Commentary on Political Economy

Saturday 29 April 2017

Liberalism and The Deep State

The greatness of Carl Schmitt as a political theoretician is to have exposed mercilessly the utter incompatibility of liberal principles with parliamentary institutions. The political core of liberalism, Schmitt argues, is the principle of homo homini lupus (man is a wolf to man), the grim reality of the Hobbesian bellum omnium contra omnes (the war of all against all). The bitter pursuit of self-interest - or possessive individualism, which is the cardinal principle of liberalism - will lead inexorably and inevitably to civil war: - this is a reality that we are confronting right now all over the world, within nation-states and between nation-states. Because of this, the only way to avoid the annihilation of human society is for self-interested individuals to elect a Sovereign with plenipotentiary powers - in essence, an Absolutist State, a Monarch with all powers concentrated in his person - a veritable Deus mortalis (mortal God). - And again, this is what we are witnessing with the slow and excruciating death of Western liberal parliamentary regimes as the powers of Parliament are taken over by individual Leaders (from Presidents to Prime Ministers) who are elected increasingly in a plebiscitary manner - directly by "the people", as in the US or France or through "primaries" organised by political parties.

What we are witnessing, then, is the agonising demise of parliamentary regimes in favour of "strong leaders" who answer only to "the people" without any of the "mediating" functions served previously up to now by institutions such as Parliament, political parties, and last but not least "the media" or Public Opinion. Already, Jurgen Habermas had signalled but not fully realised the epochal implications of this "structural transformation of public opinion" in the early 1960s. But it was Johann Agnoli with his "The Transformation of Democracy" who truly alerted us to the slow death of Parliaments and Political Parties.

Yet, somewhat surprisingly, the one work that most incisively and penetratingly as well as insightfully perceived the full implications of this decline of Western bourgeois liberal parliamentary regimes, and specifically of Political Parties, was that of the French sociologist Maurice Duverger with his masterful study on "Les Partis Politiques" dating back to 1969. In essence, the explicit aim of Duverger’s great study was to trace the decline of political parties in the second post-war period, once the Communist threat was contained through the Marshall Plan and through Stalinist legacies and, therefore, bourgeois Christian-Democrat parties could return to their pre-war role of “administering the State” on behalf of the bourgeoisie. Yet in reality, Morin’s political historical genius extended far beyond this explicit aim because his study also traces the history of the birth of parliamentary regimes and of political parties in particular out of the old European Absolutist States, especially in France, but extending to Germany and Britain.

What Duverger demonstrates – quite extraordinarily without almost being aware of doing this – is that “the party system” that has kept alive Western liberal parliamentary regimes was really simply an escamotage by the old landed, but increasingly capitalist aristocracy that governed under the rule of monarchs the Absolutist States that emerged out of the feudal system – an escamotage by this freshly embourgeoisified (to coin a horrible term) aristocracy to contain and control the emergence of revolutionary workers’ parties at the time of the Second Industrial Revolution from the mid-1850s. And the new bourgeoisie achieved this goal of containment by devising a parliamentary fa├žade of political representation while all the time retaining control of political power through (a) the imponent bureaucracies established by the monarchic feudal Absolutist States, and, (b) quite obviously, through the military complex. This union of bureaucracy and military – which constituted a major focus of Max Weber’s studies of the modern bourgeois State – constitutes what we may call a Deep State that controls and moderates “the alternation” of Labour/Socialist and Liberal/Conservative parties and their governments in Western bourgeois parliamentary regimes.

Furthermore, this Deep State leads to the further concentration of decision-making power into the hands of increasingly stronger Executives (Presidencies and Prime Ministerships) that, first, supplement the de-legitimisation of parliamentary regimes due to their growing political ineffectiveness and impotence, but, second, lead to the further de-legitimisation of the parliamentary systems dependent on ever-weaker political party electoral representation!

This sociological thesis and its political denouement advanced by Duverger had already been prophesied by Carl Schmitt in his pioneering studies of the 1920s and 30s – The Crisis of Parliamentary Democracy, and Dictatorship. (For a similar study applied to the US, see C. Rossiter, Constitutional Dictatorship. I take the liberty to refer to my own study, FDR and the New Deal.)

Theoretical Appendix:

Capitalism, Liberalism and Despotism – Locke and Hobbes


Classical political theory assumes that the State is the holistic ethico-political ex-pression and pro-duct of more fundamental social components that precede the State both historically and analytically. The bourgeois theory of the State, known as liberalism, shares this vision of the State with the added ingredient that society itself can be separated into a scientific economic spheregoverned by the “laws of the market” and “economic value”, on one side, and a political sphere of public opinion guided by ethical values, on the other. In other words, if Economics is the bourgeoisie’s scientific rationalisation of capitalism, then Liberalism constitutes its quintessential political ideology. Liberalism is the political expression of capitalism in that it proclaims that it is possible to separate the economic sphere of social life which is the realm of necessity or “free-dom”, that is, the rigid constraint of each individual free-dom imposed by the free-doms of others all understood strictly as “individual freedoms” (the optimal utilisation of resources made scarce by the insatiable nature of individual self-interest – whence the dismal science – this is the constraint that founds the scientificity of capitalist social relations, the Objective Value of neoclassical economic theory) from the sphere of freedom or public opinion in which individuals can air their most subjective beliefs, the Subjective or Ethical Values of the liberal public sphere, without – for that very reason, that is, by reason of the “ideal” nature of opinions and beliefs – upsetting the politico-technical neutrality of the State which, again, is founded on the scientificity of Economics, that is to say, on the liberalist presumption of the scientific workings of the self-regulating market mechanism.


It is the subjectivity of these ethical values – their origin in the ideal “freedom of the human will” -, and the fact that this ethical-moral “freedom” can be founded exclusively on the objectivity and “scientific” operation of the market mechanism and on the “laws of Economics” – it is these two factors combined that liberalism can exploit ideologically to vaunt its unique affinity with democracy. The central tenet of liberalism is that “democracy” is socially impossible unless the sphere of economic production and exchange is kept hermetically separate and protected from the sphere of public opinion with its “irrational” ethico-moral and religious beliefs! Locke and Constant are the great theoreticians of liberalism. For Locke, the separation of economic and political spheres is made possible by the fact that it is possible to assign individual property rights to resources by means of “individual labour” – by which Locke means also the labour of others exchanged like any other product of labour or commodity. Constant goes further by treating liberalism as the social state that allows the transformation of proprietary antagonism from war to commerce. In other words, for Constant, commerce, or the Lockean appropriation of resources on the basis of supposedly “individual” labour, leads not just to social peace guaranteed by a neutral State, but also to international peace between nation-states on the basis of the disciplining effect of property and capital movements between nation-states! This could not be achieved without the existence of “natural rights” that precede the State.


It is just such a jusnaturalist position that Hobbes denies steadfastly and intransigently – and one that he demolishes with the ruthlessness of his logic. The greatness of Hobbes lies precisely in having demonstrated that a society run strictly along capitalist lines on the basis of possessive individualism is quite impossible because it will inevitably descend into civil war – that, paceConstant, it is not possible for commerce to replace war as a means of resolving the conflict implicit in commercial transactions (possessive individualism, private ownership of social resources) either within or without the boundaries of the nation-State. Auctoritas, non veritas, facit legem. The essence of laws, says Hobbes, is not their “content”; it is not the “truth” of their injunction – for the simple reason that there can be no universal Truth of which the laws are dictates. For Hobbes as later for Nietzsche, the real essence of the law, its actual “truth”, is the very fact of its enforcement – the fact that a particular Will is able to impose it on the subjects to which it applies and who are forced to obey it. It is the authority of the Sovereign, the actual physical ability to enforce the law that makes it “law”; it is certainly not the correspondence of the law to an intersubjective universal human Truth that makes it “the law”. (Wrong therefore are the theses of Leo Strauss and Warrender thatclaim Hobbes for liberalismAnd equally wrong is Macpherson to claim that Locke’s theory of theState is in all analogous to Hobbes’s.)


Hobbes’s political theory, therefore, contra Habermas, is clearly not an attempt to scientize politics – because for Hobbes it is quite impossible to give politics any scientific basis – again, for the simple reason that there can be no scientific “truth” upon which a hypothetical “ideal polity” (a Utopia) can be founded. On the contrary, for Hobbes what science dictates is that politics begins and ends with the authority of the Sovereign. But this authority is legitimated contractually by the subjects of the common-wealth, of the State, not because it is the settlement dictated by scientific “truth” – but rather precisely for the opposite reason (!), that is to say, that science shows conclusively that no commonwealth or society or State can be founded on the dictates of science! It is this negative conclusion – the impossibility of a commonwealth or State that answers to a summum bonum or Truth – that is the real foundation of the Hobbesian status civilis or State as the supreme and ultimate endeavour of human beings to escape the otherwise ineluctable state of civil war, thestatus naturae or bellum civium (war of all against all).


To reinforce his point, Hobbes distinguishes between laws or rights or moral rules that operate in foro interno – in the sense that each individual human being may repose credence in them – and the utter impossibility of applying these individual rules in foro externo by virtue of the fact that these “internal” ethical rules can never coincide with the “external” objective rule imposed by the State! The only “rule” or Value that can be agreed upon is the scientific fact that human beings wish above all to preserve their individual “life” from violent death at the hands of other human beings. And given the ability of any one individual human being to threaten the life of any other individual, it is this metus mortis, this fear of violent death, which can be the only “scientific” basis of the State. The State is the deus mortalis in the sense that its godliness – its omnipotence - is not derived from theological sources but from the very mortal forces of human voracity, of human appetite for endless possession. Whereas the old mediaeval Scholastic theories of the State remained theo-cratic in that the supremacy of the State over its subjects remained still ethico-moral in nature because of its “patriarchal” analogy to the Divinity and the Judaeo-Christian family, Hobbes’s theory of the State breaks radically with all previous political theory by asserting and demonstrating geometrico-mechanically the absolute primacy of the State in the foundation of human society. The basis of the State is not rendered “scientific” thereby: or rather, the State is “scientific” only to the extent that science requires it to proscribe the Political so as to prevent the otherwise inevitable descent of humanity into total civil war. (As Leo Strauss put it in reference to Schmitt, Hobbes theorised a State that put an end to politics understood as the state of nature, and Schmitt theorises a state of nature that reintroduces politics to the State. Both Hobbes and Schmitt, moving in opposite directions, theorise the incompatibility of State and politics.)


It is evident therefore that for Hobbes there can be no distinction or separation of any sphere of civil life, including the “economic” sphere, from the existence of the State: for Hobbes, society and the State are one indivisible entity: there is simply no human society or natural society or civil society possible outside the State. The State is a restauratio ab imis fundamentis of human society – a total constitutional order – founded solely on the ability of the Sovereign to enforce its decisions (the law). It is equally impossible therefore for a law to be “natural” and thus to be “just” independently of the State that enforces it: a conduct is “just” in a State that enforces it, and the very same rule can be “unjust” in a State that proscribes it. A law can be “right” in one State and its very opposite can be equally “right” in another State that enforces its opposite. The “truth” of the law is the authority of the Sovereign, not an independent and intrinsic Value possessed by or contained in that law.


The same applies of course to economic “laws” based as they must be on the notion of property (the individual claim to social resources), individual labours or utility (as the subjective individual ethical basis for property rights), and exchange (as the foundation of market prices and commerce). All economic science is based on the “exchange” of pro-ducts between individuals. But “exchange” implies by definition the existence of property rights possessed by individuals over the pro-ducts that they are meant “to exchange”. As we have shown, however, for Hobbes no such property “rights” can exist outside of the State; and they cannot constitute therefore an objective scientific basis or an ideal ethical basis for the science of “economics”. For this very reason, the HobbesianState is not an ideal State – it is not a prescription: it is instead a statement of fact! For Hobbes, every conceivable human society, to the extent that it is viable, must be founded on his analytical doctrine of the State! This means that for Hobbes liberalism is not only impossible as a political foundation for human society, but to the extent that it appears to hold sway it can do so only on ideological veils that obscure the real nature of the State on which all human society must be founded. For Hobbes, liberalism is impossible – a fraud or a fib at best – owing to its very theoretical premise, that is, possessive individualism.

Friday 28 April 2017

LIBERALISM AND DICTATORSHIP: Benjamin Constant vs. Carl Schmitt

We have argued repeatedly here that liberalism and democracy are conceptually contradictory and, therefore, they have been shown historically time and time again to be incompatible. A liberal regime aims exclusively to preserve, protect and enhance individual property rights: as such, therefore, it is incorrect to identify it with “individualism”, except perhaps as a contrast to “collectivism”, because in championing the rights of individuals who own property, liberalism quite obviously will crush the rights of individuals who do not own property or who own less property. Evidently, the paramount protection of property rights and therefore the free exchange of claims to property - which, together, form the essence of liberal doctrine and practice -, is entirely inconsistent with the exercise of political freedom and decision-making by all members of society in a manner that is not tainted by the ownership of property.

Two of the biggest fallacies in Benjamin Constant’s oblique championing of liberalism are, first, his assertion that the ability of property owners to remove their property from a nation-state is an exercise of democracy; and second that, by removing their property to other nation-states, property owners actively discipline their nation-state and establish “competitive tension” between nation-states to foster democratic principles and institutions worldwide. This is perhaps the biggest non sequitur in Constant’s entire otherwise most valuable oeuvre: - because quite clearly, as the history of western liberalism and capitalism reveals, the bourgeoisie removes property from a nation-state and places it in another nation-state not at all to promote democratic rights, but rather to ensure that private property rights are protected! There is a vital difference between the protection of property rights and democracy that Constant clearly missed! On the contrary, history reveals that the bourgeoisie is indeed quite willing to move capital to authoritarian and even dictatorial regimes so long as it can reasonably expect that such regimes will protect and enhance its property rights! Even under Hitler, under no less than the Nazi dictatorship, the German bourgeoisie was entirely happy to keep its property under the protection of that most brutal regime.

Thus, far from enhancing democracy, the free movement of capital has more often than not enhanced dictatorship. Perhaps the most colossal example of this in capitalist history is the huge transfer of capitalist investment to the Chinese dictatorship from 1980 until our present day! And this occurred in large part not because the bourgeoisie could be sure of the protection of its rights – though that was reasonable given the ability of the Chinese dictatorship to enforce them against its own people -, but rather because the Communist Chinese dictatorship was willing to subject its population of over a billion people to the exploitation on the part of the Western capitalist bourgeoisie and, in the process, to turn itself into a powerful capitalist bourgeoisie in its own right!

As we have argued repeatedly here, it was Carl Schmitt who perhaps most systematically and coherently demolished the rationale and ideology of liberalism, precisely by evincing the theoretical-historical inconsistency of democratic parliamentary institutions and the institutions of private property. Of course, Schmitt’s aim was manifestly anti-democratic; yet this does not diminish the potency of the arguments he advanced against Western bourgeois parliamentary regimes. The false identification of liberalism with democracy is the reason why every critique of liberalism is immediately denounced by the bourgeoisie as an assault on “democracy” – by which it means “liberalism”.

In the present day, aside from the Western bourgeois transfer of resources to the control of the Chinese dictatorship without first exacting peremptory guarantees for the democratic representation of its oppressed workers and wider population, perhaps the worst example of how liberal principles can demolish democratic institutions is the championing of liberal economic principles and practices by the German bourgeoisie – what is widely known as Ordo-liberalism -, a practice that is rapidly leading to the unravelling of the European Union and its lurching into authoritarian, if not openly dictatorial, waters. So strident and harmful has this practice been, that even the most prominent commentators of bourgeois publications have inveighed against it, to no avail.

To be continued.

Tuesday 25 April 2017

Liberalism versus Democracy


We have argued here on several occasions that liberalism, frequently associated with democracy as in the ubiquitous phrase “liberal democracy” – is in fact both conceptually (in terms of its ideological self-understanding by the capitalist bourgeoisie) and historically (in terms of the historical record of bourgeois liberal nation-states) quite incompatible with democracy – to the extent that, as we have sought to prove, the phrase “liberal democracy” is in fact an oxymoron, a contradiction in terms. Contrary to an almost universally accepted fallacy, not only are liberal capitalist nation-states in fact quite authoritarian (indeed, the historical logic of liberalism induces them to grow in authoritarian directions), but also they tend to be very belligerent militarily and quite repressive in their belligerence – contrary, once again, to the widespread fallacy that liberal States tend to be “weak” because they do not interfere with “private property”. On the contrary, it is the very need to preserve and enforce private property rights that turns liberal regimes into very repressive machines not just internally but also externally so as to protect the property rights of their citizens with foreign interests.
The ideology of liberalism is founded on extreme individualism and private property rights. Indeed, the individualism espoused by liberal regimes is really just a cover for the enforcement of private property rights. No less an apologist for liberal regimes than Benjamin Constant went so far as to suggest that the ability of property owners to transfer their property across nation-states was fundamental to the preservation of “democracy” in those nation-states! Here we confront immediately the horns of the dilemma that confronts increasingly authoritarian and undemocratic capitalist bourgeois liberal regimes the world over: on one side, the growing antagonism of their workers leads them to seek greener pastures in other nation-states; on the other side, the transfer of social resources to other nation-states increases the antagonism at home whilst it potentially empowers other nation-states. The capitalist bourgeoisie is therefore constantly torn between the need to keep its workers employed and rival bourgeois nation-states weakened, and the need to discipline its workers without strengthening foreign bourgeoisie.
The whole recent ideological rationale of pointing to automation and “artificial intelligence” as the real causes of lower living standards in the West is really (a) an attempt to present this disenfranchisement of Western workers as “scientific-technical” and therefore politically “neutral” without (b) immediately deflecting the blame to foreign nation-states because this, first, would raise inter-capitalist and inter-national tensions and, second, would highlight once again the “political” nature of automation and of “entrepreneurial competitive disruption”. In fact, these “disruptions” have been allowed by the “liberal” State only in areas that are not central to capitalist accumulation and that were already in decline in the West such as distribution (Amazon), media (Google, Facebook) and telephony (Apple) and transport (Uber). The core interests of the bourgeoisie in areas that are of strategic importance have been left untouched. The massification of service industries has served the ulterior purpose to reduce the political weight of middle classes in the West due to their “democratic” tendencies. Quite simply, Western middle classes have been obliterated except for certain sections that have been co-opted to the “internationalist” cause.
The problem is – and it is under the eyes of everybody a day after the French elections – that the annihilation of the working and middle classes in the West has led to a truly frightening delegitimisation of the capitalist liberal State! To the point that now the very foundations of the liberal State, and of the little democracy it still retains, are being rocked uncontrollably!

To be continued...

Saturday 22 April 2017

The Insanity of Global Capital's "Artificial Intelligence"

Whenever the bourgeoisie is in trouble - and it most certainly is right now - it turns to technocratic myths as an ideological ploy to obstruct the emancipatory drive of living labour that have rendered necessary the very "technological progress" that the bourgeoisie prides itself of having engendered. It's a curious fact: on one hand, the bourgeoisie champions the role of "the entrepreneur" (from Steve Jobs to, say, Zuckerberg or Musk), as the organic fruit of its mode of production; but at the same time the bourgeoisie has to present this entrepreneurial "disruption" as the inflexible by-product of "Science and Technology" - as something inevitable and independent of political control - as a Fate that we must not just passively suffer but enthusiastically embrace!

Except that what "entrepreneurial disruption" reveals is not the "inevitable march of Progress" but rather the tremendous upheaval that the bourgeoisie imposes on all human society in its desperate attempt to counter and control undemocratically "innovations" that are induced by the irrepressible antagonism of living labour against the command of dead labour - which is what capitalism is in essence! The latest fad in this insane attempt to present the insanity of technocratic control as the very essence of "democracy" or "consumer choice" - this latest fad is called "Artificial Intelligence" - which is presented as the solution to all the world's evils - political and environmental. Except that (once again, "except that") in the meantime, far from resolving the world's problems, challenges and evils, "artificial intelligence" is pushing us ever faster - in geopolitical and environmental terms - very close to the abyss. The cries of despair, the sense of total loss of control the world over are simply too loud, too insistent and immediate for even the most isolated and insensitive humans to fail to detect. Go anywhere in Asia, climb the highest mountains in the Himalayas, in Tibet; visit the remotest islands in the Pacific or Indian Oceans; traverse the most intractable desert routes in the Sahara and the Gobi - everywhere you will find that the pain and conflict imposed by global capital - from overpopulation and pollution and exploitation - is blatantly evident to all earthly denizens, even the most seemingly "uninformed".

That is why the very first thing we have to do when we think of a Bill Gates or a Steve Jobs or indeed an Elon Musk, not to mention Mark "Sugar-Mountain" Sucker-berg, is to think that these are the mere figureheads of an increasingly colossally desperate attempt on the part of the bourgeoisie to render its dominion over the Earth and its denizens utterly total and uncontrasted - even to the point of projecting that domination internally (virtual reality) and externally (space travel). At the very moment, the instant in which the bourgeoisie dreams of total domination of social and even physical reality through its vainglorious pursuit of "artificial intelligence", what stares us in the face instead is the astronomical "in-intelligence", the crass and rabid stupidity of a socio-economic class that is fast losing control of just about anything of importance happening on this planet! The Earth is burning, vast areas of the globe are under the control of Mafias and pirates and "terrorists" and "failed states" - and yet the bourgeoisie continues to present its socio-economic system - capitalism - as the very pinnacle of human rationality! Just read or watch anything at all in the media, "social" or conventional - or try to decipher the advertising bombardment to which it subjects us, to understand the absurd degree of nonchalant lying to which the bourgeoisie resorts to mask the impending catastrophe the Earth faces - political as well as environmental.

In an effort to understand these developments, to combat the "deification" of destructive an suicidal political practices by the bourgeoisie, we will continue presently with our study of Schumpeter's work.

Saturday 15 April 2017

Capitalism and Innovation: The Role of the Entrepreneur in Economic Theory

The question that we are posing in this series on Joseph Schumpeter's theory of economic development concerns first the notion of "development" (Entwicklung) itself; and second it seeks to elucidate the role of the entrepreneur, that is to say, of th capitalist in this process of capitalist development. Our aim is to show that for capitalism there is no sense at all in "development as progress" of any description. Rather, what capitalism presents as "progress" or "innovation" or indeed "disruption" or even "artificial intelligence" is simply the perpetuation of capitalist command over living labour by means of "techniques" (not "Technology") whose power to decompose the control of workers over the process of production is measured ultimately through the monetary medium as money-wage inflation, which can often metamorphose, as it is at this late stage of capitalist secular stagnation, into the phenomenon of asset-price inflation.

The first fundamental issue that Schumpeter addresses for his entire monumental theoretical effort in economic and social theory is contained in this question:

[H]ow 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 [Entwicklung].[468]
To this fundamental question, Schumpeter gives the following answer – an answer consistent with and borne out in all of his subsequent work:

[469] This [present work, the Theorie] is an attempt to present a theoretical analysis of development, of its mechanism, in the form of a scheme to which the facts of development would generally conform. We look first at a general cause for the changes in the fundamental structure, i.e. in the level of the circular flow. We locate this cause in the fact that - as we expressed it - new combinations get driven through. We saw that when new combinations are carried through this can be attributed to the actions of a particular type of economic agent whom we called an "entrepreneur". 

Now, let us sift carefully through this statement and state exactly how and where Schumpeter has gone wrong in seeking to tie the two “distinct processes” in economic analysis. First, Schumpeter clearly assumes that there is such a thing as “a state or level of equilibrium”. His question then is how to account for changes in the “level” of equilibrium. And Schumpeter claims to have found the cause for this change in “levels” of equilibrium in

the actions of a particular type of economic agent whom we called an ‘entrepreneur’ [who is responsible for]... the new combinations [that] cause...the the level of [equilibrium or] circular flow.

But the difficulty with this reasoning is that the notion of equilibrium applies to a theory of the economic system in which any “changes” in “combinations”, any “new combinations”, are instantly “semaphored” or communicated to all other economic agents because these “changes” are not changes occurring in time but are rather changes in the logical structure or “utility schedules” of the equilibrium level! In equilibrium theory the “economic agents” do not make any “changes” at all because all market participants are absolutely axiomatically, formally and logico-mathematically “equal” due to the axiomatic conditions of “pure competition” in which “equilibrium prices” are fixed and determined by the theory. What Schumpeter is proposing here, instead, is a theory (one of economic change) in which prices are no longer determined by the formal, axiomatic, logico-mathematical “equality” of market participants, but rather by one specific market participant capable of causing or “carrying out new combinations” or “innovations” – Schumpeter’s entrepreneur

But in this case the fundamental condition of equilibrium theory – the condition of “pure competition” – no longer obtains! Schumpeter has introduced into the analysis, entirely illicitly, a new condition that allows the entrepreneur to change autonomously and independently “the rules of exchange”. But if this is the case, the “prices” that now obtain in “the market” as a result of the entrepreneur’s actions can no longer be “equilibrium prices” and indeed can never be “equilibrium prices” because the economic system can never be said to be in “equilibrium” for the simple reason that “market prices” are now determined not through “pure exchange” or “pure competition” but rather by the political conditions that allow entrepreneurs to change “the rules of competition” independently of other market participants!

Please note that here we speak of “political conditions” and not, as the critics of equilibrium theory from Sraffa to Joan Robinson and beyond do, of “imperfect competition” because (a) such an expression suggests that “perfect or pure competition” is possible and indeed conceivable (!), and (b) because the “imperfection” is not due to “transaction costs or frictions” but rather to the ability of 
market participants to combine politically to determine and affect prices. As we are about to show, not only is pure competition not possible – it is indeed also inconceivable because it is an aporetic or antinomic notion that contains in itself the seeds of its own destruction.

That Schumpeter was aware of these conceptual difficulties afflicting his theory of Entwicklung in its relation to Neoclassical equilibrium theory is made utterly transparent by the following revealing discussion in the Theorie in which Schumpeter comes very close (“almost”!) to identifying the incomparability of the two “distinct processes”:

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". In mechanics it is assumed that bodies [that is, objects without a “self” or” will” or “freedom”] when no force [that is, unless a force] affects them from the outside, do nothing of themselves and do not produce even a single new phenomenon of a mechanical nature. In the same way pure economics provides us with formal laws as to how the economy is [that is, economic agents are] shaped under the influence of conditions coming from the outside. It shows [471] how the economy [that is, economic agents, now only “bodies”] responds to changes in those conditions coming from the outside. Therefore, in such a conception, pure economics almost by definition [axiomatically] excludes the phenomenon of a "development of the economy from within".

No! It is not “almost by definition” that “pure economic laws” exclude “a development of the economy from within”: it is indeed “by definition” (!) that they do so! And this is because the market participants of equilibrium theory, its “self-interested in-dividuals”, are not allowed axiomatically to act as “economic agents”! Schumpeter’s confusion is shown quite clearly when he states above that 

[p]ure economic laws describe a particular behavior of economic agents, whose goal is to reach a static equilibrium...

Not at all! The “self-interested in-dividuals” of economic theory do not and can never have any “economic goals” of their own and most certainly not the goal of reaching equilibrium (!) because their “economic goals” are fixed axiomatically “from outside” (Schumpeter’s own expression above!) in their “utility schedules” and cannot be changed autonomously if “equilibrium prices” are to have any meaning at all! In equilibrium theory “economic agents” are not “agents” at all because the “goal” of equilibrium is not “theirs” but is rather set “from outside” as an axiomatic condition of the analysis. It is not that economic equilibrium exists because its market participants desire it: it is rather that the desires of market participants, their utility schedules, adjust to the axiomatic condition that there be such an equilibrium! (Again, this is a point that Tony Lawson highlights genially in his work and that Frank Hahn acknowledged.) In reality, the “self-interested” nature of economic agents, hence their self-hood, contradicts their “atomicity” in the sense that an “atom” like a “body” in mechanics cannot have a “self” capable of acting but can only be acted upon because its “free-dom” (its “room to manoeuvre” or Ellenbongsraum, as Max Weber called it) is limited and defined by the equal and opposing “free-doms” of all other participants – which is why we have chosen to describe these “freedoms” as “free-doms”, that is, as formal “dom-ains”.

Schumpeter comes very close to perceiving that what makes these self-interested economic agents passive “atoms” or “mechanical bodies” in equilibrium theory - rather than (self-conscious, active) “agents” -, is the fact that their self-interests, their individual “free-doms”, are limited by the equal and opposing “free- doms” of all other agents - so that they are reduced indeed to the unconscious mechanical role of “bodies” as in mechanical physics. Thus, the “economic agents” of equilibrium theory are not “agents” at all because they are restrained from inter-acting with one another as a result of the axiomatic definition of “pure competition”!

Equilibrium is the state most consistent with the formal pure “equality” of these economic agents: their “free-dom” is in reality only “inertia”, that is, the power to remain in the same state unless acted upon by an external force. In “pure competition” the only state possible is one of equilibrium because the purity of competition means that no advantage can be gained by individual agents through the “exchange” of goods or through “innovation” either singly or in concert. In other words, in equilibrium “exchange” there is no “change” in the ex-change. And therefore there cannot be any profit in the theory of equilibrium. (These points will be elaborated presently.) Equilibrium is a “frozen or stationary state” because by axiom, by definition, no single agent is allowed to act upon or co-operate with other “agents” or the economic system so as to gain an advantage over others. This makes profit and interest impossible. And yet this is exactly what Schumpeter allows his “entrepreneur” to do! But to do this is to move from the theoretical logico-mathematical framework ofequilibrium theory to a new political framework of analysis in which “equilibrium prices” are no longer fixed axiomatically as in equilibrium theory but rather “politically”, that is, through the political power possessed by capitalist entrepreneurs to impose their “innovations” or “new combinations” on the rest of society or, if you like, on “the market”.
In summary, Schumpeter’s attempt to derive “a purely economic theory of economic change” has led him to refute the theoretical legitimacy of equilibrium theory, because of its axiomatic inability to change, and also of his own “pure theory of economic change”, because it shows that economic change cannot be explained by a “purely economic theory”. The Law of Value has finally been exposed for what it is – one of the biggest intellectual frauds in the history of humanity!

Both in the Statik and in the Dynamik economic agents are motivated by self-interest bounded only by the self-interests of all other economic agents. But only in the Dynamik does this profit-seeking intention become the reality of profit-making. The Statik therefore resembles a schema entirely analogous to the laws of mechanics in the sense that its atomistic “self-interested individuals” are restrained from acting upon “the laws of economics” by the equally self-interested actions of other market participants. Consequently, the economic agents of the Statik resemble entirely the “bodies” of mechanical physics in that they are “acted upon” by the axiomatic laws of economics but do not themselves act or initiate anything of their own free will (Wille) or volition (Willkur). Least of all are they allowed to act in concert or to do anything that may gain them an “advantage” over other competitors because this would infringe against the axiom of pure competition.

In other words, the economic agents of the Statik are not “agents” at all because they merely react to the “external forces” exerted by the equal self-interests of all other economic agents which must, by definition and axiomatically, result in “economic equilibrium”! Because of its “in-dividuality” or “a-tomicity”, the “self-hood” of the Statik economic agent is reduced to sheer mechanical automaticity by the equal and opposing self-interests of all other individuals. The “freedom” (of will and of choice) of the individual in the Statik is curtailed and determined or confined or limited by the equal and opposing “freedoms” of other economic agents. Thus, the individual freedom of the “self” becomes a mere mechanical “free-dom”, a mechanical inertia, that is to say, the power to move subject to the dom-ains (free-doms) of all other economic individuals. The mechanical interaction of the self-interests of economic agents in the Statik reduces each selfish individual to the status of a mere “body”, that is, to the opposite of an “agent”! 

Friday 7 April 2017

Capitalism and Innovation: Schumpeter on Equilibrium vs. History

The aim of our study on Schumpeter is to draw the all-important link between Innovation, that is to say, technological change, and control over the social mode of production and distribution. There is an absurd tendency to address technologies as if they were technical-neutral or "scientific" aspects of social life that are wholly independent of human political decision-making. (Witness, for instance, Bill Gates's idiotic call "to tax robots", or Lawrence Summers's equally inane objection that "robots create jobs" or that "robots are responsible for the loss of American manufacturing jobs, not globalisation". As human beings, as workers, have known since the beginning of time, technologies are the interface of human being and tools or machines - and therefore they can never be "neutral" because the machine simply reflects the power of the human beings who stand behind it and control it - from Henry Ford to Mark Sucker-berg (!) or indeed Steve Jobs and even Warren Buffett.

So here is the second instalment in our series on Schumpeter enucleating further the intricate but enlightening nexus between technological change and capitalist command and, in the process, the categories of bourgeois "economic science". 

B. The Extrinsication of the Mechanical Equilibrium Schema into Political Market Process: Competition, Profit, Innovation
1. Equilibrium, Mechanics and Dynamics

Walras ... would have said (and, as a matter of fact, he did say it to me the only time that I had the opportunity to converse with him) that of course economic life is essentially passive and merely adapts itself to the natural and social influences which may be acting on it, so that the theory of a stationary process constitutes really the whole of theoretical economics and that as economic theorists we cannot say much about the factors that account for historical change, but must simply register them. ... I felt very strongly that this was wrong....
I was trying.... to answer the question of how the economic system generates the force which incessantly transforms it.... a source of energy within the economic system which would of itself disrupt any equilibrium that might be attained.... If this is so, then there must be a purely economic theory of economic change which does not merely rely on external factors propelling the economic system from one equilibrium to another. It is such a theory that I have tried to build ...
It was not clear to me at the outset what to the reader will perhaps be obvious at once, namely, that this idea and this aim are exactly the same as the idea and the aim which underlie the economic teaching of Karl Marx. In fact, what distinguishes him from the economists of his own time and those who preceded him, was precisely a vision of economic evolution as a distinct process generated by the economic system itself.” (Schumpeter 1937/1989, p. 166)” (Preface to Japanese edition of “Theorie”, quoted in N. Rosenberg, ‘Endogeneity’, p.7.) of 

The contradiction in Schumpeter’s well-known exposition of his theory of economic development is absolutely evident: If indeed “the economic system” can be “propelled from one equilibrium to another”, then for him the notion of “economic equilibrium” must be theoretically valid. Yet if indeed there exists “a distinct process generated by the economic system itself...[through a] force or source of energy that incessantly transforms it..., which would of itself disrupt any equilibrium that might be attained”, then it is obvious that no such “equilibrium” exists or can exist, for the precise reason that “the economic system” is at all times – “incessantly”! – being trans-formed. It is the very trans-formation, the meta- morphosis, the trans-crescence of the economic system that precludes any “equi-librium”, any “equi- valence” of its internal values. An economic system that is able internally (“from within”) to undergo the “incessant transformation” that Schumpeter intends to theorize is quite simply conceptually incapable of being in “equilibrium” because equilibrium can be predicated only of economic systems based on “equal exchange”, that is, the exchange of equivalents. But Schumpeter’s “dynamic process” is one in which the values produced by the economic system are incessantly and qualitatively changing because of political forces that turn market prices into something entirely different from “equilibrium prices”, because they reflect a political reality rather than a reality of “pure competitive exchange” on the basis of marginal utility. This means that Schumpeter’s dynamic process, the Dynamik, is categorically different from the static economy, the Statik, intended by equilibrium theory. Schumpeter’s dynamic economy is one in which “equilibrium”, if attributed to it, is a contradictio in adjecto!

Schumpeter himself explicitly states in the Theorie that “dynamic equilibrium” is impossible because it is a contradiction in terms, an oxymoron: yet he does not seem to realize that for that very reason it is also impossible for the “distinct process” of Entwicklung to lead “from one equilibrium to another”! When speaking of Entwicklung, Schumpeter rightly treats equilibrium as a stationary state in which all “exchange values” or “market prices” are fixed in accordance with the utility schedules of market participants taken as individuals. But then, he fails to notice that for the “economic system” to move “from equilibrium to equilibrium”, those “exchange values” or “market prices” can no longer be fixed, first, in a regime of “pure competition”, and second, according to utility schedules, - because the very reality of Entwicklung, the “dynamic process”, determines values and prices not according to the pure economic laws of equilibrium theory with its axiomatic utility schedules, but rather according to the very “impure” practico-political processes that allow the economic system to be “trans-formed” and to mutate!

Schumpeter’s clear attempt here to reconcile Marx’s critique of political economy with Walras’s axiomatic schema of Neoclassical equilibrium theory by reconciling whilst maintaining the “distinct” character of the Statik and the Dynamik founders on the evident logical impossibility of the attempt – that is, of theorizing the capitalist economy on these two “distinct processes”: – that of Neoclassical stationary equilibrium which describes an economy of pure equal exchange based on marginal utility, and that of the Marxian critique of political economy based on the political antagonism of capitalist accumulation. This is so because a theory based on pure exchange leading to equilibrium views the economic system as one in which “prices” – the rate of exchange of goods, where supply meets demand – reflect the equi-valence of the determinant of prices, whether this be marginal utility or labour-power, whereas a theory based on political antagonism cannot regard prices as signifying the “equivalent values”, either objective quantities (labour-power measured by time) or rates of change of subjective estimations (marginal utilities), prescribed by the Law of Value of both Classical and Neoclassical Political Economy. (Note in this regard that the “Objective Value” described by the Austrian School from Menger to Bohm-Bawerk remains “subjective” in the sense that it springs from subjective “utilities” and its “objective” character – price – is dictated by the conflicting utilities of individuals in market transactions. For Marx, instead, this conflict is not over the utility of goods in exchange but over the violent objectification of living labour as labour- power by capitalists against producers.)
Differently put, equilibrium theory deals with equivalent values (whatever it is that is being “priced” for “exchange”) whose underlying “sub-stance” is “utility” because its “prices” are all relative to the utilities exchanged within the equilibrium system of exchange as defined, and cannot be determined until all exchanges have been completed. Furthermore, the axiomatic condition of perfect or pure competition prevents individual market participants from entering combinations or from changing production functions so as to obtain an advantage over other market participants. In complete contrast, Marxian theory treats the economic system as one in which political antagonism determines prices and therefore no independent market mechanism can fix prices as the exchange rates of equivalent values. Neoclassical equilibrium theory and the Marxian critique of political economy cannot be regarded as “distinct processes” except in the sense that they deal with subject-matters that are categorically different and therefore incommensurable and incomparable.

The all-important point that is being made here is that once we exit the axiomatic conditions of equilibrium theory and we allow market participants (a) to effect changes to production functions and (b) to co-operate,selectively to the detriment of others, then market prices are no longer determinable in accordance with the given utility schedules of market participants because these no longer act as “equals” in terms of their production functions and their market power. In neoclassical equilibrium theory it is the axiomatic “goal” of equilibrium that determines “prices” – so that these “prices” are necessarily “relative” to the constraint of equilibrium axioms that ensure the formal equality of market participants. (Tony Lawson, in the essay cited above, makes this perceptive point.) But once the axioms of the “atomicity” and formal equality of market participants are removed, then the determination of market prices is no longer possible because there can no longer be an “equilibrium” in what has become an economic system whose “prices” are affected by political conditions and antagonisms that are not amenable to “measurement”.

Yet, whilst he clearly contends here that the “economic system” already contains the internal “force” or “source of energy” that will “disrupt any equilibrium that might [temporarily] be attained” and degenerate into periods of profound instability and crisis, Schumpeter is also equally adamant that it is possible to theorize positions of “equilibrium” or “tranquility” (Joan Robinson’s preferred term, in The Accumulation of Capital) during which the behavior of “the economic system” is scientifically predictable or stable and can even be said to be “in harmony”. Whilst he wishes to construct “a purely economic theory of economic change” that relies on “endogenous” rather than “external factors”, Schumpeter still insists on the need to differentiate this “purely economic theory” from the more “static” theory of economic equilibrium as a “distinct process”, even though the two “processes” are quite evidently not only “distinct” but also in fact categorically inconsistent!

Schumpeter therefore bases himself on a dual typology of “economic science”: a “Statik” science represented by orthodox Neoclassical Theory as the “scientific” attempt to systematize empirical observations about “the economic system” founded exclusively on the empirical reality of “market exchange and pricing” that must lead to a state of equilibrium – which is why he insists that the economy moves from equilibrium to equilibrium; and a “Dynamik” science capable of being “a purely economic theory of economic change” founded on the fact that the capitalist economy seems to be able to trans-form itself and, in so doing, go through a wave-like or “cyclical” motion or “evolution” that propel[s] the economic system from one equilibrium to another”, - a “propulsion” not due to “external factors” unconnected with the scientific operation of the economic system, but much rather to the fact that
the economic system [itself] generates the force which incessantly transforms it..., a source of energy within the economic system which would of itself disrupt any equilibrium that might be attained...

Apart from the fact that “external influences” could be hypothetically the ultimate cause of capitalist “disturbances”, it remains true for Schumpeter that

practically all the phenomena, difficulties, and problems of economic life in capitalist society... as well as the extreme sensitiveness of capitalism to disturbance, would be absent if productive resources flowed every year through substantially the same channels toward substantially the same goals, or were prevented from doing so only by external influences, [Business Cycles, p.83]
It follows therefore that any economic theory that limits itself to the task of describing or classifying or merely analyzing this “circular flow” (Kreislauf) of economic activity would not only fail to account for the “disturbances” (Storungen) and for “all the phenomena, difficulties, and problems of economic life in capitalist society”, but it would also fail to account for the actual combined “quantitative growth [Wachtstum] and qualitative development [Entwicklung]” of the capitalist economy and society, that is to say, it would not account for capitalist accumulation. Both Classical and Neo-classical equilibria represent only a “circular flow” (Kreislauf) of goods exchanged, because in a state of “pure competition” (reinen Wettbewerbs) market exchange leads eventually to the exhaustion of any “profits” or “surpluses”, and therefore of any “growth” or “development” or “evolution” or indeed even “crisis”, that may exist initially when the economy is in dis-equilibrium.

Following Marx in opposition to Walras, Schumpeter maintains that the economic system is characterized by two “distinct processes” that generate opposing forces, one of which guides it toward equilibrium (what Marx called “simple reproduction”) and one that pushes it out of that position (Marx’s “expanded reproduction”). In these premises, the Law of Value shared by both Neoclassical equilibrium theory and Classical Political Economy necessarily entails, at least theoretically, the inevitability of economic “stagnation” – the former because aggregate supply must equal demand until no further profitable exchange is possible (this is the outcome of Walrasian tatonnement), and the latter because competition among capitalists and competition for higher wages from workers will eliminate all possibility of profit arising from the exploitation of workers - as Schumpeter consistently and validly argues throughout his work. (This point is discussed at length in the next section.) 

No doubt, the fact that Schumpeter is able to mention Walras and Marx without pointing out the categorical incompatibility of the two approaches (the “distinct processes”) to economic theory testifies to Schumpeter’s own lack of dialectical comprehension of the fundamental politico-philosophical and even onto-epistemological concepts involved. (These more “dialectical” matters, obliquely invoked by the Schumpeterian notion of “creative destruction”, will be discussed in a later section in connection with Marx’s influence on Schumpeter.) Even so, however, there can be little doubt that Schumpeter had some idea of the difficult issues that capitalist accumulation posed for the development of a “purely economic theory of economic change”, as his attempts at conceptualizing these issues show quite clearly. Let us look closely at how Schumpeter engages in this difficult conceptual exercise.