What Everyone Should Know About How Capital Works

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What Everyone Should Know About How Capital Works<br>ByDavid Harvey<br>Mainstream economics cannot accept the concept of contradiction that is foundational for Karl Marx’s analysis of capitalism. David Harvey explains why we need the Marxist perspective if we want to make sense of capital’s latest mutations in the age of AI.

David Harvey: “Both Franklin Roosevelt and John Maynard Keynes explicitly recognized that their aim was to save capital from the capitalists. Being averse to Marx’s method, they could not, however, figure out how to do so.” (Ullstein Bild / Getty Images)<br>Our summer issue is out now. Get a discounted subscription to our print magazine today.

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In Volume 1 of Capital, Karl Marx ventures the opinion that “classical political economy stumbles approximately onto the true state of affairs, but without consciously formulating it. It is unable to do this as long as it stays within its bourgeois skin.”<br>Marx and the bourgeois economists confront the same material realities, but they interpret, explain, and use them very differently. For example, both David Ricardo (the leading bourgeois figure in nineteenth-century political economy) and Marx considered capitalism to be a passing form of economic organization but for totally different reasons.<br>Both believed the profit rate on capital would ultimately fall to zero. Ricardo believed wages would have to rise to pay for the increasing cost of food grown on increasingly scarce and less fertile land. Rents would also rise because cultivable land would become increasingly scarce. Hence, rising wages and rising rents would squeeze profits until they fell to zero.<br>Marx proposes a very different explanation. Individual capitalists operating under the coercive laws of competition adopt technologies that increase labor productivity. The need for labor power is thereby reduced. But labor power is the source of all value and surplus value (profit). In the absence of any countervailing forces, the rate of surplus value (profit) culled from the exploitation of labor power tends to fall.<br>Ricardo’s view, articulated in the 1820s looked ridiculous by the 1870s, when global markets and the global production of food grains had moved onto the low cost, high-yielding lands of North and South America and Eastern Europe. Marx’s explanation, on the other hand, holds good, though with, as we shall see, certain caveats.

The aim of my book The Story of Capital is to consciously formulate what Marx discovered in the course of his political economic investigations. “Marx was unable to ‘conserve’ Ricardo,” as Samir Amin remarks: “He could do no more than to show the limitations of ‘economic science,’ so as to call for the problems being posed in a different way, in a different language, replacing the questions drawn from the economic field by other questions, drawn from another broader field, that of historical materialism.”<br>Marx and the bourgeois economists confront the same material realities, but they interpret, explain, and use them very differently.The contextual conditions for capital accumulation have, of course, changed over time, and political-economic theory has had to adapt. For example, competition over technological advantage for military hardware, communications, and logistics has surged in recent years and derives from interstate rather than from intercapitalist competition (the internet was developed by the military, for example). `<br>It is also the case that Marx never completed his project. In the Grundrisse, Marx outlined a whole list of topics to be taken up such as “capital as credit; capital as share capital; capital as money market . . . state and bourgeois society; taxes, or the existence of the unproductive classes; the state debt; population; the state externally: colonies; external trade.” To venture into these fields, as happens in The Story of Capital, in no way dilutes, diminishes, or dishonors the work that Marx did complete. The advancement and eventual completion of his project is a worthy objective.<br>But it is still true to this day that the field of economics needs to be liberated from its bourgeois skin. This was demonstrated all too clearly in November 2008, at the height of the so-called global financial crisis. Queen Elizabeth visited the London School of Economics. In the course of this visit, she asked the assembled economists why they had not seen the financial crisis coming.<br>Not having any immediate answers, the economists consulted, ran seminars, and gathered data. Six months later, they sent a collective letter to...