The Geometry of Imperialism

I have a globe on my desk. One of the tell-tale signs on such maps of the world is not the pink colour of colonies of the British Empire. That is so passé, and these maps are no longer published. Instead, the significant feature is the number of lengthy straight lines on the parts of the global map covering Africa and the Middle East. While there are straight lines elsewhere, these are the ones that stand out, the ones relating most clearly to the division of colonies in this region by the main European imperial powers.[1]

The straight lines are the product of colonial power that divided areas of influence, irrespective of the different ethnic and social groups that lived in them. The ruling groups in Arab countries were then determined by their relationship with the influential imperialist powers; Israel was, in a more complex way, established as a tool of imperialism to overlook the potentially less obedient Arabs. This means that political issues in these regions cannot be solved within the ‘countries’ concerned. A stable political deal between the different groups has not been established by agreement between them; rather the ascendancy of a particular group has been supported by imperialist influence. This is the basis for civil war, especially when the interests of imperialism change and the formerly leading group no longer has its previous power and support. Then a fragile peace, or a just-acceptable degree of terror or oppression, is no longer sustainable.

In this context, I recommend that you read the linked article/interview that gives an excellent account of the current situation in Syria. This shows, although implicitly, how solutions to the problems in a particular country cannot be resolved within that country, especially when these affect the balance of forces in the region and the interests of the imperialist powers.

Tony Norfield, 13 June 2012

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[1] Just look on Wikipedia for the histories of the formation of African and Middle Eastern states. Britain and France are the main players, with a small role played by Italy, though many decisions on the continent were taken to limit German influence before World War 1. A topic not covered in these otherwise useful details is the way in which Britain’s colonial policy exacerbated ethnic and religious tensions, often with the classic policy of backing the minority faction in a country because they would be more dependent on the external power for support. One would not expect Wikipedia to be able to give a decent account of the role of Israel as a tool of imperialism.

Bankiarupt

The Financial Times reports the latest financial trick to emerge from the euro crisis. The Spanish government, which cannot sell its bonds at less than disastrous yields, has decided to bail out one of its major banks, Bankia, by directly giving it Spanish government debt securities that it would then exchange with the European Central Bank (ECB) for much-needed euro cash. This will help the Spanish state find the funds – reported as €19bn – to manage the overall bank bail out. Apparently, Cyprus will follow suit.

My view has been that the euro project is such a longstanding and important construct for the major European powers – Germany and France – that they will move heaven and earth to defend it. Earlier plans attempted to create a firewall around Greece, though still to keep it within the euro system. I admit to some reconsideration now.

It is not simply the possible rejection of austerity measures in Greece that creates for Germany and other creditor countries the prospect of unending, unproductive subsidies that they are likely to reject. The scale of the problems in Spain, and other countries too, means that the numbers have simply become too large. When it comes to hundreds of billions of euros, then Germany and other creditor countries in Europe will begin to ask questions: can this money be better spent than on bailing out recalcitrant bankrupts? Especially when their actions, as with Spain’s latest move, only add to the burgeoning liabilities of the ECB. Spain is essentially saying that ‘We cannot pay for the bail out, so we are passing the ball to Europe’ – ie the creditor countries who will back up the ECB.

This is such a big crisis that the resolution is not something to be sorted out over a policy weekend, as many previous weekends have shown. It is also more than facile to expect anything progressive from Hollande, who will simply act to protect France’s interests in the troubles ahead – essentially by making Germany pay more, if possible. A long, hot summer is ahead in Europe.

Tony Norfield, 27 May 2012

Stubborn Facts

Lenin was fond of the English saying: ‘Facts are stubborn things’. The accuracy of many so-called facts may be disputable, but it can be instructive to report on the facts published by official institutions of imperialism, ones that nevertheless throw a not very flattering light on today’s realities. This article is a complement to the ‘Imperialism by Numbers’ article I published on this blog on 1 May. It is also an update to, and an extension of, some data I reported in ‘What the “China Price” Really Means’, published on 4 June last year.

The first set of facts is shown in Chart 1. These are data that cover average hourly compensation costs, where ‘compensation’ means not only wages paid, but also the additional employer payments for social benefits such as unemployment insurance, medical insurance, and old-age pensions. The source is the US Bureau of Labor Statistics (BLS), which carried out this analysis to calculate for US corporations the total costs of employing workers in a range of different countries. The details show that it is not only wages paid that are higher in the richer countries; employee benefit costs are much higher too. Chart 1 gives index numbers based on 100 equalling $34.74, the BLS figure for the average hourly compensation paid to US manufacturing workers in 2010. Countries’ labour costs are shown as bigger or smaller bars, with the height of each bar proportional to the 100 level compensation cost in the US.

For China, average hourly compensation costs are estimated at $1.65. This was less than 5% of the costs of US manufacturing employees in the same year! Several years earlier, China’s figure was closer to 2% of US costs, but recent sharp wage rises in China have narrowed the gap a little. India and Sri Lanka have a still smaller ratio of US compensation costs, near 4% and 2%, respectively. Labour compensation costs are higher in the Philippines and Mexico, but Poland is the first country from the low end of the chart that has compensation costs that are more than 20% of the US level.

By contrast, the US, Canada, Japan and the rich Europeans tower above all the other countries shown in the chart. This group includes the so-called G7 countries, the major powers still running the world economy. Switzerland, Belgium, Germany and France have compensation levels more than 20% higher than in the US. One factor influencing the country ranking is the value of a national currency in the international market. However, the gap between the top ranked countries and the bottom ranked ones is so large that this currency factor has little influence on the overall distribution.

Surprisingly, the BLS’s data do not include any African country. Perhaps this is a problem of getting comparable statistics. For example, this is the reason that the BLS does not include figures for China and India in its standard country comparison reports, though it gives some information separately. However, Africa has also been a less important continent for US economic expansion overseas than elsewhere, and the BLS data focus far more on Europe, Asia and Latin America.

Chart 1:          Relative International Labour Costs in Manufacturing, 2010

                        (Hourly costs, US = 100 is $34.74, including non-wage compensation)

Sources and notes: US BLS. 2010 estimates based on 2007-08 BLS data are made by the author for China, India and Sri Lanka. Note that 2-letter ISO codes are used as country identifiers, and that CH refers to Switzerland, not China (which is CN).

Even the relatively minuscule labour costs for the poorer countries exaggerate the actual earnings of millions of workers. The Indian data are boosted by including only the so-called ‘formal sector’, that is the sector made up of generally larger, more organised companies that have some form of regulation and government supervision – including being included in statistical surveys! By contrast, the ‘informal sector’ is unorganised, on a much smaller scale and may include a family ‘business’ that consists of the parents, children and dependent relatives. This sector is not included in most data surveys, but it accounts for a large share of employment at much lower wages than in the formal sector. The BLS reports that 80% of India’s manufacturing employment is in the informal sector.

For China, the BLS calculations of hourly compensation do include estimates for the ‘informal sector’. In Chinese statistics this is listed under the heading of ‘town and village enterprises’ (TVEs), whereas the larger, more regulated, sector is under the heading of ‘urban enterprises’. The TVEs accounted for 70% of the total workforce, with 79.1 million workers employed in 2006; the urban enterprises sector employed the other 30%, or 33.5 million workers. Not surprisingly, in 2008 the average hourly compensation was just 82 cents in the TVEs compared to $2.38 in the urban companies.[1]

American and other foreign corporations will tend to set up in the formal sector, and will likely be paying the ‘higher’ wages. But they will still benefit from the mass of even cheaper labour from poor families who work for them indirectly, either by providing services for the larger companies, or by being what Marx called the ‘reserve army of labour’ for the formal sector. The divergence in labour costs for countries other than China, India and Sri Lanka may be less extreme. For example, South Korean costs are just below half the US figure. But there is still a very big gap.

If we look at the broader economy, rather than just manufacturing, the same picture of relative incomes holds. In fact, there is a 95% positive correlation between the figures for manufacturing compensation and for a country’s per capita GDP.[2]

Chart 2 gives a snapshot of global income inequality, based on a rough estimate of the Lorenz curve for 183 countries comprising 6.7 billion people.[3] World Bank average GDP per capita data for each country are used as the input. This method may understate global income inequality, because it assumes that everyone in country A gets the average per capita income for country A. Nevertheless, it has the advantage for our purposes of putting the different countries in focus.

Global average GDP per capita in 2011 was $9200. Of the 183 countries included in the data, 124 countries with a population of 5.0 billion (75% of the world total) had an average income below this, while 104 countries with a population of 4.8 billion had an average income below $5000 in that year.

Chart 2:          The Global Lorenz Curve, 2011 (based on GDP per capita)

Source and notes: World Bank. Data for average GDP per capita in 2011 for 183 countries is used as the basis for calculating the cumulative income distribution curve, the Lorenz curve.

If we take a common measure of inequality, the Gini coefficient, and calculate this from the data in Chart 2, the figure shows the expected high level of inequality: close to 66%. It would be more like 70% if the inequality of component country distributions were also allowed for. In that case, this measure of income inequality on a global scale is on the same level as that in the most unequal of countries for which Gini coefficient data are available: Namibia.

To give specific examples, in 2011 the GDP per capita of Switzerland was put at just over $70,000, while the US number was around $47,000, Germany was $43,000 and the UK was $39,000. Compared to these figures, China was close to $4000 and India to $1300. The data from the World Bank, the IMF, the CIA and other organisations have some differences, and the figures get revised, but the rankings and the income gaps are very similar from all sources.

The basic, and not surprising, fact is that the world economy is very unequal. When we look at the mechanisms that underpin this fact, we find that the inequality has much less to do with differences in labour productivity than with the way that some countries get privileges in the world economy at the expense of others.

Tony Norfield, 22 May 2012

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[1] See BLS Monthly Labor Review, April 2009. The data noted here are for 2006.

[2] Using the full set of BLS data for 34 countries’ compensation costs in 2010, I found there to be a 0.951 correlation coefficient with the respective countries’ per capita GDP in 2011 as reported by the IMF. This shows that the manufacturing wage/compensation is closely related to the broader economic income of the country. This is a sign that the richer, and usually imperialist, countries can afford to pay their production workers more. As the ‘China price’ article indicated, this has more to do with imperial power than being based on higher productivity.

[3] The Lorenz curve is closely associated with the ‘Gini coefficient’ of inequality mentioned later. It is a common, summary graphical measure of inequality. The 45-degree line indicates where 10% of the population gets 10% of the total income, 20% gets 20% of the total, etc. As such, it represents a line of equality of income in the population. The divergence of the Lorenz curve from this 45-degree line shows the extent of inequality. Wikipedia has a general explanation of this statistical measure and its relationship to the Gini coefficient.

Imperialism by Numbers

There are close to 7 billion people in the world, in some 200 countries. However, a very small minority of rich, powerful countries - or rather, the rich and powerful in these countries - run the world economy. The way in which this happens is the focus of my research and the subject of many articles on this blog. In this article, I present some statistics to highlight the stratification of the world economy between the small number of imperialist powers and the rest. I welcome any comments on this analysis.

Five features *

Lenin outlined five features of imperialism, from the decisive role of capitalist monopolies, to the development of ‘finance capital’ and the export of capital, to the territorial division of the world between the biggest capitalist powers.[1] Although the form of territorial division has changed, with the end of colonial empires, these features continue to describe the world economy. Here I set out five complementary statistics for examining imperialism today from data for 180 different countries.

The first is nominal GDP. This measure of economic output is the most widely used in official statistics, though it has a number of drawbacks, not least that it is a measure of value appropriated rather than value created.[2] However, it is an easy number to obtain for the size of economic output in a particular country. The degree to which it is exaggerated by value appropriated from elsewhere will also be an advantage if we are to use it as a measure of global economic power.[3] Of course, countries with a large GDP are not necessarily rich – they might have a large population with a very low average income. Nevertheless, a high GDP ranking indicates that the country has weight, and presumably some influence, in the world economy.

The second measure is the size of military spending by each country. This spending might be for internal repression rather than for external power projection, but it is notable that the five biggest spenders in the world are also permanent members of the UN Security Council, each with a veto power on UN decisions. In general, it looks like a good measure to use as an indicator of imperial status.

For the third measure, I use figures for the stock of foreign direct investment (FDI) owned by each country. These figures will not fully reflect a country’s external economic power. For example, they exclude privileges and benefits that may come from commercial and trading relationships that may have little to do with owning companies and property in other countries. Neither will the FDI numbers reflect the power, influence and revenues that come from owning foreign portfolio assets (equities and bonds). However, the FDI data can be used as one guide to how far a country is able to exploit workers in other countries.

The final measures are used to reflect the financial power of different countries. One is a country’s ownership of the top 50 international banks; the other is the importance of a country’s currency in central bank foreign exchange reserves. These measures are far from comprehensive, but they should give an indication of how far a country’s banks are important on the world stage and how far its currency is accepted internationally.[4] Probably the main dimension missing from these particular measures is how far a country is able to utilise the financial sector to appropriate value from the world economy when this does not necessarily come via its own banks, or from the use of its own currency.[5]

Each of the statistical measures I use for the index has problems, but they offer a simple way in which to sum up key features of a country’s economic and political position in the world. In order to standardise the data for comparison purposes, I have set the highest value under each heading at 100. This means that if, for example, one country has the highest GDP, then its value will be shown as 100. Other countries with smaller GDPs will be shown as a proportion of that number, as 30, for example.

The five measures used are given equal weights, and the total index is an average of the individual values. This summary index is a guide to a country’s status. Results for the different countries show dramatically different values, and there is a clear hierarchy between the small number of countries at the top and the remainder with index values far behind.

Table 1: The Imperialism Index

Notes and sources: Calculated from original IMF, SIPRI, UNCTAD data. GDP data were for 2011, military spending data for 2010, FDI stock for 2010, ‘top banks’ for 2009, central bank FX reserves for end-2011. Figures for China include Hong Kong. The total index is an unweighted average of the components.

Table 1 shows the results for the top 20 countries ranked by their total index value. The US stands out at the top of each component measure, with a total (average) score of 100. Next in line is the UK, at a mere 32 points. The UK ranks close to the US only in the significance of its banking sector, and it is a distant second in terms of FDI holdings. France is not far behind the UK, spending slightly more on the military and having a higher GDP, but it scores less on the other measures than the UK. Germany is ranked a bit lower than France. This latter relationship may be surprising, since the French economy is smaller than Germany’s and more central banks hold German securities than French. But France has a higher rank in terms of military spending, FDI and its international banking position. This correlates well with France (like the UK) being a more active promoter of war.

Japan ranks at a significant margin below Germany in these measures of imperial power, with an index value close to 23. While Japan is the second largest world economy in terms of nominal GDP, the prolonged stagnation in Japan’s economy has damaged its banks and reduced the scope for its corporations to invest abroad.

China is a significant member of the top group in this classification, ranking 6^th at just below 20 index points. Its GDP is half the size of that in the US, though ‘purchasing power parity’ measures put it much closer. Its military spending is the second largest in the world, though still less than 20% of that in the US. American strategists are nevertheless concerned because China can mobilise a lot of cheap manpower for the military, and the gap in hardware capability may not be as big as the sub-20% figure would suggest. The FDI figure for China mainly consists of investments from Hong Kong. These may also be invested in China, so this may incorrectly push the overall index value somewhat higher. However, the leverage that Hong Kong gives China in commerce and finance should not be underestimated. Even though China has a position neither in the measure of top banks, nor in that for central bank holdings of its currency, these factors are bound to change in the next few years. China is slowly developing its financial system, the CNY is being used more in international trade relationships and Chinese banks are bound to play a bigger role in international finance.

Below China, it is a significant drop before the next group of countries, each with index values of less than 12. These countries do not count for much individually on these measures, but they can gain some influence by being part of the European Union (or euro) group of countries, or by being a major banker and foreign investor (Switzerland), or by being politically close to the US (Canada and Australia).

Of the so-called BRIC countries, China has already been placed. Russia, Brazil and India each rank much lower, though each has its own particular advantages in the global system (Russia’s being military). Saudi Arabia is perhaps a surprising element in the top 20 countries, but that is how these numbers work out. The close links of the Saudi royal family with US imperialism mean that it is hard to see this country as an independent player. Its position in the table is due to its military spending that reflects the subsidies it offers to defence contractors in imperialist countries, though it has also played an active role undermining protests in the Middle East, especially in Bahrain.

The following chart shows the same data and illustrates clearly the imperial pecking order. The UK, France, Germany and Japan each has an index value of less than one-third that of the US, but they are each several times bigger than countries further down the scale. Remember that this chart only shows the ‘top 20’ countries. The 20^th member, South Korea, has an index value of just 2.1, a fiftieth of the US value and less than a tenth of any of the major European powers or Japan. But further down the list (not shown) are more than 100 countries with an index value of less than 0.1, ones that would be mistaken for the x axis in the chart!

Chart 1: The Imperial Pecking Order

Notes: The height of each bar is given by the country’s total index value, which is then broken down into the respective components. Countries are identified by their two-letter ISO code. Take care, because CH is Switzerland, not China (which is CN), and SA is Saudi Arabia, not South Africa (this country is not shown, as it was ranked number 26). The countries are listed in the same order as in Table 1.

(This chart has been corrected. When originally published, the ISO codes for Canada and Belgium were entered incorrectly)

 

Conclusion

The significance of the US in the world economy is not news to anybody; neither is the fact of inequalities in wealth, power and influence between different countries. However, these statistics highlight the divergence in a striking manner. Although the figures are for recent years, in most cases the leading imperialist countries have been in their positions for decades. This is certainly the case for the US and the UK. They did not win their leading role by winning a popularity contest, but by moulding the world in their own interests, using their economic power and the threat or use of violence.

One final point on the index of imperialism presented here. The position of an individual country can only properly be understood by looking at its relationship to the imperialist system as a whole, not simply by examining whether its index value is higher or lower than another’s. It would be foolish to say that a particular index number means a country is imperialist, while one that is a certain amount smaller shows that it is not. The index components summarise only particular dimensions of the system. Different measures would produce different results, and any index measure would have a problem grasping the dynamics of the system.

Tony Norfield, 1 May 2012

Note on 3 December 2018: I have made some amendments to this index calculation and also updated the results to account for new data. The most recent picture is shown here.

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[1] See Imperialism, the Highest Stage of Capitalism, Chapter 7 ‘Imperialism as a special stage of capitalism’. Available on http://www.marxists.org/archive/lenin/works/1916/imp-hsc/index.htm

[2] See John Smith’s analysis, noted in ‘Imperialism and the Law of Value’, on this blog, 3 December 2011.

[3] GNP would be a better number, since this also includes net property income from abroad. However, GNP data are less readily available.

[4] In the case of the euro, I have divided the latest figures for total central bank reserve holdings of euros into components reflecting the proportions of Deutsche marks, French francs, etc, held in 1998.

[5] I am thinking about Britain here! See ‘The Economics of British Imperialism’, 22 May 2011, on this blog.

The Commodities Business

I recommend reading this article in Foreign Policy on Glencore. While it is short on analysis and focuses instead on personalities, it offers a good summary of many practices in the commodities business, from bribery and corruption to gangsterism and sanctions busting. It is notable how having a secure base in the imperial heartlands (US, UK, Switzerland), with ready access to politicians, cash and markets can combine to make these guys billionaires with relative ease.

Glencore’s founder, Marc Rich, was indicted on tax evasion and other charges in the US in 1983, but he had managed to flee to Switzerland shortly before. In 2001, on his last day in office, President Clinton took time out from photo calls to pardon Rich. Former Israeli Prime Minister Ehud Barak was among those lobbying Clinton on Rich’s behalf.

Information from a recent prospectus showed that Glencore ‘controlled more than half the international tradable market in zinc and copper and about a third of the world's seaborne coal; was one of the world's largest grain exporters, with about 9 percent of the global market; and handled 3 percent of daily global oil consumption … It recently announced a $90 billion takeover of Xstrata, a global mining giant [another FTSE100 company] in which it already holds a 34 percent stake … Glencore already trades, manufactures, refines, ships, or stores at least 90 commodities in some three dozen countries’.

Glencore is interesting in that it straddles the industrial, commercial and financial dimensions of monopoly capitalism. As the Foreign Policy report indicates, its profitability has been boosted by its own form of predatory behaviour, using its close links with agents, particularly in Africa and Eastern Europe, who could secure lucrative local deals.

Tony Norfield, 24 April 2012

The Circuit of Capital

This article is based on an essay I wrote more than 30 years ago. With some minor stylistic changes, a revised conclusion and some footnote updates I reproduce the original essay here as a contribution to the understanding of Marx’s Capital. There are many footnote references, in most cases referring both to particular pages in one edition of Capital and also to the location of a reference within a chapter. This is to assist the reader in finding references in other editions and via internet resources (especially the excellent Marxists Internet Archive).

Of the three volumes of Marx’s Capital, Volume 2 on the circulation process of capital is the most neglected. Where it has acquired some attention, as with the use of the reproduction schemes to analyse the ‘transformation’ of values into prices of production, it has often been misunderstood.[1] The first section of this essay outlines the methodological relationship between the three volumes of Capital; the second deals more extensively with the subject matter of Volume 2 and its relationship to Volume 1.

1.             Methodological distinctions

A concise formulation of the relationship between the volumes of Capital is found on the first page of Chapter One in Volume 3. Marx notes that Volume 1 analysed the immediate process of capitalist production ‘with no regard for any of the secondary effects of outside influences’ and that Volume 2 studied the circulation process of capital, which must be added to the immediate process of production to complete the ‘life span of capital’. Volume 3, on the other hand, went beyond this synthesis to ‘locate and describe the concrete forms which grow out of the movements of capital as a whole’. In contrast to the first two volumes, the third develops those forms of capital which

‘approach step by step the form in which they assume on the surface of society in the action of the different capitals upon one another, in competition, and in the ordinary consciousness of the agents of production themselves.’[2]

The analysis of the first two volumes is therefore conducted at the level of ‘capital in general’ and it only reaches the level of ‘many capitals’ and competition in the third. The forms of capital on the ‘surface of society’ are not examined immediately, and even in the third volume they are only ‘approached’.

Marx’s point was that a ‘scientific analysis of competition is not possible before we have a conception of the inner nature of capital’.[3] Capital can only exist as many capitals, and competition is a necessary feature of the capitalist world. However competition is the relationship of one capital to another, so an analysis that begins at the level of competition will already presuppose the existence of capital. It will tell us nothing essential about capital as a social relation, only about how this relation appears in a modified form, from the standpoint of the individual capitalist. Analysing the essential features of capitalism as a particular form of social production, including the wage-labour and capital relation and the role of surplus value as the driving force of production, can be done without reference to the competition between individual capitalists.[4] In this way, the essential relationships are developed and the analysis can proceed to show how they appear on the ‘surface of society’ in a contradictory form. This approach can account for the changing forms of competition, including the tendency towards monopoly.

The analysis of Volumes 1 and 2 shows that the essential relationships of capital are themselves contradictory. It is not only a question of the more complex forms (eg interest bearing capital) that develop alongside capital accumulation deceiving agents of production. The fundamental contradiction between the development of the forces of production under capitalism and the social relations within which this takes place is evident at every stage. With this in mind, it is even more important not to be misled by differences at the level of competition, where we see antagonism between rival groups of capitalists and states. Instead, a clear grasp of what is necessary for capital as a social relation is the foundation for building an opposition to it in all its forms.

Marx takes the simplest concepts, eg the commodity, and develops these into more complex forms, eg labour-power and capital. Within this general procedure, there is a methodological division between Volumes 1 and 2 on the one hand and Volume 3 on the other. The first is an analysis of ‘capital in general’, the second the analysis of ‘many capitals’. As a result, modifications of the relationships discovered in Volumes 1 and 2 that arise from competition are not dealt with. This is the case, for example, with the assumption in the first two volumes that commodities exchange (on average) at their values. There is no reason to assume otherwise at this stage. Only in Volume 3 does Marx examine how and why prices deviate from values, in the context of forming an average rate of profit among the different individual capitals. This modification – via ‘prices of production’ – does not overturn the previous analysis and conclusions, but develops them. The previous assumptions were not meant as a full description of concrete reality, but were methodologically necessary to examine the pure, fundamental forms.[5]

2.             Volume 2 and Volume 1 of Capital

An examination of the circuit of capital clarifies the relationship and distinction between Volumes 1 and 2. The circuit consists of three stages: firstly, the capitalist appears on the commodity market as a buyer and transforms his money capital into means of production and labour-power (M – C); secondly, these commodities, having fallen out of circulation, are consumed in the process of production and, as a result, the capitalist now possesses a value greater than the value of the elements of production he first purchased (C … P … C’); lastly, the capitalist returns to the market with the commodity-capital and converts it back into money so the circuit can begin again (C’ – M’).

Strictly speaking, this is the circuit of industrial capital, which, as Marx says, ‘is the only mode of existence of capital in which not only the appropriation of surplus-value, or surplus-product, but simultaneously its creation is a function of capital’. Industrial capital is, then, the most general and most important form of capital:

‘Its existence implies the class antagonism between capitalists and wage-labourers. To the extent that it seizes control of social production, the technique and social organisation of the labour-process are revolutionised and with them the economico-historical type of society. The other kinds of capital, which appeared before industrial capital amid conditions of social production that have receded into the past or are now succumbing, are not only subordinated to it and the mechanism of their functions altered in conformity with it, but move solely with it as their basis, hence live and die, stand and fall with this basis.’[6]

For these reasons, industrial capital commands almost exclusive attention until Volume 3.

In Volume 1, which deals with the immediate process of production, the second stage in the circuit is the object of analysis. The first and third steps, in the sphere of circulation, are only discussed in so far as this is necessary for an understanding of the second. In particular, Marx examines ‘the purchase and sale of labour-power as the fundamental condition of capitalist production’.[7] Otherwise, we simply find the assumption that the capitalist is able to obtain the elements of productive capital in the market and that he is able to sell his commodities at their value. On the other hand, Volume 2, dealing with the circulation process, examines explicitly the ‘various forms which capital takes in its different stages, and which it now assumes and now strips off in the repetition of its circuit’. Marx adds for the unwary that

‘In order to conceive these forms in their pure state, one must first of all discard all factors which have nothing to do with the changing or building of forms as such.’ [8]

Therefore it is assumed both that commodities exchange at their values and also that no changes in value occur during the movement in circuits.

The connection between the two volumes can further be traced by examining how those concepts and categories introduced in Volume 1 are modified when the circulation process of capital is accounted for explicitly. In doing this, I will follow the order of presentation in Volume 2.

2.1             Volume 2, Part 1

Volume 1 derived the result that surplus value is only created in the process of production by the capitalist’s exploitation of the wage labourer, and that the magnitude of the value added by the labourer is determine by the duration of the labour process (for a given level of skill and intensity of work). But we can see from the circuit of capital that time is also spent in the sphere of circulation, in buying and selling. How does this time affect the creation of surplus value? Before answering this question it is important to note that

‘The function of circulation of capital is only to transfer the right of ownership of a product from one person to another, only a transformation of value from a commodity form to a money form, or inversely, only a realisation of produced value.’ [9]

This changing of form has to be distinguished from the transport and packaging of commodities, which also occur within the sphere of circulation but which are extensions of the productive process and add value to commodities. Certain costs of storage can also be considered as productive in this way.[10] Otherwise, that capital which is engaged in the sphere of circulation, merely to change the form of commodities and money, is excluded from the process of production and can create neither value nor surplus value. It is clearly necessary for capital to pass through the sphere of circulation, to buy the elements of productive capital and also to sell the commodities produced so that money capital may be newly advanced. But the costs arising here, despite being necessary, are costs that do not add to the values of commodities.[11] Values can only be increased in a negative sense, by reducing the amount of capital tied up in this unproductive function and freeing it for the productive process.[12] It was important for Marx to distinguish between the spheres of production and circulation in order to refute the ideas of the political economists that the functions of buying and selling also added value to the product, and to show the barrier which circulation poses for the self-expansion of capital.

In addition to presenting the general problem of circulation in the first part of Volume 2, Marx sets out the three circuits of capital; those of money capital, productive capital and commodity capital. Marx shows how capital must exist simultaneously in each bodily form as a precondition for the continuity of capitalist production, and that the three circuits are inter-dependent both in terms of coexistence and succession.[13] These circuits play an important role in the exposition of the remainder of Volume 2. They have the following things in common: ‘The self-expansion of value as the determining purpose, as the compelling motive.’[14] This clearly brings out the fact that capital ‘can be understood only as motion, not as a thing of rest’,[15] and the specific forms this motion takes are studied with the aid of the three circuits.

2.2             Volume 2, Part 2

In Part 2 of Volume 2, Marx analyses the turnover of capital. The turnover time of an individual capital

‘is equal to the sum of its time of circulation and its time of production. It is the period of time from the moment of the advance of capital-value in a definite form to the return of the functioning capital-value in the same form.’ [16]

In the study of turnover, Marx uses the circuits of money- and productive-capital. The former enables the relationship between turnover and the formation of surplus value to be clarified; the latter the influence of turnover on the creation of the product. The third element, of commodity-capital, is not dealt with in this part since in this form capital-value does not begin as an advance, but as C’, value already expanded.[17]

The circulation process gives rise to a new categorisation of productive capital that enables the form of turnover to be studied. In Volume 1, Marx divided productive capital into its constant and variable parts, this being the important distinction from the point of view of the self-expansion of capital in the immediate process of production. Marx also distinguished there between constant capital as instruments of labour and constant capital as raw materials, where the former give up their use-value and value piecemeal in production and the latter transfer their value entirely to the product.[18] But this aspect is dealt with only insofar as it is necessary for an understanding of how the value of the means of production is preserved by the labourer.

In the circulation process, the elements of productive capital must be examined from another perspective. Marx makes the distinction between fixed and circulating capital, which is based on the manner in which the value of the capital circulates.[19] The distinction appears to be the same as that applied to the means of production – the constant capital – in Volume 1, since the instruments of labour are designated fixed capital and the raw materials circulating capital. However, circulating capital also comprises the capital invested in labour-power, the variable capital. This is because, despite the differences with regard to the creation of value, the value of the variable capital circulates in the same way as the value of the raw materials.[20]

A simple numerical example illustrates the effects of the two parts of capital on turnover.[21] If a capital consists of £10 000, of which £5000 is fixed and £5000 circulating, and if the former turns over once every five years, while the latter turns over once every year, then in 20 months the total capital value of £10 000 is turned over. Clearly, if the proportion of fixed to circulating capital rises (which is a tendency for advanced capitalism),[22] then the turnover time for the total capital value would also be extended. Such circumstances influence the amount of capital that has to be advanced to produce a given value in a given time.

The previous example also shows that, although the total capital value of £10 000 is turned over in 20 months, the fixed capital is not actually replaced for five years. Where fixed capital accounts for a high proportion of total productive capital, this lag in replacement is one of the factors explaining the periodicity of crises. Marx proposed that the average life of fixed capital, which he assumed to be 10 years, was the ‘material basis’ for the periodic crises of the 19^th century.[23] This is an illustration of the possibility of crises arising out of the general nature of capital.

Another important point emerges in considering the turnover of circulating capital. Volume 1, from the standpoint of the immediate process of production, developed the category of the rate of surplus value. The circulation process modifies this. Circulating capital includes variable capital, so if the rate of surplus value is 100% and variable capital turns over once in a year, then the annual rate of surplus value is also 100%. But if variable capital is turned over 10 times per year, then the annual rate of surplus value is 1000%.[24] A reduction in turnover time may result from a shortening of the working period or increased efficiency in other parts of the circuit of capital, eg in selling the commodities produced. The capitalist can then have less of his capital tied up in the employment of labour-power over a given period and receive the same, or even a greater, mass of surplus value.

2.3             Volume 2, Part 3

Part 3 analyses the reproduction and circulation of the aggregate social capital. In this last part, Marx makes use of the circuit of commodity-capital, although not as a circuit applying to an individual capitalist but as a means of examining the consumption and reproduction of the total product of (industrial) capital. This can usefully be contrasted with the chapters on simple reproduction and accumulation in Volume 1.

In the chapter on simple reproduction in Volume 1 (Chapter 23), Marx shows that a certain portion of each year’s product is destined for productive consumption, while the remainder may be consumed individually. He notes that, in general, commodities serving one function will have a different material form from those serving the other.[25] However, at this point, Marx is not concerned with this aspect of the process, rather with the distinction between productive and individual consumption. The labourer is shown to consume in both ways, such that the wage-labour and capital relation is perpetuated.

The labourer consumes productively when ‘he consumes by means of his labour-power the means of production and converts them into products with a higher value than that of the capital advanced’. In this way he produces capital, ‘an alien power that dominates and exploits him’. [26] On the other hand, the labourer consumes individually when he ‘turns the money paid to him for his labour-power into means of subsistence’. The consumption of means of subsistence not only sustains the labourer (and his family), but it forces the labourer continually to return to the labour market to sell his labour-power. In Volume 2, productive and individual consumption are examined from the point of view of the circulation process.

It is important to recognise that although both Volumes 1 and 2 treat ‘capital in general’, it is only in Part 3 of Volume 2 that Marx analyses the aggregate social capital.[27] This is because the total process

‘comprises both the productive consumption (the direct process of production) together with the conversions of form (materially considered, exchanges) which bring it about, and the individual consumption together with the conversions of form or exchanges by which it is brought about.’[28]

Therefore the total process can only be dealt with after an examination of the categories presented in Volume 1 and the first two parts of Volume 2. This was why, in the first volume, accumulation and simple reproduction were considered ‘from an abstract point of view, ie as a mere phase in the actual process of production’.[29]

This point is further elaborated when Marx introduces the reproduction schemes. Here he says that ‘the merely formal manner of presentation’ in which it was assumed, for example, that an individual capital could find a market for its commodities and could find on the market those commodities it required for its own production, ‘is no longer adequate in the study of the total social capital and of the value of its products’.[30] The questions that have now to be considered explicitly are

‘How is the capital consumed in production replaced in value out of the annual product and how does the movement of this replacement intertwine with the consumption of the surplus-value by the capitalists and of the wages by the labourers?’[31]

The reproduction schemes are the tools with which Marx explores this question, and these show in a strikingly clear form the unity and opposition of the use-value and value of a commodity, first introduced in Chapter 1, Volume 1.

Marx divides the total product of society, and therefore total production, into two departments.[32] Department 1 furnishes those commodities ‘having a form in which they must, or at least may, pass into productive consumption’. Department 2 produces those commodities ‘having a form in which they pass into the individual consumption of the capitalist and the working class’. The sum total of exchange relationships in society is then reduced to the exchange between these two departments, an exchange represented not only in terms of value but also in terms of use-value. The division of the two departments is not arbitrary, but is based on the economic form and role played in reproduction by the use-values they produce.

Given certain assumptions – all commodities exchange at their values, all capitals in each branch of production have an equal turnover time (eg one year) and that there is no fixed capital – it is shown that simple reproduction may proceed smoothly. This occurs if the value of the constant capital of Department 2 (c2) is of the same magnitude as the sum of the values of the variable capital and the surplus value in Department 1 (v1 + s1). The two departments can then exchange equal portions of their respective commodity values and receive the particular use-values that they need. It is irrelevant to argue here that the assumptions are unrealistic, since the point is not to mirror the actual processes in the economy but to see them in their simplest form. In fact, even under a number of favourable assumptions for capitalism, if fixed capital is allowed into the reckoning, it can be shown that crises would occur even on the basis of simple reproduction.[33]

Simple reproduction in both Volume 1 and Volume 2 is considered separately from accumulation. As Marx says,

‘as far as accumulation does take place, simple reproduction is always a part of it, and can therefore be studied by itself, and is an actual factor of accumulation.’[34]

Once the relations arising out of this basic element have been examined, accumulation can be dealt with. Volume 1 treats accumulation from the point of view of the individual capitalist, although not distinguished from ‘capital in general’. Accumulation takes place, or ‘surplus value is convertible into capital solely because the surplus-produce whose value it is, already comprises the material elements of new capital’.[35] In Volume 2 we see how ‘what happened in the case of the individual capital must also show in the annual reproduction as a whole’.[36]

Again it is a question of examining the general possibility of accumulation on the basis of extremely restrictive assumptions, and the results of such an analysis should not be taken as directly conforming to the workings of the capitalist economy. The assumptions are justified insofar as accumulation does indeed take place and we are seeking to understand the character of this process. The conditions under which accumulation and reproduction on an extended scale can take place ‘smoothly’ are evidently more complex than those for simple reproduction, and will not be dealt with here.[37] Instead, it is worth concluding this section with an illustration that shows why the reproduction schemes cannot be used as a ‘growth model’, but how they also clarify the contradiction between use-value and value.

The relationships of exchange between Departments 1 and 2 must be looked at both from the perspective of use-value and value. Each department can only secure those commodities it requires from the other by exchanging a value equivalent to that of its own commodities. However, the demand for a commodity is a demand for its use-value, not its value. In the case of the means of production, for example, this is determined in the first instance by technical factors – a planned level of output will consume a certain volume of raw materials, which in turn will need to be worked on by a certain number of machines, tools, etc. Yet these technical factors are not fixed – themselves being influenced by value considerations - and in the real process of capital accumulation any equilibrium in terms of value and use-value between the two departments could not persist. Accumulation characteristically involves technical change and productivity increases. Such increases would mean that a greater mass of use-values would embody the same value as before, and there is nothing to ensure that this greater mass will match the social demand. Disproportion is bound to occur, and the ‘correct’ proportions, the correct allocation of social labour under capitalism, will only be established by accident, or more likely through the operation of crises of varying intensities throughout the system of reproduction.

3             Conclusions

The analysis of Volume 2 completes Marx’s examination of ‘capital in general’. Capitalist production can now be seen as the unity of production and circulation: the extraction of surplus value from the labourers as the basis for the accumulation of capital, and the various forms assumed here, together with those taken on by capital in its process of circulation. The analysis of the circulation process clarifies many relations not dealt with in Volume 1. It shows how circulation is both a necessity for and a barrier to the self-expansion of capital, and how the period of turnover and the time spent by capital in each of its stages affects the form of motion of capital. The problem of realisation, of producing use-values on the relevant social scale, is clarified through the reproduction schemes.

Presenting these relations at an abstract level enables a correct theoretical understanding of the more concrete forms that ‘grow out of the movements of capital as a whole’. These can be seen as capital’s attempts to overcome the contradictions arising from its general nature. Examples include the role of credit in allowing individual capitals to continue to accumulate, and the specialisation of capital into merchant (commercial) and banking capital. The importance and role of foreign trade can also be deduced from the reproduction schemes. These issues, and many others, are dealt with in Volume 3, which analyses ‘the process of capitalist production as a whole’.

This essay has focused on Volume 2 and its relationship to Volume 1, but it would be a mistake to derive Marx’s view of crises and the barriers to capital accumulation from these two volumes alone. The ‘law of the tendency of the rate of profit to fall’ is critical to Marx’s theory on this question, and it is a further expression of the fundamental contradiction between capitalist relations of production and capital’s development of the forces of production. This law is nevertheless only dealt with in Volume 3. There are two important reasons for this. Firstly, because the analysis of the capital’s process of production and circulation are necessary preliminary steps in the analysis. For example, turnover time is important in determining the annual rate of profit for capital. Secondly, because the trend in the rate of profit has an impact on capitalist society as a social average, but this average can only fully be understood once the analysis has passed from the level of ‘capital in general’ to that of ‘many capitals’. It appears as if there is no relationship between the profits an individual capitalist earns and the surplus value he appropriates. The link can only be derived by examining the individual capitalist’s relationship to the whole system.

Unfortunately, for some radical, and not so radical, critics of capitalism, Volume 2 has provided arguments for focusing on ‘disproportions’ in capitalist production, realisation problems and so forth. This is ironic, since Marx discounted such evident troubles in order to focus on the more fundamental barriers that capitalism placed on the development of society.

Tony Norfield

Bibliography

[4 Nov 2017: Footnote references to the different volumes of Capital below have been corrected] 

Kliman, Andrew 2007, Reclaiming Marx’s Capital: A Refutation of the Myth of Inconsistency, Lexington Books, 2007.

Marx, Karl 1974a, Capital, Volume 1, London: Lawrence & Wishart 1974.

Marx, Karl 1974b, Capital, Volume 2, London: Lawrence & Wishart 1974.

Marx, Karl 1974c, Capital, Volume 3, London: Lawrence & Wishart 1974.

·        Note that the three volumes of Capital are available on: http://www.marxists.org/archive/marx/works/download/pdf.htm

Rosdolsky, Roman 1977, The Making of Marx’s ‘Capital’, London: Pluto Press, 1977.

Rubin, I I 1972, Essays on Marx’s Theory of Value, Detroit: Black & Red, 1972.

Yaffe, David 1974, ‘Value and Price in Marx's Capital’, 1974 http://www.marxists.org/subject/economy/authors/yaffed/1974/valueandpriceinmarxcapital.htm

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[1] See the coverage of this issue by Rosdolsky (1977) Chapter 30, ‘The Dispute Surrounding Marx’s Schemes of Reproduction’. My comments on Marx’s method follow Rosdolsky’s interpretation (see Chapter 2, ‘The Structure of Marx’s Work’). I do not want to add to the interminable debate on the so-called transformation problem, except to say that there is no logic in using Marx’s reproduction schemes for the circulation of capital in the analysis of the formation of prices of production. Marx considered capitals with different organic compositions in his analysis. However, each capital was looked upon as a portion of the total social capital when he derives prices of production. This important point was stressed by Yaffe (1974, Section 3.3.2). Hence, the ‘input/output’ relationships between the different capitals were not relevant to this analysis. If one insists on using the reproduction scheme approach, then Kliman (2007, Chapter 8) has shown that a consistent solution can be found, contrary to many critics of Marx’s theory of value.

[2] Marx (1974c, p25).

[3] Marx (1974a, Chapter 12, p300).

[4] Of course, the existence of many capitalists is not denied at this stage of the analysis, and, for the most part, it is developed using an individual capitalist. However, the individual capitalist is taken as a representative element of the total social capital.

[5] Note that even Volume 3 is not ‘concrete’. Although it deals with competition, it does not analyse the real movement of market prices, wages, the rate of interest, etc. For example, Marx merely notes that the depression of wages below the value of labour-power is a factor checking the tendency of the rate of profit to fall (Marx 1974c, Chapter 14, Section 2, p235).

[6] Marx (1974b, Chapter 1, Section 4, p57).

[7] Marx (1974b, Chapter 18, Section 1, p357).

[8] Marx (1974b, Chapter 1, Introduction, pp25-26).

[9] Rubin (1972, p270).

[10] This is true for those storage costs that do not arise out of the difficulty of realisation. See Marx (1974b, Chapter 6, Section 2.2, p151).

[11] Marx (1974b, Chapter 6, Section 3, p152).

[12] Marx (1974b, Chapter 5, p128).

[13] Marx (1974b, Chapter 4, p106).

[14] Marx (1974b, Chapter 4, p103).

[15] Marx (1974b, Chapter 4, p108).

[16] Marx (1974b, Chapter 7, p156).

[17] Marx (1974b, Chapter 7, p157).

[18] See Marx (1974a, Chapter 8).

[19] Marx (1974b, Chapter 8, Section 1, p163).

[20] Marx’s analysis of fixed and circulating capital allows him to show in Chapters 10 and 11 how Smith, Ricardo and their followers were able to blur the distinction between constant and variable capital.

[21] Taken from Rosdolsky (1977, pp362-3).

[22] Marx (1974b, Chapter 18, Section 2, p361-62).

[23] Marx (1974b, Chapter 9, p188-9).

[24] Marx (1974b, Chapter 16).

[25] Marx (1974a, Chapter 23, Section 1, p531).

[26] Marx (1974a, Chapter 23, Section 1, p535-6).

[27] This fact led Rosa Luxemburg to think that Part 3 marked the transition to a more concrete level of analysis. See Rosdolsky (1977, especially p65).

[28] Marx (1974b, Chapter 18, Section 1, p356).

[29] Marx (1974a, Chapter 23, Section 1, p530).

[30] Marx (1974b, Chapter 20, Section 1, p398).

[31] Marx (1974b, Chapter 20, Section 1, p397).

[32] Note that only the exchanges between industrial capitalists, and between industrial capitalists and workers are dealt with by the reproduction schemes. This is one more indication of their abstract character.

[33] Marx (1974b, Chapter 20, end of Section 12, p473).

[34] Marx (1974b, Chapter 20, end of Section 1, p399).

[35] Marx (1974a, Chapter 24, beginning of Section 1, p544-5).

[36] Marx (1974b, Chapter 21, opening of Section 1, p493).

[37] See Rosdolsky (1977, p446-450).