Raya Dunayevskaya

Luxemburg’s Theory of Accumulation

How it Differed with Marx and Lenin

(April 1946)

Source: The New International, Vol. XII No. 4 (Whole No. 106), April 1946, pp. 107”111 , signed Freddie Forest.;
Transcribed: by Damon Maxwell.
The Accumulation of Capital: An Anti-Critique, 1915.

Luxemburg’s Accumulation of Capital [1]is a critique of Marx’s theory of expanded reproduction as analyzed in Volume II of Capital. The question of the accumulation of capital has been the central theme of political economy. It was the subject of debate between Ricardo and Malthus, Say and Sismondi, Engels and Rodbertus, and Lenin and the Narodniki (Populists). Luxemburg occupies a conspicuous, but unenviable, position in this debate – that of a revolutionist hailed by bourgeois economists as having supplied “the clearest formulation” of the problem of “effective demand” until Keynes’ The General Theory of Employment, Interest and Money. [2]It is typical of bourgeois economics that in 1945 they were discussing the market problem, which Marxists were discussing thirty years ago.

Prior to 1914 the statification of production and the problem of accumulation were not posed as sharply as today in terms of the decline in the rate of profit. Accumulation seemed to the bourgeoisie then to be a question soluble by the expansion of the market. It is true that Luxemburg posed the problem in such terms. But her main preoccupation even then was with the collapse of capitalism. Methodically, however she did depart from Marxism in the analysis of the question of the accumulation of capital, and it was inevitable, therefore, that she arrive at false conclusions. What makes this a problem of the day is that her conclusions are repeated not merely by bourgeois economists but even within the revolutionary Marxist movement The current preoccupation with “customers” and markets can best be answered by a restatement of Marx’s theory of capitalistic accumulation and Luxemburg’s deviation from it.

* * *

1. His Premise

Since the publication of Volume II of Capital the pivot of the dispute on expanded reproduction has been Marx’s diagrammatic presentation of how surplus value is realized in an ideal capitalist society.

To understand the formulae one must comprehend the premise upon which they are built: a closed capitalist society, i.e., an isolated society dominated by the law of value.

For Marx the fundamental conflict in a capitalist society is that between capital and labor; all other elements are subordinate. If this is so in life, then the first necessity in theory far more even than in society, is to pose the problem as one between the capitalist and the worker, purely and simply Hence the assumption of a society consisting only of workers and capitalists. Hence the exclusion of “third groups” an as he states repeatedly [3] the exclusion of foreign as having nothing to do fundamentally with the conflict between the worker and the capitalist.

A capitalist society is distinguished from all previous societies by being a value-producing society. The law of value has nothing in common with the fact that in other class societies the worker was paid his means of subsistence. Here the thirst for unpaid hours of labor comes from the very nature of production and is not limited by the gluttony of the master. Value, the socially necessary labor time needed to produce commodities, is constantly changing due to the unceasing technological revolutions in production, and this is a never-ending source of disturbance in the conditions of production as well as in the social relations, and distinguish capitalism from all other modes of production. Marx’s isolated capitalist society is dominated by this law of value, and Marx does not let us forget that this law is a law of the world market:

The industrialist always has the world market before him, com-pares and must continually compare his cost prices with those of the whole world, and not only with those of his home market. [4]

Thus, while Marx excludes foreign trade, he nevertheless places his society in the environment of the world market. These are the conditions of the problem. What is his purpose?

2. His Purpose

Marx’s famous formulae in Part III of Volume II were designed to serve two purposes.

On the one hand, he wished to expose the “incredible aberration” of Adam Smith, who “spirited away” the constant portion of capital by dividing the total social production, not into constant capital (c), variable capital (v), and surplus value (sv), but only into v plus s. (The terminology Smith used for v and s was “wages, profit and rent.”)

On the other hand, Marx wanted to answer the underconsumptionist argument that continued capital accumulation was impossible because of the impossibility of “realizing” surplus value, i.e., of selling. [5]

Marx spends a seemingly interminable time in exposing the error of Smith. That is because it is the great divide which separates both bourgeois political economy and the petty-bourgeois critique from scientific socialism. Smith’s error became part of the dogma of political economy because it dove-tailed with the class interests of the bourgeoisie to have that error retained. If, as Smith maintained, the constant portion of capital “in the final analysis” dissolved itself into wages then the workers need not struggle against the “temporary” appropriation of the unpaid hours of labor. They need merely wait for the product of their labor to “dissolve” itself into wages. Marx proves the contrary to be true. Not only does c not “dissolve” itself into wages, but it becomes the very instrumentality through which the capitalist gains the mastery over the living worker.

In disproving the underconsumptionist theory, Marx demonstrates that there is no direct connection between production and consumption. As Lenin phrased it:

The difference in view of the petty bourgeois economists from the views of Marx does not consist in the fact that the first realize in general the connection between production and consumption in capitalist society, and the second do not. (This would be absurd.) The distinction consists in this, that the petty bourgeois economists considered this tie between production and consumption to be a direct one, thought that production follows consumption. Marx shows that the connection is only an indirect one, that it is so connected only in the final instance, because in capitalist society consumption follows production. [6]

The underconsumptionists construed the preponderance of production over consumption to mean the “automatic” collapse of capitalist society. Where the classicists saw only the tendency toward equilibrium, the petty-bourgeois critics see only the tendency away from equilibrium. Marx demonstrates that both tendencies are there, inextricably connected.

3. The Two Departments of Social Production
and the Conditions for Expanded Reproduction

To illustrate the process of accumulation, or expanded reproduction, Marx divides social production into two main departments – Department I, production means of production, and Department II, producing means of consumption.

The division is symptomatic of the class division in society. Marx categorically refused to divide social production into more than two departments, for example, a third department for the production of gold, although gold is neither a means of production nor a means of consumption, but rather a means of circulation. That is an entirely subordinate question, however, to the basic postulate of a closed society in which there are only two classes and hence only two decisive divisions of social production. It is the premise that decides the boundaries of the problem. The relationship between the two branches is not merely a technical one. It is rooted in the class relationship between the worker and the capitalist.

Surplus value is not some disembodied spirit floating between heaven and earth, but is embodied within means of production and within means of consumption. To try to separate surplus value from means of production and from means of consumption is to fall into the petty-bourgeois quagmire of underconsumptionism. As Lenin put it:

The postulate that capitalists cannot realize surplus value is only a vulgarized repetition of the quandary of Smith regarding realization in general. Only part of surplus value consists of means of consumption; the other consists of means of production. “Consumption” of this latter is realized through production. ... Therefore the Narodniki who preach the impossibility of realizing surplus value ought logically to acknowledge the impossibility of realizing constant capital and thus to return to Adam Smith. [7]

This is fundamental to Marx’s whole conception. It cuts through the whole tangle of markets. Marx’s point is that the bodily form of value predetermines the destination of commodities. Iron is not consumed by people but by steel; sugar is not consumed by machines but by people. Value may be indifferent to the use by which it is borne, but it must be incorporated in some use-value to be realized. Alone the use-value of means of production, writes Marx, shows how important is “the determination of use-value in the determination of economic orders.” [8]In the capitalist economic order means of production forms the greater of the two departments of social production. And hence also of the “market.” In the United States, for instance, 90 per cent of pig iron is “consumed” by the companies which produce it; 50 per cent of the “market” for the products of the steel industry is the transportation industry.

It is impossible to have the slightest comprehension of the economic laws of capitalist production without being oppressively aware of the role of the material form of constant capital. The material elements of simple production and reproduction – labor power, raw materials and means of production – are the elements of expanded reproduction. In order to produce ever greater quantities of products, more means of production are necessary. That, and not the “market,” is the differentia specifica of expanded reproduction.

Marx proceeds further to emphasize the key importance of the material form of the product for purposes of expanded reproduction by beginning his illustration of expanded reproduction with a diagram showing that, so far as its value is concerned, expanded reproduction is but simple reproduction.

It is not the quantity but the destination of the given elements of simple reproduction which is changed and this change is the material basis of the subsequent reproduction. [9]

The difficulty in understanding expanded reproduction lies not in the value form of production, but in the comparison of the value with its material form.

Marx’s view is that in order not to get lost in “a vicious circle of prerequisites” – of constantly going to market with the products produced and returning from the market with the commodities bought – the problem of expanded reproduction should be posed “in its fundamental simplicity.” That can be done by a realization of two simple facts: (1) that the very law of capitalist production brings about the augmentation of the working population and hence that, while part of the surplus value must be incorporated into means of consumption, and transformed into variable capital with which to buy more labor power, that labor power will always be on hand; and (2) capitalist production creates its own market – pig iron is needed for steel, steel for machine construction, etc., etc. – and that therefore, so far as the capital market is concerned, the capitalists are their own best “customers” and “buyers.” Therefore, concludes Marx, the whole complex question of the conditions of expanded reproduction can be reduced to the following: can the surplus product in which the surplus value is incorporated go directly (without first being sold) into further production? Marx’s answer is: “It is not needed that the latter (means of production) be sold; they can in nature again enter into new production.” [10]

Marx establishes that the total social product cannot be “either” means of production “or” means of consumption; there is a preponderance of means of production over means of consumption (symbollically expressed as mp/mc). That not only is so but it must be so, for the use-values produced in capitalist society are not those used by workers nor even by capitalists, but by capital. It is not “people” who realize the greater part of surplus value; it is realized through the constant expansion of constant capital. The premise of simple reproduction – a society composed solely of workers and capitalists – remains the premise of expanded reproduction.

At the same time surplus value, in the aggregate, remains uniquely determined by the difference between the value of the product and the value of labor power. The law of value continues to dominate over expanded reproduction. The whole problem of the disputed Volume II is to make apparent that realization is not a question of the market, but of production. The conflict in production and therefore in society is the conflict between capital and labor. That is why Marx would not be moved from his premise.

II – Luxemburg’S Critique

1. Reality vs. Theory

The main burden of Luxemburg’s critique of Marx’s theory of accumulation was directed against his assumption of a closed capitalist society. She gave this assumption a two-fold meaning: (1) a society composed solely of workers and capitalists, and (2) “the rule of capitalism in the entire world.”

Marx, however, did not pose the rule of capital in the entire world, but its rule in a single isolated nation. When Luxemburg’s critics [11]bpointed this out to her, Luxemburg poured vitriolic scorn upon them. To speak of a single capitalist society, wrote Luxemburg in her Anticritique [12] was a “fantastic absurdity” characteristic of the “crassest epigonism.” Marx, she insisted, could have had no such stratospheric conception in mind. Nevertheless, as Bukharin pointed out, Luxemburg was not only misinterpreting Marx’s concept, but misreading the simple fact, which Marx had most clearly put on paper: “In order to simplify the question (of expanded reproduction) we abstract foreign trade and examine an isolated nation.” [13]

Luxemburg, on the other hand, argued that a “precise demonstration” from history would show that expanded reproduction has never taken place in a closed society, but rather through distribution to, and expropriation of “non-capitalist strata and non-capitalist societies.” Luxemburg falsely counter-posed reality to theory. Her critique sprung theoretically from this one fundamental error. She was betrayed by the powerful historical development of imperialism that was taking place to substitute for the relationship of capital to labor the relationship of capitalism to non-capitalism. This led her to deny Marx’s assumption of a closed society. Once she had given up the basic premise of the whole of Marxist theory there was no place for her to go but to the sphere of exchange and consumption.

That there is no possible escape from this dilemma is most clearly revealed by Luxemburg herself. Some of the best writing in her Accumulation occurs in her description of the “real” process of accumulation through the conquest of Algeria, India, the Anglo-Boer war and the carving up of the African Empire; the opium wars against China, the extermination of the American Indian; the growing trade with non-capitalist societies, and an analysis of protective tariffs and militarism. Luxemburg had become so blinded by the powerful imperialist phenomena of her day that she failed to see that all this had nothing to do with the problem posed in Volume II of Capital which is concerned with how surplus value is realized in an ideal capitalist world. Neither has it anything to do with the “real” process of accumulation which Marx analyzes in Volume III, for the real process of accumulation is a capitalist process or one of value production.

Luxemburg, on the other hand, writes that:

The most important thing is that value can be realized neither by workers nor by capitalists but only by social strata who themselves do not produce capitalistically. [14]

It was not by accident that Luxemburg found that she could not discuss capitalistic accumulation without bringing in other modes of production. Errors of thought, even when committed by great Marxists, have a logic of their own. Just as it is impossible in the actual class struggle to take a position between the capitalist class and the proletariat, so it is impossible to take a position between the two modes of thought reflecting the role of the two classes in the process of production. Thus there was only one thing theoretically left for her to do. Along with all bourgeois economics, she buries, as we shall see, the whole distinction of value production.

2. The Market vs. Production

(A) For whom?

According to Luxemburg, the Russian Marxists were deeply mistaken when they thought that the preponderence of constant capital over variable capital (symbolically expressed as c/v) “alone” revealed the specific characteristic law of capitalist production, “for which production is an aim in itself and individual consumption merely a subsidiary condition.” To raise consumption from this subordinate position, Luxemburg transforms the inner core of capitalism into a mere outer covering. The relationship of c/v, she writes, is merely “the capitalist language” of the general productivity of labor. With one stroke Luxemburg is depriving the carefully isolated c/v relationship of its class character. Value production loses the specificity of a definite historic stage in the development of humanity. Luxemburg is thus driven to identify what Marxism has considered to be the specific characteristic law of capitalist production – c/v – with “all pre-capitalist forms of production” as well as with “the future socialist organization.” [15]

The next inevitable stage is to divest the material form of capitalism of its class character. Where Marx makes the relationship between Department I, producing means of production, and Department II, producing means of consumption, reflect the class relationship inherent in c/v, Luxemburg speaks of the “branches of production” as if it were a purely technical term! She first deprives the material form of capital of its capital content, then discards it because it has no capital content:

Accumulation is not only an inner relation between two branches of production. It is first of all a relation between capitalist and non-capitalist surroundings. [16]

Luxemburg has transformed capital accumulation from a substance derived from labor into one whose chief sustenance is an outside force: non-capitalist surroundings. To complete this inversion of the chief source of capitalist accumulation she is compelled to break the confines of the closed society, outside of whose threshold she has already stepped. Her “solution” stands the whole problem on its head, and she now implores us to drop the assumption of a closed society and “allow for surplus value to be realized outside of capitalist production.”

This step, she says, will reveal that out of capitalist production could issue “either means of production or means of consumption.” [17] There is no law compelling the products of capitalist production to be the one and not the other. In fact, states Luxemburg without any awareness of how far she is departing from the Marxist method, “the material form has nothing whatever to do with the needs of capitalist production. Its material form corresponds to the needs of those non-capitalist strata which makes possible its realization.” [18]

Difference on What Determines Production

For Marxism it is production which determines the market. Luxemburg, on the other hand, finds herself in a position where, although she accepts Marxism, she yet makes the market determine production. Once Luxemburg eliminates the fundamental Marxian distinction of means of production and means of consumption as indicative of a class relationship, she is compelled to look for the market in the bourgeois sense of “effective demand.” Having lost sight of production, she looks for “people.” Since it is obviously impossible for workers “to buy back” the products they created, she looks for other “consumers” to “buy” the products.

Having thus departed from the Marxist method, she proceeds to blame Marx for not having used that as his point of departure. The Marxian formulae, writes Luxemburg, seem to say that production occurs for production’s sake. As Saturn did his children devour, so here everything produced is consume internally:

Accumulation is effected here (the schema) without it being seen even to the least degree for whom, for what new consumers does this ever-growing expansion of production takes place in the end. The diagrams presuppose the following course of things. The coal industry is expanded in order to expand the iron industry. The latter is expanded in order to expand the machine-construction industry. The machine-construction industry is expanded in order to contain the ever-growing army of workers from the coal, iron and machine-construction industries as well as its own workers. And thus “ad infinitum” in a vicious circle. [19]

By means of her substitute of the non-capitalist milieu for Marx’s closed society, Luxemburg is out to break this “vicious circle.” The capitalists, she writes, are not fanatics and do not produce for production’s sake. Neither technological revolutions nor even the “will” to accumulate are sufficient to induce expanded reproduction: “One other condition is necessary: the expansion of effective demand.” [20] Except to the extent that surplus value is necessary to replace constant capital and supply the capitalists with luxuries, surplus value cannot otherwise result in accumulation, cannot be “realized.” Or, as she put it:

They alone (capitalists) are in a position to realize only the consumed part of constant capital and the consumed part of surplus value. They can in this way guarantee only the condition for the renewal of production on the former scale. [21]

That the “consumed part of constant capital” is not consumed personally, but productively, seems to have escape Luxemburg’s attention. Capitalists do not “eat” machine neither their wear and tear, nor the newly-created ones. Both the consumed part of constant capital and the new investments in capital are realized through production. That precisely the meaning of expanded reproduction, as Marx never wearied of telling.

Luxemburg, however, instead of speaking of the laws ( production based on the capital-labor relationship, has no other refuge but the subjective motivation of the capitalists for profits. Capitalist production, she writes, is distinguished from all previous exploitative orders in that it not only hungers for profit but for ever greater profit. “Now how can the sum (of profits) grow when the profits only wander in a circle, out one pocket and into another?" [22]– that is, out of the pocket of the iron producers into that of the steel magnates into that of the machine-construction industry tycoons. No wonder Marx was so insistent upon establishing the fact that:

Profit is therefore that disguise of surplus value which must be removed before the real nature of surplus value can be discovered. [23]

Luxemburg, being a serious theoretician, was compelled to develop her deviation to its logical conclusion. Where, to Marx, expansion of production meant aggravation of the conflict between the worker and the capitalist, to Luxemburg meant “first of all” expansion of demand and of profits. She contended that Marx assumed what he should have proved – that expanded reproduction was possible in a closed society. With her attention focused on imperialism, she overlooked that capitalism was developing to a much greater extent capitalistically (expansion of machinofacture within the home country) and between capitalist countries (e.g., United States and Britain) rather than through “third groups” or between capitalist and non-capitalist countries.

Luxemburg had left the sphere of production for that of exchange. and consumption. There she remained. Having given up Marx’s premise, she had no vantage point from which to view these phenomena. She arrived pivotless on the broad arena of the market, asking that the obvious be proved, while “taking for granted” the production relationship which the obvious obscured. Remaining in the market, there was nothing felt for her to do but adopt the language characteristic of what she herself, in other circumstances, had called “the merchant mentality.”

B. “Pure Form of Value”

Luxemburg maintains that, although coal may be needed for iron and iron for steel and steel both for the machine-construction industry and for machines producing means of consumption, the surplus product cannot be reincorporated into further production without first assuming “the pure form of value,” which is evidently money and profits:

Surplus value, no matter what its material form, cannot be directly transferred to production for accumulation; it must first be realized. [24]

Just as surplus value must be “realized” after it is produced, so it must after that reassume both the “productive form” of means of production and labor power as well as means of consumption. Like the other conditions of production, this leads us to the market. Finally, after this has succeeded, continues Luxemburg, the additional mass of commodities must again be “realized, transformed into money.” This again brings us to the market and only after this has succeeded. ... Closing the door to what Luxemburg thinks is the “vicious circle” of production for production’s sake, she opens the doors wide to what Marx called “the vicious circle of pre-requisites.” [25]

Where Marx said that alone the use-value of means of production show how important is the determination of use-value in the determination of the entire economic order, Luxemburg leaves out of consideration entirely the use-value of capital: “In speaking of the realization of surplus value,” she writes, “we a priori do not consider its material form.” [26] Where Marx shows the inescapable molding of value into use-value, Luxemburg tries violently to separate them as if surplus value could be “realized” outside its bodily form. The contradiction between use-value and value which capitalist production cannot escape Luxemburg tries to resolve by dumping the total product of capitalist production into non-capitalist areas.

Luxemburg may have thought that she was thus freeing herself from “the vicious circle” of the Marxian schema. In reality, by treeing her thoughts from the laws of capitalist production, Luxemburg was freeing herself from the actuality of the class struggle. It is this which permitted her to abandon the premise of a closed capitalist society, and hence the implications and limitations of the Marxian categories.

(Editor’s Note – The concluding portion of this study will appear in our next issue. It concerns itself mainly with “Marx and Luxemburg on the Breakdown of Capitalism,” being a discussion of the Marxist theory of crises.)

Luxemburg’s Theory of Accumulation – II

Market, Crises and the Breakdown of Capitalism

(May 1946)

Source: The New International, Vol. XII No. 5 (Whole No. 107), May 1946, pp. 137–140.

The dispute between Marx and Luxemburg is not confined to the limits of the formulae. That is only the outer shell of the inner core of the essential question of the breakdown of capitalism, or the creation of the material foundation for socialism. Throughout her criticism of the formula in Volume II, Luxemburg maintains that Volume III contains “in implicite” the solution to the problem posed “but not answered” in Volume II. By the “implicit” solution Luxemburg means the analysis of the contradiction between production and consumption; and between production and the market. That, however, is not what Marx called “the general contradiction of capitalism.”

The “general contradiction of capitalism,” [27] writes Marx, consists in the fact that capitalism has a tendency toward limitless production “regardless of the value and surplus value incorporated in it and regardless of the conditions of production under which it is produced.” That is why, in “Unravelling the Inner Contradiction,” Marx places in the center of his analysis, not the market, but the “Conflict between Expansion of Production and the Creation of Values.”

The constant revolutions in production and the constant expansion of constant capital, writes Marx, necessitates, of course, an extension of the market. But, he explains, the enlargement of the market in a capitalist nation has very precise limits. The consumption goods of a capitalist country are limited by the luxuries of the capitalists and the necessities of the workers when paid at value. The market for consumption goods is just sufficient to allow the capitalist to continue his search for greater value. It cannot be larger.

This is the supreme manifestation of Marx’s simplifying assumption that the worker is paid at value. The innermost cause of crises, according to Marx, is that labor power in the process of production, and not in the market creates a value greater than it itself is. The worker is a producer of overproduction. It cannot be otherwise in a value-producing society where the means of consumption, being but a moment in the reproduction of labor power, cannot be bigger than the needs of capital for labor power. That is the fatal defect of capitalist production. On the one hand, the capitalist must increase his market. On the other hand it cannot be larger.

Luxemburg, however, is so blind to all this, that she insists that it is not the problem that is insoluble, but Marx’s premise which makes it so. She is prevented from seeing what is most fundamental to Marx because, on the one hand, she has excluded crises as being merely “the form of movement but not the movement itself of capitalist economy.” [28]On the other hand, because she abandoned Marx’s basic premise, she looked at the market not as a manifestation of the production relationship, but as something expendable outside of that relationship. To Marx, however, the “market” that can be enlarged beyond the limits of the working population paid at value is the capital market. Even there the constant technological revolutions make the time necessary to reproduce a product tomorrow less than the time it took to produce it today. Hence there comes a time when all commodities, including labor power, have been “overpaid.”

The crisis that follows is not caused by a shortage of “effective demand.” On the contrary, it is the crisis that causes a shortage of “effective demand.” The worker employed yesterday has become unemployed today. A crisis occurs not because there has been a scarcity of markets – the market is largest just before the crisis – but because from the capitalist viewpoint there is occurring an unsatisfactory distribution of “income” between recipients of wages and those of surplus value or profits. The capitalist decreases his investments and the resulting stagnation of production appears as overproduction. Of course, there is a contradiction between production and consumption. Of course, there is the “inability to sell.” But that “inability to sell” manifests itself as such because of the fundamental antecedent decline in the rate of profit, which has nothing whatever to do with the inability to sell.

What Marx is describing in his analysis of the “general contradiction of capitalism” is (1) the degradation of the worker to an appendage of a machine, (2) the constant growth of the unemployed army, and (3) capitalism’s own downfall because of its inability to give greater employment to labor. Since labor power is the supreme commodity of capitalist production, the only source of its value and surplus value, capitalism’s inability to reproduce it dooms capitalism itself.

Thus the three principal facts of capitalist production which are reaffirmed not merely “implicitly” but explicitly in the real world in Volume III are: (1) decline in the rate of profit, ([2) deeper and deeper crises, and (3) a greater and greater unemployed army.

One by one Luxemburg rejects these, either in part or in full, either implicitly or explicitly. As we have seen, she has entirely excluded any consideration of crises from her analysis of accumulation. She now dismisses the decline in the rate of profit as symbolic of capitalist collapse. She states that the tendency for the rate to decline is, if not entirely negated, at least strongly counterbalanced, by the increase in the mass of profit. Therefore, she concludes, we might as well wait for “the extinction of the sun” [29]as to wait for capitalism to collapse through a decline in its rate of profit. On the contrary, she writes, the historic process will reveal the “real” source of capital accumulation and hence the cause of capitalism’s downfall when that source will have been exhausted:

From the historic point of view, accumulation of capital is a process of exchange of things between capitalist and pre-capitalist methods of production. Without pre-capitalist methods of production, accumulation cannot take place ... The impossibility of accumulation signifies from the capitalist point of view the impossibility of the further development of the productive forces and consequently the objective historic necessity for the breakdown of capitalism. [30]

Here again Luxemburg was betrayed into this position by the one and only fundamental error she made to start with the counterposition of “reality” to theory. This leads her to so fully depart from the Marxian theory of accumulation that she finally denies Marx the right to assume that labor power will always be on hand for purposes of expanded reproduction simultaneously with assuming a closed capitalist society. “Reality” would show, she writes, that it is the non-capitalist societies which are the “reservoir of labor power.” [31] By denying Marx that right she is denying the Marxist theory of population. With a single stroke of the pen Luxemburg frees capitalism from its “absolute general law” the reserve army of labor – which, says Marx, is all-dominant even when the entire social capital has been concentrated in “the hands of one single capitalist or one single corporation.” [32] That is the blind alley to which Luxemburg was led by the phenomena of imperialism which had driven her to substitute “reality” for theory.

2. Once Again. Theory and Reality

Theory and reality are not separable. Marxist theory is sc the conscious expression of the unconscious historic process. Distinction between the real world and general theory is false. The real world has significance only if you see it in relation to a certain theory. Essentially there can be only two modes of thought in contemporary society: bourgeois or proletarian-Marxist. If you develop consistently away from the Marxist you must inevitably fall prey to the bourgeois theory. That is what happened to Luxemburg. That is what happens to anyone who comes unarmed by Marx’s fundamental premise into the broad sphere of exchange and consumption where the capitalist hides behind the guises of “consumer,” “buyer” and “seller.”

Wherein lay the importance of the imperialist phenomena that Luxemburg said contradicted the Marxist theory and diagrammatic presentation of accumulation? Obviously in the fact that the phenomena brought into view “not only” a closed capitalist society and its contradictions, “but also” the non-capitalist strata and societies and its relation to them. And not merely “also,” but “first of all.” And from this “first of all Luxemburg did not hesitate to draw the logical conclusion that accumulation was “inconceivable in any respect whatever” without these third groups. But if accumulation is “inconceivable” without this outside force, then it is this force, and not labor, which will bring about the downfall of capitalism. The historic necessity of the proletarian revolution falls to the ground.

Luxemburg, the revolutionist, feels the abysmal gap between her theory and her revolutionary activity, and comes to the rescue of Luxemburg, the theorist. “Long before” capitalism would collapse through exhaustion of the non-capitalist world, writes Luxemburg, the contradictions of capitalism, both internal and external, would reach such a point that the proletariat would overthrow it.

But it is not a question of “long before.” No revolutionist doubts that the only final solution of the problem of expanded reproduction will come in the actual class struggle, on the live historic stage, as a result of class meeting class on the opposite sides of the barricades. The question scientifically or theoretically is: does the solution come organically from your theory, or is it brought there merely by your “revolutionary will.” In Marx the granite foundation for socialism and the inevitability of capitalist collapse come from the very laws of capitalist production: capitalism produces wage labor, its grave digger. The organic composition of capital produces, on the one hand, the decline in the rate of profit, and, on the other hand, the reserve army of labor. The inability of capitalism to reproduce its only value-creating substance sounds the death-knell of capitalism.

With Luxemburg, on the other hand, death comes not from the organism of capitalism, but from an outside force: “non-capitalist strata and non-capitalist societies,” while the revolution is dragged on by her indomitable revolutionary will. The socialist proletarian revolution, which, with Marx, is rooted in the material development of the conflicting forces of capital and labor, here becomes a wish disconnected from the increasing subordination of the laborer to, and his growing revolt from, the capitalist labor process.

3. A Single Capitalist Society and
“A Different Distribution of National Capital”

Lenin, in his voluminous writings in defense of the abstraction of a closed capitalist society, wrote that not only had Marx the right to his assumption, but that it was the only scientific method possible to illustrate (1) the law of realization, which held true “whether we take one nation or the whole world” [33], and (2) to prove that distribution was not the problem. By projecting an ideal capitalist society in which the capitalist has absolutely no headaches about markets-everything produced is “sold” – Marx proved, says Lenin, that the capitalists’ search for markets is motivated by the search for greater profits, and not because it is absolutely impossible “to realize” the goods produced within the capitalist society.

“Under a different distribution of the national capital,” writes Lenin, “the same quantity of products could be realized within the country.” [34]

When Engels had postulated a similar “distribution of national capital,” he too had done so without changing the basic capital-labor relationship:

The modern state, whatever its form, is an essentially capitalist machine; it is the state of the capitalists, the ideal collective body of all the capitalists. The more productive forces it takes over, the more it becomes the real collective body of all the capitalists, the more citizens it exploits. The workers remain wage earners, proletarians. The capitalist relationship is not abolished; it is rather pushed to an extreme. [35]

Because this capitalist relationship would not be abolished but would rather be “pushed to an extreme,” Marx would not budge from his premise of a society consisting only of workers and capitalists. By being solidly based on the capital-labor relationship Marx sees that the decline in the rate. of profit cannot be obviated either by an increase in the mass of profits or by an increase in the “effective demand” for the extra products created. No matter what the market is, the technology of production is such that the capitalist needs relatively less workers to man the new and ever larger machines. Along with the technology of production, the production relationship is such that surplus value comes only from living labor (variable capital in the process of production), which is now an ever smaller part of total capital. Hence the tendency to decline reveals ever clearer the law of surplus value behind that tendency.

The logical development of this tendency, writes Marx, will reveal that ultimately not even the full twenty-four hours of labor would produce sufficient surplus value to turn the wheels of expanded reproduction on a capitalist basis:

In order to produce the same rate of profit when the constant capital set in motion by one laborer increases ten-fold the surplus labor time would have to increase ten-fold and soon the total labor time and finally the full twenty-four hours a day would not suffice even if wholly appropriated by capital. [36]

We have reached the theoretic limit of capitalist production It is as inextricably connected with labor as is the theory the abolition of capitalism with the proletarian revolution. That is why an organic part of Marx’s theory of accumulation at is the mobilization of the proletariat for the overthrow of capitalism That is why. Marx would not be moved from his premise of a closed society. It was the basis not only of Volume II of Capital but of Volumes I and III, as well as of his Theories of Surplus Value. Moreover, it was the basis not only of his entire theoretical system but also of his whole revolutionary activity.

4. The Breakdown of Capitalism and
the Decline in the Rate of Profit

Marx developed his analysis of capitalist production on different levels of abstraction. In Volume I of Capital, the most abstract of the three volumes, he projects the ultimate development of the economic laws of capitalism, the concentration and centralization of the means of production until they reach the limit, “the concentration of the entire social capital in the hands of one single capitalist or one single corporation.”

This single capitalist society becomes the ideal capitalist society which is the premise of Marx’s famous formulae in Volume II. Even in Volume III, where we are introduced to the “real” world, with its bogus transactions, credit manipulations and all other complicating factors of a complex society, Marx’s vantage point remains the sphere of value production of a closed capitalist society. The main conflict in society, as in production, remains the conflict between capital and labor. It becomes aggravated, not modified, with the expansion of production and expansion of credit, and none of the laws of production whether reflected in the declining rate of profit, or in the reserve army of labor, are attenuated by market manipulations’. Rather the abstract laws themselves come to full fruition.

Today we can see that clearer than ever. Even should, for instance, Britain and France nationalize production and take complete control of credit, that being a given capitalist society, i.e., a society existing within the environment of a world market, the fundamental factor remains the labor-capital relationship over which the law of value dominates. Atomic energy may be the secret discovery of the United States, but France must follow suit or perish. The given society is subject to any technological revolutions, no matter where these originate. The capitalist of the given country remains the agent of value production and is caught in the vise of value production. On the one hand, the only source of value and surplus value is living labor. On the other hand, his method of production is such that he constantly uses less living labor in relation to dead labor (machines). These highly contradictory laws are inextricably connected. When the capitalist – whether he is one, one thousand or one single corporation in any given country – obeys these laws, he is subject to the decline in the rate of profit – ratio of surplus value to total capital. Yet the disobeyment of these laws would only bring about his downfall the sooner. Supposing that the single capitalist society tried either to give greater employment to labor or to raise the standard of living of the worker, who, being paid at value, becomes a cheaper commodity the more commodities he produces. The moment it attempted to give the worker a value for labor power greater than is socially necessary for its production, the cost of all commodities would go up. The amount of value above value, or the surplus, therefore, would get less and the single capitalist society, existing in the environment of the world market, would be made to understand that it is part of a value-producing “one world” and must obey its laws or perish – either in competition or on the battle fronts.

Marx considered the theory of the declining rate of profit to be “the pons asini” of the whole of political economy, that which divides one theoretic system from another. [37]

The protracted depression following the 1929 crash silenced the vulgarizers of political economy, who denied that there is such a tendency. However, it was inconceivable to this “new political economy,” as it is to all bourgeois, that the decline in the rate of profit comes from the very vitals of the productive system. Marx, based as he was on the capital-labor relationship, saw the decay in capitalist production in the tendency in the rate of profit to decline despite the growth in its mass. The bourgeois economists, on the other hand, see the decline in the rate not as a result of the organic composition of capital, reflecting the relationship of dead to living labor, but as a result merely of “a deficiency in effective demand.”

Paul Sweezy, a “Marxist” professor tainted with a good deal of Stalinism, thinks that, although Marx wrote some 4,000 pages on the capitalist method of production (Theories of Surplus Value were written as Volume III of Capital, and must be considered as part of the monumental work), he was all the time feeling his way. to an under-consumption theory, without having had a chance to develop it. However, even Sweezy has to admit that as Marx’s work stands, his theory of the falling rate of profit is opposed to the under-consumptionist theory. He correctly summarizes the differences in the two positions:

It is important to grasp the difference between the crises associated with the falling tendency of the rate of profit and the realization crises ... In the one case, we have to do with movements in the rate of surplus value and the composition of capital, with the value system remaining intact; in the other case, we have to do with as yet unspecified forces tending to create a general shortage in effective demand for commodities, not indeed in the sense that the demand is insufficient to buy all commodities offered, but that it is insufficient to buy them at a satisfactory rate of profit. The starting point of the crisis is in both cases a decline in the rate of profit; but what lies behind the decline in the rate of profit in the one case requires a very different analysis from what lies be-hind the decline in the rate of profit in the other. [38]

Simply stated, it all boils down to this. Either the decline in the rate of profit results from the preponderance of constant capital over variable and is incapable of resolution except through the abolition of this capital-labor relationship. Or it is due to an external force, effective demand, and thus can be doctored up outside of the production relationship of capital to labor.

Such a theory is an absolute necessity to the bourgeoisie. Capitalism, not only centralizes the means of production, it socializes the labor process. Capitalism not only degrades the worker to an appendage of a machine, it also disciplines him. Capitalism not only throws the worker out of employment, it also prepares him for revolt. Capitalist rule is becoming unacceptable to its wage slaves. Hence the bourgeois theorists, faithful servants to the bourgeois class, comes to its rescue with a theory that the worker need not revolt. The evils of capitalism, they say, can be eliminated and the capitalist production system can be doctored up to work.

Needless to say, Luxemburg was not seeking means to doctor up capitalism. Nevertheless, such is the logic of thought that, once she denied the Marxist theory of accumulation, she was forced to come to a conclusion which anticipates the latest bourgeois economic theory! Where the bourgeois economists look for a rising standard of living to supply “the effective demand” and thus stifle the decline in the rate of profit and “induce” the capitalist to increase his investments, Luxemburg, being a Marxist and taking for granted that the laborer can present a demand for no more products than those equivalent to his being paid at value, looked for a “non-capitalist milieu” to supply the “effective demand.” What is common to both these theories is that both look outside of capitalism’s direct exploitative process, outside the process of value production. That is why the modern economists seized upon Luxemburg’s theory. A leading British economist informs us that Luxemburg “most clearly” developed “the under-consumption element in Marxist theory.” [39] Although this worthy bourgeois admits that among Marxists Luxemburg is regarded as “heretical” on this question, she nevertheless hopes through this connection to give underconsumptionism a “Marxist” flavor.

IV – Conclusions to Be Drawn

Luxemburg began her Accumulation, which she considered a “supplement” to Marx’s Capital, by abandoning Marx’s premise. The latter, however, is the foundation of Marx’s entire theoretical system. Rejecting it, Luxemburg must reject his whole method of political economy. Her book is the first attempt to give a Marxist flavor to a distribution theory. The tendency has existed before, but it is only after the appearance of her book that it has gained theoretic credentials. Luxemburg’s Accumulation of Capital is not a supplement to, but a revision of, Marx’s Capital.

Luxemburg’s work is a theoretic test for revolutionary Marxism’s ability to answer the challenge that has appeared from within its own ranks. It is also a theoretic test for Luxemburgians who contend that hers is the only revolutionary solution to the problem of expanded reproduction.

How has Luxemburg’s theory stood the test of time? On the one hand it has served to disorient the Marxist movement. In his Introduction to Imperialism and the Accumulation of Capital, Bukharin states, that he was prevented from writing the draft of the CI program because of the Luxemburgians’ insistence that her theory of accumulation become the theoretical foundation of the program of the Third International. Hence, he had first to expose her errors. On the other hand, Luxemburg’s theory of accumulation, a misnomer for “realization,” is being used by underconsumptionists for a Marxist decoration.

Surely Rosa must be tossing restlessly in her grave at the sight of bourgeois economics embracing her theory. Unfortunately, she herself never made clear how she reconciled her theoretic and revolutionary positions. This has not become clearer in the narrower vision of her disciples. They can do no more than point to her revolutionary martyrdom, although one has been so bold as to say that her theory of accumulation has solved a problem which “had exhausted even Marx’s huge powers” and that only with her book, “the idea of socialism had shed the last vestige of Utopianism.” [40]

It is not insignificant that the anti-Leninist Luxemburgian, Paul Mattick, has nothing to say about the acceptance by bourgeois economists of Luxemburg’s underconsumption theory, although this runs directly counter to his curious theory, to wit: although Lenin was right, he was wrong, and although Luxemburg was wrong, she was right because her theory led to “truly revolutionary conclusions.” [41]The truth is that no matter what revolutionary conclusions she drew, her theory that expanded reproduction depends upon effective demand rhymes precisely with the current theory of bourgeois economics.

The Stalinists, who have in the past boosted the Keynesian theory, now, in their new-found desire for “socialism,” find it necessary to oppose it. In the Daily Worker of January 15, 1946, “a letter from a comrade” is published demanding that the Keynesian theory of political economy be exposed for the dangerous fraud that it is. With the new turn, the American Stalinists are recognizing the necessity for restoring “Marxist” education to their armory of corruption of the working class. At the same time, their masters in Russia, who have no necessity for even pretending to be revolutionary, have entirely abandoned the Marxian theory of value. [42]

Rosa Luxemburg was a revolutionary. Her great services to the movement and what Trotsky called her luminous mind will always remain the indestructible heritage of the Fourth International. Precisely for this reason, however, it has been necessary to disentangle the error she has committed on the theory of accumulation from her revolutionary activity and her fight against reformism. Only clear exposition of her erroneous theory will prevent the Stalinists from using the mistake of this revolutionary martyr for their own nefarious purposes.



1. Accumulation of Capital, a Contribution to the Economic Explanation of Imperialism, by Rosa Luxemburg, 1st ed., published in 1913. There has been much confusion between this book and her Anticritique, first published in 1919, and called Accumulation of Capital, or What the Epigones Have Made of the Marxist Theory – An Anticritique. This was republished in 1923 as Volume II of her first book on Accumulation. In this article, Volume I of her work will be referred to as Accumulation and Volume II as Anticritique. Accumulation refers to the Russian translation by Dvoilatsky, edited by Bukharin and published in Moscow in 1921. Anticritique refers to the 1923 German edition.

2. Cf. M. Kalecki: Essays on the Theory of Economic Fluctuations, page 46.

3. Cf. especially Capital, Vol. II, page 548, Vol. III, page 300, and Theories of Surplus Value, Vol. II, Part II, page 161 (the references to The Theories etc., are to the Russian Edition)

4. Capital, Vol. III. page 396.

. When in this article the word “realization” is used in its under-consumptionist meaning of sale, it is always put in quotes.

6. V. Lenin, Collected Works, Vol. II, page 424 (Russ. ed.).

7. Cf. Lenin, Collected Works, Vol. II, page 32 (Russ. ed.)

8. Cf. Marx, Theories of Surplus Value, Vol. II, Part II, page 170.

9. Cf. Marx, Capital, Vol. II, page 592.

10. Same as footnote 8.

11. The argument was complicated by the fact that. In the majority, her critics were reformists. She, on the other hand, attacked indiscriminately both the revolutionists and those who betrayed the revolution, labeling all her critics “epigones.”

12. Page 401.

13. Theories, etc.. Vol. II, Part II, page 161. Cf. also N. Bukharin: Imperialism and the Accumulation of Capital, 1925 (in Russian and in German).

14. Accumulation, page 245 (my emphasis – F.F.).

15. Accumulation, page 222.

16. Ibid., page 297 (my emphasis – F.F.).

17. Ibid., page 247.

18. Ibid., (my emphasis – F.F.).

19. Ibid., page 229.

20. Accumulation, page 180.

21. Ibid., page 244.

22. Anticritique, pages 407/#8211;8

23. Capital, III, page 62.

24. Accumulation, page 86.

25. Cf. Section I of this article, the matter relating to footnote 10.

26. Accumulation, page 246.

27. Capital, III, page 292.

28. Accumulation, page 6.

29. Anticritique, page 441, footnote.

30. Accumulation, page 297.

31. Ibid., page 259.

32. Capital, I, page 688.

33. Collected Works, II, Lenin, page 451 (Russian edition).

34. Cf. translation of the first chapter of Lenin’s The Development of Capitalism in Russia in the December, 1943, New International, page 349.

35. Anti-Duhring, page 349.

36. Capital, III, page 468.

37. Cf. Marx-Engels Selected Correspondence, page 224 and Capital, III, page 250.

38. The Theory of Capitalist Development, Paul M. Sweezy, page 145.

39. An Essay on Marxian Economics, Joan Robinson, page 86.

40. Cf. Rosa Luxemburg, Paul Frölich, page 185.

41. Cf. International Correspondence, No. 8, July 1936, where Mattick in his article on Luxemburg vs. Lenin writes: “In his writings against the Narodniki, Lenin had already anticipated many of his arguments against Rosa Luxemburg’s conception. There is no doubt that Lenin’s conception is much closer to the Marxian than is Luxemburg’s. ... Lenin’s arguments against the Luxemburgian conception were sound and so far as they went completely in harmony with Marx; nevertheless, he evaded the question as to whether capitalism is faced with an objective limit. ... His theory, while more correct, did not lead to truly revolutionary conclusions. Rosa Luxemburg’s theory, even though false, still remained revolutionary.”

42. Cf. Political Economy in the Soviet Union, International Publishers.


Last updated on 10 June 2017