by Shimshon Bichler and Jonathan Nitzan / November 22nd, 2013
Economic, financial and social commentators from all directions
and of all persuasions are obsessed with the prospect of recovery. The
world remains mired in a deep, prolonged crisis, and the key question
seems to be how to get out of it.
There is, however, a prior question that few if any bother to ask: Do capitalists want a recovery in the first place? Can they afford it?
On the face of it, the question sounds silly: of course capitalists
want a recovery; how else can they prosper? According to the textbooks,
both mainstream and heterodox, capital accumulation and economic growth
are two sides of the same process. Accumulation generates growth and
growth fuels accumulation, so it seems bootless to ask whether
capitalists want growth. Growth is their lifeline, and the more of it,
the better it is.
Or is it?
Accumulation of What?
The answer depends on what we mean by capital accumulation. The
common view of this process is deeply utilitarian. Capitalists, we are
told, seek to maximize their so-called ‘real wealth’: they try to
accumulate as many machines, structures, inventories and intellectual
property rights as they can. And the reason, supposedly, is
straightforward. Capitalists are hedonic creatures. Like every other
‘economic agent’, their ultimate goal is to maximize their utility from
consumption. This hedonic quest is best served by economic growth: more
output enables more consumption; the faster the expansion of the
economy, the more rapid the accumulation of ‘real’ capital; and the
larger the capital stock, the greater the utility from its eventual
consumption. Utility-seeking capitalists should therefore love booms and
But that is not how real capitalists operate.
The ultimate goal of modern capitalists – and perhaps of all
capitalists since the very beginning of their system – is not utility,
but power. They are driven not to maximize hedonic pleasure, but to
‘beat the average’. This aim is not a subjective preference. It is a
rigid rule, dictated and enforced by the conflictual nature of the
capitalist mode of power. Capitalism pits capitalists against other
groups in society, as well as against each other. And in this
multifaceted struggle for power, the yardstick is always relative.
Capitalists are compelled and conditioned to accumulate differentially
, to augment not their absolute utility but their earnings relative to others
. They seek not to perform but to out-perform, and outperformance means re
Capitalists who beat the average redistribute income and assets in
their favour; this redistribution raises their share of the total; and a
larger share of the total means greater power stacked against others.
Shifting the research focus from utility to power has far-reaching
consequences. Most importantly, it means that capitalist performance
should be gauged not in absolute terms of ‘real’ consumption and
production, but in financial-pecuniary terms of relative income and
asset shares. And as we move from the materialist realm of hedonic
pleasure to the differential process of conflict and power, the notion
that capitalists love growth and yearn for recovery is no longer self
The accumulation of capital as power can be analyzed at many
different levels. The most aggregate of these levels is the overall
distribution of income between capitalists and other groups in society.
In order to increase their power, approximated by their income share,
capitalists have to strategically sabotage the rest of society. And one
of their key weapons in this struggle is unemployment.
The effect of unemployment on distribution is not obvious, at least
not at first sight. Rising unemployment, insofar as it lowers the
absolute (‘real’) level of activity, tends to hurt capitalists and
employees alike. But the impact on money prices and wages can be highly
differential, and this differential can move either way. If unemployment
causes the price/wage ratio to decline, capitalists will fall behind in
the redistributional struggle, and this retreat is sure to make them
impatient for recovery. But if the opposite turns out to be the case –
that is, if unemployment helps raise the price/wage ratio – capitalists
would have good reason to love crisis and indulge in stagnation.
So which of these two scenarios pans out in practice? Do stagnation
and crisis increase capitalist power? Does unemployment help capitalists
raise their distributive share? Or is it the other way around?
Unemployment and the Capitalist Income Share
Figures 1 and 2 examine this process in the United States, showing
the relationship between the share of capital in domestic income and the
rate of unemployment since the 1930s. The top panel of Figure 1
displays the levels of the two variables, both smoothed as 5-year moving
averages. The solid line, plotted against the left log scale, depicts
pre-tax profit and net interest as a percent of domestic income. The
dotted line, plotted against the right log scale, exhibits the rate of
unemployment as a share of the labour force. Note that the unemployment
series is lagged three years, meaning that every observation shows the
situation prevailing three years earlier. The bottom panel displays
their respective annual rates of change of the two top variables,
beginning in 1940.
The same relationship is shown, somewhat differently, in Figure 2.
This chart displays the same variables, but instead of plotting them
against time, it plots them against each other. The capitalist share of
domestic income is shown on the vertical axis, while the rate of
unemployment three years earlier is shown on the horizontal axis (for a
different examination of this relationship, including its theoretical
and historical nonlinearities, see Nitzan and Bichler 2009: 236-239,
particularly Figures 12.1 and 12.2).
Now, readers conditioned by the prevailing dogma would expect the two
variables to be inversely correlated. The economic consensus is that
the capitalist income share in the advanced countries is pro
Expressed in simple words, this belief means that capitalists should
see their share of income rise in the boom when unemployment falls and
decline in the bust when unemployment rises.
But that is not what has happened in the United States. According to
Figures 1 and 2, during the post-war era, the U.S. capitalist income
share has moved countercyclically, rising in downturns and falling in
The relationship between the two series in the charts is clearly
positive and very tight. Regressing the capitalist share of domestic
income against the rate of unemployment three years earlier, we find
that for every 1 per cent increase in unemployment, there is 0.8 per
cent increase in the capitalist share of domestic income three years
later (see the straight OLS regression line going through the
observations in Figure 2). The R-squared of the regression indicates
that, between 1947 and 2012, changes in the unemployment rate accounted
for 82 per cent of the squared variations of capitalist income three
The remarkable thing about this positive correlation is that it holds
not only over the short-term business cycle, but also in the long term.
During the booming 1940s, when unemployment was very low, capitalists
appropriated a relatively small share of domestic income. But as the
boom fizzled, growth decelerated and stagnation started to creep in, the
share of capital began to trend upward. The peak power of capital,
measured by its overall income share, was recorded in the early 1990s,
when unemployment was at post-war highs. The neoliberal globalization
that followed brought lower unemployment and a smaller capital share,
but not for long. In the late 2000s, the trend reversed again, with
unemployment soaring and the distributive share of capital rising in
The empirical patterns shown in Figures 1 and 2 seem consistent with
theories of underconsumption, particularly those associated with the
Monopoly Capital School. According to these theories, the oligopolistic
structure of modern capitalism is marked by a growing ‘degree of
monopoly’. The increasing degree of monopoly, they argue, mirrors the
redistribution of income from labour to capital. Upward redistribution,
they continue, breeds underconsumption. And underconsumption, they
claim, leads to stagnation and crisis. The observed positive correlation
between the U.S. capitalist share of income and the country’s
unemployment rate, they would conclude, is only to be expected.
There is, however, a foundational difference between the
underconsumptionist view and the claims made in this research note. In
our opinion, the end goal of capitalists is the augmentation of power.
This goal is pursued through strategic sabotage and is achieved when
capitalists manage to redistribute income and assets in their favour.
The underconsumptionists, by contrast, share with mainstream economists
the belief that capitalists are driven to maximize their ‘real’ capital
stock. From this latter perspective, favourable redistribution is, in
fact, detrimental to capitalist interests: the higher the
capitalist income share, the stronger the tendency toward
underconsumption and stagnation; and the more severe the stagnation, the
greater the likelihood of capitalists suffering a ‘real’ accumulation
Employment Growth and the Top 1%
The power of capitalists can also be examined from the viewpoint of
the infamous ‘Top 1%’. This group comprises the country’s highest income
earners. It includes a variety of formal occupations, from managers and
executives, to lawyers and doctors, to entertainers, sports stars and
media operators, among others,
but most of its income is derived directly or indirectly from capital.
The Top 1% features mostly in ‘social’ critiques of capitalism,
echoing the conventional belief that accumulation is an ‘economic’
process of production and that the distribution of income is merely a
derivative of that process.
This belief, though, puts the world on its head.
Distribution is not a
corollary of accumulation, but its very essence. And as it turns out,
in the United States, the distributional gains of the Top 1% have been
boosted not by growth, but by stagnation.
Figure 3 shows the century-long relationship between the income share
of the Top 1% of the U.S. population and the annual growth rate of U.S.
employment (with both series smoothed as 10-year moving averages).
The overall relationship is clearly negative. When stagnation sets in
and employment growth decelerates, the income share of the Top 1%
– and vice versa during a long-term boom
(reversing the causal link, we get the generalized underonsumptionist
view, with rising overall inequality breeding stagnation – see Box 1).
Historically, this negative relationship shows three distinct
periods, indicated by the dashed, freely drawn line going through the
employment growth series. The first period, from the turn of the century
till the 1930s, is the so-called Gilded Age. Income inequality is
rising and employment growth is plummeting.
The second period, from the Great Depression till the early 1980s, is
marked by the Keynesian welfare-warfare state. Higher taxation and
spending make distribution more equal, while employment growth
accelerates. Note the massive acceleration of employment growth during
the Second World War and its subsequent deceleration bought by post-war
demobilization. Obviously these dramatic movements were unrelated to
income inequality, but they did not alter the series’ overall upward
The third period, from the early 1980s to the present, is marked by
neoliberalism. In this period, monetarism assumes the commanding
heights, inequality starts to soar and employment growth plummets. The
current rate of employment growth hovers around zero while the Top 1%
appropriates 20 per cent of all income – similar to the numbers recorded
during Great Depression.
How Capitalists Learned to Stop Worrying and Love the Crisis
If we follow the conventional macroeconomic creed, whether mainstream
or heterodox, U.S. capitalism is in bad shape. For nearly half a
century, the country has watched economic growth and ‘real’ accumulation
decelerate in tandem – so much so that that both measures now are
pretty much at a standstill.
To make a bad situation worse, policy attempts to ‘get the economy
going’ seem to have run out of fiscal and monetary ammunition.
Finally, and perhaps most ominously, many policymakers now openly admit to be ‘flying blind when steering their economies.’
And yet U.S. capitalists seem blasé about the crisis. Instead of
being terrified by zero growth and a stationary capital stock, they are
obsessed with ‘excessive’ deficits, ‘unsustainable debt’ and the
‘inflationary consequences’ of the Fed’s so-called quantitative easing.
Few capitalists if any call on their government to lower unemployment
and create more jobs, let alone to rethink the entire model of economic
The evidence in this research note serves to explain this nonchalant attitude: Simply put, U.S. capitalists are not worried about the crisis; they love it.
Redistribution, by definition, is a zero-sum game: the relative gains
of one group are the relative losses of others. However, in capitalism,
the end goals of those struggling to redistribute income and assets can
differ greatly. Workers, the self-employed and those who are out of
work seek to increase their share in order to augment their well being
. Capitalists, by contrast, fight for power
Contrary to other groups in society, capitalists are indifferent to
‘real’ magnitudes. Driven by power, they gauge their success not in
absolute units of utility, but in differential pecuniary terms, relative
to others. Moreover – and crucially – their differential
performance-read-power depends on the extent to which they can
strategically sabotage the very groups they seek to outperform.
In this way, rising unemployment – which hammers the well-being of
workers, unincorporated businesses and the unemployed – serves to boost
the overall income share of capitalists. And as employment growth
decelerates, the income share of the Top 1% – which includes the
capitalists as well as their protective power belt – soars. Under these
circumstances, what reason do capitalists have to ‘get the economy
going’? Why worry about rising unemployment and zero job growth when
these very processes serve to boost their income-share-read-power?
The process, of course, is not open-ended. There is a certain limit,
or asymptote, beyond which further increases in capitalist power are
bound to create a backlash that might destabilize the entire system.
Capitalists, though, are largely blind to this asymptote. Their power
drive conditions and compels them to sustain and increase their sabotage
in their quest for an ever-rising distributive share. Like other ruling
classes in history, they are likely to realize they have reached the
asymptote only when it is already too late.
For our full paper on the subject, see: Shimshon Bichler and Jonathan
Nitzan, ‘Can Capitalist Afford Recovery? Economic Policy When Capital
is Power’, Working Papers on Capital as Power
, No. 2013/01, October 2013, 1‑36.
Research for this paper was partly supported by the SSHRC.
"The ultimate goal of modern capitalists – and perhaps of all capitalists since the very beginning of their system – is not utility, but power. They are driven not to maximize hedonic pleasure, but to ‘beat the average’. This aim is not a subjective preference. It is a rigid rule, dictated and enforced by the conflictual nature of the capitalist mode of power. Capitalism pits capitalists against other groups in society, as well as against each other."ReplyDelete
"The evidence in this research note serves to explain this nonchalant attitude: Simply put, U.S. capitalists are not worried about the crisis; they love it.
"Redistribution, by definition, is a zero-sum game: the relative gains of one group are the relative losses of others. However, in capitalism, the end goals of those struggling to redistribute income and assets can differ greatly. Workers, the self-employed and those who are out of work seek to increase their share in order to augment their well being. Capitalists, by contrast, fight for power.
"In this way, rising unemployment – which hammers the well-being of workers, unincorporated businesses and the unemployed – serves to boost the overall income share of capitalists. And as employment growth decelerates, the income share of the Top 1% – which includes the capitalists as well as their protective power belt – soars. Under these circumstances, what reason do capitalists have to ‘get the economy going’? Why worry about rising unemployment and zero job growth when these very processes serve to boost their income-share-read-power?"
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