2) Accumulation in Department II
In considering simple reproduction, the assumption was that all surplus value was spent as revenue. But, for capitalism this assumption cannot hold. The purpose of capitalist production is not consumption, but the production of surplus value. For surplus value to be produced on an extended scale, existing surplus value must be used to expand production, not to provide revenue. Because capitalists also need to eat, be clothed, sheltered etc. a proportion of surplus value will always need to be devoted to revenue to pay for these purchases, but another portion must be used to accumulate capital itself.
The problem we have in analysing accumulation in Department II is once more a problem of imbalance.
Assume once more, we have a number of Department I capitals that accumulate surplus value in money form, through selling but not buying, as Marx described earlier. These can be denoted A, A', A''. In Department II, we have a series of capitals denoted B,B',B'' that buy without selling, this meaning, as previously, not that they do not sell at all, but that they buy more than they sell, and vice versa in the case of A.
Consequently, if A sells components of constant capital to B, equal to A(v+s), B will have physically replaced their constant capital. We assume that A's workers will use their wages to buy consumer goods, and so B will receive back a portion of the capital they have advanced as constant capital, equal to this amount. However, if A capitalists, who have sold, now do not buy, but retain their surplus value in money form, B cannot now sell that portion of its output and so also cannot realise that portion of its advanced capital.
The converse of A's money hoard is a money deficit, and a surplus of commodity-capital, for B, that cannot be sold. There is an imbalance causing a disproportion between Department I and II.
“In other words, a portion of the commodities of B (II), and indeed prima facie a portion without the sale of which he cannot reconvert his constant capital entirely into its productive form, has become unsaleable. As far as this portion is concerned there is therefore an over-production, which, likewise as far as the same portion is concerned, clogs reproduction, even on the same scale.” (p 506)
The consequence, therefore, of this accumulation of surplus value, as a money hoard, is not only that extended reproduction does not occur, but even simple reproduction is frustrated.
“As the formation and sale of the surplus-product of A (I) are normal phenomena of simple reproduction, we have here even on the basis of simple reproduction the following interdependent phenomena: Formation of virtual additional money-capital in class I (hence under-consumption from the view-point of II); piling up of commodity-supplies in class II which cannot be reconverted into productive capital (hence relative over-production in II); surplus of money-capital in I and reproduction deficit in II.” (p 507)
We have here, the Keynesian notion of the “paradox of thrift” .
But, if A utilises their surplus product to expand their own production, an even worse situation could arise. If we have A(v+s) = £2,000, but A utilises half of their surplus product to expand their own output (e.g. a farmer who uses a proportion of their surplus production of wheat to use as additional seed to increase planting for next year's crop) then this also means that B cannot fulfil their own requirement to physically replace all of their constant capital. Previously, A would have sold £2,000 of wheat to B, to produce bread and other such products. B would then have sold £2,000 of these products to A - £1,000 to A's workers, £1,000 to A's capitalists. But, now A sells £1500 of wheat to B, and uses £500 of wheat to expand their own production. A's workers spend their £1,000 of wages buying cakes and bread, and A capitalists spend their £500.
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