Home > Uncategorized > Weekend read – With great power comes great fear

Weekend read – With great power comes great fear

from Blair Fix

Over the last year, I’ve watched with horror and amusement as health agencies around the world flip-flopped their advice on how to deal with COVID.

My horror comes from knowing this flip-flopping breeds mistrust in science. But I am (morbidly) amused because I know that uncertainty is a basic part of real research. For the public, ‘science’ tends to mean authoritative knowledge. But for researchers, ‘science’ is an iterative process, filled with wrong turns, new evidence, and revised ideas.

With COVID flip-flops in mind, I thought I’d tell you a story about science in progress. It’s a story about how we should understand the stock market.

Three stories about the stock market

Here are three stories about how the stock market works.

The first story says that the stock market reflects the productivity of the underlying economy. When stocks go up, the thinking goes, everyone should celebrate because the tide of productivity is rising. This is the story that neoclassical economists believe.

The second story is that the stock market is actually disconnected from the ‘real’ economy, fluctuating in ways that have nothing to do with actual productivity. Stock prices represent ‘fictitious capital’. This is the story Marxists believe.

The third story is that stock prices are neither about productivity nor are they ‘fictitious’. They are about power. This is the hypothesis proposed by Jonathan Nitzan and Shimshon Bichler. The basic idea is that what capitalists really care about is not productivity. They care about income. Capitalists look at their income and then, through the ritual of capitalization, turn it into a lump sum — the capitalized value.

What’s important, Nitzan and Bichler argue, is that capitalist income is a function of power — the power to wield property rights. Hence patent trolls earn income not by doing anything useful, but by enforcing their intellectual property. Likewise Microsoft earns income not by creating software, but by restricting its use. Of course you can produce things if you want. But unless you enforce your property rights, you won’t earn income.

Back to the stock market. Bichler and Nitzan propose that we should understand the stock market in terms of capitalist power. When stocks go up relative to wages, that’s a sign that capitalists have grown more powerful. Conversely, when stocks fall relative to wages, that’s a sign that workers are winning the class struggle.

With this thinking in mind, Bichler and Nitzan propose a metric they call the ‘power index’ — the ratio of stock prices to the average wage:

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

Figure 1 shows the oscillations of the power index in the United States. (For an analysis of the trends, see ‘Stocks are up. Wages are down. What does it mean?’)

Figure 1: Eras of capitalism, oscillations of power. The blue line shows the power index in the United States. The red line shows the smoothed trend. The oscillations of the power index correspond with different eras of capitalism. Sources and methods are here.

The corollary of power is fear

When Peter Parker became Spider-Man, his Uncle Ben remarked:

With great power comes great responsibility.

That may be true. But Bichler and Nitzan think that something else also comes with great power: great fear.

Bichler and Nitzan hypothesize that as capitalists grow more powerful, they become more fearful about losing their grip on power. After all, if you are at the apex of power, there is nowhere to go but down.

The idea that capitalists fear for their fortunes is nothing new. But what is new is that Bichler and Nitzan propose a specific way of quantifying this fear. The way to measure capitalist fear, they argue, is to look at how capitalists apply their ritual of capitalization.

The principle of capitalization is to put a present value on future income. To get capitalized value, we take (expected) future income and ‘discount’ it by some agreed-upon rate:

\displaystyle  \text{capitalized value} = \frac{\text{future income}}{\text{discount rate}}

The immediate problem for capitalists is that future income is unknown. So what should they do? Their answer is to invert the capitalization formula so that it looks at the past. With this inversion, capitalists calculate present value by discounting past incomes:

\displaystyle  \text{capitalized value} = \frac{\text{past income}}{\text{discount rate}}

Noting this inversion, Bichler and Nitzan propose that it can be used to measure capitalists’ fear. The more fearful capitalists are, the more they will cling to the past rather than look to the (increasingly uncertain) future.

The way to measure capitalist fear, then, is to see how strongly stock prices correlate with past income. More specifically, Bichler and Nitzan correlate stock prices with earnings per share over a rolling window. They call the result the ‘systemic fear index’:

\displaystyle \text{systemic fear index} = \text{stock prices} \sim \text{earnings per share}

Since the resulting correlation fluctuates wildly in the short term, Bichler and Nitzan then take the rolling average to better see long-term trends.

If great (capitalist) power does bring great fear, the systemic fear index ought to rise and fall with the power index — Bichler and Nitzan’s measure of capitalist power. Looking at the United States, Bichler and Nitzan find that this is exactly what has happened.

Figure 2: The power index and systemic fear index in the United States. This figure is from Bichler and Nitzan’s paper ‘A CasP Model of the Stock Market’.

Perhaps capitalist fear is not systemic

Impressed by Bichler and Nitzan’s findings, political economists Joseph Baines and Sandy Hager wanted to know if the results generalized beyond the United States. They assembled data to calculate both the power index and the index of systemic fear in France, Germany, Great Britain and Japan. Their results poured cold water on the concept of ‘systemic fear’.

Baines and Hager found that in the countries they studied, the link between capitalist power and systemic fear was not nearly as strong as in the US. Figure 2 shows their data. Baines and Hager conclude that ‘systemic fear’ may not actually be ‘systemic’, meaning the concept may be less useful than Bichler and Nitzan claimed.

Figure 2: The power index and systemic fear in France, Germany, Japan and the UK. This figure is from Baines and Hagers’s paper ‘Financial Crisis, Inequality, and Capitalist Diversity’.

Systemic fear gets another look

Intrigued by Baines and Hager’s results, James McMahon (who cut his empirical teeth researching Hollywood) recently took another look at the idea of ‘systemic fear’. He was able to assemble a dataset that was both wider in scope (including 12 countries) and had greater historical depth than anything used before. With this more expansive dataset, McMahon subjected the idea of systemic fear to a bevy of tests.

First up was the idea that systemic fear might not be ‘systemic’. To test this possibility, McMahon looked at how systemic fear correlated across countries. Figure 4 shows his resulting ‘correlation matrix’. Each box shows the systemic-fear correlation between the respective countries on the xy axes. Dark red indicates that the two countries ‘co-experience’ systemic fear. Dark blue indicates that they do not. Despite a few blue squares, what’s clear is that systemic fear seems to be correlated across countries. In other words, it does appear to be ‘systemic’.

Figure 4: Cross-country correlation in the trends in systemic fear. This figure is from McMahon’s paper ‘Reconsidering Systemic Fear and the Stock Market’. Each box shows the systemic-fear correlation between the respective countries on the xy axes.

Next, McMahon looked at the correlation between systemic fear and the power index. As with Baines and Hager, he confirmed that the correlation varies across countries. Still, all countries (for which data was available) had a positive correlation. In other words, as capitalists become more powerful, they seem to become more fearful.

Figure 5: Correlation between systemic fear and the power index. This figure is from McMahon’s paper ‘Reconsidering Systemic Fear and the Stock Market’. Bars indicate the correlation between the systemic fear and the power index. Because McMahon tests multiple versions of these metrics, he calls the original metrics S_1  (systemic fear) and P_1  (power index).

McMahon’s last step was to see how the average trend in capitalist power (across countries) related to the average trend in systemic fear (again, across countries). Here he found a strong correlation, shown below. Interestingly, the correlation remained (albeit at lower levels) when he experimented with different ways of measuring systemic fear and capitalist power.

Figure 6: Relation between ‘expected’ systemic fear and ‘expected’ capitalist power for all combinations of indices This figure is from McMahon’s paper ‘Reconsidering Systemic Fear and the Stock Market’. Each panel plots the relation between the cross-country average of the power index and the cross-country average of systemic fear. McMahon calls these two averages the ‘expected’ values. Each panel shows a combination of different metrics (power indices P_1 P_2 , and P_3 ; systemic fear indices S_1 S_2 , and S_3 ). See McMahon’s paper for details.

Science in progress

Back to COVID shenanigans. Public health scientists are in the unenviable position of having their research subjected to intense public scrutiny. As the evidence changes, officials revamp their story, and the public balks. But unbeknownst to most people, this flip-flopping is how science always works. It’s messy. It’s uncertain. It’s a work in progress.

Unlike COVID research, the study of how capitalist power relates to systemic fear is conducted largely in obscurity. In a sense, that’s good, because it means that when the facts change, researchers can alter their opinions without facing public ridicule. The downside is that this research cuts to the heart of our understanding of capitalism. And that ought to interest everyone.

Whether the corollary of capitalist power is systemic fear (and whether this fear is actual ‘systemic’) is an open question. Maybe you’ll be the next one to roll up your sleeves and see what you find.

(And if you do roll up your sleeves, consider submitting your findings to the Review of Capital as Power (RECASP), a non-disciplinary journal committed to fostering debate about these types of ideas.)

  1. September 4, 2021 at 7:56 pm

    Thanks for this deep dive into our current confusions !

  2. September 4, 2021 at 10:38 pm

    The question is interesting but the study shows that capitalist power is increasing as we know from the increasing divide between the 1% (0,01%) and the rest of us. It seems that the lesson learned here is that there is a positive feedback loop. Increasing power drives increasing fear drives desire for power.

    The effort to decrease the divide (spread the wealth towards the middle) exacerbates the fear and hence the drive to retain and, even, increase the power (the discredited Kuznets curve- raising income raises all ships). This is problematic based on your 1st story that the rise in income from stocks is decoupled from the productivity (the basic problem of rent seeking). It is also a global problem with the Washington Consensus encouraging debt to improve income in developing countries until the debt can only be repaid by dismantling and privatizing (e.g. Greece, Ecuador)

    How to break the cycle? The only option appears powering thru by dismantling the divide. One small step is the international agreement on a 15% wealth tax. When the world of those at the top doesn’t collapse, maybe we have a good use for Purdue’s Oxycontin and derivatives?

  3. Ikonoclast
    September 5, 2021 at 12:13 am

    The use of nominal quantity equations to advance theories pertaining to “the real” raises some ontological questions of what “real” is being referred to. The Power Index graph does not appear to suffer from any serious question at all in this regard in that it easily can be related to the real. We see wages uncoupling from profits in empirical reality and we understand the concept of the power of capital over labor and the weakness of agency of workers in the current neolioberal industrial relations climate.

    In the case of the Systemic Fear Index I am more concerned. It is claimed that the corollary of power is fear. Yes, this can be true, probably is true, much of the time. Equally, the corollary of powerlessness is fear too. This reasoning simply indicates that the corollary of unequal power relations for humans in modern society is fear on both sides. This fear takes different forms. Those with power can act out their fear. That is, they can exploit, oppress, incarcerate and kill, not to put too fine a point on matters. Those without power cannot act out their fear while isolated but can, history shows, act out their fear and do something about their indigence if and when they act in concert and solidarity.

    My concern is this. Is the Systemic Fear Index correlated with the Power Index because of formal finance operations more than market operations per se? I mean for example, the obvious use of Qualitative Easing and low real interest rates to give dominant capitalists billions of essentially free loan monies. The reality of this process would not necessarily obviate the conclusions of the second graph of power index vs. systemic fear. It would simply place the locus of power not only in market operations but also in money operations, meaning dominant capital’s control of money creation and allocation as well as of market operations via monoploy power, Veblenian sabotage and so on. Dominant capital brings a whole panoply of powers to the table to manipulate the operations of money, finance and capital.

    To relate the Systemic Fear Index to the real we must correlate it with real sociological indicators of not just “fear” but of fear acted out in concrete actions of repression and/or revolution. An example would be the incarceration rate in the USA. The USA is an outlier with its stupendous and terrible incarceration rate. If a graph can be presented matching (A) Power Index, (B) Systemic Fear Index and (C) US Incarceration rate, I will be much more more impressed. Please note, I am impressed already but if the US incarceration rate follows the other two I will be a magnitude more impressed again. With respect to cross-nation incarceration comparison rates there will be a need, likely, to adjust for (say) black and indigenous incarceration rates, not overall incarceration rates. I hope these suggestions are useful. This work may already have been been done. I am interested to see the graph(s).

    • September 5, 2021 at 1:13 am

      Thank you Ikonoclast. The share of the U.S. correctional population in the overall population has risen from the 1980s till the early 2010 and fell a bit afterwards, so this pattern is broadly consistent with the dual rise of both the Power and Systemic Fear indices. But I’m not sure how this pattern corroborates our point.

      • Ikonoclast
        September 5, 2021 at 11:42 am

        The power concept in CasP I understand. Ulf Martin gives an excellent definition of social power in “The Autocatalytic Sprawl of Pesudorational Mastery”.

        “Indeed, what is (social) power? In the following, we try to develop a concept of power as the ability of persons to create particular formations against resistance.” – Ulf Martin.

        One of the main social powers is the power of capital. It’s not the only social power of course but a crucially important one, under capitalism, which is analyzed in Capital as Power theory.

        The ability to create formations against resistance with the application of power is a concept we can understand directly from physics. Martin relates social power quite closely, ontologically speaking, to physical power without necessarily saying they are precisely the same thing. And we certainly get the idea (or at least I do) that all of this is happening in one monistic relational system. When capital as power is applied we see new social and physical formations and relations arise (creorder).

        However when CasP theorists speak of “Fear” or “Systemic Fear” this feels to me more like an abstract notion than a real thing or process. I begin to fear a drift to “essentialism”. I mean this if we can define essentialism here as a “reverse reification”: meaning the taking of something concrete (fear as a set of qualia and neurological processes in the brain or fear as an obvious set of physiological responses) and rendering it more abstract and essentialized as a Platonic universal or abstraction.

        What is the definition of “Systemic Fear” that would satisfy me that it connects to real fear (as I pointed to it via its real world locus above in parentheses) in the manner that Ulf Martin’s definition of social power satisfies me of its close relation to real physical power? Do you have a definition of Systemic Fear that is not merely formalistic or nominal, that is not just the right side of the formula “Systemic Fear = x ” where x is a function of two notional quantities?

        I really do not mean to sound sarcastic or obtuse. But in trying to put my question as plainly as I can I can see it might look like either or both. I am being pedantic and fundamentally monist, for sure. In seeking a look at incarceration rates as a proxy for fear manifested in social actions (reactive or premeptive), I was seeking genuine social or sociological measures of systemic fear in society with “fear” here being understood as something neurologically, physiologically and socially real.

        I personally worry that in pushing complex relational system monism to the hilt I have simply invented a cult of one: that I am a “crank” in Blair Fix’s amusing but quite useful definition. But I am committed to the view that without a consistently and rigorously maintained ontological unification, we are always in danger of the bifurcations of dualism and a tendency to Platonist abstraction creeping back into our thinking.

      • September 5, 2021 at 5:56 pm

        Thank you for articulating these important points, Ikonoclast (September 5, 2021 at 11:42 am).

        In Shimshon’s and my view, *both* the Power and Systemic-Fear indices are abstract quantitative constructs: the first is a ratio of two monetary magnitudes, the second a correlation of two monetary magnitudes. We give these abstract quantities meaning in two related ways.

        (1) We theorize their construction.

        In the case of the Power Index, we say that in capitalism money represents command over others and therefore that the relationship between the prices of ownership units – in this case, between corporate stocks and labour – represents the relative power of capitalists over workers (the latter being a proxy for the underlying population).

        I the case of the Systemic-Fear Index, we say that forward-looking capitalization cannot derive its estimated future earnings till eternity from the jerky ups and downs of last-year’s earnings, and therefore that the extent to which stock prices *do* correlate with last year’s earning represents a *breakdown* of the forward-looking ritual. We posit that this breakdown represents systemic fear – namely, the fear that the capitalization process might break down – and that this systemic fear is the dialectical twin of capitalized power: they both go up and down together. We demonstrate that this relationship is very tight in the U.S., and, as James McMahon recently showed, it is also prevalent, although less tightly, elsewhere in the world (https://capitalaspower.com/2021/08/mcmahon-reconsidering-systemic-fear-and-the-stock-market/).

        (2) We correlate the quantitative indices of capitalized power and systemic fear with actual qualitative and quantitative social processes that might underpin and drive them.

        Much of the CasP literature is devoted to connecting power indices to various social processes that might explain them (for a recent overview, see ‘The CasP Project’, https://bnarchives.yorku.ca/536/). The Systemic-Fear Index, however, is a recent invention, and I don’t know of any attempt so far to ‘substantiate’ it as we and others have done with power.

        Your suggestion to use measures of incarceration as a proxy for systemic fear is tempting – particularly since it seems valid in the U.S. since the 1980s — but I’m not sure it is adequate. First, and most generally, I’m uneasy about the notion that systemic fear regarding the future of forward-looking capitalization should be connected to incarceration, which is a complex process with many determinants (see our ‘No Way Out’ https://bnarchives.yorku.ca/391/). Second, and to mess things further, incarceration may reflect the underpinning of organized power as well as (or rather than) fear — and how do we disentangle the two? Third, incarceration works very differently and with various intensities across the world, and this range makes generalizing its relationship to systemic fear complicated.

  4. Ikonoclast
    September 5, 2021 at 11:59 pm

    Jonathan Nitzan, thank you for your reply. I believe I understand your approach better now. If I may be permitted a brief indulgence in a colorful metaphor, I believe we are coming at the justification “army” of capitalist ideologues and apologists from opposite wings. Bichler/Nitzan from the empirical wing and myself from the “metaphysical” wing. “Metaphysical” here is scare-quoted because the intent of my “near-empirical” metaphysics is to abolish dual substance metaphysics altogether.

    Your approach looks very solid to me. The intent to therorize and develop “abstract quantitative constructs” which potentially can demonstrate a modeled homomorphic relation to the real via the path of an hypothesis able to be empirically tested, not only looks, but is in scientific and pragmatic terms, entirely sound. The correspondence theory of truth and the practical successes of empirical science with scientific models both support the argument that valid models are valid via their homomorphic linking of abstract quantitative constructs in the models to real things and process in empirical reality.

    In substance philosophy I am a “substance literalist” or more correctly a “one substance literalist” coming as I do from a theorized position of single substance priority monism. Without descending to substance literalism or essentialism (in which I would somehow posit that I know what the “substance” essentially is) I simply say “Whatever it is, it is one “substance” in generic substance philosophy terms.

    “The philosophical term ‘substance’ corresponds to the Greek ousia, which means ‘being’, transmitted via the Latin substantia, which means ‘something that stands under or grounds things’. According to the generic sense, therefore, the substances in a given philosophical system are those things that, according to the system, are the foundational or fundamental entities of reality.” – Stanford Encyclopedia of Philosophy.

    A priority complex relational systems monist (all the adjectives are necessary) will fundamentally advance, as I do, that:- The system is the substance. The system in toto IS the substance. It cannot be otherwise in a complex relational monist system. I suspect that the argument around Essential vs. Accidental Properties must disappear at this point. The distinction between essential versus accidental properties will likely be exposed as another aspect of dualist (or trialist etc.) bifurcation, trifurcation etc. Distinctions between essential and accidental properties will arise as artefacts of the classification system chosen by humans in each case and thus each such system’s paradigm and bounded concerns. However, I have not pursued this particular issue at depth yet.

    More to the point here, how could “priority complex relational systems monism” relate to your work? (I haven’t found anything better than that clumsy compound term and now understand why you invented “CasP’ as a term and a title.) I believe or hope I can still link it usefully to your work but I may well be deluding myself. Your methods are so sound theoretically and empirically that I may be like the scientific ingenue who observes excellent theoretical and scientific method (yours and others’), catalogues it and then claims to have deduced both methods from first principles. [1] I will see if I can post on the CasP blog again. It is rather tricky to access at times. I have something to say on these issue but they best go to the CasP blog.

    On the positive side, my long rumination about “priority complex relational systems monism” strongly primed me, I believe, to understand and accept much of your approach from the outset.

    [1] One can even see Francis Bacon a little unkindly like that, though it would be unfair as his systematization of (proto) scientific method crystalized and formalized the methods necessary. Karl Popper I view a little more unkindly as being like that. He claimed to have “solved” the problem of induction. I found a passage in Bacon where it was clear, to me at least, that Bacon had already “solved” the problem of induction insofar, and as far as, it could be solved. I have toi re-track that passage. I don’t keep good enough notebooks and records of my “uncoveries” (as they are not discoveries).

  5. Ikonoclast
    September 6, 2021 at 7:18 am

    Jonathan Nitzan (and Blair Fix),

    Further to my rather metaphysical second-round comments directly above, I can perhaps add some rather more concrete suggestions.

    I will start by defining “Systemic Fear” as fearful concerns by capitalists that the effective performance of the ritual of capitalization (for their assets) will be compromised by uncontrolled or uncontrollable events in or around the current standard and extant market operations of business as usual. I hope this definition is valid enough and serviceable.

    It seems to me then that increases in “Systemic Fear” (for whatever reasons) will then result in changes (differential changes) in business outlays on costs of business. We may even reasonably expect new and/or differentially larger outlays to go into novel or innovative fields for ensuring control of the ritual of capitalization. Thus in earlier times, say the times of the “Madmen” of Madison Avenue, advertising expanded in the relatively new medium of TV and utilized further innovative techniques. Perhaps the advertising spend became relatively bigger than other costs of doing business.

    In like manner, we now can see that regulatory capture and “politician capture” by donation and graft may well attract a differentially greater spend. The Superpac political donation process has been fully unleashed by the “Citizens United v. Federal Election Commission” judgement. This decision is misnamed of course and should have been termed the “Corporations United v. Federal Election Commission” decision.

    “Citizens United v. Federal Election Commission, 558 U.S. 310 (2010), was a landmark decision of the Supreme Court of the United States concerning the relationship between campaign finance and free speech. It was argued in 2009 and decided in 2010. The court held that the free speech clause of the First Amendment prohibits the government from restricting independent expenditures for political campaigns by corporations, including nonprofit corporations, labor unions, and other associations.” – Wikipedia.

    Where corporations and other large capitalists cannot dominate (increase differential profits) by the already standard methods of modern “competition”, like brainwashing by blanket advertising, by false or exaggerated advertising claims, by utilizing aspects of Veblenian sabotage already legal, by monopoly, oligopoly and hidden cartel behaviors etc., then they are pushed to ever more innovative methods. One could characterize these methods as not just finding loopholes in and gaming the current system but as changing the rules of the entire game system itself.

    This is where political donations and other monies for regulatory capture, manipulation and changing of the game come in. Finding proxies for this might be difficult or not. The misnamed Citizens United decision provides a new start point for analysis of this type but may not be broad enough or permit enough retrospective analysis of earlier periods. Perhaps the broader spend to chart as a percentage of total business cost outlays might be the combined spend on donations, lobbying and legals. This would be based on the tentative theory that after all other avenues of obtaining differential profit are exhausted in the sense of diminishing returns on investment, then the next most attractive avenues are regulatory capture, rule changing and legal contestation in spheres from all forms of legal adversarialism and obstructionism to litigation.

    There is a further potential field for discerning a rise in “Systemic Fear”, albeit this will be the systemic fear of the most innovative of new capitalists against the old and established capitalists: as a competition between capitals as Marx termed it, IIRC. The most innovative of new “financial capitalists” discerned that the established financial capitalists of the banks and merchant banks hadcaptured the processes not only of fiscal and monetary policy but they (the established financial capitalists) have innovated (themselves or by their proxies) Quantitative Easing and low or zero real interest rates for large established financial capitalists as the method by which they obtain the advantage of almost endless free loaned capital which is a superb method for generating asset inflation of held assets. One becomes assured of asset accumulation if one can rig the entire game in this way.

    When one can’t rig a game one must over-trump the game with a new game. The old game is fiat currency managed by monetarist prescriptions and then supercharged with Q.E. prescriptions. The dominant financial capitalists have monopoly control (by substantially capturing governments) over the prescriptions for fiat money creation and fiat money “easing”. The way to trump that game is to invent a new form of currency. That new form of currency is the cryptocurrency as a genre. The problem is to make the new form of currency “stick” as a medium of exchange or failing that simply to make it “stick” at first as a new form of speculation. For a time, speculation, mania (as in Tulip mania), pretensions to reliability, some new claimed or real forms of protection against inflation, deflation and devaluation, claimed or real support of contractual obligation enforcement (by block chain contracts) outside the minarchist state service in that arena and even attractiveness for black-market and anonymous translations can all serve as “feet in the door” to get the alternative cryptocurrency running at some level.

    The cryptocurrency challenge is perhaps now more serious than captured governments and their conventional corporate masters recognize. While some cryptocurrencies have failed or are failing (including possibly Bitcoin) because of high creation and transaction costs and the failure to support high transaction volumes, new cryptocurrency platforms like Solana may be overcoming a number of these problems. From the point of view of Marxian or even Veblenian theory, these new cryptocurrencies are still scams against workers as the fundamental and direct creators of value beyond the free gifts of nature. But the advanced cryptos are also “scams” or better still “escape variant capitalism” against existing dominant financial capital.

    With modern cryptocurrencies like Solana it appears possible in theory to create DAOs (Distributed Autonomous Organizations) as competitors for conventional finance and conventional corporations. Instead of shareholders, these DAOs have crypto holders or token holders who vote on proposals for using DAO “treasury” funds and for paying for salaries and contracted services etc. In a sense this could be, I emphasize “could be”, a radical new kind of business cooperative functioning as an autonomous workers’ collective cooperative, albeit only accessible and functional for tech-savy “worker-capitalists” as a potential new class. They will be all of workers, capitalists and collectively competitors against established corporate and oligarchic capitalists. Of course, if successful, the biggest individual players will be the “New Oligarchs”. This won’t necessarily turn into the fortuitous evolution of “distributed autonomous socialism”. In fact, my guess is that it won’t without a revolutionary vanguard trying to direct it that way. These young, tech-savy “worker-capitalist” geeks are not the least interested in ushering in a socialist worker utopia, though they do tend to believe they are ushering in a liberal anarchist or libertarian anarchist utopia of fully realized individualism.

    Thus the Systemic Fear of the most innovative of the new capitalists will express itself as the push to establish and extend the operation of cryptocurrencies, block chains and smart contract chains and to avoid holding fiat dollars, government bonds and even sometimes corporate bonds. Looking at these trends might (I emphasize might) expose some new phenomena arising in the capital system where capital itself is transmogrifying to a new form beyond government fiat. Sorry if this last is a bit hand-wavy. I am thinking and writing extempore here.

    The innovative “cryptocapitalists” want to limit their holdings in fiat currency (US dollars for example) and in fiat currency denominated bonds to as little as possible (just using fiat currency as a flow of “hot potatoes” with a minimal stock at any point in time) to limit their exposure to the sovereign risk, seigniorage risks and demurrage risks they see as inherent in fiat currencies whose operations they in turn see as captured by conventional (and thieving) corporations and/or subject to statist actions based on exigency, contingency, opportunism or caprice by supposedly democratic or openly authoritarian governments.

    Hope this provides some possibly usable ideas.

    • September 6, 2021 at 2:48 pm

      Ikonoclast, thank you for your very interesting suggestions (September 6, 2021 at 7:18 am).

      I agree that our Systemic Fear Index can benefit from additional corroboration, but I think that this corroboration is difficult to produce because capitalized power and systemic fear are entangled. I think you would agree that all the different processes you describe creorder the nature of capitalized power – but also that their existence per se tells us nothing about the systemic fear that might (or might not) drive them.

      The nice thing about our Systemic Fear Index is:

      (1) that it focuses directly and exclusively on the breakdown of the *forward-looking* nature of capitalization;

      (2) that the correlation between stock prices and recent earnings represents the believes and actions of *capitalists themselves*; and

      (3) that it deals specifically with the extent to which capitalists *lose faith* in their own, most basic ritual.

      Our final claim – namely that this loss of faith represents ‘systemic fear’ – can be debated. But we are yet to hear a reasonable, let alone better alternative.

  6. September 6, 2021 at 10:47 am

    Good to see Jonathan getting some feedback, but the relative length of the three contributions is interesting: 1, 16 and 274 lines (this last in four bites of which the shortest is 38 lines). Obviously we don’t all think in words, and for those of us who don’t naturally do so, the more difficult prolixity makes it to read between the lines and see the wood among the trees. Here I had to look up Solarno, only to discover it is still thinking in terms of fiat currency remaining the prerogative of the central banking system rather than ourselves, as we do when we use a credit card: accounted for, supervised automatically and advised on, in local banks that facilitate local trade rather than earth destroying mass production.

    [So now you have a fourth contribution, midway in length between the first and the second]!

  7. September 6, 2021 at 11:35 am

    Bravo Blair Fix! His short stories and graphs give us the best of both ways of thinking, even if he is exploring Jonathan’s argument rather than trying to resolve the underlying problem.

  8. Ikonoclast
    September 6, 2021 at 10:17 pm

    Blair Fix mentioned COVID-19 in his introduction and his “horror and amusement as health agencies around the world flip-flopped their advice on how to deal with COVID.” The course of the COVID-19 pandemic has revealed the true nature of neoliberal capitalism. This includes its misuse of production science and excess consumption. As an example, international travel often continued as the pandemic spread with international travel specifically the vector. At the same time there was complete denialism in relation to impact science. The impact of COVID-19 on people as morbidity and death was denied or minimized by politicians and ideologues. I too have felt horror and black amusement at what is happening. In some ways, we are reaching the ultimate in Veblenian sabotage in our catabolic collapse. The system that supported us now makes money out of killing us, indirectly and directly.

    Australia has flip-flopped. We initially had great success in suppressing COVID-19, no doubt partly due to our sheer luck in being an island continent far from the “madding crowds” of the northern hemisphere. We nearly eradicated the virus except for in our “quarantine hotels”. But we stayed open enough to the world to reimport COVID-19 again and again and finally as the Delta variant. Australia is now going to have a major COVID-19 wave disaster and maybe more than one wave. The latest figures at this point from the states of NSW and Victoria are terrible, by our so-far protected standards and indicate rapid, uncontrolled, exponential spread has initiated. This spread is running well ahead of our vaccination program, which will always be “leaky” anyway because of the leaky vaccines.

    This has occurred, as I know, because the neolberal governing elites of Australia;

    (1) refused to build proper quarantine stations;
    (2) refused to buy adequate vaccines early enough (penny-pinching);
    (3) refused to lock-down early and hard enough; and
    (4) finally gave up on suppression, real or pretended.

    A significant portion of the population has remained non-compliant. Compliance with lock-downs, quarantining and other measures has not been adequately enforced by the authorities. The red-neck, reactionary and selfishly individualistic portions of the population have grown too large in numbers and activity and too enabled by reactionary populist encouragement to be adequately educated and socialized (at short notice) or to be adequately guided or controlled to demonstrate sufficient community-based concern for others. This is all part of the social disintegration inherent in late stage neoliberal capitalism, as a social system, into entitled anarchy and a lack of community feeling and cooperation. A society which continues on this trajectory faces collapse at all levels and in all ways. That is to say, it faces a rapid or a protracted collapse without a radical, indeed a revolutionary, change in its values and direction.

    The neolberal governing elites have adopted a “live with covid” (really a “die with covid”) opening-up strategy at the behest of big and some small business and at the expense (measured in morbidity and deaths) of vulnerable groups and of specific worker groups, especially those who are medical, paramedical and other essential services. This is mass murder with deliberate aforethought and intent. People are slated to die to support the income balance sheets of big and (some) small businesses. This is how capitalism, especially late stage, neoliberal capitalism, works. Nothing is more important than the income of the rich elites and it must be kept flowing at all other costs, human and ecological.

    The reputable scientific modellers who are not “captured” (in the sense of funding and careerist capture) by neoliberalism, are finding across the board that the most likely trajectory of the New South Wales outbreak alone is to reach 5,000 cases a day (plus or minus about 2,000 cases a day) by late October to very early November. This is a quite different picture to the big lies being told by state Premier Gladys Berejiklian in particular. One of her big lies for a while has been that her state pandemic will peak in “two weeks”. This is wishful thinking and she has been saying this for two weeks already without running down the count.

    It is not impossible that the NSW outbreak daily cases count could peak in two weeks from now if one finally began the countdown from this point. However, on the trajectory and modelling (by “uncaptured” modellers) it looks highly unlikely to peak so soon. The numbers look likely to go to a peak where the hospital and care system will be completely overwhelmed. “Ramping” (patients stuck in ambulances and corridors because hospital beds are full) is already occurring at several NSW hospitals. NSW’s hospital system is already at breaking point. On every realistic measure and every realistic projection, a real Delta variant disaster approaches for under-vaccinated Australia.

    On a broader front, we can theorize what late stage neoliberal capitalism is really “up to”. It’s a case of “Veblenian sabotage” of the population at large. It goes further than the older practice that workers must die for capitalism (from overwork through to inadequate work health and safety measures) and that third world people, via colonialism and imperialism, must die for capitalists and the labor aristocracy in the first world. It goes to the issue the general public and consumers of the first world themselves must die for capitalism, meaning die for capital accumulation for the rich. This means dying from pollution and climate change but also now means dying from disease pandemics where the costs (to capital accumulation) of disease control and supression are avoided and the real costs are externalized from capital onto the people and consumer public themselves as excess morbidity and death rates.

    Big business issued an open letter calling for re-opening of the Australian economy. Within days the Federal Govt. adopted this policy. I have no doubt that American big business via their captured proxy, the US government, ordered Australia to reopen for business. We were setting a bad example of defeating the virus (like China I guess) even with imperfect quarantine and sometimes dilatory lock-downs. We couldn’t have that could we? It might have shown up the rest of the West for their sheer neoliberal incompetence.

  9. Ken Zimmerman
    September 10, 2021 at 2:03 am

    Questions about the distribution of wealth and power have formed the thematic core of the writings of some of America’s foremost historians and scholars of class in America. Charles Beard, who deeply influenced American history writing during the first half of the 20th century, became most famous for his economic interpretation of the Constitution. He argued that the nation’s founding document expressed the material interests of a dominant alliance of merchants, planters, and financial speculators. Despite the weightiness of his historical research, Beard was criticized as an economic reductionist, blind to the impact of culture and ideology; by World War II, many dismissed him as a cranky leftist because he clung to widely unpopular isolationist sentiments even after war broke out in Europe. Arthur Schlesinger, Jr., by contrast, was always strictly mainstream. His seminal writings on Jacksonian America and the New Deal explored these turning points in American political history as great struggles between propertied elites and the common working person. One of the founding fathers of American intellectual history, Vernon Parrington, deployed the Progressive Era’s fascination with concentrated wealth and its social reverberations to interpret the work of a diverse array of intellectuals, theologians, novelists, and essayists. Parrington depicted American thinkers locked in cerebral combat, wrestling with the forces of invidious social and material distinction and a contrary egalitarian impulse.

    Louis Hartz and Richard Hofstadter, also path breaking historians of liberal political culture, pushed their work in a different direction. They dedicated their work to the proposition that the kind of class antinomies characteristic of European society were stillborn in the New World. Their argument for the one-dimensional nature of American political life rested on what they concluded was a native universal preference for private property that tended to suffocate all outbreaks of more radical social and political experimentation. Outbreaks there were, however, and so Hofstadter, for example, was compelled to come to grips, at least within the American mind, of what he rebuked as the “paranoid imagination.” Hofstadter’s treatment of populism, and what he considered its post–World War II McCarthyite equivalents, acknowledged the salience, if not the palpable reality, of popular beliefs, whether paranoid or not, in the existence of ruling classes and their machinations.  David Potter, a contemporary of Hofstadter, wrote a prize-winning analysis of the coming of the Civil War that worked out the intricate interconnections between ideology, political disunion, and economic interests. His classic meditation People of Plenty wrestled, like Hofstadter’s work, with whether or not the amazing cornucopia of American economic resources and output could continue to function the way it had for generations, to control the friction of incipient class conflicts. The African American scholar and radical activist W. E. B. Du Bois authored a remarkable study of Reconstruction that captured the organic connection between racial and class exploitation and subordination and how these developments imprinted themselves on post–Civil War America.

    More historians of great accomplishment could be added to this gallery. But pondering the relationship between power and wealth in the United States has by no means been confined to trained historians. To be sure, many American intellectuals have not expended much effort on deciphering the internal social and cultural cohesion and external mechanisms of domination characteristic of ruling elites. No doubt they considered such explorations an arid exercise in a society famous for its social fluidity. But some of the country’s most original social thinkers thought otherwise. John Adams was ambivalent. He candidly voiced his doubts that the vox populi could be trusted to identify a truly honorable and meritorious elite dedicated to public service, so easily was it led astray by quacks, hypocrites, flatterers, and bald-faced knaves. Fearing the “tyranny of the majority,” Adams nonetheless accepted the revolutionary principle that the “people” were sovereign. But to abolish, as the French revolutionaries talked of doing, all distinctions of rank and order based on wealth, tradition, and family lineage struck him as a road to certain disaster. How to forge a workable balance? Allowing wealth alone to determine who reigned would encourage the most selfish instincts and weaken the impulse to win social distinction through nonpartisan public service. Yet there was no question in Adams’s mind that social stability would always require “that every man should know his place and be made to keep it.” At bottom he believed that “the great question will forever remain, who shall work?” The answer was obvious: most would, and they would envy that tiny privileged percentage of their “betters” who remained at leisure to think or govern. For this Founding Father and future president there was no escaping the historically inevitable: “The controversy between the rich and the poor, the laborious and the idle, the learned and the ignorant . . . will continue and rivalries will spring out of them. The art of good government consisted of striking the right balance of power between them, not in misguided attempts to do away with these intractable social divisions altogether.

    Jefferson, Madison, Hamilton, and other political thinkers of the revolutionary generation all understood, like Adams, that republican government was no foolproof preventative against conflict between popular forces and various elites—landed, commercial, and financial. Madison feared that economic power would one day try to seize political power, and he was convinced that the anti-republican party “was more partial to the opulent than to the other classes of society.” Much of the tumult that raised political temperatures during the 1790s pitted Jacobin levelers against moneyed aristocrats—or at least that is how the Hamiltonians and Jeffersonians maligned each other. The Adams family itself carried this intellectual tradition into the 19th century, albeit adjusted for the change in historical context. Charles Francis Adams, and the brothers Henry and Brooks, responded to the advent of industrialism and the rise of the corporation and financial capital with a pitiless critique of the new order. Irritable, harboring an inbred patrician disdain for the money game (and in Brooks’ case an intellectual grandiosity and Götterdämmerung pessimism), the Adamses nevertheless were discerning observers of what they viewed as a new ruling elite. Its power over the country’s basal economy, they warned, made these new corporate behemoths muscular enough to overwhelm the rickety institutions of democratic government.

    Plutocracy was a preoccupation of the Gilded Age. Some intellectuals, Yale professor William Graham Sumner most prominently, were fully prepared to deploy Darwinian thinking to naturalize and justify the emergence of this band of business tycoons. Thus, Sumner treated the titans’ stupendous wealth, social prestige, and political authority as proof of their fitness to survive and thrive in a social world subject to the same principle of natural selection that governed all life on earth.  Thorstein Veblen, by contrast, found this new ruling caste unfit. In a series of surgical dissections of the era’s plutocrats—most memorably in his 1899 Theory of the Leisure Class and a quarter-century later in Absentee Ownership—Veblen viewed them as an alarmed anthropologist might. He depicted them as an exotic atavism, aping the customs and mores of outmoded warrior cultures, consumed by insatiable cravings for invidious social and cultural distinctions. They were utterly out of touch with the forces of modern science and industry that made the modern world run. The “leisure class” possessed a toxic power. Rule they did, but at enormous social cost to the sensible processes of technological progress and general economic well-being. Moreover, their cultural influence was pernicious, since their practices of “pecuniary emulation,” in Veblen’s phrase, and status-seeking seeped downward, demoralizing those who looked up to them as exemplars.

    Quick-tempered, contrarian, and full of irrepressible disdain for conventional thinking, Veblen was a highly original and idiosyncratic thinker. But a wide array of writers and intellectuals shared his underlying conviction: that the country was more or less at the mercy of a tiny body of enormously wealthy men endowed with a supervening political influence earned without the benefit of public, democratic decision making. This same conviction animated the magazine exposés, political treatises, and utopian and dystopian novels written by Henry George, William Demarest Lloyd, Edward Bellamy, and Ignatius Donnelley during the Gilded Age. These writers were generally not practitioners of high theory like Veblen, but they captured the attention of broad audiences, for whom they articulated a creeping suspicion that something other than democracy had arisen and was threatening the land. During the 20th century, through the era of the Great Depression, jurists such as Louis Brandeis (the most prominent and indefatigable foe of “the money trust”), popular muckrakers like Charles Edward Russell and Upton Sinclair, and such novelists of the left as Jack London, Theodore Dreiser, and John Dos Passos continued to fire away at the hubris, appetite, and tyrannical instincts of Morgan, Harriman, Rockefeller, and other ruling oligarchs. When the old order finally fell apart in the Crash of ’29, intellectuals surveyed the damage and looked to the future. References to Ferdinand Lundberg’s voluminous America’s Sixty Families, which attempted to map the generational interconnections of the country’s ruling elite, found their way into FDR’s presidential addresses. Matthew Josephson published The Robber Barons at this time, coining an analytic rubric that seemed made to order to sum up the moral character of those oligarchs most blamed for the disaster of the Great Depression, even though Josephson’s book was a history of their 19th century predecessors.  And New Deal brain-truster Adolf Berle and Columbia University economist Gardiner Means produced a classic analysis of the usurpation of the economy by a clique of corporate insiders, recommending in its stead a more democratic management of industry and finance.

    Only after World War II did this long cultural tradition become less robust and begin to peter out, though not all at once. C. Wright Mills, like Veblen an anti-academic inside the academy, published The Power Elite in the mid-1950s, in which he traced the interlocking and cross-fertilization of military, industrial, and political hierarchies. The notion of a “ruling class” was already in bad odor in Cold War America, and Mills did not use that term. Not that he was afraid to, but he drew back from more rigid Marxist conceptions that seemed to him to imply greater coherence, more single-mindedness, and less contingency than his own more loosely configured “power elite.” Nonetheless, Mills argued passionately that a closed community of power-masters either formulated or influenced all the key decisions affecting the nation’s fate in war and peace as well as its critical economic choices. Most occupied non-elective political or civil positions and tended to have graduated from the same select circle of preparatory schools and Ivy League universities, to frequent the same social gathering places, and to swap offices with casual regularity.

    By Mills’ day, however, notions of a “power elite” or “ruling class” had fallen out of fashion. Some intellectuals, like Schlesinger, did allude to “the Establishment.” This was a more benign version of the “power elite,” allegedly composed of a self-effacing group of international financiers who had created the Marshall Plan, the International Monetary Fund, the World Bank, NATO, and the democratic, anticommunist reconstruction of war-torn Europe. Even those willing to take the idea of an Establishment seriously, however, were more impressed with its wisdom, its prudence, and its apparent lack of self-interested motivation than with its aloofness and immunity from public accountability.

    Moreover, the dominant intellectuals of the postwar era—including Daniel Bell, David Riesman, Robert Dahl, and others—did not recognize even this degree of hierarchy. They celebrated instead the classlessness, or homogeneous middle-classness, of American society. In this pluralist idyll no social interest lorded it over all others, but rather each contended for influence with a dozen other well-organized power blocs, arriving at rolling compromises that left authority in a permanent state of flux. Bell declared this historical moment the “end of ideology,” meaning that the old categories of a suppressed proletariat and a domineering bourgeoisie no longer had any traction in the postwar world, at least in the United States. America was simply too decentralized a society to support anything as centripetal and enduring as a “ruling class.” A whole new academic cross-discipline, American Studies, was invented to explore a national experience that had managed to elude the rigid hierarchies and maldistributions of power typical of other industrial societies. It’s of some interest to note that today that situation is reversed.

    The downfall of the Establishment during the tragic debacle in Vietnam reignited passionate inquiries into the uses and abuses of power, past and present. New histories appeared, treating the social and economic fissures in colonial America, the internal class dynamics of the American Revolution, the political economy and cultural coherence of the “slave power,” the “non-paranoid” resistance to the advent of corporate capitalism. Thus, notwithstanding the triumph of the postwar consensus, a once honored counter tradition lived on in the writings of Eugene Genovese, Eric Foner, William Domhoff, Michael Harrington, Noam Chomsky, Barbara Ehrenreich, Kevin Phillips, and others. Genovese, for example, produced a revolution in southern historiography with his meticulous re-creation of the political economy and cultural identity of the slave-owning “master class.” Foner, another historian of the generation following Potter and Hofstadter, argued that a main engine driving the new Republican Party’s (post-Civil War) determination to keep slavery out of the western territories, even if that meant civil war, was the deep anxiety that opportunities for landed independence were vanishing. Without free land, Republicans asserted, class divisions would harden and make America like the Old World. Foner’s subsequent monumental work on Reconstruction traced the conversion of that Republican Party into a vehicle of national rule for the rising industrial bourgeoisie.

    In the wake of the conservative intellectual ascendancy that accompanied the rise of Ronald Reagan, however, what had once been a main current of the country’s historiography became little more than a tributary. It is true that plenty of books have appeared over the last decade or so revisiting and reframing earlier accounts of the lives of legendary business titans such as Morgan, Rockefeller, Gould, and Harriman.

    But nearly without exception they steer clear of treating these figures as emblematic of some ruling elite. Nowadays, it may seem old-fashioned, against the American grain, or even subversive (see President George W. Bush’s warning that to criticize his tax cuts for the wealthy was to indulge in “class warfare”) to talk about classes, about the struggles between them, about something as exotic and alien as a ruling elite. But it is not. The corpus of thinking about hierarchy and democracy that extends all the way back to the days of John Adams has left behind a series of questions still worth pondering. Including the variety of economic elites that have ruled, or attempted to rule, the nation. The different ways in which elites have constituted their political, ideological, and social worlds; and the internal fissures and external challenges that have threatened and sometimes undermined those worlds. And the special problems facing elite pretensions to political power in a democracy. It’s also important to look at  instability and change as integral features of elite rule in America. In particular, we need to examine the etiology of power, wealth, and the wealth relationship to power. Both currently and historically. With small forecasts for the future.

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