In math- ematics, God set not only the rules, but also the
ultimate
proofs of those rules.
Nitzan Bichler - 2012 - Capital as Power
Following the so-called Classical Dichotomy, first suggested in the eighteenth century by British philosopher David Hume, neoclassicists separate economic life into 'real' and 'nominal' domains.
Of the two, the real sphere is primary, the nominal secondary.
The real sphere is where production and consumption take place and relative prices and distribution are determined.
The nominal sphere is the domain of money and absolute prices, and it both lubricates and reflects the input- output processes of the real economy.
At the root of this duality lies an attempt to justify capitalist profit and wealth. The liberal claim - first voiced in the European city-states of the thir-
The dual worlds 31
teenth and fourteenth centuries and later formalized in John Locke's Two Treatises of Government (1690) - is that private property emerges from one's own labour. This claim makes the bourgeoisie unique: earlier dominant classes looted their wealth and therefore needed religion to sanctify it; the capitalists, by contrast, produce their wealth with their effort and hence have a natural right to own it. 3
Nominal income and assets, therefore, are derivative not of mercantilist plunder but of actual production with real capital goods, and that makes them fully justified. The productivity of the capitalist, intertwined with his existing capital goods, results in monetary earnings. These earnings in turn are ploughed back into producing more capital goods, leading to more mone- tary wealth, more capital goods, more earnings, and so on in an ever- expanding spiral. In this way, the money value of finance, measured in dollars and cents, reflects and manifests the physical capital stock created by the capitalist.
Of course, the correspondence is far from perfect. As it turns out, the ups and downs of the stock and bond markets are rather difficult to correlate with changes in the capital stock - particularly since, as we shall see in Chapter 10, the two measures tend to move in opposite directions. But this mismatch hasn't been much of a concern. Liberals have solved it by putting into work an army of 'distortionists' - theorists, strategists and analysts who pry on 'insti- tutional imperfections' and 'exogenous shocks'. The theory, argue the distor- tionists, is perfectly fine. The problem is with the extra-economic forces - the shocks that constantly besiege the otherwise pure economic system, contami- nate its real and nominal spheres and fracture their pristine correspondence. Once you account for these distortions, it becomes clear why finance is always dependent on - yet forever delinked from - its true material essence.
The Marxist mismatch
Although the Marxist logic on this subject is radically different, its conclu- sions are surprisingly similar. Contrary to the liberals, Marx sought to annul the bourgeois justification for profit. He agreed that value is created in the material sphere - but instead of multiple factors of production, he insisted that there is only one: labour. The value of all commodities - including that of capital goods - is determined by productive labour alone.
3 Perhaps the first to explicitly associate income with productivity were the university profes- sors. Knowledge (scientia) was the gift of God and therefore could not be sold, but the new urban intellectuals found a better leverage: the notion that all work deserves a salary. 'We find it irrational that the worker not profit from his work', argued the doctors of law in thir- teenth-century Padua, and then went on to conclude that 'the master may accept the money of students - the collecta - as the price of his work, of his trouble' (quoted in Le Goff 1993: 94-95).
? 32 Dilemmas of political economy
In this scheme, not all capitals are created equal. The so-called industrial capitalist, the employer of productive labour, does possess real capital. But the commercial and financial capitalists - insofar they employ only unpro- ductive labour and therefore produce neither value nor surplus value - do not own real capital. Although they accumulate moneyed capital, they do so merely by appropriating some of the surplus value generated by industrial capitalists. The resulting intra-capitalist redistribution creates a mismatch. It means that the nominal magnitude of any particular capital is likely to differ from its underlying real magnitude: for the industrialist the nominal will be lower than the real, while for the commercial and financial capitalist the nominal will exceed the real (which may well be zero).
The nominal-real mismatch is further amplified by the forward-looking nature of financial markets. Stock and bond prices represent the present value of expected future earnings. Because we deal with expectations, these future earnings may or may not be 'realized'. And since the earnings are merely tentative, there is no reason why finance should be equal to - or even corre- late with - capital goods that already exist here and now. For this reason Marx considered financial assets to be 'fictitious capital' - in contrast to the 'real capital' anchored in the dead labour of realized surplus value.
And, here, too, the Marxists find themselves stuck in a liberal duality. They portray a world in which the parasitic capitalists of commerce and finance suck in surplus from the productive capitalists of industry, where speculative market bubbles inflate and deflate around the fundamentals of production, where the fiction of finance distorts the true picture of real accumulation. The specific categories and theories differ from those of the liberals, but the real-nominal bifurcation that underlies them is the same.
Quantitative equivalence?
Separating the real from the nominal enables the theorist to play both cards. On the one hand, he can stand by the theory, insisting that in the final analysis nominal finance derives from the reality of capital goods. On the other hand, when the difference between finance and capital goods gets too larger, he can suspend the theory - at least temporarily, until the 'distortions' go away.
This convenient doublespeak serves to conceal a deep ontological diffi- culty. At issue here is the very assumption of quantitative equivalence. Both neoclassicists and Marxists believe that capital has two quantities - one nominal, the other material. And they further believe that, under ideal circum- stances - without intervening factors and other extra-economic distortions - these two quantities are equivalent.
As we shall show, this assumption rests on foundations of sand. Its first component - the belief that capital has two quantities - falls flat on its face. Capital certainly has a nominal quantity. We know its price in dollars and cents. But capital does not have - and indeed cannot have - a material
The dual worlds 33
quantity. The second belief, namely that the two quantities of capital are equivalent, is also seriously problematic. Even if capital goods did have a material quantity, why should this quantity have anything to do with the nominal value of capital? Capital, this book argues, is not a productive economic entity; it is a broad power institution. And if that is the case, what could the 'mass' of machines - even if it had a calculable quantity - tell us about the social dynamics of power?
3 Power
Force is nothing apart from its effect.
--Herbert Marcuse, Reason and Revolution
The pre-capitalist backdrop
To understand the origin and rationale of the capitalist dualities, it is useful to begin with some observations on the pre-capitalist world. As we have seen, prior to the emergence of liberalism all state and quasi-state regimes - or 'cultures' in today's lingo - were marked by a binary structure: an inescapable conflict between mastery and slavery, between rulers and ruled. The material bedrock was agricultural. In economic parlance, there were two 'factors of production': land and labour. Politically, these factors corresponded to two classes: the nobility and the peasantry. The nobility owned the land and imposed its rule. The peasantry - save for the occasional revolt - passively submitted to the nobility's rule.
This early mode of production, to use Marx's language, unfolded through multiple forms of authoritarianism, despotism and tyranny - from the Carolingian state of Europe and the Caliphates of the Middle East to the Moguls of India and the empires of China and Japan. The histories of these dictatorships varied greatly. Some relied on peasant-slaves, as in the ancient empires; others were based on farmer-tenants, as in the Middle East; and still others were built on serfs tied to princely fiefdoms, as in Europe and Japan. But the underlying principle was always the same: redistribution through confiscation. The nobles would rob the peasants, each other, or both. 1
1 The dominant postmodern fashion loves to reject this universal history (or should we rather say 'narrative') - in favour of a much more politically-correct protestation. The postists not only decry the oppression of the 'East' by the 'West', but also insist that the so-called 'Western scientific revolution' in fact originated in the . . . 'Orient' (see for instance, Hobson 2004).
According to this universal Orient-centrism, it turns out that the 'West' (in its totality) took off largely thanks to the knowledge of the 'East' (in the aggregate). The 'East' gener- ously made its 'knowledge portfolio' available to the 'West'; the 'West' used this precious portfolio in order to industrialize and capitalize (which amount to the same thing); and then,
? Power 35
There was no alternative. The agricultural cycle was slow, productivity low and innovation shunned. There wasn't any growth. The only way to get ahead was to deprive someone else. 2
Appropriately, the rulers' worldview was static and circular. It glorified the past and idealized the present. Happiness, riches and glory, it claimed, depended on miracle and magic. Any change - for better or worse - was to come from outside society, delivered by extra-terrestrial envoys (such as the Persian-Jewish-Christian Messiah), supercharged emissaries (like the Jewish- Muslim-Christian Satan/Devil), or resurrected dead (another Persian tech- nology).
In order to legitimize their naked violence, the rulers needed a mediating factor, an external force that would justify and conceal their inherent conflict with their subjects. This external force usually appeared as an awe-inspiring, superhuman entity - Baal, El, Aton, Zeus, Jehovah, Allah, Jesus, Inti, Itzamna. In due course, the rituals associated with these deities would develop into ruthless, centralized religions that sanctified the status quo and punished deviations. Although often wrapped in a language of blessing, compassion and generosity, these religions served to terrorize and oppress the peasants and slaves. Their promise to the laity was surprisingly uniform: suffer and pay in this world, get reimbursed in the next. No wonder insurance companies found this scheme inspiring.
The tillers of the land were left with little choice. Faced with rulers who owned not only the land and the weapons, but also the keys to Heaven and Hell, what else could they do but obey? 3
toward the end of the process, the 'West' turned back to take over, oppress and eviscerate the 'East'.
There is no doubt. Albania, Bulgaria, Ukraine, the Baltic countries and other such 'Western' states grew and prospered largely due to the scientific methods and knowl- edge given to them by Genghis Khan, the Indian Mughals and the enlightened Ottoman tribesmen that took over Asia Minor, Greece and Hungary. Similarly, it is crystal clear that the Indian caste system, much like the abject poverty that debilitated much of South and East Asia for generations, is all due to the oppression imposed by the 'West'. Finally, it needs no mentioning that the 'East' - and particularly 'Islam' - developed pristinely. There was no oppression, indoctrination, confiscation, robbery, looting and mass murder. There were no armies and there was no centralized power. The tolerant Islamic culture emerged just like that, out of nowhere, to bring democracy, science and freedom to one quarter of the world.
2 For more on the early emergence of stratification and redistribution, see the debate in Gilman et al. (1981).
3 These patterns seem to cut across the monotheistic religions. The word 'Islam', for example, denotes acceptance of and surrender to God's power as administered by his exclusive repre- sentatives. Refusal is blasphemy, leading to punishment, humiliation and subjugation.
The contemporary rabbinate church may seem less demanding, but that wasn't always the case. During its early phase of kingship in the first millennium BCE, the Judaic religion held a rather uncompromising position, demanding exclusivity backed by force. This position was modified after the destruction of Judah and Israel in the seventh and sixth centuries BCE. Having lost the institutionalized backing of state violence, the rabbinate church could no
? 36 Dilemmas of political economy
The new cosmology
The binary structure of the land-labour regime was first broken in Europe during the seventeenth and eighteenth centuries. A new social formation had emerged. The hallmark of this new formation was a third 'factor of produc- tion' - the industrial machine - and a new class of owners - the capitalists. The owners and their factories marked the beginning of a new political order - the regime of capital.
The new capitalist order was an outgrowth of a triple revolution: the scien- tific revolution, the industrial revolution and the French revolution. The forbearers of this revolution were Nicolo` Machiavelli, Johannes Kepler, Galileo Galilei, Rene? Descartes, Thomas Hobbes, John Locke, David Hume, Gottfried Leibnitz and, most importantly, Isaac Newton. These thinkers offered a totally novel staring point: a mechanical worldview. The cosmos, they argued, is like a machine. In order to understand it - kosmeo in ancient Greek means to 'order' and to 'organize' - you need to take it apart, identify its elementary particles and discover the mechanical forces that hold these particles together and regulate their interaction. For the first time there emerged a secular understanding of force, one that stood in sharp contrast to the earlier, religious manifestations of force. 4
This secular cosmology developed hand in hand with a new vision of society. Human consciousness, says Friedrich Hegel (1807: 183-88), cannot grasp force in the abstract. Force is not an isolated thing, but a relationship, and as such it can be understood only through its actual, concrete manifesta- tions. The main relationship is negation: we comprehend force through its specific contradictions and forms of resistance. Perhaps the most important of these is the negation of subject and object. Stated simply and without sounding pompous, we can say that human beings understand themselves as subjects by investigating the world around them. And as they discover/create
longer use force to keep the laity in line and instead had to resort to indirect manipulations and virtual threats (a subject on which Spinoza's 1690 Theological-Political Treatise remains unparalleled). But the statist void did not last forever. After the establishment of Israel, the rabbinate church, realigned with its former Zionist enemy, showed little hesitation in resur- recting its original version of violent ethno-tribalism.
Similarly with Christendom. Christianity began as a submissive oriental religion in the Roman Empire. Three centuries later it already operated as a full-fledged imperial church, complete with violent diplomacy, deceit and mass murder. During the millennium of the so-called Middle Ages, Christian priests and monks helped ensure that European peasants accepted the rule of their kings and princes - or risk the wrath of God and his servicemen. The lot of the indigenous peoples of the Americas wasn't much better. Beginning in the sixteenth century, they were compelled to abandon their local deities in favour of the Christian Lord, whose superior power was convincingly demonstrated by the lethal effi- ciency of his Catholic soldiers. The massacres committed by these soldiers of faith surpassed anything previously seen in the empires of the Aztecs, Mayans and Incas.
4 The mechanical worldview, its history and heroes are examined with great imagination by Arthur Koestler in The Sleepwalkers (1959).
? Power 37
their own social being, they articulate nature based on the power relations of their own society. In this sense, their cosmology is the politicization of nature. The power relations that organize their society also order their universe. 5
Thus, in pre-statist societies force took the form of naming natural objects and phenomena - moon, thunder, birth, flood. In 'anarchic' cultures, these objects and phenomena got embedded in a plethora of rituals and gods. Hellenic legends speak of relatively egalitarian cities, some with popular, communal rule. Pre-historical hunters and gatherers lived in similarly flat structures. In such societies, the gods tended to be relatively equal, more familial, often matriarchal, and not particularly vengeful. They were neither all-knowing nor terribly rational. They were more like capricious bullies who demanded respect and occasional appeasement. 6
The transition to centralized, statist societies brought a new cosmology of force. Hierarchical political rule introduced a rigid pantheon of god-kings and, eventually, an omnipotent god-emperor. Multiplicity gave rise to singu- larity and the rituals became centralized and exclusionary. Nature was increasingly objectified and the gods grew alien. Although their logic was still mysterious, the gods now began to plan and calculate. They threatened, blamed and retaliated. They demanded complete obedience and punished with unforgiving violence.
The emerging scientific approach of the sixteenth century, along with its new creature - later to be named 'scientist' - challenged this religious cosmology. 7 Although many of the new scientists continued to believe in the guiding hand of God, that guidance was considered a singular event. When Laplace presented Napoleon with his magnum opus on celestial mechanics, System of the World, the emperor inquired why it did not mention God. Laplace replied: 'Sire, I have no need of that hypothesis'. God may have invented the universe, but once the blueprint was finished and the cosmos assembled, he locked the plans and threw away the key.
For the new scientists, God was universal force. This force - whether embedded in Machiavelli's secular Prince, in Hobbes' Leviathan or in the celestial movements of Galileo and Newton - is concentrated, deterministic and balanced. It never disappears. It is embedded in the mutual attraction and repulsion of all bodies. As universal force, God has no interest in princely politics and statist diplomacy. It doesn't care about the church and needs no representatives on earth or elsewhere. It has no quirks and doesn't act on impulse. God is permanent rationality and eternal order - or simply law. The
5 We prefer to bypass in silence here Louis Althusser's post-Stalinist interpretation of the dialectical method of Hegel and Marx, as well as his writings on power institutions and polit- ical organizations.
6 A feminist interpretation of the archeological evidence is given in Stone (1976). The myths are narrated and analysed in Graves (1944; 1957).
7 The term 'scientist' was coined only in the 1830s, by William Whewell, but the early scien- tists understood the novelty of their position well before it was given a special name.
? 38 Dilemmas of political economy
purpose of science is to discover this abstract rationality and order, to uncover the universal 'laws of nature'. And since the harmony of natural laws is the invention of God, the best society is the one that reproduces those laws in its own politics. 8
The new science of capitalism
The science that articulated this new society was political economy. The term itself had already been coined in the early seventeenth century, but it was only in the late eighteenth century that political economy came into its own. 9 Its founding text, The Wealth of Nations, was written in 1776 by Adam Smith. It is easy to discover Newton in this text. Smith treats human beings as isolated bodies. They relate to one another not organically, but mechanically, through force and counter-force. The process is energized by scarcity, the gravita- tional force of the social universe, and is mediated through the mechanical functions of demand and supply - the earthly manifestations of Newton's attraction and repulsion. To the naked eye, the interaction seems accidental, a matter of chance for better or worse. But in fact, there is logic, and indeed order, in the chaos.
The hierarchical, dependent structure of the ancien re? gime is replaced here by the flat mechanism of inter-dependence. Social order, which previously had been imposed by God through the clergy and the royalty, is now created by the 'invisible hand' of competition. It is just like in nature. The anarchic interaction of natural bodies leads not to chaos but to equilibrium, and the same holds true in society. In the natural state of things, human beings constantly collide and act on each other through production and consump- tion. Like natural bodies, they, too, are numerous and relatively small, and therefore none can take over and swallow the others. There is no visible guid- ance, and none is called for. The system functions like clockwork, on its own. Indeed, it is outside intervention - particularly by monarchs and commercial monopolies - which upsets the spontaneous social order. And since this spon- taneous order is the ultimate source of wealth, government intervention and
8 This notion that there exists an external rationality - and that human beings can merely discover this external rationality - was expressed, somewhat tongue in cheek, by the number theorist Paul Erdo? s. A Hungarian Jew, Erdo? s did not like God, whom he nicknamed SF (the supreme fascist). But God, whether likable or not, predetermined everything.
In math- ematics, God set not only the rules, but also the ultimate proofs of those rules. These proofs are written, so to speak, in 'The Book', and the mathematician's role is simply to decipher its pages (Hoffman 1998). Most of the great philosopher-scientists - from Kepler and Descartes to Newton and Einstein - shared this view. They all assumed that the principles they looked for - be they the 'laws of nature' or the 'language of God' - were primordial and that their task was simply to 'find' them (Agassi 1990).
9 The term 'political economy' first appeared in 1611 in a work on government by Louis de Mayerne-Tuquet, and again in 1615 as part of the title of a French book by Antoine de Montchretie? n (see King 1948).
? Power 39
other restrictions are necessarily harmful and should be minimized. The best system is one of laissez faire.
And so Newton's horizontal notion of force and counterforce became the substitute for vertical hierarchy - in the heavens as well as on earth. In France, Voltaire and Montesquieu found in his ideas a powerful alternative to the oppressive French monarchy. Benjamin Franklin and other tourists and exiles imported these ideas to the United States under the guise of 'checks and balances', which later reappeared as 'countervailing powers'. 10
During the nineteenth century, Newton's notion of a 'function' invaded every science, natural and social. More and more phenomena were thought of in terms of a mutual interdependency between two otherwise distinct bodies. In neoclassical political economy, the key function became the rela- tionship between price and quantity. The discipline, which emerged at the end of the nineteenth century and later consolidated into a new orthodoxy, anchored the relationship of price and quantity in Jeremy Bentham's 'calculus of pleasure and pain', turning it into the main tool for understanding the fate of human societies.
It was a complete cosmological break. Instead of visible, hierarchical power, legitimized by wilful gods, there emerged a new ideology based on invisible, horizontal force, anchored in objective science.
The promise was huge. Socially, the new order undermined authoritarian rule. From now on, everyone - that is, every bourgeois citizen - could own property and be elected to public office. Materially, the new order helped break the uncompromising limits of nature. Wealth no longer depended on religious sanctity and princely robbery. It no longer hinged on redistribution. Instead, it was generated through a totally novel process: economic growth.
For the first time in history, society did not have to cycle in a closed loop. The material envelope, previously defined by fixed resources, stationary tech- nology and subsistence reproduction, was finally breached. Science and mechanized production created a new possibility: the expansion of the pie itself. Improving one's lot no longer required conflict, war and violence - or, alternatively, compliance with Confucius' 'Third Way'. On the contrary, growth was most likely to occur in the context of equilibrium, peace and mutual interest.
The principal agent of this revolutionary change was capital. It was in capital that the new sciences, the new techniques and the new political promise were jointly embedded. Capital was both the engine of growth and the vehicle of liberation.
But in order for capital to deliver, the political regime had to be entirely transformed. Divine right had to give way to natural right, sanctified
10 Of course, the metaphors go both ways. Smith's imposition of Newton's natural cosmos on society was subsequently re-inverted by Darwin, who imposed Malthus' social selection on nature.
? 40 Dilemmas of political economy
ownership to private property, religion to rationalism, paternalism to indi- vidualism, obedience to self-interest and utility, hierarchical power to compe- tition, absolutism to constitutionalism. It was a massive transition, and it could be realized - at least in theory - only through laissez faire. The new private economy had to be liberated from the shackles of the old politics. That was the mission of political economy.
Separating economics from politics?
Unlike the mission of the natural sciences, though, the mission of political economy was finite, by definition. If the purpose was to isolate the economy from the intervening hand of political rulers, it follows that once that purpose was achieved political economy would no longer have reason to exist. Independent of each other, economics and politics could now be studied and analysed separately, as two distinct spheres of human activity.
But that was easier said than done. As it turned out, political economy cannot self-destruct - and for a reason that, paradoxically, lies in its very purpose.
The explanation is simple enough. Conceived of independently of politics, the economy is a closed system. It has its own units of labour time and commodities; it has its own structure of inputs and outputs; and it comes with a theory that fully explains the level of production, consumption and relative prices. This self-contained description, though, holds only for a stationary economy. But capitalism is anything but stationary. As political economists themselves emphasize, capitalism is a growing system. It generates an ever- increasing 'surplus' - an output that is over and above what is necessary to merely reproduce society at a given level of production and consumption. And this ever-growing surplus creates a huge theoretical problem: it cannot be fully explained by the economy alone.
How big is the surplus? Who ends up getting it? How does it accumulate? How does it impact the functioning of capitalism? These are questions which 'pure' economics cannot answer. The only way to address them is to bring conflict and power back into the picture - that is, to reintegrate politics and economics - which brings us right back to where we started.
Political economy can never achieve its ultimate purpose. It cannot make economics separate from politics simply because the very questions economics seek to answer are inherently political. 11
Initially, few political economists realized this logical impossibility. Most remained convinced that economics and accumulation could be - and eventu- ally would be - separated from politics and power. This theoretical convic- tion was greatly facilitated by the paucity of social statistics and limited
11 For a clear exposition of this dilemma - although with conclusions different from our own - see Caporaso and Levine (1992: 46-54).
? Power 41
empirical analysis. The early political economists did not feel compelled to empirically define and measure their pure economic concepts. And since they rarely subjected their concepts to empirical verification, they remained obliv- ious to the methodological time bombs buried in those concepts.
The above paragraph is not a reprimand. Until the mid-nineteenth century, European societies, including Great Britain, were still predominately agricultural, highly fractured and, consequently, lacking a clear sense of their totality. There was no common yardstick. The universal metre was measured in the late eighteenth century, but the metric system was yet to be enforced, with France alone still boasting no less than 250,000 different weights and measures (Alder 2002). Macro concepts that today we take for granted - such as 'national aggregate', 'social average', 'industrial sector', and the 'total capital stock' - were just beginning to emerge. It is true that the mechanical- scientific revolution introduced various laws of conservation, replacing reli- gious miracles with clear, finite boundaries. It is also true that these natural laws and boundaries started to find their way into social theory. But the actual process of estimating aggregate statistics, collating national data and measuring sectoral averages was still very much in its infancy. 12
Most nineteenth-century political economists - as well as their chief critic, Karl Marx - had little or no knowledge of the macro facts. There is little wonder that their discussion of surplus and capital was largely theoretical. And, at the time, few theorists thought something was missing. The very idea of 'testing' social theory with empirical evidence was not even on the radar screen.
In this social context, the notion that capital was a purely economic cate- gory hardly seemed problematic. With economics considered separable from politics, with aggregate concepts yet to be invented and diffused, and with the basic social data still to be created, it was possible to believe that capital was an objectively defined economic entity with a readily measurable quantity. There was really nothing to contest that belief.
12 The first attempts to collate aggregate economic statistics were made in the 1660s, by William Petty in England. These attempts were motivated by the need to assess the material strength and taxable capacity of England versus France and Holland. Subsequent attempts introduced additional innovations, including time series (Gregory King in England, 1696); input-output matrices (Franc? ois Quesnay in France, 1764); estimates based on production data rather than fiscal sources (Arthur Young in England, 1770); value added (Antoine Lavoisier in France, 1784); income distribution (Henry Beeke in England, 1799); national aggregates (Patrick Colquhoun in England, 1814); constant price estimates (Joseph Lowe in England, 1822); national debt burden (Pablo de Pebrer in England, 1831); rudimentary national income and product account broken down by industry and state (George Tucker in the United States, 1840); and gross versus net income (Alfred Marshall in England, 1879). But whereas the inventions were long in coming, their implementation was slow and limited. It was only in the 1920s, and particularly with the 'aggregate revolution' of the 1930s, that these individual initiatives started to be organized, institutionalized and system- atically estimated by national statistical services (the signposts in this footnote are taken from the detailed history of Kendrick 1970).
? 42 Dilemmas of political economy
Enter power
The turning point came at the end of the nineteenth century. Recall that clas- sical political economy differed from all prior myths of society in that it was the first to substitute secular for religious force. But note also that this secular notion of force was similar to its religious predecessor in that it was still heter- onomous. It was external to society. For the political economist, economic forces were as objective as natural laws. They were determined for human beings, not by human beings.
This external perception of force began to crack during the second half of the nineteenth century. More and more processes seemed to deviate from the automaticity implied by the natural laws of economics. Increasingly, force was subjectified by society, seen as determined for human beings, by human beings. Challenged and negated, heteronomous force gradually re-emerged as autonomous power.
The change in perception was affected by several important developments. First, the rise of large governments and big business undermined the New- tonian logic of competitive markets and political equilibrium. At the turn of the twentieth century, it was already clear that the guiding hand of the market was not always invisible and that liberal politics was far from equal. Power now was much more than a theoretical addendum needed simply to 'close' an otherwise incomplete economic model; it was an overwhelming historical reality, one that seemed to define the very nature of capitalism. This recogni- tion cast further doubt on the possibility of purely economic categories.
Second, the emergence of the aggregate view of the economy, the develop- ment of national accounting and the requirements of statistical estimates revealed serious difficulties with the measurement of capital. For the first time, political economists had to put the concepts of utility and abstract labour into statistical practice, and the result was disastrous.
According to received doctrine, the 'real' quantity of capital is denomi- nated in units of utility or abstract labour. But there is a caveat. As we shall see later in the book, such measurements are meaningful, if at all, only under conditions of perfectly competitive equilibrium. This qualification creates a bit of a headache since, by definition, perfectly competitive equilibrium evap- orates when infected by power. And given that even orthodox economists now agree that power is everywhere (if only as a 'distortion'), it follows that the theoretical units of 'real' capital are meaningless and that their practical measures break down. In fact, it turns out that even when we assume perfectly competitive equilibrium it is still logically impossible to observe and measure the utility or abstract labour contents of capital. And so, by attempting to measure the so-called 'real' quantity of capital, economists ended up exposing it for what it was: a fiction hanging by the threads of impossible assumptions and contradictory logic.
Third, and more broadly, the new reality of the twentieth century didn't quite fit the traditional way in which liberals and Marxists separated
Power 43
economics from politics. There was a massive rise in the purchasing power of workers in the capitalist countries, an uptrend that contradicted the cyclical patterns suggested by Malthus, Ricardo and Marx, and that therefore blurred their basic notion of 'subsistence'. Many types of labour became complex and skilled, rather than one-dimensional and simple as Marx had anticipated - a development that made the notion of 'abstract labour' difficult if not impos- sible to apply. And in contrast to the expectations of many radicals, profit cycles failed to implode capitalism, while the profit rate - although oscillating - trended sideway rather than down. Culture, media and consumerism became no less crucial for accumulation than production was. Inflation supplemented cost cutting as a key mechanism of redistribution, while finance took over the factory floor as the locus of power. Emerging categories of technology, corporate planning and public management could not easily be classified as either economic or political. It became increasingly clear that free competition and bourgeois ownership were insufficient, even as a starting point, to explain the nature and development of modern capitalism.
The very notion of class became contested. As an analytical tool, class originally emerged from a triple fusion of Ricardo's theory of labour value, Comte's industrial management and Marx's capital accumulation. The emphasis of class analysis on capitalists and workers was unmediated and obvious; it was materially embedded, ideologically accepted and legally enforced; and until the late nineteenth century it served both the liberal main- stream and its Marxist critiques.
But by the early twentieth century, the vision of class analysis had become blurred. Although still linked in some sense to material reality, class was now increasingly intertwined with political organizations and parties, culture, mass psychology and sociology. It was no longer immediate or obvious. It required subtle articulation. It became a speculative concept.
Worse still, class was now competing with new concepts, particularly the 'masses'. The twentieth century brought fascism, a new regime that rejected the Enlightenment, cast off rationalism and shifted the entire ideological emphasis of social theory. Instead of production, fascism accentuated power; in lieu of class, it spoke of state, organization and oligarchy. Following fascism, social scientists began to emphasize a new set of categories - 'mass', 'crowd', 'bureaucracy', 'elite' and, eventually, the 'system' - categories that appeared more flexible and better suited to the changing times than the rigid and anachronistic class demarcations of political economy.
Fourth and finally, the objective-mechanical cosmology of the Newtonian and liberal revolutions started to fracture. In its stead came an indecisive worldview of uncertainty, risk and probability, of relative time/space, of an unsettling entanglement of particles and of a rather hazy separation between observer and reality. These developments have been used to justify further movements away from the scientific-universal principles of political economy. Vitalism, ethnic identity and racism have all flourished in the name of cultural pluralism. Anti-scientists have challenged the so-called
44 Dilemmas of political economy
binary 'essentialism' of 'Eurocentrism'. Lord Bacon was dead. Ignorance has become strength.
Suddenly, power was everywhere, and it contaminated everything. The anonymous market, measurable capital and class have all become suspect. The old categories seemed to be melting, along with the determinism that held them together. Political economy had entered a new, uncharted territory.
4 Deflections of power
'Why don't you make everyone an Alpha Double Plus while you're about it? ' asks the Savage. 'Because we have no wish to have our throats cut', answers Mustapha Mond, the Resident World Controller for Western Europe.
--Aldous Huxley, Brave New World
The new realities of power posed a dilemma for twentieth-century political economists. There were two options, both unpalatable: ignore reality in order to protect the theoretical duality of politics and economics, or sacrifice the theoretical duality in order to better deal with reality. In general, mainstream theorists have taken the first path, trying to keep power out of their analysis. The result: a shrinking domain of admissible questions complemented by a widening range of ad hoc explanations. Marxists have tended to move in the opposite direction, seeking to incorporate power into their theories. But as they opened up their models, what they gained in practical insight and political expediency they lost in scientific cohesion, consistency and accuracy. Their explanations, although often illuminating and politically purposeful, served to fracture Marx's theoretical framework and undermine its original unity.
And so, in the end, power got deflected. Most theorists ignore it, and even the few who address it keep it safely outside the concept that matters most: capital itself. The reason isn't difficult to see. To put power in capital means the end of determinism and the beginning of autonomy. It undermines the foundations of existing models. It calls for a fundamental rethinking of polit- ical economy. To paraphrase Huxley, it is like opening a Pandora's Box in a Cyprian colony of Alpha Double Plus theorists. And since nobody likes having their theoretical throat cut, it is much safer to leave the matter locked in the box.
The purpose of this chapter is to highlight these deflections of power and assess their consequences for the development of political economy. This emphasis implies two important biases. First, our concern here is not the evolution of modern political economy as such, but how this evolution has been shaped in relation to power. Consequently, we make no attempt to be
46 Dilemmas of political economy
comprehensive. Since our aim is conceptual, we focus on seminal contribu- tions and important turning points, at the obvious expense of secondary sources and subsequent variations. Second, since liberal analyses tend to avoid power while Marxist theories to endorse it, we naturally pay more attention to the latter than the former.
Liberal withdrawal and concessions
Liberal theorists, being increasingly on the defensive, have generally opted for the first choice: protecting the duality by sidestepping reality. Toward the end of the nineteenth century, their fighting spirit withered and eventually mutated into neoclassical apologetics. By the beginning of the twentieth century, they began a mass retreat into the make-believe world of perfectly competitive equilibrium, a heavily subsidized twilight zone in which power could be safely ignored. They zealously excluded from their pure economic framework the capitalist state, wars, large corporations, classes, collective action, ideology and every other power process, organization and institution that could not easily be reduced to the atomistic logic of utility maximization. They ended up with a very narrow domain populated by fictitious 'actors', all small, rational and powerless. In this imaginary world, laissez faire interac- tions continued to yield an optimal utilitarian equilibrium, as the theory dictated. 1
The global crisis of the 1930s forced liberals to make a major concession. Following John Maynard Keynes' General Theory (1936), they conceded that in fact there was not one, but two economic realities: a competitive microeco- nomic sphere where the interaction of atomistic consumers and producers generates the efficient outcome stipulated by neoclassical manuals; and another macroeconomic realm that unfortunately produces occasional market failures. The first reality works exactly as it should and therefore must be kept free of political intervention. But the second reality has a built-in imperfection and sometimes needs the oversight of governments. Power,
1 After the Second World War, neoclassicists embarked on a counter-revolution that other social scientists decried as 'economic imperialism'. This intellectual imperialism, which emanated mostly from the Chicago School, argues that, no matter what you do, you simply can't beat the market. According to this view, distortions of 'perfect competition', such as oligopoly and labour unions, are more apparent than real, and those that do exist are politically motivated and therefore reversible. Furthermore, many so-called non-economic phenomena - from marriage, through unemployment, to war - are in fact based on utili- tarian decisions and therefore reducible to 'economic' reasoning (Stigler 1988: Ch. 10, 'The Chicago School'). In parallel, neoclassical economists have tried to hide the dogma's under- lying assumptions by developing models that presumably do not need such assumptions (see for example Arnsperger and Varoufakis 2005). Of course, these deviations are mostly lip service. If they were ever to become the rule, the dogma would become logically subversive and hence ideologically useless.
? Deflections of power 47
although merely 'political', was thus brought into economics through the back door.
Few liberals care to admit it, but this introduction of power has thrown their economics into disarray. Previously, neoclassicists could pretend that extra-economic distortions were local, or at least temporary, and therefore redundant for theoretical purposes. But how do you assume away the perma- nent presence of a large government that directly accounts for 20-40 per cent of all economic activity and that regulates and meddles with much of the rest? And with the government always in the picture, what remains of the assump- tions of perfect competition, efficient allocation and the primacy of individual choice? Most importantly, with state officials now setting the rules and making many of the big decisions, how could one continue to talk about spontaneous equilibrium? And if the autonomy of individual 'agents' and their equilibrium are thus contaminated, what is left of the textbook reality of microeconomics?
The answer is very little. Alfred Marshall's 'representative' firm - a trans- mutation of Descartes' corps hypothe? tique - has little to do with the likes of Exxon and Microsoft, Bechtel and Pfitzer, Mitsui and Adia. Given that the latter not only operate in a highly concentrated business structure, but are also embedded in an integrated corporate-statist space, liberal economists no longer have the tools to analyse them.
At the root of this duality lies an attempt to justify capitalist profit and wealth. The liberal claim - first voiced in the European city-states of the thir-
The dual worlds 31
teenth and fourteenth centuries and later formalized in John Locke's Two Treatises of Government (1690) - is that private property emerges from one's own labour. This claim makes the bourgeoisie unique: earlier dominant classes looted their wealth and therefore needed religion to sanctify it; the capitalists, by contrast, produce their wealth with their effort and hence have a natural right to own it. 3
Nominal income and assets, therefore, are derivative not of mercantilist plunder but of actual production with real capital goods, and that makes them fully justified. The productivity of the capitalist, intertwined with his existing capital goods, results in monetary earnings. These earnings in turn are ploughed back into producing more capital goods, leading to more mone- tary wealth, more capital goods, more earnings, and so on in an ever- expanding spiral. In this way, the money value of finance, measured in dollars and cents, reflects and manifests the physical capital stock created by the capitalist.
Of course, the correspondence is far from perfect. As it turns out, the ups and downs of the stock and bond markets are rather difficult to correlate with changes in the capital stock - particularly since, as we shall see in Chapter 10, the two measures tend to move in opposite directions. But this mismatch hasn't been much of a concern. Liberals have solved it by putting into work an army of 'distortionists' - theorists, strategists and analysts who pry on 'insti- tutional imperfections' and 'exogenous shocks'. The theory, argue the distor- tionists, is perfectly fine. The problem is with the extra-economic forces - the shocks that constantly besiege the otherwise pure economic system, contami- nate its real and nominal spheres and fracture their pristine correspondence. Once you account for these distortions, it becomes clear why finance is always dependent on - yet forever delinked from - its true material essence.
The Marxist mismatch
Although the Marxist logic on this subject is radically different, its conclu- sions are surprisingly similar. Contrary to the liberals, Marx sought to annul the bourgeois justification for profit. He agreed that value is created in the material sphere - but instead of multiple factors of production, he insisted that there is only one: labour. The value of all commodities - including that of capital goods - is determined by productive labour alone.
3 Perhaps the first to explicitly associate income with productivity were the university profes- sors. Knowledge (scientia) was the gift of God and therefore could not be sold, but the new urban intellectuals found a better leverage: the notion that all work deserves a salary. 'We find it irrational that the worker not profit from his work', argued the doctors of law in thir- teenth-century Padua, and then went on to conclude that 'the master may accept the money of students - the collecta - as the price of his work, of his trouble' (quoted in Le Goff 1993: 94-95).
? 32 Dilemmas of political economy
In this scheme, not all capitals are created equal. The so-called industrial capitalist, the employer of productive labour, does possess real capital. But the commercial and financial capitalists - insofar they employ only unpro- ductive labour and therefore produce neither value nor surplus value - do not own real capital. Although they accumulate moneyed capital, they do so merely by appropriating some of the surplus value generated by industrial capitalists. The resulting intra-capitalist redistribution creates a mismatch. It means that the nominal magnitude of any particular capital is likely to differ from its underlying real magnitude: for the industrialist the nominal will be lower than the real, while for the commercial and financial capitalist the nominal will exceed the real (which may well be zero).
The nominal-real mismatch is further amplified by the forward-looking nature of financial markets. Stock and bond prices represent the present value of expected future earnings. Because we deal with expectations, these future earnings may or may not be 'realized'. And since the earnings are merely tentative, there is no reason why finance should be equal to - or even corre- late with - capital goods that already exist here and now. For this reason Marx considered financial assets to be 'fictitious capital' - in contrast to the 'real capital' anchored in the dead labour of realized surplus value.
And, here, too, the Marxists find themselves stuck in a liberal duality. They portray a world in which the parasitic capitalists of commerce and finance suck in surplus from the productive capitalists of industry, where speculative market bubbles inflate and deflate around the fundamentals of production, where the fiction of finance distorts the true picture of real accumulation. The specific categories and theories differ from those of the liberals, but the real-nominal bifurcation that underlies them is the same.
Quantitative equivalence?
Separating the real from the nominal enables the theorist to play both cards. On the one hand, he can stand by the theory, insisting that in the final analysis nominal finance derives from the reality of capital goods. On the other hand, when the difference between finance and capital goods gets too larger, he can suspend the theory - at least temporarily, until the 'distortions' go away.
This convenient doublespeak serves to conceal a deep ontological diffi- culty. At issue here is the very assumption of quantitative equivalence. Both neoclassicists and Marxists believe that capital has two quantities - one nominal, the other material. And they further believe that, under ideal circum- stances - without intervening factors and other extra-economic distortions - these two quantities are equivalent.
As we shall show, this assumption rests on foundations of sand. Its first component - the belief that capital has two quantities - falls flat on its face. Capital certainly has a nominal quantity. We know its price in dollars and cents. But capital does not have - and indeed cannot have - a material
The dual worlds 33
quantity. The second belief, namely that the two quantities of capital are equivalent, is also seriously problematic. Even if capital goods did have a material quantity, why should this quantity have anything to do with the nominal value of capital? Capital, this book argues, is not a productive economic entity; it is a broad power institution. And if that is the case, what could the 'mass' of machines - even if it had a calculable quantity - tell us about the social dynamics of power?
3 Power
Force is nothing apart from its effect.
--Herbert Marcuse, Reason and Revolution
The pre-capitalist backdrop
To understand the origin and rationale of the capitalist dualities, it is useful to begin with some observations on the pre-capitalist world. As we have seen, prior to the emergence of liberalism all state and quasi-state regimes - or 'cultures' in today's lingo - were marked by a binary structure: an inescapable conflict between mastery and slavery, between rulers and ruled. The material bedrock was agricultural. In economic parlance, there were two 'factors of production': land and labour. Politically, these factors corresponded to two classes: the nobility and the peasantry. The nobility owned the land and imposed its rule. The peasantry - save for the occasional revolt - passively submitted to the nobility's rule.
This early mode of production, to use Marx's language, unfolded through multiple forms of authoritarianism, despotism and tyranny - from the Carolingian state of Europe and the Caliphates of the Middle East to the Moguls of India and the empires of China and Japan. The histories of these dictatorships varied greatly. Some relied on peasant-slaves, as in the ancient empires; others were based on farmer-tenants, as in the Middle East; and still others were built on serfs tied to princely fiefdoms, as in Europe and Japan. But the underlying principle was always the same: redistribution through confiscation. The nobles would rob the peasants, each other, or both. 1
1 The dominant postmodern fashion loves to reject this universal history (or should we rather say 'narrative') - in favour of a much more politically-correct protestation. The postists not only decry the oppression of the 'East' by the 'West', but also insist that the so-called 'Western scientific revolution' in fact originated in the . . . 'Orient' (see for instance, Hobson 2004).
According to this universal Orient-centrism, it turns out that the 'West' (in its totality) took off largely thanks to the knowledge of the 'East' (in the aggregate). The 'East' gener- ously made its 'knowledge portfolio' available to the 'West'; the 'West' used this precious portfolio in order to industrialize and capitalize (which amount to the same thing); and then,
? Power 35
There was no alternative. The agricultural cycle was slow, productivity low and innovation shunned. There wasn't any growth. The only way to get ahead was to deprive someone else. 2
Appropriately, the rulers' worldview was static and circular. It glorified the past and idealized the present. Happiness, riches and glory, it claimed, depended on miracle and magic. Any change - for better or worse - was to come from outside society, delivered by extra-terrestrial envoys (such as the Persian-Jewish-Christian Messiah), supercharged emissaries (like the Jewish- Muslim-Christian Satan/Devil), or resurrected dead (another Persian tech- nology).
In order to legitimize their naked violence, the rulers needed a mediating factor, an external force that would justify and conceal their inherent conflict with their subjects. This external force usually appeared as an awe-inspiring, superhuman entity - Baal, El, Aton, Zeus, Jehovah, Allah, Jesus, Inti, Itzamna. In due course, the rituals associated with these deities would develop into ruthless, centralized religions that sanctified the status quo and punished deviations. Although often wrapped in a language of blessing, compassion and generosity, these religions served to terrorize and oppress the peasants and slaves. Their promise to the laity was surprisingly uniform: suffer and pay in this world, get reimbursed in the next. No wonder insurance companies found this scheme inspiring.
The tillers of the land were left with little choice. Faced with rulers who owned not only the land and the weapons, but also the keys to Heaven and Hell, what else could they do but obey? 3
toward the end of the process, the 'West' turned back to take over, oppress and eviscerate the 'East'.
There is no doubt. Albania, Bulgaria, Ukraine, the Baltic countries and other such 'Western' states grew and prospered largely due to the scientific methods and knowl- edge given to them by Genghis Khan, the Indian Mughals and the enlightened Ottoman tribesmen that took over Asia Minor, Greece and Hungary. Similarly, it is crystal clear that the Indian caste system, much like the abject poverty that debilitated much of South and East Asia for generations, is all due to the oppression imposed by the 'West'. Finally, it needs no mentioning that the 'East' - and particularly 'Islam' - developed pristinely. There was no oppression, indoctrination, confiscation, robbery, looting and mass murder. There were no armies and there was no centralized power. The tolerant Islamic culture emerged just like that, out of nowhere, to bring democracy, science and freedom to one quarter of the world.
2 For more on the early emergence of stratification and redistribution, see the debate in Gilman et al. (1981).
3 These patterns seem to cut across the monotheistic religions. The word 'Islam', for example, denotes acceptance of and surrender to God's power as administered by his exclusive repre- sentatives. Refusal is blasphemy, leading to punishment, humiliation and subjugation.
The contemporary rabbinate church may seem less demanding, but that wasn't always the case. During its early phase of kingship in the first millennium BCE, the Judaic religion held a rather uncompromising position, demanding exclusivity backed by force. This position was modified after the destruction of Judah and Israel in the seventh and sixth centuries BCE. Having lost the institutionalized backing of state violence, the rabbinate church could no
? 36 Dilemmas of political economy
The new cosmology
The binary structure of the land-labour regime was first broken in Europe during the seventeenth and eighteenth centuries. A new social formation had emerged. The hallmark of this new formation was a third 'factor of produc- tion' - the industrial machine - and a new class of owners - the capitalists. The owners and their factories marked the beginning of a new political order - the regime of capital.
The new capitalist order was an outgrowth of a triple revolution: the scien- tific revolution, the industrial revolution and the French revolution. The forbearers of this revolution were Nicolo` Machiavelli, Johannes Kepler, Galileo Galilei, Rene? Descartes, Thomas Hobbes, John Locke, David Hume, Gottfried Leibnitz and, most importantly, Isaac Newton. These thinkers offered a totally novel staring point: a mechanical worldview. The cosmos, they argued, is like a machine. In order to understand it - kosmeo in ancient Greek means to 'order' and to 'organize' - you need to take it apart, identify its elementary particles and discover the mechanical forces that hold these particles together and regulate their interaction. For the first time there emerged a secular understanding of force, one that stood in sharp contrast to the earlier, religious manifestations of force. 4
This secular cosmology developed hand in hand with a new vision of society. Human consciousness, says Friedrich Hegel (1807: 183-88), cannot grasp force in the abstract. Force is not an isolated thing, but a relationship, and as such it can be understood only through its actual, concrete manifesta- tions. The main relationship is negation: we comprehend force through its specific contradictions and forms of resistance. Perhaps the most important of these is the negation of subject and object. Stated simply and without sounding pompous, we can say that human beings understand themselves as subjects by investigating the world around them. And as they discover/create
longer use force to keep the laity in line and instead had to resort to indirect manipulations and virtual threats (a subject on which Spinoza's 1690 Theological-Political Treatise remains unparalleled). But the statist void did not last forever. After the establishment of Israel, the rabbinate church, realigned with its former Zionist enemy, showed little hesitation in resur- recting its original version of violent ethno-tribalism.
Similarly with Christendom. Christianity began as a submissive oriental religion in the Roman Empire. Three centuries later it already operated as a full-fledged imperial church, complete with violent diplomacy, deceit and mass murder. During the millennium of the so-called Middle Ages, Christian priests and monks helped ensure that European peasants accepted the rule of their kings and princes - or risk the wrath of God and his servicemen. The lot of the indigenous peoples of the Americas wasn't much better. Beginning in the sixteenth century, they were compelled to abandon their local deities in favour of the Christian Lord, whose superior power was convincingly demonstrated by the lethal effi- ciency of his Catholic soldiers. The massacres committed by these soldiers of faith surpassed anything previously seen in the empires of the Aztecs, Mayans and Incas.
4 The mechanical worldview, its history and heroes are examined with great imagination by Arthur Koestler in The Sleepwalkers (1959).
? Power 37
their own social being, they articulate nature based on the power relations of their own society. In this sense, their cosmology is the politicization of nature. The power relations that organize their society also order their universe. 5
Thus, in pre-statist societies force took the form of naming natural objects and phenomena - moon, thunder, birth, flood. In 'anarchic' cultures, these objects and phenomena got embedded in a plethora of rituals and gods. Hellenic legends speak of relatively egalitarian cities, some with popular, communal rule. Pre-historical hunters and gatherers lived in similarly flat structures. In such societies, the gods tended to be relatively equal, more familial, often matriarchal, and not particularly vengeful. They were neither all-knowing nor terribly rational. They were more like capricious bullies who demanded respect and occasional appeasement. 6
The transition to centralized, statist societies brought a new cosmology of force. Hierarchical political rule introduced a rigid pantheon of god-kings and, eventually, an omnipotent god-emperor. Multiplicity gave rise to singu- larity and the rituals became centralized and exclusionary. Nature was increasingly objectified and the gods grew alien. Although their logic was still mysterious, the gods now began to plan and calculate. They threatened, blamed and retaliated. They demanded complete obedience and punished with unforgiving violence.
The emerging scientific approach of the sixteenth century, along with its new creature - later to be named 'scientist' - challenged this religious cosmology. 7 Although many of the new scientists continued to believe in the guiding hand of God, that guidance was considered a singular event. When Laplace presented Napoleon with his magnum opus on celestial mechanics, System of the World, the emperor inquired why it did not mention God. Laplace replied: 'Sire, I have no need of that hypothesis'. God may have invented the universe, but once the blueprint was finished and the cosmos assembled, he locked the plans and threw away the key.
For the new scientists, God was universal force. This force - whether embedded in Machiavelli's secular Prince, in Hobbes' Leviathan or in the celestial movements of Galileo and Newton - is concentrated, deterministic and balanced. It never disappears. It is embedded in the mutual attraction and repulsion of all bodies. As universal force, God has no interest in princely politics and statist diplomacy. It doesn't care about the church and needs no representatives on earth or elsewhere. It has no quirks and doesn't act on impulse. God is permanent rationality and eternal order - or simply law. The
5 We prefer to bypass in silence here Louis Althusser's post-Stalinist interpretation of the dialectical method of Hegel and Marx, as well as his writings on power institutions and polit- ical organizations.
6 A feminist interpretation of the archeological evidence is given in Stone (1976). The myths are narrated and analysed in Graves (1944; 1957).
7 The term 'scientist' was coined only in the 1830s, by William Whewell, but the early scien- tists understood the novelty of their position well before it was given a special name.
? 38 Dilemmas of political economy
purpose of science is to discover this abstract rationality and order, to uncover the universal 'laws of nature'. And since the harmony of natural laws is the invention of God, the best society is the one that reproduces those laws in its own politics. 8
The new science of capitalism
The science that articulated this new society was political economy. The term itself had already been coined in the early seventeenth century, but it was only in the late eighteenth century that political economy came into its own. 9 Its founding text, The Wealth of Nations, was written in 1776 by Adam Smith. It is easy to discover Newton in this text. Smith treats human beings as isolated bodies. They relate to one another not organically, but mechanically, through force and counter-force. The process is energized by scarcity, the gravita- tional force of the social universe, and is mediated through the mechanical functions of demand and supply - the earthly manifestations of Newton's attraction and repulsion. To the naked eye, the interaction seems accidental, a matter of chance for better or worse. But in fact, there is logic, and indeed order, in the chaos.
The hierarchical, dependent structure of the ancien re? gime is replaced here by the flat mechanism of inter-dependence. Social order, which previously had been imposed by God through the clergy and the royalty, is now created by the 'invisible hand' of competition. It is just like in nature. The anarchic interaction of natural bodies leads not to chaos but to equilibrium, and the same holds true in society. In the natural state of things, human beings constantly collide and act on each other through production and consump- tion. Like natural bodies, they, too, are numerous and relatively small, and therefore none can take over and swallow the others. There is no visible guid- ance, and none is called for. The system functions like clockwork, on its own. Indeed, it is outside intervention - particularly by monarchs and commercial monopolies - which upsets the spontaneous social order. And since this spon- taneous order is the ultimate source of wealth, government intervention and
8 This notion that there exists an external rationality - and that human beings can merely discover this external rationality - was expressed, somewhat tongue in cheek, by the number theorist Paul Erdo? s. A Hungarian Jew, Erdo? s did not like God, whom he nicknamed SF (the supreme fascist). But God, whether likable or not, predetermined everything.
In math- ematics, God set not only the rules, but also the ultimate proofs of those rules. These proofs are written, so to speak, in 'The Book', and the mathematician's role is simply to decipher its pages (Hoffman 1998). Most of the great philosopher-scientists - from Kepler and Descartes to Newton and Einstein - shared this view. They all assumed that the principles they looked for - be they the 'laws of nature' or the 'language of God' - were primordial and that their task was simply to 'find' them (Agassi 1990).
9 The term 'political economy' first appeared in 1611 in a work on government by Louis de Mayerne-Tuquet, and again in 1615 as part of the title of a French book by Antoine de Montchretie? n (see King 1948).
? Power 39
other restrictions are necessarily harmful and should be minimized. The best system is one of laissez faire.
And so Newton's horizontal notion of force and counterforce became the substitute for vertical hierarchy - in the heavens as well as on earth. In France, Voltaire and Montesquieu found in his ideas a powerful alternative to the oppressive French monarchy. Benjamin Franklin and other tourists and exiles imported these ideas to the United States under the guise of 'checks and balances', which later reappeared as 'countervailing powers'. 10
During the nineteenth century, Newton's notion of a 'function' invaded every science, natural and social. More and more phenomena were thought of in terms of a mutual interdependency between two otherwise distinct bodies. In neoclassical political economy, the key function became the rela- tionship between price and quantity. The discipline, which emerged at the end of the nineteenth century and later consolidated into a new orthodoxy, anchored the relationship of price and quantity in Jeremy Bentham's 'calculus of pleasure and pain', turning it into the main tool for understanding the fate of human societies.
It was a complete cosmological break. Instead of visible, hierarchical power, legitimized by wilful gods, there emerged a new ideology based on invisible, horizontal force, anchored in objective science.
The promise was huge. Socially, the new order undermined authoritarian rule. From now on, everyone - that is, every bourgeois citizen - could own property and be elected to public office. Materially, the new order helped break the uncompromising limits of nature. Wealth no longer depended on religious sanctity and princely robbery. It no longer hinged on redistribution. Instead, it was generated through a totally novel process: economic growth.
For the first time in history, society did not have to cycle in a closed loop. The material envelope, previously defined by fixed resources, stationary tech- nology and subsistence reproduction, was finally breached. Science and mechanized production created a new possibility: the expansion of the pie itself. Improving one's lot no longer required conflict, war and violence - or, alternatively, compliance with Confucius' 'Third Way'. On the contrary, growth was most likely to occur in the context of equilibrium, peace and mutual interest.
The principal agent of this revolutionary change was capital. It was in capital that the new sciences, the new techniques and the new political promise were jointly embedded. Capital was both the engine of growth and the vehicle of liberation.
But in order for capital to deliver, the political regime had to be entirely transformed. Divine right had to give way to natural right, sanctified
10 Of course, the metaphors go both ways. Smith's imposition of Newton's natural cosmos on society was subsequently re-inverted by Darwin, who imposed Malthus' social selection on nature.
? 40 Dilemmas of political economy
ownership to private property, religion to rationalism, paternalism to indi- vidualism, obedience to self-interest and utility, hierarchical power to compe- tition, absolutism to constitutionalism. It was a massive transition, and it could be realized - at least in theory - only through laissez faire. The new private economy had to be liberated from the shackles of the old politics. That was the mission of political economy.
Separating economics from politics?
Unlike the mission of the natural sciences, though, the mission of political economy was finite, by definition. If the purpose was to isolate the economy from the intervening hand of political rulers, it follows that once that purpose was achieved political economy would no longer have reason to exist. Independent of each other, economics and politics could now be studied and analysed separately, as two distinct spheres of human activity.
But that was easier said than done. As it turned out, political economy cannot self-destruct - and for a reason that, paradoxically, lies in its very purpose.
The explanation is simple enough. Conceived of independently of politics, the economy is a closed system. It has its own units of labour time and commodities; it has its own structure of inputs and outputs; and it comes with a theory that fully explains the level of production, consumption and relative prices. This self-contained description, though, holds only for a stationary economy. But capitalism is anything but stationary. As political economists themselves emphasize, capitalism is a growing system. It generates an ever- increasing 'surplus' - an output that is over and above what is necessary to merely reproduce society at a given level of production and consumption. And this ever-growing surplus creates a huge theoretical problem: it cannot be fully explained by the economy alone.
How big is the surplus? Who ends up getting it? How does it accumulate? How does it impact the functioning of capitalism? These are questions which 'pure' economics cannot answer. The only way to address them is to bring conflict and power back into the picture - that is, to reintegrate politics and economics - which brings us right back to where we started.
Political economy can never achieve its ultimate purpose. It cannot make economics separate from politics simply because the very questions economics seek to answer are inherently political. 11
Initially, few political economists realized this logical impossibility. Most remained convinced that economics and accumulation could be - and eventu- ally would be - separated from politics and power. This theoretical convic- tion was greatly facilitated by the paucity of social statistics and limited
11 For a clear exposition of this dilemma - although with conclusions different from our own - see Caporaso and Levine (1992: 46-54).
? Power 41
empirical analysis. The early political economists did not feel compelled to empirically define and measure their pure economic concepts. And since they rarely subjected their concepts to empirical verification, they remained obliv- ious to the methodological time bombs buried in those concepts.
The above paragraph is not a reprimand. Until the mid-nineteenth century, European societies, including Great Britain, were still predominately agricultural, highly fractured and, consequently, lacking a clear sense of their totality. There was no common yardstick. The universal metre was measured in the late eighteenth century, but the metric system was yet to be enforced, with France alone still boasting no less than 250,000 different weights and measures (Alder 2002). Macro concepts that today we take for granted - such as 'national aggregate', 'social average', 'industrial sector', and the 'total capital stock' - were just beginning to emerge. It is true that the mechanical- scientific revolution introduced various laws of conservation, replacing reli- gious miracles with clear, finite boundaries. It is also true that these natural laws and boundaries started to find their way into social theory. But the actual process of estimating aggregate statistics, collating national data and measuring sectoral averages was still very much in its infancy. 12
Most nineteenth-century political economists - as well as their chief critic, Karl Marx - had little or no knowledge of the macro facts. There is little wonder that their discussion of surplus and capital was largely theoretical. And, at the time, few theorists thought something was missing. The very idea of 'testing' social theory with empirical evidence was not even on the radar screen.
In this social context, the notion that capital was a purely economic cate- gory hardly seemed problematic. With economics considered separable from politics, with aggregate concepts yet to be invented and diffused, and with the basic social data still to be created, it was possible to believe that capital was an objectively defined economic entity with a readily measurable quantity. There was really nothing to contest that belief.
12 The first attempts to collate aggregate economic statistics were made in the 1660s, by William Petty in England. These attempts were motivated by the need to assess the material strength and taxable capacity of England versus France and Holland. Subsequent attempts introduced additional innovations, including time series (Gregory King in England, 1696); input-output matrices (Franc? ois Quesnay in France, 1764); estimates based on production data rather than fiscal sources (Arthur Young in England, 1770); value added (Antoine Lavoisier in France, 1784); income distribution (Henry Beeke in England, 1799); national aggregates (Patrick Colquhoun in England, 1814); constant price estimates (Joseph Lowe in England, 1822); national debt burden (Pablo de Pebrer in England, 1831); rudimentary national income and product account broken down by industry and state (George Tucker in the United States, 1840); and gross versus net income (Alfred Marshall in England, 1879). But whereas the inventions were long in coming, their implementation was slow and limited. It was only in the 1920s, and particularly with the 'aggregate revolution' of the 1930s, that these individual initiatives started to be organized, institutionalized and system- atically estimated by national statistical services (the signposts in this footnote are taken from the detailed history of Kendrick 1970).
? 42 Dilemmas of political economy
Enter power
The turning point came at the end of the nineteenth century. Recall that clas- sical political economy differed from all prior myths of society in that it was the first to substitute secular for religious force. But note also that this secular notion of force was similar to its religious predecessor in that it was still heter- onomous. It was external to society. For the political economist, economic forces were as objective as natural laws. They were determined for human beings, not by human beings.
This external perception of force began to crack during the second half of the nineteenth century. More and more processes seemed to deviate from the automaticity implied by the natural laws of economics. Increasingly, force was subjectified by society, seen as determined for human beings, by human beings. Challenged and negated, heteronomous force gradually re-emerged as autonomous power.
The change in perception was affected by several important developments. First, the rise of large governments and big business undermined the New- tonian logic of competitive markets and political equilibrium. At the turn of the twentieth century, it was already clear that the guiding hand of the market was not always invisible and that liberal politics was far from equal. Power now was much more than a theoretical addendum needed simply to 'close' an otherwise incomplete economic model; it was an overwhelming historical reality, one that seemed to define the very nature of capitalism. This recogni- tion cast further doubt on the possibility of purely economic categories.
Second, the emergence of the aggregate view of the economy, the develop- ment of national accounting and the requirements of statistical estimates revealed serious difficulties with the measurement of capital. For the first time, political economists had to put the concepts of utility and abstract labour into statistical practice, and the result was disastrous.
According to received doctrine, the 'real' quantity of capital is denomi- nated in units of utility or abstract labour. But there is a caveat. As we shall see later in the book, such measurements are meaningful, if at all, only under conditions of perfectly competitive equilibrium. This qualification creates a bit of a headache since, by definition, perfectly competitive equilibrium evap- orates when infected by power. And given that even orthodox economists now agree that power is everywhere (if only as a 'distortion'), it follows that the theoretical units of 'real' capital are meaningless and that their practical measures break down. In fact, it turns out that even when we assume perfectly competitive equilibrium it is still logically impossible to observe and measure the utility or abstract labour contents of capital. And so, by attempting to measure the so-called 'real' quantity of capital, economists ended up exposing it for what it was: a fiction hanging by the threads of impossible assumptions and contradictory logic.
Third, and more broadly, the new reality of the twentieth century didn't quite fit the traditional way in which liberals and Marxists separated
Power 43
economics from politics. There was a massive rise in the purchasing power of workers in the capitalist countries, an uptrend that contradicted the cyclical patterns suggested by Malthus, Ricardo and Marx, and that therefore blurred their basic notion of 'subsistence'. Many types of labour became complex and skilled, rather than one-dimensional and simple as Marx had anticipated - a development that made the notion of 'abstract labour' difficult if not impos- sible to apply. And in contrast to the expectations of many radicals, profit cycles failed to implode capitalism, while the profit rate - although oscillating - trended sideway rather than down. Culture, media and consumerism became no less crucial for accumulation than production was. Inflation supplemented cost cutting as a key mechanism of redistribution, while finance took over the factory floor as the locus of power. Emerging categories of technology, corporate planning and public management could not easily be classified as either economic or political. It became increasingly clear that free competition and bourgeois ownership were insufficient, even as a starting point, to explain the nature and development of modern capitalism.
The very notion of class became contested. As an analytical tool, class originally emerged from a triple fusion of Ricardo's theory of labour value, Comte's industrial management and Marx's capital accumulation. The emphasis of class analysis on capitalists and workers was unmediated and obvious; it was materially embedded, ideologically accepted and legally enforced; and until the late nineteenth century it served both the liberal main- stream and its Marxist critiques.
But by the early twentieth century, the vision of class analysis had become blurred. Although still linked in some sense to material reality, class was now increasingly intertwined with political organizations and parties, culture, mass psychology and sociology. It was no longer immediate or obvious. It required subtle articulation. It became a speculative concept.
Worse still, class was now competing with new concepts, particularly the 'masses'. The twentieth century brought fascism, a new regime that rejected the Enlightenment, cast off rationalism and shifted the entire ideological emphasis of social theory. Instead of production, fascism accentuated power; in lieu of class, it spoke of state, organization and oligarchy. Following fascism, social scientists began to emphasize a new set of categories - 'mass', 'crowd', 'bureaucracy', 'elite' and, eventually, the 'system' - categories that appeared more flexible and better suited to the changing times than the rigid and anachronistic class demarcations of political economy.
Fourth and finally, the objective-mechanical cosmology of the Newtonian and liberal revolutions started to fracture. In its stead came an indecisive worldview of uncertainty, risk and probability, of relative time/space, of an unsettling entanglement of particles and of a rather hazy separation between observer and reality. These developments have been used to justify further movements away from the scientific-universal principles of political economy. Vitalism, ethnic identity and racism have all flourished in the name of cultural pluralism. Anti-scientists have challenged the so-called
44 Dilemmas of political economy
binary 'essentialism' of 'Eurocentrism'. Lord Bacon was dead. Ignorance has become strength.
Suddenly, power was everywhere, and it contaminated everything. The anonymous market, measurable capital and class have all become suspect. The old categories seemed to be melting, along with the determinism that held them together. Political economy had entered a new, uncharted territory.
4 Deflections of power
'Why don't you make everyone an Alpha Double Plus while you're about it? ' asks the Savage. 'Because we have no wish to have our throats cut', answers Mustapha Mond, the Resident World Controller for Western Europe.
--Aldous Huxley, Brave New World
The new realities of power posed a dilemma for twentieth-century political economists. There were two options, both unpalatable: ignore reality in order to protect the theoretical duality of politics and economics, or sacrifice the theoretical duality in order to better deal with reality. In general, mainstream theorists have taken the first path, trying to keep power out of their analysis. The result: a shrinking domain of admissible questions complemented by a widening range of ad hoc explanations. Marxists have tended to move in the opposite direction, seeking to incorporate power into their theories. But as they opened up their models, what they gained in practical insight and political expediency they lost in scientific cohesion, consistency and accuracy. Their explanations, although often illuminating and politically purposeful, served to fracture Marx's theoretical framework and undermine its original unity.
And so, in the end, power got deflected. Most theorists ignore it, and even the few who address it keep it safely outside the concept that matters most: capital itself. The reason isn't difficult to see. To put power in capital means the end of determinism and the beginning of autonomy. It undermines the foundations of existing models. It calls for a fundamental rethinking of polit- ical economy. To paraphrase Huxley, it is like opening a Pandora's Box in a Cyprian colony of Alpha Double Plus theorists. And since nobody likes having their theoretical throat cut, it is much safer to leave the matter locked in the box.
The purpose of this chapter is to highlight these deflections of power and assess their consequences for the development of political economy. This emphasis implies two important biases. First, our concern here is not the evolution of modern political economy as such, but how this evolution has been shaped in relation to power. Consequently, we make no attempt to be
46 Dilemmas of political economy
comprehensive. Since our aim is conceptual, we focus on seminal contribu- tions and important turning points, at the obvious expense of secondary sources and subsequent variations. Second, since liberal analyses tend to avoid power while Marxist theories to endorse it, we naturally pay more attention to the latter than the former.
Liberal withdrawal and concessions
Liberal theorists, being increasingly on the defensive, have generally opted for the first choice: protecting the duality by sidestepping reality. Toward the end of the nineteenth century, their fighting spirit withered and eventually mutated into neoclassical apologetics. By the beginning of the twentieth century, they began a mass retreat into the make-believe world of perfectly competitive equilibrium, a heavily subsidized twilight zone in which power could be safely ignored. They zealously excluded from their pure economic framework the capitalist state, wars, large corporations, classes, collective action, ideology and every other power process, organization and institution that could not easily be reduced to the atomistic logic of utility maximization. They ended up with a very narrow domain populated by fictitious 'actors', all small, rational and powerless. In this imaginary world, laissez faire interac- tions continued to yield an optimal utilitarian equilibrium, as the theory dictated. 1
The global crisis of the 1930s forced liberals to make a major concession. Following John Maynard Keynes' General Theory (1936), they conceded that in fact there was not one, but two economic realities: a competitive microeco- nomic sphere where the interaction of atomistic consumers and producers generates the efficient outcome stipulated by neoclassical manuals; and another macroeconomic realm that unfortunately produces occasional market failures. The first reality works exactly as it should and therefore must be kept free of political intervention. But the second reality has a built-in imperfection and sometimes needs the oversight of governments. Power,
1 After the Second World War, neoclassicists embarked on a counter-revolution that other social scientists decried as 'economic imperialism'. This intellectual imperialism, which emanated mostly from the Chicago School, argues that, no matter what you do, you simply can't beat the market. According to this view, distortions of 'perfect competition', such as oligopoly and labour unions, are more apparent than real, and those that do exist are politically motivated and therefore reversible. Furthermore, many so-called non-economic phenomena - from marriage, through unemployment, to war - are in fact based on utili- tarian decisions and therefore reducible to 'economic' reasoning (Stigler 1988: Ch. 10, 'The Chicago School'). In parallel, neoclassical economists have tried to hide the dogma's under- lying assumptions by developing models that presumably do not need such assumptions (see for example Arnsperger and Varoufakis 2005). Of course, these deviations are mostly lip service. If they were ever to become the rule, the dogma would become logically subversive and hence ideologically useless.
? Deflections of power 47
although merely 'political', was thus brought into economics through the back door.
Few liberals care to admit it, but this introduction of power has thrown their economics into disarray. Previously, neoclassicists could pretend that extra-economic distortions were local, or at least temporary, and therefore redundant for theoretical purposes. But how do you assume away the perma- nent presence of a large government that directly accounts for 20-40 per cent of all economic activity and that regulates and meddles with much of the rest? And with the government always in the picture, what remains of the assump- tions of perfect competition, efficient allocation and the primacy of individual choice? Most importantly, with state officials now setting the rules and making many of the big decisions, how could one continue to talk about spontaneous equilibrium? And if the autonomy of individual 'agents' and their equilibrium are thus contaminated, what is left of the textbook reality of microeconomics?
The answer is very little. Alfred Marshall's 'representative' firm - a trans- mutation of Descartes' corps hypothe? tique - has little to do with the likes of Exxon and Microsoft, Bechtel and Pfitzer, Mitsui and Adia. Given that the latter not only operate in a highly concentrated business structure, but are also embedded in an integrated corporate-statist space, liberal economists no longer have the tools to analyse them.
