Friday, September 01, 2017

Rosa Luxemburg


Ever since it was published in 1913, Rosa Luxemburg’s The Accumulation of Capital has often been criticised (1). Among the first was Otto Bauer, who prompted Luxemburg to publish an Anti-Critique in 1915 (2). The debate was, and still is, about the future of capitalism. Can it exist of itself, or does it need to continually expand and conquer?
To illustrate his reasoning, Marx had constructed several mathematical models, for simple reproduction and then for expanded reproduction. They would become the centre of the controversy. Luxemburg had dealt with them quite quickly to concentrate on the material forces rather than arbitrary numbers. But her adversaries harped back to the models, and even built new and more complex ones.
For his model, Marx had imagined a world wholly divided between capital and labour, between the owners of capital and salaried workers of all kinds. Then he split production into investments and consumption, the produce that goes back into the production process (I) and the produce that does not (II). Finally he separated the composition of the value produced into constant capital (c), comprising the wear and tear of buildings and machines, and inputs such as energy and raw materials or unfinished products; variable capital (v), which is the cost of labour, the value of its renewal; and surplus value (s) being the unpaid value added by the work force.
I: c1 + v1 + s1 = value of investments produced
II: c2 + v2 + s2 = value of consumption produced
Marx used his model to explain pre-capitalist simple reproduction, where c1 + c2 = investments and v1 + s1 + v2 + s2 = consumption. A somewhat fictitious situation, as production has grown and regressed throughout history, though growth did take on a different dimension after the industrial revolution. The used up investments are renewed, and wages and surplus value are consumed. The c2 part of consumption is exchanged for the v1 + s1 part of investments.
Marx then used his model to explain expanded reproduction, where a part of surplus value is used to increase constant and variable capital. For this he chose two sets of numbers, the first with a 10% growth in both departments, the second with half the surplus value of each department being invested.
I. 4400c+1100v+1100s=6600
II. 1600c+800v+800s=3200
Total =9800
I. 4840c+1210v+1210s=7260
II. 1760c+880v+880s=3520
Total =10780
I. 5324c+1331v+1331s=7986
II. 1936c+968v+968s=3872
Total =11858
I. 5856c+1464v+1464s=8784
II. 2129c+1065v+1065s=4259
Total =13043
(3)
And the second case:
I. 5000c + 1000v + 1000s = 7000
II. 1430c + 285v + 285s = 2000
Total = 9000
I. 5417c + 1083v + 1083s = 7583
II. 1583c + 316v + 316s = 2215
Total = 9798
I. 5869c + 1173v + 1173s = 8215
II. 1715c + 342v + 342s = 2399
Total = 10614
I. 6358c + 1271v + 1271s = 8900
II. 1858c + 371v + 371s = 2600
Total = 11500
(4)
Both sets of numbers work and give an infinite series of accumulated capital. But Marx was not happy with the results, and Luxemburg would highlight his dissatisfaction. “How can they continually draw 600 p.st. out of circulation, when they continually, throw only 500 p.st. into it? From nothing comes nothing. The capitalist class as a whole cannot draw out of circulation what was not previously in it.” And “Here the same question reappears, which we met previously. Where does the additional money come from, by which the additional surplus value now contained in the form of commodities is to be realised?” (5). In fact the problem goes back to the beginning of Marx’s quest, when he was pondering on exchange: commodity-money-commodity and money-commodity-money. In the first case, money is the intermediary for the exchange of different commodities that have the same value. In the second case, a commodity is the intermediary for the exchange of the same money but of different values. Buying to sell means getting more value out of the double exchange than was put in. If everyone is buying to sell at a higher price, “where does the additional money come from?” The same goes for buying labour and selling its unpaid added value.
Luxemburg proclaimed that Marx’s models could prove nothing and that, in the real world, capitalism expanded by plundering the planet. And even when neocolonialism replaced imperialism, the trade of guns and other ordnance, as well as food and luxury goods, for oil, uranium, copper, coltan, etc., continued to transform consumption into investments. In fact this trade between developed and “developing” nations had already begun in Luxemburg’s time. Her chapter on international loans describes how they all come back to their source as payments for various industrial goods. British, German and French banks were financing the construction of railways with European steel by granting credit to Argentina, the USA, Turkey and Russia, while Egypt wasted vast sums on wild and unsuccessful projects (6). Credit was where the money was coming from. Instead of bartering with the natives, capital was granting them credit to realise its surplus value and get interest as well.
Luxemburg hardly mentioned credit, once to approve Bulgakov, “it is the development of the institution of credit which accompanies the development of capitalist economy. (Hear, hear!) Credit has the tendency to diminish the amount of money in circulation (this decrease being, of course, only relative, not absolute); it is the necessary complement of a developing economy of exchange which would otherwise soon find itself hampered by a lack of coined money.” (7) and in a quote from Capital III, “Let us furthermore make exceptions of fluctuations of prices which prevent large portions of the total capital from reproducing themselves under average conditions and which, owing to the general interrelations of the entire process of reproduction, such as are developed particularly by credit, must always call forth general stoppages of a transient nature. Let us also make abstraction of the bogus transactions and speculations, which the credit system favours.” (8) But then she lived in a world where gold and silver coins were still legal tender, and where consumer credit, except for the very rich, was limited to the pawnbroker or to an agreement between storekeeper and customer. It was long before plastic cards and subprime lending. Nowadays, the preponderance of credit makes its function, as an unlimited substitute for money, seem quite obvious. Surplus value is paid for with credit granted abroad and at home. However, invested credit is returned with a profit, whereas credit for consumption is consumed.
Luxemburg realised that the surplus demand that pays for surplus value had to come from elsewhere. Colonial plunder and unethical trade explain some of that demand, but most of it comes out of thin air as promises of future payments, as credit. David Graeber has shown convincingly that credit predated money by a few thousand years (9). The legendary Phrygian king Midas is said to have minted the first coins to pay his (mercenary?) army. The Greeks took up the idea and built a commercial empire. Bullion and coins became the means of payment, the representation of value and value in itself. This did not stop credit being granted in many transactions, but gold and silver were the standards against which all values were measured. Unfortunately, the supply of precious metals was subjected to considerable historic fluctuations, along with the subsequent disorders. The gold standard was finally abandoned in 1971 (see the “Nixon shock”) and, after some confusion, money and credit could finally assume their roles as virtual scriptural entities, one measuring past payments and the other measuring future payments. And the value of this measure is based on a “basket” of goods and services.
Since its distant origins, money and credit had been constrained by the supply of gold. The Nixon administration’s decision set them free to expand at will, and credit could pay for more and more surplus value. However, invested credit and consumed credit are not the same. The first comes back and can be renewed. The second does not. Invested credit grows at the same rate as investments. Consumed credit grows at a much faster rate than consumption. Consumer credit increases consumption, but paying back the credit reduces consumption because the value has been consumed. This means that to stop the reduction a new credit must be granted, to maintain the previous increase a supplementary credit is needed, and to continue the growth a third one is necessary. “The IMF issued a warning that China’s “credit efficiency” had deteriorated sharply over the past decade, with ever larger amounts of money needed to generate the same amount of growth. “In 2008, new credit of about Rmb6.5tn (approx $1 trillion) was needed to raise nominal GDP by Rmb5tn,” the fund said. “In 2016 it took Rmb20tn in new credit.” (10) The amount of credit needed for sustained growth in consumer demand can quickly get out of control. However, without growth there is no accumulation and without accumulation capitalism fails.
Postscript
Another fault of Marx’s model, and of his “epigones”, is that he has department I producing more than twice the value produced by department II in the first case, and more than three times in the second case. Tony Cliff noted this disparity, and gave a set of figures showing that department I was catching up with department II, and had overtaken it in the US (1920).
“Thus it was calculated that the ratio of net output of capital goods to that of consumer goods was in Britain as follows:
1851, 100:470; 1871, 100:390; 1901, 100:170; 1924, 100:150.
The figures for the United States were:
1850, 100:240; 1890, 100:150; 1920, 100:80.
The figures for Japan:
1900, 100:480; 1913, 100:270; 1925, 100:240.” (11)
This only shows that department I was investing more and growing faster than department II, not that it was producing more. Consumption is actually at 70% of GDP in the US (100/233), and at about 54% for the world as a whole (100/117). There is no doubt that Marx was just juggling numbers for his own use, as Capital II and III were his notes, not the finished form.
Five years after Rosa Luxemburg was murdered by Noske’s Freikorps thugs during the Berlin insurrection, Bukharin published a critical analysis of her work (12). Bukharin was a supporter of Lenin’s New Economic Policy and wanted to show that capitalism could function. One can only imagine what Luxemburg’s reaction would have been. She did have the time to write: “Old mole. History, you have done your work well! At this moment the slogan, the warning cry, such as can be raised only in the great period of global change, again resounds through the International and the German proletariat. That slogan is: Imperialism or Socialism! War or Revolution! There is no third way!” (13) As well as: “Friedrich Engels once said: “Bourgeois society stands at the crossroads, either transition to socialism or regression into barbarism.” What does “regression into barbarism” mean to our lofty European civilization? Until now, we have all probably read and repeated these words thoughtlessly, without suspecting their fearsome seriousness. A look around us at this moment shows what the regression of bourgeois society into barbarism means. This world war is a regression into barbarism. The triumph of imperialism leads to the annihilation of civilization. At first, this happens sporadically for the duration of a modern war, but then when the period of unlimited wars begins it progresses toward its inevitable consequences.” (14)
The page numbers are from the Routledge 2003 edition. 
2. https://www.marxists.org/archive/luxemburg/1915/anti-critique/index.htm
Pages 89 & 90
Pages 96 & 97
Pages 133 & 136
Page 281
Page 312

posted by le Lézard at 8:09 AM

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