we will discuss
more fully below this type of criticism of positivist methods entirely misses
the point about their “external” real practical political effectuality! In
short, Habermas criticizes positivism in the name of “science”, when in fact
bourgeois “science” is a real political practice that cannot be “contradicted”
in purely “scientific” terms! “Science” simply does not have the politically-independent
epistemological status that Habermas’s neo-Kantism assigns to it – as Max Weber
showed conclusively, although only obliquely (cf. “Science as Vocation”).
Put in simpler
terms, science must be the combination of theory and facts: theory without
facts is empty, and facts without theory are blind. But the “facts” that
“economic science” pretends to theorise are the very violent reality that the
capitalist bourgeoisie has already imposed on human society! Bourgeois economic
science therefore pretends merely “to observe empirically” its misdeeds or
“facts”, and then to dress them up as “human nature” that gives rise to
“natural human rights”. This miserable combination of scientific positivism and ethical jusnaturalism is the very essence of
bourgeois economic science.
At the hands of
positivism and empiricism, the Statik
of equilibrium theory contradicts the Dynamik
of capitalist reality: hence, equilibrium expels history, stasis stymies metabole,
necessity chains freedom. How then to reconcile these irreconcilable opposites?
How to evade and escape these antinomies and apories? Schumpeter offers a
preliminary way out:
But despite this we have shown that [a
subjective] 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.
The task of
“science”, then, is not to jettison logic; it is rather to marry logic with nomothetic observations about the
operation of “the social process” and then place these “objective
conditions….in a precise relationship” with the equally necessary idiographic “leadership” role of human
agency. There is no paradox here: the subjective
element that leads or initiates the “transformation” of the
economic system must act within the boundaries of the objective conditions specified by logic
and science: this necessity is what gives the phenomenon of capitalist
trans-formation its mechanical or procedural character: it is the
“trans-formation mechanism” (Veranderungs-mechanismus)
that is the engine or “source of energy” (dynamis)
of the Innovations-prozess. The
“freedom” of the leader or of the entrepreneur who leads this mechanism and
this process is not an abstract concept: individual freedom operates within the
objective conditions imposed by the “free-doms” of every other individual agent
involved in economic activity. The subjective trans-formation of the
capitalist economic system takes place within the boundaries and limits imposed
by the specific historical “institutional framework” of this economic system.
This cardinal quasi-Euclidean
axiom of the absolute atomicity or in-dividuality and self-seeking
self-interest of human beings is the most indispensable postulate of all
bourgeois social, economic and political theories. Fittingly, it was the English
translator of
This is how Hobbes
managed for the rising capitalist bourgeoisie an epistemological feat that has
not been equaled since he wrote: - he managed, that is, to combine the
positivist scientific hypothesis of
Galileo-Newtonian mechanics with the jusnaturalist political convention of innate rational human rights, and thereby
to erect bourgeois political practice on effectual scientific grounds. Hobbes
begins with the positivist scientific
hypothesis of the “universal conflict” between human beings taken as wholly
egoistic atomic individuals, and from there he develops “rationally” - with the
“rationality” of the “laws” of mechanics - the jusnaturalist political convention (common-wealth) that will make
social life possible based on the “natural rights” of these conflicting
individuals. (This astute twining of positivist authoritarianism and
jusnaturalist contractualism is masterfully unjumbled by
In order to erect
his political theory, Hobbes starts from the Euclidean axiom that each human
being represents a “point” or “body” entirely unconnected to other human
“points” or “bodies” and entirely self-interested or, mechanically put, having
its own momentum or “appetitus” or “conatus” – which Hobbes calls “Power”. From this axiom he deduces that
the original, most “natural” state of human beings, the “state of nature” or status naturae, is a state of civil war
(bellum civium) or “the war of all
against all” (bellum omnium contra omnes).
This “clash of wills” or appetites, this “war of all against all”, can lead
logically only to a deterministic mechanical
equilibrium in which there is no “room
for manoeuvre for the individual freedom of the will” (Schumpeter quoted
above) because each individual will is bound by the wills and boundless
appetites of other wills, or else to the assured self-destruction of human
beings. This is Hobbes’s scientific
hypothesis taken directly out of Galileo-Newtonian mechanics.
The way out of
equilibrium or stasis is provided by
the ultima ratio, the absolutely
indispensable right to and need for self-preservation, which leads these atomic
self-interested individuals to reach freely
a political con-vention, an agreement or “social contract” that can avert
mutually assured destruction. Here the positive
empirical evidence of a society that the bourgeoisie has reduced coercively to little more than a moral
jungle from which all notion of “natural law” has been expunged meets with and
satisfies the jusnaturalist
(natural-law) requirement that individuals must agree freely and rationally to a political regime that will protect them
from civil war. Hobbes acknowledges that what coerces individuals to accept
this bourgeois political regime based on “the laws of the marketplace” is the metus mortis, the fear of death at the
hands of any other individual. And given that each individual is axiomatically
defined as being “equal” in the ability to harm another in the state of nature,
then it follows axiomatically that each individual decides freely (by political
convention, otherwise known as “social contract”) and rationally (by scientific hypothesis,
following the definition of in-dividuals in conflict) to erect a “common
wealth” or State or status civilis
that will protect them from certain death.
The central feature
of capitalism is that the bourgeoisie has tried as far as is humanly possible
without tearing asunder the very fabric of human society to reduce this society
to the state of absolute possessive individualism. That is why all accounts
of bourgeois economic theory must start with the axiomatic postulate of this
possessive individualism. Hobbes did not neglect to include in the “possessive”
part the ability of individuals to buy or sell their own “power”, meaning both
their physical possessions and their labour-power, in exchange for physical
possessions. In the Leviathan, he
describes “the value or worth or price of a man” as “so much as would be given for the use of his power”. Clearly, Hobbes had already an embryonic notion of
what Marx would theorize later as “labour-power”, the commodified form of
living labour in capitalist industry.
As Loasby has very
perceptively pointed out (in Equilibrium
and Evolution), the “complete decentralization” of economic decisions that
is implicit in Hobbesian political theory and then in Walrasian equilibrium
economic theory makes the co-ordination of economic decisions “a matter of life
and death”. This is indeed another factor that makes the Hobbesian-Walrasian
schema or blueprint absolutely axiomatic for the analysis of capitalism. But
this interdependence of human economic action is still subordinated to the
axiomatic primacy of individual self-interest; consequently, it cannot form
part of equilibrium theory except as a Hobbesian ultima ratio or dira
necessitas ob metum mortis, dire necessity in fear of death, as we
explained above.
The locus classicus of “possessive individualism” is CB Macpherson’s
towering study by that name. Alchian-Demsetz, to give yet another example of the
rampant stupidity of Nobel Prize laureates in economics, quite incorrectly
select a negative definition of
capitalism – the absence of
government in the economic process - and completely leave out the “individual”:
This is quite clearly nonsense
because, in practice and in reality, governments have historically played a
crucial role in “the ownership and allocation of [social] resources”; and in
bourgeois economic theory, it is individuals,
not “firms and households”, that must axiomatically
take precedence over “firms and households and markets”! It is possible, of
course, that by “markets” Alchian-Demsetz mean the economic exchange of
atomistic individuals. Demsetz in any case will later take a fresh look at
competition as “perfect decentralization”, which requires the postulate of
possessive individualism (cf. above all his “Freedom and Coercion” and
“Fallacies in the Economic Doctrine of Externalities”).
Although our treatment of
Hobbes’s political theory is perhaps more systematic than Hannah Arendt’s, we
simply could not resist drawing on her devastating prose and quote in full what
is truly one of the most moving and inspiring passages in her entire work which
stands as a lasting indictment not only of the capitalist bourgeoisie but also
of its venal intellectual apologists, among whom we count first and foremost professional economists:
and honor follow from it.
140 IMPERIALISM
Hobbcs points out
that in the struggle for power, as in their native capacities
for power, all men are equal; for the equality of men is
based on the
fact that
each has by nature enough power to kill another. Weakness can be
compensated for by
guile. Their equality as potential murderers places all
men in the same insecurity, from which arises the need for a
state. The
raison d'etre of the state is the need for some security
of the individual, who
feels himself
menaced by all his fellow-men.
its
own inherent law.
Make no mistake: the Hobbesian-Weberian
mechanical science we mean here is not an “objective science”, - for as
Nietzsche demonstrated, there is and there can be no such “thing”! The science we intend here is a political
practice based on the inflexible application of axiomatic rules to human
society by a historically specific social class – the capitalist bourgeoisie.
The bourgeoisie would be blind deaf and mute without this inflexible science,
which is why it has erected the most fabled monuments to it. This science
consists for the bourgeoisie in placing political decisions in a precise relationship to the existing
relations of power in society that it has imposed to its own advantage so as to
be able to reproduce them according to its own axiomatic postulates or schema.
And then, of course, in presenting these political decisions as “that peculiar jumble of
conditioning and freedom, which economic life shows us”, which is how Schumpeter defines “economic science”.
The question now
is: what is this “precise relationship…. of
conditioning and freedom”, and how can it escape its evident apories and
become effectual? It simply will not
do, it entirely misses the point, to
conclude that Schumpeter has failed in his attempt “to integrate theory and
history” and to reconcile freedom and necessity (this is Moura’s claim in his
homonymous essay based on Lawson’s epistemology): - because the crucial point,
the key to the enigma, is to understand this “precise relationship [of the free creative work of the individual] to
objective conditions”: that is the task
and also the limit of science.
From the outset,
Schumpeter’s aim is not so much to find out empirically the “mechanism” that
impels the capitalist economy to change and mutate spasmodically; rather, his
aim is to discover the conceptual requirements for the practical implementation
of the axiomatic postulates of Neoclassical equilibrium analysis on which the
very idea of a bourgeois civil society and of its economic system are founded.
The “mechanism” is capable of being embodied by an “institutional framework” in
which decisions are made within the
limits and boundaries set by the axiomatic schema of the bourgeois system of
social power so as “to put it in motion” or “energize” (the literal meaning of dynamis in Greek) it. In other words,
the subjective, historical “force” or
“source of energy” of the bourgeois
social system must be placed in a “precise
relationship” to the “objective
conditions” or boundaries or strictures that are necessary for the expanded
reproduction of human society in a capitalist form. Schumpeter’s aim then is to find out the reason why capitalist society cannot stand still. This reason cannot be solely the result of
experience because human experience could lead to uncertain outcomes. Instead,
whilst it cannot be contrary to empirical experience, this reason has to be deduced from the very conceptual framework of a
capitalist economy acquiring its own dynamic,
from its axiomatic postulates “coming into being” or ec-sisting. Schumpeter’s science must be, as he styles it, a histoire raisonnee – a marriage of equilibrium
and history.
The axiomatic
postulates - the “reasoning” schema of this “history”, the logical basis for
its “scientific hypothesis” - are formalized in Neoclassical political economy,
of which Walrasian equilibrium theory is the most “perfect” expression. Now, a
dynamic equilibrium is impossible if by equilibrium we intend a predictable state, because then any
position of equilibrium is inescapable. It is possible to understand how an
economy can reach equilibrium, but it
is unimaginable that it can ever move out
of equilibrium without the intervention of “external or exogenous factors”. As
Schumpeter put it: “An equilibrium can
only exist at all… [as] a static one. A dynamic equilibrium is a contradiction
in terms.”
The ec-sistence of equilibrium is not at all
a pure mathematical concept. The requirements for the “pure” mathematical
“existence” of economic equilibrium are entirely different from those of its
real, practical ec-sistence. And this
is so not just from the standpoint of practical experience itself, but indeed
also and above all from the very conceptual requirements or implications of the
practical ec-sistence of a concept.
On one side, we have the formal conceptual elements of a concept; but on the
other we have also the conceptual implications of its coming-into-being, of the
ec-sistence of the concept, of its extrinsication or embodiment from ideal concept
to conceptual reality! The two sets
of conceptual requirements are simply not the same. Yet, it is absolutely
evident that the practical
requirements for the ec-sistence of a
concept are just as much a part of its conceptual being as are the purely
formal logical requirements of the
internal consistency of the concept! But whereas the formal axiomatic
definition of a concept can only be self-referential and “closed”, and
therefore “totalitarian” or “tautologous” (cf. Hayek, Demsetz, Loasby,
Langlois), the conceptual requirements for the ec-sistence of the concept turn it into an “open” concept because
its practical implementation is subject to the minimal intuitive requirements
of empirical experience and observation. At that point, the concept may be said
to form a “scientific hypothesis” and it may be said to be “scientific”.
What turns
Schumpeter’s “science” into “bourgeois
science” is not this methodology but rather the necessary practical
implications of the “axioms” adopted by bourgeois Neoclassical economic
science, that is to say, the “precise relationship” between the axioms of the
theory and their practical implementation or ec-sistence. If then we wish to find out what are the internal or
endogenous factors that move the economy out of equilibrium we must separate
the logical concept of equilibrium
from the dynamic concept, which
includes the practical implications
of its real implementation. In this light, the concept of equilibrium serves
only a schematic heuristic purpose
but it can never be said to reflect the reality of a capitalist economy.
Science is the meeting point of schematic formalism and empirical experience: the
one cannot exclude the other, science must combine both. (To paraphrase Kant’s
famous dictum, “intuition without concepts is blind, and concepts without
intuition are empty”. Kant’s dictum is often misconstrued as: “thoughts without
content are empty, intuition without concepts is blind”. But by “thoughts” Kant
obviously means “concepts”, and by “content” he means “intuition”.) This is why a conceptual analysis of
equilibrium shows that it cannot exist
except as a closed stationary system,
but also that it cannot ec-sist
except as an open dynamic system.
Let us see how
Schumpeter squares this circle. If we are successful in our attempt, we would
have made perhaps the greatest leap in critical social theory since Nietzsche
aphoristically and anti-systematically pointed the way to a solution of these
apories, antinomies, enigmas and conundrums of bourgeois thought.
Capitalism,
Equilibrium and History: A Theoretical and Practical Analysis of Schumpeter’s
Methodology and Innovationsprozess
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[Theorie, ch.7]
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 manoeuvering
room for individual freedom of will. This can be demonstrated and yet it was
always a point of criticism, since the free 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 creative 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,1912, ch.7)
Damit kommen wir der Wirklichkeit tatsachlich naher.
Besonders gewinnen wir einen klarern Einblick in das eigenturmliche Gemisch von
Bedingtheit und Freiheit das uns das Wirtschaftsleben zeigt. Der statische
Kreislauf und die statischen Anpassungserscheinungen sind von einer Logik der
Dinge beherrscht, die fur das Problem der Willensfreiheit zwar ganz irrelevant
ist, aber praktisch – bei fest gegebenen sozialen Verhaltnissen – so gut wie
keinen Spielraum fur individuelle Willkur lasst. Das ist nachweisbar und war
doch stets ein Stein der Antstosses, das man das individuelle freie Schaffen
ganz deutlich am werken sah. Wir wissen nun dass der letztre Beobachtung
richtig ist und [36] den Theoremen der Statik nicht wiederspricht, wir vermogen
prazise Platz und Funktion dieses Schaffens anzugeben. Naturlich fehlt auch in
der Entwicklung die Logik der Dinge nicht; und ebensowenig man mit der
statischen Auffassung etwas fur philosophischen Determinismus beweisen kann,
kann man mit der dynamischen etwas gegen ihr ausrichten. Aber dennoch haben wir
ein durch sachlichen Bedingungen nicht erklarbares Element in der
Wirtschftlichen nachgewiesen und mit diesen sachlichen Bedingungen in eine
prazise Beziehung gebracht. (From G. Backhaus)
A.
Equilibrium and History: Conceptual and Political Aspects of Bourgeois Economic
Theory
Classical and
Neoclassical Political Economy from Adam Smith to Leon Walras is founded on the
axiomatic static equilibrium of the marketplace economic system. Yet this
clashes most violently with the empirically evident instability of the
capitalist economy and its equally violent convulsions and, worse still, its
transformations intended not just in the sense of quantitative growth (Wachstum) but actual qualitative evolution (Entwicklung), with
its meta-morphoses and mutations, with its trans-crescence and crises.
The static-stationary, axiomatic-analytical, anatomical and objective schema of
bourgeois equilibrium economic theory is evidently and empirically shattered
then by the dynamic-historical, metabolic and subjective unfolding or evolution
of its real operation. The end of history that the bourgeoisie always
desperately seeks has been “greatly exaggerated” yet again. The question here
is: can history be reduced to science? And then again, is it indeed science or
logic that is opposed to history in the bourgeois interpretation of economic
systems?
The con-fusion of science and logic in the
sphere of economic analysis was evident already in Adam Smith’s theorization of
market capitalism. Smith’s “invisible hand” was a necessary Eskamotage or deus absconditus (hidden god)
because the circularity of his reasoning reduced science to logic - to a
tautology in fact: prices are determined by value which is determined by the
quantity of labour, whose price is determined by the market which determines
prices which determine value. The problem lies in the definition of “market”:
if indeed the “market” is made up of entirely self-interested atomistic
individuals, then it is impossible to see how such in-dividuals could ever
reach the “agreement” that is indispensable to determine “prices”! In other
words, “the rules of market competition” have to be set or agreed upon by
market agents even before market competition takes place. But this is
impossible by definition, because any restriction on the “self-interest” of
market agents turns the entire exercise into a meaningless, though not purposeless, tautology.
G. Myrdal insightfully seized on
this point, in The Political Element in
the Development of Economic Theory. Myrdal, however, like all economics
theoreticians after him, totally failed to see the purpose or political element
behind the tautologous schema of
equilibrium theory – a “political element” that was to be the very object of
his study!
Thus, just like
equilibrium analysis, Smith’s theorization of market capitalism left no space
at all for the “co-ordination” of the actions of what are axiomatically atomic
in-dividual market agents – which is why, just as Leibniz needed a divine
“pre-established harmony” to co-ordinate his “windowless monads”, so did Smith
need his “invisible hand” to co-ordinate the actions of his “windowless”,
“monadic” market agents. General
equilibrium analysis, too, will later dispense
with this requirement, without thereby resolving
it, by postulating the “syn-chronicity” of all “actions” in market exchange.
But the formal equivalence of all axiomatic market agents in both theories
means that they are left without a “purpose” once the “frozen” state of
equilibrium is reached. In other words, equilibrium is a state of complete in-action, given that at equilibrium
market agents no longer have any need or space to change their decisions. At
equilibrium there is and there can be no “market”.
Arrow and Hahn were demonstrably
right to insist, pace Lawson in “The
Confused State of Equilibrium Analysis”, that Adam Smith is the father of
equilibrium analysis [in General
Competitive Analysis]. The fact that, as Lawson argues, Smith constructed
his theory from historical and sociological observations does not cure its
“closedness” or tautological nature. Hypocrisy was written all over the author
of The Theory of Moral Sentiments – something that Mandeville delighted in
exposing: his penchant for sociological observation, based mostly on Adam
Ferguson’s An Essay on Civil Society,
only served to disguise the aporetic and apologetic character of his economic
theory. Incidentally, Lawson’s definition of a “closed system” as one that can
be reduced to the proposition “whenever x, then y” is manifestly wrong because
this kind of proposition is essential to the testing of scientific hypotheses
in both natural and social science (one need only read any book on the
philosophy of science to understand this point). Quite contrary to Lawson’s
contention, a “closed system” must be of the type “whenever x, then y, where x
is a function of y”: it is the classic circulus
vitiosus or tautology, - nothing more nothing less. (Cf. in this precise
context, Robert Clower’s scathing labeling of neowalrasian equilibrium theory
as “fraudulent” – in “Economics as Inductive Science”.)
The problem with
equilibrium analysis is that it reduces economic “science” to “logic” –
literally, to ana-lysis
(retrospective examination or autopsy
or anatomy), that is to say, to the
formal mathematical equivalence of all its elements,
which leads to the meaningless paralysis of tautology. The essential aim of any
economic theory worthy of the name must be to explain how economic actions can
be co-ordinated and to point to the “what”, the “thing”, the common substance
or “value” that allows this “co-ordination” to take place. Co-ordination is not
meant here as “static exchange” and is not meant to be confined to
“quantitative values”. If we read Walrasian equilibrium, which is made up of a
series of simultaneous equations, as a simple functional plan or classification
of an economy, then it is not tautological but purely classificatory or
illustrative. If instead it is intended to show how a real economy functions,
that is to say, how the independent decisions of individual market agents can
be co-ordinated by “the market”, then
it is entirely tautological because, as Hayek showed, “its conclusions are implicit in its assumptions”.
As I have suggested elsewhere in this volume,2 the tautological method which is
appropriate and indispensable for the analysis of individual action seems in
this instance to have been illegitimately extended to problems in which we have
to deal with a social process in which the decisions of many individuals influence one another and necessarily succeed one another in time. The
economic calculus (or the Pure Logic of
Choice) which deals with the first kind of problem consists of an apparatus of classification of
possible human attitudes and provides us with a technique for describing the interrelations of the different parts of
a single plan. Its conclusions are
implicit in its assumptions: the desires and the knowledge of the facts, which
are assumed to be simultaneously present to a single mind, determine a unique solution. The relations
discussed in this type of analysis are logical relations, concerned solely with
the conclusions which follow for the mind of the planning individual from the
given premises. (Individualism
and Economic Order, p.93.)
Even so, Hayek’s
analysis of general equilibrium is still incorrect because for “a single mind”
Walrasian equilibrium is merely “classificatory” but not “tautological”. Even
for a single mind no decisions can be
made in equilibrium analysis because simultaneous equations involve a
“semaphoric”, logical “re-classification” of information that is independent of
“time” as a concept. Walrasian equilibrium is tautological only if it pretends
to explain, as it does, how “many minds” can co-ordinate their economic
decisions. Where a single mind is concerned, however, equilibrium theory does
not involve a “single plan” or any “plan” at all (!) because that would imply
the possibility of decision! But the
point to a “classificatory” or “semaphoric” (or functional or illustrative or
anatomical) schema is that no “decision” is involved because there is and there
can be no “time” involved in such an ana-lytical “sketch” or “blueprint” or
“map”. A map is “timeless”: it is not a “plan” in the sense of “a sequence of
decisions”!
But Hayek and all
equilibrium theoreticians after him, have shifted the subject-matter, the
ground, the sub-stance, the substratum and quidditas,
the “whatness” of economics from “prices and quantities”, which involve those
material human interests that are and must be the indispensable foundation of
all theories that even pretend to be “economic”, to the mere “semaphoric” world
of “information” and “co-ordination”! In the words of Brian Loasby,
The co-ordination
of economic activities, of course, is what economics is overwhelmingly about, (Equilibrium and Evolution, p.9).
The problem with
this is that economics can never be reduced to a simple matter of
“co-ordination” because it must always explain the real material object of “co-ordination”, what makes it
“economic co-ordination”! And the
“economic” here stands for pro-duction,
the actual creation of “goods and services” which ultimately involve human
living labour and therefore social relations of production that relate to the
interaction of human beings amongst themselves as well as with their living
environment. Hayek correctly captures the point that Walrasian equilibrium
cannot “co-ordinate” a “market” in which different individuals decide; the
market action of that “single mind” would still depend on the decisions of at
least one other “single mind” to make an “economic decision”. For the single
mind to make an economic decision and to evade tautology, it needs to be
confronted with the independent plan of “another mind”, which is what general
equilibrium is constitutionally incapable of doing because “its conclusions are
[logico-mathematically] implicit in
its assumptions” and no “time” can logico-conceptually be present! This
explains the retreat of equilibrium theoreticians like Frank Hahn from the
sphere of “prices and quantities” of real goods and services performed by human
living labour to the semaphoric or semiotic sphere of “ideas and actions”. For
Hahn,
an economy is in
equilibrium when it generates messages which do not cause [its] agents to
change the theories which they hold or the policies which they pursue, (quoted
in Loasby, op.cit. at pp.13-4).
But here the
legerdemain, the subtle trick that Hahn has performed becomes absolutely
evident – because Hahn has not specified a decision
but rather an in-decision, a “not-changing of theories and policies”!
In other words, not only does equilibrium now exclude even the most phantomatic
exchange of “goods and services”, which require human living labour, but it even
requires the ultimate in-action and in-decision: equilibrium finally assumes
the stagnant and stationary position not just of tautology but of the most
unthinkable rigor mortis – sheer
death! For the modern bourgeoisie and its idiotic charlatans, economic
equilibrium is the most perfect Nirvana in which absolutely Nothing happens!
To be perfectly
histrionically brutal, recent equilibrium theory has surged to the intellectual
status of a “Seinfeld” episode – that is, a comedy series “about nothing” in
which “absolutely nothing happens”! Indeed, once economic theory has become so
detached from any real material human activity of production in which human
beings interact not only with one another but also with their environment, bourgeois
economic theory can easily conceive of an economic system in perfect
equilibrium, perfectly “co-ordinated”, that has completely destroyed its living
environment! This insidious
danger was already implicit in Adam Smith’s theorization of “the wealth of nations” as a perfect
logico-mathematical “exchange” that because of its very “perfection” no longer
had anything to do with “wealth” itself! Not until Alec Pigou theorized the
problem of “externalities” (in The
Economics of Welfare) did this aspect of capitalist production enter the
sphere of bourgeois economic analysis, and then only as “externality”, that is,
as something “external” to the presumed “purity” of the capitalist economic
system. Contrary to the stooges of equilibrium analysis, Pigou never forgot
that "[e]conomic welfare...is
the subject-matter of economic
science," (ibid., p.9).
Up until Adam Smith
set out to formalize the operation or functioning of “the market”, economics
had not existed as a “science” separate from theories of society or indeed of
“the body politic”. Yet in this very separation
of “economic science” from other aspects of social life and from its history
lies the fatal flaw of this “science”, because once its methodology leads it to
exclude non-economic social forces as
“exogenous factors” or as “externalities”, then it becomes a “closed system” of
pure logico-mathematical formulae in which “economic facts” are completely
deprived of all sociological and environmental content. Consequently, “economic
science” is incapable of explaining historical change, including the
transformation of economic reality itself, totally extruding thus the very
“positive empirical experience” on which so-called “economic science” is
supposedly founded.
In his review of Comte and Mach,
in Knowledge and Human Interests,
Jurgen Habermas emphasises one aspect of positivism as his crucial objection to
it - namely, that positivism as a philosophy of science is incapable of
understanding and explaining the “historical evolution” of “science” itself. We
partly agree with Habermas; but this can only serve as an “internal” critique
of positivism in terms of its internal consistency, whereas as we will discuss
more fully below this type of criticism of positivist methods entirely misses
the point about their “external” real practical political effectuality! In
short, Habermas criticizes positivism in the name of “science”, when in fact
bourgeois “science” is a real political practice that cannot be “contradicted”
in purely “scientific” terms! “Science” simply does not have the politically-independent
epistemological status that Habermas’s neo-Kantism assigns to it – as Max Weber
showed conclusively, although only obliquely (cf. “Science as Vocation”).
Put in simpler
terms, science must be the combination of theory and facts: theory without
facts is empty, and facts without theory are blind. But the “facts” that
“economic science” pretends to theorise are the very violent reality that the
capitalist bourgeoisie has already imposed on human society! Bourgeois economic
science therefore pretends merely “to observe empirically” its misdeeds or
“facts”, and then to dress them up as “human nature” that gives rise to
“natural human rights”. This miserable combination of scientific positivism and ethical jusnaturalism is the very essence of
bourgeois economic science.
At the hands of
positivism and empiricism, the Statik
of equilibrium theory contradicts the Dynamik
of capitalist reality: hence, equilibrium expels history, stasis stymies metabole,
necessity chains freedom. How then to reconcile these irreconcilable opposites?
How to evade and escape these antinomies and apories? Schumpeter offers a
preliminary way out:
But despite this we have shown that [a
subjective] 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.
The task of
“science”, then, is not to jettison logic; it is rather to marry logic with nomothetic observations about the
operation of “the social process” and then place these “objective
conditions….in a precise relationship” with the equally necessary idiographic “leadership” role of human
agency. There is no paradox here: the subjective
element that leads or initiates the “transformation” of the
economic system must act within the boundaries of the objective conditions specified by logic
and science: this necessity is what gives the phenomenon of capitalist
trans-formation its mechanical or procedural character: it is the
“trans-formation mechanism” (Veranderungs-mechanismus)
that is the engine or “source of energy” (dynamis)
of the Innovations-prozess. The
“freedom” of the leader or of the entrepreneur who leads this mechanism and
this process is not an abstract concept: individual freedom operates within the
objective conditions imposed by the “free-doms” of every other individual agent
involved in economic activity. The subjective trans-formation of the
capitalist economic system takes place within the boundaries and limits imposed
by the specific historical “institutional framework” of this economic system.
This cardinal quasi-Euclidean
axiom of the absolute atomicity or in-dividuality and self-seeking
self-interest of human beings is the most indispensable postulate of all
bourgeois social, economic and political theories. Fittingly, it was the English
translator of Euclid ’s
Elements, Thomas Hobbes, who first
devised this worldview. In this worldview, there is no space for common human
interests (inter esse, common being):
the syllogistic conclusion is that “freedom” can be defined and exist not as a
common human goal but only as “free-dom”, that is to say, as an equilibrium of
opposing, conflicting and irreconcilable individual wills. This equilibrium,
the equilibrium of Greek stasis or
civil war (bellum civium), can be overcome by political
convention (totalitarian, democratic or elitarian) only because the atomized
human individuals postulated in Hobbes’s theory know that the only outcome of
such static equilibrium, of this stasis,
will be the war of all against all (bellum
omnium contra omnes) that will lead fatally (fate here turns into death) to
the extinction of humanity. Even in its “free-dom” - indeed, as Weber has
shown, especially in its “free-dom” –
human action and leadership will obey that “conditioning” constituted by the dira necessitas (the dire necessity),
the extrema ratio of
self-preservation. The ultimate foundation of mechanical rationality both for
the Hobbesian political system and for its neoclassical progeny in equilibrium
theory is quite simply self-preservation, the “dire necessity” of surviving in
the state of nature where homo homini
lupus, man is a wolf to man. Free-dom consists not in acting irrationally
but in acting rationally: in short, that decision is “free” that is taken rationally, by respecting the “precise relationship” between subjectively
intended ideal goals and the objective
“con-ditions”, the available means, for the implementation of those goals
starting from the axiomatic postulate of the irreconcilable self-interests of
individual human beings.
This is how Hobbes
managed for the rising capitalist bourgeoisie an epistemological feat that has
not been equaled since he wrote: - he managed, that is, to combine the
positivist scientific hypothesis of
Galileo-Newtonian mechanics with the jusnaturalist political convention of innate rational human rights, and thereby
to erect bourgeois political practice on effectual scientific grounds. Hobbes
begins with the positivist scientific
hypothesis of the “universal conflict” between human beings taken as wholly
egoistic atomic individuals, and from there he develops “rationally” - with the
“rationality” of the “laws” of mechanics - the jusnaturalist political convention (common-wealth) that will make
social life possible based on the “natural rights” of these conflicting
individuals. (This astute twining of positivist authoritarianism and
jusnaturalist contractualism is masterfully unjumbled by N.
Bobbio in Da Hobbes a Marx.)
In order to erect
his political theory, Hobbes starts from the Euclidean axiom that each human
being represents a “point” or “body” entirely unconnected to other human
“points” or “bodies” and entirely self-interested or, mechanically put, having
its own momentum or “appetitus” or “conatus” – which Hobbes calls “Power”. From this axiom he deduces that
the original, most “natural” state of human beings, the “state of nature” or status naturae, is a state of civil war
(bellum civium) or “the war of all
against all” (bellum omnium contra omnes).
This “clash of wills” or appetites, this “war of all against all”, can lead
logically only to a deterministic mechanical
equilibrium in which there is no “room
for manoeuvre for the individual freedom of the will” (Schumpeter quoted
above) because each individual will is bound by the wills and boundless
appetites of other wills, or else to the assured self-destruction of human
beings. This is Hobbes’s scientific
hypothesis taken directly out of Galileo-Newtonian mechanics.
The way out of
equilibrium or stasis is provided by
the ultima ratio, the absolutely
indispensable right to and need for self-preservation, which leads these atomic
self-interested individuals to reach freely
a political con-vention, an agreement or “social contract” that can avert
mutually assured destruction. Here the positive
empirical evidence of a society that the bourgeoisie has reduced coercively to little more than a moral
jungle from which all notion of “natural law” has been expunged meets with and
satisfies the jusnaturalist
(natural-law) requirement that individuals must agree freely and rationally to a political regime that will protect them
from civil war. Hobbes acknowledges that what coerces individuals to accept
this bourgeois political regime based on “the laws of the marketplace” is the metus mortis, the fear of death at the
hands of any other individual. And given that each individual is axiomatically
defined as being “equal” in the ability to harm another in the state of nature,
then it follows axiomatically that each individual decides freely (by political
convention, otherwise known as “social contract”) and rationally (by scientific hypothesis,
following the definition of in-dividuals in conflict) to erect a “common
wealth” or State or status civilis
that will protect them from certain death.
The central feature
of capitalism is that the bourgeoisie has tried as far as is humanly possible
without tearing asunder the very fabric of human society to reduce this society
to the state of absolute possessive individualism. That is why all accounts
of bourgeois economic theory must start with the axiomatic postulate of this
possessive individualism. Hobbes did not neglect to include in the “possessive”
part the ability of individuals to buy or sell their own “power”, meaning both
their physical possessions and their labour-power, in exchange for physical
possessions. In the Leviathan, he
describes “the value or worth or price of a man” as “so much as would be given for the use of his power”. Clearly, Hobbes had already an embryonic notion of
what Marx would theorize later as “labour-power”, the commodified form of
living labour in capitalist industry.
As Loasby has very
perceptively pointed out (in Equilibrium
and Evolution), the “complete decentralization” of economic decisions that
is implicit in Hobbesian political theory and then in Walrasian equilibrium
economic theory makes the co-ordination of economic decisions “a matter of life
and death”. This is indeed another factor that makes the Hobbesian-Walrasian
schema or blueprint absolutely axiomatic for the analysis of capitalism. But
this interdependence of human economic action is still subordinated to the
axiomatic primacy of individual self-interest; consequently, it cannot form
part of equilibrium theory except as a Hobbesian ultima ratio or dira
necessitas ob metum mortis, dire necessity in fear of death, as we
explained above.
The locus classicus of “possessive individualism” is CB Macpherson’s
towering study by that name. Alchian-Demsetz, to give yet another example of the
rampant stupidity of Nobel Prize laureates in economics, quite incorrectly
select a negative definition of
capitalism – the absence of
government in the economic process - and completely leave out the “individual”:
The mark of a
capitalistic society is that resources are owned and allocated by such
non-governmental organizations as firms, households, and markets. [First
sentence of “Production, Information Costs and Economic Organization”.]
This is quite clearly nonsense
because, in practice and in reality, governments have historically played a
crucial role in “the ownership and allocation of [social] resources”; and in
bourgeois economic theory, it is individuals,
not “firms and households”, that must axiomatically
take precedence over “firms and households and markets”! It is possible, of
course, that by “markets” Alchian-Demsetz mean the economic exchange of
atomistic individuals. Demsetz in any case will later take a fresh look at
competition as “perfect decentralization”, which requires the postulate of
possessive individualism (cf. above all his “Freedom and Coercion” and
“Fallacies in the Economic Doctrine of Externalities”).
Although our treatment of
Hobbes’s political theory is perhaps more systematic than Hannah Arendt’s, we
simply could not resist drawing on her devastating prose and quote in full what
is truly one of the most moving and inspiring passages in her entire work which
stands as a lasting indictment not only of the capitalist bourgeoisie but also
of its venal intellectual apologists, among whom we count first and foremost professional economists:
It is significant that
modern believers in power are in complete accord
with the philosophy of the
only great thinker who ever attempted to derive
public good from private
interest and who, for the sake of private good,
conceived and outlined a
Commonwealth whose basis and ultimate end is
accumulation of power. Hobbes, indeed, is the only great philosopher
to
whom the bourgeoisie can
rightly and exclusively lay claim, even if his principles
were not recognized by the
bourgeois class for a long time. Hobbes's
Leviathan ^^•' exposed the only political theory according to which
the state
is based not on some kind
of constituting law—whether divine law, the law
of nature, or the law of
social contract—which determines the rights and
wrongs of the individual's
interest with respect to public affairs, but on the
individual interests
themselves, so that "the private interest is the same with
the publique." ^'^
There is hardly a single
bourgeois moral standard which has not been anticipated
by the unequaled magnificence of Hobbes's logic. He gives an
almost complete picture,
not of Man but of the bourgeois man, an analysis
which in three hundred
years has neither been outdated nor excelled. "Reason
... is nothing but Reckoning"; "a free Subject, a
free Will . . .
[are] words . . . without meaning; that is to say,
Absurd."
A being without
reason, without the
capacity for truth, and without free will—that is,
without the capacity for
responsibility—man is essentially a
function of
society and judged therefore according to his "value or
worth ... his
price; that is to say so much as would be given for the use
of his power."
This price is constantly
evaluated and re-evaluated by society, the "esteem of
others," depending
upon the law of supply and demand.
Power, according to Hobbes, is the accumulated control that
permits the
individual to fix prices and regulate supply and demand in
such a way that
they contribute to his own advantage. The individual will
consider his advantage
in complete isolation,
from the point of view of an absolute minority,
so to speak; he will then
realize that he can pursue and achieve his
interest only with the
help of some kind of majority. Therefore,
if man is
actually driven by nothing but his individual interests,
desire for power must
be the fundamental passion of man. It regulates the
relations between individual
and society, and all other
ambitions as well, for riches, knowledge,
and honor follow from it.
140 IMPERIALISM
Hobbcs points out
that in the struggle for power, as in their native capacities
for power, all men are equal; for the equality of men is
based on the
fact that
each has by nature enough power to kill another. Weakness can be
compensated for by
guile. Their equality as potential murderers places all
men in the same insecurity, from which arises the need for a
state. The
raison d'etre of the state is the need for some security
of the individual, who
feels himself
menaced by all his fellow-men.
[146….Hobbes was the true, though never fully recognized,
philosopher of the
bourgeoisie because he realized that acquisition of wealth
conceived as a
never-ending process can be guaranteed only by the seizure of
political power,
for the accumulating
process must sooner or later force open all existing
territorial limits. He foresaw that a society which had entered
the path of
never-ending acquisition had to engineer a dynamic political
organization
capable of a corresponding never-ending process of power
generation….
For a Commonwealth based
on the accumulated and monopolized power
of all its individual
members necessarily leaves each person powerless, deprived
of his natural and human
capacities. It leaves him degraded into a
cog in the
power-accumulating machine, free to console himself with sublime
thoughts about the ultimate destiny of this machine, which
itself is
constructed in such a way that it can devour the globe simply
by following