_c_{2} = v_{1} + s_{1}_
This means that the net output of the producers' goods department is
equal to the replacement of capital in the consumers' goods department.
The whole surplus, as well as the whole of wages, is currently consumed.
Before proceeding to the model for accumulation there is a difficulty
which must be discussed. In the above model the stock of capital exists,
so to speak, off stage. Rosa Luxemburg is perfectly well aware of the
relationship between annual wear and tear of capital, which is part of
_c_, and the stock of fixed capital,[13] but as soon as she (following
Marx) discusses accumulation she equates the addition to the stock of
capital made by saving out of surplus in one year to the wear and tear
of capital in the next year. To make sense of this we must assume that
all capital is consumed and made good once a year. She seems to slip
into this assumption inadvertently at first, though later it is made
explicit.[14] She also consciously postulates that _v_ represents the
amount of capital which is paid out in wages in advance of receipts from
sales of the commodities produced. (This, as she says, is the natural
assumption to make for agricultural production, where workers this year
are paid from the proceeds of last year's harvest.)[15] Thus _v_
represents at the same time the annual wages bill and the amount of
capital locked up in the wages fund, while _c_ represents both the
annual amortisation of capital and the total stock of capital (other
than the wages fund). This is a simplification which is tiresome rather
than helpful (it arises from Marx's ill-judged habit of writing _s/(c +
v)_ for the rate of profit on capital), but it is no more than a
simplification and does not invalidate the rest of the analysis.
Another awkward assumption, which causes serious trouble later, is
implicit in the argument. Savings out of the surplus accruing in each
department (producers' and consumers' goods) are always invested in
capital in the same department. There is no reason to imagine that one
capitalist is linked to others in his own department more than to those
in the other department, so the conception seems to be that each
capitalist invests his savings in his own business. There is no lending
by one capitalist to another and no capitalist ever shifts his sphere of
operations from one department to another. This is a severe assumption
to make even about the era before limited liability was introduced, and
becomes absurd afterwards. Moreover it is incompatible with the
postulate that the rate of profit on capital tends to equality
throughout the economy,[16] for the mechanism which equalises profits is
the flow of new investment, and the transfer of capital as amortisation
funds are re-invested, into more profitable lines of production and away
from less profitable lines.[17]
The assumption that there is no lending by one capitalist to another
puts limitation upon the model. Not only must the total rate of
investment be equal to the total of planned saving, but investment in
each department must be equal to saving in that department, and not only
must the rate of increase of capital lead to an increase of total output
compatible with total demand, but the increase in output of each
department, dictated by the increase in capital in that department, must
be divided between consumers' and producers' goods in proportions
compatible with the demand for each, dictated by the consumption and the
investment plans in each department.
There is no difficulty, however, in choosing numbers which satisfy the
requirements of the model. The numerical examples derived from Marx's
jottings are cumbersome and confusing, but a clear and simple model can
be constructed on the basis of the assumptions set out in chapter vii.
In each department, constant capital is four times variable capital.[18]
(Constant capital is the stock of raw materials which is turned over
once a year; variable capital is the wages bill, which is equal to the
capital represented by the wages fund.) Surplus is equal to variable
capital (net income is divided equally between wages and surplus) and
half of surplus is saved.[19] Savings are allotted between constant and
variable capital in such a way as to preserve the 4 to 1 ratio. Thus
four-fifths of savings represents a demand for producers' goods, and is
added to constant capital each year, and one-fifth represents a demand
for consumers' goods, and is added to the wages fund (variable capital).
These ratios dictate the relationship between Department I (producers'
goods) and Department II (consumers' goods).[20] It can easily be seen
that the basic assumptions require that the output of Department I must
stand in the ratio of 11 to 4 to the output of Department II.[21] We can
now construct a much simpler model than those provided in the text.
_c_ _v_ _s_ _Gross Output_
Department I 44 11 11 66
Department II 16 4 4 24
--
Total 90
In Department I, 5·5 units are saved (half of _s_) of which 4·4 are
invested in constant capital and 1·1 in variable capital. In Department
II 2 units are saved, 1·6 being added to constant and 0·4 to variable
capital. The 66 units of producers' goods provide 44 + 4·4 constant
capital for Department I and 16 + 1·6 constant capital for Department
II and the 24 units of consumers' goods provide 11 + 4 wages of labour
already employed, 5·5 + 2 for consumption out of surplus, and 1·1 + 0·4
addition to variable capital, which provide for an addition to
employment.
After the investment has been made, and the labour force increased in
proportion to the wages bill, we have
_c_ _v_ _s_ _Gross Output_
Department I 48·4 12·1 12·1 72·6
Department II 17·6 4·4 4·4 26·4
-----
Total 99
The two departments are now equipped to carry out another round of
investment at the prescribed rate, and the process of accumulation
continues. The ratios happen to have been chosen so that the total
labour force, and total gross output, increase by 10 per cent per
annum.[22]
But all this, as Rosa Luxemburg remarks, is just arithmetic.[23] The
only point of substance which she deduces from Marx's numerical examples
is that it is always Department I which takes the initiative. She
maintains that the capitalists in Department I decide how much
producers' goods to produce, and that Department II has to arrange its
affairs so as to absorb an amount of producers' goods which will fit in
with their plans.[24] On the face of it, this is obviously absurd. The
arithmetic is perfectly neutral between the two departments, and, as she
herself shows, will serve equally well for the imagined case of a
socialist society where investment is planned with a view to
consumption.[25]
But behind all this rigmarole lies the real problem which she is trying
to formulate. Where does the demand come from which keeps accumulation
going?
She is not concerned with the problem, nowadays so familiar, of the
balance between saving and investment. Marx himself was aware of that
problem, as is seen in his analysis of disequilibrium under conditions
of simple reproduction (zero net investment).[26] When new fixed capital
comes into existence, part of gross receipts are set aside in
amortisation funds without any actual outlay being made on renewals.
Then total demand falls short of equilibrium output, and the system runs
into a slump. Contrariwise, when a burst of renewals falls due, in
excess of the current rate of amortisation, a boom sets in. For
equilibrium it is necessary for the age composition of the stock of
capital to be such that current renewals just absorb current
amortisation funds. Similarly, when accumulation is taking place,
current investment must absorb current net saving.[27]
It is in connection with the problem of effective demand, in this sense,
that Marx brings gold-mining into the analysis. When real output expands
at constant money prices, the increasing total of money value of output
requires an increase in the stock of money in circulation (unless the
velocity of circulation rises appropriately). The capitalists therefore
have to devote part of their savings to increasing their holdings of
cash (for there is no borrowing). This causes a deficiency of effective
demand. But the increase in the quantity of money in circulation comes
from newly mined gold, and the expenditure of the gold mining industry
upon the other departments just makes up the deficiency in demand.[28]
Rosa Luxemburg garbles this argument considerably, and brushes it away
as beside the point. And it _is_ beside the point that she is concerned
with. She does not admit the savings and investment problem, for she
takes it for granted that each individual act of saving out of surplus
is accompanied by a corresponding amount of real investment, and that
every piece of investment is financed by saving out of surplus of the
same capitalist who makes it.[29] What she appears to be concerned with
is rather the inducement to invest. What motive have the capitalists for
enlarging their stock of real capital?[30] How do they know that there
will be demand for the increased output of goods which the new capital
will produce, so that they can 'capitalise' their surplus in a
profitable form? (On the purely analytical plane her affinity seems to
be with Hobson rather than Keynes.)
Needless to say, our author does not formulate the problem of the
inducement to invest in modern terminology, and the ambiguities and
contradictions in her exposition have left ample scope for her critics
to represent her theory as irredeemable nonsense.[31] But the most
natural way to read it is also the clearest. Investment can take place
in an ever-accumulating stock of capital only if the capitalists are
assured of an ever-expanding market for the goods which the capital will
produce. On this reading, the statement of the problem leads
straightforwardly to the solution propounded in the third Section of
this book.
Marx has his own answer to the problem of inducement to invest, which
she refers to in the first chapter.[32] The pressure of competition
forces each individual capitalist to increase his capital in order to
take advantage of economies of large-scale production, for if he does
not his rivals will, and he will be undersold. Rosa Luxemburg does not
discuss whether this mechanism provides an adequate drive to keep
accumulation going, but looks for some prospective demand outside the
circle of production. Here the numerical examples, as she shows, fail to
help. And this is in the nature of the case, for (in modern jargon) the
examples deal with _ex post_ quantities, while she is looking for _ex
ante_ prospects of increased demand for commodities. If accumulation
does take place, demand will absorb output, as the model shows, but what
is it that makes accumulation take place?
In Section II our author sets out to find what answers have been given
to her problem. The analysis she has in mind is now broader than the
strict confines of the arithmetical model. Technical progress is going
on, and the output of an hour's labour rises as time goes by. (The
concept of _value_ now becomes treacherous, for the _value_ of
commodities is continuously falling.) Real wages tend to be constant in
terms of commodities, thus the _value_ of labour power is falling, and
the share of surplus in net income is rising (_s/v_, the rate of
exploitation, is rising). The amount of saving in real terms is
therefore rising (she suggests later that the proportion of surplus
saved rises with surplus, in which case real savings increase all the
more[33]). The problem is thus more formidable than appears in the
model, for the equilibrium rate of accumulation of capital, in real
terms, is greater than in the model, where the rate of exploitation is
constant. At the same time the proportion of constant to variable
capital is rising. She regards this not as something which is likely to
happen for technical reasons, but as being necessarily bound up with the
very nature of technical progress. As productivity increases, the amount
of producers' goods handled per man-hour of labour increases; therefore,
she says, the proportion of _c_ to _v_ must increase.[34] This is an
error. It arises from thinking of constant capital in terms of goods,
and contrasting it with variable capital in terms of _value_, that is,
hours of labour. She forgets Marx's warning that, as progress takes
place, the _value_ of the commodities making up constant capital also
falls.[35] It is perfectly possible for productivity to increase without
any increase in the _value_ of capital per man employed. This would
occur if improvements in the productivity of labour in making producers'
goods kept pace with the productivity of labour in using producers'
goods to make consumers' goods (capital-saving inventions balance
labour-saving inventions, so that technical progress is 'neutral').
However, we can easily get out of this difficulty by postulating that as
a matter of fact technical progress is mainly labour-saving, or, a
better term, capital-using, so that capital per man employed is rising
through time.
Rosa Luxemburg treats the authors whom she examines in Section II with a
good deal of sarcasm, and dismisses them all as useless. To some of the
points raised her answers seem scarcely adequate. For instance,
Rodbertus sees the source of all the troubles of capitalism in the
falling proportion of wages in national income.[36] He can be
interpreted to refer to the proportion of wages in gross income. In that
case, she is right (on the assumption of capital-using inventions) in
arguing that a fall in the proportion of wages is bound up with
technical progress, and that the proportion could be held constant only
by stopping progress. He can also be taken to refer to the share of
wages in net output, and this is the more natural reading. On this
reading she argues that the fall in share of wages (or rise in rate of
exploitation) is necessary to prevent a fall in the rate of profit on
capital[37] (as capital per man employed rises, profit per man employed
must rise if profit per unit of capital is constant). But she does not
follow up the argument and inquire what rise in the rate of exploitation
is necessary to keep capitalism going (actually, the statisticians tell
us, the share of wages in net income has been fairly constant in modern
industrial economies[38]). It is obvious that the less the rate of
exploitation rises, the smaller is the rise in the rate of saving which
the system has to digest, while the rise in real consumption by workers,
which takes place when the rate of exploitation rises more slowly than
productivity in the consumption good industries, creates an outlet for
investment in productive capacity in those industries. The horrors of
capitalism, and the difficulties which it creates for itself, are both
exaggerated by the assumption of constant real-wage rates and, although
it would be impossible to defend Rodbertus' position that a constant
rate of exploitation is all that is needed to put everything right, he
certainly makes a contribution to the argument which ought to be taken
into account.
Tugan-Baranovski also seems to be treated too lightly. His conception is
that the rising proportion of constant capital in both departments
(machines to make machines as well as machines to make consumers' goods)
provides an outlet for accumulation, and that competition is the driving
force which keeps capitalists accumulating. Rosa Luxemburg is no doubt
correct in saying that his argument does not carry the analysis beyond
the stage at which Marx left it,[39] but he certainly elaborates a point
which she seems perversely to overlook. Her real objection to
Tugan-Baranovski is that he shows how, in certain conditions, capitalist
accumulation might be self-perpetuating, while she wishes to establish
that the coming disintegration of the capitalist system is not merely
probable on the evidence, but is a logical necessity.[40]
The authors such as Sismondi, Malthus and Vorontsov, who are groping
after the problem of equilibrium between saving and investment, are
treated with even less sympathy (though she has a kindly feeling for
Sismondi, to whom she considers that Marx gave too little
recognition[41]) for she is either oblivious that there is such a
problem, or regards it as trivial.[42] We leave the discussion, at the
end of Section II, at the same point where we entered it, with the clue
to the inducement to invest still to find.
Section III is broader, more vigorous and in general more rewarding than
the two preceding parts. It opens with a return to Marx's model for a
capitalist system with accumulation going on. Our author then sets out a
fresh model allowing for technical progress. The rate of exploitation
(the ratio of surplus to wages) is rising, for real wages remain
constant while output per man increases. In the model the proportion of
surplus saved is assumed constant for simplicity, though in reality, she
holds, it would tend to rise with the real income of the
capitalists.[43] The ratio of constant to variable capital is rising for
technical reasons. (The convention by which the annual wear and tear of
capital is identified with the stock of capital now becomes a great
impediment to clear thinking.) The arithmetical model shows the system
running into an _impasse_ because the output of Department I falls short
of the requirements of constant capital in the two departments taken
together, while the output of Department II exceeds consumption.[44] The
method of argument is by no means rigorous. Nothing follows from the
fact that one particular numerical example fails to give a solution, and
the example is troublesome to interpret as it is necessary to
distinguish between discrepancies due to rounding off the figures from
those which are intended to illustrate a point of principle.[45] But
there is no need to paddle in the arithmetic to find where the
difficulty lies. The model is over-determined because of the rule that
the increment of capital within each department at the end of a year
must equal the saving made within the same department during the year.
If capitalists from Department II were permitted to lend part of their
savings to Department I to be invested in its capital, a breakdown would
no longer be inevitable. Suppose that total real wages are constant and
that real consumption by capitalists increases slowly, so that the real
output of Department II rises at a slower rate than productivity, then
the amount of labour employed in it is shrinking. The ratio of capital
to labour however is rising as a consequence of capital-using technical
progress. The output of Department I, and its productive capacity, is
growing through time. Capital invested in Department I is accumulating
faster than the saving of the capitalists in Department I, and
capitalists of Department II, who have no profitable outlet in their own
industries for their savings, acquire titles to part of the capital in
Department I by supplying the difference between investment in
Department I and its own saving.[46] For any increase in the stock of
capital of both departments taken together, required by technical
progress and demand conditions, there is an appropriate amount of
saving, and so long as the total accumulation required and total saving
fit, there is no breakdown.
But here we find the clue to the real contradiction. These quantities
might conceivably fit, but there is no guarantee that they will. If the
ratio of saving which the capitalists (taken together) choose to make
exceeds the rate of accumulation dictated by technical progress, the
excess savings can only be 'capitalised' if there is an outlet for
investment outside the system. (The opposite case of deficient savings
is also possible. Progress would then be slowed down below the
technically possible maximum; but this case is not contemplated by our
author, and it would be irrelevant to elaborate upon it.)
Once more we can substitute for a supposed logical necessity a
plausible hypothesis about the nature of the real case, and so rescue
the succeeding argument. If in reality the distribution of income
between workers and capitalists, and the propensity to save of
capitalists, are such as to require a rate of accumulation which exceeds
the rate of increase in the stock of capital appropriate to technical
conditions, then there is a chronic excess of the potential supply of
real capital over the demand for it and the system must fall into
chronic depression. (This is the 'stagnation thesis' thrown out by
Keynes and elaborated by modern American economists, notably Alvin
Hansen). How then is it that capitalist expansion had not yet (in 1912)
shown any sign of slackening?
In chapter xxvi Rosa Luxemburg advances her central thesis--that it is
the invasion of primitive economies by capitalism which keeps the system
alive. There follows a scorching account of the manner in which the
capitalist system, by trade, conquest and theft, swallowed up the
pre-capitalist economies,--some reduced to colonies of capitalist
nations, some remaining nominally independent--and fed itself upon their
ruins. The thread of analysis running through the historical
illustrations is not easy to pick up, but the main argument seems to be
as follows: As soon as a primitive closed economy has been broken into,
by force or guile, cheap mass-produced consumption goods displace the
old hand production of the family or village communities, so that a
market is provided for ever-increasing outputs from the industries of
Department II in the old centres of capitalism, without the standard of
life of the workers who consume these commodities being raised.[47] The
ever-growing capacity of the export industries requires the products of
Department I, thus maintaining investment at home. At the same time
great capital works, such as railways, are undertaken in the new
territories.[48] This investment is matched partly by savings from
surplus extracted on the spot, but mainly by loans from the old
capitalist countries. There is no difficulty here in accounting for the
inducement to invest, for the new territories yield commodities
unobtainable at home.[49] We might set out the essence of the argument
as follows: Cloth from Lancashire pays for labour in America, which is
used to produce wheat and cotton. These provide wages and raw materials
to the Lancashire mills, while the profits acquired both on the
plantations and in the mills are invested in steel rails and rolling
stock, which open up fresh territories, so that the whole process is
continuously expanding. Moreover, apart from profits earned on capital
actually invested in the new territories, great capital gains are made
simply by acquiring possession of land and other natural resources.[50]
Labour to work the resources may be provided by the local dispossessed
peasantry or by immigration from the centres of capitalism.[51]
Investment in equipment for it to use is more profitable than in that
operated by home labour, partly because the wretched condition of the
colonial workers makes the rate of exploitation higher,[52] but mainly
just because they are on the spot, and can turn the natural resources
seized by the capitalists into means of production. No amount of
investment in equipment for British labour would produce soil bearing
cotton, rubber or copper. Thus investment is deflected abroad[53] and
the promise of profit represented by the natural resources calls into
existence, by fair means or foul, the labour and capital to make it come
true. The process of building up this capital provides an outlet for the
old industries and rescues them from the contradictions inherent in
deficiency of demand.
The analysis of militarism in the last chapter over-reaches itself by
trying to prove too much. The argument is that armaments are built up
out of taxes which fall entirely on wages.[54] This can be regarded as a
kind of 'forced saving' imposed on the workers. These savings are extra
to the saving out of surplus. They are invested in armaments, and that
ends the story. On this basis the armaments, in themselves, cannot be
held to provide an outlet for the investment of surplus (though the use
of the armaments, as in the Opium War,[55] to break up primitive
economies is a necessary condition for the colonial investment already
described) and capital equipment to produce armaments is merely
substituted for capital formerly producing consumers' goods. The
analysis which best fits Rosa Luxemburg's own argument, and the facts,
is that armaments provide an outlet for the investment of surplus (over
and above any contribution there may be from forced saving out of
wages), which, unlike other kinds of investment, creates no further
problem by increasing productive capacity (not to mention the huge new
investment opportunities created by reconstruction after the capitalist
nations have turned their weapons against each other).
All this is perhaps too neat an account of what our author is saying.
The argument streams along bearing a welter of historical examples in
its flood, and ideas emerge and disappear again bewilderingly. But
something like the above seems to be intended. And something like it is
now widely accepted as being true. Rosa Luxemburg, as we have seen,
neglects the rise in real wages which takes place as capitalism
develops, and denies the internal inducement to invest provided by
technical progress, two factors which help to rescue capitalism from the
difficulties which it creates for itself. She is left with only one
influence (economic imperialism) to account for continuous capital
accumulation, so that her analysis is incomplete. All the same, few
would deny that the extension of capitalism into new territories was the
mainspring of what an academic economist has called the 'vast secular
boom' of the last two hundred years,[56] and many academic economists
account for the uneasy condition of capitalism in the twentieth century
largely by the 'closing of the frontier' all over the world.[57] But the
academic economists are being wise after the event. For all its
confusions and exaggerations, this book shows more prescience than any
orthodox contemporary could claim.
JOAN ROBINSON
_Cambridge._