The “Extended Reproduction” Scheme

F. The “Extended Reproduction” Scheme

Sectoral balance in a stationary system implies that purchases of consumer goods by capital-goods workers and their employers out of net income (v I + s I )– assumed to be devoted entirely to consumption – exchange against purchases of capital goods for replacement purposes by the consumer-goods sector (c I ). Sec- toral balance in an expanding system undertaking positive savings by capital- ists out of their (growing) surpluses to finance net accumulation, implies that the increased consumer-goods purchases by the expanding capital-goods work force and their employers exchange against the capital-goods requirements in the consumer-goods sector for both maintenance and expansion. As before, exchanges internal to each sector are assumed to occur flawlessly and are not discussed fur- ther. Since the condition for “simple” reproduction may be viewed as embedded in that for growth (above, p. 70), the modification asserts merely that consump- tion demand by capital-goods sector I must grow along with net accumulation in consumer-goods sector II, or to be more precise – as we shall presently find – that net accumulation by II grows along with increased consumption demand emanating from I.

Marx does not actually state the problem as one entailing a stationary system

subjected to a decision by producers to save out of a given surplus. 20 Rather, he selects an alternative set of assumed data to represent the departments in his initial exposition of “reproduction on an enlarged scale (which is here regarded merely as production carried on with a larger investment of capital)” (MECW 36: 506). In order to emphasize the divorce, as it were, of the two schemes, and start afresh with one having growth potential, he designs two data sets with the sum total of annual output differing from that assumed in the original Simple Reproduction case (9000):

I. 4000

c + 1000 v + 1000 s = 6000 8252

Scheme a)

II. 1500 c + 376 v + 376 s = 2252

I. 4000 c + 875 v + 875 s = 5750 Scheme b)

c II. 1750 + 376 v + 376 s = 2502 Of these schemes, with equal annual output (in value terms) only scheme a)

has an “arrangement” or “grouping” of elements that “forms the material basis of reproduction on an extended scale” indicated by the initial excess (v + s) I

>c II , whereas in b) (v + s) II are exchanged without any surplus” against c II (507). The condition (v + s) I >c II allows capitalists in I the wherewithal to

20 The key to the transition from Simple to Expanded Reproduction is outlined in a discussion of the finance of net investment: “In order that the transition . . . may take place, production

in department I must be in a position to fabricate fewer elements of constant capital for II and so many the more for I” (MECW 36: 496).

76 Elements of Growth Theory

make net additions to capital after all replacements (in both sectors) have been satisfied. 21

The condition for accumulation is spelled out in a passage relating to a case where (c/v) I = (c/v) II = 5/1. The account stresses purchase of wage goods by capital- goods workers at retail, though their employers treat wage payments as capital outlay in money form, confirming once again that the notion of “labor power” has no operational significance as far as concerns economic process:

It goes without saying that as soon as we assume accumulation, I (v+s) is greater than II c , not equal to II c , as in simple reproduction. For in the first place, I incorporates a portion of its surplus product in its own productive capital and coverts 5/6 of it into constant capital, therefore cannot replace these 5/6 simultaneously by articles of consumption

II. In the second place, I has to supply out of its surplus product the material for the constant capital required for accumulation within II, just as II has to supply I with the material for the variable capital, which is to set in motion the portion of I’s surplus product employed by I itself as additional constant capital. We know that the actual, and therefore also the additional, variable capital consists of labour power. It is not capitalist

I who buys from II a supply of necessities of life or accumulates them for the additional labour power to be employed by him, as the slaveholder had to do. It is the labourers themselves who trade with II. But this does not prevent the articles of consumption of his additional labour power from being viewed by the capitalist as only so many means of production and maintenance of his eventual additional labour power, hence as the natural form of his variable capital. His own immediate operation, in the present case that of I, consists in merely storing up the new money capital required for the purchase of additional labour power. As soon as he has incorporated this in his capital, the money becomes a means of purchase of commodities II for this labour power, which must find these articles of consumption at hand (515).

Simple Reproduction was for Marx merely a point of theoretical reference of little practical relevance under capitalism with its typically positive accumulation rate. Natural population increase is here taken for granted: “considering the natural annual increase in population, simple reproduction could take place only to the extent that a correspondingly larger number of unproductive servants would par- take of the 1,500 representing the aggregate surplus value [in the original example]. But accumulation of capital, real capitalist production, would be impossible under such circumstances.” The fact of capitalist accumulation therefore “excludes the

possibility of II c being equal to I (v+s) ” (520–1). We shall return to this matter in Chapter 5.G.

21 On this condition Joan Robinson observed: “Part of the surplus of both group I and group II is saved, that is, not expended on the products of group II (consumption goods); v 1 + s I

then exceeds c 2 , and must be matched by an equivalent outlay on new capital goods out of s 2 . Saving represents sales without purchases, and can proceed smoothly only if it is offset by equivalent investment – purchases without sales” (Robinson 1967 (1942): 48). But in some of her later writings she qualifies this interpretation on the grounds that it represented Marx in too “Keynesian” a fashion (see Chapter 5, note 30).

77 In his primary illustration, to which we now turn, Marx adopts the following initial

F. The “Extended Reproduction” Scheme

scheme for reproduction on an extended scale, satisfying the condition (v + s) I >c II :

I. 4000 c + 1000 v + 1000 s = 6000 9000

II. 1500 c + 750 v + 750 s = 3000 Should capitalists-I save 50% of their surpluses s I (g I = .5) the corresponding

net investment outlays of 500 must be allocated between c I and v I according to the assumed c/v ratio of 4:1, so that capital-goods workers’ consumption (v I ) amounts to 10 which, added to capitalists’ consumption of 500, implies a net demand for consumer goods of 1600. For interdepartmental balance, this level of consumption necessitates investment in constant capital by II of 1600, that is a higher demand for capital goods by 100 from the initial 1500 (with corresponding increase by 50 in v to satisfy c/v = 2/1). These inter-departmental exchanges – which supplement those reflecting “simple” reproduction, or “[t]he replacement

of (1,000 v + 500 s ) I by 1,500 II c ”– are accomplished by appropriate money flows:

II . . . buys from I for the purpose of accumulation the 100 I s (existing in means of production) which now form additional constant capital II, while the 100 in money which it pays for them are converted into the money form of the additional variable

capital of I. We then have for I a capital of 4,400 c + 1,100 v (the latter in money) = 5,500.

II has now 1,600 c for its constant capital. In order to put them to work, it must advance a further 50 v in money for the purchase of new labour power, so that its variable capital grows from 750 to 800. This expansion of the constant and variable capital of II by a total of 150 is supplied out of its surplus value (510–11).

Before proceeding, we emphasize that the savings ratio of capitalists-I dictates that

of capitalists-II, for g I = 50% is a datum of the analysis, along with the differential c/v ratios and the common s/v = 1, whereas g II is effectively a dependent variable (see further on this characteristic, pp. 81–2). Secondly, differing c/v ratios but uniform s/v indicate differential “profit rates” between sectors:

r I = s/(c + v) 1 = 20%; r II = s/(c + v) II = 33 1 / 3 % which conflicts with Marxian “competition.” 22 And thirdly, that capitalists invest

their surpluses solely within the department in which they are generated, is, Joan Robinson has pointed out, “a severe assumption to make even about the era before limited liability was introduced, and becomes absurd afterwards” (Robinson 1951: 17).

22 Without the further assumption that the entire capital stock “turns over” once a year (see Morishima 1973: 118n), the ratio s/(c + v) in the present context is not the “profit rate” since

c “represent[s] the constant capital consumed in production [and] does not coincide with the value of the constant capital employed in production” (MECW 36: 395).

78 Elements of Growth Theory

The outcome to this point – “the arrangement changed for purpose of accumu- lation” – is summarized thus: