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Title: The Accumulation of Capital

Author: Rosa Luxemburg

Author of introduction, etc.: Joan Robinson

Translator: Agnes Schwarzschild

Release date: November 19, 2012 [eBook #41405]
Most recently updated: October 23, 2024

Language: English

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*** START OF THE PROJECT GUTENBERG EBOOK THE
ACCUMULATION OF CAPITAL ***

[Transcriber’s notes:
Missing page numbers represent blank pages, excepting Page 218 which consists

entirely of Footnote 221.
Inconsistent hyphenation retained. A full list of errors that have been changed can be
found at the end.]

RARE MASTERPIECES OF PHILOSOPHY
AND SCIENCE
EDITED BY DR. W. STARK

★

THE ACCUMULATION OF
CAPITAL
PUBLISHED ON THE LOUIS STERN MEMORIAL FUND

THE ACCUMULATION OF
CAPITAL
by
ROSA LUXEMBURG

translated from the German
by
AGNES SCHWARZSCHILD
(doctor iuris)

With an Introduction
by

JOAN ROBINSON

NEW HAVEN
YALE UNIVERSITY PRESS
1951

THIS TRANSLATION FIRST PUBLISHED
IN THE UNITED STATES
BY YALE UNIVERSITY PRESS
NEW HAVEN CONNECTICUT
DESIGNED BY SEÁN JENNETT
AND PRINTED IN GREAT BRITAIN
BY BUTLER AND TANNER LTD
LONDON AND FROME

CONTENTS
TRANSLATOR’S NOTE page 7
A NOTE ON ROSA LUXEMBURG 9
INTRODUCTION 13

SECTION ONE
THE PROBLEM OF REPRODUCTION
page 31
I. THE OBJECT OF OUR INVESTIGATION
II. QUESNAY’S AND ADAM SMITH’S ANALYSES OF THE
48
PROCESS OF REPRODUCTION
III. A CRITICISM OF SMITH’S ANALYSIS 64
IV. MARX’S SCHEME OF SIMPLE REPRODUCTION 76
V. THE CIRCULATION OF MONEY 93
VI. ENLARGED REPRODUCTION 107
VII. ANALYSIS OF MARX’S DIAGRAM OF ENLARGED
120
REPRODUCTION
VIII. MARX’S ATTEMPT TO RESOLVE THE DIFFICULTY 139
IX. THE DIFFICULTY VIEWED FROM THE ANGLE OF THE
155
PROCESS OF CIRCULATION

SECTION TWO
HISTORICAL EXPOSITION OF THE PROBLEM

FIRST ROUND
Sismondi-Malthus v. Say-Ricardo, MacCulloch
page 173
X. SISMONDI’S THEORY OF REPRODUCTION
XI. MACCULLOCH v. SISMONDI 191
XII. RICARDO v. SISMONDI 203
XIII. SAY v. SISMONDI 211

XIV. MALTHUS 219

SECOND ROUND
The Controversy between Rodbertus and von Kirchmann
page 227
XV. V. KIRCHMANN’S THEORY OF REPRODUCTION
XVI. RODBERTUS’ CRITICISM OF THE CLASSICAL
238
SCHOOL
XVII. RODBERTUS’ ANALYSIS OF REPRODUCTION 252

THIRD ROUND
Struve—Bulgakov—Tugan Baranovski v. Vorontsov—Nikolayon
page 271
XVIII. A NEW VERSION OF THE PROBLEM
XIX. VORONTSOV AND HIS ‘SURPLUS’ 276
XX. NIKOLAYON 284
XXI. STRUVE’S ‘THIRD PERSONS’ AND ‘THREE WORLD
292
EMPIRES’
XXII. BULGAKOV AND HIS COMPLETION OF MARX’S
298
ANALYSIS
XXIII. TUGAN BARANOVSKI AND HIS ‘LACK OF
311
PROPORTION’
XXIV. THE END OF RUSSIAN ‘LEGALIST’ MARXISM 324

SECTION THREE
THE HISTORICAL CONDITIONS OF ACCUMULATION

XXV. CONTRADICTIONS WITHIN THE DIAGRAM OF page 329
ENLARGED REPRODUCTION
XXVI. THE REPRODUCTION OF CAPITAL AND ITS SOCIAL
348
SETTING
XXVII. THE STRUGGLE AGAINST NATURAL ECONOMY 368
XXVIII. THE INTRODUCTION OF COMMODITY ECONOMY 386
XXIX. THE STRUGGLE AGAINST PEASANT ECONOMY 395
XXX. INTERNATIONAL LOANS 419

XXXI. PROTECTIVE TARIFFS AND ACCUMULATION 446
XXXII. MILITARISM AS A PROVINCE OF ACCUMULATION 454
INDEX 469

TRANSLATOR’S NOTE
This is an original translation not only of the main body of the work but
also of a number of quotations from foreign authors. Page references thus
usually indicate the original foreign sources.
In so far as possible, however, I have availed myself of existing translations
and have referred to the following standard works:
Karl Marx: Capital, vol. i (transl. by Moore-Aveling, London, 1920); vol. ii
(transl. by E. Untermann, Chicago, 1907); vol. iii (transl. by E.
Untermann, Chicago, 1909)
The Poverty of Philosophy (translator’s name not given, London, 1936).
Sismondi’s introduction to the second edition of Nouveaux Principes is
quoted from M. Mignet’s translation of selected passages by Sismondi,
entitled Political Economy and the Philosophy of Government, London,
1847. No English translation exists of Marx’s Theorien über den Mehrwert.
Unfortunately, not all the West European texts, and none of the Russian—
except Engels’ correspondence with Nikolayon—were accessible to me,
and I regret having been unable to trace some quotations and check up on
others. In such cases, the English version follows the German text and will
at least bring out the point the author wanted to make.
To save the reader grappling with unfamiliar concepts, I have converted
foreign currencies and measures into their English equivalents, at the
following rates:
20 marks—25 francs—$5—£1 (gold standard); 1 hectare—(roughly) 2·5
acres; 1 kilometre—5⁄8 mile.
I am glad of this opportunity to express my gratitude to Dr. W. Stark and
Mrs. J. Robinson for the helpful criticism and appreciation with which my
work has met.
AGNES SCHWARZSCHILD

A NOTE ON ROSA LUXEMBURG
Rosa Luxemburg was born on 5 March 1870, at Zamosc, a little town of
Russian Poland, not far from the city of Lublin. She came from a fairly
well-to-do family of Jewish merchants, and soon showed the two
outstanding traits which were to characterise all her life and work: a high
degree of intelligence, and a burning thirst for social justice which led her,
while still a schoolgirl, into the revolutionary camp. Partly to escape the
Russian police, partly to complete her education, she went to Zurich and
studied there the sciences of law and economics. Her doctoral dissertation
dealt with the industrial development of Poland and showed up the vital
integration of Polish industry with the wider economic system of
metropolitan Russia. It was a work not only of considerable promise, but
already of solid and substantial achievement.
Her doctorate won, Rosa Luxemburg looked around for a promising field of
work and decided to go to Germany, whose working-class movement
seemed destined to play a leading part in the future history of international
socialism. She settled there in 1896, and two years later contracted a formal
marriage with a German subject which secured her against the danger of
forcible deportation to Russia. Now, at that moment the German Social-
Democratic Party was in the throes of a serious crisis. In 1899, Eduard
Bernstein published his well-known work Die Voraussetzungen des
Sozialismus und die Aufgaben der Sozialdemokratie, which urged the party
to drop its revolutionary jargon and to work henceforth for tangible social
reforms within the given economic set-up, instead of trying to bring about
its final and forcible overthrow. This ‘reformism’ or ‘revisionism’ seemed to
Rosa Luxemburg a base as well as a foolish doctrine, and she published in
the same year a pamphlet Sozialreform oder Revolution? which dealt with
Bernstein’s ideas in no uncertain fashion. From this moment onward, she
was and remained one of the acknowledged leaders of the left wing within
the German working-class movement.
The events of the year 1905 gave Rosa Luxemburg a welcome opportunity
to demonstrate that revolution was to her more than a subject of purely

academic interest. As soon as the Russian masses began to move, she
hurried to Warsaw and threw herself into the fray. There followed a short
span of feverish activity, half a year’s imprisonment, and, finally, a return
journey to Berlin. The experiences of the Warsaw rising are reflected in a
book entitled Massenstreik, Partei und Gewerkschaften, which was
published in 1906. It recommends the general strike as the most effective
weapon in the struggle of the proletariat against the bourgeoisie.
The International Socialist Congress which met at Stuttgart in 1907
prepared and foreshadowed the sorry history of Rosa Luxemburg’s later
life. On that occasion she drafted, together with Lenin, a resolution which
demanded that the workers of the world should make any future war an
opportunity for the destruction of the capitalist system. Unlike so many
others, she stuck to her resolution when, seven years later, the time of
testing came. The result was that she had to spend nearly the whole of the
first World War in jail, either under punishment or in protective custody.
But imprisonment did not mean inactivity. In 1916, there appeared in
Switzerland her book Die Krise der Sozialdemokratie, which assailed the
leaders of the German labour party for their patriotic attitude and called the
masses to revolutionary action. The foundation of the Spartacus League in
1917, the germ cell out of which the Communist Party of Germany was
soon to develop, was vitally connected with the dissemination of Rosa
Luxemburg’s aggressive sentiments.
The collapse of the Kaiserreich on 11 November 1918, gave Rosa
Luxemburg her freedom and an undreamt-of range of opportunities. The
two months that followed must have been more crowded and more
colourful than all her previous life taken together. But the end of her career
was imminent. The fatal Spartacus week, an abortive rising of the Berlin
workers, led on 15 January 1919, to her arrest by a government composed
of former party comrades. During her removal to prison she was attacked
and severely beaten by soldiers belonging to the extreme right, a treatment
which she did not survive. Her body was recovered days later from a canal.
A type not unlike Trotsky, Rosa Luxemburg had her tender and sentimental
side, which comes to the surface in her correspondence, especially in the
Briefe aus dem Gefaengnis printed in 1922. As a thinker she showed
considerable honesty and independence of mind. The Accumulation of
Capital, first published in 1913, which is undoubtedly her finest

achievement, reveals her as that rarest of all rare phenomena—a Marxist
critical of Karl Marx.
W. STARK

INTRODUCTION
Academic economists have recently returned from the elaboration of static
equilibrium to the classical search for a dynamic model of a developing
economy. Rosa Luxemburg, neglected by Marxist and academic economists
alike, offers a theory of the dynamic development of capitalism which is of
the greatest interest. The book is one of considerable difficulty (apart from
the vivid historical chapters), and to those accustomed only to academic
analysis the difficulty is rendered well-nigh insurmountable by the Marxist
terminology in which it is expressed. The purpose of this preface is to
provide a glossary of terms, and to search for the main thread of the
argument (leaving the historical illustrations to speak for themselves) and
set it out in simpler language.
The result is no doubt too simple. The reader must sample for himself the
rich confusion in which the central core of analysis is imbedded, and must
judge for himself whether the core has been mishandled in the process of
digging it out.[1]
Our author takes her departure from the numerical examples for simple
reproduction (production with a constant stock of capital) and expanded
reproduction (production with capital accumulating) set out in volume ii of
Marx’s Capital. As she points out,[2] Marx completed the model for simple
reproduction, but the models for accumulation were left at his death in a
chaos of notes, and they are not really fit to bear all the weight she puts on
them (Heaven help us if posterity is to pore over all the backs of old
envelopes on which economists have jotted down numerical examples in
working out a piece of analysis). To follow her line of thought, however, it
is necessary to examine her version of Marx’s models closely, to see on
what assumptions they are based (explicitly or unconsciously) and to search
the assumptions for clues to the succeeding analysis.
To begin at the beginning—gross national income (for a closed economy)
for, say, a year, is written c + v + s; that is, constant capital, variable capital
and surplus. Variable capital, v, is the annual wages bill. Surplus, s, is
annual rent, interest, and net profit, so that v + s represents net national

income. (In this introduction surplus is used interchangeably with rent,
interest and net profit.) Constant capital, c, represents at the same time the
contribution which materials and capital equipment make to annual output,
and the cost of maintaining the stock of physical capital in existence at the
beginning of the year. When all commodities are selling at normal prices,
these two quantities are equal (normal prices are tacitly assumed always to
rule,[3] an assumption which is useful for long-period problems, though
treacherous when we have to deal with slumps and crises). Gross receipts
equal to c + v + s pass through the hands of the capitalists during the year,
of which they use an amount, c, to replace physical capital used up during
the year, so that c represents costs of raw materials and wear and tear and
amortisation of plant. An amount, v, is paid to workers and is consumed by
them (saving by workers is regarded as negligible[4] ). The surplus, s,
remains to the capitalists for their own consumption and for net saving. The
professional classes (civil servants, priests, prostitutes, etc.) are treated as
hangers-on of the capitalists, and their incomes do not appear, as they are
not regarded as producing value.[5] Expenditure upon them tends to lessen
the saving of capitalists, and their own expenditure and saving are treated as
expenditure and saving out of surplus.
In the model set out in chapter vi there is no technical progress (this is a
drastic simplification made deliberately[6] ) and the ratio of capital to labour
is constant (as the stock of capital increases employment increases in
proportion). Thus real output per worker employed is constant (hours of
work per year do not vary) and real wages per man are constant. It follows
that real surplus per man is also constant. So long as these assumptions are
retained Marxian value presents no problem. Value is the product of labour-
time. Value created per man-year is constant because hours of work are
constant. Real product per man year being constant, on the above
assumptions, the value of a unit of product is constant. For convenience we
may assume money wages per man constant. Then, on these assumptions,
both the money price of a unit of output and the value of a unit of money
are constant. This of course merely plasters over all the problems of
measurement connected with the use of index numbers, but provided that
the technique of production is unchanging, and normal prices are ruling,
those problems are not serious, and we can conduct the analysis in terms of

money values.[7] (Rosa Luxemburg regards it as a matter of indifference
whether we calculate in money or in value.[8] )
The assumption of constant real wages presents a difficulty which we may
notice in passing. The operation of the capitalist system is presumed to
depress the level of wages down to the limit set by the minimum
subsistence of the worker and his family. But how large a family? It would
be an extraordinary fluke if the average size of family supported by the
given wage of a worker were such as to provide for a rate of growth of
population exactly adjusted to the rate of accumulation of capital, and she
certainly does not hold that this is the case.[9] There is a reserve army of
labour standing by, ready to take employment when the capitalists offer it.
While they are unemployed the workers have no source of income, but are
kept alive by sharing in the consumption of the wages of friends and
relations who are in work.[10] When an increase in the stock of capital takes
place, more workers begin to earn wages, those formerly employed are
relieved of the burden of supporting some unemployed relations, and their
own consumption rises. Thus either they were living below the subsistence
minimum before, or they are above it now. We may cut this knot by simply
postulating that real wages per man are constant,[11] without asking why.
The important point for the analysis which we are examining is that when
employment increases the total consumption of the workers as a whole
increases by the amount of the wages received by the additional workers.[12]
We may now set out the model for simple reproduction—that is, annual
national income for an economy in which the stock of capital is kept intact
but not increased. All output is divided into two departments: I, producing
capital equipment and raw materials, (producers’ goods), and II, producing
consumption goods. Then we have
I: c1 + v1 + s1 = c1 + c2
II: c2 + v2 + s2 = v1 + v2 + s1 + s2
Thus
c2 = v1 + s1
This means that the net output of the producers’ goods department is equal
to the replacement of capital in the consumers’ goods department. The

whole surplus, as well as the whole of wages, is currently consumed.
Before proceeding to the model for accumulation there is a difficulty which
must be discussed. In the above model the stock of capital exists, so to
speak, off stage. Rosa Luxemburg is perfectly well aware of the relationship
between annual wear and tear of capital, which is part of c, and the stock of
fixed capital,[13] but as soon as she (following Marx) discusses
accumulation she equates the addition to the stock of capital made by
saving out of surplus in one year to the wear and tear of capital in the next
year. To make sense of this we must assume that all capital is consumed and
made good once a year. She seems to slip into this assumption inadvertently
at first, though later it is made explicit.[14] She also consciously postulates
that v represents the amount of capital which is paid out in wages in
advance of receipts from sales of the commodities produced. (This, as she
says, is the natural assumption to make for agricultural production, where
workers this year are paid from the proceeds of last year’s harvest.)[15] Thus
v represents at the same time the annual wages bill and the amount of
capital locked up in the wages fund, while c represents both the annual
amortisation of capital and the total stock of capital (other than the wages
fund). This is a simplification which is tiresome rather than helpful (it arises
from Marx’s ill-judged habit of writing s⁄(c + v) for the rate of profit on
capital), but it is no more than a simplification and does not invalidate the
rest of the analysis.
Another awkward assumption, which causes serious trouble later, is implicit
in the argument. Savings out of the surplus accruing in each department
(producers’ and consumers’ goods) are always invested in capital in the
same department. There is no reason to imagine that one capitalist is linked
to others in his own department more than to those in the other department,
so the conception seems to be that each capitalist invests his savings in his
own business. There is no lending by one capitalist to another and no
capitalist ever shifts his sphere of operations from one department to
another. This is a severe assumption to make even about the era before
limited liability was introduced, and becomes absurd afterwards. Moreover
it is incompatible with the postulate that the rate of profit on capital tends to
equality throughout the economy,[16] for the mechanism which equalises
profits is the flow of new investment, and the transfer of capital as

amortisation funds are re-invested, into more profitable lines of production
and away from less profitable lines.[17]
The assumption that there is no lending by one capitalist to another puts
limitation upon the model. Not only must the total rate of investment be
equal to the total of planned saving, but investment in each department must
be equal to saving in that department, and not only must the rate of increase
of capital lead to an increase of total output compatible with total demand,
but the increase in output of each department, dictated by the increase in
capital in that department, must be divided between consumers’ and
producers’ goods in proportions compatible with the demand for each,
dictated by the consumption and the investment plans in each department.
There is no difficulty, however, in choosing numbers which satisfy the
requirements of the model. The numerical examples derived from Marx’s
jottings are cumbersome and confusing, but a clear and simple model can
be constructed on the basis of the assumptions set out in chapter vii. In each
department, constant capital is four times variable capital.[18] (Constant
capital is the stock of raw materials which is turned over once a year;
variable capital is the wages bill, which is equal to the capital represented
by the wages fund.) Surplus is equal to variable capital (net income is
divided equally between wages and surplus) and half of surplus is saved.[19]
Savings are allotted between constant and variable capital in such a way as
to preserve the 4 to 1 ratio. Thus four-fifths of savings represents a demand
for producers’ goods, and is added to constant capital each year, and one-
fifth represents a demand for consumers’ goods, and is added to the wages
fund (variable capital). These ratios dictate the relationship between
Department I (producers’ goods) and Department II (consumers’ goods).[20]
It can easily be seen that the basic assumptions require that the output of
Department I must stand in the ratio of 11 to 4 to the output of Department
II.[21] We can now construct a much simpler model than those provided in
the text.
c v s Gross Output
Department I 4411 11 66
Department II 16 4 4 24
Total 90

In Department I, 5·5 units are saved (half of s) of which 4·4 are invested in
constant capital and 1·1 in variable capital. In Department II 2 units are
saved, 1·6 being added to constant and 0·4 to variable capital. The 66 units
of producers’ goods provide 44 + 4·4 constant capital for Department I and
16 + 1·6 constant capital for Department II and the 24 units of consumers’
goods provide 11 + 4 wages of labour already employed, 5·5 + 2 for
consumption out of surplus, and 1·1 + 0·4 addition to variable capital,
which provide for an addition to employment.
After the investment has been made, and the labour force increased in
proportion to the wages bill, we have
c v s Gross Output
Department I 48·4 12·1 12·1 72·6
Department II 17·6 4·4 4·4 26·4
Total 99
The two departments are now equipped to carry out another round of
investment at the prescribed rate, and the process of accumulation
continues. The ratios happen to have been chosen so that the total labour
force, and total gross output, increase by 10 per cent per annum.[22]
But all this, as Rosa Luxemburg remarks, is just arithmetic.[23] The only
point of substance which she deduces from Marx’s numerical examples is
that it is always Department I which takes the initiative. She maintains that
the capitalists in Department I decide how much producers’ goods to
produce, and that Department II has to arrange its affairs so as to absorb an
amount of producers’ goods which will fit in with their plans.[24] On the
face of it, this is obviously absurd. The arithmetic is perfectly neutral
between the two departments, and, as she herself shows, will serve equally
well for the imagined case of a socialist society where investment is
planned with a view to consumption.[25]
But behind all this rigmarole lies the real problem which she is trying to
formulate. Where does the demand come from which keeps accumulation
going?
She is not concerned with the problem, nowadays so familiar, of the balance
between saving and investment. Marx himself was aware of that problem,
as is seen in his analysis of disequilibrium under conditions of simple

reproduction (zero net investment).[26] When new fixed capital comes into
existence, part of gross receipts are set aside in amortisation funds without
any actual outlay being made on renewals. Then total demand falls short of
equilibrium output, and the system runs into a slump. Contrariwise, when a
burst of renewals falls due, in excess of the current rate of amortisation, a
boom sets in. For equilibrium it is necessary for the age composition of the
stock of capital to be such that current renewals just absorb current
amortisation funds. Similarly, when accumulation is taking place, current
investment must absorb current net saving.[27]
It is in connection with the problem of effective demand, in this sense, that
Marx brings gold-mining into the analysis. When real output expands at
constant money prices, the increasing total of money value of output
requires an increase in the stock of money in circulation (unless the velocity
of circulation rises appropriately). The capitalists therefore have to devote
part of their savings to increasing their holdings of cash (for there is no
borrowing). This causes a deficiency of effective demand. But the increase
in the quantity of money in circulation comes from newly mined gold, and
the expenditure of the gold mining industry upon the other departments just
makes up the deficiency in demand.[28]
Rosa Luxemburg garbles this argument considerably, and brushes it away as
beside the point. And it is beside the point that she is concerned with. She
does not admit the savings and investment problem, for she takes it for
granted that each individual act of saving out of surplus is accompanied by
a corresponding amount of real investment, and that every piece of
investment is financed by saving out of surplus of the same capitalist who
makes it.[29] What she appears to be concerned with is rather the
inducement to invest. What motive have the capitalists for enlarging their
stock of real capital?[30] How do they know that there will be demand for
the increased output of goods which the new capital will produce, so that
they can ‘capitalise’ their surplus in a profitable form? (On the purely
analytical plane her affinity seems to be with Hobson rather than Keynes.)
Needless to say, our author does not formulate the problem of the
inducement to invest in modern terminology, and the ambiguities and
contradictions in her exposition have left ample scope for her critics to
represent her theory as irredeemable nonsense.[31] But the most natural way

to read it is also the clearest. Investment can take place in an ever-
accumulating stock of capital only if the capitalists are assured of an ever-
expanding market for the goods which the capital will produce. On this
reading, the statement of the problem leads straightforwardly to the solution
propounded in the third Section of this book.
Marx has his own answer to the problem of inducement to invest, which she
refers to in the first chapter.[32] The pressure of competition forces each
individual capitalist to increase his capital in order to take advantage of
economies of large-scale production, for if he does not his rivals will, and
he will be undersold. Rosa Luxemburg does not discuss whether this
mechanism provides an adequate drive to keep accumulation going, but
looks for some prospective demand outside the circle of production. Here
the numerical examples, as she shows, fail to help. And this is in the nature
of the case, for (in modern jargon) the examples deal with ex post
quantities, while she is looking for ex ante prospects of increased demand
for commodities. If accumulation does take place, demand will absorb
output, as the model shows, but what is it that makes accumulation take
place?
In Section II our author sets out to find what answers have been given to her
problem. The analysis she has in mind is now broader than the strict
confines of the arithmetical model. Technical progress is going on, and the
output of an hour’s labour rises as time goes by. (The concept of value now
becomes treacherous, for the value of commodities is continuously falling.)
Real wages tend to be constant in terms of commodities, thus the value of
labour power is falling, and the share of surplus in net income is rising (s⁄v,
the rate of exploitation, is rising). The amount of saving in real terms is
therefore rising (she suggests later that the proportion of surplus saved rises
with surplus, in which case real savings increase all the more[33] ). The
problem is thus more formidable than appears in the model, for the
equilibrium rate of accumulation of capital, in real terms, is greater than in
the model, where the rate of exploitation is constant. At the same time the
proportion of constant to variable capital is rising. She regards this not as
something which is likely to happen for technical reasons, but as being
necessarily bound up with the very nature of technical progress. As
productivity increases, the amount of producers’ goods handled per man-
hour of labour increases; therefore, she says, the proportion of c to v must

increase.[34] This is an error. It arises from thinking of constant capital in
terms of goods, and contrasting it with variable capital in terms of value,
that is, hours of labour. She forgets Marx’s warning that, as progress takes
place, the value of the commodities making up constant capital also falls.
[35]
It is perfectly possible for productivity to increase without any increase
in the value of capital per man employed. This would occur if
improvements in the productivity of labour in making producers’ goods
kept pace with the productivity of labour in using producers’ goods to make
consumers’ goods (capital-saving inventions balance labour-saving
inventions, so that technical progress is ‘neutral’). However, we can easily
get out of this difficulty by postulating that as a matter of fact technical
progress is mainly labour-saving, or, a better term, capital-using, so that
capital per man employed is rising through time.
Rosa Luxemburg treats the authors whom she examines in Section II with a
good deal of sarcasm, and dismisses them all as useless. To some of the
points raised her answers seem scarcely adequate. For instance, Rodbertus
sees the source of all the troubles of capitalism in the falling proportion of
wages in national income.[36] He can be interpreted to refer to the
proportion of wages in gross income. In that case, she is right (on the
assumption of capital-using inventions) in arguing that a fall in the
proportion of wages is bound up with technical progress, and that the
proportion could be held constant only by stopping progress. He can also be
taken to refer to the share of wages in net output, and this is the more
natural reading. On this reading she argues that the fall in share of wages
(or rise in rate of exploitation) is necessary to prevent a fall in the rate of
profit on capital[37] (as capital per man employed rises, profit per man
employed must rise if profit per unit of capital is constant). But she does not
follow up the argument and inquire what rise in the rate of exploitation is
necessary to keep capitalism going (actually, the statisticians tell us, the
share of wages in net income has been fairly constant in modern industrial
economies[38] ). It is obvious that the less the rate of exploitation rises, the
smaller is the rise in the rate of saving which the system has to digest, while
the rise in real consumption by workers, which takes place when the rate of
exploitation rises more slowly than productivity in the consumption good
industries, creates an outlet for investment in productive capacity in those
industries. The horrors of capitalism, and the difficulties which it creates for

itself, are both exaggerated by the assumption of constant real-wage rates
and, although it would be impossible to defend Rodbertus’ position that a
constant rate of exploitation is all that is needed to put everything right, he
certainly makes a contribution to the argument which ought to be taken into
account.
Tugan-Baranovski also seems to be treated too lightly. His conception is
that the rising proportion of constant capital in both departments (machines
to make machines as well as machines to make consumers’ goods) provides
an outlet for accumulation, and that competition is the driving force which
keeps capitalists accumulating. Rosa Luxemburg is no doubt correct in
saying that his argument does not carry the analysis beyond the stage at
which Marx left it,[39] but he certainly elaborates a point which she seems
perversely to overlook. Her real objection to Tugan-Baranovski is that he
shows how, in certain conditions, capitalist accumulation might be self-
perpetuating, while she wishes to establish that the coming disintegration of
the capitalist system is not merely probable on the evidence, but is a logical
necessity.[40]
The authors such as Sismondi, Malthus and Vorontsov, who are groping
after the problem of equilibrium between saving and investment, are treated
with even less sympathy (though she has a kindly feeling for Sismondi, to
whom she considers that Marx gave too little recognition[41] ) for she is
either oblivious that there is such a problem, or regards it as trivial.[42] We
leave the discussion, at the end of Section II, at the same point where we
entered it, with the clue to the inducement to invest still to find.
Section III is broader, more vigorous and in general more rewarding than
the two preceding parts. It opens with a return to Marx’s model for a
capitalist system with accumulation going on. Our author then sets out a
fresh model allowing for technical progress. The rate of exploitation (the
ratio of surplus to wages) is rising, for real wages remain constant while
output per man increases. In the model the proportion of surplus saved is
assumed constant for simplicity, though in reality, she holds, it would tend
to rise with the real income of the capitalists.[43] The ratio of constant to
variable capital is rising for technical reasons. (The convention by which
the annual wear and tear of capital is identified with the stock of capital
now becomes a great impediment to clear thinking.) The arithmetical model

shows the system running into an impasse because the output of
Department I falls short of the requirements of constant capital in the two
departments taken together, while the output of Department II exceeds
consumption.[44] The method of argument is by no means rigorous. Nothing
follows from the fact that one particular numerical example fails to give a
solution, and the example is troublesome to interpret as it is necessary to
distinguish between discrepancies due to rounding off the figures from
those which are intended to illustrate a point of principle.[45] But there is no
need to paddle in the arithmetic to find where the difficulty lies. The model
is over-determined because of the rule that the increment of capital within
each department at the end of a year must equal the saving made within the
same department during the year. If capitalists from Department II were
permitted to lend part of their savings to Department I to be invested in its
capital, a breakdown would no longer be inevitable. Suppose that total real
wages are constant and that real consumption by capitalists increases
slowly, so that the real output of Department II rises at a slower rate than
productivity, then the amount of labour employed in it is shrinking. The
ratio of capital to labour however is rising as a consequence of capital-using
technical progress. The output of Department I, and its productive capacity,
is growing through time. Capital invested in Department I is accumulating
faster than the saving of the capitalists in Department I, and capitalists of
Department II, who have no profitable outlet in their own industries for
their savings, acquire titles to part of the capital in Department I by
supplying the difference between investment in Department I and its own
saving.[46] For any increase in the stock of capital of both departments taken
together, required by technical progress and demand conditions, there is an
appropriate amount of saving, and so long as the total accumulation
required and total saving fit, there is no breakdown.
But here we find the clue to the real contradiction. These quantities might
conceivably fit, but there is no guarantee that they will. If the ratio of saving
which the capitalists (taken together) choose to make exceeds the rate of
accumulation dictated by technical progress, the excess savings can only be
‘capitalised’ if there is an outlet for investment outside the system. (The
opposite case of deficient savings is also possible. Progress would then be
slowed down below the technically possible maximum; but this case is not
contemplated by our author, and it would be irrelevant to elaborate upon it.)

Once more we can substitute for a supposed logical necessity a plausible
hypothesis about the nature of the real case, and so rescue the succeeding
argument. If in reality the distribution of income between workers and
capitalists, and the propensity to save of capitalists, are such as to require a
rate of accumulation which exceeds the rate of increase in the stock of
capital appropriate to technical conditions, then there is a chronic excess of
the potential supply of real capital over the demand for it and the system
must fall into chronic depression. (This is the ‘stagnation thesis’ thrown out
by Keynes and elaborated by modern American economists, notably Alvin
Hansen). How then is it that capitalist expansion had not yet (in 1912)
shown any sign of slackening?
In chapter xxvi Rosa Luxemburg advances her central thesis—that it is the
invasion of primitive economies by capitalism which keeps the system
alive. There follows a scorching account of the manner in which the
capitalist system, by trade, conquest and theft, swallowed up the pre-
capitalist economies,—some reduced to colonies of capitalist nations, some
remaining nominally independent—and fed itself upon their ruins. The
thread of analysis running through the historical illustrations is not easy to
pick up, but the main argument seems to be as follows: As soon as a
primitive closed economy has been broken into, by force or guile, cheap
mass-produced consumption goods displace the old hand production of the
family or village communities, so that a market is provided for ever-
increasing outputs from the industries of Department II in the old centres of
capitalism, without the standard of life of the workers who consume these
commodities being raised.[47] The ever-growing capacity of the export
industries requires the products of Department I, thus maintaining
investment at home. At the same time great capital works, such as railways,
are undertaken in the new territories.[48] This investment is matched partly
by savings from surplus extracted on the spot, but mainly by loans from the
old capitalist countries. There is no difficulty here in accounting for the
inducement to invest, for the new territories yield commodities
unobtainable at home.[49] We might set out the essence of the argument as
follows: Cloth from Lancashire pays for labour in America, which is used to
produce wheat and cotton. These provide wages and raw materials to the
Lancashire mills, while the profits acquired both on the plantations and in
the mills are invested in steel rails and rolling stock, which open up fresh

territories, so that the whole process is continuously expanding. Moreover,
apart from profits earned on capital actually invested in the new territories,
great capital gains are made simply by acquiring possession of land and
other natural resources.[50] Labour to work the resources may be provided
by the local dispossessed peasantry or by immigration from the centres of
capitalism.[51] Investment in equipment for it to use is more profitable than
in that operated by home labour, partly because the wretched condition of
the colonial workers makes the rate of exploitation higher,[52] but mainly
just because they are on the spot, and can turn the natural resources seized
by the capitalists into means of production. No amount of investment in
equipment for British labour would produce soil bearing cotton, rubber or
copper. Thus investment is deflected abroad[53] and the promise of profit
represented by the natural resources calls into existence, by fair means or
foul, the labour and capital to make it come true. The process of building up
this capital provides an outlet for the old industries and rescues them from
the contradictions inherent in deficiency of demand.
The analysis of militarism in the last chapter over-reaches itself by trying to
prove too much. The argument is that armaments are built up out of taxes
which fall entirely on wages.[54] This can be regarded as a kind of ‘forced
saving’ imposed on the workers. These savings are extra to the saving out of
surplus. They are invested in armaments, and that ends the story. On this
basis the armaments, in themselves, cannot be held to provide an outlet for
the investment of surplus (though the use of the armaments, as in the
Opium War,[55] to break up primitive economies is a necessary condition for
the colonial investment already described) and capital equipment to produce
armaments is merely substituted for capital formerly producing consumers’
goods. The analysis which best fits Rosa Luxemburg’s own argument, and
the facts, is that armaments provide an outlet for the investment of surplus
(over and above any contribution there may be from forced saving out of
wages), which, unlike other kinds of investment, creates no further problem
by increasing productive capacity (not to mention the huge new investment
opportunities created by reconstruction after the capitalist nations have
turned their weapons against each other).
All this is perhaps too neat an account of what our author is saying. The
argument streams along bearing a welter of historical examples in its flood,

and ideas emerge and disappear again bewilderingly. But something like the
above seems to be intended. And something like it is now widely accepted
as being true. Rosa Luxemburg, as we have seen, neglects the rise in real
wages which takes place as capitalism develops, and denies the internal
inducement to invest provided by technical progress, two factors which help
to rescue capitalism from the difficulties which it creates for itself. She is
left with only one influence (economic imperialism) to account for
continuous capital accumulation, so that her analysis is incomplete. All the
same, few would deny that the extension of capitalism into new territories
was the mainspring of what an academic economist has called the ‘vast
secular boom’ of the last two hundred years,[56] and many academic
economists account for the uneasy condition of capitalism in the twentieth
century largely by the ‘closing of the frontier’ all over the world.[57] But the
academic economists are being wise after the event. For all its confusions
and exaggerations, this book shows more prescience than any orthodox
contemporary could claim.
JOAN ROBINSON
Cambridge.

SECTION ONE
★

THE PROBLEM OF REPRODUCTION

CHAPTER I

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 Quesnay, 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 be 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.[58]

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 in form 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.[59]
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 corresponds 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.

CHAPTER II

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.[60]
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.[61]
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.’[62]
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.’[63]
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
neat 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.’[64]
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.’[65]
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 constitutes 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.[66] 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.’[67]
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).[68]
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.[69]
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.[70]

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.’[71]
‘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, conveniencies, and
amusements. Their real wealth too is in proportion, not to their gross, but to
their neat revenue.’[72]
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.’[73]
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.’[74]
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.’[75]
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.’[76]
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 out 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, more 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 shorthand, 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.

CHAPTER III

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’.[77]
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,[78]
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 tools 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.[79] 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 faculty 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 only his labouring servants, but his labouring
cattle, are productive labourers....’[80]
‘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.’[81]
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.’[82]
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 now the bread
and pastries are the product of the baker. This product, flour, again
presupposes grain as a means of production, and 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.[83]
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, 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. c 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 become 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.

CHAPTER IV

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.[84]
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[85] 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 production, 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.[86]
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 a way 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 4,500c of circulating capital.
Since the term of life of the aggregate fixed capital, with a 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.[87]
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,[88] a continuous accumulation in the other branches of
production must go with it.’[89]
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.

CHAPTER V

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.[90]
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 form, 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 of 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.[91] 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: (a)
the money set aside for the purpose by both departments must suffice to
effect the exchange between I(1,000s) and II(1,000c); (b) 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 as 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 capitalists 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 I, which occupies itself with means of production.’[92]
This is correct only in so far as the production of gold is the production of
metal for industrial purposes (jewellery, dental stoppings, 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 = 6,000means of production
II. 2,000c + 500v + 500s = 3,000means of subsistence
III. 20c + 5v + 5s = 30means 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
proceeds at 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 form as 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 use-form. 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(4,000c) + II(2,000c). 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(2,000c). 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 IIc to IIs, 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.’[93]
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 fund. 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 form 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 condition 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.’[94] 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.’[95]
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 mutandis, 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 conflict 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 over-production 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
Marx’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 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.

CHAPTER VI

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.[96]
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.’[97]

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.[98]
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.[99]
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-product, 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.’[100]
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.’[101]

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 wages, 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:
2nd year: I. 4,840c + 1,210v + 1,210s = 7,260
II. 1,760c + 880v + 880s = 3,520
Total: 10,780
3rd year: I. 5,324c + 1,331v + 1,331s = 7,986
II. 1,936c + 968v + 968s = 3,872
Total: 11,858
4th year: I. 5,856c + 1,464v + 1,464s = 8,784
II. 2,129c + 1,065v + 1,065s = 4,259
Total: 13,043
5th year: I. 6,442c + 1,610v + 1,610s = 9,662
II. 2,342c + 1,172v + 1,172s = 4,686
Total: 14,348
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 + 1,750v = 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.[102] 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
co-ordinated. 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.

CHAPTER VII

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 II—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 + 88v = 2,640
Total: 8,690’[103]
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.’[104]
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:
1st year: 150are capitalised, 600consumed
2nd 240 660
3rd 254 626
4th 290 678
5th 320 745
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, dissatisfied 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.’[105]
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 153 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 fund for personal consumption. This equation
(increase IIc = increase Iv + increase Is.c.)[106] 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 = 6,000means of production
II. 2,000c + 500v + 500s = 3,000means of consumption
9,000 total production
Here, too, we established certain equations which form the foundation of
simple reproduction; they were:
(a) The product of Department I equals in value the sum of the two constant
capitals in Departments I and II.
(b) The constant capital of Department II equals the sum of variable capital
and surplus value in Department I—a necessary consequence of (a).
(c) 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 = 6,000means of production
II. 2,000c + 500v + 500s = 3,000means 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 II is 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 a 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
Marx’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.’[107]
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’.[108]
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.’[109]
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 elements
of new capital.’[110]
In the figures of our diagram:

I. 5,000c + 1,000v + 1,000s = 7,000means of production
II. 1,430c + 285v + 285s = 2,000means 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 114s
so 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.[111]
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.’[112]
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.

CHAPTER VIII

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 the 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.’[113]
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.’[114] ‘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, by one single step.
‘Before we solve this seeming difficulty, we must distinguish....’[115]
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.’[116]

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.’[117]
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.’[118]
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.’[119]

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?’[120]
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 they 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.’[121]
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
instalments 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.’[122]
‘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 over-production which clogs reproduction, even on
the same scale.’[123]
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 a 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.’[124]
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 in 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 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.’[125]
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?’[126]
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.’[127]
Marx then considers all conceivable dodges, only to show them up as
evading the issue.
‘But stop!’ he exclaims. ‘Isn’t there a chance to make a little profit?’[127]
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.’[127]
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.’[128]
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.’[128]

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.’[129]
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.’[130]
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.’[131]
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.’[132]
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.

CHAPTER IX

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.’[133]
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.’[134]

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 of money-
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?’[135]
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 of 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.’[136]
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?’[137]
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 500 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.’[138]
Marx further explodes another device which might 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.’[139]
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 things,
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.’[140]
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.’[141]
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?’[142]
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.’[143]
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 in 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 quantities 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.’[144]
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?’[144]
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, 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 II, while those points were ignored about
which there was nothing new to say. An essential part of Chapter 17,
Section II, 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.’[145]
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 ii 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. 554 f.
Marx again takes up the question of total reproduction in volume iii 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 992-1022). Finally, in Theorien ueber den Mehrwert, we
again find detailed polemics against Smith’s dogma: pp. 164-253 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.[146] 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.

SECTION TWO
★

HISTORICAL EXPOSITION OF THE
PROBLEM
★
FIRST ROUND
SISMONDI-MALTHUS v. SAY-RICARDO—MacCULLOCH

CHAPTER X

SISMONDI’S THEORY OF REPRODUCTION
The first grave doubts as to the divine character of the capitalist order came
to bourgeois economists under the immediate impact of the first crises of
1815 and 1818-19 in England. Even then it had still been external
circumstances which led up to these crises, and they appeared to be
ephemeral. Napoleon’s blockade of the Continent which for a time had cut
off England from her European markets and had favoured a considerable
development of home industries in some of the continental countries, was
partly responsible; for the rest the material exhaustion of the Continent,
owing to the long period of war, made for a smaller demand for English
products than had been expected when the blockade was lifted. Still, these
early crises were enough to reveal to the contemporary world the sinister
aspects of this best of all social orders. Glutted markets, shops filled with
goods nobody could buy, frequent bankruptcies—and on the other hand the
glaring poverty of the toiling masses—for the first time all this starkly met
the eyes of theorists who had preached the gospel of the beautiful
harmonies of bourgeois laissez-faire and had sung its praises in all keys. All
contemporary trade reports, periodicals and travellers’ notes told of the
losses sustained by English merchants. In Italy, Germany, Russia, and
Brazil, the English disposed of their commodity stocks at a loss of anything
between 25 per cent and 331⁄3 per cent. People at the Cape of Good Hope in
1818 complained that all the shops were flooded with European goods
offered at lower prices than in Europe and still unmarketable. From Calcutta
there came similar complaints. From New Holland whole cargoes returned
to England. In the United States, a contemporary traveller reports, ‘there
was no town nor hamlet from one end to the other of this immense and
prosperous continent where the amount of commodities displayed for sale
did not considerably exceed the means of the purchasers, although the
vendors tried to attract custom by long-term credits, all sorts of facilities for
payment, payment by instalments and acceptance of payment in kind’.
At the same time, England was hearing the desperate outcry of her workers.
The Edinburgh Review of 1820[147] quotes an address by the Nottingham

frame-work knitters which contained the following statements:
‘After working from 14 to 16 hours a day, we only earn from 4s. to 7s. a
week, to maintain our wives and families upon; and we farther state, that
although we have substituted bread and water, or potatoes and salt, for that
more wholesome food an Englishman’s table used to abound with, we have
repeatedly retired, after a heavy day’s labour, and have been under the
necessity of putting our children supperless to bed, to stifle the cries of
hunger. We can most solemnly declare, that for the last eighteen months we
have scarcely known what it was to be free from the pangs of hunger.’[148]
Then Owen in England, and Sismondi in France, almost simultaneously
raised their voices in a weighty indictment of capitalist society. Owen, as a
hard-headed Englishman and citizen of the leading industrial state,
constituted himself spokesman for a generous social reform, whereas the
petty-bourgeois Swiss rather lost himself in sweeping denunciations of the
imperfections of the existing social order and of classical economics. And
yet, by so doing, Sismondi gave bourgeois economics a much harder nut to
crack than Owen, whose fertile practical activities were directly applied to
the proletariat.
Sismondi explained in some detail that the impetus for his social criticism
came from England, and especially her first crisis. In the second edition of
his Nouveaux Principes d’Économie Politique Ou De La Richesse Dans Ses
Rapports Avec La Population,[149] eight years after the publication of the
first edition in 1819, he writes as follows:
‘It was in England that I performed the task of preparing the new edition.
England has given birth to the most celebrated Political Economists: the
science is cultivated even at this time with increased ardour.... Universal
competition or the effort always to produce more and always cheaper, has
long been the system in England, a system which I have attacked as
dangerous. This system has used production by manufacture to advance
with gigantic steps, but it has from time to time precipitated the
manufacturers into frightful distress. It was in presence of these convulsions
of wealth that I thought I ought to place myself, to review my reasonings
and compare them with facts.—The study of England has confirmed me in
my “New Principles”. In this astonishing country, which seems to be
subject to a great experiment for the instruction of the rest of the world, I

have seen production increasing, whilst enjoyments were diminishing. The
mass of the nation here, no less than philosophers, seems to forget that the
increase of wealth is not the end in political economy, but its instrument in
procuring the happiness of all. I sought for this happiness in every class,
and I could nowhere find it. The high English aristocracy has indeed arrived
to a degree of wealth and luxury which surpasses all that can be seen in
other nations; nevertheless it does not itself enjoy the opulence which it
seems to have acquired at the expense of the other classes; security is
wanting and in every family most of the individuals experience privation
rather than abundance.... Below this titled and not titled aristocracy, I see
commerce occupy a distinguished rank; its enterprises embrace the whole
world, its agents brave the ices of the poles, and the heats of the equator,
whilst every one of its leading men, meeting on Exchange, can dispose of
thousands. At the same time, in the streets of London, and in those of the
other great towns of England, the shops display goods sufficient for the
consumption of the world.—But have riches secured to the English
merchant the kind of happiness which they ought to secure him? No: in no
country are failures so frequent, nowhere are those colossal fortunes,
sufficient in themselves to supply a public loan to uphold an Empire, or a
republic, overthrown with as much rapidity. All complain that business is
scarce, difficult, not remunerative. Twice, within an interval of a few years,
a terrible crisis has ruined part of the bankers, and spread desolation among
all the English manufacturers. At the same time another crisis has ruined the
farmers, and been felt in its rebound by retail dealers. On the other hand,
commerce, in spite of its immense extent, has ceased to call for young men
who have their fortunes to make; every place is occupied, in the superior
ranks of society no less than in the inferior; the greater number offer their
labour in vain, without being able to obtain remuneration.—Has, then, this
national opulence, whose material progress strikes every eye, nevertheless
tended to the advantage of the poor? Not so. The people of England are
destitute of comfort now, and of security for the future. There are no longer
yeomen, they have been obliged to become day labourers. In the towns
there are scarcely any longer artisans, or independent heads of a small
business, but only manufacturers. The operative, to employ a word which
the system has created, does not know what it is to have a station; he only
gains wages, and as these wages cannot suffice for all seasons, he is almost
every year reduced to ask alms from the poor-rates.—This opulent nation

has found it more economical to sell all the gold and silver which she
possessed, to do without coin, and to depend entirely on a paper circulation;
she has thus voluntarily deprived herself of the most valuable of all the
advantages of coin: stability of value. The holders of the notes of the
provincial banks run the risk every day of being ruined by frequent and, as
it were, epidemic failures of the bankers; and the whole state is exposed to a
convulsion in the fortune of every individual, if an invasion or a revolution
should shake the credit of the national bank. The English nation has found it
more economical to give up those modes of cultivation which require much
hand-labour, and she has dismissed half the cultivators who lived in the
fields. She has found it more economical to supersede workmen by steam-
engines; she has dismissed ... the operatives in towns, and weavers giving
place to power-looms, are now sinking under famine; she has found it more
economical to reduce all working people to the lowest possible wages on
which they can subsist, and these working people being no longer anything
but a rabble, have not feared plunging into still deeper misery by the
addition of an increasing family. She has found it more economical to feed
the Irish with potatoes, and clothe them in rags; and now every packet
brings legions of Irish, who, working for less than the English, drive them
from every employment. What is the fruit of this immense accumulation of
wealth? Have they had any other effect than to make every class partake of
care, privation and the danger of complete ruin? Has not England, by
forgetting men for things, sacrificed the end to the means?’[150]
This mirror, held up to capitalist society almost a century before the time of
writing, is clear and comprehensive enough in all conscience. Sismondi put
his finger on every one of the sore spots of bourgeois economics: the ruin of
small enterprise; the drift from the country; the proletarisation of the middle
classes; the impoverishment of the workers; the displacement of the worker
by the machine; unemployment; the dangers of the credit system; social
antagonisms; the insecurity of existence; crises and anarchy. His harsh,
emphatic scepticism struck a specially shrill discord with the complacent
optimism, the idle worship of harmony as preached by vulgar economics
which, in the person of MacCulloch in England and of Say in France, was
becoming the fashion in both countries. It is easy to imagine what a deep
and painful impression remarks like the following were bound to make:

‘There can only be luxury if it is bought with another’s labour; only those
will work hard and untiringly who have to do so in order to get not the frills
but the very necessities of life.’[151]
‘Although the invention of the machine which increases man’s capacity, is a
blessing for mankind, it is made into a scourge for the poor by the unjust
distribution we make of its benefits.’[152]
‘The gain of an employer of labour is sometimes nothing if not despoiling
the worker he employs; he does not benefit because his enterprise produces
much more than it costs, but because he does not pay all the costs, because
he does not accord the labourer a remuneration equal to his work. Such an
industry is a social evil, for it reduces those who perform the work to
utmost poverty, assuring to those who direct it but the ordinary profits on
capital.’[153]
‘Amongst those who share in the national income, one group acquires new
rights each year by new labours, the other have previously acquired
permanent rights by reason of a primary effort which makes a year’s labour
more advantageous.’[154]
‘Nothing can prevent that every new discovery in applied mechanics should
diminish the working population by that much. To this danger it is
constantly exposed, and society provides no remedy for it.’[155]
‘A time will come, no doubt, when our descendants will condemn us as
barbarians because we have left the working classes without security, just as
we already condemn, as they also will, as barbarian the nations who
reduced those same classes to slavery.’[156]
Sismondi’s criticism thus goes right to the root of the matter; for him there
can be no compromise or evasion which might try to gloss over the dark
aspects of capitalist enrichment he exposed, as merely temporary
shortcomings of a transition period. He concludes his investigation with the
following rejoinder to Say:
‘For seven years I have indicated this malady of the social organism, and
for seven years it has continuously increased. I cannot regard such
prolonged suffering as the mere frictions which always accompany a
change. Going back to the origin of income, I believe to have shown the ills

we experience to be the consequence of a flaw in our organisation, to have
shown that they are not likely to come to an end.’[157]
The disproportion between capitalist production and the distribution of
incomes determined by the former appears to him the source of all evil.
This is the point from which he comes to the problem of accumulation with
which we are now concerned.
The main thread of his criticism against classical economics is this:
capitalist production is encouraged to expand indefinitely without any
regard to consumption; consumption, however, is determined by income.
‘All the modern economists, in fact, have allowed that the fortune of the
public, being only the aggregation of private fortunes, has its origin, is
augmented, distributed and destroyed by the same means as the fortune of
each individual. They all know perfectly well, that in a private fortune, the
most important fact to consider is the income, and that by the income must
be regulated consumption or expenditure, or the capital will be destroyed.
But as, in the fortune of the public, the capital of one becomes the income
of another, they have been perplexed to decide what was capital, and what
income, and they have therefore found it more simple to leave the latter
entirely out of their calculations. By neglecting a quality so essential to be
determined, Say and Ricardo have arrived at the conclusion, that
consumption is an unlimited power, or at least having no limits but those of
production, whilst it is in fact limited by income.... They announced that
whatever abundance might be produced, it would always find consumers,
and they have encouraged the producers to cause that glut in the markets,
which at this time occasions the distress of the civilised world; whereas
they should have forewarned the producers that they could only reckon on
those consumers who possessed income.’[158]
Sismondi thus grounds his views in a theory of income. What is income,
and what is capital? He pays the greatest attention to this distinction which
he calls ‘the most abstract and difficult question of political economics’.
The fourth chapter of his second book is devoted to this problem. As usual,
Sismondi starts his investigation with Robinson Crusoe. For such a one, the
distinction between capital and income was still ‘confused’; it becomes
‘essential’ only in society. Yet in society, too, this distinction is very
difficult, largely on account of the already familiar myth of bourgeois

economics, according to which ‘the capital of one becomes the income of
another’, and vice versa. Adam Smith was responsible for this confusion
which was then elevated to an axiom by Say in justification of mental
inertia and superficiality. It was loyally accepted by Sismondi.
‘The nature of capital and of income are always confused by the mind; we
see that what is income for one becomes capital for another, and the same
object, in passing from hand to hand, successively acquires different
denominations; the value which becomes detached from an object that has
been consumed, appears as a metaphysical quantity which one expends and
the other exchanges, which for one perishes together with the object itself
and which for the other renews itself and lasts for the time of
circulation.’[159]
After this promising introduction, Sismondi dives right into the difficult
problem and declares: all wealth is a product of labour; income is part of
wealth, and must therefore have the same origin. However, it is ‘customary’
to recognise three kinds of income, called rent, profit and wage respectively,
which spring from the three sources of ‘land, accumulated capital and
labour’. As to the first thesis, he is obviously on the wrong tack. As the
wealth of a society, i.e. as the aggregate of useful objects, of use-values,
wealth is not merely a product of labour but also of nature who both
supplies raw materials and provides the means to support human labour.
Income, on the other hand, is a concept of value. It indicates the amount to
which an individual or individuals can dispose over part of the wealth of
society or of the aggregate social product. In view of Sismondi’s insistence
that social income is part of social wealth, we might assume him to
understand by social income the actual annual fund for consumption. The
remaining part of wealth that has not been consumed, then, is the capital of
society. Thus we obtain at least a vague outline of the required distinction
between capital and income on a social basis. At the very next moment,
however, Sismondi accepts the ‘customary’ distinction between three kinds
of income, only one of which derives exclusively from ‘accumulated
capital’ while in the other two ‘land’ or ‘labour’ are conjoined with capital.
The concept of capital thus at once becomes hazy again. However, let us see
what Sismondi has to say about the origin of these three kinds of income
which betray a rift in the foundations of society. He is right to take a certain
development of labour productivity as his point of departure.

‘By reason of the advances both in industry and science, by which man has
subjugated the forces of nature, every worker can produce more, far more,
in a day than he needs to consume.’[160]
Sismondi thus rightly stresses the fact that the productivity of labour is an
indispensable condition for the historical foundation of exploitation. Yet he
goes on to explain the actual origin of exploitation in a way typical of
bourgeois economics: ‘But even though his labour produces wealth, this
wealth, if he is called upon to enjoy it, will make him less and less fit for
work. Besides, wealth hardly ever remains in the possession of the man
who must live by the work of his hands.’[160]
Thus he makes exploitation and class antagonism the necessary spur to
production, quite in accord with the followers of Ricardo and Malthus. But
now he comes to the real cause of exploitation, the divorce of labour power
from the means of production.
‘The worker cannot, as a rule, keep the land as his own; land, however, has
a productive capacity which human labour but directs to the uses of man.
The master of the land on which labour is performed, reserves a share in the
fruits of labour to which his land has contributed, as his remuneration for
the benefits afforded by this productive capacity.’[161]
This is called rent. And further: ‘In our state of civilisation, the worker can
no longer call his own an adequate fund of objects for his consumption,
enough to live while he performs the labours he has undertaken—until he
has found a buyer. He no longer owns the raw materials, often coming from
far away, on which he must exercise his industry. Even less does he possess
that complicated and costly machinery which facilitates his work and makes
it infinitely more productive. The rich man who possesses his consumption
goods, his raw materials and his machines, need not work himself, for by
supplying the worker with all these, he becomes in a sense the master of his
work. As reward for the advantages he has put at the worker’s disposal, he
takes outright the greater part of the fruits of his labour.’[162]
This is called capital profits. What remains of wealth, after the cream has
been taken off twice, by landlord and capitalist, is the wage of labour, the
income of the worker. And Sismondi adds: ‘He can consume it without
reproduction.’[163]

Thus, Sismondi makes the fact of non-reproduction the criterion of income
as distinct from capital for wages as well as for rent. In this, however, he is
only right with regard to rent and the consumed part of capital profits; as for
the part of the social product which is consumed in form of wages, it
certainly does reproduce itself; it becomes the labour power of the wage
labourer, for him a commodity by whose sale he lives, which he can bring
to market again and again; for society it becomes the material form of
variable capital which must reappear time and again in the aggregate
reproduction of a year, if there is to be no loss.
So far so good. Hitherto we have only learned two facts: the productivity of
labour permits of the exploitation of the workers by those who do not work
themselves, and exploitation becomes the actual foundation of the
distribution of income owing to the divorce of the worker from his means of
production. But we still do not know what is capital and what income, and
Sismondi proceeds to clarify this point, starting as usual with Robinson
Crusoe:
‘In the eyes of the individual all wealth was nothing but a provision
prepared beforehand for the time of need. Even so, he already distinguished
two elements in this provision ... one part which he budgets to have at hand
for immediate or almost immediate use, and the other which he will not
need until it is to afford him new production. Thus one part of his corn must
feed him until the next harvest, another part, reserved for sowing, is to bear
fruit the following year. The formation of society and the introduction of
exchange, permit to increase this seed, this fertile part of accumulated
wealth, almost indefinitely, and this is what is called capital.’[164]
Balderdash would be a better name for all this. In using the analogy of seed,
Sismondi here identifies means of production and capital, and this is wrong
for two reasons. First, means of production are capital not intrinsically, but
only under quite definite historical conditions; secondly, the concept of
capital covers more than just the means of production. In capitalist society
—with all the conditions Sismondi ignores—the means of production are
only a part of capital, i.e. they are constant capital.
Sismondi here lost his thread plainly because he tried to establish a
connection between the capital concept and the material aspects of social
reproduction. Earlier, so long as he was concerned with the individual

capitalist, he listed means of subsistence for the workers together with
means of production as component parts of capital—again a mistake in
view of the material aspects of the reproduction of individual capitals. Yet
as soon as he tries to focus the material foundations of social reproduction
and sets out to make the correct distinction between consumer goods and
means of production, the concept of capital dissolves in his hands.
However, Sismondi well knows that the means of production are not the
sole requisites for production and exploitation; indeed, he has the proper
instinct that the core of the relation of exploitation is the very fact of
exchange with living labour. Having just reduced capital to constant capital,
he now immediately reduces it exclusively to variable capital:
‘When the farmer has put in reserve all the corn he expects to need till the
next harvest, he will find a good use for the surplus corn: he will feed what
he has left over to other people who are going to work for him, till his land,
spin and weave his hemp and wool, etc.... By this procedure, the farmer
converts a part of his income into capital, and in fact, this is the way in
which new capital is always formed.... The corn he has reaped over and
above what he must eat while he is working, and over and above what he
will have to sow in order to maintain the same level of exploitation, is
wealth which he can give away, squander and consume in idleness without
becoming any poorer; it was income, but as soon as he uses it to feed
producers, as soon as he exchanges it for labour, or for the fruits to come
from the work of his labourers, his weavers, his miners, it is a permanent
value that multiplies and will no longer perish; it is capital.’[165]
Here there is some grain mixed up with quite a lot of chaff. Constant capital
seems still required to maintain production on the old scale, although it is
strangely reduced to circulating capital, and although the reproduction of
fixed capital is completely ignored. Circulating capital apparently is also
superfluous for the expansion of reproduction, for accumulation: the whole
capitalised part of the surplus value is converted into wages for new
workers who evidently labour in mid-air, without material means of
production. The same view is expressed even more clearly elsewhere:
‘When the rich man cuts down his income in order to add to his capital, he
is thus conferring a benefit on the poor, because he himself shares out the
annual product; and whatever he calls income, he will keep for his own

consumption; whatever he calls capital, he gives to the poor man to
constitute an income for him.’[166]
Yet at the same time Sismondi gives due weight to the ‘secret of profit-
making’ and the origin of capital. Surplus value arises from the exchange of
capital for labour, from variable capital, and capital arises from the
accumulation of surplus value.
With all this, however, we have not made much progress towards a
distinction between capital and income. Sismondi now attempts to represent
the various elements of production and income in terms of the appropriate
parts of the aggregate social product.
‘The employer of labour, as also the labourer, does not use all his
productive wealth for the sowing; he devotes part of it to buildings, mills
and tools which render the work easier and more productive, just as a share
of the labourer’s wealth had been devoted to the permanent work of making
the soil more fertile. Thus we see how the different kinds of wealth
successively come into being and become distinct. One part of the wealth
accumulated by society is devoted by every one who possesses it to render
labour more profitable by slow consumption, and make the blind forces of
nature execute the work of man; this part is called fixed capital and
comprises reclaiming, irrigation, factories, the tools of trade, and
mechanical contrivances of every description. A second part of wealth is
destined for immediate consumption, to reproduce itself in the work it gets
done, to change its form, though not its value, without cease. This part is
called circulating capital and it comprises seed, raw materials for
manufacture, and wages. Finally, a third part of wealth becomes
distinguishable from the second: it is the value by which the finished job
exceeds the advances which had to be made: this part is called income on
capitals and is destined to be consumed without reproduction.’[167]
After this laborious attempt to achieve a division of the aggregate social
production according to incommensurable categories, fixed capital,
circulating capital, and surplus value, Sismondi soon shows unmistakable
signs that he means constant capital when he speaks of fixed capital, and
variable capital when he speaks of circulating capital. For ‘all that is
created’, is destined for human consumption, though fixed capital is
consumed ‘mediately’ while the circulating capital ‘passes into the

consumption fund of the worker whose wage it forms’.[168] Thus we are a
little nearer to the division of the social product into constant capital (means
of production), variable capital (provisions for the workers) and surplus
value (provisions for the capitalists). But so far Sismondi’s explanations are
not particularly illuminating on the subject which he himself describes as
‘fundamental’. In this welter of confusion, at any rate, we cannot see any
progress beyond Adam Smith’s ‘massive thought’.
Sismondi feels this himself and would clarify the problem ‘by the simplest
of all methods’, sighing that ‘this movement of wealth is so abstract and
requires such great power of concentration to grasp it properly’.[168] Thus
again we put on blinkers with a focus on Robinson [Crusoe], who in the
meantime has changed to the extent that he has produced a family and is
now a pioneer of colonial policy:
‘A solitary farmer in a distant colony on the border of the desert has reaped
100 sacks of corn this year; there is no market where to bring them; this
corn, in any case, must be consumed within the year, else it will be of no
value to the farmer; yet the farmer and his family eat only 30 sacks of it;
this will be his expenditure, constituting the exchange of his income; it is
not reproduced for anybody whatever. Then he will call for workers, he will
make them clear woods, and drain swamps in his neighbourhood and put
part of the desert under the plough. These workers will eat another 30 sacks
of corn: this will be their expenditure; they will be in a position to afford
this expenditure at the price of their revenue, that is to say their labour; for
the farmer it will be an exchange: he will have converted his 30 sacks into
fixed capital. In the end, he is left with 40 sacks. He will sow them that
year, instead of the 20 he had sown the previous year; this constitutes his
circulating capital which he will have doubled. Thus the 100 sacks will
have been consumed, but of these 100 sacks 70 are a real investment for
him, which will reappear with great increase, some of them at the very next
harvest, and the others in all subsequent harvests.—The very isolation of
the farmer we have just assumed gives us a better feeling for the limitations
of such an operation. If he has only found consumers for 60 of the 100
sacks harvested in that year, who is going to eat the 200 sacks produced the
following year by the increase in his sowing? His family, you might say,
which will increase. No doubt; but human generations do not multiply as
quickly as subsistence. If our farmer had hands available to repeat this

assumed process each year, his corn harvest will be doubled every year, and
his family could at the most be doubled once in 25 years.’[169]
Though the example is naïve, the vital question stands out clearly in the
end: where are the buyers for the surplus value that has been capitalised?
The accumulation of capital can indefinitely increase the production of the
society. But what about the consumption of society? This is determined by
the various kinds of income. Sismondi explains this important subject in
chapter v of book ii, ‘The Distribution of the National Income Among the
Various Classes of Citizens’, in a resumed effort to describe the components
of the social product.
‘Under this aspect, the national income is composed of two parts and no
more; the one consists in annual production ... the profit arising from
wealth. The second is the capacity for work which springs from life. This
time we understand by wealth both territorial possessions and capital, and
by profit the net income accruing to the owners as well as the profit of the
capitalist.’[170]
Thus all the means of production are separated from the national income as
‘wealth’, and this income is divided into surplus value and labour power, or
better, its equivalent, the variable capital. This, then, though still far too
vague, is our division into constant capital, variable capital and surplus
value. But ‘national income’, it soon transpires, means for Sismondi the
annual aggregate product of society:
‘Similarly, annual production, or the result of all the nation’s work in the
course of a year, is composed of two parts: one we have just discussed—the
profit resulting from wealth; the other is the capacity for work, which is
assumed to equal the part of wealth for which it is exchanged, or the
subsistence of the workers.’[171]
The aggregate social product is thus resolved, in terms of value, into two
parts: variable capital and surplus value—constant capital has disappeared.
We have arrived at Smith’s dogma that the commodity price is resolved into
v + s (or is composed of v + s)—in other words, the aggregate product
consists solely of consumer goods for workers and capitalists.
Sismondi then goes on to the problem of realising the aggregate product.
On the one hand, the sum total of incomes in a society consists of wages,

capital profits and rents, and is thus represented by v + s; on the other hand,
the aggregate social product, in terms of value, is equally resolved into v + s
‘so that national income and annual production balance each other (and
appear as equal quantities)’, i.e. so that they must be equal in value.
‘Annual production is consumed altogether during the year, but in part by
the workers who, by exchanging their labour for it, convert it into capital
and reproduce it; in part by the capitalists who, exchanging their income for
it, annihilate it. The whole of the annual income is destined to be exchanged
for the whole of annual production.’[172]
This is the basis on which, in the sixth chapter of book ii, ‘On Reciprocal
Determination of Production and Consumption’, Sismondi finally sets up
the following precise law of reproduction: ‘It is the income of the past year
which must pay for the production of the present year.’[173]
If this is true, how can there be any accumulation of capital? If the
aggregate product must be completely consumed by the workers and
capitalists, we obviously remain within the bounds of simple reproduction,
and there can be no solution to the problem of accumulation. Sismondi’s
theory in fact amounts to a denial of the possibility of accumulation. The
aggregate social demand being the bulk of wages given to the workers and
the previous consumption of the capitalists, who will be left to buy the
surplus product if reproduction expands? On this count, Sismondi argues
that accumulation is objectively impossible, as follows:
‘What happens after all is always that we exchange the whole of production
for the whole production of the previous year. Besides, if production
gradually increases, the exchange, at the same time as it improves future
conditions, must entail a small loss every year.’[174]
In other words, when the aggregate product is realised, accumulation is
bound each year to create a surplus that cannot be sold. Sismondi, however,
is afraid of drawing this final conclusion, and prefers a ‘middle course’,
necessitating a somewhat obscure subterfuge: ‘If this loss is not heavy, and
evenly distributed, everyone will bear with it without complaining about his
income. This is what constitutes the national economy, and the series of
such small sacrifices increases capital and common wealth.’[174]

If, on the other hand, there is ruthless accumulation, this surplus residue
becomes a public calamity, and the result is a crisis. Thus a petty-bourgeois
subterfuge becomes the solution of Sismondi: putting the dampers on
accumulation. He constantly polemises against the classical school which
advocates unrestricted development of the productive forces and expansion
of production; and his whole work is a warning against the fatal
consequences of giving full rein to the desire to accumulate.
Sismondi’s exposition proves that he was unable to grasp the reproductive
process as a whole. Quite apart from his unsuccessful attempt to distinguish
between the categories of capital and income from the point of view of
society, his theory of reproduction suffers from the fundamental error he
took over from Adam Smith: the idea that personal consumption absorbs the
entire annual product, without leaving any part of the value for the renewal
of society’s constant capital, and also, that accumulation consists merely of
the transformation of capitalised surplus value into variable capital. Yet, if
later critics of Sismondi, e.g. the Russian Marxist Ilyin,[175] think that
pointing out this fundamental error in the analysis of the aggregate product
can justify a cavalier dismissal of Sismondi’s entire theory of accumulation
as inadequate, as ‘nonsense’, they merely demonstrate their own obtuseness
in respect of Sismondi’s real concern, his ultimate problem. The analysis of
Marx at a later date, showing up the crude mistakes of Adam Smith for the
first time, is the best proof that the problem of accumulation is far from
solved just by attending to the equivalent of the constant capital in the
aggregate product. This is proved even more strikingly in the actual
development of Sismondi’s theory: his views involved him in bitter
controversy with the exponents and popularisers of the classical school,
with Ricardo, Say and MacCulloch. The two parties to the conflict represent
diametrically opposed points of view: Sismondi stands for the sheer
impossibility, the others for the unrestricted possibility, of accumulation.
Sismondi and his opponents alike disregard constant capital in their
exposition of reproduction, and it was Say in particular who presumed to
perpetuate Adam Smith’s confused concept of the aggregate product as v +
s as an unassailable dogma.
The knowledge we owe to Marx that the aggregate product must, apart from
consumer goods for the workers and capitalists (v + s), also contain means
of production to renew what has been used, that accumulation accordingly

consists not merely in the enlargement of variable but also of constant
capital, is not enough, as amply demonstrated by this entertaining turn of
events, to solve the problem of accumulation. Later we shall see how this
stress on the share of constant capital in the reproductive process gave rise
to new fallacies in the theory of accumulation. At present it will suffice to
put on record that the deference to Smith’s error about the reproduction of
aggregate capital is not a weakness unique to Sismondi’s position but is
rather the common ground on which the first controversy about the problem
of accumulation was fought out. Scientific research, not only in this sphere,
proceeds in devious ways; it often tackles the upper storeys of the edifice,
as it were, without making sure of the foundations; and so this conflict only
resulted in that bourgeois economics took on the further complicated
problem of accumulation without even having assimilated the elementary
problem of simple reproduction. At all events, Sismondi, in his critique of
accumulation, had indubitably given bourgeois economics a hard nut to
crack—seeing that in spite of his transparently feeble and awkward
deductions, Sismondi’s opponents were still unable to get the better of him.

CHAPTER XI

MacCULLOCH v. SISMONDI
Sismondi’s emphatic warnings against the ruthless ascendancy of capital in
Europe called forth severe opposition on three sides: in England the school
of Ricardo, in France J. B. Say, the commonplace vulgariser of Adam
Smith, and the St. Simonians. While Owen in England, profoundly aware of
the dark aspects of the industrial system and of the crises in particular, saw
eye to eye with Sismondi in many respects, the school of that other great
European, St. Simon, who had stressed the world-embracing conception of
large industrial expansion, the unlimited unfolding of the productive forces
of human labour, felt perturbed by Sismondi’s alarms. Here, however, we
are interested in the controversy between Sismondi and the Ricardians
which proved the most fruitful from the theoretical point of view. In the
name of Ricardo, and, it seemed, with Ricardo’s personal approval,
MacCulloch anonymously published a polemical article[176] against
Sismondi in the Edinburgh Review in October 1819, i.e. immediately after
the publication of the Nouveaux Principes.
In 1820, Sismondi replied in Rossi’s Annales de Jurisprudence with an
essay entitled: ‘Does the Power of Consuming Necessarily Increase with
the Power to Produce? An Enquiry.’[177]
In his reply Sismondi[178] himself states that his polemics were conceived
under the impact of the commercial crisis: ‘This truth we are both looking
for, is of utmost importance under present conditions. It may be considered
as fundamental for economics. Universal distress is in evidence in the trade,
in industry and, in many countries certainly, even in agriculture. Such
prolonged and extraordinary suffering has brought misfortune to countless
families and insecurity and despondency to all, until it threatens the very
bases of the social order. Two contrasting explanations have been advanced
for the distress that has caused such a stir. Some say: we have produced too
much, and others: we have not produced enough. “There will be no
equilibrium,” say the former, “no peace and no prosperity until we consume
the entire commodity surplus which remains unsold on the market, until we
organise production for the future in accordance with the buyers’

demand.”—“There will be a new equilibrium,” say the latter, “if only we
double our efforts to accumulate as well as to produce. It is a mistake to
believe that there is a glut on the market; no more than half our warehouses
are full; let us fill the other half, too, and the mutual exchange of these new
riches will revive our trade.”’[179]
In this supremely lucid way, Sismondi sets out and underlines the real crux
of the dispute. MacCulloch’s whole position in truth stands or falls with the
statement that exchange is actually an interchange of commodities; every
commodity accordingly represents not only supply but demand. The
dialogue then continues as follows:
‘Demand and supply are truly correlative and convertible terms. The supply
of one set of commodities constitutes the demand for another. Thus, there is
a demand for a given quantity of agricultural produce, when a quantity of
wrought goods equal thereto in productive cost is offered in exchange for it;
and conversely, there is an effectual demand for this quantity of wrought
goods, when the supply of agricultural produce which it required the same
expense to raise, is presented as its equivalent.’[180]
The Ricardian’s dodge is obvious: he has chosen to ignore the circulation of
money and to pretend that commodities are immediately bought and paid
for by commodities.
From the conditions of highly developed capitalist production, we are thus
suddenly taken to a stage of primitive barter such as we might find still
flourishing at present in Central Africa. There is a distant element of truth in
this trick since money, in a simple circulation of commodities, plays merely
the part of an agent. But of course, it is just the intervention of an agent
which separates the two transactions of circulation, sale and purchase, and
makes them independent of one another in respect of both time and place.
That is why a further purchase need not follow hard upon a sale for one
thing; and secondly, sale and purchase are by no means bound up with the
same people: in fact, they will involve the same performers only in rare and
exceptional cases. MacCulloch, however, makes just this baseless
assumption by confronting, as buyer and seller, industry on the one hand
and agriculture on the other. The universality of these categories, qua total
categories of exchange, obscures the actual splitting up of this social
division of labour which results in innumerable private exchange

transactions where the sale and purchase of two commodities rarely come to
the same thing. MacCulloch’s simplified conception of commodity
exchange in general which immediately turns the commodity into money
and pretends that it can be directly exchanged, makes it impossible to
understand the economic significance of money, its historical appearance.
Sismondi’s answer to this is regrettably clumsy. In order to show that
MacCulloch’s explanation of commodity exchange has no application for
capitalist production, he takes recourse to the Leipsic Book Fair.[181]
‘At the Book Fair of Leipsic, booksellers from all over Germany arrive,
each with four or five publications of his own in some 40 or 50 dozen
copies; these are exchanged for others and every seller takes home 200
dozen books, just as he has brought 200 dozen, with the sole difference, that
he brought four different works and takes home 200. This is the demand
and the production which, according to M. Ricardo’s disciple, are
correlative and convertible; one buys the other, one pays for the other, one
is the consequence of the other. But as far as we are concerned, for the
bookseller and for the general public, demand and consumption have not
even begun. For all that it has changed hands at Leipsic, a bad book will
still be just as unsold (a bad mistake of Sismondi’s, this!), it will still clutter
up the merchants’ shops, either because nobody wants it, or because
everyone has a copy already. The books exchanged at Leipsic will only sell
if the booksellers can find individuals who not only want them but are also
prepared to make sacrifices in order to withdraw them from circulation.
They alone constitute an effective demand.’[182]
Although this example is rather crude, it shows clearly that Sismondi was
not side-tracked by his opponent’s trick, that he knows after all what he is
talking about.
MacCulloch then attempts to turn the examination from abstract commodity
exchange to concrete social conditions: ‘Supposing, for the sake of
illustration, that a cultivator advanced food and clothing for 100 labourers,
who raised for him food for 200; while a master-manufacturer also
advanced food and clothing for 100, who fabricated for him clothing for
200. Then the farmer, besides replacing the food of his own labourers,
would have food for 100 to dispose of; while the manufacturer, after
replacing the clothing of his own labourers, would have clothing for 100 to

bring to market. In this case, the two articles would be exchanged against
each other, the supply of food constituting the demand for the clothing, and
that of the clothing the demand for the food.’[183]
What are we to admire more in this hypothesis: the absurdity of the set-up
which reverses all actual relations, or the effrontery which simply takes for
granted in the premises all that is later claimed proved? In order to prove
that it is always possible to create an unlimited demand for all kinds of
goods, MacCulloch chooses for his example two commodities which
pertain to the most urgent and elementary wants of every human being:
food and clothing. In order to prove that commodities may be exchanged at
any time, and without regard to the needs of society, he chooses for his
example two products in quantities which are right from the start in strict
conformity with these needs, and which therefore contain no surplus as far
as society is concerned. And yet he calls this quantity needed by society a
surplus—viz. as measured against the producer’s personal requirements for
his own product, and is consequently able to demonstrate brilliantly that
any amount of commodity ‘surplus’ can be exchanged for a corresponding
‘surplus’ of other commodities. Finally, in order to prove that different
privately produced commodities can yet be exchanged, although their
quantity, production costs and social importance must of course be
different, he chooses for his example commodities whose quantity,
production cost and general social necessity are precisely the same right
from the start. In short, MacCulloch posits a planned, strictly regulated
production without any over-production in order to prove that no crisis is
possible in an unplanned private economy.
The principal joke of canny Mac, however, lies elsewhere. What is at issue
is the problem of accumulation. Sismondi was worried by, and worried
Ricardo and his followers with, the following question: if part of the surplus
value is capitalised, i.e. used to expand production over and above the
income of society, instead of being privately consumed by the capitalists,
where are we to find buyers for the commodity surplus? What will become
of the capitalised surplus value? Who will buy the commodities in which it
is hidden? Thus Sismondi. And the flower of Ricardo’s school, its official
representative on the Chair of London University, the authority for the then
English Ministers of the Liberal Party and for the City of London, the great
Mr. MacCulloch replies—by constructing an example in which no surplus

value whatever is produced. His ‘capitalists’ slave away in agriculture and
industry in the name of charity, and all the time the entire social product,
including the ‘surplus’, is only enough for the needs of the workers, for the
wages, while the ‘farmer’ and ‘manufacturer’ see to production and
exchange without food and clothing.
Sismondi, justly impatient, now exclaims: ‘The moment we want to find out
what is to constitute the surplus of production over consumption of the
workers, it will not do to abstract from that surplus which forms the due
profit of labour and the due share of the master.’[184]
MacCulloch’s only reaction is to multiply his silly argument by a thousand.
He asks the reader to assume ‘1,000 farmers’, and ‘also 1,000 master-
manufacturers’ all acting as ingenuously as the individuals. The exchange,
then, proceeds as smoothly as can be desired. Finally, he exactly doubles
labour productivity ‘in consequence of more skilful application of labour
and of the introduction of machinery—thus that every one of the 1,000
farmers, by advancing food and clothing for 100 labourers, obtains a return
consisting of ordinary food for 200 together with sugar, grapes and tobacco
equal in production cost to that food’, while every manufacturer obtains, by
an analogous procedure, in addition to the previous quantity of clothing for
all workers, ‘ribbands, cambrics and lace, equal in productive cost, and
therefore in exchangeable value, to that clothing’.[185] After such complete
reversal of the chronological order, the assumption, that is, of first the
existence of private property with wage labour, and then, at a later stage,
such level of labour productivity as makes exploitation possible at all, he
now assumes labour productivity to progress with equal speed in all
spheres, the surplus product to contain precisely the same amount of value
in all branches of industry, and to be divided among precisely the same
number of people. When these various surplus products are then exchanged
against one another, is it any wonder that the exchange proceeds smoothly
and completely to everybody’s satisfaction? It is only another of his many
absurdities that MacCulloch makes the capitalists who had hitherto lived on
air and exercised their profession in their birthday suits, now live
exclusively on sugar, tobacco and wine, and array themselves only in
ribbons, cambrics and lace.
The most ridiculous performance, however, is the volte-face by which he
evades the real problem. The question had been what happens to the

capitalist surplus, that surplus which is used not for the capitalist’s own
consumption but for the expansion of production. MacCulloch solves it on
the one hand by ignoring the production of surplus value altogether, and on
the other, by using all surplus value in the production of luxury goods. What
buyers, then, does he advance for this new luxury production? The
capitalists, evidently; the farmers and manufacturers, since, apart from
these, there are only workers in MacCulloch’s model. Thus the entire
surplus value is consumed for the personal satisfaction of the capitalists,
that is to say, simple reproduction takes place. The answer to the problem of
the capitalisation of surplus value is, according to MacCulloch, either to
ignore surplus value altogether, or to assume simple reproduction instead of
accumulation as soon as surplus value comes into being. He still pretends to
speak of expanding reproduction, but again, as before when he pretended to
deal with the ‘surplus’, he uses a trick, viz. first setting out an impossible
species of capitalist production without any surplus value, and then
persuading the reader that the subsequent début of the surplus value
constitutes an expansion of production.
Sismondi is not quite up to these Scottish acrobatics. He had up to now
succeeded in pinning his Mac down, proving him to be ‘obviously absurd’.
But now he himself becomes confused with regard to the crucial point at
issue. On the above rantings of his opponent, he should have declared
coldly: Sir, with all respect for the flexibility of your mind, you are dodging
the issue. I keep on asking, who will buy the surplus product, if the
capitalists use it for the purpose of accumulation, i.e. to expand production,
instead of squandering it altogether? And you reply: Oh well, they will
expand their production of luxury goods, which they will, of course, eat up
themselves. But this is a conjuring trick, seeing that the capitalists consume
the surplus value in so far as they spend it on their luxuries—they do not
accumulate at all. My question is about the possibility of accumulation, not
whether the personal luxuries of the capitalists are possible. Answer this
clearly, if you can, or else go play with your wine and tobacco, or go to
blazes for all I care.
But Sismondi, instead of putting the screws on the vulgariser, suddenly
begins to moralise with pathos and social conscience. He exclaims: ‘Whose
demand? Whose satisfaction? The masters or the workers in town or
country? On this new conception [of Mac’s] there is a surplus of products,

an advantage from labour—to whom will it accrue?’[186] and gives his own
answer in the following impassioned words: ‘But we know full well, and
the history of the commercial world teaches us all too thoroughly, that it is
not the worker who profits from the increase in products and labour; his pay
is not in the least swelled by it. M. Ricardo himself said formerly that it
ought not to be, unless you want the social wealth to stop growing. On the
contrary, sorry experience teaches us that wages nearly always contract by
very reason of this increase. Where, then, does the accumulation of wealth
make itself felt as a public benefit? Our author assumes 1,000 farmers who
profit, while 100,000 workers toil; 1,000 entrepreneurs who wax rich, while
100,000 artisans are kept under their orders. Whatever good may result
from the accumulation of the frivolous enjoyment of luxuries is only felt by
a 100th part of the nation. And will this 100th part, called upon to consume
the entire surplus product of the whole working class, be adequate to a
production that may grow without let or hindrance, owing to progress of
machinery and capitals? In the assumption made by the author, every time
the national product is doubled, the master of the farm or of the factory
must increase his consumption a hundredfold; if the national wealth to-day,
thanks to the invention of so many machines, is a hundred times what it was
when it only covered the cost of production, every employer would to-day
have to consume enough products to support 10,000 workers.’[187]
At this point Sismondi again believes himself to have a firm grasp on how
crises begin to arise: ‘We might imagine, if put to it, that a rich man can
consume the goods manufactured by 10,000 workers, this being the fate of
the ribbons, lace and cambrics whose origin the author has shown us. But a
single individual would not know how to consume agricultural product to
the same tune, the wines, sugar and spices which M. Ricardo [whom
Sismondi evidently suspected of having written the article since he only got
to know ‘Anonymous’ of the Edinburgh Review at a later date] conjures up
in exchange, are too much for the table of one man. They will not sell, or
else the strict proportion between agricultural and industrial products,
apparently the basis of his whole system, cannot be maintained.’[188]
Sismondi, we see, has thus fallen into MacCulloch’s trap. Instead of
waiving an answer to the problem of accumulation which refers to the
production of luxuries, he pursues his opponent into this field without
noticing that the ground under his feet has shifted. Here he finds two causes

for complaint. For one thing, he has moral objections to MacCulloch’s
allowing the capitalists instead of the workers to benefit by the surplus
value, and is side-tracked into polemising against distribution under
capitalism. From this digression, he unexpectedly reverts to the original
problem which he now formulates as follows: the capitalists, then, consume
the entire surplus value in luxuries. Let it be so. But could anyone increase
his consumption as rapidly and indefinitely as the progress of labour
productivity makes the surplus value increase? And in this second instance,
Sismondi himself abandons his own problem. Instead of perceiving that it is
the lack of consumers other than workers and capitalists which accounts for
the difficulty in capitalist accumulation, he discovers a snag in simple
reproduction because the capitalists’ capacity to consume has physical
limits. Since the absorptive capacity of the capitalists for luxuries cannot
keep up with labour productivity, that is to say with the increase in surplus
value, there must be crises and over-production. We have encountered this
line of thought once before in the Nouveaux Principes—so Sismondi
himself was manifestly not quite clear about the problem at all times. And
that is hardly surprising, since one can really come to grips with the whole
problem of accumulation only when one has fully grasped the problem of
simple reproduction, and we have seen how much Sismondi was at fault in
this respect.
Yet in spite of all this, the first time that Sismondi crossed swords with the
heirs of the classical school, he proved himself by no means the weaker
party. On the contrary, in the end he routed his opponent. If Sismondi
misunderstood the most elementary principles of social reproduction and
ignored constant capital, quite in keeping with Adam Smith’s dogma, he
was in this respect no worse at any rate than his opponent. Constant capital
does not exist for MacCulloch either, his farmers and manufacturers
‘advance’ merely food and clothing to their workers, and food and clothing
between them make up the aggregate product of society. If there is, then,
nothing to choose between the two as far as this elementary blunder is
concerned, Sismondi towers heads above Mac because of his intuitive
understanding of the contradictions in the capitalist mode of production. In
the end, the Ricardian was at a loss to answer Sismondi’s scepticism
concerning the possibility of realising the surplus value. Sismondi also
shows himself more penetrating in that he throws the Nottingham
proletarians’ cry of distress in the teeth of the apostles and apologists of

harmony with their smug complacency, of those who deny ‘any surplus of
production over demand, any congestion of the market, any suffering’,
when he proves that the introduction of the machine must of necessity
create a ‘superabundant population’, and particularly in the end, when he
underlines the tendency of the capitalist world market in general with its
inherent contradictions. MacCulloch denies outright that general over-
production is possible. He has a specific for every partial over-production
up his sleeve:
‘It may be objected, perhaps, that on the principle that the demand for
commodities increases in the same ratio as their supply, there is no
accounting for the gluts and stagnation produced by overtrading. We answer
very easily—A glut is an increase in the supply of a particular class of
commodities, unaccompanied by a corresponding increase in the supply of
those other commodities which should serve as their equivalents. While our
1,000 farmers and 1,000 master-manufacturers are exchanging their
respective surplus products, and reciprocally affording a market to each
other, if 1,000 new capitalists were to join their society, employing each 100
labourers in tillage, there would be an immediate glut in agricultural
produce ... because in this case there would be no contemporaneous
increase in the supply of the manufactured articles which should purchase
it. But let one half of the new capitalists become manufacturers, and
equivalents in the form of wrought goods will be created for the new
produce raised by the other half: the equilibrium will be restored, and the
1,500 farmers and 1,500 master-manufacturers will exchange their
respective surplus products with exactly the same facility with which the
1,000 farmers and 1,000 manufacturers formerly exchanged theirs.’[189]
Sismondi answers this buffoonery which ‘very easily’ pokes about in a fog,
by pointing to the real changes and revolutions which take place before his
own eyes. ‘It was possible to put barbarous countries under the plough, and
political revolutions, changes in the financial system, and peace, at once
brought cargoes to the ports of the old agricultural countries which almost
equalled their entire harvest. The recent Russian conquest of the vast
provinces on the Black Sea, the change in the system of government in
Egypt, and the outlawing of piracy in High Barbary, have suddenly poured
the granaries of Odessa, Alexandria and Tunis into the Italian ports and
have put such an abundance of corn on the markets that all along the coasts

the farmer’s trade is fighting a losing battle. Nor is the remainder of Europe
safe from a similar revolution, caused by the simultaneous ploughing under
of immense expanses of new land on the banks of the Mississippi, which
export all their agricultural produce. Even the influence of New Holland
may one day be the ruin of English industry, if not in the price of foodstuffs,
which are too expensive to transport, at least in respect of wool and other
agricultural products which are easier to transport.’[190]
What would MacCulloch have to advise in view of such an agrarian crisis
in Southern Europe? That half the new farmers should turn manufacturer.
Whereupon Sismondi counters: ‘Such counsel cannot seriously apply to the
Tartars of the Crimea or to the fellaheen of Egypt.’ And he adds: ‘The time
is not yet ripe to set up new industries in the regions oversea or in New
Holland.’[191]
Sismondi’s acuity recognised that industrialisation of the lands overseas
was only a matter of time. He was equally aware of the fact that the
expansion of the world market would not bring with it the solution to the
difficulty but would only reproduce it in a higher degree, in yet more potent
crises. His prediction for the expansive tendency of capitalism is that it will
reveal an aspect of fiercer and fiercer competition, of mounting anarchy
within production itself. Indeed, he puts his finger on the fundamental
causes of crises in a passage where he states the trend of capitalist
production precisely as surpassing all limits of the market. At the end of his
reply to MacCulloch he says: ‘Time and again it has been proclaimed that
the equilibrium will re-establish itself, that work will start again, but a
single demand each time provides an impetus in excess of the real needs of
trade, and this new activity must soon be followed by a yet more painful
glut.’[192]
To such a profound grasp of the real contradictions in the movements of
capital, the vulgarus on the Chair of London University with his harmony
cant and his country-dance of 1,000 beribboned farmers and 1,000 bibulous
manufacturers could find no effective answer.

CHAPTER XII

RICARDO v. SISMONDI
MacCulloch’s reply to Sismondi’s theoretical objections evidently did not
settle the matter to Ricardo’s own satisfaction. Unlike that shrewd ‘Scottish
arch-humbug’, as Marx calls him, Ricardo really wanted to discover the
truth and throughout retained the genuine modesty of a great mind.[193] That
Sismondi’s polemics against him and his pupil had made a deep impression
is proved by Ricardo’s revised approach to the question of the effects of the
machine, that being the point on which Sismondi, to his eternal credit, had
confronted the classical school of harmony with the sinister aspects of
capitalism. Ricardo’s followers had enlarged upon the doctrine that the
machine can always create as many or even more opportunities for the
wage labourers as it takes away by displacing living labour. This so-called
theory of compensation was subjected to a stern attack by Sismondi in the
chapter ‘On the Division of Labour and Machinery’[194] and in another
chapter significantly entitled: ‘Machinery Creates a Surplus Population’,
[195]
both published in the Nouveaux Principes of 1819, two years later than
Ricardo’s main work. In 1821, after the MacCulloch-Sismondi controversy,
Ricardo inserted a new chapter in the third edition of his Principles, where
he frankly confesses to his error and says in the strain of Sismondi: ‘That
the opinion entertained by the labouring classes, that the employment of
machinery is frequently detrimental to their interests, is not founded on
prejudice and error, but is conformable to the correct principles of political
economy.’[196]
He, like Sismondi, had to defend himself against the suspicion that he is
opposing technical progress, but, less ruthless, he compromises with the
evasion that the evil emerges only gradually. ‘To elucidate the principle, I
have been supposing, that improved machinery is suddenly discovered, and
extensively used; but the truth is, that these discoveries are gradual, and
rather operate in determining the employment of the capital which is saved
and accumulated, than in diverting capital from its actual employment.’[197]
Yet the problem of crises and accumulation continued to worry Ricardo
also. In 1823, the last year of his life, he spent some days in Geneva in

order to talk the problem over face to face with Sismondi. The result of
these talks is Sismondi’s essay ‘On the Balance Between Consumption and
Production’, published in the Revue Encyclopédique of May 1824.[198]
In his Principles, Ricardo had at the crucial points completely accepted
Say’s trite doctrine of harmony in the relations between production and
consumption. In chapter xxi he had declared: ‘M. Say has, however, most
satisfactorily shown, that there is no amount of capital which may not be
employed in a country, because demand is only limited by production. No
man produces, but with a view to consume or sell, and he never sells, but
with an intention to purchase some other commodity, which may be
immediately useful to him, or which may contribute to future production.
By producing, then, he necessarily becomes either the consumer of his own
goods, or the purchaser and consumer of the goods of some other
person.’[199]
To this conception of Ricardo’s, Sismondi’s Nouveaux Principes were a
powerful challenge, and the dispute as a whole turned also on this point.
Ricardo could not deny the fact of crises which had but recently passed over
England and other countries. What was at issue was the explanation for
them. Right at the outset of their debate, Sismondi and Ricardo had agreed
on a remarkably lucid and precise formulation of the problem, excluding
the question of foreign commerce altogether. Sismondi grasped the
significance and necessity of foreign trade for capitalist production, its need
for expansion, well enough; in this line he was quite in step with Ricardo’s
Free Traders, whom he considerably excelled in his dialectical conception
of the expansionist needs of capital. He fully admitted that industry ‘is
increasingly led to look for its vents on foreign markets where it is
threatened by greater revolutions’.[200] He forecast, as we have seen, the
rise of a dangerous competition for European industry in the overseas
countries. This was after all a creditable achievement in the year 1820, and
one which reveals Sismondi’s deep insight into the relations of capitalist
world economy. But even so, Sismondi was in fact far from conceiving the
problem of realising the surplus value, the problem of accumulation, to
depend on foreign commerce as its only means of salvation, a view
attributed to him by later critics. On the contrary, Sismondi was quite
explicit in the sixth chapter of volume i:[201] ‘In order to make these
calculations with greater certainty and to simplify these questions, we have

hitherto made complete abstraction from foreign trade and supposed an
isolated nation; this isolated nation is human society itself, and what is true
for a nation without foreign commerce, is equally true for mankind.’
In other words: in considering the entire world market as one society
producing exclusively by capitalist methods, Sismondi grounds his problem
in the same premises as Marx was to do after him. That was also the basis
on which he came to terms with Ricardo. ‘From the question that troubled
us, we had each of us dismissed the instance of a nation that sold more
abroad than it needed to buy there, that could command a growing external
market for its growing internal production. In any case, it is not for us to
decide whether fortunes of war or politics could perhaps bring forth new
consumers for a nation—what is needed is proof that a nation can create
these for itself simply by increasing its production.’[202]
This is how Sismondi formulated the problem of realising the surplus value
in all precision, just as it confronts us throughout the ensuing era in
economics, in contrast with Ricardo who actually maintains along with Say,
as we are already aware and shall show in further detail, that production
creates its own demand.
Ricardo’s thesis in the controversy with Sismondi takes the following form:
‘Supposing that 100 workers produce 1,000 sacks of corn, and 100 weavers
1,000 yards woollen fabric. Let us disregard all other products useful to
man and all intermediaries between them, and consider them alone in the
world. They exchange their 1,000 yards against the 1,000 sacks. Supposing
that the productive power of labour has increased by a tenth owing to a
successive progress of industry, the same people will exchange 1,100 yards
against 1,100 sacks, and each will be better clothed and fed; new progress
will make them exchange 1,200 yards for 1,200 sacks, and so on. The
increase in products always only increases the enjoyment of those who
produce.’[203]
The great Ricardo’s standards of reasoning, it must regretfully be stated, are
if anything even lower than those of the Scottish arch-humbug,
MacCulloch. Once again we are invited to witness a harmonious and
graceful country-dance of sacks and yards—the very proportion which is to
be proved, is again taken for granted. What is more, all relevant premises
for the problem are simply left out. The real problem—you will recollect—

the object of the controversy had been the question: who are the buyers and
consumers of the surplus product that comes into being if the capitalists
produce more goods than are needed for their own and their workers’
consumption; if, that is to say, they capitalise part of their surplus value and
use it to expand production, to increase their capital? Ricardo answers it by
completely ignoring the capital increase. The picture he paints of the
various stages of production is merely that of a gradually increasing
productivity of labour. According to his assumptions, the same amount of
labour first produces 1,000 sacks and 1,000 yards textiles, then 1,100 sacks
and 1,100 yards, further 1,200 sacks and 1,200 yards, and so on, in a
gracefully ascending curve. Not only that the image of a marshalled
uniform progression on both sides, of conformity even in the number of
objects brought to exchange, is wearisome, the expansion of capital is
nowhere as much as mentioned in the model. Here we have no enlarged but
simple reproduction with a greater bulk of use-values indeed, but without
any increase in the value of the aggregate social product. Since only the
amount of value, not the number of use-values is relevant to the exchange
transaction, and this amount remains constant in the example, Ricardo
makes no real advances, even though he seems to analyse the progressive
expansion of production. Finally, he is quite oblivious of the relevant
categories of reproduction. MacCulloch had begun by making the
capitalists produce without any surplus value and live on air, but at least he
recognised the existence of the workers, making provision for their
consumption. Ricardo, however, does not even mention the workers; for
him the distinction between variable capital and surplus value does not exist
at all. Besides this major omission, it is of small account that he, just like
his disciple, takes no notice of constant capital. He wants to solve the
problem of realising the surplus value and expanding capital without
positing more than the existence of a certain quantity of commodities which
are mutually exchanged.
Sismondi was blind to the fact that the venue has been changed altogether.
Yet he tried faithfully to bring the fantasies of his famous guest and
opponent down to earth and to analyse their invisible contradictions,
plaintively saying that these assumptions, ‘just like German metaphysics,
abstract from time and space’.[204] He grafts Ricardo’s hypothesis on to
‘society in its real organisation, with unpropertied workers whose wage is
fixed by competition and who can be dismissed the moment their master

has no further need of their work ... for’—remarks Sismondi, as acute as he
is modest—‘it is just this social organisation to which our objection refers’.
[205]

He lays bare the many difficulties and conflicts bound up with the progress
of labour productivity under capitalism, and shows that Ricardo’s
postulated changes in the technique of labour, from the point of view of
society, lead to the following alternative: Either a number of workers
corresponding to the increase in labour productivity will have to be
dismissed outright—then there will be a surplus of products on the one
hand, and on the other unemployment and misery—a faithful picture of
present-day society. Or the surplus product will be used for the maintenance
of the workers in a new field of production, the production of luxury goods.
Here Sismondi undoubtedly proves himself superior: he suddenly
remembers the existence of the constant capital, and now it is he who
subjects the English classic to a frontal attack:
‘For setting up a new industry for manufacturing luxuries, new capital is
also needed; machines will have to be built, raw materials procured, and
distant commerce brought into activity; for the wealthy are rarely content
with enjoying what is immediately in front of them. Where, then, could we
find this new capital which may perhaps be much more considerable than
that required by agriculture?... Our luxury workers are still a long way from
eating our labourers’ grain, from wearing the clothes from our common
factories; they are not yet made into workers, they may not even have been
born yet, their trade does not exist, the materials on which they are to work
have not arrived from India. All those among whom the former should
distribute their bread, wait for it in vain.’[206]
Sismondi now takes constant capital into account, not only in the
production of luxuries, but also in agriculture, and further raises the
following objection against Ricardo: ‘We must abstract from time, if we
make the assumption that the cultivator, whom a mechanical discovery or
an invention of rural industry enables to treble the productive power of his
workers, will also find sufficient capital to treble his exploitation, his
agricultural implements, his equipment, his livestock, his granaries: to
treble the circulating capital which must serve him while waiting for his
harvest.’[207]

In this way Sismondi breaks with the superstition of the classical school
that with capital expanding all additional capital would be exclusively spent
on wages, on the variable capital. He clearly dissents from Ricardo’s
doctrine—which did not, however, prevent his allowing all the errors
arising out of this doctrine three years later again to creep into the second
edition of his Nouveaux Principes. In opposition to Ricardo’s facile doctrine
of harmony, Sismondi underlines two decisive points: on the one hand, the
objective difficulties of the process of enlarged reproduction which works
by no means so smoothly in capitalist reality as it does in Ricardo’s absurd
hypothesis; on the other hand, the fact that all technical progress in social
labour productivity is always achieved under capitalism at the expense of
the working class, bought with their suffering. Sismondi shows himself
superior to Ricardo in yet a third point: he represents the broad horizon of
the dialectical approach as against Ricardo’s blunt narrow-mindedness with
its incapacity to conceive of any forms of society other than those of
bourgeois economics:
‘Our eyes,’ he exclaims, ‘are so accustomed to this new organisation of
society, this universal competition, degenerating into hostility between the
rich and the working class, that we no longer conceive of any mode of
existence other than that whose ruins surround us on all sides. They believe
to prove me absurd by confronting me with the vices of preceding systems.
Indeed, as regards the organisation of the lower classes, two or three
systems have succeeded one another; yet, since they are not to be regretted,
since, after first doing some good, they then imposed terrible disasters on
mankind, may we conclude from this that we have now entered the true
one? May we conclude that we shall not discover the besetting vice of the
system of wage labour as we have discovered that of slavery, of vassalage,
and of the guilds? A time will come, no doubt, when our descendants will
condemn us as barbarians because we have left the working classes without
security, just as we already condemn, as they also will, as barbarian the
nations who have reduced those same classes to slavery.’[208]
Sismondi’s statement, putting in a nutshell the vital differences between the
parts played by the proletariat in a modern society and in the society of
ancient Rome, shows his profound insight into historical connections. He
shows no less discernment, in his polemics against Ricardo, when analysing
the specific economic character of the slave-system and of feudal economy

as well as their relative historical significance, and finally when
emphasising, as the dominant universal tendency of bourgeois economy,
‘that it severs completely all kind of property from every kind of labour’.
The second round, no more than the first, between Sismondi and the
classical school, brought little glory for Sismondi’s opponents.[209]

CHAPTER XIII

SAY v. SISMONDI
Sismondi’s essay against Ricardo in the Revue Encyclopédique of May
1824, was the final challenge for J. B. Say, at that time the acknowledged
‘prince of economic science’ (prince de la science économique), the so-
called representative, heir and populariser of the school of Adam Smith on
the Continent. Say, who had already advanced some arguments against
Sismondi in his letters to Malthus, countered the following July with an
essay on ‘The Balance Between Consumption and Production’ in the Revue
Encyclopédique, to which Sismondi in turn published a short reply. The
chronology of Sismondi’s polemical engagements was thus inverse to the
sequence of the opposing theories, for it had been Say who first
communicated his doctrine of a divinely established balance between
production and consumption to Ricardo who had in turn handed it down to
MacCulloch. In fact, as early as 1803, Say, in his Traité d’Économie
Politique, book i, chapter xii, had coined the following peremptory
statement: ‘Products are paid for with other products. It follows that if a
nation has too many goods of one kind, the means of selling them would be
to create goods of a different kind.’[210]
Here we meet again the all too familiar conjuring recipe which was
accepted alike by Ricardo’s school and by the ‘vulgar economists’ as the
corner-stone of the doctrine of harmony.[211]
Essentially, Sismondi’s principal work constitutes a sustained polemic
against this thesis. At this stage Say charges to the attack in the Revue
Encyclopédique with a complete volte-face, as follows:
‘Objection may be made that, because of man’s intelligence, because of the
advantage he can draw from the means provided by nature and artifice,
every human society can produce all the things fit to satisfy its needs and
increase its enjoyment in far larger quantities than it can itself consume. But
there I would ask how it is possible that we know of no nation that is
supplied with everything. Even in what rank as prospering nations seven-
eighths of the population are lacking in a multitude of things considered
necessities in ... I will not say a wealthy family, but in a modest

establishment. The village I live in at present lies in one of the richest parts
of France; yet in 19 out of 20 houses I enter here, I see but the coarsest fare
and nothing that makes for the well-being of the people, none of the things
the English call comforts.’[212]
There is something to admire about the effrontery of the excellent Say. It
was he who had maintained that in a capitalist economy there could be no
difficulties, no surplus, no crises and no misery; since goods can be bought
one for the other, we need only go on producing more and more and
everything in the garden will be lovely. It was in Say’s hands that this
postulate had become a tenet of the doctrine of harmony, that doctrine so
typical of vulgar economics, which had evoked a sharp protest from
Sismondi who proved this view untenable. The latter had shown that goods
cannot be sold in any quantity you like, but that a limit is set to the
realisation of goods by the income of society in each case, by v + s;
inasmuch as the wages of the workers are depressed to a mere subsistence
level, and inasmuch as there is also a natural limit to the consumptive
capacity of the capitalist class, an expansion of production, Sismondi says,
must inevitably lead to slumps, crises and ever greater misery for the great
masses. Say’s come-back to this is masterly in its ingenuity: If you will
insist that over-production is possible, how can it happen that there are so
many people in our society who are naked, hungry and in want? Pray,
explain this contradiction if you can. Say, whose own position excels by
contriving blithely to shrug off the circulation of money altogether by
operating with a system of barter, now censures his critic for speaking of an
over-abundance of products in relation not only to purchasing power but to
the real needs of society, and that although Sismondi had left no doubt at all
about this very salient point of his deductions. ‘Even if there is a very great
number of badly fed, badly clothed and badly housed people in a society,
the society can only sell what it buys, and, as we have seen, it can only buy
with its income.’[213]
A little further on, Say concedes this point but alleges that his opponent has
made a new mistake: ‘It is not consumers, then, in which the nation is
lacking,’ he says, ‘but purchasing power. Sismondi believes that this will be
more extensive, when the products are rare, when consequently they are
dearer and their production procures ampler pay for the workers.’[214]

That is how Say attempts to degrade, in his own trite method of thought, or
better, method of canting, Sismondi’s theory which attacked the very
foundations of capitalist organisation and its mode of distribution. He
burlesques the Nouveaux Principes, turning them into a plea for ‘rare’
goods and high prices, and holds up to them the mirror of an artfully
flattered capitalist accumulation at its peak. If production becomes more
vigorous, he argues, labour grows in numbers and the volume of production
expands, the nations will be better and more universally provided for, and
he extols the conditions in countries where industrial development is at its
highest, as against the misery of the Middle Ages. Sismondi’s maxims he
declares subversive to capitalist society: ‘Why does he call for an inquiry
into the laws which might oblige the entrepreneur to guarantee a living for
the worker he employs? Such an inquiry would paralyse the spirit of
enterprise. Merely the fear that the authorities might interfere with private
contracts is a scourge and harmful to the wealth of a nation.’[215]
Not to be diverted from his purpose by this indiscriminate apologia of
Say’s, Sismondi once more turns the discussion on the fundamental issue:
‘Surely I have never denied that since the time of Louis XIV France has
been able to double her population and to quadruple her consumption, as he
contends. I have only claimed that the increase of products is a good if it is
desired, paid for and consumed; that, on the other hand, it is an evil if, there
being no demand, the only hope of the producer is to entice the consumers
of a rival industry’s products. I have tried to show that the natural course of
the nations is progressive increase of their property, an increase consequent
upon their demand for new products and their means to pay for them, but
that in consequence of our institutions, of our legislation having robbed the
working class of all property and every security, they have also been
spurred to a disorderly labour quite out of touch with the demand and with
purchasing power, which accordingly only aggravates poverty.’[216]
And he winds up the debate by inviting the preacher of harmony to reflect
upon the circumstance that, though a nation may be rich, public misery no
less than material wealth is constantly on the increase, the class which
produces everything being daily brought nearer to a position where it may
consume nothing. On this shrill discordant note of capitalist contradictions
closes the first clash about the problem of accumulation.

Summing up the general direction of this first battle of wits, we must note
two points:
(1) In spite of all the confusion in Sismondi’s analysis, his superiority to
both Ricardo and his followers and to the self-styled heir to the mantle of
Adam Smith is quite unmistakable. Sismondi, in taking things from the
angle of reproduction, looks for concepts of value (capital and income) and
for factual elements (producer and consumer goods) as best he can, in order
to grasp how they are interrelated within the total social process. In this he
is nearest to Adam Smith, with the difference only that the contradictions
there appearing as merely subjective and speculative, are deliberately
stressed as the keynote of Sismondi’s analysis where the problem of capital
accumulation is treated as the crucial point and principal difficulty.
Sismondi has therefore made obvious advances on Adam Smith, while
Ricardo and his followers as well as Say throughout the debate think solely
in terms of simple commodity production. They only see the formula C—M
—C, even reducing everything to barter, and believe that such barren
wisdom can cover all the problems specific to the process of reproduction
and accumulation. This is a regress even on Smith, and over such myopic
vision, Sismondi scores most decisively. He, the social critic, evinces much
more understanding for the categories of bourgeois economics than their
staunchest champions—just as, at a later date, the socialist Marx was to
grasp infinitely more keenly than all bourgeois economists together the
differentia specifica of the mechanism of capitalist economy. If Sismondi
exclaims in the face of Ricardo’s doctrine: ‘What, is wealth to be all, and
man a mere nothing?’[217] it is indicative not only of the vulnerable moral
strain in his petty-bourgeois approach compared to the stern, classical
impartiality of Ricardo, but also of a critical perception, sharpened by social
sensibilities for the living social connections of economy; an eye, that is, for
intrinsic contradictions and difficulties as against the rigid, hidebound and
abstract views of Ricardo and his school. The controversy had only shown
up the fact that Ricardo, just like the followers of Adam Smith, was not
even able to grasp, let alone solve the puzzle of accumulation put by
Sismondi.
(2) The clue to the problem, however, was already impossible of discovery,
because the whole argument had been side-tracked and concentrated upon
the problem of crises. It is only natural that the outbreak of the first crisis

should dominate the discussion, but no less natural that this effectively
prevented either side from recognising that crises are far from constituting
the problem of accumulation, being no more than its characteristic
phenomenon: one element in the cyclical form of capitalist reproduction.
Consequently, the debate could only result in a twofold quid pro quo: one
party deducing from crises that accumulation is impossible, and the other
from barter that crises are impossible. Subsequent developments of
capitalism were to give the lie to both conclusions alike.
And yet, Sismondi’s criticism sounds the first alarm of economic theory at
the domination of capital, and for this reason its historical importance is
both great and lasting. It paves the way for the disintegration of a classical
economics unable to cope with the problem of its own making. But for all
Sismondi’s terror of the consequences attendant upon capitalism
triumphant, he was certainly no reactionary in the sense of yearning for pre-
capitalistic conditions, even if on occasion he delights in extolling the
patriarchal forms of production in agriculture and handicrafts in comparison
with the domination of capital. He repeatedly and most vigorously protests
against such an interpretation as e.g. in his polemic against Ricardo in the
Revue Encyclopédique:
‘I can already hear the outcry that I jib at improvements in agriculture and
craftsmanship and at every progress man could make; that I doubtless prefer
a state of barbarism to a state of civilisation, since the plough is a tool, the
spade an even older one, and that, according to my system, man ought no
doubt to work the soil with his bare hands.
‘I never said anything of the kind, and I crave indulgence to protest once for
all against all conclusions imputed to my system such as I myself have
never drawn. Neither those who attack me nor those who defend me have
really understood me, and more than once I have been put to shame by my
allies as much as by my opponents.’—‘I beg you to realise that it is not the
machine, new discoveries and inventions, not civilisation to which I object,
but the modern organisation of society, an organisation which despoils the
man who works of all property other than his arms, and denies him the least
security in a reckless over-bidding that makes for his harm and to which he
is bound to fall a prey.’[218]

There can be no question that the interests of the proletariat were at the core
of Sismondi’s criticism, and he is making no false claims when he
formulates his main tendency as follows:
‘I am only working for means to secure the fruits of labour to those who do
the work, to make the machine benefit the man who puts it in motion.’[219]
When pressed for a closer definition of the social organisation towards
which he aspires, it is true he hedges and confesses himself unable to do so:
‘But what remains to be done is of infinite difficulty, and I certainly do not
intend to deal with it to-day. I should like to convince the economists as
completely as I am convinced myself that their science is going off on a
wrong tack. But I cannot trust myself to be able to show them the true
course; it is a supreme effort—the most my mind will run to—to form a
conception even of the actual organisation of society. Yet who would have
the power to conceive of an organisation that does not even exist so far, to
see the future, since we are already hard put to it to see the present?’[220]
Surely it was no disgrace to admit oneself frankly powerless to envisage a
future beyond capitalism in the year 1820—at a time when capitalism had
only just begun to establish its domination over the big industries, and when
the idea of socialism was only possible in a most Utopian form. But, as
Sismondi could neither advance beyond capitalism nor go back to a
previous stage, the only course open to his criticism was a petty-bourgeois
compromise. Sceptical of the possibility of developing fully both capitalism
and the productive forces, he found himself under necessity to clamour for
some moderation of accumulation, for some slowing down of the
triumphant march of capitalism. That is the reactionary aspect of his
criticism.[221]

CHAPTER XIV

MALTHUS
At the same time as Sismondi, Malthus also waged war against some of the
teachings of Ricardo. Sismondi, in the second edition of his work as well as
in his polemics, repeatedly referred to Malthus as an authority on his side.
Thus he formulated the common aims of his campaign against Ricardo in
the Revue Encyclopédique:
‘Mr. Malthus, on the other hand, has maintained in England, as I have tried
to do on the Continent, that consumption is not the necessary consequence
of production, that the needs and desires of man, though they are truly
without limits, are only satisfied by consumption in so far as means of
exchange go with them. We have affirmed that it is not enough to create
these means of exchange, to make them circulate among those who have
these desires and wants; that it can even happen frequently that the means
of exchange increase in society together with a decrease in the demand for
labour, or wages, so that the desires and wants of one part of the population
cannot be satisfied and consumption also decreases. Finally, we have
claimed that the unmistakable sign of prosperity in a society is not an
increasing production of wealth, but an increasing demand for labour, or the
offer of more and more wages in compensation for this labour. Messrs.
Ricardo and Say, though not denying that an increasing demand for labour
is a symptom of prosperity, maintained that it inevitably results from an
increase of production. As for Mr. Malthus and myself, we regard these two
increases as resulting from independent causes which may at times even be
in opposition. According to our view, if the demand for labour has not
preceded and determined production, the market will be flooded, and then
new production becomes a cause of ruin, not of enjoyment.’[222]
These remarks suggest far-reaching agreement, a brotherhood in arms of
Sismondi and Malthus, at least in their opposition against Ricardo and his
school. Marx considers the Principles of Political Economy, which Malthus
published in 1820, an outright plagiarism of the Nouveaux Principes which
had been published the year before. Yet Sismondi and Malthus are

frequently at odds regarding the problem with which we are here
concerned.
Sismondi is critical of capitalist production, he attacks it sharply, even
denounces it, while Malthus stands for the defence. This does not mean that
he denies its inherent contradictions, as Say or MacCulloch had done. On
the contrary he raises them quite unmercifully to the status of a natural law
and asserts their absolute sanctity. Sismondi’s guiding principle is the
interests of the workers. He aspires, though rather generally and vaguely,
towards a thoroughgoing reform of distribution in favour of the proletariat.
Malthus provides the ideology for those strata who are the parasites of
capitalist exploitation, who live on ground rent and draw upon the common
wealth, and advocates the allocation of the greatest possible portion of the
surplus value to these ‘unproductive consumers’. Sismondi’s general
approach is predominantly ethical, it is the approach of the social reformer.
Improving upon the classics, he stresses, in opposition to them, that
‘consumption is the only end of accumulation’, and pleads for restricted
accumulation. Malthus, on the contrary, bluntly declares that production has
no other purpose than accumulation and advocates unlimited accumulation
by the capitalists, to be supplemented and assured by the unlimited
consumption of their parasites. Finally, Sismondi starts off with a critical
analysis of the reproductive process, of the relation between capital and
income from the point of view of society; while Malthus, opposing Ricardo,
begins with an absurd theory of value from which he derives an equally
absurd theory of surplus value, attempting to explain capitalist profits as an
addition to the price over and above the value of commodities.[223]
Malthus opposes the postulate that supply and demand are identical with a
detailed critique in chapter vi of his Definitions in Political Economy.[224]
In his Elements of Political Economy, James Mill had declared:
‘What is it that is necessarily meant, when we say that the supply and the
demand are accommodated to one another? It is this: that goods which have
been produced by a certain quantity of labour, exchange for goods which
have been produced by an equal quantity of labour. Let this proposition be
duly attended to, and all the rest is clear.—Thus, if a pair of shoes is
produced with an equal quantity of labour as a hat, so long as a hat
exchanges for a pair of shoes, so long the supply and demand are
accommodated to one another. If it should so happen, that shoes fell in

value, as compared with hats, which is the same thing as hats rising in value
compared with shoes, this would simply imply that more shoes had been
brought to market, as compared with hats. Shoes would then be in more
than the due abundance. Why? Because in them the produce of a certain
quantity of labour would not exchange for the produce of an equal quantity.
But for the very same reason hats would be in less than the due abundance,
because the produce of a certain quantity of labour in them would exchange
for the produce of more than an equal quantity in shoes.’[225]
Against such trite tautologies, Malthus marshals a twofold argument. He
first draws Mill’s attention to the fact that he is building without solid
foundations. In fact, he argues, even without an alteration in the ratio of
exchange between hats and shoes, there may yet be too great a quantity of
both in relation to the demand. This will result in both being sold at less
than the cost of production plus an appropriate profit.
‘But can it be said on this account’, he asks, ‘that the supply of hats is
suited to the demand for hats, or the supply of shoes suited to the demand
for shoes, when they are both so abundant that neither of them will
exchange for what will fulfil the conditions of their continued supply?’[226]
In other words, Malthus confronts Mill with the possibility of general over-
production: ‘... when they are compared with the costs of production ... it is
evident that ... they may all fall or rise at the same time’.[227]
Secondly, he protests against the way in which Mill, Ricardo and company
are wont to model their postulates on a system of barter: ‘The hop planter
who takes a hundred bags of hops to Weyhill fair, thinks little more about
the supply of hats and shoes than he does about the spots in the sun. What
does he think about, then? and what does he want to exchange his hops for?
Mr. Mill seems to be of opinion that it would show great ignorance of
political economy, to say that what he wants is money; yet, notwithstanding
the probable imputation of this great ignorance, I have no hesitation in
distinctly asserting, that it really is money which he wants....’[228]
For the rest, Malthus is content to describe the machinery by which an
excessive supply can depress prices below the cost of production and so
automatically bring about a restriction of production, and vice versa.

‘But this tendency, in the natural course of things, to cure a glut or a
scarcity, is no ... proof that such evils have never existed.’[229]
It is clear that in spite of his contrary views on the question of crises,
Malthus thinks along the same lines as Ricardo, Mill, Say, and MacCulloch.
For him, too, everything can be reduced to barter. The social reproductive
process with its large categories and interrelations which claimed the whole
of Sismondi’s attention, is here completely ignored.
In view of so many contradictions within the fundamental approach, the
criticism of Sismondi and Malthus have only a few points in common: (1)
Contrary to Say and the followers of Ricardo, they both deny the hypothesis
of a pre-established balance of consumption and production. (2) They both
maintain that not only partial but also universal crises are possible.
But here their agreement ends. If Sismondi seeks the cause of crises in the
low level of wages and the capitalists’ limited capacity for consumption,
Malthus, on the other hand, transforms the fact of low wages into a natural
law of population movements; for the capitalists’ limited capacity for
consumption, however, he finds a substitute in the consumption of the
parasites on surplus value such as the landed gentry and the clergy with
their unlimited capacity for wealth and luxury. ‘The church with a
capacious maw is blest.’
Both Malthus and Sismondi look for a category of consumers who buy
without selling, in order to redeem capitalist accumulation and save it from
a precarious position. But Sismondi needs them to get rid of the surplus
product of society over and above the consumption of the workers and
capitalists, that is to say, to get rid of the capitalised part of the surplus
value. Malthus wants them as ‘producers’ of profit in general. It remains
entirely his secret, of course, how the rentiers and the incumbents of the
state can assist the capitalists in appropriating their profits by buying
commodities at an increased price, since they themselves obtain their
purchasing power mainly from these capitalists. In view of these profound
contrasts, the alliance between Malthus and Sismondi does not go very
deep. And if Malthus, as Marx has it, distorts Sismondi’s Nouveaux
Principes into a Malthusian caricature, Sismondi in turn stresses only what
is common to them both and quotes Malthus in support, giving the latter’s
critique of Ricardo a somewhat Sismondian cast. On occasion, no doubt,

Sismondi actually succumbs to the influence of Malthus; for instance, he
takes over the latter’s theory of reckless state expenditure as an emergency
measure in aid of accumulation and so becomes involved in contradictions
with his own initial assumptions.
On the whole, Malthus neither rendered an original contribution to the
problem of reproduction, nor even grasped it fully. In his controversy with
the followers of Ricardo, he operated with the concepts of simple
commodity circulation, just as they did in their controversy with Sismondi.
His quarrel with that school turns on the ‘unproductive consumption’ by the
parasites of the surplus value; it is not a quarrel about the social foundations
of capitalist reproduction. Malthus’ edifice tumbles to the ground as soon as
the absurd mistakes in his theory of profits are uncovered. Sismondi’s
criticism remains valid, and his problems remain unsolved even if we
accept Ricardo’s theory of value with all its consequences.

SECTION TWO
★

HISTORICAL EXPOSITION OF THE
PROBLEM
★
SECOND ROUND
THE CONTROVERSY BETWEEN RODBERTUS AND von
KIRCHMANN

CHAPTER XV

v. KIRCHMANN’S THEORY OF
REPRODUCTION
The second theoretical polemics about the problem of accumulation was
also started by current events. If the first English crisis and its attendant
misery of the working class had stimulated Sismondi’s opposition against
the classical school, it was the revolutionary working-class movement
arisen since which, almost twenty-five years later, provided the incentive
for Rodbertus’ critique of capitalist production. The risings of the Lyons silk
weavers and the Chartist movement in England were vastly different from
the shadowy spectres raised by the first crisis, and the ears of the
bourgeoisie were made to ring with their criticism of the most wonderful of
all forms of society. The first socio-economic work of Rodbertus, probably
written for the Augsburger Allgemeine Zeitung in the late thirties but not
published by that paper, bears the significant title, The Demands of the
Working Classes,[230] and begins as follows:
‘What do the working classes want? Will the others be able to keep it from
them? Will what they want be the grave of modern civilisation? Thoughtful
people have long realised that a time must come when history would put
this question with great urgency. Now, the man in the street has learned it
too, from the Chartist meetings and the Birmingham scenes.’
During the forties, the leaven of revolutionary ideas was most vigorously at
work in France in the formation of the various secret societies and socialist
schools of the followers of Proudhon, Blanqui, Cabet, Louis Blanc, etc. The
February revolution and the June proclamation of the ‘right to work’ led to
a first head-on clash between the two worlds of capitalist society—an
epoch-making eruption of the contradictions latent in capitalism. As regards
the other, visible form of those contradictions—the crises—the available
data for observation at the time of the second controversy were far more
comprehensive than in the early twenties of the century. The dispute
between Rodbertus and v. Kirchmann took place under the immediate
impact of the crises in 1837, 1839, 1847, and even of the first world crisis
in 1857—Rodbertus writing his interesting pamphlet On Commercial

Crises and the Mortgage Problem of the Landowners[231] in 1858. Thus the
inherent contradictions of capitalist society meeting his eyes were in
strident discord with the doctrine of harmony held by the English classics
and their vulgarisers both in England and on the Continent, quite unlike any
critique in the times when Sismondi had raised his voice in warning.
Incidentally, a quotation from Sismondi in Rodbertus’ first writing proves
that the former’s strictures immediately influenced Rodbertus. He was thus
familiar with contemporary French writings against the classical school,
though perhaps less so with the far more numerous English literature. There
is no more than this flimsy support for the myth of the German professors
about the so-called ‘priority’ of Rodbertus over Marx in the ‘foundation of
socialism’. Accordingly, Professor Diehl writes in his article on Rodbertus
in Handwörterbuch der Staatswissenschaften: ‘Rodbertus must be
considered the real founder of scientific socialism in Germany, since in his
writings between 1839 and 1842, even before Marx and Lassalle, he
provided a comprehensive socialist system, a critique of Adam Smith’s
doctrine, new theoretical foundations and proposals for social reform.’
This piece of god-fearing, pious righteousness comes from the second
edition of 1901, after all that had been written by Engels, Kautsky and
Mehring to destroy this learned legend, and in spite of it. Quite inevitably,
of course, and proof against any evidence to the contrary, however weighty,
it was only right in the eyes of all the learned German economists that the
palm of ‘priority’ should be wrested from Marx, the revolutionary anarchist,
by Rodbertus, the ‘socialist’ with monarchist, Prussian and nationalist
leanings, the man who believed in communism five hundred years from
now, but for the present supported a steady exploitation rate of 200 per cent.
However, we are interested in another aspect of Rodbertus’ analysis. The
same Professor Diehl continues his eulogy as follows: ‘Rodbertus was not
only a pioneer of socialism; political economy as a whole owes much
stimulation and furtherance to him; economic theory in particular is
indebted to him for the critique of classical economics, for the new theory
of the distribution of income, for the distinction between the logical and
historical categories of capital, and so on.’
Here we shall deal with these latter achievements of Rodbertus, especially
with the ‘and so on’.

Rodbertus’ decisive treatise, Towards the Understanding of Our Politico-
Economic Conditions[232] of 1842, set the ball rolling. v. Kirchmann replied
in Demokratische Blätter with two essays—On the Social Aspects of
Ground Rent[233] and The Society of Barter[234] —and Rodbertus parried in
1850 with his Letters on Social Problems.[235] Thus the discussion entered
the same theoretical arena where Malthus-Sismondi and Say-Ricardo-
MacCulloch had fought out their differences thirty years earlier. In his
earliest writings, Rodbertus had already expressed the thought that the
wages of labour present an ever diminishing part of the national product in
modern society where the productivity of labour is increasing. He claimed
this to be an original idea, and from that moment until his death thirty years
later he did nothing but reiterate it and formulate it in various ways. This
‘declining wage rate’ is for him the root of all evils to be found in modern
society, in particular of pauperism and the crises, whose combination he
calls ‘the social problem of our times’.
v. Kirchmann does not agree with this explanation. He traces pauperism
back to the effects of a rising ground rent; crises, on the other hand, to a
lack of markets. About the latter especially he says: ‘The greatest part of
social ills is caused not by defects of production but by a lack of markets for
the products ... the more a country can produce, the more means it has for
satisfying every need, the more it is exposed to the danger of misery and
want.’—The labour-problem is here included as well, for ‘the notorious
right to work ultimately reduces to the question of markets’. ‘We see’, he
concludes, ‘that the social problem is almost identical with the problem of
markets. Even the ills of much-abused competition will vanish, once
markets are secure; its advantages alone will remain. There will remain a
spirit of rivalry to supply good and cheap commodities, but the life-and-
death struggle will disappear which is caused only by insufficient
markets.’[236]
The difference between the points of view of Rodbertus and v. Kirchmann
is evident. Rodbertus sees the root of the evil in a faulty distribution of the
national product, and v. Kirchmann in the limitations of the markets for
capitalist production. Notwithstanding all the confusion in his expositions,
especially in his idealist vision of a capitalist competition content with a
laudable rivalry for better and cheaper commodities, and also in his
conception of the ‘notorious right to work’ as a problem of markets, v.

Kirchmann up to a point still shows more understanding for the sore spot of
capitalist production, i.e. the limitations of its market, than Rodbertus who
clings to distribution. Thus it is v. Kirchmann who now takes up the
problem which Sismondi had originally put on the agenda. Nevertheless, he
by no means agrees with Sismondi’s elucidation and solution of the
problem, siding rather with the opponents of the latter. Not only does he
accept Ricardo’s theory of ground rent, and Adam Smith’s dogma that ‘the
price of the commodity is composed of two parts only, of the interests on
capital and the wages of labour’ (v. Kirchmann transforms the surplus value
into ‘interest on capital’); he also subscribes to the thesis of Say and
Ricardo that products are only bought with other products and that
production creates its own demand, so that if one side appears to have
produced too much, it only means there was not enough production on the
other. v. Kirchmann, we see, faithfully follows the classics, if in a somewhat
‘German edition’. He begins by arguing, e.g., that Say’s law of a natural
balance between production and demand ‘still does not give a
comprehensive picture of reality’, and adds:
‘Commerce involves yet further hidden laws which prevent this postulated
order from obtaining in complete purity. They must be discovered if we are
to explain the present flooding of the market, and their discovery might
perhaps also show us the way to avoid this great evil. We believe that there
are three relations in the modern system of society which cause these
conflicts between Say’s indubitable law and reality.’
These relations are (1) ‘too inequitable a distribution of the products’—
here, as we see, v. Kirchmann somewhat approximates to Sismondi’s point
of view; (2) the difficulties which nature puts in the way of human labour
engaged in production; and (3) finally, the defects of commerce as a
mediator between production and consumption. Disregarding the last two
obstacles to Say’s law, we shall now consider v. Kirchmann’s reasoning of
his first point.
‘The first relation’, he explains, ‘can be put more briefly as too low a wage
of labour, which is thus the cause of a slump. Those who know that the
price of commodities is composed of two parts only, of the interest on
capital and the wage of labour, might consider this a startling statement; if
the wage of labour is low, prices are low as well, and if one is high, so is the
other.’

(We see v. Kirchmann accepts Smith’s dogma even in its most misleading
form: the price is not resolved into wage of labour and surplus value, but is
composed of them as a mere sum—a view in which Adam Smith strayed
furthest from his own theory of the value of labour.)
‘Wage and price thus are directly related, they balance each other. England
only abolished her corn laws, her tariffs on meat and other victuals, in order
to cause wages to fall and thus to enable her manufacturers to oust all other
competitors from the world markets by means of still cheaper commodities.
This, however, only holds good up to a point and does not affect the ratio in
which the product is distributed among the workers and the capitalists. Too
inequitable a distribution among these two is the primary and most
important cause why Say’s law is not fulfilled in real life, why the markets
are flooded although there is production in all branches.’
v. Kirchmann gives a detailed illustration of this statement. Using the
classical method, he takes us, of course, to an imaginary isolated society
which makes an unresisting, if thankless, object for the experiments of
political economy. v. Kirchmann suggests we should imagine a place (Ort)
which comprises 903 inhabitants, no more, no less, viz. three entrepreneurs
with 300 workers each. Ort is to be able to satisfy all needs by its own
production—in three establishments, that is to say, one for clothing, a
second for food, lighting, fuel and raw materials, and a third for housing,
furniture and tools. In each of these three departments, the ‘capital together
with the raw materials’ is to be provided by the entrepreneur, and the
remuneration of the workers is to be so arranged that the workers obtain as
their wage one half of the annual produce, the entrepreneur retaining the
other half ‘as interest on capital and profits of the enterprise’. Every
business is to produce just enough to satisfy all the needs of the 903
inhabitants. Ort accordingly has ‘all the conditions necessary for general
well-being’, and everybody can therefore tackle his work with courage and
vigour. After a few days, however, joy and delight turn into a universal
misery and gnashing of teeth: something has happened on v. Kirchmann’s
Island of the Blessed which was no more to be expected than for the skies
to fall: an industrial and commercial crisis according to all modern
specifications has broken out! Only the most essential clothing, food and
housing for the 900 workers has been produced, yet the warehouses of the
three entrepreneurs are full of clothes and raw materials, and their houses

stand empty: they complain of a lack of demand, while the workers in turn
complain that their wants are not fully satisfied. What has gone wrong?
Could it be that there is too much of one kind of produce and too little of
another, as Say and Ricardo would have it? Not at all, answers v.
Kirchmann. Everything available in Ort in well-balanced quantities, just
enough to satisfy all the wants of the community. What, then, has thrown a
spanner into the works, why the crisis? The obstruction caused by
distribution alone—but this must be savoured in v. Kirchmann’s own
words:
‘The obstacle, why nevertheless no smooth exchange takes place, lies solely
and exclusively in the distribution of these products. They are not
distributed equitably among all, but the entrepreneurs retain half of them for
themselves as interest and profit, and only give half to the workers. It is
clear that the worker in the clothing department can exchange, against half
of his product, only half of the food, lodging, etc., that has been produced,
and it is clear that the entrepreneur cannot get rid of the other half since no
worker has any more products to give in exchange. The entrepreneurs do
not know what to do with their stocks, the workers do not know what to do
for hunger and nakedness.’
Nor does the reader, we might add, know what to do with v. Kirchmann’s
constructions. His model is so childish that every advance leads deeper into
the maze.
First of all, there seems to be no reason whatever why, and to what purpose,
v. Kirchmann should devise this splitting-up of production into three parts.
If analogous examples by Ricardo and MacCulloch usually confront tenant
farmers and manufacturers, that is presumably only inspired by the
antiquated Physiocrat conception of social reproduction which Ricardo had
adopted, although his own theory of value as against the Physiocrats
deprived it of all meaning, and although Adam Smith had already made a
good start in considering the real material foundations of the social
reproductive process. Still, we have seen that the tradition of distinguishing
between agriculture and industry as the foundation of reproduction was kept
up in economic theory until Marx introduced his epoch-making distinction
of the two productive departments in society for producer and consumer
goods. v. Kirchmann’s three departments, however, have no real
significance at all. Obviously, no material consideration of reproduction can

have been responsible for this supremely arbitrary division which jumbles
up tools and furniture, raw materials and food, but makes clothing a
department in its own right. One might as well postulate one department for
food, clothing and housing, another for medicines and a third for tooth
brushes. v. Kirchmann’s primary concern, no doubt, is with the social
division of labour; hence the assumption of as nearly equal quantities of
products as possible in the transactions of exchange. Yet this exchange, on
which the argument turns, plays no part at all in v. Kirchmann’s example
since it is not the value which is distributed but the quantities of products,
the bulk of use-values as such. In this intriguing Ort of v. Kirchmann’s
imagining, again, the products are distributed first, and only afterwards,
when the distribution is accomplished, is there to be universal exchange,
whereas on the solid ground of capitalist production it is, as we know, the
exchange which inaugurates the distribution of the product and serves as its
agent. Besides, the queerest things happen in v. Kirchmann’s distributive
system: ‘As we all know’, the prices of the products, i.e. the price of the
aggregate product of society, consist of v + s, of wage and capital interest
alone—so that the aggregate product must be distributed entirely among
workers and entrepreneurs; but then unhappily v. Kirchmann dimly
remembers the fact that production needs things like raw materials and
tools. So Ort is provided with raw materials furtively introduced among the
food, and with tools among the furniture. But now the question arises: who
is to get these indigestible items in the course of general distribution? the
workers as wages, or the capitalists as profits of enterprise? They could
hardly expect a warm welcome from either. And on such feeble premises
the star turn of the performance is to take place: the exchange between
workers and entrepreneurs. The fundamental transaction of exchange in
capitalist production, the exchange between workers and capitalists, is
transformed by v. Kirchmann from an exchange between living labour and
capital into an exchange of products. Not the first act, that of exchanging
labour power for variable capital, but the second, the realisation of the wage
received from the variable capital is put at the centre of the whole
machinery, the entire commodity exchange of capitalist society being in
turn reduced to this realisation of the labour-wage. And the crowning glory
is that this exchange between workers and entrepreneurs, the king-pin of all
economic life, dissolves into nothing on a closer scrutiny—it does not take
place at all. For as soon as all workers have received their natural wages in

the form of half their product, an exchange will be possible only among the
workers themselves; every worker will only keep one-third of his wage
consisting exclusively of either clothing, food or furniture, as the case may
be, and realise the remainder to equal parts in the two other product-groups.
The entrepreneurs no longer come into this at all; the three of them are left
high and dry with their surplus value: half the clothing, furniture and food
that has been produced by the society; and they have no idea what to do
with the stuff. In this calamity of v. Kirchmann’s creation, even the most
generous distribution of the product would be of no use. On the contrary, if
larger quantities of the social product were allotted to the workers, they
would have even less to do with the entrepreneurs in this transaction: all
that would happen is that the exchange of the workers among themselves
would increase in volume. The surplus product which the entrepreneurs
have on their hands would then contract, it is true, though not indeed
because the exchange of the surplus product would be facilitated, but
merely because there would be less surplus value altogether. Now as before,
an exchange of the social product between workers and entrepreneurs is out
of the question. One must confess that the puerile and absurd economics
here crammed into comparatively little space exceed the bounds even of
what might be put up with from a Prussian Public Prosecutor—such having
been v. Kirchmann’s profession, though he must be credited with having
incurred disciplinary censure on two occasions. Nevertheless, after these
unpromising preliminaries, v. Kirchmann goes right to the root of the
matter. He admits that his assuming the surplus product in a concrete use-
form is the reason why the surplus value cannot be usefully employed. As a
remedy he now allows the entrepreneurs to devote half of the social labour
appropriated as surplus value to the production not of common goods but of
luxuries. The ‘essence of luxury-goods being that they enable the consumer
to use up more capital and labour power than in the case of ordinary goods’,
the three entrepreneurs manage to consume by themselves in the form of
laces, fashionable carriages and the like, their entire half-share in all the
labour performed by the society. Now nothing unsaleable is left, and the
crisis is happily avoided; over-production is made impossible once and for
all, capitalists and workers alike are safe; the name of v. Kirchmann’s magic
cure which has brought all these benefits to pass, and which re-establishes
the balance between production and consumption, being: luxury. In other
words, the capitalists who do not know what to do with their surplus value

which they cannot realise, are advised by the dear fellow—to eat it up! As it
happens, luxury is in fact an old familiar invention of capitalist society, and
still there are recurrent crises. Why is this? v. Kirchmann enlightens us:
‘The answer can only be that in real life sluggish markets are entirely due to
the fact that there are still not enough luxuries, or, in other words, that the
capitalists, i.e. those who can afford to consume, still consume too little.’
This misguided abstinence of the capitalists, however, results from a bad
habit which political economists have been ill-advised to encourage: the
desire to save for purposes of ‘productive consumption’. In other words:
crises are caused by accumulation. This is v. Kirchmann’s principal thesis.
He proves it again by means of a touchingly simple example: ‘Let us
assume conditions which economists praise as more favourable,’ he says,
‘where the entrepreneurs say: we do not want to spend our income to the
last penny in splendour and luxury, but will re-invest it productively. What
does this mean? Nothing but the setting-up of all sorts of productive
enterprises for delivering new goods of such a kind that their sale can yield
interest (v. Kirchmann means profits) on a capital saved and invested by the
three entrepreneurs from their unconsumed revenues. Accordingly, the three
entrepreneurs decide to consume only the produce of a hundred workers,
that is to say to restrict their luxury considerably, and to employ the labour
power of the remaining 350 workers together with the capital they use for
setting up new productive enterprises. The question now arises in what kind
of productive enterprises these funds are to be used.’
Since, according to v. Kirchmann’s assumption, constant capital is not
reproduced, and the entire social product consists entirely of consumer
goods, ‘the three entrepreneurs can only choose again between enterprises
for the manufacture of ordinary goods or for that of luxuries’.
In this way, however, the three entrepreneurs will be faced with the already
familiar dilemma: if they turn out ‘common goods’, there will be a crisis,
since the workers lack means to purchase these additional provisions,
having been bought off with half the value of their produce. If they go in for
luxuries, they will have to consume them alone. There is no other
possibility. The dilemma is not even affected by foreign trade which would
‘only increase the range of commodities on the home market’ or increase
productivity.

‘These foreign commodities are therefore either common goods—then the
capitalist will not, and the worker, lacking the means, cannot buy them, or
they are luxuries, in which case the worker, of course, is even less able to
buy them, and the capitalist will not want them either because of his efforts
to save.’
This argument, however primitive, yet shows quite nicely and clearly the
fundamental conception of v. Kirchmann and the nightmare of all economic
theory: in a society consisting exclusively of workers and capitalists,
accumulation will be impossible. v. Kirchmann is therefore frankly hostile
to accumulation, ‘saving’, ‘productive consumption’ of the surplus value,
and strongly attacks these errors advocated by classical economics. His
gospel is increasing luxury together with the productivity of labour as the
specific against crises. We see that v. Kirchmann, if he grotesquely aped
Ricardo and Say in his theoretical assumptions, is a caricature of Sismondi
in his final conclusions. Yet it is imperative to get v. Kirchmann’s approach
to the problem perfectly clear, if we are to understand the import of
Rodbertus’ criticism and the outcome of the whole controversy.

CHAPTER XVI

RODBERTUS’ CRITICISM OF THE
CLASSICAL SCHOOL
Rodbertus digs deeper than v. Kirchmann. He looks for the roots of evil in
the very foundations of social organisation and declares bitter war on the
predominant Free Trade school—not against a system of unrestricted
commodity circulation or the freedom of trade which he fully accepts, but
against the Manchester doctrine of laissez-faire within the internal social
relations of economy. At that time, after the period of storm and stress of
classical economics, a system of unscrupulous apologetics was already in
full sway which found its most perfect expression in the ‘doctrine of
harmony’ of M. Frédéric Bastiat, the famous vulgarian and idol of all
Philistines, and quite soon the various Schultzes were to flourish as
commonplace, German imitations of the French prophet of harmony.
Rodbertus’ strictures are aimed at these unscrupulous ‘peddlers of free
trade’. In his first Letter on Social Problems[237] he exclaims:
‘Because of their paltry incomes, five-sixths of the population are not only
deprived of most of the benefits of civilisation, but are in constant danger of
the most terrible outbreaks of real distress to which they sometimes
succumb. Yet they are the creators of all the wealth of the society. Their
labours begin at dawn and end at dusk, continuing even after night has
fallen—but no exertion can change this fate; they cannot raise their income,
and only lose that little leisure which ought to remain nowadays for the
improvement of their minds. Hitherto it might have seemed as if all this
suffering were necessary to the progress of civilisation, but now that a
series of the most wonderful discoveries and inventions have increased
human labour power more than a hundredfold, new prospects of changing
these grim conditions are suddenly revealed. As a result, the wealth and
assets of a nation increase at a growing rate as compared with the
population. Could anything be more natural, I ask, or more justly
demanded, than that this increase should also somehow benefit the creators
of this old and new wealth? that their incomes should be raised or their
working-hours shortened, or that they might join in increasing numbers the

ranks of the lucky ones, privileged to reap the fruits of labour? Yet state
economy, or better, national economy has only achieved the opposite result.
Increasing poverty of these classes goes together with increasing wealth of
the nation, there is even need of special legislation, lest the working day
become longer, and finally, the working classes swell in number out of
proportion with the others. Even that is not enough! The hundredfold
increase of labour efficiency which was powerless to relieve five-sixths of
the population, even threatens periodically the remaining sixth of the nation
and thus society as a whole.’
‘What contradictions in the economic sphere in particular! And what
contradictions in the social sphere in general! The wealth of society is
growing, and this growth is accompanied by a growth of poverty.—The
creative efficiency of the means of production is increasing, and the
consequence is that they are scrapped. Social conditions demand that the
material position of the working classes should be raised to the level of their
political status, and economic conditions, by way of answer, depress them
further. Society needs the unrestricted growth of wealth, and contemporary
leaders of production must create restrictions, in order to discourage
poverty. In a single respect alone is there harmony: just as wrong as the
conditions is the authoritative section of the society with its inclination to
look for the root of the evil everywhere except in the right place. This
egotism, which only too often dons the scholar’s gown, also accuses the
vices of the workers of being the cause of poverty. The responsibility for the
crimes committed against them by all-powerful facts is ascribed to their
alleged discontent and shiftlessness, and where even such egotism cannot
close its eyes to their innocence, it makes an elaborate dogma of the
“necessity of poverty”. Unremittingly, it exhorts the workers only to work
and to pray, impresses upon them the duty of abstinence and economy, and
at best infringes upon their rights by the institution of compulsory saving,
adding to the misery of the workers. It does not see that a blind force of
commerce has transformed the prayer for work into the curse of enforced
unemployment, that ... abstinence is impossible or cruel, and that, lastly,
morals always remain ineffective if commended by those of whom the poet
says that they drink wine in secret but preach water in public.’[238]
Thirty years after Sismondi and Owen, twenty years after the indictment
made by the English socialists, the followers of Ricardo, and last but not

least, after the publication of the Communist Manifesto, such bold words
alone cannot claim to break new ground. What matters above all now is the
theoretical foundation of this indictment. Rodbertus here proposed a
complete system which can be reduced to the following simple statements.
Owing to the laws of an economy left to its own devices, the high level of
labour productivity achieved by history, together with the institutions of
positive law, that is to say the right of private ownership, a whole series of
wrong and unethical phenomena had emerged:
(1) In the place of ‘normal’, ‘constituted’ value we have exchange value,
and accordingly coined money instead of a proper ‘paper’ or ‘labour’
currency which would genuinely correspond to the concept of money. The
first principle is that all economic goods are products of labour, or, as we
might put it, that labour alone is creative. This statement, however, does not
imply that the value of the product must always equal the cost of labour, or
that, in other words, value is even now measured in terms of labour. The
truth is rather ‘that this still has not become a fact, but is only an idea of
political economy’.[239]
‘If the value could be constituted in accordance with the labour expended
on the product, we might imagine a kind of money which would be, as it
were, a leaf torn from the public account-book, a receipt written on the most
rubbishy material, on rags, which everyone would receive for the value he
has produced, and which he would realise as a voucher for an equivalent
part of the national product subsequently under distribution.... If, however,
for some reason or another, it is impossible or not yet possible to establish
this value, money as such must still retain the value it is designed to
liquidate; made of an intrinsically valuable commodity like gold or silver, it
has to represent a pledge or pawn of the same value.’[240] ‘As soon as
capitalist commodity production has come into existence, everything is
turned upside down: there can no longer be a constituted value, since it can
only be exchange value’,[241] and, ‘since the value cannot be constituted,
money cannot be purely money, it cannot fully conform to its concept’.[242]
In an equitable exchange, the exchange value of the products would have to
equal the quantity of labour needed for producing them, and an exchange of
products would always mean an exchange of equal quantities of labour.
Even assuming, however, that everybody produced just those use-values

which another person requires, yet, ‘since we are here concerned with
human discernment and human volition, there must always be for a start a
correct calculation, adjustment and allocation of the labour quantities
contained in the products for exchange, there must be a law to which the
facts will conform’.[243]
It is well-known that Rodbertus, in his discovery of ‘constituted value’, laid
great stress on his priority to Proudhon which we shall gladly concede him.
Marx, in his Poverty of Philosophy, and Engels in his preface to it, have
comprehensively shown that this ‘concept’ is a mere phantom, still used in
theory but in practice buried already in England well before Rodbertus’
time, that it is but a Utopian distortion of Ricardo’s doctrine of value. We
therefore need not deal further with this ‘music of the future, performed on
a toy trumpet’.
(2) The ‘economy of exchange’ resulted in the ‘degradation’ of labour to a
commodity, the labour wage being determined as an item of expenditure
(Eichmann’s der Arbeit) instead of representing a fixed rate of the national
product. By a daring jump in history, Rodbertus derives his wages law
indirectly from slavery and regards the specific traits which a capitalist
production of commodities imposes on exploitation as no more than a lying
deception against which he fulminates from a moral point of view.
‘So long as the producers themselves remained the property of those who
were not producing, so long as slavery was in existence, it was the
advantage of the “masters” alone which unilaterally determined the volume
of this share (of the workers). With the producers attaining full liberty of
person, if nothing more as yet, both parties agree on the wage in advance.
The wage, in modern terminology, is the object of a “free contract”, that is
to say, an object of competition. Labour is therefore as a matter of course
subjected to the same laws of exchange as its products: labour itself
acquires exchange value; the size of the wage depends on the effects of
supply and demand.’
Rodbertus, after having thus turned everything upside down, after deriving
the exchange value of labour from competition, now immediately derives
its value from its exchange value.
‘Under the laws of exchange value, labour, like produced goods, comes to
have a kind of “cost value” which exercises some magnetic effects upon its

exchange value, the amount of the labour wage. It is that particular amount
of payment which is necessary for the “maintenance” of labour, in other
words, which enables labour to continue, if only in the persons of its
progeny—it is the so-called “minimum of subsistence”.’
For Rodbertus, however, this is not a statement of objective economic laws,
but merely an object for moral indignation. He calls the thesis of the
classical school, that labour is worth no more than the wages it can
command, a ‘cynical’ statement, and he is determined to expose the ‘string
of lies’ leading to this ‘crude and unethical’ conclusion.[244]
‘It was a degrading view to estimate the wages of labour in accordance with
the “necessary subsistence”, like so many machines to be kept in repair.
Now that labour, the fountainhead of all commodities, has itself become a
commodity of exchange, it is no less degrading to speak of its “natural
price”, of its “costs“, just as we speak of the natural price and costs of its
product, and to include this natural price, these costs, in the amount of
goods that is necessary to call forth a continuous flow of labour on the
market.’
This commodity character of labour power, however, and the corresponding
determination of its value, are nothing but a malicious misrepresentation of
the Free Trade school. Like the good Prussian he was, Rodbertus put
capitalist commodity production as a whole in the dock, as offending
against the obtaining constitutional law, instead of pointing out its inherent
contradiction, the conflict between determining the value of labour and
determining the value created by labour, as the English disciples of Ricardo
had done.
‘Stupid beyond words’, he exclaims, ‘is the dualist conception of those
economists who would have the workers, as far as their legal status is
concerned, join in deciding the fate of society, and would for all that, have
these same workers from an economic point of view, always treated as mere
commodities!’[245]
Now it only remains to find out why the workers put up with such stupid
and blatant injustice—an objection which Hermann for instance raised
against Ricardo’s theory of value. Rodbertus is ready with this answer:

‘What were the workers to do after their emancipation other than to agree to
these regulations? Imagine their position: when the workers were freed,
they were naked or in rags, they had nothing but their labour power. The
abolition of slavery or serfdom, moreover, rescinded the master’s legal or
moral obligation to feed them and care for their needs. Yet these needs
remained, they still had to live. How, then, could their labour power provide
them with a living? Were they simply to grab some of the capital existing in
the society for their maintenance? The capital of society was already in the
hands of other people, and the organs of the “law” would not have tolerated
such a step. What, then, could the workers have done? Only these
alternatives were before them: either to overthrow the law of society or to
return, under roughly the same conditions as before, to their former masters,
the owners of the land and of capital, and to receive as wages what was
formerly doled out to them to keep them fed.’[246]
It was fortunate for mankind and the Prussian state that the workers were
‘wise’ enough not to overthrow civilisation and preferred to submit to the
‘base demands’ of their ‘former masters’. This, then, is the origin of the
capitalist wage system, of the wages law as ‘a kind of slavery’ resulting
from an abuse of power on the part of the capitalists, and from the
precarious position and the meek acquiescence on the part of the proletariat
—if we are to believe the highly original explanations of that very
Rodbertus whose theories Marx is reputed to have ‘plagiarised’. Let
Rodbertus claim ‘priority’ in this particular theory of value without
challenge, seeing that English socialists and other social critics had already
given far less crude and primitive analyses of the wage-system. The
singular point about it all is that Rodbertus’ display of moral indignation
about the origin and the economic laws of the wages system does not lead
up to the demand for doing away with this abominable injustice, the
‘dualism stupid beyond words’. Far from it! He frequently reassures his
fellow-men that he does not really mean anything very serious by roaring—
he is no lion fell, only one Snug the joiner. Indeed, an ethical theory of the
wages law is necessary only to achieve a further conclusion:
(3) Since the ‘laws of exchange value’ determine the wage, an advance in
labour productivity must bring about an ever declining share in the product
for the workers. Here we have arrived at the Archimedean fulcrum of
Rodbertus’ system. This ‘declining wage rate’ is his most important

‘original’ discovery on which he harps from his first writings on social
problems (probably in 1839) until his death, and which he ‘claims’ as his
very own. This conception, for all that, was but a simple corollary of
Ricardo’s theory of value and is contained implicit in the wages fund theory
which dominated bourgeois economics up to the publication of Marx’s
Capital. Rodbertus nevertheless believed that this ‘discovery’ made him a
kind of Galileo in economics, and he refers to his ‘declining wage rate’ as
explaining every evil and contradiction in capitalist economy. Above all, he
derives from the declining wage rate the phenomenon of pauperism which,
together with the crises, in his opinion constitutes the social question. It
would be as well to draw the attention of contemporaries, ‘out for Marx’s
blood’, to the fact that it was not Marx but Rodbertus, a man much nearer
their own heart, who set up a whole theory of progressive poverty in a very
crude form, and that he, unlike Marx, made it the very pivot, not just a
symptom, of the entire social problem. Compare for instance his argument
in his first Letter on Social Problems to v. Kirchmann on the absolute
impoverishment of the working class. The ‘declining wage rate’ must serve
in addition to explain the other fundamental phenomena of the social
problem—the crises. In this connection Rodbertus tackles the problem of
balancing consumption with production, touching upon the whole lot of
cognate controversial issues which had already been fought out between the
schools of Sismondi and Ricardo.
Rodbertus’ knowledge of crises was of course based upon far more material
evidence than that of Sismondi. In his first Letter on Social Problems he
already gives a detailed description of the four crises in 1818-19, 1825,
1837-9 and 1847. Since his observations covered a much longer period,
Rodbertus could by and large gain a much deeper insight into the essential
character of crises than his predecessors. As early as 1850 he formulated the
periodical character of the crises which recur at ever shorter intervals and at
the same time with ever increasing severity:
‘Time after time, these crises have become more terrible in proportion with
the increase in wealth, engulfing an ever greater number of victims. The
crisis of 1818-19, although even this caused panic in commerce and
inspired misgivings in economics, was of small importance compared to
that of 1825-6. The first crisis had made such inroads on the capital assets
of England that the most famous economists doubted whether complete

recovery could ever be made. Yet it was eclipsed by the crisis of 1836-7.
The crises of 1839-40 and 1846-7 wrought even greater havoc than
previous ones.’—‘According to recent experiences, however, the crises
recur at ever shorter intervals. There was a lapse of 18 years between the
first and the third crisis, of 14 years between the second and the fourth, and
of only 12 years between the third and the fifth. Already the signs are
multiplying that a new disaster is imminent, though no doubt the events of
1848 put off the catastrophe.’[247]
Rodbertus remarks that an extraordinary boom in production and great
progress in industrial technique always are the heralds of a crisis. ‘Every
one of them [of the crises] followed upon a period of outstanding industrial
prosperity.’[248]
From the crises in history he demonstrates that ‘they occur only after a
considerable increase of productivity’.[249] Rodbertus opposes what he
terms the vulgar view which conceives of crises as mere disturbances in the
monetary and credit system, and he criticises the whole of Peel’s currency
legislation as an error of judgment, arguing the point in detail in his essay
On Commercial Crises and the Mortgage Problem. There he makes the
following comment among others: ‘We would therefore deceive ourselves if
we were to regard commercial crises merely as crises of the monetary,
banking, or credit system. This is only their outer semblance when they first
emerge.’[250]
Rodbertus also shows a remarkably acute grasp of the part played by
foreign trade in the problem of crises. Just like Sismondi, he states the
necessity of expansion for capitalist production, but he simultaneously
emphasises the fact that the periodical crises are bound to grow in volume.
‘Foreign trade’, he says, ‘is related to slumps only as charity is related to
poverty. They ultimately only enhance one another.’[251] And further: ‘The
only possible means of warding off further outbreaks of crises is the
application of the two-edged knife of expanding foreign markets. The
violent urge towards such expansion is largely no more but a morbid
irritation caused by a sickly organ. Since one factor on the home market,
productivity, is ever increasing, and the other factor, purchasing power,
remains constant for the overwhelming majority of the population,
commerce must endeavour to conjure up a similarly unlimited amount of

purchasing power on the foreign market.’[252] In this way, the irritation may
be soothed to some extent so that at least there will not be a new outbreak
of the calamity right away. Every foreign market opened defers the social
problem in a like manner. Colonisation of primitive countries would have
similar effects: Europe rears a market for herself in places where none had
been before. Yet such a medicine would essentially do no more than
appease the ill. As soon as the new markets are supplied, the problem will
revert to its former state—a conflict between the two factors: limited
purchasing power versus unlimited productivity. The new attack would be
warded off the small market only to re-appear, in even wider dimensions
and with even more violent incidents, on a larger one. And since the earth is
finite and the acquisition of new markets must some time come to an end,
the time will come when the question can no longer be simply adjourned.
Sooner or later, a definite solution will have to be found.’[253]
Rodbertus also recognises the anarchical character of capitalist private
enterprise to be conducive to crises, but only as one factor among many,
seeing it as the source of a particular type of crises, not as the real cause of
crises in general. About the crises at v. Kirchmann’s Ort, e.g., he says: ‘I
maintain that a slump of this kind does not occur in real life. The market of
to-day is large, there are countless wants and many branches of production,
productivity is considerable and the data of commerce are obscure and
misleading. The individual entrepreneur does not know how much others
are producing, and so it may easily happen that he over-estimates the
demand for a certain commodity with which he will then overstock the
market.’
Rodbertus says outright that the only remedy for these crises is the
‘complete reversal’ of contemporary property-relations or a planned
economy, concentrating all means of production ‘in the hands of a single
social authority’. To set troubled minds at rest, however, he is quick to add
that he reserves judgment as to whether there can actually be such a state of
affairs—‘yet this would be the only possible way to prevent slumps of this
kind’. Thus he expressly regards anarchy in the modern mode of production
as responsible for only a specific and partial manifestation of crises.
Rodbertus scornfully rejects Say-Ricardo’s axiom of a natural equilibrium
between consumption and production; just like Sismondi, he emphasises
that everything turns on the purchasing power of society, and also takes it to

be dependent upon the distribution of income. All the same, he does not
endorse Sismondi’s theory of crises and disagrees sharply with the
conclusions drawn from it. If Sismondi saw the source of all evil in the
unlimited expansion of production without regard to the limitations of
incomes, and advocated a restriction of production, Rodbertus, quite on the
contrary, champions the most powerful and unrestricted expansion of
production, of wealth and of the productive forces, believing this to be a
social necessity. Whoever rejects the wealth of society, rejects at the same
time its power, its progress, and, with its progress, its virtues. Whoever
stands in the way of growing wealth, stands in the way of all social progress
whatever. Every increase in knowledge, resolve and capacity is conceived
as bound up with an increase in wealth.[254] From this point of view,
Rodbertus is strongly in favour of issuing houses which he regards as the
indispensable foundations for a rapid and unrestricted expansion of
company promoting. Both his essay of 1859 on the mortgage problem and
the treatise on the Financial Crisis in Prussia[255] are devoted to this plea.
He even polemises outright against the Sismondian type of caveat, as usual
broaching the matter first from his peculiar Utopian ethics.
‘The entrepreneurs’, he holds forth, ‘are essentially civil servants of
economy. By the institution of property, they are once and for all entrusted
with the nation’s means of production. If they set them to work and strain
all their energies in the process, they do but their duty, since capital—let me
repeat—exists entirely for the sake of production.’ And a further, factual
argument: ‘Or would you have them (the entrepreneurs) turn acute attacks
of suffering into a chronic state by working persistently and from the first
with fewer forces than are given by the means of production; are they to
pay for a less severe form of the evil with its permanent duration? Even if
we were silly enough to give them this advice, they would not be able to
follow it. How could the entrepreneurs of the world recognise the limits
beyond which the market would cease to be healthy? They engage in
production without knowing the one of the other, they are producing in the
most distant corners of the earth for a market hundreds of miles away, they
produce with such vast forces that a month’s production may already
overstep the limit. How could production—so divided and yet so powerful
—conceivably estimate in good time what will be enough? Where, for
instance, are the organisations, the up-to-date statistical bureaux and the like

to help them in this task? What is worse, the price alone, its rise and fall,
indicates the position of the market, and this is not like a barometer which
predicts the temperature of the market, but more like a thermometer which
only registers it. If the price falls, the limit has been passed already, and the
evil is with us.’[256]
These thrusts, obviously aimed at Sismondi, exhibit quite fundamental
differences between the two opponents. If Engels then says in his Anti-
Duehring that Sismondi first explained the crises as resulting from under-
consumption, and that Rodbertus borrowed this view from him, he is not
strictly accurate. All that Rodbertus and Sismondi have in common is their
opposition against the classical school and the general explanation of crises
as the result of the distribution of incomes. Even in this connection
Rodbertus mounts his own particular hobby horse: over-production is not
caused by the low level of working class incomes, nor yet, as Sismondi
maintains, by the capitalists’ limited capacity for consumption, but solely by
the fact that with a growing productivity of labour, the workers’ income, in
terms of value, represents an ever smaller share of the product. Rodbertus
takes pains to convince the opposition that it is not the small volume of the
workers’ share which causes the crises.
‘Just imagine’, he goes on to lecture v. Kirchmann, ‘these shares to be so
small as to ensure only a bare subsistence for those who are entitled to
them. As long as you establish them as representing a proportion of the
national product, you will have a constant “vessel for value” which can
absorb ever increasing contents, and an ever increasing prosperity of the
working classes as well.... And now imagine on the contrary as large a share
for the working classes as you please, and let it become an ever smaller
fraction of the national product that grows with increasing productivity.
Then, provided it is not reduced to the present pittance, this share will still
protect the workers from undue privations since the amount of products it
represents will still be considerably greater than it is to-day. Once this share
begins to decline, however, there will be spreading discontent, culminating
in a commercial crisis for which the capitalists are not to blame inasmuch as
they did no more than their duty in laying down the volume of production
according to the given magnitude of these shares.’
That is why the ‘declining wage rate’ is the real cause of crises. It can only
be counteracted by legal measures to ensure that the workers’ share

represents a stable and unchanging rate of the national product. This
grotesque notion takes some understanding if we are to do justice to its
economic implications.

CHAPTER XVII

RODBERTUS’ ANALYSIS OF
REPRODUCTION
To begin with, what does it mean that a decrease in the workers’ share is
bound immediately to engender over-production and commercial crises?
Such a view can only make sense provided Rodbertus takes the ‘national
product’ to consist of two parts, vide the shares of the workers and of the
capitalists, in short of v + s, one share being exchangeable for the other. And
that is more or less what he actually seems to say on occasions, e.g. in his
first Letter on Social Problems:
‘The poverty of the working classes precludes their income from giving
scope to increasing production. The additional amount of products from the
entrepreneurs’ point of view lowers the value of the aggregate product so
far as to bar production on the former scale, leaving the workers at best to
their accustomed straits, though, if it could be made available to the
workers, it would not only improve their lot but would further act as a
counterweight by increasing the value of what is retained by the capitalists
(and so enable the latter to keep their enterprises at the same level).’[257]
The ‘counterweight’ which in the hand of the workers increases the ‘value’
of ‘what is retained’ by the entrepreneurs, can in this context only be the
demand. Once again, we have landed happily at the familiar Ort of v.
Kirchmann’s where workers and capitalists exchange their incomes for the
surplus product, and where the crises arise because variable capital is small
and the surplus value large. This peculiar notion has already been dealt with
above. There are other occasions, however, when Rodbertus advances a
somewhat different conception. The interpretation of his theory in the
fourth Letter on Social Problems is that the continual shifts in the relations
of demand, evident in the share of the working class and caused by the
share of the capitalist class, must result in a chronic disproportion between
production and consumption.
‘What if the entrepreneurs endeavour to keep always within the limits of
those shares, yet the shares themselves are all the time on the decline for the

great majority of the society, the workers, decreasing gradually,
unnoticeably, but with relentless force?—What if the share of these classes
is continually decreasing to the same extent as their productivity is
increasing?’—‘Is it not really the fact that the capitalists of necessity
organise production in accordance with the present volume of shares in
order to make wealth universal, and that yet they always produce over and
above this volume (of previous shares), thereby perpetuating dissatisfaction
which culminates in this stagnation of trade?’[258]
On this showing, the explanation of crises should be as follows: the national
product consists of a number of ‘common goods’, as v. Kirchmann puts it,
for the workers, and of superior goods for the capitalists. The wages
represent the quantity of the former, and aggregate surplus value that of the
latter. If the capitalists organise their production on this footing, and if at the
same time there is progressive productivity, a lack of proportion will
immediately ensue. For the share of the workers to-day is no longer that of
yesterday, but less. If the demand for ‘common goods’ had involved, say,
six-sevenths of the national product yesterday, then to-day it involves only
five-sevenths, and the entrepreneurs, having provided for six-sevenths of
‘common goods’, will find to their painful surprise that they over-produced
by one-seventh. Now, wiser by this experience, they try to organise to-
morrow’s output of ‘common goods’ to a mere five-sevenths of the total
value of the national product, but they have a new disappointment coming
to them, since the share of the national product falling to wages to-morrow
is bound to be only four-sevenths, and so on.
In this ingenious theory there are quite a few points to make us wonder. If
our commercial crises are entirely due to the fact that the workers’ ‘wage
rate’, the variable capital, represents a constantly diminishing portion of the
total value of the national product, then this unfortunate law brings with it
the cure for the evil it has caused, since it must be an ever smaller part of
the aggregate product for which there is over-production. Although
Rodbertus delights in such terms as ‘an overwhelming majority’, ‘the large
popular masses’ of consumers, it is not the number of heads that make up
the demand, but the value they represent which is relevant. This value, if
Rodbertus is to be believed, forms a more and more trifling part of the
aggregate product. Crises are thus made to rest on an ever narrowing
economic basis, and all that remains to discover is how in spite of it all it

can still happen that the crises are universal and increasingly severe besides,
as Rodbertus is fully aware. The purchasing power lost by the working
classes should be gained by the capitalist class; if v decreases, s must grow
larger to make up for it. On this crude scheme, the purchasing power of
society as a whole cannot change, as Rodbertus says in so many words: ‘I
know very well that what is taken from the workers’ share goes ultimately
to swell that of the “rentiers” (rent and surplus value are used as synonyms,
R.L.), and that purchasing power remains constant on the whole and in the
long run. But as far as the product on the market is concerned, the crisis
always sets in before this increase can make itself felt.’[259]
In short, the most it can amount to is that there is ‘too much’ of ‘common
goods’ and ‘too little’ of superior goods for the capitalists. Quite unawares,
and by devious ways, Rodbertus here falls in with the Say-Ricardian theory
he so ardently contested, the theory that over-production on one side always
corresponds to under-production on the other. Seeing that the ratio of the
two shares is persistently shifting to the advantage of the capitalists, our
commercial crises might be expected on the whole to take on increasingly
the character of periodical under- instead of over-production! Enough of
this exercise in logic. The upshot of it all is that Rodbertus conceives the
national product in respect of its value as made up of two parts only, of s
and v, thus wholly subscribing to the views and traditions of the classical
school he is fighting tooth and nail, and even adding his own flourish that
the capitalists consume the entire surplus value. That is why he repeatedly
says without mincing his words, as in the fourth Letter on Social Problems:
‘Accordingly, we must abstract from the reasons which cause the division
of rent in general into rent proper and capital rent, to find the basic principle
underlying the division of rent (surplus value) in general, the principle
underlying the division of the labour product into wage and rent.’[260] And,
in the third Letter: ‘Ground rent, capital profit and the wage of labour are,
let me repeat, revenue. By this means landlords, capitalists and workers
must live, must satisfy, that is to say, their immediate human necessities.
They must therefore draw their income in the form of goods suitable for this
purpose.’[261]
The misrepresentation of capitalist economy has never been formulated
more crudely, and there is no doubt that Rodbertus claims the palm of

‘priority’—not so much over Marx as over all popular economists—with
full justification. To leave the reader in no doubt about the utter muddle he
has made, he goes on, in the same letter, to rank capitalist surplus value as
an economic category on the same level as the revenue of the ancient slave-
owner:
‘The first state (that of slavery) goes with the most primitive natural
economy: that portion of the labour product which is withheld from the
income of workers or slaves and forms the master’s or owner’s property,
will undividedly accrue to the one man who owns the land, the capital, the
worker and the labour product; there is not even a distinction of thought
between rent and capital profits.—The second state entails the most
complicated money economy: that portion of the labour product, withheld
from the income of the now emancipated workers, and accruing to the
respective owners of land, and capital, will be further divided among the
owners of the raw material and the manufactured product respectively; the
one rent of the former state will be split up into ground rent and capital
profits, and will have to be differentiated accordingly.’[262]
Rodbertus regards the splitting-up of the surplus value ‘withheld’ from the
workers’ ‘income’ as the most striking difference between exploitation by
slavery and modern capitalist exploitation. It is not the specific historical
form of sharing out newly created value among labour and capital, but the
distribution of the surplus value among the various people it benefits,
which, irrelevant to the productive process, is yet the decisive fact in the
capitalist mode of production. In all other respects, capitalist surplus value
remains just the same as the old ‘single rent’ of the slave-owner: a private
fund for the exploiter’s own consumption!
Yet Rodbertus again contradicts himself in other places, remembering all of
a sudden the constant capital and the necessity for its renewal in the
reproductive process. Thus, instead of bisecting the aggregate product into v
and s, he posits a triple division: c, v, and s. In his third Letter on Social
Problems he argues on the forms of reproduction in a slave-economy:
‘Since the master will see to it that part of the slave labour is employed in
maintaining or even improving the fields, herds, agricultural and
manufacturing tools, there will be “capital replacement”, to use a modern
term, in which part of the national economic product is immediately used

for the upkeep of the estate, without any mediation by exchange or even by
exchange value.’[263] And, passing on to capitalist reproduction, he
continues: ‘Now, in terms of value, one portion of the labour product, is
used or set aside for the maintenance of the estate, for “capital
replacement”, another, for the workers’ subsistence as their money wage;
and the owners of the land, of capital, and of the labour product retain the
last as their revenue or rent.’[264]
This, then, is an explicit expression of the triple division into constant
capital, variable capital, and surplus value. Again, in this third Letter, he
formulates the peculiarity of his ‘new’ theory with equal precision: ‘On this
theory, then, and under conditions of adequate labour productivity, the
portion of the product which remains for wages after the replacement of
capital, will be distributed among workers and owners as wages and rent,
on the basis of the ownership in land and capital.’[265]
It does seem now as if Rodbertus’ analysis of the value of the aggregate
product represents a distinct advance over the classical school. Even Adam
Smith’s ‘dogma’ is openly criticised a little further on, and it is really
surprising that Rodbertus’ learned admirers, Messrs. Wagner, Dietzel, Diehl
& Co. failed to claim their white-headed boy’s ‘priority’ over Marx on such
an important point of economic theory. As a matter of fact, in this respect
no less than in the general theory of value, Rodbertus’ priority is of a
somewhat dubious character. If he seems on occasion to gain true insight, it
immediately turns out to be a misunderstanding, or at best a wrong
approach. His criticism of Adam Smith’s dogma affords a supreme example
of his failure to cope with the triple division of the national product towards
which he had groped his way. He says literally:
‘You know that all economists since Adam Smith already divided the value
of the product into wage of labour, rent, and capital profit, that it is
therefore not a new idea to ground the incomes of the various classes, and
especially the various items of the rent, in a division of the product. But the
economists at once go off the track. All of them, not even excepting
Ricardo’s school, make the mistake, first, not to recognise that the
aggregate product, the finished good, the national product as a whole, is an
entity in which workers, landowners, and capitalists all share, but
conceiving the division of the unfinished product to be of one kind shared

among three partners, and that of the manufactured product as of another
kind again, shared between only two partners. For these theories both the
unfinished product and the manufactured product constitute as such
separate items of revenue. Secondly,—though both Sismondi and Ricardo
are free from this particular error—they regard the natural fact that labour
cannot produce goods without material help, i.e. without the land, as an
economic fact, and take the social fact for a primary datum that capital as
understood to-day is required by the division of labour. Thus they set up the
fiction of a fundamental economic relationship on which they base also for
the shares of the various owners, ground rent springing from the
contribution of the land lent by the owner to production, capital profits from
the contribution of capital employed by the capitalist to this end, and the
wages finally from labour’s contribution, seeing that there are separate
owners of land, capital, and labour in the society. Say’s school, elaborating
on this mistake with much ingenuity, even invented the concept of
productive service of land, capital, and labour in conformity with the shares
in the product of their respective owners, so as to explain these shares as the
result of productive service.—Thirdly, they are caught up in the ultimate
folly of deriving the wage of labour and the items of rent from the value of
the product, the value of the product in turn being derived from the wage of
labour and the items of rent, so that the one is made to depend on the other
and vice versa. This absurdity is quite unmistakable when some of these
authors attempt to expound “The Influence of Rent Upon Production
Prices” and “The Influence of Production Prices Upon Rent” in two
consecutive chapters.’[266]
Yet for all these excellent critical comments—the last, particularly acute,
actually does to some extent anticipate Marx’s criticism of this point in
Capital, volume ii—Rodbertus calmly falls in with the fundamental blunder
of the classical school and its vulgar followers: to ignore altogether that part
of the value of the aggregate product which is needed to replace the
constant capital of the society. This way it was easier for him to keep up the
singular fight against the ‘declining wage rate’.
Under capitalist forms of production, the value of the aggregate social
product is divided into three parts: one corresponding to the value of the
constant capital, the second to the wage total, i.e. the variable capital, and
the third to the aggregate surplus value of the capitalist class. In this