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And so Newton’s horizontal notion of force and counterforce became the substitute for vertical hierarchy – in the heavens as well as on earth. In France, Voltaire and Montesquieu found in his ideas a powerful alternative to the oppressive French monarchy. Benjamin Franklin and other tourists and exiles imported these ideas to the United States under the guise of ‘checks and balances’, which later reappeared as ‘countervailing powers’.10 During the nineteenth century, Newton’s notion of a ‘function’ invaded every science, natural and social. More and more phenomena were thought of in terms of a mutual interdependency between two otherwise distinct bodies. In neoclassical political economy, the key function became the relationship between price and quantity. The discipline, which emerged at the end of the nineteenth century and later consolidated into a new orthodoxy, anchored the relationship of price and quantity in Jeremy Bentham’s ‘calculus of pleasure and pain’, turning it into the main tool for understanding the fate of human societies.
It was a complete cosmological break. Instead of visible, hierarchical power, legitimized by wilful gods, there emerged a new ideology based on invisible, horizontal force, anchored in objective science.
The promise was huge. Socially, the new order undermined authoritarian rule. From now on, everyone – that is, every bourgeois citizen – could own property and be elected to public office. Materially, the new order helped break the uncompromising limits of nature. Wealth no longer depended on religious sanctity and princely robbery. It no longer hinged on redistribution.
Instead, it was generated through a totally novel process: economic growth.
For the first time in history, society did not have to cycle in a closed loop.
The material envelope, previously defined by fixed resources, stationary technology and subsistence reproduction, was finally breached. Science and mechanized production created a new possibility: the expansion of the pie itself. Improving one’s lot no longer required conflict, war and violence – or, alternatively, compliance with Confucius’ ‘Third Way’. On the contrary, growth was most likely to occur in the context of equilibrium, peace and mutual interest.
The principal agent of this revolutionary change was capital. It was in capital that the new sciences, the new techniques and the new political promise were jointly embedded. Capital was both the engine of growth and the vehicle of liberation.
But in order for capital to deliver, the political regime had to be entirely transformed. Divine right had to give way to natural right, sanctified 10 Of course, the metaphors go both ways. Smith’s imposition of Newton’s natural cosmos on society was subsequently re-inverted by Darwin, who imposed Malthus’ social selection on nature.
40 Dilemmas of political economy ownership to private property, religion to rationalism, paternalism to individualism, obedience to self-interest and utility, hierarchical power to competition, absolutism to constitutionalism. It was a massive transition, and it could be realized – at least in theory – only through laissez faire. The new private economy had to be liberated from the shackles of the old politics.
That was the mission of political economy.
Separating economics from politics?
Unlike the mission of the natural sciences, though, the mission of political economy was finite, by definition. If the purpose was to isolate the economy from the intervening hand of political rulers, it follows that once that purpose was achieved political economy would no longer have reason to exist.
Independent of each other, economics and politics could now be studied and analysed separately, as two distinct spheres of human activity.
But that was easier said than done. As it turned out, political economy cannot self-destruct – and for a reason that, paradoxically, lies in its very purpose.
The explanation is simple enough. Conceived of independently of politics, the economy is a closed system. It has its own units of labour time and commodities; it has its own structure of inputs and outputs; and it comes with a theory that fully explains the level of production, consumption and relative prices. This self-contained description, though, holds only for a stationary economy. But capitalism is anything but stationary. As political economists themselves emphasize, capitalism is a growing system. It generates an everincreasing ‘surplus’ – an output that is over and above what is necessary to merely reproduce society at a given level of production and consumption.
And this ever-growing surplus creates a huge theoretical problem: it cannot be fully explained by the economy alone.
How big is the surplus? Who ends up getting it? How does it accumulate?
How does it impact the functioning of capitalism? These are questions which ‘pure’ economics cannot answer. The only way to address them is to bring conflict and power back into the picture – that is, to reintegrate politics and economics – which brings us right back to where we started.
Political economy can never achieve its ultimate purpose. It cannot make economics separate from politics simply because the very questions economics seek to answer are inherently political.11 Initially, few political economists realized this logical impossibility. Most remained convinced that economics and accumulation could be – and eventually would be – separated from politics and power. This theoretical conviction was greatly facilitated by the paucity of social statistics and limited 11 For a clear exposition of this dilemma – although with conclusions different from our own – see Caporaso and Levine (1992: 46–54).
Power 41 empirical analysis. The early political economists did not feel compelled to empirically define and measure their pure economic concepts. And since they rarely subjected their concepts to empirical verification, they remained oblivious to the methodological time bombs buried in those concepts.
The above paragraph is not a reprimand. Until the mid-nineteenth century, European societies, including Great Britain, were still predominately agricultural, highly fractured and, consequently, lacking a clear sense of their totality. There was no common yardstick. The universal metre was measured in the late eighteenth century, but the metric system was yet to be enforced, with France alone still boasting no less than 250,000 different weights and measures (Alder 2002). Macro concepts that today we take for granted – such as ‘national aggregate’, ‘social average’, ‘industrial sector’, and the ‘total capital stock’ – were just beginning to emerge. It is true that the mechanical– scientific revolution introduced various laws of conservation, replacing religious miracles with clear, finite boundaries. It is also true that these natural laws and boundaries started to find their way into social theory. But the actual process of estimating aggregate statistics, collating national data and measuring sectoral averages was still very much in its infancy.12 Most nineteenth-century political economists – as well as their chief critic, Karl Marx – had little or no knowledge of the macro facts. There is little wonder that their discussion of surplus and capital was largely theoretical.
And, at the time, few theorists thought something was missing. The very idea of ‘testing’ social theory with empirical evidence was not even on the radar screen.
In this social context, the notion that capital was a purely economic category hardly seemed problematic. With economics considered separable from politics, with aggregate concepts yet to be invented and diffused, and with the basic social data still to be created, it was possible to believe that capital was an objectively defined economic entity with a readily measurable quantity.
There was really nothing to contest that belief.
12 The first attempts to collate aggregate economic statistics were made in the 1660s, by William Petty in England. These attempts were motivated by the need to assess the material strength and taxable capacity of England versus France and Holland. Subsequent attempts introduced additional innovations, including time series (Gregory King in England, 1696);
input–output matrices (François Quesnay in France, 1764); estimates based on production data rather than fiscal sources (Arthur Young in England, 1770); value added (Antoine Lavoisier in France, 1784); income distribution (Henry Beeke in England, 1799); national aggregates (Patrick Colquhoun in England, 1814); constant price estimates (Joseph Lowe in England, 1822); national debt burden (Pablo de Pebrer in England, 1831); rudimentary national income and product account broken down by industry and state (George Tucker in the United States, 1840); and gross versus net income (Alfred Marshall in England, 1879). But whereas the inventions were long in coming, their implementation was slow and limited. It was only in the 1920s, and particularly with the ‘aggregate revolution’ of the 1930s, that these individual initiatives started to be organized, institutionalized and systematically estimated by national statistical services (the signposts in this footnote are taken from the detailed history of Kendrick 1970).
42 Dilemmas of political economy Enter power The turning point came at the end of the nineteenth century. Recall that classical political economy differed from all prior myths of society in that it was the first to substitute secular for religious force. But note also that this secular notion of force was similar to its religious predecessor in that it was still heteronomous. It was external to society. For the political economist, economic forces were as objective as natural laws. They were determined for human beings, not by human beings.
This external perception of force began to crack during the second half of the nineteenth century. More and more processes seemed to deviate from the automaticity implied by the natural laws of economics. Increasingly, force was subjectified by society, seen as determined for human beings, by human beings. Challenged and negated, heteronomous force gradually re-emerged as autonomous power.
The change in perception was affected by several important developments.
First, the rise of large governments and big business undermined the Newtonian logic of competitive markets and political equilibrium. At the turn of the twentieth century, it was already clear that the guiding hand of the market was not always invisible and that liberal politics was far from equal. Power now was much more than a theoretical addendum needed simply to ‘close’ an otherwise incomplete economic model; it was an overwhelming historical reality, one that seemed to define the very nature of capitalism. This recognition cast further doubt on the possibility of purely economic categories.
Second, the emergence of the aggregate view of the economy, the development of national accounting and the requirements of statistical estimates revealed serious difficulties with the measurement of capital. For the first time, political economists had to put the concepts of utility and abstract labour into statistical practice, and the result was disastrous.
According to received doctrine, the ‘real’ quantity of capital is denominated in units of utility or abstract labour. But there is a caveat. As we shall see later in the book, such measurements are meaningful, if at all, only under conditions of perfectly competitive equilibrium. This qualification creates a bit of a headache since, by definition, perfectly competitive equilibrium evaporates when infected by power. And given that even orthodox economists now agree that power is everywhere (if only as a ‘distortion’), it follows that the theoretical units of ‘real’ capital are meaningless and that their practical measures break down. In fact, it turns out that even when we assume perfectly competitive equilibrium it is still logically impossible to observe and measure the utility or abstract labour contents of capital. And so, by attempting to measure the so-called ‘real’ quantity of capital, economists ended up exposing it for what it was: a fiction hanging by the threads of impossible assumptions and contradictory logic.
Third, and more broadly, the new reality of the twentieth century didn’t quite fit the traditional way in which liberals and Marxists separated Power 43 economics from politics. There was a massive rise in the purchasing power of workers in the capitalist countries, an uptrend that contradicted the cyclical patterns suggested by Malthus, Ricardo and Marx, and that therefore blurred their basic notion of ‘subsistence’. Many types of labour became complex and skilled, rather than one-dimensional and simple as Marx had anticipated – a development that made the notion of ‘abstract labour’ difficult if not impossible to apply. And in contrast to the expectations of many radicals, profit cycles failed to implode capitalism, while the profit rate – although oscillating – trended sideway rather than down. Culture, media and consumerism became no less crucial for accumulation than production was. Inflation supplemented cost cutting as a key mechanism of redistribution, while finance took over the factory floor as the locus of power. Emerging categories of technology, corporate planning and public management could not easily be classified as either economic or political. It became increasingly clear that free competition and bourgeois ownership were insufficient, even as a starting point, to explain the nature and development of modern capitalism.
The very notion of class became contested. As an analytical tool, class originally emerged from a triple fusion of Ricardo’s theory of labour value, Comte’s industrial management and Marx’s capital accumulation. The emphasis of class analysis on capitalists and workers was unmediated and obvious; it was materially embedded, ideologically accepted and legally enforced; and until the late nineteenth century it served both the liberal mainstream and its Marxist critiques.
But by the early twentieth century, the vision of class analysis had become blurred. Although still linked in some sense to material reality, class was now increasingly intertwined with political organizations and parties, culture, mass psychology and sociology. It was no longer immediate or obvious. It required subtle articulation. It became a speculative concept.