I. The Problem of Reproduction

• • Preface
  • I. The Problem of Reproduction
  • II. Historical Exposition of the Problem
  • III. The Historical Conditions of Accumulation

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1. The Object of Our Investigation

KARL MARX made a contribution of lasting service to the theory of economics when he drew attention to the problem of the reproduction of the entire social capital. It is significant that in the history of economics we find only two attempts at an exact exposition of this problem: one by Quesney, the father of the Physiocrats, at its very inception; and in its final stage this attempt by Marx. In the interim, the problem was ever with bourgeois economics. Yet bourgeois economists have never been fully aware of this problem in its pure aspects, detached from related and intersecting minor problems: they have never been able to formulate it precisely, let alone solve it. Seeing that the problem is of paramount importance, their attempts may all the same help us to some understanding of the trend of scientific economics.

What is it precisely that constitutes this problem of the reproduction of total capital? The literal meaning of the word ‘reproduction’ is repetition, renewal of the process of production. At first sight it may be difficult to see in what respect the idea of reproduction differs from that of repetition which we can all understand – why such a new and unfamiliar term should be required. But in the sort of repetition which we shall consider, in the continual recurrence of the process of production, there are certain distinctive features. First, the regular repetition of reproduction is the general sine qua non of regular consumption which in its turn has been the precondition of human civilisation in every one of its historical forms. The concept of reproduction, viewed in this way, reflects an aspect of the history of civilisation. Production can never be resumed, there can be no reproduction, unless certain prerequisites such as tools, raw materials and labour have been established during the preceding period of production. However, at the most primitive level of man’s civilisation, at the initial stage of man’s power over nature, this possibility to re-engage in production depended more or less on chance. So long as hunting and fishing were the main foundations of social existence, frequent periods of general starvation interrupted the regular repetition of production. Some primitive peoples recognised at a very early stage that for reproduction as a regularly recurring process certain measures were essential; these they incorporated into ceremonies of a religious nature; and in this way they accepted such measures as traditional social commitments. Thus, as the thorough researches of Spencer and Gillen have taught us, the totem cult of the Australian negroes is fundamentally nothing but certain measures taken by social groups for the purpose of securing and preserving their animal and vegetable foodstuffs; these precautions had been taken year by year since time immemorial and thus they became fossilised into religious ceremonials. Yet the circle of consumption and production which forms the essence of reproduction became possible only with the invention of tillage with the hoe, with the taming of domestic animals, and with cattle-raising for the purpose of consumption. Reproduction is something more than mere repetition in so far as it presupposes a certain level of society’s supremacy over nature, or, in economic terms, a certain standard of labour productivity.

On the other hand, at all stages of social development, the process of production is based on the continuation of two different, though closely connected factors, the technical and social conditions – on the precise relationship between man and nature and that between men and men. Reproduction depends to the same degree on both these conditions. We have just seen how reproduction is bound up with the conditions of human working techniques, how far it is indeed solely the result of a certain level of labour productivity; but the social forms of production prevailing in each case are no less decisive. In a primitive communist agrarian community, reproduction as well as the whole plan of economic life is determined by the community of all workers and their democratic organs. The decision to re-engage in labour – the organisation of labour – the provision of raw materials, tools, and man-power, as the essential preliminaries of labour – the arrangement of reproduction and the determination of its volume are all results of a planned co-operation in which everybody within the boundaries of the community takes his part. In an economic system based on slave labour or corvée, reproduction is enforced and regulated in all details by personal relations of domination. Here the volume of reproduction is determined by the right of disposal held by the ruling élites over smaller or larger circles of other people’s labour. In a society producing by capitalist methods, reproduction assumes a peculiar form, as a mere glance at certain striking phenomena will show us. In every other society known to history, reproduction recurs in a regular sequence as far as its preconditions, the existing means of production and labour power, make this possible. As a rule, only external influences such as a devastating war or a great pestilence, depopulating vast areas of former cultural life, and consequently destroying masses of labour power and of accumulated means of production, can result in a complete interruption of reproduction or in its contraction to any considerable extent for longer or shorter periods. A despotic organisation of the plan of production may on occasion lead to similar phenomena. When in ancient Egypt Pharaoh’s will chained thousands of fellaheen for decades to the building of the pyramids; when in modern Egypt Ismail Pasha ordered 20,000 fellaheen to forced labour on the Suez Canal; or when, about two hundred years before Christ, the Emperor Shi Hoang Ti, founder of the Chin dynasty, allowed 400,000 people to perish of hunger and exhaustion and thus sacrificed a whole generation to his purpose of consolidating the Great Wall at China's northern frontier, the result was always that vast stretches of arable land were left fallow and that regular economic life was interrupted for long periods. In all these cases the causes of these interruptions of reproduction obviously lay in the one-sided determination of the plan of reproduction by those in power.

Societies which produce according to capitalist methods present a different picture. We observe that in certain periods all the ingredients of reproduction may be available, both labour and means of production, and yet some vital needs of society for consumer goods may be left unfulfilled. We find that in spite of these resources reproduction may in part be completely suspended and in part curtailed. Here it is no despotic interference with the economic plan that is responsible for the difficulties in the process of production. Quite apart from all technical conditions, reproduction here depends on purely social considerations: only those goods are produced which can with certainty he expected to sell, and not merely to sell, but to sell at the customary profit. Thus profit becomes an end in itself, the decisive factor which determines not only production but also reproduction. Not only does it decide in each case what work is to be undertaken, how it is to be carried out, and how the products are to be distributed; what is more, profit decides, also, at the end of every working period, whether the labour process is to be resumed, and, if so, to what extent and in what direction it should be made to operate.

In capitalist society, therefore, the process of reproduction as a whole, constitutes a peculiar and most complicated problem, in consequence of these purely historical and social factors. There is, as we shall see, an external characteristic which shows clearly this specific historical peculiarity of the capitalist process of reproduction. Comprising not only production but also circulation (the process of exchange), it unites these two elements. Capitalist, production is primarily production by innumerable private producers without any planned regulation. The only social link between these producers is the act of exchange. In taking account of social requirements reproduction has no clue to go on other than the experiences of the preceding labour period. These experiences, however, remain the private experiences of individual producers and are not integrated into a comprehensive and social form. Moreover, they do not always refer positively and directly to the needs of society. They are often rather indirect and negative, for it is only on the basis of price fluctuations that they indicate whether the aggregate of produced commodities falls short of the effective demand or exceeds it. Yet the individual private producers make recurrent use of these experiences of the preceding labour period when they re-engage in reproduction, so that glut or shortage are bound to occur again in the following period. Individual branches of production may develop independently, so that there may be a surplus in one branch and a deficiency in another. But as nearly all individual branches of production are interdependent technically, glut or shortage in some of the larger branches of production lead to the same phenomenon in most of the others. Thus the general supply of products may alternate periodically between shortage and surplus relative to the social demand.

Herein lies the peculiar character of reproduction in a capitalist society, which differs from all other known forms of production. In the first place, every branch of production develops independently within certain limits, in a way that leads to periodical interruptions of production of shorter or longer duration. Secondly, the individual branches of reproduction show deviations from social requirements amounting to all-round disparity and thus resulting in a general interruption of reproduction. These features of capitalist reproduction are quite characteristic. In all other economic systems, reproduction runs its uninterrupted and regular course, apart from external disturbance by violence. Capitalist reproduction, however, to quote Sismondi’s well-known dictum, can only be represented as a continuous sequence of individual spirals. Every such spiral starts with small loops which become increasingly larger and eventually very large indeed. Then they contract, and a new spiral starts again with small loops, repeating the figure up to the point of interruption. This periodical fluctuation between the largest volume of reproduction and its contraction to partial suspension, this cycle of slump, boom, and crisis, as it has been called, is the most striking peculiarity of capitalist reproduction.

It is very important, however, to establish quite firmly and from the very outset that this cyclical movement of boom, slump, and crisis, does not represent the whole problem of capitalist reproduction, although it is an essential element of it. Periodical cycles and crises are specific phases of reproduction in a capitalist system of economy, but not the whole of this process. In order to demonstrate the pure implications of capitalist reproduction we must rather consider it quite apart from the periodical cycles and crises. Strange as this may appear, the method is quite rational; it is indeed the only method of inquiry that is scientifically tenable. In order to demonstrate and to solve the problem of pure value we must leave price fluctuations out of consideration. The approach of vulgar economics always attempts to solve the problem of value by reference to fluctuations in demand and supply. Classical economists, from Adam Smith to Karl Marx, attack the problem in the opposite way, pointing out that fluctuations in the mutual relation between demand and supply can explain only disparities between price and value, not value itself. In order to find the value of a commodity, we must start by assuming that demand and supply are in a state of equilibrium, that the price of a commodity and its value closely correspond to one another. Thus the scientific problem of value begins at the very point where the effect of demand and supply ceases to operate.

In consequence of periodical cycles and crises capitalist reproduction fluctuates as a rule around the level of the effective total demand of society, sometimes rising above and sometimes falling below this level, contracting occasionally even to the point of almost complete interruption of reproduction. However, if we consider a longer period, a whole cycle with its alternating phases of prosperity and depression, of boom and slump, that is if we consider reproduction at its highest and lowest volume, including the stage of suspension, we can set off boom against slump and work out an average, a mean volume of reproduction for the whole cycle. This average is not only a theoretical figment of thought, it is also a real objective fact. For in spite of the sharp rises and falls in the course of a cycle, in spite of crises, the needs of society are always satisfied, more or less, reproduction continues on its complicated course, and productive capacities develop progressively. How can this take place, leaving cycles and crises out of consideration? Here the real question begins. The attempt to solve the problem of reproduction in terms of the periodical character of crises is fundamentally a device of vulgar economics, just like the attempt to solve the problem, of value in terms of fluctuations in demand and supply. Nevertheless, we shall see in the course of our observations that as soon as economic theory gets an inkling of the problem of reproduction, as soon as it has at least started guessing at the problem, it reveals a persistent tendency, suddenly to transform the problem of reproduction into the problem of crises, thus barring its own way to the solution of the question. When we speak of capitalist reproduction in the following exposition, we shall always understand by this term a mean volume of productivity which is an average taken over the various phases of a cycle.

Now, the total of capitalist reproduction is created by an unlimited and constantly changing number of private producers. They produce independently of one another; apart from the observation of price fluctuations there is no social control – no social link exists between the individual producers other than the exchange of commodities. The question arises how these innumerable disconnected operations can lead to the actual total of production. This general aspect of our problem indeed strikes us immediately as one of prime importance. But if we put it this way, we overlook the fact that such private producers are not simply producers of commodities but are essentially capitalist producers, that the total production of society is not simply production for the sake of satisfying social requirements, and equally not merely production of commodities, but essentially capitalist production.

Let us examine our problem anew in the light of this fact. A producer who produces not only commodities but capital must above all create surplus value. The capitalist producer’s final goal, his main incentive, is the production of surplus value. The proceeds from the commodities he has manufactured must not only recompense him for all his outlay, but in addition they must yield him a value which does not correspond with any expense on his part, and is pure gain. If we consider the process of production from the point of view of the creation of surplus value, we see that the capital advanced by the capitalist is divided into two parts: the first part represents his expenses on means of production such as premises, raw material, partly finished goods and machinery. The second part is spent on wages. This holds good, even if the capitalist producer does not know it himself, and in spite of the pious stuff about fixed and circulating capital with which he may delude himself and the world. Marx called this first part constant capital. Its value is not changed by its utilisation in the labour process – it is transferred in toto to the finished product. The second part Marx calls the variable capital. This gives rise to an additional value, which materialises when the results of unpaid labour are appropriated. The various components which make up the value of every commodity produced by capitalist methods may be expressed by the formula: c + v + s.In this formula c stands for the value of the constant capital laid out in inanimate means of production and transferred to the commodity, v stands for the value of the variable capital advanced inform of wages, and s stands for the surplus value, the additional value of the unpaid part of wage labour. Every type of goods shows these three components of value, whether we consider an individual commodity or the aggregate of commodities as a whole, whether we consider cotton textiles or ballet performances, cast-iron tubes or liberal newspapers. Thus for the capitalist producer the manufacture of commodities is not an end in itself, it is only a means to the appropriation of surplus value. This surplus value, however, can be of no use to the capitalist so long as it remains hidden in the commodity form of the product. Once the commodity has been produced, it must be realised, it must be converted into a form of pure value; that is, into money. All capital expenses incorporated in the commodity must shed their commodity-form and revert to the capitalist as money to make this conversion possible so that he can appropriate the surplus value in cash. The purpose of production is fulfilled only when this conversion has been successful, only when the aggregate of commodities has been sold according to its value. The proceeds of this sale of commodities, the money that has been received for them, contains the same components of value as the former aggregate of commodities and can be expressed by the same formula c + v + s. Part c recompenses the capitalist for his advances on means of production that have been used up, part v recompenses him for his advances on wages, and the last part, s, represents the expected surplus, the capitalist’s clear profit in cash.

This conversion of capital from its original form, from the starting point of all capitalist production, into means of production, dead and living, such as raw materials, instruments, and labour; its further conversion into commodities by a living labour process; and its final reconversion into money, a greater amount of money indeed than at the initial stage – this transformation of capital is, however, required for more than the production and appropriation of surplus value. The aim and incentive of capitalist production is not a surplus value pure and simple, to be appropriated in any desired quantity, but a surplus value ever growing into larger quantities, surplus value ad infinitum. But to achieve this aim, the same magic means must be used over and over again, the means of capitalist production – the ever repeated appropriation of the proceeds of unpaid wage labour in the process of commodity manufacture, and the subsequent realisation of the commodities so produced.

Thus quite a new incentive is given to constantly renewed production, to the process of reproduction as a regular phenomenon in capitalist society, an incentive unknown to any other system of production. In every other economic system known to history, reproduction is determined by the unceasing need of society for consumer goods, whether they are the needs of all the workers determined in a democratic manner as in an agrarian and communist market community, or the despotically determined needs of an antagonistic class society, as in an economy of slave labour, or corvée and the like. But in a capitalist system of production, it is not consideration of social needs which actuates the individual private producer who alone matters in this connection. His production is determined entirely by the effective demand, and even this is to him a mere means for the realisation of surplus value which for him is indispensable. Appropriation of surplus value is his real incentive, and production of consumer goods for the satisfaction of the effective demand is only a detour when we look to the real motive, that of appropriation of surplus value, although for the individual capitalist it is also a rule of necessity. This motive, to appropriate surplus value, also urges him to re-engage in reproduction over and over again. It is the production of surplus value which turns reproduction of social necessities into a perpetuum mobile. Reproduction, for its part, can obviously be only resumed when the products of the previous period, the commodities, have been realised; that is, converted into money; for capital in the form of money, in the form of pure value, must always be the starting point of reproduction in a capitalist system. The first condition of reproduction for the capitalist producer is thus seen to be a successful realisation of the commodities produced during the preceding period of production.

Now we come to a second important point. Under a system of private economy, it is the individual producer who determines the volume of reproduction at his discretion. His main incentive is appropriation of surplus value, indeed an appropriation increasing as rapidly as possible. An accelerated appropriation of surplus value, however, necessitates an increased production of capital to generate this surplus value. Here a large-scale enterprise enjoys advantages over a small one in every respect. In fine, the capitalist method of production furnishes not only a permanent incentive to reproduction in general, but also a motive for its expansion, for reproduction on an ever larger scale.

Nor is that all. Capitalist methods of production do more than awaken in the capitalist this thirst for surplus value whereby he is impelled to ceaseless expansion of reproduction. Expansion becomes in truth a coercive law, an economic condition of existence for the individual capitalist. Under the rule of competition, cheapness of commodities is the most important weapon of the individual capitalist in his struggle for a place in the market. Now all methods of reducing the cost of commodity production permanently amount in the end to an expansion of production; excepting those only which aim at a specific increase of the rate of surplus value by measures such as wage cutting or lengthening the hours of work. As for these latter devices, they are as such likely to encounter many obstacles. In this respect, a large enterprise invariably enjoys advantages of every kind over a small or medium concern. They may range from a saving in premises or instruments, in the application of more efficient means of production, in extensive replacement of manual labour by machinery, down to a speedy exploitation of a favourable turn of the market so as to acquire raw materials cheaply. Within very wide limits, these advantages increase in direct proportion to the expansion of the enterprise. Thus, as soon as a few capitalist enterprises have been enlarged, competition itself forces all others to expand likewise. Expansion becomes a condition of existence. A growing tendency towards reproduction at a progressively increasing scale thus, ensues, which spreads automatically like a tidal wave over ever larger surfaces of reproduction.

Expanding reproduction is not a new discovery of capital. On the contrary, it had been the rule since time immemorial in every form of society that displayed economic and cultural progress. It is true, of course, that simple reproduction as a mere continuous repetition of the process of production on the same scale as before can be observed over long periods of social history. In the ancient agrarian and communist village communities, for instance, increase in population did not lead to a gradual expansion of production, but rather to the new generation being expelled and the subsequent founding of equally small and self-sufficient colonies. The old small handicraft units of India and China provide similar instances of a traditional repetition of production in the same forms and on the same scale, handed down from generation to generation. But simple reproduction is in all these cases the source and unmistakable sign of a general economic and cultural stagnation. No important forward step in production, no memorial of civilisation, such as the great waterworks of the East, the pyramids of Egypt, the military roads of Rome, the Arts and Sciences of Greece, or the development of craftsmanship and towns in the Middle Ages would have been possible without expanding reproduction; for the basis and also the social incentive for a decisive advancement of civilisation lies solely in the gradual expansion of production beyond immediate requirements, and in a continual growth of the population itself as well as of its demands.

Exchange in particular, which brought about a class society, and its historical development into the capitalist form of economy, would have been unthinkable without expanding reproduction. In a capitalist society, moreover, expanding reproduction acquires certain characteristics. As we have already mentioned, it becomes right away a coercive law to the individual capitalist. Capitalist methods of production do not exclude simple or even retrogressive reproduction; indeed, this is responsible for the periodical phenomenon of crises following phases, likewise periodical, of overstrained expansion of reproduction in times of boom. But ignoring periodical fluctuations, the general trend of reproduction is ever towards expansion. For the individual capitalist, failure to keep abreast of this expansion means quitting the competitive struggle, economic death.

Moreover, there are certain other aspects to be considered. The concept of expanding reproduction applies only to the quantity of products, to the aggregate of manufactured objects. So long as production rests solely or mainly upon a natural economy, consumption determines the extent and character of the individual labour process, as well as that of reproduction in general, as an end in itself: this applies to the agrarian and communist village communities of India, to the Roman villa with its economy of slave labour, and to the medieval feudal farm based on corvée. But the picture is different in a capitalist economic system. Capitalist production is not production for the purpose of consumption, it is production for the purpose of creating value. The whole process of production as well as of reproduction is ruled by value relationships. Capitalist production is not the production of consumer goods, nor is it merely the production of commodities: it is pre-eminently the production of surplus value. Expanding reproduction, from a capitalist point of view, is expanding production of surplus value, though it takes place in the forms of commodity production and is thus in the last instance the production of consumer goods. Changes in the productivity of labour during the course of reproduction cause continual discrepancies between these two aspects. If productivity increases, the same amount of capital and surplus value may represent a progressively larger amount of consumer goods. Expanding production, understood as the creation of a greater amount of surplus value, need not therefore necessarily imply expanding reproduction in the capitalist meaning of the term. Conversely, capital may, within limits, yield a greater surplus value in consequence of a higher degree of exploitation such as is brought about by wage-cutting and the like, without actually producing a greater amount of goods. But in both cases the surplus value has a twofold aspect: it is a quantity of value as well as an aggregate of material products, and from a capitalist point of view, its elements in both instances are thus the same.

As a rule, an increased production of surplus value results from an increase of capital brought about by addition of part of the appropriated surplus value to the original capital, no matter whether this capitalist surplus value is used for the expansion of an old enterprise or for founding a new one, an independent offshoot. Capitalist expanding reproduction thus acquires the specific characteristics of an increase in capital by means of a progressive capitalisation of surplus value, or, as Marx has put it, by the accumulation of capital.

The general formula for enlarged reproduction under the rule of capital thus runs as follows: (c + v + s/x + s'. Here s/x stands for the capitalised part of the surplus value appropriated in an earlier period of production; s' stands for the new surplus value created by the increased capital. Part of this new surplus value is capitalised again, and expanding reproduction is thus, from the capitalist point of view, a constantly flowing process of alternate appropriation and capitalisation of surplus value.

So far, however, we have only arrived at a general and abstract formula for reproduction. Let us now consider more closely the concrete conditions which are necessary to apply this formula.

The surplus value which has been appropriated, after it has successfully cast off its commodity-form in the market, appears as a given amount of money. This money-form is the form of its absolute value, the beginning of its career as capital. But as it is impossible to create surplus value with money, it cannot, in this form, advance beyond the threshold of its career. Capital must assume commodity-form, so that the particular portion of it which is earmarked for accumulation can be capitalised. For only in this form can it become productive capital; that is, capital begetting new surplus value. Therefore, like the original capital, it must again be divided into two parts; a constant part, comprising the inanimate means of production, and a variable part, the wages. Only then will our formula c + v + s apply to it in the same way as it applied to the old capital.

But the good intent of the capitalist to accumulate, his thrift and abstinence which make him use the greater part of his surplus value for production instead of squandering it on personal luxuries, is not sufficient for this purpose. On the contrary, it is essential that he should find on the commodity market the concrete forms which he intends to give his new surplus value. In the first place, he must secure the material means of production such as raw materials, machines etc required for the branch of production he has chosen and planned, so that the particular part of the surplus value which correspond to his constant capital may assume a productive form. Secondly, the other, variable part of his surplus value must also be convertible, and two essentials are necessary for this conversion: of first importance, the labour market must offer a sufficient quantity of additional labour, and secondly, as the workers cannot live on money alone, the commodity market, too, must offer an additional amount of provisions, which the workers newly to be employed may exchange against the variable part of the surplus value they will get from the capitalist.

All these prerequisites found, the capitalist can set his capitalised surplus value to work and make it, as operating capital, beget new surplus value. But still his task is not completely done. Both the new capital and the surplus value produced still exist for the time being in the shape of an additional quantity of some commodity or other. In this form the new capital is but advanced, and the new surplus value created by it is still in a form in which it is of no use to the capitalist. The new capital as well as the surplus value which it has created must cast off their commodity-form, re-assume the form of pure value, and thus revert to the capitalist as money. Unless this process is successfully concluded, the new capital and surplus value will be wholly or partly lost, the capitalisation of surplus value will have miscarried, and there will have been no accumulation. It is absolutely essential to the accumulation of capital that a sufficient quantity of commodities created by the new capital should win a place for itself on the market and be realised.

Thus we see that expanding reproduction as accumulation of capital in a capitalist system is bound up with a whole series of special conditions. Let us look at these more closely. The first condition is that production should create surplus value, for surplus value is the elementary form in which alone increased production is possible under capitalist conditions The entire process of production must abide by this condition when determining the relations between capitalist and worker in the production of commodities. Once this first condition is given, the second is that surplus value must be realised, converted into the form of money, so that it can be appropriated for the purposes of expanding reproduction. This second condition thus leads us to the commodity market. Here, the hazards of exchange decide the further fate of the surplus value, and thus the future of reproduction. The third condition is as follows: provided that part of the realised surplus value has been added to capital for the purpose of accumulation, this new capital must first assume its productive form of labour and inanimate means of production. Moreover, that part of it which had been exchanged for labour must be converted into provisions for the workers. Thus we are led again to the markets of labour and commodities. If all these requirements have been met and enlarged reproduction of commodities has taken place, a fourth condition must be added: the additional quantity of commodities representing the new capital plus surplus value will have to be realised, that is, reconverted into money. Only if this conversion has been successful, can it be said that expanding capitalist reproduction has actually taken place. This last condition leads us back to the commodity market.

Thus capitalist production and reproduction imply a constant shifting between the place of production and the commodity market, a shuttle movement from the private office and the factory where unauthorised persons are strictly excluded, where the sovereign will of the individual capitalist is the highest law, to the commodity market where nobody sets up any laws and where neither will nor reason assert themselves. But it is this very licence and anarchy of the commodity market which brings home to the individual capitalist that he is dependent upon society, upon the entirety of its producing and consuming members. The individual capitalist may need additional means of production, additional labour and provisions for these workers in order to expand reproduction, but whether he can get what he needs depends upon factors and events beyond his control, materialising, as it were, behind his back. In order to realise his increased aggregate of products, the individual capitalist requires a larger market for his goods, but he has no control whatever over the actual increase of demand in general, or of the particular demand for his special kind of good.

The conditions we have enumerated here, which all give expression to the inherent contradiction between consumption and private production and their social interconnection, are nothing new, and it is not only at the stage of reproduction that they become apparent. These conditions express the general contradiction inherent in capitalist production. They involve, however, particular difficulties as regards the process of reproduction for the following reasons. With regard to reproduction, especially expanding reproduction, the capitalist method of production not only reveals its general fundamental character but, what is more, it shows, in the various periods of production, a definite rhythm within a continuous progression – the characteristic interplay of individual wills. From this point of view, we must inquire in a general way how it is possible for every individual capitalist to find on the market the means of production and the labour he requires for the purpose of realising the commodities he has produced, although there exists no social control whatever, no plan to harmonize production and demand. This question may be answered by saying that the capitalist’s greed for surplus value, enhanced by competition, and the automatic effects of capitalist exploitation, lead to the production of every kind of commodity, including means of production, and also that a growing class of proletarianised workers becomes generally available for the purposes of capital. On the other hand, the lack of a plan in this respect shows itself in the fact that the balance between demand and supply in all spheres can be achieved only by continuous deviations, by hourly fluctuations of prices, and by periodical crises and changes of the market situation.

From the point of view of reproduction the question is a different one. How is it possible that the unplanned supply in the market for labour and means of production, and the unplanned and incalculable changes in demand nevertheless provide adequate quantities and qualities of means of production, labour and opportunities for selling which the individual capitalist needs in order to make a sale? How can it be assured that every one of these factors increases in the right proportion? Let us put the problem more precisely. According to our well-known formula, let the composition of the individual capitalist’s production be expressed by the proportion 40c + 10v + 10s. His constant capital is consequently four times as much as his variable capital, and the rate of exploitation is 100 per cent. The aggregate of commodities is thus represented by a value of 60. Let us now assume that the capitalist is in a position to capitalise and to add to the old capital of this given composition half of his surplus value. In this case, the formula 44c + 11v + 11s = 66 would apply to the next period of production.

Let us assume now that the capitalist can continue the annual capitalisation of half his surplus value for a number of years. For this purpose it is not sufficient that means of production, labour and markets in general should be forthcoming, but he must find these factors in a proportion that is strictly in keeping with his progress in accumulation.

2. Quesnay’s and Adam Smith’s Analyses of the Process of Reproduction

So far we have taken account only of the individual capitalist in our survey of reproduction; he is its typical representative, its agent, for reproduction is indeed brought about entirely by individual capitalist enterprises. This approach has already shown us that the problem involves difficulties enough. Yet these difficulties increase to an extraordinary degree and become even more complicated, when we turn our attention from the individual capitalist to the totality of capitalists.

A superficial glance suffices to show that capitalist reproduction as a social whole must not be regarded simply as a mechanical summation of all the separate processes of individual capitalist reproduction. We have seen, for instance, that one of the fundamental conditions for enlarged reproduction by an individual capitalist is a corresponding increase of his opportunities to sell on the commodity market. But the individual capitalist may not always expand because of an absolute increase in the absorptive capacity of the market, but also as a result of the competitive struggle, at the cost of other individual capitalists. Thus one capitalist may win what another or many others who have been shouldered from the market must write off as a loss. This process will enable one capitalist to increase his reproduction by the amount that it compels others by losses to restrict their own. One capitalist will be able to engage in enlarged reproduction because others cannot even achieve simple reproduction. In the same way, one capitalist may enlarge his reproduction by using labour power and means of production which another’s bankruptcy, that is his partial or complete retirement from reproduction, has set free.

These commonplaces prove that reproduction of the social capital as a whole is not the same as the reproduction of the individual capitalist raised to the nth degree. They show that the reproductive activities of individual capitalists ceaselessly cut across one another and to a greater or smaller degree may cancel each other out.

Therefore we must clarify our concept of reproduction of capital as a whole, before we examine the laws and mechanisms of capitalist total reproduction. We must raise the question whether it is even possible to deduce anything like total reproduction from the disorderly jumble of individual capitals in constant motion, changing from moment to moment according to uncontrollable and incalculable laws, partly running a parallel course, and partly intersecting and cancelling each other out. Can one actually talk of total social capital of society as an entity, and if so, what is the real meaning of this concept? That is the first question a scientific examination of the laws of reproduction has to consider. At the dawn of economic theory and bourgeois economics, Quesnay, the father of the Physiocrats, approached the problem with classical fearlessness and simplicity and took it for granted that total capital exists as a real and active entity. In his famous Tableau Économique, so intricate that no one before Marx could understand it, Quesnay demonstrated the phases of the reproduction of aggregate capital with a few figures, at the same time taking into account that it must also be considered from the aspect of commodity exchange, that is as a process of circulation.

Society as Quesnay sees it consists of three classes: the productive class of agriculturists; the sterile class containing all those who are active outside the sphere of agriculture – industry, commerce, and the liberal professions; and lastly the class of landowners, including the Sovereign and the collectors of tithes. The national aggregate product materialises in the hands of the productive class as an aggregate of provisions and raw materials to the value of some 5,000 million livres. Of this sum, 2,000 millions represent the annual working capital of agriculture, 1,000 millions represent the annual wear and tear of fixed capital, and 2,000 millions are the net revenue accruing to the landowners. Apart from this total produce, the agriculturists, here conceived quite in capitalist terms as tenant farmers, have 2,000 million livres cash in hand. Circulation now takes place in such a way that the tenant class pay the landowners 2,000 millions cash as rent (as the cost of the previous period of production). For this money the landowning class buy provisions from the tenants for 1,000 millions and industrial products from the sterile class for the remaining 1,000 millions. The tenants in their turn buy industrial products for the 1,000 millions handed back to them, whereupon the sterile class buy agricultural products for the 2,000 millions they have in hand: for 1,000 millions raw materials etc., to replace their annual working capital, and provisions for the remaining 1,000 millions. Thus the money has in the end returned to its starting point, the tenant class; the product is distributed among all classes so that consumption is ensured for everyone; at the same time the means of production of the sterile as well as of the productive class have been renewed and the landowning class has received its revenue. The prerequisites of reproduction are all present, the conditions of circulation have all been fulfilled, and reproduction can start again on its regular course.

We shall see later in the course of our investigation that this exposition, though showing flashes of genius, remains deficient and primitive. In any case, we must stress here that Quesnay, on the threshold of scientific economics, had not the slightest doubt as to the possibility of demonstrating total social capital and its reproduction. Adam Smith, on the other hand, while giving a more profound analysis of the relations of capital, laid out what seems like a maze when compared with the clear and sweeping outlines of the Physiocrat conception. By his wrong analysis of prices, Smith upset the whole foundation of the scientific demonstration of the capitalist process as a whole. This wrong analysis of prices ruled bourgeois economics for a long time; it is the theory which maintains that, although the value of a commodity represents the amount of labour spent in its production, yet the price consists of three elements only: the wage of labour, the profit of capital, and the rent.

As this obviously must also apply to the aggregate of commodities, the national product, we are faced with the startling discovery that, although the value of the aggregate of commodities manufactured by capitalist methods represents all paid wages together with the profits of capital and the rents, that is the aggregate surplus value, and consequently can replace these, there is no component of value which corresponds to the constant capital used in production. According to Smith, v + s is the formula expressing the value of the capitalist product as a whole. Demonstrating his view with the example of corn, Smith says as follows:

‘These three parts (wages, profit, and rent) seem either immediately or ultimately to make up the whole price of corn. A fourth part, it may perhaps be thought, is necessary for replacing the stock of the farmer, or for compensating the wear and tear of his labouring cattle, and other instruments of husbandry. But it must be considered that the price of any instrument of husbandry, such as a labouring horse, is itself made up of the same three parts: the rent of the land upon which he is reared, the labour of tending and rearing him, and the profits of the farmer who advances both the rent of this land and the wages of this labour. Though the price of the corn, therefore, may pay the price as well as the maintenance of the horse, the whole price still resolves itself either immediately or ultimately into the same three parts of rent, of labour and profit.’

Sending us in this manner from ‘pillar to post’, as Marx has put it, Smith again and again resolved constant capital into v + s. However, he had occasional doubts and from time to time relapsed into the contrary opinion. He says in the second book:

‘It has been shown in the first Book, that the price of the greater part of commodities resolves itself into three parts, of which one pays the wages of the labour, another the profits of the stock, and a third the rent of the land which had been employed in producing and bringing them to market ... Since this is the case ... with regard to every particular commodity, taken separately; it must be so with regard to all the commodities which compose the whole annual produce of the land and labour of every country, taken complexly. The whole price or exchangeable value of that annual produce must resolve itself into the same three parts, and be parcelled out among the different inhabitants of the country, either as the wages of their labour, the profits of their stock, or the rent of their land.’

Here Smith hesitates and immediately below, explains; ‘But though the whole value of the annual produce of the land and labour of every country is thus divided among and constitutes a revenue to its different inhabitants, yet as in the rent of a private estate we distinguish between the gross rent and the neat rent, so may we likewise in the revenue of all the inhabitants of a great country.

‘The gross rent of a private estate comprehends whatever is paid by the farmer; the neat rent, what remains free to the landlord after deducting the expense of management, of repairs, and all other necessary charges; or what without hurting his estate, he can afford to place in his stock reserved for immediate consumption, or to spend upon his table, equipage, the ornaments of his house and furniture, his private enjoyments and amusements. His real wealth is in proportion, not to his gross, but to his net rent.

‘The gross revenue of all the inhabitants of a great country comprehends the whole annual produce of their land and labour; the neat revenue, what remains free to them, after deducting the expense of maintaining, first their fixed, and, secondly, their circulating capital, or what, without encroaching upon their capital, they can place in their stock reserved for immediate consumption, or spend upon their subsistence, conveniences, and amusements. Their real wealth too is in proportion, not to their gross, but to their neat revenue.’

Here Smith introduces a portion of value which corresponds to constant capital, only to eliminate it the very next moment by resolving it into wages, profits, and rents. And in the end, the matter rests with this explanation:

‘As the machines and instruments of trade, etc which compose the fixed capital either of an individual or of a society, make no part either of the gross or the neat revenue of either, so money, by means of which the whole revenue of the society is regularly distributed among all its different members, makes itself no part of that revenue.’

Constant capital, the fixed capital of Adam Smith, is thus put on the same level as money and does not enter into the total produce of society, its gross revenue. It does not exist within this total product as an element of value.

You cannot get blood out of a stone, and so circulation, the mutual exchange of the total product constituted in this manner, can only lead to realisation of the wages (v) and of the surplus value (s). However, as it cannot by any means replace the constant capital, continued reproduction evidently must become impossible. Smith indeed knew quite well, and did not dream of denying, that every individual capitalist requires constant capital in addition to his wages fund, his variable capital, in order to run his enterprise. Yet the above analysis of commodity prices, when it comes to take note of capitalist production as a whole, allows constant capital to disappear without a trace in a puzzling way. Thus the problem of the reproduction of capital is completely muddled up. It is plain that if the most elementary premise of the problem, the demonstration of social capital as a whole, were on the rocks, the whole analysis was bound to fail. Ricardo, Say, Sismondi and others took up this erroneous theory of Adam Smith, and they all stumbled in their observations on the problem of reproduction over this most elementary difficulty: the demonstration of social capital.

Another difficulty is mixed up with the foregoing from the very outset of scientific analysis. What is the nature of the total capital of a society? As regards the individual producer, the position is clear: his capital consists of the expenses of his enterprise. Assuming capitalist methods of production, the value of his product yields him a surplus over and above his expenses, that surplus value which does not replace his capital but constitute his net income, which he can consume completely without encroaching upon his capital and which is thus his fund of consumption. It is true that the capitalist may save part of this net income, not consuming it himself but adding it to his capital. But that is another matter, a new step, the formation of a new capital which again must be replaced by subsequent reproduction and must again yield him a surplus. In any case, the capital of an individual always consists of what he requires for production, together with his advances on the running of his enterprise, and his income is what he himself actually consumes or may consume, his fund of consumption. If we ask a capitalist: ‘What are the wages you pay your workers?’ his answer will be: ‘They are obviously part of my working capital.’ But if we ask: ‘What are these wages for the workers who have received them?’ – it is impossible that he should describe them as capital, for wages received are not capital for the workers but income, their fund of consumption.

Let us now take another example. A manufacturer of machinery produces machines in his factory. The annual output is a certain number of machines. In its value, however, this annual output contains the capital advanced by the manufacturer as well as the net income that has been earned. Part of the manufactured machines thus represent income for the manufacturer and are destined to realise this income in the process of circulation and exchange. But the person who buys these machines from the manufacturer does not buy them as income but in order to use them as a means of production; for him they are capital.

These examples make it seem plausible that an object which is capital for one person may be income for another and vice versa. How can it be possible under these circumstances to construct anything in the nature of a total capital of society? Indeed almost every scientific economist up to the time of Marx concluded that there is no social capital. Smith was still doubtful, undecided, vacillating about this question; so was Ricardo. But already Say declared categorically:

‘It is in this way that the total value of products is distributed amongst the members of the community; I say, the total value because such part of the whole value produced, as does not go to one of the consuming producers, is received by the rest. The clothier buys wool of the farmer, pays his workmen in every department, and sells the cloth, the result of their united exertion, at a price that reimburses all his advances, and affords himself a profit. He never reckons as profit, or as the revenue of his own industry, anything more than the net surplus, after deducting all charges and outgoings; but those outgoings are merely an advance of their respective revenues to the previous producers, which are refunded by the gross value of the cloth. The price paid to the farmer for his wool is the compound of the several revenues of the cultivator, the shepherd and the landlord. Although the farmer reckons as net produce only the surplus remaining after payment of his landlord and his servants in husbandry, yet to them these payments are items of revenue – rent to the one and wages to the other – to the one, the revenue of the land, to the other, the revenue of his industry. The aggregate of all these is defrayed out of the value of the cloth, the whole of which forms the revenue of some one or other, and is entirely absorbed in that way. – Whence it appears that the term net produce applies only to the individual revenue of each separate producer or adventurer in industry, but that the aggregate of individual revenue, the total revenue of the community, is equal to the gross produce of its land, capital and industry, which entirely subverts the system of the economists of the last century, who considered nothing but the net produce of the land as farming revenue, and therefore concluded, that this net produce was all that the community had to consume; instead of closing with the obvious inference, that the whole of what had been created, may also be consumed by mankind.’

Say proves his theory in his own peculiar fashion. Whereas Adam Smith tried to give a proof by referring each private capital unit to its place of production in order to resolve it into a mere product of labour, but conceived of every product of labour in strictly capitalist terms as a sum of paid and unpaid labour, as v + s, and thus came to resolve the total product of society into v + s; Say, of course, is cocksure enough to ‘correct’ these classical errors by inflating them into common vulgarities. His argument is based upon the fact that the entrepreneur at every stage of production pays other people, the representatives of previous stages of production, for the means of production which are capital for him, and that these people in their turn put part of this payment into their own pockets as their income and partly use it to recoup themselves for expenses advanced in order to provide yet another set of people with an income. Say converts Adam Smith’s endless chain of labour processes into an equally unending chain of mutual advances on income and their repayment from the proceeds of sales. The worker appears here as the absolute equal of the entrepreneur. He has his income advanced in the form of wages, paying for it in turn by the labour he performs. Thus the final value of the aggregate social product appears as the sum of a large number of advanced incomes and is spent in the process of exchange on repayment of all these advances. It is characteristic of Say’s superficiality that he illustrates the social connections of capitalist reproduction by the example of watch manufacture – a branch of production which at that time and partly even to-day is pure ‘manufacture’ where every worker is also an entrepreneur on a small scale and the process of production of surplus value is masked by a series of successive acts of exchange typical of simple commodity production.

Thus Say gives an extremely crude expression to the confusion inaugurated by Adam Smith. The aggregate of annual social produce can be completely resolved as regards its value into a sequence of various incomes. Therefore it is completely consumed every year. It remains an enigma how production can be taken up again without capital and means of production, and capitalist reproduction appears to be an insoluble problem.

If we compare the varying approaches to the problem from the time of the Physiocrats to that of Adam Smith, we cannot fail to recognise partial progress as well as partial regression. The main characteristic of the economic conception of the Physiocrats was their assumption that agriculture alone creates a surplus, that is surplus value, and that agricultural labour is the only kind of labour which is productive in the capitalist sense of the term. Consequently we see in the Tableau Économique that the unproductive class of industrial workers creates value only to the extent of the same 2,000 million livres which it consumes as raw materials and foodstuffs. Consequently, too, in the process of exchange, the total of manufactured products is divided into two parts, one of which goes to the tenant class and the other to the landowning class, while the manufacturing class does not consume its own products. Thus in the value of its commodities, the manufacturing class reproduces, strictly speaking, only that circulating capital which has been consumed, and no income is created for the class of entrepreneurs. The only income of society that comes into circulation in excess of all capital advances, is created in agriculture and is consumed by the landowning class in the form of rents; while even the tenant class do no more than replace their capital: to wit, 1,000 million livres interest from the fixed capital and 2,000 million circulating capital, two-thirds being raw materials and foodstuffs, and one-third industrial products. Further it is striking that it is in agriculture alone that Quesnay assumes the existence of fixed capital which he calls avances primitives as distinct from avances annuelles. Industry, as he sees it, apparently works without any fixed capital, only with circulating capital turned over each year, and consequently does not create in its annual output of commodities any element of value for making good the wear and tear of fixed capital (such as premises, tools, and so on).

In contrast with this obvious defect, the English classical school shows a decisive advance above all in proclaiming every kind of labour as productive, thus revealing the creation of surplus value in manufacture as well as in agriculture. We say: the English classical school, because on this point Adam Smith himself occasionally relapses quietly into the Physiocrat point of view. It is only Ricardo who develops the theory of the value of labour as highly and logically as it could advance within the limits of the bourgeois approach. The consequence is that we must assume all capital investment to produce annual surplus value, in the manufacturing part of social production as a whole no less than in agriculture.

On the other hand, the discovery of the productive, value-creating property of every kind of labour, alike in agriculture and in manufacture, suggested to Smith that agricultural labour, too, must produce, apart from the rent for the landowning class, a surplus for the tenant class over and above the total of their capital expenses. Thus, in addition to the replacement of capital, an annual income of the tenant class comes into being.

Lastly, by a systematic elaboration of the concepts of avances primitives and avances annuelles introduced by Quesnay, which he calls fixed and circulating capital, Smith has made clear, among other things, that the manufacturing side of social production requires a fixed as well as a circulating capital. Thus he was well on the way to restoring to order the concepts of capital and revenue of society, and to describing them in precise terms. The following exposition represents the highest level of clarity which he achieved in this respect:

‘Though the whole annual produce of the land and labour of every country is, no doubt, ultimately destined for supplying the consumption of its inhabitants and for procuring a revenue to them, yet when it first comes either from the ground or from the hands of the productive labourer, it naturally divides itself into two parts. One of them, and frequently the largest, is, in the first place, destined for replacing a capital, or for renewing the provisions, materials, and finished work, which had been withdrawn from a capital; the other for constituting a revenue either to the owner of this capital, as the profit of his stock, or to some other person; as the rent of his land.’

‘The gross revenue of all the inhabitants of a great country comprehends the whole annual produce of their land and labour; the neat revenue, what remains free to them after deducting the expense of maintaining, first, their fixed, and secondly, their circulating capital; or what, without encroaching upon their capital, they can place in their stock reserved for immediate consumption, or spend upon their subsistence, conveniences, and amusements. Their real wealth too is in proportion, not to their gross, but to their neat revenue.’

The concepts of total capital and income appear here in a more comprehensive and stricter form than in the Tableau Économique. The one-sided connection of social income with agriculture is severed and social income becomes a broader concept; and a broader concept of capital in its two forms, fixed and circulating capital, is made the basis of social production as a whole. Instead of the misleading differentiation of production into two departments, agriculture and industry, other categories of real importance are here brought to the fore: the distinction between capital and income and the distinction, further, between fixed and circulating capital.

Now Smith proceeds to a further analysis of the mutual relations of these categories and of how they change in the course of the social process, in production and circulation – in the reproductive process of society. He emphasises here a radical distinction between fixed and circulating capital from the point of view of the society:

‘The whole expense of maintaining the fixed capital must evidently be excluded from the neat revenue of the society. Neither the materials necessary for supporting their useful machines and instruments of trade, their profitable buildings, etc., nor the produce of the labour necessary for fashioning those materials into the proper form, can ever make any part of it. The price of that labour may indeed make a part of it, as the workmen so employed may place the whole value of their wages in their stock reserved for immediate consumption. But in other sorts of labour, both the price and the produce go to this stock, the price to that of the workmen, the produce to that of other people whose subsistence, convenience and amusements are augmented by the labour of those workmen.’

Here Smith comes up against the important distinction between workers who produce means of production and those who produce consumer goods. With regard to the former he remarks that they create the value – destined to replace their wages and to serve as their income – in the form of means of production such as raw materials and instruments which in their natural form cannot be consumed. With regard to the latter category of workers, Smith observes that conversely the total product, or better that part of value contained in it which replaces the wages, the income of the workers together with its other remaining value, appears here in the form of consumer goods. (The real meaning latent in this conclusion, though Smith does not say so explicitly, is that the part of the product which represents the fixed capital employed in its production appears likewise in this form.) In the further course of our investigation we shall see how close Smith has here come to the vantage point from which Marx tackled the problem. The general conclusion, however, maintained by Smith without any further examination of the fundamental question, is that, in any case, whatever is destined for the preservation and renewal of the fixed capital of society cannot be added to society’s net income.

The position is different with regard to circulating capital.

‘But though the whole expenses of maintaining the fixed capital is thus necessarily excluded from the neat revenue of the society, it is not the same case with that of maintaining the circulating capital. Of the four parts of which this latter capital is composed, money, provisions, materials and finished work, the three last, it has already been observed, are regularly withdrawn from it and placed either in the fixed capital of the society, or in their stock reserved for immediate consumption. Whatever portion of those consumable goods is not employed in maintaining the former, goes all to the latter, and makes a part of the neat revenue of the society, besides what is necessary for maintaining the fixed capital.’

We see that Smith here simply includes in this category of circulating capital everything but the fixed capital already employed, that is to say, foodstuffs and raw materials and in part commodities which, according to their natural form, belong to the replacement of fixed capital. Thus he has made the concept of circulating capital vague and ambiguous. But a further and most important distinction crops up and cuts right through this conception:

‘The circulating capital of a society is in this respect different from that of an individual. That of an individual is totally excluded from making any part of his neat revenue, which must consist altogether in his profits. ‘But though the circulating capital of every individual makes a part of that of the society to which he belongs, it is not upon that account totally excluded from making a part likewise of their neat revenues.’

In the following illustration Smith expounds what he means:

‘Though the whole goods in a merchant’s shop must by no means be placed in his own stock reserved for immediate consumption, they may in that of other people, who, from a revenue derived from other funds, may regularly replace their value to him, together with its profits, without occasioning any diminution either of his capital or theirs.’

Here Smith has established fundamental categories with regard to the reproduction and movement of circulating social capital. Fixed and circulating capital, private and social capital, private and social revenue, means of production and consumer goods, are marked put as comprehensive categories, and their real, objective interrelation is partly indicated and partly drowned in the subjective and theoretical contradictions of Smith’s analysis. The concise, strict, and classically clear scheme of the Physiocrat theory is dissolved here into a disorderly jumble of concepts and relations which at first glance appears an absolute chaos. But we may already perceive new connections within the social process of reproduction, understood by Smith in a deeper, wore modern and vital way than was within Quesnay’s grasp, though, like Michelangelo’s slave in the unhewn block of marble, they are still inchoate.

This is the only illustration Smith gives of this problem. But at the same time he attacks it from another angle – by an analysis of value. This very same theory which represents an advance beyond the Physiocrats – the theory that it is an essential quality of all labour to create value; the strictly capitalist distinction between paid labour replacing wages, and unpaid labour creating surplus value; and, finally, the strict division of surplus value into its two main categories, of profit and rent all this progress from the analysis of the Physiocrats leads Smith to the strange proposition that the price of every commodity consists of wages, plus profits, plus rent, or, in Marx’s short-hand, of v + s. In consequence, the commodities annually produced by society as a whole can be resolved completely, as to value, into the two components: wages and surplus value. Here the category of capital has disappeared all of a sudden; society produces nothing but income, nothing but consumer goods, which it also consumes completely. Reproduction without capital becomes a paradox, and the treatment of the problem as a whole has taken an immense backward step against that of the Physiocrats.

The followers of Adam Smith have tackled this twofold theory from precisely the wrong approach. Before Marx nobody concerned himself with the important beginnings of an exact exposition of the problem in Smith’s second book, while most of his followers jealously preserved Smith’s radically wrong analysis of prices, accepting it, like Ricardo, without question, or else, like Say, elaborating it into a trite doctrine. Where Smith raised fruitful doubts and stimulating contradictions, Say flaunted the opinionated presumption of a commonplace mind. Smith’s observation that the capital of one person may be the revenue of another induced Say to proclaim every distinction between capital and income on the social scale to be absurd. The absurdity, however, that income should completely absorb the total value of annual production which is thus consumed completely, assumes in Say’s treatment the character of an absolutely valid dogma. If society annually consumes its own total product completely, social reproduction without any means of production whatever must become an annual repetition of the Miracle of the Creation.

In this state the problem of reproduction remained up to the time of Karl Marx.

3. A Criticism of Smith’s Analysis

LET us recapitulate the conclusions to which Smith’s analysis has brought us:

1. There is a fixed capital of society, no part of which enters into its net revenue. This fixed capital consists in ‘the materials necessary for supporting their useful machines and instruments of trade’ and ‘the produce of labour necessary for fashioning those materials into the proper form’. By singling out the production of such fixed capital as of a special kind, and explicitly contrasting it with the production of consumer goods, Smith in effect transformed fixed capital into what Marx calls ‘constant capital’ – that part of capital which consists of all material means of production, as opposed to labour power.
2. There is a circulating capital of society. After eliminating the part of fixed, or constant, capital, there remains only the category of consumer goods; these are not capital for society but net revenue, a fund of consumption.
3. Capital and net revenue of an individual do not strictly correspond with capital and net revenue of society. What is nothing but fixed, or constant capital for society as a whole cannot be capital for the individual; it must be revenue, too, a fund of consumption, comprising as it does those parts of fixed capital which represent the workers’ wages and the capitalists’ profits. On the other hand, the circulating capital of the individuals cannot be capital for society but must be revenue, especially in so far as it takes the form of provisions.
4. As regards the value of the total annual social product, no trace of capital remains. It can be resolved completely into the three kinds of income: wages, profits of capital, and rents.

If we tried from this haphazard collection of odd ideas to build up a picture of the annual reproduction of total social capital, and of its mechanism, we should soon despair of our task. Indeed, all these observations leave us infinitely remote from the solution of the problem how social capital is annually renewed, how everybody’s consumption is ensured by his income, while the individuals can nevertheless adhere to their own points of view on capital and income. Yet if we wish to appreciate fully Marx’s contribution to the elucidation of this problem, we must be fully aware of all this confusion of ideas, the mass of conflicting points of view.

Let us begin with Adam Smith’s last thesis which alone would suffice to wreck the treatment of the problem of reproduction in classical economics.

Smith’s basic principle is that the total produce of society, when we consider its value, resolves itself completely into wages, profits and rents: this conception is deeply rooted in his scientific theory that value is nothing but the product of labour. All labour performed, however, is wage labour. This identification of human labour with capitalist wage labour is indeed the classical element in Smith’s doctrine. The value of the aggregate product of society comprises both the recompense for wages advanced and a surplus from unpaid labour appearing as profit for the capitalist and rent for the landowner. What holds good for the individual commodity must hold good equally for the aggregate of commodities. The whole mass of commodities produced by society – taken as a quantity of value – is nothing but a product of labour, of paid as well as unpaid labour, and thus it is also to be completely resolved into wages, profits, and rents.

It is of course true that raw materials, instruments, and the like, must be taken into consideration in connection with all labour. Yet is it not true also that these raw materials and instruments in their turn are equally products of labour which again may have been paid or unpaid? We may go back as far as we choose, we may twist and turn the problem as much as we like, yet we shall find no element in the value of any commodity – and therefore none in the price – which cannot be resolved purely in terms of human labour. We can distinguish, however, two parts in all labour: one part repays the wages and the other accrues to the capitalist and landlord. There seems nothing left but wages and profits – and yet, there is capital, individual and social capital. How can we overcome this blatant contradiction? The fact that Marx himself stubbornly pursued this matter for a long time without getting anywhere at first as witness his Theories of the Surplus Value, proves that this theoretical problem is indeed extremely hard to solve. Yet the solution he eventually hit on was strikingly successful, and it is based upon his theory of value. Adam Smith was perfectly right: nothing but labour constitutes the value of the individual commodity and of the aggregate of commodities. He was equally right in saying that from a capitalist point of view all labour is either paid labour which restores the wages, or unpaid labour which, as surplus value, accrues to the various classes owning the means of production. What he forgot, however, or rather overlooked, is the fact that, apart from being able to create new value, labour can also transfer to the new commodities the old values incorporated in the means of production employed. A baker’s working day of ten hours is, from the capitalist point of view, divided into paid and unpaid hours, into v + s. But the commodity produced in these ten hours will represent a greater value than that of ten hours’ labour, for it will also contain the value of the flour, of the oven which is used, of the premises, of the fuel and so on, in short the value of all the means of production necessary for baking. Under one condition alone could the value of any one commodity be strictly equal to v + s; if a man were to work in mid-air, without raw materials; without tool’s or workshop. But since all work on materials (material labour) presupposes means of production of some sort which themselves result from preceding labour, the value of this past labour is of necessity transferred to the new product.

The process in question does not only take place in capitalist production; it is the general foundation of human labour, quite independent of the historical form of society. The handling of man-made tools is a fundamental characteristic of human civilisation. The concept of past labour which precedes all new labour and prepares its basis, expresses the nexus between man and nature evolved in the history of civilisation. This is the eternal chain of closely interwoven labouring efforts of human society, the beginnings of which are lost in the grey dawn of the socialisation of mankind, and the termination of which would imply the end of the whole of civilised mankind. Therefore we have to picture all human labour as performed with the help of tools which themselves are already products of antecedent labour. Every new product thus contains not only the new labour whereby it is given its final form, but also past labour which had supplied the materials for it, the instruments of labour and so forth. In the production of value, that is commodity production into which capitalist production also enters, this phenomenon is not suspended, it only receives a particular expression. Here the labour which produces commodities assumes a twofold characteristic: it is on the one hand useful concrete labour of some kind or other, creating the useful object, the value-in-use. On the other hand, it is abstract, general, socially necessary labour and as such creates value. In its first aspect it does what labour has always done: it transfers to the new product past labour, incorporated in the means of production employed, with this distinction only, that this past labour, too, now appears as value, as old value. In its second aspect, labour creates new value which, in capitalist terms, can be reduced to paid and unpaid labour, to v + s. Thus the value of every commodity must contain old value which has been transferred by labour qua useful concrete labour from the means of production to the commodity, as well as the new value, created by the same labour qua socially necessary labour merely as this labour is expended hour by hour.

This distinction was beyond Smith: he did not differentiate the twofold character of value-creating labour. Marx once claimed to have discovered the ultimate source of Smith’s strange dogma – that the aggregate of produced values can be completely resolved into v + s – in his fundamentally erroneous theory of value. Failure to differentiate between the two aspects of commodity-producing labour as concrete and useful labour on the one hand, and abstract and socially necessary labour on the other, indeed forms one of the most important characteristics of the theory of value as conceived not only by Smith but by all members of the classical school.

Disregarding all social consequences, classical economics recognised that human labour alone is the factor which creates value, and it worked out this theory to that degree of clarity which we meet in Ricardo’s formulation. There is a fundamental distinction, however, between Marx’s theory of value and Ricardo’s, a distinction which has been misunderstood not only by bourgeois economists but also in most cases by the popularisers of Marx’s doctrine: Ricardo, conceiving as he did, of bourgeois economy in terms of natural law, believed also that the creation of value, too, is a natural property of human labour, of the specific and concrete labour of the individual human being.

This view is even more blatantly revealed in the writings of Adam Smith who for instance declares what he calls the ‘propensity to exchange’ to be a quality peculiar to human nature, having looked for it in vain in animals, particularly in dogs. And although he doubted the existence of the propensity to exchange in animals, Smith attributed to animal as well as human labour the facility of creating value, especially when he occasionally relapses into the Physiocrat doctrine:

‘No equal capital puts into motion a greater quantity of productive labour than that of the farmer. Not any of his labouring servants, but his labouring cattle, are productive labourers ...’

‘The labourers and labouring cattle, therefore, employed in agriculture, not only occasion, like the workmen in manufactures, the reproduction of a value equal to their own consumption, or to the capital which employs them, together with its owner’s profits, but of a much greater value: Over and above the capital of the farmer and all its profits, they regularly occasion the reproduction of the rent of the landlord.”

Smith’s belief that the creation of value is a direct physiological property of labour, a manifestation of the animal organism in man, finds its most vivid expression here. Just as the spider produces its web from its own body, so labouring man produces value – labouring man pure and simple, every man who produces useful objects – because labouring man is by birth a producer of commodities; in the same way human society is founded by nature on the exchange of commodities, and a commodity economy is the normal form of human economy.

It was left to Marx to recognise that a given value covers a definite social relationship which develops under definite historical conditions. Thus he came to discriminate between the two aspects of commodity-producing labour: concrete individual labour and socially necessary labour. When this distinction is made, the solution of the money problem becomes clear also, as though a spotlight had been turned on it.

Marx had to establish a dynamic distinction in the course of history between the commodity producer and the labouring man, in order to distinguish the twin aspects of labour which appear static in bourgeois economy. He had to discover that the production of commodities is a definite historical form of social production before he could decipher the hieroglyphics of capitalist economy. In a word, Marx had to approach the problem with methods of deduction diametrically opposed to those of the classical school, he had in his approach to renounce the latter’s faith in the human and normal element in bourgeois production and to recognise their historical transience: he had to reverse the metaphysical deductions of the classics into their opposite, the dialectical.

On this showing Smith could not possibly have arrived at a clear distinction between the two aspects of value-creating labour, which on the one hand transfers the old value incorporated in the means of production to the new product, and on the other hand creates new value at the same time. Moreover, there seems to be yet another source of his dogma that total value can be completely resolved into v + s. We should be wrong to assume that Smith lost sight of the fact that every commodity produced contains not only the value created by its production, but also the values incorporated in all the means of production that had been spent upon it in the process of manufacturing it. By the very fact that he continually refers us from one stage of production to a former one – sending us, as Marx complains, from pillar to post, in order to show the complete divisibility of the aggregate value into v + s – Smith proves himself well aware of the point. What is strange in this connection is that he again and again resolves the old value of the means of production, too, into v + s, so as finally to cover the whole value contained in the commodity.

‘In the price of corn, for example, one part pays the rent of the landlord, another pays the wages of maintenance of the labourers and labouring cattle employed in producing it, and the third pays the profit of the farmer. These three parts (wages, profit, and rent) seem either immediately or ultimately to make up the whole price of corn. A fourth part, it may perhaps be thought, is necessary for replacing the stock of the farmer, or for compensating the wear and tear of his labouring cattle and other instruments of husbandry. But it must be considered that the price of any instrument of husbandry, such as a labouring horse, is itself made up of the same three parts: the rent of the land upon which he is reared, the labour of tending and rearing him, and the profits of the farmer who advances both the rent of this land and the wages of this labour. Though the price of the corn, therefore, may pay the price as well as the maintenance of the horse, the whole price still resolves itself either immediately or ultimately into the same three parts of rent, of labour, and profit.’

Apparently Smith’s confusion arose from the following premises: first, that all labour is performed with the help of means of production of some kind or other – yet what are these means of production associated with any given labour (such as raw materials and tools) if not the product of previous labour? Flour is a means of production to which the baker adds new labour. Yet flour is the result of the miller’s, work, and in his hands it was not a means of production but the very product, in the same way as no the bread and pastries are the product of the baker. This product, flour, again presupposes grain as a means of production, arid if we go one step further back this corn is not a means of production in the hands of the farmer but the product. It is impossible to find any means of production in which value is embodied, without it being itself the product of some previous labour.

Secondly, speaking in terms of capitalism, it follows further that all capital which has been completely used up in the manufacture of any commodity, can in the end be resolved into a certain quantity of performed labour.

Thirdly, the total value of the commodity, including all capital advances, can readily be resolved in this manner into a certain quantity of labour. What is true for every commodity, must go also for the aggregate of commodities produced by a society in the course of a year; its aggregate value can similarly be resolved into a quantity of performed labour.

Fourthly, all labour performed under capitalist conditions is . divided into two parts: paid labour which restores the wages advanced, and unpaid labour which creates profit and rent, or surplus value. All labour carried out under capitalist conditions thus corresponds to our formula v + s.

All the arguments outlined above are perfectly correct and unassailable. Smith handled them in a manner which proves his scientific analysis consistent and undeviating, and his conceptions of value and surplus value a distinct advance on the Physiocrat approach. Only occasionally, in his third thesis, he went astray in his final conclusion, saying that the aggregate value of the annually produced aggregate of commodities can be resolved into the labour of that very year, although he himself had been acute enough to admit elsewhere that the value of the commodities a nation produces in the course of one year necessarily includes the labour of former years as well, that is the labour embodied in the means of production which have been handed down.

But even if the four statements enumerated are perfectly correct in themselves, the conclusion Smith draws from them – that the total value of every commodity, and equally of the annual aggregate of commodities in a society, can be resolved entirely into v + s – is absolutely wrong. He has the right idea that the whole value of a commodity represents nothing but social labour, yet identifies it with a false principle, that all value is nothing but v + s. The formula v + s expresses the function of living labour under capitalism, or rather its double function, first to restore the wages, or the variable capital, and secondly, to create surplus value for the capitalist. Wage labour fulfils this function whilst it is employed by the capitalists, in virtue of the fact that the value of the commodities is realised in cash. The capitalist takes back the variable capital he had advanced in form of wages, and he pockets the surplus value as well. v + s therefore expresses the relation between wage labour and capitalist, a relationship that is terminated in every instance as soon as the process of commodity production is finished. Once the commodity is sold, and the relation v + s is realised for the capitalist in cash, the whole relationship is wiped out and leaves no traces on the commodity. If we examine the commodity and its value, we cannot ascertain whether it has been produced by paid or by unpaid labour, nor in what proportion these have contributed. Only one fact is beyond doubt: the commodity contains a certain quantity of socially necessary labour which is expressed in its exchange. It is completely immaterial for the act of exchange as well as for the use of the commodity whether the labour which produced it could be resolved into v + s or not. In the act of exchange all that matters is that the commodity represents value, and only its concrete qualities, its usefulness, are relevant to the use we make of it. Thus the formula v + s only expresses, as it were, the intimate relationship between capital and labour, the social function of wage labour, and in the actual product this is completely wiped out. It is different with the constant capital which has been advanced and invested in means of production, because every activity of labour requires certain raw materials, tools, and buildings. The capitalist character of this state of affairs is expressed by the fact that these means of production appear as capital, as c, as the property of a person other than the labourer, divorced from labour, the property of those who, themselves do not, work. Secondly, the constant capital c, a mere advance laid out for the purpose of creating surplus value, appears here only as the foundation of v + s. Yet the concept of constant capital involves more than this: it expresses the function of the means of production in the process of human labour, quite independently of all its historical or social forms. Everybody must have raw materials and working tools, the means of production, be it the South Sea Islander for making his family canoe, the communist peasant community in India for the cultivation of their communal land, the Egyptian fellah for tilling his village lands or for building Pharaoh’s pyramids, the Greek slave in the small workshops of Athens, the feudal serf, the master craftsman of the medieval guild, or the modern wage labourer. They all require means of production which, having resulted from human labour, express the link between human labour and natural matter, and constitute the eternal and universal prerequisites of the human process of production in the formula c + v + s stands for a certain function of the means of production which is not wiped out in the succession of the labour process. Whereas it is completely immaterial, for both the exchange and the actual use made of a commodity, whether it has been produced by paid or by unpaid labour, by wage labour, slave labour, forced labour or any other kind of labour; on the other hand, it is of decisive importance, as for using it, whether the commodity is itself a means of production or a consumer good. Whether paid or unpaid labour has been employed in the production of a machine, matters to the machinery manufacturer and to his workers, but only to them; for society, when it acquires this machine by an act of exchange, only the quality of this machine as a means of production, only its function in the process of production is of importance. Just as every producing society, since time immemorial, has had to give due regard to the important function of the means of production by arranging, in each period of production, for the manufacture of the means of production requisite for the next period, so capitalist society, too, cannot achieve its annual production of value to accord with the formula v + s – which indicates the exploitation of wage labour – unless there exists, as the result of the preceding period, the quantity of means of production necessary to make up the constant capital. This specific connection of each past period of production with the period following forms the universal and eternal foundation of the social process of reproduction and consists in the fact that in every period parts of the produce are destined to became the means of production for the succeeding period: but this relation remained hidden from Smith’s sight. He was not interested in means of production in respect of their specific function within the process to which they are applied; he was only concerned with them in so far as they are like any other commodity, themselves the product of wage labour that has been employed in a capitalist manner. The specifically capitalist function of wage labour in the productive process completely obscured for him the eternal and universal function of the means of production within the labour process. His narrow bourgeois approach overlooked completely the general relations between man and nature underneath the specific social relations between capital and wage labour. Here, it seems, is the real source of Adam Smith’s strange dogma, that the total value of the annual social product can be resolved into v + s. He overlooked the fact that c as the first link in the formula c + v + s is the essential expression of the general social foundation of exploitation of wage labour by capital.

We conclude that the value of every commodity must be expressed by the formula c + v + s. The question now arises how far this formula applies to the aggregate of commodities within a society. Let us turn to the doubts expressed by Smith on this point, the statement that an individual’s fixed and circulating capital and his revenue do not strictly correspond to the same categories from the point of view of society. (Cf. above, p.64, no.3.) What is circulating capital for one person is not capital for another, but revenue, as for instance capital advances for wages. This statement is based upon an error. If the capitalist pays wages to the workers, he does not abandon his variable capital and let it stray into the workers’ hands, to become their income. He only exchanges the value-form of his variable capital against its natural form, labour power. The variable capital remains always in the hand of the capitalist, first as money, and then as labour power, to revert to him later together with the surplus value as the cash proceeds from the commodities. The worker, on the other hand, never gains possession of the variable capital. His labour power is never capital to him, but it is his only asset; the power to work is the only thing he possesses. Again, if he has sold it and taken a money wage, this wage is for him not capital but the price of his commodity which he has sold. Finally, the fact that the worker buys provisions with the wages he has received, has no more connection with the function this money once fulfilled as variable capital in the hands of the capitalist, than has the private use a vendor of a commodity can make of the money he has obtained by a sale. It is not the capitalist’s variable capital which becomes the workers’ income, but the price of the worker’s commodity labour power which he has sold, while the variable capital, now as ever, remains in the hands of the capitalist and fulfils its specific function. Equally erroneous is the conception that the income of the capitalist (the surplus value) which is hidden in machines – in our example of a machinery manufacturer – which has not as yet been realised, is fixed capital for another person, the buyer of the machines. It is not the machines, or parts of them, which form the income of the machinery manufacturer, but the surplus value that is hidden in them – the unpaid labour of his wage labourers. After the machine has been sold, this income simply remains as before in the hand of the machinery manufacturer; it has only changed its outward shape: it has been changed from the ‘machine-form’ into the ‘money-form’. Conversely, the buyer of this machine has not, by its purchase, newly obtained possession of his fixed capital, for he had this fixed capital in hand even before the purchase, in the form of a certain amount of cash. By buying this machine, he has only given to his capital the adequate material form for it to become productive. The income, or surplus value, remains in the hands of the machinery manufacturer before and after the sale of the machine, and the fixed capital remains in the hands of the other person, the capitalist buyer of the machine, just as the variable capital in the first example always remained in the hands of the capitalist and the income in the hands of the worker.

Smith and his followers have caused confusion because, in their investigation of capitalist exchange, they mixed up the use-form of the commodities with their relations of value. Further, they did not distinguish the individual circulations of capitals and commodities which are ever interlacing. One and the same act of exchange can be circulation of capital, when seen from one aspect, and at the same time simple commodity exchange for the purpose of consumption. The fallacy that whatever is capital for one person must be income for another, and vice versa, must be translated thus into the correct statement that what is circulation of capital for one person, may be simple commodity exchange for another, and vice versa. This only expresses the capacity of capital to undergo transformations of its character, and the interconnections of various spheres of interest in the social process of exchange. The sharply outlined existence of capital in contrast with income still stands in both its clearly defined forms of constant and variable capital. Even so, Smith comes very close to the truth when he states that capital and income of the individual are not strictly identical with the same categories from the point of view of the community. Only a few further connecting links are lacking for a clear revelation of the true relationship.

4. Marx’s Scheme of Simple Reproduction

Let us now consider the formula c + v + s as the expression of the social product as a whole. Is it only a theoretical abstraction, or does it convey any real meaning when applied to social life – has the formula any objective existence in relation to society as a whole? It was left to Marx to establish the fundamental importance of c, the constant capital, in economic theory. Yet Adam Smith before him, working exclusively with the categories of fixed and circulating capital, in effect transformed this fixed capital into constant capital, though he was not aware of having achieved this result. This constant capital comprises not only those means of production which wear out in the course of years, but also those which are completely absorbed by production in any one year. His very dogma that the total value is resolved into v + s and his arguments on this point lead Smith to distinguish between the two categories of production – living labour and inanimate means of production. On the other hand, when he tries to construe the social process of reproduction on the basis of the capitals and incomes of individuals, the fixed capital he conceives of as existing apart from these, is, in fact, constant capital.

Every individual capitalist uses for the production of his commodities certain material means of production such as premises, raw materials and instruments. In order to produce the aggregate of commodities in a given society, an aggregate of all material means of production used by the individual capitalists is an obvious requisite. The existence of these means of production within the society is a real fact, though they themselves exist in the form of purely private individual capitals. This is the universal absolute condition of social production in all its historical forms.

The specific capitalist form manifests itself in the fact that the material means of production function as c, as constant capital, the property of those who do not work; it is the opposite pole to proletarianised labour power, the counterpart of wage labour. The variable capital, v, is the aggregate of wages actually paid in the society in the course of a year’s production. This fact, too, has real objective existence, although it manifests itself in an innumerable mass of individual wages. In every society the amount of labour power actually engaged in production and the annual maintenance of the workers is a question of decisive importance. Where this factor takes the specific capitalist form of v, the variable capital, it follows that the means of subsistence first come to the workers in form of a wage which is the price of the labour power they have sold to another person, the owner of the material means of production who does not work himself; under this aspect, it is the latter’s capitalist property. Further, v is an aggregate of money, that is to say it is the means of subsistence for the workers in a form of pure value. This concept of v implies that the workers are free in a double sense – free in person and free of all means of production. It also expresses the fact that in a given society the universal form of production is commodity production.

Finally, s, the surplus value, stands for the total of all surplus values gained by the individual capitalists. Every society performs surplus labour, and even a socialist society will have to do the same. It must perform surplus labour in a threefold sense: it has to provide a quantity of labour for the maintenance of non-workers (those who are unable to work, such as children, old people, invalids, and also civil servants and the so-called liberal professions who do not take an immediate part in the satisfaction of material wants), it has to provide a fund of social insurance against elementary disasters which may threaten the annual produce, such as bad harvests, forest fires and floods; and lastly it must provide a fund for the purpose of increasing production, either because of an increase in the population, or because higher standards of civilisation lead to additional wants. It is in two respects that the capitalist character manifests itself: surplus labour comes into being

1. as surplus value, i.e. in commodity-form, realisable in cash, and
2. as the property of non-workers, of those who own the means of production.

Similarly, if we consider v + s, these two amounts taken together, we see that they represent objective quantities of universal validity: the total of living labour that has been performed within a society in the course of one year. Every human society, whatever its historical form, must take note of this datum, with reference to both the results that have been achieved, and the existing and available labour power. The division into v + s is a universal phenomenon, independent of the society’s particular historical form. In its capitalist form, this division shows itself not only in the qualitative peculiarities of both v and s as already outlined, but also in their quantitative relationship: v tends to become depressed to a minimum level, just sufficient for the physiological and social existence of the worker, and s tends to increase continually at the cost of, and relative to, v.

The predominant feature of capitalist production is expressed in this last circumstance: it is the fact that the creation and appropriation of surplus value is the real purpose of, and the incentive to, production.

We have examined the relations upon which the capitalist formula of the aggregate product is based, and have found them universally valid. In every planned economy they are made the object of conscious regulation on the part of society; in a communist society by the community of workers and their democratic organs, and in a society based upon class-rule by the nucleus of owners and their despotic power. In a system of capitalist production there is no such planned regulation. The aggregate of the society’s capitals and the aggregate of its commodities alike consist in reality of innumerable fragments of individual capitals and individual items of merchandise, taken together.

Thus the question arises whether these sums themselves mean anything more in a capitalist society than a mere statistical enumeration which is, moreover, inexact and fluid. Applying the standards of society as a whole, we perceive that the completely independent and sovereign individual existence of private enterprises is only the historically conditioned form, whereas it is social interconnections that provide the foundation. Although individual capitals act in complete independence of one another, and a social regulation is completely lacking, the movement of capitals forms a homogeneous whole. This movement, too, appears in specifically capitalist forms. In every planned system of production it is, above all, the relation between all labour, past and present, and the means of production (between v + s and c, according to our formula), or the relation between the aggregate of necessary consumer goods (again, in the terms of our formula, v + s) and c which are subjected to regulation. Under capitalist conditions, on the other hand, all social labour necessary for the maintenance of the inanimate means of production and also of living labour power is treated as one entity, as capital, in contrast with the surplus labour that has been performed, i.e. with the surplus value s. The relation between these two quantities c and (v + s) is a palpably real, objective relationship of capitalist society: it is the average rate of profit; every capital is in fact treated only as part of a common whole, the whole of social capital, and assigned the profit to which it is entitled, according to its size, out of the surplus value wrested from society, regardless of the quantity which this particular capital has actually created. Thus social capital and its counterpart, the whole of social surplus value, are not merely real quantities, having an objective existence, but, what is more, the relation between them, the average profit, guides and directs the whole process of exchange. This it does in three ways:

1. by the mechanism of the law of value which establishes the quantitative relations of exchange between the individual kinds of commodities independently of their specific value relationship;
2. by the social division of labour, the assignment of certain portions of capital and labour to the individual spheres of production;
3. by the development of labour productivity which on the one hand stimulates individual capitals to engage in pioneering work for the purpose of securing a higher profit than the average, and on the other hand extends the progress that has been achieved by individuals over the whole field of production.

By means of the average rate of profit, in a word, the total capital of society completely governs the seemingly independent motions of individual capitals.

The formula c + v + s thus applies to the aggregate of commodities produced in a society under capitalism no less than to the value composition of every individual commodity. It is, however, only the value-composition for which this holds good – the analogy cannot be carried further.

The formula is indeed perfectly exact if we regard the total product of a capitalistically producing society as the output of one year’s labour, and wish to analyse it into its respective components. The quantity c shows how much of the labour of former years has been taken over towards the product of the present year in the form of means of production. Quantities v + s show the value components of the product created by new labour during the last year only; the relation between v and s finally shows us how the annual labour programme of society is apportioned to the two tasks of maintaining the workers and maintaining those who do not work. This analysis remains valid and correct also with regard to the reproduction of individual capital, no matter what may be the material form of the product this capital has created. All three, c, v, and s, appear alike to a capitalist of the machinery industry in the form of machinery and its parts; to the owner of a music hall they are represented by the charms of the dancers and the skill of the acrobats. So long as the product is left undifferentiated, c, v, and s differ from one another only in so far as they are aliquot components of value. This is quite sufficient for the reproduction of individual capital, as such reproduction begins with the value-form of capital, a certain amount of money that has been gained by the realisation of the manufactured product. The formula c + v + s then is the given basis for the division of this amount of money one part for the purchase of the material means of production, a second part for the purchase of labour power, and a third part – in the case of simple reproduction assumed in the first instance – for the capitalist’s personal consumption. In the case of expanding reproduction part three is further subdivided, only a fraction of it being devoted to the capitalist’s personal consumption, the remainder to increasing his capital. In order to reproduce his capital actually, the capitalist must, of course, turn again to the commodity market with the capital he has divided in this manner, so that he can acquire the material prerequisites of production such as raw materials, instruments, and so on. It seems a matter of course to the individual capitalist as well as to his scientific ideologist, the ‘vulgar economist’, that he should in fact find there just those means of production and labour power he needs for his business.

The position is different as regards the total production of a society. From the point of view of society as a whole, the exchange of commodities can only effect a shifting around, whereby the individual parts of the total product change hands. The material composition of the product, however, cannot be changed by this process. After this change of places, as well as before it, there can be reproduction of total capital, if, and only if, there is in the total product of the preceding period: first, a sufficient quantity of means of production, secondly, adequate provisions to maintain the same amount of labour as hitherto, and, last but not least, the goods necessary to maintain the capitalist class and its hangers-on in a manner suitable to their station. This brings us to a new plane: we are now concerned with material points of view instead of pure relations of value. It is the use-form of the total social product that matters now. What the individual capitalist considers nobody else's business becomes a matter of grave concern for the totality of capitalists. Whereas it does not make the slightest difference to the individual capitalist whether he produces machinery, sugar, artificial manure or a progressive newspaper – provided only that he can find a buyer for his commodity so that he can get back his capital plus surplus value – it matters infinitely to the ‘total capitalist’ that his total product should have a definite use-form. By that we mean that it must provide three essentials: the means of production to renew the labour process, simple provisions for the maintenance of the workers, and provisions of higher quality and luxury goods for the preservation of the ‘total capitalist’ himself. His desire in this respect is not general and vague, but determined precisely and quantitatively. If we ask what quantities of all three categories are required by the ‘total capitalist’, the value-composition of last year’s total product gives us a definite estimate, as long, that is, as we confine ourselves to simple reproduction, which we have taken for our starting point. Hitherto we have conceived of the formula c + v + s as a merely quantitative division of the total value, applicable alike to total capital and to individual capital, and representing the quantity of labour contained in the annual product of society. Now we see that the formula is also the basis of the material composition of the product. Obviously the ‘total capitalist’, if he is to take up reproduction to the same extent as before, must find in his new total product as many means of production as correspond to the size of c, as many simple provisions for the workers as correspond to the sum of wages v, and as many provisions of better quality for himself and his hangers-on as correspond to s. In this way our analysis of the value of the society’s aggregate product is translated into a general recipe for this product as follows: the total c of society must be re-embodied in an equal quantity of means of production, the v in provisions for the workers, and the s in provisions for the capitalists, in order that simple reproduction may take place.

Here we come up against palpable differences between the individual capitalist and the total capitalist. The manner in which the former always reproduces his constant and variable capital as well as his surplus value is such that all three parts are contained in the same material form within his homogeneous product, that this material form, moreover, is completely irrelevant and may have different qualities in the case of each individual capitalist. The ‘total capitalist’, for his part, reproduces every component of the value of his annual product in a different material form, c as means of production, v as provisions for the workers, and s as provisions for the capitalists. In the case of the reproduction of individual capitals, there is no discrepancy between relations of value and material points of view. Besides, it is quite clear that individual capital may concentrate on aspects of value, accepting material conditions as a law from heaven, as self-evident phenomena of commodity exchange, whereas the ‘total capitalist’ has to reckon with material points of view. If the total c of society were not reproduced annually in the form of an equal amount of means of production, every individual capitalist would be doomed to search the commodity market in vain with his c realised in cash, unable to find the requisite materials for his individual reproduction. From the point of view of reproducing the total capital, the formula c + v + s is inadequate. This again is proof of the fact that the concept of total capital is something real and does not merely paraphrase the concept of production. We must, however, make general distinctions in our exposition of total capital: instead of showing it as a homogeneous whole, we must demonstrate its three main categories; and we shall not vitiate our theory if, for the sake of simplicity, we consider for the present only two departments of total capital: the production of producer goods, and that of consumer goods for workers and capitalists. We have to examine each department separately, adhering to the fundamental conditions of capitalist production in each case. At the same time, we must also emphasise the mutual connections between these two departments from the point of view of reproduction. For only if each is regarded in connection with the other, do they make up the basis of the social capital as a whole.

We made a start by investigating individual capital. But we must approach the demonstration of total capital and its total product in a somewhat different manner. Quantitatively, as a quantity of value, the c of society consists precisely in the total of individual constant capitals, and the same applies to the other amounts, v and s. But the outward shape of each has changed – the c of constant capitals re-emerges from the process of production as an element of value with infinitely varied facets, comprising a host of variegated objects for use, but in the total product it appears, as it were, contracted into a certain quantity of means of production. Similarly with v and s, which in the case of the individual capitalist re-emerge as items in a most colourful jumble of commodities, being provisions in adequate quantities for the workers and capitalists. Adam Smith came very close to recognising this fact when he observed that the categories of fixed and circulating capital and of revenue in relation to the individual capitalist do not coincide with these categories in the case of society.

We have come to the following conclusions:

1. The formula c + v + s serves to express the production of society viewed as a whole, as well as the production of individual capitalists.
2. Social production is divided into two departments, engaged in the production of producer and consumer goods respectively.
3. Both departments work according to capitalist methods, that is to say they both aim at the production of surplus value, and thus the formula c + v + s will apply to each of them.
4. The two departments are interdependent, and are therefore bound to display a certain quantitative relationship, namely the one department must produce all means of productions the other all provisions for the workers and capitalists of both departments.

Proceeding from this point of view, Marx devised the following diagram of capitalist reproduction:

I. 4,000c + 1,000v + 1,000s = 6,000 means of production II. 2,000c + 500v + 500s = 3,000 articles of consumption.

The figures in this diagram express quantities of value, amounts of money which are chosen arbitrarily, but their ratios are exact. Each department is characterised by the use-form of the commodities produced. Their mutual circulation takes place as follows: Department I supplies the means of production for the entire productive process, for itself as well as for Department II. From this alone it follows, that for the undisturbed continuance of reproduction – for we still presume simple reproduction on the old scale – the total produce of Department I (I 6,000) must have the same value as the sum of constant capitals in both departments: (I 4,000c + II 2,000c). Similarly, Department II supplies provisions for the whole of society, for its own workers and capitalists as well as for the workers and capitalists of Department I. Hence it follows that for the undisturbed course of consumption and production and its renewal on the old scale it is necessary that the total quantity of provisions supplied by Department II should equal in value all the incomes of the employed workers and capitalists of society [here II 3,000 = I(1,000v + 1,000s + II(500v + 500s)].

Here we have indeed expressed relationships of value which are the foundation not only of capitalist reproduction but of reproduction in every society. In every producing society, whatever its social form, in the primitive small village community of the Bakairi of Brazil, in the oikos of a Timon of Athens with its slaves, or in the imperial corvée farm of Charlemagne, the labour power available for society must be distributed in such away that means of production as well as provisions are produced in adequate quantities. The former must suffice for the immediate production of provisions as well as for the future renewal of the means of production themselves, and the provisions in their turn must suffice for the maintenance of the workers occupied in the production alike of these same provisions and of the means of production, and moreover for the maintenance of all those who do not work.

In its broad outline, Marx’s scheme corresponds with the universal and absolute foundation of social reproduction, with only the following specifications: socially necessary labour appears here as value, the means of production as constant capital, the labour necessary for the maintenance of the workers as variable capital and that necessary for the maintenance of those who do not work as surplus value.

In capitalist society, however, the connections between these two great departments depend upon exchange of commodities, on the exchange of equivalents. The workers and capitalists of Department I can only obtain as many provisions from Department II as they can deliver of their own commodities, the means of production. The demand of Department II for means of production, on the other hand, is determined by the size of its constant capital. It follows therefore that the sum of the variable capital and of the surplus value in the production of producer goods [here I(1,000v + 1,000s)] must equal the constant capital in the production of provisions [here II(2,000c)].

An important proviso remains to be added to the above scheme. The constant capital which has been spent by the two departments is in reality only part of the constant capital used by society. This constant capital is divided into two parts; the first is fixed capital – premises, tools, labouring cattle – which functions in a number of periods of production, in every one of which, however, only part of its value is absorbed by the product, according to the amount of its wear and tear. The second is circulating capital such as raw materials, auxiliary semi-finished products; fuel and lighting – its whole value is completely absorbed by the new product in every period of production. Yet only that part of the means of production is relevant for reproduction which is actually absorbed by the production of value; without becoming less correct, an exact exposition of social circulation may disregard the remaining part of the fixed capital which has not been absorbed by the product, though it should not completely forget it. This is easy to prove.

Let us assume that the constant capital, 6,000c, in the two departments, which is in fact absorbed by the annual product of these departments, consists of 1,500c fixed and 4,500c circulating capital, the 1,500c of fixed capital representing here the annual wear and tear of the premises, machinery and labouring cattle. This annual wear and tear equals, say, 10 per cent of the total value of the fixed capital employed. Then the total social capital would really consist of 19,500c + 1,500v, the constant capital in both departments being 1,500c of fixed and aggregate fixed capital, with 10 per cent wear and tear, is ten years ex hypothesi, the fixed capital needs renewal only after the lapse of ten years. Meanwhile one-tenth of its value enters into social production in every year. If all the fixed capital of a society, with the same rate of wear and tear, were of equal durability, it would, on our assumption, need complete renewal once within ten years. This, however, is not the case. Some of the various use-forms which are part of the fixed capital may last longer and others shorter, wear and tear and duration of life are quite different in the different kinds and individual representations of fixed capital. In consequence, fixed capital need not be renewed – reproduced in its concrete use-form – all at once, but parts of it are continually renewed at various stages of social production, while other parts still function in their older form. Our assumption of a fixed capital of 15,000c with a 10 per cent rate of wear and tear does not mean that this must be renewed all at once every ten years, but that an annual average renewal and replacement must be effected of a part of the total fixed social capital corresponding to one-tenth of its value; that is to say, Department I which has to satisfy the needs of society for means of production must reproduce, year by year, not only all its raw and partly finished materials, etc., its circulating capital to the value of 4,500, but must also reproduce the use-forms of its fixed capital – premises, machinery, and the like – to the extent of 1,500, corresponding with the annual wear and tear of fixed capital. If Department I continues in this manner to renew one-tenth of the fixed capital in its use-form every year, the result will be that every ten years the total fixed capital of society will have been replaced throughout by new items; thus it follows that the reproduction of those parts disregarded so far is also completely accounted for in the above scheme.

In practice, the procedure is that every capitalist sets aside from his annual production, from the realisation of his commodities, a certain amount for the redemption of his fixed capital. These individual annual deductions must amount to a certain quantity of capital, therefore the capitalist has in fact renewed his fixed capital, that is, he has replaced it by new and more efficient items. This alternating procedure of building up annual reserves of money for the renewal of fixed capital and of the periodical employment of the accumulated amounts for the actual renewal of fixed capital varies with the individual capitalist, so that some are accumulating reserves, while others have already started their renewals. Thus every year part of the fixed capital is actually renewed. The monetary procedure here only disguises the real process which characterises the reproduction of fixed capital.

On closer observation we see that this is as it should be. The whole of the fixed capital takes part in the process of production, for physically the mass of usable objects, premises, machinery, labouring cattle, are completely employed. It is their peculiarity as fixed capital, on the other hand, that only part of the value is absorbed in the production of value, since in the process of reproduction (again postulating simple reproduction), all that matters is to replace in their natural form the values which have been actually used up as means of subsistence and production during a year’s production. Therefore, fixed capital need only be reproduced to the extent that it has in fact been used up in the production of commodities. The remaining portion of value, embodied in the total use-form of fixed capital, is of decisive importance for production as a labour process, but does not exist for the annual reproduction of society as a process of value-formation.

Besides, this process which is here expressed by relations of value applies equally to every society, even to a community which does not produce commodities. If once upon a time, for instance, say ten years’ labour of 1,000 fellaheen was required for the construction of the famous Lake Moeris and the related Nile canals – that miraculous lake, which Herodotus tells us was made by hand – and if for the maintenance of this, the most magnificent drainage system of the world, the labour of a further 100 fellaheen was annually required (the figures, of course, are chosen at random), we might say that after every hundred years the Moeris dam and the canals were reproduced anew, although in fact the entire system was not constructed as a whole in every century. This is manifestly true. When, amid the stormy incidents of political history and alien conquests, the usual crude neglect of old monuments of culture set in – as displayed, e.g. by the English in India when the reproductional needs of ancient civilisations were understood no longer – then in the course of time the whole Lake Moeris, its water, dikes and canals, the two pyramids in its midst, the colossus upon it and other marvellous erections, disappeared without a trace, as though they had never been built. Only ten lines in Herodotus, a dot on Ptolemy’s map of the world, traces of old cultures, and of villages and cities bear witness that at one time rich life sprang from this magnificent irrigation system, where to-day there are only stretches of arid desert in inner Lybia, and desolate swamps along the coast. There is only one point where Marx’s scheme of simple reproduction may appear unsatisfactory or incomplete in relation to constant capital, and that is when we go back to that period of production, when the total fixed capital was first created. Indeed, society possesses transformed labour amounting to more than those parts of fixed capital which are absorbed into the value of the annual product and are in turn replaced by it. In the figures of our example, the total social capital does not consist of 6,000c + 1,500v, as in the diagram, but of 19,500c + 1,500v. Though 1,500 of the fixed capital (which, on our assumption, amounts to 15,000) are annually reproduced in the form of appropriate means of production, an equal amount is also consumed by the same production each year, though the whole of the fixed capital as a use-form, an aggregate of objects, has been renewed. After ten years, society possesses in the eleventh, just as in any other year, a fixed capital of 15,000, whereas it has annually achieved only 1,500c; and its constant capital as a whole is 19,500, whereas it has created only 6,000. Obviously, since it must have created this surplus of 13,500 fixed capital by its labour, it possesses more accumulated past labour than our scheme of reproduction warrants. Even at this stage, the annual labour of society must be based on some previous annual labour that has been hoarded. This question of past labour, however, as the foundation of all present labour, brings us to the very first beginning which is as meaningless with regard to the economic development of mankind as it is for the natural development of matter. The scheme of reproduction grasps the social process as perpetually in motion, as a link in the endless chain of events, it neither wants to demonstrate its initial origin, nor should it do so. The social reproductive process is always based on past labour, we may trace it back as far as we like. Social labour has no beginning, just as it has no end. Like the historical origin of Herodotus’ Lake Moeris, the beginnings of the reproductive process in the history of civilisation are lost in the twilight of legend. With the progress of techniques and with cultural development, the means of production change their form, crude paleoliths are replaced by sharpened tools, stone implements by elegant bronze and iron, the artisan’s tool by steam-driven machinery. Yet, though the means of production and the social organisation of the productive process continually change their form, society already possesses for its labour process a certain amount of past labour serving as the basis for annual reproduction.

Under capitalist methods of production past labour of society preserved in the means of production takes the form of capital, and the question of the origin of this past labour which forms the foundation of the reproductive process becomes the question of the genesis of capital. This is much less legendary, indeed it is writ in letters of blood in modern history. The very fact, however, that we cannot think of simple reproduction unless we assume a hoard of past labour, surpassing in volume the labour annually performed for the maintenance of society, touches the sore spot of simple reproduction; and it shows that simple reproduction is a fiction not only for capitalist production but also for the progress of civilisation in general. If we merely wish to understand this fiction properly, and to reduce it to a scheme, we must presume, as its sine qua non, results of a past productive process which cannot possibly be restricted to simple reproduction but inexorably points towards enlarged reproduction. By way of illustration, we might compare the aggregate fixed capital of society with a railway. The durability and consequently the annual wear and tear of its various parts is very different. Parts such as viaducts and tunnels may last for centuries, steam engines for decades, but other rolling stock will be used up in a short time, in some instances in a few months. Yet it is possible to work out an average rate of wear and tear, say thirty years, so that the value of the whole is annually depreciated by one thirtieth. This loss of value is now continually made good by partial reproduction of the railway (which may count as repairs), so that a coach is renewed to-day, part of the engine to-morrow, and a section of sleepers the day after. On our assumption then, the old railway is replaced by a new one after thirty years, a similar amount of labour being performed each year by the society so that simple reproduction takes place. But the railway can only be reproduced in this manner – it cannot be so produced. In order to make it fit for use and to make good its gradual wear and tear, the railway must have been completed in the first place. Though the railway can be repaired in parts, it cannot be made fit for use piecemeal, an axle to-day and a coach to-morrow. Indeed, the very essence of fixed capital is always to enter into the productive process in its entirety, as a material use-value. In order to get this use-form ready in the first place, society must apply a more concentrated amount of labour to its manufacture. In terms of our example, the labour of thirty years that is used for repairs, must be compressed into, say, two or three years. During this period of manufacture, society must therefore expend an amount of labour far greater than the average, that is to say it must have recourse to expanding reproduction; later, when the railway is finished, it may return to simple reproduction. Though we need not visualise the aggregate fixed capital as a single coherent use-object or a conglomeration of objects which must be produced all at once, the manufacture of all the more important means of production, such as buildings, transport facilities, and agricultural structures, requires a more concentrated application of labour, and, this is true for the modern railway or steamship as much as it was for the rough stone-axe and the handmill. Therefore it is only in theory that simple reproduction can be conceived as alternating with enlarged reproduction; the latter is not only a general condition of a progressive civilisation and an expanding population, but also the sine qua non for the economic form of fixed capital, or those means of production which in every society correspond to the fixed capital.

Marx deals with this conflict between the formation of fixed capital and simple reproduction but indirectly, in connection with fluctuations in the wear and tear of the fixed capital, more rapid in some years than in others. Here he emphasises the need for perpetual ‘over-production’, i.e. enlarged reproduction, since a strict policy of simple reproduction would periodically lead to reproductive losses. In short, he regards enlarged reproduction under the aspect of an insurance fund for the fixed capital of the society, rather than in the light of the actual productive process.

In quite a different context Marx appears to endorse the opinion expressed above. In Theories on the Surplus Value, vol.ii, part 2, analysing the conversion of revenue into capital, he speaks of the peculiar reproduction of the fixed capital, the replacement of which in itself already provides a fund for accumulation. He draws the following conclusion:

‘The point we have in mind is as follows: even if the aggregate capital employed in machine manufacture were just large enough to make good the annual wear and tear of the machines, many more machines could be annually produced than are required, since the wear and tear is in parts merely idealiter and must be made good realiter, in natura, only after a certain number of years. Capital so employed supplies each year a mass of machinery which becomes available for, and anticipates new, capital investments. Let us suppose, for instance, a machine manufacturer who starts production this year. During this year, he supplies machines for £12,000. If he were merely to reproduce the machines he has manufactured, he would have to produce, during the subsequent eleven years, machines for £1,000 only, and even then, a year’s production would not be consumed within the year. Still less could it be consumed, if he were to employ the whole of his capital. To keep this capital working, to keep it reproducing itself every year, a new and continuous expansion of the branches of manufacture that require these machines, is indispensable. This applies even more, if the machine manufacturer himself accumulates. In consequence, even if the capital invested in one particular branch of production is simply being reproduced, a continuous accumulation in the other branches of production must go with it.’

We might take the machine manufacturer of Marx’s example as illustrating the production of fixed capital. Then the inference is that if society maintains simple reproduction in this sphere, employing each year a similar amount of labour for the production of fixed capital (a procedure which is, of course, impossible in practical life), then annual production in all other spheres must expand. But if here, too, simple reproduction is to be maintained, then, if the fixed capital once created is to be merely renewed, only a small part of the labour employed in its creation can be expended. Or, to put it the other way round: if society is to provide for investment in fixed capital on a large scale, it must, even assuming simple reproduction to prevail on the whole, resort periodically to enlarged reproduction.

With the advance of civilisation, there are changes not only in the form of the means of production but also in the quantity of value they represent – or better, changes in the social labour stored up in them. Apart from the labour necessary for its immediate preservation, society has increasingly more labour time and labour power to spare, and it makes use of these for the manufacture of means of production on an ever increasing scale. How does this affect the process of reproduction? How, in terms of capitalism, does society create out of its annual labour a greater amount of capital than it formerly possessed? This question touches upon enlarged reproduction, and it is not yet time to deal with it.

5. The Circulation of Money

In our study of the reproductive process we have not so far considered the circulation of money. Here we do not refer to money as a measuring rod, an embodiment of value, because all relations of social labour have been expressed, assumed and measured in terms of money. What we have to do now is to test our diagram of simple reproduction under the aspect of money as a means of exchange.

Quesnay already saw that we shall only understand the social reproductive process if we assume, side by side with the means of production and consumer goods, a certain quantity of money.

Two questions now arise:

1. by whom should the money be owned, and
2. how much of it should there be?

The answer to the first question, no doubt, is that the workers receive their wages in the form of money with which they buy consumer goods. From the point of view of society, this means merely that the workers are allocated a certain share of the fund for consumption: every society, whatever its historical form of production, makes such allocations to its workers. It is, however, an essential characteristic of the capitalist form of production that the workers do not obtain their share directly in the form of goods but by way of commodity exchange, just as it is an essential feature of the capitalist mode of production that their labour power is not applied directly, as a result of a relation of personal domination, but again by way of commodity exchange: the workers selling their labour power to the owners of the means of production, and purchasing freely their consumer goods. Variable capital in its money form is the expression and medium of both these transactions.

Money, then, comes first into circulation by the payment of wages. The capitalist class must therefore set a certain quantity of money circulating in the first place, and this must be equal to the amount they pay in wages. The capitalists of Department I need 1,000 units of money, and the capitalists of Department II need 500 to meet their wages bill. Thus, according to our diagram, two quantities of money are circulating: I(1,000v) and II(500v). The workers spend the total of 1,500 on consumer goods, i.e on the products of Department II. In this way, labour power is maintained, that is to say the variable capital of society is reproduced in its natural forth, as the foundation of all other reproductions of capital. At the same time, the capitalists of Department II dispose of their aggregate product (1,500) in the following manner: their own workers receive 500 and the workers of Department I receive 1,000. This exchange gives the capitalists of Department II possession of 1,500 money units: 500 are their own variable capital which has returned to them; these may start circulating again as variable capital but for the time being they have completed their course. The other 1,000 accrue to them year by year out of the realisation of one third of their own products. The capitalists of Department II now buy means of production from the capitalists of Department I for these 1,000 money units in order to renew the part of their own constant capital that has been used up. By means of this purchase, Department II renews in its natural form half of the constant capital IIc it requires. Department I now has in return 1,000 money units which are nothing more than the money originally paid to its own workers. Now, after having changed hands twice, the money has returned to Department I, to become effective later as variable capital. This completes the circulation of this quantity of money for the moment, but the circulation within society has not yet come to an end. The capitalists of Department I have not yet realised their surplus value to buy consumer goods for themselves; it is still contained in their product in a form which is of no use to them. Moreover, the capitalists of Department II have not yet renewed the second half of their constant capital. These two acts of exchange are identical both in substance and in value, for the capitalists of Department I receive their goods from Department II in exchange for the I(1,000c) means of production needed by the capitalists of Department II. However, a new quantity of money is required to effect this exchange. It is true that the same money which has already completed its course, might be brought into circulation again for this purpose – in theory, there could be no objection to this. In practice, however, this solution is out of the question, for the needs of the capitalists, as consumers, must be satisfied just as constantly as the needs of the workers – they run parallel to the process of production and must be mediated by specific quantities of money. Hence it follows that the capitalists of both departments – that is to say all capitalists – must have a further cash reserve in hand, in addition to the money required as variable capital, in order to realise their own surplus value in the form of consumer goods. On the other hand, before the total product is realised and during the process of its production, certain parts df the constant capital must be bought continually. These are the circulating parts of the constant capital, such as raw and auxiliary materials, semi-finished goods, lighting and the like. Therefore, not only must the capitalists of Department I have certain quantities of money in hand to satisfy their needs as consumers, but the capitalists of Department II must also have money to meet the requirements of their constant capital. The exchange of 1,000s I (the surplus value of Department I contained in the means of production) against goods is thus effected by money which is advanced partly by the capitalists of Department I in order to satisfy their needs as consumers, and partly by the capitalists of Department II in order to satisfy their needs as producers. Both lots of capitalists may each advance 500 units of the money necessary for the exchange, or possibly the two departments will contribute in different proportions. At any rate, two things, are certain:

1. the money set aside for the purpose by ..both departments must suffice to effect the exchange between I(1,000s) and II(1,000c);
2. whatever the distribution of this money, between the two departments may have been, the exchange transaction completed, each department of capitalist production must again possess the same amount of money it had earlier put into circulation.

This latter maxim applies quite generally to social circulation as a whole: once the process of circulation is concluded, money will always have returned to its point of origin. Thus all capitalists, after universal exchange, have achieved a twofold result: first they have exchanged products which, in their natural form, were of no use to them, against other products which, in their natural form, the capitalists require either as means of production or for their own consumption. Secondly, they have regained, possession of the money which they set in circulation so as to effect these acts of exchange.

This phenomenon is unintelligible from the point of view of simple commodity circulation, where commodity and money continually change places – possession of the commodity excluding the possession of money, as money constantly usurps the place which the commodity, has given up, and vice versa. Indeed, this is perfectly true with regard to every individual act of commodity exchange which is the form of social circulation. Yet this social circulation itself is more than mere exchange of commodities: it is the circulation of capital. It is, however, an essential and characteristic feature of this kind of circulation, that it does not only return to the capitalist the value, of his original capital plus an increase the surplus value, but that it also assists social reproduction by providing the means of production and labour power in the natural form of productive capital, and by ensuring the, maintenance of those who do not work. Possessing both the means of production and the money needed, the capitalists start the total social process of circulation as soon a the social capital has completed its circuit, everything is again in their hands, apportioned to each department according to the investments made by it. The workers have only temporary possession of money during which time they convert the variable capital from its money form into its natural form. The variable capital in the capitalists’ hands is nothing but the outward shape of part of their capital, and for this reason it must always revert to them.

So far, we have only considered circulation as it takes place between the two large departments of production. Yet 4,000 units of the first Department’s produce remain there in the form of means of production to renew its constant capital of 4,000c. Moreover 500 of the consumer goods produced in Department II [corresponding to the surplus value II(500s)] also remain in this department in the form of consumer goods for the capitalist class. Since in both departments the mode of production is capitalistic, that is unplanned, private production, each department can distribute its own products – means of production in Department I and consumer goods in Department II – amongst its own capitalists only by way of commodity exchange, i.e by a large number of individual sale transactions between capitalists of the same department. Therefore the capitalists of both departments must have a reserve of money with which to perform these exchange transactions – to renew both the means of production in Department I and the consumer goods for the capitalist class in Department II. This part of circulation does not present any features of specific interest, as it is merely simple commodity circulation. Vendor and purchaser alike belong to the same category of agents of production, and circulation is concerned only with money and commodity changing hands within the same class and department. All the same, the money needed for this circulation must from the outset be in the hands of the capitalist class: it is part of their capital.

So far, the circulation of total social capital presents no peculiarities, even if we consider the circulation of money. From the very outset it is self-evident that society must possess a certain quantity of money to make this circulation possible, and this for two reasons: first, the general form of capitalist production is that of commodity production which implies the circulation of money; secondly, the circulation of capital is based upon the continuous alternation of the three forms of capital: money capital, productive capital, and commodity capital. And as it is this very money, finally, which operates as capital – our diagram referring to capitalist production exclusively – the capitalist class must have possession of this money, as it has possession of every other form of capital; it throws it into circulation in order to regain possession as soon as the process of circulation has been completed.

At first glance, only one detail might strike us: if the capitalist themselves have set in motion all the money which circulates in society, they must also advance the money needed for the realisation of their own surplus value. Thus it seems that the capitalists as a class ought to buy their own surplus value with their own money. As the capitalist class has possession of this money resulting from previous periods of production, even prior to the realisation of the product of each working period, the appropriation of surplus value at first sight does not seem to be based upon the unpaid labour of the wage labourer – as it in fact is – but merely the result of an exchange of commodities against an equivalent quantity of money both supplied by the capitalist class itself. A little reflection, however, dispels this illusion. After the general completion of circulation, the capitalists, now as before, possess their money funds which either reverted to them or remained in their hands. Further, they acquired consumer goods for the same amount which they have consumed. (Note that we are still confining ourselves to simple reproduction as the, prime condition of our diagram of reproduction: the renewal of production on the old scale and the use of all surplus value produced for the personal consumption of the capitalist class.)

Moreover, the illusion vanishes completely if we do not confine ourselves to one period of production but observe a number of successive periods in their mutual interconnections. The value the capitalist puts into circulation to-day in the form of money for the purpose of realising his own surplus value, is in fact nothing but his surplus value resulting from the preceding period of production in form of money. The capitalist must advance money out of his own pocket in order to buy his goods for consumption. On the one hand, the surplus value which he produces each year either exists in a natural-form which renders it unfit for consumption, or, if it takes a consumable form, it is temporarily in the hands of another person. On the other hand, he (the capitalist) has regained possession of the money, and he is now making his advances by realising his surplus value from the preceding period. As soon as he has realised his new surplus value, which is still embodied in the commodity form, this money will return to him. Consequently, in the course of several periods of production, the capitalist class draws its consumer goods from the pool, as well as the other natural forms of its capital. The quantity of money originally in its possession, however, remains unaffected by this process.

Investigation of the circulation of money in society shows that the individual capitalist can never invest the whole of his money capital in production but must always keep a certain money reserve to be employed as variable capital, i.e as wages. Further, he must keep a capital reserve for the purchase of means of production at any given period, and in addition, he must have a cash reserve for his personal consumption.

The process of reproducing the total social capital thus entails the necessity of producing and reproducing the substance of money. Money is also capital, for Marx’s diagram which we have discussed before, conceives of no other than capitalist production. Thus the diagram seems incomplete. We ought to add a further department, that of production of the means of exchange, to the other two large departments of social production [those of means of production (I) and of consumer goods (II)]. It is, indeed, a characteristic feature of this third department that it serves neither the purposes of production nor those of consumption, merely representing social labour in an undifferentiated commodity that cannot be used. Though money and its production, like the exchange and production of commodities, are much older than the capitalist mode of production, it was only the latter which made the circulation of money a general form of social circulation, and thus the essential element of the social reproductive process. We can only obtain a comprehensive diagram of the essential points of capitalist production if we demonstrate the original relationship between the production and reproduction of money and the two other departments of social production.

Here, however, we deviate from Marx. He included the production of gold (we have reduced the total production of money to the production of gold for the sake of simplicity) in the first department of social production.

“The production of gold, like that of metals generally, belongs to department 1, which occupies itself with means of production.”

This is correct only in so far as the production of gold is the production of metal for industrial purposes (jewellery, dental toppings, etc.). But gold in its capacity as money is not a metal but rather an embodiment of social labour in abstracto. Thus it is no more a means of production than it is a consumer good. Besides, a mere glance at the diagram of reproduction itself shows what inconsistencies must result from confusing means of exchange with means of production. If we add a diagrammatic representation of the annual production of gold as the substance of money to the two departments of social production, we get the following three sets of figures:

I. 4,000c + 1,000v + 1,000s = 6,000 means of production II. 2,000c + 500v + 500s = 3,000 means of subsistence III. 20c + 5v + 5s = 30 means of exchange

This quantity of value of 30, chosen by Marx as an example, obviously does, not represent the quantity of money which circulates annually in society; it only stands for that part which is annually reproduced, the annual wear, and tear of the money substance which, on the average, remains constant so long as social reproduction remains on the same level. The turnover of capital goes on in a regular manner and the,realisation of commodities proceed sat an equal pace. If we consider the third line as an integral part of the first one, as Marx wants us to do, the following difficulty arises: the constant capital of the third department consists of real and concrete means of production, premises, tools, auxiliary materials, vessels, and the like, just as it does in the two other departments. Its product, however, the 30g which represent money, cannot operate in its natural formulas constant capital in any process of production. If we therefore include this 30g as an essential part of the product of Department I (6,000 means of production) the means of production will show a social deficit of this size which will prevent Departments I and II from resuming their reproduction on the old scale. According to the previous assumption – which forms the foundation of Marx’s whole diagram – reproduction as a whole starts from the product of each department in its actual useform. The proportions of the diagram are based upon this assumption; without it, they dissolve in chaos. Thus the first fundamental relation of value is based upon the equation: I(6,000) equals I(4,000) + II(2,000). This cannot apply to the product III(30g), since neither department can use gold as a means of production [say, in the proportion of I(20c) + II(10c)]. The second fundamental relation derived from this is based upon the equation I(1,000v) + I(1,000s) = II(2,000). This would mean, with regard to the production of gold, that as many consumer goods are taken from Department II as there are means of production supplied to it. But this is equally untrue. Though the production of gold removes concrete means of production from the total social product and uses them as its constant capital, though it takes concrete consumer goods for the use of its workers and capitalists, corresponding to its variable capital and surplus value, the product it supplies yet cannot operate in any branch of production as a means of production, nor is it a consumer good, fit for human consumption. To include the production of money in the activities of Department I, therefore, is to run counter to all the general proportions which express the relations of value in Marx’s diagram, and to diminish the diagram’s validity.

The attempt by Marx to find room for the production of gold within Department I (means of production) moreover leads to dubious results. The first act of circulation between this new sub-Department (called by Marx Ig) and Department II (consumer goods) consists as usual in the workers’ purchase of consumer goods from Department II with the money obtained as wages from the capitalists. This money is not yet a product of the new period of production. It has been reserved by the capitalists of Department Ig out of the money contained in their product of an earlier period. This, indeed, is the normal procedure. But now Marx allows the capitalists of Department II to buy gold from Ig with the money they have reserved, gold as a commodity material to the value of 2. This is a leap from the production of money into the industrial production of gold which is no more to do with the problem of the production of money than with the production of boot-polish. Yet out of the 5 Ig v that have been reserved, 3 still remain, and as the capitalist, unable to use them as constant capital, does not know what to do with them, Marx arranges for him to add them on to his own reserve of money. Marx further finds the following way out to avoid a deficit in the constant capital of II which must be exchanged completely against the means of production (Iv + Is):

“Therefore, this money must be entirely transferred from lie to us, no matter whether it exists in necessities of life or articles of luxury, and vice versa, a corresponding value of commodities must be transferred from IIs to IIc. Result: A portion of the surplus-value is accumulated as a hoard of money.”

A strange result, in all conscience! We have achieved an increase in money, a surplus of the money substance, by simply confining ourselves to the annual wear and tear of the money find. This surplus value comes into existence, for some unknown reason, at the expense of the capitalists in the consumer goods department. They practise abstinence, not because they may want to expand their production of surplus value, let us say, but in order to secure a sufficient quantity of consumer goods for the workers engaged in the production of gold.

The capitalists of Department II, however, get poor reward for this Christian virtue. In spite of their abstinence, they are not only unable to expand their reproduction, but they are no longer even in the position to resume their production on its former scale. Even if the corresponding commodity value is transferred from IIg to IIc, it is not only the value but its actual and concrete fort) which matters. As the new part of the product of I now consists of money which cannot be used as a means of production, Department II, in spite of its abstinence, cannot renew its constant material capital on the old scale. As our diagram presupposes simple reproduction, its conditions are thus violated in two directions: surplus value is being hoarded, and the constant capital shows a deficit. Marx’s own results, then, prove that the production of gold cannot possibly find a place in either of the two departments of his diagram; the whole diagram is upset as soon as the first act of exchange between Departments I and II has been completed. As Engels remarks, in his footnote, ‘the analysis of the exchange of newly produced gold within the constant capital of Department I is not contained in the MS.’ Besides, the inconsistency would then only have been greater. The point of view we advocate is confirmed by Marx himself when he gives an exhaustive answer to the question, as striking as it is brief: ‘Money in itself is not an element of actual reproduction.’

There is another important reason why we should put the production of money in a third and separate department of social production as a whole: Marx’s diagram of simple reproduction is valid as the starting-point and foundation of the reproductive process not only for capitalism but also, mutatis mutaudis, for every regulated and planned economic order, for instance a socialist one. However, the production of money, just like the commodity-form of the products, becomes obsolete when private ownership of the means of production is abolished. It constitutes the ‘illegitimate’ liabilities, the faux frais of the anarchic economy under capitalism, a peculiar burden for a society based upon private enterprise, which implies the annual expenditure of a considerable amount of labour on the manufacture of products which are neither means of production nor yet consumer goods. This peculiar expenditure of labour by a society producing under capitalism will vanish in a socially planned economy. It is most adequately demonstrated by means of a separate department within the process of reproducing social capital. It is quite immaterial in this connection whether we picture a country which produces its own gold or a country which imports gold from abroad. The same expenditure of social labour which in the first case is necessary for the direct production of gold, is required in the second case to effect the exchange transactions.

These observations show that the problem of the reproduction of total capital is not so crude as it often appears to those who approach it merely from the point of view of crises. The central problem might be formulated as follows: how is it possible that, in an unplanned economy, the aggregate production of innumerable individual capitalists can satisfy all the needs of society? One answer that suggests itself points to the continual fluctuations in the level of production in accordance with the fluctuating demand, i.e the periodical changes in the market. This point of view, which regards the aggregate product of society as an undifferentiated mass of commodities, and treats social demand in an equally absurd way, overlooks the most important element, the differentia specifica of the capitalist mode of production. We have seen that the problem of capitalist reproduction contains quite a number of precisely defined relations referring to specific capitalist categories and also, mutatis mutandis, to the general categories of human labour., The real problem consists in their inherent tendencies towards both confilet and harmony. Marx’s diagram is the scientific formulation of the problem.

Inquiry must now be made into the implications of this diagram analytic of the process of production. Has it any real bearing on the problems of actual life? According to the diagram, circulation absorbs the entire social product; all consumers’ needs are satisfied, and reproduction takes place without friction; The circulation of money succeeds the circulation of commodities, completing the cycle of social capital. But what is the position in real life? The relations outlined in the diagram lay down a precise first principle for the division of social labour in a planned production – always providing a system of simple reproduction, i.e no changes in the volume of production. But no such planned organisation of the total process exists in a capitalist economy, and things do not run smoothly, along a mathematical formula, as suggested by the diagram. On the contrary, the course of reproduction shows continual deviations from :the proportions of the diagram which become manifest (a) in the fluctuations of prices from day to day; (b) in the continual fluctuations of profits; (c) in the ceaseless flow of capital from one branch of production to another, and finally in the periodical and cyclical swings of reproduction between overproduction and crisis.

And yet, apart from all these deviations, the diagram presents a socially necessary average level in which all these movements must centre, to which they are always striving to return, once they have left it. That is why the fluctuating movements of the individual capitalists do not degenerate into chaos but are: reduced to a certain order which ensures the prolonged existence of society in spite of its lack of a plan.

In comparison, the similarities and the profound discrepancies between Mark’s diagram of reproduction and Quesnay’s Tableau Économique strike us at once. These two diagrams, the beginning and end of the period of classical economics, are the only attempts to describe an apparent chaos in precise terms, a chaos created by the interrelated movements of capitalist production and consumption, and by the disparity of innumerable private producers and consumers. Both writers reduce this chaotic jumble of individual capitals to a few broadly conceived rules which serve, as it were, as moorings for the development of capitalist society, in spite of its chaos. They both achieve a synthesis between the two aspects which are the basis of the whole movement of social capital: that circulation is at one and the same time a capitalist process of producing and appropriating surplus value, and also a social process of producing and consuming material goods necessary to civilised human existence. Both show the circulation of commodities to act as a mediator for the social process as a whole, and both conceive of the circulation of money as a subsidiary phenomenon, an external and superficial expression of the various stages within the circulation of commodities.

It is socially necessary labour which creates value. This inspired fundamental law of Marx’s theory of value which provided the solution of the money problem, amongst others, further led him first to distinguish and then to integrate those two aspects in the total reproductive process: the aspect of value and that of actual material connections. Secondly, Marx’s diagram is based upon the precise distinction between constant and variable capital which alone reveals the internal mechanisms of the production of surplus value and brings it, as a value-relationship, into precise relation with the two material categories of production: that of producer and consumer goods.

After Quesnay, some classical economists, Adam Smith and Ricardo in particular, came fairly close to this point of view. Ricardo’s contribution, his precise elaboration of the theory of value, has even been frequently confused with that of Marx. On the basis of his own theory of value, Ricardo saw that Smith’s method of resolving the price of all commodities into v + s – a theory which wrought so much havoc in the analysis of reproduction – is wrong; but he was not much interested in Smith’s mistake, nor indeed very enthusiastic about the problem of reproduction as a whole. His analysis, in fact, represents a certain decline after that of Adam Smith, just as Smith had partly retrogressed as against the Physiocrats. If Ricardo expounded the fundamental value categories of bourgeois economy – wages, surplus value and capital – much more precisely and consistently than his predecessors, he also treated them more rigidly. Adam Smith had, shown infinitely more understanding for the living connections, the broad movements of the whole. In consequence he did not mind giving two, or, as in the case of the problem of value, even three or four different answers to the same question. Though he contradicts himself quite cheerfully in the various parts of his analysis, these very contradictions are ever stimulating him to renewed effort, they make him approach the problem as a whole from an ever different point of view, and so to grasp its dynamics. Ultimately, it was the limitation of their bourgeois mentalities which doomed d both. Smith and Ricardo to failure. A proper understanding of the fundamental categories of capitalist production, of value and surplus value as living dynamics of the social process demands the understanding of this process in its historical development and of the categories themselves as historically conditioned forms of the general relations of labour. This means that only a socialist can really solve the problem of the reproduction of capital. Between the Tableau Économique and the diagram of reproduction in the second volume of Capital there lies the prosperity and decline of bourgeois economics, both in time and in substance.

6. Enlarged Reproduction

THE shortcomings of the diagram of simple reproduction are obvious: it explains the laws of a form of reproduction which is possible only as an occasional exception in a capitalist economy. It is not simple but enlarged reproduction which is the rule in every capitalist economic system, even more so than in any other.

Nevertheless, this diagram is of real scientific importance in two respects. In practice, even under conditions of enlarged reproduction, the greater part of the social product can be looked on as simple reproduction, which forms the broad basis upon which production in every case expands beyond its former limits. In theory, the analysis of simple reproduction also provides the necessary starting point for all scientific exposition of enlarged reproduction. The diagram of simple reproduction of the aggregate social capital therefore inevitably introduces the further problem of the enlarged reproduction of the total capital.

We already know the historical peculiarity of enlarged reproduction on a capitalist basis. It must represent itself as accumulation of capital, which is both its specific form and its specific condition. That is to say, social production as a whole – which on a capitalist basis is the production of surplus value – can in every case be expanded only in so far as the social capital that has been previously active is now augmented by surplus value of its own creation. This use of part of the surplus value (and in particular the use of an increasing part of it) for the purpose of production instead of personal consumption by the capitalist class, or else the increase of reserves, is the basis of enlarged reproduction under capitalist conditions of production.

The characteristic feature of enlarged reproduction of the aggregate social capital – just as in our previous assumption of simple reproduction – is the reproduction of individual capitals, since production as a whole, whether regarded as simple or as enlarged production, can in fact only occur in the form of innumerable independent movements of reproduction performed by private individual capitals.

The first comprehensive analysis of the accumulation of individual capitals is given in volume i of Marx’s Capital, section 7, chapters 22, 23. Here Marx treats of (a) the division of the surplus value into capital and revenue; (b) the circumstances which determine the accumulation of capital apart from this division, such as the degree of exploitation of labour power and labour productivity; (c) the growth of fixed capital relative to the circulating capital as a factor of accumulation; and (d) the increasing development of an industrial reserve army which is at the same time both a consequence and a prerequisite of the process of accumulation. In the course of this discussion, Marx deals with two inspired notions of bourgeois economists with regard to accumulation: the ‘theory of abstinence’ as held by the more vulgar economists, who proclaim that the division of surplus value into capital, and thus accumulation itself, is an ethical and heroic act of the capitalists; and the fallacy of the classical economists, their doctrine that the entire capitalised part of the surplus value is used solely for consumption by the productive workers, that is to say spent altogether on wages for the workers employed year by year. This erroneous assumption, which completely overlooks the fact that every increase of production must manifest itself not only in the increased number of employed workers but also in the increase of the material means of production (premises, tools, and, certainly, raw materials) is obviously rooted in that ‘dogma’ of Adam Smith which we have already discussed. Moreover, the assumption that the expenditure of a greater amount of capital on wages is sufficient to expand production, also results from the mistaken idea that the prices of all commodities are completely resolved into wages and surplus value, so that the constant capital is disregarded altogether. Strangely enough, even Ricardo who was, at any rate occasionally, aware of this element of error in Smith’s doctrine, subscribes most emphatically to its ultimate inferences, mistaken though they were:

‘It must be understood, that all the productions of a country are consumed; but it makes the greatest difference imaginable whether they are consumed by those who reproduce, or by those who do not reproduce another value. When we say that revenue is saved, and added to capital, what we mean is, that the portion of revenue, so said to be added to capital, is consumed by productive, instead of unproductive labourers.

If all the goods produced are thus swallowed up by human consumption, there can clearly be no room to spare in the total social product for such unconsumable means of production as tools and machinery, new materials and buildings, and consequently enlarged reproduction, too, will have to take a peculiar course. What happens – according to this odd conception – is simply that staple foodstuffs for new workers will be produced to the amount of the capitalised part of surplus value instead of the choice delicacies previously provided for the capitalist class. The classical theory of enlarged reproduction does not admit of any variations other than those connected with the production of consumer goods. After our previous observations it is not surprising that Marx could easily dispose of this elementary mistake of both Ricardo and Smith. Just as simple reproduction requires a regulated renewal of the constant capital, the material means of production, quite apart from the production of consumer goods in the necessary quantity for labourer and capitalist, equally so in the case of expanding production must part of the new additional capital be used to enlarge the constant capital, that is to add to the material means of production. Another law, Marx discovered, must also be applied here. The constant capital, continually overlooked by the classical economists, increases relative to the variable capital that is spent on wages. This is merely the capitalist expression of the general effects of increasing labour productivity. With, technical progress, human labour is able to set in motion ever larger masses of means of production and to convert them into goods. In capitalist terms, this means a progressive decrease in expenses for living labour, in wages, relative to the expenses for inanimate means of production. Contrary to the assumption of Adam Smith and Ricardo, enlarged reproduction must not only start with the division of the capitalised part of the surplus value into constant and variable capital, but, as the technique of production advances, it is bound to allocate in this division ever increasing portions to the constant, and ever diminishing portions to the variable capital. This continuous qualitative change in the composition of capital is the specific manifestation of the accumulation of capital, that is to say of enlarged reproduction on the basis of capitalism.

The other side of this picture of continual changes in the relation between the portions of constant and variable capital is the formation of a relative surplus population, as Marx called it, that is to say that part of the working population which exceeds the average needs of capital, and thus becomes redundant. This reserve of unemployable industrial labour (taken here in a broader sense, and including a proletariat that is dominated by merchant capital) is always present. It forms a necessary prerequisite of the sudden expansion of production in times of boom, and is another specific condition of capitalist accumulation.

From the accumulation of individual capitals we can therefore deduce the following four characteristic phenomena of enlarged reproduction:

1. The volume of enlarged reproduction is independent, within certain limits, of the growth of capital, and can transcend it. The necessary methods for achieving this are: increased exploitation of labour and natural forces, and increased labour productivity (including increased efficiency of the fixed capital).
2. All real accumulation starts with that part of the surplus value which is intended for capitalisation being divided into constant and variable capital.
3. Accumulation as a social process is accompanied by continuous changes in the relation between constant and variable capital, whereby that portion of capital which is invested in inanimate means of production continually increases as compared with that expended on wages.
4. Concomitant with the accumulative process, and as a condition of the latter, there develops an industrial reserve army.

These characteristics, derived from the reproductive process as it is performed by the individual capitals, represent an enormous step forward as compared with the analyses of bourgeois economists. Now, however, our problem is to demonstrate the accumulation of the aggregate capital which originates from these movements of individual capitals, and on the basis of the diagram of simple reproduction to establish the precise relations between the aspects of value prevalent in the production of surplus value and the material considerations in the production of consumer and producer goods, with a view to accumulation.

The essential difference between enlarged reproduction and simple reproduction consists in the fact that in the latter the capitalist class and its hangers-on consume the entire surplus value, whereas in the former a part of the surplus value is set aside from the personal consumption of its owners, not for the purpose of hoarding, but in order to increase the active capital, i.e. for capitalisation. To make this possible, the new additional capital must also find the material prerequisites for its activity forthcoming. Here the concrete composition of the aggregate social product becomes important. Marx says already in volume i, when he considers the accumulation of individual capitals:

‘The annual production must in the first place furnish all those objects (use-values) from which the material components of capital, used up in the course of the year, have to be replaced. Deducting these there remains the net or surplus-products in which the surplus value lies. And of what does this surplus product consist? Only of things destined to satisfy the wants and desires of the capitalist class, things which, consequently, enter into the consumption fund of the capitalists? Were that the case, the cup of surplus-value would be drained to the very dregs, and nothing but simple reproduction would ever take place. – To accumulate it is necessary to convert a portion of the surplus product into capital. But we cannot, except, by a miracle, convert into capital anything but such articles as can be employed in the labour-process (i.e. means of production), and such further articles as are suitable for the sustenance of the labourer, (i.e. means of subsistence). Consequently, a part of the annual surplus-labour must have been applied to the production of additional means of production and subsistence, over and above the quantity of these things required to replace the capital advanced. In one word, surplus-value is convertible into capital solely because the surplus-product, whose value it is, already comprises the material elements of new capital.’

Additional means of production, however, and additional consumer goods for the workers alone are not sufficient; to get enlarged reproduction really going, additional labour is also required. Marx now finds a specific difficulty in this last condition:

‘For this the mechanism of capitalist production provides beforehand, by converting the working class into a class dependent on wages, a class whose ordinary wages suffice, not only for its maintenance, but for its increase. It is only necessary for capital to incorporate this additional labour-power, annually supplied by the working class in the shape of labourers of all ages, with the surplus means of production comprised in the annual produce, and the conversion of surplus-value into capital is complete.’

This is the first solution which Marx gave to the problem of the accumulation of the aggregate capital. Having dwelt on this aspect of the question already in volume i of Capital, Marx returns to the problem at the end of the second volume of his main work whose concluding 21st chapter is devoted to accumulation and enlarged reproduction of the aggregate capital.

Let us examine Marx’s diagrammatic exposition of accumulation more closely. On the model of the diagram of simple reproduction with which we are already familiar, he devised a diagram for enlarged reproduction, the difference appearing most clearly if we compare the two.

Assuming that society's annual aggregate product can be represented by an amount to the value of 9,000 (denoting millions of working hours, or, in capitalist monetary terms, any arbitrary amount of money), the aggregate product is to be distributed as follows:

I. 4,000c + 1,000v + 1,000s = 6,000 II. 2,000c + 500v + 500s = 3,000 Total: 9,000

Department I represents means of production, Department II consumer goods. One glance at the proportion of the figures shows that in this case simple reproduction alone is possible. The means of production made in Department I equal the total of the means of production actually used by the two departments. If these are merely renewed, production can be repeated only on its previous scale. On the other hand, the aggregate product of Department II equals the total of wages and surplus value in both departments. This shows that the consumer goods available permit only the employment of just as many workers as were previously employed, and that the entire surplus value is similarly spent on consumer goods, i.e. the personal consumption of the capitalist class. Now let us take the same aggregate product of 9,000 in the following equation:

I. 4,000c + 1,000v + 1,000s = 6,000 II. 1,500c + 750v + 750s = 3,000 Total: 9,000

Here a double disproportion confronts us: 6,000 means of production are created – more than those which are actually used by the society, i.e. 4,000c + 1,500c; leaving a surplus of 500. Similarly, less consumer goods (3,000) are produced than the sum of what is paid out in wages (i.e. 1,000v + 750v, the requirement of the workers), plus the aggregate of surplus value that has been produced (1,000s + 750s). This results in a deficit of 500. Since our premises do not allow us to decrease the number of workers employed the consequence must be that the capitalist class cannot consume the entire surplus value it has pocketed. This proves fully consistent with the two material preconditions of enlarged reproduction on a capitalist basis: part of the appropriated surplus value is not to be consumed but is used for the purposes of production; and more means of production must be produced so as to ensure the use of the capitalised surplus value for the actual expansion of reproduction.

In considering the diagram of simple reproduction, we saw that its fundamental social conditions are contained in the following equation: the aggregate of means of production (the product of Department I) must be equivalent to the constant capital of both departments, but the aggregate of consumer goods (the product of Department II) must equal the sum of variable capitals and surplus values of the two departments. As regards enlarged reproduction, we must now infer a precise inverse double ratio. The general precondition of enlarged reproduction is that the product of Department I must be greater in value than the constant capital of both departments taken together, and that of Department II must be so much less than the sum total of both the variable capital and the surplus value in the two departments.

This, however, by no means completes the analysis of enlarged reproduction; rather has it led us merely to the threshold of the question. Having deduced the proportions of the diagram, we must now pursue their further activities, the flow of circulation and the continuity of reproduction. Just as simple reproduction may be compared to an unchanging circle, to be repeated time and again, so enlarged reproduction, to quote Sismondi, is comparable to a spiral with ever expanding loops. Let us begin by examining the loops of this spiral. The first general question arising in this connection is how actual accumulation proceeds in the two departments under the conditions now known to us, i.e. how the capitalists may capitalise part of their surplus value, and at the same time acquire the material prerequisites necessary for enlarged reproduction.

Marx expounds the question in the following way:

Let us assume that half the surplus value of Department I is being accumulated. The capitalists, then, use 500 for their consumption but augment their capital by another 500. In order to become active, this additional capital of 500 must be divided, as we now know, into constant and variable capital. Assuming the ratio of 4 to 1 remains what it was for the original capital, the capitalists of Department I will divide their additional capital of 500 thus: they will buy new means of production for 400 and new labour for 100. This does not present any difficulties, since we know that Department I has already produced a surplus of 500 means of production. Yet the corresponding enlargement of the variable capital by 100 units of money is not enough, since the new additional labour power must also find adequate consumer goods which can only be supplied by Department II. Now the circulation between the two large departments is shifting. Formerly, under conditions of simple reproduction, Department I acquired 1,000 consumer goods for its own workers, and now it must find another 100 for its new workers. Department I therefore engages in enlarged reproduction as follows:

4,400c + 1,100v

Department II, in turn, after selling these consumer goods to the value of 100, is now in a position to acquire additional means of production to the same amount from Department I. And in fact, Department I still has precisely one hundred of its surplus product left over which now find their way into Department II, enabling the latter to expand its own reproduction as well. Yet here, too, the additional means of production alone are not much use; to make them operate, additional labour power is needed. Assuming again that the previous composition of capital has been maintained, with a ratio of 2 to 1 as regards constant and variable capital, additional labour to the tune of 50 is required to work the additional 100 means of production. This additional labour, however, needs additional consumer goods to the amount of its wage, which are in fact supplied by Department II itself. This department must therefore produce, in addition to the 100 additional consumer goods for the new workers of Department I and the goods for the consumption of its own workers, a further amount of consumer goods to the tune of 50 as part of its aggregate product. Department II therefore starts on enlarged reproduction at a rate of 1,600c + 800v.

Now the aggregate product of Department I (6,000) has been absorbed completely. 5,500 were necessary for renewing the old and used-up means of production in both departments, and the remaining 500 for the expansion of production: 400 in Department I and 100 in Department II. As regards the aggregate product of Department II (3,000), 1,900 have been used for the increased labour force in the two departments, and the 1,100 consumer goods which remain serve the capitalists for their personal consumption, the consumption of their surplus value. 500 are consumed in Department I, and 600 in Department II where, out of a surplus value of 700, only 150 had been capitalised (100 being expended on means of production and 50 on wages).

Enlarged reproduction can now proceed on its course. If we maintain our rate of exploitation at 100 per cent, as in the case of the original capital, the next period will give the following results:

I. 4,400c + 1,100v + 1,100s = 6,600 II. 1,600c + 800v + 800s = 3,200 Total: 9,800

The aggregate product of society has grown from 9,000 to 9,800, the surplus value of Department I from 1,000 to 1,100 and of Department II from 750 to 800. The object of the capitalist expansion of production, the increased production of surplus value, has been gained. At the same time, the material composition of the aggregate social product again shows a surplus of 600 as regards the means of production (6,600) over and above those which are actually needed (4,400 + 1,600), and also a deficit in consumer goods as against the sum total made up by the wages previously paid (1,100v + 800v) and the surplus value that has been created (1,100s + 800s). And thus we again have the material possibility as well as the necessity to use part of the surplus value, not for consumption by the capitalist class, but for a new expansion of production. The second enlargement of production, and increased production of surplus value, thus follows from the first as a matter of course and with mathematical precision. The accumulation of capital, once it has started, automatically leads farther and farther beyond itself. The circle has become a spiral which winds itself higher and higher as if compelled by a natural law in the guise of mathematical terms. Assuming that in the following years there is always capitalisation of half the surplus value, while the composition of the capital and the rate of exploitation remain unchanged, the reproduction of capital will result in the following progression:

Thus, after five years of accumulation, the aggregate social product is found to have grown from 9,000 to 14,348, the social aggregate capital from (5,500c + 1750v = 7,250) to (8,784c + 2,782v = 11,566) and the surplus value from (1,000s + 500s = 1,500) to (1,464s + 1,065s = 2,529), whereby the surplus value for personal consumption, being 1,500 at the beginning of accumulation, has grown to 732 + 958=1,690 in the last year. The capitalist class, then, has capitalised more, it has practised greater abstinence, and yet it has been able to live better. Society, in a material respect, has become richer, richer in means of production, richer in consumer goods, and it has equally become richer in the capitalist sense of the term since it produces more surplus value. The social product circulates in toto in society. Partly it serves to enlarge reproduction and partly it serves consumption. The requirements of capitalist accumulation correspond to the material composition of the aggregate social product. What Marx said in volume i of Capital is true: the increased surplus value can be added on to capital because the social surplus product comes into the world from the very first in the material form of means of production, in a form incapable of utilisation except in the productive process. At the same time reproduction expands in strict conformity with the laws of circulation: the mutual supply of the two departments of production with additional means of production and consumer goods proceeds as an exchange of equivalents. It is an exchange of commodities in the course of which the very accumulation of one department is the condition of accumulation in the other and makes this possible. The complicated problem of accumulation is thus converted into a diagrammatic progression of surprising simplicity. We may continue the above chain of equations ad infinitum so long as we observe this simple principle: that a certain increase in the constant capital of Department I always necessitates a certain increase in its variable capital, which predetermines beforehand the extent of the increase in Department II, with which again a corresponding increase in the variable capital must be coordinated. Finally, it depends on the extent of increase in the variable capital in both departments, how much of the total may remain for personal consumption by the capitalist class. The extent of this increase will also show that this amount of consumer goods which remains for private consumption by the capitalist is exactly equivalent to that part of the surplus value which has not been capitalised in either department.

There are no limits to the continuation of this diagrammatic development of accumulation in accordance with the few easy rules we have demonstrated. But now it is time to take care lest we should only have achieved these surprisingly smooth results through simply working out certain fool-proof mathematical exercises in addition and subtraction, and we must further inquire whether it is not merely because mathematical equations are easily put on paper that accumulation will continue ad infinitum without any friction.

In other words: the time has come to look for the concrete social conditions of accumulation.

7. Analysis of Marx’s Diagram of Enlarged Reproduction

The first enlargement of reproduction gave the following picture.

I. 4,400c + 1,100v + 1,100s = 6,600 II. 1,600c + 800v + 800s = 3,200 Total: 9,800

This already clearly expresses the interdependence of the two departments – but it is a dependence of a peculiar kind. Accumulation here originates in Department I, and Department II merely follows suit. Thus it is Department I alone that determines the volume of accumulation. Marx effects accumulation here by allowing Department I to capitalise one-half of its surplus value; Department II, however, may capitalise only as much as is necessary to assure the production and accumulation of Department I. He makes the capitalists of Department II consume 600s as against the consumption of only 500s by the capitalists of Department I who have appropriated twice the amount of value and far more surplus value. In the next year, he assumes the capitalists of Department I again to capitalise half their surplus value, this time making the capitalists of Department II capitalise more than in the previous year summarily fixing the amount to tally exactly with the needs of Department I. 500s now remain for the consumption of the capitalists of Department I – less than the year before – surely a rather queer result of accumulation on any showing. Marx now describes the process as follows:

‘Then let Department I continue accumulation at the same ratio, so that 550s are spent as revenue, and 55s accumulated. In that case, 1,100 Iv are first replaced by 1,100 Ic, and 550 Is must be realised in an equal amount of commodities of II, making a total of 1,650 I(v + s). But the constant capital of II, which is to be replaced, amounts only to 1,600, and the remaining 50 must be made up out of 800 IIs. Leaving aside the money aspect of the matter, we have as a result of this transaction:

‘I. 4,400c + 550s (to be capitalised); furthermore, realised in commodities of II for the fund for consumption of the capitalists and labourers of I, 1,650 (v + s)

II. 1,650c + 825v + 725s.

‘In Department I, 550s must be capitalised. If the former proportion is maintained, 440 of this amount form constant capital, and 110 variable capital. These 110 must be eventually taken out of 725 IIs, that is to say, articles of consumption to the value of 110 are consumed by the labourers of I instead of the capitalists of II, so that the latter are compelled to capitalise these 110s which they cannot consume. This leaves 615 IIs of the 725 IIs. But if II thus converts these 110 into additional constant capital, it requires an additional variable capital of 55. This again must be taken out of its surplus value. Subtracting this amount from 615 IIs, we find that only 560 IIs remain for the consumption of the capitalists of II, and we obtain the following values of capital after accomplishing all actual and potential transfers:

I. (4,400c + 440c) + (1,100v + 110v) = 4,840c + 1,210v = 6,050 II. (1,600c + 50c + 110c) + 800v + 25v + 55v) = 1,760c + 880v = 2,640 Total: 8,690

This quotation is given at length since it shows very clearly how Marx here effects accumulation in Department I at the expense of Department II. In the years that follow, the capitalists of the provisions department get just as rough a deal. Following the same rules, Marx allows them in the third year to accumulate 264s – a larger amount this time than in the two preceding years. In the fourth year they are allowed to capitalise 290s and to consume 678s, and in the fifth year they accumulate 320s and consume 745s. Marx even says: ‘If things are to proceed normally, accumulation in II must take place more rapidly than in I because that portion of I(v + s) which must be converted into commodities of IIc, would otherwise grow more rapidly than IIc, for which it can alone be exchanged.’ Yet the figures we have quoted fail to show a quicker accumulation in Department II, and in fact show it to fluctuate. Here the principle seems to be as follows: Marx enables accumulation to continue by broadening the basis of production in Department I. Accumulation in Department II appears only as a condition and consequence of accumulation in Department I: absorbing, in the first place, the other’s surplus means of production and supplying it, secondly, with the necessary surplus of consumer goods for its additional labour. Department I retains the initiative all the time, Department II being merely a passive follower. Thus the capitalists of Department II are only allowed to accumulate just as much as, and are made to consume no less than, is needed for the accumulation of Department I. While in Department I half the surplus value is capitalised every time, and the other half consumed, so that there is an orderly expansion both of production and of personal consumption by the capitalists, the twofold process in Department II takes the following erratic course:

Here there is no rule in evidence for accumulation and consumption to follow; both are wholly subservient to the requirements of accumulation in Department I.

Needless to say, the absolute figures of the diagram are arbitrary in every equation, but that does not detract from their scientific value. It is the quantitative ratios which are relevant, since they are supposed to express strictly determinate relationships. Those precise logical rules that lay down the relations of accumulation in Department I, seem to have been gained at the cost of any kind of principle in construing these relations for Department II; and this circumstance calls for a revision of the immanent connections revealed by the analysis.

It might, however, be permissible to assume the defect to lie in a rather unhappy choice of example. Marx himself, with the diagram quoted above, proceeded forthwith to give a second example in order to elucidate the movements of accumulation, where the figures of the equation run in the following order:

I. 5,000c + 1,000v + 1,000s = 7,000 II. 1,430c + 285v + 285s = 2,000 Total: 9,000

In contrast to the previous example, the capital of both departments is here seen to have the same composition, i.e. constant and variable capital are in a ratio of 5 to 1. This already presupposes a considerable development of capitalist production, and accordingly of social labour productivity – a considerable preliminary expansion of the scale of production, and finally, a development of all the circumstances which bring about a relatively redundant surplus population in the working class. We are no longer introduced to enlarged reproduction, as in the first example, at the stage of the original transition from simple to enlarged reproduction – the only point of that is in any case for the sake of abstract theory. This time, we are brought face to face with the process of accumulation as it goes on at a definite and rather advanced stage of development. It is perfectly legitimate to assume these conditions, and they in no way distort the principles we must employ in order to work out the individual loops of the reproductive spiral. Here again Marx takes for a starting point the capitalisation of half the surplus value in Department I.

‘Now take it that the capitalist class of I consumes one-half of the surplus-value, or 500, and accumulates the other half. In that case (1,000v + 500s) I, or 1,500, must be converted into 1,500 IIc. Since IIc amounts to only 1,430, it is necessary to take 70 from the surplus-value. Subtracting this sum from 285s leaves 215 IIs. Then we have:

‘I. 5,000c + 500s (to be capitalised) + 1,500(v + s) in the fund set aside for consumption by capitalists and labourers.

‘II. 1,430c + 70s (to be capitalised) + 285v + 215s.

As 70 IIs are directly annexed by IIc, a variable capital of 70:5, or 14, is required to set this additional constant capital in motion. These 14 must come out of the 215s, so that only 201 remain, and we have:

‘II. (1,430 + 70c + (285v + 14v) + 201s’.

After these preliminary arrangements, capitalisation can now proceed. This is done as follows:

In Department I the 500s which have been capitalised are divided into five-sixths (417c) + one-sixth (83v). These 83v withdraw a corresponding amount from IIs which serves to buy units of constant capital and thus accrues to IIc. An increase of IIc by 83 involves the necessity of an increase in IIv by 17 (one-fifth of 83). After the completion of this turnover we therefore have:

I. (5,000c + 417s) + (1,000v + 83s)v = 5,417c + 1,083v = 6,500 II. (1,500c + 83s) + (299v + 17s) = 1,538c + 316v = 1,899 Total: 8,399

The capital of Department I has grown from 6,000 to 6,500, i.e. by one-twelfth; in Department II it has grown from 1,715 to 1,899, i.e. by just over one-ninth. At the end of the next year, the results of reproduction on this basis are:

I. 5,417c + 1,083v + 1,083s = 7,583 II. 1,583c + 316v + 316s = 2,215 Total: 9,798

If the same ratio is maintained in the continuance of accumulation, the result at the end of the second year is as follows:

I. 5,869c + 1,173v + 1,173s = 8,215 II. 1,715c + 342v + 342s = 2,399 Total: 10,614

And at the end of the third year:

I. 6,358c + 1,271v + 1,271s = 8,900 II. 1,858c + 371v + 371s = 2,600 Total: 11,500

In the course of three years, the total social capital has increased from I. 6,000 + II. 1,715 = 7,715 to I. 7,629 + II. 2,229 = 9,858, and the total product from 9,000 to 11,500.

Accumulation in both departments here proceeds uniformly, in marked difference from the first example. From the second year onwards, both departments capitalise half their surplus value and consume the other half. A bad choice of figures in the first example thus seems to be responsible for its arbitrary appearance. But we must check up to make sure that it is not only a mathematical manipulation with cleverly chosen figures which this time ensures the smooth progress of accumulation.

In the first as well as in the second example, we are continually struck by a seemingly general rule of accumulation: to make any accumulation possible, Department II must always enlarge its constant capital by precisely the amount by which Department I increases (a) the proportion of surplus value for consumption and (b) its variable capital. If we take the example of the first year as an illustration, the constant capital of Department II must be increased by 70. And why? because this capital was only 1,430 before.

But if the capitalists of Department I wish to accumulate half their surplus value (1,000) and to consume the other half, they need consumer goods for themselves and for their workers to the tune of 1,500 units which they can obtain only from Department II in exchange for their own products – means of production. Since Department II has already satisfied its own demand for producer goods to the extent of its own constant capital (1,430), this exchange is only possible if Department II decides to enlarge its own constant capital by 70. This means that it must enlarge its own production – and it can do so only by capitalising a corresponding part of its surplus value. If this surplus value amounts to 285 in Department II, 70 of it must be added to the constant capital. The first step towards expansion of production in Department II is thus demonstrated to be at the same time the condition for, and the consequence of increased consumption by the capitalists of Department I. But to proceed. Hitherto, the capitalists of Department I could only spend one-half of their surplus value (500) on personal consumption. To capitalise the other half, they must redistribute these 500s in such a way as to maintain at least the previous ratio of composition, i.e. they must increase the constant capital by 417 and the variable capital by 83. The first operation presents no difficulties: the surplus value of 500 belonging to the capitalists of Department I is contained in a natural form in their own product, the means of production, and is fit straightway to enter into the process of production; Department I can therefore enlarge its constant capital with the appropriate quantity of its own product. But the remaining 83 can only be used as variable capital if there is a corresponding quantity of consumer goods for the newly employed workers. Here it becomes evident for the second time that accumulation in Department I is dependent upon Department II: Department I must receive for its workers 83 more consumer goods than before from Department II. As this is again possible only by way of commodity exchange, Department I can satisfy its demands only on condition that Department II is prepared for its part to take up products of Department I, producer goods, to the tune of 83. Since Department II has no use for the means of production except to employ them in the process of production, it becomes not only possible but even necessary that Department II should increase its own constant capital, by these very 83 which will now be used for capitalisation and are thus again withdrawn from the consumable surplus value of this department. The increase in the variable capital of Department I thus entails the second step in the enlargement of production in Department II. All material prerequisites of accumulation in Department I are now present and enlarged reproduction can proceed. Department II, however, has so far made only two increases in its constant capital. The result of this enlargement is that if the newly acquired means of production are indeed to be used, the quantity of labour power must be increased correspondingly. Maintaining the previous ratio, the new constant capital of requires a new variable capital of 31. This implies the necessity to capitalise a corresponding further amount of the surplus value. Thus the fund for the capitalists’ personal consumption in Department II comes to be what remains of the surplus value (285s) after deduction of the amounts used for twice enlarging the constant capital (70 + 83) and a commensurate increase in the variable capital (31) – a fund of 101, after deducting a total of 184. Similar operations in the second year of accumulation result for Department II in its surplus value being divided into 158 for capitalisation and 158 for the consumption of its capitalists, and in the third year, the figures become 172 and 170 respectively.

We have studied this process so closely, tracing it step by step, because it shows clearly that the accumulation of Department II is completely determined and dominated by the accumulation of Department I. Though this dependence is no longer expressed, as in Marx’s first example, by arbitrary changes in the distribution of the surplus value, it does not do away with the fact itself; even if now the surplus value is always neatly halved by each department, one-half for capitalisation and the other for personal consumption. Though there is nothing to choose between the capitalists of the two departments as far as the figures are concerned, it is quite obvious that Department I has taken the initiative and actively carries out the whole process of accumulation, while Department II is merely a passive appendage. This dependence is also expressed in the following precise rule: accumulation must proceed simultaneously in both departments, and it can do so only on condition that the provisions-department increases its constant capital by the precise amount by which the capitalists of the means-of-production department increase both their variable capital and their find for personal consumption. This equation (increase IIc = increase Iv + increase Is.c.) is the mathematical cornerstone of Marx’s diagram of accumulation, no matter what figures we may choose for its concrete application. But now we must see whether capitalist accumulation does in actual fact conform to this hard and fast rule.

Let us first return to simple reproduction. Marx’s diagram, it will be remembered, was as follows:

I. 4,000c + 1,000v + 1,000s = 6,000 means of production II. 2,000c + 500v + 500s = 3,000 means of consumption

Here, too, we established certain equations which form the foundation of simple reproduction; they were:

1. The product of Department I equals in value the sum of the two constant capitals in Departments I and II.
2. The constant capital of Department II equals the sum of variable capital and surplus value in Department I – a necessary consequence of (a).
3. The product of Department II equals the sum of variable capital and surplus value in both departments – a necessary consequence of (a) and (b).

These equations correspond to the conditions of capitalist commodity production (at the restricted level of simple reproduction, however). Equation (b), for instance, is a result of the production of commodities, entailed by the fact, in other words, that the entrepreneurs of either department can only obtain the products of the other by an exchange of equivalents. Variable capital and surplus value in Department I together represent the demand of this department for consumer goods. The product of Department II must provide for the satisfaction of this demand, but consumer goods can only be obtained in exchange for an equivalent part of the product of Department I, the means of production. These equivalents, useless to Department II in their natural form if not employed as constant capital in the process of production, will thus determine how much constant: capital there is to be in Department II. If this proportion were not adhered to, if, e.g., the constant capital of Department II (as a quantity of value) were larger than I (v + s), then it could not be completely transformed into means of production, since the demand of Department I for consumer goods would be too small; if the constant capital (II) were smaller than I(v + s.c), either the previous quantity of labour power could not be employed in this department, or the capitalists could not consume the whole of their surplus value. In all these cases, the premises of simple reproduction would be violated.

These equations, however, are not just an exercise in mathematics, nor do they merely result from the system of commodity production. To convince us of this fact, there is a simple means at hand. Let us imagine for a moment that, instead of a capitalist method of production, we have a socialist, i.e. a planned society in which the social division of labour has come to replace exchange. This society also will divide its labour power into producers of means of production and producers of means of consumption. Let us further imagine the technical development of labour to be such that two-thirds of social labour are employed in the manufacture of producer goods and one third in the manufacture of consumer goods. Suppose that under these conditions 1,500 units (reckoned on a daily, monthly, or yearly basis) suffice to maintain the whole working population of the society, one thousand of these being employed, according to our premise, in Department soc. I (making means of production), and five hundred in Department soc. II (making consumer goods), and that the means of production dating from previous labour periods and used up during one year’s labour, represent 3,000 labour units. This labour programme, however, would not be adequate for the society, since considerably more labour will be needed to maintain all those of its members who do not work in the material, the productive sense of the term: the child, the old and sick, the civil servant, the artist and the scientist. Moreover, every society needs certain reserves against a rainy day, as a protection against natural calamities. Taking it that precisely the same quantity of labour and, similarly, of means of production as that required for the workers’ own maintenance is needed to maintain all the non-workers and to build up the reserves, then, from the figures previously assumed, we should get the following diagram for a regulated production:

I. 4,000c + 1,000v + 1,000s = 6,000 means of production II. 2,000c + 500v + 500s = 3,000 means of consumption

Here c stands for the material means of production that have been used, expressed in terms of social labour time; v stands for the social labour time necessary to maintain the workers themselves and s for that needed to maintain those who do not work and to build up the reserves.

If we check up on the proportions of this diagram, we obtain the following result: there is neither commodity production nor exchange, but in truth a social division of labour. The products of Department I are assigned to the workers of Department II in the requisite quantities, and the products of Department II are apportioned to everyone, worker or no, in both departments, and also to the reserve-fund; all this being the outcome not of an exchange of equivalents but of a social organisation that plans and directs the process as a whole – because existing demands must be satisfied and production knows no other end but to satisfy the demands of society.

Yet all that does not detract from the validity of the equations. The product of Department I must equal Ic + IIc: this means simply that Department I must annually renew all the means of production which society has used up during one year’s labour. The product of Department II must equal the sum of I(v + s) + II(v + s): this means that society must each year produce as many consumer goods as are required by all its members, whether they work or not, plus a quota for the reserve fund. The proportions of the diagram are as natural and as inevitable for a planned economy as they are for a capitalist economy based upon anarchy and the exchange of commodities. This proves the diagram to have objective social validity, even if, just because it concerns simple reproduction, it has hardly more than theoretical interest for either a capitalist or a planned economy, finding practical application only in the rarest of cases.

The same sort of scrutiny must now be turned on the diagram of enlarged reproduction. Taking Marx’s second example as the basis for our test, let us again imagine a socialist society. From the point of view of a regulated society we shall, of course, have to start with Department II, not with Department I. Assuming this society to grow rapidly, the result will be an increasing demand for provisions by its members, whether they work or not. This demand is growing so quickly that a constantly increasing quantity of labour – disregarding for the moment the progress of labour productivity – will be needed for the production of consumer goods. The, quantities required, expressed in terms of social labour incorporated in them, increase from year to year in a progression of, say, 2,000 : 2,215 : 2,399 : 2,600 and so on. Let us further assume that technical conditions demand an increasing amount of means of production for producing this growing quantity of provisions, which, again measured in terms of social labour, mounts from year to year in the following progression: 7,000 : 7,583 : 8,215 : 8,900 and so on. To achieve this enlargement of production, we must further have a growth in the labour performed per annum according to the following progression: 2,570 : 2,798 : 3,030 : 3,284. [The figures correspond to the respective amounts of I(v + s) + II(v + s).] Finally, the labour performed annually must be so distributed that one-half is always used for maintaining the workers themselves, a quarter for maintaining those who do not work, and the last quarter for the purpose of enlarging production in the following year. Thus we obtain the proportions of Marx’s second diagram of enlarged reproduction for a socialist society. In fact, three conditions are indispensable if production is to be enlarged in any society, even in a planned economy:

1. the society must have an increasing quantity of labour power at its disposal;
2. in every working period, the immediate needs of society must not claim the whole of its working time, so that part of the time can be devoted to making provision for the future and its growing demands;
3. means of production must be turned out year after year in sufficiently growing quantities – without which production cannot be enlarged on a rising scale.

In respect of all these general points, Marx’s diagram of enlarged reproduction has objective validity – mutatis mutandis – for a planned society.

It remains to test whether it is also valid for a capitalist economy. Here we must ask first of all: what is the starting point of accumulation? That is the approach on which we have to investigate the mutual dependence of the accumulative process in the two departments of production. There can be no doubt that under capitalist conditions Department his dependent upon Department I in so far as its accumulation is determined by the additional means of production available. Conversely, the accumulation in Department I depends upon a corresponding quantity of additional consumer goods being available for its additional labour power. It does not follow, however, that so long as both these conditions are observed, accumulation in both departments is bound, as Marx’s diagram makes it appear, to go on automatically year after year. The conditions of accumulation we have enumerated are no more than those without which there can be no accumulation. There may even be a desire to accumulate in both departments, yet the desire to accumulate plus the technical prerequisites of accumulation is not enough in a capitalist economy of commodity production. A further condition is required to ensure that accumulation can in fact proceed and production expand: the effective demand for commodities must also increase. Where is this continually increasing demand to come from, which in Marx’s diagram forms the basis of reproduction on an ever rising scale?

It cannot possibly come from the capitalists of Departments I and II themselves – so much is certain right away – it cannot arise out of their personal consumption. On the contrary, it is the very essence of accumulation that the capitalists refrain from consuming part of their surplus value which must be ever increasing – at least as far as absolute figures are concerned – that they use it instead to make goods for the use of other people. It is true that with accumulation the personal consumption of the capitalist class will grow and that there may even be an increase in the total value consumed; nevertheless it will still be no more than a part of the surplus value that is used for the capitalists’ consumption. That indeed is the foundation of accumulation: the capitalists’ abstention from consuming the whole of their surplus value. But what of the remaining surplus value, the part that is accumulated? For whom can it be destined? According to Mark’s diagram, Department I has the initiative: the process starts with the production of producer goods. And who requires these additional means of production? The diagram answers that Department II needs them in order to produce means of consumption in increased quantities. Well then, who requires these additional consumer goods? Department I, of course – replies the diagram – because it now employs a greater number of workers. We are plainly running in circles. >From the capitalist point of view it is absurd to produce more consumer goods merely in order to maintain more workers, and to, turn out more means of production merely to keep this surplus of workers occupied. Admittedly, as far as the individual capitalist is concerned, the worker is just as good a consumer, i.e. purchaser of his commodity, as another capitalist or anyone else, provided that he can pay. Every individual capitalist realises his surplus value in the price of his commodity, whether he sells it to the worker or to some other buyer. But this does not hold true from the point of view of the capitalist class as a whole. The working class in general receives from the capitalist class no more than an assignment to a determinate part of the social product, precisely to the extent of the variable capital. The workers buying consumer goods therefore merely refund to the capitalist class the amount of the wages they have received, their, assignment to the extent of the variable capital. They cannot return a groat more than that; and if they are in a position to save in order to make themselves independent as small entrepreneurs, they may even return less, though this is the exception.

Part of the surplus value is consumed by the capitalist class itself in form of consumer goods, the money exchanged for these being retained in the capitalists’ pockets. But who can buy the products incorporating the other, the capitalised part of the surplus value? Partly the capitalists themselves – the diagram answers – who need new means of production for the purpose of expanding production, and partly the new workers who will be needed to work these new means of production. But that implies a previous capitalist incentive to enlarge production; if new workers are set to work with new means of production, there must have been a new demand for the products which are to be turned out.

Perhaps the answer is that the natural increase of the population creates this growing demand. In fact, the growth of the population and its needs provided the starting point for our examination of enlarged reproduction in an hypothetical socialist society. There the requirements of society could serve as an adequate basis, since the only purpose of production was the satisfaction of wants. In a capitalist society, however, the matter is rather different. What kind of people are we thinking of when we speak of an increase in the population? There are only two classes of the population according to Marx’s diagram, the capitalists and the workers. The natural increase of the former is already catered for by that part of the surplus value which is consumed inasmuch as it increases in absolute quantity. In any case, it cannot be the capitalists who consume the remainder, since capitalist consumption of the entire surplus value would mean a reversion to simple reproduction. That leaves the workers, their class also growing by natural increase. Yet a capitalist economy is not interested in this increase for its own sake, as a starting point of growing needs.

The production of consumer goods for Iv and IIv is not an end in itself, as it would be in a society where the economic system is shaped for the workers and the satisfaction of their wants. In a capitalist system, Department II does not produce means of consumption in large quantities simply to keep the workers of Departments I and II. Quite the contrary: a certain number of workers in Departments I and II can support themselves in every case because their labour power is useful under the obtaining conditions of supply and demand. This means that the starting point of capitalist production is not a given number of workers and their demands, but that these factors themselves are constantly fluctuating, ‘dependent’ variables of the capitalist expectations of profit. The question is therefore whether the natural increase of the working class also entails a growing effective demand over and above the variable capital. And that is quite impossible. The only source of money for the working class in our diagram is the variable capital which must therefore provide in advance for the natural increase of the workers. One way or the other: either the older generation must earn enough to keep their offspring – who cannot, then, count as additional consumers; or, failing that, the next generation, the young workers, must turn to work in order to obtain wages and means of subsistence for themselves – in which case the new working generation is already included in the number of workers employed. On this count, the process of accumulation in Marx’s diagram cannot be explained by the natural increase of the population.

But wait! Even under the sway of capitalism, society does not consist exclusively of capitalists and wage labourers. Apart from these two classes, there are a host of other people: the landowners, the salaried employees, the liberal professions such as doctors, lawyers, artists and scientists. Moreover, there is the Church and its servants, the Clergy, and finally the State with its officials and armed forces. All these strata of the population can be counted, strictly speaking, neither among the capitalist nor among the working class. Yet society has to feed and support them. Perhaps it is they, these strata apart from the capitalists and wage labourers, who call forth enlarged reproduction by their demand. But this seeming solution cannot stand up to a closer scrutiny. The landowners must as consumers of rent, i.e. of part of the surplus value, quite obviously be numbered among the capitalist class; since we are here concerned with the surplus value in its undivided, primary form, their consumption is already allowed for in the consumption of the capitalist class. The liberal professions in most cases obtain their money, i.e. the assignment to part of the social product, directly or indirectly from the capitalist class who pay them with bits of their own surplus value. And the same applies to the Clergy, with the difference only that its members also obtain their purchasing power in part from the workers, i.e from wages. The upkeep of the State, lastly, with its officers and armed forces is borne by the rates and taxes, which are in their turn levied upon either the surplus value or the wages. Within the limits of Marx’s diagram there are in fact only the two sources of income in a society: the labourers’ wages and the surplus value. All the strata of the population we have mentioned as apart from the capitalists and the workers, are thus to be taken only for joint consumers of these two kinds of income. Marx himself rejects any suggestion that these ‘third persons’ are more than a subterfuge:

‘All members of society not directly engaged in reproduction, with or without labour, can obtain their share of the annual produce of commodities – in other words, their articles of consumption ... only out of the hands of those classes who are the first to handle the product, that is to say, productive labourers, industrial capitalists, and real estate owners. To that extent their revenues are substantially derived from wages (of the productive labourers), profit and ground rent, and appear as indirect derivations when compared to these primary sources of revenue. But, on the other hand, the recipients of these revenues, thus indirectly derived, draw them by grace of their social functions, for instance that of a king, priest, professor, prostitute, soldier, etc., and they may regard these functions as the primary sources of their revenue.’

And about the consumers of interest and ground rent as buyers, Marx says:

‘Now, if that portion of the surplus-value of commodities, which the industrial capitalist yields in the form of ground rent or interest to other shareholders in the surplus value, cannot be in the long run converted into money by the sale of the commodities, then there is an end to the payment of rent and interest, and the landowners or recipients of interest can no longer serve in the role of miraculous interlopers, who convert aliquot portions of the annual reproduction into money by spending their revenue. The same is true of the expenditure of all so-called unproductive labourers, State officials, physicians, lawyers, etc., and others who serve economists as an excuse for explaining inexplicable things, in the role of the “general public”.’

Seeing that we cannot discover within capitalist society any buyers whatever for the commodities in which the accumulated part of the surplus value is embodied, only one thing is left: foreign trade. But there are a great many objections to a method that conceives of foreign trade as a convenient dumping ground for commodities which cannot be found any proper place in the reproductive process. Recourse to foreign trade really begs the question: the difficulties implicit in the analysis are simply shifted – quite unresolved – from one country to another. Yet if the analysis of the reproductive process actually intends not any single capitalist country but the capitalist world market, there can be no foreign trade: all countries are ‘home’. This point is made by Marx already in the first volume of Capital, in connection with accumulation:

‘We here take no account of export trade, by means of which a nation can change articles of luxury either into means of production or means of subsistence, and vice versa. In order to examine the object of our investigation in its integrity, free from all disturbing subsidiary circumstances, we must treat the whole world as one nation and assume that capitalist production is everywhere established and has possessed itself of every branch of industry.’

The same difficulty presents itself if we consider the matter from yet another aspect. In Marx’s diagram of accumulation we assumed that the portion of the social surplus value intended for accumulation exists from the first in a natural form which demands it to be used for capitalisation.

‘In one word, surplus-value is convertible into capital solely because the surplus-product, whose value it is, already, comprises the material element of new capital.’

In the figures of our diagram:

I. 5,000c + 1,000v + 1,000s = 7,000 means of production II. 1,430c + 285v + 285s = 2,000 means of consumption

Here, a surplus value of 570s can be capitalised because from the very outset it consists in means of production. To this quantity of producer goods there correspond besides additional consumer goods to the amount of 140s that 684s can be capitalised in all. But the process here assumed of simply transferring means of production to constant capital on the one hand, consumer goods to variable capital on the other, in commensurate quantities, is in contradiction with the very structure of capitalist commodity production. Whatever natural form the surplus value may have, there can be no immediate transfer to the place of production for the purpose of accumulation. It must first be realised, it must be turned into hard cash.

Of the surplus value in Department I, 500 are fit to be capitalised, but not until they have first been realised; the surplus value has to shed its natural form and assume the form of pure value before it can be added to productive capital. This is true for each individual capitalist and also for the aggregate capitalist of society, it being a prime condition for capitalist production that the surplus value must be realised in the form of pure value. Accordingly, regarding reproduction from the point of view of society as a whole –

‘We must not follow the manner copied by Proudhon from bourgeois economy, which looks upon this matter as though a society with a capitalist mode of production would lose its specific historical and economic characteristics by being taken as a unit. Not at all. We have, in that case, to deal with the aggregate capitalist.’

The surplus value must therefore shed its form as surplus product before it can re-assume it for the purpose of accumulation; by some means or other it must first pass through the money stage. So the surplus product of Departments I and II must be bought – by whom? On the above showing, there will have to be an effective demand outside I and II, merely in order to realise the surplus value of the two departments, just so that the surplus product can be turned to cash. Even then, we should only have got to the stage where the surplus value has become money. If this realised surplus value is further to be employed in the process of enlarging reproduction, in accumulation, an even larger demand must be expected for the future, a demand which is again to come from outside the two departments. Either the demand for the surplus product will therefore have to increase annually in accordance with the rate of increase of the accumulated surplus value, or – vice versa – accumulation can only proceed precisely in so far as the demand outside I and II is rising.

8. Marx’s Attempt to Resolve the Difficulty

COMPLETE abstraction from the circulation of money, though making the process of accumulation so smooth and simple in the diagram of enlarged reproduction, has great disadvantages of its own, we see. There was much to be said for this method in the analysis of simple reproduction, where consumption is the be-all and end-all of production. Money there had an ephemeral part, mediating the distribution of the social product among the various groups of consumers – the agent for the renewal of capital. In the process of accumulation, however, the money form has an essential function: it no longer serves as a mere agent in the circulation of commodities – here it has come to be a feature of capital itself, an element in the circulation of capital. Even if the transformation of the surplus value is not essential to real reproduction, it is the economic sine qua non of capitalist accumulation. In the transition from production to reproduction, the surplus product is thus subjected to two metamorphoses: first it casts off its use-form and then it assumes a natural form which is fit for the purpose of accumulation. The point here is not that the different cycles of production are counted off in units of years. It would be just as well to take the month; for that matter, the successive transformation of individual portions of the surplus value in Departments I and II may even intersect in time. Series of years here do not mean units of time but really intend the sequence of economic transformations. What matters is that this sequence must be observed if accumulation is to keep its capitalist character, whether it extends over a longer or a shorter period of time. This brings us back to the old question: How, and by whom, is the accumulated surplus value to be realised?

Marx was well aware that his seemingly water-tight scheme of accumulation did not cover this point adequately, and he himself kept reviewing the problem from various angles. What he says is this:

‘It has been shown in volume i, how accumulation works in the case of the individual capitalist. By the conversion of the commodity-capital into money, the surplus-product, in which the surplus-value is incorporated, is also monetised. The capitalist reconverts the surplus-value thus monetised into additional natural elements of his productive capital. In the next cycle of production the increased capital furnishes an increased product. But what happens in the case of tile individual capital, must also show, in the annual reproduction of society as a whole, just as we have seen it does in the case of reproduction on a simple scale, where the successive precipitation of the depreciated elements of fixed capital in the form of money, accumulated, as a hoard, also makes itself felt in the annual reproduction of society.’

He examines the mechanism of accumulation further from this very point of view, focusing on the fact that surplus value must pass through the money stage before it is accumulated.

‘For instance, capitalist A, who sells during one year, or during a number of successive years, certain quantities of commodities produced by him, thereby converts that portion of the commodities, which bears surplus-value, the surplus-product, or, in other words, the surplus value produced by himself; successively into money, accumulates it gradually, and thus makes for himself a new potential money-capital. It is potential money-capital on account of its capacity and destination, of being converted into the elements of productive capital. But practically he merely, accumulates a simple hoard, which is not an element of actual production. His activity for the time being consists only in withdrawing circulating money out of circulation. Of course, it is not impossible that the circulating money thus laid away by him, was itself; before it entered into circulation, a portion of some other hoard.’ ‘Money is withdrawn from circulation and accumulated as a hoard by the sale of commodities, without a subsequent purchase: If this operation is conceived as one taking place universally, then it seems inexplicable where the buyers are to come from, since in that case everybody would want to sell in order to hoard, and no one would want to buy. And it must be so conceived, since every individual capital may be in process of accumulation.

‘If we were to conceive of the process of circulation as one taking place in a straight line between the various divisions of annual reproduction – which would be incorrect as it consists with a few exceptions of mutually retroactive movements – then we should have to start out from the producer of gold (or silver) who buys without selling, and to assume that all others sell to him. In that case, the entire social surplus-product of the current year would pass into his hands, representing the entire surplus-value of the year, and all the other capitalists would distribute among themselves their relative shares in his surplus product, which consists naturally of money, gold being the natural form of his surplus-value. For that portion of the product of the gold producer, which has to make good his active capital, is already tied up and disposed of. The surplus-value of the gold producer, in the form of gold, would then be the only fund from which all other capitalists would have to derive the material for the conversion of their annual surplus-product into gold. The magnitude of its value would then have to be equal to the entire annual surplus-value of society, which must first assume the guise of a hoard. Absurd as this assumption would be, it would accomplish nothing more than to explain the possibility of a universal formation of a hoard at the same period. It would not further reproduction itself, except on the part of the gold producer, one single step.

‘Before we solve this seeming difficulty, we must distinguish ...’

The obstacle in the way of realising the surplus value which Marx here calls a ‘seeming difficulty’ nevertheless is important enough for the whole further discussion in Capital, volume ii, to be concentrated on overcoming it. As a first attempt, Marx proffers the solution of a hoard which, owing to the separation of the different individual constant capitals in the process of circulation, will inevitably be formed in a capitalist system of production. Inasmuch as different capital investments have different spans of life, and there is always an interval before the parts of a plant are due for renewal, at any given moment we may find that one individual capitalist is already busy renewing his plant, while another is still building up reserves from the proceeds yielded by the sale of his commodities against the day when he will have enough to renew his fixed capital.

‘For instance, let A sell 600, representing 400c + 100v + 100s to B, who may represent more than one buyer. A sells 600 in commodities for 600 in money, of which 100 are surplus-value which he withdraws from circulation and hoards in the form of money. But these 100 in money are but the money-form of the surplus-product in which a value of 100 was incorporated.’

In order to comprehend the problem in complete purity, Marx here assumes the whole of the surplus value to be capitalised, for which reason he ignores altogether that part of the surplus value is used for the capitalists’ personal consumption; in addition, A', A'' and A''' as well as B', B'' and B''' here belong to Department I.

‘The formation of a hoard, then, is not a production, nor is it an increment of production. The action of the capitalist consists merely in withdrawing from circulation 100 obtained by the sale of his surplus-product, in holding and hoarding this amount. This operation is carried on, not alone on the part of A, but at numerous points of the periphery of circulation by other capitalists named A', A'', A''' ... However, A accomplishes the formation of a hoard only to the extent that he acts as a seller, so far as his surplus-product is concerned, not as a buyer. His successive production of surplus-products, the bearers of his surplus-value convertible into money, is therefore a premise for the formation of his hoard. In the present case, where we are dealing only with the circulation within Department I, the natural form of the surplus-product, and of the total product of which it is a part, is that of an element of constant capital of I, that is to say it belongs to the category of a means of production creating means of production. We shall see presently, what becomes of it, what function it performs, in the hands of the buyers such as B, B', B'', etc.

‘It must particularly be noted at this point that A, while withdrawing money from circulation and hoarding it, on the other hand throws commodities into it without withdrawing other commodities in return. The capitalists, B, B', B'', etc., are thereby enabled to throw only money into it and withdraw only commodities from it. In the present case, these commodities, according to their natural form and destination, become a fixed or circulating element of the constant capital of B, B', etc.’

There is nothing new about this whole process. Marx had already described it extensively in connection with simple reproduction, since it alone can explain how a society is able to renew constant capital under conditions of capitalist reproduction. How this process can lay the besetting problem of our analysis of enlarged reproduction is far from self-evident. The difficulty had been that for the purpose of accumulation, part of the surplus value is not consumed by the capitalists but added to capital in order to expand production, giving rise to the question of buyers for this additional product. The capitalists do not want to consume it and the workers are not able to do so, their entire consumption being covered in every case by the available variable capital. Whence the demand for the accumulated surplus value? or, as Marx would have it: Whence the money to pay for the accumulated surplus value?

If, by way of answer, we are referred to the process of hoarding attendant upon the gradual renewal of the constant capital by the individual capitalists at various times, the connection between these two points remains obscure. As long as B, B' and B'', etc., buy producer goods from their colleagues A, A' and A'' in order to renew their constant capital that has in fact been used up, the limits of simple reproduction are not transcended, and the whole thing has nothing to do with our problem. The moment the producer goods purchased by B, B', B'', etc., serve to increase their constant capital, however, for purposes of accumulation, a number of new questions clamour for attention. First and foremost where do the B’s get the cash to buy an additional product from the A’s? The only way they could have made their money is by sale of their own surplus product. Before they can acquire new means of production for expanding their enterprises, before they appear as buyers, that is to say, of the surplus product that is to be accumulated, they must first have disposed of their own surplus product – in a word, B, B', B'', etc., must have been vendors themselves. But who could have bought their surplus product? It is obvious that the difficulty is simply shifted from the A’s to the B’s without having been mastered.

At one stage of the analysis it really does seem for a time as if a solution were found at last. After a short digression, Marx returns to the main line of his investigation in the following words:

‘In the present case, this surplus-product consists at the outset of means of production used in the creation of means of production. It is not until it reaches the hands of B, B', B'', etc.; (I) that this surplus-product serves as an additional constant capital. But it is virtually that even in the hands of the accumulators of hoards, the capitalists A, A', A'', (I), before it is sold. If we consider merely the volume of values of the reproduction on the part of I, then we are still moving within the limits of simple reproduction, for no additional capital has been set in motion for the purpose of creating this virtual additional capital (the surplus-product), nor has any greater amount of surplus-labour been performed than that done on the basis of simple reproduction. The difference is here only one of the form of the surplus-labour performed, of the concrete nature of its particularly useful service. It is expended in means of production for Department Ic instead of IIc, in means of production of means of production instead of means of production of articles of consumption. In the case of simple reproduction it had been assumed that the entire surplus-value was spent as revenue in the commodities of II. Hence it consisted only of such means of production as restore the constant capital of IIc in its natural form. In order that the transition from simple to expanded reproduction may take place, the production in Department I must be enabled to create fewer elements for the constant capital of II and more for that of I ... Considering the matter merely from the point of view of the volume of values, it follows, then, that the material requirements of expanded reproduction are produced within simple reproduction. It is simply a question of the expenditure of the surplus-labour of the working class of I for the production of means of production, the creation of virtual additional capital of I. The virtual additional money capital, created on the part of A, A', A'', by the successive sale of their surplus-product, which was formed without any capitalist expenditure of money, is in this case simply the money-form of the additional means of production made by I.’

On this interpretation, the difficulty seems to dissolve into thin air at our touch. Accumulation requires no new sources of money at all. Before, when the capitalists themselves consumed their surplus value, they had to have a corresponding money reserve in hand, the analysis of simple reproduction already having proved that the capitalist class must itself put into circulation the money needed for the realisation of their surplus value. Now, instead of consumer goods, the capitalist class, or rather B, B', and B'', buy an equivalent amount of means of production in order to expand their production. In this way, money to the same value is accumulated in the hands of the other capitalist group, viz. A, A', A'', etc.

‘This hoarding ... does not in any way imply an addition to the wealth in precious metals, but only a change of function on the part of money previously circulating. A while ago it served as a medium of circulation, now it serves as a hoard, as a virtual additional money-capital in process of formation.’

And that is that! Yet this way out of the difficulty is open to us only on one condition, and that is not far to seek: Marx here takes accumulation in its first rudiments, in statu nascendi, as it begins to evolve from simple reproduction. In respect of the amount of value, production is not yet enlarged, it has only been rearranged so that its material elements are grouped in a different way. That the sources of money also seem adequate is therefore not surprising. This solution, however, is only true for one specific moment, the period of transition from simple reproduction to enlarged reproduction – in short, a moment that has no reference to reality and can only be conceived speculatively. Once accumulation has been established for some time, when increasing amounts of value are thrown upon the market in every period of production, buyers for these additional values cannot fail to become a problem. And on this point the proffered solution breaks down. For that matter, it was never more than a seeming solution, not a real one. On closer scrutiny, it fails us even at the precise instant it appears to have smoothed the way for us. For if we take accumulation just at the very moment of its emergence from simple reproduction, the prime condition it demands is a decrease in the consumption of the capitalist class. No sooner have we discovered a way to expand reproduction with the means of circulation already at hand, than we find previous consumers trickling away at the same rate. What, then, is the good of expanding production; who is there able to buy from B, B' and B'' this increased amount of products which they could turn out only by denying themselves the money they need for buying new means of production from A, A' and A''?

That solution, we see, was a mere illusion – the difficulty still persists. Marx himself at once re-opens the question where B, B' and B'' get the money to buy the surplus product of A, A' and A''.

‘To the extent that the products created by B, B', B'', etc., (I) re-enter in their natural form into their own process, it goes without saying that a corresponding portion of their own surplus-product is transferred directly (without any intervention of circulation) to their productive capital and becomes an element of additional constant capital. To the same extent they do not help to convert any surplus-product of A, A', A'', etc., (I) into money. Aside from this, where does the money come from? We know that they have formed their hoard in the same way as A, A', etc., by the sale of their respective surplus products. Now they have arrived at the point where their accumulated hoard of virtual money-capital is to enter effectually upon its function as additional money-capital. But this is merely turning around in a circle. The question still remains: Where does the money come from, which the various B’s (I) withdrew from the circulation and accumulated?’

His prompt reply again seems surprisingly simple:

‘Now we know from the analysis of simple reproduction, that the capitalists of I and II must have a certain amount of ready money in their hands, in order to be able to dispose of their surplus products. In that case, the money which served only for the spending of revenue in articles of consumption returned to the capitalists in the same measure in which the advanced it for the purpose of disposing of their commodities. Here the same money reappears, but in a different function. The A’s and B’s supply one another alternately with the money for converting their surplus-product into virtual additional capital, and throw the newly formed money-capital alternately into circulation as a medium of purchase.’

That is harking back to simple reproduction all over again. It is quite true, of course, that the capitalists A and the capitalists B are constantly accumulating a hoard of money bit by bit so as to be able to renew their constant (fixed) capital from time to time, and in this way they really are assisting one another in realising their products. Yet this accumulating hoard does not drop from the clouds – it is simply a natural precipitation of the fixed capital that is (in terms of value) continually being transferred in installments to the products which are then one by one realised in the process of sale. Owing to its very nature, the accumulated hoard can only cover the renewal of the old capital; there cannot possibly be enough to serve further for purchasing additional constant capital. That means that we are still within the limits of simple reproduction. Perhaps, though, that part of the medium of circulation which hitherto served the capitalists for their personal consumption, and is now to be capitalised, becomes a new source of additional money? For that to be true, however, we should have to be back at the unique and fleeting moment that has no more than theoretical existence – the period of transition from simple to enlarged reproduction. Beyond this gap accumulation cannot proceed – we are in truth going round in circles.

So the capitalist hoarding will not do as a way out of our difficulties. This conclusion should not come as a surprise, since the very exposition of the difficulty was misleading. It is not the source of money that constitutes the problem of accumulation, but the source of the demand for the additional goods produced by the capitalised surplus value; not a technical hitch in the circulation of money but an economic problem pertaining to the reproduction of the total social capital. Quite apart from the question which had claimed Marx’s entire attention so far, namely where B, B', etc., (I), get the money to buy additional means of production from A, A', etc., (I), successful accumulation will inevitably have to face a far more serious problem: to whom can B, B', etc., now sell their increased surplus product? Marx finally makes them sell their products to one another:

‘It may be that the different B, B', B'', etc., (I), whose virtual new capital enters upon its active function, are compelled to buy from one another their product (portions of their surplus product) or to sell it to one another. In that case, the money advanced by them for the circulation of their surplus-product flows back under normal conditions to the different B’s in the same proportion in which they advanced it for the circulation of their respective commodities.’

‘In that case’ – the problem simply has not been solved, for after all B, B', and B'' have not cut down on their consumption and expanded their production just so as to buy each other’s increased product, i.e. means of production. Even that, incidentally, would only be possible to a very limited extent Marx assumes a certain division of labour in Department I itself: the A’s turn out means of production for making producer goods and the B’s means of production for making consumer goods, which is as much as to say that, though the product of A, A', etc., need never leave Department I, the product of B, B', etc., is by its natural form predestined from the first for Department II. Already the accumulation of B, B', etc., it follows, must lead us to circulation between Departments I and II. Thus Marx’s analysis itself confirms that, if Department I is to accumulate, the department for means of consumption must, in the last resort, increase its immediate or mediate demand for means of production, and so it is to Department II and its capitalists that we must look for buyers for the additional product turned out by Department I.

Sure enough, Marx’s second attack on the problem takes up from there: the demand of capitalists in Department II for additional means of production. Such a demand inevitably implies that the constant capital IIc is in process of expanding. This is where the difficulty becomes truly formidable:

‘Take it now that A(I) converts his surplus-product into gold by selling it to a capitalist B in Department II. This can be done only by the sale of means of production on the part of A(I) to B(II) without a subsequent purchase of articles of consumption, in other words, only by a one-sided sale on A’s part. Now we have seen that IIc cannot be converted into the natural form of productive constant capital unless not only Iv but also at least a portion of Is, is exchanged for a portion of IIc, which IIc exists in the form of articles of consumption. But now that A has converted his Is into gold by making this exchange impossible and withdrawing the money obtained from IIc out of circulation, instead of spending it for articles of consumption of IIc, there is indeed on the part of A(I) a formation of additional virtual money-capital, but on the other hand there is a corresponding portion of the value of the constant capital B(II) held in the form of commodity-capital, unable to transform itself into natural productive constant capital. In other words, a portion of the commodities of B(II), and at that a portion which must be sold if he wishes to reconvert his entire constant capital into its productive form, has become unsaleable. To that extent, there is an overproduction which clogs reproduction, even on the same scale.’

Department I’s efforts to accumulate by selling its additional product to Department II have met with an unlooked-for result: a deficit for the capitalists of Department II serious enough to prevent even simple reproduction on the old scale.

Having got to this crucial point, Marx seeks to lay bare the root of the problem by careful and detailed exposition:

‘Let us now take a closer look at the accumulation in Department II. The first difficulty with reference to IIc, that is to say the conversion of an element of the commodity-capital of II into the natural form of constant capital of II, concerns simple reproduction. Let us take the formula previously used. (1,000v + 1,000s) I are exchanged for 2,000 IIc. Now, if one half of the surplus-product of I, or 500s, is reincorporated in Department I as constant capital, then this portion, being detained in Department I, cannot take the place of any portion of IIc. Instead of being converted into articles of consumption, it is made to serve as an additional means of production in Department I itself ... It cannot perform this function simultaneously in I and II. The capitalist cannot spend the value of his surplus product for articles of consumption, and at the same time consume the surplus-product itself productively, by incorporating it in his productive capital. Instead of 2,000 I(v + s), only 1,500 are exchangeable for 2,000 IIc, namely 1,000v + 500s of I. But 500 Ic cannot be reconverted from the form of commodities into productive constant capital of II.’

By now, hardly anybody could fail to be convinced that the difficulty is real, but we have not taken a single step nearer a solution. This, incidentally, is where Marx has to do penance for his ill-advised continual recourse in an earlier over-simplification, to a fictitious moment of transition – in order to elucidate the problem of accumulation – from simple reproduction to enlarged reproduction, making his major premise accumulation at its very inception, in its feeble infancy instead of its vigorous stride. There was something to be said, at least, for this fiction, so long as it was just a question of accumulation within Department I. The capitalists of Department I, who denied themselves part of what they had been wont to consume, at once had a new hoard of money in hand with which they could start capitalisation. But when it comes to Department II, the same fiction only piles on the difficulties. The ‘abstinence’ of the capitalists in Department I here finds expression in a painful loss of consumers for whose expected demand production had largely been calculated. Since the capitalists of Department II, on whom we tried the experiment whether they might not possibly be the long-sought buyers of the additional product of accumulation in Department I, are themselves in sore straits – not knowing as yet where to go with their own unsold product – they are even less likely to be of any help to us. There is no shutting our eyes to the fact that an attempt to make one group of capitalists accumulate at the expense of the other is bound to get involved in glaring inconsistencies.

Yet another attempt to get round the difficulty is subsequently mentioned by Marx who at once rejects it as a subterfuge. The unmarketable surplus value in Department II, that is the result of accumulation in Department I might be considered a reserve of commodities the society is going to need in the course of the following year. This interpretation Marx counters with his usual thoroughness:

‘(1) ... the forming of such supplies and the necessity for it applies to all capitalists, those of I as well as of II. Considering them in their capacity as sellers of commodities, they differ only by the fact that they sell different kinds of commodities. A supply of commodities of II implies a previous supply of commodities of I. If we neglect this supply on the one side, we must also do so on the other. But if we count them in on both sides, the problem is not altered in any way. (2) Just as this year closes on the side of II with a supply of commodities for the next year, so it was opened by a supply of commodities on the same side, taken over from last year. In the analysis of annual reproduction, reduced to its abstract form, we must therefore strike it out at both ends. By leaving this year in possession of its entire production, including the supply held for next year, we take from it the supply of commodities transferred from last year, and thus we have actually to deal with the aggregate product of an average year as the object of our analysis. (3) The simple circumstance that the difficulty which must be overcome did not show itself in the analysis of simple reproduction proves that it is a specific phenomenon due merely to the different arrangement of the elements of Department I with a view to reproduction, an arrangement without which reproduction on an expanded scale cannot take place at all.’

The last remark, be it noted, is equally damaging to his own earlier attempt at resolving the specific difficulties of accumulation by moments pertaining to simple reproduction, viz. the formation of a hoard consequent upon the gradual turnover of the fixed capital in the hands of the capitalists which was previously adduced as the explanation of accumulation in Department I.

Marx then proceeds to set out enlarged reproduction in the form of diagrams. But no sooner does he begin to analyse his diagram, than the same difficulty crops up anew in a slightly different guise. Assuming that the capitalists of Department II must for their part convert 140s into constant capital so as to make accumulation possible for the others, he asks:

‘Therefore Department II must buy 140s for cash without recovering this money by a subsequent sale of its commodities to I. And this is a process which is continually repeated in every new annual production, so far as it is reproduction on an enlarged scale. Where does II get the money for this?’

In the following, Marx tries out various approaches in order to discover this source. First the expenditure on variable capital by the capitalists in Department II is closely scrutinised. True, it exists in the form of money; but its proper function is the purchase of labour power, and it cannot possibly be withdrawn and made to serve, maybe, for purchasing additional means of production.

‘This continually repeated departure from and return to the starting point, the pocket of the capitalist, does not add in any way to the money moving in this cycle. This, then, is not a source of the accumulation of money.’

Marx then considers all conceivable dodges, only to show them up as evading the issue.

‘But stop!’ he claims. ‘Isn’t there a chance to make a: little profit?’

He considers whether the capitalists could not manage to save a little of the variable capital by depressing the wages of the workers below the normal average and thus to tap a new source of money for accumulation. A mere flick of his fingers, of course, disposes of this notion:

‘But it must not be forgotten that the wages actually paid (which determine the magnitude of the variable capital under normal conditions) do not depend on the benevolence of the capitalists, but must be paid under certain conditions. This does away with this expedient as a source of additional money.’

He even explores what hidden methods there may be of ‘saving’ on the variable capital, such as the truck system, frauds, etc., only to comment finally: ‘This is the same operation as under (1), only disguised and carried out by a detour. Therefore it must likewise be rejected as an explanation of the present problem.’

All efforts to make the variable capital yield a new source of money for the purpose of accumulation are thus unrewarded: ‘In short, we cannot accomplish anything with 376 IIv for the solution of this question.’

Marx next turns to the cash reserves which the capitalists in Department II keep for the circulation of their own consumption and investigates whether none of this money, can be diverted to the purposes of capitalisation. Yet this, he allows, is ‘still more impossible’.

‘Here the capitalists of the same department are standing face to face, heavily buying and selling their articles of consumption. The money required for these transactions serves only as a medium of circulation and must flow back to the interested: parties in the normal course of things, to the extent that they have advanced it to the circulation, in order to pass again and again over the same course.’

The next attempt to follow belongs, as was to have been expected, to the category of those ‘subterfuges’ which Marx ruthlessly refutes: the attempt to explain that money-capital can be formed in the hands of one capitalist group in Department II by defrauding the other capitalists within the same department – viz. in the process of the mutual selling of consumer goods. No time need be wasted on this little effort.

Then comes a more sober proposition: ‘Or, a certain portion of IIs, represented by necessities of life, might be directly converted into new variable capital of Department II.’

It is not quite clear how this can help us over the hurdle, help to get accumulation going. For one thing, the formation of additional variable capital in Department II is not much use if we have no additional constant capital for this department, being in fact engaged on the task of finding it. For another thing, our present concern is to see if we can find in Department II a source of money for the purchase of additional means of production from I, and Department II’s problem how to place its own additional product in some way or other in the process of production is beside the point. Further, is the implication that the respective consumer goods should be used ‘direct’, i.e. without the mediation of money, in the production of Department II, so that the corresponding amount of money can be diverted from variable capital to the purpose of accumulation? If so, we could not accept the solution. Under normal conditions of capitalist production, the remuneration of the workers by consumer goods direct is precluded, one of the corner-stones of capitalist economy being the money-form of the variable capital, the independent transaction between the worker as buyer of commodities and producer of consumer goods. Marx himself stresses this point in another context:

‘We know that the actual variable capital consists of labour power, and therefore the additional must consist of the same thing. It is not the capitalist of I who among other things buys from II a supply of necessities of life for his labourers, or accumulates them for this purpose, as the slave holder had to do. It is the labourers themselves who trade with II.’

And that goes for the capitalists of Department II just as much as for those of Department I, thus disposing of Marx’s last effort.

Marx ends up by referring us to the last part of Capital, volume ii, chapter 21, the ‘Concluding Remarks sub iv, as Engels has called them. Here we find the curt explanation:

‘The original source for the money of II is v + s of the gold producers in Department I, exchanged for a portion of IIc. Only to the extent that the gold producer accumulates surplus value or converts it into means of production of I, in other words, to the extent that he expands his production, does his v + s stay out of Department II. On the other hand, to the extent that the accumulation of gold on the part of the gold producer himself leads ultimately to an expansion of production, a portion of the surplus-value of gold production not spent as revenue passes into Department II as additional variable capital of the gold producers, promotes, the accumulation of new hoards in II and supplies it with means by which to buy from I without having to sell to it immediately.’

After the breakdown of all conceivable attempts at explaining accumulation, therefore, after chasing from pillar to post, from A I to B I, and from B I to A II, we are made to fall back in the end on the very gold producer, recourse to whom Marx had at the outset of his analysis branded as ‘absurd’. The analysis of the reproductive process, and the second volume of Capital finally comes to a close without having provided the long sought-for solution to our difficulty.

9. The Difficulty Viewed from the Angle of the Process of Circulation

THE flaw in Marx’s analysis is, in our opinion, the misguided formulation of the problem as a mere question of ‘the sources of money’, whereas the real issue is the effective demand, the use made of goods, not the source of the money which is paid for them. As to money as a means of circulation: when considering the reproductive process as a whole, we must assume that capitalist society must always dispose of money, or a substitute, in just that quantity that is needed for its process of circulation. What has to be explained is the great social transaction of exchange, caused by real economic needs. While it is important to remember that capitalist surplus value must invariably pass through the money stage before it can be accumulated, we must nevertheless try to track down the economic demand for the surplus product, quite apart from the puzzle where the money comes from. As Marx himself says in another passage:

‘The money on one side in that case calls forth expanded reproduction on the other, because the possibility for it exists without the money. For money in itself is not an element of actual reproduction.’

And in a different context, Marx actually shows the question about the ‘sources of money’ to be a completely barren formulation of the problem of accumulation.

In fact, he had come up against this difficulty once before when examining the process of circulation. Still dealing with simple reproduction, he had asked, in connection with the circulation of the surplus value:

‘But the commodity capital must be monetised before its conversion into productive capital, or before the surplus-value contained in it can be spent. Where does the money for this purpose come from? This question seems difficult at the first glance, and neither Tooke nor anyone else has answered it so far.’

And he was then quite uncompromising about getting to the root of the matter:

‘The circulating capital of 500 p.st. advanced in the form economy-capital, whatever may be its period of turn-over, may now stand for the total capital of society, that is to say, of the capitalist class. Let the surplus value be 100 p.st. How can the entire capitalist class manage to draw continually 600 p.st out of the circulation, when they continually throw only 500 p.st. into it?’

All that, mind you, refers to simple reproduction, where the entire surplus value is used for the personal consumption of the capitalist class. The question should therefore from the outset have been put more precisely in this form: how can the capitalists secure for themselves, consumer goods to the amount of £100 surplus value on top of putting £500 into circulation for constant and variable capital? It is immediately obvious that those £500 which, in form capital, always serve to buy means of production and to pay the workers, cannot simultaneously defray the expense of the capitalists’ personal consumption. Where, then, does the additional money come from? – the £100 the capitalists need to realise their own surplus value? Thus all theoretical dodges one might devise for this point are summarily disposed of by Marx right away:

‘It should not be attempted to avoid this difficulty by plausible subterfuges.

‘For instance: So far as the constant circulating capital is concerned, it is obvious that not all invest it simultaneously. While the capitalist A sells his commodities so that his advanced capital assumes the form of money, there is on the other hand, the available money-capital of the buyer B which assumes the form of his means of production which A is just producing. The same transaction, which restores that of B to its productive form, transforms it from money into materials of production and labour-power; the same amount of money serves in the two-sided process as in every simple purchase C–M. On the other hand, when A reconverts his money into means of production, he buys from C, and this man pays B with it, etc., and thus the transaction would be explained.

‘But none of the laws referring to the quantity of the circulating money, which have been analysed in the circulation of commodities (vol.i, chap.iii), are in any way changed by the capitalist character of the process of production.

‘Hence, when we have said that the circulating capital of society, to be advanced in the form of money, amounts to 500 p.st., we have already accounted for the fact that this is on the one hand the sum simultaneously advanced, and that, on the other hand, it sets in motion more productive capital than 500 p.st., because it serves alternately as the money fund of different productive capitals. This mode of explanation, then, assumes that money as existing whose existence it is called upon to explain.

‘It may be furthermore said: Capitalist A produces articles which capitalist B consumes unproductively, individually. The money of B therefore monetises the commodity-capital of A, and thus the same amount serves for the monetisation of the surplus-value of B and the circulating constant capital of A. But in that case, the solution of the question to be solved is still more directly assumed, the question: Whence does B get the money for the payment of his revenue? How does he himself monetise this surplus-portion of his product?

‘It might also be answered that that portion of the circulating variable capital, which A continually advances to his labourers, flows back to him continually from the circulation, and only an alternating part stays continually tied up for the payment of wages. But a certain time elapses between the expenditure and the reflux, and meanwhile the money paid out for wages might, among other uses, serve for the monetisation of surplus-value. But we know, in the first place, that the greater the time, the greater must be the supply of money which the capitalist A must keep continually in reserve. In the second place, the labourer spends the money, buys commodities for it, and thus monetises to that extent the surplus-value contained in them. Without penetrating any further into the question at this point, it is sufficient to say that the consumption of the entire capitalist class, and of the unproductive persons dependent upon it, keeps step with that of the labouring class; so that, simultaneously with the money thrown into circulation by the labouring class, the capitalists must throw money into it, in order to spend their surplus-value as revenue. Hence money must be withdrawn from circulation for it. This explanation would merely reduce the quantity of money required, but not do away with it.

‘Finally it might be said: A large amount of money is continually thrown into circulation when fixed capital is first invested, and it is not recovered from the circulation until after the lapse of years, by him who threw it into circulation. May not this sum suffice to monetise the surplus-value? The answer to this is that the employment as fixed capital, if not by him who threw it into circulation, then by some one else, is probably implied in the sum of 500 p.st. (which includes the formation of a hoard for needed reserve funds). Besides, it is already assumed in the amount expended for the purchase of products serving as fixed capital, that the surplus-value contained in them is also paid, and the question is precisely, where the money for this purpose came from.’

This parting shot, by the way, is particularly noteworthy in that Marx here expressly repudiates the attempt to explain realisation of the surplus value, even in the case of simple reproduction, by means of a hoard, formed for the periodical renewal of fixed capital. Later on, with a view to realising the surplus value under the much more difficult conditions of accumulation he makes more than one tentative effort to substantiate an explanation of this type which he himself dismissed as a ‘plausible subterfuge’.

Then follows a solution which has a somewhat disconcerting ring:

‘The general reply has already been given: When a mass of commodities valued at x times 1,000 p.st. has to circulate, it changes absolutely nothing in the quantity of the money required for this circulation, whether this mass of commodities contains any surplus-value or not, and whether this mass of commodities has been produced capitalistically or not. In other words, the problem itself does not exist. All other conditions being given, such as velocity of circulation of money, etc., a definite sum of money is required in order to circulate the value of commodities worth x times 1,000 p.st., quite independently of the fact how much or how little of this value falls to the share of the, direct producers of these commodities. So far as any problem exists here, it coincides with the general problem: Where does all the money required for the circulation of the commodities of a certain country come from?’

The argument is quite sound. The answer to the general question about the origin of the money for putting a certain quantity of commodities into circulation within a country will also tell us where the money for circulating the surplus value comes from. The division of the bulk of value contained in these commodities into constant and variable capital, and surplus value, does not exist from the angle of the circulation of money – in this connection, it is quite meaningless. But it is only from the angle of the circulation of money, or of a simple commodity circulation, that the problem has no existence. Under the aspect of social reproduction as a whole, it is very real indeed; but it should not, of course, be put in that misleading form that brings us back to simple commodity circulation, where it has no meaning. We should not ask, accordingly: Where does the money required for realising the surplus value come from? but: Where are the consumers for this surplus value? It is they, for sure, who must have this money in hand in order to throw it into circulation. Thus, Marx himself; although he just now denied the problem to exist, keeps coming back to it time and again:

‘Now, there are only two points of departure: The capitalist and the labourer. All third classes of persons must either receive money for their services from these two classes, or, to the extent that they receive it without any equivalent services, they are joint owners of the surplus-value in the form of rent, interest, etc. The fact that the surplus-value does not all stay in the pocket of the industrial capitalist, but must be shared by him with other persons, has nothing to do with the present question. The question is: How does he maintain his surplus-value, not, how does he divide the money later after he has secured it? For the present case, the capitalist may as well be regarded as the sole owner of his surplus-value. As for the labourer it has already been said that he is but the secondary point of departure, while the capitalist is the primary starting point of the money thrown by the labourer into circulation. The money first advanced as variable capital is going through its second circulation, when the labourer spends it for the payment of means of subsistence.

‘The capitalist class, then, remains the sole point of departure of the circulation of money. If they need 400 p.st. for the payment of means of production, and 100 p.st. for the payment of labour-power, they throw 500 p.st. into circulation. But the surplus-value incorporated in the product with a rate of surplus value of 100 per cent, is equal to the value of 100 p.st. How can they continually draw 600 p.st. out of circulation, when they continually, throw only 100 p.st. into it? From nothing comes nothing. The capitalist class as a whole cannot draw out of circulation what was not previously in it.’

Marx further explodes another device which night conceivably be thought adequate to the problem, i.e. a more rapid turnover of money enabling a larger amount of value to circulate by means of a smaller amount of money. The dodge will not work, of course, since the velocity of money in circulation is already taken into account by equating the aggregate bulk of commodities with a certain number of pounds sterling. But, then at last we seem in sight of a proper solution:

‘Indeed, paradoxical as it may appear at first sight, it is the capitalist class itself that throws the money into circulation which serves for the realisation of the surplus-value incorporated in the commodities. But, mark well, it is not thrown into circulation as advanced money, not as capital. The capitalist class spends it for their individual consumption. The money is not advanced by them, although they are the point of departure of its circulation.’

This lucid and comprehensive account is the best evidence that the problem is not just imaginary but very real. It provides a solution, not by disclosing a new ‘source of money’ for the realisation of the surplus value, but by pointing out at last the consumers of this surplus value. We are still, on Marx’s assumption, within the bounds of simple reproduction; the capitalist class, that is to say, use the whole of their surplus value for personal consumption. Since the capitalists are the consumers of surplus value, it is not so much a paradox as a truism that they must, in the nature of thing possess the money for appropriating the objects of consumption, the natural form of this surplus value. The circulatory transaction of exchange is the necessary consequence of the fact that the individual capitalist cannot immediately consume his individual surplus value, and accordingly the individual surplus product, as could, for instance, the employer of slave labour. As a rule the natural material form of the surplus product tends to preclude such use. The aggregate surplus value of the capitalists in general is, however, contained in the total social product – as long as there is simple reproduction – as expressed by a corresponding quantity of consumer goods for the capitalist class, just as the sum total of variable capital has its corresponding equivalent in the quantity of consumer goods for the working class, and as the constant capital of all individual capitalists taken together is represented by material means of production in an equivalent quantity. In order to exchange the unconsumable individual surplus values for a corresponding amount of consumer goods, a double transaction of commodity exchange is needed: first, the sale of one’s own surplus product and then the purchase of consumer goods out of the surplus product of society. These two transactions can only take place among members of the capitalist class, among individual capitalists, which means that their agent, the money, thereby merely changes hands as between one capitalist and another without ever being alienated from the capitalist class in general. Since simple reproduction inevitably implies the exchange of equivalents, one and the same amount of money can serve year by year for the circulation of the surplus value, and only an excess of zeal will inspire the further query: where does the money which mediates the capitalists’ own consumption come from in the first place? This question, however, reduces to a more general one: how did money capital initially come into the hands of the capitalists, that money capital of which they always retain a certain part for their personal consumption, apart from what they use for productive investment? Put in this way, however, the question belongs in the chapter of so-called ‘primitive accumulation’, i.e. the historical genesis of capital, going beyond the framework of an analysis of the process of circulation as well as of reproduction.

Thus the fact is clear and unequivocal – so long as we remain within the bounds of simple reproduction. Here the problem is solved by the premises themselves; in fact, the solution is already anticipated by the very concept of simple reproduction which indeed is based on the entire surplus value being consumed by the capitalist class. This implies that it must also be the latter who buy it, that is to say, individual capitalists must buy it from each other.

‘In the present case’, Marx says himself; ‘we had assumed, that the sum of money which the capitalist throws into circulation until the first surplus-value flows back to him, is exactly equal to the surplus-value which he is going to produce and monetise. This is obviously an arbitrary assumption, so far as the individual capitalist is concerned. But it must be correct when applied to the entire capitalist class, when simple reproduction is assumed. It expresses the same thing that this assumption does, namely, that the entire surplus-value is consumed unproductively, but it only, not any portion of the original capital stock.’

But simple reproduction on a capitalist basis is after all an imaginary quantity in economic theory: no more and no less legitimate, and quite as unavoidable as √−1 in mathematics. What is worse, it cannot offer any help at all with the problem of realising the surplus value in real life, i.e. with regard to enlarged reproduction or accumulation. Marx himself says so for a second time in the further development of his analysis.

Where does the money for realising the surplus value come from if there is accumulation, i.e. not consumption but capitalisation of part of the surplus value? Marx’s first answer is as follows:

‘In the first place, the additional money-capital required for the function of the increasing productive capital is supplied by that portion of the realised surplus-value which is thrown into circulation by the capitalists as money-capital, not as the money form of their revenue. The money is already present in the hands of the capitalists. Only its employment is different.’

Our investigation of the reproductive process has already made us familiar with this explanation, and we are equally familiar with its defects; for one thing, the answer rests on the moment of the first transition from simple reproduction to accumulation. The capitalists only yesterday consumed their entire surplus value, and thus had in hand an appropriate amount of money for their circulation. To-day they decide to ‘save’ part of the surplus value and to invest it productively instead of squandering it. Provided that material means of production were manufactured instead of luxury goods, they need only put part of their personal money fund to a different use. But the transition from simple reproduction to expanded reproduction is no less a theoretical fiction than simple reproduction of capital itself, for which reason Marx immediately goes on to say:

‘Now, by means of the additional productive capital, its product, an additional quantity of commodities, is thrown into circulation. Together with this additional quantity of commodities, a portion of the additional money required for its circulation is thrown into circulation, so far as the value of this mass of commodities is equal to that of the productive capital consumed in their production. This additional quantity of money has precisely been advanced as an additional money capital, and therefore it flows back to the capitalist through the turn-over of his capital. Here the same question reappears, which we met previously. Where does the additional money come from, by which the additional surplus-value now contained in the form of commodities is to be realised?’

The problem could not be put more precisely. But instead of a solution, there follows the surprising conclusion:

‘The general reply is again the same. The sum total of the prices of the commodities has been increased, not because the prices of a given quantity of commodities have risen, but because the mass of the commodities now circulating is greater than that of the previously circulating commodities, and because this increase has not been offset by a fall in prices. The additional money required for the circulation of this greater quantity of commodities of greater value must be secured, either by greater economy in the circulating quantity of money – whether by means of balancing payments, etc., or by some measure which accelerates the circulation of the same coins, – or by the transformation of money from the form of a hoard into that of a circulating medium.’

All this amounts to an exposition along these lines: under conditions of developing and growing accumulation, capitalist reproduction dumps ever larger masses of commodity values on the market. To put this commodity mass of a continually increasing value into circulation requires an ever larger amount of money. This increasing amount of money must be found somehow or other. All this is, no doubt, plausible and correct as far as it goes; but our problem is not solved, it: is merely wished away.

One thing or the other! Either we regard the aggregate social product in a capitalist economy simply as a mass, a conglomeration of commodities of a certain value, seeing under conditions of accumulation, a mere increase in this undifferentiated mass of commodities and in the bulk of its value. Then all we need say is that a corresponding quantity of money is required for circulating this bulk of value, that with an increasing bulk of value the quantity of money must also increase, unless this growth of value is offset by acceleration of; and economy in, the traffic. And the final question, where does all money originally come from, could then be answered on Marx’s recipe: from the gold mines. This, of course, is one way of looking at things, that of simple commodity circulation. But in that case there is no need to drag in concepts such as constant and variable capital, or surplus value, which have no place in simple commodity circulation, belonging essentially to the circulation of capitals and to social reproduction; nor is there need to inquire for sources of money for the realisation of the social surplus value under conditions of first simple, and then enlarged, reproduction. Under the aspect of simple commodity circulation puzzles of this kind are without meaning or content. But once these questions have been raised, once the course has been set for an investigation into the circulation of capitals and social reproduction, there can be no appealing to the sphere of simple commodity circulation, where there is no such problem at all; and consequently no solution to it. There can be no looking for the answer there, and then saying triumphantly that the problem has long been solved and in fact never really existed.

All this time, it appears, Marx has been tackling the problem from a wrong approach. No intelligent purpose can be served by asking for the source of the money needed to realise the surplus value. The question is rather where the demand can arise – to find an effective demand for the surplus value. If the problem had been put in this way at the start, no such long-winded detours would have been needed to show whether it can be solved or not. On the basis of simple reproduction, the matter is easy enough: since all surplus value is consumed by the capitalists, they themselves are the buyers and provide the full demand for the social surplus value, and by the same token they must also have the requisite cash in hand for circulation of the surplus value. But on this showing it is quite evident that under conditions of accumulation, i.e. of capitalisation of part of the surplus value, it cannot, ex hypothesi, be the capitalists themselves who buy the entire surplus value, that they cannot possibly realise it. True, if the capitalised surplus value is to be realised at all, money must be forthcoming in adequate quantifies for its realisation. But it is quite impossible that this money should come from the purse of the capitalist class itself. Just because accumulation is postulated, the capitalists cannot buy their surplus value themselves, even though they might, in abstracto, have the money to do so. But who else could provide the demand for the commodities incorporating the capitalised surplus value?

‘Apart from this class (the capitalists), there is, according to our assumption – the general and exclusive domination of capitalist production – no other class but the working class. All that the working class buys is equal to the sum total of its wages, equal to the sum total of the variable capital advanced by the entire capitalist class.’

The workers, then, are even less able than the capitalist class to realise the capitalised surplus value. Somebody must buy it, if the capitalists are still to be able to recover the capital they have accumulated and advanced; and yet – we cannot think of any buyers other than capitalists and workers. ‘How can the entire capitalist class accumulate money under such circumstances?’

Realisation of the surplus value outside the only two existing classes of society appears as indispensable as it looks impossible. The accumulation of capital has been caught in a vicious circle. At any rate, the second volume of Capital offers no way out.

If we should now ask why Marx’s Capital affords no solution to this important problem of the accumulation of capital, we must bear in mind above all that this second volume is not a finished whole but a manuscript that stops short half way through.

The external form of its last chapters in particular proves them to be in the nature of notes, intended to clear the author’s own mind, rather than final conclusions ready for the reader’s enlightenment. This fact is amply authenticated by the man best in the position to know: Friedrich Engels, who edited the second volume. In his introduction to the second volume he reports in detail on the conditions of the preliminary studies and the manuscripts Marx had left, which were to form the basis of this volume:

‘The mere enumeration of the manuscripts left by Marx as a basis for Volume II proves the unparalleled conscientiousness and strict self-criticism which he practised in his endeavour to fully elaborate his great economic discoveries before he published them. This self-criticism rarely permitted him to adapt his presentation of the subject, in content as well as in form, to his ever widening horizon, which he enlarged by incessant study.

‘The material ... consists of the following parts: First, a manuscript entitled A contribution to the Critique of Political Economy, containing 1,472 quarto pages in 23 divisions, written in the time from August 1861 to June 1863. It is a continuation of the work of the same title, the first volume of which appeared in Berlin, in 1859 ... This manuscript, valuable though it is, could not be used in the present edition of Volume II.

‘The manuscript next following in the order of time is that of Volume III ...

‘The period after the publication of Volume I, which is next in order, is represented by a collection of four manuscripts for Volume II, marked I-IV by Marx himself. Manuscript I (150 pages) presumably written in 1865 or 1867, is the first independent, but more or less fragmentary, elaboration of the questions now contained in Volume II. This manuscript is likewise unsuited for this edition. Manuscript III is partly a compilation of quotations and references to the manuscripts containing Marx’s extracts and comments, most of them relating to the first section of volume II, partly an elaboration of special points, particularly a critique of Adam Smith’s statements as to fixed and circulating capital and the source of profits; furthermore, in a discussion of the relations of the rate of surplus-value to the rate of profit, which belongs in Volume III. The references furnished little that was new, while the elaborations for Volumes II and III were rendered valueless through subsequent revisions and had to be ruled out for the greater part. Manuscript IV is an elaboration, ready for printing, of the first section and the first chapters of the second section of Volume II, and has been used in its proper place. Although it was found that this manuscript had been written earlier than Manuscript II, yet it was far more finished in form and could be used with advantage for the corresponding part of this volume. I had to add only a few supplementary parts of Manuscript II. This last manuscript is the only fairly completed elaboration of Volume II and dates from the year 1870. The notes for the final revision, which I shall mention immediately, say explicitly: “The second elaboration must be used as a basis.”

‘There is another interruption after 1870, due mainly to ill health. Marx employed this time in his customary way, that is to say he studied agronomics, agricultural conditions in America and especially Russia, the money market and banking institutions, and finally natural sciences, such as geology and physiology. Independent mathematical studies also form a large part of the numerous manuscripts of this period. In the beginning of 1877, Marx had recovered sufficiently to resume once more his chosen life’s work. The beginning of 1877 is marked by references and notes from the above named four manuscripts intended for a new elaboration of Volume II, the beginning of which is represented by Manuscript V (56 pages in folio). It comprises the first four chapters and is not very fully worked out. Essential points are treated in footnotes. The material is rather collected than sifted, but it is the last complete presentation of this most important first section. A preliminary attempt to prepare this part for the printer was made in Manuscript VI (after October 1877 and before July 1878), embracing 17 quarto pages, the greater part of the first chapter. A second and last attempt was made in Manuscript VII, dated July 2, 1878, and consisting of 7 pages in folio.

‘About this time Marx seems to have realised that he would never be able to complete the second and third volume in a manner satisfactory to himself, unless a complete revolution in his health took place. Manuscripts V-VIII show traces of hard struggles against depressing physical conditions far too frequently to be ignored. The most difficult part of the first section had been worked over in Manuscript V. The remainder of the first, and the entire second section, with the exception of Chapter 17, presented no great theoretical difficulties. But the third section, dealing with the reproduction and circulation of social capital, seemed to be very much in need of revision. Manuscript II, it must be pointed out, had first treated of this reproduction without regard to the circulation which is instrumental in effecting it, and then taken up the same question with regard to circulation. It was the intention of Marx to eliminate this section and to reconstruct it in such a way that it would conform to his wider grasp of the subject. This gave rise to Manuscript VIII, containing only 70 pages in quarto. A comparison with Section III, as printed after deducting the paragraphs inserted out, of Manuscript II, shows the amount of matter compressed by Marx into this space.

‘Manuscript VIII is likewise merely a preliminary presentation of the subject, and its main object was to ascertain and develop the new points of view not set forth in Manuscript 2, while those points were ignored about which there was nothing new to say. An essential part of Chapter 17, Section 2, which is more or less relevant to Section III, was at the same time drawn into this discussion and expanded. The logical sequence was frequently interrupted, the treatment of the subject was incomplete in various places, and especially the conclusion was very fragmentary. But Marx expressed as nearly as possible what he intended to say on the subject;

‘This is the material for Volume II, out of which I was supposed “to make something”, as Marx said to his daughter Eleanor shortly before his death.’.

We cannot but admire this ‘something’ which Engels managed to ‘make’ from material of such a kind. As far as our present problem is concerned, however, this detailed report makes it clear that no more than the first two of the three sections that make up volume 2 were anything like ready for print in the manuscripts Marx left: the section On the Circulation of Money and Commodity Capital and on The Causes of Circulation and the Turnover of Capital. The third section which treats of the reproduction of total capital is merely a collection of fragments which Marx himself considered to be ‘very much in need of revision’. Yet it is the last part of this section, i.e. chapter 21, On Accumulation and Enlarged Reproduction, which is of primary importance in the present context, and of the whole book this is the most incomplete. It comprises thirty five pages of print in all and breaks off right in the middle of the analysis.

Besides this extraneous circumstance, we would suggest another point of great influence. Marx’s investigation of the social reproductive process starts off, as we have seen, from the analysis of Adam Smith which came to grief, among other reasons, because of the erroneous doctrine that the price of all commodities is composed of v + s. Polemics against this dogma dominated Marx’s entire analysis of the reproductive process. He devoted all his attention to proving that the total capital of society must serve, not only for consumption to the full amount of the various sources of revenue, but also for renewal of the constant capital. And inasmuch as the purest theoretical form for this line of reasoning is given, not by enlarged reproduction, but by simple reproduction, Marx tends to consider reproduction mainly from a point of view that is the very opposite of accumulation, from the assumption that the entire surplus value is consumed by the capitalists. How greatly these polemics influenced his analysis is proved by his returning time and again in the course of his work to the attack on Adam Smith from the most various angles. So already in volume i, the following pages are devoted to it: vol.i, sect.7, chap.24, (2), pp.588-602, and in vol. ii, pp.417-56, p.473, pp.504-8, and pp.554f.

Marx again takes up the question of total reproduction in volume 3 but from the start becomes once more involved with the problem set by Smith to which he devotes the whole of his 49th chapter and most of chapter 50 (pp. 968-92 and 9921022). Finally, in Theorien über den Mehrwert, we again find detailed polemics against Smith’s dogma: pp.264-253 in vol.i, and pp.92, 95, 126, 233, and 262 in vol.ii, part 2. Marx repeatedly stressed and emphasised the fact that he considered replacement of the constant capital from the aggregate social product the most difficult and important problem of reproduction. The other problem, that of accumulation, i.e. realisation of the surplus value for the purpose of capitalisation, was thus pushed into the background, so that in the end Marx hardly touched upon it.

This problem being of such paramount importance for capitalist economy, it is not surprising that bourgeois economists have dealt with it again and again. Attempts to grapple with this vital question for capitalist economy, with the question whether capital accumulation is possible in practice, come up time and again in the history of economic theory. To these historical attempts, before and after Marx, at solving this problem we shall now turn.