In our study of the reproductive process we have not so far considered
the circulation of money. Here we do not refer to money as a measuring
rod, an embodiment of value, because all relations of social labour have
been expressed, assumed and measured in terms of money. What we have to
do now is to test our diagram of simple reproduction under the aspect of
money as a means of exchange.
Quesnay already saw that we shall only understand the social
reproductive process if we assume, side by side with the means of
production and consumer goods, a certain quantity of money.[90]
Two questions now arise: (1) by whom should the money be owned, and (2)
how much of it should there be? The answer to the first question, no
doubt, is that the workers receive their wages in the form of money with
which they buy consumer goods. From the point of view of society, this
means merely that the workers are allocated a certain share of the fund
for consumption: every society, whatever its historical form of
production, makes such allocations to its workers. It is, however, an
essential characteristic of the capitalist form of production that the
workers do not obtain their share directly in the form of goods but by
way of commodity exchange, just as it is an essential feature of the
capitalist mode of production that their labour power is not applied
directly, as a result of a relation of personal domination, but again by
way of commodity exchange: the workers selling their labour power to the
owners of the means of production, and purchasing freely their consumer
goods. Variable capital in its money form is the expression and medium
of both these transactions.
Money, then, comes first into circulation by the payment of wages. The
capitalist class must therefore set a certain quantity of money
circulating in the first place, and this must be equal to the amount
they pay in wages. The capitalists of Department I need 1,000 units of
money, and the capitalists of Department II need 500 to meet their wages
bill. Thus, according to our diagram, two quantities of money are
circulating: I(1,000_v_) and II(500_v_). The workers spend the total of
1,500 on consumer goods, i.e. on the products of Department II. In this
way, labour power is maintained, that is to say the variable capital of
society is reproduced in its natural form, as the foundation of all
other reproductions of capital. At the same time, the capitalists of
Department II dispose of their aggregate product (1,500) in the
following manner: their own workers receive 500 and the workers of
Department I receive 1,000. This exchange gives the capitalists of
Department II possession of 1,500 money units: 500 are their own
variable capital which has returned to them; these may start circulating
again as variable capital but for the time being they have completed
their course. The other 1,000 accrue to them year by year out of the
realisation of one-third of their own products. The capitalists of
Department II now buy means of production from the capitalists of
Department I for these 1,000 money units in order to renew the part of
their own constant capital that has been used up. By means of this
purchase, Department II renews in its natural form half of the constant
capital II_c_ it requires. Department I now has in return 1,000 money
units which are nothing more than the money originally paid to its own
workers. Now, after having changed hands twice, the money has returned
to Department I, to become effective later as variable capital. This
completes the circulation of this quantity of money for the moment, but
the circulation within society has not yet come to an end. The
capitalists of Department I have not yet realised their surplus value to
buy consumer goods for themselves; it is still contained in their
product in a form which is of no use to them. Moreover, the capitalists
of Department II have not yet renewed the second half of their constant
capital. These two acts of exchange are identical both in substance and
in value, for the capitalists of Department I receive their goods from
Department II in exchange for the I(1,000_c_) means of production needed
by the capitalists of Department II. However, a new quantity of money is
required to effect this exchange. It is true that the same money which
has already completed its course, might be brought into circulation
again for this purpose--in theory, there could be no objection to this.
In practice, however, this solution is out of the question, for the
needs of the capitalists, as consumers, must be satisfied just as
constantly as the needs of the workers--they run parallel to the process
of production and must be mediated by specific quantities of money.
Hence it follows that the capitalists of both departments--that is to
say all capitalists--must have a further cash reserve in hand, in
addition to the money required as variable capital, in order to realise
their own surplus value in the form of consumer goods. On the other
hand, before the total product is realised and during the process of its
production, certain parts of the constant capital must be bought
continually. These are the circulating parts of the constant capital,
such as raw and auxiliary materials, semi-finished goods, lighting and
the like. Therefore, not only must the capitalists of Department I have
certain quantities of money in hand to satisfy their needs as consumers,
but the capitalists of Department II must also have money to meet the
requirements of their constant capital. The exchange of 1,000s I (the
surplus value of Department I contained in the means of production)
against goods is thus effected by money which is advanced partly by the
capitalists of Department I in order to satisfy their needs as
consumers, and partly by the capitalists of Department II in order to
satisfy their needs as producers.[91] Both lots of capitalists may each
advance 500 units of the money necessary for the exchange, or possibly
the two departments will contribute in different proportions. At any
rate, two things are certain: (_a_) the money set aside for the purpose
by both departments must suffice to effect the exchange between
I(1,000_s_) and II(1,000_c_); (_b_) whatever the distribution of this
money between the two departments may have been, the exchange
transaction completed, each department of capitalist production must
again possess the same amount of money it had earlier put into
circulation. This latter maxim applies quite generally to social
circulation as a whole: once the process of circulation is concluded,
money will always have returned to its point of origin. Thus all
capitalists, after universal exchange, have achieved a twofold result:
first they have exchanged products which, in their natural form, were of
no use to them, against other products which, in their natural form, the
capitalists require either as means of production or for their own
consumption. Secondly, they have regained possession of the money which
they set in circulation so as to effect these acts of exchange.
This phenomenon is unintelligible from the point of view of simple
commodity circulation, where commodity and money continually change
places--possession of the commodity excluding the possession of money,
as money constantly usurps the place which the commodity has given up,
and _vice versa_. Indeed, this is perfectly true with regard to every
individual act of commodity exchange which is the form of social
circulation. Yet this social circulation itself is more than mere
exchange of commodities: it is the circulation of capital. It is,
however, an essential and characteristic feature of this kind of
circulation, that it does not only return to the capitalist the value of
his original capital plus an increase, the surplus value, but that it
also assists social reproduction by providing the means of production
and labour power in the natural form of productive capital, and by
ensuring the maintenance of those who do not work. Possessing both the
means of production and the money needed, the capitalists start the
total social process of circulation; as soon as the social capital has
completed its circuit, everything is again in their hands, apportioned
to each department according to the investments made by it. The workers
have only temporary possession of money during which time they convert
the variable capital from its money form into its natural form. The
variable capital in the capitalists' hands is nothing but the outward
shape of part of their capital, and for this reason it must always
revert to them.
So far, we have only considered circulation as it takes place between
the two large departments of production. Yet 4,000 units of the first
Department's produce remain there in the form of means of production to
renew its constant capital of 4,000_c_. Moreover 500 of the consumer
goods produced in Department II [corresponding to the surplus value
II(500_s_)] also remain in this department in the form of consumer goods
for the capitalist class. Since in both departments the mode of
production is capitalistic, that is unplanned, private production, each
department can distribute its own products--means of production in
Department I and consumer goods in Department II--amongst its own
capitalists only by way of commodity exchange, i.e. by a large number of
individual sale transactions between capitalists of the same department.
Therefore the capitalists of both departments must have a reserve of
money with which to perform these exchange transactions--to renew both
the means of production in Department I and the consumer goods for the
capitalist class in Department II. This part of circulation does not
present any features of specific interest, as it is merely simple
commodity circulation. Vendor and purchaser alike belong to the same
category of agents of production, and circulation is concerned only with
money and commodity changing hands within the same class and department.
All the same, the money needed for this circulation must from the outset
be in the hands of the capitalist class: it is part of their capital.
So far, the circulation of total social capital presents no
peculiarities, even if we consider the circulation of money. From the
very outset it is self-evident that society must possess a certain
quantity of money to make this circulation possible, and this for two
reasons: first, the general form of capitalist production is that of
commodity production which implies the circulation of money; secondly,
the circulation of capital is based upon the continuous alternation of
the three forms of capital: money capital, productive capital, and
commodity capital. And as it is this very money, finally, which operates
as capital--our diagram referring to capitalist production
exclusively--the capitalist class must have possession of this money,
as it has possession of every other form of capital; it throws it into
circulation in order to regain possession as soon as the process of
circulation has been completed.
At first glance, only one detail might strike us: if the capitalists
themselves have set in motion all the money which circulates in society,
they must also advance the money needed for the realisation of their own
surplus value. Thus it seems that the capitalists as a class ought to
buy their own surplus value with their own money. As the capitalist
class has possession of this money resulting from previous periods of
production, even prior to the realisation of the product of each working
period, the appropriation of surplus value at first sight does not seem
to be based upon the unpaid labour of the wage labourer--as it in fact
is--but merely the result of an exchange of commodities against an
equivalent quantity of money both supplied by the capitalist class
itself. A little reflection, however, dispels this illusion. After the
general completion of circulation, the capitalists, now as before,
possess their money funds which either reverted to them or remained in
their hands. Further, they acquired consumer goods for the same amount
which they have consumed. (Note that we are still confining ourselves to
simple reproduction as the prime condition of our diagram of
reproduction: the renewal of production on the old scale and the use of
all surplus value produced for the personal consumption of the
capitalist class.)
Moreover, the illusion vanishes completely if we do not confine
ourselves to one period of production but observe a number of successive
periods in their mutual interconnections. The value the capitalist puts
into circulation to-day in the form of money for the purpose of
realising his own surplus value, is in fact nothing but his surplus
value resulting from the preceding period of production in form of
money. The capitalist must advance money out of his own pocket in order
to buy his goods for consumption. On the one hand, the surplus value
which he produces each year either exists in a natural form which
renders it unfit for consumption, or, if it takes a consumable form, it
is temporarily in the hands of another person. On the other hand, he
(the capitalist) has regained possession of the money, and he is now
making his advances by realising his surplus value from the preceding
period. As soon as he has realised his new surplus value, which is still
embodied in the commodity-form, this money will return to him.
Consequently, in the course of several periods of production, the
capitalist class draws its consumer goods from the pool, as well as the
other natural forms of its capital. The quantity of money originally in
its possession, however, remains unaffected by this process.
Investigation of the circulation of money in society shows that the
individual capitalist can never invest the whole of his money capital in
production but must always keep a certain money reserve to be employed
as variable capital, i.e. as wages. Further, he must keep a capital
reserve for the purchase of means of production at any given period, and
in addition, he must have a cash reserve for his personal consumption.
The process of reproducing the total social capital thus entails the
necessity of producing and reproducing the substance of money. Money is
also capital, for Marx's diagram which we have discussed before,
conceives of no other than capitalist production. Thus the diagram seems
incomplete. We ought to add a further department, that of production of
the means of exchange, to the other two large departments of social
production [those of means of production (I) and of consumer goods
(II)]. It is, indeed, a characteristic feature of this third department
that it serves neither the purposes of production nor those of
consumption, merely representing social labour in an undifferentiated
commodity that cannot be used. Though money and its production, like the
exchange and production of commodities, are much older than the
capitalist mode of production, it was only the latter which made the
circulation of money a general form of social circulation, and thus the
essential element of the social reproductive process. We can only obtain
a comprehensive diagram of the essential points of capitalist production
if we demonstrate the original relationship between the production and
reproduction of money and the two other departments of social
production.
Here, however, we deviate from Marx. He included the production of gold
(we have reduced the total production of money to the production of gold
for the sake of simplicity) in the first department of social
production.
'The production of gold, like that of metals generally, belongs to
department I, which occupies itself with means of production.'[92]
This is correct only in so far as the production of gold is the
production of metal for industrial purposes (jewellery, dental
stoppings, etc.). But gold in its capacity as money is not a metal but
rather an embodiment of social labour _in abstracto_. Thus it is no more
a means of production than it is a consumer good. Besides, a mere glance
at the diagram of reproduction itself shows what inconsistencies must
result from confusing means of exchange with means of production. If we
add a diagrammatic representation of the annual production of gold as
the substance of money to the two departments of social production, we
get the following three sets of figures:
I. _4,000c + 1,000v + 1,000s = 6,000_ means of production
II. _2,000c + 500v + 500s = 3,000_ means of subsistence
III. _20c + 5v + 5s = 30_ means of exchange
This quantity of value of 30, chosen by Marx as an example, obviously
does not represent the quantity of money which circulates annually in
society; it only stands for that part which is annually reproduced, the
annual wear and tear of the money substance which, on the average,
remains constant so long as social reproduction remains on the same
level. The turnover of capital goes on in a regular manner and the
realisation of commodities proceeds at an equal pace. If we consider the
third line as an integral part of the first one, as Marx wants us to do,
the following difficulty arises: the constant capital of the third
department consists of real and concrete means of production, premises,
tools, auxiliary materials, vessels, and the like, just as it does in
the two other departments. Its product, however, the 30_g_ which
represent money, cannot operate in its natural form as constant
capital in any process of production. If we therefore include this
30_g_ as an essential part of the product of Department I (6,000
means of production) the means of production will show a social
deficit of this size which will prevent Departments I and II from
resuming their reproduction on the old scale. According to the
previous assumption--which forms the foundation of Marx's whole
diagram--reproduction as a whole starts from the product of each
department in its actual use-form. The proportions of the diagram are
based upon this assumption; without it, they dissolve in chaos. Thus the
first fundamental relation of value is based upon the equation: I(6,000)
equals I(4,000_c_) + II(2,000_c_). This cannot apply to the product
III(30_g_), since neither department can use gold as a means of
production [say, in the proportion of I(20_c_) + II(10_c_)]. The second
fundamental relation derived from this is based upon the equation
I(1,000_v_) + I(1,000_s_) = II(2,000_c_). This would mean, with regard
to the production of gold, that as many consumer goods are taken from
Department II as there are means of production supplied to it. But this
is equally untrue. Though the production of gold removes concrete means
of production from the total social product and uses them as its
constant capital, though it takes concrete consumer goods for the use of
its workers and capitalists, corresponding to its variable capital and
surplus value, the product it supplies yet cannot operate in any branch
of production as a means of production, nor is it a consumer good, fit
for human consumption. To include the production of money in the
activities of Department I, therefore, is to run counter to all the
general proportions which express the relations of value in Marx's
diagram, and to diminish the diagram's validity.
The attempt by Marx to find room for the production of gold within
Department I (means of production) moreover leads to dubious results.
The first act of circulation between this new sub-Department (called by
Marx I_g_) and Department II (consumer goods) consists as usual in the
workers' purchase of consumer goods from Department II with the money
obtained as wages from the capitalists. This money is not yet a product
of the new period of production. It has been reserved by the capitalists
of Department I_g_ out of the money contained in their product of an
earlier period. This, indeed, is the normal procedure. But now Marx
allows the capitalists of Department II to buy gold from I_g_ with the
money they have reserved, gold as a commodity material to the value of
2. This is a leap from the production of money into the industrial
production of gold which is no more to do with the problem of the
production of money than with the production of boot-polish. Yet out of
the 5 I_g v_ that have been reserved, 3 still remain, and as the
capitalist, unable to use them as constant capital, does not know what
to do with them, Marx arranges for him to add them on to his own reserve
of money. Marx further finds the following way out to avoid a deficit in
the constant capital of II which must be exchanged completely against
the means of production (I_v_ + I_s_):
'Therefore, this money must be entirely transferred from II_c_ to II_s_,
no matter whether it exists in necessities of life or articles of
luxury, and vice versa, a corresponding value of commodities must be
transferred from II_s_ to II_c_. Result: A portion of the surplus-value
is accumulated as a hoard of money.'[93]
A strange result, in all conscience! We have achieved an increase in
money, a surplus of the money substance, by simply confining ourselves
to the annual wear and tear of the money fund. This surplus value comes
into existence, for some unknown reason, at the expense of the
capitalists in the consumer goods department. They practise abstinence,
not because they may want to expand their production of surplus value,
let us say, but in order to secure a sufficient quantity of consumer
goods for the workers engaged in the production of gold.
The capitalists of Department II, however, get poor reward for this
Christian virtue. In spite of their abstinence, they are not only unable
to expand their reproduction, but they are no longer even in the
position to resume their production on its former scale. Even if the
corresponding 'commodity value' is transferred from II_g_ to II_c_, it
is not only the value but its actual and concrete form which matters. As
the new part of the product of I now consists of money which cannot be
used as a means of production, Department II, in spite of its
abstinence, cannot renew its constant material capital on the old scale.
As our diagram presupposes simple reproduction, its condition are thus
violated in two directions: surplus value is being hoarded, and the
constant capital shows a deficit. Marx's own results, then, prove that
the production of gold cannot possibly find a place in either of the two
departments of his diagram; the whole diagram is upset as soon as the
first act of exchange between Departments I and II has been completed.
As Engels remarks in his footnote, 'the analysis of the exchange of
newly produced gold within the constant capital of Department I is not
contained in the MS.'[94] Besides, the inconsistency would then only
have been greater. The point of view we advocate is confirmed by Marx
himself when he gives an exhaustive answer to the question, as striking
as it is brief: 'Money in itself is not an element of actual
reproduction.'[95]
There is another important reason why we should put the production of
money in a third and separate department of social production as a
whole: Marx's diagram of simple reproduction is valid as the
starting-point and foundation of the reproductive process not only for
capitalism but also, _mutatis mutandis_, for every regulated and planned
economic order, for instance a socialist one. However, the production of
money, just like the commodity-form of the products, becomes obsolete
when private ownership of the means of production is abolished. It
constitutes the 'illegitimate' liabilities, the _faux frais_ of the
anarchic economy under capitalism, a peculiar burden for a society based
upon private enterprise, which implies the annual expenditure of a
considerable amount of labour on the manufacture of products which are
neither means of production nor yet consumer goods. This peculiar
expenditure of labour by a society producing under capitalism will
vanish in a socially planned economy. It is most adequately demonstrated
by means of a separate department within the process of reproducing
social capital. It is quite immaterial in this connection whether we
picture a country which produces its own gold or a country which imports
gold from abroad. The same expenditure of social labour which in the
first case is necessary for the direct production of gold, is required
in the second case to effect the exchange transactions.
These observations show that the problem of the reproduction of total
capital is not so crude as it often appears to those who approach it
merely from the point of view of crises. The central problem might be
formulated as follows: how is it possible that, in an unplanned economy,
the aggregate production of innumerable individual capitalists can
satisfy all the needs of society? One answer that suggests itself points
to the continual fluctuations in the level of production in accordance
with the fluctuating demand, i.e. the periodical changes in the market.
This point of view, which regards the aggregate product of society as an
undifferentiated mass of commodities, and treats social demand in an
equally absurd way, overlooks the most important element, the
_differentia specifica_ of the capitalist mode of production. We have
seen that the problem of capitalist reproduction contains quite a number
of precisely defined relations referring to specific capitalist
categories and also, _mutatis mutandis_, to the general categories of
human labour. The real problem consists in their inherent tendencies
towards both conflict and harmony. Marx's diagram is the scientific
formulation of the problem.
Inquiry must now be made into the implications of this diagram analytic
of the process of production. Has it any real bearing on the problems of
actual life? According to the diagram, circulation absorbs the entire
social product; all consumers' needs are satisfied, and reproduction
takes place without friction. The circulation of money succeeds the
circulation of commodities, completing the cycle of social capital. But
what is the position in real life? The relations outlined in the diagram
lay down a precise first principle for the division of social labour in
a planned production--always providing a system of simple reproduction,
i.e. no changes in the volume of production. But no such planned
organisation of the total process exists in a capitalist economy, and
things do not run smoothly, along a mathematical formula, as suggested
by the diagram. On the contrary, the course of reproduction shows
continual deviations from the proportions of the diagram which become
manifest (_a_) in the fluctuations of prices from day to day; (_b_) in
the continual fluctuations of profits; (_c_) in the ceaseless flow of
capital from one branch of production to another, and finally in the
periodical and cyclical swings of reproduction between over-production
and crisis.
And yet, apart from all these deviations, the diagram presents a
socially necessary average level in which all these movements must
centre, to which they are always striving to return, once they have left
it. That is why the fluctuating movements of the individual capitalists
do not degenerate into chaos but are reduced to a certain order which
ensures the prolonged existence of society in spite of its lack of a
plan.
In comparison, the similarities and the profound discrepancies between
Marx's diagram of reproduction and Quesnay's _Tableau Économique_ strike
us at once. These two diagrams, the beginning and end of the period of
classical economics, are the only attempts to describe an apparent chaos
in precise terms, a chaos created by the interrelated movements of
capitalist production and consumption, and by the disparity of
innumerable private producers and consumers. Both writers reduce this
chaotic jumble of individual capitals to a few broadly conceived rules
which serve, as it were, as moorings for the development of capitalist
society, in spite of its chaos. They both achieve a synthesis between
the two aspects which are the basis of the whole movement of social
capital: that circulation is at one and the same time a capitalist
process of producing and appropriating surplus value, and also a social
process of producing and consuming material goods necessary to civilised
human existence. Both show the circulation of commodities to act as a
mediator for the social process as a whole, and both conceive of the
circulation of money as a subsidiary phenomenon, an external and
superficial expression of the various stages within the circulation of
commodities.
It is socially necessary labour which creates value. This inspired
fundamental law of Marx's theory of value which provided the solution of
the money problem, amongst others, further led him first to distinguish
and then to integrate those two aspects in the total reproductive
process: the aspect of value and that of actual material connections.
Secondly, Marx's diagram is based upon the precise distinction between
constant and variable capital which alone reveals the internal
mechanisms of the production of surplus value and brings it, as a
value-relationship, into precise relation with the two material
categories of production: that of producer and consumer goods.
After Quesnay, some classical economists, Adam Smith and Ricardo in
particular, came fairly close to this point of view. Ricardo's
contribution, his precise elaboration of the theory of value, has even
been frequently confused with that of Marx. On the basis of his own
theory of value, Ricardo saw that Smith's method of resolving the price
of all commodities into _v + s_--a theory which wrought so much havoc in
the analysis of reproduction--is wrong; but he was not much interested
in Smith's mistake, nor indeed very enthusiastic about the problem of
reproduction as a whole. His analysis, in fact, represents a certain
decline after that of Adam Smith, just as Smith had partly retrogressed
as against the Physiocrats. If Ricardo expounded the fundamental value
categories of bourgeois economy--wages, surplus value and capital--much
more precisely and consistently than his predecessors, he also treated
them more rigidly. Adam Smith had shown infinitely more understanding
for the living connections, the broad movements of the whole. In
consequence he did not mind giving two, or, as in the case of the
problem of value, even three or four different answers to the same
question. Though he contradicts himself quite cheerfully in the various
parts of his analysis, these very contradictions are ever stimulating
him to renewed effort, they make him approach the problem as a whole
from an ever different point of view, and so to grasp its dynamics.
Ultimately, it was the limitation of their bourgeois mentalities which
doomed both Smith and Ricardo to failure. A proper understanding of the
fundamental categories of capitalist production, of value and surplus
value as living dynamics of the social process demands the understanding
of this process in its historical development and of the categories
themselves as historically conditioned forms of the general relations of
labour. This means that only a socialist can really solve the problem of
the reproduction of capital. Between the _Tableau Économique_ and the
diagram of reproduction in the second volume of _Capital_ there lies the
prosperity and decline of bourgeois economics, both in time and in
substance.