To understand how the FAANGs go from innovation to stifling monopolies, you may have to understand the content and import of the piece below, which continues our series From Logos to Freedom. Cheers.
WILLE UND WELLE in
Schumpeter’s Subjective Theory of Entwicklung
Unlike the waves of the ocean, the waves of the economy
do not return to the same level. They always tend to swing like a pendulum
around a certain level, but the level itself is not always the same. It is not
just the observable facts that change. The explanatory pattern, i.e. the ideal
type, changes as well. Let us grant that the first problem of economics was:
how, based on its entire circumstances of life, does a population reach a
particular level of the economy? Then [466] the second problem is the
following: how does an economy make the transition from one level-which itself
was viewed as the final point and point of equilibrium-to another level? This
question takes us to the very essence of economic development [wirtschaftlichen
Entwicklung]. (Schumpeter, TwE, ch.7, pp465-6)
(Refer
also to “Wille und Welle”, Hannah Arendt’s discussion of this section of
‘Zarathustra’ in her essay on “Nietzsche’s Refutation of Free Will”.)
It is
quite simply impossible to over-estimate the importance of
this paragraph in the famous unpublished “Seventh Chapter” of the Theorie
der wirtschaftlichen Entwicklung that Schumpeter “suppressed” for its
second edition and the English translation, owing to its “sociological” content
– already sharply criticized by Bohm-Bawerk, and liable to adverse review from
the academic censors at Harvard College whom he was lobbying for a job! [An
infamous example of the kind of “thought-policing” that goes on in academia
when the interests of the bourgeoisie are at stake!]
“It is
not just the observable facts that change” as the capitalist
economy “does not return to the same level”. It is “the explanatory pattern -
that is, the ideal type - that changes as well”! The
phenomenon of capitalist “growth” is not one of a simple “quantitative, cumulative
increment”, or even of a homogeneous “steady-state” expansion as in the
Cobb-Douglas function. There is no “continuity”, no “smoothness” in this
“growth”, in this “development”. The phenomenon of capitalist “growth” is not a
“quantitative” one at all! It is not a problem of “magnitude”! It is a
“qualitative leap”! It is a “quantum leap” that challenges the incremental laws
of physics and our notion of “continuous space”! It is not an “increment” but
much rather a “trans-form-ation”, a “becoming other than
before” – a Ver-ander-ung!... It is a “meta-morphosis” whereby
the “change” cannot be described in the same terms as what existed before the
change! Capitalist growth-development-evolution is a “change”, a
“trans-formation”, a “meta-morphosis”, a “trans-crescence” that destroys
as much as it creates!! It is a “creative destruction” (schopferische
Zerstorung) that dis-integrates the entities that it trans-forms into the new
“creation”!
The
“growth” of the capitalist economy cannot be homologated, it is
quite simply not “com-parable” or “equalisable” (the Nietzschean term is “Ver-gleich-ung”,
as-simil-ation) – it cannot be “equated” with the “economy out
of which it has grown”! The Weberian ideal type applicable
to it, its “key of interpretation” or “understanding” (the
Weberian-Diltheyan Verstehen) has changed as well! Swelling to a
crest of almost Nietzschean inspiration that recalls the Wille und
Welle (Will and Wave) in the Zarathustra, Schumpeter
poetically describes how “the waves of the economy, unlike those of
the ocean, do not return to the same level” – “level”
understood here in a “quantum”, not “quantitative” (!) sense . Like the “wave”
that sweeps the “will” in Zarathustra, so does the “static” economy
here carry the “spirit”, the “will to conquer”, the “will to power” – the
“entrepreneurial Spirit” (Unternehmer-geist) that will trans-form
the Statik economy into the Dynamik.
No
economic “equi-librium” is possible in reality, then. Equilibrium analysis is
valid only for ana-lytical, for heuristic and illustrative
purposes! In reality instead the capitalist economy is in a state of constant
crisis, in continuous trans-formation! Indeed, this is its differentia
specifica – its historical specificity: - that the capitalist economy
is in a constant state of qualitative transformation, of meta-morphosis, of
“change” that destroys in the process of creating! And this
“process of creating” is called Innovations-prozess, a process of
“innovation” through which the “Will to Power” of the “entrepreneur” – the
“entrepreneurial Spirit” - utilizes the swelling, surging energy of the
existing economy – “the waves of the economy”! – to destroy and “overcome” (uber-winden)
the old “level” of the economy, its status quo ante.
Schumpeter
it is who makes “crisis” the specific difference, the
historical peculiarity of capitalist economies with the publication of the
‘Theorie’ in 1911. Like Keynes, he perceives that Classical and Neoclassical
theories are “static” analyses because they cannot account for the
transformation of the means of production (intermediate goods) and of
consumption goods (primary goods) – and this is quite apart from the fact that
“want” is a purely passive and negative notion that must assume the exogeneity
of production techniques and of changes in consumption patterns. Here he is:
What
we want to show now becomes obvious. The development of wants, which we
observe in reality, is a consequential creation of the economic development
that has already been present. It is not its motor. The fact that
the human economy has remained constant over centuries heavily weighs in favor
of our argument. But if the development is already under way, then it
can, in a concrete case, certainly be preceded by the development of needs and
desires which can trigger special economic transactions. In principle, needs
sustain their own demand through economic development, and it is economic
development that stirred them up in the first place. The amplification of
needs is a consequence and symptom of development. Insofar as truly new needs
and desires exist they will not have a practical effect on the economy. As
has already been shown in the discussion above, new needs and desires as such
mean nothing. But even then, if there were an original cause in the development
of needs and desires, this would still require creativity and energetic
activity in order to create anything new of importance, so that even the
assumption of such a Law of the Heterogeneity of Social Purposes would not have
much to offer in the field of economics. It is beyond doubt that in a single
case a concrete demand can bring forth an entire industry. [486] (TwE, 1st edition,
ch.7)
Schumpeter treats the Dynamik and the Statik as
if they were separate points in one uninterrupted logical line despite what we
have shown, and Schumpeter himself accepted, to be their categorical inconsistency:
It
is incessant
change in the data of the situations, rather than the inadequacy of the
data of any given situation, which creates what looks like indeterminateness of pricing.
We conclude, on the one hand, that we must take account of this pattern when
dealing with the process of change which it is our task to analyze in this book
and which must be expected to create precisely such situations, and, on the
other hand, that it does not paralyze the tendency toward equilibrium
[Gleichgewichtstendenz](BC, p.43)
Given that this “force of innovation” or “source of energy of capitalism”
is both “endogenous” and “internal” (innersystematisch)
to the operation of the capitalist economy and that it operates “incessantly”,
and given that the effects of its operation are “spontaneous and discontinuous”,
it is clear that all existing bourgeois economic theories, founded as they are
on the notion of “economic equilibrium”, are conceptually quite inadequate to
provide “a box of tools” for understanding such a spasmodic and inharmonious
movement between positions of “equilibrium” – which is why, contrary to all
experience and empirical observation, they must attribute its origin to
“exogenous factors” such as “external shocks” or to “events” such as political
interference, notably by the State, or even to “exogenous” techno-scientific
and organizational advances.
As we amply demonstrated in the sections
above, and as Schumpeter himself often admitted, either we have a stationary
equilibrium with determinate, although
relative, prices; or else we
have a metabolic process of change with indeterminate
prices: Either we have a static schema with mechanically inert
bodies; or else we have a dynamic process with economic agents
capable of “innovative” actions. Tertium
non datur! (Quote from Robinson re
measurement of capital and dynamic change/decision.) The state of equilibrium is one that does
not admit of capitalist decisions – specifically, of innovation. It is a state of “stagnation” because neither metabolic
change nor therefore profits are possible. (Profit here is intended as income
that is re-invested, which is antithetical to equilibrium because re-invested
income would upset the original equilibrium conditions.) And the dynamic
process is one that does not admit of equilibrium precisely because profit and
metabolic change – which are possible only through innovation from a position
of equilibrium – are inconsistent with equilibrium. These considerations apply
also to “steady-state” equilibria because – as even Joan Robinson acknowledged
– they do not allow for innovation among other things, like what she called
“historical” as against “logical” time (see her “Time in Economics”).
INNOVATION AND THE SUBJECTIVE THEORY OF VALUE
We shall deal with Joan Robinson’s own
profound incomprehension of the nature and meaning of the theory of
value in our next section. Presently, however, we wish to outline the problem
of the theory of value in connection with pricing and innovation. Because, as
we have seen above, bourgeois economic theory is entirely incapable of
accounting for the significance of prices as a complex, market-mediated,
and therefore indirect, indicator of values, - and consequently, because
bourgeois economic theory has to take market prices as direct indicators of
value, bourgeois “economic science” is quite unable to account not just for
prices in Statik or equilibrium analysis, but also and far less is it able to
account for prices in the Dynamik or disequilibrium analysis where economic growth
or development is concerned through “technological progress” leading to
the accumulation of capital!
Again, we shall deal with this complex “objective”
interaction of value, prices, development and capital accumulation in our next
section. But just to indicate how complex this relation between value, market
prices and capitalist accumulation really is, we wish to focus here on Schumpeter’s
own attempt to account for the trans-crescence of the capitalist economy
in exquisitely politico-economic terms – that is, in terms that are not
strictly “objective” in terms of the class analysis indicated by
Marx and, to a lesser extent even Smith and Ricardo, but rather in terms of the
Individualitat of the capitalist entrepreneur whose heroic figure leads
the Innovations-prozess. To elucidate, we use the word “trans-crescence”
rather than development or evolution to translate Schumpeter’s use of the term Entwicklung
precisely because this word has deep philosophical overtones dating back to
Schopenhauer and Nietzsche (see generally, Georg Simmel’s homonymous work on
the two philosophers). The profound influence of these philosophers – including
Simmel and his pupil, Max Weber – is especially evident in the famous Chapter
Seven of Schumpeter’s Theorie der wirtschaftlichen Entwicklung which was
omitted in the “Harvard” edition (for obvious reasons we think, because Harvard
would never have awarded a professorship to the Austrian if he had published
that “deeply compromising” theoretical chapter, despite its undeniable
centrality to Schumpeter’s entire work!).
In the quotation above, Schumpeter has surely
mixed up his metaphors: it is most certainly not “innovation” that “paralyzes
the tendency toward equilibrium”: it is rather the other way around: it is
the “forces [of reaction against
development] that seek to paralyze innovation” and lead instead to the static,
stationary, stagnant “state” (!) of
equilibrium! By contrast, far from “paralyzing” the Gleichgewichtstendenz, innovation certainly provides “an opposing tendency out of equilibrium”!
Development [Entwicklung] has a tendency to move out of equilibrium.
This is quite different from what we could call organic development; it leads
to quite different pathways that lead somewhere else. If the economy does reach a new state of equilibrium then this is
achieved not by the motive forces of development, but rather by a reaction
against it. Other forces bring development to an end,
and by so doing create the first precondition for regaining a new equilibrium.[Ch.7, 489]
Thus, we have a dyadic, aporetic and anti-thetical, pendular dynamic to capitalism: it is the leadership of the entrepreneur, his Spirit of Innovation, that
forces out, that provides the centrifugal push away from stationary equilibrium, which is instead “paralyzed”
by the competitive rivalry of self-interested atomistic individuals, as
required implicitly by the axiom of pure competition. But in the process of
escaping from the paralysis of stationary equilibrium – an escape required by
the very “purity” of competition -, the need to preserve any temporary advantage leads the entrepreneur from leadership back to ownership, back to the state of imperfect competition which
provides instead the centripetal “gravitational
pull” of equilibrium stagnation to which the original axiomatic pure
competition had led.
Conversely, it is the ownership of capital on the part of finance capital that leads to
the restriction of competition and the search of rent-seeking interest, which lowers
the rate of interest, providing thus the centripetal
pull driving the capitalist economic system back toward its “gravitational
centre” (Schumpeter’s Gravitationszentrum)
of equilibrium stagnation - from which the profit-seeking of pure competition will
seek to free it with a renewed centrifugal
push out of equilibrium into the leadership
(cf. Weber’s Leitender-geist in “Politics as Vocation”) of innovation.
Here once again is the dyadic, pendular motion of Schumpeter’s theory of
economic “evolution” – a motion that, as we saw earlier, cannot be said to be
“dialectical” for the simple reason that the forces at play (profit and
interest, leadership and ownership, innovation and adaptation, evolution and
stagnation) do not supersede each
other but instead perpetuate themselves
indefinitely!
To repeat,
it is not innovation that “paralyzes”
the tendency toward equilibrium (Gleichgewichtstendenz)
– but much rather the other way around: it is the tendency toward equilibrium that paralyzes innovation; and it does so by immobilizing its “author”,
the Entrepreneur. Innovation is dynamism
fighting paralysis; equilibrium is a state of paralysis. Indeed, because “the
reaction against innovation” is – almost by definition – most likely to come
from the established order, from the competitors currently in power and in charge
of the status quo, that is to say,
from the existing status quo of
distribution of political power – then, it is evident that “the state of
equilibrium” is institutionally represented by just that – by the State! Equilibrium is literally a “State”! The “tendency” is
always toward equilibrium, toward a State of rest and stagnation because, as we
saw above, the “friction” that is necessary for innovation ends up restricting
the political and social room-to-manoeuvre (Weber’s Ellenbongsraum) required by pure competition. A political State is
a “state” to the extent that it holds and contains political antagonism in the
double sense of “holding within itself” and therefore “re-presenting” that
antagonism, and of seeking to hold and contain that antagonism from destroying
the State itself by bursting its legal and political boundaries, the establish
order, the status quo.
Innovation
is auctoritas, it is “initiative”, it
is potentia, whereas the State is passive
rule, potestas. The State reigns, has passive rule or potestas, but
does not rule actively; and to the
extent that it “rules” it only “administers” or “polices” its subjects but is
quite incapable of mustering the productive forces of society! (Schumpeter may
have had in mind here the work of Max Weber on Parlament und Regierung and that of Carl Schmitt, from the early
research on The Crisis of Parliamentarism
to the more philosophical Political
Theology.) It is the innovative
entrepreneur who has the authority to
rule: to the Entrepreneur goes the “premium” – literally, the prize or spoils – of economic activity represented by “profit” (Unternehmer-gewinnen,
literally, “entrepreneurial winnings”), just like the consuls of the
Roman Republic who had the “auctoritas” to introduce laws in the Senate and its
victorious generals who were eligible to receive the spolia opima, the best spoils. In other words, it is the State, the
bureaucracy, the existing powers that be that wish to preserve the status quo, the established order, and
therefore wish also “to bring development
to an end”. Equilibrium
is bureaucracy, it is Sozialisierung, it is Rationalisierung. These are “the forces of reaction”. Worse still, it
is not just those who are “disrupted” or “threatened” by innovation who
constitute the “reaction” that re-establishes the Gleichgewichts-tendenz: it is
the innovators themselves (!), the Entrepreneurs, who now have an interest
in restricting and restraining “pure competition” so as to protect their
“advantage”! This “tendency toward equilibrium” Schumpeter calls “adaptation”.
Equilibrium
is rigor mortis or death – which is
“not allowed” to prevail by the “creative destruction” of the entrepreneurial Spirit - just like the whittling down of
surplus value or profit, which are the “motive” behind innovation, that is
“constantly recreated” by innovative
acts. This is the Individualitat that
sparks and revives the “static reason” of the economic system back into the
“dynamic movement” or “creative destruction” of history! For Schumpeter, in
stark opposition to both Classical and Neo-classical Political Economy, it is
not “equilibrium” that is the goal of
economic activity: the goal of
economic activity in its specific historical capitalist manifestation is
“innovation”; its force and source of energy or inspiration is “the
entrepreneurial Spirit”; its hero or
“carrier” or “economic Subject” is the Entrepreneur. Only the Entrepreneur has
the authority of authorship: the Entrepreneur destroys the state of equilibrium, the bureaucratic status quo, so
as to be able to lay claim to profits.
Here therefore we have finally the distinctive elitist view of capitalist
industry and society that Schumpeter inherited from Pareto and Weber against
the egalitarian position of the “socialist” Walras and the “communist” Marx.
Profit is not a “fixed quantity” that can ever be “equitably” distributed!
Instead, profit is a “social relation” in that it is simply a legal-ethical
claim to social resources by atomistic individuals in continual conflict with
one another!
Schumpeter ends up interpreting stasis
and metabole as purely ethico-political concepts in the “psychological”
sense, not in terms of “pro-duction” of material
needs but of “psychological types”
– the “enterprising” entrepreneur pitted against the “hedonistic” capitalist.
This is the phenomenological aspect
of his work. This is the basis of the Wirthschafts-Subjekte
which are, as “subjects”, individual protagonists, again in an ontogenetic
sense that reduces immanence/metabole/production to
transcendence/stasis/exchange, the Political to psychology/Individualitat.
The entrepreneurial Spirit is “un-ethical” or “extra-moral” (Nietzsche) in this sense: its “innovation” is also a
breaking of the rules, a making of Value without “being valued”. The
entrepreneur is an initiator, an “author” possessing a Nietzschean
“extra-morality” (aussermoralischen Sinne), a Heideggerian “authenticity” (Eigentlichkeit) – the recognition of the
Zuhandenheit of the world, of its
“mundanity” - that therefore, in its “resolve” (Entschlossenheit) is able to rise above the “quotidianity” (Alltaglichkeit) of “the masses” and
their Sartrean mauvaise foi (bad
faith).
The “State” of equilibrium represents the
Ethics of “formal equality”, of equi-valence, identity not difference: the
bourgeois liberal State is bureaucracy
(Hegel), Rationalisierung and Entzauberung (Weber) – a “Positivity”
(Heidegger’s “presence”) that is shattered by the negativity (“creative Destruction”, not “destructive Creation”) of
the Entrepreneur – who represents the dynamic creative Individualitat opposed to the “tranquility” of the body politic.
Again, the polemos of the state of
nature is turned into the “dynamic energy” (dynamisch,
energisch) of the captain of industry, of leadership – against the “statisch, hedonisch Impuls der rationalistischen Typus”, of the “capitalist owner”, the banker and financier reliant
not on “entrepreneurial profit” but on passive “interest”. (See Joseph A. Schumpeter: ein Sozialökonom
zwischen Marx und Walras by Heinz D. Kurz, p.46.)
The
bourgeois liberal State – the “State” of equilibrium – is the true political
State of capitalism. But the Schumpeterian entrepreneur is not the pro-duct of
this “ethical” and “hedonistic” State! Capitalism creates the con-ditions, the
institutional ingredients for the emergence of the entrepreneur – but the
entrepreneur must not be confused with and mistaken for a “capitalist”! The
entrepreneur is the antithesis of the “capitalist” – as we have sought to
demonstrate throughout our study of Schumpeter and his “capitalist
metaphysics”. The capitalist seeks the “tranquility” of the economy – its
“equi-librium” on the economic side. And the homologation, the equi-valence of
Economic equilibrium and Political “tranquility” is the “social Peace” of
bourgeois liberal society – its Kantian-Hegelian Ethics. It is not capitalism
that induces “creative destruction”: it is the entrepreneur that does so
against the “hedonism” of the capitalist financier, against the “social Peace”
of the bourgeois liberal State!
These
innovations occur whenever the entrepreneur needs them, and if it were not the
case that an entrepreneur, in his particular role as an entrepreneur, would
already be waiting in order to use any new invention, then these innovations
would never be realized in practice. It
is not the innovations that have created capitalism, but capitalism that has
created the innovations needed for its existence. One could gain the
opposite impression only from the fact that we know only of an economy replete
with development, and here, everything takes place so fast and immediately,
that we cannot always distinguish between cause and effect…. The process of development itself and its
driving force would in this case also lie somewhere else, particularly in the
personality of the entrepreneur. In the
absence of people with such leadership qualities these kinds of innovations
would never come alive.[479-80]
In other
words, capitalism has created the conditions for the emergence of the
entrepreneur: but the entrepreneur is distinct and separate from “capitalism”
and its Ethical Ideal of an equilibrated, static and hedonistic liberal
bourgeois societyin which the capitalist market economy provides the
underpinnings for the Political liberal public sphere of freedom of expression.
This neat homologation or equivalence of capitalist Economy and bourgeois Politics
is absolutely impossible for Schumpeter because the real essence of capitalism
is not “equilibrium” but quite to the contrary it is “permanent crisis”, it is
“creative Destruction” – conflict, not “social peace”!
A minority of people with a
sharper intelligence and with a more agile
imagination
perceive new combinations. … Then there is an even smaller
minority—and
this one acts. … It is this type [the Entrepreneur] that scorns the
hedonic equilibrium and
faces risk without timidity. He does not consider the
implications
a failure will inflict upon him, or care whether everyone depending
upon him
will lose their keep for old age. … The decisive moment is therefore
energy
and not merely ‘insight’. (Schumpeter, 2002b, 413–14; cf. 1912, 163–4)
Most people
tend to their usual daily business and have enough to do at that.
Most of
the time such people are on slippery ground and the effort to stand
straight
exhausts their energies and suppresses all appetite for further
exploration.
… [Furthermore, t]hey do not have the force and the leisure to
think the
matter through. The daily work keeps them down, organization as well
as the
influence of their colleagues inflict untearable chains on them. This is the
masses.
(Schumpeter, Theorie, 2002b, 412–13; cf. 1912, 162–3)
In
each sector there are statically disposed
individuals and there are leaders.
Statically disposed individuals are characterized by essentially doing what
they have learnt, by moving within the received boundaries and by having in a
determining way their opinion, dispositions and behaviour influenced by the
given data of their sector. Leaders are characterized by perceiving new things,
by changing the received boundaries to their behaviour and by changing the
given data of their sector. (Schumpeter, 2002b, 428; cf. 1912, 542–3)
Es gibt
Wirtschaftssubjekte …deren Verhalten durch den hedonische Impuls definitive
charakterisiert ist, Wirtschaftssubjekte die man als “statisch” kat Esochen
bezeichnen kann. [Theorie, 35]
By Schumpeter’s own admission, the trans-crescence of the capitalist economy gives rise to profoundly
revolutionary and unsettling “crises” or “extraeconomic effects” through the
“creative destruction” brought about by the competitive innovation of
entrepreneurs that quite simply cannot be “governed” by them and that therefore
require exquisitely “politico-institutional” intervention on the operation of
the market economy by capitalist State institutions. In other words, far from
being a self-regulating mechanism at or near any form of “equilibrium” -
whether “static” or “dynamic” or “evolutionary” -, the capitalist economy needs
to be constantly guided and governed
by a central political institution such as the modern State that necessarily
invalidates the notion of entrepreneurial competition and innovation as pure scientific economic categories!
Schumpeter theorises the entrepreneurial spirit and the process of
innovation in isolation from the political institutions of capitalism, which he
belittles as the “hedonic and static” state of equilibrium. As we saw earlier
in this study, the chief objection moved by Max Weber against Schumpeter’s
theory was precisely that it unduly neglected the paramount relation between
state bureaucracy and private capitalist factory – both of which Weber saw as
aspects of “enterprise” (Betrieb). In
the words of Cacciari,
“Ecco perche’ Weber parla del Politiker, non dell’ Imprenditore. Egli
non dimentica l’ Imprenditore: ne aveva gia’ ricercato le origini. Ma, tra il
1905 e il 1918, il problema decisivo diviene la scelta politica sulla forma e sui tempi
[That is why Weber speaks of the Politiker, not of the Entrepreneur. He
does not neglect the Entrepreneur – he had already traced his origins {in the
‘Protestant Ethic’}. But for Weber the decisive problem between 1905 and 1918
became that of the political choice
of the modality and timing of the relationship science-development, of the political institutions able to govern the
effects of innovation. In reality, no
market could function any longer in ‘pure’ Schumpeterian fashion.
Explicitly put: no entrepreneur can exist any longer without the intervention of the State.]
The final point then becomes a question – the answer to
which we have already outlined in our initial summary of the essential
ingredients of capitalism: why, when all is said and done, must capitalist
society proceed or evolve or develop or trans-cresce through crises?
And what does that tell us about the nature of “innovation” or “technological
progress” and its motivation, that is to say, profit? And what is the role of
the “State” of equilibrium – the static aspect of capitalism – in the permanent
crisis induced by profit and innovation?
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