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The New International, November 1943

V.I. Lenin

Origin of Capitalism in Russia – II

An Old Essay by Lenin



From The New International, Vol. IX No. 10, November 1943, pp. 315–318.
Transcribed & marked up by Einde O’Callaghan for ETOL.


The editor neglected to point out in the last issue that the title of Lenin’s essay has been changed for typographical reasons. The actual title reads, The Theoretic Mistakes of the Narodniki, and the essay is Chapter I of Lenin’s Development of Capitalism in Russia.

Additionally, the reader’s attention is called to the inadvertent omission last month of the page number in Capital, Vol. I, to which footnote 4 of Lenin’s article referred. It should read, page 819.

(Continued from Last Issue)

V. The View of Adam Smith on Production and Circulation of Social Production as a Whole in Capitalist Society, and Marx’s Criticism of These Views

In order to analyze the doctrine of realization, we must begin with Adam Smith, who laid the basis of the erroneous theory on this question. Adam Smith divided the price of a commodity into only two parts: variable capital (wages, according to his terminology) and surplus value (”profit” and “rent” are not united into one with him, so that he counted three parts). [1*] In the same manner he divided the aggregate of commodities, the entire annual product of society, according to those classifications, and directly related them to the “revenue” of the two classes of society: workers, and capitalists (manufacturers and landlords with Smith). [2*]

How does he explain the omission of the third component pan of value – constant capital? Smith could not avoid noticing this part, but he considered that it also is reduced to wages and surplus value. This is how he deliberated on the subject:

Into the price of corn, for example, one part pays the rent of the landlord, another pays the wages or maintenance of the laborers and laboring cattle employed in producing it, and the third pays the profit of the farmer. These three parts seem either immediately or ultimately to make up the whole price of corn. A fourth part, it may perhaps be thought, u necessary for replacing the stock of the farmer, or for compensating the wear and tear of the laboring cattle, and other instruments of husbandry. But It must be considered that the price of any instrument of husbandry, such as a laboring horse, is itself made up of the tame three parts” (that is: rent, profit and wages). “Though the price of the corn, therefore, may pay the price as well as the maintenance of the hone, the whole price resolves itself either Immediately or ultimately into the same three para of rent, labor and profit. [3*]

Marx calls this the “surprising” (II, page 366) doctrine of Smith: “His proof consists simply in the repetition of the same contention.” [6] Smith “sends us from Pontius to Pilate” (I, B. 2, Aufl., page 612) [7] In stating that the price of the instrument of production itself falls into those three parts, Smith forgets to add: and the price of those means of production which are used in the production of these instruments. The erroneous exclusion of the constant portion of capital from the price of the product is connected in A. Smith (and equally in the economists who followed him) with an erroneous concept of accumulation under capitalism, i.e., the expansion of production, the transformation of surplus value into capital. Here too Smith omitted constant capital, assuming that the pan of surplus value which is transformed into capital is consumed by the productive workers, i.e., is fully spent for wages, when in reality the accumulated part of surplus value is spent on constant capital (means of production and raw auxiliary materials) plus wages.

Marx criticized this view of Smith (and also Ricardo, Mill and the others) in the first volume of Capital, (Part VII, The Accumulation of Capital, Ch. XXIV, Conversion of Surplus Value into Capital, Sec. x, Erroneous Conception, by Political Economy, of Reproduction on a Progressively Increasing Scale). Marx remarks there that in the second volume “it will be shown that the dogma of A. Smith, adopted by all his successors, hindered political economy in understanding even the most elementary mechanism of the process of social reproduction.” (I, 612). [8] A. Smith fell into this mistake because he confused the value of the product with the newly-created value: the latter really falls into variable capital and surplus value while the first includes, in addition to these, the constant capital. The mistake was exposed in the analysis of value by Marx, who had established the distinction between abstract labor creating new value and concrete, useful labor transforming the previously existing value into a new form of a useful product.

The explanation of the process of reproduction and circulation of the entire social capital is especially necessary in solving the question concerning national income in capitalist society. It is extremely interesting to observe that A. Smith, in speaking of this last question, was unable to proceed with his erroneous theory which excluded the constant capital from the whole production of the country:

The gross revenue of all the inhabitants of a great country comprehends the whole annual produce of their land and labor; the net revenue, what remains free to them after deducting the expense of maintaining, first, their fixed, and, secondly, their circulating capital; or what, without encroaching upon their capital, they can place in their stock reserved for immediate consumption, or spend upon their subsistence, conveniences, and amusements. (A. Smith, Book II, Of the Nature, Accumulation, and Employment of Stock, Ch. II, Vol. II. page 18, Russ. tr., II, page21. [9])

Thus, out of the entire production of the country. Smith excluded capital [4*], asserting that it is resolved into wages, profit and rent, i.e., on (net) income; but in the gross revenue of society he includes capital [4*], separating it from articles of consumption (net revenue). Marx seizes upon this contradiction of Smith: how can capital be included in income if capital had not previously existed in the product? (Cf. Das Kapital, II, page 355). [10] Unwittingly, A. Smith here acknowledged the three component parts of the value of the whole product, not merely variable capital and surplus value but also constant capital. In the subsequent discussion. Smith hits upon another important distinction, which has tremendous significance in the theory of realization.

The whole expense of maintaining the fixed capital must evidently be excluded from the net revenue of the society. Neither the materials necessary for supporting their useful machines and instruments of trade, their profitable buildings, etc., nor the produce of the labor necessary for fashioning those materials into the proper form can ever make any part of it. The price of that labor may indeed make a part of it; as the workmen so employed may place the whole value of their wages in their stock reserved for immediate consumption. But in other sorts of labor, both the price (of labor) and the produce (of labor) go to this stock, the price to that of the workmen, the produce to that of other people. (A. Smith, Ibid.) [11]

Here there is a suggestion of recognizing the necessity of distinguishing the twofold character of labor; one, to produce articles of utility capable of inclusion in “net revenue”; the other, to produce “useful machines, instruments of trade, buildings., etc.,” i.e., products which can never be used for personal consumption. This is already one step toward recognizing the fact that to explain realization it is absolutely necessary to distinguish between two forms of consumption: personal and productive (i.e., reverting to production). The correction of these mistakes of Smith (omission of constant capital from the value of the product, and confusion of personal with productive consumption) made it possible for Marx to construct his remarkable theory of realization of the social product in capitalist society.

The economists between A. Smith and Marx all repeated the mistake of A. Smith [5*] and therefore did not advance a step. What confusion therefore reigns in the theory regarding national income we shall see later. In the dispute which occurred regarding the possibility of general commodity overproduction – Ricardo, Say, Mill and others on the one hand, and Malthus, Sismondi, Chalmers, Kirchman and others on the other – both sides accepted as a basis the erroneous theory of Smith and therefore, according to the just remark of Bulgakov, “as a result of the erroneous points of view and incorrect formulation of the problem itself, these controversies could lead only to empty and scholastic disputes.” (L.c., page 21. Cf. the description of these disputes by M. Tugan-Baranovsky, Industrial Crises, etc., St. P., 194, pages 377–040. [sic]

VI. The Marxist Theory of Realization

From the above it follows that the basic postulates on which the Marxist theory is built consist of the two following premises: First, that the entire product of a capitalist country, like that of an individual product, is comprised of the following three parts: (1) constant capital, (2) variable capital, (3) surplus value. For him who is acquainted with the analysis of the process of production of capital in Marx’s first volume of Capital, this postulate is self-evident. The second postulate is that it is necessary to distinguish two great departments of capitalist production: Department I, the production of means of production, or objects which serve productive consumption, that is, are utilized in production which is consumed, not by people, but by capital; and Department II, the production of means of consumption, i.e., articles used for personal consumption. “In this one division there is more theoretic sense than in all the preceding controversies regarding the theory of markets” (Bulgakov, l.c., 27).

One may ask why such a division of products into their natural form is necessary in the analysis of the reproduction of social capital when the production and reproduction of the individual capital was analyzed without such a division, entirely ignoring the question of the natural form of the product. How is it possible to introduce the question of the natural form of the product into a theoretic examination of capitalist production built entirely on the exchange value of the product? The answer is that in the analysis of the production of individual capital the question where and how the product will be sold, where and how the articles of consumption will be bought by the workers and the means of production by the capitalist, was abstracted as a question that had nothing to contribute to that analysis and was not related to it. There we had under analysis only the question of the value of the separate elements of production and the results of production. Now the question consists precisely in this: Where will the workers and capitalists get their means of consumption? Where will the latter get means of production? How will production meet these demands and create the possibility of expanding production? Consequently we have here not only “a reproduction of value, but also of material” (Stoffersatz, Das Kapital, II, 389). [12] Hence it is absolutely necessary to distinguish between types of products which play entirely different rôles in the process of social production.

Once we take into consideration these basic postulates, the question of realization of the social product in capitalist society presents no difficulty. Let us first assume simple reproduction, i.e., repetition of the process of production in the existing quantities, the absence of accumulation. It is evident that the variable capital and surplus value of Department II (existing in the form of articles of consumption) are realized by the personal consumption of the workers and capitalists of this department (because simple reproduction presupposes that the whole surplus value is used up and not an iota is transformed into capital). Further, in order to be realized, variable capital and surplus value existing in the form of means of production (Department I) must be exchanged for articles of consumption for the capitalists engaged in the production of means of production. On the other hand, the constant capital existing in the form of means of consumption (Department II) can be realized only by exchange for means of production in order again to be converted into production the following year. Thus we have an exchange of variable capital and surplus value in the means of production for constant capital in the means of consumption. Workers and capitalists (in the department of means of production) receive in this manner their means of existence, and the capitalists (in the department of means of consumption) sell their product and receive constant capital for new production. Under conditions of simple reproduction, these exchanged parts must be equal to each other: the sum of variable capital and surplus value in the-means of production must be equal to the constant capital in the articles of consumption. On the other hand, if we assume reproduction on an expanded scale, i.e., accumulation, the first magnitude must be greater than the second because there must be present a surplus of means of production to begin new production.

Let us return, however, to simple reproduction. There remains a realized part of the social product, specifically, the constant capital in means of production. It is realized partly by exchange between capitalists in this department (for example, coal is exchanged for iron because each of these products serves as a necessary material or instrument in the pro-due of the other) and partly by direct conversion into production (for example, coal is mined in order to be utilized in the same undertaking in order once again to mine coal; seed in agriculture, etc.). So far as accumulation is concerned, then, tht point of departure is, as we have seen, an abundance of means of production (which are derived from the surplus value of the capitalists of this department) as well as transformation of part of the surplus value in the articles of consumption. We consider it superfluous to analyze in detail how this additional production will be united with simple reproduction. Our task does not comprehend a special analysis of the theory of realization. As an explanation of the mistakes of the Narodnik economists, which will permit us to draw certain theoretical conclusions about the home market, the above will suffice. [6*]

In the question which most concerns us, i.e., the home market, the growth of capitalist production and, consequently, of the home market, proceeds not so much with respect to articles of consumption as to means of production. To put it otherwise: the growth of the means of production outdistances the growth of articles of consumption. In fact, we saw that the constant capital in articles of consumption (Department II) is exchanged for variable capital plus surplus value in the means of production (Department I). But, according to the general law of capitalist production, constant capital grows fabler than variable. Consequently, constant capital, in the articles of consumption must grow faster than variable capital and surplus value in the articles of consumption, and constant capital in the means of production must grow faster yet, outdistancing both the growth of variable capital (plus surplus value) in the means of production and the growth of constant capital in the articles of consumption. Thus the growth of the home market for capitalism to a certain degree is “independent”, of the growth of personal consumption, being consummated particularly in the field of productive consumption. However, it would be incorrect to construe this “independence” to mean a complete divorce of productive consumption from personal consumption. The first can and must grow faster than the second (by this its “independence” is limited) but it is obvious that in the final analysis productive consumption always remains linked to personal consumption. Marx treats this question thus:

We have seen in Volume II, Part III, that a continuous circulation takes place between constant capital and constant capital ... [Marx means constant capital in the means of production which is realized by exchange between capitalists of the same department] ... which is in so far independent of individual consumption, as it never enters into such consumption, hut which is nevertheless definitely limited by it, because the production of constant capital never takes place for its own sake, but solely because more of this capital is needed in those spheres of production whose products pass into individual consumption. (Das Kapital, III, 1, 289. Russ. tr., page 243) [13]

This enhanced use of constant capital is nothing other than an enormous development of the productive forces, expressed in terms of exchange value, because the principal part of the rapidly developing “means of production” consists of materials, machines, instruments, buildings and all other adjuncts of large-scale and especially machine production. It is quite natural, therefore, that capitalist production, developing, as it does, the productive forces of society, and creating large-scale production and machine industries, is distinguished by the striking expansion of that department of social wealth which consists of means of production:

That which distinguishes in this case [that is: in the production of means of production] capitalist society from a society of savages is not, as Senior thinks, that it is a privilege and peculiarity of a savage to expend his labor during a certain time which does not secure for him any revenue convertible into articles of consumption, but the distinction is the following:

(a) Capitalist society employs more of its available annual labor in the production of means of production (and thus of constant capital) which are not convertible into revenue in the form of wages or surplus value, but can serve only as capital.

(b) When a savage makes bows, arrows, stone hammers, axes, baskets, etc., he knows very well that he did not spend the time so employed in the production of articles of consumption, but that he has simply stocked his supply of means of production, and nothing else. (Das Kapital, II, page 436. Russ. tr., page 333) [14]

This “conscious recognition” [15] of one’s relation to production has been lost in capitalist society because of the characteristic fetishism which represents social relations between people in the form of relations between things as a consequence of the transformation of every product into a commodity produced for an unknown consumer and subject to realization in an unknown market. And since for the individual manufacturer the kind of product he produces is a matter of complete indifference – every product gives him an “income” – this superficial, individualist point of view was adopted by the theoretician-economists toward society as a whole and hindered them from understanding the process of reproduction of the entire social product in capitalist production.

The development of production (and consequently of the home market), because it relates chiefly to means of production, appears paradoxical and undoubtedly does present a contradiction. This is genuine “production for production’s sake,” expanded production without a corresponding expansion of consumption. However, this is not merely a doctrine but real life; it is this contradiction which corresponds to the very nature of capitalism and to other contradictions of this system of social production. It is precisely this expanded production without a corresponding expansion of consumption which is in consonance with the historic mission of capitalism and its social structure: the first characteristic consists in the development of the productive forces of society; the second prevents the utilization of these technical achievements for the benefit of the masses of the population. Between the limitless striving for expansion of the productive forces characteristic of capitalism and the limited consumption of the people (limited as a consequence of their proletarian composition there is undoubtedly a contradiction. Precisely this contradiction is affirmed by Marx in those very postulates which are glibly quoted by the Narodniki as if they supported their views about the contraction of the home market, the non-progressive character of capitalism, etc. Here are some of these postulates:

Contradiction in the capitalist mode of production; the laborers as buyers of commodities are important for the market. But as sellers of their own commodity – labor power – capitalist society tends to depress them to the lowest price.” (Das Kapital, II, 305) [16]

... The conditions ... realization ... are limited by the ... proportional relations of the various lines of production and by the consuming power of society ... But to the extent that the productive power develops, it finds itself at variance with the narrow basis on which the conditions of consumption rest. (Das Kapital, III, 1, 225–6) [17]

The barriers, within which the preservation and self-expansion of the value of capital resting on the expropriation and pauperization of the great mass of producers can alone move, these barriers come continually in collision with the methods of production, which capital must employ for its purposes, and which steer straight toward an unrestricted extension of production, toward production for its own self, toward an unconditional development of the productive forces of society ... Thus, while the capitalist mode of production is one of the historical means by which the material forces of production are developed and the world market required for them created, it is at the same time in continual conflict with this historical task and the conditions of social production corresponding to it. (III, 1, 232. Russ., 194) [18]

The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way that only the absolute power of consumption of the entire society would be their limit. [7*] (III, 2, 21. Russ. tr., 395.) [19]

In all the above quotations the contradiction between limitless striving to expand production and limited consumption is attested, and nothing else. [8*] Nothing is more absurd than to conclude from the quotations from Capital that Marx did not consider it possible to realize surplus value within a capitalist society, as if he explained crises by insufficient consumption. In his treatment of realization, Marx demonstrated

that “in the final analysis the exchange between constant capital and variable capital is limited by personal consumption,” but that same treatment showed the true meaning of “limitation,” showed that the articles of home consumption play a lesser r61e in the formation of the home market than the means of production. Furthermore, there is nothing more absurd than to deduce the impossibility, unprogressive character, etc., of capitalism from its contradictions. This is merely to hide oneself high in the clouds of romantic fantasies from unpleasant but indubitable reality. The contradiction between the striving for limitless expansion of production and limited consumption is not the only contradiction of capitalism, which, in general, cannot exist and develop without contradictions. The contradictions of capitalism bear witness to its historically transitory character; they explain the conditions and causes of its disintegration and its transformation into a higher form, but they exclude neither the possibility of capitalism nor its progressive character as compared to earlier systems of social economy.

(Concluded in next issue)


1*. Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations, 4th ed., 1801, Vol. I, page 75. Book I, Of the Causes of Improvements in the Productive Powers of Labor, and of the Order According to Which Its Produce Is Naturally Distributed Among the Different Ranks of the People, Ch. VI, Of the Component Parts of the Price of Commodities (Russ. tr., Bibikov, St. P. 1866, V. I, page 171 (Modern Library Edition, page 50 – Tr.)

2*. L.c., I, page 78, Russ. tr., I, c. page 174 (Modern Library, page 52 – Tr.)

3*. Ibid., I, pages 75–77. Russ. tr. I, page 171. (Modern Library, page 50)

6. Capital, II, page 431. – Tr.

7. Capital, I, 647, but there the phrase, “from Pontius to Pilate,” is translated as “from pillar to post.” – Tr.

8. The above quotation is from the first edition of Capital, which is unavailable in English, and can be found in the 1872 Russian translation on page 509. In the later editions of Capital, Marx substituted for this sentence an entire paragraph, which appears as the last paragraph on page 847, Kerr edition. – Tr.

9. Modern Library edition, page 271. – Tr.

4*. Evidently because he is paraphrasing Smith. Lenin here uses the word, capital, instead of constant capital. – Tr.

10. Capital, II, page 419. This is not a quotation from Marx but a paraphrase by Lenin of Marx’s second paragraph on that page. – Tr.

11. Modern Library edition, page 271. Lenin’s emphasis. – Tr.

5*. For example, Ricardo asserts: “Ths whole produce of the land and labor of every country is divided Into three portions: of these, one portion is devoted to wages, another to profit, and the other to rent.” (Works, tr. Ziber, St. P., 1882, page 221.) (Principles of Political Economy and Taxation, 1801, page 336. – Tr.)

12. Capital, II, page 456. – Tr.

6*. Cf. Capital, Vol. II, Part III, where both accumulation and division of articles of consumption into articles of necessity and articles of luxury, and money circulation and exhaustion of the original capital, etc., are analyzed in detail. For the readers who are unable to acquaint themselves with Vol. II of Capital, it is possible to recommend the analysis of the Marxist theory of realization in the above quoted book of C. Bulgakov. The analysis of Bulgakov is more satisfactory than that of M. Tugan Baranovsky (Industrial Crises, pages 407–438), who made very unsuccessful deviations from Marxism in the construction of his own schemata and insufficiently explained the Marxist theory – more satisfactory also than the analysis of A. Skvortsov (Basis of Political Economy, St. P. 1893, pages 261–205), who holds incorrect views on the very important questions of profit and rent.

13. Capital, II, 359. – Tr.

14. Ibid., pages 509–510.

15. Lenin is referring to the phrase “he knows very well” In the above quotation from Marx, which was translated into Russian as “conscious recognition.” – Tr.

16. Capital, II, page 363, footnote. – Tr.

17. Ibid., III, pages 286–287. – Tr.

18. Ibid., page 293. – Tr.

7*. It is precisely this sentence which the eminent (eminent in a Herostratian manner) Ed. Bernstein quotes in his Die Voraussetzungen, etc. (Stuttg. 1899, page 67). (Evolutionary Socialism, page 75. – Tr.) It is of course natural that our opportunist, turning from Marxism to the old bourgeois economy, should have hastened to declare that this arises from a contradiction in the Marxist theory of crises, and that such a view on the part of Marx “is not very different from Rodbertus’s theory of crises.” In reality, there exists a “contradiction” only between the pretensions of Bernstein on the one hand and his nonsensical eclecticism on the other. The degree to which Bernstein failed to understand the theory of realization is clear from his very curious argument that the tremendous growth of the mass of surplus value necessarily signifies an increase in the number of proprietors (or an increase in the well-being of the worker) because the capitalists themselves and their “servants” (Sic! Page 51–2) cannot “consume” the whole surplus value!! (Remark to the second edition)

19. Ibid., page 568.

8*. The view of Mr. Tugan-Baranovsky, who states that Marx, in formulating these postulates, fell into contradiction with his own analysis of realization, is erroneous. (Mir Bozhy, 1898, No. 6, page 123, in the article, Capitalism and the Market) There is no contradiction in Marx whatsoever because, in the analysis of realization, he shows the connection between productive and personal consumption.

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