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(1) Two distinct economies? Yes and no. On the face of it, money is not the same as capital (although you can argue that, in the capitalist mode of power, money is capital with zero expected profit); commodities are different than financial assets (though you can argue that, in the capitalist mode of power, commodities are financial assets with a zero expected profit); and the pricing of commodities is different from the pricing of future income (although, in the capitalist mode of power, this difference disappears when commodities are sold to be delivered in the future, which suggests that the difference has to do with temporarily).
First, thank you for your time, observations and criticisms. I find the discussion helpful and I am encouraged by it.
As you can tell, I am struggling with how best to label the logical-legal domains I’ve identified. Is each domain an “economy,” a “polis” or just indicia of “class”? All I can say is that, within the U.S., these domains were created by a series of laws enacted over many decades since the U.S. Civil War, and they seem to have really emerged during the Reagan administration, most likely due to the tax reforms it enacted. Accordingly, even if you accept these domains as real and meaningful, they are not a precondition to capitalism itself. That said, they appear to be part of the capitalism we currently have, and understanding how these domains interact with each other may have explanatory power.
Regardless, I do see two distinct social orders emerging, and the differences go well beyond the boundaries of the domains as I’ve drawn them.
(2) Regardless of my reservations in (1) , there is the issue of parsimony. I’m just wondering which of your claims requires tucking the finance/political economy duality on top of CasP. At this point, it seems to me that all your claims here can be examined without this extra duality — though, I’d be happy to see your future research prove me wrong!
I developed the model in an effort to understand in a much more fine-tuned and nuanced way how power is created, manifested and applied.
At the end of the day, having a large market cap only gives a company so much power, and that power, whatever it is, does not transfer to the owners, nor does it usually extend much beyond the company’s ecosystem (suppliers, competitors and customers). Michael Porter’s “Five Forces Model,” which has been around since the 1980s, explains this aspect of capital as power better than CasP does, but it does not support CasP’s assertions regarding creorder.
One of the conclusions that my “extra duality” leads me to is that individual capitalists and firms are somewhat irrelevant. The fact that all capitalist wealth is really just one giant IOU from Finance places all the power of capital in Finance itself. You’ve called this “the state of capital,” and I have identified it as the “financial economy” or the “capital economy.” (This may explain why I have considered labeling the capital/financial domain as a polis, aka a state.)
In this sense, my model does not layer in an extra duality, it just gives more definition to CasP’s amorphous “state of capital.”
I also think there is value in abstracting the people (e.g., the “rulers” and the “ruled”) away and focusing on the system itself. Most capitalists are just cogs in the “state of capital,” and they are not even aware of that fact. They rule nothing, the holders of their “wealth” do.
(3) FIRE. You argue that real-estate and insurance were crucial in the emergence of capitalism, which is true — but how is this relevant to Finance as an analytical category?
That’s a good question. I am not wed to Finance as FIRE sector, but I have done more thinking on this matter than I’ve discussed so far.
Insurance and real estate should be considered as part of Finance (and the State of Capital) because both sectors create their own forms of “operational symbols” (i.e., policies and mortgages) that represent and affect entities in the political economy (material world). Just as a stock ticker extends Finance’s control over a previously unlisted corporation, so does a mortgage establish a means for controlling the underlying property. An insurance policy is more like a bet, but that’s also the essence of stock in a company that doesn’t issue dividends.
I prefer to think of this kind of “financialization” (the creation of financial symbols or avatars that represent a productive entity) in terms of a space-state control system (where those symbols are software sub-routines that are used to monitor output and provide feedback that guides the system under control.
Put more simply, the insurance and real estate sectors should be considered part of Finance/the State of Capital because each relies on the creation of economic claims to, or based on, existing legal rights. It is this additional layer of abstraction that is the hallmark of the State of Capital.
Another reason I find the bifurcation of society into two domains (as opposed to two classes) is the fact that doing so seems to explain the success of liberalism as an ideology.
Those members of society who “live” in the financial/capital economy (or polis) do enjoy the self-ownership, equality and rights promised by liberalism. That’s just what happens when you have enough wealth that you don’t have to work for anybody else.
Further, many of the models, assertions and normative myths of mainstream economics actually apply in the markets of the financial/capital economy, which are far more free than those of the political/material economy.
All of this goes to the Double Truth doctrine of neoliberalism asserted by Philip Mirowski. Basically, there’s one truth/assertion for the masses (exoteric) and a completely different truth for the elites (esoteric). The most successful “double truth” is one that is based on a common statement understood differently. I asked Mirowski whether he has ever considered classical liberalism as having its own double truth doctrine, and he said he has not. I believe that neoliberalism’s “double truths” are not an innovation but built upon the foundation of the liberalism that went before.
The bifurcated model allows me to identify and explore those double truths (i.e., how can one statement simultaneously be true and false), which I prefer to think of as “normative myths” (assertions having both political magnitude and direction). The financial/capital economy/polis is a result of the normative myth (“false duality) of politics v. economics. Repeat something until it becomes policy then reality. The false duality of real v. nominal is likewise a normative myth, one meant to distract from the fact that the financial/capital economy is not an imperfect mirror of the political economy, it is the engine that drives the political economy. This particular myth simultaneously absolves the “false” economy while justifying austerity that rebuilds that economy. Equilibrium is another normative myth that the bifurcated model can also help explain.
Thanks, Scot. Here are a few questions/comments. 1. In your outline, FINANCE = FIRE = Banks, insurance, real-estate. I understand why you think of banks as ‘Finance’: allegedly, they are the ones who create money. But why do you lump insurance and real estate together with them? 2. You distinguish between the ‘financial economy’ and the ‘political economy’, but you recognize that capitalists, governments and the underlying population exist in both, and that each of their actions has simultaneous financial and political-economy ramifications. With this in mind, how is this bifurcation useful? 3.
CasP researchers have discussed prices (especially the pricing of financial assets) at length, but something that I have not seen discussed before in CasP is the importance of the cost of capital (Financial Economy) and the cost of credit (Political Economy) to differential accumulation. For example, larger companies, whether size is measured by market cap or annual revenues, generally have lower costs of capital, i.e., it costs larger companies less to increase their power.
Baines and Hager researched this process in their 2021 paper ‘The Great Debt Divergence and its Implications for the Covid-19 Crisis: Mapping Corporate Leverage as Power’.
1. Including insurance and real estate within Finance more broadly is optional, but I think if you are trying to have a comprehensive understanding of capitalism and its history, insurance and real estate need to be included, even if they don’t have all the same indicia of pure finance. Due to the rents it can provide, real estate was the first “financial asset” (although it exists in the material world, as well). English capitalism came into being well before the Bank of England and credit money in 1692, and it was based entirely on real estate (e.g., making improvements to increase rents). Insurance was an important early development in capitalism, and is purely financial, although it does not create capital the way commercial banks or stock markets do.
2. The bifurcation is real. We have two different domains, each subject to a different rule set, where one domain controls the other. Refusing to accept that bifurcation prevents you from truly understanding how capital as power is manifested, distributed and applied throughout society in both domains. By having a “schematic” of how the two domains interact, you can identify key interfaces between the two domains and learn how they interact and function, both together and independently. Having a schematic also allows you to make changes to the system, hopefully for the good.
For example, the cost of capital/debt clearly was capital’s dominant control mechanism for most of capitalism’s existence. Every depression was due to the unavailability of credit, not strategic sabotage. All that has changed over the last 50 years, and CasP captures the new reality of the dominance of strategic sabotage and stock markets over debt and bond markets. But it is not like the cost of capital/debt control knob has disappeared, it is just being put to a different purpose: accelerating the dominance of the stock markets and especially larger firms. In the meantime, loosening credit standards has allowed the capitalist system writ large to supply labor with the same purchasing power without increasing wages.
This fundamental shift, which began under Reagan in the 1980s, could not have been accidental and can be reverse-engineered, with the right “schematic.” I am not saying my schematic is the correct one (and I have yet to fully describe it), but I think developing a schematic that reflects observable facts is a worthy goal.
3. I’ve read that paper previously, and agree, in hindsight, that it relates to the cost of capital. What I am saying is that the cost of capital (in the financial domain) and the cost of debt (in the political domain) are as central to “creordering” as the strategic sabotage used to set the prices of commodities.
Originally, I thought I could work the cost of capital/debt into your domains of strategic sabotage, but I realized that it is a distinct control mechanism, although not completely independent. The cost of capital appears to bound the creordering that can be achieved via the stock markets, i.e., cost of capital represents an asymptote of capitalist power, if it is set too high.
Scot, You raise many questions, but I think that, at this point, engaging with them will be splitting hair. Perhaps when you write something concrete where these issues become paramount, we can revisit the various metaphors and categories and see whether our differences, if any, matter or not.
Works for me. I will post “something concrete” under a new topic in a little bit, most likely “Modelling the State of Capital.”
–Scot
Approaching these questions from an entirely different angle, have you considered (or do you assert) that the “state of capital” is logically distinct from the state within whose laws the state of capital operates?
The concept of the ‘state of capital’ begins by defining the ‘state’ as the overall power structure of society and then attributing to it a particular form – ancient kingship, feudal, capitalist, etc. For us, the ‘state of capital’ is a synonym for the ‘capitalist mode of power’. As we see it, the state of capital is the broadest definition of the regime and, in that sense, it contains – rather than being contained by – the normal conception of the state. Thus, in our view, what people normally refer to as the ‘U.S. state’ is part of the state of capital, not the other way around.
Whether the “state of capital” contains the the “U.S. state,” or vice versa, does not make them one and the same. Indeed, there are logical distinctions between the two that are readily identifiable by how the laws operate within each domain. These distinctions are especially easy to see when you study the history of American law and how it was transformed over two hundred years to establish the dominance of capital in the U.S.
The false duality (normative myth) of politics-economics drove legislatures to create a separate legal regime/domain ruled by capital (in much the same way the separation of church and state carves out a regime/domain for religions). CasP already recognizes that each regime has different rules for pricing, but they also have different laws for liability and taxation, all of which contribute to the ability of the capital domain to create and deploy power (as capital).
Since you took us back to the “capitalist mode of power,” to what extent are such logical (and/or legal) distinctions between the “state” and the “state of capital” that contains it reflect the mode of power, as opposed to one of its supporting “concepts of power”?
Let’s look at capital itself. All capital begins as money. All money begins as fraudulently-induced indentured servitude: in our privately controlled credit-money system, the only thing of value that is exchanged in a transaction that creates credit-money is the promise to pay the creditor subject to compounding interest; however, the creditor has no explicit right under the law to create money, which requires no work on the creditor’s part, and any “risk” taken on by the creditor is the same as the risk involved in any act of fraud. Therefore, all capital begins as indentured servitude.
Is credit-money creation part of the capitalist mode of power, or an underlying concept of power? What about indentured servitude?
Compounding interest is the inverse of discounting. If you leave aside inflation, the interest rate and discount rate are the same for any financial asset, particularly for debt-based instruments such as mortgages or bonds. Compounding rates lead to exponential growth.
Is the interest/discount rate part of the capitalist mode of power, or an underlying concept of power?
What about the differences in pricing commodities v. pricing financial assets?
Another way of approaching these questions is, as we map out how power is created and flows through a capitalist system, how do we know what belongs to the mode and what is a “concept”? Using a computer analogy, is the mode the “hardware” and concepts the “software,” the processes executed by the software? Or is the “hardware” just the mode of production, and both the mode of power and its concepts are lumped into the “software”?
It all seems to go back to metaphors, but I will take something more concrete, if you’ve got it.
Second, I agree that the “holder” of the record is immaterial, but is the counter-party to the underlying claim also immaterial? Being the aggregator of and counter-party to all capital imbues Finance with immense power, even though that capital is officially owned by and owed to others.
I’m not sure what you mean by ‘Finance’ with a capital F. We speak about finance with a lower-case f. For us, finance is an operational symbol (in Ulf Martin’s terminology), and that’s it. What most people think of when they speak about Finance is the FIRE sector (finance, insurance and real estate). In our view, this sector is not finance, but merely one institutional/organizational manifestation of finance. As we see it, the FIRE sector, however large, does not control money, credit and debt; the “state of capital” does. It is the ruling capitalist class, its key corporate and government organs and their many-faceted institutions that together dominant and steer the financial process. Banks, insurance and real-estate companies are merely part of that process. Now, having said that, you are correct that FIRE can and does redistribute income, risks and assets — but so do other sectors, such as raw materials, pharmaceuticals and high-tech firms, sometimes at cross-purposes, sometimes in unison. These redistributional patterns are the details of the differential process of ‘credit at large’ — not the process as such.
Thanks for your response regarding bank deposits. It was very helpful.
I need a little help understanding the rest of your response.
What/who was the “operational symbol” of Mumford’s original Mega-Machine? Was it the king?
Is there a hierarchy in the operational symbol that is finance?
Isn’t CasP’s “state of capital” just a different label for an operational symbol that includes finance, albeit one that is more fuzzy and amorphous than finance or the FIRE sector? Is there a reason for maintaining the concept of a ruling capitalist class in lieu of being more specific about what “the state of capital” is?
Approaching these questions from an entirely different angle, have you considered (or do you assert) that the “state of capital” is logically distinct from the state within whose laws the state of capital operates? I am not trying to argue in favor of the false dualities (normative myths) of politics-economics and real-nominal, but a case can be made that, within any capitalist society, there are two poleis, each with a distinct political economy governed by different rules and laws (I have started modelling this), where the second polis (the state of capital) controls the first polis (the state) for the benefit of the second polis. From this perspective, capitalism is not a mega-machine, it is a control system (mode of power) whose logic organizes and controls the mode of production for the purposes of perpetuating its control (power).
Thank you again for the time you have spent in answering my questions. Your answers have been very helpful in further defining the current metes and bounds of “orthodox” CasP theory (when you add the scare quotes, the term is not an oxymoron).
P.S. I use the term “control system” as an electrical engineer would, and I am thinking specifically of the social analog of a space-state control system (something I learned about in my “Robot Manipulation” class in undergrad).
[merged to keep this thread centralized. Original title: “What Does It Mean That Capital Exists as Finance, and Only As Finance?” – jmc]
The full quote is “In fact, in the real world the quantum of capital exists as finance, and only as finance.” Nitzan and Bichler (2009), Capital as Power: A Study of Order and Creorder, p. 7.
I understand the above-quoted statement serves as a rejection of the assertion by mainstream and Marxist economists that capital includes material items such as manufacturing equipment and other so-called “capital assets.” This aspect of the statement is discussed at length in Chapter 5 of the book.
Personally, I also take the quote quite literally to mean that “capital” exists only as tallies in accounting records of financial institutions, and these tallies are indicia of wealth owed to the account holder by the institution that maintains the accounting records (e.g., banks and stock brokerages). Of course, all accounting records record capital transactions, even those of a non-financial business, but as a practical matter all “capital” in developed countries “accumulates” as tallies of accounts held in financial institutions.
My interpretation may be idiosyncratic, but an understanding of the inherent hierarchy of capitalism flows quite easily from it.
Does anybody else understand the statement differently? Was the statement meant to convey other ideas? Am I missing something? Thanks.
–Scot
Rowan,
At the very beginning of their 2009 book, Nitzan and Bichler observe:
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.
Nitzan and Bichler (2009), Capital as Power: Towards a Study of Order and Creorder, at pages 2-3.
CasP’s characterization of mainstream economics neatly fits Jason Stanley’s definition of propaganda as “flawed ideology”:
It is an example of what I will call a flawed ideology. When societies are unjust, for example, in the distribution of wealth, we can expect the emergence of flawed ideologies. The flawed ideologies allow for effective propaganda. In a society that is unjust, due to unjust distinctions between persons, ways of rationalizing undeserved privilege become ossified into rigid and unchangeable belief. These beliefs are the barriers to rational thought and empathy that propaganda exploits.
Stanley (2015). How Propaganda Works, at page 3.
I have come to call Stanley’s “flawed ideologies” “normative myths” because these “ideologies” are intentional, they are meant to provoke action or inaction, as the case may be, much as Plato’s “Noble Lie.” Many (if not all) of what Jonathan refers to as assumptions of mainstream economics are, in fact, normative myths intended to shape reality, not to reflect it. The normative myth of the politics-economics duality resulted in overturning laws that protected workers in favor of laws protecting capitalists, for example.
As someone with an electrical engineering background who was forced to learn about real scientific models, I concluded long ago that mainstream economics was not a science. Classical political economy began as an effort in apologetic rhetoric to square the inequities of emergent capitalism with the egalitarianism of emergent liberalism. Marx somehow managed to tease something of a science out of the rhetoric of classical political economy by filling in the obvious gaps that rendered the rhetoric fallacious. Unfortunately for us all, Marx posed a challenge that capitalists, then truly coming to power, to overcome, and they did so by proposing a theory of value in contradiction to Marx’s theory of value. In spite of their reliance on the analogy of physics, neoclassical economists modeled their theory of value on Marx’s, even incorporating its fundamental flaw of insisting on measuring an immeasurable value metric.
I view CasP theory as still in its infancy, and I believe a lot of work still needs to be done to improve and extend CasP’s explanatory power. Frankly, if past is prologue, most of that work cannot be done by economists or even other social scientists. The neoliberal era of capitalism we are living in now did not emerge by accident but was the result of an inter-disciplinary movement of economists, sociologists, lawyers, cognitive scientists, philosophers, mathematicians, etc., some of them unwitting (e.g., Myrdal, Von Neumann, Tversky and Khaneman, etc.). At the moment, CasP lacks a compelling call to action to inspire a movement, but I do believe that a movement can be built on CasP theory.
Here is an article that Jonathan has recommended to me in the past: Theory and Praxis, Theory and Practice, Practical Theory.
You might find it interesting, if you have not read it before.
–Scot
Analytically, ‘economics-politics dualists’ — namely all economists, Braudel’s included — begin by conceiving capitalism as a self-regulating atomistic economy, and then tuck on power as a ‘distortion’. This is akin to physicists assuming 4 elements and then adding everything else they know as a ‘distortion’. Science cannot tolerate logical contradictions — and yet that is exactly what splitting politics from economics ends up doing.
I don’t know that the particular error at work here is Harvey’s reliance on the economics-politics duality. To me, the real error is the belief in the market metaphor.
The “market” of today’s political economy is essentially a company store in a company town, and its consumers are actually being consumed. The company store metaphor is consistent with CasP and fits perfectly with the phenomenon Harvey attempts to describe.
Also, you might want to reach out to Thomas McCarthy, a former law professor at University of San Francisco who wrote the most widely known US TM law treatise. It looks like he is still around, and he might be interested in a clean and robust TM dataset (or even have access to one already). Links below: https://www.mofo.com/people/j-mccarthy.html https://www.mccarthyinstitute.com/
Thanks, I’ll look into it and send an FYI. I have some research questions of my own, but I am sharing my prep work for anyone that would want the results of cleaned names.
I may be able to help you with developing (or even answering some of) your research questions. I have thirty years of experience in intellectual property law, mostly focused on patent licensing and IP strategy, generally, but with some trademark practice, and I am able to see things in the data that lay people are unlikely to see.
–Scot
Do you distinguish between live and dead marks? Also, do the data allow you to distinguish between marks that are actually registered versus those that are only applications?
A quick look at Mattel marks on TESS implies to me that some of the hits from my search are for intent to use applications that are not yet registered marks (and may never be).
Also, you might want to reach out to Thomas McCarthy, a former law professor at University of San Francisco who wrote the most widely known US TM law treatise. It looks like he is still around, and he might be interested in a clean and robust TM dataset (or even have access to one already). Links below:
https://www.mofo.com/people/j-mccarthy.html
https://www.mccarthyinstitute.com/
P.S. Different industry sectors have different approaches to trademarks. Some are very aggressive in applying for marks, and others don’t seem to care much beyond their corporate name. If you were able to add S&P GICS sector tags to the data (e.g., consumer discretionary for Mattel and IT for Apple), that would make the dataset more useful for intra-sector and cross-sector analysis.
Thanks, Jonathan. That was very helpful.
One question that I have, and I don’t think there is a readily available answer, is the extent to which US dominant capital made a strategic decision to rebalance the global allocation of capital? For example, one consequence of outsourcing manufacturing to other countries is to deploy capital in those countries that must, according to the logic of capitalism, make a profit. Capital-intensive industries (e.g., manufacturing, mining, oil) usually don’t get as large a multiple as industries that don’t (e.g., software and internet companies).
Finance knows that competition is bad for capitalism, so it is not clear to me that the dominant capital of each nation (other than China and maybe Japan) believes it is competing with the dominant capital of other nations.
I am a little confused by the conclusion that “(2) the relative power of U.S. capital continues to wane,” which appears to be based on your discussion regarding Figure 3 and “net profit shares. ”
I thought power (and, therefore, relative power) is determined by market value (i.e., capitalization), not by net profit shares (i.e., earnings multiplied by the number of shares outstanding). By factoring out share price, you’ve eliminated any consideration of differential discount rates and differential “hype,” which conceivably could result in lesser profits representing greater power. What do the relative market capitalization data show?
Rowan,
You might find the work of American Legal Realists of the early 20th century of interest. They viewed property as a “bundle of rights” of which the right of possession is only one. They explain differences between different types of property based on which of the bundle of rights are present or absent. For example, a patent by law is considered a form of private property, but it only provides its owner the right to exclude others from practicing the patented invention, not the right to practice his own invention.
Truly, as they say, it is harder to imagine the end of capitalism than it is to imagine the end of the world. As far as the “death cult” charge goes, I agree that some of it is a death wish or a “rapture” wish. However, I think it is more of an “ignorance and self-entitlement cult” based on self-justification, selfishness, post-truthism and denialism.
Actually, with global warming it is easy to imagine the end of capitalism (and perhaps humanity) without the end of the world.
When I talk about the “death cult,” I am more focused on the cynicism and nihilism of the leaders than the attitudes and beliefs of the followers. We have had twenty years of relentless propaganda of despair from the far right (especially Rupert Murdoch outlets) that argues certain people are being victimized while other, undeserving people are being given handouts. If that is all you hear for most of your life, you will likely come to believe it. So, I sympathize with the followers. It reminds me of the book They Thought They Were Free by Milton Mayer.
