In the model set out in [chapter vi] there is no technical progress (this is a drastic simplification made deliberately[6] ) and the ratio of capital to labour is constant (as the stock of capital increases employment increases in proportion). Thus real output per worker employed is constant (hours of work per year do not vary) and real wages per man are constant. It follows that real surplus per man is also constant. So long as these assumptions are retained Marxian value presents no problem. Value is the product of labour-time. Value created per man-year is constant because hours of work are constant. Real product per man year being constant, on the above assumptions, the value of a unit of product is constant. For convenience we may assume money wages per man constant. Then, on these assumptions, both the money price of a unit of output and the value of a unit of money are constant. This of course merely plasters over all the problems of measurement connected with the use of index numbers, but provided that the technique of production is unchanging, and normal prices are ruling, those problems are not serious, and we can conduct the analysis in terms of money values.[7] (Rosa Luxemburg regards it as a matter of indifference whether we calculate in money or in value.[8] )
The assumption of constant real wages presents a difficulty which we may notice in passing. The operation of the capitalist system is presumed to depress the level of wages down to the limit set by the minimum subsistence of the worker and his family. But how large a family? It would be an extraordinary fluke if the average size of family supported by the given wage of a worker were such as to provide for a rate of growth of population exactly adjusted to the rate of accumulation of capital, and she certainly does not hold that this is the case.[9] There is a reserve army of labour standing by, ready to take employment when the capitalists offer it. While they are unemployed the workers have no source of income, but are kept alive by sharing in the consumption of the wages of friends and relations who are in work.[10] When an increase in the stock of capital takes place, more workers begin to earn wages, those formerly employed are relieved of the burden of supporting some unemployed relations, and their own consumption rises. Thus either they were living below the subsistence minimum before, or they are above it now. We may cut this knot by simply postulating that real wages per man are constant,[11] without asking why. The important point for the analysis which we are examining is that when employment increases the total consumption of the workers as a whole increases by the amount of the wages received by the additional workers.[12]
We may now set out the model for simple reproduction—that is, annual national income for an economy in which the stock of capital is kept intact but not increased. All output is divided into two departments: I, producing capital equipment and raw materials, (producers’ goods), and II, producing consumption goods. Then we have
| I: | c1 | + | v1 | + | s1 | = | c1 | + | c2 | ||||
| II: | c2 | + | v2 | + | s2 | = | v1 | + | v2 | + | s1 | + | s2 |
Thus
| c2 | = | v1 | + | s1 |
This means that the net output of the producers’ goods department is equal to the replacement of capital in the consumers’ goods department. The whole surplus, as well as the whole of wages, is currently consumed.
Before proceeding to the model for accumulation there is a difficulty which must be discussed. In the above model the stock of capital exists, so to speak, off stage. Rosa Luxemburg is perfectly well aware of the relationship between annual wear and tear of capital, which is part of c, and the stock of fixed capital,[13] but as soon as she (following Marx) discusses accumulation she equates the addition to the stock of capital made by saving out of surplus in one year to the wear and tear of capital in the next year. To make sense of this we must assume that all capital is consumed and made good once a year. She seems to slip into this assumption inadvertently at first, though later it is made explicit.[14] She also consciously postulates that v represents the amount of capital which is paid out in wages in advance of receipts from sales of the commodities produced. (This, as she says, is the natural assumption to make for agricultural production, where workers this year are paid from the proceeds of last year’s harvest.)[15] Thus v represents at the same time the annual wages bill and the amount of capital locked up in the wages fund, while c represents both the annual amortisation of capital and the total stock of capital (other than the wages fund). This is a simplification which is tiresome rather than helpful (it arises from Marx’s ill-judged habit of writing s⁄(c + v) for the rate of profit on capital), but it is no more than a simplification and does not invalidate the rest of the analysis.
Another awkward assumption, which causes serious trouble later, is implicit in the argument. Savings out of the surplus accruing in each department (producers’ and consumers’ goods) are always invested in capital in the same department. There is no reason to imagine that one capitalist is linked to others in his own department more than to those in the other department, so the conception seems to be that each capitalist invests his savings in his own business. There is no lending by one capitalist to another and no capitalist ever shifts his sphere of operations from one department to another. This is a severe assumption to make even about the era before limited liability was introduced, and becomes absurd afterwards. Moreover it is incompatible with the postulate that the rate of profit on capital tends to equality throughout the economy,[16] for the mechanism which equalises profits is the flow of new investment, and the transfer of capital as amortisation funds are re-invested, into more profitable lines of production and away from less profitable lines.[17]
The assumption that there is no lending by one capitalist to another puts limitation upon the model. Not only must the total rate of investment be equal to the total of planned saving, but investment in each department must be equal to saving in that department, and not only must the rate of increase of capital lead to an increase of total output compatible with total demand, but the increase in output of each department, dictated by the increase in capital in that department, must be divided between consumers’ and producers’ goods in proportions compatible with the demand for each, dictated by the consumption and the investment plans in each department.