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How useful is the Marxian concept of ‘the global

overaccumulation of capital’ in explaining the global

economic crisis that began in 2008?

On the surface, the global financial crisis of 2008 seemed like a crisis of finance

and banking. A complex interconnectedness had fed its way into the banking

system through financial engineering, a product of excessive risk-taking as the

subprime mortgage market grew. This has of course brought about explanations

that banks and financiers were simply too greedy or naive in their search for

profit, or that a lack of regulation allowed banks to behave in a deceitful manner

with little consideration of risk management protocol.

Within orthodox Economics, neo-classical economists believe that the crisis was

either one of asset valuation model errors, market distortions or even cronyism.

Keynesians and Interventionists will state the opposite, that actually more

regulation was needed within the banking system to prevent wild speculation in

financial markets. These views would be understandable, since to some degree

they do explain the immediate triggers of 2008. But as Ivanova (2011, p.853)

explains:

“Speculation and panic may trigger crises, but to trigger something does not

mean to cause it.”

Marxian theory always encourages us to abstract from appearance and observe

what is really going on beneath the surface, and when studying the financial

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crisis this is no different. It is by abstraction that we can begin to see the roots of

2008 actually began in the 1970s, during a period where class struggle was

intense and prominent. Worldwide re-organisation of production and

accumulation processes in the 1970s has been of great importance to the

evolution of capital over the past 30 or so years. Later we will find that the

evidence supports such a thesis.

In order to be able to understand how relevant the concept of overaccumulation

is to 2008, it is important to first summarise the theory behind it and analyse the

environment in which such a situation can occur. This will be very important in

determining the strength of the evidence when we discuss the events of 2008. In

doing this, we turn to classic Marxist texts and authors. In short, we can

understand overaccumulation as a process and an evolvement of capital, derived

from fundamental class relations between social roles within the capitalist mode

of production. Key contradictions of capital begin to manifest themselves, as it

attempts to overcome its self-created barriers.

We find that overaccumulation first involves intense competition within

markets, increasing tendencies for capitalists to make efforts to improve

productivity. We then have an increasing mass of commodities and

disproportion in markets, as those engaged in capital accumulation attempt to

squeeze surplus value. At this point, we can see barriers emerge as markets

become more and more saturated. The tendency for capital to become a global

process can be seen as a potential solution, or a way of overcoming this hurdle to

further accumulation. But, we only see these temporary ‘fixes’ to capital

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accumulation, such as world markets and credit markets. We ultimately find that

the overaccumulation of capital refers to a situation where ‘fictitious capital’

becomes more and more prominent, as the contradictions of the money form and

the need for capital to jump over its self-constructed obstacles relate.

‘Accumulation for accumulation’s sake’ (Harvey 2007, p.192) from financial

capital generates more and more disconnect from the value-producing form of

production, eventually becoming nothing more than speculative gambles on

future surplus value extraction. There is no solution that will resolve its internal

contradictions and eventually crises ensue when that future extraction fails to be

realised.

Equipped with a strong understanding of overaccumulation theory, we can then

begin to assess its ability to explain the run up to 2008. We do this by

investigating the crisis in the 1970s, and how the class struggle was won by

capital. This of course had massive implications for the world, in terms of new

advanced production processes and a global division of labour, as productive

capital flows to new locations. During this time we can begin to see wage

repression, as the working class are squeezed at the expense of capital. Problems

of demand, particularly in developed countries can then be seen. This in some

respects explains the growth of credit markets and financialisation, as capital

looks for new outlets for accumulation and attempts to resolve its own

contradictions.

The growth of mortgage markets, financial derivatives, securitisation and credit

default swaps can all be seen as simply future claims on surplus value that may

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or may not be realised. When the bubble eventually busts, the majority of the

‘fictitious capital’ becomes worthless, and so the crisis can be seen to be one

triggered by financial catastrophe fuelled by reckless speculation.

The evidence we see from prior 2008 appears to fit with the majority of

overaccumulation theory. This is because ultimately the roots can be seen from

the social relations of production in the 1970s. Capital then attempts to

overcome its self-imposed limits through financialisation, completion of the

world market and also attempts to accumulate into physical assets such as

housing. Ultimately as Marx predicted, these are only temporary fixes that have

only delayed and aggravated the scale of crisis. This renders the ‘global

overaccumulation of capital’ to be a useful framework for explaining 2008.

The theory behind the ‘global overaccumulation of capital’

A good starting point for understanding the overaccumulation of capital is to

refer to the circuit framework outlined by Burnham (2010, p.32). We can

understand capital as a circulation process. This structure of capital can be seen

by Burnham’s representation:

M – C (LP+MP) …P…C’ – M’

Initial capital (M) is invested into productive commodities in labour power and

other means of production in order to generate a new commodity with greater

value than the sum of the initial inputs (C’). This exchange value is then

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converted back into the ‘universal equivalent’ money form at the end of the

process.

One of the key observations we can make from this process is the antagonistic

relationship between capital and labour power. Capitalists’ interests are involved

in the creation and expansion of surplus value, whereas labourers are selling

their labour power as a means of subsistence. Harvey (2007, p.196) states that

the opposition between productive forces and the social relations is

‘fundamental’. We can begin to see how this opposite relationship might manifest

itself if we imagine the circuit of capital in aggregate, as well as the infinite

development of the productive forces. Of course when we think of the capital

circulation process in aggregate, we can start to see the development of inter-

capitalist competition. As Clarke (1990/91 p.452) explains: “competition is both

the presupposition and the manifestation of the tendency to overproduction

inherent in the social form of capitalist production”. What this means is the

eventual saturation of markets, generating barriers to the extraction of surplus

value.

This is perhaps an appropriate time to discuss capital as a process that reaches

across the globe. We see the existence of the world market form that allows for

greater exchange points for capitalists to overcome their limits to capital. As

Marx (1983, p. 141) states: The ‘general foundation of all industry comes to be

general exchange itself, the world market, and hence the totality of all activities…

of which it is made up’. Although this does allow capital to overcome initial limits

of market saturation, this also creates more barriers for capital in further

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intensification of competition. The mindset then is to look back into the

production process and streamline production processes to maintain

competitiveness in the market. By intensifying labour production processes,

optimising the division of labour, introducing machinery or technology in

production for example, capitalists potentially encounter a method of

maintaining the accumulation of surplus values, and so we see a further

increasing mass of commodities in the market. Clarke (1990/91 p.452) makes a

key distinction by arguing that the tendency towards overproduction is not

motivated by ‘a desire to meet expanding demand, but by a desire to increase the

production of surplus value’. Additionally, Harvey (2007, p.194) explains Marx’s

dismissal of Say’s Law, which states that supply creates its own demand,

implying that overproduction results from the need to overcome the ‘separation’

between the various phases of the ‘circulation of capital in time and space’.

At this point, the antagonistic relationship between capital and labour begins to

show its tensions, as wage repressions and or unemployment present demand

problems. This is another barrier that capital has created for itself. As we have

explored before there is always a tendency for capital to find temporary fixes for

its own contradictions, and so at this stage we can also begin to understand the

reason for the development of credit markets through both the rise of consumer

debt and debt for investment in production. According to Bonefeld (2006, p.61),

the expansion of credit-relations bridges the gap between investment

requirements and profits acquired in the sphere of exchange.

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The credit market is an instrument that suspends crisis rather than one that

resolves it. (Clarke 1990/91, p.457). Freely available credit can be seen to ‘solve’

the demand problem, allowing for the growth of debt-fuelled consumption,

whilst also freeing capitalists from the need to realise their capital in money

form. (Harvey 2010, p.16) (Clarke 1990/91, p.457). It is here where we can

embed the dialectic between the money form and the capital accumulation

process into our explanation to observe how fictitious capital develops. Money

has multiple uses within the capitalist system, and the particularly relevant uses

of money in this case involves its use as a measure of value but also as a

‘universal equivalent’ in exchange. The problem with money as a medium of

exchange is that it becomes more valuable than the commodities it can buy, since

having the universal equivalent provides more flexibility to the owner than a

particular commodity that the owner may or may not be able to trade. So

therefore, we can see that money becomes an end, as well as a means to be able

to acquire an end in a commodity. In a sense, it becomes rational to both hoard

money and throw it into circulation, which is paradoxical (Clarke 2003, p.37).

This implies that the growth of credit markets is an opportunity for money to be

accumulated without the need for any engagement in production. In addition, as

we observed before, capital is reliant on credit if it is to delay the manifestation

of its crisis tendencies. Hence, the relation between the paradoxical money form

and the need for capital to accumulate without limits can be seen as reason for

the development of fictitious capital. McNally (2009, p.66) describes fictitious

capital as ‘paper claims to wealth’ that can be sold many times over. Burnham

(2010, p.35) explains that “accumulation based on credit is feasible only on the

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expectation of some future extraction of surplus value”. Hence, on the surface we

may appear to see a rising mass of profits on a global scale, but when such future

claims on surplus value are not realised, these ‘assets’ quickly become worthless.

As a comparison to the circuit of capital outlined by Burnham (2010, p.32), this

processed can be represented as M-M’, whereby a simple process is completed

that allows investors of capital to expand their wealth.

The overaccumulation of capital therefore refers to a situation where there is a

greater mass of capital relative to opportunities to put that capital into motion.

This arises mostly from the growth of fictitious capitals. Harvey (2007, p.192)

summarises the theory of overaccumulation very well:

‘The capitalist’s necessary passion for surplus-value producing technological

change, when coupled with the social imperative ‘accumulation for

accumulation’s sake’, produces a surplus capital relative to opportunities to

employ that capital. Such a state of over-production of capital is called the

‘overaccumulation of capital’’.

Applying the concept of ‘the global overaccumulation of capital’

to explain the 2008 crisis

Since Harvey (2010, p.11) suggests that a crisis of capitalism typically leads to

reconfigurations of capital that sow the seeds of future crises, it is perhaps

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logical to begin our Marxist examination of 2008 in the 1970’s. This period is

significant in terms of an expression of class struggle and the opposite forces that

we discussed before- a manifestation of the dominance of the working class over

capital, with strong trade union powers pushing up inflation rates, which became

huge barriers to accumulation. If we look at the UK and the USA in particular, we

can see that during this crisis the capitalist class, through the development of

Thatcherism and Reaganomics, won the battle. According to McNally (2009,

p.47) “Such processes of downsizing, work-reorganisation (‘lean production’)

and technological revolution occurred in the midst of a concerted and

increasingly successful offensive against the organised power of the working

class”. This is significant because as we explored before, the social relations of

production represented by class struggle is essential to understanding the global

overaccumulation of capital. Harvey (2010, p.13) outlines patterns of wage

repression in the USA and UK during the 1970s and 2000s respectively, which is

consistent with our theory that the working class becomes squeezed due to the

need for ever-improving productivity. We can also observe the stagnation of US

real wage growth in Wolff (2010, p.140). Wolff also argues that this strain on

wages is the reason for the enormous accumulation of consumer debt in the US,

stating that total household debt rose from $734 billion in 1975 to $12.8 trillion

in 2006.

Ivanova (2011, p.858) outlines that the dominance of neo-liberalism after the

1970s crisis has led to capitalist production processes becoming worldwide

through ‘the internationalisation of productive capital- which underlay the

emergence of a global system of production, global labour force and a new

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international division of labour’. Here we see the global tendencies of capital

when freed from its constraints, particularly its need to find new outlets for

accumulation. McNally (2009, p.51) highlights that between 1980 and 2005, half

of the world’s ‘export-weighted’ global labour force growth occurred in East Asia,

where the working class population increased from 100 million to 900 million

workers.

Capital’s freedom to flow into new world locations in this case facilitated the

development of new competitive forces, particularly in the productive sphere as

the drive for lower costs of production continued. In terms of many economically

developed states that had previously experienced a large employment of

productive capital, a ‘logical’ development of capital from this problem is

therefore is for it to valorise in the form of financial capital.. Ivanova (2011,

p.860) explains that a combination of falling profitability in US production

sectors and strong competition has aided the growth of a ‘finance-driven mode of

accumulation’. Additionally, Christophers (2015, p.211) explains how finance

constitutes ‘the scaffolding of this global constellation’. We can clearly observe

tendencies for capital to go global, due to the ultimate drive to accumulate

surplus value; we also see the issues this creates in terms of further competition.

Additionally, we can begin to observe how capital flows into credit markets in

attempts to overcome the demand problem it has created from its own process

of circulation.

In addition to the incentives outlined above, the neo-liberal form of capitalism

was one that encouraged the deregulation of global finance and as such further

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encouraged the growth of interest-bearing fictitious capital. Harvey (2010, p.16)

describes a ‘new global financial architecture’ that was created allowing for easy

international flows of liquid money capital. Within this framework he posits the

removal of the Glass-Steagall Act in 1999, resulting in a suspension of the barrier

between retail and investment banking as a good example of such deregulation.

Capital could now accumulate in increasingly complex and abstract ways

through financial markets.

Another factor to be considered regarding the emergence of finance capital since

the 1980s has been changes in the way we use and understand the money form.

The abandonment of the Bretton-Woods system during this period of neo-liberal

dominance has led to complete removal of the gold base from the dollar, which

has meant the emergence of completely free-floating exchange rate system. From

this we see that value becomes even more loosely related to money. Additionally

we can see that the tendency for money to be hoarded due to its social power as

‘the universal equivalent’ renders M to M’ an easier process that the circulation

process illustrated by Burnham (2010, p.32). When production profitability is

falling in the USA, as outlined by Ivanova (2011, p.860) before, we can begin to

see another reason as to why finance capital became an attractive proposition.

The financialisation of the global economy in the neo-liberal period can be

attributed to fictitious forms of capital. Fine (2014, p.49) explains the new

problem that confronted capital:

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“Those lending money as IBC (interest-bearing capital) will expect interest in

return, for which payment will depend to some degree on the successful

expansion of production or profitable activity out of which interest can be paid”.

Therefore we can begin to see the potential for this system of accumulation to be

inherently unstable. Blackburn (2008, p.67) suggests that as the conditions

developed for finance, banks found new forms of accumulation through tradable

securities, based on consumer debt. This process was not just happening in

banks however. Harvey (2010, p.23) points out that in the auto-industry it was

common to see large companies making more money out of financial operations

than selling the commodities themselves. Huge innovations in the financial

industry start to appear such as options, futures, swaps and derivatives (McNally

p.66). The pattern we can see is increasingly globalised and complex fictitious

capital, that gradually bears less and less relation to what is happening in the real

economy as interest is earned on interest. We can therefore see the potential for

an optimistic period based on a booming financial sector to be an illusion

somewhat, as speculation soars and bubbles develop. The initial capital must

originate from the surplus value in the real economy, and this needs to keep pace

with the rate of money capital growth if we are to avoid a situation of

overaccumulation. However, defaults on credit card payments for example,

perhaps through a series of job losses ultimately reveal the capital generated

upon it to be shown as totally fictitious and a ‘mere piece of paper’ (McNally,

2009, p.66).

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This situation relates strongly to Harvey’s definition of the overaccumulation of

capital, whereby rates of surplus value cannot keep pace with the rate of capital

accumulation. Financial engineering both pre-supposes and results from

overaccumulation tendencies. We can see that capital requires new outlets to

fulfil its ‘unbounded drive to accumulate’ (McNally 2009, p.44). But we can also

see that financialisation was a way in itself of providing a temporary fix for

overaccumulation, by keeping value in motion.

With growing financialisation, we begin to see additional overaccumulation

tendencies develop. Ivanova (2011, p.862) explains that the housing sector

became an avenue for overaccumulated capital. This can ultimately be seen as a

product of fictitious capital markets. We can therefore understand this

movement of capital from industrial sectors to the built environment as ‘capital

switching’ (Christophers, 2015, p. 1348 & pp.1357-59). Christophers provides

evidence of such a process, highlighting significant increases in the share of UK

pension funds allocated to property between 2000 and 2007, and also finds

comparable trends in other countries during the same period. Additionally,

through mortgage markets we also see that capital’s need for constantly

expanding value drives it towards the subprime borrower, as markets that

involve safer lending become more saturated (Harvey, 2010, p.16). Potts (2011,

p. 463) argues that surplus capital has acted as the basis for ‘increased usury’ in

the form of mortgages. The subprime market can be seen to be just another

product of global overaccumulation at the expense of risk management.

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The crisis that mostly situated in the subprime mortgage market can be seen as

one of overaccumulation. The bubble bursted when future claims on surplus

value could no longer be realised as mortgage payments stalled. The complex

web of interconnectedness within the financial system then collapsed as the

fictitious capital that had accumulated so overwhelmingly became devalued on a

global scale.

Conclusions

We have examined how the ‘global overaccumulation of capital’ is a result of

fundamental social relations in production between capital and labour, and these

antagonistic forces begin to manifest themselves as competition in markets

intensify. As its internal contradictions begin to create barriers for capital, we

observe its likeliness to seek temporary fixes, such as a tendency to expand

globally and seek new markets for accumulation, credit systems, and the built

environment. Credit markets in particular can be understood as a process that

suspends rather than resolves the barriers to capital, by propping up consumer

demand and providing flows of capital to capitalists who can no longer rely on

surplus value extraction from production. Contradictions of the money form also

become important, since the social power of money encourages accumulation to

move increasingly further away from production into activity that ceases to

produce value. We then observe ever-increasing levels of fictitious capital, as

capital overaccumulates in financial sectors. This fictitious capital can be seen as

simply claims on the extraction of future surplus value in production. If such

surplus value is not realised, then we see the devaluation of capital.

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From this understanding of overaccumulation, we have observed how the roots

centred on a class war in the 1970s, won by capital as reconfigurations of

production took precedence at the expense of workers. Wage repressions

observable particularly in the US highlight a growing demand problem in

production, hampered further by a global division of labour intensifying

competition. We can see how this is consistent with the predictions of the theory.

The abandonment of the Bretton-Woods currency system and the removal of the

Glass-Steagall Act can be seen as examples of the favourability shown to fictitious

capital during the period of neo-liberal dominance. The easiness of accumulation

as well as its role at suspending the onset of crisis has led to the vast growth of

the global financial sector, as a vast array of financial instruments have been

introduced such as swaps, futures and derivatives.

The usefulness of the theory of overaccumulation also helps us to explain how

the crisis came to result from subprime mortgage markets. We observe a

tendency for overaccumulated capital to valorise in physical assets such as

housing through the financialised economy. The limits of the market once again

came to the fore, and we can see that the subprime market was a brief solution to

continue the cycle of accumulation. The inevitable slowdown in repayments

burst the bubble and we saw the crisis very quickly show its global effects.

Words: 3785

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Burnham, P. (2010). “Class, Capital and Crisis: A Return to Fundamentals”. Political Studies Review, 8(1), pp. 27-39.

Christophers, B. (2015) “Geographies of finance II: Crisis,space and political-economic transformation ”. Progress in Human Geography, 39(2), pp. 205-213.

Christophers, B. (2015) “Revisiting the Urbanization of Capital” Annals of the Association of American Geographers, 101(6), pp. 1347-1364

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Marx, K (1983) Capital, Volume 1 (London: Lawrence & Wishart). in Bonefeld, W. (2006), “Social Constitution and the Spectre of Globalisation”. in Global Restructuring. Palgrave, pp. 45-67.

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