The Basic Theory of Capitalism: The Forms and Substance of The Capitalist Economy

THE BASIC THEORY OF CAPITALISM
The Forms and Substance of the Capitalist Economy

Also by Makoto Itoh
VALUE AND CRISIS
THE VALUE CONTROVERSY (with Ian Steedman, Paul Sweezy and others)
In Japanese
CONTEMPORARY CAPITALISM
MARXIAN ECONOMICS TODAY
(and other works)
The Basic Theory of
CapitalisiD
The Forms and Substance of
the Capitalist Economy
Makoto ltoh
Professor of Economics
University of Tokyo
M
MACMILLAN
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© Makoto Itoh 1988
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First published 1988

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British Library Cataloguing in Publication Data

Itoh, Makoto
The basic theory of capitalism: the forms
and substance of the capitalist economy.
1. Capitalism
I. Title
330.12'2 HB501
ISBN 978-0-333-37285-2 ISBN 978-1-349-19107-9 (eBook)
DOI 10.1007/978-1-349-19107-9
Contents
Preface ix
Editor's Note xiii
PART I ECONOMIC SCHOOLS AND IDEOLOGIES
1 The Birth of the Theoretical System of Capitalism 3
1.1 Mercantilism 3
1.2 Physiocracy 6
1.3 The Classical School 11
Its Formation 11
Adam Smith 12
David Ricardo 16
2 The Dissolution of the Classical School and the

Diversification of Schools 22
2.1 The Dissolution 22

Anti-classical Theories 22
Utopian Socialism 24
The Revisionist Succession to Classical Theory 26
2.2 The Historical School 27
2.3 The Neo-classical School 30
3 The Marxian Theory of Capitalism 39
3.1 Historical Materialism and Marx's Economics 39

Hegel, Feuerbach and Marx 39
The Role of Historical Materialism 43
Political Economy in the Manifesto 47
3.2 The Scope of the Theoretical System of Capital 51
The Formation and Structure of Capital 51
Marx's Initial Plan and the Scope of Capital 55
How to Locate and Complete Capital 59
v
vi Contents
3.3 The Tasks of Marxian Studies after Capital 62

The Controversies on Revisionism and Imperialism 62
The Tasks of the Basic Theory 65
PART II VALUE, LABOUR AND CAPITAL
4 The Forms of Valoe- Commodity, Money and Capital 73
4.1 Commodities and the Mystery of the Price Form 73

The Forms and the Substance of Value 73
The Value-Form of Commodities 78
4.2 Money and the Circulation of Commodities 87
The Measure of Value 87
The Means of Circulation 91
Money as the Absolute Form of Value 95
4.3 The Transformation of Money into Capital 97
How can Money be Transformed into Capital? 97
Another Transformation Problem 102
5 Capitalist Production and the Law of Valoe 109
5.1 Labour as the Universal Economic Condition for Societies 109

The Labour Process 109
Abstract Labour 113
Surplus-Labour 122
5.2 The Law of Value and the Valorisation Process 127
The Labour Theory of Value for Commodity Products 127
The Value of Labour-Power 136
Production of Surplus-Value 141
6 The Extension of the Theory of the Substance of Value 149
6.1 Skilled Labour in the Value Theory 150

The Origin of the Problem 150
The Recent Technological Analyses 154
The Historical and Universal Basis for a Solution 158
Contents vii
6.2 The Joint Production Problem 169

Steedman's Critique of Marx 169
Anti-Critiques 171
An Alternative Solution 174
6.3 The Reproduction Schemes and the Law of Value 178
Marx's Reproduction Schemes 178
The Form and Substance of Value in the Reproduction
Schemes 182
The Social Foundation ofthe Law of Value 191
PART III THE MOTION OF CAPITALS AS A

CONCRETE MECHANISM
7 Competition among Capitals 199
7.1 The Law of Value and Prices of Production 199

Marx's Theory of Prices and Production 199
The Transformation Controversy 210
The Theory of Prices of Production Reconsidered 220
7.2 The Market Prices of Production 226
7.3 Ground-Rent and Landed Property 235
The Capitalistic Form of Landed Property 235
Differential Rent 237
Absolute Rent 246
8 The Mobilisation of Capitals 250
8.1 Commercial Capital 251

8.2 The Credit System 257
How to Approach it 257
Commercial Credit 260
Bank Credit 264
The Rate of Interest 273
8.3 Joint-stock Capital 278
viii Contents
9 Business Cycles and Crises 290
9.1 Three Sources of Confusion to be Cleared up 290

9.2 The Law of Capitalist Accumulation 295
9.3 Regular Business Cycles and Crises 303
Prosperity 303
Crisis 313
Depression 318
9.4 Business Cycles and the Law of Value 325
9.5 The Metamorphoses of Business Cycles and the
Long Waves 333
PART IV SOCIALISM - AN ADDENDUM
10 On Socialism 347
10.1 Historical Materialism and The Necessity for Socialism 347

10.2 The Implications of Value Theory for Socialism 354
The Theory of Forms of Value for Socialism 354
The Concept of Labour-Substance for Socialism 362
10.3 Accumulation and the State in Socialism 368
Notes 376
Bibliography 417
Index 427
Preface
We are living in a peculiar and uncertain age- a fin de siecle. After a
century in which the historical evolution of capitalism increasingly
strengthened the economic role of the state, the capitalist world seems
suddenly to have lost any sense of progress as it experiences the great
depression which began in 1973. There has spread an overall disil-
lusion with views that state policies of either a Keynesian or Monet-
arist sort can prevent or mitigate economic instability and distress.
Indeed, it is asked whether they are not rather aggravating the
disasters. Such serious doubt and disillusion are combined in econ-
omic theory with the damage to the analytical foundation of neo-
classical price theory given by both the so-called capital controversy
and recent Marxian critiques, and thus present a deep crisis for
orthodox marginalist economic theories. This constitutes an import-
ant element of the general crisis and distrust in the conventional
social sciences, within the framework of bourgeois ideology, which
regards the capitalist social order as natural. As a result, an irrational
nationalism and militarism has tended to gain ground, often along-
side a general indifference to substantial socio-economic problems
even among young students.
It is ironic to see that despite all this, in the very process of the
great depression in our age, capitalism seems to be strongly reassert-
ing the workings of its intrinsic and violent law of motion rather than
weakening itself. What has been weakened is rather the social posi-
tion of workers and their trade-union organisations. The economic
position of the 'third world' countries has also generally been
worsened. The actions of capitalist firms to increase the efficiency of
the valorisation process through 'rationalisation' and restructuring
are so much facilitated. 'The social structure of accumulation' of
capitals seems to be under reconstruction in full scale throughout the
capitalist world.
In spite of the actual deep crisis in the capitalist economy, as well
as in bourgeois social thought, the socialist movement is not gaining,
but rather suffering with the weakening social position of workers.
Moreover, added to it, there have been problematic situations in the
existing socialist countries, including international conflicts - even
wars and military invasion- among them. The process of the cultural
revolution in China, the weak social position of workers expressed in
ix
X Preface
the Polish solidarity movement and the role of orthodox Marxian

theories which tend uncritically to legitimise the status quo in those
countries are some of these issues. The gap between the ideal and
the reality of socialism generally seems great. Socialism, including
Marxism, as an alternative to capitalism is thus also in crisis. This
element was not present in the preceding historical crises during the
great depressions in the late nineteenth century and in 1930s. The
feeling of proceeding along the blind alley of the capitalist world at
the end of our century must thus be heavier. We have to recognise
that human history as a whole, across the West and the East, as well
as the North and the South, is on serious trial.
What can we do for the future? Even if it may seem roundabout,
one of the surest ways intellectually to overcome the sense of the
impasse of human history at this time, must be in our attempt
non-dogmatically to revive the potential of Marxian theory as a
sounder social science. It is indispensable not merely for a proper and
systematic understanding of the workings of capitalism, which is
actually being restrengthened, but also for our re-examination of
what socialism can do as an alternative to capitalism. The revival of
the Western Marxian economic school since the 1970s must incorpor-
ate this intention. Let us co-operate internationally and strive further
to push forward in this direction.
Due to the basic character of a capitalist economy itself, as we shall
discuss in this volume, our analytical understanding of its working
cannot be satisfactory as fragments and separated theories. Marx's
Capital, if with not a few incompletenesses, convinces us among
others of the necessity for a systematic and consistent method of
treating the working of the capitalist economy. Through fervent
controversies on, and studies of, Marxian theories of value, skilled
labour, joint products, the transformation problem, business cycles
and crises - which are still vividly proceeding - we have to reconsider
from time to time both the implications and the location of each topic
concerned in the light of the whole conceivable system of the basic
theory of capitalism. We may lose a sound sense of our orientation
without such reflection. After so many years of theoretical Sturm und
Drang in the process of the recent revival and growth of the Western
Marxian school in political economy it must be high time for us to
attempt to materialise such a total theoretical system anew. While
lecturing and giving seminars in various universities in Europe and
North America from 1974, I began to be convinced of such a necess-
Preface xi
ity. Capital or P. Sweezy's The Theory of Capitalist Development

(1942), for example, would no longer suffice, though they must surely
serve as classical foundations.
I also intended, in preparing this book, to explore my possible
contributions to the basic theory of capitalism by attempting system-
atically to solve a series of recent controversial problems in the West
from the view of Japanese Uno theory. As I described in my previous
book, Value and Crisis (1980), there is a rich tradition in Marxian
economic thought in Japan, dating back to the First World War.
Upon such a historical basis, K. Uno's works of the post-Second
World War period were distinguished and influenced our generation
to form the Uno School. The separation of the task of Marxian social
science from the role of ideological thought; the methodological
distinction of the levels of research in Marxian political economy into
the basic principles, the stages theory of capitalist development and
the empirical analyses of the current situation; and the extensive
study of Marx's Capital as the principles of political economy are the
main characteristics of the Uno School. In the area of the basic
principles the importance of the forms of value and commodity
economy for capitalism to organise its substantial socio-economic
activity, based on the labour process, is much emphasised as a kernel
of Marx's original theory clarifying the historical specificity of capi-
talism.
As we shall see in Part I of this book, these viewpoints are all very
relevant to the clarification of the fundamental orientation and tasks
of Marxian political economy against the long historical development
of various other economic schools. The basic theoretical meanings of
current controversies and conflicts between neo-classical, neo-
Ricardian and Marxian schools, or among Marxians themselves, as
we shall discuss in Part II and 111, then become more consistently and
easily understandable. Especially a deeper and sharper analytical
concern about the form and substance of the capitalist economy is
essential for our proper understanding of the basic character and
working of capitalism, as well as for the solution of the recent
controversies.
While dealing with the recent Western theoretical debates and
complications I had naturally to re-examine and extend my own
positions as a Uno theorist. I also felt it rather fortunate to have an
opportunity to reconsider systematically such topics as the import-
ance of the development of economic theories along the lines of
xii Preface
neo-Ricardians and its impact on Marxian theories; the contents of

the law of value including the elasticity in the distribution of sur-
plus labour; the perplexed issues on skilled labour, joint production
and the transformation from values to prices of production: the basic
theory of regular business cycles and long waves; and some theor-
etical implications for conceivable socialism which are deducible
from our basic theory of capitalism. Since ready-made answers for
these were either not given or remained unsatisfactory, I had to strike
out from Uno's own theoretical treatments, often consciously as
Japanese readers might well and easily notice. Just as Uno did to
Marx, I tried to think by myself what Marx and Uno would argue on
these issues today.
It must be left to the reader's judgement how far the author has
successfully achieved the initial intentions stated above. I shall look
forward to critiques and comments for the further development of
our common theories. I can just hope that this book is properly
oriented and of some use for the further theoretical growth of
Marxian political economy as a sound social science, which would at
least enable us intellectually to surmount irrational reaction and
conscious or unconscious nihilism towards human social progress.
It happens to be exactly twenty years since I began continuously to
give lecture courses and seminars on the principles of political econ-
omy in our Department of Economics, at the University of Tokyo. I
have been fortunate in having excellent forerunners, colleagues and
good students here in Japan, to whom my debts are obvious. In
particular, communications and discussions with Nabuo Okiskio,
Tsuyoshi Sakurai, Shigekatsu Yamaguchi and Michiaki Obata among
others have been encouraging and helpful in the writing this book.
Since my previous book, Value and Crisis, served as a good prep-
aration for this volume, my acknowledgements stated in its Preface to
comradely friends in the West should remain, though I will not repeat
all of their names again. Among them, Andrew Glyn and Bob
Rowthorn read the whole manuscript of this book, and continuously
provided useful advice. By happy chance both of them separately
visited me here in Tokyo recently, and directly discussed with me
portions of the manuscript. Though I could not follow some of their
advice, this book is deeply indebted to them. Let me also state my
thanks for arranging my visits to, and my teaching at, the New School
for Social Research in 1978 to Anwar Shaikh; at New York Univer-
sity in 1978 to Jim Becker; at Cambridge University and Queen Mary
College in the University of London in 1980 to Bob Rowthorn,
Preface xiii
Simon Mohun and Sue Himmelweit; and at the University of Mani-

toba in 1985 to John Loxley and Cy Gonick.
All these opportunities were most helpful to me in preparing and
writing this book. Last but not least, my gratitude to Paul Bullock
who with his thorough understanding of the issues discussed, and a
firm grasp of my arguments carefully and perseveringly edited my
English and prepared the index.
Though I am certairtly responsible for whatever imperfections this
book may contain, I feel with some satisfaction that it incorporates
not just my individual views but the broader associated achievements
in the subject in the recent decades, both in Japan and in the West
effecting in its contents, as in the process of its birth, international
co-operation and communication in the field of Marxian political
economy.
MAKOTO ITOH
EDITOR'S NOTE
In correcting the manuscript of this book I have endeavoured to

ensure that the arguments of the author are presented as he intends.
Our friendship over thirteen years, and our own understanding of the
differences between us on the issues discussed, have helped me in this
task.
PAUL BULLOCK
Part I
Economic Schools and
Ideologies
Capitalism is a special social formation where both the selling and
buying of commodities organised by capital dominate human econ-
omic activities. As capitalism began to develop in Western Europe,
from about the sixteenth century, economic theories also began to
evolve as a specific field of social sciences. It was not a mere coinci-
dence nor simply part of a new tendency for modern sciences to grow
separately from a comprehensive system of theology or philosophy.
On the one hand, capitalism broadened and complicated social
relations in production, distribution and consumption. The social
mechanism of economic life, which was now carried on through
commodities, money and capital, not only became more and more
important for society but it was also impossible to fully understand it
merely by daily common sense. On the other hand, economic activi-
ties based on commodity transactions, unlike those in various pre-
capitalist societies, basically tended to be self-operating and became
independent of extra-economic, religious and political forces. Con-
sequently political economy grew as an independent and basic social
science alongside the development of capitalism.
In its process of growth and development, the study of the capital-
ist economy gave rise to various schools. The distinctions among
major schools are apparently linked with the different frameworks of
ideologies. Ideology can roughly be defined here as a more or less
total system of social thought, or 'a co-ordinated set of beliefs and
ideas' which is historically relative and apt to be related with a certain
political position. 1 A new school of economic theory often arises in
order to support a new political perspective, and this school may then
become popular as a logical basis for such an ideology, reflecting the
direction of social change and developing social interests. In most
cases the new social thought and its theoretical expression asserted
their universal objectivity and truth, and criticised the older or the
other as being partial, distorted and one-sided, or totally wrong.
However, the successive changes of dominant schools of economic
theories cannot be regarded simply as a continuous progress toward
1
2 Economic Schools and Ideologies
objective truth. For one thing it is difficult to compare the absolute

degree of objectivity or truth between various schools when their
main aims of researches do not have identical frameworks. The
relations between each major school of economic theory and its
guiding ideology also differ. The positive roles and negative limi-
tations of ideological views are often inseparable from their theoreti-
cal content, and tend to be completely dismissed in the minds of
supporters of some schools so long as their own ideologies are
believed to be both universal and natural.
With this in mind, it may seem inevitable that we should take a
relativist position, because each school of economic theory and its
ideological framework seems to have its own justification and cannot
be totally dismissed by other schools as wrong. We should be able to
discuss the degree of internal consistency and actual relevance of a
theoretical system, or analyse the objective rationality of certain
means and aims, while personal value judgement or a selection of
conflicting ideologies would better be put outside of the scope of
objective social sciences, as Max Weber emphasised. 2
A defect of these relativist positions, including Weber's, is that
they tend to treat ideologies merely as personal views because they
neglect the social bases of major ideological currents. Besides, if
totally separated from social thought, economic theories must be-
come too formal and technical to be socially meaningful. In many
cases complete separation of economic theories from ideologies is
also difficult. Seemingly objective formal theories often contain un-
consciously, or even consciously, ideological preoccupations in their
premises. Attempts to pursue purely objective science in economic
research are sometimes deceptive and even thoroughly ideological in
their hidden (or apparent) presuppositions.
Contrariwise it also happens that ideological views and frameworks
restrict and distort the theoretical observations of the real character
and the total mechanism of a capitalist economy. How can we pass
between these dangerous Scylla and Charybdis and reach a more
solid ground for the basic theory of capitalism? Let us briefly examine
the development of major schools of economic theory and consider
especially how their contributions and limitations correspond to their
ideological and political stances.
1 The Birth of the
Theoretical System of
Capitalism
1.1 MERCANTILISM
The first major school of economic theories was mercantilism. It grew

for two and a half centuries following the explosive expansion of
world trade with the discovery of the new continent and worldwide
sea routes up until the middle of the eighteenth century. It was also a
period of the formation of rival modern nation states in Western
Europe through a continuous process of civil and international wars.
In order to strengthen the fiscal basis of nation states by various
custom duties and levies on monopoly traders, mercantilist policies
were called for. The systematic development of such policies had
been unnecessary in the preceding feudal period. Mercantilist theor-
etical observations more or less expressed the interests of an expand-
ing merchant class and the state protection necessary for them.
Until the beginning of the seventeenth century mercantilism
appeared as bullionism, where silver and gold were esteemed as
absolute treasure. The growth of wealth was to be achieved by
accumulating these precious metals which served as money. A typical
policy was the 'balance of bargain system' which compelled British
traders to bring back a portion of hard money obtained by each
export trade. T. Gresham (1519-79), who observed in 1558 'Bad
money drives out good,' and J. de Malynes (ft. 1586-1641) were
among representative bullionists.
The main stream of mercantilism later turned to the 'balance-of-
trade system,' where the total national balance of trade rather than
the balance of each individual bargain was underlined. This position
was expressed by E. Misselden (ft. 1608-54) and T. Mun (1571-1641)
among others. They defended a certain type of trade by the East
India Company against the bullionists and asserted that the outflow
of monetary treasure for imports is both necessary and desirable in
order to increase both exports and the national balance of trade.
ThoughT. Mun and his co-theorists began to recognise the import-
ance of manufacturing industries, they believed that it was fostered
3
by, and the basis of, foreign trade, and that foreign trade was the
source of national wealth and treasure. Their argument, especially
Mun's, was so influential in supporting mercantilist policies up until
the middle of the eighteenth century, that according to A. Smith 'the
title of Mun's book, England's Treasure by Foreign Trade [1664],
became a fundamental maxim in the political economy, not of England
only, but of all other commercial countries'. 1
James D. Steuart (1712-80) systematised the mercantilist theories
in An Inquiry into the Principles of Political Economy (1767).
Although it was unduly neglected by A. Smith and generations of his
followers, it was a remarkable and great work in the following sense.
First, it presented a whole range of political economy. It begins from
a systematic description of a commercial society, analyses the func-
tions of money and credit and discusses the role and the appropriate
usage of public debt and taxes. In its description, various forms in a
commodity economy such as prices, costs, profits, money, credit,
interest, demand and supply are more or less organically studied as
principles of a commercial society, in particular from the view of
circulation and trade. Money, for instance, is no longer treated as an
absolute treasure as with bullionism, but observed in various forms
and functions including money of account, the measure of value,
bank money, coins as the means of circulation and the bullion as
universal money. This treatment of money is clearly wider than that
of the classical school where money is regarded only as the conven-
tional means of circulation. Together with his critique of D. Hume's
quantity theory of money where the level of prices is mechanically
determined by a rise or a fall of the quantity of money, Steuart's
monetary theory obviously contributed to part of Marx's later theor-
etical system, although it was not then based upon the labour theory
of value.
Second, in describing a commercial society which is driven by
self-love to pursue trade, Steuart does not believe in the assurance of
equilibrium between demand and supply or between jobs and popu-
lation. Rather, he emphasised a possible crisis of disequilibrium
which is often worsened by foreign trade. Hence he argues for the
necessity of mercantile protectionist policies or even fiscal policy to
restore the balance. In this respect he can be regarded as an import-
ant forerunner ofT. R. Malthus and further J. M. Keynes. Third,
Steuart is conscious of the historical character of a commercial
society in comparison with serfdom or feudal society, on the basis of
his observation of different societies on the Continent during his
seventeen years of refugee life. This point of view, which is mostly
The Birth of the Theoretical System of Capitalism 5
lost in the classical school, anticipates the later historical school and
the Marxist as well.
Fourth, in spite of these remarkable views Steuart's theoretical
framework remained 'the rational expression of the Monetary and
Mercantile systems' ,2 in so far as it thoroughly stresses the central
role of trade and commerce. In particular Steuart believed that profit
upon alienation, being determined by the degree of demand, always
enters into the prices of goods together with real value or prime costs.
In his concept of 'positive profit' which 'results from an augmentation
of labour, industry or ingenuity', 3 Steuart seems to be already taking
off from a mere mercantilist view where profit is always observed as
an increment of real wealth to be obtained in commerce. However,
so far as 'Steuart makes no attempt to explain' how positive profit
arises from such productive activity, 4 he cannot go beyond a theoreti-
cal limitation of mercantilist theory of value and profit.
Such a theoretical limitation reflects the basic character of capital-
ism in the mercantilist period. Capitalist accumulation in this period
had not yet established its own industrial basis in the form of the
modern factory system. The development of woollen manufacture,
which organised a subtle division of labour in factories under capital-
ist management, was an important key industry for the expansion of
global trade. But capitalist manufacture could not defeat small-scale
domestic woollen industry so long as it was based on handwork
technology. As a result the main source of capitalist profit and the
augmentation of social wealth seemed to originate from merchant
activity particularly in a large-scale foreign trade. The expansion and
penetration of the commodity economy carried out by merchant
activity in this period powerfully transformed the European societies
and wove every country into a Euro-centred world market. Through-
out the central and peripheral societies the capitalist expansion of the
commodity economy was not just a peaceful idyllic process. As Marx
made clear, the so-called 'primitive accumulation' which preceded
and prepared industrial capitalist accumulation, was full of violence
and state intervention. 'The exploitation of the agricultural producer,
of the peasant, from the soil, was the basis of the whole process'
(1, p. 876) 5 to create wage-labourers for capitalist production, as was
classically shown in the British enclosure movement. The colonial
system, the slave trade and the system of trade protection also
worked in the great transformation process of society from the feudal
or semi-feudal to the fully capitalist society. It is striking to see how
violent means and state power served as the midwife for the birth of a
seemingly peaceful commercial capitalist society. Unawareness of the
role of violence in dissolving small farms and peasant holdings

through enclosure movements in the British and other European
societies, and in subordinating or enslaving peripheral societies, is
another limitation of the mercantilists' view.
The mercantilists argument for protectionist policies and their
central concept of profit upon alienation, obtained in circulation,
were closely tied to the unstable transitory and immature character of
the capitalist economy of their age. Since the transitory period
contained both residual and incipient social characteristics and el-
ements, other types of theory such as physiocracy and the classical
school also began to grow. It is remarkable, however, to see how the
monetary and the mercantile systems were overwhelmingly influen-
tial before the industrial revolution. At the same time the con-
tributions of mercantilist theories concerning the various forms found
in the circulation process of a commodity economy should not be
neglected or despised, as was often the case in historical reviews of
economic theories, especially from the Ricardo-Marxian School. 6
Certainly, the mercantilists did not develop the labour theory of
value or of surplus-value. But their theoretical categories for analys-
ing the commodity economy were no less important, and sometimes
richer than those of the classical school's. It also well suits the basic
character of capitalism to have mercantilists as the first major school
of observers, since capitalism is nothing but a unique social formation
to be fully penetrated and organised by the forms of commodity
economy. Just as the expansion of commodity circulation both in
foreign trades and domestic market initiated the growth of capital-
ism, the theoretical self-recognition of capitalism had to begin with
the mercantilist observation of trade and circulation.
1.2 PHYSIOCRACY
The second major school of economic theory was physiocracy. It

appeared in France in the eighteenth century and played an import-
ant intermediary role in the transition from mercantilism to the
classical school. In particular, it converted the theoretical concern
about the origin of surplus-value from circulation to production. It
simultaneously shifted the policy stance from protectionist inter-
ventionism to free trade.
Its background and historical character were not simple. In the
preceding period there had been a growing failure of the French
absolutist economic policies. At the zenith of French absolutism,

Louis XIV (1643-1715) and his Minister of Treasury, Colbert, pushed
forward a French type of mercantilism. In comparison with British
mercantilism which made much of foreign trade, the French type
attached importance to establishing privileged royal manufacturers
producing luxury goods alongside· patented trading companies. The
development of the French capitalist economy lagged tendentially
behind the British, and could not provide a broad national bases for
such a policy. The king's wars and ruling-class luxury, like the
building of the Versailles Palace, put a heavy burden on agriculture,
which was still definitely the biggest industry of the country. The
prohibition and restriction on the export of agricultural products, in
order to keep their prices lower so as to help domestic manufac-
turers, was also damaging agriculture. The failure of John Law's
operation to handle the state debt and the resultant financial crisis in
1720 added to the difficulties of French commercial and manufactur-
ing capitalists. In agriculture, capitalist large-farm management was
also still limited, in spite of its potential growth, and was only partly
being introduced in northern France. For the more part agriculture
was carried out by small tenant peasants suffering from low pro-
ductivity and high rents. As a whole, the French economy in the
transitional period from feudalism to capitalism was more domestic,
more dependent on agriculture and less dependent on foreign trade
than the British economy.
Against this background there appeared with the Enlightenment a
group of economists who asserted the importance of agriculture for
restructuring the French economy. P. Boisguillebert (1646--1714), S.
Vauban (1633-1707) and R. Cantillion (1680--1734) anticipated the
tendency, and then F. Quesnay (1694-1744) with his able followers
such as A. Turgot (1727-81) established physiocracy as a dis-
tinguished school. Springing from the Enlightenment the Physiocrats
believed in a deistic natural law. They believed that mercantilist
policies were harmful for the realisation of such natural law in
socio-economic life. How, then could a natural social economic order
work continuously to reproduce and distribute social wealth and
revenue?
Quesnay summarised an ideal economic order in his Tableau
Economique (Economic Table, 1758). The main points of his 'Analy-
sis of the Arithmetical Formula of the Tableau Economique' (1766)
with a simplified Tableau, are as follows: 7 'The nation is reduced to
three classes of citizens: the productive class, the class of proprietors,
and the sterile class.' The productive class advances the expenditures
for agricultural labour and cultivation, and reproduces national wealth
including the net product to be paid to the class of proprietors. The
class of proprietors contains the sovereign, the owners of land and
the tithe-owners. This class subsists on the revenue or the net product
paid by the productive class. The ·sterile class is composed of all the
citizens who are engaged in works or services other than agriculture.
For instance, in a kingdom of about 30 million population, the
productive class owns 10 milliards (livres) primitive advance, of
which 1 milliard is yearly depreciation (which is confusedly called
interest for the primitive advance) and also expends 2 milliards yearly
advance. Three milliards advance in total brings about 5 milliards
yearly agricultural products including 2 milliards net products. The
productive class owns also 2 milliards (livres) money which is equival-
ent to the net product and pays it to the class of proprietors. Of 5
milliards (livres) agricultural products 1 milliard is to be consumed by
the class of proprietors, 1 milliard (as foods) and another 1 milliard
(as raw material) are to be used by the sterile class, and the remaining
2 milliards is reserved in kind as the yearly advance for the next year's
cultivation. The sterile class does not produce any net products
(surplus-value). It reproduces the same 2 milliards (livres) just as it
consumes both 1 milliard raw material by yearly advance and another
milliard for means of consumption. One-half of its (manufactured)
products is sold to the proprietors and the other half is to the
productive class. Then Quesnay's simplified tableau (Figure 1.1)
shows the total transaction as follows:
While each milliard of products of the productive and the sterile
class moves along the lines in the opposite direction to arrows, 2
milliards (livres) of money flows back directly and indirectly via the
sterile class to the productive class which originally pays that money
to the class of proprietors, and the advanced money of 1 milliard
from each side is also regained for the next year.
Quesnay's table was the first original attempt to observe the total
material relations of social reproduction and clearly preceded Marx's
reproduction schema and Leontieff's later inter-industry relations
table. Quesnay's theoretical analyses of the table and its implications
also provided a remarkable advance in the theory of capitalist pro-
duction. In contrast with the mercantilist theory of profit upon
alienation the source of surplus-value is now found in the sphere of
production. In particular, surplus-value as the net product is seen as
obtainable from capitalist advances, and is the surplus product over
and above the necessaries of life and the means of production used
Figure 1.1 FORMULA OF THE TABLEAU ECONOMIQUE

Total reproduction: Five milliards
(Arrow-heads added by Itoh)
Revenue
Annual Advances for the Proprietors Advances
of the of the Land, the of the
Productive Class Sovereign, and the Sterile Class
Tithe-owners
5 milliards 5 milliards 5 milliards
Sums which are 5 milliards 5 milliards

used to pay the
revenue and the 5 milliards
interest on the
original advances 5 milliards 5 milliards
Expenditure of {
the annual advances 2 milliards Total ..... . 2 milliards
of which one-half
Total ..... . 5 milliards is held back by this
class for the
following year's
advances.
up. The theory of the capitalist production of surplus-value is thus

virtually explored in the work of Quesnay. Such a theory of capitalist
production was still far from being actually realised in the French
economy in general. The Physiocrats described rather an ideal pro-
cess of social reproduction in accordance with a conceived natural
law deduced from the partial development t)f capitalist farming.
Interestingly, the theoretical attempt to see a natural economic order
which was realisable by abolishing mercantile interventionist policies
had to presuppose a capitalist commodity economy even in the
physiocratic writings. It reflects the special character or ability of the
commodity economy to mould a modern individualistic society in an
increasingly capitalist manner, basically through private self-reliant
transactions independent of religious or political power. Such an
e'conomic order could easily be taken for a natural economic law
from the standpoint of Enlightenment individualism. In this regard,
physiocracy overlaps and foreshadows the basic view of the classical
school.
Nevertheless there are various limitations and a narrowness in
physiocratic theories in comparison with the later classical school. In
particular, the theoretical analysis of the source of surplus-value is
consciously limited to the agricultural sector. The manufacturing
sectors are regarded as being incapable of producing surplus-value

and are therefore unable to accommodate capitalist production. The
recent ecologists are quite correct in asserting that we should not
neglect the special potential of the soil both in maintaining the crucial
environmental conditions for human life and in producing agricul-
tural products. This potential is also essential for getting surplus
products in agriculture. Such a potential, however, should not be
taken for a source of surplus-value.
The manufacturing sectors can also produce surplus-products over
and above those advanced and are actually more suitable for capital-
ist development than is agriculture. In terms of use value, surplus
products are created through human activity utilising natural re-
sources; and various natural materials and powers are also essential
in manufacturing industry. In terms of value the contribution of
nature is definitely incommensurable with that of human labour and
cannot be a consistent general measure (or source) of value. So long
as physiocracy narrowly defined the land as the unique source of
wealth and argued that the source of surplus value or the net product
is the special 'gift of nature' or of land, it could not construct a general
theory of production of surplus-value. The capacity of human labour-
power to produce surplus-products, and its capitalist utilisation in the
form of wage-labour to produce surplus-value were not yet clarified.
Symbolically the three major classes in Quesnay's table did not
signify the distinction between the capitalist and the labourer class,
although Turgot later introduced such a division into both the pro-
ductive and the sterile class.
Corresponding to the lack of generality in its theory of surplus-
value, the value theory of physiocracy could not establish a common
productive basis for values. Quesnay asserted that a stable 'bon prix'
(proper price) was desirable and realisable under a natural order of
economy, set free from the artificial distortions of mercantilism. His
definition of a 'bon prix' was a sort of factor cost-price theory
generating constant equilibrium prices as the prices which would
guarantee normal reproduction for agriculture. The common social
substance of commodity values was not yet investigated and was left
out of consideration.
These theoretical limitations are clearly related to the character-
istic view of the physiocrats that the development of productive
capitalism is conceivable only in agriculture. From the view of capi-
talist development in manufacture and trade, such an idea might even
seem reactionary, favouring the feudalistic ancien regime. An ac-
quisition of the total surplus-product by the proprietor class also
seems feudalistic in its social content. So far the theoretical treatment

of capitalist production in physiocracy had to remain incomplete, and
could hardly be a generalised theory of value and surplus-value.
Clearly, physiocracy presented a theoretical analysis neither of a
feudal economy per se, nor of an entirely capitalist economy. Though
it attempted to show an ideal economy to be achieved in a capitalist
direction, its theoretical presentation had to reflect the complex
transitional and immature character of the French society of its age.
1.3 THE CLASSICAL SCHOOL
Its Formation
The classical school investigated the inner relations of the capitalist

economy more or less along with the formation of the labour theory
of value. 8 Ideologically it is closely related to the modern social
concept of natural law and a juridical view of the private property
title, basically founded upon private labour. It also became increas-
ingly linked with laissez-faire liberalism. As both agriculture and
manufacturing industries were gradually involved in a commodity
economy, it was in a sense natural that the productive basis of the
value of commodities was inquired into even in the mercantilist
period.
We see, for instance, an important initiator of the labour theory of
value in W. Petty (1623-87). He wrote A Treatise of Taxes and
Contributions (1662) and discussed how to promote the national
wealth and fair taxes considering the problem of restructuring the
UK budget just after the Restoration (1660). While discussing the
practical devices of public finance, Petty occasionally refers to the
theories of value, money, rent, interest, etc. His labour theory of
value was fragmented and immature, and was mixed with a mercan-
tilist view defining the final result of national wealth as gold and
silver; and also with the partly physiocratic view that 'labour is the
father and active principle of wealth, as lands are the mother' ,9 or that
'all things ought to be valued by two natural denominations, which is
land and labour' .10 Nevertheless he obviously initiates the labour
theory of value by asking what is to be the natural standard and
measure of values. He is not satisfied with the ordinary measurement
using gold and silver because the prices of gold and silver themselves
fluctuate. According to him the basis of the equalisation and the
balancing of the values of various goods is the expenditure of the
same amount of labour. Remarkably he avoids the complication of

treating the values of the means of production by simply taking up
the values of neat proceeds or net products of the same amount of
labour in different industries.
B. Franklin (1706-90) was also among the early theorists of labour
value. Discussing a practical issue in A Modest Enquiry into the
Nature and Necessity of a Papercurrency (1729) he states that trade is
generally nothing but the exchange of labour. In the New World
where the restriction of land was still relatively unimportant the
contribution of human labour to economic wealth could more easily
be emphasised.
A series of social and political philosophers like J. Locke (1632-1704)
and D. Hume (1711-76) were also important for the formation of the
social thought of the classical school. Against the feudalistic notion of
the divine rights of kings, they asserted fundamental human rights in
which the private ownership or the property title based on labour was
contained. The ideas of individual rights suitable for a capitalist
economy were being systematically formulated and were regarded as
essential for the realisation of a natural social order of human liberty.
The ideological framework of the classical school was thus already
prepared in the mercantilist period before A. Smith. Hume was
evidently opposed to mercantilism, and argued for free trade by
presenting the quantity theory of money.
However, in this early period the labour theory of value and
classical social thought had not yet developed into a theoretical
system of the capitalist economy. They were presented in a more or
less fragmentary way in the discourses of practical policy issues or as
parts of political philosophy. In most cases the labour theory of value
was presented by presupposing commodity exchanges between inde-
pendent producers working by themselves. The theory was not really
extended to the study of the inner structure of capitalist production.
Adam Smith
An Inquiry into the Nature and Causes of the Wealth of Nations (1776)
by A. Smith (1723-90) was epoch-making in formulating a theoretical
system of a capitalist economy as a study of its inner economic
structure. In the first two Parts especially, before the three parts
treating economic history, previous systems of political economy and
public finance, the book describes theoretically the nature and the
construction of a fully capitalist economy. The basic theories of value
and distribution in a bourgeois society were comprehensively pre-

sented separately from (but together with) the other major fields of
economics. Although the apparent scope of Smith's work is not very
different from that of Steuart's Principles, the ideological and theor-
etical bases are radically altered.
Smith, unlike Steuart believed that in principle individualistic
behaviour guided by self-interest, would realise a prescribed har-
mony and an economic system of natural liberty guided by an
invisible hand. In Smith's view the best policy to achieve such a social
order was laissez-faire, free trade and the removal of artificial mer-
cantile protectionism so as to require the smallest possible state
supervision. It is clear that he was deeply influenced by the deistic
social ideas of natural law and individualism, and also by physiocracy
in its opposition to mercantilism.
In order to show the relevance of laissez-faire liberalism, Smith
inquires how a commercial society autonomously sustains itself, by
producing and distributing yearly output among the major classes. In
this inquiry, the productive basis of value and surplus value is
universalised through the labour theory of value, and the major
classes are converted into the capitalists, the landowners and the
wage-labourers, in contrast with Quesnay's physiocratic analysis.
Beginning from the effect of the division of labour on productivity,
Smith describes a commercial society as a society based upon a
comprehensive social division of labour and the exchange of products
as commodities. In his analysis, unlike mercantilist theory, money is
only a conventional instrument of exchange and commerce, not the
absolute measure of wealth. Therefore nominal prices, as measured
by money, cannot be a satisfactory measurement for a study of
commodity exchange and national wealth. He asks what the real
measure of exchange values can be, or what is the real price behind
the nominal price? The answer is labour, because labour is always
'the original purchase-money that was paid for all things', 11 and also
because 'equal quantities of labour, at all times and places, may be
said to be of equal value to the labourer', 12 as being the same amount
of 'toil and trouble' Y Accordingly, labour is 'the real standard by
which the value of all commodities can at all times and places be
estimated and compared. It is their real price, money is their nominal
price only'. 14
The labour theory of value is thus adopted more decisively than in
the case of earlier theorists like Petty. As is well known however,
Smith's value theory is not consistent. It comprises three different
theories of value, namely the embodied labour theory of value, the

commanded labour theory of value and a sort of factor costs theory.
The labour commanded theory of value defines the value of a
commodity as the labour which can be obtained in exchange with the
commodity, and not as the labour embodied in it. This complexity of
value theories relates fundamentally to an ideological stance regard-
ing commercial society and the process of exchange as being a natural
order of production. Smith especially constantly mixes up and makes
analogies between the labour and production process and exchanges
in the market and vice versa. Notwithstanding the fact that human
labour used to produce useful goods from nature is an economic basis
for any society, regardless of the existence or non existence of
commodity exchanges, labour is defined by Smith as the original
purchase money to be used in exchanges between man and nature.
Thus the amount of labour which is obtainable through the exchange
of a commodity with others is viewed as a substitute for such original
purchase money paid to nature. The amount of labour embodied in a
commodity is regarded as generally to be equal to the amount of
labour commanded through exchange. Both amounts are conceived
to be equal as the measure of exchange values. This position can hold
so far as every producer works by himself and exchanges his products
with others according to the same amount of labour in a simple
commodity producers society, or in Smith's 'early and rude state of
society'. 15 Certainly both the amounts of labour embodied and com-
manded can also diverge even in a simple commodity society when
the balance of demand and supply is lost. While the embodied labour
theory does not accord with the demand and supply theory of value,
the labour commanded theory can do. But when separated from the
former, the latter theory can not be a theory determining the ex-
change-ratios by itself. Such divergence in Smith's labour theories of
value, however, might be regarded as accidental or exceptional cases
in the exchanges of simple commodity producers.
When 'stock has accumulated in the hands of particular persons' 16
and all the land has become private property, Smith's dual-labour
theories hardly turn out to be consistent in matters of principle. The
total products of labour and the value produced can no longer belong
solely to the labourers. The value which is added to raw materials by
labour must now be decomposed into three parts. Labourers obtain
just a part, as wages. Another part is acquired as profit by the
capitalist who employs the labourers, and a third part as rent by the
landowner who rents his land to the capitalist. This is the deduction
theory of value which in fact attributes the surplus value (profit and
rent) to the surplus labour of wage-labourers. This theory is nothing
but an extension of the labour embodied theory.
However, Smith is inclined to see labour as an exchange process
and thereby t~nds to slip off to the other theory of value. So long as
labour is observed just in the exchange process it seems to be the
means of exchange to obtain necessary consumption goods to live on,
no longer from nature, but now from the capitalist. The amount of
labour which a labourer offers to a capitalist in exchange for the
necessary means of consumption must be exactly the same amount of
labour obtainable by these means if these are used as capital to
employ wage-labourers. Thus the equal amounts of labour seem to
be exchanged between a labourer and a capitalist from the viewpoint
of the labour commanded theory of value. If a wage-labourer can get
the same amount of labour as he expends, then the source of surplus
value, i.e. profit and rent, cannot be in his labour. Here appears a
deep division in Smith's dual-labour theories, and further, a switch to
a sort of factor costs theory of value or an adding-up theory of value
in which wages, profit and rent are defined as original independent
sources of exchange values. It is not too hard to recognise here some
residues of the mercantilist and physiocratic views of revenues.
There remained many problems in Smith's complex theories of
value. It may not be much of an exaggeration to say that all the later
studies of value relate in one way or the other to these problems.
Presently let us reconfirm just the discrepancy (with related points)
between the deduction theory of value and the adding-up theory of
value. It is clear that these theories directly contradict each other for
instance in the case of a rise of wages. When wages rise, other
circumstances being equal, according to the deduction theory, the
other components, i.e. profit and rent, must be reduced within the
same amount of value being defined by the embodied labour time in a
commodity. On the contrary, according to the adding-up theory, the
exchange value of a commodity must rise so long as an independent
decline of profit or rent does not happen to cancel the rise of wages.
Interestingly even in the recent debates about inflation the basic
views of these opposite positions have repeatedly appeared. Smith
might not have been very conscious or concerned about the discrep-
ancy in his theories. However, while he conventionally operated and
used different theories, he could not consistently extend the labour
theory of value to more precise studies of the inner relations between
wages, profit and rent. There was plenty of room for such an
extention through the embodied labour theory, even excepting for

the moment a further sophisticated attempt to consolidate this sort of
value theory with the other adding-up theory, which is seemingly
more easily accepted in the common sense of daily life.
David Ricardo
D. Ricardo (1772-1823) clarified Smith's complex value theory and

completed the classical school in his main work, On the Principles of
Political Economy and Taxation (1817). One of the biggest political
issues in his age was the corn law. As industrial capitalists grew
stronger through the industrial revolution, various mercantilist poli-
cies were one by one being removed, and free trade was pushed
forward. But the law restricting the importation of corn remained
and became more and more protective of the interest of a relatively
small number of aristocratic landowners by keeping the corn price
higher. T. R. Malthus, for instance, argued, in defence of the corn
law, that the higher price of corn maintained higher rents, and also
made possible higher profits for manufacturing industries and agricul-
ture by increasing the effective demand for their products. Against
such arguments and the corn law itself Ricardo asserted that a lower
price of corn would increase profit by lowering wages and encourag-
ing capital accumulation. His assertion was initially based on a theory
defining the rate of profit and the wage-rate in terms of corn. 17 Then
in order to generalise the assertion he shifted the theoretical basis
from the physical corn rate theory of profit and wages to the labour
theory of value in his Principles.
Ideologically Ricardo believed in J. Bentham's utilitarianism and a
more rational liberalism in comparison with Smith's belief in an
'invisible hand'. His opposition to the corn law .was certainly a part of
his broader political position in support of the laissez-faire liberalism
following Smith. However, compared with Smith, Ricardo attempted
theoretically to show in a more consistent way how an economic law
works to distribute annual production among the three major classes
(i.e. the landowners, the capitalists and the labourers) in a society.
This task in his work was clearly declared in the Preface to the
Principles and understandably was well oriented to the corn law issue
as well. Beginning from the chapter on value, the first six chapters of
the Principles, deductively investigates the internal relations among
wages, profit and rent and the. natural course of their motion in the
process of capital accumulation. Obviously the basic theory of a
capitalist economy is systematically investigated here as a theory of a

naturally autonomous social order. Following chapters on foreign
trade, taxes, and controversial problems are clearly distinct in their
nature from the basic theory in the first six chapters and are mostly
applicatory in character, except two supplementary chapters 'On
currency and banks' (ch. 27) and 'On machinery' (ch. 31).
Ricardo begins the chapter on value with the distinction between
value in use and value in exchange, quoting Smith. Although value in
use or utility of a commodity is essential to its exchange value, the
magnitude of value in exchange is not determined by the degree of
usefulness. Some things which have the greatest value in use have
frequently little or no value in exchanges as we see in the case of
water or air. What then does determine the magnitude of values in
exchange of commodities? Ricardo deliberately refers to certain sorts
of commodities such as antiques or wines of peculiar quality whose
exchange values depend on their scarcity in comparison with the
wealth and inclinations of those who want them, and he excludes
those commodities because they form only a very small part of the
mass of commodities exchanged daily in the market. Then he takes
into consideration just those commodities being produced by human
industry without any restriction on competition. As for these com-
modities he believes that the amounts of labour bestowed on them
are the foundation of their exchangeable value.
From beginning to end Ricardo concentrates only on the capitalist
economy and treats it as if it were an eternal natural order. For
example he recognises the necessity of capital even in an early and
rude state of society, on the ground that 'without some weapon,
neither the beaver nor the deer could be destoroyed'. While Smith
initially showed the embodied labour theory of value as applied to an
earlier society without capital stock being accumulated; Ricardo
applied the clarified labour theory of value to commodity production
under capital throughout. Criticising Smith's complex duality of
value concept, Ricardo emphasises that a rise or a fall of wages does
not affect (absolute) values of commodity products but has an in-
versely affect on the level of profit. This tense rival relation between
wages and profit within the values of commodities determined by
embodied labour is a focus of Ricardo's complete theoretical system.
In this treatment, Ricardo is not concerned with the historical
specificity of a capitalist economy, and does not ask why and how the
surplus labour of wage-labourers is taken up by capitalists as profit. A
capitalist social order is already given and for him the quantitative
distribution of yearly products to its major classes is the main con-

cern. Therefore how to explain the source of profit (and rent) starting
from the value of labour being paid to wage workers remained as an
unsolved or rather untouched problem after Smith.
A second problem left in RiCardo's value theory concerns hetero-
genous labour. Ricardo referred to the problem of how to compare
the quantities of different qualities of labour, but he did not explore
the point beyond stating that 'As the inquiry to which I wish to draw
the reader's attention, relates to the effect of the variations in the
relative value of commodities, and not in their absolute value, it will
be of little importance to examine into the comparative degree of
estimation in which the different kinds of human labour are held. We
may fairly conclude that, whatever the ingenuity there might origi-
nally have been in them, whatever the ingenuity, skill, ... it con-
tinues nearly the same from one generation to another; or at least,
that the variation is very inconsiderable from year to year, and
therefore can have little effect, for short period, on the relative value
of commodities.' 18
A third problem is most consciously investigated and the content is
called 'Ricardo's exceptional revision of the labour theory of value'.
His basic position was that a rise or a fall of wages did not affect
commodity values. However, he noticed that the position must be
revised on certain occasions in view of the equalisation of profit rates
across various industries. It is because there are different proportions
between circulating capital invested in wages and fixed capital in
machinery and buildings, and also different speeds in turnover of
capital across industries. A rise of wages must affect more the costs of
such industries having a higher proportion of circulating capital for
wages or a lower speed of turnover. Therefore such industries must
suffer from a greater decline of profit rates than others so far as the
exchange values of their products remain constant in spite of a rise of
wages. Or, exchange values must alter so as to equalise the rates of
profit in accordance with the new level of wages. Needless to say the
effect of decline of wages is similar, but in a contrary direction. This is
the problem of how theoretically to relate the law of the equalisation
of profit rates to the labour theory of value. It cannot be a problem of
an exceptional case, as the different compositions of capital and the
various speed of turnover of capital exist rather generally across
industries. Ricardo pointed to the problem, but did not solve it. He
could not help but insist on the basic correctness of the labour theory
of value either by assuming that the necessary revision was quantita-
tively insignificant, 19 or by defining rather general phenomena as

exceptional, or conversely by directly revising the basic labour theory
in such 'exceptional' cases. 20
In relation to this, Ricardo raised a fourth problem of how to find
an invariable measure of value. If relative exchange values have to
change according to a rise or a fall in wages, is it possible for us to
have a commodity which can serve as an invariable standard of value
against which the labour time embodied as values in other commodi-
ties could be read off by comparing the price of a commodity with
that of the standard? Ricardo suggested in his Principles that the
composition of capital in gold production might be regarded as about
near a social average, so as to let gold be used as the conventional
standard of value. Apparently he was unsatisfied with this treatment,
since the labour value embodied in a unit of gold would change, and
also since the composition of capital producing it would not be stable
with a change in distribution. He pursued the problem, not very
successfully, until his final essay 'On the invariable measure of
value.' 20
These are remarkably lasting problems which have been re-
peatedly inquired into and discussed from various angles. Through
the contributions of, Marx and then Sraffa's among others, these
problems have especially gained a new theoretical interest, and can
be seen as an important origin of the subject in the value controversy
since the 1970s. We shall have many opportunities in this volume to
come back to these points.
Ricardo's theory of ground rent was designed, to explain consist-
ently the determination and the nature of ground rent from his labour
theory of value. Assuming the law of diminishing returns for the
extension of cultivation, Ricardo defines the value of a unit of the
product of land, say com, as the necessary amount of labour to
produce it on the least productive land socially required to satisfy the
demand. So far as capital investment on such land gains a socially
average rate of profit, capital invested in more fertile land obtains
more crops and extra profit (beyond the average rate of profit) to be
paid as rent to the landowners. The effect of the law of diminishing
return for units of capital being invested in the same land causes
similar extra profit to be paid as rent. This theory of differential rent
thus clearly explains ground rent not as a causal factor to determine
exchange values (as in Smith's adding-up theory of value) but as a
consistent result of the determination of the labour value of products
of the land.
Closely linked with this theory of rent Ricardo formulated the

natural course of capital accumulation in the law of falling rate of
profit. As capital accumulation proceeds and the labouring popula-
tion grows, the natural price or the value of labour, which is deter-
mined by the value of foodsta:ffs and other necessaries to maintain the
wage labourer's life with his family, must rise as a result of extension
of cultivation accompanied by the law of diminishing returns. Along
with such a rise in the value of labour, the rate of profit must fall in
the long run while ground rent increases. Through such a process,
capital accumulation will finally die out by losing its driving stimulus
in profit. Evidently this argument serves as a basis for the free traders
opposition to the corn law. Although a restriction on capital accumu-
lation is clearly implied as a result of the falling rate of profit, the
basis of the restriction is here attributed not to the internal contradic-
tion of capital, but to the external natural limitation. As was drasti-
cally shown twice in the oil crisis in the 1970s, capital accumulation
might actually be restricted by the limited fertility of land. Such
limitation should not, however, be viewed as an unavoidable abso-
lute fate for capital accumulation because it is generally linked with a
given set of technologies which can be changed.
Apart from the long-range view of the absolutely falling rate of
profit, Ricardo basically did not present a theory of economic crisis or
of general overproduction. He referred to economic distress caused
by sudden changes in channels of trade, but he believed that the
oversupply in such a case was just temporary, partial and solved by
the equalisation process of the rates of profit across industries.
Another possible case of disturbance which is referred to in his
Principles (inch. 21) is a rise of wages due to too rapid increase of the
fund for the maintenance of labour in comparison with population.
According to Ricardo this case is reduced to a partial oversupply of
necessaries, and can easily be overcome by the increase of population
which is prompted by a rise of wages. Ricardo's exposition here is
highly unpersuasive, since the shortage of labouring population due
to an over-accumulation of capital cannot be identical with a partial
oversupply of necessaries, and hardly guarantees a rapid increase of
population. Inch. 31 'on Machinery', which was added in the third
edition of Principles, Ricardo also recognised the possibility of ren-
dering labourers redundant and distressed as a result of introducing
machinery. Until the second edition Ricardo believed that the num-
ber of workers thrown out of jobs by the introduction of more
productive machinery would certainly be able to get new jobs in
The Birth of the Theoretical System of Capiialism 21
other industries, such as producing such machinery. But he found by

the third edition that this balance between the reduction and the
increase in employment cannot be guaranteed and may create an
unfavourable effect on workers.
These references about the possible imbalances and disturbances
in the process of capital accumulation show well Ricardo's theoretical
sincerity. However, they were still too fragmented to make up a
theoretical system of economic crisis, and tended just to be treated as
partial or exceptional cases. In this regard we must acknowledge that
Ricardo's ideological belief in the natural character of a capitalist
economy restricted both his theory of value and his theoretical
studies on the dynamism of capital accumulation. The theoretical
inconsistencies and insufficiencies in Ricardo's Principles which re-
mained at the peak of the classical school provoked the dissolution of
the school and a diversification in the direction of economic studies.
2 The Dissolution of the
Classical School and the
Diversification of Schools
2.1 THE DISSOLUTION
Anti-classical Theories
Various anti-classical theories had already sprung up from critiques

of the limitations and weaknesses of the classical school, even in
Ricardo's lifetime. In particular the ideological belief in a prescribed
harmony in a capitalist economy and the resultant theoretical incon-
sistencies in the value theory of the classical school were a source of
critiques and deviations.
A representative anti-Ricardian theorist at that time was T. R.
Malthus (1766-1834). Although he was an intimate friend of Ricardo
he opposed him and championed landed interests and the corn law.
In An Essay on the Principles of Population (1798) Malthus warned
of the inevitability of excessive population and poverty on the
grounds of the natural gap between the geometric increase of popula-
tion, and the arithmetic progression of the production of foodstuffs.
Moral restrictions on increasing the population were recommended
by him as a remedy. The necessity of birth-control has been empha-
sised by his followers, called neo-Malthusians, from the end of
nineteenth century. A similar position tends repeatedly to appear in
our age, associated with the restriction of natural resources and
economic crises, especially in the third world. Though Malthus's law
of population was a counter to the classically prescribed harmony, it
was also based on a sort of naturalism and was far from appropriate
so far as it attributed the excessive population and poverty to natural
law. Marx pointed out these defects sharply and in addition under-
lined Malthus's theoretical plagiarism from his forerunners such as
J. Townsend and J. Anderson. 1
In the value theory Malthus seemingly follows Smith, but he
actually abandons the embodied labour theory. In contrast to nomi-
nal value in exchange, or price which is estimated in the precious
metals as money, Malthus defines intrinsic value in exchange as the
22
The Dissolution of the Classical School 23
power of purchasing determined by the state of supply compared

with demand, and ordinarily by the elementary costs of production. 2
He thus succeeds Smith's 'labour commanded' theory of value and
argues for the contribution of demand to the values of commodities.
This view is closely related to his theory of overproduction.
According to Malthus the conversion of revenue into capital when
pushed beyond a certain point must cause a relative shortage in
effective demand for products, and this causes overproduction and a
depression of wealth. 3 The effective demand of the labourers em-
ployed is insufficient in comparison with the supply of their products.
As a palliative or a solution the role of expenditures by an unproduc-
tive class including landlords, clergymen, statesmen, etc., is very
much emphasised. 4 The corn law is defended as a means of securing
the revenue and the unproductive expenditure of the landlords.
In comparison with Ricardo, Malthus was not theoretically consist-
ent and did not clarify the internal source and relations of the
incomes of major classes. For instance, he explains that the primary
cause of ground-rent is 'the gift of nature to man' 5 after the fashion of
physiocracy. The common internal basis of the various revenues, and
the possible balance between demand and supply, both on the
grounds of labour expenditure in the classical view, are disregarded.
It must be noted, however, that Mal thus pointed to the unharmoni-
ous character of the capitalist economy and a tendency towards
overproduction, and he thus also heralded Keynesianism more than
Stuart by emphasising the role of unproductive effective demand.
Interestingly, disregarding the embodied labour theory of value
did not necessarily lead to the theory of overproduction. J.-B. Say
(1765-1832) for instance attempted to represent A. Smith on the
Continent and asserted the "theorie des debuches" or Say's law,
which stated that 'supply creates its own demand'. 6 This view was
linked with a conversion of Smith's complex value theory into a
superficial utility theory of value. Though Say's negation of general
overproduction was common to the classical school, his basic theory
of value was not. The recent restoration of Say's law by the supply-
side economists against Keynesianism does not imply a return to the
classical theory.
In the classical school, the basic theory of embodied labour value
was internally related to the view of the balance between the total
supply and demand. Dissolution of the embodied labour theory of
value could be related either to Say's law or with the opposite. J. C.
L. Simonde de Sismondi (1773--1842) also took over Smith's
adding-up theory of value, but was decisively opposed to Say and

Ricardo on the Continent. He emphasised the inevitability of super-
abundance of production which surpassed consumption more sharply
than Malthus, and stated especially that capital accumulation re-
duced consumers demand by substituting machinery for labourers
and pauperising peasants on the one hand, and, on the other,
increasing the supply of products regardless of the level of consumer
demand. 7 Compared with Malthus Sismondi ascribed the cause of
overpopulation and poverty not to natural law, but to the increasing
introduction of machinery into the process of capital accumulation.
In this regard his under-consumption theory was more influential
than Malthus's in later forming an aspect of Marxian crisis theory.
His proposed solution was different from those of Malthus and Marx.
It argued for a return to a patriarchal peasant farming system where
an ideal natural balance between production, income and population
seemed easily tenable. Sismondi thus initiated a stream of romantic-
ism in economics and anticipated Russian narodniki ideas among
others. 8
Utopian Socialism
Against the prescribed harmonious view of a capitalist economy in

the classical school, a series of early socialists such as C. H. de R.
Saint-Simon (1760--1825), F. M. C. Fourier (1772-1837) and R.
Owen (1771-1858) criticised the increasing anarchical disorder and
poverty of the masses in the process of industrialisation, and they
argued for the construction of a more associational society. They
were the intellectual heirs of the Enlightenment and were born out of
the shocks of both the French Revolution and the Industrial Revolu-
tion.
Saint-Simon proposed that 'all men are brothers' and drew up an
ideal in a co-operation between scientific scholars and industrialists
on the basis of the equal duties of labour and distribution according
to abilities. 9 Fourier described a more precise and sytematic plan for
a harmonious future society. 10 A unit of a co-operative society was
called a phalanx, where a population of 1600-1700 would live together
in a palace called a phalanstere. Mechanised agriculture and manu-
facturing would be combined, and four-twelfth of social income
would go to capital, five-twelfth to labour and three-twelfth to
talents, though the proportion to labour would increase along with
the growth of social wealth. Even detailed daily time-tables for a
person in the phalanstere were planned. In June for instance the
inhabitants would get up as early as 3:30 in the morning, work for
Bt hours in the garden, field, forest and factory, and go to bed at
10:00 in the evening. Fourier waited in vain for a charitable benefac-
tor who would appreciate his blueprint for the best social system.
R. Owen also believed that reason and education could remove the
disastrous social effect of the Industrial Revolution and lead to a
rational social system. He was, however, more practical than Saint-
Simon and Fourier. As a joint manager of a cotton-spinning factory at
Lanarkshire in south Scotland, he attempted to build up an experi-
mental ideal factory system in the first quarter of nineteenth century.
His factory shortened working hours from generally 14-16 hours, to
10 hour, provided a public nursery, a school and a mutual-aid
association shop, and could still raise profit. On the basis of this
experience Owen stated his views and ideas for a new harmonious
society 11 and further initiated a co-operative movement and a trade-
union movement. Among his followers T. Hodgskin 12 (1787-1869)
and W. Thompson 13 (1775-1833) asserted labour's claim to whole
returns, utilising Ricardo's labour theory of value. As Ricardo could
not by his value theory show theoretically why capitalists can obtain
surplus-value while by paying the 'value of labour' to workers, it
was in a sense natural for his radical successors to assert labour's
claim to all the net labour products as a sort of fair payment to
workers for their labour, relying upon the same labour theory of
value - essentially a Utopian assertion to abolish capitalist exploita-
tion by keeping the commodity form of labour-power and the trans-
actions or the relations of production between capitalists and
workers.
Critiques of capitalism, especially concerning its devastating effects
on labour in the process of the Industrial Revolution were sharply
presented by these Utopian socialists. Their critiques, however, were
not based upon any theoretically objective understanding of the
workings and the mechanism of a capitalist economy. So far as the
object of the socialist movement, or what should be changed, was not
scientifically clarified, their solutions tended to be reformist and
partial, and appeared rather as a secular counterpart of salvationist
attitudes in religious ages. The potentiality of wage-labourers to
liberate themselves as the driving subjective social force was not
much counted upon. In contrast the opportunities for enlightened
capitalists, managers or rich benefactors to undertake progressive
measures were clearly overestimated. Detailed Utopian ideas for a
future society were drawn up in order to persuade such ruling

persons. Though plenty of important insights into human nature and
its potential for a future society were penned, the theories of these
early socialists did not offer theoretical solutions to the difficulties left
by the classical school. Socialism had to be shifted by Marx from such
an early Utopian, to a scientific basis, as Engels later claimed. Marx
did this by clarifying the mechanisms of a capitalist economy beyond
the limitations of the classical school, and thereby discovering the
potential role of working-class movement. 14
The Revisionist Succession to Classical Theory
The attempts to succeed classical theory could not be made objec-

tively and effectively without more or less seceding from the purely
Ricardian labour theory of value, and also from a simple naturalist
view of capitalism. Among a series of theorists who made such
attempts J. S. Mill (1~73) was most eminent. His father James
Mill (1773-1836) was a close friend of D. Ricardo. While propagating
Ricardo's theory James Mill distinguished four aspects to economic
laws, namely production, distribution, exchange and consumption. 15
Ricardo's coherent theoretical system, based on the labour-value
concept, tended to be weakened by such a mechanical distinction.
The labour-value concept itself was also stretched, as James Mill
noted that the increment of the price of wine in a period of necessary
maturity was to be regarded as a result of so much indirect labour
expenditure. J. R. McCulloch (1789-1864) pushed this way of revis-
ing value theory more openly, by asserting that the means of produc-
tion, such as machinery, etc., also laboured. 16
J. S." Mill learned economic theory from his father in his childhood.
He followed the idea of treating production, distribution, exchange
and consumption separately, and added the distinction between static
and dynamic theory. What was characteristic of his work was the
contrast between the theory of production and that of distribution.
According to him 'the laws and conditions of the production of
wealth partake of the character of physical truth', whereas the
distribution of wealth is 'a matter of human institution solely' .17
These contrasting treatments reflect his sympathy with co-operative
socialism and a sense of the historical limits of a capitalist economy.
Theoretically his position was really eclectic, because he character-
ised capital together with labour and nature as eternal physical
factors of production by following classical naturalism in the theory
of production on the one hand, while, on the other, he believed in the

possibility of altering the laws and institutions of distribution, along a
socialist path. Here is a theoretical source of reformist socialism.
J. S. Mill was an eclectic in value theory as well. He seemed to follow
Ricardo's value theory in stating that the source of profit was in the fact
that labour produces more than what is necessary for its maintainance,
and that 'the value of commodities . . . depends principally . . . on the
quantity of labour required for their production' .18 But he simulta-
neously explained profit as reward for restraining from consuming
capital, and further used the cost of production theory of value. As a
result the labour theory of value in J. S. Mill appeared in the extremely
restricted sense that wages usually made up the principal part of money
costs of production for the capitalist.
Thus, in spite of their subjective intention of keeping Ricardo's
theory, these theorists were in fact revising and gradually dissolving
the substantial basis of classical economics. A more decisive farewell
to the classical tradition, taking the form of the marginalist revolu-
tion, was already being prepared. At the same time the classicists'
neglect of the historical character of the capitalist economy was being
criticised ideologically by the early socialists, and eclectically in J. S.
Mill's theory of distribution. R. Jones (1790-1855) stepped forward
in this direction and compared various social forms especially the
forms of ground-rent in different societies with the capitalist forms in
England. 19 The dissolution of the classical school, in the form of the
historical school, was able to find its antecedents in these ideological
and theoretical critiques and Jones' method of positivist comparative
observation.
2.2 THE HISTORICAL SCHOOL
A more decisive critique of the classical school and an initiating work

for the German historical school was made by F. List ( 1789-1846). In
his view the classical school over-generalised the particular interest of
the advanced British economy in asserting the laissez-faire liberal
policy as if it were cosmopolitan natural justice. For a less-advanced
and developing country like Germany, national protectionist policies
enabling a rise in productive power were both necessary and justifi-
able in the process of catching up. List formulated five stages for the
development of national economies; 'original barbarism, pastoral
condition, agricultural condition, agricultural-manufacturing condi-
tion, and agricultural-manufacturing-commercial condition' .20 He
believed it necessary to protect the domestic market from the ad-

vanced competitive country especially when the less-advanced
country was shifting, under the pressure of international competition,
from the fourth to the final fifth stage. He also believed in the effect
of national political unification, as well as the influence of individual
mental and physical powers, social institutions, natural resources,
and the balance between agriculture and industry, on the growth of
national productivity.
Thus List critically asserted that Manchesterism in the classical
school could not be an universal political stance, but a specific
representation of British interests as the most advanced country. He
also argued for certain necessary conditions and economic policies
required to strengthen the national productive power of a less-
advanced country, like Germany, confronting the competition of an
advanced country. Along with such criticisms and assertions List
disregarded general economic theories and tended to replace them
with concrete studies of history and politics. His historicism con-
tained a passionate German nationalism emphasising the importance
of national unification.
W. Roscher (1817-94), B. Hildebrand (1812-78) and K. Knies
(1821-98) among others established the German historical school, by
extending the path which List had indicated. They maintained that
national economies were always formed in close relation with a
historical development of laws, the state and culture, and thus
appeared as concretely historical phenomena. 21 Therefore compara-
tive studies and historical approaches w.ould be essential for under-
standing the nature and cultural stages of each national economy.
Basic general theories were apparently discarded and detailed de-
scriptive studies of specific concrete historical phenomena were gen-
erally pursued and absorbed in historical material.
When German capitalism actually began to grow rapidly after the
victory in the Franco-Prussian War (1870-1) the German workers
movement also grew and became increasingly guided by Marxism.
Against this Marxian influence G. Schmoller (1838--1917), L. Bren-
tano (1844-1931), A. Wagner (1835-1917) and others organised
Verein fur sozial Politik in 1873 and formed the younger German
historical school. This school tried to combine political economy or
economic history with social ethics, and was called Katheder
(lecture-desk) socialism by their liberal and Marxist opponents. For
example, Schmoller asserted that social policies to support -and to
increase the middle class were necessary in order to dissolve class

confrontation. 22 Brentano emphasised the necessity of stabilising the
workers economic life by their own union efforts, 23 and Wagner laid
stress on national-socialistic reformism and protectionism for the
same purpose. 24
The younger German historical school obtained decisive authority
among German academia and produced certain achievements in its
historical studies. However, the school could not establish a firm
methodological and theoretical basis, and tended to mix personal or
directly political judgements with scientific studies. The methodologi-
cal debate in the 1880s was between Schmoller and K. Menger, who
criticised the historical school by asserting the need for theoretical
economics as a precise science,25 which was rejected and neglected by
Schmoller and his school at that time. Later, at the beginning of
twentieth century, M. Weber (1864-1920) attempted to amend some
weaknesses in the historical school as its successor. As I mentioned at
the beginning of this part, he distinguished political or personal value
judgements from scientifically objective recognition. In his opinion,
freedom from value judgements was both possible and necessary for
scientific researches. Weber adopted an approach of building up
ideal types (Idealtypen) to study human behaviour in social life
especially concerning motivation. The Protestant Ethic and the Spirit
of Capitalism26 (1904-5) was a product of such an approach.
The development of the German historical school influenced and
echoed among similar tendencies with more or less different colours
in other countries. In England a series of historical studies by J. K.
Ingram (1823-1907), W. J. Ashley (1860--1927) and A. Toynbee
(1852-1883), or the concrete institutional studies like Lombard Street
(1873) by W. Bagehot (1826--77), 27 and Imperialism (1902) by J. A.
Hobson (1858-1940) 28 represented such tendencies. In USA, the
institutional school was originated by T. B. Veblen (1857-1922f9 and
was followed by W. C. Mitchell (1874-1948), J. R. Commons
(1862-1945) and J. M. Clark (1884-1963). Further we see more
recently this tradition in the works presented by J. K. Galbraith
(1908-), 30 or even by some US radical economists. K. Polanyi31
(1886--1964), who came from Hungary and worked in Austria, Britain
and then the USA since 1946, was also a sort of successor to the
historical school. There was also a strong influence from the German
historical school, especially the younger, among the founders of
Japanese academia in economics since the end of the nineteenth
century. This influence has remained particularly among economic

historians in Japan, overlapping with the influence of the views of
Marxian economics, as I have referred to elsewhere. 32
Anyway, the historical school and its various successors as a whole
tended to be more or less critical of the universal claims and relevan-
cies of the classical school, and further of the neo-classical and the
Marxian theories as well. They attached importance to the concrete
factors of socio-economic development which were often neglected
by the theoretical studies in economics. The typological studies of
human motivation, social institutions and ethics were pushed forward
and they shed light on the different concrete situations of economic
development. Thus starting from studies of economic policies for the
less-advanced capitalist countries like Germany the historical school
contributed quite a lot from various angles to the concrete observa-
tion of other national economies. Whenever dominant orthodox
economics reaches a deadlock in its theoretical relevance, as we are
again witnessing, the approach of the historical school has a good
chance of being revived. Socio-economic difficulties within the third
world countries in particular might provoke such an approach.
However, so long as the main stream of the historical school has
opposed Marxism as well as the classical and the neo-classical
schools, it has often been reformistic and technocratic, easily com-
bined with varieties of ideologies including extreme nationalism or
Nazism. At the same time with its inclination to stick to the national
concrete features of economic development, the historical school
could not or intentionally did not present theoretically systematic
studies of the capitalist economy and thereby overcome the theoreti-
cal defects of the classical school.
2.3 THE NEO-CLASSICAL SCHOOL
The birth and the growth of the neo-classical school was another
reaction to the deadlock and dissolution of the classical school. 33 This
school has attempted to formulate universal theories in sharp con-
trast to the historical school, and has become dominant among
Anglo-American academia, and then extended throughout the capi-
talist world in the period after the Second World War. We follow
here the concept of the neo-classical school in its broadest sense,
including Keynesianism. As is well known the mariginal revolution
led by C. Menger (1835-1921), M. E. L. Walras (1834-1910) and
W. S. Jevons (1835-82) initiated the school at the beginning of 1870s.34
As a whole this school switched the theoretical focus to circulation and

shifted back the determination of profit from profit-on-production to
profit-on-alienation, although its expressions became mathematically
sophisticated.
C. Menger among the initiators, and his followers like E. von
Bohm-Bawerk (1851-1914) and F. von Wieser (1851-1926) formed
the marginal utility school or Austrian school based in Vienna. They
assumed the measurability of the individuals subjective utility for
various goods, and a law of diminishing utility for each additional
unit of the same good consumed. Upon such assumptions the maxi-
mum satisfaction of consumers would be a situation where the
marginal utility of a commodity to be purchased by a unit of income
becomes equal for every different commodity. This is the law of equal
marginal utilities. As the physical units of various goods are not
directly comparable the maximum satisfaction of consumers house-
holds would be obtained when the proportions of the marginal utility
to the price of each sort of commodity become equalised.
Thus the price theory of the Austrian School, shifted its basis from
production to the personal psychological selection of consumers. It
clearly assumed consumers sovereignty and treated goods simply as
given materials in the market for the subjective judgements of
consumers. Although it seemed to present a new and consistent
explanation of equilibrium prices, it also contained some basic dif-
ficulties. For instance, is individuals subjective utility really measur-
able and comparable between different goods and individuals? Or, is
the law of diminishing marginal utility applicable to money? (So far
as the value of money was explained separately by the quantity
theory of money, the value theory of the Austrian School was not
very consistent.) Further, how can the value of producers' goods and
the source of profit be explained? Since producer goods or means of
production do not have utility for consumers Wieser imputes these
prices from the prices of consumers' goods. This theory of imputa-
tion, however, cannot explain profit or interest obtained within prices
other than costs of production.
Bohm-Bawerk presented his agio theory in order to show the
rationality of profit or interest in the framework of the Austrian
school. 35 He asserted that interest for capital arose from the different
utilities acknowledged between present consumption and the future
consumption of goods. Men and women as consumers would sup-
posedly acknowledge greater utility from the present goods, because
the future goods are to be assessed in a less certain and distant
perspective. The marginal utility of the means of production, which is

imputed from the marginal utility of future consumption goods (yet
to be produced), will grow gradually as the perceived future goods
become the actual present goods through production in the process of
time. This growth of the marginal utility of means of production is
defined as the source of capital interest by Bohm-Bawerk. Appar-
ently this explanation may not hold in a stable economy with a
constant scale of reproduction, not to mention the more extreme case
where quantities of future products could supposedly be reduced so
as to increase their marginal utility above that of the present goods.
Avoiding these cases, Bohm-Bawerk assumes the effect of round-
about production which enables more consumption goods to be
obtained in the future by utilising the present goods for production,
and makes an additional explanation of the source of capital interest
out of this effect.
Bohm-Bawerk's theory of capital interest is one of the rare serious
attempts to explain the source of profit or interest, consciously
substituting it for the classical or Marxian theory of profit on the basis
of the labour theory of value. However it does not seem very
persuasive. Besides the difficulty in the case of a stable or shrinking
economy mentioned above, the additional explanation about the
effect of roundabout production is not merely remote from marginal
utility theory, but also lacks of logical proof as why the increased
physical quantities of products should constitute increased amounts
of value as a whole. More fundamentally from the Marxian view, the
effect of roundabout production, as well as the psychological attitude
about present and future goods in Bohm-Bawerk's treatment could in
a sense be regarded as common to any social formation, and could
not therefore be a sufficient basis from which to explain surplus value
as specifically generated in a capitalist society. On the other hand, the
universal human ability to perform surplus labour as a basis of
bringing about surplus products by 'round-about' production in any
society was completely dismissed from a narrowly limited view of the
market from a marginalist framework . Thus, by a naturalist view of
profit-upon-alienation, Bohm-Bawerk failed theoretically to clarify
what was the basis of the economic surplus really common to all the
societies and what made it appear in the forms of profit and interest
specific to the commodity economy. The seemingly universal
psychological attitude about present and future goods may represent
human motivation, as promoted by a capitalist economic order, and
may not really exist independently of the existence of interest.
L. Walras presented a general equilibrium theory and initiated the

Lausanne School. Assuming the law of the maximisation of the utility
of commodities by individuals (just like the law of equal marginal
utilities), and the equality of income and expenditure of each com-
modity owner, Walras showed that a general equilibrium condition
can be defined and reached between prices, and in the demand and
supply of all commodities in a market, by solving a series of simul-
taneous equations. The same approach was extended to the determi-
nation of equilibrium prices of productive services in a market, and
further also to capital stock, securities and money. Though Walras
treated the measurability of utility as a sort of necessary logical
assumption, his follower, V. Pareto 36 (1843-1923), replaced it by the
theory of choice as represented in indifference curves.
General equilibrium theory found widespread and powerful sup-
porters outside of Lausanne University where Walras and Pareto
worked, like J. A. Schumpeter37 (1883-1950) and J. R. Hicks 38
(1904-). While it seems consistent in itself, it is definitely a formal
theory of equilibrium prices, without analysing the substantial values
and surplus values behind them, and is even more superficial than
marginal utility theory, not to mention classical price theory. It is also
essentially a static equilibrium theory and cannot be extended to a
fully dynamic theory in a coherent way.
A. Marshall (1824-1924), who founded the Cambridge School (or
the neo-classical school in the narrowest sense), attempted to com-
bine static micro-price theory and dynamic macro-theory. In his
Principles of Economics 39 Marshall inherited the marginal utility
theory from Jevons and also the production costs theory from J. S.
Mill. He distinguished short-term normal prices and long-term nor-
mal prices, and asserted that marginal utility theory is more relevant
to short-term prices, while the production costs theory is more
relevant to long-term prices. He believed in a biological and evolu-
tionary approach to long-term economic growth. Though ideologi-
cally he tended to represent the interests of industrial capital he also
maintained that the trade-union movement would be viable and
effective in raising workers' incomes in the process of increasing
productivity. While wages and profit oppose each other in the short
run they could grow harmoniously in the long run in Marshall's view.
Marshall was clearly eclectic in combining the marginal utility
theory and the production costs theory, or short-term equilibrium
theory and long-term dynamic growth theory. His long-term theory
in particular handed down a practical character in the observation of
the social economic relations between workers and capitalists from

the traditionally British views of political economy. A. C. Pigou
(1877-1959) extended such social concerns into welfare economics
and asserted, for instance, that national economic welfare usually
increased with the increase of the share of national income going to
poorer people. 40 Including such welfare economics as well as the
more basic marginal micro theory of prices, general equilibrium
theory, and dynamic macro growth theory, the neo-classical school
has formed an eclectic but comprehensive ensemble of partial theor-
ies, and became a general name for all the theoretical economics
following the marginalist revolution, not only confined to Anglo-
American economic academia.
The neo-classical theories typically represented by Marshall and
Pigou had various limitations. Among others there were at least two
serious theoretical problems even from the marginalist point of view.
First, the working of a market mechanism to adjust the supply and
demand of commodities in a harmonious equilibrium was one-sidedly
presumed, as well as the operation of Say's law. Involuntary unem-
ployment was theoretically regarded as impossible in a freely com-
petitive market, and full employment would always be achieved in an
equilibrium market. This neo-classical view of a harmonious market
economy was untenable in regard to the historical fact that capitalism
was accompanied by many economic crises and depressions, and
especially with the experience of 1930s. Second, there was an incon-
sistency between the theory of price determination, and the quantity
theory of the value of money as has been mentioned already in the
case of the Austrian School.
J. M. Keynes (1883-1946) attempted to overcome the limitations
of the neo-classical school. In The General Theory of Employment,
Interest and Money 41 he introduced the concept of liquidity prefer-
ence into the theory of money and interest so as to restore consist-
ency with the theory of prices of other commodities. He intended
also to generalise marginalists economic theory by negating Say's law
and showing the possibility of equilibrium with underemployment.
According to Keynes the increase in the effective demand of con-
sumers must be less than the posssible increase in national income so
far as the marginal propensity to consume is less than one. Without
sufficient investment demand to fill the gap, the total effective de-
mand must be less than necessary to realise full employment. Thus it
is by no means accidental for an economy to be in equilibrium, with
various levels of involuntary unemployment, when incentive or op-
portunities for capitalist investment are insufficient. As this sort of

economic situation tends to appear and continue in matured indivi-
dualistic capitalism, state policies to control effective demand have to
be legitimised in order to solve the difficulty. Policies to increase the
propensity to consume by mitigating the existing imbalance of in-
come distribution, does not suffice. An easy-money policy to stimu-
late new investment by pulling the rate of interest down to the
marginal efficiency (or the marginal rate of profit) of capital, and a
fiscal spending policy to add to the effective demand through state
public expenditures, must therefore be operated in combination in
order to realise and maintain full employment. Such economic pol-
icies can work elastically only when the controlled currency system is
adopted by abolishing the gold-standard system.
A theoretical model similar to Keynes's was also presented by M.
Kalecki42 independently and rather earlier (though the English
translation from the Polish appeared after The General Theory). This
stressed the strategic importance of the level of capitalist investment
in determining the macro-economic levels of national income and
employment. In contract with Keynes Kalecki emphasised more the
role of the degree of monopoly and the level of gross profit in
determining the amount of investment. Keynesian theory became
influential in the capitalist world after the Second World War and up.
until the beginning of the 1970s. US Keynesians like A. Hansen
(1887-1975) or P. Samuelson (1915-) gained prestige, as Keynesian
policy operations in the USA seemed successful in maintaining the
continuous economic growth of the world capitalism in this period. A
combination of neo-classical micro-price theories and Keynesian
macro theory was called the 'neo-classical synthesis' or 'mainstream
economics,' and tended to prevail in most capitalist countries. Al-
though Keynesian theory opposes some propositions of the previous
neo-classical school, it has in fact a basic approach common to the
neo-classical micro price theories. For instance, personal preference
and the decisive role of demand are commonly taken as the launching
bases for theoretical analyses, and price determination in a market by
the marginalist approach is taken for the unconditional framework.
Keynes as well as the preceding neo-classicists observed the capi-
talist economy not as a class society, but as a free society of commod-
ity owners. In the neo-classical tradition including Keynesians,
economic theories thus tend in effect to legitimate the existing capi-
talist social order. The theoretical equality, for example, between the
marginal productivity, the subjective rate of preference over time
and the rate of interest is generally understood to mean that interest

or profit is a reward for the sacrifice of postponing consumption,
being proportional to the marginal contribution of capital to produc-
tion. Such a view is combined with a similar concept that wages and
ground rent are rewards for sacrificing leisure time and use of land,
each being paid in proportion to the marginal contribution of labour
and land to production. It works as a theory justifying a social
relation in which owners of capital can obtain interest or profit,
irrespective of the personal intention or motivation of those learn or
teach the neo-classical economics. As B. Rowthorn clearly points
out, 'neo-classical economics constitutes an "epistemological ob-
stacle" whose significant effect on a scientific plane is simply to inhibit
the development of an authentic science of modes of production'. 43
In these regards neo-classical economics must belong to what Marx
called 'vulgar economy'. 44
As we have seen, the source and the essence of profit and interest
are not properly explained, and the capitalist system which acquires
surplus labour in particular social forms is totally dismissed by the
neo-classical school. It also dismisses the fact that there are various
societies where abstinence from present consumption, or the contri-
bution of means of production to productivity, or their combination
does not generate any profit or interest. A capitalist economy is
regarded as so natural. The distribution of the initial endowments of
factors of production and services for individuals is assumed to be
given; and the social process and the mechanism which determi~es
the distribution of these endowments is theoretically unquestioned in
neo-classical theory, even though this distribution is decisive for the
pattern of income distribution settled in a market.
Further, theoretically, neo-classical theory contains an internal
inconsistency. Historically it abandoned, via J. S. Mill, the objective
labour theory of value, and formed a theory defining wages and the
rate of profit (or the rate of interest) as well as prices of goods on the
conceptual basis of the marginal preference of consumers and mar-
ginal productivity of factors of production. The marginal productivity
of capital determining the rate of profit then logically presupposes a
homogeneous value of capital across various means of production.
But there is a vicious circle so long as values of capital goods can not
be determined independently from the rate of interest. A similar
logical inconsistency is shown effectively by P. Sraffa (1898-1983) on
the 'reswitching problem. ' 45 According to the neo-classical marginal
theory the aggregate production function must be selected monoton-
ously from more to less capital intensive technology as wages conti-

nuously decline and the rate of profit, conversely, goes up. But Sraffa
showed that a certain type of technology with a higher capital
intensive production function can possibly reappear when wages
come down. In sum, what Sraffa proved was that it was impossible to
equate profits with some notion of 'marginal productivity' of capital
advanced. This demonstration was a considerable blow to the neo-
classical distribution theory of wages and profit based on the concept
of the aggregate production function, as well as to the marginalist
theory of capital value.
The marginal revolution which initiated the neo-classical school,
originally seemed able to resolve or rather avoid the logical deadlock
of the classical school in explaining prices, including the equalised
rate of profit across various industrial technologies, from the basic
labour theory of value. It is striking to see that a similar deadlock
reappeared from a different angle nearly a century later, again for
neo-classical theory in its inability to resolve capital values and the
reswitching problem consistently in relation to the determination of
the rate of profit. The neo-Ricardian school after Sraffa, effectively
criticised this logical difficulty for the neo-classical school, and
showed that prices and the general rate of profit could be determined
on the basis of physical data concerning technological processes of
production and a wage goods bundle. Since the amounts of labour
embodied in products are apparently also calculable from the physi-
cal data of production, neo-Ricardian price theory naturally revived
interest in the objective labour theory of value, especially that of
Marx. Interestingly, so far as Marxian theory initially assumes prices
proportional to labour values, the transformation problem of how to
reconcile values with the prices of production, including the equalisation
of the rate of profit, remains as we shall see later, substantially in the
same logical spot where both classical value theory and neo-classical
theory with an aggregate production function have come into deadlock.
In comparison with the neo-classical school, the neo-Ricardians
explicitly analyse the opposing economic interests of the capitalists
and the labouring class. However, the class relation is observed
concerning just the division of the physical outputs and is not related
to social surplus-labour or with the production process. In this regard
the neo-Ricardians, unlike Marxians, do not inherit the classical
labour theory of value, and do not attempt substantially to solve its
difficulty. In a sense the neo-Ricardian school is still trapped by the
neo-classical view that the determination of prices in a market is
absolutely the major problem for economic theories, and as a price

theory, the Sraffa model cannot really negate the consistency of the
general equilibrium type of demand - supply theory. As we shall see
later, the Marxian theory is free from such a narrow view of a market
economy and may overcome the theoretical limitations not only of
the classical school, but also of the neo-classical and the neo-
Ricardian school from a broader point of view, by restoring the
substantial social content of the value theory.
We must not overlook the fact that Keynesian theory contains
serious insights into the conflicting and unstable nature of a capitalist
economy in spite of its many theoretical limitations, held in common
with the preceding neo-classical theories. However, as we have seen,
the Keynesians are concerned exclusively with the shortage of total
effective demand as the cause of involuntary unemployment, and also
believe in the effectiveness of state policies to realise full employ-
ment. Their analyses cannot go further than the framework of a
market economy, into the deeper inner contradictions of the capital-
ist production and accumulation process which under certain circum-
stances finally annul Keynesian policies as we witness today.
Supply-side economics and monetarist economics has become the
theoretical basis for Thatcherism and Reaganomics after the collapse
in prestige of Keynesianism. They represent a reactionary return to
the older neo-classicist beliefs in Say's law and the harmonious
working of a market economy. They are thus further removed from
studying the roots of the self-contradictions of a capitalist economy
with its historically specific character. The weaknesses and limitations
of Keynesian theory, as well as of the monetarist, may also be
overcome by a fundamentally different development of the economic
theory of capitalism in the framework of the Marxian school.
3 The Marxian Theory of
Capitalism
3.1 HISTORICAL MATERIALISM AND MARX'S
ECONOMICS
Hegel, Feuerbach and Marx
The Marxian school which was founded by K. Marx (1818-1883) also

arose out of the theoretical limits and deadlocks of the classical
school. Marx's renovation of economics was, however, quite differ-
ent from the directions of other contemporary economic schools.
Unlike the historical school or the neo-classical school, Marx did not
discard the essential theoretical contents and achievements of the
classical school which was based on the labour theory of value, but
fully attempted to inherit them by criticising and solving the dead-
locks in the classical theories from within. In such an attempt Marx
consciously and systematically clarified the historical character of a
capitalist economy.
Indeed Marx's innovation in economics is in the reformulation and
extension of the major tasks of economics itself. He initiated system-
atic and theoretical studies of the capitalist economy with its histori-
cally limited character. Both the ahistorical views of the classical and
the neo-classical school, and the non-theoretical studies of economic
history in the historical school, could in effect be criticised as nar-
rowly one-sided by Marx and his followers. How did Marx originally
reach such a new approach to economic theories?
As is well known, Marx studied history and philosophy, especially
Hegel's works, while he was a student of law in the University of
Berlin from 1836. Though Hegel had died in 1831 his philosophy was
still prestigious and attractive. It formed a zenith of German idealist
philosophy and was really a grand and erudite system of philosophy
which explained dialectically all the phenomena of the human spirit,
of external nature, and social structures as a logical development of
contradictions in the process of the self-revelation of the absolute
spirit. The absolute spirit in Hegel was a driving and creative subject,
like a rationalised Christian god, in his dialectical system, moving
repeatedly through thesis, anti-thesis and synthesis. The dialectic,
39
which was extensively mobilised by Hegel, was not concervative in its

essence. In a rational form, as Marx reflects later, it can be radically
progressive 'because it includes in its positive understanding of what
exists a simultaneous recognition of its negation, its inevitable de-
struction; because it regards every historically developed form as
being in a fluid state, in motion, and therefore grasps its transient
aspect as well' (I, p. 103). In Hegel, however, dialectic took a
msytified form so long as the absolute spirit or the Idea was taken for
the creator of the real world. The existing society in Prussia could
then interpreted as a completed realisation of the rational Idea, and
actually tended to be conservatively glorified by Hegel's famous
double entendre proposition 'What is rational, that is actual, and what
is actual, that is rational. ' 1
However, there appeared a radical left wing among Hegelians.
Critiques of religion especially of Christianity which was still domi-
nant in German societies were the major concern of left Hegelians.
They represented in a German fashion the progressive contemporary
European spirit of liberating human activities from the older feudal
social order. In contrast with the economic Industrial Revolution in
England and the French political Revolution, the German radical
movement had yet to remain in the ideological field. A leader of left
Hegelians in Berlin was B. Bauer (1809-82), who denied the god-
hood of Jesus Christ. Marx as a student joined Bauer's group and
wrote a doctoral dissertation on 'The Difference in Natural Phil-
osophy between Demokritos and Epikuros' emphasising the essential
freedom of human will from the point of view of a left Hegelian in
1841. Although he had been invited by Bauer to take a teaching job
at the University of Bonn, the invitation was not realised because
Bauer himself had to leave the university with the change of the
political tide in Prussia. Thus Marx took a more practical job as an
editorial writer of a newspaper, the Rheinische Zeitung , in 1842 and
began to write and think more about real social problems.
A most distinguished philosopher who pushed forward the left
Hegelian critique of religion at that time was L. A. Feuerbach
(1804-72). His main work The Essence of Christianity 2 appeared in
1841 and created a profound affect among the younger progressive
generation including Marx and F. Engels. It emphasised that the
human being was not a creation of god but of a natural existence.
Simultaneously it asserted that the Christian god was nothing but an
idealisation of common supreme human feelings such as fraternity or
love. God is not then a creator, but a creation of the human mind,
The Marxian Theory of Capitalism 41
being a sort of fantasy. Human life in this world should be liberated

from such religious fetishism. Feuerbach thus came to oppose ideal-
ism and the theological implications of Hegels work, and asserted a
humanistic materialism. It would seem that Feuerbach prepared an
important clue to Marx to invert Hegel's dialectic, which was 'stand-
ing on its head', or an idealism. However, the inversion of the
dialectical method from idealism to materialism by Feuerbach was
not sufficient. Albeit powerful and influential, it was limited to a
philosophical critique of religion and concentrated only on the spiri-
tual activities of mankind. In other words, human life in this world
was still observed abstractly without considering the social or histori-
cal concreteness of practical activity. Nor was the liberation of human
life related to social concrete activity. 3
Marx felt such insufficiencies in Feuerbach, while writing editorial
articles for the Rheinische Zeitung concerning actual social issues.
For instance there were issues about the strengthening censorship;
the law on the theft of wood prohibiting the traditional communal
right of Rhineland peasants to utilise the forest; free trade or protec-
tionist trade duties; and French socialist or communist thought.
Although Marx could discuss censorship fairly well in the light of
humanistic materialism, he realised that he was not yet fully qualified
to handle economic issues. While he was against the immature
socialism or communism from France, he felt that the topic must also
be studied further. When the progressive tone of the newspaper
became difficult to maintain under the strengthened censorship, he
thus resigned the job at the Rheinische Zeitung and moved to Paris to
study anew in 1843.
In Paris Marx began seriously to study classical and anti-classical
political economy, and wrote what have become known as his 'Econ-
omic and Philosophical Manuscripts' in 1844, where he began to use
the concept 'alienated labour' as a key to criticise both classical
economics and Hegelian philosophy. In the same year F. Engels
(182~95) visited Paris, meeting Marx and starting a lifelong fraternal
co-operation. The next year, 1845, Marx was exiled from France and
moved to Brussels. He worked with Engels to write The Holy Family
(1845, in MECW, vol. 4, pp. 5 ff.) and The German Ideology
(1845-6, in MECW, vol. 5, pp. 19 ff.), and began to create his own
new materialism or historical materialism through criticising and
clearing up his previous standpoint along with the whole of German
philosophy after Hegel. The contents of historical materialism was
published first in a controversial style in The Poverty of Philosophy
(1847, in MECW, vol. 6, pp. 105 ff.), and then briefly formulated
later in the Preface to A Critique of Political Economy (1859). Once
obtained as the general result of the critical review of Hegelian
philosophy along with the investigation of political economy, histori-
cal materialism 'served as a guiding thread' ,4 for Marx's further
studies which were more and more concentrated on the basic econ-
omic theory of capitalism. Its main points can be summarised as
follows. 5
A social superstructure and ideologies like politics, law, religion
and social consciousness do not move independently. They are not
created nor moved by the heavenly Idea or the absolute spirit. They
are formed and conditioned by the economic structure, the real
foundation of each society. The economic social structure mainly
consists of the material productive forces and the relations of produc-
tion, and develops historically through the dialectical motion be-
tween the productive forces and the relations of production. An
epoch of social revolution begins when the relations of production
turn from being the appropriate forms for the forces of production
into fetters on the development of those forces. The changes in the
economic foundation lead sooner or later to the transformation of the
whole immense superstructure; and men become conscious of this
social basic conflict and fight it out in various ideological forms. 'In
broad outline, the asiatic, ancient, feudal, and modern bourgeois
modes of production may be designated as epochs marking progress
in the economic development of society'. The bourgeois mode of
production is the last antagonistic form of the social process of
production. The prehistory of human society ends, therefore, with
this social formation.
In view of this historical materialism, not only Hegel's idealism but
also Feuerbach's spiritual liberation from the medieval Christian
fetter through humanistic materialism is obviously far from being
sufficient. Really total human liberation is realisable only in the true
history, or the history of human society which begins after abolishing
the final class relations of production as developed in a capitalist
society. The driving subject of the dialectic was thus turned from
Hegel's absolute spirit or the Idea via Feuerbach's natural human
being to the productive forces of Marx's new world view. The
productive forces are the degree of development of productivity
based upon technological changes. With the inevitable progress in
the productive forces, the nature of the relations of production,
which represent the social system organising the direct workers under
the ruling class in class societies, must change sooner or later. This
view of the dialectic between the forces of production and the
relations of production by Marx also enabled him to overcome the
weaknesses in early socialism, particularly the romantic tendency to
admire past societies. It is now clear that Marx's original reframing of
the basic economic theory of capitalism is guided by his new world
view, i.e. historical materialism.
The Role of Historical Materialism

Marx's pithy materialist concept of history is an indispensable 'guid-
ing thread' for Marxian socialism and economics. Accordingly its role
and contents are worth careful consideration. Serious damage might
occur from its misuse.
For instance, in a conventional explanation of Marxism, historical
materialism tends to be treated as an absolute truth which is formed
by the application of the materialistic dialectic to human history prior
to economic studies. Marxian economics is then an application of
historical materialism to the economic process of a bourgeois society.
The reversal of the Hegelian idealistic dialectic into the materialist
dialectic is fundamental to this view. The process and grounds of such
a reversal often seem metaphysical or remain unexplained in this type
of explanation.
Engels later attempted to write Dialectics of Natures 6 in 1873-86,
but left it unfinished. Judging from the structure of his Anti-Duhring7
(1877-8), Engels had seemingly it in mind to base a materialist
dialectic firstly on natural philosophy and the natural sciences. A
materialist concept of history might then be obtainable on the basis of
a materialist dialectical method prior to and independently from
economic studies. Such a view seems to be implied when Engels
declares that 'These two great discoveries, the materialistic concept
of history and the revelation of the secret of capitalistic production
through surplus-value, we owe to Marx. With these discoveries
Socialism became a science. ' 8
There may be many cases where a materialist dialectic can be a
useful guiding thread for researches in the natural sciences. How-
ever, the characters of various natural phenomena from almost
infinitely divisible material elements to the vast macrocosmos are so
diverse that any unified logic covering all of them seems almost
impossible. In fact Engel's attempt to show a materialist dialectic in
natural phenomena is not only unfinished but also appears to be a
collection of examples suitable to his position. His atempt to establish

a materialist dialectic, firstly in the realm of nature, could not be very
successful in spite of his encyclopedic knowledge at that time. His-
torical materialism could not find a very solid basis in such an
approach.
The formation of historical materialism by Marx was actually
performed not through merely abstract philosophical thinking or
through general reflection on the natural sciences. Marx's reversal of
the Hegelian idealist dialectic was achieved by way of Feuerbach's
humanistic materialism and then by overcoming Feuerbach on the
basis of critical studies of the classical school. Marx's concern about
the actual conditions of human existence especially in a capitalist
economic order, which was being analysed by economic theory, was a
decisive factor for him in forming the materialist dialectical method
and historical materialism simultaneously. In view of such a forma-
tion process, historical materialism in Marx could not be separated
from his economic studies, and should not be regarded as an absolute
external premise for the social sciences.
It is also indispensable for historical materialism to receive support
from theoretical studies of a capitalist economy. For instance, it
would be difficult to show clearly and at a stroke the autonomous
motion of the economic substructure separately from the super-
structure of a society for every social formation throughout the whole
of human history. The relations of production in precapitalist societ-
ies were usually intermingled with political and religious orders, and
seemed to be dominated by and maintained through such superstruc-
tures. Whereas in the historical development of capitalism, social
reproduction which was organised in a commodity economy, re-
vealed more and more clearly its own autonomous economic me-
chanism of motion separate from political or juridical superstruc-
tures. The classical school was, to a certain extent, identifying such a
character in the capitalist economy and Marx confronted its achieve-
ments with a critique of its naturalism. In particular therefore a
strong argument for historical materialism could be given through
theoretical researches into a capitalist economy. K. Uno (1897-1977),
who was a non-dogmatic creative Marxian theorist initiating the Uno
school in post-Second World War Japan, methodologically emphasised
this point. He stated that 'the characteristic of Marx's method could
be found in the fact that Marx established historical materialism in
the process of studying political economy and also attempted scien-
tifically to corroborate it by economic researches' .9
Whereas both must thus be closely related, the difference between

the task of historical materialism and that of political economy should
not be confused. Historical materialism is a more or less ideological
and hypothetical view of total human history. It cannot be a fully
objective scientific recognition. In contrast Marx attempted to show,
in his economic theory, the objectively recognisable law of motion of
a capitalist economy particularly in his main work Capital. Certainly
the role of historical materialism as a guide to Marxian economics
towards broader problems, which are usually hidden in the economic
theories confined by bourgeois ideology, can never be denied. How-
ever, the contents of economic research by Marx and his followers
should be regarded not as mere ideological reproaches, but as objec-
tive and scientific studies of a capitalist economy. The results of
Marxian economic research must be judged and revised according to
theoretical logic and historical facts just as in any other social sci-
ences.
It is actually easier for Marxian theorists than those of other
schools, consciously to distinguish the role of ideology and that of
economic research, because they can broadly be concerned with the
historical changes in ideological superstructures and the economic
substructure. By clarifying the historically specific forms and mech-
anisms of a capitalist economy, Marxian economic theory reveals the
source and the social functions of fetishised common sense concern-
ing commodity, money and capital in our bourgeois society. Marxian
socialist ideology is formed only when such fetish bourgeois common
sense is critically overcome. Marxian economics thus offers a theo-
retical ground from which to criticise bourgeois ideology and to assert
a socialist ideological view of history. As we shall gradually see later
in this volume, the Marxian economic theory of capitalism also
reveals the basically autonomous character of capitalism's economic
substructure, the dynamism between its productive forces and its
relations of production, as well as the general material basis common
to all societies, and those common to all class societies. Among
others these points in the Marxian theory of capitalism can un-
doubtedly serve as the basis upon which to clarify concepts for
historical materialism.
By confining its direct object of study to a historically limited social
formation, i.e. capitalism, Marxian economic theory can define its
starting-points, logical sequences and the system of basic principles,
and thus objectively reflects the character of its object. Historical
materialism is a useful guiding thread for orienting economic study to
such an object from a historical point of view, but it cannot directly

assure the scientifically objective correctness of economic studies, or
cannot by itself be the explanatory concepts of a capitalist economy.
It must be stressed, however, that historical materialism unlike other
ideological views of history can be established through scientific
economic studies of a capitalist economy. As Uno emphasised
against conventional Marxism, Marxian economics must serve as a
scientific basis of historical materialism, and not vice versa. The
materialist dialectical method might also be more properly grounded
by Marxian social sciences on the basis of economics rather than the
natural sciences.
From the viewpoint of Marxism as a scientific argument and
movement for socialism, the economic theory can show the possibil-
ity of transforming capitalism into socialism by objectively defining
the historical specificity and limitations of a capitalist economy. But
Marxian economics remains as an objective recognition of a possibly
revolutionisable economic order, and cannot be a directly positive
assertion of socialism. In this sense Marxian economics is certainly
not sufficient for a completed Marxism. Historical materialism practi-
cally summarises the whole of human history in a formula which is at
least partly supported by theoretical research on the nature of the
substructure of a capitalist society. It is thus indispensable for
Marxists in asserting the end of the history of class societies with
the end of capitalism, and in building up a communal society of
freely associated individuals. A dialectical, mutual relation be-
tween Marxian economics and historical materialism is therefore
necessary to support Marxism from different aspects and levels.
Since it has obscured and weakened the sound scientific ground of
Marxism to treat historical materialism as an absolutely proved
theorem given prior to economic researches, we should not avoid
handling the contents of historical materialism as a hypothetical
theorem to be confirmed and amended through the development of
both history itself and social scientific studies. For instance, Marx's
formulation of historical materialism defined the productive forces as
a most basic driving subject for the dialectical process of history by
substituting these forces for the absolute spirit in Hegel's dialectic or
the natural human being in Feuerbach's. The development of pro-
ductive forces, however, must not be taken for an independent
neutral process against the relations of production, that is, human
social relations. In fact, the pace as well as the directions of the
growth of productive forces under capitalism is apparently guided by
the interests in the valorisation of capitals, and determined in the

process of capital accumulation, and thus cannot be neutral or
independent of the motion of capitals. As we shall discuss later in
detail, the logical inevitability of cyclical crises in the process of
capital accumulation should be clarified as an expression of the inner
contradiction between the growth of productive forces determined by
the motion of capitals and the relations of production of capital.
Neither can the transformation of capitalism into socialism be a
process of mechanical inevitability driven by a neutral development
of productive forces. Social revolutions are necessary both con-
sciously to establish communal orders and the development of pro-
duction processes under autonomous workers control through the
dissolution of the capitalist relations of production. These revolutions
may make possible the reorientation of the contents of the develop-
ment of productive forces so as to be more suitable for such co-
operative communal associations.
There seems to have been an unfortunate mechanical interpreta-
tion of historical materialism in the post-revolutionary soviet type of
society, where the growth of productive forces in central key indus-
tries through larger and larger scale of mechanisation has been
believed to be the absolute basis for solving all the social problems.
Distorted statism and economism have consequently been seriously
conspicuous there. 10 The relation between the formulation of histori-
cal materialism and the contents of political economy has thus been
not merely closely related in the process of their formation but also
need to be reconsidered repeatedly with consequent political implica-
tions.
Political Economy in the Manifesto
Soon after creating historical materialism Marx wrote with Engels the
Manifesto of the Communist Party and published it in February 1848
by request of The Communist League. This League had been formed
in June 1847 by linking up the main centres of communist activities in
Paris, London, Brussels and Cologne. This pamphlet has been one of
the most popular and influential among the massive volume of works
by Marx and Engels, and presents prototypes of some of Marx's
theories of capitalism. Those theories were clearly made up at that
time by applying historical materialism more directly than in Marx's
later writings like Capital. There are four sections in the Manifesto of the
Communist Party 11 namely 'Bourgeois and Proletarians', 'Proletarians
and Communists', 'Socialist and Communist Literature' and 'Position of

the Communists in relation to the Various Existing Opposition Parties'.
Marx and Engels's positive analyses and assertions are mainly in the first
two sections. From the view of political economy the first section is
particularly important.
The section begins with an impressive statement that 'The history
of all hitherto existing society is the history of class struggles'. And
then it describes the inevitable process of birth, growth and decline of
the modern bourgeois society from the historical materialist view of
class struggles. According to the authors the modern bourgeois
society that sprouted from the ruins of feudal society has decomposed
various lower middle classes into the proletariat, and has increasingly
simplified class struggles into the social antagonism between the
bourgeoisie and the proletariat. Such a modern society was born
when the feudal relations of property were no longer compatible with
the developing productive forces and were consequently broken
down. With the growth of modern society the productive forces
developed by capital began to revolt against the modern bourgeois
properly relations. The revolt is manifested in the commercial crises
that by their periodical return put on trial, each time more threaten-
ingly, the existence of the entire bourgeois society. Along with the
periodical crises as well as the severe competition among bourgeois,
and with the development of large-scale modern industry, property is
concentrated more and more into a fewer hands, and the proletariat
becomes concentrated into greater masses with increasing instability
and poverty in their life and work.
'Thereupon the workers begin to form combinations (trades
unions) against the bourgeois; they club together in order to keep up
the rate of wages .... Here and there the contest breaks out into
riots. Now and then the workers are victorious, but only for a time.
The real fruit of their battles lies, not in the immediate result, but in
the ever-expanding union of the workers.' Though in substance an
international struggle, in form it is at first a national struggle of
proletariat against the bourgeoisie in each country. With the develop-
ment of modern industry the bourgeoisie produces 'its own grave-
diggers'. 'Its fall and the victory of the proletariat are equally inevit-
able.'
The second section then describes the position of communists
within the proletarian class, the measures to be taken by the victori-
ous proletariat and the nature of the comunist society to be realised.
For instance, the communists do not set up any sectarian principles of
their own, by which to mould the proletarian movement. They

always represent the interest of the proletarian movement as a whole.
In order to do this, they must maintain and develop a theoretical
understanding of the conditions, the line of march, and the general
results of the proletarian movement. The first step in the revolution
by the working class is to raise the proletariat to the position of ruling
class, to win the battle of democracy. 'The proletariat will use its
political supremacy to wrest, by degree, all capital from the bour-
geoisie, to centralize all instruments of production in the hands of the
state, i.e. of the proletariat organized as the ruling class; and to
increase the total of productive forces as rapidly as possible.' In such
a course of development, class distinctions will disappear and the
public power will lose its political character. Then in place of the old
bourgeois class society, we shall have an association, 'in which the
free development of each is the condition for the free development of
all'.
In the third section Marx and Engels criticise other preceding types
of socialism such as reactionary, bourgeois, and Utopian. In the
fourth section they propose communist strategies towards other
opposition parties and conclude with an famous appeal that 'The
proletarians have nothing to lose but their chains. They have a world
to win. Working men of all countries, unite.'
The logical process of development of modern bourgeois society
from its birth to decline in this Manifesto clearly depends on historical
materialism. The development of productive forces is treated as a
driving power breaking down the feudal social relations, intensifying
commercial crises, and making inescapable the decline of the bour-
geoisie through fostering poverty, combinations and revolutionary
unions of workers. On the other hand, the growth of the productive
forces is not viewed here one-sidedly as an independent neutral
variable, determining the nature and the motion of the relations of
production.
In accord with its class struggle view of history, the Manifesto
recognises the different features of the growth of productive forces
corresponding to the nature of the ruling class in each society. It says,
for example, that 'conservation of the old modes of production in
unaltered form, was ... the first condition of existence for all earlier
industrial classes'. On the contrary, 'the bourgeoisie, during its rule
of scarcely one hundred years, has created more massive and more
colossal productive forces than have all preceding generations together'.
And further, the proletariat when organised as the ruling class will use
its political supremacy 'to centralize all instruments of production in

the hands of the State', and 'to increase the total of productive forces
as rapidly as possible'.
Later in Capital the bourgeoisie is defined more concretely as
'capital personified' (e.g. I, p. 739), and the development of produc-
tive forces is analysed as a function of the motion of capital. There-
fore in the process of reversing Hegel's idealistic dialectic, Marx
seems to have switched the subject of the rational materialist dialectic
in three steps from the development of productive forces, via the
changing ruling class, to capital itself. Though this switch certainly
coincides with the shift of topics and may not immediately be incon-
sistent, it suggests that the path of growth of productive forces should
not be regarded as a bare natural necessity. This is a point for us to
reconsider and may enable us to deepen the formulation of historical
materialism.
Another point is the concept of the relations of production, which
tends to be identified in the Manifesto with the social relations of
ownership of the instruments of production. The development of the
relations of production, corresponding to the growth of productive
forces, was conceptualised mainly as the historical changes in the
form and the scale of ownership of means of production. Bourgeois
society was formed when the instruments of production were cen-
tralised as the private property of the bourgeoisie organised as
modern manufacturing forces of production. As bourgeois society
develops, the degree of the centralisation of the means of production
into the hands of a smaller number of bourgeoisie is intensified, being
coupled with the increasing number and misery of the proletariat.
Hence the polarisation of society into smaller number of richer
bourgeoisie and the increasing number of poorer proletariat will
proceed. Finally, bourgeois society will end when the means of
production are taken back from the bourgeoisie and centralised in
the hands of the state through the organised revolutionary struggle of
the proletariat.
These theoretical views of a capitalist economy in the Manifesto,
which were obtained by the inferential application of historical ma-
terialism, very much affected some parts of the formation of Marx's
own economic theory as well as the development of Marxism after
Marx, which we shall come back to occasionally. Although Marx
attempted later, particularly in the light of the Paris Commune, to
modify his view in the Manifesto concerning the proletariat's appro-
priation of the state as a ready-made apparatus, a distorted statism in
a post-revolutionary society could well be legitimised by the theor-

etical overestimation of both the changes and centralisation of own-
ership of the means of production as well as by a deterministic (and in
a sense too optimistic) belief in the effect of the growth of productive
forces for socialism. On the other side the theory of the polarisation
of a bourgeois society and the increasing misery of proletariat has
been a source of confusion and continuous controversy about the
relevancy of Marx's economic theory for the development of capitalism.
The Manifesto has served as a guiding star for workers' socialist
movements and socialist revolutions all over the world. Its political
role and influence have been so great that its theoretical contents
have tended either to be literally believed by majority of orthodox
Marxians or to be totally distrusted by non-Marxians. However, so
far as it contains not merely political assertions, but also theoretical
views of the economic development of bourgeois society, we must try
to check the correctness or incorrectness of such views repeatedly
from the standpoint of objective social science. At least Marx himself
was not satisfied with his political economy in the Manifesto. He
seemed to be aware that his socialist ideology did not assure by itself
fully correct theories of a capitalist economy, and also that scientific
endeavour for a more complete theoretical understanding of capital-
ism was indispensable in order to ground his socialist assertions more
solidly. Therefore Marx resumed his critical studies of political econ-
omy. He devoted the latter half of his life mainly to working out a
new system of the basic theory of capitalism, when exiled to London
expelled again from his mother country Prussia, as well as from
France and Belgium in 1849, after the revolutionary activities in the
previous year.
3.2 THE SCOPE OF THE THEORETICAL SYSTEM OF

CAPITAL
The Formation and Structure of Capital
Marx studied carefully and critically a wide range of economic

literature in the reading room of the British Museum during the
1850s, and began to write his life-work in 1857. He wrote systematic
drafts of his main work three times over again before writing the first
volume of Capital in 1866-7. (i) The first draft was written in 1857-8
mainly in seven notebooks and was entitled Grundrisse. 12 Then, A
Contribution to the Critique of Political Economy (1859) was written
in 1858-9. Besides the famous preface, where as we have seen

historical materialism was briefly formulated, this Critique published
only two introductory chapters on Commodities and Money, which
were later revised and summarised in the first Part of the first volume
of Capital. (ii) The second draft in twenty-three notebooks is The
Critique of Political Economy (Manuscript 1861-3), 13 which begins
with 'The Transformation of Money into Capital' following the
contents of The Critique. About one-half in the middle of this draft
has been separately published as Theories of Surplus-Value. (iii) The
third draft, entitled Capital for the first time, was written in 1863-5.
Its last part served as the sole material for Engels to edit and publish
the third volume of Capital (1894). Only after preparing these three
massive drafts, Marx wrote and published the first volume of Capital
(1867). Its second volume (1885) was edited by Engels from Marx's
drafts, mainly in the 1870s.
What Marx attempted to work out in Capital through such exten-
sive studies and writing was clearly not a mere reproach to capitalism
from the standpoint of his socialist ideology, nor a simple application
of historical materialism to capitalism. The economic theory in Capi-
tal, unlike that of Sismondi or Malthus, does not negate the auton-
omous growth of a capitalist economy in spite of the logical necessity
of (periodic) overproduction. Nor does it plans in detail a social order
of reason and justice in order to realise socialism from above by
enlightenment, to reform workers conditions like Fourier, Owen and
other Utopian socialists did. Conversely it systematically clarifies the
law of motion of an autonomous capitalist economy with its historical
specificities and limitations. It thereby attempts to show wage-
workers in basic principles the social mechanism and conditions
which restrict their economic situation, and the object to be changed
through their social movements in order to liberate themselves as
really free human beings. Thus the economic theory of Capital
intends to establish the basic principle of political economy as a
critical social science, by absorbing the preceding theoretical achieve-
ments and systematically solving the problems left by the classical
school.
In the first two Parts of the first volume of Capital, the basic forms
of a commodity economy, i.e. commodities, money and capital are
theoretically investigated through their logical relations. Marx in-
herited the labour theory of value from the classical school, but he
dualised the value concept into the substance and the forms of value,
which was essential in order to overcome naturalism in classical value
theory. He discovered the wage-labourers in a modern society sold
their commodity labour-power, and not directly labour itself, to

capital under historically specific conditions. In the following three
Parts, from the third to the fifth, Marx showed how capital could
utilise the use-value of labour-power to produce surplus-value after
paying its commodity value, and how capital could increase the
efficiency of producing surplus-value. These Parts obvioulsy solved
one of basic difficulties for the classical school, to explain the source
of surplus-value on the basis of the labour theory of value. Decisive
in this was the distinction between a full days labour obtainable for
capitalists as the use-value of the commodity labour-power, and the
portion of necessary labour time in it returned to workers as the value
substance of the same commodity labour-power, obtained by the
workers through the exchange between that commodity and the
necessary means of consumption. Then the sixth Part, 'Wages',
shows how the wage form conceals the secret of the production of
surplus-value by the common-sense view of time-wages and piece-
wages as full payment for all the labour performed, not to the value
of the commodity labour-power. The seventh Part considers the
influence of capital accumulation on the working class. The eighth
Part reviews the historical process of the formation of a capitalist
society typically in England, through the so-called primitive accumu-
lation which is actually a violent process of creating a proletariat on a
social scale.
Following the first volume 'The Process of Production of Capital',
the second volume Capital investigates 'The Process of Circulation of
Capital' in three Parts. In the first Part, three forms of the circuit of
capital are investigated, and in the second the turnover of capital with
its elements is studied. In these Parts there are original theoretical
insights about the nature of capital in its incessant circuit of motion
through circulation and production over time, and also about the
restriction as well as the necessity of circulation for the capitalist
production of surplus-value. Then in the third Part, 'Reproduction
and Circulation of Total Social Capital', Marx presents his tableaux
economique in the reproduction schemes.
The third volume of Capital, 'The Process of Capitalist Production
as a Whole', contains seven Parts. The famous transformation proce-
dure from values into prices of production or from surplus-value into
average profit through competition of capitals is in the initial two
Parts, and it forms another solution to a basic problem left by the
classical school. The third Part discusses 'The Law of the Tendency of
the Rate of Profit to Fall' and the exposition of the internal contradic-
tions in the process of capital accumulation. The fourth, fifth and
sixth Parts present the basic theories of the secondary distribution of

surplus-value from industrial capitals to commercial capital, interest-
bearing or money capital, and landowners in the forms of commercial
profit, interest and ground-rent. These concrete forms of surplus-
value and capital systematically work simultaneously as the social
mechanisms carrying through the law of value in the concrete process
of the competitive equalisation of profit and the extension of produc-
tion, though they may occasionally play a converse and destructive
role in the process of causing periodical crises. The seventh and final
Part is a very incomplete draft, but it roughly summarises, with a
critique of vulgar economic theories, how major forms of revenue in
a capitalist society, i.e. wages, profit or interest and ground-rent,
seem from an ordinary view to spring independently from labour,
capital and land so covering the real social class-relations of produc-
tion. It also presents some of Marx's insights on socialism upon the
basis of his theory of value and surplus-value.
The basic theory of a capitalist economy contained in the three
volumes of Capital, unlike the neo-classical theory, substantially
succeeded the labour theory of value of the classical school, though
with some important transformations and developments. It was in-
deed impossible for Marx to succeed classical value theory simply by
making it quantitatively more precise in the same dimension. Marx
had to innovate with the whole theoretical system so as to remedy the
defects of classical theory. For instance, the creation of the theory of
forms of value, the theoretical distinction between use-value and
value of the commodity labour-power, discovery of the concept of
prices of production, and the attempt to complete a crises theory in
conjuncture with the labour theory of value were conspicuous theo-
retical innovations by Marx beyond the limitations of the classical
theory. At first sight these innovations may seem mutually indepen-
dent and to deduce them directly from a single point, one by one,
rather hard. It is obvious, however, that all of them relate theoreti-
cally to the historical specificities of a capitalist economy based upon
commodity relations. The theory of forms of value fundamentally
clarifies the specific forms of social relations appearing within a
commodity economy. The theoretical analysis of the commodity
labour-power directly shows a logically specific precondition for
capitalist production. The prices of production are a uniquely capi-
talistic economic form for distributing social surplus-labour. The
crisis theory shows an economic dynamism which is also specific to a
capitalist society. Since these historical characters of a capitalist

economy were completely neglected within the naturalist ideology of
the classical school as well as of the neo-classical school, we can easily
assume that Marx in the field of economic theory renovated the
'paradigm' in T. Kuhn's sense, 14 by following the guiding thread of
historical materialism. However, it should be emphasised here again
that historical materialism as a guiding thread (at a meta-level so to
say) could not immediately assure completely renovated scientific
theories. That is why Marx had to attempt repeatedly and so se-
riously to work out his own theoretical system, and also why Marx
could not thoroughly solve but still left various theoretical incom-
pletenesses, as we shall see later.
Marx's Initial Plan and the Scope of Capital

When Marx began to write the first draft of his lifework toward the
end of the 1850s he drew several plans for the whole conceivable
work. 15 These plans contain differences in length and details, but they
are in a similar framework which can briefly summarised as follows:
I. Capital
(a) Capital in general
(1) Production process of capital
(2) Circulation process of capital
(3) Unity of both processes, or profit and interest of capital
(b) Competition
(c) Credit
(d) Joint-stock capital
II. Landed property
III. Wage labour
IV. State
V. Foreign trade
VI. World market
What items in this original plan did Capital cover? Is Capital a

systematically complete work, or only a part of a more extensive
work to be realised according to the original plan? Or was the plan
changed in effect in the process of writing Capital? These points have
formed the so-called 'plan problem', which is methodologically of
some importance concerning how to extend our work after Marx.
(Since this 'plan problem' is so little known to most Western readers,

this subsection might seem too specialised. The reader can initially
skip over it, and go directly to the next subsection if this is felt to be
easier.)
For instance, since Marx entitled the sixth and final book 'World
Market and Crisis' in some plans, the crisis theory seems to be
beyond the scope of Capital so far as Capital covers just an initial part
of the original plan. After publishing very briefly his plan of work at
the beginning of the Preface to A Contribution to the Critique of
Political Economy, Marx did not refer to any alteration of the plan at
least in published materials. Moreover, there are some sentences in
Capital which can easily be interpreted as restricting the scope of
Capital within the range of Capital in general in the original plan. For
example, Marx states in Capital that the 'special study of wage-
labour' (I, p. 683), 'the further analyses of industrial cycles' (111,
p. 482), 'a detailed analysis of the credit system' (III, p. 525), or 'the
analysis of landed property in its various historical forms' (III, p. 751),
fall beyond the scope of his present work. 16 He also suggests that he
does not yet treat 'the actual movement of competition' but 'presents
only the internal organisation of the capitalist mode of production, in
its ideal average, as it were' (III, p. 970).
Therefore, it is not strange to read repeatedly the interpretation
that Capital covers just the part of 'Capital in general' in the original
unaltered plan, treating capital generally or as a whole, without
covering the items after competition among individual capitals. R.
Wilbrandt argued that the first volume of Capital was a 'torso' in a
twofold sense, for it was not only the first of a few volumes on
Capital, but also the first part of the first book among the six books
planned 17 (i.e. Capital, Landed Property, Wage Labour, State,
Foreign Trade and World Market, as indicated in the Preface to A
Contribution to the Critique of Political Economy). Though Wil-
brandt did not refer to the inner items within Capital, K. Kuruma
intended to be more precise. He asserted that Capital dealt with only
'capital in general' in the initial plan, by emphasising Marx's phrases
to restrict the scope of his present work in Capital as well as the fact
that we could not find any written evidence in Marx to note a
fundamental change in his original plan. 18 He then argued that
Marx's crisis theory, together with the whole system of the critique of
political economy, must remain incomplete in Capital. The orthodox
view in the USSR coincides with this line of argument in emphasising
a strong continuity between the structure of Capital and 'capital in

general' of the initial plan, although it admits some extention of the
framework of 'capital in general' .19
Contrariwise there is another interpretation that Marx changed the
original plan and intended to make Capital a complete work.
For instance, H. Grossmann (1881-1950), opposing Wilbrandt,
asserted that Capital was not at all a 'torso' but an intentionally
completed result of 'the change of the original 1859 plan'. 20 Marx's
creation of the reproduction scheme and his letter of 15 August 1863
to Engels were pointed out as evidence by Grossmann. The repro-
duction scheme surely shows that a capitalist economy can in prin-
ciple be self-reliant without depending on foreign trade or world
market. 21 However, the reproduction scheme has not any direct
relation to theories of 'competition', 'credit' or 'landed property' and
'wage-labour', and therefore it cannot be a sufficient and positive
proof to judge if these items' originally being outside of 'capital in
general' were logically to be included in Capital or not. Grossmann
could not read and examine the actual theoretical contents of 'capital
in general' of Grundrisse when he discussed the problem in 1929.
Besides, his other evidence does not seem very powerful. In his
interpretation Marx's statement that 'I've had to demolish every-
thing' (alles unschmeissen) in a letter of 15 August 1863 referred to
the alteration of the original plan. However, it may possibly mean
that Marx had to demolish not his plan, but every theoretical matter
in the classical school. F. Behrens followed Grossmann's interpreta-
tion of that letter of Marx and asserted a similar explanation about
the plan problem, although he criticised Grossmann's 'external-
mechanistic' method. 22
R. Rosdolsky (1898-1967) could later fully utilise the theoretical
structure of Grundrisse to handle the problem more in detail. It is
clear that the theoretical system of Grundrisse is strictly confined
within 'capital in general' of the original plan. By comparing the
contents of Grundrisse with Capital Rosdolsky found that 'what was
initially useful and necessary eventually had to turn out to be a
superfluous and obstructive limitation, ... The blueprint had served
its purpose and could therefore be dropped in the further stages of
the analysis. ' 23 The alteration from the initial plan into a theoretical
system of Capital is summarised by Rosdolsky in Figure 3.1 as
follows: 24
Figure 3.1
THE ORIGINAL PLAN THE CHANGED PLAN

(6 books)
I. ON CAPITAL 'CAPITAL' (3 volumes):

a) Capital in general
1) Production process I. Production process of capital
(Sections):
1) Commodity and money
2) Transformation of money
into capital
3-5) Absolute and relative
surplus-value
6) Wage
7) Accumulation process
II. Circulation process of capital
2) Circulation process Ill. Process of capitalist
3) Profit and interest __ production as a whole.
- _ -_..,. 1-3) Profit and profit rate
b) Competition -- - - - 4) Merchant capital
d) Share-Capital ---
c) Credit system - - - - 5) Interest and credit
II. ON LANDED
PROPERTY 6) Ground-Rent
7) Revenues.
Ill. ON WAGE LABOUR
IV. STATE
V. FOREIGN TRADE
VI. WORLD MARKET
Unbroken lines: changes within the first three books

Dotted lines: changes within the Book on Capital.
Rosdolsky's treatment shown in Figure 3.1 is clear and definitely

more persuasive than his opponents. However, he still compares
rather superficially the items of Marx's initial plan incorporated in the
Grundrisse with the parts of Capital. He is a Grundrisse fundamen-
talist,25 and tends to neglect Marx's theoretical difficulties and devel-
opment after writing the Grundrisse. He believes, for instance, that
Marx's theory of transforming values into prices and the theory of
crisis were already basically presented in the Grundrisse. As a result,
Marx's effort through the second draft including Theories of Surplus-
Value to work up the theory of ground-rent in relation to the theory
of prices of production, on the basis of competition among many

capitals, or the extension of the theory of crisis in relation to the
theory of accumulation and credit is not much taken into consider-
ation. In contrast to Rosdolsky's chart the theory of competition
among many capitals is not confined to the first three Parts of the
third volume of Capital, but organically developed through all the
Parts of that volume. The theory on wage labour is not limited to the
sixth Part on wages in the first volume, but extended from various
angles throughout all the volumes from the second Part of the first
volume, being increasingly linked with the dynamics of capitalism
through the process of accumulation and the motion of profit and
interest.
In its contents the theoretical study of the law of value as the law of
motion of a capitalist economy could not be complete without dealing
with the concrete forms of surplus-value through competition and
credit. And the basic theory of wage-labour and landed property
cannot be separated from the theory of motion of capital. Conversely
the basic theory of a capitalist economy necessarily requires studies
of not only the total capital as 'capital in general', but also the basic
mechanisms of motion of capital through competition and credit. The
studies of the basic position of wage-labour and landed property
should also be included there. In spite of Marx's own restrictive
statements concerning the scope of Capital it seems that the essential
character of a capitalist economy forced him to extend his theoretical
studies much beyond the original framework of 'capital in general'
toward a complete principles of motion of a capitalist economy.
Though Rosdolsky as well as other discussants did not reflect much
on this point, it thus also relates to the problem of why the theoretical
system of Capital could be separated from studies of the role of state,
foreign trade and world market.
The problem can no longer be properly handled within mere
interpretative considerations of Marx's initial plan. A wider metho-
dological view concerning all economic studies including the theories
of imperialism and more contemporary capitalism on the basis of
Capital must now be discussed.
How to Locate and Complete Capital

Opposing Kuruma's interpretation of the plan problem K. Uno
asserted that the basic theories of wage-labour and landed property
in a capitalist society were already present in Capita/. 26 Regardless of
what Marx initially meant by 'landed property' and 'wage-labour' in

his plan, the theoretical system of Capital could not be complete
without the theories of wages and ground rent which define the basic
social positions of workers and landowners in a capitalist society. The
basic position of a capitalist form of landed property, not to mention
that of wage-labour, cannot be a factor external to the economic
motion of capital, unlike state power. At the same time Uno dis-
agreed with Kuruma's merely interpretative adherence to Marx's
original plan which excluded the crisis theory from the system of
Capital. Although Marx's crisis theory actually remained incomplete,
we should attempt by clarifying Marx's theoretical difficulties to
complete it as a basic principle within a framework of the basic theory
of capitalism. Without having such a basic theory of crisis a capitalist
economy must be regarded abstractly as one-sidely harmonious, and
the economic crises may not be defined theoretically as a phenomena
specific to and unavoidable for capitalism.
Uno did not discuss the plan problem in detail by following the
formation of Marx's manuscripts from the Grundrisse, but treated it
from the theoretically wider view of how to locate and complete
Capital as the system of basic principles for all of Marxian economics.
Uno maintained that the whole of Marxian economics should be
systematically broken down into three levels of research. The first
and fundamental level is that of the basic principles of political
economy; the stages theory of world capitalist development must be
constructed at the second level; and further, the empirical analysis of
the actual state of capitalism in the world or in each individual
country must be carried out at the third most concrete level. 27 The
major changes of the role of the state in the world market from
mercantilism to liberalism, and then to imperialism, and the transfor-
mations of the economic positions of wage-labour and landed prop-
erty must be clarified through the stages theory of world capitalist
development, and further in the empirical analyses of individual
countries. These studies, which relate to the corresponding items in
Marx's initial plan, are to be at different, more concrete levels than
the basic principles. They must be combined with studies of histori-
cally concrete changes of the typical leading capital and its industrial
bases.
In view of this methodological distinction of research levels we can
locate Capital as providing the basic principles of political economy,
where basic theories of wage-labour, competition among capitals,
credit, joint-stock capital and landed property in a capitalist economy
should systematically be included, without discounting the import-

ance of more concrete studies of these items outside of Capital.
Although capitalist development always utilises and decomposes
external non-capitalist modes of production within its own bound-
aries and in the peripheral world the basic principles do not treat this
external aspect of capitalism nor the role of state which very often
relates to this aspect. In this regard Uno emphasises that the basic
principles must presuppose a purely capitalist society made up of the
three major classes of capitalists, workers and landowners, on the
basis of the actual historical tendency of British society to realise an
increasingly purer capitalism up to Marx's own age. 28
So far as Uno excludes the period after the end of nineteenth
century from the historical basis of abstracting the basic theory of
capitalism, his method leaves some difficulties. On the one hand, the
basic principles might be regarded as a specific theory of laissez1aire
capitalism. On the other, the concrete studies of capitalist develop-
ment in the imperialist stage might stress only historically particular
features which are different from the basic principles. The basic
principles of political economy which are deducible from Capital
must easily be recognisable and applicable even after the end of
nineteenth century. Apparently, the relatively independent motion
of a capitalist economy based on the exchange of commodities has
fundamentally continued in spite of the increased role of the state,
except during massive military mobilisations in periods of World
War, and the process of decomposing non-capitalist modes of pro-
duction in each major capitalist country has also been continuing.
It is certainly to be noted that capitalism passed through a period of
laissez-faire liberalism, in order to understand clearly the basic auton-
omous character of the capitalist economy. Some realms of basic
principles, for instance the theories of the working of the credit
system and cyclical crises, can be clarified by abstracting from the
liberalist stage of capitalism. However, some others might require a
broader basis of abstraction. The basic theories of the forms of the
commodity, money and capital might more clearly be understood if
we observe the birth and growth of capitalism in the mercantilist
stage, and also the existence of these forms from very ancient
periods. Contrastingly the principles of joint-stock capital must be
fully developed only when the historical experience of the imperialist
stage is considered as the basis of abstraction. Thus I believe with
some Uno theorists 29 that the basis of abstraction of the basic princi-
ples must be broadened to cover the whole history of capitalism,
though I agree with Uno's distinction of research levels between the

basic principles and the more concrete studies.
Anyway, the so-called plan problem must substantially be solved
and the scope of Capital could be thus clarified through a method-
ological differentiation of the levels of research in Marxian econ-
omics.
3.3. THE TASKS OF MARXIAN STUDIES AFTER CAPITAL
The Controversies on Revisionism and Imperialism

The development of Marxian economics after Capital was in fact
performed at various levels of research. However, unawareness or
the mixture of the different levels of research has often caused
unnecessary confusion and difficulties. The theoretical basis of
Marxism was not a little endangered on that account. Misunder-
standings of Marx's economic theory and some incompleteness in
Capital were other sources of confusion.
For instance, E. Bernstein (1850-1932), who was once regarded as
one of most promising Marxian theorists after Engels, opened up a
way for revisionism by negating the relevance of Marx's economic
theories to late nineteenth century capitalism. 30 In particular the
actual development of capitalism in Bernstein's view no longer ac-
corded with Marx's theories in the Manifesto of the Communist Party
and Capital, on the basis of which the Erfurt Programme (1891) of
the German Social Democratic Party was constructed. According to
Bernstein, contrary to the theoretical position of this Programme, the
growth of joint-stock companies counteracted the centralisation of
properties. Small producers and firms obstinately tended to remain
and even increased in various sectors, especially in agriculture. The
development of the means of transportation and communication, as
well as the growth of credit and cartel systems, strengthened the
adaptability of the capitalist economy in preventing acute economic
crises. Therefore, said Bernstein, a capitalist economy was no longer
polarising society into a smaller number of richer capitalists and a
larger number of workers who were supposed to be more and more
impoverished and revolutionised through increasingly severer crises.
Since the first half of Erfurt Programme thus lost its basis, as did
Marx's doctrine, the German Social Democratic Party should aban-
don these and should confine its tasks to the latter half of the
Programme simply for democratic and gradual reforms.
Bernstein represents the first and typical position of revisionism

which has been repeated at various times and places since then.
There were two major sources of confusion. First, he accused Marx's
basic theories of outdatedness by comparing them too hastily with the
actual features of capitalism in late nineteenth century Germany,
instead of systematically clarifying those new features on the basis of
Marx's theory. Second, he narrowly interpreted the major line of
Marx's economic theories as the theory of polarisation of capitalist
society combined with the law of the impoverishment of workers just
as in the Manifesto, and either he could not understand or he
neglected the richer theoretical contents in Capital.
A most comprehensive counter-critique of Bernstein's revisionism
at that time was presented by K. Kautsky (1854-1938). 31 Although
Kautsky was successful in criticising Bernstein's superficial misunder-
standing of Marx's basic theories, he could not overcome method-
ologically and theoretically the deeper sources of confusion. He
attempted only to show that the tendential polarisation of society
fully held through the various new features of German capitalist
development. Even though he initiated an important Marxian field of
study in The Agricultural Problem, 32 he was apt to emphasise just the
de facto proletarianisation of peasant farmers, and could not clarify
the economic ground for socialist alliance of the working class and
the peasantry in lately developing countries such as Germany at that
time. So long as only the relevance of Marx's basic theory was
emphasised, the concrete new features of capitalist development in
the late nineteenth century were not systematically studied, and
therefore the actual roots for Bernstein's type of revisionism re-
mained theoretically uncriticised. This methodological defect eventu-
ally caused another confusion among Marxians when imperialism
became a serious issue toward the First World War.
Kautsky made light of the historical necessity and the political
importance of imperialism, and defined imperialism as just one of the
favourite policies for industrial capital or finance capital to expand
trade with the agricultural areas. Even a peaceful ultraimperialism, a
sort of Holy Alliance among the capitalist great powers, was sup-
posed to be possible. As a result he could not present a theoretical
basis for socialists and workers to resist and revolutionise the crisis of
the imperialist World War, and he did not prevent the collapse of the
second international (1889-1914) in voting for the war budget in the
name of defending workers' fatherlands. It is tragic to see that
Kautsky was never intentionally a 'renegade,' though objectively he
became one as accused by Lenin. 33 In a sense his excessive adher-

ence to Marx's basic theories of the driving force of historical ma-
terialism and of the polarisation of a society into bourgeoisie and
proletariat prevented him to study concretely the crisis of imperial-
ism. Certainly it was by no means a proper way of making the best of
Marxian theories.
Against Kautsky, R. Luxemburg (1870-1919) attempted to show
the logical inevitability of imperialism in The Accumulation of
Capital. 34 In order to show it however, she demanded a serious
revision in Marx's basic theory of reproduction. By observing the
reproduction schema from the view of a circuit of money capital
(M - C . .. P . .. C'- M'), she found that capitalism could not
realise surplus-value internally by obtaining more money (M') than
advanced (M). Imperialism was then defined as a historically inevi-
table stage for capitalist great powers to struggle against each other
to acquire increasingly scarce non-capitalist external market areas
for the realisation of surplus-value. This theory of imperialism was
not well founded. As Marx's reproduction schema shows, if prop-
erly studied from the view of a circuit of commodity capital
(C' - M' · M- C . .. P ... C'), capitalism can in principle realise
surplus-value .internally and can expand by itself. Money to realise
surplus-value can be supplied mutually by capitalists as a part of
means of circulation. Besides, it remained unclear why capitalism
became imperialistic especially since the end of nineteenth century,
so for as Luxemburg sought the cause of imperialism in a very general
logic of capitalist development. Though capitalism certainly utilised
the peripheral countries throughout its development, the economic
relation between the capitalist centre and the periphery cannot be
confined only to a supplementary market for surplus-value, and must
be clarified concretely with its historical changes at a research level
which is different from the general principles of capitalist economy.
R. Hilferding (1877-1941) and V. I. Lenin (1870-1924) presented
in fact a new method of constructing a Marxian theory of imperial-
ism. On the one hand, Hilferding begins his Finance CapitaP 5 with
abstract studies of Marx's theories of money and credit, and unfolds
the logical formation of finance capital, which is defined as bank
capital actually being 'transformed into industrial capital. ' 36 This is
done on the basis of the functions of joint-stock capital, as if it were
an extension of the basic principles of political economy especially
concerning the concentration and centralisation of capital along with
the tendential polarisation of a capitalist society. On the other hand,
he discusses, at a definitely more concrete level, the economic poli-

cies of finance capital in the fifth and final Part of the book. He
attempts there to clarify the different features of British and German
capitalists formation of finance capital, which demands larger and·
larger imperialist territories for the export of capital, sharply increas-
ing the nationalistic rivalries in the world market as well as the danger
of world war.
Lenin in his Imperialism, The Highest Stage of Capitalism 37 system-
atically studied with more decisively concrete considerations, 'a
composite picture of the world capitalist system. ' 38 Lenin followed
Hilferding's concept of finance capital, supplementing to it a factor of
monopoly. However, Lenin's Imperialism, in contrast with Finance
Capital, directly begins with the historical economic process in the
major heavy industries and the financial institutions of main capitalist
countries. At the same time, it is confirmed that 'not in every branch
of industry are there large-scale enterprise'. 39 Then, the export of
capital which is characteristic of the monopolistic stage of capitalism,
the division of the world among the groups of finance capitalists, the
division and redivision of colonial territories among capitalist great
powers, and the historical inevitability of imperialist World War, all
these related matters are described with concrete historical facts or
statistical data. Lenin could sharply criticise the view of the main line
in the second international which defined the war as the war to
defend the fatherland, and he presented the ground for his stategy to
convert the imperialist war (viewed from whichever side) into a
revolutionary civil war. Simultaneously, his study in Imperialism
clearly shows how Marxian economics should investigate the histori-
cal metamorphoses of capitalism with the role of states in the world
market. It can be regarded as a methodological solution of a series of
debates cpncerning revisionism and imperialism.
The Tasks of the Basic Theory

The basic principles of a capitalist economy in Capital should not
easily be negated or revised by the new features of capitalist develop-
ment after Marx. But a mere adherence to the basic principles does
not suffice. Having the basic principles in Capital as the standard for
researches, a comprehensive logical study of historical facts in par-
ticular stage of capitalist development, where finance capital became
dominant leading capital, had to be performed at a different level of
research. Even though many historical facts are also referred to in
Capital, they are basically illustrations for general theories of political

economy, and can be omitted in studying the basic principles. In
contrast, the historical facts often with proper nouns of firms, indus-
tries, and countries in a particular period are indispensable for
Imperialism. Following Uno's methodology we may locate Imperial-
ism as a initiating model of the stages theory of capitalist develop-
ment at a more concrete upper level of research than the more basic
level of Capital.
Marxian economics then, must extend the stages theory so as to
include the studies of capitalist stages of mercantilism and liberalism
as well as imperialism. The growth of productive power through
changing key industries, the forms of leading capital, the social
positions of workers, as well as the economic policies and the struc-
ture of the world market in each stage should be clarified. Having
both such a stages theory of world capitalism and the basic theory as
dual systematic frames of reference, we are offered the possibility of
performing the empirical analyses of individual countries elastically
and organically. As we saw in the controversy over Japanese capi-
talism,40 the specific features of individual countries such as the
existence of a mass of poor peasant farmers in rural areas may be
defined mechanically as either heterogeneous non-capitalist and basi-
cally feudal components, or as simply decomposing elements within a
capitalist society, so far as only the basic theory in Capital is con-
trasted to them. Anyway it must be clear by now that Marxian
economics faces a very much wider range of researches outside the
theoretical system of Capital, at both the level of the stages theory
and at a more actual level of empirical analyses.
When the task of Marxian studies to develop the stages theory, and
actual empirical analyses at the upper and more concrete levels of
research are thus confirmed, then the task of the basic theory of
capitalism becomes distinct and much clearer.
By mixing up the levels of research the theoretical system in
Capital is sometimes defined as the theoretical model of an old
competitive capitalism which must be replaced by a newer theoretical
model of monopolistic capitalism, 41 or further, more recent state
monopoly capitalism. Massive Marxian studies of the whole parts of
Capital might then be regarded as being irrelevant to the actual issues
of our age, being more or less of merely bibliographical curiosities.
From what we have discussed, such an interpretation is by no means
correct.
Being distinguished from the more concrete levels of research, the
theoretical system of Capital must clearly be located and completed

as the basic principles of capitalist economy. The task of such prin-
ciples is dual. First, by showing the historical character of capitalist
economy in a general theoretical system, such principles can serve as
the most fundamental scientific ground for historical materialism and
the socialist view of breaking down the capitalist economic system.
The fundamental aims of the revolutionary socialist movement,
which are usually expressed in the basic programmes, must be
grounded on the basic principles of a capitalist economy, whereas the
more concrete strategies and tactics must utilise the more concrete
studies of world capitalism and individual countries at the levels of
stages theory and of empirical analyses. Even the most abstract
theory of value in Capital closely relates to such a task. This explains
at least partly why so many critiques have been fervently repeated by
non-Marxians of various types. Second, the basic theoretical system
in Capital must serve as the standard frame of reference for the stages
theory and the actual empirical analyses. Without having such a
fundamental standard of research the concrete studies of world
capitalism and individual countries might become fragmented, lack-
ing focus, arbitrary and easily too eclectic.
When the location and the task of the theoretical system in Capital
are thus confirmed, we are able to investigate its contents less
dogmatically and more systematically. We can and must attempt to
complete the basic theories of capitalism by studying Capital in view
of their fundamental location and tasks. So far as Capital still con-
tains concrete historical observations which are suitable for the stages
theory or the empirical analyses, we have to separate them out, to
purify the basic principles. Abstract inferences, deduced too directly
from the formula of historical materialism, for instance in concluding
the inevitable end of capitalism through the dialectical 'negation of
the negation' (I, p. 929) of private property, have also to be excluded
from the basic economic theory of capitalism, so far as they cannot be
logically provable. Wherever Marx's theories are incorrect or incom-
plete we should not hesitate to do our best to overcome the defects.
Even critiques from non-Marxian, to say nothing of the debates
among Marxian writers, have often raised important theoretical
problems to be solved scientifically. As in the theories of value and
crisis the residues of immature theories of the classical and the
anti-classical school are often sources of defects in Capital, and have
to be carefully purified. As in the theory of joint-stock capital among
others, the logic of capitalist development after Marx sometimes has
to be taken into consideration in completing the basic theoretical

system of the capitalist economy.
In the following chapters of this volume the basic economic theory
of capitalism will be investigated through its major problematic issues
in the light of these tasks and methodological interests.
Part II
Value, Labour and Capital
Since economic activities under capitalism are all carried on through
the market mechanism of commodity transactions, all the major
schools of economic theory which have appeared during the develop-
ment of capitalism have naturally been concerned with the nature
and determinants of the exchange of commodities as a fundamental
problem. Value theories, in a broadest sense, comprise various
logical investigations into this problem. However, the tasks and
contents of the various types of value theory have differed according
to the major concerns of the total theoretical system of each school.
The differences in the theories of value have also been closely related
to varying theories of surplus-value or profit.
For instance, the neo-classical theories concentrate on the determi-
nation of prices within a market on the basis of subjective and
individual preference. Distribution of the social product between
workers, capitalists and landowners is treated as a corollary of price
theory applied to wages, profit and ground-rent. Alternatively, the
neo-Ricardian theories show that equilibrium prices are determin-
able on the basis of objective physical data of the methods of
production and real wages, leaving room for any changes in distribu-
tion between workers and capitalists to be treated as an independent
variable determined prior to the prices of commodity products. In
spite of their opposite positions concerning the determinants of prices
however, both neo-classicists and neo-Ricardians believe that the
determination of prices is the basic and central task of an economic
theory, both also assuming that the market system is a given natural
order for human economic activity. Capitalism may then be viewed
as a natural society, not as a historically specific economy.
So far as both the question of equilibrium prices and the quantitat-
ive relation between wages and profit in a market are the major
concern, the labour theory of value in the classical and the Marxian
schools must be accused of being at best redundant. Both P. Samuel-
son, as a representative neo-classicist, and I. Steedman, as a neo-
Ricardian, concur in this critique of the labour theory of value. 1 Both
Samuelson and Steedman recognize that the necessary labour-time to
produce commodities can be determined from the physical data of
69
70 Value, Labour and Capital
production processes under certain conditions. They repudiate how-

ever the labour theory of value on the grounds that the same physical
data can directly and more consistently determine prices and profit in
a market. In their eyes, prices, wages and profit in a market are the
central economic issues to be studied theoretically. What are lost in
such neo-classical and the neo-Ricardian types of theories are, among
other things, the theoretical concerns about human social activity in
the labour process, and the source of surplus-value. At the other
extreme, by emphasising the material basis of class relations in the
exploitation of labour, some Marxians have tended to believe that
the price-form in a market is simply a fetish veil which only needs to
be put aside in order to reveal the hidden relations of production.
From this standpoint, theoretical concern with the price form in a
market, as well as the neo-classical or neo-Ricardian price theories,
would be regarded simply as very superficial and fetishised. At the
same time the labour theory of value may become similar to the
classical Ricardian type, or to a theory which demonstrates the social
basis of class societies in general and not only capitalism.
In contrast, Marx's own value theory in Capital does not treat the
market just as an intermediary veil hiding reality, but consciously
elucidates the forms of a market economy as indispensable organising
mechanisms of capitalist reproduction. This is because Marx's theor-
etical concern is in revealing the historically specific character of
capitalism, where the social labour process is actually encompassed
and driven on by the forms of the market economy. The distinction
and relation between prices in a market and the underlying quantities
of labour become essential. Marx dualised the notion of value into
the forms and the substance of value in this regard. Whereas the
substance of value is defined as the embodied labour in commodities,
the forms of value refer to the nature of social relations specific to a
commodity economy, shaping the economic relations between com-
modities, money and capital in a market. Quantitatively the forms of
value become expressed and measured in terms of prices. As an
analogy, the forms of value in a market could be seen as an image of a
vessel constructed of mosaic, which can stand alone, independent of
its content, but can be filled with a liquied, i.e. social labour sub-
stance in the case of capitalism2 • Theoretical interest in only the
substance or only the price forms of value in other schools can thus be
criticised as narrowly one-sided and unhistorical. The theory of the
forms of value itself, though it certainly investigates prices, must no
longer remain a merely quantitative analysis of the determinants of
Value, Labour and Capital 71
prices. The historically specific character of social relations in the

form of value initially requires more a qualitative elucidation. For
instance, why must ordinary commodities always be exchanged through
money or under the price form? And why does money monopolise
the direct exchangeability with all other commodities? How are value
forms logically related together and developed from commodity into
money and capital? These problems were originally presented and
studied in Marx's Capital.
However, the theoretical potential of Marx's dual notion of value
and his original theory of the forms of value have not yet been fully
utilised and extended, especially insofar as Marx's value theory has
been discussed merely as if it were a revised version of Ricardo's by
concentrating only on quantitative problems. Since there is some
Ricardian residue in Marx's own theory, such a tendency among both
critics of Marx and orthodox doctrinal Marxians is perhaps under-
standable. However, firstly we have to clarify the theoretical impli-
cations and potential of Marx's dual notion of value, by attempting to
remove the resi9ue of classical value theory. Then we may be better
qualified to handle the theoretical confusions or difficulties in the
recent value controversy from a different angle in the latter chapters
of Part II.
4 The Forms of Value
Commodity, Money and
Capital
4.1 COMMODITIES AND THE MYSTERY OF THE
PRICE-FORM
The Forms and the Substance of Value

Although Marx titles the first volume of Capital 'The Process of
Production of Capital', he does not immediately investigate the
substantital content of a capitalist mode of production. In the first
two Parts of the volume, beginning from the analysis of the commod-
ity as the elementary form, he elucidates the systematic relations
between commodities, money and capital as the development of the
forms of value. Both historically and spatially these forms appear as
the basic components of commodity economy in general in much
wider periods and the places than capitalist production. On the basis
of the development of commodity economy, the free worker 'in the
double sense that as a free individual he can dispose of his labour-
power as his own commodity, and that . . . he is free of all the
objects needed for the realisation [Verwirklichung] of his labour-
power' (I, pp. 272-3) must be given for the birth and maintenance of
capitalist production in a social scale.
Then, subsequently at the beginning of the third Part of the
volume, where the investigation of the inner mechanism of capitalist
production begins, Capital defines 'the labour process' as 'the univer-
sal condition for the metabolic interaction [Stoffwechsel] between
man and nature, ... common to all forms of society' (1, p. 290). For
the first time in the long history of human societies this labour process
becomes thoroughly embraced and treated by the forms of com-
modity economy. The forms of value in a commodity economy must
then be firmly grounded in the social labour process. Or, conversely,
the labour process common to all forms of society is turned into the
source of value in a capitalist commodity economy.
Thus in the construction of its first three Parts, Capital theoretically
distinguishes the three different historical characters of the forms of a
73
commodity economy, the labour process and the capitalist economy.

The distinction is original to Marx and unavailable in any other
school. In clarifying the distinction Marx's value theory could not
remain as a mere labour theory of value in the classical school, and it
did not begin with the conception of the labour process. The social
substance of values in a capitalist economy on the basis of the labour
process is revealed in Capital through and behind the notion of the
forms of value, which was left undiscovered by the classical school. 1
At first sight there seems to be a gap between the subject of the
initial two Parts and that of the other Parts of Capital. For the forms
of value in commodity economy, which are studied in the first two
Parts, have actually existed previous to, and more extensively than
the capitalist mode of production. However, they also become the
basic forms of economic order of a capitalist society, and give a very
special character to the society.
As Marx points out, the 'the exchange of commodities begins
where communities have their boundaries, at their points of contact
with other communities, or with members of the latter' (I, p. 182),
the commodity economy originally springs out as inter-social econ-
omic relations. Corresponding to this the commodity economy tended
to grow always relatively independently of political regulations within
each communal societies, and transferred inter-socially various pro-
ducts indifferent to the nature of modes of production behind them.
The capitalist mode of production was founded when such a com-
modity economy came to be an internal social order subject to the
motion of capital on the basis of the commodity form of labour-
power. As capitalism develops as a thorough commodity economy,
producing commodities by means of commodities, its economic pro-
cess shows autonomy independent of political and legal superstruc-
tures. At the same time the autonomous motion of a capitalist
economy is not qualitatively impeded by commodity transactions
with other societies in the world market, unlike any other social
formations. In this historically specific autonomy of a capitalist econ-
omy based on an anarchic market system, there is presented the
grounds for the division by historical materialism of the superstruc-
ture and substructure of societies.
Thus, the historical character of a capitalist economy is essentially
related to the character of commodity economy in general. The
specifically anarchic autonomy of the economic process in capitalism
is founded upon the forms of commodity economy, which, originat-
ing in an extra-social economic order, has been converted into the
The Forms of Value- Commodity, Money and Capital 75
intra-social principles of production. Therefore, exactly in order to

clarify the historical characteristics of the law of motion of a capitalist
economy, we have to study first the forms of commodity economy
which is not confined within capitalist society, just as Marx properly
ordered his study in the first two Parts of Capital.
Although Marx's originality is thus clear in the major theoretical
construction of the first three Parts of Capital, revealing the social
substance of value in a capitalist economy after and behind the notion
of the forms of value in commodity economy, his method of exam-
ining the substance behind the forms of value is not always made the
best of, especially in the first chapter of Capital 'The Commodity'.
Interestingly the topics of the first three sections of the first chapter
are rather contrary to the major construction of the first three Parts.
The first two sections 'The Two Factors of a Commodity: Use-Value
and Value (Substance of Value, Magnitude of Value)' and 'The Dual
Character of the Labour Embodied in Commodities' mainly concern
the substance of value before, not after the analysis of 'The Value-
Form, or Exchange-Value' in the third section. However, when
separated from Marx's original notion of the forms of value, his
notion of value had to remain not far from Ricardo's ahistorical
concept of value with all its difficulties. Let us examine the contents
of the first section.
Marx, unlike Ricardo, is certainly concerned with the historical
character of the subject of his study from the beginning. At the very
start of the first chapter of Capital, we read: 'The wealth of societies
in which the capitalist mode of production prevails appears as an
"immense collection of commodities"; the individual commodity
appears as its elementary form. Our investigation therefore begins
with the analysis of the commodity.' (I, p. 125) Marx explicitly refers
to the capitalist mode of production from the first sentence as his
major subject, and takes up the commodity as its elementary form.
Also unlike the classical school, Marx notices that the use-values of
commodities are common to all external objects of human needs,
whate_ver the form of society, but that 'in the form of society to be
considered here they are also the material bearers [Trager) of -
exchange-value'. (1, p. 126). And then he defines that 'exchange-
value appears first of all as the quantitative relation, the proportion,
in which use-values of one kind exchange for use-values of another
kind' (1, p. 126), before searching for a substantial common factor in
commodities behind the appearance of exchange-values.
In this context Marx does not begin directly from the substance or
the magnitude of value, but with careful attention from exchange-value

as a form of value, in spite of the order of the titles of the first and the
third sections. However, the logical relation between the form and the
substance of value is somewhat mechanically cut off and neglected, in
the subsequent process of abstracting the latter from the former.
After defining exchange-value Marx continues to inquire what is
common to the exchange-values of commodities. So far as two
commodities with different use-value, say corn and iron, are equated
as exchange-value, there must be a third common something. In
order to find out this third element, Marx abstracts from the use-
value, saying, 'the exchange relation of commodities is characterised
precisely by its abstraction from their use-values. Within the ex-
change relation, one use-value is worth just as much as another,
provided only that it is present in the appropriate quantity'.
(I, p. 127). With this abstraction from use-value, the common prop-
erty in commodities is reduced to that being products of human
labour in the abstract, regardless of its concrete forms. 'As crystals of
this social substance, which is common to them all, they are values-
commodity values.' (I, p. 128).
In this logical reduction to the notion of commodity values, Marx
leaves out of consideration use-values and their exchange relations or
the form of value in exchange. As a result Marx's notion of com-
modity values is boiled down here to the property of commodities as
crystals of abstract labour, which must be common to labour products
not confined to commodities. This notion does not include in itself
any historical specificity of commodities and so far does not seem
very different from Ricardo's notion of value. Certainly Marx knows
that 'A thing can be useful, and a product of human labour, without
being a commodity. He who satisfies his own need with the product
of his own labour admittedly creates use-values, but not com-
modities. In order to produce the latter he must not only produce
use-values, but use-values for others, social use-values.' (I, p. 131).
This is not yet sufficient, however, as Engels points out, by referring
to a corn-rent for the feudal lord as a counter-evidence, that 'in order
to become a commodity, the product must be transferred to the other
person, for whom it serves as a use-value, through the medium of
exchange.' (I, p. 131). In this regard, commodity values must not be
abstracted from exchange relations or the form of value. The prop-
erty of labour products and the quantities of abstract labour em-
bodied in them become the substance of value, only when they are
handled through the form of exchange-value.
Thus, crystals of abstract labour cannot be the substance of value

without being located behind the forms of value. The forms of value
must therefore be indispensable for the concept of commodity values.
In spite of Marx's ordering of the first and the third sections of the
first chapter of Capital, the substance of value cannot, then, properly
be defined prior to the notion of value-forms. How about the forms
of value in commodity circulation? Can they theoretically be defined
and developed prior to the notion of the substance of value?
This is an initiating issue of the extended discussion on value
theory among Japanese Marxian economists inspired by the works of
K. Uno. Uno discovered that the forms of value of commodities,
money and capital were separable from social relations existing in
labour time. He reformulated Marx's theories in the first two Parts of
Capital as the theories of pure forms of circulation without referring
to the substance of value. 2 This reformulation is well suited to Marx's
original recognition that the commodity economy arose and devel-
oped through inter-social economic relations which remained exter-
nal to the inner social labour processes in all precapitalist formations
of society. It also serves to solve the basic difficulties in proving the
labour theory of value in the theory of simple commodities.
The difficulties in demonstrating the labour theory of value in the
theory of commodities are for both qualitative and quantitative
reasons as follows. Qualitatively; whereas Marxians unlike Ricar-
dians must consider the historical and social basis for a theory of
value, it is extremely difficult to define the social conditions which
definitely create value in commodities only in terms of commodities
and labour. As Marx properly recognised, neither the labour process
in general or the social division of labour was a sufficient condition
for a commodity economy, in contrast to Smith's simplistic view, and
as exemplified by the caste system (cf. I, p. 132). Even Marx's own
definition that 'only the products of mutually independent acts of
labour, preformed in isolation, can confront each other as com-
modities' (I, p. 132) is not exhaustive. The commodity products in
precapitalist ages were often the surplus of combined labour in
communal societies and were certainly not confined to the products
of independent small commodity producers. The work in a capitalist
factory producing commodities cannot be 'independent acts of labour,'
and not a few non-labour products such as labour-power and land
take the commodity form in a capitalist society. Thus, it is impossible
to specify the social conditions by which commodity values are
produced or given in the initial analysis only of commodities. In
contrast, when we come to analyse the capitalist process of pro-

duction after the theory of forms of value, then we can be sure to
show the historically definite conditions where the substance of
commodity values must be yielded by labour expenditure with social
necessity.
So far as the qualitative social link between labour and commodity
values is not assured for certain in the theory of mere commodities, it
is also difficult quantitatively to prove the labour theory of value with
a solid social basis at this level. Since the notion of capitalist pro-
duction is not yet presented, the social basis for the labour theory of
value in the initial analysis of commodities is usually assumed to be in
precapitalist commodity production. In various precapitalist social
formations, however, the main part of the labour process and repro-
duction is not maintained through commodity exchanges. While only
some portion of (mostly surplus) products is commoditised, the law
of value will iiot regulate exchanges with any real social necessity on
the basis of labour expenditure. Actually, merchants would often
repeatedly purchase from either peasants or the ruling landowners, at
much cheaper prices than the labour values without destroying the
existing mode of reproduction. A traditional interpretation of the
labour theory of value, therefore, depends on the assumption of a
society of simple commodity production in which social reproduction
is effected entirely by small, independent commodity producers. 3
This interpretation, however, has to presuppose an imaginary class-
less society of commodity producers prior to a capitalist society, and
cannot demonstrate the validity of the labour theory of value as the
law of motion of capitalist production. With all these difficulties,
Marx's labour theory of value in the initial analysis of commodities
has been a source of incessant confusions and debates, including that
of the 'transformation problem' from values into prices of production.
If, therefore, we can avoid discussing the labour theory of value
prior to the notion of capitalist production, by purifying Marx's
original theory of forms of value, we can dissipate the basic source of
difficulties and confusions concerning Marx's value theory, and can
expect later to demonstrate the labour theory of value with a much
more solid social basis.
The Value-form of Commodities

In the third section of the first chapter of Capital, Marx analyses the
value-form of commodities, and investigates the mystery of money,
or why commodities cannot be directly exchangeable, giving the

monopolistic position of direct exchangeability to only the money
commodity in their price-form. Although this section has not yet
attracted sufficient attention in the recent Western value controversy
as compared with the other sections of the same chapter, it contains
the essential foundation for Marxian value-form theory, as well as
some interesting problems. The logical development of the value-
form of commodities is studied here from the simple form of value
between two commodities, via the expanded and the general form of
value, to reach the money form or the price-form.
In the analysis of the first, simple form of value of commodities,
i.e. 20 yards of linen = 1 coat, or 20 yards of linen are worth 1 coat,
Marx carries on an attractive dialogue with Aristotle. According to
Marx, Aristotle already states that the money-form of the commodity
is only a more developed aspect of the simple form of value. For he
says that 5 beds = 1 house is indistinguishable from 5 beds = a certain
amount of money. He further shows a genius in attempting to
discover a relation of equality in the value-expression of com-
modities, by saying that 'there can be not exchange without equality,
and no equality without commensurability'. However, Aristotle falters
here and abandons a further analysis of the form of value, by stating
that it is impossible in reality to find out qualitative equality or
commensurability between such different things. The form of equa-
tion must therefore only be 'a makeshift for practical purposes'. In
Marx's view what is left undiscovered by Aristotle as the commensur-
able homogeneous element in commodities is human labour as the
common substance of value. In spite of Aristotle's genius the histori-
cal limitation of the society in which he lived prevented him from
finding it out. 'Greek society was founded on the labour of slaves,
hence had as its natural basis the inequality of men and of their
labour-powers. The secret of the expression of value, namely the
equality and equivalence of all kinds of labour, . . . could not be
deciphered until the concept of human equality had already acquired
the permanence of a fixed popular opinion. This, however, becomes
possible only in a society where the commodity-form is the universal
form of the product of labour.' (1, pp. 151-2).
Marx is very correct in pointing out that the common substance of
value could be deciphered as homogeneous human labour only in a
fully developed commodity society on the basis of general concept of
human equality. However, Marx's critique of Aristotle here is some-
what one-sided, and does not lead fully to the point. For Aristotle
does not clarify the logical development of the value-form from the
simple form to the money-form, by stating that 5 beds = 1 house is
directly indistinguishable from 5 beds = a certain amount of money.
Although the form of value equation is in a sense something foreign
to the true nature of things as use-values, it is by no means a mere
tentative 'makeshift' but forms an endogenous logical order for
commodities. Marx does not point to the lack of analysis of the inner
logic of the equation, for Aristotle's attempt, to develop the value-
forms, but just puts emphasis on the lack of the concept of the
substance of value. If only the labour theory of value matters, the
classical school prior to Marx already discovered it.
Nevertheless the labour theory of value in the classical school did
not guarantee a way forward for the study of value-forms. As we
quoted in note 1 of this chapter, Marx was well aware that the task of
clarifying the value-form in this section of Capital had never been
pursued by the classical school. The failure of the classical school to
discover the form of value was due to the mistake of treating capital-
ist production and commodity economy as the eternal natural form of
economy. In this regard the neo-classical and the neo-Ricardian
school also are not immune from the same failure.
As is exemplified in his dialogue with Aristotle, Marx attempts to
confirm the character of the substance of value, as well as the
historical basis that enables us to recognise abstract human labour as
the value substance through his theoretical analysis of the form of
value. As an actual fact in the history of economic theory, Marx's
theory of the forms of value could not have been obtained without
superceding the classical labour theory of value and social repro-
duction. The mercantilist theories of circulation had to remain frag-
mental, and could not lead directly to systematic studies of the forms
of value from a broader and deeper historical view like that of
Marx's. Capital demonstrates a deepening process of 'a critique of
political economy' by developing dialectically the theories of the
forms and the substance of value. Thus Marx's critique of Aristotle in
the theory of the value-form went dialectically to the historical basis
of the abstraction of the substance of value.
A similar dialectical combination of the studies of the forms and
the substance of value is observable in many places other than that of
the dialogue with Aristotle. Although it is educative and interesting
to read them as the formation of theories and critiques, the theory of
the forms of value itself can and must be separated from the critical
investigation into the substance of value, with a view to having a
more fully completed and clearcut theoretical system. By such a

separation and purification of the theory of value-forms, we can at
least avoid a possible misunderstanding that the value-forms in
commodity economy spring out of the substantial human relations in
labour.
Can we then really trace the development of the value-forms from
the simplest, to the money and the capital form without referring to
the substance of value in a pure theory of the forms of value? A
problem must here lie in the concept of value itself. How shall we
define value when we separate it from its substance?
As we noticed, Marx did not define the concept of value immedi-
ately after analysing use-values in the first section of the first chapter
of Capital. He took up exchange-values and inferred, from various
quantitative equations between use-values in exchange, that 'As
use-values, commodities differ above all in quality, while as ex-
change-values they can only differ in quantity, and therefore do not
contain an atom of use-value'. (I, p. 128). Marx deduces immediately
from this inference that the only one common property of com-
modities is that of being products of labour. The deduction is,
however, incomplete and theoretically too hasty. For, as we have
discussed, the common character of commodities is not limited to the
property of being product of labour. Or the property of being
product of labour is not a necessary and sufficient condition for
commodities. What is more essential for commodities is that they
have to be exchanged with other commodities. The property of
requesting exchange is basically common to commodities and it must
also call for a common quantitative comparability and some standard
exchange ratios. This property of commodities can be initially con-
ceived of as value separated from its substance in a purified theory of
the forms of a commodity economy.
In the third section of the first chapter of Capital Marx notices:
'Everyone knows, if nothing else, that commodities have a common
value-form which contrasts in the most striking manner with the
motley natural forms of their use-values. I refer to the money-form.'
(I, p. 139). From the view of the established money-form or the
price-form, the quantitative homogeneity in the exchange-values of
commodities is clearly not necessarily identical with the homogeneity
of being the product of labour. We can pursue the origin of the
price-form from the simplest expression of value, by depending, not
upon the value substance as embodied labour, but upon the concept
of value in form as the common property of commodities requiring
exchange, calling for quantitative comparability and standard ex-

change ratios. 4 Marx does not clarify such a basic concept of value in
form prior to the analysis of the value-form in the third section. Nor
does he deduce the development of the expression of value directly
from the concept of the substance of value as crystals of abstract
labour, although he attempts to confirm the nature of the substance
repeatedly through the development of value-forms. As a result the
origin and the development of the value-form of commodities in the
third section remain occasionally somewhat mechanically analytical,
and it is difficult to follow the internal logic in it in spite of all its
originality.
Marx begins the theory of the value-form from the simple form of
value;
20 yards of linen = 1 coat, or: 20 yards of linen are worth 1 coat.
As Marx clarifies, the first commodity, linen, plays an active role in
expressing its value in the coat taking the position of the relative form
of value. The second commodity, the coat, is passively given the
position of the equivalent form, and is so far directly exchangeable
with the linen. In Marx's clarification, however, it does not seem fully
clear what the expression of value means, and how it results in the
direct exchangeability of the coat in the equivalent form. Marx tends
to investigate the meaning of the value expression from the viewpoint
of reducing different kinds of labour to human labour in abstract, and
not so much in terms of the concept of value in its form.
If we remember that the concept of value is basically the property
of commodities requiring them to exchange, the logic in the value-
form can be more properly explained as follows. The expression of
the value of the commodity linen in terms of coats means nothing but
the request to exchange linen for a coat. The use-value of a coat is
chosen by the owner of linen as a desirable object in which to realise
the value of linen by exchange. 5 The request to exchange linen for the
coat by placing linen in the position of the relative form of value is
not certain to be realised, since the owner of a coat which is passively
chosen as the equivalent, may not want linen. The specificity of the
use-value of linen restricts the realisation of its value. Two com-
modities at the two poles of the expression of value are thus not
generally convertible. So far as a coat is wanted as the equivalent of
linen, the owner of a coat can directly exchange his commodity with
linen if ever he wishes. The direct exchangeability given to the
equivalent form can thus be understood easily from the basic nature
of the value expression as the request for exchange.
There seems to be a methodological difficulty here of how to

abstract the simple form of value between two commodities from a
capitalist economy, where the exchange of commodities is already
generally carried on through the use of money. If exchange-value is
treated in the form of direct exchange as in the first section, the
difficulty would be a real one and insoluble without assuming very
primitive commodity exchanges. 6 In my view of the value-form, the
property of commodities of requiring exchange with other com-
modities, can well be abstracted from beneath the price-form, and it
leads to the simple form of value which represents the most basic
motivation of commodity owners. An owner of a commodity, say
linen, generally wants to obtain some other commodity, say a coat in
exchange, even though his motivation is actually buried under the
price-form in a fully developed commodity economy. The theoretical
abstraction of such motivation becomes unrealistic when it is treated
in the form of direct exchange as if it were generally realisable.
Insofar as we explore the basic motivation of commodity exchange
in a simple form, the expression of the quantity of value cannot
immediately be socially objective. In the expression that 20 yards of
linen is offered in order to obtain 1 coat in exchange, the magnitude
of value of linen is stated relatively in terms of a coat from the view of
its owner. Since the owner of a coat may reject the requested ratio,
the owner of linen cannot require too favourable terms of exchange,
and has to take account of a social standard in his subjective express-
ion. The quantities of embodied labour in commodities, together
with technical conditions of production, do regulate the social stan-
dard of exchange-values from behind, but not so directly and strictly
as Marx tends to describe the value-forms. The expression of value of
each commodity is fundamentally rather anarchical and individual-
istic, not noticing the socially objective regulation even in the com-
pleted price-form.
As the request for the exchange of the commodity linen with
another commodity cannot be confined to the request for a single
kind of commodity, 'the simple form of value automatically passes
over into' the expanded form of value 7 (I, p. 154)
20 yards of linen = 1 coat

10 yards of linen = 5 lb. tea
1 40 yards
10 yards
of linen = 2 quarter of corn
of linen = 1 ounces of gold
etc.
In this form the value of linen is expressed in terms of the various

use-values of other commodities. Linen stands in a social relation
more or less with the world of commodities and wishes to be a citizen
of that world. Though the simple form of value remains as each
component of this expanded form of value, the use-values of com-
modities which are requested by the linen in the expanded relative
form stand for 'the particular equivalent form' (r, p. 156), as they are
now in the position to be compared to each other in their specificity.
By relating to each particular equivalent form in a series, the value of
linen in an expanded relative expression then appears also indifferent
to any specific use-value. In this regard, the nature of value is shown
more distinctly from that of use-value. The quantity of value of linen,
which is relatively expressed in the requested ratios of exchange with
other commodities, must still be more or less subjectively and indi-
vidualistically stated by its owners. But wider social relations of
exchange-values must come to be taken into consideration here in
comparison with the case of the simple form of value.
As Marx points out, certain defects are contained in the expanded
form of value. The relative expression of value of a commodity
cannot be complete, since the lines of equation can be added without
a definite limitation. It is also 'a motley mosaic of disparate and
unconnected expressions of value' (r, p. 156). These defects are
reflected in the corresponding equivalent form. Each equivalent must
be a limited and particular equivalent form among others, and each
of the equivalent forms may exclude all the others in the actual
process of exchange. Nor is there a unified form of expression of
value. How can these defects be overcome?
Marx simply reverses the expanded form of value to get the third,
general form of value, by saying: 'when a person exchanges his linen
for many other commodities, and thus expresses its value in a series
of other commodities, it necessarily follows that the other owners of
commodities exchange them for the linen, and therefore express the
values of their various commodities in one and the same third
commodity, the linen' (r, p. 157). This logic contradicts the essence of
Marx's own theory of forms of value. From the first, simple form of
value, Marx emphasised the polarity of, and the different roles of, the
relative form of value and the equivalent form. The relative express-
ion of the value of linen in terms of a coat is not identical with the
actual exchange between them, and does not necessarily imply the
reverse request of an exchange from a coat into linen. The direct
exchangeability is given only to the coat in the equivalent form, and
not to the linen in the relative form of value. Therefore, the ex-
panded form of value cannot simply be reversible. Marx thus left
unsolved the question of how to overcome the defects in the ex-
panded form of value, and how to pass over to the general form of
value.
It is apparent that all the commodities do express each of their
values in the simple, and then in the expanded relative form of value,
just as the linen does. At first sight the defects in the expanded form
of value of linen do not seem soluble in relation to the similar
expressions of value of other commodities, but sink rather into a
chaos which is composed of an unlimited number of different ex-
pressions of the values of various commodities. 8 In a chaotic series of
parallel expressions of values however, some commodities must be
found among the motley equivalents which are common at least for a
certain number of commodities taking the relative form of value.
Then this commodity, say tea, which is common among the equival-
ents for a certain range of commodities, comes to be required not
only for its special use-value, say to drink, but also for its 'formal
use-value' (I, p. 184), i.e. the direct exhangeability with other com-
modities. Under such circumstances the owners of commodities
generally wish to obtain tea in exchange, and values of commodities
become jointly expressed in terms of tea. The third, general form of
value thus appears:
20 yards of linen = 10 lb. of tea

( 2 coats = 20 lb. of tea
1/2 quarter of corn = 5 lb. of tea
etc.
Insofar as commodities require to be exchanged with tea in this

form, their form of value is simple, unified and common to all, 'hence
general' (I, p. 157). The defects in the previous expanded form of
value are so far overcome here. The general relative form of value of
commodities imposes the character of general equivalent on the
commodity tea, and entitles tea to take a monopolistic position of
direct exchangeability with all other commodities. The values of
commodities in this general relative form are now expressed not only
in qualitatively equal term, but also in quantitatively comparable
magnitude. The social correlations as quantified values must be more
clearly considered, even though the expressions of value must be
made, still more or less subjectively.
The range of commodities which have tea in common as their

equivalent may not be comprehensive or universal. The other groups
of commodities would each have a different general equivalent. The
groups of commodities may overlap each other and can hardly be
fixed for ever. Therefore, the general form of value cannot yet be
solid nor universal. As long as plural equivalents coexist, the ex-
pression of value in the whole world of commodities cannot yet be
completely unified. Thus, just as in the case of the transition from the
expanded to the general form of value, the overlapping groups of
commodities must further exclude weaker or less appropriate com-
modities (especially in terms of their 'formal use-value') from the
position of the common and general equivalent. 'Only when this
exclusion becomes finally restricted to a specific kind of commodity
does the uniform relative form of value of the world of commodities
attain objective fixedness and general social validity.' (1, p. 162).
Through such exclusion and selection, silver and then gold was
selected as the universal equivalent, because its physical durability,
divisibility and purity in nature, as well as its external use-value for
basic production and consumption are all well suited to the function
of the universal equivalent. When silver and gold are fixed in the
position of the universal equivalent, the money-form of value or the
price-form solidly appears;
A yard of linen = 1110 ounce of gold, or 7s. 9d.

( 1 coat = 2 ounces of gold, or £7. 15s. 9d.
A pound of tea = 115 ounce of gold, or 15s. 6d.
etc.
(When Marx wrote, an ounce of gold used to be coined as £3. 17s.

10V2d.; £1 being 20 shillings and one shilling being 12 pence.)
The mystery of money, why gold as the money commodity monop-

olises direct exchangeability, or why all other commodities have to
request an exchange with the money commodity, is no longer difficult
to explain. As Marx summarises, 'the only difficulty in the concept of
the money-form is that of grasping the universal equivalent form, and
hence the general form of value as such'. By working further back-
wards the general form of value can be reduced to the expanded form
of value, and its constitutive element is the simple form of value. 'The
simple commodity form is therefore the germ of the money-form.' (1,
p. 163). Thus, the endogenous character of commodity value, i.e. that
it requires exchange with other commodities, being restricted as for

realisation by the specificity of its use value, logically develops the
value-form from the simple via the expanded and the general, into
the money form, and then dualises the whole world of commodities
into commodities and money. Money is therefore a commodity of
some sort in its origin, and Marx is historically correct in his period in
saying 'although gold and silver are not by nature money, money is
by nature gold and silver' (1, p. 183). However, in its 'formal use-
value' money can be separated from its gold basis under certain
historical conditions, and with political devices as in major war
periods, as well as in our own age. Although we cannot treat the
concrete conditions and devices as well as the influences in substitut-
ing inconvertible state notes or bank notes for gold money within the
framework of the basic theory of capitalist economy, it is worth
noting that possibility of such substitution already exists in the
'formal use-value' of money. 9
4.2 MONEY AND THE CIRCULATION OF COMMODITIES
In the third chapter of the first volume of Capital Marx analyses the
basic forms of the functions of money. In the classical school as well
as in the neo-classical school (before Keynes), money tends to be
treated just as a conventional means of exchange. In contrast, Marx
systematically puts in order the rich forms of the function of money,
namely the measure of value, the means of circulation, and money as
the absolute form of value which further comprises the forms of
hoarding, means of payment and world money. Marx absorbed and
made use of observations of the forms of money by the mercantilists
like James Stuart. At the same time Marx's original analysis of the
commodity form which clarifies the unique position of money in the
world of commodities, enabled him theoretically to distinguish es-
pecially the function of money as the absolute form of value from that
as the means of circulation. The analysis of the means of circulation
itself also became richer than that of the classical school. In the light
of the theory of the value-form, however, there are still some prob-
lems in Marx's theory of money, in particular concerning the measure
of values in the first section of the third chapter.
The Measure of Value

Marx defines the measure of values as the function of money in
supplying commodities with the material for the expression of their

values on the one hand, and, on the other, as the necessary form of
appearance of the more substantial measure of value, i.e. labour-
time. In Marx's words: 'The first main function of gold is to supply
commodities with the material for the expression of their values, or
to represent their values as magnitudes of the same denomination,
qualitatively equal and quantitatively comparable. It thus acts as a
universal measure of value, and only through performing this func-
tion does gold, the specific equivalent commodity, become money.'
'Money as a measure of value is the necessary form of appearance of
the measure of value which is immanent in commodities, namely
labour-time.' (I, p. 188). Apparently these definitions largely repeat
and overlap the preceding definition of the money-form or the
price-form which is given as the final result of the development of the
value-form of commodities. Gold is shown there already at the
position of universal equivalent which serves as the material for the
common expression of commodity values in commensurable magni-
tudes. Such repetition occurred probably because the theory of
value-form was completed and inserted later in its present place as we
saw in note 5.
Another difficulty is in the theoretical relation between the func-
tion of money as the measure of value and the quantities of labour-
time embodied in commodities. Marx defines here the first as the
form of appearance of the second which is the more immanent,
substantial measure of values of commodities. Though labour-time
serves as the measure of the substance of values, the expressions of
values in prices cannot directly nor exactly reflect the substance of
values. They are performed without knowing the substantial quan-
tities of labour-time embodied in commodities, and cannot be a
deterministic form of appearance of labour-time. The expressions of
values in terms of money must always be given more or less subjec-
tively, individualistically and anarchically. As Marx himself percep-
tively notices, 'every owner of commodities knows that he is nowhere
near turning them into gold when he has given their value the form of
a price or of imaginary gold' (I, p. 190). 'The possibility, therefore, of
a quantitative incongruity between price and magnitude of value, i.e.
the possibility that the price may diverge from the magnitude of
value, is inherent in the price-form itself. This is not a defect, but, on
the contrary, it makes this form the adequate one for a mode of
production whose laws can only assert themselves as blindly oper-
ating averages between constant irregularities.' (I, p. 196).
If the form of price is still subjectively equated to 'imaginary gold'

by the individual owner of a commodity, and may often 'diverge from
the magnitude of value', a function of money as the measure of value
cannot simply be 'to supply commodities with the material for the
expression of their value' just as already shown in the notion of the
price form itself, but must somehow be to examine and measure the
appropriateness and objectivity of individual pricing. This must be
'true, even when the notion of value is not yet related to embodied
labour as the substance of value in commodities, but conceived of as
the property of commodities requiring exchange, calling for standard
exchange ratios. Despite his recognition of the subjective, imaginary
and divergent character of individual pricing, Marx did not examine
how money would function to measure and to objectify such prices.
The presupposition of the labour substance of value probably in-
duced Marx to define the measure of value just formally as a function
of money, exactly expressing the immanent values in commodities.
As a part of restructuring Marx's theory of forms of value, Uno
emphasised that the function of money as a means of purchase is a
basic form in measuring and objectifying subjective individual prices.
Indeed, when money is used repeatedly as a means of purchase, it
serves as the measure of value in the circulation form in three senses.
First, a price as a subjective expression of the value of a commodity
requiring exchange with other commodities, has to be tested as to
whether it is actually ever realisable or not by the action of purchase
with money. When a purchase with money realises a price of a
commodity, its value as request for exchange with other commodities
becomes socially and qualitatively admitted. Second, subjective dif-
ferences in pricing the same kind of commodity tend quantitatively to
be equalised objectively in a market, making up a single price for a
commodity, through repeated purchases with money. The unified
price of a commodity would not remain static in accord with the value
as the standard price of a commodity, and must rather incessantly
fluctuate 'between constant irregularities' of anarchical demand and
supply in the market. Third, however, the function of money re-
peatedly to purchase commodities in a market would generally reveal
the standard price for each kind of commodity as a gravitational
centre for the fluctuation of price, in so far as the commodity is
competitively reproducible behind the market. In Uno's word the
value of a commodity 'is confirmed only when, in recurrent trans-
actions at prices fluctuating in response to the forces of demand and
supply, a central price emerges at which normal trade takes place ....
Money, in the meantime, intermediates exchanges at prices gravitat-

ing towards value, thus measuring the value of all commodities. This
process, therefore, enables commodities to regulate their supply
[price] in response to the prevailing social demand.' 10
The concept of value to be measured by recurrent purchase with
money in this context, excludes the exchange-value of the commodity
'which is determined by their scarcity alone' 11 , such as the price of
non-reproducible curios, or the price of some imports whose supply
cannot easily be adjusted in response to the fluctuation of demand in
a market. There must be a social process of an adjusting supply of
commodities in response to demand in a market, so that money may
function as the measure of value in this regard. Although the working
of the law of value cannot yet be analysed by explicitly referring to
the labour theory of value in the pure theory of forms of value, the
character of the value-forms which are well compatible with the
working of the law of value based upon the social process of repro-
duction behind the market, must be observed through the function of
money to be used in recurrent transactions. The notion of value even
in its circulation form cannot thus be identical with fluctuating prices
in general, or with a mere formal equilibrium price in a market, but
must designate the gravitational centre of prices. The standard gravi-
tational centre for prices cannot be immobile, but moves due to
changes in the values of either general commodities or the money
commodity. The function of money as the measure of value must thus
be performed through the process of changes in the measure itself.
In comparison with the categorical scope of the theory of the
value-form of commodities, resulting in the universal money-form in
the world of commodities, the scope for money to function effectively
as the measure of value must be relatively limited in a social market,
where the supply of commodities can respond to demand. In its actual
feature, the money commodity gold appears as the universal equival-
ent throughout the world market, whereas the function of money as
the measure of value appears directly within each national or more
local spheres of commodity circulation. Through the function of
money to be used in recurrent transactions, the system of prices in
each circulation market is unified and standardised on the one side,
but on the other side the difference between the spheres of circu-
lation with different systems of prices, reflecting the divergent social
conditions of production behind them, becomes apparent. The differ-
ence between the spheres of circulation thus formulated would be an
important premise for the concept of world money, and further, for
the theory of transformation of money into capital as we shall discuss
a little later. Before discussing these topics we have to examine other
functions of money structurally forming each sphere of commodity
circulation or a commodity market.
The Means of Circulation
The second function of money is as the means of circulation. Within a

market which is theoretically distinguished from the universal world
of commodities by the function of money as the measure of value,
money serves as the intermediary in carrying through the circulation
of commodities. From the view of an individual owner of com-
modities, money which is expended in purchasing a commodity is
usually obtained by selling his commodity in advance, and thus
functions as the means of exchange of one commodity for another.
Let us designate a type of commodity, say linen, C 1 and another, say
a bible, C2 . If the owner of linen sells 20 yards of it at £2 and then
buys a family bible of the same price the form of his transaction is
formulated as follows:
The first transaction C 1 - M is the sale or 'the commodity's salto

mortale [the mortal leap of commodity]' (I, p. 200), and not always
guaranteed to be realised, whereas the second transaction M- C2 is
the purchase, and always easy to perform because of the position of
money as the universal equivalent. As far as the material content of
these transactions is concerned from the view of the initial owner of
linen, the result of process seems to be reduced to C1 - C2 , or the
exchange of linen for a bible. Money seems just a means of exchange
between C 1 and C2 .
In its essence, however, the exchange of commodities through
money C1 - M- C2 quite differs from the direct exchange of them C1
- C2 as Marx noticed (cf. I, p. 207). When the weaver exchanges his
linen for a bible through a sale and a purchase, the bible-pusher
usually does not buy linen in return but buys a third commodity, C3 ,
say a bottle of brandy. And a sale of linen is realised by a purchaser
who is usually different from the bible-pusher. Thus the transactions
make up a continuous chain network in a form as follows:
Figure 4.1
~ '',._.
M--e,
.... ~ ...............
,,
·c,:::::-Mx
~, ~
c, .......
.
··c,··....... Mx
c3
We see here 'how the exchange of commodities breaks through all
the individual and local limitations of the direct exchange of pro-
ducts' (I, p. 207), and develops the broad interrelations between
mutually unknown commodity-owners. The circulation of com-
modities, which pass the network from the lower left-hand side to the
upper-right-hand side in Figure 4.1, is maintained by the current
motion of money which flows from the upper left to the lower right
remaining within the market as currency.
The means of exchange or circulation was the only form of the
function of money for the classical school. Various other functions of
money on the basis of its position as the universal equivalent were
disregarded. Money was then treated just as a conventional means of
exchange between basically harmonious commodities. Say's law orig-
inates in such a view of money. According to the law, the circulation
of commodities necessarily implies an equilibrium between sales and
purchases because every sale is a purchase, and every purchase a
sale. Hence it is assumed that supply always creates its own demand.
As Marx criticises (I, pp. 208--9), such a position is boiled down to a
flat tautology to say that 'the number of actual sales accomplished is
equal to the number of purchases', or it neglects the mutually
independent and antithetical relation between sale and purchase. 'No
one can sell unless someone else purchase. But no one directly needs
to purchase because he has just sold.' A commodity becomes useless
if it cannot be bought by the owner of money. The impossibility of
selling a commodity may cause a similar difficulty for another com-
modity in a chain reaction, breaking the network of circulation of
commodities. Therefore, contrary to Say's law, these forms of sale
and purchase 'imply the possibility of crises, though no more than the
possibility'. (I, p. 209).
The quantity theory of money in the classical school and further in

the neo-classical school originates also in observing the function of
money only as the means of circulation. Since other forms of money
outside of the circulation like hoards or deposits, are neglected, all
money is supposed to act as the means of purchase within a market.
Every increase (or decrease) in the quantity of money must then
result in a proportional increase (or decrease) of purchasing demand,
and hence rise (or fall) of the level of prices of commodities. In short,
prices are determined by the quantity of money in a country. If we
designate the total quantity of transactions of commodities in a
certain period T, the level of prices P, the quantity of existing money
M, and the velocity of circulation of money V, then the quantity
theory of money is formulated in I. Fisher's (1867-1947) equation of
exchange:
MV = PT, or P = MT
v
In this equation or rather identity P is determined proportionally by
Min so far as other circumstances including V and Tare unaltered.
Against the quantity theory of money Marx argues that the level of
prices is determined not by the quantity of money, but basically by
the substantial values of commodities and the value of gold (the
money material). At the same time he takes into consideration thai
the quantity of money as the means of circulation is adjusted accord-
ing to the needs of commodity circulation by having the convertible
relation with other forms of money. Under the gold standard monet-
ary system of his time the excessive quantity of money over that
necessary for the circulating medium is pushed out into hoards or
deposits, as he illustrates by the evidence that 'one has only to throw
a given quantity of £1 notes into circulation in order to extract the
same number of sovereign from it. This trick is well known to all
bankers'. (I, p. 216). Thus, according to Marx, 'for a given interval of
time during the process of circulation, we have the following equa-
tion: the quantity of money functioning as the circulating medium =
the sum of the prices of the commodities divided by the number of
times coins of the same denomination turn over'. (I, p. 216). Or
symbolically:
- PT
M - v
The equation signifies here that the quantity of money as the means
of circulation or Mat the left-hand side is determined by the factors

at the right-hand side.
From the point of view of the purified theory of the forms of value
the level of prices or P cannot yet be explicitly related to the value
substance of commodities and gold as in Marx's argument. In fact P
also fluctuates in a market along with the changing balance between
demand and supply. However, contrary to the quantity theory of
money, the total demand is determined not by the quantity of money
but by deeper and wider social factors behind the circulation such as
the situation of capital accumulation. Besides, the repetition of the
function of money as the means of purchase induces an adjustment in
supply in reaction to the motion of demand and prices, as we have
seen. Marx's position on the determination of the quantity of cur-
rency in use, combined with his consideration of the other forms of
money, is thus largely maintained even in the purified theory of
circulation, especially in so far as the gold money system is assumed.
What happens then in the inconvertible paper money system?
Marx refers to the problem in the context of a series of possibilities
of replacing bullion with coins and further with their symbol begin-
ning from small change made of less precious metal like copper to
end up with inconvertible paper money. Such possibilities spring
from the function of money as the circulating medium, in which
money is used as an intermediary means of exchange and not as an
absolute form of value. Although Marx concretely observes national
spheres of commodity circulation within which national uniforms are
given to coins and their symbols, it is theoretically difficult here to
conceive different actual nations. However, plural and different
spheres of circulation with different systems of prices are theoreti-
cally conceivable and separable, as we have argued, through the
function of money as the measure of value. As for money functioning
as the means of circulation inside each of such spheres, it is not just
possible but also technically and conventionally desirable to replace
bullion with coins and small change, especially in the retail circu-
lation. Even though the state usually coins and issues such small
change up to a certain necessary amount, the state acts so far
passively reflecting the technical necessity of commodity circulation.
In basic, abstract theory, even a private individual with social repu-
tation of wealth like a banker may do the same instead of the state. In
the case of inconvertible paper money however, the political power
of the state is necessary to force the circulation of paper money
beyond its mere possibility or its technical convenience in commodity
circulation. When the state has to depend on issuing paper money for
budgetary needs, the state generally tends to overissue it.
As Marx noticed, if the amount of paper money exceeds the limit
of the amount in gold coins of the same denomination which could
have been in circulation, then the quantity of gold represented by
each sheet of paper money has to diminish. For instance, if the
quantity of paper money becomes twice as much as the limit, 'then in
practice £1 will be the money-name not of 114 of an ounce of gold, but
1/8 of an ounce .... The value previously expressed by the price of
£1 would now be expressed by the price of £2.' (I, p. 225). We see a
simple basic case of inflation here. The quantity theory of money
takes such a case for the general principle of determination of prices,
or at least it cannot distinguish the law of monetary circulation for
gold currency and that for paper money. At a very abstract level the
contemporary inflation is basically understandable from the logic of
motion of prices in the case of overissue of paper money. Hence
there is a certain abstract relevancy in monetarism's desire to restrict
the supply of money in order to calm down inflation. However, in
comparison with simple paper money issued by the state, the incon-
vertible bank notes which now prevail together with various other
sorts of credit-money have far more complex functions and influence
on the level of prices, which must be investigated at the more
concrete level of research. For instance, they are issued not merely to
meet the state budget, and function more widely than the mere
means of circulation. These complexities basically relate to the diffi-
culty of monetarism in defining and effectively controlling the quan-
tity of money in our age.
Money as the Absolute Form of Value
So far as the quantity of currency is to be adjusted to the amount

required by commodities to be circulated in a market, there must be
other forms of money standing outside of the sphere of circulation.
Outside of its function as the medium of circulation, money appears
as the absolute form of value, or 'the sole form of value', or 'the only
adequate form of existence of exchange value'. (I, p. 227). Marx calls
such form simply 'money' (I, p. 227) or 'money as money' 12 and
defines further three forms of function in it, namely 'hoarding',
'means of payment', and 'world money'.
Since money is the absolute form of value in the monopolistic
position of direct exchangeability with other commodities, it tends to
be saved and stored as mercantile wealth, generally by restricting

purchase (M- C2 ) as far as possible after selling (C1 - M). 'The
necessity and the passionate desire to hold fast to the product of the
first metamorphosis' (C1 - M) develop in a commodity economy.
When money is saved as an end itself it is in a form of hoard. As
money is qualitatively independent of all limits and quantitatively
always limited in amount, 'the hoarding drive is boundless in its
nature'. (1, p. 230). Hoards serve as reserve funds for the necessary
fluctuations in the quantity of currency in the sphere of commodity
circulation. On its basis, individual purchase and sale can be more
elastically performed by utilising another function of money as means
of payment.
A commodity can be traded for a promise to pay, when a purchaser
cannot afford the necessary amount of money and the seller can await
payment for a certain period on the basis of his reserve funds. After
the transaction, the purchaser has to earn and save money by selling
his own commodity, and has to pay by all means when due. Money
which is paid on a due date functions as the means of payment. In this
function money can be spared when a chain of debtor-creditor
relationships contain mutual cancellations. But when actual pay-
ments have to be made, money functions not as a circulating me-
dium, but as an absolute form of value. If the credit system is
paralysed in a phase of acute crises, money as the means of payment
in this absolute form is generally and massively wanted, and 'the
antithesis between commodities and their value-form, money, is
raised to the level of an absolute contradiction' . 13 (1, p. 236). In a
normal condition of circulation, certificates of debts like bills of
exchange are utilised as credit-money transferring debts to others on
the ground of the function of money as means of payment. With the
development of a commodity economy, hoarding must grow to serve
more and more as reserve funds for the means of payment, and
money in this function as the means of payment becomes also 'the
universal material of contracts' (1, p. 238), as in payment of rent,
taxes, reparation and so forth.
Money which is thus extracted and placed outside of a sphere of
commodity circulation as an absolute form of value need not always
serve for the same sphere of circulation, but can function also as
world money moving across various spheres of circulation. Although
Marx defines this function of money in relation with world trade
concretely between nation-states, world money can be defined theor-
etically as universal money above a certain amount in the world of
commodities, which is able to function between the plural spheres of

commodity circulation, which are to be separated in basic theory
through the function of money as the measure of value as we have
argued. Given the different spheres of commodity circulation with
different systems of prices, money can indeed theoretically serve
across different spheres of circulation as the universal means of
purchase, or as the universal means of payment, and thus as the
universal wealth of the whole world of commodities. Historically,
world money used to take the shape of bullion as Marx noticed (1,
p. 240). However, it must be noted that coins and credit-money such
as bills of exchange of the dominant sphere of circulation have also
become increasingly used as world money with the development of
the world market. On the basis of such a tendency, and under the
floating exchange-rate system of international currencies since 1973,
inconvertible dollar notes and dollar bills of exchange have come to
function rather more extensively as world money at the cost of the
previous stability in both money supply and the value of money under
the gold standard systems. The historical necessity and the meaning
of such changes in the international monetary system must be investi-
gated together with the problems of inflation or stagflation again at a
more concrete level of research outside of the scope of this volume.
4.3. THE TRANSFORMATION OF MONEY INTO CAPITAL
How can Money be Transformed into Capital?
Money especially in the form of world money of some considerable

quantity can easily be transformed into capital. World money is in a
position from which different levels of values between plural spheres
of commodity circulation are comparable. Therefore, it can be used
to buy a commodity relatively cheaper in one sphere of circulation in
order to sell it dearer in another. Money as the absolute universal
form of value is thus increased in the form of circulation M- C- M',
where M' = M + l:::,M, i.e. the original sum advanced plus an in-
crement. Marx calls this increment in money-form 'surplus-value' (1,
p. 251), and continues to state that the motion of value to obtain such
a surplus-value or to be valorised, 'converts it into capital'. (I,
p. 252).
'As the conscious bearer of this movement, the possessor of money
becomes a capitalist.' 'The ceaseless augmentation of value, which
the miser seeks to attain by saving his money from circulation, is

achieved by the more acute capitalist by means of throwing his
money again and again into circulation.' Therefore, 'while the miser
is merely a capitalist gone mad, the capitalist is a rational miser'. (I,
pp. 254-5). In the circulation M- C- M' possessed by a capitalist,
the money and the commodity are no longer antithetical, but func-
tion as a different mode of existence of the value-form of capital.
Thus capital appears as a special usage of money for valorisation, and
forms the self-augmentative motion of value.
Once money is transformed into capital by utilising the different
levels of values or the different systems of prices between different
spheres of circulation, the fluctuation of prices above or below the
gravitational standard prices is certainly made use of as far as possible
both across and within the spheres of circulation. In this aspect
capital moves always more or less speculatively since the direction
and the range of fluctuation of prices according to the changing
balance between demand and supply in a market, are not predictable
for a certainty. Nor are values in form as the standard prices them-
selves immobile, but vary, depending on unforeseeable and im-
perceptible changes in the relative conditions of production of
commodities and gold. Capitalists also utilise their position as the
possessers of reserve funds of money in purchasing cheaper from
persons who for various reasons need to sell their commodities
urgently. Given the polar positions between money as the universal
equivalent and general commodities, the owners of commodities
have to await purchase after pricing and cannot positively instigate
exchange for money. Therefore, they tend to make a special concession
in prices to the purchasers who offer in one go to take from their
shoulders the burden of realisation in quantity. Various non-capitalist
producers are often apt to be expropriated by such transactions, while
industrial capitalists can rather increase their efficiency of valorisation
by the same method as we shall see later in Chapter 8, Section 8.1.
The form of the circulation of value, buying in order to sell dearer,
M- C- M' is nothing but the form of merchants' capital. However,
industrial capital also appears as money which has been changed into
commodities, and reconverted into more money by the sale of
commodities. In this regard, M - C - M' can be defined as 'the
general formula for capital' (I, p. 257). So far as the aim of this
formula of capital is augmentation of money through circulation, the
efficiency of valorisation is not merely measured and compared by
the ratio of surplus-value 6.M against the amount of money M
advanced to each particular transaction of a commodity, as the rate

of profit for each transaction or turnover of capital. For sure it must
be compared also in terms of the yearly rate of profit for the whole
investment which includes various costs of merchants' business not
confined to the purchasing costs of commodities to sell. Anyway,
surplus-value L.M is conceived as profit, when it is set against the
amount of money advanced in order to obtain it. So far as capitalists
compete each other for higher efficiency of valorisation, the yearly
rate of profit (not the rate of profit for each turnover of capital in
longer or shorter periods of time), which is usually called just 'the
rate of profit' for the sake of simplification, matters more. In so far as
capitals compete freely as the homogeneous motion of value aug-
menting itself in the form of money, their move to commodity
transactions with perspectively higher rates of profit would eliminate
any fixed difference in the rate of profit. However competition among
merchants' capitals still lacks a solid basis for the equalisation of the
rate of profit, although the equalisation of the profit rate is in a sense
requested by the essentially homogeneous character of competitive
capitals. 1ndeed, merchants' capitals do not have a common inner
basis for valorisation themselves, •but depends on the external chances
to buy cheap and sell dear between and within the fluctuating mar-
kets. Anarchical speculation, full of accidental gains and losses,
always characterises the activity of merchants' capital.
As the individual merchant capital has thus to strive to make the
best of any rosy chance as quickly as possible, it extends trade by
borrowing. Money as a reserve fund, being idle outside of circu-
lation, can be mobilised for loans. A part of the increased profit of
the merchant made possible by the use of credit is paid to the lender
as interest. Money is thus also transformed into interest-bearing
capital M .... M' theoretically on the basis of merchants' capital. This
form of capital increases itself just by getting interest for loans and
without any intermediary circulation of commodities. 14 As an
external-form, interest-bearing capital broadly appears as being indif-
ferent to its social ground. Its form is common to loan capital working
in the capitalist credit system (to be analysed later in the second
section of Chapter 8), as well as to older moneylender's or usurer's
capital. Although a rational basis for interest from the view of
capitalists is given in a part of profit increased by means of credit, the
form of interest-bearing capital may expropriate borrowers in their
economic difficulties through high rates of interest. We see such a
function of this form of capital not merely in the precapitalist usurer's
practice, but also in periods of modern economic crises or in the

contemporary problem of the cumulative debt of the 'third world'
countries.
The form of interest-bearing capital, unlike merchants' capital,
does not include any different use-values in each of its motions. It
obtains surplus-value !J..M simply as the rental price of money for a
certain period. Surplus-value obtained as interest appears here in the
form of pure self-proliferation of money in each period. In such a
form, interest-bearing capital is absolutely homogeneous, and tends
to receive an equal rate of interest which is daily determined by the
total balance of the supply and demand of loanable money in prior to
lending. An ideal of capital as being automatically and homoge-
neously self-augmenting money is represented by this form of capital.
Actually this form of capital serves as a measure for the activities of
other capitals with various rates of profit being compared with the
rate of interest.
Inequality of the rate of value-increase among merchants' capitals
is overcome, but merely externally, in the form of interest-bearing
capital. The fundamental limitation of merchants' capital which is the
absence of an internal basis for valorisation however, remains un-
solved, and is shown rather more extremely in the form of interest-
bearing capital. In these forms, capital cannot assure its motion of
self-proliferation on an increasing scale, and cannot be fully estab-
lished. At the same time the values of commodities in circulation are
so far utilised and compared only externally, and are not regulated or
unified internally in the motion of capital.
The form of industrial capital M - C { PmlL · · · P · · · C' - M' }
appears as a type of capital which overcomes such limitations by
establishing the inner ground of valorisation. In this form capital
produces commodities to sell dearer than the commodities purchased
for their production. Surplus-value as profit is obtained here in the
motion of capital containing the process of production (P) as well as
the process of circulation. In order to perform the process of produc-
tion thoroughly by means of commodities capital must find both
various means of production (Pm) and labour-power (L) as com-
modities in the sphere of circulation.
Raw materials and instruments of labour, which comprise the
means of production, could already generally be found together with
the means of consumption in a commodity form in precapitalist
markets, as a part of commoditisation of labour products. In con-
trast, labour-power, which is not a product of labour but a subjective
human ability to work, is not obtainable so broadly in a commodity

economy in general. In various precapitalist social formations, workers
could not dispose of their own labour-power as an individual right,
and they were closely tied to the land as the main precondition of
labour activities within a variety of communal and authoritarian
power structures. Therefore, for the transformation of money into
industrial capital, a special historical condition of workers lives must
be formed, and the workers must be turned into the free worker in
the double sense as Marx defines it; 'This worker must be free in the
double sense that as a free individual he can dispose of his labour-
power as his own commodity, and that, on the other hand, he has no
other commodity for sale, i.e. he is rid of them, he is free of all the
objects needed for the realization [Verwirklichung] of his labour-
power.' (I, pp. 272-3). Such a condition of workers 'has no basis in
natural history, nor does it have a social basis common to all periods
of human history. It is clearly the result of a past historical develop-
ment, the product of many economic revolutions, of the extinction of
a whole series of older formations of social production' (I, p. 273).
Especially 'the expropriation of the agricultural producer, of the
peasant, from the soil' (I, p. 876) in a process of transition from
feudalism to capitalism was decisive for the birth of 'free' wage-
workers, as Marx describes it later in Capital in Part VIII, 'So-Called
Primitive Accumulation'.
Capital can thus be developed into industrial capital only in the
sphere of circulation which contains the commodity form of labour-
power. Since this 'precondition comprises a world history', industrial
capital, unlike other forms of circulation we have seen beginning
from commodities, 'announces from the outset a new epoch in the
process of social production' (I, p. 274). Industrial capital appears not
merely in a limited historical epoch in the world history, but also in
the limited sphere(s) of commodity circulation with such a social
precondition. It cannot emerge universally in the whole world of
commodities, though its scope of activity widens as capitalism de-
velops.
In a sphere of commodity circulation with certain preconditions for
industrial capital, the values of commodities are internally measured
and adjusted through the social process of production organised by
capital. Value relations in such a sphere of circulation also serve as the
standard for fluctuation of prices in the whole world of commodities.
Apparently, how industrial capital internally increases its value, and
regulates values of commodities through the process of production,
can no longer be studied in a theory of the forms of circulation.

The content of the capitalist process of production must further be
analysed. But let us briefly review the problems left by Marx at this
point before coming onto the theory of the capitalist process of
prodaction.
Another Transformation Problem
Although there have been many debates and studies on the 'trans-
formation problem' from values into prices of production in the third
volume of Capital, the problem in Marx's theoretical treatment of the
transformation of money into capital has not yet attracted much
attention among Western theorists. The exceptional to this was
where Marx defined the value of labour-power, as we shall see later.
Among Japanese Marxians, especially in the Uno School, however,
the problem has been discussed no less seriously than the so-called
'transformation problem'. It may be called 'another transformation
problem'. Though the problem here may seem remote and indepen-
dent from the problem in the third volume of Capital, its solution can
serve as a necessary precondition for a proper treatment of the other
problem.
In the theory of the transformation of money into capital, Marx
defines M - C- M' as 'the general formula for capital' and refers to
merchants' capital and interest-bearing capital as a kind of capital.
However, in discussing 'contradictions in the general formula,' he
emphasises the theoretical impossibility for capital to acquire
surplus-value, properly understood, in the sphere of circulation. It is
because commodities are assumed to be bought and sold generally at
their value as the embodied labour time on the basis of the preceding
labour theory of value. As a result, capital cannot arise from circula-
tion, whereas 'it is equally impossible for it to arise apart from
circulation' (1, p. 268). The contradiction can be solved only when the
money-owner can find within the sphere of circulation a special
commodity to be used as a source of value and surplus-value, namely
the commodity labour-power. In this theoretical sequence money can
eventually be transformed into capital only as industrial capital
carrying out the production process by using the commodity labour-
power. Thus, according to Marx's treatment, while commodities and
money can appear along with many precapitalist economic forma-
tions of society, 'it is otherwise with capital. The historical conditions
The Forms of Value - Commodity, Money and Capital 103
of its existence are by no means given with the mere circulation of

money and commodities.' (1, p. 274).
Capital is conceived here narrowly only as industrial capital. As
historical fact it is obvious that capital already appears also in the
forms of merchants' capital and money-lenders' capital in precapitalist
commodity economies from very early periods, or widely in the world
not being confined to the central capitalist countries. Certainly Marx
knew that and noticed that 'historically speaking, capital invariably
first confronts landed property in the form of money; in the form of
monetary wealth, merchants' capital and usurers' capital' 15 (1, p.
247). Also within the historical development of capitalism, at its first
stage of mercantilism, merchants' capital in the world trade played a
decisive role as leading capital. As Marx says, 'world trade and the
world market date from the sixteenth century, and from then on the
modern history of capital starts to unfold' (1, p. 247). The mercantile
system reflected the initial stage of such capitalist development.
If capital is conceived theoretically as being feasible only on the
social basis of the commodity labour-power, the concept of capital
clearly can not include the forms of merchants' or money-lenders'
capital. Then the theory of the transformation of money into capital
cannot serve as a sufficient conceptual standard for understanding the
structure of commodity economy in general, where certain forms of
capital must usually arise along with the forms of commodity and
money. The theory can neither properly imply or reflect the logic of
the birth of capitalism in the world market accompanied by the
mercantile system.
Taking these points into consideration Uno asserted that the
theory of the transformation of money into capital had to refer to
precapitalist merchants' and money-lenders' capital from the view of
an economic theory to elucidate history. 16 In the theory of transform-
ation of value into prices of production, Marx suggests, as very much
emphasised by Engels and Hilferding, a historical-logical sequence
following the development from a precapitalist simple commodity
economy to a capitalist economy. In contrast Marx excludes a broad
historical basis of abstraction from the theory of transformation of
money into capital, by saying that 'we do not need to look back at the
history of capital's origins in order to recognize that money is its first
form of appearance. Every day the same story is played out before
our eyes.' (1, p. 247). In my view Marx's treatments here must be
contrary. The law of value is logically to be shown as the law of
motion of a capitalist economy consistently, including both the pro-

cess of production of surplus-value and its distribution through prices
of production. A historical separation of the basis of abstraction
between the theory of the law of value and that of prices of pro-
duction can not solve the value controversy, but rather confuses its
solution. Whereas, the theory of transformation of money into capi-
tal must define the historically specific social condition, i.e. the
commodity-form of labour-power, for appearance of industrial capi-
tal, in contrast with historically older and broader existence of other
forms of capital as well as the forms of commodity and money.
The theoretically wider concept of capital, including the forms of
merchants' and interest-bearing capital, not merely enables us to see
both the structural development of precapitalist commodity economy
with its limitations, and the logic of the birth of capitalism with its
necessary social preconditions. It also elucidates the nature of a
capitalist economy in a triple sense. First, the anarchical, private
moneymaking character of industrial capital originates from the form
of merchants' capital as the general formula of capital, which arises
externally outside of social communal reproduction. A capitalist
economy, therefore, cannot basically be organised for the sake of
co-operative harmonious economic order among human beings,
along with their environmental relations with nature. Second, there
remain the forms of merchants' and money-lenders' capital even after
the establishment of industrial capital, especially between the capi-
talist centre and the periphery in the world market as well as within
each capitalist country. Surplus-value or profit obtained in the capi-
talist centre actually contains not only surplus-value produced in its
process of production, but also profit upon alienation from the trade
with peripheral modes of production. Profit upon alienation obtained
in world trade may well include the transfer of surplus-labour from
the peripheral countries to the capitalist centre as suggested in the
recent theory of unequal exchange, 17 though the point cannot be
discussed any further here. Anyway, in spite of its expansion, capi-
talist production must remain in reality only a partial system of
production in the world, because of its egoistic and money-grubbing
nature. Third, the forms of distribution of surplus-value on the basis
of capitalist production, such as profit and interest, are inherited
from the forms of merchants' and money-lenders' capital, and are not
unique to industrial capital. There are certain difficulties and unreali-
ties in Marx's attempts in the third volume of Capital to show how
these forms are created originally by the transformation of capitalistic
surplus-value obtained in the process of production. A portion of the

transformation problem from values into prices of production, with
equalisation of profit rates, can thus be removed by renovating the
theory of transformation of money into capital.
Uno's renovation in this regard, however, left us with a method-
ological problem in relation to his basic position of how to formulate
the whole principles of political economy. In his methodological
differentiation of three levels of economic research Uno maintains
that 'the pure theory of capitalism must presuppose the abstract
context of a purely capitalist society made up of the three major
classes of capitalists, workers, and landowners' 18 on the basis of the
historical tendency of British capitalism up to Marx's age. It seems
inconsistent to refer to precapitalist merchants' and money-lenders'
capital in his theory of the transformation of money into capital in so
far as the theory should be a part of the basic principles or the pure
theory of capitalism. In conjunction with the attempts to solve the
inconsistency two major positions appeared among the followers of
Uno.
One group of Uno theorists insist that the forms of merchants' and
interest-bearing capital should be presented consistently upon the
presupposition of a purely capitalist society without referring to a
broader basis of abstraction or precapitalist history. 19 The practice of
the form of merchants' capital, buying cheap and selling dear was
theoretically impossible to exist so long as commodities were as-
sumed to be traded at their embodied labour-value. It must be
otherwise, when the theory of forms of circulation is purified without
referring to the substance of value. The anarchical fluctuation of
prices in a commodity circulation even within a presupposed purely
capitalist society is then more easily observable, and it gives theor-
etical room for the form of capital to buy cheap in order to sell dear in
the circulation. The opportunity may also be open for capitalists to
purchase cheaper by accepting in quantity the burden and the subse-
quent risks of realisation from commodity owners.
In this context, however, the theory of the transformation of
money into capital may not be very secure, or comprehensive in its
implications. The attempt to utilise the fluctuation of prices in a
market is speculative and may easily give a loss, not a gain. The
transformation of money into capital remains so far a mere possi-
bility, and cannot be a certainty. Besides, the speculative attempts to
utilise the fluctuation of prices, as well as any possibility of purchas-
ing cheaper by accepting the burden of realisation, is common to the
practice of industrial capital or commercial capital in a capitalist

society, and cannot present a different source of valorisation for the
forms of capital appearing prior to or outside of capitalist production.
Therefore, another group of Uno theorists, to which I belong, wish
to solve these difficulties by reformulating the methodological ground
or the subject of the principles of political economy. Especially as for
the purified theory of the forms of circulation, we need not confine
our subject of study to the economic relations in a purely capitalist
society. We can abstract the notion of the forms of commodity,
money and capital by directly observing world capitalism from its
most elementary form. The external character of the forms of circula-
tion which originate inter-socially, outside of the social process of
production, is then clearly implied in our basic principles of political
economy. Unlike in the theory of pure capitalism, the notion of
world money and the theory of transformation of money into mer-
chants' capital between different spheres of commodity circulation is,
as we have seen, easily conceivable in theory based directly upon
world capitalism. 20 The form of merchants' capital which is defined in
such a theory has a distinguishable source of valorisation outside of
the capitalist process of production, and is thus also indicative of
precapitalist merchants' origins and practice.
The theory of the transformation of money into capital in this
regard reflects as a result the historical formation of capitalist produc-
tion from the view of expansion of the commodity economy. Capitalist
production is formed when an originally external commodity econ-
omy expands and invades the social process of production in the form
of industrial capital. The theory explaining the development of the
forms of value through which a commodity economy reaches capital
however, should not be taken for a historical theory which depends
on and fully reflects the essential logic of the birth of capitalist
production. In particular, the formation of a class of free workers in
the double sense, which was the indispensable precondition for
capitalist production, could not be ensured merely by peaceful ex-
pansion of commodity economy. It was carried through heavily
assisted by violence as the 'midwife' (1, p. 916) of a new social
formation in the process of expropriating the small farmers and
peasants. Such an internal social change, the so-called 'primitive
accumulation', cannot be treated in the theory of the transformation
of money into capital, even though the theory can contain more
historical implications than those considered in Capital.
Practically, the immanent logic in the forms of commodity econ-
omy systematically unfolds from the elementary commodity form

up to the forms of merchants' and interest-bearing capital as the
development of the forms of value, but it cannot provide the com-
modity labour-power as an inevitable result of the preceding notions.
From the limitations of the forms of merchants' and interest-bearing
capital, we have seen that the form of industrial capital together with
the commodity labour-power is theoretically required to appear as a
more developed capital. The request is made possible only when
certain historical social conditions are prepared behind the sphere of
circulation, which provide a supply of the commodity labour-power.
A systematic guarantee of finding such a specific social situation is
given, in my view, not by the preceding theory of the forms of
commodity economy, but by the initial setting of the subject of study
in the basic principles of a capitalist economy.
Thus Marx's distinction of the separate historical characters be-
tween capital and the forms of commodity and money, must be valid
if it is applied to the difference between capitalist social production
under the form of industrial capital and the forms of commodity
economy in general, including the forms of merchants' and interest-
bearing capital. The historically special character of capitalist produc-
tion is, however, not merely distinguished from the forms of com-
modity economy in general, but also dependent on them. Especially
the anarchical autonomy of capitalist production in relation to other
modes of production in the world market is derived from the fact that
the capitalist mode of production, unlike any other, has converted
the originally inter-social commodity economic order into its internal
forms of organisation, as we discussed in Section 4.1 of this chapter.
Then our theoretical system of analysing the internal law of motion of
capitalist production, after studying the forms of commodity circula-
tion in the world market, simultaneously elucidates a methodological
secret of the self-reliant motion of the capitalist mode of production.
So far as the labour products of other peripheral modes of production
are obtained in the commodity-form in exchange for its own com-
moqity products in the world market, the motion of capitalist produc-
tion is not at all disturbed qualitatively but simply quantitatively
amplified. From the view of the internal logic of the motion of
capitalist production, a portion of capital and labour which is necess-
ary to produce exports can be regarded as the portion which is
necessary directly to produce commodities actually obtained in ex-
change as imports. 21
Therefore the basic theory of capitalism can abstract a purely and
completely capitalist society in the process of the analyses of the

internal law of motion of capitalist production, on the basis of the
forms of commodity economy. By formulating the theory of the
forms of commodity circulation on the broad basis of world capital-
ism the basic principles of political economy can systematically assure
that they contain the methodological ground for abstracting a purely
capitalist society in the theory of capitalist process of production. We
need not narrow our subject of study to a purely capitalist society
prior to the theory of the forms of circulation as in Uno's Principles.
Thus, the logic and the historical implications of the theory of the
transformation of money into capital would become systematically
richer and easier to see by improving the theory of both Marx and
Uno at this point.
5 Capitalist Production and
the Law of Value
5.1 LABOUR AS THE UNIVERSAL ECONOMIC
CONDITION FOR SOCIETIES
The Labour Process
It is always impressive to read how sharply Marx distinguishes three

different historical characters, as presented in the forms of a com-
modity economy, the labour process and the capitalist economy, in
just a small number of pages of cbs. 6 and 7 of the first volume of
Capital. Inch. 6 Marx has defined free workers in the double sense as
an essential precondition for capitalist production in his theory of the
transformation of money into capital. In ch. 7, after that definition
however, he does not immediately analyse the capitalist process of
production. In the first section of ch. 7, Marx investigates the labour
process as the universal condition common to all forms of society.
This is noteworthy, since the substantial content of capitalist produc-
tion is designed to be studied from this ch. 7. The distinction between
the labour process in general and the capitalist process of production
is unique to Marxian economics, and important for Marxian socialism
as well as for the economic theory.
In my view this distinction is coupled with the recognition of the
difference in the historical character of commodity economy in gen-
eral and that of capitalist economy. From a standpoint that the forms
of a commodity economy totally subsume the labour process only in a
capitalist society, the labour process must naturally be observed as a
common universal condition for societies, being separated from the
commodity economic order. Contrastingly, in the classical school,
which believed the capitalist commodity economy to be a natural
order of liberty, labour was regarded as 'the original purchase-
money ,' 1 and was not theoretically separated from the commodity
economic order. Therefore, Marx's theory of the labour process is
just as important as his theory of the forms of value as a means
theoretically to overcome the naturalism in the classical and the
neo-classical school, and to clarify the historical specificity of capitalism.
How can we derive the notion of the labour process as a common
109
condition for all the forms of society from the historically specific
capitalist economy which we are observing? Marx stresses here the
aspect of the production of use-values by capitalism. 'What the
capitalist sets the worker to produce is a particular use-value, a
specific article. The fact that the production of use-values, or goods,
is carried on under the control of a capitalist and on his behalf does
not alter the general character of that production. We shall therefore,
in the first place, have to consider the labour process independently
of any specific social formation.' (I, p. 284).
This corresponds to the definition of use-values Marx gives in his
initial analysis of the two factors of the commodity - that use-values
'constitute the material content of wealth, whatever its social form
may be' (I, p. 126). Also in the subsequent analysis of the dual
character of labour embodied in commodities, Marx stated: 'Labour
as the creator of use-values, as useful labour, is a condition of human
existence which is independent of all forms of society; it is an eternal
natural necessity which mediates the metabolism between man and
nature, and human life itself.' (I, p. 133).
These analyses seem clear and sound. As Marx says, labour as the
creator of use-values must obviously be an universal condition for all
human societies. A problem remains here, however, as we shall see
later, if the other aspect of labour as abstract labour is to be excluded
from such an universal condition. Let us presently follow Marx's
notion of the labour process. Marx inquires as to what is character-
istic to human labour as a process of metabolism with nature.
Labour is, first of all, a process between man and nature, a process
by which man, through his own actions, mediates, regulates and
controls the metabolism between himself and nature. He confronts
the materials of nature as a force of nature. He sets in motion the
natural forces which belongs to his own body, his arms, legs, head
and hands, in order to appropriate the materials of nature in a form
adapted to his own needs. Through this movement he acts upon
external nature and changes it, and in this way he simultaneously
changes his own nature. (I, p. 283).
Marx then deliberately leaves out of consideration the 'first instinc-

tive forms of labour which remain on the animal level'. There must
have been an immense interval of time for human beings to pass
through such instinctive forms of labour, by changing their own
Capitalist Production and the Law of Value 111
nature through labour. How should we define labour in an exclus-

ively characteristic form different from the instinctive animal level?
A spider conducts operations which resemble those of the weaver,

and a bee would put many a human architect to shame by the
construction of its honeycomb cells. But what distinguishes the
worst architect from the best of beees is that the architect builds
the cell in his mind before he constructs it in wax. At the end of
every labour process, a result emerges which had already been
conceived by the worker at the beginning, hence already existed
ideally. Man not only effects a change of form in the materials of
nature; he also realizes his own purpose in those materials. And
this is a purpose he is conscious of, it determines the mode of his
activity with the rigidity of a law, and he must subordinate his will
to it. (1, p. 284).
We saw in Chapter 3, Section 3.1, of this volume that Marx's

reversal of the Hegelian idealistic dialectic into a materialist dialectic
was performed, not through merely metaphysical thinking or general
reflection on natural sciences, but by way of overcoming Feuerbach's
abstract humanistic materialism on the basis of critical studies of
classical political economy. We see clearly here, at the base of Marx's
economic theory, not a mechanical physical sort of materialism but
historical materialism, in a sense a thrilling synthesis of humanistic
idealism and critical materialism. For Marx, labour is not merely a
materialistic process of metabolism between man and nature. In its
human form, labour is also characterised by the role of the human
idea and the conscious will to realise it. Both head and hands as the
developed natural forces in human beings are mobilised in the labour
process, and thus form a most basic ground for the historical develop-
ment of human societeies through changes in the labour process.
As H. Braverman correctly pointed out, the power of conceptual
thought which characterises human labour is also closely connected
with the linguistic ability to use symbols and speech. 2 The various
useful forms of labour as purposive human action have clearly been
extended to various fields, and transmitted to other groups or suc-
ceeding generations by the spoken or written expression of concep-
tual thought. The wide range of useful forms of human work is thus
related to the human power of conceptual thought.
Conception of work and its actual execution, however, are not
always wholly unified in each individual. In Braverman's words: 'The

unity of conception and execution may be dissolved. The conception
must still precede and govern execution, but the idea as conceived by
one may be executed by another. The driving force of labour remains
human consciousness, but the unity between the two may be broken
in the individual and reasserted in the group, the workshop, the
community, the society as a whole. ' 3 This possibility of dissolving the
unity of conception and execution is important, for it may serve also
as the basis for the separation of the ruling class and the direct
workers in class societies. It must be noted that such a possibility, and
a possible ground for class relations, do arise in the human power of
conceptual thought itself. In class societies the role and the function
of designing and ordering the conception or the idea for execution by
labour are concentrated in the position of the ruling class with their
monopolistic possession of the means of production. But the concep-
tion for the work, which may be broken down into pieces of individ-
ual work, is conveyed to each worker and must be internalised as his
own purpose by means of his own power of conceptual thought. The
human subjective ability has thus ironically been utilised as a hidden
unconscious basis for keeping the masses in a subordinate position in
various forms of class societies. 4 It must be a fundamental task for
Marxism to reunify the conception and execution of labour for the
associated individuals in classless societies.
From the view of the labour process, the distinction between
human labour as purposeful subjective activity in work and the
condition of labour is essential. The condition of labour is further
divided into the object of labour and the instrument of labour. The
object of labour which 'has been filtered through previous labour' is
called 'raw material' as distinguished from natural resources. (I, p.
284). The instruments of labour, such as tools, machines, equip-
ments, etc., which 'the worker interposes between himself and the
object of his labour', are 'characteristic of the specificially human
labour process', and 'supply a standard of the degree of development
which human labour has attained'. 5 (1, pp. 285-6).
In the eyes of the master of the labour of others, especially in a
capitalist market economy, the distinction between labour and the
conditions of labour must appear unimportant. Labour, the objects
and the instruments of labour are all regarded as 'factors of produc-
tion' which are necessary to produce goods. In a capitalist economy
in particular, they are considered just as alternative cost factors, to be
selected in a market for a more effective or cheaper production of
commodities. Such a point of view is linked with naturalism which

sees the market economy as an eternal natural social order, and it
governs ideologically not only the bourgeois ruling class, but also the
common sense of the masses, as well as neo-classical economics.
The notion of the labour process offers a basic critique of such a
narrow bourgeois point of view. A broader view of historical huma-
nistic materialism serves as 'a guiding thread' for the notion of the
labour process beyond the limitation of the bourgeois ideological
framework. At the same time the theoretical recognition of the
different historical characters of the commodity economy, capitalist
production and the labour process, as we have seen, presents a
scientific basis for historical materialism. The starting-point for the
labour theory of value must be founded upon the notion of the labour
process in this context. The concept of labour is, however, not yet
fully unfolded theoretically as the basis of the value theory (or of
social science in general) so far as it has been confined to the aspect of
useful labour producing use-values.
Abstract Labour
Marx was the first to point out and examine the dual character of
labour; i.e. the concrete useful character and the abstract human
character of labour. However, in the theoretical system of Capital
where the substance of value is presented from the very beginning in
the initial analysis of two factors of the commodity, the dual charac-
ter of labour tends to be observed as being embodied in commodities
and is strictly correlated to value and use-value of commodities. As a
result, Marx does not refer to abstract labour or the dual character of
labour in analysing the labour process. He comes back to the aspect
of abstract labour only when he proceeds to the theory of the
valorisation process of capital in the separate second section of ch. 7
of the first volume of Capital.
There remains here an important problem-whether the abstract
character of labour exists exclusively within commodity-value rela-
tions or is common to all societies as an aspect of human activity in its
metabolic interaction with nature. The problem is fundamental to the
theoretical basis of the labour theory of value and Marxian socialism.
In my opinion Marx's notion of the labour process is still incomplete,
and too narrow in this regard as an analysis of the universal condi-
tions of societies based on labour. It may also be inconsistent with his
observations in other places.
There has been, however, a group of Marxian value theorists who

believe that the commensurability of various products, as the result
of abstract labour exists only as the consequence of commodity-value
relations. For instance, I. I. Rubin states that 'social or socially-
equalized labour in the specific form which it has in the commodity
economy can be called abstract labour', 6 while he distinguishes three
types of equal labour, i.e. physiologically equal labour, socially equal
labour and abstract labour. In recent debates a similar position, that
abstract labour cannot exist apart from commodity exchange or
money-relations has been presented by a series of theorists called 'the
Rubin School'. 7 As an interpretation, this position can find some
support in Capital. 8 Marx's treatment of the dual character of labour
embodied in commodities and his distinction between the labour
process and the valorisation process may also seem consistent with
this position.
Indeed, there are some reasons which tend to complicate the
conception of abstract labour. First, as a theory to clarify history,
Marx's value theory defines the substance of value as crystals of
abstract labour always through and behind the forms of value, as we
have seen. Especially in so far as the dual concept of labour is
presented in combination with use-value and value of commodities
from the beginning, the Rubin type of interpretation of abstract
labour may easily arise. Second, as a fact in the history of economic
thought, equality in human labour beyond its useful concrete fo.rms
could not be considered until a thorough commodity economy began
to develop with capitalism. The fact was suggested by Marx in his
dialogue with Aristotle, along with the fact that the concept of human
equality became a fixed popular opinion for the first time in a modern
society. Actually the modern popular view of human equality since
the Enlightenment coincided with the rise of the capitalist commodity
economy. Third, not only such a tendency in ideology but also the
fact 'that in our capitalist society a given portion of labour is supplied
alternately in the form of tailoring and in the form of weaving, in
accordance with changes in the direction of the demand for labour' (I,
p. 134) under the established industrial capitalism, seems evidence of
the abstract character of labour as arising from the development of a
commodity economic order.
Thus, it must be true that the recognition of abstract labour was
made possible by the development of the modern capitalist com-
modity economy. However, once obtained the recognition can poss-
ibly be applicable to other social formations. For instance, in the
section on the fetishism of the commodity in the first chapter of

Capital, Marx mentions Robinson Crusoe's life, medieval European
feudal society, the patriarchal peasant family and an association of
free men as illustrations where the amount of labour measured by
time is allotted to various concrete useful forms. When Marx states
that the relations between Robinson and his labour products 'contain
all the essential determinants of value' (1, p. 170) he clearly sees
abstract labour embodied in Robinson's products. Marx's usage of
the value concept here, however, is incorrect and confusing, for there
cannot be any commodity value in Robinson's economic life without
commodity exchanges. To be more exact, we should say that the
essential determinants of the economic norms concerning the allo-
cation of labour time in Robinson's life, as well as in non-capitalist
forms of societies, would form the substance of value once placed
within the commodity economic order. Marx's incorrect usage of the
value concept here may come from a residue of the classical labour
theory of value which does not grasp the forms of value and tends to
concentrate merely on the quantity of labour values. If we distinguish
the forms and the substance of value, and purify the forms of value,
then we can more exactly treat general economic norms, including
the dual character of labour common to all the forms of societies,
separately from the value concept. Anyway, Marx's analysis in the
section on the fetishism of commodity, despite his confusing usage of
the value concept, convinces us well of the existence of the general
norms or rules of economic life common to all societies, including the
necessity of allocating abstract human labour to various useful con-
crete forms.
Whereas concrete useful labour is qualitatively different in each
form, producing different use-values, and it therefore seems imposs-
ible to aggregate or compare such labour simply by time, labour must
also be treated as an homogeneous expenditure of human ability to
work, as abstract labour and measured by time even outside of the
commodity economic order. Marx also stated in the Grundrisse the
law of economy of labour time as follows:
On the basis of communal production, the determination of time

remains, of course, essential. . . . Economy of time, to this all
economy ultimately reduces itself. Society likewise has to distrib-
ute its time in a purposeful way, in order to achieve a production
adequate to its overall needs; just as the individual has to distrib-
ute his time correctly in order to achieve knowledge in proper
proportions or in order to satisfy the various demands on his

activity. Thus, economy of time, along with the planned distribu-
tion of labour time among the various branches of production,
remains the first economic law on the basis of communal production. 9
It is thus obvious that Marx recognised the comparable measurability

of labour in social formations outside of a commodity economy. If we
insist on the concept of the dual, and no more, characters of labour,
then both the concrete useful and its abstract human character must
be found as the basis of general economic norms or rules common to
all the forms of society. 10 In precapitalist societies the general norms
of economic life determining the distribution of abstract labour time
to various necessary useful forms, are generally more or less uncon-
sciously performed by traditional communal customs linked with
religious and political orders. But in an ideal socialist economy, the
general norms or rules dealing with labour in its dual character must
be consciously realised as communal social planning. Although the
forms of commodity and money actually still remain in the existing
'socialist' societies, such a communal planning of labour allocation in
an ideal socialist economy, as Marx describes in the quotation above
or in an example of 'an association of free men' in the section of the
fetishism in Capital, is fully conceivable as a goal to be reached
through socialist revolution and the subsequent construction of an
associational economic order. In so far as the functions of prices,
together with a capitalist economic order, must be decreased and
then finally abandoned in the process of constructing socialist associ-
ational societies, the role of labour time as a basic measure for
qualitatively different use-values of social products would become
indispensable, as Marx suggested.
Even Rubin notices that production and distribution of products in
a socialist society needs evaluation by means of equalised labour
time. He believes, however, that the equalisation of labour in a
socialist economy is quite different from that in a commodity econ-
omy. Whereas evaluations of things and labour are separable and
submissive to social policy in a socialist society, 'the equalization of
various forms of labour is carried out only in the form and through
the equalization of things' in the form of value on the market in a
commodity economy. 11 This is why Rubin distinguishes the concept
of socially equalised labour from that of abstract labour. For him the
difference in the evaluation of labour time in different societies is
quite important.
Apparently there is a danger for Marxian value theory in Rubin's

argument. If the amount of abstract labour is not independent of the
form of value or prices in the market, the quantities of labour can not
be an objective social basis for the determination of prices, but must
rather become a sort of dependent variable of prices. The labour
theory of value as a theory of prices is thus very much weakened.
When the objectivity of the quantities of labour necessary to produce
goods is discounted or disregarded, then the conceptual basis for
socialism may also be clouded. Though there must certainly be an
elasticity in the changes in distribution of labour-products and ser-
vices, according to the social policies of a socialist economy, the
amount of labour embodied in each product must still be measured or
conceived as being measurable, as objectively determined on the
basis of technical conditions of production. Otherwise, the low evalu-
ation of labour in certain industries, say in agriculture, may easily and
arbitrarily endanger a sound reproduction and growth of those indus-
tries, bringing about unfair and unequal distribution of social wealth.
A worst thing is that a critical theoretical standard which is needed to
evaluate and revise any such distortion in the socialist process of
economic construction is lost or made ambiguous by disregarding the
objective determinableness of labour time on the basis of the condi-
tions of production. Conversely, once the basic equality in labour
time is neglected in the conception of a socialist economy, by allow-
ing policies to evaluate the labour time of various works more or less
arbitrarily, Marxian value theory must then also negate the objective
determinableness of labour time outside of the value form or prices
as in Rubin's argument.
Against such arguments how can we be sure of basic equality in
labour time expended in different useful forms, as an aspect of
general economic norms themselves independent of the different
forms of society? The problem relates to the twin issues, first of how
conceptually to reduce concrete useful labour to abstract human
labour, and second how to reduce skilled or complex labour to simple
labour. Since the second issue must be solved on the basis of the first,
let us presently concentrate on the first. As we have seen in the
analysis of the labour process, our ability to perform a wide range of
useful work is based upon the common human power of conceptual
thought. Even the simplest sort of work on a modern belt-conveyor
system is made up of different physical actions performed according
to a conscious purpose and will. Though the range of mobilisation of
the human ability to work may be narrowly limited in' most workers'
tasks in a modern factory system, the contents of work cannot simply

be a mere mechanical action, but must be an expenditure of human
ability, in head and hands, to work in a series of different useful
forms. The potential human ability to do various works is actually
also shown when a worker is shifted to another position in a factory
or to another field of industry. In this regard, concrete useful labour
in a social division of work has in common the character of the
expenditure of human basic ability to do any useful works. Labour
time in different useful forms is equally commensurable as the expen-
diture of this human ability. Apart from such a fundamental view in
the definition of abstract labour time, the evaluation of qualitatively
different useful forms of labour could not have a homogeneous
measure, which is objectively independent both from prices in the
market and from more or less arbitrary political decisions in a
conceivable planned economy or conventional managerial estima-
tions within each capitalist firm.
In order to avoid possible confusions, three more points had better
be mentioned here in advance. First, the problem is still in a sense at
the halfway stage at least until we treat the skilled-labour problem (in
the first section of next chapter). For the labour time of different
useful products may not be simply homogeneous, if different degrees
of complexity or skilfulness are assigned to them. It remains there-
fore to clarify how we may reduce skilled labour to simple labour.
Second, in dealing with the problem of how to divide the labour time
embodied in jointly produced goods, Rubin's type of theory may
have certain relevancy, though in a particularly limited context and
scope, as we shall see later (in Chapter 6, Section 6.2). Third, both
political decisions in a planned economy, and the motion of prices
reflecting demand and supply in a market may well affect the changes
in technical conditions of production, and thus may indirectly affect
the quantities of labour time embodied in each product. However,
technical conditions of production linked with fixed capital are not so
easily altered in a short run, and the directions and pace of changes
are also relatively independent of market conditions or policies.
Once representative technical conditions of production, with
simple labour and a single product assumed for the moment, the
quantities of labour time necessary to produce each product are
determinable as follows.
In Marx's numerical example in the section of the valorisation
process, 10 lb. of cotton containing 20 hours of dead labour is
converted into 10 lb. of yarn by 6 hours of a spinner's current or living
labour. A quarter of a spindle, which represents the necessary used
up portion of the instruments of labour in 6 hours of spinning,

contains 4 hours of dead labour. In total, 30 hours of abstract labour
is embodied in 10 lb. of yarn. Presupposing the labour theory of value
from the beginning of Capital Marx simply assumes here that 20
hours and 4 hours of labour respectively, lie behind the 10 shillings
worth of cotton weighing 10 lb. , and 2 shillings depreciated value
representing a quarter of the spindle. It may seem an endless and
theoretically difficult task to try to decompose and then aggregate the
quantities of labour time embodied in the means of production, say
coal and iron, necessary to produce the raw material and instruments
of labour, cotton and spindle in this case, by going back further and
further into the past production processes. However we can solve the
problem and determine the quantities of labour embodied in each
product on the basis of the currently existing system of interrelated
conditions of production. 12
Let us assume, as a simple example, that cotton is produced by
means of iron and coal, and that iron and coal are produced again by
using iron and coal. The current representative technical conditions
of production for each unit of products are exemplified in the follow-
ing input-output relations.
} kg of coal + -} kg of iron + t hour of labour ~ 1 kg of coal }

t kg of coal + t kg of iron + t hour of labour~ 1 kg of iron 5.1)
t- kg of coal + t kg of iron + 1 hour of labour~ lib. of cotton
By designating the quantities of labour time embodied in each unit of

coal, iron and cotton t 1 , t2 , t3 hours, we can obtain following three
simultaneous equations from the technical system in (5.1).
h1 + t tz + -} = tl (1)1
-}tl + Ttz +-} = tz (2) (5.2)
} t1+ -} tz + 1 =t 3 (3)
Solution of these equations determines first t 1 = } , t2 = 1 from (1)
and (2), and then t3 = 2. If a spindle is produced by 7 hours of current
labour using 9 kg of coal and 3 kg of iron on the same technical basis,
then 16 hours of labour in total is embodied in a spindle. We can
conceive of these technical relations of production as an example
behind Marx's assumption that 20 hours and 4 hours of labour are
embodied in 10 lb. of cotton and a quarter of spindle. What assures

aggregation of these amounts of past labour with 6 hours of living
labour to make 30 hours embodied in 10 lb. of yarn is the concrete
useful character of labour able properly to perform each process of
production.
Let us generalise from this example, determination of the necess-
ary labour time to produce various products on the basis of technical
conditions of production. Assume that n kinds of products are being
produced respectively in n sectors of production or industries in a
society. In order to produce a unit of ith product, aij units of jth
product and li hours of living labour are technically necessary. Let the
•otal of past and living labour embodied in a unit of ith product be ti
hours. Then, we have,
n
l:Plj + li = ti (aij;:::: 0, li > 0, i = 1, 2, ... n) (5.3)
We seen simultaneous linear equations in (5.3), where n unknowns ti

are determinable on the basis of technical conditions, as dependent
variables of aij and li. 13
Thus the quantities of abstract labour embodied in a unit of each
product are determined within the social relations of the technical
conditions of production in a society based upon division of labour.
The social relations of productive technologies as a whole also
determine to certain degree, the objective basis for distributing past
and living abstract labour into various useful concrete forms in a
social division of labour. In the example of technical relations in (5.1)
for instance, we can define the minimum quantitative relations of a
self-reproducing system (maintaining the production of a unit of
cotton as a net product) as follows:
to kg of coal + to kg of iron + t hour of labour - t kg of coal)

t kg of coal + t kg of iron + t hour of labour - t kg of iron
t kg of coal + t kg of iron + 1 hour of labour- 1lb. of cotton.
(f kg of coal + t kg of iron) + 2 hours of labour-

(f kg of coal + t kg of iron) + 1 lb. of cotton. (5.4)
This is a case which Sraffa called a 'sub-system'. 14 This is an alterna-

tive way of showing how the abstract labour-time embodied in lib. of
cotton (2 hours in this example) is technically determinable. At the
same time we see that the balance of the distribution of living and
dead labour between different correlated industries as in the example
above, must be based on objective technological conditions. However,
the objective technological conditions of production cannot fully
determine the socially necessary production of final products. If
cotton is one of the final products, the technical conditions illustrated
above cannot determine how much cotton must be produced in a
year. As Marx mentions, 'the social need . . . here appears decisive
for the quota of total social labour time that falls to the share of the
various particular spheres of production' (III, p. 774). The system of
social needs is determined and altered by complex factor in the
process of the historical development of human cultural and social
life, which is ultimately, though not very directly, regulated by the
technical conditions available for the production of various useful
goods.
In observing the basic conditions of the metabolism between
human beings and nature as general economic norms in the analysis
of the labour-and-production process, we must surely recognise that
the system of technical conditions of production, as well as the system
of social needs, are historically variable. These changes have been
made possible by the human ability to produce surplus products over
and above the necessary means of consumption for direct workers.
An important aspect of the historical characteristics of societies can
be seen in the way that changes in the conditions of production and
social needs are controlled in each society, corresponding to the
social relations which cope with surplus products. However, once the
system of the technical conditions of production and the social needs
to be satisfied by them are given within certain historical and social
relations, then it must be clear that an essential element of general
economic norms is the necessity of distributing dead and living
abstract labour-time to various useful concrete forms, so as to enable
the reproduction of socially necessary use-values, on the basis of the
quantities of labour-time necessary to produce them. This holds
irrespective of whether such economic norms concerning abstract and
concrete labour are carried out consciously in socialist planning, or
unconsciously as in a capitalist commodity economy.
Surplus-labour
To be more precise, we must ask how the quantities of abstract

labour subject to the general economic norms determine the mutual
relations which transfer products between the processes of produc-
tion or industries. Let us examine the prerequisite for maintaining
the production processes of goods necessary to meet social needs,
presuming a social division of labour with a given system of technical
conditions of production. Clearly the quantity of the means of pro-
duction and living labour which are necessary to produce the output
of the industry must be made available again to the industry in order
that it may maintain production. Reciprocation is, conceptually, not
confined here to commodity exchanges in a market, but may take
various forms such as customary mutual presents, or mutual delivery
under conscious socialist planning. Anyway, first of all, each time a
unit of a product is delivered from one industry to another for use as
means of production or consumption, at least the portion of labour
time which is transferred from the consumed means of production
must be returned to the industry in the same form of necessary means
of production. Second, the portion of living labour, which is embod-
ied to a unit of a product in addition to dead labour from the means
of production, must also be made available. This is done concretely
by providing the necessary labour-power to perform that amount of
living labour.
In order to secure the necessary quantity of labour-power for a
certain labour process or industry, it is essential continuously to
supply workers with means of subsistence necessary to maintain the
reproduction of that quantity of labour-power. 15 The maintenance
and reproduction of labour-power is carried out by consuming a
certain quantity of means of subsistence. The necessary range and
amount of means of subsistence for a worker, such as food, clothing,
housing, fuel, household furniture and instruments, not only 'vary
according to the climatic and other physical peculiarities of his
country', but also depend 'to a great extent on the level of civilization
attained by a country' as the results of history (r, p. 275). The
technological conditions of production do not directly determine the
range and the amount of necessary means of subsistence for workers,
though the former may indirectly influence the latter. The total
socially useful net product in a year, being obtained after deducting
the consumed means of production from the yearly gross product,
embodies the social aggregate living labour-time expended on rna-
terial production in a year. The range and quantity of useful net

products produced by a certain aggregate amount of living labour-
time are determined by the system of technologies and increase with
the progress of technologies.
If the total social net products are less than the total necessary
subsistence of workers, a part of the means of production cannot be
replenished, and the scale of social production must be reduced. If
this occurs, the general conditions of social economic life cannot be
maintained apart from very exceptional short periods, say in the
years of the failure of crops, sharp economic crisis or major wars.
Conversely there must generally be surplus-products embodying
surplus-labour as a difference between the total social net products
embodying yearly living labour and the necessary means of subsist-
ence of workers. The portion of living labour which is embodied in
the necessary means of subsistence of workers is defined as necessary
labour-time. The basic human ability to work with a broad range of
power of conception is a fundamental source for changes and pro-
gress in the productivity of labour. This enables surplus-labour to
produce and increase surplus-products beyond those embodying
necessary labour as a general social economic norm. Certainly there
is not any mere technological rule determining the ratio between the
surplus and the necessary portion of labour-time within the total
expenditure of social yearly living labour in the general economic
norms. However, the existence of the division of labour-time into
necessary and surplus-labour must thus be recognised as an aspect of
human economic life common to all the social formations. The
labour-time of an individual worker in an average working day can
also be theoretically divided into necessary and surplus-labour-time.
In the section on the labour process of Capital Marx could not refer
to the existence of surplus-labour as a general condition of human
economic life, for he concentrated on the aspect of concretely useful
labour. He presents the concept of surplus-labour first in the theory
of the valorisation of capital. However, he notes later that 'capital did
not invent surplus labour', and continues to state: 'Wherever a part
of society possesses the monopoly of the means of production, the
worker, free or unfree, must add to the labour-time necessary for his
own maintenance an extra quantity of labour-time in order to pro-
duce the means of subsistence for the owner of the means of pro-
duction.' (I, p. 344). More generally the social function of surplus-
labour is not confined to the production of wealth for the owners of
the means of production in class societies, although the antagonistic
relation between the necessary and the surplus-labour-time will dis-

appear in a classless society. In Marx's words:
Surplus labour in some form must always remain, as labour beyond

the extent of given needs. It is just that in the capitalist, as in the
slave system, etc., it has an antagonistic form and its obverse side is
pure idleness on the part of one section of society. A certain
quantum of surplus labour is required as insurance against acci-
dents and for the progressive extention of the reproduction process
in keeping pace with the development of needs and the progress of
population, which is called accumulation from the viewpoint of the
capitalist. 16(III, p. 958).
When the antagonistic form of surplus-labour in class societies is

abolished then the features of the extension of the production process
will also be greatly changed. Although it would remain a basic
economic norm to carry out the human metabolism with nature 'with
the least expenditure of energy', the human metabolism must be
realisable in a rational manner, including the more harmonious
relations with the rest of nature as man's essential environment, by
'bringing that metabolism under the collective control of the associ-
ated producers instead of being dominated by it as a blind power' (III,
p. 959). The pace and the direction of the development of productive
power in capitalist industries should not be taken as an absolute
natural path of the extention of the production process. At the same
time, in an associational socialist society, the possible increase of
surplus-labour-time made possible by the increase of productivity
may well be switched either to the increase of necessary labour-time
as accords with the development of needs in human life, or to the
reduction of the working day in order to extend free time or 'dispos-
able time for all'. 17 The antithetical relation between the necessary
and the surplus-labour-time in class societies will disappear.
Thus, from the long-range view of human history, it must be noted
that there are varying aspects in dealing with the human metabolic
relation to nature, based as it is on labour, in different social forma-
tions. There is no natural destiny or mechanical rule of determination
as a general economic rule especially in regard to the direction and
the contents of the development of productive power, or in the ratio
between necessary and surplus-labour-time, as well as in the ratio
between the labour-time in a working day and the disposable free-
time. However, once the technical system of production, the length
of working day, the number of yearly working days, and the average
physical amounts of the necessary means of subsistence of a worker
are given, each including the historical and social factors of their
determination, then the quantities of the necessary and the surplus-
labour-time, as well as their ratio, are determined.
Whatever the ratio between the necessary and surplus-labour-time
may become, it is a universal condition of economic life common to
all social formations that the workers repeatedly obtain their histori-
cally determined necessary means of subsistence together with the
necessary labour-time embodied in them. As a whole, this condition
is also expressed in the universal social necessity of maintaining the
reproduction of labour power itself by consuming the necessary
means of production which are produced by a portion of the expendi-
ture of labour. Let us come back again to the initial problem of this
subsection and examine the quantitative relations intrinsic to the
reciprocally transferred labour-time between industries.
Let us presently assume a set of representative technological
conditions of production with simple labour and a single product for
all the industries. Then the quantity of labour-time embodied in each
unit of production from both past and living labour is determined as
we have seen. In so far as each industry must maintain at least the
current production levels to satisfy the social need for its product, the
means of production and the living labour which are necessary for its
reproduction must be reobtainable in a system of socially divided
labour. The portion of living labour is, however, recharged indirectly
by securing for the workers in each industry the means of subsistence
containing the necessary labour-time, which is less than the total
living labour expended. Consequently the portion of living labour
embodied as surplus-labour in its product need not be fully reob-
tained in the form of products from other labour processes. So long
as the necessary labour time in the form of necessary means of
subsistence is obtained and consumed by the workers, they are able
to expend a larger amount of living labour in the labour process. This
is quite different from the portion of past labour which is transferred
from the means of production, as this portion must be recharged at
least in the same amount in the form of products from other labour
processes.
These conditions form an expanded part of the general economic
norms and can be illustrated by extending the previous numerical
example of spinning. Let us assume a working day of 12 hours com-
posed on average of 6 hours of necessary labour and the same length
of surplus-labour under the present social conditions of production.

The spinner in the previous example converts 20 lb. of cotton con-
taining 40 hours of past labour into 20 lb. of yarn, by consuming half
of a spindle representing 8 hours of past labour, in his 12 hours of
labour in a day. Consequently 20 lb. of yarn embodies 60 hours of
labour in total, or 48 hours of past labour and 12 hours of living
labour in the spinning process. When every 20 lb. of yarn with 60
hours of embodied labour is delivered to another labour process, say
weaving, or for personal consumption, at least 48 hours of labour in
the form of means of production, or 20 lb. of cotton and a half of a
spindle, together with 6 hours of labour in the form of necessary
means of subsistence must on average be reciprocally recharged into
the spinning process, in order to maintain its reproduction. By
consuming the necessary means of subsistence with 6 hours of necess-
ary labour-time, the spinner can repeat 12 hours of labour a day,
manufacturing 20 lb. of yarn. Therefore the minimum necessary
condition for maintaining the spinning labour process is not an equal
exchange of labour with other industries. Against 60 hours of labour
in 20 lb. of yarn, 54 (48+6) hours not 60 hours of labour in the form
of products from other industries must be reallocated to the spinning
process (both for labour-power and constant capital) as a minimum
requisite for its reproduction. 18
In contrast there is no such general economic rule for the allocation
of labour in regard to surplus-labour. The portion of 6 hours of
surplus-labour embodied in 20 lb. of yarn need not be reobtained by
the spinning industry in the form of other products, unlike other
portions of labour-time. More generally, it does not impede the
general rule of social reproduction to distribute surplus-labour-time
disproportionately to the amount of surplus-labour-time embodied in
each process of production, or to consume the results of surplus-
labour-time separately from where it is embodied. In other words
there can be inequality between the amount of labour-time delivered
from each labour process in the form of its product and that received
by it (directly or indirectly) from other processes in the form of
means of production and means of consumption. The portion of
surplus-labour thus gives an elasticity or freedom to the general
economic norms of labour-allocation.
This fundamental freedom in dealing with surplus-labour and its
products has formed, on the one hand, the basis for the ruling classes
to appropriate them in the various forms of class societies. On the
other hand, this elasticity also gave room for a commodity economy
to invade precapitalist societies where the central relations of pro-

duction were subject to authoritative or communal social order.
Capitalism has organised its central relations of production entirely
through the commodity economic order, on the basis of the com-
modity form of labour-power, and has formed a very special class
society, where appropriation and distribution of surplus-labour are
realised through commodity transactions. In this thoroughgoing com-
modity economic society the general economic norms in the labour-
and-production process have to be maintained completely through
commodity relations. Then, the quantitative relations of abstract
labour in the general labour7and-production process must appear as
the social substance of the value relations of commodities, and
become the substantive basis of regulating the values of commodities
with social necessity. At the same time the labour-and-production
process appears as the valorisation process of capital.
5.2 THE LAW OF VALUE AND THE VALORISATION

PROCESS
The Labour Theory of Valoe for Commodity Products
The labour theory of value in Marxian economics, unlike in the

classical school, can be grounded upon the distinction between the
forms of value and the quantitative relations of labour-time as gen-
eral economic regulators. It is obvious by now that the embodied
labour-time in labour-products is not always dealt with through the
existence of value-forms in the different social formations. However,
when labour-products are repeatedly exchanged as commodities, the
quantities of labour embodied in them must more or less regulate
their prices, and become the substance behind the form of values.
For too unfavourable price of a commodity in comparison with the
necessary labour time to produce it must sooner or later include a
reduction of supply, and thus result in the rise in price; and vice
versa. So far the law value, or the regulation of commodity values on
the basis of embodied labour-time, must be carried out even in a
precapitalist commodity economy. Its working, however, cannot be
smooth and certain as long as the central relations of production are
subject to authoritative or communal regulations. It is impossible to
prove the social necessity of the law of value in a precapitalist
commodity economy. It is otherwise in a capitalist economy, where
the quantitative relations of labour in the general labour-and-

production process totally become the social substance of value
relations. The working and the role of the law of value in a precapi-
talist commodity economy is to be understood and studied by taking
the law of value shown for a capitalist economy as a theoretical frame
of reference. 19
There are three aspects to be clarified in the law of value: i.e. (i)
determination of the substance of values as the crystals of abstract
labour-time necessary to produce commodities; (ii) regulation of the
ratios of exchange through the form of value, or of the standard
prices, by the substance of value; (iii) adjustment of the allocation of
labour in various useful forms or branches of production to meet
social needs through value relations. Not to have separated and often
to have mixed up these three aspects, has been a source of confusion
in the studies and the controversies on the labour theory of value. In
particular, problems in respect of the second aspect are usually taken
for grounds to doubt the first. If we separate the second aspect,
concerning the exchange ratios as expressed in standard prices, we
can easily understand the first, more basic content of the law of value
from the previous discussion.
Let us continue to assume that each sphere of production produces
a single product by unskilled simple labour in a social set of techno-
logical conditions of production. Then, the quantity of abstract
labour necessary to produce a unit of each kind of product is deter-
minable from the physical data of production. Though it certainly
includes the portion of past labour transferred from the means of
production, the size of that portion is determined by the current
conditions of production, and not by historical conditions. There-
fore, the socially necessary labour-time signifies the amount of labour
necessary to reproduce a unit of product rather than the amount of
labour actually expended in the historical past. In a capitalist econ-
omy all the products are basically produced as commodities to be sold
by capital. The crystals of abstract labour-time embodied in products
never fail to form the common substance of values of commodities in
capitalism. So far as the commodity products in a capitalist economy
are concerned we are theoretically bound to find and determine the
crystals of abstract labour, as the social substance of value, behind
the forms of commodity values.
Unlike commodity products, human labour-power is not a labour-
product, and therefore does not directly embody any labour-time.
Therefore the commodity labour-power does not directly have the
substance of value in it, although the sale and purchase of labour-
power as a commodity is an indispensable prerequisite for capitalism

as a social system of production of commodities by means of com-
modities. However, labour-power must be reproduced by consuming
the necessary means of subsistence together with the necessary
labour-time embodied in them. So far as capitalism as a social system
must ensure reproduction of labour-power, it must treat the labour-
time embodied in the necessary means of subsistence as the necessary
time to reproduce the commodity labour-power, or the substance of
value of that commodity.
The substance of value of capital which is invested in the means of
production is merely transferred into the substance of value of
commodity products as the portion of past (dead) labour. It is called
'constant capital (c)' because its magnitude is simply maintained in
the process of transferring past labour from means of production. In
contrast the substance of value which is invested in the commodity
labour-power is called 'variable capital (v)' because it is not trans-
ferred but fundamentally reproduced and variably augmented in the
process of commodity production. To be more exact, the substance
of value of variable capital is lost to capital when it is given to workers
in exchange for the use of labour-power. However, in the process of
consuming the use-value of the commodity labour-power, capital can
obtain the whole result of living labour, which not only reproduces
the substance of variable capital ( v) but also adds the substance of
surplus-value (s) by surplus-labour. As a whole, workers sell their
labour-power to capitalists in exchange for wages as the form of value
of commodity labour-power (L), and buy back by wages a portion of
their own products from capitalists. Symbolically we can illustrate
these relations as follows:
Figure 5.1
~
(_, \ (C+ V+ S)
M-C {Pm(c) ____ p ---- C ' - M'
L(v)
formation and
where M designates money; C commodities; Pm means of pro-

duction; P process of production; K consumption.
Let us suppose that 20 lb. of yarn in the previous example is now

produced as a commodity product of capital. Then, 60 hours of
abstract labour embodied in it in total becomes the substance of its
value, while in 60 hours 48 hours is the transferred substance of
constant capital, 6 hours being the reproduced value of variable
capital, and another 6 hours forming the substance of surplus-value
added. Or, 60 hours of the substance of 20 lb. of yarn= (48c + 6v +
6s) in hours. More generally the substance of value of a unit of ith
commodity (a;, in hours) is composed of such three portions:
(1)
If all the problems in economics can be reduced only to the

determination of prices in a market as the neo-classicist and the
neo-Ricardians believe, the analyses of the labour substance of
values may well be denounced as redundant at best. From a broader
socio-historical view and of concern to Marxian economics, it is
imperative to clarify the distinction and the relation between prices as
the form of value and the crystals of abstract labour as the basic social
substance of value. In this regard it depends on the scope of the tasks
of economic theories whether the labour theory of value is to be
judged redundant or not. The historically specific character of the
capitalist economy is systematically elucidated in Marxian theory, by
clarifying how the general economic rules common to different social
formations, and operated through the forms of values in capitalist
society, with its specific contradictions.
For such a theoretical theme, Marx's own notion of value, (as
found at the very beginning of Capital) directly treated as the crystals
of abstract labour, abstracted from the form of value, is not well
suited. Such a notion is not very far from the value theory of the
classical school, and might be regarded as a classical residue in
Capital. In the classical theory, both the equilibrium prices in the
market and the quantitative relations of labour-time embodied in
commodities are regarded as coinciding with each other naturally and
harmoniously. Consequently it is believed that the equal exchange of
labor-time between commodities through equilibrium prices is the
basic content of the natural law of value. Although Marx opened a
critical way out of the classical naturalist conception of the law of
value, by creating the theory of the forms of value, his qualitative

distinction between the forms and the substance of value was not
accompanied by a clear-cut quantitative critique of the classical
notion of the basic content of the law of value. Just as in the classical
school the equal exchange of labour-time embodied in commodities
is also regarded as an essential content of the law of value in Marx.
Consequently from a quantitative point of view standard prices as a
form of value tend to be treated as a directly proportional and formal
expression of the substance of value as embodied labour in commodi-
ties. Marx does not clarify in regard to the content of the law of
value, a relatively autonomous aspect in the character of the forms of
value which go to make up a market mechanism external to the
substantial social relations of labour within the general economic
norms.
Uno's purification of the theory of forms of value was an important
theoretical step forward showing a relatively autonomous character
of the value forms in clearer distinction from the social quantitative
relations of labour-time. However, in his presentation of the labour
theory of value in the theory of the capitalist process of value
formation, he still follows Ricardo and Marx in showing the basic
content of the law of value as the equal exchange of labour-time
embodied in commodities through prices directly proportional to the
labour-substance.
Generally speaking, there are four formally possible positions in
which the law of value can be presented substantially as the equal
exchange of labour-time between commodities in a capitalist econ-
omy, apart from the positions which show the law either as a mere
theoretical hypothesis or as a precapitalist commodity economic
order. Let us examine those four possible positions including Uno's,
together with their problems. In a capitalist economy competition
among capitals and workers usually tends to equalise the rate of
surplus-value (s;' = tt ) and the rate of profit (p/) across various
industries. Workers would leave the industries where the working
day is longer or wages are lower than in others, while they would rush
into the industries with better working conditions, making them
equalise through competition.
First, given thus an equal rate of surplus-rate, and if we can
somehow disregard the competition among capitals which would
equalise the rate of profit, we may be able to maintain a position
seeing the law of value as the equal exchange of labour-time. A likely
reason for this position would be that the competition among capitals
need not yet be taken into consideration in the theory of capitalist

process of production of surplus-value as a whole. When prices are
assumed in this position to be directly proportional to the embodied
labour-time in commodity products, then the rate of profit must be
supposed to be unequal, reflecting the difference in the composition
of capital ( ~; ) between industries with heterogeneous technological
bases. (Marx calls this ratio ( ~; ), or 'the value-composition of
capital, in so far as it is determine(! by its technical composition and
mirrors the changes in the latter, the organic composition of capital',
(1, p. 762). This concept applies to the whole economy as well as to
the individual industries, and is often expressed simply as the compo-
sition of capital.) For the sake of simplicity let us assume that the
period of turnover of capital is a year in all the industries, and also
that there is no fixed capital lasting longer than a year. Then the rate
of profit for ith industry under the assumed conditions of prices would
be:
p;' = _ _~ ~·
,:--_ _ =--7""""""'----:---:;-- (5.2)
C; + V; C; I V; +1
Thus the rate of profit of industries with higher composition of

capital, or greater c; I v;, must be lower than the social average, and
vice versa. Although the competition among capitals surely need not
be investigated in detail in the sphere of analysis of capitalist process
of production, the concept of the law of value regularly causing such
differences in the rates of profit must be too divorced from the actual
features of a capitalist economy to be real and appropriate.
Then, second, if constant capital does not exist, or c; = 0, the rate
of profit p;' must be identified with the rate of surplus-value s;', and
equalised between industries by prices being directly proportional to
the labour substance expended in commodities. This position is quite
close to Ricardo's presentation of the labour theory of value in his
Principles prior to his modification of it by considering the effect of
fixed and durable capital, which is really identical with the effect of
constant capital. As Marx criticises the reiterative decomposition of c
into v+m in the past as a classical dogma of v+m, a capitalist
economy with no constant capital is not merely inconceivable, but
also misleading as to the working of the law of value.
Third, if the composition of capital c; I v; is assumed to be equal
across industries, the rate of profit must be equalised by prices being
proportional to the labour-substance. This position would be more

plausible than others, and might be utilised as an initial hypothetical
explanation of the capitalist process of production based on the
working of the law of value. In following this sequence the unrealistic
hypothetical character of the assumption ought to be noted from the
start, together with the possible range of alteration when the assump-
tion is removed.
Fourth, if surplus value does not exist, or s;' = 0, maintenance of at
least the current size of production in each industry would be possible
only with prices proportional to the quantity of abstract labour
embodied in commodities. The equilibrium prices would necessarily
be such prices giving zero rates of profit (p/ = 0), otherwise the size
of some industries with lower prices must be reduced, and sub-
sequently raising prices by failing to satisfy the social demand for
their products in a market. The feasibility of the labour theory of
value asserting such equilibrium prices under this fourth assump-
tion (as well as under the third in a more exact mathematical defi-
nition), is generally recognised even by non-Marxian economists like
P. Samuelson and M. Morishima. 20 Uno's presentation of the labour
theory of value in his Principles can be interpreted as a theory which
also depends on this assumption, for he initially presents it using the
notion of the process of value formation within the range of the
necessary labour-time of wage-labourers, prior to the notion of the
process of value augmentation on the basis of their surplus-labour.
Although this fourth case is in a sense suggestive of the relation
between the general economic condition of reproduction and the
working of the law of value, as we shall see a little later, it is again
unrealistic, by itself and even seems trivial, since a capitalist economy
without surplus-value or the augmentation of capital is generally
inconceivable, but for short critical periods. Sharp economic crises
causing losses of capital must periodically occur, as we shall see later
in Chapter 9 of this volume, but they are also actually overcome in so
far as capitalism continues to exist. Therefore, presentation of the
law of value can never be complete for a capitalist economy in
particular, if we do not treat it in relation to surplus-labour.
Since all four typical positions showing prices in direct proportion
to the labour-substance of commodities are unsatisfactory in one way
or the other, we have to challenge them by forming a somewhat new
theory of prices which does not fully maintain the equal exchange of
labour-time embodied in commodities as a substantial content of the
law of value. 21 While discussing the function of money as the measure
of value (in Chapter 4, Section 4.2), we saw that standard prices in a

fluctuating market would appear as the form of value for competi-
tively reproducible commodities. Such standard prices are not actu-
ally certain to be directly proportional to the labour-substance in
commodities. However, if the price of the ith commodity is insuf-
ficient to replenish the portion of labour expended (c1 + v,) in the
form of means of production and subsistence, so maintaining the
production process within the parameters of a set of prices in a
market, then the amount of production of the ith commodity has to
be reduced, and consequently its price must rise relatively so as to
enable its producer to regain at least (c1 + v1) through commodity
transactions. Therefore, standard prices as the gravitational centre
for fluctuating prices must systematically replenish at least the portion
of labour-time (c1 + v1) embodied in a commodity through com-
modity exchanges. Though the substance of value (c1 + v, + s1) of a
commodity does not proportionally regulate the standard price or the
form of value, its portion (c1 + v 1) must thus work as a substantial
core regulator of the standard price in the mutual relations of com-
modities, on the basis of given technological conditions and living
standard of wage-workers.
In the view of a capitalist a standard price of a commodity must
cover at least the cost price which is necessary to purchase the factors
of production in average. The need to recover the cost price of a
commodity (from the view of the labour theory of value) reflects the
regulation of prices by the portion of labour substance (c1 + v1)
embodied in a commodity. If we put in parentheses both the role of
profit above cost price in a commodity price, and correspondingly the
portion of surplus-labour (s1) embodied in the value substance of a
commodity, the standard prices must enable the equal exchange of
labour time crystallized in commodities. Here is a rational essence of
the fourth position, given above, which conceives the content of the
law of value as the equal exchange of labour by excluding the portion
of surplus-labour. At the same time it becomes clear how far stan-
dard prices may differ from those assumed in the third position
assuming the precondition of an equal composition of capital through-
out industries. When the composition of capital or the period of
turnover of capital is unequal between industries the standard prices
would not be proportional to the labour-substance in the commodi-
ties. Their deviation from prices proportional to the labour substance
must, however, be restricted within the range of the redistribution of
surplus-labour across industries. In other words the regulation of
prices by the substance of value embodied in commodities has an

elasticity in the process of exchanging surplus-labour through the
form of profit.
For instance, by assuming that two hours of the labour-substance
of value is expressed equally in a price of a shilling for every
commodity, Marx illustrates the process of value formation and
augmentation as follows. When 10 lb. of yarn are spun by 6 hours of
living labour, consuming 24 hours of past labour embodied in 10 lb.
of cotton and a quarter of spindle, then 10 lb. yarn contains 30 hours
of labour-substance in total and must be priced at 15 shillings. If the
necessary means of subsistence for a worker per day contains 6 hours
of labour, the substance of value of a day's labour-power is 6 hours of
labour and is expressed in 3 shillings. A spinning capitalist pays 12
shillings for means of production (the cotton and the spindle) and 3
shillings for labour-power to produce 10 lb. of yarn of 15 shillings in a
process of 6 hours of value formation. If such a process of value
formation without surplus-labour prevails throughout industry, stan-
dard prices must necessarily be in direct proportion to the labour-
substance in commodities in this way. Suppose that the price of
means of production (the cotton and the spindle) with 24 hours of
labour-substance becomes 13 shillings instead of 12 shillings while
other conditions remain unchanged, then the spinning capitalist must
reduce his production. Any gain in an industry would entail some
losses and the reduction of production in other industries.
When the process of value formation is extended into the process
of value augmentation, such strict proportionality will not hold. The
spinning capitalist now produces 20 lb. of yarn by 12 hours of living
labour a day, consuming 48 hours of past labour in 20 lb. of cotton
and a half of a spindle. If two hours of labour-substance is pro-
portionally expressed in a shilling as Marx continues to assume, then
the capitalist sells 20 lb. of yarn containing 60 hours of labour at 30
shillings and obtains 3 shillings of surplus-value after deducing both
24 shillings for prices of means of production and 3 shillings for price
of a day's labour-power as costs of production. However, such strict
proportionality between the labour-substance of value and prices of
commodities need not be maintained so far as surplus-value rep-
resents the portion of labour-time elastically disposable and freed
from the minimal requisites of reproduction. For instance, the price
of means of production (the cotton and the spindle) with 48 hours of
labour-substance may now become 26 shillings instead of 24 shillings
while other prices remain unchanged. The spinning capitalist can still
get surplus-value, but 1 shilling (30-26-3 = 1) giving a rate of profit

of 3.4 per cent (1129), instead of 3 shillings of surplus-value giving a
rate of profit of 11.1 per cent. Alternatively, the price of 20 lb. of
yarn with 60 hours of labour-substance may become, say 29 shillings,
while the price of means of subsistence with 6 hours of labour-
substance is 3 shillings and the price of means of production with 48
hours is 25 shillings. Then the spinning capitalist would obtain 1
shilling of surplus-value with a profit rate of 3.6 per cent (Vzs). What-
ever the relative relations of prices may be, the standard prices must
be in a condition to replenish at least 54 hours of labour-substance in
the form of means of production and of subsistence to the spinning
process in exchange for 20 lb. of yarn with 60 hours of labour-
substance. The exchange of labour-substance through the form of
value may thus be unequal, but inequality must be limited within the
range of the redistribution of surplus-labour across industries.
As we shall see in Chapter 7, capitalist competition determines the
standard prices so as to equalise the rate of profit across industries in
the form of prices of production. We must keep it in mind, while
analysing the inner logic of capitalist production, that the regulation
of standard prices by the labour-substance in commodities as an
aspect of the law of value, allows room for the unequal exchange of
labour in the range of surplus-labour. Thus standard prices, as the
form of value, are generally regulated by the labour-substance of
value, with such slack in the range of unequal exchange of surplus-
labour for the commodity products. The anarchical fluctuations of
prices around the standard prices are also possible, usually within the
range of the redistribution of surplus-labour, as a more concrete form
of the law of value.
The Value of Labour-power
The substance of value of commodity labour-power must be defined

indirectly as the labour-substance embodied in the means of subsist-
ence necessary to reproduce labour-power, since labour-power is not
produced directly by labour in the labour process. The physical scope
of the means of subsistence necessary in average to maintain and
reproduce labour-power a day, together with technological con-
ditions of production, determines the magnitude of the labour-
substance of the commodity value of a day's labour-power, or the
necessary labour-time in a working day. The scope of the necessary
means of subsistence is relatively independent of the technological
conditions of production, and includes historical and social elements.

More concretely, the lifestyle of wage-workers which is historically
and socially formed has to be considered.
For instance, 'the sum of means of subsistence necessary for the
production of labour-power must include the means necessary for
worker's replacement, i.e. his children, in order that this race of
peculiar commodity-owners may perpetuate its presence on the
market' (1, p. 275). The average number of children, the ordinary
level and costs of education are among the factors to determine the
necessary means of subsistence. In case the aged worker after retire-
ment ordinarily lives either on his own previous earnings or as a
dependent member in a family, his costs of living must also be
counted into the necessary means of subsistence in average. If a part
of educational costs or a part of the subsistence of an aged person is
supported by a social fund outside of taxes on worker's earnings, the
necessary means of subsistence or the substantial contents of the
value of labour-power may so much be reduced. The number of
wage-earners in a family also affects the value of labour-power. 'The
value of labour-power was determined, not only by the labour-time
necessary to maintain the individual adult worker, but also by that
necessary to maintain his family. Machinery, by throwing every
member of that family into the labour-market, spreads the value of
the man's labour-power over his whole family. It thus depreciates it.'
(1, p. 518). Mobilisation of married women into the labour-market is
reinforced in the recent decade especially under the pressure of great
depression, having a similar effect on the value of labour-power.
Certainly the total value earned by two workers in a family may
become greater than the former value earned only by the head of the
family, but the substantial value per head must be reduced when two
workers in a family become the usual lifestyle. The change would also
entail alteration in the division between what is carried by domestic
(shadow) work and what is purchased as commodities, expanding the
capitalist market internally and weakening the function of family
life.Z2 In the process of capital accumulation the real wages would rise
and decline according to the motion of the condition of labour-
market as we shall see later (in Chapter 9), and gradually through
such fluctuations standardise the ordinary material lifestyle of work-
ers for a certain period in a society. The business cycles in the process
of capital accumulation thus form a concrete mechanism through
which the material contents of real wages are changed and standard-
ised including the social and cultural elements.
Anyway, once the average necessary means of subsistence for a

wage-worker each day is given as the standard contents of real wages
for the time being, the labour-substance embodied in them is deter-
minable on the basis of present technological conditions of produc-
tion as we have seen (in Section 5.1 of this chapter). Since a day's
labour-power must be maintained and reproduced by consuming the
necessary means of subsistence, the labour-time embodied in these
means of subsistence, say 6 hours, is theoretically regarded as the
necessary labour-time for reproducing the commodity labour-power.
There is thus a roundabout in the definition of the substance of value
of the commodity labour-power, reflecting the special native of its
reproduction. From the quantitative aspect, however, there must be
an equal exchange of the labour-substance between the commodity
labour-power and the necessary means of subsistence through their
prices. Though it may seem tautological to conceive equal exchange
of labour-time between these commodities, it contains social signifi-
cance. Wage-workers as a class must obtain in exchange for their
commodity labour-power a portion of their labour-time expended in
the production process; this portion is the necessary labour-time, in
the form of the means of subsistence, leaving the other portion of
their labour-time as a source of surplus-value. Therefore, the notion
of the labour-substance of the value of labour-power forms the
theoretical foundation of analysis of the capitalist production of
surplus-value. (Review Figure 5.1. once more.)
It is worth noting that the commodity labour-power is an unique
simple commodity in a purely capitalist society. Unlike any other
commodity produced by capital, its reproduction does not contain
the crystallization of surplus-labour. Whereas the other commodity
products are to be priced elastically not in direct proportion to the
labour-substance of value within the range of the redistribution of
surplus labour-time, there is no such elasticity in the case of the
commodity labour-power. The ratio between the price-form of the
value of labour-power and the labour-time necessary to reproduce it
must basically be equal to the ratio of the standard price against the
labour-substance of the necessary means of subsistence, so as to
maintain a sort of equal exchange of labour-time. When the nominal
prices of the means of subsistence are enhanced, say by a change in
the relative value of the money commodity, then ceteris paribus the
nominal price as the form of value of labour-power must also duly be
proportionally increased as a basic principle. In this regard Marx is a
little confused when he says, concerning an effect of the deviation of
the prices of production from value-prices: 'The workers must work

for a greater or lesser amount of time in order to buy back these
commodities (to replace them) and must therefore perform more or
less necessary labour than would be needed if the prices of produc-
tion of their necessary means of subsistence did coincide with their
values.' (III, p. 309; cf. also III, p. 261). So far as the theory of the
transformation from values into prices of production refers to the
logic of the redistribution of surplus-value among capitals, the theory
must be independent from the more fundamental logic of the relation
of production of surplus-value. If the prices of production of the
means of subsistence were higher than their value-prices, i.e. prices
conceivable as proportional to the labour-substance, then the nomi-
nal wage-rate must be sufficient to purchase the necessary means of
subsistence at that price-level. The relative inelasticity of nominal
wage-rates, as Keynesians emphasise so much, would hold well in the
short run particularly in the stage of monopoly capitalism with
established trade unions and the subsequent labour-management
strategies of big firms, but would not hold as a basic universal
principle for a capitalist commodity in the long run. At least it is quite
difficult to find persuasive theoretical reasons to explain such an
inelasticity of wage-rates. This is an interesting problem to be noted
and investigated further.
As a basic theory of the process of capitalist production, wages as
the form of value of labour-power are to be conceived at a level
which enables the equal exchange of labour-substance with the
necessary means of subsistence. The standard level of wages is
determined by the factors as we have discussed, including the basic
social relations of production between capitalists and labourers, and
is not merely a result of fluctuations in the labour-market nor a
transcendentally inelastic condition of a capitalist economy. The
socially standard wages must theoretically be defined as the form of
the substantial value of labour-power, or the price-form of value for
the labour-time necessary to reproduce the commodity labour-power
by consuming the necessary means of subsistence purchased in a
market. 23
'However, on the surface of bourgeois society the worker's wage
appears as the price of labour, as a certain quantity of money that is
paid for a certain quantity of labour' (I, p. 675). Marx attempts to
show 'the transformation of the value of labour-power into wages' in
this sense, and says that the ordinary expressions like 'value of
labour' arise 'from the relations of production themselves' (I, p. 677).
Though he clarifies how these common-sense notions like the value

of labour or wages conceal the real social substance of exploitation,
he does not seem successful in presenting a logic for why these
notions arise from the nature of the capitalist relations of production.
In retrospect the notion of wages as remuneration for the whole work
or labour performed was not really established from the transform-
ation from the value of labour-power. Already in precapitalist so-
cieties, various artisans or craftsmen like gardeners or barbers having
their own tools used to be paid remuneration for all their work in the
form of wages. Therefore, the wage-form itself is part of the forms of
a commodity economy in general, and is not specific to capitalism.
Capitalism took over such a wage-form for the wage-workers in
completely differing social conditions. Although the propertyless
wage-workers, unlike the independent craftsmen, actually have to
sell their commodity labour-power for the daily means of subsistence
which embody just the necessary labour-time in a working day to
sustain their labour-power, wages with the notion of 'the value of
labour' is conceived as the full remuneration for the whole labouring
day. As Marx sharply points out, the wage-form in this sense conceals
the source of surplus-value on the surface of bourgeois society.
Such a notion of wages as a full payment for all the labouring
activity of workers is reciprocally intensified by a corresponding
notion that capital is a creative subject producing surplus-value
through its innovative development. In such a notion of capital the
methods of increasing efficiency in producing surplus-value, as we
shall see in the next item, are taken for the source of surplus-value.
The general custom of paying wages after the total labouring-time in
a day, or a week, or a month, also intensifies the commonplace
notion of wages as a full equivalent for the total labour expended.
The custom of post-payment of wages is grounded also in more
substantial reasons. Capitalists cannot obtain the use-value and the
value of the commodity labour-power instantly by the contract to
purchase it, since it does not contain the embodied labour-substance
and its use-value is obtainable only by the actual expenditure of
labour in the production process. The custom of post-payment of
wages serves for capital to secure the subordination of workers in the
production process despite its form as a free and equal exchange of a
commodity between capitalists and workers.
As Marx notices there are two fundamental forms in wages, i.e.
time-wages and piece-wages. Given a capitalistic tendency to treat
workers in the mass at factories and offices, the form of time-wages
would be more suitable for the central work-places in capitalism. It is

therefore doubtful whether 'piece-wages is the form of wage most
appropriate to the capitalist mode of production' (I, p. 698) as Marx
says. The wage per hour, called the wage-rate, is determined by
dividing the monetary value of a day's labour-power by the average
hours in a working day, and serves as the basis for daily, weekly or
monthly time-wages. Since the amount of wage-payment in these
forms is calculated from the total labouring-time as well as the
wage-rate, the notion that the wage is the full equivalent for all the
labour expended would seem quite natural. The form of time-wages
also tends to force workers to offer longer labour-time voluntarily in
order to increase their total earnings, especially in the phases of
depression with reduced wage-rates.
Piece-wages are paid for each piece worked, and the rate is based
upon the time-wage-rate and the estimated average number of pieces
hourly producible. This form of wage-payment seemingly resembles
remuneration for the piece-work of artisans, and further clouds the
actual social function of wages in capitalism. Under the form of
piece-wages, workers are compelled to intensify their labour volun-
tarily to produce as many pieces as possible, and so to secure the
necessary means of subsistence. The costs and trouble of supervising
workers are thus clearly dispensed of. Therefore, workers out of the
direct control of capitalists in small separated work-places (like
taxi-drivers nowadays) generally tend to be paid more or less in the
form of piece-wages.
Thus, in either form, the wage is not merely a monetary expression
of the value of labour-power, it also hides the actual substance of
value of labour-power as the necessary labour-time in a working day
beneath the notion of the value of labour, and further induces longer
and more intensified labour by harnessing workers' own subjective
will.
Production of Surplus-value
So far as capital pays wages for the value of the commodity labour-
power, it duly gets the command of its use-value as the actual
expenditure of labour-power, and obtains the whole results of la-
bouring activity according to the rules of a commodity economy. As a
whole, labourers have to purchase back from capitalists the means of
subsistence which they have produced in the necessary labour-time,
by repeatedly handing over the money obtained as the value of
labour-power. The expenditure of labour-power which is performed

in the capitalist process of production in exchange for the value of
labour-power is not confined to the labour-time necessary to repro-
duce the means of subsistence for workers. Surplus-labour time
beyond the necessary labour-time and the resultant surplus-products
are appropriated by capital, and forms the social substance of
surplus-value. Such a social relation between the substance of value
of the commodity labour-power and that of surplus-value is the most
basic inner relation of production of capital.
The portion of capital value invested in the commodity labour-
power as variable capital is, in substance recreated and further
augmented by the expenditure of labour-power in the process of
production. Contrastingly, the portion of capital invested in the
means of production as constant capital does not vary its labour-
substance, though its functions to facilitate the working of variable
capital. Therefore, in direct relationship, surplus-value (s) in regard
to the labour-substance is a result solely of the working of variable
capital (v) invested in labour-power. In order to increase the pro-
duction of surplus-value, capital needs first of all to enhance the rate
of surplus-value slv. This rate of surplus: value signifies the social
relation of the division of the value-product (v + s), which workers
create in the process of production, between the portion belonging to
capitalists as surplus-value and the portion coming back to workers as
the value of labour-power. It represents the rate of exploitation of
workers under capitalism.
The production of surplus-value by capital is substantially based
upon the relation between the necessary labour-time and the sur-
plus-labour-time as expressed in the rate of surplus-value s/v. Thus,
appropriation of surplus-labour-time by extending a working day
beyond the labour-time necessary to reproduce labour-power is the
absolute method of the production of surplus-value for capitaJ.24
Since a major motive of capitalist production is acquisition of ever
greater surplus-value, capital attempts to prolong the working day as
far as possible. Simultaneously, intensification of labour is also pur-
sued. As we have seen the law of value determines the labour-
substance of the value of labour-power on the basis of social and
technological conditions, but it cannot define how long and how
intensively labour is to be performed a day in the process of the
utilisation of the use-value of the commodity labour-power. From the
point of view of workers, labour in a capitalist process of production
is basically alienated labour for others, and therefore the pro-
longation and intensification of labour does not at all accord with

their own interest. So as long as skilled workers who were not easily
substitutable could determine the tempo of the process of pro-
duction, capital was unable effectively to remove workers' resistance
against the prolongation and intensification of labour. As Marx
elucidates, 'after capital had taken centuries to extend the working
day to its normal maximum limit, and then beyond this to the limit of
the natural day of 12 hours, there followed, with the birth of large-
scale industry in the last third of the eighteenth century, an avalanche
of violent and unmeasured encroachments. Every boundary set by
morality and nature, age and sex, day and night, was broken down.'
(1, pp. 389-90). Against capitalists' resistance a normal working day
had then to be legislated as a result of workers' struggle, combined
with the actual social necessity to maintain and reproduce a healthy
labouring population. With the limit of the working day given, both
physically and socially, capital still strives to increase the production
of surplus-value relatively by developing productivity as well as the
intensity of labour.
The production of relative surplus-value is realised by reducing the
portion of necessary labour-time within the given length of a working
day. As we have seen the necessry labour-time in a working day is
indirectly determined by the labour-time necessary to reproduce the
average means of subsistence for a worker per day. The portion of
surplus-labour-time can be increased relatively, if the necessry labour-
time in a day is shortened by the reduction of the labour-time
embodied in the means of subsistence. When the productivity of
labour is increased in the industries directly producing the necessary
means of subsistence or in those producing the means of production
for them, the embodied labour-time in a given unit of the necessary
means of subsistence is reduced. Therefore, the increase of pro-
ductivity of labour generally enables the enhancement of the rate of
surplus-value slv by reducing the substance of the value of labour-
power without altering the real wage-rate (i.e. the physical quantity
of means of subsistence obtainable by hourly wages), or even with
some increase in real wage-rate as long as it is less than that of
productivity.
Here is the social basis to explain why capitalism strives to develop
the natural sciences and technologies, realising much faster increases
in the productivity of labour than in any other previous society. In the
recent past, especially in phases of prosperity where the position of
workers was stronger, so called guidelines to define the upper limit
of an increase of real wages in proportion to that of productivity was

usually requested by business circles. The request represented capi-
talists' desire not to reduce the rate of surplus-value s!v by wage
increases. On the other hand, in the phase of depression, as we are
witnessing, the gap between stagnant real-wages and the increase of
productivity of labour through 'rationalisation' tends to be widened,
enabling a powerful production of relative surplus-value.
As Marx pointed out, 'an increase in the productivity of labour in
those branches of industry which supply neither the necessary means
of subsistence nor the means by which they are produced (e.g.
industries producing luxury goods or weapons as non-basic products
in Sraffa's terminology25 - M. I.) leaves the value of labour-power
undisturbed' (1, p. 432), and therefore does not directly contribute to
the social production of relative surplus-value. However, technologi-
cal inventions in such branches of industry may well be applicable to
others, and thus indirectly relate to the production of relative sur-
plus-value.
A driving force for the social production of surplus-value is actually
in individual capitalists attempt to improve their own methods of
production in order to obtain extra surplus-value. A capitalist who
has managed to introduce an exceptionally superior technological
method of production in comparison with the dominant represen-
tative method in an industry reduces the labour-time as well as the
costs necessary to produce a unit of product, while he can sell it with
a social value estimated on the basis of the general conditions of
production in the industry. The extra surplus-value which is obtained
by such a capitalist must disappear with the gradual diffusion of his
method of production over the industry, and the social value of the
product is accordingly reduced down. Therefore, the acquisition of
extra surplus-value presupposes more or less difficulty in instantly
introducing new technological methods of production on the part of
other capitalists, generally because of the costs of abandoning the
existing equipments with their remaining values. The legal patent
rights system further serves to secure extra surplus-value for the
initiating capitalists. Increasing investment into research and devel-
opment (R & D) by giant corporations in our age also largely relate to
the possibilities of obtaining this sort of surplus-value.
Since even the capitalists in industries producing luxury goods or
weapons can obtain extra surplus-value by innovating technologies,
extra surplus-value is obtainable even without directly contributing to
the social production of relative surplus-value. There is a problem of
how to conceive of the substance of extra surplus-value. According to

Marx, 'The exceptionally productive labour acts as intensified labor;
it creates in equal period of time greater values than average social
labour of the same kind.' (1, p. 435). This conception is dubious as to
the source of extra surplus-value, because the workers with same
intensity of labour cease to bring about extra surplus-value after the
generalisation of new technology. In my opinion the source of extra
surplus-value is in the redistribution of social surplus-labour-time
through the price mechanism (as the form of value), so that either
less surplus-labour-substance may be distributed to other capitalists
with old methods of production, or it is increased socially, with the
gradual reduction of the price of commodity products in the process
of the generalisation of new method of production. So long as a
portion of social surplus-labour must cover, in one way or another,
the costs of improving methods of production according to the
general economic norms common to all human societies, the portion
of capitalistic surplus-labour redistributed in the form of extra sur-
plus-value has such a social function by its very nature. 26 Neverthe-
less there cannot be any objective standard set by general economic
norms as to how large a proportion of social surplus-labour is to be
spent for such a function. And the quantity of surplus-labour ob-
tained in the form of extra surplus-value by capitalists often well
exceeds the quantity of labour which is rationally and actually necess-
ary for improving methods of production. Hence, it serves as a strong
incentive for technological innovations.
As Marx elucidates, the capitalistic development of productive
power, driven by the incentive to acquire extra surplus-value and
resulting in the social production of relative surplus-value, takes
three elementary forms: i.e. co-operation, division of labour and
mechanised factory system.
In contrast with peasant agriculture and independent handicrafts
until the medieval age, a large number of workers working together
in co-operation in work-places characterised capitalist production
from the beginning, although the form of co-operation itself is not
newly created by capitalism, as exemplified by the case of ancient
monumental constructions. 'When the worker co-operates in a
planned way with others, he strips off the fetters of his individuality,
and develops the capabilities of his species.' (I, p. 447). Co-operation
'excites rivalry between individuals and raises their animal spirits',
'economizes the means of production by use in common', and thus
increases the productive power of labour (ibid.). At the same time
capitalists can treat workers' abilities as average labour-power re-

gardless of their individual difference in the form of co-operation.
Capital further organises workers in the form of the division of
labour, on the basis of co-operation. When workers are divided and
attached to specialised partial operations, the dexterity of workers is
easily increased, the labour-time necessary for the transition from
one operation to another is economised, improvement of specialised
tools is facilitated, and thus the productivity of labour can be much
increased. The classical shape of the division of labour in the
work-place is found in the capitalist handicraft factory system
called 'manufacture'. 'As a characteristic form of the capitalist
process of production it prevails throughout the manufacturing
period properly so called, which extends, roughly speaking, from
the middle of the sixteenth century to the last third of the eighteenth
century.' (I, p. 455).
Manufacture put workers under the discipline and command of
capital more fully than simple co-operation, including a hierarchical
structure amongst the workers. While it enhanced the productive
power of capital it suppresses 'a whole world of productive drives and
inclinations' of workers, by converting them into 'a crippled mon-
strosity' of partial fixed skills (I, p. 481). Whereas capitalism develops
the division of labour between industries in society in a non-auth-
oritative and anarchical order, it contrastingly develops the detailed
division of labour inside the workshop in an authoritative order (cf. I,
p. 477). In so far as manufacture still depends on the dexterity
and skill of workers for its productivity, capitalist production has to
remain within certain limit in respect to its rapidity of expansion, its
degree of development of productivity, and its domination of the
pace and content of work. Thus it could not thoroughly drive out
smaller handicrafts and domestic industries through price competi-
tion, and often depended upon their production of parts through
subcontract. Thus, 'manufacture was unable either to seize upon the
production of society to its full extent, or to revolutionize that
production to its core. It towered up as an artificial economic con-
struction, on the broad foundation of the town handicrafts and the
domestic industries of the countryside.' (I, p. 490).
The mechanised factory system develops the productive power of
capital beyond the limitations of manufacture. On the basis of co-
operation and the division of labour, the factory system, with the
working machines or automatic production facilities after the Indus-
trial Revolution, decomposed skills and converted a major portion of
factory workers into unskilled simple labourers. Capital was not

enabled elastically to expand its production without being restricted
by the number of existing skilled workers. Workers as simple labour-
ers have to be more subordinate to capital, and more fully controll-
able for capitalist management. As a result, intensity of labour tends
to be increased easily and repeatedly. Even with the same degree of
intensity of labour, productivity can also easily be enhanced by
introducing new machines or facilities. Production of relative sur-
plus-value on a social scale, driven by the possibility of individual
acquisition of extra surplus-value, is thus much facilitated and pro-
moted by the mechanised factory system. Depreciation of the sub-
stance of value of labour-power along with increase in productivity is
often amplified by the effect of mobilising several workers from a
family, as we have referred to.
The specific features of capitalist utilisation of machinery should
not be taken for the generally inevitable features of utilising machin-
ery in other types of societies. Capital uses machinery in order to
reduce costs of production and increase individual and social sur-
plus-value, as well as to facilitate the domination over workers by
making them broadly convertible simple labourers. As Marx already
points out, machinery 'is the most powerful weapon for suppressing
strikes, those periodic revolts of the working class against the auto-
cracy of capital' (I, p. 562). This weapon is effective not merely at the
initial stage of introduction of automatic production system, but also
repeatedly up until our own age along with introduction of newly
'rationalized' automation systems especially in the phase of depres-
sion. As such a weapon, machinery tends to be abused in capitalism,
instead of being used to reduce the burden of labourers. On the other
hand, the limit for capital to utilise machinery is narrowed from the
view of costs. Capitalists do not directly attempt to lessen the labour-
substance embodied in the product, but intend to reduce the costs of
production. The limit for them to use a machine 'is therefore fixed by
the difference between the value of the machine and the value of
the labour-power (which is always less than the total labour-value
created by the expenditure of the labour-power- M. 1.) replaced by
it' (1, p. 515). In this context the lower the value of the labour-power,
or the lesser the necessary labour-time in a working day, the nar-
rower the limit for capitalist utilisation of machinery. It might be a
reason among others why it seems easier to introduce more expensive
new machinery in advanced capitalist countries with higher real
wages than in less advanced countries. On the other hand, large-scale
machinery and facilities of production, once constructed, tend to

restrict further innovation for a certain time period, as they need
gradually to be depreciated through repeated turnover of capital
before being scrapped. The dynamics of investment in machinery and
facilities of production as fixed capital remains to be investigated
more concretely in the theory of capital accumulation and business
cycles which we shall discuss later in chapter 9.
Anyway, capital can treat a large central portion of labour-power
as a simple convertible commodity, regardless of workers' individual
difference or skill, and thereby elastically extend its production. The
development of the method of production in pursuit of individual
extra surplus-value and social relative surplus-value, thus clearly
entails the social process of making the subordination of workers to
capital more complete, strengthening the alienation of labour from
its own products working as capital, and fostering the simplification
of the commodity labour-power. Capital acquires here an objective
technological basis by which to behave as an subjective agent of the
production of surplus-value. At the same time the law of value can
fully work socially including the aspect of adjustment of allocation of
labour according to the anarchical fluctuations of demand, once
labour-power is thus converted generally into a simple homogeneous
commodity. As we shall discuss in the next chapter, our grounds for
reducing skilled or complex work to simple labour in value theory are
certainly related to, but not confined to, this capitalist social tendency
to treat labour-power as a simple homogeneous commodity with the
establishment of the mechanised factory system.
6 The Extension of the
Theory of the Substance
of Value
In treating the law of value and the capitalist production of surplus-
value, we have assumed that each industry each produces a single
product with simple labour. However, there have been fervent contro-
versies over how to deal with skilled or complex labour, and with
joint production, when defining the labour-substance of value.
These problems have been focal issues in the debate on the feasibility
of Marx's labour theory of value between neo-classists, neo-
Ricardians and Marxians, in addition to the related issue of the
transformation problem discussed in Chapter 7. In my view these
problems still need clarification, especially from the point of view of
our discussion of the distinction between and relation between the
forms and the substance of value. Reconsideration of these problems
from such an angle would strengthen our understanding of the law of
value and the working of the capitalist economy, and thus would also
serve to make sounder our frame of reference for a possible socialist
economy.
A similar theoretical concern must be applied to the theory of the
reproduction schemes. The theory of the reproduction schemes deals
with how the general material conditions of reproduction are to be
carried through in the process of the reproduction and circulation of
the total social capital. So far as the law of value must maintain the
general economic norms in the labour-and-production process through
the value relations of commodities, its absolute social foundation in a
capitalist economy is presented in the theory of the reproduction
schemes. Therefore we have to confirm our understanding of the
substantial content of the law of value, and examine whether the
analysis of the reproduction scheme is compatible with possible
disproportionalities between the price-form and the labour-substance
of commodity products within the range allowed by the surplus-
labour embodied in them.
149
6.1 SKILLED LABOUR IN THE VALUE THEORY
The Origin of the Problem
Even though Marx uncovered the social substance of value relations

in general in terms of simple average labour throughout Capital, he
was aware that the effect of human labour was determined not merely
by technology, but also by the different degrees of intensity and skill
of the labour. For instance, just after defining values of commodities
as crystallised human labour expended to produce them, Marx states
that the quantity of the 'value-forming substance', the labour, must
be of an average or a socially necessary labour-time, and he continues
as follows: 'Socially necessary labour-time is the labour-time required
to produce any use-value under the conditions of production normal
for a given society and with the average degree of skill and intensity
of labour prevalent in that society.' (1, p. 129). In the context where
this is stated in the first section in the first chapter of Capital, Marx
seems to consider the conditions of production and the character of
labour mainly in relation to the same kind of labour producing the
same sort of use-value. In the case of producing the same kind of
use-value, it is not difficult to compare and measure the degree of
skill and intensity of labour under the same conditions of production.
We can easily assume that the labour-time of skilful workers is
reduced to a certain amount of the socially necessary labour-time by
comparing the resultant quantity of products. Moreover the mechan-
ised factory system of capitalist production generally homogenises
the efficiency of labour under the same conditions of production,
making the instruments of labour the main determinants of pro-
ductivity. The difference in the objective conditions of production,
rather than in workers' ability, tend to be the decisive influence on
productivity of the same sort of product. The determination of
representative technical conditions of production for each kind of
commodity can here be left to one side, and analysed separately in
the theory of market value or market prices of production, as we shall
discuss later in the second section of Chapter 7. Therefore let us
presently assume representative conditions of production and aver-
age intensity and skill of each kind of labour producing the same sort
of use-value.
However, the problem of the degree of skill and intensity of labour
cannot conceptually be confined to the same kind of labour. Marx
refers to complex labour in contrast with simple average labour,
The Extension of the Theory of the Substance of Value 151
when he compares different kinds of useful labour. Complex labour

can be regarded as expenditure of labour-power of skilled workers
better trained or educated than the average unskilled or simple
workers. It is certainly difficult, or rather impossible, physically to
compare and measure the different degrees of skill and intensity of
different kinds of useful labour, since the resultant different use-
values are not directly commensurable. So long as Marx discusses the
substance of value in a simple commodity exchange, the social
mechanism by which capitalism treats the great majority of labour as
interchangeable simple labour cannot yet be logically presented. A
mere commodity-exchange relation, unlike a capitalist economy,
cannot provide the social ground to make simple unskilled labour the
common general substance of value-relations. Thus, Marx's expli-
cation of reducing complex into simple labour in the first chapter of
Capital lacks an actual and unambiguous social basis and is really
problematic:
More complex labour counts only as intensified, or rather multi-

plied simple labour, so that a smaller quantity of complex labour is
considered equal to a larger quantity of simple labour. Experience
shows that this reduction is constantly being made. A commodity
may be the outcome of the most complicated labour, but through
its value it is posited as equal to the product of simple labour,
hence it represents only a specific quantity of simple labour. The
various proportions in which different kinds of labour are reduced
to simple labour as their unit of measurement are established by a
social process that goes on behind the backs of the producers; these
proportions therefore appear to the producers to have been handed
down by tradition. In the interests of simplification, we shall
henceforth view every form of labour-power directly as simple
labour-power; by this we shall simply be saving ourselves the
troubles of making the reduction. (I, p. 135).
What does 'a social process that goes on behind the backs of the
producers' mean? The process may well be interpreted in this context
as the exchange relations in a market 'behind the backs of the
producers'. At least Marx does not show how complex labour-time is
socially measured as multiplied simple labour-time, apart from the
reduction through commodity value which seems to imply that value
in exchange here determines labour-values rather than the reverse.
From the viewpoint of vulgar economics, which resolves all economic
problems into the determination of prices within a market, this point

naturally appears a great failure in Marx's labour theory of value.
Bohm-Bawerk, the first major critic of Marx's value-theory, did not
miss the point. Marx seems to define the measurement of labour-time
here by the exchange-values given in the market, while he initially
intended to explain the exchange-values from labour-time embodied
in commodities. Does it not make a 'circular explanation'? 1
Is there any other possible interpretation of Marx's treatment of
complex skilled labour? Against Bohm's type of critique most Marxian
value-theorists have attempted to show that complex labour can be
reduced to multiplied simple labour by analysing the value of com-
plex labour-power without referring to the role of market. They
usually cite and rely on Marx's statement in the section of 'The
Valorization Process' in chapter 7 of the first volume of Capital as
follows:
All labour of a higher, or more complicated, character than aver-

age labour is expenditure of labour-power of a more costly kind,
labour-power whose production has cost more time and labour
than unskilled or simple labour-power, and which therefore has a
higher value. This power being of higher value, is expresses itself in
labour of a higher sort, and therefore becomes objectified, during
an equal amount of time, in proportionally higher values. What-
ever difference in skill there may be between the labour of a
spinner and that of a jeweller, the portion of his labour by which
the jeweller merely replaces the value of his own labour-power
does not in any way differ in quality from the additional portion by
which he creates surplus-value. (1, p. 305).
There seems to be little difficulty in accepting Marx's definition of

the value of complex labour-power. It is defined as the amount of
labour-time which is necessary to produce this sort of labour-power,
just like the value of simple labour-power. The real problem lies in
the relation between the value of complex labour-power and the
value created by the expenditure of this labour-power. The second
sentence quoted above, which begins with the phrase 'This power
being of higher value', can be interpreted variously.
(1) If the phrase means 'While this power is of higher value', but
does not signify causality, the higher value objectified by the expendi-
ture of this labour-power can still be interpreted as being determined
by the exchange ratio in a market. Although the Rubin School's
tendency to accept this interpretation has been exceptional among

Marxians, it may coincide with Marx's own suggestion in the preced-
ing quotation from the second section of the first chapter of Capital.
However, in opposition to Bohm's type of critique, most Marxians
have interpreted the phrase differently, and maintained that the
higher value of complex labour-power is causally related with the
higher value created by that labour-power.
(2) As a formal interpretation of the sentences quoted above, a
higher sort of skilled labour can be regarded as being able some-
how to create higher values in proportion to its value. For example,
E. Bernstein asserted such an interpretation. 2 This view apparently
allows the theoretically convenient assumption that the rates of
surplus-value (s: = s;lv;) are equal across different kinds of complex
labour. However, this view contradicts Marx's basic theory, because
Marx strongly demonstrated that the use-value of labour-power to be
realised in the labour-time expended in a day, and the value-
substance of labour-power as the necessary labour-time to reproduce
labour-power for a day, are determined independently. In view of
this basic position we cannot mechanically assume a direct propor-
tionality between the values and the value products, or an equal rate
of surplus-value, as between various kinds of complex and simple
labour. Therefore, Hilferding opposed both Bohm's critique and
Bernstein's formulation, and suggested a third interpretation as
follows.
(3) According to Hilferding's interpretation3 , complex labour mo-
bilises and transfers a series of simple labour which were necessary to
produce skilled labour-power. Just as ten batteries combined can
generate ten times the electric power of a single battery, a series or a
combined set of necessary educational and training labour is poten-
tially stored in the character of the skilled worker and is transferred
to the commodity products through his labour. So long as educational
or training labour in the past, constitutes part of the value of complex
labour-power, it is transfered to the commodity product without
varying its amount just like the value of constant capital. Then, for a
capitalist who employs skilled workers, surplus-value is to be ex-
tracted only from labour newly expended by those workers. There-
fore, even though skilled workers objectify greater quantities of
labour in the commodity products during equal amounts of time,
their rate of exploitation must be lower than in the case of simple
labourers.
This third interpretation seems most consistent with the technological
determination of values in terms of labour-time, and has been re-

garded as a classic solution of the skilled labour problem. However, it
could not be a final solution. In recent value controversy the problem
has continued to be discussed from various angles.
The Recent Technological Analyses
In Hilferding's solution the role of educational labour and that of the

skilled worker's own labour were not very clearly distinguished. It
was also ambiguous as to whether the skilled worker's own labour
was to be regarded as simple common labour or not when it was
separated from the educational labour stored in his ability. Further, it
remained to be clarified how to decompose complex labour in the
educational process into simple labour.
N. Okishio\ and then B. Rowthorn 5 extended Hilferding's ap-
proach and gave it a more formal exposition. Let me abridge
Rowthorn's exposition here, and begin with assuming n different
commodities labelled 1, 2, ... , n, and m + 1 different types of
labour labelled 0, 1, 2, ... , m. Suppose that to produce one unit of
commodity j requires 1ri units of labour of each type of r, and a;i units
of each commodity i. Then, if one unit of labour expended in an
average lifetime of type r is equivalent to <l>r units unskilled labour,
the value of one unit of commodity j is given by
+ (6.1)
Since the terms 1ri and a;i are technically determined, there are n + m
+ 1 unknowns (a; and <l>r) in n equations. Let a; be the amount of
unskilled labour contained in one unit of skill of type s. It is in a sense
assumed here, following Hilferding's point of view, that skill in the
skilled-labour-power is producible by a certain amount of abstruct
human labour, and thus accountable by units of unskilled labour.
Then one unit of labour in an average lifetime of this type is equival-
ent to one unit of unskilled labour of the worker concerned plus a·s
units of unskilled labour embodied in his skills. Then
<l>s= 1 +a·s (6.2)
Suppose further that to produce one unit of skill of type s requires t;

units of unskilled labour by the person being trained, plus 1;s units of
labour of each type r, plus a~IS units of each commodity i. Since each
unit of labour of type r is equivalent to <j>, units of unskilled labour,

and each unit of commodity i contains O; units of unskilled labour, a;
can be given by
(6.3)
From equations (6.2) and (6.3) we get
(6.4)
We can assume in this economy that labour of type 0 is simple

unskilled labour, which means
(6.5)
Taking (6.1), (6.4) and (6.5) together, we have now n + m + 1

equations, which under most conditions will be sufficient to deter-
mine both the values o; and the reduction coefficient <j>,.
Clearly this form of solution can define the substance of values
independently from the wages and avoid the circular inconsistency. If
we follow the same line of discussion we can suppose that workers of
types perform (1 + ()units
s
of their own labour, as both employees
and trainees, and receive a bundle of commodities (b1s, b2s, ... , bns)
for each unit of labour through wages. Then, against their own total
labour (1 + t), their paid labour equals (1 + t;) ~ o;bis. The rate of
surplus-labour, e., is calculated as follows:
e =
(1 + (}-
S
(1 + ()
S
kO-b·
I IS =
1 - kO-b·
I IS (6.6)
s (1 + ()
s
kO;bis kO;bis
Three points are noteworthy in this Okishio-Rowthorn type for

formulation.
First, skilled workers' own labour is clearly separated from educa-
tional labour by others and is treated as unskilled simple labour. This
point is not particularly emphasised nor theoretically grounded by
Okishio-Rowthorn. However, it is not only a technically key point,
but may also lead to an interesting insight as to the common character
of human labour to which we shall soon come back.
Second, skill in workers' ability is treated just like an objective
product of educational labour, and embodied labour in skill is re-
garded as being transferred to the products of skilled workers just as
embodied labour in the means of production. This obscures, and may

contradict, Marx's fundamental distinction between human labour-
power and means of production in the valorisation process. In Marx
the substance of the value of labour-power, which is obtained and
consumed by workers in a bundle of commodities to sustain their
lives, is not transferred to the value of commodity products, but
always newly created and embodied in the products by newly ex-
pended labour-time together with surplus-value, whereas the value of
means of production is transferred to the products (cf. 1, pp. 316-17).
This is basically why changes in wages or value of labour-power do
not affect the amount of value-product or the substance of values of
commodity products. In spite of their intention, Hilferdung, Okishio
and Rowthorn have somewhat clouded over the basic position of the
Marxian theory of value.
Third, in their treatment, the rate of surplus-value or that of
exploitation must generally differ between simple and skilled work-
ers, or among different kinds of complex workers.
According to M. Morishima, as a result of the introduction of
heterogeneous labour this third point conflicts with Marx's law of the
equalisation of the rate of exploitation and is not compatible with
Marx's view of the polarisation of society into two classes. This
anomaly is an important reason for Morishima to recommend 'a
Marxian economics without the labour theory of value'. 6
Opposing Morishima, S. Bowles and H. Gintis hold that the labour
theory of value is perfectly compatible with the heterogeneity of
labour. They also oppose the conventional Marxian way of reducing
complex labour to simple labour, because they do not believe in the
historical tendency of capitalism to homogenise all labour, and also
because they want to have the conceptual tools of value theory to
encompass the phenomenon of segmentation of workers. In their
view, not simplification, but segmentation of workers has become
increasingly important especially in the recent development of capi-
talist labour management. Therefore, Bowles and Gintis build an
economic model containing heterogeneous labour, or various types
of skilled or complex labour, the wage bundles of the various types of
wage-labour, the matrix of input-output relationships among goods,
and the matrix of direct labour inputs involved in their production. In
this model they show that the structure of value-relations, including
the vectors of rates of exploitation and the organic composition of
capital, without being counted by units of simple labour, can deter-
mine the average rate of profit and the prices of production. It is also
shown that there is normally a strictly inverse relationship between

wages and the rate of profit. 7 The reduction of complex or skilled
labour into simple labour is thus regarded as unnecessary.
These analyses are to be appreciated as a contribution to the
feasibility of Marxian value-theory with heterogeneous labour. How-
ever, Bowles and Giotis's model and their formal technical expo-
sition may possibly be utilised or extended in two opposite directions.
On the one hand, neo-Ricardians may easily utilise the model and
the exposition in order to show the redundancy of the concept of
abstract labour. Even though Bowles and Giotis maintain that they
would not abandon the concept of abstract labour, their treatment of
heterogeneous labour can directly be interpreted as a model which
deals only with concrete labour without considering the abstract
character of labour. In their basic theoretical model the role of the
common abstract character of labour between different kinds of
heterogeneous labour is not very clear, and may even seem dispens-
able. In fact, I. Steedman demonstrates a similar vector-value analy-
sis of an economy with heterogeneous labour in his Sraffa-based
critique of Marx, and clearly denies any need to reduce different
kinds of concrete labour into abstract labour. 8 In the context of
Steedman's critique of Marx, the technical possibility of determining
the rate of profit and prices without reducing heterogeneous skilled
labour to simple unskilled labour, is directly regarded as a logical
basis for his criticism of the concept of abstract labour and the labour
theory of value as being redundant.
On the other hand, Bowles and Giotis's model can also be inter-
preted in an opposite way as being compatible and in a sense
mutually complementary with the more traditional treatment of
complex labour. For one thing, the determination of the rate of profit
and prices of production for an economy with heterogeneous labour
in Bowles and Giotis's (B-G) model does hold even when the ratios
of the reduction of heterogeneous to simple labour and the value of
skilled labour-power are analysed by the Hilferding-Okishio-Rowthorn
(H-0-R) theory. From the view of H-0-R theory, B-G model can
be regarded as a useful complement precisely to determine the
average rate of profit and prices in an economy with various rates of
surplus-value for different kinds of labour. Conversely the H-0-R
approach may be useful to clarify some ambiguous aspects of the
B-G model. For instance, although B-G reject the technical determi-
nation of values of heterogeneous labour-power, in order to empha-
sise the role of other social and managerial factors of discrimination,
it might still be useful to observe and consider the distinct technical

factors such as educational costs in H-0-R even for a more accurate
understanding of the effects of other factors of segmentation. Be-
sides, B-G, unlike Steedman, maintain the theoretical need of the
concept of abstract labour in order clearly to see the fundamental
social relations. They add to their numerical example the rates of
surplus-value in common labour, in terms of which the amount of
labour-time is simply added together and compared without any
weight or qualification across different kinds of labour.
As B-G point out in their reply to E. McKenna, their common
labour is different from the simple labour in H-0-R, and is not
reduced from complex labour with a technically determinant weight. 9
The economic and social meaning of this concept 'common labour' is,
however, almost uninvestigated by B-G, so that it may even give an
impression of being introduced for technical convenience. Let us
recall here that 0-R treated the skilled worker's own labour as simple
labour, also without giving theoretical foundation. An interesting
coincidence both in the direction of recognition and in the insuf-
ficiency of investigation, is thus found here concerning the simple or
common character in skilled heterogeneous workers' own labour, in
the apparently different models by 0-R and B-G. Let us study this
point anew from a wider view in a slightly roundabout way.
The Historical and Universal Basis for a Solution
In retrospect, various difficulties in Marx's value-theory often orig-

inated from his reduction of values to crystals of labour based directly
on the exchange relations of commodities in the first section of the
first chapter of Capital. In spite of Marx's great discovery of the forms
of value, the exchange-value as a form of value is abstracted from this
section to reach the concept of values. As a result, so far as the
definition of value in this first section is concerned, Marx's labour
theory of value contains a lot of similarities with Ricardo's. Certainly,
Marx's Capital as a whole presents us, unlike Ricardo's Principles,
with a systematic articulation of the historically specific character of a
capitalist economy. In such an articulation, Marx clarified both the
trans-historical character of the labour process as the everlasting
Nature-imposed condition of human existence common to all the
social formations (1, p. 290) and the broad historical character of
commodity exchange, money and certain species of capital which
existed before and outside of the capitalist mode of production. Only
when human labour-power is converted into a commodity on a social

scale, can capitalism be established and completely embrace the
social labour process within the value-forms of commodity economy.
The labour theory of value, which unveils the social relations in
labour-time hidden under value-forms, can be shown with a social
necessity only by observing this specific economic system of capital-
ism, as we have discussed in the previous chapter.
In contrast, so far as the substance of value as embodied labour is
abstracted and observed in a mere commodity-exchange relation, we
can not define the social mode of production which has turned out the
commodity observed. In a long precapitalist history, commodities are
especially made by skilled artisans in towns and often exchanged with
agricultural surplus-products extracted by landlords from various
sorts of communal production. In such a precapitalist commodity
economy, it must be impossible to find a social basis to recognise the
homogeneous and common character of human labour as values.
This is because social status or ranks, the division of labour and
skilled works are traditionally related and fixed, and personal mo-
bility across them is strictly forbidden. Thus, Marx was correct when
he pointed out the historical limitation preventing Aristotle from
recognising the equality of human labour in his analysis of exchange
values (I, pp. 151-2).
In a capitalist society the majority of people have become free
workers in the double sense (I, p. 272), and have to alter the concrete
forms of labour, say from tailoring to weaving etc., 'in accordance
with changes of the demand' (I, p. 134) for their labour-power as a
commodity. The mobility of workers across various kinds of concrete
labour is not only formally given in the commodity-form of labour-
power, but it is also substantially grounded in deskilling of labour by
capitalist utilisation of machinery. Marx's analysis of the production
of relative surplus-value by means of machinery simultaneously clari-
fies how capitalism decomposes skills and simplifies labour in a
miserable way. In view of such a development, Marx notes that 'we
must not imagine that so-called "skilled-labour" forms a large part of
the whole of the nation's labour. Laing estimates that in England
(and Wales) the livelihood of 11 300 000 people [from about 18 000 000
total population- M. I.] depends on unskilled labour.' (I, p. 305.)
Marx could have treated simple labour as a dominant form of
wage-labour on the ground that this was the actual development of
capitalism. This was an important reason why Uno insisted on show-
ing the labour theory of value in the context of the production
process of capital, not in that of simple commodity exchanges. 10 In

the Uno School the reduction of complex skilled labour into simple
labour has been regarded as being guaranteed by the historical
tendency of capitalism to generalise simple labour by means of the
mechanised factory system. This view coincides with H. Braverman's
position in Labor and Monopoly Capital. Braverman underlines that
the strong tendency towards the degradation of labour by the in-
creasing separation of the time-consuming process of design from the
majority of worker's practice, continues to prevail in the history of
US monopoly capitalism. 11 We may thus erase the problem of how to
evaluate skilled labour in terms of simple labour, by abstracting the
labour theory of value upon the basis of an historical tendency of
capitalism in this direction.
However, the problem has not yet completely theoretically solved,
in so far as it is simply dismissed from the basic theory contingent
upon a factual tendency which was conspicuous particularly up to
Marx's own age. Without giving a more substantial theoretical solu-
tion to the problem, we may not be able to offer a sound frame of
reference for the analyses of actual segmentation of workers in recent
capitalist societies. In fact, more recent studies of the segmentation
of labour tend to oppose Braverman and emphasise actual trends to
create anew and reproduce various discriminations between workers
which are often regarded as relating to actual or possible differences
in the degrees of skills or of complexity of labour. In my view,
however, these actual trends of the segmentation of workers have
become more and more dependent upon socially discriminatory
factors such as racism, sexism and schooling, and have been utilised
and fostered more or less artificially in order to facilitate a managerial
'bureaucratic' control of working people. 12 Therefore, the trends
towards segmentation do not really relegate, but are rather coupled
with, the degradation and the deskilling of labour for the majority of
working people, especially for those engaging in the material repro-
duction process.
Thus, if we disregard the artificial managerial segmentation of
workers as for wages, etc., capitalist production has powerfully
dissolved any fixed traditional skills like in craftsmanship, simplifying
labouring operations in most workplaces, especially in industries
susceptible to mass production, and thus technologically facilitating
interchangeability of workers across jobs and industries. However,
what enables such mobility of labour-power is not merely the capital-
istic achievement of deskilling by means of machinery and equip-
ment. More fundamentally, it is grounded upon the wide range of

applicability of human labour-power linked with the mental, such as
the linguistic, ability which is specific to human beings in distinction
to other animals. As we have seen, Marx's treatment of the labour
process clearly implied his recognition of such human labouring
ability. Extendible human labour-power, based upon a rich mental as
well as physical ability, has enabled workers to perform surplus-
labour beyond necessary labour-time, working for a purpose given by
others in class societies, simultaneously offers a most basic ground for
the actual mobile interchangeability of workers which is realised
under capitalism.
Traditionally the twin problems of how to deal with concrete and
abstract labour and how to reduce skilled to simple labour are
regarded as theoretically distinct, and to be handled separately.
However, the solution of these problems must now be linked, and
mutually cross over to the basis of the basic human ability to work. In
treating the skilled-labour problem it is generally assumed that skilled
labour is more intensive labour creating more value than simple
labour in the same labouring time. In view of the basic ability of
human labour-power, we must now understand that even most de-
skilled and monotonous work is the expenditure of the commonly
extendible potential power of human beings. Indeed as Marx suggests,
'The less he is attracted by the nature of the work, and the way in
which it has to be accomplished, and the less, therefore, he enjoys it
as the free play of his own physical and mental powers, the closer his
attention is forced to be' (I, p. 284), and the more tiring his work
must be. In this regard simple unskilled labour is also expenditure of
the complex human ability to work, using different combinations of
the various aspects of human mental and physical abilities in accord
with different forms of concretely useful work. This makes a com-
prehensive and comparative assessment or measurement of the inten-
sity of labour even in the ordinary unskilled grade of work theor-
etically hard, or rather impossible. This serves also as a hidden basis
enabling managerially convenient introduction of artificially fine
gradings and segmentations into various works which can basically be
performed interchangeably without difficulty. However, we should
see that beyond managerial differentiations each sort of work is
equally expenditure of a composite human labouring a,bility in a
specific form, and that different concretely useful labour so qualified
is reducible to abstract human labour, being comparable simply
according to the physical hours of labour performed.
From this point of view, complex skilled labour must also be

regarded as the expenditure of general human ability to labour in
special forms. So far as skilled labour-power needs a certain edu-
cation or training beforehand, simple labour-power cannot instantly
be converted to some sort of skilled work, whereas skilled labour-
power can be used in simple work. Hence, grading and categorisation
of wages, etc., can easily be imposed on skilled workers. However, if
we disregard this aspect of differentiation for the moment, a skilled
worker's own labour is basically nothing but the expenditure of the
composite human ability to labour just as in the case of simple
labour. With this qualification, skilled labour is also reducible to
abstract human labour, being commensurable with other types of
work simply in terms of physical hours of labour, as a part of the total
social human activity of maintaining material reproduction. In com-
parison with simple labour, which covers various forms of the expen-
diture of human abilities, skilled labour cannot be regarded as
especially intensified labouring activity. Skilled work may often be
even less intensive and less tiring, since skilled workers have been
given special training or education for their jobs and tend to work
under a relatively lesser pressure of competition.
Therefore there is a certain rationality and justification in the
direction of the recognition by 0-R and B-G that skilled workers'
own labour can be treated as simple or common labour being measur-
able simply in terms of physical labour-time just as simple workers'
labour. Since Marx tended to analyse the labour-substance of value
too closely linked with the forms of value from the initial theory of
commodities, he was inclined to assume that skilled workers could
perform in some (a little mystically in my view) intensified manner,
more labour than simple workers in the same labour-time, behind the
relatively higher exchange values of skilled workers' products in the
market, including higher wages for them. If we theoretically separate
the forms and the substance of value as dimensionally different
orders for a more proper, non-mystical understanding of their re-
lations, we need not follow Marx's lead here and must conclude from
our re-examination that skilled workers' own labour embodies the
same amount of labour-substance of value as simple workers do in a
unit of labour-time, independently of the relatively higher exchange
values in the market given to skilled workers' labour-power and
products.
Contrastingly the Rubin School believes that the commensuration
of concrete useful labour to abstract labour is inseparable from the
form of value or exchange value in the market. In this tradition,

S. Himmelweit argues, on the assumption of an equal organic compo-
sition of capital and an equal rate of profit across industries, that
'workers who are paid less or more produce correspondingly less, or
more, value. Or equivalently that the value of any labour-power is
proportional to its value producing power. ' 13 The quantities of ab-
stract labour as the substance of value are qualitatively treated here
as a completely subordinate shadow of the equilibrium prices deter-
mined in the market, and are not conceived as an objective entity
being independent of market relations. The labour theory of value as
a theory to determine prices and to examine their functions from
behind the market relations, in terms of objective human labouring
activity, must be very much weakened by this way of reasoning. As a
result Himmelweit's inference seems to include a circular reasoning
between the assumed equal organic composition of capital and the
deduced determination of the value of skilled labour-power. The
proportional evaluation of the values of products and of the labour-
power of skilled workers in the market would not hold in a real
capitalist economy with differing organic compositions of capital, and
it therefore cannot be a solid solution for the skilled-labour problem.
In our view the values of skilled workers' labour-power must be
discussed independently from the labour-substance of value of their
products. At first sight there is not any problem in defining the value
of skilled labour-power. According to Marx it is the amount of
labour-time which is necessary to produce and maintain this sort of
labour-power. It seems just like the definition of the value of ordi-
nary simple labour-power, and has been basically followed by most
Marxians, though B-G technically redefined it in the vector value. In
Marx's words, 'The costs of education vary according to the degree of
complexity of the labour-power required. These expenses (exceed-
ingly small in the case of ordinary labour-power) form a part of the
total value spent in producing it.' (I, p. 276).
However, as we have seen in the previous chapter, labour-power is
a special commodity, and is reproduced not in a production process
but in a consumption process. Further, since its owner is mortal, 'the
labour-power withdrawn from the market by wear and tear, and by
death, must be continuously replaced by, at the very least, an equal
amount of fresh labour-power' (I, p. 275). The replacement of
workers by their children with the common level of education and
civilisation attained by a country must be accounted for in the value
of labour-power, in the case of workers in general, or simple common
workers. Should we then straightforwardly understand that the same

is true for the replacement of complex skilled workers? If we should,
(as suggested in the ordinary analyses of the problem even among
Marxians), we must also understand that the reproduction of skilled
workers through generations is to be done fixedly within the same
grade of skilled workers' families. As a result the families of skilled
workers may functionally become similar to those in a fixed privi-
leged social status or caste in precapitalist societies. This seems to be
an inevitable consequence of a type of understanding of the law of
value in accord with the traditional technological approaches since
Hilferding. This is so especially where the embodied labour-time in
skill is regarded as being transferred to the commodity products just
like the substance of value of constant capital on the one hand, and is
regarded as the value substance to be paid to the sellers of skilled
labour-power to secure its reproduction on the other. This logical
consequence seems at least partly consonant with the social function
of higher wages of complex skilled workers.
However, in case Marx's more basic view that the amount of
labour-time necessary to reproduce the human ability to work is just
consumed in the form of means of consumption and not transferred
to the commodity products is true, it should consistently be applied to
educational labour-time as well. In addition, if we see that the skilled
workers' own labour does not contain any mysteriously intensified
labour which creates more substance of value compared with com-
mon simple labour, then there is no counterpart in the embodied
labour-time of skilled workers products to match against the higher
value of skilled labour-power. Thus, the law of value does not assure
any socially or technologically fixed proportional relation between
the amount of labour-time necessary to develop the skill and that
embodied in the products of skilled workers. Certainly it must be
obvious that a social fund, a certain amount of labour-time, is always
to be spared for educational materials and labour-power in order to
reproduce socially necessary sorts of skilled labour-power. As skilled
workers do not expend any specially intensified labour nor transfer
any past labour consumed during their life and education, and also as
the necessary labour-time to reproduce common labour-power ap-
parently cannot bear such an educational or training fund for skilled
labour-power, the fund must generally be regarded as a deduction
from total social surplus-labour. The forms to deal with such a fund
would vary according to the different social systems.
For instance, without a lifelong employment system, a private
capitalist firm will not directly bear educational costs of skills, since
educated skilled workers may 'escape' to other competitive firms in
order to sell their labour-power dearer. In a competitive capitalist
economy without a public sector, educational costs thus tend to be
borne by families, and thus ironically reduce competitive mobility
independent of families, each of which are connected with certain
different grades of skilled labour. Wages or the form of value of
skilled labour-power on this occasion function as a channel of distri-
buting educational funds deducted from social surplus-labour to the
families of skilled workers. If wages of a certain type of skilled
workers are higher than the costs necessary both to maintain their
families and to replace their ability through their children, then other
children of the families which can afford such educational costs will
come in sooner or later, and vice versa. This is exactly the case, in
fact, consonant with the H-0-R model as we have seen. In such a
case wages as the form of value of skilled labour-power are main-
tained in a market by the inconvertibility of such labour-power just at
the level tendentially being equivalent to the educational costs plus
the ordinary wages for simple labourers, and this enables skilled
workers to obtain more substance of value than simple workers. The
higher wage-costs of technologically necessary skilled workers force
capitalist firms to set much higher prices of production for their
products in a competitive market, so as to enable these firms to
maintain reproduction through price-relations with an average rate of
profit, as substantially shown by the B-G model. So long as the extra
portion of the substance of value obtained by the skilled labourer as
compared to the common simple labourer remains within the quan-
tity of surplus-labour-time in his life, the skilled worker may be
conceptually classified as being exploited, nevertheless he must have
a more or less petit-bourgeois character as well. This is probably what
is implied by the degree of 'the rate of exploitation in common
labour' in the B-G model. It must be noted, however, that even
when a skilled worker is not exploited and is rather exploiting in this
context, he may indirectly add to total surplus-value by increasing the
productivity of other workers in various cases.
In an opposite case where educational costs of skills are entirely
borne by the state or the public entity from taxes on surplus-value,
the substance of value acquired personally by skilled workers through
the form of value of labour-power or wages need not contain any
social funds from surplus-labour, and must theoretically be reduced
to the same level as that of the common simple workers. We assume
here no shortage of skilled workers, nor special managerial strategies

for their segmentation. Our view is substantially the same, with a
different interpretation of the case, as analysed in the supplementary
part of Rowthorn's essay. A skilled worker in a capitalist sector is
assumed there to receive value VP, just the same as unskilled work-
ers. In Rowthorn's example, even though educational labour (Va+Ua)
in the state sector is expended for the skilled worker and is trans-
ferred to the output of capitalist sector, the total cost in value terms
to produce the skilled labour-power (VP + V a+ U a) is not totally
given to the skilled worker through wages. In Rowthorn's treatment
there seems to be a considerable gap between wages as a form of
value and the substantial definition of the value of skilled labour-
power. In my interpretation educational labour ( V a+ U a) is neither
transferred to the output of skilled workers nor to be counted in the
value of his labour-power in this case.
In an actual capitalist society these two opposite cases are more or
less combined together. Financial institutions from which personal
funds for educational costs can be borrowed may also affect the
manner in which the reproduction of skilled labour-power is man-
aged between generations. 14 Various types of segmentation of labour
are usually linked with different educational costs, but within con-
temporary capitalist firms they are mostly more in accord with
managerial convenience than with the social need to reproduce
necessary sorts of skilled-labour-power. We can criticise more thoroughly
the social function of segmented work in a capitalist economy, with
its differentiation of wages and revenues, when we properly recognise
the basic common character of skilled and unskilled labour as well as
the various possible ways to secure the reproduction of necessary
skilled workers.
Our alternative solution of the skilled-labour problem further
relates to two more important issues: one concerns international
trade and the other socialism.
Closely linked with his treatment of skilled labour as intensified
labour, Marx has this to say concerning international trade: 'the law
of value is . . . modified in its international application by the fact
that, on the world market, national labour which is more productive
also counts as more intensive, as long as the more productive nation
is not compelled by competition to lower the selling price of its
commodities to the level of their value' (1, p. 702). Certainly there
may be international differences of labour productivity due to a
different degree of intensification of ordinary workers' labour. How-
ever, actual intensification of labour would rather be strengthened in

the less-advanced nations with weaker trade unions and stronger
competition among workers, as capitalist production extends its
domination over workers in such nations. So far as labour pro-
ductivity in the advanced country is greater for the same industry
than in the less-advanced country because of better objective con-
ditions of production, such as machinery and equipment, more
productive labour in the advanced country should not be regarded as
actually more intensive simply for the reason of its productivity.
Comparison of labour productivity itself must lose its essential meaning
where products are not homogeneous. Actually, when the advanced
and the less-advanced countries produce and trade different use-
values, as is often the case in the international division of labour,
comparison of labour productivity in physical terms cannot have a
theoretical sense, because the results of labour in different use-values
are not commensurable. Therefore, the commensurability of labour
products is conventionally based upon the prices given in the inter-
national market. Comparison of labour 'productivity' then must
depend heavily upon evaluation in the sphere of market or the
fluctuating relations between demand and supply. Such treatment,
especially when combined with the assumption of more intensive
labour behind higher labour productivity, becomes too remote from
the basic .position of the labour theory of value, where the social
relations in the expenditure of labour are theoretically defined inde-
pendently of the market relations as a fundamental determinant of
prices. Our discussion here cannot be a final solution, but is rather an
examination of a starting-point for the issues of international value
relations or the international unequal exchange. However, it must be
clear by now that a position recognising more productive national
labour directly as more intensive labour following the Rubin School
among others, as well as Marx's own statement cited above, cannot
be based on a proper and sound understanding of the skilled-labour
problem.
In a socialist society, where a part of total social product necessary
for the common satisfaction of needs has to be deducted before the
product is divided among the individuals, 15 such as for schools, health
services, together with the portions of product for the replacement of
the means of production, for the expansion of production, for re-
serves or insurance funds, for the general costs of administration and
for those unable to work. The educational funds for skilled or
complex labour-power should also be theoretically dealt with in such
a society on a social communal, and not on an individual basis. Then,

a skilled worker should not get back from society - after the socially
necessary deductions have been made - more than a common simple
worker either for what he contributes to society in his own labour-
time, or for the costs of maintaining the socially necessary sorts of
skilled labour-power. The economic position of such a skilled worker
would correspond to that of the skilled worker of a capitalist society
in the second theoretical case examined above with an entirely state
educational system.
In the Critique of Gotha Programme, however, Marx assumes
workers' unequal right to products proportional to the labour they
supply in a lower phase of communist society, as a 'bourgeois right' in
principle since 'one man is superior to another physically or mentally
and so supplies more labour in the same time, ... '. In contrast 'in a
higher phase of communist society, after the enslaving subordination
of the individual to the division of labour, . . . after the productive
forces have also increased with the all-round development of the
individual, and all the springs of co-operative wealth flow more
abundantly - only then can the narrow horizon of bourgeois right be
crossed in its entirety and society inscribe on its banners: from each
according to his ability, to each according to his need!' 16 So long as
this 'bourgeois right' is based on the concept of skilled or complex
labour-power as being able to supply more labour in the same time,
we have a theoretical ground to oppose to it. It is related to Marx's
ambiguous and problematic treatment of skilled labour, as we have
discussed. In a Soviet type of society, this 'bourgeois right' in the
lower phase of communist society as described in Marx's writing has
undoubtedly been fully utilised in order to legitimate the hierarchical
and stratified privileges of the state and party bureaucrats in regard to
material goods and social services. It tends also to be perpetuated in
so far as the higher phase of communist society is regarded as a goal
too far a way actually to be achieved.
Thus in my opinion, the Marxian labour theory of value even on
the skilled labour problem, if properly developed, must be able to
offer a basis for the fundamentally egalitarian point of view of social
relations, which should always be a crucial element of Marxism.
From this point of view the social function and the historical meaning
of artificially segmented work in modern capitalist labour manage-
ment, as well as a justification for hierarchical social orders in 'real
existing socialist' societies, must be given a deeper and more critical
frame of reference for re-examination, as we have suggested.
6.2 THE JOINT PRODUCfiON PROBLEM
Steedman's Critique of Marx
How can we define the labour value of jointly produced commodities

like beef and cowhide as the joint products of raising cows, when our
previous assumption of single product for each process of production
is removed? The way of determing the labour substance embodied in
each kind of product by solving the simultaneous equations such as
(5.3) in Section 5.1 of Chapter 5, does not suffice, because the
number of unknowns to be determined (the labour-substance in each
product) must become more than the number of equations given by
the number of processes of production. The problem, along with the
skilled labour problem, has become a focus of the value controversy
between neo-Ricardians and Marxians as well as between Marxians.
A clue to the issue is found in P. Sraffa's Production of Commodi-
ties by Means of Commodities. Sraffa there took up the case of joint
production, while formulating his theory of prices deduced from the
physical data of real wages and the technical system of production as
a prelude to a critique of marginalist economic theory. In the case of
'two of the commodities to be jointly produced by a single industry',
he assumed 'a second, parallel process which will produce the two
commodities by a different method and, as we shall suppose at first,
in different proportions', 17 so as to equalise the number of equations
to the number of unknowns (i.e. prices of all products except one to
determine relative prices and the rate of profit). Though Sraffa did
not refer to Marx's value theory at all, his analytical techniques were
easily applicable to the determination of the labour substance in
commodity products from the same physical data. Therefore the
theoretically interesting question was asked as to how Sraffians would
see the Marxian labour theory of value.
As a representative Sraffian, I. Steedman in Marx after Sraffa
denounced Marx's labour theory of value in favour of Sraffa's theory
of prices. It has renewed the value controversy from a new angle and
has managed to perplex Marxians to some extent. As was often the
case with previous controversies this recent issue is also a good
opportunity to deepen our understanding of the Marxian value
theory.
Steedman claims that Marx's value theory is redundant and incon-
sistent. In general it is claimed to be redundant. Steedman admits
that 'the labour-time required (directly and indirectly) to produce
any commodity - and thus the value of any commodity - is deter-

mined by the physical data relating to the methods of production' . 18
However, he asserts that 'the value magnitudes are, at best, redun-
dant in the determination of the rate of profit (and prices of pro-
duction)', 19 because the same physical data and the specification of
real wages suffice to determine the same results.
In the case in which some production processes produce joint
products, values, reckoned as the quantities of embodied labour-
time, may be indeterminate. Even when values are determinate, they
can be negative, and surplus-value can consequently be negative even
when the rate of profit and prices are positive. Let us see Steedman's
example. 20
Suppose there are two different processes of production which
produce commodities A and B jointly as follows:
I. 5 units of commodity A + 1 unit of labour ~
6 units of commodity A + 1 unit of commodity B.
II. 10 units of commodity B + 1 unit of labour ~
3 units of commodity A and 12 units of commodity B.
The real-wage bundle for a unit of labour is assumed to contain

unit of commodity A and f unit of commodity B. Let its price be 1,
+
prices of commodities A and B be p 1 and p 2 respectively and the
uniform profit rate be r. Following Sraffa, we assume that the profit
rate marks up only the prices of means of production. Then we can
formulate the following three simultaneous linear equations:
(1 + r) 5p 1 + 1 = 6p1 + Pz (6.7)
(1 + r) 10p2 + 1 = 3p1 + 12pz (6.8)
1 =i-P1 +fpz (6.9)
The positive solutions to (6.7), (6.8), (6.9) are:

1
r = 20 per cent, P1 = 3, Pz = 1.
Let the quantities of labour embodied in a unit of the same
commodities A and B be t 1 and t 2 • They are determined by the
following simultaneous equations:
54+ 1 = 6t;_ +tz (6.10)
1ot2 + 1 = 3t;_ + 12t; (6.11)
The solutions to (6.10) and (6.11) are:
Thus the value of the first commodity, A, the labour embodied in it

must be negative, whereas its price and the rate of profit are positive.
If 6 units of labour are employed, 5 operating the first process and 1
operating the second, then the surplus product (5 units of commodity
A + 2 units of commodity B) remains after deducing the necessary
wage bundle (3 units of commodity A + 5 units of commodity B)
from the net product (8 units of commodity A + 7 units of commodity
B). The value of labour power V, and the surplus-value S can be
calculated in this case as follows:
V =3X (-1) + 5 X 2 = 7
S =5 X (-1) + 2 X 2 = -1
v+s = 6.
Thus, surplus-value appears negative, while the rate of profit is
positive.
Steedman concludes from this analysis that Marx's labour theory of
value is not merely redundant, but also inconsistent, and that it
should be abandoned and replaced by the Sraffian theory of prices.
Anti-Critiques
Steedman's critique is clearly based on a narrow point of view. He

takes the point of Marx's theory of value to be the determination of
equilibrium prices just as in the case with the neo-classical or the
Sraffian theories of prices. From such a standpoint, analysing the
quantities of labour appears redundant, since the prices of pro-
duction can be determined directly by the physical data on pro-
duction techniques and the real wages. This sort of critique, however,
does not correctly understand the essential subject of Marx's value
theory.
For Marx, the theory of value is not at all a means by which merely
to determine equilibrium prices. It is, above all, a theory designed to
clarify the historical specificity of the capitalist economy. As we have
seen, Marx discovered that the labour process is 'the everlasting
Nature imposed condition of human existence' (I, p. 290), and
analysed how this fundamental condition of human societies became
the social substance of value-relations under capitalism. In particular,

the capitalist social mechanism for obtaining surplus-labour, which is
the substance of surplus-value, is central for such an analysis. It is
thus essential for Marx's theory of value to elucidate capitalist social
relations based on human labour, together with its specific forms and
mechanisms. From this standpoint the observation of the quantities
of labour as the substance of value and surplus-value cannot be
dispensed with. It is not at all redundant, despite Steedman's critique.
By assessing Man's labour theory of value as generally redundant
Steedman shows an inability or reluctance to understand the signifi-
cance and the task of Marx's value theory as the foundation of
historical and social sciences. His total neglect of Marx's theory of
value-forms is closely related to this weakness.
Steedman's critique of the inconsistency of Marx's value theory is
presented exactly by neglecting the theory of value-forms and by a
one-sided technological understanding of the concept of value. The
seeming anomalies, as in the case of negative value and negative
surplus-value, spring from the Sraffian interpretation, which derives
the quantities of embodied labour, or values, of joint products in a
mechanical way from a number of parallel, different, production
processes equal to the number of joint products. This interpretation
does not care which of the existing techniques is the dominant
condition of production meeting social demand. Besides it cannot
define the values or the equilibrium prices in cases in which there is
only a unique joint-production method or more methods than the
number of products.
However, Marxian anti-critiques of Steedman's treatment of the
joint-production problem have been diverse and not yet very satisfac-
tory, though they have almost unanimously pointed out the signifi-
cant task of Marx's value-theory to reveal the social substance of
surplus-value in rejecting Steedman's claim that Marx's value-con-
cept is redundant.
For instance, P. Sweezy has criticised Steedman and correctly
pointed out that the key concept of the rate of surplus-value has to
vanish from an analysis made in terms of prices. 21 But Sweezy left
Steedman's points on the joint production problem untouched.
N. Okishio treats this problem assuming a single technique of
production for jointly produced commodities, say A and B. Then the
value of A can be between zero and the maximum given in the case
where B is zero. So the total value of both A and B is determinate,
but the value of A or B is not, since Okishio analyses values only in a
purely technical fashion. As a result the values of surplus-products

and of the wage-goods become indeterminate when some of them are
jointly produced. At the same time Okishio's fundamental Marxian
theorem, that the general rate of profit is positive only when the rate
of surplus-value is positive, becomes untenable. Okishio revises it
substantially and says: 'The existence of exploitation is determined
by whether labourers are forced to produce the surplus products or
not'; 'The necessary condition for the existence of profit is that
labourers are exploited' in this sense. 22 Sad to say, the essence of
Marx's value-theory, as an analysis of the capitalist exploitation of
surplus-labour of wage-labourers, seems abandoned by Okishio in
this context, for his revised fundamental Marxian theorem defines
exploitation just in terms of physical quantities of surplus products,
not referring to the quantities of labour-substance embodied in them,
as even Steedman would consent.
Armstrong, Glyn and Harrison also agree that 'values cannot be
attributed to individual commodities' in the case of joint products. 23
However, they attempt to define the value of labour-power as the
total labour embodied in a group of production processes which are
necessary to produce at least the wage bundle with the smallest
possible extra joint products. The rate of exploitation is present in
labour-value terms on the basis of this definition. As they admit, 'the
method is not perfect'. 24 It tends systematically to underestimate the
rate of exploitation, and cannot be very accurate. The more joint
production is interlinked, the more their definition of the rate of
exploitation will become meaningless.
Himmelweit and Mohun argue from a different angle from Rubi-
nite view. According to them, as a Sraffian Steedman is not con-
cerned with the social logic of commensuration of different sorts of
useful concrete labour into abstract labour through the exchange of
commodities. Consequently he cannot understand the logic of a
second commensuration of labour-time in capitalism through the
competitive equalisation of the rate of profit. The anomalies that
cause negative surplus-value with a positive profit 'arise from the
contradiction between the fundamental concept of socially necess-
ary labour-time and the development of its full consequences in capi-
talist competition'. 25 Himmelweit and Mohun attempt to counter
Steedman by emphasising the development of the value-concept in
Marx from commodity values into prices of production. In their
treatment, however, it is unclear why and how the anomalies con-
cerning the joint-production problem arise from the contradiction in the
development of the value-concept. The anomalies are not solved but

rather recognised as a really existing contradiction in a capitalist com-
modity economy. Basically the first 'commensuration' in Himmelweit
and Mohun entails, in my opinion, a misunderstanding: that abstract
labour, unlike concrete labour, cannot exist without the exchange of
commodities. 26 It is also basically dubious whether the logical devel-
opment from values to prices of production in itself can establish the
contradiction in a capitalist economy, in contrast with the logical
analysis of crisis.
In sum, in so far as the anti-critiques maintain merely a technical
approach regarding values as determinable only by physical data of
production, they cannot satisfactorily overcome the difficulties with
joint production emphasised by Steedman. Himmelweit and Mohun's
attention to the role of market was not consistently theorised in
combination with such an approach to solve the problem.
An Alternative Solution
In my view what is missing in this r,ecent controversy is a correct

understanding of Marx's concept of forms and substance of value. A
fundamental defect of the classical school was that it did not analyse
the development of the forms of values and concentrated on the
quantitative analyses of values. The presentation of the joint-
production problem by Steedman, a neo-Ricardian and the succeed-
ing controversy have not been immune from this defect. As we have
seen in the previous chapters, K. Uno has emphasised precisely the
significance of Marx's theory of the forms of values and distilled it as
a basic theory of circulation. 27 He has also clarified the labour process
and the dual character of labour as the common economic norm or
rule for any forms of society. Then he attempted to show the logical
necessity of the law of value as the law of motion of the capitalist
production where the common economic rule in the social labour
process must be effected completely through value-forms. From such
a point of view the commodity market composed of forms of values
should not be neglected, but must be treated as an integral part of the
working of the law of value. Extending such a view, we can offer an
alternative solution to the joint-production problem, as follows:
Steedman deduced negative values and negative surplus-value
from an assumption that there were as many different techniques of
production as there were different joint products. This assumption
was obviously arbitrary. Even when there actually are different
techniques of production, one of them must be chosen as representa-

tive for the standard of social allocation of labour. Let us come back
to Steedman's numerical example. If we calculate the net products of
a unit of labour in the process I and II, we get (A 1, B 1) for I and
(A 3, B 2) for II. As far as circumstances permit, the more effective
process II must increasingly be selected as a common rule of econ-
omic life. However, if process II remains in only limited use for a
time, while process I is an overwhelmingly dominant condition of
production, then the process I must be regarded as the standard
condition of production of A and B in the social allocation of labour.
In a commodity economy, as long as the dominant condition of
supply to meet the fluctuations of demand in the market is process I,
the market values of the market prices of production of A and B must
be regulated by this technical process according to the theory of
market prices of production as I shall discuss later in section 7.2 of
the next chapter more generally. 28
Let us suppose then, that process I is the current representative
condition of production. Since the net products (A 1, B 1) are
obtained by a unit of labour in this process, the amounts of embodied
labour in a unit of A and B together must clearly be t 1 +t 2 = 1. Each
oft;_ and t 2 can be between zero and one within the constraint of this
equation. There is no common technical rule in various social forma-
tions to determine the ratio t 1 I t 2 = a. In other words, we can
recognise a basic freedom or elasticity in the apportionment of
labour-substance between the joint products, just like the elasticity in
the disposal of social surplus-labour. For instance, in a communal
planned economy without market prices, the ratio a = t 1 I t 2 can be
lowered when a consensus is made to foster the direct or indirect
consumption of A in comparison with B, under a certain social
ordering of needs in relation to given technical production processes.
The ratio can be adjusted to an appropriate level, by observing the
reactions in consumption and production caused by its alteration.
Generally speaking, so far as we can with actual appropriateness
assume that a representative condition of production is determinable
for the time being in each industry, and that the same product is not
produced in different industries, the amount of labour-substance
allotted to each unit of joint products can be determined on the basis
of social physical conditions of production when the ratios of allot-
ment, such as a, are somehow decided. Moreover, we can use the
ratios such as a theoretically to reduce a joint-production industry
to separate single production industries with the same technical
composition and with sizes differing according to those ratios. These

ratios by which the labour-substance is allotted between or among
jointly produced use-values are not determined merely by the physi-
cal system of production. Neither are they deduced from individual
subjective utility functions. As a common economic rule they are
determined in conjunction with both the technical system of pro-
duction and the system of social needs, always more of less elastically
or freely, including social and political decisions in the case of a
socialist economy.
In the basic theory of a capitalist economy these ratios by which to
allot labour-substance in joint products are determined anarchically
through the form of the measure of commodity values, by means of a
function of money. As we have discussed in Section 4.1 of Chapter 4
of this volume, the repetitive purchasing of commodities by means of
money compels the owners of commodity products to revise their
arbitrary prices and reveal the gravitational centre of prices as the
form of commodity values. This function of money, to measure the
form of commodity values, implies a market mechanism adjusting
labour-allocation among industries to meet a social system of ma-
terial needs. This simultaneously clarifies the dominant or represen-
tative technical condition of supply in each industry. Such a function
of money, to measure values in a market, also serves as a mechanism
to determine the ratios by which to allot labour-substance between or
among the jointly produced commodities, according to the ratios of
their equilibrium price-levels. In this very limited context we see
certain relevancy of Rubin's type of value-theory which defines
abstract labour always through the price-form of value, as we have
suggested in Section 5.2 of Chapter 5.
Our position here does not at all mean that the substance of value
in commodity products can be created or increased by their circu-
lation or by degrees of demand. For instance, the substance of value
of jointly produced commodities A and B in the above case must
each be between zero and one, and their total must be one. These
conditions substantially constrain the formation of their equilibrium
prices in a market. These prices, and therefore their ratio as well, are
certainly further conditioned by the prices of production of their
substitutes, if available from different industries. While Steedman's
numerical example above is simple, in a more general case the joint
products A and B are interrelated with other industries in the process
of reproduction. The total labour-substance of value {e1 + t 2 ) in A
and B may be somewhat altered depending on their ratio a, in so far
as a can affect the amounts of embodied labour of other products

which are again utilised directly or indirectly for reproducing A and
B. Suppose for instance that B is just consumed as a 'non-basic'
product in Sraffa's terms, whereas A is used directly or indirectly in
the reproduction process of the means of production for A and B.
Then, a decline in a would more or less reduce the total labour-
substance (t1 + t 2 ). Therefore, strictly speaking, the ratios for allot-
ting the labour-substance among joint products may affect the total
amounts of embodied labour as a result of changes in the estimated
amount of dead labour in the means of production. This effect should
not be interpreted as a fundamental difficulty of the labour theory of
value. In my view the effect implies that the social estimation of
embodied labour-time being transferred from the means of pro-
duction is to be altered according to a change in the social conditions
of reproduction caused by an alteration of a, just as in the case where
re-estimation of embodied past labour-time is required by the alter-
ation of technical conditions of production.
In any case the amounts of embodied labour in the necessary
means of subsistence for wage-labourers and in the social surplus
products, and hence the rate of surplus-value, are thus always deter-
minable positively even when some commodities are jointly pro-
duced. This holds so long as the ratios by which to allot labour
quantities between or among joint products are determined through
the function of money in measuring commodity values in a market.
This solution of the joint-production problem concerning the rate of
exploitation may be meaningless in an extreme case, where a society
involves only one industry jointly producing, for instance, commodi-
ties A and B. Though the case is conceivable when we follow such a
model as Ricardo's corn-rate theory of profit, it is too simplistic to be
relevant to the determination of the value substance of joint pro-
ducts. If we exclude the case of fixed capital, in spite of Steedman's
claim (since the residual fixed capital is not really jointly produced in
the process of its utilisation, and so its value substance should be
treated differently), then joint production occupies not all but a part
of many industries, and is far from dominant in a society. Our
solution of the values of joint products and the related rate of
exploitation can thus be relevant on the basis of a more realistic social
position of joint-production industries.
In sum, the joint-production problem presented by Steedman to
show the anomalies of Marx's theory of value, reveals rather the
narrow limitations of the neo-Ricardians' one-sidedly abstract,
technological approach to the theory of value. In order to overcome

such limitations, together with some of those confusions among
Marxians caused by the problem, a correct understanding of Marx's
unique theory of the forms and the substance of value is quite
essential. From this view the joint-production problem must be
solved by clarifying the historically specific forms and mechanisms of
the capitalist economy (including the role of market), which fix the
allocation of labour-substance among the joint products (even though
this allocation is technically indeterminate). This must be done by
considering what the problem means in relation to the trans-historical
common social economic rule, as we have seen. In my opinion, this
solution will not only clear up the issues of the joint-production
problem, but can also positively show, in this special case, how
capitalism treats social labour anarchically and unconsciously in a
historically specific m.anner.
6.3 THE REPRODUCTION SCHEMES AND THE LAW OF

VALUE
Marx's Reproduction Schemes
Marx's reproduction schemes represent the basic material conditions

for the reproduction-process of a capitalist economy. The schemes
are constructed in equilibrium conditions in value terms. The con-
ditions shown in the schemes cannot be statically maintained. How-
ever, so far as capitalism does exist as a social formation it must
satisfy the conditions more or less through anarchical fluctuations and
disturbances. Actually, capital can produce in principle all the social-
ly necessary products to maintain a complete social reproduction, on
condition that the commodity labour-power is sufficiently obtainable
in the market. The anarchical fluctuation of prices in the market does
not necessarily bring about one-sidedly destructive effects upon capi-
talist reproduction. Usually it rather serves as a signal for capital to
readjust its social content of production, redirecting labour-power
and the means of production (living and dead labour) to various
branches of production, so as to meet the social demand for the
products.
The social demand itself is fundamentally formed in the repro-
duction-process of the value-relations of capital on the basis of
embodied labour-time in the commodity products. The working of
the law of value depends upon the feasibility of the readjustment of

the social relation between supply and demand for the products in the
reproduction-process of capital. In particular the means of pro-
duction and the means of consumption which are basically necessary
to maintain the social metabolism must be reproduced in the two
major departments of production, mutually supplying what the other
demands. The economic norm common to all societies requires the
maintenance of the reproduction of the means of production and the
means of consumption in accord with the labour-time technically
necessary for their reproduction. A capitalist commodity-economy
must satisfy this norm, through the price-form, as the substantial
content of the law of value. The absolute foundation of the law of
value thus rests upon the social necessity of maintaining reproduction
of the means of production and those of consumption according to
the necessary labour-time under the price-form.
Marx elucidated these social relations of capitalist reproduction of
commodity products in his reproduction schemes with simple numeri-
cal examples. The schemes were formulated by developing F. Ques-
nay's Tableau Economique, 29 and theoretically anticipated later
input-output analyses of W. Leontief's type. Unlike Quesnay and
Leontief however, Marx sees in the schemes not merely the material
conditions of reproduction, but also the necessary social relations of
labour-time embodied in the products under price-form as the social
content of the law of value in a capitalist economy. The schemes
show how the material conditions necessary to maintain the repro-
duction of the means of production and consumption are to be
prepared in the aggregate annual commodity product of capital, and
how this mass of products are to be exchanged through value-
relations so as to enable the production process of capital in the
following year. The basic point of view of the schemes is thus in the
circuit of commodity capital, C' - M - C ... P ... C'.
The total social production process is divided into two great de-
partments: Department I produces means of production, and depart-
ment II produces means of consumption. Marx first assumes simple
reproduction, where surplus-value (s) is all consumed by capitalists,
and as a resultant reproduction simply of the same scale is repeated.
The social relations which are exhibited in simple reproduction serve
as the basis of further analyses of expanded reproduction. In Marx's
numerical examples of simple reproduction in ch. 20 of the second
volume of Capital, 'the figures may be in millions of marks, francs or
pounds sterling' (II, p. 473), so let them be in millions of pounds here.
For instance, the social total annual commodity products are 9000, of
which 6000 are the means of production produced in the department I
and 3000 are the means of consumption produced in department II.
The composition of capital between constant capital (e) and variable
capital (v) is assumed to be 4:1 in both departments, and the rate of
surplus-value (s' = s/v) is assumed equally 100 per cent. It is also
assumed that the turnover of capital is once a year, and the particular
turnover of fixed capital over years is abstracted for the moment.
Then, the value-relations of commodity products from both depart-
ments for the process of simple reproduction must be such as follows:
6000 = 4000e + 1000v + 1000s

II 3000 = 2000e + 500v + 500s
In 6000 commodity products of the department I, 4000e are to be

used within the same department in order to replenish the means of
production consumed, through transactions among capitalists in the
department. Of the 3000 commodity products of the department II,
500v are to be consumed by workers, and 500s are by capitalists in the
same department. The remaining 2000 (1000v + 1000s) in I are to be
consumed by workers and capitalists in I as the value composition,
but are produced in the form of means of production. Whereas,
2000e in II are to be used to replenish the means of production as the
value composition, but are produced in the form of means of con-
sumption. Therefore, these portions, (1000v + 1000s) and 2000e,
must be exchanged between the departments through transactions
among capitalists and workers. Generally the basic condition of
simple reproduction is condensed to I (v + s) = ne as Marx summar-
izes (n, p. 478), since the products of I in the form of means of
production must be just equal to the means of production consumed
in both departments, i.e. I (e + v + s) = Ie + ne, or alternatively
since the products of II in the form of means of consumption must be
just equal to v +sin both departments, i.e. II (e + v + s) =I (v + s)
+ 11 (v + s). All the transactions within and between both depart-
ments are performed through expenditure of money posessed by
capitalists in order to buy labour-power or means of production and
consumption. Money functions here as the means of circulation, and
goes back to capitalists, the points of departure, partly via expendi-
ture of wages by workers, so as to be used similarly in the next year. 30
It is obvious that capital in both departments with replenished ma-
terial compositions, I (4000v + 1000v) and II (2000e + 500v) in the
above example, can reproduce the same amount of total commodity

products with the value of 9000 again at the end of the next year.
Usually capitalists do not consume all the surplus-value. As the
personification of self-expanding capital, they have to attempt to
accumulate a portion of surplus-value to extend reproduction as
much as possible. An additional mass of labour-power necessary for
capital to expand reproduction is assumed here to be obtainable. The
value relations in commodity products of both departments I and II
can be illustrated as follows, according to Marx's example in ch. 21 of
the second volume of Capital, to suit reproduction on expanded
scale.
6000 = 4000c + lOOOv + 1000s }

II 2250 = 1500c + 375v + 375s Total = 8250
Suppose that half of the surplus-value of I is accumulated, and in the
same composition, added to the original capital to expand the scale of
production in the next year. In accord with such accumulation (or
addition of 400c + lOOv) in I, there must be accumulation also in II.
The total amount of consumption in I for the next year will not be
2000 = 1000v + 1000s, but 1600 = 1000v + 100s(v) + 500s(k), where
s(v) and s(k) are respectively the portions of surplus-value to be used
as additional variable capital and the consumption of capitalists. So
as to balance with this amount 1600 of demand for the means of
consumption from I, constant capital of II must be increased to 1600
from 1500c, by adding 100s(c) from surplus-value. Corresponding to
this increment of IIc, 25s(v) must be added to IIv from lis. Then, the
values of commodity products of both departments are now redivided
as follows, preparing for expanded reproduction in the next year.
6000 = 4000c + 400s(c) + lOOOv + lOOs(v) + 500s(k)

II 2250 = 1500c + lOOs(c) + 375v + 25s(v) + 250s(k)
In this scheme 4000c + 400s( c) are used within I to replenish and
expand its own constant capital through transactions among capital-
ists, and 375v + 25s(v) + 250s(k) are consumed within II through
transactions among capitalists and workers in it. The remaining
portions, I 1000v + 100s(v) + 500s(k) = 1600 and II 1500c + 100s(c)
= 1600, are exchanged between the departments, just like I (v + s) =
nc in the case of simple reproduction. As a result, production capital
for the second year will become I 4400c + llOOv, and II 1600c + 400v.
They will bring about at the end of the second year the commodity
products of I 6600 and II 2400, or 9000 in total, which are beyond
8250, the value of commodity products of the first year, by realising
reproduction on expanded scale.
Expanded reproduction in any form of society must necessarily be
performed through expansion of the production of means of pro-
duction. This general norm of economy appears in the value-relations
of capital, as a condition I (v + s) > ne, instead of the condition 1 (v
+ s) = ne for simple reproduction. The basic condition for expanded
reproduction is thus I (v + s) > ne (11, p. 590). It is because the
products of I in the form of means of production must be greater than
the means of production consumed in both departments, i.e. 1 (e + v
+ s) > Ie + lie, or alternatively the products in II in the form of
consumption goods must be smaller than the social total of variable
capital and surplus-value, i.e. II (e + v + s) < 1 (v + s) +II (v + s).
More precisely the basic condition for a balanced expanded repro-
duction can be summarised into an equation Iv + s(v) + s(k) =lie+
s(e), as shown in the numerical example above.
The Form and Substance of Value in the Reproduction Schemes
Marx's reproduction schemes with the further detailed examination

of the circulation of money, or the social relation of depreciation and
replacement of fixed capital, etc., have often been utilised as a
theoretical basis of Marxian crisis theories. However, the specific
character of the reproduction-process of the capitalist mode of pro-
duction is not wholly presented in the reproduction schemes. Es-
pecially the capitalist mechanism of reproducing the commodity
labour-power is not directly included in the schemes. It is assumed
there that the necessary number of workers are obtainable by capital
in the market in exchange for the necessary means of livelihood. If
we compare the theory of capital accumulation in the first volume of
Capital and the theory of reproduction in the second, it is clearly the
former which deals with the specific character of the capitalist process
of reproduction with its inner difficulty of securing the necessary
supply of the commodity labour-power. The equilibrium conditions
in the reproduction schemes may be incessantly broken as a result of
the anarchical motion of capitals, but the disequilibria may also be
constantly readjusted through the working of the law of value in the
process of reproduction and the accumulation of capital, in so far as
the commodity labour-power is assumed to be obtainable in ex-
change for the necessary means of consumption. Therefore the

reproduction schemes can only show that economic crisis is possible
for a capitalist society.
The function of the reproduction schemes is to show that capitalist
production can continuously exist, by satisfying the basic material
conditions of reproduction common to all societies, rather than
revealling the inner contradictions of capitalismY The schemes show
in particular that labour-time, which serves as the standard for the
distribution of yearly products and labour-power consciously under
socialism, appears as the substance of value of commodities in
capitalism with its social necessity of material reproduction. The law
of value is founded in this regard on the general economic norms of
material reproduction which are to be maintained by social dispo-
sition of past and current labour-time. Prices as the form of value
must actually carry through this social foundation of the law of value
in a capitalist market.
By following Marx's definition of the value-concept at the begin-
ning of Capital. Prices in the reproduction schemes are generally
assumed to be directly proportional to the quantities of labour-time
embodied in commodity products. As a result, the equilibrium con-
ditions in the schemes are theoretically understood to signify the
equal exchange of labour-time. The general economic norms, which
must be realised consciously in socialism instead of through the
anarchical market mechanisms in capitalism, might be understood to
entail the social necessity of the equal exchange of labour-time. This
would be a source of theoretical confusion in perceiving both the
social contents of the necessity of the law of value and the way of
applying Marxian value-theory to the process of socialist economic
construction. The confusion is anyway related to the neglect of the
room for elasticity in the social relations of the exchange of labour-
time embodied in products. Let us investigate, therefore, whether
and how far the economic conditions summarised in the reproduction
schemes may entail the unequal exchange of labour-time.
When simple reproduction is assumed, all the surplus products are
to be consumed, and exactly the same scale of reproduction of both
departments I and II must be maintained yearly with the same
technical composition. It is obvious that under such conditions the
total means of production yearly consumed in both departments must
be replenished by the same quantities of yearly products of the
department I, the same in terms of labour-time embodied as well as
physical quantities. This must be true, whether or not the economy is
under a commodity order or not. Therefore, if we designate the

quantities of labour-time in yearly consumed means of production as
c;, labour-time in the necessary means of consumption or the necess-
ary labour-time as V;, and surplus labour-time as s;, and their total as
a; (a unit may be, say, a billion hours. i=1, 2), the social conditions
must be as follows:
a1 = C1 + V 1 + S1 = C1 + C2 (6.12)
vl + sl = Cz (6.13)
In spite of conventional perceptions, the relation expressed in

equation (6.13) does not socially require an equal exchange of
labour-time in the form of means of production and that of consump-
tion between the two major departments. As we have seen in
Chapter 5, there must be fundamental elasticity or freedom as to the
disposal of surplus-labour in general economic norms. In this regard
the basic conditions for simple reproduction are not destroyed by the
unequal exchange of labour-time within certain limits. While the
means of production embodying v1 + s 1 = c2 billion labour hours
necessary to maintain the reproduction of department II are trans-
ferred from department I to II, the means of consumption more than
the quantity embodying c2 = v1 + s 1 may be transferred inter-
changeably from the deparment II to I without reducing the scale of
reproduction in department II, only by increasing consumption of
surplus-products in the department I, so far as the amount transferred
from department II remains within the upper limit of C2 + s 2 billion
hours. Conversely, the quantity of the means of consumption trans-
ferred from department II, in exchange for the means of production
with c2 = v1 + s 1 billion hours of labour, can be less than the quantity
embodying c2 million hours of labour, so much increasing the con-
sumption of surplus products in department II and decreasing it in
department 1. This transaction would not damage the material con-
ditions of simple reproduction, in so far as the transfer from the
department II is above the minimum quantity required to replenish
the necessary means of consumption embodying v1 billion hours of
labour-time. Within these limits in either direction consumer goods
to the value s 1 + s2 may be distributed variously without threatening
the basic conditions for simple reproduction.
Let us now suppose that social reproduction is embraced totally by
capital, and therefore that the allocation of labour necessary to
maintain reproduction must be carried out through the form of value
or the price-form. The products of department I are further assumed

to be priced in pounds sterling, nominally x times the labour-
substance (in billions of hours) embodied, whereas the products of
the department II are also priced in pounds at y times the labour-
substance. Accordingly· capitalists in department I as a whole acquire
a 1x billion pounds as the form of value of their yearly products, and
capitalists in department II acquire a2 y billion pounds from their
yearly products. From these amounts of total sales c1x billion pounds
must be expended in order to replenish the means of production used
up, and v 1 y pounds must be expended as the price of labour-power.
Therefore the amount of surplus-value obtained by capitalists of
department I in the money-form must be a1x - (c 1x + VtY) billion
pounds. The total of this amount plus v1 y billion pounds received by
workers in department I is assigned to purchase the means of con-
sumption produced in department II in a model of simple repro-
duction. The total amount must then be as follows:
(6.14)
On the other hand, department II must spend CzX billion pounds for
the purchase of the products of department I, in order to replenish
the means of production used up. Therefore, purchase and sale
mutually performed between the departments can be balanced when
the following equation holds:
(6.15)
This equation holds, being indifferent to the magnitude of x or y, in

so far as the previous equation, (6.13), is effectual. Department II can
replenish the consumed means of production of c2 billion hours by the
same quantities of newly produced means of production with ( v1 + s 1)
billion hours, through the transaction in price terms expressed in
(6.15). Thus, equation (6.13) or v1 + s 1 = c2 must hold as the essential
condition for the balance between social demand and supply of the
products in the case of simple reproduction, even when the prices of
the products of the both departments are not proportional to their
labour-substance, and resultantly xly = k is not 1.
The key relation expressed in equation (6.13) V1 + s1 = c2 , how-
ever, does not necessitate the equal exchange of labour through
prices between the departments. Department II must always pur-
chase the means of production which embodies (c2 = v1 + s 1 ) billion
hours of labour-substance from the department I, by expending CzX

billion pounds. Then, department I throws back the same amount of
money (v 1 + s1)x billion pounds to department II in order to purchase
the means of consumption for the price of labour-power and for
capitalists' expenditure of surplus-value. Since the labour-substance
contained in the products of department II is lly of their prices, the
labour-substance obtained by department I through these trans-
actions must be (v 1 + s 1 )xly billion hours. This does not generally
coincide with (c2 = V1 + s 1) billion hours, except in the case of xly = 1.
The difference is to be written as follows:
(6.16)
As the workers in department I must theoretically get the necessary

labour-time, V1 billion hours in the form of the means of livelihood,
through V 1 Y billion pounds of wages regardless of the magnitude of k,
formula (6.16) exhibits the amount of surplus-labour-time which
capitalists in department I additionally obtains (in the case where k >
1), or conversely transfer to department II (in the case where k < 1),
through price-relations. The upper limit in the former case is given by
s2 , and that in the latter case is given by s 1 • Accordingly the magni-
tude of k must be within the following range, in so far as the social
condition of simple reproduction is to be maintained:
-s 1 < (v 1 + S 1 ) (k- 1) < S2
:.v 1 1(v1 + sl) < k < 1 + sAvl + sl) (6.17)
Needless to say, in a special case where k = 1 within this range, the

corresponding relation of labour quantities expressed in the formula
(6.13) v1 + s1 = C2 must simultaneously entail the equal exchange of
labour through prices between the departments without causing any
additional transfer of surplus-labour across the departments. (The
following paragraphs until the inequality (6.22) can be skipped by
general readers.)
When expanded reproduction is to take place, surplus-labour-time
embodied in the products of each department si must be divided into
S;(c) + S;(v) + S;(k)· The first two items si(c) + S;(v) are for the additional
means of production and necessary means of livelihood to be secured
for the expanded scale of reproduction. The products of department I
in this case must both replenish the consumed means of production
and provide the additional means of production for both depart-
ments. Therefore, the following relation must exist in terms of

labour-time:
a1 = + V1 + St(cl + st(v) + St(k)
C1
a 1 = C1 + St(c) + Cz + Sz(c)
VI + Sl(v) + Sl(k) = Cz + Sz(c) (6.18)
It is obvious that the relation V1 + s 1 > c2 must exist here as a basic
condition for expanded reproduction. Let us suppose here, as in the
previous case of simple reproduction, that the products of depart-
ments I and II are given prices in pounds respectively x times and y
times labour substance. The amount of money to be expended by
department I for the purchase of commodities from department II is
composed of both wages to be paid in the expanded reproduction,
i.e. v 1 y + s 1<vlY• and the portion for capitalist consumption as a
residue of the total price of the products after deducing the expendi-
tures necessary for expanded reproduction, i.e. a1x- (c1x + v1 y +
S1<clx + s 1<vly). The amount must thus be as follows:
a1X- (c!X + VJY + S!(c,X + St(vJ)') + VJY + Sl(vJ)' =

(a 1 - C1 - S 1(c))x = (V 1 + S (v) + S1(kl)x
1 (6.19)
Whereas department II has to purchase (C2 + Sz(c))x billion pounds of

means of production in order replenish and expand them. Accord-
ingly the following equation must hold, so that sales and purchases of
both departments mutually balance:
(6.20)
This equation (6.20) holds regardless of x, y or k = xly, so far as

equation (6.18) above is effective. Therefore, the existence of such
interdepartmental relations of labour-substance embodied in the
products is the essential condition for the expanded process of
prod.uction even when the price-form is not directly proportional to
the labour-substance. The labour-substance as exhibited in equation
(6.18) must be transferred from department I to II, in the form of
means of production through their price in pounds being x times their
labour-substance. When the same amount of money is expended by
the capitalists and workers in department I for the purchase of their
means of consumption from department II, the labour-substance
must be obtained by lly of their price. The difference between what is
transferred from department I to II and what is conversely transferred

from II to I must be as follows:
(vt + St(v) + st(k))x!y-(vt + st(v) + S1(k))=(v 1+ S1(v) + S1(k))(k-1) (6.21)
Apparently the quantity of surplus-labour defined in (6.21) is trans-

ferred from department II to I when k is greater than 1, whereas equal
exchange of labour is effected when k is 1, and the quantity of
surplus-labour in (6.21) is transferred conversely from I to II when k is
smaller than 1. Therefore the maximum possible range of k must be
within in an inequality as follows:
(6.22)
Simple numerical examples will clarify our investigations above.

Since Marx assumed labour-substance in direct proportion to prices
in the reproduction schemes, let us redefine Marx's numerical exam-
ple for simple reproduction as follows are in terms of billions of
labour-time, not directly in pounds:
6000 = 4000c1 + 1000v 1 + 1000s1

II 3000 = 2000c2 + 500v 2 + 500s 2
It is clear that the quantitative relation formulated in (6.13) above

holds here between the underlined numbers in both departments. If
the inequality (6.17) is applied here, the possible range of k is defined
as 0.5 < k < 1.25. Suppose that k = 1.1, x = 0.11 andy = 0.1, then
the prices of the total products, their costs and profits (pi) must be as
follows in billion pounds:
660 = 440c 1x + 100v1 y + 120p 1

II 300 = 220C1X + 50v2 y + 30p 2
From 300 billion pounds obtained by capitalists in department II, 220
billion pounds is to be expended in order to purchase the means of
production embodying 2000 billion hours of labour in department I,
and 50 billion pounds must be paid to the workers in the same
department II so as to enable them to purchase the necessary means
of livelihood with 500 billion hours of labour-substance. By these
transactions, capitalists in the department II are able to repeat exactly
the same scale of production as in the previous year. Similarly

capitalists in the department I can maintain the same scale of pro-
duction as in the previous year, by mutually purchasing the means of
production with 4000 billion hours of labour-substance by 440 billion
pounds, and also by paying 100 billion pounds to workers for them to
reobtain the necessary means of livelihood with 1000 billion hours of
labour-time. After deducing these items of costs necessary to main-
tain reproduction, capitalists in department I get 120 billion pounds,
and those in department II 30 billion pounds of profit as the money-
form of surplus-value from what they obtain as the total price of their
products. As a result capitalists in I get surplus-products to consume
with 1200 billion hours of labour-time, or 200 billion hours more than
the surplus labour-time embodied in their commodity products, and
capitalists in II conversely get 200 billion hours less than the surplus-
labour-time embodied in their commodity products. Such redistri-
bution of surplus-labour-time between the departments through the
price-form does not hamper the maintenance of social reproduction,
since the surplus-products in this case totally drop out of repro-
duction simply to be consumed by capitalists.
However, if the turnover of capital is assumed to be equally once a
year, being abstracted also from the special turnover of fixed capital,
then the rate of profit p'= p;l(c;x + vs) must become uneven in the
numerical example abo~e; i.e. 22.2 per cent in the department I, and
11.1 per cent in 11. Under a socialist planned economy, the room for
coping with the result of surplus-labour would be much more flexible
and free. But in a capitalist economy, distribution of surplus-products
must accord with the tendential motion of capitals to equalise the rate
of profit across departments and industries through their compe-
tition. In the case above, capital tends to move from department II to
I to acquire higher rate of profit, causing changes in prices in the
market, and tending to equalise the rate of profit around the gravi-
tational centre of 20 per cent, making the rate of comparative prices
of the products of both departments k = xly fluctuate tendentially
around 1. The reason why the standard prices equalising the rate of
profit become such as to realise the equal exchange of labour in their
substance is in this case clearly due to the assumption of equal
organic compositions of capital (vJc;), in concrete terms equally-},
across the departments. As we have discussed, we have to assume
either that there is no surplus-labour, or that the compositions and
the turnover periods of capitals are identical as in this case, in order
to prove the social necessity of equal exchange of labour as the

substantial content of the law of value on the basis of the logic in the
process of capitalist production.
Needless to say, the compositions of capital (and the turnover
periods of capital, having similar effects on the efficiency of pro-
duction of surplus-value by capital as the compositions of capital) can
not actually be identical across the departments. Marx also presents
numerical examples of reproduction schemes with uneven compo-
sitions of capital. For instance, his 'initial schema for reproduction on
expanded scale' is shown in the following figures:
4000c + 1000v + 1000s = 5000

II 1500c + 750v + 750s = 3000
In this example, where the composition of capital in II (v 2 /c 2 =-})is

twice of that in I (v1 /c1 =-}),the rates of profit would be p'= 20 per
cent, p; = 33.3 per cent, and clearly different under the prices
l
directly proportional to the labour-substance, or the prices which

cause an equal exchange of labour. Let us suppose that the numbers
in this scheme are in terms of billions of labour-time, and also that
the commodity products of departments I and II are respectively
given prices in pounds nominally x times and y times of the labour-
substance embodied under an equalised rate of profit. Then there
must simultaneously be the following equations;
(4000x + 1000y) (1 + p') = 6000x

(1500x + 750y) (1 + p') = 3000y
By solving these simultaneous equations only for a positive range of

answers, we get p' = 22.8 per cent, and k = x!y = 1.1287. Thus, if y =
0.1, x must be 0.11287. Unequal exchange of labour transferring some
portion of surplus-labour from department II to I must take place.
According to Marx's assumption that a half of s 1 in department I is
accumulated and added to initial capital in the same composition of
capital, the surplus-value of each department must be divided as
follows to make possible the balanced reproduction on an expanded
scale in the next year:
I 6000a1 = 4000c1 + 1000v1 + 400s1(c) + 100s1(v) + 500s 1(k)

II 3000a2 = 1500c2 + 750v2 + 100s2 (c) + 50s2 (v) + 600s2 (k)
These items of labour-substance would be capitalistically transacted

through such prices as follows to suit out calculations above:
I 677.22a 1x = 451.48c 1x + l00v 1 y + 45.15s 1<cr + 10s1<v>Y +

70.59pl(k)
II 300a 2 y = 169.3c~ + 75v 2 y + 11.29s2<cr + 5s2(v>Y + 39.41p2<k>
In this case the price relations entail an unequal exchange of labour

transferring 205.9 billion hours of surplus-labour from department II
to 1. But under these prices actual demand and supply in both
departments are balanced, the means of production and consumption
necessary for the expanded reproduction of both departments are
mutually secured and the rates of profit are equalised.
The Social Foundation of the Law of Valoe
Let us briefly summarise what we have found in our analyses of the

reproduction schemes from the view of the law of value. The repro-
duction schemes clarify basic social norms of labour-allocation main-
taining social material reproduction. In particular there must be such
social relations in labour-time embodied in the products of depart-
ment I and II as capitalistically expressed in V1 + s 1 = c2 for simple
reproduction, and V 1 + S1 > C2, or vi + S1<v> + S1<k> = C2 + S2<c> for
expanded reproduction, so long as technical conditions are not al-
tered. These relations, in the quantities of labour embodied in the
social annual products, must hold in their nature as an aspect of the
general economic norms common to all societies, and are basically
independent of value-relations in a commodity economy. The ab-
solute basis of the law of value in a capitalist economy is shown in the
social necessity of achieving such general economic norms of labour-
allocation entirely through the value-relations of commodities. Gen-
erally speaking, the law of value is conceivable from three aspects, as
we have suggested in the previous Chapter 5, Section 5.2. The basic
foundation of the law is the determination of the substance of values
by the labour-time necessary to produce commodities. The regula-
tion of the exchange of commodities by values, together with the
adjustment of the labour-allocation, are to be regarded as effects of
the working of the law. These three aspects, namely the determina-
tion of values by labour, regulation of exchange, and adjustment of
labour-allocation are simply transparent in models either excluding
surplus-labour or with an equal composition of capital and turnover

period across industries. In such models standard prices regulating
commodity exchanges in a capitalist economy become directly pro-
portional to the labour-substance of commodity products, and the
labour-allocation necessary to satisfy social needs, given existing
technological conditions of production, is achieved tendentially ar-
ound such standard prices so realising equal exchanges of labour.
However, the capitalist process of production cannot but entail the
exploitation of surplus-labour in the valorisation process, and the
composition as well as turnover periods of capital cannot be guaran-
teed to be equalised. Thus, one aspect of the law of value which
regulates commodity exchanges, must not be identified as the social
necessity of realising an equal exchange of labour-substance in com-
modity products. The socially necessary balance of labour-time in the
commodity products of both departments, expressed as V1 + s 1 = c2
for simple reproduction, and V 1 + S1 <vJ + S1 (kl = c2 + Sz(c) for expanded
production, would not necessitate prices being directly proportional
to labour-substance, but can be coped with through prices which
bring about unequal exchange of labour in the range permitted by the
transfer of a portion of surplus-labour from one department to the
other, as we have seen.
Nevertheless, determination of the substance of values by the
labour-time necessary to reproduce commodity products cannot be
negated by such a recognition of the unequal exchange of labour
within the range of surplus-labour through prices, any more than by
the theoretical issues of skilled labour and joint production. The
regulation of exchanges of commodities by values is not actually
performed by prices directly proportional to their labour-substance,
but by prices having a certain relation with the labour-substance. The
working of the law of value in regulating the exchange of commodi-
ties is still logically discernible in that the maximum range of unequal
exchange of labour through standard prices must lie within the
transfer of surplus-labour across departments or industries. In other
words, standard prices as the form of value must be determined in
mutual relation to enable each department or industry to replenish at
least the portion of the labour-substance c; and v; embodied in the
commodity products.
It is particularly noteworthy that wages as the form of value of the
commodity labour-power must theoretically be at a level which lets
workers purchase back the necessary means of consumption contain-
ing necessary labour-time, regardless of the possible deviation of
prices of commodity products from a direct proportionality with their

labour-substance. As a special 'simple' commodity not produced by
capital, labour-power has a basic key position for the law of value.
There must be a social necessity for the equal exchange of labour,
particularly between the commodity labour-power and its equivalent
necessary means of consumption, through the social process of con-
sumption and production under capitalism. This social relation of the
equal exchange of labour concerning the value of labour-power
(factually having been recognised since the classical school), is an
essential basis for the labour theory of value, as well as for the theory
of the capitalist process of the production of surplus-value. If we shift
our position to a neo-Ricardian type of theory and determine prices
simply by the physical data of production, because of the possible
deviation of prices of commodity products, we naturally have to lose
sight of the secret of the central class relation under capitalism, the
process of exploiting the surplus-labour of wage-workers.
From the view of the adjustment of labour-allocation the flexible
range of unequal exchange across industries or departments is essen-
tial for the law of value to operate as a principle by which material
reproduction is organised through the anarchical capitalistic market
mechanism. Without such flexibility in the social relations of labour
expended, the capitalistic way of distributing surplus-products and
surplus-labour through the equalisation of the rate of profit across
industries, with various compositions and turnover periods of capital,
must turn out to be incompatible with the law of value. Competition
among capitals which forms prices of production with an equal rate of
profit across industries is not a deviation as it is often conceived in the
conventional labour theory of value. Rather it is the concrete mech-
anism of the law of value to adjust the labour-allocation to suit a
social system of need through the anarchical market in capitalism.
Incessant misallocation of both past and present labour in anarchical
capitalist production is also incessantly readjusted through compe-
tition among capitals guided by fluctuating rates of profit gravitating
around the general average rate. The rationality and efficiency of
capitalism in this regard is not in its ability to achieve an ideal
labour-allocation statically and without failure, but in its function of
incessant readjustment. The substantial content of the law of value
must be compatible with such incessant fluctuations in prices and
profit rates in a market, in so far as it generally contains room for the
unequal exchange of labour within the range of surplus-labour.
These aspects of the law of value must be carefully taken into
account in the socialist process of economic construction as we shall

discuss in Chapter 10. Marx's reproduction schemes have often been
used as a frame of reference for socialist planning. Since the schemes
include insight into the general economic norms of human societies,
they can indeed be useful for a socialist economy as well, to certain
degree. For instance, the basic conditions of material reproduction,
such as V1 + s 1 = C2 for simple reproduction and V1 + s 1<vl + s1(k) = c2
s2(c) for expanded reproduction, must exist in terms of embodied
labour in the products of departments I and 11 even under socialism.
However, the balanced relations of the labour contents of products of
both the departments under socialism does not require an equal
exchange of labour, as we have seen for a capitalist economy. The
mutual transfer of products across industries must realise the replen-
ishment of the means of production and consumption for simple
reproduction, as well as an additional supply of goods necessary in
the case of expanded reproduction, but a society in any form need
not distribute the materialised surplus-labour so as to realise an equal
exchange of labour. Flexibility or the freedom of coping with
surplus-labour should certainly not be abused to distort the socialist
principle of equal distribution of income, or the rationally balanced
growth of various industries, but must surely give a basic elasticity in
many ways to the process of socialist construction. Ridding itself of
the capitalistic principle of distributing surplus-labour through the
competition of capitals to equalise the rate of profit, a socialist
economy would basically have wider freedom to dispose of social
surplus-labour. Before considering further the possible implications
for socialism of the basic theory of capitalism discussed in the final
part, Part IV, we have further to examine, in the following part, Part
III, the full motion of capitals as a concrete mechanism distributing
surplus-value among themselves, earring out the working of the law
of value in their actual forms.
Part III
The Motion of Capitals as a
Concrete Mechanism
Capitalism is established when the forms of a commodity economy
comprise a social process of production. The quantitative commen-
surability of the forms of value in a commodity economy, which is
expressed in prices, should not be identified with the more substantial
commensurability of labour-time embodied in social products. Once
the basic structure of a capitalist commodity economy is clarified in
the light of the forms and the substance of value, then the social
relation of labour-time and its adjustment in accord with social needs
are clearly separable from and conceivable without the forms of
values in the central areas of precapitalist social formations as well as
of socialist societies. The forms of value which are specific to com-
modity economy originated from inter-social economic relations
external to the central labour-and-production process of those so-
cieties. Capitalism is a historically unique social formation where
such originally external inter-social forms of a commodity economy
have been turned into the internal economic order. By comprising a
social process of labour and production, the forms of value in capi-
talism must be related with social necessity to the social relations of
dead and living labour, and must be regulated by them. Thus, the
quantities of labour-time necessary to reproduce commodities are
proved to be the substance of value, which regulate from behind the
forms of value. At the same time the socially necessary labour-time
to reproduce the necessary means of consumption of wage-workers,
which is determinable by the physical data of the contents of real-
wages and the technological conditions of production, defines the
substance of value of the commodity labour-power. The social sur-
plus-labour beyond it must correspondingly be turned into the social
source of surplus-value for a capitalist process of production. The
analysis of the social mechanism for capital to extract surplus-
labour does not merely elucidate the material basis of the class-
relations in capitalism, but also serves as a theoretical frame of
reference for studies of all the class societies in human history, and
195
196 The Motion of Capitals as a Concrete Mechamism
hence serves as a theoretical foundation for socialist argument to

move beyond the history of class societies.
Extraction of surplus-labour by capital is by no means a clear social
relation. The forms of value, which seem to treat individuals equally
as owners of commodities to be exchanged more or less according to
proper values, disguise the substantial social process of the exploita-
tion of surplus-labour under the surface of commodity circulation.
Wages tend to be regarded as proper reward, full payment for labour
performed by workers. Correspondingly, profit, ground-rent and
interest are conceived as fair sums or prices which are determined
and offered in a market for the services or the contributions of
capital, land and loan capital to economic activities. This way of
viewing the main categories of income prevails in daily 'common
sense' as well as in conventional neo-classical economics. Such a view
is not a mere deceptive ideology without any actual reality or rational
function. On the contrary, the daily economic life of capitalism is
founded upon such a view, with no insight into the social relations of
labour-quantities. We have to recognise further that the forms of
revenue from capital and land have a certain rational function in
organising and maintaining the economic process of reproduction
under capitalism. Of course, there are weaknesses or absences in
such a conventional view. Among others, it cannot provide a consist-
ent theory to define commensurable values for heterogeneous econ-
omic subjects such as labour, capital, land and loanable capital,
beyond evaluation in a market; containing a theoretically circular
definition in one way or the other. Hence it cannot explain the
commensurable common source of surplus-values and incomes. A
socio-historical analysis of the capitalist economy, viewing the long
historical development of human societies organising the common
labour-and-production process in different ways, must also be theor-
etically impossible from such a conventional standpoint.
Hence, the importance for political economy, as a socio-historical
science, to explore the substantial social relations of the quantities of
labour behind the forms of value, along with the social mechanisms
of production of surplus-value, is clear. However, our studies into the
basic law of motion of a capitalist economy are so far still at the
half-way stage. Upon clarification of the social substance of values
and surplus-value, we have further to investigate the more concrete
forms and mechanisms of a capitalist economy. There are four
interrelated aspects to be investigated. First, the main categories of
incomes for capitalists and landowners, like profit, ground-rent,
The Motion of Capitals as a Concrete Mechanism 197
commercial profit, interest, dividends as they appear in the everyday

consciousness of a capitalist economy, must be examined for their
rationale in relation to the social surplus-labour, or as the concrete
forms of the distribution of surplus-value. Second, corresponding to
these concrete forms of distributing surplus-value, concrete forms of
capitals, such as industrial capital, commercial capital, loanable
capital, bank capital, joint-stock capital, as well as the social position
of landowners in capitalism are to be clarified in their mutual rela-
tions. Third, the actual working of the law of value in regulating the
motion of forms of value and adjusting the labour-allocation must
also be examined through these concrete forms of surplus-value and
capital. Fourth, although the concrete forms of surplus-value and
capitals generally have a rationale in functioning positively to pro-
mote capitalist economic efficiency (as neo-classicists would tend to
one-sidedly emphasise), these forms also serve as concrete mechan-
isms through which the actual process of accumulation of capital in
the form of business cycles and periodical crises, proceed inevitably
leading to the contradictory self-destruction of capital value. We
must examine the basic logic of such an actual process of accumul-
ation of capital and its theoretical implication for the working of the
law of value.
Marx explored these four aspects more or less in the third volume
of Capital. The basic theories of competition among capitals, which
were put outside of the framework of 'capital in general' in the
Grundrisse, as well as the basic theory of the economic position of
landownership in a capitalist society, which was further outside of the
framework of 'capital; capital in general, competition, credit, and
joint-stock capital', became necessarily included in the theoretical
system. However, the third volume was the most unfinished of the
three volumes in Capital, mostly based upon Marx's manuscript
written in 1863-5, earlier than his writing the first volume for publica-
tion. Much of the controversial character of that volume at least
partly originates from this fact. It must spring also from the theor-
etical difficulties to be pursued here, in addition to some basic
theoretical problems which are already raised in the previous vol-
umes, especially as to the logical contents of the working of the law of
value. On the basis of our investigations in the previous parts espe-
cially focusing upon the distinction between the forms and the sub-
stance of value, we may now be qualified to discuss more properly the
forms and functions of competition among capitals, through the
so-called 'transformation problem', the theory of market value or
198 The Motion of Capitals as a Concrete Mechamism
market prices of production, and theory of ground-rent in Chapter 7.

Then, in Chapter 8, the forms and the role of commercial capital, the
credit system and joint-stock capital will be examined as higher
capitalistic organisations for the motion of capital. One central issue
for the basic theory of a capitalist economy is surely the theory of
capital accumulation, business cycles and crises, which will be con-
sciously withheld until Chapter 9 below so as to be concentrated
there. The chapter must treat the most concrete dynamic mechanisms
of a capitalist economy in a basic theory.
7 Competition among
Capitals
7.1 THE LAW OF VALUE AND PRICES OF PRODUCTION
Marx's Theory of Prices of Production
Upon the theories of the processes of production, circulation and

reproduction of capital in the first and the second volumes of Capital,
the third volume 'The Process of Capitalist Production as a Whole' is
designed 'to discover and present the concrete forms which grow out
of the process of capital's movement considered as a whole', examin-
ing step by step the forms 'in the action of different capitals on one
another, i.e. in competition' (III, p. 117).1ts first two parts investigate
'the law that govern the general rate of profit and the so-called prices
of production determined by it', as 'the basic law of capitalist com-
petition' (III, pp. 127-8). The forms of distribution of surplus-value,
such as commercial profit, interest and ground-rent, which are pre-
sented in the following parts, elucidate the concrete mechanisms by
which the law of capitalist competition is carried out basically gravi-
tating around the prices of production. A controversial problem is
the logical consistency between the law of value and the law that
governs the prices of production. Marx clearly intended to show that
the forms and the mechanisms of capitalist competition are not
merely consistent with, but also essential for, the social working of
the law of value. For instance, reviewing his whole analyses in the
very last part of Capital, Marx has this to say;
'. . . the two . . . characters of product as commodity and the

commodity as capitalistically produced commodity give rise to the
entire determination of value and the regulation of the total
production by value. In this quite specific form of value, labour is
valid only as social labour; on the other hand the division of this
social labour and the reciprocal complementarity or metabolism of
its products, subjugation to and insertion into the social mechanism,
is left to the accidental and reciprocally countervailing motives of the
individual capitalist producers. Since these confront one another only
as commodity owners, each trying to sell his commodity as dear as
199
200 The Motion of Capitals as a Concrete Mechanism
possible (and seeming to be governed only by caprice even in the

regulation of production), the inner law operates only by way of
their competition, their reciprocal pressure on one another, which
is how divergences are mutually counterbalanced. It is only as an
inner law, a blind natural force vis-a-vis the individual agents, that
the law of value operates here and that the social balance of
production is asserted in the midst of accidental fluctuations.' (III,
p. 1020).
Since the classical school regarded the capitalistic commodity

economy as a natural harmonious order of things, its labour theory of
value could not pay theoretical attention to the historically specific
forms of value through which social labour is treated. Hence, it failed
to formulate the theory of prices of production consistently on the
basis of the labour theory of value. Marx overcame this failure by
showing the prices of production as a basic form of competition
am6ng capitals, through which the law of value actually operates.
The distinction between the forms and the substance of value is
essential here, in order to see the logical consistency between the
labour theory of value and the law of the equalisation of the profit
rate in the form of prices of production. As we have seen, there is a
technically indeterminate elasticity or freedom as to how to cope with
the portion of surplus-labour embodied in products consistent with
the general economic norms in societies. Through the theory of
prices of production, in which a basic capitalist principle of distribut-
ing surplus-labour is presented, the whole regulation of standard
prices as the form of value by the labour-substance is clarified. The
actual working of the law of value is shown in the process of competi-
tion among capitals where fluctuating market prices are repeatedly
guided and regulated from behind by the substance of value, being
determined on the basis of the technical conditions of production and
the real wages. Seemingly accidental fluctuations in prices in a
market are not an external distortion for the law of value, but an
indispensable mechanism to adjust the allocation of labour to meet
the social system of needs for various use-values in an anarchical
commodity economy. The regulation of prices from behind by the
labour-substance of value cannot really be effective without having a
process of labour-allocation readjustment in the anarchical market
economy, where the discrepancy between demand and supply must
incessantly occur.
So far as the prices of production serve as a basic form of capitalist
Competition among Capitals 201
competition in such a fluctuating market, they must appear qualitatively

of the same dimension as market prices, measured in quantities
of money. Corresponding to the theory of forms of value in the first
two parts of the first volume of Capital, where the logical formation
of the price-form and the formula of capital obtaining surplus-value
in money terms was presented, the prices of production with their
categorical elements such as cost-price and profit, can be conceived
as a concrete developed form of value on the basis of capitalist
production.
Marx actually begins his theory of prices of production by examin-
ing 'cost-price and profit'. He defines the cost-price as follows: the
'part of the value of the commodity, which replaces the price of the
means of production consumed and the labour-power employed,
simply replaces what the commodity cost the capitalist himself and is
therefore the cost price of the commodity, as far as he is concerned'
(III, p. 118); or, 'the cost price of the commodity is by no means
simply a category that exists only in capitalist book-keeping. The
independence that this portion of value acquires makes itself con-
stantly felt in practice in the actual production of the commodity, as it
must be constantly transformed back again into the form of pro-
ductive capital by way of the circulation process, i.e. the cost-price of
commodity must continuously buy back the elements of production
consumed in its production.' (III, pp. 118-19).
It is noticeable that Marx defines here the cost-price as the part of
commodity value which is necessary to replace the price of the means
of production consumed and the labour-power employed. He clearly
examines the elementary concept for the basic law of capitalist
competition in the price-form of commodity value. At the same time
the cost-price in the form of value is conceived as the necessary
portion to buy back, through the circulation process, the elements of
production consumed in the production of a commodity. In this
regard the cost-price surely presents an elementary form of capitalist
pricing which is subject to the regulation by the quantity of the
labour-substance necessary to reproduce each commodity. This is
because the cost-price must be determined in accord with its function
of enabling capitalists in each industry with given representative
conditions of production to replenish the means of production and
labour-power as well as their substance of values (c; + v;). Through
this function the cost-price also enable capitalists to reobtain continu-
ously the whole substance of value of their commodity products
(c; + v; + s;) through the successive process of production.
It must further be noted that the relevancy of the definition of

cost-price above is not confined to the case where the prices of
commodities are assumed to be directly proportional to the amounts
of labour-time embodied in them. In other words, the definition of
the cost-price above is separable from the conventional understand-
ing of the content of the law of value as the equal exchange of labour
embodied in commodities. We might extend this line of argument to
construct the theory of prices of production, not depending on the
concept of the law of value as the equal exchange of labour, but by
examining the concrete forms of value in the sphere of capitalist
competition which reflect the regulative social relations of the
labour-substance of value from behind. Corresponding to his treat-
ment of the cost-price as a concrete form of value, Marx presents
profit also as a form of value appearing in the process of circulation in
terms of price. He begins the second chapter 'The Profit Rate' in the
third volume of Capital by returning to the general formula for
capital, M- C- M'. He says for instance; 'surplus-value itself does not
appear as having been produced by the appropriation of labour-time,
but as the excess of the sale price of commodities over their cost
price' (III, p. 135). The theory of prices of production beginning from
the concept of the cost-price and profit could be formulated in this
line of discussion as a concretisation or development of the forms of
value in relation to the social regulation of the substance of value in
the sphere of capitalist competition, and not as the theory of a
transformation from the labour-substance of values, or a set of prices
directly proportional to those (i.e. value-prices) into another set of
prices.
However, Marx did not thoroughly follow up and finish this line of
argument. It is because he defined value one-sidedly as crystals of
human labour by abstracting from the forms of value at the initial
section of Capital, and assumed equal exchange of labour as the
content of the law of value throughout in his examination of the inner
structure of a capitalist economy. Accordingly Marx defines the
cost-price also as 'replacement value' (c; + v;) within the value of a
commodity ( a; = c; + v; + s;), presupposing value-prices directly
proportional to labour-substance embodied in commodities. In line
with this the portion of surplus-value (s;) in the vlue of a commodity is
directly defined as profit when it is supposed to be derivative of the
total capital advanced. Hence, commodity value = cost-price +
profit (III, p. 127), or 'the surplus-value or profit consists precisely in
the excess of commodity value over its cost price, i.e. in the excess of
the total sum of labour contained in the commodity over the sum of
labour that is actually paid for' (III, p. 133).
In so far as cost-price and profit are thus treated as the internal
divisions within the substance of commodity value directly measur-
able in terms of labour-time, capitals would acquire surplus-value as
profit just as much as surplus-labour expended in each of their own
process of production. As a result, the yearly rate of profit against the
total advanced capital, which is hereafter simply called 'the rate of
profit' in accord with usual terminology must necessarily vary across
different branches of industry with a different number of workers
employed against the total advanced capital, due to different organic
composition and/or different turnover period of capital. We can
reasonably assume here that the length of the working day as well as
the real wages, and therefore the rate of surplus-value (s; = s;lv;) tend
to be equalised across industries through competition among capitals
and workers. There cannot be any theoretical reason, however, to
expect the equalisation of the organic composition of capital (v/c;) or
of the turnover period of capital across industries having different
technical bases. The industries with lower compositions of capital,
employing more labourers with a given amount of capital, or those
with faster turnover, must obtain a higher rate of profit than other-
wise, so long as the law of value is identified here with the equal
exchange of labour embodied in commodities.
Marx examines these points in chapter 8, 'Different Compositions
of Capital in Different Branches of Production, and the Resulting
Variation in Rates of Profit', in the third volume of Capital, and
summarises the problem further to be clarified as follows:
We have shown, therefore, that in different branches of industry

unequal profit rates prevail, corresponding to the different organic
composition of capitals, and, within the indicated limits, corre-
sponding also to their different turnover times; so that at a given
rate of surplus-value it is only for capitals of the same organic
composition - assuming equal turnover times - that the law holds
good, as a general tendency, that profits stand in direct proportion
to the amount of capital, and that capitals of equal size yield equal
profit in the same period of time. The above argument is true on
the same basis as our whole investigation so far: that commodities
are sold at their values. There is no doubt, however, that in actual
fact, ignoring inessential, accidental circumstances that cancel each
other out, no such variation in the average rate of profit exists
between different branches of industry, and it could not exist

without abolishing the entire system of capitalist production. The
theory of value thus appears incompatible with the actual phenom-
ena of production, and it might seem that we must abandon all
hope of understanding these phenomena.' (III, p. 252).
The incompatibility pointed out here between the law of value, as the
equal exchange of labour, and the law of the equalisation of the rate
of profit across industries with different organic compositions or
turnover times of capital was a crucial problem for the labour theory
of value since the classical school. Marx's solution is presented in the
following chapter 9, 'Formation of a General Rate of Profit (Average
Rate of Profit), and Transformation of Commodity Values into
Prices of Production', starting from Table 7.1, where turnover of
capitals is assumed equally once a year.
Table 7.1
Capitals Rate of Surplus-value Value of Rate of profit

surplus-value product
% %
I 80c + 20v 100 20 120 20
II 70c + 30v 100 30 130 30
III 60c + 40v 100 40 140 40
IV 85c + 15v 100 15 115 15
v 95c + 5v 100 5 105 5
Upon this numerical example Marx proceeds to define the average

rate of profit and then the price of production as follows:
If we treat the 500 as one single capital, with I-V simply forming
different portions of it, - then the average composition of the
capital of 500 would be 500 = 390c + 110v, or in percentages 78c +
22v. Treating the capitals of 100 as each simply a fifth of the total
capital, its composition would be this average one of 78c + 22v: in
the same way the average surplus-value of 22 would accrue to each
of these capitals of 100, the average rate of profit would thus be 22
per cent, and the price of each fifth of the total product produced
by this capital of 500 would be 122. (III, p. 255). Taken together,
commodities are sold at 2 + 7 + 17 = 26 above their value, and 8 +
18 = 26 below their value, so that the divergences of price from
value indicated above cancel each other out when surplus-value is

distributed evenly, i.e. through adding the average profit of 22 on
the capital advance of 100 to the respective cost prices of commodi-
ties I-V. - The prices that arise when the average of different rates
of profit is drawn from the different spheres of production, and this
average is added to the cost prices of these different spheres of
production, are the prices of production. (III, p. 257).
To express Marx's definition here in general terms, the value or

yearly commodity product of ith industry a; = c; + V; + s; is trans-
formed into the price of production P; = (c; + v;) + r (c; + v;), or
cost-price-plus average profit, where the average rate of profit is
defined as r = ~s; I ~(c; + v;). According to this procedure Marx's
two propositions on the aggregates duly hold, i.e. 'The sum of the
profits for all the different spheres of production must be equal to the
sum of surplus-values, and the sum of prices of production for the
total social product must be equal to the sum of its values' (III,
p. 273), or ~Pi = ~s; and ~P; = ~a;, where p; designates yearly
average profit for ith industry.
Thus, there were two lines of discussion in Marx's theory of prices
of production. In the first line the cost-price and profit are shown as
developed forms of value measured from the beginning in terms of
certain quantities of money. If we follow and extend this line we may
be able to treat the prices of production as the transformation of
value-forms from those in the simple and general commodity circula-
tion into the concrete forms belonging to the sphere of capitalist
competition, and not as transformations from the labour-substance of
values. In the second line the cost-price and profit are defined as an
internal redivision within the labour-substance of values, and the
prices of production are shown as a transformation of the labour-
substance of values, or a set of prices directly proportional to that
substance into another set of prices to equalise the rate of profit.
Along this second line the dimension or the unit of cost-price, profit
and prices of production is ambiguous. The prices of production, e.g.
122 in the numerical example deduced from Table 7.1 above, as well
as the cost-price and profit, seem directly deducible from and com-
parable with the labour-substance at the same dimension, although
they are sometimes designated also in terms of pounds sterling
deduced from value-prices.
As the second line dominates, the first line was not fully extended
nor utilised, leaving us some controversial problems. For instance, in
the process of deducing the prices of production starting from the

numerical example above, the general rate of profit and average
profit are defined as average distribution of surplus-value to capitals
in different spheres of production by regarding those capitals as 'a
single total capitals' (III, p. 256), or 'shareholders in a joint-stock
company' (III, p. 258). So far the cost-prices and the sale prices as the
forms of individual capitalist competition are somewhat neglected,
and treated as if they were measurable directly in terms of labour-
substance. However, without referring to the forms of value, the
concept of profit and that of the average rate of profit themselves
would not properly be deduced from the basic value theory. Marx
titles part I of the third volume of Capital, 'The Transformation of
Surplus-Value into Profit, and of the Rate of Surplus-Value into the
Rate of Profit', and seems to attempt to deduce the concept of profit
itself from the function of capital to produce surplus-value in the
process of production. He asks himself in this context why surplus-
value is supposed to be a derivative not merely of the variable capital,
but of the total capital advanced, in being transformed into profit,
and then explains the reason as follows: 'The entire capital is materi-
ally involved in the labour process, even if only a part of it is involved
in the process of valorization. This is perhaps the very reason why it
contributes only in part towards the formation of cost price, but in
full toward the formation of surplus-value.' (III, p. 126). The reason
presented here is not persuasive. From the view of the function of
capital in the process of labour and valorisation, the distinction
between variable and constant capital as well as that between fixed
and circulating capital might not be disregarded theoretically. There-
fore, Marx offers another explanation in saying: 'Because the price of
labour-power appears at one pole in the transformed form of wages,
surplus-value appears at the other pole in the transformed form of
profit.' (III p. 127). But the concept of wages as full remuneration for
the whole labour was itself difficult to deduce 'from the relation of
production', and had better regarded as originating in the forms of
commodity economy in general, wider and older than capitalist
production, as we have argued in Chapter 5, Section 5.2. Similarly,
profit is also quite conceivable in the forms of commodity economy in
general, as we have discussed in the theory of transformation of
money into capital in Chapter 4, Section 4.3.
Capitalist production did not create the form of profit or capitalist
competition equalising the rate of profit, though they seem specific to
the transformed form of capitalistic surplus-value in the theoretical
system of Capital. The task of the theory of prices of production

must, therefore, be reconsidered. It must not be in deducing the
forms of profit and average profit from the labour-substance of
surplus-value, but in analysing the social regulation, on the basis of
substantial relations of labour quantities, of these forms which capi-
talism takes over from the commodity economy in general. Along
with this problem, Marx solidly presupposed the content of the law of
value as the equal exchange of labour embodied in commodities. As
a result he must introduce the law of the equalisation of the rate of
profit across industries from 'the actual phenomena of production',
externally to the value theory and the working of the law of value at
the end of chapter 8 of the third volume of Capital, as we have seen.
There is clearly a theoretical restriction in Marx resulting from a
residue of Ricardo's value theory. Consequently Marx's presentation
of the prices of production, which doubtlessly surpassed a basic weak
point of Ricardo's theory, had to leave us further problems to be
cleared up in relation to the content of the law of value. Two
problems especially were crucial, and Marx was already aware of
both of them.
First, if the standard prices of commodity products of capitals turn
out to be prices of production, then equal exchange of labour among
commodity products from various spheres of production with differ-
ent composition of capital and different turnover periods cannot
hold, in particular as for the portion of embodied surplus-labour. So
far as transactions of commodities at their values are supposed to be
substantially identical with an equal exchange of labour, then 'it is,
prima facie, a very different matter whether commodities are sold at
their values (i.e whether they are exchanged one another in propor-
tion to the value contained in them, at their value-prices) or whether
they are sold at prices which make their sale yield equal profits on
equal amounts of the capitals advanced for their respective produc-
tion' (III, p. 275). In retrospect, Marx further asks himself: 'How
therefore is this exchange of commodities at their actual values
supposed to have come about?' (ibid.). This is essentially the point
which has been repeatedly criticised since Bohm-Bawerk as the
contradiction between the first and the third volume of Capital. Marx
suggests here, as 'the salient point', exchanges of commodities among
simple producers who possess their respective means of production.
This position of showing the actuality of transactions of commodities
at their values by relations among simple producers, historically prior
to capitalist prices of production, is extended by Engels in his
'Supplement to Volume 3 of Capital', and emphasised also by Hil-

ferding in his anti-criticism of Bohm-Bawerk. Although the position
has been regarded as an orthodox Marxian view since then, it cannot
be very persuasive. For one thing, simple commodity producers
could not constitute a full social formation except in an assumed
imaginary classless society; whereas the substance of value as well as the
working of the law of value must be shown with the necessity of the
allocation of labour on a social scale through commodity exchanges,
as discussed in Chapter 4, Section 4.1. The position in question
cannot be held strongly even as an interpretation of the theoretical
system of Capital, because the whole investigation into the processes
of production and circulation of capital in the first and the second
volume of Capital, prior to the theory of prices of production, is
firmly based upon the law of value. The law of value must, above all,
be understood as the inner law of motion of a capitalist economy, the
only state in which a commodity economy is turned into a fully
socio-economic order. Therefore, in recent studies and controversies
on the value theory, an increasing number of Marxians tend to avoid
the position of explaining the relation of values and prices of produc-
tion in a conventional historical-logical theory of transformation.
The law of value must then be shown as an actually relevant law of
commodity exchanges in a capitalist economy. For convenience's
sake in an introductory explanation, we might well assume equal
composition and turnover periods of capital across industries, to
show the law of value as the equal exchange of labour among
commodity products. However, this explanation, as well as three
other plausible sorts of explanation showing the law of value as an
equal exchange of labour, depends upon a clearly unrealistic hy-
pothesis, and is not yet satisfactory in showing the actual relevancy of
the law of value, as we have examined in Chapter 5, Section 5.2. In
this regard the problem which Marx himself noticed here concerning
the actual relevancy of commodity exchanges at their values still
remains to be solved in the basic theory of capitalism. My own
attempt more clearly to distinguish the forms and the substance of
value and clarify their relations more consistently by admitting the
fundamental elasticity or freedom in the part of surplus-labour em-
bodied in commodity products, as presented in the preceding chap-
ters, certainly aims at overcoming this problem among others.
Though it surely requires restructuring the basic theory, I trust the
readers' judgement as to whether the essential points in Marx's value
theory are lost or strengthened by it.
Second, Marx's theory of transforming values into prices of pro-
duction is incomplete and seems at the half-way stage, so far as it

defines cost-price as an internal portion (v; + s;) within labour value
(c; + V; + s;) embodied in commodities. It appears inconsistent to
conceive that all capitalists sell their commodity products at the
prices of production and buy the elements of production at values or
value-prices. There remains a problem in Marx's theory as how to
consistently transform cost-prices into prices of production. The
problem may threaten Marx's two propositions on the equality of
aggregates between profit and surplus-value, and that between prices
of production and values. Marx was aware of this problem when he
has this to say, after stating that the sum of prices of production is
equal to the sum of their values: 'This seems contradicted by the fact
that the elements of productive capital are generally bought on the
market in capitalist production, so that their prices include an already
realised profit and accordingly include the price of production of one
branch of industry together with the profit contained in it, so that the
profit in one branch of industry goes into the cost price of another.'
(III, pp. 259-60). In another place he points to the same problem
more decisively, saying: 'It is necessary to bear in mind this modified
significance of the cost-price, and therefore to bear in mind too that if
the cost-price of a commodity is equated with the value of the means
of production used up in producing it, it is always possible to go
wrong.' (III, p. 265). Modification of the cost-price is surely not
limited to the means of production or the portion of the constant
capital. 'As for the variable capital, the average daily wages is
certainly always equal to the value product of the number of hours
that the worker must work in order to produce his means of subsist-
ence; but this number of hours is itself distorted by the fact that the
prices of production of the necessary means of subsistence diverge
from their values.' (III, p. 261). In case where the prices of production
diverge from values of the necessary means of subsistence 'the
workers must work for a greater or lesser amount of time in order to
buy back these commodities (to replace them) and must therefore
perform more or less necessary labour than would be needed if the
prices of production of their necessary means of subsistence did
coincide with their values.' (III, p. 309).
As we have already mentioned in Chapter 5, Section 5.2, Marx's
statement here that the length of necessary labour would be altered in
accord with transformation of values into prices of production sounds
peculiar, since his theory of prices of production is basically designed
to show the forms of distribution of surplus-value among capitalists
through competition, based upon the relation of production between
total capitalists and wage-labourers. It is confusing to conceive that

the competition among capitalists to equalise the rate of profit as a
form of redistributing surplus-value simultaneously affects the more
fundamental relation of production of surplus-value itself. In the
actual capitalist economy the workers may have to work for a greater
or lesser amount of time when nominal wages lag behind the changes
in a system of prices of commodity products. But such a lag and its
adjustment process must be outside of the task of the theory of prices
of production. The analyses of the substantial content of the capitalist
process of production in the first and the second volumes of Capital
are dimensionally separable from the theory of distribution of
surplus-value in the third volume, and can well be supposed valid
during the analyses in the third volume. We should then conceive
here that workers must obtain wages at the prices of production of
the necessary means of subsistence containing necessary labour-time,
in accord with concretisation of the standard prices of commodity
products. Marx's peculiar confusion on this point originates partly
from the first problem discussed above, but also for sure from his
incomplete analysis of the exact procedure and the result of defining
cost-prices in terms of prices of production.
The Transformation Controversy
A controversy has continued on and off since the end of the nine-
teenth century concerning the two problems discussed above. In the
period after the Second World War particularly until the 1950s, the
focus of discussion among some Western scholars was on the second
problem of how to transform values into prices of production consist-
ently, including the elements of cost-prices. In this first phase of the
Western controversy on the transformation problem, the first prob-
lem was untouched, and all the participants, Marxians and non-
Marxians alike, assumed the labour theory of value or value prices as
a given precondition for the debates. However, in the second phase
of the controversy since 1970s, the scope of the debate has no longer
been confined to the second problem, as the number of participants
and the contents of controversy have largely extended. The growth of
a neo-Ricardian School after the publication of Sraffa's Production of
Commodities by Means of Commodities in 1960, and the following
revival of the Western Marxian School, caused a rekindling of the
controversy on Marx's value theory across the two problems, forming
a common triangular battlefield between Marxians, neo-Ricardians

and neo-classicists in a broad sense. Following the first phase of the
controversy on the transformation of cost-prices into prices of pro-
duction, the controversy in the recent second phase has tended to
inquire more and more basically into the soundness, consistency and
relevancy of Marx's labour theory of value itself. The debates on the
joint-production problem and the skilled-labour problem, which
have derived from the transformation controversy, have thus become
focal points and crucial for the basic stand of Marxian political
economy in this context. Since we have already treated these aspects
of the debates concerning the first problem in the previous Chapters,
let us concentrate here on the second problem.
Just as Bohm-Bawerk is to be referred to as a conspicuous initiator
of the controversy on the first problem, it is L. von Bortkiewicz
(1868-1931) who initiated the controversy on the second problem. 1
Although Bortkiewicz's treatment of the problem did not gather
much attention for more than three decades, it was endorsed as an
essential contribution to the problem by P. Sweezy in chapter 7 of
The Theory of Capitalist Development in 1942, and became generally
known as a starting-point of the debate since then. Let us therefore
briefly review first the Bortkiewicz-Sweezy (B-S) solution.
Suppose there are three main departments of production. The
department I produces means of production, II produces means of
subsistence for workers and III produces consumption goods for
capitalists or luxury goods. Using the same notation as in the pre-
vious item of this chapter, the relation of simple reproduction in
terms of value is then described as follows:
I c1 + v1 + S1 = C1 + C2 + c3
II C2 + V 2 + S2 = V 1 + V 2 + V 3 (7.1)
III C3 + V 3 + s 3 = S1 + S2 + S 3
Marx's definition of prices of production wasP;= (c; + v;) + r(c; + v;),
where the average rate of profit was defined as r = "2.s/'2:.(c; + v;). The
cost-price (c; + v;) was in terms of value, and not yet transformed into
prices of production. So as to clear up this residual incompleteness,
B-S introduce three unknowns, x, y, z, which designate the ratios of
the price of production to the value of the commodity products of
departments I, II, III. For example, the price of production of the
means of production is assumed to be x times of its value when
complete transformation including the elements of cost-prices is
performed. The equations in terms of the prices of production must

then be as follows:
I c1x + v 1 y + r(c 1x + v 1 y) = (c 1 + c2 + c3 )x
II CzX + VzY + r(CzX + V2 Y) = (v 1 + V2 + V3)y (7.2)
III c~ + VJY + r(c~ + VJY) = (s 1 + S2 + s 3 )Z
There are four unknowns (x, y, z, r) in three equations. Either one

more equation or one less unknown is necessary to get a unique
solution. B-S recommend reducing the unknowns by making z = 1,
assuming that 'the number of units of labour necessary to produce
one unit of the money commodity (which is classified as a luxury good
- M.l.) would provide a direct link between the two systems of
accounting. ' 2
For the sake of simplicity, notations as follows are added; 1 + r =
a, vJc; = /;, (c; + V; + s;)lc; = g;. Then, from equations (7.1) and
(7.2), we get:
a(x + ftY) = gtx

II a(x + fzY) = 8zY (7.3)
III a(x + f3y) = g3
From the first two equations in (7 .3) we can deduce a solution which
is non-negative and consistent with the equations, as follows:
- (/z8t + 8z) + Y(/z8t + 8z) 2 + 4 lf1 - fz)8t8z
a= 2(/t- fz)
Once a is determined, then x and y can be deduced easily from the

equations in (7.3). B-S set up a numerical example as follows to show
the result of the solution:
Table 7.2 Value calculation
Dept of Constant Variable Surplus- Value of

production capital capital value Products
Ci vi Si a;
225 90 60 375
II 100 120 80 300
III 50 90 60 200
Total 375 300 200 875
Given these numbers with z = 1, deduced are o = 5f4, r = 25 per cent,

x = 3¥zs, y = lfY'Is, and therefore:
Table 7.3 Price calculation
Dept of Constant Variable Profit Price of

production capital capital product
CjX V;)l Pi pi
288 96 96 480
II 128 128 64 320
III 64 96 40 200
Total 480 320 200 1000
Bortkiewicz, as a modern Ricardian, was rather critical of Marx's

theory of prices of production as a result of these analyses. For one
thing, determination of the general rate of profit r, or a above, is
indifferent to the conditions of production in the department of
luxury goods production, expressed in / 3 and g3 , whereas in Marx's
formulation the general rate of profit depends on the conditions of
production of the total social capital including department III. It is
surprising to recall, as Bortkiewicz indicates, that Ricardo was al-
ready aware of the point. Ricardo stated that a change in the
conditions of production of such goods as do not enter into the
consumption of workers do not affect the height of the rate of profit.
More recently Sraffa formulated the same point in his conception of
non-basic commodities. Bortkiewicz also criticises Marx's propos·i~
tion that total value equals total price. In Table 7.3, for example, the
total price 1000 exceeds the total value 875, because production of
the money commodity in department III is performed with lower
organic composition of capital than social average. Assuming z = 1
with a lower composition of capital in department III, the purchasing
power of the money commodity in the price scheme with an equalised
rate of profit must be lowered than in the value scheme by elevating
the prices of other commodities as a whole.
In contrast, Sweezy believed that Bortkiewicz's treatment of the
problem was not substantially contrary to Marx's theory, but an
important contribution making more consistent the logic of trans-
forming the labour-values into the prices of production. Basically
Sweezy's view is fair and positively sound. We should admit with
Sweezy that Bortkiewicz's criticism of Marx concerning the role of
the composition of capital in department III (luxury goods) in deter-

mining the general rate of profit is logically correct. 'Marx's criticism
of Ricardo on this score was unjustified. ' 3 However, this point is far
from being fatal to Marx' theoretical system of value, exploitation
and capitalist development as a whole. Practically such industries as
cater only to capitalists' consumption would be relatively few and
unimportant, excepting military industry. Besides, technical changes
in such industries cannot be isolated, and would be applied to other
industries in one way or the other, and vice versa. As for Bortkie-
wicz's critique of Marx's proposition on the equality between total
value and total price, Sweezy has this to say in defence of Marx:
It is important to realize that no significant theoretical issues are

involved in this divergence of total value from total price. It is
simply a question of the unit of account. If we had used the unit of
labour time as the unit of account in both the value and the price
schemes, the totals would have been the same. Since we elected to
use the unit of gold (money) as the unit of account, the totals
diverge. But in either case the proportions of the price scheme ...
will come out the same, and it is the relations existing among the
various elements of the system rather than the absolute figures in
which they are expressed which are important. 4
There remained, however, a problem which was a source of later

controversy. It is by no means an insignificant conventional matter
how to conceive the unit of account of the value and the price-
schemes. When B-S assumed z = 1, one unit of gold (say one-thirty-
fifth of an ounce called a dollar) is conceived as the unit of value as
well as of price. What does it mean to measure value by units of gold
or in terms of dollars? There can be two possible interpretations: (i)
One unit of gold is assumed to be produced by one hour of labour-
time, since values must substantially be measured by units of labour-
time. Or (ii) Some amount of labour-time embodied in one unit of
gold is supposed to be a unit of value. But neither of these two are
satisfactory. There is no theoretical or technical reason to guarantee
the assumption (i). Units of measure of the substance of value in (ii)
would be unstable, being subject to changes in the conditions of
production. Besides, it is not clear in its meaning and theoretically
improper to use a unit of labour-time as the unit of account in the
price-scheme, though Sweezy recommended it as a device to restore
the equality in the totals of values and prices.
In our understanding of the distinction between the forms and the

substance of value, the prices as a form of value must be expressed
and measured by physical quantities of the money commodity, gold,
whereas the substance of value behind them must be measured by
unit of labour-time. There is a confusion across these different
dimensions in the B-S solution. The divergence between the total value
and the total prices is further to be considered. Moreover, the
equality between total surplus-value and total profit cannot be guaran-
teed, if the composition of capital in the production of the money
commodity, gold, is separated from that in the production of other
surplus products. Thus a focus in the first round of the Western
transformation controversy until the 1950s, was how to match the
B-S type of solution with Marx's propositions on the equality in the
two sets of totals.
For instance, J. Winternitz asserted that a fourth equation LC; + v1
+ s;) = L(c.x + v,y + s;z) representing the equality between total value
and total prices of production should be added, instead of z = 1,
to get a proper solution in accord with the spirit of Marx's system. 5 K.
May supported this, and further showed that the B-S type of solution
really did not depend on the assumption of simple reproduction or of
a three-department model, but could be generalised into an n sectors
model of extended reproduction. 6 Although this generalisation is
surely a contribution, the solution by Winternitz and May cannot
normally satisfy the other required equality between total surplus-
value and total profit. In order to satisfy this condition, R. Meek
substituted LS; = LS;Z as a fourth equation. 7 Then, the equality
between total value and total prices of production would not gener-
ally be guaranteed. F. Seton summed up the debate and pointed out
that all the conditions proposed, including (i) z = 1, (ii) L(c; + v; +
s;) = L(c;x + v;y + s;z), and (iii) LS; = Ls;z, can be simultaneously
satisfied if the organic composition of capital in department III is
equal to the social average. 8 This supposition, however, clearly lacks
generality, as Seton himself recognises. The general appropriateness
of Marx's theory of value and prices of production was still at stake.
H. D. Dickinson cut in to say that the fourth condition is unnecess-
ary for determining a general rate of profit and relative prices (two
ratios x:y:z in B-S equations). 9 According to Dickinson, the size of
the numeraire required to get actual prices from relative prices is not
important, and it does not make sense to try to equalise total prices
and total values because they are quantities in different dimensions
and to be measured by different units. This was a sharp comment.
The dimensional difference, however, must not be a simple separ-

ation, but should be grounded in Marx's theory of the forms and the
substance of value in solving the transformation problem. The money
commodity, gold, cannot be regarded as a formal numeraire, some-
thing referred to for the sake of convenience for accounting. Its role
and position between the substance of values and the form of values
as prices must theoretically be clarified. It also remained as a problem
to be further examined what Marx intended to express in his proposi-
tions on the equality in the two sets of totals, or if it really made
sense. The transformation controversy in its first round did not thus
reach a very satisfactory conclusion, leaving room for doubt as to the
general appropriateness of Marx's theory of value and prices of
production, especially in their actual link, though the controversy
contained interesting contributions to our understanding of the depth
and the technical aspects of the problem.
Actually, in the second round of the controversy since the 1970s,
the extent of the analysis has been substantially extended. The
relevancy of the labour theory of value itself has has been seriously
reconsidered, and doubt thrown on it by various non-Marxian econ-
omists including neo-classicists and neo-Ricardians. P. Sammuelson
represents a typical example of a recent neo-classicist critique of
Marx's theory of value and prices of production. According to him,
Marx's labour theory of value as a theory of relative prices of
commodity products holds only on condition that either the means of
production or surplus-value do not exist, or that the organic composi-
tion of capital in all industries is equal. 10 Further, Marx's theory of
prices of production, defining the elements of cost-prices in terms of
value, holds only in so far as 'the equal internal composition of
capital' exists, maintaining exactly the same proportion of various
inputs of products to every industry as the proportion of these pro-
ducts in the social output as a whole, and also the same proportion of
goods in the content of the means of subsistence for the workers. This
case surely lacks generality. Furthermore, the transformation pro-
cedure which alters all the elements of cost-prices into prices of produc-
tion in a B-S type argument does not make much sense in
Samuelson's view. We can certainly deduce the prices of production
by determining the rates of transformation from the labour values
embodied in each commodity on the basis of the given technological
system as the quantitative physical relations of inputs and outputs.
However, the result is just the same as the solution of the price
equations directly based upon a physical system of the relations
between inputs and outputs determined technologically. Therefore,

the value analysis in the first volume of Capital is nothing but an
unnecessary detour. M. Morishima followed up this discussion,
partly resisting Samuelson's criticism of Marx. Morishima is more
favourable to Marx's intention than Samuelson in his formulation of
the relation between the rate of surplus-value and the general rate of
profit, depending on N. Okishio's works. However, he underlines the
point that Marx's concept of prices of production, defining cost-prices
in terms of value, must be subject to a very restricted condition for
industries to be 'linear dependent', though mathematically it is some-
what a broader condition than Samuelson's 'equal internal composi-
tion of capital'. 11 Moreover, he finally recommends the abandonment
of Marx's labour theory of value and the adoption instead of a von
Neumann type of theoretical model, on the grounds of the theoretical
difficulty of treating heterogeneous labour, joint products or fixed
capital. 12 I. Steedman echoed these critiques in favour of Sraffa's
price theory. Besides his critiques of the problems concerning heter-
ogeneous labour and joint products that we have seen, Steedman also
asserts the redundancy of the labour theory of value on the grounds
that the prices of production as equilibrium prices can be fully
deduced from the physical data of the production processes. 13
It is apparent in these criticisms that the transformation problem in
the narrow sense since Bortkiewicz has been combined or fused with
the more fundamental value controversy since Bohm-Bawerk. How-
ever, unlike Bohm-Bawerk, who totally rejected the possibility of
theoretically recognising the labour values embodied in commodity
products in favour of the marginal utility theory of value, these recent
critics all accept such a possibility excepting special problems such as
those of heterogeneous labour or joint production. Nor is the B-S
type of procedure deducing prices of production from labour values
denounced as logically wrong. Therefore, so long as we are con-
vinced both that the task of economic theory (in the tradition of the
classical and the Marxian schools) is to reveal the social relations
based upon human labour behind prices, and the logical feasibility of
determining prices of production including cost prices upon the basis
of labour values in the B-S type of procedure, critical examinations
by Samuelson and Morishima to show the narrow limits of the
conditions under which Marx's concept of prices of production, with
cost-prices in terms of value can hold, do not seem of much sense or
point. What is required of the Marxian school is thus to clarify the
theoretical relevance and meaning of the labour theory of value and
the procedure by which prices of production can be consistently

defined by labour values, besides solving the special problems on
heterogeneous labour and joint production. Marxian theorists like A.
Medio, D. Laibman, M. Desai, D. Yaffe and A. Shaikh. among
others have attempted to respond to such requests by emphasising
the following points.
First, in contrast with the neo-classicals or neo-Ricardians, the
Marxian theory of value is not merely a theory of the relative prices
of commodity products. It is above all a theory of the production
process of surplus-value, which is the economic basis of the relation-
ship between capitalists and labourers. Moreover, especially in order
to clarify the historically specific character of capitalist production,
theoretical concern about the labour process, as a general economic
norm common to all societies, is indispensable. In view of these
points, the labour theory of value is far from being redundant, but
rather a very relevant basis for social and historical economic theory,
although its content need not be understood as the exactly equal
exchange of labour embodied in commodity products in the light of
our preceding analyses.
Second, on the common basis of recognising the relevancy of the
labour theory of value as the theory of capitalist production of
surplus-value, the distinction of dimensions and tasks between the
theory of value and the theory of prices of production is newly
stressed by some Marxians. For example, Desai emphasised the
dimensional difference between the visible price domain and the
invisible labour-value domain, and therefore the incomensurability
of value and price. 14 His position would become almost identical with
that of some Japanese followers of Uno, if he located the prices of
production in the context of the development of the forms of value.
The problem of how to consolidate the B-S type of transformation
procedure, with Marx's propositions on two sets of totals, could be
avoided in this position just as in Dickinson's treatment, though it did
not seem to me substantially and positively solved.
Third, the notion of value has been reconsidered so as to include
not merely labour value embodied in commodities, but also exchange
value or form of value. However, it would be misleading and in
correct if exchange value or the form of value is conceived directly in
terms of labour-time, in the same dimension as the substance of
value. For instance, from the view of the Rubin School, some
Marxians tend to argue that exchange value is a specific way of
measuring labour-time in a commodity economy. Then, prices of
production as a developed form of exchange value would signify the

equal exchange of labour-time measured in a capitalistic market. 15
Such a position, is a serious distortion of the labour theory of value,
since it sees labour substance upside-down as being determined by
market pricing, and does not clarify the internal structure of that
process which determines the rate of profit and prices of production
on the basis (independently of the market) of objectively determin-
able labour-time embodied in commodities.
Exchange value or form of value can be also conceived directly in
terms of labour-time when it is counted by labour-time embodied in
money. Yaffe presented this line of argument, and believes that
prices of production as a transfigured form of value should have the
same dimension as the value system. He further stressed that total
prices must be equal to total values in a B-S type of transformation
procedure, on the grounds that new value can not created in the
process of circulation. 16 This reasoning is weak and insufficient to
support the conclusion, without referring to a necessary special
precondition for the composition of capital in the production process
of the money commodity, gold, to be the social average. Further-
more, total profit must become different from total surplus-value in
spite of their dimensional commensurability in Yaffe's treatment.
Laibman maintains that the rate of exploitation should be constant
between the system of value and price, and does not mind giving up
both propositions on the equality of the two sets of totals. 17
Another possible theoretical way forward would be to distinguish
dimensionally the form and the substance of value, and locate the
prices of production as a developed value-form measured by physical
quantities of money. Shaikh attempts to pursue this line, and recog-
nises that the transformation problem does not really concern the
transformation from values to prices, but does require the transform-
ation from direct prices as a form of value to prices of production as
another form. The transformation in the form of value in circulation
can not entail any substantial changes in total value and total
surplus-value, except a change in distribution of surplus-value among
capitals. A B-S type of transformation procedure is applicable in
transforming direct prices to prices of production. Equality in two sets
of total prices (or alternatively equality between total surplus-value and
total profit in these sets of prices) is presupposed by Shaikh in solving
the equations. He also shows that Marx's own transformation pro-
cedure was completely correct as a primary step forward to a correct
prices of production in the following sense. 18 If we feedback the
prices of production obtained by Marx's procedure into the elements

in the cost-prices to get the secondary step of more correct prices of
production, and continue such reiteration of correction of both
cost-prices and prices of production, then we never fail to reach the
same result as the solution of B-S type of procedure. Shaikh's
demonstration in this regard is substantially identical with Okishio's
preceding treatment of the same point, 19 though their works were
done independently. The dimensional distinction between the forms
and substance of value is quite close to our own view throughout this
volume. What remains to be considered for him is, in my view, two
questions. First, it remains as a problem how to prove the actual
relevance of direct prices or prices directly proportional to embodied
labour in commodities, as we have argued, concerning the substantial
content of the law of value. Second, so far as the equality between
direct prices and prices of production is assumed, Shaikh in fact also
presupposes a special case of the social average composition of
capital for the production process of the money commodity, gold.
The case cannot be generalised. Further, it is unclear what the
divergence between the total surplus-value in direct prices and the
total profit in prices of production (or alternatively between the total
prices in one set and that in another when the total surplus-value and
the total profit are assumed to be equal), generally entailed in
Shaikh's procedure, means.
Thus, in view of the current progress and the remaining limitations
on the transformation issue, it must be further clarified as to how we
should understand the structural relation between the substance of
value and the prices of production, particularly in the context of what
Marx intended to express in his propositions on the equality in the
two sets of totals.
The Theory of Prices of Production Reconsidered
Let us. try to make clear the structural logical relation in the dimen-
sionally distinct concepts of value so as to construct a more satisfac-
tory theory of prices of production. In my view we must investigate
the three aspects of value in their relation in order to solve the
confusing transformation problem. It is not sufficient to see how (i)
the substance of values, or the amounts of labour embodied in
commodity products on the basis of given social and technical condi-
tions of production determine (ii) the prices of production as a form
of value. We have to analyse also (iii) what quantity of labour is

obtainable as the acquired substance of value through the prices of
production for each class and industrial branch. The prices of produc-
tion as a form of value are not only determined by the substance of
value upon the basis of the physical conditions of production, but also
serves as the intermediary for the allocation of the labour-substance
of values. Therefore, the conventional analyses of the relation be-
tween values and prices of production in two tables which have been
used in one way or the other since Bortkiewicz no longer suffice.
Three tables are definitely necessary. Let me reformulate the tables
presented by B-S (Tables 7.4, 7.5, 7.6), to show my own solution of
the problem in simplest expression. 20
Table 7.4 designates the labour-substance produced and incorpor-
ated in commodity products of each department of production. The
same numerical example in 'Value Calculation' of B-S is used, by
adding a dimensional unit, millions of hours, to suit its content as the
substance of value. The labour quantities in this table are given by
the physical data both of the technological conditions of production
and of the necessary means of consumption of employed workers
which include social and cultural elements. It is noteworthy that the
general rate of profit, r, is determined independently of the absolute
level of x, y, z.
Table 7.5 shows a set of prices of production which are formed on
the basis of the substance of value embodied in commodity products
as listed in Table 7 .4. This table corresponds to the 'Price Calcula-
tion' in B-S, although its dimensional unit should also here be added.
Let us assume that one-thirty-fifth of an ounce of money commodity
gold is socially called a dollar, and that the unit of prices in Table 7.5
is millions of dollars. If we assume further that two hours of (dead
and living) labour is necessary to produce one-thirty-fifth of an ounce
of gold, then z must be V2 (dollars/hours) instead of 1 in B-S. The size
of numbers in Table 7.5 must then be reduced to one-half of that in
'Price Calculation' table by B-S. The numbers x, y, z are to be called
the price-labour coefficient.
Table 7.6 designates the substance of value acquired through the
prices of production in Table 7.5. The dimensional unit here must
again be millions of hours, as in Table 7.4.
There is no equality as a rule between total value ~a; and total
price "l:.P;, or total surplus-value "l:.s; and total profit "l:.p;, in Tables 7.4
and 7.5. Further, the rate of surplus-value "l:.p;l"l:.v; and the ratio of
Table 7.4 The substance of value produced (a;)

(millions of hours)
Department of Constant Variable Surplus-value Values of

production capital capital products
Ci Vi Si a;
I 225 90 60 375
II 100 120 80 300
III 50 90 60 200
Totals 375 300 200 875
s;IV;= t,a; = c; + V; + S;. From the numbers in this table the general rate of
profit r is determined to be 25 per cent. Assume z =-!--,then x = ¥s , y = fs.
Table 7.5 The prices of production (P;)

(millions of dollars)
Department of CiX ViY Pi pi

production
I 144 48 48 240
II 64 64 32 160
III 32 48 20 100
Totals 240 160 100 500
P; = r(c;x + v,y), represents the average profits.
P; = (c;X + v,y) + p;, the prices of production.
c;x and v,y represent constant and variable capital of each department in
terms of prices of production. The sum of them (c;x + v;y) is, therefore,
cost-prices.
Table 7.6 The substance of value acquired (ai)

(millions of hours)
Department of Ci Vi sj a~l
production
I 225 90 96 411
II 100 120 64 284
III 50 90 40 180
Totals 375 300 200 875
s; = p; + liz = ~; x p;f~p;, a; = C; + v; + s;
total profit against total wages "i:.p/'2:.v;J, or the ratio of total surplus
value against total capital "i:.s/"i:.(c; + v;) in terms of labour-substance
and the rate of profit in terms of prices "i:.p;l"i:.(c;:x + VJI) do not
generally coincide in these tables. It is no longer any wonder, in spite
of all the criticisms against Marxian value theory on this point,
causing continuous perplexity among serious Marxians, since the
total quantities and ratios compared belong to different dimensional
orders and are counted by different units. It must be noted that the
labour-substance of value acquired through prices of production are
not directly proportional to prices (and their components) in Table
7 .5. So long as capitalists in each department continue their produc-
tion they have to reinvest the money obtained by selling their com-
modity products at the prices of production, and must repurchase the
factors of production consumed. The money representing the portion
of prices of constant capital c;x within the cost-prices must be ex-
pended in order to repurchase the means of production which contain
llx of prices in labour-hours, or c; hours of value-substance. The
money obtained as the portion of the price of variable capital V;Y in
the cost-prices must also be expended to repurchase labour-power of
workers, enabling them to get lly of wages in labour-hours as the
substance of value of their necessary means of consumption. The
same number of workers can thus be employed by each department
of production, and they will replenish the labour-substance of vari-
able capital v; as well as that of surplus-value s; through their living
labour again in the next year. Therefore, c; and v; together with their
totals in Table 7.4 reappear in each corresponding items of the same
quantities in Table 7.6, representing the substance of value acquired
through transactions performed this year at prices of production.
Correspondingly, the surplus-labour embodied in the social surplus
products appears as the only portion of the substance of value that
are to be treated socially through the form of profit. Unlike c; and v;,
this portion of the value substance s; need not be reobtained by each
department in the same amount as is produced in that department.
Competition among capitals determines the distribution of the sub-
stance of surplus-value, by equalising the rate of profit across indus-
tries in the form of prices of production. So far as simple repro-
duction and equal composition of capital (or a single product) in
department III are assumed here, the quantity of the substance of
value of the surplus product obtained by the average profit p; result-
ingly coincides with the social distribution of the total substance of
surplus-value in direct proportion with p;, as shown in Table 7 .6. By
adding the resultant distribution of surplus-values; to C; and V;, we get

the substance of value acquired by each department of production a;
in Table 7.6.
Comparing the resultant Table 7.6 with Table 7.4 we see that
departments I, II, III each interchange 375, 300 and 200 million hours
of labour embodied in their products into 411, 284 and 180 million
hours of labour. As a result the equalities between a~ and LC;, a~ and
LV;, a~ and Ls; in Table 7.6 do not hold, whereas similar equalities
between the corresponding items do hold in Table 7 .4. This is no
anomaly, as Table 7.6 represents the result, not the starting condition
of the social exchanges. Its s; is merely consumed and c; and V; are
replenished without loss and used to reproduce the same subtance of
values as in Table 7.4 in the following period.
The prices of production as the form of value in Table 7.5 are
regulated fundamentally by the substance of values in Table 7.4
based upon the objective conditions of production. Even though
prices of production and the substance of values belong to different
orders and cannot nominally be equal, it is clear by now that total
prices and total profit are nothing but the representation of the
substance of total value or of surplus-value in the concrete form of
value. The intermediary form of value, as prices of production,
cannot alter the total substance of value and surplus-value which is
produced and exchanged as shown in Tables 7.4 and 7.6. Thus, by
comparing Tables 7.4 and 7.6, we recognise that Marx's intention, in
his proposition concerning the equality of total value and total prices
and between total surplus-value and total profit, was not so irrational
or inconsistent. The essential content of what Marx intended to say in
the proposition are, in my view, not at all undercut, but rather
consistently proved by distinguishing the different dimensions be-
tween the substance and the forms of value.
The basic logical structure of Tables 7 .4, 7.5 and 7.6 would remain
unchanged even when the model is extended to n sectors. It has
already been shown that a B-S type of solution presented in three-
sectors model can be applied to the extended n sectors model by
Seton and Medio among others. 21 Though a numeraire is assumed
either arbitrarily or as an ideal composite by Seton or Medio, given
the gold-standard system, numerical linkage between the substance
of values and prices of production is in principle more objectively
determinable by both the physical unit of the money commodity gold
as the standard of prices, and the quantity of socially necessary
labour to produce it. Through such a linkage as z = -} in our example
above, the absolute level of the prices of production in correspon-

dence with the substance of values of commodity products is system-
atically determined. This price-level must also guarantee the general
rate of profit to capital producing gold in department III. 22 The social
function in particular of replenishing the substance of value of con-
stant capital and variable capital consumed in each department
through the transactions of each commodity product at such prices of
production, would surely be unchanged and remain relevant in the
extended n sector model as well.
If capitalists in all sectors are assumed to consume the same
composition of commodities in an n sector model (still keeping to
simple reproduction), all the relations between the substance of value
produced and acquired through the prices of production must be of
the same character as in Tables 7.4-7.6. When the composition of
commodities consumed by capitalists differ, then the substance of
surplus-value obtained sf cannot be proportional to profit of each
sector Pi· This would cause a change also in a;, or the substance of
values obtainable for each sector. But all the other items will remain
unchanged, including }:.sf and }:.af. The same will be true when some
portion of surplus-value disposed of through Pi is used to expand the
scale of reproduction.
We have to admit that our analyses of prices of production have
assumed stable technical conditions of production determining objec-
tively the social relations of the substance of values lying behind
prices for a period, even if it does not last long. However, Marxian
value theory cannot be a merely static theory. Dynamic motion in the
market, including various disequilibrium and the destruction of values,
must be further investigated beyond the theory of prices of produc-
tion.
Even given stable technical conditions of production the anarchical
competition among capitals causes an incessant imbalance between
the demand and supply of commodities and resultant fluctuations in
market prices. From the point of view of the substance of value, such
deviations of market prices from prices of production usually cause
changes only in sf, and correspondingly in a;, though they may be
more destructive from time to time especially in the process of
business cycles and crises. The deviation of market prices from the
prices of production does not signify by itself a negation either of the
law of value or the regulation of prices by the labour-substance of
values. Rather it forms a necessary part of the concrete mechanism
which carries through the law of value. By its nature the regulation of
prices of production presupposes a social process of adjusting the

anarchical misallocation of dead and living labour to the various
branches of production in accordance with a similarly anarchic fluctu-
ation in demand. The incessant motion of the market prices of
commodity products, representing the anarchical disturbance of the
allocation of labour, simultaneously guides capitals so as to correct
the disturbance. Prices of production actually appear only as the
gravitational centre of these fluctuations in market prices. 23
The price-form of value thus divides itself concretely into fluctuat-
ing market prices and central prices of production. Both of them in a
set constitute, as the concrete form of value, the necessary mechan-
ism for the regulation of the substance of value. The elasticity within
the range of s£ in the social substance of value, as we have seen, both
allows and necessitates the anarchical disturbance and readjustment
of the labour-allocation through these concrete forms of value.
7.2 THE MARKET PRICES OF PRODUCTION
Competition among capitals, which concretely expresses itself in

fluctuating market prices, tends to equalise the rate of profit across
industrial branches by forming prices of production as the gravi-
tational centre of market prices. However, the same competition
cannot equalise the rate of profit among individual capitals within
each branch of production according to their different conditions of
production and circulation. Since capitals in a certain branch of
production tend to sell their commodity product at a same price in a
market, the difference in their conditions of production and circula-
tion, or the resultant difference in their costs must naturally create
differences in their rate of profit. Although we have hitherto ab-
stracted from such differences, we have to reconsider how to define
the representative condition of production and circulation in each
branch as a theoretical basis to see how capitalist competition equal-
ises the rate of profit.
This problem, particularly in its aspect of the different conditions
of production, is directly related with Marx's theory of market value
or market prices of production, which is presented in chapter 10 of
the third volume of Capital. Let us consider the problem first from
the aspect of possible differences in conditions of circulation. 24
Generally speaking there must always be some shorter or longer
period of circulation besides the period of production in the turnover
of capital in an anarchical and fluctuating market. As Marx analyses

in the parts I and II of the second volume of Capital, the whole
turnover period of capital includes circulation time as well as produc-
tion time. Each industrial capital must divide itself into production
capital and circulation capital in its circuit. Along with the function or
existence of circulation capital acting as commodity and money in
circulation, the costs of circulation are more or less necessary. Since
the process of selling takes more time and costs than that of buying
due to the different position of commodities and money, circulation
capital in the form of a commodity to be sold C' - M' usually needs
more circulation costs. Marx classifies the costs of circulation into
three categories, i.e. pure circulation costs, costs of storage and
transport costs. Unlike pure circulation costs such as book-keeping
and advertising costs which are faux frais specific only to a com-
modity economy, some portions of the costs of storage and transport
belong substantially to production processes that are continued in the
circulation sphere, and therefore add to the substance of value and
surplus-value just as production costs. The rest of the costs of storage
and transport, together with pure circulation costs, proceed from the
mere change in the form of value, and cannot enter into the sub-
stance of value of commodities. Such circulation costs are faux frais
which must be maintained by a part of surplus-value.
Therefore, the social surplus-value to be distributed among capi-
tals in the form of profit is actually so much deduced. Let the
circulation costs as faux frais (D) represent the whole circulation
costs, for the rest of the costs function just like production costs from
the view of substantial valorisation. Then the substance of surplus-
value to be distributed through profit would be (s- D). Moreover,
capitals in the concrete process of competition must count circulation
costs as well as production costs as part of the capital invested. The
portion of circulation capital (B), which is handled by adding the
circulation costs, does not create any surplus-value, unlike produc-
tion capital (A). The substance of value of circulation capital is
repeteadly supplied by the transformation of value functioning as
production capital, which is replenished through the transformation
of value in circulation back into the elements of production. There-
fore, it need not be subtracted from surplus-value unlike the cir-
culation costs, but would reduce the rate of profit if it increases
relatively due to stagnation in the process of circulation. The social
relation of the substance of values defining the rate of profit can not
simply be r = s/A = s/( C + V), but must be r = (s- D)I(A + B +D),
though the price -labour coefficients such as x, y, z in the previous

section must actually be multiplied into the composite elements of
items s, A,B, D, precisely to reach the rate of profit in price terms.
When relative quantities of circulation capital and circulation costs
in a certain industrial branch (B;, D;) fluctuate, the rate of profit of the
industry (r;) has accordingly also to vary even with a fixed commodity
product price on the basis of stable conditions of production. How
can we conceive of the basis of the equalisation of the rate of profit,
including such possible fluctuations of capital and costs in circu-
lation? There are three factors to be considered in this regard. First,
there must, at least to some degree be some technologically deter-
mining condition even in the process of circulation. About one-half
of the cotton cropped once a year must be stored, usually in the form
of commodity capital in circulation in the middle of a year between
the crops, so long as the spinning industry productively consumes
cotton more or less evenly in every month. This is an example of how
technologically determined conditions of production among indus-
tries can be a basis of ruling the relative size of circulation capital. In
addition to such conditions of production, there must be certain
stratified structures of wholesalers and retailers, which are more or
less stable in a given period of time, partly upon the degree of
technological development of communication and transport systems
besides commercial customs. Second, so far as the period of circula-
tion or the relative size of circulation capital is more than technologi-
cally necessary, its fluctuation seemingly depends on an anarchical
market, lacking any objective standard. However, since the period of
circulation and the size of circulation capital can be reduced by sales
at discounted prices, they are not independent from the motion of
market prices. Reducing selling prices so as to shorten the extended
period of stagnant circulation might well reduce the rate of profit for
the industries concerned. Then, however, the reduction of (the
growth rate of) production in accord with the motion of the profit
rate would eventually improve the market for the industries to enable
them to sell their commodities faster at better prices. As the market
prices have their gravitational centre of fluctuation in the prices of
production, the period of circulation and the relative size of circula-
tion capital must thus also be indirectly regulated on the basis of the
law of value. Third commercial capital tends to increase purchase of
the commodities which become easily and rapidly saleable, reflecting
the relative shortage of supply, and thus helps to speed up the
expansion of production of such commodities. This consequently
facilitates the readjustment of the imbalance in demand and supply,
and thus helps to normalise the period of circulation, although it
seems directly to increase the imbalance by shortening the period of
circulation mostly for such commodities as in favorable market
conditions.
Thus the combination of fluctuating market prices and prices of
production, not a static system of prices, appears here as a necessary
mechanism for the working of the law of value through capitalist
competition, so equalising the rate of profit across industries for
capitals existing in both production and circulation. The costs of
circulation which attend circulation capital would also be subject to
normalisation through the incessant anarchical fluctuation along with
circulation capital. 25
How about the possible difference in the period of circulation and
the costs of circulation among competing capitals within each indust-
rial branch? There seems to be many accidental differences in the
length of period of circulation and the attendant costs of circulation
among capitals in any industry. Especially when exactly same price is
assumed for the same commodity from an industry, then the pur-
chasers of the commodity would go quite accidentally to any of the
various capitalists, possibly diversifying the length of their selling
period. This might happen even within the constraint of technologi-
cally determinant conditions of circulation for the industry as a
whole. However, individual differences in the period of circulation
and the attendant costs can be substantially reduced, so far as
commercial capitals take over the selling processes collectively from
various industrial capitals. We shall come back to this social function
of commercial capital in Chapter 8. In addition, the movements, of
price of the same commodity product would not simply fluctuate as
a completely unified level around the price of production, but will
also involve an incessant anarchic and individual deviation from it.
Unlike a socialist planned economy with social price control, such
individual deviations of pricing are inevitable in an anarchic com-
modity economy. Besides the always imperfect information of the
whole market situation, the individual capitalist can actively use
pricing as a weapon to promote his selling, speculating as to the
future, especially when his period of circulation becomes unsatisfac-
torily longer than others in the same industry. Such a way of promot-
ing the individual period of circulation will not eliminate differences
in it, but will tend to trim off any anomalous prolongation. The law of
indifference of prices for the same commodity asserts itself as a
composite of such anarchical pricings by individual capitals in the

form of fluctuating market prices. In the process of the tendential
normalisation of the period of sale through individual pricing among
competitive capitals, the law of price indifference would always
approximately equalise the rate of profit in an industry among capi-
tals with similar prevailing conditions of production.
In the case of different conditions of production among capitals in
an industry, the law of price indifference causes differentiation of
their rate of profit. The different conditions of production, due to the
difference either in technological equipment, in the scale of produc-
tion or in the natural conditions of land, are surely variable, but
cannot be tendentially equalised through fluctuating market prices.
Competition among capitals with representative conditions of pro-
duction would tendentially equalise their rate of profit across indus-
tries by forming prices of production as a gravitational centre of
fluctuating market prices. The same process of competition must then
create various rates of profit according to the different conditions of
production within each industrial branch. Here appears then a prob-
lem of how to define the price of production or the basic production
conditions in each industry with varying conditions of production
among many capitals.
Marx's theory of market value in its essence concerns this problem.
Despite its being located after the theory of prices of production,
chapter 10 of the third volume of Capital treats the problem in the
main in terms of market value. A probable reason is that the problem
seems analysable without referring to competition among capitals
across industrial branches. However, as Marx notices (III, p. 300),
the analyses of market value can apply with the necessary limitations
to prices of production, or to 'market price of production'. The
notion of market prices of production appears as a concretisation of
prices of production in the light of competition among capitals within
each branch of production. From our position that the prices of
production are the developed form of value, and not a separable
correction of the value concept, the market prices of production
should not be seen as a separated correction of market value either,
but rather, could be treated directly after the theory of prices of
production without an intermediary notion of market value. At least
some difficulties in Marx's theory of market value would be solved in
this way.
There are two or three discernibly different notions of market
value in Marx's treatment. He assumes three different conditions of
production, better, average and worse, in an industrial sphere pro-

ducing the same sort of commodity. The individual value of the
commodity produced by better conditions is smaller, and that by
worse conditions is larger than average. The first notion of market
value that Marx has can be called the 'technical average' theory,
where market value is defined as 'the average value of commodities
produced in a single sphere' (III, p. 279). In this notion, market value
which is the weighted average of individual values in a sphere of
production may not coincide with any actually existing individual
value. In Marx's second notion, which can be called the 'dominant
mass' theory, market value is viewed as the actual 'individual value of
commodities produced under average conditions in the sphere in
question, and forming the great mass of its commodities' (III, p. 279).
In contrast with these two notions, where technical conditions of
production define market value in one way or the other without
referring to the situation of demand and supply in the market, Marx's
third notion gives demand a decisive role in determining the market
value, and can be called the 'demand and supply' theory. For in-
stance this type of notion is expressed as follows: 'If the demand is so
strong that it does not contract when price is determined by the value
of commodities produced in the worst conditions, then it is these that
determine the market value .... If the mass of commodities is too
great to find a complete outlet at the market value, market value is
determined by the commodities produced under the best conditions.'
(III, pp. 279-80).
No one can deny that these three types of notions are not easily
made consistent. At first sight the first type of notion seems the most
proper application of the embodied labour theory of value, since it
defines market value as the exact social average of labour embodied
in a commodity in the sphere of production in question. In this notion
the extra surplus-value acquired by producers with better technical
conditions, who can sell their commodity products dearer than those
individual values, can be regarded as a transfer of labour value from
other producers in the same sphere operating under worse than
average conditions. However, this notion lacks any internal relation
with the dynamism of the market in determining market value. It is
clear that Marx intended here to introduce such a role for the market
into his value theory, as suggested in the third type of notion.
Actually the technical average of individual values in the first notion
may not serve as a gravitational centre for fluctuating market prices,
in so far as the mathematical average may not represent any concrete
individual value defined by real conditions of production. For in-

stance, in the case that the individual value of commodities produced
by the dominant great mass of producers in the sphere is smaller than
the technical average value, then the market price coinciding with the
average value would not stabilise demand and supply in the market,
but tend to be reduced by a relatively rapid increase of supply by the
dominant producers. Marx's second type of notion of market value
seems immune from such a problem in most cases. However, the
market value of a commodity produced by utilising the different and
restricted natural conditions represented by land cannot be regulated
by the dominant mass of conditions, but by the marginal condition of
land as we shall see in more detail in the theory of differential rent.
The basis of ground-rent theory might be somewhat closer to the
third type of notion of market value in Marx. However, this 'demand
and supply' theory tends to emphasise one-sidedly the role of de-
mand as the determinant of market value without much examining
the reaction of supply in regulating prices. As a result, the theoretical
distinction between the market value or market price of production
and market price becomes obscured. This theory could easily be
connected with the Rubin School, where the social evaluation of
labour value in a market is made much of. Although the role of the
market must surely be taken into consideration here in the theory of
market value, the more basic role of objective technical conditions of
production to regulate values should not be disregarded, but rather
concretely clarified through the motion of market. From this view
point, the one-sidedly demand-oriented notion, as well as the stati-
cally technological notions, of market value in Marx must be cor-
rected together with their inconsistency.
The market value appears as the gravitational center of market
prices. The conceptual separation and relation between market value
and market price as concretely developed forms of value are essential
to reach a proper understanding here again. Since there is no direct
social means of defining representative conditions of production in
various spheres in a commodity economy, the market value corres-
ponding to the representative conditions of production must be
sought through the anarchical fluctuations of market price. Market
value is thus social value determined through the mediation of the
market and 'depends upon the condition of production under which
the supply of the commodity is capable of being adjusted to the
fluctuating demand for it', as K. Uno defines it. 26 Actually price
pushed up by a strong demand would be regulated by the value of
commodities produced in the worst conditions in so far as the fluc-

tuating demand is adjusted in the main by such conditions of produc-
tion. This would apply to the restricted natural conditions of land as
in the theory of differential rent. Otherwise, price pulled up by strong
demand would eventually be pulled down by increased supply from
dominant and better conditions of production. Market value thus
regulates market price, normally depending upon the dominant mass
of conditions of production so far as technically improvable methods
of production and the related scales of capital are concerned. It is
conceivable in the very process of innovation of methods of produc-
tion that the dominant conditions of production regulating market
value are indeterminate for a while, with an unstable downward
motion of price. The resultant shift of market value, which appears
with the settlement of any newly dominant method of production,
cannot be directly identified, but must be sought out again through
the fluctuating market price.
Thus, what Marx intended to signify in his different notions of
market value can be integrated, in my view, into a single notion as
social value determined through the mediation of the market, re-
flecting the dominant conditions of production to meet fluctuating
demand. In this reformulation the theory of differential rent could be
an extended development, and not a revision, of the theory of market
value. The reformulated notion of market value is straightforwardly
identifiable with the notion of market price of production, particu-
larly being freed from the definition of market value as technical
average of individual labour values embodied in the sphere of pro-
duction in question. So long as market value appears as the gravita-
tional centre of market price through fluctuating demand, it
consequently shows the representative conditions of production for
capitalist competition across many branches of production. The
cost-price and the average profit making up the price of production
must be based upon such representative conditions of production
dominating each sphere to meet fluctuating demand in the market.
The market price of production defined above is nothing but a
concrete feature of market value in the light of capitalist competition
across industrial spheres. When the market price of a commodity is
higher than the market price of production determined by such
representative conditions, then a higher rate of profit than the gen-
eral rate must be given to capitalists with such conditions, and it
therefore promotes the rapid expansion of supply of the commodity
in the market so as to pull down both its market price and the rate of
profit for its producers. The motion of market price gravitating

around the market price of production thus forms a concrete adjust-
ment mechanism for the distribution of socially necessary labour in
accordance with a soci~l system of needs for various commodity
products, and it simultaneously reveals through the market the
socially standard conditions of production in each sphere as the basis
of capitalist competition which tendentially equalises the rate of
profit between industrial spheres.
The same capitalist competition which equalises the rate of profit
across industrial spheres must, contrastingly, always leave differences
in the rate of profit among capitals having different conditions of
production within each sphere. Extra profit due to a higher rate of
profit than the general rate accrues to capitals with conditions of
production better than the representative ones which regulate the
market price of production. Conversely, capitals with conditions of
production worse than the repr.esentative ones must obtain less than
the general rate of profit so long as the market price of production
prevails in the fluctuating market. Therefore, capitalist competition
which seeks to obtain a higher rate of profit as far as possible, tends
to shift the technologically mobile conditions of production from the
worse to better. The market-regulating conditions of production
would eventually be altered in the process of such competition among
capitals. Certainly there are inertia or frictions for capitals in altering
their methods of production for some periods of time, such as the
restriction of existing fixed capital still much to be depreciated.
Otherwise better conditions of production would be so easily and
rapidly imitated and spread that those cannot be structually stable
basis for extra profit even for a short period of time. Nevertheless, so
long as the differences in conditions of production such as technologi-
cal methods or scales of production are transferable and imitable in
their nature by capitals, extra profit due to the difference has a
transient character, appearing and disappearing in the course of time.
This type of extra profit, therefore, cannot form a fundamental
obstacle against the process of capitalist competition equalising the
rate of profit, and it is actually obtained by capitalists with better
conditions of production.
In contrast to the case of the 'technical average' theory of market
value, we need not limit the substantial source of extra profit gained
by individual capitals with better conditions of production to the
surplus-labour extracted in the same industrial sphere. Such extra
profit is logically conceivable even in a case where capital of worse
than the standard condition of production does not exist, and there-
fore where there is no countervailing transfer of the substance of
value within the same sphere. The substance of this type of extra
profit can also be the transfer of surplus-labour extracted in other
industrial spheres just as the substance of some portion of average
profit, as we have already argued in Chapter 5, Section 5.2 concern-
ing the extra surplus-value obtained by capitals with improved
methods of production. In its nature the substance of extra profit
obtained by technologically superior conditions of production con-
tains a role for the socially necessary labour cost of improving and
renewing production methods, a cost which is more or less common
to all forms of society, and also to a socialist society. There is no
doubt, however, that capitalism would never consciously intend to
develop production methods in favour of workers' own well-being or
in ecological harmony with wider nature, as far as it copes with the
labour costs of improving production methods subject to the indivi-
dualistic chrematistic form of extra profit.
7.3 GROUND-RENT AND LANDED PROPERTY
The Capitalistic Form of Landed Property
In contrast with the extra profit obtained from better technological

conditions of production, the extra profit gained on the basis of the
monopolisable natural conditions of the land is not subject to an
equalisation of the rate of profit through the process of competition
confined only to that between capitalsY It is because the differences
in the conditions of production concerning the monopolisable natural
conditions of land, unlike the differences due to technological condi-
tions, are not easily changeable or transferable by capitals through
the process of their competition. Certainly the better condition of
land is not absolutely unchangeable, but shifts in the process of
technological development. The utilisation of chemical fertilisers or
the development of the transport system, for example, have much
affected the difference in grades of land or in the relative costs of
capital invested in land. However, changes in the grades of land often
occur from external causes beyond the control of the capital directly
using it, and usually take a longer time to become effective in
comparison with changes in the technological methods of production.
The difference in the monopolisable natural conditions of land
therefore must appear as a solid and definite external precondition

for competition among capitals at least for a certain period of time.
The extra profit due to such differences in the natural conditions of
land should in principle be excluded from capitalist competition so as
to equalise the rate of profit between themselves, and must be
transformed into differential rent. This defines the basic position and
the economic form of landed property under a capitalist order of
production.
In precapitalist class societies, landed property is one form or the
other was always central to the relation of production, and served as
the social basis for the dominant landlord class to appropriate effec-
tively the whole surplus product or surplus-labour of the direct
producers. In contrast, landed property can no longer be central to
the relations of production in a capitalist society. Its economic
realisation becomes limited in principle to the appropriation of a
portion of the social surplus-product, and in the form of a secondary
redistribution of surplus value initially obtained by capital. Never-
theless, the monopoly of landed property in the form of private
ownership is 'a historical precondition for the capitalist mode of
production and remains its permanent foundation' (III, p. 754). As
Marx reminds us in his analysis of 'The Primitive Accumulation of
Capital,' the capitalist mode of production 'presupposes on the one
hand that the direct producers are freed from the position of a mere
appendage of the soil (in the form of bondsmen, serfs, slaves, etc.)
and on the other hand the expropriation of the mass of the people
from the land.' (III, pp. 753-4). Modern private ownership of land is
thus a historically given precondition for the development of capital-
ist production. It is, coupled with the formation of a class of modern
wage-workers being 'free in the double sense' (1, p. 272) that they can
dispose of their labour-power freely as a commodity, and also that
they have no other commodity for sale being free of all the means of
production needed for the realisation of their labour-power. Just as
we cannot deduce the existence and the formation of a class of
modern wage-workers from the logic of the development of a com-
modity economy in general, we cannot theoretically deduce the
private monopolisation of land internally from the logic of the motion
of capital itself. The historical process of the dissolution and trans-
formation of the preceding feudal ownership of land into modern
private ownership must here be taken as a given precondition. Thus,
capitals cannot utilise land freely without the permission of the
landowners by offering some payment called rent, just as workers do
no longer have any right to utilise land freely or in the name of

preceding feudal traditions or customs. Thus what capitals can really
achieve in principle is not the creation of the form of rent or landed
property. They rather restrict the level of rent, and therefore the
economic value of landed property, so as to suit their own laws of
motion in the process of mutual competition.
The position of landed property, which is subject to the law of
motion of capital, is basically shown in the principles of differential
rent. The transformation of a portion of surplus-value into ground-
rent in the form of differential rent is explained as an extension of,
not a deviation from, the law of market prices of production to give
rise to extra profit for capitals with better than representative condi-
tions of production in each industrial sphere. Absolute rent, which is
in a sense a concession by capital to landed property, appears on the
basis of differential rent and is restricted by the motion of differential
rent as we shall shortly discuss. By restricting the range of rent, in the
forms of both differential and absolute rent, to its law of motion,
capital turns the modern form of private ownership of land more
concretely into capitalist landed property. 28 The basic theory of rent
for capitalistic landed property would surely serve as a frame of
reference for analyses of the economic roles of other types of modern
landed property, in relation to small peasants or urban tenants, as
well as for the analyses of precapitalist historical forms of landed
property, in more concrete levels of researches.
Differential Rent
Marx explains differential rent in general illustrating how the surplus

profit of capitalist factories powered by natural waterfalls instead of
steam-engines is transformed into ground-rent. According to the
example the factories in a country are powered predominantly by
steam-engines. The market price of production for a quantity of a
commodity, which requires a capital of 100, is given as 115 with a
general rate of profit of 15 per cent in the general and representative
conditions of production using steam-engines in an industrial sphere,
say of cotton-spinning. If the capital cost for the same quantity of
same commodity is 90 for a capital using the natural waterfall on a
certain piece of land, then the individual price of production for the
capital would be 103.5 (90 + 90 x 0.15). An extra profit of 11.5 above
the average profit is gained on the quantity of the commodity, so far
as the commodity is also sold at the market price of production of 115
by the capital using the waterfall. The market price of production as

the gravitational centre of the market price must remain at 115, when
the monopolisable natural condition of land with waterfalls is too
limited to satisfy the social need for the commodity, and assuming
that the factories driven by steam-engines can adjust their output in
correspondence with the fluctuating social demand.
Under these circumstances, an extra profit of 11.5 per quantity of
commodity must be transformed into differential rent through com-
petition among capitals. Capital which makes use of the land with the
waterfall would retain some surplus profit beyond the general rate of
profit, if a level of rent lower than 11.5 per quantity of the commodity
is being paid. Then, competitive bids, offering a higher rent to the
landowner must push the level of rent up. On the contrary, if the
landowner insists on charging a rent higher than that level of 11.5,
then no capitalist would come to rent the land. The landowner would
thus be forced to reduce the proposed level of rent. It is thus clearly
the competition of capitals, and not the demand of landowners,
which determines the level of differential rent. The landowner is
placed in a passive position, just receiving a level of rent determined
by the law of motion of capital.
Extra profit, and therefore the differential rent, due to the water-
fall in the example above may decrease and finally disappear in the
process of improving the efficiency of steam-engines. The land with
the waterfall may thus fall out of use. However, the difference
between the natural conditions of fertility and location of the land
must generally remain in one way or the other, bringing about extra
profit to be transformed into differential rent. Just as extra profit
accrues to capital using land with the waterfall in the example above,
extra profit gained by capitals using superior monopolisable natural
conditions of land, turns into differential rent through competition
between capitals. The notion of differential rent can further be
broken into two forms, i.e. differential rent I and II, according to
Marx.
Differential rent I shows how extra profit is gained and transformed
into rent by equal quantities of capital being invested on different
grades of land, whereas differential rent II relates to the difference in
productivity of equal quantities of capital invested successively and
intensively on the same land. The basic logic of differential rent is
shown in Marx's numerical examples concerning the agricultural
production of wheat on land of different grades of fertility. Since the
logic is easily applicable to the land graded by location, differentiating
the costs of operation for industrial and commercial, as well as

agricultural, capitals, let us follow Marx's simple example. 29 Differ-
ent harvests for the same amount of capital investment of 50 shillings
are assumed. By excluding different costs of production due to the
techniques of production in use, the same amount of capital would be
invested on approximately equal areas of land. The results in the four
grades of land is used by Marx as a starting-point to show the logic of
differential rent I (III, p. 791).
Table 7.7
Type Product Capital Profit Rent

of advanced
soil Quarters Shillings Shillings Shillings
A 1 60 50 10 -
B 2 120 50 70 60
c 3 180 50 130 120
D 4 240 50 190 180
Total 10 qrs 600 sh. 200 sh. 400 sh. 360 sh.
It is assumed in an economy represented by Table 7.7, the general

rate of profit is 20 per cent giving 10 sh. of average profit for 50 sh. of
capital advanced. So far as the soil type A is now the regulative
natural condition determining the market price of production of
wheat in the table, then capitals invested in the types of soil B, C and
D would each obtain 60 sh., 120 sh., and 180 sh. of extra profit
beyond 10 sh. of average profit. These amounts of extra profit must
be transformed into differential rent, as was the extra profit for capital
utilising the favourable land with a waterfall in the previous case.
As Marx criticised, Ricardo erroneously believed that cultivation
of land had always started from the best grade of soil down to the
worse grades along with the law of decreasing returns. The order of
the soil grades was conceivable historically and actually to be made
up in either descending, ascending or a mixed order. Development of
technologies and transportation, as well as the changes of the social
attitudes of landowners, has often altered the accessible grades of
land. However, as a result of such development, the following social
conditions must now exist for the time being in support of Table 7.7:
(i) -The supply of wheat from the worst soil, type A of the four
types, is indispensable to satisfy the social need of wheat under
the given technological conditions of capital.
(ii) -The soil type A represents the natural conditions of reproduc-
tion of wheat which allows the flexibility to adjust the supply to
meet fluctuating demand. In other words, the supply can be
increased or decreased in about the same soil type A when the
social demand for wheat increases or decreases for the moment.
(iii) -In contrast, the better soil types B, C, Dare now restricted and
capitals are unable to expand cultivation on these types of soil.
Otherwise, the conditions (i) and (ii) above could not be as-
sured.
In so far as the soil type A represents for the present the natural
conditions of supply to meet the fluctuating demand for wheat under
these social conditions, the governing market price of production of
wheat is determined by the conditions of production on this type of
soil. Upon the basis of such a determination of the market price of
production the extra profit for capitals invested on the better soil
types B, C, D must necessarily be obtained by selling their products
at the governing market price of production, and it must be trans-
formed into differential rent as shown in Table 7. 7
There seem to be two related problems here in the theory of
differential rent, which have been favoured targets of anti-Marxian
critiques, especially in view of the 'technological average' theory of
market value, along with a one-sidedly technological approach to the
labour theory of value. In the conventional Marxian 'technological
average' theory of market value, it is believed to be the socially
average quantity of labour embodied in commodities produced in an
industrial sphere which determines their market value. The extra
surplus value obtained by capitals with better than average technical
conditions of production is then regarded as a transfer of surplus-
labour from capitals with inferior technical conditions in the same
sphere. The theory of differential rent seems to contradict these
general notions in two points: first in its definition of the market value
or market price of production by the worst 'marginal' productive
conditions of land in use, and second in its notion of extra profit
without a countervailing transfer of surplus-labour from capitals in
the same sphere with inferior productive conditions.
From what we argued in the previous section, the first point can no
longer be a serious problem. The notion of market value or market
price of production must be, not a mechanical average of individual

labour values of one type of commodity, but the centre of gravitation
of market price, anarchically revealing under what conditions of
production the current necessary amount of commodities for a
changing social demand is elastically supplied. The motion of the size
of the social demand for a kind of commodity may affect a shift in the
regulative conditions of production, but not always. Generally in the
short run the conditions of production regulating the market price of
production through the fluctuation of the market can be regarded as
independent from marginal changes in social demand for the time
being. The determination of the market price of production of wheat
by the natural conditions of the soil type A above is thus not at all
inconsistent or a substantial revision of the theory of market price of
production in general when reformulated in this way.
Further how can we solve, then the second point? Let us confirm
exactly where the problem is. Marx introduces here a concept of 'real
production price', which is 240 sh. for 10 qrs or 24 sh. per qr in the
case of Table 7.7. It signifies that 10 qrs of wheat are actually
produced by 200 sh. of capital invested in total on the four soil types
with a 20 per cent general rate of profit. These 10 qrs are sold for 600 sh.
instead of 240 sh. since the market price of production is determined
by the production price of A, which is 60 sh. per qr. According to
Marx, 'this is determination by a market value brought about by
competition on the basis of the capitalist mode of production; it is
competition that produces a false social value' (III, p. 799). This
concept of 'false social value' seems self-contradictory. In Marx's
basic position, competition among capitals cannot produce any sub-
stantial value, and generally social value cannot be false. The Rubin
School might argue that the market value of 600 sh. in this case
represents so much labour value estimated in the market. Another
seemingly opposite view is that 'false social value' is created in the
production process by intensified labour under better conditions of
production just like the extra surplus value due to improved technical
method of production realised in the process of producing relative
surplus-value. 30 In my opinion, both of these positions interpret
labour value fictitiously, as something remote from real labour-time
embodied in commodities and are unpersuasive.
Marx himself also recognises that 'false social value' does not
represent the real amount of labour-time embodied in products,
when he argues as follows: 'If we imagine that the capitalist form of
society has been abolished and that society has been organised as a
conscious association working according to a plan, the 10 qrs. repre-

sent a quantity of autonomous labour-time equal to that contained in
240 sh. Society would therefore not purchase this product at 2 +
times the actual labour-time contained in it; the basis for a class of
landowners would thereby disappear.' (III, p. 799). The source of
'false social value' to be transformed into differential rent then, still
remains to be explained. Marx suggests that: 'Where society, consid-
ered as a consumer, pays too much for agricultural products, this is a
minus for the realisation of its labour-time in agricultural production,
but it forms a plus for one portion of society, the landowners'. (III,
p. 800).
Suppose that a quantity of labour-time contained in 10 qrs of wheat
is 480 hours, or that the price-labour coefficient is t (i.e. y = t in our
three tables [Tables 7.4-7.6] approach to the transformation problem
in the last part of Section 7.1 of this chapter, assuming that wheat
production is in the department n) in terms of real production price
of 240 sh. In case these 10 qrs of wheat is a part of the necessary
means of consumption sustaining the reproduction of labour-power,
the wages as a form of value of labour-power must contain 600 sh.,
not just 240 sh., as a portion to purchase this quantity of wheat at the
market price of production in a capitalist economy. Through this
portion of the value-form of labour-power, workers get back 480
hours, not 1200 hours, of their necessary labour-time. The gap
between 600 sh. being paid back by the workers as consumers and
240 sh. as the 'real price of production' forms the extra profit to be
transformed into differential rent. Thus from the view of the forms of
value, the wage-workers as consumers seem to pay 360 sh. of differ-
ential rent in this case. However, underneath the forms of value, the
workers must obtain the necessary means of subsistence including the
necessary labour-time equal to the substance of value of labour-
power, which cannot in principle be cut off by differential rent. 31
Therefore, in the light of our theoretical distinction between the
forms and the substance of value, we can be sure that the substance
of the differential rent is to be regarded not as a share-out from the
substance of value of labour-power, but as a transfer of social
surplus-labour through the social transactions of the commodity
labour-power, wheat and payment of rent beneath the forms of
value.
Since Ricardo did not distinguish the forms and the substance of
value he would straightforwardly define the value of wheat and then
the value oflabour (-power) on the worst condition of land. The form
of market value, 600 sh. in the above instance, could not theoretically
be distinguished from the real substance of value or the
quantity of labour-time actually embodied in wheat. Marx was con-
scious of the point, but he did not thoroughly solve the problem with
his clumsy concept of 'false social value'. The conventional Marxian
'technical average' theory of market value was unable to solve the
problem. Uno's reformulation of the theory of market value, as well
as his thorough distinction between the forms and the substance of
value found the way forward. 32 From the view of the form of market
value in our reformulation, the governing price of production of
wheat which is determined by the production conditions of the soil
type A can no longer be exceptional. The general notion of market
value or market price of production as the gravitational centre of
fluctuating market price, revealing the conditions of production
which can meet social demand elastically, is exactly applicable to the
governing price of wheat. From the view of the substance of value,
however, the difference in the conditions of production based upon
the monopolisable natural conditions of land must be treated separ-
ately. In case of technical conditions of production, the representa-
tive conditions in a sphere of production, which are revealed through
a fluctuating market, must be a standard basis on which to define the
substance of value or the quantity of labour-time embodied in a
commodity product of the sphere. Such representative technical
conditions of production are socially to be confirmed even among
capitals cultivating the same soil type A, as well as on the other soil
types. Apart from such representativeness of technical conditions of
production, we should not just take the natural conditions of the soil
type A for the social standard basis or which to define the substance
of value embodied in the product of the soil, even though the soil
type A would serve here as the regulative condition of land for the
market price of production. Thus, in contrast with the conventional
notion of the value of land-products since Ricardo, the substance, not
the form, of value of the land-products must be determined by the
total or average conditions of land, and not by the worst marginal
condition.
Upon the basis of differential rent I as we have seen, differential
rent II appears when sums of capital are invested successively on the
same piece of land with varying productivity. Each unit of successive
investment must be mutually separable and independent so as to
form extra profit due to the various productivities to be transformed
into differential rent II. For instance, an additional unit of seeds,
fertiliser and labour-power as in double-cropping would easily be

separable from the preceding units of investment on the same piece
of land. In contrast, developments in the method of production often
brings with them increases in the unit of capital investment, which
cannot be partially divided. The effect of increased units of invest-
ment in such a case of developed technologies must be counted only
as a whole in the form of differential rent I.
The simplest case for differential rent II can be illustrated as follows
(cf. III, p. 816). The-case of differential rent I in Table 7.7 is assumed,
where the soil type· A regulates the market price of production at 60
sh. including 10 sh. of average profit. If 4 units, instead of 1 unit, of
independent capitals of 50 sh. were successively invested on the same
1 acre of the soil type D, so that the first investment yielded 4 qrs. the
second 3 qrs. the third 2 qrs. and the fourth 1 qr. with the same
regulating market price of production of 60 sh., then the first invest-
ment would yield extra profit of 180 sh., the second that of 120 sh.,
and the third that of 60 sh. These extra profits, 360 sh. in total, must
be transformed into differential rent through competition among
capitals, just as the extra profit yielded by capital investment on the
soil types D, C, Bin Table 7.7.
The possibility of such successive capital investments on the same
piece of land yielding differential rent II is a means by which capital
gets around the natural restrictions of land to certain extent. Capital
can increase the supply of agricultural products even within the old
lease holds of better soil types by additional investment. When such
increases of the supply of wheat by successive investments is great
enough in comparison with social demand, then the least-fertile soil
type A in table 7. 7 may become unnecessary and driven out of
cultivation. If the soil type A, and therefore the fourth investment on
the soil type D, was actually thus driven out so that the soil type B
become the regulative condition for the market price of production of
wheat, then the structure of extra profit to be transformed into
differential rent would alter as shown in Table 7 .8.
The amount of surplus-value to be transmitted to landowners in
the form of differential rent can usually be reduced by elevating the
level of the worst grade of cultivated land (from A toBin this case)
with a lowered market price of production. Conversely the differen-
tial rent would normally increase when the level of the worst grade of
cultivated land is lowered (from B to A for example) in the process of
capital accumulation which increases social demand and supply.
Thus the landowner class may become better off just by passively
Table 7.8
Type Product Capital Profit Rent

of advanced
soil
or Shit- Shit-
successive Quarters Shillings lings lings
investment
onD
B III 2 60 50 10 -
C/1 3 90 50 40 30
DI 4 120 50 70 60
Total 9 qrs 270 sh. 150 sh 120 sh. 90 sh.
reflecting the result of the social process of capital accumulation.

Furthermore the landowners can often get back their land with the
incorporated effects of capital investment, such as improvement of
soil, irrigation or farm buildings, as well as the remaining value of
capital incorporated into the earth or 'Ia terre-capital' (III, p. 756),
when the lease periods are over. On the other side, by the successive
additional investment on lease land, capitalists may obtain extra
profit for themselves, which would be transformed into differential
rent only after the lease period. Therefore, the landowners tend to
attempt to shorten the term of the leases as far as possible, while
capitalists resist it and attempt to prolong the term. At the same time
capitalists tend to avoid long-term investments on land, preferring
investment to get extra profit for themselves in shorter turnover
periods. This effect of the lease period is a source of distortion in
agricultural production, and a threat to the ecological conditions of
soil and land under capitalism.
So far, it was assumed that the least-fertile grade of land in
cultivation would not yield any extra profit to be transformed into
differential rent. However, in cases where successive investments
with varying productivity on the least-fertile grade of land become
socially necessary to satisfy the demand, then differential rent II can
appear even on the worst grades of cultivated land. For instance, if
the first investment on the soil type A in Table 7. 7 no longer suffices
in order to meet the social demand for wheat, the second investment
with a smaller productivity producing just 0.8 qr. on 1 acre of land A
with the same 50 sh. of capital would become the regulative condition
for the market price of production of wheat. Then the market price of
production must rise to 75 sh. (60 sh./0.8 qr.) so as to yield 15 sh. of

extra profit to be transformed into differential rent II on the least-
fertile type of land A. An investment to regulate the market price of
production at a lower level than the first investment on A may also be
performed not on A, but somewhere on the upper grade of soil B or
Cor D. Anyway, through the motion of differential rent II, even the
least-fertile land in cultivation is given the possibility of yielding
differential rent. It means that all types of cultivated land possibly
yield differential rent. However, so far as we observe with Ricardo
only the logic of differential rent, there is no theoretical guarantee
that the least-fertile land will yield extra profit to be converted into
rent. Since without exception landowners would not lend capitalists
their land free in any case, we have to see another possible form of
rent beyond Ricardo's theoretical limits, following Marx's analyses of
absolute rent.
Absolute Rent
Concerning differential rent as we have seen, 'landed property simply

causes the transfer of a portion of the commodity price that arises
without any effort on its part (rather as a result of the determination
by competition of the production price governing the market)'.
'Landed property is not in this case a cause that creates this compo-
nent of price or the rise in price that it presupposses. But if the worst
type A land cannot be cultivated - even though its cultivation would
yield the price of production - until it yields a surplus over and above
this production price, a rent, then landed property is the creative
basis of this rise in price. Landed property has produced this rent
itself.' (III, p. 889). Absolute rent thus appears as transformation of
extra profit which springs from rejection by landowners to lending
their land free, even of the least-fertile type.
For instance, if the landowners of the soil type A in the previous
Table 7.7 would not lend their land without getting at least 5 sh. an
acre as ground-rent, the governing market price assuring that supply
meets the demand of wheat must go up to 65 sh. from 60 sh .. Extra
profit of 5 sh. an acre is now available for capitalist farmers operating
on the worst-type A land, and is converted into rent. This may appear
as if it were differential rent II in the worst type of cultivated land,
when additional investment on the old leaseholds in the upper grades
of land produces wheat at the production price of 65 sh. a quarter
without yielding rent. It is apparent, however, that such additional
investment is enabled here only by restriction by landwowners of the
worst-type A land so as to raise the governing price to 65 sh. When
the governing price of wheat thus becomes 65 sh. tlie extra profit to
be transformed into rent in Table 7. 7 must increase from 60 sh. to 70
sh. in B, from 120 sh. to 135 sh. inC, and from 180 sh. to 200 sh. in
D. In total it would go up from 360 sh. to 410 sh. including the newly
created 5 sh. in A. The structure of rent in B, C and Dis quite similar
to that of differential rent in Table 7. 7. The increase of rent, 50 sh. in
this case, has a character of absolute rent, produced by landed
property. Certainly what is 'produced' by landed property cannot be
the substance of value or embodied labour-time obtained in the form
of absolute rent, but must be just the form of value or a portion of a
raised price enabling the yield of extra profit to be converted into
absolute rent.
The restriction of landowners on cultivation of their land in some
circumstances exists not merely on the worst type of soil, but also on
the better types of land. The reasons for landowners to reject cultiva-
tion can be various. For instance they may avoid the leasehold
conditions which are available under the current situation of market,
and prefer to wait better possible conditions in the near future,
especially when the terms of the lease are usually fixed for a period of
many years. Owners of land, particularly on a large scale, need not
be such money-grubbers as capitalists, and may keep some part of
their land, even of the better soil types, for luxurious purposes such
as the maintainance of vast residential parks of deer forests. In so far
as some portions of the better types of land are thus kept out of
cultivation by landowners' own wishes, the market regulating price of
the land-products would be so much enhanced, and so become
regulated by worse soil types than otherwise. This effect, in addition
to the landowners' demand for some rent even on the worst type of
land for cultivation, increases ground-rent for the land in use. The
portion of rent thus increased is absolute rent in its character, being
'produced' by landed property, although it is obtained from the form
of extra profit arising between the market regulative price and the
individual prices of production just as in the case of differential rent.
Absolute rent is essentially a concession by capital to landed
property in transferring a part of surplus-value as a burdensome
social payment against the private right of landowners to be able to
refuse to allow investment on their land. It is an indispensable burden
on capitals so long as capitalist production must maintain the private
ownership of land as a vital historical precondition of its own existence.
However, capitals deal with the burden of absolute rent socially as a

category annexed to differential rent converted from exactly the same
form of extra profit. Furthermore, capitals will not accept the con-
cession or the burden of absolute rent without limit.
Marx defined a theoretical limit to absolute rent within the range of
'the excess value over and above the price of production' (III, p. 898),
assuming that the value (or the value-price) of agricultural products is
higher than their price of production because the organic composi-
tion of agricultural capital is generally lower than social average. In
other words, the substance of absolute rent is conceived by Marx as
'simply a part of the agricultural surplus-value, the transformation of
this surplus-value into rent, its seizure by landowners' (III, p. 898).
Marx was inclined to combine in this context his critiques of Ricar-
do's theoretical failure to distinguish value and price of production on
the one hand, and to discern absolute rent from differential rent on
the other. Though Marx's progress beyond Ricardo is clear in pre-
senting the theories of both the price of production and absolute rent,
his combination of these theories in defining the limit to, or the source
of absolute rent, is not very persuasive. 33 For one thing, absolute rent
according to Marx's definition cannot exist when the organic com-
position of agricultural capital becomes higher than social average (a
case easily conceivable for the recent development in the advanced
capitalist countries). Neither can it exist generally for the lease of
land for capital investment in various industrial spheres, whereas
landed property would surely demand and manage to obtain some
rent absolutely beyond mere differential rent in any industrial sphere.
For another, the value or the value-price cannot serve in itself as a
standard or an upper limit for the pricing of capitalist commodity
products, and there is no reason why the range of absolute rent
should remain within the labour-substance of surplus-value embod-
ied on the land concerned. Neither does it much matter in our
theoretical view of value and prices of production whether the
absolute rent is substantially a part of the surplus labour of workers
employed on the land concerned or not.
Where then is the upper limit of absolute rent apart from the
labour-value of the landed products? In my view, the possible in-
crease in the supply of landed products by additional capital invest-
ment on the old leaseholds would give an upper limit for absolute
rent. Additional capital investments with lower productivity are
made possible on the old leaseholds by the increased price of land-
products, say wheat in our example, due to a restriction of invest-
ment, and they would not yield absolute rent. On the other side, the
possibility of increasing the supply of land-products on the old
leaseholds without paying additional rent for the time being must
limit the claim of landowners to ever larger amounts of absolute rent.
For instance, additional investments on the better soil type B, or C,
or D with a lower productivity in producing wheat at the price of
production of 65 sh. a quarter was made possible in our previous
example by the restriction of landowners of the worst type A land
which raised the governing price up to that level. On the other side,
however, the landowners of the type A land cannot demand more
than 5 sh. an acre as absolute rent by pulling up the governing price
further, in so far as additional investment with such a productivity
can still be expanded on the old leaseholds of better soil types.
Thus, absolute rent is generally subject to the motion of differen-
tial rent both in its qualitative form of appearance and its quantitative
limitation. In this regard, absolute rent is theoretically separable
from monopoly rent, which is not subject to such a general limitation
and is determined 'rather by the demand of the purchasers and their
ability to pay' (III, p. 898) as in the case of some vineyards suitable for
producing special kinds of wine. Monopoly rent as such can be put
outside of the principles of ground rent in a capitalist economy, so as
to be analysed in more concrete levels of research. In principle,
capitals determine by their own motion the form and the limitation of
the concessionary transfers of certain parts of surplus-value to landed
property, as we have seen in the two 'normal' forms (ibid.) of both
differential and absolute rent. The basic logic of competition among
capitals centring around a general rate of profit is not at all distorted
by payment of these forms of ground-rent, but rather carried out
through them.
8 The Mobilisation of
Capitals
Competition among capitals which forms a general rate of profit and
the market prices of production across industrial spheres, through the
process of fluctuating market prices, demonstrates the concretely
developed forms of the law of value as the law of motion of a
capitalist economy. An anarchical capitalist market economy must
incessantly misallocate dead and living labour in various spheres,
bringing about either an excessive or short supply of commodities.
Such misallocation of labour is not generally insolvable. It is usually
repeatedly readjusted in the process of the expansion of capitalist
production, guided by the movement of market prices. A short
supply of commodity products in relation to social demand is indi-
cated when extra profit is obtained by some spheres by selling their
products at market prices higher than the market prices of produc-
tion. Then the expansion of production in such spheres is speeded up
basically by reinvesting the extra in addition to the average profit. An
excessive supply of commodity products would cause the reverse
effects. The shortening of the selling-time of commodity products
reflecting favourable market conditions would usually go along with
the rise in market prices, having similar effects, and the prolongation
of selling-time would have the opposite effects. 1
The general economic rule common to all social formations, which
is to adjust the allocation of labour so as to suit the social system of
needs, on the basis of given technical conditions of production, is
thus carried through by an anarchical market mechanism in the
process of competition among capitals. Capitalism is not one-sidedly
a destructive or unbalancing economic order, but in a peculiar way it
is also an efficient order in that it expands production by readjusting
its own misallocation of labour. Competition among capitals to get
higher individual rates of profit, resultingly equalising the rate of profit
across industries, serves as the basic mechanism for capitals to adjust
the allocation of labour in the process of the expansion of production.
Such a process of competition among capitals along with their
expansion of production cannot be as smooth and efficient as it could
be, if capital remains just individual industrial capitals. Individual
industrial capitals with lower rates of profit, cannot rapidly escape
250
The Mobilisation of Capitals 251
from their own industrial spheres so as to move into other spheres

with higher profit rates, especially because they usually have fixed
capitals to be depreciated. Possible capital loss due to abandonment
of existing fixed capitals, besides the necessity of accumulating con-
siderable funds to install new plant and equipment, would usually
slow down the mobility of individual industrial capitals across indus-
tries. Other forms of capitals are required, therefore, in particular to
mobilise the idle funds of capitals into the process of the competitive
expansion of capitals, as the higher mechanism of the motion of
capital in equalising the rate of profit and expanding their production
more efficiently. The basic forms and positive functions of commer-
cial capital, loan capital, bank capital and joint-stock capital can be
fundamentally understood in this context.
8.1 COMMERCIAL CAPITAL
Commercial capital appears as a particular species of capital which

concentrates its activity in commodity-dealing in the sphere of circu-
lation without involving the process of production. 2 The distinct form
and functions of commercial capital must theoretically be separated
from its functions of transport and storage which can be regarded as
production processes continuing within the process of circulation (III,
p. 379), although commercial capital often carry out these functions
as well. 3 In its pure main form the motion of commercial capital
appears in the form M - C - M', or the purchase of commodities in
order to sell them dearer. So far it has the same circulating form as
the formula for merchants' capital, which has existed from ancient
periods broadly in commodity circulation, as we discussed in the
theory of the transformation of money into capital (in Chapter 4,
Section 4.3). Its social basis of existence, however, is different from
merchants' capital, and depends on the acquisition of a part of the
surplus-value produced in the process of capitalist production by
promoting the motion of industrial capitals. There are two interre-
lated aspects of the social functions of commercial capital in promot-
ing the motion of industrial capitals.
First, commercial capital promotes the expansion of production of
capitals by accelerating the turnover of capitals and reducing the
period and the costs of circulation of capitals. Since capital does not
produce surplus-value in the process of circulation, economising on
the costs and the period of circulation would so much enable an
increase in the efficiency of the valorisation of capital as a whole. In

Marx's words, 'As a result of division of labour, the capital that is
exclusively concerned with buying and selling is smaller than it would
be if the industrial capitalist had to conduct the entire commercial
part of his business himself.' (III, p. 388). The capital to be allotted
for the costs of circulation such as the costs of book-keeping of
transactions, maintenance of warehouses, shops, or the costs of
advertisement, and of transport, can be substantially reduced by
being concentrated into the hands of commercial capitals. Even in
case the absolute amount of such costs of circulation increase in the
activity of commercial capitals, efficiency of the valorisation of capital
as a whole would still be elevated by a relative reduction of unpro-
ductive circulation capital. So far as the total amount of circulation
capital and the costs of circulation are socially reduced by the invest-
ment of commercial capital in them, a positive effect for the general
rate of profit would remain. 4
Why and how can commercial capital socially accelerate the period
of circulation so as to make the circulation capital smaller as a whole
by its activity? In a purely capitalist society where little saving if any
on the part of workers or capitalists as consumers is assumed, there
seems to be little room for commercial capital to speed up and
expand total sales. So long as the size of social reproduction and the
total income induced are given, acceleration of sales of some com-
modities by commercial capitals must retard sales of other commodi-
ties. Even in a society where a substantial part of income tends to be
saved, the effect of the sales efforts of commercial capital in reducing
the rate of saving as a whole cannot be certain. 5 'Division of labour'
between industrial and commercial capital would not be very effec-
tive in a condition of well-balanced static social reproduction. How-
ever, a well-balanced static situation cannot exist in a capitalist social
reproduction but only as a mere abstruction.
In an actual capitalist society with all its dynamism, the anarchical
misallocation of labour and the resulting imbalance between demand
and supply, or social needs and production, are both incessant and
inevitable in one way or another across various industries. Ineffi-
ciency as a result of such misallocation of labour and resources,
having excess supplies of one group of commodities as well as
shortages of another, is obvious in view of the possiby realisable
expansion of production. While industrial capitals with fixed capitals
generally cannot move so swiftly away from industries in excess
production into other industries to increase the production of com-
modities in short supply, commercial capitals without production
process can move around much more easily. Commercial capitals
tend to increase their purchase of commodity products which happen
to be in relative short supply against social demand and therefore also
easily saleable in a market. Such activity accelerates the turnover of
industrial capitals in the spheres producing those commodities, and
clearly promotes the expansion of production more smoothly than
would be the case where all capitals just took the form of industrial
capitals. By accelerating the expansion of production in the industrial
spheres which fail to meet demand, commercial capitals also indi-
rectly promote the sales of spheres in excess supply through contri-
buting to the readjustment of misallocated labour and so prompting
an increase in social demand.
Second, in close relation to its first function discussed above,
commercial capital also promotes the process of equalising the rate of
profit across industrial spheres by its selective purchase of commodity
products. As the expansion of production of commodities in short
supply is accelerated by their increased purchase, excess demand for
those products will eventually disappear and faster than it might
otherwise. The elevated market prices of those products due to
excess demand and the extra profit obtained by such prices will then
also disappear faster. Commercial capitals also serve to solve excess
supply in other industries, indirectly through prompting the expan-
sion of production and derivative social demand as a whole. De-
pressed market prices and the attendant lower than general profit
rate would be pulled up so much faster in the process of expanded
reproduction. Thus, commercial capital forms a portion of the capi-
talistic mechanism which anarchically adjusts the social allocation of
labour through competition among capitals across industries, guided
by fluctuating profit rates which centre on the general rate of profit.
Within each sphere of production, commercial capital reduces the
random differences in the costs of circulation or the periods of sale
among individual producers, by taking over such costs or the respon-
sibility for such periods, collectively and thus makes the basis of
competition for the rate of profit among industrial capitals so much
more objective.
Commercial capitals themselves also participate in competition,
pivoting around the general rate of profit. Individual, accidental,
random differences in the costs of circulation or the periods of sale
for the individual commodity are apt to be more or less cancelled out
in the hands of commercial capitals by concentrating the process of
the sales of many industrial capitals and particularly those in various

spheres of production. Therefore, the basis on which commercial
capitals compete for profit cannot be one-sidedly accidentally ran-
dom. Furthermore, competition is pursued not merely among com-
mercial capitals but also between commercial capitals and industrial
capitals which have solid technical bases for competition to equalise
the rate of profit. There is no fundamental obstacle to transferring
capitals from commerce into industry or contrariwise, guided by
prospect of a higher rate of profit, except such impediments as
existing fixed capital in the short run. The rate of profit of commercial
capital is thus also subject to the law of competition among capitals
which forms the general average rate of profit.
A capitalistic rationale for industrial capital to share out a portion
of surplus-value to unproductive commercial capital is in the social
function of commercial capital which economises the costs of circula-
tion and circulation capital as a whole, so as to enable the extension
of the scale of production of surplus-value. Individual industrial
capitals can certainly carry out the process of selling by themselves.
Individually they sell their commodity products to commercial capi-
tals at wholesale prices, which are lower than finally saleable prices
with room for commercial profits, only in so far as they conceive such
wholesale as being more profitable than their own retailing. The final
sales prices can generally be assumed here to be the market prices of
production. The wholesale price of a commodity to commercial from
industrial capital must· be lower than the market price of production
so as to enable commercial capital to obtain average profits and to
replenish the costs of circulation on the average calculation for an
individual commodity. In other words, commercial capital must get
an average profit and replenish the necessary costs of circulation as
an average calculation', from the difference between the wholesale
price which it pays and the market price of production which it
receives. By selling its commodity products so much cheaper, indus-
trial capital can still get a higher, not lower, rate of profit, as its
turnover is accelerated or the costs of circulation become much
reduced or exempted. Or rather in so far as industrial capital expects
such an effect, it wholesales its products to commercial capital.
There are some theoretical complications or confusions in Marx's
treatment of commercial capital including his numerical examples
concerning the conception of the wholesale price charged by indus-
trial capital to commercial capital. They have been sources of trouble
for Marxian researchers as well.
First, Marx constructs numerical examples as if the general rate of

profit were reduced by the participation of commercial capital. He
starts with assuming that the total industrial capital advanced during
the year is 720c + 180v = 900 and that the rate of surplus-value s' =
100 per cent. Then the value or the total price of production of the
commodity products must be 1080 = 720c + 180v + 180s, and the
rate of profit would be 20 per cent. When a commercial capital of 100
comes in, moving only in the sphere of circulation without producing
any surplus-value, the rate of profit must be reduced to 18 per cent on
the total social capital of 1000. Industrial capital now wholesales its
products at the price of 1062 = 720c + 180v + 162s, getting the
average profit of 18 per cent on its own capital of 900. Commercial
capital purchases these products at this price and sells them at their
value or the price of production of 1080 in the market, and obtains
the average profit of 18 per cent against its capital of 100, by making
10.62 times turnover of trading in a year. This example obviously
contradicts Marx's own correct observation that commercial capital
'increases the ratio of surplus-value to the capital advanced, i.e. the
rate of profit' by cutting down the turnover time (III, p. 393). The
problem was in the initial assumption. As Marx revises it, 'the
additional capital needed [as circulation capital- M. I.] to do without
the independent operation of commercial capital might perhaps be
200, and we would then have a total advance of 1100 by the industrial
capitalist instead of 900' (III, p. 405). Then the rate of profit would
rather go up from 16.36 per cent to 18 per cent, not decline from 20
per cent, through the independent operation of commercial capital.
Second, Marx writes as if the value or the total price of production
of the commodity products could be increased by adding the costs of
circulation advanced by commercial capital. He presents a case
where an additional commercial capital of 50 was further advanced
for the costs of circulation, besides the commercial capital of 100 for
purchasing commodities from industrial capital. Then, 'the total
surplus-value of 180 would now be distributed between a productive
capital of 900 and a commercial capital of 150, making a total of 1050.
The average rate of profit would thus fall to 17 -} per cent. The
industrial capitalist sells the commodities to the merchants at 900 +
154 t = 1054 t and the merchant sells them for 1130 (1080 + 50 for
expenses that he has to recover).' (III, p. 406). In this context C.
Panico interprets this to mean that Marx's notion of the selling price
would become not equal value but be elevated by B units of capital
advanced 'to perform the necessary acts of circulation' .6 Although B.
Fine should have recognised Marx's own incompleteness in this

regard when opposing Panico's interpretation, Fine is correct in
pointing out that the costs of circulation must not merely be added to
the denominator for the rate of profit as an additional capital ad-
vanced, but also be deducted from surplus-value as the numerator, so
as to maintain the selling price by commercial capital at the value of
commodities. 7 The average rate of profit would be (180- 50)+ (900
+ 100 + 50) = 12.38 per cent instead of 17 -}. Industrial capital
would wholesale the commodities at 900 + 111.42 = 1011.42, and
commercial capital sells them for 1080, expending 50 on the costs of
circulation and getting the average profit of 18.58 (12.38 per cent of
150) by the difference between the selling price and the purchasing
price (1080- 1011.42 =50+ 18.58). We should notice here also that
industrial capital would have to spend more than 50 as the circulation
costs without commercial capital, and that the profit rate of 12.38
per cent is therefore not reduced but raised by the role of commercial
capital just as discussed in the first point above.
Third, there is a further source of theoretical complication in
Marx's treatment of the variable capital of commercial capital in the
latter part of chapter 17 of the third volume of Capital. Marx says for
instance. 'Since the labour-time and labour of merchant himself is not
value-creating labour, even though it procures him a share in the
surplus-value already produced, what is the situation with the vari-
able capital that he lays out on the purchase of commercial labour-
power? Should this variable capital be included as part of the cost of
the outlay of the commercial capital the merchant has advanced?'
(III, p. 408). K. Uno reformulated this problem as a particular fetish
feature of commercial capital. According to Uno, 'commercial labour
is the only labour that "capitalist" may perform' ,8 and its costs
together with other pure costs of circulation individualy would vary
so that its costs, unlike other costs of production, would not be an
objective capital advance requiring an average profit in the hands of
industrial capitalists, but simply be a deduction from surplus-value.
The pure costs of ciculation then, especially of commercial labour,
are turned into capital to procure an average profit only through the
fetish form of capital as commercial capital. Although there may be a
real complication in the distinction between capital investment in
commercial wage labour and managerial salaries, including profit-
sharing for middle and upper business men and managers, this cannot
properly analysed in any detail in the basic theory. Apart from this
actual complication, it must be recognised in my view that industrial
capital, not confined to the commercial, would already basically deal,

with a certain degree of objectivity, with the pure costs of circulation
as both a portion of capital and a deduction from surplus-value, as we
have argued in the Section 7.2 of Chapter 7.
Having done with these theoretical problems in Marx, it must now
be obvious that there are social functions of commercial capitals
which economise the costs of circulation and the circulation capital in
combination, by elevating the mobility of capital as a whole. The
positive functions of commercial capitals in promoting the expansion
of production and competition among capitals so equalising the rate
of profit, however, have certain limitations. They are effective only
so long as the extensive process of accumulation of industrial capital
as a whole can go on without serious difficulties. When capital
accumulation becomes excessive and smooth expansion difficult to
continue, the functions of commercial capital turn rather to the
speculative, disturbing and even destructive operations for social
reproduction, as we shall see in Chapter 9. Even putting asside such a
reversal in its manner of working, the functions of commercial capital
which promote the motion of industrial capitals in their process of
expansion, by mobilising and economising the costs of and the mass
of capitals in circulation are yet far from complete. For one thing
commercial capitals cannot take over the total process of the selling
of commodities from industrial capitals. Industrial capitals often
perform direct transactions among themselves, if not so often against
the many final consumers. Commercial capitals also tend to avoid
trading commodities which are becoming excessive in a market. For
another thing commercial capitals cannot mobilise idle-money capital
existing in the turnover of industrial capitals for the expansion of
production.
The credit system is a higher more comprehensive mechanism for
the mobilisation of capitals over such limitations in the functions of
commercial capital.
8.2 THE CREDIT SYSTEM
How to Approach It
There are methodological problems in constructing a basic theory of

the credit system and interest. First, the credit system including the
major forms and functions of bank credit has very much changed
along with the stages of capitalist development. If we try to deduce

the nature and function of the credit system common to all historical
stages of capitalism, the theory would become too formal and ab-
stract to clarify the basic workings of the credit system for capitalist
production. We are in a sense forced to be conscious of the actual
basis of abstraction in analysing such concrete mechanisms of capi-
talism as the credit system. Thus if we ever choose a stage of
capitalism in this regard, we must take the stage of liberalism in the
mid-nineteenth century. It is because the British credit system at that
stage was constructed and worked most typically as an inner me-
chanism of competition among individual capitals. Giant monopolis-
tic corporations were not yet significant either in industries or in
banking at that time. 9 Typical business cycles and crises regularly
occurred there through the working of the credit system. Therefore,
Marx's attempt to build up a basic theory of the credit system based
upon his own experience of British capitalism must not be taken as
outdated even today.
Second, prior to dealing with the credit system, Marx presents the
form of interest-bearing capital and the division of profit into interest
and profit of enterprise in the first four chapters of part v of the third
volume of Capital. Just as the form of profit, the form of interest and
interest-bearing capital were, however, not newly created by a capi-
talist economy, as Marx himself made sufficiently clear in the last
chapter of the same part. It was a historical fact in precapitalist
societies. Therefore, we had better define the form of interest-
bearing capital in the theory of the transformation of money into
capital in a commodity economy in general, prior to the analysis of
capitalist production, as we have discussed in Section 4.3 of Chapter
4 in this volume. Then we can dispense with the theory of the form of
interest-bearing capital here anew. Besides, the theory of the division
of profit into interest and profit of enterprise in the first four chapters
of part v has left us some substantial difficulties, in spite of their
stylistic completeness compared with the later chapters in the part.
For instance, interest is presented there first as a relation between
'money capitalists' without functioning as either industrial or com-
mercial capitalists and 'functioning capitalists' without having any
capital. Although the classical school used to define interest as a
separate economic basis for a certain social class called 'moneyed
interest' or 'money capitalists'; interest unlike wages, profit or rent
cannot be a definite form of surplus-value exclusively confined to the
income of a certain social class such as the rentier type of money
capitalist, but basically tends rather to function as a form of internal

redistribution of surplus-value among industrial and commercial
capitalists through the credit system. A mere 'functioning capitalist'
without his own capital is also theoretically too abstract to be real.
Furthermore, the qualitative division of profit into interest and profit
of enterprise, which wipes out the notion of profit upon advanced
capital, would also be too abstract to be theorised on the basis of
some actual form or mechanism of the movement of capital. (An idea
though that capital naturally brings about interest, and the rest of
profit is obtained as a sort of wage or remuneration for entrepreneur-
ship is to some degree common to vulgar fetish notions in bourgeois
society. 10) Therefore the basic theory of interest as a form of surplus-
value had better be analysed directly within the form and functions of
the credit system, not in the abstract theory of interest-bearing
capital. 11
Third, in relation with the point above, Marx tends to observe the
role of banks in the credit system as intermediaries for various
external money-lenders like 'money capitalists' and borrowers as
industrial and commercial capitalists. As a result the credit system
could not be theorised as a thoroughly internal mechanism of capi-
talist production, or among industrial and commercial capitals, nor
could the basic motion of interest be explained as thoroughly inter-
nally determined on the basis of capitalist production. On the other
side, in the second volume of Capital, Marx showed that idle-money
capital such as depreciation funds, reserves for accumulation or to
guard against price fluctuations, and a fund to maintain continuity in
the process of production during the circulation periods, must more
or less accompany the turnover of capital, and noted that such
idle-money capital would serve as a basis for the credit system.
Commercial credit and bank credit mobilise this idle-money capital
formed from within the motion of industrial capital. Although banks
actually utilise external deposits from the middle and rentier class,
their loanable money capital becomes in a sense internalised and
subject to the motion of industrial capitals and annexed commercial
capitals, so far as it is lent out and so added to these capitals, and
must be re-created as idle money in the turnover of capital as it flows
back into the banks together with other idle-money capital. Such an
internal creation and re-creation of a loanable money fund from the
turnover of capital is also decisive for the motion of the money
market in the process of business cycles. Therefore, the basic theory
of the credit system had better be clarified as an internal mechanism
of capital mobilising idle capital among industrial and commercial

capitalists.
Bearing these methodological clarifications in mind, 'we shall
simply be dealing with commercial and bank credit' (III, p. 525) as
basic major forms of the capitalist credit system. The simplified or
purified basic theory would then surely serve as a standard frame of
reference for the analyses of capitalist credit including various other
economic forms of social relations such as state debt or consumer
credit in upper, more concrete, levels of researhes.
Commercial Credit
Commercial credit is 'the credit that capitalists involved in the repro-

duction process give one another. This forms the basis of the credit
system. Its representative is the bill of exchange, a promisory note
with a fixed date of payment, i.e. "a document of deferred pay-
ment".' (III, p. 610). As Marx notices, the spontaneous basis for the
credit system is in the function of money as a means of payment in
simple commodity circulation and the corresponding relationship of
creditor and debtor, but it is 'expanded, generalized and elaborated'
with the development of the capitalist mode of production (III, p.
525).
Let us assume four capitalists who are directly or indirectly in-
volved in a series of reproduction process, i.e. a cotton textile
manufacturer (A), a spinner (B), a trader of raw cotton (C) and a
raw-cotton grower (D). A simple type of commercial credit can be
formed when A, without having enough amount of cash, wants to
purchase a certain quantity of cotton thread from B by drawing up a
promissory note to B. B may transfer this note to C with his endorse-
ment in order to purchase raw cotton instead of waiting for the
deferred payment from A on the due date, say in three months' time.
In such a case, however, a bill of exchange is utilised as a more typical
and general form of commercial credit. As illustrated in Figure 8.1
below, a bill of exchange in this case is drawn by B, commanding A to
pay C a certain amount of money after three months on a due date.
When accepted by A, B passes the bill to C and thus cancels out his
credit and debt. C receives the bill as a changeover of his credit from
B to A. However, if A is insolvent on the due date, C can instantly
demand payment of B as a surety jointly liable. Cancellation of debt
and credit on the part of B thus still leaves him the responsibility of
joint liability. The trader C would use the bill with his endorsement
to signify the same joint liability if the cotton-grower D receives it in

wholesaling raw cotton. Then, A's debt to C would further be
changed to a debt to D.
Figure 8.1
Textile manufacturer Spinner Trader Raw-cotton grower

cotton thread raw cotton raw cotton
A 8
,~:·~::__;/ D
payee
acceptor endorser bearer
Thus, a bill of exchange would circulate as basic capitalistic credit

money utilised in the transactions of commodities among industrial
and commercial capitalists. Though it is a private document of
promise to pay, its circulation is facilitated by the joint liability of a
drawer and endorsers in addition to the acceptor. And since it is a
private promise to pay issued and received among actual capitalists
according to their own will and necessity, it can elastically expand
transactions among them relatively independently of the external
circumstances or regulations like those effecting the quantity of the
money-supply. 12
Commercial credit enables a co-operative economy of circulation
capital and so facilitates the expansion of reproduction. It is apparent
in the above case that the commodity capitals in circulation, cotton
thread and raw cotton, are mobilised for the extension of the repro-
duction of manufacturing capitalists A a,nd B faster than would be the
case without commercial credit. On the part of such capitalists as A
and B, a portion of idle-money capital which must be prepared in
order to continue the process of production during the period of
selling their commodity products, can also be spared by the repetition
of transactions through commercial credit. A capitalist selling by use
of a bill of exchange would gain as well since he can economise on the
costs of circulation such as storage or on the money reserve to guard
against price fluctuations. Moreover, he may be able to use the bill,
just as C does in the above case, in purchasing the necessary com-
modity from other capitalist, further extending the chain of commer-
cial credit.
Such an extension of the chain of commercial credit is in its nature
not without limit. It has inner logical limitations as we shall shortly

see, and therefore must always leave a terminal capitalist in the chain
who acts as the final bearer of the bill until the due date. SupposeD
in the above becomes the final bearer of the bill for three months
until due. This raw-cotton grower, D, cannot then get back the
money for the commodity sold by the bill in the meantime. He must
mobilise his own various idle-money capitals (such as his depreciation
fund for fixed capital, reserves for accumulation, for price fluctuation
and for the continuation of the production process in the period of
circulation), which accompanies the turnover of his capital, in order
to maintain his business and continue the process of production for
this period until the due date of the bill. The very existence of an
elastic capacity to mobilise a certain amount of idle-money capital on
the part of D is a fundamental condition to form and maintain a chain
of transactions through the bill of exchange between the four capital-
ists above. In this regard the idle capital of Dis mobilised not merely
for his own sake, but simultaneously also accomodates in fact the
acceleration of transactions and the extension of reproduction of the
other capitalists A, B and Cas well.
Extension of reproduction by means of commercial credit would
usually work in the direction of adjusting the anarchical imbalance
between industrial spheres, and thus also to equalise the rate of profit
among them. In particular, the spheres in which commodity products
are in short supply would expand their purchase of means of produc-
tion more positively than others depending on the elastic extension of
commercial credit. Their production would thereby be accelerated
more than others, and therefore the surplus-profit due to the excess
of the market prices of their products over their prices of production
would eventually disappear. On the contrary, the spheres in exces-
sive production would attempt to promote sales of their products
positively by giving credit, and would reduce their own purchases by
credit. Thus, commercial credit usually works both ways simulta-
neously. While it fosters the extension of reproduction and elevates
the general rate of profit by mobilising idle-money capitals in order to
economise on the size of circulation capital through private transac-
tions on credit among actual capitals, it also functions to promote the
equalisation of the rate of profit across industrial spheres.
Since individual capitalists can usually elevate their rate of profit
and obtain additional profit by purchase on commercial credit, they
have a reason to share out a portion of their increased profit by
paying interest for their debts. On the other side, a capitalist who
gives credit by selling his commodities against deferred payment does

not directly hand out his money as a loan. The practical use of his idle
money, as in the case of the raw-cotton grower D above, is necessary
to maintain the chain of commercial credit by allowing him to give
credit for a certain period of time. But the substantial amount of
money mobilised to sustain his own process of production would not
always coincide with the amount of credit given in selling his com-
modities. Nevertheless credit and debt here are not in terms of
commodities transferred, but definitely in terms of money. A buyer
on commercial credit cannot return the commodities on the due date,
and has to pay the money promised by all means, while he gets
complete property-rights over the commodities immediately on the
date of purchase even on credit. Given the form of interest-bearing
capital in a commodity economy in general, credit and debt in terms
of money among capitals are naturally regarded as reasonable
grounds on which to claim interest from the view of creditor, even if
the creditor did not have an opportunity cost since he was just
mobilising his idle money and commodity capital. 13 Thus, the reason
for claiming interest payments would arise from the fact that the form
of interest exist generally in a commodity economy and not from the
substantial capitalistic production relation. On the other side, the
capitalistically reasonable grounds for paying interest by the debtor
lies clearly in the additional profit or surplus-value obtainable
through the use of credit.
Interest in commercial credit is claimed and transmitted as a
difference between the cash price and credit price of commodities. It
does not yet appear in a form independent of commodity prices and
commodity transactions. Ther rate of interest is still in a sense buried
in credit prices, and it cannot therefore be generalised, so leaving
various individual divergences. For instance, the credit price of a
commodity whose social demand seems to be increasing more than its
supply would for the time being be heightened in comparison with
the cash price more than otherwise, reflecting the anticipated in-
crease in its market price in the near future. A gap between the cash
price and the credit price would be less than average in the opposite
case. Divergency of the rate of interest accords with the nature of
commercial credit which is formed as a private relation of credit
between individual capitalists in their transactions of commodities.
Commercial credit must be subject to certain limit originating in its
basic nature. First, it cannot come into the transactions between
capitalists and workers or consumers. Second, even among capitalists,
it cannot be a socially universal organisation of credit, but is basically

confined to the relations among capitalists possibly being linked in
the line of manufacturing processes. It cannot form a credit relation
between capitalists in the unrelated processes such as baking and
spinning. Third, the amount of money, or the terms for payment of a
bill, would not be suitable for successive transactions after a certain
length in the chain, say possibly after the raw-cotton grower D in the
example above. Fourth, even with the joint liability of capitalists
written on the bill, its credibility cannot yet be of a social character in
any sense, and may not be of sufficient quality to be accepted by some
capitalists, say possibly a trader E to sell fertiliser to D. Therefore,
the chain of commercial credit formed through a bill of exchange
cannot be very long, and must always leave a simple debtor and a
simple creditor at both ends, as we have suggested.
Corresponding to such limitations, the functions of commercial
credit in economising on circulation capital and facilitating the
equalisation of the rate of profit are also restricted and cannot be
thorough. Bank credit is formed as an higher organisation of the
capitalist credit system which dissolves, if not absolutely, the limita-
tions of commercial credit.
Bank Credit
Typical bank credit in the basic theory of the credit system appears
on the basis of commercial credit. It is a capitalistic social organisa-
tion mediating the mutual accommodation of idle capitals on a broader
scale than commercial credit. Banks form capitalist social relations of
debt and credit with many and unspecified industrial and commercial
capitalists. Their debt is basically in the form of issued bank notes
and received deposit. They give credit typically in the form of the
discount of bills of exchange.
Bank notes appear as bank's promissory notes to pay on sight a
quantity of the money commodity, e.g. a quarter-pound of gold
coined as a pound sterling. It can obtain a broader circulation as a
higher grade of credit money beyond the restrictions on bills of
exchange in commercial credit. A capitalist likeD above, who cannot
purchase the necessary commodities by a bill of exchange received,
because of the restrictions of time, amount or creditability, would be
able to go on with the necessary transactions if he could get bank
notes at a bank in exchange for the bill. The bank would thereby
obtain money credit in the form of the bill upon a certain debtor (like
A above) until the due date, but also stand in money debt in the form
of the bank notes issued when it discounted the bill for D. The cash
reserve of a bank to pay its money debt when requested, is formed
not merely by a portion of the banker's own capital, but also by an
inflow of cash as deposits, and payment for the bills of exchange held
by it at their redemption dates. The proportion of a banker's own
capital in the cash reserve can be substantially reduced and may even
become zero when the bank becomes consolidated and is able to
depend sufficiently on its cash inflow through return payments and
deposits for, reserve. Practically, the extension of bank credit relies
on the trend of deposits and return payments. When bank notes
issued by a bank are brought back into the same bank in the form of a
deposit or return payment, it reduces the bank's money debt, espe-
cially as a ratio to its cash reserve so as to facilitate the potential
extension of bank credit. Its effect is similar to a cash inflow which
increases the bank's reserve against its money debt.
So far as bank credit is extendible on the basis of the growth of
capitalist production, banks would receive deposits by accepting and
mobilising various idle-money capitals in the hands of industrial and
commercial capitalists, so that the banks can increase their own bases
of business. Industrial and commercial capitals would also regard it as
convenient to have deposits at banks in order to economise on the
cost of storing, paying and receiving money, as well as the costs of
clearing credit transactions. Banks act in this function as a mod-
ernised form of money-dealing capital (see note 2 of this chapter).
In the case that a bank receives deposits easily and plentifully, it
need not issue bank notes for its business, though it may occasionally
issue some forms of bank cheque or bank draft to make its business
elastic.
When a bank exchanges cash or bank notes for a commercial bill of
exchange upon the request of capitalist, say the raw-cotton grower D,
it does not pay the same amount of cash or bank notes as the nominal
price given on the bill. A certain amount, according to the period
remaining until the redemption date of the bill, is discounted from
the nominal price. The discount is actually a form of interest. For
instance, if the general rate of interest is 8 per cent a year, about £200
would be discounted from the bill of £10 000 on surface with 3
months' time of due, and £9800 of cash or bank notes are given in
exchange with the bill. Suppose the bill is from capitalist D in the
illustration above. The bank which discounts the bill will actually
obtain interest of £200 together with the principal sum of the money
credit of £9800, when the return payment of £10 000 is paid from A
on the due date of the bill.
Capitalists who get cash or bank notes in exchange for commercial
bills can accelerate the turnover of their capital, economise their idle
funds, and thus obtain additional profit. 14 They would not mind
sharing out a portion of the available additional profit as interest in
the form of discount on bills. However, the capitalist like D who asks
a bank to discount a commercial bill of exchange is not really a sole
bearer of the discount interest for the bill. The raw-cotton grower D
has already sold his commodity product raw cotton, for the commer-
cial bill with a 3 months' life, at a credit price of £10 000, higher than
the cash price of about £9800. The nominal price of a commercial bill
thus contains a portion of interest from the date of its issue, and its
transfer must always accompany the credit price being more or less
higher than a cash price. Therefore, the discount interest obtained by
a bank for the bill was actually born by the initial debtor capitalist A,
and possibly also by the series of capitalists B, C and D, who
subsequently used and passed the bill before it was discounted by the
bank. Distribution of the costs of interest contained in the nominal
price of the bill, which is finally discounted by the bank, would vary
among the four capitalists concerned, depending on the different
rates of interest contained in the credit prices of each individual
transaction, as well as on the different length of time in which the bill
remains in a hands of each capitalist.
Anyway, interest obtained by banks through the discount and
redemption of the commercial bill is no longer buried in the credit
price of commodities transacted by commercial credit. It now ap-
pears clearly as interest on a money loan taking the form of discount,
and is obviously separated from the transactions of commodities in
the case of bank credit. This must react on commercial credit in
making capitalists more conscious of the interest contained by the
credit prices of commodities, though individual divergence in its rate
would still remain. As banks can extend their basis of loan to earn
interest by gathering more deposits, they pay interest to depositors to
encourage it, and thus further generalise interest or the form of
interest-bearing capital in a capitalist economy. Against loan capital
in the form of interest-bearing capital, industrial and commercial
capitals are contrasted as real capital invested in profit-making enter-
prises.
Although banks have the capitalistic social function of mobilising
idle capitals, they appear in principle as profit-making enterprises
attracting individual capital investment just as industrial and com-

mercial capitals. A portion of bank capital or the banker's own
capital is used as cash reserves against the balance of received
deposits and issued bank notes. However, its proportion decreases as
the cash reserve becomes more easily secured through return pay-
ments and deposits in the process of the establishment and develop-
ment of bank business. Anyway, unlike a money-lender or a usurer, a
modern bank would not use its own capital directly for lending
purposes. A major portion of bank capital is advanced on the costs of
circulation related to monetary phenomena such as the costs of
storage and transaction of money, or the costs of intermediation and
the clearance of credit transactions. More concretely it is invested in
the costs of office building, book-keeping, credit inquiries, collection
of money on the matured bills, storage of money and bills, and
salaries or wages of clerks neccesary for its business. These costs are
basically the pure costs of circulation and faux frais of production
from the social point of view of the general economic rule common to
all forms of societies. They cannot add to the substance of value or
surplus-value, and therefore they must be deducted and replenished
together with profit on capitals invested in them, from the substance
of yearly surplus-value, just as in the case of pure circulation costs
advanced by commercial capitalists. A capitalistic rationale for al-
lowing such deductions from surplus-value is in the function of bank
credit in economising these circulation costs for industrial and com-
mercial capitals, and in increasing the efficiency of the production of
surplus-value as a whole, by mobilising idle capital. In general
individual industrial and commercial capitalists would not use a bank
without seeing a positive benefit for their own rate of profit in one
way or the other. Again, investment by banks in an unproductive,
negative area, from the standpoint of the direct production of
surplus-value, usually brings about positive effects on the efficiency of
the production of total social surplus-value, and adds to individual
profit by reducing unproductive costs and idle capitals on the part of
real industrial and commercial capitals. We must be sure not to
confuse these intricate reverse effects of bank investment, compared
to the vulgar view which defines it a directly productive of value and
surplus-value.
Generally, a portion of additional profit available by an additional
expansion of the business of industrial or commercial capitals which
depends on bank credit, is shared out and given to banks as interest,
typically in the form of discount on commercial bills. In the case that
a bank pays interest on deposits to induce their growth, the bank

behaves as a sort of commercial capital in the business of purchasing
cheap the use of money as a commodity in order to sell it dearer.
Interest and its rates signify prices for this particular commodity, the
use of money for certain period as a fund. Interest obtained by a bank
in a year through lending or selling available funds must thus be
divided into three basic parts. A portion should be paid out to
depositors as deposit interest. The rest is divided into a portion
necessary to replenish bank capital invested and consumed in a year
while a third portion remains as bank profit for the total bank capital
invested. There is no obvious technically definite standard for the size
of bank capitals in a certain area or in the banking business as a
whole. However, excessive investment in banks beyond capitalisti-
cally rational amounts, either in a certain area or in the business as a
whole, at a certain time period must be ascertained and checked by
comparing the lowered rate of bank profit with the general rate of
profit which is objectively determined on the basis of the technical
and physical data of production. There are no fundamental obstacles
for bank capitals to be converted into industrial capital or commercial
capital, excepting some constraints such as existing fixed capital. In
the opposite case, when the rate of bank profit becomes higher than
the general rate, industrial and commercial capitals would move into
the banking business, eventually causing a reduction in the rate of
bank profit. Thus, in competitive social relations with industrial and
commercial capitals, the rate of bank profit must also be subject to
the law of the equalisation of the profit rate centering around its
general rate. In this respect bank capital also appears as a sort of real
capital in distinction from loan capital.
Since banking is a sphere of private business for capital investment
in parallel with manufacture and commerce, an individual bank
cannot be so large-scale as directly to organise the whole of social
credit. Each capital with more or less limited capital of its own would
concentrate primarily on the discount of commercial bills from capi-
talists in certain regional areas or spheres of commerce and industry,
while it receives credence on its bank notes or on deposits primarily
also from those capitalists within its business territory. Accordingly
the demand and supply of credit or loanable capital organised by
individual banks must have a speciality based upon its particular
business territory. For instance a bank in an agricultural area would
generally tend to have excessive loanable money capital except in
busy farming seasons, while a bank in an area with rapidly growing

industries would conversely be short of loanable money capital.
The trend and movement in the balance of demand and supply of
loanable capital for a bank is reflected in the cash reserve ratio, i.e. the
ratio between its cash reserve and its total liabilities in the form of
deposit received or bank notes issued. Cash reserves can be replenished
and increased by receiving return payments and deposits. Return pay-
ments and deposits in the form of its own bank notes reduce the balance
of liability of the bank. Anyway, when demand for the discount of bills
at a bank is greater than the supply of loanable capital resulting from
deposits and repayments, the bank must reduce its cash reserve or
increase its liabilities in the balance of its own bank notes issued in order
to meet demand. The cash-reserve ratio must thus decline.
Although a minimum cash-reserve ratio cannot be defined on
technological grounds and always allows an elasticity for bankers
operations, there is a self-regulative minimum level in the ratio to
guard cash reserves, and a bank with a declining cash-reserve ratio in
meeting an excessive demand for loans in its business, would ask
other banks for loans. Conversely a bank which has a relative plenty
of loanable capital, and a higher cash reserve ratio would positively
and easily respond to such requests from other banks, and rediscount
the commercial bills endorsed by other banks or discount other
banker's bills. Thus a mutual accommodation among banks is formed
and concentrated in a money market. A major part of the money
market is concretely concentrated into a certain area in a commercial
centre, like the City. It works as a rediscount market in commercial
bills between banks, as well as an efficient place to settle up and clear
the matured commercial bills every day.
The rate of interest initially discounted by individual banks would
differ, reflecting to a greater or lesser degree the speciality of the
territory of each bank, the differing degree of credence or accept-
ability of each commercial bill and so on. Such differences in the
discount rate would mostly disappear in a money market among
banks, as the degree of acceptability of the bills endorsed or accepted
by banks would become similar, and as the relation between the
demand and supply of loanable money capital is concentrated into a
single balance getting rid of local speciality. A general market rate of
interest thus clearly appears in a money market. Marx's characteris-
ation of the money market should be understood in this context,
upon the basis of the functions of credit system, although it is given in
chapter 22 of the third volume of Capital in an abstract formal theory

of interest-bearing capital prior to the analysis of the credit system
beginning from chapter 25.
As far as the permanently fluctuating market rate of interest is

concerned, this is a fixed magnitude at any given moment, just like
the market price of commodities, because on the money market all
capital for loan confronts the functioning capital as an overall
mass; i.e. the relationship between the supply of loan capital on the
one hand, and the demand for it on the other, is what determines
the market level of interest at any given time. This is all the more
true, the more the development and associated concentration of
the credit system gives loan capital a general social character, and
puts it on the money market all at once, simultaneously. (III, p. 488).
Loanable money is treated as a homogenous commodity transacted

at the same price, which is the market rate of interest, according to
the law of indifference in such a money market. Depending on a
money market, individual banks can so much more easily extend
their business as mediators of credit transactions. However, in the
concrete structure of commercial credit and bank credit, the inter-
bank money market cannot gather together all the loanable money
and so the social relations of credit. Just as bank credit, facilitating
the expansion of commercial credit as its basis, concentrates some
portion of the commercial bills and the credit relations expressed in
the bills, the money market facilitating the expansion of individual
bank credit, concentrates the central portion of loanable capital and
credit relations among individual banks. This means that there is
room for basic commercial credit and individual bank credit to move
relatively independently of the balance of demand and supply in the
money market. 15 Correspondingly, divergences would more or less
remain in both the rate of interest in commercial credit and in individual
banker's discount rates, in spite of the formation of a unified market
rate of interest in the money market. The market rate of interest is
regulated from below by the degree of ease or difficulty in the
extension in commercial credit and basic bank credit. On the other
side, however, in so far as the degree of ease and difficulty in
extending commercial credit depends on bank credit, and also as the
responses of individual banks depend on the situation in the money
market, the unified money market rate of interest must serve as a
standard, and so more or less regulate the movement of the divergent

rates of interest charged in commercial credit and individual bank
credit.
There is a problem as to whether and how we can conceive of a
central bank in a basic theory of a capitalist economy. In relation to
the function of a bank in giving credit in the form of bank notes,
Marx explains the following:
This last form of credit seems especially striking and important to

the layman, firstly because this kind of credit money emerges from
commercial circulation into general circulation and functions here
as money; also because in most countries the major banks that
issue notes are a peculiar mishmash between national banks and
private banks and actually have the government's credit behind
them, their notes being more or less legal tender; and because it is
evident here that what the banker is dealing in is credit itself, since
the banknote merely represents a circulating token of credit. (III,
p. 529).
Since the role of government or state must be abstracted from the

basic theory of a capitalist economy, we have to put aside the role of
the central bank as a government's cashier with a privileged mono-
polistic position in issuing notes as legal tender. Then, a bank of issue
would not be confined to a single central bank, and the position of the
central bank itself may seem difficult to define among anarchically
competitive capitals themselves lacking any political and legal privi-
leges. However, in my opinion, the position of a central bank of issue
is deducible from the nature of the credit system which constructs a
pyramid making credit transactions more and more efficient and
flexible, although it cannot exclude the existence or emergence of
other banks of issue in principle. Especially, banks in the central
money market need not adhere much to issuing their own bank
notes in order that their business extends, as they are in a good
position to receive many deposits and repayments from capitalists
who trade at the commercial centre, as well as money funds from
other local banks for purposes of settlement and for their own
reserves. Those banks in the centre can also, in general, easily rely on
the money market to raise their cash reserve if necessary. Further,
those banks acting in the central money market would increase their
efficiency and flexibility in credit transaction and in making settle-
ments between themselves by depositing some portion of their money
funds with a single central bank and using its bank notes in common.
Thus logically chosen, the central bank retains the common cash
reserve, upon which the flexible rediscounting of bills can take place.
It is just like the basic case where individual industrial capitals
mutually economise their reserve funds by utilising a common local
bank.
The central bank appears thus as the bank for banks especially in
the central money market. The bank notes issued by such a central
bank are used as a common means of settlement, not merely among
the banks in the central money market, but also in commercial
transactions in the commercial centre as 'the coin of wholesale trade'
(III, p. 529). The range of circulation of the central bank notes would
further be extended into commercial and credit transactions with and
within local areas which have close relations with the commercial
centre. However, in so far as a central bank in our basic theory is still
private bank capital with a limited amount of capital investment and
acceptability, the central bank notes would not come unlimitedly
'into general circulation' outside of central commercial and credit
circulation. The central bank and the central money market cannot
form equally close relations with all the local areas. Banks of issue
independent from the central bank would continue to operate mostly
in such areas as relatively alienated from the commercial centre or
having their own special needs for credit expansion, like the agricul-
tural country banks or the Scottish banks of issue coexisting with the
Bank of England in UK in the nineteenth century. 16 Specie payment
is necessary for the settlement of commercial and credit transactions
with such areas. The central bank note as the 'the coin of wholesale
trade' would not be completely substituted for by real coins, particu-
larly in the small amounts of payment for wages and retail trade, as
the bank would regard it unprofitable to issue and handle bank notes
of small face value in view of its basic position as the bank of banks. 17
Therefore the general need for specie and hard coins as the means of
circulation and of payment remain along with the circulation of the
central bank notes. Correspondingly the cash reserve of the central
bank against its liability in the form of both its bank notes issued and
deposits accepted must be in the form of specie or hard coins as the
gold reserve.
The flexible extensibility of bank credit which is generalised by the
money market between banks is thus further increased by the forma-
tion of a central bank as the bank of banks. The relative indepen-
dence of credit expansion in local areas, as well as in individual banks
at the commercial centre, would not disappear with the formation of

the central bank. However, the social balance of the demand and
supply of loanable money capital in the whole credit system is
reflected and summarised not merely in the situation of the central
money market, but also in the gold reserve ratio of the central bank
at the peak of the pyramid, which is actually influenced by the trends
in demand for rediscounting of commercial bills and inflows of
repayments and deposits from other banks. The movement of the
rediscount rate of the central bank, reflecting its gold reserve ratio,
thus serves as the most obvious single indicator for the general
market rate of interest.
The Rate of Interest
Marx clearly noticed the different characters of the general rate of

profit and that of interest. 'Average profit does not appear as a
directly given fact, but rather as the end-product of an equalisation of
opposing tendencies that can only be established by investigation.'
Thus 'the general rate of profit presents a blurred and hazy picture
compared with the sharply defined rate of interest, which although its
level fluctuates always confronts the borrowers as fixed and given,
because it fluctuates in the same way for them all' (III, pp. 49{}-1).
This characteristic of interest is distinct especially in the general rate
of interest in the money market. Having an obvious single indicator
in the rediscount rate of the central bank, the general rate of interest
in the money market works as a summary reflector and a regulating
standard for the relatively independent and divergent interest rates of
individual bank credit and commercial credit in the hierarchy of the
credit sytem. In the money market the loanable money fund appears
as a homogenous commodity transacted at the same price, the
general market rate of interest. Money which originates in commodi-
ties is thus reduced to an ordinary commodity transacted in a market
though in a sophisticated form. In the transaction of money in the
money market, the form of interest-bearing capital appears as an
ideal type of capital with a homogenous rate of valorisation in
comparison with real capitals with their heterogenous rates of profit.
Actually the general rate of interest serves as an external measure
for the individual rates of profit of industrial and commercial capitals.
As the general rate of interest tends to more or less regulate some-
what divergent rates of interest of private bank credit and commer-
cial credit, individual real capitals in industry and commerce with a
prospect of a total or marginal profit rate higher than the general rate
of interest in the money market will be encouraged to utilise more
loans to expand their business. On the contrary, real capitals with a
prospect of a total or marginal profit rate lower than the general rate
of interest will be forced to reduce their debt and business. For
instance, the expansion of production in the spheres of production is
accelerated by a margin between a higher rate of profit including
extra profit and the general rate of interest where commodity pro-
ducts are in short supply so elevating their market prices above the
prices of production. As a result a relatively rapid increase in supply
of the commodity products would eventually lower their market
prices so as to decrease and then remove extra profit, and vice versa.
Thus, the money market together with the whole substructure of the
credit system works as a concrete mechanism for 'the equalisation of
the profit rate or the movement of this equalisation, on which the
whole of capitalist production depends' (III, p. 566). This working is
substantially realised in combination with another function of the
credit system in reducing circulation costs and idle circulation capitals
(similar to, but more broadly than, commercial capitals) by acceler-
ating 'the velocity of the metamorphosis of commodities, and with
this the velocity of monetary circulation' (III, p. 567).
In the neo-classical school, the rate of interest and the general rate
of profit are considered equal in equilibrium analyses. This assumes
on the one hand the perfect mobility and convertibility of capital
values between loan capital in the money market and real capital in
industry and commerce, and on the other hand determination of the
rate of profit as well as that of interest in the sphere of the market.
These assumptions and the resulting identity between both rates are
not in the tradition of the classical or the Marxian schools. This must
be regarded as an important watershed, dividing the major theoreti-
cal currents in economics.
In the Marxian school, which critically developed classical econ-
omics, the general rate of profit is determined by the physical con-
ditions of reproduction as we have seen. In contrast, the general rate
of interest is not determinable directly by the physical and technical
conditions, but substantially dependent upon the balance of supply
and demand of loan capital in the money market. The determinants
of both rates are quite separate. Perfect mobility and convertibility
between loanable money capital and real (industrial and commercial)
capital is indeed too abstract and formalistic an assumption to be
actual. Industrial and commercial capitals with more or less fixed
capital, cannot actually be formed by converting loanable money

capital of any size and length of term, nor can they easily be con-
verted into loanable capital as a whole. As we have analysed, only
the portions of idle-money capital in the hands of their owners, which
cannot be invested as real profit-making capitals for the time being,
are mobilised as loanable capital through the credit system. There-
fore, the general rate of interest is determined and moves relatively
independently of the motion of the general rate of profit. Having
such an independent character in its motion, the general rate of
interest serves as a common external measure or standard for individ-
ual rates of profit. The fluctuation of the general rate of interest
actually serves such a measure in the concrete process of business
cycles. How the general rate of interest is related with the general
rate of profit in the process of business cycles is an important problem
formulated in Marx's credit theory, which we shall reserve for the
next chapter.
It is interesting and noteworthy that Marx was well aware of the
technologically indeterminateness of the average rate of interest as a
gravitational centre of the fluctuating market rate of interest, and did
not present a strong theory on it, in sharp distinction to his theories of
wages, profit, and ground rent. He says, for example; 'The prevailing
average rate of interest in a country, as distinct from the constantly
fluctuating market rate, cannot be determined by any law. There is
no natural rate of interest, therefore, in the sense that economists
speak of a natural rate of profit and a natural rate of wages.' (III, p.
484). The average rate of interest in this context is conceptually
different from the general rate of interest, which is again distinct from
divergent interest rates in individual transactions in commercial and
bank credit, but fluctuating daily in the money market. Although the
average rate of interest is technologically indeterminate unlike the
general rate of profit, it is not totally independent of the general rate
of profit.
Under a gold-standard system without the inflationary nominal
movement in prices, profit and interest, it would be observable that
'in any given country, the average rate of interest is constant over
long periods, because the general rate of profit changes only in the
long run .... And the relative constancy of the profit rate is precisely
reflected in this more or less constant character of the average or
common rate of interest.' (III, p. 488). Marx seems to have over-
played this point and is inconsistent when he says: 'The rate of
interest is related to the profit rate in a similar way as the market
price of commodity is to its value.' (III, p. 487). It is because the

average rate of interest is not so strictly regulated by the general rate
of profit, and quantitatively it is 'not a pure or reliable expression of
the general rate of profit' (ibid.), as Marx himself points out. 'At all
events, the average rate of profit should be regarded as ultimately
determining the maximum limit of the interest' (III, p. 482) as a
long-run phenomenon, since no capitalist would continue borrowing
with a net loss after paying interest. Whereas, 'the minimum limit of
interest is completely indeterminate' (III, p. 480).
According to Marx's law of the tendential fall in the rate of profit
due to the rising organic composition of capital, the maximum limit
and resultantly the average level, of interest must tendentially decline
in the long run (III, p. 481), although this law does not seem to have
worked so decisively, often being counteracted by the destruction of
capital in crises and especially by technological innovations which
reduce unit values of constant capitals. Apart from the movement of
the rate of profit Marx points to two more 'major reasons' for the rate
of interest to fall tendentially (III, pp. 483--4). (1) As a nation
advances in accumulation of wealth the population in the class of
rentiers as mere lenders of capital would increase. (2) Through the
development of the credit system the savings of all classes would be
more and more concentrated in banks as utilisable money capital. It
is hard to treat these factors, which are more or less external to the
motion of real capitals, in the basic principles of a capitalist economy,
and then must be subject to more concrete analyses at separate levels
of research. Actually the balance between these and the countervail-
ing factors such as the growth of new and promising industries rapidly
absorbing loanable capital, the outflow of loanable capital to foreign
investment, the growth of state debt as well as of the debt of
consumers cannot be predicted abstractly without concrete
analyses. 18
Thus Marx seems decisive in not presenting a positive and strong
theory to determine the average rate of interest, simply clarifying a
few essential points. He clearly states, properly in my opinion, first,
that the average rate of interest is not identical with the level of the
average rate of profit: second, that it must be somewhere between
the average rate of profit as the maximum limit and zero, and, third,
that it depends on the whole balance of the supply against the
demand of loanable money capital. A series of intricate structural
balances are presumably reflected in the third point, such as the
average social quantity of idle-money capital reproduced in the
turnover of capitals, the tendential imbalances in the demand and

supply for commodities among the various industrial spheres to be
adjusted, along with the divergent profit rates among them, or the
total imbalance and the size of gap between stagnant industries and
the rapidly growing ones.
Anyway, it is both the height of the average rate of interest and the
social quantity of mobilisable money capital available for banks to
handle, though these are technologically somewhat indeterminate,
that logically define the social magnitude of investible bank capital to
be maintained with the average rate of profit. The higher the average
rate of interest the greater amount of it would remain per unit of
loanable capital for banks to replenish their own capital and to be
taken as profit even after paying correspondingly a bit higher interest
to depositors. As I have already suggested, when the rate of profit on
bank capital is higher than the general rate, some industrial and
commercial capitals would be converted into bank capital eventually
to equalise the rate of profit. And the reverse would take place in the
opposite case. Technologically, there must be a great flexibility in the
amount of loanable money capital to be dealt with by a certain size of
bank capital which is invested in cash reserves and the costs of
circulation related to monetary and credit transactions. Therefore, it
must be an incorrect standpoint, tied to appearances, to argue that
there is a technological relationship between the amount of bank
capital and the level of activity of banks by analogy with a representa-
tive technological relations between the amount of capital and the
level of productive activity in a sphere of industry. A Sraffian use of
simultaneous equations based on such a standpoint, viewing the
relationship between the total amount of bank capital and that of
loans as technologically rigid, induces C. Panico's conclusion that
'once the wage rate is taken as an independent variable the rate of
interest is determined within the material conditions of reproduction'
in parallel with the general rate of profit and the prices of pro-
duction. 19 Though Panico's argument seems in a sense attractive and
is worth careful examination, it is not acceptable in my view even
apart from its deviation from Marx's position on the average rate of
interest and its neglect of Marx's theoretical concern with the fluctu-
ation of the market rate of interest. Contrary to the implications of
Panico's analysis, the average rate of interest is not technologically
determinable; together with the social quantity of mobilisable money
capital, it regulates, with some elasticity, the total investible amount
of bank capital, and not vice versa.
The positive role of both credit and interest in promoting the

equalisation of the profit rate and the expansion of production by
mobilising or reducing idle circulation capital and costs is not always
guaranteed. The accumulation of loanable money capital through
bank credit, proceeding separately but alongside the accumulation of
real capitals, will not always be harmonious. In a special phase,
over-accumulation of real capital causes shortage of loanable capital.
Then, the market rate of interest cannot remain within the maximum
limit of the general rate of profit, but rises in conflict with the falling
rate of profit. The whole credit system and interest movements work
then as a disturbing and destructive mechanism for a capitalist
economy. In the depression which follows, the credit system would
neither be so destructive nor positive for the accumulation of real
capital. The functions of the credit system in promoting competition
and the accumulation of real capitals must be clarified more con-
cretely through such changing phases in the process of capital ac-
cumulation. This is a problem for the theory of business cycles in
Chapter 9, a theme which Marx, unlike the classical or the neo-
classical school, so emphatically attempted to pursue throughout his
analyses of the credit system, especially in the chapters on 'Money
Capital and Real Capital' in the third volume of Capital.
8.3 JOINT-STOCK CAPITAL

In his initial plan for his lifework Marx intended to present 'joint-
stock capital' as the highest complete form of 'capital' in the fourth
and last part of the volume on capital after the parts on 'capital in
general', 'competition' and 'credit', as we have seen in Chapter 3,
Section 3.2 of this volume. Although Marx much expanded the
theoretical system of 'capital in general' in the Grundrisse, and
reformed it so as to include basic theories not merely on competition
and credit among capitals, but also on the positions of landed prop-
erty and wage-labour, presenting the principles of a capitalist econ-
omy as a whole in Capital, he did not develop a theoretical chapter or
part on joint-stock capital, except for some theoretical notes annexed
to the working of the credit system. It seems clear that the actual
position of joint-stock capital especially in the industrial spheres was
so marginal in Marx's age as to have restricted him in giving a full
treatment of its form and functions. It was R. Hilferding in Finance
Capital (1910) who initiated a Marxian theory of joint-stock capital
more fully on the basis of the historical development of industrial
joint-stock corporations in heavy industries from the last quarter of

nineteenth century. Thus, just as we had to specify our basis of
abstraction for the basic theory of the credit system in accord with
Marx's own age, we must shift our basis of abstraction for the
full-scale basic theory of joint-stock capital into the later period of
capitalism. At the same time we should avoid Hilferding's tendency
abstractly to generalise those special features of German joint-stock
corporations in relation to the banks in his age, and to mix up the
different levels of researches, the basis principles of the capitalist
economy and the more concrete studies of the stages of capitalist
development with its international relations in the world market. 20
Bearing these methodological points in mind, let us try to formulate
the theory of joint-stock capital as the highest and the last form of
capital at the level of basic principles.
The functions of the credit system and the money market centre on
short-term mutual accomodations of idle-money funds through the
representative form of bills of exchange. The forms and mechanisms
of the credit system in the basic theory are grounded in the process of
commodity circulation among industrial and commercial capitals
mobilising their own more or less short-term idle-money capital. A
longer-term loan for fixed capitals was outside of the usual business
of commercial banks, and it usually entailed a special tie or control
similar to the case of joint enterprises as we saw in the activity of
German investment banks. Hilferding presupposed such a long-term
loan for fixed capital in his notion of 'capital (or investment) credit',
as if it were a part of a general theory of bank credit, and then
deduced the necessity of the formation of joint-stock capital so that
the banks could restore their liquidity by selling the share of indus-
trial capitals. However, the logic of the formation and the functions
of joint-stock capital are not generally confined to those indicated in
Hilferding's theory which reflected rather the specific German his-
torical experience of his age. Apart from such specifically German
experience, joint-stock capital is generally a form of capital which is
definitely suitable for mobilising idle-money capital into the construc-
tion of huge sums of fixed capital beyond the limits of bank credit
grounded on short-term commercial credit.
Joint-stock capital takes the form of dividing property into many
shares or stocks. Each stock normally represents a share of the
equally divided principal capital invested in a corporation. When an
industrial enterprise is converted into a joint-stock corporation, the
ownership of capital becomes in a sense doubled: on one hand the
ownership of the real capital active in the process of production and

circulation centrally controlled by the corporation itself, and on the
other hand ownership of the corporation by the shareholders. Cor-
respondingly, the acquisition of profit from the motion of real capital
also takes two steps and is divided into the acquisition of actual profit
by the corporation, and then the secondary acquisition of profit
mainly as share dividend among shareholders. Dividends on profit,
after the deduction of managerial costs are normally declared to
shareholders in proportion to the numbers of stocks they have. Thus
by dualising both ownership of capital and acquisition of profit, the
form of joint-stock corporation assures that on the one side their is
unity of managerial control over real capital, and on the other
co-propriatorship of the same capital among many capitalists. The
managerial operation of real capital in motion is not usually impeded
by changes in shareholdings or by any increase of them. Therefore,
the stocks representing the shares of ownership of corporation are
generally freely saleable.
Joint-stock corporations with their negotiable stocks appear as the
most suitable form of capitalist organisation for expanding the num-
ber and the range of joint investment for a certain enterprise. It
facilitates the joint investment in large-scale fixed capital, which
cannot easily be undertaken by an individual capitalist. Bank credit
based upon commercial credit cannot generally finance the construc-
tion of such fixed capitals as we have seen. Since the basic principle of
a capitalist economy lies in the individual pursuit of private profit
based upon a commodity economy, sharing investment and profit
with other capitalists would not usually be done in the spheres where
the expansion of production can be carried out by individual capital-
ists. There have actually always been many industrial spheres (as well
as spheres in commerce and services) technologically suitable for
small individually owned enterprise in the process of uneven develop-
ment, even in the most advanced capitalist countries with giant
joint-stock corporations at their centre. 21 However, in the spheres
where the size of fixed capital becomes so massive that it is difficult
for individual capitalists to provide, joint investment to a large extent
in the form of joint-stock corporations must be introduced. Money
gathered in exchange for stocks issued by founding a joint-stock
corporation or by increasing the stocks of an existing corporation,
can jointly be invested in the motion of real capital including massive
fixed capital. Idle money is thus concentrated and mobilised into the
motion of real capital to earn profit in the form of joint-stock capital.

In this way, as Marx pointed out, the 'formation of joint-stock
companies' involves a 'tremendous expansion in the scale of produc-
tion, and enterprise which would be impossible for individual capi-
tals' (III, p. 567).
In the process of the uneven development and increasing number
of industrial spheres, joint-stock companies were formed initially
rather in peripheral spheres like transportation, mining or some part
of banking, but later on it extended to the more central spheres along
with the development of heavy industries. When industries with
massive fixed capital become dominant in determining business fluc-
tuations, the typical business cycles become metamorphosed into
more irregular fluctuations often with prolonged depressions. While
social demand is one-sidedly increased in the gestation period necess-
ary to build up huge plants and equip them, this creates a speculative
boom in some industries in the phase of prosperity. Excessive large-
scale fixed capitals, often completed after the beginning of depression,
tend to impede and prolong the process of restructuring. Equalis-
ation of the rate of profit across industries and its social function of
readjusting the imbalance of investment among industries would also
be so much obstructed in a prolonged depression as well as in the
speculative boom, as we shall see in more detail in Chapter 9.
The form of joint-stock capital thus functions as a means to
facilitate the construction of massive fixed capitals, and resultingly
brings about the metamorphosis of business cycles. Prolonged de-
pression and a chronic continuance of excessive capitals, in the form
of idle-capacity and idle-money funds, tend to prevail in a certain
number of industrial spheres, even in speculative boom periods.
Idle-money capital in those depressed industries, such as deprecia-
tion funds and accumulation funds, would look for other channels for
investment outside of both its original individual process of produc-
tion and the short-term money market. The form of joint-stock
capital is utilised to absorb and channel various money funds, includ-
ing such idle-money capital, into the construction of larger-scale fixed
capitals with new technologies or in new industries expecting to get
extra profit. In this regard joint-stock capital can mobilise and shift
idle- money capital from depressed spheres to other industries where
commodity products are still in short of supply. In contrast, the
difficulty in the depressed industries with excessive fixed capitals
cannot directly be solved through the functions of joint-stock capital.
In fact, the difficulty may be deepened by joint-stock capital which

may add a greater and more modern capacity even to the depressed
industries. Excessive fixed capitals cannot but be gradually de-
preciated and withdrawn, so far as they are not scrapped and de-
stroyed as capital values.
The form of joint-stock capital is then utilised not merely in
mobilising idle-money capital for use as real capital, but also in
combining existing industrial capitals together in order to mitigate
the difficulty of accumulation in the depressed industries. It is easy to
combine multiple industrial capitals into a single capital in the form
of joint-stock capital. The merger of multiple industrial capitals by
founding a joint-stock corporation is realised without impeding or
altering the motion of real capitals. In this case the stocks of a new
corporation are distributed among the owners of old capitals in
proportion to their estimated assets. Merger is also possible by
increasing the capital stocks of an existing corporation so as to merge
the capital assets of others in exchange for the newly issued stocks.
Rationalisation by technological unity of the processes of production,
utilisation of by-products, economy in the costs of circulation, etc.,
are usually expected to improve profitability in a vertical merger of
capitals across related industrial spheres. Instability of profit due to
fluctuations of prices of raw materials, semi-products and finished
products may also be expected to be mitigated. Horizontal merger of
capitals within the same industry is often aimed at avoiding or
mitigating severe price competition, besides economy in the costs of
management and circulation. As the number of industrial capitals in
the same sphere decreases with their increased size, competition to
reduce the price of commodity products may become cut-throat
without easily driving out competitors, and it therefore tends to be
avoided, or ended by such horizontal mergers. 22
The basic function of joint-stock capital of extending the range of
joint investors is further scaled up through the centralisation of
capitals by merger creating bigger corporations. Giant joint-stock
corporations are thus formed. Stocks of giant corporations become so
numerous and shared among so many holders that they are dealt with
as a perfect commodity and daily transacted on stock exchanges.
Each stock represents a share of ownership in real capital invested in
a corporation, and fundamentally differs from a negotiable instru-
ment giving the right to regular money income such as a state bond.
However, daily transactions of stocks on the exchange would not
usually cause an alteration in the persons having substantial control
over the real capital of corporations. As the stocks of giant corpora-

tions are much increased in number and scattered among numerous
share holders, those small shareholders who cannot in practice par-
ticipate in the substantial control or management of the corporation
must increase in number. Purchase of stocks by such small share-
holders in practice means nothing but the purchase of negotiable
certificates of title for a share in the profit of a corporation. Just as the
democratic right to vote in a bourgeois general election by no means
guarantees the people substantial participation in real political de-
cisions, a formal democratic right to vote at a general meeting of
stockholders in proportion to their number of stocks substantially
excludes a large number of small shareholders from real decisions
over the managerial policies of a corporation. The centralisation of
control in a corporation into the hands of a small number of big
shareholders is thus so much strengthened. The more dispersed and
widespread the owners of a giant corporation become, the more
easily a small number of big shareholders can maintain their control
over the management of the corporation, including the capitals of
other persons, by safely reducing their holding ratio of stocks.
Big shareholders are enabled thus to withdraw a portion of their
capital from their own firm, and can mobilise a portion of their
capital back into its money-form by selling a part of their stock
without abandoning their control over the firm. According to Hil-
ferding: 'In practice, the amount of capital necessary to ensure
control of a corporation is usually less than a half, amounting to a
third or a quarter, or even less. m It is not rare nowadays to see the
ratio of the biggest shareholder of a giant corporation even less than
10 per cent. As Hilferding points out: 'The large capital dominating a
corporation has even greater impact when it is no longer a question of
a single corporation, but a system of interdependent companies. ' 24
Besides the vertical system of holding stocks of subordinate compa-
nies, the horizontal relation of the mutual holding of stocks between
companies in the different spheres is also conspicuous. Through such
developments even the big shareholders would not commonly partici-
pate in the daily practice of the management of real capital, leaving it
more to hired directors and managers. In Marx's words the formation
of joint-stock companies involves the 'transformation of the actual
functioning capitalist into a mere manager, in charge of other people's
capital, and of the capital owner into a mere owner, a mere money
capitalist' (III, p. 567). In my view, however, Marx's statement
appears to separate ownership and the function of capital far too
completely. It must be noted that the big shareholders are in a

position to decide crucial managerial policies, including the employ-
ment of directors. Actually a shift of control over a corporation from
certain shareholders to others is possible as in a case of a take-over
bid through the purchase of stocks of the corporation.
Stocks which are transacted at a market signify therefore a title,
not merely to the proportional share of profit as dividend. The
situation, which appears as a thorough separation of control from
ownership of capital in the eyes of small shareholders, conceals the
centralisation of managerial control into the hands of big share-
holders on the basis of their ownership of stocks, as well as the
vertical and horizontal system of holding stocks among companies.
Transactions in the stock exchange sustain this centralisation of
substantial control over real capital, and may even actually shift it
from certain holders to others. The title of a stock to dividend as a
share of profit, and not for interest, also signifies that a stock is in its
essence a title to a share of the ownership of actual capital in the form
of corporation itself. In these regards the transactions of stocks at the
exchange form transactions of industrial or actual capitals in motion
as a commodity, not merely in a legalistic sense, but also in their
economic nature as well. The stock exchange is thus essentially a
capital market.
In a capital market the stocks of giant corporations are daily
traded, and the units traded can be of relatively small amounts. Some
of idle-money funds which would otherwise flow into banks as depos-
its earning interest, may enter the capital market and purchase stocks
despite the speculative risk of loss as well as gain, through fluctu-
ations in stock prices. Contrarily, money funds withdrawn from the
capital market by the selling of stocks in some periods often flow back
into the money market through the banks. A fluid interrelation is
thus formed between the money market and the capital market. Then
the owners of idle-money funds would certainly compare the ratio of
dividends from profit per stock against the price of a stock in the
market as the dividend yield, with the rate of interest in the money
market when they consider the profitability of the investment of their
funds in stocks in the capital market . Therefore, the rate of interest
in the money market serves as a standard of judgement for the
possible investment of idle money in the capital market. As a result
demand and supply in the capital market determining the overall
level of stock prices, is regulated by the rate of interest (i), so as to
equalise the dividend yield (y = diPs, i.e. dividend d per stock,
divided by the price of a stock, Ps) and the rate of interest. In other
words, the price of a stock is tendentially determined around the
standard price, being the capitalised amount of dividend per stock, or
the price calculated by dividing the dividend per stock by the rate of
interest (Ps = d/i).
In practice the dividend does not precisely represent the actual
profit earned by a corporation. A part of profit must be subtracted for
the remuneration of directors and managers. Internal reserves and a
disguised form of profit through accelerated depreciation funds, etc.,
are often also subtracted (although stock investors use indices that
compensate for such manoeuvers). Contrariwise, a portion of inter-
nal reserves are sometimes added to the dividend in order to stabilise
the stock price against a decline in actual profit. In addition, transac-
tions of stocks in the capital market always involve anarchic specula-
tion as to prospects of individual companies, the motion of interest,
and business activities in specific spheres and in general. Conse-
quently, the actual stock price commonly deviates above and below
the theoretical standard level of the capitalised dividend from profit
per stock. However, the stock price of a corporation must increase
tendentially as its actual profit per stock rises, reflecting actual profit-
ability, and would generally decline as the rate of interest rises, so as to
fluctuate if widely around the theoretical standard defined above.
Even though the dividend yield (y) thus tends to be equalised with
the rate of interest (i), giving profit the form of interest, it does not
mean that the real rate of profit (p') against a corporation's own
principal capital actually invested, and not against the stock price,
also becomes identical to the interest rate. Competition among
capitals for higher rates of profit on actually invested capital must
effect even giant corporations and consequently works as a means of
equalising the rate of profit in the long run by shifting capitals from
spheres with a profit rate lower than average to other spheres with a
higher profit rate. Marx seems to neglect this when he says: 'Since
profit here simply assumes the form of interest, enterprises that
merely yield an interest are possible, and this is one of the reasons
that hold up the fall in the general rate of profit, since these enter-
prises, where the constant capital stands in such a tremendous ratio
to the variable, do not necessarily go into the equalization of the
general rate of profit.' (III, p. 568). Hilferding criticises Marx's
statement here by saying: 'Marx was thinking of the railway corpora-
tions of his day', . . . . 'it is clear that with the spread of the corpora-
tion its profit, just like that of an individually owned enterprise, must
contribute to the equalization of the general rate of profit. ' 25 Hilferd-

ing must be relatively correct here, though we have to admit also that
the equalisation of the rate of profit is obstructed and retarded in case
of giant corporations because of the immobility of huge masses of
fixed capital and to some extent also by the splits in the mutual
interest between small shareholders , hired managers and big share-
holders.
In so far as the average rate of profit is usually higher than the rate
of interest, the capitalised amount of the dividend from profit would
generally be greater than the amount of capital actually invested as
profit-bearing. The gap is defined by Hilferding as 'promoter's profit'
( Griindergewinn) which is 'an economic category sui generis'. 26 Ac-
cording to Hilferding's numerical example, an industrial enterprise
with a capital of 1 000 000 marks makes profit of 150 000 marks with
the average profit rate of 15 per cent. When the interest rate is 5 per
cent, straight capitalisation of annual income of 150 000 marks will
have an estimated price of 3 000 000 marks. A deduction of 20 000
marks for various costs of administration and directors' fees, etc.,
would make actual dividend for shareholders 130 000 marks out of
150 000 marks. A risk premium of 2 per cent would be added to a
fixed safe rate of interest of 5 per cent in estimating the actual stock
price. Then the stock price of the enterprise would be 1 857 143
(130 000 + 0.07) marks, or in round figures, 1 900 000 marks, which
leaves 900 000 marks free after deducting the actual initial invest-
ment of 1 000 000 marks. This balance of 900 000 marks appears as
'promoter's profit', which 'arises from the conversion of profit-
bearing capital into interest-( or dividend-)bearing capital'. 27 The
founders of the enterprise, or the promoter (mostly assumed to be a
bank in Hilferding's analyses) who promotes the conversion of the
enterprise into a joint-stock company, can earn the promoter's profit
by selling the stocks of the enteprise on a capital market.
Where does the promoter's profit come from? Who bears or pays
this profit to the founder or the promoter? Hilferding attempts to
explain this, following Marx's theory of the qualitative division of
profit into interest and profit of enterprise (or entrepreneurial profit),
upon the assumption that the promoter is a bank.
While the money capitalist receives interest on the money he

lends, the bank which issues shares lends nothing and therefore does
not receive interest. Instead, the interest goes to the shareholders in
the form of dividends. The bank receives a flow of entrepreneurial
profit, not in the form of an annual revenue, but as capitalized

promoter's profit. Entrepreneurial profit is a continuous stream of
income, but it is paid to the bank as a lump sum in the form of
promoter's profit. 28
This explanation is theoretically confusing and incorrect, though it

might to some extent well suit the capitalists' superficial conception
and their way of calculation. In reality, acquisition of the promoter's
profit does not eliminate an annual inflow of total profit which
contains, in the conception of the qualitative division of profit, both
the portion of entrepreneurial profit and the portion of interest.
Actually the annual total profit of the company as such would
continuously be shared through dividends. In other words, dividends
as a whole cannot be limited to the portion of interest in a notion of
the qualitative division of profit, but must represent in principle the
distribution from the total profit of the enterprise. Therefore, the
substantial source of the promoter's profit is not from the profit of the
enterprise as Hilferding tries to show, but rather from outside of it in
the idle-money funds of capitalists, landowners and so forth who
purchase the stocks issued mostly as small shareholders comparing
expected yields with the interest rate at the money market. Thus, in
my view, the promoter's profit represents a redistribution of the
already existing monetary assets through the transactions of stocks of
companies newly founded or reorganised. It is obtained also in the
case of an increase in capital by the issue of new stocks from existing
companies. It must additionally be noted that the promoter's profit is
not totally realised, but remains an imaginary calculation in respect
to the portion of shares continuously kept in the hands of founders as
big shareholders.
Anyway, capitals organised in the form of joint-stock capital are
given the complete form of a commodity transacted daily in a capital
market, besides their actual motion as accumulating and self-ex-
panding value through the processes of production and circulation.
Capitals as the movement of self-increasing value are thus traded as a
perfect commodity at stock prices. In so far as stock prices tends to
equalise the yield rate of dividends and the interest rate in the money
market, industrial capitals, or profit-earning real capitals including
commercial and bank capitals, organised as joint-stock companies
are given a form of expression as an indifferent part of total social
money capital. Thus, joint-stock capitals which in fact have uneven
rates of profit appear in the form if fictitious money capitals with
equal yields on their stock prices. The actual inequality of the rates of
profit is thus hidden and buried in the tendential equality of the rates
of dividend yield in the form of joint-stock capital. Similarly, any
regular annual income such as ground-rent or fixed interest on state
bonds is given the fictitious form of money capital as the capitalised
amount of the annual income estimated on the current rate of
interest. In principle this is the way to determine the standard price of
land on the basis of the preceding theory of ground-rent. 29
Capitalism is a specific socio-economic formation grounded on the
commodity form. It systematically embraces into that form all the
elements of economic life under the dominant motion of capital. The
commodity form of labour-power, besides that of the means of
production and consumption, was an essential precondition for the
formation of a thorough commodity economy as capitalism. In the
mechanisms of the motion of capitalism, the commodity form is
further given to money funds in a money market, and finally to
capital itself, which is the central subject of the whole system. The
logical process of the development of the forms of commoditisation
in a capitalist economy then reaches in principle its final and highest
form in joint-stock capital. As Marx suggested in his initial plan,
joint-stock capital must thus be really presented as the most devel-
oped final form of capital. In fact capitalism has not created any
further forms of capital beyond this. For instance, finance capital or
monopoly capital is a concrete organisation of giant joint-stock
corporations each with its national characteristics,30 and multinational
corporations are the more developed organisation of such finance
capital across international spheres of activity. Development of both
of these types of capital does not contain a fundamentally new form,
but are rather related to the more concrete national or international
economic conditions faced, which must be studied along with their
actual historical significance at separate, more concrete levels of
researches founded on the basic principles of capitalism.
In its highest complete form of joint-stock capital, however, capital
cannot effectively make up a completely unified system of reproduc-
tion. The creation of giant joint-stock capitals partially mitigate the
difficulty of accumulation and profitability for themselves, but does
not solve and may indeed deepen the difficulties for other capitals as
well as of the economy as a whole. The movement of capitals in
readjusting the anarchical imbalances between industrial spheres,
through competition among capitals equalising the rate of profit, are
constantly obstructed and retarded by the relative immobility of giant
joint-stock corporations with huge fixed capitals. Though a shift of

capital into a new and promising industrial sphere is facilitated by
joint-stock capital, the difficulty in coping with excessive capital in
the production processes of existing industries tends to be prolonged.
Such a difficulty is not only found in the horizontal relations across
industrial spheres, but it also slows down the vertical resolution of the
social contradiction between the growth of productive power and the
production relations, prolonging the depression with its conspicuous
and hidden unemployment. The law of value is thus impeded in its
work, and many imbalances in the economic processes tend to
remain both horizontally and vertically.
The formation of the final and highest form of capital in joint-stock
capital, therefore, does not substantially remove the difficulties or
imbalances in capitalist reproduction as a whole, but remains an
individualistic form of organisation only partially mitigating difficult-
ies in profitability. The stock price form, which expresses the equalis-
ation of the rate of dividend yield compared to the rate of interest, is
in a sense an inverted expression of the real difficulty in equalising the
rate of profit, with all the difficulties in readjusting the imbalances in
the whole economy. Thus, even in its highest form of development,
the organisation of production by capitals must remain partial, and
cannot be directly socially comprehensive and harmonious. This
corresponds to the historically specific character of capitalism, based
on the forms of a commodity economy which originate outside of
social production. Joint-stock capital as the highest form of the
development of capital thus clarifies in its ultimate form the histori-
cally restrictive nature of capital as the subject for organising social
production.
This historical restrictive character of capitalism is more concretely
to be seen in the dynamics of capital accumulation, in its business
cycles and crises, which are now ready to be analysed.
9 Business Cycles and
Crises
9.1 THREE SOURCES OF CONFUSION TO BE
CLEARED UP
Capitalism as a historically specific social formation contains inner

contradictions which appear most obviously in those periodical self-
destructive crises, in the process of business cycles. The classical
school and the neo-classical school treated capitalism one-sidedly as a
harmonious economic order and disregarded both its historical
character and its inner contradictions. A natural result was a lack of
crisis theories in these schools. A great advantage of Marx's Capital
as compared to these schools is its comprehensive attempt to clarify
the logical inevitability of periodic business cycles and crises from the
basic contradictions in capitalism. However, Capital was left incom-
plete, especially in this field, and theoretical positions among Mar-
xians have been diverse here. In my opinion, there are initially three
major sources of confusion to be established and then cleared up as
far as possible.
First: the historical basis of abstraction. Just as in the case of the
theory of the credit system and joint-stock capital, the basic theory of
business cycles and crises requires conscious clarification of the
historical basis of abstraction. The theory of regular periodical busi-
ness cycles and crises must be abstracted from the stage of economic
liberalism, because in this period capitalism repeated its most typical
cycle of prosperity, crisis and depression around every ten years,
following a similar course and with the least state intervention. At the
same time various causal factors and incidents which characterise
each individual cycle, even within the same stage of liberalism, must
certainly be excluded from the basic theory and studied at more
concrete levels of research. If we directly take into consideration
different historical periods and individual processes from the start of
our process of analysis, then we probably have to be satisfied, as
G. Haberler suggests, 1 with a typology of the various causal factors as
associated with business cycles, so denying a coherent logical expla-
nation of regular cycles with sharp inevitable crises. Or, some theor-
ists might happily agree with R. Hilferding in asserting that 'it is the
290
Business Cycles and Crisis 291
alternation of prosperity and depression which is crucial for the

wave-like character of the business cycle, and the suddenness of the
change is a secondary matter' ,2 retreating somewhat from Marx's
position on crisis theory, by generalising from the historical experi-
ence of the later stage of capitalism. However, the description of the
alternation between prosperity and depression itself cannot be either
a solid or unified theory without a central concept of regular crises
based on the typical business cycle of the liberalist stage, since the
metamorphoses of business cycles since the imperialist stage have
actually shown indeterminate and unstable changes which are diffi-
cult to theorise into a positive explanation of regular cycles, as we
shall discuss later.
Once a coherent basic theory of regular cycles and crises is ob-
tained upon the historical ground as argued above, it can serve as a
solid and not an arbitrary frame of reference for studies of the
metamorphoses of cycles at various levels of research as well as for
the specificities of each individual cycle. Certainly, since it is con-
sciously abstracted from the liberalist stage, the basic theory of
regular cycles and crises cannot be directly or simply applicable to
any other stage in the same causal manner. The historical meta-
morphoses of business cycles, as well as their individual character-
istics can, however, be analysed more objectively and assessed in
accord with actual changes, once we have thus confirmed the specific
stage of capitalism as the basis for the abstraction of the theory of
regular cycles and crises. At the same time we can still avoid the
arbitrary act of either making abstract generalisation of each special
historical period in turn, or in the application of a randomly con-
structed model using various causal propositions put in a typological
order at best.
Second: different theories in Marx. There are two major different
theories of crisis in Marx, each of them containing a further two
separate variants. In the third part of the third volume of Capital,
Marx attempts to show that excessive capital accumulation causes a
fall in the rate of profit, either tendentially due to the rising organic
composition of capital, or suddenly, due to labour shortage and a rise
in wages, which threaten capital and generate crises (cf. III, p. 350,
pp.360-8). In these types of theories, over-supply of commodities in
a market in relation to demand appears as a result of the over-
accumulation of capital which is expressed in a fall in the profit rate.
At the same time Marx also says in the same third part that 'The
conditions for immediate exploitation and for the realization of that
exploitation are not identical. . . . The former is restricted only by

the society's productive forces, the latter by the proportionality
between the different branches of production and by the society's
power of consumption.' (III, p. 352. See also p. 615 in the fifth part.)
The excess commodity theories of crisis are presented here. In these,
the excess of commodities which are difficult to sell, either due to the
disproportionality of production in various branches or the narrowly
restricted consumption of the masses, are conceived to be the ulti-
mate reason of crises. 3 Excessive capital and a fall in the profit rate
are seen, unlike in the excess capital theories, as results of overpro-
duction of commodities beyond effective demand causing crises.
A source of confusion among Marxian crisis theorists has been in
the tendency to interpret Marx's theory of crisis as complete and
unique, choosing one of four variants and accusing other theories of
not being founded in Marx's work and so not really Marxian. 4 As an
interpretation there is no doubt that different crisis theories have
been left unfinished in Capital. We should confirm this as a fact and
should discuss how to complete a basic theory of crisis from the
theoretical material left us by Marx. A typological approach might
enable us to hold all the four theories together in a tool box.
Practically, too, in the concrete analyses of the historical metamor-
phoses and the individual features of crises, different causal factors
must actually and flexibly be taken into consideration. A consistent
theory of regular business cycles and crises required at the level of
basic principles, however, cannot be contructed through a typology
of different possible causal factors. What then are the requisites for
the basic theory of the business cycle and crisis? In my view they can
be summarised into three points: (i) a Marxian theory of crisis must
show the logical inevitability, not the mere possibility, of sharp,
generalised crises as an expression (even if not an absolutely indis-
pensable expression) of the inner contradictions of capitalist produc-
tion. (ii) It must also show the cyclical character of crises together
with the regular alternation of prosperity and depression as a form of
capitalist development, since economic crises themselves can neither
be so chronic nor so completely destructive, especially in the form of
regular cycles. (iii) It should be consistent with the working of the law
of value. This final point combined with the other two needs some
further clarification so as to assist us in selecting an appropriate type
of crisis theory to act as the basic principle.
Third: the relation with the law of value. As the excess-commodity
theory of crisis originates from the anti-classical school, e.g. J.-C.-L.
S. de Sismondi and T. R. Malthus, its logical relation with the labour

theory of value has been a difficult problem to overcome for Marx
and his followers. 5 According to the labour theory of value the
varying amounts of labour required to produce commodities regulate
prices. When some commodities, say the means of consumption, are
produced well beyond the effective demand for them, their prices will
decline below the prices of production so as to act as a brake on the
expansion of their production. This may not necessarily generate a
crisis. So far as capital accumulation proceeds as a whole, effective
demand for the means of consumption, especially in the spheres
producing the means of production, will continue to increase, while
their production is slowed down. Then the prices of the means of
consumption should be restored as the imbalance between demand
for and supply of them is solved. Thus, the supply of and demand for
the commodity products, and the allocation of labour socially necess-
ary to produce them can repeatedly be readjusted as an effect of the
operation of the law of value, as long as capital accumulation goes
on. All that the excess commodity theory of crisis, either of an
under-consumption type or of disproportionality type, can show is
the possibility, and not the logical inevitability of general crises, in
relation to such an operation of the law of value. Crisis theory must
clarify how the working of the law of value becomes distorted,
destroyed and restored in the course of business cycles. So long as the
under-consumption or the disproportionality types of excess com-
modity theory of crisis are argued as the logic of a cumulative process
of an increasing imbalance between supply and demand, neglecting
the working of the law of value, it then becomes quite difficult to
explain why an imbalance should suddenly become so severe as to
cause a general crises, yet of a periodic character and after a certain
length of prosperity. 6 In the phase of prosperity, it is relatively easy
for capitals generally to readjust an imbalance between supply and
demand in a commodity market. Say's law seems operative in the
process of prosperity. Explanation of this sort of prosperity must
remain a difficulty for the excess commodity theories. The difficulties
in the excess commodity theories seem to me to come from the fact
that this position does not present a more basic difficulty for capital
accumulation prior to an over-supply of commodity products.
Excess-capital theories of crisis can fall more in the Ricardo-Marx
tradition, and are easier to make consistent with the law of value. In
the excess-capital theories the rising organic composition variant
arises from Marx's explanation of the law of tendential fall in the
profit rate. This law is presented exactly in terms of labour value

without referring to the realisation problem in the market. Its essence
is as follows: In the process of capital accumulation the organic
composition of capital expressed in the ratio between the amount of
living labour (v + s) and that of dead labour (c) embodied in the
means of production, i.e. q = (v + s)/c, would decline without limit in
the long run. The same amount of living labour, expressing rising
productivity, will use more and more of the means of production not
merely physically but also in terms of labour-substance. Then the rate
of profit, p' = sf(c + v), must also tendentially fall as its upper limit (q
> p') declines. This logic holds indifferently of the movement of the
rate of surplus-value (s' = s/v) upwards, reflecting the production of
relative surplus-value as a result of rising productivity. Nevertheless,
the working of the law of the tendency of the rate of profit to fall
cannot, if ever, be very suitable for explaining periodical crises. For
one thing, its working may not be so conspicuous within a period of
prosperity, where capital accumulation may take rather a widening
native with a relatively constant composition. Besides, the increase of
the physical amount of the means of production against the same
amount of living labour tends to be counteracted by the reduction of
labour-value per unit through the process of rising productivity. For
another, the working of the law of the tendency of the rate of profit to
fall does not exclude a continuous increase in the absolute amount of
surplus-value and capital in the process of accumulation even if at a
reduced pace, and therefore the law cannot show in itself at what
point of the process a clear limit to capital accumulation causes a
periodical crisis to appear. Three options remain: either to rely on
some particular arbitary specific premises (as in the case of
H. Grossmann), to combine some other crisis theories (E. Preiser,
M. Dobb and E. Mandel), or to show only an abstract need for
capitalism to mitigate the law of the tendency of the rate of profit to
fall through the process of crises (P. Bullock and D. Yaffe). 7 Neither
of them is satisfactory in showing the logical inevitability of periodical
crises in a coherent way.
The labour-power shortage variant of excess-capital theory might
be considered to be able to overcome such defects and to present
logical inevitability more consistently in relation to the law of value.
It can fully agree that it is the operation of the law of value which
adjusts the incessant anarchic imbalance between the supply of and
demand for commodity products in the process of prosperity, and can
further explain how the working of the law of value becomes
distorted and then breaks down as a shortage of labour-power ob-

structs capital accumulation by pulling down the profit rate. We shall
see in more detail a little later, how excessive capital accumulation in
relation to the labouring population would reverse the social func-
tions of the credit system and generate an acute crisis, and then how
excessive capitals are destroyed and capitalism is restructured
through the period of depression, so as to prepare for the next
periodical prosperity. It must be one of conspicuous contributions of
K. Uno and his followers to have remoulded Marx's more or less
fragmentary theories into a coherent basic theory of regular periodi-
cal business cycles and crises on this variant of the excess-capital
theory. 8 Before coming to its contents, however, we have to discuss
Marx's 'General Law of Capitalist Accumulation' and the capitalist
law of population in chapter 25 (English version) of the first volume
of Capital as a necessary preparation.
9.2 THE LAW OF CAPITALIST ACCUMULATION
It is often believed that Marx's law of capital accumulation demon-

strates the continuous progressive production of a relative surplus-
population through an incessant process of the rising organic com-
position of capital. If capital accumulation as a whole always pro-
vides, by itself, an excessive supply of labour-power in the form of a
relative surplus-population or an industrial reserve army independent
of the size or growth of the labouring population, the labour-power
shortage variant of the excess capital theory of crisis would lose any
validity. It might be a reason why Marx presented the notion of 'an
absolute overproduction of capital' in relation to the labouring popu-
lation (III, p. 360) in the subjunctive mood and further reviewed it as
occurring 'under the most extreme assumption' (III, p. 364). Such an
interpretation of Marx's law of capital accumulation has certainly
been stressed by advocates of other variants, especially the under-
consumptionist variant of crisis theory. 9 As an interpretation, it is not
totally wrong, but clearly neither comprehensive nor complete if
studied a little more carefully. Marx's formulation of the general law
of capitalist accumulation and the capitalist law of population in
chapter 25 of the first volume of Capital is actually composed of three
somewhat different arguments, which are somewhat independent and
not yet organically unified. Let me first summarise those arguments: 10
(i) The first section of chapter 25 is titled 'A Growing Demand for
Labour-Power Accompanies Accumulation if the Composition of

Capital Remains the Same'. Under this assumption, the demand for
labour-power increases in the same proportion as capital and must
eventually exceed the supply making wages rise. 'This must indeed
ultimately be the case if the conditions assumed above continue to
prevail', as the increment of the capital itself 'grows every year along
with the augmentation of the capital already functioning' (I, p. 763).
When wages rise, 'all other circumstances remaining equal, the
unpaid labour diminishes in proportion' (I, p. 771).
Marx assumes here that as a consequence of the rise in the price of
labour-power 'the rate of accumulation lessens; but this means that
the primary cause of that lessening itself vanishes, i.e. the dispropor-
tion between capital and exploitable labour-power' (I, p. 770). Thus,
Marx presents a complete cycle of the capitalist law of population
already in this first section, 11 and expresses it also mathematically in
the famous phrase that 'the rate of accumulation is the independent,
not the dependent variable; the rate of wages is the dependent, not
the independent variable' (1, p. 770).
(ii) In contrast to the first section, where the organic composition
of capital is assumed to be constant, the subsequent sections in the
same chapter of Capital shows the different position where the rising
composition of capital results in a 'progressive production of a
relative surplus population or industrial reserve army'. Assuming the
continuous increase in the organic composition of capital in the
process of accumulation Marx states: 'it is capitalist accumulation
itself that constantly produces, and produces indeed in direct relation
with its own energy and extent, a relatively redundant working
population , i.e. a population which is superfluous to capital's aver-
age requirements for its own valorization, and is therefore a surplus-
population' (I, p. 782).
This formulation of the capitalist law of population is combined
with the analysis of different forms of the relative surplus-population
and the illustrations of those forms in the fourth and fifth sections,
based on concrete studies of the dire conditions of the labouring class
in England at that time. Observing the floating (in the centres of
modern industry), the latent (in agriculture) and the stagnant (in
domestic industry, etc.) forms of industrial reserve army, and further
the sphere of pauperism at the bottom, Marx locates them as the
forms of relative surplus-population created and increased by the
process of capital accumulation. In this context he concludes as
follows:
Business Cycles and Crises 297
The relative mass of the industrial reserve army thus increases with
the potential energy of wealth. But the greater this reserve army in
proportion to the active labour-army, the greater is the mass of a
consolidated surplus population, whose misery is in inverse ratio to
the amount of torture it has to undergo in the form of labour. The
more extensive, finally, the pauperized sections of the working
class and the industrial reserve army, the greater is official pauper-
ism. This is the absolute general law of capitalist accumulation. (I,
p. 798).
This statement has often quoted by critics of Marx as evidence of

Marx's assertion of the law of increasing misery, and by some
Marxians as well. It seems clear that Marx formulated here the
general law of capitalist accumulation as progressive increase of the
industrial reserve army. If this law thus formulated were valid and
effective, a rise in wages due to the absorption of wage-labourers
could not occur except in extremely rare cases. And labour-power
shortage would not be related to the regular movement of business
cycles. This is exactly the case for the advocates of under-
consumptionism and for their critique of the labour-power-shortage
theory of crisis.
(iii) However, there is also another argument in the same sections.
According to this, the cyclical process of the absorption and reforma-
tion of the relative surplus population is regarded as a basis of a
decennial business cycle. Marx says for instance: 'The path charac-
teristically described by modern industry, which takes the form of a
decennial cycle (interrupted by smaller oscillations) of periods of
average activity, production at high pressure, crisis and stagnation,
depends on the constant formation, the greater or less absorption,
and reformation of the industrial reserve army or surplus popula-
tion.' (I, p. 785). In the same context we read:
The appropriate law for modern industry . . . is the law of the

regulation of the demand and supply of labour by the alternative
expansion and contraction of capital, i.e. by the level of capital's
valorization requirements at the relevant moment, the labour-
market sometimes appearing relatively under-supplied because
capital is expanding, and sometimes relatively over-supplied be-
cause it is contracting. (I, p. 790).
Then wages cannot be one-sidedly under the pressure of the

progressively increasing industrial reserve army. They must be sub-

ject to fluctuations in the process of the alternate phases of business
cycles. In Marx's words, 'the general movement of wages are exclu-
sively regulated by the expansion and contraction of the industrial
reserve army, and this in turn corresponds to the periodic alterations
ofthe industrial cycle' (I, p, 790). Thus, on a different presupposition
from the first section, where the composition of capital was assumed
to remain constant, a similar complete cycle of the capitalist law of
population including the law of motion of wages is presented. This is
the case which P. Sweezy once underlined, when he noticed 'a
well-articulated theory of crises' in the combination of the notion of
'the absolute overproduction of capital' in the third volume of Capital
and the theory of capital accumulation in its first volume. 12
In all these three arguments Marx makes it clear that the capitalist
law of population, the generation of an excessive working popula-
tion, is a result of the motion of capital accumulation, and not at all a
natural phenomenon as described by T. R. Malthus. In this regard
the theory of a relative surplus-population produced by a rising
organic composition of capital is doubtless one of Marx's great
discoveries. It is also true that Marx tended to emphasise the second
argument among the three above, or the progressive production of a
relative surplus-population, for two reasons.
First, the logic fits with one of Marx's fundamental theoretical
views that a capitalist society polarises a larger and larger number of
poor workers and a decreasing number of rich capitalists through the
appropriation and centralisation of the means of production. This
view originated from Marx's early writings such as the Manifesto of
the Communist Party, as we saw in Chapter 3, Section 3.1, and was
also maintained in Capital, especially in the related sections of
chapter 25 and chapter 32 'The Historical Tendency of Capitalist
Accumulation', as a source for the debates on the law of increasing
misery. However, from this view an increase of employment, in the
process of prosperity, cannot be properly explained and the possibil-
ity for capitalist production to grow as a social formation must be
unduly neglected.
Secondly, while observing the concrete forms of the relative
surplus-population in England in his time, Marx tended to regard all
of the industrial reserve army which actually existed outside of the
central capitalist industries as a relative surplus-population expelled
from capitalist production. As a result, it seems that capitalist pro-
duction is an extremely powerful mechanism for generating an excess
population. However, a large number of people, especially classified

in the latent and the stagnant forms of the reserve army were in these
positions through the process of social decomposition induced by
capitalist development at the centre, and not through being expelled
from the inside of capitalist production. Although they surely play
the role of a reserve arrriy for capitalist production, the process and
the result of their formation should be categorically distinguished
from the production of a relative surplus-population as the result of
capitalist accumulation itself. In this respect Marx was in fact not
analysing pure capitalism even in the first volume of Capital. How-
ever, in so far as the basic theory of capitalism concentrates on the
internal law of motion of capital, the external decomposition process
of other modes of production and its consequences should be studied
at more concrete levels of research. In this case the concept of a
relative surplus-population being created from within the capitalist
process of accumulation may be said roughly to correspond only to
the periodically recurring and floating form of the reserve army in
reality. The relative surplus-population in this form is certainly
absorbed, exhausted and re-created recurrently through business
cycles.
Thus, despite Marx's inclination, followed by most of his under-
consumptionist successors, to emphasise the logic of the progressive
production of relative surplus-population, his other two arguments
which recognise the expansion of employment and the absorption of
surplus working population, particularly in the phase of prosperity,
should be seriously taken into consideration. Is it not possible then to
unify those arguments in Marx more organically? Following Uno's
lead, I maintain that a growing demand for labour-power accom-
panying capital accumulation with a relatively constant composition
of capital characterises the phase of prosperity, whereas the produc-
tion of the relative surplus-population with a rising composition of
capital appears intensively in the phase of depression in the process
of regular business cycles. Thus, Marx's first and second arguments
can be understood as the alternate processess, which form the cyclical
movement of the absorption and reformation of relative surplus-
population in the more contrasting third argument. There are reasons
for such an understanding.
It is often believed among Marxians that capitalist accumulation,
motivated by the possibility of obtaining extra surplus-value as well
as by the pressure of mutual competition, incessantly revolutionises
labour productivity, and thus tends continuously to expel living
labour from the production process. Though such motivation does

always exist abstractly, there are also circumstances which would
constrain differently its working through the alternate phases of the
business cycle. The pressure of competition, for example, would
work differently in the phases of prosperity and depression. Marx
notices this, and refers to the intensified severity of competition as a
result of 'absolute overproduction of capital' in the phase of depres-
sion, and further to the effect of such a severe competitive struggle
for the improvement of productivity:
As long as every thing goes well, competition acts, as is always the

case when the general rate of profit is settled, as a practical
freemasonry of the capitalist class, so that they all share in the
common booty in proportion to the size of the portion that each
puts in. But as soon as it is no longer a question of division of
profit, but rather of loss, each seeks as far as he can to restrict his
share of this loss and pass it to someone else . . . and competition
now becomes a struggle of enemy brothers. (III, pp. 361-2). The
fall in prices and the competitive struggle impel each capitalist to
reduce the individual value of his total product below its general
value by employing new machinery, new and improved methods of
labour and new forms of combination. That is, they impel him to
raise the productivity of a given quantity of labour, to reduce the
portion of variable capital to constant and thereby to dismiss
workers, in short to create an artificial surplus population. (III,
p. 363).
This implies that the capitalist motivation for the improvement of

productivity and rationalisation is milder and not so severe in the
phase of prosperity. In addition, the specific restrictions of existing
fixed capital on the changes in the method of production must be
taken into account. The relative 'freemasonry' in competition during
the phase of prosperity would generally allow the existing fixed
capitals to keep on working profitably. Prosperity spreads certain sets
of technologies in an extensive way and is thus characterised by the
quantitative expansion of production. Accumulation with an abso-
lutely constant organic composition of capital, as formulated in
Marx's first argument above, is certainly too strict a notion for the
phase of prosperity, if taken literally. New investment from profit can
make possible investment in new methods of production and a rise in
the technical composition of capital. However, so long as the existing
fixed capitals continue to work, the competitive introduction of new

methods of production has to be partial and limited, particularly in
the case where new machines are added to existing plant. Even the
equipment already fully depreciated tend to be utilised as a sort of
free asset being more profitable than otherwise. In this respect, as
Marx points out, 'machinery is most valuable for capital when its
value= 0.' 13 In so far as the existing fixed capitals are thus not easily
abandoned in the prosperity phase, the demand for labour-power
must increase absolutely, even if not strictly proportionally to the
accumulation of capital. 14 Therefore, accumulation of capital during
prosperity, which goes on with a relatively constant composition,
absorbing progressively larger number of workers into the produc-
tion process, must sooner or later cause an over-accumulation in
relation to the labouring population.
In contrast, while the intensified competition, the 'struggle of
enemy brothers' impels capitalist rationalisation of the process of
production by the employment of new methods, as Marx notices, the
restriction of existing fixed capitals on radical changes in methods of
production are much lessened. Since the existing fixed capitals are no
longer profitable, there appears a general pressure for capitalists to
renew them in order to restore profitability of the total capitals.
Before being replaced, most of the value invested in fixed capitals
must be converted to the money form, in an amortisation or sinking
fund, so as to reduce the loss from abandoning the remaining capital
value and also to amass the necessary amount of money capital for
new equipment. So long as profitable expansion is impossible on the
basis of old equipment, profit, and some of the circulating capitals are
also collected in money-form, as a preparation for completely new
investment. Thus, the introduction of completely new methods of
production accompanied by renewal of fixed capital is generally
prepared and enforced during the depression and realised mostly
towards the end of depression as a decisive moment for changing the
phase back into prosperity- this is a typical case, of course, at the
level of the basic principle in the theory of regular business cycles.
The irrational character of capitalism from the view of human
welfare is clearly shown in very severe 'rationalization' of the produc-
tion processes so producing a relative surplus-population in the phase
of depression, adding to the already existing unemployed from the
destructive phase of the crisis. The additional relative surplus-
population produced by a rise of the organic composition of capital
serves as grounds for capital possibly to achieve a level of accumulation
in the next period of prosperity higher than the previous peak,

independently of the growth of the absolute number of the active
population. In the long run capital accumulation can proceed without
being restricted by the 'natural' growth rate of population, on the
grounds of the mechanism which produces relative surplus-
population through a rising organic composition of capital. This
long-run process can not always be harmonious or one-sidedly and
progressively devastating in reducing employment and increasing the
relative surplus-population. It contains alternate processes of absorp-
tion and reformation of the relative surplus-population as the capi-
talist law of population, which appears as a foundation for the regular
business cycle. If one believed simply in Marx's second argument
above, that capital can always avoid the shortage of labour-power by
raising the composition of capital without causing the serious diffi-
culty of excessive accumulation, one would surely rely too much on
the malleability of capital, and neglect the restrictions imposed by
fixed capitals, just as the neo-classical growth theories do. If one held
that even the expansive accumulation of capital in the phase of
prosperity does not therefore decrease, but increase the absolute size
of the industrial reserve army, one would be to blame for neglecting
not merely the non-malleability of capital, but also the positive ability
of capitalism to increase the number of workers employed in the long
run as a growing social formation through the repetition of industrial
cycles.
A theory of capital accumulation which clarifies the capitalist law
of population in the form of alternate processes of the absorption and
reformation of a relative surplus-population however, cannot be by
itself a complete theory of business cycles and crises. In addition to
the basic theory of accumulation and the capitalist law of population,
the concrete mechanisms of motion of capitals through competition
and credit must be taken into consideration. In particular it is not yet
certain or clear what happens as a result of over-accumulation of
capital in relation to the labouring population, if it causes a destruc-
tive crisis and alters the phase into depression. For instance, Marx
states as follows in the first section of chapter 25 in the first volume of
Capital:
Either the price of labour keeps on rising, because its rise does
not interfere with the process of accumulation .... Or, the other
alternative, accumulation slackens as a result of the rise in the price
of labour, because the stimulus of gain is blunted. The rate of
accumulation lessens; but this means that the primary cause of that
lessening vanishes, i.e. the disproportion between capital and
exploitable labour-power. The mechanism of the capitalist produc-
tion process removes the very obstacles it temporarily creates. The
price of labour falls again to a level corresponding with capital's
requirements for self-valorization. (1, p. 770).
In this statement, we cannot see on the one hand a logical limitation

to the process of the rising price of labour-power, or on the other
hand the reason why capital accumulation would not slacken and just
pass into a mild stagnation with a relatively high level of employ-
ment, rather than cause an acute crisis making both the level of
employment and wages fall radically in the process of regular busi-
ness cycle. In order to solve these problems among others, we must
now consider the contents of the theory of regular business cycles on
the basis of the law of capital accumulation as put into order above.
9.3 REGULAR BUSINESS CYCLES AND CRISES
Regular business cycles are composed of three dintinct phases; i.e.

prosperity, crisis and depression. There seems to be a problem about
which phase we should begin our analysis, since each phase in turn
appears as a result of the preceding phase. In contrast with other
phases, however, the phase of prosperity represents a positive and
general process of capital accumulation. A capitalist economy must
generate an expansive process of production from its own essential
nature even apart from the causal effects of the preceding depression
or crisis. Therefore, the phase of prosperity as a general expansive
process of production under capital is initially taken up here, al-
though the final stage of its phase containing the over-accumulation
of capital with all its distortions must be treated within it though
separately as an inevitable result of its own process.
Prosperity
When capital accumulation can proceed as positively expanding

reproduction, capitals generally maintain and valorise existing fixed
capitals by yearly adding surplus-value to them. As a result, the
composition of capital in the process of accumulation would remain
relatively constant as we have discussed. As accumulation proceeds,
in such a form, the demand for labour-power or the size of employ-

ment would grow, if not literally proportionally to capital accumula-
tion. In so far as the absorbable relative surplus-population exists,
enabling capitals to increase employment at about the existing level
of wages, capital accumulation would then take the form of a widen-
ing process, quantitatively expanding its productive power within
stable existing relations of production between capital and labourers,
expressed in a stable rate of surplus-value. Upon the basis of rela-
tively stable productivity and wages as well as the rate of surplus-
value, capital accumulation would also retain relatively stable value
relations in commodity products. The motion of the market prices of
commodity products in the various spheres of production would then
be subject to an easy adjustment process, gravitating around the
relatively stable market prices of production.
The anarchical imbalance between the demand and supply of
commodity products is certainly unavoidable in a capitalist economy.
The imbalance being expressed in the deviation of market prices
from the prices of production, however, can be readjusted relatively
smoothly and rapidly within a comparatively narrow range of price
fluctuations, as capitalist reproduction extends as a whole, with stable
conditions in the labour market. In such a process the equalisation of
the rate of profit across industrial spheres must also work relatively
smoothly. The roles of commercial capital and the credit system in
promoting both the expansion of capitalist reproduction and the
equalisation of the profit rate are effective under such conditions
favourable to capital accumulation, particularly in relation to an
absorbable relative surplus-population.
The process of prosperity in a regular business cycle is thus basi-
cally characterised, so to speak, as a quantitative boom. For produc-
tion is expanded mainly quantitatively with relatively stable prices of
commodity products based on relatively constant technical conditions
of production and wages which correspond to the value of labour-
power. In such a process the total amount of profit increases as
capital accumulates with a stable general rate of profit determined by
the dominant technical conditions of production and real wages. The
rate of interest would also be maintained at a stable level favourable
to the promotion of real capital accumulation through the use of the
credit system. Marx notices a relatively low rate of interest in com-
parison with the level of the profit rate in the phase of prosperity, for
instance in the following statement:
If the production process has reached the flourishing stage that

precedes that of over-exertion, commercial credit undergoes a very
great expansion, this in turn actually forming the 'healthy' basis for
a ready flow of returns and an expansion of production. In this
situation, the rate of interest is still low, even if it has risen above
its minimum. This is actually the only point in time at which it may
be said that a low rate of interest, and hence a relative abundance
of loanable capital, coincides with an actual expansion of industrial
capital. The ease and regularity of returns, combined with an
expanded commercial credit, ensures the supply of loan capital
despite the increased demand and prevents the interest level from
rising. (III, p. 619).
As the reproduction process extends, the demand for loanable

capital at banks in the form of request for discounting commercial
bills certainly increases. Nevertheless the rate of interest is prevented
from rising, as Marx notices, for two reasons. For one thing, the
supply of loanable capital from idle-money capital formed in the
turnover of capitals (such as depreciation and accumulation funds,
money reserves for price fluctuations or the necessary funds to
maintain production process during the periods of circulation of
capitals) would also increase as the scale of reproduction extends.
Such idle-capital flows into banks directly in the form of deposits. In
addition the ease and regularity of return payments for discounted
bills ensures the reformation and increase of cash reserves at banks as
an actual concrete basis of loanable money capital. For another thing
the demand for loanable money capital in the form of request for
discounting bills must be comparatively restricted because of 'the
relative independence of commercial credit from bank credit' (III, pp.
626-7). Actually, in the phase of prosperity commercial credit among
industrial and commercial capitalists greatly expands by itself, form-
ing longer chains of circulation of commercial bills with much con-
fidence and optimism. This is not a mere social psychological
phenomenon, but is actually based upon the relatively smooth pro-
cess of reproduction as a whole. Thus, both the easy supply of
loanable money capital in bank credit, and the comparatively re-
stricted demand for it, have a common basis in the easily expanding
process of real capitaP 5 accumulation with a flexibly absorbable
relative surplus-population. So far, the credit relations among banks
can also easily be expanded, and the central bank in a central money
market would not have any difficulty in maintaining its cash reserve
by accepting both deposits and return payments sufficiently, while the
demand for rediscounting would remain relatively low.
Therefore, the interest rate in the money market between banks
would also be comparatively low, reflecting a relative abundance of
loanable money capital. It easily facilitates industrial and commercial
capitals expanding their commercial credit at a low rate of interest
and their business activity in general. However, the relative abun-
dance of loanable money capital must not be taken for a basic cause
of the prosperity. The easy money market in this phase expresses
rather, the prosperous expansive accumulation of real capitals with a
relatively stable and satisfactory rate of profit. Though such a rate of
profit and a comparatively low rate of interest appear logically
interrelated in the phase of prosperity, the determinants of both rates
must be conceived separately as we have argued in Chapter 8,
Section 8.2; the former rate is regulated basically by the system of the
technical conditions of production and the level of real wages in
physical terms, whereas the latter rate is determined by the balance
between the demand for and the supply of loanable money capital.
Therefore, it is no surprise to observe a divergence between the
general rate of profit and the comparatively lower rate of interest in
the process of prosperity, despite a traditional tendency in neo-
classicists to identify them. This is not to deny that real capitalists
would usually consider the interest rate as a minimum standard for
their marginal rate of profit for additional investment.
Since the process of capital accumulation with a relatively stable
and satisfactory rate of profit continues in a expensive fashion as a
quantitative boom, it one-sidedly absorbs the labouring population
into the capitalist process of production, if not literally proportionally
to the increase of the total value of capital. So far as the ratio of
capital yearly accumulated, as a dependant function of the rate of
profit, generally surpasses the rate of growth of population in the
phase of prosperity, the relative surplus-population would decrease
further and further, and the labour market would become tightened
sooner or later. Then, towards the end of prosperity wages must rise.
Unlike in case of commodity products, capital cannot increase the
absolute amount of the supply of labour-power even when its price
rises. Because of this inelasticity in the supply of labour-power, the
rise of its price, the nominal wage-rate, in the labour market cannot
be generally counterbalanced by the possible rises of other commod-
ity prices here in our basic principles.
In contrast, it is assumed in the Kalecki-Okishio type of business-

cycle theory, that investment demand would pull up the prices of
commodity products more than the nominal wage-rate, resulting in
both the reduction of the real wage-rate and the realisation problem
for commodity products towards the end of prosperity. In my opinion
this type of theory depends on the three following presuppositions,
which may occassionally become effective in the later stage of capi-
talism, but are somewhat remote from Marx's basic position as well
as ours here: (i) The investment demand is supposed to increase very
much independently from the social surplus-value annually pro-
duced. (ii) The supply of commodity products cannot increase in
accord with the investment, because the supply is delayed or re-
stricted by either the production period, full-capacity utilisation or
monopoly. (iii) The supply of credit necessary to support the explo-
sive investment boom can be available elastically and effective in
generating an inflationary rise in prices of commodity products.
Whereas our basic position assumes that according to Marx: (i)
Investment is fundamentally the transformation of surplus-value into
capital, and cannot be independent from the movement of the social
surplus-value produced and acquired by capital. (ii) Investment
would bring about both demand for and supply of commodity pro-
ducts more or less simultaneously as described in the extended
reproduction schemes. (iii) In the competitive capitalist market,
under the gold-standard monetary system, explosive hyperinflation is
not likely to occur even when the nominal wage-rate rises. It is also
assumed that despite the limitation of the absolute number of the
working population, the marginal increase of the labour input necess-
ary for capital investment, maintaining the relative elasticity of
supply of commodity products, is still available, though with a further
increase in wage rates.
In our position, upon these assumptions therefore, with a rise in the
nominal wage-rates the real-wage rate would also rise, and as a result
the rate of surplus-value as well as the rate of profit must continually
fall. {Actually, the bargaining power of trade unions, if existent, must
be very much strengthened, and will intensify the rise in wages, 16
although the favourable market condition for workers is the basis for
such a change.) The process of such a falling rate of profit due to a
rise in wages must result in 'an absolute overproduction of capital' as
defined by Marx as follows:
As soon as capital has grown in such proportion to the working

population that neither the absolute labour-time that this working

population supplies nor its relative surplus labour-time can be
extended (the latter would not be possible in any case in a situation
where the demand for labour was so strong, and there was thus a
tendency for wages to rise); where, therefore, the expanded capital
produces only the same mass of surplus-value as before, there will
be an absolute overproduction of capital; i.e. the expanded C +
ll.C will not produce any more profit, or will even produce less
profit, than the capital C did before its increase by ll.C (III, p. 360).
The purpose of capitalist production, the valorisation of capital,

cannot be achieved in such a situation. Even though Marx infers that
'in actual fact, the situation would take the form that one portion of
the capital would lie completely or partially idle (since it would first
have to expel the capital already functioning from its position, to be
valorized at all)' (ibid.), capitals in competition would not so easily
mitigate the difficulty of the overaccumulation of capital by making a
portion idle. A capitalist who would make a portion of his capital idle
in view of the falling rate of profit would lose his share in the market
and experience a more rapid fall in both the mass of and the
individual rate of profit, without being able individually to reduce the
pressure of the over-accumulation of total capital and the resulting
rise in wages. Therefore, individual capitals must rather continue to
attempt to maintain or increase the amount of profit by increasing
their active capital further in the face of the falling rate of profit due
to rising wages. Thus, even in the last phase of prosperity which
begins with excessive capital accumulation in relation to the labour-
ing population, the social process of expanded reproduction would
still continue in spite of a falling rate of profit.
The social functions of the motion of capital in the expanding
process of reproduction must, however, become much altered, re-
flecting the difficulty due to over-accumulated capital. The process of
capital accumulation intensifies its character of speculative and un-
even development. As the pace of expansion of reproduction slows
down with a fall in the profit rate, the process of adjustment of the
anarchical imbalance between various spheres of production is re-
tarded. The fluctuations in prices of commodity products are then
widened. In addition, a rise in wages must cause a disturbance in the
system of market prices of production from both costs of and demand
for commodity products. The cost-prices would be affected by a rise
in wages in different proportions according to the different composi-
tions of capital in various spheres of production. Roughly speaking,

for instance, if the composition of capital producing the money
commodity gold is about the social average, the market prices of
production of commodities produced in the spheres with the com-
position of capital lower than average must rise, whereas the market
prices of commodities produced in the spheres with the higher
composition of capital must fall, so long as equalisation of profit rate
still works across the various spheres, including the gold industryY
Similarly, the market prices of production of commodities produced
in the spheres with greater speeds of turnover of capital, whose
composition is about the social average, must also rise as a result of a
rise in wages in the process of the equalisation of the profit rate.
Thus, there must appear certain commodities whose prices rise
tendentially as their wage costs increase more than average per unit
of capital. Besides, with a rise in wages, the demand for some means
of consumption or their raw materials would suddenly increase,
whereas the supply of these cannot be so quickly expanded in the
short run, as in the case of agricultural products. The market prices of
such commodity products must rise as the demand surpas~es the
supply as a result of a rise in wages.
In the last phase of prosperity therefore, where excessive capital
accumulation causes a rise in wages, the fluctuation of commodity
products would not merely be distorted and widened, but also con-
tain a tendency to rise in the case of some commodities which
experience a more than social average increase in their costs or in
demand or in both. Speculative trading in order to gain by utilising
such fluctuations in commodity prices never then fails to develop.
Large-scale stockpiling of those commodities whose prices tend to
rise subsequently takes place among capitals, especially by commer-
cial capitals depending on commercial and bank credit. This reduces
the actual supply of those commodities in the market, and artificially
adds to the rising momentum of their prices. Such speculative trading
must intensify the uneven development and imbalances across the
various spheres of production. Marx pointed to the fact that specula-
tive 'operations are conducted largely with credit capital' (III, p. 645),
utilising a relative low rate of interest, and also that speculation
artificially intensifies a rise in prices of some commodities when there
is an unusual reduction of supply, as with a harvest failure (III, p.
647). From what we have discussed, the development of such specu-
lative operations are by no means accidental, but a corollary of the
last phase of prosperity where real capital is over-accumulated with a
rise in wages. 18 Such a process of over-accumulation and the resulting

speculative development finds its restriction not merely in the falling
profit rate, but also particularly in the rise of interest together with
the reversed functions of the credit system.
The basis of credit expansion in the process of prosperity is in the
formation and re-formation of idle-money capital in the turnover of
capital. This basis becomes much narrowed with the over-accumulation
of capital in three ways. First, since wages must always be paid in cash,
capitals have to mobilise their own idle-money capital for wage-
payments as wages rise. Second, the formation of an idle-money fund
saved out of surplus-value or profit, such as the accumulation fund,
must be reduced as the rate of profit falls. Third, capitals which
increase their commodity stocks in the process of speculative devel-
opment would mobilise their idle-money capital for speculative oper-
ations, and as a result would reduce their idle funds.
On the other hand, the demand for the expansion of credit,
especially of bank credit, continues to increase in this phase of
prosperity as capitalist extension of reproduction with its explosive
speculative stockpiling is carried on. However, idle-money capital, as
a necessary basis for the extension of commercial credit, cannot now
be plentifully formed in the desired hands among industrial and
commercial capitalists. Therefore, while commercial credit among
capitalists is still called for causing an actual increase in the number of
commercial bills, its smooth expansion is substantially restricted. The
increased number of commercial bills cannot now circulate in long
chains of transactions. They tend to be brought into banks relatively
shortly after being drawn up. 'The relative independence of commer-
cial credit from bank credit' which characterised most of the course of
prosperity now disappears. The demand for bank credit in the form
of discounting bills of exchange must thus greatly increases.
Against such an increase in the demand for bank credit, the
expansion of the supply of loanable money funds for use as bank
credit is contrarily increasingly restricted. In banks of issue, while the
balance of issued bank notes for cash payments increases with an
increase in the demand for the discounting of bills of exchange, the
formation of cash reserves is slowed down and even reduced by the
practical slow down in return payments for discounted bills. The due
periods of the bills tend to become longer, and a formal return
payment will often depend upon money being obtained by discount-
ing other bills. In deposit banks, the cash reserve against their social
debt in the form of the accepted amount of deposits tends to be
reduced, as a result of both an increase of the demand for discount

and the substantial slowdown of return payments as well as decreas-
ing cash deposits. Mutual accommodation amongst banks in the
money market then increases. But this can only equalise the balance
between the demand for and the supply of loanable money funds
among banks to a certain degree, and cannot remove the fall in the
total ratio of the cash reserves against the total social debt of banks.
The demand in the money market has thus to surpass the supply,
pulling up the interest rate.
Marx, noting that 'a rise in interest comes between prosperity and
its collapse' (III, p. 482), pays attention to speculative stockpiling and
a rise in wages as the factors pulling up the interest rate. For instance
he has this to say:
In order to pay for the commodities bought without selling them,

gold is obtained by way of commercial 'bill of exchange opera-
tions'. In this case the demand for loan capital grows, and the rate
of interest may rise as a result of this attempt to block the supply of
commodities to the market artificially. The higher rate of interest
then expresses an artificial reduction in the supply of commodity
capital. (III, p. 647).
An increased demand for labour-power raises the price of this
commodity just like any other, without raising profits, which
depend principally on the relative cheapness of this particular
commodity. At the same time, under the conditions we have
assumed, this demand raises the rate of interest, by increasing the
demand for money capital. . . . If wages rise for whatever reason,
in otherwise unfavourable conjunctures, the rise in wages causes
the profit rate to fall, although the rate of interest rises to the
extent that the wage rise increases the demand for money capital.
(III, p. 646).
It must be recognised that Marx did not manage to combine organi-

cally these notes with his notion of the 'absolute overproduction of
capital' so as to formulate a very coherent crisis theory. However, it
also seems clear that he was thus virtually presenting or suggesting to
us a well-articulated excess capital theory of crisis of a labour short-
age type throughout his theories of capital accumulation, profit and
interest. What is worth emphasising is Marx's serious attempt to
clarify the social functions of credit and interest in the process of
causing periodical crises. 19
Anyhow, a rise in the interest rate in the face of the falling rate of
profit must form an important restriction on the motion of capitals
which have so much depended upon an extensive credit system for
their reproduction. The process of a tightening money market be-
comes more clearly decisive when the gold reserve of the central
bank begins to drain away. In the basic theory of capitalism the
central bank must be conceived as a private central bank of issue, and
its bank notes cannot be totally substituted for gold money, particu-
larly in transactions with places well outside of the central trading
area as well as for use in wage payments, as we discussed in Chapter 8,
Section 8.2. As the special fluctuations in commodity prices and the
speculative trades develop with the process of the over-accumulation of
capital, the balance of payments among increasing commercial bills
between various trading areas would be very much distorted. The
necessary amount of specie payment to settle the balance of credit
between various areas would thus increase along with an increase of
cash payment for wages. Capitals and banks have now to hold more
gold money as reserve for payment. Therefore, an inflow of gold to
the central bank through return payments and deposits would be-
come smaller than before, whereas the outflow of gold in the forms of
withdrawals of deposits or conversions of bank notes increases. The
gold reserve of the central bank which is a central indicator of the
money market must then absolutely decrease. 20 Since the central bank
cannot use the other bankers' notes or bills as its reserve for payment, it
must raise its discount rate so as to reduce the absolute amount of
discount and attempt to control the daily quantity of discount business
when such an absolute decrease in the gold reserve occurs. All other
banks then find it difficult to continue their expansion of credit by
relying upon rediscounting commercial bills in the money market or
with the central bank, while carefully securing their cash reserves. A
sharp rise in the interest rate therefore generally appears with a
quantitative restriction on the credit supply.
The speculative stockpile of various commodities, which has been
increased and maintained upon a basis of expandable credit and in
expectation of a rise in prices, must lose its rationale, eroded from
two sides; the slowing down of the total demand in the commodity
market due to a falling rate of profit, and a sharp rise in the rate of
interest in the money market towards the very end of the prosperity.
When the expected rate of rise in the price of a commodity becomes
lower than the increasing rate of interest, it must be seen that to carry
on holding the stockpile on the basis of credit (alone increasing it)
will make a loss. In particular, the capitals which have formed

speculative stockpiles on a large-scale utilising credit are forced to
sell at a sacrifice sooner or later in the process of a sharp rise in
interest rates in order to avoid increases of losses as well as to secure
the necessary cash to pay off both principal and interest on their
debts.
Thus, the credit system, which promotes capital accumulation and
the equalisation of the rate of profit, adjusting the incessant imbal-
ances among various industrial spheres in the positive phase of
prosperity, completely changes its social functions as the over-
accumulation of capital in relation to the labouring population ap-
pears. It then promotes a speculative uneven development which is
characteristic of the last phase of prosperity. The distortions and
fluctuations in prices due to the over-accumulation of capital with a
rise in wages are wildly exaggerated by speculative trading and
stockpiling, utilising the extendible nature of the credit system. A rise
in commodity prices thus exaggerated by the speculative use of credit
might substantially mitigate the pressure of a rise in wages on the rate
of profit in certain industrial spheres producing the commodities
concerned. However, it would not remove the absolute difficulty of
the general fall in the rate of profit in the process of the over-
accumulation of capital, and often unevenly intensifies the difficulties
in other industries by adding to the rising costs of production. The
substantial disequilibrium among industrial spheres must deepen
beneath the surface of a speculative boom based on credit expansion.
Over-accumulation of real capital finally causes a clash between a fall
in the profit rate and a sharp rise in the interest rate, with a quantita-
tive restriction on the expansion of credit, occuring through a specu-
lative and uneven process towards the end of prosperity, and thus
turns this phase of the business cycle into an acute crisis.
Crisis
The beginning of a crisis is given ordinarily by the breakdown of

large-scale speculative operations by commercial capitals mostly in
the field of wholesale trade. For at the end of prosperity, speculative
stockpiling utilising credit has been developed most intensively and
on a large scale of this field, and the shock of tightened credit and a
rising rate of interest is therefore also most serious here. On the other
hand, the collapse of speculative activity by these commercial capitals
in large-scale trading results in a destructive shock to both the
commodity market and the money market. As Marx points out: 'This
explains the phenomenon that crises do not first break out and are
not first apparent in the retail trade, which bears on immediate
consumption, but rather in the sphere of wholesale trade, as well as
banking, which places the money capital of the entire society at the
wholesalers' disposal.' (III, p. 419).
Since speculative overtrading is an appearance of the inner diffi-
culty of excessive capital accumulation, generally involving industrial
capitals as well, the resulting collapse in speculation by wholesalers
cannot be an isolated phenomenon. With the breakdown of large-
scale speculative operations in wholesale trade, the prices of com-
modities which have been elevated to higher levels by such opera-
tions must collapse. The basis of credit relations, which are extended
assuming certain relations of prices, is then destroyed. The difficulty
of finding the necessary amounts of cash for the bills falling due must
spread, causing a series of insolvencies in a chain reaction, as com-
modities cannot be sold at expected prices. The whole credit system
becomes paralysed by the reciprocal collapse of the commodity
market and the money market. While new commercial credit would
hardly be given among industrial and commercial capitalists, banks
would also most severely restrict the issue of credit in the form of
discounting bills, in order to secure their own cash reserves as well as
to avoid the danger of insolvency. The interest rate rises more
sharply, to the highest level of the whole phase of the business cycle,
as the demand for credit in order to obtain money as the necessary
means of payment desperately increases in spite of the severe restric-
tion or the supply of credit. So far as the process of reproduction
through commodity transactions is carried on on the basis of the
credit system, its repetition becomes not merely difficult, but also
meaningless as the process of valorisation of capital. Its repetition
would mostly make a loss by paying such expensive interest rates.
The sale of commodities therefore, even at a sacrifice·, is urged on by
the pressure to clear off past debts among real capitals. A general fall
in commodity prices with the extreme difficulty of selling them
appears in reciprocal relation with the general collapse of credit
transactions.
In sum, the inner difficulty of the over-accumulation of real capital
is expressed contradictorily in an absolute shortage of money capital
in the money market as well as in a correlated absolute excess of
commodity capital in the commodity market. Alongside the recipro-
cal collapses of the money market and the commodity market, 'in
crisis, the antithesis between commodities and their value-form,

money, is raised to the level of an absolute contradiction' (1, p. 236). 21
Through 'the monetary famine' (ibid.) or the collapses of the money
and the commodity market, all capitalist business is generally para-
lysed and contracted. Values accumulated in the process of reproduc-
tion, e.g. in the form of raw materials and production equipment can
no longer work as capital, and they are forcibly made idle and
destroyed. A wave of bankruptcies hits many industrial and commer-
cial capitals, and these do not exempt a number of bank capitals in
the typical periodical crisis. At the same time a great number of
workers have suddenly been made unemployed. Wages must be
reduced as a reaction to the rises which took place towards the end of
the phase of prosperity. The workers' effective consumers' demand is
severely contracted, forming a vicious circle with the difficulty capi-
talists have to sell their commodities. A classic trinity of commercial
crisis, credit crisis and industrial crisis is thus completed.
Marx attempted to analyse these three aspects of periodic crises in
their mutual correlations for instance:
Interest . . . reaches its maximum again as soon as the new crisis

breaks out, credit suddenly dries up, payments congeal, the repro-
duction process is paralysed and, ... there is an almost absolute
lack of loan capital alongside a surplus of unoccupied industrial
capital. (III, p. 620).
Since certain price relationships are assumed in the reproduction
process, and govern it, this process is thrown into stagnation and
confusion by the general fall in prices. This disturbance and stagna-
tion paralyses the function of money as a means of payment, which
is given along with the development of capital and depends on
those presupposed price relationships. The chain of obligations to
pay at specific dates is broken in a hundred places, and this is
further intensified by an accompanying breakdown of the credit
system, which have developed alongside capital. All this therefore
leads to violent and acute crises, sudden forcible devaluation, an
actual stagnation and disruption in the reproduction process, and
hence to an actual decline in reproduction. (III, p. 363).
It clearly shows the self-contradictory character of capitalism as a

historical social formation, that capital as a process of self-augmentating
value has thus to destroy its relations of production as well as its own
value through the growth of its own internal productive power. In
contrast to the theoretical beliefs of the classical school and the neo-
classical tradition, capitalism cannot be a natural harmonious socio-
economic order which can increase the welfare of workers without
causing any serious disturbance or crisis by itself. As we have seen in
the basic principles of political economy, the logical inevitability of
periodical crisis is thus shown on the basis of Marx's notion of the
'absolute overproduction of capital' in relation to the labouring popu-
lation. Disequilibrium among industrial spheres and the severe res-
triction on the effective demand of workers, both of which have been
much emphasised in the excess commodity theory of crisis, appear as
important moments, if not fundamental causes, of the process as well
as the results of crisis. 22 The excess capital theory of crisis, of a
labour-shortage type, sees the root of the self-contradiction of the
capitalist economy causing periodical crises, not in the superficial
balance between the demand and the supply of commodity products,
but in the very essential precondition of capitalism which is to treat
human labour-power as a commodity. It should also be noted that the
logical inevitability of an acute general crisis is presented by showing
not merely the fundamental difficulty of the over-accumulation of
capital, but also the manner in which through competition and credit
among capitals the difficulty of over-accumulation intensifies result-
ing in the trinity of commercial, credit and industrial crises.
There is a problem as to where and why the vicious circle of
reciprocal contractions between the commodity market, the effective
demand of labour and the reproduction of capitals ends. It seems
difficult to think of the point where the vicious circle looses its
violence, so long as capitals are conceived abstractly as a homoge-
neous entity. Indeed, if real capitals are assumed to be homoge-
neous, the theoretical limit to the destruction of capitals would be
quite hard to define. Where can a fall in commodity prices, the
contraction of effective demand and the wave of bankruptcies
theoretically come to an end? As an answer it might be argued that
there must be some minimum consumer demand by workers to
sustain their lives. However, workers under capitalism cannot create
an effective demand for consumption goods without being employed
at least as part-timers, excepting the very limited amounts of their
savings from the previous prosperous phase. We can see that the limit
to the destruction of capitals must be a priority for the problem to be
solved. Another possible proposal for the problem is to see a decisive
moment in the reversal of the downward vicious circle in the expan-
sion of gold production which must become profitable in the process
of a general fall in commodity prices. 23 This proposal may not be very

persuasive, as the size of gold industry would not be sufficiently big
enough to counterbalance the downward pressure in all the other
industrial spheres. In order to reach a more satisfactory solution, we
have to remove the assumption of the homogeneity of capitals and
re-examine the concrete process of crisis.
The downward vicious circle in the phase of crisis is carried on and
strengthened, as we have seen by the process of clearing away the
credit relations. Commodities have to be sold at a sacrifice so as to
obtain necessary money for means of payment for debts in the form
of due bills of exchange. Since commercial credit is mutually formed
in order to finance circulating capital, and not for fixed capitals, the
lives of the bills of exchange cannot be very long. Ordinarily they
were typically three months, and at longest ten months in the British
credit system of the mid-nineteenth century (cf. III, p. 536-7). Thus
the intensive process of clearing away the previous debts generating
an acute crisis would not last very long, since the additional forma-
tion of commercial credit by drawing new bills of exchange becomes
so difficult in the phase of crisis. Actually the duration of an acute
phase of the crisis in the classical business cycle was less than a year,
and mostly about half a year. After the period of the intense clearing
away of the preceding debt in the form of bills of exchange, the
strong pressure to sell commodities even at a loss would be much
reduced. The pressure of massive commodity stocks would also
eventually be decreased through bargain sales, abandonment by
bankrupted capitals, or loss of use-value and so value during the
prolonged time of storage.
In the meanwhile the destruction of capitals in the acute phase of
the crisis cannot be at all balanced and even. Corresponding to the
speculative and uneven development of the last phase of prosperity
and the anarchical nature of the process of crisis, the destruction of
values of capitals in a crisis must also proceed anarchically and very
unevenly. For example, the prices of commodities which have been
artificially much elevated by speculative stockpiling towards the end
of prosperity must fall sharply over a wide range as a reaction. In
contrast there may well be other commodities whose prices do not
fall so wildly as a result of the different conditions in the process of
the preceding speculative development. The destruction of capital
values in the industrial spheres producing the latter commodities
must generally be milder. The degree of destruction of values of
capitals would also vary according to the different conditions of
production or to the different extent of the utilisation of credit even

within the same sphere of production. In the process of clearing up
complicated relations of debt and credit among capitals, while a
number of capitalists would be bankrupted with huge amounts of
debt often several times their net assets, other capitals may conserve
at least a part of their value by getting back their own credits, if not
from the direct debtors, then from the sureties as endorsers of the
bills of exchange.
There must be similar unevenness in the destruction or conserva-
tion of bank capitals and their cash reserves as well. Although there is
no guarantee for banks not to be bankrupted, the banks in a central
money market and the central bank in particular are apt to be
exempted from direct shocks and insolvensies which occur intensively
in certain industries or areas. Their positions are in a sense neutral-
ised by their wider business concerns. This is a reason why central
bank notes are most likely to maintain their circulation and credibil-
ity throughout an acute crisis, in addition to the large size of capital
forming the central bank (actually related also to its role as a
monopolistic cashier to the government).
Since the destruction of capital values proceeds very unevenly in a
crisis, not all the existing capitals are driven into bankruptcy. There
can be a number of capitals whose difficulties are mitigated, neutral-
ised or watered down even by the deepening difficulties of others.
More or less of their values are conserved. When those capital values
resume, one by one, their process of valorisation after the stormy
procedure of clearing up both the preceding debt relations and
excessive commodity stocks, the phase of an acute crisis passes and
turns into the phase of depression. The crisis reveals the self-
destructive and contradictory nature of a capitalist economy, but a
crisis can never be a final breakdown of capitalism as a social order in
the basic principle of its economic motion. The crisis in principle
forms a phase in a whole business cycle, turning by its own process
into the next phase of depression.
Depression
In the phase of depression the difficulty of capital accumulation in the

production process, the commodity market and the money market
continues for a certain period of time. Excessive real capitals, abun-
dant money capitals and a relative surplus-population do coexist, and
cannot easily be combined into the process of an extended and
postttve reproduction. In the typical business cycles of the mid-

nineteenth century the phases of depression used to last for a period
of between about three and five years. It is an important phase to be
clarified theoretically, especially since it can serve as an important
frame of reference for the current economic circumstances of our
own age.
Why is it so difficult for capital to resume a positive process of
expanded reproduction from a depression? After the destructive
process of an acute crisis the difficulties of over-accumulation of
capital expressed in the rise of wages and interest rate are already
removed. As a great number of workers are thrown out of jobs in
that phase of crisis their wage-rates would be cut as a reaction to its
previous rise at the end of prosperity. In the very process of an acute
crisis its fall might be more than compensated by a wild collapse of
the prices of consumer goods so as actually to raise the real wage-
rate, intensifying the difficulty for capitals, although the total real
income for workers must surely be reduced. However, when the
sharp collapse of the preceding credit relations and commodity stocks
is finished, the prices of commodity products can to a certain degree
be restored as a result of the reduction in their production and
supply. In contrast the price of the commodity labour-power would
not be subject to such a process of adjustment in supply, and must
remain continuously under pressure of insufficient demand. A lower
real wage-rate than the rate in the previous period of prosperity must
thus prevail in depression. Such a fall in wages and the real wage-rate
'has exactly the same effect for capital as if relative or absolute
surplus-value had been increased while wages remained at the aver-
age' (III, p. 363). In the meantime the rate of interest must also be
reduced, once the intensive process of clearing up the existing debt
relations is past. Money capitals, so far as they were retrieved by
industrial and commercial capitalists and by banks tend to lie idle
without being of positive use. In spite of these favourable conditions,
real capital accumulation will remain stagnant for a considerable
period.
A basic reason for this stagnation can no longer directly result from
labour shortage, or in the high rate of interest, but in the difficulty of
restructuring the balanced conditions for a new accumulation of real
capitals. Actually, after the speculative and uneven development
towards the end of prosperity and the following anarchical and
uneven destruction of capitals, the balance among industrial spheres
of production will certainly be broken and far from the best for
smooth economic growth. In the distorted balance among the spheres

of production, there will be a number of industries whose product
prices tend to be pressed down due to unusually excessive idle
capacity within them, while coexisting with industries with more
favourable conditions for reproduction. Excessive productive ca-
pacity is most likely to appear and continue in many industries
producing means of consumption and their raw materials, as the
effective demand of workers is much reduced with a fall in both
employment and wage-rates.
In this regard the excess commodity theory of crisis of both the
disequilibrium and under-consumptionist types may have a certain
relevancy as a direct explanation of the difficulty of capitals in a
depression. Such a difficulties in this phase however, must not be
confused with the fundamental difficulty which causes crisis in the
basic theory of typical business cycles. It should be defined as a result
of the over-accumulation of capital in relation to the labouring
population, and also as an inevitable appearance of the inner diffi-
culty of capital to cope with excessive fixed capitals in the production
processes.
If it were not for the restriction of existing fixed capitals, industrial
capitalists might fairly easily shift their capitals into more profitable
spheres or technologies, and thus might escape the difficulty of the
oversupply of their commodity products in many industries. But
industrial capitalists cannot easily sacrifice or completely abandon the
values remaining in their fixed capitals. They have to depreciate
much of the value in fixed capitals before scrapping them, and have
to accumulate sufficient amounts of money capital including de-
preciation funds, in order to build up new fixed equipment either in
other industrial spheres or upon different technical bases. Commer-
cial credit, and bank credit based on short-term commercial credit
are unsuitable for long-term loans for constructing fixed capitals, as
we have seen.
When the capitalist process of reproduction resumes its extension,
if slowly in depression, the forms of commercial credit and bank
credit are reconstructed and begin to work again. However, the
reconstructed credit system can not yet be actively utilised, so far as
the accumulation of industrial capitals still remains inactive or stag-
nant under the constraint of existing fixed capitals. The quantitative
expansion of both commercial credit and bank credit is small and
slow whereas a relative plenty of money capital tends to lie idle, as a
sort of unemployed capital. Therefore, a low rate of interest and a
loose link between demand and supply in the money market prevail
on the credit system during depression. Marx points to the appear-
ance of such a loose credit condition as follows:
Not every increase in money capital for loan is an index of

genuine capital accumulation or an expansion of the reproduction
process. This is shown clearly in the phase of the industrial cycle
immediately after the crisis, when loan capital lies idle on a massive
scale. At these moments, when the production process has under-
gone a contraction (and after the crisis of 1847, production in the
English industrial districts was cut by a third), when commodity
prices stand at their lowest point, and when the entrepreneurial
spirit is crippled, there is a low rate of interest, which in this case
simply indicates an increase in loanable capital presisely as a result
of the contraction and paralysis of industrial capital. (III, p. 616).
This situation in the money market is not limited to the moments

immediately after crises, but rather continues during most of the
depression. Industrial capitalists consciously pile up money capital,
such as depreciation funds and accumulation funds, in order to
prepare the necessary funds for investing in new methods of produc-
tion or in other industrial spheres. Therefore, the supply of loanable
money capital would continue to increase, and tends to command a
low rate of interest, counterbalancing the gradual increase of demand
for credit with the extension of reproduction. The low rate of inter-
est, though it may possibly be a favourable condition for economic
growth, cannot by itself activate the accumulation of industrial capi-
tals, in so far as the root of their difficulties is not in circulating capital
but in fixed capital. As a whole, the credit system and the rate of
interest cannot play a positive role in reactivating the capitalist
economy in the process of depression, or in removing the root of
stagnation. 24
The constraint of existing fixed capitals upon the rate of profit and
accumulation acts as a fundamental basis for stagnation, not merely
in the money market, but throughout the whole economy. The
tendency to an excessive supply of commodity products, making their
prices unprofitable during the depression, arises from the excessive
idle capacity which is linked to the much decreased effective demand
of workers, as well as with the broken balance among industrial
spheres, as is often underlined in the excess commodity theories of
crisis. At the same time, a heavy reduction in functioning living
labour, due to the decrease of both employment and working hours

for the individual worker, may be combined with much idle fixed
capital and an inactive money capital so as to cause an unfavourable
effect on the profit rate in a similar fashion as that emphasised by the
excess capital theory of crisis of a rising composition of capital type; a
fall in the rate of profit is effected by a rise in the composition of
capital, although the elevated composition of capital, or the lowered
capital-output ratio in this phase of depression, expresses the diffi-
culty of unused capacity, and not a rise in the organic composition of
capital based on the technological changes. Thus, various types of
Marx's crisis theory can have a certain relevancy in understanding the
continuous difficulty of capital accumulation in relation to the con-
straint of existing fixed capitals in a depression. Among the four types
of crisis theory, the labour shortage type of excess capital theory can
establish the logical necessity for capitalism to suffer periodical crises
within the basic principle, whereas the other three would be relevant,
if in a different context, in seeing the structural moments which form
a stagnating current in a depression. The different aspects of Marx's
crisis theory must thus be organically mobilised in this regard.
The constraint of existing fixed capital on the motion of individual
capitals however, would no longer be the same as it used to be in the
phase of prosperity. In the process of prosperity, existing fixed
capitals tended to be used as long as physically possible, for they were
generally profitable. In contrast, they become generally unprofitable
in the phase of depression, and their replacement with new equip-
ment is anxiously undertaken if economically possible. In Marx's
words, after an acute crisis, 'the fall in prices and the competitive
struggle, ... impel each capitalist to reduce the individual value of
his total product below its general value by employing new machin-
ery, new and improved methods of labour and new forms of com-
bination' (III, p. 363). Such impulses to new methods of production
cannot be instantly realised, so long as remaining values in existing
fixed capital are still to be depreciated. Lowered wage-costs or the
reduced wage-rate would intensify this constraint, as it reduces the
benefit of new labour-saving technology to some extent. While gen-
eral capitals are still restricted by existing fixed capitals, exceptional
capitals having adopted improved new machinery would obtain extra
profit and can individually escape the general constraints on capital
accumulation. This possibility of extra profit surely adds to the drive
to improvement of methods of production among capitalists in severe
competition. Unlike the phase of prosperity where capitals act as 'a
practical freemasonry' in competition, equalising the rate of profit,

here in the depression 'competition now becomes a struggle of enemy
brothers' (III, pp. 361-2), and makes it a cardinal issue for capitals to
improve their methods of production. Technological innovations and
their generalisation are thus strongly sought after, and characterise
the phase of depression.
Towards the end of a depression when most capitals in the leading
industries have depreciated substantial portions of their old fixed
capitals, they begin simultaneously to replace fixed capitals by re-
building plant and equipment. They mobilise for this reconstruction
various money funds of their own, not limited to the depreciation
fund, but also the accumulation fund and idle-money capital, which
have been intensively and consciously piled up throughout the de-
pression. In such a process of the simultaneous replacement of fixed
capitals, an intermediary boom may often appear in the spheres of
production of machinery and equipment, whereas weaker capitals
being unable to replace their fixed capitals may unevenly find their
difficulties compounded and often driven to bankruptcy. While vari-
ous money funds are mobilised into the reconstruction of plant and
equipment, the money market is often tightened and the interest rate
rises deepening the difficulty of the weakened capitals. Thus an
intermediary boom and a further collapse as an intermediate crisis
may appear at the turning-point from depression to prosperity.
Individual capitals, which contrive to replace fixed capitals, cannot
merely adopt new profitable methods of production in the same
industries where they have operated, but also move into other more
promising industries. Competition among industrial capitals seeking
a higher rate of profit across various methods and spheres of produc-
tion is actually realised by their direct mobility particularly in this
process, though such direct mobility is too generally assumed in
conventional economic theories.
Anyway, through the process of replacing fixed capitals, various
imbalances and disequilibriums, or discord between the existing
relations of production and productive power are all fundamentally
readjusted. New technical relations of production are formed to suit
the new development of productive power so as to enable a positive
quantitative expansion in the reproduction of capitals. The substan-
tial effects of changes in the methods of production by replacing fixed
capitals can further be broken down into four aspects as follows: (i)
With the reduction of individual values of commodity products,
capitals are able to valorise even below the prices which have been
unprofitable in the depression on the basis of old technologies. (ii)

With a fall in commodity values, the value of labour-power must also
be cut. This enables the production of relative surplus-value, in-
creasing the rate of surplus-value. (iii) The growth of labour pro-
ductivity in new methods of production ordinarily brings with it a rise
in the organic composition of capital as a whole. With this rise in the
organic composition of capital the number of workers employed by a
certain quantity of capital decreases, additionally forming the relative
surplus-population. It shows the specific contradictory nature of
capitalism as was pointed out in Section 8.2, to make more workers
redundant and unemployed by a 'rationalization' of production when
a great number of workers have already been thrown out of jobs
through crisis and depression. (iv) A new general rate of profit with a
set of prices of production is reconstructed together with a reforma-
tion of new value relations. On the basis of a more or less restored
balance between industrial spheres of production, the competitive
process of the equalisation of the rate of profit across different
spheres will again work, anarchically swaying individual profit rates
around this general profit rate, and promoting the positive expansion
of reproduction.
Thus, when new relations of production are formed by most
capitals in the main industrial spheres, corresponding to a new level
of productive power, capitals can positively resume expanded repro-
duction with a restored rate of profit, turning the phase of the
business cycle into prosperity again. Construction of fixed capitals
continues mainly as a process of the generalisation of new methods of
production already implemented and socially initiated towards the
end of depression. The deepening accumulation of capital with
radical changes in the productivity of labour is changed into the
widening accumulation of capital once again characterising the phase
of prosperity. With the positive process of capital accumulation by
industrial capitals, the credit system is also effectively restored to its
function with a relatively low rate of interest just as in the previous
phase of prosperity. The process of prosperity will reach a higher
level of accumulation of capital on the basis of the relative surplus
population produced by a rise in the organic composition of capital in
comparison with the previous level of prosperity.
The business cycle, composed of three phases of prosperity, crisis
and depression, thus runs its course anew. Each phase becomes the
cause of the successive phase in turn, and 'the same vicious circle is
pursued once more with expanded conditions of production, a wider
market and increased productivity' (III, p. 364). The 'life-cycle' of

fixed capitals in the main spheres of industry 'is one of the material
foundations for periodic cycle in which business passes through
successive periods of stagnation, moderate activity, over-excitement
and crisis' (II, p. 264), and it determines in particular the length of
time of the circuit of business cycles, as the simultaneous renewal of
fixed capitals in the main spheres serves as the starting-point for
every new prosperity phase in typical periodical cycles. Marx noted
that 'this life cycle is now on average a ten-year one' (ibid.). The
inner contradiction of capitalist production, which arises from the
difficulty of treating human labour-power as a commodity, and which
bursts out in periodic crises through the working of capitalist com-
petition and credit, thus finds an actual solution in the circular course
of business cycles. Nevertheless it cannot be a fundamental solution,
and so it must repeatedly appear in similar business cycles and crises.
9.4 BUSINESS CYCLES AND THE LAW OF VALUE
As business cycles and crises not only reveal the inner contradiction
in capitalism, but also serve as an actual solution to the contradiction,
they form a concrete mechanism for the law of value to carry itself
through as the law of motion of a capitalist economy. The theoretical
relations between the law of value and the dynamics of business
cycles must be analysed in three co-related aspects; the relations
between first the fluctuation of wages and the value of labour-power,
second the fluctuation of relative prices among commodity products
and their values, and third the fluctuation of the general price level
and the value of the money commodity gold.
First, as Marx formulated, 'taking them as a whole, the general
movements of wages are exclusively regulated by the expansion and
contraction of the industrial reserve army, and this in turn corre-
sponds to the periodic alternations of the industrial cycle' (I, p. 790),
or 'the rate of accumulation is the independent, not the dependent
variable; the rate of wages is the dependent, not the independent
variable' (I, p. 770). However, the latter famous mathematical for-
mulation should not be understood too mechanically. For the move-
ments of the wage-rate, which is basically determined by the process
of capital accumulation and the relative weight of the industrial
reserve army, do react dialectically to the features of accumulation
especially, as we have seen, in the process of causing periodical
crises. Nevertheless, it is clear that the motion of wages is regulated

as a whole basically by the process of capital accumulation through
the changing phases of business cycles. Nominal wages in particular
would never fail to rise towards the end of prosperity, fall sharply in
the phase of crisis and remain stagnant and at a low level in the
depression.
The movement of real wages is theoretically more complicated in
relation to the motion of prices of commodity products. The degree
of a rise of real wages towards the end of prosperity may be mitigated
by a rise in prices of consumer goods. For the capitalists in certain
industries a rise of wage costs may well be more than counterbal-
anced by a greater rise in the prices of their products. However, as we
have argued against the Kalechi-Okishio type of business cycle
theory in Section 8.3, the pressure of the over-accumulation of
capital to push up real wages in response to a labour shortage in our
basic theory cannot be stopped in the final instance in spite of a
speculative rise in other commodity prices, because of the fundamen-
tal inelasticity of supply of labour-power. A favourable condition in
the labour market for workers also easily strengthens the negotiating
power of trade unions if they exist and tend to loosen labour discip-
line in the work place, adding to a substantial rise in wages. A fall in
the nominal wage-rate may sometimes be more than counteracted in
the phase of crisis by a sharp decline in the prices of the means of
consumption, although the real income of workers must generally
decline with the reduction of employment and working hours. How-
ever, the real wage-rate must definitely become lower in depression,
when an acute collapse of the prices of commodity products, rein-
forced by the breakdown of credit relations and speculative stockpil-
ing have passed by, reflecting a very unfavourable market condition
for workers. Marx's formulation of the general movement of wages
must thus be relevant for the motion of real wages too. 25 Anyway, the
rigidity of wage-rates cannot be assumed here with a freely competi-
tive market both for workers and capitalists.
The real income of workers families would increase first with the
growing number of employees and then with a rise in the real
wage-rate in the process of prosperity, whereas it must shrink in a
depression as a reaction to it. Through a spiral motion of workers'
real income along with periodical business cycles, changes in the
contents of the average means of consumption for workers, which are
socially necessary to reproduce their labour-power, will tendentially
take place. In the initial definition of the substance of value of
labour-power, we had to assume abstractly, certain quantities of

means of consumption as necessary material for the social reproduc-
tion of labour-power. Theoretically we could define the labour-
substance embodied in those means of consumption, once their range
and quantity together with a social set of the technological conditions
of the production processes are given. The contents of the necessary
means of consumption form the material conditions of the standard
of living for workers, and are theoretically assumed to be given
including 'a historical and moral element' (I, p. 275). A plain neo-
Ricardian theory would assert that the physical data of real wages are
to be determined independently of the production system of capital-
ism. Though any level of real wages can determine a consistent
system of prices with a corresponding profit rate as neo-Ricardians
underline, this does not mean that real wages are really determined
freely from the law of motion of capitalism. Now we see that the very
process of periodic business cycles with its fluctuations in wages
serves as a capitalistic mechanism to incorporate social changes in the
substantial material contents of the value of labour-power, although
it would not solely and wholely determine the full range of the
necessary means of consumption and the 'historical and moral ele-
ment' contained therein. 26 The fluctuation of nominal and real wages
through the alternate phases of the business cycles gravitates, on the
one hand, around the historically and socially given standard of living
of an average ordinary wage-worker (in a certain period for any
particular country), but it also works simultaneously as a means
continuously to channel the changes in level of standard itself. In
these regards the process of business cycles forms a social mechanism
for the typical and concrete working of the law of value as regards
labour-power, the central commodity in capitalism, through market
fluctuations.
Second, fluctuations in relative prices among commodity products
would proceed, gravitating around the market prices of production as
a concrete form of the values of those products, on the basis of the
fluctuation of wages in the process of business cycles. So far as wages
remain relatively stable with an available relative surplus-population
for the labour market during the widening process of the accumula-
tion of capital in prosperity, the anarchical deviation of the prices of
commodity products from their values or their market prices of
production could be incessantly readjusted in a narrower range of
fluctuation around a relatively stable set of prices of production,
upon the basis of relatively stable conditions of production as well as
a stable real wage-rate. Allocation of living and dead labour among

the industrial spheres is realised relatively smoothly in this prosper-
ous phase guided by the motion of profit rates which also fluctuate in
a relatively narrow range corresponding to the motion of commodity
prices. Though such a process tends to be regarded as the natural
harmonious order of things in the classical and neo-classical theoreti-
cal views it cannot last indefinitely. When capital accumulation
becomes excessive in relation to the existing labouring population,
the relative prices of commodity products must be very much dis-
torted in the process of speculative development, along with a rise in
wages towards the end of prosperity. The relations between com-
modity prices are further broken in the following phase of crisis
through the reversed and destructive functions of competition and
the credit system among capitals. The working of the law of value
which anarchically adjusts the allocation of social labour together
with the fluctuations of commodity prices is paralysed and collapses
in these phases. It cannot be fully restored throughout most of the
depression with its stagnant reproduction of capital.
However, through such destructive and stagnant phases in business
cycles, capitalism is driven to innovate in industrial technologies and
the development of productive power. Especially as most capitals in
the leading industries are mutually pressed and prepared simul-
taneously to replace fixed capitals towards the end of a depression,
the basis for the balanced relations among relative commodity prices
is reconstructed corresponding to the social system of newly intro-
duced production technologies. The social allocation of labour is
fundamentally readjusted in the same process. The working of the law
of value to regulate the relative prices of commodity products in accord
with the changing labour-substance of their values in the process of
the development of productive power, is thus actually carried on
throughout the whole process of business cycles. The equalisation of
the profit rate between industrial spheres, along with the social
process of the development of productive power, is also achieved
concretely through business cycles, which repeatedly reproduces
phases of overall prosperity based on renewed productive power intro-
duced through the phases of crisis and depression. The process of the
readjustment of the substance of values and the corresponding rela-
tive prices of commodity products in accord with development of
productive power through the business cycles, simultaneously regu-
lates the value of labour-power and thus the rate of surplus-value, in
combination with the regulation of the material contents of the
standard of living of wage labourers in the same course of business

cycles.
Third, the working of the law of value in regulating the fluctuations
of the general price-level in the process of business cycles must also
be cleared up. Against the quantity theory of money in the tradition
of the classical school, Marx asserted that the general price-level is
determined not by the quantity of money, but basically by the
substantial relation between the values of general commodities and
the value of the money commodity gold. He pointed out that money
is used not merely as a means of circulation, but also as hoard or as
universal money kept outside of commodity circulation, as we saw in
Chapter 4, Section 4.2. Recognition of the basic logic of the determi-
nation of the general price-level by the substance of values of ordi-
nary commodities and gold, would not exclude the theoretical possi-
bility of general price-level deviating from the substantial value-
relations. Marx actually notices such movements in the general
price-level - a rise in the phase of full employment, and a fall in the
phase of crisis - as follows:
In times of prosperity, of great expansion, when the reproduc-

tion process exhibits a great acceleration and energy, the workers
are fully employed. In most cases there is even a rise in wages,
which to some extent balances the fall in wages below the average
level in the other phases of the commercial cycle. At the same
time, the capitalists' revenues grow significantly. Consumption
generally rises. Commodity prices rise just as regularly, at least in
certain decisive branches of business. (III, p. 578).
In periods of crisis, the opposite is the case. Circulation no. I
[which refers to the commodity transactions by expenditure of
revenue in distinction from circulation no. II referring to transac-
tions by capitals- M. I.] contracts, prices fall, and so on wages. (III,
p. 580).
Prices that fall in the phase of crisis will not fully recover and remain
lower than in the previous period of prosperity, reflecting stagnation
in reproduction and circulation (including circulation no. II). In sum,
commodity prices would rise towards the end of prosperity from their
standard level in mid-prosperity, fall sharply during crisis as a process
of the breaking down of the whole market mechanism, and not fully
recover from the very bottom of the crisis and will remain low or
stagnate during depression before finally being restructured into a
new standard level corresponding to a new technological basis for

expanded reproduction.
Such fluctuations of prices in the course of a typical business cycle
are clearly not caused by changes in the quantity of money. They
occur even when the total quantity of hard money in a society
remains unchanged, while the credit system expands, collapses, or
stagnates. Towards the end of prosperity, for instance, the total sum
of prices of transactions among capitals would increase with the
speculative rise of commodity prices along with a general rise in
wages. The necessary increase in the amount of the means of circula-
tion and payment to satisfy those transactions is flexibly supplied by
mobilising idle-money capitals through the credit mechanism. The
increase in the quantity of credit money, however, cannot be an
independent external factor to, or a cause of, a rise in prices. On the
other hand, the existence of idle money kept outside of the com-
modity circulation does not always guarantee the regulation of the
general price-level in accord with the substantial value-relations
between the general commodities and gold. It serves rather as a basic
condition of a capitalist social mechanism to enable the upward
deviation of commodity prices from values through speculative deve-
lopments in the process of the over-accumulation of capital towards
the end of prosperity. As a reaction to such an upward deviation, the
general price-level must fall sharply in crises and stay at a low and
stagnant level during depression, reflecting the dynamism in capitalist
mechanisms of accumulation as a whole in the process of business
cycles, which cannot at all be limited or attributed to the quantitative
movement of money.
So long as the general price-level regularly moves up and down in
the changing phases of prosperity and depression, the profit rate in
the gold industry must fluctuate counter-cyclically due to changing
production costs. Therefore, production in the gold industry must be
reduced towards the end of prosperity, and expanded in crisis and
depression. Though the annual gold production forms just a marginal
addition to the existing gold stock in its various interchangeable
forms (not being confined to money in circulation or in reserves), its
reduction can be an additional factor in narrowing the basis for credit
expansion or in promoting a shortage of loanable money capital
towards the end of prosperity. The reduction of effective demand by
the gold industry would also act counter-cyclically in this phase,
though the effect might not be very significant. The expansion of gold
production in the phase of depression must contrarily add to the
relative superabundance of loanable money capital, and must counter-

cyclically increase effective demand to some extent. (These counter-
cyclically movements and effects of gold production can be analogous
to those of the balance of trade in the process of business cycles for a
capitalist economy in the world market. Actually most capitalist
countries used to obtain gold by making surpluses in their balances of
trade, and not by their own gold production.)
The counter-cyclical unprofitableness and profitableness of the
gold industry in the alternate phases of business cycles may not be
perfectly counterbalanced within a single cycle. This is in a sense a
part of impossibility of fully guaranteeing balanced profitability
across various industrial spheres because of the anarchic fluctuation
of exchange ratios among commodity products in the circuit of the
business cycle. As for the relative prices of general commodity
products in the process of mid-prosperity, however, the process of
the equalisation of profit rates through competition between capitals
will take place fairly smoothly in accordance with the law of value,
without causing extreme and one-sided deviations from values or
prices of production. A similar regulation by the law of value would
work also in the exchange relations between the money commodity,
gold, and other general commodities, in the phase of mid-prosperity
more clearly than in other phases. With the given technological
conditions, the capitalists in the gold industry must in principle obtain
the general rate of profit, by deducting the cost-prices of wages and the
necessary means of production from the amount of gold produced. A
rise in the general price-level would then push down the profit rate in
the gold industry by increasing its cost-prices, and vice versa. Capi-
talist competition forming a set of prices of production, must basi-
cally include the regulation of the general price-level so as to equalise
the rate of profit of the gold industry with others.
However, there are certain complications in the working of the law
of value in its regulation of the general price-level in relation to the
purchasing power of the money commodity gold. 27 The adjustment of
the quantity of gold production would be accompanied with a process
of readjusting the differential and absolute ground-rent of gold
mines, and the resultant changes in the representative conditions
(and costs). Besides there must be a general difficulty in closing down
or reopening the marginal mines with all the fixed capitals. The
representative conditions of supplying gold would therefore change
slowly. The social demand for gold also includes some uncertainties.
The social need for gold is objectively certainly not unlimited, apart
from the individual subjective desire for money in a commodity

economy. However, some additional supply of gold can be absorbed
flexibly in such forms as reserve funds or simple luxuries without
causing over-supply of currency and a direct immediate downward
pressure on the purchasing power of gold. On the contrary, some
shortage of yearly gold production can also easily be adjusted to by
readjustment among different interchangeable forms of gold, together
with the elastic expansion of the credit system. Therefore, the social
functions of money and capitalist reproduction will not immediately
be disturbed, even when the gold industry is receiving a rate of profit
either above or below the general rate in the phase of mid-prosperity.
When the gold industry is getting extra profit its production would be
expanded faster than the social average. But it will take a certain
length of time by a complicated and roundabout way for the effects of
the faster expansion of gold to cause, directly or indirectly (through
the credit mechanism), a rise in the general level of prices and wages
so that the extra profit in the gold industry as well as its faster rate of
expansion will cease. The same must also be true for the case where
the general price-level is too high for the gold industry to obtain the
general rate of profit.
In this regard there is a difference in the features or the mechan-
isms by which the law of value regulates the purchasing power of the
money commodity gold or the general price-level in comparison with
that of the case of the relative exchange ratios between other com-
modity products. The working of the law of value in regulating and
adjusting the levels of both general prices and gold production
through the process of the equalisation of the rate of profit will thus
not necessarily be fully achieved within a single process of prosperity.
It will rather form a tendentially longer wave of fluctuations in the
general price-level across the phases of mid-prosperity, including also
the effect of changes in the relative productivity of the gold industry
and others behind the market. The general price-level which basically
reflects the trend of changes in the relative productivity of the gold
industry, can either be rising or falling through consecutive business
cycles. The trend has actually alternated in the shape of long waves
through multiple business cycles. The general price-level as an aggre-
gate form of value can thus deviate from, and be readjusted to, the
substantial value-relations not merely through specific phases within
each business cycle, but also through multiple cycles as longer waves.
Even under the gold standard system, the general price-level could
not remain statically stable and fixed. Its alternate long trends can
possibly be regarded as a part of the logical basis for the long wave of
capital accumulation, which should be properly discussed in a sepa-
rate item.
9.5 THE METAMORPHOSES OF THE BUSINESS CYCLE

AND THE LONG WAVES
Although the periodical business cycle is 'of such a nature that the
same circuit must reproduce itself, once the first impulse has been
given' (III, p. 620), it cannot continue to move for ever in the same
circuit like the motion of 'the heavenly bodies' (1, p. 786).
As we noted in the first section of this chapter, capitalism used to
repeat the regular periodical business cycle most typically about
every ten years in the period of liberalism between the 1820s and
1860s. The basic theory of regular business cycles could be abstracted
from the historical experience of Marx's age, assuming a certain
range of size and type of fixed capitals, which were replaceable more
or less concertedly in the leading industries within the period of the
business cycle. It implies that regular business cycles were a historical
phenomenon subject to metamorphoses with the development of
capitalism. A shift in leading sector from the light (especially cotton)
industries to the heavy industries actually induced the metamor-
phoses of business cycles, initiating the stage of imperialism. A full
investigation of the transformation of business cycles, in relation to
the socio-economic structural changes, in the course of the historical
development of capitalism certainly requires upper levels of research
as proposed in the stages theory, or more concrete empirical studies
beyond the basic theory of capitalism. However, let us try in this
section to theorise, at the level of the basic theory the logic of the
metamorphoses of business cycles as far as possible. Then we will
also examine what we can say about long-wave theories and the
nature of long waves, considering the relevance of our basic theory of
capitalism as a frame of reference for more concrete researches. The
historical experiences must also be taken into consideration here, but
they will presently be referred to just as illustrations of the basic
logic.
Through the process of capital accumulation, which develops its inner
contradiction between the relation of production and the growth of
productive power, in regular business cycles, the growth of the pro-
ductive power of capital eventually results in the uneven development
of the size of fixed capitals among industrial spheres, and an increase

of the weight of certain industries with huge fixed capitals. As we
have argued in Chapter 8, the credit system based on commercial
credit is insufficient, or rather unsuitable, for promoting the expan-
sion of industries with huge fixed capitals. The role of joint-stock
capital therefore must much increase. The construction of gigantic
fixed capitals, which is impossible for individual capitalists, is often
realised in the form of joint-stock capital by extending the range of
joint investors. In the process of this uneven development the rela-
tive weight of the industries with smaller fixed capitals and extensive
circulating capitals tends to decline, while that of industries with huge
fixed capitals increases. The feature of the regular periodical business
cycle must then be transformed, as the axis of the leading industries
shifts from the former to the latter.
Expansion of the productive capacity of the industries which have
gigantic fixed capitals, cannot be one of continuous linear change by
every small unit. It is generally performed by constructing massive
new plant and equipment on a giant scale. Construction of large plant
takes a considerable time, extending over more than a year or two,
absorbing large sums of capital and many workers. Once completed,
the new plant with its huge fixed capital would add a considerable
proportion to the existing industrial capacity as a whole, and must
work for many years to come. Therefore, individual firms can no
longer assume that the expansion of their productive capacity will be
marginal to the total capacity of the industry. Each project expanding
productive capacity would then involve much speculation as to the
rate of growth of demand for the product for a fairly long while
ahead. The role of the speculative expectations of capitalists gains
importance in the very basic economic activity of construing new
plant and equipment. The anarchical decisions on the planning and
practice of investment among individual firms tends to intensify
speculative expectations in the same direction. The effect of the
gestation period, when the construction of fixed capital increases
effective demand without increasing the supply of commodity pro-
ducts, particularly strengthens the speculative nature of real capital
investment as well as the conformity of the direction of speculation
among firms. This effect tends to promote a speculative boom espe-
cially among the capital goods industries, where investment increases
mutual demand for their products. Thus, the process of prosperity
led by the expansion of industries with huge fixed capitals tends to
appear as a speculative and uneven development from the beginning.
Corresponding to this the end of prosperity also becomes uneven

and irregular. The possibility of the over-accumulation of capital in
relation to the labouring population cannot at all be excluded. 28
However, since the prosperity does not proceed universally, the
collapse of speculative development in some industries may end the
prosperity, often long before the process of capital accumulation
becomes excessive enough to cause a general rise in wages. The
moment for the downturn would be given, for instance, by the failure
of a realisation of the speculative expectation among capitalists
concerning the growth rate of the market for their products, or the
growth rate of the productive capacity among rival firms, or the
availability of cheap money and high prices of stocks which easily
attract such money from a capital market, or their combination. The
failure of speculative expectations for the profitability of fixed capital
investments on a gigantic scale would become a central problem at all
events. A collapse of stock prices in a capital market would occur
often leading to a financial crisis. The money market would already
have been tightened in the process of the speculative development of
both fixed capital investment and the boom in stock markets. A rise
in the interest rate appears in the tightening money market, and it
must be further pushed up with a collapse in the capital market by
clearing up the debt relations formed in the boom. Such a rise in the
interest rate together with the failure of a real capital investment
boom may often induce a commercial and an industrial crisis as well.
The possibility of a full-scale crisis combining total and acute
collapses of the financial system, and commercial and industrial
activities can again not at all be excluded. Such a crisis may occur
even before full-scale over-accumulation of capital in relation to the
labouring population appears, as we experienced in the great crisis
following 1929. However, the collapse of a boom as a reaction to the
speculative and uneven development of fixed capital investment may
also often take the form of an indecisive and partial crisis. The
collapse of a capital market might not involve the total collapse of
the credit system, as the short-term credit system would not necess-
arily be extended for the speculative trading of circulating capitals.
Thus, the acute total character of periodic crises in the course of
regular classical business cycle is transformed into irregular forms of
collapse of the prosperous process, often taking the form of milder
indecisive crises. 29
Such a metamorphosis of crises does not necessarily mean that the
difficulty of capital accumulation in the next phase is easier to
overcome. Rather, the contrary is the truth. Through a milder

indecisive crisis, industrial capitals tend to carry over massive and
excessive productive capacity, being mostly exempted from radical
destruction such as business failures. Besides it is not uncommon that
the construction of huge fixed capitals is completed through a long
gestation period after the boom that promoted it and so in the phase
of depression, adding much to excess capacity. Since gigantic plants
and their equipment embody huge amounts of capital values, they
cannot simply be abandoned, even in the case of business failures or
in an acute destructive crisis. They are mostly conserved and taken
over by other firms or the reorganised firms. It usually takes quite a
long time to depreciate them before scrapping. Thus, in the indus-
tries with large fixed capitals, superabundant real capital in the form
of excess capacity tends to persist, and prolong the difficulties of
restructuring during the process of depression.
All the cha~acteristics of the phase of depression in the regular
periodical business cycles reappear, only on much extended scale and
as a persistent tendency. The pressure of excess capital based upon
superabundant productive capacity in the main industrial spheres
tends continuously to depress the rate of profit and capital accumula-
tion as a whole. Various imbalances such as those among industrial
spheres, or between limited effective demand (especially of workers)
and the capacity to supply the commodity products, or between the
total value accumulated and the reduced number of workers produc-
ing surplus-value, prevail chronically, and it is difficult to restructure
these under the pressure of excess capital as a whole. The equalisa-
tion of the rate of profit across industrial spheres, as well as the
working of the law of value to readjust the imbalance in the social
allocation of labour, must still basically operate, but with much
retardation and hardship. Monopolistic organisations with monop-
olistic pricing tend to be formed in order partially to avoid and
mitigate the total difficulty in accumulation and profitability. The
form of joint-stock capital facilitates the formation of giant monop-
olistic capitals in the major industries with huge fixed capitals as we
mentioned in Chapter 8. Needless to say, the formation of monopoly
capitals cannot be a solution to the overall depression. On the
contrary, they rather add to the difficulties in the non-monopolistic
industries with smaller-sized firms and the imbalances of an economy
in every aspect, making them harder to readjust.
Under the circumstances it has often been asserted that upon the
basis of the under-consumptionist tendency in a capitalist economy,
monopoly capital is the major cause of the prolongation of depress-

ions.30 It must be noted, however, that the depressive burden of
excess capital, especially in the form of superabundant huge fixed
capitals, is the more basic issue and also historically preceded the
establishment of monopoly capitals in the great depression of the late
nineteenth century, although monopoly capital can surely aggravate
the depression as was experienced in 1930s. Anyway, as the difficulty
of positive accumulation becomes chronic in the main industrial
spheres, with their gigantic fixed capitals, the moment for the next
upturn to prosperity cannot appear generally from within these
existing industries. New and radical innovations in some industries,
often outside of the existing major industries, are seriously sought for
together with political and social policies and changes, in order to
restore profitability in some economic areas or industries. The upturn
to a new prosperity must thus often begin as a partial, uneven and
speculative development again, on the basis of the chronic depressive
burden of excess capacity which tends to remain in a number of
major existing industries. The prosperity which follows must be of a
speculative uneven character, and often short-lived.
Thus the transformed business cycle tends to proceed irregularly
with complicated features. The time period of a business cycle can no
longer be determined by concerted replacement of fixed capitals, and
it must become more or less irregular. The process of uneven specu-
lative prosperity often cannot wipe out the heavily depressive
keynote in the major industries. As a result, business cycles are
metamorphosed into complicated multiple cycles, being composed of
smaller or medium cycles and greater ones, as we are now experienc-
ing a combination of a great depression since 1973 and smaller cycles
within it, just as in the previous great depressions. The inner contra-
diction of capitalism, or the clash between its relations of production
and the growth of its productive power, is not necessarily revealed
any longer in the outburst of the full-scale economic crisis, but often
rather in the persistent depressive tendency of the major industries
with their huge excess capacities. In practice this generates socio-
political attempts to alleviate the chronic problem by oppressing
workers though such forms as imperialist foreign policies, fascism,
wars and austerity policies. Since the depressive keynote in the major
industries tends to persist strongly, a series of exceptionally favour-
able conditions for profitability and capital accumulation are necess-
ary to cause an upward turn in the greater cycles. It is not entirely
impossible, though difficult, for capitalism to create the conditions
for a long upswing, as in the periods between 1897 and 1913, and
more recently between 1945 and 1973.
We have already come to discuss the long waves, which are
generally assumed to last about fifty years each. The greater cycles
including smaller cycles in them are virtually nothing but long waves,
which have become a popular topic again among economists, and not
confined to Marxians, in the process of the current great depression.
It must be noted, however, that long waves have gained actual
significance through the metamorphoses of the business cycle as we
have seen. This is a reason why the long wave theories could only
begin to be explored, initially among Marxians like Parvus and K.
Kautsky, 31 since about the turn of the last century. It would be
dogmatic and improper not to recognise the importance of the
metamorphoses of business cycles and the resulting long waves, by
adhering to the idea of a continuation of regular periodical business
cycles and crises as a way of application of Marx's crisis theory. 32
Also it would be improper to treat long waves as if they were entirely
parallel with, even if not replacing, regular business cycles in the
basic theory of capitalism.
Nevertheless, in attempting to formulate a theory of long waves in
one way or the other, major theorists in this area likeN. D. Kondra-
tieff, J. A. Schumpeter and recently E. Mandel among others are all
apt to believe that long waves have always existed in parallel with
regular periodical business cycles from the very beginning of indus-
trial capitalism. Can we really believe in the existence of a long
down-swing in the quarter-century until 1847 which is comparable
with later great depressions? That was a distinct period when British
capitalism could develop the central cotton industry quite rapidly on
the achievements of the preceding Industrial Revolution. Even
though the effects of a rise in prices due to the discovery of the
Californian gold mines and the defeat of radical social movements,
combined with some aggregate statistical data, may well be referred
to as distinctions between the two quarter-centuries before and after
1847, historically it must be much more important to see that British
capitalism with its central cotton industry was continuously develop-
ing as 'the workshop of the world', promoting a consistent period of
liberalism in these two quarter-centuries. 33 At this stage of liberalism
the inner contradiction of capitalism was clearly revealed in the
repetition of periodical crises in regular business cycles, as Marx
intended to show in the basic theory, and not yet in the great
depression as with the downswing of long waves. Over-generalisation
of a theory of long waves would not be a correct way to clarify the

historical meaning and significance of the long waves themselves.
Over-generalisation of the causes of the upturns and the downturns
in the long waves should also be avoided. A type of long-wave theory
has been constructed, analogising with a theory of regular business
cycles. N.D. Kondratieff, for instance, maintained that an upturn to
a long period of prosperity appears on the precondition of the
formation of abundant cheap loanable capital and low prices which
stimulate long-term investment in large-scale plant and equipment,
land improvement or the training of highly skilled workers; while the
downswing of the long wave begins with a relative shortage of
loanable capital and a rise of prices and costs. 34 According to him,
other factors such as the development of industrial technologies,
gold-mining, the incorporation of new markets into the world econ-
omy, wars and revolutions are not the causes of the long waves,
though they often correspond to the rhythms of long waves. The
causality of long waves is assumed within the economic order of
capitalism itself, analogous to that of regular business cycles. How-
ever, this theory was not very persuasive. Can it just be a quantitative
difference which determines whether similar causes lead to the up-
swing of the long wave or merely to that of the regular cycle? As a
historical fact, abundant cheap loanable capital was virtually non-
existent in most of the countries just after the Second World War as
the precondition for the subsequent long upswing, 35 whereas it did
play a role to some degree in the upturn from the great depression of
the late nineteenth century.
Although Schumpeter called the long waves 'Kondratieff cycles',
he did not follow Kondratieff as to their causality. 36 In his theory,
major technological innovations invented in the preceding down-
swing prepare and cause the upswing of long waves in the process of
their industrial diffusion, while smaller innovations generate regular
business cycles inside them. Though technological innovations cer-
tainly play an important role in the whole dynamism of capitalism,
Schumpeter's position seems to me an assumption for empirical
historical research, rather than a complete theory by itself. It could
not be logically established as to why major innovations are invented,
diffused and then loose their effect in creating upswings and down-
swings of the long waves so regularly as about every fifty years. The
concrete timing and the features of the upswing and the downswing
of each long wave cannot be determined just by the rhythms of the
major innovations, without taking into consideration a wider range of
conditions of capital accumulation, such as changes in the forms of

organising capitals including the financial system, the availability of
cheap and quiesent workers, low prices of raw materials from
abroad, and socio-political processes including the state policies and
wars. The actual course and the effects of major technological inno-
vations must develop closely and dialectically with these concrete
conditions of capital accumulation, and the total relations are rather
impossible to formulate as a general regular pattern.
By criticising Kondratieff's over-generalisation of the economic
theory of long waves L. D. Trotsky maintained that the long waves
should not be understood as waves analogous to regular business
cycles. 37 In his view the major causes of long waves are not in the
inner economic dynamism of capitalism, but in the changes of its
external conditions such as the opening of new markets, the dis-
covery of new natural resources, wars and revolutions. E. Mandel
follows this view in one-half of his theory as to the upturn of long
waves, whereas he asymmetrically explains the cumulative nature
and the downturn of each long wave from the internal logic of a
capitalist economy, especially underlining the role of Marx's law of
tendential fall of the profit rate due to the rising organic composition
of capital. 38 Excepting the role of the law of tendential fall of the
profit rate, Mandel's explanation fits the course of long waves in the
post-Second World War period fairly well. However, the upturn of a
long upswing in about 1897 seems explicable not so much by the
changes in the external socio-political conditions as by the internal
dynamism of capital accumulation on a world scale, while the end of
that upswing is clearly given directly by the political upheaval of the
First World War. The whole economic process in the interwar period
including the great crisis after 1929 cannot be understood as a mere
continuous economic downswing of a long wave, since actually it was
overwhelmingly conditioned and affected by stormy socio-political
events in the forms of great wars, revolutions and fascism. Obviously
it was the historical background for Trotsky's assertions about long
waves.
Thus, the causes of turning-points as well as the processes of
upswings and downswings in the long waves contain rich historical
specificities. As a result, theoretical attempts to formulate a general
theory of long waves in one way or another have had to involve
unpersuasive over-generalisation. Neither the endogenous theories
nor the exogenous theories of long waves, or the combination of both
types of theory are successful, so far as they intend to present a
uniform explanation for all long waves. The endogenous dynamism

of the process of capital accumulation and its exogenous conditions
must not be treated mechanically and one-sidedly, but more flexibly
and concretely according to the historical specificities of each period.
This caution applies also to 'the social structure of accumulation
theory' of long waves recently presented by D. M. Gordon,
R. Edwards and M. Reich among others. 39 It is their definite contri-
bution to have pointed out anew the importance of the changes in the
social structure of accumulation, especially in respect to the organisa-
tional structure of the labour process, for the course and nature of
capitalist economic development. However, the changes in the social
structure including that of the labour process may not always be a
cause, but rather a result of the pressure of the process of the long
wave, just as we are now keenly experiencing with the current great
depression. In some other cases the social structure of accumulation
would change as a result of further external political events like
fascism, wars or the end of wars, and possibly also as a result of
changes in the international political and economic order.
The indeterminate character of the causality of long waves repre-
sents the fundamental instability of the course and mechanism of
capital accumulation after the transformation of regular business
cycles, as we have argued. With the metamorphoses of the regular
classical business cycles, the depressive keynote of the major indus-
tries, having excessive and huge fixed capitals, has become so persis-
tent that capitalists are forced to make a variety of attempts to escape
from the long downswing depression. Their attempts are not confined
to the endogenous restructuring of the existing industries, but extend
to explorations of fundamentally new technologies to create new
types of commodities and industrial fields, as well as to the changes in
the socio-political structures for capital accumulation. The decisive
moments for a new upturn would vary and not be predetermined.
These considerations must be relevant to the process of current
global great depression. It is still highly questionable whether a new
upswing to a long wave can ever be possible after this great depress-
ion. And if it is, how and when will the new upturn be ready? Can it
be ready without actually experiencing further and more catastrophic
economic and political disasters, especially on the part of working
people even in the advanced capitalist countries? More concrete
analyses at a level of research separate from the basic theory of
capitalism are necessary precisely to clarify the major moments
forming this great depression with all its socio-political impacts.
For such concrete analyses of the current situation of capitalism,

the whole of our basic theory of capitali1sm, which shows in particular
the fundamental position of wage-workers under the law of motion of
capital, including the logic of regular business cycles and their meta-
morphoses, must be fully mobilised as an indispensable frame of
reference. At least one thing seems to me clear by now, however,
from our discussion on the basic theory. We should not be fatalistic
about the future course and the social effects of the current great
depression in view of the indeterminate native of long waves, despite
a strong tendency for capitalism to transfer the heavy burden of
excess capitals on to the shoulders of working people and the weak in
the world and domestic economic orders. At the same time we should
not confuse the present impasse of capitalism, with a dead end for
historical development itself particularly for working people. In
order to conclude our considerations on the basic theory of capitalism
in this respect, a final chapter on socialism would further be a
necessary and desirable addendum.
Part IV
Socialism - an Addendum
As we have seen, the basic theory of capitalism enables us systemati-
cally to understand the historically specific character of a capitalist
economy by clarifying its essential forms and its substance, together
with its mechanisms of motion. With these contents the basic theory
of capitalism serves as a fundamental frame of reference, not merely
for the more concrete analyses of actual capitalist developments and
the current situation, but also for the theoretical argument for social-
ism. Let us therefore try to deduce and summarise some possible
implications for socialism from what we have discussed in this vol-
ume. Even though the final part VII of the third volume of Capital
contains certain insights for socialism, Marx seems to have rather
deliberately avoided describing a full design for a socialist (or com-
munist - which was his usual wording) economic system, excepting
some abstract basic ideas and pointers. In this respect his attitude on
socialism was quite a contrast to that of Utopian socialists like F. M.
C. Fourier. 1 He might have assumed that the socialist economic
system could be simple, being consciously constructed upon some
clear rules, and not as complicated as a capitalist economy. He might
have as well believed that the basic theory of capitalism presented in
Capital would simultaneously give a basic guide for a socialist econ-
omic order.
The actual process of constructing a socialist economy in post-
revolutionary societies has now turned out to entail many more
difficulties and complications than was ever expected. For one thing a
basic general theory of socialism, which is comparable with the basic
theory of capitalism, cannot logically be formulated. This is particu-
larly because political and social decisions become so important for
the whole course and structure of socialist economic development.
This means that there is considerable freedom for strategic decision-
making for the actual processes of socialist economic growth. Never-
theless its final and intermediary goals and main policies must always
be discussed with reference to the basic theory of capitalism, even if
the theory often only serves as a negative although solid sort of
criteria.
It is worth trying here as far as possible to examine where such
343
344 Socialism - an Addendum
criteria can be established from our basic theory of capitalism by

reviewing its implications. There are two reasons for this. First, Marx
did not return to a systematic and positive discussion of socialism
after writing Capitaf.Z Therefore, a problem remains as to how his
earlier views on socialism based rather directly upon historical ma-
terialism can be strengthened or widened by his theoretical achieve-
ments in Capital. Second, the possible implications of our own recent
contributions to Marxian principles of political economy must also be
examined in regard to the debates on socialism. In examining the
basic criteria for socialism and for socialist movements in our age, the
problems and complications of the Soviet types of societies, with all
the serious debates about them, should certainly be taken into con-
sideration. What concern me as problems of the Soviet types of
societies can briefly be summarised as follows.
First, the working people do not seem to be fully liberated as the
actual subject of a society which is under the strong control of the
state and the Party bureaucracy from above to below, against Marx
and Engels's idea of socialism, aiming at the extinction of the state
with all its power apparatus. Second, the centrally planned socialist
economy has become 'abraded' and inefficient both in adjusting the
allocation of resources and labour for social needs and in improving
productivity, as well as the quality of the products within each
enterprise. The introduction of more flexible pricing in a market with
the 'profit principle', is repeatedly proposed and tried with continu-
ous and heated debates concerning the danger of revisionism far
socialism. Third, the quality and the contents of the growth of
productive power, as the human ability to control its own metabolic
relation to nature, in Soviet-type societies have substantially followed
technologies developed by capitalism with all their destructive effects
on the ecological environment and on human abilities.
These problems are not at all simple and have to be investigated at
various levels of research. Our task in this Part cannot be a full
treatment of them, but is rather confined to some of essential points
for socialism which can be discussed from our presentation in the
preceding chapters, while the actual concerns and worries about
these problems must be kept in mind. Our examination will remain at
a basic abstract level, but may still actually be more or less relevant
to these problems, since they are problems for societies theoretically
and consciously founded upon the name of Marxism. At least some
confusions in socialist movements and in the process of constructing
societies after the socialist revolution seem to spring from simple and
Socialism - an Addendum 345
mechanical applications of Marx's historical materialism and econ-

omic theories without the careful re-examination of the remaining
problems or the solution of the difficulties therein. Anyway, a brief
single chapter will suffice for out present examinations in this Part.
10 On Socialism
10.1 HISTORICAL MATERIALISM AND THE NECESSITY
FOR SOCIALISM
It is often believed among Marxians that Marx proved the logical

inevitability of socialism. It is undeniable that Marx intended to show
such an inevitability. The formula of historical materialism, which
was presented prior to writing Capital as we saw in Chapter 3, Section
3.1 already contained a sort of consistent logic of the historical
transformation of various societies which finally reach a classless
socialist society driven by the growth of productive power. The
dialectical conflict between the growth of productive power and the
existing relations of production would inevitably cause a period of
revolution, changing the existing social formation into another new
form of society. This basic view of historical materialism is incorpor-
ated continuously in some parts of Capital. The problem is whether
those parts are theoretically well founded and valid or central to the
main theoretical contents of Capital.
For example, Marx formulated a theory of the progressive creation
of a relative surplus-population due to the rising organic composition
of capital in his presentation of the general law of capitalist accumula-
tion in chapter 25 of the first volume of Capital. According to this
argument the increasing misery of workers extends with the growth
of productive power, making a capitalist society finally untenable.
Corresponding to this, 'the historical tendency of capitalist accumula-
tion' is summarised as follows in chapter 32 of the same volume.
Capitalist production, which was born by 'the expropriation of the
immediate producers, i.e. the dissolution of private property based
on the labour of its owner' (I, p. 927), would increase 'the mass of
misery, oppression, slavery, degradation and exploitation' of workers
in the process of accumulation, centralisation and expropriation
among capitals along with the development of productive power in
the form of socialisation of labour and the means of production (I,
pp. 928-9). Through such a process, there also grows the revolt of the
organised working class, reaching a point where the centralisation of
the means of production and the socialisation of labour 'become
incompatible with their capitalist integument'. Then 'the expropria-
tors are expropriated' as 'the negation of negation' (1, p. 929).
347
348 Socialism -an Addendum
Apparently Marx's argument in these parts directly follows after

the line of discussion already presented in the first section, 'Bour-
geois and Proletarians', of The Manifesto of the Communist Party.
The polarisation of a society into a fewer and richer capitalists and
more and more degraded workers living in increasing misery, is
regarded as the inevitable result of the development of productive
forces in capitalism which prepare its own collapse and transforma-
tion into socialism. This view is easily combined with the undercon-
sumptionist type of crisis theory, and has long been treated as the
orthodox Marxist position. Orthodox Marxians are all expected to
support or defend this view in one way or another. In this view the
fundamental contradiction in capitalism must be in the increasing
poverty and unemployment among workers in contrast with the
growing productive forces, and it indicates the logical inevitability of
socialism. This position has been a focus of attack and defence
between non-Marxians and orthodox Marxians concerning the basis
of Marxism. However, it seems to me doubtful whether Marx's
theories along this line are well founded and consistent with his own
more developed theoretical views in Capital. 1
For instance, in his summary of 'the historical tendency of capital-
ist accumulation', in order to conclude with the expropriation of the
expropriators as the dialectical negation of the negation. Marx starts
with the expropriation of 'private property based on the labour of its
owner' as the initial state of immediate producers, and emphasises
the process of expropriation among capitalists substantially socialis-
ing labour and the means of production, which proceeds in parallel
with the degree of poverty and the immiserisation of the mass of
workers. However, as Marx more properly notices, 'the expropria-
tion of the agricultural producer, of the peasant, from the soil is the
basis of the whole process' (1, p. 876) of the 'primitive accumulation of
capital' which initiates capitalist production, and soil, as the central
object of expropriation in this process was not a product of labour or
perfect private property in general. Further, once capitalism is estab-
lished, the keynote of capitalist accumulation is not in the expropriation
among capitals but rather in the exploitation of wage-workers and the
transformation of surplus-value exploited into capital, as was shown in
Marx's own theoretical treatment of capital accumulation. In such a
process of accumulation, 'offshoots split off from the original capitals
and start to function as new and independent capitals' (1, p. 776)
especially through technical and product innovations. It would be
difficult to save in view of the basic private character of capital to grow
On Socialism 349
through any opportunity, that the number of independent capitals

definitely decreases in the process of capital accumulation at the level of
basic theory. Even the giant joint-stock monopoly capitals must essen-
tially remain private firms seeking private profit, and never aim at
organising social reproduction or even a single industrial sphere as a
whole. In this regard the capitalist process of accumulation would not
realise 'the socialization of labour and the means of production' to a
degree worth calling 'socialisation'.
On the other side, the increasing misery of the mass of labour with
the progressive production of a relative surplus-population, is also
difficult to establish from the basic theory of capitalism. The degree
of exploitation of wage-workers can be intensified by maintaining or
even elevating the use values commanded by wages (i.e. the material
contents of real wages) within the range of the increase in labour
productivity, as shown in Marx's theory of production of relative
surplus-value. In cases such as the long upswing of the post-Second
World War period, raising real wages somewhat would even become
a necessary condition for capital accumulation to extend the effective
demand for new types of commodities. Besides, the creation of a
relative surplus-population due to the rising organic composition of
capital would not proceed so persistently and progressively. In the
phase of prosperity in particular, capitals extend production rather
quantitatively within the restrictions of existing fixed capitals, and
increase employment in the process of accumulation even with a
rising organic composition of capital. As we examined in the previous
chapter, Marx himself did not present the capitalist law of population
simply and one-sidedly as the logic of an incessant and progressive
production of a relative surplus-population, and properly pointed out
that the business cycle 'depends on the constant formation, the
greater or less absorption, and the reformation of the industrial
reserve army or surplus population' (1, p. 785). In the phase of the
absorption from the reserve army, real wages would also be able to
rise especially towards the end of prosperity.
Thus, Marx's summary of the historical tendency of capitalist
accumulation, which emphasises the polarisation of society into
smaller numbers of richer capitalists and the increasing mass of
misery in the form of a reserve army, is not well founded and hardly
consonant with his own more promising theoretical views. This
reflection does not at all deny that capital accumulation, including the
process of expropriation, actually brings about an increase in the
extent of misery at certain historical conjunctures, which must be
analysed at more concrete level of research. For example, even in the

long upswing in the post-Second World War period, the economic
misery of the great mass of people in most of the third-world countries
was increasing under the pressure of capital accumulation on a world
scale. In contrast, however, in the same long upswing, the real wages
of workers in the advanced capitalist countries were steadily rising,
with a high level of employment until 1973, and it is this historical
experience that substantially eroded the prestige of the orthodox
Marxian position. Moreover, the collapse of capitalism and its trans-
formation into socialism are not theoretically guaranteed as a sort of
mechanical automatic process, even if the polarisation of a capitalist
society with its increasing immiserisation is given. The growth of an
organised class-conscious workers' movement is an essential precon-
dition for a socialist revolution. This precondition may not automati-
cally be met through the increasing misery of the masses. Although
Marx correctly referred to the role of the workers' revolt and their
organisation in his summary of the historical tendency of capitalist
accumulation, he seems to have too easily believed that this factor
would be prepared 'by the very mechanism of the capitalist process of
production' (I, p. 929). The formation and the growth of this crucial
factor as a precondition for socialism are determined by various
concrete historical and social conditions, as well as by the actual
subjective ability of the leadership of the workers' movement, and
cannot be deduced mechanically from the basic economic theory of
capitalism, even when the so-called law of increasing misery is
included.
The same problem is also presented to the other attempts to apply
historical materialism more or less directly to the logical necessity for
the collapse of capitalism. The typical breakdown theory of capital-
ism has been based upon Marx's law of the tendency of the rate of
profit to fall, as an attempt to show that the growth of productive
forces would become incompatible with the capitalist relations of
production. As we argued in Chapter 9, section 9.1, Marx's law of the
tendential fall of the profit rate, due to the rising organic composition
of capital, can well contain a continuous increase in the absolute
amount of surplus-value and capital in the process of accumulation
even if at a reduced pace, and therefore it cannot logically, in itself
show the inevitability of a dead end to capital accumulation. Thus, a
representative breakdown theorist H. Grossmann attempted to show
the disappearance of the portion of surplus-value consumed by
capitalists, by combining with this law a mechanical assumption that
the rate of yearly increase in constant capital is higher than that of
On Socialism 351
variable capital with a constant rate of surplus-value2 • Needless to

say, this assumption is arbitrary and far from logically inevitable.
Marx's law of tendential fall in the profit rate cannot thus be used as a
theoretical basis to show the inevitability of either periodical crises as
we have argued, or the collapse of capitalism. It cannot be a satisfac-
tory theoretical ground for conceiving socialism, also since the law
does not express a specific contradiction in capitalism. So far as it
signifies a substantial reduction in the pace of accumulation in terms
of labour, as a result of the relative reduction of living labour against
dead labour in the process of rising productivity, a similar effect must
remain with a socialist economy as well. The workers' movement for
socialism is not only neglected as crucial for the ending of capitalism
in the Grossmann type of mechanical breakdown theory, but would
also be at a loss for a clear theoretical goal.
Another new type of attempt to apply historical materialism to the
logical necessity of the collapse of capitalism is presented for example
by N. Okishio in his assertion that the productive forces in our age
are already out of the control of the system of private capitalist firms,
and as a result threaten the continuing existence of human society,
because of the progressive destruction of the ecological environment
and human health or of the uncontrollable danger of nuclear war
among other things. 3 In my view this assertion presents serious
reasons for us to end capitalism and to transform it into socialism.
The goals to be achieved by socialism are also clearly implied.
However, these needs are still not identical with the logical inevita-
bility of the collapse and the transformation of capitalism to social-
ism. Capitalism, with state policies, may continue to operate by
attempting to curb the immediate dangers for human existence, or it
may fail to do this and finally to destroy humanity itself in one way or
the other, if the workers movement for socialism is not ready in time.
Nevertheless, this subjective social factor, workers organisation,
cannot be guaranteed theoretically even by the dangerous use of the
productive forces in our age.
Thus, various attempts to show the logical inevitability of the
collapse and the transformation of capitalism into socialism within
the basic economic theory are more or less unpersuasive. A crucial
point in my view is that the growth of workers organisations and their
militating for socialism are not logically guaranteed or provable
within the economic theory of capitalism. In contrast with the birth of
capitalism, which was brought about basically through the anarchical
growth of a commodity economy driven forward by the development
of productive forces, the end of capitalism and the beginning of
socialism cannot simply be a process of unintentional economic

change, but requires conscious socio-political action by workers'
movements. This is because capitalism forms a total socio-economic
system, generating its own movement basically by itself through
anarchical and unconciously individualistic transactions. The task of
economic theory as a basic social science is to reveal such a histori-
cally specific character in a capitalist economy, including the me-
chanism of the exploitation of the working class with all its inner
contradictions which result in business cycles and crises as we have
seen. With this content the basic economic theory of capitalism surely
presents a theoretical basis for the conscious workers movement for
socialism by showing the possibility of abandoning capitalism and the
desirable ultimate goals of their organized action.
Nevertheless, as we have argued in Chapter 3, Section 3.1 it must
be the task of the socialist ideological world view, summarised in
historical materialism, which is based on but remains outside of
economic theory as an objective social science, to assert the necessity
of socialism in the light of the long history of human societies up to
capitalism. Furthermore, it must be the ultimate task of a practical
workers' movement both actually to prove and realise socialism, on
the grounds of the possibility and the necessity of socialism, pre-
sented by both Marxian economic theory and historical materialism.
Marxian political economy clarifies both the object of, and the actual
conditions for the workers struggle for socialism, guided by historical
materialism. Still it is the role of conscious socialist practical activities
based on the workers' movement to elevate the possibility of social-
ism established in political economy to actual historical necessity and
inevitability. The attempts to show the logical inevitability of the
collapse and the transformation of capitalism into socialism within
the basic economic theory, more or less confuse these different roles
and tasks of political economy, historical materialism and the practi-
cal socialistic workers' movement, and they must consequently
weaken the scientific basis for socialism.
A simple and mechanical application of historical materialism,
treating the growth of the productive forces by itself as the final
driving force of the progress of human history, has thus not merely
obstructed a correct understanding of the essential nature of the
transformation from capitalism to socialism, but also distorted the
course of the construction of socialism in post-revolutionary so-
cieties. In a Soviet type of society it has generally been believed that
the growth of the productive forces in the form of large-scale industriali-
On Socialism 353
sation through fraternal co-operation between the working class, the

peasant class and a section of the intelligentsia will harmoniously
drive a socialist society on to the higher stage of a communist society.
According to the orthodox Soviet view, Soviet society completed the
transition to a socialist society twenty years after the October 1917
Revolution which expropriated the capitalists and landlords and
pushed forward the nationalisation and the socialisation of the means
of production. 4 However, a type of economism, the simple belief in
the progressive effect of the growth of productive forces in the form
of large-scale industrialisation, has brought about serious distortions
in the course of Soviet types of societies. In particular, this view has
tended to be used as a basis of statism without forming other alterna-
tive social initiatives but for the state in place of capital, in order to
carry forward the growth of the productive forces. Under the control
of the privileged state bureaucrats and the Party apparatus, not only
were the peasants substantially exploited in the name of socialisation
and with top priority going to large-scale industrialisation, but also
the industrial workers themselves have been made inactive and
oppressed. Marx's ideal of a socialism which liberates workers as the
true subject of their society and finally to reduce the state itself to
nothing seems hard to realise and far away. Despite this, the Soviet
type of post-revolutionary societies with all their oppressive control
of the workers tend to be legitimated ironically through the name of
Marxism on the grounds of a simple and mechanical application of
historical materialism in the form of a specific economism.
In addition, the ordinary interpretation of the formula of historical
materialism conceives the path of the growth of productive forces as a
linear, technically determined process, independent of the nature of
the relations of production. Natural science and technologies devel-
oped under capitalism in pursuit of the production of relative
surplus-value are regarded as neutral and separable from the capital-
ist relations of production, and therefore they are imitated as they
stand, imported and incorporated into a Soviet type of society as
rapidly as possible. In contrast, Marx pointed out that large-scale
industry under capitalism separated intellectual work and physical
labour, crippling the body and minds of workers generally, and
further that by separating manufacturing and agriculture to towns
and rural areas respectively 'it disturbs the metabolic interaction
between man and the earth, i.e. it prevents the return to the soil of its
constituent elements consumed by man in the form of food and
clothing' (1, pp. 482-4, 636-7). These destructive effects on the
human body and mind as well as on the ecological conditions of society,

which have become more sophisticated and intensified since Marx's age,
will not so easily be mended even when the capitalist relations of
production are essentially abolished in a post-revolutionary society, in
so far as the use of same technology or its development in a similar
directions as in capitalism is continued. 5 The danger of such destructive
effects might even become greater in some cases in a Soviet type of
society, since the possible countervailing power of opposition move-
ments against, for example, the construction of nuclear power stations
or pollution by petrochemical industries cannot be strong if they ever
existed. 6 The qualitative contents and the direction of the development
of productive forces must be re-examined and re-oriented so as to suit a
sounder economic life for the workers including the metabolic relation
with nature. The workers should also be expected to use their own
initiatives, and positive social participation, in such a re-orientation
of the development of technologies, as a part of constructing a
substantial economic democracy in a sounder socialist society.
10.2 THE IMPLICATIONS OF VALUE THEORY FOR

SOCIALISM
In so far as both socialist ideology and movement should be grounded

not merely in historical materialism but also on the theoretical
achievements of political economy, we must always pay attention to
the possible implications of economic theories for socialism. Though
economic theories have developed as a self-recognition of a capitalist
commodity economy, as we saw in the first part of this volume, they
must serve as the theoretical basis for socialism, especially in the
Marxian School. Improper understandings of economic theories will
easily lead to confusions in the concept of feasible socialism, or the
actual process of constructing a socialist economy, and further in the
practical movements for socialism. Since value theory is the core
basis of the economic theories of capitalism, as we discussed in the
previous chapters, let us examine its implications for socialism at
some length in this section.
The Theory of Forms of Value for Socialism
Marx's creation of the theory of the forms of value, which was totally
absent in the classical school, was a decisive innovation for the
On Socialism 355
theoretical clarification of the historically specific character of the

capitalist economy based upon a commodity economic order. How-
ever, prior to his presentation of the development of the forms of
value, Marx, at the very beginning of Capital, defined commodity
value as the crystalisation of abstract human labour, by abstracting
from use-value in the exchange relations of commodities. As a result
commodity value was conceived one-sidedly in its substance separ-
ated from the forms of transactions of commodities. In this respect
we have to admit that there is a residue of Ricardo's ahistorical and
abstract labour theory of value in Marx. Marx's own socialist views
which emphasised the role of human labour, might also have been a
psychological reason for him presenting the labour theory of value as
the basis of his whole theories from the very beginning. Anyway,
the potentiality of Marx's original theory of the forms of value was
much restricted as a result. For instance, standard prices as a form of
value tended to be narrowly defined as a formal intermediator of the
equal exchange of labour, always expressing exchange relations in
exact proportion to quantities of embodied labour as the social
substance of reproduction. Conversely, Marx's own sharp theoretical
recognition, that the forms of commodity economy originally spring
from the exogenous inter-social economic relations and therefore
continue to have the external quantitative form more or less in-
dependently of the endogenous quantitative relations of the social
labour process, was not sufficiently incorporated in his value theory
especially in the conception of the contents of the law of value. This has
been an important source of the confusing and continuous con-
troversy over value theory after Marx.
The attempt of K. Uno and his followers to purify the theory of the
forms of value prior to presenting the labour theory of value in the
analysis of the capitalist process of production, must be a relevant
contribution in this context. As we examined in the previous chap-
ters, such an attempt is significant and useful in solving the difficulties
and confusions in the Marxian labour theory of value. In addition,
the purification of the theory of the forms of value makes clear the
exogenous historical character of the forms of value, as well as the
endogenous general economic rule in the social labour process which
is common to all the forms of societies. The three following theoreti-
cal implications for socialism can be deduced herefrom.
First, the forms of the commodity economy are basically separable
and removable from economic reproduction in the process of a
co-operative and consciously managed social labour process, as they
are exogenous to the social labour process as the general economic
356 Socialism- an Addendum
norms of all human societies. In contrast, if these forms had origi-

nated from within the development of the social labour process, as in
the growth of the division of labour as A. Smith suggested, then they
can hardly be removed, especially from industrially advanced so-
cieties. Thus, it is decisive, in judging the basic direction of the
development of a socialist society, how to understand the forms of a
commodity economy in the basic theory of political economy. In my
understanding the forms of a commodity economy are theoretically
not merely removable, but should also have their social functions
reduced and finally abolished in order to construct a fully socialist
economy based upon conscious co-operation among workers freed
from the unconscious anarchical forces of the market economy. Since
the law of value works only through the forms of value in a com-
modity economy, its social functions must also be reduced and finally
extinguished in a process of constructing a socialist economy.
This position is not at all identical with the negation of the social
necessity for a socialist economy to take good care of the substantial
quantitative relations of labour embodied in various goods which are
to be reproduced. Conversely rather, as the role of the law of value is
reduced, a socialist economy must so much move consciously main-
tain and adjust the relations of the amounts of labour necessary for
the reproduction of industrial spheres through the distribution and
the non-market exchange of products and services. The general
norms of economic life common to all societies based upon human
labouring activity, which become the social substance of value in a
capitalist commodity economy, should be carefully carried out in a
socialist society basically without depending upon the value relations
in a market. As we saw in chapter 5, Section 5.1, Marx pointed out
that 'economy of time, along with the planned distribution of labour-
time among the various branches of production, remains the first
economic law on the basis of communal production', although the
'economic law' of the general economy of time in communal produc-
tion cannot be the law of value, but rather the general norm of
economic life. In this respect, his statement that the relations be-
tween Robinson Crusoe and his labour products 'contain all the
essential determinants of value' (1, p. 170) was theoretically confus-
ing, as well as his following substantially similar proposition: 'Even
after the capitalist mode of production is abolished, though social
production remains, the determination of value still prevails in the
sense that the regulation of labour-time and the distribution of social
labour among various production groups becomes more essential
On Socialism 357
than ever, as well as the keeping of accounts on this.'(III, p. 991).

Although 'the regulation of labour-time and the distribution of
social labour among various production groups' must surely be per-
formed in a socialist economy, this should be consciously achieved in
socialism as far as possible by getting free from the determination and
the regulation of the law of value, which is inseparable from the
market system. Marx's confusion here apparently comes from an
aspect of his concept of value defining value one-sidedly as the
crystallisation of human labour, and abstracting from his other view
of the value concept, that of the forms of value. J. V. Stalin, among
others, succeeded to and much extended this confusion when he said
that the law of value (unlike the law of surplus value) was not the
basic law of capitalism and that it would continue to exist in a socialist
society. He simply thought that the laws of political economy were
utilisable in the interest of a socialist society, just like the laws of
natural science, though inconsistently he also had to recognise that
the law of value is a historical category and will disappear in the
second phase of a communist society. 7 The law of value regulates
commodity exchanges and production, with social necessity only in
the fully developed commodity economy as a capitalist commodity
economy, and serves as the basic economic law of capitalism with a
wholly commoditised form of labour-power. It cannot be used in a
socialist economy as if it were a law of natural science, but its
abandonment must be intentionally aimed at. 8 The general economic
norms, including the establishment of the socially necessary relations
between the quantities of labour, which are theoretically recognis-
able in capitalism through the working of the law of value, must be
carefully learned and socially fulfilled in a socialist society, but these
norms are quite different from the law of value. In this respect A.
Nove, as well as contemporary theorists in a similar position, cannot
theoretically be justified in conceptualising 'the law of value 1' or
'LV1' relating to 'the allocation of labour in various proportions for
various purposes, which must exist in any society', against 'LV2'
manifesting itself only in the commodity economy. 9
Second, apart from theoretical misconceptions of the law of value
and the incorrect notions of the possibility of utilising it in a socialist
economy, we should recognise that the forms of value, especially the
price-form, would often actually remain and can be utilised in the
process of constructing a socialist economy. Corresponding to the
basic premises of capitalism a socialist economy must start with the
liberation of the labour process from the control of capitals as the
self-augmenting motion of money, by abolishing private ownership of

the means of production and the commodity form of labour-power.
The form of the motion of value ir.. capital as a private property
cannot be permitted in socialism. However, the price form or money
can remain at least with two functions for quite a long period of time
after capitalism.
One of them is to serve as a conventional unit or measure of
account for the economic activities and for personal income as the
dividend of the society to its members. There must be some common
unit or measure between the various use-values produced and per-
sonal income in order to acquire goods for individual consumption,
even though the physical quantities of use-values and actual labour-
time in concrete forms would be given much more importance in a
socialist economy and its planning than in a capitalist economy. The
amounts of abstract human labour embodied in each product or
expended in each form of service must be a desirable common unit in
complete socialism. However, while the measurement and account-
ing for labour-time embodied in numerous kinds of goods would
presently be practically and technically difficult, if theoretically possi-
ble, then the conventional accounting unit of money prices would
continue to be used as a matter of convenience. The price-form
would remain as a convenient accounting system especially in so far
as the socialist economy must keep in touch with outside capitalist
countries and needs common measure of comparison of economic
activities with them. As an accounting unit, prices must be conceived
also for stocks and products which are not actually sold in a market,
just as in a statistical estimation of national wealth and income
including the directly consumed products of farmers in capitalist
countries. The portion of such estimated prices in the national
income would increase when the communal consumption of goods
and services or the non-market distribution of the necessary goods
and services increases relatively with the development of a socialist
economy.
In a centrally planned economy, officially fixed prices become
generalised and are typically combined with the planned production
quotas or norms and the rationing of products. Then prices become a
means of formal accounting being deprived of their essential function
in a commodity economy, anarchically to adjust social demand and
supply. Such a centrally planned economy, with official prices was
effective in the USSR in securing employment, equalising income
among the working population, and industrialising a national econ-
On Socialism 359
omy for a certain period of time including a severe war period. The
system, however, has become ineffecient in satisfying the varying and
sophisticated needs of members of a society as consumers, there
being a chronic shortage of sophisticated durable consumers' goods,
while the quality of products are often unreliable. The enterprises or
firms tend, bureaucratically, to dislike radical changes in norms, the
sorts of products, or the methods of production, concentrating just
quantitatively to keep up the norms. The system has failed to activate
the workers' own subjective co-operation and efforts in the regular
work places. The second economy, through black or grey markets,
has increased its role in offering and obtaining various goods and
services, thus much obstructing the efficiency of the regular economy.
The cumulative effects of these factors, besides the unfavourable
effects of the economic depression in the external capitalist countries,
are probably the basis of 'the abrasion' of the soviet type of economy
which has become conspicuous since the 1970s. 10
In order to overcome these difficulties in the centralised planned
economy, another function of the price-form as a flexible market
mechanism has repeatedly been proposed as a possible solution.
Although distribution of the basic means of consumption should be
planned and performed outside of market fluctuations in socialism,
the prices of some kinds of consumer goods in short supply, which
must be personally selected outside of the goods given in common
level of subsistence, can flexibly be elevated as in a sort of voting
system where money serves as a more efficient and fairer way of
distribution, in so far as money incomes among members of society
are carefully equalised. The raised prices would stimulate the produc-
tion processes of those goods and the series of means of production
for them, by distributing some portions of increased monetary re-
venue or 'profit' even after increased 'taxes' among the members of
the enterprises in those processes. Also from the view of reducing the
bureaucratic state centralised control, the flexible price-form would
be utilised as an alternative soft economic system to distribute and
transfer various goods and services with the necessary information
about them, among relatively independent communal enterprises
and regions under workers self-control. Just as the forms of a com-
modity economy sprang up outside of the social labour process as the
economic form of the inter-communal and interregional exchange of
goods, indifferent of the particularity of the internal mode of produc-
tion of the societies, the price-form might be utilisable for the time
being in the process of constructing a socialist economy, even after
abolishing the capitalist mode of production, as a possible economic

form of interregional or inter-communal relations.
However, the utilisation of the flexible price system and the 'profit
principle' should not be taken as a fundamental revision of the basic
goals of socialism. It must be regarded as a device which may only
partially solve the actual economic problems in soviet type societies.
It is a sort of fetishism of the market principle to believe in it as a final
and absolute solution to the current ineffectiveness and other related
problems in existing socialist societies. 11 In considering the possibility
of the use of the flexible market principle in socialism, we should
keep in mind how the market economy in capitalism has resulted in
various 'failures of market' such as the inequality of incomes, aliena-
tion of workers, economic crises and depressions, ecological destruc-
tion and the devastation of big towns. Just as the extention of the
commodity econotpy was more or less destructive of the precapitalist
economic order, it must work against the egalitarian and co-operative
principles of a socialist economic order, if the socialist society does
not consciously control the range and effects of market pricing,
through practical social trial and error.
Third, in this respect, unlike capitalism the introduction of the
flexible price system and the 'profit principle' cannot actually be
thoroughgoing in a socialist society. Geared to a co-operative and
egalitarian society, a certain range of the means of subsistence
including extended public facilities and services such as child care,
education, medical services and public transportation should not be
supplied through competitive anarchical market. A portion of social
labour-time and resources should be commonly pooled in order to
supply sufficient of these basic means of subsistence by free distribu-
tion or low fixed official prices. It must be an important strategic item
for an economic democracy that all members of the society, directly
or indirectly, participate in deciding what range of goods and services
should be included among these basic means of subsistence. The
greater the range of them, the more equality and stability will be
acquired by the members of the society, but the narrower the range
of personally selective consumer goods, and subsequently there may
be less incentives for dynamic change and improvement.
In case flexible pricing in a market is confined only to the 'non-
basic products' of Sraffa's model, 12 which do not enter directly or
indirectly into the reproduction of other products, the fluctuation in
the prices of those goods would not affect the costs and prices of
other goods. When the range of flexible market pricing is extended
On Socialism 361
more generally, the priority of reproducing and supplying the basic

means of subsistence, as well as their means of production, must be
guaranteed in one way or the other. Even double pricing may be
necessary for some raw materials differentiated according to different
lines of reproduction.
Thus, the working of the law of value in readjusting the social
allocation of labour and resources, guided by the motion of market
prices, must be narrowed and cannot be at all thorough. Even in case
where the enterprises behaved upon the basis of monetary costs and
prices, 'the profit' rates need not necessarily be equalised. A higher
rate of profit in the production of luxury goods due to a shortage of
supply could be heavily taxed and would therefore not be easily
reduced by a rapid increase of production, whereas the production of
the basic means of subsistence and their means of production may
often been subsidised. Moreover, the monetary wage-rate in social-
ism can be lower than that in capitalism while workers receive a
similar material level of living, as the greater part of the basic means
of subsistence become obtainable as public and free services or by
low fixed official prices. Unlike under capitalism, wages would not
fully represent the necessary means of subsistence or the socially
necessary labour-time embodied in them. As a result the monetary
costs of socialist firms, in so far as the costs are counted in monetary
terms, actual prices of their factors of production cannot be an
accurate indicator or measure of efficiency of production in terms of
labour, since they no longer fully represent the equivalent labour-
time of (c + v). Together with the lack of competitive pressure to
drive on firms to higher rates of profit, here is a basis for the strategic
flexible operation of the price system in a socialist society, which
enables low prices of the basic means of subsistence even without
subsidy. However, in order that the price system acts as a consciously
strategic tool for the democratic consensus of all members of a
society, the exact relations between real labour productivity or em-
bodied labour-time, and the prices of products should be accounted
for and openly understood as accurately as possible. The possible gap
here between prices and the labour-substance embodied in products
must be much easier to understand in the light of our theory of the
forms and the substance of value.
In contrast there seems to be a fundamental difficulty for orthodox
or conventional Marxist value theory to analyse such a role for the
price system and its significance in a socialist economy, so far as the
value concept has been one-sidedly identified with the labour
substance, more or less neglecting the theoretical potentiality of

Marx's theory of the forms of value. When prices as a form of value
are always conceived as the merely proportional formal expression of
the labour-substance embodied in products, then the strategic opera-
tions of the price system in a socialist society will either become
theoretically inconceivable, or the estimation of the labour-substance
is assumed to be altered in accordance with market prices a la Rubin
School, or the efficiency of pricing according to the marginal theory is
rather off-handedly asserted by abandoning the labour theory of
value, as the theoretical basis of the analysis of a socialist economy.
While the 'normalisation' of the price structure is often and re-
peatedly argued in soviet type societies, the theoretical basis or the
standard of the 'normal' price system is not then so clear-cut. It can
neither be fully market determinable nor technologically determin-
able. An important basis of socialist economic democracy exists
rather in strategic room for manipulation of the price system accord-
ing to social decisions. This does not at all extinguish the crucial
importance of the attempt to measure and account for the relations of
labour-time embodied in each product on the basis of the objective
technological conditions of reproduction, by mobilising the develop-
ing micro-electronics computer technologies, in order to confirm the
social effects and possible rational range of pricing.
The development of the micro-electronics computer technologies
would also possibly enable a new type of multi-terminal system of
adjustment of economic relations including the necessary informa-
tion system between socialist firms or regions on the basis of a more
co-operative principle; the new system of economic transmission and
communication being different from the previous centralised plan-
ning system or the free market mechanism. 13 A germ of such a
possibility already seems present in the organisational growth of
some types of consumers co-op movements or even in the inner
organisation of giant capitalist corporations.
The Concept of Labour-substance for Socialism
The clarification of the forms of value as the historically specific

forms of a commodity economy was surely coupled in Marx with the
clarification of the labour process as the endogenous common univer-
sal condition for all societies, being separable from the commodity
economic order. In contrast, the labour theory of value in the
classical school was still buried entirely in the commodity economic
On Socialism 363
order, and lacked the concept of the labour process as such as well as
the theory of the forms of value. Marx poses us a problem in his
theory of the labour process as to what the exclusive characteristic of
human labour is when differentiated from 'the first instinctive forms
of labour which remain on the animal level' (I, p. 284). As Marx
points out, the basis of characteristically human labour is that it has a
conscious purpose and will steering the exertion of the working
organs so as to cause appropriate changes in external materials as a
part of metabolism with nature. This characteristic is shown first of all
in the aspect of concrete useful labour as 'purposeful activity aimed at
the production of use-values' (I, p. 290).
However, as we have argued in Chapter 5, Section 5.1, the human
ability to work in each individual is not destined for each fixed form
of useful labour. On the contrary, it can be expended in various
forms of useful labour according to the differing purposes aimed at,
which can themselves be flexibly altered and widened in scope of
coverage on the grounds of human intellectual ability. In this qualifi-
cation human labour appears not merely as concrete useful labour,
but also simultaneously as abstract human labour being quantita-
tively comparable simply by the physical time of duration. Marx did
not define abstract human labour in his analysis of the labour process,
since he reduced commodity value to the crystallisation of abstract
human labour at the very beginning of Capital, contrasting it with
trans-historical use-values made by concrete useful labour. Rubin
and similar value theorists in the Rubin School have thereupon
deduced that abstract human labour is a result of commensuration
through commodity exchange in a market, or that abstruct human
labour cannot exist apart from a commodity economy. 14 This inter-
pretation is not only inconsistent with Marx's view (for instance
in the section on 'The Fetishism of the Commodity and Its Secret')
that the appropriate distribution of labour-time to various necessary
types of useful labour must be performed commonly in any societies,
but also neglects the theoretical determinableness of the amount of
abstract human labour-time embodied in each product upon the basis
of technological conditions of production processes in a society,
independently of the estimation by the market.
Rejection of the concept of abstract human labour outside of a
commodity economic order would have three possible implications
for socialism. First, reproduction and distribution in a socialist econ-
omy may be conceived just in physical terms, counting various
heterogeneous use-values and useful labour as such, without any
commensurability. An input-output-table type of analysis for social

reproduction and the distribution of various goods and services in
physical terms may be thinkable, when a socialist society need no
longer care about 'economy of time', or if income need not be
distributed in it by some commensurable unit either at a very low
level of productivity barely maintaining as equal level of subsistence
for its members, or at an extremely developed level of productivity
hardly likely to be realised in the foreseeable future. Second, the
commensurability of a commodity economy in terms of prices, or the
resulting abstract human labour-time, would be expected to exist
continuously, so far as socialist society needs some unit(s) to measure
economic efficiency and income distribution among its members. Or,
third, if the commodity economic order is not to be relied upon in
socialism and yet some commensurable unit of accounting is necess-
ary, then a third character of human labour, besides its useful
concrete and abstract characters, must be introduced, such as Ru-
bin's concept of 'socially equalised labour'. 15 However, there must be
a great danger of arbitrariness in estimating various types of useful
concrete labour as socially equalised labour-time, in comparison with
the technically determinable abstract human labour-time.
The concept of abstract human labour-time therefore, should
rather remain as a basic measurable unit of economic activity in the
process of socialist economic construction.
In dealing with labour-time as a unit of measuring economic
activity, there has been another controversial problem concerning
how skilled or complex labour can be reduced to simple labour. As
we discussed in Chapter 6, Section 6.1, this problem can be broken
down into two aspects; one aspect relates to the labour-cost necessary
to reproduce skilled labour-power, and the other to the estimation of
labour expended by skilled workers. If the socially necessary sorts of
skilled labour-power must be reproduced over generations through
the personal income of skilled workers, then the costs of training or
educating children to the same grade of skilled workers as their
parents must be included in the personal income of skilled workers
even in a socialist society, just as the higher wages of skilled workers
in capitalism more or less has such a social function. This type of
social system for reproducing skilled workers is not only conceivable
but also apt actually to be effective, whenever the access to higher or
better education or training is available by personal payment along
with differentiated incomes according to the grades of skill. Although
such a social situation is often reported to be evident in soviet types
On Socialism 365
of societies, it is clearly against one of the socialist ideals - egalita-

rianism. In particular it would perpetuate the social stratification of
the privileged bureaucrats and skilled workers, being economically
separated from the general workers. Therefore it is quite important
that socialism realises the egalitarian and co-operative principle for
access to any type of education and training. Once educational and
training costs for skilled or complex work are dealt with not on an
individual basis but on a perfectly social communal basis, then the
personal income of skilled workers need no longer be higher in order
to meet these special costs.
As for the estimation of labour expended by the skilled workers,
there have been three positions. The first position assumes that the
educational and training labour-costs necessary to produce skilled
labour-power is transferred into the products of the skilled worker on
the average basis. This position basically contradicts our understand-
ing that the labour-costs or the necessary labour-time to reproduce
labour-power is determined independently from the labour-time
expended as the realisation of the use-value of that labour-power.
Especially as the educational and training costs for the socially
necessary skill can be supplied by communal funds under socialism,
these costs do not need to be individually restored by the estimation
of skilled work as intensified labour, including the transfer of these
costs. The second position assumes that the market prices or the
exchange rates of the products or the services of skilled workers
would determine the coefficients for reducing skilled labour to certain
quantities of simple labour. This position contradicts the basic view
of the labour theory of value that the labour-time embodied in the
products is determined by the technical conditions of production,
independently from the movement of market prices or the fluctuating
balance between demand and supply in a market. Moreover, this
position would become unreliable in a socialist economy as the role
of market is controlled and reduced. The third position assumes some
reduction coefficients to be determined socially for each sort of
skilled labour as certain quantities of simple labour, as with Rubin's
concept of 'socially equalized labour'. Although the social grading of
workers more or less indifferently to both the technical costs of
education and market conditions, is actually observable in existing
socialist societies, and partly in one aspect of the segmentation of
workers within a capitalist firms as well, there is no persuasive reason
to explain why certain types of skilled labour in one period of time
equals so many multiples of simple labour on any objective grounds.
Conventional explanations for the degree of intensity of skilled

labour are often circular in relying upon the differentiated incomes of
skilled workers, which in capitalism also tend to reflect educational
costs and market conditions.
Marx did not give a sound theoretical solution to the problem of
how to estimate skilled labour, though he regarded skilled labour as a
sort of intensified labour. All the attempts after Marx to reach a more
objective or satisfactory solution to determine the reduction coef-
ficients for skilled labour against simple labour in either of the three
positions above, might probably have been hunting for a false prob-
lem which has no correct solution. Being unconvinced of the preced-
ing solutions, I reformulated the problem itself and asked if skilled or
complex labour really does more intensive work containing certain
multiples of simple labour in a period of time, or if it should necess-
arily be regarded as doing so in general economic life. On reflection,
it becomes clear that even an unskilled simple grade of work must
contain a variety of intensities, using different human physical and
mental abilities according to the various sorts of useful labour. There
cannot be an accurate objective measurement of the intensity of
labour across different kinds of useful concrete labour. This can also
be a basis for a (more or less arbitrary) managerial segmentation of
workers. What convinces us theoretically of the commensurability of
different kinds of useful concrete labour is, not in the same degree of
intensity of labour, but in the fact that they are all commonly the
forms of expenditure of fundamentally the same human ability to
work. This human ability to perform a wide range of work flexibly,
malleably and dynamically is the result of the long historical develop-
ment of humanity itself starting from the instinctive animal level of
labour, and it must be a final grounds on which to conceive simple
abstract human labour common to all the different useful forms of
labour. There cannot be any exceptions, even in case of skilled
labour, in this regard. Also skilled or complex labour is nothing other
than the expenditure of the general human ability to work in specific
forms, though it requires some additional costs arising from the time
of education and training. Skilled or complex labour can generally be
performed after the necessary special education and training, without
any additional intensity and possibly rather easily and with pleasure.
Thus, I believe that skilled or complex labour need not be treated as
intensified labour supplying more units of labour in the same time
period than unskilled simple labour. 16
In his Critique of Gotha Programme Marx proposed the unequal
On Socialism 367
'bourgeois right' to a quantity of products proportional to the labour

that the workers provide in the lower phase of communist society.
When this proposition is combined with the concept of skilled or
complex labour as intensified labour or the concept of socially equal-
ised labour across various sorts of useful labour, it could have been
utilised so as to legitimise the hierarchical privileges of the state and
party leaders and bureaucrats for material goods and services in
soviet types of societies. Since the grade of intensity of labour across
various kinds of useful and skilled labour cannot be objectively
determined on solid theoretical grounds, the grading of works can be
easily arbitrarily done in favour of the higher administrative positions
and bureaucrats. Such treatment of skilled labour and the grading of
works, assuming different amounts of labour expended in the same
unit of time, is theoretically unfounded from what we have seen. By
recognising that all the sorts of socially necessary work basically
contain the same character as simple abstract human labour, based
upon the common human ability to work, the more co-operative and
egalitarian principles, such as 'from each according to his ability, to
each according to his need!', must consciously be pursued from the
very beginning of socialist economic construction, and not put aside
as a goal so far away as actually to be achieved for generations to
come.
Though our position favours the co-operative and egalitarian way
of income distribution, personal incomes need not be rigorously and
mechanically equalised. The different needs of workers, for instance,
by the size and age structure of the family, or by the site of house and
work-place must be taken into consideration. Some bonus would be
added for work which tends to bear a heavy responsibility, or has a
hazarous or disagreeable content, or requires a longer period of
education and training, etc. If given in money form this additional
wage may amount of a considerable addition to the general money
wage, as the basic means of subsistence are distributed at low con-
trolled prices or freely. However, its substantial proportion com-
pared to the total means of subsistence or to the necessary labour-
time to reproduce labour-power should remain relatively small so
just compensating the unpopular specific effort of the work in ques-
tion and securing the necessary numbers of persons to do it. It must
clearly be understood that the amount of such incentive wages is not
based on the different quantity of labour supplied in the same period
of time, but simply an operational device to induce the necessary
number of people to do certain sorts of work. Therefore the work
with incentive wages need not be fixed, but can be flexibly altered in
the process of changes of technologies and preferences of the people.
The social educational and training system should be freely open to
all members of society on equal footing, if with some competition,
and should not function to consolidate a privileged social class or
stratum which has an easier access to higher education on an indivi-
dual family basis. At the same time it should continuously raise the
general human ability to work more freely in wider range of fields,
developing further more the common individual capacity of being
able to perform abstract human labour in various concrete forms.
10.3 ACCUMULATION AND THE STATE IN SOCIALISM
Socialism aims at the abolishment of the exploitation of the surplus-

labour in capitalism, through the self-liberation of workers from the
commodity form of labour-power under the control of capital. The
abolition of exploitation of surplus-labour is however not identical
with the abolition of the surplus-labour performed beyond the neces-
sary labour-time. Certainly the antagonistic relation between
surplus-labour and necessary labour as the economic basis common
to all the class societies should be abolished in socialism. But the
portion of the surplus-labour time beyond the labour-time necessary
to sustain and reproduce labour-power of workers must exist also in a
socialist society for the sake of the expansion of reproduction, or as
insurance against accidents, etc. This was pointed out by Marx as
follows:
Surplus-labour in some form must always remain, as labour be-

yond the extent of given needs. It is just that in the capitalist, as in
the slave system, etc., it has an antagonistic form and its obverse
side is pure idleness on the part of one section of society. A certain
quantum of surplus-labour is required as insurance against acci-
dents and for the progressive extension of the reproduction process
that is needed to keep pace with the development of needs and the
progress of population, which is called accumulation from the
viewpoint of the capitalistY (III, p. 958).
As the exploitation and appropriation of surplus-labour by the

ruling class no longer exists in a socialist economic order; the total
labour-time including surplus-labour must be used either directly or
On Socialism 369
indirectly for the working people as a whole. The relation between

the portion of surplus-labour and that of necessary labour is no
longer an opposition or contradictory. The social function of sur-
plus-labour when serving as insurance or for accumulation is no
longer antagonistic, but complementary to that of directly necessary
labour. 18 In a sense the portion of surplus-labour beyond the given
direct needs can also be regarded as a portion of necessary labour to
sustain working people for the future. Nevertheless, the concept of
surplus-labour is analytically useful in examining the working of a
socialist economic system, upon the ground of the basic theory of
capitalism, though its different social character should not be neglected.
The dynamic process of capitalist accumulation is full of lessons for
possible socialism. They are not limited to the defective contradictory
character of capitalism which must be overcome in socialism. For
instance, in the capitalist process of extended reproduction, the
flexible distribution of surplus-labour in the form of fluctuating
market prices and profit rates serves as a social buffer or a pool to
allow the readjustment of imbalances among industrial spheres caused
by dynamic changes in production technologies, and to meet the
needs of readjusting industrial structures in the face of changing
consumers' preferences. In the phase of prosperity especially, such
readjustment can proceed relatively smoothly and positively, also
utilising the credit system and the form of interest as a mechanism of
redistributing surplus-labour. If the content of the law of value is
conceived simply as the equal exchange of the labour embodied in
commodities, the fundamental ability of capitalism flexibly to cope
with surplus-labour and its social functions in the process of a dy-
namically changing balance among industrial branches tends to be
neglected as the working of the law of value. If a socialist economy is
designed to carry out what capitalism has done as the substantial
content of the law of value in maintaining social relations in quan-
tities of labour-time, just as is summarised in the conventional
reproduction schemes, by using an understanding of the law of value
simply as the equal exchange of labour-time, then socialist economic
planning would inevitably become inflexible and inefficient in read-
justing social reproduction to meet dynamic changes in technologies
and social needs. 19
Socialism should indeed consciously realise what capitalism per-
formed unconsciously through the working of the law of value, while
removing the anarchical waste and inhuman devastation in capital-
ism. The conceivable devices for social allocation of labour products
in the process of constructing a socialist economy appear to be:

officially fixed pricing, partial utilisation of flexible market pricing,
centrally planned distribution or rationing of products and co-
operative direct exchanges outside of the price system. Actually these
devices must be utilised in combination, and it would long continue
to remain a complicated issue, to be decided socially, as to how to
combine these devices in the development of a socialist economy.
Whatever the combination may be, operational flexibility given by
surplus-labour-time should clearly be borne in mind, being separated
in the management of socialist firms as well as of the whole economy,
from the necessity of supplementing the portion of labour-time
transferred from the means of production and that of necessary
labour-time defined to sustain the workers in each process of produc-
tion. This consideration, which is a corollary of our re-examination of
the substantial content of the law of value in this volume, cannot
provide an instant and complete key to the current inefficiency of
soviet type societies, but would probably serve as a theoretical basis
for its solution.
The relatively smooth process of capitalist accumulation in the
phase of prosperity is also based upon an elastic availability of
additional workers from the industrial reserve army, along with the
flexible redistribution of surplus-labour. From the view of wage-
workers this aspect of capitalist accumulation holds the constant
menace of unemployment or an irrational loss of the means of
subsistence, not only confined to the phase of economic crisis and
depression. Socialism aims, above all, at the removal of this menace
to workers, and must guarantee work for all workers as an essential
part of their liberation from the commodity form of labour-power -
wage-labour - under capitalism. 2° Full employment cannot be a
stable economic phenomena under capitalism. When it appears towards
the end of periods of prosperity, there must be an unstable excessive
accumulation of capital in relation to the labouring population, and a
resultant fall in the profit rate due to a rise in wages, leading to a
destructive phase of crisis in a typical case, as we have seen in the
theory of periodic business cycles. In this regard, socialism must solve
two problems.
First, how can it control the range of the necessary means of
subsistence so as not to impede the portion of economic surplus for
accumulation, etc.? If left open to determination by the balance of
demand and supply in a free market, wages can rise easily, without
the pressure of an industrial reserve army in the process of extended
On Socialism 371
reproduction. A centrally planned economy would be able, relatively

easily, to control the material standard of workers and retain an
appropriate proportion of surplus-labour in relation to productivity.
Clearly, workers' co-operative self-management concerning their
own material standard of living becomes essential as a part of economic
democracy, if centralised authoritative planning is to be relaxed. Social-
ist arguments for workers control and regional autonomy must then be
prepared to accept a democratic process of decision-making about
living standards so as to leave room for the social need for growth,
insurance and so forth, according to a basically egalitarian principle.
Second, how can socialism maintain a flexible adjustability of the
economy comparable to that in capitalism? Capitalism secured its
basis for dynamic adjustment in the industrial reserve army, and
therefore becomes inflexible and increasingly maladjusted when most
of industrial reserve army is absorbed through the over-accumulation
of capital at the end of prosperity. The very success of socialism in
removing the threat of unemployment would, ironically, pose the
structural difficulty of an inflexible labour-supply in its economy. It
would be desirable in this respect for a socialist economy to incor-
porate in its planning a positive socialist form of an industrial reserve
army, which is surely different from unemployment but some sort of
arranged leave, or sabbatical, with a sufficient guarantee of income
and possibly learning or training as well as of certain employment in
the near future. Even with such a socialist industrial 'reserve army',
the workers' own positive social attitude towards their own mobility
would be imperative for a flexible and dynamic socialist economy. 21
The importance of promoting the workers' own positive social
co-operation and self-management has not been sufficiently empha-
sised in soviet types of societies, with a contrary tendency towards
hypertrophy of state authority. Theoretically this is most probably
due to an improper understanding of the fundamental contradiction
in capitalism. It is a task of Marxian crisis theory to reveal the
fundamental contradiction in capitalism and its concrete appearances
in the process of accumulation. While the orthodox Marxians have
believed in the excess-commodity theory of crisis, they tend to see
the basic restriction in a capitalist economy as the conditions for the
realisation of surplus-value, rather than in the condition for the
production of it. They generally depend on Marx's propositions that
'The conditions for immediate exploitation and for the realization of
that exploitation are not indentical. . . . The former is restricted only
by the society's productive forces, the latter by the proportionality
between the different branches of production and by the society's

power of consumption.' (III, p. 352). The formula of historical
materialism naturally overlaps with this view. The anarchical re-
lations between the branches of production, and the narrowly re-
stricted power of consumption of the masses are interpreted as
corollaries of capitalistic relations of production based upon the
capitalist mode of appropriation, while its productive power is al-
ready developing with its social character. Thus Engels typically
argued that 'In these crises, the contradiction between social produc-
tion and capitalist appropriation ends in a violent explosion' ,22 and
Lenin echoed this by defining the capitalist 'contradiction between
the social character of production and the private character of appro-
priation' .23
Socialism which is designed upon these theoretical views would
expect the nationalisation of the means of production with central
planning to be a powerful way out of the roots of social contradictions
in capitalism. If the fundamental contradictions of capitalism are
indeed between the social character of production and the private
character of appropriation, and in the resulting disproportionality, or
the under-consumption of workers, they could surely be removed by
nationalisation of the means of production. As nationalisation would
be the surest device of eliminating private capitalistic appropriation,
central planning with nationalised work-places would end capitalism's
anarchic disproportionality, and the extinction of unemployment,
with rising real incomes of workers under the planned economy,
would remove the difficulty of under-consumption faced by capital-
ism. It has also been emphasised that Marxism, unlike anarchism,
assumes a revolution in the native of the state, i.e. from a capitalistic
to a proletarian state, so that the state can be used as a central
organiser of economic planning, especially in the first and lower stage
of communism, rather than the instant abolition of the state. Thus,
consolidation of the state apparatus with a strong leadership for
central planning of the national economy in post-revolutionary so-
cieties has been regarded as a certain guarantee of constructing sound
socialism by eliminating both the bourgeois right of appropriation as
well as anarchic disproportionality and unequal income distribution.
This conception is reinforced by assuming that Marx's ideal socialism
where the state itself is abolished will be realisable only in at a higher
stage of communism, not easily achieved in the foreseeable future.
We have to acknowledge that the soviet economy has actually
worked and shown certain achievements upon the basis of this way of
On Socialism 373
understanding. It has overcome the great economic difficulties of the

initial period of its construction, and those of the Second World War
period, and achieved conspicuous industrialisation free from capi-
talistic economic crises. Nevertheless, as we have argued, there
remain a number of serious problems too. On top of the simplified
application of the formula of historical materialism, the technologies
and methods of production developed by capitalism tend to be
uncritically approved, accepted and followed up on quantitatively
extended scales in nationalised work-places. The economic and social
interests of the peasant class were sacrificed in the process of large-
scale socialisation and industrialisation. 24 As a result there remains
the difficult problem of how to secure and increase agricultural
production in parallel with industrial development. With the consoli-
dation of the state apparatus the positions of the state and party
bureaucrats have been strengthened through authoritative mana-
gerial power and economic and social privileges, in contrast with the still
weak social position of the general workers who are displaced from
various levels of decisions. We have to recall here that the fundamen-
tal human ability to labour on the basis of conceptual thought has
also served as a potential basis for the subordinate position of
workers, by the social separation of the conception of work and its
actual execution in class societies, as we saw in Chapter 5, Section
5.1.
There has been a hot debate about how to understand the histori-
cal character of the soviet type of societies, including the difficult
position of workers in particular. Diverse notions have been pre-
sented. For instance, the notions of early socialism in an infant or
formation period, 25 the Stalinisation phenomena, 26 or the bureau-
crats' agent-state27 would admit the distortions of the soviet type of
society but do not accept that antagonistic class relations exist in a
proletarian socialist state. The notions of state capitalism28 or the new
post-revolutionary class society29 would more radically criticise the
'oppressive character' of the 'class relation' in such states.
AsP. Sweezy has sharply criticised in Post-Revolutionary Society,
it would not be very persuasive to explain the present problems,
particularly hypertrophied state power and the weak position of
workers in the soviet type of industrialised society, from the mere
personal faults of Stalin, or from the initial shortage of professional
specialists who were placed as the bureaucratic agents of the workers,
as emphasised by L. Trotsky and E. Mandel, or from the revival of
the law of motion of capitalism as stressed by C. Bettelheim. Thus, I
am sympathetic to Sweezy's suggestion that we should think of a

concept of the new type of post-revolutionary class society with its
critical implication for soviet types of societies. However, I am not
yet confident of this conception for three reasons: (i) Theoretically,
the definition of the senior bureaucrats in those societies as a privi-
leged ruling class still relies upon more or less a sociological view of a
social class. There remains a problem of how this definition, or the
concept of 'the state class', can be consistent with Marxian theory
which has underlined the economic basis of social classes in the
ownership of the means of production. To be consistent we might
have to re-examine the concept of class in Marxian theories of
political economy and the state, as well as in historical materialism,
probably emphasising more the role of social decision-making at
various levels, and the means of coping with social surplus-labour.
The roots of the weaknesses in Marxian theories which have allowed
the hypertrophy of the state must also be reflected upon further. (ii)
Actually the hypertrophy of state power is in a sense a phenomenon
which is not confined to the second world, but a global feature of our
age including both first- and the third-world countries. We have to
notice that this feature seems internationally to reinforce itself es-
pecially through cold-war structures, and therefore its historical
necessity and meaning cannot be totally explicable from internal
social factors alone. 30 (iii) Practically, it would require further social
revolution(s) in Soviet types of societies to define it as a class society.
I do not yet despair of expectating or hope that the USSR and similar
types of societies may progress internally and develop into fully
socialist societies. The economic reforms proposed and attempted in
the East European countries, China and the USSR, and international
opinion about them among Marxians as well as their prospects in the
various revolutionary movements in the first and the third worlds,
may be effective in widening the possibility of such expectations. At
least without such expectations I am honestly worried that the friendly
co-operation and solidarity among so many Marxians and working
people in the world tend continuously to be too heavily and often
obstructed by this issue, both domestically and internationally.
Coming back to our theoretical concern here, in contrast to the
orthodox excess-commodity theory of crisis, the excess-capital theory
of crisis of a labour-shortage variant, which has been endorsed in
Chapter 9, defines the root of the contradiction of a capitalist eco-
nomy in the commodity-form of labour-power, or in the fundamental
difficulty capital has in treating the human ability to labour as a
On Socialism 375
commodity, just like other producible commodity goods. Socialism,

to overcome the fundamental contradiction in capitalism in the light
of this crisis theory, cannot be achieved merely by the abolition of the
private ownership of the means of production and the nationalisation
of them. Though the nationalisation of the major means of produc-
tion must be an essential initial step in a socialist revolution, the
subjective self-liberation of working people from their subordinate
social position subject to the commodity-form of labour-power must
surely continue. The real concern of socialism to liberate workers
from the commodity-form of labour-power, must be clarified on the
basis of the logic and the mechanism of the oppression and alienation
of wage-workers by capitalism. The solution of the one-sided separa-
tion between alienated manual labour and mental work, as well as
the devastating capitalistic division of labour between agriculture and
manufacturing industries, is certainly contained therein.
Even though the apparatus and the functions of the socialist state
would have to be extended in the initial step of nationalisation, they
must be reducted as soon as possible, so that they be socialised
communally by the increase in workers' initiatives from below. The
argument for the decentralisation of power and workers' self-
management becoming popular in various quarters in both Eastern
and Western Europe, as well as in other parts of the world, appears
to indicate the necessary direction and some of the contents of
socialist societies following the abolition of the commodity-form of
labour-power. These reflections on a more desirable socialism are
actually indispensable also for the appropriate assessment of both the
achievements and limitations of social democracy in capitalist coun-
tries too. The basic theory of capitalism presented in this volume
must hopefully be consistent with and supportive of such further
arguments for a sounder socialism.
Notes
PART I ECONOMIC SCHOOLS AND IDEOLOGIES
1. M. Dobb, Theories of Value and Distribution since Adam Smith (Cam-

bridge: Cambridge University Press, 1973) p. 1.
2. M. Weber, 'Die "Objektivitiit" sozialwissenschaftlicher und sozialpoliti-
scher Erkenntnis', Archiv fur Sozialwissenschaft und Sozialpolitik, XIX
(1904).
1 The Birth of the Theoretical System of Capitalism.
1. A. Smith, An Inquiry into the Nature and Causes of Wealth of Nations

(1776), ed. R. H. Campbell, A. S. Skinner and W. B. Todd, vol. 1
(Oxford: Clarendon Press, 1976) pp. 434-5.
2. K. Marx, Theories of Surplus-Value, part I (London: Lawrence &
Wishart, 1969) p. 43.
3. J.D. Steuart, An Inquiry into the Principles of Political Economy, vol. I
(London: Millar & Cadell, 1767) p. 206.
4. Marx, op. cit. p. 41.
5. K. Marx, Capital, vol. I (Harmondsworth, Middx: Penguin Books,
1976), p. 876. Throughout this volume references to Capital includes
volume and page of the Penguin Edition only in parentheses.
6. In the Marxian School the tendency to neglect the contributions of
mercantilism used to be legitimised by K. Kautsky's method of editing
Marx's manuscripts of the Theories of Surplus Value. Instead of Marx's
original order beginning from J. Steuart, as we see in the recent revised
edition by the Marxism-Leninism Institute, Kautsky began his edition of
Theorien uber den Mehrwert, vol. I (Friedenau, 1905), from Marx's
treatment of the growth of the labour theory of value since W. Petty.
Marx would probably have discussed mercantilist theories more exten-
sively if he had intentionally written a full historical review of the
development of economic theories as a whole, not merely those of
surplus-value.
7. R. L. Meek, The Economics of Physiocracy, Essays and Translations
(London: George Allen & Unwin, 1962) pp. 150-67.
8. To quote Marx's definition, 'by classical political economy I mean all the
economists who, since the time of W. Petty, have investigated the real
internal framework [Zusammenghang] of bourgeois relations of produc-
tion, as opposed to the vulgar economists who only flounder around
within the apparent framework of those relations' (I, pp. 174-5). In the
broadest range of the definition, Marx indicated both the British gen-
ealogy from Petty to Ricardo, and the French from Boisguillebert to
Sismondi (A Contribution to the Critique of Political Economy, Moscow:
Progress Publishers, p. 52). This range seems too wide for us to confirm a
376
Notes 377
common theoretical basis. To be strict in this regard the British gen-

ealogy was decisively the main body of the classical school.
9. W. Petty, A Treatise of Taxes and Contributions, (1662), in The Econ-
omic Writings of Sir William Petty, ed. by C. H. Hull (Cambridge:
Cambridge University Press, 1899) p. 68.
10. Petty, op. cit. p. 44.
11. Smith, op. cit. p. 48.
17. D. Ricardo, 'An Essay on the Influence of a Law Price of Corn on the
Profit of Stock' (1815), in The Works and Correspondence of David
Ricardo, vol. IV, ed. P. Sraffa (Cambridge: Cambridge University Press,
1951).
18. D. Ricardo, On the Principles of Political Economy and Taxation (1817),
in The Works and Correspondence of David Ricardo, vol. 1. ed. P. Sraffa
(Cambridge: Cambridge University Press, 1951) pp. 21-2. (This book is
hereafter abridged as Principles.)
19. Ricardo could not distinguish the basic problem of transforming the
embodied labour values into prices of production through the equalis-
ation of the rates of profit and the comparatively secondary problem, of
analysing the effect of a rise or a fall of wages on the exchange values.
This is because he always identified the embodied labour values with
natural prices. As a result he tended to believe that the effectual re-
visions in his value theory were insignificant and exceptional; so he stated
that 'The reader, however, should remark, that this cause of the vari-
ation of commodities is comparatively slight in its effect .... Not so with
the other great cause of the variation in the value of commodities,
namely, the increase or diminution in the quantity of labour necessary to
produce them.' (Principles, p. 36.)
20. 'This definition of an equal rate of profit ... yielded by capitals of
different organic compositions, contradicts the law of value or, as
Ricardo says, constitutes an exception to it, whereupon Malthus rightly
remarks that in the progress of industry, the rule becomes the exception
and the exception the rule'. K. Marx, Theories of Surplus Value, part III
(London: Lawrence & Wishart, 1972) p. 72. See alsop. 31 of the same
volume.
21. D. Ricardo, 'Absolute Value and Exchange' (1823), in The Works and
Correspondence of David Ricardo, vol. 4, ed. P. Sraffa (Cambridge:
Cambridge University Press, 1951).
2 The Dissolution of the Classical School and Diversification
1. K. Marx, Theories of Surplus Value, part III (London: Lawrence &

Wishart, 1972) p. 61.
378 Notes
2. T. R. Malthus, The Principles of Political Economy, 2nd ed. (London:

William Pickering) p. 60.
3. Malthus, op. cit. p. 326.
4. Malthus, op. cit. pp. 398-413.
5. Malthus, op. cit. p. 140.
6. J.-B. Say, Letters to Thomas Robert Malthus on Political Economy and
Stagnation of Commerce (1820), translated 1821, with an historical
preface by H. J. Laski (London: Harding, 1936).
7. J. C. L. Simonde de Sismondi, Nouveaux Principes d'Economie Poli-
tique (Paris: Delaunay, 1819) pp. 335-8.
8. In so far as romanticism in economics is a tendency to idealise past
precapitalist social life-styles by criticising the capitalist economic order,
it reappears from time to time in various expressions. For instance, such
a tendency is recognisable in some ecologist's arguments as well as I.
Illich's position as in his Shadow Work, (London: Marion Boyars, 1981).
9. C.-H. de R. Saint-Simon, Catechisme Politique des Industriels (1823-4.
in Oeuvre de Saint-Simon et d'Enfantin (Paris: Ed. Dentu, 1865-76, t.
37-9).
10. F. M. C. Fourier, Le Nouveau Monde Industriel et Societaire ou Inven-
tion du Procede d'Industrie Attrayante et Naturelle Distribuee en Serie
Passionnees (1822, in Oeuvres completes de Ch. Fourier (Paris: La
Librairie Societaire, 1845) t. 6.
11. e.g. R. Owen, A New View of Society (1813-14) in The Life of Robert
Owen Written by Himself, vol. 1 (New York: A.M. Kelley, 1976).
12. T. Hodgskin, Labour defended against the Claims of Capital; or the
Unproductiveness of Capital proved (1825) (New York: A. M. Kelly, 1963).
13. W. Thompson, An Inquiry into the Principles of the Distribution of
Wealth most conducive to Human Happiness (1824) (New York: A. M.
Kelly, 1963).
14. F. Engels, Socialism: Utopian and Scientific (1892) (Peking: Foreign
Languages Press, 1975).
15. James Mill, Elements of Political Economy (London: Baldwin, 1821).
16. J. R. McCullock, The Principles of Political Economy (1825) (Edin-
burgh: A & C. Black, 1864).
17. John Stuart Mill, Principles of Political Economy (1848), ed. by W. J.
Ashley, (London: Longmans, Green, 1921) pp. 199-200.
18. Ibid. pp. 457-8.
19. R. Jones, An Essay on the Distribution of Wealth, and on the Sources of
Taxation (London, 1831); Text-book of Lectures on the Political Econ-
omy (Hertford, 1852); Literary Remains, ed. W. Whewell (London:
Murray, 1859).
20. F. List, The National System of Political Economy (1841), translated by
S. S. Lloyd (London: Longmans, 1885) p. 177.
21. e.g. W. Roscher, Grundriss zu Verlesungen uber die Staatwirtschaft
(Gottingen: Dieterichschen Buchhandlung, 1843). System der Volkswirt-
schaft, 5 vols (Stuttgart: Cotta, 1882-94). B. Hildebrand, Die gegen-
wiirtige Aufgabe der Wissenschaft der Nationalokonomie (1863). K.
Knies, Die politische Okonomie vom Standpunkte der geschichtlichen
Methode (Braunschweig: Schwetsche, 1853).
Notes 379
22. G. Schmoller, Grundriss der allgemeinen Volkswirtschaftslehre (Leipzig:

Duncker & Humbolt, t. 1-2. 1908-9).
23. L. Brentano, Das Arbeitiverhiiltniss gemiiss dem heutigen Recht (Leipzig:
Duncker & Humbolt, 1877).
24. A. Wagner, Lehrbuch der politischen Okononiie (Leipzig: Winter, 1879).
25. K. Menger, Untersuchungen iiber die Methode der Sozialwissenschaften,
und der politischen Okonomie insbesondere (Leipzig: Duncker & Hum-
bolt, 1883).
26. M. Weber, Die protestantische Ethik und der 'Geisf des Kapitalismus,
in Archiv fur Sozialwissenschaft, Bd 20-1, 1904-5.
27. W. Bagehot, Lombard Street (London: John Murray, 1915).
28. J. A. Hobson, Imperialism (New York: Pott, 1902).
29. T. B. Veblen, The Theory of Leisure Class (New York: The Macmillan
Co., 1899); The Theory of Business Enterprise (New York, 1904).
30. J. K. Galbraith, American Capitalism (Boston: Houghton Mifflin, 1952);
The New Industrial State (Boston: Houghton Mifflin, 1978).
31. K. Polanyi, The Great Transformation (Boston: Beacon Press, 1944).
32. M. ltoh, Value and Crisis (London: Pluto Press; New York: Monthly
Review Press, 1980) ch. 1.
33. As for the history and characterisation of the neo-classical school see, for
example, E. Sugimoto (1901-52) [Elucidation of Modern Economics] 2
vols (Tokyo: Riron-sha, 1950). Reprinted by Iwanami Shoten, 1981), E.
K. Hunt and J. G. Schwartz, A Critique of Economic Theory (Har-
mondsworth Middx: Penguin Books, 1972), and B. Rowthorn, Capital-
ism, Conflict and Inflation, (London: Lawrence & Wishart, 1980) ch. 1.
34. Their main works are C. Menger, Grundsiitze der Volkswirtschaftslehre
(Wien: Braumiiller, 1871), M. E. L. Walras, Elements of Pure Econ-
omics (1874), translated by W. Jaffe (London: Allen & Unwin, 1954),
W. S. Jevons, The Theory of Political Economy (London: Macmillan,
1871).
35. E. von Bohm-Bawerk, Capital and Interest (1884-89) translated by W.
Smart (New York: Brentano, 1922).
36. V. Pareto, Manuale d'economia-politica (Paris: Giard, 1906).
37. J. A. Schumpeter, Das Wesen und der Hauptinhalt der theoretischen
Nationalokonomie (Leipzig: Duncker & Humbolt, 1908).
38. J. R. Hicks, Value and Capital (Oxford: Clarendon Press, 1939).
39. A. Marshall, Principles of Economics (London: Macmillan, 1890).
40. A. C. Pigou, Economics of Welfare (London: Macmillan, 1920).
41. J. M. Keynes, The General Theory of Employment, Interest and Money
(London: Macmillan, 1936).
42. M. Kalecki, Essays in the Theory of Economic Fluctuations (London:
Allen & Unwin, 1939), Theory of Economic Dynamics (London: Allen
& Unwin, 1954).
43. B. Rowthorn, op. cit. p. 16.
44. K. Marx, Theories of Surplus-Value, Addenda in part III.
45. P. Sraffa, Production of Commodities by Means of Commodities (Cam-
bridge: Cambridge University Press, 1960) ch. XII.
380 Notes
3 The Marxist Theory of Capitalism

1. G. W. F. Hegel, Grundlinien der Philosophie des Rechts (1821) (Frank-
furt am Main: Suhrkamp, 1970) S. 24.
2. L. A. Feuerbach, Das Wesen des Christentums (Leipzig: Otto Wigand,
1841).
3. Marx later in 1845 formulated such insufficiencies in Feuerbach's mater-
ialism briefly in the 'Theses on Feuerbach', in K. Marx, F. Engels
Collected Works (Moscow; Progress Publishers, 1975- , This Collected
Works is abbreviated to MECW hereafter), vol 5. pp. 3ff. The thesis
eleven 'The philosophers have only interpreted the world, in various
ways; the point is to change it' is particularly famous.
4. K. Marx, A Contribution to the Critique of Political Economy translated
by W. Ryazanskaya (Moscow; Progress Publishers, 1970) p. 20. English
translation 'the guiding principle' from German original 'Leitfaden' in
this edition seems too strong and may be misleading. I follow here the
wording in K. Marx Selected Writings, ed. by D. McLellan (Oxford:
Oxford University Press, 1977) p. 389.
5. The following paragraph is a summary of Marx's formulation in the
Preface to A Contribution to the Critique of Political Economy.
6. F. Engels, Dialectics of Nature (Moscow: Foreign Languages Publishing
House, 1954).
7. F. Engels, Landmarks of Scientific Socialism (Anti-Diihring) translated
and edited by A. Lewis (Chicago: Charles H. Kerr, 1907).
8. F. Engels, Socialism, Utopian and Scientific (1880) (Chicago: Charles H.
Kerr, 1918) p. 93.
9. K. Uno, (The Methodology of Political Economy] (Tokyo: University of
Tokyo Press, 1962) p. 107.
10. P.M. Sweezy, Post-Revolutionary Society (New York: Monthly Review
Press, 1980), contains a sharp critique of such a tendency in Soviet
society. We shall return to this issue in Part IV.
11. K. Marx and F. Engels, Manifesto of the Communist Party (1848, in
MECW, vol. 6) pp. 477-519.
12. K. Marx, Grundrisse, Foundations of the Critique of Political Economy
(rough draft), translated by M. Nicolaus (Harmondsworth, Middx: Pen-
guin Books, 1973).
13. K. Marx, Zur Kritik der Politischen Okonomie (Manuscript 1861-1863),
in Marx-Engels Gesamtausgabe, 2. Abteilung, Band 3, 6 vols. (Berlin:
Dietz Verlag, 1976-82).
14. T. Kuhn, The Structure of the Scientific Revolution (Chicago: University
of Chicago Press, 1970).
15. See, for example, K. Marx, Grundrisse, op. cit. p. 108, pp. 264, 275-6; A
Contribution to the Critique of Political Economy, op. cit. p. 19, Marx's
letter to Engels on 2 April1858, and also the editor's preface to Theories
of Surplus Value, part 1 (London: Lawrence & Wishart, 1969) p. 14. It
would be interesting to examine the substantial similarity of the range of
topics in these plans to those of the classical school, as in D. Ricardo's
Principles, and to contemplate how and why Marx's Capital was com-
pleted, covering only the basic theoretical portions at most.
Notes 381
16. The quotation from p. 482 of vol. III. is not literal. The English trans-
lation in the Moscow, and Lawrence & Wishart edition lacks the import-
ant nuance of 'the further' analysis in the German original here.
17. R. Wilbrandt, Karl Marx (Leipzig and Berlin: B. G. Teubner, 4. Aufi.
1920) s. 97. .
18. K. Kuruma ['For Confirmation of Marx's Theory of Crisis' (1930) in his
Studies in the Crisis Theory] (Tokyo: Otsuki-Shoten, 1965).
19. V. S. Vygodski, The Story of a Great Discovery, translated by C. S. V.
Salt (1973) p. 118. An editorial note to the vol. 23 (Das Kapital, vall) of
Marx-Engels Werke (Berlin: Dietz Verlag, 1962) s. 844. The editor's
preface to Theories of Surplus Value, part 1, ibid. p. 16. See also A.M.
Kogan, [The Plan of the Critique of Political Economy and 'Capital'],
translated from Russian by Y. Nakano (Tokyo: Otsuki-Shoten, 1979).
20. H. Grossmann, 'Die Anderung des urspriinglishen Aufbauplans des
Marxschen "Kapital" und ihre Ursachen', Archiv fur die Geschichte des
Sozialismus und der Arbeiterbewegung, XIV- 2 (1929) 305 ff.
21. K. Tribe, 'Remarks on the theoretical significance of Marx's Grundisse',
Economy and Society (May 1974) highly appreciates Grossmann's argu-
ment on this point in a survey of the debates on the plan problem in the
appx I, while it does not refer to weaknesses in Grossmann's standpoint.
22. F. Behrens, Zur Methode der politischen Okonomie (Berlin: Akademie-
Verlag, 1952) s. 31-48.
23. R. Rosdolsky, The Making of Marx's 'Capital', translated by P. Burgess
(London: Pluto Press, 1977) p. 54.
24. Ibid. p. 56.
25. M. ltoh, book review: 'The Making of Marx's Capital, Science and
Society, XLII-3 (Fall 1979) p. 362.
26. K. Uno, [The Theory of Crisis], (Tokyo: lwanami-Shoten, 1953.), appx 1.
27. Cf. K. Uno, Principles of Political Economy (Brighton: Harvester Press;
Atlantic Highlands, N.J. Humanities Press, 1980) pp. xxi-xxiii. M. ltoh,
Value and Crisis (London: Pluto Press; New York: Monthly Review
Press, 1980) pp. 39-42.
28. K. Uno's methodology is presented in more detail with favourable
assessments from different angles in T. Sekine, 'Uno-Riron: a Japanese
Contribution to Marxian Political Economy', Journal of Economic
Literature, 13-3 (September 1975); R. Albritton, A Japanese Recon-
struction of Marxist Theory (London: Macmillan, 1986), and M. ltoh,
Value and Crisis, ch. 1.
29. e.g. K. Suzuki ed., [Principles of Political Economy], 2 vols (Tokyo:
University of Tokyo Press, 1960, 1962), H. Iwata, [World Capitalism]
(Tokyo: Mirai-Sha, 1964).
30. E. Bernstein, Die Voraussetzungen des Sozialismus und die Aufgabe der
Sozialdemokratie (Stuttgart: Dietz, 1899).
31. K. Kautsky, Bernstein und das Sozialdemokratische Programm
(Stuttgart: Dietz, 1899).
32. K. Kautsky, Die Agrarfrage (Hannover: J. H. W. Dietz, 1899).
33. V. I. Lenin, 'The Proletarian Revolution and a Renegade Kautsky'
(1918), in vol. 28 of The Collected Works of Lenin, vol. 28, (Moscow:
Foreign Languages Publishing House, 1965).
382 Notes
34. R. Luxemburg, The Accumulation of Capital (1913), translated by A.

Schwarzschild (New York and London: Monthly Review Press, 1968).
35. R. Hilferding, Finance Capital (1910), translated by M. Watnick and S.
Gordon (London, Boston and Henley: Routledge & Kegan Paul, 1981).
36. Ibid. p. 225.
37. V. I. Lenin, Imperialism, The Highest Stage of Capitalism (1917) (Peking:
Foreign Languages Press, 1965).
38. Ibid. p. 3.
39. Ibid. p. 14.
40. As for some more details about this controversy, see ltoh, Value and
Crisis, ch. 1.
41. Cf. e.g. Ch. 1 of P. Baran and P. Sweezy, Monopoly Capital (New York
and London: Monthly Review Press, 1966).
PART II VALUE, LABOUR AND CAPITAL
1. P. A. Samuelson, 'Understanding the Marxian Notion of Exploitation:

A Summary of the So-called Transformation Problem between Marxian
Values and Competitive Prices', Journal of Economic Literature, 9-2
(June 1971); also in his Collected Scientific Papers, vol. 3. I. Steedman,
Marx after Sraffa (London: New Left Books, 1977).
2. Another interesting linguistic analogy is in the similarity between the
syntax or the grammatical form of expression and the forms of value as
the surface structure, being relatively independent from semantics or the
substantial labour relations of a society. cf. A. Lipietz, The Enchanted
World, translated by I. Patterson (London: Verso, 1985) appx IV.
4 The Forms of Value- Commodity, Money and Capital
1. As Marx notes, 'it is one of the chief failings of classical political

economy that it has never succeeded, by means of its analysis of com-
modities, and in particular of their value, in discovering the form of value
which in fact turns value into exchange-value .... The explanation of
this is not simply that their attention is entirely absorbed by the analysis
of the magnitude of value. It lies deeper. The value-form of the product
of labour is the most abstract, but also the most universal form of the
bourgeois mode of production; by that fact it stamps the bourgeois mode
of production as a particular kind of social production of a historical and
transitory character. If then we make the mistake of treating it as the
eternal natural form of social production we necessarily overlook the
specificity of the value-form, and consequently of the commodity-form
together with its further developments, the money-form, the capital-
form, etc.' (1, p. 174). The failing criticised here is clearly not confined to
the classical school.
2. K. Uno, Principles of Political Economy (1964), translated by T. Sekine
(Brighton: Harvester Press; Atlantic Highlands, N.J. Humanities Press,
1980), part 1: The Doctrine of Circulation. This is a condensed revised
Notes 383
version of [Principles of Political Economy] (2 vols, Tokyo: Iwanami-

Shoten, 1950, 52), which systematically presented Uno's discovery on
this point for the first time, initiating many debates in Japan.
3. In the context of the value controversy, an orthodox Marxian position
maintained that the relation between values and prices of production
should be understood as a historical-logical sequence following the
development from a society of simple commodity producers up to
capitalist society. This interpretation of Marx's value theory was sugges-
ted originally by Engels in the supplement to the third volume of Capital.
Engels criticised C. Schmidt's view of the law of value as a 'scientific
hypothesis', and emphasised its historical and material basis in a precapi-
talist period of simple commodity producers (III, p. 1037). Though this
position has been followed and amplified by not a few Marxians, begin-
ning from R. Hilferding's anti-critique of Bohm-Bawerk in P. Sweezy,
ed., Karl Marx and the Close of His System by E. von Bohm-Bawerk and
Bohm-Bawerk's Criticism of Marx by R. Hilferding (New York: A.M.
Kelley, 1966), it contradicts the initial intention by assuming an imagin-
ary or hypothetical classless society. As for a little more detail see also
M. Itoh, Value and Crisis (London: Pluto; New York: Monthly Review
Press, 1980) pp. 18-19, with its notes in pp. 168-9.
4. K. Uno defines the concept of value at the beginning of 'The Doctrine of
Circulation' as follows: 'Although commodities are heterogeneous as
use-values when they serve specific purpose of consumption, they pos-
sess the property of being qualitatively uniform, i.e. independent of their
material characteristics, and distinct only quantitatively .... The value
of a commodity refers to its quality to homogeneity to other commodities
and the use-value to its quality of heterogeneity from others.' (Principles
of Political Economy, op. cit. 1980, p. 5). This definition seems to me too
abstract to be clear, though it may be prudently comprehensive to cover
the notion of both the substance and the form of value. Then Uno
concretises the subject of the form of value, saying, 'This quality of
homogeneity stems from the fact that every commodity must be ex-
changed by its owner for a definite quantity of other commodities that he
might choose. It is this requirement of exchange that endows the com-
modity with its value.' (ibid. p. 5). In my understanding the commodities
requirement for exchange must accompany a general request also for
quantitative comparability and standard exchange ratios as an essential
property of value.
5. At the beginning of the second chapter, 'The Process of Exchange',
Marx says: 'Commodities cannot themselves go to market and perform
exchanges in their own right. We must, therefore have recourse to their
guardians, who are the possessors of commodities.' (1, p. 178). Marx
seems to treat the logical necessity of the money-form from the view of
the possessors of commodities in the second chapter, whereas he ab-
stracts the possessors from the analysis of the value-form in the third
section of the first chapter. The separation of analytical views in these
chapters concerning the same subject is not proper, since the exchange
relations of commodities cannot be conceivable from the beginning
without their possessors. A reason for the somewhat mechanical separa-
384 Notes
tion in Capital is probably to be found in the fact that the third section of
the first chapter was formulated and inserted in its place later, from the
second German edition (1872), leaving the contents of the second
chapter unaltered.
Uno avoided the separation of views and the overlapping of the
subject of analysis in these places of Capital, by introducing the role of
possessors of commodities as well as the essential contents of the second
chapter into the theory of value-form. I believe that Uno's revision here
is proper to make the theory of value-form easier and clearcut. The
possessors of commodities, however, must be conceived here not as
human beings in general, but as specifically those regulated by commodi-
ties which they own. Their will and behaviour are not free from com-
modities. Here is a basic distinction between the marginal utility theory
of value which pretends to rest on the general psychological preference
in human beings and the Marxian position.
6. G. Pilling, Marx's Capital (London, Boston and Henley: Routledge &
Kegan Paul, 1980) is one of the recent Western works which emphasises
the importance of Marx's theory of the value-form. Its explanation,
however, that the elementary value-form (20 yards of linen = 1 coat) is
'the exchange of two commodities' (p. 147) as well as its emphasis of
Marx's analyses of the labour-substance through the value-form, does
not seem to sharpen either Marx's originality or his essential points in the
theory of value-form, although it may not be inappropriate as an inter-
pretation of the third section in the opening chapter of Capital. U.
Krause, Money and Abstract Labour, translated by P.Burgess (London:
NLB and Verso, 1982) is another conspicuous work underlining Marx's
theory of the value-form. In ch. 2 of this book, Krause discusses the
value-form without reference to labour just like Japanese Uno School.
However, he also treats the value-form as the exchange relation, unlike
us, and concentrates rather on the quantitative problem to solve the
possible inconsistency in the exchange ratios between commodities with-
out money.
7. Though Marx titles this second value-form 'the total or expanded form of
value', the expansion of the equivalent commodities can not really be so
'total' as to embrace all kinds of commodities from the view of the
possessor(s) of linen in the relative form of value.
8. This situation is formulated by Marx at the beginning of 'Form IV' in the
first chapter of the first edition of Capital (K. Marx, Value: Studies by
Karl Marx, translated and edited by A. Gragstedt, London: New Park
Publication, 1976, pp. 33-4). The 'Form IV' is there placed after the
general form of value in the 'Form III' and the form is further reversed to
turn every commodity into the universal equivalent-form, which is actu-
ally and theoretially impossible in making every commodity directly
exchangeable with others. Therefore, this form is omitted from the
appendix on the form of value to the first edition of Capital and there-
after. Marx's idea contained in the 'Form IV', however, can be utilised in
the transformation from the second to the third value-form of commodi-
ties.
9. Marx later refers to the substitutability of gold (hard) money as the
Notes 385
means of circulation by inconvertible paper money issued by the state,

and also to the possibility of appearance of credit money such as bank
notes or bills of exchange on the basis of the function of money as the
means of payment (I, p. 224, p. 238). In my view such possibilities reside
more basically already in the money-form itself, and hence can extend to
other functions of money as well.
10. Uno, Principles of Political Economy, op. cit. pp. 9-10.
11. D. Ricardo, On the Principles of Poliltical Economy and Taxation, ed.
P. Sraffa (Cambridge: Cambridge University Press, 1951.) p. 12.
12. K. Marx, Grundrisse, translated by M. Nicolaus (Hamondsworth,
Middx: Penguin Books, 1973) p. 71, pp. 215-18.
13. An acute attention to such a phase of crises, where the credit system was
suddenly turned into a monetary system, causing theoretical dismay, was
probably an actual basis for inducing Marx to analyse a whole range of
functions of money in comparison with the classical school.
14. Although Marx says that 'in the case if interest-bearing capital, the
circulation M- C- M' presents itself in abridges form, in its final result
and without any intermediate stage, in a concise style, so to speak, as
M- M', i.e. money which is worth more money, value which is greater
than itself' (I, p. 257), interest-bearing capital M-M' cannot be made
simply by condensing the form of merchants' capital M- C- M'. The
form of interest-bearing capital historically originates generally in the
development of commodity economy along with merchants' capital from
very ancient ages, as a different type of proliferation of money as capital.
15. See also ch. 20, 'Historical Material on Merchant's Capital', and ch. 36,
'Pre-Capitalist Relations' of interest-bearing capital in the third volume
of Capital.
16. K. Uno, [On 'The Transformation of Money into Capital'] (1964) in his
[Problems in Marxian Economics) (Tokyo: Iwanami-Shoten, 1969). See
also his Principles of Political Economy, op. cit. pp. 14-18.
17. A. Emmanuel, Unequal Exchange, translated by B. Pearce (New York
and London: Monthly Review Press, 1972) defines international 'un-
equal exchange in the strict sense' on the basis of lower wages in the
peripheral countries (pp. 60-4). Though the commodity products from
the peripheral countries may not always be the products of capital, or
may not bring about the international equalisation of profit rates unlike
in Emmanuel's model, there seems to be still plenty of room for the
international unequal exchange of labour or the transfer of surplus-
labour from the peripheral to the central capitalist countries on the basis
of the lower wages and living standards of the workers and peasants in
the peripheral countries with lower costs of production. Especially the
prices of the commodity products of more or less self-sufficient non-
capitalist modes of production, such as a peasant economy, can be cut
down often irrationally from a capitalist standard to a level regardless of
reproduction costs. The form of merchants' capital would not miss the
chance to utilise these circumstances, although the basic theory of the
forms of value cannot directly analyse or refer to them behind the sphere
of circulation.
18. Uno, Principles of Political Economy, op. cit. p. xxii.
386 Notes
19. Among others H. Ouchi, [The Formation of the Theory of Value]

(Tokyo: Tokyo University Press, 1964), H. Hidaka, [Principles of Politi-
cal Economy], revised ed. (Tokyo: Jichosha, 1974), F. Tokinaga, [The
'Transformation' Problem in 'Capital',] (Tokyo: Ochanomizu-shobo,
1981), T. Ouchi, [Principles of Political Economy], 2 vols (Tokyo: Tokyo
University Press, 1981-82) are some representative works in this group
of the theorists of pure capitalism.
20. K. Suzuki ed., [Principles of Political Economy], 2 vols. (Tokyo:
Tokyo University Press, 1960, 1962), H. Iwata, [World Capitalism]
(Tokyo: Mirai-sha, 1964), M. ltoh, [The Theory of Value and Capital],
(Tokyo: Iwanami-shoten, 1981) are in this line of works by the theorists
of world capitalism. M. Takurni, [World Capitalism] (Tokyo: Nihon-
hyoron-sha, 1980) reviews the extensive methodological implications in
the controversy between these two groups in the Uno School in favour of
the theory of world capitalism.
21. Marx comes very close to such a recognition in saying: 'Within its
circulation process, in which industrial capital functions either as money
or as commodity, the circuit of capital, whether in the form of money
capital or commodity capital, cuts across the commodity circulation of
the most varied modes of social production, in so far as this commodity
circulation simultaneously reflects commodity production. Whether the
commodities are the product of production based on slavery, the pro-
ducts of peasants (Chinese, Indian ryots), of a community (Dutch East
India), of state production (such as existed in earlier epochs of Russian
history, based upon serfdom) or of half-savage hunting peoples, etc. -as
commodities and money they confront the money and commodities in
which industrial capital presents itself, and enter both into the latter's
own circuit and into that of the surplus-value borne by the commodity
capital .. .' (II, p. 189). 'Capitalist production never exists without
foreign trade. If normal annual reproduction on a given scale is pre-
supposed, then it is also supposed together with this that foreign trade
replaces domestic articles only by those of other use or natural forms,
without affecting value ratios, and therefore without affecting either the
value ratios in which the two categories, means of production and means
of consumption, mutually exchange for one another.' (II, p. 546). If we
compare such an actual situation with the case in which all the articles are
domestically produced by capital, we see an additional effect similar to
the increase of productivity by means of the international exchange
replacing domestic by foreign articles.
5 Capitalist Production and the Law of Value
1. A. Smith, An Inquiry into the Nature and Causes of Wealth of Nations,

vol. 1 (Oxford: Clarendon Press, 1976) p. 48.
2. H. Braverman, Labour and Monopoly Capital (New York and London:
Monthly Review Press, 1974) p. 48.
3. Ibid. p. 51.
4. Obviously the workers who have to do simple work in a subordinate
position cannot dispense with mental endeavour. The case is often to the
Notes 387
contrary. As Marx points out, 'The less he is attracted by the nature of

work and the way in which it has to be accomplished, and the less
therefore he enjoys it as the free play of his own physical and mental
powers, the closer his attention is forced to be.' (I, p. 284).
5. Marx continues to say that instruments of labour 'also indicate the social
relations within which men work' (I, p. 286). As a rough indicator,
instruments of labour have represented the degree of development of
productive power and thus tended to define the corresponding relations
of production in a long historical process. However, in view of the recent
radical critiques of modem natural sciences and technologies, as well as
the actual tasks for socialist movements in our age, we must notice that
the path of development of instruments of labour and its productive
power can be diverse and chosen from alternatives for the future.
Furthermore, the character of the relations of production may not
strictly be determined by the sorts of instrument of labour or the path of
the development of productive power. The formula of historical ma-
terialism, as we have seen in Chapter 3, Sec. 3.1, must now be applied
more elastically than Marx suggests here.
6. I. I. Rubin, Essays on Marx's Theory of Value (1928), translated by M.
Samardzija and F. Perlman (Detroit: Black & Red, 1972) p. 97.
7. D. Gleicher, 'A Historical Approach to the Question of Abstract La-
bour', Capital and Class, 21 (1983), and his 'Note: A Rejoinder to
Eldred', Capital and Class, 24 (1985). I am uncertain whether all the
theorists listed by Gleicher in these papers can correctly be called the
Rubin School in this regard, since their positions are various. Whereas,
U. Krause, in Money and Abstract Labour, translated by P. Burgess
(London: Verso, 1982), must be added to Gleicher's list, in addition to
S. Himmelweit and S. Mohun, 'The Anomalies of Capital', Capital and
Class, 7 (1978), M. Eldred and M. Hanlon, 'Reconstructing Value-form
Analysis', Capital and Class, 13 (1981), D. Foley, 'The Value of Money,
the Value of Labour Power and the Marxian Transformation Problem',
Review of Radical Political Economy, 2 (1982) as some representative
examples. Although, Lipietz, op. cit., appx 'The Value Controversy',
also highly appreciates Rubin's approach, his treatment of the forms and
the substance of value, such as his view of labour-time spent by Robinson
Crusoe (p. 161) or in his analogy with linguistic structure (pp. 172-7),
seem rather closer to our understanding in its spirit.
8. For instance, Marx states in the section on fetishism in the first chapter of
Capital: 'Men do not bring the products of their labour into relation with
each other as values because they see these objects merely as the
material integuments of homogeneous human labour. The reverse is
true: by equating their different products to each other in exchange as
values, they equate their different kinds of labour as human labour.' (I,
p. 166).
9. K. Marx, Grundrisse, translated by M. Nicolaus (Harmondsworth,
Middlx: Penguin Books, 1973) pp. 172-3.
10. Though Marx uses the term 'economic law' in the quotation above, the
general norms of economic life for all social formations must be dis-
tinguished conceptually from economic laws in a strict sense like the law
of value which presents itself automatically through the anarchical ac-
388 Notes
tions of individuals in a commodity economy, so unconsciously realising

always post factum the general economic norms. See also K. Uno,
Principles of Political Economy (Brighton: Harvester Press; Atlantic
Highlands, N.J.: Humanities Press, 1980) pp. 21-2, p. 32, P. 171.
11. Rubin, op. cit. p. 99.
12. Marx notes the interrelation of the production process in the section on
the labour process and says: 'If we look at the whole process from the
point of view of its result, the product, it is plain that both the instru-
ments and the object of labour are means of production and that the
labour itself is productive labour. Although a use-value emerges from
the labour process, in the form of a product, other use-values, products
of previous labour, enter into it as means of production. The same
use-value is both the product of a previous process, and a means of
production in a later process. Products are therefore not only results of
labour, but also its essential conditions.' (1, p. 287). Uno defined the
production process by emphasising this point of view when he states:
'The end-result of a labour-process is its product, and from the point of
view of the product the same process can be viewed as a production-
process.' (Principles of Political Economy, op. cit. p. 23). While treating
such a labour-and-production process, Uno clarified that the dual charac-
ter of labour is definitely a content of the general norms of economic life
common to all societies. However, he did not show how the quantities of
abstract labour-time are theoretically determinable on the basis of so-
cially interrelated conditions of production.
13. N. Okishio, ['Value and Prices', Research in Economics (University of
Kobe)], (Mar. 1955) would be one of the earliest papers which substan-
tially clarified this solution. However, it was not proper that Okishio
defined there the labour quantities thus determined as directly being
values. It is because his solution can also be fully applicable to the forms
of economy without commodity relations acting as the basis of the
production processes.
bridge: Cambridge University Press, 1960) p. 89. We can get (5.4) from
(5.1) by solving the simultaneous equations as follows, where q 1 times,
and q2 times of the scale of production of coal and iron compared with
5.1 are assumed to maintain 1lb. of cotton as net product, leaving no net
product in the form of coal and iron.
1 1 3
4qt + yq2 + 4 = ql (5.5)
1 1 1
6 ql + 3 q2 + 2 = q2
15. When labour-power is continuously obtained from outside, enforced

labour until death with insufficient means of subsistence has been histori-
cally repeated in some forms of slave economy especially in the produc-
tion of gold or silver, or in the early stages of the capitalist factory
system. However, such economic systems must remain partial and can-
not be a case for general economic norms.
16. The final clause after 'which' is somehow missed in the Penguin Books
edition.
Notes 389
17. Marx, Grundrisse, op. cit. p. 708. Along with such development, the
burden of domestic labour which has been so much on the shoulders of
women in class societies, especially in capitalism, must be reduced and
shared with men. The extension of communal social life and its facilities
will be helpful for it, and in economic life it will further reduce the
relative role of the portion of private means of consumption and the
labour-time embodied in them. Then, the necessary labour-time embodied
in the necessary means of subsistence essentially comprises two different
portions. The portion to be consumed in a communal form in particular
will be closely related and mutually supplementary to the social function
of surplus-labour, though theoretically those are still distinct.
18. Within these 54 hours, 6 hours of necessary labour-time must be a more
flexible portion than the other even on the basis of fixed conditions of
production, so far as the necessary means of subsistence include histori-
cal and social elements independent of technological conditions of pro-
duction.
19. A contrary procedure is assumed in a traditional Marxian interpretation
of values and prices of production, presented in a historical-logical
sequence, following the development from a precapitalist commodity
economy to a capitalist. Besides the fact that there are certain weaknes-
ses in this type of theory (as we have already examined in Chapter 4,
Section 4.1) it is also inappropriate as an interpretation of the theoretical
system in Capital. This is because the contents of capitalist production
are analysed by means of the theory of value in Capital, and not directly
using the theory of prices of production. Our critique of this type of value
theory from the view of the Uno School however, does not imply a
negation of the relevancy of the law of value in a precapitalist commodity
economy. D. Gleicher, 'A Historical Approach to the Question of
Abstract Labour', op. cit. seems to misunderstand this point. although
its position is quite close to ours.
20. P. Samuelson, 'Wages and Interest: A Modern Discussion of Marxian
Economic Models', American Economic Review, XLVII (Dec 1957) pp.
891-2. 'Understanding the Marxian Notion of Exploitation', Journal of
Economic Literature, 9-2 (June 1972) p. 415. M. Morishima, Marx's
Economics (Cambridge: Cambridge University Press, 1973) ch. 7.
21. This position is first presented briefly in chapter 2 of M. Itoh, Value and
Crisis (London: Pluto Press; New York: Monthly Review Press, 1980).
Even when standard prices as the form of value are assumed to be in
direct proportion to the labour-substance of commodities, according to
the conventional notion of the law of value in the analyses of the
capitalist process of production prior to the theory of prices of produc-
tion, the possibility and the general scope of deviation of prices from
such a direct proportionality had better be noted. The hypothetical
character of, say, the third position above would be clarified and
theoretically supplemented by noting these points as being examined
below.
22. Cf. Braverman, op. cit. ch. 13, 'The Universal Market', I. Illich, Shadow
Work (London: Marion Boyars, 1981).
23. Although excessive overwork in domestic labour of housewives is
390 Notes
actually enforced, often by wages insufficient to purchase necessary goods

and services in a market, it does not enhance the substance of value of
labour-power. It tends to act even to the contrary by restricting the social
average of the necessary means of subsistence to be purchased in a
market, and thus indirectly increasing the efficiency of the capitalist
production of surplus-value. However, the substance of surplus-value is
formed by the surplus-labour of wage-workers in the capitalist produc-
tion process and does not include any domestic labour.
24. Marx's notion of the production of absolute surplus-value is dual. First, it
refers to the general basic method of capital to produce surplus-value by
aquiring the surplus-labour-time beyond the necessary labour-time. Sec-
ond, it also refers to the method of increasing surplus-value by extending
surplus-labour-time beyond the necessary labour-time. With social con-
ditions of production being given, the method is realised either by
lengthening a working day or by intensifying labour. In either case the
result is relative increase of surplus-value against the value of labour-
power. Whereas, as we shall soon see, the production of relative
surplus-value on the basis of increasing productivity reducing the value
of labour-power can also be regarded as the production of absolute
surplus-value in a broadest first sense, for it also extends the surplus
labour-time beyond the necessary labour-time. Thus, 'from one stand-
point the distinction between absolute and relative surplus-value appears
to be illusory .... But if we keep in mind the movement of surplus-
value, this semblance of identity vanishes.' (1, p. 646).
25. Sraffa, op. cit. p. 8.
26. In contrast, the portion of social surplus-labour in the form of extra profit
redistributed to landowners as differential rent does not have such a
positive social function from the viewpoint of general economic norms
common to all societies, as we shall see in Chapter 7, Section 7.3. See
also ch. 3 of Itoh, Value and Crisis (op. cit.).
6 The Extension of the Theory of the Substance of Value
1. P. M. Sweezy ed., Karl Marx and the Close of his System by Eugen
von Bohm-Bawerk and Bohm-Bawerk's Criticism of Marx by Rudolf
Hilferding (New York: A.M. Kelly, 1949) p. 86.
2. E. Bernstein, 'Zur Theorie des Arbeitswerts', Die Neue Zeit, XVIII
(1899-1900) part 1.
3. Sweezy ed., op. cit. pp. 136-46.
4. N. Okishio, 'A Mathematical Note on Marxian Theories', Weltwirt-
schaftliches Archiv, Heft 2 (1963).
5. B. Rowthorn, Capitalism, Conflict & Inflation (London: Lawrence &
Wishart, 1980) ch. 8. In his more recent 'Notes on Skilled Labour'
(rnimeo, 1985) Rowthorn has deepened his theoretical view of this
problem, and basically come closer to my position in this section.
Therefore, my treatment and criticisms of his argument here cannot be
applicable to his recent view, although his previous argument would
remain as a typical case for the technological approach to this issue.
Notes 391
6. M. Morishima, Marx's Economics (Cambridge: Cambridge University

Press, 1973) p. 181.
7. S. Bowles and H. Giotis, 'The Marxian Theory of Value and Hetero-
geneous Labour', Cambridge Journal of Economics, vols. 1-2 (1977).
8. I. Steedman, Marx after Sraffa (London: NLB, 1977) ch. 7.
9. S. Bowles and H. Giotis, 'Labour Heterogeneity and the Labour Theory
of Value: A Reply', Cambridge Journal of Economics, vol. 5-3 (1981).
See also E. McKenna, 'A Comment on Bowles and Giotis' Marxian
Theory of Value', in the same issue.
10. K. Uno, Principles of Political Economy translated by T. Sekine,
(Brighton: Harvester Press; Atlantic Highlands, N.J.: Humanities Press,
1980) pp. 33--4.
11. H. Braverman, Labour and Monopoly Capital: The Degradation of
Work in the Twentieth Century (New York: Monthly Review Press,
1974).
12. Cf. R. Edwards, 'System of Control in the Labour Process', in
R. Edwards et al. (ed.) The Capitalist System (Englewood Cliffs, N.J.:
Prentice-Hall, 1978); R. Edwards, Contested Terrain (London: Heine-
mann, 1979); D. Gordon, R. Edwards, and M. Reich, Segmented Work,
Divided Workers (Cambridge: Cambridge University Press, 1982).
13. S. Himmelweit, 'Value Relations and Divisions within the Working
Class', Science and Society (Fall 1984) p. 334. Although I disagree with
the treatment of the skilled-labour problem in this paper, the extension
of theoretical implication of the problem to the international exchanges
and the female workers' problem in the paper is both suggestive and
interesting.
14. The effects of financial arrangements in this regard, however, should not
be exaggerated. The value of skilled labour-power cannot substantially
be reduced, as the borrowed educational costs must be paid back later
from a part of the wages of skilled workers. Social mobility over genera-
tions would not be very much enhanced by this device, since the children
of common workers would not have easy access to a loan for expensive
educational costs usually requiring guarantees of sufficient earnings and
assets among parents or relatives.
15. K. Marx, 'Critique of the Gotha Programme', in D. McLellan (ed.), Karl
Marx: Selected Writings (Oxford: Oxford University Press, 1977) p. 567.
16. Marx, op. cit. pp. 568--9.
bridge: Cambridge University Press, 1960) p. 43.
18. Steedman, op. cit. p. 202.
19. Ibid. p. 202.
20. Ibid. pp. 151-4.
21. P. Sweezy, 'Marxian Value Theory and Crisis', in I. Steedman et al., The
Value Controversy (London: Verso and NLB, 1981) p. 26.
22. N. Okishio, [Marxian Economics] (Tokyo: Chikuma-shobo, 1977) p. 169.
23. P. Armstrong, A. Glyn and J. Harrison, 'In Defence of Value-A Reply
to Ian Steedman', Capital and Class, 5 (Summer 1978) p. 8.
24. Ibid. p. 9.
25. S. Himmelweit and S. Mohun, 'Real Abstractions and Anomalous
392 Notes
Assumptions', in Steedman eta/., The Value Controversy, op. cit. p. 262.

26. In this regard Himmelweit and Mohun show a Rubinite tendency which
we have criticised in the previous chapter and section, although in this
paper they also basically accept a technical approach to defining the
quantities of labour-value by the physical data of production.
27. Uno, op. cit. part I. See also M. ltoh, Value and Crisis (London: Pluto
Press; New York: Monthly Review Press, 1980) ch. 2.
28. See also Itoh, op. cit. ch. 3.
29. The similarity and difference between Quesnay's Tableau and Marx's
reproduction scheme, as well as comparison between Marx's scheme and
Keynes's notions of aggregate, are analysed by S. Tsuru in his Supple-
ment 'On the Reproduction Scheme' to P. Sweezy, The Theory of
Capitalist Development (1942) (New York: Monthly Review Press,
1956).
30. For instance, as for I 4000c, the A group of capitalists in department I
expends 2000 million pounds to purchase the means of production from
the B group of capitalists in the same department, and then the money
goes back to the A group through purchase of means of production by
the B group from A. As for the transaction between the department I
and II (I 1000v + 1000s = lie), let us assume that the capitalists in II
initially expend 2000 million pounds to buy the means of production
from the capitalists in 1. Then, 1000 million pounds out of this 2000
million flows back directly from the capitalists in I to those in II through
their purchase of the means of consumption. The rest of it, 1000 million
pounds, is paid as wages to the workers in I, and thus indirectly goes back
to the capitalists in II through purchase of the means of consumption on
the part of those workers. Since money as the means of circulation for
these transactions certainly runs faster than once a year, not so much as
2000 million pounds is necessary for exchange of I 4000c and so forth.
However, rapidity of the circulation of money does not affect the basic
character or the route of its motion presented here.
31. The same points on the theoretical tasks and limits of the reproduction
scheme are discussed in Uno, Principles of Political Economy (op. cit.
p. 69.), and also in E. Mandel, Late Capitalism, translated by J. De Bres
(London: NLB, 1975, p. 25).
PART III THE MOTION OF CAPITALS AS A CONCRETE

MECHANISM
7 Competition among Capitals
1. L. von Bortkiewicz, 'On the Correction of Marx's Fundamental Theor-

etical Construction in the Third Volume of Capital', in P. Sweezy (ed.),
Karl Marx and the Close of His System by E. von Bohm-Bawerk and
Bohm-Bawerk's Criticism of Marx by Rudolf Hilferding (New York:
A.M. Kelley, 1966).
2. P. Sweezy, The Theory of Capitalist Development (1942) (New York:
Monthly Review Press, 1956) p. 117.
Notes 393
3. Sweezy, ibid. p. 124.

4. Sweezy, ibid. pp. 122-3.
5. J. Winternitz, 'Values and Prices: A Solution of the So-called Transfor-
mation Problem', The Economic Journal (June 1948). The notation in
B-S is maintained hereafter to express the main points of the various
disputants.
6. K. May, 'Value and Price of Production: A Note on Winternitz's Solu-
tion', The Economic Journal (Dec 1948) pp. 596-9.
7. R. L. Meek, Economics and Ideology and Other Essays (London:
Chapman & Hall, 1967) p. 153. Meek also maintains that the rate
between total value and total variable capital must be equal to the rate
between total price and total wages, by assuming the organic composi-
tion of capital in the wage-goods industry to be the social average. This
point follows M. Dobb's position in his Political Economy and Capital-
ism (London: Routledge & Kegan Paul, 1937) pp. 72-3.
8. F. Seton, 'The "Transformation Problem"', The Review of Economic
Studies (June 1957).
9. H. D. Dickinson, 'A Comment on Meek's "Note on the Transformation
Problem"', Economic Journal (Dec 1956).
10. P. A. Samuelson, 'Understanding the Marxian Notion of Exploitation:
A Summary of the So-called Transformation Problem between Marxian
(June 1971).
11. M. Morishima, Marx's Economics (Cambridge: Cambridge University
Press, 1973) ch. 7.
12. Ibid. ch. 14.
13. I. Steedman, Marx after Sraffa (London: NLB, 1977) p. 202.
14. M. Desai, Marxian Economic Theory (London: Basil Blackwell & Mott,
1974) cbs 8-12.
15. For instance, S. Himmelweit and S. Mohun, 'The Anomalies of Capital',
Capital and Class, 7 (1978) among others referred to in note 7 of Chapter
5, can be interpreted in this way.
16. D. Yaffe, 'Value and Price in Marx's Capital', Revolutionary Commu-
nist, 1 (Jan 1975).
17. D. Laibman, 'Values and Prices of Production: The Political Economy of
the Transformation Problem', Science and Society, XXXVII-4 (Winter
1973-4).
18. A. Shaikh, 'Marx's Theory of Value and the "Transformation Prob-
lem"', in J. Schwartz (ed.), The Subtle Anatomy of Capitalism (Santa
Monica: Goodyear, 1977).
19. N. Okishio, [Convergence of Marx's "Transformation" Procedure]
[Riron-Keizaigaku] (Aug 1973).
20. The essence ofthe analysis below, together with a review ofthe transfor-
mation controversy above, was originally presented in my essay 'A Study
of Marx's Theory of Value', Science and Society (Fall1976), which was
later reprinted in my book Value and Crisis (London: Pluto Press; New
York: Monthly Review Press, 1980).
21. In the theory of reproduction schemes Marx's division of two depart-
ments is fundamental in order to show how a basic economic rule
394 Notes
common to all the societies can be satisfied within capitalistic commodity

economy. Marx's model of five spheres of production in the theory of
prices of production has a different purpose and meaning. It is an
illustration showing the principles of capitalist competition across many
industrial spheres. The complementary social relations between the quan-
tities of products from each industry (conceivable as a horizontal link)
and the total quantities of means of production and final consumption
goods socially wanted (conceivable as a vertical link) were beyond
Marx's concern in the theory of prices of production. However, there
must be a certain quantitative structure to be balanced, between outputs
and inputs plus consumption, just as suggested in social input-output
analysis, corresponding to a given technological system of production
processes and a system of social needs. In this regard, a B-S type
three-sector model can be regarded as illustrating such a social balance in
all of then kinds of products. Certainly, such a balance between outputs
and inputs cannot be maintained without disturbance, but is tendentially
realised through the incessant oversupply and shortages of goods and the
resulting fluctuation of prices in a capitalist economy.
22. This applies to the marginal least-fertile condition of land as a gold mine,
if gold production actually depends on the different fertility of mines. In
other words, the quantity of labour embodied in a unit of gold to define z
must be counted on the basis of the least-fertile kind of gold mine which
is socially necessary. The magnitude of socially necessary gold contains a
sort of elasticity, as it includes various luxurious uses, and gold bars to be
hoarded besides direct monetary use. The amount of the supply of gold
money can also be flexible, depending on the existing stock of gold
outside the money-form in addition to newly produced gold. As a result,
the relative purchasing power of gold money in a market would be
relatively stable, in comparison with the case where it directly reflects the
fluctuating relations between annual production and socially necessary
gold as money. Nevertheless, the law of value would also eventually
regulate the purchasing power of the money commodity gold in the long
run on the basis of the conditions of production.
23. The socially necessary labour allocation among spheres of industry
cannot be totally determined just by the physical data of technical
processes of production and the material contents of real wages. Another
condition determining the allocation of social labour would be the
quantitative composition of goods socially necessary for final consump-
tion, or what Marx called a system of 'social needs' (e.g. III, p. 774). The
quantitative composition of social needs for various goods is certainly
affected, but not totally determined by the level of the substantial value
of labour-power and the technological conditions of production or the
level of productive power. When a type of commodity is overproduced
beyond the social need for it, the labour-substance of value embodied in
it cannot fully be realised for its producers. Thus, a system of social
needs serves as a constraint in allocating social labour, and as a passive
framework or condition for the working of the law of value. Its role is not
positive but passive, because capital can adjust its scale of production so
as to suit social needs, whatever composition those needs may become,
Notes 395
on the basis of objective conditions of production and the level of real

wages, being relatively independent at least for a certain period of time
from the motion of social needs. Such a relatively hard structure of
conditions of production, being comparatively independent of social
needs, must be a basis for the labour theory of value as well as for the
Sraffian theory, and must be borne in mind also in the analysis of market
value below.
24. Marx did not write the content of ch. 4, 'The Effect of the Turnover on
the Rate of Profit' in the third volume of Capital, except its title. Engels
provided the content, although in a somewhat mechanical way, by
calculating the effect of different periods of the turnover of capital on the
rate of profit in terms of value-prices. As a result, the effect of possible
fluctuations or differences in the circulation period and the cost of
circulation upon the rate of profit has not much been investigated.
K. Uno suggested the problem, but emphasized onesidedly, in my view,
the difficulty for industrial capitals to treat the circulation period and cost
as a part of the objective basis for the equalisation of the rate of profit,
when he wrote as follows:
'The inequalities of the rate of profit in different branches of industry
caused by the differences in the length of the production-period can be
settled by the conversion of values into production-prices, ... The
circulation-period, in contrast, must in general be expected to differ
with every individual capital, although there may be a few instances in
which the length of circulation-period is determined by the quality of
the product itself. The inequalities of profit-rates due to the individual
differences in the circulation-period cannot be eliminated by the
conversion of values into production-prices. The equalisation of profit
must be completed, as will be explained later, by the formation of
commercial capital which relieves industrial capital of the unproduc-
tive costs of circulation by specialising in the operation of buying and
selling commodities.' K. Uno, Principles of Political Economy, trans-
lated by T. Sekine (Brighton: Harvester Press; Atlantic Heights,
N. J.: Humanities Press, 1980) p. 79.
25. Conversely, correction of the imbalance in the labour-allocation among
industrial spheres and the resulting anomaly in the circulation-period and
its costs would surely be slowed down and hampered, when fluctuations
of market prices are avoided by monopoly capitals. This effect would
also be connected with the role of increased scale of fixed capital in the
process of production.
26. Uno, op. cit. p. 83. See also my essay 'Marx's Theory of Market Value',
in Value and Crisis (op. cit.), which was originally written in collabora-
tion with N. Yokokawa.
27. Marx's Capital, vol. III, locates the theory of ground-rent in part 6, which
is the last part theoretically to develop the forms of distribution of
surplus-value. It clarifies the secondary position of the landed property,
and ground-rent as a basis of a social class in a capitalist economy,
especially in comparison with D. Ricardo's On the Principles of Political
Economy and Taxation, which devoted the second chapter to rent, prior
396 Notes
to the chapters on wages and profit to be analysed very much in view of

the tendential increase of rent due to the law of decreasing return of
land. Ricardo's theoretical composition reflects his political opposition to
the corn laws and the power of landed interests. In contrast, Marx's
theoretical treatment of rent as well as its location in Capital shows that
the law of motion of capital itself determines the passive and secondary
position of landed property under capitalism. This implies that the
central socio-economic problem is not in the relation of distribution of
annual products between the landed interests and the industrial capital-
ists, but in the capitalist relation of production based upon exploitation
of wage-workers. The subjugation of landed property to the law of
motion of capital would become clearer if we located the theory of rent
just after the theory of market price of production in accord with the
main contents as its application.
28. There must be a conceptual gap between modern landed property and
capitalistic landed property, although we cannot concretely deal with
various forms of modem landed property other than the capitalistic in
the basic theory of capitalism. Marx seems to identify modern and
capitalistic landed property, and not a few Marxians follow him in this
regard. For example, among four 'principal features of modern landed
property' summarised by R. Murray, we read: 'a) property rights could
be bought and sold', and 'c) the landlord's payment in rent was no longer
directly appropriated from agricultural labour, but received as a residual
payment in cash from a capitalist farmer' (R. Murray, 'Value and Theory
of Rent, part 1', Capital and Class, 3, Autumn 1977, p. 113). In my view,
feature a) is essential for modern landed property in general, but it is
often not combined with the specifically capitalistic feature c). As a
historical precondition for the development of capitalist production in
urban industries, dissolution of the feudal ownership of land and estab-
lishment of modern private ownership were generally essential, but
establishment of fully capitalistic farming based upon wage-workers in
rural areas was not a requisite, and was actually dispensed with as in the
case of Japanese capitalist development from the Meiji Restoration in
1868. Fully capitalistic farms with the feature c) were not totally domin-
ant even in England. According to statistics, small farm holdings opera-
ting on less than 100 acres which could be maintained mainly with
work-forces within a family occupied 75.4 per cent of the number of
farms, and 28.9 per cent of the cultivated land reported in England and
Wales agriculture in 1885 (J. Clapham, An Economic History of Modern
Britain, book 11 (1933) pp. 264-5).
In T. Ouchi, [Ground-Rent and Landed Property] (Tokyo: Tokyo
University Press, 1958) and H. Hidaka, [Studies in the Theory of Ground-
Rent] Tokyo: Jichoscha, 1962), the authors asserted that the logical
necessity of formation of landed property must be shown through the
theory of ground-rent starting from non-existence of landed property.
This was to emphasise that the logical contents of capitalistic landed
property should be given only through the theory of capitalistic ground-
rent. In my opinion, however, this position obscures the conceptual
distinction between modern landed property in general and specifically
Notes 397
capitalistic landed property, and tends to neglect the important historical

fact that the formation of modern private ownership of land was an
essential precondition for the birth and the development of capitalist
production.
29. To quote Marx, 'as far as land for building is concerned, Adam Smith has
discussed how the basis of its rent, as with all non-agricultural land, is
governed by agricultural rent proper (book 1, Chapter XI, 2 and 3)' (III,
p. 908). Though the logic of determining the amount of rent is quite
similar to agricultural rent, non-agricultural rent in urban areas cannot
be governed by agricultural rent proper as Smith has defined. For one
thing, the rent of land for buildings in urban area 'is characterized by the
predominant influence that location exerts here on the differential rent'.
It is characterised also 'by the prevalence of a monopoly price in many
cases, and particularly the most shameless exploitation of poverty' (III,
p. 908).
30. This position was represented by L. Y. Lyubimof, [Theoretical Outline of
Ground Rent] (1930), translated by S. Matsumura (Tokyo: Nauka,
1934). The position was regarded as orthodox, and was followed up by
Japanese Koza-ha theorists like K. Yamada in his [A Critique of Con-
troversy on the Theory of Rent] (Tokyo: Doyusha, 1948) among others.
Against this it has also been asserted by other Japanese Marxian theor-
ists in the Rono-ha and then the Uno Schools, like I. Sakisaka in his
[Studies in the Theory of Rent] (Tokyo: Kaizo-sha, 1930) and K. Susuki
in his [Controversy on the Theory of Rent] (Tokyo: Keiso-shobo, 1952)
that the source of differential rent must be a part of total redistributed
social surplus-value. See ch. 1 of my Value and Crisis (op. cit.) as for
Koza-ha, Rono-ha and Uno Schools, as well as a brief outline of
Japanese controversy on the theory of rent. R. Murray coincides rather
with the orthodox Russian and Koza-ha line in this regard when he
states: 'The increase in [differential- M. 1.] rent therefore represented
the appropriation of increased surplus value produced by agricultural
labour, rather than a deduction from a given quantum of surplus value in
the economy as a whole.' ('Value and Theory of Rent, part I'. op. cit.
p. 103). To my regret I cannot agree with this, while I certainly agree
with Murray's general proposition that 'in all cases rent is a deduction
from total social value, and is limited by the total value produced by
labour' (ibid. p. 102).
31. The conceptual distinction between real wages, nominal wages as the
form of value of labour-power, and the substance of value of labour-
power must clearly be kept in mind here. It is important especially for
the study of the motion of differential rent and the value of labour-
power. Suppose, for example, that the worst type A land is pushed out of
cultivation in a reduced scale of reproduction (historically, say in a
former period). Then the type B land in Table 7.7 would become the
regulative condition for the market price of production. The governing
price of wheat would decline to 30 sh. a quarter so as to make differential
rent 0 on the land B, just 30 sh. on C, and 60 sh. on D. 9 qrs. of wheat
production now yields only 90 sh. of differential rent, whereas 10 qrs. of
wheat production yielded in Table 7. 7 360 sh. of rent. In maintaining the
398 Notes
same level of real wages to give the same quantity of wheat per hour of
labour, the nominal wages as the form of labour-power are to be halved
as for the portion of wheat. The substance of value of labour-power
obtainable through its form of value, however, is not reduced so much,
since 'the real production price' would decline from 24 sh. a quarter to
just 20 sh. a quarter (180 sh I 9 qrs.). Thus, the quantitative changes in
this case can be ordered from smaller to larger upon the same level of
real wages; the substance of value of labour-power, nominal wages as the
form of value of labour-power, and the amount of differential rent in its
substance and form.
32. However, Uno did not thoroughly clarify the substantial source of
differential rent, and remained just to quote Marx's notion of 'false social
value' which was paid by society considered as a consumer (Uno,
Principles of Political Economy, op. cit. p. 98, p. 104). He distinguished
extra profit as 'false social value' to be converted into differential rent
from extra surplus-value obtained in the process of improvement in
productive methods, on the ground that the latter, unlike the former,
could be recognised as the cost of innovation common to all societies as a
part of general economic rule. Although this distinction is suggestive and
relevant to a clarification of different social functions and characters of
two sorts of extra profit, it would not establish that either of them has
some special source outside of the total surplus-labour as the substance
of social surplus-value. My position is thus different from Uno's on this
point.
33. Uno also followed Marx here in defining absolute rent within a gap
between the value and the price of production of agricultural product
(ibid. p. 102). It coincides with Uno's treatment of the transformation
problem mostly following Marx. It was contribution of T. Ouchi and
H. Hidaka (in op. cit.) among Uno theorists that initiated the theoretical
critique and solution of the problem here left over since Marx.
8 The Mobilisation of Capitals
1. When monopolistic capitals become dominant the competitive motion of

market prices of their products tend to be avoided. As a result, the
informational function of market in readjusting the misallocation of
social labour would be reduced, and the effect of the prolongation of
selling time together with the degree of idle capacity in factories would
become so much more important in determining both the individual rate
of profit and the necessary direction of the adjustment of the labour-
allocation.
2. Marx states at the beginning of part IV of the third volume of Capital the
following: 'Merchant's or trading capital is divided into two forms of
species, commercial capital and money-dealing capital, which we shall go
on to distinguish in such detail as is needed in order to analyse capital in
its basic inner structure. And this is all the more necessary in so far as
modem economics, and even in its best representatives, lump trading
capital and industrial capital directly together and in fact completely
Notes 399
overlook trading capital's characteristic peculiarities.' (111, p. 379). Even

though money dealing concerning the technical movement of money in
the process of circulation, such as storage, sending or collection, and in
particular international exchange business, was an important aspect of
activities of merchants' capital as well as of money-lending capital in the
precapitalist periods, it cannot form an independent species of capital in
most cases. In a capitalist society money-dealing becomes mostly ab-
sorbed as an aspect of banking business, which must be separable
theoretically from commercial capital. Therefore, it would be too forma-
listic to assume that two forms of capital in circulation, commodity and
money, would become separate objects of two different species of
trading capital. Although bank capital is also a sort of trading capital its
main business is not concerned with the mere technical movement of
money, as we shall see in Section 8.2.
3. In his analyses of the costs of circulation inch. 6 of the second volume of
Capital, Marx defines the costs arising 'from the peculiar nature of
commodity production' or of 'capitalist commodity production' as unpro-
ductive, not entering into the values of the commodities but constituting
deductions, losses of value, in distinction from the costs which are
common to all social production. (II, pp. 217, 225). Although workers
are exploited in a sense that they perform, say, 8 hours of labour in a
working day and receive say, 4 hours of labour as the substance of value
of their labour-power, the workers employed for such unproductive costs
of circulation cannot add to the values of the commodities in this regard.
On the other hand, workers employed by commercial capitals as well as
those in other spheres of the tertiary sector would add to value and
surplus-value in the aspect of their labour which is common to all social
production such as some parts of storage, transportation or repair. The
relative growth of the tertiary sector in the advanced capitalist countries,
therefore, would not actually mean a directly proportional growth of
unproductive labour.
4. Investment of commercial capital into pure expenses of circulation, as
faux frais (II, p. 214) with regards to value-formation, would thus
contrariwise produce the positive effect of reducing idle or negative
portions of capital and costs overall. This is a point theoretically empha-
sised by S. Yamaguchi, (Competition and Commercial Capital] (Tokyo:
Iwanami-Shateu, 1983).
5. For instance, the high rate of saving of Japanese households has structu-
rally not changed much in the last three decades and still remains above
17 per cent in 1983 in comparison with 5.2 per cent in US and 7 per cent
in UK, despite the increased weight of the tertiary sector, conspicuous
urbanisation, and a stagnating workers' income since the middle of
1970s.
6. C. Panico, 'Marx's Analysis of the Relationship between the Rate of
Interest and the Rate of Profit', Cambridge Journal of Economics,
vol. 4-4 (Dec 1980) p. 373.
7. B. Fine, 'Banking Capital and the Theory of Interest', Science and
Society, XLIX-4 (Winter 1985-6) p. 391. Although Fine does not and pro-
bably cannot refer to it, the same point of correcting Marx's numerical
400 Notes
example was already presented by D. I. Rozenberg, [Commentary for

Capital] (Russian first edition, 1931, second edition, 1961. Japanese
second edition translated by M. Udaka and T. Soejima, Tokyo: Aoki-
Shoten, 1962) vol. 4, p. 239.
8. K. Uno, Principles of Political Economy, translated by T. Sekine
(Brighton: Harvester Press; Atlantic Heights, N.J.: Humanities Press,
1980.) p. 114.
9. Giant joint-stock banks with national networks of branches were formed
in England through the merger movement in the last quarter of nine-
teenth century. 'Until the last quarter of the century the English banking
system remained what is known as a "unit" banking system. At a time
when the financial needs of different districts differed even more widely
than they do now, a localised banking system could function efficiently
only through a sort of central pool by means of which the credit surpluses
of one type of district (the agricultural areas) and the credit deficiencies
of the other type of district (the industrial areas) could find their level.
The Discount Market (and its ultimate corollary, the short-loan market)
proved such a pool, as well as the conduit-pipes by which it was tapped
and fed.' (W. T. C. King, History of the London Discount Market,
London: George Routledge & Sons, 1936, pp. xii-xiii). Unlike the later
branch-banking system, banks in a unit-banking system were relatively
small in size and were more competitive with industrial and commercial
capitals. And their major form of credit was discounting commercial bills
of exchange, not yet so much dealing with cheques.
10. The qualitative division of profit into interest and profit of enterprise
means that the division of profit into these two parts becomes universal,
and not confined to the profit earned by borrowed capital. As a result,
even 'the capitalist who works with his own capital, as well as the one
working with borrowed capital, divides his gross profit into interest that
accrues to him as owner, as lender of his own capital to himself, and
profit of enterprise, which accrues to him as an active, functioning
capitalist' (III, p. 498). This line of theory did not exist in the tradition of
British classical school. It was G. Ramsay, An Essay on the Distribution
of Wealth (Edinburgh, 1836, e.g. pp. 193, 210), who, after Ricardo,
developed this type of theory, following J.-B. Say or H. Storch and
influenced Marx on this point. However, the amount of profit remaining
after deducting interest for his own capital would generally be more or
less in proportion to the amount of his own capital, and cannot totally be
attributed to capitalistic activity as entrepreneurship even from a
common-sense view.
11. K. Uno reordered the structure of Marx's theory of interest in part v of
the third volume of Capital, and began his theory of interest as a form of
surplus-value directly from the theory of credit system in his Principles of
Political Economy (op. cit.). However, Uno attempts to maintain Marx's
theory of the qualitative division of profit, by emphasising the special
character of commercial capital representing capitalistic activity in circu-
lation. In Uno's Principles, given a general rate of interest in the money
market, the qualitative division of profit into interest and profit of
enterprise is initiated in commercial capital and then universalised as the
Notes 401
highest form of fetishism of capital as automatically interest-bearing

capital. Although a fetish belief in automatically interest-bearing capital
would surely appear among capitalists, it may not be linked with the
notion of the qualitative division of profit, and it seems rather difficult to
show as an essential form of appearance of the basic mechanisms of the
law of motion of capital. Thus I am sceptical of the theoretical possibility
and relevance of presenting the qualitative division of profit into interest
and profit of enterprise despite of Uno's attempt.
12. Marx quotes W. Leatham to show the actual size of the total amount of
commercial credit. The amount of the bills of exchange 'for the whole of
the year of 1839 ... to be £528,493,842'. The bills of exchange make up
'one component part greater in amount than all the rest put together' (III,
p. 526). This £528 millions is even greater than the estimated total gross
national income of £452 in 1841 (cf. B. R. Mitchell, Abstract of British
Historical Statistics, Cambridge: Cambridge University Press, 1962,
p. 366). According to the evidence of W. Newmarch to the Bank Act
Committee in 1857, 'The total circulation of banknotes in the United
Kingdom, including these £1 notes, is £39 million.' 'The gold circulation
is £70 million.' (III p. 656). When the currency school, an antecedent of
the recent monetarists, following the quantity theory of money, asserted
the need to control the quantity of bank notes in accordance with the
motion of the amount of gold in a country, in order to remove strong
fluctuations of prices and crises, they clearly failed to take into considera-
tion the possibility of an elastic increase in demand so as to cause
fluctuations in prices by means of commercial credit from below. While
the banking school criticised this weakness of the currency school, they
tended to assume one-sidedly the soundness of all commercial bills,
neglecting the actual possibility of utilising commercial credit in specula-
tive and fictitious trading.
13. Loanable-money capital gathered into banks must be conceived, in our
basic theory, also as springing from idle-money capital in the turnover of
industrial and commercial capitals, such as depreciation funds, accumu-
lation funds or reserves for price fluctuations. In other words, monetary
funds which are utilizable for industrial and commercial capitals to earn
profits would not be used for loans, or mobilised for credit, especially as
the rate of interest obtained by loans would generally be lower than the
rate of profit earned by actual investment. Marx's position at the begin-
ning of his abstract formal theory of interest-bearing capital, as follows is
not agreeable in this regard. 'On the basis of capitalist production,
money - can be transformed into capital. . . . In this way the money
receives, besides the use-value which it possesses as money, an addi-
tional use-value, namely the ability to function as capital. Its use-value
here consists precisely in the profit that it produces when transformed
into capital. In this capacity of potential capital, as a means to the
production of profit, it becomes a commodity, but a commodity of a
special kind. Or what comes to the same thing, capital becomes a
commodity.' (III, pp. 459-60). From the view of the owner, only money
which he cannot transform into real capital would be mobilisable for
credit. And what is lent out, even through banks in the form of interest-
402 Notes
bearing capital, is still money, a special commodity as money-fund, and

is not yet a commodity form of capital itself in its capacity to gain profit
through a real process. We have to distinguish the commodity form of
capital realised in joint-stock capital in a capital market, from the
commodity form of money in the form of interest-bearing capital in the
credit system, in spite of Marx's proposition above.
14. According to Engels, 'there is no advance [of capital- M.I.] at all, but
simply an ordinary purchase and sale' in the case of discounting a bill of
exchange at a bank, whereas there is 'a genuine capital advance' in a case
where a capitalist 'obtains the sum advanced by the bank on his personal
credit.' (III, pp. 587-8). It must be stressed, however, that the discount of
commercial bills is the basic form of bank credit and by far more
important than the case of advances on personal credit, and further that
it is a part of a total mechanism of the credit system where idle capitals
can be mobilised to accelerate the motion of the valorisation of capitals
even in the form of the transactions between commercial bills and money
funds as a special commodity. Besides, the sale of a commercial bill to a
bank leaves the capitalist the responsibility 'to the bank in default of
payment' as the last endorser of the bill (III, p. 588), unlike an ordinary
sale of a commodity.
R. Hilferding, Finance Capital, (translated by M. Watnick and
S. Gordon, London, Boston and Henley: Routledge & Kegan Paul,
1981) introduced a new conceptual distinction between circulation credit
and capital (investment) credit to the basic theory of credit in his ch. 5.
The distinction comes at least partly from Engels's formulation above.
The notion of circulation credit is in 'a substitute for money' by facilitat-
ing the transfer of commodities without the use of money (p. 83), and in
this regard includes bank credit in the form of the discounting the
commercial bills. In contrast, 'credit which converts idle money of
whatever kind- into active money capital is called capital (or invest-
ment) credit' (p. 87). Though Finance Capital contains first important
contributions to the Marxian study of the credit system, the conceptual
distinction here is confusing, as bank credit in the form of discounting
also substantially converts idle money into active money capital in the
hands of capitalists seeking discount. Therefore, Hilferding's distinction
must not be substituted for Marx's distinction between commercial and
bank credit. The actual background for Hilferding's new conception of
capital credit was the way in which German banks gave huge amounts of
long-term credit to industrial capitalists in their construction of fixed
capitals, eventually so as to make up the German type of finance capital
under the control of the banks. This is a case of how carelessness about
the historical basis of theoretical abstraction can cause confusion in parts
of the basic theory of capitalism.
15. The relative independence in the creation of various forms of private and
individual bank debt and credit continues to exist through the historically
changing organisations of the credit system. It is a source of difficulty
defining and measuring the quantity of money even under the system of
'managed' currency, with an even greater difficulty for the state to
effectively control total demand by means of manipulation of the quan-
Notes 403
tity of money supplied, as we see in the recent renewed experiments of

monetarist policies.
16. In 1844 when Peel's Bank Act was passed there were £8.63 million
country bank notes in circulation besides £21 million Bank of England
notes inside England and Wales. There were also important banks of
issue beside these in Scotland and Ireland. The British credit system in
the period of liberalism was developed very similarly to the international
forms of credit transaction, in accordance with the fundamental charac-
ter of capitalism which converted the originally external forms of econ-
omic interactions into the internal social order.
17. Actually the Bank of England did not then issue bank notes smaller than
£5, even with their right to issue their notes as legal tender. A £5 bank
note was definitely useless in paying and receiving weekly wages of say 12
shillings (£0.6) at most for women spinners.
18. For instance, increasing opportunities for lending abroad seem to have
exceeded the tendential increase of the rentier class and their loanable
assets in the UK from the last quarter of nineteenth century, so as to
keep the rate of interest higher than the level favourable for domestic
industrial investment. In contrast, in Japan in the post-Second World
War period, rapid industrial accumulation was promoted by the rela-
tively low rate of interest maintained by a high rate of saving by the
general population despite of lower numbers in the rentier class.
19. Panico, op. cit. p. 377.
20. There is a methodological controversy as to whether the functions of
joint-stock capital can or cannot be presented in the basic principles of
political economy among Japanese Uno theorists. Uno himself referred
to the form of the industrial joint-stock corporation as just a factual
example of capital as automatically interest-bearing capital, which arose
as a result of the qualitative division of profit into interest and profit of
enterprise. In his words, 'The diffusion of the joint-stock-company
(corporate) system in industry, promoted by the employment of increas-
ingly heavier fixed-capital equipment, ushers in the epoch of the so-
called 'finance capital' and entails a host of new phenomena quite
beyond the scope of the theory of pure capitalism.' (Uno, op. cit.
p. 125). This accords with his basic methodology of deducing the theory
of pure capitalism as the set of basic principles from the historical
experience of British capitalism which developed increasingly toward a
perfect capitalist society with three major classes up until the middle of
the nineteenth century. Among his followers, K. Suzuki in his ed.
[Principles of Political Economy], 2 vols (Tokyo: University of Tokyo
Press, 1960-2), H. Iwata in [World Capitalism] (Tokyo: Miraisha, 1964)
and myself in [The Theory of Value and Capital] (Tokyo: Iwanami-
Shoten, 1981) insisted on broadening the historical basis of abstraction of
the basic principles for one thing so as to enable a more complete basic
theory of joint-stock capital and its substantial social functions. This
position, however, does not negate the need for more concrete studies of
different features and types of development of giant joint-stock compa-
nies which make up finance capital in various countries at higher levels of
research. In respect to the stages theory of capitalist development, the
404 Notes
special development of German finance capital including the specifically

close relations with banks must be carefully emphasised in contrast to
other types of finance capital in the UK and US. However, the form and
the functions of joint-stock capital are still common to these different
types of finance capitals and enable us to analyse them, in my view, on
the basic principles only if we do not adhere to UK capitalist develop-
ment up until the middle of the nineteenth century as our basis of
abstraction.
21. Marx did not clarify the limitations to the centralisation of capitals when
he said, referring to the role of joint-stock companies in facilitating the
fusion of capitals: 'In any given branch of industry centralization would
reach its extreme limit if all the individual capitals invested there were
fused into a single capital. In a given society this limit would be reached
only when the entire social capital was united in the hands of either a
single capitalist or a single company.' (n, p. 779). The primitive stage of
large-scale enterprise in the form of joint-stock capital as with railways
might have enabled him abstractly to speculate on such extreme cases. In
contrast, on the basis of the mature stage of giant corporations, V. I.
Lenin sharply pointed out that 'not in every branch of industry are there
large-scale enterprises' (V. I. Lenin, Imperialism, the Highest Stage of
Capitalism, 1917, Peking: Foreign Languages Press, 1973, p. 14). Even
in heavy industries where large-scale enterprises dominate, perfect
monopoly by a single company has not been achieved. I believe that this
is not a mere accidental or immatured fact but logically related to the
fundamental restrictions on capitalism, based as it is upon the individua-
listic profit-seeking motive. Even giant joint-stock capitals cannot escape
such a restriction.
22. The monopolistic behaviour of large-scale joint-stock capitals is certainly
implied here. Unlike the prices of production, however, the determina-
tion of monopoly prices cannot be presented in the basic principles. All
the concrete conditions such as the range of the major market, the nature
or the elasticity of demand, the structure of monopolistic organisations
and their strength among corporations, competition with foreign rivals,
etc., which should be analysed at more concrete levels of researches,
beyond those basic principles, must effect the levels of monopoly prices.
Excepting the vague definition that monopoly prices enable companies
to obtain higher rates of profit than the general rate of profit or the rate
available in free competition, by shifting either a portion of surplus-value
from other capitals or a part of the value of the income of workers and
the middle class, we cannot have much to say about monopoly prices at
our present level of discussion. Similarly, monopoly capital, which must
be analysed in its all concrete forms of organisation, and the effect on
social economic processes as well as on state policies, cannot be explicitly
discussed here.
23. Hilferding, Finance Capital, op. cit. pp. 118-19.
24. Ibid. p. 119.
25. Ibid. pp. 115-16.
26. Ibid. p. 112. Griindergewinn might better be translated into English as
'founder's gain' rather than 'promoter's profit'. Actually it can be ob-
Notes 405
tained by the founders of an enterprise when it is converted into a

joint-stock company, not merely by the promoters pushing forward such
conversion and sale of stocks. However, Hilferding assumes a bank
which promotes the conversion of individual firms into joint-stock com-
panies, initially accepting and getting hold of the whole stock to be sold
eventually in the capital market. In such a case a large portion of
Griindergewinn often actually flew to the bank as a promoter. At the
same time the initial investment obtaining the whole stock of the enter-
prise is conceived, not as the actual amount of investment of the found-
ers, but as the estimated price of the annual yield of the enterprise (Y) in
comparison with the average rate of profit (p); thus in Hilferding's
formula 'promoter's profit' (P) is defined as follows:
100Y lOOY
P=
d p
where the dividend (yield) (d) is conceived as identical to the rate of

interest (ibid. p. 114). The item deduced can be nearer to the actual
amount of investment if the founders of a firm can manage to convert
their own firm into joint-stock company and sell the stocks themselves or
through a stockbroker paying a smaller amount of commission and costs.
27. Ibid. pp. 111-12.
28. Ibid. p. 129.
29. Historically the commodity form of land and its pricing through the
capitalisation of ground-rent, is much older than the growth of joint-
stock industrial companies. The formation of a capital market initially
mainly to trade state bonds at prices determined by the capitalised sum
of the annual interest payment from the government, estimated at the
current rate of interest, also long preceded it. Even the form of the
joint-stock company itself was seen already in the stage of mercantilism
as a form of organisation combining merchants' capitals for joint ven-
tures. Thus industrial capitals did not here create those forms through
which they organise themselves either, as in many other cases that we
have seen. It must be noted, however, that the form of joint-stock capital
and the way of capitalising their annual profit rates did not become
popular with industrial firms throughout the whole stage of liberalism,
and that such forms spread throughout the central industries later, in the
stage of imperialism, and thus completed commoditisation of the whole
ec.onomy.
30. Since Hilferding's concept of finance capital was based too exclusively
upon the experience of Germany, especially concerning the role of the
banks, P. Sweezy in The Theory of Capitalist Development (New York:
Monthly Review Press, 1956, pp. 267-9) proposed among others a more
appropriate term to define the dominant capitals in the latest stage of
capitalism, 'monopoly capital' rather than 'finance capital'. The term
'finance capital' can be maintained as a key concept for the dominant
capital of our age and not confined to the German type, if we can
establish a basic theory of joint-stock capital within the basic principles,
406 Notes
as a common logical standard for the analyses of the dominant corpora-

tions with their national differences. In such analyses of finance capital,
monopolistic organisations and their workings must certainly be one of
the most important aspects to be clarified. An advantage of the term
'finance capital' over 'monopoly capital' is in its wider implications, in
seeing the importance of the financial form and organisation for the
motion of capital. The basic theory of joint-stock capital would serve as
the frame of reference for such a concept of finance capital which
emphatically includes monopolistic elements in its actual process.
9 Business Cycles and Crises
1. G. Haberler, Prosperity and Depression (London: George Allen &

Unwin, 1937, 4th ed., 1964) p. 7.
2. R. Hilferding, Finance Capital, translated by M. Watnick and S. Gordon
(London, Boston and Henley: Routledge & Kegan Paul, 1981) p. 261.
3. Further documentation from Marx's writings is presented in M. ltoh,
Value and Crisis (London: Pluto Press; New York: Monthly Review
Press, 1980) ch. 4, with an analysis of the formation of Marx's theory of
crisis from Grundrisse via Theories of Surplus Value to Capital. It is
noteworthy that the labour-power-shortage variant of the excess capital
theory was formulated for the first time in Capital.
4. Such an attitude has been dominant in the so-called 'orthodox Marxian'
position, underwriting the under-consumptionist variant of crisis theory
against other variants. A similar attitude is still seen among contempor-
ary Marxian theorists who sometimes have different positions. For
instance, J. Weeks denounces my labour-power-shortage type of crisis
theory as 'a great leap backwards ... in favour of Ricardo's [contribu-
tion]', suggesting 'better marks' for 'the more sophisticated brands of
under-consumptionism' in his article 'The Process of Accumulation and
the "Profit Squeeze" Hypothesis' (Science and Society, Fall 1979, pp.
259, 279), and B. Fine and L. Harris define my analysis as 'a neo-
Ricardian view' in their Rereading 'Capital' (London: Macmillan Press,
1979, p. 80) vaguely favouring the rising organic composition variant of
excess-capital theory. In my paper 'On Marx's Theory of Accumulation:
A Reply to Weeks' (Science and Society, Spring 1981, p. 76), I have
already criticised these denunciations as unfair and confusing, since one
important aspect of Marx's formulation of crisis theory found rather
finally and uniquely in Capital, must then also be called 'Ricardian' or
'neo-Ricardian', while Ricardo and neo-Ricardians have never at-
tempted to build up a crisis theory.
5. M. Tugan-Baranowsky, Les Crises Industrielles en Angleterre (translated by
J. Schapiro, Paris: M. Giarde & E. Briere, 1913), and Hilferding, Finance
Capital, op. cit. part 4, among others, was a representative example of
the disequilibrium type of excess commodity theory of crisis. Against
these, K. Kautsky, 'Krisentheorien' and 'Finanzkapital und Krisen', in
Neue Zeit (20, no. 2, 1901-2, 29, no. 2, 1911), or N. Bukharin, Imperial-
ism and the Accumulation of Capital, translated by R. Wichmann, (New
Notes 407
York and London: Monthly Review Press, 1972), asserted the under-
consumptionist variant of crisis theory as an orthodox Marxian position.
In these classical arguments initiated by Tugan-Baranowsky, Marx's
theory of the reproduction schemes was much utilised in order to show
the difficulties in maintaining the balance between various items in the
schemes, although essentially it was an unsuitable theory for proving the
logical inevitability, and not merely the possibility, of periodical crises,
as we saw in Chapter 6, Section 6.3. More recently, P. Sweezy, The
Theory of Capitalist Development (1942, New York: Monthly Review
Press, 1956), ch. 10, and his other writings follow the orthodox Marxian
position of the under-consumptionist type.
6. N. Okishio, [The Theory of Accumulation] (Tokyo: Chikuma-Shobo,
1976) for instance, presents a sort of sophisticated type of under-
consumptionism in a model of the cumulative process of disequilibrium
between the effective demand of wage-workers and the increasing pro-
ductive power of society. In his model, incessant shortage of effective
demand due to restricted real wages can be balanced more than suf-
ficiently by investment demand so as to cause a rise in commodity prices
or inflation in the phase of prosperity. With this rise in prices, real wages
must fall more and more so that reproduction of labour-power becomes
impossible to maintain. A reversal of such a process of accumulation
through crises is necessary for capitalism to survive as a social system.
Though Okishio sees the operation of the law of value in the reversal of
the cumulative upward and downward process of disequilibrium in turn,
he tends to negate the working of the law of value in readjusting the
disequilibrium between demand and supply with relative stability in the
process of prosperity. It is also difficult for me to agree with his recogni-
tion that real wages must fall in the actual process of prosperity when in
fact expanding employment creates a shortage of labour-power.
7. H. Grossmann, Das Akkumulations und Zusammenbrucksgesetz des
kapitalistischen Systems (Leipzig: Hirschfeld, 1929), assumes an increase
of variable capital of 5 per cent a year and of constant capital of 10 per
cent with a constant rate of surplus-value of 100 per cent in order to show
the breakdown of a capitalist system due to the disappearance of the
portion of surplus-value for consumption by capitalists. E. Preiser, 'Das
Wesen der Marxschen Krisentheorie', in Festschrift fiir Franz Oppen-
heimer - Wirtschaft und Gesellschaft (Frankfurt: Frankfurter Societats-
Druckerei, 1924) assumes a fall in the rate of surplus-value, as in the
labour-power-shortage theory, in his example of the sudden decline of
the rate of profit. M. Dobb, Political Economy and Capitalism (London:
Routledge & Kegan Paul, 1937) ch. 4, and E. Mandel, Late Capitalism,
translated by J. De Bres (London: New Left Books, 1975) combines this
variant of crisis theory with varying circumstances in a multicausal
approach. D. Yaffe, 'The Marxian Theory of Crisis, Capital and the
State', in Bulletin of the Conference of Socialist Economists' (Winter
1972), P. Bullock and D. Yaffe, 'Inflation, the Crisis, and the Postwar
Boom', in Revolutionary Communist, no. 3/4 (Nov 1975) stand purely
upon the law of tendential fall of profit rate as the causal basis for crisis.
A. Shaikh, 'An Introduction to the History of Crisis Theories', in URPE
408 Notes
U.S. Capitalism in Crisis (New York: Monthly Review, Press, 1978)

assesses this latter type of approach favourably.
8. Outside of Japanese Uno School, 0. Bauer, 'Die Akkumulation des
Kapitals', in Neue Zeit (31, no. 1, 1913), and P. Sweezy, ch. 9 of The
Theory of Capitalist Development, have attempted to deduce this variant
of crisis theory from Marx, though with less sophistication in relation to
the theories of accumulation and credit. As representative works in the
Uno School, K. Uno, [Theory of Crisis) (Tokyo: Iwanami-Shoten, 1953)
followed up by M. ltoh, [Credit and Crisis) (Tokyo: University of Tokyo
Press, 1973), and Value and Crisis (op. cit.) can be mentioned.
9. For example, Weeks, op. cit. in note 4, p. 268.
10. I shall much utilise my paper 'On Marx's Theory of Accumulation', cited
in note 4 in this section. The following summary is mostly extracted from
this paper.
11. Sometimes Marx's theory of capital accumulation, assuming a constant
composition of capital, is interpreted as being concerned with only the
primitive stage of capitalism, prior to the Industrial Revolution. But this
interpretation cannot be satisfactory, since Marx clearly refers to the
complete cyclical motion of wages and the labour market precisely in
reference to the established business cycles which were absent in such a
primitive stage. Nevertheless, it is theoretically premature to construct a
complete theory of business cycles without taking into consideration a
rise in the organic composition of capital in the process of capital
accumulation.
12. Sweezy, op. cit. p. 149.
13. K. Marx, Grundrisse, translated by M. Nicolaus, (Harmondsworth,
Middx: Penguin Books, 1973) p. 766.
14. For instance in the period of the high rate of economic growth by
post-war Japanese capitalism, while the organic composition of capital
considerably rose, the employment of wage-workers did not at all de-
crease but absolutely and continuously increased. In the period from
1955 to 1970, for example, despite a more than threefold rise in Japanese
business capital per worker in 1970 US dollars, the ratio of the active
working population in agriculture and forestry fell from 36.1 per cent to
16.5 per cent as a result of its continuous absorption into the urban
work-force. The over-accumulation of capital, of a labour-shortage type,
with a rise in wages had to occur as a result. Thus, in so far as the existing
fixed capitals are fully utilised and unwillingly abandoned, the sustained
and profitable accumulation of capital, even with a rising organic com-
position would sooner or later cause an over-accumulation in relation to
the labouring-population. In the basic theory of regular business cycles,
such over-accumulation is more strongly demonstrated as inevitable in
the process of capital accumulation with a relatively constant organic
composition.
15. In the analysis of the dynamic relation between the accumulation of
money capital and that of real capital through the working of the credit
system, Marx begins by defining real capital as 'commodity capital and
productive capital' (III, p. 607). However, in his analysis of the dynamic
relation of real capital with the accumulation of loanable money capital
Notes 409
in the money market, real capital is actually treated as commercial

capital and industrial capital. I am following this use of the words, since
the whole process of the business cycle must be analysed by taking up the
relation between the accumulation of industrial capital plus commercial
capital, not merely productive capital and commodity capital as specific
forms in their circuit, and that of loanable money capital in the money
market.
16. This ability of trade-union bargaining-power to squeeze the profit rate is
underlined in A. Glyn and B. Sutcliffe, British Capitalism, Workers and
the Profit Squeeze (Harmondsworth, Middx: Penguin Books, 1972), and
P. Armstrong, A. Glyn, G. Harrison, Capitalism since World War II
(London: Fontana, 1984).
17. D. Ricardo was already aware of this effect, and Marx treated it more
systematically inch. 11, 'The Effects of General Fluctuations in Wages
on the Prices of Production' in the third volume of Capital.
18. Although I fundamentally rely upon K. Uno's crisis theory, I disagree
with his position that the speculative developments towards the end of
prosperity should be referred to simply as factual phenomena without
being logically necessary. In his treatment, the role of commercial capital
and speculative trading are mentioned only as superficial features, often
obscuring the basic difficulties of capital accumulation which cause crises.
In such a treatment, I am afraid that the logical necessity of a sharp rise
in the interest rate and the process of the collapse of trading causing an
acute crisis would not be shown in its actuality.
19. It is one of Uno and his followers' contribution to Marxian theory to
have underlined this aspect of Marx's theory and to have attempted to
show the logical necessity of periodical crisis through the working of the
credit system and the interest rate. This corresponds to their position
which emphasises the importance of the forms and the mechanisms of a
capitalist economy besides its internal substantive relations of produc-
tion.
P. Bullock and D. Yaffe, 'Inflation, the Crisis, and the Postwar
Boom', Revolutionary Communist, 314 (Nov 1975), contains one of the
rare attempts among Western Marxians to examine how the credit
mechanism operates up to the crisis, although it is based upon the rising
organic composition variant of the excess-capital theory of crisis and so is
different from the Uno School.
20. In the actual process of business cycles in the mid-nineteenth century,
the outflow of gold reserves from the Bank of England heralded the
outbreak of periodical crises, by tightening the money market. It often
appeared alternately as a drain to foreign countries and then an internal
drain to domestic circulation. Although 'with the possible exception of
1837, the real crisis has always broken out only after the exchange rates
have moved, i.e. once the import of precious metal has the upper hand
again over the export' (III, p. 702), the internal drain, often to Scotland
and Ireland, has usually followed this movement and basically had a
similar nature, actually often involving a hidden continuous drain to
abroad. The basic theory must reflect the nature and the working of the
credit system of that period, which organised both domestic and foreign
410 Notes
transactions in a homogeneous fashion and in the same forms.

21. This is the moment when money appears as the sole incarnation of
wealth, as was believed by the bullionists, and thus the 'sudden trans-
formation of the credit system into a monetary system adds theoretical
dismay to the actually existing panic' (K. Marx, A Contribution to the
Critique of Political Economy, Moscow: Progress Publishers, 1970,
p. 146).
22. In this respect the aspects of those difficulties in capitalism which have
been underlined by the excess-commodity theories of crisis must not be
disregarded. The excess-capital thoery of a labour-shortage type would
not be complete without locating those aspects theoretically and properly
clarifying their relevancy.
23. Following up Uno's crisis theory, M. Yoshitomi, '[Credit and Business
Cycles]', in K. Suzuki, ed., [Studies in Credit Theory] (Tokyo: Hosei
University Press, 1961) and K. Baba, [The World Economy, Its Centre
and Periphery] (Tokyo: University of Tokyo Press, 1973) raised this
problem and presented a solution in this direction.
24. This would be a reason why monetary policy, in operating the official
rate of interest tends to be ineffective in promoting recovery from
depression. The basic difference between the determination of the profit
rate and that of the interest rate, as we have discussed in Chapter 8,
Section 8.2, must be remembered, in understanding why the lowered
rate of interest cannot serve very effectively in reactivating real capital
investment.
25. This implies that countervailing social factors including the power of
trade unions are quite necessary in order to maintain the real-wage rate
under the pressure of actual depression.
26. K. Uno, [The Tasks of the Crisis Theory]', in his [Problems in Marxian
Economics] (Tokyo: Iwanami-Shoten, 1969), argued that the contents of
the necessary means of consumption for wage-workers are determined
through the capitalist process of business cycles. A linkage between
value theory and crisis theory is thus being sought out, together with a
critique of a misconception that the real wage is determined entirely
outside of the law of motion of capitalism. However, I cannot totally
agree with him where he seems to neglect the 'historical and moral
element', possibly including social forces in the determination of real
wages, even in the basic theory.
27. There was an interesting controversy over this problem in relation to the
actual rising price-level at that time, by a series of Marxians such as E. S.
Varga, R. Hilferding, K. Kautsky and 0. Bauer among others, in Neue
Zeit, 30, Bd 1-7-31, Bd 1-16 (Nov 1911-Jan 1913). The articles in the
controversy were collected and translated inS. Ryu, [Gold and Pices]
(Tokyo: Dojin-Sha, 1932).
28. For instance, P. Armstrong, A. Glyn, J. Harrison, Capitalism since
World War II (London: Fontana, 1984) among others, show empirically
that over-accumulation in this regard was the major cause for the
beginning of the recent great depression.
29. In a letter of 12 September 1880 to N. F. Danielson, Marx notices the
absence in the present crisis of the collapse of the market in bills of
Notes 411
exchange in London, which used to form the peak of the periodical crises
in England. The same was also true for the crisis in 1873, and in 1890.
And Engels wrote in a note to the third volume of Capital that 'the acute
form of the periodic process with its former ten-year cycle seems to have
given way to a more chronic and drawn-out alternation, affecting the
various industrial countries at different times, between a relatively short
and weak improvement in trade and a relatively long and indecisive
depression' (III, p. 620). Although various factors, such as the expansion
of the means of transportation and communication, the formation of
competing industrial countries, as well as cartels and trusts, or the
growing investment of surplus European capitals in all parts of the world,
are suggested by Engels as the causes of such metamorphoses of business
cycles, a fundamental moment would be in the difficulty of coping with
excessive large-scale fixed capital. In this respect R. Hilferding's treat-
ment of the problem in ch. 20 of Finance Capital is neither sufficient and
thorough. Hilferding stresses there that the formation of cartels in
particular mitigates the acuteness of crises while intensifying the diffi-
culties in the non-cartelised industries.
30. A representative work from this viewpoint is P. A. Baran and P. Sweezy,
Monopoly Capital (New York and London: Monthly Review Press,
1966).
31. Parvus (alias A. Helphand), Die Handelskrisen und die Gewerkschaften
(Mi.inchen: M. Ernst, 1901). K. Kautsky, 'Die Wandlungen der Gold-
produktion und der wechselnde Charakter der Teuerung', in Die Neue
Zeit, supplement to no. 16 (Jan 1913).
32. Russian orthodox studies of the theories and the history of business
cycles and crises have not been entirely immune from such a tendency.
See for instance L. A. Mendelison, [The Theory and History of Econ-
omic Crises], translated into Japanese by K. Iida et al., (Tokyo: Otsuki-
Shoten, 4 vols, 1960-1), and I. A. Trakhatenberg, [The Money Crises],
translated into Japanese by A. Oikawea, (Tokyo: Iwasaki-Gakujitsu, 3
vols, 1967-8). Their prestige was effectively weakened by the historical
experience of the sustained long upswing in the post-Second World War
period.
33. The overall index of prices also seems strikingly stable during this period
in comparison with the preceding or the following periods, though a
slight uprise is discernible in the second quarter-century as a result of the
discovery of Californian gold mines, especially taking into account a
generally rising productivity in other commodity products (cf. B. R.
Mitchell, Abstract of British Historical Statistics (Cambridge: Cambridge
University Press, 1962, pp. 471-2).
34. N. D. Kondratieff, 'Die Langen Wellen der Konjunktur', in Archiv fur
Sozialwissenschaften und Sozialpolitik, Bd 56 (1926), 'The Long Waves
in Economic Life', in Review of Economic Statistics, 60 (1935).
35. This coincides with a point among Bob Rowthorn's critical comments on
E. Mandel's Late Capitalism. Bob Rowthorn, Capitalism, Conflict and
Inflation (London: Lawrence & Wishart, 1980) pp. 101-2. In general the
existence of abundant cheap loanable capital is neither a sufficient nor an
indispensable precondition for the upturn, though it can serve as a
412 Notes
favourable initial condition for the upturn of capital accumulation when

combined with other conditions such as renewed international economic
relations, the upturn in the trend of prices, and concerted waves of
technological innovations. Conversely, when the real rate of interest is
high a new upturn of real capital investment is generally obstructed as we
have experienced in the first half of 1980s.
36. J. A. Schumpeter, Business Cycles 2 vols, (New York: McGraw-Hill,
1939). As is well known, Schumpeter called the regular business cycles of
between about eight and ten years duration 'Juglar cycles', and the
shortest business cycles mainly due to fluctuations in inventory invest-
ment 'Kitchin cycles'.
37. L. P. Trotsky, 'On the Curve of Capitalist Development', in Fourth
International (May 1941).
38. E. Mandel, Long Waves of Capitalist Development (Cambridge: Cam-
bridge University Press, 1980) pp. 21, 55. See also his Late Capitalism
(op. cit.) ch. 4.
39. D. M. Gordon, R. Edwards and M. Reich, Segmented Work, Divided
Workers (Cambridge: Cambridge University Press, 1982) ch. 2.
PART IV SOCIALISM- AN ADDENDUM
1. Cf. F. M. C. Fourier, Le Nouveau Monde Industriel et Societaire ou

Invention du Procede d' Industrie Attrayante et Naturelle Distribuee en
Serie Passionnees (1822, in Oeuvres completes de Ch. Fourier (Paris: La
Librairie Societarie, 1845, t. 6).
2. In the preface to the second German edition of the Manifesto of the
Communist Party (1872), Marx and Engels confirm that 'the general
principles laid down in this Manifesto are, on the whole, as correct today
as ever', though they admit that 'the practical application of the prin-
ciples will depend . . . on the historical conditions for the time being
existing, and for that reason, no special stress is laid on the revolutionary
measures proposed as the need of Section II' concerning the possible
concrete reforms. Their major modification stated in that preface is on
the role of the state after the experience of Paris Commune, saying: 'One
thing especially was proved by the Commune, viz. that "the working
class cannot simply lay hold of the ready-made State machinery, and
wield it for its own purposes" ' (K. Marx, Selected Writings, ed. D.
McLellan, Oxford: Oxford University Press, 1977, p. 559). Marx's most
important statement on the possible future communist society after
writing Capital was presented rather fragmentarily in the form of Criti-
que of the Gotha Programme in 1875. In my view his presentation of the
lower phase of communist society, being distinct from a higher phase,
based upon 'the right of the producers' to claim income proportional to
the labour they supply to the society, after deducting various commonly
necessary portions of labour products, contains the theoretical insights
obtained through his studies on the social functions and historical charac-
ter of the substance of value and surplus-value in Capital. However, we
also have to examine the limitations of Marx and his orthodox followers'
Notes 413
concept of the substance of value in the Chapter 10 below, in relation to

the possible understanding of the nature of socialism.
10 On Socialism
1. K. Uno presented this problem openly, by analysing in detail Marx's

summary of 'The Historical Tendency of Capitalist Accumulation' in ch.
32 (in the English version, or the seventh section of ch. 24 in the German
version) of the first volume of Capital, in his article ['Socialism and
Political Economy'] (in his [The Fundamental Problems in a Social
Science], Tokyo: Aoki-Shoten, 1966).
2. H. Grossmann, Das Akkumulations-und Zusammenbruchsgesetz des
kapitalistishen Systems (Leipzig: Hirschfeld, 1929) pp. 121-2. cf. also
note 7 for Chapter 9.
3. This assertion of N. Okishio is shown for instance in his [Contemporary
Capitalism and Political Economy] (Tokyo: Iwanami-Shoten, 1986). I
have discussed this point with him and other related problems in a
dialogue for a journal [Shiso], (Apr 1986).
4. This has been the officially declared position since Stalin's Constitutional
Law of 1936.
5. Since the close correlation between the development of modem indus-
trial technologies and the development of the 'scientific' management of
labour in the forms of Taylorism, Fordism and segmentation of workers
(with their artificial gradings) is so obvious, the possibility of their
separation would have to be tested practically and established according
to each type of technology, along with the attempts to alter the nature of
technologies itself. We cannot expect that the separation will be easy.
6. While I wrote this paragraph the worrying news of the Chernobyl nuclear
reactor accident came on the air.
7. J. V. Stalin, Economic Problems of Socialism in the U.S.S.R. (1952,
Peking: Foreign Languages Press, 1972) pp. 3-4, p. 22, pp. 38-9.
8. In 1953, three years earlier than de-Stalinisation in the Soviet Union and
its influence in Japan, K. Uno, ['The Law of Value and Socialism'], (in
[Shiso], Oct 1953, also in his ['Capital' and Socialism], (Tokyo: Iwanami-
Shoten, 1958), criticised Stalin's problematic notion of the law of value
and of its useability under socialism.
9. A. Nove, The Economics of Feasible Socialism (London: George Allen
& Unwin, 1983) pp. 12-13.
10. In this respect I am not persuaded by the view which conceives of a single
global economic crisis in our age resulting from the impact of the crisis in
the advanced capitalist countries, as the centre of a unified world system
including the second world. Certainly, I do not deny the importance of
the negative influence of the capitalist world crisis on Soviet types of
societies. The burden of cumulative international debt combined with
the depressed export market is surely serious for many countries in the
second world as well as in the third world. However, a problem with the
view of a single global crisis, presented for instance in A. G. Frank,
Reflections on the World Economic Crisis (New York and London:
414 Notes
Monthly Review Press, 1981), and Crisis in the World Economy (New
York: Holmes & Meier. 1981), is that the independendent cause(s) of
the economic difficulties inside Soviet types of societies themselves
cannot properly be underlined.
11. For example, L. von Mises, 'Economic Calculation in the Socialist
Commonwealth7 , (1920, in A. Nove and D. M. Nuti, eds, Socialist
Economics, Harmondsworth, Middx: Peguin Books, 1972), typically
asserts that socialism without market pricing lacks a rational measure-
ment of efficiency and therefore cannot be a rational economy. Von
Mises points to the difficulty of reducing the products of skilled labour to
units of simple labour as an important reason. Hence, we also see in this
example how essential is our search for a sounder labour theory of value
in oder to examine and clarify the basis of the argument for socialism.
12. P. Sraffa, Production of Commodities by Means of Commodities
(Cambridge: Cambridge University Press, 1960) ch. II.
13. 0. Lange, 'The Computer and the Market' (1967, in A. Nove and D. M.
Nuti, eds, op. cit.), suggested that 'Mathematical programming assisted
by electronic computers becomes the fundamental instrument of long-
term economic planning, as well as of solving dynamic economic prob-
lems of a more limited scope. Here, the electronic computer does not
replace the market. It fulfils a function the market never was able to
perform.' (pp. 404-5). The more recent development of information
technologies seems to widen the possibility of the more flexible appli-
cation of electronic computers as a means for a multi-terminal system of
adjusting economic relations, and useable not merely for long-term
centralised economic planning. The social decision on how to use and
apply newly growing technological possibilities will become quite import-
ant in this respect being related to the desirable socio-economic order
being realised in socialism.
14. I. I. Rubin, Essays on Marx's Theory of Value (1982, translated by M.
Samrdzija and F. Perlman, Detroit: Black & Red, 1972). See note 7 of
Chapter 5 for the recent representative value theorists in the Rubin
School. The theoretical similarity does not necessarily mean that all
these recent theorists I call the Rubin School have studied and depended
upon Rubin's work to form their views. Since their position can be
deducible rather directly from a part of Marx's conception as well as
from a certain type of attempt logically to formulate the relation between
the form and substance of value.
15. Rubin, ibid. pp. 139 ff.
16. If one adheres to a rigorous measurement of the intensity of labour
across different concrete forms and grades of work, a completely objec-
tive way to define the measurement would not be available. In this
regard we have to admit the basic human ability to work in various forms
as a basis for our conception of human labour equally forming the social
substance of economic life, being indifferent to the concrete forms or the
grades of skill, specially in a really socialist society. This reflection on the
basis of the measurability of abstract human labour under socialism,
basically relies upon our understanding of value theory, but it may
Notes 415
reciprocally serve to clarify how to conceive abstract human labour as the

substance of value.
17. In his Critique of the Gotha Programme Marx points to the necessary
portions of the social product to be deduced by society before deter-
mining the distribution of the means of consumption to individual
members of it , as follows: 'cover for replacement of the means of
production used up', 'additional portion for expansion of production',
'reserve or insurance funds against accidents, dislocations caused by
natural calamities, etc.', and a further three items as follows to be
deduced from the means of consumption: 'the general costs of admin-
istration not directly belonging to production' to be restricted and
diminished in a new society, the portion 'intended for the common
satisfaction of needs, such as schools, health services, etc.' to grow in
proportion as the development of the new society, and 'funds for those
unable to work, etc.' (K. Marx, Critique of the Gotha Programme, 1875,
Peking: Foreign Languages Press, 1976, pp. 13-14). These items include
not merely the result of surplus-labour, but also embodied deed labour
and a part of necessary labour to reproduce labour-power. Although we
can easily discern among them the funds or costs relying upon the surplus
labour of the workers, such as those for the expansion of production,
insurance, administration and for people unable to work, the social
meaning of the distinction between surplus and necessary labour will
obviously become different in a co-operative socialist society in compari-
son with in class societies.
18. Upon the basis of social consensus the length of a working day, as well as
the proportion between the surplus and the necessary labour within it,
must become flexibly determinable in socialism. As Marx suggests: 'The
real wealth of society and the possibility of a constant expansion of its
reproduction process does not depend on the length of surplus labour but
rather on its productivity and on the more or less plentiful conditions of
production in which it is performed. The realm of freedom really begins
only where labour determined by necessity and external expediency
ends; it lies by its very nature beyond the sphere of material production
proper.' (III, pp. 958-9).
19. Such an understanding of the usability of the law of value in the process
of socialist economic construction is seen in some recent Chinese
Marxian views following the position of J. V. Stalin, despite their very
practical position of reintroducing market mechanism, e.g. Chiao-mu,
Hu, 'Observe Economic Laws, Speed Up the Four Modernizations',
Peking Review, 45-47 (10-24 Nov 1978).
20. This aspect has been achieved fairly well in soviet types of societies
along with the industrialisation policies. The participation rate of women
in the work-place, for instance, has been clearly higher than that in
capitalist countries, although it may not yet be a full solution of the
problems of women.
21. In order to induce workers to volunteer for the position, membership of
the socialist reserve army should not be an unpleasant position but rather
a fprtunate opportunity. However, the position should not be regarded
416 Notes
as an equally distributed and established private right. Otherwise, the

flexible mobilisation of such a socialist industrial reserve army in accord
with the dynamic changes in social needs would remain difficult.
22. F. Engels, Socialism: Utopian and Scientific (1892, Peking: Foreign
Languages Press, 1975) p. 87.
23. V.I. Lenin, A Characterization of Economic Romanticism (1897, in his
Collected Works, vol. 2 (Moscow: Foreign Languages Publishing House,
1963) p. 167.
24. Among others, C. Bettelheim, Class Struggles in the USSR: Second
Period, 1923-1930 (translated by B. Pearce, New York: Monthly Review
Press, 1978) extensively re-examines this process at that time.
25. This notion is comparatively nearer to the orthodox Soviet conception
even with some criticisms.
26. See, e.g., R. A. Medvedev, [Let History Judge: The Origins and Conse-
quences of Stalinism] (1968) translated by S. Ishido, Tokyo: Sanichi-
Shobo, 2 vols, 1973-4), and J. Elleinstein, The Stalin Phenomenon,
translated by P. Lantham (London: Lawrence & Wishart, 1976).
27. This notion defines the hypertrophy of soviet state power as a result of
the historical necessity of placing specialists in the position of bureau-
cratic agents of workers due to the lack of managerial and technological
skills among the labourers in the initial phase of Soviet history after the
revolution. L. Trotsky, The Revolution Betrayed, translated by M.
Eastman (London: Faber & Faber, 1937), initially and typically formu-
lated this view and E. Mandel follows this lead for instance in his article,
'On the Nature of the Soviet State', in New Left Review (Mar-Apr 1978).
28. This position was shown in Mao Tse-tung and his followers' critiques of
the USSR during the Cultural Revolution. Bettelheim, op. cit., for
example, maintains this notion in his works.
29. This notion is presented in P. Sweezy, Post-Revolutionary Society (New
York and London: Monthly Review Press, 1980) and also inS. Amin
et al., Dynamics of Global Crisis (London and Basingstoke: Macmillan
Press, 1982) p. 201.
30. This reflection implies that we not only need the basic theory of capital-
ism, but also studies in the historical changes in the roles of the capitalist
state and nationalism, in the stages theory of capitalist development, or
the more concrete analyses, in order to secure our frame of reference for
the critical considerations of the problems of the soviet types of societies.
The reciprocal intensification of state power between the first and the
second world especially, with the structural order of international politi-
cal and economic relations under the leadership of the super-powers,
must be analysed, criticised and solved from both sides for a more
hopeful human future.
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Index
Note: Even where there is a grouped series of references to the item, only the
initial page is indicated.
Abstract labour 113, 363 Cambridge school 33

see also Labour Cantillion, R. 7
Adding-up theory of value 15 Capital 51
Agio theory 31 classical residue in 130
Alienated labour 41 see also Plan problem
see also Labour Capital
Anti-classical theories 15 absolute overproduction
Aristotle 79 of 296, 308
Armstrong, P. 173 accumulation of 265, 324
Ashley, A. 29 bank capital 267, 268
Austrian school 31 centralisation of 282
circulation capital 227
Bagehot, W. 29 commercial 129
Bank capital 267, 268 concrete forms 197
Bank credit 264 constant 251
see also Crisis fictitious money capital 287
Bank deposits 265 finance capital 64, 403, 405
Banking school 401 fixed capital 147
Bauer, B. 40 fundamental contradiction
Behrens, F. 57 of 371
Bernstein, E. 62 general formula of 371
Bettelheim, C. 373, 416 industrial 101
Bill of exchange 260 in general 55
Black (second, grey) economy 359 interest bearing 99, 258 (see
Bohm-Bawerk, E. von 31, 152, also Interest)
207, 217 joint-stock capital 278
Boisguillebert, P. 7 loan capital 266
Bortkiewicz, L. von 211 market for 284
Bowles, S. 156 organic composition of 132,
Braverman, H. 111 204
Break-down theory 350 over-accumulation of 308,
Brentano, L. 28 310, 348
Bukharin, N. 406 real 266, 408
Bullionism 3 turnover period 227
Bullock, P. xiii, 294, 407, 409 see also Bank capital, Fixed
Bureaucrats' agent state 373 capital, Finance capital
Business cycles 303 Capitalism 69
Juglar 412 contradictory nature 315, 316
Kitchen 412 Capitalists
and law of value 325 money capitalists 258
long waves 338 functioning capitalists 258
427
428 Index
Capitals Deduction theory of value 14, 15

destruction of 317 Depression 318
monopoly of 338 end of 323
Cash reserves 269 Desai, M. 218
Cash reserve ratio 269 Dialectic 39, 111
Central bank 272 Dickinson, H. D. 215
gold reserves 272 Disequilibrium 407
Centrally planned economies Discount 265
358 Dividend 284
Clark, J. M. 29 see also Profit, Interest
Classical School 11, 200 Division of labour 146
Commanded labour theory of Dobb, M. 294, 407
value 14
Commodities 73 Ecological conditions of society
commodity market collapse 354
314 Economic romanticism 24, 378
excess commodity capital Economism 353
314 Economy of time 115, 364
simple commodities 78 Edwards, R. 341
value form of 78 Effective demand 316
Commons, J. R. 29 Egalitarianism 365
Communist society 168, 367 Embodied labour theory of
Competition among capitals 226 value 14
Computers 362 Engels, F. 41, 207
Consumer's sovereignty 31 Enlightenment 7
Conception of work 111 Exchange value 17, 75
Co-operation 145
Corn Laws 16 Factor costs theory of value 15
Costs of circulation 227, 255, 399 Feuerbach, L. A. 40
costs of storage 227 Finance capital 64, 403, 405
costs of transport 227 Fisher, I. 93
pure costs 227 Fixed capital 147
Credit excess capacity 336
commercial credit 260, 305, 310 gestation period of 334
credit system 257 idle capacity 320
Crisis renewal of 301
breakdown of speculative Forms of circulation 77
operations 313 Founder's gain 404
commercial crises 315 Fourier, F. M. C. 24, 343
credit crisis 315 Frank, G. 413
disequilibrium theory 320 Franklin, B. 12
excess capital theory 293 Free trade 13
excess commodity theory 292
indecisive crises 335 Galbraith, J. K. 29
intermediate crises 323 General economic norms
industrial crises 315 (rules) 115, 179, 250, 355,
underconsumption theory 356
320 German historical school 28
Currency school 401 Gintis, H. 156
Index 429
Glyn, A. 173 abstract labour 113, 363

Gold reserve 312 alienated 141, 142
Gold standard 275 condition of 112
Gold industry 330 dual character of 110, 113
Gordon, D. M. 341 educational 154
Gresham, T. 3 instruments of 112
Grossmann, H. 57, 294, 351, 407, intensified 145
413 living 125
metabolism with nature 110
Haberler, G. 290 object of 112
Hansen, A. 35 past (dead) labour 125
Harrison, J. 173 productivity of 143
Hegel, G. W. F. 39 social equalised 116, 364
Hicks, J. R. 33 Labour power
Hilferding, R. 64, 154, 208, 278, complex (skilled) 150, 165, 364
406 commodity form of 374
Hilderbrand, B. 28 educational costs 165
Himmelweit, S. 163, 173 value of 136
Historical materialism 41, 43 value of complex (skilled) 152,
Historical school 27 165
Hobson, J. A. 29 Labour process 109
Hodgeskin, T. 25 Labour theory of value 11, 125
Hume, D. 4, 12 Laibman, D. 218, 219
Laissez-faire 11
Ideology 1 Landed property 236
Imperialism 64 capitalistic form 235
Industrial reserve army 297 private ownership 236
positive socialist form 371 restriction by landowners on
Ingram, J. K. 29 cultivation 247
Interest 263, 311 Lange, 0. 44
average rate 276 Lausanne school 33
general rate 273 Law of diminishing returns 19
market rate 270 Law of diminishing utility 31
see also Capital, Profit Law of equal marginal utility 31
Law of increasing misery 297
Jevons, W. S. 30 Law of the maximisation of
Joint investment 280 utility 33
Joint production problem 169 Law of value 128, 191, 208, 356
Jones, R. 27 absolute basis of 191
as equal exchange of labour
Kalecki, M. 35, 307 time 131
Katheder (lectern) socialism 28 Left Hegelians 40
Kautsky, K. 63, 338, 406 Lenin, V. I. 64
Keynes, J. M. 34 List, F. 27
Knies, K. 28 Locke, J. 12
Kondratieff, N. P. 338, 339 Long waves 338
Kuruma, K. 56 Luxemburg, R. 64
Labour Malthus, T. R. 16, 22, 293

430 Index
Malynes, J. de 3 Monopoly capital 404, 405

Mandel, E. 294, 338, 340, 373, see also Capitals
407 Monopoly prices see Price
Manifesto of the Communist Morishima, M. 156, 217
Party 47 Mun, T. 3
Manufacture 146
Market economy's failings 360 Nationalisation 372
Market value 226, 230 Naturallaw 7
technical average theory 231 Natural resources 112
demand and supply theory 231 Necessary labour time 123
dominant mass theory 231 Necessary means of
Marshall, A. 33 subsistence 122, 136
Marx, K. 39 Needs, social system of 234, 394
Marxism 46 Negation of negation 347
Materialism 41 Neo-classical school 30, 33, 69
Materialistic dialect 43 Neo-Ricardian School 37, 69
see also Negation of negation Nove, A. 357
May, K. 215
Mechanised factory system 146 Okishio, N. 154, 172, 220, 307,
Medio, D. 218 351, 407
Meek,R. 215 Over-accumulation of capital 296,
Menger, C. 30 308
Mercantilism 3 see also Crisis
Merchants' capital 98, 251 Owen, R. 24
Merger 282
Mill, J. 26 Pareto, V. 33
Mill, J. s. 26 Parvus 338
Mises, L. von 414 Petty, W. 11
Misselden, E. 3 Physiocracy 6
Mohun, S. 173 Pigou, A. C. 34
Monetarism 38, 95 Plan problem 55
Money 87 Polanyi, K. 29
as capital 314 Polarisation of society 63, 348
as credit 96, 261 Population
as coin 94 capitalist law of 295
as currency 92 relative surplus 296, 324, 347
as a fund 268 Post-revolutionary society 373
as a hoard 96 Power, decentralisation 375
as a means of account 358 Preiser, E. 294, 407
as a means of circulation 91 Prescribed harmony 13
as a means of payment 96 Price
as a measure of value 87 cost price 134, 201
as money 95 credit price 263
quantity theory of 329 fixed (planned) 358
universal money 96 general level 330
world money 96 market price 226
Money market 269 market price of production 230
collapse of 314 monopolistic 336, 404
Index 431
normalisation of price Reproduction schemes 178

structure 362 department I 179
of production 199, 204, 220 department II 179
standard prices 134 expanded 182
value prices 139 simple 180
wholesale price 254 Reswitching problem 36
Primitive accumulation 101, 348 Revisionism 62
Production, technical conditions Ricardo, D. 16
120 value theory 207
Productive forces 42, 46 Robinson Crusoe 115, 356
Products, social net 123 Romanticism in economics see
Profit 99, 202 Economic romanticism
average rate 204 Roscher, W. 28
bank profit 268 Rosdolsky, R. 57
commercial profit 254 Rowthorn, B. 154
as dividend 284 Rubin, I. I. 114, 116
dividend yield 284 Rubin school 114, 162, 167, 232,
division into interest and profit 363
of enterprise 400
equalisation of rate 204 Saint-Simon, C. H. de R. 24
extra profit 234 Samuelson, P. 35, 216
promoter's profit 286, 404 Say, J. B. 23
qualitative division of 259 Say's law 23, 34
rate of profit 99, 203 Schmoller, G. 28
and rising interest 313 Schumpeter, J. A. 33, 338, 339
source of extra profit 234 Segmentation of work force 160
tendency of the rate of profit to Seton, F. 215
fall 293, 307, 350 Shaikh, A. 218, 219, 407
Prosperity 303 Sismondi, J. C. L. S. de 23
last phase 308 Smith, A. 12
uneven speculative 337 Social needs 121
Socialism
Quantity theory of money 329 early 373
see also Money inevitability of 347
Quesnay, F. 7 scientific bases 352
Socialist economy 194
Ramsey, G. 400 Soviet types of societies 344, 353
Rate of exploitation 142 Speculative development 313
Raw material 112 Speculative trading 309, 314
Reaganomics 38 Sraffa, P. 36, 121, 169, 360
Reciprocation 122 Stalin, J. V. 357
Reich, M. 341 constitutional Law 413
Relations of production 42 Stalinisation 373
Rent 235 State capitalism 373
absolute 246 State power hypertrophied 373
differential 19, 237, 238, 243 Statism 353
ground 235 Steedman, I. 157, 169, 171, 174,
monopoly 249 217
432 Index
Steuart, r. D. 4 Uno, K. 44, 60, 174, 295

Stock exchange 282 Uno School xi, 44, 77, 105
Stocks and shares 279, 283 Use values 17, 75
Substructure 44 Utopian socialism 24
Superstructure 42
Supply-side economics 38 Value 81
Surplus labour 122, 368 augmentation 135
distribution 197 false social value 241
extraction 141, 196 forms of value 73
social function 369 measure of value see Money
Surplus products 121 substance of 128, 221
Surplus value 97, 129 theory of forms of 355
extra 144, 235 value of product 142
production of 141 see also Law of value, Market
production of absolute surplus value
value 390 Variable capital 129
production of relative surplus Vauban, S. 7
value 143, 324 Veblen, T. D. 29
rate of 142, 203
Sweezy, P. 172, 211 Wage 139
incentive wages 368
Tableau Economique 7 piece wages 140
Technological innovation 145 real wages 326
Thatcherism 38 time wages 140
Thompson, W. 25 Wage rate under socialism 361
Transformation controversy 210 Wagner, A. 28
Transformation of money into Walras, M. E. L. 30
capital 102 Weber, M. 2, 29
Trotsky, L. D. 340, 373, 416 Welfare economics 34
Tsuru, S. 392 Wilbrandt, R. 56
Tugan-Baranowsky, M. 406 Winternitz, J. 215
Turgot, A. 7 Workers' organisations
control 359
Ultra-imperialism 63 growth 351
Underconsumption 320 self-management 373
see also Crisis
Unequal exchange Yaffe, D. 218, 219, 294, 407, 409
international 167 Young German historical
of labour time 183 school 28

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THE BASIC THEORY OF CAPITALISM

The Forms and Substance of the Capitalist Economy

All rights reserved. No reproduction, copy or transmission

First published 1988

British Library Cataloguing in Publication Data

1 The Birth of the Theoretical System of Capitalism 3

2 The Dissolution of the Classical School and the

2.1 The Dissolution 22

3 The Marxian Theory of Capitalism 39

3.1 Historical Materialism and Marx's Economics 39

3.3 The Tasks of Marxian Studies after Capital 62

PART II VALUE, LABOUR AND CAPITAL

4 The Forms of Valoe- Commodity, Money and Capital 73

4.1 Commodities and the Mystery of the Price Form 73

5 Capitalist Production and the Law of Valoe 109

5.1 Labour as the Universal Economic Condition for Societies 109

6 The Extension of the Theory of the Substance of Value 149

6.1 Skilled Labour in the Value Theory 150

6.2 The Joint Production Problem 169

PART III THE MOTION OF CAPITALS AS A

7 Competition among Capitals 199

7.1 The Law of Value and Prices of Production 199

8 The Mobilisation of Capitals 250

8.1 Commercial Capital 251

9 Business Cycles and Crises 290

9.1 Three Sources of Confusion to be Cleared up 290

PART IV SOCIALISM - AN ADDENDUM

10.1 Historical Materialism and The Necessity for Socialism 347

the Polish solidarity movement and the role of orthodox Marxian

ity. Capital or P. Sweezy's The Theory of Capitalist Development

neo-Ricardians and its impact on Marxian theories; the contents of

Simon Mohun and Sue Himmelweit; and at the University of Mani-

In correcting the manuscript of this book I have endeavoured to

objective truth. For one thing it is difficult to compare the absolute

The first major school of economic theories was mercantilism. It grew

role of violence in dissolving small farms and peasant holdings

The second major school of economic theory was physiocracy. It

absolutist economic policies. At the zenith of French absolutism,

Figure 1.1 FORMULA OF THE TABLEAU ECONOMIQUE

(Arrow-heads added by Itoh)

Sums which are 5 milliards 5 milliards

up. The theory of the capitalist production of surplus-value is thus

sectors are regarded as being incapable of producing surplus-value

seems feudalistic in its social content. So far the theoretical treatment

1.3 THE CLASSICAL SCHOOL

The classical school investigated the inner relations of the capitalist

same amount of labour. Remarkably he avoids the complication of

and distribution in a bourgeois society were comprehensively pre-

theories of value, namely the embodied labour theory of value, the

extention through the embodied labour theory, even excepting for

D. Ricardo (1772-1823) clarified Smith's complex value theory and

capitalist economy is systematically investigated here as a theory of a

distribution of yearly products to its major classes is the main con-

tively insignificant, 19 or by defining rather general phenomena as

Closely linked with this theory of rent Ricardo formulated the

other industries, such as producing such machinery. But he found by

Various anti-classical theories had already sprung up from critiques

power of purchasing determined by the state of supply compared

adding-up theory of value, but was decisively opposed to Say and