The Entrepreneurial Spirit From Schumpeter To Steve

Jobs
A quick "gift" to our friends joining us, before a longer piece tomorrow from my "Nietzschebuch".
Cheers
As we have seen in our interventions on "the Science of Choice", the attempt to define a
methodology and a domain for an "economic science" foundered on the inability of neoclassical
theoreticians (which includes Keynesians, given that they share most of the fundamental
assumptions of neoclassical theory) to avoid the mathematical formalism or self-referentiality or
circuitousness - in short, the tautology - of their approach to economic reality !iven that for the
neoclassics the economy is a comple" web of "e"changes" by "individuals" in a "free mar#et", it
soon becomes "immaterial" what the "content" of the "e"changes" might be $ven the notion of
"marginal utility" - and conse%uently of the "utility" that stands behind it - becomes "inscrutable"
and purely "metaphysical"
Classical &olitical $conomy, from Adam Smith onwards to 'S (ill, had sought to identify and
measure "the substance" of economic activity - an ob)ective "wealth" or "value" that depended on
the "material resources" that went into pro-ducing goods and services *hat the +eoclassical
,evolution achieved was to stand this "ob)ectivism" on its head and completely to turn it into a
thoroughgoing "sub)ectivism" -he impossibility to determine "ob)ectively" the nature of wealth
and to "%uantify" it, meant that mar#et prices were left as the only "indicators" of the "utility" of
economic activity At the same time, this seemed to remove (as we argued at the beginning) the
very "corpus", the aim, goal and substance of economic activity - its "purpose" *orse still, such a
theory of generalised e"change - formally theorised by *alras - failed to e"plain the phenomenon
of "growth" - of the increase in "value" of economic pro-duction - and indeed of the e"istence of
"money" which, understood as a pure "means of e"change", could not be incorporated in
neoclassical theory as a "store of value"
.t is from these theoretical premises that 'oseph Schumpeter attempts to tac#le the evolutionary
"dynamic" features and properties of the capitalist economy /or heuristic purposes, economic
analysis (of any economy) represents a "circular flow" that can be "analysed" anatomically or
physiologically, li#e the circulation of the blood0 but such analysis cannot "e"plain" or account for
the "evolution" of the economy, its "development", its "trans-formation" 1i#e the neoclassicals,
Schumpeter does not even tac#le the problem of "value"2 he relies on the theories of his 3iennese
teacher 4ohm-4awer# who e"plains "interest" in terms of the "renunciation" of immediate
consumption by savers in favour of investors and consumers who therefore pay "interest" in
natura based on the greater productivity of "roundabout" methods of production
1i#e 4ohm-4awer#, Schumpeter interprets the operation of the "circular flow" in these terms of
simple "utility" - the "renunciation of immediate consumption" 4ut, he wistfully observes, this still
does not e"plain how the capitalist economy "progresses" from one stage of development to
another, and how it seems to do so in "cycles" that contain a fairly predictable se%uence of booms
and busts, of e"pansion and "crisis" and then recession or depression Schumpeter needs a way
to escape from the "circularity", from the self-referentiality, the sterile, "static" formalism of
neoclassical theory so as to be able to account - )ust li#e Karl (ar" - for the "dynamism" of the
capitalist economy (ar", of course, had attributed this "dynamism" to the growing capitalist
e"ploitation of wor#ers5 labour-power /or Schumpeter instead, whose intellectual upbringing did
not admit of "metaphysical" concepts such as "value" and "e"ploitation", the dynamism of the
capitalist economy had to come from a "creative" force, a "spirit", an "individuality" that capitalism
produced or engendered, that was internal to its operari, that could even be li#ened to a
"mechanism", but not to a "system" - indeed, one that was the very antithesis of "systems", of
"circularity", of "static" 6e found it in the figure of the captain of industry, in the entrepreneur
.t is easy to criticise, even to deride, the blithe "voluntarism" of Schumpeter5s .nnovationspro7ess
- so much does it ree# of mysticism, so ali#e is it to a "deus e" machina", literally8 And yet
And yet it can be conceded that a residuum of truth remains in Schumpeter5s adventurous
schema of the 9nternehmergeist - of the flamboyant condottiere, the genius that innovates guides
and inspires And this residuum or #ernel of truth lies precisely in the fact that, as we have argued
in the preceding interventions, capitalism remains a system of "political command over living
labour"2 it relies therefore, whether in reality or even only mythically, on the "leadership" of
captains of industry, of entrepreneurs who can come out of the capitalist "machine" or "system"
and infuse it with the spar# of vitality, of innovation and dynamism and"growth" -hat is why
those who had announced the demise of the entrepreneur in capitalist society were "greatly
e"aggerating" Capitalism thrives on conflict, on antagonism And conflict and antagonism
produce, alas, deified heroes8
From Schumpeter to Steve Jobs - Studies on the
Significance of the Entrepreneurial Spirit
1et us ta#e up the thread from where we left it *e wish to in%uire into and en%uire over the
nature and causes of entrepreneurship *e saw that Schumpeter, approaching the problem from
+eoclassical perspectives (and we are e"amining the +eoclassical ,evolution together with its
"strategic" origins in a separate wor# that is part of !risis), can view the source of economic
"evolution-development-growth" (this is the meaning of the comple" !erman word he uses -
$ntwic#lung) in the "trans-formation mechanism" (3eranderungsmechanismus) that is "intrinsic"
to the capitalist economy and that he claims to have discovered -his "mechanism" has at its
base "the capitalist", who is simply the financier (ban#s) who "aggregates" the collective savings
of the economy of the "circular flow" (Kreis-lauf) -he "capitalist" here plays a purely
"instrumental" function2 he simply gathers what "savers" have made available to "borrowers" by
way of "renouncing" the immediate consumption of their "endowments" and by so doing have
earned the right to charge "interest" on the resources that they have lent According to 4ohm-
4awer#, the right to this "interest" arises from the fact that economic pro-duction of goods and
services depends on the "roundaboutness" of technologies -echnologies improve the
"productivity" of human labour 4ut they can be used only if we "defer" the consumption of goods
and services that are "readily available" -hus, the more "roundabout" - the more "technological" -
is the process of production, the more "productive" it becomes And as a result, those who
"renounce immediate consumption", the "savers", ma#e possible the greater "productivity" of
human tools and resources, so that they can charge "interest" over the use of this "capital" from
those who wish to apply it for more immediate consumption
Schumpeter accepts this basic framewor# derived from the novel "neoclassical revolution" of
marginal utility analysis (!ossen, (enger, 'evons) 4ut this framewor# assumes that the same
"technologies" of production are utilised at all stages *hat it leaves out is the possible
"mechanism" by means of which "new" technologies are developed -he entrepreneur is the
social agent that plays the all-important role of introducing "innovation" in the technologies of
production - and the higher "product" that comes out as a result is the "profit" that the
entrepreneur derives from the application of the savers5 "capital" (.n our review of the Krugman-
$ggertsson paper, you will see that the capitalist is the "patient" investor and the entrepreneur is
the "impatient" one who borrows capital for profitable use) -his schema essentially reverses the
roles of "entrepreneur" and "capitalist" in ,ichard Cantillon5s original treatment so popular with
Schumpeter and the Austrian School /or Cantillon, the entrepreneurial profit is merely a
"deduction" from "interest" that the "entrepreneur" charges to the capitalist for ta#ing goods to the
mar#et /or Cantillon, the entrepreneur is a mere merchant, and his "profits" are a mere charge
that contribute nothing to the calculation of "interest"
/or Schumpeter, instead, it is the "capitalist" (the lender) who is the "facilitator", the mere go-
between, the "rentier" -he real protagonist instead, the social agent or figure who pushes the
capitalist economy from one stage of development to another and creates "growth" in the
economy is the "entrepreneur" - and it is the "entrepreneurial spirit" that constitutes the differentia
specifica (as Schumpeter calls it) of capitalism from previous forms of production
-his institutional differentiation of the entrepreneur who trans-forms capitalist industry through
"innovation" that is "creative" and that, therefore, is also "destructive" of previous methods of
production and technologies as well as "products" - this distinction between the "creative-
destructive", "dynamic" captain of industry - the entrepreneur, the leader - and the "rentier
capitalist" who is the passive and "static" figure - this distinction between the "static" economy of
the "circular flow" run by finance capital and the "dynamic-innovative" leadership provided by the
entrepreneur closely resembles the distinction drawn by (a" *eber between the process of
"secularisation" and "rationalisation" of bourgeois capitalist society leading to its "massification"
with the rise of mass "democratic socialist" parties and the conse%uent "bureaucratisation" of
*estern societies through the rise of *elfare States, on the one hand, and the growing
concentration of political leadership(leitender !eist) in the hands of "charismatic" figures (from
+apoleon to 4ismarc#) in whose hands political power is confided -here is an obvious Cartesian
dualism here between 4ody and (ind, +ature and Spirit, (echanism and Soul
Schumpeter clearly adopts *eber5s schema of capitalist "secularisation" and "bureaucratisation"
reflected in the "static" anatomical structure of the "circular flow" of the economy, and the
"leadership", the "guidance", the "transformative and innovative" Spirit provided by the political
leader and by the entrepreneur .t is certainly very strange that (a" *eber never in%uired into the
origins of "the entrepreneurial spirit" - which is instead the focus of Schumpeter5s entire theory of
capitalist development -he reason for that lies in the fact that *eber did devote his most famous
monograph on "he #rotestant $thic and the %pirit of Capitalism to the impact of religious faith on
the rise of capitalism as a mode of production that "secularised" modern societies and their
political systems 4ut *eber failed to identify a "specifically bourgeois", a specifically "capitalist"
spirit different from the "wor# ethic" inspired by Christian asceticism :uite by contrast,
Schumpeter did e"actly that 4ut even so, he failed to identify the central feature of
"entrepreneurship" -his ma)or failure will be the sub)ect of a fresh intervention in the near future
From Schumpeter to Steve Jobs - The Endurance of the
Entrepreneurial Spirit
This is a continuation of our study of Schumpeter's Concept of Innovation.
*e saw in our ma)or piece on ;+iet7sche, Schumpeter, (enger< ()ust search this site using facility
provided) how Schumpeter mis-interprets *eber=s concept of ;rationalisation<, mis-ta#ing it for
;scienti7ation< as against ;normative conduct< Schumpeter=s aim in the >-heorie der
wirtschaftlichen $ntwic#lung= is to discover ;scientifically< what he calls ;the trans-formation
mechanism< (3eranderungs-mechanismus) of the capitalist economy that allows it to change
;form<, ;to grow< from its ;static e%uilibrium< to a new, dif-ferent e%uilibrium that is reached
;dynamically< not through ;e"ternal or e"ogenous shoc#s< but through ;internal forces< .ndeed,
Schumpeter discovers that what is ;specific< to the capitalist economy is precisely this ability ;to
trans-form< itself, to be the opposite of ;static<, the opposite of ;in e%uilibrium<, but rather to be in
a constant state of ;trans-formation<, of ;dynamism<, of change and therefore ;not-e%uilibrium< ?
to be, in short, in a state of constant ;crisis< -he capitalist economy ;destroys< itself by ;re-
creating< itself, by ;re-novating< itself, by ;in-novating< ? and it is this process of innovation
(.nnovationspro7ess) and of ;creative destruction< (schopferische @erstorung) that ;characterises<
capitalist development and ;growth<
+o ;Stati#<, then0 but constant ;Aynami#< -he capitalist economy can never be described
ade%uately through a ;static model< or a ;circular flow<2 it does not have a precise and uni%ue
;form<, because it is in a constant state of ;trans-formation<, of ;crisis<8 -he capitalist economy
thrives on ;crisis<, on ;creative destruction< .ts ;growth< can never be understood as a ;steady-
state< (as in the Cobb-Aouglas function) but only as ;trans-crescence<, as ;permanent revolution<
(Schumpeter #new his -rots7#y very well8) And what Schumpeter describes is e"actly this
;transformation mechanism< whereby the ;specific difference< of capitalism from other modes of
production is that it ;frees< the entrepreneur, both in terms of ;availability of financial resources<
and in terms of ;availability of material and human resources<, into constantly revolutionising the
process of industrial production and therefore (8) that of consumption8
+B-$8 Schumpeter does not say that capitalism is trans-formed by ;the freedom of consumer
choice< (as all the idiotic hagiographers of a Steve 'obs would have us believe ultimately, that is,
he ;#new< what we wanted but did not #now we wanted it8) :uite the opposite8 Schumpeter sees
from the very start that it is not the ;consumer< who decides in capitalist society2 it is instead the
;entrepreneur<, the ;captain of industry< So this is the ;peculiarity< of capitalism2 - the e"istence
and empowerment of the ;entrepreneurial Spirit< (9nternehmer-geist)
4ut here the central difficulty of Schumpeter=s entire schema comes to light2 for the problem is
that he has not and cannot e"plain how what is an entrepreneurial ;spirit< can ever be reconciled
with what Schumpeter had meant to identify ;scientifically<, that is to say, the ;mechanism (8) of
trans-formation< of capitalist industry -he inconsistency here is as clear as it is insuperable2 it is
simply a contra-diction to argue that the specific difference of capitalism is the ;scientific-
mechanistic< combination of certain ;institutional features< ? a ;mechanism of transformation< and
an ;innovation process< - that enable the emergence of an entrepreneurial ;spirit< +o matter how
much or how long we loo# for ;spirit< in a ;mechanism< or in ;scientific processes<, we shall %uite
simply never find it88 6ere Schumpeter=s misinterpretation of *eber is absolutely stri#ing2 by
interpreting *eber=s ;,ationalisierung< (the secularisation and ;bureaucratisation< of social life
under capitalism) as the replacement of ;faith< and ;values< with ;ob)ective science<, Schumpeter
has entirely forgotten that *eber had always understood capitalism as a ;Spirit< (;the spirit of
capitalism<) and that its ;organisation< of society was entirely ;political< and sub)ect to ;leadership
spirit< (leitender !eist) in all spheres of social life, and predominantly in &olitics and in Science
(the sub)ect of his famous lectures on ;&olitics as 3ocation< and ;Science as 3ocation<)
-his entirely ;political< basis of *eber=s interpretation of capitalist society and the rise of the
bourgeoisie wholly and totally eludes and escapes Schumpeter8 6is own later ;prognostication< of
the eventual ;obsolescence of the entrepreneur< and conse%uent ;atrophy and decline of
capitalism< is founded on this fundamental misconception of the ;motor< of capitalist industry (the
antagonism of the wage relation) and his substitution of it with a ;voluntaristic< entrepreneurial
;spirit< that in fact ? already8 ? had been supplanted by the rise of what he himself called
;trustified capitalism< in the Second .ndustrial ,evolution of the CDEFs whose ;crisis< he had also
correctly identified8 Schumpeter correctly and sharply identifies the ;critical trans-crescence< of
capitalist industry and society2 he correctly and adroitly intuits the social e"pression of ;the
entrepreneurial Spirit< as a ;*ill to Con%uer< (in the >-heorie=)
&ut %chumpeter 'ne(er) *+ understood the true social significance, impact and 'social origins) of
the 'entrepreneurial spirit) which deri(es its true impetus and strength from the ',ill to Conquer)
of the bourgeoisie to command the li(ing labour of workers, and whose real 'necessity) is
pro(ided precisely by the impact of this antagonism on the 'profitability) of capitalist in(estment or
'enterprise)
-his is a point of fundamental importance /ollowing the recent demise of Apple C$B Steve 'obs,
many commentators and analysts have remar#ed on the incorrectness of Schumpeter=s
prediction about the ;obsolescence and disappearance< of the capitalist entrepreneur .f by this
we understand that the ;entrepreneur< as Schumpeter understood it ? as a free-wheeling
adventurer or genius capable of ;trans-forming< capitalist industry single-handedly by the sheer
might of his ;innovative genius< ? then we can safely say that such an ;entrepreneur<, such a
;captain of industry< has never e"isted 4ut if instead by ;entrepreneur< we understand a ;figure<
or ;personality< that embodies the will to power of the bourgeoisie to e"ert and enforce its
command over living labour, then clearly the capitalist ;entrepreneur< will live for as long as
capitalism is alive8 1et us e"plain why
-he whole point to ;capital< is to realise a ;profit< 4ut the notion of ;profit< is meaningless and
without content unless this ;profit< can be re-invested to command fresh living labour for fresh and
e"panded ;profitable< production .n other words, the sole aim of capital is to accumulate social
resources that can be applied to command more living labour that is formally ;free< ? that is to
say, that is ;e"changed< with its own dead ob)ectified labour8 Clearly therefore capitalist industry
is a system for securing the sub)ugation of living labour to dead labour by means of the money
wage
,hat this entails is that the capitalist has two ways to realise more 'profit) from capitalist
production- . either to intensify the e/ploitation of li(ing labour *absolute e/ploitation+, or else to
introduce new machinery for the e/ploitation of li(ing labour *relati(e e/ploitation+. "he fact that
this second method, that we call 'relati(e e/ploitation), in(ol(es also the production of new
products does not detract from the reality that it is the capitalist *the entrepreneur+ whose ,ill to
#ower is projected in the new technologies and the new products. Nor does it negate the fact that
these new technologies and products must not emancipate workers to such an e/tent that they
no longer feel compelled 'to sell) their li(ing labour to the capitalist in e/change for their own
objectified labour in the 'form) of the money wage
.n effect, therefore, Schumpeter was wrong to view the (capitalist) ;entrepreneur< as an economic
agent ;distinct< from the ;capitalist< (by which he meant the financier) in this ;romanticised<,
idealistic and ;voluntarist< manner wholly unrealistic and inconsistent with his own aim to discover
the ;trans-formation mechanism< of capitalist industry and society
:uite clearly, by predicting the obsolescence of the entrepreneurial spirit and therefore ? as a
conse%uence 8 ? the atrophy and demise of capitalism, Schumpeter was putting the cart before
the horse, that is to say, he was confusing the cause with the effect8 &ecause it is capitalist
industry that requires the command o(er li(ing labour personified by the capitalist entrepreneur,
rather than the capitalist entrepreneur who as entrepreneur constitutes the essence of
capitalism
Differently put, we can say that it is not "the entrepreneur" that defines capitalism: rather,
it is the wage relation, the essential social relation of production of capitalism, that cannot
eist without the "entrepreneurial function" ! without "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 will usher in the etinction of the entrepreneur ! #ut as long as
capitalism survives, so will the "entrepreneurial spirit""