By setting up and managing sovereign wealth funds, governments are further integrating, if not locking themselves, into the larger
architecture
of capitalist power.
Nitzan Bichler - 2012 - Capital as Power
This sum was equivalent to a mere one year's worth of output coming from the alum mines of Benetetto Zaccaria, a Genoese merchant whose portfolio included many such lucrative properties (Lopez 1967: 297).
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maritime insurance, along with the proto-corporate commenda and com- pagnia that were already mentioned in Chapter 12.
These developments came hand in hand with the growth of urban educa- tion - an alternative to the feudal monastery and a precursor of public schooling. By the thirteenth century, most Italian merchants were literate, knew some mathematics, used bookkeeping and often spoke foreign languages (Pirenne 1937: 122-25). This education enabled the bourgeoisie to further improve its credit institutions and organizations, putting the illiterate nobility at an ever-growing disadvantage.
Gradually, as the financial instruments diversified and the transactions multiplied, each type became associated with its own 'benchmark' and 'normal rate of return'. Ironically, the most vibrant private market was real estate, the original source of feudal power. The rising merchants were busy buying the dwindling territorial properties of their increasingly indebted enemies, and by so doing further hastened their demise. The institution of the mortgage - originally a bypass of the Church opposition to interest - gave rise to an urban market that traded in rents and sold asset-backed securities. The bougs started raising money by selling perpetuities backed by the real- estate collaterals. In the thirteenth century, Genoa recognized the vendibility of such contracts, leading to the creation the Bank of St. George, a precursor of the modern mortgage bank (Pirenne 1937: 137-39).
Absorbing power: state finance
But the magnitude of private credit paled in comparison to the size of state finance. Wars, whose cost soared in tandem with their material scope and unit price, were the most financially demanding expenses. Changing military technologies, beginning with the crusades and continuing with the Hundred Years War, made it increasingly necessary to rely on hired armies that needed to be paid in cash. There were two ways to raise the money - taxes and borrowing - but it was their combination that proved the most effective.
The first to brave this new form of war finance were the Lombardian city states. They issued tax-backed bonds, using the proceeds to pay for soldiers and weapons that waged increasingly successful campaigns against barter- backed knights. The territorial princes and kings were initially hostile to this new arrangement. But having witnessed the lethal force of the new pecuniary militias unleashed on their increasingly expensive knights, they found the temptation of fight-now-pay-later difficult to resist. Gradually, they began to borrow the methods and money of the bourgeoisie, with the result being a growing interdependency - and eventually a bondage - between the territo- rial sovereign and the exterritorial capitalists. In due course, this alliance would develop into a new mode of power, a social space we now call the 'capitalist nation-state'.
Let's examine this process a bit more closely, beginning with taxation. The collection of ad hoc levies and duties was not only unpopular, but also grossly
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inefficient and extremely time consuming. Therefore, in the interest of expe- diency, the kings often took a shortcut, announcing a convenient 'state of emergency':
The monarchy, when it took over the reins of national life, ought to have resurrected a regular income tax system, the fundamental basis of both Roman and modern finance. . . . But the 13th century was not ripe for such radical reform. The King would merely ask his subjects for 'help' in times of crisis. Philip 'the Fair' acted in such a way as to keep a 'crisis' going, almost without interruption, and his successors improved even more on these methods.
(Lopez 1967: 334)
The bourgeoisie was forced to foot a growing part of the bill; but by now it was already too powerful to give something for nothing. In return for taxa- tion it demanded representation - this time on a 'national' scale.
Government taxes, though, constituted only one aspect of the new deal. The other aspect was private credit, and the two got inextricably bound up. Facing the prospect of war, the king, even if fiscally solvent, was often finan- cially illiquid. Taxes could be collected in the future, but the need for cash was immediate. His solution was to turn to haute finance with its easily accessible stash of money. For the financier, the request offered a huge investment opportunity: a royal promise to augment his capital with future taxes.
Initially, the arrangement was fraught with peril, and although both sides resorted to it with much enthusiasm and growing frequency, often they got burned. During the Hundred Years War, for example, Kind Edward of England financed his invasion of France with an estimated 1 to 1. 5 million gold florins borrowed from the Florentine banks of Bardi and Peruzzi and backed by an expected wool tax. The tax revenues, though, proved disappointing, and the two banks, unable to collect their loans, crashed, creating a chain reaction of bankruptcies throughout Northern Italy (Tuchman 1978: 81).
But time heals, and by the early nineteenth century war finance had already been perfected into business as usual. A typical illustration follows. During the Napoleonic Wars, an English expeditionary force, headed by the Duke of Wellington, got stuck in Portugal, besieged by a 'terrible need of funds'. Wellington borrowed money from shabby continental banks against massively discounted British government bonds, but the money was like a drop in the bucket. Unpaid soldiers resorted to looting; wounded officers had to sell their clothes to secure medical attention; and with its wallet empty, the army's attempt to have the local population turn against French rule was going nowhere.
Wellington was ready to give up the fight, but then, just as all seemed lost, the Rothschilds came to the rescue. Earlier on they had collected many of Wellington's discounted British government bills at a fraction of their book
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value, and they now cashed them at an enormous profit in London. In addi- tion, they also bought some ? 800,000 worth of gold at bargain prices from the East India Company - bullion that they were more than willing to sell back at 'fair value' to the needy British government. The Rothschilds also took it upon themselves, again for a proper fee, to transfer this money from England to the Continent, and they continued to do so for a number of years, funnel- ling as much as ? 20 million to the British troops. The transfers were even encouraged by the French authorities, who were misled to believe that the money represented private capital flight in expectation of British devalua- tion. . . . (Elon 1996: 166-71).
And so, almost seamlessly, war and organized violence - nominally the archenemies of the 'free market' - had been absorbed into capital. On the one hand the capitalists used inflation to destroy the military power of the nobility, while on the other hand they financed 'national' wars to multiply their capitalization many times over. And war was merely the beginning of this public-private bondage. In due course, capital has been able to inter- nalize not only organized violence, but every systematic aspect of government power.
The genesis of capital as power
Let's take stock of some of our claims so far. In Chapters 9 to 11, we have seen that, by discounting risk-adjusted expected earnings, capitalization has gradually come to encompass and commodify our social world, creating a unified quantitative architecture of historically unprecedented complexity. Then in Chapter 12, we have demonstrated that both the level and pattern of capitalist earnings are a matter of strategic sabotage, and therefore that the capitalization of earnings represents the commodification of power. Finally, in this chapter we argue that the commodified power of capital has increas- ingly taken over and absorbed other forms of organized power; that over time this takeover and absorption have come to define the mode of power of society, gradually turning capital itself into a state; and that this Leibnitzian transformation is not a recent phenomenon, but one that started with the very inception of bourgeois discounting in Italy of the fourteenth century.
The government bond
Symbolically, the earliest manifestation of the state of capital is the govern- ment bond. This financial instrument marks the first systematic capitalization of power, namely, the power of government to tax. And since this power is backed by institutionalized force, the government bond represents a share in the organized violence of society.
In and of themselves, taxation and the organized violence behind it are of course ancient, dating back to the early use of armies to collect agricultural
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tribute. 20 Subsequently, taxation was legitimized in custom and law, so that the use of naked force became less necessary. But it was only with the emer- gence of capitalism that this power was routinely packaged as a 'financial asset', discounted as vendible bonds on the open market.
This capitalization of power marked the beginning of the end of the feudal mode of power. Instead of a rigid structure of multiple personal 'protections' and endless 'exceptions', there emerged the anonymous and highly flexible capitalist 'bond' of private owners and public governments. For the first time in history, organized power, although still qualitatively multifaceted, assumed a universal quantity.
Primitive accumulation?
Interestingly, the first to suggest that the state was integral to capital was no other than Karl Marx. Recall that, analytically, Marx emphasized the primacy of production and surplus in the emergence and development of capitalism. However, toward the end of the first volume of Capital, in a section titled 'Genesis of the Industrial Capitalist', we find a strikingly different interpretation. In contrast to his otherwise bottom-up view, whereby the bourgeois state emerges to give an already-developed capitalism its universal form, here he offers a top-down 'structural' explanation, with accu- mulation seen as emerging from within the state.
The genesis of capitalism, Marx writes in this section, is primitive accumu- lation, and primitive accumulation is largely the working of the state:
The different momenta of primitive accumulation distribute themselves now, more or less in chronological order, particularly over Spain, Portugal, Holland, France, and England. In England at end of the 17th century, they arrive at a systematic combination, embracing the colonies, the national debt, the modern mode of taxation, and the protectionist system. These methods depend in part on brute force, e. g. the colonial system. But they all employ the power of the State, the concentrated and organized force of society, to hasten, hothouse fashion, the process of transformation of the feudal mode of production into the capitalist mode, and to shorten the transition. Force is the midwife of every old society pregnant with a new one. It is itself economic power.
(Marx 1909, Vol. 1: 823-24, emphases added)
Within this constellation, Marx further identifies the formative role of credit, particularly public debt:
20 Although state revenues are no longer collected in kind, the fiscal year still starts in April, to remind us of springtime tax expeditions in antiquity.
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National debts, i. e. the alienation of the state - whether despotic, consti- tutional or republican - marked with its stamp the capitalist era. . . . Public credit becomes the credo of capital.
(Ibid. : 827)
In fact, according to Marx, the public debt is not only 'one of the most powerful levers of primitive accumulation', but also the basis of modern finance more broadly, having 'given rise to joint stock companies, to dealings in negotiable effects of all kinds, and to agiotage, in a word to stock-exchange gambling and the modern bankocracy' (ibid. ).
Leaving aside differences in the meaning of 'state', this view seems similar to our own. The capitalist state, Marx argues, is neither a historical latecomer nor an added complication to an otherwise 'economic' notion of capital. Instead, it is an integral aspect of accumulation, and it was so from the very start.
But the similarity is only superficial. Note that Marx's view here relies crucially on the concept of 'primitive accumulation'. This is the mechanism through which state violence and power penetrate the inner workings of accu- mulation. Primitive accumulation, though, is an exception to the rule. During the normal course of 'expanded reproduction', whereby 'real' capital expands through the legitimate production and appropriation of surplus value, the state acts on capital only from the outside, as an external regulator.
The problem with this distinction is that the two types of accumulation - normal and abnormal - negate and therefore presuppose each other. In order to know what constitutes primitive accumulation (the forceful exception), we first have to know what expanded reproduction is (the sans-force rule). Yet, as we have seen, that cannot be done. Since productive labour, abstract labour and surplus value cannot be identified theoretically or empirically, there is no way to delineate expanded reproduction; and since the boundaries of expanded reproduction are forever unknown, there is no way to know what constitutes primitive accumulation. The two concepts rise and fall together.
For this reason, the endless debates from Luxemburg (1913) to Harvey (2004) - controversies over what constitutes 'real' accumulation, on how to differentiate it from 'rent seeking' and 'accumulation by dispossession', and on whether 'primitive accumulation' is necessary merely to kick-start capi- talism or in order to sustain it throughout - are much ado about nothing. These questions cannot be settled for the simple reason that accumulation does not have two faces. It has only one, and it is called capitalization. This process, although deeply intertwined with production, is a manifestation of power and only of power. And since we are dealing with power, the capitalist government (Marx's state) is embedded not only in the so-called 'primitive' forms of accumulation, but potentially in every single bit of it.
Government capitalized
And so, what began as a tentative and limited penetration of bourgeois principles into the feudal state ended up destroying that state to emerge, several centuries and numerous struggles later, as a full-fledged state of capital. And as capital grew into a state, the interaction between its organi- zational bodies of corporations and governments multiplied and intensified.
Over the past century, the government bond market has become the heart of modern finance. It provides the biggest and most liquid security market; it offers a vehicle for both fiscal and monetary policy; and it reflects, through its benchmark yield, the universal normal rate of return.
And that is just the start. Governments are engaged in numerous activities other than taxation - including military spending, subsidies, education, industrial policies, war making, tariffs, protection of private property, patents and copyrights, propaganda, labour laws, macroeconomic policies and policing, to name a few - and these activities all bear on the differential level and temporal pattern of capitalist income. In fact, it is hard to think of a single aspect of modern government that does not bear on the distribution of income in general and of capitalist income in particular, just as it is difficult to find a single corporation whose differential earnings are not affected by government power.
Given that these power features of government all influence differential capitalist earnings and risk, they are discounted, if only implicitly, into corpo- rate stock and bond prices. In other words, a significant proportion of all private property is, in fact, capitalized government power. Of course, the precise magnitude of this impact isn't written in the company books or declared in stock-market filings. But it can be illustrated easily with simple thought experiments.
Consider Microsoft once more. As we have seen, it doesn't matter whether Microsoft engineers 'produce' its software from scratch or 'borrow' it entirely from others, gratis. The owners of Microsoft can profit differentially from this software only insofar as they can prevent others from using it without pay. And this prevention depends crucially on the existence and enforcement of intellectual property rights - that is, on the extent to which Microsoft can harness the government apparatus to its own end. Now negate this ability and assume that the government no longer protects Microsoft's software. The most likely result is that Microsoft's earnings and capitalization will drop sharply if not collapse altogether. The magnitude of the drop represents the extent to which Microsoft capitalizes the government. 21
21 Not surprisingly, Microsoft earns most of its profits from sales in developed countries such as the United States, where software piracy can cost the trespasser up to five years in jail. Most developing countries have not yet perfected the penal system for such acts, and until they 'develop' in that direction, their governments' contribution to Microsoft's bottom line is likely to remain negligible.
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Similarly with so-called financial 'intermediaries' such as Deutsche Bank. The differential earnings of this group depend, among other things, on interest rate differentials and credit volumes - both of which emerge from a complex power interplay of government policy, cooperation and conflict among the leading financial intermediaries, the relative power of borrowers and the ebb and flow of risk perceptions. The government is deeply 'discounted' at every step of the way, and the extent of its capitalization can be readily if hypothetically assessed by contemplating what would happen if we were to obey the market fundamentalists and eliminate its involvement from any of those steps. . . .
Or consider DaimlerChrysler. The level and pattern of its differential earn- ings depend on its tacit and open collusion with the other seven auto titans. They also depend on the highway system provided by governments and the availability of alternative public transportation; they depend on environ- mental regulation or lack thereof; they depend on the ups and downs in the price of oil and hence on the global political economy of the Middle East; they depend on tax arrangements with various governments and on the use of transfer pricing; they depend on a sophisticated propaganda war that creates wants and shapes desires; they depend on the relative strength of DaimlerChrysler's labour unions; and so on. DaimlerChrysler's profits also hinge on its huge credit operations, and therefore on monetary policy; and they depend on the company's military business, and therefore on the global politics of armament budgets and the threat of inter- and intra-state conflict. Where exactly the government role begins and ends in this complex process of capitalization is difficult to tell, but the magnitude of this role would become immediately apparent if we removed or curtailed it.
A final example - the oil companies. Over the past four decades, the rela- tive profits of these companies have had little to do with variations in the production of oil - and almost everything to do with oil's relative price. 22 And the relative price of oil in turn has had little to do with 'supply and demand' or 'abstract labour' and everything to do with the global political economy in general and the political economy of the Middle East in particular. So here, too, profit and capitalization are matters of politics at large, which means that oil assets partly capitalize government power.
The conclusion then is pretty clear. If capital is a material-economic substance, then the most we can say is that the government does or does not 'affect' its accumulation. But if assets represent capitalized power, then capital must be seen as incorporating government power. In that sense, the government has become part of capital.
22 There is a very tight correlation between the global profit share of the oil companies on the one hand and the dollar price of crude oil deflated by the US CPI on the other. The correlation coefficient, using monthly series, measures 0. 8 out of 1 since 1974, and 0. 92 since 1979 (Nitzan and Bichler 2006b: 72). There is virtually no correlation between oil profit and the volume of oil output.
? The state of capital
Now, so far we have dealt with the degree to which the government has been capitalized by corporations. But that is only part of the process through which capital becomes a state. The other part concerns the extent to which the various organs of government have been conditioned, habituated and shaped by the logic of capital. We flesh out this question with a series of illus- trations.
Who are the regulators?
By the late 2000s, the changing ecology finally made the headline news and 'environmental friendliness' became a prerequisite for making money, so Wal-Mart decided to go green. Given the company's reputation as an indif- ferent if not predatory giant, this publicized shift toward 'social responsi- bility' has taken many leftists and environmentalists by surprise. But the move also revealed another aspect that few paid attention to: it illustrated how Wal-Mart has become a de facto regulator:
Because of Wal-Mart's sheer size and market share, most of its rivals have no choice but to follow its lead - and the company has found itself setting standards beyond those that regulators require. 'They have so much market power that they could drive environmental change through 50,000 companies, something that Congress and the Bush administra- tion has refused to do', says Michael Marx of Corporate Ethics International. . . .
(Bichall 2007)
And since Wal-Mart now acts as a government, so to speak, it seems only appropriate that it should also be lobbied:
Wal-Mart says it consults with suppliers on standards. But its efforts to set higher environmental goals than those legally required mean that the retailer is attracting the kind of lobbying that would have previously been directed at central government, from both environmentalists and from industry.
(Ibid. )
This example of private regulation is by no means exceptional. It keeps popping up in many different areas - from the setting of accounting standards and the determination of monetary policy, to military spending and the waging of war, to the commercialization of legal arbitration and the choice of pharmaceutical practices - all instances in which corporations act as regula- tors of the capitalist environment in which they operate.
The capitalist mode of power 299
300 Bringing power back in
Sovereign owners?
The second example concerns the modus operandi of government finance. Traditionally, capitalist governments treated their foreign reserves as a buffer for securing imports and protecting the currency. Consequently, the extra money was usually 'parked' in liquid foreign government bonds. This situa- tion started to change in the 1980s. Massive shifts in the global distribution of income gave rise to a significant concentration of foreign currency assets - first in the hands of oil-producing countries, and more recently also in the coffers of Asian governments. These piles of cash made the lure of capital too difficult to resist, as a result of which many governments started to invest their holdings through a new institution: the 'sovereign wealth fund'.
By 2006, sovereign wealth funds had amassed assets estimated at $2. 5 tril- lion - representing 10 per cent of all institutionally held investments in the world and nearly 1. 5 per cent of all global financial assets. The size of these funds has been growing in leaps and bounds, and at current growth rates it is expected to reach $12 trillion in 2015 - exceeding the sum total of global reserves by as much as 50 per cent (Farrell et al. 2007: 11; Jen 2007; Farrell et al. 2008: 10).
So far, much of the discourse surrounding this growth has focused on its threat to 'free markets' and the 'national interest' (particularly that of the United States, the world's largest importer of capital). The sovereign owners of these funds, the pundits explain, are inherently anti-market (the liberal fear) and potentially hostile (the realist unease), so thwarting this new form of 'government intervention' must be good for both freedom and country.
But this logic can easily be turned on its head.
By setting up and managing sovereign wealth funds, governments are further integrating, if not locking themselves, into the larger architecture of capitalist power. This submission is succinctly summarized, however unintentionally, by Yousef al Otaiba, director of international affairs for the government of Abu Dhabi:
The success in generating and wisely applying financial returns for the public good is directly linked to a clear set of principles that has guided Abu Dhabi's investment organizations. Most basic are the focus on maximizing risk-adjusted returns, relative to well-established market indices; taking a long-term view; avoiding leverage; and investing in a well-diversified portfolio across asset classes, geographies and sectors. Furthermore, the leading investment organization, the Abu Dhabi Investment Authority (ADIA), has operated predominately as a passive investor, with the overwhelming share of its portfolio consisting of minority stakes in companies that have included no control rights, no board seats and no involvement in the management or direction of the receiving companies. . . . It is important to be absolutely clear that the Abu Dhabi government has never and will never use its investment organi- zations or individual investments as a foreign-policy tool.
(al Otaiba 2008, emphases added)
The capitalist mode of power 301
The last promise in this quote should be taken with a grain of salt. As things stand, there is (still) no means of preventing governments from using their assets in line with their policy goals. But given the increasingly capitalist bent of these new sovereign owners of wealth, it is not clear how their investment and divestment decisions would differ from the business-as-usual policies of ExxonMobil, Bechtel or Samsung.
Whose policy?
And since we talk about foreign policy, what should we make of the recent US invasion of Iraq? Was this policy move taken in the national interest, in the name of business, or perhaps both?
Conventional opinions on this question vary widely, so perhaps we should briefly reiterate the underlying assumptions. At one extreme we have the realist position, according to which the state, understood as an independent entity represented by its 'officials' (i. e. the government apparatus), seeks to defend the 'national interest' against the interest of other nations. At the other extreme, we have the structural Marxist position that sees the state, in the 'last instance', as subservient to the 'logic of accumulation'. And on the face of it both views ring true. There is little doubt that George Bush Jr. and his administration believed that they represented the 'national interest' of the United States. But it is also fairly obvious that this same administration, whatever its formal leeway, could not have deviated too much from the underlying dictates of profit and accumulation.
And that is precisely the problem. As stated above, the realist and struc- tural Marxist views are mutually consistent. And if they can coexist, how can we tell whether the US government launched the attack on Iraq in order to serve its vital national interests or to protect the capitalist order? Is it possible that the attack was meant to serve both goals, or is one cause more important than the other? Can we even tell them apart?
Moreover, is the relative significance of these goals fixed, or does it change over time? Considering the past fifty years, could we say, for example, that the 'national interest' has grown less imposing relative to the 'logic of accu- mulation', or has it been the other way around? Perhaps the underlying logics of the national interest and accumulation have both changed?
Whose interests?
These, undoubtedly, are big questions. To answer them, we have to take the following steps. First, we need to specify clearly the 'logic of state power' and the 'logic of accumulation', including the categories and units in which they are articulated and observed. Second, we need to identify conflicts between these logics. And third, we need to examine how these conflicts pan out comparatively and historically. Based on such an investigation, we can then choose the logic that gives the most consistent, robust and predictive picture.
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Clearly, so far the debate hasn't taken this route. Worse still, it seems that both sides - the realists and the structural Marxists - have preferred to frame their positions in irrefutable terms. Stephen Krasner, an advocate of the realist view, interprets the 'national interest' not as the sum of individual interests, but rather as the overall interest of the nation. In his words, it is not the 'utility of the community' that matters, but the 'utility for the community' as deter- mined by its central decision makers (Krasner 1978: 12, original emphases). In practice, though, the 'decision makers' (read government officials) themselves rarely agree on the matter, so it is up to the researcher - Krasner in this case - to make the decision for them. And the way this interest is phrased is often so loose that it can be made consistent with virtually any line of action. According to this template, the 2003 US invasion of Iraq was motivated (depending on the theorist) by the quest for raw materials, by the need to spread capitalist ideology, by the desire to tame the barbarians, by the aspiration to thwart Europe and Asia, by the desire to have Bush Jr. re-elected, or simply by a miscalculation - all in the name of the national interest. Go prove otherwise.
Unfortunately, structural Marxists do not always fare much better in specifying the 'logic of accumulation' and the 'interest of capitalists', let alone in assessing the degree to which this logic and interest dominate the state. In the 1960s, the welfare state served the long-term interest of capitalism; in the 1980s, the welfare state's demise better served that same interest. In the 1980s and 1990s, capitalists wanted a new world order of peace; now they suddenly want Empire. In the 1970s and 1980s the US government tried to serve its 'own' capitalists by conspiring with OPEC to raise oil prices; in the early 2000s it tried to cater to their 'global' interests by invading the Middle East in order to lower oil prices (and when, in the late 2000s the price of oil reached the stratosphere, it was obviously in the interest of the oil companies and the speculators).
These claims may or may not be true. But their validity can be judged only if we first specify exactly what we mean by the 'interest of capitalists' and the 'logic of accumulation'. Only then can we begin to judge whether government organizations and institutions are autonomous from or subservient to these interests and logic, or perhaps somewhere in between.
What is to be done?
The final part of the book outlines the power logic of capitalism and the interest of the dominant owners as we see them. In doing so, this part also illustrates some key features of the historical development of capital accumu- lation. The quantitative patterns it outlines delineate the boundaries of capi- talist politics. These boundaries point to the central political processes, broadly defined, that determine the course of accumulation. They also provide a basis for assessing the extent to which government policies have been 'discounted' into capital on the one hand and the degree to which the capitalist mega-machine may have become a form of state on the other.
Part V
Accumulation of power
14 Differential accumulation and dominant capital
ad omnia et contra universos hominess - in all matters and against all men --An eleventh-century count pledging to serve his lord. Quoted in Franc? ois Louis Ganshof's Feudalism
Creorder
Creating order
Historical society is a creorder. At every passing moment, it is both Parmenidean and Heraclitean: a state in process, a construct reconstructed, a form transformed. To have a history is to create order - a verb and a noun whose fusion yields the verb-noun creorder.
A creorder can be hierarchical as in dictatorship or tight bureaucracy, horizontal as in direct democracy, or something in between. Its pace of change can be imperceptibly slow - as it was in many ancient tyrannies - yielding the impression of complete stability; or it can be so fast as to under- mine any semblance of structure, as it often is in capitalism. Its transformative pattern can be continuous or discrete, uniform or erratic, singular or multi- faceted. But whatever its particular properties, it is always a paradoxical duality - a dynamic creation of a static order.
Democratic creorders - of which the most notable example is the demos kratia of Ancient Athens - are relatively few and far between, so it is difficult to generalize about them. But given that such societies are to some extent free to create their own fate, they can choose to do so rapidly or slowly.
A power creorder doesn't have that choice. Power means the ability to impose order, and imposition presupposes resistance - resistance from those on whom order is imposed and from others who wish to impose their own. This ever-present tension between force and counter-force makes a power creorder inherently unstable. Slack on one side unleashes pressure from another, a greater force in one direction trumps over a weaker force in the other. And since to overcome resistance is to create a new order, the very presence of power spells a built-in pressure for change.
306 Accumulation of power
Historically, however, this pressure tended to remain latent. Judged by contemporary standards, most hierarchical regimes seem highly stable, if not entirely static. Although dynamic in potential, the pace of their creorder was usually restricted. It was capped by material limitations and symbolic inhibi- tions, and it often slowed to a halt by the very success of rulers in eliminating opposition. Regimes with 'surplus' energy usually spent it on conquering and subjugating other societies.
In capitalism, these internal limitations are greatly loosened by two unprecedented developments: (1) a permanent revolution of the scientific- ideological mindset that enables rapid material and societal transformations; and (2) a relentless process of pecuniary capitalization that translates and reduces these heterogeneous transformations of quality into universal changes in quantity.
Mediated through the market, the convergence of these processes enables capitalists to creorder in ways that no other ruling class has ever been able to. At the most basic level, it allows owners to lever technical change - rather than techniques per se - as a tool of power. At a higher level it lets them use the monetary symbols of prices and inflation to restructure power. And at a still higher level, and perhaps most importantly, it permits them to reorganize power directly, by buying and selling vendible ownership claims. In this sense, the capitalist market, with its universalizing price architecture and encom- passing discounting, is not a diffusion of power but the very precondition of power.
The power role of the market
The power role of the market cannot be overemphasized - particularly since, as we have seen throughout the book, most observers deny it and many invert it altogether. Analytically, the inversion proceeds in three simple steps. It begins by defining the market as a voluntary, self-regulating mechanism. It continues by observing that such a mechanism leaves no room for the imposi- tion of power. And it ends by concluding that power and market must be antithetical, and that they can coexist only insofar as the former 'manipulates' and 'distorts' the latter.
An example of this inversion is Fernand Braudel's historical work Civilization & Capitalism (1985). According to Braudel, capitalism negates the market. In his words, there is a conflict between a self-regulating 'market economy' on the one hand, and an anti-market 'capitalist' zone where social hierarchies 'manipulate exchange to their advantage' on the other (Braudel 1977; 1985, Vol. 1: 23-24 and Vol. 2: 229-30). A similar sentiment is expressed by Cornelius Castoriadis, when he proclaims that 'where there is capitalism, there is no market; and where there is a market, there cannot be capitalism' (1990: 227).
The root of the error here lies right at the assumptions. Capitalism cannot negate the market because it requires the market. Without a market, there can
Differential accumulation and dominant capital 307
be no commodification, and without commodification there can be no capi- talization, no accumulation and no capitalism. And the market can fulfil this role precisely because it is never self-regulating (and since it is never self- regulating, there is nothing to 'manipulate' or 'distort' in the first place). Price is not a utilitarian-productive quantity, but a power magnitude, and the market is the very institution through which this power is quantified. Without this market mediation of power, there can be no profit and, again, no capital- ization, no accumulation and no capitalism.
And there's more. The market doesn't merely enable capitalist power, it totally transforms it. And it achieves this transformation by making the capi- talist mega-machine modular. The blueprint of this new machine, unlike those of earlier models, is very short. Its essential component is the capitalization/ accumulation formula. The formula is special in that it doesn't specify what the mega-machine should look like. Instead, it stipulates a 'generative order', a fractal-like algorithm that allows capitalists to reconstruct and reshape their mega-machine in innumerable ways. The algorithm itself changes so slowly that it seems practically 'fixed' (the basic principle of capitalization hasn't changed much over the past half-millennium). But the historical paths and outcomes generated by this algorithm are very much open-ended, and it is this latter flexibility that makes the capitalist creorder so dynamic. 1
How to measure accumulation?
So let's start with capitalization, the 'raw material' of accumulation. In its immediate appearance, capitalization is just a number, a quantity of dollars and cents. On its own, it can tell us nothing about power, or about anything else for that matter. To gain a meaning, it has to be benchmarked.
'Real' benchmarking?
Begin with the yardsticks that don't stick. For most economists, the proper benchmark is a price index. Capitalization, like any other 'economic' entity, acquires its meaning when expressed in 'real terms'; and the way to determine this 'real' quantity is to divide the dollar value of capitalization by its unit price. Accumulation is the rate of growth of this 'real' ratio.
Unfortunately, this procedure won't do. As we have seen, the category of 'real capital' is logically impossible and empirically embarrassing. Capital- ization has no material units to measure its quantity (and without a quantity
1 According to David Bohm (Bohm 1980; Bohm and Peat 1987), there is no 'ultimate' generative order. Instead, there is an infinite 'enfoldment', a never-ending 'order of orders' that slowly unfolds with greater hindsight and insight. From this viewpoint, Marx's capitalism is enfolded, along with several other modes of production, within the higher generative order of 'dialectical materialism'. Perhaps with enough hindsight it will be possible at some point to nest capitalization within a higher generative order of power.
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there is no definite unit to price); the replacement cost of material artefacts owned by capitalists usually is a small fraction of their overall capitalization; and, as a coup de gra^ce, over time this replacement cost tends to oscillate inversely with capitalization.
A popular escape route is to express 'real' capital in terms of purchasing power. According to this logic, capitalists, like all economic 'agents', are in hot pursuit of hedonic pleasure. All they seek is consumption - immediate or postponed - and the more the better. In this context, the thing to do is benchmark capitalization not against its own elusive price, but relative to the price of consumer goods and services. Simply divide the dollar value of capitalization by the CPI and you are done.
But this procedure isn't simple either. Capitalists of course are concerned with consumption. Yet, beyond a certain level of riches, their consumption is only marginally affected by their accumulation. And if only a fraction of their fortune is earmarked for consumption, what should the remainder be benchmarked against?
Moreover, it turns out that even the proportion that does get consumed is rather tricky to deflate. In liberal tracts consumption is a hedonic affair between a person and the things he or she consumes. Not so for accumula- tion-induced consumption. Here, the relationship is inter-personal. The goal is not to achieve hedonic pleasure but to establish differential status: to demonstrate that the consumer can afford something that others cannot. Veblen (1899b) labelled this demonstration 'conspicuous consumption'.
This new emphasis puts the standard deflating method on its head. From a nai? ve utilitarian perspective, higher prices for consumer goods and services imply lower purchasing power and therefore a smaller 'real capital'. For the conspicuous consumer, though, the exact opposite is true: since higher prices bestow a higher differential status, they generate greater utility and therefore imply a larger 'real capital'. 2
2 One of the most conspicuous acts of consumption is the acquisition of an entire territory. Capitalists cannot yet apply this act to sovereign countries, but they have been practising on islands. According to the subtly titled Financial Times supplement How to Spend It, 'the demand for islands has never been higher, and although the chief driver of this rarefied market remains prestige, other factors now fuel the passion for a personal domain surrounded by sea' (Freedman 2007). One popular consideration, says Fahran Viladi, owner of the world's leading island estate agency, is the direction of the wind, in case a nuclear attack annihilates the nearby mainland. Another is elevation - so that the consumer can safely escape the immanent rising of the seas as the poles melt. But even these considerations are part of the show off: 'It's not the price - because those who can afford it tend not to worry about money - it's the fact there's such a limited supply'. And sure enough, 'private islands tended to outperform the mainstream property market'. So, in the end, conspicuous consumption is nothing more than glorified investment; but, then, since investment cannot have a 'real' quantity, our measurement odyssey ends up right where it started. . . .
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It's all relative
The most important critique against 'real' measures of accumulation, how- ever, is that they are irrelevant. Accumulation is not about physical objects or the hedonic pleasure of capitalists. It is about power. And power is not absolute, it is relative. It acquires its meaning only when gauged against other powers.
Of course, the differential nature of power isn't unique to capitalism. Chieftains gauged their power against other chieftains, lords against other lords, kings against other kings, nation-states against other nation-states. But in these regimes, the comparisons were largely subjective and their social significance more limited. It is only in capitalism, where power is translated into the universal units of capitalization, that the differential nature of power really takes centre stage.
Neoclassicists never tire of preaching the imperative of maximizing profit and wealth, although they rarely if ever explain what 'maximization' means in practice or how it can be achieved in reality. 3 And not that they should bother - for in the real world of capital, the reference points are all relative.
A capitalist investing in Canadian 10-year bonds typically tries to beat the Scotia McLeod 10-year benchmark; an owner of emerging-market equities tries to beat the IFC benchmark; investors in global commodities try to beat the Reuters/Jefferies CRB Commodity Index; owners of large US corpor- ations try to beat the S&P 500; and so on. Every investment is stacked against its own group benchmark - and, in the abstract, against the global bench- mark.
Modern-day capitalists have long abandoned the vain search for Archimedean absolutes for readily observable Newtonian differentials. And it is not as if they had a choice. The shifting sands of the capitalist creorder leave no absolute yardstick standing. 'All that is solid melts into air, all that is holy is profaned', observed Marx and Engels (1848: 63). The only thing capi- talists can relate to are the broad processes themselves: they assess their own performance by comparing it to the performance of others.
In this quest, the goal is not to maximize but to exceed, not to meet but to beat. To achieve a 5 per-cent profit growth during recession is success; to gain 15 per cent when others make 30 is failure. Even declining profit can be a triumph, provided it 'outperforms' the average:
3 We have already seen in Chapter 12 that actual pricing methods have little to do with 'maximization'. Neoclassicists love to ignore these inconvenient facts - only that the situ- ation is hardly any better in their 'pure' theory. As it turns out, neoclassical profits can be 'maximized' only in the hypothetical cases of perfect competition and monopoly - but not anywhere in between. The problem, first identified by Cournot (1838), is one of oligopo- listic interdependence, which, in its unrestricted form (that is, without the game theorists), makes maximum profit indeterminate even in the mind of the economist (see footnote 4 in Chapter 5).
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Accumulation of power
In normal circumstances, the results issued by Mr Dimon's firm [JPMorgan Chase] on Thursday - a halving in second-quarter profits, and a bleak outlook for the rest of the year - would have sent investors rushing for the exit. But, with fund managers' nerves jangled by almost a year of credit-related bad news, JPMorgan's ability to outperform most of its rivals and beat analysts' predictions was enough to send its shares 11 per cent higher at midday in New York.
(Guerrera 2008)
Maximizing profit for absolute accumulation is bordering on the occult. The only real thing is differential accumulation. 4
Unlike the impossible absolute and elusive maximum, the 'normal' and 'average' are everywhere. Numerous organs of the state of capital - from the news media listings of Fortune, Business Week, Far Eastern Economic Review, Euromoney, Financial Times and Forbes, to the private databases of Bloom- berg, Compustat, Datastream and Global Insight, to national and interna- tional organizations - keep churning new benchmarks at a neck-breaking pace. Soon enough, they'll have us swamped with more benchmarks than assets.
Every business and economic category is averaged across the world and over time. Indeed, so real is the zeal that even future projections of these magnitudes are now benchmarked against their own so-called 'consensus forecast'. The benchmarks are classified by every imaginable criterion, sepa- rately and in combination - including size, nationality, sector, duration, risk, liquidity and 'investability', among others. Indeed, the notion of 'normality' as a benchmark for action and achievement has been so thoroughly accepted that it now dominates numerous non-business spheres, from education and the arts to sports and foreign relations. To be real is to be relative.
Differential capitalization and differential accumulation
The capitalist creorder
The logic of this relative architecture was spelled out by the eighteenth- century invention of the metric system. The system was purposefully linked to the magnitude of the planet (setting the metre equal to 1/40,000,000th of the earth's circumference).
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maritime insurance, along with the proto-corporate commenda and com- pagnia that were already mentioned in Chapter 12.
These developments came hand in hand with the growth of urban educa- tion - an alternative to the feudal monastery and a precursor of public schooling. By the thirteenth century, most Italian merchants were literate, knew some mathematics, used bookkeeping and often spoke foreign languages (Pirenne 1937: 122-25). This education enabled the bourgeoisie to further improve its credit institutions and organizations, putting the illiterate nobility at an ever-growing disadvantage.
Gradually, as the financial instruments diversified and the transactions multiplied, each type became associated with its own 'benchmark' and 'normal rate of return'. Ironically, the most vibrant private market was real estate, the original source of feudal power. The rising merchants were busy buying the dwindling territorial properties of their increasingly indebted enemies, and by so doing further hastened their demise. The institution of the mortgage - originally a bypass of the Church opposition to interest - gave rise to an urban market that traded in rents and sold asset-backed securities. The bougs started raising money by selling perpetuities backed by the real- estate collaterals. In the thirteenth century, Genoa recognized the vendibility of such contracts, leading to the creation the Bank of St. George, a precursor of the modern mortgage bank (Pirenne 1937: 137-39).
Absorbing power: state finance
But the magnitude of private credit paled in comparison to the size of state finance. Wars, whose cost soared in tandem with their material scope and unit price, were the most financially demanding expenses. Changing military technologies, beginning with the crusades and continuing with the Hundred Years War, made it increasingly necessary to rely on hired armies that needed to be paid in cash. There were two ways to raise the money - taxes and borrowing - but it was their combination that proved the most effective.
The first to brave this new form of war finance were the Lombardian city states. They issued tax-backed bonds, using the proceeds to pay for soldiers and weapons that waged increasingly successful campaigns against barter- backed knights. The territorial princes and kings were initially hostile to this new arrangement. But having witnessed the lethal force of the new pecuniary militias unleashed on their increasingly expensive knights, they found the temptation of fight-now-pay-later difficult to resist. Gradually, they began to borrow the methods and money of the bourgeoisie, with the result being a growing interdependency - and eventually a bondage - between the territo- rial sovereign and the exterritorial capitalists. In due course, this alliance would develop into a new mode of power, a social space we now call the 'capitalist nation-state'.
Let's examine this process a bit more closely, beginning with taxation. The collection of ad hoc levies and duties was not only unpopular, but also grossly
The capitalist mode of power 293
inefficient and extremely time consuming. Therefore, in the interest of expe- diency, the kings often took a shortcut, announcing a convenient 'state of emergency':
The monarchy, when it took over the reins of national life, ought to have resurrected a regular income tax system, the fundamental basis of both Roman and modern finance. . . . But the 13th century was not ripe for such radical reform. The King would merely ask his subjects for 'help' in times of crisis. Philip 'the Fair' acted in such a way as to keep a 'crisis' going, almost without interruption, and his successors improved even more on these methods.
(Lopez 1967: 334)
The bourgeoisie was forced to foot a growing part of the bill; but by now it was already too powerful to give something for nothing. In return for taxa- tion it demanded representation - this time on a 'national' scale.
Government taxes, though, constituted only one aspect of the new deal. The other aspect was private credit, and the two got inextricably bound up. Facing the prospect of war, the king, even if fiscally solvent, was often finan- cially illiquid. Taxes could be collected in the future, but the need for cash was immediate. His solution was to turn to haute finance with its easily accessible stash of money. For the financier, the request offered a huge investment opportunity: a royal promise to augment his capital with future taxes.
Initially, the arrangement was fraught with peril, and although both sides resorted to it with much enthusiasm and growing frequency, often they got burned. During the Hundred Years War, for example, Kind Edward of England financed his invasion of France with an estimated 1 to 1. 5 million gold florins borrowed from the Florentine banks of Bardi and Peruzzi and backed by an expected wool tax. The tax revenues, though, proved disappointing, and the two banks, unable to collect their loans, crashed, creating a chain reaction of bankruptcies throughout Northern Italy (Tuchman 1978: 81).
But time heals, and by the early nineteenth century war finance had already been perfected into business as usual. A typical illustration follows. During the Napoleonic Wars, an English expeditionary force, headed by the Duke of Wellington, got stuck in Portugal, besieged by a 'terrible need of funds'. Wellington borrowed money from shabby continental banks against massively discounted British government bonds, but the money was like a drop in the bucket. Unpaid soldiers resorted to looting; wounded officers had to sell their clothes to secure medical attention; and with its wallet empty, the army's attempt to have the local population turn against French rule was going nowhere.
Wellington was ready to give up the fight, but then, just as all seemed lost, the Rothschilds came to the rescue. Earlier on they had collected many of Wellington's discounted British government bills at a fraction of their book
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value, and they now cashed them at an enormous profit in London. In addi- tion, they also bought some ? 800,000 worth of gold at bargain prices from the East India Company - bullion that they were more than willing to sell back at 'fair value' to the needy British government. The Rothschilds also took it upon themselves, again for a proper fee, to transfer this money from England to the Continent, and they continued to do so for a number of years, funnel- ling as much as ? 20 million to the British troops. The transfers were even encouraged by the French authorities, who were misled to believe that the money represented private capital flight in expectation of British devalua- tion. . . . (Elon 1996: 166-71).
And so, almost seamlessly, war and organized violence - nominally the archenemies of the 'free market' - had been absorbed into capital. On the one hand the capitalists used inflation to destroy the military power of the nobility, while on the other hand they financed 'national' wars to multiply their capitalization many times over. And war was merely the beginning of this public-private bondage. In due course, capital has been able to inter- nalize not only organized violence, but every systematic aspect of government power.
The genesis of capital as power
Let's take stock of some of our claims so far. In Chapters 9 to 11, we have seen that, by discounting risk-adjusted expected earnings, capitalization has gradually come to encompass and commodify our social world, creating a unified quantitative architecture of historically unprecedented complexity. Then in Chapter 12, we have demonstrated that both the level and pattern of capitalist earnings are a matter of strategic sabotage, and therefore that the capitalization of earnings represents the commodification of power. Finally, in this chapter we argue that the commodified power of capital has increas- ingly taken over and absorbed other forms of organized power; that over time this takeover and absorption have come to define the mode of power of society, gradually turning capital itself into a state; and that this Leibnitzian transformation is not a recent phenomenon, but one that started with the very inception of bourgeois discounting in Italy of the fourteenth century.
The government bond
Symbolically, the earliest manifestation of the state of capital is the govern- ment bond. This financial instrument marks the first systematic capitalization of power, namely, the power of government to tax. And since this power is backed by institutionalized force, the government bond represents a share in the organized violence of society.
In and of themselves, taxation and the organized violence behind it are of course ancient, dating back to the early use of armies to collect agricultural
The capitalist mode of power 295
tribute. 20 Subsequently, taxation was legitimized in custom and law, so that the use of naked force became less necessary. But it was only with the emer- gence of capitalism that this power was routinely packaged as a 'financial asset', discounted as vendible bonds on the open market.
This capitalization of power marked the beginning of the end of the feudal mode of power. Instead of a rigid structure of multiple personal 'protections' and endless 'exceptions', there emerged the anonymous and highly flexible capitalist 'bond' of private owners and public governments. For the first time in history, organized power, although still qualitatively multifaceted, assumed a universal quantity.
Primitive accumulation?
Interestingly, the first to suggest that the state was integral to capital was no other than Karl Marx. Recall that, analytically, Marx emphasized the primacy of production and surplus in the emergence and development of capitalism. However, toward the end of the first volume of Capital, in a section titled 'Genesis of the Industrial Capitalist', we find a strikingly different interpretation. In contrast to his otherwise bottom-up view, whereby the bourgeois state emerges to give an already-developed capitalism its universal form, here he offers a top-down 'structural' explanation, with accu- mulation seen as emerging from within the state.
The genesis of capitalism, Marx writes in this section, is primitive accumu- lation, and primitive accumulation is largely the working of the state:
The different momenta of primitive accumulation distribute themselves now, more or less in chronological order, particularly over Spain, Portugal, Holland, France, and England. In England at end of the 17th century, they arrive at a systematic combination, embracing the colonies, the national debt, the modern mode of taxation, and the protectionist system. These methods depend in part on brute force, e. g. the colonial system. But they all employ the power of the State, the concentrated and organized force of society, to hasten, hothouse fashion, the process of transformation of the feudal mode of production into the capitalist mode, and to shorten the transition. Force is the midwife of every old society pregnant with a new one. It is itself economic power.
(Marx 1909, Vol. 1: 823-24, emphases added)
Within this constellation, Marx further identifies the formative role of credit, particularly public debt:
20 Although state revenues are no longer collected in kind, the fiscal year still starts in April, to remind us of springtime tax expeditions in antiquity.
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National debts, i. e. the alienation of the state - whether despotic, consti- tutional or republican - marked with its stamp the capitalist era. . . . Public credit becomes the credo of capital.
(Ibid. : 827)
In fact, according to Marx, the public debt is not only 'one of the most powerful levers of primitive accumulation', but also the basis of modern finance more broadly, having 'given rise to joint stock companies, to dealings in negotiable effects of all kinds, and to agiotage, in a word to stock-exchange gambling and the modern bankocracy' (ibid. ).
Leaving aside differences in the meaning of 'state', this view seems similar to our own. The capitalist state, Marx argues, is neither a historical latecomer nor an added complication to an otherwise 'economic' notion of capital. Instead, it is an integral aspect of accumulation, and it was so from the very start.
But the similarity is only superficial. Note that Marx's view here relies crucially on the concept of 'primitive accumulation'. This is the mechanism through which state violence and power penetrate the inner workings of accu- mulation. Primitive accumulation, though, is an exception to the rule. During the normal course of 'expanded reproduction', whereby 'real' capital expands through the legitimate production and appropriation of surplus value, the state acts on capital only from the outside, as an external regulator.
The problem with this distinction is that the two types of accumulation - normal and abnormal - negate and therefore presuppose each other. In order to know what constitutes primitive accumulation (the forceful exception), we first have to know what expanded reproduction is (the sans-force rule). Yet, as we have seen, that cannot be done. Since productive labour, abstract labour and surplus value cannot be identified theoretically or empirically, there is no way to delineate expanded reproduction; and since the boundaries of expanded reproduction are forever unknown, there is no way to know what constitutes primitive accumulation. The two concepts rise and fall together.
For this reason, the endless debates from Luxemburg (1913) to Harvey (2004) - controversies over what constitutes 'real' accumulation, on how to differentiate it from 'rent seeking' and 'accumulation by dispossession', and on whether 'primitive accumulation' is necessary merely to kick-start capi- talism or in order to sustain it throughout - are much ado about nothing. These questions cannot be settled for the simple reason that accumulation does not have two faces. It has only one, and it is called capitalization. This process, although deeply intertwined with production, is a manifestation of power and only of power. And since we are dealing with power, the capitalist government (Marx's state) is embedded not only in the so-called 'primitive' forms of accumulation, but potentially in every single bit of it.
Government capitalized
And so, what began as a tentative and limited penetration of bourgeois principles into the feudal state ended up destroying that state to emerge, several centuries and numerous struggles later, as a full-fledged state of capital. And as capital grew into a state, the interaction between its organi- zational bodies of corporations and governments multiplied and intensified.
Over the past century, the government bond market has become the heart of modern finance. It provides the biggest and most liquid security market; it offers a vehicle for both fiscal and monetary policy; and it reflects, through its benchmark yield, the universal normal rate of return.
And that is just the start. Governments are engaged in numerous activities other than taxation - including military spending, subsidies, education, industrial policies, war making, tariffs, protection of private property, patents and copyrights, propaganda, labour laws, macroeconomic policies and policing, to name a few - and these activities all bear on the differential level and temporal pattern of capitalist income. In fact, it is hard to think of a single aspect of modern government that does not bear on the distribution of income in general and of capitalist income in particular, just as it is difficult to find a single corporation whose differential earnings are not affected by government power.
Given that these power features of government all influence differential capitalist earnings and risk, they are discounted, if only implicitly, into corpo- rate stock and bond prices. In other words, a significant proportion of all private property is, in fact, capitalized government power. Of course, the precise magnitude of this impact isn't written in the company books or declared in stock-market filings. But it can be illustrated easily with simple thought experiments.
Consider Microsoft once more. As we have seen, it doesn't matter whether Microsoft engineers 'produce' its software from scratch or 'borrow' it entirely from others, gratis. The owners of Microsoft can profit differentially from this software only insofar as they can prevent others from using it without pay. And this prevention depends crucially on the existence and enforcement of intellectual property rights - that is, on the extent to which Microsoft can harness the government apparatus to its own end. Now negate this ability and assume that the government no longer protects Microsoft's software. The most likely result is that Microsoft's earnings and capitalization will drop sharply if not collapse altogether. The magnitude of the drop represents the extent to which Microsoft capitalizes the government. 21
21 Not surprisingly, Microsoft earns most of its profits from sales in developed countries such as the United States, where software piracy can cost the trespasser up to five years in jail. Most developing countries have not yet perfected the penal system for such acts, and until they 'develop' in that direction, their governments' contribution to Microsoft's bottom line is likely to remain negligible.
The capitalist mode of power 297
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Similarly with so-called financial 'intermediaries' such as Deutsche Bank. The differential earnings of this group depend, among other things, on interest rate differentials and credit volumes - both of which emerge from a complex power interplay of government policy, cooperation and conflict among the leading financial intermediaries, the relative power of borrowers and the ebb and flow of risk perceptions. The government is deeply 'discounted' at every step of the way, and the extent of its capitalization can be readily if hypothetically assessed by contemplating what would happen if we were to obey the market fundamentalists and eliminate its involvement from any of those steps. . . .
Or consider DaimlerChrysler. The level and pattern of its differential earn- ings depend on its tacit and open collusion with the other seven auto titans. They also depend on the highway system provided by governments and the availability of alternative public transportation; they depend on environ- mental regulation or lack thereof; they depend on the ups and downs in the price of oil and hence on the global political economy of the Middle East; they depend on tax arrangements with various governments and on the use of transfer pricing; they depend on a sophisticated propaganda war that creates wants and shapes desires; they depend on the relative strength of DaimlerChrysler's labour unions; and so on. DaimlerChrysler's profits also hinge on its huge credit operations, and therefore on monetary policy; and they depend on the company's military business, and therefore on the global politics of armament budgets and the threat of inter- and intra-state conflict. Where exactly the government role begins and ends in this complex process of capitalization is difficult to tell, but the magnitude of this role would become immediately apparent if we removed or curtailed it.
A final example - the oil companies. Over the past four decades, the rela- tive profits of these companies have had little to do with variations in the production of oil - and almost everything to do with oil's relative price. 22 And the relative price of oil in turn has had little to do with 'supply and demand' or 'abstract labour' and everything to do with the global political economy in general and the political economy of the Middle East in particular. So here, too, profit and capitalization are matters of politics at large, which means that oil assets partly capitalize government power.
The conclusion then is pretty clear. If capital is a material-economic substance, then the most we can say is that the government does or does not 'affect' its accumulation. But if assets represent capitalized power, then capital must be seen as incorporating government power. In that sense, the government has become part of capital.
22 There is a very tight correlation between the global profit share of the oil companies on the one hand and the dollar price of crude oil deflated by the US CPI on the other. The correlation coefficient, using monthly series, measures 0. 8 out of 1 since 1974, and 0. 92 since 1979 (Nitzan and Bichler 2006b: 72). There is virtually no correlation between oil profit and the volume of oil output.
? The state of capital
Now, so far we have dealt with the degree to which the government has been capitalized by corporations. But that is only part of the process through which capital becomes a state. The other part concerns the extent to which the various organs of government have been conditioned, habituated and shaped by the logic of capital. We flesh out this question with a series of illus- trations.
Who are the regulators?
By the late 2000s, the changing ecology finally made the headline news and 'environmental friendliness' became a prerequisite for making money, so Wal-Mart decided to go green. Given the company's reputation as an indif- ferent if not predatory giant, this publicized shift toward 'social responsi- bility' has taken many leftists and environmentalists by surprise. But the move also revealed another aspect that few paid attention to: it illustrated how Wal-Mart has become a de facto regulator:
Because of Wal-Mart's sheer size and market share, most of its rivals have no choice but to follow its lead - and the company has found itself setting standards beyond those that regulators require. 'They have so much market power that they could drive environmental change through 50,000 companies, something that Congress and the Bush administra- tion has refused to do', says Michael Marx of Corporate Ethics International. . . .
(Bichall 2007)
And since Wal-Mart now acts as a government, so to speak, it seems only appropriate that it should also be lobbied:
Wal-Mart says it consults with suppliers on standards. But its efforts to set higher environmental goals than those legally required mean that the retailer is attracting the kind of lobbying that would have previously been directed at central government, from both environmentalists and from industry.
(Ibid. )
This example of private regulation is by no means exceptional. It keeps popping up in many different areas - from the setting of accounting standards and the determination of monetary policy, to military spending and the waging of war, to the commercialization of legal arbitration and the choice of pharmaceutical practices - all instances in which corporations act as regula- tors of the capitalist environment in which they operate.
The capitalist mode of power 299
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Sovereign owners?
The second example concerns the modus operandi of government finance. Traditionally, capitalist governments treated their foreign reserves as a buffer for securing imports and protecting the currency. Consequently, the extra money was usually 'parked' in liquid foreign government bonds. This situa- tion started to change in the 1980s. Massive shifts in the global distribution of income gave rise to a significant concentration of foreign currency assets - first in the hands of oil-producing countries, and more recently also in the coffers of Asian governments. These piles of cash made the lure of capital too difficult to resist, as a result of which many governments started to invest their holdings through a new institution: the 'sovereign wealth fund'.
By 2006, sovereign wealth funds had amassed assets estimated at $2. 5 tril- lion - representing 10 per cent of all institutionally held investments in the world and nearly 1. 5 per cent of all global financial assets. The size of these funds has been growing in leaps and bounds, and at current growth rates it is expected to reach $12 trillion in 2015 - exceeding the sum total of global reserves by as much as 50 per cent (Farrell et al. 2007: 11; Jen 2007; Farrell et al. 2008: 10).
So far, much of the discourse surrounding this growth has focused on its threat to 'free markets' and the 'national interest' (particularly that of the United States, the world's largest importer of capital). The sovereign owners of these funds, the pundits explain, are inherently anti-market (the liberal fear) and potentially hostile (the realist unease), so thwarting this new form of 'government intervention' must be good for both freedom and country.
But this logic can easily be turned on its head.
By setting up and managing sovereign wealth funds, governments are further integrating, if not locking themselves, into the larger architecture of capitalist power. This submission is succinctly summarized, however unintentionally, by Yousef al Otaiba, director of international affairs for the government of Abu Dhabi:
The success in generating and wisely applying financial returns for the public good is directly linked to a clear set of principles that has guided Abu Dhabi's investment organizations. Most basic are the focus on maximizing risk-adjusted returns, relative to well-established market indices; taking a long-term view; avoiding leverage; and investing in a well-diversified portfolio across asset classes, geographies and sectors. Furthermore, the leading investment organization, the Abu Dhabi Investment Authority (ADIA), has operated predominately as a passive investor, with the overwhelming share of its portfolio consisting of minority stakes in companies that have included no control rights, no board seats and no involvement in the management or direction of the receiving companies. . . . It is important to be absolutely clear that the Abu Dhabi government has never and will never use its investment organi- zations or individual investments as a foreign-policy tool.
(al Otaiba 2008, emphases added)
The capitalist mode of power 301
The last promise in this quote should be taken with a grain of salt. As things stand, there is (still) no means of preventing governments from using their assets in line with their policy goals. But given the increasingly capitalist bent of these new sovereign owners of wealth, it is not clear how their investment and divestment decisions would differ from the business-as-usual policies of ExxonMobil, Bechtel or Samsung.
Whose policy?
And since we talk about foreign policy, what should we make of the recent US invasion of Iraq? Was this policy move taken in the national interest, in the name of business, or perhaps both?
Conventional opinions on this question vary widely, so perhaps we should briefly reiterate the underlying assumptions. At one extreme we have the realist position, according to which the state, understood as an independent entity represented by its 'officials' (i. e. the government apparatus), seeks to defend the 'national interest' against the interest of other nations. At the other extreme, we have the structural Marxist position that sees the state, in the 'last instance', as subservient to the 'logic of accumulation'. And on the face of it both views ring true. There is little doubt that George Bush Jr. and his administration believed that they represented the 'national interest' of the United States. But it is also fairly obvious that this same administration, whatever its formal leeway, could not have deviated too much from the underlying dictates of profit and accumulation.
And that is precisely the problem. As stated above, the realist and struc- tural Marxist views are mutually consistent. And if they can coexist, how can we tell whether the US government launched the attack on Iraq in order to serve its vital national interests or to protect the capitalist order? Is it possible that the attack was meant to serve both goals, or is one cause more important than the other? Can we even tell them apart?
Moreover, is the relative significance of these goals fixed, or does it change over time? Considering the past fifty years, could we say, for example, that the 'national interest' has grown less imposing relative to the 'logic of accu- mulation', or has it been the other way around? Perhaps the underlying logics of the national interest and accumulation have both changed?
Whose interests?
These, undoubtedly, are big questions. To answer them, we have to take the following steps. First, we need to specify clearly the 'logic of state power' and the 'logic of accumulation', including the categories and units in which they are articulated and observed. Second, we need to identify conflicts between these logics. And third, we need to examine how these conflicts pan out comparatively and historically. Based on such an investigation, we can then choose the logic that gives the most consistent, robust and predictive picture.
302 Bringing power back in
Clearly, so far the debate hasn't taken this route. Worse still, it seems that both sides - the realists and the structural Marxists - have preferred to frame their positions in irrefutable terms. Stephen Krasner, an advocate of the realist view, interprets the 'national interest' not as the sum of individual interests, but rather as the overall interest of the nation. In his words, it is not the 'utility of the community' that matters, but the 'utility for the community' as deter- mined by its central decision makers (Krasner 1978: 12, original emphases). In practice, though, the 'decision makers' (read government officials) themselves rarely agree on the matter, so it is up to the researcher - Krasner in this case - to make the decision for them. And the way this interest is phrased is often so loose that it can be made consistent with virtually any line of action. According to this template, the 2003 US invasion of Iraq was motivated (depending on the theorist) by the quest for raw materials, by the need to spread capitalist ideology, by the desire to tame the barbarians, by the aspiration to thwart Europe and Asia, by the desire to have Bush Jr. re-elected, or simply by a miscalculation - all in the name of the national interest. Go prove otherwise.
Unfortunately, structural Marxists do not always fare much better in specifying the 'logic of accumulation' and the 'interest of capitalists', let alone in assessing the degree to which this logic and interest dominate the state. In the 1960s, the welfare state served the long-term interest of capitalism; in the 1980s, the welfare state's demise better served that same interest. In the 1980s and 1990s, capitalists wanted a new world order of peace; now they suddenly want Empire. In the 1970s and 1980s the US government tried to serve its 'own' capitalists by conspiring with OPEC to raise oil prices; in the early 2000s it tried to cater to their 'global' interests by invading the Middle East in order to lower oil prices (and when, in the late 2000s the price of oil reached the stratosphere, it was obviously in the interest of the oil companies and the speculators).
These claims may or may not be true. But their validity can be judged only if we first specify exactly what we mean by the 'interest of capitalists' and the 'logic of accumulation'. Only then can we begin to judge whether government organizations and institutions are autonomous from or subservient to these interests and logic, or perhaps somewhere in between.
What is to be done?
The final part of the book outlines the power logic of capitalism and the interest of the dominant owners as we see them. In doing so, this part also illustrates some key features of the historical development of capital accumu- lation. The quantitative patterns it outlines delineate the boundaries of capi- talist politics. These boundaries point to the central political processes, broadly defined, that determine the course of accumulation. They also provide a basis for assessing the extent to which government policies have been 'discounted' into capital on the one hand and the degree to which the capitalist mega-machine may have become a form of state on the other.
Part V
Accumulation of power
14 Differential accumulation and dominant capital
ad omnia et contra universos hominess - in all matters and against all men --An eleventh-century count pledging to serve his lord. Quoted in Franc? ois Louis Ganshof's Feudalism
Creorder
Creating order
Historical society is a creorder. At every passing moment, it is both Parmenidean and Heraclitean: a state in process, a construct reconstructed, a form transformed. To have a history is to create order - a verb and a noun whose fusion yields the verb-noun creorder.
A creorder can be hierarchical as in dictatorship or tight bureaucracy, horizontal as in direct democracy, or something in between. Its pace of change can be imperceptibly slow - as it was in many ancient tyrannies - yielding the impression of complete stability; or it can be so fast as to under- mine any semblance of structure, as it often is in capitalism. Its transformative pattern can be continuous or discrete, uniform or erratic, singular or multi- faceted. But whatever its particular properties, it is always a paradoxical duality - a dynamic creation of a static order.
Democratic creorders - of which the most notable example is the demos kratia of Ancient Athens - are relatively few and far between, so it is difficult to generalize about them. But given that such societies are to some extent free to create their own fate, they can choose to do so rapidly or slowly.
A power creorder doesn't have that choice. Power means the ability to impose order, and imposition presupposes resistance - resistance from those on whom order is imposed and from others who wish to impose their own. This ever-present tension between force and counter-force makes a power creorder inherently unstable. Slack on one side unleashes pressure from another, a greater force in one direction trumps over a weaker force in the other. And since to overcome resistance is to create a new order, the very presence of power spells a built-in pressure for change.
306 Accumulation of power
Historically, however, this pressure tended to remain latent. Judged by contemporary standards, most hierarchical regimes seem highly stable, if not entirely static. Although dynamic in potential, the pace of their creorder was usually restricted. It was capped by material limitations and symbolic inhibi- tions, and it often slowed to a halt by the very success of rulers in eliminating opposition. Regimes with 'surplus' energy usually spent it on conquering and subjugating other societies.
In capitalism, these internal limitations are greatly loosened by two unprecedented developments: (1) a permanent revolution of the scientific- ideological mindset that enables rapid material and societal transformations; and (2) a relentless process of pecuniary capitalization that translates and reduces these heterogeneous transformations of quality into universal changes in quantity.
Mediated through the market, the convergence of these processes enables capitalists to creorder in ways that no other ruling class has ever been able to. At the most basic level, it allows owners to lever technical change - rather than techniques per se - as a tool of power. At a higher level it lets them use the monetary symbols of prices and inflation to restructure power. And at a still higher level, and perhaps most importantly, it permits them to reorganize power directly, by buying and selling vendible ownership claims. In this sense, the capitalist market, with its universalizing price architecture and encom- passing discounting, is not a diffusion of power but the very precondition of power.
The power role of the market
The power role of the market cannot be overemphasized - particularly since, as we have seen throughout the book, most observers deny it and many invert it altogether. Analytically, the inversion proceeds in three simple steps. It begins by defining the market as a voluntary, self-regulating mechanism. It continues by observing that such a mechanism leaves no room for the imposi- tion of power. And it ends by concluding that power and market must be antithetical, and that they can coexist only insofar as the former 'manipulates' and 'distorts' the latter.
An example of this inversion is Fernand Braudel's historical work Civilization & Capitalism (1985). According to Braudel, capitalism negates the market. In his words, there is a conflict between a self-regulating 'market economy' on the one hand, and an anti-market 'capitalist' zone where social hierarchies 'manipulate exchange to their advantage' on the other (Braudel 1977; 1985, Vol. 1: 23-24 and Vol. 2: 229-30). A similar sentiment is expressed by Cornelius Castoriadis, when he proclaims that 'where there is capitalism, there is no market; and where there is a market, there cannot be capitalism' (1990: 227).
The root of the error here lies right at the assumptions. Capitalism cannot negate the market because it requires the market. Without a market, there can
Differential accumulation and dominant capital 307
be no commodification, and without commodification there can be no capi- talization, no accumulation and no capitalism. And the market can fulfil this role precisely because it is never self-regulating (and since it is never self- regulating, there is nothing to 'manipulate' or 'distort' in the first place). Price is not a utilitarian-productive quantity, but a power magnitude, and the market is the very institution through which this power is quantified. Without this market mediation of power, there can be no profit and, again, no capital- ization, no accumulation and no capitalism.
And there's more. The market doesn't merely enable capitalist power, it totally transforms it. And it achieves this transformation by making the capi- talist mega-machine modular. The blueprint of this new machine, unlike those of earlier models, is very short. Its essential component is the capitalization/ accumulation formula. The formula is special in that it doesn't specify what the mega-machine should look like. Instead, it stipulates a 'generative order', a fractal-like algorithm that allows capitalists to reconstruct and reshape their mega-machine in innumerable ways. The algorithm itself changes so slowly that it seems practically 'fixed' (the basic principle of capitalization hasn't changed much over the past half-millennium). But the historical paths and outcomes generated by this algorithm are very much open-ended, and it is this latter flexibility that makes the capitalist creorder so dynamic. 1
How to measure accumulation?
So let's start with capitalization, the 'raw material' of accumulation. In its immediate appearance, capitalization is just a number, a quantity of dollars and cents. On its own, it can tell us nothing about power, or about anything else for that matter. To gain a meaning, it has to be benchmarked.
'Real' benchmarking?
Begin with the yardsticks that don't stick. For most economists, the proper benchmark is a price index. Capitalization, like any other 'economic' entity, acquires its meaning when expressed in 'real terms'; and the way to determine this 'real' quantity is to divide the dollar value of capitalization by its unit price. Accumulation is the rate of growth of this 'real' ratio.
Unfortunately, this procedure won't do. As we have seen, the category of 'real capital' is logically impossible and empirically embarrassing. Capital- ization has no material units to measure its quantity (and without a quantity
1 According to David Bohm (Bohm 1980; Bohm and Peat 1987), there is no 'ultimate' generative order. Instead, there is an infinite 'enfoldment', a never-ending 'order of orders' that slowly unfolds with greater hindsight and insight. From this viewpoint, Marx's capitalism is enfolded, along with several other modes of production, within the higher generative order of 'dialectical materialism'. Perhaps with enough hindsight it will be possible at some point to nest capitalization within a higher generative order of power.
? 308 Accumulation of power
there is no definite unit to price); the replacement cost of material artefacts owned by capitalists usually is a small fraction of their overall capitalization; and, as a coup de gra^ce, over time this replacement cost tends to oscillate inversely with capitalization.
A popular escape route is to express 'real' capital in terms of purchasing power. According to this logic, capitalists, like all economic 'agents', are in hot pursuit of hedonic pleasure. All they seek is consumption - immediate or postponed - and the more the better. In this context, the thing to do is benchmark capitalization not against its own elusive price, but relative to the price of consumer goods and services. Simply divide the dollar value of capitalization by the CPI and you are done.
But this procedure isn't simple either. Capitalists of course are concerned with consumption. Yet, beyond a certain level of riches, their consumption is only marginally affected by their accumulation. And if only a fraction of their fortune is earmarked for consumption, what should the remainder be benchmarked against?
Moreover, it turns out that even the proportion that does get consumed is rather tricky to deflate. In liberal tracts consumption is a hedonic affair between a person and the things he or she consumes. Not so for accumula- tion-induced consumption. Here, the relationship is inter-personal. The goal is not to achieve hedonic pleasure but to establish differential status: to demonstrate that the consumer can afford something that others cannot. Veblen (1899b) labelled this demonstration 'conspicuous consumption'.
This new emphasis puts the standard deflating method on its head. From a nai? ve utilitarian perspective, higher prices for consumer goods and services imply lower purchasing power and therefore a smaller 'real capital'. For the conspicuous consumer, though, the exact opposite is true: since higher prices bestow a higher differential status, they generate greater utility and therefore imply a larger 'real capital'. 2
2 One of the most conspicuous acts of consumption is the acquisition of an entire territory. Capitalists cannot yet apply this act to sovereign countries, but they have been practising on islands. According to the subtly titled Financial Times supplement How to Spend It, 'the demand for islands has never been higher, and although the chief driver of this rarefied market remains prestige, other factors now fuel the passion for a personal domain surrounded by sea' (Freedman 2007). One popular consideration, says Fahran Viladi, owner of the world's leading island estate agency, is the direction of the wind, in case a nuclear attack annihilates the nearby mainland. Another is elevation - so that the consumer can safely escape the immanent rising of the seas as the poles melt. But even these considerations are part of the show off: 'It's not the price - because those who can afford it tend not to worry about money - it's the fact there's such a limited supply'. And sure enough, 'private islands tended to outperform the mainstream property market'. So, in the end, conspicuous consumption is nothing more than glorified investment; but, then, since investment cannot have a 'real' quantity, our measurement odyssey ends up right where it started. . . .
? Differential accumulation and dominant capital 309
It's all relative
The most important critique against 'real' measures of accumulation, how- ever, is that they are irrelevant. Accumulation is not about physical objects or the hedonic pleasure of capitalists. It is about power. And power is not absolute, it is relative. It acquires its meaning only when gauged against other powers.
Of course, the differential nature of power isn't unique to capitalism. Chieftains gauged their power against other chieftains, lords against other lords, kings against other kings, nation-states against other nation-states. But in these regimes, the comparisons were largely subjective and their social significance more limited. It is only in capitalism, where power is translated into the universal units of capitalization, that the differential nature of power really takes centre stage.
Neoclassicists never tire of preaching the imperative of maximizing profit and wealth, although they rarely if ever explain what 'maximization' means in practice or how it can be achieved in reality. 3 And not that they should bother - for in the real world of capital, the reference points are all relative.
A capitalist investing in Canadian 10-year bonds typically tries to beat the Scotia McLeod 10-year benchmark; an owner of emerging-market equities tries to beat the IFC benchmark; investors in global commodities try to beat the Reuters/Jefferies CRB Commodity Index; owners of large US corpor- ations try to beat the S&P 500; and so on. Every investment is stacked against its own group benchmark - and, in the abstract, against the global bench- mark.
Modern-day capitalists have long abandoned the vain search for Archimedean absolutes for readily observable Newtonian differentials. And it is not as if they had a choice. The shifting sands of the capitalist creorder leave no absolute yardstick standing. 'All that is solid melts into air, all that is holy is profaned', observed Marx and Engels (1848: 63). The only thing capi- talists can relate to are the broad processes themselves: they assess their own performance by comparing it to the performance of others.
In this quest, the goal is not to maximize but to exceed, not to meet but to beat. To achieve a 5 per-cent profit growth during recession is success; to gain 15 per cent when others make 30 is failure. Even declining profit can be a triumph, provided it 'outperforms' the average:
3 We have already seen in Chapter 12 that actual pricing methods have little to do with 'maximization'. Neoclassicists love to ignore these inconvenient facts - only that the situ- ation is hardly any better in their 'pure' theory. As it turns out, neoclassical profits can be 'maximized' only in the hypothetical cases of perfect competition and monopoly - but not anywhere in between. The problem, first identified by Cournot (1838), is one of oligopo- listic interdependence, which, in its unrestricted form (that is, without the game theorists), makes maximum profit indeterminate even in the mind of the economist (see footnote 4 in Chapter 5).
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Accumulation of power
In normal circumstances, the results issued by Mr Dimon's firm [JPMorgan Chase] on Thursday - a halving in second-quarter profits, and a bleak outlook for the rest of the year - would have sent investors rushing for the exit. But, with fund managers' nerves jangled by almost a year of credit-related bad news, JPMorgan's ability to outperform most of its rivals and beat analysts' predictions was enough to send its shares 11 per cent higher at midday in New York.
(Guerrera 2008)
Maximizing profit for absolute accumulation is bordering on the occult. The only real thing is differential accumulation. 4
Unlike the impossible absolute and elusive maximum, the 'normal' and 'average' are everywhere. Numerous organs of the state of capital - from the news media listings of Fortune, Business Week, Far Eastern Economic Review, Euromoney, Financial Times and Forbes, to the private databases of Bloom- berg, Compustat, Datastream and Global Insight, to national and interna- tional organizations - keep churning new benchmarks at a neck-breaking pace. Soon enough, they'll have us swamped with more benchmarks than assets.
Every business and economic category is averaged across the world and over time. Indeed, so real is the zeal that even future projections of these magnitudes are now benchmarked against their own so-called 'consensus forecast'. The benchmarks are classified by every imaginable criterion, sepa- rately and in combination - including size, nationality, sector, duration, risk, liquidity and 'investability', among others. Indeed, the notion of 'normality' as a benchmark for action and achievement has been so thoroughly accepted that it now dominates numerous non-business spheres, from education and the arts to sports and foreign relations. To be real is to be relative.
Differential capitalization and differential accumulation
The capitalist creorder
The logic of this relative architecture was spelled out by the eighteenth- century invention of the metric system. The system was purposefully linked to the magnitude of the planet (setting the metre equal to 1/40,000,000th of the earth's circumference).
