Political Economy

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XV. The National Income

Aggregate Social Product and National Income

The entire mass of material wealth prodl1ced in society over a definite period, e.g., a year, constitutes the aggregate social product (or gross product).

Part of the aggregate social product, equivalent to the value of the constant capital which has been used up; in the course of the process of reproduction goes to replace the expended means of production. The cotton which has been worked up in the mill is replaced by an equivalent amount of cotton from the current year’s harvest. Fresh masses of coal and oil take the place of the fuel which has been burnt up. Machines which have become obsolete are replaced by new ones. The remaining part of the aggregate social product embodies new value created by the working class in the process of production.

That part of the aggregate social product in which newly-created value is incorporated is the national income. The national income in capitalist society is consequently equivalent to the value of the entire aggregate social product less the value of the means of production expended during the year, or, in other words, it is equal to the sum of the variable capital and the surplus-value. As it exists in kind, the national income comprises the whole mass of consumer goods which have been produced together with that part of the means of production produced which goes to extend production. Thus the national income means, on the one hand, the total value newly created during the year, and on the other, a mass of material wealth of various kinds, part of the aggregate social product in which this newly created value is embodied.

If, for example, in the course of a year commodities are manufactured in a particular country to the value of go milliard dollars or marks, and of this value 60 milliards go to replace the means of production used up during the year, then the national income created during the year will be 30 milliards.

Under capitalism there are a mass of small producers (peasants and artisans), whose labour also creates a definite part of the aggregate social product. For this reason a country’s national income includes also the value newly created in the given period by the peasants and artisans.

The aggregate social product, and therefore also the national income, are created by workers employed in the various branches of material production. This means all those branches in which material wealth is produced: industry, agriculture, building, transport, etc.

The, national income is not created in the non-productive branches, to which belong the machinery of State, credit, trade (except for those operations in this branch which are a continuation of the process of production into the sphere circulation), medical institutions, places of entertainment, etc.

In capitalist countries a quite considerable part of the able-bodied population not only does not take part in producing the social product and national income, but is not in any way engaged in socially-useful labour.

To this category of persons belong first and foremost the exploiting classes and their numerous parasitic hangers-on, together with the huge police, bureaucratic and militaristic apparatus which upholds the system of capitalist wage-slavery. A great deal of labour-power is expended without any benefit to society. Thus, enormous unproductive expenditures of labour are connected with competition and with the unrestrained speculation and incredibly extravagant advertising which go on.

The anarchy of capitalist production, the devastating economic crises, and the working of enterprises substantially below capacity sharply restrict the utilisation of labour-power. Very great masses of the working people are deprived under capitalism of the opportunity to work. The number of fully unemployed registered in the towns of the bourgeois countries in the period 1930 to 1938 was never less than 14 million.

As capitalism develops, the State apparatus becomes more and more inflated; the number of persons in attendance upon the bourgeoisie grows, and while the portion of the population engaged in the sphere of material production is reduced, the proportion of persons engaged in circulation increases. The army of unemployed grows in size and agrarian surplus-population becomes more intense. The effect of all this is to limit very much the growth of the aggregate social product and the national income in bourgeois society..

In the U,S.A. the proportion of the able-bodied population engaged in branches of material production was in 1910 43.9 per cent, in 1920 41.5 per cent, In 1930 35.5 per cent and In 1940 about 34 per cent..

In the U.S.A. the average annual growth of the national income during the last thirty years of the nineteenth century amounted to 4.7 per cent, in 1900-1919 to 2.8 per cent, in 1920-38 to 1 per cent and in the years since the Second World War, 1945-54, to 0.7 per cent.
Distribution of the National Income

Each mode of production has its own historically determined forms of distribution. The distribution of the national income under capitalism is determined by the fact that ownership of the means of production is concentrated in the hands of the capitalists and landlords, who exploit the proletariat and peasantry. The consequence of this is that the national income is distributed not in the interests of the working people but in those of the exploiting classes.

Under capitalism the national income created by the workers’ labour falls to the disposal, first of all, of the industrial capitalists (including capitalist entrepreneurs in agriculture). The industrial capitalists, when they realise the commodities produced, receive the full amount of their value, including the sum of variable capital and surplus-value. Variable capital is transformed into the wages which the industrial capitalists pay to the workers engaged in production. The surplus-value remains in the hands of the industrial capitalists; from it come the incomes of all the groups which constitute the exploiting classes. Part of the surplus-value is transformed into industrial capitalists’ profit. A certain portion of the surplus-value is handed over by the industrial capitalists to the merchant capitalists in the form of merchants’ profit and to the bankers as interest. Part of the surplus-value is handed over by the industrial capitalists to the landowners as ground-rent.

This distribution of the national income between the different classes of capitalist society can be depicted in the form of a diagram like this (the figures stand for milliards of dollars or marks, etc.):

Involved in this distribution is also that portion of the national income which is created in the given period by the labour of the peasants and artisans: part of this is taken by the peasants and artisans themselves, another part goes to the capitalists, (kulaks, purchasing agents, merchants, bankers, etc.) and a third part goes to the landlords.

The incomes of the working people are based on their personal labour and are earned incomes. The source of the incomes received by Aggregate social product the exploiting classes is the labour of the workers, together with that of the peasants and artisans. The incomes of the capitalists and landlords are based upon the labour of and are unearned incomes.

The unearned incomes of the exploiting classes are increased still more in the process of the further distribution of the national income. Part of the income received by the population, and in the first place of the working people, is redistributed through the State budget and used in the interests of the exploiting classes. Thus, part of the income of the workers and peasants, which finds its way through tax-payments into the State budget, is then transformed into additional income for the capitalists and into the income of officials. The burden taxation imposed by the exploiting classes on the working people grows rapidly..

In Britain at the end of the nineteenth century taxes amounted to 6-7 to 23 per cent, in 1950 to 38 percent; in France at the end of the nineteenth century taxes were 10 per cent of the national income, in 1913 13 per cent, in 1924 21 per cent and in 1950 29 per cent.

Furthermore, part of the national income is transferred, by way of payments for, what are called services, to the non-productive branches (e.g., for use of municipal services, medical aid, places of entertainment, etc.). As already pointed out, no social product is created in these branches, nor, consequently, any national income; but the capitalists who exploit the workers employed in these branches receive part of the national income created in the branches of material production. From this income the capitalists who own businesses in the non-productive branches pay the wages of their workers, meet the material outlay which they have to find (for premises, equipment, heating, etc.) and take their profit.

Thus, the payment made for services must replace the costs incurred by these concerns and ensure the average rate of profit, since otherwise the capitalists will not employ their capital in these branches. In their hunt for high profits the capitalists endeavour to inflate payments for services, which leads to a further fall in the real wages of the workers and the real incomes of the peasants.

The re-distribution of the national income which takes place through the budget and also through high payments for services intensifies the impoverishment of the working people.

As the outcome of this entire process of distribution, the national income is divided into two parts: (1) the income of the exploiting classes, and (2) the income of the working people, both those engaged in the material-production branches and those in the non-productive branches.

The share of the national income taken by the workers and other working people of town and country who do not exploit the labour of others amounted in the U.S.A. in 1923 to 54 per cent, while the share taken by the capitalists was 46 per cent; in Britain in 1924 the share of the wage-earners was 45 per cent; in Germany in 1929 the working people’s share was 55 per cent and that of the capitalists 45 per cent. At the present time in the capitalist countries the working people, who make up nine-tenths of the population, receive considerably less than half of the national income, while the exploiting receive considerably more than half.

The working people’s share of the national income steadily falls, while that taken by the exploiting classes grows. In the U.S.A., for example, the working people’s share of the national income amounted in 1870 to 58 per cent, in 1890 to 56 per cent, in 1923 to 54 per cent, in 1951 to approximately 40 per cent.

The national income is used, in the last analysis, for consumption and accumulation. The way the national income is used in bourgeois countries is determined by the class nature of capitalism and expresses the ever-growing parasitism of the exploiting classes.

The share of the national income which goes toward the personal consumption of the working people, who are the principal productive force of society, is so low that, as a rule, it does not guarantee them even the minimum needed for subsistence. A very great number of workers and working peasants are obliged to deny themselves and their families necessities, to live wretchedly in hovels and to deprive their children of education.

A very substantial part of the national income goes toward parasitic consumption by the capitalists and landowners. Colossal sums are spent by the capitalists and landowners on buying luxury articles and on maintaining a numerous crowd of hangers-on.

Under capitalism the share of the national income which goes toward the extension of production is quite small in comparison with the possibilities and needs of society. Thus, in the U.S.A. the share of the national income going to accumulation amounted in the period 1919-28 to approximately 10 per cent; but in the decade 1929 to 1938 accumulation amounted on the average only to 2 per cent of the national income, while during the years of crisis a certain eating away of fixed capital took place.

The comparatively small size of accumulation under capitalism is due to the fact that a considerable part of the national income goes to the parasitic consumption of the capitalists, to unproductive expenditure.

Thus, the net costs of circulation which are incurred in the upkeep of the commercial and credit apparatus, the storing of surplus stocks, advertising, stock exchange speculation, etc., come to huge amounts. In the U.S.A., during the period between the first and second world wars, the net costs of circulation absorbed 17- 19 per cent of the national income.

A continually growing part of the national income under capitalism goes on war expenditure, the armaments race and the upkeep of the State apparatus..

On the surface of things in capitalist society, incomes and their sources appear in distorted, fetishistic form. A misleading appearance comes about, as though capital itself gave birth to profit and land to rent, while the workers created only the value of their own wages..

These fetishistic notions underlie the bourgeois theories about the national income. By means of theories of this kind bourgeois economists endeavour to muddle the question of the national income in a way which benefits the bourgeoisie. They try to show that not only the workers and peasants but also the capitalists and landowners, and such persons as officials, policemen, stockbrokers, clergymen, etc. all have a share in creating the national income..

Furthermore, bourgeois economists show in a false light the distribution of the national income. They understate the share of this income which is taken by the capitalists and landowners. Thus, for example, the incomes of the exploiting classes are given on the basis of the returns made by the taxpayers themselves, which markedly understate these incomes; they do not take into account the enormous salaries drawn by many of the capitalists as directors of joint-stock companies; they do not take into account the incomes of the rural bourgeoisie, etc. At the same time the incomes of the working people are artificially exaggerated through including in their ranks the highsalaried upper officials, managers of businesses, banks, commercial concerns, etc..

Finally, the bourgeois economists distort the real picture of the distribution of national income by omitting to separate off the expenditure on consumption by the exploiting classes and the net costs of circulation, by understating the share which goes to military expenditure and in every possible way concealing the unproductive spending of a large part of the national income.
The State Budget

The bourgeois State is an organ of the exploiting classes which has for its purpose to hold the exploited majority of society in subjection and to assure the interests of the exploiting minority in all spheres of internal and external policy.

The bourgeois State possesses a ramified apparatus for the fulfilment of its tasks: army, police, punitive and judicial bodies, intelligence service, and various instruments for administrative control and ideological influence over the masses. This machinery is kept up out of the State Budget. Taxes and loans provide the sources of the money for the State Budget.

The State Budget is an instrument for the redistribution of part of the national income in the interests of the exploiting classes. It takes the form of an annual estimate of State income and expenditure. Marx wrote that the Budget of the capitalist State is nothing but “a class Budget-a middle class Budget" (Marx, “L.S.D. or Class Budgets, and Who’s Relieved by Them", in The People’s Paper, No. 51, April 23, 1853).

The expenditure of the capitalist State is to an overwhelming degree unproductive.

A very great portion of the resources of the State Budget under capitalism goes on war and war preparation. With this should be grouped also expenditure on scientific research in the field of the production and perfection of new weapons of mass annihilation, and on subversive activity in other countries. Another large portion of the expenditure of capitalist States is connected with the maintenance of an apparatus for holding down the working people.

“Contemporary militarism is the result of capitalism; it is the ‘living manifestation’ of capitalism in both its forms: as a military force used by the capitalist States in their external conflicts... and as a weapon in the hands of the ruling class for the suppression of all movements (economic and political) of the proletariat." (Lenin, “Militant Militarism and the Anti-militarist Tactics of the Social Democrats", Selected Works, 12-vol. edition, vol. IV, p. 325.), Very considerable sums are spent by the State, especially during wars and crises, on direct subsidising of capitalist businesses and guaranteeing them high profits. Frequently the subsidies paid out to banks and manufacturers have the purpose of saving them from bankruptcy during crises. By means of State purchases paid for out of the Budget, milliards of additional profit are pumped into the pockets of the big capitalists. Expenditure on culture and science, education and public health takes an insignificant share of the State Budgets of the capitalist countries. In the U.S.A., for example, more than two-thirds-of the total Federal Budget has in recent years been spent on war purposes, while public health, education and housing took less than 4 per cent, of which less than 1 per cent went on education..

The capitalist State obtains the bulk of its revenue by way of taxes.

In Britain, for example, taxes made up 89 per cent of the total amount of the Budget in 1938.

Taxes serve, in capitalist conditions, as a form of additional exploitation of the working people by way of redistribution through the Budget of part of their incomes for the benefit of the bourgeoisie. Taxes are called direct if they are assessed on the incomes of particular persons, and indirect if they are charged on goods sold (chiefly mass consumption goods) or on services (e.g., cinema and theatre tickets, tickets for travel on municipal transport, etc.). Indirect taxes raise the prices of goods and the charges for services. Indirect taxes are in fact paid by the consumers. The capitalists also transfer to the consumers part of their direct taxes, if they succeed in raising the price of goods or services.

The policy of the bourgeois State is directed towards reducing as much as possible the rate of taxation falling on the exploiting classes. The capitalists evade paying their taxes by concealing the true amount of their incomes. The policy of indirect taxation is particularly advantageous for the propertied classes..

“Indirect taxation charged upon articles consumed by the masses is distinguished by its very great injustice. It casts all its weight upon the poor, creating a privileged situation for the rich. The poorer a person is, the larger the share of his income that he pays to the State in the form of indirect taxes. The masses who own little or no property make up nine-tenths of the whole population, consume nine-tenths of all the taxed articles and pay nine-:tenths of the total amount of indirect taxes." Lenin, “Apropos of the Public Estimates", Works, Russian edition, vol. v, p. 309.)

Consequently the main burden of taxation falls on the working masses: the manual and clerical workers and the peasants. As mentioned above, at the present time in the bourgeois countries about a third of the wages of the manual and clerical workers is drawn into the State Budget through taxation. High taxes are exacted. from the peasants and intensify their impoverishment.

Besides taxes, an important item on the revenue side of the Budget in capitalist States is loans. Most often the bourgeois State resorts to loans to cover exceptional expenditure, in the first place war expenditure.

A considerable part of the resources which are gathered by way floans are spent on State purchases of arms and supplies for the armed forces, which bring large profit to the manufacturers. In the long run loans lead to further increases in taxation of the working people, to pay interest on the loans and to pay off the loans themselves. The size of the State debt grows rapidly in bourgeois countries..

The total amount of State indebtedness throughout, the world grew from 38 milliard francs in 1825 to 250 milliard in 1900, i.e., it was multiplied by 6.6. In the twentieth century it grew still faster. In the U.S.A. in 1914 the State debt amounted to 1.2 milliard dollars, and in 1938 to 37.2 milliard, i.e., to thirty-one times as much. In Britain in 1890 24,100,000 was paid out in interest on loans, and in 1953-4 570,400,000. In the U.S.A. in 1940 a milliard dollars were paid in loan interest, and in 1953-46.5 milliard.

One of the sources of revenue for the State Budget under capitalism is the issue of paper money. Bringing inflation and, rising prices in its train, the issue of paper money transfers part of the national income to the bourgeois State at the cost of a lowered standard of living for the masses.

Thus the State Budget under capitalism serves as an instrument in the hands of the bourgeois State for additional robbery of the working people and enrichment of the capitalist class, and enhances the tendency to unproductiveness and parasitism in the way the national income is used.


BRIEF CONCLUSIONS

(1) The national income in capitalist society is that part of the aggregate social product in which newly created value is embodied. The national income is created in the branches of the economy where material production takes place, by the labour of the working class together with that of the peasants and artisans. As it exists in kind, the national income consists of the whole mass of consumer goods produced and that part of the means of production which is set aside for extending production. Under capitalism a considerable section of the able-bodied population not only does not create national income but does not even take part in socially-useful work.

(2) The distribution of the national income under capitalism is effected in the interests of the enrichment of the exploiting classes. The share taken by the working people in the national income falls while that taken by the exploiting classes increases.

(3) Under capitalism the national income, created by the working class, is distributed in the form of wages to the workers, profits to the capitalists (manufacturers, merchants and owners of loan-capital) and ground-rent to the landowners. A considerable part of what results from the labours of the peasants and artisans is also appropriated by the capitalists and landowners. Through the State Budget and by way of high charges for services a redistribution of the national income is carried out which still further impoverishes the working people.

(4) A huge and ever-increasing part of the national income under capitalism is used unproductively: it is spent on parasitic consumption by the bourgeoisie, on covering the excessively inflated costs of circulation, on the upkeep of the State apparatus for holding down the masses and on the preparation and conduct of predatory wars.

XVI. Reproduction of Social Capital

Social Capital. Composition of the Aggregate Social Product

Capitalist reproduction includes both the direct process of production and also the process of circulation.

In order that reproduction may take place capital must be able to complete its rotation unhindered, i.e., to pass from the money form to the productive form, from the productive form to the commodity form, from that to the money form, and so on; This applies not only to each separate capital but also to all the capital which exists in society.

“However, the turnovers of individual capitals intermingle, are mutually conditioned on one another, are their mutual premises, and form precisely in this interrelation the movement of social capital" (Marx, Capital, Kerr edition, vol. II, p. 407.)

The social capital is the aggregate of individual capitals taken together in their interdependence and interconnection. Many-sided connections exist between the separate capitals of the capitalist enterprises: some concerns supply machinery, raw material and other means of production to others, while others produce the means of subsistence bought by the workers and the consumer goods and luxury articles bought by the capitalists. Each of the individual capitalists is independent in relation to the others, but at the same time all are linked together and depend one upon the other. This contradiction shows itself in the course of the reproduction and circulation of the whole social capital. The many-sided relations of interconnection and interdependence which exist between the separate capitalists appear spontaneously as a result of the anarchy of production which is inherent in capitalism.

In examining the process of reproduction and circulation of the whole of social capital, we will suppose, so as not to complicate the question, that the whole of the country’s economy is carried on on capitalist lines (i.e., that society consists exclusively of capitalists and workers) and that the whole of the constant capital is used up in the course of a year and its value completely transferred to the annual product. The aggregate social product means simply, given this supposition, the social capital (with an increment in the form of surplus-value) which emerges from the process of production in the form of commodities.

If production is to be carried on, the social product must go through a process of circulation. In the process of circulation every part of the social product first changes its commodity form into monetary form and then changes from its monetary form into that commodity form which is necessary for the continuation of production. Realisation of the social product means this change of form: commodity into money and then money into a new commodity form.

As shown above, the entire social product is divided in respect of value into three parts: the first replaces constant capital, the second replaces variable capital, the third is surplus-value. Thus, the value of the social product is equivalent to c+v+s. The different parts of which the social product is composed play different roles in the course of reproduction. Constant capital must continue to serve the process of production. Variable capital is transformed into wages, which the workers spend on consumption. The surplus-value is, under simple reproduction, entirely consumed by the capitalists and, under extended reproduction, is partly so consumed and partly spent on the purchase of additional means of production and on the hire of additional labour-power.

As regards its material form, the entire social product consists of means of production and consumer goods. Accordingly, the whole of social production falls into two major subdivisions: the first subdivision (I) is the production of means of production, and the second subdivision (II)

is the production of consumer goods. Consumer goods in their turn are divided into necessary means of subsistence, which go to satisfy the requirements of the working class and the working masses generally, and luxury articles which are within the means of the exploiting classes only.

Owing to the lowering of their standard of living the working people are more and more obliged to give up good-quality consumer goods in favour of poor-quality ones and substitutes. At the same time the luxury and extravagance of the parasitic classes increase.

The division of the social product according to its material form predetermines in its turn a different role for different parts of this product in the course of reproduction. Thus, for example, looms are intended to be used for the production of cloth and cannot be used for any other purpose; ready-made clothing, on the other hand, must enter into personal consumption.

In examining the rotation and turnover of an individual capital it is of no importance what commodities in particular, in material form (usevalues), are produced in the given enterprise. When we examine the reproduction and circulation of the whole social capital, however, the material form of the commodities produced in society takes on essential importance. For the uninterrupted renewal of the process of production it is necessary that there shall be available both the appropriate means of production and consumer goods.

The question arises, how, in conditions of the anarchy of capitalist production, does the realisation of the social product take place? Lenin showed that “the solution of the problems of realisation will be found by analysing the replacement of all parts of the social product in value and in material form". (Lenin, A Characterisation of Economic Romanticism, F .L.P.H. edition, p. 56.) It is a matter, then, of how each part of the social product, in respect of value (constant capital, variable capital and surplusvalue) and in respect of the natural form (means of production, consumer goods) finds on the market another part of the product to take its place.

When we examine extended reproduction we find that also connected with it is the question of how the transformation of surplusvalue into capital takes place, i.e., whence come the additional means of production and consumer goods for the additional workers who are needed for the extension of production.
Conditions for Realisation in Capitalist Simple Reproduction

Let us first examine the conditions needed for the realisation of the social product in capitalist simple reproduction, when the whole of the surplus-value goes on personal consumption by the capitalists. These conditions may be illustrated by means of the following example.

Suppose that in the first subdivision, i.e., in the production of means of production, the value of constant capital, expressed, for example, in millions of pounds sterling, is equal to 4,000, that of variable capital to 1,000, and that of surplus-value to 1,000. Suppose that in the second subdivision, i.e., in the production of consumer goods, the value of constant capital is 2,000, that of variable capital 500 and the surplus 500.

Given these presuppositions the annual social product will consist of the following parts:
I. 4,000 c + 1,000 v + 1,000 s=6,000.
II. 2,000 c + 500 v + 500 s=3,000.

The value of the whole product which is produced in the first subdivision and exists in the form of machinery, raw material, equipment, etc., amounts, then, to 6,000. In order that the process of production may be renewed, part of this product, equal to 4,000, must be sold to concerns belonging to the first subdivision for renewal of the constant capital of this subdivision. The remaining part of the product of the first subdivision, being the reproduced value of the variable capital (1,000) and the newly-produced surplus-value (1,000), also existing in the form of the means of production, is sold to concerns of the second subdivision in exchange for consumer goods for the personal consumption of the workers and capitalists of the first subdivision. In their turn the capitalists of the second subdivision need means of production to the value of 2,000 in order to renew their constant capital.

The value of the entire product produced in the second sub-division and existing in the form of consumer goods (bread, meat, clothing, footwear, etc., and also luxury articles) amounts to 3,000. Part of the consumer goods produced in the second subdivision, to the value of 2,000, is exchanged for the wages and surplus-value of the first subdivision; in this way the constant capital of the second subdivision is renewed. The remaining part of the product of the second subdivision, being the reproduced value of the variable capital (500) and the newlyproduced surplus (500), is realised within the second subdivision itself for the personal consumption of the workers and capitalists of this subdivision.

Consequently in conditions of simple reproduction there are exchanged between the two subdivisions: (1) the variable capital and surplus-value of the first subdivision, which must be exchanged into consumer goods produced in the second sub-division, and (2) the constant capital of the second subdivision, which must be exchanged into means of production produced in the first subdivision. The following equation is a condition for realisation in capitalist simple reproduction: the variable capital plus the surplus-value of the first subdivision must be equal to the constant capital of the second subdivision:
I (v+s)=II c.

This condition of simple reproduction can also be expressed in the following image.

The entire mass of goods produced in the course of a year in the first subdivision— enterprises manufacturing means of production—must be equal i~ value to the mass of means of production which is consumed during the year in the enterprises of both subdivisions. The entire mass of commodities produced during a year in the second subdivision-enterprises manufacturing consumer goods-must be equal in value to the total of the incomes of the workers and capitalists in both subdivisions.
Conditions for Realisation in Capitalist Extended Reproduction

Capitalist extended reproduction presupposes accumulation of capital. Since the capital of each subdivision consists of two parts— constant and variable capital—so also the accumulated part of the surplus-value is divided into these two parts: one part goes toward the purchase of additional means of production; the other to the hiring of additional labour-power. It follows from this that the annual product of the first subdivision must contain a certain surplus over the quantity of means of production which is necessary for simple reproduction. In other words, the total of the variable capital and surplus-value of the first subdivision must be, greater than the constant capital of the second subdivision: I (v+s) must be greater than II c. This is the fundamental condition for capitalist extended reproduction.

Let us examine the conditions for realisation in capitalist extended reproduction.

Suppose that in the first subdivision the value of constant capital equals 4,000, that of variable capital 1,000, and surplus-value 1,000; and suppose that in the second subdivision the value of constant capital equals 1,5, that of variable capital 750, and the surplus-value 750. On these presuppositions the annual social product will consist of the following parts:
I. 4,000 c + 1,000 v + 1,000 s=6,000
II. 1,500 c + 750 v + 750 s=3,000..

Let us suppose that, in the first subdivision, 500 out of the 1,000 surplus is accumulated. In accordance with the organic composition of capital in the first subdivision (4:1) the accumulated part of the surplus-value breaks down like this: 400 goes to increasing the constant capital and 100 to increasing the variable capital. The additional constant capital (400) exists as part of the product of the first subdivision itself, in the form of means of production; the additional variable capital must be obtained by way of exchange from the second subdivision, which, consequently, must also accumulate. The capitalists of the second subdivision exchange part of their surplusvalue, equal to 100, for means of production and turn these means of production into additional constant capital. Then, in accordance with the organic composition of capital in the second subdivision (2:I), the variable capital in this subdivision must grow by 50..

Consequently, in the second subdivision, out of surplus-value equal to 750, 150 will be allocated to accumulation..

Just as in simple reproduction, the second subdivision must exchange its constant capital-equal to 1,500-with the first and the first subdivision must exchange with the second its variable capital, equal to 1,000 and the part of its surplus-value consumed by the capitalists, equal to 500..

Exchange between the two subdivisions can take place only given equality between these two magnitudes. Thus, the condition for realisation in capitalist extended reproduction is the following equation: the value of variable capital plus that part of surplus-value destined for personal consumption by the capitalists plus that part of accumulated surplus-value which is added to variable capital, in the first subdivision, must be equal to the value of constant capital plus that part of accumulated surplus value added to constant capital, in the second subdivision.

In extended reproduction the total of the variable capital and surplus-value of the first subdivision must grow more rapidly than the constant capital of the second subdivision, and the growth of the constant capital of the first subdivision must to an even greater extent outstrip the growth of the constant capital of the second subdivision.

In any system of society development of the productive forces is expressed in the share of social labour devoted to the production of means of production growing in comparison with the share devoted to the production of consumer goods. Preferential growth of-the production of means of production as compared with production of consumer goods is a law of extended reproduction. Under capitalism a more rapid growth of the production of means of production compared with the production of consumer goods is expressed as a more rapid growth of constant capital compared with variable, i.e., a rise in the organic composition of capital.

In explaining the conditions for realisation in capitalist simple and extended reproduction, Marx put on one side, for the sake of simplifying his analysis, the growth of the organic composition of capital. The diagram of reproduction given by Marx in Capital presupposes an unchanging organic composition of capital. Lenin developed Marx’s theory of reproduction further and worked out a diagram of extended reproduction which took into account the growth in the organic composition of capital. This diagram shows that “the production of means of production for means of production grows faster, then comes the production of means of production for means of consumption, and the growth of the production of means of consumption is slowest". (V. I. Lenin, Concerning the So-called Question of Markets, F.L.P.H. edition, 1954, p. 19.) Lenin’s diagram graphically illustrates the operation of the law of priority growth of the production of means of production in the course of capitalist extended reproduction. This operation is reflected in the spontaneous violation of the established proportions between the branches of production, in the unequal development of various branches, and in the marked lagging of the consumption of the masses behind the growth of production, because a rise in the organic composition of capital inevitably leads to a growth of unemployment and lowering of the standard of life of the working class.
The Problem of the Market, Contradictions of Capitalist Reproduction

It is obvious from the foregoing exposition that for the social product to be realised certain definite relationships (proportions) must exist between the separate parts of which it is composed and, consequently, between the branches and elements of production. Under capitalism, when production is carried on by isolated producers who are guided by the hunt for profit and who work for a market which is unknown to them, these proportions cannot but be subject to continual upsets. Extension of production takes place unequally,’ so that the old proportions between branches are constantly being violated and new proportions being established spontaneously, by way of the flow of capital from some branches into others. Therefore proportionality between different branches is accidental, while constant violation of proportionality is the general rule of capitalist reproduction. Examining the conditions for the normal course of capitalist simple and extended reproduction, Marx declared that they “become so many causes of abnormal movements implying the possibility of crises, since a balance is. an accident under the crude conditions of this production". (Marx, Capital, Kerr edition, vol. II, p. 578.) In the conditions of anarchy of capitalist production the realisation of the social product takes place only amidst difficulties and continual fluctuations, which become ever stronger as capitalism grows.

Of special importance in this connection is the circumstance that the extension of capitalist production and, therefore, the formation of the internal market takes place not so much in respect of consumer goods as in respect of means of production. However, the production of means of production cannot develop in complete independence of the production of consumer goods and without any connection with it, for the enterprises which use these means of production throw on to the market everincreasing quantities of commodities for consumption. Thus, in the last analysis, productive consumption (consumption of the means of production) is always connected with individual consumption and always depends on it. But the dimensions of the individual consumption of the mass of the people are kept in capitalist society within extremely narrow limits, on account of the operation of the laws of capitalism, which are responsible for the impoverishment of the working class and the ruin of the peasantry. For this reason the formation and extension of the internal market under capitalism not only does not mean extension of consumption by the masses, it is, on the contrary, combined with a growth in the poverty of the overwhelming majority of the working people.

The nature of capitalist reproduction is determined by the basic economic law of capitalism; by force of which the aim of production is the extraction of profit on an ever-increasing scale, and the extension of production serves as a means to the attainment 6f this end, which inevitably comes up against the narrow framework of capitalist relations.

It was in this sense that Marx wrote of “production. for the sake of production" and “accumulation for the sake of accumulation" as typical of capitalism. But commodities are produced, in the long run, not for production but for the satisfaction of the needs of man. Thus inherent in capitalism is a deep-rooted antagonistic contradiction between production and consumption.

The contradiction between production and consumption inherent in capitalism consists in this, that the national wealth grows alongside the growth in the poverty of the people, the productive forces of society grow without a corresponding growth in consumption by the people. This contradiction is one of the forms in which the basic contradiction of capitalism manifests itself—the contradiction between the social character of production and the private-capitalist form of appropriation.

Exposing the servants of the bourgeoisie who slur over the deep rooted contradictions of capitalist realisation, Lenin emphasises that .

“even with an ideally smooth and proportional reproduction and circulation of the whole social capital, a contradiction is inevitable between the growth of production and the restricted limits of consumption. In reality, besides this, the process of realisation proceeds not with ideally smooth proportionality, but only amidst ‘difficulties’, ‘fluctuations’, ‘crises’, etc. (Lenin, “Once Again on the Question of the Theory of Realisation", Works, Russian edition, vol. IV, p. 7 I.)

We must distinguish between the internal market (outlet for commodities within the country itself) and the external market (outlet for commodities abroad).

The internal market appears and extends along with the appearance and growth of commodity production, and especially with the development of capitalism, which deepens the social division of labour and breaks up the direct producers into capitalists and workers. As a result of the social division of labour the number of separate branches of production grows. The development of some branches extends the market for the commodities produced by other branches, especially for raw material, machinery and other means of production. Furthermore, the differentiation of the petty commodity producers into classes, the growth in the number of workers and the increase in the profits of the capitalists lead to an increase in the outlet for consumer goods bought by them. The level of development of the internal market is the level of development of capitalism in a country.

The socialisation of labour by capitalism appears first and foremost in the fact that the fragmentation of petty production units which existed previously is done away with and the petty local markets become united into a huge national (and later world) market.

When we examine the process of reproduction and circulation of the entire social capital the role of the external market is left on one side, since inclusion of the external market does not affect the substance of the problem. Bringing in foreign trade only shifts the problem from one country to a number of countries, but it in no way changes the essence of the process of realisation. This does not mean, however, that external markets are not of essential importance for capitalist countries. In their hunt for profit the capitalists expand production in every way possible, arid seek more profitable markets, and foreign markets often prove to be especially profitable.

The contradictions of capitalist realisation manifest themselves in full force in the periodic economic crises of over-production.

BRIEF CONCLUSIONS

(1) The rotations of individual capitals, taken in their aggregate, constitute the movement of social capital. The social capital is the aggregate of individual capitals in their connection one with another.

(2) The aggregate product of capitalist society is divided in respect of value into constant capital, variable capital and surplus-value, and in respect of its material form into means of production and consumer goods. The whole of social production is divided into two subdivisions: the first subdivision is the production of means of production and the second is the production of consumer goods. The problem of realisation is the problem of finding, for each part of the social product by value and by material form, another part of the product to exchange for it.

(3) In capitalist simple reproduction the condition for realisation is that the variable capital plus the surplus-value of the first subdivision must be equal to the constant capital of the second subdivision. In capitalist extended reproduction the sum of the variable capital and the surplus-value of the first subdivision must be greater than the constant capital of the second subdivision. The law of extended reproduction under any social system is a preferential (more rapid) growth in the production of means of production compared with the production of consumption goods.

(4) In the course of its development capitalism creates an internal market. The growth of production and of the internal market under capitalism takes Place to a greater extent in respect of means of production than in respect of consumer goods. In the process of capitalist reproduction a disproportionality of production, and a contradiction between production and consumption, reveal themselves which are inevitable under capitalism, flowing as they do from the fundamental contradiction of capitalism, the contradiction between the social character of production and the private capitalist form of appropriation of the results of production. The contradictions of capitalist reproduction are most vividly expressed in economic crises of overproduction.

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XVII. Economic Crises