Limits to Capital

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The Spatiality of The Limits to Capital

Eric SheppardDepartment of Geography, University of Minnesota, MN, USA;

[email protected]

In The Limits to Capital , David Harvey (1982) sets himself three goals.First, he offers a dialectical reading of Das Kapital , together with DieGrundrisse (Marx 1972; 1983), replicating the spirit of Marxs ownanalysis in opposition to the more analytical and methodologicallyindividualist readings of rational choice Marxism prevailing at thetime (Barnes and Sheppard 1992). Second, he extends Marxs analysisto pay explicit attention to space, in order to demonstrate that thegeographical nature of capitalism fundamentally shapes its evolution.Third, he seeks to explain why capitalism cannot transcend its ownlimits, despite its flexibility and inventiveness (hence the books title).

With respect to the first goal, he succeeds brilliantly. Of the manyaccounts of Capital that I have read, Harvey comes closest to replicat-ing the spirit and scope of Marx. It is a sad commentary on radicalpolitical economy, and on the status of economic geography amongeconomists of all ideological persuasions, that the book neverreceived the attention it deserves outside geography. 1 His geographicalextension of Marx has been enormously influential, however, amonggeographers and others interested in the geographical dynamicsof capitalism. A whole lexicon of concepts, now widely used anddiscussed, is articulated for the first time in Limits . These includeuneven geographical development; the spatial fix; the built environ-ment as a barrier to capital accumulation; the three circuits of invest-ment capital; territorial regulation; spacetime compression; localentrepreneurialism and inter-place competition; the production of place, space and scale; finance, fixed and fictitious capital; rent andurban redevelopment; and the instability of the capitalist space-economy. When I sat down to re-read Limits for this symposium, I was surprised to find him developing concepts that received littleattention until even a decade later. This prescience is further tributeto how much the efflorescence of radical geography owes homage toHarvey, also among those who have become vocal critics.

In this brief essay, I seek to summarize how Harvey spatializesCapital ; to assess this achievement in light of subsequent research

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along these lines; and to discuss the implications of this research forHarveys analysis, and for our understanding of the economicdynamics of capitalism. In this sense I offer an internal assessmentand critique: to what extent did Harveys treatment of space enable

him to make good on his second and third goals?2

Spatializing MarxMarxs economics can be distinguished from that of most of the grandtheories in economics, particularly his contemporaries and neoclassicaleconomics, by the close attention he pays to time. Production and therealization of profits take time: capital is invested prior to production,and profits can only be realized after production has been completedand the product brought to market. In short, there is a time lag betweeninvestment and payoffs. In addition, payoffs are not automatic.Whereas mainstream economics assumes the existence of a market-clearing equilibrium, where supply matches demand and all productsare sold, Marx saw the economy as what we would today call a complex dynamic system. As a result, whereas harmony, balance, and optimiza-tion are at the center of mainstream economics, disequilibrium andcrisis are at the center of Marxs analysis. Marx makes some vital

observations about space, but does not make it central to his analysis.In seeking to clarify the fundamental importance of the geography of capitalism, Harvey organizes his analysis around three cuts at a theoryof crisis, beginning with the conventional Marxian position, and pro-gressively complicating it by paying attention to time and space. Hisfirst cut at crisis theory, like Marx, emphasizes that cyclical dynamicsof overaccumulation and devalorization are endemic to capitalism. Inthis account, capitalists profits are gained by paying labor less than the(labor) value contributed by the worker. In addition, capitalists seek to

out-compete one another by introducing new labor-saving technologiesthat enhance productivity by reducing the labor force. The result is aneconomic boom: more output is brought to market. Yet there is lessmoney in the hands of consumers (workers) to purchase these goods.Capitalists produce too much, and sooner or later this overaccumulationresults in a realization crisis (an inability to sell and make a profit).There is, in short, a tendency towards a falling rate of profit, as aconsequence of the operation of the law of value (discussed in moredetail below). The result is economic restructuring and an economicbust: firms close, and machinery and equipment are abandoned. Thisdevalorization of fixed capital eventually writes off enough of the pre- vious overaccumulation for production to initiate a new cycle of boomand bust. (For a similar contemporary analysis, see Brenner 2002.)

Harveys second cut at crisis theory examines the institutionsdeveloped under capitalism to smooth out disruptions due to the

The Spatiality of The Limits to Capital 471

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time that production takes. He notes that large-scale productionrequires investment in large pieces of fixed capital. Thus large sumsof money must be raised up front to pay for equipment that may notmake a profit for years, if at all. He notes that finance institutions and

the credit system are essential institutions for dealing with this prob-lemfor assembling the resources necessary for large purchases andmanaging the variable and sometimes long time lags between invest-ment and payoffs. Finance markets also make it easier for capital toflow from less profitable to more profitable areas of the economy,smoothing out cycles of overaccumulation and devaluation. Fictitiouscapital (ie derivatives etc) also emerges, multiplying investors optionsand flexibility. In all these ways, the financial credit system offers thepromise of a temporal fix to capitalisms crises. Yet Harvey arguesthat this is a false promise. Large pieces of equipment ease efficientproduction in the short term, but they can become a barrier once newtechnologies emerge that result in the older fixed capital rapidlylosing its economic value. By easing the flow of capital around theeconomy, finance markets accelerate accumulation and technicalchange, and the speed at which old equipment needs to be replaced.In times of crisis, fictitious capital also can lose its value overnight as itis rooted in nothing more solid than investors confidenceas the

recent stock market crashes and bankruptcies have demonstrated.Thus cycles of boom and bust may be temporally displaced, but donot disappear.

The possibility that crises can be managed through spatial fixes isthe subject of Harveys third cut. He identifies four kinds of spatialfixes. First, the land market helps reconfigure the built environmentand makes it more flexible by directing investments in land to highestand best (ie differential rent maximizing) uses. Whereas manyanalyses of land under capitalism, based on Ricardo or von Thu nen,

conceptualize rents as a drain on profits and thus on the accumulationof capital, Harvey develops Marxs theory of differential rent to arguethat rents can in fact contribute to profit-making (especially when thebuilt environment becomes fictitious capital). Land markets thusmediate space in the same way that finance markets mediate time.Second, the global diffusion of capitalism mitigates accumulationproblems at home by creating new markets for investment abroad.Third, spatial barriers to profit realizationbecause the geographicalseparation of places of production (where investments are made)from places of consumption (where revenues are generated) increasesthe time lag between investment and payoffscan be mitigated bydeveloping communications technologies to accelerate the movementof commodities and capital. This is what Marx and Harvey mean bythe annihilation of space by time (Harvey 1985). 3 Fourth, territorialgovernance structures emerge to facilitate local capital accumulation;

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a theme subsequently picked up by regulation theory and research onindustrial districts and local entrepreneurialism.

As in his analysis of the second cut theory, Harvey argues thatsuch spatial fixes are at best temporary. Mechanisms smoothing the

reinvestment of capital across space into highest and best uses, accel-erating the global diffusion of capitalism, annihilating space throughtime, and underwriting territorial accumulation strategies all end uppromoting capital accumulation and competition. This allows the lawof value (the first cut crisis theory) to operate more freely, returningcapitalism to the boom and bust dynamics of the first cut theory of crisis.

Harveys spatialization of Marx has two important elements.First, he argues that spatiality is a social construct. In this view,space (like time) is not an exogenously given, absolute coordinatesystem within which phenomena can be located, as in Newtons viewof the universe. Instead, as detailed in the third cut theory of crisis,space is a product of the political economic system (see also Smith1984; Swyngedouw 1992). Second, he is successful in showing howspace and place also have an active influence over profit rates, andthereby the dynamics of capitalism. In spirit, this parallels the argu-ments made by first generation neoclassical location theorists that

space matters in the economy (Harvey 1999). Taken together, thesetwo arguments constitute a relational theory of space (a positioninitially developed by Leibnitz in his critique of Newton): differenteconomic, social and political processes . . . produce their own spaces.But, in turn, space . . . is also considered constitutive of {these} pro-cesses (Harvey 1997) (Castree 2002:191). The significance of thelatter, constitutive, process was at times lost when Marxist geographers,seeking to avoid spatial fetishism, conceptualized space as only aproduct of capitalism (Sheppard 1990a). Harvey never made this error.

Assessing Harveys SpatializationHarveys relational analysis of the spatiality of capitalism is a majorcontribution, both to Marxian political economy and to economicgeography more generally. It demonstrates that a full considerationof space requires us to rethink economic theory, in turn implyingthat economic geography cannot be dismissed as a special interest of little concern to most economists. Limits did not develop fully theimplications of this insight, but catalyzed a research program on therole of space in the dynamics of capitalist development. Yet Harveydid shape the direction that research into space and place took withinthis research program, through the example he paid most attention to.Harvey stressed the urban built environment, showing how urbanbuilt environments are shaped to meet the requirements of capitalaccumulation, only later to become a barrier once technological




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change alters those requirements. Thus cities, like capitalism,undergo cycles of construction and devalorization, and urban spatialrestructuring. This focus on how places are shaped by and shapecapitalist dynamics was taken up in a number of the most influential

Marxian-influenced economic geography monographs of the 1980s(Massey 1984; Scott 1989; Storper and Walker 1989).By contrast, although Harvey fully recognizes the importance of

how distance also is continually reshaped by the transportation andcommunication technologies developed to overcome barriers of geo-graphic separation, he pays little attention to this in Limits . This alsobecame a minority interest in subsequent Marxian economic geography.To this day transportation and communications geography remainlargely outside radical economic geography (but see Graham andMarvin 2001; Hanson and Pratt 1995; Sheppard 1990b. My research with Trevor Barnes into the role of transportation in the capitalistspace economy confirms Harveys insight about the importance of distance as a relational aspect of capitalism. Moreover, it implies thatthe spatiality of capitalism has even more far-ranging implications forMarxian economic theory than Harvey suggests.

To see this, recall Harveys arguments about capitalist crises. In hisaccount, the second and third cut crises cannot prevent a capital-

ist economy from eventually experiencing overaccumulation. Fixedcapital and the built environment may stabilize investment dynamicsand slow accumulation down, but credit and land markets, fictitiouscapital and communications technologies also smooth over temporaland spatial barriers and accelerate accumulation and competition.Thus the limits to capital, expressed in the first cut crisis theory, areat best delayed.

What accounts for the inevitability of such a crisis? I read Harveysexplanation as based on three arguments. First, in a pinch, his analysis

relies on labor values. Initially, he calls for a dialectical treatment of exchange and labor values, writing that exchange value and labor value are relational categories, and neither . . . can be treated asa[n] immutable building block (Harvey 1982:4). At times, however,he treats labor value as a sufficient and independent determinant of capitalist dynamics. 4 For example, his important modification of thelaw of the falling rate of profit is developed in labor value calculus(pp 176189), despite the fact that capitalists decisions on new technolo-gies are, in the first instance, based on their guestimated impact onmonetary profits. Second, and consistent with this tendency, he placesMarxs law of value at the center of his analysis. As described byHarvey, the law of value states that under full capitalist competitionthe rate of profit (in labor value terms) will be equalized across theeconomy, as investment flows from less to more profitable opportun-ities (p 142). He also associates with this an economy-wide warranted

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rate of accumulation (determined by the average rate of surplus valuein the economy) that, if maintained, enables all profits (net of luxuryconsumption) to be reinvested in capital accumulation (pp 159160).Third, however, Harvey argues that this warranted rate of accumulation

cannot be maintained: it is, as he writes, an unstable equilibrium (p 176).In this, he follows Marx in denying Says Law, ie that supply creates itsown demand. Instead, overaccumulation is inevitable.

It then follows that anything promoting competition and accumula-tioneg credit and land markets, improved communications technolo-gies, territorial governance systemsbrings into force the law of valueand its corresponding cycles of overaccumulation and devalorization. A second implication of the centrality of the law of value in Limitsis that the warranted rate of accumulation, around which cycles of overaccumulation and devalorization fluctuate, is an external deter-minant of the unstable dynamic equilibrium (p 159). Harvey repeat-edly stresses that accumulation is the driving force of the economy. Bycontrast, he rejects class struggle as playing any determining role overaccumulation (pp 255256), although interestingly he accepts it as adeterminant of the equilibrium share of rents (p 362). It is sucharguments that have led a number of analysts to dub Harvey a capitallogic Marxist: ie a Marxist who argues that economic considerations

rather than social ones drive capitalist accumulation.Our research on the capitalist space economy, taking into account theconstitutive role of distance as produced through the transportation andcommunications sectors, suggests, however, that Harveys explanationof the first cut crisis and its foundational role for capitalist dynamics isproblematic (Sheppard and Barnes 1986; 1990). First, labor values arenot more foundational than exchange values; the two indeed exist in adialectical relation with one another. Second, the warranted accumula-tion rate is not an exogenous determinant of capital accumulation, but

depends, inter alia , on technological change, on the spatial configurationof production and, crucially, on social forces of class struggle fixing theprevailing wage rate relative to the rate of profit. Third, while Says Lawis not generally valid, there do exist conditions under which futuredemand matches current supply. For any given warranted rate of accu-mulation, a social division of labor can be constructed that allows outputto match future demand, making unlimited extended accumulation pos-sible (cf Capital , volume 2). 5 This growth path is indeed unstable, asHarvey notes, but not simply for the reason he gives: Overaccumula-tion driven by the law of value. Any technological change, geographicalrestructuring, or successful move by organized labor or capitalists toenhance their share of the surplus can undermine this balance betweenfuture demand and current supply. This implies, for example, thatsocial and political struggles, played out in space and time, also mayhave substantial influence over capitalist spatial dynamics.




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In short, fuller consideration of the constitutive role of space leadsto a much more complex narrative of capitalist crisis, in which labor values, the law of value and the warranted rate of accumulation eachplay a less determinant role than Harvey suggests in Limits . Capital-

ism is indeed an unstable and crisis-prone system, but those crises aredependent on more than the dynamics of capital accumulation. Thespatiality of capitalism creates all kinds of unintended consequencesthat capitalists (and workers) must negotiate; capitalist dynamicsdepend on class struggles, and class conflicts themselves (as Harveynotes) are profoundly complicated by space (Sheppard and Barnes1986). This implies a more complex and nuanced dynamic than thatsuggested by Harvey.

A second aspect of Harveys spatialization of Marx is worthy of note. Although Harveys discussion of space stresses continual cyclesof spatial differentiation and restructuring, at times there is also atheme of spacetime compression and integration. This occurs indiscussions of how increased mobility of capital and labor enhancesspatial competition (p 165); how spatial integration is key to theabstraction of abstract labor value from concrete individual labors(p 375); the errors of Emmanuels (1972) unequal exchange thesis(p 63); and the concluding discussion of how local crises build up to

a global crisis (and the end of capitalism). Careful attention to thespatiality of capitalist production, however, leads to the conclusionthat labor values vary across space (Sheppard and Barnes 1990;Webber 1996). It is also far from clear that the production of spaceis resulting in a straightforward spacetime compression, even underthe influence of telecommunications (Sheppard 2002). 6 While the world is undoubtedly becoming smaller in absolute terms, it doesnot follow that relative differences in positionality, or locationaladvantage, are diminishing.

ConclusionMany of Harveys insights are durable, and this book remains a vitalresource for understanding capitalisms spatial dynamics: the produc-tion and constitutive role of space; the spatio-temporal instability andunpredictability of capitalism; the complexity of class struggles underspatial competition; and the relevance of labor values as part of ouranalytical toolkit (cf Webber and Rigby 1999). Marxs analysis is asrelevant as ever (Desai 2002), and Harveys insights resonate today.The current dependence of the global economy on flagging FirstWorld consumer confidence and on the dubious dynamism of theUS economy is evidence of an overaccumulation crisis, in which the worlds poor cannot afford the products of first world capitalism andthe worlds middle classes withhold spending in times of uncertainty.The third Gulf War (after the IranIraq war and Iraqs invasion of

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Kuwait) shows how global military might remains a means for thehomelands of capitalist production to gain access to strategic naturalresources, and for disciplining those unwilling to play by the economicand political rules of capitalism. 7

Harveys analysis in Limits operates in different registers. It isdominated by a resolutely dialectical analysis of the highest quality,but at key points suggests a foundational role for both the abstractedcalculus of labor value and the first cut theory of crisis, which impliesthe existence of clearly demarcated limits to capitalism. Subsequentresearch into the spatiality of capitalism offers a somewhat differentanalysis, that capitalist dynamics are subject to an even more complex set of forces, requiring a more socially and geographically nuancedaccount. The irreducibly complex spatio-temporality of capitalism, theinability of economic agents to determine the consequences of theiractions, and the difficulties of grounding analysis in any universal value calculus, together suggest that the economy (like space) needsto be treated dialectically and relationallyas both a consequenceand constitutive of society, nature, space and time. Interestingly, thiscreates room within the critical analysis of capitalism for the kinds of insights emerging in critical human geography that are erroneouslysituated in opposition to Harvey, both by him and his critics, because

of their skepticism that value and class are determinant in the finalinstance.

AcknowledgementI wish to thank, without implicating, Helga Leitner and GeorgeHenderson for comments on an earlier draft.

Endnotes1 Its recent republication by Verso, and the accompanying interview published in New

Left Review, was catalyzed by cultural theorist Frederic Jameson, who became awareof it as a result of reading Harveys (1989) The Condition of Postmodernity . Thus thepopularity of one of Harveys weaker books led to a rediscovery of his most magisterialto date.2 There are, of course, many absences in Harveys analysis that others have commen-ted onthemes such as naturesociety relations, gender, and the state. I eschew thiskind of external critique here. Harveys purpose, as I see it, was not to provide acomprehensive understanding of capitalism, but to summarize and assess Marxs owneconomic analysis, which also bracketed these topics. I also will not summarize thesignificant developments in Harveys own thinking since 1982. These have been, of course, considerable, but have limited implications for the arguments presented here.3 Marx (1983) stresses die Vernichtung des Raums durch die Zeit, d.h. die Zeit, diedie Bewegung von einem Ort zum anderen kostet, auf ein Minimum zu reduzieren(The annihilation of space through time, ie to reduce to a minimum the time that itcosts for movement from one place to another; authors translation). As Harvey notes,these arguments imply that the spatial circulation of capital is productive, ie it affectsprofits. This effectively denies the claim often made in Marxist economics that allcirculation activities are unproductive, ie they are a drain on profits.




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4 Harvey stresses, of course, that labor values are socially determined; the issue here istheir role within the economic theory of accumulation.5 This socially necessary division of labor is not determined by labor values ( contraRubin 1972)6 Also worthy of note is the argument of Gibson-Graham (1996) that there are spaces

close to the heart of capitalism which it has not penetrated.7 The point is not to deny the oppressive nature of the Saddam regime in Iraq, of course, but to highlight the neocolonial attitude that democratic capitalism encapsu-lates the ideal social system to be imposed by force, if necessary, in the name of humanprogress.

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Limits to Capital