## Tuesday, 6 January 2015

### Capital II, Chapter 20 - Part 43

Marx then analyses three different scenarios, after the exchange for fixed capital has occurred i.e. £200 has been advanced by Department 2(i) to replace its fixed capital, and Department 1 has used this £200 to buy consumer goods, leaving £800 of consumer goods still to be exchanged.

a) The remaining consumer goods have to replace circulating constant capital of £400 each for 2(i) and 2(ii).

b) 2(i) has already sold all its commodities, whilst 2(ii) has £800 still to sell.

c) 2(ii) has sold all but £200.

Marx has previously pointed out that just as a physical proportion of the output can be equated with c,v and s, so a proportion can be equated with (d) the value of the wear and tear. On that basis, the £200 of commodities left with 2(ii) in (c) above are equivalent to the value of (d), the wear and tear.

In the working of these examples, Marx uses different numbers to those he began with (he has a figure of £400 for commodities left to exchange rather than £800). For consistency, I am using the numbers he used in initially formulating the model, with the appropriate adjustments.

a) Section 2(i) has advanced £200 to replace its fixed capital. Marx seems to assume that Department 1 then uses this £200 to buy consumer goods from 2(i), though there is no reason why this necessarily follows. In that case, if Department 2 began with £1,000 of commodity-capital divided £500 2(i) and (ii) each, then 2(i) is left with £300 of commodities and 2(ii) with its £500 of commodities.

2(i) then advances a further £400 and 2(ii), £400 to buy the circulating capital they both require. In reality, both could advance smaller amounts than this in varying combinations, the money then flowing back from Department 1 for the purchase of consumer goods.

Continuing the example, however, we assumed that 2(i) and 2(ii) both have a commodity-capital to begin with equal to £500, to exchange with Department 1(s). 2(i) has already sold £200 of its £500 as a reflux of the £200 advanced for fixed capital. It can then only sell £300 worth of its remaining commodity-capital. So, it sells the remainder, meaning it brings in £500, having laid out £600.

But, 2(ii) sells all of its commodity-capital, £500, having only laid out £400 for circulating capital.

2(i) has bought £400 of circulating capital and £200 of fixed capital, equals £600, whilst receiving back £500, leaving it £100 down. 2(ii) has bought £400 of circulating capital whilst selling £500 of consumer goods, leaving it £100 up, as a money hoard, which can be used the following year towards the purchase of fixed capital.  Department 2, as a whole, has exchanged £1,000 of its commodity-capital, for the commodity-capital of Department 1 (£200 of fixed capital and £800 of circulating constant capital).  But, it achieved this on the basis that Department 2(i) was a buyer of £100 of commodities, from Department 1, for which it was not an equivalent seller.  It made up the difference from its money hoard.  Similarly, Department 2(ii) was a seller of £100 of commodities to Department 1, for which it was not an equivalent buyer.  Department 1 was able to buy these £100 of commodities from 2(ii) because it had received £100 in money from Department 2(i), which it had not used to buy an equivalent value of commodities from 2(i).

This is a slightly different conclusion to the one that Marx arrives at (even allowing for the change in numbers), but that is because I think there is a logical flaw in Marx's argument. He assumes that 2(i) in buying fixed capital, buys less circulating capital, whilst 2(ii), having not bought fixed capital, buys more circulating capital.

But, there is no logical reason to assume, given simple reproduction, that the output or the demand for circulating capital, by each section of Department 2, would vary from year to year. Indeed, if both sections of Department 2 were to conform with the assumption set out, “that a share of the 400 still existing with II as a remnant in the shape of commodities must replace certain shares of the circulating parts of the constant capital for sections 1 and 2 (say, one half for each)” (p 465) then both 2(i) and 2(ii) must have the same output, and circulating capital to produce it. Marx seems to be aware of this problem and refers to it obliquely later in a different form, where he says,

“If the greater part of commodity-capital I consists of elements of the fixed capital of II c, then a correspondingly smaller portion consists of circulating component parts of II c, because the total production of I for II c remains unchanged. If one of these parts increases the other decreases, and vice versa. On the other hand the total production of class II also retains the same volume. But how is this possible if its raw materials, semi-finished products, and auxiliary materials (i.e., the circulating elements of constant capital II) decrease?” (p 471)

I'll come back to this later.