The Accumulation of Capital (Luxemburg)

What question did Luxemburg start from?

From 1907 to 1914 Rosa Luxemburg taught political economy at the party school of the German Social Democratic Party. While writing a popular textbook, Introduction to Political Economy, she came upon what she believed was an unresolved problem in Marx's analysis and put the manuscript aside. In November 1911 she wrote to a friend, "I want to find the cause of imperialism", and the result, written in four months, was The Accumulation of Capital: A Contribution to an Economic Explanation of Imperialism (1913).

Behind it lay the debates of the socialist movement of the time. Bernstein held that capitalism had overcome its tendency to crisis, and the Russian "Legal Marxist" Tugan-Baranovsky used Marx's own reproduction schemes to argue that capitalism could develop stably without end, independently of consumption. Against these "neo-harmonist" readings Luxemburg set out to re-establish that capitalism has economic limits it cannot cross (see breakdown controversy).

What is the "realisation problem"?

In Volume II of Capital Marx divided society's total output into Department I, producing means of production, and Department II, producing consumer goods, and showed in numerical tables (the reproduction schemes) at what proportions between the two expanded reproduction, production growing year by year, is possible. Luxemburg held that the schemes correctly identify the material proportions but do not solve how the surplus value embodied in commodities is turned into money, that is, who buys it.

Take numbers assumed for illustration. A year's total social product is 1,000, made up in value of constant capital 600 (c), variable capital 200 (v) and surplus value 200 (s). The 600 of worn-out means of production is replaced by capitalists buying from each other. Workers spend their wages of 200 on 200 worth of consumer goods. If capitalists spend 100 of the surplus value on their own consumption, the other 100 is meant for expanding production. But who buys these 100 worth of goods? The workers have already spent their wages; if the capitalists consume them, the result is simple, not expanded, reproduction. If capitalists buy means of production from each other to enlarge their plants, the enlarged plants will turn out still more goods that again need buyers. Luxemburg concluded:

"The realisation of surplus value for the purposes of accumulation is therefore an insoluble task in a society consisting only of workers and capitalists." (Luxemburg, The Accumulation of Capital, ch. 26; our translation from the German)

„Die Realisierung des Mehrwerts zu Zwecken der Akkumulation ist also in einer Gesellschaft, die nur aus Arbeitern und Kapitalisten besteht, eine unlösbare Aufgabe.“

Why does capitalism need non-capitalist surroundings?

Luxemburg's answer is "third persons": social strata and societies that do not produce capitalistically. She defined the "external market" for capital as "the non-capitalist social environment which absorbs its products and supplies it with elements of production and labour power". In the first two-thirds of the nineteenth century, for example, the English cotton industry sold cloth to the peasants and urban petty bourgeoisie of the European continent and to the peasants of India, America and Africa, and this consumption was the basis of the enormous expansion of English cotton and of the machine, metal and coal industries attached to it. By this standard trade between Germany and England is mostly an "internal market" for both, while exchange between German industry and German peasants is an "external market".

The relationship is not a peaceful exchange. Advanced capitalist countries lend to non-capitalist states, which use the money to buy industrial goods such as railway equipment, and bind them in debt and political dependence. Military conquest and colonial rule open markets and seize land and resources, and natural economy such as peasant farming and handicrafts is systematically destroyed and replaced by commodity production. Militarism, too, is for her not only a political means but "purely economically for capital a means of the first rank for realising surplus value, that is, a province of accumulation". Luxemburg saw the whole process as a continuation, throughout the history of capitalism, of what Marx called primitive accumulation, citing the dispossession of English peasants, the enslavement of Africans, the extermination of the indigenous peoples of the Americas, and the incursions into China, Algeria, India and South Africa.

Yet capitalism devours the very outside on which it depends. The final chapter ends:

"Capitalism is the first form of economy with propagandist power, a form that tends to spread over the globe and to drive out all other forms of economy, tolerating none beside it. But it is at the same time the first that cannot exist alone, without other forms of economy as its environment and its soil." (ibid., ch. 32)

„Der Kapitalismus ist die erste Wirtschaftsform mit propagandistischer Kraft, eine Form, die die Tendenz hat, sich auf dem Erdrund auszubreiten und alle anderen Wirtschaftsformen zu verdrängen, die keine andere neben sich duldet. Er ist aber zugleich die erste, die allein, ohne andere Wirtschaftsformen als ihr Milieu und ihren Nährboden, nicht zu existieren vermag.“

Luxemburg did not propose to wait for this contradiction to run its course on its own. With militarism, she argued, a chain of political and social catastrophes would make the revolt of the international working class a necessity "even before" accumulation "has economically run up against its natural, self-created barrier".

Who criticised it, and how?

The book met fierce criticism from nearly every camp as soon as it appeared. With the exceptions of Franz Mehring and Julian Marchlewski, SPD theorists, the Austro-Marxists and the Bolsheviks all condemned it. Lenin read it in 1913 and wrote that he was very glad that Pannekoek, Eckstein and Otto Bauer had all with one accord condemned her and said against her what he had said in 1899 against the Narodniks, who had claimed that capitalism could not develop in Russia for lack of a home market, whereas Lenin had answered that capitalism creates its own market through the demand for means of production. In 1913 Otto Bauer constructed a reproduction scheme in which technical progress raises the organic composition of capital, to show that accumulation is possible without external markets.

In Imperialism and the Accumulation of Capital (1924) Bukharin argued that the problem was wrongly posed. For capital the consumption of workers is part of the production of labour power, and the demand for the expanded product comes from the investment process itself: additional constant capital is demand for means of production, and additional variable capital, the wages of newly hired workers, is demand for consumer goods. In her Anti-Critique, written in prison in 1915 and published in 1921, Luxemburg mocked such solutions as "the roundabout that revolves around itself in empty space", insisting that accumulation means not merely more commodities but the growth of capital in money form.

Henryk Grossman shared her aim of proving that capitalism has objective limits but argued that she had mistaken Marx's abstract schemes for a depiction of reality and had located the limits in circulation rather than production. For Grossman the real barrier was not a lack of demand but the falling rate of profit. Michał Kalecki observed that what matters for realising profits is not the total exported to non-capitalist markets but the excess of exports over imports.

What is underconsumptionism, and how far did the debate reach?

Underconsumptionism is the theory that recessions and stagnation arise from consumer demand falling short of production. Sismondi named underconsumption and overproduction as causes of the economic cycle in his New Principles of Political Economy (1819), and Malthus argued it against Ricardo. In the early twentieth century John A. Hobson held that unequal distribution of income produces oversaving and underconsumption. Luxemburg's critics placed her theory in this line.

Later assessments vary more. Riccardo Bellofiore reassessed her analysis as "macro-monetary", alert to the need to realise value as money and to the role of finance, and Jan Toporowski saw her analysis of international loans as a pioneer of critical finance. David Harvey's accumulation by dispossession carries on her logic of capital continually drawing in non-capitalist spheres. Marxist feminists have identified the household, where domestic labour is done, as a modern non-capitalist sphere that capitalism needs for its expansion, linking her to social reproduction theory. Leszek Kołakowski, by contrast, judged that her assumptions, such as wages always remaining at subsistence and the state being unable to regulate accumulation, were disproved by later events.