The circulation of money has thus far been completely left aside in the treatment of the process of reproduction. Not that money has been disregarded as the form in which value presents itself, or as the measure of value: under the assumptions made here, all relations of social labor are in fact expressed, and measured, in money. Nevertheless, it is now also necessary to examine the given schema of simple reproduction from the standpoint of money as means of exchange.
As old Quesnay himself assumed, society must be presupposed as possessing a certain sum of money alongside means of production and means of consumption in order for the social process of reproduction to be intelligible.32 Two questions are raised: in whose possession is this money, and how much of it is there? The first circumstance that can be taken as given is that the wage-laborers receive their wages in money, which they spend on means of subsistence. From the standpoint of society, this boils down to the fact that the workers are merely allocated a certain consumption fund, as occurs in every society, whatever its historical form of production. Nevertheless, the circumstance that the workers do not receive their means of subsistence directly, but through the exchange of commodities, is just as essential for the capitalist form of production as is the fact that they do not place their labor-power at the disposal of the owners of the means of production on the basis of personal relations of domination, but through the exchange of commodities—i.e. by selling their labor-power. The sale of labor-power and the free purchase of means of subsistence by workers constitute the decisive moment in capitalist production. Both these processes are expressed in, and mediated by, the money-form of variable capital, v.
Money, then, comes into circulation in the first place through the payment of wages. All capitalists, from both departments, must thus in the first place cast money into circulation in amounts corresponding to the wages paid by them. The capitalists of Department I and Department II must respectively be in possession of 1,000v and 500v in money, with which they pay their respective workers. In the above schema, then, two sums of money enter into circulation in this way: I(1,000v) and II(500v). Both these sums are spent by the workers on means of subsistence—i.e. on the products of Department II. Labor-power is maintained in this way (i.e. total social variable capital is reproduced in its natural form) as the foundation for the reproduction of capital in all its other dimensions. In turn, the capitalists of Department II dispose of 1,500 of their total product: 500 to their own workers, and 1,000 to those of the other department. Through this exchange, the capitalists of Department II are now in possession of a value of 1,500 in money: 500 has returned to them as their own variable capital, and is in a position to circulate as such once more (i.e. it has provisionally concluded its movement), but 1,000 has been newly earned by them through the realization of a third of their own product. With this 1,000 in money, the capitalists of Department II purchase means of production from the capitalists of Department I for the replacement of the former’s own constant capital that has been used up. Through this purchase, Department II has renewed half of the requisite constant capital (IIc) in its natural form, and the sum of money of 1,000 has accrued to the capitalists of Department I. For the latter, this is merely the sum of money that they originally paid in wages to their workers and that now returns to them following two acts of exchange, so that it can once again function as variable capital; its movement is thus provisionally concluded. Social circulation, on the other hand, is not complete. The capitalists of Department I have not yet realized their surplus value product—this consists of means of production and is thus, from their point of view, contained in a form which is of no use to them—in order to buy means of consumption for themselves, and the capitalists of Department II have yet to renew the other half of their constant capital. These two acts of exchange correspond to one another both in terms of the magnitude of value and materially, for the capitalists of Department I receive the means of consumption from Department II, thus realizing their own surplus value, I(1,000s), and in turn they supply the capitalists of Department II with the missing means of production, II(1,000c). A new sum of money is required in order to mediate this exchange, however. It is true that the sums of money that have already been set in motion could be allowed to circulate again; there is no theoretical reason why this should not happen. In practice, however, this can be excluded, as the consumption needs of both capitalists and workers alike must be continuously satisfied; this process therefore runs parallel to the production process and is mediated by particular sums of money corresponding to it. It follows from this that the capitalists of both departments—i.e. all capitalists—must hold a reserve of money for the realization of their own surplus value in the form of consumer goods. On the other hand, the continual purchase of certain parts of constant capital, namely its circulating part (raw and auxiliary materials, lighting, etc.) also runs parallel to production—i.e. before the realization of the total product. As a result, not only must the capitalists of Department I have certain sums of money in hand in order to cover their own consumption, but so, too, must the capitalists of Department II in order to satisfy their requirements for constant capital. The exchange of I(1,000s) in means of production against II(1,000c) in means of consumption is thus mediated through money that is advanced partly by the capitalists of Department I for their consumption needs, and partly by the capitalists of Department II to meet their production requirements.33 Of the sum of money that is necessary for this exchange (1,000), the capitalists of each department might advance 500 each or indeed different proportions; in any case, two things are certain: (1) their combined money reserves must be sufficient to mediate the exchange between I(1,000s) and II(1,000c); (2) whatever the distribution of this sum of money, after the total social exchange has been completed, each group of capitalists finds itself once again in possession of the same sum that it originally threw into circulation. The latter point is valid for total social circulation in general: after circulation has been completed, money always reverts back to its starting point, such that after this all-sided exchange, all capitalists will have achieved two goals. First, they will have exchanged their products, whose natural form was indifferent to them, against those whose natural form they require, whether as means of production or as their own means of consumption; second, the money that they themselves have thrown into circulation in order to mediate these acts of exchange will have returned to their hands.
This phenomenon is unintelligible from the standpoint of simple commodity circulation, in which commodity and money continually change places—the possession of the commodity excludes the possession of money, money takes the place given up by the commodity, and vice versa. This is also true of every individual act of commodity exchange, which is the form in which social circulation proceeds. Social circulation itself, however, is more than merely commodity exchange—it is the circulation of capital. The essence of the latter—its defining feature—is not merely that it returns capital to the capitalists as an increased magnitude of value—i.e. with surplus value—but also that it mediates social reproduction, and thus secures the natural form of productive capital (means of production and labor-power) along with the maintenance of those who do not work. Since the whole social process of circulation is set in motion by the capitalists, who are in possession of both the means of production and the money necessary for the mediation of circulation, everything must end up in their hands once again after each circuit of social capital, and more precisely it must revert to each group of capitalists and each individual capitalist in proportion to the investments made by them. Money is held by workers only temporarily while it mediates the exchange of variable capital between its money-form and its natural form; in the hands of the capitalists it is the appearance-form of a part of their capital, and as such it must always return to them.
So far circulation has only been considered insofar as it occurs between the two great departments of production. Beyond this, however, there remains the following: 4,000 from the product of Department I in the form of means of production, which stay in this department in order to renew its own constant capital of 4,000c; 500 in means of consumption in Department II, which likewise remain in the same department, in this case as means of consumption of its own capitalist class corresponding to its surplus value, II(500s).* Since production in both departments is capitalist, i.e. unregulated, private production, the division of the product of each department—means of production in the case of Department I and means of consumption in the case of Department II—among its individual capitalists can only proceed through commodity exchange, i.e. through a large number of individual transactions of sale and purchase between capitalists of the same department. In order for this exchange to occur—i.e. both for the replacement of means of production to the value of I(4,000c) and for the replacement of the means of consumption of the capitalist class to the value of II(500s)—the capitalists of both departments must be in possession of corresponding sums of money. This aspect of circulation is of no particular interest in itself, since it bears the character of simple commodity circulation, as both buyers and sellers belong here to the same category of agents of production, and it merely causes money and commodities to change places within the same class and department. Nonetheless, the money that is required for this circulation must be held by the capitalist class in advance, and it forms a part of their capital.
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*These numerical units here can be understood as millions of working-hours, or, from a capitalist standpoint, expressed in money, any given currency unit.
Thus far there is nothing remarkable about the circulation of total social capital in itself, even when the circulation of money is considered. That society needs to be in possession of a certain sum of money for the purposes of this circulation appears a priori as self-evident for two reasons: first, the general form of the capitalist mode of production is commodity production, which means that the circulation of money is given; second, the circulation of capital is dictated by the constant transformation of the three forms of capital: money capital, productive capital, and commodity capital. In order to facilitate these transformations, money must also be available so that it can play the role of money capital. Finally, since this money functions as capital—the schema deals exclusively with capitalist production—it is a given that this money must be in the possession of the capitalist class, like capital in all its forms, and is thrown by it into circulation, only to return to it out of circulation.
Only one detail stands out at first glance. If all the money circulating in society is thrown into circulation by the capitalists, it then follows that they must also advance the money needed for the realization of their own surplus value themselves. It appears as if the capitalists as a class had to pay their own surplus value with their own money, and, given that the corresponding money must also already be in the possession of the capitalist class before the respective realization of the product of each period of production, it can seem at first sight that the appropriation of surplus value is not based on the unpaid labor of wage-laborers, as is really the case, but is instead the result of the mere exchange of commodities, for which the capitalist class itself supplies the corresponding amount of money. A little reflection dispels this false semblance.* After circulation has run its general course, the capitalist class finds itself still in possession of its sum of money, which has either returned to it or remained in its hands, while it has also purchased and consumed means of consumption of an equal value (it should be noted that the main presupposition of the reproduction schema is retained here—i.e. the renewal of production on the same scale, and the use of the entire surplus value produced for the personal consumption of the capitalist class).
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*That is, a false semblance, fata morgana—not a mere illusion. A false semblance, as against a mere illusion, must necessarily appear, given the nature of the object of investigation. The difference between illusion and falscher Schein, “false semblance,” is that the former is subjective, whereas the latter is an objective phenomenon. Erscheinen means “to appear” in the sense of “to become manifest.”
Besides, the false semblance vanishes completely if the focus is broadened beyond one period of reproduction, in order to consider the way in which a number of successive periods interconnect. The money that the capitalists throw into circulation in order to realize their own surplus value is nothing other than the money-form of their surplus value from the previous period of production. Although it is true that the capitalist must advance money from his own pocket in order to purchase his means of consumption (since his newly produced surplus value is in a natural form that he cannot consume, and its natural form that he can consume is in the possession of others), this money that he now advances in fact first accrued to him from the realization of his surplus value from the preceding period. This money will once again return to him once he has realized his surplus value that is contained in the commodity-form. What can be deduced over the course of several periods, then, is that, in addition to all the natural forms of its capital, the capitalist class regularly plucks its own means of consumption from circulation, while it retains possession of its original sum of money, which remains constant.
As far as the individual capitalist is concerned, it can be concluded from the analysis of the circulation of money that he can never transform the full amount of his money-capital into means of production: he must always leave over a certain portion of capital in the money-form for the purposes of variable capital, for wages, and he must also set aside capital reserves over the course of the period of production for the ongoing purchase of means of production. Apart from these capital reserves, however, he must possess a supply of money for the purposes of his own personal consumption.
Hence it follows that the process of reproduction of total social capital requires the production and reproduction of the money-material. Since, under the assumption made here, this production must also be thought of as capitalist (as the Marxian schema considered here excludes all other types of production), the schema necessarily appears incomplete. To the two great departments of social production (the production of means of production and the production of means of consumption) a third should be added: the production of means of exchange. Characteristic of the latter is that they serve neither production nor consumption—instead they represent social labor in an undifferentiated commodity that is not for use. It is true that gold and gold production, and indeed exchange and commodity production, are much older than the capitalist mode of production, but it is only with the latter that money circulation has become the general form of social circulation and thus an essential element of the social process of reproduction. Only an exposition of the production and reproduction of money in its organic interconnection with the other two departments of social production would provide an exhaustive schema of the essential features of the capitalist process as a totality.
Here, however, the present approach diverges from that of Marx. The latter includes gold production (he simplifies by reducing total money production to gold production) under the first department of social production. “The production of gold, like that of metals generally, belongs to Department 1, which occupies itself with means of production.”34 This is correct only insofar as gold production in the sense of metal production is being considered, i.e. metal for commercial purposes (such as jewelry, dental fillings, etc.). However, as money, gold is not a metal, but rather the embodiment of abstract social labor, and as such it is no more a means of production than it is a means of consumption. Moreover, a mere glance at the reproduction schema itself reveals the inconsistencies that necessarily follow from the confusion of means of exchange with means of production. If a schematic representation of the annual production of gold (qua money-material) is added to the two departments of social production, the following three equations are obtained:
I. 4,000c + 1,000v + 1,000s = 6,000 means of production
II. 2,000c + 500v + 500s = 3,000 means of consumption
III. 20c + 5v + 5s = 30 means of exchange
The quantity of value of thirty (chosen by Marx as an example) obviously does not correspond to the quantity of money circulating annually in society, but merely to the annually reproduced part of this quantity of money, thus to the annual wear and tear on the money-material, which remains constant on average if the scale of social reproduction, the turnover time of capital and the velocity of commodity circulation all remain constant. If, following Marx, the third equation is considered as a component of the first one, the following problem arises. As in the other two departments, the constant capital of Department III, 20c, consists of actual, concrete means of production (buildings, tools, auxiliary materials, containers, etc.), whereas the product of this department, 30g, which represents money, cannot function as constant capital in its natural form in any kind of production process. If this product, 30g, is counted as a component of the product of the first department, 6,000p, there results a social deficit in means of production to the same value, thus rendering reproduction on the same scale impossible either in Department I or in Department II. The assumption thus far, which forms the foundation of Marx’s whole schema, has been that the material use-form of the product of each of the two departments is the starting point for reproduction as a whole; the proportions of the schema are based on this assumption; without it, they dissolve into chaos. Thus the first fundamental value-relation was expressed in the equation: I (6,000p) = I (4,000c) + II (2,000c). This cannot be true for the product of Department III, 30g, since gold cannot be used as a means of production by both departments [for instance in the proportion I (20c) + II (10c)]. The second fundamental relation, derived from the first, was expressed in the equation: I (1,000v) + I (1,000s) = II (2,000c). This would mean that gold production withdraws as many means of consumption from the second department as it supplies the latter with means of production. This is equally incorrect, however. Although gold production withdraws from the social product both concrete means of production, which it uses as constant capital, and concrete means of consumption for its workers and capitalists in quantities corresponding to its variable capital and surplus value, its own product can no more function in any type of production as means of production as it can enter into human consumption as means of subsistence. The inclusion of money production under Department I thus violates all the material proportions and value-relations obtaining in Marx’s schema, rendering it invalid.
Marx’s attempt to classify gold production under Department I (means of production) also leads him to questionable results. The first act of circulation between this new subdepartment, which Marx calls Department Ig, and Department II (means of consumption) consists as usual in the purchase of means of consumption from Department II by the workers of Department Ig using the wages received from the capitalists to the value of Ig(5v). The money used here is not yet the result of new production, but a money reserve of the capitalists of Department Ig from the quantity of money existing previously in the country, which corresponds to the usual order of things. Now, however, Marx has the capitalists of Department II buy gold “as a commodity material” to the value of 2 with the 5 in money they received from the workers of Department Ig; Marx thus switches from money production to the commercial production of gold, which has no more to do with the problem of money production than does the production of boot-polish. However, since there remains a sum of 3 of the Ig(5v) received by the capitalists of Department II, which they do not know how to use because they cannot employ it as constant capital, Marx simply has them hoard it! In order to prevent a deficit occurring in the constant capital of Department II, which is to be exchanged in its entirety against means of production [I(v + s)], Marx finds the following way out:
Therefore, this money must be transferred in its entirety from IIc to IIs no matter whether it exists in necessities of life or articles of luxury, and vice versa corresponding commodity-value must be transferred from IIs to IIc. Result: A portion of the surplus value is stored up as a money-hoard.35
This result is strange enough. In merely considering the replacement of the annual wear and tear on the money-material, suddenly a reserve of money is built up—i.e. there is a surplus in the money-material. This surplus arises, for some unknown reason, at the expense of the capitalists of the department of means of consumption, who are asked to practice abstinence, not in order to expand their own surplus value production, but to ensure that there are enough means of subsistence for the workers in the production of gold.
The capitalists of Department II, however, are poorly compensated for their Christian virtue. Not only are they unable to undertake any expansion of their production, in spite of their “abstinence,” but they are not even in a position to engage in production on the same scale as before. For even if the corresponding “commodity-value” is also transferred from IIs to IIc, it is not only value that matters here, but also the material, concrete form of this value, and since a part of the product of Department I consists of money, which cannot be used as a means of production, Department II cannot renew its constant capital materially on the same scale. Thus, the presupposition of the schema, simple reproduction, is violated on two grounds: the accumulation of surplus value, and the deficit in constant capital. These results obtained by Marx demonstrate that gold production cannot be integrated into either of the two departments of his schema without overturning the schema itself. This occurs as a result of the very first exchange between Departments I and II. The analysis of the exchange of newly produced gold within the constant capital of Department I is not contained in the manuscripts, as Engels emphasizes.36 This would only have compounded the inconsistencies. Moreover, Marx himself confirms the arguments presented here and settles the matter with the following statement, as brief as it is apposite: “Money in itself is not an element of actual reproduction.”37
There is a further compelling reason for an exposition of the production of money as a third, separate department of total social production. The Marxian schema of simple reproduction is valid as the foundation and starting point for the reproduction process not only of the capitalist economic order, but also—mutatis mutandis—of every regulated and planned economic order, too, for instance the socialist one. The production of money, however, disappears with the commodity-form of products—i.e. with the private ownership of the means of production. It forms the faux frais of the anarchic type of economy under capitalism, a specific burden of the society that is based on a private economy, and is expressed as the annual expenditure of a considerable amount of labor on the production of products that serve neither as means of production nor as means of consumption. This specific expenditure of labor in a society based on capitalist production, which disappears in a socially regulated economy, is most accurately expressed as a separate department in the general reproduction process of total social capital. In this regard it is immaterial whether the putative country is one that produces gold itself, or one that obtains it from abroad. In the latter case, there is merely an additional mediation, namely the exchange of the same expenditure of social labor that would have been necessary for the production of gold.
It can be seen from the above considerations that the problem of the reproduction of total social capital is not as crude as it is often construed from a purely crisis-theoretical standpoint, in which something like the following question is posed: how is it possible, in an unplanned economy of countless individual capitals, that the total needs of society are met? The question is usually answered by referring to the constant oscillations of production around demand—i.e. to the periodic alternation between the various phases of the economic cycle. In this conception, which regards the total social product as an undifferentiated mishmash of commodities and treats social needs in a correspondingly abstruse manner, the most important aspect is overlooked, namely the differentia specifica of the capitalist mode of production. The problem of capitalist reproduction, as has been shown, comprises a number of precise relations that correspond both to specific capitalist categories and, mutatis mutandis, to the universal categories of human labor; it is the unity of these specific and universal categories in their contradiction and in their congruence that represents the actual problem. The Marxian schema represents the scientific solution to this problem.
The question to be posed now is that of the relation between the schema of the reproduction process that has been analyzed here and reality itself. According to this schema, the total social product is neatly absorbed without remainder by circulation, consumption requirements are completely satisfied, reproduction passes off smoothly, money circulation corresponds to commodity circulation, and the circuit of social capital is properly concluded. How do things look in real life? The schema and the relations it presents provide an exact foundation for the division of social labor in production regulated by planning—presupposing simple reproduction (i.e. production remaining on the same scale). In the capitalist economy, there is a complete absence of any planned organization of the total process. Here, then, nothing goes quite as smoothly according to mathematical formulae as is the case in the schema. Instead, the circuit of reproduction proceeds by means of constant deviations from the relations of the schema, as is manifested by the daily variations in prices, the constant fluctuations in profits, the incessant flow of capitals from one branch of production to another, and the periodic, cyclical oscillation of reproduction between over-extension and crisis.
In all of these deviations, however, the schema represents the socially necessary average around which these movements occur, and to which they constantly strive to return after they have diverged from it. It is this average that ensures that the fluctuating movements of individual capitals do not degenerate into chaos, and that reimposes a determinate regularity upon them, thus securing the continued existence of society in spite of the lack of planning.
If Marx’s reproduction schema is compared with Quesnay’s Tableau économique, the similarities as well as the great divergences between them are immediately apparent. These schemas, which mark the beginning and the end of the development of classical economics, are the only two attempts at an exact exposition of the apparent chaos presented by the total movement of capitalist production and consumption in their reciprocal interconnections and in their fragmentation into innumerable private producers and consumers. Both of these schemas reduce the tangled mess formed by the movements of individual capitals to a few simple, important relations, in which the possibility of the existence and the development of capitalist society is anchored in spite of its unregulated, anarchic gyrations. Both schemas unify the two dimensions underlying the movement of total social capital; accordingly, this movement is simultaneously the production and appropriation of surplus value as the movement of capital on the one hand, and the production and consumption of the material requirements of civilized human existence on the other. In both schemas, the total process is mediated by the circulation of products qua commodity circulation, and in both, the movement of money is merely the superficial, external expression of the movement of commodity circulation.
In the elaboration of these broad baselines, however, there is a huge gulf between the two. Quesnay’s Tableau converts surplus value production into a pivotal point of total social reproduction, but conceives of surplus value still under the naïve, feudal form of ground rent, and thus mistakes the form taken by a part for the whole.
Likewise, it establishes the material differentiation in the mass of the total social product as the other pivotal point of social reproduction, but considers it under the naïve opposition between products of agriculture and manufacture, and thus mistakenly assumes that external differences in the materials used in human labor are constitutive of fundamental categories of the human labor process per se.
Marx conceives of surplus value production in its pure and general form (which is thus its absolute form) as the production of capital. He simultaneously takes into account the eternal material conditions of production in his fundamental distinction between means of production and means of consumption, and reduces the relation between these two to a precise value-relation.
If the question is posed why Quesnay’s blithely truncated solution to the problem came unstuck with subsequent bourgeois economics, and what was necessary for the tremendous leap forward that the analysis of the problem made with Marx’s schema, two major preconditions stand out. Marx’s reproduction schema is based above all on the clearly defined distinction between the two dimensions of labor in commodity production: concrete, useful labor, which creates determinate use-values, and abstract universal human labor, which creates value as socially necessary labor.* This inspired fundamental insight of Marx’s value-theory, which among other things allowed him to solve the problem of money, led him to differentiate and to unify both aspects in the total social reproduction process: i.e. the standpoint of value and that of material interrelations. Second, the schema rests on a sharp distinction between constant and variable capital; this reveals the internal mechanism of surplus value production for the first time and allows surplus value production to be brought into an exact relation, as a relation of value, with the two material categories of production: means of production and means of consumption.
Classical economics after Quesnay (i.e. the work of Smith and Ricardo) came close to these points of view. In Ricardo, value-theory was given a sufficiently rigorous formulation that it is often even confused with the Marxian one. From the standpoint of his value-theory, Ricardo was also able to appreciate that Smith’s resolution of the price of all commodities into v + s, which had dire consequences for the analysis of reproduction, was false; however, he did not concern himself further with Smith’s error, as he was not overly interested on the whole in the problem of total social reproduction. The Ricardian analysis even constituted a regression in comparison to Smith in certain respects, just as the latter partially represented a step backwards beyond the Physiocrats. If Ricardo elaborated the fundamental categories of the bourgeois economy (value, wages, surplus value, capital) much more acutely and in a more unified way than all his predecessors, his treatment of them was also more inflexible. Smith had a much keener sense for the living relations, for the broad movement of the whole. He was not averse to giving two different solutions to the same problem, or in the case of the problem of value, even three or four of them, and he would blithely contradict himself in different parts of his analysis; however, it was precisely these contradictions that led him to approach the whole from ever new angles, and to grasp it in its movement. The constraint that both Smith and Ricardo inevitably came up against was their limited, bourgeois horizon. In order to grasp the fundamental categories of capitalist production—i.e. value and surplus value—in their living movement and as social process of reproduction, it was necessary to conceive of this movement historically, and the categories themselves as historically conditioned forms of the universal relations of labor. This meant that the problem of the reproduction of the total social capital could only be solved by a socialist. The rise and fall of bourgeois political economy, not only in a temporal sense, but also in terms of its content, can be traced between the Tableau économique and the reproduction schema in the second volume of Capital.
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*The previous two sentences were left out of Schwarzschild’s translation of The Accumulation of Capital.