Debate on Luxemburg: Key problems with her theory
Updated: Oct 26, 2020
This text is also a product of the recent online discussion of Luxemburg's theory on the ICC's forum.
I agree with the conclusions that MH is drawing from the discussions we have had although we have tackled this discussion from different starting points and with different emphases. MH has always addressed the analysis of Luxemburg’s theory from the perspective of Marx’s analysis of overproduction and I believe is correct in drawing the conclusions that she sees a problem that is simply not there.
I started my investigation of Luxemburg’s theory from the point that she makes a totally inadequate explanation in The Accumulation of Capital that because pre-capitalist markets (PCM) exist as the environment for capitalism’s growth then they must be the source of all accumulation. It is a very poor explanation of her theory that she presents in Chapter 26 and 27. However I assumed there must be more justification to this and prompted by MH to look at the criticisms Luxemburg has of Marx I've been going back over The Accumulation of Capital and Marx for something more substantial to justify her argument.
The next aspect of her argument was for me was a recognition that she argues that not all surplus value can be found a market within capitalism and that it is only the capital products that either expand existing constant capital or enhance the technology of existing constant capital that capitalism that she says cannot be realised by workers or capitalists. This is not an argument that Marx presented as far as I can see; he saw the possibility of the expansion of capital accumulation within markets it creates and expands – although that must include pre-capitalist markets too as is explained by MH.
Overall I would suggest that Luxemburg’s arguments in relation to this issue are surprisingly full of misunderstandings and misjudgments and downright errors. MH points out her view that increasing production just to feed workers is an absurdity but this is just a twist on what capitalism actually does do; it produces to gain surplus value to accumulate and gain more surplus value. Its not an absurdity at all, it is capitalism. I also think her use of abstraction is wrong. The abstraction itself works if it keeps remaining relevant; when you strip out complications to find your abstraction you are not ignoring them you are incorporating them into that abstraction. Her supposed conflict between total social capital and individual capitalists is therefore entirely incorrect.
However this argument that only products intended for the enhanced of constant capital can be found a market within capitalism is again not the source of her argument, and just poses a question why again? I do think I have found where she derives her argument from and hence the ultimate source of her theory that only PCM can accumulate capital growth. It's back in Chapter 4 of The Accumulation of Capital where she compares simple and enhanced reproduction. Here she describes that simple reproduction works because for the single firm that accumulation of surplus value is achieved by the selling of a single product but enhanced reproduction, she argues, fails because the total social capital produced cannot in physical terms match the needs of the total capitalist for the next cycle of production. Unfortunately she is also ignoring the anarchistic nature of capital and its markets. Firstly capitalists do estimate the needs of the market for their upcoming cycle of production but they always face the anarchy of the market in terms of product realisation; its not and never was a planned market place in any shape or form. Luxemburg seems to believe that pre-capitalist markets can solve that anarchy whereas they are simple part of the market anarchy.
Ultimately The Accumulation of Capital is a poorly put together book with many red herrings provided and tangents explored. It just does not present a cohesive focus to explain her theory so its hard work to follow.
The following is a text picking out more detailed problems that stand out in in Luxemburg’s explanation of her theory.
"The anarchy of the market" - unsold cars
Luxemburg considers Marx’s diagram of total social capital to be invalid. In The Accumulation of Capital (AoC) she spends many chapters investigating Marx’s diagram of c+v+s=tc and explaining how the 2 departments of capital and subsistence manufacture function, only to conclude that they don't explain enhanced reproduction.
She believes that Marx’s diagram of accumulation works only for simple reproduction (ie when capital only reproduces itself and doesn't grow or accumulate new capital) but not for enhanced reproduction when capital is actually accumulating.
This is not something that Luxemburgists pay much attention to; but just why does she consider Marx’s key abstraction about how capitalism works to be so wrong that she concludes capital cannot accumulate on its own - that it requires external demand to enable it to grow?
The explanation of this key idea in her theory lies in Chapter 4 of AoC where she is discussing the differences between simple reproduction and enhanced reproduction.
"Here we come up against palpable differences between the individual capitalist and the total capitalist. The manner in which the former always reproduces his constant and variable capital as well as his surplus value is such that all three parts are contained in the same material form within his homogeneous product, that this material form, moreover, is completely irrelevant and may have different qualities in the case of each individual capitalist. The ‘total capitalist’, for his part, reproduces every component of the value of his annual product in a different material form, c as means of production, v as provisions for the workers, and s as provisions for the capitalist. In the case of the reproduction of individual capitals, there is no discrepancy between relations of value and material points of view. Besides, it is quite clear that individual capital may concentrate on aspects of value, accepting material conditions as a law from heaven, as self-evident phenomena of commodity-exchange, whereas the ‘total capitalist’ has to reckon with material points of view. If the total c of society were not reproduced annually in the form of an equal amount of means of production, every individual capitalist would be doomed to search the commodity market in vain with his c realised in cash, unable to find the requisite materials for his individual reproduction. From the point of view of reproducing the total capital, the formula c + v + s is inadequate." (AoC, Ch 4)
In a nutshell, her contention is that c+v+s is valid for individual capitalists in both value terms and material product content but, according to the above, it cannot be correct in terms of the material content of total stock and therefore accumulation is not possible.
Problem 1. Can Luxemburg possibly be correct in rejecting Marx's diagram of accumulation c+v+s=tc?
The abstraction c+v+s=tc is a simplified way of looking at how value generation works in capitalism and is needed because the world is just so complicated that starting with the detail makes no sense. So it strips out issues of money generation, social wage, unproductive labour and manufacturing, waste expenditure, errors in demand for subsistence commodities, raw materials, component manufacture and fixed asset manufacture, unsold products and unrealised capital values in general, unprofitable and over-profitable businesses, foreign trade, supply and demand variations and I dare say many other facets of real world activity. It really is just the manufacturing process and the relations of production stripped to the bare minimum.
However, this simplification does not mean that the formula does not take account all these elements; they are just not necessary to understand the key features of value creation and capital accumulation. The abstraction assumes demand creation and supply processes function in the markets created by capital as well as trade with the converting pre-capitalist markets too.
This theorisation of total social capital is based on the idea that the commodities produced in a given cycle of accumulation are determined at the start of that cycle and the aggregate capitalist cannot determine the commodities that can be used to advance production until the end of the cycle. This leads to her seeing not just a disparity in the content of available capital commodities to that which is actually required but to the total absence of any usable capital commodities. For Luxemburg this means Marx’s theory enhanced reproduction doesn't work at all.
Therefore capitalism cannot provide the demand for capital assets that are to be used to enhance production ie to increase it in size or to adopt new technologies.
Problem 2. Why are the commodities that are required to enhance production any different to the commodities required to replace worn capital assets and subsistence requirements? Luxemburg suggests that they are different simply because they do not exist in the diagram of simple reproduction but this is itself a fiction and never actually existed?
This is quite explicitly stated in the Anti-Critique:
“The total capitalist, like each individual capitalist, cannot plan to enlarge production until he has exchanged his quantity of commodities” (Ch 3)
She therefore treats the material content of the total stock at the end of the last cycle as fixed and does not include anything other than commodities to be sold as subsistence.
Problem 3. Aren’t the markets for all commodities estimated in advance of production by capitalist enterprises? It is the anarchy of competition and the markets that cause the problems for their realisation. All are produced by the same relations of production so why should there be a distinction in how they are planned for, manufactured and circulated?
The consequence is that she ends up embracing the paradox that all individual capitalists can accumulate but, at the level of the total social, capital the aggregate capitalist cannot.
It is from this point that her theory about the importance of pre-capitalist markets starts to emerge. The following quote presents a clear explanation of her conclusion that neither capitalist nor workers could provide the demand that would enable the capitalisation of new capital assets.
“All this time, it appears, Marx has been tackling the problem from a wrong approach. No intelligent purpose can be served by asking for the source of the money needed to realise the surplus value. The question is rather where the demand can arise—to find an effective demand for the surplus value. If the problem had been put in this way at the start, no such long-winded detours would have been needed to show whether it can be solved or not. On the basis of simple reproduction, the matter is easy enough: since all surplus value is consumed by the capitalists, they themselves are the buyers and provide the full demand for the social surplus value, and by the same token they must also have the requisite cash in hand for circulation of the surplus value. But on this showing it is quite evident that under conditions of accumulation, i.e. of capitalisation of part of the surplus value, it cannot, ex hypothesi, be the capitalists themselves who buy the entire surplus value, that they cannot possibly realise it. True, if the capitalised surplus value is to be realised at all, money must be forthcoming in adequate quantities for its realisation. But it is quite impossible that this money should come from the purse of the capitalist class itself. Just because accumulation is postulated, the capitalists cannot buy their surplus value themselves, even though they might, in abstracto, have the money to do so. But who else could provide the demand for the commodities incorporating the capitalised surplus value?” (AoC Ch 9)
Problem 4. How is it possible for all individual capitalists to accumulate but not the aggregate capitalist at the level of total social capital? Luxemburg’s assertion here rests entirely on her view that the material content of total social stock will not allow enhanced reproduction. Not only is this questionable but she appears to contradict herself in this last quote which suggests that even individual capitalists cannot accumulate even if they had the money to do so!
This leads Luxemburg to the most famous element in her theory. She has decided capitalism cannot capitalise itself, so ‘who else can?’ she asks. Capitalism is growing within an environment of pre-capitalist markets so for Luxemburg it clearly must be these pre-capitalist markets that must demand and purchase the enhanced technology, it is these markets that must provide the investment in enhanced capital equipment.
Now it must be accepted that these markets can facilitate accumulation in that they open up access to new resources and labour and new areas for the expansion of capitalism but Luxemburg asserts now that accumulation becomes impossible without them and that only these pre capitalist markets can capitalise those commodities intended to enhance production.
“Since the accumulation of capital become impossible in all points without non-capitalist surroundings, we cannot gain a true picture of it by assuming the exclusive and absolute domination of the capitalist mode of production” (AoC Ch 26)
Problem 5. How is it possible to justify the idea that pre-capitalist markets can provide a market for enhanced production equipment? Luxemburg suggests she is relating the accumulation issue to the real world but in this real world can a pre-capitalist formation actually purchase and use the latest technology and the machinery that individual firms require to expand their production base?