Schumpeterbuch 1 - by Joseph Belbruno

8/12/2019 Schumpeterbuch 1 - by Joseph Belbruno

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Capitalism, Equilibrium and History: A Theoretical and Practical Analysis of Schumpeter’s

Methodology and Innovationsprozess

Thus, development and equilibrium in the sense that we have given these terms are therefore opposites, the

one excludes the other. Neither is the static economy being characterized by a static equilibrium,

nor is the dynamic economy characterized by a dynamic equilibrium; an equilibrium can onlyexist at all in the one sense mentioned before. The equilibrium of the economy is essentially a static

one.̀19[Theorie, ch.7]

With this we really get closer to reality. In particular, we win a clearer insight into that peculiar jumble of

conditioning and freedom, which economic life shows us. The static circular flow and the static

phenomena of adaptation are dominated by a logic of things, while it is completely irrelevant for

the general problem of freedom of will, nevertheless in practice - with fixed given social

relationships - it leaves as good as no manoeuvering room for individual freedom of will. This can

be demonstrated and yet it was always a point of criticism, sincethe free creative work of the

individualwas so obviously visible. We know now that the latter observation is correct. Yet, this

observation does not contradict the theorems of statics. We canprecisely describe theplace and

function of thiscreative work. Of course, in development the logic of things is not missing; and

just as one cannot demonstrate with the static conception the case for philosophical determinism,

one cannot maintain the case against it with the dynamic conception. But despite this we have

shown that an element is present in the economy, which cannot be explained by objective

conditions and we have put it in a precise relationship to those objective conditions.23

(Theorie,1912, ch.7)

Damit kommen wir der Wirklichkeit tatsachlich naher. Besonders gewinnen wir einen klarern Einblick in

das eigenturmliche Gemisch von Bedingtheit und Freiheit das uns das Wirtschaftsleben zeigt. Der

statische Kreislauf und die statischen Anpassungserscheinungen sind von einer Logik der Dinge

beherrscht, die fur das Problem der Willensfreiheit zwar ganz irrelevant ist, aber praktisch – bei festgegebenen sozialen Verhaltnissen – so gut wie keinen Spielraum fur individuelle Willkur lasst. Das

ist nachweisbar und war doch stets ein Stein der Antstosses, das man das individuelle freie

Schaffen ganz deutlich am werken sah. Wir wissen nun dass der letztre Beobachtung richtig ist und

[36] den Theoremen der Statik nicht wiederspricht, wir vermogen prazise Platz und Funktion

dieses Schaffens anzugeben. Naturlich fehlt auch in der Entwicklung die Logik der Dinge nicht;

und ebensowenig man mit der statischen Auffassung etwas fur philosophischen Determinismus

beweisen kann, kann man mit der dynamischen etwas gegen ihr ausrichten. Aber dennoch haben

wir ein durch sachlichen Bedingungen nicht erklarbares Element in der Wirtschftlichen

nachgewiesen und mit diesen sachlichen Bedingungen in eine prazise Beziehung gebracht. (From

G. Backhaus)

A. Equilibrium and History: Conceptual and Political Aspects of Bourgeois Economic Theory

Classical and Neoclassical Political Economy from Adam Smith to Leon Walras is founded on the

axiomatic static equilibrium of the marketplace economic system. Yet this clashes most

violently with the empirically evident instability of the capitalist economy and its equally

violent convulsions and, worse still, its transformations intended not just in the sense of

quantitative growth (Wachstum) but actualqualitative evolution (Entwicklung), with itsmeta-



morphoses andmutations, with itstrans-crescence andcrises. The static-stationary,

axiomatic-analytical, anatomical and objective schema of bourgeois equilibrium economic

theory is evidently and empirically shattered then by the dynamic-historical, metabolic

and subjective unfolding or evolution of its real operation. The end of history that the

bourgeoisie always desperately seeks has been “greatly exaggerated” yet again. The

question here is: can history be reduced to science? And then again, is it indeed science orlogic that is opposed to history in the bourgeois interpretation of economic systems?

The confusion of science and logic in the sphere of economic analysis was evident already in

Adam Smith’s theorization of market capitalism. Smith’s “invisible hand” was a

necessaryEskamotage ordeus absconditus (hidden god) because the circularity of his

reasoning reduced science to logic - to a tautology in fact: prices are determined by value

which is determined by the quantity of labour, whose price is determined by the market

which determines prices. The problem lies in the definition of “market”: if indeed the

“market” is made up of entirely self-interested atomistic individuals, then it is impossible

to see how such in-dividuals could ever reach the “agreement” that is indispensable to

determine “prices”! In other words, “the rules of market competition” have to be set oragreed upon by market agents even before market competition takes place. But this is

impossible by definition, because any restriction on the “self-interest” of market agents

turns the entire exercise into a meaningless and purposeless tautology!

G. Myrdal insightfully seized on this point, in The Political Element in the Development of Economic Theory. Myrdal,

however, like all economics theoreticians after him, totally failed to see the purpose or political element behind the tautologous schema of equilibrium theory – a “political element that was to be the very ob!ect ofhis study"

Thus, just like equilibrium analysis, Smith’s theorization of market capitalism left no space at all

for the “co-ordination” of the actions of what are axiomatically atomic in-dividual market

agents – which is why, just as Leibniz needed a divine “pre-established harmony” to co-ordinate his “windowless monads”, so did Smith need his “invisible hand” to co-ordinate

the actions of his “windowless”, “monadic” market agents. General equilibrium analysis,

too, will laterdispense with this requirement, without therebyresolving it, by postulating

the “syn-chronicity” of all “actions” in market exchange. But the formal equivalence of all

axiomatic market agents in both theories means that they are left without a “purpose”

once the “frozen” state of equilibrium is reached. In other words, equilibrium is a state of

completein-action, given that at equilibrium market agents no longer have any need or

space to change their decisions. At equilibrium there is and there can be no “market”.

#rrow and $ahn were demonstrably right to insist, pace %awson in “&he 'onfused (tate of )quilibrium #nalysis, that#dam (mith is the father of equilibrium analysis *in General Competitive Analysis+. &he fact that, as %awson

argues, (mith constructed his theory from historical and sociological observations does not cure its

“closedness or tautological nature. $ypocrisy was written all over the author of The Theory of MoralSentiments – something that Mandeville delighted in eposing- his penchant for sociological observation,

based mostly on #dam erguson/s An Essay on Civil Society, only served to disguise the aporetic and

apologetic character of his economic theory. 0ncidentally, %awson/s definition of a “closed system as onethat can be reduced to the proposition “whenever , then y is manifestly wrong because this kind of

proposition is essential to the testing of scientific hypotheses in both natural and social science 1one need

only read any book on the philosophy of science to understand this point2. 3uite contrary to %awson/scontention, a “closed system must be of the type “whenever , then y, where is a function of y- it is the

classic circulus vitiosus or tautology, 4 nothing more nothing less.



The problem with equilibrium analysis is that it reduces economic “science” to “logic” – literally,

toana-lysis (retrospective examination orautopsy oranatomy), that is to say, to the formal

mathematical equivalence of all itselements, which leads to the meaningless paralysis of

tautology. The essential aim of any economic theory worthy of the name must be to

explain how economic actions can be co-ordinated and to point to the “what”, the

“thing”, the common substance or “value” that allows this “co-ordination” to take place.Co-ordination is not meant here as “static exchange” and is not meant to be confined to

“quantitative values”. If we read Walrasian equilibrium, which is made up of a series of

simultaneous equations, as a simple functional plan or classification of an economy, then

it is not tautological but purely classificatory or illustrative. If instead it is intended to

show how a real economy functions, that is to say, how the independent decisions of

individual market agents can beco-ordinated by “the market”, then it is entirely

tautological because, as Hayek showed, “its conclusions are implicit in its assumptions”.

#s 0 have suggested elsewhere in this volume,5 the tautological method which is appropriate and indispensable for the

analysis of individual action seems in this instance to have been illegitimately etended to problems in which

we have to deal with a social process in which the decisions of many individuals influence one another and

necessarily succeed one another in time . &he economic calculus 1or the Pure Logic of Choice2 which dealswith the first kind of problem consists of an apparatus of classification of possible human attitudes and

provides us with a technique for describing the interrelations of the different parts of a single plan. Itsconclusions are implicit in its assumptions the desires and the !no"ledge of the facts# "hich are assumed to$e simultaneously present to a single mind # determine a uni%ue solution& The relations discussed in this typeof analysis are logical relations# concerned solely "ith the conclusions "hich follo" for the mind of the

planning individual from the given premises& 1 Individualism and Economic 'rder , p.67.2

Even so, Hayek’s analysis of general equilibrium is still incorrect because for “a single mind”

Walrasian equilibrium is merely “classificatory” but not “tautological”. Even for a single

mind nodecisions can be made in equilibrium analysis because simultaneous equations

involve a “semaphoric”, logical “re-classification” of information that is independent of

“time” as a concept. Walrasian equilibrium is tautological only if it pretends to explain, as

it does, how “many minds” can co-ordinate their economic decisions. Where a singlemind is concerned, however, equilibrium theory does not involve a “single plan” or any

“plan” at all (!) because that would imply the possibility ofdecision! But the point to a

“classificatory” or “semaphoric” (or functional or illustrative or anatomical) schema is

that no “decision” is involved because there is and there can be no “time” involved in

such an ana-lytical “sketch” or “blueprint” or “map”. A map is “timeless”: it is not a

“plan” in the sense of “a sequence of decisions”!

But Hayek and all equilibrium theoreticians after him, have shifted the subject-matter, the

ground, the sub-stance, the substratum andquidditas, the “whatness” of economics from

“prices and quantities”, which involve those material human interests that are and must

be the indispensable foundation of all theories that even pretend to be “economic”, to themere “semaphoric” world of “information” and “co-ordination”! In the words of Brian

Loasby,

The co-ordination of economic activities, of course, is what economics isoverwhelmingly about, (Equilibrium and Evolution, p.9).



The problem with this is that economics can never be reduced to a simple matter of “co-

ordination” because it must always explain the real materialobject of “co-ordination”,

what makes it “economic co-ordination”! And the “economic” here stands for pro-duction,

the actual creation of “goods and services” which ultimately involve human living labour

and therefore social relations of production that relate to the interaction of human beings

amongst themselves as well as with their living environment!

Hayek correctly captures the point that Walrasian equilibrium cannot “co-ordinate” a “market” in

which different individuals decide; the market action of that “single mind” would still

depend on the decisions of at least one other “single mind” to make an “economic

decision”. For the single mind to make an economic decision and to evade tautology, it

needs to be confronted with the independent plan of “another mind”, which is what

general equilibrium is constitutionally incapable of doing because “its conclusions are

[logico-mathematically] implicit in its assumptions” and no “time” can logico-conceptually

be present! This explains the retreat of equilibrium theoreticians like Frank Hahn from

the sphere of “prices and quantities” of real goods and services performed by human

living labour to the semaphoric or semiotic sphere of “ideas and actions”. For Hahn,

an economy is in equilibrium when it generates messages which do not cause[its agents to change the theories which they hold or the policies whichthey pursue, (quoted in !oasby, op.cit. at pp."#-$).

But here the legerdemain, the subtle trick that Hahn has performed becomes absolutely evident –

because Hahn has not specified adecision but rather anin-decision, a “not-changing of

theories and policies”! In other words, not only does equilibrium now exclude even the

most phantomatic exchange of “goods and services”, which require human living labour,

but it even requires the ultimatein-action andin-decision: equilibrium finally assumes the

stagnant and stationary position not just of tautology but of the most unthinkablerigor

mortis – sheer death! For the modern bourgeoisie and its idiotic charlatans, economicequilibrium is the most perfect Nirvana in whichabsolutely Nothing happens!

To be perfectly histrionically brutal, recent equilibrium theory has surged to the intellectual status

of a “Seinfeld” episode – that is, a comedy series “about nothing” in which “absolutely

nothing happens”! Indeed, once economic theory has become so detached from any real

material human activity of production in which human beings interact not only with one

another but also with their environment,bourgeois economic theory can easily conceive

of an economic system in perfect equilibrium, perfectly “co-ordinated”, that has

completely destroyed its living environment!This insidious danger was already implicit

in Adam Smith’s theorization of “thewealth of nations” as a perfect logico-mathematical

“exchange” that because of its very “perfection” no longer had anything to do with“wealth” itself! Not until Alec Pigou theorized the problem of “externalities” (inThe

Economics of Welfare) did this aspect of capitalist production enter the sphere of bourgeois

economic analysis, and then only as “externality”, that is, as something “external” to the

presumed “purity” of the capitalist economic system. Contrary to the stooges of

equilibrium analysis, Pigou never forgot that "[e]conomicwelfare...is thesubject-matter of

economic science," (bid., p.9).



Up until Adam Smith set out to formalize the operation or functioning of “the market”,

economics had not existed as a “science” separate from theories of society or indeed of

“the body politic”. Yet in this veryseparation of “economic science” from other aspects of

social life and from its history lies the fatal flaw of this “science”, because once its

methodology leads it to excludenon-economic social forces as “exogenous factors” or as

“externalities”, then it becomes a “closed system” of pure logico-mathematical formulaein which “economic facts” are completely deprived of all sociological and environmental

content. Consequently, “economic science” is incapable of explaining historical change,

including the transformation of economic reality itself, totally extruding thus the very

“positive empirical experience” on which so-called “economic science” is supposedly

founded.

0n his review of 'omte and Mach, in (no"ledge and )uman Interests, 8urgen $abermas emphasises one aspect of

positivism as his crucial ob!ection to it 4 namely, that positivism as a philosophy of science is incapable ofunderstanding and eplaining the “historical evolution of “science itself. 9e partly agree with $abermas:

but this can only serve as an “internal critique of positivism in terms of its internal consistency, whereas as

we will discuss more fully below this type of criticism of positivist methods entirely misses the point abouttheir “eternal real practical political effectuality" 0n short, $abermas criticizes positivism in the name of

“science, when in fact bourgeois “science is a real political practice that cannot be “contradicted in purely“scientific terms" “(cience simply does not have the politically4independent epistemological status that

$abermas/s neo4;antism assigns to it – as Ma 9eber showed conclusively, although only obliquely 1cf.

“(cience as <ocation2.

Put in simpler terms, science must be the combination of theory and facts: theory without facts is

empty, and facts without theory are blind. But the “facts” that “economic science”

pretends to theorise are the very violent reality that the capitalist bourgeoisie has already

imposed on human society! Bourgeois economic science therefore pretends merely “to

observe empirically” its misdeeds or “facts”, and then to dress them up as “human

nature” that gives rise to “natural human rights”. This miserable combination of scientific

positivism and ethical jusnaturalism is the very essence of bourgeois economic science!

At the hands of positivism and empiricism, theStatik of equilibrium theory contradicts the

Dynamik of capitalist reality: hence, equilibrium expels history, stasis stymiesmetabole,

necessity chains freedom. How then to reconcile these irreconcilable opposites? How to

evade and escape these antinomies and apories?

Schumpeter offers a preliminary way out:

%ut despite this we have shown that [a sub&ective element is present in theeconomy, which cannot be e'plained by ob&ective conditions, and we haveput it in a precise relationship to those ob&ective conditions.

The task of “science”, then, is not to jettison logic; it is rather to marry logic withnomothetic

observations about the operation of “the social process” and then place these “objective

conditions….in a precise relationship” with the equally necessaryidiographic “leadership”

role of human agency. There is no paradox here: thesubjective element thatleads or

initiates the “transformation” of the economic systemmust actwithin the boundaries of

theobjective conditions specified by logic and science: this necessity is what gives the

phenomenon of capitalist trans-formation itsmechanical or procedural character: it is the



“trans-formation mechanism” (Veranderungs-mechanismus) that is the engine or “source of

energy” (dynamis) of theInnovations-prozess. The “freedom” of the leader or of the

entrepreneur who leads this mechanism and this process is not an abstract concept:

individual freedom operates within the objective conditions imposed by the “free-doms”

of every other individual agent involved in economic activity. The subjective trans-

formation of the capitalist economic system takes place within the boundaries and limitsimposed by the specific historical “institutional framework” of this economic system.

This cardinal quasi-Euclidean axiom of the absolute atomicity or in-dividuality and self-seeking self-

interest of human beings is the most indispensable postulate of all bourgeois social, economic and

political theories. Fittingly, it was the English translator of Euclid’sElements, Thomas

Hobbes, who first devised this worldview. In this worldview, there is no space for

common human interests (inter esse, common being): the syllogistic conclusion is that

“freedom” can be defined and exist not as a common human goal but only as “free-dom”,

that is to say, as an equilibrium of opposing, conflicting and irreconcilable individual

wills. This equilibrium, the equilibrium of Greekstasis or civil war (bellum civium), can be

overcome by political convention (totalitarian, democratic or elitarian) only because theatomized human individuals postulated in Hobbes’s theory know that the only outcome

of such static equilibrium, of thisstasis, will be the war of all against all (bellum omnium

contra omnes) that will lead fatally (fate here turns into death) to the extinction of

humanity. Even in its “free-dom” - indeed, as Weber had shown,especially in its “free-

dom” – human action and leadership will obey that “conditioning” constituted by the

dira necessitas(the dire necessity), theextrema ratioof self-preservation. The ultimate

foundation of mechanical rationality both for the Hobbesian political system and for its

neoclassical progeny in equilibrium theory is quite simply self-preservation, the “dire

necessity” of surviving in the state of nature wherehomo homini lupus, man is a wolf to

man. Free-dom consists not in acting irrationally but in acting rationally: in short, that

decision is “free” that is takenrationally, by respecting the “ precise relationship” between

subjectively intended ideal goals and theobjective “con-ditions”, the available means, for

the implementation of those goals starting from the axiomatic postulate of the

irreconcilable self-interests of individual human beings.

This is how Hobbes managed for the rising capitalist bourgeoisie an epistemological feat that has

not been equaled since he wrote: - he managed, that is, to combine the positivistscientific

hypothesis of Galileo-Newtonian mechanics with the jusnaturalist political convention of

innate human rights, and thereby to erect bourgeois political practice on effectual

scientific grounds. Hobbes begins with the positivist scientific hypothesis of the “universal

conflict” between human beings taken as wholly egoistic atomic individuals, and from

there he develops “rationally” - with the “rationality” of the “laws” of mechanics - the

jusnaturalist political convention (common-wealth) that will make social life possible

based on the “natural rights” of these conflicting individuals. (This astute twining of

positivist authoritarianism and jusnaturalist contractualism is masterfully unjumbled by

N. Bobbio inDa Hobbes a Marx.)

In order to erect his political theory, Hobbes starts from the Euclidean axiom that each human

being represents a “point” or “body” entirely unconnected to other human “points” or





equilibrium theory except as a Hobbesianultima ratio ordira necessitas ob metum mortis,

dire necessity in fear of death, as we explained above.

&he locus classicus of “possessive individualism is '= Macpherson/s towering study by that name. #lchian4>emsetz,to give yet another eample of the rampant stupidity of ?obel @rize laureates in economics, quite incorrectly

select a negative definition of capitalism – the a$sence of government in the economic process 4 and

completely leave out the “individual-

The mar of a capitalistic society is that resources are owned and allocated by suchnon-governmental organiations as *rms, households, and marets. [+irst sentence of roduction, nformation /osts and 0conomic 1rganiation2.

&his is quite clearly nonsense because, in practice and in reality, governments have historically played a crucial role in

“the ownership and allocation of *social+ resources: and in bourgeois economic theory, it is individuals, not

“firms and households, that must a*iomatically take precedence over “firms and households and markets"0t is possible, of course, that by “markets #lchian4>emsetz mean the economic echange of atomistic

individuals. >emsetz in any case will later take a fresh look at competition as “perfect decentralization,

which requires the postulate of possessive individualism 1cf. above all his “reedom and 'oercion and“allacies in the )conomic >octrine of )ternalities2.

#lthough our treatment of $obbes/s political theory is perhaps more systematic than $annah #rendt/s, we simply couldnot resist drawing on her devastating prose and quote in full what is truly one of the most moving and

inspiring passages in her entire work which stands as a lasting indictment not only of the capitalist

bourgeoisie but also of its venal intellectual apologists, among whom we count first and foremost professional economists-

t is signi*cant that modern believers in power are in complete accordwith the philosophy of the only great thiner who ever attempted to derivepublic good from private interest and who, for the sae of private good,conceived and outlined a /ommonwealth whose basis and ultimate end isaccumulation of power. 3obbes, indeed, is the only great philosopher towhom the bourgeoisie can rightly and e'clusively lay claim, even if his principleswere not recognied by the bourgeois class for a long time. 3obbes4sLeviathan 5564 e'posed the only political theory according to which the state

is based not on some ind of constituting law7whether divine law, the lawof nature, or the law of social contract7which determines the rights andwrongs of the individual4s interest with respect to public a8airs, but on theindividual interests themselves, so that the private interest is the same withthe publique. 545 There is hardly a single bourgeois moral standard which has not been anticipatedby the unequaled magnicence of Hobbes's logic. 3e gives analmost complete picture, not of :an but of the bourgeois man, an analysiswhich in three hundred years has neither been outdated nor e'celled. "Reason... is nothing but Reckoning"; "a free Subject a free !ill . . .are# words . . . without meaning; that is to sa$ %bsurd." ; being withoutreason, without the capacity for truth, and without free will7that is,without the capacity for responsibility7man is essentiall$ a function of societ$ and judged therefore according to his "&alue or worth ... hisprice; that is to sa$ so much as would be gi&en for the use of his power." This price is constantly evaluated and re-evaluated by society, the esteem of others, depending upon the law of supply and demand.ower according to Hobbes is the accumulated control that permits theindi&idual to ( prices and regulate suppl$ and demand in such a wa$ thatthe$ contribute to his own ad&antage. The individual will consider his advantagein complete isolation, from the point of view of an absolute minority,so to spea< he will then realie that he can pursue and achieve hisinterest only with the help of some ind of ma&ority. )herefore if man isactuall$ dri&en b$ nothing but his indi&idual interests desire for power mustbe the fundamental passion of man. t regulates the relations between individual



and society, and all other ambitions as well, for riches, nowledge,and honor follow from it."$= :0>;!?:3obbcs points out that in the struggle for power, as in their native capacitiesfor power, all men are equal; for the equality of men is based on thefact that each has by nature enough power to kill another. @eaness can becompensated for by guile. )heir equalit$ as potential murderers places all

men in the same insecurit$ from which arises the need for a state. Theraison d'etre of the state is the need for some security of the individual, whofeels himself menaced by all his fellow-men.["$AB.Hobbes was the true though ne&er full$ recogni*ed philosopher of thebourgeoisie because he reali*ed that acquisition of wealth concei&ed as ane&er+ending process can be guaranteed onl$ b$ the sei*ure of political powerfor the accumulating process must sooner or later force open all e'istingterritorial limits. He foresaw that a societ$ which had entered the path of ne&er+ending acquisition had to engineer a d$namic political organi*ationcapable of a corresponding ne&er+ending process of power generation,.+or a /ommonwealth based on the accumulated and monopolied powerof all its individual members necessarily leaves each person powerless, deprivedof his natural and human capacities. t leaves him degraded into acog in the power-accumulating machine, free to console himself with sublimethoughts about the ultimate destin$ of this machine which itself is

constructed in such a wa$ that it can de&our the globe simpl$ b$ followingits own inherent law.

Make no mistake: the Hobbesian-Weberian mechanical science we mean here is not an “objective

science”, - for as Nietzsche demonstrated, there is and there can be no such “thing”!The

science we intend here is a political practice based on the inflexible application of axiomatic rules

to human society by a historically specific social class – the capitalist bourgeoisie. The

bourgeoisie would be blind deaf and mute without this inflexible science, which is why it

has erected the most fabled monuments to it. This science consists for the bourgeoisie in

placing political decisions in a precise relationship to the existing relations of power in

society that it has imposed to its own advantage so as to be able to reproduce them

according to its own axiomatic postulates or schema. And then, of course, in presentingthese political decisions as “that peculiar jumble of conditioning and freedom, which economic

life shows us”, which is how Schumpeter defines “economic science”.

The question now is: what is this “ precise relationship….of conditioning and freedom”, and how can it

escape its evident apories and becomeeffectual? It simply will not do,it entirely misses the

point, to conclude that Schumpeter has failed in his attempt “to integrate theory and

history” and to reconcile freedom and necessity (this is Moura’s claim in his

homonymous essay based on Lawson’s epistemology): - because the crucial point, the key

to the enigma, is to understand this “ precise relationship [of the free creative work of the

individual] to objective conditions”: that is thetask and also thelimit of science.

From the outset, Schumpeter’s aim is not so much to find out empirically the “mechanism” that

impels the capitalist economy to change and mutate spasmodically; rather, his aim is to

discover the conceptual requirements for the practical implementation of the axiomatic

postulates of Neoclassical equilibrium analysis on which the very idea of a bourgeois civil

society and of its economic system are founded. The “mechanism” is capable of being

embodied by an “institutional framework” in whichdecisions are made within the limits

and boundaries set by the axiomatic schema of the bourgeois system of social power so as



“to put it in motion” or “energize” (the literal meaning ofdynamis in Greek) it. In other

words, the subjective, historical “ force” or “source of energy” of the bourgeois social system

must be placed in a “ precise relationship” to the “objective conditions” or boundaries or

strictures that are necessary for the expanded reproduction of human society in a

bourgeois form. Schumpeter’s aim then is to find out thereason why capitalist society

cannot stand still. Thisreason cannot be solely the result of experience because humanexperience could lead to uncertain outcomes. Instead, whilst it cannot be contrary to

empirical experience, thisreason has to be deduced from the very conceptual framework

of a capitalist economy acquiring its owndynamic, from its axiomatic postulates “coming

into being” orec-sisting. Schumpeter’s science must be, as he styles it, ahistoire raisonnee –

a marriage of equilibrium and history.

The axiomatic postulates - the “reasoning” schema of this “history”, the logical basis for its

“scientific hypothesis” - are formalized in Neoclassical political economy, of which

Walrasian equilibrium theory is the most “perfect” expression. Now, a dynamic

equilibrium is impossible if by equilibrium we intend a predictable state, because then any

position of equilibrium is inescapable. It is possible to understand how an economycanreach equilibrium, but it is unimaginable that it can evermove out of equilibrium without

the intervention of “external or exogenous factors”. As Schumpeter put it: “ An equilibrium

can only exist at all… [as] a static one. A dynamic equilibrium is a contradiction in terms.”

Theec-sistence of equilibrium is not at all a pure mathematical concept. The requirements for the

“pure” mathematical “existence” of economic equilibrium are entirely different from

those of its real, practicalec-sistence. And this is so not just from the standpoint of

practical experience itself, but indeed also and above all from the very conceptual

requirements or implications of the practicalec-sistence of a concept. On one side, we have

the formal conceptual elements of a concept; but on the other we have also the conceptual

implications of its coming-into-being, of theec-sistence of the concept, of itsextrinsication

orembodiment from idealconcept to conceptualreality! The two sets of conceptual

requirements are simply not the same. Yet, it is absolutely evident that the practical

requirements for theec-sistence of a concept are just as much a part of its conceptual being

as are the purely formallogical requirements of the internal consistency of the concept!

But whereas the formal axiomatic definition of a concept can only be self-referential and

“closed”, and therefore “totalitarian” or “tautologous” (cf. Hayek, Demsetz, Loasby,

Langlois), the conceptual requirements for theec-sistence of the concept turn it into an

“open” concept because its practical implementation is subject to the minimal intuitive

requirements of empirical experience and observation. At that point, the concept may be

said to form a “scientific hypothesis” and it may be said to be “scientific”.

What turns Schumpeter’s “science” into “bourgeois science” is not this methodology but rather the

necessary practical implications of the “axioms” adopted by bourgeois Neoclassical

economic science, that is to say, the “precise relationship” between the axioms of the

theory and their practical implementation orec-sistence. If then we wish to find out what

are the internal or endogenous factors that move the economy out of equilibrium we

must separate thelogical concept of equilibrium from thedynamic concept, which includes

the practical implications of its real implementation. In this light, the concept of



equilibrium serves only aschematic heuristic purpose but it can never be said to reflect the

reality of a capitalist economy. Science is the meeting point of schematic formalism and

empirical experience: the one cannot exclude the other, science must combine both. (To

paraphrase Kant’s famous dictum, “intuition without concepts is blind, and concepts

without intuition are empty”. Kant’s dictum is often misconstrued as: “thoughts without

content are empty, intuition without concepts is blind”. But by “thoughts” Kantobviously means “concepts”, and by “content” he means “intuition”.)This is why a

conceptual analysis of equilibrium shows that it cannotexist except as aclosed stationary

system, but also that it cannotec-sist except as anopen dynamic system.

Let us see how Schumpeter squares this circle. If we are successful in our attempt, we would have

made perhaps the greatest leap in critical social theory since Nietzsche aphoristically and

anti-systematically pointed the way to a solution of these apories, antinomies, enigmas

and conundrums of bourgeois thought.

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

1. Equilibrium, Mechanics and Dynamics

9alras A would have said 1and, as a matter of fact, he did say it to me the only time that 0 had the opportunity toconverse with him2 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 "hole oftheoretical economics and that as economic theorists we cannot say much about the factors that account for historicalchange, but must simply register them. A 0 felt very strongly that this was wrongA.

0 was tryingA. to answer the question of how the economic system generates the force which incessantly transformsit A. a source of energy "ithin the economic system "hich "ould of itself disrupt any e%uili$rium that might $eattained A. If this is so# then there must $e a purely economic theory of economic change "hich does not merely rely one*ternal factors propelling the economic system from one e%uili$rium to another& It is such a theory that I have tried to

$uild + 0t 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 eactly the same as the idea and the aim which underlie the economic teaching of ;arl Mar. 0n fact, whatdistinguishes 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. 1(chumpeter B67CDB6E6, p. BFF2

1@reface to 8apanese edition of “&heorie, quoted in ?. osenberg, H)ndogeneity/, p.C.2

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 itselfB[through a force orsource of energy that incessantly transforms itB, which would of itself disruptany equilibrium that might be attained2,

then it is obvious thatno such “equilibrium” exists or can exist, for the precise reason that “the

economic system” is at all times – “incessantly”! – beingtrans-formed. It is the verytrans-formation,

themeta-morphosis, thetrans-crescence of the economic system that precludes any “equi-librium”,

any “equi-valence” of its internalvalues. An economic system that is able internally (“ from



within”) to undergo the “incessant transformation” that Schumpeter intends to theorize is quite

simplyconceptually incapable of being in “equilibrium” because equilibrium can be predicated

only of economic systems based on “equal exchange”, that is, the exchange ofequivalents. But

Schumpeter’s “dynamic process” is one in which thevalues 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 realityrather than a reality of “pure competitive exchange” on the basis of marginal utility. This means

that Schumpeter’s dynamic process, theDynamik, iscategorically differentfrom the static economy,

theStatik, intended by equilibrium theory. Schumpeter’s dynamic economy is one in which

“equilibrium”, if attributed to it, is acontradictio in adjecto!

Schumpeter himself explicitly states in theTheorie 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” ofEntwicklung to lead “from one

equilibrium to another”! When speaking ofEntwicklung, 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 thatfor 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 ofEntwicklung, 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 theStatik and theDynamik 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 onthe 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 theequi-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.

Differently put, equilibrium theory deals withequivalent 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 untilall 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 withsubject-matters that arecategorically different and therefore incommensurable

and incomparable.

The all-important point that is being made here is that once weexit the axiomatic conditions ofequilibrium 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, thenthe 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 containsthe 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, inThe 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 factcategorically inconsistent!

Schumpeter therefore bases himself on adual 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 whichincessantly transforms it….a source of energy within

the economic system which would of itself disruptany 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, diCculties, and problems of economic life incapitalist societyB as well as the e'treme sensitiveness of capitalism todisturbance, would be absent if productive resources Dowed every yearthrough substantially the same channels toward substantially the samegoals, or were prevented from doing so only by e'ternal inDuences,

[%usiness /ycles, p.E#

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 [Wachstum]and qualitative development

[Entwicklung]” of the capitalist economy and society, that is to say, it would not account

forcapitalist 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” orindeed even “crisis”, that may exist initially when the economy is indis-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 untilno further

profitable exchange is possible(this is the outcome of Walrasiantatonnement), 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 ofdialectical 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.



The first fundamental issue that Schumpeter addresses for his entire monumental theoretical

effort in economic and social theory is contained in this question:

[3ow does an economy mae the transition from one level - which itself wasviewed as the *nal point and point of equilibrium - to another levelF This questiontaes us to the very essence of economic development.[$AE

To this fundamental question, Schumpeter gives the following answer – an answer consistent

with and borne out in all of his subsequent work:

[$A9 This [present wor, the Theorie is an attempt to present a theoreticalanalysis of development, of its mechanism, in the form of a scheme to which thefacts of development would generally conform. We look rst at a general causefor the changes in the fundamental structure, i.e. in the level of the circular o!.We locate this cause in the fact that " as !e e#pressed it " ne! combinations getdriven through. We sa! that !hen ne! combinations are carried through this

can be attributed to the actions of a particular type of economic agent !hom !ecalled 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 “astate orlevel 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 anGentrepreneurH [who is responsible forB the new combinations [that causeBthe

changesBin the level of [equilibrium or circular Dow .

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 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 participantcapable of causing or “carrying out new combinations” or “innovations” – Schumpeter’sentrepreneur.

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 equilibriumtheory 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 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 ofEntwicklung in

its relation to Neoclassical equilibrium theory is made utterly transparent by the following

revealing discussion in theTheorie in which Schumpeter comes very close (“almost”!) to

identifying the incomparability of the two “distinct processes”:

%ure economic la!s describe a particular behavior of economic agents, !hosegoal is to reach a static equilibrium and to re"establish such a state aftereach disturbance. %ure economic la!s are similar to the la!s ofmechanics !hich tell us ho! bodies !ith mass behave under the inuenceof any e#ternal $forces$, but !hich do not describe the nature of those$forces$. &n mechanics it is assumed that bodies that is, ob(ects !ithouta )self* or* !ill* or )freedom*+ !hen no force that is, unless a force+aects them from the outside, do nothing of themselves and do not produce even a single ne! phenomenon of a mechanical nature. &n thesame !ay pure economics provides us !ith formal laws as to ho! theeconomy is that is, economic agents are+ shaped under the inuence of

conditions coming from the outside. &t sho!s -/+ ho! the economythat is, economic agents, no! only )bodies*+ responds to changes inthose conditions coming from the outside. Therefore, in such aconception, pure economics almost by denition a#iomatically ]excludes the phenomenon of a $development of the economy fromwithin$.

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

[pure economic laws describe a particular behavior of economic agents, whosegoal is to reach a static equilibriumB

Not at all! The “self-interested in-dividuals” of economic theory do not and can never have any

“economic goals” of their ownand 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 anaxiomatic 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 hiswork and that Frank Hahn acknowledged.) In reality, the “self-interested” nature of

economic agents, hence theirself-hood, contradicts their “atomicity” in the sense that an

“atom” like a “body” in mechanics cannot have a “self” capable of acting but can onlybe

acted upon because its “free-dom” (its “room to manoeuvre” orEllenbongsraum, 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 frominter-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 noadvantage can be gained by individual agents through

“innovation” either singly or in concert. And therefore there cannot be any profit in the

theory of equilibrium.

Equilibrium is a “frozen or stationary state” becauseby axiom, by definition, no single agent is

allowedto act upon or co-operate with other “agents” or the economic system so as to gain

anadvantage 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 of equilibrium 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!





equilibrium, it leads to the “impurity” of imperfect competition, as a logical-conceptual

requisite of its “purity”; and on the other side, it leads back to equilibrium as a result of

the countervailing equal “purity” of other self-interests, that is to say, as a result of “the

laws of pure competition”.

By postulating a “development of the economy from within”, Schumpeter is simply makingexplicit what is implicit in the axiomatic “pure laws of economics” reduced to the status

of “laws of mechanics”: he is trying to break free of the apories of pure equilibrium

theory by introducing the “impurity” implied in the very “purity” of self-interest and

competition – a self-interest soab-solute (immune from regulation) that it cannot be

bound even by the “externally-imposed”, axiomatic “laws of pure competition”, or what

Schumpeter calls “pure laws of economics”. As we demonstrated above, if we understand

equilibrium as a state of “pure laws of economics” andEntwicklung or “development” as

a state of disruption or “crisis” of that equilibrium on the way to, intransition to, a “new”

or “fresh” or “another”state orlevel of economic equilibrium, then such a “transition” is

simply impossible because equilibrium andEntwicklung (development-through-crisis or

“evolution”) arecategorically different conceptsorconceptually inconsistent categories.

And yet, as Cacciari has observed (in “Transformation of the State and Political Project”), the

notions of “development” and “crisis” entail the existence of a state of “non-

development” and “non-crisis”. Both development and crisis point to an ideal or pure

model – whether this be Walrasian equilibrium or Robinsonian “tranquility” or

Schumpeter’s “circular flow” – that provides ameasure or ametre by means of which we

can say that an economic system is developing or is in crisis. In a later section we will see

how Schumpeter himself shows at one and the same time how his theory of economic

development is bound to the pure model of equilibrium and also how it may be possible

to define “development” or “crisis” in a novel and different way that does not imply

“negatively” the actual existence of a state of theoretical equilibrium or even of a

“harmonious” state of “tranquility” or of “circular flow”.

Once again, as we showed in the discussion above, Schumpeter seems to be quite aware of the

impossibility of “the pure laws of economics” laid out in equilibrium theory being

logically consistent with “the pure economic theory of economic change”: in his own

words, he is aware that a “dynamic equilibrium is a contradiction in terms”, an oxymoron.

Yet he persists with the idea that it is possible for an economic system that allows of

economic changeto transit “from one equilibrium to another” – a statement that must be

contradictory given that this “transition” can be achieved only by infringing against the

axiomatic rules governing “equilibrium”. Whilst he insists on the “distinctness” of the

two “processes” – theStatik and theDynamik – in the sense that they are logically

inconsistent, Schumpeter obstinately persists with the attempt to base his entire theory of

economic development,Entwicklung, precisely on the ability to transit these intransitable

processes,to fuse and bond them together.

As we shall see presently, it was this “chemical mixture” or bonding that Schumpeter envied in the

theoretical work of Karl Marx and specifically with regard to the concepts of “economic

development” and of “histoire raisonnee”. Indeed it is possible to suggest that Schumpeter



found his own theoretical vocation in his own critique of Marx’s labour theory of value –

a critique that his mentor, Eugen Bohm-Bawerk, had already conducted and that enabled

him to enucleate a novel theory of the nature and causes of “interest”. Schumpeter’s

mission was instead to discover the nature and origin of “profit” and, by imitating Marx,

to combine profit with a specific “economic subject” – theentrepreneur. Following and

applying faithfully Bohm-Bawerk’s critique of Marx, Schumpeter insists that Marx’slabour theory of value has as supreme aim the demonstration of the presence of

“exploitation” in capitalist enterprise, and that this demonstration is to be carried out

under the overarching assumption of perfect competition. Just as he was able to show

that profit is impossible in equilibrium theory, so is Schumpeter able to dispose easily of

the existence of surplus value and of exploitation in conditions of perfect competition.

But it is the sequence of the reasoning that Schumpeter performs with regard to Marx’s theory of

surplus value that is most enlightening in tracing the train of thought that led

Schumpeter to his own theory of economic development. Let us examine this line of

thought carefully:

:oreover, it can be shown that perfectly competitive equilibrium cannot e'ist ina situation in which all capitalist-employers mae e'ploitation gains. +or in thiscase they would individually try to e'pand production, and the mass e8ect of thiswould unavoidably tend to increase wage rates and to reduce gains of that indto ero. t would no doubt be possible to mend the case by appealing to thetheory of imperfect competition, by introducing friction and institutionalinhibitions of the woring of competition, by stressing all the possibilities ofhitches in the sphere of money and credit and so on. 1nly a moderate case couldbe made out in this manner, however, one that :ar' would have heartilydespisedB.

This is so easy only as long as we see in the theory of surplus value nothing but aproposition about stationary economic processes in perfect equilibrium. ?ince

what he aimed at analying was not a state of equilibrium which according to himcapitalist society can never attain, but on the contrary a process of incessantchange in the economic structure, criticism along the above lines is notcompletely decisive. 0urplus values may be impossible in perfect equilibrium butcan be ever present because that equilibrium is never allo!ed to establish itself.

They may always tend to vanish and yet be always there because they areconstantly recreatedBThis aspect proves to be of considerable importance.(/?IJ)

Clearly, it is not the case that Marx thought that “capitalism can never attain a state of equilibrium”: in

reality what Marx’scritique of bourgeois Classical Political Economy aimed at was

showing that the reality of capitalism can never be theorized with the analytical

categories of equilibrium analysis. It is not the case, therefore, that Marx thought thatcapitalism is incapable of attaining equilibrium because it is in “a constant process of

incessant change” – as if this were just a matter ofdegree, just a matter of hitting a specific

quantitative target. Rather, what Marx was saying is that the categories of equilibrium

theory - which are certainly applicable to the Classical Political Economy of Smith and

Ricardo as well as to Neoclassical economics - areconceptually inapplicable to its reality

because it is not aquantitative reality but a political one. In other words, thevalue involved

in the capitalist mode of production is not an objective quantity;value refers instead to





substantiated, and we must shift from the quantifiable relative or absolute “values” or

prices of equilibrium theories to the “ethico-political values” of development theory!

Pure competition leads to a stationary and stagnant state because, although it makes profit-seeking

imperative or axiomatic, under its conditions profit-making is utterly im-possible! But

then, it is also the purity of competition - the political antagonism implicit in itsconceptual inclusion of profit-seeking or the profit motive - thatlogically implies or entails

its actual implementation as profit-making and therefore thecompetitive advantage of

innovation. It is thus that “market process” becomes a conceptual requirement of the pure

notion of equilibrium: market process is theapplied version of pure equilibrium theory:

market process is theextrinsication of equilibrium. Market process occurs when pure

theoretical profit-seeking is allowed to become its impure or applied historical version –

that is, profit-making.

It follows therefore that the transition from profit-seeking to profit-making involves theexit from

conditions of perfect competition in such a way that some competitors will bedis-advantaged

whilst some will gain acompetitive advantage. Thisadvantage must be of a kind that noexchange bythe disadvantaged competitors will be able to eliminate, and that is not derived from “external or

exogenous factors”. The only “endogenous factor” then is the profit-seeking motivation itself and

the ability of some competitors (a) to change the production function, that is,to innovate, and (b)

to restrain other competitors from adopting the innovations that lead to the new production

function. Factor (a) necessarily involvesinnovation as defined by Schumpeter; and such innovation

could hypothetically be originated by a single economic agent.But factor (b) necessarily requires

the adoption ofcompetition-restrictive measures, that is to say, of political measures! And

these quite evidently cannot be carried out by asingle economic agent but must be enforced by

someeconomic agents – innovative entrepreneurs for Schumpeter -against others.

For any kind of competition to exist, short of all-out conflict, certain “rules of the game” must beagreed upon. But these “rules” cannot encompass every aspect of competition because, if

they did, the end result would be competition so “pure” that no real competition could

take place! At equilibrium, competition would be restricted and confined to being a

velleity – the sterile “intention” to seek profit as a necessary trait of self-interest. But once

this velleity of profit-seeking is given the opportunity to be implemented as profit-making,

this fact by itself requires a fundamental change in themodus operandi of the economy, one

in which for profit-making to be at all possible (a) innovation and (b) policies to protect

itmust be allowed to take place. Therefore, for actual competition to take place, there

must always be room for competitors “to innovate”, that is to say, to introduce new and

unforeseen or unforeseeable strategies or techniques that will undermine the existing

competitive rules founded on the formal equality of the competitors. But the possibility

of such “innovation” andtherefore of such “inequality” will result inevitably in political

conflict and antagonism that will have either to be mediated politically or else to be

resolved violently. In either case the search for profit goes well beyond the nature of

“profit” itself as “utility” or “welfare” or “ownership” to the very essence of political

power!

(A similar point is made by Demsetz in “Freedom and Coercion”.)



Conventional competition – competition as it istheorized in all non-Schumpeterian economics –

contains the ineluctabletendency, in terms of its axioms and its aims, to induce a state of

equilibrium or stagnation. That is because innovation is not seen as a necessary aspect of

thecoercion intrinsic and endogenous to the very concept of competition! Yet to be truly

competitive, and therefore to be able to realize a profit, the capitalist entrepreneur mustcompete with existing businesses not just on “price” or “quantity” – but indeed on

“innovation”, that is to say, by introducingnew products or techniques that

fundamentally undermine and threaten to obliterate the business models of competitors!

Competition without innovation would lead sooner or later to a stationary state of

equilibrium.

;ll the more controversial is the proposition that entrepreneurs4 pro*ts andrelated gains which arise in the disequilibria caused b$ the impact ofinno&ation are, as far as the business process itself is concerned and apart fromconsumers4 borrowing, the only source of interest payments and the only causeof the fact that positive rates of interest rule in the marets of capitalist society.

)his means that in perfect equilibrium interest would be *ero in thesense that it would not be a necessar$ element of the process ofproduction and distribution or that pure interest tends to &anish as thes$stem approaches perfect equilibrium. roof of this proposition is verylaborious #9, because it involves showing why all the theories which lead to adi8erent result are logically unsatisfactory, (%usiness /ycles, p."KL. ?ee also/?IJ, p."#" on The 1bsolescence of the 0ntrepreneur2.)

It may well be that the search for profit motivates innovation; it is certainly not innovation that

motivates the search for profits. And yet it is most certainly not the search for profits in

and of itself that forces economic agents to innovate. So long as we define “profit” in

terms of pure competition as all economic theory does, then it is impossible to explain the

existence or possibility of profit! For innovation and economic change to occur,competition must be of such a character that at once it coerces and it enables some

competitors to gain anadvantage over other competitors by undermining not just their

profitability but alsotheir very existence! In other words, competition must reach far

beyond the sphere of exchange; it must reach to the very foundations of civil society –

competition must extend to a type of conflict that goes beyond exchange and that

encompasses the political relations between economic agents. Competition must include

political antagonism!

n other words, the problem that is usually being visualied is how capitalismadministers e#isting structures, whereas the relevant problem is how itcreates and destroys them. ;s soon as it is recognied, his [theeconomistHs outloo on capitalist practice and its social results changesconsiderably.

The *rst thing to go is the traditional conception of the modus operandi ofcompetition. 0conomists are at long last emerging from the stage in whichprice competition was all they saw. ;s soon as quality competition andsales e8ort are admitted into the sacred precincts of theory, the pricevariable is ousted from its dominant position. 3owever, it is stillcompetition within a rigid pattern of invariant conditions, methods of



production and forms of industrial organiation in particular, thatpractically monopolies attention. 1ut in capitalist reality as distinguishedfrom its te#tbook picture, it is not that kind of competition !hich countsbut the competition from the ne! commodity, the ne! technology, thene! source of supply, the ne! type of organi2ation3. " competition !hichcommands a decisive cost or quality advantage and which strikes not

at the margins of the prots and the outputs of existing rms but at their foundations and their very lives. (/?J, p.E$)

Even in the case in which competition is over price, it can be said that lower prices can be

achieved from a position of pure competitiononly when some form of innovation is

present!

Competition, then, may well stand for an alternative way of describing political antagonism: the

problem is, however, that the overall regulation of this competitive antagonism is to

facilitate profit-making, and therefore the owners of capital; and secondly that

competition has the overriding role as a repressive weapon against workersin competition

with one another over employment, wages and working conditions.

Profit-seeking is thesubjective motivation behind innovation; but innovation isthe objective

factor for the existence of profit, for profit-making as a practical activity!Except that, in turn,

the implementation of innovation is impossible without impure or imperfect competition. And

imperfect competition implies necessarily the presence of political antagonism to decide just how

“imperfect” competition will be and to whose “advantage”. In equilibrium theory, although

individual conflict is certainly present because economic agents seek to maximize their “individual

utility” or self-interest, they can do so only through “exchange”, and therefore this “individual

conflict” cannot axiomatically become “political” – again because individual economic agents are

not allowedto combine their self-interests. But this means that “profit-making”, as distinct from

“profit-seeking”, is axiomatically impossible in a Neo-classical economy and that it will be

whittled away to zero in a purely competitive Classical economy! In other words, “pure

competition” is at once inconsistentboth with profit-makingand therefore also with innovation,

unless its definition is extended to cover not just “exchange” but the political antagonism of

imperfect competition as well!

Thus, profit-making and innovation can be implemented only in a state of “imperfect

competition” because a state of perfect competition excludes axiomatically the possibility

of “advantage” that comes from innovation – that is to say, the entrepreneurial

“premium”, Schumpeter’s “profit”, would be neutralized instantly. The entrepreneurial

premium or profit requires this “friction” between the profit-seeking or motive of pure

competition and the profit-making of innovation. This “friction” is what lies between

pure and imperfect competition; it is thebattleground of politics and political institutions.

(Friction or traction, Wittgenstein would say, is what you need to be able to walk on a

perfectly smooth surface. Pure competition is just such a surface: it implies the “static

plane” of profit-seeking, but it cannot provide the “dynamic traction” of profit-making!)

Schumpeter acknowledges the necessity of this political intervention:



The introduction of ne! methods of production and ne! commodities is hardlyconceivable !ith perfect 4 and perfectly prompt 4 competition from thestart. ;nd this means that the bul of what we call economic progress isincompatible with it. ;s a matter of fact, perfect competition is andalways has been temporarily suspended whenever anything newis being introduced – automatically or by measures devised for

the purpose 4 even in otherwise perfectly competitive conditions. (5067,p."=L)

The commonsense of this tool of analysis may be formulated as followsM *rst, ifwe deal with, say, the organism of a dog, the interpretation of what we observedivides readily into two branches. @e may be interested in the processes of lifegoing on in the dog, such as the circulation of the blood, its relation to thedigestive mechanism, and so on. But however completely we master alltheir details and however satisfactorily we succeed in linking them upwith each other this will not help us to describe or understand howsuch things as dogs

Noseph ?chumpeter, %usiness /ycles. ("9#9) K9have come to exist at all . !bviously we have here a di"erent processbefore us involving di"erent facts and concepts such as selection ormutation or generally evolution. n the case of biological organisms nobodytaes o8ense at the distinction. There is nothing arti*cial or unreal about it and itcomes naturally to us< the facts indeed impose it on us.

t is incessant change in the data of the situations, rather than the inadequacyof the data of any given situation, which creates what loos lieindeterminateness of pricing. @e conclude, on the one hand, that we musttae account of this pattern when dealing with the process of change which itis our tas to analye in this boo and which must be e'pected to createprecisely such situations, and, on the other hand, that it does not paraly#e thetendency toward equilibrium [8leichge!ichtstenden2 (%/, p.$#)

There comes a time when even the bourgeoisie must contemplate its own surcease. In this

revealing passage, Schumpeter canvasses with HeideggerianEntschlossenheit (or, as the Freiburg

philosopher would put it, with “resoluteness” in confronting “being-toward-death”) the eventual

demise of capitalism. The very reality of social change and of economic evolution contains the

certainty of capitalistextinction: “The facts indeed impose it on us.” This is a reality that equilibriumanalysis by its very formal character quite simply cannot countenance. There is no “being-toward-

death” in equilibrium, noDa-sein – and no “extinction”. But the important realization in

Schumpeter’s reflection above is not so much this “existential”dread, the fact that formal theory

can never encompass existence (cf. Kierkegaard’s vehement critique of Hegel’s dialectic); it is

rather the fact that equilibrium theory completely neglects the most essential aspect of economics

– the “pro-duction” of goods and services and therefore the “metabolism” of the economic

system with the physical environment of which human beings are part (this is indeed the very



first concern of Schumpeter’s intellectual mentor, Eugen Bohm-Bawerk, at the beginning ofThe

Positive Theory of Capital).

The certainty that equilibrium theory affords lies in the axiomatic determination of prices. Yet,

once we allow the market participants of equilibrium, which as we have shown are merely

mechanical inert bodies, to become political “economic agents”, then the prices of the economicsystem become wholly “indeterminate”, precisely because the system indergoes “incessant

transformation” or mutation. For Schumpeter, the problem with both Classical and Neoclassical

economic theories is that their formalization of the relations between the component parts or

functions of the economy (supply, demand, investment, consumption, interest, monetary mass), is

entirely “static” or “closed” or “self-referential”, and is therefore entirely incapable of accounting

for the equally observable fact of the “dynamic” movement of the capitalist economy, for its

mutation “from one equilibrium to another”, - equilibria that are quite different not only in

quantitative but also inqualitative terms! Capitalist development is not justhorizontal quantitative

growth ordevelopment (Wachstum); it is above allvertical qualitative mutation or evolution

(Entwicklung). Schumpeter’s initial objection to the translation ofEntwicklung with “development”

rather than “evolution” is all here: “development” refers to incremental change; “evolution”points starkly at the possibility of extinction. Of course, the term “evolution” has its own

problems in the sense, first, that capitalism is not a “dog” (however much we Marxists woud like

to think of it as such), in other words it is not an animal species with genes so that the analogy is

very imperfect; and second that “evolution”, as Schumpeter himself pointed out, has a tone of

“complacency” about it. Indeed, it is even possible to challenge the status of equilibrium

economics as “science” given that, to reprise Schumpeter’s metaphor of the “circular flow” or

Kreislauf, equilibrium analysis is just that – mereana-lysis! It is, as it were, a descriptive or “ana-

tomical”schema that can only “photograph” or sketch an economic system and “classify” its

individual organs. It relies exclusively on “pure exchange” and on the maximization of welfare or

utility from the redistribution of “given endowments”. Above all else, because equilibrium is

quite simply a formal descriptiveschema, it exists onlylogically, but it does notec-sist in the sense

that it does not face the certainty of death, in the case of its “individuals”, or the certainty of

“extinction”, in the case of the capitalist economic system. Once the certainty of ontogenetic death

and phylogenetic extinction are taken into account, then we understand that the “individuals”

that make up the economic system must deal with their physical environment, with their physis: –

this is the “metabolism” that is entirely and conceptually absent from the equilibriumschema and

that is instead essential to the notion ofmarket process, that is, to the unfolding or extrinsication of

an economic system in the physical world.

What equilibrium analysis cannot do is understand and explain how the economic system

metabolises, how it interacts with its social, political, and physical environment, how it grows,

mutates, and dies – or, phylogenetically, how it evolves and becomes extinct. Seen from the point

of view of “market process” – which, as we explained earlier, is the quasi-logical or dialectical

conceptual extrinsication or unfolding of the concept of equilibrium, its Heideggerianec-sistence –

seen from this perspective, equilibrium is a purely descriptive or classificatory exercise: it merely

describes the logical and functional relation of each component of an economic system to other

components, and then determines the price matrix that will maximize the individual utility

schedules of its self-interested individuals.



But two essential points must be made and understood: first, the “prices” or exchange rates of

goods at equilibrium are mathematical identities that do not tell us “what” is being exchanged

except for the purely metaphysical notion of “utility”. Theequi-valence of the “exchange” in a

static framework merely destroys or dissolves in theidentity of the objects exchanged, in their

formalequi-valence, theirdifference (cf. Heidegger,Identity and Difference) - in such a way that the

“exchange” is not pro-ductive, it is notmeta-bolic –there is no “change” in this “ex-change”! Eventhen, this “exchange” of “utilities” is quite simply impossible when we consider the “atomicity” of

the “self-interested individuals” of equilibrium theory. For it is quite absurd to imagine that such

absolutely “self-interested” and “in-dividual” entities – Aristotelian entelechies! – could ever be

ableto exchange anything at all! For any “exchange” to be possible or meaningful, there must be a

sub-stance that makes the objects of exchange “equi-valent” – “of thesame value”. But it is precisely

this Objective Value that is utterly absent in equilibrium analysis because of the bottomless “in-

dividuality” and irreconcilable “self-interest” of its market entities, of its “individuals”! The only

“value” present in equilibrium is Subjective Value which, as an inevitable result of its

“subjectivity”, is quite simply “incommensurable”.But every self-interest must share some

common element with other self-interests to give meaning to the conflict of interests (the

difference) that makes exchange possible. Everycom-petition must have an “object” over whichcompetitors “com-pete” (seektogether)! This “object”, thissub-stance orquidditas, thissubject-matter

that forms thecommunion of the exchange(the contractual “meeting of the minds” over an “object”,

itssyn-allagmatic [to bring the different together] orcat-allactic [to turn enemy into friend through

exchange] character) is entirely missing in the theory of equilibrium!

Second, as a corollary of the first point, equilibrium theory allows only for the “exchange” of

goods and services: it tells us nothing about how they are “pro-duced”, that is, it tells us about

the “subjective” estimations by market participants of their goods for exchange with respect to

one another, but tells us nothing about the relation of market participants to their natural

environment. Third, market participants are mereinert bodies that obey the axiomatic conditions

imposed by equilibrium theory: they are certainly not “economic agents” making their ownspontaneous decisions. And finally these economic agents are not allowed to interact with one

another or with their physical environment – an exclusion that automatically removes the

“object”, the subject-matter of economics and eschews politics from the field of economic inquiry

because (a) there is no “object” over which to haggle (there is nodisputandum, nocom-of com-

petition and nocon-of con-flict), and (b) atomic “in-dividuals” cannot form “friends” with whom

to fight “foes” (cf. Carl Schmitt’s definition of the Political inThe Concept of the Political).

In other words,seen from the perspective of the market process, equilibrium (a) is internally

inconsistent because it contains aporetic and antinomic concepts, (b) does not allow for the

ontological and phylogeneticec-sistence of its “individuals” in the sense that their “existence” is

purely logico-mathematical , (c) does not allow for pro-duction, that is, for themetabolic interaction

of human beings (alone or together) with their physical environment, and (d) is entirely devoid of

Politics because of its “individualistic” existential or ontogenetic axioms which exclude

phylogenetic reality. As we have seen, without this metabolic or frictional interaction with

themselves (the Political) and with the world (phylogenesis) – without the physis -, capitalist

competition or enterprise is unthinkable because innovation and profit-making are unimaginable,

and so too therefore is economic “change”. The self-interested individuals that make up the



market mechanism of equilibrium analysis are “inert bodies” that obeymechanically the axiomatic

“pure laws of competition” imposed externally and logico-mathematically on them.

There are two essential aspects tometabolism here that are entirely different from and make it

incompatible with equilibrium analysis. The first is that the economic system is trans-formed

“ from within” by the spontaneous actions of its “economic agents”. And the other aspect is thatthese economic agents transform the economic system not merelyrelatively to one another as

atomistic individuals, that is, considered ontogenetically – as they must do axiomatically in

equilibrium theory which involves only “relative prices” or “exchange rates” and therefore only

“pure exchange” – indeed an exchange so “pure” that it lacks an “object” -; but they also

transform the economic system by interacting (a) with one another as aspects of being human,

that is to say, phylogenetically, and (b) with their physical environment, which includes not just

surrounding nature, but also their own physical being, their physis.

We have therefore two questions: the first is thetranscendental question ofexistence, and the

second is theimmanent question ofmetabolism. The former involves for the study of economics the

ontological question of why is there an economic system at all and not nothing (cf. Heidegger’squestion “why is there something and not nothing at all?” inEinfuhrung in die Metaphysik); and

the latter involves the question of why the economic system is what it actually is now – what is its

material history. These are the crucial questions that Schumpeter attempts to consider and fails

because he limits himself to thetranscendental question but never even remotely tackles the most

important question – the historico-materialist one ofmetabolism.

It is simply irrelevant and incorrect to accuse Schumpeter of failing “to integrate theory and history”.

Given that Schumpeter never even considers the question of immanent metabolism, given that he

considers only the question of transcendental existence – that is to say, the application of an

abstract formal schema to empirical facts -, there was simply no way in which these antithetical

concepts could ever be “integrated”! Such a criticism of Schumpeter is alucus a non lucendo – a fire

that will not light – because of the antithetical terms in which the question is posed by

Schumpeter. And Schumpeter poses the question in these terms precisely because he is

attempting “to make whole” – the literal meaning of “to integrate”! – the social reality of

capitalism that is broken and fragmented! As a result, Schumpeter’s theory must forever oscillate,

like a pendulum, between logico-mathematical formalism constituted by the functional-analytical,

descriptive-anatomicalschema of equilibrium theory, on one side, and the subjective-voluntarist,

ethico-politicalhypostasis of theInnovationsprozess on the other.

To deplore the absence of “reality” in equilibrium theory (vedi Lawson,Economics and Reality) or

Schumpeter’s failureto integrate theory and history (vedi Moura’s homonymous essay) is

to make the biggest error of all! And that is that no economic theory, however

sociologically or historically informed, will be able to reflect the antagonistic “reality” of

capitalismscientifically! No theory -as theory! - will be ableto integrate what is thebroken,

fragmented antagonistic reality of capitalist society! Lawson and Moura have completely

misconstrued the ineluctable ethico-political instrumental purpose of bourgeois

economic theory behind its “scientific mask” – and indeed the instrumental purpose of

any “economic” theory, that is, of any theory that attempts to present as “scientific” what

is necessarily a “partisan” (Schmitt), non-neutral account of social reality! (Cf. Weber’s



Objektivitat for what is decidedly the greatest attempt from a bourgeois social theoretician

to com-prehend these paramount issues.)

Lawson and Moura make precisely this mistake of confusing political antagonismwith “existential

human choice”, which is a purely “individual” category that conceptually obscures the

sphere of politics becausethe Political cannot be reduced to the humanistic abstractions ofindividual existence and free will (not to mention the theological one of “the soul” – cf.

Jaeger’sThe Theology of the Early Greeks). Like Schumpeter, in their attempt to outline and

prescribe a “historically-conscious” or “reflective” economics - they confine themselves to

transcendence – and therefore fail to consider what is the real problem with Schumpeter’s

“pure economic theory of economic change” - namely, the complete neglect ofmetabolism,

that is, of the sphere of pro-duction and of the social and political antagonism that is the

very essence of the capitalistmode of production.

To be sure, Schumpeter’s theory does rest on theineluctability of conflict, theuniversal Eris, not just

in capitalism but in the entirety of existence – that is the entire point of hisDynamik and,

as we are about to see, of his entire “rationalisation” of the scientific need for aStatik! LikeNietzsche, Weber and finally Heidegger, Schumpeter presents and understands social

and political and economic conflict as an absolutely ineliminable reality not only of

human, but indeed of all existence. As we remarked above, there is no “dialecticalspiral”

in Schumpeter and in the entirety of thenegatives Denken from Schopenhauer to Hayek:

there is only the “eristic pendulum” of stark opposition (Gegen-stand) between human self-

interests that are transcendental and ontogenetic (cf. Heidegger’s notion ofDa-sein and

Nietzsche’s notion of “exploitation”) and therefore admit of no immanentistic

phylogenetic and dialectical “reconciliation” (cf. Hegel’s notion ofVersohnung).That is

the whole point to the “methodological individualism” of the Austrian School.

Let us look afresh at the lengthy quotation from Schumpeter’sBusiness Cycles with which we

started this review of histheory of economic development.

&he commonsense of this tool of analysis may be formulated as follows- first, if we deal with, say, the organism of a

dog, the interpretation of what we observe divides readily into two branches. 9e may be interested in the

processes of life going on in the dog, such as the circulation of the blood, its relation to the digestivemechanism, and so on. =ut however completely we master all their details, and however satisfactorily we

succeed in linking them up with each other, this will not help us to describe or understand ho" such things asdogs

8oseph (chumpeter, =usiness 'ycles. 1B6762 56

have come to e*ist at all . '$viously# "e have here a different process $efore us# involving different facts and concepts such as selection or mutation or# generally# evolution& 0n the case of biological organisms nobody takesoffense at the distinction. &here is nothing artificial or unreal about it and it comes naturally to us: the facts

indeed impose it on us.



0t is incessant change in the data of the situations, rather than the inadequacy of the data of any given situation, whichcreates what looks like indeterminateness of pricing. 9e 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 epected to create precisely such situations, and, on the other hand, that it does not paralyze the tendency toward equilibrium *Gleichge"ichtstenden,+1 -usiness Cycles, p.I72

As we can see, Schumpeter discussesin the same breath two matters that he does not link explicitly

but whose link is necessary nonetheless: and the reason that he fails to make this link

explicit is that he does not see that the link is indeednecessary! First, there is the fact that

his shift in approach to economic theory from static analysis (Statik) to dynamic theory

(Dynamik) involves the examination of “the economic system” not as an aggregate ofinert

mechanical bodiesgoverned by pure economic laws that mirror exactly the laws of

mechanics, so that any “change” to that system must be due to “exogenous factors”, but

rather as aliving organism made up ofcomponent members that interactmeta-bolically both

with one another and with their physical environment. But then, again discussed “in the

same breath”, there is the fact that this novel approach of treating the economic system as

a living organism so that there is “incessant change” in economic data means also that

now “prices are indeterminate”, although Schumpeter hastens to add that this “does not

paralyze the tendency to equilibrium”, falling thus into the error that we pointed out

previously, namely, that of treatingDynamik andStatik as a categorical continuum when

he himself admits throughout hisoeuvre that the two processes, evolution and

equilibrium, arecategorically incompatible.

As we saw in an earlier section of this review, the real reason why prices must beindeterminate in

Schumpeter’s novel approach – theDynamik - is not so much that there is “incessant

change” in economic data, as Schumpeter seems to believe, but rather that the economic

system is now seen as aliving organism that interactsmetabolically with its physical

environment- with its “ physis”. Schumpeter does not see that his “economic agents”

(Wirthschafts-subjekte) cannot be treated as “atomistic individuals” because these

presumed “in-dividuals” are now ableto pro-duce, “to innovate”, rather than merelyto

exchange existing “endowments”. In other words, in theDynamik, the individual

component members of the economic system become economicagents ableto initiate

economic activity, that is to say, they can pro-duce new economic resources and needs rather

than merelyexchange existing or “given” economic resources - the “endowments” of

neoclassical equilibrium theory. These presumed “individuals” are now theoretically able

to produce for exchange and to exchange for production, and not simply “to exchange”.

Because of this, it is impossible to attribute a “scientifically objective” or “determinate” or

“absolute” value or price to production because prices regulate thedistribution of the

product and it is quite impossible to attribute both the “ownership” of the product and

the economic claim to the pro-duct on the part of different pro-ducers because pro-duction

involves themetabolic interaction of individual economic agents, singly and collectively,

with their physical environment. And this metabolic interaction is impossible to measure

– to value and to price – because it constantly changes the relations among individual

producers in both a quantitative and a qualitative sense. To repeat, it is impossible to

attribute “ownership” and economic claims by producers to production because

“economic agents” are now considered not merely to exchange existing resources

(endowments) with one another, but instead are also able to producenew resources by



interacting meta-bolically with the physical environment in which “the economic system”

operates.

And they interact metabolically with the physical environment notontogenetically, asatomistic

individuals; instead, they must so interact phylogenetically, as component members of a

living organic community. For it is impossible for an economic system that is a livingorganism to attribute ownership claims to its individual members given that, as aliving

organism, it must interact metabolically with its “physical environment”! Indeed,

although it is tempting to refer to this physical environment as “theexternal physical

environment”, it is quite misleading to do so because there is nothing “external” to a

living organism about the physical environment in which it must metabolize.

This is why prices are indeterminate in this new framework of social analysis: if we treat the

economic system not as a “closed totality” but rather as a living organismmetabolizing

with its physical environment it is quite impossible to calculate at all, through any “price

mechanism”, the contribution of individual members to the production or welfare of the

living organic community.

We can see therefore that by moving away fromStatik toDynamik Schumpeter ought to have

added three new inter-related theoretical components to his analytical framework: the

first is “social labour”, the second is “production”, and the third is “metabolism”. It can

be objected that Schumpeter meant to include all three elements in his overall category of

“innovation”, but we will show presently that although the concept of “innovation”

certainly includes that of “pro-duction”, intended as the making of fresh resources and

needs, Schumpeter fails to theorize “pro-duction” explicitly as “metabolism” or “living

activity”, and the other two elements he either confuses (“individual labours” with

“social labour”) or wholly neglects (metabolism) because of his obsessive focus on “the

economic system” as “totality” and on metabolic production as “individual labour”

rather than “social labour”.

The fact that the economic system is now “transformed from within” by itseconomic agents who are

not subject to inflexible axioms set “ from outside” –, this fact means that the “prices” that obtain in

the economic system must be “indeterminate” for the simple reason that it is impossible to assign a

logico-mathematical or “scientifically absolute” value on theinnovations that transform the

economic system by means of an “objective market mechanism”. To be “objective”, prices and

values in Schumpeter’s “ pure economic theory of economic change” would have to be determined

objectively, from outside -as if the economic system were a “closed system” or “totality”. But this is

precisely what his theory of economic development (Entwicklung) cannot allow because its central

postulate is that any change, mutation, trans-formation or e-volution of the economic system

must beendogenous, must come “ from within” as well as be “incessant”, and therefore the “change”

or “mutation” must be in relation to the “without”, the “physical environment” in which “the

economic system” operates – not as a “closed” system but as a metabolic living organism.

Again, what makes prices and values “indeterminate” is not so much that the economic system is

in a state of “incessant change”, as Schumpeter maintains, but rather it is the fact that this

“incessant change” is the outcome ofdecisions and actions taken by “economicagents” - and not by



the “inert mechanicalbodies” of neoclassical equilibrium theory -in relation to a physical

environment that allows them to produce metabolically fresh resources and needs that constantly transform

the existing relations of production between “economic agents” both individually and collectively. For this

reason, the very notion of “innovation” is simplycategorically incompatiblewith the “objective”

(meaning “internally fixed”) determination ofrelative prices based on Subjective Value that obtains

in Walrasian equilibrium or indeed with the “objective” (meaning “externally fixed”)determination ofabsolute prices prescribed by the Labour Theory of Value of Classical Political

Economy.

Because this “dynamic” economic system is transformed from within by the innovative actions of

what are now properly-called “economic agents” and not by the “inert mechanical bodies” of

“static” Walrasian equilibrium – for this reason, the economic system is no longer one of “pure

exchange” but it becomes instead one in which pro-duction takes place, one in which goods and

services are pro-duced (“brought forth”)metabolically by the interaction of economic agentsnot

only with one another but also with their physical environment. This means that not only are

economic agents interactingindividually with one another and with the physical environment: but

it means also that “the economic system” cannot be examined in its entirety, as a whole, as atotality, precisely because it is interactingmeta-bolically with its physical environment – just like a

living organism. Only when “exchange” involves “pro-duction” can this exchange be more than a

sterile “id-entity” (the same entity); only then can it make a “dif-ference” (a practical,

unquantifiable, qualitative change): only then can there be “change in the ex-change” between

economic agents - precisely because the exchange isun-equal in that its “value” is now

determined notrelatively to its individuals, notsubjectively, butcollectively in metabolic relation

between the economic system as a living organic community and its physical environment.

This means that market exchanges no longer constitute a “zero-sum game” but effectively change

the internal relations of individual participants both quantitatively andqualitatively so that prices

and values are not justindeterminate but in fact aremeaningless in any other than a political sense –in the sense that anyequality orequi-valence can be established only politically, either violently or

legitimately. In other words, unlike theStatik, in theDynamik “pure exchange” is no longer

possible:economic agents exchange to pro-duce and pro-duce to exchange. This means essentially, as we

are about to see, that “pro-duction” is “living activity” or “living labour” and that there can be no

“individual labours” but only “social labour”. Put differently, “labour” is a phylogenetic, not an

ontogenetic category.

Schumpeter’s likening of the economic system to a “dog” in the quotation above reveals most

clearly his mental confusion in this regard: because if the economic system is regarded as a living

organism that, first, interacts metabolically with a physical “medium” in which it can evolve, and

therefore, second, can assess and theorize this “evolution” in relation to some “frame of

reference” that can be “objective” only in the sense of being the result of decisions and actions

taken by the component members of that living organism as an organic community, then it is

obviously quite impossible to assign and attribute precise “values and prices” to the contributions

ofindividual members of that living organism as if these individual members or “economic agents”

wereseparable from the living organism! It is obvious that any such “separation” and assessment



of “individual contributions” can occur only by means ofethical or political standards that the

organic community imposes on itself –but most certainly not by means of an “absolute scientific

standard”.

The fact that Schumpeter sees “the economic system” on one side as aliving organism - as a “dog”

- that must confront its physical environment, and then on the other side as a collection ofatomicindividuals who are able to mutate the economic system “ from within” through their autonomous

“innovations” without interacting as a collectiveliving organism with their (“external”) physical

environment – this fact is the source of all the confusions in which Schumpeter gets mired. On the

one hand, Schumpeter wishes to examine “the economic system” as a “closed totality” whose

component members can be treated as isolated “individuals”; but then, he forgets that this is

impossible without considering how this “totality” or “system” must interactmetabolically with its

physical environment and therefore how it can no longer be treated as a “totality” or “system”

that can be mutated “ from within” by its “individual members” without this “mutation” or

“evolution” having to be assessed not from the viewpoint of “the atomic individual” but

exclusively from the viewpoint of “the living organism”, of the living organic community, by

reference to its physical environment !

The change from anatomistic theory like that of equilibrium in which estimations of value are

entirelyindividual and subjective and therefore can bedescribed – not measured, if by “measure” we

mean anabsolute standard! – and determined tautologically in terms ofrelative prices, to an

organicist theory in which the economic system is “measured” against its physical environment in

terms of a politically agreed and collective standard –, this change in the theoretical framework of

analysis means that now “the economic system” is no longer based oncompetition between atomic

individual members but rather on an organism or better anorganic community (in the case of

animals, a species) that is not a “closed totality “ but is instead aliving organism dealingmeta-

bolically with its “physical environment”!

The point here is that if we start with anatomistic state like equilibrium, then the rules of

exchange must be imposedexogenously whilst at the same time it is impossible to assess the

efficiency of the “economic system” as a whole - as an “economicsystem”, at the “systemic” level,

as atotality, because that “totality” would have to encompass its physical environment and

therefore it could never constitute such a “totality” intended as a closed system whose prices and

values are determined internally or self-referentially. The axiomatic atomicity of equilibrium

theory, by making all values strictlyindividually subjective, forces us to treat the economic system

precisely as such a “closed self-referential system” or “totality” and prevents us from treating it as

a living organism dealing “openly” or metabolically with its physical environment! Yet, if we

assume that “the economic system” is aliving organism, then it will be impossible to determine

individual contributions from its “members” to overall social production or wealth precisely

because there are no “individual contributions” or “individual labours”, whereas in fact we have

social contributions orsocial labour.

@erhaps the greatest mistake that #dam (mith made in his analysis of the division of labour 1and thereforeof production2 in =ook &wo of The .ealth of /ations was to treat this “division of labour as the effect of

echange and not as the cause of echange" #nybody with any spark of historical and anthropological

knowledge and any scintilla of thoughtful reflection will be able to conclude that human beings are able to

echange anything not only because they cannot engage in “individual labours but because they are



physiologically incapable of surviving, like the ro$insonnade in >efoe/s 0o$inson Crusoe, as isolated

“individuals" $uman beings quite simply could not even e*ist as “individuals, let alone be able to

survive, in complete isolation" #ll human labour is “social labour and cannot even be conceived as

“individual labour" =rian %oasby has reminded us that “echange is a matter of life and death, withoutfor that matter being able to perceive the inevitably phylogenetic nature of human labour. =ut this notion of

the indispensability of the division of social labour – and therefore of “echange" – is a conclusive

counter4argument to the $obbesian notion of “the state of nature – on which ?eoclassical equilibrium

theory is based 4 as a system made up of atomistic self4interested individuals.

Atomistic theorycan determine only “relativeexchanges” whereasorganicist theory can assess only

“communal goals”: the two “systems” are simply incomparable and incommensurable because

the first can be viewed as a “totality” because its “individuals” are mechanically inert bodies,

whereas the second is in constant “becoming” and the decisions and actions of its “individual

members” cannot be assessed “individually”. Neither theory can ever devise an Objective Value

for the simple reason that living activity – whether human or otherwise - cannot bemeasured in

terms of astandard of value that is “external” to that activity or “absolute”! For human

communities, any such “standard of value” can be applied only as the result of political

domination by some social agents over others or else by political consent – but never

“objectively” in terms of an absolute standard!

Once again, the central point that we are making here is that, once we consider human society

from anorganicist rather than anatomistic viewpoint, “economics” as a sphere of social analysis

separate from “ politics” becomes quite simply im-possible because the partiality of all “economic”

concepts, the im-possibility of reducing human activity to “purely economic” categories, implies

their “dissolution” in any “scientific” sense. It was this socio-political “separation” (Trennung) of

human society betweeneconomy and politics, between private property and political institutions,

betweenbourgeois andcitizen, betweencivil society and political State that was the ultimate

theoretical concern of the rationalist philosophers from Rousseau and Hegel to Marx. And it was

the assertion of the ultimate im-possibility of over-coming and super-seding this “separation”

(Trennung) – in fact, the impossibility of any “social synthesis” both at theeconomic level, between

economic agent and product, and at thesociological level, between private (property) and public

(political) spheres – that is the central and essential feature of thenegatives Denken from

Schopenhauer to Nietzsche and Weber, to the Austrian School and Heidegger.

Indeed, it is this very “separation” (Trennung)extended to the individual level of any “economic

agent” – be it a worker or entrepreneur - from (a) the immanently “social” nature of production in

a phylogenetic and physio-logical sense (not the division of “labour”, which is an empty

abstraction, but the division ofsocial labour which bourgeois economic theory reduces to

“individual labours”), (b) the means of production, and (c) the pro-duct - that constitutes themost indispensable foundation of thenegatives Denken at theeconomic level as a reaction to Hegel’s

dialectic of “self-consciousness” first expounded in thePhenomenologie des Geistes and later

elaborated in Marx’s critique of political economy. As Weber makes clear from the very opening

ofParlament und Regierung, the matter of “ownership” is always and everywhere one of sheer

violence: it is the overlord who enforces the separation of the peasant from the land, of the artisan

from the tools – and indeed of the soldier from the weapons. – And therefore also from the “pro-

duct” of their activities. Schumpeter himself draws the essential distinction between “directing”



and “directed” labour in the opening chapter of theTheorie in a manner that clearly indicates the

lack of con-nection between worker and pro-duct. The simple fact that the claim by the

Entrepreneur to the “profit” generated from “innovation” can only be “legal” means immediately

that this claim will be disputed and will be the subject ofconflict – and that indeed even the

adoption of innovations will give rise to social conflict.

The insuperable contradiction of Neoclassical Theory and of the Austrian School is that they

firmly espouse thenegatives Denken with regard to this “separation” – theTrennung - at the

individual and at the social level, and yet they claim to be able to establish ascientific

economic link between producers on one side and theirclaims to the distribution of the

product on the other side!

Economics as Metabolic Interaction

The novelmetabolic framework of social analysis that we are outlining here allows the assessment

of the capitalist mode of production not from the theoretically meaningless viewpoint of

“economic science” – which, as we have demonstrated, is an absurdity – but from a materialist

andimmanentist standpoint which is conscious of its political foundations without, in its turn,

reducing the Political to its humanist and phenomenological – that is to say, to itstranscendentalist

distortion. Because Schumpeter shares the atomicism ormethodological individualism of

Neoclassical Political Economy which seeks to determine “welfare” purely in terms of “individual

contributions”, then it is obvious that he must cling desperately to the equilibrium model to

maintain theoretical – what he calls “scientific” – consistency for his “economic analysis”.

Schumpeter fails to see, however, that the very fact that we have an “option” as to whether we

choose theatomistic or theorganicist framework of politico-economic analysis can mean only onething: - and that is that the “choice” of theoretical frame-work can only beethico-political and

never “scientific” in an absolute or “objective” sense!

&his is a point that Ma 9eber perceived and eamined far more acutely and assiduously than (chumpeterever did. =ut 9eber committed the mistake of believing that once a “goal 1 1"ec! 2 was selected according

to a “value 1.ert 2, then the “means of achieving that goal 1 1"ec!2rationalitat 2 could be prescribed and

determined “scientifically. &his then became the basis of “the science of choice that $ayek and obbins

theorized for @olitical )conomy. 9hat none of these theoreticians perceived is that the very selection of the“means for achieving a goal is also an ethico4political question – and this is a realization that quite clearly

undermines the entire notion of “scientific rationality. &he end does not !ustify the means. 1'f. %eo

(trauss/s biting critique of 9eber in /atural 0ight and )istory.2

The aim of the above elucidation is simply to illustrate the absurdity on the part of Schumpeter of

adopting the “methodological individualism” of the Austrian School – that is, the approach

whereby all social concepts must be derived from individual actions in pursuit of subjective

individual interests – in the context of his proposeddynamisch analysis of capitalist economic

Entwicklung. The untenability – the absurdity – of this theoretical position becomes starkly

evident once Schumpeter endeavours to shift (and this is a mark of his intellectual honesty) his

analytical frame-work from theStatik to theDynamik. Let us see how.



In the previous sections we established what is the main thrust of our thesis to this point, namely,

that Schumpeter is quite aware of the conceptual inconsistency of the “distinct processes”

ofStatik andDynamik, but he must continue with his theory ofEntwicklung as if they

could be combined, as if they were “distinct processes” of a single “mechanism or process

of economic change”(Veranderungsmechanismus) – because otherwise, without the assistanceofStatik analysis, he could not present theDynamik as a “ pure economic theory of economic

change” as a consequence of the “indeterminateness of pricing”. As the following extract

shows, despite being aware that the logico-mathematical framework of equilibrium

analysis is wholly inapplicable to hisDynamik, from beginning to end Schumpeter always

held fast to the “centrality of the problem of equilibrium…. as the foundation to the claim of

economics to be a science”, for the almost exclusive reason that it is the only means of

lending “exactitude” to economic analysis:

ast mJchte ich sagen, dass die konkreten esultate fKr meinen Lweck von nur sekundrer =edeutung sind.

8edenfalls strebe ich, wie gesagt, nicht systematische <ollstndigkeit an. ;ur eine verhltnismNig kleine

Lahl von grundlegenden (tzen soll vorgefKhrt werden. 0m Lentrum steht das Gleichge"ichtspro$lem,

dessen =edeutung vom (tandpunkte praktischer #nwendungen der &heorie nur gering, das aber fundamental f3r die .issenschaft ist . 0n >eutschland ist ihm nicht hinlngliche =eachtung geschenkt

worden und es ist von 9ichtigkeit hervorzuheben, daN es die -asis unseres exakten Systemes ist . >ie

&ausch4, @reis4und Geldtheorie und deren wichtigste #nwendung, die e*a!te 4erteilungstheorie, basierendarauf und ihnen ist der grJNte &eil der folgenden #usfKhrungen gewidmet. >iese >inge bilden !enen &eil

der ?ationalJkonomie, der fKr e*a!te -ehandlung reif und dem eine solche bisher zuteil geworden ist.

Meine >arstellung beruht auf der fundamentalen (cheidung zwischen O(tatikP und O>ynamikP der

<olkswirtschaft, ein @unkt, dessen =edeutung nicht genug betont werden kann. Die Methoden der reinen5!onomie reichen vorl6ufig nur f3r die erstere aus# und nur f3r die erstere gelten ihre "ichtigsten

0esultate& Die 7Dynami!8 ist in 9eder -e,iehung et"as von der 7Stati!8 v:llig verschiedenes# methodische$enso "ie inhaltlich& GewiN ist !ene (cheidung nicht neu. 1 Das .esen, <orwort.2

The methods of pure economics, claims Schumpeter, apply most fully and yield their best and

most important results only forStatik analysis; they are separate in “nature and content”from those ofDynamik analysis. Nevertheless, he does not see the necessity of discarding

the “pure laws of economics” on what would be the very valid and incontrovertible

ground that if such “laws” are in conflict with the theoretical necessity for any valid

economic theory to be able to comprehend “economic change”, then those “pure laws of

economics” must be completely spurious! Instead, Schumpeter is quite happy to go along

with the pretence thatStatik andDynamik can co-exist.

We will examine closely the methodological and ultimately political reasons – or prejudices, if

you like – behind Schumpeter’s atavistic attachment to Walrasian equilibrium in a later

section. Yet we may claim to have demonstrated already why in reality economics can be

said to be “scientific”only to the extent that it acknowledges itsethico-political origins – because otherwise it degenerates into the logico-mathematical tautology of Walrasian

equilibrium or else, in the case in which theethico-political element becomes absolute and

millenarian, into a prophetic teleology or, to be more precise, either into a conceptual

hypostasis or else into an eschatology. To repeat: despite the fact that Schumpeter clearly

perceives by this stage of his analysis the untenable status of the conceptual elements he

has adopted – most importantly, the conceptual inconsistency ofStatik andDynamik -, he

is nevertheless unwilling to jettison the deterministic framework of neoclassical



equilibrium theory.Conversely put, despite his staunch reluctance to acknowledge his

departure from the “scientific” logico-mathematical mechanical paradigm of Neoclassical

and Walrasian equilibrium analysis, what Schumpeter has clearly introduced with his

Dynamik is precisely thisethico-political dimension in economic theory that effectively

transforms (to invert Lenin’s most incorrect dictum)economics into a specificconcentrate of

politics. But we ought to point out at this juncture that by “politics” we do not mean awholly “ideological” or purely “ethical” sphere. Economics is a concentrate of politics

only if by “economics” we mean “the theory” of social relations of production. But the

actual real relations of production are “political” also in a “physio-logical”, and not just

an ideo-logical, sense.

The crucial point that was absolutely essential to Schumpeter’s reasoning behind the need for a

Dynamik to correct the unreality of theStatik was that the latter artificially separated “the

economic system” as a collection of atomistic individuals co-ordinated externally like

inert bodies under the laws of mechanics from other spheres of social life. Therefore, the

Statik treated the economic system as an independent “totality”, as a “closed system”,

with its own mechanical or “scientific” logico-mathematical operation. Paradoxically, byseeking to demonstrate that the sphere of “pure economic theory” can also produce

endogenously “innovations” that have far-reaching consequences for other spheres of

social life – principally science and technology -, Schumpeter was already pointing to the

fact that this “separation” of “the social process” was entirely artificial and that, as he

himself comprehensively put it, “the social process is really one indivisible whole”.

Yet in this formulation lay hidden a fallacy that Schumpeter most certainly committed. What

Schumpeter meant to do with theDynamik was to theorize an “economic system” that

could mutate “ from within”, through the “innovative” decisions and actions of true

“economic agents”. Yet we have shown that his theory of economic development refers to

economic agents as atomistic individuals operating within an “economic system” that is

seen as a “totality”, that is, without reference to the physical environment with which this

presumed “system” or “totality” must metabolize and therefore cannot remain as a

“closed system” or “totality”! Quite evidently, Schumpeter neglected this essential fact –

though admittedly a difficult one to theorize - in his transition fromStatik toDynamik: to

the extent that the members of aliving organic community can influence or mutate its

metabolic interaction with its physical environment, to that extent the decisions and

actions of the members of such a living organism cannot be theorized as “individual

decisions and actions” that can be “measured” by any “scientific” or “objective” absolute

standard as if such a living organism could be analyzed or theorized as a “closed system”

or in its “totality”.

Schumpeter’sDynamik, as we have shown, can be theorised only in anorganicist framework and

not in anatomistic one – because there can be no “Dynamik”, no mutation or evolution, no

meta-morphosis, in an economic system whose “science” can determine only “relative

values” between its “individual” components.Evolution in the Schumpeterian sense of

Entwicklung can be understood and have meaning only from the standpoint of aliving

organic community for the simple reason that themutation of the economic system can be



judged as such – as a “mutation”, as a “meta-morphosis” – only with regard to a pro-

ductive frame of reference – only as “meta-bolism” – and not as a “system” or a “totality”

whose internal values and prices can be determined objectively (in an absolute

“scientific” sense) - not as “stasis”, as is the case for equilibrium theory and indeed also

for Classical Political Economy. The organic community can be trans-formed “ from

within” by its economic agents, but thistrans-formation can becom-prehended only withregard to pro-duction, that is, only with regard to how this living organismmetabolizes

with its physical environment of which it is anunseverable and indissoluble part.

This is a realisation of the highest importance for social theory and for our critique of

bourgeois economic theory, - and the reason why we are insisting on this point to

lengths that may seem extreme to some. In the specific case concerning Schumpeter’s

Theory of Economic Development , this point is absolutely vital because it constitutes

the central and fatal plank of our critique of his entire theoretical framework. What we

are saying here is that economic relations cannot be regarded as pure relations of

“exchange between individuals” – whether this be exchange of goods, of plans, or of

ideas -, butare and must be theorised as

social relations of pro-duction

. They must

include the immanently physio-logical reality of human living activity.

What this means is that what is most important in social life is not so much how “the product”

isdistributed between individuals and classes. By far more important instead is

preciselywhat is produced andhow it is produced! Human reality must be theorised

by taking into account not merely the “inter-personal” or psychological relations

between individuals or classes, but above all by considering how human beings

satisfy and produce their needs by interacting metabolically with their environment.

The question of “ physis”, (what Heidegger called “the question of the thing” –die

Frage nach dem Ding) is vital to a truly revolutionary praxis because the critique of

capitalism must invest more than just the “unequal distribution of the product”:it

must be concerned above all with what the product is and how it is produced!

Once again, this is so becausehuman being taken phylogenetically cannot be “separated” from

its physical environment. Human praxis must not be “reified” into “subjective”

concepts that hypostatise it into hieroglyphic “values”: it must be regarded as “living

activity”. Without the essential “metabolic interaction” of human beings not just with

one another but with their physical environment economic relations would boil down

to mere exchange, to mere inter-personal relations that concern psychology and ethics

rather than the production and satisfaction of human needs. We would be bound to

the sphere of the KantianSollen (‘Ought’) which is antinomically separated from the

sphere of theSein (‘Is’) precisely because human being is regarded contemplatively,

philosophisch - transcendentally rather than immanently. This is the interpretative key

to ourimmanentist approach to social theory and praxis as against the

transcendentalism of bourgeois economic theory.

As we are about to demonstrate, Schumpeter’s conception of theInnovationsprozess as the

“transformation mechanism” of the capitalist economy is entirely one-sided because, for

one, it attributes the transformation of the capitalist economy to the “innovative” or



“creatively destructive” initiative andIndividualitat – the “Spirit”! – of the Enterpreneur

and leaves to one side the political antagonism thatinduces capitalist innovation and is

contained by andin it! (On the concept of the State as “containing” [to catechon]

antagonism, cf. Cacciari,Il Potere che Frena.) And for another because once we accept that

capitalism amounts to a process of “creative destruction” due to the “innovative or

creative individuality” of entrepreneurs, then there is simply no way how this oppressiveeconomic system can ever be destroyed - “creatively” or not! – and be replaced with a

superior system of production and satisfaction of human needs.

Within these premises, because Schumpeter treats the organic community as atotality that can

evolve endogenously but then fails to consider its metabolic change, he ends up with a

framework of economic analysis in which there is conflict between the individual

components of the economic system but there can be no “resolution” or “supersession”

of this conflict. There is a pendulum in and out of equilibrium, but no dialecticalspiral! In

Schumpeter’sEntwurf, there is conflict and opposition between the individual members

of the organic community – and this conflict “drives” the economic system out of its“stasis” and on to a new equilibrium. But there is no supersession of this pendular

movement between the “static poles” of equilibrium and evolution, competition and

adaptation,Statik andDynamik, innovation and conservation, entrepreneur and capitalist,

profit and interest. The conflict is never capable of resolution,it can never be overcome

because “economic activity” is defined as an ineluctable “psychological” conflict pitting

atomistic individual against atomistic individual and oscillating between the polar

opposites. Clearly, here it is not “the facts” that inform the theory but the theory that jams

the facts into the straitjackets of antithetical concepts. And therefore Schumpeter’s

“economic system” or “social process” can never be examined as aliving organic

community; it can never escape the “gravitational centre” of static equilibrium which

then sets the “asymptotic limits” of the theoretical analysis. Equilibrium becomes a

negative utopia that can never be allowed to be reached on pain of bringing society to a

complete standstill, to total paralysis, to stasis; and yet it is anecessary “tool of analysis”

for the ideological transfiguration of the bestial reality of capitalist exploitation into an

“empyrean” of “pure competition” and “welfare maximisation” or “Pareto optimality”.

Documents

Schumpeterbuch 1 - by Joseph Belbruno