Karl Kautsky

Finance-Capital and Crises


Source: Social Democrat, London, XIV, July, August, September, October, November and December 1911.
Transcribed: Sally Ryan for marxists.org, 2000.

I. Hilferding’s Book

For some time we Marxists were reproached with the unfruitfulness which is said to have obtained since the death of Engels. The reproach was not quite unfounded, but the connection of our “unfruitfulness” with the death of Engels was only caused by the fact that for many Marxists this death was the signal for turning away from Marxism; even, indeed, for eagerly combating it. Thus the ranks of the Marxist theorists were momentarily thinned, while the desertion of our former comrades from the camp of “orthodox” Marxism strengthened its opponents and forced us temporarily into the defensive. For years we had to use our best time and strength in defending the already won results of Marxism against comrades who had themselves helped to obtain those results, and in refuting arguments which had a short time before been declared unsound by the very people who now used them.

But this crisis in Marxism hardly lasted a decade. Theoretical (nor, indeed, the practical) Revisionism is shelved; and we Marxists are again able to devote our whole time and strength, as far as we can turn these towards the theoretical side, to the great task of building up the edifice that the masters left unfinished and adapting it to modern times. And, in truth, during recent years no one can any longer complain of the unfruitfulness of Marxism.

Among the creations of Marxist literature – indeed among any of that literature – one of the most remarkable phenomena is the book written by Hilferding [1] on finance capital. In a sense it may be called a continuation of Marx’s Capital.

Capital was left unfinished, and already on that account demands completion and continuation. Then, also, its more important parts were concluded in the sixties, so that it is half a century old. During this long period a great economic revolution has taken place. It has, indeed, not left Capital behind; on the contrary, it has only by the help of this work that it can be properly understood. But it has produced a number of new phenomena which were not dealt with in Capital, and which until the appearance of Hilferding’s book had not been subjected to a detailed and sufficient examination on the basis of our theory.

The first volume of Capital is hardly touched upon in Hilferding’s work. It is the second and third volumes from which it starts out and which it enlarges upon. And that is just where a continuation and further development was specially needed. First, because these volumes, in contradistinction to the first, only constitute fragments, and also because it is just on these planes that development has progressed with special rapidity, and the conditions show many more new phenomena than those dealt with in the first volume.

The latter treats of the process of the production of capital in the narrower sense of the word; its scene is laid in the factory; it shows us the foundations of the class antagonism between capital and labour. The second volume deals with the process of the circulation of capital; the buying and selling of the wares which have been produced. Its scene is laid on the market, where the class antagonisms between capital and labour are not directly noticeable, where there are only producers and consumers, and between them the negotiating traders.

The third volume then treats of the whole process; but here, also, the circulation of commodities is in the forefront. Here the chief part is played by the distribution of the surplus-value among the various classes of exploiters – industrial capitalists and land- owners – who draw the surplus-value in the form of industrial profit, interest or ground rent. The formation of the price, its deviations from the value, have a determining effect on the distribution of surplus-value. But these deviations are not arbitrary, but are subject to certain laws which can only he explained by the law of value.

It is easy to understand why the first volume of Capital became much more popular and had a much greater effect than either of the others. Not only because it was much more perfect in form, but also, and above all, because it dealt with the actual domain of the class struggle between capital and labour. Here the workers were at home; here they had lived through that which in the work of their pioneer was theoretically developed. Their class position and class instinct made them capable on this field of understanding, some things with mere ease than the bourgeois professors.

Not so the second and third volumes. Here, apparently, only the antagonisms of the exploiters among themselves were dealt with, fields which are far more strange to the worker than to bourgeois theorists. Here his experiences from his class position could not help him at all.

All the more would one have expected that these two volumes would have fructified bourgeois theory. For was it not a question of their own affairs – profit, interest, ground rent, of stock exchange and banks – planes in which the interest of the possessing class bade them make themselves at home and take a complete view of the whole.

But, strangely enough, the bourgeois economists showed no sign of using these Ariadne threads, with whose help they could have found their bearings in the labyrinth of capitalist business life. For they knew well that these Ariadne threads led with infallible certainty back to the starting point of the labyrinth, to the law of value by labour, they fought with hands and feet. Thus they were happy enough to manage to find nothing in these two volumes but the statement that the prices deviate from the values, and to deduce there from with great gusto the bankruptcy of the value theory.

Here, also, on their own special field, they left it to Social-Democrats to raise and make use of the treasures contained in the second and third volumes of Capital. Now, when Hilferding has done this, they will probably not fail to take possession, at any rate partially, of his results, but they will continue to abuse the starting-point and the method to which they owe these results.

Hilferding’s book is, however, written least of all for these people. It will, above all, bring new strength and clearness to the proletarian class war, even though it is only a few pages at the end that are devoted to this struggle. It is only when one has completely grasped the total process of capital that one can clearly grasp the tendencies of its development, and therein the functions and goals of the Socialist movement. But the latter is unconditionally necessary if the proletariat would continually unfold the maximum of its strength and always use it to the point, avoiding false paths, which means wasting time and strength.

But there is also a narrower sense in which the knowledge of the circulatory process of capital is hardly less important for the militant proletariat than that of the process of production. The former does indeed show growing antagonism between wage-labour and capital; but the form of process of circulation determines how the capitalists are constituted with whom the worker has to do, a thing by no means without importance for the tactics of the struggle. And the forms which capital assumes change much quicker through the influence of the process of circulation than through that of production.

Profit is the driving force of the whole capitalistic mechanism; the foundation of the profits of the capitalist class is surplus-value, the amount of which depends upon the number of the workers employed by the total capital and the intensity of the exploitation. But the amount of profit pocketed by each individual capitalist does not depend on the amount of surplus-value on the exploitation of the workers employed. The capitalist cannot only gain at the expense of the workers, but also at the cost of his capital conferes; and if one understands how to do it, and possesses the necessary amount of capital and luck, one can get rich much quicker by plundering the big robbers than by merely plundering the plundered.

>Hilferding examines the driving forces which underlie the different kinds of profit-gaining at the cost of the exploiters, the speculation profit, the foundation profit, the monopoly profit through the exclusion of competition, and shows how powerfully they influence the shaping of the capitalist class, and how, driven by them, the industrial concerns are coming to belong less and less to individual capitalists and passing over into the hands of joint-stock companies. He shows, further, how with these joint-stock companies, and through them, the power of the banks over industry is brought about; and, on the other hand, also the concentration of the concerns, partly by means of combination in mixed undertakings, one of which supplies the material to the other, partly by uniting several works of the same kind into a league, a cartel, or, finally, into a consolidated trust. He shows clearly how by this means the process of production is being more and more revolutionised, and large production coming more and more to the fore and assuming greater and greater powers of extension. All this is represented by Hilferding in the clearest and most exhaustive manner, in which he opens out to us a number of new points of view into the most complicated connections.

Of course the processes of circulation and of production stand in constant reciprocal action. The development just described is certainly not result of the circulation process alone. The effects of the production process, the improvements in technique, have without doubt played a most important part; but it is an injustice to Hilferding to reproach him with having overlooked these factors. It does not belong to the plan of his present work to deal with them in detail. He does not under-value them; but his primary object was to explore the factors arising the circulation process, which have hitherto been too little considered in the development in question and have never been systematically examined.

And, as already mentioned, the factors which are engendered by the circulation process prove themselves the more powerful for the formation of the relations of capital, and also those that change it the quickest.

The capitalist has always begun with being the merchant; the sphere of circulation is his element. But without a change in the process of production (in the narrower sense, for in the wider sense it is included in the process of circulation) an industrial undertaking may, through a mere change in the circulation, completely alter its character; may, for instance, change from a manufacture to a capitalistically exploited concern. Nothing in the workshop need be altered in the least; it suffices that the manufacturer should no longer buy the raw product himself, but that a merchant who desires to turn it to account should buy it and give it to him to be manufactured, so that the merchant, and no longer the manufacturer becomes, in exchange for a mere compensation for the work, the owner of the product which he sells. So, also it is not necessary for anything in the process of production to change in a factory while it goes through the transformation from the property of a single capitalist into that of a job-stocking company, the change from an independent individual enterprise into a member of a cartel, into a trust undertaking, or into the property of a bank.

It is thus quite permissible to trace this development without special reference to the process of production.

And the comprehension of this development is of the utmost importance for the proletarian who would consciously carry on his class struggle.

Among other things, it brings a new proof of the necessity of the intensification of the class antagonisms, which Hilferding shows up very well. His book shows once more what a mistake it is to expect that employers will come more and more to see that they will do well to be on good terms with their workers; that they will gain more and more “social political insight.” The idea of Scharfmachertum [2] is spoken of as a relic of past times; one likes to describe it as “backward,” as a phenomenon which must disappear during the further progress of capitalist development. And we Marxists, who view in the “backward” conception of the Scharfmacher not a product of the past, but as something which has its strongest roots in the present and in the future as far as it belongs to capitalism, are of course looked upon as equally “backward.”

In reality it is the smoothing over of class antagonisms which dates from the past – the past in England. It bases itself upon the supposition that it is still England that shows us our future, as was the case in Marx’s time. This expectation is supported by the, not exactly new, fact that in England after the victory of Free Trade (1846) the relations between capitalists and workers became better and better for some decades. But this revisionism, which reproaches us with swearing by the letter of the master’s words, fails to see how Marx’s words about the value of England as an example have long ago been fulfilled by the facts, and also the observations, which they themselves made in England. During three decades England has more and more relapsed, economically, into the rear, and the class antagonisms are becoming intensified there, too; not, indeed, to the same extent as in Germany or the United States, because England is backward, because the individual capitalist ownership still predominates in industry, whose dependence on the banks, and the concentration of which into cartels and trusts, has not yet proceeded so far as in the two above-mentioned countries. This was already a known fact, but Hilferding has most admirably expounded some reasons, not hitherto known, for this phenomenon.

Not England, but the United States, is the country which shows us our social future in capitalism. The backward Scharfmachertum is nowhere more intensely developed than there.

It is to finance-capital that the capitalist future belongs. But this, both in the international struggle of competition and in the internal class struggle, means the most brutal and violent form of capital.

What Hilferding understands by finance-capital and its development can best be told in his own words. In one place he gives a short resume, which helps considerably in following the line of thought which runs through a great portion of his book. He says:–

“We have seen how in the beginning of capitalist production the money of the banks comes from two sources. First, from the money of the non-producing classes; secondly, from the reserve capital of the industrial and commercial capitalists. We have seen, further, how the development of credit tends to place at the disposal of industry not only the whole reserve capital of the capitalist class, but also the greatest part of the money of the unproductive classes. Present-day industry, in other words, is carried on by means of a capital far larger than the total capital in the possession of the industrial capitalists. With capitalist development the sum of money constantly grows which is placed by the non-producing class at the disposal of the banks, and by these latter at the disposal of industry. The disposal over these sums, so indispensable to industry, belongs to the banks. With the development of capitalism and its credit organisations there thus grows the dependence of industry upon the banks. On the other hand, the banks can only draw the moneys of the non-productive classes, and keep the ever-increasing foundation stock of the same at their permanent disposal by paying interest on these moneys. This they could do, as long as these sums were not too extensive, by making use of them for speculation credit and circulation credit. With the growth of these sums on the one hand, and, on the other, with the decreasing importance of speculation and commerce, it became necessary to convert them more and more into industrial capital. Without the steady extension of production credit the possibility of making use of the deposits, and therewith also the paying of interest on the bank deposits, would long ago have sunk much lower. This is partially the case in England, where the deposit banks only negotiate circulation credit, the interest on the deposit being therefore only minimal. Hence the continual departure of the deposits into spheres of industrial investment by the purchase of shares. Here the public does directly what, in the case the founder’s profit does not come to them. But for industry, it means less dependence on bank-capital in England in comparison with Germany.

“The dependence of industry on the banks is thus the result of the conditions of property. An ever-increasing portion of the industrial does not belong to the industrials who use it. They only receive the disposal over it from the bank, which, as far as they are concerned, represents the owner. On the other hand, the bank has to fix an ever growing portion of its capital in industry. It therefore, becomes, in an ever-growing measure, an industrial capitalist. I call this bank-capital – that is, capital in money form – which in this way is converted in reality into industrial-capital, the finance capital. Towards the owners it always conserves its money-form, is invested by them in the form of money-capital, and can at any time be withdrawn by them in money form. But in reality the greater part of the capital thus invested in the banks is converted into industrial, productive capital (means of production and labour-power) and fixed in the process of production. An ever greater portion of the capital employed in industry is finance-capital, capital at the disposal of the banks, and being made use of by the industrials.

“The finance-capital develops with the development of the joint-stock companies and reaches its height with the monopolisation of industry. The industrial revenue becomes a steady and increasing one. Thus the power of the bank-capital to invest in industry gains ever further extension. But the bank-capital is at the disposal of the bank, and the bank is ruled by the owners of the majority of the bank shares. It is clear that with the increasing concentration of property the owners of the fictive capital, which gives power over the banks, and of that which gives power over industry, are becoming more and more identical. All the more, in that, as we have seen, the large banks are ever gaining more and more power of disposal over the fictive capital.

“Though we have seen how industry is becoming more and more dependent upon bank-capital, that by no means involves the industrial magnates. Just as, on the contrary, capital itself, on reaching its highest stage, becomes finance-capital, so the magnate of capital, the finance capitalist, comes more and more to unite the disposal over the total national capital by ruling over the bank-capital. Here, too, the personal union plays an important part.

“With cartellisation and trustification, finance-capital reaches the highest stage of its power, while the commercial capital experiences its deepest degradation.”

One sees Hilferding is far from believing in the utopia of the democratising of capital through shares. With a light turn of the hand he puts aside this “petty-bourgeois theory.” (Page 166; compare also 144.)

These quotations are already sufficient to show that Hilferding’s book has not only academic importance. It is of the greatest weight also for practical workers in the Labour movement, and especially for its representatives in the Parliaments, who must not limit themselves to purely Labour questions.

But it is true that the principal importance of the book is on the theoretical plane. Starting out from the Marxist fundamental ideas, Hilferding unites a complete control of his methods with the control of a comprehensive material, and he develops in a compact representation, on the foundation of the theory of the nature of money, of credit, of the banks, of the shares system, of cartels, of crises. There is hardly one of the phenomena on these planes about which he has not something new to say, and which is not made clearer by the connection which he traces between it and the total process.

His book is a new brilliant confirmation of the fruitfulness of the Marxian method. That is not to say that Hilferding swears by the letter of the master’s words. He knows how to use his method while preserving his own complete independence. This he shows best in the question of the founder’s gains, which he explains as the difference between rate of profit and rate of interest, between the real value of the productive elements of an undertaking and the capitalised amount of its profit. If, for instance, the erection of a factory costs a million marks and bears 10 per cent. profit, then, given a rate of interest of 5 per cent., the mass of profit derived from the factory will constitute the interest on a capital of two millions. If the factory be converted into a joint-stock company, one can fix the share-capital at two millions. The surplus of one million over the value of the factory drops, as founder’s gain, into the pockets of the founders without any deception.

This is a very important discovery. It opens out to us a deeper insight into the nature of the motive powers which extend the share system, render the individual capitalist superfluous, and deliver up industry to the dominion of the banks. Thanks to the founders’ gain, this development proceeds much faster than if the struggle of competition had to effect it alone. Thereby, too, the extension of the workshops to gigantic undertakings and their union with other works in the most varied forms of monopolist conjunction is extraordinarily encouraged.

The founder’s gain, proves itself to be one of the strong factors in the process of development which is bringing modern capitalism to a head, and converting capital into a quite impersonal force, but at the same time greatly increasing the class antagonisms. The discovery of this fateful force is due to Hilferding. To Marx it was still quite unknown.

Now and then Hilferding not only goes ahead of Marx, but deviates from him; but this only happens on special questions, into which we cannot go here beyond saying that on these questions also Hilferding says remarkable and true things.

There is only one point where I cannot follow Hilferding: that is his conception as though the money commodity (gold or silver) could be replaced by paper not only as a means of circulation, but also as measures of value. The real measure of value is not metal money, but the total value of the wares to be circulated (the time of circulation remaining the same) of the “socially necessary circulation value” as he calls it.

Hilferding is probably not of opinion that irredeemable paper-money as such could be the measure of value. He rightly ridicules Professor Lexis, who asserts this in the Hand-Dictionary of the State Sciences. But he does not improve matters by twisting the relationship between money and commodities, and making of the mass of commodities a measure of value, and also the creator of value in paper-money. In order, then, to make this paper-money, thus provided with a certain value, the measure of the value of the commodities, he declares:–

“Of course, all commodities are still (in pure paper currency), as before, expressed, ‘measured,’ in money. (Not gold! – K.) Money appears still, as hitherto, as the measure of value. But the greatness of the value of this “measure of value” is no longer determined by the value of the commodity which creates it, the value of the gold, the silver, or of the paper. On the contrary, this value is in reality determined by the total value of the commodities to be circulated (the date circulation remaining the same). The real measure of value is not money, but the bank-rate is determined by that which I should like to call the socially necessary value of circulation.” (Page 29.)

This, evidently, can mean nothing else than that the real measure of the value of commodities is not the money, but the real measure of the value of the money is the commodity.

If the value of the money could be determined in this way by the “socially necessary value of circulation,” that would mean the negation of the law of value for the money-commodity; it would be saying that for the latter the value is not determined by the socially necessary labour time needed for its own production. The universal applicability of the law of value would be broken through, and that would be all the more in this case, in that this would happen just in the case of the money-commodity, “the commodity the natural form of which is at the same time the immediate social social form of realisation of human labour in abstracto.” (Capital, I., page 124)

There is no necessity for any such Marxist suicide. The phenomena, which appeared after the cessation of the free coining of silver in different countries during the last decades, and on which Hilferding bases this idea, can be easily explained in other ways.

I will, however, abstain from expressing myself in detail about that. It would involve a great expenditure of subtleties, which would perhaps be wasted, as Hilferding’s usually very clear method of explanation becomes at times very obscure regarding this particular point, so that I am not always certain of having understood his words in the sense in which he meant them. But, above all, any long treatise on Hilferding’s money theory is superfluous for the present, because it has no effect upon him, either theoretically or practically.

After he has taken the trouble, from page 18 to page 43, to construct the pure paper currency, he suddenly comes to the following result:–

“Such a pure paper currency does not permanently satisfy the demands made on the means of circulation. As its value is determined by the sum of value of the commodities circulating at any given time, and as these are subject to continual fluctuations, the value of the money would also be constantly fluctuating. The money would no longer be the measure of the value of the commodities; but, on the contrary, its value would be measured by the need of circulation at any given time: thus, when the rate of circulation remained the same, by the value of the commodities. Pure paper-money is thus impossible in the long run, because the circulation would thereby be subjected to constant perturbations.” (Page 43.)

That is only saying in other words that the replacing of the money-commodity as measure of value by the socially necessary circulation-value is nothing but an academic whim. But, as such, it plays no more part in the course of the book. One can calmly reject it, and yet admit everything that Hilferding goes on to build up on his examination of the different functions of money as means of circulation, measure of value, and means of payment.

It will, therefore, suffice if, to satisfy my conscience, I simply state my misgivings as to Hilferding’s theory of the socially necessary value of circulation as a measure of the value of goods without elaborating upon it.

There is only one point that I would like to go into more fully – namely, the theory of crises. Not because I differ, from Hilferding here; on the contrary, I regard his remarks on this point among the best and most fruitful of his book; but because they have inspired me most, and have drawn out opinions of my own which perhaps, to a certain extent, serve to complete those of Hilferding.



II. The Crises

a. The Means of Production and the Means of Consumption

The most difficult of all economic problems which Marx has bequeathed to us to solve is perhaps that of the periodic crises. The difficulty here does not lie in the fact of phenomena having arisen since Marx’s death, which involve a modification, not to say a revolution, in his theory. That which Liberalism and Revisionism asserted about the cartels in this respect proved to be a very short-lived illusion. No; the difficulty lies in the fragmentary character of “Capital,” which, especially in the treatise about crises, makes itself painfully felt. Marx had found the solution of the crises problem – this is evident from the remarks he makes about it; but he never came to do more than develop the individual elements. He never attempted to deal with them as a whole. Thus this task was left, to his successors. They have the sphinx-enigma of the crises to solve – a task of such difficulty that bourgeois economy hardly dares to deal with it. For the classical economists, the physiocrates, Adam Smith, Ricardo (Malthus cannot be counted among them), the problem did not yet exist. And to the later bourgeois economy the problem was necessarily unsympathetic from the outset. For the crises are the memento mori of the capitalist method of production. All the antagonisms which are contained in its womb, and are making it more and more unbearable, and forcing more and more sections of the population into the struggle against it, are most crudely expressed in the crises. Therefore, bourgeois economy always tended to deny the inevitability of crises, to assign chance causes to them which could very well be avoided in future. To formulate a theory of crises would be to recognise their necessity and inevitability. It was therefore preferable to investigate the causes of each individual crisis, to describe and explain these historically.

On the other hand, the critics of the capitalist method of production, especially the Socialists, soon recognised the necessary connection between capitalism and crises. The crises-theories are for the most part Socialist theories. Here we did not, as in other departments of economics, climb up on the shoulders of bourgeois predecessors. In this most difficult and obscure economic domain, the scientific research of Socialism has always been in the forefront. What has been attained by bourgeois economy in this domain has been, almost exclusively, a reluctant and weakened echo of the Socialist conception. This conception reached its culminating point in Marx. Led forwards by his hand, we shall be the more way through the labyrinth the better we have grasped Marx.

A weighty and decisive step forwards on this path is constituted by the research undertaken by Hilferding regarding the causes for the periodical return of crises. This is the portion of the crises-theory which hitherto has been most obscure. Hilferding a brilliant light upon it.

In examining crises, three elements must be distinguished from each other. Many critics have thought to discover contradictions in Marx’s conception of crises, because he lays special stress, sometimes on one, sometimes on another of these elements. This criticism would only be right if Marx had ever pointed to one or the other element as the only cause of crises. But his crises-theory, on the contrary, consists in bringing together the various elements each of which is, alone, insufficient to account for the necessary periodic return of crises.

These three elements are, first, the anarchy of the production of commodities, then the under-consumption on the part of the labouring masses, and finally the variety in the conditions of the growth of the various component parts of social capital.

Hilferding handles these three elements, but the two first only quite briefly. The new things he has to say concern the third element. He is probably justified in only giving a passing touch to the first, the anarchy of production. This point is the clearest; there is not much that is new to be said about it. Production of commodities is production by private, independent producers, who know nothing of each other, and, even where they do, take no account of each other. Each goes on producing, his only lodestar under the capitalist system being profit, which takes care that the whole undertaking does not end in a miserable chaos – profit, or rather the price on which the extent of the profit depends. By the fall of prices when too much is produced, and their rise when the supply lags behind the demand, production and demand are always readjusted to their right proportion, but not without friction and loss, not without crises. As long as there is production of commodities, there is at times congestion of circulation and crises.

But these crises are dependent upon chances, and for the most part only affect certain classes of commodities. The explanation of such crises presents no difficulties. But from the beginning of the nineteenth century a particular kind of crises has appeared, a general congestion of the markets, which throws the whole process of production into disorder, and which repeats itself periodically at stated intervals, about once in each decade.

The first broke out in the year 1815, the second in 1825, the third in 1836, the fourth in 1847. It ushered in the revolution. Then there was another in 1857. Then the wars in Europe and America interrupted the cycle, and in 1866 there was only a slight crisis, while the next great industrial crisis did not appear till 1873. Its effects were all the more far-reaching for having been so long deferred. After a short recovery, a new depression occurred in 1882. Towards the end of the ‘eighties a slight rise became apparent, to be followed in 1891 by another fall, and in 1895 there was again a crisis. The alternation between prosperity and crisis had become so irregular between 1873 and 1895, the times of prosperity so short and slight, that it was widely assumed that we had reached an age of permanent over-production, thereby superseding the regular cycle of crises. But when, during the last half of the ‘nineties, a totally unexpected, highly sensational period of prosperity again appeared, many of us assumed, on the contrary, that, thanks to the cartels, the cycle of crises was now abolished, not by an era of chronic over-production, but by an era of permanent economic prosperity. But this opinion only depended upon the experience of a few years, and was soon bankrupt. Already in 1900 came another crisis, and in 1907 yet another. Since then there can no longer be any doubt that the cycle of crisis, depression, prosperity, is still proceeding. It is only the decennial return of the cycle that is broken.

This regularity cannot be determined solely by the anarchy of economic life. This only constitutes the determining factor in the cycle of crises. If production were carried on according to a plan, there would certainly be no crises. But why should they appear in so extensive a form as to affect the whole of society, and why at such regular periods?

The reason for this must lie in factors that only gained great strength in the latter part of the nineteenth century. For it was not until then that the cycle of crises began. It was convenient to observe those phenomena as such factors, which already disquieted the whole world: the introduction of machinery, which enormously intensified the productivity of labour, and which coincided with the pauperisation of the industrial workers, whose consuming capacity decreased, while their productivity increased. Here lay a contradiction which had sometimes to find an expression in crises. This was taught, already after the first crisis, by the Socialist Robert Owen and the Social-Conservative Sismondi.

Therewith was discovered the second element which causes crises. But it was on no account made clear how it affected the process of production, and why over-production was not permanent. It was now the period of prosperity between the crises which called for explanation.

The thing was not so simple as it at first sight appeared.

In order to understand over-production, we must get beyond the usual manner of looking at economics, which considers commodities only as values, as things identical in their nature, all embodiments of equal abstract human labour. Bourgeois economy, too, accepts this manner of consideration, even while it denies the Marxian theory of value. It always examines only the production and realisation of values. And, indeed, the capitalist is only concerned with the relationship between value and the price of his commodities because the extent of his profit depends upon it. The use-value of his commodities does not interest him at all.

In the question of over-production we have to deal not only with the exchange of commodities, but also with their consumption. This plays a determining part here. It is impossible for long to continue producing commodities which find no consumers. But for the consumer it is not the value of the commodities alone that counts, but – and above all – their particular use-value. They interest him as value, as embodiments of general human labour, only in so far as his purchasing power depends upon the amount of values of which he can dispose and the extent of the value of the means of consumption. But he does not buy the things on account of their dearness or cheapness – except perhaps American parvenus, who only buy works of art because, and when, they cost an enormous sum. The ordinary consumer, the consumer who comes under consideration in the production of capitalist mass-production, only buys commodities because he needs them. Their particular corporeal form interests him as embodiments of special kinds of labour – bakers’ or shoe-makers’ labour, not human labour in general.

If we desire to examine into what conditions must exist if the equilibrium between production and consumption is to be permanently maintained, we must distinguish, above all, between two groups of use-values, which continue to be created from one year’s end to another – namely, means of production and means of consumption. Society must create, each year, not only the means of consumption which it needs, but also the means of production which are necessary in order to be able to continue the production of the means of consumption in the following year. Each group must be the complement of the other if there are to be no congestion and disturbances in the circulation of commodities.

Let us take the simplest case, simple reproduction – that is, the production which is not extended, but carried on year after year to the same extent. In order to illustrate this process Marx elaborated a method, which is reproduced here because it plays a great part in the explanation of crises. Hilferding, too, starts out from it. Group I. embraces the production of the means production, Group II. that, of the means of consumption. The constant capital (buildings, machines, raw material, etc.) is called c; variable capital (the wages of labour) v; the surplus- value m. As to the figures, one can think of them as any sum – for instance, as millions of marks.

I. 4,000 c + 1,000 v + 1,000 m = 6,000 Means of Production.
II. 2,000 c + 500 v + 500 m = 3,000 Means of Consumption.

Let us assume that the total product of society bears this character. How does the exchange between the two domains take place?

Group I creates for 6,000 – say million marks – means of production. It itself requires 4,000 for means of production. These are bought and sold inside this group. There remain over, means of production for 2,000, which represent labour-wages and surplus-value.

Group II creates 3,000 means of consumption. If we assume that the capitalists consume their total surplus-value, and the workers their total wages, according to this assumption no extension of the production takes place. Of the means of consumption, 500 v + 500 m are bought by the workers and capitalists of Group II. There still remain in this group the means of consumption for 2,000. But in Group I there remain means of production for 2,000. These represent wages for labour and surplus-value; they must be spent on means of consumption. On the other hand, the capitalists of Group II have to buy means of production for 2,000 if they are to continue the production on the same scale during the following year. The workers and capitalists of Group I buy from Group II means of consumption for 2,000, while these buy means of production for an equal amount from the capitalists of Group I thereby supplying the money for wages and for the realisation of the surplus-value.

If the quantity produced and the purchases and sales in both groups equal each other in this way, there is no over-production.

We here leave the fixed capital out of account, leaving the part it plays to be considered further on. Here, for the sake of simplicity, we are assuming that within a year the total capital is used up and renewed. But how does the thing work in the case of extended reproduction, when the capitalists do not consume the whole of the surplus-value, but hold back a portion of it, in order to carry on the production during the following year on an enlarged scale?

For this Marx gives another scheme, as follows:–

I. 4,000 c + 1,000 v + 1,00 m = 6,000 means of production.
II. 1,500 c + 750 v + 750 m = 3,000 Means of consumption.

I. 4,400 c + 1,100 v + 1,100 m = 6,600 P.
II. 1,600 c + 800 v + 800 m = 3,200 C.

I. 4,841 c + 1,210 v + 1,210 m = 7,260 P.
II. 1,760 c + 880 v + 880 m = 3,520 C.

I. 5,324 c + 1,331 v + 1,331 m = 7,986 P.
II. 1,936 c + 968 v + 968 m = 3,872 C.

I. 5,856 c + 1,464 v + 1,464 m = 8,784 P.
II. 2,129 c + 1,065 v + 1,065 m = 4,249 C.

I. 6,442 c + 1,610 v + 1,610 m = 9,662 P.
II. 2,342 c + 1,172 v + 1,172 m = 4,686 C.

Here the total surplus-value is not consumed; but a portion is allowed to accumulate, and used for extending the production. This, however, does not necessarily involve over-production. The reproduction process continues uninterrupptedly. But now it is not, as many suppose, independent of consumption. A steady increase in the consumption is pre-supposed. If an increase of from 6,000 to; 9,662 in the means of production created within a year can progress uninterruptedly, the consumption must increase from 3,000 to 4,586. This increase is partially brought about by the growing consumption through the increasing number of workers. The sum-total of wages grows, during the period under consideration, from 1,750 to 2,782. But this is not sufficient. In spite of the accumulation, in spite of the “saving” – that is, the abstention from consumption – the consumption by the capitalist must also increase. According to the scheme there amounts:–


The Total

Increase over
preceding year

Surplus Value

Of the surplus
value – is

Of the surplus
value – is

































The consumption amounts to:–


Of the

Increase over
preceding year


Of the

Increase over
preceding year
























Total Increase

71 percent


44 percent


One sees that the consumption by the capitalists must at last rise very considerably if the equilibrium of the production is to be maintained, if, over-production is not to result. In the scheme it at last increases faster than that of the wage-workers. In reality, in the given rates of accumulation, the capitalist consumption would have to increase at a still greater pace than is assumed here. For the scheme assumes that the value of labour-power and its exploitation, and the organic constitution of capital, are subject to no changes. But with the growth of accumulation there is also a great increase of the fixed capital at the expense of the variable capital. The former increases faster than the latter. Simultaneously the productivity of labour grows while the value of labour decreases and its exploitation increases. Thus Item V. – under the given accumulation conditions will increase slower than is allowed for in the scheme; the consumption by the capitalists must needs increase all the more if the mass of the means of consumption which are produced is always to be used up, and if no congestion is to take place.

Malthus already saw the necessity for a growth of consumption by the exploiters for the maintenance of the equilibrium in the case of the accumulation of capital. he managed to draw from it a fine argument in favour of the rich thieves whose interests lay so near to his heart. It was the function of the capitalists to accumulate. The other function, of consuming on a rapidly-increasing scale as much as was necessitated by the growing accumulation, was not comparable with it. Other classes were there to do that, such as ground landlords, coutiers, officers. etc., who were wastrels by profession, and has attained a special facility in that art. Their existence was necessary if the accumulation of capital was to proceed without disturbance.

It is indeed a clever argument for the economic necessity of rich wastrel, only, it is true, on the assumption of the necessity of the capitalist method of production itself. But the capitalist reality develops tendencies which considerably reduce that necessity for the existence of luxurious idlers.

We have already seen that for our present object we have to consider not only the value, but also the particular use-value of the commodities. We must go further than simply to discriminate between means of production and means of consumption. Among the latter we must also discriminate between articles of luxury and articles of mass-consumption. Roughly speaking, the former may be taken to equal the consumption by the capitalists, and the latter the consumption by the wage workers. But – given growing accumulation and exploitation of the workers – the former must increase more rapidly than the latter if production is to be able to proceed without congestion. Thus the production of articles of luxury ought really to increase faster than that of articles of mass-consumption. As a matter of fact, the contrary is the case. Capitalist large-production means production for mass-consumption. The more it increases with the progress of accumulation, the more does production for mass-consumption develop.

We thus see an antagonism arise between the direction of consumption and that of production, which the rich wastrels on whom Malthus calls for help cannot overcome. Their luxury-consumption clogs the development of capitalist production.

The great landowners, possessors of sinecures; and other aristocratic drones are, however, not the only unproductive elements in capitalist society. Alongside of the great consumers of the means of luxury it also creates numerous unproductive consumers of the articles of mass consumption. First and foremost the armies must be considered, then also the domestic servants. Militarism has indeed become a strong driving force for capitalism, even in countries which have no standing armies. In the United States the great civil War of the sixties promoted it mightily, as was also the case in England and France with the revolutionary wars and the Napoleonic wars at the end of the eighteenth and beginning of the nineteenth centuries.

Why, then, do not capitalists prefer to get rid of the superfluity of goods for mass-consumption by paying higher wages to the workers? Would they not feel happier themselves for having contented their workers? One would think so; but the capitalist thinks differently. The worker is his enemy. If he increases his wage he thereby strengthens his enemy and weakens his own power. If, on the other hand, with the superfluous surplus-value he pays soldiers and servants, they constitute supports to his power. They do indeed diminish his riches, but they defeat his internal and external enemies.

But even if his class-consciousness did not thus argue, if he as an individual capitalist only had to consider his own advantage, competition would drive him to keep down as much as possible the costs of production, of which wages, too form a part.

That is, it is true, also a reason for him to seek to prevent the military burdens from swelling too quickly – at least in so far as he has to bear them, and pay for them out of his surplus-value. And it is only in so far that they act against over-production. Military burdens which are laid upon the working class do not mean any increase of mass-consumption in general, but only an increase of mass-consumption by the army by a corresponding diminution of the mass-consumption by the workers.

It is different with the support of militarism by the taxation of surplus-value. But it is only in the case of the large capitalists that the fund for their consumption is not considerably diminished. Smaller capitalists are affected by it in a similar way to the workers. Heavy military burdens may force them to diminish their personal consumption or their accumulation of capital. This the capitalist resists with all his might. For the more rapidly the individual capitalist accumulates, the sooner hi is in a position to defeat his competitors. And this applies as well to the individual capitalist in comparison to others as to the individual capitalist nations in their relationship between themselves. The rapid rise of the United States has certainly for one of its causes – and that not the smallest – the absence of a standing army in America.

Thus we find the contradiction, that the growth of militarism is indeed very conducive to the extension of the consumption of mass articles, and therefore to the extension of the production of such articles; but that, on the other hand, it is to the interest of every individual capitalist, and of every individual capitalist nation, to be confronted as little as possible by the burdens of militarism. They wish to produce and sell as much as possible for the army, and to pay as little for it as possible.

Thus the extension of mass-consumption by means of militarism, in spite of all the friendship to militarism on the part of the bourgeoisie, is not able to pass certain boundaries.

The same applies to domestic servants. Technical development and capitalism do not halt before the door of the household. One after another of its functions is absorbed by capitalist large-production, which, in proportion to its achievement, diminshes the number of persons employed therein.

Thus does capitalism create not only the tendency to increase the unproductive portion of the population, but also strong opposing tendencies which retard its increase. The enormous increase in the production of goods for mass-consumption does not in this way enlarge to a corresponding extent the area of its circle of consumption.

>(b) Industry and Agriculture

In order to realise how it is possible, in spite of all this, to reconstitute again and again an equilibrium between production and consumption, it is necessary still further to sub-divide the commodities produced according to their kind. To the division into means of production and means of consumption, and the division of the latter again into means of luxury and means of mass-consumption, must be added the sub-division into products of industry and products of agriculture.

In examining the periodical crises one must never forget that it is a question of an industrial phenomenon. Agriculture may indeed be subjected at times to crises, but they never fall together with the periodical crises of industry, and are of a totally different character. The over-production which is manifest in those crises with which we are occupied here is not increased, but relieved, by a plentiful harvest. Prosperity, on the other hand, is not impeded but strengthened by a plentiful harvest. For a good harvest lowers the price of the food of the workers and other consumers, and allows them, given the same income, to expend more of it on the products of industry. On the other hand, it diminishes the price of raw product, and thus also the cost of production in industry and the prices of its products. And that increases its market.

Simultaneously, a rich harvest may, if the prices of the agricultural products do not drop too low, also raise the income of the agriculturalists, and with it their power to buy in the market of industrial production. Thus plentiful harvests increase industrial consumption. The more agriculture produces the less over-production is there in industry.

The over-production which breaks out in periodical crises always purely industrial over-production. Capitalist industry is becoming more and more the producer of mass-products. Even such of its values as represent surplus-value, and in this surplus value again the consumption fund of the capitalists, which are there to be consumed as means of luxury, have at first the form of articles for mass-consumption , and must be sold first as such before they can be used by the capitalist in money form to procure means of luxury or to pay the unproductive parasites of luxury.

The wage-workers of industry, again, already create more value than they consume. But of what they consume only a portion is the product of industry. The surplus of industrial mass-products which they create over and above their own consumption is therefore enormous. The consumption by the capitalists, who, as far as their personal consumption is concerned, use, relatively only a small amount of the mass-products of industry; and the very much greater consumption by the unproductive portions of the population who are paid by them, is not sufficient to absorb this surplus. The rural population must consume it if the whole product is to find a market. They procure from industry not only means of personal consumption, but also of production – -tools, agricultural machines, artificial manure, etc. – and give on their side raw materials for industry and foodstuffs for industrial workers, capitalists, and also for unproductive workers and parasites.

The change of matter between industry and agriculture must proceed uninterruptedly. The proportion here must not be disturbed any more than that shown in Marx’s scheme between means of production and means of consumption if the whole process of reproduction is not to be interrupted.

But the extension of agricultural production takes place under quite different conditions from those in the case of industry, and especially since the introduction of machinery the difference between the conditions is increasing more and more. Industry becomes able to extend its production more and more rapidly, the rate of the extension of agriculture always lags behind; because, for one reason, it has to deal with living organisms, the increase and growth of which cannot be arbitrarily accelerated, while in industry, since the development of machinery, the appropriation and use of inorganic material exceeds more and more the appropriation and use of organic stuffs. And the former can, modern technique having reached its present stage, be extended by leaps and bounds if the necessary stream of extra labour-power is procurable.

Moreover, in the appropriation and use of organic material a distinction must also be made between vegetable matter, which results from agricultural cultivation, and the amount of which can be increased in one or a few years by extending the area of cultivation, and animal products, the amount of which can be increased by two methods: either by using more of the animals from which they are taken for breeding purposes instead of killing, the methods used in the case of domestic animals, or by killing a greater number of the animals than before. This is the method used principally in the case of wild animals. It leads to the extinction of the animals, and that is, in point of fact, the fate prepared for many species of animals by the development of industry; as, for instance, fur-bearing animals, and also birds with fine plumage. The first method is more rational, but it leads temporarily to a reduction in the killing of the animals, and thus of their consumption, at a time when industry is just developing a greater demand for them.

Finally, the products of forestry have to be considered, especially wood, the extension of which is an unusually slow process, taking as it does several decades. Capitalist industry will not wait so long as that to extend its production. Its effect, therefore, is the direct destruction of the forest. But it thereby, in the matter of obtaining and using wood, becomes independent of the limitations caused by the law of the reproduction of wood. In this respect the same applies to wood as to the inorganic materials. Its appropriation and use can be increased by leaps and bounds.

But this does not apply to the products of agriculture.

If one investigates deeper, one finds that the first kind of industry, the working with inorganic stuffs and wood, preponderates in the production of the means of production. The second kind, the manufacturing of agricultural products, preponderates in the production of the means of personal consumption; at least, the means of nourishment and clothing. Of course, not in the manufacture of furniture and ornaments; but, then, these do not occupy a position of first importance.

Thus we learn to know the natural causes for the different rate of extension in each of the two great groups of industries: production of the means of production, and production of the means of consumption. The latter is much more dependent on agriculture as purveyor of raw material than the former. As already mentioned, this distinction has only made itself felt since the introduction of machinery. In the nineteenth century buildings and machinery played but a small part in industry. Industry consisted almost entirely in the production of agricultural products, and could, owing to its dependence on the raw materials supplied by agriculture, not develop quicker than the latter. A disproportion going so deep as to cripple the whole economic life between agriculture and industry, and also between the production of means of production and that of means of consumption, could hardly occur then. It constitutes itself the more easily, and can assume all the greater dimensions, the more modern technique develops during the course of the nineteenth century, the more buildings and machinery – the elements of fixed capital in industry – preponderate in value over the raw products supplied by industry and the wages of labour, thus over the means of consumption for the working class, which are for the most part supplied by agriculture. The wages of labour and raw products constitute collectively the principal elements of circulating capital.

As the extension of agricultural production cannot be carried on so quickly as that in the procuring of ore, stones, earths, and timbers the increase of circulating capital is not so easy as that of fixed capital. There are barriers to the former which are unknown to the latter.

Of course, the extension of fixed capital is dependent on that of circulating capital. The rapid building of new textile machines, for instance, is of no use if the quantities of cotton and wool which pour into the market cannot be proportionately increased. But in the anarchy of the existing system of production the construction of new spinning and weaving factories is not made dependent on the increase of raw product. As long as the machines are not finished, are still in process of construction, nobody notices whether they are superfluous or not. That only becomes apparent when they begin to work, in the rise in the price of raw material. The larger the machines are, the greater is their effect; but the longer, also, the time required for their construction; the longer one can work at the increase of the fixed capital without noticing that the raw material to hand is insufficient for the new machines, the greater can the disproportion between fixed and circulating capital become: the more must the final adaptation of the two portions of capital to each other assume a crisis-like character, whereby the further extension of fixed capital experiences a temporary interruption.

Agriculture constitutes a barrier to industrial capital. It acts not only as a purveyor of raw materials, but also as a consumer of industrial products. Like its production, its consumption also has the tendency to develop slower than the production-capacity of industry. Indeed, still further, while in industry there is the tendency towards a steady increase of its surplus of articles of use, in agriculture, since the introduction of modern technique, the tendency is towards the decrease of the population which live on it, and thus of their personal consumption.

With the accumulation of capital and the development of modern technique there arises in all the branches of production the tendency towards a decrease in the number of workers in proportion to a given quantity of capital. But in industry this relative decrease in the number of workers is more than counterbalanced by the rapid progress of the accumulation of capital. In agriculture this accumulation proceeds much more slowly. Here the increase of, the working population on a given area of land is rendered very much slower, or even, indeed, converted into a decrease, not only relative, but actual.

This phenomenon has long been known in Europe; now it is beginning to make its appearance also in America. A relative decrease of the rural population in proportion to that of the towns has been apparent for some time. The urban population there amounted in 1880 to 29 per cent., in 1890 to 36 per cent, in 1900 to 40 per cent; according to the provisional statements from the census of 1910 it will have amounted during that year to 46 pet cent;, or almost half the population.

But the most striking thing about the last census is the fact that in the great agricultural States of the Union which prospered the most the rural population has, according to provisional information – the exact figures are not yet to hand – already absolutely decreased: in Ohio, Indiana, Iowa, Missouri, as well as in Eastern Kansas and Illinois.

If the capitalist industry of a country is to enlarge its market to the extent in which its productive powers grow by means of the accumulation of capital and technical progress, the tract of country under cultivation for which it produces must continually increase. That is a condition of its life. It requires that in order to enlarge its resources of raw products and foodstuffs faster than is possible by natural increase; but, also, in order to dispose of its surplus of industrial products. Soon the territory of its own country no longer suffices for it. It must expand into other agricultural countries and import from them.

The extension of the market may assume two forms: capitalist industry may find a given tract of land already occupied by peasants or country workers. Hitherto these had supplied their need of industrial products either by means of home work or local handicraft. Capitalist industry, so far superior technically, which ousts and kills the primitive industries, converts the rural population into mere tillers of the soil, who buy what they require of industrial products in the same market where they sell their agricultural products which they formerly consumed themselves. It was in this way that the industries of the capitalist countries of Europe first obtained their home market. Then they force their way forwards in the rest of Europe, Asia, and to a certain extent in Africa in the same manner.

The second method is that of first creating a peasant population, of first, cultivating and filling with immigrants land hitherto uncultivated, or only populated by hunters and nomads. Where this course is adopted with a highly-developed capitalist method of production these newly-created peasants are from the start purely agriculturists without any industrial activities for their own household needs.

On a small scale this kind of extension of the agrarian market territory of capitalist industry still goes on today in numerous old centres of population, among others in Germany, and on a larger scale in many parts of Asia and Africa; for instance, in Siberia and South Africa. But the process accomplishes itself most forcibly in the two continents of the New World, up to now especially in the United States. Agriculture in the former kind of territory is very meagre. The agriculturists, oppressed since centuries by the State and by great exploiters, have on their side, thanks to their poverty, been obliged to exploit the soil more and more, so that it becomes less and less fertile or requires more and more labour in order to procure the same results. The peasants of these districts are therefore for the most part very poor, and the purchasing power of the individual is but small. In spite of this, such countries constitute a great market for industrial products in consequence of the enormous number of people that they contain. Thus 125 millions inhabit Russia, 300 millions British India, and over 400 millions China.

The peasants of the New World are quite different. Not much oppressed by State burdens, and with no landlords to exploit them, they have to deal with unexhausted virgin soil, the great proceeds of which require at first all the less labour the more inconsiderately exploitation is carried on. This produces a prosperous peasantry who are able to consume a large quantity of industrial products. The rapid increase in this peasantry has become one of the most important conditions of the enormous rise in American industry.

The extension of the market for capitalist industry by means of these two methods progressed at first but slowly. The products of agriculture are, in proportion to their value, very bulky and heavy, and they cannot hear bear high costs of transit. And yet they must get to the market if the peasant is to be able to buy the products of industry. He cannot buy until he has sold. But for a long time there was no other means of cheap transit but sailing ships. Beyond a certain, very limited, tract of land the market for the products of agriculture, and thus for those of capitalist industry, could only be extended along the sea-coast and along the great navigable rivers. A change only came soon after the rise of machinery, in england in the twenties of the nineteenth century, and soon afterwards in the rest of Europe, where, indeed, the building of railways only attained importance in the fifties. At the same time as in England railways began to be constructed also in the United States, and the railways first made it possible for capitalists States to open their home market completely to agriculture, and then extend more and more rapidly the markets of the world.

According to all this, we see that the incapacity of the wage-workers to consume their own product, which is determined by capitalist conditions, becomes the starting-point for the most varied tendencies to increase the use of industrial mass-products outside the ranks of the wage-workers, which tendencies, however, again beget tendencies which work against and finally overcome them. The steady growth of consumption by the masses under the capitalist method of production is an indispensable condition of life for them. But this process is not in a straight line, but is a dialectic one. And the tendencies towards the extension of industry as well as towards the extension of mass-consumption do not by any means move in parallel lines or at the same rate; they are always coming into collision with each other, which constitutes the starting point for extremely deeply-rooted crises.

>(c) Fixed and Circulating Capital

In the latter remarks we have wandered a little from Hilferding’s book. The “narrow basis of consumption” as a cause of crises is only mentioned by him, not treated in detail. This cannot be called a fault. It is natural that he should turn his attention principally to the factor about which he has something to say, and which in actual fact is of decisive importance in influencing the periodic character of crises. The factors just described do, indeed, prove the inevitability of crises in the capitalist method of production since the rise of machinery, but they do not yet explain the form which begins with stagnation, passes through a period of prosperity, then a boom, and finally ends with a more or less sudden collapse.

It was this phenomenon which Hilferding undertook to explain, and it is certainly not sufficiently explained by the prevailing anarchy and under-consumption even if one conceives of this in a rather less simple manner than has hitherto been the case. Here the decisive part is played by the difference, previously only casually touched upon, between fixed and circulating capital.

To reproduce Hilferding’s theory here in all its details is impossible, not only for reasons of space, but also because a previous knowledge would have to be supposed of the factors which Hilferding examines in the first 300 pages of his book. I will only try to present the part played by fixed capital in the periodic nature of crises so simply as to be understood without that knowledge.

If we look at any capitalistic industrial undertaking – for instance, a spinning mill – we shall find that its capital exhibits two kinds of return. A portion of the capital is completely consumed in every labour process, and its value reappears completely in the value of the product of this process. For instance, in the darning cotton that is produced in a day there reappears the value of the day’s wages, of the cotton consumed in a day, and the coals. It is different with the machines and buildings of the factory. These remain for years. They do not give all their value to the single product, but only a small portion, which corresponds to the price of their depreciation. It is not until they are completely used up and have to be replaced by new ones that their value has entirely passed over into the value of the total products created by their help.

Capital of the first sort is called circulating capital, that of the second sort fixed capital.

Each of these two sorts of capital yields a different kind of return. If the spinner sells his product, let us say, every week, for cash, his total capital expended during the week on wages, cotton, and coals returns to him. If he can also procure cotton and coals in weekly portions, so that he is not obliged to keep a large supply, he will then need its circulating capital only the one-fifty-second part of the total sum of money which he spends as such during the course of the year. It will have to be somewhat larger if he needs a reserve capital in case of casual disturbances. If, for instance, the price of cotton rises, it is no longer sufficient to replace the previously circulating capital. If the production is to continue on the same scale an additional capital is needed, without which the extent of the work would have to be reduced.

Of course, the amount of capital which the capitalist lays out in the production as circulating capital will have to be all the larger the greater the supplies which have to be accumulated, or the longer the time that elapses between the finishing of the product and its remuneration – that is, the slower the return of the circulating capital.

But, however slow it may be, the return of the fixed capital is bound to be much slower still; this always takes as long as many returns of the circulating capital.

If the costs for wages, raw material, and auxiliaries take weeks or months to return in the price received for the products, the costs of the factory buildings and the machinery take years to do so.

The capitalist needs as circulating capital a sum of money which is as a rule many times smaller than that which he spends as such in a year. But as fixed capital he must invest a sum in the process of production which is many times larger – than that which returns to him in the course of the return of his circulating capital, as substitute for fixed capital in the price of his products. Technical developments tends especially to extend fixed capital and to diminish, on the other hand, the circulating capital, in so far as it accelerates the process of circulation by improving the means of communication so that the industrialist is able to keep a smaller quantity of stores and can sell his product more rapidly. The fixed capital also grows relatively in so far as the constant capital increases faster than the variable capital. But the latter constitutes an important portion of the circulating capital. Fixed capital has thence the tendency to grow at a faster rate than circulating capital, and to outweigh the latter more and more.

In order at last to be able to replace the fixed capital, the capitalist must estimate and put aside, out of what he has realised for the product sold, the portion of value which represents the value of the used-up fixed capital till the amount has reached the extent of the value of the fixed capital, and can serve to procure new fixed capital in place of that which has been used up. He must do the same with that portion of the value of the price of the product which represents circulating capital; he does not spend the money at once which he receives for the products sold, but puts it aside in order to procure with it from time to time new supplies of raw materials and auxiliaries, to pay wages, and carry on the business until fresh products are again sold and paid for. But the sum of money needed will be smaller than the sum which is to be accumulated for the ultimate renewal of fixed capital, and it will not be nearly so long unused as the latter. Here we still leave credit and banking out of account But if the fixed capital is then renewed a far larger sum of money flows into the market, the demand for certain products of industry will thereby be suddenly increased far more than by the sums of money which are constantly expended at short intervals to renew the circulating capital.

Let us suppose a spinning mill is newly constructed. Machines are needed, bricks iron supports, a quantity of labour-power, especially metal workers and builders, are suddenly required, much capital is expended. When the factory is finished none of all these workers are required any more. It now carries on its functions regularly, needs, except in the case of incidental disturbances, always the same number of workers, the same quantity of raw material and coals. This goes on year after year till the machines get old or used up. To take the extreme case that the factory building itself has become useless, say through new inventions, which involve a different kind of building. Beside the old factory a new one is constructed, with new machines, which again cause a great deal of money to circulate “among the people” and employ a number of workers. These, again, in their turn, become superfluous.

We see that the movement of circulating capital is quite different from that of fixed capital. The first has the tendency to remain more or less equal, to repeat itself uninterruptedly. In so far as disturbances do occur in it, they do not arise out of its nature. The movement of fixed capital, on the other hand, is intrinsically spasmodic, of the nature of a crisis. Fixed capital is once introduced in a large quantity into the process of production, it then returns exceedingly slowly, to appear again at last after years in great quantities on the market and fructify production. Alongside of those causes of crises which we have met with in the preceding chapter a new one arises, and one which is bound to return periodically. Here the crisis is a necessary product of the return of fixed capital.

Here we find the last reason for the periodical character of the crises since the era of machinery, since the preponderance of fixed capital in industry.

But here, also, many intermediary links are necessary before we can press through from the last cause to the phenomenon on the surface.

If production were organised according to a plan, and if only a certain circle of consumers who could be reckoned upon came into the question, then the extension and renewal of those means of production which act as fixed capital could very well be arranged so that this, as in the case of those means of production which represent circulating capital, would be a steady and uninterrupted process.

On the other hand, the method of extension and renewal of the fixed capital can approach all the nearer to that pictured above in the case of one single factory: the more the proportion between production and consumption is caused only by the rise and fall of prices and profits, and the less the consumption by the population of the capitalist states suffices to use up their own industrial product, the more it becomes necessary to go for this beyond the circle of this population and to enlarge the mass of consumers by methods which work by fits and starts; finally, give rise to reaction, and thus make the extension of industrial consumption into a process which is ever less capable of being looked at as a whole.



1. The work appeared in the third volume of Marx-Studien, published by Max Adler and Rudolf Hilferding, Vienna, 1910.

2. Scharfmachertum, literally a system of “making sharp,” the sharpening up, driving, and intensification of labour and of industrial processes in order to enhance profits.


Last updated on 15.1.2004