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How does capitalism get reproduced over time? This question has puzzled political economists from the seventeenth century onwards. Many simple models have been devised to answer this very complex question. While none of them are fully satisfactory, many insights are to be had from studying them and in these times of deep and frustrating troubles it is very important that we do just that.

One such model can be extracted from the works of Karl Marx and however abhorrent his political views might be to many, we ignore his insights at our peril. So here is a Marx parable that has interesting relevance to our present circumstance.

Capitalists start the day with a certain amount of money. They buy means of production and labor power and put both to work with a given technology to create a new commodity which they sell in the market place for the original money plus a surplus (called profit) at the end of the day.

There are many possible points of disruption here (not enough labor or means of production, wrong technologies, and so forth). One of the more interesting conundrums is where does the extra effective demand (desire plus money to pay) come from at the end of the day so that the profit can be realized?

In Marx’s time there was plenty of residual demand from the old feudal classes and if that was not enough then foreign trade (or plunder) with non-capitalist countries like China and South America might do the trick (they had plenty of gold and silver). Marx even toyed with but then rejected the idea that the gold producers (in our day, the Federal Reserve) could do it. If all these options are taken off the table, then the mystery deepens.

To answer the question, Marx builds a simple two-class model of a capitalist society comprising only capitalists and laborers. Obviously, he says, the laborers do not have the extra money so the only possibility is that the capitalists not only lay out the money to start the process at the beginning of the day but they also have to supply the necessary demand to close it out at the end of the day. This makes for a very peculiar-looking economy.

There are some variants on this argument. Thomas Malthus, for example, divided the bourgeoisie into capitalists who produce and landed aristocrats, parsons (like himself) and venal state officials (including the monarchy) whose great and virtuous service to society was to consume to the hilt without producing anything. Keynes (an admirer of Malthus) later suggested that workers could help provided they were paid more (a proposition that the right wing converts into greedy unionized workers who not only square the circle but push it into an inflationary spiral).

But let’s stick with Marx’s simple version: how do capitalists both consume and pay for the surpluses they have been instrumental in getting labor to produce? The surplus can be consumed in two ways – as capitalists’ personal consumption or through investment in expansion – hiring more laborers and purchasing more means of production. The latter implies perpetual growth and accumulation of capital over time. It also conveniently means that the demand for expansion tomorrow can absorb the surplus product created yesterday.

But there is a timing problem here: the expansion the next day does not realize its profit in money form until the end of that day when the money was needed yesterday to purchase the surplus then produced. The only answer is credit money backed by the promise of future expansion of surplus production. This is what allows the circle to be squared, provided, of course, the future expansion actually occurs. If not, we have a crisis in which the debt cannot be paid. Capitalism is, Marx concludes, one vast speculative system.

The perpetual accumulation of capital and of wealth is therefore crucially dependent upon the perpetual accumulation and expansion of debt. These two variables – accumulation of capital and the accumulation of debt – have in fact run alongside each other in the history of capitalism (go look at the data), both feeding and supporting each other. They occasionally get out of sync to create a crisis of the sort recently witnessed. What looks like a crisis of Greek sovereign debt is in fact a crisis of the financial system which arises because of a failure to find new ways to expand the surplus through reinvestment!

A startling conclusion follows. A vote against further debt creation is a vote to end capitalism! Fortunately or unfortunately (depending upon one’s political point of view) the Koch Brothers and the Republican Party cannot see that. Marx had always hoped that rebellious workers might end capitalism. So far they have not succeeded. So maybe the Koch brothers and the Republican Party can succeed where the workers have so far failed. Marx might not have been too surprised at that. As he also gleefully noted, individual capitalists operating in their own self-interest often take actions that collectively threaten the continuity of capitalism as a whole.

It is unlikely, of course, that the Republicans will stick to this crusading mission for very long. When in power their record is very different. The Reagan and Bush Jnr administrations were profligate in debt creation. (“Reagan taught us that deficits don’t matter,” famously said Vice-President Cheney). Nevertheless, short-term, the crusading Republicans may cause a lot of damage to the system they ostensibly support. As Marx also noted: the contradictions of capitalism move in mysterious ways.


David Harvey is Distinguished Professor at the Graduate Center of the City University of New York. His free course on Marx’s Capital is available at DavidHarvey.org. His latest book is The Enigma of Capital and the Crises of Capitalism, published by Oxford University Press.