The extreme of ancien regime penality was the dismemberment of the convict's body: the ideal position of modern penality is the indefinite examination. It is no surprise that the cellular, observational prison is the modern penal instrument, or that prisons resemble factories, schools and hospitals.
In many ways, this is the heart of the book. For Foucault, the panopticon represents the way in which discipline and punishment work in modern society. It is a diagram of power in action because by looking at a plan of the panopticon, one realizes how the processes of observation and examination operate.
The panopticon is introduced through a contrast, a typical Foucault device (think of the contrast between the execution and the timetable). The plague is an interesting case, however. Firstly, Foucault examines a text about plague measures, rather than an account of an actual plague. To him, this is unimportant because texts and reality interact closely. One might ask why the plague acted as an image against which the mechanisms of discipline were defined. It was not because the plague represents a loss of order: the restoration of order was the aim of rituals such as the public execution. Rather, it was because when plague strikes, the boundaries of normal and abnormal are blurred. Anyone can become sick, and therefore abnormal; and what is abnormal is particularly dangerous in this case.
In focusing on the panopticon, Foucault adopts it as a symbol of his whole argument. The theory of discipline in which everyone is observed and analyzed is embodied in a building that makes these operations easy to perform. The panopticon develops out of the need for surveillance shown in the plague. Plague measures were needed to protect society: the panopticon allows power to operate efficiently. It is a functional, permanent structure. The transition from one to another represents the move to a society in which discipline is based on observation and examination. The disciplinary society is not necessarily one with a panopticon in every street: it is one where the state controls such methods of coercion and operates them throughout society. The development of a disciplinary society involves socio-economic factors, particularly population increase and economic development.
Foucault argues that more sophisticated societies offer greater opportunities for control and observation. This explains the reference to liberty and rights. Foucault assumes that modern society is based on the idea that all citizens are free and entitled to make certain demands on the state: this ideology developed in the eighteenth century, along with the techniques of control he describes. Foucault is not against such political ideals: he merely argues that they cannot be understood without the mechanisms that also control and examine the citizen. This examination spreads throughout society. Schools, factories, hospitals and prisons resemble each other, not just because they look similar, but because they examine pupils, workers, patients and prisoners, classify them as individuals and try to make them conform to the "norm". The fact that the modern citizen spends much of his life in at least some of these institutions reveals how far society has changed.