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hours that the worker or his employer end up paying for.
hours that the worker or his employer end up paying for.
Nitzan Bichler - 2012 - Capital as Power
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? Why anchor the logic of capitalism in quanta that cannot be shown to exist, and that no one - not even those who need to know them in order to set prices - has the slightest idea what they are? Isn't it possible that these capitalist ratios are simply the outcome of social struggles and cooperation?
Most political economists prefer to steer clear of such a loose determin- ation. The ideological stakes are simply too high. If prices and distribution are not determined by objective productive contributions, neoclassicists have nothing with which to explain income and justify profit. Similarly for the Marxists: without labour values there is no objective basis to condemn capitalist exploitation.
Unfortunately, and as already noted, this insistence on so-called objective determination is mostly a formality. In practice, political economists are entirely dependent on a very loose determination of prices and distribution. In the neoclassical case, this dependency is evident when economists set up perfectly competitive equilibrium models - and then retrofit them to reality with the generous help of endless shocks and imperfections (in the know-all language of the news agencies: 'oil prices have risen because of excess demand from China'; and a day later, 'despite excess demand from China, oil prices have fallen amid easing security concerns at Ras Tanura'). Marxists do the very same thing when they first articulate the laws of expanded reproduction and then immediately violate them with the endless mischief of force, mani- pulation and accumulation by dispossession.
Now, this mixture of hard and loose determination would be scientifically acceptable if we could somehow draw the line separating the objective laws
150 Capitalization
from their distortions. But neither neclassicists nor Marxists can do so, even on paper. The basic units of utility and abstract labour underlying these laws are pseudo-quantities and, by extension, so are their deviances and distor- tions. Moreover, even if these quantities were real and observable, there is still no obvious reason why human beings would have to obey any 'objective' law based on such units.
This critique does not imply social chaos. Far from it. Society is not a formless mass and its history is not a mere collection of accidents. There are rules, patterns and a certain logic to human affairs. But these socio-historical structures are created, articulated and instituted not from the outside, but by society itself. They are manifested through religion, the law, science, ideology, conviction, habit and force. Although embedded in the physis, they are all creatures of the nomos. Whether imposed by rulers for the sake of power or crafted by the demos for their own happiness, they are all made by human beings.
The above considerations are crucial for our purpose here, for, if we start from the nomos rather than utility or labour value, we end up with a com- pletely different concept of capital, a radically different understanding of accumulation and new ways to interpret capitalist development.
This part of the book begins our exploration of the capitalist nomos. The engine of capitalism, we argue, is the process of capitalization - the discounting into present value of future earnings. When we speak of capital accumulation we speak of the growth of capitalization. The current chapter sketches the anthropology of capitalization from its humble beginnings in fourteenth-century Italy to its all-embracing moment of the present. It shows that capitalization - and therefore the accumulation of capital - has little to do with 'means of production' and everything to do with the multifaceted restructuring of the capitalist order. This encompassing nature of accumula- tion in turn explains why prevailing theories of capitalization, both Marxist and neoclassical, head in the wrong direction. Chapter 10 shows that these theories, anchored in the supposedly productive underpinnings of capital, are inevitably led to view capitalization as a 'distortion'. Chapter 11 negates this view, laying the foundations for an alternative approach. It provides a frame- work that identifies the elementary particles of capitalization, outlines their significance and indicates how they form the basis for our new theory of 'capital as power'.
The unit of capitalist order
Every 'order' - in society, as in nature - is articulated or generated through categories and forms. 2 The most potent of these are numbers. The greater our ability to use numbers, the more accurate and comprehensive our capacity to
? 2 We use 'order' here in the sense of kosmeo, without normative connotations.
A brief anthropology 151
articulate order. In capitalism, the fundamental numerical unit is price. In principle, this unit can be assigned to anything that can be owned. In that sense, everything that can be owned - from natural objects, through produced commodities, to social organizations, ideas and human beings - can also be quantified. Moreover, the quantification is uniform across time and space. Prices in Europe of the eighteenth century are readily comparable to prices in India of the twenty-first century, just as the price of health care is readily comparable to that of nuclear weapons. This uniformity enables ownership to be intricately interrelated - or ordered - and with great precision.
Historically, the expansion of the capitalist price system progressed along two trajectories - one that incorporated into the process an ever-growing proportion of the population, and another that privatized and priced more and more social activities.
It is perhaps worth noting that the first systematic attempt to explain and justify prices appeared only in the early nineteenth century, long after the first theories of capitalism. John Locke (1690) had anchored private property in productivity in the seventeenth century, and Adam Smith (1776) had analysed the free market in the eighteenth. But it was only with David Ricardo's labour theory of value (1821) that the focus shifted explicitly to prices. And why the long delay? Partly because, until the nineteenth century, there wasn't a pressing need for such a theory: prices simply weren't that important.
It is of course well known that prices already existed in the early civili- zations of the Near East, and that in large ancient metropolises they even fulfilled a significant role. But the extent to which they ordered society remained limited. In Rome, for instance, prices were used in local markets, as well as in transportation and long-distance trade; yet roughly 90 per cent of the Roman population is estimated to have lived off farming, and three fourths of the output is believed to have been consumed by its own producers. Furthermore, even in the city of Rome, the annona food rations, although partly purchased by the authorities, were freely distributed to the popula- tion. 3 After the fall of the Roman Empire prices became even less important. During the feudal era, up to 90 per cent of the European population lived in the countryside, organized in autarkic units with little or no connection to prices. The bourgs in Italy and in the Low Countries used prices extensively, but these city states were small enclaves whose logic was antithetical to the feudal self-sufficiency in which they were embedded.
The first society to become subjugated to the architecture of prices was probably England. Symbolically, this transition happened sometime in the first half of the nineteenth century, as urban dwellers approached 50 per cent of the population. Since the cities depended on the countryside for food and
3 For the debate on the 'economic' nature of antiquity, see for example Finley (1973) and Temin (2001).
? 152 Capitalization
raw materials, the rural population too was gradually drawn into the price system. Other European countries followed in the footsteps of England, and by the late nineteenth century most had become predominantly urban. On a global level, however, the shift from self-sufficient agriculture to urban- dominated, price-denominated societies was much slower and was completed only in the twentieth century. In the 1900s, the worldwide rate of urbaniza- tion was still around 10 per cent, and it was only in the early years of the twenty-first century that it surpassed 50 per cent. 4
If we take capitalist urbanization as a rough proxy for the geographic spread of the price system, we can say that the architecture of prices emerged as a dominant way of organizing society only two centuries ago, and that it was only recently that its logic has come to dominate nearly every corner of the world.
In parallel to this expansion, the price system has also grown increasingly complex. Underlying this complexity is the explosive growth in the number of social activities denominated in prices. To give some sense of the magnitudes involved, consider the North American Industry Classification System (NAICS) and the North American Product Classification System (NAPCS), which together provide the most up-to-date method of categorizing indus- tries, establishments and the products and services they produce. 5 In this clas- sification, each 'industry' (a grouping of physical establishments with the same primary output) is identified by a 6-digit code, while each type of product or services is identified by a 10-digit code. The latter can accommo- date up to 100 billion possible prices (less one). If we assume that only 1/10th of these numbers are in use, we end up with 10 billion prices - the same order of magnitude as the world population. But that is merely the beginning. Typical 10-digit products include relatively broadly defined items such as 'fabricated automobile seat covers and tire covers', 'professional use hair mousse', 'rigid magnetic disk drives' and 'toothbrushes' - each of which comes in numerous shapes and forms. To describe all these shapes and forms, we would probably need an additional two or three digits. And there is more. The NAICS/NAPCS system does not include second-hand commodities, primary commodities or financial assets; it doesn't include future contracts or options that can be applied to every product and service; and it doesn't
4 Trends in the labour force tended to lead those in urbanization. The non-agricultural share of the English labour force surpassed 50 per cent already in the second half of the eighteenth century. By comparison, the US non-agricultural labour force accounted for 20 per cent of the total as late as 1800, and rose to more than 50 per cent only after the Civil War. In China, half of the population is still agricultural, while in India the proportion is two thirds (Cipolla 1980: p. 75, Table 2-6; Sullivan 1995; World Bank Online).
5 The NAICS/NAPCS replaces the earlier Standard Industrial Classification (SIC). For a detailed listing of NAICS/NAPCS manufacturing and mining categories from which the examples in this paragraph are taken see U. S. Department of Commerce. Economics and Statistics Administration (2004).
? A brief anthropology 153
include bundles of products and services. If we added these extra layers, the number of different prices would be much bigger, requiring even more digits.
All in all, then, it seems safe to conclude that the world today has billions and possibly trillions of different commodities, all denominated in universal price units and therefore connected through a single quantitative architecture that cuts across time and space. Marx began his Capital with reference to the 'immense accumulation of commodities' (1909, Vol. 1: 41). Yet even this most prescient observer would probably have found the present complexity of prices baffling. Nothing remotely similar has ever existed in human history.
The comprehensive reach, complexity and uniformity of the price system have made capitalism the most ordered society ever. In no prior epoch have numbers been so extensively and consistently used to describe, organize and shape human behaviour. Prices enable entirely new ways of re-ordering society. What previously required military conquest can now be done through currency devaluation; what once necessitated religious conversion today takes a mere shuffle of a few paper records we call portfolio investment. Furthermore, the highly malleable nature of prices - i. e. their remarkable ability to go up and down - makes capitalism by far the most dynamic of all historical orders. In fact, in capitalism change itself has become the key moment of order.
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
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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).
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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? Why anchor the logic of capitalism in quanta that cannot be shown to exist, and that no one - not even those who need to know them in order to set prices - has the slightest idea what they are? Isn't it possible that these capitalist ratios are simply the outcome of social struggles and cooperation?
Most political economists prefer to steer clear of such a loose determin- ation. The ideological stakes are simply too high. If prices and distribution are not determined by objective productive contributions, neoclassicists have nothing with which to explain income and justify profit. Similarly for the Marxists: without labour values there is no objective basis to condemn capitalist exploitation.
Unfortunately, and as already noted, this insistence on so-called objective determination is mostly a formality. In practice, political economists are entirely dependent on a very loose determination of prices and distribution. In the neoclassical case, this dependency is evident when economists set up perfectly competitive equilibrium models - and then retrofit them to reality with the generous help of endless shocks and imperfections (in the know-all language of the news agencies: 'oil prices have risen because of excess demand from China'; and a day later, 'despite excess demand from China, oil prices have fallen amid easing security concerns at Ras Tanura'). Marxists do the very same thing when they first articulate the laws of expanded reproduction and then immediately violate them with the endless mischief of force, mani- pulation and accumulation by dispossession.
Now, this mixture of hard and loose determination would be scientifically acceptable if we could somehow draw the line separating the objective laws
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from their distortions. But neither neclassicists nor Marxists can do so, even on paper. The basic units of utility and abstract labour underlying these laws are pseudo-quantities and, by extension, so are their deviances and distor- tions. Moreover, even if these quantities were real and observable, there is still no obvious reason why human beings would have to obey any 'objective' law based on such units.
This critique does not imply social chaos. Far from it. Society is not a formless mass and its history is not a mere collection of accidents. There are rules, patterns and a certain logic to human affairs. But these socio-historical structures are created, articulated and instituted not from the outside, but by society itself. They are manifested through religion, the law, science, ideology, conviction, habit and force. Although embedded in the physis, they are all creatures of the nomos. Whether imposed by rulers for the sake of power or crafted by the demos for their own happiness, they are all made by human beings.
The above considerations are crucial for our purpose here, for, if we start from the nomos rather than utility or labour value, we end up with a com- pletely different concept of capital, a radically different understanding of accumulation and new ways to interpret capitalist development.
This part of the book begins our exploration of the capitalist nomos. The engine of capitalism, we argue, is the process of capitalization - the discounting into present value of future earnings. When we speak of capital accumulation we speak of the growth of capitalization. The current chapter sketches the anthropology of capitalization from its humble beginnings in fourteenth-century Italy to its all-embracing moment of the present. It shows that capitalization - and therefore the accumulation of capital - has little to do with 'means of production' and everything to do with the multifaceted restructuring of the capitalist order. This encompassing nature of accumula- tion in turn explains why prevailing theories of capitalization, both Marxist and neoclassical, head in the wrong direction. Chapter 10 shows that these theories, anchored in the supposedly productive underpinnings of capital, are inevitably led to view capitalization as a 'distortion'. Chapter 11 negates this view, laying the foundations for an alternative approach. It provides a frame- work that identifies the elementary particles of capitalization, outlines their significance and indicates how they form the basis for our new theory of 'capital as power'.
The unit of capitalist order
Every 'order' - in society, as in nature - is articulated or generated through categories and forms. 2 The most potent of these are numbers. The greater our ability to use numbers, the more accurate and comprehensive our capacity to
? 2 We use 'order' here in the sense of kosmeo, without normative connotations.
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articulate order. In capitalism, the fundamental numerical unit is price. In principle, this unit can be assigned to anything that can be owned. In that sense, everything that can be owned - from natural objects, through produced commodities, to social organizations, ideas and human beings - can also be quantified. Moreover, the quantification is uniform across time and space. Prices in Europe of the eighteenth century are readily comparable to prices in India of the twenty-first century, just as the price of health care is readily comparable to that of nuclear weapons. This uniformity enables ownership to be intricately interrelated - or ordered - and with great precision.
Historically, the expansion of the capitalist price system progressed along two trajectories - one that incorporated into the process an ever-growing proportion of the population, and another that privatized and priced more and more social activities.
It is perhaps worth noting that the first systematic attempt to explain and justify prices appeared only in the early nineteenth century, long after the first theories of capitalism. John Locke (1690) had anchored private property in productivity in the seventeenth century, and Adam Smith (1776) had analysed the free market in the eighteenth. But it was only with David Ricardo's labour theory of value (1821) that the focus shifted explicitly to prices. And why the long delay? Partly because, until the nineteenth century, there wasn't a pressing need for such a theory: prices simply weren't that important.
It is of course well known that prices already existed in the early civili- zations of the Near East, and that in large ancient metropolises they even fulfilled a significant role. But the extent to which they ordered society remained limited. In Rome, for instance, prices were used in local markets, as well as in transportation and long-distance trade; yet roughly 90 per cent of the Roman population is estimated to have lived off farming, and three fourths of the output is believed to have been consumed by its own producers. Furthermore, even in the city of Rome, the annona food rations, although partly purchased by the authorities, were freely distributed to the popula- tion. 3 After the fall of the Roman Empire prices became even less important. During the feudal era, up to 90 per cent of the European population lived in the countryside, organized in autarkic units with little or no connection to prices. The bourgs in Italy and in the Low Countries used prices extensively, but these city states were small enclaves whose logic was antithetical to the feudal self-sufficiency in which they were embedded.
The first society to become subjugated to the architecture of prices was probably England. Symbolically, this transition happened sometime in the first half of the nineteenth century, as urban dwellers approached 50 per cent of the population. Since the cities depended on the countryside for food and
3 For the debate on the 'economic' nature of antiquity, see for example Finley (1973) and Temin (2001).
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raw materials, the rural population too was gradually drawn into the price system. Other European countries followed in the footsteps of England, and by the late nineteenth century most had become predominantly urban. On a global level, however, the shift from self-sufficient agriculture to urban- dominated, price-denominated societies was much slower and was completed only in the twentieth century. In the 1900s, the worldwide rate of urbaniza- tion was still around 10 per cent, and it was only in the early years of the twenty-first century that it surpassed 50 per cent. 4
If we take capitalist urbanization as a rough proxy for the geographic spread of the price system, we can say that the architecture of prices emerged as a dominant way of organizing society only two centuries ago, and that it was only recently that its logic has come to dominate nearly every corner of the world.
In parallel to this expansion, the price system has also grown increasingly complex. Underlying this complexity is the explosive growth in the number of social activities denominated in prices. To give some sense of the magnitudes involved, consider the North American Industry Classification System (NAICS) and the North American Product Classification System (NAPCS), which together provide the most up-to-date method of categorizing indus- tries, establishments and the products and services they produce. 5 In this clas- sification, each 'industry' (a grouping of physical establishments with the same primary output) is identified by a 6-digit code, while each type of product or services is identified by a 10-digit code. The latter can accommo- date up to 100 billion possible prices (less one). If we assume that only 1/10th of these numbers are in use, we end up with 10 billion prices - the same order of magnitude as the world population. But that is merely the beginning. Typical 10-digit products include relatively broadly defined items such as 'fabricated automobile seat covers and tire covers', 'professional use hair mousse', 'rigid magnetic disk drives' and 'toothbrushes' - each of which comes in numerous shapes and forms. To describe all these shapes and forms, we would probably need an additional two or three digits. And there is more. The NAICS/NAPCS system does not include second-hand commodities, primary commodities or financial assets; it doesn't include future contracts or options that can be applied to every product and service; and it doesn't
4 Trends in the labour force tended to lead those in urbanization. The non-agricultural share of the English labour force surpassed 50 per cent already in the second half of the eighteenth century. By comparison, the US non-agricultural labour force accounted for 20 per cent of the total as late as 1800, and rose to more than 50 per cent only after the Civil War. In China, half of the population is still agricultural, while in India the proportion is two thirds (Cipolla 1980: p. 75, Table 2-6; Sullivan 1995; World Bank Online).
5 The NAICS/NAPCS replaces the earlier Standard Industrial Classification (SIC). For a detailed listing of NAICS/NAPCS manufacturing and mining categories from which the examples in this paragraph are taken see U. S. Department of Commerce. Economics and Statistics Administration (2004).
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include bundles of products and services. If we added these extra layers, the number of different prices would be much bigger, requiring even more digits.
All in all, then, it seems safe to conclude that the world today has billions and possibly trillions of different commodities, all denominated in universal price units and therefore connected through a single quantitative architecture that cuts across time and space. Marx began his Capital with reference to the 'immense accumulation of commodities' (1909, Vol. 1: 41). Yet even this most prescient observer would probably have found the present complexity of prices baffling. Nothing remotely similar has ever existed in human history.
The comprehensive reach, complexity and uniformity of the price system have made capitalism the most ordered society ever. In no prior epoch have numbers been so extensively and consistently used to describe, organize and shape human behaviour. Prices enable entirely new ways of re-ordering society. What previously required military conquest can now be done through currency devaluation; what once necessitated religious conversion today takes a mere shuffle of a few paper records we call portfolio investment. Furthermore, the highly malleable nature of prices - i. e. their remarkable ability to go up and down - makes capitalism by far the most dynamic of all historical orders. In fact, in capitalism change itself has become the key moment of order.
