The DEVELOPMENT of CAPITALISM in RUSSIA

Chapter I. The Theoretical Mistakes of the Narodnik Economists

VI. Marx’s Theory of Realisation

It follows automatically from what has been said that the fundamental
premises on which Marx’s theory is based are the following two
propositions. The first is that the total product of a capitalist country,
like the individual product, consists of the following three parts: 1)
constant capital, 2) variable capital, and 3) surplus-value. To those who
are familiar with the analysis of the process of production of capital
given in Vol. I of Marx’s Capital this proposition is self-evident. The second proposition is that two major departments of
capitalist production must be distinguished, namely (Department I), the
production of means of production—of articles which serve for
productive consumption, i.e., are to be put back into production, articles
which are consumed, not by people, but by capital; and (Department II) the
production of articles of consumption, i.e., of articles used for personal
consumption. “There is more theoretical meaning in this division
alone than in all the preceding controversies over the theory of markets” (Bulgakov, loc. cit.,
p. 27). The question arises as to why such a division of products
according to their natural form is now necessary to analyse the
reproduction of social capital, when the analysis of the production and
reproduction of individual capital dispensed with such a division and left
the question of the natural form of the product entirely on one side. On
what grounds can we introduce the question of the natural form of the
product into a theoretical investigation of capitalist economy, which is
based entirely on the exchange-value of the product? The fact is that when
the production of individual capital was analysed, the question of where
and how the product would be sold, and of where and how articles of
consumption would be bought by the workers and means of production by the
capitalists, was set aside as making no contribution to this analysis and
as having no relation to it. All that had to be examined then was the
problem of the value of the separate elements of production and of the
results of production. Now, however, the question is: where will the
workers and the capitalists obtain their articles of consumption, where
will the capitalists obtain their means of production, how will the
finished product meet all these demands and enable production to expand?
Here, consequently, we have not only “a replacement of value, but
also a replacement in material” (Stoffersatz.— Das Kapital , II, 389), [5]
and hence it is absolutely essential to distinguish between products that play entirely different parts in the
process of social economy.

Once these basic propositions are taken into account, the problem of the
realisation of the social product in capitalist society no longer presents
any difficulty. Let us first assume simple reproduction, i.e., the
repetition of the process of production on its previous scale, the absence
of accumulation. Obviously, the variable capital and the surplus-value in
Department II (which exist in the form of articles of consumption) are
realised by the personal consumption of the workers and capitalists of
this department (for simple reproduction presumes that the whole of the
surplus-value is consumed, and that no portion of it is converted into
capital). Further, the variable capital and the surplus-value which exist
in the form of means of production (Department I) must, in order to be realised, be exchanged for articles of
consumption for the capitalists and workers engaged in the making of means
of production. On the other hand, neither can the constant capital
existing in the form of articles of consumption (Department II) be
realised except by an exchange for means of production, in order to be put
back again into production the following year. Thus we get variable
capital and surplus-value in means of production exchanged for constant
capital in articles of consumption: the workers and the capitalists (in
the means of production department) in this way obtain means of
subsistence, while the capitalists (in the articles of consumption
department) dispose of their product and obtain constant capital for
further production. Under simple reproduction, the parts exchanged must be
equal: the sum of variable capital and surplus-value in means of
production must be equal to the constant capital in articles of
consumption. On the other hand, if we assume reproduction on a
progressively increasing scale, i.e., accumulation, the first magnitude
must be greater than the second, because there must be available a surplus
of means of production with which to begin further production. Let us revert, however, to simple reproduction. There has been
left unrealised one more part of the social product, namely, constant
capital in means of production. This is realised partly by exchange among
the capitalists of this same department (coal, for example, is exchanged
for iron, because each of these products serves as a necessary material or
instrument in the production of the other), and partly by being put
directly into production (for example, coal extracted in order to be used
in the same enterprise again for the extraction of coal; grain in
agriculture, etc.). As for accumulation, its starting-point, as we have
seen, is a surplus of means of production (taken from the surplus-value of
the capitalists in this department), a surplus that also calls for the
conversion into capital of part of the surplus-value in articles of
consumption. A detailed examination of how this additional production will
be combined with simple reproduction we consider to be superfluous. It is
no part of our task to undertake a special examination of the theory of
realisation, and the foregoing is enough to elucidate the error of the

Narodnik economists and to enable us to draw certain theoretical
conclusions regarding the home market. [1]

On the problem of interest to us, that of the home market, the main
conclusion from Marx’s theory of realisation is the following:
capitalist production, and, consequently, the home market, grow not so
much on account of articles of consumption as on account of means of
production. In other words, the increase in means of production outstrips
the increase in articles of consumption. Indeed, we have seen that
constant capital in articles of consumption (Department II) is exchanged
for variable capital + surplus-value in means of production (Department
I). According, however, to the general law of capitalist production,
constant capital grows faster than variable capital. Hence, constant
capital in articles of consumption has to increase faster than variable
capital and surplus-value in articles of consumption, while constant
capital in means of production has to increase fastest of all,
outstripping both the increase of variable capital ( + surplus-value) in
means of production and the increase of constant capital in articles of
consumption. The department of social production which produces means of
production has, consequently, to grow faster than that producing articles
of consumption. For capitalism, therefore, the growth of the home market
is to a certain extent “independent” of the growth of personal
consumption, and takes place mostly on account of productive
consumption. But it would be a mistake to understand this
“independence” as meaning that productive consumption is
entirely divorced from personal consumption: the former can and must
increase faster than the latter (and there its “independence” ends),
but it goes without saying that, in the last analysis, productive
consumption is always bound up with personal consumption. Marx says in
this connection: “...We have seen (Book II, Part III) that
continuous circulation takes place between constant capital and constant
capital...” (Marx has in mind constant capital in means of
production, which is realised by exchange among capitalists in the same
department). “It is at first independent of individual consumption
because it never enters the latter. But this consumption definitely limits
it nevertheless, since constant capital is never produced for its own sake
but solely because more of it is needed in spheres of production whose
products go into individual consumption” ( Das Kapital , III,
1, 289. Russ. trans.,

p. 242).  [6]

This larger consumption of constant capital is nothing but a higher level
of the development of the productive forces, one expressed in terms of
exchange-value, because the rapidly developing “means of
production” consist, in the main, of materials, machines,
instruments, buildings and all sorts of other accessories for large-scale,
especially machine, production. It is quite natural, therefore, that
capitalist production, which develops the productive forces of society and
creates large-scale production and machine industry, is also distinguished
by a particular expansion of that department of social wealth which
consists of means of production....“In this case” (namely, the
production of means of production), “what distinguishes capitalist
society from the savage is not, as Senior thinks, the privilege and
peculiarity of the savage to expend his labour at times in a way that does
not procure him any products resolvable (exchangeable) into revenue, i.e.,
into articles of consumption. No, the distinction consists in the
following:

“a) Capitalist society employs more of its available annual labour
in the production of means of production (ergo, of constant capital) which
are not resolvable into revenue in the form of wages or surplus-value, but
can function only as capital.

“b) When a savage makes bows, arrows, stone hammers, axes, baskets,
etc., he knows very well that he did not spend the time so employed in the
production of articles of consumption, but that he has thus stocked up the means of production he
needs, and nothing else” ( Das Kapital, II,
436. Russ. trans.,

333). [7]
This “very good knowledge” of one’s relation to production has disappeared in capitalist society
owing to the latter’s inherent fetishism, which presents the social
relations of men as relations of products—owing to the conversion of
every product into a commodity produced for an unknown consumer and to be
realised in an unknown market. And as it is a matter of the utmost
indifference to the individual entrepreneur what kind of article
he produces—every product yields a “revenue,”—this same superficial, individual point of view was adopted by the
economist-theoreticians in relation to the whole of society and prevented
the process of the reproduction of the total social product in capitalist
economy from being understood.

The development of production (and, consequently, of the home market)
chiefly on account of means of production seems paradoxical and
undoubtedly constitutes a contradiction. It is real “production as
an end in itself”—the expansion of production without a
corresponding expansion of consumption. But it is a contradiction not of
doctrine, but of actual life; it is the sort of contradiction that
corresponds to the very nature of capitalism and to the other
contradictions of this system of social economy. It is this expansion of
production without a corresponding expansion of consumption that
corresponds to the historical mission of capitalism and to its specific
social structure: the former consists in the development of the productive
forces of society; the latter rules out the utilisation of these technical
achievements by the mass of the population. There is an undoubted
contradiction between the drive towards the unlimited extension of
production inherent in capitalism, and the limited consumption of the
masses of the people (limited because of their proletarian status). It is
this contradiction that Marx records in the propositions so readily quoted
by the Narodniks and which are supposed to corroborate their views on the
shrinkage of the home market, the non-progressive character of capitalism,
etc., etc. Here are some of these propositions: “Contradiction in
the capitalist mode of production: the labourers as buyers of commodities
are important for the market. But as sellers of their own commodity—labour-power—capitalist society tends to keep them
down to the minimum price” ( Das Kapital, II, 303). [8] “... The conditions of realisation are limited by the proportional
relation of the various branches of production and the consumer power of
society.... But the more productiveness develops, the more it finds itself
at variance with the narrow basis on which the conditions of consumption
rest” (ibid., III, 1, 225-226). [9] “The limits within which the preservation
and self-expansion of the value of capital resting on the expropriation
and pauperisation of the great mass of producers can alone move—these
limits come continually into conflict with the methods of production
employed by capital for its purposes, which drive towards unlimited
extension of production, towards production as an end in itself, towards
unconditional development of the social productivity of labour.... The
capitalist mode of production is, for this reason, a historical means of
developing the material forces of production and creating an appropriate
world market, and is, at the same time, a continual conflict between this
its historical task and its own corresponding relations of social
production.” (III, 1, 232. Russ. trans.,

p. 194). [10]
“The ultimate reason for all real crises always remains the poverty and restricted
consumption of the masses as opposed to the drive of capitalist production
to develop the productive forces as though only the absolute consuming
power of society constituted their outer limit” [2] (III, 2, 21. Russ. trans.,

p. 395). [11]
These propositions all speak of the contradiction we have mentioned,
namely, the contradiction between the unrestricted drive to expand
production and limited consumption—and of nothing else. [3]

Nothing could be more senseless than to conclude from these passages in
Capital that Marx did not admit the possibility of surplus-value
being realised in capitalist society, that he attributed crises to
under-consumption, and so forth. Marx’s analysis of realisation
showed that the circulation between constant capital and constant capital
is definitely limited by personal consumption; but this same analysis
showed the true character of this “limitedness,” [12] it showed that,
compared with means of production, articles of consumption play a minor
role in the formation of the home market. And, furthermore, there is
nothing more absurd than to conclude from the contradictions of capitalism
that the latter is impossible, non-progressive, and so on—to do that
is to take refuge from unpleasant, but undoubted realities in the
transcendental heights of romantic dreams. The contradiction between the
drive towards the unlimited expansion of production and limited
consumption is not the only contradiction of capitalism, which cannot
exist and develop at all without contradictions. The contradictions of
capitalism testify to its historically transient character, and make clear
the conditions and causes of its collapse and transformation into a higher
form; but they by no means rule out either the possibility of capitalism,
or its progressive character as compared with preceding systems of social economy. [4]

---
Notes:
[1]
See Das Kapital , II. Band, III.

Abschn., [13] where a detailed investigation is made of accumulation, the division of articles of consumption into necessities
and luxuries, the circulation of money, the wear and tear of fixed
capital, etc. Readers who are unable to familiarise themselves with Volume
II of Capital are recommended to read the exposition of
Marx’s theory of realisation contained in Mr. S Bulgakov’s
book quoted above. Mr. Bulgakov’s exposition is more satisfactory
than that of Mr. M. Tugan-Baranovsky ( Industrial Crises,
pp. 407-438), who in building up his schemes has made some very ill-judged
departures from Marx and has inadequately explained Marx’s theory;
it is also more satisfactory than the exposition given by Mr. A. Skvortsov
( Fundamentals of Political Economy, St. Petersburg, 1898, pp
281-295), who holds wrong views on the very important questions of profit
and rent.— Lenin

[2]
It is this passage that the famous Ed. Bernstein (famous after the fashion
of Herostratos) quoted in his Premises of Socialism ( Die Voraussetzungen, etc., Stuttgart, 1899,

S. 67). [14]
Our opportunist, of course, turning away from Marxism towards the old bourgeois economics, hastened to
announce that this is a contradiction in Marx’s theory of crises,
that Marx’s view “does not differ very much from
Rodbertus’s theory of crises.” Actually, however, the only
“contradiction” here is between Bernstein’s pretentious
claims, on the one hand, and his senseless eclecticism and refusal to
delve into the meaning of Marx’s theory, on the other. How far
Bernstein failed to understand the theory of realisation is evident from
his truly strange argument that the enormous increase in the aggregate
surplus product must necessarily imply an increase in the number of
affluent people (or an improvement in the living standard of the workers),
for the capitalists themselves, if you please, and their
“servants” ( sic ! Seite 51-52) cannot “consume” the entire surplus product!! ( Note to 2nd edition. )— Lenin

[3]
Mr. Tugan-Baranovsky is mistaken in thinking that in advancing this
proposition Marx contradicts his own analysis of realisation (see article
“Capitalism and the Market” in Mir Bozhy [God’s Earth ] 1898, No. 6, p. 123). Marx does not contradict himself at
all, for the connection between productive consumption and personal
consumption is also indicated in the analysis of realization.— Lenin

[4]
Cf. “A Characterisation of Economic Romanticism. Sismondi and Our
Native Sismondists.”— Lenin

[5]
Karl Marx, Capital , Vol. II, Moscow, 1957, p. 394.

[13]
Karl Marx, Capital , Vol. II, Moscow, 1957, pp. 351-523.

[6]
Karl Marx, Capital , Vol. III, Moscow, 1959, pp. 299-300.

[7]
Karl Marx, Capital , Vol. II, Moscow, 1957, pp. 438-39.

[8]
Karl Marx, Capital , Vol. II, Moscow, 1957, p. 316.

[9]
Karl Marx, Capital , Vol. III, Moscow, 1959, pp. 239-40.

[10]
Karl Marx, Capital , Vol. III, Moscow, 1959, p. 245.

[14]
E. Bernstein’s Die Voraussetzungen des Sozialismus und die Aufgaben der Sozialdemokratie ( The Premises of Socialism and the Tasks of Social-Democracy ), which revised the principles of
revolutionary Marxism in the spirit of bourgeois reformism, appeared in
1899. Lenin received a copy of it when the first edition of his The Development of Capitalism in Russia had appeared, so that it was
only in the second edition that he was able to include his remarks on
Bernstein’s opportunist views.

Lenin calls Bernstein “famous after the fashion of
Herostratos.” Tradition has it that Herostratos , a Greek
who lived in the 4th century B.C., set fire to the noted temple of Artemis
in his native town of Ephesus for the sole purpose of becoming known to
posterity. The name of Herostratos has become an epithet applied to
individuals who are ready to commit crime for the same of winning fame.

[11]
Karl Marx, Capital , Vol. III, Moscow, 1959, pp. 472-73.

[12]
Karl Marx, Capital , Vol. III, Moscow, 1959, p. 299.

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the Production and Circulation of the Aggregate Social Product in Capitalist Society