1 S&P 500: price and
earnings
per share 186
11.
11.
Nitzan Bichler - 2012 - Capital as Power
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The Bichler & Nitzan Archives
? Capital as Power
Conventional theories of capitalism are mired in a deep crisis: after centuries of debate, they are still unable to tell us what capital is. Liberals and Marxists both think of capital as an 'economic' entity that they count in universal units of 'utils' or 'abstract labour', respectively. But these units are totally ficti- tious. Nobody has ever been able to observe or measure them, and for a good reason: they don't exist. Since liberalism and Marxism depend on these non- existing units, their theories hang in suspension. They cannot explain the process that matters most - the accumulation of capital.
This book offers a radical alternative. According to the authors, capital is not a narrow economic entity, but a symbolic quantification of power. It has little to do with utility or abstract labour, and it extends far beyond machines and production lines. Capital, the authors claim, represents the organized power of dominant capital groups to reshape - or creorder - their society.
Written in simple language, accessible to lay readers and experts alike, the book develops a novel political economy. It takes the reader through the history, assumptions and limitations of mainstream economics and its associated theories of politics. It examines the evolution of Marxist thinking on accumulation and the state. And it articulates an innovative theory of 'capital as power' and a new history of the 'capitalist mode of power'.
Jonathan Nitzan teaches political economy at York University in Toronto.
Shimshon Bichler teaches political economy at colleges and universities in Israel.
Capital as Power
A study of order and creorder
Jonathan Nitzan and Shimshon Bichler
? First published 2009
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada by Routledge
270 Madison Avenue, New York, NY 10016
Routledge is an imprint of the Taylor & Francis Group, an informa business.
This edition published in the Taylor & Francis e-Library, 2009.
To purchase your own copy of this or any of Taylor & Francis or Routledge's
collection of thousands of eBooks please go to www. eBookstore. tandf. co. uk.
The moral rights of the authors have been asserted (C) 2009 Jonathan Nitzan and Shimshon Bichler
All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Nitzan, Jonathan.
Capital as power: a study or order and creorder / Jonathan Nitzan and Shimshon Bichler.
p. cm. --(RIPE series in global political economy)
Includes bibliographical references and index.
1. Capitalism. 2. Power (Social sciences) I. Bichler, Shimshon. II. Title.
HB501. N58 2009
332? . 04--dc22 2008052891
ISBN 0-203-87632-6 Master e-book ISBN
ISBN 10: 0-415-47719-0 (hbk) ISBN 10: 0-415-49680-2 (pbk) ISBN 10: 0-203-87632-6 (ebk)
ISBN 13: 978-0-415-47719-2 (hbk) ISBN 13: 978-0-415-49680-3 (pbk) ISBN 13: 978-0-203-87632-9 (ebk)
To our lovely daughters - Elvire, Maryse and Isabelle
Thus, the birth of philosophy is not just coincident, but equisignificant with the birth of democracy. Both are expressions, and central embodiments, of the project of autonomy.
Night has fallen only for those who have let themselves fall into the night. For those who are living, [says Heraclitus], helios neos eph'hemerei estin - the sun is new each day.
--Cornelius Castoriadis, The "End of Philosophy"?
Contents
List of illustrations Acknowledgements
1 Why write a book about capital?
Capitalism without capital 1
This book is not about economics 2
How and why 3
What's wrong with capital theory? 5
Toward a new theory of capital 7
A brief synopsis 10
Part I: dilemmas of political economy 10
Part II: the enigma of capital 12
Part III: capitalization 13
Lineages 14
Part IV: bringing power back in 15
Part V: accumulation of power 17
The capitalist creorder and humane society 19
PART I
Dilemmas of political economy
2 The dual worlds
The bifurcations 25
Politics versus economics 27
The liberal view 27
The Marxist perspective 28
Capitalism from below, capitalism from above
Real and nominal 30
The classical dichotomy 30 The Marxist mismatch 31 Quantitativeequivalence? 32
xxiii xxv
1
29
23 25
xiv Contents 3 Power
The pre-capitalist backdrop 34
The new cosmology 36
The new science of capitalism 38 Separating economics from politics? 40 Enter power 42
4 Deflections of power
Liberal withdrawal and concessions 46 Neo-Marxism 47
The three fractures 49
Neo-Marxian economics: monopoly capital 50
Kalecki's degree of monopoly 50
From surplus value to economic surplus 51 Realization and institutionalized waste 51 The limits of neo-Marxian economics 52
34
45
The culturalists: from criticism to postism Statism 55
The techno-bureaucratic state 55
The autonomous state 57
53
The capitalist state 58
The state imperative 59
The flat approach 59
The hierarchical approach 60 PoliticalMarxism 61
The capitalist totality
PART II
The enigma of capital
5 Neoclassicalparables
63
The material basis of capital 68 The production function 69
The two assumptions 69 Where does profit come from? The birth of 'economics' 71
70
Marginal productivity theory in historical context
The end of equilibrium 72 Publicmanagement 74
The best investment I ever made 76
Some very unsettling questions 77
The quantity of capital 77 Circularity 78
72
65 67
Reswitching 78
The Cambridge Controversy 79 Resuscitatingcapital 80
The measure of our ignorance 82 The victory of faith 83
6 The Marxist entanglement I: values and prices
Content and form 85
The labour theory of value 86 Three challenges 87
Socially necessary abstract labour 87 Production 89
Transformation 89
The road ahead 89
The second transformation 90
Why only labour? 91
Excludingpower 91
Omittingcapitalization 92
What does the labour theory of value theorize? 92
Testing the labour theory of value 94
The price of what? 95 Absence of value 96 Recap 97
The first transformation 97
Inconsistency, redundancy, impossibility 99
The dual system 99
The complicating detour 100 Jointproduction 101 Capitalism sans values? 102 The transformation so far 104
New solutions, new interpretations 104
Changing the assumptions 105 Complexity 105
Changing the definitions 106 Recountingcosts 106
Prices as values 107
84
7 The Marxist entanglement II: who is productive, who is not? 110
Productive and unproductive labour 110 Production versus circulation 112
Financial intermediation, advertising and insurance 112
Disaggregates in the aggregate 113
Objective exchange values? 114
Eating the cake and having it too 114
Contents xv
xvi Contents
Capitalist answers, pre-capitalist questions The product itself and the amount of wealth The transformation of nature 116 Humanneeds 117
Non-capitalistproduction 118
Reproducing the social order 118 Socialservices 119
What is non-capitalist? 120
A qualitative value theory? 121
The retreat 121 Marx'sscience 122
Quality without quantity? 124
8 Accumulationofwhat?
What gets accumulated? 126 Separating quantity from price 126 Quantifying utility 128
Let the price tell all 128 Findingequilibrium 130 Quantity without equilibrium 133 Hedonicregression 136
Quantifying labour values 138
Concrete versus abstract labour 138 A world of unskilled automatons? 140
115 116
Reducing skilled to unskilled labour
A clean slate 144
PART III Capitalization
9 Capitalization: a brief anthropology
141
Utility, abstract labour, or the nomos? 147 The unit of capitalist order 150
The pattern of capitalist order 153
Formulae 153 Firststeps 155 Coming of age 155
The capitalization of every thing 158
Human beings 158
Organizations, institutions, processes 161 The future of humanity 164
Capitalization and the qualitative-quantitative nomos of capitalism 166
125
145 147
Contents xvii 10 Capitalization: fiction, mirror or distortion? 167
From fiction to distortion: Marx's view 167
From mirror to distortion: the neoclassical view 170
Microsoft vs General Motors 172 Tobin's Q: adding intangibles 174 Boom and bust: adding irrationality
The gods must be crazy 180
11 Capitalization: elementary particles
Earnings 185 Hype 188
177
Decomposition 188
Movers and shakers of hype 189
Randomnoise 192
Flocks of experts and the inefficiency of markets 193 Let there be hype 195
The discount rate 196
The normal and the risky 198
Probability and statistics 199 Averting risk: the Bernoullian grip 201 Theunknowable 202
The capital asset pricing model 203
Portfolio selection 204 CAPM 205 Circularity 207
Risk and power 208
The degree of confidence 208
Toward a political economy of risk 210
Summing up 211
Appendix to Chapter 11: strategists' estimates of S&P earnings
per share 212
PART IV
Bringing power back in
12 Accumulationandsabotage
The categories of power 217 Veblen's world 219
Industry and business 219 The two languages 220 The immaterial equipment The hand of power 223
215 217
The social hologram 223
222
183
xviii Contents
The whole picture 223
Resonance and dissonance 225
Absentee ownership and strategic sabotage 227
The natural right of investment 227
Private ownership and institutionalized exclusion 228 The right to property 229
The absentee ownership of power 230 Strategicsabotage 231
The direction of industry 233
The pace of industry 235
Business as usual 236
Taking stock and looking ahead 239 Pricing for power 239
From price taking to price making 239
The markup and the target rate of return 241 Pricing and incapacitating 242
Is free competition free of power? 242
The capitalist norm 243
The normal rate of return and the natural rate of unemployment 243
Antecedents: return and sabotage in antiquity 244 Pecuniary power: ancient versus capitalist 245
The differential underpinnings of universal sabotage Insum 248
246
Capital and the corporation 248
Capital as negation 248
The rise of the modern corporation 249
Productive wealth and corporate finance
Equity versus debt 253 Immaterialassets 253 Materialassets 255
The maturity of capitalism 256
Fractions of capital 259
Severing accumulation from circulation
253
259
Where have all the fractions gone?
260
Toward fractions of power
13 The capitalist mode of power
Material and symbolic drives
261
264
263
The invisible technology 264 The two archetypes 265 Neolithicculture 265 Powercivilization 266
Themega-machine 268
The mega-machine resurrected: capital 269 Owners and technocrats 272
State and capital 274
Metamorphosis 275
Reordering 275 Contradictoryinterdependency 276
Notions of space 278
Cosmicspace 278
Socialspace 279
State as a mode of power 280 The feudal mode of power 282
The feudal state 282
The limits of feudal power 285
The capitalization of feudal power 286
Faubourg, bourg, bourgeoisie 287
The dual economy 287
Private and public 288
Liberty as differential power 288
War and inflation 289 War and credit 291
Bypassing power: private instruments Absorbing power: state finance 292
291
The genesis of capital as power
The government bond 294
Primitiveaccumulation? 295
Governmentcapitalized 297 The state of capital 299
294
Who are the regulators? Sovereignowners? 300 Whosepolicy? 301 Whoseinterests? 301
What is to be done? 302
PART V
Accumulation of power
299
14 Differential accumulation and dominant capital
Creorder 305
Creating order 305
The power role of the market 306
How to measure accumulation? 307
'Real'benchmarking? 307
It's all relative 309
303 305
Differential capitalization and differential accumulation
310
Contents xix
xx Contents
Thecapitalistcreorder 310
The figurative identity 312
The universe of owners 313
Dominant capital 315
Aggregate concentration 316
Differential measures 319
Accumulation crisis or differential accumulation boom? 322 Historical paths 325
The boundaries of novelty 325
Spread, integration, oscillation 326
Regimes of differential accumulation 327 Some implications 331
15 Breadth
Green-field 335
Running ahead of the pack 335
Running with the pack 335
Mergers and acquisitions 338
A mystery of finance 338 The efficiency spin 339
From efficiency to power 341
Patterns of amalgamation 343
Merger waves 343
Tobin's Q 343
From classical Marxism to monopoly capitalism Differentialadvantage 346 Threetransformations 347
Breaking the envelope 348
Globalization 350
334
Capital movements and the unholy trinity 351 Global production or global ownership? 352
Net or gross? 354
Capital flow and the creorder of global power 356
Foreign investment and differential accumulation 358 Appendix to Chapter 15: data on mergers and acquisitions 359
16 Depth
Depth: internal and external Cost cutting 363
'Productivity'gains 364
Inputprices 365
Stagflation 366
The historical backdrop 366 Neutrality? 368
361
362
345
Aggregates 368 Disaggregates 369 Redistribution 370
Winners and losers 370
Workers and capitalists 370 Small and large firms 372 Patterns 374
Accumulating through crisis 375
Business as usual 375
The imperative of crisis 375 Varieties of stagflation 376 The stagflation norm 377
The hazards of inflation 379
Capitalization risk 379 The politics of inflation 379 Stop-gap 380
Policy autonomy and the capitalist creorder 17 Differential accumulation: past and future
Amalgamation versus stagflation 384 The pattern of conflict 386
A new type of cycle 386
Oscillating regimes: a bird's eye view 387 The role of the Middle East 389
Coalitions 392
Unrepeatable since time immemorial? 394
The retreat of breadth 394
The boundaries of differential accumulation Out of bounds 396
Postscript, January 2009
References Index
397
381
395
Contents xxi
383
401 430
Illustrations
Figures
8. 1 Energy User-Producer, Inc. 131
10. 1 General Motors versus Microsoft, 2005 173
10. 2 Tobin's Q in the United States 174
10. 3 The world according to the scriptures 178
10. 4 US capital accumulation: which is the 'real', which the
'fictitious'? 181
11. 1 S&P 500: price and earnings per share 186
11. 2 S&P 500: earnings, earning estimates and hype 213
12. 1 Business and industry 237
12. 2 Business and industry in the United States 238
12. 3 The productivity threat 251
12. 4 Business trust and industrial sabotage in the United States 258
13. 1 Capital's share of income in the United States 274
14. 1 Aggregate concentration in the United States 318
14. 2 Differential capitalization and differential net profit in the
United States 320
14. 3 Accumulation crisis? . . . 323
14. 4 . . . Or a differential accumulation boom? 324
15. 1 US employment, number of firms and size of firms 336
15. 2 US accumulation: internal vs external breadth 338
15. 3 Tobin's Q? 344
15. 4 Ratio of global gross foreign assets to global GDP 353
15. 5 G7 cross-border private investment flows as a per cent of
gross fixed capital formation 355
15. 6 The globalization of US business: ownership vs trade 357
16. 1 Consumer prices in the UK, 1271-2007 367
16. 2 US inflation and capital-labour redistribution 371
16. 3 US inflation and differential accumulation 373
16. 4 United States: inflation and growth, 1809-2007 377
17. 1 Amalgamation and stagflation in the United States 384
xxiv Illustrations
17. 2 Inflation and arms exports 390
17. 3 The two coalitions: share of world market capitalization 393
Tables
10. 1 Fisher's house of mirrors 171
14. 1 US corporate statistics: average number of firms, average
capitalization per firm and average net profit per firm 317
14. 2 Regimes of differential accumulation 329
Acknowledgements
This volume was written in relative isolation, and after reading it you'll see why. The book questions the very foundations of mainstream and Marxist political economy, and it goes further to offer a totally new alternative. Going against the grain is hardly the best way to make friends, and, as the history of science tells us, those who try to innovate often face a wall of silence.
But the silence is never complete. There are always free spirits who look for new directions, and we have been fortunate to cross paths with some of them. Our work has benefited from the friendship of Allen Fenichel, Tom Naylor and Robin Rowley, who helped us stand against the academic church; from the thoughtful interventions of Randy Germain, who helped and encouraged us at various stages of the publication journey; from Jeffrey Harrod, whose grassroots analysis shed light on aspects that our power theory had over- looked; from Doug Henwood and Michael Perelman, whose LBO and PEN-L internet lists we found invaluable; from years of discussions with Gibin Hong, who also translated the early incarnation of this manuscript into Korean; from Bob Jessop, who engaged with and supported our work even when our opinions differed; from Moshe? Machover, whose personal honesty, clarity of thinking and path-breaking politics one cannot but admire; from Ulf Martin, whose sharp observations and penetrating questions always kept us on edge; from many debates with the colourful members of MISS-Q, whose arguments often gave us food for thought; from the unmatched editorial skills of Daniel Moure, who polished our English and compiled our index; from Akiva Orr, whose deep insights into philosophy and science we found enlightening; from Jeffrey Rudolph, who managed to mix accounting with curiosity; from Herman Schwartz, whose brilliance offered an antidote to academic mediocrity; and, last but not least, from Genevieve Thouvenot, whose expertise in ancient languages saved us from drawing silly conclusions, and whose suggestions often helped us find the answer right under our nose.
We also feel indebted to the brave women and men of MATZPEN, the Alternative Information Center and others too numerous to be listed here, whose struggle for freedom and autonomy in the Middle East inspired our early research and continues to influence our thought.
xxvi Acknowledgements
Finally, we wish to thank the three anonymous referees who read the early version of the manuscript; the Social Sciences and Humanities Research Council of Canada for its financial assistance; and our students, whose desire to think for themselves made writing this book worthwhile.
1 Why write a book about capital?
There is no joy more intense than that of coming upon a fact that cannot be understood in terms of currently accepted ideas.
--Cecilia Payne, An Autobiography and other Recollections
Capitalism without capital
We grew up in the 'affluent society' of 1950s and 1960s. As children and then as young adults we rarely heard the word 'capitalism'. It was the Cold War, and speaking about capitalism, although not strictly taboo, was hardly a popular pastime. The term smelled of extremist ideology; it connoted commu- nist rhetoric; it conjured up bygone debates and obsolete ideas.
As a theoretical concept, capitalism seemed hopelessly unscientific. It was a remnant from a different era, from a time when people, haunted by 'scar- city', still viewed society through the hazy spectacles of political economy. The new social sciences - and particularly the science of economics - boasted far better and more precise categories.
These categories were grouped under a new buzzword: 'modernization'. Talk of modernization opened all the right doors. It invited American aid, it paved the road to development and it helped academic promotion. The word 'capitalism' became redundant, if not counterproductive. Gradually, it vanished from the lexicon.
But beginning in the early 1990s a strange thing happened: capitalism staged a remarkable comeback. Suddenly, social scientists and post-scientists alike wanted to talk of nothing else. The capitalist world, capitalist markets, capitalist governance, capitalist culture, capitalist institutions, capitalist wars, capitalism and race, capitalism and gender, capitalism and libido - no matter where you turn, you cannot escape the C-word.
Debate over capitalism is everywhere. The newspapers, radio, television and the internet overflow with talk of neoliberal globalization and crisis, imperialism and post-colonialism, financialization and government inter- vention. Experts preach the gospel of capitalist productivity, while alter- globalization protestors blame the IMF and transnational companies for
2 Why write a book about capital?
many of our social ills. Some view capitalist growth as a magic bullet; for others it spells ecological disaster. Some celebrate the deregulation of the capitalist state and the fall of Keynesianism; others mourn the decline of the welfare state and the rise of zapping labour. Many interpret the new wars of the twenty-first century as serving capitalist interests and the rise of Islamic fundamentalism as a backlash against Western liberalism. For some, capi- talism means the end of history, for others a source of conflict and an engine of change. No aspect of capitalism seems to escape debate.
Or perhaps we should say almost no aspect. Almost, because something really important is missing. In all the commotion, we seem to have lost sight of the concept that matters most: capital itself. Capital is the central institu- tion of capitalism - and yet, surprisingly, we do not have a satisfactory theory to explain it. In fact, we do not know precisely what capital is. And worse still, there is little or no discussion on what this omission means or how it can be rectified.
The issue is crucial. Without a clear concept of capital, we cannot hope to understand how capital operates, why it accumulates or how it drives the capitalist order. Until we understand capital, we are destined to misconceive our political institutions, misjudge our alternatives and have trouble imag- ining the way to a better future. In short, in order to debate capitalism we first need to debate capital itself. 1
This book is not about economics
Many people who are otherwise keenly interested in society get cold feet when confronted with 'economics'. The symbols seem mysterious, the logic baff- ling, the language incomprehensible, even threatening. The dread is real. Ever since Thomas Carlyle, the 'dismal science' has been frightening most people.
But that fear is irrelevant to our book. Our subject is not economics; it is capital. And capital, as we hope to show, is not an economic entity.
It should be noted upfront that economics - or, more precisely, the neoclassical branch of political economy - is not an objective reality. In fact, for the most part it is not even a scientific inquiry into objective reality. Instead, neoclassical political economy is largely an ideology in the service of
1 Of course, not everyone shares this sense of urgency. Quite the contrary. These days, many academics tell us that, in fact, there are no facts (in a conversation or a speech, a speaker will typically use her fingers to encapsulate the word 'facts' with invisible inverted commas, pointing to its obvious ambiguity). In postmodern space, these academics explain, there is nothing much to 'know' (again in inverted commas). Everything - including capital - is merely a 'narrative'. Capital is a 'discourse' that cannot be known, only 'deconstructed'. And who knows, since nobody 'really' knows, maybe that is indeed the best way to conceal capital.
1 S&P 500: price and earnings per share 186
11. 2 S&P 500: earnings, earning estimates and hype 213
12. 1 Business and industry 237
12. 2 Business and industry in the United States 238
12. 3 The productivity threat 251
12. 4 Business trust and industrial sabotage in the United States 258
13. 1 Capital's share of income in the United States 274
14. 1 Aggregate concentration in the United States 318
14. 2 Differential capitalization and differential net profit in the
United States 320
14. 3 Accumulation crisis? . . . 323
14. 4 . . . Or a differential accumulation boom? 324
15. 1 US employment, number of firms and size of firms 336
15. 2 US accumulation: internal vs external breadth 338
15. 3 Tobin's Q? 344
15. 4 Ratio of global gross foreign assets to global GDP 353
15. 5 G7 cross-border private investment flows as a per cent of
gross fixed capital formation 355
15. 6 The globalization of US business: ownership vs trade 357
16. 1 Consumer prices in the UK, 1271-2007 367
16. 2 US inflation and capital-labour redistribution 371
16. 3 US inflation and differential accumulation 373
16. 4 United States: inflation and growth, 1809-2007 377
17. 1 Amalgamation and stagflation in the United States 384
xxiv Illustrations
17. 2 Inflation and arms exports 390
17. 3 The two coalitions: share of world market capitalization 393
Tables
10. 1 Fisher's house of mirrors 171
14. 1 US corporate statistics: average number of firms, average
capitalization per firm and average net profit per firm 317
14. 2 Regimes of differential accumulation 329
Acknowledgements
This volume was written in relative isolation, and after reading it you'll see why. The book questions the very foundations of mainstream and Marxist political economy, and it goes further to offer a totally new alternative. Going against the grain is hardly the best way to make friends, and, as the history of science tells us, those who try to innovate often face a wall of silence.
But the silence is never complete. There are always free spirits who look for new directions, and we have been fortunate to cross paths with some of them. Our work has benefited from the friendship of Allen Fenichel, Tom Naylor and Robin Rowley, who helped us stand against the academic church; from the thoughtful interventions of Randy Germain, who helped and encouraged us at various stages of the publication journey; from Jeffrey Harrod, whose grassroots analysis shed light on aspects that our power theory had over- looked; from Doug Henwood and Michael Perelman, whose LBO and PEN-L internet lists we found invaluable; from years of discussions with Gibin Hong, who also translated the early incarnation of this manuscript into Korean; from Bob Jessop, who engaged with and supported our work even when our opinions differed; from Moshe? Machover, whose personal honesty, clarity of thinking and path-breaking politics one cannot but admire; from Ulf Martin, whose sharp observations and penetrating questions always kept us on edge; from many debates with the colourful members of MISS-Q, whose arguments often gave us food for thought; from the unmatched editorial skills of Daniel Moure, who polished our English and compiled our index; from Akiva Orr, whose deep insights into philosophy and science we found enlightening; from Jeffrey Rudolph, who managed to mix accounting with curiosity; from Herman Schwartz, whose brilliance offered an antidote to academic mediocrity; and, last but not least, from Genevieve Thouvenot, whose expertise in ancient languages saved us from drawing silly conclusions, and whose suggestions often helped us find the answer right under our nose.
We also feel indebted to the brave women and men of MATZPEN, the Alternative Information Center and others too numerous to be listed here, whose struggle for freedom and autonomy in the Middle East inspired our early research and continues to influence our thought.
xxvi Acknowledgements
Finally, we wish to thank the three anonymous referees who read the early version of the manuscript; the Social Sciences and Humanities Research Council of Canada for its financial assistance; and our students, whose desire to think for themselves made writing this book worthwhile.
1 Why write a book about capital?
There is no joy more intense than that of coming upon a fact that cannot be understood in terms of currently accepted ideas.
--Cecilia Payne, An Autobiography and other Recollections
Capitalism without capital
We grew up in the 'affluent society' of 1950s and 1960s. As children and then as young adults we rarely heard the word 'capitalism'. It was the Cold War, and speaking about capitalism, although not strictly taboo, was hardly a popular pastime. The term smelled of extremist ideology; it connoted commu- nist rhetoric; it conjured up bygone debates and obsolete ideas.
As a theoretical concept, capitalism seemed hopelessly unscientific. It was a remnant from a different era, from a time when people, haunted by 'scar- city', still viewed society through the hazy spectacles of political economy. The new social sciences - and particularly the science of economics - boasted far better and more precise categories.
These categories were grouped under a new buzzword: 'modernization'. Talk of modernization opened all the right doors. It invited American aid, it paved the road to development and it helped academic promotion. The word 'capitalism' became redundant, if not counterproductive. Gradually, it vanished from the lexicon.
But beginning in the early 1990s a strange thing happened: capitalism staged a remarkable comeback. Suddenly, social scientists and post-scientists alike wanted to talk of nothing else. The capitalist world, capitalist markets, capitalist governance, capitalist culture, capitalist institutions, capitalist wars, capitalism and race, capitalism and gender, capitalism and libido - no matter where you turn, you cannot escape the C-word.
Debate over capitalism is everywhere. The newspapers, radio, television and the internet overflow with talk of neoliberal globalization and crisis, imperialism and post-colonialism, financialization and government inter- vention. Experts preach the gospel of capitalist productivity, while alter- globalization protestors blame the IMF and transnational companies for
2 Why write a book about capital?
many of our social ills. Some view capitalist growth as a magic bullet; for others it spells ecological disaster. Some celebrate the deregulation of the capitalist state and the fall of Keynesianism; others mourn the decline of the welfare state and the rise of zapping labour. Many interpret the new wars of the twenty-first century as serving capitalist interests and the rise of Islamic fundamentalism as a backlash against Western liberalism. For some, capi- talism means the end of history, for others a source of conflict and an engine of change. No aspect of capitalism seems to escape debate.
Or perhaps we should say almost no aspect. Almost, because something really important is missing. In all the commotion, we seem to have lost sight of the concept that matters most: capital itself. Capital is the central institu- tion of capitalism - and yet, surprisingly, we do not have a satisfactory theory to explain it. In fact, we do not know precisely what capital is. And worse still, there is little or no discussion on what this omission means or how it can be rectified.
The issue is crucial. Without a clear concept of capital, we cannot hope to understand how capital operates, why it accumulates or how it drives the capitalist order. Until we understand capital, we are destined to misconceive our political institutions, misjudge our alternatives and have trouble imag- ining the way to a better future. In short, in order to debate capitalism we first need to debate capital itself. 1
This book is not about economics
Many people who are otherwise keenly interested in society get cold feet when confronted with 'economics'. The symbols seem mysterious, the logic baff- ling, the language incomprehensible, even threatening. The dread is real. Ever since Thomas Carlyle, the 'dismal science' has been frightening most people.
But that fear is irrelevant to our book. Our subject is not economics; it is capital. And capital, as we hope to show, is not an economic entity.
It should be noted upfront that economics - or, more precisely, the neoclassical branch of political economy - is not an objective reality. In fact, for the most part it is not even a scientific inquiry into objective reality. Instead, neoclassical political economy is largely an ideology in the service of
1 Of course, not everyone shares this sense of urgency. Quite the contrary. These days, many academics tell us that, in fact, there are no facts (in a conversation or a speech, a speaker will typically use her fingers to encapsulate the word 'facts' with invisible inverted commas, pointing to its obvious ambiguity). In postmodern space, these academics explain, there is nothing much to 'know' (again in inverted commas). Everything - including capital - is merely a 'narrative'. Capital is a 'discourse' that cannot be known, only 'deconstructed'. And who knows, since nobody 'really' knows, maybe that is indeed the best way to conceal capital. This convenient conclusion, though, begets a somewhat embarrassing question: if capital is merely a discursive text, one faith among many, what is the point of talking about - let alone criticizing - capitalism? And if there is no point in such critique, who needs the postmodern critics?
? Why write a book about capital? 3
the powerful. It is the language in which the capitalist ruling class conceives and shapes society. Simultaneously, it is also the tool with which this class conceals its own power and the means with which it persuades others to accept that power.
Our book puts power back in centre stage. Notice the metaphoric equality in the title: 'Capital as Power'. We use not and, but as. We do not speak of capital and power; of capital in the service of power, or vice versa; of capital in relation to state; of capital with or against politics; of capital in contradis- tinction to violence; or of capital and ideology. We refer not to a relation, connection, function, or juxtaposition, but to a figurative identity. Capital does not relate to power. It is, in itself, a mode of power.
The purpose of this book is to explain capital as power. The first step toward understanding our argument, therefore, is to stop thinking of capital and capitalism as 'economic' entities. But that is just the start. The second step is to be willing to take on the dogma that makes capital and capitalism 'economic' entities in the first place.
How and why
Young children are obsessed with the question 'why? ' 'Why do I need to brush my teeth? ' 'Why do birds fly and dogs don't? ' 'Why does mommy have to go to work? ' The quest is universal, but it doesn't last for long. Children quickly learn that grownups dislike the question and often don't know how to answer it, and they realize that one 'why? ' inevitably leads to another, followed by further hassle and endless aggravation. So they grow up. By the age of five or six, they abandon the 'why? ' in favour of the more practical 'how? ' They stop questioning the world and try to fit into it. They become adults, and they usually remain so for the rest of their lives.
But not everyone grows up. As Mark Twain (1881) reminds us, some people stay young no matter how old they become. And the youngest of all are those who never stop asking 'why? ' This book is written for these young people of all ages. We write it for those who feel their future is at stake and wish to do something about it; for those who sense that there is something deeply wrong with the conventional creed but don't know exactly what it is; and, above all, for those who simply dislike dogma and want to think for themselves.
Perhaps the key problem facing young people today is a lack of theoretical alternatives. A new social reality presupposes and implies a new social cosmology. To change the capitalist world, one first needs to re-conceive it; and that re-conception means new ways of thinking, new categories and new measurements. And yet, many contemporary critics of capitalism seem to believe that they can challenge this social order without ever asking how it operates, let alone why.
With some obvious exceptions, present-day leftists prefer to avoid 'the economy', and many are rather proud about it. To prioritize profit and
4 Why write a book about capital?
accumulation, to theorize corporations and the stock market, to empirically research the gyrations of money and prices are all acts of narrow 'econo- mism'. To do these things is to fetishize the world, to conceal the cultural nuances of human consciousness, to prevent the critic from seeing the true political underpinnings of social affairs. Best to leave them to the dismal scientists.
And, so, most self-respecting critics of capitalism remain happily ignorant of its 'economics', neoclassical as well as Marxist. They know little about the respective histories, questions and challenges of these theories, and they are oblivious to their triumphs, contradictions and failures. This innocence is certainly liberating. It allows critics to produce 'critical discourse' littered with cut-and-paste platitudes, ambiguities and often plain nonsense. Seldom do their 'critiques' tell us something important about the forces of contem- porary capitalism, let alone about how these forces should be researched, understood and challenged.
Most importantly, though, this stale context conditions students to stop asking 'why? ' The big questions about capital are pushed under the rug, and as the young generation gets older and becomes established, the questions are forgotten altogether. Occasionally, an untamed spirit, having discovered an old debate in an outdated book, raises a nai? ve 'why? ' But these spontaneous fires are quickly isolated and extinguished. Ridiculed by know-all professors and hushed by acolyte students, the outlier is forced to relinquish or perish. There is no alternative, and the safest thing for an academic is to never wonder why. 2
Our book defies this dogma. We provide a new conceptual framework for capital - along with the context that this framework negates and the means by which it is articulated. 'There is no empirical method without speculative concepts and systems', writes Einstein in the forward to Galileo's Dialogue
2 As a first-year economics student at Tel-Aviv University, one of us (Nitzan) challenged the professor with questions about the assumptions. Economists make plenty of those, so there were many questions to ask. Initially, the professor was happy to engage. But two weeks into the course, the questions became more difficult to answer, the students grew annoyed with my interventions, and the professor began to apply the usual stalling tactic. 'Yours is a very interesting question', she would say, 'but it's too early to deal with it. Please raise it later, when we deal with this topic in greater detail'. This method is popular among economics instructors, and it works particularly well when combined with a heavy dose of 'problem- solving' exercises. The seemingly 'practical' drill forces students to accept the underlying premises, and when the premises are accepted the questions quickly disappear. But I persisted, so the professor had no choice but to shut me off altogether. When I inquired why I was being ignored, her reply was short and informative: 'You don't know how to ask ques- tions'.
Many years later, an undergraduate student in one of my political-economy classes summarized the same dilemma from a different angle: 'Your class makes me sooo nervous. With all my other professors, I can write pretty much what I want as long as I stick to the syllabus and properly cite the readings. But your class doesn't work this way. Not only do I have to do my own research, I also need to invent the research question. And in the end, I can still be wrong! '. . . . What a terrifying thought.
? Why write a book about capital? 5
Concerning the Chief Two World Systems (Galilei 1632). But, also, 'there is no speculative thinking whose concepts do not reveal, on closer investigation, the empirical methods from which they stem' (p. xvii). The two processes are dialectically intertwined. And, so, together with our theoretical schemes, we introduce new research methods; new categories; new ways of thinking about, relating and presenting data; new estimates and measurements; and, finally, the beginnings of a new, disaggregate accounting that reveals the conflictual dynamics of society. We show that there can be many alternatives, provided we never stop asking why. 3
Clearly, we would be happy to convince our readers with our specific argu- ments, but that goal is secondary. The more important goal is to encourage readers to develop their own research. As the book will amply show, social facts are indispensable but never 'self-evident', and since the emperor is so often naked, we shouldn't be afraid to ask why. There is a lot to suspect in the world of the 'obvious', so try to distrust the 'experts' and 'authorities' - be they mainstream or critical. In the final analysis, the only way to develop your own opinion - instead of adopting the opinions of others - is to always ask why and constantly re-search your own answers.
What's wrong with capital theory?
Begin with the monetary magnitude of capital. This magnitude is readily observable. We know how much it costs to buy existing capital on the stock and bond markets, just as we know how much it costs to set up a new company, or to put in place new plant and equipment. But what determines these monetary magnitudes? What are the forces that lie beneath the earthly appearance of capital? Why is Microsoft worth $300 billion and not half that much? Why does Toyota pay $2 billion rather than $4 billion for a new car factory? Why do these magnitudes tend to grow over time? What sets their pace of growth?
Economists - both liberal and radical - claim to have answered these ques- tions. Capital, most would say, is an economic category anchored in material reality. In the final analysis, the monetary value of capital derives from and reflects the underlying processes of consumption and production.
Mainstream neoclassical economists view this determination from the output side.
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The Bichler & Nitzan Archives
? Capital as Power
Conventional theories of capitalism are mired in a deep crisis: after centuries of debate, they are still unable to tell us what capital is. Liberals and Marxists both think of capital as an 'economic' entity that they count in universal units of 'utils' or 'abstract labour', respectively. But these units are totally ficti- tious. Nobody has ever been able to observe or measure them, and for a good reason: they don't exist. Since liberalism and Marxism depend on these non- existing units, their theories hang in suspension. They cannot explain the process that matters most - the accumulation of capital.
This book offers a radical alternative. According to the authors, capital is not a narrow economic entity, but a symbolic quantification of power. It has little to do with utility or abstract labour, and it extends far beyond machines and production lines. Capital, the authors claim, represents the organized power of dominant capital groups to reshape - or creorder - their society.
Written in simple language, accessible to lay readers and experts alike, the book develops a novel political economy. It takes the reader through the history, assumptions and limitations of mainstream economics and its associated theories of politics. It examines the evolution of Marxist thinking on accumulation and the state. And it articulates an innovative theory of 'capital as power' and a new history of the 'capitalist mode of power'.
Jonathan Nitzan teaches political economy at York University in Toronto.
Shimshon Bichler teaches political economy at colleges and universities in Israel.
Capital as Power
A study of order and creorder
Jonathan Nitzan and Shimshon Bichler
? First published 2009
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada by Routledge
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Routledge is an imprint of the Taylor & Francis Group, an informa business.
This edition published in the Taylor & Francis e-Library, 2009.
To purchase your own copy of this or any of Taylor & Francis or Routledge's
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All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Nitzan, Jonathan.
Capital as power: a study or order and creorder / Jonathan Nitzan and Shimshon Bichler.
p. cm. --(RIPE series in global political economy)
Includes bibliographical references and index.
1. Capitalism. 2. Power (Social sciences) I. Bichler, Shimshon. II. Title.
HB501. N58 2009
332? . 04--dc22 2008052891
ISBN 0-203-87632-6 Master e-book ISBN
ISBN 10: 0-415-47719-0 (hbk) ISBN 10: 0-415-49680-2 (pbk) ISBN 10: 0-203-87632-6 (ebk)
ISBN 13: 978-0-415-47719-2 (hbk) ISBN 13: 978-0-415-49680-3 (pbk) ISBN 13: 978-0-203-87632-9 (ebk)
To our lovely daughters - Elvire, Maryse and Isabelle
Thus, the birth of philosophy is not just coincident, but equisignificant with the birth of democracy. Both are expressions, and central embodiments, of the project of autonomy.
Night has fallen only for those who have let themselves fall into the night. For those who are living, [says Heraclitus], helios neos eph'hemerei estin - the sun is new each day.
--Cornelius Castoriadis, The "End of Philosophy"?
Contents
List of illustrations Acknowledgements
1 Why write a book about capital?
Capitalism without capital 1
This book is not about economics 2
How and why 3
What's wrong with capital theory? 5
Toward a new theory of capital 7
A brief synopsis 10
Part I: dilemmas of political economy 10
Part II: the enigma of capital 12
Part III: capitalization 13
Lineages 14
Part IV: bringing power back in 15
Part V: accumulation of power 17
The capitalist creorder and humane society 19
PART I
Dilemmas of political economy
2 The dual worlds
The bifurcations 25
Politics versus economics 27
The liberal view 27
The Marxist perspective 28
Capitalism from below, capitalism from above
Real and nominal 30
The classical dichotomy 30 The Marxist mismatch 31 Quantitativeequivalence? 32
xxiii xxv
1
29
23 25
xiv Contents 3 Power
The pre-capitalist backdrop 34
The new cosmology 36
The new science of capitalism 38 Separating economics from politics? 40 Enter power 42
4 Deflections of power
Liberal withdrawal and concessions 46 Neo-Marxism 47
The three fractures 49
Neo-Marxian economics: monopoly capital 50
Kalecki's degree of monopoly 50
From surplus value to economic surplus 51 Realization and institutionalized waste 51 The limits of neo-Marxian economics 52
34
45
The culturalists: from criticism to postism Statism 55
The techno-bureaucratic state 55
The autonomous state 57
53
The capitalist state 58
The state imperative 59
The flat approach 59
The hierarchical approach 60 PoliticalMarxism 61
The capitalist totality
PART II
The enigma of capital
5 Neoclassicalparables
63
The material basis of capital 68 The production function 69
The two assumptions 69 Where does profit come from? The birth of 'economics' 71
70
Marginal productivity theory in historical context
The end of equilibrium 72 Publicmanagement 74
The best investment I ever made 76
Some very unsettling questions 77
The quantity of capital 77 Circularity 78
72
65 67
Reswitching 78
The Cambridge Controversy 79 Resuscitatingcapital 80
The measure of our ignorance 82 The victory of faith 83
6 The Marxist entanglement I: values and prices
Content and form 85
The labour theory of value 86 Three challenges 87
Socially necessary abstract labour 87 Production 89
Transformation 89
The road ahead 89
The second transformation 90
Why only labour? 91
Excludingpower 91
Omittingcapitalization 92
What does the labour theory of value theorize? 92
Testing the labour theory of value 94
The price of what? 95 Absence of value 96 Recap 97
The first transformation 97
Inconsistency, redundancy, impossibility 99
The dual system 99
The complicating detour 100 Jointproduction 101 Capitalism sans values? 102 The transformation so far 104
New solutions, new interpretations 104
Changing the assumptions 105 Complexity 105
Changing the definitions 106 Recountingcosts 106
Prices as values 107
84
7 The Marxist entanglement II: who is productive, who is not? 110
Productive and unproductive labour 110 Production versus circulation 112
Financial intermediation, advertising and insurance 112
Disaggregates in the aggregate 113
Objective exchange values? 114
Eating the cake and having it too 114
Contents xv
xvi Contents
Capitalist answers, pre-capitalist questions The product itself and the amount of wealth The transformation of nature 116 Humanneeds 117
Non-capitalistproduction 118
Reproducing the social order 118 Socialservices 119
What is non-capitalist? 120
A qualitative value theory? 121
The retreat 121 Marx'sscience 122
Quality without quantity? 124
8 Accumulationofwhat?
What gets accumulated? 126 Separating quantity from price 126 Quantifying utility 128
Let the price tell all 128 Findingequilibrium 130 Quantity without equilibrium 133 Hedonicregression 136
Quantifying labour values 138
Concrete versus abstract labour 138 A world of unskilled automatons? 140
115 116
Reducing skilled to unskilled labour
A clean slate 144
PART III Capitalization
9 Capitalization: a brief anthropology
141
Utility, abstract labour, or the nomos? 147 The unit of capitalist order 150
The pattern of capitalist order 153
Formulae 153 Firststeps 155 Coming of age 155
The capitalization of every thing 158
Human beings 158
Organizations, institutions, processes 161 The future of humanity 164
Capitalization and the qualitative-quantitative nomos of capitalism 166
125
145 147
Contents xvii 10 Capitalization: fiction, mirror or distortion? 167
From fiction to distortion: Marx's view 167
From mirror to distortion: the neoclassical view 170
Microsoft vs General Motors 172 Tobin's Q: adding intangibles 174 Boom and bust: adding irrationality
The gods must be crazy 180
11 Capitalization: elementary particles
Earnings 185 Hype 188
177
Decomposition 188
Movers and shakers of hype 189
Randomnoise 192
Flocks of experts and the inefficiency of markets 193 Let there be hype 195
The discount rate 196
The normal and the risky 198
Probability and statistics 199 Averting risk: the Bernoullian grip 201 Theunknowable 202
The capital asset pricing model 203
Portfolio selection 204 CAPM 205 Circularity 207
Risk and power 208
The degree of confidence 208
Toward a political economy of risk 210
Summing up 211
Appendix to Chapter 11: strategists' estimates of S&P earnings
per share 212
PART IV
Bringing power back in
12 Accumulationandsabotage
The categories of power 217 Veblen's world 219
Industry and business 219 The two languages 220 The immaterial equipment The hand of power 223
215 217
The social hologram 223
222
183
xviii Contents
The whole picture 223
Resonance and dissonance 225
Absentee ownership and strategic sabotage 227
The natural right of investment 227
Private ownership and institutionalized exclusion 228 The right to property 229
The absentee ownership of power 230 Strategicsabotage 231
The direction of industry 233
The pace of industry 235
Business as usual 236
Taking stock and looking ahead 239 Pricing for power 239
From price taking to price making 239
The markup and the target rate of return 241 Pricing and incapacitating 242
Is free competition free of power? 242
The capitalist norm 243
The normal rate of return and the natural rate of unemployment 243
Antecedents: return and sabotage in antiquity 244 Pecuniary power: ancient versus capitalist 245
The differential underpinnings of universal sabotage Insum 248
246
Capital and the corporation 248
Capital as negation 248
The rise of the modern corporation 249
Productive wealth and corporate finance
Equity versus debt 253 Immaterialassets 253 Materialassets 255
The maturity of capitalism 256
Fractions of capital 259
Severing accumulation from circulation
253
259
Where have all the fractions gone?
260
Toward fractions of power
13 The capitalist mode of power
Material and symbolic drives
261
264
263
The invisible technology 264 The two archetypes 265 Neolithicculture 265 Powercivilization 266
Themega-machine 268
The mega-machine resurrected: capital 269 Owners and technocrats 272
State and capital 274
Metamorphosis 275
Reordering 275 Contradictoryinterdependency 276
Notions of space 278
Cosmicspace 278
Socialspace 279
State as a mode of power 280 The feudal mode of power 282
The feudal state 282
The limits of feudal power 285
The capitalization of feudal power 286
Faubourg, bourg, bourgeoisie 287
The dual economy 287
Private and public 288
Liberty as differential power 288
War and inflation 289 War and credit 291
Bypassing power: private instruments Absorbing power: state finance 292
291
The genesis of capital as power
The government bond 294
Primitiveaccumulation? 295
Governmentcapitalized 297 The state of capital 299
294
Who are the regulators? Sovereignowners? 300 Whosepolicy? 301 Whoseinterests? 301
What is to be done? 302
PART V
Accumulation of power
299
14 Differential accumulation and dominant capital
Creorder 305
Creating order 305
The power role of the market 306
How to measure accumulation? 307
'Real'benchmarking? 307
It's all relative 309
303 305
Differential capitalization and differential accumulation
310
Contents xix
xx Contents
Thecapitalistcreorder 310
The figurative identity 312
The universe of owners 313
Dominant capital 315
Aggregate concentration 316
Differential measures 319
Accumulation crisis or differential accumulation boom? 322 Historical paths 325
The boundaries of novelty 325
Spread, integration, oscillation 326
Regimes of differential accumulation 327 Some implications 331
15 Breadth
Green-field 335
Running ahead of the pack 335
Running with the pack 335
Mergers and acquisitions 338
A mystery of finance 338 The efficiency spin 339
From efficiency to power 341
Patterns of amalgamation 343
Merger waves 343
Tobin's Q 343
From classical Marxism to monopoly capitalism Differentialadvantage 346 Threetransformations 347
Breaking the envelope 348
Globalization 350
334
Capital movements and the unholy trinity 351 Global production or global ownership? 352
Net or gross? 354
Capital flow and the creorder of global power 356
Foreign investment and differential accumulation 358 Appendix to Chapter 15: data on mergers and acquisitions 359
16 Depth
Depth: internal and external Cost cutting 363
'Productivity'gains 364
Inputprices 365
Stagflation 366
The historical backdrop 366 Neutrality? 368
361
362
345
Aggregates 368 Disaggregates 369 Redistribution 370
Winners and losers 370
Workers and capitalists 370 Small and large firms 372 Patterns 374
Accumulating through crisis 375
Business as usual 375
The imperative of crisis 375 Varieties of stagflation 376 The stagflation norm 377
The hazards of inflation 379
Capitalization risk 379 The politics of inflation 379 Stop-gap 380
Policy autonomy and the capitalist creorder 17 Differential accumulation: past and future
Amalgamation versus stagflation 384 The pattern of conflict 386
A new type of cycle 386
Oscillating regimes: a bird's eye view 387 The role of the Middle East 389
Coalitions 392
Unrepeatable since time immemorial? 394
The retreat of breadth 394
The boundaries of differential accumulation Out of bounds 396
Postscript, January 2009
References Index
397
381
395
Contents xxi
383
401 430
Illustrations
Figures
8. 1 Energy User-Producer, Inc. 131
10. 1 General Motors versus Microsoft, 2005 173
10. 2 Tobin's Q in the United States 174
10. 3 The world according to the scriptures 178
10. 4 US capital accumulation: which is the 'real', which the
'fictitious'? 181
11. 1 S&P 500: price and earnings per share 186
11. 2 S&P 500: earnings, earning estimates and hype 213
12. 1 Business and industry 237
12. 2 Business and industry in the United States 238
12. 3 The productivity threat 251
12. 4 Business trust and industrial sabotage in the United States 258
13. 1 Capital's share of income in the United States 274
14. 1 Aggregate concentration in the United States 318
14. 2 Differential capitalization and differential net profit in the
United States 320
14. 3 Accumulation crisis? . . . 323
14. 4 . . . Or a differential accumulation boom? 324
15. 1 US employment, number of firms and size of firms 336
15. 2 US accumulation: internal vs external breadth 338
15. 3 Tobin's Q? 344
15. 4 Ratio of global gross foreign assets to global GDP 353
15. 5 G7 cross-border private investment flows as a per cent of
gross fixed capital formation 355
15. 6 The globalization of US business: ownership vs trade 357
16. 1 Consumer prices in the UK, 1271-2007 367
16. 2 US inflation and capital-labour redistribution 371
16. 3 US inflation and differential accumulation 373
16. 4 United States: inflation and growth, 1809-2007 377
17. 1 Amalgamation and stagflation in the United States 384
xxiv Illustrations
17. 2 Inflation and arms exports 390
17. 3 The two coalitions: share of world market capitalization 393
Tables
10. 1 Fisher's house of mirrors 171
14. 1 US corporate statistics: average number of firms, average
capitalization per firm and average net profit per firm 317
14. 2 Regimes of differential accumulation 329
Acknowledgements
This volume was written in relative isolation, and after reading it you'll see why. The book questions the very foundations of mainstream and Marxist political economy, and it goes further to offer a totally new alternative. Going against the grain is hardly the best way to make friends, and, as the history of science tells us, those who try to innovate often face a wall of silence.
But the silence is never complete. There are always free spirits who look for new directions, and we have been fortunate to cross paths with some of them. Our work has benefited from the friendship of Allen Fenichel, Tom Naylor and Robin Rowley, who helped us stand against the academic church; from the thoughtful interventions of Randy Germain, who helped and encouraged us at various stages of the publication journey; from Jeffrey Harrod, whose grassroots analysis shed light on aspects that our power theory had over- looked; from Doug Henwood and Michael Perelman, whose LBO and PEN-L internet lists we found invaluable; from years of discussions with Gibin Hong, who also translated the early incarnation of this manuscript into Korean; from Bob Jessop, who engaged with and supported our work even when our opinions differed; from Moshe? Machover, whose personal honesty, clarity of thinking and path-breaking politics one cannot but admire; from Ulf Martin, whose sharp observations and penetrating questions always kept us on edge; from many debates with the colourful members of MISS-Q, whose arguments often gave us food for thought; from the unmatched editorial skills of Daniel Moure, who polished our English and compiled our index; from Akiva Orr, whose deep insights into philosophy and science we found enlightening; from Jeffrey Rudolph, who managed to mix accounting with curiosity; from Herman Schwartz, whose brilliance offered an antidote to academic mediocrity; and, last but not least, from Genevieve Thouvenot, whose expertise in ancient languages saved us from drawing silly conclusions, and whose suggestions often helped us find the answer right under our nose.
We also feel indebted to the brave women and men of MATZPEN, the Alternative Information Center and others too numerous to be listed here, whose struggle for freedom and autonomy in the Middle East inspired our early research and continues to influence our thought.
xxvi Acknowledgements
Finally, we wish to thank the three anonymous referees who read the early version of the manuscript; the Social Sciences and Humanities Research Council of Canada for its financial assistance; and our students, whose desire to think for themselves made writing this book worthwhile.
1 Why write a book about capital?
There is no joy more intense than that of coming upon a fact that cannot be understood in terms of currently accepted ideas.
--Cecilia Payne, An Autobiography and other Recollections
Capitalism without capital
We grew up in the 'affluent society' of 1950s and 1960s. As children and then as young adults we rarely heard the word 'capitalism'. It was the Cold War, and speaking about capitalism, although not strictly taboo, was hardly a popular pastime. The term smelled of extremist ideology; it connoted commu- nist rhetoric; it conjured up bygone debates and obsolete ideas.
As a theoretical concept, capitalism seemed hopelessly unscientific. It was a remnant from a different era, from a time when people, haunted by 'scar- city', still viewed society through the hazy spectacles of political economy. The new social sciences - and particularly the science of economics - boasted far better and more precise categories.
These categories were grouped under a new buzzword: 'modernization'. Talk of modernization opened all the right doors. It invited American aid, it paved the road to development and it helped academic promotion. The word 'capitalism' became redundant, if not counterproductive. Gradually, it vanished from the lexicon.
But beginning in the early 1990s a strange thing happened: capitalism staged a remarkable comeback. Suddenly, social scientists and post-scientists alike wanted to talk of nothing else. The capitalist world, capitalist markets, capitalist governance, capitalist culture, capitalist institutions, capitalist wars, capitalism and race, capitalism and gender, capitalism and libido - no matter where you turn, you cannot escape the C-word.
Debate over capitalism is everywhere. The newspapers, radio, television and the internet overflow with talk of neoliberal globalization and crisis, imperialism and post-colonialism, financialization and government inter- vention. Experts preach the gospel of capitalist productivity, while alter- globalization protestors blame the IMF and transnational companies for
2 Why write a book about capital?
many of our social ills. Some view capitalist growth as a magic bullet; for others it spells ecological disaster. Some celebrate the deregulation of the capitalist state and the fall of Keynesianism; others mourn the decline of the welfare state and the rise of zapping labour. Many interpret the new wars of the twenty-first century as serving capitalist interests and the rise of Islamic fundamentalism as a backlash against Western liberalism. For some, capi- talism means the end of history, for others a source of conflict and an engine of change. No aspect of capitalism seems to escape debate.
Or perhaps we should say almost no aspect. Almost, because something really important is missing. In all the commotion, we seem to have lost sight of the concept that matters most: capital itself. Capital is the central institu- tion of capitalism - and yet, surprisingly, we do not have a satisfactory theory to explain it. In fact, we do not know precisely what capital is. And worse still, there is little or no discussion on what this omission means or how it can be rectified.
The issue is crucial. Without a clear concept of capital, we cannot hope to understand how capital operates, why it accumulates or how it drives the capitalist order. Until we understand capital, we are destined to misconceive our political institutions, misjudge our alternatives and have trouble imag- ining the way to a better future. In short, in order to debate capitalism we first need to debate capital itself. 1
This book is not about economics
Many people who are otherwise keenly interested in society get cold feet when confronted with 'economics'. The symbols seem mysterious, the logic baff- ling, the language incomprehensible, even threatening. The dread is real. Ever since Thomas Carlyle, the 'dismal science' has been frightening most people.
But that fear is irrelevant to our book. Our subject is not economics; it is capital. And capital, as we hope to show, is not an economic entity.
It should be noted upfront that economics - or, more precisely, the neoclassical branch of political economy - is not an objective reality. In fact, for the most part it is not even a scientific inquiry into objective reality. Instead, neoclassical political economy is largely an ideology in the service of
1 Of course, not everyone shares this sense of urgency. Quite the contrary. These days, many academics tell us that, in fact, there are no facts (in a conversation or a speech, a speaker will typically use her fingers to encapsulate the word 'facts' with invisible inverted commas, pointing to its obvious ambiguity). In postmodern space, these academics explain, there is nothing much to 'know' (again in inverted commas). Everything - including capital - is merely a 'narrative'. Capital is a 'discourse' that cannot be known, only 'deconstructed'. And who knows, since nobody 'really' knows, maybe that is indeed the best way to conceal capital.
1 S&P 500: price and earnings per share 186
11. 2 S&P 500: earnings, earning estimates and hype 213
12. 1 Business and industry 237
12. 2 Business and industry in the United States 238
12. 3 The productivity threat 251
12. 4 Business trust and industrial sabotage in the United States 258
13. 1 Capital's share of income in the United States 274
14. 1 Aggregate concentration in the United States 318
14. 2 Differential capitalization and differential net profit in the
United States 320
14. 3 Accumulation crisis? . . . 323
14. 4 . . . Or a differential accumulation boom? 324
15. 1 US employment, number of firms and size of firms 336
15. 2 US accumulation: internal vs external breadth 338
15. 3 Tobin's Q? 344
15. 4 Ratio of global gross foreign assets to global GDP 353
15. 5 G7 cross-border private investment flows as a per cent of
gross fixed capital formation 355
15. 6 The globalization of US business: ownership vs trade 357
16. 1 Consumer prices in the UK, 1271-2007 367
16. 2 US inflation and capital-labour redistribution 371
16. 3 US inflation and differential accumulation 373
16. 4 United States: inflation and growth, 1809-2007 377
17. 1 Amalgamation and stagflation in the United States 384
xxiv Illustrations
17. 2 Inflation and arms exports 390
17. 3 The two coalitions: share of world market capitalization 393
Tables
10. 1 Fisher's house of mirrors 171
14. 1 US corporate statistics: average number of firms, average
capitalization per firm and average net profit per firm 317
14. 2 Regimes of differential accumulation 329
Acknowledgements
This volume was written in relative isolation, and after reading it you'll see why. The book questions the very foundations of mainstream and Marxist political economy, and it goes further to offer a totally new alternative. Going against the grain is hardly the best way to make friends, and, as the history of science tells us, those who try to innovate often face a wall of silence.
But the silence is never complete. There are always free spirits who look for new directions, and we have been fortunate to cross paths with some of them. Our work has benefited from the friendship of Allen Fenichel, Tom Naylor and Robin Rowley, who helped us stand against the academic church; from the thoughtful interventions of Randy Germain, who helped and encouraged us at various stages of the publication journey; from Jeffrey Harrod, whose grassroots analysis shed light on aspects that our power theory had over- looked; from Doug Henwood and Michael Perelman, whose LBO and PEN-L internet lists we found invaluable; from years of discussions with Gibin Hong, who also translated the early incarnation of this manuscript into Korean; from Bob Jessop, who engaged with and supported our work even when our opinions differed; from Moshe? Machover, whose personal honesty, clarity of thinking and path-breaking politics one cannot but admire; from Ulf Martin, whose sharp observations and penetrating questions always kept us on edge; from many debates with the colourful members of MISS-Q, whose arguments often gave us food for thought; from the unmatched editorial skills of Daniel Moure, who polished our English and compiled our index; from Akiva Orr, whose deep insights into philosophy and science we found enlightening; from Jeffrey Rudolph, who managed to mix accounting with curiosity; from Herman Schwartz, whose brilliance offered an antidote to academic mediocrity; and, last but not least, from Genevieve Thouvenot, whose expertise in ancient languages saved us from drawing silly conclusions, and whose suggestions often helped us find the answer right under our nose.
We also feel indebted to the brave women and men of MATZPEN, the Alternative Information Center and others too numerous to be listed here, whose struggle for freedom and autonomy in the Middle East inspired our early research and continues to influence our thought.
xxvi Acknowledgements
Finally, we wish to thank the three anonymous referees who read the early version of the manuscript; the Social Sciences and Humanities Research Council of Canada for its financial assistance; and our students, whose desire to think for themselves made writing this book worthwhile.
1 Why write a book about capital?
There is no joy more intense than that of coming upon a fact that cannot be understood in terms of currently accepted ideas.
--Cecilia Payne, An Autobiography and other Recollections
Capitalism without capital
We grew up in the 'affluent society' of 1950s and 1960s. As children and then as young adults we rarely heard the word 'capitalism'. It was the Cold War, and speaking about capitalism, although not strictly taboo, was hardly a popular pastime. The term smelled of extremist ideology; it connoted commu- nist rhetoric; it conjured up bygone debates and obsolete ideas.
As a theoretical concept, capitalism seemed hopelessly unscientific. It was a remnant from a different era, from a time when people, haunted by 'scar- city', still viewed society through the hazy spectacles of political economy. The new social sciences - and particularly the science of economics - boasted far better and more precise categories.
These categories were grouped under a new buzzword: 'modernization'. Talk of modernization opened all the right doors. It invited American aid, it paved the road to development and it helped academic promotion. The word 'capitalism' became redundant, if not counterproductive. Gradually, it vanished from the lexicon.
But beginning in the early 1990s a strange thing happened: capitalism staged a remarkable comeback. Suddenly, social scientists and post-scientists alike wanted to talk of nothing else. The capitalist world, capitalist markets, capitalist governance, capitalist culture, capitalist institutions, capitalist wars, capitalism and race, capitalism and gender, capitalism and libido - no matter where you turn, you cannot escape the C-word.
Debate over capitalism is everywhere. The newspapers, radio, television and the internet overflow with talk of neoliberal globalization and crisis, imperialism and post-colonialism, financialization and government inter- vention. Experts preach the gospel of capitalist productivity, while alter- globalization protestors blame the IMF and transnational companies for
2 Why write a book about capital?
many of our social ills. Some view capitalist growth as a magic bullet; for others it spells ecological disaster. Some celebrate the deregulation of the capitalist state and the fall of Keynesianism; others mourn the decline of the welfare state and the rise of zapping labour. Many interpret the new wars of the twenty-first century as serving capitalist interests and the rise of Islamic fundamentalism as a backlash against Western liberalism. For some, capi- talism means the end of history, for others a source of conflict and an engine of change. No aspect of capitalism seems to escape debate.
Or perhaps we should say almost no aspect. Almost, because something really important is missing. In all the commotion, we seem to have lost sight of the concept that matters most: capital itself. Capital is the central institu- tion of capitalism - and yet, surprisingly, we do not have a satisfactory theory to explain it. In fact, we do not know precisely what capital is. And worse still, there is little or no discussion on what this omission means or how it can be rectified.
The issue is crucial. Without a clear concept of capital, we cannot hope to understand how capital operates, why it accumulates or how it drives the capitalist order. Until we understand capital, we are destined to misconceive our political institutions, misjudge our alternatives and have trouble imag- ining the way to a better future. In short, in order to debate capitalism we first need to debate capital itself. 1
This book is not about economics
Many people who are otherwise keenly interested in society get cold feet when confronted with 'economics'. The symbols seem mysterious, the logic baff- ling, the language incomprehensible, even threatening. The dread is real. Ever since Thomas Carlyle, the 'dismal science' has been frightening most people.
But that fear is irrelevant to our book. Our subject is not economics; it is capital. And capital, as we hope to show, is not an economic entity.
It should be noted upfront that economics - or, more precisely, the neoclassical branch of political economy - is not an objective reality. In fact, for the most part it is not even a scientific inquiry into objective reality. Instead, neoclassical political economy is largely an ideology in the service of
1 Of course, not everyone shares this sense of urgency. Quite the contrary. These days, many academics tell us that, in fact, there are no facts (in a conversation or a speech, a speaker will typically use her fingers to encapsulate the word 'facts' with invisible inverted commas, pointing to its obvious ambiguity). In postmodern space, these academics explain, there is nothing much to 'know' (again in inverted commas). Everything - including capital - is merely a 'narrative'. Capital is a 'discourse' that cannot be known, only 'deconstructed'. And who knows, since nobody 'really' knows, maybe that is indeed the best way to conceal capital. This convenient conclusion, though, begets a somewhat embarrassing question: if capital is merely a discursive text, one faith among many, what is the point of talking about - let alone criticizing - capitalism? And if there is no point in such critique, who needs the postmodern critics?
? Why write a book about capital? 3
the powerful. It is the language in which the capitalist ruling class conceives and shapes society. Simultaneously, it is also the tool with which this class conceals its own power and the means with which it persuades others to accept that power.
Our book puts power back in centre stage. Notice the metaphoric equality in the title: 'Capital as Power'. We use not and, but as. We do not speak of capital and power; of capital in the service of power, or vice versa; of capital in relation to state; of capital with or against politics; of capital in contradis- tinction to violence; or of capital and ideology. We refer not to a relation, connection, function, or juxtaposition, but to a figurative identity. Capital does not relate to power. It is, in itself, a mode of power.
The purpose of this book is to explain capital as power. The first step toward understanding our argument, therefore, is to stop thinking of capital and capitalism as 'economic' entities. But that is just the start. The second step is to be willing to take on the dogma that makes capital and capitalism 'economic' entities in the first place.
How and why
Young children are obsessed with the question 'why? ' 'Why do I need to brush my teeth? ' 'Why do birds fly and dogs don't? ' 'Why does mommy have to go to work? ' The quest is universal, but it doesn't last for long. Children quickly learn that grownups dislike the question and often don't know how to answer it, and they realize that one 'why? ' inevitably leads to another, followed by further hassle and endless aggravation. So they grow up. By the age of five or six, they abandon the 'why? ' in favour of the more practical 'how? ' They stop questioning the world and try to fit into it. They become adults, and they usually remain so for the rest of their lives.
But not everyone grows up. As Mark Twain (1881) reminds us, some people stay young no matter how old they become. And the youngest of all are those who never stop asking 'why? ' This book is written for these young people of all ages. We write it for those who feel their future is at stake and wish to do something about it; for those who sense that there is something deeply wrong with the conventional creed but don't know exactly what it is; and, above all, for those who simply dislike dogma and want to think for themselves.
Perhaps the key problem facing young people today is a lack of theoretical alternatives. A new social reality presupposes and implies a new social cosmology. To change the capitalist world, one first needs to re-conceive it; and that re-conception means new ways of thinking, new categories and new measurements. And yet, many contemporary critics of capitalism seem to believe that they can challenge this social order without ever asking how it operates, let alone why.
With some obvious exceptions, present-day leftists prefer to avoid 'the economy', and many are rather proud about it. To prioritize profit and
4 Why write a book about capital?
accumulation, to theorize corporations and the stock market, to empirically research the gyrations of money and prices are all acts of narrow 'econo- mism'. To do these things is to fetishize the world, to conceal the cultural nuances of human consciousness, to prevent the critic from seeing the true political underpinnings of social affairs. Best to leave them to the dismal scientists.
And, so, most self-respecting critics of capitalism remain happily ignorant of its 'economics', neoclassical as well as Marxist. They know little about the respective histories, questions and challenges of these theories, and they are oblivious to their triumphs, contradictions and failures. This innocence is certainly liberating. It allows critics to produce 'critical discourse' littered with cut-and-paste platitudes, ambiguities and often plain nonsense. Seldom do their 'critiques' tell us something important about the forces of contem- porary capitalism, let alone about how these forces should be researched, understood and challenged.
Most importantly, though, this stale context conditions students to stop asking 'why? ' The big questions about capital are pushed under the rug, and as the young generation gets older and becomes established, the questions are forgotten altogether. Occasionally, an untamed spirit, having discovered an old debate in an outdated book, raises a nai? ve 'why? ' But these spontaneous fires are quickly isolated and extinguished. Ridiculed by know-all professors and hushed by acolyte students, the outlier is forced to relinquish or perish. There is no alternative, and the safest thing for an academic is to never wonder why. 2
Our book defies this dogma. We provide a new conceptual framework for capital - along with the context that this framework negates and the means by which it is articulated. 'There is no empirical method without speculative concepts and systems', writes Einstein in the forward to Galileo's Dialogue
2 As a first-year economics student at Tel-Aviv University, one of us (Nitzan) challenged the professor with questions about the assumptions. Economists make plenty of those, so there were many questions to ask. Initially, the professor was happy to engage. But two weeks into the course, the questions became more difficult to answer, the students grew annoyed with my interventions, and the professor began to apply the usual stalling tactic. 'Yours is a very interesting question', she would say, 'but it's too early to deal with it. Please raise it later, when we deal with this topic in greater detail'. This method is popular among economics instructors, and it works particularly well when combined with a heavy dose of 'problem- solving' exercises. The seemingly 'practical' drill forces students to accept the underlying premises, and when the premises are accepted the questions quickly disappear. But I persisted, so the professor had no choice but to shut me off altogether. When I inquired why I was being ignored, her reply was short and informative: 'You don't know how to ask ques- tions'.
Many years later, an undergraduate student in one of my political-economy classes summarized the same dilemma from a different angle: 'Your class makes me sooo nervous. With all my other professors, I can write pretty much what I want as long as I stick to the syllabus and properly cite the readings. But your class doesn't work this way. Not only do I have to do my own research, I also need to invent the research question. And in the end, I can still be wrong! '. . . . What a terrifying thought.
? Why write a book about capital? 5
Concerning the Chief Two World Systems (Galilei 1632). But, also, 'there is no speculative thinking whose concepts do not reveal, on closer investigation, the empirical methods from which they stem' (p. xvii). The two processes are dialectically intertwined. And, so, together with our theoretical schemes, we introduce new research methods; new categories; new ways of thinking about, relating and presenting data; new estimates and measurements; and, finally, the beginnings of a new, disaggregate accounting that reveals the conflictual dynamics of society. We show that there can be many alternatives, provided we never stop asking why. 3
Clearly, we would be happy to convince our readers with our specific argu- ments, but that goal is secondary. The more important goal is to encourage readers to develop their own research. As the book will amply show, social facts are indispensable but never 'self-evident', and since the emperor is so often naked, we shouldn't be afraid to ask why. There is a lot to suspect in the world of the 'obvious', so try to distrust the 'experts' and 'authorities' - be they mainstream or critical. In the final analysis, the only way to develop your own opinion - instead of adopting the opinions of others - is to always ask why and constantly re-search your own answers.
What's wrong with capital theory?
Begin with the monetary magnitude of capital. This magnitude is readily observable. We know how much it costs to buy existing capital on the stock and bond markets, just as we know how much it costs to set up a new company, or to put in place new plant and equipment. But what determines these monetary magnitudes? What are the forces that lie beneath the earthly appearance of capital? Why is Microsoft worth $300 billion and not half that much? Why does Toyota pay $2 billion rather than $4 billion for a new car factory? Why do these magnitudes tend to grow over time? What sets their pace of growth?
Economists - both liberal and radical - claim to have answered these ques- tions. Capital, most would say, is an economic category anchored in material reality. In the final analysis, the monetary value of capital derives from and reflects the underlying processes of consumption and production.
Mainstream neoclassical economists view this determination from the output side.
