Commentary on Political Economy

Tuesday, 25 August 2020

Economic Theory vs. History


Schumpeter and Robinson: Static Equilibrium as Newtonian Formal Schema and Dynamic Disequilibrium as Einsteinian Relativity

There is however one thing of fundamental importance for the methodology of economics which he [Marx] actually achieved. Economists always have either themselves done work in economic history or else used the historical work of others. But the facts of economic history were assigned to a separate compartment. They entered theory, if at all, merely in the role of illustrations, or possibly of verifications of results. They mixed with it only mechanically. Now Marx’s mixture is a chemical one; that is to say, he introduced them into the very argument that produces the results. He was the first economist of top rank to see and to teach systematically how economic theory may be turned into historical analysis and how the historical narrative may be turned into histoire raisonnee. (J. Schumpeter, Capitalism, Socialism and Democracy, p.44)

The aim of bourgeois economic theory is to establish itself as science. Its overriding objective is therefore to eliminate social conflict from the analysis of capitalist social relations of production. The aim is to present economic theory as simple engineering whereby the maximization of “wealth” – taken as an entity universally agreed upon by social agents – can be exactly calculated from the given technologies of production available at a given time. In this perspective, the opposite of freedom – the choice involved in the production and distribution of “wealth” or “the product” – is the “necessity” posed by the factors of production, that is, the labour force, the means of production (“capital”) and the level of technological progress. Hence, bourgeois economic theory seeks to expurgate the element of conflict and of coercion that is in reality inseparable from the process of production: it seeks to exclude the Political whereby the real opposite of freedom is indeed political coercion and not scientific and technical necessity!

This is the precise reason why, as Schumpeter rightly notes, economists have never been able to integrate historical change in their attempted theorization of economic reality: they have never been able to relinquish the Statik modelling of the capitalist economy as an equilibrium and to account for the evident fact that all economies, not just the capitalist, exhibit a perspicuous Dynamik, that is to say, they change not purely in terms of “quantitative growth” but also and above all else in terms of “qualitative transformation”, precisely as the social conflict and antagonism implicit in economic relations evolves and develops according to the relative social power of the social agents involved in production. It is this “trans-crescence”, this political metamorphosis of economic activity that makes it impervious to all bourgeois “modelling”, and specifically to all modelling that seek to account for historical changes, for the transformation, metamorphosis or transcrescence – for the Dynamik – implicit in social relations of production.

The manner in which bourgeois economic theory seeks to reify social relations of production is as predictable as it is easy to summarize. Firstly, (a) economic behaviour is reduced from the Political, with all the complexity of historical conflict removed, to the Individual where a mythical “self-interested atomized individual” emerges as the paragon of unchanging and immutable “human nature”. Secondly, (b) the means of production are exogenous to social relations because they are technically given as a function of the scientific progress of a society which is entirely independent of the social relations of production. Third, (c) the techniques of production and the products themselves are the result of the combination of the two factors just mentioned, namely, (b) the exogenously given technical progress (production function) and (a) the independent decisions of the atomized individuals (demand). In other words, the what, when and how a product is produced is determined not by social conflict but by the autonomous choices of equally powerful individuals and by the existing scientifically given level of technological progress and availability of means of production.

Schumpeter has got it the other way round: it is not the case that Marx “turned economic theory into historical analysis” but rather that he turned a thorough understanding of history into – Schumpeter is wrong again -, not economic theory but rather “the critique of political economy”. The difference is crucial. Whereas bourgeois economic theory begins with the robinsonnade – with a logico-formal reduction of human action to “immutable human nature”, that is to say, to a set of behaviours and interests or needs that are individual and inalterable -, Marx starts his critique of political economy by first alerting us to this very fact, to the bourgeois hypostatization of human living activity, and then by reminding us that human economic behaviour is inevitably social and therefore political rather than individual! Put differently, bourgeois economic theory presents a false polar choice between freedom and necessity by relegating human social relations of production or, if you like, “economic activity”, to the realm of physical and natural or biological and physiological limits, whereas Marx holds firmly to the reality that economic behaviour lies within the political poles of freedom and coercion!

The nomothetic mechanicism of bourgeois economic theory – its logico-formal reification and reduction of human social relations to the conduct of atomic individuals motivated only by self-interest together with the presumed “political neutrality” of technological and scientific progress – makes it incompatible with the idiographic character of the Political which is firmly and indissolubly rooted in the social relations canvassed by human history. Bourgeois economic theory seeks first and foremost to reduce human social relations of production that are ineluctably political, and therefore historical, into rigid “natural laws” that are unalterable and permanent throughout human history. That is why the endlessly repeated attempts by bourgeois economists to supplement their often mendacious and invariably ill-conceived “theoretical models” with “historical illustrations” always and irreparably fall victim to the charge of reductionism and hypostatization of human relations – precisely that clumsy “mechanical amalgam” of theory and history that Schumpeter contrasts with the “chemical bond” of the Marxian analysis.

Not that indeed, for Schumpeter, Marx or anyone else could ever offer a “unified” reasoned history: Marx’s mixture of theory and history may have been “chemical” rather than “mechanical”, but Marx’s claim to have reconciled theory and practice rightly remains for Schumpeter a vacuous “prophetic” and deeply “unscientific” boast. Indeed, the originality of Schumpeter’s approach to methodology in economics rests almost entirely on his un-dialectical rationalist-empiricist insistence on the irreconcilability of theoretical schema and political practice due to the utter inevitability of human conflict. [S.s Weber quote in Theorie] Only by insisting on this irreconcilability of formal theory (Schema) and historical content, of nomothetic and idiographic approaches, is it possible to do justice to their separate polar indispensability for the bourgeois ideology and capitalist practice of “economics”. For Schumpeter, economic theory must remain necessarily “heuristic” because its unavoidable limit is the imposition of (Weberian) “ideal types” on social reality for the purpose of developing adequate liberal policies for the administration of social economic activity and capitalist strategies in the domination of the working class.

Herein lies the remarkable similarity between the economic philosophy of Schumpeter, which is strictly neo-Kantian, and that of Joan Robinson, which is superficially British empiricist, that is our focus in this study. Neither Robinson nor her mentor Keynes could ever aspire to the depth of learning and thought to which Schumpeter could lay claim. Despite her undoubted intellectual qualities, Robinson always remained the David to Schumpeter’s majestic Goliath! – As we are about to see.

Just like social theory for Weber, Schumpeter interprets economic theory as a project for social action in which the interests of the theoretician are inextricably intertwined with the theory he advances. For him as for Joan Robinson, “economics is a box of tools” that is utilized in the course of “social practice”. (Robinson’s Mao epigram to FandN) It is no accident that both theoreticians adopted the exact same instrumentalist phrase to describe the scientific essence of economics – Schumpeter in History of Economic Analysis, and Robinson in The Economics of Imperfect Competition.

The central difference between the economic philosophies of Schumpeter and Robinson lies precisely in this: - that the Austrian School’s epigone recognized and acknowledged the bourgeois Will to Power behind his own theoretical perspective, whereas the English Keynesian always deluded herself that her constructions could consciously be turned into value-neutral tools of analysis so long as agreement could be reached between capital and workers in terms of the distribution of the social product. Robinson believed in objective science, like Popper and Keynes; Schumpeter only knew irreconcilable conflict, like Nietzsche and Weber. Whereas for Robinson this “box of tools” could be applied neutrally and fairly in social practice, for Schumpeter the “tools” always took the shape and form of the Will of those who wield them! (There is a profound echo here of Schopenhauer’s definition of the human Body – a tool – as “the objectification of the Will”!) That is the precise reason why for Schumpeter, contra Robinson’s naïve belief in the possibility of social-scientific impartiality, the ruling class, the capitalist bourgeoisie, must insist on a theoretical framework that hypostatizes the present state of affairs as “natural and eternal”, whilst the antagonistic viewpoint of the working class must promote the supersession, the overcoming and abolition, of the established order. It is because the historical past and present are antagonistic that the point of view of the working class must start from the praxis of history instead of the timeless formalism of nature. (This, if nothing else, is the great merit of Marx’s notion of praxis and of Lukacs’s demolition of “the antinomies of bourgeois thought”. See also L.Colletti’s Ideologia e Societa’.) Whereas Schumpeter saw the inevitable triumph of socialism as the result of this irresoluble antagonism, Robinson could still believe in the reasoned consensual adoption of Keynesian policies in a managed economy.




In ‘Statik’ classical and neoclassical economic theory, the capitalist economy is seen as founded entirely on the operation of the “self-regulating market”. It is “the market” which, by assuming the formal equality of all economic agents, ensures the orderly, “balanced”, “equilibrium” (also in German, Gleichwichtigkeit – ‘equal-weight’) of the economy by allowing the equi-valence of producers’ supply with consumers’ demand at certain rates of exchange (prices) for individual goods exchanged. In this institutional universe, “growth” is seen as a quantitative phenomenon reliant on the horizontal expansion (Wachstum) of the market. The factors of “growth” are seen as “external data” or “disturbances” (Storungen) that could jolt the economy out of its “equilibrium” but only temporarily, only “in the short term”. Above all, scientific-technological processes are interpreted as “exogenous” factors, as independent and autonomous “progress” extraneous to the functioning of the capitalist economy and therefore outside the purview of “economic analysis”. (Cf. Robinson on “value” in intro to AoC)

This is in large part what allowed the “homologation” of the Economic (scientific-technological Zivilisation reflected in the productive process and its “division of labour”) with the Political (the equitable allocation of value and social resources through the self-regulating market). This “homologation” was the foundation of the “neutrality” of the State of Law (Rechtsstaat or ‘night-watchman state’) whose only function was to guarantee individual property rights as the basis of “free competitive exchange in the (therefore) ‘self-regulating’ market”. The market is “self-regulating” so long as the property rights of its “free competitive participants” are respected and protected.

To its credit, Classical Political Economy stressed the “quantitative” importance of “wealth-creation” by focusing on the subordination of the market to the process of production and distribution of objective (yet ultimately metaphysical/essentialist) “value” in the classical “labour theory of value”. But the  Neoclassical Revolution shifted the focus of “economic inquiry” even further away from the sphere of production by substituting “objective value” with the “subjective” exchange of “endowments” through the “market mechanism” that alone, “by definition” (tautologously, in Hayek’s definitive analysis) ensured the optimal allocation of these “endowment/resources” according to (metaphysical) “marginal utility”. (Robinson, EP, first two chapters.)


Schumpeter’s theoretical greatness lies perhaps in breaking definitively with this liberal synthesis of classical and neoclassical “Political Economy”. For him, no such “reconciliation” between economic value and politically neutral claims to it is possible because, as he rightly notes, both Classical and Neoclassical Political Economy failed to confront the ‘Entwicklungs-problem’: they never tackled the reality of the “trans-formation” of the methods of production – their ‘trans-crescence’ - both in an “organizational” and in a “technological” sense. It is this “incessant change” which is the differentia specifica of the capitalist economy that determines the irreconcilability of economic theory and politico-economic praxis. And theory and practice are irreconcilable precisely because capitalism is an economic system based on the conflict of individual and class interests, because capitalism is a society in permanent crisis.

Two levels of scientific analysis are present in Schumpeter’s theory, then: an analytical or anatomical level where the “schema” or “skeleton” or the “organs” of the economic system are studied in their static functional relation to one another; and a sociological-historical or politico-physiological level at which the capitalist economic system is seen “in flesh and blood” as a dynamic or metabolic organism propelled by internal and antagonistic forces already axiomatically implicit in the theoretical schema of static equilibrium but now examined in their explicit practical ex-pression or extrinsication or manifestation, as in innovation, monopoly and bureaucracy. This “institutional framework”, as Schumpeter calls it, is the practical historical ex-pression or manifestation of the tendencies implicit in the axiomatic definitions of the equilibrium schema. Schumpeter’s Statik is the empyrean of bourgeois “economic science” – the indispensable Schema or categorical framework that provides the strategic anchor for the ideological rationalization of bourgeois coercion. The Kreislauf, the “circular flow”, anchors the equilibrium, the commutative and distributive justice of the bourgeois rationalization of the capitalist economy. For Schumpeter, the capitalist Dynamik always tends to gravitate around a position of equilibrium. Equilibrium is the “gravitational centre” (Gravitationszentrum) of the capitalist mode of production as it seeks to renew the “stability/staticity”, the equivalence of values (economic and ethical) that it needs for the purposes of preserving its legitimacy. Equilibrium represents the "universality" of capitalist values: the Newtonian Universal Law of Gravity. By contrast, the Ent-wicklung - development through innovation, creative destruction - represent the "relativity" of the capitalist order, its state of constant crisis. Not only is the Kreislauf (circular flow) of the capitalist economy self-regulating and self-perpetuating – in this regard, it is entirely similar to Marx’s “simple reproduction” -, but indeed it even removes any notion of Dynamik, of social and technical change as symptoms of conflict and antagonism and as the real source of trans-crescence of the capitalist economy. There is no “time”, logical or historical in the Kreislauf: there are no “decisions”. In Schumpeter’s perfect choice of terminology, there is no Ent-wicklung (transformational decision), no “development”.

(I have argued in a separate study that von Mises’s own concept of “praxeology” involves precisely this “practico-logical” requirement of the apparently “static” notions of equilibrium theory. This emphasis on the “procedural” aspects or moments of neo-classical equilibrium and marginal utility theory – against the more “static” side stressed by the “Aristotelian” Menger and Walras – is what provoked Schumpeter’s “evolutionary” theory in the first place.)

Schumpeter’s notion of equilibrium as Kreislauf is indeed more consistent with Joan Robinson’s own concept of “tranquility” in The Accumulation of Capital – which is instructively adopted and adapted from Marsilius of Padua’s Defensor Pacis, a mediaeval theory of human society based on its metaphorical representation as an organism – one that is either “healthy” or “unhealthy”. (Cf. Schumpeter’s dog analogy in Business Cycles.) Marsilius of Padua spoke of “tranquilitas”in his Defensor Pacis, meaning a period of social peace and prosperity (see O. von Gierke, The Political Theory of the Middle Age.) Interestingly, both Antiquity and the Middle Ages lacked the notion of “revolution”, which is a modern European concept originating in the 17th century (see H. Arendt, On Revolution). Antiquity knew only of “metabole”, meaning social change, of “stasis”, meaning civil war, and of “homo-noia”, meaning harmony or agreement, and “corruptio”, obviously meaning corruption, that is, degeneration from a perfect state (a perfectione ad defectum, from perfection to defect). (On all this, see S. Mazzarino’s invaluable and irreplaceable Il Pensiero Storico Classico.)

But such a “tranquil” society would not be capitalistic! Entirely banished from it is precisely that Ent-wicklung – that decision/development that catapults the capitalist system of production out of mere quantitative growth (Wachstum) to trans-crescence, to meta-morphosis (for the Kreislauf/Ent-wicklung contrast, see Cacciari, Dell’Inizio). And its “stagnation”, the absence of metabole, would lead inexorably to stasis. The “organicist” vision of the capitalist economic system by Schumpeter removes any antagonism having to do with “pro-duction”, with the “external environment”, because this “phylogenetic” aspect of production is reduced to the ontogenetic “individual existence” - and therefore reverts conflict to the “individual members” of the “body politic”, reducing the eris and polemos – the conflict – of capitalist society to an “ethical” problem – that of the creative authority of “innovation” -, where the ethos of the established order, of the status quo, is in any case the bureaucratic paralysis of the State of equilibrium – the eidolon, as Nietzsche tagged the bourgeois “tutelary” (welfare) State and its Rationalisierung-Demokratisierung (cf. Twilight of the Idols).

On one side, therefore, we have the “form”, the Schema, the frame-work (Entwurf), and on the other we have the force, the substance, the energy, the soul. (Cf. Lukacs, Die Seele und die Formen) The most essential question of “economics” as a socio-theoretical discipline, then – one that is never posed by bourgeois economic “science” - is: how can the form be reconciled with the force? How can the equilibrium schema which is seemingly irreconcilable with the dynamic force of innovation and development, actually be “effectual” in guiding or containing its “source of energy”? The answer is quite simply that the form cannot be reconciled with its substance and that the content of the form can only be “contained” or guided by the form at the expense of the force of innovation itself!

In other words, capitalism can survive only to the extent that it can curtail or contain or chain the dynamic force of innovation within the static form of the market mechanism: only to the extent that its source of energy, which is living labour, can be politically reduced to and “fitted” into its institutional “forms” – of which the most crucial is the wage relation measured through the monetary form. The monetary form furnishes the strict inflationary numerical limits within which the money wage must be contained and beyond which wage settlements cannot go – on pain of losing the “effectuality” of the money wage or monetary form as a “measure” of social antagonism. Here the bourgeoisie is truest to its positivist praxis of turning “truth” into “certainty” (cf. Book Four of Heidegger’s “Nietzsche”).

Because Schumpeter leaves out the antagonism of the wage relation, the two “levels” of his work, the Statik form and the Dynamik content, have to be kept separate and cannot be unified. But, as we shall see in the next section linking and comparing Schumpeter’s Unternehmer-geist with Weber’s leitender Geist, to see just this separation or disjunction in Schumpeter’s theoretical framework and methodology and to dismiss it as “contradictory” or “flawed” (as do Lawson and Moura, for instance) would be to miss the entire point of his modus operandi!

(On the crucial interplay of form and substance, the important references, by no means exhaustive, are to Simmel’s sociological studies, Lukacs’s Die Seele und die Formen, and even Derrida’s L’Ecriture et la Difference, chapter on “Force et Signification”. Of course, Lukacs’s masterly Destruktion of “the antinomies of bourgeois thought” in History and Class Consciousness is inconceivable without Schopenhauer’s critique of Kantian epistemology in “On the Four-fold Root” which is the real theoretical springboard for not just the negatives Denken from Kierkegaard and Nietzsche but also for the post-Hegelian materialist reconstruction of ontology initiated by Marx. See also our “Nietzsche on Art as the Problem of Philosophy” in Our own attempt to go beyond the fictitious dualism of form and substance, mind and matter, is in “The Philosophy of the Flesh” on

No comments:

Post a Comment