the other school of economics

‘Capital’ (I): Nitzan & Bichler

Jonathan Nitzan & Shimshon Bichler
Jonathan Nitzan teaches political economy at York University in Toronto.
Shimshon Bichler teaches political economy at colleges and universities in Israel.

- References: their site
http://bnarchives.yorku.ca/
http://en.wikipedia.org/wiki/Jonathan_Nitzan

- Most recent Book:
“Capital as Power: A Study of Order and Creorder” http://bnarchives.yorku.ca/259/
ISBN: 978-0-415-47719-2
http://www.routledge.com/books/Capital-as-Power-isbn9780415477192
http://www.amazon.com/Capital-Power-Creorder-Political-Economy/dp/0415496802/ref=ed_oe_p

- Recommended Papers:
“The Scientist and the Church” http://bnarchives.yorku.ca/185/
“Imperialism and Financialism: A Story of a Nexus” http://bnarchives.yorku.ca/267/
“Contours of Crisis: Plus ça change, plus c’est pareil?” http://bnarchives.yorku.ca/255/
“Contours of Crisis II: Fiction and Reality“ http://bnarchives.yorku.ca/258/
“Contours of Crisis III: Systemic Fear and Forward-Looking Finance“ http://bnarchives.yorku.ca/262/

- An introduction to their work:

They focus on the nature of capital and provide an alternative view to that of Marxist and neo-classical economics.

This line of thinking is not only original, seen as ‘provocative’ by the mainstream, seductive from an intellectual perspective, but also absolutely essential as both Marxist and neo-classical economic theories have showed their limits.

I have paraphrased & re-copied the key themes that emerge from the introduction of the book. <http://bnarchives.yorku.ca/259/>

Marxist and neo-classical economists have hit a limit.

“Economists – both liberal and radical – claim to have understood that Capital is an economic category anchored in material reality. That the monetary value of capital derives from and reflects the underlying processes of consumption and production.

Mainstream neoclassical economists view this determination from the output side. Capital for them is made of tangible capital goods (and now also of intangible knowledge or technology). The magnitude of capital in money terms is proportionate to its productivity – namely, to its ability to produce goods and services that satisfy human wants and generate happiness. For them, Capital is a material object.

While Marxists approach capital not from the output side, but from the input side – the side of labour. The dollar value of capital in the Marxist scheme is proportionate to its cost of production, and, specifically, to the amount of abstract labour socially necessary to produce that capital. For them capital is a social relationship embedded in productive, material entities.”

Nitzan & Bichler claim that “Capital is neither a material object nor a social relationship embedded in material entities. It is not ‘augmented’ by power. It is, in itself, a symbolic representation of power.”

They start with Finance.

“The modern corporate owner does not view capital as comprising tangible and intangible artefacts such as machines, structures, raw materials, knowledge and goodwill. Instead, he or she is habituated to think of capital as equivalent to the corporation’s equity and debt. The universal creed of capitalism defines the magnitude of this equity and debt as capitalization: it is equal to the corporation’s expected future profit and interest payments, adjusted for risk and discounted to their present value.”

Nitzan & Bichler argue that “the elements of corporate capitalization – namely the firm’s expected earnings and their associated risk perceptions – represent neither the productivity of the owned artefacts nor the abstract labour socially necessary to produce them, but the power of a corporation’s owners”

Nitzan & Bichler’s view is “a totalizing logic of Capital“. This is the essential concept:

“The conventional creed incessantly fractures this encompassing process into a kaleidoscope of multiple interpretations. It conditions us to think of a bank as part of the ‘economy’, of the army as a component of ‘politics’ and of a television network as an aspect of ‘culture’. We expect the ‘sports’ section of the newspaper to be separate from the sections that deal with ‘international news’ and ‘education’. We split our life into distinct functions such as ‘family’, ‘work’, ‘consumption’ and ‘entertainment’. We put each entity in a different realm.

Since capital is a vendible commodity, available for purchase and sale on the stock and bond markets, its relative value represents the commodification of power.

From this viewpoint, we can no longer speak of ‘economic efficiency’ versus ‘political power’, or distinguish ‘economic exploitation’ from ‘political oppression’. Instead, there is a single process of capital accumulation/state formation, a process of restructuring by which power is accumulated as capital. To study the accumulation of capital is to study the formation and transformation of organized power under capitalism. This is the starting point of our book.”

Power is accumulated as Capital; not on top of Capital or aside of Capital… : “the accumulation of capital is the manifestation not of productive contribution but of organized power.”

- read this with the corporate greed and the GFC context in mind:

“The starting point is Veblen. His theoretical framework, articulated at the turn of the twentieth century, was radically different from the orthodoxy of his time (and of our own time still). ‘Industry’ and ‘business’, he argued, are not synonyms, contrary to what conventional political economy would have us believe. On the contrary, they are opposing realms of human activity: industry is the sphere of material production, while business is the domain of pecuniary distribution, and the link between them is not positive but negative.

Industry is a collective endeavour. Its success hinges on societal creativity, cooperation, integration and synchronization. In capitalism, however, industry is carried out not for its own sake but for the purpose of business.
And the goal of business isn’t collective well being, but pecuniary profit for differential gain.

Now the critical bit here is that industry and business are inherently distinct. Modern capitalists are removed from production: they are absentee owners. Their ownership, says Veblen, doesn’t contribute to industry; it merely controls it for profitable ends. And since the owners are absent from industry, the only way for them to exact their profit is by ‘sabotaging’ industry. From this viewpoint, the accumulation of capital is the manifestation not of productive contribution but of organized power.”

absentee owners… ‘sabotaging’ industry… Do those behaviours sound familiar in the Enron or Wall-Street backrooms?