Reproduction (economics) - Factors Not Theorized By Marx

Factors Not Theorized By Marx

There were nine main factors which Marx largely ignored in his construction of reproduction schemes when he modelled the circulation of capital (through the constant transformations of money-capital into production-capital and commodity-capital and vice versa). These omissions have been noted by various Marxist and non-Marxist authors.

• The sphere of consumption. Marx did not go into detail about how capitalist business reshapes, reorganizes and restructures the mode of consumption so that it becomes more profitable. He concerned himself primarily with the capitalist mode of production, not with the capitalist mode of consumption.

• Unproductive accumulation. Through successive cycles of economic reproduction, more and more capital assets are created which exist only external to the sphere of capitalist production. These capital assets include residential housing; improved and unimproved land; publicly owned physical assets including offices, hospitals, schools, roads, installations, parks, vehicles, equipment and infrastructural works; consumer durables; and all kinds of financial assets. These assets can also obtain profits, income or capital gains insofar as they are tradeable goods or rented out. For example, there is nowadays a very large trade in used cars, second-hand equipment, and housing, and also in many financial assets. In fact, in developed capitalist countries, the capital directly tied up in private sector means of production (i.e. the productive investment capital of private enterprises) is nowadays only the minor part of the total physical capital assets of society (i.e. a quarter or one-fifth), and if financial assets are included, the proportion of this part shrinks even more (one-sixth to one-eighth of the total capital).

• Human capital and labour markets. Marx did not analyze the effects of human capital, that is, the skills and knowledge lodged in the physical bodies of workers, and the very large sums of money invested into education systems. He was aware of the idea of human capital, but he regarded it as a fictitious, reified notion which, he argued, would imply that workers were really capitalists. Nevertheless, the stock of skills and knowledge in the economy can represent a very large tradable value which can profoundly influence economic relationships, in so far as workers can "lever up" their income because they possess specialized skills and knowledge. Very large chunks of money are spent on education and research and development in developed capitalist countries. Marx intended to write a separate study about the labour market, considering the different forms which wages could take, but he never did.

• Rent seeking.Marx did not analyze the effects of "rent-seeking" for economic reproduction. Definitions of "economic rent" are much disputed in economic theory, but basically they refer to an "unearnt income" (which may be conceptualized as being not a "factor-income", but an income in excess of factor-income) which derives from a favorable trading position or from the monopolization of a resource. Marx only considered the special case of land rent ("ground rent"), but modern theorists argue that the scope of economic rents has become much larger. If investors can earn rents simply by capitalizing on the ownership or use of a resource (and make money simply by trading in the ownership of assets, which may themselves be borrowed assets), then, if this sort of activity makes more profit faster, with less risk and lower tax than investing in production, capital will shift more and more to the trade in already existing assets. If there exist plenty of such assets, a very large trade in such assets can develop. The result is that output growth is braked, and may even turn negative sometimes. Thus, the relative proportions of industry profits, interest and rent income in total surplus value have a decisive effect on the ability of the economy to grow. The more interest and rent must be paid for production to occur, the more this becomes a constraint for expanding production. If the population increases, necessarily output, investments and jobs have to grow to keep up with it; but in a complex system of financial intermediation involving rent-seeking, economic growth may fail to occur on a sufficient scale, and in that case, some groups, classes or nations can only improve their economic position at the expense of others. This argument is however also much disputed by many theorists - the objection is simply that well-developed capital and money markets ensure that the finance exists to develop production, and that without a strong financial sector, production would be starved of funds.

• non-capitalist economic areas.In his theory of capital, Marx failed to consider the importance and weight of the non-capitalist production activities which must occur to sustain capitalist production (a significant component of which is household labour - see below). He was primarily concerned to show that the reproduction of society as a whole could in principle be accomplished by means of the accumulation of capital. All the activities of economic production can, Marx argued, in principle be organized in a capitalist way (according to commercial logic). It supplied proof that the capitalist mode of production could exist as an historically distinctive world system, completely dominated by the requirements of capital, without quickly breaking down. But this idea was strongly criticized, especially by German Marxist authors such as Rosa Luxemburg and Fritz Sternberg. They argued that capital accumulation proceeds only by constantly drawing upon a non-capitalist "hinterland" or region. That is, markets could expand only if there were new areas to expand to, and these areas are non-capitalist areas; but inversely, these non-capitalist areas could actually support the capitalist economy well in advance of becoming thoroughy organized according to commercial principles. This idea is developed further by the Marxist David Harvey, who uses the concept of accumulation by dispossession.

• Population growth. Marx failed to systematically theorize demographic effects on economic reproduction, except that he studied the reserve army of labour and criticized the "overpopulation" theories of Thomas Malthus. Malthus was anxious that population growth would outstrip the capacity of the economy to sustain all the new people. Marx replied that the very idea of "overpopulation" was an anti-human ideological fiction, since it really meant "overpopulation" only relative to the requirements of capital accumulation. If resources were appropriately allocated, there was enough for everybody to have a decent life. The real point was that capital could not achieve that goal. Capital accumulation necessitated a "relative surplus population" which tended to grow in size. Nevertheless, since population trends are not simply determined by economic factors, population movements can exert an important independent effect on economic reproduction. In China population growth has been curbed by deliberate government policy to restrict the number of births per couple, using birth control methods. Another aspect about which there is much controversy is the emigration of workers and refugee populations - whether they are an asset for, or a drain on, economic growth. Capitalists are generally in favor of the free international movement of capital, but they are much more cautious about freedom of movement for workers - depending on whether that movement is profitable to them, or whether it is a cost or a political threat.

• Public finance.Marx did not analyze in any detail the effect of taxation and state expenditure on the reproduction process. When he lived, state taxes and expenditures were comparatively small (5-10% of gross product) but since that time they have risen to 30-40% or more of gross product in many countries. It enables the state to intervene directly in the process of social and economic reproduction, and to alter its course within certain limits. Because of the large size of state funds and the fact that taxes must be paid irrespective of productive performance, the state power can borrow large sums and use them, together with legislation, to influence economic growth and social relations. In addition, the state nowadays also employs a very large number of people earning incomes from activity which is often or mostly not oriented to profit-making, analogous to a non-profit sector sustained by subsidies, grants and donations as well as some income-generating activity. The state is the largest sponsor and purchaser of the military industry supplying the armed forces.

• Ecology. Although he does refer to it, Marx did not analyze in any detail the depletion of natural resources by capitalist production, where the depletion involves non-reproducible goods, or living organisms which are wiped out. If land is exhausted or becomes infertile, or it is devastated by a natural disaster, or if the yield of mines, forests and fisheries becomes too low, production can no longer continue. After a series of cycles of capitalist reproduction, environments may emerge which are no longer inhabitable by human beings because they are incapable any longer of sustaining life.

• International division of labor. Through mechanization and productivity increases achieved by capitalist production, the allocation of human labour between agriculture, manufacturing industries and services (the so-called primary, secondary and tertiary sectors of the economy) is altered nationally and internationally. In developed capitalist countries, the agricultural labour force has shrunk to only a tiny fraction of the total workforce, and manufacturing industries remain only as a minor part of total production; the large majority of workers are employed in service industries. This contrasts with less developed countries which retain a large agricultural workforce, and newly industrializing countries which feature a large manufacturing workforce. Marx did not analyze the implications of these long-term effects of the expansion of production by means of capital accumulation.

In assessing the effect of these "omissions", one ought to keep in mind that when Marx discussed the intertwining of the circulation of capital with the reproduction processes that occur in any kind of society, he was primarily concerned with the functional requirements of the capitalist mode of production and not with the reproduction of the whole of society. At any time, a fraction of the population is not working or "economically active" (children, students, the sick and disabled, the unemployed, volunteer workers, housewives, pensioners, idlers etc.) and assets are maintained or accumulated which are quite unrelated to the sphere of production. These were generally outside the scope of Marx's own analysis, even if he occasionally mentioned them.