These
revolutionary
instances cannot be theorized easily, and for a good reason.
Nitzan Bichler - 2012 - Capital as Power
First, according to its own prerequisites, the theory can work only under the strict conditions of a perfectly competitive economy untainted by politics and power.
Ironically, though, this explanation emerged at the end of the nineteenth century, precisely when oligopoly replaced 'competition'; and it gained prominence after the Second World War, exactly when governments started to 'intervene' in earnest.
Second, and more importantly, even if pure competition did prevail and there was no government in sight, the theory would still fall flat on it face.
In order to explain profit by the productivity of capital, we first need to know the quantity of that capital.
Yet it so happens that in order to know the quantity of capital, we first have to know the amount of profit!
And since there is no way to tell the chicken from the egg, the neoclassicists continue to run in circles.
Unlike liberals, Marxists do not try to justify profit. On the contrary, their entire effort aims at showing that capitalists can accumulate only by exploiting workers. And yet, since their notion of capital, just like the neoclas- sical one, is anchored in the 'economy', they end up falling into the same materialistic traps. These traps are crucial - so crucial, in fact, that they
Why write a book about capital? 13
undermine Marx's entire theory of accumulation. And since most people who are otherwise sympathetic to Marx's critique of capitalism are unaware of these difficulties, we devote two full chapters - 6 and 7 - to their examination.
The commodified structure of capitalism, Marx argues, is anchored in the labour process: the accumulation of capital is denominated in prices; prices reflect labour values; and labour values are determined by the productive labour time necessary to make the commodities. This sequence is intuitively appealing and politically motivating, but it runs into logical and empirical impossibilities at every step of the way. First, it is impossible to differentiate productive from unproductive labour. Second, even if we knew what produc- tive labour was, there would still be no way of knowing how much productive labour goes into a given commodity, and therefore no way of knowing the labour value of that commodity and the amount of surplus value it embodies. And finally, even if labour values were known, there would be no consistent way to convert them into prices and surplus value into profit. So, in the end, Marxism cannot explain the prices of commodities - not in detail and not even approximately. And without a theory of prices, there can be no theory of profit and accumulation and therefore no theory of capitalism.
And that isn't the end of the story. Chapter 8 shows that political econo- mists are having trouble explaining not only how and why capital accu- mulates, but also what accumulates. As noted earlier in the introduction, neoclassicists pretend to count capital in 'utils' and Marxists in hours of 'abstract labour'. Unfortunately, though, there can be no 'economy' distinct from politics and other aspects of society; and even if the 'economy' were an independent sphere, its production and consumption could not be 'objectively' given. These two impossibilities turn the search for universal material-economic units into an exercise in futility.
Part III: capitalization
That capital theorists remain so hooked on production and consumption is all the more perplexing given that capitalists themselves are not. Whereas political economists are focused on capital goods, capitalists think of capital- ization. The theorists, both mainstream and critical, are nonchalant about this difference. Capitalization, they say, is merely a 'nominal' reflection - sometimes accurate, other times distorted - of the 'real' economy. Capitalists certainly care about their money assets, but the only way to understand the accumulation of such assets is by theorizing their material underpinnings.
Well, it turns out that this isn't really the case. Chapter 9 begins our explo- ration of capitalization, tracing its evolution from its modest beginning in the fourteenth century to its world dominance in the twenty-first. It shows that capitalization not only predates 'industrialization' by a few hundred years, but also that it is far more encompassing than is typically assumed - so encompassing, in fact, that in our own day and age it has penetrated every
14 Why write a book about capital?
corner of society and absorbed many of its power processes. Production, narrowly defined, has become merely one of the many faces of capitalization.
But if production is only one aspect of capitalization, how can it serve to explain it? The answer is that it doesn't. Chapter 10 contrasts the 'nominal' process of capitalization with the so-called 'real' augmentation of capital goods. It demonstrates that the money value of 'capital goods' is a very small fraction of the overall value of capitalization, and that their ratio varies widely over time. But most disturbingly, it shows that the rates of growth of the two magnitudes move in opposite directions: when the growth of the 'capital stock' accelerates, the growth of capitalization decelerates and vice versa!
Faced with these facts of life, particularly the last one, the theorists must make a choice: stick with the so-called 'real economy' and treat capitalization as a distorted mirror if not a mere fiction; or stay focused on what drives the capitalists and try to develop a social theory of capitalization that transcends the fetish of material production and capital goods. Most political economists have taken the first route. We choose the second.
Chapter 11 unzips the capitalization process. We identify the different 'elementary particles' that make up the capitalization formula, examine their actual and ideological histories, dissect their properties and study their inter- relations. This analysis provides a broad framework on which we can build an alternative theory of capital as power.
Lineages
Before outlining this theory, though, a few words about origins and influ- ences. Although critical of Karl Marx's theory of value, we are deeply influenced by his general approach, primarily his notion of capitalism as the political regime of capital. In the twentieth century, Marx's followers have modified and adapted his insights to the changing nature of capitalism, and debating their theories has helped us shape our own.
In addition to Marx and his followers, we draw on the largely neglected if not forgotten writings of Thorstein Veblen, Lewis Mumford and Michal Kalecki. Veblen was perhaps the first thinker to seriously consider absentee ownership, finance and credit as the central power mechanisms of capitalism. He was also the first to ponder the implications of power - or 'sabotage', as he called it - for the concept of capital.
Mumford, who was a student and colleague of Veblen, provided a unique history of technology as power. The first machines, he argued, were social rather than material. They made their initial appearance in the ancient delta civilizations in the form of a mechanized social order - the mega-machine. According to Mumford, the social mega-machine provided the model for all subsequent material and social mechanization - a claim with far-reaching consequences for the study of capitalism.
Kalecki, one of the founders of neo-Marxian economics, developed novel
Why write a book about capital? 15
research methods, both theoretical and empirical. Of these, perhaps the most innovative is the notion of the 'degree of monopoly': the idea that the distri- bution of income is not merely the consequence of economic power, but its very definition.
Taken together, these views - particularly Marx's emphasis on the political regime of capital, Veblen's linking of financial capitalization and industrial sabotage, Mumford's notion of social organization as a power machine and Kalecki's distributive measurement of power - constitute our starting point. We use them, critically if we can, as stepping stones for our own theory of capital.
However, these influences do not make us members of any 'school'. Although we have been inspired by Veblen, we consider ourselves neither Veblenians nor institutionalists. Similarly with Marx. Our critique of his schema - particularly his labour theory of value and his notion of surplus value - 'disqualifies' us from being Marxist. That said, though, the general thrust of our project is very much in line with Marx's. Like Marx, we too try to confront the concrete capitalist reality; to examine its actual gyrations, ideologies and justifications; and, above all, to decipher its central architec- ture: the accumulation of capital. In our opinion - again in line with Marx's - investigating the capitalist reality is the first prerequisite for changing it.
Needless to say, this type of analysis is antithetical - in method, spirit and aim - to the institutionalism and system approach of Max Weber and Talcott Parsons. It also has nothing to do with the so-called 'new institutionalism' of Ronald Coase, Douglas North and Oliver Williamson. The latter school subjugates the logic of organizations and institutions to the marginal calculus of neoclassical utility. The very idea would have made Veblen flip in his grave.
Part IV: bringing power back in
Chapter 12 begins our examination of power with a focus on capital and the corporation. The starting point is Veblen. His theoretical framework, articu- lated at the turn of the twentieth century, was radically different from the orthodoxy of his time (and of our own time still). 'Industry' and 'business', he argued, are not synonyms, contrary to what conventional political economy would have us believe. On the contrary, they are opposing realms of human activity: industry is the sphere of material production, while business is the domain of pecuniary distribution, and the link between them is not positive but negative.
Industry is a collective endeavour. Its success hinges on societal creativity, cooperation, integration and synchronization. In capitalism, however, industry is carried out not for its own sake but for the purpose of business. And the goal of business isn't collective well being, but pecuniary profit for differential gain.
Now the critical bit here is that industry and business are inherently
16 Why write a book about capital?
distinct. Modern capitalists are removed from production: they are absentee owners. Their ownership, says Veblen, doesn't contribute to industry; it merely controls it for profitable ends. And since the owners are absent from industry, the only way for them to exact their profit is by 'sabotaging' industry. From this viewpoint, the accumulation of capital is the manifesta- tion not of productive contribution but of organized power.
To be sure, the process by which capitalists 'translate' qualitatively different power processes into quantitatively unified measures of earnings and capitalization isn't very 'objective'. Filtered through the conventional assessments of accountants and the future speculations of investors, the conversion is deeply inter-subjective. But it is also very real, extremely imposing and, as we shall see, surprisingly well-defined.
These insights can be extended into a broader metaphor of a 'social holo- gram': a framework that integrates the resonating productive interactions of industry with the dissonant power limitations of business. These hologramic spectacles allow us to theorize the power underpinnings of accumulation, explore their historical evolution and understand the ways in which various forms of power are imprinted on and instituted in the corporation.
Our inquiry paints a picture that is very different from - and often inverts - the canonical images of political economy. It shows that business enterprise diverts and limits industry instead of boosting it; that 'business as usual' needs and implies strategic limitation; that most firms are not passive price takers but active price makers, and that their autonomy makes 'pure' economics indeterminate;9 that the 'normal rate of return', just like the ancient rate of interest, is a manifestation not of productive yield but of organized power; that the corporation emerged not to enhance productivity but to contain it; that equity and debt have little to do with material wealth and everything to do with systemic power; and, finally, that there is little point talking about the deviations and distortions of 'financial capital' simply because there is no 'productive capital' to deviate from and distort.
Now, the notion that power is the means of accumulation is only half the story; the other half is that power is also the ultimate end of accumulation. Chapter 13 broadens this notion by offering to think of capitalism not as mode of production, but as a mode of power. The argument proceeds in two steps. First, we rewind the story back to the ancient power civilizations, where, according to Lewis Mumford, the first large-scale machines had been assembled. As noted, these mega-machines were not physical contraptions; they were social structures. And their goal, says Mumford, wasn't production but the very exertion of power.
The same view, we argue, applies to capital. Political economists are not entirely wrong to see capital as a 'machine'. But this machine isn't material
9 The term 'autonomy' here should not be interpreted literally. As we shall see, 'price makers' are just as subservient to the logic of accumulation as 'price takers' are, and they too tend to move in herds - only that the path they trot tends to upset the expectations of economists.
? Why write a book about capital? 17
but social: it is a modern mega-machine. Ultimately, capitalists are driven not to produce things but to control people, and their capitalist mega-machine exerts this power with an efficiency, flexibility and force that ancient rulers could not even fathom.
The capitalist mega-machine defines the capitalist mode of power; and a mode of power, we argue, constitutes the 'state' of society. The second part of Chapter 13 historicizes this proposition. It begins with the feudal mode of power from which capitalism emerged; it traces the process by which the feudal mode of power gave way to a capitalist mode of power; and it exam- ines how the logic of capital has gradually penetrated, altered and eventually become the state - the state of capital.
This state is not an 'actor' that stands against or with capital. Nor is it an eternal Newtonian space that simply 'contains' different actors at different times. As we see it, the state of capital is a historically constituted Leibnitzian space, an ever-changing structure of power defined and shaped by the concrete entities and relationships that comprise it.
Part V: accumulation of power
Social power is commonly sanctified by the heteronomous dictates of God or Nature. These pronouncements of power, coming from 'outside' society, seem inevitable, and the tangible symbols in which they are expressed - temple, palace, army, slaves and material wealth - make them look absolute. But social power is autonomous, not heteronomous. It comes from within society, not from without. And for that reason, behind the absolute symbols of power there is always a deeper, relative reality. 10
In the final analysis, power is confidence in obedience. It expresses the certainty of the rulers in the submissiveness of the ruled. When this confi- dence is high, the rulers actively shape their society. They view its trajectory as customary and natural, while treating revolts, uprisings - even revolutions - as mere disturbances. By contrast, when this confidence is low, the rulers tend to react rather than initiate. Social development loses its coherence, while revolts, uprising and revolutions suddenly become manifestations of systemic chaos.
In our own epoch, the central relationship between confidence and obedi- ence is embodied in capital. The process of accumulation represents the changing ability of dominant capital - namely, the leading corporations and key government organs at the epicentre of the process - to control, shape and transform society against opposition. The conflictual underpinnings of this process make capital a relative entity; and that relativity means that we need
10 The difference between heteronomy and autonomy is developed in the social and philo- sophical writings of Cornelius Castoriadis - see, for instance, his Philosophy, Politics, Autonomy (1991b).
? 18 Why write a book about capital?
to think not of absolute accumulation but of differential accumulation - the ability of dominant capital to accumulate faster than the average.
The fifth section of the book builds on the twin notions of differential accumulation and dominant capital to develop a concrete theory of capital as power. We begin by defining historical society as a creation of order, or creorder - a word that connotes the paradoxical fusion of being and becoming, state and process, stasis and dynamism. The algorithm of the capitalist creorder is capitalization. This is the mechanism through which capitalist power is commodified, structured and restructured. The static architecture of this power is defined by differential capitalization. At any point in time, the distribution of capitalized values maps the division of power among the different owners. But the capitalist creorder compels owners not only to retain their power, but to try and augment it; not only to protect their differential capitalization, but to increase it through differential accu- mulation.
The result is a strong gravitational force. This force - anchored in power rather than productivity - pulls the independent units of capital closer together. It causes them to join, coalesce and fuse into ever larger units. Eventually, it gives rise to tight constellations of large corporate-government alliances. These constellations constitute what we call dominant capital.
Chapter 14 examines the general contours of this process in the United States and comes up with seemingly paradoxical results. Most critical observers associate the past half-century with a protracted accumulation crisis. And yet, during that very period, dominant capital appears to have enjoyed virtually uninterrupted differential accumulation. How can this stellar performance be reconciled with notions of capital in distress? What are the underlying power processes that make differential accumulation feasible in the first place? How have these conflictual processes panned out historically to generate such a remarkable feat? And why haven't political economists noticed any of this?
To answer these questions, we develop the notion of differential accumu- lation regimes. Dominant capital can increase its differential earnings and capitalization in two principal ways: (1) by increasing the relative size of its organization, which we call breadth; and (2) by increasing the relative elemental power of its organization, which we label depth. Chapters 15 to 17 examine the salient features of these power regimes and in the process deflate some of the more cherished beliefs of political economists.
One of these beliefs is that capitalism is hooked on economic growth. This conviction is shared by liberals and Marxists alike, and it is so strong that many now conflate growth and accumulation as if they were one and the same. But they are not the same, and Chapter 15 shows why. From the view- point of dominant capital, green-field growth is a double-edged sword. It can both undermine and augment the power of dominant capital - and in so doing hinder as well as assist differential accumulation. But green-field isn't the only route. Dominant capital can also grow 'inorganically', via mergers
Why write a book about capital? 19
and acquisitions. And unlike green-field growth, the impact of amalgamation is decidedly positive: it boosts the organizational size and power of dominant capital, it augments its differential accumulation and it does both with enor- mous thrust.
This power rationale explains why, over the past century, mergers and acquisitions have grown exponentially while green-field growth has deceler- ated. Moreover, since amalgamation is a change in ownership and therefore a transformation of power, the merger process tells us plenty about the changing nature of capitalist politics at large. It explains the sequential breaking of sectoral envelopes, as dominant capital transcends its original corporate universe seeking to expand into bigger universes; it accounts for the social transformation that accompanies these leaps; and it unveils the conflictual underpinnings of capital flows and the power politics of global ownership.
A second cardinal belief among political economists is that capital loves price stability and hates inflation. Yet this conviction, too, doesn't stand up to the facts. Chapter 16 shows that although capitalists constantly try to cut their costs, this endeavour merely keeps them running on empty. The way to beat the average is not to cut cost but to increase prices. Those who inflate their prices faster than the average end up redistributing income in their favour - and in so doing augment the elemental power of their organization and boost their differential accumulation.
The inflationary path to differential accumulation is highly conflictual and therefore anything but smooth. And, sure enough, contrary to the theories and instincts of most economists, inflation tends to appear as stagflation: it comes not with growth and stability, but with stagnation and crisis. This fact makes the depth route uncertain and seemingly far more risky than breadth. Yet return is often commensurate with the risk, and when dominant capital finds itself gravitating toward conflictual inflation, the common result is accumulation through crisis.
And so emerges a very different reality of accumulation. Whereas liberals and Marxists emphasize the capitalist quest for growth and price stability, dominant capital seems to thrive on amalgamation and stagflation. Chapter 17 ties the final knots by bringing together these two key regimes of differen- tial accumulation. It relates the long histories of breadth by amalgamation and depth through stagflation; it examines how these regimes shaped the twentieth century of capital as power; and it closes by speculating on what their relationship may imply for the future.
The capitalist creorder and humane society
We are now ready to start our exploration, but before doing so we should perhaps say a few words on the limits of our journey. The study of capital as power does not, and cannot, provide a general theory of society. Capital- ization is the language of dominant capital. It embodies the beliefs, desires and fears of the ruling capitalist class. It tells us how this group views the
20 Why write a book about capital?
world, how it imposes its will on society, how it tries to mechanize human beings. It is the architecture of capitalist power.
This architecture, though, tells us very little about the human beings who are subjected to its power. Of course, we observe their 'behaviour', their 'reac- tion' to capitalist threats, their 'choice' of capitalist temptations. Yet we know close to nothing about their consciousness, awareness, thoughts, intentions, imagination and aspirations. To paraphrase Cornelius Castoriadis, humanity is like a 'magma' to us, a smooth surface that moves and shifts. 11 Most of the time its movements are fairly predictable. But under the surface lurk autonomous qualities and energies. The language of capitalist power can neither describe nor comprehend these qualities and energies. It knows nothing about their magnitude and potential. It can never anticipate when and how they will erupt.
Consider that none of the pundits - communist or anti-communist - foresaw the collapse of the Soviet bloc (although, in retrospect, the victory of liberalism was of course 'inevitable'). Similarly with the May 1968 revolution in France. This was arguably the most important revolution of the twentieth century. And yet, even a few days before its explosion, no sociologist - conservative or radical - had a clue as to what was coming (Anonymous 1968; Orr 2003). The story repeats itself with the first Palestinian Intifada that started in 1987. The uprising took everyone by surprise, including the critical 'orientalists' and the orthodox PLO establishment. The list goes on.
These revolutionary instances cannot be theorized easily, and for a good reason. They are rooted in the original spark of free human creativity. '[M]en cannot be treated as units in operations of political arithmetic', observes Arthur Koestler, 'because they behave like the symbols of zero and the infi- nite, which dislocate all mathematical operations' (1949: 76). Their originality and creativity cannot be modelled or reduced to historical laws of motion. They cannot be predicted systematically. They do not follow a clear pattern. They are unique.
Karl Marx, the first to investigate the dynamic architecture of capitalism, tried to fuse the two movements of power and resistance to power into a single language. For him, the power of capitalists to accumulate and the polit- ical struggle of workers against that power could both be derived from and analysed by one basic logic: the labour theory of value.
In our view, this fusion is impossible to achieve. It is impossible to impose the logic of labour (and of human activity in general) on capitalists. We can- not denominate the pecuniary architecture of capitalization in homogenous units of abstract labour. Capitalization and productivity/creativity are two distinct processes, each with its own separate 'logic'. The destructive clash of these two processes is the engine of the capitalist dialectic, but the dialectic itself cannot be understood with one common language.
11 Castoriadis develops the ontology of the magmas in Chapter 7 of The Imaginary Institution of Society (1987).
? Why write a book about capital? 21
Instead, we prefer to imagine two general 'entities'. The first entity is the capitalist creorder, whose pattern is imposed on society. The gyrations and development of this creorder can be subjected to a systematic, quantitative theory of power. The second entity is a stealthy humane society. This society exists mostly as an unknown potential. Usually, it is dormant and therefore invisible. Occasionally, though, it erupts, often without warning, to challenge and sometimes threaten the institutions of capitalist power. These eruptions - and their consequences - do not follow a pre-set pattern. They cannot be systematically theorized.
For this reason, we do not pretend to offer a general theory of capitalist society. We limit ourselves to the study of the capitalist creorder only, the dynamic order of those who rule. To rule means to see the world from a singular viewpoint, to be locked into a unitary logic, to be subservient to your own architecture of power. Dominant capital cannot deviate from the bound- aries of this architecture, even if it wants to. Its individual members are forced to accept the very logic they impose on the rest of humanity. And the more effective they are in imposing that logic, the more predictable they themselves become. This is why their world can be theorized and to some extent predicted.
Over the past century, the power logic of capitalism has been incarnated in the process of differential capitalization; that is to say, in the belief that there is a 'normal rate of return' and that capitalists are obliged to 'beat' it. This is the gist of the new capitalist cosmology. Instead of the Holy Scriptures, we now have the universal language of business accounting and corporate finance. The power of God, once vested in priest and king, now reveals itself as the power of Capital vested in the 'investor'.
And as the capitalization of power spreads and penetrates, the world seems increasingly 'deterministic'. The determinism of capitalization is now the 'natural state of things', the benchmark against which one can estimate 'devi- ations' 'distortions', 'risk' and 'return'. It is a logic that looks unquestionable to those who rule and omnipotent to those who are being ruled.
But this determinism of capitalization has nothing to do with 'laws of nature', or the 'inevitable' progression of history. It is the determinism of the ruling class, and only of the ruling class. It works only insofar as the ruling class rules. Admittedly, that happens most of the time. However, human beings do have the capacity to understand the autonomous nature of this 'determinism'. And when they realize that the rules are imposed on them by other human beings, determinism disappears, replaced - if only for a histor- ical instant - by the humane promise of autonomy-democracy-philosophy.
Part I
Dilemmas of political economy
2 The dual worlds
He was so eager to know what was going on in heaven, that he could not see what was before his feet.
--Socrates on Thales, Plato's Theaetetus
The bifurcations
Capitalism is characterized by several related antinomies and contrasts, basic dualities that resemble the ancient paradoxes of Hellenic philosophy. Of these dualities, the most important are the distinction between politics and economics and the separation of the real from the nominal.
The first duality - the bifurcation of politics and economics - is hardly new. Pre-capitalist history was marked, almost invariably, by a socio- ecological reality that separated political rulers from their producing subjects. The concepts of course were markedly different. There was no such thing as 'the economy', and the notion of 'politics', although dating back to ancient Athens, had little meaning in an authoritarian context. But terminology aside, there was a fairly clear separation between social rule and material provision. The common pattern of power consisted of state or quasi-state entities using organized military force to control dispersed agricultural culti- vators. Politically, production was subjugated to state rule; but ecologically, the two spheres were by and large distinct - and, in the extreme case of oriental despotism, entirely alienated.
This duality was heightened by the rise of the autonomous European bourg beginning in the twelfth century. The bourg - although initially embedded in and dependent on feudalism - offered a new alternative. It fash- ioned a peace-seeking civil society of merchants, artisans and industrialists, a model that stood in sharp contrast to the violent, war-making feudal fiefdoms and states. Bourgeois production and trade, much like feudal agriculture, remained distinct from princely politics. But the bourgeoisie demanded more. It wanted its 'new economy' to be not only distinct from but also independent of princely and feudal rule.
26 Dilemmas of political economy
This original demand still echoes today. Whenever we contrast civil society with state authority, free contract with organized hierarchy, horizontal markets with vertical power, or, more broadly, economics with politics - we reproduce the early demand of the bourgeoisie: the demand for particular libertates. This quest for personal exemptions, individual immunities and specific protections from the organized violence of feudalism is the forerunner of modern liberalism and its assertion of universal liberty. 1
The first to openly challenge the alleged separation of production from power was Karl Marx. This separation, he argued, was a manifestation of bourgeois 'false consciousness'. Liberals emphasize the voluntary nature of market exchange, which makes their economics seem like the domain of freedom. But under the gloss of market exchange lies the reality of produc- tion - and in the realm of production, it is exploitation, not equality, that rules. In this way, the market merely serves to conceal the underlying power nature of capitalism.
This challenge was important but ultimately insufficient. According to Marx, capitalist power works through two mechanisms: economic exploita- tion and political oppression. The first mechanism is responsible for extracting the surplus, the second for sustaining the capitalist mode of production as a whole. The crucial point here, which we explain in the next section, is that, according to Marx, capitalist power requires that the two mechanisms be related - yet distinct. In this sense, Marx's insistence that power pervades the system does not reject but rather necessitates the liberal duality of politics and economics.
The second capitalist duality occurs within economics proper. The ancient ontological distinction between the Thing and its Idea is resurrected here in the two parallel worlds of liberal economics: the real and the nominal. The real world is the material sphere of production and consumption; the nominal world is the mirror image of prices, money and credit. Capital in this context has two faces: a real face made of capital goods and a nominal imprint called finance. The material means of production are recorded on the left-hand side of the balance sheet; the nominal symbols of debt and equity are entered on the right-hand side. The Thing on the left faces its Idea on the right.
1 It should be noted that this historical description, written in the spirit of Marx, is very much out of style - particularly when compared with the fashionable hype of postmodernity. For the typical postist, our historical view here is no more than 'Eurocentric' arrogance, a remnant of the imperial mindset and its postcolonial successor (see for example Turner 1978). Although we'll occasionally mention it, we have no intention of arguing with this fashion. There is simply no point. The postists deny the possibility of a universal logic - which pretty much eliminates the possibility of debate. And they are hostile to scientific thinking - which makes impossible if not meaningless any attempt to examine, verify or reject their slogans, narratives and battle cries (including those lifted gratis from past Marxist studies).
? The dual worlds 27
Marxian economics, although very different from its liberal counterpart, adopts a similar conceptual division. Here, too, we find the contrast between the real and the nominal - a distinction between the material base of value, where labour, production and exploitation occur; and a monetary superstruc- ture of prices and credit through which politics, ideology, the law and sheer force penetrate and reshape the accumulation process.
Let's examine these two dualities of capitalism a bit more closely, begin- ning with politics versus economics.
Politics versus economics
The liberal view
For the neoclassicists, politics lies outside the realm of capital. The insti- tutions and organizations of the state, electoral parties, the legal system, the organized use of force and international relations certainly impact capital for better or worse (mostly for the worse). But the impact is inherently external. The common language speaks of exogenous 'shocks', of political 'interven- tion' and 'interference' that 'disturb', 'distort' and 'constrain' the economic system. These external shocks may hold back the pace of capital accumu- lation or change its direction; but whatever their impact - and here we come to the critical part - they cannot alter the basic meaning of capital. According to the neoclassicists, capital is the utilitarian manifestation of multiple individual wills, expressed freely through the market and incarnated in an objective productive quantum. As a voluntary, material substance, capital itself is orthogonal - and therefore impermeable - to power politics, by defi- nition.
This view is complemented by the liberal theory of politics. According to neoclassical historiography, the logic of capital accumulation, although inherent in the human psyche, was manifested only after civil society began its revolt against feudal and state tyranny. Gradually, the flat principle of free will, the relentless mechanism of the market and the new creed of growth undermined deference to political hierarchy and the stationary economy of feudalism. In this context, it was only natural for the utilitarian calculus of capital accumulation to become the blueprint for political democracy.
In this blueprint, the ideal political system is one that intervenes the least, and the best way to guarantee minimal intervention is to make politics itself operate as a free market. That is the gist of liberalism.
The metaphors of political liberalism - like those of neoclassical economics - are clearly Newtonian (a point to which we return in Chapter 3). The various political particles - interest groups, electoral parties, coalitions, NGOs and contending state organs - all act and react on one another. Each particle tries to maximize its own utility. But because the particles are all relatively small, the political bourse remains competitive, the different
28 Dilemmas of political economy
demands tend to countervail each other, and the result converges to the least
harmful political equilibrium. 2
The Marxist perspective
Despite their mutual hostility, Marxists share with neoclassicists the view that capital is an economic magnitude. The difference is that, in contrast to the neoclassicists, Marxists deny that capital can exist independently of politics. The relations of production, they argue, are not separate from, but inter- twined with politics and the state - and have been so throughout history. The interesting question is not whether politics affects economics, but the way in which their interaction has evolved over time. And here capitalism indeed seems unique.
Capitalism, argue the Marxists, is the first social order to introduce a clear legal and ideological demarcation between public politics and state on the one hand, and private economy and market on the other. Liberal politics is based on the belief in universal equality: a society governed by the voluntary exchange of private property presupposes and implies equality before the law. By contrast, the accumulation of capital, despite its voluntary appearance, requires inequality. This necessity, argue the Marxists, is inherent in the very nature of capitalism: the means of production are owned by capitalists who
2 A typical view of politics as a free market is portrayed by Anthony Downs (1957). According to Downs, politics is a form of competition among firms (political parties) over the hearts, minds and pockets of sovereign consumers (voters). Just like in every other market, here, too, each actor seeks to maximize his or her own utility. The voters try to maximize their net political utility (or minimize their net political disutility) by choosing the optimal ratio of public services to taxes. Similarly for the politicians. Their purpose is to maximize their net political assets: more votes, more seats, more spoils.
This vision of politics as a free market is now deeply embedded in the everyday practice of liberalism. Political parties in the United States and elsewhere make extensive use of the Voter Vault, a massive collection of up to 50,000 databases packed with detailed consumer/ voter information. According to the Financial Times, this information, filtered through various algorithms, enables politicians to tailor their messages to the 'preferences' of specific groups of voters:
The technique, known as 'micro-targeting' on the right and 'modelling' on the left, is a sign of how far modern political campaigning has become a marketing exercise, with techniques that were traditionally used in broadcast advertisements applied to polit- ical communications. Nowadays political consultants tout 'turnout scores', 'clusters' and 'micro-targeted messages'. In the US, generic electoral constituencies such as 'soccer moms' and 'Reagan Democrats' are broken down into even more forensic clusters. There are different algorithms to weigh cultural differences between West and East Texas. Strategists target finer demographic slices such as 'high-income, God- respecting, terrorism-fearing Republicans' or 'white women aged 35-45 with college educations, who are Catholic or Protestant and pro-life, with median incomes over Dollars 35,000 and live in Dollars 150,000-plus homes'.
? (Financial Times October 13, 2006, p. 11)
The dual worlds 29
do not work, while labour is performed by workers who do not own. Since value is produced only by workers, capitalists can extract, appropriate and accumulate the surplus part of this value only through exploitation. And exploitation, by definition, negates equality.
This duality of political equality and economic inequality produces a destructive contradiction. Recall that, according to Marxists, capital accu- mulates in the economic-productive sphere. This is where class conflict is generated, labour exploited and surplus value expropriated. But the economic process cannot occur independently of politics. Accumulation, because it is based on exploitation, cannot be sustained at the level of the individual producer-employer alone. It requires legal, ideological and cultural institu- tions; it needs state organs and other power organizations; it has to be framed, shaped and contained from above. In short, it requires the political power of a (nation) state. In this way, the institutions and organizations of power - although unproductive in the direct economic sense - are nonetheless indis- pensable for maintaining and reproducing the economic order as a whole. At the same time, these very institutions and organizations are nourished by and depend on the surplus extracted in the economic sphere. In this sense, the economic base of exploitation can exist only under a political superstructure of oppression, and vice versa.
But that requirement makes capitalist politics inherently contradictory: liberal politics has to be equal in ideology and theory, yet unequal in practice. And since this contradiction is produced by the very nature of capitalism, the only way to resolve it is to overthrow the system altogether. Eliminating the exploitation of workers by capitalists will simultaneously eliminate the duality of politics and economics. (Marxists, of course, express both the contradiction and its resolution dialectically rather than mechanically as we have done here, and certainly with far greater finesse; but their political conclusion is essentially the same. )
Capitalism from below, capitalism from above
To sum up, then, both neoclassicists and Marxists separate politics from economics, although for different reasons. The neoclassicists see the separa- tion as desirable and, if handled properly, potentially beneficial. By contrast, Marxists view the distinction as contradictory and, in the final analysis, destructive for capitalism. Yet, both conclusions, although very different, are deeply problematic - and for much the same reason.
The difficulty lies less in the explanation of the duality and more in the widespread assumption that such a duality exists in the first place. Even E. P. Thompson, a brilliant historian who was otherwise critical of Marxist theo- retical abstractions, seems unable to escape it. Writing on the development of British capitalism from the viewpoint of industrial workers, he describes the class socialization of workers as 'subjected to an intensification of two intol- erable forms of relationship: those of economic exploitation and of political
30 Dilemmas of political economy
oppression' (1964: 198-99). In this dual world, the industrial labourer works for and is exploited by the factory owner - and when he organizes in opposi- tion, in comes the policeman who breaks his bones, the sheriff who evicts him and the judge who jails him.
Now, this bifurcation is certainly relevant and meaningful - but only up to a point. From the everyday perspective of a worker, an unemployed person, a professional, even a small capitalist, economics and politics indeed seem distinct. As noted, most people tend to think of entities such as 'factory', 'head office', 'pay cheque' and 'shopping' differently from the way they think of 'political party', 'taxation', 'police', 'military spending' and 'foreign policy'. Seen from below, the former belong to economics, the latter to politics.
But that is not at all what capitalism looks like from above. It is not how the capitalist ruling class views capitalism, and it is not the most revealing way to understand the basic concepts and broader processes of capitalism. When we consider capitalist society as a whole, the separation of politics and economics becomes a pseudofact. Contrary to both neoclassicists and Marxists who see this duality as inherent in capitalism, in our view it is a theoretical impossibility, one that is precluded by the very nature of capi- talism. To paraphrase David Bohm (1980), from this broader perspective, the politics-economics duality is not a useful division, but a misleading fragmentation. It cannot be shown to exist - and if it did exist, profit and accumulation would cease and capitalism would disappear.
The consequences of this entanglement for capital theory are dramatic. As we shall demonstrate, without an 'economy' clearly demarcated from 'poli- tics' we can no longer speak of quantifiable utility and objective labour value; and with these measures gone, neoclassical and Marxian capital theories lose their basic building blocks. They can observe that Microsoft is worth $300 billion and that Toyota pays $2 billion for a new factory, but they cannot explain why.
Real and nominal
The classical dichotomy
As noted, underneath the broad duality of politics and economics lies the further bifurcation of the economy itself. Following the so-called Classical Dichotomy, first suggested in the eighteenth century by British philosopher David Hume, neoclassicists separate economic life into 'real' and 'nominal' domains. Of the two, the real sphere is primary, the nominal secondary. The real sphere is where production and consumption take place and relative prices and distribution are determined. The nominal sphere is the domain of money and absolute prices, and it both lubricates and reflects the input- output processes of the real economy.
At the root of this duality lies an attempt to justify capitalist profit and wealth. The liberal claim - first voiced in the European city-states of the thir-
The dual worlds 31
teenth and fourteenth centuries and later formalized in John Locke's Two Treatises of Government (1690) - is that private property emerges from one's own labour. This claim makes the bourgeoisie unique: earlier dominant classes looted their wealth and therefore needed religion to sanctify it; the capitalists, by contrast, produce their wealth with their effort and hence have a natural right to own it. 3
Nominal income and assets, therefore, are derivative not of mercantilist plunder but of actual production with real capital goods, and that makes them fully justified. The productivity of the capitalist, intertwined with his existing capital goods, results in monetary earnings. These earnings in turn are ploughed back into producing more capital goods, leading to more mone- tary wealth, more capital goods, more earnings, and so on in an ever- expanding spiral. In this way, the money value of finance, measured in dollars and cents, reflects and manifests the physical capital stock created by the capitalist.
Of course, the correspondence is far from perfect. As it turns out, the ups and downs of the stock and bond markets are rather difficult to correlate with changes in the capital stock - particularly since, as we shall see in Chapter 10, the two measures tend to move in opposite directions. But this mismatch hasn't been much of a concern. Liberals have solved it by putting into work an army of 'distortionists' - theorists, strategists and analysts who pry on 'insti- tutional imperfections' and 'exogenous shocks'. The theory, argue the distor- tionists, is perfectly fine. The problem is with the extra-economic forces - the shocks that constantly besiege the otherwise pure economic system, contami- nate its real and nominal spheres and fracture their pristine correspondence. Once you account for these distortions, it becomes clear why finance is always dependent on - yet forever delinked from - its true material essence.
The Marxist mismatch
Although the Marxist logic on this subject is radically different, its conclu- sions are surprisingly similar. Contrary to the liberals, Marx sought to annul the bourgeois justification for profit. He agreed that value is created in the material sphere - but instead of multiple factors of production, he insisted that there is only one: labour. The value of all commodities - including that of capital goods - is determined by productive labour alone.
3 Perhaps the first to explicitly associate income with productivity were the university profes- sors. Knowledge (scientia) was the gift of God and therefore could not be sold, but the new urban intellectuals found a better leverage: the notion that all work deserves a salary. 'We find it irrational that the worker not profit from his work', argued the doctors of law in thir- teenth-century Padua, and then went on to conclude that 'the master may accept the money of students - the collecta - as the price of his work, of his trouble' (quoted in Le Goff 1993: 94-95).
? 32 Dilemmas of political economy
In this scheme, not all capitals are created equal. The so-called industrial capitalist, the employer of productive labour, does possess real capital. But the commercial and financial capitalists - insofar they employ only unpro- ductive labour and therefore produce neither value nor surplus value - do not own real capital.
Unlike liberals, Marxists do not try to justify profit. On the contrary, their entire effort aims at showing that capitalists can accumulate only by exploiting workers. And yet, since their notion of capital, just like the neoclas- sical one, is anchored in the 'economy', they end up falling into the same materialistic traps. These traps are crucial - so crucial, in fact, that they
Why write a book about capital? 13
undermine Marx's entire theory of accumulation. And since most people who are otherwise sympathetic to Marx's critique of capitalism are unaware of these difficulties, we devote two full chapters - 6 and 7 - to their examination.
The commodified structure of capitalism, Marx argues, is anchored in the labour process: the accumulation of capital is denominated in prices; prices reflect labour values; and labour values are determined by the productive labour time necessary to make the commodities. This sequence is intuitively appealing and politically motivating, but it runs into logical and empirical impossibilities at every step of the way. First, it is impossible to differentiate productive from unproductive labour. Second, even if we knew what produc- tive labour was, there would still be no way of knowing how much productive labour goes into a given commodity, and therefore no way of knowing the labour value of that commodity and the amount of surplus value it embodies. And finally, even if labour values were known, there would be no consistent way to convert them into prices and surplus value into profit. So, in the end, Marxism cannot explain the prices of commodities - not in detail and not even approximately. And without a theory of prices, there can be no theory of profit and accumulation and therefore no theory of capitalism.
And that isn't the end of the story. Chapter 8 shows that political econo- mists are having trouble explaining not only how and why capital accu- mulates, but also what accumulates. As noted earlier in the introduction, neoclassicists pretend to count capital in 'utils' and Marxists in hours of 'abstract labour'. Unfortunately, though, there can be no 'economy' distinct from politics and other aspects of society; and even if the 'economy' were an independent sphere, its production and consumption could not be 'objectively' given. These two impossibilities turn the search for universal material-economic units into an exercise in futility.
Part III: capitalization
That capital theorists remain so hooked on production and consumption is all the more perplexing given that capitalists themselves are not. Whereas political economists are focused on capital goods, capitalists think of capital- ization. The theorists, both mainstream and critical, are nonchalant about this difference. Capitalization, they say, is merely a 'nominal' reflection - sometimes accurate, other times distorted - of the 'real' economy. Capitalists certainly care about their money assets, but the only way to understand the accumulation of such assets is by theorizing their material underpinnings.
Well, it turns out that this isn't really the case. Chapter 9 begins our explo- ration of capitalization, tracing its evolution from its modest beginning in the fourteenth century to its world dominance in the twenty-first. It shows that capitalization not only predates 'industrialization' by a few hundred years, but also that it is far more encompassing than is typically assumed - so encompassing, in fact, that in our own day and age it has penetrated every
14 Why write a book about capital?
corner of society and absorbed many of its power processes. Production, narrowly defined, has become merely one of the many faces of capitalization.
But if production is only one aspect of capitalization, how can it serve to explain it? The answer is that it doesn't. Chapter 10 contrasts the 'nominal' process of capitalization with the so-called 'real' augmentation of capital goods. It demonstrates that the money value of 'capital goods' is a very small fraction of the overall value of capitalization, and that their ratio varies widely over time. But most disturbingly, it shows that the rates of growth of the two magnitudes move in opposite directions: when the growth of the 'capital stock' accelerates, the growth of capitalization decelerates and vice versa!
Faced with these facts of life, particularly the last one, the theorists must make a choice: stick with the so-called 'real economy' and treat capitalization as a distorted mirror if not a mere fiction; or stay focused on what drives the capitalists and try to develop a social theory of capitalization that transcends the fetish of material production and capital goods. Most political economists have taken the first route. We choose the second.
Chapter 11 unzips the capitalization process. We identify the different 'elementary particles' that make up the capitalization formula, examine their actual and ideological histories, dissect their properties and study their inter- relations. This analysis provides a broad framework on which we can build an alternative theory of capital as power.
Lineages
Before outlining this theory, though, a few words about origins and influ- ences. Although critical of Karl Marx's theory of value, we are deeply influenced by his general approach, primarily his notion of capitalism as the political regime of capital. In the twentieth century, Marx's followers have modified and adapted his insights to the changing nature of capitalism, and debating their theories has helped us shape our own.
In addition to Marx and his followers, we draw on the largely neglected if not forgotten writings of Thorstein Veblen, Lewis Mumford and Michal Kalecki. Veblen was perhaps the first thinker to seriously consider absentee ownership, finance and credit as the central power mechanisms of capitalism. He was also the first to ponder the implications of power - or 'sabotage', as he called it - for the concept of capital.
Mumford, who was a student and colleague of Veblen, provided a unique history of technology as power. The first machines, he argued, were social rather than material. They made their initial appearance in the ancient delta civilizations in the form of a mechanized social order - the mega-machine. According to Mumford, the social mega-machine provided the model for all subsequent material and social mechanization - a claim with far-reaching consequences for the study of capitalism.
Kalecki, one of the founders of neo-Marxian economics, developed novel
Why write a book about capital? 15
research methods, both theoretical and empirical. Of these, perhaps the most innovative is the notion of the 'degree of monopoly': the idea that the distri- bution of income is not merely the consequence of economic power, but its very definition.
Taken together, these views - particularly Marx's emphasis on the political regime of capital, Veblen's linking of financial capitalization and industrial sabotage, Mumford's notion of social organization as a power machine and Kalecki's distributive measurement of power - constitute our starting point. We use them, critically if we can, as stepping stones for our own theory of capital.
However, these influences do not make us members of any 'school'. Although we have been inspired by Veblen, we consider ourselves neither Veblenians nor institutionalists. Similarly with Marx. Our critique of his schema - particularly his labour theory of value and his notion of surplus value - 'disqualifies' us from being Marxist. That said, though, the general thrust of our project is very much in line with Marx's. Like Marx, we too try to confront the concrete capitalist reality; to examine its actual gyrations, ideologies and justifications; and, above all, to decipher its central architec- ture: the accumulation of capital. In our opinion - again in line with Marx's - investigating the capitalist reality is the first prerequisite for changing it.
Needless to say, this type of analysis is antithetical - in method, spirit and aim - to the institutionalism and system approach of Max Weber and Talcott Parsons. It also has nothing to do with the so-called 'new institutionalism' of Ronald Coase, Douglas North and Oliver Williamson. The latter school subjugates the logic of organizations and institutions to the marginal calculus of neoclassical utility. The very idea would have made Veblen flip in his grave.
Part IV: bringing power back in
Chapter 12 begins our examination of power with a focus on capital and the corporation. The starting point is Veblen. His theoretical framework, articu- lated at the turn of the twentieth century, was radically different from the orthodoxy of his time (and of our own time still). 'Industry' and 'business', he argued, are not synonyms, contrary to what conventional political economy would have us believe. On the contrary, they are opposing realms of human activity: industry is the sphere of material production, while business is the domain of pecuniary distribution, and the link between them is not positive but negative.
Industry is a collective endeavour. Its success hinges on societal creativity, cooperation, integration and synchronization. In capitalism, however, industry is carried out not for its own sake but for the purpose of business. And the goal of business isn't collective well being, but pecuniary profit for differential gain.
Now the critical bit here is that industry and business are inherently
16 Why write a book about capital?
distinct. Modern capitalists are removed from production: they are absentee owners. Their ownership, says Veblen, doesn't contribute to industry; it merely controls it for profitable ends. And since the owners are absent from industry, the only way for them to exact their profit is by 'sabotaging' industry. From this viewpoint, the accumulation of capital is the manifesta- tion not of productive contribution but of organized power.
To be sure, the process by which capitalists 'translate' qualitatively different power processes into quantitatively unified measures of earnings and capitalization isn't very 'objective'. Filtered through the conventional assessments of accountants and the future speculations of investors, the conversion is deeply inter-subjective. But it is also very real, extremely imposing and, as we shall see, surprisingly well-defined.
These insights can be extended into a broader metaphor of a 'social holo- gram': a framework that integrates the resonating productive interactions of industry with the dissonant power limitations of business. These hologramic spectacles allow us to theorize the power underpinnings of accumulation, explore their historical evolution and understand the ways in which various forms of power are imprinted on and instituted in the corporation.
Our inquiry paints a picture that is very different from - and often inverts - the canonical images of political economy. It shows that business enterprise diverts and limits industry instead of boosting it; that 'business as usual' needs and implies strategic limitation; that most firms are not passive price takers but active price makers, and that their autonomy makes 'pure' economics indeterminate;9 that the 'normal rate of return', just like the ancient rate of interest, is a manifestation not of productive yield but of organized power; that the corporation emerged not to enhance productivity but to contain it; that equity and debt have little to do with material wealth and everything to do with systemic power; and, finally, that there is little point talking about the deviations and distortions of 'financial capital' simply because there is no 'productive capital' to deviate from and distort.
Now, the notion that power is the means of accumulation is only half the story; the other half is that power is also the ultimate end of accumulation. Chapter 13 broadens this notion by offering to think of capitalism not as mode of production, but as a mode of power. The argument proceeds in two steps. First, we rewind the story back to the ancient power civilizations, where, according to Lewis Mumford, the first large-scale machines had been assembled. As noted, these mega-machines were not physical contraptions; they were social structures. And their goal, says Mumford, wasn't production but the very exertion of power.
The same view, we argue, applies to capital. Political economists are not entirely wrong to see capital as a 'machine'. But this machine isn't material
9 The term 'autonomy' here should not be interpreted literally. As we shall see, 'price makers' are just as subservient to the logic of accumulation as 'price takers' are, and they too tend to move in herds - only that the path they trot tends to upset the expectations of economists.
? Why write a book about capital? 17
but social: it is a modern mega-machine. Ultimately, capitalists are driven not to produce things but to control people, and their capitalist mega-machine exerts this power with an efficiency, flexibility and force that ancient rulers could not even fathom.
The capitalist mega-machine defines the capitalist mode of power; and a mode of power, we argue, constitutes the 'state' of society. The second part of Chapter 13 historicizes this proposition. It begins with the feudal mode of power from which capitalism emerged; it traces the process by which the feudal mode of power gave way to a capitalist mode of power; and it exam- ines how the logic of capital has gradually penetrated, altered and eventually become the state - the state of capital.
This state is not an 'actor' that stands against or with capital. Nor is it an eternal Newtonian space that simply 'contains' different actors at different times. As we see it, the state of capital is a historically constituted Leibnitzian space, an ever-changing structure of power defined and shaped by the concrete entities and relationships that comprise it.
Part V: accumulation of power
Social power is commonly sanctified by the heteronomous dictates of God or Nature. These pronouncements of power, coming from 'outside' society, seem inevitable, and the tangible symbols in which they are expressed - temple, palace, army, slaves and material wealth - make them look absolute. But social power is autonomous, not heteronomous. It comes from within society, not from without. And for that reason, behind the absolute symbols of power there is always a deeper, relative reality. 10
In the final analysis, power is confidence in obedience. It expresses the certainty of the rulers in the submissiveness of the ruled. When this confi- dence is high, the rulers actively shape their society. They view its trajectory as customary and natural, while treating revolts, uprisings - even revolutions - as mere disturbances. By contrast, when this confidence is low, the rulers tend to react rather than initiate. Social development loses its coherence, while revolts, uprising and revolutions suddenly become manifestations of systemic chaos.
In our own epoch, the central relationship between confidence and obedi- ence is embodied in capital. The process of accumulation represents the changing ability of dominant capital - namely, the leading corporations and key government organs at the epicentre of the process - to control, shape and transform society against opposition. The conflictual underpinnings of this process make capital a relative entity; and that relativity means that we need
10 The difference between heteronomy and autonomy is developed in the social and philo- sophical writings of Cornelius Castoriadis - see, for instance, his Philosophy, Politics, Autonomy (1991b).
? 18 Why write a book about capital?
to think not of absolute accumulation but of differential accumulation - the ability of dominant capital to accumulate faster than the average.
The fifth section of the book builds on the twin notions of differential accumulation and dominant capital to develop a concrete theory of capital as power. We begin by defining historical society as a creation of order, or creorder - a word that connotes the paradoxical fusion of being and becoming, state and process, stasis and dynamism. The algorithm of the capitalist creorder is capitalization. This is the mechanism through which capitalist power is commodified, structured and restructured. The static architecture of this power is defined by differential capitalization. At any point in time, the distribution of capitalized values maps the division of power among the different owners. But the capitalist creorder compels owners not only to retain their power, but to try and augment it; not only to protect their differential capitalization, but to increase it through differential accu- mulation.
The result is a strong gravitational force. This force - anchored in power rather than productivity - pulls the independent units of capital closer together. It causes them to join, coalesce and fuse into ever larger units. Eventually, it gives rise to tight constellations of large corporate-government alliances. These constellations constitute what we call dominant capital.
Chapter 14 examines the general contours of this process in the United States and comes up with seemingly paradoxical results. Most critical observers associate the past half-century with a protracted accumulation crisis. And yet, during that very period, dominant capital appears to have enjoyed virtually uninterrupted differential accumulation. How can this stellar performance be reconciled with notions of capital in distress? What are the underlying power processes that make differential accumulation feasible in the first place? How have these conflictual processes panned out historically to generate such a remarkable feat? And why haven't political economists noticed any of this?
To answer these questions, we develop the notion of differential accumu- lation regimes. Dominant capital can increase its differential earnings and capitalization in two principal ways: (1) by increasing the relative size of its organization, which we call breadth; and (2) by increasing the relative elemental power of its organization, which we label depth. Chapters 15 to 17 examine the salient features of these power regimes and in the process deflate some of the more cherished beliefs of political economists.
One of these beliefs is that capitalism is hooked on economic growth. This conviction is shared by liberals and Marxists alike, and it is so strong that many now conflate growth and accumulation as if they were one and the same. But they are not the same, and Chapter 15 shows why. From the view- point of dominant capital, green-field growth is a double-edged sword. It can both undermine and augment the power of dominant capital - and in so doing hinder as well as assist differential accumulation. But green-field isn't the only route. Dominant capital can also grow 'inorganically', via mergers
Why write a book about capital? 19
and acquisitions. And unlike green-field growth, the impact of amalgamation is decidedly positive: it boosts the organizational size and power of dominant capital, it augments its differential accumulation and it does both with enor- mous thrust.
This power rationale explains why, over the past century, mergers and acquisitions have grown exponentially while green-field growth has deceler- ated. Moreover, since amalgamation is a change in ownership and therefore a transformation of power, the merger process tells us plenty about the changing nature of capitalist politics at large. It explains the sequential breaking of sectoral envelopes, as dominant capital transcends its original corporate universe seeking to expand into bigger universes; it accounts for the social transformation that accompanies these leaps; and it unveils the conflictual underpinnings of capital flows and the power politics of global ownership.
A second cardinal belief among political economists is that capital loves price stability and hates inflation. Yet this conviction, too, doesn't stand up to the facts. Chapter 16 shows that although capitalists constantly try to cut their costs, this endeavour merely keeps them running on empty. The way to beat the average is not to cut cost but to increase prices. Those who inflate their prices faster than the average end up redistributing income in their favour - and in so doing augment the elemental power of their organization and boost their differential accumulation.
The inflationary path to differential accumulation is highly conflictual and therefore anything but smooth. And, sure enough, contrary to the theories and instincts of most economists, inflation tends to appear as stagflation: it comes not with growth and stability, but with stagnation and crisis. This fact makes the depth route uncertain and seemingly far more risky than breadth. Yet return is often commensurate with the risk, and when dominant capital finds itself gravitating toward conflictual inflation, the common result is accumulation through crisis.
And so emerges a very different reality of accumulation. Whereas liberals and Marxists emphasize the capitalist quest for growth and price stability, dominant capital seems to thrive on amalgamation and stagflation. Chapter 17 ties the final knots by bringing together these two key regimes of differen- tial accumulation. It relates the long histories of breadth by amalgamation and depth through stagflation; it examines how these regimes shaped the twentieth century of capital as power; and it closes by speculating on what their relationship may imply for the future.
The capitalist creorder and humane society
We are now ready to start our exploration, but before doing so we should perhaps say a few words on the limits of our journey. The study of capital as power does not, and cannot, provide a general theory of society. Capital- ization is the language of dominant capital. It embodies the beliefs, desires and fears of the ruling capitalist class. It tells us how this group views the
20 Why write a book about capital?
world, how it imposes its will on society, how it tries to mechanize human beings. It is the architecture of capitalist power.
This architecture, though, tells us very little about the human beings who are subjected to its power. Of course, we observe their 'behaviour', their 'reac- tion' to capitalist threats, their 'choice' of capitalist temptations. Yet we know close to nothing about their consciousness, awareness, thoughts, intentions, imagination and aspirations. To paraphrase Cornelius Castoriadis, humanity is like a 'magma' to us, a smooth surface that moves and shifts. 11 Most of the time its movements are fairly predictable. But under the surface lurk autonomous qualities and energies. The language of capitalist power can neither describe nor comprehend these qualities and energies. It knows nothing about their magnitude and potential. It can never anticipate when and how they will erupt.
Consider that none of the pundits - communist or anti-communist - foresaw the collapse of the Soviet bloc (although, in retrospect, the victory of liberalism was of course 'inevitable'). Similarly with the May 1968 revolution in France. This was arguably the most important revolution of the twentieth century. And yet, even a few days before its explosion, no sociologist - conservative or radical - had a clue as to what was coming (Anonymous 1968; Orr 2003). The story repeats itself with the first Palestinian Intifada that started in 1987. The uprising took everyone by surprise, including the critical 'orientalists' and the orthodox PLO establishment. The list goes on.
These revolutionary instances cannot be theorized easily, and for a good reason. They are rooted in the original spark of free human creativity. '[M]en cannot be treated as units in operations of political arithmetic', observes Arthur Koestler, 'because they behave like the symbols of zero and the infi- nite, which dislocate all mathematical operations' (1949: 76). Their originality and creativity cannot be modelled or reduced to historical laws of motion. They cannot be predicted systematically. They do not follow a clear pattern. They are unique.
Karl Marx, the first to investigate the dynamic architecture of capitalism, tried to fuse the two movements of power and resistance to power into a single language. For him, the power of capitalists to accumulate and the polit- ical struggle of workers against that power could both be derived from and analysed by one basic logic: the labour theory of value.
In our view, this fusion is impossible to achieve. It is impossible to impose the logic of labour (and of human activity in general) on capitalists. We can- not denominate the pecuniary architecture of capitalization in homogenous units of abstract labour. Capitalization and productivity/creativity are two distinct processes, each with its own separate 'logic'. The destructive clash of these two processes is the engine of the capitalist dialectic, but the dialectic itself cannot be understood with one common language.
11 Castoriadis develops the ontology of the magmas in Chapter 7 of The Imaginary Institution of Society (1987).
? Why write a book about capital? 21
Instead, we prefer to imagine two general 'entities'. The first entity is the capitalist creorder, whose pattern is imposed on society. The gyrations and development of this creorder can be subjected to a systematic, quantitative theory of power. The second entity is a stealthy humane society. This society exists mostly as an unknown potential. Usually, it is dormant and therefore invisible. Occasionally, though, it erupts, often without warning, to challenge and sometimes threaten the institutions of capitalist power. These eruptions - and their consequences - do not follow a pre-set pattern. They cannot be systematically theorized.
For this reason, we do not pretend to offer a general theory of capitalist society. We limit ourselves to the study of the capitalist creorder only, the dynamic order of those who rule. To rule means to see the world from a singular viewpoint, to be locked into a unitary logic, to be subservient to your own architecture of power. Dominant capital cannot deviate from the bound- aries of this architecture, even if it wants to. Its individual members are forced to accept the very logic they impose on the rest of humanity. And the more effective they are in imposing that logic, the more predictable they themselves become. This is why their world can be theorized and to some extent predicted.
Over the past century, the power logic of capitalism has been incarnated in the process of differential capitalization; that is to say, in the belief that there is a 'normal rate of return' and that capitalists are obliged to 'beat' it. This is the gist of the new capitalist cosmology. Instead of the Holy Scriptures, we now have the universal language of business accounting and corporate finance. The power of God, once vested in priest and king, now reveals itself as the power of Capital vested in the 'investor'.
And as the capitalization of power spreads and penetrates, the world seems increasingly 'deterministic'. The determinism of capitalization is now the 'natural state of things', the benchmark against which one can estimate 'devi- ations' 'distortions', 'risk' and 'return'. It is a logic that looks unquestionable to those who rule and omnipotent to those who are being ruled.
But this determinism of capitalization has nothing to do with 'laws of nature', or the 'inevitable' progression of history. It is the determinism of the ruling class, and only of the ruling class. It works only insofar as the ruling class rules. Admittedly, that happens most of the time. However, human beings do have the capacity to understand the autonomous nature of this 'determinism'. And when they realize that the rules are imposed on them by other human beings, determinism disappears, replaced - if only for a histor- ical instant - by the humane promise of autonomy-democracy-philosophy.
Part I
Dilemmas of political economy
2 The dual worlds
He was so eager to know what was going on in heaven, that he could not see what was before his feet.
--Socrates on Thales, Plato's Theaetetus
The bifurcations
Capitalism is characterized by several related antinomies and contrasts, basic dualities that resemble the ancient paradoxes of Hellenic philosophy. Of these dualities, the most important are the distinction between politics and economics and the separation of the real from the nominal.
The first duality - the bifurcation of politics and economics - is hardly new. Pre-capitalist history was marked, almost invariably, by a socio- ecological reality that separated political rulers from their producing subjects. The concepts of course were markedly different. There was no such thing as 'the economy', and the notion of 'politics', although dating back to ancient Athens, had little meaning in an authoritarian context. But terminology aside, there was a fairly clear separation between social rule and material provision. The common pattern of power consisted of state or quasi-state entities using organized military force to control dispersed agricultural culti- vators. Politically, production was subjugated to state rule; but ecologically, the two spheres were by and large distinct - and, in the extreme case of oriental despotism, entirely alienated.
This duality was heightened by the rise of the autonomous European bourg beginning in the twelfth century. The bourg - although initially embedded in and dependent on feudalism - offered a new alternative. It fash- ioned a peace-seeking civil society of merchants, artisans and industrialists, a model that stood in sharp contrast to the violent, war-making feudal fiefdoms and states. Bourgeois production and trade, much like feudal agriculture, remained distinct from princely politics. But the bourgeoisie demanded more. It wanted its 'new economy' to be not only distinct from but also independent of princely and feudal rule.
26 Dilemmas of political economy
This original demand still echoes today. Whenever we contrast civil society with state authority, free contract with organized hierarchy, horizontal markets with vertical power, or, more broadly, economics with politics - we reproduce the early demand of the bourgeoisie: the demand for particular libertates. This quest for personal exemptions, individual immunities and specific protections from the organized violence of feudalism is the forerunner of modern liberalism and its assertion of universal liberty. 1
The first to openly challenge the alleged separation of production from power was Karl Marx. This separation, he argued, was a manifestation of bourgeois 'false consciousness'. Liberals emphasize the voluntary nature of market exchange, which makes their economics seem like the domain of freedom. But under the gloss of market exchange lies the reality of produc- tion - and in the realm of production, it is exploitation, not equality, that rules. In this way, the market merely serves to conceal the underlying power nature of capitalism.
This challenge was important but ultimately insufficient. According to Marx, capitalist power works through two mechanisms: economic exploita- tion and political oppression. The first mechanism is responsible for extracting the surplus, the second for sustaining the capitalist mode of production as a whole. The crucial point here, which we explain in the next section, is that, according to Marx, capitalist power requires that the two mechanisms be related - yet distinct. In this sense, Marx's insistence that power pervades the system does not reject but rather necessitates the liberal duality of politics and economics.
The second capitalist duality occurs within economics proper. The ancient ontological distinction between the Thing and its Idea is resurrected here in the two parallel worlds of liberal economics: the real and the nominal. The real world is the material sphere of production and consumption; the nominal world is the mirror image of prices, money and credit. Capital in this context has two faces: a real face made of capital goods and a nominal imprint called finance. The material means of production are recorded on the left-hand side of the balance sheet; the nominal symbols of debt and equity are entered on the right-hand side. The Thing on the left faces its Idea on the right.
1 It should be noted that this historical description, written in the spirit of Marx, is very much out of style - particularly when compared with the fashionable hype of postmodernity. For the typical postist, our historical view here is no more than 'Eurocentric' arrogance, a remnant of the imperial mindset and its postcolonial successor (see for example Turner 1978). Although we'll occasionally mention it, we have no intention of arguing with this fashion. There is simply no point. The postists deny the possibility of a universal logic - which pretty much eliminates the possibility of debate. And they are hostile to scientific thinking - which makes impossible if not meaningless any attempt to examine, verify or reject their slogans, narratives and battle cries (including those lifted gratis from past Marxist studies).
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Marxian economics, although very different from its liberal counterpart, adopts a similar conceptual division. Here, too, we find the contrast between the real and the nominal - a distinction between the material base of value, where labour, production and exploitation occur; and a monetary superstruc- ture of prices and credit through which politics, ideology, the law and sheer force penetrate and reshape the accumulation process.
Let's examine these two dualities of capitalism a bit more closely, begin- ning with politics versus economics.
Politics versus economics
The liberal view
For the neoclassicists, politics lies outside the realm of capital. The insti- tutions and organizations of the state, electoral parties, the legal system, the organized use of force and international relations certainly impact capital for better or worse (mostly for the worse). But the impact is inherently external. The common language speaks of exogenous 'shocks', of political 'interven- tion' and 'interference' that 'disturb', 'distort' and 'constrain' the economic system. These external shocks may hold back the pace of capital accumu- lation or change its direction; but whatever their impact - and here we come to the critical part - they cannot alter the basic meaning of capital. According to the neoclassicists, capital is the utilitarian manifestation of multiple individual wills, expressed freely through the market and incarnated in an objective productive quantum. As a voluntary, material substance, capital itself is orthogonal - and therefore impermeable - to power politics, by defi- nition.
This view is complemented by the liberal theory of politics. According to neoclassical historiography, the logic of capital accumulation, although inherent in the human psyche, was manifested only after civil society began its revolt against feudal and state tyranny. Gradually, the flat principle of free will, the relentless mechanism of the market and the new creed of growth undermined deference to political hierarchy and the stationary economy of feudalism. In this context, it was only natural for the utilitarian calculus of capital accumulation to become the blueprint for political democracy.
In this blueprint, the ideal political system is one that intervenes the least, and the best way to guarantee minimal intervention is to make politics itself operate as a free market. That is the gist of liberalism.
The metaphors of political liberalism - like those of neoclassical economics - are clearly Newtonian (a point to which we return in Chapter 3). The various political particles - interest groups, electoral parties, coalitions, NGOs and contending state organs - all act and react on one another. Each particle tries to maximize its own utility. But because the particles are all relatively small, the political bourse remains competitive, the different
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demands tend to countervail each other, and the result converges to the least
harmful political equilibrium. 2
The Marxist perspective
Despite their mutual hostility, Marxists share with neoclassicists the view that capital is an economic magnitude. The difference is that, in contrast to the neoclassicists, Marxists deny that capital can exist independently of politics. The relations of production, they argue, are not separate from, but inter- twined with politics and the state - and have been so throughout history. The interesting question is not whether politics affects economics, but the way in which their interaction has evolved over time. And here capitalism indeed seems unique.
Capitalism, argue the Marxists, is the first social order to introduce a clear legal and ideological demarcation between public politics and state on the one hand, and private economy and market on the other. Liberal politics is based on the belief in universal equality: a society governed by the voluntary exchange of private property presupposes and implies equality before the law. By contrast, the accumulation of capital, despite its voluntary appearance, requires inequality. This necessity, argue the Marxists, is inherent in the very nature of capitalism: the means of production are owned by capitalists who
2 A typical view of politics as a free market is portrayed by Anthony Downs (1957). According to Downs, politics is a form of competition among firms (political parties) over the hearts, minds and pockets of sovereign consumers (voters). Just like in every other market, here, too, each actor seeks to maximize his or her own utility. The voters try to maximize their net political utility (or minimize their net political disutility) by choosing the optimal ratio of public services to taxes. Similarly for the politicians. Their purpose is to maximize their net political assets: more votes, more seats, more spoils.
This vision of politics as a free market is now deeply embedded in the everyday practice of liberalism. Political parties in the United States and elsewhere make extensive use of the Voter Vault, a massive collection of up to 50,000 databases packed with detailed consumer/ voter information. According to the Financial Times, this information, filtered through various algorithms, enables politicians to tailor their messages to the 'preferences' of specific groups of voters:
The technique, known as 'micro-targeting' on the right and 'modelling' on the left, is a sign of how far modern political campaigning has become a marketing exercise, with techniques that were traditionally used in broadcast advertisements applied to polit- ical communications. Nowadays political consultants tout 'turnout scores', 'clusters' and 'micro-targeted messages'. In the US, generic electoral constituencies such as 'soccer moms' and 'Reagan Democrats' are broken down into even more forensic clusters. There are different algorithms to weigh cultural differences between West and East Texas. Strategists target finer demographic slices such as 'high-income, God- respecting, terrorism-fearing Republicans' or 'white women aged 35-45 with college educations, who are Catholic or Protestant and pro-life, with median incomes over Dollars 35,000 and live in Dollars 150,000-plus homes'.
? (Financial Times October 13, 2006, p. 11)
The dual worlds 29
do not work, while labour is performed by workers who do not own. Since value is produced only by workers, capitalists can extract, appropriate and accumulate the surplus part of this value only through exploitation. And exploitation, by definition, negates equality.
This duality of political equality and economic inequality produces a destructive contradiction. Recall that, according to Marxists, capital accu- mulates in the economic-productive sphere. This is where class conflict is generated, labour exploited and surplus value expropriated. But the economic process cannot occur independently of politics. Accumulation, because it is based on exploitation, cannot be sustained at the level of the individual producer-employer alone. It requires legal, ideological and cultural institu- tions; it needs state organs and other power organizations; it has to be framed, shaped and contained from above. In short, it requires the political power of a (nation) state. In this way, the institutions and organizations of power - although unproductive in the direct economic sense - are nonetheless indis- pensable for maintaining and reproducing the economic order as a whole. At the same time, these very institutions and organizations are nourished by and depend on the surplus extracted in the economic sphere. In this sense, the economic base of exploitation can exist only under a political superstructure of oppression, and vice versa.
But that requirement makes capitalist politics inherently contradictory: liberal politics has to be equal in ideology and theory, yet unequal in practice. And since this contradiction is produced by the very nature of capitalism, the only way to resolve it is to overthrow the system altogether. Eliminating the exploitation of workers by capitalists will simultaneously eliminate the duality of politics and economics. (Marxists, of course, express both the contradiction and its resolution dialectically rather than mechanically as we have done here, and certainly with far greater finesse; but their political conclusion is essentially the same. )
Capitalism from below, capitalism from above
To sum up, then, both neoclassicists and Marxists separate politics from economics, although for different reasons. The neoclassicists see the separa- tion as desirable and, if handled properly, potentially beneficial. By contrast, Marxists view the distinction as contradictory and, in the final analysis, destructive for capitalism. Yet, both conclusions, although very different, are deeply problematic - and for much the same reason.
The difficulty lies less in the explanation of the duality and more in the widespread assumption that such a duality exists in the first place. Even E. P. Thompson, a brilliant historian who was otherwise critical of Marxist theo- retical abstractions, seems unable to escape it. Writing on the development of British capitalism from the viewpoint of industrial workers, he describes the class socialization of workers as 'subjected to an intensification of two intol- erable forms of relationship: those of economic exploitation and of political
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oppression' (1964: 198-99). In this dual world, the industrial labourer works for and is exploited by the factory owner - and when he organizes in opposi- tion, in comes the policeman who breaks his bones, the sheriff who evicts him and the judge who jails him.
Now, this bifurcation is certainly relevant and meaningful - but only up to a point. From the everyday perspective of a worker, an unemployed person, a professional, even a small capitalist, economics and politics indeed seem distinct. As noted, most people tend to think of entities such as 'factory', 'head office', 'pay cheque' and 'shopping' differently from the way they think of 'political party', 'taxation', 'police', 'military spending' and 'foreign policy'. Seen from below, the former belong to economics, the latter to politics.
But that is not at all what capitalism looks like from above. It is not how the capitalist ruling class views capitalism, and it is not the most revealing way to understand the basic concepts and broader processes of capitalism. When we consider capitalist society as a whole, the separation of politics and economics becomes a pseudofact. Contrary to both neoclassicists and Marxists who see this duality as inherent in capitalism, in our view it is a theoretical impossibility, one that is precluded by the very nature of capi- talism. To paraphrase David Bohm (1980), from this broader perspective, the politics-economics duality is not a useful division, but a misleading fragmentation. It cannot be shown to exist - and if it did exist, profit and accumulation would cease and capitalism would disappear.
The consequences of this entanglement for capital theory are dramatic. As we shall demonstrate, without an 'economy' clearly demarcated from 'poli- tics' we can no longer speak of quantifiable utility and objective labour value; and with these measures gone, neoclassical and Marxian capital theories lose their basic building blocks. They can observe that Microsoft is worth $300 billion and that Toyota pays $2 billion for a new factory, but they cannot explain why.
Real and nominal
The classical dichotomy
As noted, underneath the broad duality of politics and economics lies the further bifurcation of the economy itself. Following the so-called Classical Dichotomy, first suggested in the eighteenth century by British philosopher David Hume, neoclassicists separate economic life into 'real' and 'nominal' domains. Of the two, the real sphere is primary, the nominal secondary. The real sphere is where production and consumption take place and relative prices and distribution are determined. The nominal sphere is the domain of money and absolute prices, and it both lubricates and reflects the input- output processes of the real economy.
At the root of this duality lies an attempt to justify capitalist profit and wealth. The liberal claim - first voiced in the European city-states of the thir-
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teenth and fourteenth centuries and later formalized in John Locke's Two Treatises of Government (1690) - is that private property emerges from one's own labour. This claim makes the bourgeoisie unique: earlier dominant classes looted their wealth and therefore needed religion to sanctify it; the capitalists, by contrast, produce their wealth with their effort and hence have a natural right to own it. 3
Nominal income and assets, therefore, are derivative not of mercantilist plunder but of actual production with real capital goods, and that makes them fully justified. The productivity of the capitalist, intertwined with his existing capital goods, results in monetary earnings. These earnings in turn are ploughed back into producing more capital goods, leading to more mone- tary wealth, more capital goods, more earnings, and so on in an ever- expanding spiral. In this way, the money value of finance, measured in dollars and cents, reflects and manifests the physical capital stock created by the capitalist.
Of course, the correspondence is far from perfect. As it turns out, the ups and downs of the stock and bond markets are rather difficult to correlate with changes in the capital stock - particularly since, as we shall see in Chapter 10, the two measures tend to move in opposite directions. But this mismatch hasn't been much of a concern. Liberals have solved it by putting into work an army of 'distortionists' - theorists, strategists and analysts who pry on 'insti- tutional imperfections' and 'exogenous shocks'. The theory, argue the distor- tionists, is perfectly fine. The problem is with the extra-economic forces - the shocks that constantly besiege the otherwise pure economic system, contami- nate its real and nominal spheres and fracture their pristine correspondence. Once you account for these distortions, it becomes clear why finance is always dependent on - yet forever delinked from - its true material essence.
The Marxist mismatch
Although the Marxist logic on this subject is radically different, its conclu- sions are surprisingly similar. Contrary to the liberals, Marx sought to annul the bourgeois justification for profit. He agreed that value is created in the material sphere - but instead of multiple factors of production, he insisted that there is only one: labour. The value of all commodities - including that of capital goods - is determined by productive labour alone.
3 Perhaps the first to explicitly associate income with productivity were the university profes- sors. Knowledge (scientia) was the gift of God and therefore could not be sold, but the new urban intellectuals found a better leverage: the notion that all work deserves a salary. 'We find it irrational that the worker not profit from his work', argued the doctors of law in thir- teenth-century Padua, and then went on to conclude that 'the master may accept the money of students - the collecta - as the price of his work, of his trouble' (quoted in Le Goff 1993: 94-95).
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In this scheme, not all capitals are created equal. The so-called industrial capitalist, the employer of productive labour, does possess real capital. But the commercial and financial capitalists - insofar they employ only unpro- ductive labour and therefore produce neither value nor surplus value - do not own real capital.
