The “Simple Reproduction” Scheme

E. The “Simple Reproduction” Scheme

Marx’s brief Chapter 23 in Capital 1 on “Simple Reproduction,” discussed in Sec- tion C, provides merely a bland introduction to the celebrated reproduction scheme of Capital 2, Chapter 20. That scheme is introduced by contrasting “the process of reproduction of an individual capital” with the analysis at hand concerning “the annual function of social capital” (MECW 36: 390–1; emphasis added). For in the first case it sufficed merely to assume sale of final product and repurchase of appro- priate means of production, whereas this was no longer the case. Essentially, in standard value analysis the nature of a commodity’s “use value” was immaterial – “whether it was machines, for instance, corn, or looking glasses. It was always but

a matter of illustration, and any branch of production could have served that pur- pose equally well” (392–3). All that needed to be assumed is that markets, whether of goods or labor, cleared. The macro-analysis at hand, by contrast, turned not simply on the replacement of values but of the replacement of specific categories of material goods:

This merely formal manner of presentation is no longer adequate in the study of the total social capital and of the value of its products. The reconversion of one portion of the value of the product into capital and the passing of another portion into the individual consumption of the capitalist as well as the working class form a movement within the value of the product itself in which the result of the aggregate capital finds expression; and this movement is not only a replacement of value, but also a replacement in material and is therefore as much bound up with the relative proportions of the value components of the total social product as with their use value, their material shape (393).

Marx adds the related clarification that in the standard value analysis fixed-capital values are transferred by wear and tear to the product “irrespective of whether or not any portion of this fixed capital is replaced in natura . . . out of the value thus

69 transferred”, whereas in the Reproduction analysis it is taken for granted that actual

E. The “Simple Reproduction” Scheme

replacement does occur: We saw in the study of the value of the product of individual capital [MECW 35: Ch. 8]

that the value of which the fixed capital was shorn through wear and tear is transferred to the commodity product created during the time of wear, irrespective of whether or not any portion of this fixed capital is replaced in natura during this time out of the value thus transferred. At this point in the study of the total social product and of its value, however, we are compelled, at least for the present, to leave out of account that portion of value which is transferred from the fixed capital to the annual product by wear and tear, unless this fixed capital is replaced in natura during the year (395).

It is further assumed that products exchange at their values, though Marx of course recognizes that, in fact, “prices diverge from values.” He justifies this sim- plification on the grounds that outputs are unchanged in transfer from the price to the value scheme: “The fact that prices diverge from values cannot, however, exert any influence on the movement of the social capital. On the whole, there is the same exchange of the same quantities of products, although the individual capitalists are involved in value relations no longer proportional to their respective advances and to the quantities of surplus value produced singly by every one of them” (392). Now this justification is wholly unconvincing, since the Transformation process does entail output variations, as Marx himself clarifies in Capital 3 (see above, Chap- ter 1), through the inconsistency is somewhat academic since the reproduction analysis deals with “social” capital, involving broad classes of goods not individual

industries. 16 Moreover, constant technology is assumed throughout: “there is no revolution in the values of the component parts of the productive capital.” For this assumption Marx provides a rather half-hearted justification considering the essential role of technical change reflected in rising c /v in his general system: “As for revolutions in value, they do not alter anything in the relations between the value components of the total annual product, provided they are universally and evenly distributed.” And even if “partially and unevenly distributed . . . once there is proof of the law according to which one portion of the value of the annual product replaces constant, and another portion variable capital, a revolution either in the value of the constant or that of the variable capital would not alter anything in this law.”

Simple reproduction itself, zero net accumulation, was (it is allowed) as “abstract” an assumption as that of constant technology: “Simple reproduction, reproduction on the same scale, appears as an abstraction inasmuch as on the one hand the absence of all accumulation or reproduction on an extended scale is a strange assumption in capitalist conditions, and on the other hand conditions of production do not remain exactly the same in different years (and this is assumed)”

16 See also: “. . . the distinction between price of production and value . . . disappears altogether when . . . the value of the total annual product of labour is considered, i.e., the product of the

total social capital” (MECW 37: 818–19).

70 Elements of Growth Theory

(393). A formal justification for his abstraction “as far as accumulation does take place” in practice, is that “simple reproduction is always a part of it, and can therefore be studied by itself, and is an actual factor of accumulation.” As for the behavioral assumption that capitalists devote their entire net revenue to consump- tion – that “[s]imple reproduction is essentially directed toward consumption as an end, although the grabbing of surplus value appears as the compelling motive of the individual capitalist” (410) – Marx in the same manner observes that since “simple reproduction is a part, and the most important one at that, of all annual reproduction on an extended scale, this motive remains as an accompaniment of and contrast to the self-enrichment motive as such.” All this confirms that, for Marx, there are normally two drives not one at play motivating capitalists’ savings behavior, as we demonstrated in Section D.

A further simplification – as in Capital 1 – is neglect of the distribution of surplus value by the original industrial capitalist between landlords, rentiers, and so on: “In reality the matter is more complicated, because partners in the loot – the surplus value of the capitalist – figure as consumers independent of him.”

The formal problem of Simple Reproduction posed in Capital 2 is summarized thus: “How is the capital consumed in production replaced in value out of the annual product and how does the movement of this replacement intertwine with the consumption of the surplus value by the capitalists and of the wages by the labourers?” (MECW 36: 392). As we shall see in Chapter 11, Marx tried his hand in Theories of Surplus Value at a full-fledged Tableau Economique representation of simple reproduction (MECW 34: 244), which he elaborated in a letter to Engels dated 6 July 1863 (MECW 41: 485–7), incorporating distribution of the surplus between the various “partners in the loot.” But it is the procedure adopted in Capital 2 that concerns us now, and this may be viewed as a reduced-form tableau.

The scheme (MECW 36: 394–6) entails a capital-goods “department” (I), a consumer-goods “department” (II), with capital in each comprising a variable component (v) – namely, “the value of the social labour power employed . . . ” or “the sum of the wages paid for this labour power” – and a constant component (c) namely, the value of the fixed and circulating elements “consumed in the process of production and only transferred to the product . . . ” (subject to the condition noted above, p. 69). The value added in the “year” comprises “the replacement of the advanced variable capital (v) and the excess over and above it” or surplus value

(s). The rate of surplus value s /v is taken as a uniform 100%. 17 Marx considered as an inconsequential simplification “the ratio of the variable to the constant capital

17 The profit rate for each department defined as surplus relative to the total capital stock is not specified, Marx’s data implying a uniform “profit rate” in the limited sense only of surplus

relative to “used up” constant (and variable) capital. See also note 22.

71 of both I and II and . . . the identity of this ratio for I and II and their sub-divisions.

E. The “Simple Reproduction” Scheme

As for this identity, it has been assumed here merely for the sake of simplification, and it would not alter in any way the conditions of the problem and its solution if we were to assume different proportions” (406). All data are (money) values:

I CAPITAL VALUE:

c I (4000) + v I (1000)

COMMODITY VALUE: c I (4000) + v I (1000) + s 1 (1000) = 6000

II CAPITAL VALUE:

c II (2000) + v II (500)

COMMODITY VALUE: c II (2000) + v II (500) + s II (500) = 3000 Marx posits the basic condition for Simple Reproduction as v I + s I = c II : “The

1,000 v + 1,000 s of department I must . . . be spent for articles of consumption; in other words, for the product of department II. Hence they must be exchanged for

the remainder of this product equal to the constant capital part, 2,000 c . Depart- ment II receives in return an equal quantity of means of production, the product of I, in which the value of 1,000 v + 1,000 s of I is incorporated” (396). Again: “ . . . on the basis of simple reproduction, the sum of the values of v + s of the commodity capital of I (and therefore a corresponding proportional part of the

total commodity product of I) must be equal to the constant capital II c , which is likewise taken as a proportional part of the total commodity product of department II; I (v + s) = II c ” (401). In essence, v I + s I represents both (inter-departmental) supply of capital goods and demand for consumer goods, and c II represents both (inter-departmental) demand for capital goods and supply of consumer goods; and expenditure on consumer goods by workers and capitalists in the capital goods department is balanced by expenditure on capital goods by capitalists in

the consumer goods department. 18 More specifically: “ . . . the new value created by the labour of one year (divisible into v + s) in the natural form of means of production is equal to the value of the constant capital c contained in the value of the product created by the other part of the annual labour and reproduced in the

form of articles of consumption. If it were smaller than II c , it would be impossible for II to replace its constant capital entirely; if it were greater, a surplus would remain unused. In either case, the assumption of simple reproduction would be violated” (406). In brief, Department I supplies capital goods and at the same time

demands consumer goods to an amount equal to v I + s I ; and Department II has

a demand for capital goods and at the same time supplies consumer goods to an amount equaling c II . Only if v I + s I = c II is there a clearing of these markets, with “[t]he net output of group I . . . balanced by the replacement of capital in group II” (Robinson 1967 [1942]: 45).

18 The condition v I + s I = c 2 can be formally derived from the fact that output of producer goods replaces capitals used up in both sectors: c 1 + v 1 + s 1 = c 1 + c 2 ; and output of consumer

goods is allocated between workers and capitalists in both sectors: c 2 + v 2 + s 2 = v 1 + s 1 + v 2 + s 2 . See on this Sweezy 1942: 76–7; Robinson 1967 (1942): 45.

72 Elements of Growth Theory

Money accommodes inter-department exchanges even in our closed economy with zero net investment, though credit is explicitly excluded (407). Thus an essen- tial role is played by “reserve capital in the form of money,” subject to a contrast between laborers and capitalists in this regard:

Since the working class lives from hand to mouth, it buys as long as it has the means to buy. It is different with the capitalist, as for instance in the exchange of 1,000 II c for 1,000 I v . The capitalist does not live from hand to mouth. His compelling motive is the utmost self-expansion of his capital. Now, if circumstances of any description seem to promise greater advantages to capitalist II in case he holds on to his money, or to part of it at least, for a while, instead of immediately renewing his constant capital, then the

return of 1,000 II c (in money) to I is delayed; and so is the restoration of 1,000 v to the form of money, and capitalist I can continue his business on the same scale only if he disposes of reserve money (444).

Marx concluded that “generally speaking, reserve capital in the form of money is necessary to be able to work without interruption. . . . ” The “compelling motive” alluded to does not in fact seem appropriate in the static context assumed.

At issue is the process whereby variable capital is “restored” in monetary form so the employer “may advance [it] once more for the purchase of labor power” (398). 19 As for the capital-goods sector, Marx sets off the process by assuming £1000 paid by the “aggregate capitalist”-I to laborers, who purchase therewith wage-goods, thereby “converting” one-half of the (used-up) capital goods in the consumer- goods sector into money; this sum is then returned to department I in payment of real capital goods, money thus accommodating an exchange of part of the capital goods required by sector II against the wage-goods required by sector-I workers. The return of money to its origin permits renewed purchase of labor power in the capital-goods sector (398).

Money also acts to accommodate the purchase of consumer goods by department-I capitalists and that of the remaining capital-goods required by depart- ment II capitalists, i.e., to “exchange the s-portion of commodity capital I [s I (1000)] for the second half of constant capital II [c II (1000)].” In this context Marx specifies carefully that “[a] certain supply of money, to be used either for the advancement of capital or for the expenditure of revenue, must under all circumstances be assumed to coexist beside the productive capital in the hands of the capitalists . . . ,” say a money-supply of £1000 – in addition to the £1000 paid out to capital-goods work- ers – one half initially in the hands of capitalists I and spent by them on consumer goods, and one half in the hands of capitalists II and “advanced” in the purchase of required producer goods. A money circulation of only £2000 can accommodate

19 Marx takes the opportunity to observe that the real goods produced by labour already exist when money wages are paid: “The capitalist buys the labour power before it enters into the

process of production, but pays for it only at stipulated times, after it has been expended in the production of use values. . . . [T]he labourer has already supplied the capitalist with the equivalent of his wages” (MECW 36: 397–8).

73 an exchange of commodities amounting to £4000, “because the entire annual prod-

E. The “Simple Reproduction” Scheme

uct is described as exchanged in bulk, in a few large lots,” whereas money flows back and forth before returning to its origin (399). The outcome of the two sets of exchanges entailing capital goods of £2000 purchased by consumer-goods capital- ists against £2000 of consumer goods (one half purchased by capital-goods workers and one half by their employers), with money acting solely as exchange medium, is described thus: “Of the money which the industrial capitalists throw into circu- lation to accomplish their own commodity circulation, whether at the expense of the constant part of the commodity value or at the expense of the surplus value existing in the commodities to the extent that it is laid out as revenue, as much returns into the hands of the respective capitalists as was advanced by them for the money circulation” (400). This summary must be supplemented, of course, by

the initial flows entailing v 1 , namely purchase of consumer goods by capital-goods workers (400–1). Thus far the inter-departmental exchanges of v 1 (1000) + s I (1000) against

c II (2000) have been accounted for. Nothing has been said either of the goods consumed within the consumer-goods sector by workers and their employers (v II + s II ), amounting to £1000, or of the “reproduction” of constant capital within the capital-goods sector (c I ) amounting to £4000 (396–7). As for consumer-goods workers, they are perceived simply as “buy[ing] back,” with money wages received, “a portion of their own product” – the remainder being consumed by capitalists; “[t]hereby the capitalist class II reconverts the money capital advanced by it in the payment of labour power into the form of money” (401). In fact: “It is quite the same as if it had paid the labourers in mere value tokens. As soon as the labourers would realise these value tokens by the purchase of a part of the commodities pro- duced by them but belonging to the capitalists, these tokens would return into the hands of the capitalists” (401–2).

Matters become more complex once a contrast is introduced between “necessaries” (Department IIa) consumed by both workers and capitalists, and “luxuries” (IIb) consumed by capitalists alone. The complexity does not affect laborers producing “necessaries” (402). By contrast, just as capital-goods workers do not purchase their own product but generate a process of inter-departmental exchange against consumer goods, so workers engaged in luxury production do not purchase their own product, but acquire wage goods via an exchange between sectors – or rather sub-sectors – a process requiring “mediation” (402–3). Commodity flows between the sub-departments are then traced out, depending on the relative magnitudes of the two sub-divisions, necessaries (a) and luxuries (b); and the budget allo- cations by consumer-goods capitalists between necessaries and luxuries (403–6). The outcome, allowing for labourers producing but not consuming luxury goods,

supplements the primary inter-departmental exchange v I + s I against c II (406–7).

74 Elements of Growth Theory

We return to the basic simple-reproduction case and recall that one third of the output of the capital-goods sector (v I and s I =£ 2000) is exchanged for the consumer goods required by capital-goods workers and their employers, which leaves an amount c I =£ 4000, representing the replacement within Department

I of that Department’s constant capital consumed in the annual process (above, p. 71). Given that “[t]he capitalist class of I comprises the totality of the capital- ists producing means of production,” c I could not be treated in the manner of the individual producer of a particular capital good who engages in sale of his product against money and repurchase of the requisite means to set the produc- tion process going once again (421). (The contrast between the individual and aggregate dimensions is set out in general terms, above, p. 68). In any event, there is no part of the annual “social product” against which an exchange can be

v + s ], and another portion has to replace the constant capital of department II, which has already exchanged everything it could dispose of in an exchange with depart- ment I.” The issue is phrased as the “riddle” of fixed-capital replacement even in the Simple scheme, for “[f]rom the standpoint of society, two-thirds of the labor expended during the year” – the entire labor force of department I represented by 2,000 I v+s – “have created new constant capital value realised in the natural form appropriate for department II . . . in order to replace the value of the con- stant capital expended in the production of articles of consumption,” and these newly produced means of production were “not resolvable into revenue in the form of wages or surplus value, but can function only as capital” (437; emphasis added). Now since the remaining one-third of the workforce produces consumer goods for consumer-goods workers and their employers, the obvious problem arises that the reproduction of new constant capital in I is not apparently accounted for, since the noted applications have exhausted the workforce. The situation corre- sponds to the consumption of consumer goods by consumer-goods workers and their employers, namely within sector II: “In II a part of the commodity product is individually consumed in natura by its own producers while in I a portion of the product is productively consumed in natura by its capitalist producers” (421– 2). This might be literally the case, but even when exchanges within the sector occur, “[i]t is an exchange of the different individual parts of constant capital among themselves” (423), such as would occur even under a Communist form of organization: “If production were social instead of capitalist, these products of department I would evidently just as regularly be redistributed as means of pro- duction to the various branches of this department, for purposes of reproduction, one portion remaining directly in that sphere of production from which it emerged as a product, another passing over to other places of production, thereby giving rise to a constant to-and-fro movement between the various places of production in this department.” The “riddle” and the proposed solution are expounded in the Economic Manuscripts with the aid of a Physiocratic-type flow of funds diagram (see Chapter 11.B).

F. The “Extended Reproduction” Scheme