Capital II, Chapter 20 - Part 11

4) Exchange within Department II. Necessities of Life and Articles of Luxury 

Our example has

Department I - c 4000 + v 1000 + s 1000 = 6000

Department II - c 2000 + v 500 + s 500 = 3000

The workers, within Department 2, have created a new value that exists in the form of physical products. Its value is equal to, and reproduces the variable capital expended for its production plus the surplus value created by the workers. The workers, who only buy Department 2 consumer goods, spend their wages on a portion of these consumer goods they have produced. The proportion is equal to that new value that reproduces the variable capital. In other words, the new value created was equal to 1000. Of this 1000, 50% or 500 was required to reproduce the variable capital, used to pay wages. The Department 2 workers spend 500 (wages) in buying consumer goods i.e. 50% of the new value they have created.

In the same way, because we have assumed simple reproduction, the Department 2 capitalist uses the surplus value, they have appropriated, to purchase commodities of an equal value to the surplus value created by Department 2. So, whilst I (v+s), the new value produced in Department I, accounts for the value of constant capital in Department 2 output, II (v+s) accounts for the new value of commodities created in Department II.  So, the source of demand for all of the value of Department II (c+v+s) is accounted for.

The Department II capitalists get back in money, from Department II workers, exactly the same amount from the sale of commodities to them, that they had paid them in wages. Its as if they had simply paid those workers directly with a proportion of the commodities the workers had themselves produced.

Whilst Department I commodities are only bought by capitalists, Department II commodities are bought by workers and capitalists. But, there is a huge variety of products included within Department II, some of which, in reality, will only ever be bought by capitalists, or certainly at any particular time, that will be the case. In other words, Department II includes not just the production of essential consumer goods, it also includes the production of luxury goods. The reason for the caveat above is, of course, because what is considered a luxury at any one time, may not be so later, when increases in productivity have reduced the price of once luxury goods, and brought them within the reach of everyone. In fact, it increasingly has to seek to sell this wider range of use values to workers. This is the process that Marx refers to as “The Civilising Mission of Capital.”

So, if Department II is divided into IIa, producing necessities, and IIb, producing luxury goods, the variable capital, advanced for the production of IIa will all flow back to it directly. The workers in IIb, however, do not buy the luxury goods they produce. So, as with Department I workers, the process, by which the advanced variable capital, in the form of wages paid to them, flows back, is not direct.

The new value, produced in IIb, is equal to IIb (v+s). The new value, produced by Department II, is, as seen earlier, equal to 1000 (500 v + 500 s). We can now divide this again so that 400 v and 400 s are attributable to IIa, the production of necessities, and 100 v and 100 s attributable to IIb, luxuries.

The IIb workers, with their £100 wages, buy goods from IIa. With this £100, the IIa capitalists buy luxury goods from capitalists in IIb. By this means, the £100 paid by IIb capitalists to their workers flows back to them having first passed through the hands of IIa capitalists.

IIa workers spend the £400 in wages they have received, and buy necessities from IIa capitalists. So, the capital advanced by IIa capitalists, for wages, flows back to them directly as money.

So,

Output (Supply)	IIb (200)
Capitalists (b)	100
Capitalists (a)	100
Total (Demand)	200
Output (Supply)	IIa (800)
Workers (a)	400
Workers (b)	100
Capitalists (a)	300
Total (Demand)	800

However, its clear that capitalists in a and b will not allocate their spending in this way. We can assume that they will allocate their surplus value between necessities and luxuries in the same proportion whether they are a or b capitalists.

So, if they allocate 60% to necessities and 40% to luxuries, capitalists (a) would spend £240 on necessities and £160 on luxuries, whereas capitalists (b) would spend £60 on necessities and £40 on luxuries.

Of the £400 of surplus value for IIa capitalists, £100 was provided in money by IIb workers, who bought necessities from them. The IIa capitalists used this to buy luxuries from IIb capitalists. Similarly, we can now see that IIb capitalists buy £60 of necessities from IIa capitalists, providing them with another £60 of their surplus value, they spend on luxuries.

So we then have:

Output (Supply)	IIa (800)
Workers (a)	400
Workers (b)	100
Capitalists (a)	240
Capitalists (b)	60
Total (Demand)	800
Output (Supply)	IIb (200)
Capitalists (a)	160
Capitalists (b)	40
Total (Demand)	200

That explains where the demand for the new value created in Department II comes from, and how it is fully consumed by workers and capitalists, and how luxuries and necessities are consumed by Department 2 capitalists. But, of course, there are the Department 1 capitalists, who exchanged their surplus with Department 2.

Back To Part 10

Forward To Part 12