POLITICAL ECONOMY
A Textbook issued by the Economics Institute of the Academy of Sciences of the U.S.S.R
Part II : CAPITALIST MODE OF PRODUCTION
A. PRE-MONOPOLY CAPITALISM
CHAPTER XVI : REPRODUCTION OF SOCIAL CAPITAL
Social Capital. Composition of the Aggregate Social Product
Capitalist reproduction includes both the direct process of production and also the process of circulation.
In order that reproduction may take place capital must be able to complete its rotation unhindered, i.e., to pass from the money form to the productive form, from the productive form to the commodity form, from that to the money form, and so on; This applies not only to each separate capital but also to all the capital which exists in society.
“However, the turnovers of individual capitals intermingle, are mutually conditioned on one another, are their mutual premises, and form precisely in this interrelation the movement of social capital" (Marx, Capital, Kerr edition, vol. II, p. 407.)
The social capital is the aggregate of individual capitals taken together in their interdependence and interconnection. Many-sided connections exist between the separate capitals of the capitalist enterprises: some concerns supply machinery, raw material and other means of production to others, while others produce the means of subsistence bought by the workers and the consumer goods and luxury articles bought by the capitalists. Each of the individual capitalists is independent in relation to the others, but at the same time all are linked together and depend one upon the other. This contradiction shows itself in the course of the reproduction and circulation of the whole social capital. The many-sided relations of interconnection and interdependence which exist between the separate capitalists appear spontaneously as a result of the anarchy of production which is inherent in capitalism.
In examining the process of reproduction and circulation of the whole of social capital, we will suppose, so as not to complicate the question, that the whole of the country’s economy is carried on on capitalist lines (i.e., that society consists exclusively of capitalists and workers) and that the whole of the constant capital is used up in the course of a year and its value completely transferred to the annual product. The aggregate social product means simply, given this supposition, the social capital (with an increment in the form of surplus-value) which emerges from the process of production in the form of commodities.
If production is to be carried on, the social product must go through a process of circulation. In the process of circulation every part of the social product first changes its commodity form into monetary form and then changes from its monetary form into that commodity form which is necessary for the continuation of production. Realisation of the social product means this change of form: commodity into money and then money into a new commodity form.
As shown above, the entire social product is divided in respect of value into three parts: the first replaces constant capital, the second replaces variable capital, the third is surplus-value. Thus, the value of the social product is equivalent to c+v+s. The different parts of which the social product is composed play different roles in the course of reproduction. Constant capital must continue to serve the process of production. Variable capital is transformed into wages, which the workers spend on consumption. The surplus-value is, under simple reproduction, entirely consumed by the capitalists and, under extended reproduction, is partly so consumed and partly spent on the purchase of additional means of production and on the hire of additional labour-power.
As regards its material form, the entire social product consists of means of production and consumer goods. Accordingly, the whole of social production falls into two major subdivisions: the first subdivision (I) is the production of means of production, and the second subdivision (II)
is the production of consumer goods. Consumer goods in their turn are divided into necessary means of subsistence, which go to satisfy the requirements of the working class and the working masses generally, and luxury articles which are within the means of the exploiting classes only.
Owing to the lowering of their standard of living the working people are more and more obliged to give up good-quality consumer goods in favour of poor-quality ones and substitutes. At the same time the luxury and extravagance of the parasitic classes increase.
The division of the social product according to its material form predetermines in its turn a different role for different parts of this product in the course of reproduction. Thus, for example, looms are intended to be used for the production of cloth and cannot be used for any other purpose; ready-made clothing, on the other hand, must enter into personal consumption.
In examining the rotation and turnover of an individual capital it is of no importance what commodities in particular, in material form (usevalues), are produced in the given enterprise. When we examine the reproduction and circulation of the whole social capital, however, the material form of the commodities produced in society takes on essential importance. For the uninterrupted renewal of the process of production it is necessary that there shall be available both the appropriate means of production and consumer goods.
The question arises, how, in conditions of the anarchy of capitalist production, does the realisation of the social product take place? Lenin showed that “the solution of the problems of realisation will be found by analysing the replacement of all parts of the social product in value and in material form". (Lenin, A Characterisation of Economic Romanticism, F .L.P.H. edition, p. 56.) It is a matter, then, of how each part of the social product, in respect of value (constant capital, variable capital and surplusvalue) and in respect of the natural form (means of production, consumer goods) finds on the market another part of the product to take its place.
When we examine extended reproduction we find that also connected with it is the question of how the transformation of surplusvalue into capital takes place, i.e., whence come the additional means of production and consumer goods for the additional workers who are needed for the extension of production.
Conditions for Realisation in Capitalist Simple Reproduction
Let us first examine the conditions needed for the realisation of the social product in capitalist simple reproduction, when the whole of the surplus-value goes on personal consumption by the capitalists. These conditions may be illustrated by means of the following example.
Suppose that in the first subdivision, i.e., in the production of means of production, the value of constant capital, expressed, for example, in millions of pounds sterling, is equal to 4,000, that of variable capital to 1,000, and that of surplus-value to 1,000. Suppose that in the second subdivision, i.e., in the production of consumer goods, the value of constant capital is 2,000, that of variable capital 500 and the surplus 500.
Given these presuppositions the annual social product will consist of the following parts:
I. 4,000 c + 1,000 v + 1,000 s=6,000.
II. 2,000 c + 500 v + 500 s=3,000.
The value of the whole product which is produced in the first subdivision and exists in the form of machinery, raw material, equipment, etc., amounts, then, to 6,000. In order that the process of production may be renewed, part of this product, equal to 4,000, must be sold to concerns belonging to the first subdivision for renewal of the constant capital of this subdivision. The remaining part of the product of the first subdivision, being the reproduced value of the variable capital (1,000) and the newly-produced surplus-value (1,000), also existing in the form of the means of production, is sold to concerns of the second subdivision in exchange for consumer goods for the personal consumption of the workers and capitalists of the first subdivision. In their turn the capitalists of the second subdivision need means of production to the value of 2,000 in order to renew their constant capital.
The value of the entire product produced in the second sub-division and existing in the form of consumer goods (bread, meat, clothing, footwear, etc., and also luxury articles) amounts to 3,000. Part of the consumer goods produced in the second subdivision, to the value of 2,000, is exchanged for the wages and surplus-value of the first subdivision; in this way the constant capital of the second subdivision is renewed. The remaining part of the product of the second subdivision, being the reproduced value of the variable capital (500) and the newlyproduced surplus (500), is realised within the second subdivision itself for the personal consumption of the workers and capitalists of this subdivision.
Consequently in conditions of simple reproduction there are exchanged between the two subdivisions: (1) the variable capital and surplus-value of the first subdivision, which must be exchanged into consumer goods produced in the second sub-division, and (2) the constant capital of the second subdivision, which must be exchanged into means of production produced in the first subdivision. The following equation is a condition for realisation in capitalist simple reproduction: the variable capital plus the surplus-value of the first subdivision must be equal to the constant capital of the second subdivision:
I (v+s)=II c.
This condition of simple reproduction can also be expressed in the following image.
The entire mass of goods produced in the course of a year in the first subdivision— enterprises manufacturing means of production—must be equal i~ value to the mass of means of production which is consumed during the year in the enterprises of both subdivisions. The entire mass of commodities produced during a year in the second subdivision-enterprises manufacturing consumer goods-must be equal in value to the total of the incomes of the workers and capitalists in both subdivisions.
Conditions for Realisation in Capitalist Extended Reproduction
Capitalist extended reproduction presupposes accumulation of capital. Since the capital of each subdivision consists of two parts— constant and variable capital—so also the accumulated part of the surplus-value is divided into these two parts: one part goes toward the purchase of additional means of production; the other to the hiring of additional labour-power. It follows from this that the annual product of the first subdivision must contain a certain surplus over the quantity of means of production which is necessary for simple reproduction. In other words, the total of the variable capital and surplus-value of the first subdivision must be, greater than the constant capital of the second subdivision: I (v+s) must be greater than II c. This is the fundamental condition for capitalist extended reproduction.
Let us examine the conditions for realisation in capitalist extended reproduction.
Suppose that in the first subdivision the value of constant capital equals 4,000, that of variable capital 1,000, and surplus-value 1,000; and suppose that in the second subdivision the value of constant capital equals 1,5°°, that of variable capital 750, and the surplus-value 750. On these presuppositions the annual social product will consist of the following parts:
I. 4,000 c + 1,000 v + 1,000 s=6,000
II. 1,500 c + 750 v + 750 s=3,000..
Let us suppose that, in the first subdivision, 500 out of the 1,000 surplus is accumulated. In accordance with the organic composition of capital in the first subdivision (4:1) the accumulated part of the surplus-value breaks down like this: 400 goes to increasing the constant capital and 100 to increasing the variable capital. The additional constant capital (400) exists as part of the product of the first subdivision itself, in the form of means of production; the additional variable capital must be obtained by way of exchange from the second subdivision, which, consequently, must also accumulate. The capitalists of the second subdivision exchange part of their surplusvalue, equal to 100, for means of production and turn these means of production into additional constant capital. Then, in accordance with the organic composition of capital in the second subdivision (2:I), the variable capital in this subdivision must grow by 50..
Consequently, in the second subdivision, out of surplus-value equal to 750, 150 will be allocated to accumulation..
Just as in simple reproduction, the second subdivision must exchange its constant capital-equal to 1,500-with the first and the first subdivision must exchange with the second its variable capital, equal to 1,000 and the part of its surplus-value consumed by the capitalists, equal to 500..
Exchange between the two subdivisions can take place only given equality between these two magnitudes. Thus, the condition for realisation in capitalist extended reproduction is the following equation: the value of variable capital plus that part of surplus-value destined for personal consumption by the capitalists plus that part of accumulated surplus-value which is added to variable capital, in the first subdivision, must be equal to the value of constant capital plus that part of accumulated surplus value added to constant capital, in the second subdivision.
In extended reproduction the total of the variable capital and surplus-value of the first subdivision must grow more rapidly than the constant capital of the second subdivision, and the growth of the constant capital of the first subdivision must to an even greater extent outstrip the growth of the constant capital of the second subdivision.
In any system of society development of the productive forces is expressed in the share of social labour devoted to the production of means of production growing in comparison with the share devoted to the production of consumer goods. Preferential growth of-the production of means of production as compared with production of consumer goods is a law of extended reproduction. Under capitalism a more rapid growth of the production of means of production compared with the production of consumer goods is expressed as a more rapid growth of constant capital compared with variable, i.e., a rise in the organic composition of capital.
In explaining the conditions for realisation in capitalist simple and extended reproduction, Marx put on one side, for the sake of simplifying his analysis, the growth of the organic composition of capital. The diagram of reproduction given by Marx in Capital presupposes an unchanging organic composition of capital. Lenin developed Marx’s theory of reproduction further and worked out a diagram of extended reproduction which took into account the growth in the organic composition of capital. This diagram shows that “the production of means of production for means of production grows faster, then comes the production of means of production for means of consumption, and the growth of the production of means of consumption is slowest". (V. I. Lenin, Concerning the So-called Question of Markets, F.L.P.H. edition, 1954, p. 19.) Lenin’s diagram graphically illustrates the operation of the law of priority growth of the production of means of production in the course of capitalist extended reproduction. This operation is reflected in the spontaneous violation of the established proportions between the branches of production, in the unequal development of various branches, and in the marked lagging of the consumption of the masses behind the growth of production, because a rise in the organic composition of capital inevitably leads to a growth of unemployment and lowering of the standard of life of the working class.
The Problem of the Market, Contradictions of Capitalist Reproduction
It is obvious from the foregoing exposition that for the social product to be realised certain definite relationships (proportions) must exist between the separate parts of which it is composed and, consequently, between the branches and elements of production. Under capitalism, when production is carried on by isolated producers who are guided by the hunt for profit and who work for a market which is unknown to them, these proportions cannot but be subject to continual upsets. Extension of production takes place unequally,’ so that the old proportions between branches are constantly being violated and new proportions being established spontaneously, by way of the flow of capital from some branches into others. Therefore proportionality between different branches is accidental, while constant violation of proportionality is the general rule of capitalist reproduction. Examining the conditions for the normal course of capitalist simple and extended reproduction, Marx declared that they “become so many causes of abnormal movements implying the possibility of crises, since a balance is. an accident under the crude conditions of this production". (Marx, Capital, Kerr edition, vol. II, p. 578.) In the conditions of anarchy of capitalist production the realisation of the social product takes place only amidst difficulties and continual fluctuations, which become ever stronger as capitalism grows.
Of special importance in this connection is the circumstance that the extension of capitalist production and, therefore, the formation of the internal market takes place not so much in respect of consumer goods as in respect of means of production. However, the production of means of production cannot develop in complete independence of the production of consumer goods and without any connection with it, for the enterprises which use these means of production throw on to the market everincreasing quantities of commodities for consumption. Thus, in the last analysis, productive consumption (consumption of the means of production) is always connected with individual consumption and always depends on it. But the dimensions of the individual consumption of the mass of the people are kept in capitalist society within extremely narrow limits, on account of the operation of the laws of capitalism, which are responsible for the impoverishment of the working class and the ruin of the peasantry. For this reason the formation and extension of the internal market under capitalism not only does not mean extension of consumption by the masses, it is, on the contrary, combined with a growth in the poverty of the overwhelming majority of the working people.
The nature of capitalist reproduction is determined by the basic economic law of capitalism; by force of which the aim of production is the extraction of profit on an ever-increasing scale, and the extension of production serves as a means to the attainment 6f this end, which inevitably comes up against the narrow framework of capitalist relations.
It was in this sense that Marx wrote of “production. for the sake of production" and “accumulation for the sake of accumulation" as typical of capitalism. But commodities are produced, in the long run, not for production but for the satisfaction of the needs of man. Thus inherent in capitalism is a deep-rooted antagonistic contradiction between production and consumption.
The contradiction between production and consumption inherent in capitalism consists in this, that the national wealth grows alongside the growth in the poverty of the people, the productive forces of society grow without a corresponding growth in consumption by the people. This contradiction is one of the forms in which the basic contradiction of capitalism manifests itself—the contradiction between the social character of production and the private-capitalist form of appropriation.
Exposing the servants of the bourgeoisie who slur over the deep rooted contradictions of capitalist realisation, Lenin emphasises that .
“even with an ideally smooth and proportional reproduction and circulation of the whole social capital, a contradiction is inevitable between the growth of production and the restricted limits of consumption. In reality, besides this, the process of realisation proceeds not with ideally smooth proportionality, but only amidst ‘difficulties’, ‘fluctuations’, ‘crises’, etc. (Lenin, “Once Again on the Question of the Theory of Realisation", Works, Russian edition, vol. IV, p. 7 I.)
We must distinguish between the internal market (outlet for commodities within the country itself) and the external market (outlet for commodities abroad).
The internal market appears and extends along with the appearance and growth of commodity production, and especially with the development of capitalism, which deepens the social division of labour and breaks up the direct producers into capitalists and workers. As a result of the social division of labour the number of separate branches of production grows. The development of some branches extends the market for the commodities produced by other branches, especially for raw material, machinery and other means of production. Furthermore, the differentiation of the petty commodity producers into classes, the growth in the number of workers and the increase in the profits of the capitalists lead to an increase in the outlet for consumer goods bought by them. The level of development of the internal market is the level of development of capitalism in a country.
The socialisation of labour by capitalism appears first and foremost in the fact that the fragmentation of petty production units which existed previously is done away with and the petty local markets become united into a huge national (and later world) market.
When we examine the process of reproduction and circulation of the entire social capital the role of the external market is left on one side, since inclusion of the external market does not affect the substance of the problem. Bringing in foreign trade only shifts the problem from one country to a number of countries, but it in no way changes the essence of the process of realisation. This does not mean, however, that external markets are not of essential importance for capitalist countries. In their hunt for profit the capitalists expand production in every way possible, arid seek more profitable markets, and foreign markets often prove to be especially profitable.
The contradictions of capitalist realisation manifest themselves in full force in the periodic economic crises of over-production.
BRIEF CONCLUSIONS
(1) The rotations of individual capitals, taken in their aggregate, constitute the movement of social capital. The social capital is the aggregate of individual capitals in their connection one with another.
(2) The aggregate product of capitalist society is divided in respect of value into constant capital, variable capital and surplus-value, and in respect of its material form into means of production and consumer goods. The whole of social production is divided into two subdivisions: the first subdivision is the production of means of production and the second is the production of consumer goods. The problem of realisation is the problem of finding, for each part of the social product by value and by material form, another part of the product to exchange for it.
(3) In capitalist simple reproduction the condition for realisation is that the variable capital plus the surplus-value of the first subdivision must be equal to the constant capital of the second subdivision. In capitalist extended reproduction the sum of the variable capital and the surplus-value of the first subdivision must be greater than the constant capital of the second subdivision. The law of extended reproduction under any social system is a preferential (more rapid) growth in the production of means of production compared with the production of consumption goods.
(4) In the course of its development capitalism creates an internal market. The growth of production and of the internal market under capitalism takes Place to a greater extent in respect of means of production than in respect of consumer goods. In the process of capitalist reproduction a disproportionality of production, and a contradiction between production and consumption, reveal themselves which are inevitable under capitalism, flowing as they do from the fundamental contradiction of capitalism, the contradiction between the social character of production and the private capitalist form of appropriation of the results of production. The contradictions of capitalist reproduction are most vividly expressed in economic crises of overproduction.<.p>