Supply and Demand Deconstructed

Exciting news! Capital as Power — the seminal text written by Jonathan Nitzan and Shimshon Bichler — is now available for free as both an epub and online book. Full disclosure: the typesetter was yours truly.

What’s Capital as Power? And why did I make a free ebook version? Read on to find out.

You must unlearn what you have learned1

I don’t talk much on this blog about my personal journey. That’s mostly because I’m not interested in telling it. I find it annoying when scientists weave personal stories into the exposition of their ideas. In this regard, I’m probably odd. Scientists that tell good stories tend to win Pulitzer Prizes. So apparently many people (or at least literary critics) like their science in story form. With that in mind, here’s the story of why I typeset Capital as Power as an ebook.

The story starts about a decade ago. At the time, I was an amateur political economist looking for good ideas. I was interested in peak oil and climate change, but also in income inequality. I knew neoclassical economics was bullshit (I’d read Steve Keen’s Debunking Economics). But what about the other big canon of political economy — Marxism? I’d read Marx’s Capital and was impressed by his historical accounts. But his theory seemed tenuous. He simply assumed (without evidence) that labor created all value.

These problems, however, didn’t keep me up at night. My main job at the time was learning physics. (I was trying to become a physics teacher.) But that would eventually change. A few years later, I found myself in grad school studying political economy. It was then that I discovered Capital as Power.

My route of discovery is worth telling, because it highlights the importance of peer feedback. In the spring of 2012, I wrote a paper called The Thermodynamics of Neoliberalism. In it, I tried to connect trends in energy use to the emergence of neoliberal politics. In hindsight, there isn’t much in this paper worth keeping. The title is pretentious, and the ideas are vague. But that’s actually why the paper is important.

I sent the paper to biophysical economist Charlie Hall, hoping he’d give me feedback. And he did. In fact, he tore the paper to shreds. Importantly, he pointed out that I was using the phrase ‘capital accumulation’ constantly. But I’d never bothered to define ‘capital’.

At first, I was annoyed by Charlie’s feedback. But after a few days, I realized that he had a good point. I’d adopted a habit that’s rife in political economy — especially among leftists. I spoke ubiquitously about ‘capital accumulation’. But I had no idea what was being accumulated.

And so I turned to the internet. Into the search bar I put something like ‘critical theories of capital’. In the results a title caught my eye: Capital as Power. Interesting name, I thought. So I read the book. With that fateful click, my scientific journey was forever changed. The book upended almost everything I thought I knew about economics.

The thesis in Capital as Power is simple: economists don’t understand ‘capital’. Here’s the problem. In both neoclassical and Marxist theory, capital is supposed to have two sides. On the one side is money. On the other side is so-called ‘capital goods’. The two sides are suppose to be connected. In neoclassical economics, the value of capital goods is supposed to be proportional to their ability to create ‘utility’. In Marxist theory, the value of capital goods is supposed to be proportional to the embodied labor time.

If you read political economy, you’ll find that this capital duality is everywhere. Almost everyone accepts it, at least implicitly. But in Capital as Power, Nitzan and Bichler show that this duality is untenable. The reason is simple: there’s no way to connect the quantity of capital goods to financial capital. Why? Because the units of the conversion — utility in neoclassical theory and socially-necessary abstract labor time in Marxist theory — don’t exist!

To me, this realization was jaw dropping. But there was more. That’s because Capital as Power is really two books. The first half is a devastating takedown of existing theories of capital. This criticism alone would make the book standout. But the second half makes the book a classic. After tearing neoclassical and Marxist theory to shreds, Nitzan and Bichler build their own theory of capital. Capital as power.

Here’s their theory in a nutshell. Capital, they argue, isn’t a thing. It’s a ritual — the ritual of capitalization. Start with property rights. In capitalist societies, property owners are entitled to earn income from their property. They then take this income stream and capitalize it — meaning give it a present value. So ‘capital’ is the ritual conversion between an income stream and a stock of wealth.

The key, though, is what lies under this conversion. Property rights. For centuries, political economists have tried to connect the value of capital to what is owned. But Nitzan and Bichler think this is a mistake. The value of capital, they argue, stems from the act of ownership — the exclusionary act of power. So capital is a quantification of owners’ power. Capital is power.

What are the chances?

Reading Capital as Power blew my mind. But here’s the crazy thing. When I finished the book, I realized that one of the authors — Jonathan Nitzan — taught at York University. Not only was that in Toronto, where I lived. York University was where I was doing my masters degree. Nitzan’s office was literally steps from where I studied.

So in the fall of 2012, I took Jonathan’s course called Global Capital. I loved it for two reasons. First, the content was fascinating. Second, Jonathan’s research philosophy struck a chord. He was adamant that science had to be empirical. Yes, in physics there could be a separation of labor between theory and experiment. But in political economy, there was no such luxury. If you wanted to understand the world (as a political economist), you had to roll up your sleeves and find the evidence yourself.

So not only did Capital as Power shape how I view the world, studying with Jonathan Nitzan made me the researcher that I am.

A foray into publishing

Fast forward to a few months ago. My foray into publishing began with a tweet from fellow economic heretic D.T. Cochrane:

In the ensuing Twitter thread, the Cambridge capital controversy came up. The Cambridge controversy was a debate in the 1950s and 1960s about the nature of capital. Economists Joan Robinson and Piero Sraffa (of Cambridge, UK) showed that the stock of capital goods couldn’t be measured objectively. This threw a wrench in the neoclassical theory of capital (defended by Paul Samuelson and Robert Solow of Cambridge, Massachusetts).

Back to Twitter. Evonomics publisher Steve Roth entered the thread. On the Cambridge controversy, Roth observed:

What’s the relationship between real capital and monetary wealth? Such a great question — one that I had struggled to answer. I responded:

That would have been the end of it, except later that day Steve asked:

Unfortunately, there wasn’t a free ebook version of Capital as Power. Some back story. When Nitzan and Bichler wrote the book, they negotiated (with Routledge) to have the PDF version become Creative Commons after a year. So in the spirit of open science, the PDF of Capital as Power has been free for a decade. But not so the epub version. It remained under the publisher’s paywall.

That’s where I come in. Capital as Power fundamentally changed how I see the world. I wanted other people to have the same experience. Added to this fact is that, for some time, I’ve wanted to learn how to make an ebook. So here was the chance to do two things at once: learn a new skill and make a great book freely available in a new format. And so over the last few months, I worked to convert Capital as Power into a free epub and html version. The results are now up at the Bichler & Nitzan Archives.

(Full disclosure: Jonathan Nitzan was generous enough to pay me for my time.)

The tools

I’m an ardent supporter of open source software. Regular readers will know that I use R for most of my empirical analysis. Well, it turns out that you can now use R for publishing. Software engineer Yihui Xie has created a package called bookdown that is a major leap forward in open source publishing.

Bookdown lets you write in a simple markup language called Markdown. What’s important is that from one source document, bookdown lets you export multiple formats. You can create an online book, an epub and a PDF all in one go. The results out of the box are beautiful. But if you’re fussy (like me), everything is easy to tweak.

What this means is that authors essentially have no need of publishers. You can easily make electronic books that are as good (if not better) than what a publisher would create. This is especially important in academic publishing, where publishers charge exorbitant prices for pay-walled material. I firmly believe that all scientific knowledge should be open access. Bookdown makes this easy to accomplish.

Once you’ve created an ebook, you can host it for free on GitHub. That’s where I’ve hosted the html version of Capital as Power (below). And GitHub is where I plan to host future books when I write them.

[If you’re interested, the source code for the Capital as Power ebook lives here.]

Read Capital as Power

Back to Capital as Power. Some books make a splash when they’re published but are soon forgotten. Other books land with little fanfare, but become more important with time. Capital as Power is the second kind of book.

Although written eloquently, Capital as Power was never designed to be a bestseller. It’s far too thorough for that. In taking down existing theories of capital, Nitzan and Bichler leave no stone unturned. They mount a 150-page assault on ideas that most political economists hold dear. This devastating critique is absolutely necessary, but it comes with a cost. It means that readers who are primarly interested in Nitzan and Bichler’s own ideas about capital have to wait until the middle of the book.

With that in mind, here’s my recommendation. If you’re interested in what’s wrong with neoclassical and Marxist theory, read Capital as Power from the beginning. But if you’re already skeptical of these theories, and just want Nitzan and Bichler’s new approach, start with Chapter 9, Capitalization: a brief anthropology. It’s from here onward that Nitzan and Bichler lay out the ritual of capitalization and build their theory of capital as power.

Today, as wages stagnate and stock markets sore, it’s more important than ever to understand the nature of capital. On that front, Capital as Power is destined to become a classic. It questions the foundations of political economy, and dares to take the field in a new direction. It surely belongs with Marx’s Capital in its breathtaking scope. The difference, however, is that Nitzan and Bichler are scientists to the core — adamant that they neither need nor want an army of admirers. Unlike Marx, Nitzan and Bichler don’t connect their research to any particular political goal. In these hyper-partisan times, that makes their theory less palatable . But it does one big thing. It keeps things scientific.

Capital as Power contains no easy solutions for how to make the world a better place. Instead, it lays out a framework for how to understand capitalism. Like everything in science, that framework is unfinished. So read Capital as Power and have your worldview turned upside down. Then get on with the project of building a better theory of capitalism.

Support this blog

Economics from the Top Down is where I share my ideas for how to create a better economics. If you liked this post, consider becoming a patron. You’ll help me continue my research, and continue to share it with readers like you.


Stay updated

Sign up to get email updates from this blog.

This work is licensed under a Creative Commons Attribution 4.0 License. You can use/share it anyway you want, provided you attribute it to me (Blair Fix) and link to Economics from the Top Down.


  1. Yes I’m quoting Yoda.


  1. Blair,

    It’s not prices that need regulation. That would be a disaster. It’s competition that needs to be regulated (which is what I think Nitzan/Bichler are really saying). I did a writeup some time ago that illustrated why pure capitalism is unworkable from an entrepreneur’s viewpoint.

    I’m biased toward small-business capitalism. I’ve seen no other viable alternative. Big business offers greater efficiency but at a cost of greater corruption & lower innovation. In any event, the path to a better society appears to be much more political/legal than economic.

    Liked by 1 person

    • Hi Ed,

      Regarding price control, it’s not something that Nitzan and Bichler discuss (to my knowledge). They’re not particularly interested in policy. How you regulate inflation, of course, is a matter of debate. But in concentrated industries (like pharmaceuticals) I think price controls are a good option. The other option (as you suggest) is to break up monopolistic firms. Alternatively, you can put them under public control. Doing so would (indirectly) regulate prices.

      Yes, I agree that the roots of many of our problems are political and legal, an idea that dates at least to John Commons:

      Liked by 1 person

  2. I’m pretty sure the reply/reaction the neoclassical people are going to give is repeating what Milton Friedman says in the essay of his that they love “The Methodology of Positive Economics” and his so-called “F-Twist”: that assumptions don’t need to be “realistic”; they just need to make substantive predictions.

    Steve Keen cites the philosopher Alan Musgrave’s 1981 article critiquing Friedman: “Unreal Assumptions’ in Economic Theory: The F-Twist Untwisted” , but I’m sure there are more recent and extensive critiques, but it’s a good article.

    I recommend the work of John B. Davis on economic methodology, in particular:

    ‘The Theory Of The Individual In Economics: Identity And Value’ by John B. Davis.

    ‘Individuals and Identity in Economics’ by John B. Davis.

    Gerd Gigerenzer’s work on heuristics.

    If you’re interested in the philosophy of science, I recommend Michael Weisberg’s “Simulation and Similarity Using Models to Understand the World”.

    Liked by 1 person

  3. Nice piece! Another very important direction to go in is Sanjukta Paul’s arguments about coordination rights and the “firm exemption” from anti-trust law. That is, the reason that firms can set prices is because the government allows them to, whereas it denies pricing and coordination rights to other sorts of associations of people. This means that the government is always constitutive of the price structure: it explicitly allows some groups and not others to administer prices!

    Policy-wise, I think there are 3 classes of approach: 1) influence the conditions that price administrators face (this is conventional fiscal and monetary policy, as well as some forms of regulation like credit controls and permiting), 2) tell the price administrators directly what to do (price/wage/rent controls, incomes policies, etc), and 3) change who the price administrators are by redistributing coordination rights.

    Probably we need to do all three.

    Liked by 1 person

  4. Frederic S Lee who edited that Gardiner C. Means book (and who collaborated with Keen) has also written one of the most important books on this subject.

    “Post Keynesian Price Theory”:

    You can also find some good stuff in Ajit Sinha’s “Theories of Value from Adam Smith to Piero Sraffa”, his take on price is very interesting.

    Liked by 1 person

  5. […] Means’ work remains a master lesson in how economics should be done. To understand prices (and their relation to production), Means looked at the real world. Sadly, neoclassical economists do the opposite. They proclaim that prices are set by the free market. Then they shrug off contradictory evidence (like Means’) as an ‘exogenous shock’. To paraphrase an old saying, history becomes ‘one damned exogenous shock after another’.1 […]


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s