The crises of the nineteenth century displayed characteristics which were connected equally with the level attained by capitalist development and with political events. Thus the crisis of 1816 was without a doubt closely connected with the many years of war preceding Napoleon’s fall. In particular English capital, despite the increasing mechanization of labor, had grown too quickly in relation to its valorization requirements to be able to avoid crisis by way of further expansion. The stagnation that set in manifested itself as overproduction, which, as I Consequence of the impoverishment of continental Europe, could not be overcome by means of foreign trade. This resulted in a violent collapse of prices, which hit agriculture and the textile industry particularly hard and led to the introduction of protective tariffs in order to stabilize the still predominant agricultural production. There were many bankruptcies and bank failures. Wages were radically reduced, and growing unemployment engendered mass poverty, social unrest, the machine breaking of the Luddite movement, and also the theories', critical of capitalism, of Sismondi and Robert Owens. The general price collapse of the depression period, which was punctuated ten years later by a new crisis, only came to a stop in 1819.

The crisis of 1836 began in England and the United States. In both countries industrial development had led to widespread speculation and to a situation in which the production of profit no longer met the need for it. The crisis took the form notably of a money and stock-market crisis but affected the whole economy, ushering in a long period of depression that soon spread over all of Europe. The apparently permanent crisis led to the revolutionary events of 1848 and to the first beginnings of an anticapitalist labor movement. Even during the upswings within the depression, the living conditions of the workers improved only in unessential ways, only to sink all the deeper with the first economic downturn.

The low level of wages that prevailed was an expression of the still low productivity of labor. The relatively small amount of surplus value, along with the acuity of competition, stimulated accumulation, which of course soon reached the limits Of exploitation set by the still narrow basis of the capitalist relations of production. The autonomous development of capital was not yet sufficient to enlarge the market decisively by itself. Crises appeared as commercial crises and found expression in a disastrous fall of commodity prices, which allowed for no further productive investment. Under these conditions only accidents like the discovery of the California gold fields led to a rise in prices and a new prosperity Events like the American Civil War, which at first was a factor of crisis, later drove industrial and capitalist development toward at a more rapid tempo. With the geographical extension of capital production, crises required an even more international character, but at the same time enormously promoted every upswing of the economy. However, the actual development of capital allowed no other prognosis than the one Marx had made; his theory was directly confirmed by reality, which thus gave force to the revolutionary expectations connected with it. Although every crisis had a character of its own, to be explained only by reference to the total situation from which it had arisen, crises nevertheless were characterized in common by the interruption of accumulation and the overproduction accompanying it, which gave rise to mass misery. And although the crisis cycle was not a regularly periodic one, it nonetheless really existed as an irregular process At the end of the nineteenth century, however, as Friedrich Engels said, crises appeared to become less severe and the periods of prosperity to lengthen; at the same time, the economic condition of the workers improved. The productivity of labor had been sufficiently increased to maintain the profitability of capital as it accumulated over longer periods of time. This situation gave rise to social democratic reformism and the abandonment of Marx’s theory of accumulation as a theory of crisis and collapse.

While Engels saw in the increasing mildness of crisis the germ of more violent crisis in the future, Eduard Bernstein maintained in 1899 that

Signs of an economic world-wide crash of unheard of violence have not been established, nor can one describe the improvement of trade in the intervals between the crises as particularly short-lived. Much more does a ... question arise ... (1) whether the enormous extension of the world market, in conjunction with the extraordinary shortening of time necessary for the transmission of news and for the transport of trade, has so increased the possibilities of adjustment of disturbances; and (2) whether the enormously increased wealth of the European states, in conjunction with the elasticity of the modern credit system and the rise of industrial cartels, has so limited the reacting force of local or individual disturbances that, at least for some time, general commercial crises similar to the earlier ones are to be regarded as improbable.

Bernstein answered his own question with the statement that “the formula of the crisis in and for Marx was no picture of the future but a picture of the present day, “so that today, “unless unforeseen external events bring about a general crisis ... there is no urgent reason for concluding that such a crisis will come to pass for purely economic reasons.” For Bernstein and for reformism in general, a theory of class struggle based on a tendency toward crisis was outmoded, since a revolutionary situation created by the breakdown of capitalism was no longer to be expected.

In his reply to Bernstein’s revisionism, Karl Kautsky explained that there is no theory of breakdown in Marx, but that this was a polemical invention of Bernstein's. “Crises,” Kautsky argued,

work in the direction of socialism by hastening the concentration of capital and increasing the insecurity of the proletarians’ living conditions, thus sharpening the impetus that presses the workers into the arms of socialism.... Furthermore, the constant need to expand the market contains yet a further factor; it is clear that the capitalist mode of production becomes impossible from the historical moment when the market can no longer extend in the same tempo as production; that is, as soon as overproduction becomes chronic. Bernstein understands historical necessity to mean a situation of constraint. Here we have such a situation which, if and when it appears, will infallibly lead to socialism.

Thus the upshot of Marx’s theory, according to Kautsky, is the breakdown of capitalism, although there is no Marxian theory of breakdown. The attempt was made to overcome this contradiction with the hypothesis that chronic overproduction could be a long, dragged-out process, so that it was even doubtful whether the breakdown would actually occur. The class struggle could put an end to capitalism long before the system fell apart.

Heinrich Cunow brought this theory into closer connection with Marx’s theory of accumulation. In his essays on the theme of “breakdown,” Cunow argued that Marx and Engels had derived the system’s collapse

on the one hand from capitalist accumulation, and on the other hand from the split between the capitalist mode of production and its mode of exchange, which blocks the full utilization of the existing productive forces... . The capital wealth already generated finds no further adequate valorization, either in the process of production or in the process of commodity circulation; the developed expansive power of industry comes into ever sharper conflict with the mechanism of the capitalist form of economy, until the latter finally bursts.

Of course, this process of breakdown was still put off into the distant future, since capital had learned to overcome its contradictions, growing out of commodity circulation, by means of the expansion of the capital and industrial markets on a global scale. Finally, however, the contradiction between social production and its mode of distribution remained decisive and was expected to put an end to capitalist production.

In this way attention remained fixed on the contradictory development of production and distribution, on the increasing difficulty with which surplus value is realized as a result of capitalistically limited consumption. In order to demonstrate the viability of capital, it was necessary to deny the ability of this disproportionality to menace capital. This Tugan-Baranovsky attempted to do. In his book on commercial crises he described the crisis cycle as did all the others who explain crisis in terms of a disturbance of the proportionality of supply and demand. This disproportionality, which also can be understood as a disproportionality between the different branches of production, Tugan-Baranovsky held to be the sole cause of crisis. A distribution of capital in accordance with the real demand for commodities would be enough to eliminate crises. Arising from the planlessness of capitalist competition, they can be made less severe by increasing control over the economy and can in principle be overcome.

If according to Tugan-Baranovsky the origin of crisis is to be found in the disproportionate distribution of capital, it is not to be found in the distribution of the social product between labor and capital. The restriction of consumption does not for him impose a limit on accumulation or on the realization of surplus value, since restriction of the demand for consumer goods is in no way identical with restriction of the demand for commodities per se. “The accumulation of social capital leads to a restriction of the social demand for consumer goods and at the same time to an enlargement of the total social demand for commodities.” Thus the “accumulation of capital can be accompanied by an absolute decline of social consumption. A relative decline of social consumption relative to the sum total of the social product is in any case inevitable.”

Tugan-Baranovsky appealed to Marx with regard to two points. Like Marx he saw the fundamental contradiction “between production as a means to satisfy human needs and production as a technical aspect of the creation of capital, that is, as an end in itself” He admitted that “the poverty of the masses of people, poverty not in an absolute but in a relative sense, in the sense of the insignificance of labor’s share of the total social product, is one of the preconditions of commercial crises"; but it would be false to suppose “that the distress of the workers ... makes the realization of ever expanding capitalist production impossible because of insufficient demand, ... since capitalist production creates its own market for itself” On the contrary, “the smaller the share of the workers, the greater is the share of the capitalists and the more quickly capital accumulates-necessarily accompanied by slowdowns and crises.”

To demonstrate the possibility of unlimited accumulation Tugan-Baranovsky made use of the Marxian reproduction schemata in Volume 2 of Capital. As he saw it, these schemata granted the possibility of a continued and crisis-free total reproduction of capital so long as the requisite proportions between the individual spheres and branches of production are maintained. Since these proportions are difficult to maintain because of the anarchy of the economy, crises occur, but not the objective impossibility of further accumulation. Thus every theory of breakdown must be rejected, and the abolition of capitalist society must be considered a matter of the development of socialist consciousness.

In dealing with Marx, Tugan-Baranovsky of course forgot the theory of value on which the Marxian theory of accumulation is based. Or rather he referred to Marx without taking account of his theory, as he, like Bernstein and other reformists, had already taken up the subjective value theory of bourgeois economics. Thus, as he himself said, he did not utilize “the usual Marxian terminology (constant capital, variable capital., surplus value),” since, according to him, “in the creation of the surplus product-thus of rent-no distinction between human labor power and the dead means of labor is to be made. One ought to call the machine variable capital for the same reason as human labor power, since both yield surplus value.” Consistently, he accepted (with some reservations) the equilibrium theory descended from Say, namely the idea that with a proportional distribution of social production, the supply of commodities must be equal to the demand, and he interpreted Marx’s reproduction schemata in this sense. In this way the contradiction of accumulation stemming from the fall in the rate of profit vanished from his conception, and with it all the limits of capitalist production.

Oddly enough, this fact went unnoticed in the polemic directed against Tugan-Baranovsky within Social Democracy. Kautsky, though granting that “a lack of proportionality in production can also provoke a crisis,” nevertheless continued to insist that “the ultimate reason for periodic crisis is to be found in under-consumption.” He directed his energies against the equation of human labor power with the dead means of production, in order, however, only to point out that “in the last instance human labor alone is the value-creating factor, so that in the last instance the extension of human consumption determines the extension of production. On this account the accumulation of capital depends on the workers’ consumption – as there is no insufficiency of capitalist consumption – and the expansion of capital is tied to human needs, since “the consumption of the means of production is nothing other tan the production of consumer goods.”

For Conrad Schmidt as well the volume of consumption determined the volume of production, and overproduction arose from the restricted consumption of the working population

Capitalist competition, with the increasing difficulty of finding markets, must, given its tendency, be manifested in an increasing downward pressure on prices and thus in a fall in the rate of return or in the average rate of profit – a fall making the capitalist type of economy ever more unprofitable and risky even for the majority of private entrepreneurs, while at the same time the labor market becomes progressively unfavorable to the workers, and the ranks of the industrial reserve army swell terribly.

Schmidt too did not appeal to Marx’s theory of accumulation, and he rejected the labor theory of value. Like Adam Smith before him, he explained the fall in the rate of profit by the intensification of competition. Although for him the crisis arose from insufficient consumption, he nevertheless agreed with Tugan-Baranovsky that crisis did not imply an eventual breakdown of capitalism, since the improvement in the workers’ living conditions achieved through social struggles would weaken, if not completely eliminate, the roots of crisis, the restriction of consumption.

The vast debate about the crisis and collapse of capitalism (which we will not discuss further here) reflected the ambiguities in Marx’s depiction of crisis. As already pointed out, for Marx the crisis was due, on the one hand, to the fall in the rate of profit inherent in accumulation and independently of all the phenomena of crisis visible on the surface of society; but on the other hand, it also originated in the underconsumption of the workers. Thus Kautsky could appeal to Marx with as much right as Schmidt or Tugan-Baranovsky. The confusion became all the greater since the underconsumption theory could support the conclusion that capitalism must break down. The debates on crisis and breakdown have continued to the present day, in part thanks to the ambiguity of Marx’s statements, although the latter indeed signify no more than Marx’s own unsureness, as they were written many years before the publication of Volume 1 of Capital and at a later moment would most probably have been reformulated in a less contradictory way.

However this may be, both the actual development of capitalism and the analysis of accumulation in terms of value and surplus value unambiguously show that the continuing accumulation of capital is linked to the disproportionality between production and consumption corresponding to the valorization of capital, and that only the maintenance of this situation makes it possible to overcome the crises that occur. Of course, if the crisis can no longer be overcome in a capitalist way, permanent depression must set in, with an absolute pauperization of the workers and unemployed. This state of affairs would exhibit the contradiction of capital as a conflict between the capitalist mode of production and the consumption needs of society.

With Tugan-Baranovsky’s reference to the Marxian reproduction schemata in Volume 2 of Capital, the debate on crisis took on a new dimension. The problem of crisis was seen no longer as a question of the over-accumulation of capital or of underconsumption but as one of social equilibrium or of the proportionality of the reproduction process. It will be necessary here to go briefly into the Marxian reproduction schemata. The process of production is at the same time a process of reproduction, which is completed through circulation. For theoretical ends and for the illustration of this process it is sufficient to divide total social production into two departments in order to represent the conditions of an imaginary, frictionless exchange. Although capitalist production is the creation of exchange value, it nevertheless remains tied to use value. While every capitalist seeks only to enlarge his capital as capital, he can accomplish this only in the framework of social production, which is at the same time a social metabolism concerned with use values. In the social framework a theoretically conceivable equilibrium of capitalist exchange presupposes the production in the correct proportions of the use values necessary for reproduction.

Just as competition cannot be explained by competition, the circulation process cannot be explained in terms of circulation. It presupposes definite labor-time relations as value and use-value relations and a definite division of them to make reproduction possible. It goes without saying that the Marxian reproduction schemata do not refer to the real production process but to the requirements of capitalist reproduction that underlie the real process, which are indeed not consciously taken into account in capitalism but must nevertheless be satisfied in one way or another if the accumulation of capital is to go on. The function of the reproduction schemata is simply to indicate that accumulation as well as production requires definite proportions of kinds of product, which must be established via the market. The schemata are formulated in such a way that with both simple and enlarged reproduction there is an equilibrium of exchange between the two departments of production. This, however, does not mean that the actual capitalist reproduction process proceeds or can proceed following the pattern of the schemata of simple or enlarged reproduction.

The illustrative and explanatory function of the reproduction schemata was then confused with that of representing a process actually occuring in reality, and the relations of exchange defined by them were treated as examples either proving or disproving the tendency of the system to equilibrium. For Tugan-Baranovsky the reproduction schemata provided proof of the possibility of unlimited capital accumulation, so long as the necessary proportions were maintained. This idea was taken up by Rudolf Hilferding. Lie agreed with Tugan-Baranovsky, and with Marx, that capitalist production depends not on consumption but on the need of capital for valorization. But he also wanted to do justice, in some fashion, to the idea of underconsumption and so maintained that “the conditions of valorization rebel against the extension of consumption, and as they are decisive, the contradiction grows to the point of crisis. To be sure, he immediately took this back, pointing out that “the periodic character of crisis ... cannot be explained in general from a permanent phenomenon (namely, underconsumption).” For Hilferding the crisis is, “in general, a disturbance of circulation” that violates the necessary equilibrium conditions of the social reproduction process. For him the Marxian schemata also show that

In capitalist production reproduction both on the simple and on the enlarged scale can proceed undisturbed so long as the [necessary] proportions are maintained. Conversely, the crisis can arise even with simple reproduction if, for example, the necessary proportion between used-up and newly invested capital is violated. It does not in the least follow from this that the cause of crisis must be the underconsumption of the masses inherent in capitalist production. A too rapid expansion of consumption would in itself give rise to crisis as much as would a stabilization or contraction of the production of means of production. Just as little can the possibility of general overproduction of commodities be deduced from Marx’s schemata; rather they allow for any expansion of production on the basis of the existing forces of production.

For Hilferding capital’s propensity to crisis due to disproportionality changed with the restriction of competition by the trustification and of capital. Although the overproduction can in part be overcome through a better adaptation to demand, a crisis involves an overproduction not of commodities but of capital. This means only “that capital has been invested in production to such a degree that its conditions of valorization have come into conflict with its realization conditions, so that the marketing of commodities no longer yields the profit on which a further expansion, a further accumulation, depends. Sales stagnate because the expansion of production comes to a halt.” Since for Hilferding the crisis is a “disturbance of circulation,” his explanation is based not on the fall in the rate of profit resulting from a growing organic composition of capital but on a lack of sales relative to too quickly growing production or on a contradiction between the “valorization conditions and the realization conditions” of capital – thus, after all, on a divergence between supply and demand, even if independent of the restricted consumption of the workers. Such “disturbances of circulation” are made not less but more acute by the advance of cartelization, without thereby leading to a breakdown, since an economic breakdown is For Hilferding “in general not rationally conceivable.”

The abolition of capitalist society can therefore be achieved only by a political process, which in any case is prepared for to an ever greater extent by the cartelization of capital and the absorption of industrial capital by bank capital, a process described by Hilferding as the formation of finance capital. “Finance capital signifies the tendency to establish social control over production. But it is socialization in an antagonistic form; control over social production remains in the hands of an oligarchy. The struggle for the dispossession of this oligarchy is the final phase of the class struggle between the bourgeoisie and the proletariat.” For this it is sufficient “for society to take control of finance capital through the conscious organ of the people, the state captured by the proletariat, in order immediately to extend control over the most important branches of production.”

While in Hilferding’s view there were no economic limits to capitalist accumulation, it was nevertheless a process marked by crises that only the socialization of production by socialism could overcome. Under capitalist management accumulation compelled, along with the perpetual expansion of production, the export of capital and a struggle for markets and for sources of raw materials in order to increase the surplus value of the nationally organized capital. Imperialism, a direct consequence of the capitalization of the world economy, was as much a factor of crisis as the overcoming of crisis. Inseparable from capitalism, imperialism took on particularly ominous forms around the turn of the century, as the imperialist powers prepared for new confrontations. Imperialistic policy and colonialism found opponents and supporters even in the Social Democratic camp, a situation reflected in Rosa Luxemburg’s work on the accumulation of capital.

Taking Heinrich Cunow’s crisis theory as a point of departure, but completely ignoring Hilferding's, Luxemburg saw imperialism as an immediate consequence of capitalist production. This she wished to prove scientifically. The attempt to give a “strictly economic demonstration” of the necessity of imperialism led her, in her own words, “to Marx’s diagrams at the end of the second volume of Capital, which have seemed weird to me for a long time, and which I now find full of hot air. “ By “hot air” she meant the equilibrium conception of capitalist reproduction she took Marx to have. Luxemburg’s analysis of Marx’s schemata of enlarged reproduction led her to the reverse of Marx’s apparent results, namely to the impossibility of equilibrium. “If we take the schema literally,” she wrote, “... it appears that capitalist production would itself realize its entire surplus value, and that it would use the capitalized surplus value exclusively for its own needs.” But, according to Luxemburg, this would mean that “these capitalists are thus fanatical supporters of an expansion of production for the sake of the expansion of production. They see to it that ever more machines are built for the sake of building with their help ever more new machines"; that is, they accumulate their surplus value not as capital but in the form of a pointless production of means of production. This conception surplus value would be created “from the very beginning.. . in a natural form exclusively designed for the requirements of accumulation.” This, however, is not the case in reality, as capital must first sell in order to be able to accumulate. But where are the capitalists to find the buyers who will allow them to realize their surplus value? Capitalist accumulation, for Luxemburg, is “the heaping up of money capital,” which presupposes the realization of the surplus value produced. How can this be accomplished,

if the capitalists as a class are themselves always the only buyers of their total product apart from the portion which they must at the moment pay the working class for its maintenance if they must always buy their commodities from themselves and must “cash in” the surplus value contained in them with their own money then the heaping up of profits which is accumulation must be impossible for the class of capitalists as a whole.

She found the answer to her questions “in the dialectical contradiction that capitalist accumulation needs non-capitalist social formations as the setting for its development, that it proceeds by assimilating the very conditions which alone can ensure its own existence.” Internal capitalist trade can, as she saw it, “at best realize only certain quantities of value contained in the social product: the constant capital that has been used up, the variable capital, and the consumed part of the surplus value. That part of the surplus value which is earmarked for capitalization, however, must be realized “externally.” “Thus capitalism,

thanks to its interactions with non-capitalist social strata and countries, expands itself more and more, in that it accumulates at their expense but at the same time erodes and displaces them step by step in order to take their place. But the more capitalist countries participate in this hunt after territories for accumulation, and the scarcer the non-capitalist areas still open to the global expansion of capital become, the more bitter will be the competitive struggle of capital over each such territory and the more its campaigns in the world theater will turn into a series of economic and political catastrophes: world crises, wars, revolutions.

Imperialism can be explained apart from Luxemburg’s “strictly economic reasoning.” It can be treated in connection with accumulation, without reference to the need for non-capitalist markets for the realization of surplus value, as for example in Hilferding’s theory. The importance of Luxemburg’s work, however, lay not so much in the explanation of imperialism as in the demonstration that capitalism has absolute, impassable limits, and that the more closely the system approaches them, the greater the social shocks will be. It was the idea of Tugan-Baranovsky and Hilferding, based on the reproduction schemata, that nothing stands objectively in the way of accumulation, which impelled Luxemburg to investigate the equilibrium conditions of the schemata and thereby to conclude that the impossibility of realizing surplus value within the capital-labor relationship gives rise to a perpetual element of disequilibrium, in the form of an unsalable quantity of commodities that cannot be turned into money and the value of which can only be realized as capital outside the system. Thus it was not the problem of the production of surplus value and the difficulties it encounters as accumulation proceeds but that of the realization of surplus value which Luxemburg saw as decisive for the future of capitalism. The periodic crises were accordingly for her crises of overproduction, characterized by quantities of unsold goods, and could not be overcome within the system. This idea had a certain plausibility, as capitalism had in fact spread geographically and incorporated one new country after another into the world economy; but it had nothing to do with Marx’s theory of accumulation. As a result Luxemburg’s theory came in for extensive criticism both from the right and from the left wing of the social democratic movement. The discussion around Marx’s theory of accumulation and crisis led to the development of two antithetical views, each giving rise to several variants. One insisted that the accumulation of capital has absolute limits and that an economic breakdown of the cistern is inevitable. The other held this to be absurd, maintaining that the system would not disappear from economic causes. It goes without saying that the reformists, if only to justify themselves, adopted the latter position. But even ultraleftists – Anton Pannekoek, for example – saw the idea that the breakdown of capitalism would be a “purely economic” process as a falsification of historical materialist theory. Pannekoek thought the problematic itself was false, whether it led to Tugan-Baranovsky’s conclusion that accumulation has no limits or to Luxemburg’s breakdown theory. He thought the shortcomings of the capitalist system as Marx described them and the concrete phenomenon of crisis, produced by the anarchy of the economy, were sufficient to provoke the development of revolutionary consciousness among the proletariat and thus to lead to proletarian revolution.

Although Pannekoek attacked Tugan-Baranovsky’s harmonizing interpretation of Marx’s reproduction schemata on the grounds that the circuit of capital is in reality a process shot through with crises and that the function of Marx’s formulas in his theoretical analysis was only that of a preliminary and simplified description, he also held Luxemburg’s critique to be a misunderstanding, since in his opinion capital is able to realize its surplus value without the help of a non-capitalist market. By the same token, imperialism, while an incontestable fact, was not a necessary presupposition of capitalist production. The whole hypothesis of a final and automatic breakdown of capital, he thought, contradicts Marx’s approach, in which the objective and subjective conditions of revolution cannot be separated. The revolution depends on the will of the working class, even if this will develops in response to economic circumstances. Thus the proletariat is not going to meet a final crisis but will experience many crises, until the decisive element, revolutionary consciousness, is sufficiently constituted to put an end to the capitalist system.

Luxemburg’s Accumulation of Capital met with almost universal rejection among the theoreticians of Social Democracy, not so much because she dared to criticize Marx or to explain the reality of imperialism by the realization difficulties encountered by accumulation, but because by evoking the inevitable end of capitalism she supported a politics of proletarian class struggle diametrically opposed to the dominant reformist attitude. On the other hand, it was just her insistence on the inescapable end of capital that assured her a following among the workers of the left opposition, whether or not they accepted her specific argument for it, as they did not care very much whether and how capital would break down from these or from any other causes, as long as it was doomed to break down from some cause.

Among the many theoreticians who argued against Luxemburg, Otto Bauer and Nikolai Bukharin merit particular attention. Bukharin’s delayed critique reflected not only theoretical interest but also the struggle the Bolsheviks were waging at that time against “Luxemburgism” in order to clean the tradition linked to her out of the communist parties. Bukharin found nothing to object to in Marx’s reproduction schemata and rejected Luxemburg’s critique on this subject. Of course, the circuit of capital, represented at a very high level of abstraction, required later completion on a lower, more concrete level of abstraction. In any case, the reproduction schemata admitted of neither Tugan-Baranovsky’s nor Luxemburg’s interpretations. According to Marx and Lenin, even in a “pure” capitalist system nothing stands in the way of accumulation and the realization of surplus value. Bukharin saw the basis of Luxemburg’s false theory in her identification of the accumulation of capital with that of money capital. She imagined that the share of the surplus value that must be accumulated as additional capital must first be transformed into money already at hand within the system. Only then would the surplus value be realized, and the expanded reproduction would be the reproduction of capitalist accumulation. Without this metamorphosis of surplus value from the commodity form into the money form, accumulation could not take place. Bukharin, however, pointed out that, like capital itself surplus value appears in various forms: as commodities, as money, as means of production, and as labor power. For each of these the money form is not to be identified with the total surplus value in its various forms. Surplus value must go through its money phase, only not as a whole, at one time, but rather bit by bit, through innumerable commercial transactions, in the course of which a given sum of money can repeatedly accomplish the transformation of commodities into money and money into commodity. The total surplus value does not have to encounter a sum of money equivalent to it, although every commodity, in order to be realized, must be turned into money. The fact that the growing capital is accompanied by an increasing mass of money does not mean that capital and money capital have to accumulate at the same r ate. Capital is objectified in many forms, of which that of money is one, but not the exclusive, functional form of realized surplus value.

This critique of Luxemburg’s theory was related to Bukharin’s own crisis theory, which relied on Lenin. It did not differ essentially from the disproportionality theories of Tugan-Baranovsky and Hilferding, although Bukharin attempted to take a position opposed to Tugan-Baranovsky. This putative opposition consisted in the inclusion of underconsumption within the disproportionality between the production of producer’s goods and that of consumers’ goods. One might consider this a tautology, but for Bukharin it was the decisive factor that distinguished Marx’s theory from Tugan-Baranovsky's. Here we find ourselves facing the question raised earlier, whether Marx had two crisis theories, one deriving crisis from the theory of value as the falling rate of profit, and the other deriving it from the insufficient consumption of the workers. Neither Lenin nor Bukharin saw a contradiction here. On the one hand, they maintained that the production of means of production took place in complete independence of that of consumer goods; on the other hand, it was for them the insufficient consumption of the workers that set limits to the accumulation process, because Marx had declared that in the final analysis the production of means of production always only serves consumption. Accordingly they held Tugan-Baranovsky’s hypothesis of the limitless expansion of capital to be false, even though they did not deny the possibility of a balanced proportionality of the different departments of production.

It was thus not the falling rate of profit resulting from accumulation which Lenin and Bukharin opposed to Tugan-Baranovsky’s imaginary unlimited capital expansion but the under-consumption of the workers, which, in the context of all the other disproportionalities, limited accumulation in a particular way. It followed that the increasing consumption of the workers would help make possible the realization of the surplus value destined I accumulation. Thus Bukharin suggested that variable capital are together with constant capital, with the result that an increasing part of the surplus value could be realized. Of course, in practice this could only mean that the capitalists would give back to the workers a part of the surplus value just extracted from them; they could have saved themselves the trouble if they had only taken that much less surplus value from the workers in the first place! Although it is sometimes (but not always) true that additional means of production require additional labor power, this in no way alters the fact that the ratio of constant to variable capital shifts in the course of accumulation in favor of constant capital. Despite the absolute increase of the number of workers, they become fewer relative to the more rapidly growing constant capital, so that the surplus value extracted from them increases, and the problem of its realization if there is such a problem not only remains but becomes more severe.

Now Marx’s theory of accumulation as a whole is based on the assumption that the workers are always paid according to their value, measured by their production and reproduction costs. The surplus value can therefore only go to the capitalists and must be realized by them through their own consumption and their accumulation. Assuming for the moment that nothing stands in the way of this realization, Marx pointed out that even under these benign circumstances, accumulation depresses the profit rate until accumulation finally founders on the lack of profit. This does not mean that the process of realization proceeds as smoothly as the general theory of accumulation makes it appear; but it does mean that, quite independently of all its difficulties with realization, capital meets a limit in surplus-value production itself If the accumulation process can be depicted in abstraction from the circulation process, the process of reproduction can also be traced without considering the realization problems it encounters in reality in order to explain the meaning of the circuit of capital. One can find this mode of procedure reasonable or not; at any rate Marx believed that although his abstract model of the capitalist process of circulation did not correspond to reality in some ways, it could nevertheless contribute to a better understanding of reality. But just as Tugan-Baranovsky’s conclusions cannot be justified by appealing to the reproduction schemata, they also cannot be contested by the meaningless assertion that the workers realize a part of the capitalists’ surplus value and that a crisis must set in if this no longer happens to a sufficient degree.

For Bukharin the crisis results from a conflict between production and consumption or (what is the same) from overproduction. The anarchy of capitalist production includes in its various disproportionalities that between production and consumption. From this it would follow that without these disproportionalities the capitalist reproduction process could proceed frictionlessly. And as the crisis only appears periodically, prosperity appears when the elements of the system are adequately proportional. Moreover, it follows from this that with the correct proportionality the process of reproduction would proceed as portrayed in Marx’s schemata. If we bear this in mind, it becomes comprehensible why Lenin took the side of Otto Bauer in the debate between Luxemburg and Bauer, with which we shall now deal. That it occurred to neither Lenin nor Bukharin to investigate the problem of crisis from the standpoint of the theory of value is already evident in the fact that Bukharin agreed wit Luxemburg that if the fall in the rate of profit were to be responsible for the end of capitalism, this “would take as long as the cooling of the sun.” At the same time, however, he turned this remark against Luxemburg herself since her theory also depends on the continuous fall in the rate of profit, though due to the disappearance of non-capitalist markets.

Since the whole debate about the Marxian reproduction schemata can be followed in the original writings of the participants, and since the particular, arbitrarily chosen magnitudes of these diagrams are of no consequence for us, it is enough here to repeat: Marx wanted to show that with certain exchange ratios between the department of production producing means of production and that producing consumer goods, both can not only renew their constant and variable capital but also grow through capitalizing their surplus value. Marx represented this process first as a closed circuit, i.e., as the “simple reproduction” of a given state of the economy, and then as a process of expansion, or “expanded reproduction,” in which simple reproduction is included as a part of the total process. The static case appeared to all the participants in the debate as equally clear; only when it came to expanded reproduction were minds divided. For with the inclusion of circulation the static circuit become “a spiral, winding higher and higher, as if under the compulsion of a mathematically measurable natural law.”

According to Marx, Luxemburg explained,

reproduction expands in strict conformity with the laws of circulation: the mutual supply of the two departments of production with additional means of production and consumer goods proceeds as an exchange of equivalents. It is an exchange of commodities in the course of which the very accumulation in one department is the condition of accumulation in the other and makes this possible. The complicated problem of accumulation is thus converted into a diagrammatic progression of surprising simplicity.

Just because of this it is necessary

to take care lest we should only have achieved these surprisingly smooth results through simply working out certain foolproof mathematical exercises in addition and subtraction, and we must further inquire whether it is not merely because mathematical equations are easily put on paper that accumulation will continue ad infinitum without any friction.

Nevertheless Luxemburg began by busying herself very intensively with these equations in order to establish that Marx’s calculations did not work out right and that the surplus value cannot be realized within the terms of his model, which rules out the reproduction process on an expanded scale as he presented it. Otto Bauer then took on the task of repulsing this attack on Marx. He maintained, to begin with, that every society with an increasing population has to enlarge its productive apparatus, so that accumulation is unavoidable.

One part of the surplus value is transformed into capital; this means that one part of the surplus value accumulated goes to variable, another to constant capital. The capitalists carry out this accumulation in order to increase their profits, but its social effect is the provision of the consumer and producer goods necessary for population growth.

While in this way, according to Bauer, the capitalists increase their capital, despite their self-interestedness, in a way that conforms to social needs, as a result of the anarchic character of production the danger always exists that accumulation will lag behind population growth or get ahead of it. Thus the first thing to investigate is “how the accumulation of capital should be carried out if it is to remain in equilibrium with population growth.” Taking various hypothetical starting points (such as that of a 5 percent yearly growth of population and so of variable capital and a constant rate of surplus value), Bauer calculated a series of transformations of the economic system. His tables indicated that with an increasing organic composition of capital, the rate of accumulation must rise yearly if the equilibrium between accumulation and population is to be maintained.

Bauer dealt first with the total capital, subsequently differentiating between the two departments of production. A higher organic composition of capital implies the transfer of a part of the surplus value accumulated in consumer goods production into the department producing means of production. In Bauer’s opinion there is nothing to prevent this, since it results directly from the requirements of production and the relations of exchange. Bauer did not deny the arbitrary elements Rosa Luxemburg criticized in Marx’s schemata; but believing that Marx’s reasoning was nevertheless correct, he sought to answer her criticisms with a better schema. In Bauer’s schema the only remaining arbitrary elements were the hypotheses defining the starting point of accumulation; given these the magnitudes represented in his schemata followed with mathematical necessity. The only result of interest to us here is that all the commodities of both departments could be sold and realized.

Bauer then asked how Luxemburg could have come to the opposite view and thought he could explain this as the result of a misunderstanding. She assumed that, following the schema, the surplus value to be accumulated must be realized year by year. However, this was only a simplifying assumption, made for heuristic reasons -- in reality the surplus value created in one year may be realized over a period of many years. The unrealizability of a part of the surplus value is “only a transitory phase in the whole circuit, which extends over many years.” Once this is understood and the time scale covered by the schema prolonged, a harmonious process of accumulation results.

The workers’ consuming power grows as quickly as their numbers. The capitalists’ consuming power grows first as rapidly, since with the number of workers the mass of surplus value also increases. The consuming power of the whole society thus grows as rapidly as the value product. Accumulation alters nothing in this; it means only that fewer consumer goods and more production goods are required than with simple reproduction. The extension of the domain of production, which is a presupposition of accumulation, is here made possible by the growth of the population.

How can such harmonious circumstances lead to a crisis? The equilibrium of accumulation and population growth can only be maintained, according to Bauer, “when the rate of accumulation grows so rapidly that despite the rising organic composition of capital, the variable capital grows as quickly as the population.” Otherwise a situation of underaccumulation arises. This leads to unemployment and downward pressure on wages, but also to a rise in the rate of surplus value. Assuming a constant rate of accumulation, if the rate of surplus value rises, the portion of surplus value accumulated will also grow. “Thus the mass of surplus value invested in the enlargement of the variable capital also grows. It will continue thus to increase until the equilibrium between the growth of the variable population and the growth of the population is reestablished.” In this way the underaccumulation is always counteracted again, so that the periodic crisis represents only a transitory phase of the industrial cycle. Underaccumulation is the obverse of the overaccumulation described by Marx.

Prosperity is overaccumulation. It provides its own counteraction in the crisis. The depression that follows is a period of underaccumulation. It resolves itself by creating out of itself the conditions of a return to prosperity. The periodic return of prosperity, crisis, and depression is the empirical expression of the fact that the mechanism of the capitalist mode of production by itself overcomes overaccumulation and under-accumulation, perpetually adapting the accumulation of capital to the growth of the population.

Rosa Luxemburg had the opportunity to answer her critics. Against the theoreticians of harmonious development, she held that under the assumption of limitless capitalist accumulation, “socialism loses the granite bedrock of objective historical necessity. We are lost in the fog of the pre-Marxist systems and schools that want to derive socialism from the pure injustice and wickedness of the modern world or from the pure revolutionary will of the working class. That objective necessity could also have another foundation did not enter her mind. Therefore she found nothing to revise in her theory. Despite her insight “that mathematical schemata in general prove nothing with respect to the question of accumulation,” she nevertheless stuck too doggedly to her interpretation of Marx’s reproduction schemata to be able to give her theory of imperialism another basis.

Giving special attention to Bauer’s criticism, but without going into his calculations, Luxemburg attacked his theory of population, rejecting it as senseless. In this she stood completely on the terrain of Marx’s theory, for which it is the mechanism of production and accumulation that adapts the number of employed workers to the valorization requirements of capital, and not accumulation that is adapted to population growth. She also rejected Bauer’s speculation that she had interpreted Marx’s schemata as referring to calendar years, although without going deeper into the implications of this. She drew attention to the necessary distinction between the realization of the surplus values produced by the individual capitals and those produced by the total capital, without noticing that the total surplus value can only be realized via the realization of the individual capitals’ surplus values, for the total capital exists only as the sum of all the individual capitals. While the magnitudes postulated by Marx’s reproduction schemata were for her a “scientific fiction,” operating with theoretical assumptions about total capital and total surplus value can itself be only a heuristic procedure; a means to the understanding of reality, not reality itself. In general Luxemburg was never clear about the function of the reproduction schemata, as can be seen from her hypothesis that they “anticipate the actual tendency of capitalist development.” Marx assumed, she wrote, “that the complete and absolute domination of the whole earth by capitalism, the furthest extension of the world market and the world economy, toward which capital and the whole of present-day economic and political development in fact are heading, had already been achieved.” If this was Marx’s procedure, then it would speak not for Luxemburg but against her, for without a doubt the reproduction schemata show that even under the conditions they assume, the circuit of capital is conceivable on an expanded scale. Since according to Luxemburg capitalism can simply not exist under these conditions, Marx on her interpretation would have imagined an absolute impossibility. In fact, however, Marx’s intention was to view the process of reproduction in its basic form in which obscuring minor circumstances have been eliminated-in order to get rid of the false subterfuges that furnish the semblance of “scientific” analysis when the process of social reproduction is immediately made the subject of the analysis in its complicated concrete form.

Thus Marx was dealing not with a future state of capitalism but with the investigation of the fundamental structure of capitalist reproduction, its inner relations, unobservable at the surface level.

While Rosa Luxemburg did not go into Otto Bauer’s calculations, Henryk Grossmann accorded them all the greater attention. Grossmann completely rejected her theory, but he also rejected Bauer’s critique of it. His own interpretation of Marx’s theory of accumulation started from Marx’s theory of value and treated the problem of accumulation as one of valorization that arises out of capitalist production, although it manifests itself in the process of circulation. But he could not resist entering into the whole discussion about accumulation, and particularly into Bauer’s contribution to it. Grossmann emphasized that Bauer had succeeded “in constructing a reproduction schema that indeed meets... the formal requirements that can in general be set for this type of construction and presents none of the defects for which Rosa Luxemburg criticized Marx’s reproduction schema.” Certainly Bauer’s population theory is “a pure and simple abandonment of the Marxian theory of population,” but “in and of itself Bauer’s reproduction schema has nothing to do with his population theory and can be considered independently of it. On the basis of Bauer’s assumptions, Grossmann showed that extending Bauer’s calculations from the period of four years worked out by Bauer to one of thirty-five years led to results fully at odds with Bauer’s conclusions.

Bauer knew, of course, that the rising organic composition of capital implies a falling rate of profit, a phenomenon that can 0 f course be accompanied by a more rapid growth of the rate of surplus value. But in his schema the rate of surplus value remains constant instead of increasing with the growing organic composition, a contradiction that Luxemburg had already pointed out in her Anti-Kritik. According to Bauer this contradiction could be eliminated by supplementing his schema by introducing a rising rate of surplus value, although he himself did not undertake this task. Were this done, the rate of profit would fall in his schema, in which the constant capital grows at twice the rate of the variable capital. But this fall of the rate of profit does not prevent the growth of capital and increasing capitalist consumption during the period considered by Bauer. By extending Bauer’s schema beyond this period, Grossmann showed that on Bauer’s own assumptions there necessarily comes a point after which the surplus value no longer suffices to continue accumulation. Thus, in Grossmann’s eyes, Bauer’s schema itself provided proof that the system faces an objective limit set by the tendency, inherent in it, of the profit rate to fall.

The law of the falling rate of profit, however, has nothing to do with the reproduction schemata, either Marx’s or Otto Bauer's. It follows from the rising organic composition of independently of the exchange relations between the two chief departments of production. According to Marx crises can arise also from disproportionalities within the production and circulation processes. But as these disproportionalities maldistributions of capital among branches of production can also in turn be overcome by way of these same crises, the process of reproduction can be represented as crisis free, just as an equilibrium of supply and demand, which in real life does not exist, can be imagined. Crises of this kind, arising exclusively from the disproportionalities of the system, are only an expression of the anarchy of capitalism and not of the exploitative character of the relations of production that underlie this anarchy; they are resolved, therefore, by the redistribution of surplus value, without the production of additional surplus value. The crises that arise from the nature of capitalist production, in contrast, do not solve themselves but can be counteracted only by the adjustment of surplus value production valorization needs of the altered capital structure only, that is, by an increase in exploitation.

Otto Bauer did not concern himself with crisis resulting from the relations of production and the production of capital. He explained crisis as a result of disproportionality, not as Tugan-Baranovsky and Hilferding understood it but as the disproportionality between accumulation and population growth. On this basis he showed that Marx’s reproduction schemata can be used to prove the potential for accumulation of a “pure” capitalism. With this Grossmann agreed, but at the same time he showed that this did not eliminate the crisis problem, since it ignored the valorization problem involved with accumulation. Since the whole discussion of crisis turned around Marx’s reproduction schemata, it was necessary for Grossmann to deal with them. This was all the more important as the preoccupation with the schemata gave rise to the impression that this was Marx’s real crisis theory, while the theory, advanced in the first volume of Capital, of breakdown engendered by accumulation was taken to be an idea later abandoned by Marx. In this interpretation crisis remained a matter solely of the disproportionality of the system, which awakened the conviction that any crisis could be overcome through the restoration of the lost proportionality and that crises could perhaps be completely eliminated by a better organization of the system. Indeed it was just these views that led Rosa Luxemburg to attack the harmonizing interpretations of the reproduction schemata, with the upshot that in the end she denied that they had any heuristic value.

For Grossmann no conclusions about reality can be drawn directly from the reproduction schemata. In the form Marx gave them, they indicated neither an equilibrium nor a disequilibrium state of the economy. Since they dealt only with the value side of reproduction, they were unable to “represent the real process of accumulation with respect to both values and use values.” They must be understood, Grossmann thought, in the light of Marx’s method of approximations, which require subsequent modification and completion to give a full picture of reality. With the reproduction schemata “Marx wanted to bring out that the exchange of commodities is a necessary presupposition of the capitalist mode of production; he therefore necessarily had to describe not one capitalist but at least two independent commodity producers or production groups”; hence the two departments of the reproduction schemata. But the reproduction schema “does not claim to be in itself a replica of concrete capitalist reality; it is only a link in Marx’s chain of approximations, which, together with the simplifying assumptions that lie at the base of the schema and the subsequent modifications in the direction of a progressive concretization, form a coherent whole.”

This particular step in a series of approximations leading to an understanding of capital as a total process was of particular importance for Grossmann, as in his view it was the central element in the structural plan of Capital. Pointing out that Marx had altered the plan of his work h 1863, Grossmann held it to be very likely ‘that this was connected with Marx’s discovery, made at the same time, of the reproduction schema. This interpretation is supported by the “methodological viewpoint actually adopted in the final version of Capital the arrangement of the empirical material by reference to the functions that capital carries out in its circuit.

In 1857, when he wrote the Grundrisse, however, Marx had already developed a reproduction schema, though a simpler one, illustrating the circulation between different departments of production. Grossmann could not have known this at the time of his own work, since Marx’s earlier text had not yet been published, but the idea of the reproduction schemata did not, therefore, have to await Marx’s discovery of 1863. Although the latter may well have influenced the final form of the schemata, it did not determine the structural plan of Capital. In any case, what is important is that already in the Grundrisse, Marx subordinated the problem of exchange to that of the valorization of capital. In the process he called simple reproduction,

At a given point in the development of the productive forces-for this will determine the relation of necessary labor to surplus labor-a fixed relation becomes established, in which the product is divided into one part-corresponding to raw material, machinery, necessary labor, surplus labor and finally surplus labor divides into one part which goes to consumption and another which becomes capital again. This inner division, inherent in the concept of capital, appears in exchange in such a way that the exchange of the capitals among one another takes place in specific and restricted proportions-even if these are constantly changing in the course of production.... Exchange in and for itself gives these conceptually opposite moments an indifferent being; they exist independently of one another; their inner necessity becomes manifest in the crisis, which puts a forcible end to their seeming indifference toward each other.

The valorization of capital is for Marx “production of new and larger values,” so that the reproduction of capital can be understood only as accumulation. Every revolution in the productive forces alters the relations of exchanges, “whose foundation from the standpoint of capital and hence also of that of realization through exchange always remains the relation of necessary to surplus labor or... of the different moments of objectified to living labor.” However this may affect exchange, “the relation of surplus labor to necessary labor” must remain “the same for this is equal to the constancy of the valorization of capital.” The crisis makes its appearance “in order to restore the correct relation between necessary and surplus labor, on which, in the last analysis, everything rests.” Exchange, Marx continues,

does not change the inner characteristics of valorization; but it projects them to the outside, gives them a reciprocally independent form, and thereby lets their unity exist merely as an inner necessity, which must therefore come forcibly to the surface in crises. Both are therefore posited as the essence of capital: the devaluation of capital in the production process, as well as the suspension of devaluation and the creation of the conditions for the valorization of capital.”

The crisis appears here not as the result of the disappearance of a proportionality in the relation between production and consumption, but as a means to restore the “proportionality” between necessary labor and surplus labor that has been lost through the uncoordinated movement, rendered independent, of exchange and production. In other words: the process of production and of circulation, although a necessary unity, is actually unified and is co-ordinated temporarily only through the crisis. Regulation here means essentially nothing but the reestablishment of valorization, which of course must manifest itself also in shifts of the relation between the spheres of production and in those of circulation. The changes in the process of capital as a whole are thus determined by the changes of profit and of accumulation. The concrete forms these phenomena take could, according to Marx, be developed only with a treatment of competition and an analysis of real capital.

The titles of the three volumes of Capital “The Process of Production,” “The Process of Circulation,” and “The Process of Capitalist Production as a Whole” illustrate the structure of the work. The process as a whole, as a unity of the production and circulation processes, represents the real process of capitalist reproduction. It is presupposed by the separate analyzes of production and circulation, which is as much as to say that the volumes on the process of production and circulation, based on the theory of value, deal with matters that appear in a different form in reality. This does not mean that the analysis of production in terms of value, or of circulation in terms of the exchange of values, is not an analysis of the real world. It is, but its categories represent the world as experienced in a modified form. Just as “capital in general, as distinct from the particular real capitals, is itself a real existence,” the exchange of values, like the labor-time value of commodities, also really exists, although these too can only be seen in the capitalist economy’s submission to the laws of value intrinsic to it. The transformation of values into prices of production makes neither value nor reproduction schemata framed in terms of value fictional, since the basis of the prices of production encountered in reality is nothing other than the labor-time values.

Thus a study of circulation in isolation from the system as a whole does not require investigation of the actual exchange relations of reproduction. Even on the abstract basis of the reproduction schemata, the process of reproduction requires a definite proportionality of exchange relations. It was to represent them that Marx devised the schemata, which make no further claim to description of reality save that they represent a process that must be carried out in actual reproduction, although in forms different from those of the abstract model. As accumulation can only proceed when there is a proportional or adequate relation of surplus labor to labor as such, this relation must also appear in the proportions obtaining between the two departments of production and the exchanges between them. Where this proportionality is not present, crisis will ensue in order to produce the proportionality required for further accumulation. If one wanted to call the presence of the necessary proportionality between profit and accumulation an “equilibrium” state (which it certainly is not), one could describe the absence of this proportionality as a state of “disequilibrium.” But both terms would signify no more than a rate of profit either sufficient or insufficient for accumulation.

To Grossmann’s observation that the reproduction schemata are not designed “to represent the real process of accumulation in terms of value and use value,” it must be added that Marx did not intend the schemata as pictures of the “real process of accumulation"; the schemata nevertheless deal with values as much as with use values. Their function was precisely to indicate that while in reference to the individual capitals,

the bodily form of the commodities produced was wholly immaterial for the analysis, ... [t] his merely formal manner of presentation is no longer adequate in the study of the total social capital and of the value of its products. The reconversion of one portion of the value of the product into capital and the passing of another portion into the individual consumption of the capitalist as well as the working class form a movement within the value of the product itself in which the result of the aggregate capital finds expression; and this movement is not only a replacement of value but also a replacement in material and is therefore as much bound up with the relative proportions of the value components of the total social product as with their use value, their material shape.

The analysis of production in terms of value was for Marx the unavoidable precondition for understanding capital and its laws of motion, even though not value but prices of production govern the market, and the prices coincide with values only in the theoretical analysis of the total capital. In the same way, the analysis of the circulation process in terms of value was a necessary first step in the scientific understanding of capitalist production, although here too exchange is governed by prices of production, which in the first place reflect the use values of commodities. What Marx sought to make clear was that independently of the modifications of the value relations due to market relations, the value relations themselves already carry the germ of crisis. As a result, just by being based on value-regulated exchange, which is at the same time an exchange of use values, the reproduction of capital is a process shot through with crises.

The fact that the production of commodities is the general form of capitalist production implies the role which money is playing in it not only as a medium of circulation but also as money capital, and it engenders certain conditions of normal exchange peculiar to this mode of production and therefore of the normal course of reproduction, whether it be on a simple or on an extended scale-conditions which change into so many conditions of abnormal movement, into so many possibilities of crises, since a balance is itself an accident owing to the spontaneous nature of this production.

Marx then showed how the double character of the commodity, as value and use value, transforms even the apparent equilibrium of simple reproduction into disequilibrium. Thus, for exam-pie, the wear and tear and replacement of fixed capital can produce dislocations in the value-defined conditions of exchange, destroying any possibility of equilibrated reproduction. Without going into Marx’s examples of the appearance of disproportionality within simple reproduction, it here needs to be stressed only that they apply exclusively to capitalist reproduction.

Once the capitalist form of reproduction is abolished, it is only a matter of the volume of the expiring portion-expiring and therefore to be reproduced in kind of fixed capital.. . varying in various successive years. If it is very large in a certain year ... then it is certainly so much smaller in the next year. The quantity of raw materials, semi-finished products, and auxiliary materials does not decrease in consequence. Hence the aggregate production of means of production

would have to increase in the one case and decrease in the other. This can be remedied only by a continuous relative overproduction. There must be on the one hand a certain quantity of fixed capital produced in excess of that which is directly required; on the other hand, and particularly, there must be a supply of raw materials, etc., in excess of the direct annual requirements... – This sort of overproduction is tantamount to control by society over the material means of its own reproduction. But within capitalist society it is an element of anarchy.

Thus the point of the schemata of simple and enlarged reproduction is not the demonstration of the possibility of a frictionless exchange bringing the two departments of production into equilibrium but the demonstration that such a hypothetical situation ~ could arise neither in capitalism nor in a socialist society. Moreover, while in socialism overproduction would be indispensable to assure the satisfaction of social needs and would therefore be considered normal, the same situation in capitalism, where it must appear as an excess or deficiency of reproduction, represents a problem bound to manifest itself in disorganization and crisis. It did not occur to Marx that the idea of a harmonious course of capitalist accumulation could be derived from his reproduction schemata, if only because the first volume of Capital, which unambiguously predicted the breakdown of capitalism, preceded them.

Perhaps, however, to forestall all harmonizing interpretations, it would have been better not to treat the circulation process on the basis of value exchange, since calculation with values only makes sense in reference to the total capital. Grossmann’s explanation, that the reproduction schemata were necessary because the exchange of commodities requires at least two exchanging social groups, is not convincing, for this obvious fact needs no demonstration, and since actual exchange takes place in price, not value, terms, so that the division of the system into two parts can be represented using prices of production, without any preliminary description using values. Rosa Luxemburg’s objections were directed at Marx’s construction of his reproduction schemata in value terms, on which basis she showed that the equilibrium assumed by Marx cannot be maintained (something Marx himself had demonstrated, although with different arguments). Grossmann corrected Luxemburg by showing that the disequilibrium in the value-based reproduction schema could lead to equilibrium in a schema based on prices of production. Thus he showed that the portion of the surplus product she had thought to be unsaleable within the system could be completely absorbed by it thanks to the formation of an average rate of profit due to competition and the ensuing distribution of the total surplus value.

Nevertheless, according to Grossmann Marx’s reproduction schema represented

the median line of accumulation, thus the ideal normal path on which accumulation takes place equally in both departments of production. In reality there are departures from this median line, but these deviations are only understandable on the basis of that ideal average line. Rosa Luxemburg’s error consists exactly in the fact that she treats as an exact description of the real process what is supposed to represent an ideal normal course among many possible cases.

This explanation, however, brings us back to the theories of Tugan-Baranovsky, Hilferding, and Otto Bauer, which indeed also deal only with an “ideal normal course,” which in reality would be disrupted by all manner of disproportionalities or “deviations” from the “median line.” With these authors too it is a matter only of a theoretically conceivable “normal course” of accumulation in which the “deviations” from the “median” always lead back to it, so that equilibrium asserts itself as a tendency, thus justifying the assumption that the system has no objective limits. In this way Grossmann’s attempt to counterpose a Marxian equilibrium to Luxemburg’s dis-equilibrium (once as the “midline” of the fictive reproduction in value terms and then as the solution of the dis-equilibrium by means of the transformation of values into prices by competition) leads to the completely unnecessary concession that the reproduction schemata, in one version or another, demonstrate the possibility of a frictionless exchange between the departments of production.

For Marx, as stated above, the difficulties basic to capitalism arise not from the exchange relations between the different capitals, although these also exist, but from the production relations which appear as exchange relations. The realization of surplus value is a problem that capital must solve for itself and is a consequence of the production relation of exploitation that underlies it. If capital could not realize the surplus value, it could not exist, for it is nothing but surplus value. The very existence of capital proves that it is able to transform surplus value into capital. The increasing accumulation furnishes the proof that it is in a position to realize an increasing mass of surplus value. The realization of surplus value has, in general, nothing to do with the workers, since they produce both their own value and the surplus value and realize their own value in their consumption. The surplus value is realized in accumulation and capitalist consumption (which includes the unproductive costs of the society).

What mattered to Rosa Luxemburg was not so much the realization of the surplus value itself, which could not be doubted, but the mechanism through which it took place. This mechanism was not visible in the reproduction schemata, as it was already implicit in the assumption that the surplus value is realized in the circulation of capital. Now, Marx could also have elaborated a reproduction schema in which this was not the case; but this would have been pointless, as the accumulation of capital, theoretically and practically, presupposes the realization of surplus value. Luxemburg thought this presupposition would not hold for a closed system, even entirely apart from the reproduction schemata, since she could not see how the transformation of the accumulated surplus value into money could be accomplished.

It was clear to her that foreign trade between capitalist nations provided no solution here but only repeated the problem on a wider plane. There must be buyers who do not themselves sell but exchange money for the surplus value created in the capitalist lands in the form of commodities. She did not explain where these buyers would obtain the necessary money, but it must derive from non-capitalist exploitation relations, which accordingly must be fruitful enough to absorb a11 the surplus value produced in the capitalist countries and destined for their accumulation. Thus the production of surplus value indeed depends on the exploitation of the workers in the capitalist countries, but without ensuring its accumulation, so that the accumulation of capital has as its ultimate condition the exploitation of non-capitalist countries.

It follows from this fantastic idea that the total accumulated capital of the capitalist world is only made possible by the exploitation of the non-capitalist world and that the latter must absorb a quantity of commodities with a value great enough to be adequate, when realized in money, for accumulation to continue. If this were possible, which it is not, it would only mean as is true for foreign trade in general that “the involvement of foreign commerce in analyzing the annually reproduced value of products can... only confuse without contributing any new element of the problem or of its solution.” Money is also a commodity; and the exchange of commodities for money, whether within capitalist areas alone or on the world market, remains the exchange of commodities, in which the money form of the commodity is only one phase of the process of circulation.

Marx also recognized a problem of realization. But for him it was a problem specific to the capitalist world, which could not be solved through the existence of non-capitalist countries. The anarchy within capitalist production and accumulation permanently excludes the realization of a part of the produced surplus value, so that the realized surplus value is always different from that produced. Whether commodities are over- or underproduced relative to the market can only be discovered after their production. The value and surplus value contained in unsaleable commodities is lost and cannot be capitalized. When the production oriented toward expansion reaches a point that puts its valorization in jeopardy, it ceases to expand and thereby produces an unsaleable mass of commodities whose value cannot be realized by accumulation and so cannot be realized at all. In this way the suspension of accumulation appears as a problem of realization, since in fact produced commodities cannot be sold. Overproduction, as the appearance in the market of the overaccumulation of capital, is only perceived in the form of the increasing difficulties of realization and is therefore explained in terms of them, although its real origin is the (un-observable) increasing divergence between production and valorization. Thus for Marx there are two sorts of realization problem: first, the ever present expression of capitalist anarchy; and second, the crisis problem, as the appearance on the market of the divergence between the profit produced and the surplus value requirements of an enlarged reproduction.

It is therefore not the accumulation of capital that depends on the realization of surplus value, but the realization of surplus value that depends on accumulation. To say this, however, is not to explain the mechanism of the realization process. For every individual capital the sum of money resulting from the sale of its commodities must be greater than the sum of the capital advanced. In the same way in comparison to the total capital expressed in money the total surplus value must amount to a greater value in money terms. What is the source of this additional money? Marx saw no problem here but located this source provisionally, but completely adequately for the purposes of his abstract analysis of the circulation problem, in gold production and credit. Only a discussion of the concrete market relations would, in his opinion, make it necessary to go more deeply into the broader development of the money function within the circulation process of surplus value.

In the earlier discussion of the answers given by Bukharin and Otto Bauer to Rosa Luxemburg’s question as to the source of the money for the transformation of commodity values into additional capital, we already encountered Marx’s answers to this question In addition, this problem was for Marx not so much a question whether gold production could furnish a sufficient and so perpetually increasing supply of money, but just the reverse: he saw it as important for capital to restrict the production of gold for monetary use as much as possible in the interest of accumulation.

The entire amount of labor power and social means of production expended in the annual production of gold and silver intended as instruments of circulation constitutes a bulky item of the faux frais of the capitalist mode of production, of the production of commodities in general. It is an equivalent abstraction from social utilization of as many additional means of production and consumption as possible, i.e., of real wealth. To the extent that the costs of this expensive machinery of circulation are decreased, the given scale of production or the given degree of its extension remaining constant, the productive power of social labor is eo ipsoincreased. Hence, so far as the expediencies developing with the credit system have this effect, they increase capitalist wealth directly, either by performing a large portion of the social production and labor process without any intervention of real money, or by raising the functional capacity of the quantity of money really functioning.

As a means of circulation, commodity money in gold and silver represents a great and unnecessary expense. For this reason capital has always striven to replace commodity money by symbolic monetary instruments. Commodity money lost its earlier importance with the development of banking and credit. As the social category of money is already included in that of the commodity, the gold standard was a historical but not a necessary phenomenon of commodity circulation. Since all commodities potentially represent money, and money has all commodities at its command, on the national level and recently increasingly on the international level also, any instrument of payment can serve as a means of exchange. Money is created within the banking system. The volume of credit offered by the banks is determined by the governmental creation of money through note issues and treasury certificates and by varying reserve requirements set by the government as a function of deposits. If credit is only partially covered by bank reserves, it is nevertheless generally guaranteed by capital owned by the borrowers. Where there is no capital equivalent at hand, there is also no credit, which thus relates not to the money on hand but to the existing capital.

In the process of circulation the accumulated capital takes on the commodity form at one moment and the money form at another. Means of production and commodities can be transformed into money and vice versa, so that the ownership of capital can be expressed as ownership of money. Although “capital” means money, it also includes all commodities, so that any commodity has the capacity to take the place of money. Although the quantities put on the market must be transformed into money, they embody only a part of the existing capital, so that only a part of capitalist property needs to take on the money form. In general the necessary volume of money is determined by the prices of the commodities entering into circulation and by the turnover velocity of money, modified by the mutual cancellation or the postponement of payments.

Aside from the fact that money has been accumulated for centuries in the form of commodity money (which has continually increased also through the production of precious metals) and therefore be directly exchanged against other commodities, capitalist accumulation has freed itself from these limitations by the mechanism of credit, based on capital already accumulated. The transformation of surplus value into additional capital can he accomplished without additional commodity money, and capital can be accumulated in its commodity form. No actual commodity money corresponds to the credit money necessary for this; it is the “symbolic form” of an additional sum of money that does not exist in reality; but it suffices to carry out the transformation of the commodity values into additional capital: additional capital in turn determines the future expansion of credit. Thus it is the accumulation of capital itself which solves the problem of the additional money necessary and eliminates the difficulties of realization by means of the techniques of finance.

For money to function as capital, it must first of all cease to be money i.e., it must be invested in means of production and labor power. The transformation of surplus value into money is only a stage, carried through in the market, in its transformation into additional capital. It is of no consequence at all whether this transformation is accomplished with commodity money or symbolic money. The latter, however, can be increased at will and so adapted to the needs of accumulation. Its growth accompanies that of the accumulating capital but is also limited by the latter. In this way we return to the point which appeared so unlikely to Rosa Luxemburg, namely the production for the sake of production, which she believed impossible in a closed system, having failed to find an explanation for the additional money required.

If capital can realize its surplus value through accumulation, then the enlarged capitals are represented as increased sums of money capital. But accumulation depends not on money or credit but on profitability. If profits fall, and with them the rate of accumulation, then the demand for credit declines along with the total demand. The insufficient demand appears as a lack of money and the crisis of production also as a financial crisis. It therefore seemed important to Marx “first and foremost to assume here, as everywhere, metallic circulation in its simplest, most primitive because then in the flux and reflux, the squaring of balances, short all elements appearing under the credit system as consciously regulated processes present themselves as existing independently of the credit system, and the matter appears in primitive form instead of the later, reflected form.”

In addition, at the time Marx was writing Capital, the expansion of production and the creation of new money capital were favored by a credit system of which “metallic circulation remain[ed the] basis,” a situation that has changed with modern modes of credit creation. But the perpetual development of new methods for realizing surplus value in additional capital is only of historical interest and only shows the effect of the increasing weight of the accumulating capital. The system of credit based on metallic money served no other function than the creation of credit without this basis. In both cases credit is governed by the movement of capital. It cannot become autonomous, as it has meaning only in relation to the actual processes of social production on which it rests. Like money, credit can create nothing; it can only provide the means by which the surplus value created in production finds its way into accumulation. If the actual surplus value is insufficient to be capitalized and at the same time valorized, credit cannot alter this and will fail as an instrument facilitating capital accumulation.

Accumulation for the sake of accumulation that is, without regard for actual social needs or even for the valorization requirements of capital is exactly what is characteristic of surplus value production and nothing to be wondered at. Competition on the basis of value production impels every capital, in the interests of self-preservation, to accumulate. It must grow or go under, and the total result of all these strivings is the growth of the total capital and the resulting changes of the value relations, which bring with them the fall in the profit rate as soon as the blind drive to accumulate overshoots the actual productivity of labor.

If the surplus value is not sufficient to pursue the process of accumulation profitably, it can also not be realized through accumulation; it becomes the unrealized surplus value of overproduction. Where there is no surplus value to be transformed into additional capital, there also no additional money and no credit can transform surplus value into capital. In order to avoid this crisis state, capital must accumulate without cease, but this is only possible with a simultaneous, continuous increase in labor productivity, which keeps the tendency of the rate of profit to fall latent. That such a coordination of material production with the value requirements of capital accumulation is denied to capital is apparent in the crises, which must restore from outside the lost inner coherence of capitalist production if a further expansion of capital is to be possible.

Surplus value is the decisive element of capitalist production. It can become too small as a result of the tendency of the rate of profit to fall, but it can never be too big. This holds not only for the society as a whole but also for each individual capital. Capitalist production therefore always aims at the enlargement of surplus value in order to secure its own existence. For capital the increasing surplus value always seems insufficient, no matter what its magnitude. If the market limits capital in one branch of production, capital emigrates into another or opens up new branches, until these too reach the limits imposed by the market. In the course of accumulation the material side of market relations thereby changes, bringing with it the elaboration of new needs as an expression of the expanding productive forces of society and their application on a greater scale and in broader areas. Material wealth grows along with the development of accumulation in value terms. The capitalists’ consumption can increase enormously, the mass of the unproductive strata of society can grow, and even the workers can improve their situation thanks to the fall in the value of consumer goods. With all this the pressure on surplus value also grows, compelling always new attempts to increase it in order to keep the process going. Under these conditions there can be no excess of surplus value but only a lack of it, which must finally appear on the market as overproduction and insufficient demand. Every equilibrium state is therefore a state of crisis, which in this dynamic economy can lead only to a breakdown or to a new takeoff. Any concept of equilibrium thus contradicts capitalist reality and can at most serve as a methodological means for the investigation of particular properties of the dynamic course of the economy. Nevertheless, Marxists, in unison with bourgeois economists, have spoken of supposed equilibrium tendencies of the capitalist economy and its development. To take only one example, according to Bukharin

The whole construction of Capital... begins with the analysis of a completely stable equilibrium system. Complicating factors are gradually introduced. The system fluctuates, becomes dynamic. Its fluctuations, however, remain regulated by laws, and despite the sudden breakdowns of equilibrium (crises), the system as a whole continues. The disruption of equilibrium leads to a new equilibrium, so to speak, of a higher order. Only after we understand the laws of equilibrium can we go on to investigate the system’s fluctuations. The crises themselves are treated not as the destruction but merely as disturbances of equilibrium; and yet Marx thought it necessary to discover the law of this movement and to understand not only how the equilibrium is disturbed but also how it is reestablished.

Bukharin summarizes his equilibrium conception in the following way;

The law of value is the law of equilibrium governing the system of simple commodity production. The law of production price is the law of equilibrium governing the modified commodity system, the capitalist system. The law of market price similarly governs the fluctuations of this system. The law of competition governs the continual reestablishment of disrupted equilibrium. The law of crises governs the necessary periodic disturbance of the system’s equilibrium and its restoration.

This postulate of equilibrium is the starting point of all disproportionality and underconsumption theories, which accordingly view crises as disturbances of equilibrium and their overcoming as its restoration. Marx, in contrast, uses the idea of equilibrium only as a provisory methodological hypothesis with a role to play in the elaboration of his abstract theory but with no claim to represent processes in reality. Often it is a matter of pure tautology, as with the assumption of an equilibrium of supply and demand, which plays no role either in the analysis of the total capital or in that of the process of production in isolation from the total system; and often the concept is a starting point for the description of the development of capital, and which in the framework of that development itself no longer has any significance. For Marx it is not equilibrium tendencies that govern the economy but the law of value, which asserts itself in the same way as “the law of gravity ... when a person’s house collapses on top of him.”

Crisis therefore represents not an insurmountable disturbance of equilibrium but a temporary breakdown of the valorization of capital, which neither before nor after its collapse is characterized by any equilibrium. The fact that the crisis is overcome likewise indicates not the restoration of a lost equilibrium but shows that despite the continuing dynamic of the system, it was possible to increase the surplus value enough for a further round of expansion. “With respect to the volume of production there is no equilibrium state to which the system returns after some deviations... . [T]he industrial cycle is no oscillation around some mean given by some necessity.” Even though Marx writes in one place that “permanent crises do not exist,” this does not mean, as Bukharin maintained, that “the disturbance of the equilibrium leads to a new equilibrium of a higher order” but only that the accumulation interrupted at a certain level of capitalist production can be continued at another level. That this cannot always be the case follows from the abstract analysis of value-determined accumulation. But so long as capital is actually able to adapt the surplus value to the needs of accumulation by way of crisis, every crisis is temporary.

But even a crisis theory disregarding all considerations of equilibrium must deal with the problem of how capitalism can collapse when it can overcome all of its crises. Thus, for example, Otto Benedikt demanded of Henryk Grossmann, for whom the breakdown of the system would be an insurmountable crisis, “why its ‘economic end point’ is different from the surmountable crisis? Why is the last crisis no longer surmountable?” Following Lenin’s disproportionality theory, Benedikt came to the conclusion that aside from its validity or lack of it, Grossmann’s crisis theory is just a theory of crisis and not a theory of breakdown. According to Benedikt the question of crisis concerns neither the possibility nor the impossibility of continuous accumulation, “but a growing, inevitable dialectical process of disturbances, contradictions, and crises not an absolute, purely economic impossibility of accumulation, but a constant alternation between the overcoming of crisis and its reproduction at a higher level until the destruction of this schema by the proletariat.”

Grossmann could have given the same answer as Benedikt himself gave, along with all the discussants of the crisis problem, with either different reformist or revolutionary variations. In the final analysis there cannot be a” purely economic” or “a “automatic breakdown.” For Tugan-Baranovsky, Hilferding, and Otto Bauer it is ethical and politically conscious social movements that will transform the evil into a better social order; for Rosa Luxemburg and Anton Pannekoek it is the class-conscious workers who, long before any theoretically determinable final stage of capitalist expansion, will put an end to capitalism; so also for Grossmann “no economic system, no matter how weakened, collapses by itself in an automatic fashion. It must be ‘overthrown.’ ... [T]he so-called ‘historical necessity’ does not operate automatically but requires the active participation of the working class in the historical process.” But this is a matter for the class struggle, not for economic theory, which can only bring to light the objective conditions under which the class struggle unfolds and which determine its direction.

Oddly enough, he most diverse analyzes of crisis were all offered to explain the inevitability of capitalism’s decline and the abolition of the system to be effected by political movements evoked by this decline. We have already seen this in the example of Rosa Luxemburg and Henryk Grossmann. But disproportionality theorists like Bukharin as well maintained “that the process of capitalist decadence necessarily sets in once the enlarged negative reproduction has swallowed up the social surplus value. Theoretical investigation cannot determine with absolute certainty exactly when the period of decadence begins and by what specific figures this process is characterized. This is already a questio facti. The concrete situation in the European economy in the years 1918-20 shows clearly that the period of decadence has already begun and that there are no signs of a resurrection of the old system of production relations” A consistent application of the underconsumption theory could also lead to the conclusion that capitalism must collapse. For instance, Natalie Moszkowska wrote that

if the gap between production and consumption reaches a certain size, and if the deficiency of consumption reaches a certain amplitude, relative pauperization becomes absolute. Production is reduced, and the workers are thrown into the streets. If classic capitalism was characterized by relative pauperization, late capitalism is characterized by absolute pauperization. And this absolute pauperization, not supportable for long, leads to the end of capitalism.

That the economic conditions during and after the First World War gave support to the idea of capitalist decline is not surprising. Even in the bourgeois camp this period not only awakened a deep pessimism but also undermined the earlier conviction that society can master its crises. Indeed, Adolf Lowe remarked that “the crises intrinsic to the economic system have lost their virulence; but if we consider an international destruction of value like the world war as the modern form of crisis in the age of imperialism, and there is much to be said for this view, there is little room for extravagant hopes for spontaneous ‘stabilization.’ In such a situation there was not much sense in maintaining that for capital there is “no situation absolutely without a way out” or in assuming the opposite. Under the circumstances both were conceivable. Since for Marxism it is not the economy that conditions the given class relations but the capitalist relations of production – qua class relations – that under the conditions of the market economy take on the fetishistic form of economic relationships, every “purely economic” conception of capital and its laws of motion is from the start inappropriate. Nevertheless, although for Marx “the whole economic shit ends in the class struggle,” he took pains during decades of work to demonstrate the transitory nature of capitalism even when viewed in terms of its own economic categories.

The trend of capitalist accumulation toward its abolition can only be demonstrated with a model respecting the essential bases of the system. In Marx’s theoretical construction capital must perish as a result of its contradictions; and since history itself does nothing but is made by people, it follows directly that the historical limit of capital lies in proletarian revolution. Conversely, however, such an upheaval presupposes a disintegration of capitalism. Through its accumulation capital produces its own gravediggers, so that the process of accumulation already contains its final end, and one can rightly speak of the theory of accumulation as a theory of breakdown, without thereby adopting a “purely economic” or “automatic” breakdown theory.

The interpretation of the great crisis between the two world wars as a possible final crisis of capital made the wish the father to the thought. But this could only be known afterwards. In principle in developed capitalism any great crisis can become the final crisis. If it does not, it remains a presupposition of further accumulation. This is not to say that there cannot arise a situation of “permanent” crisis, since this concept must also be construed not as referring to eternity but only in contrast to temporary, quickly surmounted crises. In this sense the “permanent” crisis is just as conceivable within the Marxian system as surmountable crises. When Marx denied that there are permanent crises, he was referring only to the business cycle of the previous century and to Adam Smith’s theory of accumulation, in which the profit rate must always fall. That under the present-day conditions of world capital a state of persistent economic and political crisis can arise is just as possible as that the crisis will give capital a chance to begin a new expansion.