by Tim Di Muzio
For Marx, capitalism is both a mode of production and a social relation of power between owners of the means of production and workers who have no other choice but to rent their labour power for a certain amount of time in order to gain access to food, shelter and other necessaries of life. And while Marx argued that the real goal of the capitalist was to turn money into more money (M to M1), his scientific explanation for why the magnitude of money increased rested solely on the production process, and the production process rested solely on his labour theory of value.4 In Marx’s formulation, profit, or M1, is the result of workers producing more value during the working day than they are paid for in wages. This unpaid ‘surplus value’ is the source of the capitalist’s profits. The problem, as summarised by Nitzan and Bichler, is that:
Marx’s conception of capital – particularly his Smithian emphasis on production as the engine of accumulation and his Ricardian belief that labour values reflect the inner quantitative code of the process – was far too restrictive and, in the final analysis, misleading (Nitzan and Bichler 2009: 87).5
Marx’s emphasis on production as the engine of capitalist accumulation was indeed too restrictive, and, despite a litany of attempts, Marxists have so far failed to convincingly demonstrate how Marx’s basic unit of socially necessary abstract labour time can be transformed into market prices. Furthermore, Marx’s political economy also made a distinction – which originates in the work of the seventeenth-century physiocrats – between workers who create value and workers who merely circulate and consume it. Yet, as Nitzan and Bichler have argued, ‘there is no objective basis, a priori or a posteriori, on which to decide that the labour of a Volvo engineer or Fluor crane operator is productive, while that of a government accountant or a stock broker is not’ (ibid.: 87).
What this brief genealogy of the term ‘capital’ reveals is that we have two outmoded analytical definitions. The first is that of mainstream economics, which took the Smithian turn and accepted capital as ‘the set of tools that workers use’, to repeat Mankiw’s formulation. The second stems from Marxist political economy, which has come to understand capital as unpaid surplus labour. But while scholars were busy pinning down the concept of capital and building research agendas around their interpretations, something else was going on in the world of actual capitalists. At the turn of the twentieth century, and with corporate finance being put on a steadier and perhaps more observable footing, an unconventional Norwegian-American working at the University of Chicago was investigating how actual businessmen (and they were overwhelmingly men) understood capital and modern business. His name was Thorstein Veblen.
Corporate America and the rise of capitalisation
To some extent, Veblen had the good fortune of studying and writing at a time when the large corporation and the New York Stock Exchange (NYSE) were fast becoming norms of American life. The NYSE was founded in 1817 but the value and number of companies listed on the exchange expanded massively after the Civil War (1861–65) and the craze for railroads (Michie 2008: 73, 88). Standard Oil incorporated in 1870, Carnegie Steel Company and Coca-Cola Company incorporated in 1892, and Ford Motor Company did so in 1903. Corporate America was emerging and an explosion of capitalisation followed. By the 1920s, even ordinary Americans were fascinated by the prospects of making gains in the stock market. In this emergent order, Veblen could see what Marx perhaps could not and what the neoclassicals largely ignored: how businessmen understood ‘capital’. Veblen argued that ‘a theory of the modern economic situation must be primarily a theory of business traffic, with its motives, aims, methods and effects’ (Veblen 2005: 4). As for other theorists, Veblen believed that the material structure of modern civilisation was the industrial system – this is what set the ‘modern’ apart from a pre-modern past of human endeavour. However, Veblen made a distinction between business and industry and argued that industry was not primarily run for human need but for business profit; or, put another way, ‘industry is carried on for the sake of business and not conversely’ (ibid.: 26). The end goal of business is not ‘industrial serviceability’ for the community but differential pecuniary gain and an ‘increase of ownership’ over income-generating assets (ibid.: 37). Veblen summarised it thus:
The all-dominating issue in business is the question of gain and loss. Gain and loss is a question of accounting, and the accounts are kept in terms of the money unit, not in terms of livelihood, nor in terms of the serviceability of the goods, nor in terms of the mechanical efficiency of the industrial or commercial plant. For business purposes, and so far as the business man habitually looks into the matter, the last term of all transactions is their outcome in money values. The base line of every enterprise is a line of capitalization in money values … The business man judges of events from the standpoint of ownership, and ownership runs in terms of money (ibid.: 84–5).
This focus on the modern business enterprise allowed Veblen to see that capital, to a modern businessman or investor, was neither machines nor unpaid surplus labour, but the capitalisation of expected future profits:
Under the exigencies of the quest of profits, as conditioned by the larger industry and the more sweeping business organization of the last few decades, the question of capital in business has increasingly become a question of capitalization on the basis of earning-capacity, rather than a question of the magnitude of the industrial plant or the cost of production of the appliances of industry … As a business proposition, ‘capital’ means a fund of money values (ibid.: 89, 136, my emphasis).
There are two things of import in this passage. First, Veblen notices that capital can no longer be talked about as a ‘stock of the material means by which industry is carried on’. Capital is a fund of money values that capitalises a future flow of income generated by the modern corporation (ibid.: 133). Second, unlike the accounting practices of old, which registered capital as the ‘aggregated cost of industrial equipment’, the magnitude of a firm’s capitalisation does not reflect the cost of its assets but the earning capacity of the firm as a whole. In this sense, capitalisation is never fixed but subject to ‘an ever recurring valuation of the company’s properties, tangible and intangible, on the basis of their earning-capacity’ (ibid.: 138).
Table 2.1 illustrates Veblen’s point with examples taken from the Financial Times Global 500 in 2012, the largest firms ranked by market capitalisation or market value.
Market capitalisation or market value is calculated by multiplying the value of one share at any given point in time by the total number of shares outstanding. So, for example, if we opened a cookie company called XYZ and issued 100 shares at US$10 per share, our market capitalisation or value would be US$1,000. If we were listed on a stock exchange, the value of our shares would fluctuate based largely on the future profit expectations of investors and our company’s ability to meet or beat these expectations. Now, as we can see from Table 2.1, the value of a company cannot be determined by looking at its total assets. Rather, market capitalisation or the process of valuing a firm is subject to expected future earnings of companies. Put another way, ‘in the business world the price of things is a more substantial fact than the things themselves’ (Veblen 1923: 89). So, with Veblen, political economy was offered an alternative definition of capital as ‘a fund of money values’ that capitalises the expected future profits of income-generating entities such as corporations.6
TABLE 2.1 Selected firms, their assets and capitalisation, 2012
Company
Total assets (US$ billion)
Market capitalisation (US$ billion)
Apple
116
559
Exxon Mobil
327
409
IBM
113
242
Nestlé
119
207
Google
73
165
Source:Financial Times Global 500 2012.
However, while Veblen�
�s political economy may have had the good fortune of being born at a time when capitalists were increasingly concentrating into corporations, he also had the misfortune of writing at the time when neoclassical economics was fast becoming the dominant school of economic thought. His own University of Chicago, founded by none other than John D. Rockefeller, would become a breeding ground for theorists schooled in neoclassical economics. They would keep to the Smithian accident of making ‘capital’ material goods used in production. While not totally ignored, Veblen’s keen observation of capital and the modern business enterprise was overshadowed by an uncritical, abstract and formal system of theory that has done much to obscure how power operates within the political economy of nations. Two radical political economists – Nitzan and Bichler – went on to build on Veblen’s insights to give us a theory of capital not simply as a fund of money values invested or for investment, but as social power itself. In the next section, we explain this unique approach to the political economy of global capitalism.
Capital as power
As we have discussed, not only are the two main analytical accounts of capital unconvincing from an academic point of view, but businessmen or capitalists could hardly care less about these debates. To overcome the shortcomings of the neoclassicals and Marxists, Nitzan and Bichler argue that we ought to theorise capital and capitalism by concerning ourselves with how actual capitalists understand them. And, as Veblen suggested, modern businessmen think of capital as a fund of money values used to capitalise expected future earnings. But that is not the end of the story. In an effort to understand the nature of capital, Nitzan and Bichler suggest that we must focus less on content (what is the specific business being capitalised) and more on form (the very act of capitalisation). And for this we have to uncouple capital from a strict materialism that focuses on capital solely as a mode of production and learn to see capital as a broader mode of power. From this point of view, we ask the following questions: what is being capitalised and for what purpose?
We are already far advanced in answering these questions: we know that capitalists are concerned with expected future earnings. But how are earnings generated? The easy answer appears to be by selling something and, on the face of it, this is correct. As Polanyi suggested some time ago, in a society dominated by capitalist markets, ‘all transactions are turned into money transactions’ and ‘all incomes must derive from the sale of something or other’ (Polanyi 1957: 41). But selling something can never be separated from the exertion of power over some part of – if not the entire – social process. What this means is that generating earnings from sales is a matter of business power. For this reason, in the ‘capital as power’ approach, we argue that what investors capitalise when they buy claims to future flows of income is the power of that business enterprise to shape and reshape the terrain of social reproduction relative to other firms trying to do the same thing. Nitzan and Bichler do not provide us with a clear definition of social reproduction in their work but a suitable description might be the way in which any society produces, consumes and reproduces its life and lifestyles, how it understands or conceptualises this mode of existence, and how it defends, both materially and discursively, its pattern of existence (Di Muzio in Gill 2011: 73–88). Now to some extent, the factors that influence social reproduction are over-determined. This is just another way of saying that many things influence the way we live, how we understand the way we live and how we defend ourselves from criticism – or, at worse, armed attack. No one is entirely powerless in shaping social reproduction. However, for power to exist at all it must be relative or differential and it must encounter resistance or opposition (Foucault 1977; Gill 2008). Since power is differential, this means that some have more power than others to produce effects and enact their will. For this reason, the ‘capital as power’ framework is concerned with what Nitzan and Bichler call dominant capital, which refers to those firms with the largest market capitalisation and the government organs that support them. Typically, this can be the top 100 firms by market value, or some percentage like the top 1% or 10% of all companies by market capitalisation. What data are used to represent dominant capital is at the discretion of the researcher and depends on the level, scale and scope of the analysis. But to give an example, there are 80,175 publicly listed companies on the stock exchanges of the world;7 so, if we define dominant capital as the top 1% of firms, we would include the top 801 firms in our analysis, and if we used the 10% cut-off, the top 8,017.
Either way, we have to recall that in any given year only so much income and profit is made. How it gets distributed is a matter of ownership, power and the politics of class struggle. For example, gross world product was recorded at just under US$72 trillion in 2012.8 The goal of firms is to redistribute more money to themselves than their counterparts, who are trying to do the same thing. This is why the ‘capital as power’ approach does not talk about just accumulation but differential accumulation. This is to say that some companies are able to redistribute more income to themselves at a faster rate relative to other firms trying to do the same. One indication of the differential nature of accumulation is the litany of benchmarks capitalists use to evaluate their performance. Typically, these take the form of an index that measures the percentage change in the value of a given basket of securities. Some ‘baskets’ can represent a small sector of the overall stock market while others can be more broad measures, such as Standard & Poor’s (S&P) 500. The S&P 500 is an index of 500 corporations with high levels of capitalisation that are supposed to be representative of the broad market in the United States; for example, Apple Inc., Exxon Mobil Corporation, General Electric Co., Chevron Corporation, Johnson & Johnson, and Google are some of the largest companies in the index. In 2012, the annual returns of the index were 16%. Now, suppose that during that same year we invested solely in Apple Inc. Since Apple opened in January 2012 at US$422.40 a share and a year later our share was worth US$527, our return would be just about 25%. Against our benchmark S&P 500 return of 16% we would know that we did far better than the overall market (by 9%). This, of course, is a very simplistic way of demonstrating the relative or differential nature of modern capitalism but it should be enough to highlight how important benchmarks are for investors and firms: it lets them know whether they are beating some average rate of return, meeting it, or falling behind it.
We have already introduced the concept of dominant capital and differential accumulation. We are now in a position to consider differential capitalisation and what I call dominant ownership. As Nitzan and Bichler point out, when we talk of accumulation we are talking about rising capitalisation or the increasing monetary value of owned income-generating assets. Differential capitalisation denotes a ratio of these assets. We can think of differential capitalisation at the level of the individual, the class or the firm. For example, consider Bill Gates, who at the time of writing had capitalised assets worth US$77.2 billion, and Eli Broad, with US$6.6 billion. Their differential capitalisation can be expressed as roughly 1:12 – or, put differently, Gates has capitalised 12 times the level of income-generating assets as Broad. Looking at Table 2.1 above, we can do this for Google and Apple – and indeed for the whole universe of firms. Expressed as a relationship, the differential capitalisation of these two firms is 1:3, or, put simply, Apple has just over three times the level of capitalisation as Google. To recall, in the ‘capital as power’ framework, higher levels of capitalisation mean that investors have more confidence in the firm’s ability to shape and reshape the terrain of social reproduction in order to generate greater earnings. Lastly, from a class perspective, a ratio of differential capitalisation is more difficult to provide because the majority of the world does not own income-generating assets – this is the glaring difference between dominant owners and the rest of us. But if we consider the figures provided by Credit Suisse, we can get some idea of how the US$241 trillion in global wealth is divided. As already stated, Credit Suisse argues that the richest 10% own
86% of all wealth or just over US$207 trillion. The top 1% accounts for 46% of that ownership or about US$111 trillion. The remaining 90% of adults collectively own just under US$34 trillion. Expressed as a ratio, this means that the top 10% owns six times more wealth than 90% of the population while the top 1% owns just over three times more (Credit Suisse 2013: 11).
Whether we take the top 1% or the far smaller numbers of HNWIs at 0.2% (financial assets) or 0.7% (net worth) is of little consequence for our analysis or for real-world politics. What is significant and inescapable is the fact that a minuscule fraction of humanity owns virtually all of the income-generating assets across the world. They are the dominant owners. If dominant capital represents the firms with the highest level of capitalisation, dominant owners are those individuals – and often their families – who own the majority of capitalised assets, be they publicly listed firms on the stock exchanges of the world, government bonds, real estate or some other asset class. And everyone who has a paying job or buys their goods and services is working for them in one way or another. To illustrate what this means and how we might shed more light on the framework of capital as power, in the next section we consider some examples of capitalisation at work.