Sunday, 28 December 2014

Capital II, Chapter 20 - Part 39

The analysis set out by Marx here presages that of Keynes by around 60 years. The points that Marx is examining here, as discussed in Part 38, cover the aspects of forced savings, which appear as investment in the form of inventories, in Keynes' theory, as well as the concept of underconsumption, due to changes in, or in Marx's case, differences in the marginal propensity to consume of different social classes; a point Marx specifically refers to in explaining the basis of crises in Capital III, Chapter 15.

Marx's analysis here also gives the lie to the idea that Marx rejected the potential of crisis arising from such underconsumption. The analysis here is based upon simple reproduction, and constant technology. In other words, any crisis that arises here cannot be attributed to a reduction in investment due to a falling rate of profit, caused by changes in the organic composition of capital. The disproportion here between Department I and Department II arises, not because of any change in values, technology or output. It arises, because fixed capital passes on its value in wear and tear to the value of Department II output, but this value of wear and tear, realised by Department II, is not then returned to Department I, in the purchase of fixed capital. In essence, as Marx says directly later, this amounts to an underconsumption of constant capital by Department II, even though there has been no actual change in its production and consumption.

The further elaboration here shows how this is resolved in theory, so that no disproportion, in fact arises. However, Marx in the previous quote, and in his later elaboration makes clear that although the removal of any “ obscuring minor circumstances” is necessary, in order to obtain a clear theoretical understanding of the real relations, in practice, these circumstances take on a very real role. In practice, the replacement of fixed capital does not occur mechanically and smoothly, as the theoretical explanation requires. Any lengthening of the life of existing fixed capital, will cause the kind of underconsumption by Department II, described here, to arise, just as any shortening of its life will cause the opposite. Marx examines those situations later in the chapter.

But, Marx's reference to the role of the other exploiting classes has a similar consequence in practice as he described in Capital III, Chapter 15. The industrial capitalists, may utilise any potential money-capital, not used for personal consumption, for productive investment, so that aggregate demand is sustained, by them, as either consumption or investment. The workers will use all of their wages to finance their consumption. But, landlords after utilising rents, obtained from capitalists, to finance their personal consumption, have no drive to invest the remainder productively, as the industrial capitalists do. To the extent that they simply save this remainder, they underconsume. This remainder gets thrown into the money market, and thereby acts to reduce interest rates. Marx in Capital III, sets out the way that one determinant of lower interest rates is the maturity of an economy, such that older societies, with a larger group of people with wealth, who do not participate in productive investment, thereby tend to produce a surfeit of potential loanable money-capital, which causes interest rates to be low.

£1,000 is advanced as variable capital by Department 1. The £1,000 received as wages by Department 1 workers is spent by them. This money does not flow directly to Department 2 capitalists. The workers buy goods from shops, they pay rent to landlords, bills to doctors, taxes to the state and so on. The recipients of these payments may then in turn spend the money they receive in a similar manner. Only after a multitude of such transactions, and a very circuitous route, does the money eventually find its way into the coffers of the Department 2 capitalists, who provide the required consumption goods.

The longer the process takes, and the longer then before the money is used by Department 2, to purchase additional means of production, the more capital may have to be advanced to ensure that production is continuous.

It doesn't matter whether we assume that it is Department 1 capitalists who firsts spend money to buy Department 2 consumer goods, or whether it is Department 2 capitalists who first advance capital to buy Department 1 means of production. In reality, both will happen. Some Department 1 capitalists – for example, those that have just set up in business – will lay out money to buy consumer goods before they have sold means of production. Similarly, some Department 2 capitalists will advance capital for means of production before they have sold consumer goods.

“This assumption must be made, for it would be arbitrary to presuppose the contrary, that capitalist class I or II should one-sidedly advance to the circulation of the money necessary for the exchange of their commodities.” (p 462)

In either case, the money spent or advanced, returns to its origin. Money spent by Department 1 capitalists, to buy consumer goods, returns to them in the form of realised surplus value. Money advanced by Department 2 capitalists, to buy means of production, returns to them in the realised value of that constant capital in the end product.

The problem we have is that Department 2 has sold £2,000 of consumer goods to Department 1. Part of this £2,000 value is made up of £200 for wear and tear of fixed capital. Because this fixed capital is only replaced when it is worn out, the £200 is retained as a money fund to be spent later. But, that means Department 2 now only buys £1,800 of constant capital from Department 1, leaving it with £200 of unsold commodities.

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