4	Deflections of power

‘Why don’t you make everyone an Alpha Double Plus while you’re about it?’ asks the Savage. ‘Because we have no wish to have our throats cut’, answers Mustapha Mond, the Resident World Controller for Western Europe.

—Aldous Huxley, Brave New World

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 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.²⁷

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, 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 the floodgates were now open and the idea of a two-pronged labour force spread quickly, including into radical utopian literature.²⁸

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).²⁹

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 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.

The three fractures

Stalinism in the Soviet Union, fascism in Europe and Keynesianism in the capitalist countries forced Marxists to rethink the intertwined nature of state and capital and the growing importance of ‘bureaucratization’. This rethinking was certainly influenced by the work of Max Weber and Robert Michels; but perhaps the strongest catalyst, particularly among the Trotskyites, was the self-published monograph of Bruno Rizzi (1939).

According to Rizzi, the Soviet Union represented a new social order of bureaucratic collectivism. It was a different mode of production, one whose class structure and relations of production set it apart from both capitalism and socialism. Although this mode of production was for the time being unique to the Soviet Union and the fascist countries, its essential bureaucratic elements were already apparent — if only embryonically — in the capitalism of the New Deal. The famous works of James Burnham (1941), Milovan Djilas (1957), Max Shachtman (1962) and John Kenneth Galbraith (1967) reproduced Rizzi’s argument in different forms.

Bureaucratization melted the traditional definitions of politics and economics. This ambiguity, amplified by the chaos and confusion of the 1930s and 1940s, led Marxists to draw different (and often diametrically opposed) conclusions about the changing nature of capitalism.

On one side were those who emphasized the ‘politicization’ of capitalism (as if capitalism can be anything but political). The extreme position, held by Friedrich Pollock of the Frankfurt school, was that economics in fact had come to an end. Private capitalism, he argued, was being replaced by ‘state capitalism’, whether democratic or totalitarian. This new order ‘signifies the transition from a predominately economic to an essentially political era’, an era in which the will to political power supersedes the profit motive. And since according to Pollock there are no ‘economic laws’ to prevent this new state capitalism from taking hold, it follows that ‘economics as a social subject has lost its object’ (Pollock 1941: 78, 86–87).

An opposite perspective was offered by Pollock’s colleague, Franz Neumann. In his classic study of National Socialism, Behemoth (1944), Neumann argued that fascism was neither a post-capitalist nor a post-economic phenomenon, but rather an extreme form of capitalist dictatorship. What Pollock mistakenly referred to as ‘state capitalism’ was in fact ‘totalitarian monopoly capitalism’, an economic order in which the large capitalist organizations subjugate state organs to their own ends.

The wide gulf between these opposing interpretations signalled the end of universal Marxism. With no agreement on what constituted ‘economy’ and ‘state’, there could be no agreement on the source of value; and without a theory of value, Marxism lost its unifying basis.

The neo-Marxism that emerged from this breakdown was therefore necessarily fractured. It sometimes offered penetrating insights, but these insights were inherently partial and disjoined. Over time, the fracture developed into three distinct theoretical strands: (1) an attempt to rework Marxian economics; (2) a cultural critique of capitalism; and (3) a new theory of the capitalist state. We deal with each of them in turn.

Neo-Marxian economics: monopoly capital

The key hallmark of neo-Marxian economics is the explicit incorporation of power into ‘economics’ proper. This incorporation opens up new theoretical and empirical horizons, but it is also costly: it requires the abandonment, explicit or implicit, of the labour theory of value.

Kalecki’s degree of monopoly

The post-war revitalization of Marxian economics owes much to the pioneering work of Michal Kalecki. Writing during the 1930s and 1940s, when much of Marxian economics was still stifled by Leninist–Stalinist dogma, Kalecki was breaking new ground on several fronts. He offered a triple theoretical synthesis, one that integrated Marxist class analysis, the new literature on oligopoly and big business and the aggregate view of Keynesianism.³⁰ He was also one of the first Marxists to incorporate into his research new mathematical and statistical techniques that were only beginning to make their way into mainstream economics.

In his articles from 1939 to 1943, collected posthumously in his Selected Essays on the Dynamics of the Capitalist Economy, 1933–1970 (1971), Kalecki identified what he called the ‘degree of monopoly’: a quantitative proxy for economic power whose effect is registered on the profit markup. By extending this notion to the economy as a whole, Kalecki showed how changes in the structure of power are linked to the class distribution of income — and from there to broad patterns of consumption, investment, the business cycle and economic policy.

From surplus value to economic surplus

Kalecki’s work had a significant influence on the Monopoly Capital school affiliated with the New York-based journal Monthly Review.³¹ Capitalism, the theorists of this school claimed, had moved from a competitive to a monopolistic footing, and that qualitative transition annulled Marx’s capitalist laws of motion. Since power now varied across firms/sectors and changed over time, there was no longer a tendency for rates of profits to equalize, no longer a tendency for market prices to be proportional to labour values, and no longer a tendency for surplus value to be equal to profit.³²

Instead of Marx’s surplus value, Baran and Sweezy proposed a new category: the economic surplus (Baran 1957; Baran and Sweezy 1966).³³ The two concepts differ markedly. First, whereas surplus value is denominated in terms of abstract labour time, the economic surplus is counted directly in prices. Second, the two concepts have very different boundaries. The limit of surplus value is given by subtracting from maximum efficient production the subsistence wage of productive workers. In comparison, the notion of economic surplus is both broader and looser in that it also incorporates bygone production — due to inefficiency, unutilized capacity and wasteful spending. Finally, the two magnitudes have different determinants. Surplus value is created in the productive sphere, subject to Marx’s tendency of the falling rate of profit. The economic surplus, by contrast, is affected by both production and demand and has a tendency to rise.

Realization and institutionalized waste

The tendency of the economic surplus to rise, though, is only latent and has to be ‘realized’. On the one hand, the power of big business and its oligopolisitic interdependencies create an upward price bias: they make prices move up or sideways, but rarely down. On the other hand, large-scale production helps cut costs faster than ever. As a result of this divergence, profit margins tend to widen — but this widening is merely the first step. In order for the surplus to actually increase (be ‘realized’), it has to be ‘absorbed’ into or ‘offset’ by profitable spending outlets. And here lies the problem.

In competitive capitalism firms are compelled to constantly invest lest they perish, which means that realization is rarely a lasting problem. Not so in monopoly capitalism. As large firms add new capacity, eventually the additions begin to lower their rate of return on existing assets. Investment, therefore, continues only as long as it is expected to boost average returns. The problem is masked during periods of ‘epoch-making innovations’ that amplify obsolescence on the one hand and propel profit expectations on the other, and in so doing fuel an investment-led boom. But in the absence of such innovations, Baran and Sweezy argued, monopoly capitalism requires wasteful expenditures — wasteful in the sense that they absorb more surplus that they create.³⁴ This waste can be generated, among other things, by a systemic sales effort, by the erection of a financial superstructure, and particularly by military spending. Without such institutionalized waste, the rising tendency of the surplus manifests itself as chronic stagnation.

The limits of neo-Marxian economics

The explicit emphasis on power thus helped provide an alternative, neo-Marxian framework. It allowed the theorists of Monopoly Capital to chart the path of American capitalism in the second half of the twentieth century and shed light onto similar processes in other capitalist countries. During the 1950s and 1960s, their framework seemed consistent with the dominance of big business and government regulation, with high military spending and the aggressive posture of US neo-colonialism, and with the long economic boom and the apparent disappearance of economic crisis (Sweezy 1972).

Needless to say, classical Marxists didn’t like this new theoretical trajectory. They criticized the neo-Marxian concepts as imprecise, subjective and — ultimately — ‘non-Marxist’. Their critiques began to resonate during the 1970s and 1980s. Despite the persistence of massive institutionalized waste, the long boom had ended and profits margins declined. Growth had given rise to stagflation, the global economy had opened up and international competition intensified. The models of Monopoly Capital and Military Keynesianism no longer seemed very persuasive.³⁵

The classical Marxists, though, haven’t offered a new alternative to Monopoly Capital and instead have called for a ‘return to Marx’. The transformation from competitive to monopoly capitalism — if it ever happened — was merely a historical blip, they have argued, and the tendencies for crisis and for the rate of profit to fall remain intact. Consequently, the way forward is not to dilute Marxism with subjective concepts, but rather to re-examine and sharpen Marx’s objective analysis.

This solution is unsatisfactory. To go back to Marx’s original framework is to retain its conceptual problems, and that leaves us pretty much right where we started. It is true that the key contribution of the neo-Marxists — the explicit introduction of power into economics — is problematic. But the problem is not that neo-Marxists went too far. It is rather that they did not go far enough. They introduced power — yet retained the assumptions that power makes logically impossible. Specifically, they maintained the formal bifurcation between politics and economics, they kept the division between production and finance, and, most importantly, they continued to treat capital as a productive/economic entity.

The net result is a theoretical void. The neo-Marxists have abandoned Marx’s labour theory of value, at least as a practical guide for understanding the pecuniary dynamics of capitalism. But to this day they haven’t replaced it with a different theory of value.

The culturalists: from criticism to postism

During the 1930s, orthodox Marxism came under a parallel cultural attack. The disappointment with Stalinism, the apparent triumph of Nazism and the authoritarian nature of capitalist mass culture all pointed to the limits of ‘materialist’ analysis. At stake now was the very method of Marxist inquiry, and the first to systematically re-examine this method were the writers of the Frankfurt School.³⁶

Although deeply revolutionary in aim, these writers took Marx’s assumptions and methods merely as a starting point that must be re-examined — and, if need be, discarded. They challenged positivism and scientism — including their penetration into Marxism — and re-examined the meaning of what constitutes truth. Following Marx, they argued that theory — both social and natural — is part of the very constitution of society and therefore cannot be seen as something that stands entirely ‘outside’ of society. At the same time, and perhaps contradictorily, they also insisted on the autonomy of theory. In particular, they warned against the subjugation of theory to the alleged interests of the proletariat and the dictates of the Communist Party.

The early writings of the Frankfurt School spawned a radical literature that questioned the ‘reified’ nature of the economy, if not its very existence, and that focused instead on the oppressive cultural powers of capitalism. Initially, these questions were addressed as part of a re-examination of the young Hegel, the young Marx, Luckács and Gramsci. But since the 1970s, the inquiry drifted in an entirely different direction, situated somewhere between Foucault and Derrida.

This new fashion, originally nourished in France and California, is often based on the cynical plagiarism of Marx, Hegel and particularly Marcuse, usually in the guise of original radical thought. The adherents of this fashion pretend to offer an antior postmodern examination of capitalism. But unlike the early critical theory of the Frankfurt School, the posture of this literature is largely anti-socialist, and its methods derive, often directly and consciously, from the intellectual depths of Nazism.³⁷

Although ground-breaking in its insight into the cultural dimensions of capitalism, the critical theory of the Frankfurt School had one glaring deficiency: it had given up on the ‘economy’. Since the economic laws that Marx identified were supposedly ‘politicized’ and therefore annulled as an ‘objective’ force, and since the very possibility of objective social facts was put into question, there was really little that critical theory could say on the systematic patterns of capital accumulation.

This original bias has been amplified many times over by the postists. The latter have been only too happy to abandon the systematic study of capitalist reality altogether and instead delve into the deconstruction of post-structuralism, identity, race and gender.³⁸ The capitalists, for their part, have been keen on subsidizing this promising line of ‘critical research’. And why wouldn’t they? The investment carries hefty dividends.

As capitalism spread throughout the world and the rule of capital grew into a truly universal force, so did their potential negation. This negation is the counterforce that the young Hegel was perhaps the first to write about, if only opaquely: the possibility of democratic opposition, of democratic sharing, of democratically planning the good life. For capitalism to remain dominant, this potential negation had to be fractured, ridiculed and defused. And the best way to achieve these ends was to make capital itself invisible.

By spreading ignorance, the postists have helped keep the central power relations of capitalism unknown and therefore difficult to oppose. And with the intellectuals neutralized and the laity stupified, there has been little to prevent the wholesale spread of capitalism. Since the 1970s, the public autonomy of the welfare state, limited as it was to begin with, has been significantly diminished. Large chunks of the public domain have been privatized and handed over to the capitalists. And oppressive regimes around the world have been legitimized in the name of ‘cultural pluralism’ and ‘post colonialism’.

Statism

The third fracture of neo-Marxism focuses on the state. The need for such a focus became evident early in the twentieth century. It was clear that a new statist reality, totally unknown to Marx and his contemporaries, had emerged. First, the state not only grew to unpredicted proportions, it also became deeply integrated with — indeed, seemingly embedded in — the capitalist process. Second, the scale of military conflict had changed, with war becoming both total and global. And third, war seemed to have become endemic and permanent — whether in the guise of an arms race between the superpowers, local ethnic conflicts, civil wars, wars of culture or clashes of civilization.

Neo-Marxists, of course, were not the only ones to grapple with this new reality. In the twentieth century, we could speak of three basic ideologies of power, all focused more loosely or more tightly on the state. One ideology is the techno-bureaucratic state associated with Comtean positivism, Weberian institutionalism and twentieth-century managerialism. A second speaks of an autonomous state that allegedly seeks power for its own sake. And a third, dealing with the capitalist state, criticizes and complements neo-Marxist economism.

Although these three ideologies have had different beginnings and purposes, their progressive academization has drawn them closer together — so close, in fact, that it is often difficult to differentiate their methodologies and sometimes even their conclusions. All three views — with the possible exception of some Marxist variants — tend to see the state as the centre of social power and the dominant force in human history. Some go even further to consider the state as the ‘unity’ or ‘totality’ that contains and shapes its inner economic and social components. And whatever their inclination, all seems to agree that, by the twentieth century, the state — regardless of its origins — had become the key force in domestic and international developments.

Given these overlaps, it seems useful to broaden the vista here beyond the Marxist analysis of the capitalist state and to consider, if only cursorily, also the mainstream approaches to the techno-bureaucratic and autonomous state.

The techno-bureaucratic state

During the Cold War, the debate was dominated by technological determinism. Key contributors such as Ralf Dahrendorf (1959), John Kenneth Galbraith (1967) and Daniel Bell (1973), although starting from different perspectives and using distinct terminologies, all speak of technological–bureaucratic imperatives. Modern societies, they argue, require massive research and development, complex planning and social stability, and therefore necessitate giant organizations and intricate bureaucracies.

During the nineteenth century, these requirements were only beginning to take shape and hence were easy to misunderstand. What political economists mistakenly referred to as ‘capitalism’ was in fact the unorganized precursor of a coming industrial — and, eventually, post-industrial — order. By the early twentieth century, the unplanned market system was beginning to wither, together with the class conflicts and social struggles that socialists erroneously considered inherent. The capitalists and bankers were demoted, replaced by managers and technocrats.

The move from anarchic market coordination to industrial and postindustrial society, went the argument, necessarily gives rise to bureaucratic statism, a system ruled by rationality and governed by technostructures. In the words of Daniel Bell:

If the dominant figures of the past hundred years have been the entrepreneur, the businessman, and the industrial executive, the ‘new men’ are the scientists, the mathematicians, the economists, and the engineers of the new intellectual technology. . . . In the post-industrial society, production and business decisions will be subordinated to, or will derive from, other forces in society; the crucial decisions regarding the growth of the economy and its balance will come from government, but they will be based on the government’s sponsorship of research and development, of cost-effectiveness and cost-benefit analysis; the making of decisions, because of the intricately linked nature of their consequences, will have an increasingly technical nature.

(Bell 1973: 344)

From this post-capitalist perspective, power can no longer be seen as possessed by private owners. Even social democrats such as Ralf Dahrendorf and radicals like Charles Wright Mills succumbed to Weberianism, seeking to replace an analysis of class division with a broader theory of statist–bureaucratic power.

According to Mills (1956), the class-based approach of Marxism had become insufficient; specifically, it was unable to explain the apparent ascent of governmental-military organizations in the post-war United States. Mills’ own solution, partly influenced by the managerialism of James Burnham and the institutionalism of Thorstein Veblen, was to abandon the notion of a capitalist ruling class in favour of three-way power structure. There are three basic scarcities, he argued — a scarcity of power, a scarcity of wealth and a scarcity of prestige — to which there corresponds a tripartite ‘power elite’. Each segment of this elite leverages its power through the effective control of key organizations and institutions:

… the elite are not simply those who have the most, for they could not ‘have the most’ were it not for their positions in the great institutions. For such institutions are the necessary bases of power, of wealth, and of prestige, and at the same time, the chief means of exercising power, of acquiring wealth, and of cashing in the higher claims for prestige. By the powerful we mean, of course, those who are able to realize their will, even if others resist it. No one, accordingly, can be truly powerful unless he has access to the command of major institutions, for it is over these institutional means of power that the truly powerful are, in the first instance, powerful. Higher politicians and key officials of government command such institutional power; so do admirals and generals, and so do the major owners and executives of the larger corporations.

(Mills 1956: 9)

This view provided fertile ground for empirical research, primarily by sociologists, such as William Domhoff, who have laboured to meticulously document the structure and behaviour of the power elite, the operational arm of the ‘higher circles’ (see for example Domhoff 1967, with four subsequent editions, the latest of which was issued in 2005; earlier editions include 1970 and 1979).³⁹

The techno-bureaucratic approach, however, still treats the state (or the overlapping networks of power in Mann’s formulation) mostly as an arena, a framework that organizes and governs society. This perspective started to change during the 1970s, with new studies that emphasized the state as an autonomous institution and a personated actor.

The autonomous state

The instrumental and class-based approaches, some writers now argued, serve to conceal the true nature of the state. The state, they maintained, is not a capitalist means or a social instrument. Rather, it is an actor that stands in its own right, having its own logic and, indeed, its own interests.

The conceptual framework of this view contains three basic entities: (1) the state, (2) economic resources, and (3) an amorphous collection of individuals and groups, called society. In this structure, the state holds a unique position: it monopolizes the organized means of violence. The state mobilizes economic groups — be they industrialists, merchants, rentiers, or farmers — in order to obtain economic resources. And it then uses these resources to organize and control its society, as well as to fight and defend itself against other states.

This view is evident in the historical account of Charles Tilly (1975; 1992). The origin of the autonomous state, he argues, goes back to the twilight of feudalism in the second millennium AD. The state was invented not by the bourgeoisie to serve capital accumulation, but by political elites who sought to consolidate their power. The key purpose of the state — from its princely feudal beginnings, through its absolutist and monarchic phase, to its present national form — has been twofold: to organize and finance increasingly expensive wars and to discipline tax payers. Capitalism from this viewpoint is merely the economic means that supplies the military and strengthens the state apparatus.

A similar history is told by Theda Skocpol (1979; 1985), who argues that the European and American revolutions were the result not of class struggles but of political weakness in the face of inter-state conflicts. Her argument, although rich in historical detail, boils down to fiscal–organizational determinism. The anciens régimes, she notes, were burdened by excessive and inefficient taxation that strained their access to material resources and limited their ability to finance organized violence; therefore, they were replaced by more rational states with streamlined tax structures and superior war-making capabilities.

In the final analysis, then, history is the cunning of the state. The liberal and Marxist theses, according to which the state serves its citizens, the bourgeoisie, or capital accumulation more generally, are mere fantasies. The state develops in its own right and for its own sake. It inevitably grows and centralizes. It is driven not by an external economic determinism, but by its own statist determinism.

The capitalist state

Marxists began to re-evaluate the role of the state in capitalism around the same time as the ‘autonomists’.⁴⁰ The post-war era brought new developments — from the ascent of social democratic parties in Europe, through the student movements, to the rise and demise of Keynesianism — and these developments called for new explanations. It was no longer possible to treat the state as a simple extension of the ‘capitalist interest’. The state had clear limitations, it had a concrete history, and it was being heavily dissected by competing bourgeois theorists. It was time for Marxists to re-examine their own views.

The state imperative

Beyond their many disagreements, all Marxists seem to accept that capitalism requires a state for four main reasons. First, the state helps prevent the inherently conflictual nature of capitalist production from becoming overtly politicized. The capitalist class, argues Gerald Cohen (1978), has ‘power’ over every worker, but the ‘right’ over none. It has the systemic ability to act in its own interest, but it lacks the normative, moral and legal sanction that makes such action acceptable. This sanction is provided by the state. Second, the state can help counteract the anarchic, crisis-prone nature of capitalism. Whether the tendency for crisis comes from production or realization, history suggests that the state is able, within limits, to mitigate it (Miller 1987). Third, the state serves to absorb, temporarily or permanently, the bloating social cost of accumulation (O’Connor 1973). Fourth and finally, at the global level, the state system mediates the conflicting and mutual interests of capitalists as well as their relation with non-capitalist entities, although the precise nature of this mediation as well as its logical necessity remain heatedly debated (Mann et al. 2001–2; Callinicos 2007).

Marxist state theorists further agree that the state needs to be sufficiently separate from capital. This is the common point of departure. The debate is over the precise nature and extent of this separation, and here there seem to be two distinct views. The first, ‘flat’ approach is to treat capital and state as belonging to two interdependent yet distinct spheres — economics and politics — and to consider each sphere as having a separate and equally significant logic. The other, ‘hierarchical’ approach is to consider the logic of capital as primary, and then derive the state from the broader imperatives and contradictions of accumulation.

The flat approach

The flat approach underlies the famous debate between Ralph Miliband and Nicos Poulantzas over the ‘autonomy of the state’.⁴¹ The two begin from seemingly different assumptions. Miliband considers the state as an instrument of the capitalist class, whereas Poulantzas sees it as rooted in the objective structure of capitalism. Yet both cast their argument in purely political terms. This exclusively political language can be traced back to Friedrich Pollock’s ‘end of economics’ — and, indeed, references to the autonomy of the state have been criticized as neo-Ricardian. The neo-Ricardians have rejected Marx’s labour theory of value along with his laws of motion. And since this rejection eliminates economic inevitability (at least in the immediate term), the state is left economically indeterminate (at least for the time being).⁴²

For Miliband, economic indeterminacy means that the state can serve the immediately observed interests of the capitalists, whatever they may happen to be. For Poulantzas, the state lives a more complicated double life — economic in principle, political in practice. In theory, the state is certainly ‘determined’ by the economy. This determination, though, happens only in the Althusserian ‘last instance’ — an asymptotic concept that Poulantzas leaves conveniently opaque and safely out of sight. In the interim the key is politics, which means that in its day-to-day operations the state enjoys a ‘relative autonomy’ to act as it sees fit.

The result is acute schizophrenia. Given that any state action affects both the immediate and ‘last’ instances (and every instance in between), the state must constantly juggle its own short-term autonomy against the long-term structural interests of the economy. But, then, Poulantzas, whom taxonomists for some reason like to classify as a ‘structuralist’, is completely silent on the economics of the ‘last instance’. And since this silence leaves the structural imperatives of capitalism undefined, it is rather unclear what exactly it is that the state tries to achieve. For his part, Poulantzas informs us, with emphasis in the original, that ‘the State is precisely the factor of cohesion of a social formation and the factor of reproduction of the conditions of production of a system that itself determines the domination of one class over the others …’ (1969: 73), and it is obviously to our own demerit if we don’t quite understand what this sentence is supposed to mean.

The hierarchical approach

The alternative, vertical approach is different in that it considers capital and state as conceptually unequal. The engine of capitalist history is the economic accumulation of capital. The capitalist state is merely part of that process. Writers who follow this approach are often labelled ‘fundamentalists’. They emphasize the deep logic and inherent contradictions of capitalist production as articulated by classical Marxism — this in opposition to the neo-Ricardians who, they argue, deal with the secondary, surface phenomena of ‘circulation’, market structure and monopoly capital.⁴³

The contradictory logic of accumulation gives the state its concrete history. Thus, according to Perry Anderson (1974), the capitalist state was never functionally autonomous. In Europe, he argues, state formation was deeply intertwined with the underlying transformation of the mode of production. The feudal and absolutist states prepared the conditions for capitalist accumulation and, eventually, also for the political rule of the bourgeoisie. Seen from a functionalist viewpoint, the state doesn’t have — and never had — an independent role. It merely shapes the requirements of the ruling class, a class that is, in itself, is a creature of the contemporary mode of production.

At a later stage, economic restructuring, driven either by the centralization of capital or the intensification of competition, further transforms the capitalist state. Gabriel Kolko (1963), for example, maintains that the growth and strengthening of the American state were largely a consequence of a political alliance of big business. The large industrial owners, he says, did not enjoy greater monopoly power. On the contrary, they suffered from mounting competition. They solved the problem with government regulation, for which they needed a big state — hence the emergence of ‘political capitalism’.

Whatever the reason, the assent of the state is unavoidable. In the hyped language of Ernest Mandel,

Capitalist private property, the private appropriation of surplus-value and private accumulation increasingly become an obstacle to the further development of the forces of production. State (and supra-national) centralization of part of the social surplus product has once again – as in numerous pre-capitalist societies — increasingly become a material precondition for the further development of the forces of production. . . . The strengthening of the State in late capitalism is thus an expression of capital’s attempt to overcome its increasingly explosive inner contradictions, and at the same time an expression of the necessary failure of this attempt.

(Mandel 1975: 580–81, original emphases)

And now in simple words: capitalism is born an economic–industrial creature, generating surplus value that accumulates in the form of means of production (counted in undefined units of abstract labour). This process continues for a while, but sooner or later something goes wrong. There is a decline or intensification of competition, an increase in the organic composition of capital, or some other inevitable development that causes normal accumulation to turn into over-accumulation (or normal production to become over-production or under-consumption — all fuzzy distinctions which the theorist commonly pays lips service to and quickly glosses over). As a consequence of this mishap, capitalism takes a quantum leap and becomes ‘political’ (which means that previously it was a-political). The capitalists turn the ‘night-watchman’ state into a ‘regulating’ state (a transition that both proves and refutes the ability of the system to survive), and the writer puts the full stop after the QED.

Political Marxism

In a certain important sense, the analysis of the capitalist state has become a fetter on Marxist theory. The problem is that the state — whether equal to capital, subordinate to capital, or derived jointly with capital from a broader materialist history as argued by the German ‘state derivation debate’ — always ends up fracturing the overall picture.⁴⁴ Because the state is assumed to be inherently and necessarily separate from accumulation, we end up with two distinct appearances: one of economics and the other of politics.

Some ‘political Marxists’ have attempted to transcend the problem by redefining the politics/economics duality in continuous rather than binary terms. According to Ellen Meiksins Wood (1981), capital is the ‘privatization of politics’ insofar as it gives private owners the authority to organize production. Meiksins Wood accepts the existence of the ‘economy’, complete with Marx’s laws of capitalist development, etc. The novelty is that the boundaries of her economy are not rigid, but supple:

‘Political Marxism’, then, does not present the relation between base and superstructure as an opposition, a ‘regional’ separation between a basic ‘objective’ economic structure, on the one hand, and social, juridical, and political forms, on the other, but rather as a continuous structure of social relations and forms with varying degrees of distance from the immediate processes of production and appropriation, beginning with those relations and forms that constitute the system of production itself.

(1981: 78, original emphases)

Although this formulation sounds tempting, it really does little to square the circle. First, there is a confusion of terms. Meiksins Wood is right to argue that capital is the privatization of politics. But the private/public distinction is not the same as the distinction between economics and politics. And since capital is not an ‘economic’ entity, the fact that it privatizes power tells us nothing about the relationship between the ‘economic’ and the ‘political’.

This confusion becomes evident when we consider Meiksins Wood’s definition of the economy: she doesn’t have one. Meiksins Wood never tells us what she means by the ‘immediate processes of production and appropriation’, what constitutes the ‘system of production itself’, or how we can measure the ‘degree of distance’ from these yardsticks.

Perhaps these concepts had a clear enough meaning during the transition from the fields and meadows of pre-capitalist Europe to the factories of early industrialization. But as we shall see later in the book, this clarity has been lost since then, leaving us with a set of empty formulations. What exactly are the ‘immediate’ processes of production and appropriation of a modern pharmaceutical drug, of a jet fighter, of an automobile, of a complex software system, of an insurance system, or of health care? Where do these complex processes start and where do they end? Can the ‘immediate’ processes of production and consumption be delineated, even roughly, from those that are ‘less immediate’? If this delineation is impossible to make, what constitutes the system of production ‘itself’? And if the ‘system of production’ remains unspecified, what does it mean to say that the economy and politics are ‘distinct’, whether the distinction is rigid or supple?

The capitalist totality

As Marx himself put it, if there were nothing behind the ‘thing’, there would be no need for science. If we accept that the politics–economics fracture is merely the ‘appearance’ of capitalism, we need to see what lies behind this fracture. Physicists tell us that behind the separate appearance of colours lies the unifying logic of the wave length. Likewise, Marx tells us that behind the distinct appearances of economics and politics, of production and state, of exploitation and oppression, lies a single capitalist totality.

And yet, Marxists do not have a theory to explain this totality. They have an explanation for why the world seems bifurcated between factory and state, and for why this separation is cunning, misleading and alienating. But they offer no unified science to transcend the bifurcation, no alternative totality to stand against capitalism.

The flat, ‘autonomous’ explanations give up the possibility for such a unified science altogether by accepting from the start that politics and economics obey two semi-independent logics. By contrast, the hierarchical, ‘structuralist’ explanations do try to devise a single theory in which the state is derived from the material basis of accumulation. Yet they, too, cannot go very far: their conception of capital adheres to Marx’s notion of abstract labour value, and this loyalty keeps them entangled in the same logical and historical impossibilities that have haunted Marxism for more than a century.

The result is a dead end. Since labour values cannot be observed and calculated, it follows that structuralist theories — no matter how sophisticated — cannot know anything about the actual accumulation of labour values. And given that the value reality of accumulation remains unknown, structuralists have no concrete basis from which to ‘derive’ the state.

This entanglement serves to explain why structural Marxism has plenty to say on the logic of the capitalist state but little on its contemporary reality: fiscal and monetary policies, military spending and war, financial markets and workers’ pensions, the debt and energy policies of the American empire — these are all issues that structuralists can do little more than speculate about (Block 1987: Part I).

During the early twentieth century, the meaning of ‘socialism’ was pretty clear. It was an alternative to the logic of capitalism and the reality of the capi talist state. Socialism represented a new way of democratically articulating the good of society, of scientifically assessing its possibilities, of systematically planning its production and consumption. But after a century of Stalinist abuse and academic fracturing, this vision has dissipated. We have neo-Marxian economics, cultural studies and state theory — but we no longer have a theory of the capitalist order as a whole. Marxism has been unable to either save the labour theory of value or come up with a different theory of value in its stead. There is no university, academy or forum where Marxists systematically study, debate and prepare an alternative democratic future. Today, no serious Marxist would claim to have a systematic alternative to capitalism. And the ruling class knows it: ‘Even in crisis, capitalism remains fortunate in its enemies’, concludes the ironic Financial Times commentator (Skapinker 2008).

As we shall see in the next part of the book, the reason for this vacuum is the lingering enigma of capital. Political economy, both mainstream and critical, lacks a coherent conception of capital. And it lacks such a theory because it deflects the issue of power. The liberals analyse capital without power, while the Marxists explain capital and power — but what we need is to theorize capital as power.

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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.↩

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.↩

4. In fact, several of Kalecki’s writings, published in Polish during the early 1930s, anticipated the essential argument of Keynes’ General Theory (see Kalecki 1971: vii).↩

5. Key contributions to this school include Josef Steindl (1952), Shigeto Tsuru (1956), Paul Baran (1957), Paul Baran and Paul Sweezy (1966), Harry Magdoff (1969) and Harry Braverman (1975).↩

6. This conclusion, Sweezy (1974) would later argue, did not invalidate the existence of labour values. It merely asserted that labour values are modified under monopoly capital and that this modification called for a new Marxist theory of capitalist development. As we shall see in Chapters 6–8, the problem with this solution is that labour values are impossible quite independent of monopoly power, and that impossibility leaves nothing to ‘modify’.↩

7. There are in fact not one but three theoretical versions of the economic surplus — planned, potential and actual — along with a fourth, ‘practical’ measure that Baran and Sweezy use in their empirical estimates in Monopoly Capital (1966). In this paragraph, we deal with the features common to all versions.↩

8. Baran and Sweezy noted their indebtedness to Thorstein Veblen, who was probably the first to identify the role of institutionalized waste in the new order of business enterprise.↩

9. For critiques of Monopoly Capital, under-consumption theories and ‘Military Keynesianism’, see for instance Bleaney (1976), Shaikh (1978) and Weeks (1981: 149–69). For an attempt to reconcile Monopoly Capital with the classical (or ‘fundamentalist’) position, see Sherman (1985).↩

10. Originally founded in 1923 as the Institute for Social Research in Frankfurt University, the Frankfurt School later came to indicate a general approach rather than a physical location. The first-generation founders of the Frankfurt School included Friedrich Pollock, Max Horkheimer, Theodor Adorno, Walter Benjamin, Herbert Marcuse, Erich Fromm and Franz Neuman.↩

11. For a scathing critique of this anti-philosophy, see Castoriadis (1991a).↩

12. For a critical survey of this transition, see Eagleton (2003).↩

13. An outlier of the techno-bureaucratic approach is Michael Mann’s work on The Source of Social Power (1986; 1993). Mann rejects the notion of a ‘unitary totality’. Society, he argues, is not a well-defined system that can be divided into subsystems such as state, culture and economy, or a clearly bounded entity that has dimensions, levels and factors. Instead, he offers to think of societies and their histories as an overlapping network of interactions between four sources of social power: ideological, economic, military and political. The focus of his inquiry, though, is still Weberian. His concern is the organizational means associated with each source of power, and how these develop and change in relation to each other. Earlier in history, he says, political and sometimes military means were primary, whereas in recent times economic power, along with its ‘class’ relations, has become paramount.↩

14. For critical reviews of Marxist state theory, see Holloway and Picciotto (1978b), Block (1987), Jessop (1990; 2002), Clarke (1991), Mann et al. (2001–2) and Anievas et al. (2007).↩

15. See Miliband (1969; 1970; 1973) and Poulantzas (1969; 1973; 1975).↩

16. A neo-Ricardian critique of Marx’s analysis of production is given in Gough (1972), and its implications for the state are articulated in Gough (1975). For counterarguments, see Fine and Harris (1976b; 1976a) and Holloway and Picciotto (1978a).↩

17. It should be noted that, in practice, the differences between the two analyses of the state are not that clear cut. Fundamentalists customarily rely on ‘surface phenomena’, while circulationists often make references to ‘inevitable contradictions’ (see also footnote 9).↩

18. The German ‘derivationists’ reject the orthodox ‘fundamentalist’ notion according to which the economic is somehow prior to the political, and instead seek to treat both as part of the same materialistic development. This rejection, though, seems largely semantic, since the deriviationists do not offer any meaningful rethinking of Marx’s original category of capital. For a recent statement of the derivation approach, see Altvater and Hoffman (1990).↩