Theories of Surplus-Value Study Group Presentations

Crisis and “the Theory of Markets
(la theorie des debouches)”
----- Ricardo's Theory of Accumulation

(Nov. 11, 2003 Presentation by HAYASHI Hiroyoshi)

1.  The Question of the "Absolute Over-Production of Capital"

In Theories of Surplus Value Marx criticizes Ricardo’s theories of accumulation and crisis. Near the beginning of his discussion of Ricardo’s theory of accumulation, Marx develops an extremely interesting theory, and this is related to the theory of the “absolute overproduction of capital” that was discussed at our Workers’ Seminar [in October].  As for the theory of accumulation, that is the transformation of surplus value into capital, Marx, after saying that one part of this must be transformed into variable capital and the other part into constant capital, has the following to say:

“To begin with, a portion of the surplus-value (and the corresponding surplus-product in the form of means of subsistence) has to be transformed into variable capital, that is to say, new labour has to be bought with it.  This is only possible if the number of labourers grows or if the labour-time during which they work, is prolonged.  The latter takes place, for instance, when a part of the labouring population was only employed for half or two-thirds [of the normal time], or also, when for longer or shorter periods, the working-day is absolutely prolonged, this however, must be paid for.  But that cannot be regarded as a method of accumulation which can be continuously used.  The labouring population can increase, when previously unproductive labourers are turned into productive ones, or sections of the population who did not work previously, such as women and children, or paupers, are drawn into the production process.  We leave this latter point out of account here.  Finally, together with the growth of the population in general, the labouring population can grow absolutely.  If accumulation is to be a steady, continuous process, then this absolute growth in population?although it may be decreasing in relation to the capital employed?is a necessary condition.  An increasing population appears to be the basis of accumulation as a continuous process.  But this presupposes an average wage which permits not only reproduction of the labouring population but also its constant growth.  Capitalist production provides for unexpected contingencies by overworking one section of the labouring population and keeping the other as a ready reserve army consisting of partially or entirely pauperised people.” (Vol. 32, pp. 109-110)

This passage seems to correspond to the explanation of “absolute over-production of capital” in Marx’s Capital. Indeed, the “absolute over-production of capital” is the contrary concept to the idea expressed in the sentence: “If accumulation is to be a steady, continuous process, then this absolute growth in population -- although it may be decreasing in relation to the capital employed -- is a necessary condition.”

Here it seems that Marx is arguing that the number of workers increases as a condition for accumulation and as the transformation of one part of the accumulated [capital] into variable capital. Without this increase in workers, the accumulation of capital is not possible since the variable capital that is accumulated cannot be transformed into the real elements of production (labor power) -- cannot purchase new labor (power).  In other words, the capital cannot function. If this occurs, accumulation is completely impossible. That is, “absolute over-production of capital” is a situation in which the accumulation of capital is “absolutely” impossible. This is because:

“Given the necessary means of production, i.e., a sufficient accumulation of capital, the creation of surplus-value is only limited by the labouring population if the rate of surplus-value, i.e., the intensity of exploitation, is given; and no other limit but the intensity of exploitation if the labouring population is given.” (Capital Vol. 3 Chapter 15, p. 242)

Of course, even if the actual number of workers does not increase, as long as the working hours of the workers are extended, then capital will be able to find labor power to correspond to the increased amount of capital. In Theories of Surplus Value, however Marx says “But that cannot be regarded as a method of accumulation which can be continuously used.” (Vol. 32, p. 110) How about Capital, then? The corresponding passage in Capital is the following:

“There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C+DC would produce no more, or even less, profit than capital C before its expansion by DC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.” (Capital Vol. 3, 250.)

In Capital, the question is discussed more organically (three-dimensionally) -- i.e., on the premise that the limit to increasing workers has already been reached, Marx seems to be discussing the “absolute over-production of capital” where a situation arises in which the production of both absolute and variable surplus value are not possible. But the basis for this discussion was already provided in the concept in Theories of Surplus Value.

Expressed numerically, Marx is saying the following: If the existing capital is 5,000 with an organic composition of 4:1 -- that is 1,000 in variable capital is expended for 4,000 in constant capital. The rate of surplus value is 50%, so that 1,000 variable capital produces 1,000 surplus value. In this case, the rate of profit would be 20%.

How, then, would the newly accumulated 1,000 in new capital be expended. The organic composition of this would be the same as the original capital so that 800 would be invested as constant capital and 200 as variable capital. Following our premise of the “absolute over-production of capital,” however, no surplus value could be produced.

What would the outcome be? Marx, as we have seen, says that:

There would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital [Engels adds in parenthesis] (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”

In other words, the original capital combined with the new capital would amount to 6,000, but the profit would remain 1,000 as before, so that the profit rate would drop from 20% to 16.7%. Also, the “money-value of the variable capital” would increase from 1,000 to 1,200, but the surplus value would be the same and therefore the “proportion of surplus-labour to necessary labour” would be “reduced” from 1:1 to 6:5 (in other words, a reduction of the proportion form 1 to 0.83).

This basically seems to be what Marx is saying, but this is not the result of “increased wages” as Engels says. Even if wages remain the same, variable capital will rise (because the new capital also includes variable capital), but since the variable capital of the new capital does not create any surplus value the ratio between the variable capital and surplus value changes so that there is a “reduction in the proportion of surplus-labour to necessary labour.” This is certainly not the same thing as an increase in wages.  For this reason, Engels’ addition in parentheses to Marx’s passage here is an act that is difficult to forgive.

2.  Criticism of the "Doctrine of Harmony" 

Marx’s theory of crisis is inseparably linked to his criticism of the “doctrine of harmony” (“theory of markets”) espoused by Ricardo and Say. According to this “theory of markets,” a commodity can naturally find a market because sales are purchases and purchases are sales, and moreover because the exchange of commodities can only take place through sales and purchases. For this reason, sales and purchases are said to not be generally split apart, and thus crisis is not possible.

“The conception (which really belongs to [James] Mill), adopted by Ricardo from the tedious Say (and to which we shall return when we discuss that miserable individual), that overproduction is not possible or at least that no general glut of the market is possible, is based on the proposition that products are exchanged against products, or as Mill put it, on the “metaphysical equilibrium of sellers and buyers’’, and this led to [the conclusion] that demand is determined only by production, or also that demand and supply are identical.  The same proposition exists also in the form, which Ricardo liked particularly, that any amount of capital can be employed productively in any country.” (MECW Vol. 32, pp.124-5)

Marx then quotes the following passage from Ricardo’s On the Principles of Political Economy, and Taxation:

“‘M. Say,’ writes Ricardo in Chapter XXI (“Effects of Accumulation on Profits and Interest”), ‘has…most satisfactorily shewn, that there is no amount of capital which may not be employed in a country, because demand is only limited by production.  No man produces, but with a view to consume or sell, and he never sells, but with an intention to purchase some other commodity, which may be immediately useful to him, or which may contribute to future production.  By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some other person.  It is not to he supposed that he should, for any length of time, be ill-informed of the commodities which he can most advantageously produce, to attain the object which he has in view, namely, the possession of other goods; and, therefore, it is not probable that he will continually’ (the point in question here is not eternal life) ‘produce a commodity for which there is no demand.’” (Ibid. p. 125)

Marx offers the following rebuttal to this view held by Ricardo:

“It must never be forgotten, that in capitalist production what matters is not the immediate use-value but the exchange-value and, in particular, the expansion of surplus-value.  This is the driving motive of capitalist production, and it is a pretty conception that -- in order to reason away the contradictions of capitalist production -- abstracts from its very basis and depicts it as a production aiming at the direct satisfaction of the consumption of the producers.

“Further: since the circulation process of capital is not completed in one day but extends over a fairly long period until the capital returns to its original form, since this period coincides with the period within which market-prices ||706| equalise with cost-prices, and great upheavals and changes take place in the market in the course of this period, since great changes take place in the productivity of labour and therefore also in the real value of commodities, it is quite clear, that between the starting-point, the prerequisite capital, and the time of its return at the end of one of these periods, great catastrophes must occur and elements of crisis must have gathered and develop, and these cannot in any way be dismissed by the pitiful proposition that products exchange for products.  The comparison of value in one period with the value of the same commodities in a later period is no scholastic illusion, as Mr. Bailey maintains, but rather forms the fundamental principle of the circulation process of capital.” (Ibid. p. 126)

The characteristic of Ricardo’s theory of crisis is that his starting point or basis is the “theory of markets” mentioned above, and that while he recognizes the surplus of capital he does not recognize the surplus of commodities, and only admits to a partial crisis, not a general crisis.

Ricardo and Say, on the basis of the view that sales are purchases and purchases are sales (and likewise, although of a different dimension, that demand is supply and supply is demand) conclude that crisis -- that is, a general conflict between sales and purchases (commodities cannot be generally sold, general overproduction) -- cannot occur.

In response to this, Marx raises two points. First of all, even in the relations of simple commodity production and exchange, it is not correct to depict this as something harmonious. And secondly, it is not correct to understand the relations of commodity production and exchange in an abstract manner and on such a basis conclude that crisis is not possible.

Marx also sees crisis within the relations of simple commodity production and exchange, but that is not real crisis, but only the potential for crisis. Commodity exchange is certainly not barter exchange, but rather exchange value with commodities, on the one hand, and on the other hand the relations in which money appears. Marx has the following to say about this:

“In any case: If purchase and sale do not get bogged down, and therefore do not require forcible adjustment -- and, on the other hand, money as means of payment functions in such a way that claims are mutually settled, and thus the contradiction inherent in money as a means of payment is not realized -- if therefore neither of these two abstract forms of crisis become real, no crisis exists.  No crisis can exist unless sale and purchase are separated from one another and come into conflict, or the contradictions contained in money as a means of payment actually come into play; crisis, therefore, cannot exist without manifesting itself at the same time in its simple form, as the contradiction between sale and purchase and the contradiction of money as a means-of payment.  But these are merely forms, general possibilities of crisis, and hence also forms, abstract forms, of actual crisis.  In them, the nature of crisis appears in its simplest forms, and, in so far as this form is itself the simplest content of crisis, in its simplest content.  But the content is not yet substantiated.  Simple circulation of money and even the circulation of money as a means of payment -- and both come into being long before capitalist production, while there are no crises -- are possible and actually take place without crises.  These forms alone, therefore, do not explain why their crucial aspect becomes prominent and why the potential contradiction contained in them becomes a real contradiction.

“This shows how insipid the economists are who, when they are no longer able to explain away the phenomenon of overproduction and crises, are content to say that these forms contain the possibility of crises, that it is therefore accidental whether or not crises occur and consequently their occurrence is itself merely a matter of chance.

“The contradictions inherent in the circulation of commodities, which are further developed in the circulation of money -- and thus, also, the possibilities of crisis -- reproduce themselves, automatically, in capital, since developed circulation of commodities and of money, in fact, only takes place on the basis of capital.

“But now the further development of the potential crisis has to be traced -- the real crisis can only be educed from the real movement of capitalist production, competition and credit -- in so far as crisis arises out of the special aspects of capital which are peculiar to it as capital, and not merely comprised in its existence as commodity and money.” (Ibid. pp. 142-3)

Against those theorists who recognized partial crisis but did not recognize general crisis, Marx argued that when crisis threatens the main sectors of production that is a general crisis, and necessarily is transformed into a general crisis.

3.  The Ultimate Cause of Crisis

Marx emphasizes that real overproduction and crisis cannot arise from the relations of simple commodities and money, but rather only out of the relations of capital. Marx expresses this idea by saying that the “limitation of capital is capital itself.” What does this mean, concretely speaking? Marx described over-production in the following way:

“The word over-production in itself leads to error.  So long as the most urgent needs of a large part of society are not satisfied, or only the most immediate needs are satisfied, there can of course be absolutely no talk of an over-production of products -- in the sense that the amount of products is excessive in relation to the need for them.  On the contrary, it must be said that on the basis of capitalist production, there is constant under-production in this sense.  The limits to production are set by the profit of the capitalist and in no way by the needs of the producers.  But over-production of products and over-production of commodities are two entirely different things.  If Ricardo thinks that the commodity form makes no difference to the product, and furthermore, that commodity circulation differs only formally from barter, that in this context the exchange-value is only a fleeting form of the exchange of things, and that money is therefore merely a formal means of circulation -- then this in fact is in line with his presupposition that the bourgeois mode of production is the absolute mode of production, hence it is a mode of production without any definite specific characteristics, its distinctive traits are merely formal.  He cannot therefore admit that the bourgeois mode of production contains within itself a barrier to the free development of the productive forces, a barrier which comes to the surface in crises and, in particular, in over-production -- the basic phenomenon in crises.” (pp 156-7)

Near the end of his examination of Ricardo’s theory of profit, Marx comments on Ricardo’s denial of over-production in the following way:

“Secondly he overlooks that the output level is by no means arbitrarily chosen, but the more capitalist production develops, the more it is forced to produce on a scale which has nothing to do with the immediate demand but depends on a constant expansion of the world market.  He has recourse to Say's trite assumption, that the capitalist produces not for the sake of profit, surplus-value, but produces use-value directly for consumption -- for his own consumption.  He overlooks the fact that the commodity has to be converted into money.  The demand of the workers does not suffice, since profit arises precisely from the fact that the demand of the workers is smaller than the value of their product, and that it [profit] is all the greater the smaller, relatively, is this demand.  The demand of the capitalists among themselves is equally insufficient.  Over-production does not call forth a constant fall in profit, but periodic over-production recurs constantly.  It is followed by periods of under-production etc.  Over-production arises precisely from the fact that the mass of the people can never consume more than the average quantity of necessaries, that their consumption therefore does not grow correspondingly with the productivity of labour.  But the whole of this section belongs to the competition of capitals. (pp. 101-2)

“When considering the production process we saw that the whole aim of capitalist production is appropriation of the greatest possible amount of surplus-labour, in other words, the realisation of the greatest possible amount of immediate labour-time with the given capital, be it through the prolongation of the labour-day or the reduction of the necessary labour-time, through the development of the productive power of labour by means of cooperation, division of labour, machinery etc., in short, large-scale production, i.e., mass production.  It is thus in the nature of capitalist production, to produce without regard to the limits of the market. (Ibid. p. 151)

Marx speaks of the “intrinsic basis for crisis” as follows:

“But the whole process of accumulation in the first place resolves itself into production on an expanding scale, which on the one hand corresponds to the natural growth of the population, and on the other hand, forms an inherent basis for the phenomena which appear during crises.  The criterion of this expansion of production is capital itself, the existing level of the conditions of production and the unlimited desire of the capitalists to enrich themselves and to enlarge their capital, but by no means consumption, which from the outset is inhibited, since the majority of the population, the working people, can only expand their consumption within very narrow limits, whereas the demand for labour, although it grows absolutely, decreases relatively, to the same extent as capitalism develops.  Moreover, all equalisations are accidental and although the proportion of capital employed in individual spheres is equalised by a continuous process, the continuity of this process itself equally presupposes the constant disproportion which it has continuously, often violently, to even out. (pp. 123-4)

“It is the unconditional development of the productive forces and therefore mass production on the basis of a mass of producers who are confined within the bounds of the necessary means of subsistence on the one hand and, on the other, the barrier set up by the capitalists' profit, which [forms] the basis of modern over-production.

“All the objections which Ricardo and others raise against overproduction etc. rest on the fact that they regard bourgeois production either as a mode of production in which no distinction exists between purchase and sale -- direct barter -- or as social production, implying that society, as if according to a plan, distributes its means of production and productive forces in the degree and measure which is required for the fulfilment of the various social needs, so that each sphere of production receives the quota of social capital required to satisfy the corresponding need.  This fiction arises entirely from the inability to grasp the specific form of bourgeois production and this inability in turn arises from the obsession that bourgeois production is production as such, just like a man who believes in a particular religion and sees it as the religion, and everything outside of it only as false religions.

“On the contrary, the question that has to be answered is: since, on the basis of capitalist production, everyone works for himself and a particular labour must at the same time appear as its opposite, as abstract general labour and in this form as social labour -- how is it possible to achieve the necessary balance and interdependence of the various spheres of production, their dimensions and the proportions between them, except through the constant neutralisation of a constant disharmony?  This is admitted by those who speak of adjustments through competition, for these adjustments always presuppose that there is something to adjust, and therefore that harmony is always only a result of the movement which neutralises the existing disharmony.” (p. 157-8)

“Over-production is specifically conditioned by the general law of the production of capital: to produce to the limit set by the productive forces, that is to say, to exploit the maximum amount of labour with the given amount of capital, without any consideration for the actual limits of the market or the needs backed by the ability to pay; and this is carried out through continuous expansion of reproduction and accumulation, and therefore constant reconversion of revenue into capital, while on the other hand, the mass of the producers remain tied to the average level of needs, and must remain tied to it according to the nature of capitalist production.” (pp. 163-4)

These views are also repeated in Capital. For example, in chapter 30 of the third volume of Capital where Marx is providing the concept of “commercial credit,” there is a passage with the same sort of content. This is a passage that was brought up by a MCG member at the recent Kansai Workers’ Seminar. First let’s look at the passage from the Engels-version of Capital:

“Let us suppose that the whole of society is composed only of industrial capitalists and wage-workers. Let us furthermore disregard price fluctuations, which prevent large portions of the total capital from replacing themselves in their average proportions and which, owing to the general interrelations of the entire reproduction process as developed in particular by credit, must always call forth general stoppages of a transient nature. Let us also disregard the sham transactions and speculations, which the credit system favours. Then, a crisis could only be explained as the result of a disproportion of production in various branches of the economy, and as a result of a disproportion between the consumption of the capitalists and their accumulation. But as matters stand, the replacement of the capital invested in production depends largely upon the consuming power of the non-producing classes; while the consuming power of the workers is limited partly by the laws of wages, partly by the fact that they are used only as long as they can be profitably employed by the capitalist class. The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit. (Vol 3 ch. 30)

Setting aside the issue that in Marx’s original manuscript this entire passage was set in parenthesis, the final sentence that appears in Capital (“The ultimate reason”…) is somewhat different from Marx’s manuscript. Marx’s original sentence is [translated from the Japanese]: “The ultimate reason for all real crises always remains the poverty of the masses, on the one hand, and the drive of capitalist production, on the other hand, to develop the productive forces as though absolute consuming power of society constituted their limit.”

Marx’s manuscript and Engels’ revised version are “subtly” different. In Engels’ version, “the ultimate reason for all real crises” is “the poverty and restricted consumption of the masses,” whereas in Marx’s manuscript “the ultimate reason for all real crises is “the poverty of the masses, on the one hand” and the “drive of capitalist production, on the other hand” so that these are seen as two opposing moments [of crisis] in an interlocking struggle. I certainly don’t think that this is a matter of indifference.

(Translated by Roy West)