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Unlike the elusive liberals, Marxists try to deal with power head on – yet they too end up with a fractured picture. Unable to fit power into Marx’s value analysis, they have split their inquiry into three distinct branches: a neoMarxian economics that substitutes monopoly for labour values; a cultural analysis whose extreme versions reject the existence of ‘economics’ altogether (and eventually also the existence of any ‘objective’ order); and a state theory that oscillates between two opposite positions – one that prioritizes state power by demoting the ‘laws’ of the economy, and another that endorses the ‘laws’ of the economy by annulling the autonomy of the state. Gradually, each of these branches has developed its own orthodoxies, academic bureaucracies and barriers. And as the fractures have deepened, the capitalist totality that Marx was so keen on uncovering has dissipated.
Part II: the enigma of capital These unsolved dilemmas left accumulation in a no-man’s land. The dismal scientists insisted that capital is an ‘economic’ entity and quickly appropriated the exclusive right to theorize, justify and criticize it. But as often happens with uncontested monopolies, the service hasn’t been something to write home about. It has now been more than two centuries since economists started to work on capital, and they have yet to figure it out....
Chapter 5 examines the liberal debacle. The key purpose of neoclassical economics is to justify the profit of capital; and it does so by making the income of capitalists equal to the productivity of their capital. This justification, though, faces two insurmountable obstacles. First, according to its own prerequisites, the theory can work only under the strict conditions of a perfectly competitive economy untainted by politics and power. Ironically, though, this explanation emerged at the end of the nineteenth century, precisely when oligopoly replaced ‘competition’; and it gained prominence after the Second World War, exactly when governments started to ‘intervene’ in earnest. Second, and more importantly, even if pure competition did prevail and there was no government in sight, the theory would still fall flat on it face. In order to explain profit by the productivity of capital, we first need to know the quantity of that capital. Yet it so happens that in order to know the quantity of capital, we first have to know the amount of profit! And since there is no way to tell the chicken from the egg, the neoclassicists continue to run in circles.
Unlike liberals, Marxists do not try to justify profit. On the contrary, their entire effort aims at showing that capitalists can accumulate only by exploiting workers. And yet, since their notion of capital, just like the neoclassical one, is anchored in the ‘economy’, they end up falling into the same materialistic traps. These traps are crucial – so crucial, in fact, that they Why write a book about capital? 13 undermine Marx’s entire theory of accumulation. And since most people who are otherwise sympathetic to Marx’s critique of capitalism are unaware of these difficulties, we devote two full chapters – 6 and 7 – to their examination.
The commodified structure of capitalism, Marx argues, is anchored in the labour process: the accumulation of capital is denominated in prices; prices reflect labour values; and labour values are determined by the productive labour time necessary to make the commodities. This sequence is intuitively appealing and politically motivating, but it runs into logical and empirical impossibilities at every step of the way. First, it is impossible to differentiate productive from unproductive labour. Second, even if we knew what productive labour was, there would still be no way of knowing how much productive labour goes into a given commodity, and therefore no way of knowing the labour value of that commodity and the amount of surplus value it embodies.
And finally, even if labour values were known, there would be no consistent way to convert them into prices and surplus value into profit. So, in the end, Marxism cannot explain the prices of commodities – not in detail and not even approximately. And without a theory of prices, there can be no theory of profit and accumulation and therefore no theory of capitalism.
And that isn’t the end of the story. Chapter 8 shows that political economists are having trouble explaining not only how and why capital accumulates, but also what accumulates. As noted earlier in the introduction, neoclassicists pretend to count capital in ‘utils’ and Marxists in hours of ‘abstract labour’. Unfortunately, though, there can be no ‘economy’ distinct from politics and other aspects of society; and even if the ‘economy’ were an independent sphere, its production and consumption could not be ‘objectively’ given. These two impossibilities turn the search for universal material–economic units into an exercise in futility.
Part III: capitalization That capital theorists remain so hooked on production and consumption is all the more perplexing given that capitalists themselves are not. Whereas political economists are focused on capital goods, capitalists think of capitalization. The theorists, both mainstream and critical, are nonchalant about this difference. Capitalization, they say, is merely a ‘nominal’ reflection – sometimes accurate, other times distorted – of the ‘real’ economy. Capitalists certainly care about their money assets, but the only way to understand the accumulation of such assets is by theorizing their material underpinnings.
Well, it turns out that this isn’t really the case. Chapter 9 begins our exploration of capitalization, tracing its evolution from its modest beginning in the fourteenth century to its world dominance in the twenty-first. It shows that capitalization not only predates ‘industrialization’ by a few hundred years, but also that it is far more encompassing than is typically assumed – so encompassing, in fact, that in our own day and age it has penetrated every 14 Why write a book about capital?
corner of society and absorbed many of its power processes. Production, narrowly defined, has become merely one of the many faces of capitalization.
But if production is only one aspect of capitalization, how can it serve to explain it? The answer is that it doesn’t. Chapter 10 contrasts the ‘nominal’ process of capitalization with the so-called ‘real’ augmentation of capital goods. It demonstrates that the money value of ‘capital goods’ is a very small fraction of the overall value of capitalization, and that their ratio varies widely over time. But most disturbingly, it shows that the rates of growth of the two magnitudes move in opposite directions: when the growth of the ‘capital stock’ accelerates, the growth of capitalization decelerates and vice versa!
Faced with these facts of life, particularly the last one, the theorists must make a choice: stick with the so-called ‘real economy’ and treat capitalization as a distorted mirror if not a mere fiction; or stay focused on what drives the capitalists and try to develop a social theory of capitalization that transcends the fetish of material production and capital goods. Most political economists have taken the first route. We choose the second.
Chapter 11 unzips the capitalization process. We identify the different ‘elementary particles’ that make up the capitalization formula, examine their actual and ideological histories, dissect their properties and study their interrelations. This analysis provides a broad framework on which we can build an alternative theory of capital as power.
Lineages Before outlining this theory, though, a few words about origins and influences. Although critical of Karl Marx’s theory of value, we are deeply influenced by his general approach, primarily his notion of capitalism as the political regime of capital. In the twentieth century, Marx’s followers have modified and adapted his insights to the changing nature of capitalism, and debating their theories has helped us shape our own.
In addition to Marx and his followers, we draw on the largely neglected if not forgotten writings of Thorstein Veblen, Lewis Mumford and Michal Kalecki. Veblen was perhaps the first thinker to seriously consider absentee ownership, finance and credit as the central power mechanisms of capitalism.
He was also the first to ponder the implications of power – or ‘sabotage’, as he called it – for the concept of capital.
Mumford, who was a student and colleague of Veblen, provided a unique history of technology as power. The first machines, he argued, were social rather than material. They made their initial appearance in the ancient delta civilizations in the form of a mechanized social order – the mega-machine.
According to Mumford, the social mega-machine provided the model for all subsequent material and social mechanization – a claim with far-reaching consequences for the study of capitalism.
Kalecki, one of the founders of neo-Marxian economics, developed novel Why write a book about capital? 15 research methods, both theoretical and empirical. Of these, perhaps the most innovative is the notion of the ‘degree of monopoly’: the idea that the distribution of income is not merely the consequence of economic power, but its very definition.
Taken together, these views – particularly Marx’s emphasis on the political regime of capital, Veblen’s linking of financial capitalization and industrial sabotage, Mumford’s notion of social organization as a power machine and Kalecki’s distributive measurement of power – constitute our starting point.
We use them, critically if we can, as stepping stones for our own theory of capital.
However, these influences do not make us members of any ‘school’.
Although we have been inspired by Veblen, we consider ourselves neither Veblenians nor institutionalists. Similarly with Marx. Our critique of his schema – particularly his labour theory of value and his notion of surplus value – ‘disqualifies’ us from being Marxist. That said, though, the general thrust of our project is very much in line with Marx’s. Like Marx, we too try to confront the concrete capitalist reality; to examine its actual gyrations, ideologies and justifications; and, above all, to decipher its central architecture: the accumulation of capital. In our opinion – again in line with Marx’s – investigating the capitalist reality is the first prerequisite for changing it.
Needless to say, this type of analysis is antithetical – in method, spirit and aim – to the institutionalism and system approach of Max Weber and Talcott Parsons. It also has nothing to do with the so-called ‘new institutionalism’ of Ronald Coase, Douglas North and Oliver Williamson. The latter school subjugates the logic of organizations and institutions to the marginal calculus of neoclassical utility. The very idea would have made Veblen flip in his grave.
Part IV: bringing power back in Chapter 12 begins our examination of power with a focus on capital and the corporation. The starting point is Veblen. His theoretical framework, articulated at the turn of the twentieth century, was radically different from the orthodoxy of his time (and of our own time still). ‘Industry’ and ‘business’, he argued, are not synonyms, contrary to what conventional political economy would have us believe. On the contrary, they are opposing realms of human activity: industry is the sphere of material production, while business is the domain of pecuniary distribution, and the link between them is not positive but negative.
Industry is a collective endeavour. Its success hinges on societal creativity, cooperation, integration and synchronization. In capitalism, however, industry is carried out not for its own sake but for the purpose of business.
And the goal of business isn’t collective well being, but pecuniary profit for differential gain.
Now the critical bit here is that industry and business are inherently 16 Why write a book about capital?
distinct. Modern capitalists are removed from production: they are absentee owners. Their ownership, says Veblen, doesn’t contribute to industry; it merely controls it for profitable ends. And since the owners are absent from industry, the only way for them to exact their profit is by ‘sabotaging’ industry. From this viewpoint, the accumulation of capital is the manifestation not of productive contribution but of organized power.
To be sure, the process by which capitalists ‘translate’ qualitatively different power processes into quantitatively unified measures of earnings and capitalization isn’t very ‘objective’. Filtered through the conventional assessments of accountants and the future speculations of investors, the conversion is deeply inter-subjective. But it is also very real, extremely imposing and, as we shall see, surprisingly well-defined.
These insights can be extended into a broader metaphor of a ‘social hologram’: a framework that integrates the resonating productive interactions of industry with the dissonant power limitations of business. These hologramic spectacles allow us to theorize the power underpinnings of accumulation, explore their historical evolution and understand the ways in which various forms of power are imprinted on and instituted in the corporation.
Our inquiry paints a picture that is very different from – and often inverts – the canonical images of political economy. It shows that business enterprise diverts and limits industry instead of boosting it; that ‘business as usual’ needs and implies strategic limitation; that most firms are not passive price takers but active price makers, and that their autonomy makes ‘pure’ economics indeterminate;9 that the ‘normal rate of return’, just like the ancient rate of interest, is a manifestation not of productive yield but of organized power;
that the corporation emerged not to enhance productivity but to contain it;
that equity and debt have little to do with material wealth and everything to do with systemic power; and, finally, that there is little point talking about the deviations and distortions of ‘financial capital’ simply because there is no ‘productive capital’ to deviate from and distort.
Now, the notion that power is the means of accumulation is only half the story; the other half is that power is also the ultimate end of accumulation.