Wednesday, 21 January 2015

Capital II, Chapter 20 - Part 45

As Marx points out,

“The difficulty encountered in the exchange … was reduced to the difficulty on exchanging remainders:” (p 467)

In other words, once the requirement to produce, and replace, fixed capital is taken out, the problem resolves itself into the division of the circulating capital, and the commodity-capital.

Put simply, Department 1 has £800 of commodity-capital left to exchange with Department 2, which has £800 of commodities plus £200 in money, which is the fund for wear and tear of fixed capital, ready to be used to purchase that replacement fixed capital.

“It is evident here that II, section 1, buys with 200 in money the component parts of its fixed capital, 200 Is. The fixed capital of II, section 1, is thereby renewed in kind and the surplus-value of I, worth 200, is converted from the commodity-form (means of production, or, more precisely, elements of fixed capital) into the money-form. With this money I buys articles of consumption from II, section 2, and the result for II is that for section I a fixed component part of its constant capital has been renewed in kind, and that for section 2 another component part (which compensates for the depreciation of its fixed capital) has been precipitated in money-form. And this continues every year until this last component part, too, has to be renewed in kind.” (p 468)

The important conclusion from this is that,

“...this fixed component part of constant capital II, which is reconverted into money to the full extent of its value and therefore must be renewed in kind each year (section 1), should be equal to the annual depreciation of the other fixed component part of constant capital II...” (p 469) 

It is important because,

“Such a balance would seem to be a law of reproduction on the same scale. This is equivalent to saying that in class I, which puts out the means of production, the proportional division of labour must remain unchanged, since it produces on the one hand circulating and on the other fixed component parts of the constant capital of department II.” (p 469)

And the consequence of a disproportion arising between the two, Marx later describes in the situation where less fixed capital is demanded in any particular period.

“There would be a crisis — a crisis of over-production — in spite of reproduction on an unchanging scale.” (p 472)

Incidentally, this is one of the clearest statements, by Marx, of what he means by a “crisis of overproduction”. Its clear that the crisis of overproduction he describes here has nothing to do with “under-consumption” because it is not consumption that is reduced here, other than productive-consumption. Nor is the crisis of overproduction a consequence of the tendency of the rate of profit to fall, which in any case is a long-term tendency, whereas crises of overproduction are sudden ruptures.

This crisis of overproduction, described here, is simply a reflection of the fact that a given physical quantity of fixed capital has been produced, whereas the requirement in the market for that physical quantity does not exist. To use Marx's basic formulation of this situation, labour-time has been expended that was not socially necessary. What appeared to be capital, therefore, was not. It lacked the basic requirement of capital that it be self-expanding value. It was instead over accumulated, an overproduction of capital. But, much more will be written about Marx's theory of crisis, and of the tendency for the rate of profit to fall, in the appropriate place, and hopefully clear up the widespread confusion and error that exists on these issues.

For a detailed analysis of these issues see my book (Marx and Engels' Theories of Crisis: Understanding The Coming Storm)

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