Home > Uncategorized > Weekend Read – Stocks are up. Wages are down. What does it mean?

Weekend Read – Stocks are up. Wages are down. What does it mean?

from Blair Fix

If you listen carefully, you can hear Jeff Bezos getting richer. There’s the sound again. Another billion in Bezos’ coffers.

Let’s put some numbers to this sound of money. Since 2017, Bezos’ net worth has grown by about $4 million per hour — roughly 500,000 times the US minimum wage.1 This accumulation of wealth would be absurd during normal times. Today, as many workers lose their jobs to a brutal pandemic, it’s obscene.

While Bezos is the pinnacle of capitalist excess, his wealth is part of a larger story. Over the last 40 years, stock prices have surged while wages have stagnated. What does this trend mean?

In this post, I take a deep dive into the stock market. I’ll first tell you what the stock market is not. It’s not an indicator of ‘productive capacity’. Nor is it ‘fictitious capital’. So what is it?

The stock market, argue Jonathan Nitzan and Shimshon Bichler, is how capitalists quantify their power. To understand what Nitzan and Bichler are talking about, we’ll unmask the ritual that defines our social order — the ritual of capitalization. Read on to take the red pill and lift the veil of capitalist ideology.

What do stock prices mean?

When it comes to the stock market, many people believe they have original insight. Often, however, they’re parroting old ideas. Noting this tendency, economist John Maynard Keynes wrote:

[T]he ideas of economists and political philosophers … are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.

(Keynes in The General Theory)

When it comes to interpreting the stock market, there are two big ideas. Both come from ‘defunct economists’. The first big idea is that rising stocks are good for everybody. I’ll call this the ‘good-for-GM’ worldview (for reasons explained below). This big idea owes not to any single economist, but to an entire defunct school: neoclassical economics.

The second big idea is that the stock market is disconnected from the rest of the economy. I’ll call this the ‘fictitious-capital’ worldview. It’s an idea that dates back to Karl Marx (who had a defunct view of capital).

Let’s unpack these ideas.

What’s good for GM …

I’ve named the ‘good-for-GM’ worldview after a phrase that’s become infamous: ‘What’s good for GM is good for the country’. Here’s the back story.

In 1953, President Eisenhower selected Charles Wilson to be his Secretary of Defense. At the time, Wilson was the President of General Motors. The problem was that Wilson owned $2.5-million worth of GM stock, which he (initially) refused to divest. When the Senate questioned Wilson about this conflict of interest, he replied:

I cannot conceive of [a conflict of interest] because for years I thought what was good for our country was good for General Motors, and vice versa.

Although he probably didn’t know it, Wilson was essentially summarizing neoclassical economics. In neoclassical theory, a firm’s market value (its stock-market capitalization) is supposed to indicate its productive capacity. And since this productive capacity is good for everybody, what’s good for the firm is good for the country.

Here’s the theory behind this claim. It starts with the idea that ‘capital’ has two sides. Capital is finance — a firm’s value on the stock market. But capital is also a productive asset — a ‘real’ stock of goods. If the market works ‘correctly’ (i.e. as described by neoclassical theory), the two sides should mirror one another. In this case, a firm’s value on the stock market should represent its ‘productive capacity’, measured in units of ‘utility’ (pleasure). And since utility is universally good, a rising stock market is good for everybody. What’s good for GM is good for the country.

Fictitious capital

Not everyone believes the neoclassical fable. Some people (including me) think that corporate interests rarely align with societal interests. So if the stock market doesn’t represent productive capacity, what does it indicate?

Nothing, claim some critics. The stock market is fictitious capital.

This idea comes from Karl Marx. To understand his thinking, we need to unpack his theory of capitalism. According to Marx, workers alone create value. But because capitalists own the ‘means of production’, they can extract a surplus from workers. So although capitalists don’t produce anything (according to Marx), they still earn a healthy income.

So in Marx’s eyes, capitalists aren’t productive. But what about capital? Here Marx agrees with neoclassical economists. Capital goods are productive. That’s because they are ‘dead labor’ — the embodiment of former work. When workers create goods, Marx argues that they (workers) transfer some value-creating ability into the goods. When these goods are used in production, they became productive ‘capital’.

So Marx, like his neoclassical enemies, thought that capital had both a monetary side and a ‘real’ side. But whereas neoclassical economists thought that the two sides were united by ‘utility’, Marx argued that they were united by ‘embodied labor’.

For Marx, however, there was one more twist. He looked at stock markets and balked. Stock markets didn’t capitalize ‘real’ goods, he argued. They capitalized a claim on earnings. This practice meant that the stock market had no connection to ‘actual’ capital. And so Marx dubbed the stock market ‘fictitious capital’.

Here’s how the Marxist geographer David Harvey describes the concept. ‘Fictitious capital’ is:

money that is thrown into circulation as capital without any material basis in commodities or productive activity.

(David Harvey in The Limits to Capital)

Although the term ‘fictitious capital’ is not well known (outside Marxist circles), the sentiment behind it is common. Many people bemoan that the stock market is disconnected from the ‘real’ economy. When they do, they’re echoing Marx.

Big ideas … big problems

We have two big ideas about the stock market. Stock prices either represent ‘productive capacity’ (measured in utility), as neoclassical economists claim. Or stocks are ‘fictitious capital’, as Marx argued.

Both big ideas, it turns out, have big problems.

Let’s start with neoclassical theory. When Charles Wilson claimed that ‘what’s good for GM is good for the country’, he was ridiculed. His problem, basically, was that he articulated neoclassical theory too clearly. Stripped of its mathematical mystique, neoclassical logic is obvious bullshit. When Amazon stock prices triple, that’s good for Amazon owners (i.e. Jeff Bezos). But for everyone else, the benefit is hard to see.

Given the dubious social benefit of rising stocks, Marxist theory swings to the opposite extreme. Stock markets, Marxists claim, are disconnected from the ‘real’ economy. They’re ‘fictitious capital’.

If you don’t own stock, this Marxist claim is comforting. After all, there’s no better way to defang an (imaginary) monster than to call it ‘fictitious’. But what if the monster is real? Then calling it ‘fictitious’ is foolish. The next time Amazon buys out one of its competitors, try telling your friend that the transaction was ‘fictitious’. They’ll likely laugh. That’s because the effects of the stock market are real.

So it seems we have a problem. It’s foolish to think that the stock market reflects ‘productive capacity’. But it’s equally foolish to dismiss the stock market as ‘fictitious’. So how, then, should we understand stock prices? Jonathan Nitzan and Shimshon Bichler have an answer.

Capital as finance

In Capital as Power, Nitzan and Bichler exhaustively document the problems with neoclassical and Marxist theory. The discussion above is my short summary. Now let’s get to their diagnosis.

Economists, Nitzan and Bichler argue, don’t understand capital. Whether neoclassical or Marxist, economists agree that capital is a duality. It’s both ‘money’ and ‘machines’. This duality, Nitzan and Bichler argue, is a mistake. Capital, they claim, is one thing only. Capital is finance.

At first, this view seems ultra modern. It’s only in the 21st century, after all, that hedge funds came to dominate society. But when Nitzan and Bichler use the word ‘finance’, they mean something more expansive than hedge funds and investment banks. They mean any quantification in money.

What’s important is that this expansive view of finance is not modern, but ancient. The monetary definition of ‘capital’ long predates the physical one:

[‘Capital’] comes from the Latin caput, a word whose origin goes back to the Fertile Crescent in the Middle East. In both Rome and Mesopotamia capital had a similar, unambiguous economic meaning: it was a monetary magnitude. There was no relation to produced means of production. Indeed, caput meant ‘head’, which fits well with another Babylonian invention — the human ‘work day’.

(Nitzan and Bichler in Capital as Power)

The idea that ‘capital’ reflects a stock of ‘real’ wealth came much later, during the industrial revolution. It was created, Nitzan and Bichler note, by political economists. The problem is that capitalists have never thought of capital as a duality. Their goal has always been singular — to accumulate money.

The right to exclude

Capitalists want more money. On this, all political economists agree. But to get this money, don’t capitalists need to invest in production? That’s what Marx concluded. In fact, he enshrined this connection in a formula:

\displaystyle M \rightarrow C \rightarrow M^{\prime}

Here’s how the formula works. A capitalist invests money M into ‘real’ capital C (machines and infrastructure). This ‘real’ capital is used to produce commodities, which the capitalist then sells. If all goes well, the capitalist gets back even more money, M. That, according to Marx, is capital accumulation.

When you think like Marx, it seems that the accumulation of money hinges on the accumulation of ‘real’ capital. But this is an illusion. Physical property isn’t necessary. All that’s needed is property rights.

To be fair to Marx, in the 19th century the distinction between ‘property’ and ‘property rights’ was difficult to see. That’s because the things that were owned (railroads, steel mills, etc.) were tangible. It was easy to conclude that owning ‘things’ is what causes capitalist income. But that’s a mistake. It’s actually property rights that matter.

Today, this fact is more obvious. To understand the importance of property rights, ask yourself — what does a patent troll own? A patent troll, if you’re not familiar, is someone who buys a patent for a product that they neither invented nor produce. The patent troll owns nothing tangible. Yet they still earn income. How? By enforcing the patent … their property right.

Here’s an example. In 2015, Martin Shkreli made headlines when his hedge fund bought the rights for Daraprim, a drug used to treat the parasite disease toxoplasmosis. Shkreli did not invent Daraprim, nor did his hedge fund have anything to do with its manufacture. The drug was invented by Nobel-prize-winning scientist Gertrude Elion and had been available since 1953. None of this history concerned Shkreli, whose goal was to turn a profit. With that in mind, Shkreli bought the rights to Daraprim and promptly raised the drug’s price by 5500%.

This price hike, as you might imagine, caused an uproar. And today, happily, Shkreli is jail. But he’s not there for price gouging. He’s in jail for unrelated securities fraud. Let’s reflect on this fact. Yes, the Daraprim price hike was outrageous. But it was also completely legal. In fact, Shkreli’s price hike demonstrates property rights in their purest form. Property rights are not about producing things. They’re about the power to exclude.

This power was inherent in the patent for Daraprim. The patent enshrined the right to exclude other firms from manufacturing the drug. And it enshrined the right to exclude people from using the drug. From this power to exclude comes the power to earn income. In that regard, Shkreli broke no law. He simply used property rights for their intended purpose.

Although Shkreli is certainly a reprehensible human, his callousness did at least one good thing. It demonstrated the true nature of capitalist income. Capitalist income doesn’t come from property, but from property rights — the institutional right to exclude.

The ritual of capitalization

Back to the stock market. For centuries, political economists have asked — how does the stock market relates to ‘real’ capital? The answer, according to Nitzan and Bichler, is that it doesn’t.2 What matters for capitalist income, they argue, is not property, but property rights — the institutional power to exclude. Capitalists use this power to earn an income.

That’s nice, you say. But we’ve moved the goal posts. We wanted to explain the stock market. But now we’re talking about capitalist income. How does that get us anywhere?

It gets us somewhere because this is the move that capitalists themselves make. Capitalists, Nitzan and Bichler observe, quantify property rights using income. How? Using the ritual of capitalization.

Here’s how the ritual works. Suppose that in his thirst for data, Jeff Bezos acquires a startup company, Your Info Inc. The company owns nothing but an algorithm for harvesting consumer data. Bezos doesn’t care that there’s nothing ‘real’ under the company’s hood. He wants the rights to the algorithm. The question is, how much are these property rights worth?

To quantify these rights, Bezos will turn to income. He’ll take the expected earnings (E) of Your Info Inc. and discount this income by the expected rate of return (r). The result is the firm’s capitalized valueK:3

\displaystyle K =\frac{E}{r}

Notice something interesting about this formula. Neither E nor r are known. E is future earnings, and r is the future rate of return. The problem, of course, is that the future is unknown (and unknowable). To solve this problem, Bezos will turn to the past. To guess future earnings E, he’ll look at earnings in the past. And to guess the future rate of return r, Bezos will look at the average rate of return in the recent past (usually the rate of interest).

Back to Your Info Inc. Suppose that each year, the firm earns roughly $1 million in profits. Bezos assumes this will continue. He further assumes a 5% rate of return (r = 0.05). Given these values, Bezos would offer to purchase Your Info Inc. for $20 million. This is its capitalized value:

\displaystyle K = \frac{E}{r} =\frac{\$1 ~\text{million}}{0.05} = \$20 ~\text{million}

Bezos has performed the ritual of capitalization. He’s taken an income stream and used it to quantify property rights.

If this ritual seems arbitrary, that’s because it is. There’s nothing objective about the capitalization formula. It doesn’t point to any fundamental truth about the world, either natural or social. The capitalization formula is simply a ritual — an article of faith.

This arbitrariness doesn’t lessen the importance of capitalization. Far from it. Rituals are always arbitrary. But their effects are always real. Just ask Bob, who’s about to be ritually sacrificed to appease the god of rain. The ritual is arbitrary — founded on a worldview that is false. Killing Bob won’t bring rain. But the rulers believe it will. And so Bob dies. The ritual is arbitrary. The effects are real.

The capitalization ritual works the same way. The formula is arbitrary, as are its inputs. But that doesn’t matter. What’s important is that people believe in the ritual. And on that front, the ritual of capitalization has an army of followers:

Faith in the principle of capitalization now has more followers than all of the world’s religions combined. It is accepted everywhere — from New York and London to Beijing and Teheran. In fact, the belief has spread so widely that it is now used regularly to discount not only capitalist income, but also the income of wage earners, governments, and, indeed, society at large.

(Nitzan and Bichler in Capital as Power)

Stock market order

With the ritual of capitalization in hand, we’re ready to understand the stock market. The rise of stock prices has nothing to do with the accumulation of ‘real’ capital. Instead, it’s about growing income. Let’s have a look.

According to the ritual of capitalization, a firm’s market value equals its earnings (profit) discounted by some rate of return. Most investors, though, aren’t interested in a firm’s total value. They’re interested in the stock price — the market value per share.

To gauge the ‘correct’ price of this stock, investors use the ritual of capitalization in a slightly different form. They divide both sides of the capitalization formula by the number of shares. Here’s what they find. The stock price (capitalization per share) should be proportional to earnings per share:

\displaystyle \text{stock price} =\frac{\text{earnings~per~share}}{r}

Like the previous version, this capitalization formula is an article of faith. It’s how capitalists have agreed to quantify property rights. And like any ritual, it’s application can vary. Capitalists debate which discount rate is ‘correct’. And they disagree about how present earnings will relate to future earnings. This debate injects noise into the capitalization ritual. But what’s remarkable is that over the long term, this noise is small.

Figure 1 tells the story. For a century and a half, US capitalists have applied the capitalization ritual with remarkable uniformity. And so over this period, stock prices have risen in (near) lock step with earnings per share. (Note: Fig. 1 updates Fig. 11.1 in Capital as Power.)

Figure 1: The capitalization ritual in the United States. I plot here the S&P 500 price against earnings per share. This figure is modeled after (and updates) Fig. 11.1 in Capital as Power. Data is from Robert Shiller.

Let’s unpack the data in Figure 1, starting with stock market basics. There are many firms on the American stock market, each with a stock price that varies with time. At first glance, you’d think that capitalists would be interested only in the price of the stock that they own. (If I own Amazon stock, I care about the price of this stock.) But it turns out that capitalists also want a benchmark to gauge how their stock is doing. “Am I beating the benchmark?” they ask. If so, they’re winning the game of capitalism.4

There are many stock-market benchmarks, but the most popular is probably the S&P 500. The S&P 500 tracks the average share price of 500 large American firms. (The average is weighted by market capitalization, so ‘large cap’ firms dominate the index.) Figure 1 plots both the average share price of the S&P 500 and the average earnings (profit) per share. When earnings rise, so do share prices.

This trend is neither natural law nor social law. It is the ritual of capitalization in action.

Capital as power

Now that we understand the ritual of capitalization, let’s dive deeper into what it means. Capital, Nitzan and Bichler argue, is not a ‘thing’. It’s an ideology. Capital is the ritualistic quantification of property rights. And because property rights stem from the power to exclude, it follows that capital is the ritualistic quantification of power.

Nitzan and Bichler’s reasoning is simple and logical. Yet when confronted with it, many people balk. Why? Likely because we (humans) find it difficult to recognize our own ideologies. They’re so ingrained that they appear ‘natural’ … even ‘inevitable’.

To get over this hurdle, it’s helpful to look at the belief-system of another society. The goal, as anthropologists put it, is to ‘de-familiarize’ ourselves with our own culture. We look at the ideology of a foreign culture, and then turn this lens onto ourselves. The results are often unsettling.

To de-familiarize ourselves with our own ideology, let’s look at the worldview of ancient Hawaiians. Far from egalitarian, ancient Hawaiians lived in chiefdoms ruled by fierce hierarchies. Here’s how Peter Turchin describes their belief system:

The Hawaiian chiefly elite were different from commoners … because they were the vessels of mana — spiritual energy flowing from the gods that was necessary for the wellbeing of the overall society. The higher the rank of a chief, the more mana was concentrated in him, with the king as the central node in the “mana distribution network.”

(Peter Turchin in Ultrasociety)

It’s clear to us that Turchin is describing an ideology. Mana is a mystical euphemism for power. Hawaiian chiefs proclaimed that they had mana, which gave them the right to rule. And the commoners believed them.

Now here’s the uncomfortable truth. Capital is the same as mana — it’s a euphemism for power. Let’s run through the similarities. Hawaiian elites had power because they had mana. Capitalists have power because they have capital. Hawaiian elites proclaimed their power boldly. So do capitalists, who broadcast their power daily via stock tickers. Lastly, mana had mystical significance. So does capital. By controlling mana, Hawaiian elites became ‘vessels of spiritual energy’. By controlling capital, modern elites (we are told) become ‘vessels of productivity’.

The similarities between mana and capital are unsettling. But there is an important difference between the two ideologies. Hawaiian elites didn’t quantify their power. But modern elites do. Capitalists use the ritual of capitalization to give their power a number. This ritual, Nitzan and Bichler observe, does something unique. It makes capitalism the first social order that is quantitative.5

For anthropologists of capitalism, this quantification is a boon. It means that we don’t have to work hard to study capitalist power. Why? Because elites do the measurement for us. They quantify their power using the ritual of capitalization. Then they broadcast this power to the world in the form of stock prices. To analyze capitalist power, we need only to remove our ideological shackles.

The power index

Stocks are up. Wages are down. What this means, Bichler and Nitzan argue, is that capitalist power has increased.

Let’s unpack this claim. Capitalists, Bichler and Nitzan observe, quantify their power using the ritual of capitalization. But this ritual has no significance on its own. That’s because power is always differential. (You have power in relation to and because of others.) So to make sense of capitalization, we have to compare it to something else.

What should we compare it to? That depends on what we’re interested in. Here, we’re interested in the power of the whole capitalist class. So it makes sense to compare the capitalization ritual to the income of the opposing class — workers.

This thinking leads Bichler and Nitzan to propose a simple metric of capitalists’ power over workers. We take a stock price index and divide it by the average wage. The result is Bichler and Nitzan’s power index:6

\displaystyle \text{power index} = \frac{\text{average stock price}}{\text{average wage}}

On the surface, the power index is a simple ratio of two prices — the price of corporate property rights relative to the price of wage labor. But if we pay attention to capitalist ideology, the ratio has added significance. The stock price is the ritualistic quantification of capitalist power. And the average wage is the countervailing quantification of workers’ power.

What’s most interesting is not the value of the power index, but its oscillation over time. To see this oscillation, let’s calculate the power index in the United States. Bichler and Nitzan define the US power index as:

\displaystyle \text{US power index} = \frac{\text{S\&P 500 price}}{\text{average US wage}}

Figure 2 shows how the US power index has changed over the last century and a half. The historical oscillations are interesting (we’ll discuss them in a moment). But what stands out is the present. The power index is now at an all-time high.

Figure 2: The US power index. The power index, developed by Bichler and Nitzan, is the ratio of the S&P 500 price to the average US wage. It measures the extent of capitalist power relative to workers. [Sources and methods]

Let’s unpack the data in Figure 2. The oscillations in the power index are caused by the rat race between stocks and wages. Sometimes stocks win the race, causing the power index to increase. Other times wages win the race, causing the power index to decrease.

I’ve labeled, in Figure 2, some events of interest. It’s notable, for instance, that the power index rose in the late 19th century when Rockefeller was building his Standard Oil empire. And the power index began to fall in the early 20th century when minimum wage legislation first appeared. The power index reached a low after World War II. During this time, the welfare state expanded and the government invested in massive public works like the interstate highway system.

From the Reagan years onward, the power index increased. Ironically, history would be made shortly after Francis Fukuyama proclaimed the end of it. Eight years after his 1992 book The End of History was published, the power index reached new heights. Then Trump took office and all records were smashed.

Eras of capitalism

Perhaps the clearest way to understand the oscillations of the power index is to look not at singular events, but at historical eras. To see these eras, let’s smooth the power index to illustrate the long-term trend. Figure 3 shows the results. Four eras of capitalism emerge.

Figure 3: Eras of capitalism, oscillations of power. The blue line shows Bichler and Nitzan’s power index — the ratio of the S&P 500 price to the average US wage. The red line shows the smoothed trend. Shaded regions show four different eras of capitalism. [Sources and methods]

Let’s take a trip through history. We begin in the late 19th century with the era of robber-baron capitalism. At the time, capitalists like Rockefeller and Carnegie were consolidating power. Unsurprisingly, the power index rose steadily.

At the turn of the 20th century, the power index began to ebb. Why? Probably because workers began to organize and government started to break up monopolies. The labor movement and antitrust era was born. The effect on capitalist power was drastic. By the 1940s, the power index had collapsed to an all-time low.

If you believe capitalist cheerleaders, this stock-market low should have been calamitous. But it was not. Instead, the power-index low coincides with the golden age of capitalism. Lasting roughly from the mid-1940s to the mid-1970s, this era was the most prosperous in US history. It was a time of immense public spending and immense material expansion.

By the 1980s, the power index began to rise. Enter the neoliberal era. Gone were politicians promising government expansion. In came politicians promising austerity. Ronald Reagan got government ‘off of the people’s back’, claiming everyone would benefit. A convenient lie. Under Reagan, wealth didn’t trickle down. It poured upwards … to capitalists. We can see this deluge in the power index, which exploded during the 1980s and 1990s. By 2016, the power index was near an all-time high. Then Trump took office, and all records were shattered.

And that brings us to today. Stocks are up. Wages are down. Here’s what it means: capitalist power is at a pinnacle.

Uncharted territory

The year 2020 has been unprecedented in so many ways that it’s hard to keep track. Never before has a pandemic shut down the world economy. Never before have US workers been in such a precarious position. And never before has the stock market been so high.

This disparity escapes few people. How, they ask, can stocks be so disconnected from the ‘real’ economy? The question is understandable, but ultimately misguided. In fact, it speaks volumes about capitalist ideology (and our inability to see it). The stock market has never been connected to the ‘real’ economy. It has always been a quantification of capitalist property rights. Now, as ever, stock prices are the ritualistic quantification of power.

What’s different today is that capitalist power is at an all-time high. To see this fact, let’s zoom in on recent history. Figure 4 shows the daily movement of the US power index from January 2, 2006, to August 28, 2020.

Figure 4: Capitalist power at an all-time high. I plot here the daily movement of the US power index from January 2, 2006, to August 28, 2020. Data is indexed so that the power index equals 1 in 1865. [Sources and methods]

The good times (for capitalists) began in 2009. Obama took office, promising to rein in Wall Street. He did not. Instead, the Fed policy seems to have been to prop up asset prices. Beginning in November 2008, the government started to print money — and lots of it. The official (Orwellian) term for this printing press was ‘quantitative easing’.

Economists warned that printing money would cause inflation. But there’s no sign that it did … among consumer commodities. But check out asset prices. Since 2009, they’re way up relative to wages, as Figure 4 shows. So it seems that the implicit goal of quantitative easing was to prop up capitalist power.

By the time Trump took office, the power index was at an all-time high. His massive 2017 tax cut (for corporations) kept the train rolling. Today, the power-index is in uncharted territory — headed to 4 times the 1865 baseline. This value has never been reached before — not even during the pinnacle of robber-baron capitalism.

Profiting from crisis

That the stock market should rise amidst a crisis is difficult to swallow. But if you’re a student of anthropology, it makes sense. Anthropologists have long known that when disaster strikes, elites don’t help commoners. Elites help themselves.

I’ll close on this point, because it reminds us that we’re not as removed from the past as we might think. Here’s archaeologist Brian Hayden remarking on how Mayan elites attempted to profit from crisis:

I was completely astonished at the results from village after village … that showed that the local elites provided essentially no help to other members of the community in times of crisis, but instead actually devised means of profiting from the misfortunes of others.

(Brian Hayden in Richman, Poorman, Beggarman, Chief. Emphasis in original)

Commenting on the anthropological model of elites that emerged, Brian Hayden and Suzanne Villeneuve write:

… stored food was used to ensure the survival of elites while the poor starved.

(Hayden and Villeneuve in Who Benefits from Complexity?)

While not yet starving, many Americans are going hungry. And like the Mayan elite before them, American elites are attempting to profit. And they are succeeding.

Still, there is hope. No social order is immutable. The more powerful American capitalists become, the closer they get to a reckoning.

When will this reckoning come? What will it look like? Hard to know. But we can say one thing: hastening this reckoning surely involves lifting the veil of capitalist power. That means understanding the stock market. Stock prices don’t represent ‘productive capacity’, nor are they ‘fictitious capital’. They are the ritualistic quantification of power — ‘mana from heaven’ in number form.

  1. Ikonoclast
    April 10, 2021 at 4:25 am

    The mental difficulty in assimilating the Capital as Power thesis arises from failing to deal adequately with the issue of the initial bifurcation of the real into the real and nominal AND then their subsequent reunification by agents (humans) obeying algorithms. Bichler and Nitzan note how neoclassical economy “begins with the conventional bifurcation of the economy itself into two quantitative spheres: “real” and “nominal.”” The real economy is real; an objectively real material system. The financial economy is a nominal system. I would like to concentrate here on how rituals, and algorithms in general, re-weld the real / nominal bifurcation in social practice. How we make up social fictions and then render them real to ourselves.

    “According to the economists, the key is the real sphere. This is the material engine of society, the realm of tangible assets and technical know-how, the locus of production and consumption, the fountain of well-being. The nominal side of the economy is secondary. This is the sphere of money, prices and finance, of inflation and deflation, of speculative bubbles and stock market crashes. Although highly dynamic, the nominal sphere doesn’t have a life of its own. Its money magnitudes are merely reflections – some-times accurate sometimes inaccurate – of what happens in the real sphere. And the reflection is quantitative: the price quantities of the “nominal” spheres mirror the substantive quantities of the “real” sphere.” – Shimshon Bichler.

    But what we know from the empirical realities of capitalism is that the real economy affects the notional (money/finance) economy and the notional economy affects the real. Two systems, one real and one nominal, affect each other. What are the dynamics of this interaction? Also, what of the apparent ontological puzzle of the nominal affecting (not just reflecting) the real? Actually, this latter puzzle is empirically trivial (though ontologically complex) and Blair Fix alludes to it and partially solves it in a completely pragmatic and empirical manner.

    “Rituals are always arbitrary. But their effects are always real. Just ask Bob, who’s about to be ritually sacrificed to appease the god of rain. The ritual is arbitrary — founded on a worldview that is false. Killing Bob won’t bring rain. But the rulers believe it will. And so Bob dies. The ritual is arbitrary. The effects are real.” – Blair Fix. (But not on the weather, Blair might add.)

    A ritual is an algorithm. It is worth putting matters like this so that we may broadly categorize rituals along with other algorithms from cooking recipes to instructions in a computer program. Algorithms are lists of instructions for achieving outcomes.There must an agent interpreting and implementing the list of instructions for them to become operative. The first clear difference is that a ritual like that of “Bob’s ritual death equals rain” is not based on empirical cause and effect chains but on magical thinking. Cooking instructions (if workable) are based on genuine cause and effect thinking backed by empirical trials. Mix these ingredients using these methods and cook or set aside in this way for this time period and the results will be palatable and nutritious (probably).

    However, there is still a real point to Bob’s ritual death. The point is regimentation and obedience. Religious and ideological rituals are used to organize (regiment) people and impel them to obedience. Based on general worldly-wise experience and cynicism, we can infer that most priestly classes, from the religious to the ideological, do not believe literally in their own rituals although they do believe (with good cause) that the rituals give them power, in one way or another. Once you have the populace crossing themselves, you have them obedient. Once you have the populace adding up columns of figures and attributing to them the meaning you declare is in them, then you again have the populace controlled.

    The nominal is made real by ritualization. It is made real in two ways. It feels real to the practitioner in personal subjectivity by virtue of its “practical reification” into concrete forms (including figures and images which are concrete forms of ink on paper or lit pixels on screens). Further, it feels more and more real, the more that others in society subscribe to it. For social beings, social realities are among the most powerful of realities. Naturally, there is a clear category difference between social-fictive dimensions, like the dollars, and real scientific dimensions as per the SI, like mass.

    A key point is that a ritual contains a threat or an intended deflection of a threat. Often, the ritual may contain both. This places rituals somewhere on the power / violence spectrum or the closely related threat / reward spectrum even when not explicitly violent, for example, like Bob’s death. Rituals are demonstrations. Columns of black ink are courting displays or threat displays both in the business meeting and in the high-end bar.

  2. Craig
    April 10, 2021 at 7:34 am

    The analysis of power is good and correct. The ultimate power however isn’t property rights. It’s not even the right of a monopoly. It’s a monopoly paradigm, monopoly concept, specifically a virtual monopoly right to create money ONLY in the form of debt. Create money as a gift and find a place and time to implement its conceptually aligned policies so as to be more beneficial for all agents and legitimate business models and you’ll have resolved not only the major economic problems but be aligned so as to make the even bigger change from the current zeitgeist of power and profit to the new one of the will to freedom.

  3. Ken Zimmerman
    April 10, 2021 at 9:39 pm

    Blair, a largely accurate description of the capitalization process and it as a source (now nearly the only source) of power in our society. I just want to add a couple of comments. First, many who are forced by institutional arrangements to use the frames assembled by Wall Street and other financing gurus as an article of faith do not agree it is how property rights ought to be quantified. It is a ritual. But one that can be made to vary. But you are correct that “Capitalists debate which discount rate is ‘correct.’ And they disagree about how present earnings will relate to future earnings. This debate injects noise into the capitalization ritual. But what’s remarkable is that over the long term, this noise is small.” I cannot agree that the ‘noise’ in the capitalization process is always small. In fact, many of us who have been involved in the application of these ritual formulae have taken full advantage of the fact that neither E nor r are known or knowable. That they are estimates means those with agendas other than those of those looking to maximize their power can make strides toward other, more socially beneficial agendas. Such as building more renewable energy, implementing more energy efficiency programs, and establishing more realistic evaluation criteria for both renewable energy and efficiency programs. For example, several years ago the group Americans for an Energy Efficient Economy and others created a ‘societal’ discount rate for these calculations. These same folks also developed frames for streams of earnings that are distributed evenly or back loaded over the period being considered. Each tends to make both renewable energy projects and energy efficiency projects more attractive.

    Secondly, the financialization-power arrangement is easily disrupted and directed through regulation. This requires full regulatory filings and hearings, including full disclosure of the sources of all data used. This process could not move forward until regulatory approval is granted. I anticipate this to be at least a two- to three-week process. This would allow a substantive review of financialization plans before they are implemented, allow for public comment, and a chance for regulators to head off detrimental impacts of proposed actions and decisions. In the 100 or so proceedings in which I took part, the road was always rocky but the end result was always better than it would have been without the review process. One snag here is that some firms could legitimately opt out of the process. For example, private equity firms. The laws would need to be changed to place these firms under public charter requirements like most ‘money’ entities such as banks, credit unions, etc.

  4. Ikonoclast
    April 11, 2021 at 12:55 am

    At the practical level, the work of the Capital as Power project, of its developers and thinkers, tells us that we need to reduce the role of money in society, in political economy. If capital is a form of power, which it is, and if that form of power shows the characteristics of concentrating itself into fewer and fewer hands, which it does, then the correct procedure is to reverse monetization. Monetization in the broadest sense means to not only convert convert or establish something into legal tender money but to also make preparations for this conversion and to achieve a capitalization value and income streams from the conversion.

    Conversely, the narrow meaning of demonetize is the act of stripping a currency unit of its status as legal tender. The broader meaning entails what one might term differential legal tender status. It is legal to purchase labor. It is not legal to purchase slaves. In a strict legalistic sense, legal tender is not legal tender for proscribed products. Although people do not usually see it in this way, we can see the proscribing of certain goods and services as the case by case demonetizing of legal tender for that purpose.

    As I have said or implied, the correct process in reducing the power of capital is to selectively demonetize legal tender money. That is to say, increase statist regulations which proscribe certain goods, services and behaviors and which limit flows of capital. This is all pretty standard democratic socialist stuff. It is the point where socialist and CasP thinking can meet in practice.

    Bichler and Ntizan have given the example and prescription of increased spending on public housing as a practical measure. As a democratic socialist, I agree. Dean Baker (IIRC) has given the example of changing intellectual property law (and its propensity to grant quasi-monopolies) to make medicines and vaccines available at cost price (or less ) to the poor by removing the super-profits granted to intellectual property owning private monopolies: monopolies which often ride on the back of essentially free R&D and infrastructure paid for by the state, meaning paid for by the non-rich classes who actually pay taxes.

    There are many other possible examples. All mass transit (which admittedly is currently compromised by valid pandemic concerns) could be state owned and free to use; paid for from general revenue. All levels of child-care and education, from infant/toddler to pre-school, primary, secondary and tertiary education should be made entirely free from fees and debt.

    Real estate and housing need to be reformed, and not just by the provision of more public housing. Private ownership of land (residential, commercial, industrial and agricultural) needs to be rescinded in favor of leases from the democratic government. Lease durations would vary from 99 year or life leases to shorter spans appropriate on an enterprise by enterprise basis. These are all example of how we can progressively demonetize, that is socialise, aspects of our political economy.

    Only by such practical measure will we progress. The average citizen simply believes in money and capitalism in a wholly religious and ideological manner and also lacks philosophical and scientific literacy to such an extent that they cannot understand ontologically and empirically valid demonstration of the social-fictive nature of money and its disconnection (by attempting to measure and equate incommensurables) with real environmental systems.

    The only way forward will be by the practical demonstration of socialist measures making all people (except the super rich) better off. The real problem (aside from planetary limits) will be the reactionary response of the super-rich and their bought and suborned poltical and security classes, who will attempt their standard sets of sabotage methods to prevent socialism working. Unsabotaged socialism works. It works so well the rich are deathly afraid of it and will seek to sabotage it at every turn. In the face of reactionary violence, revolutionary violence utlimately might not be avoidable. However, it is best to start peaceably, democratically and non-violently and proceed on that path as far as possible.

    • Ken Zimmerman
      April 11, 2021 at 1:10 pm

      Ikonoclast, I largely agree with your comment. But I must ask, how do you suggest we deal with the opposition to your proposals that are based in American culture rather than any particular ideology? For example, since its founding these have been cultural standards for the nation.
      Individual Freedom and Self-Reliance
      Equality of Opportunity and Competition
      The American Dream and Hard Work
      Your proposals challenge each of these on one or more fronts.
      Your proposals place a great deal of authority in government. This may endanger individual freedom and erode self-reliance. Neither of these is ‘conservative’ values. They are original American values.
      Your proposals also challenge American meritocracy. This grew out of the original values of equality of opportunity and competition and was fashioned into our current ‘promotion based only on merit’ lifestyle during the 1920s-1950s.
      Finally, I do not see any place in your proposals for the ‘American Dream’ or achievement based on hard work. Everyone in your proposals gets all they need with little work which makes dreaming, at least in terms of physical happiness unnecessary.

    • Ikonoclast
      April 11, 2021 at 11:27 pm


      You ask a difficult question. It gets right down to the issue of the American psyche and the American mythos. My short answer is that it is not all certain that America (meaning the USA) can change enough. If it does not change enough, then anything resembling democratic socialism in America will be impossible. The longer answer is that America has changed historically and is changeable and mutable up to and beyond the present day. We have seen several historical cycles and America is again changing rapidly, especially demographically. Also, the beliefs you list are not monolithic. They are contested, even in America.

      My slightly longer answer goes as follows. I would argue that American culture IS an ideology. Indeed, I would argue that culture is always ideology at the mythos level. I mean mythos as the underlying system of beliefs dealing with supernatural forces and the accompanying assumptions and imputations (often unscientific) about natural forces and human characteristics. Few, if any, parts of the American mythos hold up to objective scrutiny. They can be shown to be myths whose beneficial gifts are bequeathed only upon a rich, privileged and mostly white minority.

      The USA was founded in blood, theft, murder and slavery. (As was Australia, my home country, but this post is about the USA). Where was the individual freedom for Native Americans, black African slaves and other oppressed groups, including women? Native Americans still live on reservations. Jim Crow laws and segregation were still an issue in the 1960s. Black lives still don’t matter today. Who did and does the “individual freedom” exist for? It existed and still exists only for white people with money and property. The revolutionaries (against the English Monarchy) were white men of property (Whigs) aided by the white intellectuals of the day. The founding fathers were men of great property with large slave holdings. The wonderful ideals of freedom never extended beyond their own circle, at least not in their own time. Freedom from slavery, servitude and drudgery (before machinery and automation) imply that someone else (many someone elses) have to be the slaves, the servants and the drudges. Freedom stands on someone else’s neck. At least, historically this has been the case. Under conditions of machinery and automation, true socialism becomes possible with self-realization and self-chosen fulfilling work also becoming possible.

      Self-reliance, taken to extremes, is a myth. Humans are not totally self-reliant. First, they rely on a sustaining environment. Second, the rely on a society of mutual cooperation. Equal opportunity is a myth in a society where the rich can buy an education and the poor cannot. Fair competition is a myth when the rich have a massive head-start and all the laws are skewed to suit the rich. The American Dream is a myth when Blacks, Hispanics and Native Americans need not apply. The American Dream is a myth when only the super rich prosper and the middle and working classes begin to collapse back into poverty, as is actually happening now. Hard work is a reality for immigrant field hands and workers with two or three jobs. It is not a reality for the children of the rich.

      But the USA is not monolithic. There have always been counter-movements. The Wobblies (Industrial Workers of the World), the Civil Rights Movement, the ACLU (American Civil Liberties Union). Women’s Liberation, Black Lives Matter and so on.

      Socialism (and ecologically sustainable living) are actually hard but fulfilling work even with machinery and automation. Genuine democracy, at community or national level, is hard work and very time-consuming. All those human and infrastructure services of a socialist system are delivered by people who have to work. Socialism generates full employment. However, industrial and technological advances can and do relieve excessive drudgery and abject servitude.

      As for the virtue, necessity and dignity of hard work, how much hard work does a person do when he/she is a property owner, investor and shareholder and sits back and lets the dividends role in without so much as a dirty fingernail? I speak from personal knowledge. My son is an active investor. Yes, he works, doing calculations, research, due diligence etc., but from his keyboard in the comfort of his own residence and doing about 30 hours a week. He “earns” 40% annual returns (averaged) and is rapidly becoming rich. Yes, he runs some small chance of being ruined but he is hedged, uses Kelly betting principles and knows how to go long and short at the right times.

      I do not decry what my son is doing. I even understand it. The late-stage capitalist system has made honest work a sucker’s game. What he is doing is rational, given the current system. The system itself is not rational and is headed for collapse.

      Every worker runs the risk of being ruined in the current environment. He is usually one sacking or one lay-off from loss of mortgaged home and eventual penury. There is too little security for workers anymore. Holding one or even two or three jobs is not a sufficiently diversified position under Kelly betting or Kelly spread principles. Under Socialism jobs are assured and national productivity is higher. China runs a hybrid state capitalist system with socialist characteristics. It has massively outperformed the West over the last two decades. Socialism, or at least a hybrid state capitalist – socialist system indubitably works and works better. At the same time, China has a severe problem (or two). It is a party dictatorship tending to an individual dictatorship. It is not democratic socialist. America is an oligarchic state where the nominally democratic legislature works only for the rich. True democracy and true socialism must be paired to exist fully and properly. Neither China or America are anywhere near it.

      At the same time, things will change rapidly. We are entering revolutionary times where change will be swift. We will either achieve substantial socialism which cares for people and environment or we will collapse into barbarism and ecological disaster. Capitalism is not sustainable. It suffers from both internal and external contradictions. The internal contradictions revolve around the pursuit of profit at the expense of wages. People with no wages, or no adequate wages, are left with just two options, criminality or revolution. The external contradiction is that capitalism is ineluctably an endless growth system in a finite world with finite biosphere capacities. The reality of capitalist collapse will make democratic socialism seem much more desirable.

      • Ken Zimmerman
        April 12, 2021 at 8:36 pm

        Ikonoclast, thank you for these excellent comments.

        Cultures change slowly. And largely the changes come slowly at first and then accelerate over time. This is the pattern one would expect considering how important cultures are in each person’s everyday life. Right now, in the USA this cultural movement has been under way for some time. Young Americans 18-24 are the only group who seem to have a positive view of socialism. And that tendency is expanding. Under 40 Americans are in polling split on socialism. Even Americans over 40 no longer reject socialism without exception. The other change is the anger of Americans at the destruction of American democracy, except for some Americans over 65. So cultural change in America is happening right now. Too quickly for some. Too slowly for others. But it is happening.

        Two things need to happen to assist these changes. For those who want the changes to take a path preferred by younger Americans and a path that protects and expands democracy. First, we must prevent the establishment of institutional barriers. These might force those who want cultural changes to give up that desire in favor of following pre established cultural pathways. In some instances, there may be no choice except to follow such pathways to have a satisfactory standard of living. Here, finding ways to protect positive changes to provide them an opportunity to mature is important. Second, some of the potential changes may be frightening, or even shocking to certain parts of society. To help get past such fears and surprises we need a broad effort to explain the changes, particularly to ordinary citizens and their political representatives. Having government perform these services would be ideal. Political situations may make this impossible, however. After all, much of the country’s ‘governing’ has been turned over the sociopaths and psychopaths since the 1980s. And during the intervening years these sociopaths and psychopaths have created millions of other socio- and psychopaths who have been socialized to not only accept but to admire sociopathic and psychopathic actions and beliefs.

        Finally, if we want these positive changes to American culture to move forward and become active parts of the culture, those of us not involved in the active process for change must ‘get our hands dirty.’ We must push for and support these changes by voting for them, supporting them with money, and directly campaigning for them, even in street protests if necessary. This may involve some pushback, even some very vicious pushback. Do we have the fortitude to deal with these situations is an important question to answer before we get into them?

        Most cultural changes do not depend wholly on any of these political or formal changes, however. Most cultural changes happen due to one-on-one direct and continuing contact. For example, the Civil Rights Act integrated American schools but it did not improve day-by-day relations among races. That was accomplished by teachers, school counselors, coaches, school custodians, etc. and just the requirement that students work out school relationships that made their lives tolerable in integrated classrooms. The support of local media, churches, and community leaders was also important. And the changes occurred over decades, not years. Culture changes slowly. But today there is no going back on the history that has occurred after the Civil Rights Act was implemented. Today, old, white, male politicians, even in states known at one time for their extreme racism are finding that their grandchildren and great grandchildren are just not good racists anymore. Unfortunately, with some sad exceptions.

      • Robert Locke
        April 13, 2021 at 10:57 am

        I concluded forty years ago that America could not change enough, so when I retired I moved to Germany. I have lived here for 20 years. Employee particiation in firm goverance is the only hope.

  5. pfeffertag
    April 20, 2021 at 4:06 am

    For what it’s worth, I agree with most of these well articulated sentiments. I am not as optimistic as Ken. The decline of the US is a widespread theme, almost fashionable, and I agree with it. It seems to me, though, that two simple questions about the deeper causes are not being asked: 1. Why the US? 2. Why now?

    1. Of the whole Trump experience, commentators remark that it shows how fragile democracy is. But this can only apply to the US’s democracy. The other established democracies, stable for well over a century, are as tough as old boots and in no particular present danger.

    2. Historically, America has had opportunities to collapse to autocracy but managed to avoid it. Maybe this time it is different. Two reasons for this might be that in the past there were distractions which no longer exist, and we are in a kind of new age of simultaneous instant communication and isolation.

    To 1. The US is the only established democracy to directly elect its chief executive. The others, with a semi-exception of France, have a prime minister elected by a party and endorsed by parliament. I suggest this national, direct election of the president is the fundamental reason why politics in the US is a freak-show and is the reason why its democracy will fail. (It is already a “flawed” democracy according to the Economist index.)

    There is a large number of “presidential” countries—about 70, I think. Direct elections sounds democratic but it is demagogic. They cannot manage to maintain democracy. The colonisers of South America left two hundred years ago but those are still “developing” countries. They are a permanent shambles, cycling in and out of half-baked democracy as the decades go by. Parliamentary Canada, Australia, and New Zealand are of more recent origin but would not be regarded as still developing a century ago. The former Soviet countries that went presidential are all shambolic dictatorships now; the ones that went parliamentary are managing. The Philippines is gone (again); Indonesia is well down the slippery slope; the new democracy in South Korea has already impeached one president and its democracy, such as it is, will further decline.

    To 2. The lesson is that national election of the chief executive is not a viable structure so the wonder is that the US has lasted so long. I put it down to the federal system and the distractions of the Wild West, two world wars and the cold war. It could have failed in the 1930s when fascism seemed to many to be a better system but it got lucky with Roosevelt. If Biden is a new Roosevelt he might stave off the decline for a while but the US seems set to follow the pattern of the other American presidential countries, namely ever-increasing inequality and ever-stronger populism aggravated by poorly regulated modern communications. That should ultimately lead to irrelevance to international politics but the decline will cause much (world-wide) trauma before then.

  6. Gerald Holtham
    April 20, 2021 at 5:27 pm

    Any ownership implies exclusion. To say you own your house is to say not everyone can come and live in it as they choose, unless you agree to it. Neo-liberalism has privatized activities and institutions where collective ownership served the general interest better. On the other hand societies that attempted to abolish all private ownership were or became vindictive tyrannies. The argument, therefore, should not be about whether property rights are wicked but about the extent of property rights and the rules for their transfer.
    The rate at which expected earnings are capitalised in the stock market does indeed depend on the balance of market power. The growth rate of the economy and interest rates are generally similar so the valuation of the stock market (say the P/E) will not change much if profits are growing at the same rate as the economy as a whole. Stock prices will go up at the same rate as current earnings. If the profit share of GDP is changing, however, the equation points to a rising or falling market. In the golden age of capitalism factor shares were broadly stable in the US. The surging stock market after the 1980s coincided with a rising profit share. The correspondence is arithmetical. You have to dig deeper for the reasons for changing factor shares in Blair Fix’s eras of capitalism. Sometimes the reasons had to do with historical specificities rather than anything immutable.

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