“It goes without saying that as soon as we assume accumulation, I(v + s) is greater than IIc, not equal to IIc, as in simple reproduction. For in the first place, I incorporates a portion of its surplus-product in its own productive capital and converts five-sixths of it into constant capital, therefore cannot replace these five-sixths simultaneously by articles of consumption II.” (p 518-9)
If Department 1 capitalists use part of their surplus product, to increase their own constant capital, then clearly they have less product to exchange with Department 2. That means that this demand for Department 2 consumer goods falls. There is a shift from production of consumer goods to producer goods. That is implicit, though Marx does not actually discuss it, in the fact that, in his model here, where he first describes the situation in terms of simple reproduction on page 510, where he sets out “Scheme A”, constant capital, for Department 2, is given as £2,000, but falls to £1500, under expanded reproduction, in Illustration 1, and £1,430 in Illustration 2.
As stated earlier, its not clear to me why, other than where there is overproduction, Department 1 would accumulate and expand production, where demand in Department 2 was falling, as presented in the model. The only reason Department 2 output remains at £3,000, in Marx's first illustration, is because, having reduced the amount of constant capital, from £2,000 to £1500, he increases the amount of variable capital and surplus value from £500 to £750. That would mean that the organic composition of capital, under simple reproduction, would have been 4:1, but falls to 2:1, under expanded reproduction, which is the opposite of what would be expected, where accumulation occurs.
In fact, if we take the second illustration, and assume that there is no accumulation by Department 1 capitalists, we would have 1(v+s) = £2,000 = demand from Department 1 for Department 2 goods. If we look at the model then, if this demand had to be met out of current production, Department 2 could not meet it. Department 2 production is c 1430 + v 285 + s 285 = £2,000. So, all of Department 2 production would go just to meet Department 1 demand. But, Department 2 also has to meet £570 of demand from Department 2 workers and capitalists. The consequence of Department 1 NOT accumulating then, is that Department 2 demand rises beyond what Department 2 can meet from current production. That means that consumer goods prices rise, and so do Department 2 profits, thereby giving the necessary impetus for Department 2 capitalists to accumulate, and thereby increasing their demand for Department 1 goods, which then DOES provide an incentive for Department 1 to accumulate.
The argument against this is that, as Marx points out, for Capital in either Department to accumulate, the necessary means of production and labour-power must themselves be available to be bought. But, the assumption Marx makes here is that £7,000 of producer goods DID exist as commodity-capital waiting to be bought by Department 2 capitalists, and similarly £2,000 of consumer goods DID exist as commodity capital waiting to be bought by workers and capitalist from both departments.
Given that consumption of this commodity-capital does not occur all at once, but is spread out over the year, then if Department 1 and 2 workers and capitalists continued to buy consumer goods, at the rate suggested by the model, that would mean that Department 2 inventories would necessarily be run down, as demand outstripped supply. That would be the driver for Department 2 capitalists to reduce their consumption spending, and increase accumulation, which would then cause the run down of Department 1 inventories to speed up, thereby giving the incentive to Department 1 capitalists to accumulate.
In fact, on the basis of the model Marx presents here, the logical primary driver for accumulation must be Department 2, and not Department 1, as he suggests, because, on these figures, Department 2 is clearly under capitalised, to meet society's demand for consumer goods. With no accumulation in Department 1, Department 2 is £570 short of the supply it needs to meet demand. It needs to raise its supply by more than 25%. In fact, on the basis of the higher prices and profits, in Department 2 that would result from this, the tendency would be for capital to migrate from Department 1 to Department 2 to take advantage of these higher profits.
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