"David Harvey on the Enigma of Capital"Lenin's Tomb

What are the limits to capital, and how does it overcome those limits? This is a pressing issue given the global crisis. We need, at the very least, to understand the the prospects for getting any half-way decent settlement out of it for the working class.

Capitalism is a perpetual expansion machine and, as Marx noted, it cannot abide limits. It has to conquer all social and spatial barriers, and "annihilate space with time". A simple way to see this is to describe the capitalist transaction: one starts the day with some value (money), purchases labour power and some means of production and - if one has a good day - generates a surplus which is realised in the market.

What then happens at the other end of the transaction? A reasonable person would spend the money on a good time, but a capitalist is coerced by competition to reinvest some of the surplus in expanding and generating even more surplus. Expansion is a structural imperative of the system: capitalism requires compound growth.

Angus Maddison has provided some figures which give a sense of the scale of this. In 1820, $694bn circulated through world markets (on 1990 dollar values). In 1913, it had risen to $2.7tn dollars. By 1950, it was $5.3tn. By 1973, it was $16tn. By 2003, it was $41tn. The current World Bank report puts total world output in current dollar values at $56.2tn. The average compound growth rate has been around 2.2% per annum since 1770. The current position of Gordon Brown and Barack Obama is that they want to restore the world economy to a growth rate of roughly 3%. But while 3% growth may seem feasible when you're talking about a productive system thriving in a few industrial centres of the UK and a few places beyond in 1750, it looks like a different bargain altogether when you have a capitalist system operative in the Middle East, Asia, Latin America, Africa, North America, and all of Europe. Three per cent growth on current output means that the system needs to find profitable investment opportunities for $1.5tn. In twenty years time, the system will have to find profitable investment opportunities for $3tn. This leads to the "capital surplus absorption problem". Where will all this capital go?

In order to circumvent existing barriers and find new avenues for investment, financial innovation is necessary. The savings and investments of capitalists have to be deployed in a new way to perform specific functions, and the history of capitalism is a history of such innovations. If capital is unable to adapt in this way, a new barrier is erected, the circulatory system of capital is obstructed, and investment dries up. Another barrier might be that the inputs necessary for the means of production to produce your desired outputs are not available. This is a point discussed in Capital Volume II. Another problem that might freeze circulation could be excessively well-organised labour, so driving up wages that there is insufficient profit to be had in any major investment. There is also the question of whether capitalists will find the right organisational form and the right disciplinary structure for managing labour, both of which can provide blockages to the system of accumulation. Then there is the problem of effective demand: will there be enough need backed by purchasing power to absorbe your product? If not, yet another blockage is created. Perhaps the largest barrier is that provided by nature, and its inability to sustain the kinds of growth that capitalism requires, both in terms of the shortage of necessary raw materials and in terms of the threat of ecological collapse as the natural system reaches the limits of its tolerance for capitalist production. If these blockage points are not successfully negotiated, the system slows down and capital is de-valued. Reviewing this, we might conclude that the theory of crisis needs to be updated. Any one of these single points can produce a blockage and a crisis in the ability of capitalism to reproduce itself.

The neoliberal strategy of accumulation arose from several crises in the system in the late 1960s and early 1970s. Strong unions and social democratic parties enhanced labour's bargaining power. One way to transcend this limit was initially to encourage immigration. The French relied on Maghrebian labour, the British drew on its empire, the US threw out anti-immigrant legislation in 1965. This strategy didn't work. The other idea was to off-shore, but to achieve this it was necessary to restructure capital accumulation, so that parts production and so on could be moved offshore, which meant reshaping spatial relations with containerisation and new transport technologies. This didn't really take off until the late 1970s. Another idea was to 'invent' Reagan, Thatcher, and Pinochet, people who would really bust up organised labour, destroy its bargaining power and depress wages.

The last solution was to turn to technological innovation, producing technologically induced unemployment. This could only come about effectively if the monopoly capital that characterised the fifties and sixties was broken down to some extent and exposed to competition. Monopoly capital - big auto companies, for example - had been able to meet labour demands and offset it somewhat by raising prices. That was part of the social compromise between capital and labour. This had to be broken for capitalism to repair itself. But to introduce competition, one could no more rely on start-up firms than one could expect a small internet venture capitalist to destroy the Bill Gates oligopoly. It meant opening up the US to foreign competition from rising German and Japanese firms. Detroit has experienced several crises, each worse than the last, as a result of this. But because American capital has preferential access to the American state, each crisis has resulted in a bail-out for US firms, but not their overseas competitors. Heightened competition had another interesting effect - it reduced the profitability of investment in productive industry. It also reduced prices, so that price growth stabilised in the 1980s. Overall, then, low wages, low prices and technological dynamism looked like a satisfactory way for the system to survive. But then, at the other end of the capital cycle, a new problem arose. The US economy and culture was dependent on conspicuous consumption. Consumption accounted for 70% of the dynamism of the US economy (I don't know how Harvey measured this), but where would consumerism come from if wages stagnated? The society became dependent on speculation and debt. A new set of financial innovations had to be developed to resolve not only the problem of allocating capital efficiently, but also ensuring that at the other end, the problem of effective demand was dealt with. Thus, financial institutions would lend money to developers at the same time as they lent money to house-buyers, therefore controlling both the demand for and the supply of housing. But even if buyers' credit-ratings were poor, the financial institutions still had to lend to them in order to realise the investment they'd made in the developers. This partially accounts for the drive toward deregulation and the subsequent 'subprime crisis'.

There is also the question of upper class income. Wages are depressed, but this means that more wealth is accumulated by the rich. Not only that, but successive governments from Reagan to Bush II engaged in a sort of ruling class Keynesianism, slashing taxes for the rich and financing it through debt. The question, then, is what do the rich do with their money. They invest it, of course, but increasingly not in productive industry which, as mentioned before, yields poorer profits these days. Instead they invest it in 'asset values', which are ponzi-like in the sense that any investment automatically raises the value of of the asset being invested in, and thus they have a propensity to produce stock market bubbles. These investment strategies require yet more financial innovation. This has naturally produced several financial crises, variously annotated as 'Black Monday', 'Oh Shit Tuesday' and 'Dead Bankers Wednesday'. It has led to the collapse of major financial institutions long before 2008, notably the Savings and Loans crisis in the 1980s. Between 1987 and 2002, over 1000 banks went under in the US, and the total bailout cost $2bn. Noticeably the worst crises over the last few decades have been property-led, as capitalists have preferred to invest in property rather than productive capital as such, and this has certainly been true of the latest crash and recession. The one thing that is different this time is that the crisis started in the US and went global this time.

This leaves the question of what the ruling class can do now to save its position. One option is to hang in there, defend their assets, and hope to restore something like their previous condition of profitability with the same basic structures of accumulation. Those who have preserved themselves and kept enough money are now in a position to buy up assets very cheap, and this new, narrower class is in formation, a 'bankocracy' based on a set of boutique investment banks which will take the place of Lehman Brothers et al. The assets being given to the banks by various states are not by and large being used to restore lending, but to shore up the existing banks, enable them to buy up others, and consolidate existing class power. They will try to come out of the current crisis with a slicker and more careful mode of control, and are increasingly centralising credit, integrated into the state, but under the control of central bankers. Politically, this class will have tremendous power. They can, if they want, push for the clobbering of labour and the evisceration of remaining social democratic protections, especially if this is necessary to restore the position of financial institutions. There is one serious difficulty for this solution. If there is going to be high unemployment - currently 10% in the US, probably 15% by the year end - then where will effective demand come from? The credit system can no longer back it up. This leads to other forces coming to the fore, arguing for a real Keynesian programme of deficit-financing that is not the same as bailing out the banks, a stimulus programme intended to create full employment and redistribute wealth and incomes. But if this is the only way out of the problem, the US has a problem - they have an enormous debt problem before they start, and politically it is very difficult to defend the redistribution of wealth, even the modest kind that Obama supports. Moreover, for the new phase of accumulation to be viable, it has to involve a total re-design of urban structures so that city life is commensurate with ecological survival. But neither capital nor its political leadership has the foresight and imagination to engage in such a plan. Instead, politicians look for technological fixes to the environmental problem. Interestingly, those who can afford the Keynesian solution are states like China and nearby south-east Asian economies. So, China could potentially lead the system out of the mess.

There are thus two prospects facing the working class. If there is to be a neo-neoliberal solution, then it will so immiserate most workers that some sort of popular uprising is surely indicated. Such a concentration and centralisation of wealth and power is full of peril for us. If there is to be a Keynesian solution, then we have to intervene to see what we can get out of it, and how far it can be radicalised. Keynes supported full employment, a shortening of the working day, the redistribution of income, and it may well be that the adoption of a Keynesian solution will open up opportunities for us to demand these things. There don't appear to be any other options for capital at the moment.