[P2P-F] Fw: Enigma of Capital

[Michel Bauwens]

Indeed a nice review article,

Michel

On Thu, Feb 3, 2011 at 2:59 PM, Thomas Greco <thg at mindspring.com> wrote:

>  This article is well worth reading. It gets at some crucial factors in the
> boom-bust cycle, citing several important sources, including Marx, Keynes,
> Roubini, etc..
>
> Oddly, he fails to mention the money monopoly and the creation of
> debt-money at compound interest as the driving force, without which
> the bubble-bust cycle and the class division based on capital ownership
> could not continue.
>
> Tom
>
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> *Subject:*
>
>  How Much Is Too Much? Benjamin Kunkel
>
> ·                                 *The Enigma of Capital: And the Crises
> of Capitalism* by David Harvey
> Profile, 296 pp, £14.99, April 2010, ISBN 978 1 84668 308 4
>
> ·                                 *A Companion to Marx’s ‘Capital’* by
> David Harvey
> Verso, 368 pp, £10.99, March 2010, ISBN 978 1 84467 359 9
>
>
> <http://ads.lrb.co.uk/www/delivery/ck.php?oaparams=2__bannerid=36__zoneid=9__source=%2F8%2FBRAND%2FIN%2FRW%2F__cb=74396bacc9__oadest=http%3A%2F%2Fwww.lrb.co.uk%2FHedFba01GL>
>
> The deepest economic crisis in eighty years prompted a shallow revival of
> Marxism. During the panicky period between the failure of Lehman Brothers
> in September 2008 and the official end of the American recession in the
> summer of 2009, several mainstream journals, displaying a less than sincere
> mixture of broadmindedness and chagrin, hailed Marx as a neglected seer of
> capitalist crisis. The trendspotting *Foreign Policy* led the way, with a
> cover story on Marx for its Next Big Thing issue, enticing readers with a
> promise of star treatment: ‘Lights. Camera. Action. *Das Kapital*. Now.’
>
> Though written by a socialist, Leo Panitch, the piece was typical of the
> general approach to Marx and Marxism. It bowed at a distance to the prophet
> of capitalism’s ever ‘more extensive and exhaustive crises’, and restated
> several basic articles of his thought: capitalism is inherently unstable;
> political activism is indispensable; and revolution offers the ultimate
> prize. This can’t have done much more than jog memories of the *Communist
> Manifesto*, the only one of Marx’s works cited by Panitch. The *Manifesto*remains an incandescent pamphlet, but the elements of a Marxian crisis
> theory, one never fully articulated by Marx himself, lie elsewhere,
> scattered throughout *Theories of Surplus Value*, the *Grundrisse* and
> above all the posthumous second and third volumes of *Capital*. Marx’s
> brilliant and somewhat contradictory comments on the subject bring to mind
> Cioran’s remark: ‘Works die; fragments, not having lived, can no longer
> die.’ Such shards sowed one of the most fertile fields in Marxist economics.
> Over recent decades, the landmarks of Marxian economic thinking include
> Ernest Mandel’s *Late Capitalism* (1972), David Harvey’s *Limits to
> Capital* (1982), Giovanni Arrighi’s *Long 20th Century* (1994) and Robert
> Brenner’s *Economics of Global Turbulence* (2006), all expressly concerned
> with the grinding tectonics and punctual quakes of capitalist crisis. Yet
> little trace of this literature, by Marx or his successors, has surfaced
> even among the more open-minded practitioners of what might be called the
> bourgeois theorisation of the current crisis.
>
> The term bourgeois will seem apt enough if we note that a recent and
> distinguished addition to the long shelf of books on the crisis, Nouriel
> Roubini’s *Crisis Economics*, summons as its audience not only ‘financial
> professionals’, ‘corporate executives’ and ‘students in business, economics
> and finance’, but also – exhausting the list – ‘ordinary investors’.[1]<http://www.lrb.co.uk/v33/n03/benjamin-kunkel/how-much-is-too-much/print#fn-01%23fn-01>No one, in other words, who is unmotivated by gain. Maybe it’s to be
> expected, then, that the Marx celebrated by Roubini and his coauthor
> Stephen Mihm, in a résumé of earlier theorists of crisis, appears as a
> mere herald of continual disruption rather than as an economist who located
> at the heart of such crises the existence of bourgeois society as such, or
> the social cleavage between profit-seekers (financial professionals etc) and
> wage-earners: the fatal schism, in other words, between capital and labour.
> Roubini goes no further than to quote the same ringing lines of the *
> Manifesto* that appear in *Foreign Policy*. Here again is the resemblance
> of capitalism to ‘the sorcerer who is no longer able to control the powers
> of the nether world whom he has called up by his spells’. Credited with
> the alarming but vague insight that ‘Capitalism *is* crisis,’ Marx then
> departs the scene.
>
> To date, a revived Keynesianism has formed a left boundary of economic
> debate in the press at large. Only specialised socialist journals have
> undertaken to diagnose capitalism’s latest distemper in explicitly or
> implicitly Marxian terms. As for books on the crisis, until recently the
> jostling crowd of titles included no Marxist study, the exception to this
> rule, John Bellamy Foster and Fred Magdoff’s *Great Financial Crisis*,
> having been bolted together out of editorials from one of those socialist
> journals, the American *Monthly Review*.[2]<http://www.lrb.co.uk/v33/n03/benjamin-kunkel/how-much-is-too-much/print#fn-02%23fn-02>Not until now, with David Harvey’s
> *Enigma of Capital*, have we had a book-length example of Marxian crisis
> theory addressed to the current situation.
>
> Few writers could be better qualified than Harvey to test the continuing
> validity of a Marxian approach to crisis, a situation he helpfully defines –
> dictionaries of economics tend to lack any entry for the word – as ‘surplus
> capital and surplus labour existing side by side with seemingly no way to
> put them back together’. (This is at once reminiscent of Keynes’s
> ‘underemployment equilibrium’ and of the news in the daily papers: in the
> US, corporations are sitting on almost two trillion dollars in cash while
> unemployment hovers just below 10 per cent.) Harvey, who was born in Kent,
> is the author of the monumental *Limits to Capital* – a thoroughgoing
> critique, synthesis and extension of the several varieties of crisis theory
> underwritten by Marx’s thought – and has been teaching courses on Marx,
> mainly in the US, for nearly four decades. His lectures on Volume I of *
> Capital*, available online, have become part of the self-education of many
> young leftists, and now supply the framework for his useful *Companion to
> Marx’s ‘Capital*’. (I sat in on his lectures at the City University of New
> York in the fall of 2007; a good Marxist, Harvey made no effort to find
> out whether any of us – too many for the available chairs – had registered
> and paid for the class.)
>
> Since the publication of *The Limits to Capital* in the second year of the
> Reagan administration and at the dawn of what has come to be known as the
> financialisation of the world economy, the dual movement of Harvey’s
> career has been to return time and again to Marx as a teacher, and to extend
> his own ideas into new and more empirical territory. The most substantial of
> his recent books, *Paris, Capital of Modernity* (2003), described the
> city’s forcible modernisation by Baron Haussmann as a solution to
> structural crisis – ‘The problem in 1851 was to absorb the surpluses of
> capital and labour power’ – and situated this urban transformation within
> the renovation of Parisian humanity it induced. Harvey’s other
> post-millennial volumes, *The New Imperialism* (also 2003), *A Brief
> History of Neoliberalism* (2005) and now *The Enigma of Capital*, amount
> to a trilogy of self-popularisation and historical illustration, taking
> current events as a proving ground for what Harvey has called, referring to
> *The Limits to Capital*, ‘a reasonably good approximation to a general
> theory of capital accumulation in space and time’.
>
> The mention of space is considered. Harvey received his doctorate in
> geography rather than economics or history – his first, non-Marxist book was
> taken up with differing representations of space – and the whole thrust of
> his subsequent work, alert to the unevenness of capitalist development
> across neighbourhoods, regions and nation-states, has been to give a more
> variegated spatial texture to the historical materialism he would prefer to
> call ‘historical-geographical materialism’. In a sense, the emphasis
> confirms Harvey’s classicism. Marx himself somewhat curiously concluded
> the first volume of *Capital* – a book otherwise essentially concerned
> with local transactions between capital and labour, illustrated mostly
> from the English experience – with a chapter on the ‘primitive accumulation’
> of land and mineral wealth attendant on the European sacking of the
> Americas. In the same way, Rosa Luxemburg, Marx’s first great legatee in the
> theory of crisis, insisted in the *Accumulation of Capital* (1913) that
> imperial expansion across space must accompany capital accumulation over
> time. Without the prising open of new markets in the colonies, she argued,
> metropolitan capitalism would be unable to dispose profitably of its glut of
> commodities, and crises of overproduction doom the system.
>
> It’s not, however, until the last third of *The Limits to Capital* that
> the spatial implications of Harvey’s project loom into view. The book
> starts as a patient philological reconstruction, from Marx’s stray comments,
> of a Marxian theory of crisis. The method is fittingly cumulative as, from
> chapter to chapter, in lucid, mostly unadorned prose, Harvey adds new
> features to a simple model of the ‘overaccumulation of capital’. And
> overaccumulation remains in his later work – including *The Enigma of
> Capital* – the fount of all crisis. The term may seem paradoxical: what
> could it mean for capital to overaccumulate, when the entire spirit of the
> system is, as Marx wrote, ‘accumulation for accumulation’s sake’? How could
> capitalism acquire too much of what it regards as the sole good thing?
>
> Overaccumulated capital can be defined as capital unable to realise the
> expected rate of profit. Whether in the form of money, physical plant,
> commodities for sale or labour power (the latter being, in Marx’s terms,
> mere ‘variable capital’), it can only be invested, utilised, sold or
> hired, as the case may be, with reduced profitability or at a loss.
> Overaccumulation will then be variously reflected in money hoarded or
> gambled rather than invested; in underused factories or vacant storefronts;
> in half-finished goods or unsold inventories; and in idle workers, even as
> the need for all these things goes unmet. In such cases, the most basic of
> the contradictions Marx discovered in capitalism – between use value and
> exchange value – reasserts itself. For at times of crisis, it’s not that
> too much wealth exists to make use of – in fact, ‘too little is produced to
> decently and humanely satisfy the wants of the great mass’ – but that ‘too
> many means of labour and necessities of life are produced’ to serve ‘as
> means for the exploitation of labourers at a certain rate of profit’. A
> portion of the overaccumulated capital will then be devalued, until what
> survives can seek a satisfactory profitability again. Thus asset prices
> plunge, firms go bankrupt, physical inventories languish and wages are
> reduced, though this devaluation is no more equally divided among the
> respective social groups (rentiers, industrialists, merchants, labourers)
> than prosperity was during the good times.
>
> On Harvey’s account, standard in this respect, the risk of
> overaccumulation is intrinsic to the capitalist pursuit of ‘surplus
> value’. The temptation is to say that surplus value is merely Marx’s name
> for profit, but this would be to assume success where there is only
> speculation: surplus value (in commodities) can be realised as a profit
> (in money) only in the event of a sale, and this is the rub. A capitalist,
> in order to produce, must purchase both means of production (Marx’s
> ‘constant capital’) and wage-labour (or ‘variable capital’). After this
> outlay – C+V in Marx’s formulation – the capitalist naturally hopes to
> possess a commodity capable of being sold for more than was spent on its
> production. The difference between cost of production and price at sale
> permits the realisation of surplus value. The production of any commodity,
> as well as the ‘expanded reproduction’ of the system itself, can thus be
> described by the further formula C+V+S: to a quantity of constant capital,
> or means of production, has been added a quantity of variable capital, or
> labour power, with a bonus of surplus value contained in the finished
> commodity.
>
> The trouble is already there to see. Imagine an economy consisting of a
> single firm which has bought means of production and labour power for a
> total of $100, in order to produce a mass of commodities it intends to sell
> for $110, i.e. at a profit of 10 per cent. The problem is that the firm’s
> suppliers of constant and variable capital are also its only potential
> customers. Even if the would-be buyers pool their funds, they have only
> their $100 to spend, and no more. Production of the total supply of
> commodities exceeds the monetarily effective demand in the system. As
> Harvey explains in *The Limits to Capital*, effective demand ‘is at any
> one point equal to C+V, whereas the value of the total output is C+V+S.Under conditions of equilibrium, this still leaves us with the problem of
> where the demand for S, the surplus value produced but not yet realisedthrough exchange, comes from.’ An extra $10 in value must be found
> somewhere, to be exchanged with the firm if it is to realise its desired
> profit.
>
> In this stylised scheme, with the entire capitalist economy figured as a
> single firm, the supplementary value can be produced only by the same firm
> and only in the future. The full cash value of today’s product can therefore
> be realised only with the assistance of money advanced against commodity
> values yet to be produced. ‘The surplus value created at one point requires
> the creation of surplus value at another point,’ as Marx put it in the *
> Grundrisse*. How are these points, separated in space and time, to be
> linked? In a word, through the credit system, which involves ‘the creation
> of what Marx calls “fictitious capital” – money that is thrown into
> circulation as capital without any material basis in commodities or
> productive activity’. Money values backed by tomorrow’s as yet unproducedgoods and services, to be exchanged against those already produced today:
> this is credit or bank money, an anticipation of future value without which
> the creation of present value stalls. Realisation (or the transformation
> of surplus value into its money equivalent, as profit) thus depends on the
> ‘fictitious’.
>
> Harvey is not adding to Marx here: his achievement is to piece a heap of
> fragments into a coherent mosaic. And for his reconstructed Marx, the end of
> capitalism – or at least its latest stage, of globally integrated finance –
> lies in its beginning. What is sometimes called the system’s GOD imperative,
> for Grow Or Die, entails from the outset the development of finance as the
> earnest of future production. Finance and production, production and
> finance, can then chase each other’s tail until together they have covered
> the entire world (or exhausted the tolerance of the working class). Marx
> proposed that ‘the tendency to create the world market is directly given in
> the concept of capital itself,’ and Harvey glosses the idea: ‘Thenecessary geographical expansion of capitalism is … to be interpreted as
> capital in search for surplus value. The penetration of capitalist relations
> into all sectors of the economy, the mobilisation of various “latent”
> sources of labour power (women and children, for example), have a similar
> basis.’ Hence both the involution and the imperialism of capital,
> commodifying the most intimate of formerly uncommodified practices
> (education, food preparation, courtship) as well as sweeping formerly
> non-capitalist regions (China and Eastern Europe) into the global market.
>
> Marxist economic writing at its best praises the system it comes to bury in
> more dazzling terms than more apologetic accounts ever achieve, and Harvey’s
> sardonic paean to ‘the immense potential power that resides within the
> credit system’ finds him at his most eloquent. For if it at first appeared
> from a logical point of view that capitalism must immediately founder in a
> crisis of overproduction and underconsumption it now appears that this
> problem enjoys a solution. Consider, Harvey suggests, ‘the relation
> between production and consumption’:
>
> A proper allocation of credit can ensure a quantitative balance between
> them. The gap between purchases and sales … can be bridged, and production
> can be harmonised with consumption to ensure balanced accumulation. Any
> increase in the flow of credit to housing construction, for example, is of
> little avail today without a parallel increase in the flow of mortgage
> finance to facilitate housing purchases. Credit can be used to accelerate
> production and consumption simultaneously.
>
> In the aftermath of the greatest housing bust in history, from Phoenix to
> Dublin to Dubai, that should sound an ominous note. Harvey goes on: ‘All
> links in the realisation process bar one can be brought under the control
> of the credit system. The single exception is of the greatest importance.’
> Credit can co-ordinate the flow of economic value, but can’t create it ex
> nihilo: ‘There is no substitute for the actual transformation of nature
> through the concrete production of use values.’
>
> In the case of real estate, it might happen – as it has – that more
> building and selling of houses has been financed than can actually be paid
> for with income deriving, in the last instance, from production. So the
> credit system that had seemed to insure against one kind of
> overaccumulation (of commodity capital) by advancing money against future
> production, now seems to have fostered another kind of overaccumulation(of fictitious capital) by promising more production than has occurred. More
> housing has been created than builders can sell at a profit; more mortgage
> debt has been issued than can be repaid, through wage income, to ensure the
> lenders’ profit; homeowners who took out loans against the rising value of
> their property find that prices are instead plummeting; and with the
> collapse of the housing sector more money capital now lies in the hands of
> its owners than they can see a way to invest profitably.
>
> ‘The onset of a crisis is usually triggered by a spectacular failure which
> shakes confidence in fictitious forms of capital,’ Harvey writes, and
> everyone knows what happens next. The flow of credit, at one moment lavished
> to all comers on the flimsiest pretext of repayment, at the next more or
> less dries up. In the resulting conditions of uncertainty, those without
> ready cash, forced to cough it up anyway, can be pushed into fire-sales of
> their assets, while those who do have cash prefer to save rather than spend
> it, so that the economy as a whole sinks toward stagnation. So far, so
> familiar. But what explains the special liability of capitalism to crises
> of disappointed speculation? And why should real estate so often be their
> privileged object?
>
> ‘Such speculative fevers are not necessarily to be interpreted as direct
> manifestations of disequilibrium in production,’ Harvey says: ‘They can
> and do occur on their own account.’ Yet ‘overaccumulation creates
> conditions ripe for such speculative fevers so that a concatenation of the
> latter almost invariably signals the existence of the former.’ If capital
> has been overaccumulated, this means by definition that it can’t easily
> find a profitable outlet in increased production. The resulting temptation,
> Harvey suggests, with his emphasis on finance, will be for capital to
> sidestep production altogether and attempt to increase itself through the
> multiplication of paper (or digital) assets alone. The question that goes
> all but unasked in the more respectable literature on the crisis, is why
> the opportunities for profitable investment looked so scarce in the first
> place.
>
> If capitalist crises are crises of profitability, Marxian theory ascribes
> diminished opportunities for profit to one of three underlying conditions.
> First, a profit squeeze may be induced by the excessive wage bill of the
> working class, so that capitalists lack enough income to invest in new
> production on a scale compatible with growth. This line of thought takes
> inspiration from Marx’s remark that wages are never higher than on the eve
> of a crash, and enjoyed a heyday of plausibility in the early 1970s, a
> bygone era of labour militancy, near full employment and high inflation,
> allegedly spurred by the so-called wage-price spiral. Robert Brenner
> disputes, however, that a profit squeeze imposed by labour truly afflicted
> the early 1970s, and doubts whether, given the superior mobility of capital
> over labour, such a profit squeeze could ever take hold over the long run;
> capital would simply relocate to more docile markets. At any rate, what
> Brenner calls the Full Employment Profit Squeeze thesis hardly appears to
> caption the current picture of high unemployment and stagnant real wages
> across the developed world.
>
> A second condition is the tendency of the rate of profit to fall as a
> result of the ‘rising organic composition of capital’, or in other words the
> penchant, given increased technological and organisational efficiency, for
> using relatively less labour than capital in production. Since
> profitability reflects the ‘rate of exploitation’ – or the ratio of the
> surplus value produced by the worker to the wages he receives – using less
> labour relative to capital diminishes profitability, unless capital goods
> become cheaper or exploitation is ramped up. This problem too can be solved,
> at least in principle: the capital/ labour ratio can simply be rejigged by
> deploying more labour relative to capital. Indeed, something like this has
> occurred on the grandest scale in recent decades, through the rough doubling
> of the amount of labour available to capital with the proletarianisationof huge populations in Eastern
> Europe and Asia. The effect, on one estimate, has been to reduce the
> global capital/labour ratio by 55-60 per cent.
>
> Finally, and most plausibly today, theories of ‘underconsumption’ argue
> that capitalism lends itself to crisis because, by resisting wage growth, it
> deprives itself of the market, expanded by wage growth, it would need in
> order profitably to employ its swelling quantities of capital. Marx, in
> Volume II of *Capital*, is to the point: ‘Contradiction in the capitalist
> mode of production: the labourers as buyers of commodities are important
> for the market. But as sellers of their own commodity – labour power –
> capitalist society tends to keep them down to the minimum price.’ Of course
> ‘a sufficient prodigality of the capitalist class’, as Marx called it, could
> in principle maintain effective demand at a level consistent with the steady
> expansion of the system, by substituting luxury consumption for the
> satisfaction of the population at large.[3]<http://www.lrb.co.uk/v33/n03/benjamin-kunkel/how-much-is-too-much/print#fn-03%23fn-03>But this solution was never likely, for as Keynes observed, ‘when our income
> increases our consumption increases also, but not by so much. The key to our
> practical problem is to be found in this psychological law.’ The worldwide
> defeat of labour since the 1980s, leading the wage share of GDP to fall
> throughout the capitalist core, along with the persistent inability of the
> higher reaches of the capitalist class, in spite of their best efforts, to
> attain a level of expenditure proportionate to their wealth, makes an
> underconsumptionist analysis of the current crisis an appealing one, and
> suggests a possible convergence of Keynesian and Marxian views.
>
> Marxists tend to battle each other, often in the heroic footnotes native to
> the tradition, over the merits or defects of these differing explanations of
> crisis. Harvey’s own approach is catholic, all-encompassing. For him, the
> various strands of crisis theory represent, but don’t exhaust, possible
> departures from a path of balanced growth in finance and production. What
> unites the strands is the fundamental antagonism between capital and
> labour, with their opposing pursuits of profits and wages. If there exists
> a theoretical possibility of attaining an ideal proportion, from the
> standpoint of balanced growth, between the amount of total social income to
> be reinvested in production and the amount to be spent on consumption, and
> if at the same time the credit system could serve to maintain this ratio of
> profits to wages in perpetuity, the antagonistic nature of class society
> nevertheless prevents such a balance from being struck except occasionally
> and by accident, to be immediately upset by any advantage gained by labouror more likely by capital.
>
> So, as *The Limits to Capital* implies without quite stating, the special
> allure and danger of an elaborate credit system lie in its relationship to
> class society. If more capital has been accumulated than can be realisedas a profit through exchange, owing perhaps to ‘the poverty and restricted
> consumption of the masses’ that Marx at one point declared ‘the ultimate
> reason for all real crises’, this condition can be temporarily concealed,
> and its consequences postponed, by the confection of fictitious values in
> excess of any real values on the verge of production. In this way, growth
> and profitability in the financial system can substitute for the impaired
> growth and profitability of the class-ridden system of actual production. By
> adding over-financialisation, as it were, to his model of overaccumulation,
> Harvey means to show how an initial contradiction between production and
> realisation later ‘becomes, via the agency of the credit system, an
> outright antagonism’ between the financial system of fictitious values and
> its monetary base, founded on commodity values. This antagonism then ‘forms
> the rock on which accumulation ultimately founders’. In social terms, this
> will take the form of a contest between creditors and debtors over who is to
> suffer more devaluation.
>
> The real originality of *The Limits to Capital*, however, is to add a new
> geographical dimension to crisis formation. Harvey goes about this via a
> theory of rent. One effect of the approach is to suggest why property
> speculation – with its value ultimately tied up in potential rental income –
> should be such a familiar capitalist perversion (in the psychoanalytic sense
> of overinvestment in one kind of object). Another is to convert an apparent
> embarrassment for Marxian theory into a show of strength. The would-be
> embarrassment lies in the evident difficulty of reconciling a labourtheory of value with the price of unimproved land, given that land is
> obviously not a product of human labour. Harvey’s bold and ingenious
> solution is to propose that, under capitalism, ground rent – or the
> proportion of property value attributable to mere location, rather than to
> anything built or cultivated on the land – becomes a ‘pure financial asset’.
> Ground rent, in other words, is a form of fictitious capital, or value
> created in anticipation of future commodity production: ‘Like all such forms
> of fictitious capital, what is traded is a claim on future revenues, which
> means a claim on future profits from the use of the land or, more directly,
> a claim on future labour.’
>
> From the need to realise ground rent stems capitalism’s whole geography of
> anxious anticipation. Capital overaccumulated in one place can flow to
> another which appears to boast better ultimate prospects of profit. Rising
> land values will shunt capital to new locations, at the same time that the
> resulting increase in rental costs compels a matching expansion of
> production, with its accompanying physical and social infrastructure. The
> relationship between credit and commodities is in this way translated into
> spatial terms as an uneasy rapport between one kind of capital, highly
> mobile or liquid, and another kind – ‘fixed capital embedded in the land’ –
> defined by its inertness. Here, in the latent conflict between migratory
> finance capital and helplessly stationary complexes of fixed capital,
> including not only factories and office buildings but roads, houses, schools
> and so on, Harvey has found a contradiction of capitalism overlooked by
> Marx and his heirs.
>
> The contradiction may look at first like a brilliant solution to the
> problem of overaccumulation. Overaccumulated capital, whether originating
> as income from production or as the bank overdrafts that unleash fictitious
> values, can postpone any immediate crisis of profitability by being drawn
> off into long-term infrastructural projects, in an operation Harvey calls a
> ‘spatio-temporal fix’. Examples on a grand scale would be the British boom
> in railway construction of the 1820s, the Second Empire modernisation of
> Paris, the suburbanisation of the US after World War Two, and the recent
> international pullulation of commercial and residential towers. In each
> case, a vast quantity of capital, faced with the question of profitability,
> could as it were postpone the answer to a remote date, since investments in
> infrastructure promise such delayed returns. Meanwhile, transformed spatial
> arrangements swap old trades for new ones – Harvey notes that Haussmann’s
> Paris witnessed the extinction of the water-carrier and the advent of the
> electrician – or rejuvenate existing industries, like the postwar car
> manufacturers in the US.
>
> Inevitably, the risk is that a given territory, as a complex of fixed
> capital, comes to prosper thanks to a stream of finance that one day flows
> elsewhere. A devaluation of the abandoned land along with its ‘
> overaccumulated’ workers, industries and infrastructure will ensue. This
> harsh sequel to the spatial fix Harvey calls a ‘switching crisis’, and in
> something like the climax of *The Limits to Capital*, he writes:
>
> The more the forces of geographical inertia prevail, the deeper will the
> aggregate crises of capitalism become and the more savage will switching
> crises have to be to restore the disturbed equilibrium. Local alliances will
> have to be dramatically reorganised (the rise of Fascism being the most
> horrible example), technological mixes suddenly altered (incurring massive
> devaluation of old plant), physical and social infrastructures totally
> reconstituted (often through a crisis in state expenditures) and the space
> economy of capitalist production, distribution and consumption totally
> transformed. The cost of devaluation to both individual capitalists and
> labourers becomes substantial. Capitalism reaps the savage harvest of its
> own internal contradictions.
>
> In *The Enigma of Capital* Harvey observes these contradictions sharpening
> over time, as finance capital becomes ever more mobile while beds of
> infrastructure grow increasingly Procrustean: ‘The disjunction of the quest
> for hypermobility and an increasingly sclerotic built environment (think
> of the huge amount of fixed capital embedded in Tokyo or New York City)
> becomes ever more dramatic.’
>
> So what then are the ‘limits to capital’? Harvey’s answer, disappointing
> as it is honest, is that a system bent on overaccumulation will not
> collapse of its own top-heaviness. Should the world market fail to generate
> the ever increasing surpluses that form its only rationale, it can always
> enlarge its borders and appropriate new wealth through what Marx called
> primitive accumulation and what Harvey proposes to call ‘accumulation by
> dispossession’, given that the process hardly ceased when the English
> peasantry was cleared off the land or the Inca Empire looted for its silver.
> The incorporation into the capitalist domain of non-capitalist territories
> and populations, the privatisation of public or commonly owned assets,
> including land, and so on, down to the commodification of indigenous
> art-forms and the patenting of seeds, offer instances of the accumulation by
> dispossession that has accompanied capitalism since its inception. This
> field for gain would be exhausted only with universal commodification,
> when ‘every person in every nook and cranny of the world is caught within
> the orbit of capital.’ Even then, the continuous ‘restructuring of the
> space economy of capitalism on a global scale still holds out the prospect
> for a restoration of equilibrium through a reorganisation of the regional
> parts’. Spatial fixes and switching crises might succeed one another
> endlessly, in great floods and droughts of capital. Devaluation, being
> ‘always on a particular route or at a particular place’, might serially
> scourge the earth even as capital in general, loyal to no country, remained
> free to pursue its own advantage.
>
> The real test of Harvey’s 1982 theory of crisis is how well it serves in
> the face of the thing itself. *The Enigma of Capital* can be read as an
> effort to meet the challenge. Naturally, its success or failure depends on
> whether it can offer a more comprehensive and persuasive account than rival
> theories. On the score of comprehensiveness there can be little doubt that
> Harvey’s work and that of other Marxists goes beyond the alternatives.
> ‘The idea that the crisis had systemic origins is scarcely mooted in the
> mainstream media,’ Harvey writes, and that might be extended to include
> even the trenchant work of the neo-Keynesians. The crisis, after all, is
> that of a capitalist system, and no account of it, however searching, can be
> truly systematic if it neglects to consider property relations: that is, the
> preponderant ownership of capital by one class, and of little or nothing but
> its labour power by another.
>
> Paul Krugman, discussing Roubini’s book in the *New York Review of Books*,
> agreed with him that what Ben Bernanke called the ‘global savings glut’
> lay at the heart of the crisis, behind the proximate follies of
> deregulation, mortgage-securitisation, excessive leverage and so on.
> Originating in the current account surpluses of net-exporting countries such
> as Germany, Japan and China, this great tide of money flooded markets in the
> US and Western Europe, and floated property and asset values unsustainably.
> Why was so much capital so badly misallocated? In the *LRB* of 22 April
> 2010, Joseph Stiglitz observed that the savings glut ‘could equally well
> be described as an “investment dearth”’, reflecting a scarcity of attractive
> investment opportunities. Stiglitz suggests that global warming mitigation
> or poverty reduction offers new ‘opportunities for investments with high
> social returns’.
>
> The neo-Keynesians’ ‘savings glut’ can readily be seen as a case of what a
> more radical tradition calls overaccumulated capital. But it is the
> broader and more systematic Marxist perspective that ultimately and properly
> contains Keynesianism within it, and a crude Marxist catechism may be in
> order. Where does an excess of savings come from? From unpaid labour – for
> example, that of Chinese or German workers. And why would such funds
> inflate asset bubbles rather than create useful investment? Because
> capital pursues not ‘high social returns’, but high private returns. And
> why should these have proved difficult to achieve, except by financial
> shell-games? Keynesians complain of an insufficiency of aggregate demand,
> restraining investment. The Marxist will simply add that this bespeaks
> inadequate wages, in the index of a class struggle going the way of owners
> rather than workers.
>
> In *The Enigma of Capital*, Harvey coincides with other Marxists in
> locating the origins of the present crisis in the troubles of the 1970s,
> when the so-called Golden Age of capitalism following the Second World War –
> blessed with high rates of profitability, productivity, wage growth and
> expansion of output – gave way to what Brenner named ‘the long downturn’
> after 1973. Brenner argued in *The Economics of Global Turbulence* that
> this long downturn, with deeper recessions and weaker expansions across
> every business cycle, reflects chronic overcapacity – another variety of
> overaccumulation – in international manufacturing, a condition brought
> about by the maturation of Japanese and German industry by the end of the
> 1960s, and later compounded by the industrialisation of East Asia. As
> competition to supply export markets increased faster than those markets
> expanded, the price of international tradeables naturally fell, reducing
> both the profits of manufacturers and the wages paid to workers. Such
> impaired profitability moreover discouraged further investment in
> production, so that finance capital turned increasingly to speculation in
> asset values. Yet this view, however formidably presented, doesn’t appear to
> have won general assent. Harvey, content to follow Brenner elsewhere,
> inclines towards a more conventional profit-squeeze explanation of the
> crisis of the early 1970s.
>
> About the sequel to that crisis there is less dispute. Whether or not high
> wages had undermined profitability, a subsequent effort to curb wages,
> carried out at gunpoint in the Southern Cone in the mid-1970s, and achieved
> by ballot under Thatcher and Reagan before spreading to other wealthy
> countries, eventually resulted in a systemic shortage of demand. In this
> way, capital’s victory over labour set the stage for a later reversal. In
> *The Enigma of Capital*, Harvey charts the dialectical switch in the blunt
> style he now favours:
>
> Labour availability is no problem now for capital, and it has not been for
> the last 25 years. But disempowered labour means low wages, and
> impoverished workers do not constitute a vibrant market. Persistent wage
> repression therefore poses the problem of lack of demand for the expanding
> output of capitalist corporations. One barrier to capital accumulation – the
> labour question – is overcome at the expense of creating another – lack of
> a market. So how could this second barrier be circumvented?
>
> The lack of demand was of course appeased by recourse to fictitious
> capital: ‘The gap between what labour was earning and what it could spend
> was covered by the rise of the credit card industry and increasing
> indebtedness.’ It was not only consumers who indentured themselves. As
> Bellamy Foster and Magdoff point out in *The Great Financial Crisis*,
> total US debt, owed by government, corporations and individuals, equalledapproximately 125% of American GDP during the 1970s. By the mid-1980s the
> proportion had increased to two to one, and by 2005 stood at almost three
> and a half to one. Much of the cheap credit, originating in East Asia and
> flowing through the Federal Reserve, came to promote a property bubble of
> historic dimensions. ‘The demand problem,’ Harvey writes, ‘was temporarily
> bridged with respect to housing by debt-financing the developers as well as
> the buyers. The financial institutions collectively controlled both thesupply of, and demand for, housing!’
>
> It can’t be said that Harvey comes late to recognising the housing
> bubble’s absurdity. In *The New Imperialism*, from 2003, he recapitulated
> his theory of the spatial fix, and warned that while some spatial fixes
> ultimately relieve crises through the elaboration of new physical and social
> infrastructure, others merely postpone them. After listing several of the
> more spectacular property-market collapses of the long downturn (worldwide
> in 1973-75; Japanese in 1990; Thai and Indonesian in 1997), Harvey added
> that
>
> the most important prop to the US and British economies after the onset of
> general recession in all other sectors from mid-2001 onwards was the
> continued speculative vigour in the property and housing markets and
> construction. In a curious backwash effect, we find that some 20 per cent of
> GDP growth in the United States in 2002 was attributable to consumers
> refinancing their mortgage debt on the inflated values of their housing and
> using the extra money they gained for immediate consumption (in effect,
> mopping up overaccumulating capital in the primary circuit). British
> consumers borrowed $19 billion in the third quarter of 2002 alone against
> the value of their mortgages to finance consumption. What happens if and
> when this property bubble bursts is a matter for serious concern.
>
> Not only Americans and Britons but the Irish, Spanish and Emiratis live
> today among the ruins of a broken spatial fix.
>
> What, if any, switching crisis does this presage? To keep things simple,
> imagine the world economy of recent years as consisting of two capitalist
> countries – represented by the US and China – in both of which the working
> class, employed or unemployed, received too little of the total product for
> capital not to overaccumulate and risk massive devaluation. Chinese
> workers, deprived by wage repression and social insecurity (such as lack of
> health insurance) of the opportunity to consume much of their own output,
> saw the wealth accumulated through their labour go, in the form of their
> own savings and the income of their bosses, towards the construction of new
> productive capacity in their own country and a property boom in the other
> country. Both the new factories at home, turning out exports for the US,
> and the deliriously appreciating houses abroad rested on the premise of
> continuously rising American incomes. But among Americans, wage growth had
> ceased and household incomes could no longer be supplemented by the mass
> entry of women into the workforce, something already accomplished. The
> issuance and securitisation of debt alone could substitute for present
> income. But in the end so much fictitious capital could not be redeemed.
> Whatever the destination of future Chinese savings gluts, they can no longer
> sponsor American consumption in the same way.
>
> In his final book, *Adam Smith in Beijing* (2007), the late Giovanni
> Arrighi expanded on Harvey’s concepts of the spatial fix and the switching
> crisis to survey half a millennium of capitalist development and to peer
> into a new, probably Chinese century. In Arrighi’s scheme of capitalist
> history, there had been four ‘systemic cycles of accumulation’, each lasting
> roughly a century and each organised on a larger scale than the one
> before, with a new polity at the centre: a Genoese-Iberian cycle; a Dutch
> cycle; a British cycle; and an American one. A systemic cycle’s first phase,
> of material expansion, came to an end when the central power had accumulated
> more capital than established trade and production could absorb. This was
> followed by a second, financial phase of expansion in which capital
> overaccumulated at the centre of the system promoted a new nucleus of
> growth. Ultimately the rising centre came to finance the expenditures, often
> on war, that the old and now declining centre could no longer cover out of
> its mere income.
>
> It fits Arrighi’s scheme that the US, having (along with the Chinese
> diaspora) once led international capital onto the Asian mainland, had now
> become dependent on Chinese credit. For him, this announced the greatest
> switching crisis of all time, as China prepared to assume the hegemonic
> role being reluctantly relinquished by the US, and to inaugurate a new
> cycle of accumulation. Such a succession might ideally yield a new
> commonwealth of civilisations, in which capitalism as we know it gave way
> to what Arrighi somewhat hazily envisaged as a non-capitalist market
> economy recuperating old Chinese traditions of self-centred development.
> One condition of this happy scenario was that the US abandon its armed
> imperialism and China remain committed to its ‘peaceful rise’; another,
> that the Chinese pioneer a green mode of growth distinct from ‘the Western,
> capital intensive, energy consuming path’. Otherwise inter-imperial war, the
> ultimate means of competitive devaluation in *The Limits to Capital*,
> loomed once more.
>
> In the recently published *Ecological Rift: Capitalism’s War on the Earth*,
> John Bellamy Foster and his Marxist co-authors refer to the identification
> by a group of scientists, including the leading American climatologist James
> Hansen, of nine ‘planetary boundaries’ that civilisation transgresses at
> its peril.[4]<http://www.lrb.co.uk/v33/n03/benjamin-kunkel/how-much-is-too-much/print#fn-04%23fn-04>Already three – concentrations of carbon in the atmosphere, loss of nitrogen
> from the soil and the extinction of other species – have been exceeded.
> These are impediments to endless capital accumulation that future crisis
> theories will have to reckon with. Harvey’s intuition of the ultimate
> demise of capitalism has also taken on an ecological colouring. ‘Compound
> growth for ever’ – historically, for capitalism at about 3 per cent a year –
> ‘is not possible,’ he declares in *The Enigma of Capital*, without much
> elaboration. The classical economists long ago foresaw that an economy
> defined by constant expansion would one day give way to what John Stuart
> Mill called the ‘stationary state’. The idea has gained a new currency in
> Marxist writing of recent years, and in its contemporary version tends to
> locate the limits to growth in the depletion of natural resources or in the
> exhaustion of productivity gains as the share of manufacturing in the world
> economy shrinks and that of services expands. Of course, peak oil or soil
> exhaustion might easily coincide with faltering productivity. Harveydoesn’t spell out why growth must have a stop, and the outlines of an
> ecologically stable and politically democratic future socialism remain as
> blurry in his later work as they do almost everywhere else. At the moment
> Marxism seems better prepared to interpret the world than to change it. But
> the first achievement is at least due wider recognition, which with the next
> crisis, or subsequent spasm of the present one, it may begin to receive.
>
>
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>
>
> [1]<http://www.lrb.co.uk/v33/n03/benjamin-kunkel/how-much-is-too-much/print#fn-ref-01%23fn-ref-01>
> *Crisis Economics: A Crash Course in the Future of Finance*, by Nouriel
> Roubini and Stephen Mihm (Allen Lane, 368 pp., £25, May 2010, 978 1 8461
> 4287 1).
>
> [2]<http://www.lrb.co.uk/v33/n03/benjamin-kunkel/how-much-is-too-much/print#fn-ref-02%23fn-ref-02>
> *The Great Financial Crisis: Causes and Consequences*, by John Bellamy
> Foster and Fred Magdoff (Monthly Review, 144 pp., £10.95, January 2009,
> 978 1 583 67184 9).
>
> [3]<http://www.lrb.co.uk/v33/n03/benjamin-kunkel/how-much-is-too-much/print#fn-ref-03%23fn-ref-03>In his 1865 lecture on ‘Value, Price and Profit’, Marx illustrated luxury
> consumption as money ‘wasted on flunkeys, horses, cats and so forth’. It is
> some measure of progress that the general population can now afford to feed
> their cats.
>
> [4]<http://www.lrb.co.uk/v33/n03/benjamin-kunkel/how-much-is-too-much/print#fn-ref-04%23fn-ref-04>
> *Monthly Review*, 544 pp., £14.95, January, 978 1 58367 218 1.
>
>
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