What would it take to compute how much of this quantum is
embedded
in commodities?
Nitzan Bichler - 2012 - Capital as Power
, we would now use Equation (6):
6. Qt = N1t * $40 mn + N2t * $40 mn
The results of this computation, again normalized to Q1970 = 100, are plotted by the thick line in the upper portion of Figure 8. 1. The difference from the previous calculations is striking: whereas equilibrium in 1970 implies an 11 per cent fall in the 'quantity' of capital, equilibrium in 1974 shows a 17 per cent increase. The reason for this divergence is that, compared with the first assumption, the 'relative efficiency' of oil rigs is assumed to be twice as large, with the result that each additional oil rig adds to the aggregate util-gener- ating capacity double what it did before.
So now we have a dilemma. Since we are dealing with the same collection of capital goods, obviously only one of these 'quantity' series can be correct -
average factory and rig, and that latter information is not revealed by prices. Neoclassical manuals tell us that the average and marginal efficiencies are generally different, and that save for special assumptions there is no way to impute one from the other. This discrep- ancy is assumed away by the national account statisticians. The standard practice - which we follow here for the sake of simplicity - is to take equilibrium prices as revealing average efficiencies and utilities. This bypass enables the measurement of 'real' quantities, at a minor cost of making the result more or less meaningless.
7 A 'normalized' series is calibrated to make its value equal to a given number in a particular 'base year' (in this case, 100 in the base year 1970). To achieve this calibration, we simply divide every observation in the series by the value of the series in the base year and multiply the result by 100 (so the normalized series = Qt / Q1970 * 100). The absolute magnitudes of the observations change, but since all the observations are divided and multiplied by the same numbers, their magnitudes relative to each other remain unaltered.
? Accumulation of what? 133
but which one? To answer this simple question all we need to know is in which of the two years - 1970 or 1974 - the world was in perfectly competitive equi- librium. The embarrassing truth, though, is that no one can tell.
The consequence of this inability is dire. Depending on the year at which prices were in equilibrium, the divergence between the two measures in Figure 8. 1 could be much bigger or much smaller, only that we would never know it. Moreover, the predicament goes beyond capital goods. It applies to any heterogeneous basket of commodities, and it grows more intractable the more encompassing the aggregation.
Neoclassical theorists love to assume the problem away by stipulating a world that simply leaps from one equilibrium to the next. In our illustration, this assumption would make both 1970 and 1974 equilibrium years, elimi- nating the difficulty before it even arose.
Unfortunately, though, this assumption doesn't serve the statisticians. The reason is that, with ongoing equilibrium, all 'pure' price changes - i. e. changes that do not correspond to alterations of the commodity - must be attributed to variations in technology or tastes; yet, if tastes keep changing, we lose the basis for temporal comparisons. With consumer preferences having shifted, the same automotive factory may represent in 1974 a different 'util generating capacity' than it did in 1970; similarly, an increase in the number of rigs may denote a decrease as well as an increase in their 'util generating capacity', all depending on the jerky desires of consumers. So once the util dimensions of commodities are no longer fixed, we lose our benchmark and can no longer talk about their 'real' quantities.
Therefore, here the statisticians part ways with the theoreticians. They assume, usually implicitly, that equilibrium occurs only infrequently. And then they convince themselves that they can somehow identify these special points of equilibrium, even though there is nothing in neoclassical manuals to tell them how to do so.
Quantity without equilibrium
Elusive equilibrium is devastating for measurement. Consider again our example of oil rigs and automotive factories. The first produce energy and the second use it, so their relative prices depend crucially on the global political economy of the Middle East, home to two thirds of the world's known oil reserves and one third of its daily output. The difficulty for the statisticians is that this region, with its complex power conflicts between large corporate alli- ances, regional governments, religious movements and superpowers, never settles into a perfectly competitive equilibrium; but if so, how can we use the relative prices of oil rigs and automotive factories as a measure of their rela- tive 'quantities'?
And the problem is hardly unique to oil rigs and automotive factories. Indeed, given that the entire world is criss-crossed by huge corporate alliances, complex government formations, contending social groups, mass
134 The enigma of capital
persuasion, extensive coercion and the frequent use of violence, how can any market ever be in equilibrium? And if that is the case, what then is left of our attempt to quantify the 'capital stock' or any 'real' magnitude?
The statisticians try to assume the problem away by mentioning it as little as possible. The most recent UN guidelines on the system of national accounts, published in 1993, contain only ten instances of the word 'equilib- rium', none of which appear in Section XVI on Price and Volume Measures, while the word 'disequilibrium' is not mentioned even once in the entire manual (United Nations. Department of Economic and Social Affairs 1993). The more recent OECD document on Measuring Capital (2001) no longer refers to either concept.
Fortunately, an earlier version of the UN national account guidelines, published in 1977, before the victory of neoliberalism, was not as tight-lipped. This older version provides occasional advice on how to deal with unfortu- nate 'imperfections', so we can at least get a glimpse of how the statisticians conceive the problem. One 'special case of difficulty' identified here is internal, or non-arm's length, transactions between related enterprises or branches of the same company. Since transfer prices set under these condi- tions may be 'quite arbitrary', to use the UN's wording, the advice is to 'abandon value [meaning price] as one of the primary measures' and replace it with a 'measure of physical quantity' combined with an estimate of 'what the equivalent market price would have been' (United Nations. Department of Economic and Social Affairs 1977: 12). Needless to say, the authors do not explain why we would need prices if we already knew the physical measures. They are also silent on where we could find 'equivalent' market prices in a world where all markets have already been contaminated by power.
Another challenge is the repeated need to 'splice' different price series when a new product (say an MP3 player) replaces an older one (a CD player). Since the splicing involves a price comparison of two different objects, the guidelines recommend that the replacement 'should take place at a time when the assumption that the price differences between the two products are proportional to the quality differences is most likely to be true' (p. 10). In short, splice only in equilibrium. But since nobody knows when that happens (if ever), the guidelines concede that, in practice, the decision 'must be essen- tially pragmatic' - that is, arbitrary.
The impossibility of equilibrium blurs the very meaning of 'well-being' - and therefore of the underlying substance that utils supposedly measure. The neoclassical conception of well-being is anchored in the 'sovereign consumer', but how can we fathom this individual sovereign in a world characterized by conflict, power, compulsion and brain-washing? How many consumers can remain 'autonomous' under such conditions? And if they are not 'autono- mous', who is in the driver's seat? Henry Ford is reputed to have said that, 'If I'd asked people what they wanted, they would have asked for a faster horse'. But even if we take a less condescending view and assume that consumers do
Accumulation of what? 135
have some autonomy, how do we separate their authentic needs and wants from falsely induced ones?
These are not nitpicking questions of high theory. The ambiguities here have very practical implications. For example, the national accounts routinely add the value of chemical weapons to that of medicine - this under the assumption that, in perfectly competitive equilibrium, one dollar's worth of the former improves our lives just as much as one dollar's worth of the latter. Consumers, however, do not live under such conditions, and rarely are they asked whether their country should produce chemical weapons, in what quantities or for what purpose. So how do we know that producing such weapons (Bentham's pushpins) indeed makes consumers better off in the first place, let alone better off to an extent equal to how well off they would have been had the same dollars been spent on medicine (Bentham's poetry)? Perhaps the production of chemical weapons undermines their well-being? And if so, should we not subtract chemical weapons from GDP rather than add them to it? 8
And it's not like medicine and weapons are in any way special. What should we do, for instance, with items such as private security services, cancerous cigarettes, space stations, poisonous drugs, polluting cars, imbecile television programmes, repetitive advertisements and cosmetic surgery? In the absence of perfectly competitive equilibrium, how do we decide which of these items respond to autonomous wants, which ones help create false needs, and which are simply imposed from above?
Neoclassicists cannot answer these questions. Yet, unless they do, all 'real' measurements of material aggregates - from the flows of the national accounts to the stocks of capital equipment and personal wealth - remain meaningless. 9
8 In practice, the 'real' quantity of weaponry is measured in exactly the same way as the 'real' quantity of food or clothing - i. e. by deflating its money value by its price (U. S. Department of Commerce. Bureau of Economic Analysis 2005: 33-35). Presumably, this 'real' quantity represents the nation's happiness from annihilating one enemy multiplied by the number of enemies the weapons can kill (plus the collateral damage). The statisticians are understand- ably secretive on how they actually determine this utilitarian quantum.
9 Alternative 'green' measures, such as the Index of Sustainable Economic Welfare (ISEW) and the Genuine Progress Indicator (GPI), do not really solve the quantification problem. These measures, pioneered by Herman Daly and John Cobb (1989), try to recalibrate the conventional national accounts for 'externalities' and other considerations. They do so by (1) adding the supposed welfare impact of non-market activities, (2) subtracting the assumed effect of harmful and unsustainable market activities and (3) correcting the resulting measure for income inequalities. Although the aim of these recalibrations is commendable, they remain hostage to the very principles they try to transcend. Not only do they begin with conventional national accounting as raw data, but their subsequent additions and subtrac- tions accept the equilibrium assumptions, logic and imputations of utilitarian accounting (for a recent overview of 'green accounting', see Talberth, Cobb, and Slattery 2007).
? 136 The enigma of capital
Hedonic regression
The final nail in the neoclassical measurement coffin is the inability to sepa- rate changes in price from changes in quality. The gist of the problem is simple. Even if we could do the impossible and somehow measure relative quantities at any given point in time, as time passes the 'things' we measure are themselves changing.
In our example of Energy User-Producer, Inc. , we assumed that the auto- motive factories and oil rigs remained the same over time and that only their number changed. But in practice this is rarely if ever the case, and the implica- tions for measurement are devastating.
To illustrate the consequences, suppose an oil rig made in 1984 cost 40 per cent more than one made in 1974. Assume further that the new rig is different than the old one, having been altered in order to make it more productive. From a neoclassical perspective the higher price is at least partly due to the new rig's greater 'quantity' of capital. The question is how big are the respec- tive effects? What part of the increase represents the augmented quantity and what part is a 'pure' price change?
As the reader must realize by now, the simple answer is that we do not know and, indeed, cannot know. The statisticians, though, again are forced to pretend. Since the measured items are constantly being transformed, they need to be, again and again, reduced back to their universal units, however fictitious.
Luckily (or maybe not so luckily), neoclassical theorists have come up with a standard procedure for this very purpose, fittingly nicknamed 'hedonic regression'. The idea was first floated in the late 1930s and had a long gesta- tion period. But since the 1990s, with the advance of cheap computing, it has spread rapidly and is now commonly used by most national statistical services. 10
How would a statistician use this procedure to estimate the changing quan- tity of the oil rig in the above example? Typically, she would begin by speci- fying the rig's underlying 'characteristics', such as size, capacity, weight, durability, safety, and so on. Next, she would regress variations in the price of the rig against observed changes in these different characteristics and against time (or a constant in cross-section studies); the estimated coefficient associated with each characteristic would then be taken as the weight of that characteristic in the 'true' quantity change of the rig, while the time coeffi- cient (or constant) would correspond to the 'pure' price change. Finally,
10 For early studies on the subject, see Court (1939), Ulmer (1949), Stone (1956) and Lancaster (1971). Later collections and reviews include Griliches (1971), Berndt and Triplett (1990), Boskin et al. (1996), Banzhaf (2001) and Moulton (2001). For a critical assessment, see Nitzan (1989).
? Accumulation of what? 137
she would decompose the observed price change into two parts, one reflecting the increased quantity of capital and the other reflecting pure price change. 11
Hedonic regressions are particularly convenient since they cannot be 'tested', at least not in the conventional econometric sense. Standard econo- metric models are customary judged based on their overall 'explanatory power' measured by such statistics as R2 or F-tests, on the 'significance' of their coefficients indicated by t-statistics and on other bureaucratic criteria. Hedonic regressions are different. These models do not try simply to explain variations in price by variations in the commodity characteristics. Rather, their purpose is to decompose the overall variations in price into two parts - one attributed to changes in characteristics and a residual interpreted as a 'pure' price change. However, since there is no a priori reason to expect one part to be bigger than the other, we have to accept whatever the empirical estimates tell us. If changes in characteristics happen to account for 95 per cent of the price variations, then the 'pure' price change must be 5 per cent. And if the results are the opposite, then the 'pure' price change must be 95 per cent.
This peculiar situation makes hedonic computations meaningful only under very stringent conditions. First, the characteristics that the statistician enumerates in her model must be the ones, and the only ones, that define the items' 'quality' (so that we can neither omit from nor add to the list of speci- fied characteristics). Second, the statistician must use the 'correct' regression model (for instance, she must know with certainty that the 'true' model is linear rather than log-linear or exponential). And last but not least, the world to which she applies this regression must be in a state of perfectly competitive equilibrium, and the 'economic agents' of this world must hold their tastes unchanged for the duration of the estimates.
11 For instance, suppose oil rigs have two characteristics, 'extracting capacity' and 'durability', and that x1 and x2 represent the temporal rates of change of these two characteristics, respectively. A simple-minded, cross-section hedonic regression could then look like Equation (1):
1. p=b0 +b1 x1 +b2 x2 +u,
where p is the overall rate of change of the price of oil rigs, b0 is the 'pure' price change, b1 and b2 are the respective contributions of changes in 'extracting capacity' and in 'durability' to changes in the 'quantity' of oil rigs, and u is a statistical error term. Now suppose that, based on our statistical estimates, b1 = 0. 4 and b2 = 0. 6, so that:
2. p = b0 + 0. 4 x1 + 0. 6 x2
Next, consider a situation in which 'new and improved' rigs have twice the 'extracting capacity' of older rigs (x1 = 2), the same durability (x2 = 0), and a price tag 40 per cent higher (p = 0. 4). Plugging these numbers back into Equation (2), we would then conclude that new rigs have 80 per cent more 'quantity of capital' (0. 4 * 2 + 0. 6 * 0 = 0. 8) and that the pure price change must have been a negative 40 per cent (b0 = -0. 4).
? 138 The enigma of capital
Now, since the model cannot be tested, these three conditions must be true. Otherwise we end up with meaningless results without ever suspecting as much. Sadly, though, the latter outcome is precisely what we end up with in practice: the first two conditions can be true only by miraculous fluke, while the third is a social oxymoron. And since none of the necessary conditions hold, we can safely state that, strictly speaking, all 'real' estimates of a quali- tatively changing capital stock are arbitrary and therefore meaningless. Indeed, for that matter every quantitative measure of a qualitatively changing aggregate - including consumption, investment, government expenditure and the GDP itself - is equally bogus. Statements such as 'real GDP has grown by 2. 3 per cent' or 'the capital stock has contracted by 0. 2 per cent' have no clear meaning. We may see that these stocks and flows are changing, but we cannot say by how much or even in which direction.
Quantifying labour values
Do the Marxists avoid these measurement impossibilities? 12 On the surface, it looks as though they should. In contrast to the neoclassicists whose capital is measured in subjective utility, Marxists claim to be counting it in objective labour units; and so, regardless of how and why capital accumulates, at least its magnitude should be problem free. But it isn't.
Concrete versus abstract labour
According to Marx, the act of labour has two distinct aspects, concrete and abstract. Concrete labour creates use value. Building makes a house, tailoring creates a coat, driving creates transportation, surgery improves health, etc. By contrast, abstract labour creates value. Unlike concrete labour which is unique in its characteristics, abstract labour is universal, 'a productive activity of human brains, nerves, and muscles . . . the expenditure of human labour in general . . . the labour-power which, on average, apart from any special development, exists in the organism of every individual' (Marx 1909, Vol. 1: 51).
The key question is how to quantify this abstract labour. In the above quotation Marx uses a 'biological' yardstick. Abstract labour, he says, is the 'activity of human brains, nerves and muscles'. But as it stands, this yardstick is highly problematic, for at least two reasons. First, there is no way to know how much of this 'biological activity' is embodied in the concrete labour of a cotton picker as compared to that of a carpenter or a CEO. Second, and perhaps more importantly, relying on physiology and biology here goes against Marx's own insistence that abstract labour is a social category.
12 As noted, most neo-Marxists have abandoned the labour theory of value. As we shall see at the end of this section, however, the question remains relevant to their inquiry as well.
? Accumulation of what? 139
Marx resolves this problem, almost in passing, by resorting to another distinction - one that he makes between skilled labour and unskilled, or simple, labour. The solution involves two steps. The first step establishes a quantitative equivalence between the two types of labour: 'Skilled labour', Marx says, 'counts only as simple labour intensified, or rather as multiplied simple labour, a given quantity of skilled being considered equal to a greater quantity of simple labour' (ibid. ). The second step, a few lines later, ties this equivalence to abstract labour: 'A commodity', he asserts, 'may be the product of the most skilled labour, but its value, by equating it to the product of simple unskilled labour, represents a definite quantity of the latter labour alone'. In other words, abstract labour is equated with unskilled labour, and since skilled labour is merely unskilled labour intensified, we can now express any type of labour in terms of its abstract labour equivalence.
This solution is difficult to accept. The very parity between abstract and unskilled labour seems to contradict Marx's most basic assumption. For Marx, skilled and unskilled labour are two types of concrete labour whose characteristics belong to the qualitative realm of use value. And yet, here Marx says that labour skills are also related to each other quantitatively and that this relationship is the very basis of value.
This claim can have two interpretations. One is that objective labour value depends on subjective use value - a possibility that Marx categorically rules out in the first pages of Das Kapital. The other interpretation is that there are in fact two types of use value: subjective use value in consumption and objec- tive use value in production. The first type concerns the relationship between people and commodities; as such, it cannot be quantified and is justly ignored. The second type involves the technical relationship of production and hence is fully measurable. Unfortunately, this latter interpretation isn't convincing either. As we have seen in Chapter 7, it is impossible to objectively delineate the productive process; but, then, how can we hope to objectively measure something that cannot even be delineated?
Value theorists, though, seem to insist that use value in production can be measured. So, for argument's sake, let's accept this claim and assume that unskilled labour indeed is a measurable quantum.
What would it take to compute how much of this quantum is embedded in commodities?
For this calculation to be feasible, one or both of two conditions must be met. 13 The first condition is satisfied when a commodity is produced entirely by unskilled labour. In this case, all we need to do is count the number of socially necessary hours required to make the commodity. A second condi- tion becomes required if production involves different levels and types of skills. In this case, simple counting is no longer possible, and the theory works only if there exists an objective process by which skilled labour can be converted or reduced to unskilled (abstract) labour. Let us consider each condition in turn.
? 13 Note that in and of themselves, these conditions, although required, may be insufficient.
140 The enigma of capital
A world of unskilled automatons?
Begin with the first situation, whereby all labour is unskilled. According to Marx, this condition is constantly generated by capitalism, which relentlessly strives to de-humanize, de-skill and simplify labour, to turn live labour into a universal abstraction, a 'purely mechanical activity, hence indifferent to its particular form' (Marx 1857: 297). The abstraction process does not mean that all labour has to be the same. It is rather that capitalism tends to generate and enforce skills that are particularly flexible, easy to acquire and readily transferable. In this sense, abstract labour is not only an analytical category, but a real thing, created and recreated by the very process of capitalist development. 14
This claim, central to the classical Marxist framework and later bolstered by Harry Braverman's work on Labor and Monopoly Capital (1975), elicited considerable controversy, particularly on historical grounds. Workers, pointed out the critics, were forever resisting their subjugation by capital and in reality prevented labour from being simplified to the extremes depicted by Marx (cf. Thompson 1964; for a review, see Elger 1979). 15
According to Cornelius Castoriadis, Marx's conception of abstract labour was not only historically incorrect, but logically contradictory (1988, Vol. 1: General Introduction). First, if workers indeed were systematically deskilled, degraded and debilitated, asked Castoriadis, how could they possibly become, as Marx repeatedly insisted, historical bearers of socialist revolution and architects of a new society? According to this description, it seems more likely that they'd end up as raw material for a fascist revolution. 16
14 'The indifference to the particular kind of labor corresponds to a form of society in which individuals pass with ease from one kind of work to another, which makes it immaterial to them what particular kind of work may fall to their share. . . . This state of affairs has found its highest development in the most modern of bourgeois societies, the United States. It is only here that the abstraction of the category "labor", "labor in general", labor sans phrase, the starting point of modern political economy, becomes realized in practice' (Marx 1911: 299). The slaughter-house worker in Upton Sinclair's novel The Jungle (1906) needs no more than a minute to learn his job.
15 It is of course true that, over time, the distribution of skills undergoes major shifts, cyclical as well as secular. But a significant portion of these shifts occurs through the training of new workers rather than the quick re-training of existing ones. The rigidity of existing specialization seems obvious for highly skilled workers. Few engineers can readily do the work of accountants, few pilots can just start working as doctors, and few managers can easily replace their computer programmers. Moreover, the rigidity is also true for many so- called blue-collar workers, such as auto mechanics, carpenters, truck drivers and farmers, who could rarely do each other's work.
16 This was a potential that Mussolini, a self-declared student of Lenin and editor of a socialist tabloid, was quick to grasp. George Mosse (2000), whose father owned a tabloid chain in the Weimer Republic, comments in his memoirs that, unlike the socialists, the fascists didn't try to impose on workers their intellectual fantasies of freedom. They understood what workers wanted and gave them exactly what they deserved: entertainment, soccer and a strong hand. The dilemma for socialists was expressed, somewhat tongue in cheek, by George Orwell:
? Accumulation of what? 141
Second, and crucially for our purpose here, according to Castoriadis capi- talism itself cannot possibly survive the abstraction of labour as argued by Marx. The complexity, dynamism and incessant restructuring of capitalist production required not morons, but thinking agents. If workers were ever to be reduced to automatons, doing everything by the book like Hasek's The Good Soldier Schweik (1937), capitalist production would come to a halt in no time.
The foregoing argument does not mean that capitalists do not try to auto- mate their world, only that they cannot afford to completely succeed in doing so. In other words, over and above the conflict between capitalists who seek to objectify labour and workers who resist it, there is the inner contradiction of social mechanization itself: the tendency of mechanization to make power inflexible and therefore vulnerable. As we shall see later in the book, social mechanization in capitalism occurs mostly at the level of ownership, through the capitalization of power, a process which in turn leaves capitalist labour considerable autonomy and qualitative diversity.
Resistance by workers and the richness of their skills are crucial barriers to the measurement of value. Even if a portion of the labour force indeed is 'unskilled' in Marx's sense, few if any commodities are produced solely by such labour. And since most, if not all, labour processes involve some skilled labour, it is obvious that the first condition does not apply. Value cannot be derived simply by counting unskilled hours. 17
Reducing skilled to unskilled labour
The diversity of labour skills leave us with the second requirement, namely, that there must exist a mechanism to 'reduce' the myriad of skilled labour to
If there was hope, it must lie in the proles, because only there, in those swarming disre- garded masses, eighty-five percent of the population of Oceania, could the force to destroy the Party ever be generated. . . . [The] proles, if only they could somehow become conscious of their own strength, would have no need to conspire. They needed only to rise up and shake themselves like a horse shaking off flies. If they chose they could blow the Party to pieces tomorrow morning. Surely, sooner or later it must occur to them to do that. And yet-! . . . . Until they become conscious they will never rebel, and until after they have rebelled they cannot become conscious.
(1948: 69-70, original emphasis)
17 One can sidestep the problem by following Braverman (1975), who distinguished 'manual' labour from 'scientific management' and 'mental work'. The difficulty here is not only in how to draw the line between the two, but also in what to do with the second group (class? ). Unless we continue to consider them as workers, the very emergence and growth of this group imply a built-in counter-tendency in capitalism, one in which labour can be simpli- fied and abstracted only by having some of it transformed into 'management' and 'mental' activity - a sort of 'elimination of labour by labour'. Moreover, since this latter type of 'non-manual' activity, whether labour or not, cannot be counted in abstract terms, how do we account for its productive contribution to value and surplus value?
? 142 The enigma of capital
units of unskilled (abstract) labour. According to Marx, this mechanism is both omnipresent and obvious: 'Experience shows that this reduction is constantly being made. . . established by a social process that goes on behind the backs of the producers. . . . ' (1909, Vol. 1: 51-52). But in fact the process is anything but trivial.
The starting point of the reduction is the assumption that labour skills are created through spending on education and training, on and off the job. In this sense, 'skilled labour power' is a commodity like any other - i. e. a product of labour. It is produced by the study and training time of the worker himself, as well as by the labour of those who educate and train him. The value that the skill assumes in this process is equivalent to the socially necessary abstract labour time required for the subsistence of the worker, his teachers and trainers throughout the skill-creation process.
Now, skilled labour supposedly creates more value than unskilled labour, and the question is how much more? Marxists have devoted far less attention to this question than it deserves, and, as a result, their take on the subject hasn't changed much since the issue was first examined by Marx and Hilferding. 18
Marx answered the question from the output side, by pointing to the greater 'physical productivity' of skilled labour. His solution, though, is both circular and incomplete. It is circular insofar as physical productivity can be compared across different commodities only by resorting to prices and wages. This reverse derivation would have us conclude that, given their wage differ- ential, a Pfizer chemist earning $150,000 a year must create 15 times the value of an Intel assembly-line worker whose wage is only $10,000 - a logic that is reminiscent of Gary Becker's (1964) 'human capital' and that Marx rightly would (or at least should) have rejected. The solution is also incomplete because Marx nowhere explains why the additional value-creating capacity of skilled labour should bear any particular relationship to the labour cost of acquiring the skill. The fact that an engineer trains 10 per cent longer does not mean she will create 10 per cent more value; it could also be 1 per cent, 20 per cent or any other number.
An alternative reduction, drawn from the input side, was offered by Hilferding (1904). Skilled labour, he argued, simply transfers its added production time to the commodity it produces. For instance, if it takes the equivalent of 40,000 hours of unskilled labour to teach and train a brain surgeon who performs 20,000 hours of surgery over her working life, then one hour of her skilled labour is equivalent to 3 hours of unskilled labour ((40,000 + 20,000) / 20,000 = 3).
However, this solution too turns out to be open-ended. For our purpose, the most important problem is that Hilferding counts as skill-creating value not the total number of hours necessary to create the skill, but only those
18 For a critical assessment of the problematic reduction of skilled to unskilled labour, see Harvey (1985).
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hours that the worker or his employer end up paying for. And it is here that the bifurcations of political economy and its equilibrium assumptions again come back to haunt us.
Since in reality the 'economy' is neither fully commodified nor separate from 'politics', much of the education and training is free - provided by the household, community and government. Moreover, since the 'economy' - however defined - is rarely if ever in a fully-competitive equilibrium, there is no guarantee that the procured education and training are transacted at value. 19
To complicate things further, note that so far we have taken it as a given that one can actually specify the process of 'producing' the skill. But can we? Although it seems evident that skills are developed through education, on- the-job learning and broader cultural influences, this is a qualitative joint process, and therefore one that suffers from the intractable indeterminacies examined in Chapters 6 and 7. Last but not least, there can be no easy agree- ment on what constitutes unskilled labour at any point in time (should we use as our benchmark a UK high-school graduate, an Indian peasant, or an African bushman? ). And if that basic unit cannot be specified, where do we start from? 20
As a consequence of these difficulties, the Marxists, like the neoclassicists, have ended up without an elementary particle. No one, from Marx onward, has been able to measure the unit of abstract labour, and, with time, fewer and fewer Marxists think it is worth trying. A tiny but dedicated minority continues to work around this handicap, putting much effort and ingenuity into mapping the value structure of capitalist societies without a basic unit of value. But most Marxists, including many who otherwise adhere to the theory's principles, have abandoned this quest. They endorse the liberal methods and data. They use, often without a second thought, the national accounts of growth and inflation, along with their quantitative estimates of the 'capital stock'. They see no problem in deflating nominal values by
19 In the hypothetical situation that the 'true' value of acquiring the skill happens to be paid for in full, we end up with multiple rates of exploitation whose magnitudes are inversely related to the cost of acquiring the respective skills. This result, which goes counter to Marx's assumption of equalizing tendencies, arises because, for Hilferding, the cost of acquiring the skill acts like constant capital: it merely transfers its own value to the commodity.
20 To avoid some of these difficulties, as well as to account for the important role of labour market segmentation, some writers offered to develop a labour theory of value based on heterogeneous rather than abstract labour (see, for instance, Bowles and Gintis 1977; Steedman 1980). This approach, though, merely substitutes one reduction for another, since we now need to 'translate' the value vector into a price scalar. Others, such as Itoh (1987; 1988) suggested moving in the opposite direction by treating an hour of labour uniformly, regardless of its concrete nature. This latter measurement may be justified from the point of view of the worker, though the analytical implication is that we can no longer use labour values to explain capitalist prices and accumulation.
? 144 The enigma of capital
hedonic price indices to obtain 'real' quantities, or in using equilibrium-based econometrics to draw dialectical conclusions. Their voice is still Marx's, but their hands have long been those of the hedonists. 21
The retreat from labour in favour of hedonic accounting serves to dilute and blur the basic concepts of Marxism. Without 'abstract labour', there can be no 'labour values' and therefore no way to define, let alone measure, 'surplus value' and 'exploitation'. And with these basic concepts thrown into question, their negations too become suspect. Neo-Marxists like to highlight the deviations of 'monopoly capitalism' (Sweezy 1942; Baran and Sweezy 1966), 'unequal exchange' (Emmanuel 1972) and the 'smoke and mirrors' of 'accumulation by dispossession' (Harvey 2004) from Marx's 'expanded reproduction' under the 'law of value'. But since this law has no units in which to be denominated (leaving aside its other problems), it isn't clear what exactly these new social formations deviate from.
Needless to say, no amount of neoclassical data on 'real' growth and accu- mulation can undo this gridlock. Marxists cannot hope to save their method by banking on the very logic they try to undo. They will simply sink deeper into the quicksands of utilitarian impossibilities.
A clean slate
Is there a way out of these circularities and contradictions? In our view, the answer is yes - but not within the existing framework of political economy. This framework identifies the quantitative 'essence' of capital with the material sphere of production and consumption, and that assumption makes its problems insoluble. Utils and abstract labour - even if they did exist in some sense - do not have fundamental quantities that can be measured. They therefore have to be derived in reverse, from the very phenomena they try to explain. And even this inverted derivation falls apart, because it is built on assumptions that are patently false if not logically contradictory.
What we need, then, is not a revision, but a radical change. We need to develop a new political economy based on new methods, new categories and new units. Our own notion of capital as power offers such a beginning.
? 21 Even Shaikh and Tonak (1994), who have tried to devise specifically Marxist national accounts, ended up employing a neoclassical price index in order to convert 'nominal' measures of output to their 'real' counterparts (Appendix J).
Part III Capitalization
9 Capitalization
A brief anthropology
It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness.
--Karl Marx, Preface to A Contribution to the Critique of Political Economy
The size of my chequebook and the content of my pockets do not determine my social consciousness.
--Tokyo Sexwale, South African political prisoner-cum-business tycoon
Utility, abstract labour, or the nomos?
When Milton Friedman claims that 'there is no such thing as a free lunch', he echoes Antoine Lavoisier, the eighteenth-century French tax-farmer-cum- chemist who invented the Law of Conservation of Matter. Burnt carbon produces a new substance - carbon dioxide - but according to Lavoisier there was nothing miraculous about this transformation. The reaction can be achieved only by adding oxygen to the carbon. And when the combustion takes place in a sealed container, the new substance has a mass equal that of its ingredients. Your lunch always has to come from somewhere.
The theory was not concocted in a vacuum. Lavoisier's patron, Louis XVI, was strapped for cash, and the resourceful chemist was looking for ways to shore up the monarch's finances. His idea: surround Paris with a high wall to create a sealed container in which individual incomes could be partly converted into crown revenues. The plan was only partly successful. The wall certainly was tight enough to trap much of the city's taxable income, to the joy of the vigilant collectors. But it was also loathed enough to have Lavoisier's head lost to the revolutionary guillotine and the wall to the Parisian mob. The underlying principle of conservation, though, remained intact. It soon became the foundation stone of modern science, spreading to other physical entities, most notably energy, as well as to the study of society.
In the spirit of Lavoisier, political economists came to believe that there was 'intrinsic equivalence' in production and exchange. Abstract labour and utility - like all matter and energy - could neither disappear into nor be created out of thin air. Their form may change, but their content cannot. Just
148 Capitalization
as the infinite diversity of natural bodies can be reduced to different combina- tions of universal atoms (or their subatomic particles), so can the endless diversity of commodities be reduced to alternative groupings of identical utils or abstract labour time. As we have seen, for Marx, who approached the process from the input side, the commodity's value was transformed labour: the live abstract labour expended in producing the capital reappeared as dead abstract labour in the newly produced capital. Similarly for the neoclassicists, who view the process from the output side: as the quantity of capital depreci- ates, the lost utils resurface in the goods and services being produced. 1
The answer of both theories to the question 'what is capital? ' lies in this transformation. Since exchange merely transfers the substantive quantities of production and consumption, it follows that underneath every ratio of prices there lies a corresponding ratio of utils or abstract labour. In both cases, the pecuniary appearance of capital is merely the mirror image of its material/ energy substance. The financial liabilities on the right-hand side of the balance sheet derive their value from - and in the final analysis, are equivalent to - the productive assets on the left-hand side.
But there is hair in the soup. Conservation and intrinsic equivalence are rather demanding principles. They can be considered meaningful only if utility and abstract labour can be measured; only if there is an 'economy' that is distinct from 'politics' and free from the 'distortions' of power; and only in so-called perfectly competitive equilibrium. Unfortunately, though, these conditions can never hold. As previous chapters have made clear, no one knows what utility and abstract labour look like, let alone how to measure them; there is no way to distinguish economics from politics and to keep power out of the picture; and capitalism has never experienced even a momen- tary equilibrium, let alone a perfectly competitive one.
So we are back to square one, if not square zero. We still do not know what makes something capital or what determines its magnitude in dollars and cents. Worse still, now we no longer have the principle of intrinsic equivalence to build on.
But, then, isn't this rejection detrimental to the very possibility of political economy? By giving up the material basis of capitalism, are we not cutting the branch we sit on? Indeed, is there anything else - other than utility or labour value - with which we can explain the quantitative order of prices, exchange and distribution?
The short answer is yes. There is an alternative. According to Cornelius Castoriadis (1984), this alternative was articulated some 2,500 years ago, by Aristotle. Equivalence in exchange, Aristotle argued, came not from anything intrinsic to commodities, but from what the Greek called the nomos. It was rooted not in the material sphere of consumption and production, but in the
1 Of course, in each theory input or output are just the starting point, and the conservation continues through subsequent cycles in the input-output chain. For a critical analysis of conservation theories in political economy, see Mirowski (1989).
? A brief anthropology 149
broader social-legal-historical institutions of society. It was not an objective substance, but a human creation.
And when we think about this question without theoretical blinders, this 'loose' determination is not that difficult to fathom. In all pre-capitalist soci- eties, prices - and distribution more generally - were determined through some mixture of social struggles and cooperation. Authoritarian regimes emphasized power and decree, while more egalitarian societies used negotia- tion, volition and even gifts (Polanyi, Arensberg, and Pearson 1957). This same loose determination is also evident in more recent alternatives to capitalism. It characterizes broad regimes such as communism, as well as small-scale formations like the Spanish cooperative Mondragon and the Israeli anarchism of the early Kibbutz.
In all of these cases prices and distribution are creatures of their particular nomos. So why can't the same loose determination happen in capitalism? Consider the ratio between the price of petroleum and the wages of oil rig workers; between the value of Enron's assets and the salaries of accountants; between General Electric's rate of profit and the price of jet engines; between Halliburton's earnings and the cost of 're-building' Iraq; between Viacom's taxes and advertisement rates; between the market capitalization of sub-prime lenders and government bailouts. Why insist that these ratios are somehow determined by - or deviate from - relative utility or relative abstract labour time?
6. Qt = N1t * $40 mn + N2t * $40 mn
The results of this computation, again normalized to Q1970 = 100, are plotted by the thick line in the upper portion of Figure 8. 1. The difference from the previous calculations is striking: whereas equilibrium in 1970 implies an 11 per cent fall in the 'quantity' of capital, equilibrium in 1974 shows a 17 per cent increase. The reason for this divergence is that, compared with the first assumption, the 'relative efficiency' of oil rigs is assumed to be twice as large, with the result that each additional oil rig adds to the aggregate util-gener- ating capacity double what it did before.
So now we have a dilemma. Since we are dealing with the same collection of capital goods, obviously only one of these 'quantity' series can be correct -
average factory and rig, and that latter information is not revealed by prices. Neoclassical manuals tell us that the average and marginal efficiencies are generally different, and that save for special assumptions there is no way to impute one from the other. This discrep- ancy is assumed away by the national account statisticians. The standard practice - which we follow here for the sake of simplicity - is to take equilibrium prices as revealing average efficiencies and utilities. This bypass enables the measurement of 'real' quantities, at a minor cost of making the result more or less meaningless.
7 A 'normalized' series is calibrated to make its value equal to a given number in a particular 'base year' (in this case, 100 in the base year 1970). To achieve this calibration, we simply divide every observation in the series by the value of the series in the base year and multiply the result by 100 (so the normalized series = Qt / Q1970 * 100). The absolute magnitudes of the observations change, but since all the observations are divided and multiplied by the same numbers, their magnitudes relative to each other remain unaltered.
? Accumulation of what? 133
but which one? To answer this simple question all we need to know is in which of the two years - 1970 or 1974 - the world was in perfectly competitive equi- librium. The embarrassing truth, though, is that no one can tell.
The consequence of this inability is dire. Depending on the year at which prices were in equilibrium, the divergence between the two measures in Figure 8. 1 could be much bigger or much smaller, only that we would never know it. Moreover, the predicament goes beyond capital goods. It applies to any heterogeneous basket of commodities, and it grows more intractable the more encompassing the aggregation.
Neoclassical theorists love to assume the problem away by stipulating a world that simply leaps from one equilibrium to the next. In our illustration, this assumption would make both 1970 and 1974 equilibrium years, elimi- nating the difficulty before it even arose.
Unfortunately, though, this assumption doesn't serve the statisticians. The reason is that, with ongoing equilibrium, all 'pure' price changes - i. e. changes that do not correspond to alterations of the commodity - must be attributed to variations in technology or tastes; yet, if tastes keep changing, we lose the basis for temporal comparisons. With consumer preferences having shifted, the same automotive factory may represent in 1974 a different 'util generating capacity' than it did in 1970; similarly, an increase in the number of rigs may denote a decrease as well as an increase in their 'util generating capacity', all depending on the jerky desires of consumers. So once the util dimensions of commodities are no longer fixed, we lose our benchmark and can no longer talk about their 'real' quantities.
Therefore, here the statisticians part ways with the theoreticians. They assume, usually implicitly, that equilibrium occurs only infrequently. And then they convince themselves that they can somehow identify these special points of equilibrium, even though there is nothing in neoclassical manuals to tell them how to do so.
Quantity without equilibrium
Elusive equilibrium is devastating for measurement. Consider again our example of oil rigs and automotive factories. The first produce energy and the second use it, so their relative prices depend crucially on the global political economy of the Middle East, home to two thirds of the world's known oil reserves and one third of its daily output. The difficulty for the statisticians is that this region, with its complex power conflicts between large corporate alli- ances, regional governments, religious movements and superpowers, never settles into a perfectly competitive equilibrium; but if so, how can we use the relative prices of oil rigs and automotive factories as a measure of their rela- tive 'quantities'?
And the problem is hardly unique to oil rigs and automotive factories. Indeed, given that the entire world is criss-crossed by huge corporate alliances, complex government formations, contending social groups, mass
134 The enigma of capital
persuasion, extensive coercion and the frequent use of violence, how can any market ever be in equilibrium? And if that is the case, what then is left of our attempt to quantify the 'capital stock' or any 'real' magnitude?
The statisticians try to assume the problem away by mentioning it as little as possible. The most recent UN guidelines on the system of national accounts, published in 1993, contain only ten instances of the word 'equilib- rium', none of which appear in Section XVI on Price and Volume Measures, while the word 'disequilibrium' is not mentioned even once in the entire manual (United Nations. Department of Economic and Social Affairs 1993). The more recent OECD document on Measuring Capital (2001) no longer refers to either concept.
Fortunately, an earlier version of the UN national account guidelines, published in 1977, before the victory of neoliberalism, was not as tight-lipped. This older version provides occasional advice on how to deal with unfortu- nate 'imperfections', so we can at least get a glimpse of how the statisticians conceive the problem. One 'special case of difficulty' identified here is internal, or non-arm's length, transactions between related enterprises or branches of the same company. Since transfer prices set under these condi- tions may be 'quite arbitrary', to use the UN's wording, the advice is to 'abandon value [meaning price] as one of the primary measures' and replace it with a 'measure of physical quantity' combined with an estimate of 'what the equivalent market price would have been' (United Nations. Department of Economic and Social Affairs 1977: 12). Needless to say, the authors do not explain why we would need prices if we already knew the physical measures. They are also silent on where we could find 'equivalent' market prices in a world where all markets have already been contaminated by power.
Another challenge is the repeated need to 'splice' different price series when a new product (say an MP3 player) replaces an older one (a CD player). Since the splicing involves a price comparison of two different objects, the guidelines recommend that the replacement 'should take place at a time when the assumption that the price differences between the two products are proportional to the quality differences is most likely to be true' (p. 10). In short, splice only in equilibrium. But since nobody knows when that happens (if ever), the guidelines concede that, in practice, the decision 'must be essen- tially pragmatic' - that is, arbitrary.
The impossibility of equilibrium blurs the very meaning of 'well-being' - and therefore of the underlying substance that utils supposedly measure. The neoclassical conception of well-being is anchored in the 'sovereign consumer', but how can we fathom this individual sovereign in a world characterized by conflict, power, compulsion and brain-washing? How many consumers can remain 'autonomous' under such conditions? And if they are not 'autono- mous', who is in the driver's seat? Henry Ford is reputed to have said that, 'If I'd asked people what they wanted, they would have asked for a faster horse'. But even if we take a less condescending view and assume that consumers do
Accumulation of what? 135
have some autonomy, how do we separate their authentic needs and wants from falsely induced ones?
These are not nitpicking questions of high theory. The ambiguities here have very practical implications. For example, the national accounts routinely add the value of chemical weapons to that of medicine - this under the assumption that, in perfectly competitive equilibrium, one dollar's worth of the former improves our lives just as much as one dollar's worth of the latter. Consumers, however, do not live under such conditions, and rarely are they asked whether their country should produce chemical weapons, in what quantities or for what purpose. So how do we know that producing such weapons (Bentham's pushpins) indeed makes consumers better off in the first place, let alone better off to an extent equal to how well off they would have been had the same dollars been spent on medicine (Bentham's poetry)? Perhaps the production of chemical weapons undermines their well-being? And if so, should we not subtract chemical weapons from GDP rather than add them to it? 8
And it's not like medicine and weapons are in any way special. What should we do, for instance, with items such as private security services, cancerous cigarettes, space stations, poisonous drugs, polluting cars, imbecile television programmes, repetitive advertisements and cosmetic surgery? In the absence of perfectly competitive equilibrium, how do we decide which of these items respond to autonomous wants, which ones help create false needs, and which are simply imposed from above?
Neoclassicists cannot answer these questions. Yet, unless they do, all 'real' measurements of material aggregates - from the flows of the national accounts to the stocks of capital equipment and personal wealth - remain meaningless. 9
8 In practice, the 'real' quantity of weaponry is measured in exactly the same way as the 'real' quantity of food or clothing - i. e. by deflating its money value by its price (U. S. Department of Commerce. Bureau of Economic Analysis 2005: 33-35). Presumably, this 'real' quantity represents the nation's happiness from annihilating one enemy multiplied by the number of enemies the weapons can kill (plus the collateral damage). The statisticians are understand- ably secretive on how they actually determine this utilitarian quantum.
9 Alternative 'green' measures, such as the Index of Sustainable Economic Welfare (ISEW) and the Genuine Progress Indicator (GPI), do not really solve the quantification problem. These measures, pioneered by Herman Daly and John Cobb (1989), try to recalibrate the conventional national accounts for 'externalities' and other considerations. They do so by (1) adding the supposed welfare impact of non-market activities, (2) subtracting the assumed effect of harmful and unsustainable market activities and (3) correcting the resulting measure for income inequalities. Although the aim of these recalibrations is commendable, they remain hostage to the very principles they try to transcend. Not only do they begin with conventional national accounting as raw data, but their subsequent additions and subtrac- tions accept the equilibrium assumptions, logic and imputations of utilitarian accounting (for a recent overview of 'green accounting', see Talberth, Cobb, and Slattery 2007).
? 136 The enigma of capital
Hedonic regression
The final nail in the neoclassical measurement coffin is the inability to sepa- rate changes in price from changes in quality. The gist of the problem is simple. Even if we could do the impossible and somehow measure relative quantities at any given point in time, as time passes the 'things' we measure are themselves changing.
In our example of Energy User-Producer, Inc. , we assumed that the auto- motive factories and oil rigs remained the same over time and that only their number changed. But in practice this is rarely if ever the case, and the implica- tions for measurement are devastating.
To illustrate the consequences, suppose an oil rig made in 1984 cost 40 per cent more than one made in 1974. Assume further that the new rig is different than the old one, having been altered in order to make it more productive. From a neoclassical perspective the higher price is at least partly due to the new rig's greater 'quantity' of capital. The question is how big are the respec- tive effects? What part of the increase represents the augmented quantity and what part is a 'pure' price change?
As the reader must realize by now, the simple answer is that we do not know and, indeed, cannot know. The statisticians, though, again are forced to pretend. Since the measured items are constantly being transformed, they need to be, again and again, reduced back to their universal units, however fictitious.
Luckily (or maybe not so luckily), neoclassical theorists have come up with a standard procedure for this very purpose, fittingly nicknamed 'hedonic regression'. The idea was first floated in the late 1930s and had a long gesta- tion period. But since the 1990s, with the advance of cheap computing, it has spread rapidly and is now commonly used by most national statistical services. 10
How would a statistician use this procedure to estimate the changing quan- tity of the oil rig in the above example? Typically, she would begin by speci- fying the rig's underlying 'characteristics', such as size, capacity, weight, durability, safety, and so on. Next, she would regress variations in the price of the rig against observed changes in these different characteristics and against time (or a constant in cross-section studies); the estimated coefficient associated with each characteristic would then be taken as the weight of that characteristic in the 'true' quantity change of the rig, while the time coeffi- cient (or constant) would correspond to the 'pure' price change. Finally,
10 For early studies on the subject, see Court (1939), Ulmer (1949), Stone (1956) and Lancaster (1971). Later collections and reviews include Griliches (1971), Berndt and Triplett (1990), Boskin et al. (1996), Banzhaf (2001) and Moulton (2001). For a critical assessment, see Nitzan (1989).
? Accumulation of what? 137
she would decompose the observed price change into two parts, one reflecting the increased quantity of capital and the other reflecting pure price change. 11
Hedonic regressions are particularly convenient since they cannot be 'tested', at least not in the conventional econometric sense. Standard econo- metric models are customary judged based on their overall 'explanatory power' measured by such statistics as R2 or F-tests, on the 'significance' of their coefficients indicated by t-statistics and on other bureaucratic criteria. Hedonic regressions are different. These models do not try simply to explain variations in price by variations in the commodity characteristics. Rather, their purpose is to decompose the overall variations in price into two parts - one attributed to changes in characteristics and a residual interpreted as a 'pure' price change. However, since there is no a priori reason to expect one part to be bigger than the other, we have to accept whatever the empirical estimates tell us. If changes in characteristics happen to account for 95 per cent of the price variations, then the 'pure' price change must be 5 per cent. And if the results are the opposite, then the 'pure' price change must be 95 per cent.
This peculiar situation makes hedonic computations meaningful only under very stringent conditions. First, the characteristics that the statistician enumerates in her model must be the ones, and the only ones, that define the items' 'quality' (so that we can neither omit from nor add to the list of speci- fied characteristics). Second, the statistician must use the 'correct' regression model (for instance, she must know with certainty that the 'true' model is linear rather than log-linear or exponential). And last but not least, the world to which she applies this regression must be in a state of perfectly competitive equilibrium, and the 'economic agents' of this world must hold their tastes unchanged for the duration of the estimates.
11 For instance, suppose oil rigs have two characteristics, 'extracting capacity' and 'durability', and that x1 and x2 represent the temporal rates of change of these two characteristics, respectively. A simple-minded, cross-section hedonic regression could then look like Equation (1):
1. p=b0 +b1 x1 +b2 x2 +u,
where p is the overall rate of change of the price of oil rigs, b0 is the 'pure' price change, b1 and b2 are the respective contributions of changes in 'extracting capacity' and in 'durability' to changes in the 'quantity' of oil rigs, and u is a statistical error term. Now suppose that, based on our statistical estimates, b1 = 0. 4 and b2 = 0. 6, so that:
2. p = b0 + 0. 4 x1 + 0. 6 x2
Next, consider a situation in which 'new and improved' rigs have twice the 'extracting capacity' of older rigs (x1 = 2), the same durability (x2 = 0), and a price tag 40 per cent higher (p = 0. 4). Plugging these numbers back into Equation (2), we would then conclude that new rigs have 80 per cent more 'quantity of capital' (0. 4 * 2 + 0. 6 * 0 = 0. 8) and that the pure price change must have been a negative 40 per cent (b0 = -0. 4).
? 138 The enigma of capital
Now, since the model cannot be tested, these three conditions must be true. Otherwise we end up with meaningless results without ever suspecting as much. Sadly, though, the latter outcome is precisely what we end up with in practice: the first two conditions can be true only by miraculous fluke, while the third is a social oxymoron. And since none of the necessary conditions hold, we can safely state that, strictly speaking, all 'real' estimates of a quali- tatively changing capital stock are arbitrary and therefore meaningless. Indeed, for that matter every quantitative measure of a qualitatively changing aggregate - including consumption, investment, government expenditure and the GDP itself - is equally bogus. Statements such as 'real GDP has grown by 2. 3 per cent' or 'the capital stock has contracted by 0. 2 per cent' have no clear meaning. We may see that these stocks and flows are changing, but we cannot say by how much or even in which direction.
Quantifying labour values
Do the Marxists avoid these measurement impossibilities? 12 On the surface, it looks as though they should. In contrast to the neoclassicists whose capital is measured in subjective utility, Marxists claim to be counting it in objective labour units; and so, regardless of how and why capital accumulates, at least its magnitude should be problem free. But it isn't.
Concrete versus abstract labour
According to Marx, the act of labour has two distinct aspects, concrete and abstract. Concrete labour creates use value. Building makes a house, tailoring creates a coat, driving creates transportation, surgery improves health, etc. By contrast, abstract labour creates value. Unlike concrete labour which is unique in its characteristics, abstract labour is universal, 'a productive activity of human brains, nerves, and muscles . . . the expenditure of human labour in general . . . the labour-power which, on average, apart from any special development, exists in the organism of every individual' (Marx 1909, Vol. 1: 51).
The key question is how to quantify this abstract labour. In the above quotation Marx uses a 'biological' yardstick. Abstract labour, he says, is the 'activity of human brains, nerves and muscles'. But as it stands, this yardstick is highly problematic, for at least two reasons. First, there is no way to know how much of this 'biological activity' is embodied in the concrete labour of a cotton picker as compared to that of a carpenter or a CEO. Second, and perhaps more importantly, relying on physiology and biology here goes against Marx's own insistence that abstract labour is a social category.
12 As noted, most neo-Marxists have abandoned the labour theory of value. As we shall see at the end of this section, however, the question remains relevant to their inquiry as well.
? Accumulation of what? 139
Marx resolves this problem, almost in passing, by resorting to another distinction - one that he makes between skilled labour and unskilled, or simple, labour. The solution involves two steps. The first step establishes a quantitative equivalence between the two types of labour: 'Skilled labour', Marx says, 'counts only as simple labour intensified, or rather as multiplied simple labour, a given quantity of skilled being considered equal to a greater quantity of simple labour' (ibid. ). The second step, a few lines later, ties this equivalence to abstract labour: 'A commodity', he asserts, 'may be the product of the most skilled labour, but its value, by equating it to the product of simple unskilled labour, represents a definite quantity of the latter labour alone'. In other words, abstract labour is equated with unskilled labour, and since skilled labour is merely unskilled labour intensified, we can now express any type of labour in terms of its abstract labour equivalence.
This solution is difficult to accept. The very parity between abstract and unskilled labour seems to contradict Marx's most basic assumption. For Marx, skilled and unskilled labour are two types of concrete labour whose characteristics belong to the qualitative realm of use value. And yet, here Marx says that labour skills are also related to each other quantitatively and that this relationship is the very basis of value.
This claim can have two interpretations. One is that objective labour value depends on subjective use value - a possibility that Marx categorically rules out in the first pages of Das Kapital. The other interpretation is that there are in fact two types of use value: subjective use value in consumption and objec- tive use value in production. The first type concerns the relationship between people and commodities; as such, it cannot be quantified and is justly ignored. The second type involves the technical relationship of production and hence is fully measurable. Unfortunately, this latter interpretation isn't convincing either. As we have seen in Chapter 7, it is impossible to objectively delineate the productive process; but, then, how can we hope to objectively measure something that cannot even be delineated?
Value theorists, though, seem to insist that use value in production can be measured. So, for argument's sake, let's accept this claim and assume that unskilled labour indeed is a measurable quantum.
What would it take to compute how much of this quantum is embedded in commodities?
For this calculation to be feasible, one or both of two conditions must be met. 13 The first condition is satisfied when a commodity is produced entirely by unskilled labour. In this case, all we need to do is count the number of socially necessary hours required to make the commodity. A second condi- tion becomes required if production involves different levels and types of skills. In this case, simple counting is no longer possible, and the theory works only if there exists an objective process by which skilled labour can be converted or reduced to unskilled (abstract) labour. Let us consider each condition in turn.
? 13 Note that in and of themselves, these conditions, although required, may be insufficient.
140 The enigma of capital
A world of unskilled automatons?
Begin with the first situation, whereby all labour is unskilled. According to Marx, this condition is constantly generated by capitalism, which relentlessly strives to de-humanize, de-skill and simplify labour, to turn live labour into a universal abstraction, a 'purely mechanical activity, hence indifferent to its particular form' (Marx 1857: 297). The abstraction process does not mean that all labour has to be the same. It is rather that capitalism tends to generate and enforce skills that are particularly flexible, easy to acquire and readily transferable. In this sense, abstract labour is not only an analytical category, but a real thing, created and recreated by the very process of capitalist development. 14
This claim, central to the classical Marxist framework and later bolstered by Harry Braverman's work on Labor and Monopoly Capital (1975), elicited considerable controversy, particularly on historical grounds. Workers, pointed out the critics, were forever resisting their subjugation by capital and in reality prevented labour from being simplified to the extremes depicted by Marx (cf. Thompson 1964; for a review, see Elger 1979). 15
According to Cornelius Castoriadis, Marx's conception of abstract labour was not only historically incorrect, but logically contradictory (1988, Vol. 1: General Introduction). First, if workers indeed were systematically deskilled, degraded and debilitated, asked Castoriadis, how could they possibly become, as Marx repeatedly insisted, historical bearers of socialist revolution and architects of a new society? According to this description, it seems more likely that they'd end up as raw material for a fascist revolution. 16
14 'The indifference to the particular kind of labor corresponds to a form of society in which individuals pass with ease from one kind of work to another, which makes it immaterial to them what particular kind of work may fall to their share. . . . This state of affairs has found its highest development in the most modern of bourgeois societies, the United States. It is only here that the abstraction of the category "labor", "labor in general", labor sans phrase, the starting point of modern political economy, becomes realized in practice' (Marx 1911: 299). The slaughter-house worker in Upton Sinclair's novel The Jungle (1906) needs no more than a minute to learn his job.
15 It is of course true that, over time, the distribution of skills undergoes major shifts, cyclical as well as secular. But a significant portion of these shifts occurs through the training of new workers rather than the quick re-training of existing ones. The rigidity of existing specialization seems obvious for highly skilled workers. Few engineers can readily do the work of accountants, few pilots can just start working as doctors, and few managers can easily replace their computer programmers. Moreover, the rigidity is also true for many so- called blue-collar workers, such as auto mechanics, carpenters, truck drivers and farmers, who could rarely do each other's work.
16 This was a potential that Mussolini, a self-declared student of Lenin and editor of a socialist tabloid, was quick to grasp. George Mosse (2000), whose father owned a tabloid chain in the Weimer Republic, comments in his memoirs that, unlike the socialists, the fascists didn't try to impose on workers their intellectual fantasies of freedom. They understood what workers wanted and gave them exactly what they deserved: entertainment, soccer and a strong hand. The dilemma for socialists was expressed, somewhat tongue in cheek, by George Orwell:
? Accumulation of what? 141
Second, and crucially for our purpose here, according to Castoriadis capi- talism itself cannot possibly survive the abstraction of labour as argued by Marx. The complexity, dynamism and incessant restructuring of capitalist production required not morons, but thinking agents. If workers were ever to be reduced to automatons, doing everything by the book like Hasek's The Good Soldier Schweik (1937), capitalist production would come to a halt in no time.
The foregoing argument does not mean that capitalists do not try to auto- mate their world, only that they cannot afford to completely succeed in doing so. In other words, over and above the conflict between capitalists who seek to objectify labour and workers who resist it, there is the inner contradiction of social mechanization itself: the tendency of mechanization to make power inflexible and therefore vulnerable. As we shall see later in the book, social mechanization in capitalism occurs mostly at the level of ownership, through the capitalization of power, a process which in turn leaves capitalist labour considerable autonomy and qualitative diversity.
Resistance by workers and the richness of their skills are crucial barriers to the measurement of value. Even if a portion of the labour force indeed is 'unskilled' in Marx's sense, few if any commodities are produced solely by such labour. And since most, if not all, labour processes involve some skilled labour, it is obvious that the first condition does not apply. Value cannot be derived simply by counting unskilled hours. 17
Reducing skilled to unskilled labour
The diversity of labour skills leave us with the second requirement, namely, that there must exist a mechanism to 'reduce' the myriad of skilled labour to
If there was hope, it must lie in the proles, because only there, in those swarming disre- garded masses, eighty-five percent of the population of Oceania, could the force to destroy the Party ever be generated. . . . [The] proles, if only they could somehow become conscious of their own strength, would have no need to conspire. They needed only to rise up and shake themselves like a horse shaking off flies. If they chose they could blow the Party to pieces tomorrow morning. Surely, sooner or later it must occur to them to do that. And yet-! . . . . Until they become conscious they will never rebel, and until after they have rebelled they cannot become conscious.
(1948: 69-70, original emphasis)
17 One can sidestep the problem by following Braverman (1975), who distinguished 'manual' labour from 'scientific management' and 'mental work'. The difficulty here is not only in how to draw the line between the two, but also in what to do with the second group (class? ). Unless we continue to consider them as workers, the very emergence and growth of this group imply a built-in counter-tendency in capitalism, one in which labour can be simpli- fied and abstracted only by having some of it transformed into 'management' and 'mental' activity - a sort of 'elimination of labour by labour'. Moreover, since this latter type of 'non-manual' activity, whether labour or not, cannot be counted in abstract terms, how do we account for its productive contribution to value and surplus value?
? 142 The enigma of capital
units of unskilled (abstract) labour. According to Marx, this mechanism is both omnipresent and obvious: 'Experience shows that this reduction is constantly being made. . . established by a social process that goes on behind the backs of the producers. . . . ' (1909, Vol. 1: 51-52). But in fact the process is anything but trivial.
The starting point of the reduction is the assumption that labour skills are created through spending on education and training, on and off the job. In this sense, 'skilled labour power' is a commodity like any other - i. e. a product of labour. It is produced by the study and training time of the worker himself, as well as by the labour of those who educate and train him. The value that the skill assumes in this process is equivalent to the socially necessary abstract labour time required for the subsistence of the worker, his teachers and trainers throughout the skill-creation process.
Now, skilled labour supposedly creates more value than unskilled labour, and the question is how much more? Marxists have devoted far less attention to this question than it deserves, and, as a result, their take on the subject hasn't changed much since the issue was first examined by Marx and Hilferding. 18
Marx answered the question from the output side, by pointing to the greater 'physical productivity' of skilled labour. His solution, though, is both circular and incomplete. It is circular insofar as physical productivity can be compared across different commodities only by resorting to prices and wages. This reverse derivation would have us conclude that, given their wage differ- ential, a Pfizer chemist earning $150,000 a year must create 15 times the value of an Intel assembly-line worker whose wage is only $10,000 - a logic that is reminiscent of Gary Becker's (1964) 'human capital' and that Marx rightly would (or at least should) have rejected. The solution is also incomplete because Marx nowhere explains why the additional value-creating capacity of skilled labour should bear any particular relationship to the labour cost of acquiring the skill. The fact that an engineer trains 10 per cent longer does not mean she will create 10 per cent more value; it could also be 1 per cent, 20 per cent or any other number.
An alternative reduction, drawn from the input side, was offered by Hilferding (1904). Skilled labour, he argued, simply transfers its added production time to the commodity it produces. For instance, if it takes the equivalent of 40,000 hours of unskilled labour to teach and train a brain surgeon who performs 20,000 hours of surgery over her working life, then one hour of her skilled labour is equivalent to 3 hours of unskilled labour ((40,000 + 20,000) / 20,000 = 3).
However, this solution too turns out to be open-ended. For our purpose, the most important problem is that Hilferding counts as skill-creating value not the total number of hours necessary to create the skill, but only those
18 For a critical assessment of the problematic reduction of skilled to unskilled labour, see Harvey (1985).
? Accumulation of what? 143
hours that the worker or his employer end up paying for. And it is here that the bifurcations of political economy and its equilibrium assumptions again come back to haunt us.
Since in reality the 'economy' is neither fully commodified nor separate from 'politics', much of the education and training is free - provided by the household, community and government. Moreover, since the 'economy' - however defined - is rarely if ever in a fully-competitive equilibrium, there is no guarantee that the procured education and training are transacted at value. 19
To complicate things further, note that so far we have taken it as a given that one can actually specify the process of 'producing' the skill. But can we? Although it seems evident that skills are developed through education, on- the-job learning and broader cultural influences, this is a qualitative joint process, and therefore one that suffers from the intractable indeterminacies examined in Chapters 6 and 7. Last but not least, there can be no easy agree- ment on what constitutes unskilled labour at any point in time (should we use as our benchmark a UK high-school graduate, an Indian peasant, or an African bushman? ). And if that basic unit cannot be specified, where do we start from? 20
As a consequence of these difficulties, the Marxists, like the neoclassicists, have ended up without an elementary particle. No one, from Marx onward, has been able to measure the unit of abstract labour, and, with time, fewer and fewer Marxists think it is worth trying. A tiny but dedicated minority continues to work around this handicap, putting much effort and ingenuity into mapping the value structure of capitalist societies without a basic unit of value. But most Marxists, including many who otherwise adhere to the theory's principles, have abandoned this quest. They endorse the liberal methods and data. They use, often without a second thought, the national accounts of growth and inflation, along with their quantitative estimates of the 'capital stock'. They see no problem in deflating nominal values by
19 In the hypothetical situation that the 'true' value of acquiring the skill happens to be paid for in full, we end up with multiple rates of exploitation whose magnitudes are inversely related to the cost of acquiring the respective skills. This result, which goes counter to Marx's assumption of equalizing tendencies, arises because, for Hilferding, the cost of acquiring the skill acts like constant capital: it merely transfers its own value to the commodity.
20 To avoid some of these difficulties, as well as to account for the important role of labour market segmentation, some writers offered to develop a labour theory of value based on heterogeneous rather than abstract labour (see, for instance, Bowles and Gintis 1977; Steedman 1980). This approach, though, merely substitutes one reduction for another, since we now need to 'translate' the value vector into a price scalar. Others, such as Itoh (1987; 1988) suggested moving in the opposite direction by treating an hour of labour uniformly, regardless of its concrete nature. This latter measurement may be justified from the point of view of the worker, though the analytical implication is that we can no longer use labour values to explain capitalist prices and accumulation.
? 144 The enigma of capital
hedonic price indices to obtain 'real' quantities, or in using equilibrium-based econometrics to draw dialectical conclusions. Their voice is still Marx's, but their hands have long been those of the hedonists. 21
The retreat from labour in favour of hedonic accounting serves to dilute and blur the basic concepts of Marxism. Without 'abstract labour', there can be no 'labour values' and therefore no way to define, let alone measure, 'surplus value' and 'exploitation'. And with these basic concepts thrown into question, their negations too become suspect. Neo-Marxists like to highlight the deviations of 'monopoly capitalism' (Sweezy 1942; Baran and Sweezy 1966), 'unequal exchange' (Emmanuel 1972) and the 'smoke and mirrors' of 'accumulation by dispossession' (Harvey 2004) from Marx's 'expanded reproduction' under the 'law of value'. But since this law has no units in which to be denominated (leaving aside its other problems), it isn't clear what exactly these new social formations deviate from.
Needless to say, no amount of neoclassical data on 'real' growth and accu- mulation can undo this gridlock. Marxists cannot hope to save their method by banking on the very logic they try to undo. They will simply sink deeper into the quicksands of utilitarian impossibilities.
A clean slate
Is there a way out of these circularities and contradictions? In our view, the answer is yes - but not within the existing framework of political economy. This framework identifies the quantitative 'essence' of capital with the material sphere of production and consumption, and that assumption makes its problems insoluble. Utils and abstract labour - even if they did exist in some sense - do not have fundamental quantities that can be measured. They therefore have to be derived in reverse, from the very phenomena they try to explain. And even this inverted derivation falls apart, because it is built on assumptions that are patently false if not logically contradictory.
What we need, then, is not a revision, but a radical change. We need to develop a new political economy based on new methods, new categories and new units. Our own notion of capital as power offers such a beginning.
? 21 Even Shaikh and Tonak (1994), who have tried to devise specifically Marxist national accounts, ended up employing a neoclassical price index in order to convert 'nominal' measures of output to their 'real' counterparts (Appendix J).
Part III Capitalization
9 Capitalization
A brief anthropology
It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness.
--Karl Marx, Preface to A Contribution to the Critique of Political Economy
The size of my chequebook and the content of my pockets do not determine my social consciousness.
--Tokyo Sexwale, South African political prisoner-cum-business tycoon
Utility, abstract labour, or the nomos?
When Milton Friedman claims that 'there is no such thing as a free lunch', he echoes Antoine Lavoisier, the eighteenth-century French tax-farmer-cum- chemist who invented the Law of Conservation of Matter. Burnt carbon produces a new substance - carbon dioxide - but according to Lavoisier there was nothing miraculous about this transformation. The reaction can be achieved only by adding oxygen to the carbon. And when the combustion takes place in a sealed container, the new substance has a mass equal that of its ingredients. Your lunch always has to come from somewhere.
The theory was not concocted in a vacuum. Lavoisier's patron, Louis XVI, was strapped for cash, and the resourceful chemist was looking for ways to shore up the monarch's finances. His idea: surround Paris with a high wall to create a sealed container in which individual incomes could be partly converted into crown revenues. The plan was only partly successful. The wall certainly was tight enough to trap much of the city's taxable income, to the joy of the vigilant collectors. But it was also loathed enough to have Lavoisier's head lost to the revolutionary guillotine and the wall to the Parisian mob. The underlying principle of conservation, though, remained intact. It soon became the foundation stone of modern science, spreading to other physical entities, most notably energy, as well as to the study of society.
In the spirit of Lavoisier, political economists came to believe that there was 'intrinsic equivalence' in production and exchange. Abstract labour and utility - like all matter and energy - could neither disappear into nor be created out of thin air. Their form may change, but their content cannot. Just
148 Capitalization
as the infinite diversity of natural bodies can be reduced to different combina- tions of universal atoms (or their subatomic particles), so can the endless diversity of commodities be reduced to alternative groupings of identical utils or abstract labour time. As we have seen, for Marx, who approached the process from the input side, the commodity's value was transformed labour: the live abstract labour expended in producing the capital reappeared as dead abstract labour in the newly produced capital. Similarly for the neoclassicists, who view the process from the output side: as the quantity of capital depreci- ates, the lost utils resurface in the goods and services being produced. 1
The answer of both theories to the question 'what is capital? ' lies in this transformation. Since exchange merely transfers the substantive quantities of production and consumption, it follows that underneath every ratio of prices there lies a corresponding ratio of utils or abstract labour. In both cases, the pecuniary appearance of capital is merely the mirror image of its material/ energy substance. The financial liabilities on the right-hand side of the balance sheet derive their value from - and in the final analysis, are equivalent to - the productive assets on the left-hand side.
But there is hair in the soup. Conservation and intrinsic equivalence are rather demanding principles. They can be considered meaningful only if utility and abstract labour can be measured; only if there is an 'economy' that is distinct from 'politics' and free from the 'distortions' of power; and only in so-called perfectly competitive equilibrium. Unfortunately, though, these conditions can never hold. As previous chapters have made clear, no one knows what utility and abstract labour look like, let alone how to measure them; there is no way to distinguish economics from politics and to keep power out of the picture; and capitalism has never experienced even a momen- tary equilibrium, let alone a perfectly competitive one.
So we are back to square one, if not square zero. We still do not know what makes something capital or what determines its magnitude in dollars and cents. Worse still, now we no longer have the principle of intrinsic equivalence to build on.
But, then, isn't this rejection detrimental to the very possibility of political economy? By giving up the material basis of capitalism, are we not cutting the branch we sit on? Indeed, is there anything else - other than utility or labour value - with which we can explain the quantitative order of prices, exchange and distribution?
The short answer is yes. There is an alternative. According to Cornelius Castoriadis (1984), this alternative was articulated some 2,500 years ago, by Aristotle. Equivalence in exchange, Aristotle argued, came not from anything intrinsic to commodities, but from what the Greek called the nomos. It was rooted not in the material sphere of consumption and production, but in the
1 Of course, in each theory input or output are just the starting point, and the conservation continues through subsequent cycles in the input-output chain. For a critical analysis of conservation theories in political economy, see Mirowski (1989).
? A brief anthropology 149
broader social-legal-historical institutions of society. It was not an objective substance, but a human creation.
And when we think about this question without theoretical blinders, this 'loose' determination is not that difficult to fathom. In all pre-capitalist soci- eties, prices - and distribution more generally - were determined through some mixture of social struggles and cooperation. Authoritarian regimes emphasized power and decree, while more egalitarian societies used negotia- tion, volition and even gifts (Polanyi, Arensberg, and Pearson 1957). This same loose determination is also evident in more recent alternatives to capitalism. It characterizes broad regimes such as communism, as well as small-scale formations like the Spanish cooperative Mondragon and the Israeli anarchism of the early Kibbutz.
In all of these cases prices and distribution are creatures of their particular nomos. So why can't the same loose determination happen in capitalism? Consider the ratio between the price of petroleum and the wages of oil rig workers; between the value of Enron's assets and the salaries of accountants; between General Electric's rate of profit and the price of jet engines; between Halliburton's earnings and the cost of 're-building' Iraq; between Viacom's taxes and advertisement rates; between the market capitalization of sub-prime lenders and government bailouts. Why insist that these ratios are somehow determined by - or deviate from - relative utility or relative abstract labour time?
