The People's Marx, Abridged Popular Edition of the the Three Volumes of Capital, Borchardt 1921

Chapter 24


Crises.

Editor's Introductory Note: Marx's theory of crises is so important for a comprehension of his whole teaching, that it cannot be omitted here. Unfortunately, every attempt to render this theory easily comprehensive in the same manner as the other parts of the work, that is to say by abbreviation and occasional modification of the terms of expression, has failed. In Capital, several hundred pages are devoted to this theory. [1] Marx has here undertaken a detailed study of the proportions in which capital and labour must be distributed in the different branches of production, if the equilibrium between production and consumption is to remain undisturbed; and further, the demonstration that, with every increase of production - increase which is continuously necessitated by capital's need for accumulation - the capitalist system destroys the equilibrium, thereby causing the crises. Marx thus shows that crises are not caused by mistakes committed by the capitalists, but are, on the contrary, an inevitable result of normal activity of capital. If we wished to repeat all Marx's calculations, unending series of extremely dry arithmetical propositions would be the consequence, comprehensible only to those who, by dint of exceptional energy, could remember the innumerable details; and which, therefore, would probably be read by nobody. This, however, would be contrary to the purpose of The People's Marx.

We have therefore decided to go to work differently. We reproduce but a small fraction of Marx's calculations, in order to illustrate the method adopted by him. We then supplement these calculations by means of an essay written by us personally, which aims at showing and making comprehensible to the reader all that, in the present chapter, is essential.

We would add, that in his book Finanzkapital (Vienna, 1910 ch. 16-20, especially pp. 304-318), Rudolf Hilferding has given a good summary of Marx's arguments. Another work which in this connection may be read usefully, is the third section of chapter 12 of Franz Mehring's book Karl Marx, (Leipzig, 1918, pp. 378-387.) The author of the section in question was Rosa Luxemburg.

If we consider the commodity product [2] supplied by society during the course of the year, we find it includes those parts which go to replace capital, and also those destined for consumption and which are, in fact, consumed by labourers and capitalists. How is the value of the capital consumed in the process of production replaced out of the annual product? And how is this interwoven with the phenomenon of the consumption of surplus-value by the capitalists and of labour-wages by the labourers?

We shall at first base our investigation on the assumption that the process of reproduction is carried-on on a simple scale, i. e. that this process is not extended, and is carried on as it was previously. We shall further assume that products are exchanged according to their value, and that the component parts of productive capital do not alter their value either. In so far as prices deviate from value, this can exert no influence on the movement of the totality of the social capital. After as before, products are exchanged, on the whole, to the same amount; only the value of the share of each individual capitalist in the process, is no longer proportionate to the capital advanced, or to the surplus-value produced, by each one. But as far as other changes of value are concerned, such changes - in so far as they are of a uniform and general nature - cannot modify the relation between the respective value of the various component parts of the total annual product. On the other hand, in so far as such changes are only local and are not uniform, they can be understood only if we consider them to be deviations from relations of value which remain unchanged. But if we succeed in discovering the rules according to which one part of the annual product replaces constant, and another variable capital, a change in the value of the constant or variable capital would not modify those rules, but only the amount of the part passing over into the one or the other function.

The movement with which we are now dealing, i. e. the reconversion of a part of the value of the product into capital, whereas the other part is absorbed by the consumption of the capitalist and labouring classes alike, does not only replace value, but also matter; and is thus determined alike by the mutual relation of the respective values of the various component parts of the social product to one another, and by the material composition of those parts.

It must, further, be remembered that simple reproduction on a uniform scale does not in reality take place in capitalist society. On the one hand, to assume the absence of all accumulation on a capitalist basis, would be a strange hypothesis; on the other hand, the conditions of production are not absolutely identical in different years. However, in so far as accumulation takes place, simple reproduction invariably forms part of it, and can therefore be considered in itself.

The total product, consequently also the total production, of society, may be divided into two main parts, viz:

I. Means of production, i. e. commodities in a shape in which they must, or at least can, serve the purpose of new production (or, in other words, be absorbed by productive consumption).

II. Means -of consumption, i. e. commodities in a shape in which they are consumed by the capitalists and labourers, (or, in other words, in which they are absorbed by individual consumption).

In each of these divisions, capital falls into two parts:

1. Variable capital. Considered from the point of view of value, this capital is equal to the value of the labour power employed in the division, consequently it is equal to the sum total of wages paid for such labour power. From the point of view of material, it consists in the active labour power itself.

2. Constant capital. The value of all the means of production employed in the division. The means of production themselves fall into two parts: fixed capital (machines, tools, buildings, cattle, etc.); and circulating constant capital (raw and auxiliary materials for production, semi-manufactured articles, etc.).

The value of the annual product produced in each of the two divisions, falls itself into two parts; one represents the constant capital (c), which has been consumed and its value transferred to the product; the other represents the supplementary value due to the year's labour. This- latter part, in its turn, is subdivided; one fraction of it replaces the variable capital (v), which has been advanced; and the other is the surplus-value (s). Thus, just like the value of every individual commodity, that of the annual product of each division falls into c + v + s.

The value of c, representing the constant capital consummed in the process of production, is not identical with the value of the constant capital applied to that process. True, the materials necessary for production have been completely consumed and their value has been, in consequence, completely transferred to the product. But only a part of the fixed capital employed has been consumed and its value transferred to the product. Another part of the fixed capital (machines, buildings, etc.) still exists and functions - although we must make a deduction for wear and tear during the year. When we consider the value of the product, this part of the fixed capital, which continues to function, does not enter into our calculations. But we must also, at least provisionally, make abstraction of the value transferred, through wear and tear during the year, by fixed capital to the product - in so far as such fixed capital has not been, in the course of the year, replaced in natura. We shall discuss this point separately later on.

For the purpose of our investigation of the process of simple reproduction, we shall adopt the following formula as basis, in which

c = constant capital
v = variable capital
s = surplus value
s/v = the ratio of utilisation, assumed at 100 %,

i. e. it is assumed that the surplus-value is exactly equal to the outlay for labour-wages. (We may suppose the figures to represent millions of pounds sterling or dollars).

I. Production of means of production (mp.):
Capital 4000 c + 1000 v - 5000
Commodity product 4000 c + 1000 v + 1000 s = 6000
existing in the form of means of production (mp).

II. Production of means of consumption (mc):
Capital 2000 c + 500 v = 2500
Commodity product 2000 c + 500 v + 500 s = 3000
existing in the form of means of consumption (mc).

Hence the total annual commodity-product amounts to
I. 4000 c + 1000 v + 1000 s = 6000 means of production
II. 2000 c + 500 v + 500 s 3000 means of consumption.
Total value = 9000, from which the fixed capital which continues to exist in its natural form is excluded.

Let us now see what turnovers are necessary in this case, on the basis of simple reproduction in which the entire surplus-value is consumed. If we at first make abstraction of the money circulation which serves as medium for them, we at once get three important clues:

1. The 500 v, labour-wages, and 500 s, surplus-value of the capitalists in division II, must be spent on me. But their .value in me amounts to 1000, which, in the hands of the capitalists of division II, replace the 500 v advanced and represent the 500 s. The labour-wages and surplus-value of division II are thus, within that division, exchanged for the product of II. Thus (500 v + 500 s) II = 1000 me disappear from the total product.

2. The 1000 v + 1000 s of division I must likewise be spent on mc, consequently on the product of division II. They must therefore be exchanged for that part of the constant capital 2000 c still remaining over from this product. In return, division II receives a similar amount of mp, which incorporate the labour wages and the surplus-value of division I. Hence 2000 II c and (101)0 v + 1000s) I disappear from our calculation.

3. There still remain 4000 I c. These consist of mp, which can only be utilised in division I, which serve to replace its consumed constant capital, and which thus accomplish their destiny by being exchanged between the individual capitalists of division I.

(The above is for the meantime, to enable the reader to understand better what follows).

Let us now come to the great exchange which takes place between the two divisions.

(1000 v + 1000 s) I - mp in the hands of the producers in division I - are exchanged for 2000 c II, i. e. for values in the natural form of mc. The capitalists of division II thus convert again their constant capital from out of the form me into the form mp; and the latter are precisely such mp as are able to produce new mc. On the other hand, the labourers and capitalists of division I receive in this way, in exchange for their wages and surplus-value, the mc needed by them.

For this mutual turnover, however, a process of money circulation serves as medium; the process in question renders more difficult the comprehension of the former; but it has decisive importance, for the reason that labour-wages (the variable part of capital) must perpetually reappear in money form. In all branches of business, whether in division I or division II, wages are paid in that form. In order to obtain the money, the capitalist must sell commodities.

In division I the total capital has paid 1000 (which we may designate as £ 1000, in order to underline the fact that it is a money value) 1000 v to the labourers for that part of the product already existing as v part. The labourers buy for the £ 1000 mc from the capitalists of division II, and thus transform half the constant capital of the latter into money; the capitalists of division II, in their turn, buy with the £ 1000 mp from those of division I; the latter's variable capital is herewith once more converted into money, for which they can buy new labour power. The capitalists of division I have, therefore, originally advanced this money themselves.

More money is necessary, in order to exchange those nip which represent the surplus-value of the capitalists of division I, for the second half of the constant capital of division II. These sums can be advanced in different ways, but must under all circumstances be derived from the capitalists; for we have already settled our account in respect of the money thrown into the process of circulation by the labourers. A capitalist in division II can buy mp with the money capital he possesses in addition to his productive capital; or, vice-versa, a capitalist in division I can buy me out of money reserves destined to meet his personal expenses (and not for investment as capital). Certain money reserves - whether for investment as capital or for personal expenditure must under all circumstances be presumed available, alongside of productive capital, in the hands of the capitalists. Let us assume (for our purpose the proportion is quite indifferent) that one half of the money is advanced by the capitalists of division II for the purchase of nip, whereas the other half is spent by the capitalists of division I on me. In this case, division II has replaced three-quarters of its constant capital in natura with £ 500 (including the £ 1000 derived from the labourers of division I). Division I, however, gives the £ 500 thus obtained back to division II in exchange for mc; and division II gets back in this way the £ 500 as money capital, which it owns alongside of its productive capital. In addition to this, division I gives also £ 500 for the purchase of mc. With these last £ 500 division II buys mp, and has thus replaced its entire constant capital (1000 + 500 + 500 = 2000 in natura; whereas division I has spent its whole surplus- value on mc. All in all, a turnover of commodities to the extent of £ 4000 with a money circulation of £ 200 would have taken place. We only obtain this amount of money because we assumed that the entire annual product was, all at a time, turned over in a few large lots. The only thing of importance, here, is that division II exchanges its constant capital me for mp, and also gets back the £ 500 advanced for the purchase of mp; and that division I regains possession in money form of its variable capital, which had the form of mp, and is thus enabled to buy new labour power, and that it likewise receives back the £ 500 which it had expended on the purchase of me before having sold the surplus-value of its capital. These £ 500, however, flowed back, not by reason of Ihe expenditure, but through the subsequent sale of a part of the commodity-product of the division containing half its surplus-value.

The general consequence is: so much of the money thrown by the producing capitalists into the process of circulation returns into the hands of each individual capitalist, as he has advanced for the money circulation.

There now remains only the variable capital (labourwages) of division I. At the end of the process of production it first exists in that commodity form in which the labourers have supplied it, i. e. in mp. The labourers have received their wages from the capitalists of division I. But the labourers do not buy mp, this money does not return direct to the capitalists of I, but first goes to the capitalists of II, from whom the labourers buy their mc. And, only because the capitalists of II spend the money on the purchase of mp, does it return by this circuitous route into the possession of the capitalists of I.

In the case of simple reproduction, therefore, that part of the annual product of division I which represents the sum v + s of division I must be equal to the constant capital of division II, or to that part of the total product of division II which represents the latter's constant capital. I (v + s) = II c.

It still remains for us to study the components parts v +s of the value of the product of division II. With the labour-wages received from the capitalists of division II, the labourers of this division evidently buy back a part of their own produce. Hereby the capitalists of division II re-transform the money capital advanced by them for wages, into money form. It is just the same as if they had merely paid their labourers in stamps.

Division II of production consists of the most heterogeneous branches of industry, which can, however, be grouped in two main subdivisions:

A) Means of consumption, which are needed by the labourers, and which, in so far as they are necessary means of subsistence, also constitute a part of the consumption of the capitalists. For our purpose we may conveniently resume this whole subdivision as the subdivision of necessary means of consumption. It is indifferent whether any given product, such as e. g. tobacco, be physiologically necessary or not; it suffices, that it is habitually consumed by the labourers.

B) Luxuries for consumption, i. e. those means of consumption which are consumed exclusively by the capitalists, and which, therefore, can only be exchanged for surplus-value.

In the case of the necessary mc, it is clear, that the wages advanced in money form in the course of their production must return direct to those capitalists of division II who produce such necessary means of subsistence (i. e. to the capitalists of II A). The means of circulation are here directly furnished by the money which the labourers spend. It is different with subdivision II B. It is here a question of articles of luxury, which are not bought by the labourers. If the wages advanced for the production of those articles are to return again in money form to the capitalists, this cannot be effected directly; an intermediary is required. On calculating more closely we obtain a formula very similar to that obtained when the surplus-value of division I (mp) is exchanged for me; and which shows that a similar proportion between the production of necessary means of subsistence and that of luxuries is required.

Assuming simple reproduction, we come necessarily to the following result:

1. That part of the yearly product, which, in the form of mp, represents newly created value (v + s), must be equal to the constant capital of the other part existing in the form of mc. If the former were smaller than IIe, II could not entirely reconvert its constant capital into mp, and could not, therefore, continue producing on the old scale. If, on the other hand, it were larger, a surplus would remain unutilised.

2. The wages of the labourers engaged in producing luxuries must be smaller than the surplus-value of those capitalists who produce necessary means of subsistence. [3]

Notes

[1] Cf. notably vol. II, ch. 18 -?21, 7 -?9, 13 -?17; vol. III. part 1, ch. 15; vol. III, part 2 ch. 30; in addition to which, observations are scattered throughout all three volumes.

[2] Extracted from vol. II, ch. 20, German ed.

[3] We break off here - conformably with what we said in the introductory note to this chapter - Marx's exposition of the subject, and we would refer the reader to the essay entitled The Essence of Marx's Theory of Crises, published as a supplement to the present volume. - EDITOR'S NOTE.

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