FIXED CAPITAL

By Alex McCauley

As David Harvey points out in “Globalization and the ‘Spatial Fix,’” it is often necessary to fix a substantial amount of capital in place in order to achieve geographic mobility.[1] It struck me upon reading his article that the lower Manhattan skyline is a particular and peculiar example of Harvey’s thesis. Among other things, spatially fixed capital is necessary for other capital to be geographically mobile – airports are necessary for the transportation of airplanes and other capital assets. Similarly to airports, the office buildings in lower Manhattan are largely devoted to the storage and movement of a particular type of capital; in the case of the office buildings, that capital is the intangible financial capital that is so important to our economic system.


It is ironic that an asset as mobile and intangible as financial capital requires stationary and very tangible buildings to administer it. A financial asset, at its core, is purely conceptual. It cannot be directly consumed. It is a paper instrument which has value because another paper instrument – a law of the government under whose jurisdiction the asset falls – gives it value. A body with the authority do so may simply conjure more into being or remove some from existence: in the United States, “the 12-member Federal Open Market Committee (FOMC), […] makes the key decisions affecting the cost and availability of money and credit in the economy.”[2] The nature of money and credit contrasts sharply with the nature of skyscrapers in lower Manhattan: “One World Trade Center, which restores Manhattan’s skyline after terrorists destroyed the original twin towers, took 8 years to build and cost about $3.9 billion.”[3] Yet many of the grand buildings of lower Manhattan exist to service these financial assets; for example, the Federal Reserve Bank of New York. Located at 33 Liberty Street in lower Manhattan, it has the most important role in implementing monetary policy, as its website details:

Foremost among its functions is the implementation of monetary policy […] us[ing] three tools […], the most important being open market operations. These “domestic operations” are conducted for the System only by the New York Fed under direction of the FOMC.[4]

The Federal Reserve Bank of New York exists first and foremost to buy and sell treasury bonds (the open market operations mentioned in the last quotation) in order to control the availability of money and credit in the system, as I mentioned earlier that the FOMC has the authority to do. In this way, a physical asset, a skyscraper, exists as secondary to an intangible asset, U.S. currency. Strangely, that arrangement of a skyscraper existing to serve a paper instrument is quite normal in lower Manhattan. In fact, “in 1926, NABOM President Lee Thomson Smith […] warn[ed] that skyscrapers were being put up “entirely through the efforts of bond houses to sell bonds, regardless of whether the buildings were needed or not.””[5] According to Carol Willis’ insightful (and tellingly titled) Form Follows Finance, she argues convincingly that the form of skyscrapers in general stems primarily from their ability to generate cash.[6]

Another way to visualize the odd dynamic of financial capital dominating physical capital is the sheer size of the respective asset classes. As the figure from Bain illustrates, global financial assets (such as those managed in Manhattan office buildings) totaled around $600 trillion in 2010, versus roughly $210 trillion in physical assets such as Manhattan office buildings themselves. Yet, according to Harvey’s rather commonsensical statement, in order to achieve mobility of assets, we require a huge infrastructure of physical assets fixed in space. Harvey also points out that the infrastructure itself in turn plays a role in absorbing excess capital. In the case of the lower Manhattan skyline, this dynamic has a nice double-loop symmetry to it (Harvey would more likely refer to it as a ‘vicious cycle,’ but it has symmetry nonetheless). For financial capital to be valuable requires a significant degree of “’trust architecture’—strong property rights protections, reliable legal systems and institutional depth—that owners of capital value.”[7] Some of that ‘trust architecture’ is physically located in the architecture of lower Manhattan – in the Federal Reserve Bank of New York and in the New York Stock Exchange (whose equities markets have 60% more liquidity than the next largest exchange)[8]. Some of the financial capital created and mobilized by the Federal Reserve and the NYSE ends up being invested back into the buildings in the surrounding financial district, resulting in a tall and expensive skyline. Those buildings house financial firms which make money by mobilizing capital (say, a stock brokerage selling shares in an Australian telecommunications company to Americans) – yet the firms themselves must remain stationary, in close proximity to the nexus of the financial district where key institutions like the Federal Reserve and the NYSE, are located.[9]

[1] David Harvey (February 2001) Globalization and the “Spatial Fix” published in Geographische Revue.

[2] FederalReserve.gov description of the structure of the Federal Reserve System. Retrieved Nov 4, 2014.

[3] David M. Levitt, Bloomberg News (Nov 3, 2014)

[4] www.ny.frb.org “What We Do” (March 2010) Retrieved Nov 4, 2014.

[5] Carol Willis, Form Follows Finance (1995) p. 164.

[6] Ibid.

[7] Bain & Company (2012) “A World Awash in Money” p. 15

[8] According to the Intercontinental Exchange, parent of NYSE. Retrieved Nov 4, 2014.

[9] Carol Willis, Form Follows Finance (1995) p. 173