## Tuesday, 24 March 2015

### Capital II, Chapter 21 - Part 16

In short, what this means is that capitalists, in Department 1, have spent less on consumer goods out of their surplus value, and instead advanced that money as capital to buy more machines, material etc., as well as to employ more workers to process it. Another way of thinking about it is a farmer who, rather than consuming all of the food he produces, sets some of it aside to sow more seeds, increase his herd etc, as well as to feed the additional workers they need to work on the farm.

In Department 2, £188 is to be accumulated. Marx makes a mathematical error here. He says a quarter of this - £47 – is to be allocated as wages. In fact, if the £188 is allocated 4:1,in accordance with the organic composition of capital, a fifth goes to variable capital, £37.60 or rounded to £38, and £150 allocated to constant capital.

So, Department 1's output is £6,000, and of this it has to allocate £4,000 to replace its own constant capital. It also now adds another £400 to it. It also has to reproduce its workers, paying them £1,000 in wages. It raises this by selling £1,000 of means of production to Department 2. Department 1 workers return this money to Department 2, by using their wages to buy £1,000 of consumer goods. But, Department 1 also increases its workforce, and pays out another £100 in wages, again raising this by selling means of production to Department 2. These additional workers spend their £100 of wages with Department 2.

So, Department 1 now has,

C 4400 + V 1100,

and it has £500 of surplus value in cash, which its capitalists use to buy consumer goods from Department 2. Department 2 has sold £500 of consumer goods to Department 1 capitalists, and £1100 of consumer goods to Department 1 workers. This figure of £1,600 is equal to the amount of Department 1 goods available, out of its total output of £6,000, to exchange with Department 2.

However, we have seen that Department 2 also wants to accumulate 50% of its surplus value, which means increasing its constant capital from £1,500 to £1,650, and its variable capital from £376 to £414. That means there is still an imbalance. Department 2 requires £1,650 of constant capital, but only £1,600 of means of production are available from Department 1.

“Therefore II must buy 140 (should be 150, AB) Is for cash without recovering this money by a subsequent sale of its commodities to I. And this is a process which is continually repeating itself in every new annual production, so far as it is reproduction on an extended scale. Where in II is the source of the money for this?” (p 512)

That is possible, if as stated earlier, this 50 units of output exist as Department 1 commodity-capital. But, if not, and Marx does not specifically say they do so exist, the problem is not where the money is to come from, to buy them, but where the Department 1 physical product itself is to come from!. If we consider the output of Department 1 not in terms of £'s value, but in terms of homogeneous physical units, 4400 units have to be used, to replace the Department 1 constant capital consumed; 1100 units have been exchanged with Department 2 for wage goods; the remaining 500 units have been exchanged, with Department 2, for consumer goods for Department 1 capitalists.

So, whether Department 2 can raise additional money-capital, to advance, for a one sided trade, with Department 1, to buy the additional 50 units it requires – it requires 1650, and has obtained 1100 + 500 = 1600 – is then irrelevant, because, unless Department 1 has at least 50 units still in stock, it has no more physical product to sell to them.

Rather than investigating where this additional product might come from, at this point, Marx investigates where Department 2 can find the money needed to buy it. Firstly, one source of this required money-capital is that Department 2 capitalists could depress the wages of their workers, below the value of labour-power. Now, we know that employers do this, when the opportunity arises, and the necessary conditions exist, e.g. when there is a large reserve army of labour, when the opportunities for extracting relative surplus value are limited, and they have to fall back on absolute surplus value.

They utilise methods such as the Truck System, of the 19th century, whereby workers were paid in tokens, which could only be used in the company stores. The modern equivalent of the Truck System is the Welfare State, which allows the capitalist state to forcibly deduct payments from workers' wages, in return for commodities, such as healthcare, education and social insurance for old age, and unemployment. The capitalist state then exercises a monopoly of provision of these commodities to workers, thereby determining the quantity and quality of them, to be provided to meet the needs of capital. It can then reduce the supply or quality of these commodities, when required, whilst maintaining or increasing the deductions for them from the workers' wages.

Another method of achieving this is that referred to previously, of “money-illusion”. In other words, of maintaining nominal wages, but reducing real wages via inflation.

“Every industrial country (for instance Britain and the U.S.A.) furnishes the most tangible proofs of the way in which this advantage may be exploited — by paying nominally the normal wages but grabbing, alias stealing, back part of them without an equivalent in commodities; by accomplishing the same thing either through the truck system or through a falsification of the medium of circulation (perhaps in a way too elusive for the law).” (p 513)

But, as seen previously, these methods for extracting additional surplus value are limited, and tend to be counter-productive for capital in the longer-term. For example, the capitalist state can reduce the quality of healthcare, provided by the NHS, but this simply raises the real value of labour-power, as workers become poorer in quality, and less reliable. Moreover, the analysis has been based on the assumption that labour-power, as with all other commodities, is exchanged at its value, so this is an unsatisfactory solution to the problem faced within the theory.

There are two other possibilities. Either some capitalists, in Department 2, rob other capitalists in Department 2, which again, in practice, we know does occur, but infringes the requirement set out that commodities exchange at their value, or alternatively, Department 2 capitalists allocate a smaller proportion of their surplus value to the consumption of luxuries (which also means less resources are devoted to that production), and devote more to the purchase of labour-power (which also means a greater proportion of Department 2 resources are devoted to the production of wage goods.)