## Tuesday, 7 April 2015

### Capital II, Chapter 21 - Part 22

I'd suggest the following scenario is more realistic on the basis of the situation Marx describes.

Department 1 c 5000 + v 1000 + s 1000 = 7000
Department 2 c 1430 + v 285 + s 285 = 2000

all of this output exists as commodity-capital, and so can be sold from stock. However, if we assume that it is only sold a bit at a time (as it would be), and is replaced by current production, we can, for convenience, assume that it is consumed say in tenths. However, as stated, on these figures, total demand for Department 2 goods is 1(v+s) = 2000 + 2(v+s) = 570 = 2570, so Department 2 stocks are run down at a rate of 257 per month, whilst current production only adds 200 per month, making it apparent that demand exceeds supply.

That makes it apparent to Department 2 capitalists that they should increase accumulation. In fact, if we assume that Department 2 capitalists had £285 of money-revenue set aside for their annual consumption, and only spend it at a rate of £28.50 per month, they do not actually even have to reduce their current consumption at all, but only have to advance some of those money funds immediately as capital. On this basis, they increase their purchases of elements of constant capital.

£2,000 of constant capital existed as commodity-capital, available to be exchanged with Department 2. But, if we assume it is drawn down in tenths, then according to the model £143 is drawn down each month. If Department 2 capitalists increase their purchases of elements of constant capital to £150 per month, that would mean, in a year, their constant capital would rise to £1500. That still means that Department 1's supply equal to 2000/10 = £200 per month, exceeds demand of £150 per month.

If we now have Department 2 constant capital equal to £1,500 then the variable capital must also rise to £300. Even, though Department 1 stocks of commodity-capital exceed current demand, the increase in demand from Department 2, might still prompt Department 1 capital to increase its own accumulation. Certainly, if Department 2 capitalists continued to purchase consumer goods at the rate of £28.50 per month, whilst Department 2 workers now consume £30 per month rather than £28.50 per month, demand for Department 2 goods will continue to outstrip supply, whether Department 1 meets the increased demand for constant capital, from stocks, or by increasing its own production.

On an annualised basis, if the constant capital was 1500 (150 per month x 10) and the variable capital was 300, and the surplus value was 300, Department 2 supply would rise to £2,100. but demand would be, £2,000 (Department 1 v+s) + 300 (Department 2 workers) + 285 (Department 2 capitalists) = £2,585. So, Department 2 stocks are run down now at a rate of £258.5 per month, but increased by only £210 per month. So, Department 2 still needs to increase its output by around 25%, even without any increased demand from Department 1.

In fact, given this level of under capitalisation, and the prices and rate of profit implied, its quite likely that a considerable investment in additional capacity would be set in place, some of which might come from a reallocation of capital from Department 1, where profit rates would be lower. That process may well involve then an over investment in Department 2, before capital is again reallocated back to Department 1.

But, it can be seen then how Department 2 accumulation can then proceed further to meet this shortage of supply, which then causes a draw down of Department 1 stocks, leading to an increase in accumulation in Department 1. Because Department 1 production of means of production, in itself requires a considerable investment in Department 1 constant capital, that means that total production of means of production has to increase.

On that basis, we can arrive back at the situation, described by Marx, but via a different route, in which Department 2 acts as the primary driver of accumulation. So, if Department 2 increases its purchases of constant capital to £1,583, that implies a variable capital of £317. If Department 1 capitalists utilise a larger portion of their surplus value then to buy productive capital, to respond to this higher level of demand, from Department 2, Department 1 constant capital rises to £5,417, whilst its variable capital rises to £1,083. Department 2 now supplies £1,083 to Department 1 workers, and £500 to Department 1 capitalists, matching their demand. Department 2 provides £317 to Department 2 workers, and £100 to Department 2 capitalists.

It should be born in mind that, as this process unfolds, over a year (or longer), it is the stocks of existing commodity-capital that are being run down, and replenished, as a consequence of current production. On the basis of expanded reproduction, the stocks are not just replenished, but enhanced at the end of the year. That does not mean that the stock of commodity-capital continues to grow proportionately, as the size of the capital grows. The size of the stock of commodity-capital will tend to grow in absolute terms, because a larger portion of it will be stored by wholesalers and retailers, who themselves become larger, but, as Marx describes earlier, capital is held in stocks, reserves and money hoards, at multiple points throughout the economy. So, at one point, the size of the commodity-capital may rise, and at another the size of money hoards may rise, or the size of the productive supply, i.e. the amount of material held waiting to be processed, may rise. Most significantly, the size of the productive-capital itself will continue to rise.

The explanation for Marx's argument in relation to this expanded reproduction arising in Department I, rather than Department II, I believe comes down to whether we are talking about expanded reproduction as an inextricable part of social reproduction, under capitalism, or whether we are talking about periods of higher or lower growth. In other words, if we are talking about what might be called “normal” conditions, then this expanded reproduction is, as Marx describes predicated on an expansion of Department I, as the primary mover.

Under such conditions, there is, for example, a steady rise in population, and this of itself leads to a rise in demand for all commodities. Firms start from the assumption of such year on year rises in demand for their products, and plan to increase their production to meet that higher demand accordingly. The producers of Department I goods, assume that the demand for their output, will then rise each year, and so plan to increase their output, by accumulating capital, accordingly.

However, there are periods where accumulation may be more or less than this natural process of expanded reproduction. Some periods will be marked by much faster rises in demand for consumer goods, which will cause Department II producers to run down inventories as described, and to increase their demand for producer goods, so that the drive for this higher level of accumulation comes from Department II. At other times, there will be difficulty selling consumer goods, inventories will rise, the demand for producer goods will fall.

Marx actually describes this in Capital III, in challenging Ricardo's assertion that capital only accumulates on the basis that prices and profits are rising.

“... the extension of cultivation to larger areas — aside from the case just mentioned, in which recourse must be had to soil inferior than that cultivated hitherto — to the various kinds of soil from A to D, thus, for instance, the cultivation of larger tracts of B and C does not by any means presuppose a previous rise in grain prices any more than the preceding annual expansion of cotton spinning, for instance, requires a constant rise in yarn prices. Although considerable rise or fall in market-prices affects the volume of production, regardless of it there is in agriculture (just as in all other capitalistically operated lines of production) nevertheless a continuous relative over-production, in itself identical with accumulation, even at those average prices whose level has neither a retarding nor exceptionally stimulating effect on production. Under other modes of production this relative overproduction is effected directly by the population increase, and in colonies by steady immigration. The demand increases constantly, and, in anticipation of this new capital is continually invested in new land, although this varies with the circumstances for different agricultural products. It is the formation of new capitals which in itself brings this about. But so far as the individual capitalist is concerned, he measures the volume of his production by that of his available capital, to the extent that he can still control it himself. His aim is to capture as big a portion as possible of the market. Should there be any over-production, he will not take the blame upon himself, but places it upon his competitors. The individual capitalist may expand his production by appropriating a larger aliquot share of the existing market or by expanding the market itself.” (Capital III, Chapter 39)

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