The Enigma of Capital by David Harvey
DAVID Harvey teaches at the Graduate Center of the City University of New York and he is a Marxist.
The book is a critique of capitalism and a scathing attack on the excesses of those who have the ability to exploit both the capitalist system and the economically weakest members of society.
The book has the United States as its primary focus. This is fair, given that the total global output in 2008 stood at $56.2 trillion and the United States' contribution was a staggering $13.9 trillion.
The erudite Harvey draws on examples from a wide range of other countries too, which is necessary for the case of the global reach of capitalism.
Harvey poses the question of how capitalism has managed to survive so many crises, and why is it so crisis-prone.
To answer these questions he makes the point that capital is not a thing, “but a process in which money is perpetually sent in search of more money”.
The continuous circulation of capital is very important because an interruption of the process always entails incurring losses. In the late nineteenth century when there was surplus capital in Britain, it was sent to the United States, Argentina or South Africa where it could be profitably deployed.
The faster the flow of capital, the higher the profits so there is always an incentive to speed up the circulation. Speed nearly always pays off in higher profits, Harvey notes. Any innovation that increases speed will be in demand.
In the process of circulating capital, money is assembled in one place and brought to another where it can buy the resources required to produce a good or service.
“I deposit money in a savings account in my local bank in Baltimore,” writes Harvey, “and the money ends up in the hands of an entrepreneur in China who built a sock factory in Dongguan hiring migrant labourers (mainly young women) from the countryside.”
This is not too different from the securitisation of local bonds on properties around the United States and their sale to investors all over the world.
It was just another way of connecting areas where there is a shortage of capital to those where there is a surplus, and in a way that was supposedly minimised risk.
Capital flows because it always has to be put to work. Capitalists reinvest their money in expansion rather spending all their profits on pleasures because of "the coercive laws of competition". If a capitalist does not reinvest in expansion, his rival will. This does presume that there will always be ways of creating growth.
If there is no growth then the over-accumulated capital will be devalued or destroyed. The pursuit of growth requires an answer to the question of where the new investment opportunities will come from.
If capitalists need 3% growth, this will mean finding new and profitable global investment opportunities of $1.6 trillion now, rising to closer to $3 trillion by 2030. Growth, when the numbers are this big it is a challenge that capitalism cannot continue to meet forever. Herein lies a serious flaw in the system.
In answer to the question as to why capitalists want to accumulate more money than they could possibly use in multiple lifetimes, Harvey explains that money is a unique form of social power available to individuals.
The mega-rich cannot actually own “billions of yachts or MacMansions”, he explains, but there is no limit to the millions or billions of dollars a person can own.
In each of the many crises that capitalism has experienced capital is devalued. This is clearly an undesirable situation that seems to be part of the capitalist system. The values lost in the current crisis is estimated to be in the order of $50 trillion globally - when devalued capital is understood as deserted and abandoned factories, empty office and retail spaces, surplus goods that cannot be sold, money that is not earning interest, and so on.
Despite his antipathy to capitalism, Harvey admits that the performance of capitalism over the last 200 years has been nothing short of astonishingly creative.
However, he seems unable to avoid interspersing his arguments with flippant jibes at capitalism such as: “Its endless innovations have, after all, laid the basis for wondrous new technologies like Velcro and Maclaren pushchairs that can benefit the whole of humanity.”
This is unfortunate, as it lowers the tone of this carefully argued work.
His observations of the "state-finance nexus", the tight relationship between states and the financial power houses, is certainly a matter of concern. The American situation is a horror story, written large where the state bailed out financial institutions with money paid by taxpayers who will never get their debts similarly treated.
While the book is certainly challenging, Harvey fails to give the reader any sense of a coherent alternative, preferring to challenge those who oppose capitalism to work on addressing the matter intellectually and practically.
What a reading of this book certainly achieves is a clarification of the need to intensify capitalism’s already emergent commitment to social issues, the environment and ethical corporate behaviour.
Readability: Light ----+ Serious
Insights: High --+--- Low
Practical: High ----+ Low
*Ian Mann of Gateways consults internationally on leadership and strategy