‘New combinations’ in the economy and in economics: a tribute to Stanley Metcalfe

Abstract

Scientific analysis is not merely a logically consistent process that starts with some primitive notions and then adds to the stock in a straight-line-fashion. It is not simply progressive discovery of an objective reality. (Schumpeter 1954, 4)

The paper discusses an important case of the production of economic ideas by means of economic ideas: Stan Metcalfe's view of the restlessness of capitalism was shaped by ideas he had encountered in Schumpeter, and Schumpeter's view was influenced by ideas he had encountered in Marx. The three authors’ aim can be said to consist in an elaboration of a histoire raisonnée (Schumpeter) of capitalism, in which the development of technology and science and its translation into economic analytical terms occupies centre stage.

Keywords:

• Schumpeter
• Marx
• Metcalfe
• capitalism

Acknowledgements

I thank the anonymous referee and the editors of this special issue, Jeremy Howells and Ronnie Ramlogan, for valuable observations, suggestions and stylistic improvements of the paper. Any remaining shortcomings of the paper are, of course, entirely my responsibility.

Notes

1. I had, I believe, a comparable experience as a student, but the book that kept fascinating me ever since I first tried to read it was Sraffa's (1960) Production of Commodities by Means of Commodities. Interestingly, Schumpeter was also fascinated by Sraffa's contributions published during his lifetime, i.e. Sraffa's criticism of Alfred Marshall's partial equilibrium theory in the mid 1920s and his debate with Friedrich August von Hayek on the latter's monetary overinvestment theory of the business cycle in the early 1930s. With regard to the former, Schumpeter (1954) in the History of Economic Analysis spoke of Sraffa's ‘brilliantly original performance’ (1047, n. 54), and with regard to the latter he informed Sraffa in a letter written in Italian that he fully agreed with him. He considered Hayek's idea that business cycles were typically caused by the banking system and not by innovations as taking a collateral effect for a cause.

2. It has been reported that in private conversation Böhm-Bawerk dubbed Schumpeter's explanation of profits one of the ‘biggest errors’ ever committed in economics.

3. In classical political economy, the adjustment process under consideration is referred to as the ‘gravitation’ of ‘market’ prices to their (new) ‘natural’ levels. In terms of the concept of commodity rates of interest, Sraffa (1932) employed in his debate with Hayek about the latter's theory of the business cycle it may be put as follows: the market will typically expect that the supply of the commodity in which an innovation has taken place will increase relative to the supply of the other commodities. Accordingly the forward price will be below the spot price in the case of the former and above it in the case of the latter. This means that the commodity rate on the former will be higher than the rates on the latter. In competitive conditions, this divergence of rates is but another expression of the divergence of actual or market prices from their new long-period levels, which will prompt profit-seeking producers to adjust output levels and thus engender the transition to the new long-period position.

4. Schumpeter's panegyric on entrepreneurs is reminiscent of David Hume's on ‘merchants’. Both kinds of people are seen as selfish and perhaps even somewhat queer – Schumpeter (1912, 137) refers to ‘half-pathological’ aspects of the behaviour of entrepreneurs – but without knowing and without intending it, they promote a higher end.

5. When Max Weber invited Schumpeter to contribute an essay on the history of economic ideas and methods to what may be called a German version of The New Palgrave, the Grundriss der Sozialökonomik, Schumpeter (1914) based his contribution essentially on two sources: Marx's Theorien über den Mehrwert (edited by Karl Kautsky at the beginning of the century) and the first volume of Eugen von Böhm-Bawerk's magnum opus, Kapital und Kapitalzins, which was devoted to the history of the subject under consideration. Marx's influence on Schumpeter is perceivable throughout the essay. Following Marx, he calls William Petty the founder of political economy.

6. For a comparison of the analyses of Spiehoff and Schumpeter, see Kurz (forthcoming).

7. Recent empirical studies of the shift of the relationship between the rate of profits and wages show, however, that the maximum rate of profits tended to decrease during recent decades; see, among others, Foley and Marquetti (1999).

8. During recent decades, the share of wages has substantially decreased in many European countries. Even with a moderately falling level of the maximum rate of profits the actual rate will in all probability have risen.