Review of David Harvey’s The Enigma of Capital

[This is a longer version – an earlier draft I had to cut down – of a review which first appeared on the Marx and Philosophy Review of Books website]

David Harvey, The Enigma of Capital:  and the Crises of Capitalism. Profile Books, London, 2010.

Mainstream economics, David Harvey points out, was taken completely by surprise when the current crisis first broke in 2007-8 and is still unable to provide an adequate account of the major economic difficulties still on-going two to three years later, let alone identify a convincing exit route.  It has never been clearer that the quasi-mathematical abstractions and dogmatic, otherworldly assertions that go to make up neoclassical orthodoxy simply do not successfully describe real economic processes. Yet, as Harvey laments, even despite its obvious failings, neoclassical economics continues to exert a tight hegemonic grip in universities and elsewhere. Indeed, one can’t help but admire the sheer chutzpah of a school of thought which, when confronted with economic realities that it cannot explain and which, indeed, seem to run counter to many of its central assumptions, simply carries on regardless (after, perhaps, a very brief moment of self-doubt) as if nothing very much had happened. Harvey’s aim in The Enigma of Capital is to cut through the hopelessly myopic orthodoxy and help restore a critical understanding of the systemic logic of capitalism and of the role that periodic crisis plays within that logic.

The organising metaphor that Harvey deploys at the beginning of the book is to describe capital as the ‘lifeblood that flows through the body politic… spreading out, sometimes as a trickle and other times as a flood, into every nook and cranny of the inhabited world’ (p. vi). Indeed the focus throughout the book is on the ‘flow’ of capital – which, for Harvey, is not a ‘thing’ but a constantly moving and dynamic process which cannot be analysed in static terms.  Like the human body, capitalism must be understood as an organic system that is constantly in motion – one cannot fully grasp any one component element of capitalism except in relation to its place within the systemic whole, just as one could not really understand the significance of a particular organ of the human body without reference to its function within the corporal totality. Furthermore, capitalism, for Harvey, is permanently in flux – constantly shifting and renewing itself in a perpetual process of what Schumpeter termed ‘creative destruction’.  For Harvey, Marxism provides by far the best conceptual and theoretical resources with which to understand capitalism – it is the only approach that is adequately equipped to analyse capitalism in the dialectical, dynamic terms that can provide us with an understanding of the systemic character of capital flow. It is, moreover, the only approach that can provide us with an adequate understanding of capitalist crisis, including the crisis that we are currently living through. In this respect, Harvey’s metaphorical description of capital as the ‘lifeblood’ of the body politic is particularly useful. As the ‘lifeblood’ of capitalism, should the flow of capital be slowed down or suspended the whole system goes into crisis. Much of the book is taken up with analysis of the various obstructions and barriers to capital flow that can bring about crisis.

The book begins with a detailed account of the current crisis. Harvey then sets this crisis in longer term historical context – presenting it as the latest (and most serious) of a series of structural crises that have emerged since the long post-war boom petered out in the early 1970s. For me, this is one of the most impressive sections of the book. Harvey manages to provide an in-depth, but still highly accessible, overview of the present crisis and of major macroeconomic developments and trends over the last 40 or so years in just under 40 pages. This is no mean feat. Harvey’s narrative here is of great interest. Capitalism, he explains, has in effect moved from one crisis to another since the end of the long boom. With falling profitability as the boom slowed, capital found the relative political and economic strength of organised labour (whose strength was institutionally embedded in, and bolstered by, the corporatist structures of the ‘Keynesian consensus’) increasingly constraining. Scarcities of labour further contributed to the problem. Capital and its political representatives responded to this crisis in a number of complementary ways in order to drive down wages – encouraging immigration to ease labour shortages and to undercut unionised labour, ‘going global’ in order to seek out cheaper pools of labour abroad and, probably most significantly, using state power to crush organised labour at home either directly (in, for example, Thatcher’s and Reagan’s confrontations with British miners and American air-traffic controllers respectively) or indirectly through the deliberate pushing up of unemployment. The overcoming of labour cost problems, however, eventually created further problems for capital – repression of wages simultaneously drove down workers’ spending power, too, and thus reduced the rate of effective demand. Capital’s solution to this problem was to extend the credit system and to encourage debt-fuelled consumer spending. However, this solution, in turn, eventually became the source of serious problems for capitalism because it ‘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)’ (p. 117). Furthermore, the financial crisis that blew up in 2007-8 must be seen as the culmination of a series of inter-related financial crises over recent years (each with a different geographical epicentre) – the East-Asian crisis of 1997, the Russian crisis of 1998, the Argentine crisis of 2001. The 2007-8 crisis was the moment at which this rolling series of crises finally ‘came home’ to the centre of global finance. Capitalism, Harvey points out, never really resolves its crisis tendencies – they are merely shifted around, postponed and held off. Capitalism finds a way of overcoming one crisis only to discover, sooner or later, that the terms of this solution, in turn, throw up new problems which develop into a new crisis.

Capitalist crisis can erupt and manifest itself in myriad forms (much of the content of later chapters, as we shall see, is given over to a taxonomic account of the various limits and barriers that can obstruct capital accumulation). Underlying all of this, though, is a key problem – something that is, for Harvey, the fundamental source of capitalism’s crisis tendencies. He terms this ‘“the capital surplus absorption problem”’ (p. 26). This concept links in closely with Harvey’s ideas in relation to capitalism’s tendency towards ‘overaccumulation’ of capital more fully set out in previous publications (most notably The Limits to Capital). The logic of capital is one of perpetual accumulation – capitalists are forced, under pressure of competition, to recapitalise and reinvest in expansion a proportion of the surplus they produce. The corollary of accumulation at the level of the firm is, at the aggregate level of the economy as a whole, economic growth. The volume of capital flow must constantly increase. If capitalists encounter blockages in this process – if they fail to expand the volume of surplus they produce – the effect must be that they run into severe problems. At the level of the economy as a whole, absence of growth brings recession or depression.  All of this requires, of course, that new profitable outlets for investment are found so that the surplus can be absorbed and accumulation can continue. Overaccumulation of capital – lack of profitable investment opportunities – lies at the root of capitalism’s crisis tendencies.

As all of this suggests, crisis is inherent to capitalism. Crises are not, from a Marxist perspective, anomalous events, deviations from the ‘natural’ or normal functioning efficiency of capitalism. They are part and parcel of the logic of the system. In fact, as Harvey is at pains to point out, periodic crisis is absolutely necessary and indispensable for capitalism – it is the means by which capitalism renews itself. Crises devalue or destroy surpluses for which no profitable outlets can be found, clear-out inefficient capitals, push down wages through expansion of the ‘reserve army of labour’ and purge the system of debt for example, so creating the basis for renewed and reinvigorated growth.  As Harvey puts it, crises are the ‘irrational rationalisers of an irrational system’ (p. 215). Crises, however, are also moments of acute vulnerability for capitalism in which political opposition to it typically grows (although this opposition is also, typically, inchoate) – there is nothing inevitable about whether or how crisis is (temporarily) resolved.

Indeed, Harvey seems to feel that capitalism may well find it particularly difficult to find its way out of this crisis and get back to adequate rates of long-term growth.  Capitalism, he suggests, is running into serious constraints in relation to the ‘capital surplus absorption problem’ (and has been since the early 1970s) and this, indeed, is a key problem underlying the current crisis. It is generally agreed, as Harvey points out, that a ‘healthy’ capitalist economy must expand at a rate of about 3 per cent per annum. This means, of course, that more and more capital surplus must be absorbed – more and more profitable investment outlets for this growing surplus must be found every year.  In 1950 global capitalism needed to absorb $0.15 trillion in surplus capital, in 1973 it needed to find new outlets for $0.42 trillion and, if we are to return to 3 per cent compound growth today, $1.6 trillion in surplus capital would need to be profitably invested. If sustained growth returns the world economy will need to absorb some $3 trillion in surplus capital by 2030 (see p. 216 and see also pp. 26-27). This, Harvey remarks, is ‘a very tall order’ (p. 27). There simply must come a point where capital accumulation outstrips the capacity of the world economy to absorb the growing surplus of capital. We may, Harvey indicates, be reaching this point. The depth of the current crisis may well be a reflection of this problem.

Harvey seems to feel that there are two possible ways out of this crisis for the capitalist class. The first route is a reversion to large-scale fictitious capital manipulations – speculation in asset prices and the like – of the sort that brought on the present crisis. Even if such a return to debt-financed growth can be arranged it cannot fail, however, to produce another deep crisis in a few years’ time when that bubble, too, inevitably bursts. The second exit route involves massive destruction of excess capital and a fundamental restructuring of world capitalism. This route also involves shifting most of the costs of readjustment onto the working class and the poor. Harvey is clear that any attempt to return to long-term growth through by such means will involve large-scale infliction of hardship and suffering on the mass of people and that, furthermore, ‘[more] than a little political repression, police violence and militarised state control will be necessary to stifle the ensuing unrest’ (p. 216). Nevertheless, Harvey is not at all convinced that either route can be successful – he warns that there may be no effective long-term capitalist solutions to this crisis.

After having provided an account of the current crisis and its historical origins and after having introduced us to the ‘capital surplus absorption problem’, Harvey moves on to examine the different types of blockages and obstructions to capital flow that can bring about capitalist crisis. The bulk of the book is devoted to analysis of these barriers. One of Harvey’s major arguments is that – beyond the general underlying problem of capital surplus absorption at least – it is a mistake to seek to identify ‘one dominant explanation for the crisis-prone character of capitalism’ (p. 116) and that, instead, we should ‘recognise the multiple ways in which crises can form in different historical and geographical situations’ (p. 117). As he points out, there are three major schools of thought within Marxism in relation to theorisation of capitalism’s tendency towards periodic crisis – the profit squeeze tradition, the falling rate of profit tradition and the underconsumptionist tradition. None of these approaches are adequate according to Harvey because they seek to provide monocausal explanations of crisis and, as such, fail to grasp the fact that crises can stem from many different factors. Harvey argues that it is much more helpful to think about crisis formation in terms of barriers that disrupt or slow down the flow of capital and to recognise that these barriers can take many different forms. Harvey is also keen to stress that none of these barriers constitute absolute limits – that, in principle, capital can find ways to overcome or circumvent any one of them – but that we should also recognise that capital is always and perpetually running up against new barriers. Furthermore, the very solutions that capital finds that enable it to overcome one barrier will often throw up further barriers to deal with. There is, then, a fluid, dialectical logic to crisis formation – solutions are perpetually transformed into problems.

Harvey identifies six general kinds of potential barriers. These are:

i) insufficient initial money capital; ii) scarcities of, or political difficulties with, labour supply; iii) inadequate means of production, including so-called ‘natural limits’; iv) inappropriate technologies and organisational forms; v) resistance or inefficiencies in the labour process; and vi) lack of demand backed up by money to pay in the market. (p. 47)

‘Blockage at any one of these points’, Harvey argues, ‘will disrupt the continuity of capital flow and, if prolonged, eventually produce a crisis of devaluation’ (p. 47). Perhaps the most interesting (and, possibly, the most controversial) part of this analysis is Harvey’s discussion of potential ‘natural limits’ to accumulation. Harvey does not deny that capitalism is likely to encounter ecological ‘limits and barriers which will become increasingly hard to circumvent’ (p. 72) and is open to the possibility that there ‘may be an imminent crisis in our relation to nature that will require widespread adaptations (cultural and social as well as technical)’ (p. 78). However, Harvey is sceptical in relation to the idea that absolute, impassable or ‘final’ ecological limits to capital accumulation exist. Capital, Harvey stresses, is hugely adaptable and he suggests, furthermore, that there ‘are all sorts of ways… in which supposed limits in nature can be confronted, sometimes overcome and more often than not circumvented’ (p. 73). This view is founded, in part, on the observation that ‘nature’ is not simply some given and essentially unchanging entity and nor is it a sphere of reality absolutely separate from human society – the relationship between human action (including economic behaviours) and nature is inherently dialectical and constantly evolving.

In the next section of the book Harvey seeks to integrate an account of uneven development in space and time into his analysis of capital flow. This part of the book provides a very interesting analysis of the historical geographical evolution of capitalism from its beginnings to the present day. He points out, for example, that capitalism ‘seems to have evolved in ways somewhat similar to Stephen Jay Gould’s “punctuated equilibrium” theory of natural evolution’ (p. 130) –  long periods of reasonably stable and slow reform, punctuated by phases of revolutionary disruption. In this section of the book Harvey also provides an account of the ways in which capitalism continually produces new spaces and new space relations – capitalism’s geographical landscape is ceaselessly shaped and reshaped. He also analyses the tendency for ‘agglomerations’ or ‘clusters’ of inter-reliant capitals in close geographical proximity to emerge and sets out, in addition, the place and function of the (relatively autonomous) modern state within the logic of capital flow. There is also a brief account of imperialism in this part of the book which draws heavily on the notion of dialectical interaction between two ‘logics of power’ – the ‘territorial’ and the ‘capitalist’ – first developed in his 2003 book, The New Imperialism.

Possibly the most important and novel aspect of this part of the book is Harvey’s identification, and delineation of the significance, of seven ‘activity spheres’. Drawing, and further elaborating, on a brief comment in Capital Volume 1, Harvey argues that capital ‘cannot circulate or accumulate without touching upon each and all of these activity spheres in some way’ (p. 124). These spheres are:

technologies and organisational forms; social relations; institutional and administrative arrangements; production and labour processes; relations to nature; the reproduction of daily life and of the species; and ‘mental conceptions of the world’. (p. 123)


No one of these spheres dominates even as none of them are independent of the others. But nor is any one of them determined even collectively by all of the others. Each sphere evolves on its own account but always in dynamic interaction with the others. (p. 123)

‘A study of the co-evolution of activity spheres’, he goes on to say, ‘provides a framework within which to think through the overall evolution and crisis-prone character of capitalist society’ (p. 124). Indeed, ‘we can reconceptualise crisis formation’, he suggests, ‘in terms of the tensions and antagonisms that arise between the different activity spheres’ – the interactions between them ‘are not necessarily harmonious’ (p. 123).

In the final chapter of the book, Harvey advances some general strategic guidelines and principles in relation to possible forms and methods of anti-capitalist struggle. Crises of capitalism, for Harvey, are ‘moments of paradox and possibility’ (p. 216) in which a space opens up for radical alternatives. He suggests that ‘it could be that where we are now is only at the beginning of a prolonged shake-out in which the question of grand and far reaching alternatives will gradually bubble to the surface in one part of the world or another’ (p. 225). As things stand, however, the radical left finds itself in something of a double-bind: its lack of a worked-out vision of an alternative social order ‘prevents the formation of an oppositional movement, while the absence of such a movement precludes the articulation of an alternative’ (p. 227). The way out of this bind, Harvey suggests, is to transform it from a vicious circle into a creative ‘spiral’ – both parts of the problem have to be turned into a sort of work-in-progress in which the development of each reinforces and drives on development in the other. Harvey suggests, further, that the theory of co-evolution of ‘activity spheres’ set out earlier in the book provides important conceptual resources for thinking about how a successful transition beyond capitalism might take place. Harvey suggests, in other words, that his co-evolutionary theory of social change might form the basis for a ‘co-revolutionary’ theory. Just as the historical evolution of capitalism involved inter-linked and interacting changes within each of the seven spheres, any transition towards a democratic and egalitarian post-capitalist society must also involve complementary changes and transformations within each one of these spheres. Harvey suggests that the failure of past endeavours to build socialism and communism can be understood in terms of the failure to see that wide ranging and radical changes within each of these spheres were necessary.  Harvey argues that a transformative anti-capitalist movement could start in any of the seven spheres. ‘The trick’, he continues, ‘is to keep the political movement moving from one sphere of activity to another in mutually reinforcing ways. This was how capitalism arose out of feudalism and this is how something radically different… must arise out of capitalism’ (p. 228). Left wing intellectuals can and must play a key part in this process, Harvey argues, and one of their key tasks is to unravel ‘the enigma of capital, rendering transparent what political power always wants to keep opaque’ (p. 241).

Harvey has certainly made a very powerful and important contribution to this process of unravelling. Though it covers complex processes and advances sophisticated ideas, the book is written in a relatively accessible style that will appeal to a wide readership. Indeed it is clear that Harvey’s intended audience extends beyond academia. There is, then, clearly a radical and democratic political purpose to Harvey’s elucidation of the logic of capitalism in this book – it is intended to contribute to popular debate in relation to the economic crisis and is, as such, designed as a serious political intervention. Harvey, indeed, operates in the best traditions of the politically committed ‘public intellectual’ – seeking to convey complex ideas in accessible terms to a broad audience with the intention of providing conceptual and theoretical resources to help inspire and guide political struggle. None of this, however, is to say that The Enigma of Capital will be of little interest to scholars. Harvey advances some very interesting and innovative new ideas in this book – the theory of dialectically intertwining ‘activity spheres’ for example – that surely make an important contribution to advanced debates in relation to the analysis of capitalism and to theories of social change. His reconceptualization of capitalism’s tendency towards crisis in terms of barriers to capital flow that can be manifested in a variety of forms also represents a powerful challenge to the current Marxist orthodoxy in this regard which tends to privilege one dominant causal factor in relation to crisis formation. The book also provides a very useful and interesting synthesis of many key ideas first put forward in previous works by Harvey – his theories of ‘spatial fix’, ‘time-space compression’ and ‘switching crises’, for example, are all integrated into the overview of the logic of capital flow presented in this book.

However the book contains a few weaknesses in my view. One of the most frustrating things about it is that Harvey is never quite clear about the relationship between the ‘capital surplus absorption problem’ and his account of the different kinds of barriers to capital flow that can bring on a crisis. Should these barriers be understood as different kinds of manifestations, or aspects, of the capital surplus problem? Is there any necessary connection or interaction between these barriers and the capital surplus absorption problem? Harvey does not spell this out and the reader is left, in the end, feeling slightly unsure of Harvey’s theory of crisis formation.

Harvey is also rather unclear about whether or not capitalism can return to long-term growth. At some points in the book one gets the distinct impression that he feels that it cannot and, at other times, that it can. Part of the problem, here, is that the relationship between the notion of ‘a return to long-term growth’ on the one hand and the notion of an exit-route from the current crisis, on the other, is rather ambiguous – are these distinct possibilities (so that it is possible to exit the current crisis, but without a successful return to long-term growth) or are the two synonymous? Harvey does not make this clear. The picture is clouded still further by the fact that Harvey’s focus seems to oscillate between the question of whether or not it is possible for capitalism to grow indefinitely and the question of whether or not it can find a way out of the current crisis – and, again, the relationship between these two questions is not completely clear.  His answer to the first question seems to be ‘no’ (but even this is not completely clear as I shall go on to explain) and at various points in the book he seems to suggest that capitalism is very close to reaching a point at which it simply cannot find outlets for the colossal capital surpluses that it has accumulated. If this is so, and the current crisis signals that capitalism is reaching impassable limits, it would seem that there is no exit route from the current crisis. At other times, however, Harvey seems to be quite emphatic that capitalism can find a way to exit from its current problems, which suggests – despite what he has written elsewhere in the book – that the ‘ultimate limits’ to accumulation are still some way off.

There is a further ambiguity. Harvey states that ‘compound growth for ever is not possible’ (p. 227) which, given that fact that perpetual accumulation of capital is absolutely fundamental to the logic of capitalism, implies that capitalism cannot survive for ever. Yet, in his discussion of the various limits and barriers to capital flow, Harvey is pretty clear that, in principle, capitalism possesses ‘sufficient fluidity and flexibility to overcome all limits’ (p. 46). There seems to be something of a contradiction here. Perhaps it is possible that Harvey means that it is only the ‘capital surplus absorption problem’ in general that cannot, in the end, be overcome and that it is only the various sorts of barriers to capital flow he identifies that capitalism may always, in principle, circumvent and dismantle. Even if that is the case, however, there is reason to question Harvey’s argument. For many socialists today, one of the key reasons to believe that capitalism is unsustainable and cannot continue for ever is the judgement that infinite economic growth on a planet with finite resources is impossible – that there are ecological ‘ultimate limits’ to capital accumulation. As we have seen, however, Harvey is sceptical about this. It is hard to see, though, why if, in principle, these ‘natural limits’ can be overcome, capitalism should not also possess the capacity for perpetual overcoming of problems related to surplus absorption (through creation of new consumer desires, new product ranges, new technology paradigms and so on). Furthermore, I am not at all convinced by the argument that there are no necessary absolute ecological limits to growth – in my view the arguments of ‘ecosocialists’ such as John Bellamy Foster are much stronger in this respect.

Many readers may baulk at Harvey’s dismissiveness in relation to the theory of the tendency for the rate of profit to fall (TRPF) which he argues is rendered ’more than a little moot’ (p. 94) by the long list of counter-acting influences Marx identifies – counter-tendencies that, notoriously, seem to entail that the TRPF seldom has any actual material effect. Even if one is not sure whether one agrees with his position, Harvey’s brusque scepticism in relation to a Marxist orthodoxy, here, is refreshing. Harvey’s neglect of a closely connected, but much more fundamental issue in Marxian economics is, for me, more concerning. Harvey makes very little mention of labour as the source of value (it is mentioned only in passing on a couple of pages) or of related matters such as surplus value extraction and exploitation of labour. This seems rather strange, to say the least, in a book about the flow of capital written from a Marxist perspective.

Another rather odd aspect of the book is Harvey’s unusual definition of socialism. He suggests, for example, that socialism:

aims to democratically manage and regulate capitalism in ways that calm its excesses and redistribute its benefits for the common good. It is about spreading the wealth around through progressive taxation arrangements while basic needs – such as education, healthcare and even housing – are provided by the state out of reach of market forces. (p. 224)

Communism, on the other hand, ‘seeks to displace capitalism by creating an entirely different mode of both the production and distribution of goods and services’ (p. 225). Few would dissent from the latter definition, but his definition of socialism is, for European leftists at least (perhaps Harvey articulates an Americanised understanding of the term), bizarre. What Harvey calls ‘socialism’ – a variety of capitalism with a human face – most (European) socialists would call ‘social democracy’. Harvey’s definition of socialism, it should be said, is not the same as Marx’s.

In addition, much of what Harvey has to say in the final chapter is unconvincing. Rather predictably, perhaps, this final part of the book in which Harvey discusses anti-capitalist alternatives and the possibility of building a movement against capitalism often descends into vague, hand-waving remarks. Certainly, there is much here that is valuable – the argument that a ‘co-revolutionary movement’ must seek to keep a mutually reinforcing dialectic of change within each of the seven ‘activity spheres’ in motion particularly so. Nevertheless there are echoes of Hardt and Negri and of John Holloway in Harvey’s conception of anti-capitalist strategy, which, while not totally eschewing the need for political organisation and clear that a left-wing movement cannot simply ignore state power, seems to me rather naïvely optimistic in relation to ideas such as the notion that a political movement against capitalism ‘can start anywhere’ (p. 228) and could operate (or so Harvey appears to suggest), simply, as some loose alliance of well-meaning people.

Despite these shortcomings The Enigma of Capital is, nevertheless, an extremely impressive book overall. It is almost certainly destined to become a seminal work amongst contemporary Marxist literature – as have so many of Harvey’s previous publications. Perhaps the most valuable property of The Enigma of Capital is that it manages to be accessible to non-specialist readers while still having many important things to say to scholars of political theory and political economy. As such, I would thoroughly recommend the book to anyone seeking to develop a critical understanding of the logic of capitalism.

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