1 Why write a book about capital?
There is no joy more intense than that of coming upon a fact that cannot be understood in terms of currently accepted ideas.
—Cecilia Payne, An Autobiography and other Recollections
Capitalism without capital
We grew up in the ‘affluent society’ of 1950s and 1960s. As children and then as young adults we rarely heard the word ‘capitalism’. It was the Cold War, and speaking about capitalism, although not strictly taboo, was hardly a popular pastime. The term smelled of extremist ideology; it connoted communist rhetoric; it conjured up bygone debates and obsolete ideas.
As a theoretical concept, capitalism seemed hopelessly unscientific. It was a remnant from a different era, from a time when people, haunted by ‘scarcity’, still viewed society through the hazy spectacles of political economy. The new social sciences – and particularly the science of economics – boasted far better and more precise categories.
These categories were grouped under a new buzzword: ‘modernization’. Talk of modernization opened all the right doors. It invited American aid, it paved the road to development and it helped academic promotion. The word ‘capitalism’ became redundant, if not counterproductive. Gradually, it vanished from the lexicon.
But beginning in the early 1990s a strange thing happened: capitalism staged a remarkable comeback. Suddenly, social scientists and post-scientists alike wanted to talk of nothing else. The capitalist world, capitalist markets, capitalist governance, capitalist culture, capitalist institutions, capitalist wars, capitalism and race, capitalism and gender, capitalism and libido – no matter where you turn, you cannot escape the C-word.
Debate over capitalism is everywhere. The newspapers, radio, television and the internet overflow with talk of neoliberal globalization and crisis, imperialism and post-colonialism, financialization and government intervention. Experts preach the gospel of capitalist productivity, while alter-globalization protestors blame the IMF and transnational companies for many of our social ills. Some view capitalist growth as a magic bullet; for others it spells ecological disaster. Some celebrate the deregulation of the capitalist state and the fall of Keynesianism; others mourn the decline of the welfare state and the rise of zapping labour. Many interpret the new wars of the twenty-first century as serving capitalist interests and the rise of Islamic fundamentalism as a backlash against Western liberalism. For some, capitalism means the end of history, for others a source of conflict and an engine of change. No aspect of capitalism seems to escape debate.
Or perhaps we should say almost no aspect. Almost, because something really important is missing. In all the commotion, we seem to have lost sight of the concept that matters most: capital itself. Capital is the central institution of capitalism – and yet, surprisingly, we do not have a satisfactory theory to explain it. In fact, we do not know precisely what capital is. And worse still, there is little or no discussion on what this omission means or how it can be rectified.
The issue is crucial. Without a clear concept of capital, we cannot hope to understand how capital operates, why it accumulates or how it drives the capitalist order. Until we understand capital, we are destined to misconceive our political institutions, misjudge our alternatives and have trouble imagining the way to a better future. In short, in order to debate capitalism we first need to debate capital itself.1
This book is not about economics
Many people who are otherwise keenly interested in society get cold feet when confronted with ‘economics’. The symbols seem mysterious, the logic baffling, the language incomprehensible, even threatening. The dread is real. Ever since Thomas Carlyle, the ‘dismal science’ has been frightening most people.
But that fear is irrelevant to our book. Our subject is not economics; it is capital. And capital, as we hope to show, is not an economic entity.
It should be noted upfront that economics – or, more precisely, the neoclassical branch of political economy – is not an objective reality. In fact, for the most part it is not even a scientific inquiry into objective reality. Instead, neoclassical political economy is largely an ideology in the service of
the powerful. It is the language in which the capitalist ruling class conceives and shapes society. Simultaneously, it is also the tool with which this class conceals its own power and the means with which it persuades others to accept that power.
Our book puts power back in centre stage. Notice the metaphoric equality in the title: ‘Capital as Power’. We use not and, but as. We do not speak of capital and power; of capital in the service of power, or vice versa; of capital in relation to state; of capital with or against politics; of capital in contradistinction to violence; or of capital and ideology. We refer not to a relation, connection, function, or juxtaposition, but to a figurative identity. Capital does not relate to power. It is, in itself, a mode of power.
The purpose of this book is to explain capital as power. The first step toward understanding our argument, therefore, is to stop thinking of capital and capitalism as ‘economic’ entities. But that is just the start. The second step is to be willing to take on the dogma that makes capital and capitalism ‘economic’ entities in the first place.
How and why
Young children are obsessed with the question ‘why?’ ‘Why do I need to brush my teeth?’ ‘Why do birds fly and dogs don’t?’ ‘Why does mommy have to go to work?’ The quest is universal, but it doesn’t last for long. Children quickly learn that grownups dislike the question and often don’t know how to answer it, and they realize that one ‘why?’ inevitably leads to another, followed by further hassle and endless aggravation. So they grow up. By the age of five or six, they abandon the ‘why?’ in favour of the more practical ‘how?’ They stop questioning the world and try to fit into it. They become adults, and they usually remain so for the rest of their lives.
But not everyone grows up. As Mark Twain (1881) reminds us, some people stay young no matter how old they become. And the youngest of all are those who never stop asking ‘why?’ This book is written for these young people of all ages. We write it for those who feel their future is at stake and wish to do something about it; for those who sense that there is something deeply wrong with the conventional creed but don’t know exactly what it is; and, above all, for those who simply dislike dogma and want to think for themselves.
Perhaps the key problem facing young people today is a lack of theoretical alternatives. A new social reality presupposes and implies a new social cosmology. To change the capitalist world, one first needs to re-conceive it; and that re-conception means new ways of thinking, new categories and new measurements. And yet, many contemporary critics of capitalism seem to believe that they can challenge this social order without ever asking how it operates, let alone why.
With some obvious exceptions, present-day leftists prefer to avoid ‘the economy’, and many are rather proud about it. To prioritize profit and accumulation, to theorize corporations and the stock market, to empirically research the gyrations of money and prices are all acts of narrow ‘economism’. To do these things is to fetishize the world, to conceal the cultural nuances of human consciousness, to prevent the critic from seeing the true political underpinnings of social affairs. Best to leave them to the dismal scientists.
And, so, most self-respecting critics of capitalism remain happily ignorant of its ‘economics’, neoclassical as well as Marxist. They know little about the respective histories, questions and challenges of these theories, and they are oblivious to their triumphs, contradictions and failures. This innocence is certainly liberating. It allows critics to produce ‘critical discourse’ littered with cut-and-paste platitudes, ambiguities and often plain nonsense. Seldom do their ‘critiques’ tell us something important about the forces of contemporary capitalism, let alone about how these forces should be researched, understood and challenged.
Most importantly, though, this stale context conditions students to stop asking ‘why?’ The big questions about capital are pushed under the rug, and as the young generation gets older and becomes established, the questions are forgotten altogether. Occasionally, an untamed spirit, having discovered an old debate in an outdated book, raises a naïve ‘why?’ But these spontaneous fires are quickly isolated and extinguished. Ridiculed by know-all professors and hushed by acolyte students, the outlier is forced to relinquish or perish. There is no alternative, and the safest thing for an academic is to never wonder why.2
Our book defies this dogma. We provide a new conceptual framework for capital – along with the context that this framework negates and the means by which it is articulated. ‘There is no empirical method without speculative concepts and systems’, writes Einstein in the forward to Galileo’s Dialogue
Concerning the Chief Two World Systems (Galilei 1632). But, also, ‘there is no speculative thinking whose concepts do not reveal, on closer investigation, the empirical methods from which they stem’ (p. xvii). The two processes are dialectically intertwined. And, so, together with our theoretical schemes, we introduce new research methods; new categories; new ways of thinking about, relating and presenting data; new estimates and measurements; and, finally, the beginnings of a new, disaggregate accounting that reveals the conflictual dynamics of society. We show that there can be many alternatives, provided we never stop asking why.3
Clearly, we would be happy to convince our readers with our specific arguments, but that goal is secondary. The more important goal is to encourage readers to develop their own research. As the book will amply show, social facts are indispensable but never ‘self-evident’, and since the emperor is so often naked, we shouldn’t be afraid to ask why. There is a lot to suspect in the world of the ‘obvious’, so try to distrust the ‘experts’ and ‘authorities’ – be they mainstream or critical. In the final analysis, the only way to develop your own opinion – instead of adopting the opinions of others – is to always ask why and constantly re-search your own answers.
What’s wrong with capital theory?
Begin with the monetary magnitude of capital. This magnitude is readily observable. We know how much it costs to buy existing capital on the stock and bond markets, just as we know how much it costs to set up a new company, or to put in place new plant and equipment. But what determines these monetary magnitudes? What are the forces that lie beneath the earthly appearance of capital? Why is Microsoft worth $300 billion and not half that much? Why does Toyota pay $2 billion rather than $4 billion for a new car factory? Why do these magnitudes tend to grow over time? What sets their pace of growth?
Economists – both liberal and radical – claim to have answered these questions. Capital, most would say, is an economic category anchored in material reality. In the final analysis, the monetary value of capital derives from and reflects the underlying processes of consumption and production. Mainstream neoclassical economists view this determination from the output side. Capital for them is made of tangible capital goods (and now also of intangible knowledge or technology). The magnitude of capital in money terms is proportionate to its productivity – namely, to its ability to produce goods and services that satisfy human wants and generate happiness. This transmutation is meaningful because both capital and its productivity are
counted in the same universal unit, the elementary particle of economics: the ‘util’.
Marxists see things rather differently. Capital for them is not a material substance per se, but a social relation embedded in productive, material entities. In order to understand capital, they argue, we have to look behind the hedonic veneer of liberal ideology and examine the industrial essence of the system. From this viewpoint, the key issue is not the utility that the capital produces, but the social process by which capital itself gets produced. Consequently, the proper way to approach capital is not from the output side, as per the neoclassicists, but from the input side – the side of labour.
Marxists, too, count capital in universal units: the units of ‘abstract labour’. This is the elementary particle of Marx’s cosmology. Quantitatively, the dollar value of capital in the Marxist scheme is proportionate to its cost of production, and, specifically, to the amount of abstract labour socially necessary to produce that capital.4
Unfortunately, both explanations fail. In the end, neither the neoclassicists nor the Marxists are able to answer the question of what determines the magnitude of capital and its rate of accumulation.
Many reasons conspire to produce this failure, but the most important one concerns the basic units of analysis. As we shall see, utils and abstract labour are deeply problematic categories. They cannot be observed directly with our senses, and they cannot be examined indirectly through intermediation. Their ‘quantity’ cannot be calculated, even theoretically. In fact, they are not even logically consistent entities. These shortcomings are very serious, and the last one potentially detrimental.
It is of course true – positivism notwithstanding – that a scientific theory does not require all of its elementary particles to be observable, whether directly or indirectly. To mention the obvious, atoms were deemed unobservable till the early twentieth century, many subatomic particles are still elusive, and entities such as strings will perhaps stay so forever (or at least for a while longer). Yet the ‘invisibility’ of these elementary particles has hardly diminished the scientific footing of modern physics.5 Indeed, one may argue that, since Galileo, the strength of science lies precisely in its ability to explain observed magnitudes by unobserved ones.6
The situation is quite different with neoclassical utils and Marxist abstract labour. These units are unlike atoms, electrons, or strings. The latter may be unobservable to us, but that shortcoming – at least in principle – could be attributed to our own limitations. Theoretically, atoms, electrons and strings are logically consistent entities with a definite set of quantities, whether deterministic or probabilistic. By contrast, utils and abstract labour are invisible not because of our own shortcomings, but because they do not – and cannot – posses a definite magnitude in the first place. They have pseudo-quanta. Even if we could somehow ‘see’ them, there would be nothing to measure. And ‘quanta’ that cannot be measured – no matter how important they might be otherwise – cannot form the basis for quantitative analysis.
The consequence is that neoclassical economics and Marxist political economy lack a basic unit. And without a basic unit, we remain right where we started. We know the price of capital in dollars and cents, but not how many utils or hours of abstract labour this value supposedly represents. We know that capital accumulates, but not why it accumulates or what this accumulation means.
Toward a new theory of capital
The secret to understanding accumulation, this book argues, lies not in the narrow confines of production and consumption, but in the broader processes and institutions of power. Capital, we claim, is neither a material object nor a social relationship embedded in material entities. It is not ‘augmented’ by power. It is, in itself, a symbolic representation of power.
The starting point is finance. As we shall see, Marx classified finance as ‘fictitious’ capital – in contrast to the ‘actual’ capital embedded in the means of production. This classification puts the world on its head. In fact, in the real world the quantum of capital exists as finance, and only as finance. This is the core of the capitalist regime.
The modern corporate owner does not view capital as comprising tangible and intangible artefacts such as machines, structures, raw materials, knowledge and goodwill. Instead, he or she is habituated to think of capital as equivalent to the corporation’s equity and debt. The ...