Financial
Times,
January 8, p.
January 8, p.
Nitzan Bichler - 2012 - Capital as Power
And that is what we have done - with further analyses and details - in the present volume.
To reiterate, differential accumulation is a qualitative creordering of capi- talist power that is speculatively quantified through the algorithm of capital- ization. It is a conflictual process and is therefore open-ended. It doesn't have to happen. If dominant capital increases its power, the rate of differential accumulation will be positive. But if this power stays the same or decreases, differential accumulation will be zero or negative, respectively. This is the general theoretical setting.
Now, using this framework we demonstrated: (1) that differential accumu- lation has proceeded more or less uninterruptedly for the past half-century and possibly longer; (2) that, historically, this accumulation occurred primarily though amalgamation and stagflation; and (3) that these two power regimes have grown increasingly counter-cyclical.
This theoretical-empirical framework enabled us to make our 1999 projec- tion. As Figure 17. 1 shows, by the late 1990s amalgamation was reaching historical highs while stagflation was approaching historical lows. The situa- tion seemed ripe for reversion. There was no structural reason to expect differential accumulation to collapse, and since its two regimes were at histor- ical extremes, it seemed safe to expect mergers to recede and stagflation to resurface. And that is exactly what happened in the decade since this projec- tion was made.
Out of bounds
But correct projections do not mean that the social future is somehow fore- seeable, let alone predetermined. The capitalist nomos is a creature of society, articulated and imposed by the ruling class on those who are ruled. No matter how 'deterministic' it may seem, this nomos is never ironclad. Created by humans, it can be changed - and indeed replaced - by humans. In the language of Gabriel Garci? a Ma? rquez, it is 'unrepeatable and therefore unpre- dictable since time immemorial'.
As long as dominant capital continues to rule, and as long as the logic of that rule remains unchanged, we can expect differential accumulation to oscillate between breadth through merger and depth via stagflation. Furthermore, since the breadth potential eventually is self-exhausting and
Differential accumulation 397
since dominant capital is already in the final, global envelope, it seems reason- able to expect future stagflation cycles to become more frequent and deeper.
But, then, there is no certainty that dominant capital will continue to rule in the same way - or that it will continue to rule at all.
Over the past century, capitalists have managed to impose the belief that their regime is natural and therefore unalterable. They have constructed a power architecture that is more sophisticated, encompassing and supple than anything the world has ever seen. And they have successfully concealed this state of capital by erecting an anti-scientific front that fractures the conscious- ness and dresses up the power institutions of capitalism as if they were mere technical aspects of a narrow 'economic narrative'.
This edifice of power and deceit hinges on the normal rate of return and the ability of dominant capital to beat it. As long as 'business-as-usual' sabo- tage and dissonance keep capitalists convinced that profit is normal and the growth of capitalization natural, and as long as dominant capitalists are able to exceed the normal and increase their power, the state of capital holds steady and its patterns remain 'deterministic'.
But this 'determinism' is not an external law of nature or a historical law of motion. Instead, it is merely the 'determinism' of the capitalist rulers. The patterns of this 'determinism' reflect the consensus of those who dominate society. They show the conviction of the rulers that they are in command - and that those whom they command cannot resist. This conviction, though, is never certain. Confronted with sufficient opposition, whether explicit or implicit, it can crumble. And when it does crumble, the result is to shatter the 'determinism' of the rulers, the patterns of their differential accumulation and, possibly, the entire state of capital that defines their rule.
Postscript, January 2009
The research for this book was completed in early 2008. Since then, the capi- talist world has been rattled by what many consider to be the deepest crisis since the Great Depression. The global shakeup has brought one aspect of our framework into sharp focus: it has shown that differential accumulation is by no means predetermined, and that it can fail.
The open-ended nature of the process is demonstrated most vividly by the increasing threat of deflation. As we have seen, over the past half-century, the capitalist creorder has been shaped by the differential accumulation of domi- nant capital, whose growing power is fuelled by the inversely oscillating regimes of breadth and depth. Although the two regimes differ markedly, both depend on rising prices: breadth through merger requires relatively low inflation, while depth through stagflation depends on high - and rising - inflation. This requirement was fulfilled in the post-war era, the longest period of uninterrupted inflation in human history (Figure 16. 1).
But the inflationary backdrop also points to the limits of capitalist power. As noted in the introductory and concluding chapters, power is confidence in
398 Accumulation of power
obedience: it represents the certainty of the rulers in the submissiveness of the ruled. In modern capitalism, this certainty is manifested in the ability of capi- talists to control and systematize the upward movement of prices. And it is this ability - along with its associated confidence in obedience - that is totally lost during deflation. When prices start falling and the architecture of power begins to disintegrate, the rulers' confidence fizzles and history suddenly seems open-ended.
And indeed, challenges to capitalist power often emerge when they are least expected. That was the case in 1929 - and again in 2000. By the begin- ning of the third millennium, dominant capital seemed unassailable. Using mergers and acquisitions, it had penetrated and transformed most developing countries into 'emerging markets'; it had integrated former communist regimes into the logic of capitalization; and in the core countries it had imposed its own private 'regulation' while undermining public institutions of welfare and government. With the exception of small enclaves such as Cuba, Myanmar and North Korea, it had managed to subjugate and incorporate the entire world population into its all-encompassing nomos.
It was exactly at that high point, when the experts celebrated the end of history and the global village, that deflation suddenly struck. Mergers receded in the early 2000s - yet inflation, instead of rising, fell precipitously. This was no laughing matter. If disinflation turned into outright deflation, dominant capital would be bound to suffer differential decumulation. And that was just for starters. Deflation threatened to bring down the entire chain of debt obligations, whose size relative to GDP was much larger than it had been on the eve of the Great Depression. Had prices started to fall and debt to deflate, the spiral could quickly have become unstoppable.
The initial response was denial. Deflation simply was too dire to contem- plate:
'Ignore the Ghost of Deflation', recommends Financial Times columnist Samuel Britton. 'Apart from Japan', he observed, 'the world has not seen deflation for 70 years' (as if the world's second largest economy can be treated as an anomaly, and '70 years' as a magic threshold beyond which deflation can never return). 'Deflation is an overblown worry', declares James Grant, editor of Grant's Interest Rate Observer. 'Believe in Ghosts, Goblins, Wizards and Witches if you will', concurs financial expert Adrian Douglas, 'but don't believe in deflation occurring any time soon'. There is little to worry about, says Fed Chairman Alan Greenspan: 'The United States is nowhere close to sliding into a pernicious deflation'. Of course, denying the problem does not solve it. And, so, for those who remain fearful, the experts promise that whatever the risk, it could easily be defused. 'The good news', announces former member of the Federal Reserve Board, Angell Wayne, 'is that monetary policy never runs out of power'. 'There's a much exaggerated concern about deflation', laments Nobel Laureate Milton Friedman. 'It's not a serious prospect. Inflation
Differential accumulation 399
is still a much more serious problem than deflation. Today's Federal Reserve is not going to repeat the mistakes of the Federal Reserve of the 1930s. The cure for deflation is very simple. Print money'. The same assumption underlies the soothing speech by Fed Governor Ben Bernanke, given in 2002 to the National Economist Club. In his address, properly titled 'Deflation: Making Sure "It" Doesn't Happen Here', Bernanke explained that 'Deflation is always reversible under a fiat money system'. 'The U. S. government', he assured his audience, 'has a technology called the printing press that allows it to produce as many U. S. dollars as it wishes at essentially no cost'.
(Quoted from various sources in Bichler and Nitzan 2004b: 294-296)
But denial and promises didn't work, so the experts called for action: 'The Federal Reserve has won its long war against inflation', wrote Chief Economist of Goldman Sachs Bill Dudley and Managing Director of Pimco Paul McCulley. 'But to ensure an enduring legacy, Mr Greenspan now needs to solve a different problem: inflation is too low, rather than too high. . . . The inflation rate should be high enough to allow the economy to take a shock without falling into deflation' (Dudley and McCulley 2003).
And Greenspan was more than ready to comply. He quickly reduced interest rates to levels not seen since the 1960s - and equally quickly realized he was pushing on a string. 'In recent months, inflation has dropped to very low levels', he complained to the Joint Economic Committee of the Congress. 'Indeed, we have reached a point at which, in the judgment of the Federal Open Market Committee, the probability of an unwelcome substantial fall in inflation over the next few quarters, though minor, exceeds that of a pickup in inflation' (Greenspan 2003). This was probably the first time since the 1930s that the Fed had pronounced lower inflation unwelcome.
In the end, though, it was the brinkmanship of the Weapondollar- Petrodollar Coalition that saved the day. The coalition managed to put the Bush clan back in the White House, inflame the Middle East, raise the price of oil and provide the necessary spark for inflation. That spark, though, merely helped delay the day of reckoning.
By 2007, storm clouds had started to gather again, and by early 2008 all hell had broken loose. Assets markets have gone into a free fall, followed by crashing commodity prices, collapsing employment and production, and broad inflation indices that are rapidly approaching zero. The threat of defla- tion, having been ridiculed by Nobel Laureates and dismissed by Central Bankers, is back with a bang.
Given the gravity of the situation, governments the world over have suspended their commitment to 'free markets' and 'sound finance' in favour of massive bailout packages for dominant capital, large fiscal stimuli, unprec- edented injections of 'liquidity' and other policy rituals. In addition, there has been some increase in televised violence - from the erupting conflicts of the
400 Accumulation of power
Middle East, to riots in Thailand, Greece and Korea, to promises of simmering discontent in Russia and China.
So far, though, policy and conflict have done little to lessen the deflation scare. Even the U. S. Federal Reserve Board sounds unnerved. Having reduced its interest rates to practically nil, it is now contemplating pleading directly with the public. According to this plan, the Fed will announce a posi- tive 'inflation target'; this announcement will then cheer up the depressed public and lift its inflationary expectations; and the inflation monster, having been invited in so politely, will rear up its beautiful head and give the Fed what it wants most: prices that go up (U. S. Federal Reserve Board 2008; Guha 2009).
These nervous calls to the omens suggest that capitalism again faces a historical crossroads. Renewed inflation will restore differential accumula- tion for dominant capital, initially through depth and perhaps later through breadth. But if the ruling classes are grabbed by panic and the power architec- ture disintegrates into deflation, the effect could be deeply transformative.
And that wouldn't be the first time. During the 1930s, falling prices shook the capitalist world and eventually led to its complete creordering. Back then, the transformation ended up strengthening the state of capital. The imposi- tion of capitalization on almost every aspect of social life, the ascent of domi- nant capital and the growing synchronization of breadth and depth helped create the most powerful mega-machine the world has ever known.
But the transformative outcome of deflation was not predetermined then, and it isn't predetermined now. If prices start to fall in earnest, dominant capital might be seriously weakened - perhaps to the point of losing control over its very mode of power and the mega-machine that sustains it. Whether it can continue to rule, though, and in what way, remains an open-ended question. The answer to this question depends not only on what dominant capital does and how it does it, but also on the creativity, ability and courage of those who resist it in the hope of creordering an alternative, humane future.
References
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Abramovitz, Moses. 1956. Resource and Output Trends in the United States since 1870. New York: National Bureau of Economic Research.
Agassi, Joseph. 1969. Leibniz's Place in the History of Physics. Journal of the History of Ideas 30 (3, July-September): 331-44.
---- 1990. An Introduction to Philosophy. The Siblinghood of Humanity. Delmar, NY: Caravan Books.
al Otaiba, Yousef. 2008. Our Sovereign Wealth Plans. Wall Street Journal, March 19, p. A16.
Alder, Ken. 1995. A Revolution to Measure: The Political Economy of the Metric System in France. In The Values of Precision, edited by M. N. Wise. Princeton, NJ: Princeton University Press, pp. 39-71.
---- 2002. The Measure of All Things. The Seven-Year Odyssey and Hidden Error that Transformed the World. New York: Free Press.
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Altvater, Elmar, and Ju? rgen Hoffmann. 1990. The West German State Derivation Debate: The Relation Between Economy and Politics as a Problem of Marxist State Theory. Social Text (24): 134-55.
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Anievas, Alexander, Allex Callinicos, Gonzalo Pozo-Martin, Benno Teschke, Hannes Lacher, John M. Hobson, Adam David Morton, Kees van der Pijl, Pieter van Houten, Michelle Pace, and Jesper Gulddal. 2007. Global Capitalism and the States System: Explaining Geopolitical Conflicts in Contemporary World Politics.
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alism. In Global Regulation. Managing Crises After the Imperial Turn, edited by D.
Wigan, L.
To reiterate, differential accumulation is a qualitative creordering of capi- talist power that is speculatively quantified through the algorithm of capital- ization. It is a conflictual process and is therefore open-ended. It doesn't have to happen. If dominant capital increases its power, the rate of differential accumulation will be positive. But if this power stays the same or decreases, differential accumulation will be zero or negative, respectively. This is the general theoretical setting.
Now, using this framework we demonstrated: (1) that differential accumu- lation has proceeded more or less uninterruptedly for the past half-century and possibly longer; (2) that, historically, this accumulation occurred primarily though amalgamation and stagflation; and (3) that these two power regimes have grown increasingly counter-cyclical.
This theoretical-empirical framework enabled us to make our 1999 projec- tion. As Figure 17. 1 shows, by the late 1990s amalgamation was reaching historical highs while stagflation was approaching historical lows. The situa- tion seemed ripe for reversion. There was no structural reason to expect differential accumulation to collapse, and since its two regimes were at histor- ical extremes, it seemed safe to expect mergers to recede and stagflation to resurface. And that is exactly what happened in the decade since this projec- tion was made.
Out of bounds
But correct projections do not mean that the social future is somehow fore- seeable, let alone predetermined. The capitalist nomos is a creature of society, articulated and imposed by the ruling class on those who are ruled. No matter how 'deterministic' it may seem, this nomos is never ironclad. Created by humans, it can be changed - and indeed replaced - by humans. In the language of Gabriel Garci? a Ma? rquez, it is 'unrepeatable and therefore unpre- dictable since time immemorial'.
As long as dominant capital continues to rule, and as long as the logic of that rule remains unchanged, we can expect differential accumulation to oscillate between breadth through merger and depth via stagflation. Furthermore, since the breadth potential eventually is self-exhausting and
Differential accumulation 397
since dominant capital is already in the final, global envelope, it seems reason- able to expect future stagflation cycles to become more frequent and deeper.
But, then, there is no certainty that dominant capital will continue to rule in the same way - or that it will continue to rule at all.
Over the past century, capitalists have managed to impose the belief that their regime is natural and therefore unalterable. They have constructed a power architecture that is more sophisticated, encompassing and supple than anything the world has ever seen. And they have successfully concealed this state of capital by erecting an anti-scientific front that fractures the conscious- ness and dresses up the power institutions of capitalism as if they were mere technical aspects of a narrow 'economic narrative'.
This edifice of power and deceit hinges on the normal rate of return and the ability of dominant capital to beat it. As long as 'business-as-usual' sabo- tage and dissonance keep capitalists convinced that profit is normal and the growth of capitalization natural, and as long as dominant capitalists are able to exceed the normal and increase their power, the state of capital holds steady and its patterns remain 'deterministic'.
But this 'determinism' is not an external law of nature or a historical law of motion. Instead, it is merely the 'determinism' of the capitalist rulers. The patterns of this 'determinism' reflect the consensus of those who dominate society. They show the conviction of the rulers that they are in command - and that those whom they command cannot resist. This conviction, though, is never certain. Confronted with sufficient opposition, whether explicit or implicit, it can crumble. And when it does crumble, the result is to shatter the 'determinism' of the rulers, the patterns of their differential accumulation and, possibly, the entire state of capital that defines their rule.
Postscript, January 2009
The research for this book was completed in early 2008. Since then, the capi- talist world has been rattled by what many consider to be the deepest crisis since the Great Depression. The global shakeup has brought one aspect of our framework into sharp focus: it has shown that differential accumulation is by no means predetermined, and that it can fail.
The open-ended nature of the process is demonstrated most vividly by the increasing threat of deflation. As we have seen, over the past half-century, the capitalist creorder has been shaped by the differential accumulation of domi- nant capital, whose growing power is fuelled by the inversely oscillating regimes of breadth and depth. Although the two regimes differ markedly, both depend on rising prices: breadth through merger requires relatively low inflation, while depth through stagflation depends on high - and rising - inflation. This requirement was fulfilled in the post-war era, the longest period of uninterrupted inflation in human history (Figure 16. 1).
But the inflationary backdrop also points to the limits of capitalist power. As noted in the introductory and concluding chapters, power is confidence in
398 Accumulation of power
obedience: it represents the certainty of the rulers in the submissiveness of the ruled. In modern capitalism, this certainty is manifested in the ability of capi- talists to control and systematize the upward movement of prices. And it is this ability - along with its associated confidence in obedience - that is totally lost during deflation. When prices start falling and the architecture of power begins to disintegrate, the rulers' confidence fizzles and history suddenly seems open-ended.
And indeed, challenges to capitalist power often emerge when they are least expected. That was the case in 1929 - and again in 2000. By the begin- ning of the third millennium, dominant capital seemed unassailable. Using mergers and acquisitions, it had penetrated and transformed most developing countries into 'emerging markets'; it had integrated former communist regimes into the logic of capitalization; and in the core countries it had imposed its own private 'regulation' while undermining public institutions of welfare and government. With the exception of small enclaves such as Cuba, Myanmar and North Korea, it had managed to subjugate and incorporate the entire world population into its all-encompassing nomos.
It was exactly at that high point, when the experts celebrated the end of history and the global village, that deflation suddenly struck. Mergers receded in the early 2000s - yet inflation, instead of rising, fell precipitously. This was no laughing matter. If disinflation turned into outright deflation, dominant capital would be bound to suffer differential decumulation. And that was just for starters. Deflation threatened to bring down the entire chain of debt obligations, whose size relative to GDP was much larger than it had been on the eve of the Great Depression. Had prices started to fall and debt to deflate, the spiral could quickly have become unstoppable.
The initial response was denial. Deflation simply was too dire to contem- plate:
'Ignore the Ghost of Deflation', recommends Financial Times columnist Samuel Britton. 'Apart from Japan', he observed, 'the world has not seen deflation for 70 years' (as if the world's second largest economy can be treated as an anomaly, and '70 years' as a magic threshold beyond which deflation can never return). 'Deflation is an overblown worry', declares James Grant, editor of Grant's Interest Rate Observer. 'Believe in Ghosts, Goblins, Wizards and Witches if you will', concurs financial expert Adrian Douglas, 'but don't believe in deflation occurring any time soon'. There is little to worry about, says Fed Chairman Alan Greenspan: 'The United States is nowhere close to sliding into a pernicious deflation'. Of course, denying the problem does not solve it. And, so, for those who remain fearful, the experts promise that whatever the risk, it could easily be defused. 'The good news', announces former member of the Federal Reserve Board, Angell Wayne, 'is that monetary policy never runs out of power'. 'There's a much exaggerated concern about deflation', laments Nobel Laureate Milton Friedman. 'It's not a serious prospect. Inflation
Differential accumulation 399
is still a much more serious problem than deflation. Today's Federal Reserve is not going to repeat the mistakes of the Federal Reserve of the 1930s. The cure for deflation is very simple. Print money'. The same assumption underlies the soothing speech by Fed Governor Ben Bernanke, given in 2002 to the National Economist Club. In his address, properly titled 'Deflation: Making Sure "It" Doesn't Happen Here', Bernanke explained that 'Deflation is always reversible under a fiat money system'. 'The U. S. government', he assured his audience, 'has a technology called the printing press that allows it to produce as many U. S. dollars as it wishes at essentially no cost'.
(Quoted from various sources in Bichler and Nitzan 2004b: 294-296)
But denial and promises didn't work, so the experts called for action: 'The Federal Reserve has won its long war against inflation', wrote Chief Economist of Goldman Sachs Bill Dudley and Managing Director of Pimco Paul McCulley. 'But to ensure an enduring legacy, Mr Greenspan now needs to solve a different problem: inflation is too low, rather than too high. . . . The inflation rate should be high enough to allow the economy to take a shock without falling into deflation' (Dudley and McCulley 2003).
And Greenspan was more than ready to comply. He quickly reduced interest rates to levels not seen since the 1960s - and equally quickly realized he was pushing on a string. 'In recent months, inflation has dropped to very low levels', he complained to the Joint Economic Committee of the Congress. 'Indeed, we have reached a point at which, in the judgment of the Federal Open Market Committee, the probability of an unwelcome substantial fall in inflation over the next few quarters, though minor, exceeds that of a pickup in inflation' (Greenspan 2003). This was probably the first time since the 1930s that the Fed had pronounced lower inflation unwelcome.
In the end, though, it was the brinkmanship of the Weapondollar- Petrodollar Coalition that saved the day. The coalition managed to put the Bush clan back in the White House, inflame the Middle East, raise the price of oil and provide the necessary spark for inflation. That spark, though, merely helped delay the day of reckoning.
By 2007, storm clouds had started to gather again, and by early 2008 all hell had broken loose. Assets markets have gone into a free fall, followed by crashing commodity prices, collapsing employment and production, and broad inflation indices that are rapidly approaching zero. The threat of defla- tion, having been ridiculed by Nobel Laureates and dismissed by Central Bankers, is back with a bang.
Given the gravity of the situation, governments the world over have suspended their commitment to 'free markets' and 'sound finance' in favour of massive bailout packages for dominant capital, large fiscal stimuli, unprec- edented injections of 'liquidity' and other policy rituals. In addition, there has been some increase in televised violence - from the erupting conflicts of the
400 Accumulation of power
Middle East, to riots in Thailand, Greece and Korea, to promises of simmering discontent in Russia and China.
So far, though, policy and conflict have done little to lessen the deflation scare. Even the U. S. Federal Reserve Board sounds unnerved. Having reduced its interest rates to practically nil, it is now contemplating pleading directly with the public. According to this plan, the Fed will announce a posi- tive 'inflation target'; this announcement will then cheer up the depressed public and lift its inflationary expectations; and the inflation monster, having been invited in so politely, will rear up its beautiful head and give the Fed what it wants most: prices that go up (U. S. Federal Reserve Board 2008; Guha 2009).
These nervous calls to the omens suggest that capitalism again faces a historical crossroads. Renewed inflation will restore differential accumula- tion for dominant capital, initially through depth and perhaps later through breadth. But if the ruling classes are grabbed by panic and the power architec- ture disintegrates into deflation, the effect could be deeply transformative.
And that wouldn't be the first time. During the 1930s, falling prices shook the capitalist world and eventually led to its complete creordering. Back then, the transformation ended up strengthening the state of capital. The imposi- tion of capitalization on almost every aspect of social life, the ascent of domi- nant capital and the growing synchronization of breadth and depth helped create the most powerful mega-machine the world has ever known.
But the transformative outcome of deflation was not predetermined then, and it isn't predetermined now. If prices start to fall in earnest, dominant capital might be seriously weakened - perhaps to the point of losing control over its very mode of power and the mega-machine that sustains it. Whether it can continue to rule, though, and in what way, remains an open-ended question. The answer to this question depends not only on what dominant capital does and how it does it, but also on the creativity, ability and courage of those who resist it in the hope of creordering an alternative, humane future.
References
Abrahams, Paul, and Alexandra Harney. 1999. High Output, Low Profits. Financial Times, June 2, p. 15.
Abramovitz, Moses. 1956. Resource and Output Trends in the United States since 1870. New York: National Bureau of Economic Research.
Agassi, Joseph. 1969. Leibniz's Place in the History of Physics. Journal of the History of Ideas 30 (3, July-September): 331-44.
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