I mean it can't be done cuz even if one produces consumer goods or services the money made must be furtherly exchangeable against alien products so that we may talk of really existing value.

This is a response to “Links” postings. It starts with a recap of Marx’s analysis because there seems to be a bit of confusion.

In a cycle of production Marx divides the elements of capital into “c” the constant capital representing raw materials, machinery buildings etc. and variable capital “v” representing workers’ wages. The labour power of workers converts “v” into “v” + “s” where “s” is the surplus value, or profit, and transfers the values of raw materials and constant capital used up to the product. i.e.

c + v → c + v + s

The constant capital is transferred to the product. The value stays the same, hence the name. The variable capital varies to become “v+s”

These are values in the production process and describe the process as a whole. Marx assumes the commodities which result from the production process exchange at their values.

To show how capital could accumulate Marx divided the economy into two principal departments; Department 1 producing means of production and department 2 producing means of consumption.

The relationship for a cycle of production for both departments can be written:

Department 1: C1+ v1 → C1+ v1 + s 1

Department 2: C2+ v2 → C2+ v2 + s 2

For reproduction to take place the products of department 1, which are producer goods, must exchange with those of department 2, which are consumption goods, and the following equation must hold:

v1 + s 1 = c2

This represents simple reproduction, i.e. without accumulation. For accumulation to occur part of the surplus produced must be converted into new constant capital and part into new variable capital. If we follow Grossman’s reproduction of Bauer’s table, the equations for the departments become:

Department 1: C1+ v1 → C1+ v1 + k1 +a1c +a1v

Department 2: C2+ v2 → C2+ v2 + k2 +a2c +a2v

This follows Grossman’s notation where:

k = capitalists’ personal consumption

ac = surplus accumulated as constant capital

av = surplus accumulated as variable capital.

For accumulation to take place there must be an exchange between the departments and the following equation must hold:

v1 + k1 +a1v = C2+a2c

You will see that this is true in the Bauer tables which are worked out for the first 4 years of production.

What this illustrates is that capitalism can reproduce itself and accumulate without extra capitalist markets. It can do this as long as it continues to accumulate capital and capitalists do therefore form their own market. This can occur as long as the system is expanding. Rosa side-stepped the Bauer tables by saying that they assumed a continuously increasing supply of workers. While this is true it is not an adequate response. Increases in productivity allow workers to be redeployed from the more highly capitalised industries to those with lower capital content. Bauer tables do show how accumulation can take place without 3rd buyers. The breakdown comes from a shortage of surplus value not a shortage of 3rd buyers.

Bauer imagined that he had shown capitalism did not of itself produce crises and breakdown as long as the correct proportions between the 2 departments were maintained. However, by extending Bauer’s tables Grossman showed how the process of capitalist accumulation itself led to a falling rate of profit and finally to breakdown even when growth was maintained and the assumed ratio between departments was maintained.

This description is an abstraction of capitalist reality and makes extremely favourable assumptions of rates of accumulation. Grossman’s extension of the table continues the original assumptions and abstracts all of the counter tendencies which capital brings into force to counteract the falling rate of profit. (Marx deals with these in Chap 14 Capital Volume 3). In particular it does not include the devaluation of constant capital.

Marx considers the system as a whole hence competition, which you keep coming back to, does not matter. Competition simply means that the surplus value of a department is divided up amongst the capitalists in a different way. Generally the more highly capitalised capitals, i.e. those with the higher organic content (c/v) drain surplus value from the lower organic capitals. Individual capitalists do not receive the surplus value produced by their own workers. But for the system as a whole this is not relevant. The problem for capitalists is that they are producing too little surplus value in respect to the existing capital values. This is what causes the system to break down.

Other issues you complain that the equations and tables do not take account of are the social wage, state expenditure and waste production. Like competition these issues do not invalidate the way the problem has been approached.

The action of the state is not treated separately as again Marx is trying to describe the system as a whole. The state is, of course, sustained by capitalism and is an overhead of the capitalist system. It exists by taxing capitalist profits and workers’ wages to fund itself and such things as the social wage. We do not think this in any way undermines the validity of Marx’s method of abstraction or the validity of the equations above.

Waste production, such as occurred during the 2nd World War, only means that the section of surplus which was due to be accumulated is reduced or eliminated. i.e.

a1c +a1v & a2c

are diverted into waste, e.g. armaments, and do not re-enter the next cycle of production.

As you know we argue that the waste production during the war also entailed the failure to replace the constant capital “c” used up during each cycle of production as well as failure to accumulate surplus value, all of which led to a massive devaluation of constant capital values during the war. Andrew Kliman in his book “The failure of capitalist production” provides empirical evidence of this for the US. This led to a massive increase in rates of profit, again well documented by Kliman. This was the basis of the boom which followed the war and you should note that when the global economy was growing at a healthy rate in the 50s and 60s there was no problem with realising surplus value. Only when the profit rate started to fall significantly in the 70s did the problem of markets and realisation appear. This is an indication of its derivative nature.

You ask how capitalism has sustained itself for 300 years if Grossman says it must break down after 35. Grossman does give an answer on pg 84 of the book (Pluto Press). As you know the tables abstract all the counter tendencies. Counter tendencies which have been present since the dawn of capitalism, produce devaluation of capital, increases in productivity and increased exploitation. During the 19th century crises of this sort occurred at about 10 yearly intervals and had a healing effect on the system. After the crisis was over the system recovered and accumulation restarted. We argue that in the 20th century the cyclical crises are no longer sufficient to restore profit rates because they are unable to devalue a sufficient mass of capital. A massive devaluation of capital by global war has become an integral part of the mechanism which sustains capitalism. The crises which have occurred since the 70s have devalued an insufficient mass of capital to permit a new boom and we have staggered from crisis to crisis. All the time we are seeing decreases in rates of profit and rates of accumulation.

The reality of capitalist economy is more complicated than represented in Marx’s division of it into 2 departments and the derivation of relations between these departments for reproduction to occur. However, a difficult problem is made easier to deal with by the process of abstracting key elements from the process and subjecting them to analysis. I think you have accepted that this is a justified approach.

Grossman only extends the total capital position, i.e. the sum of the two departments. This can be easily generated from the original assumptions from one year to the next. However, the total capital position (Grossman’s figures) can only arise if the relationship between the departments satisfies the accumulation conditions, namely V1 + k1 +a1v = C2 + a2c. The numbers for the two departments are shown in the first 4 years but thereafter they are omitted. (I suspect this is because there are too many unknowns to allow a direct solution and a tedious numerical solution by trial and error is required.) However, behind the numbers for each of the years which Grossman calculates there will be figures for the two departments and the relationships between the departments must be satisfied.

The numbers for each department represent the total capital for that department. Competition is therefore irrelevant. If we take an easy example from department 1 this might make the issue clearer. In year 1 there is 50 000 of surplus value produced in this department. If one capital (say Hitachi producing generating equipment) is more competitive than another (say Siemens) it simply means that the surplus value is divided up in a way which gives Hitachi more than Siemens. It does not alter the total. The total surplus value remains 50000 and it does not matter how it is divided up. If Hitachi gets more surplus value it probably means they will accumulate more of the surplus value and Siemens will accumulate less. The internal workings of the departments do not concern us. The table is an illustration of what is happening to the total capital of each department. The sum of the 2 departments is what is happening to the global capital. These relationships do not need to consider competition. Competition arises because the rate of profit falls. Individual capitals (e.g. Hitachi, Siemens in the above illustration) experience this and try to offset this by installing more productive machinery, more productive processes, reducing wages, moving factories to areas where wages are lower etc.etc... The same goes for planning and manipulations with the money supply. It is the total process which is being analysed and this totality includes the internal processes such as competition, planning, credit etc. What Grossman shows is that the accumulation process breaks down because the mass of surplus value is insufficient to allow accumulation to continue. He shows how a falling rate of profit leads to a relative decline in the mass of profit leading to collapse as the initially assumed conditions cannot be satisfied. Grossman was arguing against the likes of Bauer and Hilferding who argued capitalism could accumulate indefinitely as long as the relationships between the departments were satisfied, i.e. the equation above, and that Marx’s analysis did not imply any capitalist breakdown.

All this is a theoretical analysis from assumed conditions. What Grossman shows is that capitalism has a tendency to break down and this is derived from Marx’s value theory. He further shows how crises and war have a healing effect on the system, through capital devaluation, and have the ability to generate conditions for a new round of accumulation.

Sorry about the delay in responding to your post. But it does mean I’ve had a bit longer to think about the issues behind your posting.

Your main concerns appear to be the effect of competition which you think is excluded from our analyses, the existence of the departments of production which you see as irrelevant and population growth. I will try and answer what I think are the issues behind the issues you raise.

Competition

Competition is the mechanism through which capitals are forced to confront each other in the market. The falling rate of profit stimulates competition which in turn leads to accumulation of capital.

“..A fall in the rate of profit calls forth a competitive struggle among capitalists not vice versa.” Marx Volume 3, Ch 15, pg 256

Marx saw the competitive struggle as underlying the drive for accumulation and we regard this as correct. Hence it also underlies the Grossman tables mentioned in earlier exchanges. The Bauer/Grossman table assumes constant capital accumulates at 10% and the variable at 5% annually and the force driving this accumulation is the competitive struggle between capitals for a share of the existing surplus value. This competitive struggle in turn, is derived from the fall in the rate of profit.

It is important to understand that c, v & s represent values not prices. Values are converted into prices by competition in the market. Competition averages commodity prices forming a single price for a commodity on the market. This controls a factory’s price of production. The higher organic composition capitals (c/v) are able to sell at a profit at lower market prices than the lower organic composition capitals. The higher organic composition capitals thereby drain the surplus value produced by the lower ones to themselves. Unless the lower organic composition capitals accumulate capital and increase their c/v ratio they will be bankrupted. They must accumulate to at least match the higher organic composition capitals in their sector to remain in business. The process of accumulation, however, tends to reduce the rate of profit and this is the reason that Marx argues that a falling rate of profit calls forth a competitive struggle.

The falling rate of profit is the result of the structural changes in the composition of capital. Competition is the means by which the result of these changes is imposed on all capitals.

The rate of profit expressed in value terms is:

s/(c+v) which can be written as

s/v)/(c/v +1

Which shows it is directly proportional to the rate of exploitation (s/v), and inversely proportional to the organic content (c/v).

Competition is not, therefore, being left out or ignored as you suggest.

Marx assumes throughout his critique of capitalism that commodities exchange in the market at their value although he knows this is not the case. This allows the analysis to deal with the essential issues and is another justifiable simplification. The transformation of values into prices is brought about by competition and how precisely this works is a thorny issue. Marx did not devote a lot of effort to this since at the level of the aggregate economy the sum of prices would equal the sum of values. He argued that for the economy as a whole:

• the sum of all the prices of production must equal the sum of all their values and,
• The sum of all the profits must equal the sum of all the surplus values. (Capital Vol 3 ch 10)

The use of values is consequently justified at the level of whole economy. This is what Grossman’s tables assume.

Competition also operates between sectors of the economy and tends to average profit rates. This occurs because capital flows from the lower profit sectors of the economy to the higher ones. This tends to increase their organic content and reduce their rates of profit of the sectors which have higher than average profit rates. There is thus an averaging of profit rates brought about by competition. These processes occur as tendencies which operate in the longer term and Marx was at pains to stress this. However, we can see examples of this effect today with sectors such as IT which initially had enormous rates of return and capital flowed into them producing the IT bubble of the early 2000’s. Today IT companies such as HP or Dell only produce average rates of return.

The averaging of profit rates across the whole economy is a further justification for considering the aggregate economy as Grossman has done. This does not, however, mean that the two departments of production are irrelevant as you claim.

Departments of production

As mentioned in previous responses the interchange between the two departments must occur for accumulation to take place and the aggregate figures for the whole economy are simply the sum of the figures for the two departments. The model of the two departments shows how it is logically possible for accumulation to take place in a world composed of workers and capitalists without any feudal, peasant, tribal or whatever, external buyers. These departments do not simply reflect capitalism in Marx’s time, as you claim; they are just as valid for capitalism of today.

There has been a whole body of Marxist literature which argued that the crisis of capitalism resulted from an imbalance of the exchange between the two departments. This was the position of Hilferding and Bukharin and was the initial argument against Luxemburg. This argument implies, of course, that if capitalism could solve the anarchy of the market and regulate the exchange between the departments it would not experience crises. It was this which Grossman is refuting. By extending Bauer’s tables he shows that even with the required exchange between departments the system breaks down, and the breakdown is because of the fall in the rate of profit.

Contrary to what you say we do find the two departments mentioned in current literature, for example texts by Andrew Kliman. It is the underconsumptionists today who reject the two department model.

Rosa devoted chapters of her work “The accumulation of capital” to the considering the two departments but ended up rejecting them which led her to see accumulation as an insoluble riddle. The importance of the two departments is that they show that capitalism can create its own market by accumulating capital. The object of capitalist production is the expansion of capital; this, rather than satisfying consumption needs, is the purpose of production. As Marx wrote:

“The real barrier of capitalist production is capital itself. It is that capital and its self expansion appear as the starting and the closing point, the motive and the purpose of production; that production is only production for capital and not vice versa, the means of production are not mere means for a constant expansion of the living process of the society of producers.” Capital Vol 3 Ch 15

Rosa asks “who is to benefit from expanded production” (Accumulation of capital Pg 330). This question conceals the completely incorrect assumption that production is ultimately for consumption. If this were true there would always be a lack of demand because, as Rosa says, the working class can only consume what it receives in wages. The surplus destined for recapitalisation could never be realised.

Bourgeois economists have also considered lack of demand in the market to be at the root of capitalism’s crises. Keynes, of course, is the most renowned of these. However, there is also a school of Marxists economists, e.g. the monthly review school, who have followed in Keynes and his disciples' footsteps and regard underconsumption as the root of capitalism’s problems. The luminaries of this school such as Sweezy, Foster, Magdoff, Harvey and others start from the view that production is a process of producing goods for human consumption. They argue, like today’s Keynesians, that, if consumption could be increased the crisis could be solved. They point to the reduction of workers’ wages as a key factor in the crisis. In fact capitalism can form its own market as the two department model illustrates as the rate of profit is sufficient to warrant investment.

It is the production of surplus value which is the key capitalism’s existence and the lack of sufficient surplus value which is the root of capitalism’s crisis. This crisis expresses itself in through problems in the market. The problems in the market are derivative ones. During the reconstruction period there were no problems with the market and we argue that this was because the rate of profit was sufficient to ensure adequate accumulation of capital. You appear to want to bring back the market as a primary cause of the crisis. We argue that this is not the case.

Population

It is necessary to distinguish between total population and the population of workers since it is only workers who produce surplus value, though the numbers of workers must include both the employed and unemployed. The figures for total population include masses of peasantry and those expelled from the land but excluded from capitalist production relations living on the margins of the capitalist economy. In the initial stages of an accumulation cycle when there is a high rate of profit and a high rate of accumulation there is a continual need for more workers and generally full employment exists. As the rate of profit falls and accumulation falls proportionately an army of unemployed develops. The Bauer/Grossman tables illustrate this. It is, however, it’s worth pointing out that the increase in numbers of workers required is not as high as the tables suggest. The accumulation process is also always a process of increasing productivity which means displacing workers by machinery. This enables some of the displaced workers to be redeployed. The Bauer/Grossman tables do not allow for this. Also the conversion of peasantry into proletarians provides additional workers without increasing the total population numbers.

The post war reconstruction cycle gives empirical verification of this process. In the 50s and 60s there was massive importation of workers into Europe at the same time as there was full employment. Only when the rate of profit fell sharply in the early 70’s did a reserve army of unemployed develop. Now about 10% of all workers in the central capitalist countries are unemployed and in the peripheral countries the figure is probably around 30%. This is a consequence of the reduced rates of profit and reduced rates of accumulation.

We don’t consider population growth to have an influence on the rate of profit. At present we have low rates of profit, high unemployment and high population growth. Additional workers are only of use to capitalism if they can be exploited. We do not, of course, deny that an increase in the number of workers and the consequent lowering of the average price of labour power is of benefit to capitalism. The increased globalisation of the last 2 decades illustrates this. The central capitalist powers are today prepared to tolerate high levels of unemployment themselves while they can exploit workers at cheaper rates in peripheral countries via export of capital. The collapse of the Russian bloc and the entry of China and India into the global economy have created millions of additional workers for global capitalism to exploit and global capitalism has definitely benefitted from this.

Link

I just realised that Azdak is away until early 2013 so won't be replying speedily to your latest serious post.I have not read Grossman for over 30 years so will leave aside any remarks on his analysis (which in any case is not one we totally endorse despite its considerable scientific interest).

Lets just focus on the issue of competition and the law of the tendency for the rate of profit to fall. What you are arguing it seems to me could fit any stage of capitalism including mercantile capital. There was competition here too but based on on the need to buy cheap and sell dear and to do so to better undercut competitors. Such competition has nothing to do with capitalist production per se. What transforms this issus is when the trade in commodities is carried out on the basis of capitalist production and it is here that the law of the tendency for the rate of profit to fall kicks in. We are not saying that all competition is a product of the LOTFROPF but we are saying that under fully capitalist condtions it is not only the secret of capitalism's extraordinary productivity and growth but at the same time lies at the heart of capitalism's greatest contradictions. And of course individual capitalists don't see it (in fact capitalist ideologues have long denied the efficacy of any analysis based on the law of value and its developed concepts such as the notion of the origin of surplus value). All they see is that they individually have to ensure the maximisation of their profit. The fact that the sum total of this activity is a general lowering of the average rate of profit is beyond them. All they know is that if their firm does not grow then it will lose market share and be taken over or fold. But as they all race to increase productivity (an apparent counter-tendency to the LOTFROPF but which in fact only reproduces the same outcome further down the road). The LOTFROPF does not explain competition in general but it does drive and determine the nature of competition in a fully capitalist world.

But there is another side to all this in that the LOTFROPF is just another expression of the rising organic composition of capital. At a certain point the expansion of capitalist accumualtion reaches a level where further investment is no longer attempted in expanding production as it is no longer going to bring in the same returns. The weight of constant capital is so great that unless there is some massive devaluation of capital then no new cycle of profitable accumulation can begin. But the process of devaluation of capital is always painful whether in the form of the nineteenth century business cycle aka decennial crisis or in modern capitalist conditions in the age of imperialism, a global conflict. We arrived at such a point in the early 70s but have not yet seen this devaluation. The capitalists everywherre know the consequneces and they know that some way to get devaluation has to be found but they are in a logical bind. The intervention of the state has ensured that the stagnation of almost 4 decades has gone on and on and now assumes historic proportions as the state has tried to mitigate the worst consequences of the crisis so we have instead of a collapse a long drawn out stagnation. The signs are that this has some way to go but eventually it will no longer be containable. We can only shudder at the consequences especailly with a working class which has hardly regrouped after the long defeat of the last 90 years. but face up to the situation we must and prepare for a working class resistance as the system takes us on a race to the bottom as far as living standards are concerned.

If this takes you off the point of your discussion feel free to ignore it.

Link

Sorry not to reply sooner but have been a bit distracted by other tasks.

First I think Rosa Luxemburg is in a different position from other over-productionists as she is the only one who insists that capitalism can only accumulate as long as there are "third buyers" to absorb from pre-capitalist modes of production. She argues that once this process is complete (and she certianly thought it was by 1890) then capitalism would face a once and for all crisis of over-production (the only solution she posited short of imperialist war was the arms race as "a province of accumulation".). Most of those who reject the notio of the centrality of the law of the tendency for a falling rate of profit dp so on the under-consumptionist grounds that in the final analysis the working class cannot buy all the commodities that it produces given that so much of the real value of their labour power is taken from them by the capitalists. In Vol III of Capital they can get sustenance from Marx's famous passage that in the last resort the final cause of all crises is "the poverty and restricted consumption of the masses". This is true but it is also a consequence of the rising organic composition of capital. At the beginning of any cycle of accumulation the working class is compelled to acquiesce in a very high rate of exploitation as the wiping out of so many capital values has also reduced the value of labour power. But as the cycle goes on and capital expands labour power increases in value as the capitalist are investing at full swing as they enjoy a healthy rate of profit and expand the economy. However at a certain point the deployment of new capital is not simply to expand accumulation but to dramatically increase productivity to further raise the rate of exploitation through the increased use of new technology or machinery. This no longer means expanding the labour force but reducing it. The expulsion of workers from the labour force is a result and this in the end leads to the further poverty and restricted consumption of the masses. What is mising fromthe underconsumptionist or over productionist analysis is the cycle of accumulation which is governed by the law of value. This was what I meant when I said the LOTOTROPTF was behind the major contradictions of the capitalist system.

Hope this is clear!

link

Have you read our critique of Rosa Luxemburg and her epigones? We republished on this site in 2007 (thr original was written in 1975-6.

leftcom.org

Our collective position on the question of decadence is in the article "Refining the Concept of Decadence" published in 2005 (in Internationalist Communist 23 - there are still one or two left but it is also on the site at

leftcom.org

they may not answer your questions but that is where we clearly state our positions on these issues.

You ask if I think that you have characterised the FROP in relation to the issue of decadence accurately in the other thread you have started. I don't. You miss out what is essential to the theory which is the notion that the FROP operates in cycles which work like a spiral in the ever increasing concentration and centralisation of capital. Without this we could not explain how the character of capital, whilst still driven by the same fundamental laws (FROP and the law of value at the heart of them) alters with the onset of monopolies, imperialism and state capitalism. In the neineteenth century every crisis of "over-accumulation" was resolved by the devaluation of capital though purely economic means. Under monopoly imperialist conditions, and with a greater mass of capital in operation, a few bankruptcies are not enough to devalue sufficient capital for a new round of accumulation to begin. Only the massive destruction of value such as achieved in a global imperialist war could do this. The current crisis has been managed in all sorts of ways for 40 years but has not been resolved and the latest dodge (financial speculation) has now blown up in the faces of the capitalists. In the nineteenth century such a crisis would have led to a general crisis for a few years in which capital was devalued before a new round of accumulation could begin, but not today. To protect the parasitically acquired capital of the great financial houses capitalist governments everywhere have taken on the debts to avoid precisely the devaluation which would otherwise be capitalism's "natural" course. Instead the financial edifice has been protected whilst the vulnerable victims of speculation have to pay the price.The crisis drags on bringing more social misery in its trail. But one day the need for devaluation will provoke another war - unless the sleeping giant of the world working class wakes up and plays the part which it alone can play. There are small signs today that such stirrings are taking place but as yet insufficient to create a proletarian movement worthy of the name. It will be this and not an abstract heuristic device like decadence ( valuable though I find it) which puts an end to the system.