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This duality of political equality and economic inequality produces a destructive contradiction. Recall that, according to Marxists, capital accumulates in the economic–productive sphere. This is where class conflict is generated, labour exploited and surplus value expropriated. But the economic process cannot occur independently of politics. Accumulation, because it is based on exploitation, cannot be sustained at the level of the individual producer-employer alone. It requires legal, ideological and cultural institutions; it needs state organs and other power organizations; it has to be framed, shaped and contained from above. In short, it requires the political power of a (nation) state. In this way, the institutions and organizations of power – although unproductive in the direct economic sense – are nonetheless indispensable for maintaining and reproducing the economic order as a whole. At the same time, these very institutions and organizations are nourished by and depend on the surplus extracted in the economic sphere. In this sense, the economic base of exploitation can exist only under a political superstructure of oppression, and vice versa.

But that requirement makes capitalist politics inherently contradictory:

liberal politics has to be equal in ideology and theory, yet unequal in practice.

And since this contradiction is produced by the very nature of capitalism, the only way to resolve it is to overthrow the system altogether. Eliminating the exploitation of workers by capitalists will simultaneously eliminate the duality of politics and economics. (Marxists, of course, express both the contradiction and its resolution dialectically rather than mechanically as we have done here, and certainly with far greater finesse; but their political conclusion is essentially the same.) Capitalism from below, capitalism from above To sum up, then, both neoclassicists and Marxists separate politics from economics, although for different reasons. The neoclassicists see the separation as desirable and, if handled properly, potentially beneficial. By contrast, Marxists view the distinction as contradictory and, in the final analysis, destructive for capitalism. Yet, both conclusions, although very different, are deeply problematic – and for much the same reason.

The difficulty lies less in the explanation of the duality and more in the widespread assumption that such a duality exists in the first place. Even E. P.

Thompson, a brilliant historian who was otherwise critical of Marxist theoretical abstractions, seems unable to escape it. Writing on the development of British capitalism from the viewpoint of industrial workers, he describes the class socialization of workers as ‘subjected to an intensification of two intolerable forms of relationship: those of economic exploitation and of political 30 Dilemmas of political economy oppression’ (1964: 198–99). In this dual world, the industrial labourer works for and is exploited by the factory owner – and when he organizes in opposition, in comes the policeman who breaks his bones, the sheriff who evicts him and the judge who jails him.

Now, this bifurcation is certainly relevant and meaningful – but only up to a point. From the everyday perspective of a worker, an unemployed person, a professional, even a small capitalist, economics and politics indeed seem distinct. As noted, most people tend to think of entities such as ‘factory’, ‘head office’, ‘pay cheque’ and ‘shopping’ differently from the way they think of ‘political party’, ‘taxation’, ‘police’, ‘military spending’ and ‘foreign policy’.

Seen from below, the former belong to economics, the latter to politics.

But that is not at all what capitalism looks like from above. It is not how the capitalist ruling class views capitalism, and it is not the most revealing way to understand the basic concepts and broader processes of capitalism.

When we consider capitalist society as a whole, the separation of politics and economics becomes a pseudofact. Contrary to both neoclassicists and Marxists who see this duality as inherent in capitalism, in our view it is a theoretical impossibility, one that is precluded by the very nature of capitalism. To paraphrase David Bohm (1980), from this broader perspective, the politics–economics duality is not a useful division, but a misleading fragmentation. It cannot be shown to exist – and if it did exist, profit and accumulation would cease and capitalism would disappear.

The consequences of this entanglement for capital theory are dramatic. As we shall demonstrate, without an ‘economy’ clearly demarcated from ‘politics’ we can no longer speak of quantifiable utility and objective labour value;

and with these measures gone, neoclassical and Marxian capital theories lose their basic building blocks. They can observe that Microsoft is worth $300 billion and that Toyota pays $2 billion for a new factory, but they cannot explain why.

Real and nominalThe classical dichotomy

As noted, underneath the broad duality of politics and economics lies the further bifurcation of the economy itself. Following the so-called Classical Dichotomy, first suggested in the eighteenth century by British philosopher David Hume, neoclassicists separate economic life into ‘real’ and ‘nominal’ domains. Of the two, the real sphere is primary, the nominal secondary. The real sphere is where production and consumption take place and relative prices and distribution are determined. The nominal sphere is the domain of money and absolute prices, and it both lubricates and reflects the input– output processes of the real economy.





At the root of this duality lies an attempt to justify capitalist profit and wealth. The liberal claim – first voiced in the European city-states of the thirThe dual worlds 31 teenth and fourteenth centuries and later formalized in John Locke’s Two Treatises of Government (1690) – is that private property emerges from one’s own labour. This claim makes the bourgeoisie unique: earlier dominant classes looted their wealth and therefore needed religion to sanctify it; the capitalists, by contrast, produce their wealth with their effort and hence have a natural right to own it.3 Nominal income and assets, therefore, are derivative not of mercantilist plunder but of actual production with real capital goods, and that makes them fully justified. The productivity of the capitalist, intertwined with his existing capital goods, results in monetary earnings. These earnings in turn are ploughed back into producing more capital goods, leading to more monetary wealth, more capital goods, more earnings, and so on in an everexpanding spiral. In this way, the money value of finance, measured in dollars and cents, reflects and manifests the physical capital stock created by the capitalist.

Of course, the correspondence is far from perfect. As it turns out, the ups and downs of the stock and bond markets are rather difficult to correlate with changes in the capital stock – particularly since, as we shall see in Chapter 10, the two measures tend to move in opposite directions. But this mismatch hasn’t been much of a concern. Liberals have solved it by putting into work an army of ‘distortionists’ – theorists, strategists and analysts who pry on ‘institutional imperfections’ and ‘exogenous shocks’. The theory, argue the distortionists, is perfectly fine. The problem is with the extra-economic forces – the shocks that constantly besiege the otherwise pure economic system, contaminate its real and nominal spheres and fracture their pristine correspondence.

Once you account for these distortions, it becomes clear why finance is always dependent on – yet forever delinked from – its true material essence.

The Marxist mismatch Although the Marxist logic on this subject is radically different, its conclusions are surprisingly similar. Contrary to the liberals, Marx sought to annul the bourgeois justification for profit. He agreed that value is created in the material sphere – but instead of multiple factors of production, he insisted that there is only one: labour. The value of all commodities – including that of capital goods – is determined by productive labour alone.

3 Perhaps the first to explicitly associate income with productivity were the university professors. Knowledge (scientia) was the gift of God and therefore could not be sold, but the new urban intellectuals found a better leverage: the notion that all work deserves a salary. ‘We find it irrational that the worker not profit from his work’, argued the doctors of law in thirteenth-century Padua, and then went on to conclude that ‘the master may accept the money

of students – the collecta – as the price of his work, of his trouble’ (quoted in Le Goff 1993:

94–95).

32 Dilemmas of political economy In this scheme, not all capitals are created equal. The so-called industrial capitalist, the employer of productive labour, does possess real capital. But the commercial and financial capitalists – insofar they employ only unproductive labour and therefore produce neither value nor surplus value – do not own real capital. Although they accumulate moneyed capital, they do so merely by appropriating some of the surplus value generated by industrial capitalists. The resulting intra-capitalist redistribution creates a mismatch. It means that the nominal magnitude of any particular capital is likely to differ from its underlying real magnitude: for the industrialist the nominal will be lower than the real, while for the commercial and financial capitalist the nominal will exceed the real (which may well be zero).

The nominal–real mismatch is further amplified by the forward-looking nature of financial markets. Stock and bond prices represent the present value of expected future earnings. Because we deal with expectations, these future earnings may or may not be ‘realized’. And since the earnings are merely tentative, there is no reason why finance should be equal to – or even correlate with – capital goods that already exist here and now. For this reason Marx considered financial assets to be ‘fictitious capital’ – in contrast to the ‘real capital’ anchored in the dead labour of realized surplus value.

And, here, too, the Marxists find themselves stuck in a liberal duality.

They portray a world in which the parasitic capitalists of commerce and finance suck in surplus from the productive capitalists of industry, where speculative market bubbles inflate and deflate around the fundamentals of production, where the fiction of finance distorts the true picture of real accumulation. The specific categories and theories differ from those of the liberals, but the real–nominal bifurcation that underlies them is the same.

Quantitative equivalence?

Separating the real from the nominal enables the theorist to play both cards. On the one hand, he can stand by the theory, insisting that in the final analysis nominal finance derives from the reality of capital goods. On the other hand, when the difference between finance and capital goods gets too larger, he can suspend the theory – at least temporarily, until the ‘distortions’ go away.

This convenient doublespeak serves to conceal a deep ontological difficulty. At issue here is the very assumption of quantitative equivalence. Both neoclassicists and Marxists believe that capital has two quantities – one nominal, the other material. And they further believe that, under ideal circumstances – without intervening factors and other extra-economic distortions – these two quantities are equivalent.

As we shall show, this assumption rests on foundations of sand. Its first component – the belief that capital has two quantities – falls flat on its face. Capital certainly has a nominal quantity. We know its price in dollars and cents. But capital does not have – and indeed cannot have – a material The dual worlds 33 quantity. The second belief, namely that the two quantities of capital are equivalent, is also seriously problematic. Even if capital goods did have a material quantity, why should this quantity have anything to do with the nominal value of capital? Capital, this book argues, is not a productive economic entity; it is a broad power institution. And if that is the case, what could the ‘mass’ of machines – even if it had a calculable quantity – tell us about the social dynamics of power?

3 Power Force is nothing apart from its effect.

—Herbert Marcuse, Reason and Revolution The pre-capitalist backdrop To understand the origin and rationale of the capitalist dualities, it is useful to begin with some observations on the pre-capitalist world. As we have seen, prior to the emergence of liberalism all state and quasi-state regimes – or ‘cultures’ in today’s lingo – were marked by a binary structure: an inescapable conflict between mastery and slavery, between rulers and ruled. The material bedrock was agricultural. In economic parlance, there were two ‘factors of production’: land and labour. Politically, these factors corresponded to two classes: the nobility and the peasantry. The nobility owned the land and imposed its rule. The peasantry – save for the occasional revolt – passively submitted to the nobility’s rule.

This early mode of production, to use Marx’s language, unfolded through multiple forms of authoritarianism, despotism and tyranny – from the Carolingian state of Europe and the Caliphates of the Middle East to the Moguls of India and the empires of China and Japan. The histories of these dictatorships varied greatly. Some relied on peasant-slaves, as in the ancient empires; others were based on farmer-tenants, as in the Middle East; and still others were built on serfs tied to princely fiefdoms, as in Europe and Japan.

But the underlying principle was always the same: redistribution through confiscation. The nobles would rob the peasants, each other, or both.1 1 The dominant postmodern fashion loves to reject this universal history (or should we rather say ‘narrative’) – in favour of a much more politically-correct protestation. The postists not only decry the oppression of the ‘East’ by the ‘West’, but also insist that the so-called ‘Western scientific revolution’ in fact originated in the... ‘Orient’ (see for instance, Hobson 2004).



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