Capital as Power

Simon Petrikov

Contemporary political economist Jonathan Nitzan, along with his colleague Shimshon Bichler, have developed a modern theory of capital that supercedes Marxist and Neoclassical theories of capital. Whereas the aforementioned theories both treat capital as a thing which is quantitatively reflected through finance and prices, the Capital as Power (CasP) theory understands capital as the finances, and rather than reflecting the realities of production, quantify control over the social sphere (including production). Rather than treating capitalism as distinct from the state, the modern state is considered the “state of capital”, owing to the inability to meaningfully distinguish between the actions of “the state” and “the market”, which in reality undergo constant, integrated action, determining the behavior and form of one another and occupying the same spaces. Rather than treating the corporation as an anomalous legal fiction created by state interference, the corporation is the primary organization of interest in capitalism. Rather than assuming that prices are a distorted mirror that reflects key information about the underlying production process, prices are considered, like they are by actual businesses and actual capitalists, to be the fundamental unit of analysis, the thing that matters more than any other.


The exact definition Nitzan gives of capital is “the corporation's expected future profit and interest payments adjusted for risk and discounted to their present value” (Nitzan 2009, p. 8). This is what a financier would actually consider to be his capital. Whereas the economic sciences, if they can be called that, seek to fit reality to their models, Nitzan's work is on making our models fit reality. As Nitzan notes, “that capital theorists remain so hooked on production and consumption is all the more perplexing given that capitalists themselves are not” (ibid., p. 13). Industry, described as a “social hologram” of human activity, is differentiated from business, which is a form of organization that appropriates wealth and power from human activity.

What makes this understanding important is that production does not need to be involved whatsoever in capital accumulation. On the contrary, he goes to show that inflation, or more specifically stagflation, are partly responsible for the bulk of capitalist accumulation. The sabotage of industry is what allows capitalists to derive profits from it. As an example, “early in the twentieth century the automobile companies bought and dismantled 100 electric railway systems in 45 US cities” (ibid., p. 234). The destruction of efficient and accessible public transportation would subsequently push people into accepting the less-efficient, more business-friendly private transportation. Nitzan supports the stagflation argument in Capital as Power by showing that unemployment went from fluctuating to stably hovering around its current value, and that capitalist power is strongly correlated with positive unemployment. As another example, in a paper by Joseph Baines, a study of the recent history of the agricultural sector finds that most of the wealth from agribusiness in the last few decades came directly from starving people and using the crops that would have gone to feeding them to produce biofuels. These biofuels are an even worse energy source than fossil fuels, often not even producing net positive energy. Their efficacy is all but irrelevant to the capitalists.

The State and the Economy

Those of us who follow politics and history closely should be well aware of the fact that “the economy” and “the state” are really just an integrated unit. Today we see not an anomalous situation where the state (or specific, greedy part of the government) is working with “cronies” to ruin capitalism and democracy, but the highly advanced and time-tested version of what has always been. Capitalists have long been part of the creation and reordering of society (what Nitzan calls “creorder") in their favor, which is why the political environment so strongly reflects the needs of capitalists. Without the right institutions in place, without the force of imperial governments, and without transforming culture, capitalism would not be as widespread and penetrating as it is today.

The corporation, far from being an abomination of capitalism gone wrong, is an entity created by and for capitalism. The corporation enables the fluid creorder of capitalism to proceed through financialization and bureaucratization. The accumulation of wealth through business would eventually necessitate something like a corporation, something that allows business owners to be shielded from liability, to allow widespread investment but maintain central control over the business, and so forth. The corporation is the modern-day equivalent of the fiefdom. This is more true than many may realize: The term “investment” comes from feudal tradition, where a king or lord would literally invest, clothe in special garments, their lords or vassals. The ceremony was called “investiture”. The fiefdom (or fee) was created through feudal investment, and the corporation is created through capitalist investment. The only difference between the respective investments is that capitalists measure their power quantitatively (and don't involve silly hats).


Prices are the greatest focus of contemporary economics, and for good reason, since they are the fundamental quantity of capitalism. Despite this place of importance, and the hundreds of years that economics has had to come up with a proper theory of prices, there is still no proper theory of prices. The CasP framework changes this by changing the focus to power. Prices are based on power, and money transactions are transferences of power. Differences in wealth are explainable as differences in power. Capital accumulation works through changes in prices moreso than it does through the gain of profits; In Nitzan's analysis, corporate dominance is a much clearer picture when looking at capitalization, the price of a corporation, than when looking at profits.

Inflation turns out to be a major driver of capitalization. Nitzan compares the 500 largest firms' average rate of inflation with the average to observe that corporations which engage in greater degrees of inflation tend to be the most valued. Capitalization, remember, relates to expected future profits and risk. The firms that are most strongly expected to increase their future profits are those that engage in inflation. This is in contrast to conventional wisdom, which is that companies compete over the best prices, by achieving "marginal profit"/"marginal cost".

Economic theory holds that inflation “is a monetary phenomenon” and “the most common catalyst for inflation (aside from the proverbial printing press) is 'excessive' economic growth” (ibid. 376). However, when Nitzan plots a measure of inflation against the favored measure of growth, % annual change in GDP, there is a clear relationship over the last 200 years to high inflation and low growth. Were economic activity causing economic growth and leading to scarcity as capitalists catch up by deploying more means of production, then we would see that prices would tend to rise during this period of growth and scarcity. Instead, inflation actually tends to happen during periods of crisis, making it very clear why “crony” capitalism and the deployment of force on a geopolitical scale is not the exception, but the rule. Capitalism is a fundamentally “cronyist”, imperialist system.


The other major driver of capitalization is company growth. Conventional wisdom holds that the expansion of the company into new markets is what would lead to higher capitalization, i.e. company growth. Capitalization, being merely a mirror onto the real economic activity, would reflect the real economic activity of the corporation buying more means of production to increase their productivity. Mergers & acquisitions (M & A) turn out to be far more important. An existing index of capital acquisition, the Tobin's Q, compares the relative ratio of new fixed asset costs to existing fixed asset costs (greater than one meaning it's cheaper to build and less than one meaning it's cheaper to buy). The idea is that capitalists will do whatever is cheapest, so if capitalization mirrored means of production, we would observe that M & A activity would occur when capital is cheap and not when it's expensive. Instead, the opposite occurs: Capital forms primarily through M & A activity when it is most costly, and through building when that is most costly. The reason, Nitzan says, is this:

New capacity indeed may be cheap if only a few capitalists add it. But if many capitalists do the same, the calculus becomes very different. The latter circumstances spell 'glut': glut means the disintegration of full-cost pricing: and if prices end up dropping faster than costs, the consequence is falling profit. In this context, building green-field factories — although seemingly 'cheaper' than existing assets — is a recipe for business disaster. […] As the emphasis flips from passively accepting prices to actively managing them, Tobin's Q turns from a cause to a consequence: it goes up when investors happen to buy and down when they decide to build (ibid., 345).

Blair Fix, a grad student who has been working with Professor Nitzan, focused his research on hierarchy-building. In a presentation he gives, he points out the implication of the laws of thermodynamics to organizational structures: Any structure will collapse unless it is continuously maintained using energy. This implies that energy consumption is usable as a proxy for the size of an organization. He connects the creation and growth of corporations to a process of active construction of hierarchical command structures. Because of the limitations of time and cognition, a large organization must necessarily limit the number of interactions required to operate within the organization. A highly-hierarchical organization allows for individuals to only need to interact with 2-5 others within the organization, to have only a few levels of decision-making, and yet still scale the organization into the thousands, millions, or billions. He concludes that hierarchy-building facilitates technological progress as a means to overcome the barrier of energy needed to maintain the structure.

The CasP framework provides a much-needed contemporary, empirical perspective on capital. It disenchants economics, taking it off of its pedestal of apolitical, abstruse, academic authoritarianism, and revealing how little it actually explains about the world compared to a political examination. It is still a small field of study, but one that can inform our political ideas universally. The role of market models made up of man-machines has always been for motivated reasoning. Its separation from politics perpetuates the illusion that a ruling class doesn't exist, that what we believe is a "ruling class" is simply the effects of bumbling bureaucrats trying foolishly to politicize the perfect production process. The neoclassical theory is more akin to theology than physics, ignoring the most important parts of that which it purports to study.