Discovering Capitalism's Contradictions: David Harvey's Journey through Marx's 'Das Kapital': The Madness of Economic Reason
Discovering Capitalism's Contradictions: David Harvey's Journey through Marx's 'Das Kapital': The Madness of Economic Reason
Marx, Capital, and the Madness of Economic Reason - Book Overview and Thoughts
I attempted to read Karl Marx's "Das Kapital" a year ago and, unsurprisingly, just did not have the time and experience to engage with the material. The book is very long and academic, with mathematics almost everywhere, and it uses a rigorous and analytical approach. However, while looking for companion books, I stumbled upon David Harvey, who, in my opinion, deserves credit for making Marxist theory understandable.
David has written multiple books, just a few of which were meant to explain Marx's ideas. I started reading "Companion to Marx's Capital" a few months ago and still return to it once in a while. Today, though, I'd like to focus just on "Marx, Capital, and the Madness of Economic Reason," which, in my opinion, is the ideal book for introducing oneself to Marx and his challenging concepts without losing sight of the big picture.
Before we go into detail, here are some highlights:
The most important thing to understand capital is to see it as “value in motion,” since it travels through different stages at different rates and ultimately returns to where it started.
Marx believed in two types of value: use value and exchange value.
Marx defines value in a social form, and describes it as “socially necessary labor time.” This means the time and effort someone spends producing goods and services for others.
During the process of commodity production, the worker always reaches a point where they have created the value equivalent to the cost of their labor power and transferred the value of the means of production into the new commodity. However, the worker continues to work beyond that point creating surplus value, which is the root of money profit.
Capital goes through three stages: valorization (in which its value increases), realization (where capital becomes a commodity and is sold in the market in order to be transformed back into capital), and distribution (the process by which surplus value is allocated among various sectors).
The financial system plays an important role in distributing surplus and guiding the reinvestment of money as capital. However, Marx claims that these complicated interactions within the distribution stage can become speculative at times. This implies that value can be extracted from the economy and circulated as money in markets where no actual value is created.
Marx considers value in relation to anti-value, or the negation of value. At its best debt represents anti-value, and it circulates as interest-bearing capital throughout the credit system. Other types of anti-value exist, such as the oppositions that emerge as a result of the market's concept of commodification, which restricts access to basic needs and, over time, prevents us from procuring them. This gives rise to another type of anti-value as well as a political challenge to the capital realization process.
Marx uses space and time to refer to the need of capital to create the global market. This intrinsic urge to expand creates conflicts in which capital benefits from geographical concentration but faces the issue of balancing the benefits of concentration with the need for expansion for growth.
Marx recognized that value could not be the same everywhere. Value laws change according to geography, and a lack of awareness of this results in richer countries exploiting poorer ones.
Capitalism faces a contradiction because it wants to minimize the amount of time workers spend on labor to maximize profit. However, it still relies on labor time as the sole measure and source of wealth.
Interest-bearing capital is a contradiction. Anti-value forces capitalists and individuals to focus on future value production, which must always rise exponentially to meet interest payments. It forces capitalists to fully use the anti-value or face devaluation.
Capital's preferred method of enslavement is debt peonage because it does not forgive but insists on redemption through future value creation. The relationship of the state and the financial sector guarantees capital survival while alienating entire communities from power and influence.
Now, let’s delve deeper into it!
Capital as Value in Motion: How Das Kapital is divided
Karl Marx worked hard to understand how capitalism works and to grasp the complexity of how capital transforms as it moves through the many phases of the economy.
What I like about David Harvey is that he discovered a method to visualize the complex method of capital by comparing it to the water cycle. This is by far the best way to explain it, because capital does the same thing: it travels through different stages at different rates and ultimately returns to where it started, at least, in some respects.
This brings us to Marx's crucial claim where he wants us to understand capital as "value in motion."
To begin to understand this concept, we must know that Marx believed in two types of value: use value and exchange value. Use value refers to how people can use objects without the necessity for a market. That is, if someone needs a jacket to keep them warm in the winter, it may not have an exchange value without a market, but it does have a use value, which is to keep you warm.
Furthermore, Marx defines value in a social form, and describes it as “socially necessary labor time.” This means the time and effort someone spends producing goods and services for others. This value is not something physical we can see or touch, but is, nonetheless, a necessary social construct for the economy to function.
This leads us to money, and how it is used to make value more tangible. Money acts as a representation of value in a social form, and it helps us measure and exchange goods based on how much they are worth.
Now, if we consider capital to be “value in motion", we may wonder how, where, and why it moves and transforms into other forms.
To respond to this question, it is important to note that not all money is capital. Capital is just the portion of money used to buy labor and means of production. The ability to work, provided by workers who sell their labor, is referred to as labor power, and the means of production include raw materials, machinery, and resources.
When money is exchanged for these two components, capital enters an important phase in which it transforms from money to commodities.
On that note, one important thing about this process is that it has contradictions. With technological advancements, the amount of labor required to produce each object decreases. However, if the overall production of goods does not increase sufficiently, there may be a decline in the total value created.
For example, if productivity doubles, one must produce and sell twice the number of objects to preserve the same overall value.
On top of that, during the process of commodity production, the worker always reaches a point where they have created the value equivalent to the cost of their labor power and transferred the value of the means of production into the new commodity. However, the worker continues to work beyond the point where their labor power has been covered, making these additional hours of work create surplus value, which is the root of money profit.
This is the stage of the process in which capital undergoes valorization, and hence increases in value. By extending the working day beyond the point of labor power recovery, dead capital (constant capital) is given new life, while labor power is used to produce absolute surplus value.
After goods have been created, including any surplus, they are sold on the market. This is the point at which the value of the things is converted back into money. However, for this transition to happen, individuals must want or need the commodities and be able to pay for them. These conditions do not happen by themselves, but are influenced by the history of creating desires.
Marx refers to this transition as the point of “realization,” and it is important for the flow of value to be sustained, but it can be challenging because production and realization must align. If nobody wants a particular thing, no matter how much labor went into making it, it won't have any value.
On that point, one key contradiction is that workers, who are important as consumers in buying goods, face limitations in their ability to sell their own labor power. Capitalism often keeps their wages low, restricting their purchase power and making it difficult for them to participate fully in the market as consumers.
Another contradiction arises from the fact that during periods of intense capitalist production, there can be an excess of goods produced, leading to overproduction. This happens because the limit on the use of productive powers is not just the creation of value but also the ability to sell and realize that value in the market.
Furthermore, the realization of the value of goods and the surplus value generated from them is not restricted by the overall consumer needs of society but rather by the consumer needs of a society where the majority of people are poor and likely to remain like that. The effective demand from the working class is crucial for maintaining balance in the market. However, this demand is constantly threatened by the same system.
Now, once values have transformed from commodities back into money through sales on the market, the money, or in better terms the surplus value, is distributed among various participants. This part of the process is called distribution.
The process begins with workers receiving their part in the form of wages. Secondly, once workers receive their wages and the government claims its part, the remaining value is divided among different individuals. Individual capitalists earn a percentage based on their invested capital. Rents benefit property owners, including landowners and intellectual property rights holders. Merchant capitalists (those who sell commodities directly to consumers) and bankers also make money and play a crucial part in the economy by facilitating the conversion of money back into money capital. This step completes the capital cycle and allows it to flow back into the valorization process, at least in some sense.
One important thing to note is that the financial sector is not just a passive recipient of surplus value but actively supports the flow of money through interest-bearing capital.
The financial sector's dual role influences capital dynamics. It separates ownership from management, with stockholders seeking a return on investment while management organizes surplus value production. This separation might result in separate streams of capital moving in opposing directions.
Finally, the debt created by interest-bearing capital is crucial because it creates an incentive to keep capital in circulation. Debt repayment is important for future value generation, and failure to do so almost always ends in a major crisis in the capital flow system.
With all of this, it is clear that the capital system has multiple incentives and driving factors that contribute to keeping value in motion, but not without the risks, contradictions, and challenges that Marx elaborates on in his work.
Money as the Representation of Value
As we saw, Karl Marx thought that value is a social representation. It is immaterial yet objective, as we cannot simply perceive something as having intrinsic value. As a result, it is a social relationship that requires objective representation, and hence money cannot be linked to the value it represents.
According to Marx, the economic concept of value is unique to modern economies and represents the most abstract expression of capital and its production.
Furthermore, both money and credit in a capitalist mode of production have distinctive qualities that ensure the continuous movement of capital. The need to maintain continuity brings together the categories of money, credit, and value within a specific historical configuration.
In the first chapter of Capital, Marx examines pre-capitalist societies to show how categories are embedded in historical contexts. He contrasts the forced labor of feudalism and patriarchal rural industry of peasant families to highlight the characteristics of capitalism.
For instance, he notes how Feudal modes of production were primarily focused on subsistence and local exchange, rather than by the pursuit of profit.
After he has taken us through the process of deconstructing capitalism by analyzing the past, Marx invites us to imagine an association of free individuals who collectively work with commonly held means of production, exercising their various forms of labor power with full self-awareness as a unified labor force. He further claims that in this unalienated environment, the social relations between individual producers and their labor and products become transparent and simplified, both in production and distribution.
Moreover, in this type of scenario, there is no “hidden hand” of the market or laws of motion that restrict our freedoms, nor is there any dictation by the state.
Clearly, then, this scenario highlights money as a classic example of a fetishism, in which we attach social power to it, both over ourselves and others. Marx also pointed out the conflict between capitalism's socialized nature of production and private appropriation of surplus value. He argued that capitalism's emphasis on collective labor contradicts with private ownership of the means of production, resulting in conflicts and tensions within the system.
Furthermore, now that we know that value is a social relation for Marx, we can talk about how he found himself in disagreement with Proudhon, a prominent figure among French politicians.
Proudhon and his followers questioned why capitalists and the working class were both poor when leading economists, such as David Ricardo, claimed that economic value was exclusively produced by labor.
Furthermore, Proudhon argued that the problem was the representation of labor value in the market and the irrationality of money and market exchange. He then proposed alternative ways of measuring labor value and setting prices, such as coins representing actual hours of labor, and alternative monetary systems.
However, Marx strongly disagreed with these ideas, arguing that Proudhon failed to grasp the social relations that define value. He argued, as we saw, that, under capitalism, it is socially necessary labor time, not actual labor time, that matters. The concept of "socially necessary" implies the existence of a hidden hand to which both capitalists and workers are subject.
This is where Marx says he agrees with Adam Smith's concept of the "hidden hand" of the market - the one that pushes the free market through competition. However, he goes on to say that this hand is unquestionably the one of labor exploited by capital, secured by private property, and determined by commodity exchange in price-fixing markets; which inevitably leads to the degradation of workers in the process of capital accumulation.
Additionally, Marx warns that reforms to the monetary system alone cannot address the fundamental contradictions in the money relation and the capitalist mode of production. He argued that the ultimate solution lies in the total abolition of exchange value, which implies the abolition of value as socially necessary labor time.
Finally, Marx discusses the financial system and how, as previously said, it plays an important role in distributing surplus and guiding the reinvestment of money as capital. He maintains, however, that these complicated interactions within the distribution stage can become speculative at times. Making the circulation of interest-bearing capital a profit-generating process that does not immediately contribute to the valorization and realization processes.
Without a doubt then, from Marx's perspective of money capital, the processes of making a profit, known as valorization and realization, are seen as inconveniences. If money capital could increase itself without going through these processes, it would prefer to do so.
Anti-Value: Devaluation
In Marx's work "Capital," he argues that for something to have value, it must be useful. If something is useless, the labor put into it does not count as valuable labor.
Furthermore, Marx sees value in relation to anti-value, which is the negation or loss of value. This contradiction arises in the act of exchange, where it must be redeemed in order for value creation to continue, and it exists because when we exchange a commodity, it must have a use value for the buyer and a non-use value for the seller.
To begin to understand this concept of anti-value, we must grasp the necessity for capital to be in continuous motion; that any pause or slowing in this motion results in a loss of value, and that this motion can only be recovered when the capital restarts its movement. If different types of capital, such as manufacturing, waiting to be sold, or circulating as a commodity, are not actively engaging in the circulation process, they might be essentially depreciated.
Now, as some of us may know, the possibility of a general devaluation of capital, can lead to a crisis. Therefore, the realization of value depends on buyers and sellers in the market. Thus, while labor is crucial in the production process, consumer choice plays a significant role in realization.
This is where manipulations come handy. Buyers have the freedom to choose what to consume, technically, and may resist market manipulations.
For instance, we all know the marketing that manipulates desires, and we all know the movements of resistance to these manipulations. This opposition comes from the market's concept of commodification, which restricts access to essential needs and, over time, prevents us from procuring them. This gives rise to another type of anti-value as well as a political challenge to the capital realization process.
Now, another form of anti-value under capitalism is debt. At its best debt represents anti-value, and it circulates within the credit system as interest-bearing capital.
As we have seen, capital must flow or it will stagnate. Capitalists cannot have capital lying around collecting dust, so money saved is dead money. The credit system allows stored money to generate interest, which is a way capital regains motion. However, capitalists can also borrow money and repay loans in installments. This is anti-value in the form of debt, and it circulates as interest capital in the system. It causes capital to move even when the actual value in production has different turnover times.
With this, Marx shows how debt is used to keep money in circulation and ensure continuous value production. However, if future value production is not sufficient to repay the debt, it can lead to crises and financial problems, making debt a burden on individuals, companies, and even countries.
This burden made Karl Marx see the financial system as the ultimate expression of capitalism's fetishistic attitude, and says that crises are the most apparent manifestations of anti-value. Instead of being considered as opportunities to better grasp capitalism's issues, crises are viewed as accomplishments in which the system simply regenerates and reborns. One of these anti-value manifestations is the forced monetary depreciation of exchange values.
Finally, it is important to note that the presence of one type of value negation does not fundamentally imply the presence of other types of value negation. During the 2008 housing crisis in the United States, for instance, the depreciation of housing exchange values resulted in a considerable stock of housing use values that could be acquired at low rates by private equity firms and individuals with sufficient money to do so.
Prices without Values
As some of us may infer, prices do not represent values, at least not under capitalism.
In a system where money speaks, gains win, which means that people focus on making money even if it means speculating on the pricing of things like art and currencies that have no real value. This implies that value can be extracted from the economy and circulated as money in markets where no actual value is created.
This situation can lead to investors making mistakes, since the price of something doesn't reflect its true value. For example, if property markets provide the highest returns, capitalists will invest in them rather than in productive activities. This unreasonable behavior has the potential to harm the economy's general functioning and lead to stagnation.
On the account of making profit, Marx discusses the "free gifts" of nature and how capital appropriates them for profit. Metals, minerals, and coal are examples of natural resources. Capital can use these things without paying, but they may acquire a cost if someone claims ownership and charges rent for them. This applies to land, cultural objects, household work, and even worker skills that most of the time are acquired after the worker has been hired.
For instance, in the current economic system, there is a growing trend of exploiting the value created by knowledge and creative work. While knowledge has become an important part of the economy, it doesn't always have a clear value.
Furthermore, Marx argues that as society develops and knowledge expands, it becomes possible to incorporate it into systems of production. With this we can become more productive and, ultimately, reduce the amount of time and effort needed to produce goods and services.
The main point of Marx is not that knowledge should make us work less in general, but rather that it should make our work more efficient. With knowledge we can produce the same or even greater output with less labor input. This increased productivity can potentially lead to shorter work hours or allow for more time and resources to be allocated to other pursuits.
However, he was aware of the capitalist system’s exploitation of labor and the potential displacement of workers due to technological advancements. He argued that as knowledge becomes incorporated into fixed capital it can make certain types of labor less valuable, leading to inequality and challenges for workers.
Now, on the subject of knowledge, Marx showed special concern for imagination and creativity, and how capital limits it by transforming its worth.
There is a good example of this in the book, where John Milton, the author of Paradise Lost, did not create value when he wrote his novel; it did so only after it was printed and sold as a commodity. In other words, by the time the book was commodified and sold in the market it acquired value and surplus value. Additionally, after books have been printed, first editions, or even the original book itself, acquired an astronomical price.
This, in short, shows us how "productive" refers to the creation of surplus value, which is the extra value generated beyond the cost of production. This creates confusion because the products of creative intellectual labor, like unique books, seem exceptional and their price seems to increase due to factors like reputation, which are not directly related to the labor involved. This is just an example of the contradiction of value and its monetary expression.
Now, this is where we talk about the claim that most Marxists make, which is the concern that as productivity increases, the volume of physical goods in circulation may rise while the production of value and surplus value diminishes or even disappears. This could lead to the collapse of capitalism, and it happens as a result of capitalism's persistent preference for labor-saving innovations.
Now, we say value is diminished because, in the context of capitalism, value is generated mainly by human labor. When automation replaces human labor, the value of the objects produced may fall since they are no longer filled with the direct contribution of human effort. This, in turn, has the potential to have an impact on the entire social production of value and surplus value.
Furthermore, declining social production of value and surplus value could increase the gap between commodity physical production and pricing. As more things are created through automation, manufacturing costs may fall; yet, if consumer purchasing power falls due to fewer work opportunities, there may be a discrepancy between the two.
Finally, just as capitalism has an impact on knowledge, it also affects other "free gifts" of nature such as history and culture. Tourism, for example, creates value and surplus value by capitalizing on natural parks and natural scenery.
With all these, we can conclude that capital faces major contradictions. One arises from the search for relative surplus value, which focuses on labor-saving technological changes that reduce the labor force available for value extraction. The other one is the tendency for capital to invest in areas that produce no value or surplus value, driven solely by the pursuit of monetary profit.
This leads us to the conclusion that understanding the complexity of the money-value relationship is critical for understanding the challenges of capital formation.
The Question of Technology
Marx believed that under capitalism, there is a strong drive for technological changes to increase profits. Competition among capitalists leads to the adoption of better technologies to lower production costs and gain an advantage in the market. This process results in higher productivity and a decrease in the value of individual goods, resulting in more surplus value for the capitalist.
However, although machines help in raising productivity, Marx argued that they themselves do not produce value. He claims that the value comes from living labor, not from past labor embodied in machines, since it's the labor who created them.
This leads to the claim that capitalists often mistakenly believe that machines create value and act upon this belief. This fetishism of technology, according to Marx, is widespread and can lead to the belief that technology can solve all social and economic problems. Putting us in an echo chamber of belief where we think that technological advancements alone drive historical change.
Now, contrary to popular belief, Marx believed that history is more than only the history of class struggle. He argued that different moments interact with each other and affect how we see the world.
For example, many mental concepts we have now, have become apparent because of our ability to see more, such as through telescopes. As a result, one's perspective on the world expands.
This means that while technological progress and its relationship with social relations in capitalism have played a significant role in shaping history, they are not the only factors. Marx's analysis encompasses seven elements like technology, social relations, modes of production, mental conceptions, daily life and institutional frameworks. All these aspects interact and evolve together within the capitalist system but most of the time at different speeds or directions.
Consequently, technology in the form of money leads nowhere, without transforming the other moments. The Internet, for example, can promise different things, but when it is co-opted by the mentality of exploitation and accumulation, it just leads to the same end, what we need is more of the other moments or forms of actions.
A clear example of this is climate change, and the difficulty it has because it requires drastic changes in all seven moments. This leads to fixes like green capitalism that clearly reflect an imbalance in mental conceptions or social relations when compared with other moments.
It is important to say, however, that Marx does not provide a fixed formula for how these moments will bring about a change. He argues that revolution is an ongoing process of movements across all these different aspects.
This explains the failure of the Soviet Union, and how it ignored the intersection of all these moments, forcing communism by productive force solely.
Other examples include, institutionalists emphasizing institutional changes, economic determinists focusing on new technologies, socialists and anarchists accentuating class struggle, and cultural theorists studying transformations in everyday life. Marx's approach, on the other hand, considers all of these conditions to be interconnected and interdependent in order for fundamental transformation to emerge.
Now, the reason Marx emphasizes technology a lot, is because he knew that technology itself becomes a business. When new technologies emerge, they naturally seek new markets and contribute to the centralization of capital.
For example, in Marx’s time, the steam engine created multiple applications within the fields of transportation, and even the factories that created the engines themselves.
Furthermore, a surprising statement in the book that reaffirms the fetishism with technology is that John Stuart Mill, a political economist, questioned if previous inventions had genuinely reduced the amount of work for humans. As to what Marx responded, “No,” since capitalists use machinery to take more profit from labor rather than to lighten the workload of workers.
This brings us to the conclusion that capitalism faces a contradiction because it wants to minimize the amount of time workers spend on labor to maximize profit. However, it still relies on labor time as the sole measure and source of wealth. On one hand, capitalism seeks to harness the powers of science, nature, social cooperation, and interaction to create wealth independently of labor time. On the other hand, it wants to use labor time as a measure to control and limit the social forces generated by these advancements within the boundaries necessary to maintain the existing value of goods and services.
The Space and Time of Value
The concept of space and time may appear to be quite philosophical and scientific, but it is in the nature of capital to establish the world market, which means it generates its own space.
However, physical constraints such as distance and transportation difficulties, as well as time constraints, must be solved in order to attain a fast-paced global market.
With this in mind, Marx talks about how the dialectical movement of space and time that capital creates for its own needs and purposes, ultimately becomes antagonistic.
To explain this is going to be tough, but I will attempt to do it the best I can.
To begin with, in capitalism, there is a fundamental contradiction regarding the spatial dynamics of capital. On one hand, capital needs to be concentrated in specific locations to take advantage of resources, labor, and infrastructure for its growth and accumulation.
On the other hand, capitalism also requires expansion and the ability to move capital across large distances to access new markets and investment opportunities.
So, while capital benefits from spatial concentration, it also faces the challenge of balancing the advantages of concentration with the necessity of expansion.
Now, in order for Marx to study the dynamics of capital, he tried to present the world of trade as a single nation, claiming that capital is established everywhere and has power over all industries.
However, he found it difficult to do this study since he witnessed the rise of companies in first-world countries, such as the United Kingdom, seeking cheaper materials for their operations. This prompted them to expand, but only by colonial means.
As a result, this increased division of labor, with one region of the world serving as a supplier to the industrialized countries. This development and colonization provide new demands and fields for industry while also worsening inequality in wealth distribution. One example of this can be the trade agreements between Mexico and the United States.
This leads to the conclusion that capitalism's contradictions and the uneven distribution of wealth drive it to constantly search for geographical expansion as a means to resolve its internal conflicts.
Regarding time, Marx, as previously said, defines value as socially necessary labor time on the global market. While surplus value is one thing, the division of the working day that maximizes surplus value is a battle fought on a daily basis as capital steals as much extra labor time as it can.
This causes Marx to perceive capital as a spiral rather than a circle, and to arrive at different human perspectives on space and time. He suggested that we either utilize a universal, fixed temporal and spatial frame to establish order or recognize that there are several ways to conceptualize time and space, which leads to inconsistencies that must be accepted and resolved.
To understand this deeply, we first need to understand the different relations of space and time.
The first concept is absolute space-time, which refers to a specific physical space and a set and defined span of time. It can be represented by using the time of the working day or the time of the lease of a land, for example. Marx refers to this as concrete labor because it constitutes a tangible and measurable kind of temporal and geographical connection within capitalist production.
The second concept is relative space-time, which is the space and time of relative surplus value, or variable productivity or intensity of different parts of the working day. As an example, consider someone who rents land and wants to maximize profits but is unable to cultivate fruits since labor is scarce and the area is too remote from all resources. If a highway is built in the middle of the lease, the tenant will be able to swap from grain meals to fresh fruits.
However, because fruit trees take eight years to mature, planting fruit trees under the terms of the lease would be illogical. In this concept differential transport costs and distances are taken into account.
The third and most difficult concept is relational space-time. David illustrates this with home valuation and how each upgrade to a property affects the monetary value of the houses around it. The position of the house in relative space and time is used to value it, but the ultimate result is just an idea of the highest and best use of it. When there is a crisis and markets collapse, all we can do is make assumptions on the asset's value. This suggests that these values are influenced by expectations, anticipations and sentiment in general.
Clearly, with this, we can see how time plays a central role in Marx's critique of political economy. He argues that use value and exchange value, as well as concrete labor (specific work) and abstract labor (general labor), clash because they all have different time frames.
All of this brings Marx to ask questions about production and circulation times. He noted that, for example, while planting crops, it may take a few hours to finish the labor, but several years for the crops to grow. Capital has difficulty organizing various turn-over times.
Now, this leads us to the concept of fixed capital, which answers questions such as:
How do machines transfer their value into the goods they produce?
To begin, let's imagine a business owner who buys a machine to make their workers more productive. This machine adds value because it helps workers produce more goods. However, if everyone else also buys the same machine, the advantage is lost. The business owner needs to recover the money invested in the machine over its lifetime. One simple way to do this is by subtracting a portion of the machine's value each year.
For example, if the machine lasts for ten years, one-tenth of its value is considered as part of the goods produced each year. After ten years, the business owner should have saved enough money to buy a new machine and start the process again.
However, there's a problem. Newer and better machines are constantly being developed with advancements in technology. This means the existing machines can become less valuable and less competitive. The value of a new machine is not the same as the old one that has been used for some time. The lifespan of a machine is no longer only determined by physical factors because the introduction of better machines might lead to the early retirement of the existing ones.
There are three ways to understand how fixed capital moves in the economy. The first is by subtracting a fixed portion of the machine's value each year based on its average lifespan. The second is by considering that the cost of replacing the machine may vary during its lifespan. The third way involves continuously changing the value of the machine based on how useful it is in creating profit and competing with other businesses. In this case, the lifespan of the machine depends on how well it creates value and profit, not just the amount of labor that went into making it.
This brings interest-bearing capital back into the picture. Where capitalists borrow money and repay its value, including interest, over time. This introduces the circulation of interest-bearing capital and intersects with the circulation of value through fixed capital use.
Now, Marx argues that the formation of fixed capital is closely related to the production of surplus products, which creates conditions conducive to its accumulation. As fixed capital increases in scale, more surplus labor and capital can be absorbed, allowing for the construction of infrastructure. This allows us to distinguish between production and consumption investments.
In any instance, interest-bearing capital is a contradiction. It is anti-value that forces capitalists and individuals to focus on future value creation, which must always rise in order to meet interest payments. It forces capitalists to employ the anti-value fully or face devaluation. Fixed capital ties you to specific ways, times, and places of accomplishing things in the future. The future becomes entangled with the past, and capital loses flexibility while desperately needing it.
The Production of Value Regimes
Marx recognized that value could not be the same everywhere. Value laws change according to geography, and a lack of awareness of this, results in richer countries exploiting poorer ones.
This means that the trade of regional values ends up subsidizing and boosting the other country's economy. High-value-producing areas, such as Mexico, sustain high-productivity areas, such as the United States. This is why certain countries, like Japan, choose to subsidize capital over labor-intensive kinds of production.
Now, according to Marx, the only way we can have an adequate representation of money is through a world market, since it is the only way that it acquires its universal form.
To explain this, let's imagine we have a city. Over time, a specific type of money is created to represent the average amount of time and effort put into producing things in that city. This money represents the value of goods and is based on the idea of how much work is needed to make them. This can happen in different cities too, where each city has its own way of measuring value.
Furthermore, capitalism, which is the system of making and trading goods, wants to go beyond just one city. It wants to break the limits of trading between different areas with their own value systems. It wants to create a global market where goods can be exchanged universally. To do this, universal money needs to be established.
Historically, this role was fulfilled by gold, which was considered valuable all around the world. However, nowadays there are challenges with using a single currency like the US dollar as the global reserve currency. The US economy represents a certain level of productivity, but it's not guaranteed that everyone will always accept the US dollar as the standard for measuring value. If the productivity of other countries surpasses that of the United States, then people may question the value of the US dollar. This means there isn't a stable foundation for a universal equivalent of value. The value of currencies can change unpredictably, leading to the evolution of different systems of measuring value in different parts of the world.
Now, as we know, capitalism expands to create the world market. As a result, the convergence of different value systems increased, both at regional and global levels.
The convergence of different values has been created by a continuous effort to reduce barriers to trade. Transportation costs have fallen, and political barriers like tariffs and regulations have been reduced through initiatives like the World Trade Organization. These efforts suggest that the differences between regional value systems are disappearing, and we are moving closer to a globally unified system of value.
Now, attempts to create trade agreements like the Transatlantic Trade and Investment Partnership reflect the desire of certain countries, particularly the United States, to establish a specific value system that protects their market share. These agreements are not true free trade arrangements but rather agreements among advanced economies aiming to exclude others.
Furthermore, as spatial barriers have diminished, other forms of monopoly have gained importance. Large corporations with significant market power have been a prominent feature of capitalism, and the breakdown of spatial barriers has shifted the focus from national to global perspectives on corporate power. The rise of foreign competition and the establishment of companies in other countries has challenged national monopolies. Few examples of this can be the current monopolistic players like Google and Facebook that have emerged along with their efforts to control intellectual property rights globally.
Finally, Marx argues that competition naturally leads to monopolies, as only the best firms survive when exposed to competition. This happens because capital seeks productivity and scale, which eventually leads to growth by merging or acquiring the small businesses with which it competes.
Clearly then, the importance of different value regimes is undeniable, and in Marx's time, crises often happened due to issues with balance of payments, which refers to the difference between a country's exports and imports.
For example, England, as the leading creditor country, experienced a crisis caused by a negative balance of payments, which led to a drain of gold reserves.
However, nowadays, such crises are not typically resolved by shipping away gold. Instead, they are often addressed through loans from institutions, but this usually comes at the cost of imposing severe austerity measures on the population. Without the gold standard, the world now relies on human manipulation to prevent catastrophic outcomes in global financial markets.
With all this we now know that defining regional value regimes is difficult. NAFTA may work well in combining US productivity with Mexican low-cost labor, but that doesn't mean that Chinese manufacturing methods and African materials can coexist with a Mexican product sold and advertised in the US.
We can see now how the nature of capital is to homogenize incompatible pieces in order to establish the global market and maintain its demand for endless growth.
The Madness of Economic Reason
“The madness of economic reason gets disguised by fetish forms in which money appears to have the magical power of making more money without cease” - David Harvey
The Madness of Economic Reason is just David's account of the system's absurdity.
To illustrate the concept, we can start with Hegel's concept of "bad infinity," which is a philosophical concept that describes an infinite progression without a definite end and is associated with the idea of endlessness that exceeds human comprehension, just as it occurs in capitalism.
Ironically, economists have never confronted capitalism's "bad infinity," which merely results in perpetual compound growth, devaluation, and disaster. Instead, they believe that capitalism has led to an increase in wealth and that crises are just the result of miscalculations. Every argument economists make against a crisis is a contradiction, and the desire to persuade oneself of the nonexistence of contradictions is an indication of a devoted wish for the contradictions not to exist.
The flow of money credit and the anti-value The Madness of Economic Reason generates becomes a black hole in which actual value vanishes in the name of debt redemption. Banks lend to one another and eventually require funds from central banks. Banks lend to governments in exchange for the state's ability to tax the population. Everything is fictional capital created within the credit system to lend to the state, creating an infinite claim for future value generation that will never end.
Furthermore, this drives asset speculation, causing rents and other values to skyrocket to previously inconceivable levels. Making every type of individual borrow even if they know that the anti-value will harm them afterwards.
Now, the drive of unlimited accumulation is not limited to the world of credit and money; it also affects the production of goods and services.
There are a lot of examples of countries using urbanization and construction projects as a means to solve economic problems and absorb all the surplus capital and labor. These projects involve massive investments in housing, infrastructure, and urban development.
In China, for instance, the government launched a program of investment in the built environment, which included the construction of housing and other infrastructure. This helped absorb surplus labor and stimulate economic growth. Similarly, the United States implemented similar measures after World War II to absorb the increase in productive capacity and create jobs for returning veterans.
However, these large-scale construction projects often require the creation of new credit to sustain them, which in turn, creates a global economy that relies on mirage, where the creation of value becomes increasingly disconnected from real production.
Now, one thing to note is that Marx does not think the global market is bad; he simply sees it as the only way for capital to escape devaluation. It is created out of desperation rather than a need or a revolutionary idea. The problem with this is that it doesn’t have a limit.
Furthermore, Marx also mentions mass migratory movements as a result of spatial reconstruction. These changes generate various political stresses and responses, like the anti-immigrant movements, the resurgence of nationalist sentiments, and, on a more positive note, the acceptance of multiculturalism as a potential future.
All these contradictions are everywhere in Marx’s work, and David in his book "Seventeen Contradictions and the End of Capitalism," identifies three contradictions that pose a threat to capitalism's survival. One of the contradictions that we haven’t talked about yet is universal alienation.
There are different types of alienation in Marx's work; however, David highlights the alienation from the valorization stage, in which the worker is alienated from the means of production. Capital does everything it can to make it seem like what it creates only has meaning because of capital. Even our bodies get certain meaning only when capital moves them by productive forces.
Furthermore, alienation is everywhere, from alienating individuals from one another through competitiveness, which hinders solidarity, to even what we desire and think we need. Consumption must be incentivized to generate demand, which is manufactured through influence over imposed lifestyle choices.
For example, we are all familiar with the American Dream, or the Golden Age of America, in which individuals were surrounded by the idea of a hedonistic way of life and an infinite pursuit of satisfactions and desires. This happens because, as we all know, capital must grow and accelerate in order to avoid stagnation, and it must do so by raising consumption at the same or faster rate.
Finally, debt peonage becomes capital's favorite way of enslavement because it does not forgive but insists on redemption through future value creation. The relationship of the state and the financial sector ensures capital survival and alienates entire populations from power and influence. Money's corrupting and alienating power, particularly in the form of interest, is part of the problem. But again, only part of the big trouble we experience in this world we live in…
Sources:
Harvey, D. (2019). Marx, Capital, and The Madness of Economic Reason. Oxford University Press.
Harvey, D. (2018). A Companion To Marx's Capital: The Complete Edition. Verso; Illustrated Edition.
Beyond Thought.
Make sure to subscribe to be added to the mailing list and receive fresh content like this directly in your inbox!