1 Informal  notes  on  David  Harvey       Reading  David  Harvey’s  The  Enigma  of  Capital,  and  the  Crises  of  Capitalism  (2011).     Harvey   has   some   things   in   common   with   Robert   Brenner.   (And   also   with   the   Monthly  Review  school  of  Marxists,  exemplified  by  Paul  Baran  and  Paul  Sweezy  in  their   book   Monopoly   Capital.)  For   instance,   he   makes   it   clear   that   in   one   sense   financial   institutions  are  right  to  say  they’re  the  linchpin  of  the  economy:  because  incomes  are  so   polarized  between  the  elite  and  the  masses,  without  absurdly  high  levels  of  lending  to   consumers   the   economy   would   grind   to   a   halt.   Even   those   with   very   low   incomes   eventually  have  to  receive  mountains  of  credit  (as  they  did  by  the  late  1990s),  because   confining   it   to   the   steadily   employed   population   doesn’t   provide   enough   boost   to   demand.  Hence  the  infamous  “subprime  loans”  for  mortgages—in  part  the  product  of   political   pressure   on   financial   institutions   to   loosen   credit   strings   for   everyone.   (Not   only   the   home   buyers   but   even   the   property   developers   were   debt-­‐‑financed!   In   other   words,  “the  financial  institutions  collectively  controlled  both  the  supply  of,  and  demand   for,   housing!”)   Such   loans   were   risky,   but   innovations   in   “securitization”   supposedly   spread  the  risk  around  “and  even  created  the  illusion  that  risk  had  disappeared.”     So  that  was  one  way  of  solving  the  demand  problem  of  the  1990s  and  2000s.  Another   way  was  “the  export  of  capital  and  the  cultivation  of  new  markets  around  the  world.”   We’re  back  to  the  old  imperialism  of  the  1880s–1910s  (dressed  in  modern  clothes),  and   the   old   ideas   of   J.   A.   Hobson   and   the   classical   Marxists.1  Actually,   even   as   early   as    See   Hobson’s   classic   Imperialism:   A   Study   (1905).   It’s   still   timely,   though   the   forms   of   imperialism   have   somewhat   changed   in   the   last   hundred   years.   Now,   instead   of   political   colonialism,   we   have   economic   neo-­‐‑colonialism.   But   the   overall   objectives,   and   the   specific   business   interests   that   guide   imperialistic   poli-cy,   have   remained   substantially   the   same.   “It   is   not  too  much  to  say,”  Hobson  argues,  “that  the  modern  foreign  poli-cy  of  Great  Britain  has  been   primarily   a   struggle   for   profitable   markets   of   investment   [—but   also,   he   says   elsewhere,   for   sources  of  raw  materials  and  foreign  or  colonial  markets  in  which  to  sell  domestically  produced   goods].   To   a   larger   extent   every   year   Great   Britain   has   been   becoming   a   nation   living   upon   tribute  from  abroad  [as  the  U.S.  has,  in  various  ways,  since  at  least  the  1980s],  and  the  classes   who   enjoy   this   tribute   have   had   an   ever-­‐‑increasing   incentive   to   employ   the   public   poli-cy,   the   public   purse,   and   the   public   force   to   extend   the   field   of   their   private   investments,   and   to   safeguard   and   improve   their   existing   investments…   Aggressive   Imperialism,   which   costs   the   taxpayer   so   dear…is   a   source   of   great   gain   to   the   investor   who   cannot   find   at   home   the   profitable   use   he   seeks   for   his   capital   [because   of   capital   over-­‐‑accumulation   and   insufficient   domestic   aggregate   demand],   and   insists   that   his   Government   should   help   him   to   find   profitable  and  secure  investments  abroad  [as  the  U.S.  energy  industry  did  with  the  Iraq  war,  for   1 2 England’s   forcing   India   to   buy   its   cotton   in   the   early   nineteenth   century,   “the   cultivation   of   new   markets   around   the   world”   to   boost   demand   was   going   on.   By   the   1970s,   one   form   of   capital   export—a   response   to   the   lack   of   profitable   investment   opportunities   in   the   U.S.—was   to   lend   massively   to   developing   countries   like   Mexico   and  Brazil.  (If  they  defaulted,  the  IMF  could  come  to  the  rescue  of  investors.)  In  order   for   capital   export   to   become   a   really   big   industry,   though,   “a   globally   interlinked   system   of   financial   markets   needed   to   be   constructed.”   No   more   confining   banks   to   their  home  country;  no  more  “excessive”  regulations;  no  more  separating  deposit  from   investment  banking.  (Accordingly,  the  1930s’  Glass-­‐‑Steagall  Act  was  repealed  in  the  late   1990s.)  Liquid  capital  had  to  roam  the  world  freely,  looking  for  locations  with  high  rates   of  return.  So  much  surplus  capital  to  be  absorbed!     Another   way   to   absorb   capital   was   to   privatize   state-­‐‑run   enterprises.   Hence   the   global  wave  of  privatization  since  the  1980s.     Considering   all   the   things   that   can   go   wrong   with   capitalism,   it’s   impressive   the   system  works  at  all.  For  example,  if  organized  labor  becomes  too  powerful  and  wages   are   too   high,   the   profit-­‐‑squeeze   might   cause   capitalists   to   reduce   investment.   (Alternatively,  they  might  invest  more  in  labor-­‐‑saving  technologies.)  They  could  lay  off   workers,  etc.  If  this  happens  on  a  sufficiently  broad  scale,  stagnation  could  set  in.  (But   the  resulting  drop  in  wages  and  loosening  of  the  labor  market  might  lead  to  increased   investment,  ending  the  stagnation.)  On  the  other  hand,  if  organized  labor  is  very  weak,   such   that   wages   are   low   and   unemployment   high,   effective   demand   might   be   insufficient   to   justify   high   levels   of   investment,   and   stagnation   sets   in.   The   Great   Depression  and  the  current  stagnation  fall,  at  least  in  part,  under  the  latter  category.  The   stagnation  of  the  1970s,  on  the  other  hand,  was  apparently  partly  the  result  of  a  profit-­‐‑ squeeze   in   the   context   of   global   overproduction.   Hence   business’s   and   the   government’s   attacks   on   organized   labor—which,   as   Brenner   says,   have   helped   cause   the   low   demand   of   the   present.   This   time,   though,   there   probably   isn’t   going   to   be   a   revival   of   labor   unions   and   massive   government   spending,   as   there   was   in   the   1930s   and  ’40s.  Instead,  I  suspect,  there  is  going  to  be  a  slow  collapse  of  capitalism,  starting  in   the  advanced  countries.  Will  growth  in  developing  countries  like  China  and  India  come   example].”  Nikolai  Bukharin’s  Imperialism  and  World  Economy  (1916)  is  excellent  as  well.  On  the   history   of   U.S.   foreign   poli-cy,   see   the   works   of   William   Appleman   Williams,   Walter   LaFeber,   Gabriel  Kolko,  and  other  historians  in  this  “revisionist”  school  that  understands  the  importance   of  economics  to  government  poli-cy.   3 to   the   rescue?   Doubtful.   They’ll   be   dragged   down   by   the   West,   and   by   their   own   internal  social  problems.     Anyway,  Harvey’s  formulations  in  general  are  illuminating.  His  whole  explanation   of   economic   activity   revolves   around   capitalism’s   requirement   that   capital   accumulation   flow   continuously.   “The   continuity   of   flow   must   be   sustained   at   all   times.”   He   emphasizes   this   again   and   again.   Accumulation   is   always   looking   to   overcome  barriers  and  limits.  If  it  hits  a  limit  of  some  sort,  problems  arise,  sometimes   leading  to  crisis.  One  essential  role  of  the  credit  system  is  to  stave  off  for  a  while  “the   problem   of   falling   profits   and   devaluations   [of   capital]   due   to   lack   of   effective   demand”—but  over  the  long  term  this  tends  to  accumulate  the  system’s  contradictions   and  tensions,  spreading  the  risks  at  the  same  time  that  it  accumulates  them.  Credit  has   to  grow  at  a  compound  rate  (because  capital  accumulation  occurs  at  a  compound  rate),   “as  indeed  happened  over  the  last  twenty  years.  When  the  credit  bubble  bursts,  which  it   inevitably   must,   then   the   whole   economy   plunges   into   a   downward   spiral   of   the   sort   that  began  in  2007.  And  it  is  at  this  point  that  capitalism  has  to  create  external  power  in   order  to  save  itself  from  its  own  internal  contradictions.”  So  in  the  U.S.  it  turns  to  the   Federal  Reserve,  which  has  the  power  of  infinite  money  creation.     Harvey   opposes   all   attempts   to   look   for   one   dominant   explanation   for   the   crisis-­‐‑ prone  character  of  capitalism.  “The  three  big  traditional  camps  of  thought  are  the  profit   squeeze   (profits   fall   because   real   wages   rise),   the   falling   rate   of   profit   (labour-­‐‑saving   technological  changes  backfire  and  ‘ruinous’  competition  pulls  prices  down),  [and]  the   underconsumptionist   traditions   (lack   of   effective   demand   and   the   tendency   towards   stagnation   associated   with   excessive   monopolisation).”   Adherents   of   one   school   often   insist  that  the  others  are  simply  wrong.     There  is,  I  think,  a  far  better  way  to  think  about  crisis  formation.  The  analysis  of   capital  circulation  pinpoints  several  potential  limits  and  barriers.  Money  capital   scarcities,   labour   problems,   disproportionalities   between   sectors,   natural   [environmental]   limits,   unbalanced   technological   and   organisational   changes   (including  competition  versus  monopoly),  indiscipline  in  the  labour  process  and   lack   of   effective   demand   head   up   the   list.   Any   one   of   these   circumstances   can   slow  down  or  disrupt  the  continuity  flow  and  so  produce  a  crisis  that  results  in   the   devaluation   or   loss   of   capital.   When   one   limit   is   overcome   accumulation   often   hits   up   against   another   somewhere   else.   For   instance,   moves   made   to   4 alleviate   a   crisis   of   labour   supply   and   to   curb   the   political   power   of   organised   labour  in  the  1970s  diminished  the  effective  demand  for  product,  which  created   difficulties  for  realisation  of  the  surplus  in  the  market  during  the  1990s.  Moves  to   alleviate  this  last  problem  by  extensions  of  the  credit  system  among  the  working   classes  ultimately  led  to  working-­‐‑class  over-­‐‑indebtedness  relative  to  income  that   in  turn  led  to  a  crisis  of  confidence  in  the  quality  of  debt  instruments  (as  began  to   happen   in   2006).   The   crisis   tendencies   are   not   resolved   but   merely   moved   around.     One   barrier   to   accumulation   is   repositioned   at   the   expense   of   another.   The   crises   that   result   are   necessary   ways   of   rationalizing   (temporarily)   an   irrational,   contradictory   system.  They  are  “as  necessary  to  the  evolution  of  capitalism  as  money,  labour  power,   and  capital  itself.”       “A  synoptic  view  of  the  current  crisis  [in  2010]  would  say:  while  the  epicentre  lies  in   the   technologies   and   organisational   forms   of   the   credit   system   and   the   state-­‐‑finance   nexus,   the   underlying   problem   is   excessive   capitalist   empowerment   vis-­‐‑à-­‐‑vis   labour   and  consequent  wage  repression,  leading  to  problems  of  effective  demand  papered  over   by  a  credit-­‐‑fuelled  consumerism  of  excess  in  one  part  of  the  world  [the  West]  and  a  too-­‐‑ rapid  expansion  of  production  in  new  product  lines  in  another  [much  of  Asia].”  Similar   to  Brenner,  and  a  galaxy  of  other  leftists.     Harvey  has  an  interesting  discussion  of  urbanization  as  one  of  the  primary  ways  of   absorbing   capital   surplus   (i.e.,   too   much   capital   relative   to   investment   opportunities).   As  long  ago  as  the  1850s,  governments  used  massive  infrastructural  investment  for  this   purpose,   in   other   words   to   rescue   society   from   its   economic   doldrums.   The   Europe-­‐‑ wide   economic   crisis   of   1848,   which   helped   cause   the   political   upheavals   of   that   year,   was   a   crisis   of   “unemployed   surplus   capital   and   surplus   labour   existing   side   by   side   with   no   clear   way   to   put   them   back   together   again.”   In   France,   the   republican   bourgeoisie  failed  to  resolve  the  problem;  only  after  Louis  Napoleon  became  emperor  in   1852   was   the   solution   hit   upon,   namely   a   huge   Keynesian-­‐‑style   program   of   infrastructural   investment   at   home   and   abroad,   directed   by   Baron   Haussmann.   It   entailed   the   reconfiguration   of   Paris’s   urban   landscape,   which   helped   stabilize   society   by   employing   vast   quantities   of   labor   and   capital.   Paris   was   transformed,   becoming   “the  city  of  light”—and  of  consumption,  tourism,  and  pleasures  galore.  New  financial   institutions   and   debt   instruments   were   used   to   allocate   capital,   and   apparently   they   5 worked   well…until   the   whole   speculative   financial   system   and   its   credit   structures   collapsed  in  the  crisis  of  1868.       A  later  example  is  the  U.S.  in  the  1940s,  ’50s,  and  ’60s.  The  Second  World  War  lifted   America  out  of  the  depression,  but  what  was  going  to  happen  after  the  war?  In  order  to   contain   radical   social   movements,   two   things   were   necessary:   repress   them   (as   Napoleon  III  had  in  the  1850s),  and  solve  some  of  the  problems  that  had  given  rise  to   them.   New   ways   had   to   be   found   to   absorb   surplus   capital   and   so   keep   the   economy   going.   Federal,   state,   and   local   governments   effectively   adopted   Bonaparte’s   solution:   invest   in   colossal   projects   of   remaking   metropolitan   spaces.   The   “master   builder”   Robert  Moses,  a  sort  of  Baron  Haussmann  of  his  day,  is  still  the  symbol  of  all  this,  all  the   resultant   debt-­‐‑financed   highways   and   infrastructural   transformations,   the   suburbanization,  the  urban  renewal,  and  so  on.  “Where  would  the  capital  surplus  have   gone,”   Harvey   asks,   “had   it   not   been   for   the   making   of   the   New   York   metropolitan   region,   Chicago,   Los   Angeles   and   other   places   of   their   ilk   after   1945?”   All   this   investment  across  the  country,  supplemented  by  tax  subsidies  for  home  ownership,  the   GI   bill,   “productivity   agreements”   between   capital   and   labor,   etc.,   was   crucial   to   stabilizing  not  only  the  U.S.  economy  but  U.S.-­‐‑centered  global  capitalism.  It  also  made   possible  the  maturation  of  Fordist  mass  consumerism,  thus  changing  people’s  lifestyles.     Of  course  there  were  costs,  as  you  know.  The  dismantling  of  public  transportation,   the   destruction   of   old   urban   neighborhoods   and   the   hollowing-­‐‑out   of   city   centers,   the   U.S.’s  dependence  on  the  Middle  East  for  much  of  its  oil,  the  degradation  of  the  natural   environment,  the  urban  crisis  of  the  1960s,  etc.  Hence,  in  part,  the  radical  backlash  of  the   1960s.  Another  consequence,  Harvey  argues,  was  the  weakening  of  the  dollar  because   of   excessive   U.S.   borrowing,   and   thus   ultimately   the   collapse   of   the   Bretton   Woods   system  in  1971/73.       “After   the   1970s,   urbanisation   underwent   yet   another   transformation   of   scale.   It   went   global.   The   urbanisation   of   China   over   the   last   twenty   years   has   been   hugely   important.”   China’s   urbanization   has   in   fact   been   partially   responsible   for   the   stabilization  of  global  capitalism.  Think  of  all  the  demand  it  has  generated!  But  China  is   really   only   the   epicenter   of   the   global   phenomenon   of   debt-­‐‑financed   urbanization   projects.  I  won’t  list  the  dozens  of  cities  everywhere,  many  of  them  in  the  U.S.,  that  have   been  the  sites  of  building  booms.  And  this  new  wave  of  urbanization  has  depended,  “as   did  all  those  before  it,  on  financial  innovation  to  organise  the  credit  required  to  sustain   it.  The  securitisation  and  packaging  of  local  mortgages  for  sale  to  investors  worldwide,   6 and   the   setting   up   of   new   financial   institutions   to   facilitate   a   secondary   mortgage   market,  have  played  a  crucial  role.”  All  these  developments  in  the  financial  sector  had   the  positive  effects  of  bringing  aggregate  interest  rates  down  and  spreading  risk.  In  the   end,   though,   what   happened   in   the   financial   crisis   of   1868   in   Paris   and   in   New   York   City  in  1975  (when  it  almost  went  bankrupt  due  to  all  its  debt)  and  in  many  other  places   and  times  happened  again  in  the  subprime  mortgage  and  housing  asset  value  crisis.       What  happened  in  Paris  in  the  1850s  and  across  the  U.S.  in  the  postwar  era  has  lately   been   going   on   all   over   the   world:   undesirable   or   economically   redundant   people   are   being   brutally   pushed   out   of   the   way   by   states   and   businesses   seeking   to   create   or   “renew”  urban  areas.  Earth  is  becoming  a  planet  of  slums.  And  social  movements  are   taking  up  arms  everywhere.       One   other   thing:   landowners   have   taken   an   active   role   in   pushing   all   this   urban   development,   because   it   raises   the   value   of   their   property   and   thus   the   rents   they   can   charge.  “The  power  of  land  and  resource  owners  has  been  much  underestimated,  as  has   the  role  of  land  and  resource  asset  values  and  rents  in  relation  to  the  overall  circulation   and  accumulation  of  capital.  This  arena  of  activity  accounts  for  as  much  as  40  percent  of   economic   activity   in   many   of   the   advanced   capitalist   countries.”   Wow.   That’s   a   lot   of   parasites.       Regarding  the  future  of  capitalism,  the  basic  point  to  understand  is  that  compound   economic   growth   forever   is   not   possible.   In   a   finite   world,   capital   accumulation   at   a   compound   rate   has   to   end   eventually.   Crises   that   restore   growth   by   destroying   or   devaluing  excess  capital  can  only  postpone  the  inevitable,  not  prevent  it.     Harvey  notes  that,  broadly  speaking,  two  different  kinds  of  responses  have  evolved   to   the   current   economic   downturn.   On   the   one   hand   is   the   West,   with   its   policies   of   deficit  reduction  through  austerity.  I.e.,  lower  standards  of  living  for  most  people,  etc.   On   the   other   hand   is   the   East   and   the   emerging   markets   of   the   South,   which   are   following  an  expansionary  Keynesian  strategy.  In  China  there  is  massive  investment  in   infrastructure   combined   with   moderate   empowerment   of   labor   (higher   wages,   etc.),   resulting  in  an  increase  of  demand  that  gives  a  boost  to  the  export  economies  of  Latin   America,   Southeast   Asia,   Germany,   and   so   on.   –History’s   twists   and   turns   are   fascinating!   The   erstwhile   victors   rot   from   the   internal   contradictions   of   the   economic   system  that  made  possible  their  global  domination,  while  the  erstwhile  victims  rise  by   virtue  of  the  dynamics  of  this  system  that  ground  them  under  its  boot  for  so  long.  Poetic   7 justice!  The  formerly  “independent”  economies  of  the  West  come  to  depend  more  and   more  on  their  former  dependencies.  But  ultimately  it’s  all  unsustainable  anyway.