Reproduction (economics)
Encyclopedia
In Marxian economics
, economic reproduction refers to recurrent (or cyclical) processes by which the initial conditions necessary for economic activity to occur are constantly re-created. Economic reproduction involves physical production and distribution of goods and services, the trade (the circulation via exchanges and transactions) of goods and services, and the consumption of goods and services. Karl Marx
developed the original insights of Quesnay to model the circulation of capital, money and commodities in the second volume of Das Kapital
, to show how the reproduction process which must occur in any type of society can take place in capitalist society, by means of the circulation of capital.
Marx distinguishes between "simple reproduction" and "expanded (or enlarged) reproduction". In the former case, no economic growth
occurs, while in the latter case, more is produced than is needed to maintain the economy at the given level, making economic growth possible. In the capitalist mode of production, the difference is that in the former case, the new surplus value
created by wage-labour is spent by the employer on consumption (or hoarded), whereas in the latter case, part of it is reinvested in production.
Ernest Mandel
additionally refers in his two-volume Marxist economic theory to contracted reproduction, meaning production on a smaller and smaller scale, in which case business operating at a loss outnumbers growing business (e.g. in wars, depressions, or disasters). Reproduction in this case continues to occur, but investment, employment and output fall absolutely, so that the national income falls. In the Great Depression
of the 1930s, for example, about one-quarter of the workers became unemployed; as a result of the 2008/2009 slump, the unemployed labour force increased by about 30 million workers (a number approximately equal to the total workforce of France, or Britain).
or with how economic development gravitates towards an equilibrium, but with dynamics, i.e. the motion of an economy. It is not concerned with the conditions of a perfect match of supply and demand under idealised conditions, but with quantitative proportions between different economic activities or sectors which are necessary in any real economy so that economic activity can continue and grow. And it is concerned with all the conditions for that, including social and technical conditions necessary for the economic process.
Wassily Leontief
developed Marx's idea further in his input-output economics (see also input-output model
). However, there is a big difference between Leontief and Marx. By treating gross profit as a "factor input" as well as a factor output, the respective values of the input and output in Leontief's model are always exactly equal. In Marx's model, the output in an accounting period is normally always higher in value than the input; that is what Marx believed capitalists to be in business for - to produce a product sold at a higher value than the sum of input costs, thus generating profit. The profit in Marx's theory is not an "input" (it is not part of capital advanced), but a business result, the yield of capital upon investment.
In Marx's view, economic reproduction in any society has five main features:
What is specific to capitalist society is that these reproduction processes are accomplished primarily via the intermediary of commercial trade - they are mediated by the market. Reproduction on a larger and larger scale becomes conditional on successfully making money. It means that these processes tend to be reorganized more and more, to bring them in line with the requirements of the accumulation of capital.
Marx's argument is that by producing an output value with their labour which equals the equivalent of their own wage plus a surplus value
(or gross profit) appropriated by capitalists, waged workers accomplish many of the processes involved at the same time. Part of the role of the state
is to secure those general (collective) conditions for the reproduction and maintenance of society which individuals and private enterprise cannot secure by themselves for one reason or another (for example, because they transcend competing interests, because they are too costly for private agencies, because it is technically not possible to privatize them, or because they are not sufficiently profitable or too risky). Ecologists would nowadays probably add as a "reproduction condition" good stewardship for the physical environment. Sustainable development
cannot occur, if the natural environment is constantly depleted without being restored.
All these six features are always the subject of much political controversy in society. Many different opinions always exist about their relative importance, and their effects on each other. Economists and businesspeople are often primarily concerned with the economic effects, but other intellectuals and workers are often more concerned with the non-economic effects for the health, security and wellbeing of citizens. Thus, governments usually have both economic policies and social policies, population policies, environmental policies etc.
. If workers fail to produce more capital, economic reproduction begins to break down. Therefore, economic reproduction in capitalist society is necessarily expanded reproduction and requires market growth. Capital must grow, otherwise the whole process breaks down. Thus, economic growth is not simply desirable, but also absolutely necessary in capitalism, not just because of population growth
but for commercial reasons.
In this light, the ecological vision of a "zero-growth society" appears rather utopian; or, at the very least, its achievement would require the abolition of capitalism. Some would argue that population growth makes economic growth absolutely necessary. Others argue that population growth must be restricted with birth control
methods because otherwise there will be too many people for the available resources. The real argument though is not about "growth or no growth", but about the kind of growth that is best for the (enlarged) reproduction of the human species as such. Ecologists may validly argue that some types of growth undermine important conditions for human survival in the longer term, without this invalidating other kinds of growth which are beneficial. However, there is much dispute about which kinds of economic growth are actually beneficial or harmful.
Capital accumulation (the amassment of wealth in the form of capital assets) can occur in two basic ways:
In the former case, the total stock of capital grows. In the latter case, the accumulation of one owner is at the expense of the other, there is no net growth. These two ways are usually combined, meaning that all or most owners can make gains, but in unequal amounts. In considering the economic reproduction process as a whole, one therefore has to consider both the production of new resources and the transfer (distribution) of resources. As a corollary, supposing that there is no net growth of output and capital, capital accumulation can continue only if some people and organizations get richer while other people and organizations get poorer. Typically, if output growth slows down, socio-economic inequality
(measured e.g. by the Gini coefficient
) increases.
In assessing the effect of these "omissions", one ought to keep in mind that when Marx discussed the intertwining of the circulation of capital with the reproduction processes that occur in any kind of society, he was primarily concerned with the functional requirements of the capitalist mode of production
and not with the reproduction of the whole of society. At any time, a fraction of the population is not working or "economically active" (children, students, the sick and disabled, the unemployed, volunteer workers, housewives, pensioners, idlers etc.) and assets are maintained or accumulated which are quite unrelated to the sphere of production. These were generally outside the scope of Marx's own analysis, even if he occasionally mentioned them.
, consumer goods, and luxury goods and he considers the commercial interactions between the sectors producing them.
If the growth of different sectors of production occurs very unevenly for some reason, "bottlenecks" can occur, so that a supply or demand cannot be met. In the worst case, an interruption in the normal reproduction process triggers a sequence of disturbances, a chain reaction which spreads from some branches of production to the whole economy, meaning that products are left unsold, and that producers receive insufficient income to pay their bills. The result is rising unemployment, productive capacity which is not utilized, and a drop in output and productive investment. That means lower economic growth.
Arguably, a lot of the confusion in the debates about economic reproduction is attributable to two basic errors:
Once the basic needs of all could be met and organized capitalistically, the further development of capital accumulation could take directions quite unrelated to the direct requirements of economic reproduction. Indeed, that was also part of Marx's critique of capitalism; enormous funds could be invested in ways which did not really benefit society at all, with the effect that activities and assets essential to maintain society's wellbeing might be starved of funds. That is to say, within certain absolute limits, the requirements for physical reproduction and for capital accumulation might not be the same at all. Capital would be invested for profit, but basic necessities might be ignored. An example might be the 2007–2008 world food price crisis
which indicates that insufficient capital has been invested in food production.
That might seem very strange, since food is a basic requirement of human life. But, as Marx would presumably argue, what makes a profit is not necessarily what people really need, and therefore the possibility exists, that profit-making may actually undermine the most basic conditions for economic reproduction, including the supply of food and clean water, sanitation, adequate shelter, schooling, health care, etc. They are undermined, not because capitalists hate investing in these things - they might love to invest in them, if they could - but simply because it is difficult to make a secure profit from doing so. The required investments may be very large and long-term (capital is tied up for a number of years), but either there is no possibility for private profit, or it is uncertain whether a sufficient profit can and will be made. If, for example, money was invested in the essential infrastructure of a country by foreign investors, a falling currency exchange rate some years later might wipe out the profits they could get. And therefore, such investments could occur, only if foreign or local government authorities (and ultimately the tax payers) would subsidize those investments (or at any rate if they act as a guarantor for the investments); or, if financial institutions can find sufficient financial insurance to protect the value of investment capital, through various constructions which reduce financial risk to investors.
. This consists of the tasks of everyday existence — food preparation, laundry and so forth — that maintain him and his ability to show up at his job as required. Much of this domestic labor
has historically been the responsibility of women; thus it is of particular interest in feminist
economics. It was, for example, reported in 1988 that the paid work done by both men and women outside the home in West Germany
totals 55,000 million hours a year, earning them a total of $335 billion; but housework done by women inside the home totals 53,000 million hours a year, which earnt them no employee salary at all (New Internationalist, issue 181, March 1988).
One can conclude that for the business economy to operate, a total amount of unsalaried labour hours is required which may be close to the total amount of salaried hours worked. If that unpaid work had to be separately paid as a cash wage, at market rates applicable for that sort of work, the economy would break down, since neither employers nor paid employees could afford the bill - in particular given that women must already work more salaried hours these days to supplement household income. This example brings out the point that the "market economy" in reality cannot even function and reproduce itself without a very large amount of non-market activity, i.e. without a lot of (voluntary) work performed "for free". This reality has been largely ignored in official economics until recently, and the total value of household labour has never been accounted for in the standard national accounts
, even although such social accounts do acknowledge that non-market production exists, and to some extent impute values for non-commercial services (such as government services and the "service" of owner-occupied housing).
One of the principal inventors of modern national accounts, Simon Kuznets
, did at one time suggest that the value of household labour should be estimated as a standard measure, even just for the sake of objectivity about the economy, but that argument was rejected. Later, the economist Robert Eisner tried to estimate the value of "non-market outputs" (Eisner, The total incomes system of accounts. University of Chicago Press, 1989). His calculations suggested that in the United States, the value of unpaid household work declined from about 45% of conventional Gross National Product in 1945 to about 33% in 1981 (p. 41f.; cf. Review of Income and Wealth, series 37, number 4, December 1991, p. 455).
Marxian economics
Marxian economics refers to economic theories on the functioning of capitalism based on the works of Karl Marx. Adherents of Marxian economics, particularly in academia, distinguish it from Marxism as a political ideology and sociological theory, arguing that Marx's approach to understanding the...
, economic reproduction refers to recurrent (or cyclical) processes by which the initial conditions necessary for economic activity to occur are constantly re-created. Economic reproduction involves physical production and distribution of goods and services, the trade (the circulation via exchanges and transactions) of goods and services, and the consumption of goods and services. Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
developed the original insights of Quesnay to model the circulation of capital, money and commodities in the second volume of Das Kapital
Das Kapital
Das Kapital, Kritik der politischen Ökonomie , by Karl Marx, is a critical analysis of capitalism as political economy, meant to reveal the economic laws of the capitalist mode of production, and how it was the precursor of the socialist mode of production.- Themes :In Capital: Critique of...
, to show how the reproduction process which must occur in any type of society can take place in capitalist society, by means of the circulation of capital.
Marx distinguishes between "simple reproduction" and "expanded (or enlarged) reproduction". In the former case, no economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
occurs, while in the latter case, more is produced than is needed to maintain the economy at the given level, making economic growth possible. In the capitalist mode of production, the difference is that in the former case, the new surplus value
Surplus value
Surplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...
created by wage-labour is spent by the employer on consumption (or hoarded), whereas in the latter case, part of it is reinvested in production.
Ernest Mandel
Ernest Mandel
Ernest Ezra Mandel, also known by various pseudonyms such as Ernest Germain, Pierre Gousset, Henri Vallin, Walter , was a revolutionary Marxist theorist.-Life:...
additionally refers in his two-volume Marxist economic theory to contracted reproduction, meaning production on a smaller and smaller scale, in which case business operating at a loss outnumbers growing business (e.g. in wars, depressions, or disasters). Reproduction in this case continues to occur, but investment, employment and output fall absolutely, so that the national income falls. In the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
of the 1930s, for example, about one-quarter of the workers became unemployed; as a result of the 2008/2009 slump, the unemployed labour force increased by about 30 million workers (a number approximately equal to the total workforce of France, or Britain).
Theoretical approach
As an approach to studying economic activity, economic reproduction contrasts with equilibrium economics, because economic reproduction is concerned not with staticsComparative statics
In economics, comparative statics is the comparison of two different economic outcomes, before and after a change in some underlying exogenous parameter....
or with how economic development gravitates towards an equilibrium, but with dynamics, i.e. the motion of an economy. It is not concerned with the conditions of a perfect match of supply and demand under idealised conditions, but with quantitative proportions between different economic activities or sectors which are necessary in any real economy so that economic activity can continue and grow. And it is concerned with all the conditions for that, including social and technical conditions necessary for the economic process.
Wassily Leontief
Wassily Leontief
Wassily Wassilyovich Leontief , was a Russian-American economist notable for his research on how changes in one economic sector may have an effect on other sectors. Leontief won the Nobel Committee's Nobel Memorial Prize in Economic Sciences in 1973, and three of his doctoral students have also...
developed Marx's idea further in his input-output economics (see also input-output model
Input-output model
In economics, an input-output model is a quantitative economic technique that represents the interdependencies between different branches of national economy or between branches of different, even competing economies. Wassily Leontief developed this type of analysis and took the Nobel Memorial...
). However, there is a big difference between Leontief and Marx. By treating gross profit as a "factor input" as well as a factor output, the respective values of the input and output in Leontief's model are always exactly equal. In Marx's model, the output in an accounting period is normally always higher in value than the input; that is what Marx believed capitalists to be in business for - to produce a product sold at a higher value than the sum of input costs, thus generating profit. The profit in Marx's theory is not an "input" (it is not part of capital advanced), but a business result, the yield of capital upon investment.
In Marx's view, economic reproduction in any society has five main features:
- the production of reproducible products (goods or services) replacing, maintaining or adding to the stock of society's physical assets.
- the physical maintenance of the (working) population and their dependents through household consumption.
- the reproduction and growth of the total population, including procreation and childrearing.
- the reproduction, enforcement and maintenance of social relations, in particular the relations of productionRelations of productionRelations of production is a concept frequently used by Karl Marx and Friedrich Engels in their theory of historical materialism, and in Das Kapital...
which characterize the social hierarchy, and property rights. - the maintenance and reproduction of trading and distribution relations (the systems, institutions and organizations enabling market trade and non-merket allocation).
What is specific to capitalist society is that these reproduction processes are accomplished primarily via the intermediary of commercial trade - they are mediated by the market. Reproduction on a larger and larger scale becomes conditional on successfully making money. It means that these processes tend to be reorganized more and more, to bring them in line with the requirements of the accumulation of capital.
Marx's argument is that by producing an output value with their labour which equals the equivalent of their own wage plus a surplus value
Surplus value
Surplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...
(or gross profit) appropriated by capitalists, waged workers accomplish many of the processes involved at the same time. Part of the role of the state
State (polity)
A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...
is to secure those general (collective) conditions for the reproduction and maintenance of society which individuals and private enterprise cannot secure by themselves for one reason or another (for example, because they transcend competing interests, because they are too costly for private agencies, because it is technically not possible to privatize them, or because they are not sufficiently profitable or too risky). Ecologists would nowadays probably add as a "reproduction condition" good stewardship for the physical environment. Sustainable development
Sustainable development
Sustainable development is a pattern of resource use, that aims to meet human needs while preserving the environment so that these needs can be met not only in the present, but also for generations to come...
cannot occur, if the natural environment is constantly depleted without being restored.
All these six features are always the subject of much political controversy in society. Many different opinions always exist about their relative importance, and their effects on each other. Economists and businesspeople are often primarily concerned with the economic effects, but other intellectuals and workers are often more concerned with the non-economic effects for the health, security and wellbeing of citizens. Thus, governments usually have both economic policies and social policies, population policies, environmental policies etc.
Economic reproduction in capitalism
According to Marx, in a capitalist society economic reproduction is conditional on capital accumulationCapital accumulation
The accumulation of capital refers to the gathering or amassing of objects of value; the increase in wealth through concentration; or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money...
. If workers fail to produce more capital, economic reproduction begins to break down. Therefore, economic reproduction in capitalist society is necessarily expanded reproduction and requires market growth. Capital must grow, otherwise the whole process breaks down. Thus, economic growth is not simply desirable, but also absolutely necessary in capitalism, not just because of population growth
Population growth
Population growth is the change in a population over time, and can be quantified as the change in the number of individuals of any species in a population using "per unit time" for measurement....
but for commercial reasons.
In this light, the ecological vision of a "zero-growth society" appears rather utopian; or, at the very least, its achievement would require the abolition of capitalism. Some would argue that population growth makes economic growth absolutely necessary. Others argue that population growth must be restricted with birth control
Birth control
Birth control is an umbrella term for several techniques and methods used to prevent fertilization or to interrupt pregnancy at various stages. Birth control techniques and methods include contraception , contragestion and abortion...
methods because otherwise there will be too many people for the available resources. The real argument though is not about "growth or no growth", but about the kind of growth that is best for the (enlarged) reproduction of the human species as such. Ecologists may validly argue that some types of growth undermine important conditions for human survival in the longer term, without this invalidating other kinds of growth which are beneficial. However, there is much dispute about which kinds of economic growth are actually beneficial or harmful.
Capital accumulation (the amassment of wealth in the form of capital assets) can occur in two basic ways:
-
-
- either by means of producing a net addition to the stock of capital assets,
- or by transferring wealth from one owner to another.
-
In the former case, the total stock of capital grows. In the latter case, the accumulation of one owner is at the expense of the other, there is no net growth. These two ways are usually combined, meaning that all or most owners can make gains, but in unequal amounts. In considering the economic reproduction process as a whole, one therefore has to consider both the production of new resources and the transfer (distribution) of resources. As a corollary, supposing that there is no net growth of output and capital, capital accumulation can continue only if some people and organizations get richer while other people and organizations get poorer. Typically, if output growth slows down, socio-economic inequality
Inequality
In mathematics, an inequality is a statement how the relative size or order of two objects, or about whether they are the same or not .*The notation a b means that a is greater than b....
(measured e.g. by the Gini coefficient
Gini coefficient
The Gini coefficient is a measure of statistical dispersion developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper "Variability and Mutability" ....
) increases.
Factors not theorized by Marx
There were eight main factors which Marx largely ignored in his construction of reproduction schemes when he modelled the circulation of capital (through the constant transformations of money-capital into production-capital and commodity-capital and vice versa). These omissions have been noted by various Marxist and non-Marxist authors.- Unproductive accumulation. Through successive cycles of economic reproduction, more and more capital assets are created which exist only external to the sphere of capitalist production. These capital assets include residential housing; improved and unimproved land; publicly owned physical assets including offices, hospitals, schools, roads, installations, parks, vehicles, equipment and infrastructural works; consumer durables; and all kinds of financial assets. These assets can also obtain profits, income or capital gains insofar as they are tradeable goods or rented out. For example, there is nowadays a very large trade in used cars, second-hand equipment, and housing, and also in many financial assets. In fact, in developed capitalist countries, the capital directly tied up in private sector means of productionMeans of productionMeans of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
(i.e. the productive investment capital of private enterprises) is nowadays only the minor part of the total physical capital assets of society (i.e. a quarter or one-fifth), and if financial assets are included, the proportion of this part shrinks even more (one-sixth to one-eighth of the total capital).
- Human capital. Marx did not analyze the effects of human capitalHuman capitalHuman capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...
, that is, the skills and knowledge lodged in the physical bodies of workers, and the very large sums of money invested into education systems. He was aware of the idea of human capital, but he regarded it as a fictitious, reified notion which, he argued, would imply that workers were really capitalists. Nevertheless, the stock of skills and knowledge in the economy can represent a very large tradable value which can profoundly influence economic relationships, in so far as workers can "lever up" their income because they possess specialized skills and knowledge. Very large chunks of money are spent on education and research and development in developed capitalist countries. Marx intended to write a separate study about the labour market, considering the different forms which wages could take, but he never did.
- Rent seeking.Marx did not analyze the effects of "rent-seeking" for economic reproduction. Definitions of "economic rentEconomic rentEconomic rent is typically defined by economists as payment for goods and services beyond the amount needed to bring the required factors of production into a production process and sustain supply. A recipient of economic rent is a rentier....
" are much disputed in economic theory, but basically they refer to an "unearnt income" (which may be conceptualized as being not a "factor-income", but an income in excess of factor-income) which derives from a favorable trading position or from the monopolization of a resource. Marx only considered the special case of land rent ("ground rent"), but modern theorists argue that the scope of economic rents has become much larger. If investors can earn rents simply by capitalizing on the ownership or use of a resource (and make money simply by trading in the ownership of assets, which may themselves be borrowed assets), then, if this sort of activity makes more profit faster, with less risk and lower tax than investing in production, capital will shift more and more to the trade in already existing assets. If there exist plenty of such assets, a very large trade in such assets can develop. The result is that output growth is braked, and may even turn negative sometimes. Thus, the relative proportions of industry profits, interest and rent income in total surplus valueSurplus valueSurplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...
have a decisive effect on the ability of the economy to grow. The more interest and rent must be paid for production to occur, the more this becomes a constraint for expanding production. If the population increases, necessarily output, investments and jobs have to grow to keep up with it; but in a complex system of financial intermediation involving rent-seeking, economic growth may fail to occur on a sufficient scale, and in that case, some groups, classes or nations can only improve their economic position at the expense of others. This argument is however also much disputed by many theorists - the objection is simply that well-developed capital and money markets ensure that the finance exists to develop production, and that without a strong financial sector, production would be starved of funds.
- non-capitalist economic areas.In his theory of capital, Marx failed to consider the importance and weight of the non-capitalist production activities which must occur to sustain capitalist production (a significant component of which is household labour - see below). He was primarily concerned to show that the reproduction of society as a whole could in principle be accomplished by means of the accumulation of capital. All the activities of economic production can, Marx argued, in principle be organized in a capitalist way (according to commercial logic). It supplied proof that the capitalist mode of productionCapitalist mode of productionIn Marx's critique of political economy, the capitalist mode of production is the production system of capitalist societies, which began in Europe in the 16th century, grew rapidly in Western Europe from the end of the 18th century, and later extended to most of the world...
could exist as an historically distinctive world system, completely dominated by the requirements of capital, without quickly breaking down. But this idea was strongly criticized, especially by German Marxist authors such as Rosa LuxemburgRosa LuxemburgRosa Luxemburg was a Marxist theorist, philosopher, economist and activist of Polish Jewish descent who became a naturalized German citizen...
and Fritz Sternberg. They argued that capital accumulation proceeds only by constantly drawing upon a non-capitalist "hinterland" or region. That is, markets could expand only if there were new areas to expand to, and these areas are non-capitalist areas; but inversely, these non-capitalist areas could actually support the capitalist economy well in advance of becoming thoroughy organized according to commercial principles. This idea is developed further by the American Marxist David HarveyDavid HarveyDavid Harvey is the name of:*David Harvey *David Harvey , geographer and social theorist*David Harvey , American luthier...
, who uses the concept of accumulation by dispossessionAccumulation by dispossessionAccumulation by dispossession is a concept presented by the Marxist geographer David Harvey, which defines the neoliberal capitalist policies in many western nations, from the 1970s and to the present day, as resulting in a centralization of wealth and power in the hands of a few by dispossessing...
.
- Population growth. Marx failed to systematically theorize demographic effects on economic reproduction, except that he studied the reserve army of labourReserve army of labourReserve army of labour is a concept in Karl Marx's critique of political economy. It refers basically to the unemployed in capitalist society. It is synonymous with "industrial reserve army" or "relative surplus population", except that the unemployed can be defined as those actually looking for...
and criticized the "overpopulation" theories of Thomas MalthusThomas MalthusThe Reverend Thomas Robert Malthus FRS was an English scholar, influential in political economy and demography. Malthus popularized the economic theory of rent....
. Malthus was anxious that population growth would outstrip the capacity of the economy to sustain all the new people. Marx replied that the very idea of "overpopulation" was an anti-human ideological fiction, since it really meant "overpopulation" only relative to the requirements of capital accumulation. If resources were appropriately allocated, there was enough for everybody to have a decent life. The real point was that capital could not achieve that goal. Capital accumulation necessitated a "relative surplus population" which tended to grow in size. Nevertheless, since population trends are not simply determined by economic factors, population movements can exert an important independent effect on economic reproduction. Nowadays, the population in developing countries often increases much faster than the economy which is supposed to support them, while in developed countries, society must increasingly sustain a very large population of old people who do not work - reducing the proportion of people who do work. In ChinaChinaChinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
, for example, population growth has been curbed by deliberate government policy to restrict the number of births per couple, using birth controlBirth controlBirth control is an umbrella term for several techniques and methods used to prevent fertilization or to interrupt pregnancy at various stages. Birth control techniques and methods include contraception , contragestion and abortion...
methods. Another aspect about which there is much controversy is the emigration of workers and refugee populations - whether they are an asset for, or a drain on, economic growth. Capitalists are generally in favor of the free international movement of capital, but they are much more cautious about freedom of movement for workers - depending on whether that movement is profitable to them, or whether it is a cost or a political threat.
- Public finance.Marx did not analyze in any detail the effect of taxation and state expenditure on the reproduction process. When he lived, state taxes and expenditures were comparatively small (5-10% of gross product) but since that time they have risen to 30-40% or more of gross product in many countries. It enables the state to intervene directly in the process of social and economic reproduction, and to alter its course within certain limits. Because of the large size of state funds and the fact that taxes must be paid irrespective of productive performance, the state power can borrow large sums and use them, together with legislation, to influence economic growth and social relations. In addition, the state nowadays also employs a very large number of people earning incomes from activity which is often or mostly not oriented to profit-making, analogous to a non-profit sector sustained by subsidies, grants and donations as well as some income-generating activity. The state is the largest sponsor and purchaser of the military industry supplying the armed forces.
- Ecology. Although he does refer to it, Marx did not analyze in any detail the depletion of natural resources by capitalist production, where the depletion involves non-reproducible goods, or living organisms which are wiped out. If land is exhausted or becomes infertile, or it is devastated by a natural disaster, or if the yield of mines, forests and fisheries becomes too low, production can no longer continue. After a series of cycles of capitalist reproduction, environments may emerge which are no longer inhabitable by human beings because they are incapable any longer of sustaining life.
- International division of labor. Through mechanization and productivity increases achieved by capitalist production, the allocation of human labour between agriculture, manufacturing industries and services (the so-called primary, secondary and tertiary sectors of the economy) is altered nationally and internationally. In developed capitalist countries, the agricultural labour force has shrunk to only a tiny fraction of the total workforce, and manufacturing industries remain only as a minor part of total production; the large majority of workers are employed in service industries. This contrasts with less developed countries which retain a large agricultural workforce, and newly industrializing countries which feature a large manufacturing workforce. Marx did not analyze the implications of these long-term effects of the expansion of production by means of capital accumulation.
In assessing the effect of these "omissions", one ought to keep in mind that when Marx discussed the intertwining of the circulation of capital with the reproduction processes that occur in any kind of society, he was primarily concerned with the functional requirements of the capitalist mode of production
Capitalist mode of production
In Marx's critique of political economy, the capitalist mode of production is the production system of capitalist societies, which began in Europe in the 16th century, grew rapidly in Western Europe from the end of the 18th century, and later extended to most of the world...
and not with the reproduction of the whole of society. At any time, a fraction of the population is not working or "economically active" (children, students, the sick and disabled, the unemployed, volunteer workers, housewives, pensioners, idlers etc.) and assets are maintained or accumulated which are quite unrelated to the sphere of production. These were generally outside the scope of Marx's own analysis, even if he occasionally mentioned them.
Economic reproduction, economic equilibrium and economic crises
Marx's models of economic reproduction in capitalism have often been interpreted as stating the conditions for economic equilibrium, or balanced economic growth. After all, there are certain "necessary proportions" between different branches of production, which have to adjust their output levels to each other. If those proportions do not reach a minimum acceptable level, then products remain unsold, or producers cannot get the inputs they require, in which case production begins to slow down or break down. So there are some necessary proportions between production, distribution and consumption which must be maintained if society is to survive and grow. In this sense, Marx distinguishes between the production of means of productionMeans of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
, consumer goods, and luxury goods and he considers the commercial interactions between the sectors producing them.
If the growth of different sectors of production occurs very unevenly for some reason, "bottlenecks" can occur, so that a supply or demand cannot be met. In the worst case, an interruption in the normal reproduction process triggers a sequence of disturbances, a chain reaction which spreads from some branches of production to the whole economy, meaning that products are left unsold, and that producers receive insufficient income to pay their bills. The result is rising unemployment, productive capacity which is not utilized, and a drop in output and productive investment. That means lower economic growth.
- Disproportionality theories. This idea was the basis for numerous Marxist crisis theories devised in the first three decades of the 20th century, most famously by Rudolf HilferdingRudolf HilferdingRudolf Hilferding was an Austrian-born Marxist economist, leading socialist theorist, politician and chief theoretician for the Social Democratic Party of Germany during the Weimar Republic, almost universally recognized as the SPD's foremost theoretician of his century, and a...
, Rosa LuxemburgRosa LuxemburgRosa Luxemburg was a Marxist theorist, philosopher, economist and activist of Polish Jewish descent who became a naturalized German citizen...
, Nikolai BukharinNikolai BukharinNikolai Ivanovich Bukharin , was a Russian Marxist, Bolshevik revolutionary, and Soviet politician. He was a member of the Politburo and Central Committee , chairman of the Communist International , and the editor in chief of Pravda , the journal Bolshevik , Izvestia , and the Great Soviet...
, Otto BauerOtto BauerOtto Bauer was an Austrian Social Democrat who is considered one of the leading thinkers of the left socialist Austro-Marxist tendency...
and Henryk Grossmann. The argument is that balanced economic growth is only a temporary phenomenon, because a private enterprise economy is incapable of sustaining the necessary proportionalities it requires for that. It cannot do so, because there is no overall, conscious coordination of production activities in an economic system where producers compete to cut costs, increase sales and increase profits. There has been much dispute about which disproportionalities exactly are of decisive importance, and why those specific disproportionalities would occur and recur, but all the theorists agree that some disproportionalities must necessarily occur, making recurrent crises inevitable.
- Uneven development theories. Other theorists such as Ernest MandelErnest MandelErnest Ezra Mandel, also known by various pseudonyms such as Ernest Germain, Pierre Gousset, Henri Vallin, Walter , was a revolutionary Marxist theorist.-Life:...
and Roman RosdolskyRoman RosdolskyRoman Rosdolsky was an important Marxian scholar and political activist. He was born in Lviv in Galicia, at that time in the Austro-Hungarian empire, now in Ukraine, and died in Detroit, MI...
argued that capitalist economic development is always an "imbalanced" rather than "balanced" development in space and time. At most an approximate balance of supply and demand is achieved in particular areas. In that case, an economic equilibrium never exists in reality (it is only a theoretical abstraction) - there are constant market fluctuations all the time, as producers adjust to each other without being able to determine how much others will produce for sale. At most one could say that in times of strong economic growth, when markets strongly expand, all producers can make gains from increasing output, even if the gains are unequal. But after a certain time, productive investment will "overshoot" a by now saturated market demand, causing the economy to spiral into a crisis again.
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- The basis for this alternative interpretation is that as long as simple reproduction is at least accomplished, expanded reproduction permits a lot of variations, possibilities and flexibilities (elasticities) - the gross profit income of enterprises can, within certain obvious limits, be utilised or reinvested in many different ways, without causing any critical disturbance of the economic reproduction process as a whole. The greater labor-productivity is, and the larger the surplus productSurplus productSurplus product is a concept explicitly theorised by Karl Marx in his critique of political economy. Marx first began to work out his idea of surplus product in his 1844 notes on James Mill's Elements of political economy...
, the more discretionary wealth exists. The less that basic necessities (food, clothing, housing, cellphones) cost as a fraction of the disposable household budget, the more funds are available which can be spent optionally or saved. In addition, the extension of credit can compensate for temporary supply-demand imbalances. So, while certain minimal quantitative conditions do exist for the proportionalities of outputs among different branches of production, these proportionalities can be maintained, even if the output growth rate per year drops from (say) 4% to 2%. Provided that the capitalist relations of productionRelations of productionRelations of production is a concept frequently used by Karl Marx and Friedrich Engels in their theory of historical materialism, and in Das Kapital...
are stable and secure, capital accumulationCapital accumulationThe accumulation of capital refers to the gathering or amassing of objects of value; the increase in wealth through concentration; or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money...
will continue, despite constant market fluctuations, at a slower or faster pace. Society will reproduce itself anyway, but at a lower or higher standard of living.
- The basis for this alternative interpretation is that as long as simple reproduction is at least accomplished, expanded reproduction permits a lot of variations, possibilities and flexibilities (elasticities) - the gross profit income of enterprises can, within certain obvious limits, be utilised or reinvested in many different ways, without causing any critical disturbance of the economic reproduction process as a whole. The greater labor-productivity is, and the larger the surplus product
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- In that case, models of economic reproduction are not a very useful guide to understanding economic crises, because (it is argued) Marx only intended them to show how it was possible for the whole economic reproduction process to be accomplished on the basis of the circulation of capital, by stating what would be the minimum requirements (not equilibrium conditions) for it. If certain quantitative assumptions are made about the growth rates of different sectors and about capital compositions, it can be proved that certain disproportions must necessarily develop. But in reality, the economic reproduction process could be interrupted or break down for all kinds of reasons (including non-economic causes such as wars or disasters). And if disproportions occur, the economic system can also adjust to them, within certain limits. If vastly more capital assets are created than are actually invested in production, one cannot explain economic crises simply in terms of disproportions happening in the sphere of production - one has to look at the process of capital accumulation as a whole, which includes the financial system (capital finance), non-productive assets and real estate. This becomes particularly important when very large debt crises occur. These debt crises signal that very serious misallocations of capital have occurred, which impact negatively on economic reproduction.
- Financialization theories. A third, more recent interpretation is that the reproduction process (both the material reproduction processes and the reproduction of capital) is nowadays completely dominated by capital finance. Hence, to explain economic crises, critical disproportions between the developments of branches of production, or unutilized capacity, ought to be viewed as emerging out of specific financial and monetary regimes pursued by financial institutions and the state. The gigantic funds commanded by these organizations are thought to shape the whole character of the reproduction process. Just as Marx noted a progression from natural economyNatural economyNatural economy refers to a type of economy in which money is not used in the transfer of resources among people. It is a system of allocating resources through direct bartering, entitlement by law, or sharing out according to traditional custom...
to "money-economy" and then "credit economy", it is argued that the reproduction process has nowadays become dominated by the supply, demand or withdrawal of credit-money. However, there is a lot of theoretical controversy about just exactly how the relationship between the "real economy" (the direct involvement with the production and consumption of goods and services) and the "financial economy" (the circuit of trade in financial claims) should be understood.
Arguably, a lot of the confusion in the debates about economic reproduction is attributable to two basic errors:
- Definition of capitalism: scholars often confuse Marx's idea about what is required for the reproduction of the capitalist mode of production (bringing together the factors of production to make money) with what is required for the reproduction of capitalist society as a whole. Abstractly it is assumed that the economy consists only of capitalist production and that the capitalist economy is equal to capitalist society. But in reality this is not the case at all. Capitalist society contains all sorts of non-economic processes and non-capitalist processes as well. It remains a society of human beings, who have some requirements or needs which cannot easily be met through a commercial business.
- Physical/social distinction: scholars often conflate the (expanded) physical reproduction of goods and services necessary for human survival with the (expanded) reproduction of capital. They assume that a certain market balance or market proportionality is essential for an equilibrium growth path. In reality Marx never argued that capitalist society is "held together" or "balanced out" by the market itself, and he denied that equilibrium ever existed anywhere, other than as a momentary coincidence. Instead, "what held society together" was the compulsion to produce and reproduce for a living, given a system of property rights enforced by the state. Marxists call this viewpoint Marx's historical materialismHistorical materialismHistorical materialism is a methodological approach to the study of society, economics, and history, first articulated by Karl Marx as "the materialist conception of history". Historical materialism looks for the causes of developments and changes in human society in the means by which humans...
.
Once the basic needs of all could be met and organized capitalistically, the further development of capital accumulation could take directions quite unrelated to the direct requirements of economic reproduction. Indeed, that was also part of Marx's critique of capitalism; enormous funds could be invested in ways which did not really benefit society at all, with the effect that activities and assets essential to maintain society's wellbeing might be starved of funds. That is to say, within certain absolute limits, the requirements for physical reproduction and for capital accumulation might not be the same at all. Capital would be invested for profit, but basic necessities might be ignored. An example might be the 2007–2008 world food price crisis
2007–2008 world food price crisis
World food prices increased dramatically in 2007 and the 1st and 2nd quarter of 2008 creating a global crisis and causing political and economical instability and social unrest in both poor and developed nations. Systemic causes for the worldwide increases in food prices continue to be the subject...
which indicates that insufficient capital has been invested in food production.
That might seem very strange, since food is a basic requirement of human life. But, as Marx would presumably argue, what makes a profit is not necessarily what people really need, and therefore the possibility exists, that profit-making may actually undermine the most basic conditions for economic reproduction, including the supply of food and clean water, sanitation, adequate shelter, schooling, health care, etc. They are undermined, not because capitalists hate investing in these things - they might love to invest in them, if they could - but simply because it is difficult to make a secure profit from doing so. The required investments may be very large and long-term (capital is tied up for a number of years), but either there is no possibility for private profit, or it is uncertain whether a sufficient profit can and will be made. If, for example, money was invested in the essential infrastructure of a country by foreign investors, a falling currency exchange rate some years later might wipe out the profits they could get. And therefore, such investments could occur, only if foreign or local government authorities (and ultimately the tax payers) would subsidize those investments (or at any rate if they act as a guarantor for the investments); or, if financial institutions can find sufficient financial insurance to protect the value of investment capital, through various constructions which reduce financial risk to investors.
Reproduction of labor power
Reproduction can also refer to the worker's daily reproduction of his own labor powerLabor power
Labour power is a crucial concept used by Karl Marx in his critique of capitalist political economy. He regarded labour power as the most important of the productive forces of human beings. Labour power can be simply defined as work-capacity, the ability to do work...
. This consists of the tasks of everyday existence — food preparation, laundry and so forth — that maintain him and his ability to show up at his job as required. Much of this domestic labor
Manual labour
Manual labour , manual or manual work is physical work done by people, most especially in contrast to that done by machines, and also to that done by working animals...
has historically been the responsibility of women; thus it is of particular interest in feminist
Feminism
Feminism is a collection of movements aimed at defining, establishing, and defending equal political, economic, and social rights and equal opportunities for women. Its concepts overlap with those of women's rights...
economics. It was, for example, reported in 1988 that the paid work done by both men and women outside the home in West Germany
West Germany
West Germany is the common English, but not official, name for the Federal Republic of Germany or FRG in the period between its creation in May 1949 to German reunification on 3 October 1990....
totals 55,000 million hours a year, earning them a total of $335 billion; but housework done by women inside the home totals 53,000 million hours a year, which earnt them no employee salary at all (New Internationalist, issue 181, March 1988).
One can conclude that for the business economy to operate, a total amount of unsalaried labour hours is required which may be close to the total amount of salaried hours worked. If that unpaid work had to be separately paid as a cash wage, at market rates applicable for that sort of work, the economy would break down, since neither employers nor paid employees could afford the bill - in particular given that women must already work more salaried hours these days to supplement household income. This example brings out the point that the "market economy" in reality cannot even function and reproduce itself without a very large amount of non-market activity, i.e. without a lot of (voluntary) work performed "for free". This reality has been largely ignored in official economics until recently, and the total value of household labour has never been accounted for in the standard national accounts
National accounts
National accounts or national account systems are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry accounting...
, even although such social accounts do acknowledge that non-market production exists, and to some extent impute values for non-commercial services (such as government services and the "service" of owner-occupied housing).
One of the principal inventors of modern national accounts, Simon Kuznets
Simon Kuznets
Simon Smith Kuznets was a Russian American economist at the Wharton School of the University of Pennsylvania who won the 1971 Nobel Memorial Prize in Economic Sciences "for his empirically founded interpretation of economic growth which has led to new and deepened insight into the economic and...
, did at one time suggest that the value of household labour should be estimated as a standard measure, even just for the sake of objectivity about the economy, but that argument was rejected. Later, the economist Robert Eisner tried to estimate the value of "non-market outputs" (Eisner, The total incomes system of accounts. University of Chicago Press, 1989). His calculations suggested that in the United States, the value of unpaid household work declined from about 45% of conventional Gross National Product in 1945 to about 33% in 1981 (p. 41f.; cf. Review of Income and Wealth, series 37, number 4, December 1991, p. 455).
Further Reading
- Karl Marx, Das KapitalDas KapitalDas Kapital, Kritik der politischen Ökonomie , by Karl Marx, is a critical analysis of capitalism as political economy, meant to reveal the economic laws of the capitalist mode of production, and how it was the precursor of the socialist mode of production.- Themes :In Capital: Critique of...
- Andrew Trigg, Marxian Reproduction Schema. Routledge, 2006.
- Peter Custers, Questioning Globalized Militarism: Nuclear and Military Production and Critical Economic Theory. London: Merlin Press, 2008.
- Emilio Díaz Calleja, Teoría del capital: Una aproximación matemática al esquema de reproducción de Marx. Septiembre de 2010. http://personal.us.es/emidiaz/index_files/TeoriadelCapital.pdf