Herr Schumpeter and the Classics

This paper is an exploration of the interface between two quite different strands of economic thought, the Schumpeterian, evolutionary theory of innovation and competition, and the classical, Sraffian theory of prices and distribution. Can the two methods usefully speak to each another? If they can, we would have in prospect a more general evolutionary economics (GEE) in which the classical emphasis on production of commodities by means of commodities would allow a far more sophisticated analysis of the place of technical change in economic development. To explore this question is decidedly not to propose a synthesis between classical and Schumpeterian economics; it is simply to enquire whether there are mutual lessons to be learned to enrich these very different approaches to the long period evolution of capitalist economies. Schumpeter's system is a system that is always out of equilibrium but it is not chaotic, rather it is a system strongly ordered by market forces and the ensuing relations between prices and profitability. Moreover, it is concerned with long-period market forces, that is to say the development of an economy in which innovation and investment to capitalise on innovation are dominant aspects of its working. The classical system is a long-period system of analysis too, and it has the great merit of working in terms of prices of production, those prices that enable the replication of the production process over time. Since much real world innovation is innovation in the produced means of production, within the network of inter-industry input-output relations, there are undoubtedly mutual lessons to be learnt. Our analysis shows how economic growth is a product of uneven economic development, and the impulse that renders development feasible is always the occurrence of innovation in some form or other; one should not be too prescriptive as to its nature or content. Yet innovation in itself is not enough, it is too localised to bear much weight, what matters is not only the impulse that innovation brings but the adaptation of the economic system to the potential generated by the new ways of doing things. Schumpeter sensed this with his account of imitative behaviour spreading the innovation but it remained an account that ignored the central role of investment processes to build the capacity to exploit innovations. This is the theme that we have explored, the theme that naturally depends on long-period methods of analysis, not to uncover the attributes of a never attained future but to understand the immediate transformative forces operating on an economy.