Photograph by Phil Douglis

From London Review of Books:

In the case of real estate, it might happen – as it has – that more building and selling of houses has been financed than can actually be paid for with income deriving, in the last instance, from production. So the credit system that had seemed to insure against one kind of overaccumulation (of commodity capital) by advancing money against future production, now seems to have fostered another kind of overaccumulation (of fictitious capital) by promising more production than has occurred. More housing has been created than builders can sell at a profit; more mortgage debt has been issued than can be repaid, through wage income, to ensure the lenders’ profit; homeowners who took out loans against the rising value of their property find that prices are instead plummeting; and with the collapse of the housing sector more money capital now lies in the hands of its owners than they can see a way to invest profitably.

‘The onset of a crisis is usually triggered by a spectacular failure which shakes confidence in fictitious forms of capital,’ Harvey writes, and everyone knows what happens next. The flow of credit, at one moment lavished to all comers on the flimsiest pretext of repayment, at the next more or less dries up. In the resulting conditions of uncertainty, those without ready cash, forced to cough it up anyway, can be pushed into fire-sales of their assets, while those who do have cash prefer to save rather than spend it, so that the economy as a whole sinks toward stagnation. So far, so familiar. But what explains the special liability of capitalism to crises of disappointed speculation? And why should real estate so often be their privileged object?

‘Such speculative fevers are not necessarily to be interpreted as direct manifestations of disequilibrium in production,’ Harvey says: ‘They can and do occur on their own account.’ Yet ‘overaccumulation creates conditions ripe for such speculative fevers so that a concatenation of the latter almost invariably signals the existence of the former.’ If capital has been overaccumulated, this means by definition that it can’t easily find a profitable outlet in increased production. The resulting temptation, Harvey suggests, with his emphasis on finance, will be for capital to sidestep production altogether and attempt to increase itself through the multiplication of paper (or digital) assets alone. The question that goes all but unasked in the more respectable literature on the crisis, is why the opportunities for profitable investment looked so scarce in the first place.

“How Much Is Too Much?”, Benjamin Kunkel, London Review of Books

Watch David Harvey on the Crises of Capitalism here