David Harvey, Marx’s method and the enigma of surplus

Last Friday in London, David Harvey gave the Isaac Deutscher Memorial Lecture to a packed audience at the Historical Materialism Conference 2011.  Harvey had won the 2010 Isaac Deutscher prize for the best Marxist book of the year with The Enigma of Capital (http://www.amazon.com/Enigma-Capital-Crises-Capitalism/dp/0199836841).  So he gave a lecture this year.  Harvey is a Distinguished Professor at the City University of New York (CUNY), Director of The Center for Place, Culture and Politics (http://pcp.gc.cuny.edu/) and author of numerous books.  For over 40 years, he has been one of the world’s most trenchant and critical analysts of capitalist development.   And he has developed a global audience for his on-line video lectures on reading Capital, Volume One (see http://davidharvey.org/).  He is shortly to put on his website lectures on Volume Two.

Harvey’s lecture was entitled History and Theory: a commentary of Marx’s method in Capital.  Harvey said that his aim in his books and his lectures was to simplify Marx and above all try to bring together Marx’s theory of political economy with his historical work.  While Marx’s Capital was mostly pared down to theory (although it contains lots of history too), his historical works like the 18th Brumaire of Louis Bonaparte or the Class Struggles in France contain none of the laws of motion of capitalism that Marx developed in Capital.  Harvey saw the aim of Marxists now is to use Marx’s method to ‘merge’ theory with the history to explain events better.

This seems a laudable aim.  Harvey told the audience that Marx’s method in Capital was to see political economy on several levels of abstraction.  There are ‘universalities’ – namely the relationship between man and nature.  Homo sapiens is the only species to mould nature with the exercise of labour.  This applies to any mode of production: slavery, feudalism, capitalism etc.  Then there are the ‘generalities’ – namely the specific modes of production in human social organisation.   Here the general laws of motion of capitalism are developed: i.e. the production for surplus value.  Then there are the ‘particularities’.  What Harvey means here is how surplus value is distributed between rentiers, landlords, and capitalists i.e. rent, interest and profit.  And finally, there are what he calls the ‘singularities’, namely the events or reality before us, like a housing collapse or a financial crash.  Following Marx’s method, we must try to connect the singularities with the other levels of abstraction.   Harvey says that Marx did not get everything right (true) and did not know everything (true), so we must improve or add to Marx. using his method.

This is all fine, if a bit convoluted.  So let’s cut to the chase.  Harvey argues the current singularity of ‘neoliberalism’ that has endured over the last 30 years has changed nearly every level of the Marx’s schema.  Thatcherism and Pinochet in Chile changed ‘mental conceptions’ (I think he means people no longer consider that there is any alternative to markets and capitalism).  And they have changed the laws of political economy too (at least, I think he was hinting that).  Namely, that the nature of the crisis of capitalism now is different from what it was in the 1970s.

How is it different?  Well, Harvey brought to the audience’s attention that in preparing lectures on Volume Two of Capital (which he considered a very boring volume because it is almost all at the level of generalities without any singularities of history), he had focused on Marx’s reproduction of capital schema.  Harvey argues that these schema reveal the nature of capitalist crisis – or at least crisis in this neoliberal era.  The cause of crisis is the failure of credit and not profitability.

In Marx’s simple model of reproduction, there are two classes, capitalists and workers.  And there are two sectors of the economy: the consumer goods (and services) sector and the capital goods (and services) sector.  One sector produces the things we need to live and other produces the things we need for the means of production.  Harvey did not show this graphically to his audience but we can characterise the capital goods sector as c1 (constant capital)+v1 (variable capital) +s1 (surplus value) = total value of capital goods and the consumer goods sector is c2+v2+s2= total value of consumer goods.  What Marx shows is that value produced in the capital goods sector covers the cost of constant capital (c1) plus the new value produced (v1+s1).  This new value is purchased (realised) by capitalists in the consumer goods sector to cover their constant capital (c2).  The new value in the consumer goods sector (v2+s2) is partly realised by the workers in this sector (v2).  But who consumes the surplus value in consumer goods production (s2), asks Harvey.  Who is the final consumer?  Rosa Luxembourg thought it had to be the non-capitalist economies of the world.  What Rosa missed was the obvious source of ‘realisation’: capitalists themselves.  They need to live and so provide demand for this surplus.  But Harvey wants to argue that capitalist demand is not enough to ‘absorb the surplus’.   Marx’s schema shows that there is still a gap that has to be filled by credit or borrowing.   So when credit collapses or shrinks, there is a crisis of overproduction or underconsumption – and this is the crisis under the era of neoliberalism.

In a review of David Harvey’s book by Benjamin Kunkel in the London Review of Books http://www.lrb.co.uk/v33/n03/benjamin-kunkel/how-much-is-too-much and posted on DH’s website, Kunkel says:  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 realised through 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.  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 unproduced goods 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’.

Now I have to say that if this is what Harvey intends to present in his video lectures on Volume Two of Capital, then I’m worried.  His interpretation of the reproduction schema is not what Marx was saying.  On the contrary, Marx was saying that the circulation of capital and value between the two sectors would match up without any surplus or deficit.  Capitalism can reproduce.  So any crisis in reproduction is not the result of the disproportion between the two sectors or an inability to ‘absorb’ a surplus.  That is not the enigma of capital.  In Marx’s simple reproduction schema described above, there is no accumulation of capital; everything stays as it was.  The surplus value (s2) created in the consumer sector is ‘absorbed’ by the capitalist class in total.  Of course, this is not realistic.  In Marx’s extended reproduction schema,  most of the surplus value is used for new investment in machinery, plant, raw materials and expanded labour to increase production in the next cycle.  But the two sectors still match up.

Of course, increased investment means that the capital goods sector is likely to grow faster than the consumer goods sector over time.  But to quote Andrew Kliman: “what the reproduction schemes show is that growth can occur indefinitely, despite shrinking consumption demand, by means of an increase in the demand for machines to produce new machines and a relative expansion of machine production” (unpublished manuscript).  Indeed, it has done so.  According to Kliman, “the evidence that investment spending on structures, equipment, and software grew significantly faster than consumption spending and GDP during the past three-quarters of a century is extremely robust.  All of the various measures of their relative growth we have considered confirm that this has been the case.”  Capitalist demand, either for new investment or for consumption, can still be sufficient.  So the cause of crisis is not to be found in Marx’s reproduction schema.

The need for credit in capitalist mode of production is NOT because there is a lack of demand or a need to ‘absorb’ a surplus of consumer goods.  It is because funding fixed capital like plant, offices and new technology cannot be delivered from the value created in just one production cycle.  So credit must be supplied to enable capitalists to buy means of production that cost more than profits in one cycle.  Credit is supplied on the promise of delivering enough value down the road to pay back the debt and any interest.  The credit can come from accumulated savings (reserves in companies and/or deposits in the banks) or by the creation of money by the banks on the assumption that they will be repaid.   Funds can also be obtained through the stock and bond markets.  The risk here is that this money capital or credit turns out to be fictitious, as Marx put it, because investment is not productive enough deliver sufficient surplus value to pay back the debt and interest.  That is especially the case when investors plough their funds into stock market speculation rather than directly invest in productive sectors.  So crises in capitalism are ultimately caused by insufficient surplus value to fund investment and credit, not by the inability to absorb too much surplus value, as Harvey suggests.

In his prize-winning book, The enigma of capital, Harvey puts his general argument more sophisticatedly.  He recognises that the ‘surplus’ can be realised by capitalist consumption, but he reckons that such consumption would not be sufficient to absorb all the surplus.  The rest must be absorbed by reinvestment and expansion of production (extended reproduction) – see p110 in the book.   While this would mean that the accumulation of capital does create its own effective demand (contrary to what he seems to be arguing above in his earlier book, The Limits of Capital), the problem of realisation or underconsumption “becomes a problem of finding reinvestment opportunities for a portion of the surplus produced yesterday” (p111).  Harvey then argues that this is where credit comes in because it provides a bridge between yesterday’s surplus and today’s reinvestment.  Thus the crisis comes about when expansion fades and credit contracts.

Now this is a Keynesian explanation of the crisis, based on the uncertainties of a return on future investment and the possible hoarding of money so that supply does not simultaneously create demand.  Now it may be that Keynes was right about these possibilities of crisis (and Marx also raised these issues).  And it may be that Keynes is right and Marx is wrong – namely that the cause of crisis is in the role of credit and not in the contradictions within the capitalist production process.  But Keynes’ argument is not to be found in Marx’s Volume Two.   Moreover, Harvey adds confusingly that the real problem is not the lack of effective demand, but the lack of opportunities for “gainful reinvestment of the surplus earned yesterday in production” (p116).  Yes exactly, but does not “gainful opportunities’ really mean profitability?

16 thoughts on “David Harvey, Marx’s method and the enigma of surplus

  1. “So crises in capitalism are ultimately caused by insufficient surplus value to fund investment and credit, not by the inability to absorb too much surplus value, as Harvey suggests.”
    Help me here! Isn’t this the same thing when Capital is viewed as a flow? The TRPF means that insufficient S is produced to valorise capital (your point) so money capital is not reinvested (which Keynes recognised), thus is ‘overproduced’ (Harvey’s point) and then becomes subject to speculative investment in existing values and potentially ‘fictitious’ as price becomes detached from value (the ‘appearance’ that grips our minds). Hence the need for the wholesale destruction of fictitious capital to the point where new productive investment restores the rate of profit.

    1. Yes, but the starting point is the inablity to create enough surplus value relative to existing capital: i.e. the limits of capital. For Harvey, the starting point appears to be at the other end of your flow chart: fictitious capital grows and is not realised by the lack of ‘gainful opportunities’. I think Marx starts with the gainful bit in the capitalist mode of production. ‘Too little’ surplus value accrues to the capitalist; and that can lead to ‘too much’ money capital as well as too much productive capital relative to value.

  2. You forgot the political State which absorbs a lot of surplus value via military and other infrastructure expenditures e.g. education, health and welfare. Yesterday’s bonds must be paid off too e.g. Social Security, bonds sold to Chinese investors and so on. Paid off with what? The socially necessary labour time of the working class. Wages ‘must’ be lowered, ‘sacrifices’ made via spending on the ‘social wage’ in order to pay off the inflated price of money/bonds/cdos/speculative investments–which, of course, are mostly in the possession of the ruling capitalist class and the political States which they control. In other words, workers have to have to put EVEN more unpaid socially necessary labour time into the money commodity of ‘their country’ in order to shore up the capitalists’ investments.

    The question of money is not attended to. Money is a commodity too and like other commodities, money is embodied with that dialectical relation between exchange-value and use-value. Exchange-value is embodied socially necessary labour time. Use-value is in the eye of the beholder. Issuing money without the requisite socially necessary labour time is an invitation to credit i.e. that someday the money issued will embody socially necessary labour time. Price, of course, fluctuates around the exchange-value of the commodity. The price of money has been inflated with the issuance of piles of it to banks via the Federal Reserve’s creation of/lending policies to commercial banks. If the Fed issues too much currency, as it did under Greenspan in order to stimulate the economy out of the dot.com bust, the banks have lots of money to lend and lend they did into real estate. But real estate as exchange-value has to have socially necessary labour time embodied in it and certainly it does; but the price of real estate was artificially blown out of proportion to its exchange-value. In the marketplace, human beings eyes looked toward the use-value of real estate as a way to increase access to wealth. The money pump from the Fed to the banks kept supplying exchange-value with little to no socially necessary labour time to back it up and speculation (investors seeking a use-value for their money) kept pouring funds into the ever growing speculative price bubble, a price which was WAY above the socially necessary labour time embodied in the homes being constructed and sold on the frenzied markets. Hence, the GFC.

    The basic crisis remains as always the crisis of insufficient demand on the part of the market. The market is us, the workers whose wages (price of labour power, exchange-value of labour power) come nowhere near equalling the surplus of exchange-value being produced. The use-value of credit comes out of this and banks lend, to be paid later with interest from the wages which the market gets for selling its labour power. That’s the ‘normal’ way banks make money. The speculative way, which occurs when the banks have been allowed to borrow money from the Fed at very low interest rates, is to invest this surplus of money, which should reflect socially necessary labour time, into investments which contain very little socially necessary labour time i.e. with prices WAY above their exchange-value. When investors finally recognise this, they see little or no use-value in retaining their speculative investments and sell them in order salvage what they can from exchange-value notes e.g. government bonds, cdos and so on, thus the crisis continues.

    This tale told by an idiot continues and results in various pompous ass leaders telling us to tighten our belts so that we can pay off the bond etc. holders of exchange-value notes (money) with no socially necessary labour time embodied within them…i.e. signifying next to nothing.

  3. David Harvey fails to come to grips with Marx’s method – he just talks vaguely about “levels of abstraction” like Jerry Levy and the Althusserians. The argument is so superabstract, you can make it mean anything you like, and it can go any which way you like.

    To understand Marx’s method, you have to understand the questions which Marx asked, why he asked those questions, and how he went about answering them. That is not so difficult, if you are prepared to follow the track record of his inquiries. But Harvey doesn’t do so.

    There exists by now a large literature on Marx’s method, but Harvey does not come to grips with it at all either. The real point is, that almost all Marxist theoreticians failed to understand how Das Kapital relates to the facts of empirical experience, i.e. how the abstract and the concrete are related. But Harvey’s answer is hardly convincing.

    The “failing spurt of profit” theory of crisis is one in a long line of theoretical deformations which illustrates the problem that Marxists are unable to relate the theory to the facts, except with the aid of crude analogies and statistical forgeries. And that is precisely because they don’t understand Marx’s method.

    Yet the mystification of Marx serves an ideological function: in its climb to class power, the New Marxist Exploiting Class uses Marx as a bait to attract a following of idealistic young people – “footsoldiers in the proletarian army”. The Marx-icon is occasionally dragged out of his niche, dusted off and used for the religious rituals of the Marxists. But for the rest their Marx is mute, a mute icon.

    1. I have come back to Capital Vol 1 under the influence of David Harvey’s lectures and while you may have a point its not too clear. Harvey has been teaching it for 20 years so he must have got some idea of Marx’s method in that time. If as is suggested by Michael that David has it wrong (and of course he may) then this emerges from his close reading of Vol 1 so it should be possible to identify the errors in his reading (the lectures are also published in his ‘Companion to Marx’s “Capital”‘).

      In the lectures David talks about the problem of understanding what Marx is doing. As I would put it its clearly not a historical analysis of the development of the commodity (but there’s a lot of history in it – as well as literature). Its not a theoretical analysis either in the sense of a philosophical analysis of the categories of economists (although there’s a lot of economists in it). And the relations between the ‘levels’ – the theoretical and empirical aren’t clear. I guess universal/general/singular is a fair summary though.

      Its true that there is a lot of literature on Marx’s method (and its relation to Hegel) but its not like they speak with one voice on the matter.

      I guess my question is how do you think the abstract/concrete are related? what do you think Marx’s central questions are? and where does Harvey go wrong?

      1. The method is dialectical as in ‘unity of opposites’: exchange-value and use-value bound together in the commodity. The method involves ‘aufheben’ or sublation, in this case where the commodity is sublated in communism through the abolition of wage labour and institution of a mode of production based on a classless appropriation of the collective product of labour and production for uses and needs of the freely associated producers. This involves a change in the mode of production and exchange. The alienation of the product of labour from its producer is sublated in social ownership of the collective product of labour and its distribution according to socially necessary labour time.

      2. Hi

        I would have said that describes what David does in his lectures sans the Hegelian language.

        In looking at your summary I suspect that talk about universal/particular/specific is a simplified way to get to grips with some of the dialectical method.


      3. I would be very interested in hearing or reading David’s musings on common ownership of the collective product of labour and the abolition of the wage system i.e. what might constitute a change in the mode of production and exchange. Mostly, what I’ve heard are social democratic leftist proposals for the reform of the social relation of Capital. As for the Hegelian language, I think a lot of people who read Marx, have missed a lot of the ebb and flow of his observations precisely because they miss Hegel’s influence on the method he uses.

    2. To Jurriaan Bendien :

      He used the Grundrisse introduction for this lecture (the generality, particularity, singularity thing). That’s something that I’ve always wondered: the alleged consistency between the grundrisse introduction and the method of volume 1 (or even 2 and 3). Did Marx, as Harvey argues, worked like in the grundrisse introduction?

  4. Hi MIchael,

    Just to be clear, are you saying that the simple reproduction model overlooks the coercive laws of competition between capitalists? Also, along those same lines, what do you make of Harvey’s notion that capitalism must grow?

    1. Ed
      It’s not that Marx ‘overlooks’ competition in the reproduction schema. He puts it to one side and deals with Capital as one production mode in Vol 2. In Vol 3, he introduces the situation of ‘many capitals’ and then deals with competition between capitals, which is the driver for capitalists to use technology and sweat the labour force to gain market share and more surplus value. The contradictions of that competition are revealed in Marx’s laws of accumulation and profitability. In the reproduction schema, Marx shows capital circulates and also that capitalism works (in a fashion) and is not impossible! Capitailsts must continue to accumulate and accumulate, as Marx and Harvey says, For Harvey the crisis comes because they raise too much surplus that cannot be ‘realised’; Marx says that capitalists cannot exploit enough surplus out of labour to sustain accumulation after a time.

  5. I personally believe that Michael Roberts is doing a great service here for raising and discussing political economic issues of the day. It’s evident that such discussions are important at a time when this great depression is causing uprisings around the world and there is a need to understand the issues with the global economy. I still find some in the left who are pretty confused about the nature of the economic situation. One day it’s a crisis, another day it’s stagnation and the next day it’s recession on and on. They end up regurgitating what they hear from the mainstream media. Two months ago they said it’s “double dip” recession and they have forgotten about that simply because the mainstream media has stopped talking about it.
    The need for political economic analysis by Marxist economists is absolutely there and I thank Michael Roberts for taking the time to do this. Some can constantly complain but never contribute in a meaningful way making unsubstantiated accusations. But I for one find this blog very useful and educational and recommend it to others.

  6. Given that the big Other doesn’t exist, who gives a flying f*ck about whose interpretation of Marx is correct or not? Isn’t Zizek’s point that it’s not just that different people have opinions about what different concepts mean (or which interpreter of _Capital_ has the “correct” interpretation), but that concepts dialectically disagree about their own meanings too, so such arguments are unsettle-able and are therefore pointless?

    You can bandy on about whose got the (completly non-existent) “correct” interpretation of Marx all you want, but my problem (as a economics non-expert) is with understanding why our national debts keep increasing, why the qualities of life of myself and most people I know are getting worse, and why the wealthiest keep getting more relatively wealthy than me.

    It seems like there might be some kind of inherent flaw in the system, like an excessive element (let’s call it, I dunno “surplus value” or “profit motive” or “little object a”, or “emotional masochism” or something…) that keeps feedback-looping the above problems into re-existence and is an inherent problem in the circulation of some kind of money system. Isn’t that the thing that matters here, not some f*cking semantics about (fundamentally unresolvable) interpretations of things?

    Would you all at least agree that there’s something clearly wrong with the function of the current economic system, and that it may have something to do with an inherent flaw called “profit motive”? Would you all be able to agree to that at least? Because I’m finding it very difficult at the moment to remove myself from that particular bias.

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