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Worse still, class was now competing with new concepts, particularly the ‘masses’. The twentieth century brought fascism, a new regime that rejected the Enlightenment, cast off rationalism and shifted the entire ideological emphasis of social theory. Instead of production, fascism accentuated power;

in lieu of class, it spoke of state, organization and oligarchy. Following fascism, social scientists began to emphasize a new set of categories – ‘mass’, ‘crowd’, ‘bureaucracy’, ‘elite’ and, eventually, the ‘system’ – categories that appeared more flexible and better suited to the changing times than the rigid and anachronistic class demarcations of political economy.

Fourth and finally, the objective–mechanical cosmology of the Newtonian and liberal revolutions started to fracture. In its stead came an indecisive worldview of uncertainty, risk and probability, of relative time/space, of an unsettling entanglement of particles and of a rather hazy separation between observer and reality. These developments have been used to justify further movements away from the scientific–universal principles of political economy. Vitalism, ethnic identity and racism have all flourished in the name of cultural pluralism. Anti-scientists have challenged the so-called 44 Dilemmas of political economy binary ‘essentialism’ of ‘Eurocentrism’. Lord Bacon was dead. Ignorance has become strength.

Suddenly, power was everywhere, and it contaminated everything. The anonymous market, measurable capital and class have all become suspect.

The old categories seemed to be melting, along with the determinism that held them together. Political economy had entered a new, uncharted territory.

4 Deflections of power

–  –  –

The new realities of power posed a dilemma for twentieth-century political economists. There were two options, both unpalatable: ignore reality in order to protect the theoretical duality of politics and economics, or sacrifice the theoretical duality in order to better deal with reality. In general, mainstream theorists have taken the first path, trying to keep power out of their analysis.

The result: a shrinking domain of admissible questions complemented by a widening range of ad hoc explanations. Marxists have tended to move in the opposite direction, seeking to incorporate power into their theories. But as they opened up their models, what they gained in practical insight and political expediency they lost in scientific cohesion, consistency and accuracy.

Their explanations, although often illuminating and politically purposeful, served to fracture Marx’s theoretical framework and undermine its original unity.

And so, in the end, power got deflected. Most theorists ignore it, and even

the few who address it keep it safely outside the concept that matters most:

capital itself. The reason isn’t difficult to see. To put power in capital means the end of determinism and the beginning of autonomy. It undermines the foundations of existing models. It calls for a fundamental rethinking of political economy. To paraphrase Huxley, it is like opening a Pandora’s Box in a Cyprian colony of Alpha Double Plus theorists. And since nobody likes having their theoretical throat cut, it is much safer to leave the matter locked in the box.

The purpose of this chapter is to highlight these deflections of power and assess their consequences for the development of political economy. This emphasis implies two important biases. First, our concern here is not the evolution of modern political economy as such, but how this evolution has been shaped in relation to power. Consequently, we make no attempt to be 46 Dilemmas of political economy comprehensive. Since our aim is conceptual, we focus on seminal contributions and important turning points, at the obvious expense of secondary sources and subsequent variations. Second, since liberal analyses tend to avoid power while Marxist theories to endorse it, we naturally pay more attention to the latter than the former.

Liberal withdrawal and concessions Liberal theorists, being increasingly on the defensive, have generally opted for the first choice: protecting the duality by sidestepping reality. Toward the end of the nineteenth century, their fighting spirit withered and eventually mutated into neoclassical apologetics. By the beginning of the twentieth century, they began a mass retreat into the make-believe world of perfectly competitive equilibrium, a heavily subsidized twilight zone in which power could be safely ignored. They zealously excluded from their pure economic framework the capitalist state, wars, large corporations, classes, collective action, ideology and every other power process, organization and institution that could not easily be reduced to the atomistic logic of utility maximization.

They ended up with a very narrow domain populated by fictitious ‘actors’, all small, rational and powerless. In this imaginary world, laissez faire interactions continued to yield an optimal utilitarian equilibrium, as the theory dictated.1 The global crisis of the 1930s forced liberals to make a major concession.

Following John Maynard Keynes’ General Theory (1936), they conceded that in fact there was not one, but two economic realities: a competitive microeconomic sphere where the interaction of atomistic consumers and producers generates the efficient outcome stipulated by neoclassical manuals; and another macroeconomic realm that unfortunately produces occasional market failures. The first reality works exactly as it should and therefore must be kept free of political intervention. But the second reality has a built-in imperfection and sometimes needs the oversight of governments. Power, 1 After the Second World War, neoclassicists embarked on a counter-revolution that other social scientists decried as ‘economic imperialism’. This intellectual imperialism, which emanated mostly from the Chicago School, argues that, no matter what you do, you simply can’t beat the market. According to this view, distortions of ‘perfect competition’, such as oligopoly and labour unions, are more apparent than real, and those that do exist are politically motivated and therefore reversible. Furthermore, many so-called non-economic phenomena – from marriage, through unemployment, to war – are in fact based on utilitarian decisions and therefore reducible to ‘economic’ reasoning (Stigler 1988: Ch. 10, ‘The Chicago School’). In parallel, neoclassical economists have tried to hide the dogma’s underlying assumptions by developing models that presumably do not need such assumptions (see for example Arnsperger and Varoufakis 2005). Of course, these deviations are mostly lip service. If they were ever to become the rule, the dogma would become logically subversive and hence ideologically useless.





Deflections of power 47 although merely ‘political’, was thus brought into economics through the back door.

Few liberals care to admit it, but this introduction of power has thrown their economics into disarray. Previously, neoclassicists could pretend that extra-economic distortions were local, or at least temporary, and therefore redundant for theoretical purposes. But how do you assume away the permanent presence of a large government that directly accounts for 20–40 per cent of all economic activity and that regulates and meddles with much of the rest?

And with the government always in the picture, what remains of the assumptions of perfect competition, efficient allocation and the primacy of individual choice? Most importantly, with state officials now setting the rules and making many of the big decisions, how could one continue to talk about spontaneous equilibrium? And if the autonomy of individual ‘agents’ and their equilibrium are thus contaminated, what is left of the textbook reality of microeconomics?

The answer is very little. Alfred Marshall’s ‘representative’ firm – a transmutation of Descartes’ corps hypothétique – has little to do with the likes of Exxon and Microsoft, Bechtel and Pfitzer, Mitsui and Adia. Given that the latter not only operate in a highly concentrated business structure, but are also embedded in an integrated corporate–statist space, liberal economists no longer have the tools to analyse them. They cannot tell us whether the profit and capitalization of these firms belong to the micro or macro spheres, what yardstick we should use to separate these two spheres, or if such separation is possible to begin with.

Neo-Marxism In contrast to the liberals, Marxists addressed the new power reality head on.

Their rethinking of power already began with Friedrich Engels, who, by the 1890s, established himself as the unofficial patriarch of the social-democratic church with the final say on all matters theoretic. These early revisions marked the birth of neo-Marxism, a multifaceted attempt to revisit and adapt Marx to the twentieth century.

The basic rationale of neo-Marxism rested on several related observations.

First, the transition from competitive to monopoly capitalism made Marx’s labour theory of value impractical. The problem was not only that monopolistic market prices were set ‘arbitrarily’ and independently of labour time, but also that the value of labour power itself was no longer kept at subsistence.

In fact, there emerged what anarchist Mikhail Bakunin first referred to as an ‘aristocracy of labour’, a relatively well-paid, ‘semi-bourgeois layer of workers’ (1872: 294). Engels still tried to work around this ‘aristocracy in the working class’, arguing that although manufacturing and unionized workers saw their income rise, these gains were the exception, and that Marx’s subsistence law of wages was still valid (cited in Howard and King 1989: 9–10). But 48 Dilemmas of political economy the floodgates were now open and the idea of a two-pronged labour force spread quickly, including into radical utopian literature.2 By the early twentieth century, the existence of a labour aristocracy had become a key assumption underlying Lenin’s domestic and international strategy. In his famous tract on Imperialism (1917), he announced that, unlike in Russia, in Western Europe the workers and social democratic parties had been co-opted into collaborating with the imperialists against the proletariats of the periphery, and that this development completely changed the nature of the class struggle (as we explain below).3 Second, capitalism, argued the neo-Marxists, had been ‘financialized’. The ‘industrial’ capital that dominated Marx’s analysis had given rise to ‘finance capital’, a fusion of the leading banks, commercial oligopolies and leading industrialists. Contrary to its competitive precursor, finance capital applied output constraints, manipulated financial markets and forced capitalist governments into protectionism, wage controls and militarized expansion of foreign markets (Engels 1894; Hilferding 1910).

Third, the nature of capitalist crisis had changed. Marx focused on cyclical crises, which he attributed to the anarchy of inter-capitalist competition.

Monopoly capitalism, by contrast, was seen as suffering from a persistent lack of markets: chronic underconsumption mirrored by chronic overproduction (Engels 1886; Hilferding 1910; Sweezy 1942: Chs XII and XV).

Fourth, as a consequence of these developments, capitalists changed their attitude toward the state. In the competitive phase, they preferred a small government financed by minimal taxation and whose sole purpose was to protect their property and prevent workers from revolting. But now finance capital needed a strong state – one that would generate sufficient demand, regulate internal politics and support the export of excess capital.

Fifth and last, the combination of monopoly capitalism and a strong state undermined the original liberal idea of peaceful accumulation. During the first part of the nineteenth century, international conflict appeared to be declining. But in the second half of the nineteenth century increased struggle for colonial extension caused bellicosity and violence to soar, and in the twentieth century militarization and expansionism already dominated. It seemed as if capitalism inevitably culminates in imperialism.

Together, these developments engendered a fundamental rethinking of the nature of conflict in capitalism. According to Marx, the central capitalist process is a class struggle between industrial workers and capitalist owners.

Their conflict is waged over the productive process; its conceptual arena is the 2 In his novel The Iron Heel (1907), Jack London describes how the capitalist oligarchy bribes the large unions into submission, eventually leading to the creation of hereditary labour castes that align with the oligarchs against the rest of the working class.

3 It is perhaps worth noting that, in discussing the peripheral proletariat, Lenin and his successors tended to avoid mentioning the many millions of Soviet workers who populated the abstract gulags of simple labour.

Deflections of power 49 factory; and its geographical epicentre is the advanced capitalist nations of Western Europe and the United States.

The neo-Marxists shifted the focus from class to state. Many now argued that, in the twentieth century, the key conflict was no longer between capitalists and workers per se, but between the developed capitalist states of the centre and the ‘dependent’ countries and regions of the periphery – or, in the Stalinist version, between the United States and the Soviet Union. For communists to participate in the anti-capitalist struggle now meant to blindly obey the party line dictated by Moscow.

All in all, very little was left of Marx’s original science. In the process of coming to terms with power and adjusting their politics to the changing world, neo-Marxists have had to abandon the elegance and comprehensiveness of Marx’s model. The labour theory of value, the inherent crisis tendencies of capitalism, the nature of the class conflict – and, indeed, the very duality of politics and economics – were all put into question.



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