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Profit And Innovation

Innovation is the objective procedure or entrepreneurial Act that causes the economic system to
be jolted out of its equilibrium position and thereby makes proft economically possible.
Sweezy does not capture this disturbing act because he understands competition in a
formal sense but not in its objective implications. Formally, competition between
capitalists need not result in innovation it could be just expanded reproduction (the
mechanical reinvestment of profts) or price and other forms of competition that lead to
the evaporation of profts: Innovation is a separate action requiring leadership. Sweezy
does not capture this political aspect of Schumpeters theory and relies instead on
Marxs utilitarian automatism in that surplus value is automatically reinvested in
Marxs schema of expanded reproduction as a result of its being a quantity, that is, the
amount of socially necessary labour over and above what is needed to reproduce the
labour force! Surplus value is theft of labour time which is why there is no need for
innovation!
Surely, nothing can be more plain than the proposition that innovation, as
conceived by us, is at the center of practically all the phenomena,
difculties, and problems of economic life in capitalist society and that
they, as well as the extreme sensitiveness of capitalism to disturbance,
would be absent if productive resources fowed every year through
substantially the same channels toward substantially the same goals, or
were prevented from doing so only by external infuences, [Business
Cycles, p.!"
The non sequitur in Schumpeters proposition above could indeed not be more plain: for, as he
himself contends in this same work, the primary motivation for innovation is proft:
Motivation [for innovation" is supplied by the prospect of proft in our sense
which does not, be it remembered, presuppose either an actual or an
expected rise in prices and expenditure,# [BC $!!".%
It ought to follow therefore that proft is the reason for innovation and is also thereby at the
center of practically all the phenomena, difculties, and problems of economic life in capitalist
society. Schumpeters attempt to theorise the Innovationsprozess by isolating the role of
entrepreneurial innovation, whose motivation is to realize proft, from that of capitalist
fnance, whose aim is to collect interest and rent, appears at frst to be entirely artifcial
because the functions of capital in seeking either proft or interest and rent are really
moments of the one process, which is that of proftable investment, for the simple reason
that interest and rent are paid out of profts (!) and cannot therefore be distinguished except
as diferent tactical moments of the overall capitalist goal of accumulation.
Yet it is precisely this tactical distinction between what appear to be relatively insignifcant
moments of the operation of the capitalist economy that is absolutely crucial to
understanding and appreciating the overriding importance of Schumpeters contribution
not just to economic theory but indeed to social theory something that his critics have
strenuously denied, preferring to concentrate instead on his apparent failure to integrate
theory and history, economics and sociology. That this crucial juncture of the moments of
capitalist investment, innovation as distinct from proft, proft as distinct from interest
and rent, enterprise as distinct from fnance that this essential chasm at the heart of
capitalism was absolutely paramount to Schumpeter can be gleaned from his elaboration
of his thesis:

But in the sphere of business, innovation is the pillar of interest, both
because the pro&t it yields to the successful entrepreneur is the typical reason for
a readiness to pay interest'for loo(ing upon present dollars as a means of
getting more dollars in the future'and because, as we have seen, borrowing is,
in the situation of an entrepreneur, the typical means of getting those present
dollars, )BC $*+%.
Even a child would know that what Schumpeter surely ought to have said is that it is proft, not
innovation (!), that is the pillar of interest, - because proft is what must be realized by a
capitalist borrower before interest can be paid to the lender! From the standpoint of either
Classical or Neo-classical economic theory, it would seem that, had Schumpeter written instead
that innovation is the pillar of proft, he would quickly have noticed his error because the
purpose of the innovator is to pursue proft even before an innovation comes into existence. In the
economic sphere (rather than, say, in the artistic one), innovation is only a means to an end
proft; it is not an end in itself. As such, innovation can only play an instrumental role in a
capitalist economy that cannot yield it the aetiological, causational and motivational role that
Schumpeter seeks to assign to it. Therefore the functions of the entrepreneur and of the capitalist cannot
be distinct as Schumpeter contends.
,his critical point was perspicuously articulated by one of Schumpeter-s most genial pupils,
.aul Swee/y, in his The Present As History. Swee/y correctly focuses on the problem of
pro&t and accumulation as motivations for the innovation process which we will
examine in greater detail toward the end of this essay. 0f there is one thing that must
be said about 1arx-s criti2ue of capitalism with complete certainty is that capitalists
must innovate methods of production to reduce wage costs because of wor(ers-
antagonism over the wage relation. 0t is therefore 2uite ludicrous for Schumpeter to
insist as he did on this point to di3erentiate his theory from 4 and indeed even to claim
to surpass 4 that of 1arx5 But Swee/y-s failure to challenge Schumpeter-s antinomies
between entrepreneurial sub6ectivity in the innovative pursuit of pro&t and the
7scienti&c# status of this pursuit 8 and therefore of capitalist accumulation 4 only
serves to expose the limitations of his own 7underconsumptionist# approach based on
the spurious scientistic foundations of the 1arxian labour theory of value which
ultimately relies on a quantifable notion of 7surplus value#.
It is clear here that the essence of Schumpeters hypothesis is what all bourgeois economic
analysis before him and ever since has failed to grasp. What Schumpeter is concentrating on here
is not the quantum of wealth or proft that may well be the ultimate aim of capitalist
enterprise: No! What Schumpeter is doing is shift the focus of his theorization of capitalism from
the utilitarian/hedonistic ultimate ends, from the gain or proft, to the very essence of
proft and competition, to their procedural or operational implementation that overfows
unavoidably into the political sphere, turning therefore from mere proft or ownership or
welfare into social power! In other words, it is impossible to account for innovation without
introducing politics or imperfect competition in the concept of pure competition itself as a
necessary or logical aspect of its ec-sistence!
True it is, Schumpeter is saying, that everyone in society, capitalist or worker, aims at increasing
wealth in the form of greater ownership of material possessions, be this in the form of proft or
interest or rent. And true it is that throughout history this would involve some form of
competition between economic agents. But the cardinal point about the capitalist economy and
society is that market competition has replaced or subsumed to itself all other forms of social
power without, for that fact, subtracting itself from social power. In other words, competition as
an operational or procedural reality in capitalism must go beyond the confnes of its hedonistic or
utilitarian content and pro-duce (literally, bring forth) and invest the political institutions that can
keep it alive! And this runs contrary to the Classical and Neoclassical approaches to economic
theory founded respectively on capitalist accumulation and on equilibrium welfare
maximization, both of which treat economic activity as pure market exchange. (In Classical
Political Economy, living labour is seen as a commodity like any other, available for exchange
with the wage being its market price.)
There are two aspects to the notion of proft that need examination, then. The frst aspect of proft
is that it leads to greater utility or welfare and this can arise from pure exchange in conditions of
pure competition albeit only temporarily or provisionally. An economic theory that focuses
merely on this utilitarian/hedonistic aspect of proft will not include innovation in its account of
proftable economic activity, frst because proft-seeking is more consistent with the goal of
consumption than with investment as an end in itself; and second because proft can be defned
as the gain derived from exchange independently of production or else as arising from a given
production function, as in Marxs schema of expanded reproduction where surplus value is re-
invested automatically. The other aspect of proft is that the implementation of means to it, the
proft-making side of proft, requires the breach of conditions of perfect competition, because
where competition is perfect it will be impossible to make a proft except through exchange,
therefore only in provisional and temporary form as part of the adjustment necessary for
equilibrium prices to be determined, as in Walrasian tatonnement, but not indefnitely as required
by the notion and reality of capitalist accumulation.
9et us visuali/e an entrepreneur who, in a perfect competitive society,
carries out an innovation which consists in producing a commodity already in
common use at a total cost per unit lower than that of any existing &rm because
his new method uses a smaller amount of some or all factors per unit of product.
0n this case, he will buy the producers: goods he needs at the prevailing prices
which are ad6usted to the conditions under which ;old; &rms wor(, and he will sell
his product at the prevailing price ad6usted to the costs of those ;old; &rms. It
follows that his receipts will exceed his costs. The dierence we shall call
!ntrepreneurs" Proft# or simply Proft. It is the premium put upon successful
innovation in capitalist society and is temporary by nature$ it will vanish in the
subsequent process of competition and adaptation. ,here is no tendency
toward e2uali/ation of these temporary premia. <lthough we have thus deduced
pro&t only for one particular case of innovation and only for conditions of perfect
competition, the argument can readily be extended to cover all other cases and
conditions. )%usiness &ycles, [$=!=" p.$>?%
The entrepreneur is the subjective factor that can switch on the
mechanism of pure equilibrium theory he is the impure external
force (Bobbio, Da obbes, circa p!"#$ that %ives content or soul to
the pure internal form (&ant, 'immel$! The 'chumpeterian
entrepreneur is li(e a sculptor that wor(s the brute inert matter of a
stone an) by so )oin% brin%s it to life!
Marx never pursued this logico-theoretical line of inquiry, preferring instead to pursue the purely
historical path of political antagonism. Indeed, the reason why Schumpeter stressed (with the
intellectual decency that characterized him) the unique unity of economic and sociological
analysis in Marxs critique of economic theory was precisely the fact that Marxs defnition of
political antagonism contained already or pre-supposed the convergence of human interests that
would lead to its supersession! No such utilitarian/hedonistic convergence (recall Marxs
doctoral thesis on Epicurus) is possible in the negatives Denken to which Schumpeter belonged
and that runs from Hobbes to Hayek going through Schopenhauer, Nietzsche, Weber, Heidegger
and the Austrian School!
The point to stress is that although Schumpeters thesis is certainly encompassed by Marxs
theory of political antagonism of the wage relation, Schumpeters originality lies in deriving or
inferring this conclusion from the very axiomatic conditions of pure competition in both
Classical and Neoclassical economic theory something that even Marx failed to do given that (a)
he did not question or examine internally the concept of competition itself, (b) he probably
entertained the thought of both competition and equilibrium as internally consistent and valid
concepts, and (c) he always strenuously upheld the notion of objective science if not technology
as separate from or exogenous to capitalist social relations of production, at least
epistemologically. Schumpeter - difcile dictu! - actually challenges all these points from within the
bourgeois standpoint by making explicit both the instrumentality of his science and of its
apories.
Schumpeters distinction between innovation and proft as distinct from mere interest and rent,
between entrepreneur and capitalist, between leadership and ownership, is valid only for
economic theories that do not allow for political antagonism and also for theories like the
Marxian that, although they allow for antagonism, do not address it explicitly as a necessary
requirement of the ec-sistence of the concept of pure competition. Schumpeters advance on Marx
is to show the logical necessity of innovation out of the proft-seeking assumptions of pure
competition! Marx certainly failed to notice and to enucleate this essential theoretical point.
0t is lea)ership rather than ownership that matters. ,he failure to see this and,
as a conse2uence, to visuali/e clearly entrepreneurial activity as a distinct
function sui 'eneris is the common fault of both the economic and the
sociological analysis of both the classics and of @arl 1arx, )BC, pp.$>*.%
Schumpeter writes [in History of Economic Analysis] also that [for Marx,] accumulated capital
invests itself in a wholly automatic manner. As we saw in the note above, Schumpeter is quite
simply as wrong on Marx on this point as is humanly possible to be. Hollander and Sweezy
rightly dispute Schumpeters view too, but on totally spurious grounds. Of course, if we defne
capital as a quantity, a surplus, as does Sweezy [cf. his The Theory of Capitalist Development],
then the generation and reinvestment of this surplus and proft becomes wholly automatic for
capital even though the ultimate motivation for seeking this surplus may be social power, as
Sweezy allows. What we are showing here is that capital, and therefore value, as Marx amply
demonstrated, is not a quantity but a social relation, which requires innovation, and therefore
entrepreneurial capitalists, for capitalist social relations of production to be kept antagonistically
alive. To the extent that Marx believed that [a] surplus value is a quantity and therefore
innovation is about the relative share of production going to capitalists and workers and [b] that
science and technology are exogenous to capitalist relations of production, and insofar as Marx
did not derive the necessity of innovation and leadership from a conceptual critique of the notion
of pure market competition, then Schumpeters charge is quite founded.
Blaug echoes Schumpeter on this criticism of 1arx. Both are 2uoted in A. Bollander, The
!conomics of (arl Marx at p.?$>. Bollander concentrates instead on 1arx-s allowance for
7uncertainty# for the necessity of leadership in deciding the direction of investment at least in
the early stages of capitalism [pp.?$>3". Both Bollander and Blaug, however, completely miss
the point that we are ma(ing hereC 0t is not 7uncertainty# that engenders 7leadership#D it is
confict as political antagonism 8 among capitalists, for Schumpeter, and between capitalists
and wor(ers for 1arx. But antagonism here does not mean, as it does even for Swee/y, confict
over 7the surplus# or 7surplus value#D it is not a struggle over quantum because value in
capitalism is not a 2uantity and only its monetary form, pro&t, is 2uanti&able5 Blaug upbraids
1arx for overloo(ing Schumpeter-s pioneering distinction which, for him, explains the
7technical dynamism of capitalism#. Bere Blaug has truly put the cart before the horse and
then got himself into the most vicious of vicious circlesC the entrepreneur is defned as 7the
agent of technically dynamic economic change#D er'o, capitalist technical dynamism cannot be
explained unless there is an entrepreneur5 But if the entrepreneur is an agent sui 'eneris, in
what historically and conceptually speci&c way must he be connected with capitalismE Fhy not
have 7feudal entrepreneurs# insteadE
Of course, because leadership and ownership are diferent moments of capitalist industry, we should
speak not of entrepreneurs and capitalists as does Schumpeter, but rather of capitalist
entrepreneurs and capitalist fnanciers. The fact remains that capitalist fnanciers only entrust
capital with capitalist entrepreneurs if the latter have skin in the game. In some ways, capitalist
entrepreneurs bear far greater personal risks than do capitalist fnanciers who are able to
socialize their losses. Consequently, risk or uncertainty cannot be the true source and rationale
of Schumpeters distinction, regardless of what he claims [at pp.103-4 of BC, just after the passage
quoted above].
Schumpeters entire oeuvre is punctuated and bedeviled with many contradictions and non
sequiturs. At times, reading his works, one is reminded of the zany concoctions in Vilfredo
Paretos Trattato di Sociologia. (Schumpeters manifest elitarian views by which I mean not
necessarily politically elitist but sociologically highlighting the prominent role of elites in
society are quite cognate to the views of Mosca and Pareto, a close collaborator of
Walras, and then Michels and Weber in the frst postwar period. Schumpeter dedicated a
study to Pareto in his Ten Great Economists.) Yet, as Bobbio has shown (On Mosca and
Pareto), the geniality, breadth and sheer intrepidity with which these great thinkers
explore their themes can bear copious fruit if we resist the temptation to dismiss them as
nonsense.
C. The Con-fusion of Equilibrium and Development-as-crisis (Entwicklung)
The ravages of the Great Crisis of 1905 could not but convince Schumpeter of the need to
rebalance the theoretical formalism of Neoclassical Theory founded on the positivist empirical
observation of market exchange, with the equally empirical observation of business cycles and the
spasmodic operation of the capitalist economy from crisis to crisis. (We will tackle Machism soon
in a new study.) Contrary to the neoclassical Walrasian axiomatic framework of general economic
equilibrium, our actual experience is that the capitalist economy is rarely in such a blissful state.
Schumpeter notes that what we witness in capitalist history are rather phenomena associated
with dis-equilibria: the capitalist economy is in a constant state of evolution (Entwicklung)
which entails not just growth but above all trans-formation, not just mutation but also crisis!
The instructive fact in Schumpeters attempt to place the Innovationsprozess at the centre of
capitalist evolution (Entwicklung) is that this process comes between the capitalist
Entrepreneur, on one side, and the ultimate goal of every capitalist proftability (that is,
not the mass of proft itself, but the rate of proft obtained on the capital invested). In
their rush to criticize and split hairs, critics of Schumpeters theory of innovation have
forgotten this cardinal point which is that Schumpeter places at the very centre and core
of capitalism this notion of innovation which he defnes as a force and a source of
energy that distinguishes this economic system from all others.
We certainly agree with Schumpeter on this, and here we wish to focus on his theory of
innovation as the most important illustration of his approach to economic science
which combines simultaneously methodological and sociological aspects. The fact that
Schumpeter sought to keep these aspects of economic science as distinct as possible is not
and could not be a contradiction or a failure on his part for the simple reason that he was
aware of this apparent inconsistency and yet insisted on maintaining this dual or two-
pronged approach to economic theory. Our aim here is to show the real practical reasons
for this approach and his insistence on maintaining it.
The most important corollary of this Schumpeterian and Weberian advance on all previous social
theory since Marxs Grundrisse is that these great social theoreticians come to understand
what are known as science and technology not as neutral human activities, but much
rather as human practices that are capable of becoming, and indeed have already been,
subsumed to the capitalist mode of production. Of course, they do this in the footsteps of
Nietzsche, although Nietzsche went much further than Schumpeter or Weber or indeed
Marx by insisting on the fact that science itself is a human practice even in its epistemological
essence! Nietzsche efectively challenged and overturned our notion of Truth in all its
conventional aspects. As is widely known, what Schumpeter admired most in the work of
Karl Marx was precisely this unifcation or integration of formal economic theory
and substantive historic content.
[Colletti]
Karl Marx described the entire circuit of capitalist production as follows: - M.P.M. In other
words, between the initial outlay of capital (M) and its realization as proft (M) lies P, the
process of valourisation of capital or production. Put more specifcally, the circuit becomes
M-C.P.C-M. This means that the capitalist frst purchases the commodities needed
for production (C), which include the commodity labour-power and the means of
production; then he puts these two commodities together in the production process (P),
which yields a new product (C), which fnally the capitalist sells for an amount superior
to the initial outlay of money (M) this is the realization of capital, from which he derives
a proft (M M = p). Nothing could be simpler.
What we need to examine here is this peculiar interaction between the realization of proft and
innovation. It is clear from this schematic presentation that capitalist proft can be
obtained only through the crucible of the production process (P). But there are two sides
to the realization of proft: the frst aspect is the valourisation of capital in the production
process; but the second aspect involves the realization of proft in the process of
consumption (that is, the fnal sale of the new commodity to workers). Now, what
happens in the production process is that the capitalist brings together labour-power
and machinery or means of production. It is equally clear therefore that when the
capitalist entrepreneur innovates he trans-forms the relation of labour-power or workers
to the means of production in order to reduce the cost of production. What happens in
the production process, in the process of valourisation of capital, is that, frst, workers are
separated from the means of production, and, second, that the capitalist feels the need
to trans-form the relationship between the worker and the means of production through
innovation of the production process so as to drive down the costs of production.
Equally, on the consumption or sale side, the capitalist relies on innovation to reduce the costs of
production so as to increase sales or margins, and he also relies on innovation in the
product so as to entice and increase sales to workers as consumers. In this dual process of
innovation is encapsulated the process of capitalist development which is obviously not
technical or scientifc but is rather politically antagonistic. This is so, in the frst instance,
because in this dual process of innovation of the production process and of the product
-, the capitalist seeks to maximize proft against other capitalists. And to that extent the
competition or antagonism between capitalists is very real. But given that capital can
assume either a physical or a monetary form, in its monetary form capital is fungible,
that is to say, it can be deployed very quickly to any physical use that is practicable. Given
this fungibility and mobility of capital, there is a clear sense in which the owners of capital
have a common interest in ensuring that the rate of proft is as high as possible for capital
as a whole. Thus, among capitalists, we have a mixture of antagonism (or competition
defned in narrow political terms) and of community (the rate of proft paid as interest to
that part of capital that is in monetary form). The rate of proft, that is to say, the
equalization of proft for capital in monetary form or money capital or fnance capital, is
what allows and fosters the socialization of capital, the formation of social capital. But this
socialization of capital is a product of the other instance of political antagonism by far
the most important one for capitalist society -, that is, the antagonism between the
capitalist class and workers.
It is this complex mixture of antagonism and community that is mediated by the capitalist State
acting as the collective capitalist. Equally, we can see now that there are two sides to
capitalist or entrepreneurial innovation: a destructive or better disruptive side brought
about by inter-capitalist competition - or better, rivalry - over proft; and a creative or
constructive side in the sense that capitalist innovation can raise the rate of proft for
global capital by lowering costs and expanding consumption and, above all, by trans-
forming the relation of capitalists to workers both in the productive process and in the
sphere of consumption! Thus, creative destruction can be seen as a process, the
Innovationsprozess, by means of which capitalists transform the mode of production and
consumption not unilaterally but as a result of the political antagonism among themselves
as capitalists but also and above all between themselves as capitalists on one side and
workers on the other side. Marx saw antagonism only or mostly in the workplace, on the
production side, but not in the marketplace, on the consumption side.
It is utterly clear, then, that capitalists can accommunate or unify or pool their interest most
directly in the monetary form of capital, which is where the rate of proft is measured and,
most important, money wage infation can be measured also. It is in the form of money
capital, of fnance capital, that capitalists can fnd unity, and that is why we call this
social capital in the sense, that is, that in the monetary form capital tends to socialize
and unify the interests of capitalists, whereas in the industrial form capital clearly has the
tendency to intensify inter-capitalist rivalry. Schumpeter was most certainly aware of this
paramount division between the functions of capital. Indeed, the whole theory of
innovation is implanted, as we have seen, on the diference of function and purpose
between fnance and industrial or entrepreneurial capital, between lenders and
borrowers. It is true that both parties seek a higher rate of proft or, as Schumpeter calls
it, rate of interest; but the fact is that whereas fnance capital seeks as safe a return on
capital as possible, industrial or entrepreneurial capitalists know that the only way for
them to make a proft is to take risks both in production as well as in distribution: and
this is what pushes or compels them to innovate both their methods of production and
their products. Entrepreneurs seek to compete against established businesses, fnance
capitalists seek to curtail competition to secure guaranteed profts in the guise of
interest or rent.
It is equally clear therefore that fnance capital is more willing to socialize itself, to concentrate in
large fnancial corporations or banks, and to restrict competition both at home and
abroad by forming cartels or monopolies that exclude competitors, improve the
safety of proftable investment, and maintain prices high to the detriment of competitors
and workers and consumers. The last pages of Imperialism and Social Classes show how
aware Schumpeter was of this sociological dynamic within the functions of capital. It is
easy to forget, given his renown as an economist, that Schumpeter possessed one of the
fnest sociological minds in the history of social theory and that he was also a prominent
Austrian politician. We fnd here that combination of economic rationality and
sociological and political analysis that Schumpeter displayed ubiquitously in his work.
On one side, we have the entrepreneurs who operate according to the rationale or
science of capitalism. But then, on the other side, we have the (fnance) capitalists or
bankers who operate according to the bureaucratic socialisation or rationalization of
capitalism: - the former represent competitive innovation, the latter represent
monopolistic ossifcation. This is a theme that we fnd in Weber, with Marx perhaps the
greatest sociologist ever to grace the earth, and one that Schumpeter undoubtedly
adopted from his most genial German elder and collaborator at the Archiv fur
Sozialforschung.
(CSD, p106)
Yet this higher concentration of capital comforts the fantasy of the transition to
socialism, of evolutionary socialism, share !y Schumpeter in his last great "or#$
%oth the Sozialismus an Schumpeter fail to see that competition an monopoly are
antinomic concepts !ecause pure competition "ill en up !y efinition in monopoly
(the aim of competition is to estroy all competitors) an monopoly implies the
e&istence of potential competition, "ithout "hich it "oul !e a meaningless concept
(as Schumpeter himself perceives in CS'D)$ Schumpeter sees correctly that it is not
monopoly capitalism that infringes against the la"s of competition, !ut rather it is
the la"s of competition that lea straight to the formation of monopolies an finally to
the obsolescence of the Entrepreneur(
)he mythology of finance capital una!le to a!sor! an invest e&cess surplus value
(unerconsumptionism) an turning therefore to imperialistic con*uest "ill !ecome a
common theme of the "or# of +ohn ,o!son, -uolf ,ilfering an .enin himself on the
theory of imperialism$ /t "ill also !ecome the theme of the "or# of one of Schumpeter0s
most !rilliant pupils, 1aul S"ee2y (see S"ee2y, 3)heory of Capitalist Development04
%aran an S"ee2y, 35onopoly Capital0, an 1 Sylos6.a!ini, 7ligopoly an )echnical
1rogress)$
What political state corresponds to the Statik and to the Dynamik?
To be sure, the analytical framework of Walrasian equilibrium is also beset with unscientifc
ethico-political and indeed metaphysical problems. It is hard to imagine, for instance, a
more metaphysical notion than that of utility, which is essential to neoclassical economic
theory. Or indeed even the notions of individual and self-interest that form the
mechanical elements of equilibrium theory. Yet equilibrium theory, exactly like Hobbess
notion of the state of nature or state of civil war, begins with the formal equality of
individual market participants who are unequal or diferent only in the endowments
with which they conduct their perfectly competitive market exchange.
Indeed, it could be argued that the diferences in initial endowments do not constitute
inequality given that no two individual human beings are alike! The central ethico-
political assumption of equilibrium theory is that individual market participants have a
legal right to their initial endowments. Once this initial legal right is accepted, then the
entire settlement of equilibrium exchange transactions in accordance with utility
schedules is mathematically determined. The absence of proft or surplus value in
neoclassical equilibrium theory means that the problem of the Dynamik, that is, the
problem of the mutation or trans-formation of the economic system, of its evolution, is
not even posed.
Just as in Hobbess theory it is the necessary (to preserve ones life) yet free and rational (free
because rational) decision of individuals to alienate their free-dom in exchange for the
totalitarian rule of the State, which establishes civil society and proclaims positive laws, so
in equilibrium theory self-interested individuals are governed from outside by the
quasi-Euclidean totalitarian axioms of the theory which, as we saw earlier, transform
economic agents into the inert bodies of mechanical physics. Just as in Hobbess state
of nature individuals transfer mechanically their de facto possessions or power to the civil
state so that they may be socially recognized as legal possessions, so in equilibrium
theory the endowments of individuals are sanctioned axiomatically without any
question being posed about how and with what right they came to acquire these initial
endowments. Neoclassical equilibrium theory is entirely analogous to Hobbesian
political theory in that its government is entirely external to its governed individuals
who therefore acquire their possessions and formal equality before the law from the
State. The conficting free-doms of individuals lead them to agree, on pain of mutually
assured destruction, to alienate their individual free-doms to the State. Because the
government is mechanically imposed on its subjects because the contractum unionis
becomes instantly or mechanically a contractum subjectionis we call this equilibrium state
or political state a state by institution.
By contrast, in the case of Schumpeters Dynamik, given the indeterminateness of prices caused by
the fact that the economic system is changing endogenously (from within and not from
outside as in equilibrium) through the innovative actions of economic agents
(Withschafts-subjekte) and changing incessantly, the question that comes up immediately
is not just how initial entitlements or endowments are to be settled between economic
agents, but also how present and future endowments or entitlements are justifed! In other
words, the ethico-political questions raised by the Dynamik relate not just to the initial
acquisition of property rights, to their transfer from the state of nature to the civil state,
but also and especially to the present and future legal claim over the pricing of all goods
and services for exchange on the market. In this case we have a Lockean state by
acquisition.
The contrast between John Lockes political theory and the Hobbesian theory lies centrally in the
fact that the frst relies on the existence of natural rights possessed by individuals in the
state of nature which are then transferred to the civil state by agreement or social contract
so that they may be protected by the State. In other words, for Locke, unlike Hobbes,
natural rights exist already in the state of nature, and it is only for protection that
individuals contractually acquire a State to preserve these natural rights from violent acts
that would lead to a civil war. Unlike Hobbes, then, Locke does not believe that the state
of nature is a state of war of all against all in which no natural rights can be said to
exist, except for the right to preserve ones life! As a result, the Hobbesian State is
totalitarian in the sense that its citizens have alienated all their freedoms and possessions
to the State and the State is the sole source and guarantor of positive laws. By contrast,
the Lockean State is a liberal state by acquisition in the sense that the state of nature is
already one with natural rights that precede the formation of the State: therefore the State
is subordinate to these natural rights which it acquired from the state of nature, and its role
is merely that of protecting its citizens - their life, liberty and estate - from eventual
infringements that might arise in the state of nature. Unlike the Hobbesian State, the
Lockean State does not determine the content of positive laws: it merely safeguards or
guarantees pre-existing natural rights: it is strictly Police the protector and enforcer of the
salus publica but subject to the division of powers. Whereas the rationale of the
Hobbesian State contains a genial mixture of both jusnaturalist (the preservation of life)
and therefore contractual, as well as positivist (it is the sole source of law) and therefore
totalitarian elements (there is no division of powers), because it is the last resort, the ultima
ratio, the Lockean State instead is entirely a jusnatural and contractual or liberal institution
meant to protect natural rights already acquired in the stateof nature.
It is easy to see, thus, the close analogy between the Hobbesian state and Walrasian Statik
equilibrium theory, on one side, and the Lockean state and Schumpeters Dynamik, on the
other side. Schumpeters Dynamik resembles the Lockean liberal State in the sense that the
claims laid by entrepreneurs to profts, by capitalists to interest, and by workers to wages,
as well as by landlords to rent, are based entirely on ethico-political grounds and not on
an axiomatic mechanical exchange derived from the logico-mathematical matching of
given individual utility schedules! Unlike the Walrasian Statik, in the Schumpeterian
Dynamik nothing is given there are no data because everything is acquired
ethico-politically by virtue of the actions of economic agents Schumpeters
Wirthschafts-subjekte who are no longer the unconscious inert bodies of equilibrium
theory but are rather free and creative individuals whose innovative acts enliven an
incessantly changing and mutating economic system.
Just as in Hobbes, who is the archetype of bourgeois social and economic science (cf. the lyrical
rendition of a masterly intuition on the part of Hannah Arendt in Volume 2 of The Origins
of Totalitarianism quoted above), we fnd, on one side, the positive scientifc hypothesis
or rationale provided by the framework of equilibrium whereby the capitalist system can
be ana-lysed as a balance of competitive and conficting forces whose ultima ratio is that
metus mortis that pushes atomic self-interested individuals out of the status naturae (state
of nature), out of its stasis (civil war), and out of its gravitational centre or equilibrium,
into the metabolic orbit of the political convention or status civilis (civil society). The
confict of the state of nature is transformed into entrepreneurial activity under the
protection of the State. But under this commercial continuation of civil war by other
means (Constant), an ethical or political or rational-efcient productive-scientifc
rationale must be found for the determination of prices (for the theory of distribution)
considering the separation between worker/product and
employer/worker/product. Thus, on the other side we fnd the jusnaturalist political
convention or rationalization of the status civilis (civil society) that takes into account the
political and bureaucratic frictions and fctions and compromises, the conventions and
atavisms, all guaranteed by the Common-wealth, that is to say, the State, that drive the
political system back into the paralysis, stagnation or sclerosis and fnally the stasis (civil
war) of the status naturae. Thus, jusnaturalism and positivism or historicism become
Janus-faced or enigmatic concepts, the one entering the other as it exits itself. The proft-
seeking of pure competition (jusnaturalism) drives out of equilibrium, but the proft-
making of imperfect competition (positivism) pulls back into equilibrium. The tendency
here is toward entropy or paralysis due to the proliferation of protective measures
and to the easier reliance on conservatism leading to civil war (stasis or bellum civium).
We have in Schumpeter therefore a clear dualism, a dyadic system, in which there is a pendular
oscillation between extremes equilibrium/evolution, stasis/metabole,
competition/adaptation, bureaucracy/innovation, interest/proft,
capitalist/entrepreneur but there is no progress because the development that
Schumpeter envisages is not one that brings about the supersession of the opposing
forces of Statik and Dynamik: thus, the concept of creative Destruction can simply not
be said to be dialectical it is a purely Nietzschean concept because the confict of
individual self-interest is not removed but it is perpetuated. Indeed, self-interest is what
drives the oscillation, the dyad, in any case depending on whether the self-interest is
allowed to act creative-destructively or innovatively, or else it is paralysed by the forces
of reaction represented by the opposing self-interests. There is no dialectic in Schumpeter,
and even when he sees the economic system as an organic community driven by the
Ethical moment of Dynamik he simply reverts to the atomism of the individual
entrepreneur. The entrepreneur gains a competitive advantage that makes the economic
system (seen now as organic community) evolve. But because this evolution only re-
produces the same initial confict, the process of innovation is paralysed by its confict
with other self-interests back into the stasis of equilibrium. And because Schumpeter
does not even consider that this evolution may be a goal that may unite the economic
system into an organic community because he does not consider this metabolism as a
dialectical supersession of the fever of self-interests (Hegel), Schumpeter never
overcomes theoretically his methodological individualism.
Beyond Habermas: Alfred Sohn-Rethel on Intellectual and Manual
Labour
<s 1arxists we were brought up to thin( that of all the contradictions inherent in
capitalism the one between the ever4increasing social dimension of social
production and private appropriation is the most fundamental. 0t expresses the
historical trend of the capitalist mode of production and asserts its transient
character. ,his teaching has gained enhanced relevance in monopoly capitalism.
Fith the introduction of fow production the social dimension assumed a speci&c
structural form of its own and henceforth increased in a conclusive manner
reaching in our days the si/e of the giant multi4national corporationsG. [,his"
discrepancy creates problems which tend to exceed the controlling power of
private capital and re2uires supplementation by the social resources and power
of the State, )<. Sohn4Hethel, I0J1 9-, pp.$K4=%.
As we saw in our earlier critique of Habermas, classical Marxism reprises the idealist objectivism of Hegel by emphasizing the dialectical
contradiction between the instrumental development of the forces of production and the interactive backwardness of existing capitalist social relations
of production. It is this contra-diction between the objective possibilities of human emancipation from capitalist appropriation of surplus value and
the subjective or voluntarist imposition of obsolete capitalist social relations that, in the eyes of classical Marxism, determines the crisis of capitalism.
Yet even the mere re-statement of this theory that is, the discrepancy between the possibility of emancipation and the obsolescence of capitalist
categories of private appropriation evinces its implicit logical contra-diction: - because it is impossible to see how the objective development of
forces of production can ever give rise to claims of emancipation that can clash against subjective legal and social relations! Emancipation is a
political notion that is categorically diferent from the kind of social dimension of social productionthat exceeds the controlling power of private
capital. The very fact that private capital has always exerted a controlling power over social production means that social production cannot be
distinguished from the controlling power that private capital exerts over it! Consequently, it is impossible to distinguish, as Sohn-Rethel attempts
to do here, between the social dimension of social production and the private appropriation of production by capitalists as if the frst could be
objectively determined and the second were a mere subjective appendage or appurtenance. Quite simply, Sohn-Rethel fails to see as did Marx who tended
to relegate the State to the sphere of superstructure that capitalist society was never in a competitive stage that did not require supplementation
by the social resources and power of the State for the simple reason that the political coercion of State institutions, in their various State-forms since
the rise of capitalism, has been essential to the reproduction and expansion of the wage relation. To imagine that capitalism (the wage relation)
would have been possible without the political violence of the collective capitalist, the State-form, is to indulge in sheer fantasy.
The Marxian distinction between base and superstructure therefore has no basis in reality because the wage relation, and not the commodity form or the
law of value, is what is at the centre of capitalist social relations of production, and what makes these irreducibly antagonistic. The reality of crisis is
endemic to the capitalist wage relation because the defnition of capital is precisely the command of the capitalist by means of dead objectifed labor
over living labor. If we wish to understand what reifcation means we need not delve into the foggy notions of commodity fetishism or of
crystallized labor time, but rather peer into the simple, naked violence that capitalists perpetrate against workers through the coercion of wage
labor.
The wage relation, which occupied at frst only a limited sphere within post-feudal mercantilist societies, eventually became generalized to the extent
that capital became the predominant force until it transformed the societies within which it originated into its own shape and form into societies of
capital. No automatism, then; no self-regulating market economy; no competitive capitalism that is replaced eventually by monopoly
capitalism. Indeed, once we entertain the notion of a competitive capitalism, it becomes quite simply impossible for us ever to be able to reach both
logically and historically the stage of monopoly capitalism again for the simple reason that the two notions are aporetic, contradictory in a practical
historical sense. For it is just as impossible for competition to subsist without turning into monopoly as it is for monopoly to make any sense at
all without the reality of competition! (Schumpeter, in CS&D, brilliantly captures this point when he observes that even the strictest monopoly in
capitalism lives in fear for its life! One may also recall Schumpeters quip at those clever economists who objected that monopolies are in breach of
the law of competition that in fact it is the law of competition that runs foul of monopolies!)
The upshot of what we are arguing here is that competition and, by extension, monopoly are meaningless concepts because once we look at
capitalist market competition we discover that it is dependent solely on the ability of capitalists to secure the command of dead labor over living
labor by means of the exchange of the two, as if living labor could be objectifed like dead labor! Sohn-Rethel is able to see the second point, the
incommensurability of dead and living labor, but he is unable to extend this point as logically it must to the impossibility of defning objectively a specifc
form of quantitative co-ordination of an economy, whether capitalist or other. Here is Sohn-Rethel:
,hus the commensuration of labor demanded by way of a Ilaw of nature- [1arx"
for any human society, presupposes a 2uanti&cation of labor of di3erent (inds or
by di3erent individuals. And the fact is that labour, as it occurs in society,
is not itself quantifable. 0t is not directly 2uanti&able in terms of needs, nor
needs in terms of labour, neither is labour 2uanti&able in terms of labor time
unless the labour were identical in (ind or the actual di3erences material or
personal were disregarded. ,herefore to satisfy Ithe law of nature- stated by 1arx
thereby ma(ing human society possible, systems of social economy are needed
to operate a commensuration of labour based on a 2uanti&cation of labourG.
A most signifcant diference in the modes of commensuration of labour
rests upon whether it is brought about indirectly by the exchange
process, or directly by the labour process. )0J19, p.$L%
The logical contra-diction in Sohn-Rethels argument is almost too obvious: in one and the same breath he claims in the passage above that the
commensuration of labour presupposes the quantifcation of labour of diferent kinds and that labour [whatever that is!] in society is not itself
quantifable and so far he is entirely right. But then, contrary to this correct assertion, he immediately adds that the commensuration of labour is
what makes human society possible and that this can be brought about indirectly by the exchange process or directly by the labour process.
Now, we may certainly agree with Sohn-Rethel that the labour process is what constitutes the social synthesis, if it is understood in the broader sense of
both the technical element as well as its refexive (or decision-making) component, which is what Habermas was aiming at earlier (see our posts
on him) and which we criticized for is artifcial separation of these two elements which for us are instead absolutely indivisible. For us, for the society
that we intend to substitute to capitalism, the technical labour process and the decision-making process that goes with it cannot be separated either
intellectually or indeed politically, so that the socialist society of the future will have to re-establish the control of workers over their working activity
something that capitalism separated violently.
But we cannot agree with Sohn-Rethel or with Marx or with the vast majority of Marxists who have fallen into the trap of believing (with Classical and
Neoclassical Political Economy!) that the exchange process or the market mechanism is what brings about the social synthesis or social co-
ordination because, as we have argued here repeatedly, no social co-ordination is possible under capitalist industry without the direct intervention
and regulation of the capitalist economy by the collective capitalist, the State-form, which has now become the Crisis-State.
The Profit Motive and the Entrepreneurial Spirit - Sketch of A Theory of Capitalism
In the final instalment, for now, of our discussion of the profit motive and the concept of
entrepreneurial innovation, we set forth a sketch (only notes, really) for a novel theory of
capitalist profits that will form one of the chapters of the work called 8risis9 :&egesis an
Criti*ue of Capitalism$ The previous pieces on Weber and Schumpeter will form a
separate, later chapter to follow the work on ietzsche (which is very close to completion
and that has !rown into a separate book to be published very soon)"
)he capitalist is a capitalist !ecause he invests capital in the form of means of
prouction an a money "age that is a legal claim corresponing to a portion of the
ea la!our o!;ectifiein the proucts pro6uce (!rought forth) !y living la!our as
goos an services that are then sol !y the capitalist to living la!our, "ith the
conse*uent <surplus prouction< of goos an services utilise in part for the capitalist0s
o"n consumption, in part to replace the means of prouction an in part for the e#panded
reproduction of livin! labour (in the form of !oth living la!our an social resources
<purchase< from non6capitalist areas)$ )he capitalist has to ensure therefore that the
profit that he realises at the en of the process of valourisation of capital in the
prouction process an the realisation of this value through the sale of proucts !ac#
to living la!our = the capitalist has to ensure that this profit can !e put politically to
use to comman even more living la!our than "hen the investment cycle starte$ ()his
point is completely overloo#e even !y a political economist of 5ichal 8alec#i0s cali!re
"ell6verse in the "or# of 8arl 5ar&$ ,is theory comes o"n to the vague *uantitative
circularity of capitalists earn "hat they spen an "or#ers spen "hat they earn$)
)he money "age an the money form, then, o not an cannot represent a *uantifia!le
measure of o!;ective proucts or la!our or resources that are use in the process of
prouction or sol in the mar#et or consume !y "or#ers an capitalists$ )he entire
process of circulation, valorisation an realisation of capital has to !e guie, meiate
an regulate politically$ /t is certainly true to say that capitalist prouction serves some
human nees = largely these are the reprouctive nees of "or#ers = an that it largely
regulates itself$ %ut this self6regulation is not an cannot !e the result of the
o!;ectively efine value of capital, e&presse in monetary form, o!;ectively an
*uantitatively measure as an input of prouction to "hich there correspons an
e*ually measura!le an *uantifia!le output of the prouction process$ o such
transubstantiation of living la!our into ea o!;ectifie la!our is possi!le( )he capitalist
moe of prouction is a!out value as a form of material socio6political comman over
living la!our9 it has a!solutely nothing to o "ith mere *uantities = ho"ever
measure = !ecause it is entirely a set of social relations of prouction$
/t follo"s from this that "hen the capitalist sets out to invest, that is to say, to utilise
social resources uner his comman for the sa#e of proucing ea o!;ectifie la!our
in the form of goos an services that "ill realise a profit once they are sol to
"or#ers (living la!our) in e&change for the money "ages they "ere pai so as to agree to
the e&change of their living la!our "ith ea la!our as the prouct of capitalist
prouction = it follo"s that the meaning of profit can !e only that the capitalist
o!tains a monetary sym!ol of greater political po"er to purchase more social
resources (means of prouction an living la!our) for future investment to realise a fresh
profit(
/t can !e easily inferre from this e&position an e&planation of the capitalist process an
cycle of prouction that its essence is to prouce for profit an therefore to prouce
so as to e&pan prouction, an thus so as to e&pan political control over the #no"n
social resources that may comman living la!our at a future ate$ )his is the meaning
of capitalist investment an accumulation$
>t any given stage of capitalist prouction an evelopment, the comman of the
capitalist over social resources can !e calle value "hereas the ifference !et"een the
aggregate prices of goos an services sol to "or#ers an the aggregate price of all
social resources employe in the process of prouction is calle profit in monetary
terms$ ?or capitalist social relations of prouction to reprouce themselves on an
e&pane scale, the capitalist must eliver a profit in monetary terms that allo"s him to
comman greater an larger *uantities of social resources "ith the ultimate aim to coerce
a greater num!er of "or#ers to sell their living la!our for a money "age that oes not
e&cee the entitlement to o!;ectifie la!our that the money "age pai to the original
"or#ers gave them$
)he o!vious limits or !arriers to this process of accumulation or e&pane
reprouction are as follo"s9 the first is the political "illingness of living la!our to sell
itself in e&change for ea la!our ( an e&change that can ta#e place only through the
political comman of capital over the means of prouction that employ "or#ers to
prouce their o"n reprouction)4 the other limit to capitalist accumulation is pose !y the
natural environmental finiteness of the social resources (machinery, ra" materials an
living la!our) availa!le at any one time for the process of prouction4 an the thir limit
is (an internal one) the sta!ility of the price system that can accurately reflect the
respective legal claims of various capitalists in ifferent !ranches of prouction to their
ali*uot share of profit an therefore of the e&pane reprouction of social resources at
the en of the prouctive an investment cycle$
So in other "ors the capitalist #no"s very "ell at the !eginning of the process of
prouction an of the investment cycle that he must engage a process of prouction =
that is, a technology = an that he must prouce certain #ins of proucts that,
together, "ill not only ensure the reprouction on an e&pane scale of living la!our, !ut
that "ill also ensure the reprouction on an e&pane scale of his political comman
over living la!our against the o!vious antagonism of living la!our that can never !e too
"illing to accept the fictitious an e&ploitative e&change "ith ea o!;ectifie la!our
through the money "age((
@hat this !oils o"n to is the !asic reali2ation that the capitalist process of prouction
simply cannot stan still !ecause it is foune on totally antagonistic !ases( )he
capitalist must trans6form constantly an ceaselessly !oth the means of prouction (the
technologies an materials) as "ell as the proucts prouce !y living la!our in orer to
!e a!le to secure an ensure his o"n reprouction as comman on an e&pane scale
over living la!our((
>n this means that = contrary to "hat Schumpeter theori2e = the real capitalist cannot
!e the financier "ho simply sits in a !an# an lens money for interest(( )he real
capitalist is precisely the entrepreneur "ho must go to hell an !ac# to reali2e a
profit for the capital investe = an to o so must also trans6form the metho of
prouction an the proucts as "ell(( /t is not the entrepreneurial spirit that efines
capitalism, !ut it is the intrinsic antagonism of the "age relation that compels the
capitalist to !e entrepreneurial(((
Adam Smith, Rousseau and Durkheim - and "the
Fracture"
We wanted to reward our friends with a quick adaptation of some "sociological" reflections from
the "Civil Society" chapter of our forthcoming work, Krisis, that can be applied ready-made to the
current "government debt crises" unfolding in all major capitalist economies, China included, of
course
!ucio Colletti "in Ideologia e Societa'# reports that $dam Smith once pointed to %ean-%acques
&ousseau as a glowing e'ample of the florescence of sociological studies in (rance when
compared with their dessication in )ritain Smith referred in particular to an essay by &ousseau in
which he drew a sharp distinction between the "egoism" predominant in "modern society" and
that noticeable in "primitive society" *he difference, according to &ousseau, was that in primitive
society we can also find aspects of "egoistic" behaviour, but that unlike "modern" "he meant
"bourgeois"# society, this "egoism" did not have such disastrous impact on the lives of other
members of society
We know that $dam Smith places the "natural propensity of human beings to truck, barter, and
trade" at the very origin of the "market economy" "in chapter two of Wealth of Nations# - but he
guards well from making it "essential" to the very survival of its "members" +n other words, Smith
sees "e'change" as an option, as a choice, that is an "e'crescence" of pre-e'isting individual
"specialisation", but does not see "what is in fact the case#, that "specialisation" or "the division of
social labour" is absolutely essential ",# to the survival of any human "society",
-ut in other words, it is not the propensity to e'change that allows human beings "to e'change"
the pro-ducts they make. rather, it is the necessity of the division of social labour to our very
"survival" "physical and mental# that allows the development of a "market society",
*his is precisely relevant to the "fracture" that we see in /S society and in the 0uropean - indeed
in all capitalist economies right now, - between those who understand that it is not possible to
have a "society of individuals" whose "egoisms" will simply tear it apart, and those who fail to see
this
$nd + need not tell you which side "must" prevail, )ecause without the division of social labour,
which is what "the collective capitalist", the State, guarantees, we simply cannot have a society at
all, *he (rench sociologist 0mile 1urkheim must have followed the steps of &ousseau2 because
in his La Division du Travail Social he does two things that make him e'tremely relevant to the
current "crisis"2
(irst, he speaks of "social labour" and not ",# of the "social division of labour" - so in other words
1urkheim understands that there is no "labour" as such, there is only "social labour"
Second, 1urkheim interestingly calls the division of social labour in "primitive" societies
mechanical and that in "modern" societies organic
Thursday, ! "ctober !##
Weber and Schumpeter - Rationalisation, Leadership and
Profit
)he "hole of pure economics rests "ith @alras on the t"o
conitions that every economic unit Aeach iniviualB "ants to ma&imi2e utility an
that eman for every goo e*uals supply$ >ll his theorems follo"
fromC these t"o assumptionsD$$ @hoever #no"s the origin an the "or#ings of
the e&act natural sciences #no"s also that their great achievements
are, in metho an essence, of the same #in as @alrasE$ )o fin
e&act forms for the phenomena "hose interepenence is given us
!y e&perience, to reuce these forms to, an erive them from, each
other9 this is "hat the physicists o, an this is "hat @alras i$ [J.Schumpeter, TGE, p.79]
3a' Weber sees "the spirit of capitalism" as the "ascetic accumulation of wealth", as an
"obsession" that is conducted "rationally", through the "scientisation" of social and industrial
activity - a "scientisation" that consists of the "mathematical measurement" of all aspects of social
life Weber perceives the "insatiable" character of capitalist accumulation 4e laments and
certifies its "disenchantment" "0nt5auberung# of human life and e'perience in the seemingly
"senseless" pursuit of abstract "wealth" 4e records and classifies the process of "rationalisation"
that this engenders in all walks of human association and activity - from the "bureaucratisation" of
government functions to the "parliamentarisation" of mass parties that closely parallel the
structure of industrial government with their "soul-less democracies", to the subsumption and
subordination of scientific research to the needs of "industry", to the "mathematisation" of
Western music under the pentagrammatic system, to the codification of laws
+n short, 3a' Weber - whom &aymond $ron described as "the heir of 3achiavelli and
contemporary of 6iet5sche" - studiously records and analyses the development of capitalism as a
"secularisation" and "rationalisation" of human life )ut Weber was too close to 6iet5sche to
overlook the fact that this &ationalisierung has anything to do with "science" as it is normally
understood2 instead, as 3achiavelli would have taught him, such a process of rationalisation
serves merely to concentrate and centralise social and political power in the hands of ever-more
"charismatic" leaders (ar from atrophying or eclipsing "the spirit of leadership", capitalist
industrial society, with its "massification" and "rationalisation" merely places more decision-
making "responsibility" on the shoulders of a "leitender 7eist" "leadership Spirit# capable of
determining - not the content or the conditions or thrust - but the strategic "direction", the
"orientation" of the imponent resources that "the industrial system" governed by the modern
nation-state requires for the effective mediation of the "antagonistic interests" of capitalist society
!ike 6iet5sche, Weber keenly perceives this social antagonism, though he cannot e'plain it. he
correctly identifies the thrust toward and need for the "co-ordination" and "guidance" of the
comple' interests involved )ut Weber does not see the strict connection, apart from this "formal
analytical and mathematical classification", between political governance of the modern nation-
state and the antagonism of capitalist industrial enterprise 4e fails therefore to go beyond his
initial masterly study of the origins of capitalism in the $skesis, in the piety of the -rotestant 0thic
and its "renunciation" of worldly pleasures in favour of the "reward" of saving and parsimony
Weber himself admits, at the end of the $rotestantische %thi&, that this "work ethic" remains
still centred and focused on the utility of labour ",# - and that it cannot therefore constitute "a
specifically bourgeois ethic"
1espite this breathtaking avowal, Weber still neglects to look deeper into this "specifically
bourgeois ethic" - obviously one that will replace "work" or "labour" as its focus "remember the
fundamenta )enedictine ascetic injunction2 "8ra et labora,", work and pray,# - precisely for the
reason that for him "the spirit of capitalism" and capitalism itself are derived merely from some
'ethic', from some 'faith' that turns into secularism and accumulation of material (ealth) Weber
therefore overlooks the specific operation of capitalist industry, its particular modus operandi,
preferring instead to concentrate on the "political consequences" of the &ationalisierung in terms
of political "leadership" and charisma
+n pointed contrast, Schumpeter is a contemporary of Weber, but he is also the heir of 3ach
*hrough Weber he is linked to 6iet5sche, but he is already too much under the spell of 3achism
fully to comprehend the significance of 6iet5sche9s radical critique of bourgeois society
Schumpeter looks at capitalism through the "scientific" prism of 3achism2 what you see is what
you get *he task of the "scientist" is not to look "beyond" or "behind" mere phenomena, but
rather to find the simplest mathematical "con-nection" between them. it is "to describe" reality, not
to e'plain it - and to describe it in the simplest and most "predictable" manner *hat is why, as we
saw in the previous study, Schumpeter never goes beyond the simple "observation" and
"analysis" "literally, retrospective dissection# of the empirical behaviour of capitalist institutions
When Schumpeter looks for a "trans-formation mechanism" to e'plain the "meta-morphosis" of
capitalist industry - its "development, evolution and growth" "0ntwicklung# - he finds it in the
"entrepreneurial spirit" "/nternehmer-geist#(ithout seeing the contra*diction bet(een
'mechanism' and 'spirit')
*he reason for this astounding oversight can be found in 0rnst 3ach9s philosophy of science2 the
"empirical observation" of entrepreneurs in capitalist industry and the provision of "finance" by
"capitalists" is all that counts. both factors can be reconciled as parts of one "mechanism" for the
trans-formation of capitalist industry through "innovation" and "creative destruction" Schumpeter
allows that the "entrepreneur" derives a "profit" from his "innovative leadership", from his
"enterprise" +ndeed, the /nternehmer-7ewinn "the entrepreneurial profit# is the only "profit" that
is worthy of the name for him, $ll other "profits" are simply "interest" charged by "capitalists" for
advancing their "working capital" to the entrepreneur,
+n other words, Schumpeter never even attempts to locate the source of "profits" beyond the
mere "innovation process" of the entrepreneur, beyond the "reward" for his "enterprise"
Schumpeter does not look at the "motive" behind the activity of the entrepreneur e'cept to allude
to a vague 6iet5schean "will to conquer", to the simple "pleasure of success" $gain, this failure is
largely due to the fact that, unlike Weber, Schumpeter does not see the &ationalisierung as a
political process but simply as a "scientific development" - not as a "progress" ",# understood in a
teleological or moral sense, but only as the application of scientific principles to human
organisation and industry
$ut differently, Schumpeter interprets 'profits' as a function of and re(ard for the 'entrepreneurial
spirit'+ ,et he does not even suspect that it may be 'the profit motive' that ma&es the
'entrepreneurial spirit' a matter of life and death for the 'capitalist')
In our ne-t intervention, (e (ill e-plain ho( it is in fact 'the profit motive' that is and must be the
main driver of capitalist enterprise, and not, as Schumpeter clearly believed, the other (ay
around+
The Entrepreneurial Spirit From Schumpeter To Steve Jos
$ %uick &!ift& to our friends 'oinin! us, before a lon!er piece tomorrow from my
&ietzschebuch&" (heers)
>s "e have seen in our interventions on <the Science of Choice<, the attempt to efine a
methoology an a omain for an <economic science< founere on the ina!ility of
neoclassical theoreticians ("hich inclues 8eynesians, given that they share most of the
funamental assumptions of neoclassical theory) to avoi the mathematical formalism or
self6referentiality or circuitousness 6 in short, the tautology 6 of their approach to
economic reality$ Fiven that for the neoclassics the economy is a comple& "e! of
<e&changes< !y <iniviuals< in a <free mar#et<, it soon !ecomes <immaterial< "hat the
<content< of the <e&changes< might !e$ :ven the notion of <marginal utility< 6 an
conse*uently of the <utility< that stans !ehin it 6 !ecomes <inscruta!le< an purely
<metaphysical<$
Classical 1olitical :conomy, from >am Smith on"ars to +S 5ill, ha sought to
ientify an measure <the su!stance< of economic activity 6 an o!;ective <"ealth< or
<value< that epene on the <material resources< that "ent into pro6ucing goos an
services$ @hat the Geoclassical -evolution achieve "as to stan this <o!;ectivism< on
its hea an completely to turn it into a thoroughgoing <su!;ectivism<$ )he impossi!ility
to etermine <o!;ectively< the nature of "ealth an to <*uantify< it, meant that mar#et
prices "ere left as the only <inicators< of the <utility< of economic activity$ >t the same
time, this seeme to remove (as "e argue at the !eginning) the very <corpus<, the aim,
goal an su!stance of economic activity 6 its <purpose<$ @orse still, such a theory of
generalise e&change 6 formally theorise !y @alras 6 faile to e&plain the phenomenon
of <gro"th< 6 of the increase in <value< of economic pro6uction 6 an inee of the
e&istence of <money< "hich, unerstoo as a pure <means of e&change<, coul not !e
incorporate in neoclassical theory as a <store of value<$
/t is from these theoretical premises that +oseph Schumpeter attempts to tac#le the
evolutionary <ynamic< features an properties of the capitalist economy$ ?or heuristic
purposes, economic analysis (of any economy) represents a <circular flo"< that can !e
<analyse< anatomically or physiologically, li#e the circulation of the !loo4 !ut such
analysis cannot <e&plain< or account for the <evolution< of the economy, its
<evelopment<, its <trans6formation<$ .i#e the neoclassicals, Schumpeter oes not even
tac#le the pro!lem of <value<9 he relies on the theories of his Hiennese teacher %ohm6
%a"er# "ho e&plains <interest< in terms of the <renunciation< of immeiate consumption
!y savers in favour of investors an consumers "ho therefore pay <interest< in natura
!ase on the greater prouctivity of <rouna!out< methos of prouction$
.i#e %ohm6%a"er#, Schumpeter interprets the operation of the <circular flo"< in these
terms of simple <utility< 6 the <renunciation of immeiate consumption<$ %ut, he "istfully
o!serves, this still oes not e&plain ho" the capitalist economy <progresses< from one
stage of evelopment to another, an ho" it seems to o so in <cycles< that contain a
fairly preicta!le se*uence of !ooms an !usts, of e&pansion an <crisis< an then
recession or epression$ Schumpeter nees a "ay to escape from the <circularity<, from
the self6referentiality, the sterile, <static< formalism of neoclassical theory so as to !e a!le
to account 6 ;ust li#e 8arl 5ar& 6 for the <ynamism< of the capitalist economy$ 5ar&, of
course, ha attri!ute this <ynamism< to the gro"ing capitalist e&ploitation of "or#ersE
la!our6po"er$ ?or Schumpeter instea, "hose intellectual up!ringing i not amit of
<metaphysical< concepts such as <value< an <e&ploitation<, the ynamism of the
capitalist economy ha to come from a <creative< force, a <spirit<, an <iniviuality< that
capitalism prouce or engenere, that "as internal to its operari, that coul even !e
li#ene to a <mechanism<, !ut not to a <system< 6 inee, one that "as the very antithesis
of <systems<, of <circularity<, of <static<$ ,e foun it in the figure of the captain of
inustry, in the entrepreneur$
/t is easy to criticise, even to erie, the !lithe <voluntarism< of SchumpeterEs
/nnovationspro2ess 6 so much oes it ree# of mysticism, so ali#e is it to a <eus e&
machina<, literally( >n yet$$$ >n yet$$$
>n yet it can !e concee that a resiuum of truth remains in SchumpeterEs aventurous
schema of the Internehmergeist 6 of the flam!oyant conottiere, the genius that
innovates guies an inspires$ >n this resiuum or #ernel of truth lies precisely in the
fact that, as "e have argue in the preceing interventions, capitalism remains a system
of <political comman over living la!our<9 it relies therefore, "hether in reality or even
only mythically, on the <leaership< of captains of inustry, of entrepreneurs "ho can
come out of the capitalist <machine< or <system< an infuse it "ith the spar# of vitality,
of innovation an ynamism an$$$$<gro"th<$ )hat is "hy those "ho ha announce the
emise of the entrepreneur in capitalist society "ere <greatly e&aggerating<$ Capitalism
thrives on conflict, on antagonism$ >n conflict an antagonism prouce, alas, eifie
heroes(
A> cursory revie" of !ourgeois theory follo"e !y <crises< is in this +ean65arc Hittori
eitorial (in ?rench) at .es :chos9
http9JJ"""$lesechos$frJopinionsJanalysesJ0K01L00MN6O1N6la6grane6panne6es6moeles6
economi*ues6KPM6MQ$php
@e "ill continue this iscussion soon$B
From Schumpeter to Steve Jos - Studies on the Si!nificance of the Entrepreneurial
Spirit
.et us ta#e up the threa from "here "e left it$ @e "ish to in*uire into an en*uire over
the nature an causes of entrepreneurship$ @e sa" that Schumpeter, approaching the
pro!lem from Geoclassical perspectives (an "e are e&amining the Geoclassical
-evolution together "ith its <strategic< origins in a separate "or# that is part of *risis),
can vie" the source of economic <evolution6evelopment6gro"th< (this is the meaning of
the comple& Ferman "or he uses 6 :nt"ic#lung) in the <trans6formation mechanism<
(Heranerungsmechanismus) that is <intrinsic< to the capitalist economy an that he
claims to have iscovere$ )his <mechanism< has at its !ase <the capitalist<, "ho is
simply the financier (!an#s) "ho <aggregates< the collective savings of the economy of
the <circular flo"< (8reis6lauf)$ )he <capitalist< here plays a purely <instrumental<
function9 he simply gathers "hat <savers< have mae availa!le to <!orro"ers< !y "ay of
<renouncing< the immeiate consumption of their <eno"ments< an !y so oing have
earne the right to charge <interest< on the resources that they have lent$ >ccoring to
%ohm6%a"er#, the right to this <interest< arises from the fact that economic pro6uction
of goos an services epens on the <rouna!outness< of technologies$ )echnologies
improve the <prouctivity< of human la!our$ %ut they can !e use only if "e <efer< the
consumption of goos an services that are <reaily availa!le<$ )hus, the more
<rouna!out< 6 the more <technological< 6 is the process of prouction, the more
<prouctive< it !ecomes$ >n as a result, those "ho <renounce immeiate consumption<,
the <savers<, ma#e possi!le the greater <prouctivity< of human tools an resources, so
that they can charge <interest< over the use of this <capital< from those "ho "ish to apply
it for more immeiate consumption$
Schumpeter accepts this !asic frame"or# erive from the novel <neoclassical
revolution< of marginal utility analysis (Fossen, 5enger, +evons)$ %ut this frame"or#
assumes that the same <technologies< of prouction are utilise at all stages$ @hat it
leaves out is the possi!le <mechanism< !y means of "hich <ne"< technologies are
evelope$ )he entrepreneur is the social agent that plays the all6important role of
introucing <innovation< in the technologies of prouction 6 an the higher <prouct< that
comes out as a result is the <profit< that the entrepreneur erives from the application of
the saversE <capital<$ (/n our revie" of the 8rugman6:ggertsson paper, you "ill see that
the capitalist is the <patient< investor an the entrepreneur is the <impatient< one "ho
!orro"s capital for profita!le use$) )his schema essentially reverses the roles of
<entrepreneur< an <capitalist< in -ichar CantillonEs original treatment so popular "ith
Schumpeter an the >ustrian School$ ?or Cantillon, the entrepreneurial profit is merely a
<euction< from <interest< that the <entrepreneur< charges to the capitalist for ta#ing
goos to the mar#et$ ?or Cantillon, the entrepreneur is a mere merchant, an his <profits<
are a mere charge that contri!ute nothing to the calculation of <interest<$
?or Schumpeter, instea, it is the <capitalist< (the lener) "ho is the <facilitator<, the mere
go6!et"een, the <rentier<$ )he real protagonist instea, the social agent or figure "ho
pushes the capitalist economy from one stage of evelopment to another an creates
<gro"th< in the economy is the <entrepreneur< 6 an it is the <entrepreneurial spirit< that
constitutes the differentia specifica (as Schumpeter calls it) of capitalism from previous
forms of prouction$
)his institutional ifferentiation of the entrepreneur "ho trans6forms capitalist inustry
through <innovation< that is <creative< an that, therefore, is also <estructive< of
previous methos of prouction an technologies as "ell as <proucts< 6 this istinction
!et"een the <creative6estructive<, <ynamic< captain of industry 6 the entrepreneur, the
leaer 6 an the <rentier capitalist< "ho is the passive an <static< figure 6 this istinction
!et"een the <static< economy of the <circular flo"< run !y finance capital an the
<ynamic6innovative< leaership provie !y the entrepreneur closely resem!les the
istinction ra"n !y 5a& @e!er !et"een the process of <secularisation< an
<rationalisation< of !ourgeois capitalist society leaing to its <massification< "ith the rise
of mass <emocratic socialist< parties an the conse*uent <!ureaucratisation< of @estern
societies through the rise of @elfare States, on the one han, an the gro"ing
concentration of political leadership (leitener Feist) in the hans of <charismatic<
figures (from Gapoleon to %ismarc#) in "hose hans political po"er is confie$ )here is
an o!vious Cartesian ualism here !et"een %oy an 5in, Gature an Spirit,
5echanism an Soul$
Schumpeter clearly aopts @e!erEs schema of capitalist <secularisation< an
<!ureaucratisation< reflecte in the <static< anatomical structure of the <circular flo"< of
the economy, an the <leaership<, the <guiance<, the <transformative an innovative<
Spirit provie !y the political leaer an !y the entrepreneur$ /t is certainly very strange
that 5a& @e!er never in*uire into the origins of <the entrepreneurial spirit< 6 "hich is
instea the focus of SchumpeterEs entire theory of capitalist evelopment$ )he reason for
that lies in the fact that @e!er i evote his most famous monograph on The +rotestant
Ethic and the Spirit of (apitalism to the impact of religious faith on the rise of capitalism
as a moe of prouction that <secularise< moern societies an their political systems$
%ut @e!er faile to ientify a <specifically !ourgeois<, a specifically <capitalist< spirit
ifferent from the <"or# ethic< inspire !y Christian asceticism$ Ruite !y contrast,
Schumpeter i e&actly that$ %ut even so, he faile to ientify the central feature of
<entrepreneurship<$ )his ma;or failure "ill !e the su!;ect of a fresh intervention in the
near future$
Wednesday, 19 October 2011
Science and Scientificity in the Society of Capital
,efore we continue with the discussion of the &entrepreneurial spirit&, we present here
the promised short e#cerpt from the book on ietzsche, titled -Im"ertung9 ietzsche-s
Trans.valuation of >ll /alues-" There is an evident link between this e#cerpt and our
discussions of &The Science of 0o!ic and the Society of (apital& that you will find 'ust
below" $s we saw in those discussions, the uncontainable social anta!onism of livin!
labour a!ainst the wa!e relation that is both the act of birth of the capitalist economy
and the lynchpin of bour!eois society . this anta!onism that was &absent& durin! the
&1reat 2oderation& (from the early 3456s to 7668) and that was almost entirely due to
the sudden &openin!& of the vast (hinese workforce for e#ploitation by Western capital
and its accomplices in the (hinese dictatorship (somethin! we have reviewed repeatedly
on this site) . this anta!onism, we were sayin!, has suddenly burst out of its &protective
lid& constituted by the ability of finance to hide and dissimulate it throu!h the creation of
what 1eor!e Soros (he who should know) has dubbed &fictitious value&"
,ut this &e#plosion& of anta!onism, which at first took the economic and institutional
form of &the 1reat 9inancial Crisis&, has determined a &crisis& that is not only financial
and now more broadly &industrial& . but also one that invests the &le!itimacy& of both
bour!eois society and institutions as well as of its &science&" $nd it is this &crisis of
bour!eois economic science& that we confront in these pieces" It is worthwhile noticin!
that as social anta!onism mounts, the status of bour!eois &science& is undermined, and
not 'ust in economics" 9or it is the very notion of &scientificity& that the &crisis& brin!s
back prepotently into %uestion"
:ou will recall that Schumpeter, first amon! bour!eois economists, reco!nises that
&crises& . far from bein! &e#o!enous& or &e#ternal& to capitalism . are in fact its very
&differentia specifica& and they manifest themselves in waves of &creative destruction&, in
the &innovation process& of production technolo!ies, labour practices, and consumption
patterns" ,ut Schumpeter fails to confront the anta!onism inherent to such &creative
destruction&, to this &innovation&; he prefers instead to translate it into a pattern of
&economic evolution.development& (Entwicklun!) that removes the anta!onism, the
assertion of capitalist command over livin! labour that is ine#tricably intertwined with
the notions of &entrepreneurial spirit& and of &innovation&"
$n obvious &indicator& of the &crisis& of bour!eois economic science is the fact that the
obel +rize (ommittee has recently taken refu!e from the broader &theoretical core& of
bour!eois economics (e%uilibrium and monetary theory) precisely because of its &crisis&,
and moved into the more &technical& corners that little have to do with the &substance& of
economics . from the ew Institutional Economics to &0abor Economics& to ('ust the
other day) even &Econometrics&)
We saw with 2ilton 9riedman-s discussion of &+ositive Economics& that one of the
foremost and sharpest theoretical minds of bour!eois economics had preferred to retreat
from any &substantive& position about the &scientificity& of economics to its mere ability
to be &fruitful& . in other words, its ability correctly &to predict& the course of economic
events in capitalist society &as it is&) ow, the present &crisis& has removed this last
mainstay of 9riedman-s position; not only is it not permissible to remove &the !oal& of
economic activity from its &scientific analysis&, but it also turns out that the reduction of
economic analysis to mere &prediction& has been shown to be a complete and utter
failure)
$nd yet this &denouement&, this &shipwreck& of bour!eois economic science is
instructive; . because it induces us to %uestion the very in!redients and substance of
&scientificity&" $nd this is where ietzsche comes irrepressibly back on centre.sta!e" The
history of &science& shows that scientific &research& is a &search& for somethin! . for
&truth& or some practical solution or remedy" So lon! as the &universe& of scientific
&e#perimentation& remains relatively &open&, it may be possible to i!nore the &interest& of
scientific activity and concentrate on its &certainty&" ,ut once the &universe& of scientific
practice becomes very &finite& and &circumscribed&, then we be!in to face a problem
common to ietzsche and . let us brin! him back . Schumpeter, too" The problem is that
once the &scientific callin!&, as 2a# Weber called it, and the &entrepreneurial spirit&
(which Weber left to Schumpeter to study) !row increasin!ly intertwined and &or!anised&
or, to use a word that both theoreticians loved, . rationalise . it is then this very
-ationalisierung that becomes %uestionable, controversial, and dan!erous"
The all.important point that we are makin! here is this; have we reached a point in the
&development& (Entwicklun! . that word a!ain)) of the society of capital at which
&science& and &scientific discovery& and &innovation& are no lon!er autonomous
activities and become instead &instruments of social and political power&)) <ifferently
and mischievously put, what did 9riedman mean by the &fruitfulness& of &positive
economics& . and, to echo ietzsche, what &Will to Truth& as dis!uised @ill to 1o"er
lurks behind the &practice& of bour!eois &science&=
>To avoid ambi!uity; This %uestion has nothin! to do with 9oucault-s &microphysics of
power& . a concept that we e#ecrate as much as the 9rench philosopher himself"
9oucault was an incurable romantic, focussed on pedestrian criti%ues of &the social
sciences& . which, precisely, are not &sciences& at all) The %uestion here concerns &all& of
science . includin! the physical and mathematical ones" T?$T constitutes the !reatness
of ietzsche-s implicit criti%ue @admittedly from an ultra.reactionary perspectiveA of the
&self.dissolution& of (hristianity into bour!eois society, and of bour!eois society into
nihilism"B
From Schumpeter to Steve Jos - The Endurance of the Entrepreneurial Spirit
This is a continuation of our study of Schumpeter"s Concept of Innovation#
@e sa" in our ma;or piece on Giet2sche, Schumpeter, 5enger (;ust search this site
using facility provie) ho" Schumpeter mis6interprets @e!er0s concept of
rationalisation, mis6ta#ing it for scienti2ation as against normative conuct$
Schumpeter0s aim in the 3)heorie er "irtschaftlichen :nt"ic#lung0 is to iscover
scientifically "hat he calls the trans6formation mechanism (Heranerungs6
mechanismus) of the capitalist economy that allo"s it to change form, to gro" from
its static e*uili!rium to a ne", if6ferent e*uili!rium that is reache ynamically not
through e&ternal or e&ogenous shoc#s !ut through internal forces$ /nee,
Schumpeter iscovers that "hat is specific to the capitalist economy is precisely this
a!ility to trans6form itself, to !e the opposite of static, the opposite of in
e*uili!rium, !ut rather to !e in a constant state of trans6formation, of ynamism, of
change an therefore not6e*uili!rium = to !e, in short, in a state of constant crisis$
)he capitalist economy estroys itself !y re6creating itself, !y re6novating itself,
!y in6novating = an it is this process of innovation (/nnovationspro2ess) an of
creative estruction (schopferische Serstorung) that characterises capitalist
evelopment an gro"th$
Go Stati#, then4 !ut constant Dynami#$ )he capitalist economy can never !e
escri!e ae*uately through a static moel or a circular flo"9 it oes not have a
precise an uni*ue form, !ecause it is in a constant state of trans6formation, of
crisis( )he capitalist economy thrives on crisis, on creative estruction$ /ts
gro"th can never !e unerstoo as a steay6state (as in the Co!!6Douglas function)
!ut only as trans6crescence, as permanent revolution (Schumpeter #ne" his )rots2#y
very "ell()$ >n "hat Schumpeter escri!es is e&actly this transformation mechanism
"here!y the specific ifference of capitalism from other moes of prouction is that it
frees the entrepreneur, !oth in terms of availa!ility of financial resources an in
terms of availa!ility of material an human resources, into constantly revolutionising
the process of inustrial prouction an therefore (() that of consumption(
G7):( Schumpeter oes not say that capitalism is trans6forme !y the freeom of
consumer choice (as all the iiotic hagiographers of a Steve +o!s "oul have us !elieve
ultimately, that is, he #ne" "hat "e "ante !ut i not #no" "e "ante it()$ Ruite the
opposite( Schumpeter sees from the very start that it is not the consumer "ho ecies
in capitalist society9 it is instea the entrepreneur, the captain of inustry$ So this is
the peculiarity of capitalism9 6 the e&istence an empo"erment of the entrepreneurial
Spirit (Internehmer6geist)$
%ut here the central ifficulty of Schumpeter0s entire schema comes to light9 for the
pro!lem is that he has not an cannot e&plain ho" "hat is an entrepreneurial spirit can
ever !e reconcile "ith "hat Schumpeter ha meant to ientify scientifically, that is to
say, the mechanism (() of trans6formation of capitalist inustry$ )he inconsistency here
is as clear as it is insupera!le9 it is simply a contra6iction to argue that the specific
ifference of capitalism is the scientific6mechanistic com!ination of certain
institutional features = a mechanism of transformation an an innovation process 6
that ena!le the emergence of an entrepreneurial spirit$ Go matter ho" much or ho"
long "e loo# for spirit in a mechanism or in scientific processes, "e shall *uite
simply never fin it(( ,ere Schumpeter0s misinterpretation of @e!er is a!solutely
stri#ing9 !y interpreting @e!er0s -ationalisierung (the secularisation an
!ureaucratisation of social life uner capitalism) as the replacement of faith an
values "ith o!;ective science, Schumpeter has entirely forgotten that @e!er ha
al"ays unerstoo capitalism as a Spirit (the spirit of capitalism) an that its
organisation of society "as entirely political an su!;ect to leaership spirit
(leitener Feist) in all spheres of social life, an preominantly in 1olitics an in Science
(the su!;ect of his famous lectures on 1olitics as Hocation an Science as Hocation)$
)his entirely political !asis of @e!er0s interpretation of capitalist society an the rise of
the !ourgeoisie "holly an totally elues an escapes Schumpeter( ,is o"n later
prognostication of the eventual o!solescence of the entrepreneur an conse*uent
atrophy an ecline of capitalism is foune on this funamental misconception of the
motor of capitalist inustry (the antagonism of the "age relation) an his su!stitution
of it "ith a voluntaristic entrepreneurial spirit that in fact = alreay( = ha !een
supplante !y the rise of "hat he himself calle trustifie capitalism in the Secon
/nustrial -evolution of the 1QL0s "hose crisis he ha also correctly ientifie(
Schumpeter correctly an sharply ientifies the critical trans6crescence of capitalist
inustry an society9 he correctly an aroitly intuits the social e&pression of the
entrepreneurial Spirit as a @ill to Con*uer (in the 3)heorie0)$
,ut Schumpeter CneverD ()) understood the true social si!nificance, impact and Csocial
ori!insD of the Centrepreneurial spiritD which derives its true impetus and stren!th from
the CWill to (on%uerD of the bour!eoisie to command the livin! labour of workers, and
whose real CnecessityD is provided precisely by the impact of this anta!onism on the
CprofitabilityD of capitalist investment or CenterpriseD)
)his is a point of fundamental importance$ ?ollo"ing the recent emise of >pple C:7
Steve +o!s, many commentators an analysts have remar#e on the incorrectness of
Schumpeter0s preiction a!out the o!solescence an isappearance of the capitalist
entrepreneur$ /f !y this "e unerstan that the entrepreneur as Schumpeter unerstoo
it = as a free6"heeling aventurer or genius capa!le of trans6forming capitalist inustry
single6hanely !y the sheer might of his innovative genius = then "e can safely say
that such an entrepreneur, such a captain of inustry has never e&iste$ %ut if instea
!y entrepreneur "e unerstan a figure or personality that em!oies the "ill to
po"er of the !ourgeoisie to e&ert an enforce its comman over living la!our, then
clearly the capitalist entrepreneur "ill live for as long as capitalism is alive( (Cf$
.anglois contra Schump on )he 7!solescence an Schump in CSD section !y same
title$) .et us e&plain "hy$
)he "hole point to capital is to realise a profit$ %ut the notion of profit is
meaningless an "ithout content unless this profit can !e re6investe to comman fresh
living la!our for fresh an e&pane profita!le prouction$ /n other "ors, the sole aim
of capital is to accumulate social resources that can !e applie to comman more living
la!our that is formally free = that is to say, that is e&change "ith its o"n ea
o!;ectifie la!our( Clearly therefore capitalist inustry is a system for securing the
su!;ugation of living la!our to ea la!our !y means of the money "age$
What this entails is that the capitalist has two ways to realise more CprofitD from
capitalist production; . either to intensify the e#ploitation of livin! labour (absolute
e#ploitation), or else to introduce new machinery for the e#ploitation of livin! labour
(relative e#ploitation)" The fact that this second method, that we call Crelative
e#ploitationD, involves also the production of new products does not detract from the
reality that it is the capitalist (the entrepreneur) whose Will to +ower is pro'ected in the
new technolo!ies and the new products" or does it ne!ate the fact that these new
technolo!ies and products must not emancipate workers to such an e#tent that they no
lon!er feel compelled Cto sellD their livin! labour to the capitalist in e#chan!e for their
own ob'ectified labour in the CformD of the money wa!e)
/n effect, therefore, Schumpeter "as "rong to vie" the (capitalist) entrepreneur as an
economic agent istinct from the capitalist (!y "hich he meant the financier) in this
romanticise, iealistic an voluntarist manner "holly unrealistic an inconsistent
"ith his o"n aim to iscover the trans6formation mechanism of capitalist inustry an
society$
Ruite clearly, !y preicting the o!solescence of the entrepreneurial spirit an therefore =
as a conse*uence ( = the atrophy an emise of capitalism, Schumpeter "as putting the
cart !efore the horse, that is to say, he "as confusing the cause "ith the effect( ,ecause it
is capitalist industry that re%uires the command over livin! labour personifie !y the
capitalist entrepreneur, rather than the capitalist entrepreneur who as entrepreneur
constitutes the essence of capitalism)
$ifferently put% &e can say that it is not 'the entrepreneur' that defines capitalism(
rather% it is the &a!e relation% the essential social relation of production of
capitalism% that cannot e)ist &ithout the 'entrepreneurial function' - &ithout 'the
capitalist'* It is the need for the capitalist to realise a 'profit' that forces him to
ecome an 'entrepreneur'+ it is certainly not the need to e 'entrepreneurial' that
turns a capitalist into an 'entrepreneur'* ,nly the demise of capitalism &ill usher
in the e)tinction of the entrepreneur - ut as lon! as capitalism survives% so &ill the
'entrepreneurial spirit'*

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