13The capitalist mode of power

Every soul and every object have their own purpose but all ultimately aim at one: the conquest of the world for Genghis Khan.

—Chingiz Aitmatov, The Day Lasts More than a Hundred Years

I don’t separate myself from the state. I have no other interests.

—Oleg Deripaska, owner of Rusal and at one point Russia’s richest man

We now broaden the discussion of capital as power. In the previous chapter, we argued that capitalization discounts the power of capitalists to strategically limit social creativity and well-being. Capitalists inflict business dissonance on industrial resonance and leverage the consequence in the form of differential profitability. But power is not merely the means of business. It is also its most fundamental aim.

To articulate this argument, we begin the chapter by tracing the origin of mechanization to the ancient power civilizations of the river deltas, where the first giant machine was invented. This early machine, though, was not material, but social. It was made not of physical components, but of human beings. And its ultimate purpose was not production, but the exertion of power for the sake of power. Capital, we argue, is a modern incarnation of this mega-machine, a mechanized social structure driven by power for its own sake. From this viewpoint, the architecture of capitalism is better understood not as a mode of production, but as a mode of power.

The mode of power of a society, we argue, constitutes the ‘state’ of that society. The second part of the chapter explores this proposition. It examines the feudal mode of power, traces the process through which it gave way to a capitalist mode of power, and examines how the logic of capital has gradually penetrated, altered and eventually become the state — the state of capital.

A final note before we begin: as in Chapter 12, here too we translate and negate existing concepts and introduce new ones, here too we develop the argument at length, and here too we suggest that the reader suspend judgement till the end.

Material and symbolic drives

One of the most comprehensive attempts to understand the interaction between technology and power was offered by Lewis Mumford (1934; 1961; and primarily 1967; 1970). Mumford challenged the conventional emphasis on the material nature of technology, focusing instead on its symbolic aspects. Techniques, he argued, were integral to man’s higher culture. In his opinion, the final aim of technology was the shaping of society rather than nature. Indeed, the most complex machines were not tangible but social.

Thus, whereas Veblen emphasized the progressive separation between the positive aspects of material technology and the negative features of social power, Mumford (who was greatly influenced by Veblen) suggested a different dichotomy between democratic and authoritarian technologies. Democratic technology centred on human progress; authoritarian technology focused on human control. Rather than following Veblen’s notion of power as a fetter on technology, Mumford began by viewing power itself as a form of technology.

The invisible technology

In contrast to the conventional creed, Mumford emphasized the symbolic aspects of early human development. Limited by the materialist bias of their profession, he argued, archaeologists understandably judge human progress on the basis of physical objects. ‘Man the maker’, however, was a fairly late arrival, and the creation of physical artefacts were preceded by other, less visible but equally important mental activities. Moreover, the subsequent growth of material production has done little to diminish the primacy of symbolic drives.

According to Mumford, perhaps the most important human technology — invisible to archaeology until the invention of writing — is language. The material technology of Palaeolithic and Neolithic societies (and in some sense even of our own age) remains infinitely inferior to the complexity, flexibility, uniformity, efficiency and growth of their spoken languages. It is unclear how long language took to develop, but according to Mumford little of what followed could have been achieved without the prior construction of this wholly symbolic technology. Furthermore, it is highly unlikely that the development of language was driven by the everyday imperatives of survival — the hunting pack was dependent on short commands and had little use for the subtlety of language common even among the most archaic tribes still living today. According to Mumford, the principal drive was self-discovery.

Mumford argued that the latent function of language — much like the earlier appearance of ritual and taboo and the subsequent evolution of science and material technology — was to control, for better or worse, man’s own mental and emotional energies. In many ancient cultures, words were considered the most potent force: God is commonly believed to have created the world with his words, a feat of power that humans have since striven to emulate. Both in goal and structure, language was a precursor for all later technological developments.

The two archetypes

From this premise, Mumford differentiated between two qualitatively distinct technologies: one associated with the democratic outlook of Neolithic culture, the other with the power bias of ‘civilized’ society. In his opinion, their distinct paths stem from a different reaction to death. Neolithic technology takes the biological route, seeking to enhance life while accepting the inevitability of death. Power technology, by contrast, uses mechanical force and violence in the vain hope of achieving immortality.

This qualitative distinction, of course, cannot be applied easily to actual societies, certainly not with any precision. Most social formations contain elements of both technologies, and few if any conform closely to either ideal type. But the distinction is nonetheless useful as a general myth, a basic framework for understanding the dual underpinnings of social organizations.

Neolithic culture

Neolithic culture does not see work as alienating labour, but rather as a communal process intertwined with the broader ecological system. Work is often backbreaking, but physical toil is compensated for by companionship, cooperation, song and rhyme, while aesthetic achievements are valued no less than abundance of yield. Indeed, many early feats of domestication — such as fertilization, the sacrifice of food for future growth, the harnessing of cattle and the use of a plough — were probably first practised as religious rituals. Feminine traits abound — from the lunar cycle linking cultivation to menstruation and sexuality, through the primary role of containers (pot, jar, house, village), to the careful cultivation of gardens and the patient rearing of children. Festivities, ceremonies and rituals revolve around the family, neighbours and community. Eating, drinking and sexual activity occupy a central place. There is no lifetime division of labour. Knowledge is rarely monopolized, and most types of work can be performed by all members of the community. Systemic gender inequality is uncommon. There are no social classes, and authority stems from age. Violence is limited and dictatorial power rarely tolerated.196

Neolithic culture established the merit of morality, self-discipline, cooperation and social order. It had shown the value of public goods and forethought. Most importantly, over time it has proven to be the most resilient form of social organization, always outlasting the far more energetic yet brittle power civilization.

These aspects of Neolithic culture, Mumford argued, did not disappear with the archaic village. As a form of social technology, they persist within modern society — sometimes visibly as in villages, communal organizations and even business companies, and at other times invisibly as resistance to the dictates of mechanical civilization.

Mumford also identified some significant shortcomings in Neolithic culture. The exclusive nature of small associations restricts human interaction, the horizons are limited, and pettiness and suspicion prevent broader cooperation. And, indeed, after its initial burst of discoveries and inventions, Neolithic innovation died down and stagnation set in. Conservatism made Neolithic settlements vulnerable to external invasions, and when horse-mounted tribes, equipped with metals and weapons, moved in, many Neolithic communities succumbed and withered.

Power civilization

Against this backdrop of a peaceful if limited form of democratic organization rose the spectre of power civilization under the authoritarian rule of divine kingship. The first of these social amalgamations evolved in the great river deltas — from Egypt and Mesopotamia to the Indus Valley and China. According to Mumford, the unifying hallmark of these amalgamations was absolute power.

The need for such power was partly rooted in material circumstances. Physical surplus and the consequent amassment of material wealth for the first time had created the possibility of ‘total loss’. The population was large and growing, segmented by an increasing division of labour and evermore interdependent. Under these conditions, flooding, drought and later total war could easily have spelled catastrophe, if not complete annihilation. Whereas Neolithic culture could flexibly respond to the first two and rarely faced the third, in the urban amalgamates of the deltas these threats had to be counteracted resolutely and ruthlessly. And given the large scale of activity, such a response could be achieved only through the sanction of absolute authority.

But as Mumford argued, material considerations tell only part of the story; the other and perhaps more important part is symbolic. The rise of power civilization was accompanied by the appearance of the sky gods. Neolithic earth gods, attuned to the micro biological cycle of fertility and operating on a human scale, were no longer sufficient for the task at hand. For the kings, risk of disaster made failure increasingly unacceptable, thus amplifying the ever-present fear of death. Neolithic culture, humbled by its limited potential, had to accept mortality, but kings were no longer bound by Neolithic horizons. Control over growing resources and larger populations suggested to them — admittedly with some justification — that the ‘skies were the limit’. Expanding insight into writing, mathematics and astronomy gave their task cosmic proportions. But as Josephus Flavius wisely observed, ‘The union of what is divine and what is mortal is disagreeable’ (Koestler 1952: 237). So as earthly rationality grew hand in hand with supernatural irrationality, the king, dazzled by both his achievements and fears, was driven toward the ultimate feat of becoming an immortal sun god himself.

Power civilization appeared after rising agricultural yield for the first time had enabled a systematic generation of food surpluses. According to Mumford, it was probably at that point that hunting chiefs, who had earlier entertained symbiotic relationships with Neolithic settlements, first discovered the promise of forceful redistribution. Weapons, which had previously been used primarily against animals, were now increasingly applied against people, and total war became a permanent institutional feature.

Neolithic excavations offer little or no evidence of fortification or armament. The first fortifications are associated with urban centres, while heaps of cracked sculls — early evidence of organized murder — do not appear until kingship. Neolithic art did not glorify warriors and leaders. It left us no wall paintings of massacres and prisoners. It never built tombs in which lesser mortals were sacrificed for the afterlife of rulers. These aesthetic manifestations emerged only when humanity embarked on its ‘civilized’ power trip to control nature and, most importantly, people.197

The mega-machine

According to Mumford, the first power machine was social. In attempting to emulate the perfect cosmic order so as to annul their own mortality, kings turned to design, assemble and operate a human mega-machine. Absolute control of this mega-machine served as evidence of supernatural power, and the machine’s most fantastic output — megalomaniacal graves — were supposed to open the gate to immortality.

The mega-machine of the early kingships typically comprised three principal components: a labour machine of peasant conscripts to erect public works; a military machine to impose internal discipline and engage in external war; and a bureaucratic machine to keep the accounts. Control was in the hands of a tight caste comprising the royal court and the high priesthood — the former maintaining a monopoly over physical force, the latter over knowledge and ideology. Division of labour and advanced specialization (Egyptian mining expeditions, for instance, had up to 50 different job descriptions), strict regimentation, uncompromising discipline and tough punishment turned the workers, soldiers and officials of these organizations into mere mechanical components. Initiative was all but forbidden and flexibility disallowed. Taken as whole, these organizations formed ‘a combination of resistant parts, each specialized in function, operating under human control, to utilize energy and to perform work’. In short, they fulfilled all the requirements of Franz Reuleaux’s classic definition of a machine (Mumford 1967: 191).

The fusion of rational insight and highly irrational aspirations resulted in a massive explosion of what political economists now call ‘productivity’. Seen from a material standpoint, the technological achievements of the early mega-machine, particularly the construction of the pyramids, remained unparalleled until our own epoch. But according to Mumford, the more significant contribution was the construction of the human mega-machine itself. It was here that the three basic principles of mechanization — complex coordination, de-humanization, and remote control — were first applied. In other words, the original object of mechanization was society itself. And in due course, just as the cosmic worldview was a necessary prerequisite for the adoption of universal weights, coins, the calendar and the clockwork, the human mega-machine became the ultimate model for subsequent non-human mechanization.

The mega-machine enabled human beings, for the first time, to transcend some of their own biological limitations. The principles of universality, order and predictability opened the door to a continuous expansion of knowledge. Urban amalgamations assembled by the first mega-machines opened new horizons for human interaction, triggering occasional flurries of creativity difficult to achieve in small and disjoined Neolithic settlements.

But the unleashing of such positive forces was neither the intended purpose nor the most important consequence of the mega-machine. According to Mumford, the ultimate goal of human organization on a large scale was and remains negative: exerting social power for its own sake. The use of brute force is more than a means of exacting obedience; it is the very manifestation of a power civilization. Human sacrifice, although pre-dating kingship, became a central preoccupation of civilized societies, slowly becoming institutionalized, perhaps unconsciously, in the form of war. In its extreme incarnation, argued Mumford, kingship was a ‘man eating device’, and the cannibalistic lust of earlier kings has repeatedly resurfaced in subsequent appearances of social mega-machines (1967: 184). Even today, monetized property (capital) and the death penalty (capital punishment) remain linked to the same root, caput.

To sum up, Mumford put the power orientation of the mega-machine model in sharp contrast to the democratic features of Neolithic society. With the mega-machine, Neolithic dispersion was replaced by power concentration; ecological production by mechanization; lack of specialization by a lifelong division of labour; limited local violence by the institutionalization of total war; cooperation by exploitation, forced labour and slavery; and egalitarianism by a class structure.

The mega-machine resurrected: capital

Eventually, the early mega-machines of the great deltas crumbled under their own weight. For all their external might, they were internally vulnerable: dehumanization and obedience stifled initiative, while preoccupation with power and death were bound to undermine legitimacy. And when the ‘myth of the machine’ died — that is, when the power structure no longer fulfilled the Pharaoh’s promise of ‘life, prosperity and wealth’ — the social pyramid was liable to falter.

But according to Mumford, the ‘myth of the machine’, much like Neolithic culture before it, has outlived its first historical incarnation, and in the sixteenth century centralized power once more emerged to control human consciousness. Nothing seemed to escape this renewed preoccupation with organized power. The most significant sign was the resurrection of the sky gods and the growing assimilation of Galileo’s mechanical world picture. Every social innovation — from Venetian music and French diplomacy to Newtonian physics and Hobbesian politics — was marked by mechanical rationalism. And indeed, within only a few centuries, mechanization had once again taken command — so much so that in 1933 the entrance to the World’s Fair at Chicago could proudly boast: ‘Science explores: Technology executes: Man Conforms’. This announcement, together with the title of the fair — ‘The Century of Progress’ — attests to the extent to which the ‘myth of the machine’ has been restored (Mumford 1970: 213).

Extending Mumford, we argue that the new mega-machine has become much more powerful than the old — though for reasons that Mumford himself did not explore. In his analysis, Mumford focused mainly on the newly resurrected institution of kingship and its successor, the sovereign state. But lurking within the cocoon of the state — and soon emerging to define the very meaning of the state — was a new and very specific logic that Mumford largely ignored: the nomos of capital.

In our view, capital fulfils all the characteristics of a mega-machine. Based on the universal ritual of capitalization and a fundamental belief in the ‘normal rate of return’, capital is a symbolic crystallization of power exercised over large-scale human organizations, typically by a small group of large absentee owners intertwined with key government officials.

The underlying driving force of large-scale capitalist organizations is not fundamentally different from that which propelled the rulers of earlier power regimes: they all seek to control nature and, ultimately, human beings. But the structures of these power regimes — their architectures, institutions and processes — are fundamentally different. These differences, we argue, make the capitalist mega-machine more potent than any of its real or imagined predecessors — more than Genghis Khan’s rolling war machine, more than Orwell’s party state, perhaps even more than Huxley’s human reproduction line. There are several key reasons for this greatly enhanced power:

  1. Universality. Although capital appears fractured by complex production chains and fragmented ownership stakes, in fact it is highly universal. The power symbols of earlier mega-machines were largely culture-specific, relying on the physical display of public works, armies, sacrifice, flags and emblems. Capital, by contrast, is reduced to one symbol: capitalization. By the early twenty-first century, this symbol has been effectively abstracted down to electronic flickers, computer bits and bytes that make people the world over march to the invisible command of capital.

  2. Cohesion. The unifying belief in the normal rate of return as the ultimate yardstick for social action is all embracing. It penetrates government, business, mass communication and culture, gradually taking over their very articulation and development. By providing a common language, this belief helps unite the various elites into a cohesive, if not seamless, ruling class of absentee owners, making opposition all the more difficult.

  3. Expandability. Unlike the power of kings and sovereign governments, capital power is vendible. And the fact that capital can be bought and sold means that the power it represents can be expanded on an ever-increasing scale. For the first time in history, it seems that the sky is the limit. As Mr Collins, the oil magnate in Traven’s The White Rose, puts it, ‘There isn’t any land anywhere in the world that I can’t get if I want it … even if it’s on Jupiter — I get it — as sure as death’ (Traven 1929: 34).

  4. Intensity. The focus on profit enables capitalists to deepen as well as broaden their power. The ancient mega-machine was a relatively well-defined organization. Power was exercised mostly over the organization itself and in that sense was ‘organization augmenting’: to have more of it required a bigger organization. The capitalist mega-machine is a much broader construct. It consists not of the corporation per se, but of the entire scope of capitalistic reproduction. As we elaborate in the final part of the book, control over this totality is proportionate to the various capitalized profit shares. A capitalist group can increase this share directly by expanding its own corporate organization; but it can also do so indirectly, by raising its profit per ‘unit of organization’ so as to become ‘leaner and meaner’.

  5. Absorptiveness. Any process of power that systematically affects the expected level and pattern of profit is quickly capitalized (non-systematic effects usually get classified as better-to-ignore ‘extraordinary items’). The discounters are constantly on the lookout, scanning the power landscape. They look to see whether education increases the relative wages of women, whether environmental policies raise the effective penalty for polluters, whether the use of military force alters the price of raw materials, whether television makes workers easier to predict, whether religious missions pacify indigenous populations, whether economic policy redistributes income, whether elections alter taxation, and so on — all with the aim of assessing the impact of these processes on profitability. Any regular effect on profit is instantly discounted into present value, and the power process this effect emanates from henceforth becomes part of capital.

  6. Flexibility. By virtue of its universality, cohesion, expandability, intensity and absorptiveness, capital has become the most flexible power structure in history. Contrary to earlier mega-machines that depended mainly on punishment, oppression, violence and terror, capital relies also — and often far more so — on reward. This ability to use both carrot and stick makes capital suppler and therefore more resilient than either kingship or sovereign government. And even when this richer menu of power occasionally fails, giving rise to losses and bankruptcy, large-scale capitalist organizations are usually able to resurrect themselves through merger, restructuring and the securitization of debt. Indeed, this flexibility is what makes capital accumulation possible in the first place. This last point can hardly be overstated. If orthodox economics were right and capital was indeed a physical amalgamation of ‘machines’ or ‘production lines’, its immobility and rigidity would have made accumulation impossible. By contrast, if we treat capital as a human mega-machine, a structure of social control, capitalization and re-capitalization become possible as business organizations adapt to and change reality. Literally, capital can be accumulated only because it is not a physical entity.

To sum up: the myth of the mega-machine enables us to think of capital not as a material–productive apparatus, but as a symbolic architecture of social power. Operating through the price system, this architecture quantifies and reduces qualitatively diverse power processes into the universal language of capitalization, and by so doing absorbs them into the process of accumulation. Very little remains out of reach: power that can be priced is power that can be capitalized.

Yet it is precisely this encompassing feature that makes the capitalist mega-machine difficult to reconcile with existing theories of society. For if capital tends to absorb and internalize other forms of organized power, how can we differentiate it — and, indeed, should we differentiate it — from bureaucratic organization in general and the state in particular?

Consequent to these ambiguities, the historical ascent of the capitalist mega-machine has been grossly misunderstood — often to the point of putting the whole process on its head. The first misunderstanding concerns the separation of accumulation from organization within the corporation. The second, broader misunderstanding involves the relationship between corporations and capital on the one hand and governments and state on the other. We deal briefly with the former and then turn to the latter.

Owners and technocrats

Begin with the inner compass of the corporate unit. As we saw in Chapter 4, the Weberians latched onto social mechanization as evidence that ‘capital’ — an entity that they erroneously equated with machines and productive artefacts — was actually on the decline, and that class analysis therefore had become irrelevant if not totally misleading.

For John Kenneth Galbraith (1967; 1983), a famous voice of this school, mechanization spelled the ascent of a new social strata: the ‘technostructure’. Following the conventional creed, his starting assumption was that ‘property’ applies only to capital goods as distinct from organizations: the capitalist proprietors still own the physical productive apparatus, but not the organization and management of knowledge. And since in his view production has grown more dependent on the latter relative to the former, it follows that property owners must have lost their primacy to corporate technocrats and government regulators. Galbraith himself provided no evidence that this transformation had indeed occurred — although, following The Modern Corporation and Private Property by Berle and Means (1932) and The Managerial Revolution by Burnham (1941), he was not alone in inferring that ownership was becoming increasingly separate from control.

Despite their popularity, though, the ‘separation thesis’ and the consequent belief that capital was on the decline were founded on pretty shaky grounds. As Maurice Zeitlin (1974) convincingly showed, the direct evidence, including in Berle and Means’s own study, was dubious from the very start: the separation of ownership from control was never much more than a ‘pseudofact’. Neither the earlier data nor those furnished by subsequent attempts, he argued, showed that such separation had actually taken place, a claim that has since been corroborated by numerous writers.198 Other, less hostile critiques, like those of Baran and Sweezy (1966) and more recently Screpanti (1999), accepted that ownership was increasingly separate from day-to-day control. But in their view, this separation only subjugated executives to the rigid dictates of accumulation, turning the corporation into an even more effective ‘profit machine’.199

This last point is certainly confirmed by the evidence. As we shall see later in the chapter, when the European bourgeoisie took the lead from the declining feudal nobility, its ascent was manifested through a marked redistribution from landed income to pecuniary return on investment. If capitalists were indeed losing ground to the technostructure as Galbraith and others have argued, we would expect to see a similar redistribution — this time from profit and interest to the salaries of technocrats and professionals. And yet this redistribution never happened. Indeed, judging by the facts, capital seems to have grown stronger, not weaker.

Figure 13.1 pertains to the United States, for which there are systematic historical data going back to the late 1920s. The series in the chart shows the income share of capitalists, measured by the proportion of pre-tax profit and interest in national income. The historical picture painted here is unambiguous. First, we can see that the income share of capitalists has trended upward, from an average of 12 per cent in the 1930s to 16 per cent recently.200 Second, the chart shows that the volatility of the income share, indicated by the narrowing distance between the upper and lower dotted lines, has declined. Given that capitalization is boosted by higher earnings and lower risk, the combination of these two processes attests to the extent to which the mega-machine of capital has strengthened its grip over society.201

Capital’s share of income in the United States

Figure 13.1: Capital’s share of income in the United States

Source: U.S. Department of Commerce through Global Insight (series codes: ZBECON for pre-tax corporate profit; INTNETAMISC for interest; YN for national income).

Evidently, then, knowledge of production techniques is not a prerequisite for exacting obedience. In the final analysis, it is not the engineers and bureaucrats, but the capitalists who are in the driver seat. The ultimate drive of their corporate organizations is not ‘continuity’, ‘security’, or ‘sales growth’ as the managerialists would have us believe, but accumulation. And whether the capitalists are absent or present, the logic of their mega-machine seems to enforce this accumulation on society with increasing mechanical exactitude.

State and capital

Still, even with this evidence, students of capital have remained uncertain about how to link it to power. The main reason is simple enough. As Marx pointed out, historically, the regime of capital emerged together with the nation-state. Yet, as we have seen earlier in the book, theoretically, this joint emergence was fractured from the very start. The conventional bifurcation of ‘politics’ and ‘economics’ associated capital with production, leaving the state, and power more broadly, at the mercy of political scientists. Therefore, it seems that in order to understand capital as power we need not only to debunk the economists, but also to question what the pundits tell us about the state.

Now, state theory is wide-ranging and complex — but then it is worth noting that its intricacies are a fairly new phenomenon, and that the excessively complex and indecipherable texts probably owe more to the post-war explosion of research budgets and the mass media than to the inherent difficulty of the subject matter itself. Our purpose here, therefore, is to simplify. Rather than provide yet another scholastic account, we offer an alternative outline of how one may think about the issue.

The need for such alternative thinking is evident, if only indirectly, from the growing unease of state theorists themselves. Over the past couple of decades, the very association of states with command and power on the one hand, and markets with production and well-being on the other, has become increasingly difficult to defend.202 There have been several attempts to fix the problem, including revising the meaning of the two concepts, altering their relative importance and historicizing their co-development. But as the following illustrations suggest, none of these solutions touches the real problem.


The revisionist method is typified by the writings of leading US realist Robert Gilpin. During the 1970s, when statism was riding high in the halls of academia, Gilpin distinguished state and markets based on their goals. The former, he said, is seeking power, the latter wealth (Gilpin 1975). By the late 1980s, however, when governments no longer seemed omnipotent, he changed his mind. His new position was that state and markets share the dual goal of power and wealth, and that the difference between them is mainly the means they use to achieve this goal (Gilpin 1987).

This is a major shift for a leading state theorist to make, so one may wonder what prompted it. One possible answer is that, between the first and second edition of his book, states and markets had gone through a metamorphosis and that Gilpin was only reporting this change. Another plausible explanation is that Gilpin made a mistake in the first edition and corrected it in the second. And then there is the third possibility — that Gilpin has changed his mind simply because he doesn’t know how to differentiate the two institutions.


An easier and much more popular solution, particularly among liberals, is to rearrange the order of significance. According to this creed, ‘globalization’ has reshuffled the power cards, putting markets on top of states. This perspective is forcefully advanced by Susan Strange in her aptly titled book, The Retreat of the State:

The argument put forward is that the impersonal forces of world markets, integrated over the postwar period more by private enterprise in finance, industry and trade than by the cooperative decisions of governments, are now more powerful than the states to whom ultimate political authority over society and economy is supposed to belong. Where states were once the masters of markets, now it is the markets which, on many crucial issues, are the masters over the governments of states.

(Strange 1996: 4)

Of course, reordering cuts both ways, and, indeed, not everyone thinks that the state is in retreat. Weiss (1998) and Hirst and Thompson (1999), for example, argue that the belief that states are capitulating in the face of capital mobility and transnational corporations is factually unfounded — if only because, in their opinion, capital mobility is lower now than a century ago and the large corporations are not nearly as transnational as the ‘globalizationists’ would have us believe. Others, like Helleiner (1994), claim that globalization and deregulation, insofar as they exist, do not attest to the victory of the market — primarily because, in his view, these processes result from the deliberate (and reversible) decisions of state officials.

Contradictory interdependency

Perhaps the most interesting analyses of these questions are offered by Marxists. As we have seen in Chapter 4, Marxists see the state not as separate from, but as embedded in society. Furthermore, given the capitalist nature of this society, the state, almost by necessity, has a pro-capitalist bias. Beyond this point, however, there is significant disagreement. There is dispute over the extent to which state officials are autonomous from the overall logic of accumulation and the pressures exerted by particular interest groups; over whether the state is ‘predatory’ or ‘developmental’; over whether the capital that the state regulates is productive and useful or speculative and wasteful; and, finally, over the degree to which these characteristics are inherent or change over time.

Underlying these numerous interpretations, though, the basic bifurcation remains. No matter how much the two entities change and regardless of their many interactions, capital stays anchored in production and the state in power. The former generates surplus through economic exploitation, the latter regulates accumulation through political oppression.

One of the more sophisticated attempts to transcend this static duality is offered by the work of Giovanni Arrighi and his co-writers on the joint evolution of state and business from the Venetian city states till the present (for example, Arrighi 1993, 1994; Arrighi and Silver 1999). Combining the neo-Leninist tradition of Magdoff (1969) and others with a world-systems perspective, Arrighi et al. suggest that, over the past half-millennium, the emphasis if not locus of power has gradually shifted from organizations bounded by territory, primarily states, to ones defined by virtual command over scarce resources, mainly business entities. The shift itself has been highly dialectical. According to Arrighi, Barr and Hisaeda, there is a basic ‘contradictory interdependency’ (our term) between the two entities, with business agencies, because of their non-territorial nature, growing ‘ever more dependent on, but also ever more subversive of, the power of the hegemonic state’ (1999: 98).

During the seventeenth and eighteenth centuries, the joint-stock companies, chartered first by Holland and later by England, were still half governmental, half business organizations, acting simultaneously both as state and as capital. By the nineteenth century, however, the substitution of British for Dutch hegemony, together with the emerging domination of British manufacturers, established a more efficient division of labour between territorial and resource-based power. The new firms, relieved from the burden of formal government, were now free to exploit their economic prowess. But that relief only made them dependent on state power for protection and expansion. Furthermore, their competitive organization did little to enhance the state power on which they relied, and when larger business amalgamates began to emerge in Germany and the United States, the British-based system was superseded. By the early twentieth century, a new, American-based formation of state and business gained dominance — although, according to Arrighi, the contradictory interdependency of this new formation is even more pronounced than that of its predecessors. US-based multinational companies, while relying on American state power to keep the world open for (their) business, are actively subverting that very power. The global accumulation of these corporations, particularly in the area of financial intermediation and capital flows, have worked to destabilize the post-war economic order created by US hegemony, and by so doing have undermined the very basis of their prosperity.

The long history of this contradictory interdependency, Arrighi argues, could be useful in understanding ‘epochal leaps’ in the underlying nature of both state and business. Initially, a new hegemonic state typically supports and promotes its own business institutions. Eventually, however the hegemon’s power and the monopolistic profit of its companies attract outside contenders and generate internal inequities and strife. In parallel, business concerns seeking to break their spatial barriers increasingly ‘subvert’ the territorial power on which they rely. Historically, the consequence of these mounting contradictions has been global instability and, eventually, ‘systemic chaos’. The resolution of this systemic chaos, at least so far, has always involved the emergence of a new hegemon — although, according to Arrighi, that latter aspect was less important. The more crucial feature of the transition was the emergence of a qualitatively new state–business formation, one that helped resolve the earlier contradictions and that over the past few hundred years worked to shift the focus of power from territoriality to accumulation.

The argument is intriguing, and it certainly takes us further than most accounts in trying to understand the historical interaction of state and business. And yet, even here, the duality persists. State and business, although constantly changing through mutual interaction, are still seen as fundamentally distinct, and it is this basic distinction that we need to rethink.

In what follows, we argue that capital and state do not stand against or function together with each other. They do not complement or undermine one another. They neither interact nor interplay. And the reason is simple: they are no longer separate. Capital itself has become an emergent form of state: the state of capital.

Notions of space

Cosmic space

The troubled relationship between state and capital could be conceived, metaphorically, by thinking about the notion of space. In his Foreword to Max Jammer’s Concepts of Space (1954: xi–xv), Albert Einstein contrasts two interpretations of the concept: (1) space as the container of all material objects, and (2) space as the positional quality of the world of material objects. The two views are radically different in origin and implications.203

The container concept, associated with Democritus, Plato, Descartes and, eventually, Galileo and Newton, assumes that space exists independently of what it contains, and that space is absolute rather than relative; in other words, that space acts on its contents (as an inertial system, for instance) but the contents do not react back on space. By contrast, the positional concept, traceable to Aristotle and Spinoza and developed by Leibnitz and Huygens, interprets space not as independent of the things, but rather as the order of the things. This type of space is defined by the very relations of the entities that ‘make it’. The first interpretation sees space itself as inherently ‘empty’. In the second interpretation ‘empty space’ is an oxymoron.

According to Einstein, Newton won the day largely because of the mathematics: his container concept could be described with available Euclidean geometry, while Leibnitz’s relational concept could not. In due course, though, Newton’s perspective has proven inferior, or at least insufficient. The development of electromagnetism and field theory on the one hand, and of non-Euclidean geometry on the other, paved the way for Einstein’s notion of a four-dimension space-time — a Leibnitz-like framework in which gravity and curvature are two sides of the same thing. In this ontology, to know the relational properties of bodies is to know the shape of their space — and vice versa.

Social space

The space of mainstream political economy is much like a Newtonian container.204 But unlike in physics, this container is forever partial. In the liberal version, the container is market-space. Its particles — the utility maximizing investors–consumers — act and react on one another according to the rules of the market, but they have no bearing on the rules as such. These rules are eternally fixed, making market space independent and absolute.

Unfortunately, liberal society also has non-economic entities, organizations and institutions, the most important of which is the state (or the government). Unlike the individual investor–consumer, these latter entities often are very large, sometimes irrational and often disobedient of market rules. And since market-space is by definition independent and absolute, there is no way to incorporate these non-economic entities into its logic. They remain ‘exogenous’.

This fact makes market-space inherently partial. And since the external units cannot be wished away, even by liberals, the only solution is for market-space itself to inflate and deflate in response to their varying pressures. This is why liberals tell us that when politicians ‘intervene’ the market has to ‘contract’, and when the market expands the state must ‘retreat’.

The realist container is more or less a mirror image of the liberal. Instead of a market-space populated by calculating utility seekers, we have state-space swarming with equally rational power-mongers.205 Realist actors struggle over power resources and capabilities, and the state is the arena in which they carry out their Hobbesian all-out wars. In some editions the state itself becomes an actor — fighting against other states on the global stage or against other social actors in the national arena. But in all versions the space rules are eternally fixed. To be included in this space you have to seek and use power. If you are after something else — say wealth for ‘its own sake’ — you have to remain in ‘outer’ space.

As we have seen, some writers, such as Gilpin, try to bend the rules by describing states and markets as seekers of power as well as augmenters of wealth. But this solution breaks down on its own implicit assumption — namely, that wealth and power are distinct to begin with. Since the production of utility presupposes the harmonious equilibration of perfectly competitive production and consumption, it follows that wealth can never be created in the Mad-Max violence of state-space. In the end, the market must remains outside of state-space. If the former inflates, the latter must deflate, and vice versa.

The Marxist framework is very different from both the liberal and realist. Instead of market-space or state-space, it articulates production-space. And this space, at least in its abstract articulation, is Leibnitzian rather than Newtonian. When Marx speaks about a ‘mode of production’, he has in mind a totalizing system that determines individual action while simultaneously being shaped and reshaped by that action. This production-space is not eternal, but rather historical and dialectical. In the capitalist epoch, the main logic of this space is surplus value and the drive for accumulation. This logic incorporates both the economic processes of production and the political institutions of power and state, and it constantly changes. Energized by its internal relations, the capitalist production-space is ever evolving until it eventually crumbles under the weight of its inner contradictions.

And yet, when we get to the details, the devil appears and the Leibnitzian metaphor breaks down. As we have seen earlier in the book, although Marx was striving for an encompassing explanation, his theory of value and accumulation remained locked in the Newtonian mechanics of productive labour. This narrow emphasis may have seemed sufficient in the mid-nineteenth century. But as the world changed, the concept of productive labour proved too narrow and, ultimately, impossible to accept. Inevitably, Marxists found themselves having to separate production from power, economics from politics and capital from state. The unit and logic of their economic accumulation could no longer be reconciled with the broader power aspects of capitalism. And as the schism widened, the totalizing Leibnitzian-like space was fractured.

State as a mode of power

In our view, hierarchical social orders are better understood not as modes of production, but as modes of power. Every mode of power, whether based on slavery, feudalism or capitalization, has its own particular configuration. Each of these configurations obviously depends on production, narrowly understood. But production as such is merely part of the story of power. Beyond providing the material preconditions for social life, its significance for understanding the hierarchical structure of society lies not in its efficiency or inefficiency per se, but in the way that efficiency or inefficiency bears on power.

We propose to think of the mode of power of a society as the ‘state’ of that society. Obviously, this conception of state is very different from conventional definitions. In common parlance, a state is a political entity that exercises sovereignty, backed by force, over a definite territory.206 This political entity is both (1) an organization, typically consisting of government organs (the administration, bureaucracy, legal apparatus and the military/police), and (2) a set of institutions, legal and habitual, that enable the political entity to exercise its rule.

This definition may seem relatively unambiguous when applied to precapitalist centralized regimes, where the organizations and institutions of power were usually associated with and commonly fused in a single entity — ‘estate’, ‘palace’, ‘king’, ‘emperor’. But with capitalism, this application is no longer straightforward. Capitalism alters the very nature and meaning of power — as a result of which the organs and institutions of power no longer reside in a single entity (let alone a ‘political’ one), the scholars no longer agree on what these organs and institutions are, and the capitalist state no longer fits into the conventional box. With this glaring exception, the definition ceases to be universal.

Our own notion of state as a mode of power is broader and more flexible. First, it transcends the analytical distinction between economics and politics. As noted, this distinction may be valid when viewed from below and at lower levels of abstraction, and in that sense it remains ‘enfolded’ in our explanation. But it could be very misleading when considered from above and in relation to the overall architecture of power. The latter perspective no longer differentiates between ‘economic power’ and ‘political power’, between ‘exploitation’ and ‘oppression’, or between the ‘power of the market’ versus the ‘power of the state’. Organized power can take different forms, centralized or decentralized. But insofar as the overall structure is hierarchical, it constitutes a single nomos of power.

Second, the nomos of power is not fixed. It changes as the social order evolves, and it is occasionally replaced when a new mode of power emerges. In this sense, one cannot speak of ‘the state’ as an abstract form with an unchanging definition. The state is never an empty Newtonian container. Instead, it is a Leibnitzian-like space: an ever-changing, historically specific relational entity that both comprises and is shaped by the bodies that constitute it.

In contemporary capitalism, the key organizational bodies of the state are corporations and government organs. These are the concrete incarnations of the capitalist mode of power, and although separate they are deeply interrelated. First, both bodies are conditioned by the same nomos of capitalized earnings and its associated rituals. Regardless of whether their departments overlap or exist at arm’s length, regardless of whether their personnel are separate or share a revolving door, and regardless of whether they cooperate or bicker, they are both part and parcel of the same architecture of mechanized social power. Second, they presuppose each other: there are no capitalist corporations without a capitalist government, and there is no capitalist government without corporate or proto-corporate organizations. And, third, by incessantly seeking to redistribute capitalized earnings, whether at cross purposes or in unison, corporations and governments end up shaping and reshaping the very patterns of power that define capitalism. In the final analysis, there are no profit expectations without state prisons: at the zenith of its capitalist power, nineteenth-century Britain had more political prisoners than Tsarist Russia, just as the United States today boasts the world’s largest inmate population.

We call this Leibnitzian-like space the state of capital. Mumford insightfully saw the modern state as a resurrected mega-machine. But this mega-machine is historically unique. It is not a state in the abstract, but one that both consists of and is defined by capital as power.

The feudal mode of power

The above account of course is a stylized abstraction. To understand where the state of capital comes from historically and how it developed its unique features as a modern mega-machine, it is useful to take a step back and examine, if only briefly, some of its feudal roots.

This type of inquiry, to be certain, is hardly novel. The feudal origins of capitalism have received more than ample theoretical scrutiny, particularly from Marxists. There are even two famous controversies about the issue. The first, the ‘Transition Debate’, launched by Maurice Dobb (1946) and Paul Sweezy (1950), concerned the significance of ‘production’ versus ‘circulation’. The second, the so-called ‘Brenner Debate’, beginning with the work of Robert Brenner (1977; 1978) and still going, focuses on the relative importance of ‘forces of production’ as opposed to ‘relations of production’.207

However, the question these debates seek to answer is fundamentally different from our own: whereas they are concerned with the transition between modes of production, our own interest is the transition between modes of power.208

The feudal state

Understood as a mode of power, the ‘feudal state’ consisted of a hierarchical network of voluntary military dependencies among free men.209 This decentralized state was born out of the ruins of the Roman Empire. Lack of central authority and fracturing inheritances fostered something akin to a war of all against all and a heightened sense of insecurity. The initial response was the formation of armed gangs based on personal loyalty and mutual protection. This arrangement later bloomed into a full-fledged system of intricate lord–vassal obligations.

The key hallmark of the feudal regime was violence. The lords despised work and creativity, which they viewed as infinitely inferior to their life of honour and exploit. The person and possessions of others were a means to an end. They were seen partly as a source of loot, but mostly as the target of differential sabotage:

The Bayeux Tapestry of the Queen Mathilda — that remarkable story in pictures from the end of the eleventh century, narrating the 1066 Norman conquest of England — shows us how, after the landing, a big feast was held and blessed by the hegemon, and how the war expedition was launched with the burning of a house. And, indeed, war in the Middle Ages was marked by systemic devastation. Its purpose was not so much to defeat the enemy militarily, as to undermine its economic and social power (by burning and destroying crops, houses and villages).

(Le Goff 1965: 29, emphasis added)

This inherent violence determined both the form and content of the feudal contract. Ceremonially, the legal bond (nexus iuris) between the lord and the vassal consisted of two acts: a fusion of their persons symbolized by the ‘mixing of hands’ (immixtio manuus), and an oath of fealty (sacramentum) which indicated that the vassal was giving himself voluntarily, as a free man.210

Substantively, the bond was mostly negative, a sort of mutual insurance policy designed to reduce uncertainty. Each side promised not only to protect the other — but more importantly not to harm the other.211

In addition to not attacking his lord, the vassal was obliged to provide a certain quota of military services — so that the lord could protect himself as well as attack others. These services took various forms, but gradually they converged on the basic particle of feudal power: the fully-equipped knight.

In order for vassals to produce, train and supply knights on a permanent basis, they needed access to agricultural land and tillers, organized through the autarkic manorial system. And so, gradually, the homage between the lord and the vassal came together with the granting of a benefice, usually in the form of a landed fief, or ‘feodum’ — hence the term ‘feudalism’.

The cost of reproducing a single knight and his accessories was pretty hefty, requiring roughly 150 hectares of land according to some estimates. Based on this ratio, a fair-size fief of a count, made up of 200–250 agricultural communities, could supply no more than 150–200 mounted warriors. These modest numbers had an important implication: they meant that a larger army could be assembled only by networking the separate commitments of many different vassals (Le Goff 1965: 54–55).

This networking formed the basis of the ‘feudal state’. The arrangement first emerged in the eighth century, when the Carolingian rulers, seeking to consolidate their power and increase obedience, sowed confiscated church lands as well as their allodial territories with royal vassals. The vassals, who in turn wished to reduce their own uncertainty and if possible leverage their power, further parcelled their fiefs to subordinate vassals, and so on. The end result was a dense network of mutual military obligations tied to agricultural manorial production, a standardized pattern of power that later spread throughout much of Europe.

It is not difficult to see here the principle that later informed both Hobbes’s Leviathan and Locke’s ‘social contract’: the individual being (vassal or bourgeois), torn between his desire for freedom (independence) and quest for security (to annul his fear of death), finds the compromise in merging himself with a larger mode of power (the feudal network or the sovereign state).

During the Middle Ages, royal power, although often existing de jure, usually was conditional on and subsidiary to feudal obligations. In some places, such as France of the twelfth century, power was so diffused that the king, although claiming ‘sovereignty’, was no more than a glorified lord whose authority hardly extended beyond his own feudal domain. In other places, such as England after the Norman conquest of the eleventh century, power was highly centralized in the hands of the king. But that centralization was still feudal insofar as the entire country was the property of the king and every feudal agreement was supplemented by allegiance to the monarch (a duality that perhaps hastened the development of British capitalism).

There was an important novelty in this arrangement. In imperial structures, power could expand in two ways: conquest and marriage. The ‘feudal state’ introduced a third alternative: voluntary military contract. Of course, because of their larger number, individual feudal lords could not match the power of emperors. But their added ability to cut and paste slices of power in a quasi-amicable way — a precursor for the capitalist buying and selling of vendible corporate ‘shares’ — made the structure of power more flexible, easier to realign, and perhaps less vulnerable to external blows.212

The limits of feudal power

Feudal flexibility, though, had three hard limits. First, the feudal bond was personal and deeply religious. Its material aspects were merely instrumental. The primary purpose was the establishment of direct loyalty and mutual obligation between two people. Second, the bond was total. The lord exercised something akin to sovereignty over the very person of the vassal. And third, the contract was permanent. Save for instances in which the no-harm clauses were violated, the feudal link could not be unilaterally terminated. It ended only with the death of one of the sides.

Over time, these features started to strain the structure of feudal power. One problem was that the chain of personal commitments was highly unreliable. As a contract between two people, the feudal bond gave the lord direct power over his own vassals, but not over his vassals’ vassals. Unlike a capitalist owner who has legal right and effective power over the corporation’s entire chain of subsidiaries, the leverage of a feudal lord depended on the good will of his vassals, who, when called on for a military operation, might or might not bring along their own subcontractors. In places where the feudal links were complicated, the task of quickly assembling a large army became a real headache. In some cases, the large lords and kings found themselves at a significant disadvantage — for instance, against the easy-to-organize popular militias of the bourgs, or relative to the centralized and partly monetized armies of the English king.

Another difficulty was how to prioritize different commitments. The vassals, seeking to leverage their power and security, often allied themselves with more than one lord. These multiple commitments, though, were inherently contradictory. Unlike the capitalist limited-liability contract — which has a definite magnitude denominated in dollars and cents, and hence a pro-rated structure depending on the relative magnitude of the priced pledges — the feudal contact was total. The vassal was obliged to serve his lord completely and without reservation. Those with overlapping obligations could therefore face multiple claims from different lords, each demanding the very same services. As a result, there emerged various systems of ‘rating’ — some based on the size of the fief, others on the time it was granted, and still others on the relative position of the lord — all designed to somehow reconcile the overlapping obligations.

The most serious limit, though, was the non-alienated nature of the fief. The fief was the property of the lord. It was a unit of power ‘granted’ to the vassal so that he could serve his master personally. But given the personal nature of the service, the transfer was always ‘temporary’ and was annulled by death. In this sense, any attempt to parcel, transfer or sell the fief was a direct challenge to the very purpose of the feudal contract. Over time, though, the pressure to alienate the fief mounted — coming initially from vassals who sought to pass it on to their heirs, and subsequently from lords who were both lured by and forced into the new pecuniary logic of the bourg. The solution was found in the form of ‘relief’ — a sort of ransom paid by the heir to the lord for giving up the property. In the beginning the relief was arbitrary. But around the twelfth century in France there emerged something like a ‘normal rate’, whereby the lord would alienate the fief in return for a sum equal to the property’s annual revenue (Ganshof 1964: 136–39).

The capitalization of feudal power

The weakening of the feudal mode of power was marked by the colours of capitalism. One important change was the inversion of the feudal contract. Originally, the fief was a means to an end. The vassal made an oath of fealty to the person of the lord, who in return gave him the fief so that he could fulfil that oath. But toward the second part of the Middle Ages, the order had changed, with the fealty and service becoming preconditioned on the granting of the fief. The fief was now increasingly a matter of ‘real estate’, and feudal relations gradually shifted from a personal to proprietary footing.

A parallel change was the increasing monetization of both sides of the feudal contract. In many cases, the fief itself took the form of a stipend, or feodum de bursa, whereby the vassal received a payment for his keep rather than a direct allocation of land. The same happened to the services. Although these assumed a variety of forms from the very start, initially the key service was military. However, from the eleventh century onward in England and somewhat later on the Continent, the significance of military services declined, giving way to pecuniary payments. In England, many of the lower vassals paid their services in scutage, or monetary substitute, while in fourteenth-century Flanders less than 20 per cent of the vassals of the count in the châtellenie of Bruges were required to perform military services (Ganshof 1964: 90–92).

Faubourg, bourg, bourgeoisie

The power architecture of capitalism was gradually penetrating and transforming the feudal mode of power. The beginning was rather humble. The process started during the eleventh and twelfth centuries with the twin expansion of the bourgs and the periodic ‘fairs’. The original bourg was a feudal fortification, built by serfs for military purposes. By contrast, the fair was an extra-territorial ‘free-trade zone’. Granted by the prince as a source of royalties, it was exempt from feudal law and was endowed with ‘franchises’ and ‘liberties’ available nowhere else. In due course, the periodic fair gave way to the faubourg, a permanent settlement of merchants that was physically attached but socially alien to the bourg. Gradually, the merchants began to fortify their own suburb and in many cases ended up absorbing the old feudal fortification. The logic of the new bourg — commercial, industrial and above all monetized and capitalized — was every bit different from the one it had swallowed.

The dual economy

The capitalist bourg introduced a totally novel mode of power. Its manufacturing sector, having developed as early as the eleventh and twelfth centuries, had many structural features we now take for granted. One of these was a prototype of the ‘dual economy’, (a term coined centuries later by Averitt 1968 to describe the bifurcated structure of the modern US business sector). On the one hand, there was the ‘small economy’, comprising associations of masters, apprentices and hired workers that supplied mainly the local market. On the other hand, there was the ‘big economy’ of large merchants and producers who controlled the long-term trade. The latter constituted a closely knit oligarchy, and it colluded heavily — both inside the bourg and with the oligarchies of other bourgs (with the most conspicuous example of the latter collusion being the Hanseatic League of London).

In parallel, there developed in the bourgs a proto-proletariat of unskilled workers, made mostly of propertyless incomers from the countryside, often known as the ‘blue nails’. The oligarchy treated the workers and artisans with indifference — that is, as long as they remained docile. When they revolted (the first known strikes took place in Flanders during the thirteenth century) the retaliation — often coordinated within and between the bourgs — was usually swift and violent. In England of the fourteenth century, more than four hundred years before the Speenhamland Act, the King and Parliament were already passing decrees and legislation that made labour mandatory and idleness illegal (Pirenne 1937: 178–91; Lopez 1967: 278–80; Tuchman 1978: 120). In this sense, the capitalist class struggle, from its very inception, was never merely an ‘industrial dispute’. It was a broad power conflict embedded in a newly emergent form of state.

Private and public

Another important innovation was the bourgeois link between the ‘public’ and the ‘private’. This institutional structure, like many others, developed almost unintentionally. The new dwellers of the bourg needed to defend and fortify their private warehouses and workshops against the external hazard of the feudal space. The protection itself, though, was inherently public. By fusing the two, the bourgeoisie invented ‘public finance’ — a concerted effort to advance their coinciding private interests through proportional taxation.

The resulting fiscal system was completely antithetical to the feudal logic. First, contrary to feudal taxes that were inherently penal and served the individual lord only, bourgeois taxes were directly linked to the ‘public interest’ — that is, to the collective interest of capitalists. Second, since the public consisted of the private taxpayers, it made sense to make payment proportionate to the individual’s interest — i.e. to his income. Finally, taxation presumed and implied representation — and indeed, in the bourgs of the eleventh century there emerged, along with public works, bodies of elected or representative councils (Pirenne 1937: 178–91). In other words, from the very beginning, private capitalist bodies and capitalist government assumed one another and were symbiotically intertwined.

Liberty as differential power

Beyond these innovations, though, the bourgeoisie, at least initially, tended to view its project not as a comprehensive alternative to the feudal state, but rather as an exception to that state. Inside the bourg there was ‘democracy of the privileged’ — a close correspondence, if not an identity, between ‘political administration’ and ‘economic management’, both controlled by the moneyed aristocracy. The space outside the bourg, though, was accepted as a different mode of power. Although this space was generally hostile to the bourg, the bourgeoisie neither denied nor challenged it.

Matters of jurisprudence and religion, as well as the acts of peace and war, were fully accepted as the prerogatives of church, king and lord. Indeed, the bourgeoisie was usually more than keen on emulating the authority and privilege of the territorial princes — by seeking noble status, by giving gifts to the clergy and by lending money to the duke in need. All in all, the ‘state’ was viewed as an external moral–legal entity, distinct from and superior to the city, which was merely an ‘economic’ body (Lopez 1967: 267–68). This was the basic duality that Hegel identified in his Philosophy of Right (1821) — a duality that Marx rightly criticized but could ‘solve’ only by turning it into an inherent contradiction between ‘political universality’ and ‘economic alienation’.

At the beginning of its journey, then, the bourgeoisie merely tried to fit into and advance within the structure of feudal power. Its tactics were simple. The nobility benefited from forceful confiscation through territorial sabotage — hazards that the bourgeoisie sought to bypass through exemptions and immunities.213 These exceptions and immunities, though, were always in the plural. They represented particular ‘liberties’ and ‘franchises’, and therefore advantages held relative to and against others.

There was nothing exceptional about this differential quest. The notion of universal liberty was totally foreign to the feudal world. In the Middle Ages liberty meant sovereignty, and therefore force and authority over others. Only God was totally free. Everyone else, including the king, was a vassal, and therefore partly dominated. Even the term ‘knight’, a symbol of power, comes from the German knecht, meaning ‘subjugated’, a connotation that can also be found in the words Samurai (servant) and Mamluk (slave soldier). All were merely extensions, or ‘arms’, of a ruler — hence the term ‘army’.

For this reason, ‘liberty’ at that period — whether bourgeois or feudal — could only be understood as a status of power. (1) It denoted negation: it was the right not to pay, not to work, not to obey. (2) It was dynamic and relative: it changed over time in relation to other people. And (3) it was anchored in sabotage: it marked one’s place in the hierarchy of damage, with the right to inflict it on some and the obligation to accept it from others. In this sense, the expansion of bourgeois liberties was synonymous, both conceptually and historically, with the growth of the bourgeoisie’s differential power.

War and inflation

As the leverage of the bourgeoisie increased, its own mode of power started to penetrate and gradually replace the feudal state. The bourgs were able to wrestle increasing territorial and legal independence from feudal institutions, forcing the Church and lords to sign ‘peace accords’ for prolonged periods. In France during the eleventh century, many of the new bourgs were labelled communia pro paca, or ‘communes for peace’ (Le Goff 1965: 66). Yet much of the headway of the bourgeoisie was achieved directly and indirectly through war.

The indirect impact of war was to devastate the nobility, with more than a little help from the bourgeoisie. Changes in the nature of warfare, particularly since the thirteenth century, undermined the advantages of feudal military subcontracting. Improved fortifications, new and highly lethal arching technologies and the growing efficiency of infantry relative to mounted knights presented feudal armies with serious challenges. Moreover, lacking the accounting and logistical skills of the bourgs, the lords found it difficult to organize, feed and discipline large forces of heterogeneous knights. But the most serious challenge was soaring cost. In the five years between the English invasions of 1346 and 1351, the French King witnessed the price of hiring knights and their accessories practically double (Tuchman 1978: compare pages 84 and 128). War had become so expensive that even the richest of kings found it difficult to finance it. Consequently, observed Robert Lopez, ‘[f]ortunate indeed were those kings who succeeded in maintaining the peace’ (1967: 333).

Underlying the mounting cost of war was a new weapon of mass destruction: inflation. The expansion of the bourgs and their growing consumption of agricultural produce were accompanied by the spread of the monetary standard and the penetration of prices into the feudal heartland. This process marked the beginning of an invisible revolution — a transformation that shifted the emphasis from the bartered knight of the manor to the cash-paid soldier of the bourg, bankrupted the lords and altered the very nature and form of social power.

The nobility and clergy, locked into an antiquated system of barter and fixed income, found themselves at the greatest disadvantage. Most did not grasp the pricing mechanism and were utterly clueless about inflation. Abbot Gille li Muisis of Tourna summed the bewilderment in a famous fourteenth-century verse:

Money and currency are very strange things.
They keep on going up and down and no one knows why;
If you want to win, you lose,
however hard you try.

(Quoted in Tuchman 1978: 130)

Feudal rents were fixed by custom and habit, but the prices the nobility had to pay — particularly for luxuries and weaponry — soared. The consequences were devastating. From the thirteenth century onward, lords were forced into borrowing, then into mortgaging their property, and eventually into ‘releasing’ their serfs and selling their lands altogether (Pirenne 1937: Ch. III, Section II; Le Goff 1965: 167).

The monarchs were generally more astute. Some of them understood, instinctively if not theoretically, that money represented a new order of power and that any shock to that order could be leveraged for differential ends. And the brightest of the lot went on to invent various techniques of sabotage to serve their own ends. One of the more sophisticated methods was to threaten debasement — and then blackmail those who stood to lose the most from such an act in return for putting it on hold (Lopez 1967: 333). Centuries later, the financiers of the Weimar Republic would use a variant of this technique with their foreign creditors — threatening to inflate the currency in order to avoid having to pay war reparations.

But the biggest winner was the bourgeoisie. Situated at the epicentre of the price mechanism, it not only set most of the prices but also understood the inflationary mechanism better than everyone else. This strategic position enabled the early bourgeoisie to profit from the process relative to others and to amass huge fortunes.214 And that was merely the beginning. As we shall see in Part V, the techniques that were developed during that period, perfected and extended by subsequent generations of capitalists, turned inflation into one of the principal axes of the capitalist mode of power.

War and credit

By the fourteenth century, the European social landscape was in the midst of a massive transformation from a feudal to a capitalist mode of power. This transformation entailed many different developments and innovations, but there was one invention that literally encompassed them all: credit. From its very beginning, credit was a matter of organized power. Its inception was intimately connected to war: it emerged as a negation of feudal sabotage, and it eventually developed to engulf and internalize that sabotage and more.

Bypassing power: private instruments

As noted, the bourgeoisie sought to negate the territorial barriers of feudal sabotage by seeking direct territorial exemptions, immunities and liberties. But the most effective means of bypassing feudal power was trans-territorial: the virtual financial instrument. In its attempt to evade feudal violence, the bourgeoisie went on to develop the letter of credit, bill of exchange and maritime insurance, along with the proto-corporate commenda and compagnia that were already mentioned in Chapter 12.

These developments came hand in hand with the growth of urban education — an alternative to the feudal monastery and a precursor of public schooling. By the thirteenth century, most Italian merchants were literate, knew some mathematics, used bookkeeping and often spoke foreign languages (Pirenne 1937: 122–25). This education enabled the bourgeoisie to further improve its credit institutions and organizations, putting the illiterate nobility at an ever-growing disadvantage.

Gradually, as the financial instruments diversified and the transactions multiplied, each type became associated with its own ‘benchmark’ and ‘normal rate of return’. Ironically, the most vibrant private market was real estate, the original source of feudal power. The rising merchants were busy buying the dwindling territorial properties of their increasingly indebted enemies, and by so doing further hastened their demise. The institution of the mortgage — originally a bypass of the Church opposition to interest — gave rise to an urban market that traded in rents and sold asset-backed securities. The bourgs started raising money by selling perpetuities backed by the realestate collaterals. In the thirteenth century, Genoa recognized the vendibility of such contracts, leading to the creation the Bank of St. George, a precursor of the modern mortgage bank (Pirenne 1937: 137–39).

Absorbing power: state finance

But the magnitude of private credit paled in comparison to the size of state finance. Wars, whose cost soared in tandem with their material scope and unit price, were the most financially demanding expenses. Changing military technologies, beginning with the crusades and continuing with the Hundred Years War, made it increasingly necessary to rely on hired armies that needed to be paid in cash. There were two ways to raise the money — taxes and borrowing — but it was their combination that proved the most effective.

The first to brave this new form of war finance were the Lombardian city states. They issued tax-backed bonds, using the proceeds to pay for soldiers and weapons that waged increasingly successful campaigns against barter-backed knights. The territorial princes and kings were initially hostile to this new arrangement. But having witnessed the lethal force of the new pecuniary militias unleashed on their increasingly expensive knights, they found the temptation of fight-now-pay-later difficult to resist. Gradually, they began to borrow the methods and money of the bourgeoisie, with the result being a growing interdependency — and eventually a bondage — between the territorial sovereign and the exterritorial capitalists. In due course, this alliance would develop into a new mode of power, a social space we now call the ‘capitalist nation-state’.

Let’s examine this process a bit more closely, beginning with taxation. The collection of ad hoc levies and duties was not only unpopular, but also grossly inefficient and extremely time consuming. Therefore, in the interest of expediency, the kings often took a shortcut, announcing a convenient ‘state of emergency’:

The monarchy, when it took over the reins of national life, ought to have resurrected a regular income tax system, the fundamental basis of both Roman and modern finance. . . . But the 13th century was not ripe for such radical reform. The King would merely ask his subjects for ‘help’ in times of crisis. Philip ‘the Fair’ acted in such a way as to keep a ‘crisis’ going, almost without interruption, and his successors improved even more on these methods.

(Lopez 1967: 334)

The bourgeoisie was forced to foot a growing part of the bill; but by now it was already too powerful to give something for nothing. In return for taxation it demanded representation — this time on a ‘national’ scale.

Government taxes, though, constituted only one aspect of the new deal. The other aspect was private credit, and the two got inextricably bound up. Facing the prospect of war, the king, even if fiscally solvent, was often financially illiquid. Taxes could be collected in the future, but the need for cash was immediate. His solution was to turn to haute finance with its easily accessible stash of money. For the financier, the request offered a huge investment opportunity: a royal promise to augment his capital with future taxes.

Initially, the arrangement was fraught with peril, and although both sides resorted to it with much enthusiasm and growing frequency, often they got burned. During the Hundred Years War, for example, Kind Edward of England financed his invasion of France with an estimated 1 to 1.5 million gold florins borrowed from the Florentine banks of Bardi and Peruzzi and backed by an expected wool tax. The tax revenues, though, proved disappointing, and the two banks, unable to collect their loans, crashed, creating a chain reaction of bankruptcies throughout Northern Italy (Tuchman 1978: 81).

But time heals, and by the early nineteenth century war finance had already been perfected into business as usual. A typical illustration follows. During the Napoleonic Wars, an English expeditionary force, headed by the Duke of Wellington, got stuck in Portugal, besieged by a ‘terrible need of funds’. Wellington borrowed money from shabby continental banks against massively discounted British government bonds, but the money was like a drop in the bucket. Unpaid soldiers resorted to looting; wounded officers had to sell their clothes to secure medical attention; and with its wallet empty, the army’s attempt to have the local population turn against French rule was going nowhere.

Wellington was ready to give up the fight, but then, just as all seemed lost, the Rothschilds came to the rescue. Earlier on they had collected many of Wellington’s discounted British government bills at a fraction of their book value, and they now cashed them at an enormous profit in London. In addition, they also bought some £800,000 worth of gold at bargain prices from the East India Company — bullion that they were more than willing to sell back at ‘fair value’ to the needy British government. The Rothschilds also took it upon themselves, again for a proper fee, to transfer this money from England to the Continent, and they continued to do so for a number of years, funnelling as much as £20 million to the British troops. The transfers were even encouraged by the French authorities, who were misled to believe that the money represented private capital flight in expectation of British devaluation. . . . (Elon 1996: 166–71).

And so, almost seamlessly, war and organized violence — nominally the archenemies of the ‘free market’ — had been absorbed into capital. On the one hand the capitalists used inflation to destroy the military power of the nobility, while on the other hand they financed ‘national’ wars to multiply their capitalization many times over. And war was merely the beginning of this public–private bondage. In due course, capital has been able to internalize not only organized violence, but every systematic aspect of government power.

The genesis of capital as power

Let’s take stock of some of our claims so far. In Chapters 9 to 11, we have seen that, by discounting risk-adjusted expected earnings, capitalization has gradually come to encompass and commodify our social world, creating a unified quantitative architecture of historically unprecedented complexity. Then in Chapter 12, we have demonstrated that both the level and pattern of capitalist earnings are a matter of strategic sabotage, and therefore that the capitalization of earnings represents the commodification of power. Finally, in this chapter we argue that the commodified power of capital has increasingly taken over and absorbed other forms of organized power; that over time this takeover and absorption have come to define the mode of power of society, gradually turning capital itself into a state; and that this Leibnitzian transformation is not a recent phenomenon, but one that started with the very inception of bourgeois discounting in Italy of the fourteenth century.

The government bond

Symbolically, the earliest manifestation of the state of capital is the government bond. This financial instrument marks the first systematic capitalization of power, namely, the power of government to tax. And since this power is backed by institutionalized force, the government bond represents a share in the organized violence of society.

In and of themselves, taxation and the organized violence behind it are of course ancient, dating back to the early use of armies to collect agricultural tribute.215 Subsequently, taxation was legitimized in custom and law, so that the use of naked force became less necessary. But it was only with the emergence of capitalism that this power was routinely packaged as a ‘financial asset’, discounted as vendible bonds on the open market.

This capitalization of power marked the beginning of the end of the feudal mode of power. Instead of a rigid structure of multiple personal ‘protections’ and endless ‘exceptions’, there emerged the anonymous and highly flexible capitalist ‘bond’ of private owners and public governments. For the first time in history, organized power, although still qualitatively multifaceted, assumed a universal quantity.

Primitive accumulation?

Interestingly, the first to suggest that the state was integral to capital was no other than Karl Marx. Recall that, analytically, Marx emphasized the primacy of production and surplus in the emergence and development of capitalism. However, toward the end of the first volume of Capital, in a section titled ‘Genesis of the Industrial Capitalist’, we find a strikingly different interpretation. In contrast to his otherwise bottom-up view, whereby the bourgeois state emerges to give an already-developed capitalism its universal form, here he offers a top-down ‘structural’ explanation, with accumulation seen as emerging from within the state.

The genesis of capitalism, Marx writes in this section, is primitive accumulation, and primitive accumulation is largely the working of the state:

The different momenta of primitive accumulation distribute themselves now, more or less in chronological order, particularly over Spain, Portugal, Holland, France, and England. In England at end of the 17th century, they arrive at a systematic combination, embracing the colonies, the national debt, the modern mode of taxation, and the protectionist system. These methods depend in part on brute force, e.g. the colonial system. But they all employ the power of the State, the concentrated and organized force of society, to hasten, hothouse fashion, the process of transformation of the feudal mode of production into the capitalist mode, and to shorten the transition. Force is the midwife of every old society pregnant with a new one. It is itself economic power.

(Marx 1909, Vol. 1: 823–24, emphases added)

Within this constellation, Marx further identifies the formative role of credit, particularly public debt:

National debts, i.e. the alienation of the state — whether despotic, constitutional or republican — marked with its stamp the capitalist era. . . . Public credit becomes the credo of capital.

(Ibid.: 827)

In fact, according to Marx, the public debt is not only ‘one of the most powerful levers of primitive accumulation’, but also the basis of modern finance more broadly, having ‘given rise to joint stock companies, to dealings in negotiable effects of all kinds, and to agiotage, in a word to stock-exchange gambling and the modern bankocracy’ (ibid.).

Leaving aside differences in the meaning of ‘state’, this view seems similar to our own. The capitalist state, Marx argues, is neither a historical latecomer nor an added complication to an otherwise ‘economic’ notion of capital. Instead, it is an integral aspect of accumulation, and it was so from the very start.

But the similarity is only superficial. Note that Marx’s view here relies crucially on the concept of ‘primitive accumulation’. This is the mechanism through which state violence and power penetrate the inner workings of accumulation. Primitive accumulation, though, is an exception to the rule. During the normal course of ‘expanded reproduction’, whereby ‘real’ capital expands through the legitimate production and appropriation of surplus value, the state acts on capital only from the outside, as an external regulator.

The problem with this distinction is that the two types of accumulation — normal and abnormal — negate and therefore presuppose each other. In order to know what constitutes primitive accumulation (the forceful exception), we first have to know what expanded reproduction is (the sans-force rule). Yet, as we have seen, that cannot be done. Since productive labour, abstract labour and surplus value cannot be identified theoretically or empirically, there is no way to delineate expanded reproduction; and since the boundaries of expanded reproduction are forever unknown, there is no way to know what constitutes primitive accumulation. The two concepts rise and fall together.

For this reason, the endless debates from Luxemburg (1913) to Harvey (2004) — controversies over what constitutes ‘real’ accumulation, on how to differentiate it from ‘rent seeking’ and ‘accumulation by dispossession’, and on whether ‘primitive accumulation’ is necessary merely to kick-start capitalism or in order to sustain it throughout — are much ado about nothing. These questions cannot be settled for the simple reason that accumulation does not have two faces. It has only one, and it is called capitalization. This process, although deeply intertwined with production, is a manifestation of power and only of power. And since we are dealing with power, the capitalist government (Marx’s state) is embedded not only in the so-called ‘primitive’ forms of accumulation, but potentially in every single bit of it.

Government capitalized

And so, what began as a tentative and limited penetration of bourgeois principles into the feudal state ended up destroying that state to emerge, several centuries and numerous struggles later, as a full-fledged state of capital. And as capital grew into a state, the interaction between its organizational bodies of corporations and governments multiplied and intensified.

Over the past century, the government bond market has become the heart of modern finance. It provides the biggest and most liquid security market; it offers a vehicle for both fiscal and monetary policy; and it reflects, through its benchmark yield, the universal normal rate of return.

And that is just the start. Governments are engaged in numerous activities other than taxation — including military spending, subsidies, education, industrial policies, war making, tariffs, protection of private property, patents and copyrights, propaganda, labour laws, macroeconomic policies and policing, to name a few — and these activities all bear on the differential level and temporal pattern of capitalist income. In fact, it is hard to think of a single aspect of modern government that does not bear on the distribution of income in general and of capitalist income in particular, just as it is difficult to find a single corporation whose differential earnings are not affected by government power.

Given that these power features of government all influence differential capitalist earnings and risk, they are discounted, if only implicitly, into corporate stock and bond prices. In other words, a significant proportion of all private property is, in fact, capitalized government power. Of course, the precise magnitude of this impact isn’t written in the company books or declared in stock-market filings. But it can be illustrated easily with simple thought experiments.

Consider Microsoft once more. As we have seen, it doesn’t matter whether Microsoft engineers ‘produce’ its software from scratch or ‘borrow’ it entirely from others, gratis. The owners of Microsoft can profit differentially from this software only insofar as they can prevent others from using it without pay. And this prevention depends crucially on the existence and enforcement of intellectual property rights — that is, on the extent to which Microsoft can harness the government apparatus to its own end. Now negate this ability and assume that the government no longer protects Microsoft’s software. The most likely result is that Microsoft’s earnings and capitalization will drop sharply if not collapse altogether. The magnitude of the drop represents the extent to which Microsoft capitalizes the government.216

Similarly with so-called financial ‘intermediaries’ such as Deutsche Bank. The differential earnings of this group depend, among other things, on interest rate differentials and credit volumes — both of which emerge from a complex power interplay of government policy, cooperation and conflict among the leading financial intermediaries, the relative power of borrowers and the ebb and flow of risk perceptions. The government is deeply ‘discounted’ at every step of the way, and the extent of its capitalization can be readily if hypothetically assessed by contemplating what would happen if we were to obey the market fundamentalists and eliminate its involvement from any of those steps. . . .

Or consider DaimlerChrysler. The level and pattern of its differential earnings depend on its tacit and open collusion with the other seven auto titans. They also depend on the highway system provided by governments and the availability of alternative public transportation; they depend on environmental regulation or lack thereof; they depend on the ups and downs in the price of oil and hence on the global political economy of the Middle East; they depend on tax arrangements with various governments and on the use of transfer pricing; they depend on a sophisticated propaganda war that creates wants and shapes desires; they depend on the relative strength of DaimlerChrysler’s labour unions; and so on. DaimlerChrysler’s profits also hinge on its huge credit operations, and therefore on monetary policy; and they depend on the company’s military business, and therefore on the global politics of armament budgets and the threat of inter- and intra-state conflict. Where exactly the government role begins and ends in this complex process of capitalization is difficult to tell, but the magnitude of this role would become immediately apparent if we removed or curtailed it.

A final example — the oil companies. Over the past four decades, the relative profits of these companies have had little to do with variations in the production of oil — and almost everything to do with oil’s relative price.217 And the relative price of oil in turn has had little to do with ‘supply and demand’ or ‘abstract labour’ and everything to do with the global political economy in general and the political economy of the Middle East in particular. So here, too, profit and capitalization are matters of politics at large, which means that oil assets partly capitalize government power.

The conclusion then is pretty clear. If capital is a material–economic substance, then the most we can say is that the government does or does not ‘affect’ its accumulation. But if assets represent capitalized power, then capital must be seen as incorporating government power. In that sense, the government has become part of capital.

The state of capital

Now, so far we have dealt with the degree to which the government has been capitalized by corporations. But that is only part of the process through which capital becomes a state. The other part concerns the extent to which the various organs of government have been conditioned, habituated and shaped by the logic of capital. We flesh out this question with a series of illustrations.

Who are the regulators?

By the late 2000s, the changing ecology finally made the headline news and ‘environmental friendliness’ became a prerequisite for making money, so Wal-Mart decided to go green. Given the company’s reputation as an indifferent if not predatory giant, this publicized shift toward ‘social responsibility’ has taken many leftists and environmentalists by surprise. But the move also revealed another aspect that few paid attention to: it illustrated how Wal-Mart has become a de facto regulator:

Because of Wal-Mart’s sheer size and market share, most of its rivals have no choice but to follow its lead — and the company has found itself setting standards beyond those that regulators require. ‘They have so much market power that they could drive environmental change through 50,000 companies, something that Congress and the Bush administration has refused to do’, says Michael Marx of Corporate Ethics International. . . .

(Bichall 2007)

And since Wal-Mart now acts as a government, so to speak, it seems only appropriate that it should also be lobbied:

Wal-Mart says it consults with suppliers on standards. But its efforts to set higher environmental goals than those legally required mean that the retailer is attracting the kind of lobbying that would have previously been directed at central government, from both environmentalists and from industry.


This example of private regulation is by no means exceptional. It keeps popping up in many different areas — from the setting of accounting standards and the determination of monetary policy, to military spending and the waging of war, to the commercialization of legal arbitration and the choice of pharmaceutical practices — all instances in which corporations act as regulators of the capitalist environment in which they operate.

Sovereign owners?

The second example concerns the modus operandi of government finance. Traditionally, capitalist governments treated their foreign reserves as a buffer for securing imports and protecting the currency. Consequently, the extra money was usually ‘parked’ in liquid foreign government bonds. This situation started to change in the 1980s. Massive shifts in the global distribution of income gave rise to a significant concentration of foreign currency assets — first in the hands of oil-producing countries, and more recently also in the coffers of Asian governments. These piles of cash made the lure of capital too difficult to resist, as a result of which many governments started to invest their holdings through a new institution: the ‘sovereign wealth fund’.

By 2006, sovereign wealth funds had amassed assets estimated at $2.5 trillion — representing 10 per cent of all institutionally held investments in the world and nearly 1.5 per cent of all global financial assets. The size of these funds has been growing in leaps and bounds, and at current growth rates it is expected to reach $12 trillion in 2015 — exceeding the sum total of global reserves by as much as 50 per cent (Farrell et al. 2007: 11; Jen 2007; Farrell et al. 2008: 10).

So far, much of the discourse surrounding this growth has focused on its threat to ‘free markets’ and the ‘national interest’ (particularly that of the United States, the world’s largest importer of capital). The sovereign owners of these funds, the pundits explain, are inherently anti-market (the liberal fear) and potentially hostile (the realist unease), so thwarting this new form of ‘government intervention’ must be good for both freedom and country.

But this logic can easily be turned on its head. By setting up and managing sovereign wealth funds, governments are further integrating, if not locking themselves, into the larger architecture of capitalist power. This submission is succinctly summarized, however unintentionally, by Yousef al Otaiba, director of international affairs for the government of Abu Dhabi:

The success in generating and wisely applying financial returns for the public good is directly linked to a clear set of principles that has guided Abu Dhabi’s investment organizations. Most basic are the focus on maximizing risk-adjusted returns, relative to well-established market indices; taking a long-term view; avoiding leverage; and investing in a well-diversified portfolio across asset classes, geographies and sectors. Furthermore, the leading investment organization, the Abu Dhabi Investment Authority (ADIA), has operated predominately as a passive investor, with the overwhelming share of its portfolio consisting of minority stakes in companies that have included no control rights, no board seats and no involvement in the management or direction of the receiving companies. . . . It is important to be absolutely clear that the Abu Dhabi government has never and will never use its investment organizations or individual investments as a foreign-policy tool.

(al Otaiba 2008, emphases added)

The last promise in this quote should be taken with a grain of salt. As things stand, there is (still) no means of preventing governments from using their assets in line with their policy goals. But given the increasingly capitalist bent of these new sovereign owners of wealth, it is not clear how their investment and divestment decisions would differ from the business-as-usual policies of ExxonMobil, Bechtel or Samsung.

Whose policy?

And since we talk about foreign policy, what should we make of the recent US invasion of Iraq? Was this policy move taken in the national interest, in the name of business, or perhaps both?

Conventional opinions on this question vary widely, so perhaps we should briefly reiterate the underlying assumptions. At one extreme we have the realist position, according to which the state, understood as an independent entity represented by its ‘officials’ (i.e. the government apparatus), seeks to defend the ‘national interest’ against the interest of other nations. At the other extreme, we have the structural Marxist position that sees the state, in the ‘last instance’, as subservient to the ‘logic of accumulation’. And on the face of it both views ring true. There is little doubt that George Bush Jr. and his administration believed that they represented the ‘national interest’ of the United States. But it is also fairly obvious that this same administration, whatever its formal leeway, could not have deviated too much from the underlying dictates of profit and accumulation.

And that is precisely the problem. As stated above, the realist and structural Marxist views are mutually consistent. And if they can coexist, how can we tell whether the US government launched the attack on Iraq in order to serve its vital national interests or to protect the capitalist order? Is it possible that the attack was meant to serve both goals, or is one cause more important than the other? Can we even tell them apart?

Moreover, is the relative significance of these goals fixed, or does it change over time? Considering the past fifty years, could we say, for example, that the ‘national interest’ has grown less imposing relative to the ‘logic of accumulation’, or has it been the other way around? Perhaps the underlying logics of the national interest and accumulation have both changed?

Whose interests?

These, undoubtedly, are big questions. To answer them, we have to take the following steps. First, we need to specify clearly the ‘logic of state power’ and the ‘logic of accumulation’, including the categories and units in which they are articulated and observed. Second, we need to identify conflicts between these logics. And third, we need to examine how these conflicts pan out comparatively and historically. Based on such an investigation, we can then choose the logic that gives the most consistent, robust and predictive picture.

Clearly, so far the debate hasn’t taken this route. Worse still, it seems that both sides — the realists and the structural Marxists — have preferred to frame their positions in irrefutable terms. Stephen Krasner, an advocate of the realist view, interprets the ‘national interest’ not as the sum of individual interests, but rather as the overall interest of the nation. In his words, it is not the ‘utility of the community’ that matters, but the ‘utility for the community’ as determined by its central decision makers (Krasner 1978: 12, original emphases). In practice, though, the ‘decision makers’ (read government officials) themselves rarely agree on the matter, so it is up to the researcher — Krasner in this case — to make the decision for them. And the way this interest is phrased is often so loose that it can be made consistent with virtually any line of action. According to this template, the 2003 US invasion of Iraq was motivated (depending on the theorist) by the quest for raw materials, by the need to spread capitalist ideology, by the desire to tame the barbarians, by the aspiration to thwart Europe and Asia, by the desire to have Bush Jr. re-elected, or simply by a miscalculation — all in the name of the national interest. Go prove otherwise.

Unfortunately, structural Marxists do not always fare much better in specifying the ‘logic of accumulation’ and the ‘interest of capitalists’, let alone in assessing the degree to which this logic and interest dominate the state. In the 1960s, the welfare state served the long-term interest of capitalism; in the 1980s, the welfare state’s demise better served that same interest. In the 1980s and 1990s, capitalists wanted a new world order of peace; now they suddenly want Empire. In the 1970s and 1980s the US government tried to serve its ‘own’ capitalists by conspiring with OPEC to raise oil prices; in the early 2000s it tried to cater to their ‘global’ interests by invading the Middle East in order to lower oil prices (and when, in the late 2000s the price of oil reached the stratosphere, it was obviously in the interest of the oil companies and the speculators).

These claims may or may not be true. But their validity can be judged only if we first specify exactly what we mean by the ‘interest of capitalists’ and the ‘logic of accumulation’. Only then can we begin to judge whether government organizations and institutions are autonomous from or subservient to these interests and logic, or perhaps somewhere in between.

What is to be done?

The final part of the book outlines the power logic of capitalism and the interest of the dominant owners as we see them. In doing so, this part also illustrates some key features of the historical development of capital accumulation. The quantitative patterns it outlines delineate the boundaries of capitalist politics. These boundaries point to the central political processes, broadly defined, that determine the course of accumulation. They also provide a basis for assessing the extent to which government policies have been ‘discounted’ into capital on the one hand and the degree to which the capitalist mega-machine may have become a form of state on the other.

  1. For more on the cooperative, life-loving aspects of Neolithic culture, worship and rituals, see Gimbutas (1982).

  2. The contrast between the authoritarian drive of power civilization and the democratic impulse of Neolithic technology is well illustrated by the fundamental difference between the ancient royal scripts on the one hand and the alphabet on the other. The former were used in the hierarchical administration of taxation, material stocks and masses of human beings. But beyond their practical role, they also served as a means of instilling institutional privation, fear and awe. Their structures were exceedingly if not deliberately complicated. Egyptian hieroglyphics, Mesopotamian cuneiform and Chinese logography all have hundreds and often many thousands of symbols. Studying these scripts required many years of harsh schooling and systematic harassment that would put to shame even the best public schools of the British Empire (Kramer 1963). Their impenetrable structure helped sustain hierarchy and prevent entry. It made broad learning impossible, deterred innovation and fixed the cosmos against subversion. It was a technology of sabotage, par excellence.

    The democratic invention of the alphabet destroyed this exclusivity and opened up a world of freedom. The first known alphabet was written on the walls of the turquoise mines of Serabit el-Khadim in the Sinai Peninsula, sometime during the fifteenth or fourteenth century BCE. The writers were probably the western-Semitic Apiru (or Amurru) who worked there as periodic zapping labour. Both the Bible and Egyptian evidence suggest that the royal administrators did not like these guest workers. Unlike the peasants of the Nile Valley, they were quasi-nomadic tribes who hadn’t been civilized into complete docility. Perhaps in defiance of their employers who had cheated them, they invented a new script and used it to record their names and work days. This script, known as Proto-Sinaitric, simplified the Egyptian hieroglyphs, reducing them to only 40 symbols. Two hundred years later, Proto-Sinaitric became an alphabet with 24 symbols (Giveon 1978; Naveh 1987). In due course, this democratic act, having decimated the sabotage of exclusive reading and writing, would open the door to philosophy, history, science and democracy — feats of autonomy and creativity that were inconceivable in the early power civilizations.

  3. According to Zeitlin, Berle and Means used an excessively high ownership cut-off point. They considered as managerial a corporation whose lead owner has less than a 20 per cent equity stake, while in fact effective control often can be exercised with as little as 10 or 5 per cent. They then went on to make a bad situation worse by overstating the number of firms that actually fulfilled this already loose criterion.

  4. For more analyses of the ‘separation thesis’ and evidence on ownership and control, see Moore (1983), Scott (1997), La Porta et al. (1999) and Morck (2005).

  5. The share of after-tax profit and interest in national income followed a similar trajectory. After the Second World War, sharp increases in corporate taxation reduced this share, which fell to 6 per cent in the mid-1940s. Subsequently, though, the effective tax rate drifted downwards — a reduction that helped the corporate share of after-tax national income reach nearly 15 per cent by the mid-2000s.

  6. As noted in footnote 15 in Chapter 12, unlike many radical political economists we do not consider rent and the earnings of unincorporated business as capitalist income. The US national-income share of these two components has declined from 20 per cent in the late 1920s to 10 per cent presently, causing the overall share of non-labour income to fall from 37 per cent to 27 per cent. This drop gives the impression that capital has been losing ground, while in fact the very opposite is true.

  7. The literature on state and society often refers to ‘capital’ and ‘market’ as if they were synonymous. Although the two concepts are fundamentally different, we follow this convention here for the sake of simplicity.

  8. Our account in this sub-section draws on the analysis of Agassi (1969).

  9. Note that we refer here to the space of political economy, not to the treatment of space by political economists. The latter issue, popular among postmodernists, has no bearing on our discussion here.

  10. Note that, with ‘economic imperialism’, power could be defined as a form of utility, making realism a subset of liberalism. For argument’s sake, we don’t press this dilution here.

  11. In the pedantic words of Max Weber, ‘A ruling organization will be called “political” insofar as its existence and order is continuously safeguarded within a given territorial area by the threat and application of physical force on the part of the administrative staff. A compulsory political organization with continuous operations will be called a “state” insofar as its administrative staff successfully upholds the claim to the monopoly of the legitimate use of physical force in the enforcement of its order’ (Weber 1978, Vol. 1: 54).

  12. Key contributions to these two debates are included in Hilton (1978) and in Aston and Philpin (1985), respectively.

  13. The analysis that follows focuses exclusively on Europe. However, it should be noted that a feudal mode of power developed in other places as well — including Medieval Japan, the Ottoman Empire and Ethiopia, among others — and with features that were often remarkably similar to Europe’s.

  14. Our account in this and the following three sections draws mainly on the historical works of Bloch (1961), Ganshof (1964), Le Goff (1965; 1988), Lopez (1967), Pirenne (1937) and Tuchman (1978).

  15. The ‘mixing of hands’ may have been the precursor of the bourgeois handshake, while violation of the vassal’s oath of fealty (or ‘foi’), developed into the English and French ‘defiance’ (Ganshof 1964: 26–27, 98–99).

  16. In AD 802, the Carolingian emperor Charlemagne imposed on his subjects a new oath of fealty that added positive aspects to the existing negative ones. These negative features are highlighted by the emperor’s decree, where he says that, from now on, the new oath is

    ‘not as many have thought up to now, involving simply fidelity to the lord emperor as far as his life is concerned’ — i.e. the obligation of refraining from any action against him which will put his life in danger — ‘and the obligation of not introducing into his kingdom any enemy out of hostility toward him, and of declining to be part to the disloyalty toward him of others or keeping silent regarding such’.

    (Quoted in Ganshof 1964: 34–35, emphases added)

    Another set of instructions from AD 1020 articulates this negativity in six different ways:

    He who swears fealty to his lord should always have these six words present to his memory: ‘safe and sound’, sure, honest, useful, easy, possible. Safe and sound, because he must cause no injury to the body of his lord. Sure because he must not injure his lord by giving up his secrets or his castle, which are the guarantees of his security. Honest, because he must do nothing to injure the rights of justice of his lord or such other prerogatives as belong to his well-being. Useful because he must do no wrong to the possessions of his lord. Easy and possible, because he must not make difficult for his lord anything which the latter may wish to do, and because he must not make impossible to his lord that which the lord might otherwise accomplish. It is only right that the vassal should abstain from injuring his lord in any of these ways.

    (Quoted in Ganshof 1964: 83, emphases added)

    Even the ‘positive’ vow of protection was inherently negative, in that it was directed against everyone else. A French document from the thirteenth century recommends the following declaration by the vassal:

    I promise this because you have granted to me and to my heirs such and such a property, as long as we shall remain your vassals, and also because you have promised to defend me and mine against every man.

    (Quoted in Ganshof 1964: 154, emphases added)


  17. Feudal remnants occasionally crop up in flattering reports on the amalgamating victories of present-day magnates. The following account of Woodbridge, the family investment arm of the Thomson family, is typical:

    As president of Woodbridge … Mr Beattie, 48, is often described as the consigliere or éminence grise of the family. . . . ‘Woodbridge exists for one reason — to create value for its shareholders, who are all descendants of Roy Thomson.’ In the 30 years to 2005, he says, that value grew from $300m to $30bn.

    But even when the unit of power is still clannish, in capitalism its methods of expansion are detached and impersonal:

    … Thomson family members have been unsentimental traders of assets … having an uncanny sense of when an industry is on the turn.

    (Edgecliffe-Johnson 2008, emphases added)


  18. The extent of territorial sabotage is illustrated by the fact that even as late as the end of the fifteenth century, there were still 64 feudal tolls on the Rhine, 35 on the Elbe and 77 on the Danube in lower Austria (Pirenne 1937: 88).

  19. To put the magnitudes of these fortunes in context, consider that in 1348, Pope Clement VI paid 80,000 florins to buy Avignon from the Queen of Naples, and that a year later the King of France purchased Monpellier for 133,000 florins. By comparison, the annual turnover of the Bardi company of Florence stood at 875,000 florins. Similarly, when Riniero Zeon, Doge of Venice, died in 1268, his estate was estimated at 50,000 Venetian pounds. This sum was equivalent to a mere one year’s worth of output coming from the alum mines of Benetetto Zaccaria, a Genoese merchant whose portfolio included many such lucrative properties (Lopez 1967: 297).

  20. Although state revenues are no longer collected in kind, the fiscal year still starts in April, to remind us of springtime tax expeditions in antiquity.

  21. Not surprisingly, Microsoft earns most of its profits from sales in developed countries such as the United States, where software piracy can cost the trespasser up to five years in jail. Most developing countries have not yet perfected the penal system for such acts, and until they ‘develop’ in that direction, their governments’ contribution to Microsoft’s bottom line is likely to remain negligible.

  22. There is a very tight correlation between the global profit share of the oil companies on the one hand and the dollar price of crude oil deflated by the US CPI on the other. The correlation coefficient, using monthly series, measures 0.8 out of 1 since 1974, and 0.92 since 1979 (Nitzan and Bichler 2006b: 72). There is virtually no correlation between oil profit and the volume of oil output.