Exactly
a hundred and fifty years ago the first volume of Karl Marx’s
Capital was published. He had a plan of numerous volumes covering
every aspect of the subject, but it never went any farther. Though
Friedrich Engels edited and had published some of Marx’s notes
after his death, volumes 2 and 3, as did Karl Kautsky after Engel’s
death, volume 4. Why was this project that Marx had been working on
for more than a decade suddenly put to one side? His involvement in
the First International may have taken up his time, as did his
bread-winning writings for various newspapers. But, as Rosa Luxemburg
would conclude later, it seems he was in a quandary and had found no
way out.
Marx
had begun by dividing production into two departments, one for
investments and one for consumption. Investments, be they for goods
or services, go into the production process where they either
transmit their value, or are transformed and have value added. Value
invested is returned as part of the new product. Value consumed is
dissipated and has to be created anew. It can be argued that
consumption is an investment in human well-being, whose value is
returned in the form of value adding (creating) labour. But that is
another matter. This division also ignores the fact that the same
product, a car for example, may be an investment for a company or
consumption for an individual.
Having
divided production in two, Marx then divided the value produced by
each department into three components. He put together as constant
capital (c) the wear and tear of buildings and machines, and inputs
such as energy and raw materials. He named the cost of labour
variable capital (v). And profit, the non-remunerated part of the
value added by labour, was surplus value (s).
Department
1: c1 + v1 + s1
= value of investments produced
Department
2: c2 + v2 + s2
= value of consumption produced
But
this model only works if v and s are consumed. In which case a part
of the investments produced (v1 + s1) is
exchanged, value for value, for a part of the consumption produced
(c2). And so c1 + c2 equals the value of
investments produced, while v1 + s1
+ v2 + s2 equals the
value of consumption produced. If department 1 decides to increase
its investments (c1) the model falls apart. To increase c1 and
the labour needed to run it v1, department 1 uses a part of s1, and
thereby reduces its consumption (demand from v1 grows
less than that from s1 shrinks). Department
1 reduces its consumption, which means department 2 gets less
investments (c2), and must reduce its production. This in turn means
less v2 and s2, which reduces demand for
consumption even more, producing a recessional spiral. If, or rather
when department 1 invests some of its surplus value (s1) instead of
consuming it, department 2 is in trouble. As department 1 does this
on a regular basis, because accumulation is capital’s raison
d’être, how does department 2
manage
to survive, and even thrive over quite long periods?
When
department 1 invests its surplus value, it reduces its demand for
consumption and its exchanges with department 2 (v1 +
s1 < c2), so department 2 is unable to
renew its investments. For his model, Marx had imagined a world where
capital ruled exclusively, and then realised it did not function. It
seems that Luxemburg was the first to spot the fault in Marx’s
reasoning. Kautsky had published Marx’s notes on surplus value,
several authors had written on the subject and Luxemburg had an
unusually incisive mind. The mistake was that capital did not control
the planet, and it could thereby accumulate investments by expanding
into new territories and markets. Capital could transform consumption
into investments by colonial plunder or foreign trade, the “white
man’s burden” or guns for oil. And capital could invest in
foreign loans, to create a demand for its surplus consumption.
However, once capital had embraced the planet and all its
inhabitants, having nowhere left to expand it would collapse.
As
Luxemburg had predicted, the invasive expansionist capitalism
supported by the USA was a success, whereas the closed state
capitalism practised by the USSR failed. America exported consumption
(its way of life and its weapons) around the world, and used it to
pay for influence, raw materials and local labour. Russia had no
external markets to transform its surplus consumption into
investments, just some weapons for influence, so accumulation in
department 1 reduced demand for department 2, which withered away
except for weapons. (Siberian forced labour did transform on a small
scale, not much consumption and not much in return). The US had been
the only industrial nation left unscathed by WW2. By the 1960s, that
advantage had worn off. Western Europe and Japan were back to making
their own stuff and beginning to export. The war in South East Asia
allowed for a lot of consumption abroad, especially ordnance, but
more body-bags were coming back than investments for accumulation.
Then, in the 1970s, oil price hikes to counter inflation meant some
developed nations were no longer selling enough to pay their fuel
bills. The US resolved its commercial deficit with Treasury bonds,
and Europe opened to foreign investments. But the general problem of
surplus consumption was still unresolved, and world production
stagnated.
The
1980s, fostered by Thatcher and Reagan, proceeded to cut taxes and
compensated by a surge in public borrowing. This got the economy
going again, because the tax gains could be invested and debt
sustained consumer demand. Meanwhile the USSR, with its closed
capitalism and total regime, had been left behind technologically and
culturally. It would soon fall apart and offer opportunities for
investments and consumption. China was even more closed and backward,
but the regime managed to open up to foreign investments and stay in
power. The sudden access to vast territories and huge populations
gave western capitalism a powerful boost. However, Russia and China
were poor countries with small capacities for consumption, which
meant that most of the produce from the new investments were shipped
and piped out to the West. In Russia, the investments concentrated in
mining, and the traditional exchange of consumption for raw materials
was put in place. In China, a young, literate, capable and
inexpensive work force attracted investments in manufacturing. This
was a reversal where industrial investments were exchanged for
consumption. Western capitalism outsourced its production and
concentrated its profits in off-shore tax havens. And the inflow of
surplus consumption was paid with household and public debts.
Department
2 was sent overseas.
Department
2: c2 + v2 + s2
= value of consumption produced
This
allowed a substantial reduction in v2 and
an increase in s2, while covering the cost of transport and
maintaining a competitive price. But it meant that s2 was
being invested and v2 was being paid
elsewhere, so there was no equivalent demand for the produce, except
credit and debt.
A
hundred years ago, Luxemburg explained that the accumulation of
capital by investing profits resulted in surplus consumption that
could only be transformed into investments outside the system. The
industrial powers needed a non-capitalist periphery into which they
could expand. This led to national imperialistic competition and
conflict. Though the players and the modes of conflict have changed
over time, the competition is still going on. The great expansion
into Asia, Africa and Latin America has lost momentum, because the
whole planet is now part of the game, and expansion by one player
must be detrimental to another. The choice will soon be between
stagnation and violence. But the whole financial structure of
capitalism is based on future growth for future payments. Stagnation
condemns it to default on those future payments whose value has not
materialised. Luxemburg concluded that socialism was the only
alternative to the mayhem and barbarity of capitalist imperialism. It
did not happen back then, and the world was drawn into a cycle of
death and destruction. It is not happening now, and the storm clouds
are gathering.
For
more on surplus value see Luxemburg’s “The Accumulation of
Capital” sections 1 & 2, and on colonial plunder section 3.
Marxists
internet archives
There
is also a paper edition by Routledge 2003
