The dynamic of growth and social acceleration

For a number of years I've been trying to get to grips with the notion of growth. This started as an attempt to understand why it is that economies have to grow. The framing criteria of the 'health' or 'sickness' of an economy is always the extent to which GDP has grown. Low growth is unquestionably bad. Zero growth is described as stagnation. Negative growth a catastrophe. But why, I wondered, 'stagnation'. Why not 'equilibrium', or 'doing just fine, thanks' or even 'prioritizing other things at the minute'. I was quite aware that from a certain standpoint, these questions must appear as simply naive- there is no way that the principle of growth could play such a founding role in virtually all discussions about the economy without the reasons for its importance having been analysed to the compete satisfaction of all concerned, such that further discussion was not deemed necessary.

Still, I liked to consider that I was not an unintelligent person, that I was capable of grasping difficult ideas as long as they are patiently explained to me or I dedicate the time to trying to understand them, and yet there seemed to be something of a vacuum when it came to understanding this whole notion of growth.

Two things were clear. First, that growth was a non-negotiable requirement of the economic system that was increasingly being disseminated globally. Second, that it was patently unsustainable and the cause of a good deal of the social, environmental and psychological problems that are blighting, or will soon be blighting, the lives of just about everyone everywhere. The idea that the global economy could continue to achieve the requisite 3% compound growth per annum, with all this represented in terms of exponential increases in production and consumption, appeared to be transparently ludicrous. And yet this continued to be the framing assumption of any discussion of economic or social development. The answer to global poverty? economic growth. Urban degeneration? economic growth. Trans-national conflicts? economic growth.

Whatever the shortcomings of this model of economic development, the principle of economic growth remains the motor which is driving the acceleration of the pace of life that has been theorized by the likes of Harmut Rosa and Paul Virilio. As such it seems to be of paramount importance to understand the dynamics of this process.

In my on-going attempt to make sense of the enigma of growth, I recently exchanged emails with David Harvey on this question. He was good enough to respond to my questions and I post the exchange in full because I found it very useful as a way to think through issues relating to the dynamic of economic growth and I hope that others might find it equally thought-provoking.

From: Oliver Sutton [osutton51@hotmail.com]

Sent: Monday, June 27, 2011 11:34 PM

To: Harvey, David

Subject: question

Dear Professor Harvey,

I'm a teacher living in Barcelona who has been influenced by your work and I am in the process of preparing a course which will run from October entitled "Brand Barcelona; Selling Barcelona in a Globalised World". I want the students to locate the question of place branding and it's consequent effects upon the inhabitants of the city with the context of the globalisation of capital accumulation. The role played by cities in absorbing surplus capital is clearly of central importance, but it is here that I find myself hitting a wall in terms of my understanding of your work, and the dynamics of capital accumulation more generally, that I have hitherto been unable to resolve. Briefly stated, the question is as follows;

The capitalist mode of production produces surplus capital which must subsequently be reinvested. The process of urbanisation is, in part, driven by this need to reinvest the surplus. This requirement is partly due to the dynamics of capitalism and partly due to the fact that an excess of uninvested capital will lead to a devaluation of that capital through inflation. So large scale urban projects like those of Haussman's Paris or Moses's suburbanisation are in part a response to the requirement for surplus capital absoption. However, the funding of such projects always require the invention of new financial arrangements, such as debt financing. The question which I can't resolve is this; if the problem is a surplus of capital, why are such mechanisms as 'debt financing' necessary? Surely the point is that the capital is already available and ready for investment. Why is there a requirement to generate fresh capital?

I wouldn't contact you directly with this if I hadn't been unable to find a satisfactory answer in forums and browsing articles. Please feel free to direct me to an article or a website where this question is dealt with.

Thank you for helping with this and also for producing such an illuminating body of work over the years (I'm sure that's not the best metaphor, but you know what I mean).

Yours,

Oliver Sutton

________________________________________

From: DHarvey@gc.cuny.edu

To: osutton51@hotmail.com

Date: Tue, 28 Jun 2011 07:41:47 -0400

Subject: RE: question

the answer is that it is available in commodity form but not in monetary form. I send you a short piece that explains this, and another longer piece on the relation which is due to be published in socialist Register in the fall.

david Harvey

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From: Oliver Sutton [osutton51@hotmail.com]

Sent: Wednesday, June 29, 2011 6:30 AM

To: Harvey, David

Subject: RE: question

Dear Professor Harvey,

Thank you so much for your reply and the articles. I'll need a little more time with the second one. As for the first one, 'Voting to end Capitalism', while I found it wonderfully concise and illustrative, it didn't resolve this conceptual impasse that I've hit.

The capitalist has harnessed technology and labour power to generate a surplus. this surplus is originally in commodity form- ie 100 pairs of shoes. Options open to the capitalist are either to consume the surplus himself- but what the hell is he going to do with 100 pairs of of shoes? or reinvest the surplus into expansion- more labour power, machines, more shoes. In the first case the surplus remains a commodity- shoes. In the second case, the capitalist can't invest a commodity, he has to convert the commodity into the money form by selling the commodity at the market. But, it seems to me, this is where the problem is. Where is the effective demand going to come from for his shoes? It must be other capitalists like him who are effectively engaged in a zero sum game of making profits out of their own consumption. If, for what ever reason, he does succeed in converting the commodity into money form, (assuming that when you say in the 7th paragraph of your piece "...through investment in expansion..." this means that he has converted the surplus into money form and so can invest it) then there is no problem. He doesn't have to debt finance the expansion of the means of production because has converted his surplus into money form and can use the surplus directly to invest in expansion.

If, however, the problem is fundamentally one of effective demand, then I could clearly see how debt financing would be the solution, albeit an inherently unstable and crisis prone one. Furthermore I can see how this operates in the real world. What I still don't get, either in the real world or in the theory, is how an excess of liquidity can be resolved through the generation of further liquidity in form of debt finance?

Perhaps the longer piece will help to resolve this.

Thanks once again, I'll leave a link to my blog

yours,

Oliver

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From: DHarvey@gc.cuny.edu

To: osutton51@hotmail.com

Date: Wed, 29 Jun 2011 07:26:11 -0400

Subject: RE: question

no the longer piece does not do so directly. The presumption is that the debt moneys at the end of the first day have to be equivalent to the real surplus value produced in commodity form at the end of the second day (when the problem of effective demand gets posed all over again) and this means that the 100 pairs of shoes have become 110 pairs of shoes and maybe nobody wants the shoes (they get devalued) but there was a possibility of getting people to want disneyland instead. The surplus liquidity problem is where does the reinvestment go? expansion of shoe production for ever? or can something else be made that people either want or can be persuaded or mandated to want (which is where the production of urban environments comes in.....we need cars because we created an urbanization that made cars necessities not luxuries. Th surplus liquidity lies in the reinvestment function of the credit moneys looking for profitable outlets other than shoes.

dh

__________________________________

From: Oliver Sutton [osutton51@hotmail.com]

Sent: Thursday, June 30, 2011 7:12 AM

To: Harvey, David

Subject: RE: question

"The surplus liquidity problem is where does the reinvestment go?"- but there is no surplus liquidity, there is a surplus of commodities; the 10 shoes that no one wants. The consequence of this would be that the shoes get devalued, the capitalist can't repay the debt (because he has not been capable of generating enough capital in money-form) and the system grinds to a halt. Where does the surplus liquidity come from? Perhaps I'm taking the temporal structure of the model to literally (which would explain your tense change when you said "...but there was a possibility of getting people to want disneyland instead...". However if this is the case it seems as if the model requires of us a theoretical leap of faith whereby Disneyworld owes its existence to the fact that it would have solved the effective demand problem if only the capitalist had thought of it before he churned out the 110 shoes. In fact the capitalist, on this model, never generates the liquid capital that would enable him to invest in a Disneyworld. Do you think this a problem of taking the model too literally, is it a conceptual misunderstanding or is it a disagreement?

yours,

Oliver

________________________________________

From: DHarvey@gc.cuny.edu

To: osutton51@hotmail.com

Date: Thu, 30 Jun 2011 09:08:39 -0400

Subject: RE: question

credit is time future discounted into time present so you literally mortgage the future in order to save the present, that is why it is not money but credit money that does the trick and who creates that? privately the capitalist can do it but the state also does it and now look at how much money the fed has created with the flick of a switch these last few years...

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From: Oliver Sutton [osutton51@hotmail.com]

Sent: Friday, July 01, 2011 5:59 AM

To: Harvey, David

Subject: RE: question

Which would suggest that what I referred to as a theoretical leap of faith is, in fact, a contradiction inherent to the system. The credit that was used to get the system up and running can never be repaid, the capitalist can only ever stay one step ahead of his creditors in a vast and burgeoning Ponzi scheme. This would also suggest then that it is debt financing which is the motor of the system flooding the system with a form of fictitious capital which nonetheless generates very material transformations.

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From: DHarvey@gc.cuny.edu

To: osutton51@hotmail.com

Date: Fri, 1 Jul 2011 08:34:35 -0400

Subject: RE: question

exactly...as Marx notes, the credit system is very protestant and depends on faith (expectations, confidence, Luther, etc.) while the monetary commodity is very catholic and depends on gold and every now and again (e.g. in a crisis) we find that the system cannot liberate itself fully (pre-1973) from what Marx calls the the catholicism of its monetary base (which is why the right often demands a return to the gold standard, which would mean the end of capitalism).

dh

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From: Oliver Sutton [osutton51@hotmail.com]

Sent: Monday, July 04, 2011 5:28 AM

To: Harvey, David

Subject: RE: question

And that particular drama is being very clearly played out in the wrangling over the debt ceiling in the US. As you say, it's deeply ironic that it should be the Republicans who are willing to put the whole system in jeopardy, although their high-minded stance fairly reeks of corporate interest.

Thank you so much for taking the time to answer my emails. I must admit that I still worry about those ten extra shoes and what happens to them, but that may just be the desire for a tidy narrative.

I noticed that you are speaking in Bristol in mid July. I will be working at the University of Leeds from late July to mid-September- will you be speaking anywhere in the UK during this period?

Oliver Sutton

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From: DHarvey@gc.cuny.edu

To: osutton51@hotmail.com

Date: Mon, 4 Jul 2011 07:15:10 -0400

Subject: RE: question

I have had to cancel the bristol event owing to medical issues. but thanks for asking. it was useful to think through the ten airs of shoes.

dh

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I'm sorry to hear that, I hope that you get back to full strength quickly and I'll be watching out for any speaking dates (it would be great to hear you speak in Barcelona!).

Thanks once again,

Oliver Sutton