David Harvey’s latest book, using all three volumes of Marx’s Capital, demonstrates the social irrationality of modern capitalism, finds Dominic Alexander


David Harvey, Marx, Capital and the Madness of Economic Reason (Profile Books 2017), xv, 236pp.

Bourgeois economic theory has always claimed to be based on objective reason, and thus to reveal, unsentimentally, the necessary realities of material life. On this basis, the calculus of individual self-interest is the only route to prosperity, or at least out of poverty. Particularly in recent decades, the predominant conclusion has been that free-trade capitalism is therefore the best possible world.

This pursuit of economic reason has resulted today in a world of palpable absurdity. It is now the case that a place to live has become beyond the means of many in some metropolitan areas, simply because an empty house is now a good investment for capital; as Harvey points out:

‘Capital is building cities for people and institutions to invest in, not cities for the common people to live in. How sane is that?’ (p.189).

Capitalism works through the drive to accumulate, to produce profit by some form of investment of capital. That is to say, for the capitalist the motivation is to produce exchange value as a good in itself, and the use value of any exchanged commodity is entirely incidental. Nonetheless, a common-sense view would claim that a commodity will only be exchanged if it does in fact have use value to the buyer.

This assumption has been so strong that Marx’s insight into the dialectical relationship between exchange value and use value has been ignored by most economists. And yet, as seen in the problem of the housing market, the distinction is clearly of critical importance in understanding the accelerating dysfunctionality of today’s capitalism.

The labour theory of value

Value is the foundation concept in Marx’s analysis of capitalist economics, so Harvey begins with a defence of its validity. This is certainly necessary as even left-wing economists can fail to grasp its meaning and significance. The radical Keynesian, Joan Robinson, attacked the concept of value arguing that it was just metaphysical, a ‘mysterious emanation’ in Marxism that ‘was still somehow lurking in relative prices’.i Yet there is a difference between a quality that cannot be apprehended as a concrete substance and something that has no real existence.

Harvey uses the analogy of gravity to explain:

‘As such it [value] is, like gravity, an immaterial but objective force. I cannot dissect a shirt and find atoms of value in it any more than I can dissect a stone and find atoms of gravity. Both are immaterial relations that have objective material consequences’ (p.5).

There are many very real phenomena that cannot be isolated as discrete physical objects, and social relationships are almost a category on their own of these real but immaterial forces; there is no substance in which we could locate love, solidarity, class conflict or many other relations.ii However, following the arguments of economists like Joan Robinson, we should dismiss their existence, since each case is like that of value; ‘It has no operational content. It is just a word.’iii

Dismissals of Marx’s labour theory of value often assume his conception is identical with that of his predecessor, the classical economist David Ricardo (who was no friend of the working class). Marx took Ricardo’s theory but altered it in subtle but crucial ways, so these criticisms actually fall at the first hurdle (p.144). One type of argument used against the labour theory of value is to take some substance with rarity value and claim that its high price as against other commodities shows that the labour inherent in it cannot therefore be the measure of its value.

One example that has been used by way of illustration is the case of ambergris (whale vomit). A chance find of a pile of ambergris upon the beach can be sold to the perfume industry very lucratively, and yet the one who finds it, while walking upon the beach, has expended very little labour relative to the amount of exchange value involved. The flaw in this reasoning, and many others like it, is that it assumes that value is defined through individual cases. This is not so; value is a social relationship and is defined through the social processes involved.

It is not the individual labour in a particular commodity item that is the measure of value, it is the total socially necessary labour time that defines the value contained in commodities of a particular kind. It is not one person walking upon a beach, but the average social labour taken. That is to say, what counts is the total hours spent by the total number of people, walking along all the available beaches, that has to occur before one person strikes it lucky. The case of ambergris actually bears out Marx’s theory so long as it is read, as it needs to be, in the social frame, not the individual one. As Harvey says:

‘Marx defines value as socially necessary labour time. The labour time I spend on making goods for others to buy and use is a social relation’ (p.5).

This is important in a methodological way. It defines the difference between Marx’s dialectical version of materialism, and the standard positivist version almost universally espoused in academia:

Physical materialism, particularly in its empiricist garb, tends not to recognise things or processes that cannot be physically documented and directly measured’ (p.5).

A real science of economics must not take a reductive materialist approach if it is to understand capitalism. It needs to see capitalism in terms of a series of social relations which create particular dynamics. Positivists want all facts to lie upon the surface, to be directly observable and countable, and yet, as anyone at all acquainted with modern physics will grasp, reality just does not work like that. What Marx’s analysis achieves is to lay bare the often counter-intuitive results of the dynamics of capitalism, which are hidden from plain sight.

Technology and surplus value

One important aspect of the labour theory of value is that it is only through the exploitation of labour power that the capitalist can create surplus value. Machinery, essentially dead labour, since living labour went into its creation, cannot produce value in itself; only labour power can do that. Nonetheless, an individual capitalist, in investing in labour-saving technology, can produce commodities more cheaply than competitors, and thus capture a larger share of the total surplus value available. This drives all capitalists to adopt the same technology, so that the cost of production soon equalises at the same level. The result is that a higher capital investment is now required to maintain the same amount of profit. As Harvey explains:

‘There is, however, an important contradiction here that Marx makes much of. The more sophisticated the technology the less labour is congealed in the individual commodity produced. Even more troubling, less total value may be created if the total output of commodities does not increase enough to compensate for the decreased value of the individual items. If the productivity doubles then I have to produce and sell twice the volume of commodities to keep the total value available constant’ (p.9).

Harvey does not give this process a name here, but it is well known among Marxists as the tendency for the rate of profit to fall. Competition drives the constant expansion of capitalism, and the continual drive to adopt new technology. Since only labour produces surplus value, the rate of profit compared to capital investment will fall over time. There are, however, numerous countervailing tendencies which can act to restore the overall rate of profit, such as a fall in the cost of the reproduction of labour (food prices, for example). Thus, capitalism has managed to survive many major crises in its history.

The reason Harvey avoids directly addressing the tendency for a decline in the rate of profit, is perhaps because he is sceptical whether it is likely in the long run to prevail over the countervailing tendencies.iv Whether he is correct in this judgment would require a different discussion, but Harvey nonetheless sees the central dynamic as having a number of other important results.

The average rate of profit

One counter-intuitive consequence of the dynamics of surplus value explains much about development and underdevelopment in the world capitalist economy, which is rarely understood in mainstream discourse. Again, bourgeois economists almost invariably fail to understand that Marx’s analysis takes as its premise the totality of the economic system, rather than beginning from the perspective of the individual producer or consumer. Thus, the rate of profit is not determined at the level of the individual producer, but through the social average.

If the analysis proceeded at the individual level, the factory investing in technology would earn a lower rate of profit than labour intensive production, but this is not the actual result. In fact, there is a tendency across the economy as a whole for the rate of profit to reach an average. As a result, the more advanced producers do in fact capture the larger share of the surplus value being created by the whole mass of industry, even though as individual concerns they are producing less value than others. As Harvey explains;

‘Individual capitalists are compelled by market forces to compete to maximise their profit. As a result, the rate of profit tends to equalise. This produces a curious distributive effect. The total aggregate surplus value created is distributed among individual capitalists not according to the surplus value they produce but according to the value they advance’ (pp.34-5).

The effects of the equalisation of the rate of profit obscure the workings of capitalism to its participants. It highlights the inadequacies of a common-sense, empirical approach to economic analysis since this, in only recognising the surface facts, cannot reveal the ‘inner core’ of the value process. Harvey tellingly quotes Marx in Volume Three of Capital here; in competition, he writes:

‘everything appears upside down. The finished configuration of economic relations, as these are visible on the surface, in their actual existence, and therefore in the notions with which the bearers and agents of these relations seek to gain an understanding of them, is very different from the configuration of their inner core, which is essential but concealed …’ (pp.34-5).

Some very real-world consequences of the equalisation of profit are evident, showing that this is no mere flight of abstract theory, as even a radical economist like Joan Robinson would have it. ‘The redistribution of surplus value favours capital-intensive industries which employ fewer labourers and penalises labour-intensive industries where much surplus value is produced’ (p.34). This has obvious implications for the problems of certain economic sectors, particularly, for example, labour intensive cash-crop farming. The global capitalist system is also embedded in specific historical geographies, and economic sectors are not distributed evenly across the globe.

The ability of imperial centres to exploit the periphery is revealed right here; even without any other structures of unequal power, the dynamics of capitalism will consistently allow historic centres of capital accumulation to soak up a greater average share of the value being produced in the world economy than would otherwise be the case (p.156). Capitalism will always produce developed centres and regions of underdevelopment and poverty. The only way to achieve global equality is to abolish the system itself.

The contradictions of the realisation of value

The contradictions of value formation and profit rates are the major reasons why the system tends towards crisis. Competition forces capitalists to invest in technology which dispenses with labour, thus, over time, driving down the rate of profit. In addition, different interests within the system compete for a share of the surplus value created by production, resulting in chronic instability as capitalists attempt to realise surplus value into actual profit. While discussion often focuses on the production side, and so Volume One of Marx’s Capital, Harvey points out that a full picture would have to give equal weight to Volumes Two and Three, where the processes of circulation and distribution of capital are examined.

And so, much of this book is devoted to the problem of the realisation of value. Surplus value lies at the origin of profit, but is not at all identical with it. Surplus value can be produced in a factory, but the commodities made thereby have to be sold at a certain price for that value to become actual profit. Various factors make this an increasingly vexed problem as capitalism develops.

One major issue is that the number of workers employed by capital to produce surplus value shrink relative to the population as a whole. As a result, what Marx called ‘the reserve army of labour’ grows accordingly. On the one hand, this helps the individual capitalist, as a larger pool of the unemployed puts a downward pressure on wages, but from the point of view of the whole system, this phenomenon becomes problematic. If workers have lower wages, or many are unemployed, the system cannot absorb all the commodities being produced. Surplus is not realised as profit, and the cycle of capital grinds to a halt. There are various ways in which capitalism has found solutions to the realisation problem, but the central contradiction has not gone away. Over time, ever more fraught strategies appear on the part of individual capitals for seizing a share of the total surplus value produced by society.

The problems of realisation become ever more acute as capitalism grows in size and as productive technology advances; the problem is that the relative size of the value producing sector shrinks in relation to the economy as a whole. Ever greater quantities of capital seek profitable sites for investment and expansion, but the actually productive sector sustains increasingly lower profit-rates. Capital is tempted to turn to non-productive strategies for capturing a larger share of value. The distinctive contribution of this book is to explore the socially irrational consequences of this process for the society we live in today, where the desperate search for new avenues of realisation drives speculative booms with tenuous grounding in real commodities, let alone in social use.

These processes, so notable in recent decades, Harvey connects to what he calls the second ‘Great Contradiction’ of capital:

‘a potential 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. Taken to extremes, either of these tendencies [the first being the problem of technology reducing value creation] could be fatal to the reproduction of capital. In combination, and the contemporary evidence is that both trends are discernible, they could be catastrophic’ (p.105).

Harvey is not the first to observe that contemporary financialised capitalism resembles very closely a gigantic Ponzi scheme, but, using Marx, he explains very precisely how and why this is so (p.106).

Marx’s Capital and contemporary problems

Harvey is oddly critical of Marx at a number of points in the discussion, and yet the overall picture he gives shows how the analysis in Capital is very fruitful when used to explain the peculiarities of modern capitalism. Even where he correctly points out Marx’s mistake is assuming that capitalism would not be able to abandon metallic backing for money, Harvey’s analysis brings out the great instability that is the result. Capitalism worldwide needs a standard measure, and for a long time this has been the US dollar, but;

‘Value even on the world market is now represented by money forms that have no material commodity base … The opportunity exists for currency regimes to emerge in competition with each other, vying for the power of representation of value on the world market. Any currency pushed to play the universal equivalent role, such as that now performed by the US dollar, is not only perpetually under challenge but inherently unstable’ (p.159).

Marx’s error here just seems to underline how perceptive his analysis of capitalism actually is, and how his method remains of the utmost importance in understanding the system.

Harvey’s application of Marx’s analysis of distribution and circulation to the peculiarities of contemporary capitalism, yields a number of important insights. He is convincingly sceptical about the potential of new technologies to open up a fresh phase of capitalism, or ‘that a brilliant techno-utopia based on that knowledge and all its labour-saving innovations’, such as imagined by the likes of Paul Mason, is at all imminent (p.104). He also warns against the simplistic advocacy of such panaceas as a basic citizen’s income, as this would ‘amount to naught if hedge funds buy up foreclosed houses and pharmaceutical patents and raise prices’ to increase their own profits at the expense of workers’ incomes (p.47). The question is one of power in and over the economy. In itself, no measure that does not entail, as its essential context, a determined and sustained attack on the power of capital itself, will have any lasting success.

Strategies of resistance

The question therefore is how to organise to change the system. Despite the powerful analysis Harvey provides of the workings of the system, he is less sure footed where strategies of resistance are concerned. He argues that Marx and Marxists have given too little attention to the process of realisation as opposed to production: ‘Political and social struggles around questions of the realisation of values in fact abound but they have a rather different social structure and meaning to the classic struggles that occur around valorisation’ (p.22). The upshot of this observation is that ‘class struggle’, conceived narrowly as conflicts at the point of production, should not be over-emphasised compared to struggles around, perhaps, housing, public space, or health, for example.

There is an argument to be made here, certainly, but Harvey undermines his own case with the only concrete example he gives of the alternative forms of struggle he has in mind. He envisages that when ‘a significant segment of a population (whether workers or bourgeois does not matter) expresses a desire’ to reduce or stop environmental destruction, then ‘the overall circulation of process of capital may be pushed down alternative paths’ (p.22). This appears to boil down to suggesting simply that climate change could be averted by recourse to consumer power. Yet there are very strong structural reasons why capitalism produces ecological harm, and few left-wing ecologists think these can be amended or transformed by individual market choices.

The lessons to be taken for the struggle from the analysis of the contradictions of production, circulation and realisation, surely lie instead in the potential for collective confrontation with the power of capital. The capacity for the social unity of labour is central to all this, even though, certainly, the workplace alone should not be conceived as the only site of organisation and protest. Nonetheless, while not all workers are directly involved in the production of surplus value, all have some role in producing the conditions for realisation; nurses and teachers, for example, are essential for the reproduction of labour, without which the life-cycle of capital cannot exist. Any attempt to confront the power of capital must be based on the collective power of labour, if it is to have any hope of overcoming ‘the madness of economic reason’.

i Joan Robinson, Economic Philosophy (London 1962), p.36.

ii To paraphrase E. P. Thompson, The Making of the English Working Class (London 1963), p.8.

iii Robinson, Economic Philosophy, p.47.

iv David Harvey, A Companion to Marx’s Capital (London 2010), vol. 1,pp.324-5.

Dominic Alexander

Dominic Alexander is a member of Counterfire, for which he is the book review editor. He is a longstanding activist in north London. He is a historian whose work includes the book Saints and Animals in the Middle Ages (2008), a social history of medieval wonder tales, and articles on London’s first revolutionary, William Longbeard, and the revolt of 1196, in Viator 48:3 (2017), and Science and Society 84:3 (July 2020). He is also the author of the Counterfire books, The Limits of Keynesianism (2018) and Trotsky in the Bronze Age (2020).