An irrational system

Issue: 160

Dick Pitt

A review of David Harvey, Marx, Capital and the Madness of Economic Reason (Profile Books, 2017), £14.99

In Marx, Capital and the Madness of Economic Reason, David Harvey uses his extensive knowledge of Karl Marx’s writings to review the sad state of capitalism, its trajectory and the effect it is having on millions of people’s lives.

The book is based on the three volumes of Capital, the three volumes of Theories of Surplus Value and the Grundrisse. Harvey applies Marx’s analysis in these texts to modern events and points to some areas where Marx got it wrong—for example, he did not believe that capitalism could move away from the gold standard. All this in just 207 pages. The book is hugely ambitious and inevitably some things are asserted rather than carefully explained. I enjoyed it a lot with one reservation that I will come to at the end.

Harvey outlines several key sources of instability within capitalism: The capitalist spends money on electricity, raw materials and, crucially, labour. After a production cycle, if all goes well, the capitalist finishes up with the same wealth she or he started with plus a profit. That is, the capitalists expect their wealth to grow exponentially; but on a finite planet, with a finite number of people and finite resources, unbounded wealth is not possible.

Capitalists also tend to want to control and homogenise the workforce and are sometimes open about this. Harvey cites a report from 1980: “A French industrialist renowned for his innovations in the machine tools industry openly proclaimed that his three goals were increasing precision, increasing productivity and the disempowerment of the worker” (p121). But capitalists must also sell what they produce. If the ability of workers to buy their products is restricted by poverty, then capitalism will have a tendency towards over-production of consumer goods. Harvey quotes at length from Marx in volume 2 of Capital to demonstrate that this issue, lack of effective demand, was a concern for Marx, not just for Keynesian economists.

Instead of emphasising lack of demand, Chris Harman, Michael Roberts and many others have addressed Marx’s theory of the tendency of the rate of profit to fall, which arises when capitalists increase their investment in technology and this outpaces their investment in living labour, ultimately impairing their ability to make a profit. In issue 157 of this journal Joseph Choonara explains this tendency and provides evidence of falling profit rates in both the United States and the world. Low profit rates lead to lack of investment, which in turn can lead to a slowdown in the sectors of the economy that produce means of production. This leads to over-production of commodities such as steel and concrete and of course to unemployment. Lack of profitable creative investment causes speculative booms and crises. Harvey mentions this theory but does not explain or comment on the tendency. Elsewhere he explains that he does not believe it is important (see Harvey’s essay at

Harvey concentrates instead on the “tendency for capital, in searching to maximise its monetary profit, to be drawn to invest in areas that produce no value or surplus value at all” (p105). Financiers may find it more profitable to buy up a pharmaceutical firm and increase drug prices enormously or speculate on housing. If a capitalist builds a lab, hires workers and makes drugs, value is created. If instead they buy an existing pharmaceutical firm with patents and put the prices up, they make a profit but add no value. Similarly, by buying into a booming sub-prime housing market, capitalists can make real profits without adding value. According to Harvey, speculation in the housing market caused the crisis in 2007-8. Therefore, he reasserts the importance of Marx’s distinction between money and value to our understanding.

Harvey draws examples from the history of capitalism since Marx’s time. At each twist and turn capitalism evolved to escape its immediate contradictions and instabilities. Empire might work for a time—firms may obtain cheaper raw materials and a place to dump excess production. There might be crises that let some companies go under, to be bought later at rock bottom prices by the bigger survivors. Perhaps a war will devalue or destroy a mass of productive capacity and create demand for a new boom. Capitalism is built on relentless expansion and has a compulsion to create new commodities and demands.

Harvey informs us of the huge state-supported expenditures on infrastructure projects of the past and how, after a time, they ended in crisis. He shows us those expenditures are dwarfed by China’s current building frenzy and argues that capitalism was able to survive as well as it did after the recession of 2007-8 due to China’s growth: “The Communist Party leadership in Beijing almost certainly did not set out to save global capitalism, but this is in effect what they did” (p180).

Harvey demonstrates the extraordinary effort by the Chinese government to pour money into infrastructure projects and therefore avoid massive unemployment: “Between 1900 and 1999, the United States consumed 4,500 million tons of cement. Between 2011 and 2013, China consumed 6,500 million tons of cement. In two years, the Chinese consumed nearly 45 percent more cement than the United States had consumed in the whole of the preceding century… In recent years, more than half of the world’s steel output and use has taken place in China” (pp178-179). China has created debt (which Harvey calls anti-value) on an unprecedented scale. Other countries have followed suit: “The result is not only secular stagnation in value production but the creation of a Ponzi capitalism which is the dangerous path of endless monetary expansion we have recently been taking” (p106).

The instability of capitalism and its madness are laid out well in this book. So is Harvey’s indignation: “A city like São Paulo has as its economic base a car industry that produces vehicles that spend hours stationary in traffic jams as they clog the city streets spewing pollutants and isolating individuals from each other” (p197).

However, there is in my opinion a hole in the analysis and approach. If we regard Marxism as the science and art of understanding capitalism with a view to overthrowing it, we cannot ignore Lenin. A Marxist analysis of capitalism must be more than a demonstration of its instabilities, its contradictions, its madness and its brutal callousness. Capitalism has gone through a series of economic crises and wars. It has survived them all (with the temporary exception of Russia in 1917) because the only class that can replace it has not been organised to do so. As Lenin wrote “unless the masses are organised, the proletariat is nothing. Organised—it is everything”.

The lack of an orientation around what we do blunts the sharpness of Harvey’s book. For example, let us look at racism. If you analyse capitalism with a view to fighting it, the starting point needs to emphasise that modern racism is rooted in the needs of slave-owners to exploit and abuse slaves, colonisers’ needs to deny the humanity of the colonised and the need of the employers in general to split the working class. During a crisis, capitalists need to shift blame away from bankers and onto other scapegoats. However, there is only one reference to racism in Harvey’s book: “Competition between workers frustrates cooperation and hinders the building of class solidarities. It introduces all manner of fragmentations. Workers become estranged from each other. This becomes even more invidious when infused with racism, gender discriminations, sexual, ethnic or religious hostilities in the labour market (divisions which capital has a history of avidly encouraging)” (p196).

Harvey writes that, ten years after the crash, it is a “good moment to review what Marx managed to figure out”. I agree that now is the time to revisit Marx’s analysis of the capitalist system and to organise to oppose it. Sadly, we only get the first part from this book.

Dick Pitt taught Mathematics at Sheffield Hallam University since 1985. He is now retired and has more time to read.