The Accumulation of Capital

by Rosa Luxemburg

Rosa Luxemburg garbles this argument considerably, and brushes it away as beside the point. And it is beside the point that she is concerned with. She does not admit the savings and investment problem, for she takes it for granted that each individual act of saving out of surplus is accompanied by a corresponding amount of real investment, and that every piece of investment is financed by saving out of surplus of the same capitalist who makes it.[29] What she appears to be concerned with is rather the inducement to invest. What motive have the capitalists for enlarging their stock of real capital?[30] How do they know that there will be demand for the increased output of goods which the new capital will produce, so that they can ‘capitalise’ their surplus in a profitable form? (On the purely analytical plane her affinity seems to be with Hobson rather than Keynes.)

Needless to say, our author does not formulate the problem of the inducement to invest in modern terminology, and the ambiguities and contradictions in her exposition have left ample scope for her critics to represent her theory as irredeemable nonsense.[31] But the most natural way to read it is also the clearest. Investment can take place in an ever-accumulating stock of capital only if the capitalists are assured of an ever-expanding market for the goods which the capital will produce. On this reading, the statement of the problem leads straightforwardly to the solution propounded in the third Section of this book.

Marx has his own answer to the problem of inducement to invest, which she refers to in the first chapter.[32] The pressure of competition forces each individual capitalist to increase his capital in order to take advantage of economies of large-scale production, for if he does not his rivals will, and he will be undersold. Rosa Luxemburg does not discuss whether this mechanism provides an adequate drive to keep accumulation going, but looks for some prospective demand outside the circle of production. Here the numerical examples, as she shows, fail to help. And this is in the nature of the case, for (in modern jargon) the examples deal with ex post quantities, while she is looking for ex ante prospects of increased demand for commodities. If accumulation does take place, demand will absorb output, as the model shows, but what is it that makes accumulation take place?

In Section II our author sets out to find what answers have been given to her problem. The analysis she has in mind is now broader than the strict confines of the arithmetical model. Technical progress is going on, and the output of an hour’s labour rises as time goes by. (The concept of value now becomes treacherous, for the value of commodities is continuously falling.) Real wages tend to be constant in terms of commodities, thus the value of labour power is falling, and the share of surplus in net income is rising (^s⁄_v, the rate of exploitation, is rising). The amount of saving in real terms is therefore rising (she suggests later that the proportion of surplus saved rises with surplus, in which case real savings increase all the more[33] ). The problem is thus more formidable than appears in the model, for the equilibrium rate of accumulation of capital, in real terms, is greater than in the model, where the rate of exploitation is constant. At the same time the proportion of constant to variable capital is rising. She regards this not as something which is likely to happen for technical reasons, but as being necessarily bound up with the very nature of technical progress. As productivity increases, the amount of producers’ goods handled per man-hour of labour increases; therefore, she says, the proportion of c to v must increase.[34] This is an error. It arises from thinking of constant capital in terms of goods, and contrasting it with variable capital in terms of value, that is, hours of labour. She forgets Marx’s warning that, as progress takes place, the value of the commodities making up constant capital also falls.[35] It is perfectly possible for productivity to increase without any increase in the value of capital per man employed. This would occur if improvements in the productivity of labour in making producers’ goods kept pace with the productivity of labour in using producers’ goods to make consumers’ goods (capital-saving inventions balance labour-saving inventions, so that technical progress is ‘neutral’). However, we can easily get out of this difficulty by postulating that as a matter of fact technical progress is mainly labour-saving, or, a better term, capital-using, so that capital per man employed is rising through time.

Rosa Luxemburg treats the authors whom she examines in Section II with a good deal of sarcasm, and dismisses them all as useless. To some of the points raised her answers seem scarcely adequate. For instance, Rodbertus sees the source of all the troubles of capitalism in the falling proportion of wages in national income.[36] He can be interpreted to refer to the proportion of wages in gross income. In that case, she is right (on the assumption of capital-using inventions) in arguing that a fall in the proportion of wages is bound up with technical progress, and that the proportion could be held constant only by stopping progress. He can also be taken to refer to the share of wages in net output, and this is the more natural reading. On this reading she argues that the fall in share of wages (or rise in rate of exploitation) is necessary to prevent a fall in the rate of profit on capital[37] (as capital per man employed rises, profit per man employed must rise if profit per unit of capital is constant). But she does not follow up the argument and inquire what rise in the rate of exploitation is necessary to keep capitalism going (actually, the statisticians tell us, the share of wages in net income has been fairly constant in modern industrial economies[38] ). It is obvious that the less the rate of exploitation rises, the smaller is the rise in the rate of saving which the system has to digest, while the rise in real consumption by workers, which takes place when the rate of exploitation rises more slowly than productivity in the consumption good industries, creates an outlet for investment in productive capacity in those industries. The horrors of capitalism, and the difficulties which it creates for itself, are both exaggerated by the assumption of constant real-wage rates and, although it would be impossible to defend Rodbertus’ position that a constant rate of exploitation is all that is needed to put everything right, he certainly makes a contribution to the argument which ought to be taken into account.

Tugan-Baranovski also seems to be treated too lightly. His conception is that the rising proportion of constant capital in both departments (machines to make machines as well as machines to make consumers’ goods) provides an outlet for accumulation, and that competition is the driving force which keeps capitalists accumulating. Rosa Luxemburg is no doubt correct in saying that his argument does not carry the analysis beyond the stage at which Marx left it,[39] but he certainly elaborates a point which she seems perversely to overlook. Her real objection to Tugan-Baranovski is that he shows how, in certain conditions, capitalist accumulation might be self-perpetuating, while she wishes to establish that the coming disintegration of the capitalist system is not merely probable on the evidence, but is a logical necessity.[40]

The authors such as Sismondi, Malthus and Vorontsov, who are groping after the problem of equilibrium between saving and investment, are treated with even less sympathy (though she has a kindly feeling for Sismondi, to whom she considers that Marx gave too little recognition[41] ) for she is either oblivious that there is such a problem, or regards it as trivial.[42] We leave the discussion, at the end of Section II, at the same point where we entered it, with the clue to the inducement to invest still to find.

[Section III] is broader, more vigorous and in general more rewarding than the two preceding parts. It opens with a return to Marx’s model for a capitalist system with accumulation going on. Our author then sets out a fresh model allowing for technical progress. The rate of exploitation (the ratio of surplus to wages) is rising, for real wages remain constant while output per man increases. In the model the proportion of surplus saved is assumed constant for simplicity, though in reality, she holds, it would tend to rise with the real income of the capitalists.[43] The ratio of constant to variable capital is rising for technical reasons. (The convention by which the annual wear and tear of capital is identified with the stock of capital now becomes a great impediment to clear thinking.) The arithmetical model shows the system running into an impasse because the output of Department I falls short of the requirements of constant capital in the two departments taken together, while the output of Department II exceeds consumption.[44] The method of argument is by no means rigorous. Nothing follows from the fact that one particular numerical example fails to give a solution, and the example is troublesome to interpret as it is necessary to distinguish between discrepancies due to rounding off the figures from those which are intended to illustrate a point of principle.[45] But there is no need to paddle in the arithmetic to find where the difficulty lies. The model is over-determined because of the rule that the increment of capital within each department at the end of a year must equal the saving made within the same department during the year. If capitalists from Department II were permitted to lend part of their savings to Department I to be invested in its capital, a breakdown would no longer be inevitable. Suppose that total real wages are constant and that real consumption by capitalists increases slowly, so that the real output of Department II rises at a slower rate than productivity, then the amount of labour employed in it is shrinking. The ratio of capital to labour however is rising as a consequence of capital-using technical progress. The output of Department I, and its productive capacity, is growing through time. Capital invested in Department I is accumulating faster than the saving of the capitalists in Department I, and capitalists of Department II, who have no profitable outlet in their own industries for their savings, acquire titles to part of the capital in Department I by supplying the difference between investment in Department I and its own saving.[46] For any increase in the stock of capital of both departments taken together, required by technical progress and demand conditions, there is an appropriate amount of saving, and so long as the total accumulation required and total saving fit, there is no breakdown.

But here we find the clue to the real contradiction. These quantities might conceivably fit, but there is no guarantee that they will. If the ratio of saving which the capitalists (taken together) choose to make exceeds the rate of accumulation dictated by technical progress, the excess savings can only be ‘capitalised’ if there is an outlet for investment outside the system. (The opposite case of deficient savings is also possible. Progress would then be slowed down below the technically possible maximum; but this case is not contemplated by our author, and it would be irrelevant to elaborate upon it.)

Once more we can substitute for a supposed logical necessity a plausible hypothesis about the nature of the real case, and so rescue the succeeding argument. If in reality the distribution of income between workers and capitalists, and the propensity to save of capitalists, are such as to require a rate of accumulation which exceeds the rate of increase in the stock of capital appropriate to technical conditions, then there is a chronic excess of the potential supply of real capital over the demand for it and the system must fall into chronic depression. (This is the ‘stagnation thesis’ thrown out by Keynes and elaborated by modern American economists, notably Alvin Hansen). How then is it that capitalist expansion had not yet (in 1912) shown any sign of slackening?