1 It is an entire regime, an encompassing political process of
transforming
capitalist power.
Nitzan Bichler - 2012 - Capital as Power
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356 Accumulation of power
of the twentieth century. Nonetheless, the facts that the share of gross invest- ment in GDP was generally higher then than now and that two-way capital flow is a relatively recent phenomenon, together serve to suggest that the cur- rent pace of globalization, let alone its level, may well be at an all time high.
Capital flow and the creorder of global power
Theoretically, the common thread going through most analyses is the belief that capital flows in response to the 'primordial' forces of production and trade. According to this view, capital flows are directed by profit signals; profit signals show where capital is most needed; and capital is most needed where it is the most productive (comparatively or otherwise).
To us, this view is akin to putting the world on its head. The global move- ment of capital is a matter not of production and efficiency but of ownership and power. On its own, the act of foreign investment - whether portfolio or direct - consists of nothing more than the creation or alteration of legal enti- tlements. 26 The magnitude of such foreign entitlements - just like the magni- tude of domestic entitlements - is equal to the present value of their expected future earnings. And since the level and pattern of these earnings reflect the control of business over industry, it follows that cross-border flow of capital reflects the restructuring not of global production, but of global capitalist power at large. 27
26 The popular perception that 'direct' investment creates new productive capacity, in contrast to 'portfolio' investment which is merely a paper transaction, is simply wrong. In fact, both are paper transactions whose only difference is relative size: investments worth more than 10 per cent of the target company's equity commonly are classified as direct, whereas those worth less are considered portfolio.
27 The 'delinking' of capital flows from the 'underlying' growth of production (assuming that they were previously linked) is slowly dawning even on the most religious. In a recent gathering of the world's central bankers at the Jackson Hole Retreat, the pundits sounded almost bewildered:
Today, capital flows 'uphill' from poor to rich nations - above all the US - in contrast to the predictions of all standard economic theories. Moreover, as Raghu Rajan, chief economist at the International Monetary Fund, explained at Jackson Hole, there is no evidence of a positive relationship between net capital inflows and long-term growth in developing countries. Foreign direct investment may be a special case. But overall, the correlation is negative: countries that have relied less on foreign capital have grown on average faster. This is surprising, since extra capital should normally boost growth.
(Guha and Briscoe 2006, emphasis added)
But then, just to make sure that bewilderment doesn't clash with faith, the experts quickly blame it all on 'distortions':
One possible explanation, Mr Rajan said, is that developing countries may be unable to absorb foreign capital effectively because they have inadequate financial systems. . . .
? (Ibid. )
Breadth 357
One of the first writers to approach international capital mobility as a facet of ownership and power was Stephen Hymer (1960). In his view, firms would prefer foreign investment over export or licensing when such ownership conferred differential power, or an 'ownership advantage' as it later came to be known. Based on this interpretation, the power of US-based foreign inves- tors seems to have risen exponentially over the past half-century, as illus- trated in Figure 15. 6.
The chart presents two proxies for the globalization of US business. The first proxy, measuring the share of export in GDP, provides a rough indica- tion of the contribution to overall profit of outgoing trade. The second, measuring the share of foreign operations in overall net corporate profit, approximates the significance of foreign as opposed to domestic investment.
Up until the 1950s, the relative contribution to profit of foreign assets was similar to that of export (assuming domestic and export sales are equally profitable, so that the ratio of export to GDP corresponds to the ratio of
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Trend growth rate: 2. 4% per annum
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(foreign operations as a share of net corporate profit *)
? ? Trend growth rate: 1. 7% per annum
Trade
(export as a share of GDP)
? ? ? ? ? -5
1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030
Figure 15. 6 The globalization of US business: ownership vs trade
* Receipts from the rest of the world as a per cent of corporate profit after tax. Note: Series are smoothed as 5-year moving averages.
Source: U. S. Bureau of Economic Analysis through Global Insight (series codes: GAARP till 1998 and ZBECONRWRCT from 1999 for after tax corporate profit receipts from the rest of the world; ZA for after tax corporate profit; X for export; GDP for GDP).
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 358 Accumulation of power
export profit to overall profit). But since then, the importance for profit of foreign investment has grown much faster than that of trade, reaching one third of the total in recent years. This faster growth of foreign profit may seem perplexing since, even with the recent resurgence of capital mobility, US trade flows are still roughly three times larger than capital flows. But then, unlike trade, investment tends to accumulate, and that accumulation eventually causes overseas earnings to outpace those generated by export.
This divergence serves to heighten the power underpinnings of trade liber- alization. Advocates of global integration, following in the footsteps of Adam Smith and David Ricardo, tend to emphasize the central role of 'free trade'. Unhindered exchange, they argue, is the major force underlying greater effi- ciency and lower prices. And as it stands their claim may well be true. Indeed, downward price pressures are one reason why dominant capital is often half-hearted about indiscriminate deregulation, particularly when such deregulation allows competitors to undermine its differential margins. Yet despite this threat, large firms continue to support freer trade, and for a very good reason. For them, free trade is a means to something much more impor- tant, namely free investment - or more precisely, the freedom to impose and capitalize power.
Foreign investment and differential accumulation
Although difficult to ascertain with available data, the cumulative (albeit irregular) build-up of international investment must have contributed greatly to the differential accumulation of US dominant capital. The reason is that whereas exports augment the profits of small as well as large firms, the bulk of foreign earnings go to the largest corporations. Therefore, it is the global- ization of ownership, not trade, which is the real prize. While free trade can boost as well as undermine differential accumulation, free investment tends mostly to raise it. But then, since free investment can come only on the heels of liberalized trade, the latter is worth pursuing, even at the cost of import competition and rising trade deficits.
Foreign investment, like any other investment, is always a matter of power. The nature of this power, though, has changed significantly over time. Until well into the second half of the nineteenth century, the combination of rapidly expanding capitalism and high population growth enabled profitability to rise despite the parallel increase in the number of competitors. 28 There was only a limited need for business collusion and the explicit politicization of accumulation - and, as a result, most capital flows were relatively small port- folio investments, associated mainly with green-field expansion (Folkerts- Landau, Mathieson, and Schinasi 1997, Annex VI).
28 See for example, Veblen (1923, Ch. 4), Josephson (1934), Hobsbawm (1975, Chs 2-3), Arrighi, Barr, and Hisaeda (1999) and Figure 12. 3 and related discussion in this book.
? Breadth 359
Eventually, though, excess capacity started to appear, giving rise to the progressive shift from green-field to amalgamation as described earlier in the chapter. Yet for more than half a century this shift was mostly domestic, with mergers and acquisitions first having to break through their various national 'envelopes'. It was only since the 1970s and 1980s that the process became truly global, and it was only then that the character of capital flow started to change.
The need to exert control has moved the emphasis gradually toward larger, 'direct' foreign investment, while the threat of excess capacity has pushed such investment away from green-field and toward amalgamation. At present, over 75 per cent of all foreign direct investment takes the form of cross-border mergers and acquisitions (United Nations Conference on Trade and Development 2000: 117, Figure IV. 9).
From a power perspective, therefore, one could say that during the late nineteenth and early twentieth centuries capital mobility was still largely a matter of 'choice'. But by the end of the twentieth century it became more or less a 'necessity', mandated by the combination of excess capacity and the cumulative build-up of giant firms, for which profitable expansion increas- ingly hinges on global amalgamation and creeping stagnation (Proposition 3 in Chapter 14). 29
In summary, there is a long but crucial link leading from the broad power imperatives of capitalism, to the logic of differential accumulation, to amal- gamation, to capital mobility (Proposition 5 in Chapter 14). From this view- point, the purpose of globalization is not aggregate growth but differential gain; it is driven not by the quest for greater global efficiency, but by the need to control efficiency on a global scale; and finally and most importantly, it is inherent in the capitalist creorder. Without the globalization of ownership, dominant capital cannot break its national envelope; and if it cannot go global, its differential breadth is bound to collapse. In this sense, globaliza- tion is part of the inner logic of accumulation. It can be reversed only by altering that logic, or by moving away from it altogether.
Appendix to Chapter 15: data on mergers and acquisitions
There are no systematic historical time series for mergers and acquisitions in the United States (other countries have even less information). The mergers and acquisitions series constructed in this chapter and plotted in Figures 15. 2 and 15. 3 is computed on the basis of various studies. These studies often use different definitions, covering different universes of companies.
The dollar values of mergers and acquisition for the 1895-1919 period are taken from Nelson (1959, Table 14, p. 37), whereas those covering the 1920-29 period come from Eis (1969), as reported in Historical Statistics of
29 'Economic growth' of course is hardly an end in itself. It is only that, in capitalism, such growth is crucial for the livelihood, employment and personal security of most people.
? 360 Accumulation of power
the United States (U. S. Department of Commerce. Bureau of the Census 1975, Vol. 2, Table V38-40, p. 914). Both data sets cover manufacturing and mining transactions only and thus fail to reflect the parallel amalgamation drive in other sectors (Markham 1955).
Data for the 1930-66 period are from the U. S. Federal Trade Commission, reported in Historical Statistics of the United States (1975, Vol. 2, Table V38- 40, p. 914). These data, again covering only manufacturing and mining, per- tain to the number of transactions rather than their dollar value. Significantly, though, the number of mergers and acquisitions correlates closely with the value ratio of mergers and acquisitions to green-field investment during previous and subsequent periods for which both are available (the 1920s and 1960s-1980s). In our computations, we assume that there is a similar correla- tion during 1930-66 and use the former series (with proper re-basing) as a proxy for the latter ratio.
From 1967 onward, we again use value data which now cover all sectors. Figures for 1967-79 are from W. T. Grimm, reported in Weston (1987, Table 3. 3, p. 44). For 1980-83, data are from Securities Data Corporation, com- prising transactions of over $1 million only. The next batch, covering the period from 1984 to the 2003, consists of transactions of $5 million or more and is from Thompson Financial. The data for 2004-7, also from Thompson Financial, cover transactions of $10 million or more. These latter data are spliced with the previous series for consistency.
In constructing our indicator for the ratio of mergers and acquisitions to gross fixed investment, we divided, for each year, the dollar value of mergers and acquisitions by the corresponding dollar value of gross fixed private domestic investment. Until 1928, the green-field investment data pertain to total fixed investment (private and public) and are taken from the Historical Statistics of the United States (1975, Vol. 1, Series F105, p. 231). From 1929 onward, the data cover gross fixed private investment and are from the U. S. Bureau of Economic Analysis via Global Insight (series code: IF). For the 1930-66 period, we spliced in the number of deals, linking it with prior and latter value ratios.
16 Depth
Husbandman: I think it is long of you gentlemen that this dearth is, by reason you enhance your lands to such an height, as men that live thereon must needs sell dear . . . or else they were not able to make the rent again.
Knight: And I say it is long of you husbandmen, that we are forced to raise our rents, by reason we must buy all things so dear that we have of you . . . which now will cost me double the money. . . .
--From a sixteenth-century text, A Discourse of the Common Weal of this Realm of England Quoted in Leo Huberman's Man's Worldly Goods
The farmers and knights of the sixteenth century could be forgiven for failing to understand the universal 'laws' of inflation. They didn't realize that their own local problems in fact were part of a much bigger global process. They were oblivious to the influx of precious metals and ignorant of the growing importance of credit and capitalization. They had no comparative data to look at and no in-house economists to 'interpret' them. In fact, as far as they were concerned, inflation didn't even exist. There were only increases in prices. The term 'inflation' came into common use only three centuries later.
Nonetheless, these illiterate sixteenth-century folks were smart enough to see what many present-day economists wish we forgot - namely, that infla- tion is a conflictual process of redistribution. The prices that the farmers charged were costs for the knights, while those that the knights set were costs for the farmers. Both hiked their prices, but never at the same rate. And this differential meant that those who raised their prices faster redistributed income from those who did so more slowly.
But the inflationary struggle isn't simply a tug-of-war between 'indepen- dent' individuals or groups in society.
1 It is an entire regime, an encompassing political process of transforming capitalist power. Note that inflation per se is much older than capitalism. As we have seen, prices already existed in the early civilizations and were leveraged and manipulated well before the arrival of capital. But capitalism is the first mode of power to be overwhelmingly
? 1 For a typical tug-of-war approach to inflation, see Hirschman (1985).
362 Accumulation of power
denominated in prices. And hence it was only with the rise of accumulation that inflation could emerge as a key aspect of the social creorder; and it was only in the twentieth century, with rise of large organized units, that inflation became a defining feature of the state of capital. The purpose of this chapter is to examine some of the ways in which prices and inflation assume this role through the process of differential accumulation. 2
Depth: internal and external
One of the more flexible features of the capitalist mega-machine is the ability to increase power indirectly as well as directly (Equation 4 in Chapter 14). Capitalist power, exerted over society as a whole, is coded in the level and pattern of differential earnings. As we have seen, dominant capital can broaden this power directly by making its organization grow faster than the average. But there is also the other, indirect route of deepening the elemental power of its organization. Whereas breadth hinges on the number of employ- ees in the corporate organization, depth depends on earnings per employee - a measure of the corporation's ability to leverage its organizational power over society as a whole.
Of these two methods, the former is the more effective. Operating primarily through mergers and acquisitions, it can generate enduring large- scale increases in capitalized power. Yet amalgamation isn't always feasible; and when breadth occasionally recedes, dominant capital has to resort to depth - or risk differential decumulation. It is through this latter process that price changes and inflation come into the accumulation picture. 3
Let's look at the depth process more closely. Earnings per employee can be decomposed into three elements associated with the number of units produced/sold by the corporation (indicated by the term 'units'). 4 These include (1) unit price, (2) unit cost and (3) units per employee:
1. earnings per employee = earnings earnings * units
1. earnings per employee = employment = units * employment
1. earnings per employee = unit earnings * units per employee
1. earnings per employee = (unit price - unit cost) * units per employee
2 For a fuller theoretical and empirical analysis of inflation and stagflation, including critiques of existing approaches, see Nitzan (1992; 2001), Bichler and Nitzan (2001: Ch. 5) and Nitzan and Bichler (2000; 2002: Ch. 4).
3 This and the next chapter illustrate our empirical arguments with available statistics of price and quantity aggregates. By using conventional data we keep the empirical critique at the same level as the theories and studies we challenge. For an alternative conceptualization that attempts to bypass the 'quality' trap of aggregation and devise alternative measures, see Nitzan (1992: Ch. 7).
4 For simplicity, our exposition here assumes that all output is sold.
? ? ? ? Depth 363
According to this equation, dominant capital can increase its differential depth by some combination of the following: (1) raising the number of units sold per employee faster than the average; (2) lowering unit cost faster than the average; (3) increasing unit price faster than the average.
Most political economists emphasize the first two methods and deempha- size if not reject the third. In the race for accumulation, they argue, the ultimate winners are those whose inputs are the most efficient and least expensive. That's the ABC of economic survival. It is of course true, the argu- ment continues, that 'monopolistic' firms sometimes can increase their profits by charging higher prices, but this practice is secondary and ephemeral. According to received convention, excessively high prices send buyers in search of cheaper substitutes; the excess profits generated by high prices attract competitors; and finally, there is always Schumpeter's creative destruction and the onslaught of innovations that even the strongest monop- olist cannot withstand.
All of this seems common sense - but, then, what looks sensible from the viewpoint of conventional political economy often gets inverted by differen- tial accumulation. In Chapter 15 we saw that, contrary to common belief, dominant capital benefits much more from mergers and acquisitions than from green-field growth. And in the present chapter we'll see a similar inversion with respect to prices: it turns out that raising prices is far more important for dominant capital than cutting costs.
Cost cutting
To clarify, it's not that the economists are wrong about cost cutting. The conflictual dynamics of capitalism, persistent even in the presence of oligopoly and monopoly, imply a constant pressure to raise the 'productivity' of the inputs and lower their prices. 5 This dual pressure, identified by the classical economists and reiterated by all subsequent schools, critical as well as conservative, seems beyond dispute.
And yet, from the viewpoint of differential accumulation, cutting cost is much like 'running on empty'. It helps dominant capital meet the average, not beat it. Admittedly, this latter claim isn't easy to test. The problem is that conventional data on productivity and input prices are rarely if ever broken down by firm size, so it is impossible to know whether and to what extent larger firms beat the average on either count. But the claim can be assessed indirectly, and the roundabout evidence seems consistent with the 'running- on-empty' thesis.
5 We use the concepts of 'productivity' and 'inputs' here from the what-you-see-is-what-you- get perspective of capitalist executives; the theoretical impossibility of defining these concepts rarely hinders their practical computation.
? 364 Accumulation of power
'Productivity' gains
Begin with 'productivity'. Analytically, the number of units sold per employee (denoted by 'units per employee') can be written as the ratio between sales per employee and unit price:
2. units per employee units salesemployees = sales per employee 2. units per employee = employees = sales = unit price
units
Using this equation, we can approximate the performance of dominant capital relative to the corporate sector as a whole.
Our proxy for dominant capital here is the Fortune 500 group of compa- nies (an alternative to the Compustat Top 100 from Chapter 14). Over the past half-century, sales per employee in the Fortune 500 group and in the corporate universe have grown more or less in tandem. The ratio between the Fortune 500 and the corporate universe was 1. 4 in 1954; it fell gradually to 1. 1 by 1969; and from there it rose steadily, reaching 1. 7 by 1993 (with the latter increase probably partly reflecting the growing significance of outsourcing by large firms). 6 The overall change from 1. 4 in 1954 to 1. 7 in 1993 represents a 20 per cent increase - miniscule when compared to the nineteenfold increase in differential profit per firm recorded over the same period (Figure 14. 2). It also seems reasonable to assume that the prices charged by larger firms haven't fallen relative to those of smaller ones (and have possibly increased) - particularly since, as we show in the next section, inflation has tended to work in their favour. 7
Now relate these two long-term developments to Equation (2). Since differential sales per employee rose only marginally while differential prices haven't fallen and have probably risen, it follows that 'productivity' gains by dominant capital were more or less the same as the social average.
The difficulty of securing differential 'productivity' gains shouldn't surprise us. Even if we ignore the hologramic nature of technology and focus only on the presumable 'in-house' development of production techniques, there is still no reason to expect large firms to be better in such development than small ones.
For instance, many of the current advances in bio-technology, informa- tion and communication are reported by smaller companies, some with only a handful of employees. Dominant capital is often unable to match this flurry of innovation. In many cases, large firms find it cheaper to let smaller compa- nies incur the R&D cost and then buy the more promising startups - some- times just to keep their technology from spreading too quickly. 8
6 Fortune stopped publishing employment data after 1993.
7 Figures in this paragraph are computed on the basis of data from Fortune, the U. S. Internal
Revenue Service and the U. S. Bureau of Labor Statistics.
8 'Big American companies', writes The Economist, 'fear that innovation is the secret of success
? ? ? ? ? ? - and that they cannot innovate'. Indeed, their 'terror' is that 'innovation seems to work best
Depth 365
Moreover, and probably more importantly, production techniques, regardless of who develops them, are notoriously difficult to monopolize. Unlike final commodities that can often be protected through patents, copy- rights and other exclusionary threats, improvements in the social organiza- tion of production tend to proliferate easily, and this rapid spread quickly dilutes the initial advantage of whoever implemented them first.
Input prices
The other route to cutting costs is to lower the prices of the inputs. Yet, here too it is very difficult to translate absolute reductions into differential reduc- tions. For a start, even the largest firms have only limited control over their input prices, particularly with the proliferation of 'outsourcing' and long 'production chains'. The challenge to differential accumulation of universal input prices was summarized neatly by the former chairman of Intel, Andrew Grove:
How do you build a company when your buyers are infinitely knowledge- able and where your suppliers maintain a level playing field for your competitors? What remains your competitive differentiator or your source of value or whatever academic cliche? you want to wrap around it?
(Byrne 2000)
Furthermore, even when large firms do control input prices, the benefits quickly tend to spill over to other firms. Thus, a wage freeze by dominant capital groups in the United States would empower smaller firms to follow suit; political pressure by automobile companies on the Indian government to subsidize oil would benefit all energy users; a British importer winning a tariff reduction gives competing importers a free ride, etc.
All in all, then, cost cutting is a poor differential tactic. Dominant capital has to pursue it with much zeal, lest it falls behind; but it can rarely use it to get ahead.
outside of them', a result of which '[m]uch of today's merger boom is driven by a desperate search for new ideas', with trading in intangible assets reaching $100 billion in 1998, up from $15 billion in 1990 (Anonymous 1999). 'Nobody holds out for organic growth any more', declares Sir Richard Sykes, chairman of Glaxo SmithKline, which in 1999 controlled 7. 3 per cent of the world market for pharmaceuticals. According to a 2000 Financial Times survey in which he is cited, the reason has little to do with 'efficiency gains'. Indeed, 'Those wary of mergers', reports the survey, 'argue there is no evidence of scale contributing to greater efficiency. Ed Scolnick, chief scientist at Merck, found absolutely no correlation between the size and productivity of his company's research laboratories. The relative success of small biotechnology companies suggests that scale in research may even be a disadvantage'. Of course, this is hardly a reason not to merge. As Jim Niedel of Glaxo points out in the same article, 'doubling up' (via merger) allows companies to screen twice as many compounds, not to mention the resulting increase in 'salespower' (Pilling 2000). In our terminology, it contributes to both internal breadth and external depth.
? 366 Accumulation of power
Stagflation
The road to differential depth is not to cut cost but to inflate prices. As we shall see, inflation often redistributes income from wages to profits and from small to large firms; it elevates the differential earnings per employee of the leading corporations; and it deepens the 'elemental power' of dominant capital.
But the process is full of puzzles. First, there is the general theoretical conundrum. Conventional theory associates inflation with growth, yet reality usually brings inflation together with stagnation. Since this combination is not supposed to happen, economists decided to contain the damage by giving it a special name. They called it 'stagflation' - an anomalous mixture of stag- nation and inflation that shouldn't be confused with 'normal', growth-driven inflation (growthflation? ). 9
And then there is our own bizarre proposition that stagflation, whether normal or anomalous, fuels the differential accumulation of dominant capital. Most readers will probably find this suggestion somewhat difficult to swallow. How could firms gain from a combined crisis of rising prices, stag- nating production and falling employment? Why should this crisis benefit larger firms relative to smaller ones? And if stagflation is so beneficial to the most powerful groups in society, why don't we have it all the time? Clearly, there are many questions to sort out here, so it is worthwhile to backtrack a bit and provide some context.
The historical backdrop
To start with, there seems to be a general neglect, including among critical political economists, of the historical significance of inflation for capitalist development. On the face of it, this neglect is rather surprising. Inflation - commonly defined as a general rise in the price of commodities - is hardly new. According to David Hackett Fischer (1996), since the thirteenth century there have been no less than four major inflationary waves, or 'price revolu- tions' as he calls them. Figure 16. 1 illustrates the pattern of these waves in the UK, a country whose price indices go back the farthest (note the log scale). 10
The first wave occurred during the thirteenth century; the second during the sixteenth century; the third in the latter part of the eighteenth century; and the most recent began in the early twentieth century and is still going. As Fischer argues, each of these price revolutions was accompanied, particularly toward the latter part of the wave, by a deepening socio-economic crisis. In
9 The term 'stagflation' was reputedly coined in the 1960s by British parliamentarian Ian Macleod and later popularized by Paul Samuelson (1974).
10 The patterns of US consumer prices (since the early nineteenth century) and of US whole- sale prices (since the mid-eighteenth century) are remarkably similar to the UK ones shown in Figure 16. 1.
? 10,000
1,000
100
10
1
1200 1300
1400 1500 1600
1700 1800 1900
2000 2100
Figure 16. 1
Consumer prices in the UK, 1271-2007
Source: Till 1948, data are from Global Financial Data (series code: CPGBRM); from 1949 onward, data are from International Financial Statistics through Global Insight (series code: L64@C112).
other words, the 'anomaly' of inflation in the midst of stagnation is not a twentieth-century novelty. It's been with us for half a millennium, if not more. Now, to be fair to the classical political economists, the specific backdrop
against which they were writing was largely one of price stability and even deflation - not inflation. As shown in Figure 16. 1, UK consumer prices had hardly changed between 1600 and 1750. In the second half of the eighteenth century they rose relatively quickly, but then fell again throughout the nine- teenth century. Between 1800 and 1900 - a formative period of political economy - consumer prices in Great Britain and wholesale prices in the United States both dropped by more than one third. 11 In this deflationary context, it was only natural to concentrate on production and the coercive discipline of 'market forces' and to ignore inflation.
However, the historical backdrop changed dramatically during the twen- tieth century. First, inflation has risen to unprecedented levels. As Figure 16. 1
11 Data for the United States are from Global Financial Data (series code: WPUSAM for the wholesale price index).
Depth 367
? ? ? ? ? log scale
? ? ? Price increase from 1900 to 2007: 5,785%
? ? ? ? ? ? ? ? ? ? ? ? ? ? Price increase from 1300 to 1900: 769%
? ? ? ? ? ? ? ? ? ? ? ? 1900
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? ? ? ? ? ? ? ? ? ? ? ? ?
of the twentieth century. Nonetheless, the facts that the share of gross invest- ment in GDP was generally higher then than now and that two-way capital flow is a relatively recent phenomenon, together serve to suggest that the cur- rent pace of globalization, let alone its level, may well be at an all time high.
Capital flow and the creorder of global power
Theoretically, the common thread going through most analyses is the belief that capital flows in response to the 'primordial' forces of production and trade. According to this view, capital flows are directed by profit signals; profit signals show where capital is most needed; and capital is most needed where it is the most productive (comparatively or otherwise).
To us, this view is akin to putting the world on its head. The global move- ment of capital is a matter not of production and efficiency but of ownership and power. On its own, the act of foreign investment - whether portfolio or direct - consists of nothing more than the creation or alteration of legal enti- tlements. 26 The magnitude of such foreign entitlements - just like the magni- tude of domestic entitlements - is equal to the present value of their expected future earnings. And since the level and pattern of these earnings reflect the control of business over industry, it follows that cross-border flow of capital reflects the restructuring not of global production, but of global capitalist power at large. 27
26 The popular perception that 'direct' investment creates new productive capacity, in contrast to 'portfolio' investment which is merely a paper transaction, is simply wrong. In fact, both are paper transactions whose only difference is relative size: investments worth more than 10 per cent of the target company's equity commonly are classified as direct, whereas those worth less are considered portfolio.
27 The 'delinking' of capital flows from the 'underlying' growth of production (assuming that they were previously linked) is slowly dawning even on the most religious. In a recent gathering of the world's central bankers at the Jackson Hole Retreat, the pundits sounded almost bewildered:
Today, capital flows 'uphill' from poor to rich nations - above all the US - in contrast to the predictions of all standard economic theories. Moreover, as Raghu Rajan, chief economist at the International Monetary Fund, explained at Jackson Hole, there is no evidence of a positive relationship between net capital inflows and long-term growth in developing countries. Foreign direct investment may be a special case. But overall, the correlation is negative: countries that have relied less on foreign capital have grown on average faster. This is surprising, since extra capital should normally boost growth.
(Guha and Briscoe 2006, emphasis added)
But then, just to make sure that bewilderment doesn't clash with faith, the experts quickly blame it all on 'distortions':
One possible explanation, Mr Rajan said, is that developing countries may be unable to absorb foreign capital effectively because they have inadequate financial systems. . . .
? (Ibid. )
Breadth 357
One of the first writers to approach international capital mobility as a facet of ownership and power was Stephen Hymer (1960). In his view, firms would prefer foreign investment over export or licensing when such ownership conferred differential power, or an 'ownership advantage' as it later came to be known. Based on this interpretation, the power of US-based foreign inves- tors seems to have risen exponentially over the past half-century, as illus- trated in Figure 15. 6.
The chart presents two proxies for the globalization of US business. The first proxy, measuring the share of export in GDP, provides a rough indica- tion of the contribution to overall profit of outgoing trade. The second, measuring the share of foreign operations in overall net corporate profit, approximates the significance of foreign as opposed to domestic investment.
Up until the 1950s, the relative contribution to profit of foreign assets was similar to that of export (assuming domestic and export sales are equally profitable, so that the ratio of export to GDP corresponds to the ratio of
50
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40
35
30
25
20
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Trend growth rate: 2. 4% per annum
? ? ? ? ? per cent
? Ownership
(foreign operations as a share of net corporate profit *)
? ? Trend growth rate: 1. 7% per annum
Trade
(export as a share of GDP)
? ? ? ? ? -5
1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030
Figure 15. 6 The globalization of US business: ownership vs trade
* Receipts from the rest of the world as a per cent of corporate profit after tax. Note: Series are smoothed as 5-year moving averages.
Source: U. S. Bureau of Economic Analysis through Global Insight (series codes: GAARP till 1998 and ZBECONRWRCT from 1999 for after tax corporate profit receipts from the rest of the world; ZA for after tax corporate profit; X for export; GDP for GDP).
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 358 Accumulation of power
export profit to overall profit). But since then, the importance for profit of foreign investment has grown much faster than that of trade, reaching one third of the total in recent years. This faster growth of foreign profit may seem perplexing since, even with the recent resurgence of capital mobility, US trade flows are still roughly three times larger than capital flows. But then, unlike trade, investment tends to accumulate, and that accumulation eventually causes overseas earnings to outpace those generated by export.
This divergence serves to heighten the power underpinnings of trade liber- alization. Advocates of global integration, following in the footsteps of Adam Smith and David Ricardo, tend to emphasize the central role of 'free trade'. Unhindered exchange, they argue, is the major force underlying greater effi- ciency and lower prices. And as it stands their claim may well be true. Indeed, downward price pressures are one reason why dominant capital is often half-hearted about indiscriminate deregulation, particularly when such deregulation allows competitors to undermine its differential margins. Yet despite this threat, large firms continue to support freer trade, and for a very good reason. For them, free trade is a means to something much more impor- tant, namely free investment - or more precisely, the freedom to impose and capitalize power.
Foreign investment and differential accumulation
Although difficult to ascertain with available data, the cumulative (albeit irregular) build-up of international investment must have contributed greatly to the differential accumulation of US dominant capital. The reason is that whereas exports augment the profits of small as well as large firms, the bulk of foreign earnings go to the largest corporations. Therefore, it is the global- ization of ownership, not trade, which is the real prize. While free trade can boost as well as undermine differential accumulation, free investment tends mostly to raise it. But then, since free investment can come only on the heels of liberalized trade, the latter is worth pursuing, even at the cost of import competition and rising trade deficits.
Foreign investment, like any other investment, is always a matter of power. The nature of this power, though, has changed significantly over time. Until well into the second half of the nineteenth century, the combination of rapidly expanding capitalism and high population growth enabled profitability to rise despite the parallel increase in the number of competitors. 28 There was only a limited need for business collusion and the explicit politicization of accumulation - and, as a result, most capital flows were relatively small port- folio investments, associated mainly with green-field expansion (Folkerts- Landau, Mathieson, and Schinasi 1997, Annex VI).
28 See for example, Veblen (1923, Ch. 4), Josephson (1934), Hobsbawm (1975, Chs 2-3), Arrighi, Barr, and Hisaeda (1999) and Figure 12. 3 and related discussion in this book.
? Breadth 359
Eventually, though, excess capacity started to appear, giving rise to the progressive shift from green-field to amalgamation as described earlier in the chapter. Yet for more than half a century this shift was mostly domestic, with mergers and acquisitions first having to break through their various national 'envelopes'. It was only since the 1970s and 1980s that the process became truly global, and it was only then that the character of capital flow started to change.
The need to exert control has moved the emphasis gradually toward larger, 'direct' foreign investment, while the threat of excess capacity has pushed such investment away from green-field and toward amalgamation. At present, over 75 per cent of all foreign direct investment takes the form of cross-border mergers and acquisitions (United Nations Conference on Trade and Development 2000: 117, Figure IV. 9).
From a power perspective, therefore, one could say that during the late nineteenth and early twentieth centuries capital mobility was still largely a matter of 'choice'. But by the end of the twentieth century it became more or less a 'necessity', mandated by the combination of excess capacity and the cumulative build-up of giant firms, for which profitable expansion increas- ingly hinges on global amalgamation and creeping stagnation (Proposition 3 in Chapter 14). 29
In summary, there is a long but crucial link leading from the broad power imperatives of capitalism, to the logic of differential accumulation, to amal- gamation, to capital mobility (Proposition 5 in Chapter 14). From this view- point, the purpose of globalization is not aggregate growth but differential gain; it is driven not by the quest for greater global efficiency, but by the need to control efficiency on a global scale; and finally and most importantly, it is inherent in the capitalist creorder. Without the globalization of ownership, dominant capital cannot break its national envelope; and if it cannot go global, its differential breadth is bound to collapse. In this sense, globaliza- tion is part of the inner logic of accumulation. It can be reversed only by altering that logic, or by moving away from it altogether.
Appendix to Chapter 15: data on mergers and acquisitions
There are no systematic historical time series for mergers and acquisitions in the United States (other countries have even less information). The mergers and acquisitions series constructed in this chapter and plotted in Figures 15. 2 and 15. 3 is computed on the basis of various studies. These studies often use different definitions, covering different universes of companies.
The dollar values of mergers and acquisition for the 1895-1919 period are taken from Nelson (1959, Table 14, p. 37), whereas those covering the 1920-29 period come from Eis (1969), as reported in Historical Statistics of
29 'Economic growth' of course is hardly an end in itself. It is only that, in capitalism, such growth is crucial for the livelihood, employment and personal security of most people.
? 360 Accumulation of power
the United States (U. S. Department of Commerce. Bureau of the Census 1975, Vol. 2, Table V38-40, p. 914). Both data sets cover manufacturing and mining transactions only and thus fail to reflect the parallel amalgamation drive in other sectors (Markham 1955).
Data for the 1930-66 period are from the U. S. Federal Trade Commission, reported in Historical Statistics of the United States (1975, Vol. 2, Table V38- 40, p. 914). These data, again covering only manufacturing and mining, per- tain to the number of transactions rather than their dollar value. Significantly, though, the number of mergers and acquisitions correlates closely with the value ratio of mergers and acquisitions to green-field investment during previous and subsequent periods for which both are available (the 1920s and 1960s-1980s). In our computations, we assume that there is a similar correla- tion during 1930-66 and use the former series (with proper re-basing) as a proxy for the latter ratio.
From 1967 onward, we again use value data which now cover all sectors. Figures for 1967-79 are from W. T. Grimm, reported in Weston (1987, Table 3. 3, p. 44). For 1980-83, data are from Securities Data Corporation, com- prising transactions of over $1 million only. The next batch, covering the period from 1984 to the 2003, consists of transactions of $5 million or more and is from Thompson Financial. The data for 2004-7, also from Thompson Financial, cover transactions of $10 million or more. These latter data are spliced with the previous series for consistency.
In constructing our indicator for the ratio of mergers and acquisitions to gross fixed investment, we divided, for each year, the dollar value of mergers and acquisitions by the corresponding dollar value of gross fixed private domestic investment. Until 1928, the green-field investment data pertain to total fixed investment (private and public) and are taken from the Historical Statistics of the United States (1975, Vol. 1, Series F105, p. 231). From 1929 onward, the data cover gross fixed private investment and are from the U. S. Bureau of Economic Analysis via Global Insight (series code: IF). For the 1930-66 period, we spliced in the number of deals, linking it with prior and latter value ratios.
16 Depth
Husbandman: I think it is long of you gentlemen that this dearth is, by reason you enhance your lands to such an height, as men that live thereon must needs sell dear . . . or else they were not able to make the rent again.
Knight: And I say it is long of you husbandmen, that we are forced to raise our rents, by reason we must buy all things so dear that we have of you . . . which now will cost me double the money. . . .
--From a sixteenth-century text, A Discourse of the Common Weal of this Realm of England Quoted in Leo Huberman's Man's Worldly Goods
The farmers and knights of the sixteenth century could be forgiven for failing to understand the universal 'laws' of inflation. They didn't realize that their own local problems in fact were part of a much bigger global process. They were oblivious to the influx of precious metals and ignorant of the growing importance of credit and capitalization. They had no comparative data to look at and no in-house economists to 'interpret' them. In fact, as far as they were concerned, inflation didn't even exist. There were only increases in prices. The term 'inflation' came into common use only three centuries later.
Nonetheless, these illiterate sixteenth-century folks were smart enough to see what many present-day economists wish we forgot - namely, that infla- tion is a conflictual process of redistribution. The prices that the farmers charged were costs for the knights, while those that the knights set were costs for the farmers. Both hiked their prices, but never at the same rate. And this differential meant that those who raised their prices faster redistributed income from those who did so more slowly.
But the inflationary struggle isn't simply a tug-of-war between 'indepen- dent' individuals or groups in society.
1 It is an entire regime, an encompassing political process of transforming capitalist power. Note that inflation per se is much older than capitalism. As we have seen, prices already existed in the early civilizations and were leveraged and manipulated well before the arrival of capital. But capitalism is the first mode of power to be overwhelmingly
? 1 For a typical tug-of-war approach to inflation, see Hirschman (1985).
362 Accumulation of power
denominated in prices. And hence it was only with the rise of accumulation that inflation could emerge as a key aspect of the social creorder; and it was only in the twentieth century, with rise of large organized units, that inflation became a defining feature of the state of capital. The purpose of this chapter is to examine some of the ways in which prices and inflation assume this role through the process of differential accumulation. 2
Depth: internal and external
One of the more flexible features of the capitalist mega-machine is the ability to increase power indirectly as well as directly (Equation 4 in Chapter 14). Capitalist power, exerted over society as a whole, is coded in the level and pattern of differential earnings. As we have seen, dominant capital can broaden this power directly by making its organization grow faster than the average. But there is also the other, indirect route of deepening the elemental power of its organization. Whereas breadth hinges on the number of employ- ees in the corporate organization, depth depends on earnings per employee - a measure of the corporation's ability to leverage its organizational power over society as a whole.
Of these two methods, the former is the more effective. Operating primarily through mergers and acquisitions, it can generate enduring large- scale increases in capitalized power. Yet amalgamation isn't always feasible; and when breadth occasionally recedes, dominant capital has to resort to depth - or risk differential decumulation. It is through this latter process that price changes and inflation come into the accumulation picture. 3
Let's look at the depth process more closely. Earnings per employee can be decomposed into three elements associated with the number of units produced/sold by the corporation (indicated by the term 'units'). 4 These include (1) unit price, (2) unit cost and (3) units per employee:
1. earnings per employee = earnings earnings * units
1. earnings per employee = employment = units * employment
1. earnings per employee = unit earnings * units per employee
1. earnings per employee = (unit price - unit cost) * units per employee
2 For a fuller theoretical and empirical analysis of inflation and stagflation, including critiques of existing approaches, see Nitzan (1992; 2001), Bichler and Nitzan (2001: Ch. 5) and Nitzan and Bichler (2000; 2002: Ch. 4).
3 This and the next chapter illustrate our empirical arguments with available statistics of price and quantity aggregates. By using conventional data we keep the empirical critique at the same level as the theories and studies we challenge. For an alternative conceptualization that attempts to bypass the 'quality' trap of aggregation and devise alternative measures, see Nitzan (1992: Ch. 7).
4 For simplicity, our exposition here assumes that all output is sold.
? ? ? ? Depth 363
According to this equation, dominant capital can increase its differential depth by some combination of the following: (1) raising the number of units sold per employee faster than the average; (2) lowering unit cost faster than the average; (3) increasing unit price faster than the average.
Most political economists emphasize the first two methods and deempha- size if not reject the third. In the race for accumulation, they argue, the ultimate winners are those whose inputs are the most efficient and least expensive. That's the ABC of economic survival. It is of course true, the argu- ment continues, that 'monopolistic' firms sometimes can increase their profits by charging higher prices, but this practice is secondary and ephemeral. According to received convention, excessively high prices send buyers in search of cheaper substitutes; the excess profits generated by high prices attract competitors; and finally, there is always Schumpeter's creative destruction and the onslaught of innovations that even the strongest monop- olist cannot withstand.
All of this seems common sense - but, then, what looks sensible from the viewpoint of conventional political economy often gets inverted by differen- tial accumulation. In Chapter 15 we saw that, contrary to common belief, dominant capital benefits much more from mergers and acquisitions than from green-field growth. And in the present chapter we'll see a similar inversion with respect to prices: it turns out that raising prices is far more important for dominant capital than cutting costs.
Cost cutting
To clarify, it's not that the economists are wrong about cost cutting. The conflictual dynamics of capitalism, persistent even in the presence of oligopoly and monopoly, imply a constant pressure to raise the 'productivity' of the inputs and lower their prices. 5 This dual pressure, identified by the classical economists and reiterated by all subsequent schools, critical as well as conservative, seems beyond dispute.
And yet, from the viewpoint of differential accumulation, cutting cost is much like 'running on empty'. It helps dominant capital meet the average, not beat it. Admittedly, this latter claim isn't easy to test. The problem is that conventional data on productivity and input prices are rarely if ever broken down by firm size, so it is impossible to know whether and to what extent larger firms beat the average on either count. But the claim can be assessed indirectly, and the roundabout evidence seems consistent with the 'running- on-empty' thesis.
5 We use the concepts of 'productivity' and 'inputs' here from the what-you-see-is-what-you- get perspective of capitalist executives; the theoretical impossibility of defining these concepts rarely hinders their practical computation.
? 364 Accumulation of power
'Productivity' gains
Begin with 'productivity'. Analytically, the number of units sold per employee (denoted by 'units per employee') can be written as the ratio between sales per employee and unit price:
2. units per employee units salesemployees = sales per employee 2. units per employee = employees = sales = unit price
units
Using this equation, we can approximate the performance of dominant capital relative to the corporate sector as a whole.
Our proxy for dominant capital here is the Fortune 500 group of compa- nies (an alternative to the Compustat Top 100 from Chapter 14). Over the past half-century, sales per employee in the Fortune 500 group and in the corporate universe have grown more or less in tandem. The ratio between the Fortune 500 and the corporate universe was 1. 4 in 1954; it fell gradually to 1. 1 by 1969; and from there it rose steadily, reaching 1. 7 by 1993 (with the latter increase probably partly reflecting the growing significance of outsourcing by large firms). 6 The overall change from 1. 4 in 1954 to 1. 7 in 1993 represents a 20 per cent increase - miniscule when compared to the nineteenfold increase in differential profit per firm recorded over the same period (Figure 14. 2). It also seems reasonable to assume that the prices charged by larger firms haven't fallen relative to those of smaller ones (and have possibly increased) - particularly since, as we show in the next section, inflation has tended to work in their favour. 7
Now relate these two long-term developments to Equation (2). Since differential sales per employee rose only marginally while differential prices haven't fallen and have probably risen, it follows that 'productivity' gains by dominant capital were more or less the same as the social average.
The difficulty of securing differential 'productivity' gains shouldn't surprise us. Even if we ignore the hologramic nature of technology and focus only on the presumable 'in-house' development of production techniques, there is still no reason to expect large firms to be better in such development than small ones.
For instance, many of the current advances in bio-technology, informa- tion and communication are reported by smaller companies, some with only a handful of employees. Dominant capital is often unable to match this flurry of innovation. In many cases, large firms find it cheaper to let smaller compa- nies incur the R&D cost and then buy the more promising startups - some- times just to keep their technology from spreading too quickly. 8
6 Fortune stopped publishing employment data after 1993.
7 Figures in this paragraph are computed on the basis of data from Fortune, the U. S. Internal
Revenue Service and the U. S. Bureau of Labor Statistics.
8 'Big American companies', writes The Economist, 'fear that innovation is the secret of success
? ? ? ? ? ? - and that they cannot innovate'. Indeed, their 'terror' is that 'innovation seems to work best
Depth 365
Moreover, and probably more importantly, production techniques, regardless of who develops them, are notoriously difficult to monopolize. Unlike final commodities that can often be protected through patents, copy- rights and other exclusionary threats, improvements in the social organiza- tion of production tend to proliferate easily, and this rapid spread quickly dilutes the initial advantage of whoever implemented them first.
Input prices
The other route to cutting costs is to lower the prices of the inputs. Yet, here too it is very difficult to translate absolute reductions into differential reduc- tions. For a start, even the largest firms have only limited control over their input prices, particularly with the proliferation of 'outsourcing' and long 'production chains'. The challenge to differential accumulation of universal input prices was summarized neatly by the former chairman of Intel, Andrew Grove:
How do you build a company when your buyers are infinitely knowledge- able and where your suppliers maintain a level playing field for your competitors? What remains your competitive differentiator or your source of value or whatever academic cliche? you want to wrap around it?
(Byrne 2000)
Furthermore, even when large firms do control input prices, the benefits quickly tend to spill over to other firms. Thus, a wage freeze by dominant capital groups in the United States would empower smaller firms to follow suit; political pressure by automobile companies on the Indian government to subsidize oil would benefit all energy users; a British importer winning a tariff reduction gives competing importers a free ride, etc.
All in all, then, cost cutting is a poor differential tactic. Dominant capital has to pursue it with much zeal, lest it falls behind; but it can rarely use it to get ahead.
outside of them', a result of which '[m]uch of today's merger boom is driven by a desperate search for new ideas', with trading in intangible assets reaching $100 billion in 1998, up from $15 billion in 1990 (Anonymous 1999). 'Nobody holds out for organic growth any more', declares Sir Richard Sykes, chairman of Glaxo SmithKline, which in 1999 controlled 7. 3 per cent of the world market for pharmaceuticals. According to a 2000 Financial Times survey in which he is cited, the reason has little to do with 'efficiency gains'. Indeed, 'Those wary of mergers', reports the survey, 'argue there is no evidence of scale contributing to greater efficiency. Ed Scolnick, chief scientist at Merck, found absolutely no correlation between the size and productivity of his company's research laboratories. The relative success of small biotechnology companies suggests that scale in research may even be a disadvantage'. Of course, this is hardly a reason not to merge. As Jim Niedel of Glaxo points out in the same article, 'doubling up' (via merger) allows companies to screen twice as many compounds, not to mention the resulting increase in 'salespower' (Pilling 2000). In our terminology, it contributes to both internal breadth and external depth.
? 366 Accumulation of power
Stagflation
The road to differential depth is not to cut cost but to inflate prices. As we shall see, inflation often redistributes income from wages to profits and from small to large firms; it elevates the differential earnings per employee of the leading corporations; and it deepens the 'elemental power' of dominant capital.
But the process is full of puzzles. First, there is the general theoretical conundrum. Conventional theory associates inflation with growth, yet reality usually brings inflation together with stagnation. Since this combination is not supposed to happen, economists decided to contain the damage by giving it a special name. They called it 'stagflation' - an anomalous mixture of stag- nation and inflation that shouldn't be confused with 'normal', growth-driven inflation (growthflation? ). 9
And then there is our own bizarre proposition that stagflation, whether normal or anomalous, fuels the differential accumulation of dominant capital. Most readers will probably find this suggestion somewhat difficult to swallow. How could firms gain from a combined crisis of rising prices, stag- nating production and falling employment? Why should this crisis benefit larger firms relative to smaller ones? And if stagflation is so beneficial to the most powerful groups in society, why don't we have it all the time? Clearly, there are many questions to sort out here, so it is worthwhile to backtrack a bit and provide some context.
The historical backdrop
To start with, there seems to be a general neglect, including among critical political economists, of the historical significance of inflation for capitalist development. On the face of it, this neglect is rather surprising. Inflation - commonly defined as a general rise in the price of commodities - is hardly new. According to David Hackett Fischer (1996), since the thirteenth century there have been no less than four major inflationary waves, or 'price revolu- tions' as he calls them. Figure 16. 1 illustrates the pattern of these waves in the UK, a country whose price indices go back the farthest (note the log scale). 10
The first wave occurred during the thirteenth century; the second during the sixteenth century; the third in the latter part of the eighteenth century; and the most recent began in the early twentieth century and is still going. As Fischer argues, each of these price revolutions was accompanied, particularly toward the latter part of the wave, by a deepening socio-economic crisis. In
9 The term 'stagflation' was reputedly coined in the 1960s by British parliamentarian Ian Macleod and later popularized by Paul Samuelson (1974).
10 The patterns of US consumer prices (since the early nineteenth century) and of US whole- sale prices (since the mid-eighteenth century) are remarkably similar to the UK ones shown in Figure 16. 1.
? 10,000
1,000
100
10
1
1200 1300
1400 1500 1600
1700 1800 1900
2000 2100
Figure 16. 1
Consumer prices in the UK, 1271-2007
Source: Till 1948, data are from Global Financial Data (series code: CPGBRM); from 1949 onward, data are from International Financial Statistics through Global Insight (series code: L64@C112).
other words, the 'anomaly' of inflation in the midst of stagnation is not a twentieth-century novelty. It's been with us for half a millennium, if not more. Now, to be fair to the classical political economists, the specific backdrop
against which they were writing was largely one of price stability and even deflation - not inflation. As shown in Figure 16. 1, UK consumer prices had hardly changed between 1600 and 1750. In the second half of the eighteenth century they rose relatively quickly, but then fell again throughout the nine- teenth century. Between 1800 and 1900 - a formative period of political economy - consumer prices in Great Britain and wholesale prices in the United States both dropped by more than one third. 11 In this deflationary context, it was only natural to concentrate on production and the coercive discipline of 'market forces' and to ignore inflation.
However, the historical backdrop changed dramatically during the twen- tieth century. First, inflation has risen to unprecedented levels. As Figure 16. 1
11 Data for the United States are from Global Financial Data (series code: WPUSAM for the wholesale price index).
Depth 367
? ? ? ? ? log scale
? ? ? Price increase from 1900 to 2007: 5,785%
? ? ? ? ? ? ? ? ? ? ? ? ? ? Price increase from 1300 to 1900: 769%
? ? ? ? ? ? ? ? ? ? ? ? 1900
www. bnarchives. net
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