No More Learning

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. They cannot tell us whether the profit and capitalization of these firms belong to the micro or macro spheres, what yardstick we should use to separate these two spheres, or if such separation is possible to begin with.
Neo-Marxism
In contrast to the liberals, Marxists addressed the new power reality head on. Their rethinking of power already began with Friedrich Engels, who, by the 1890s, established himself as the unofficial patriarch of the social-democratic church with the final say on all matters theoretic. These early revisions marked the birth of neo-Marxism, a multifaceted attempt to revisit and adapt Marx to the twentieth century.
The basic rationale of neo-Marxism rested on several related observations. First, the transition from competitive to monopoly capitalism made Marx's labour theory of value impractical. The problem was not only that mono- polistic market prices were set 'arbitrarily' and independently of labour time, but also that the value of labour power itself was no longer kept at subsistence.
In fact, there emerged what anarchist Mikhail Bakunin first referred to as an 'aristocracy of labour', a relatively well-paid, 'semi-bourgeois layer of workers' (1872: 294). Engels still tried to work around this 'aristocracy in the working class', arguing that although manufacturing and unionized workers saw their income rise, these gains were the exception, and that Marx's subsis- tence law of wages was still valid (cited in Howard and King 1989: 9-10). But
48 Dilemmas of political economy
the floodgates were now open and the idea of a two-pronged labour force spread quickly, including into radical utopian literature. 2
By the early twentieth century, the existence of a labour aristocracy had become a key assumption underlying Lenin's domestic and international strategy. In his famous tract on Imperialism (1917), he announced that, unlike in Russia, in Western Europe the workers and social democratic parties had been co-opted into collaborating with the imperialists against the proletariats of the periphery, and that this development completely changed the nature of the class struggle (as we explain below). 3
Second, capitalism, argued the neo-Marxists, had been 'financialized'. The 'industrial' capital that dominated Marx's analysis had given rise to 'finance capital', a fusion of the leading banks, commercial oligopolies and leading industrialists. Contrary to its competitive precursor, finance capital applied output constraints, manipulated financial markets and forced capitalist governments into protectionism, wage controls and militarized expansion of foreign markets (Engels 1894; Hilferding 1910).
Third, the nature of capitalist crisis had changed. Marx focused on cyclical crises, which he attributed to the anarchy of inter-capitalist competition. Monopoly capitalism, by contrast, was seen as suffering from a persistent lack of markets: chronic underconsumption mirrored by chronic overproduc- tion (Engels 1886; Hilferding 1910; Sweezy 1942: Chs XII and XV).
Fourth, as a consequence of these developments, capitalists changed their attitude toward the state. In the competitive phase, they preferred a small government financed by minimal taxation and whose sole purpose was to protect their property and prevent workers from revolting. But now finance capital needed a strong state - one that would generate sufficient demand, regulate internal politics and support the export of excess capital.
Fifth and last, the combination of monopoly capitalism and a strong state undermined the original liberal idea of peaceful accumulation. During the first part of the nineteenth century, international conflict appeared to be declining. But in the second half of the nineteenth century increased struggle for colonial extension caused bellicosity and violence to soar, and in the twen- tieth century militarization and expansionism already dominated. It seemed as if capitalism inevitably culminates in imperialism.
Together, these developments engendered a fundamental rethinking of the nature of conflict in capitalism. According to Marx, the central capitalist process is a class struggle between industrial workers and capitalist owners. Their conflict is waged over the productive process; its conceptual arena is the
2 In his novel The Iron Heel (1907), Jack London describes how the capitalist oligarchy bribes the large unions into submission, eventually leading to the creation of hereditary labour castes that align with the oligarchs against the rest of the working class.
3 It is perhaps worth noting that, in discussing the peripheral proletariat, Lenin and his succes- sors tended to avoid mentioning the many millions of Soviet workers who populated the abstract gulags of simple labour.
? Deflections of power 49
factory; and its geographical epicentre is the advanced capitalist nations of Western Europe and the United States.
The neo-Marxists shifted the focus from class to state. Many now argued that, in the twentieth century, the key conflict was no longer between capital- ists and workers per se, but between the developed capitalist states of the centre and the 'dependent' countries and regions of the periphery - or, in the Stalinist version, between the United States and the Soviet Union. For communists to participate in the anti-capitalist struggle now meant to blindly obey the party line dictated by Moscow.
All in all, very little was left of Marx's original science. In the process of coming to terms with power and adjusting their politics to the changing world, neo-Marxists have had to abandon the elegance and comprehensive- ness of Marx's model. The labour theory of value, the inherent crisis tenden- cies of capitalism, the nature of the class conflict - and, indeed, the very duality of politics and economics - were all put into question.
The three fractures
Stalinism in the Soviet Union, fascism in Europe and Keynesianism in the capitalist countries forced Marxists to rethink the intertwined nature of state and capital and the growing importance of 'bureaucratization'. This rethinking was certainly influenced by the work of Max Weber and Robert Michels; but perhaps the strongest catalyst, particularly among the Trotskyites, was the self-published monograph of Bruno Rizzi (1939).
According to Rizzi, the Soviet Union represented a new social order of bureaucratic collectivism. It was a different mode of production, one whose class structure and relations of production set it apart from both capitalism and socialism. Although this mode of production was for the time being unique to the Soviet Union and the fascist countries, its essential bureaucratic elements were already apparent - if only embryonically - in the capitalism of the New Deal. The famous works of James Burnham (1941), Milovan Djilas (1957), Max Shachtman (1962) and John Kenneth Galbraith (1967) repro- duced Rizzi's argument in different forms.
Bureaucratization melted the traditional definitions of politics and economics. This ambiguity, amplified by the chaos and confusion of the 1930s and 1940s, led Marxists to draw different (and often diametrically opposed) conclusions about the changing nature of capitalism.
On one side were those who emphasized the 'politicization' of capitalism (as if capitalism can be anything but political). The extreme position, held by Friedrich Pollock of the Frankfurt school, was that economics in fact had come to an end. Private capitalism, he argued, was being replaced by 'state capitalism', whether democratic or totalitarian. This new order 'signifies the transition from a predominately economic to an essentially political era', an era in which the will to political power supersedes the profit motive. And since according to Pollock there are no 'economic laws' to prevent this new
50 Dilemmas of political economy
state capitalism from taking hold, it follows that 'economics as a social subject has lost its object' (Pollock 1941: 78, 86-87).
An opposite perspective was offered by Pollock's colleague, Franz Neumann. In his classic study of National Socialism, Behemoth (1944), Neumann argued that fascism was neither a post-capitalist nor a post- economic phenomenon, but rather an extreme form of capitalist dictatorship. What Pollock mistakenly referred to as 'state capitalism' was in fact 'totali- tarian monopoly capitalism', an economic order in which the large capitalist organizations subjugate state organs to their own ends.
The wide gulf between these opposing interpretations signalled the end of universal Marxism. With no agreement on what constituted 'economy' and 'state', there could be no agreement on the source of value; and without a theory of value, Marxism lost its unifying basis.
The neo-Marxism that emerged from this breakdown was therefore neces- sarily fractured. It sometimes offered penetrating insights, but these insights were inherently partial and disjoined. Over time, the fracture developed into three distinct theoretical strands: (1) an attempt to rework Marxian economics; (2) a cultural critique of capitalism; and (3) a new theory of the capitalist state. We deal with each of them in turn.
Neo-Marxian economics: monopoly capital
The key hallmark of neo-Marxian economics is the explicit incorporation of power into 'economics' proper. This incorporation opens up new theoretical and empirical horizons, but it is also costly: it requires the abandonment, explicit or implicit, of the labour theory of value.
Kalecki's degree of monopoly
The post-war revitalization of Marxian economics owes much to the pioneering work of Michal Kalecki. Writing during the 1930s and 1940s, when much of Marxian economics was still stifled by Leninist-Stalinist dogma, Kalecki was breaking new ground on several fronts. He offered a triple theoretical synthesis, one that integrated Marxist class analysis, the new literature on oligopoly and big business and the aggregate view of Keynesianism. 4 He was also one of the first Marxists to incorporate into his research new mathematical and statistical techniques that were only begin- ning to make their way into mainstream economics.
In his articles from 1939 to 1943, collected posthumously in his Selected Essays on the Dynamics of the Capitalist Economy, 1933-1970 (1971), Kalecki identified what he called the 'degree of monopoly': a quantitative proxy for economic power whose effect is registered on the profit markup. By extending
4 In fact, several of Kalecki's writings, published in Polish during the early 1930s, anticipated the essential argument of Keynes' General Theory (see Kalecki 1971: vii).
? Deflections of power 51
this notion to the economy as a whole, Kalecki showed how changes in the structure of power are linked to the class distribution of income - and from there to broad patterns of consumption, investment, the business cycle and economic policy.
From surplus value to economic surplus
Kalecki's work had a significant influence on the Monopoly Capital school affiliated with the New York-based journal Monthly Review. 5 Capitalism, the theorists of this school claimed, had moved from a competitive to a monopo- listic footing, and that qualitative transition annulled Marx's capitalist laws of motion. Since power now varied across firms/sectors and changed over time, there was no longer a tendency for rates of profits to equalize, no longer a tendency for market prices to be proportional to labour values, and no longer a tendency for surplus value to be equal to profit. 6
Instead of Marx's surplus value, Baran and Sweezy proposed a new cate- gory: the economic surplus (Baran 1957; Baran and Sweezy 1966). 7 The two concepts differ markedly. First, whereas surplus value is denominated in terms of abstract labour time, the economic surplus is counted directly in prices. Second, the two concepts have very different boundaries. The limit of surplus value is given by subtracting from maximum efficient production the subsistence wage of productive workers. In comparison, the notion of economic surplus is both broader and looser in that it also incorporates bygone production - due to inefficiency, unutilized capacity and wasteful spending. Finally, the two magnitudes have different determinants. Surplus value is created in the productive sphere, subject to Marx's tendency of the falling rate of profit. The economic surplus, by contrast, is affected by both production and demand and has a tendency to rise.
Realization and institutionalized waste
The tendency of the economic surplus to rise, though, is only latent and has to be 'realized'. On the one hand, the power of big business and its oligopolisitic interdependencies create an upward price bias: they make prices
5 Key contributions to this school include Josef Steindl (1952), Shigeto Tsuru (1956), Paul Baran (1957), Paul Baran and Paul Sweezy (1966), Harry Magdoff (1969) and Harry Braverman (1975).
6 This conclusion, Sweezy (1974) would later argue, did not invalidate the existence of labour values. It merely asserted that labour values are modified under monopoly capital and that this modification called for a new Marxist theory of capitalist development. As we shall see in Chapters 6-8, the problem with this solution is that labour values are impossible quite independent of monopoly power, and that impossibility leaves nothing to 'modify'.
7 There are in fact not one but three theoretical versions of the economic surplus - planned, potential and actual - along with a fourth, 'practical' measure that Baran and Sweezy use in their empirical estimates in Monopoly Capital (1966). In this paragraph, we deal with the features common to all versions.
? 52 Dilemmas of political economy
move up or sideways, but rarely down. On the other hand, large-scale produc- tion helps cut costs faster than ever. As a result of this divergence, profit margins tend to widen - but this widening is merely the first step. In order for the surplus to actually increase (be 'realized'), it has to be 'absorbed' into or 'offset' by profitable spending outlets. And here lies the problem.
In competitive capitalism firms are compelled to constantly invest lest they perish, which means that realization is rarely a lasting problem. Not so in monopoly capitalism. As large firms add new capacity, eventually the addi- tions begin to lower their rate of return on existing assets. Investment, there- fore, continues only as long as it is expected to boost average returns. The problem is masked during periods of 'epoch-making innovations' that amplify obsolescence on the one hand and propel profit expectations on the other, and in so doing fuel an investment-led boom. But in the absence of such innovations, Baran and Sweezy argued, monopoly capitalism requires wasteful expenditures - wasteful in the sense that they absorb more surplus that they create. 8 This waste can be generated, among other things, by a systemic sales effort, by the erection of a financial superstructure, and partic- ularly by military spending.