The Theory of Accumulation: Nobuo Okishio

Kobe University Monograph Series in Social Science Research
Nobuo Okishio
The Theory
of Accumulation
A Marxian Approach to the Dynamics
of Capitalist Economy
Kobe University Monograph Series in Social
Science Research
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Yunfang Hu, Kobe University Graduate School of Economics, Kobe, Japan
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Kobe, Japan
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Nobuo Okishio
The Theory of Accumulation

A Marxian Approach to the Dynamics
of Capitalist Economy
Nobuo Okishio
Faculty of Economics
Kobe University
Kobe, Japan
Translated by
Taiji Hagiwara Toshiki Jinushi
Graduate School of Economics Faculty of Informatics
Kobe University Kansai University
Kobe, Japan Osaka, Japan
Hideo Suehiro Hisao Hisamoto

Graduate School of Business Kobe University
Administration Kobe, Japan
Kobe University
Kobe, Japan
ISSN 2524-504X ISSN 2524-5058 (electronic)

Kobe University Monograph Series in Social Science Research
ISBN 978-981-16-7904-9 ISBN 978-981-16-7905-6 (eBook)
https://doi.org/10.1007/978-981-16-7905-6
Translation from the Japanese language edition: 蓄積論 by Nobuo Okishio, et al., © The Author 1976.
Published by Chikuma Shobo. All Rights Reserved.
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Preface to English Edition
Professor Nobuo Okishio (1927–2003) is known in English-speaking countries as

an advocate of Marxian Fundamental Theorem and the “Okishio Theorem,” which
relates to the tendency of the rate of profit to fall hypothesis. He contributed not
only to Marxian economics, but also to Keynesian economics. In particular, his
criticism about Keynes’ aggregate supply function and Harrod’s instability principle
is important.
In Japan, there are two major associations of economic theory. One is the Japanese
Economic Association (formerly called the Japan Association of Economics and
Econometrics), which represents mainstream economics. The other is the Japan
Society of Political Economy, which represents Marxian economics. He was a repre-
sentative figure in both societies. In particular, he was elected as President of the
Japan Association of Economics and Econometrics in 1979.
Unfortunately, his economic theory has not yet been systematically introduced to
English-speaking countries. This book is the translation of Chikusekiron (蓄積論),
which presents his economic theory.
In mainstream economics, it was once standard to discuss long-term economic
growth and business cycles using different frameworks. Even though this has been
changing recently, it continues to remain common to discuss separate frameworks.
In contrast, this book discusses the mechanisms of growth and cycles of capitalist
economies in a unified manner. Nearly 50 years ago, Okishio developed a highly
original macro-dynamic theory based on Marxian micro-foundations and historical
perspectives that also incorporated the ideas of Keynes and Harrod.
Following the outbreak of the global financial crisis of 2007–2008 and the
prolonged stagnation that followed, there was strong criticism among policymakers
and businesspeople that mainstream macroeconomics failed to provide convincing
explanations and effective policy recommendations to prevent such occurrences in
the future. This book offers an alternative perspective in response to those criticisms.
These significant macroeconomic difficulties call for new wisdom beyond the limited
neoclassical framework. Okishio’s incisive and wise contributions will add new tools
for young researchers worldwide to challenge the current resource misallocation, the
Great Recession, and the challenges of the Lost Decades.
v
vi Preface to English Edition
Theory of Accumulation was published in 1967 in its first edition and in 1976 in its
second edition. After 45 years of the publication, the importance of the book remains
relevant. This is clear from the fact that a special issue on Okishio’s economics
was published in 2013 by the Political Economy Quarterly Vol. 50, which includes
“Okishio’s Theory of Accumulation revisited” (Takeshi Nakatani). It should be noted
that translators added an essay on the socialist economy as Chap. 6, wherein Okishio
described his view on how the socialist economies should function, compared with
the existing one. This is because Okishio’s description of a socialist economy in
Chap. 5 may give the impression that it praises the existing socialist economy.
The translation of the main text was basically completed in four steps. The first-
stage translation of the Japanese text into English was carried out by Ms. Michie
Hamaya and Ms. Sachiko Kikumoto. In the second-stage translation, the first-stage
draft was corrected based on knowledge of economics and Okishio’s theory. Professor
Okishio’s former students Taiji Hagiwara, Toshiki Jinushi, and Hideo Suehiro were
engaged in this process. In the third-stage translation, Prof. David Kolf and Prof.
Anna Schlade reviewed the second-stage draft and made numerous suggestions.
In the final stage, we sought professional editing from Ms. Nami Yamashita and
Enago. In addition, Hisao Hisamoto, another former Okishio’s student, translated
the mathematical appendix. Hagiwara also translated the footnotes and references
and was in charge of adjustments for overall consistency.
The translators would like to express their gratitude for the financial support of
the Kobe University Center for Social Systems Innovation (KUSSI) and donations
from alumni of Okishio’s class. Many people helped us in editing the translation:
Ms. Michie Hamaya, Prof. David Kolf, Ms. Sachiko Kikumoto, Prof. Anna Schlade,
Ms. Nami Yamashita, and Enago.
Kobe, Japan Taiji Hagiwara

Osaka, Japan Toshiki Jinushi
Kobe, Japan Hideo Suehiro
Kobe, Japan Hisao Hisamoto
July 2021 Translators
The original version of the book was revised: Belated corrections have been incorporated in
Chaps. 2–5. The correction to the book can be found at https://doi.org/10.1007/978-981-16-790
5-6_7
Preface to the Second Edition
This book aims to explain the fundamental characteristics and the movement of the
capitalist society as simply as possible. I have to wait for the readers’ judgments on
whether I succeeded.
The first edition of this book was written based on the earnest responses of under-
graduate students and serious discussions with graduate students of Kobe University.
Fortunately, I also received valuable comments from many researchers and students
following its publication. Among them, there were misunderstandings that could
have been avoided by improving the descriptions that I provided in the book. In
addition, I myself have noticed several points on fundamental features and move-
ment of the capitalist society that became clearer to me after the publication of the
first edition. Therefore, I welcomed the proposal of a second edition offered by the
publisher, Chimuma Shobo. Taking this opportunity, I revised over half of the first
edition.
The main points I revised in this second edition are as follows: In Chap. 2, the
relationship between the capitalist system and the production force is discussed in
more depth. In Chap. 3, I discuss the equilibrium accumulation trajectory in detail.
In Chap. 4, the necessity of crises and its triggers are distinguished more carefully. In
Chap. 5, I provide more in-depth discussion of the sublation of the capitalist society
from the perspective of the fetters of the production force in relation to production.
Regarding other differences with the first edition, I hope the readers will compare
and find them.
Unfortunately, I have not been able to accomplish the two points I promised in the
first edition yet, that is, vivid descriptions based on actual occurrences in the capi-
talist economy and the explication of the accumulation theory to state monopolistic
capitalism. I have to blame myself for the negligence. I hope to fulfill my promises
in the near future.
I owe the publication of this book to the assistance of many people: Professor
Hideo Hayashi, who recommended me to write the book; those who took over
the activity for democratic movement; Mr. Hiroshi Iwata, Mr. Fumitaka Nishibori,
Mr. Yoshiharu Kikumoto, Mr. Mitsuhide Koga, Mr. Hisashi Motoki, Mr. Katsumi
Murakami, and Mr. Yasuhiro Sakai, who helped me in making the glossary and index
vii
viii Preface to the Second Edition
for the first edition; Mr. Masakazu Kitano, Mr. Takeshi Nakatani, Mr. Kazuo Mino,
Mr. Yoshikazu Sato, and Mr. Kazuo Inaba, who helped me in making the mathe-
matical appendix, index, and proofreading the second edition; Ms. Motoko Tanaka
and Mr. Keiichi Shimazaki of Chikuma Shobo Publishers, who put forth great effort
through the planning to the completion of this book. Here, I express great thanks to
the abovementioned people.
Kobe, Japan Nobuo Okishio

March 1976
Preface to the First Edition
In this book, I endeavor to answer the following questions as simply as possible: What
are the fundamental features of a capitalist society? How does a capitalist society
continue reproducing? Why do crises and business cycles occur in a capitalist society?
How do trends in a capitalist society evolve in the long run? Although I intended to
write this book in an easy-to-understand manner, I am not sure how successful my
effort is. No one can explain economic problems plainly without fully understanding
them. If the reader finds this book difficult, it may reveal the limits of my ability.
The outline of the book was developed based on my lectures at Kobe University
over the past five or six years. I am sorry for the students who were put in a situation
as if they were being forced to eat a half-cooked meal. At this point, I hope the
meal becomes edible. I could not have finished this book without the feedback of the
students in my classroom and serious discussions during undergraduate and graduate
seminar classes. I discussed several points in this book with graduate students for
such a long time that we forgot who initiated the discussion.
I describe a few actual historical events under the capitalist system in this book.
Marx’s Capital refers to numerous examples based on actual and vivid facts and
deeply impresses us. In contrast, this book may seem dull and unimpressive. I apol-
ogize to the readers for the lack of vivid actuality. I hope to fulfill my responsibility
to write more vivid descriptions on other occasions.
Further, I hope to explicate the theory of capital accumulation in state monopolistic
capitalism based on this book, unless it is deemed to contain serious errors. In doing
so, I will seek to confirm the validity of the theory.
Through writing this book, I deepened my understanding of various issues, in
particular, the validity of The Capital. In this sense, I have learned a lot by completing
this book. I would like to thank Professor Hideo Hayashi of Tokyo Metropolitan
University, who gave me the opportunity to write this book.
Many people were responsible for tasks related to completing this book. In
producing the glossary, reference, and index, I was assisted by Mr. Hiroshi Iwata,
Mr. Fumitaka Nishibori, Mr. Yoshiharu Kikumoto, Mr. Mitsuhide Koga, Mr. Hisashi
Motoki, Mr. Katsumi Murakami (graduate students, Kobe University), and Mr.
ix
x Preface to the First Edition
Yasuhiro Sakai (faculty of Economics, Kobe University). I sincerely appreciate the

abovementioned people.
Kobe, Japan Nobuo Okishio

January 1967
Contents
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 The Structure of This Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Various Issues Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 The Relationship Between Capital and This Book . . . . . . . . . . . . . . . 6
2 Fundamental Structure of Capitalist Economy . . . . . . . . . . . . . . . . . . . . 9
2.1 The Characteristics of a Capitalist Economy . . . . . . . . . . . . . . . . . . . . 9
2.1.1 Productive Force and Production Relations . . . . . . . . . . . . . . 10
2.1.2 Productive Forces and Production Relations
in the Capitalist Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.2 The Conditions for Profit Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.2.1 Various Vulgar Views . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.2.2 Casual Observations and the Question . . . . . . . . . . . . . . . . . . . 27
2.2.3 The Conditions for Profit Existence . . . . . . . . . . . . . . . . . . . . . 29
2.2.4 A Mechanism to Guarantee Profits . . . . . . . . . . . . . . . . . . . . . 41
2.3 Theories of Determination of the Real Wage Rate . . . . . . . . . . . . . . . 44
2.3.1 The Reproduction Cost Theory . . . . . . . . . . . . . . . . . . . . . . . . . 44
2.3.2 The Marginal Productivity Theory . . . . . . . . . . . . . . . . . . . . . . 46
2.3.3 The Labor-Market Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
2.3.4 The Commodity-Market Theory . . . . . . . . . . . . . . . . . . . . . . . . 49
2.4 Mechanism of Determination of the Real Wage Rate . . . . . . . . . . . . . 56
2.4.1 Reproduction of Wage-Labor Power and Real Wages . . . . . . 57
2.4.2 Temporary Determination of the Real Wage Rate . . . . . . . . . 61
2.4.3 Factors that Determine the Real Wage Rate . . . . . . . . . . . . . . 69
2.4.4 Movement of the Real Wage Rate . . . . . . . . . . . . . . . . . . . . . . 72
Mathematical Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
3 Extended Reproduction in the Capitalist Economy . . . . . . . . . . . . . . . . 89
3.1 Reproduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
3.1.1 Reproduction in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
3.1.2 Reproduction in the Capitalist Economy . . . . . . . . . . . . . . . . . 97
3.2 Various Theories on the Capital Accumulation . . . . . . . . . . . . . . . . . . 100
xi
xii Contents
3.2.1 David Ricardo’s Point of View . . . . . . . . . . . . . . . . . . . . . . . . . 101

3.2.2 Malthus’s View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
3.2.3 Sismondi, the Narodniks, and Luxemburg’s View . . . . . . . . . 114
3.3 Extended Reproduction in the Capitalist Economy . . . . . . . . . . . . . . 120
3.3.1 Reproductive Replacement in the Capitalist Economy:
Simple Reproduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
3.3.2 Extended Reproduction in the Capitalist Economy . . . . . . . . 130
3.4 The “Equilibrium” Accumulation Trajectory . . . . . . . . . . . . . . . . . . . 143
3.4.1 Steady Extended Reproduction Trajectory . . . . . . . . . . . . . . . 144
3.4.2 The Equilibrium Accumulation Trajectory:
A Constant Technology Case . . . . . . . . . . . . . . . . . . . . . . . . . . 147
3.4.3 The Implication of the Equilibrium Accumulation
Trajectory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
3.4.4 An Equilibrium Trajectory of Capital Accumulation
with Technological Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
4 Accumulation and Crisis in Capitalist System . . . . . . . . . . . . . . . . . . . . . 175
4.1 Cumulative Process of Disequilibrium . . . . . . . . . . . . . . . . . . . . . . . . . 175
4.1.1 The Vulgar View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
4.1.2 Importance of Accumulation Demand . . . . . . . . . . . . . . . . . . . 179
4.1.3 Capitalists’ Decision on Accumulation Demand . . . . . . . . . . 184
4.1.4 Cumulative Process of Disequilibrium . . . . . . . . . . . . . . . . . . 188
4.2 Theories on Economic Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
4.2.1 Underconsumption Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
4.2.2 Theory of Declining Profit Rate Due to Real Wage
Rate Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
4.3 Economic Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
4.3.1 Inevitability of Economic Crisis . . . . . . . . . . . . . . . . . . . . . . . . 213
4.3.2 Triggers of Economic Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
4.3.3 Implications of Economic Crisis . . . . . . . . . . . . . . . . . . . . . . . 224
4.4 Reversal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
4.4.1 Inevitability of Reversal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
4.4.2 Triggers of Reversal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
4.4.3 Business Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
5 Tendency Law in Capitalistic Accumulation . . . . . . . . . . . . . . . . . . . . . . 247
5.1 Arguments on Tendency Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
5.1.1 Counterarguments Against Tendency Law . . . . . . . . . . . . . . . 247
5.1.2 Equilibrium Growth Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
5.1.3 Breakdown Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
5.2 Marx’s Tendency Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256
5.2.1 Law of the Tendency of the Rate of Profit to Fall . . . . . . . . . 256
5.2.2 The Law of the Progressive Production of the Relative
Surplus Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260
Contents xiii
5.2.3 Implication of the Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267

5.3 Capitalist Production Relations and Fetters to the Productive
Force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
5.3.1 Difficulty of Realization and a Fall in the Profit Rate
in Relation to an Increase in the Productive Force . . . . . . . . . 270
5.3.2 Increase in the Minimum Required Funds
and the Mobilization of Public Funds . . . . . . . . . . . . . . . . . . . 272
5.3.3 Global Control Over Nature and Environmental
Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
5.3.4 Information-Processing Ability and Its Monopoly . . . . . . . . 277
5.4 Transformation of the Capitalist System . . . . . . . . . . . . . . . . . . . . . . . 279
5.4.1 Rebellion of the Labor Class . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
5.4.2 Realistic Direction of Human Continuance . . . . . . . . . . . . . . . 282
6 A Vision Toward New Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285
Correction to: The Theory of Accumulation . . . . . . . . . . . . . . . . . . . . . . . . . . C1
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
About the Author
Nobuo Okishio was born in 1927 and died in 2003; the late Prof. Nobuo Okishio
was an emeritus professor of economics of Kobe University, the former president
of the Japan Association of Economics and Econometrics (currently, the Japanese
Economic Association), and a member of the Science Council of Japan. Professor
Okishio was awarded the Nikkei Prize for Economics Books in 1977.
Major journal articles included “Monopoly and the Rates of Profit” (Kobe
University Economic Review, No. 1, 1955, 71–88); “Technical Change and the Rate of
Profit” (Kobe University Economic Review, No. 7, 1961, 85–99); “A Mathematical
Note on Marxian Theorems” (Weltwirtschaftliches Archiv, Vol. 91, No. 2, 1963,
287–297); “A Formal Proof of Marx’s Two Theorems” (Kobe University Economic
Review, No. 18, 1972, pp. 1–6); and “Notes on Technical Progress and Capitalist
Society” (Cambridge Journal of Economics, Vol. 1, 1977, pp. 93–100). He is the
author of Essays on political economy: collected papers (1993, P. Lang: Frankfurt
am Main) and 13 books in Japanese and edited Business cycles: theories and
numerical simulation (1992 P. Lang: Frankfurt am Main) and 11 books in Japanese.
Professor Okishio taught and conducted research at Kobe University (1950–1990)
and Osaka University of Economics (1990–2000).
His major contributions range from Marxian economics, which include Marxian
Fundamental Theorem and the Okishio Theorem, Keynesian economics including
Keynes’ aggregate supply function, and Harrod’s instability principle.
xv
List of Figures
Fig. 2.1 Production relations and productive force . . . . . . . . . . . . . . . . . . . 17

Fig. 2.2 Cooperation and productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Fig. 2.3 Exchange between money and commodities . . . . . . . . . . . . . . . . . 30
Fig. 2.4 Production technology and prices . . . . . . . . . . . . . . . . . . . . . . . . . 34
Fig. 2.5 Range of prices to support positive profit . . . . . . . . . . . . . . . . . . . 36
Fig. 2.6 Supply behavior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Fig. 2.7 Real wage rates clearing all commodity markets . . . . . . . . . . . . . 69
Fig. 2.8 Shift of supply behavior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Fig. 2.9 Mechanism of real wage rate determination . . . . . . . . . . . . . . . . . 73
Fig. 2.10 Determination of profit rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Fig. 2.11 Relationship between real wage rate and uniform rate
of profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Fig. 2.12 Effect of decrease in labor coefficient in production goods
sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Fig. 2.13 Determination of market equilibrium in terms of real wage
rate of both sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Fig. 2.14 Shift of supply behavior in production goods sector . . . . . . . . . . 84
Fig. 3.1 Ownership mode and distribution mode . . . . . . . . . . . . . . . . . . . . 95
Fig. 3.2 Various steady paths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Fig. 3.3 Various steady paths and labor supply . . . . . . . . . . . . . . . . . . . . . . 149
Fig. 3.4 Selling channel of production goods . . . . . . . . . . . . . . . . . . . . . . . 151
Fig. 3.5 Actual accumulation path and equilibrium accumulation
trajectory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Fig. 3.6 Actual accumulation path and equilibrium accumulation
trajectory under stationary labor supply . . . . . . . . . . . . . . . . . . . . 153
Fig. 3.7 Relationship between real wage rate and rate
of accumulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Fig. 3.8 Movement of employment share of production goods sector . . . 173
Fig. 4.1 Time structure of accumulation demand . . . . . . . . . . . . . . . . . . . . 186
Fig. 4.2 Determination of production capacity . . . . . . . . . . . . . . . . . . . . . . 189
Fig. 4.3 Determination of demand in period t . . . . . . . . . . . . . . . . . . . . . . . 189
xvii
xviii List of Figures
Fig. 4.4 Determination of accumulation demand . . . . . . . . . . . . . . . . . . . . 190

Fig. 4.5 Determination of demand in period t − 1 . . . . . . . . . . . . . . . . . . . 190
Fig. 4.6 Overall determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
Fig. 4.7 Determination of utilization rate and accumulation rate . . . . . . . 191
Fig. 4.8 Reasoning behind the cumulativeness of disequilibrium . . . . . . . 196
Fig. 4.9 Underconsumption theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Fig. 4.10 Downward cumulative process . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
Fig. 4.11 Theory of increase in real wage rate as trigger . . . . . . . . . . . . . . . 210
Fig. 4.12 Revised theory of increase in real wage rate as trigger . . . . . . . . . 211
Fig. 4.13 Equalization of profit rates through trade cycles . . . . . . . . . . . . . . 227
Fig. 4.14 Cumulative disequilibrium process . . . . . . . . . . . . . . . . . . . . . . . . 244
Fig. 5.1 Relationship between production relations and economic
phenomena . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
Fig. 5.2 Relationship among productive force, production relations
and economic phenomena in capitalist system . . . . . . . . . . . . . . . 249
Fig. 5.3 Relationship among productive force, production relations
and human behavior in general . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
Fig. 5.4 Long run tendency of profit rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
Fig. 5.5 Profit rate and increase rate of capital stock . . . . . . . . . . . . . . . . . 261
List of Tables
Table 2.1 Summary of comparative statics . . . . . . . . . . . . . . . . . . . . . . . . . . 87
xix
Chapter 1
Introduction
Abstract In the introduction, the succeeding chapters, from the fundamental struc-
ture of a capitalist economy to the authors’ vision toward a new society, are succinctly
summarized. This is followed by a short commentary on state monopoly capitalism—
it was not analyzed any further in the book. The commentary revolves around the
question of whether it is possible to avoid a crisis at the stage of state monopoly
capitalism through the intervention of the state in the economy and whether state
monopoly capitalism can continue to exist without expending very large amounts on
military resources, among others. Last, the chapter explores the relationship between
Marx’s Capital and this book. Based on an analysis of Capital, the book initially
provides an outline of the capital accumulation processes in a capitalist society but
eventually departs to investigate alternative possibilities. One is the order of content
development: while Marx started with the most elementary concept of commodity,
deduced money, then capital, and so on, this book assumes a different order of devel-
opment. Another is a proposition that runs contrary to that of Capital: while Marx
thought that the rate of exploitation falls at the last stage of the upward cumulative
process of the trade cycle, the book proposes that the rate of exploitation actually
rises at that stage.
This book will outline the fundamental features of the accumulation process in the
capitalist economy. The introduction will facilitate the understanding of subsequent
chapters by briefly outlining three points: (i) the interrelationships of each chapter
in this book; (ii) the relationships between the contents of this book and various
contemporary issues; (iii) the relationships between the contents of this book and
Karl Marx’s Capital: A Critique of Political Economy. Readers are advised to re-read
and reflect on this introduction after having read through this book. This introduc-
tion provides readers with the preliminary skills to read this book, while also being
an aid to reorganizing their newly acquired knowledge after reading this book. It
furthermore provides ideas on how to study this subject further.
© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 1
N. Okishio, The Theory of Accumulation, Kobe University Monograph Series in Social
Science Research, https://doi.org/10.1007/978-981-16-7905-6_1
2 1 Introduction
1.1 The Structure of This Book
Chapter 2: In this chapter, we will examine what sort of productive force and peculiar
relation of production a capitalist society holds, and how this forms a class society
with distinctive features like commodity production. In this peculiar exploiting
society, it is not sufficient to force workers to do surplus labor in production to
continue and maintain exploitation. It is necessary to sell products, or, in other words,
to realize the value of the commodities produced by the workers. However, under a
capitalistic system, the critical source that decides the demand for commodities is
the capitalists’ accumulation demand. This accumulation demand becomes a crucial
element that determines the temporarily given level of the profits realized, the rate
of profit, and the real wage rate. As a result, the profit rate and real wage rate will
shift according to the accumulation demand by capitalists. The question is, however,
how will demand change? In Chap. 4, we explain how this change displays cyclical
behavior and then examine the secular tendencies of the profit rate and real wage
rate in Chap. 5.
Chapter 3: A capitalistic society is a class society in which production is governed
by the commodity-economic principle. To sustain such a society, reproduction is of
vital importance, and the value of a commodity must be realized in the market. How
this need can be detected depends on various conditions. If these conditions cannot
be satisfied in the long run, the capitalist society ceases to exist. In Chap. 4 we
will explain how to resolve this contradiction, while Chap. 5 shows the inevitability
that, in spite of these resolutions, opportunities to deny reproduction in the capitalist
economy gradually grow.
Chapter 4: The disequilibrium, once occurring, spreads cumulatively in a capi-
talistic society. This is the result of its fundamental contradiction. The accumulation
demand by capitalists will accelerate in a unidirectional and imbalanced manner,
resulting in the same, unidirectional, and imbalanced cumulative behavior in produc-
tion standards, the profit rate, the real wage rate, and the exploitation rate. Neverthe-
less, for a capitalistic society to maintain its reproduction, it is necessary to force a
violent equilibration to reverse the process of disequilibrium. As a result, economic
crises and turnovers are inevitable. This suggests that it is inevitable for a capitalist
economy to undergo cyclical fluctuations, which are explained in the following:
upward cumulative process of disequilibrium → halt of process → economic crisis
→ downward cumulative process of disequilibrium → halt of process → turnover
→ upward cumulative process of disequilibrium. These cyclical processes repeat the
processes of strong accumulation and destruction of capital.
Chapter 5: Through these cyclical movements, a capitalist economy expands its
reproduction and innovates production techniques. How does a capitalist society
develop a tendency to go through these cyclical movements? The following
phenomena can be observed: a deepening difficulty in finding markets, a tendency
toward a falling profit rate caused by an increase in productivity, an increase in the
size of the minimum fund for finance in the basic production sectors, the private use
of public funds by private capital, an increase in the ability to control nature and
1.1 The Structure of This Book 3
information, an increase in pollution, deepening unrest in the ruling class and an

increase in rebellion by the working class. Marx and Lenin described the result in
the following words:
[a]t a certain stage of development, the material productive forces of society come into
conflict with the existing relations of production or – this merely expresses the same thing in
legal terms – with the property relations within the framework of which they have operated
hitherto. From forms of development of productive forces, these relations turn into their
fetters, and an era of social revolution begins. The changes in the economic foundation lead,
sooner or later, to the transformation of the whole immense superstructure.1
Competition becomes transformed into monopoly. [...] Capitalism in its imperialist stage
leads directly to the most comprehensive socialization of production; it, so to speak, drags
the capitalists, against their will and consciousness, into some sort of a new social order, a
transitional one from complete free competition to complete socialization”2
“it becomes evident that we have socialization of production, [...] that private economic and
private property relations constitute a shell which no longer fits its contents, a shell which
must inevitably decay if its removal is artificially delayed, a shell which may remain in a
state of decay for a fairly long period (if, at the worst, the cure of the opportunist abscess is
protracted), but which will inevitably be removed.3
1.2 Various Issues Today
The state-monopoly capitalism in the present day is not a subject to be analyzed

in this book. It is brought up only to explain the reasons for the development of
monopoly and state intervention, through explanations on the basis of the general
foundation of a capitalistic economy. The contents of this book, however, are related
to various issues in the present day, some of which are as follows:
(i) Is it possible to avoid a crisis in the stage of state-monopoly capitalism, through
the state’s intervention in the economy? This issue plays a vital role in the
theories justifying modern capitalism. The point of view on the economic
crisis described in this book shall provide a basic idea to answer this question.
We see that economic crisis is inevitable since, in a capitalist economy, dise-
quilibrium must be cumulative based on its fundamental contradiction. This
upward cumulative process of disequilibrium must be reversed in order for a
capitalist economy to reproduce itself. The reversal of the upward cumulative
process of disequilibrium inevitably induces a downward cumulative process.
Therefore, to assess if economic crisis is avoidable under state-monopoly
capitalism, the following points need assessment: (a) Did the state-monopoly
capitalism address the fundamental contradiction of the capitalist economy?
(b) Did it resolve the cumulative process of disequilibrium in the capitalist
1 Marx [2, Preface, p. 263].

2 Lenin [1, p. 205].
3 Lenin [1, p.303].
4 1 Introduction
economy? (c) Did it block the disequilibrium being cumulated downward

when the upward cumulative process of disequilibrium stopped?
State-monopoly capitalism is a mechanism under which capitalism not
only continues to be the class-society in which production is governed by
commodity-economic principles, but is also strengthened as such. Therefore,
it continues to restrict the amounts of the workers’ consumption of goods
as well as the production of such goods. It does not change the decision-
making mechanism of accumulation in which capitalists increase capital for
accumulation when they expect greater profits in the future, suggesting that it
does not block the cumulative process of disequilibrium. If an upward cumu-
lative process of disequilibrium is blocked, and the accumulation demand
by capitalists decreases without being offset by state expenditure, aggregate
demand decreases. The accumulation demand by the capitalists decreases
further, followed by a downward cumulative process of disequilibrium. If
the state quickly increases expenditure to offset the decrease in accumulation
demand by capitalists, the downward cumulative process of disequilibrium
may be reversed in a shorter period. Thus, under state-monopoly capitalism,
the cumulative process of disequilibrium and the turn of the cumulative process
from upward to downward do not cease to exist, but change their forms. As a
result, the following issues arise:
(ii) Can state-monopoly capitalism continue to exist without a vast amount of
military expenditures? If the accumulation demand by capitalists decreases,
a downward cumulative process of disequilibrium begins. If it continues at
a minimal level of forced simple reproduction, it will become difficult to
maintain the capitalistic relations of production. In this case, the state must,
on a large scale, increase its expenditure to stop the downward movement of
disequilibrium. Although this is not impossible, it seems rather difficult for the
state to increase its expenditure in a short period without resorting to military
spending.
However, the very purpose of military expenditures for state-monopoly
capitalism is not to create demand by the state to prevent aggravating an
economic crisis. If it was only for such a purpose, other forms of expenditure
might create demand, but only the military powers appropriated by military
expenditure can play both an economic and a political role. These roles ensure
the exports of capital and goods to monopolize resources and labor power
by oppressing people in other countries, and strengthen the mechanism of
exploitation by oppressing its own people, especially the working class, by
appealing to military powers. For these purposes, military power is essential
in state-monopoly capitalism.
(iii) How is production equipment embodying old technology scrapped in state-
monopoly capitalism? Normally, in a capitalist society, a large amount of such
production equipment is scrapped and replaced by new technology when a
downward cumulative process of disequilibrium begins, followed by the prices
of commodities falling below the money wage rate, generating losses. Now,
1.2 Various Issues Today 5
suppose that a downward cumulative process has been blocked by state expen-
ditures in a short period, or that even under a downward cumulative process, a
high level of monopoly prices slowed down the speed of such forced scrapping.
How would capitalism proceed with removing this production equipment? If
they are not to be scrapped, the capitalist economy would have to hold an
enormous amount of productive equipment embodying old technology, which
soon will become impossible to operate, even if the market for commodities is
sufficient, since the labor power will be relatively insufficient. In the stage of
monopoly, the productive equipment embodying old technology is removed
through mergers and acquisition, or through accelerating depreciation. More-
over, in the stage of state-monopoly capitalism, a build-and-scrap policy on
state funds is adopted. Further on, in state-monopoly capitalism, state funds
are used to develop and introduce new technology, at which point it becomes
clear that monopoly capital is parasitic.
(iv) In state-monopoly capitalism, the role of the organs of the state is immensely
significant in the economy. If workers can fill posts in the state organs and
go on intervening in national policies, will they also be able to change the
foundations of the capitalist economy gradually? Such a question is derived
from the fact that the fundamental character of the state in state-monopoly
capitalism, as well as the essential qualities of the privately owned means of
production in monopoly capital, are not sufficiently recognized. Monopoly
capitalists hold the fundamental right to determine production plans of their
privately owned means of production. The role of the state is to support and
strengthen such rights. This is not something to be changed, even if working
class representatives have power in government organs, as they would be
converted to serving members of the organs of the monopoly capitalist state.
For the state to wield its position to deprive the decision-making power of
production from private monopolies, the state’s power must be transferred
to the people led by the working class. In this case, it is necessary that the
internal activities of the state organs must cooperate with the revolutionary
movements led by the working class. In any case, it is impossible to hope that
the character of the state will gradually change and that the foundations of the
capitalist economy will be destroyed without a struggle for state power.
There are, of course, other significant issues in the present day. We cannot talk
about the present day if we do not have a full understanding of the contradictions
between socialism and imperialism, between oppressed nations and imperialism,
between imperialisms, or in socialism. Especially when we consider the issues in
Japan, it is necessary to investigate the point that a monopoly capitalism state depends
on another. However, these issues are outside the scope of this book. It is not because
we do not think these issues are essential, but because we believe these issues require
further concrete analysis than what this book can provide. Still, at the very least, we
hope to provide general, basic ideas to help such an analysis.
6 1 Introduction
1.3 The Relationship Between Capital and This Book
In the history of economics, it is Marx’s Capital that captured the capitalist society
as a transitional form of human societies, analyzed the capitalist society from its
base to its trend, and made clear that the capitalist society is transitional. Based on an
analysis of Capital, we provide an outline of the accumulation processes of capital in
the capitalist society. Both the structure and some content of this book are, however,
immensely different from Capital. Let us explain why we took a different approach
from Marx.
(i) The order of content development
Marx begins Capital with the concept of commodity, which is an elementary unit in
the capitalist economy, before explaining money, capital, wage labor, surplus value,
retransformation of surplus value to capital, i.e., accumulation of capital, industrial
reserve army, realization of the value of commodities and the supplementation of
materials, i.e., reproduction, profit, rate of profit, average rate of profit, commercial
profits, interests, and ground-rent. Marx then discusses their inevitabilities and forms
of movements in the capitalist economy. This order of development is necessary to
explain how and under what kind of production relationships these concepts are
generated in the capitalist economy. For example, when we do not know how profits
and interests are generated and what their substances are, we cannot fully recognize
the capitalist society—even if we can see superficial movements of profit and interest.
In this book, however, we do not adopt such an order of development. On the
premise that these concepts explaining the capitalist society have already been
explained in Capital, we use already-built concepts such as profit and wage labor
from the beginning.
In each stage of argument, the conditions will be outlined first, before analyzing
them later based on determined concepts. For example, fluctuations in wages that are
generated by the cyclical movements in the capitalist economy are abstracted and
determined as the reproduction costs of labor power when arguing the commercial-
ization and value determination of labor power. Yet, since this is determined through
the actual movements of wages, the determination of the value of labor power is
made in the form of a logical “debt” at this stage. Nonetheless, from the beginning
of this book, we will explain how the value of reproduction cost of labor power is
determined through the actual movement of wages.
It is effective to follow this manner of development while learning the essential
relevancy of Capital, although it might lead to a loss of perspective regarding the
essential relevancy. Nevertheless, the authors consider it to be the best method.
(ii) A proposition that runs contrary to Capital
Most of the important propositions made in Capital are understandable and are thus
made the core of each chapter (although the orders of development are different, as
highlighted previously). However, one proposition was replaced: the rate of exploita-
tion, and the assumption that it falls at the last stage of the upward cumulative process
of the trade cycle. It states that wages rise, and that the rate of exploitation falls as a
1.3 The Relationship Between Capital and This Book 7
result of the decline in unemployment that is caused by the decrease in the reserve
army. In this book, we propose that the rate of exploitation rises at that stage.
It is left to the readers’ criticism whether this proposition is legitimate or not.
Although it may be argued that this subject is not appropriate for a beginner-level
book, the proposition cannot be avoided in an analysis of the accumulation processes
of capital.
The author does not claim that he fully understands Capital. He thus highly
recommends that you read Marx’s work on your own. Even though this book is not a
commentary on Capital, the author is pleased if, with the help of this book, readers
develop an interest in the political and economic issues in transition and address
present-day issues.
Chapter 2
Fundamental Structure of Capitalist
Economy
Abstract This chapter examines the types of productive forces and production rela-
tions within a capitalist society and reckons how these influence the formation of
a class society with idiosyncratic features such as commodity production. In this
distinctively exploitative society, it is not sufficient to coerce workers to render
surplus labor to sustain production, but it is also necessary to sell and realize the
value of the commodities that they produce. However, under a capitalist system, the
critical determinant of the demand for commodities is the demand of the capitalists’
accumulation as it sets the rate and level of profit as well as sets the real wage rate.
That is to say, the profit rate and real wage rate are expected to shift according to
the accumulation demand of capitalists. How exactly demand changes—e.g., in a
cyclical manner—is the subject of Chap. 4. The secular tendencies of the profit rate
and real wage rate are tackled in Chap. 5.
2.1 The Characteristics of a Capitalist Economy
To elucidate the economic phenomena in a capitalist economy, it is necessary to

clarify how these phenomena relate to the fundamental characteristics of a capitalist
economy. For example, it is both theoretically and practically important to know
whether phenomena such as unemployment or economic crises are generated because
of the fundamental characteristics of the capitalist economy itself, whether they
are due to causes that may be just accidental to the capitalist system, or because
of the common features of every society. Theoretically, this is important because,
through the investigations, we can understand the fundamental structure of a capitalist
economy, and, practically, we can correctly understand the possibility and the right
policies to eliminate unemployment and economic crises.
First, we will explain the characteristics of a capitalist economy to clarify how the
economic phenomena relate to the fundamental characteristics. In order to do so, it
is essential to adopt the standpoint of capitalism being one peculiar form of human
The original version of this chapter was revised: Belated corrections, Global and typo corrections,
have been updated. The correction to this chapter is available at https://doi.org/10.1007/978-981-
16-7905-6_7
© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022, 9
corrected publication 2022
10 2 Fundamental Structure of Capitalist Economy
society. Therefore, in this chapter we show how the capitalist society is unique in
our general human society.
2.1.1 Productive Force and Production Relations
2.1.1.1 Productive Force
When we talk about the fundamental characteristics of a capitalist system, it is neces-

sary to understand its meanings. The word “characteristics” highlights what distin-
guishes a capitalist system from other forms of society, such as feudal societies, or
communist societies, for example. However, regardless of the type of social orga-
nization, all share the fact of being a particular form of human society. And for
human society to continue and sustain its existence, in whatever form, it must act
upon nature and shape it for the benefit of human beings. If it did not, humanity
would have become extinct at some point in natural history. This action of humans
working on nature and transforming it usefully is what we call production, and thus
production is the fundamental condition upon which human societies are predicated.
Human beings have been engaged in these production activities in a unique way.
Certainly, the action of working on nature and transforming it for the survival of the
species is not unique to human society, but rather a common act of all living beings.
However, the way humans have gone about it is what is unique, what raises our
power of control over nature significantly (productive force), and what distinguishes
us from other beings qualitatively. The question then arises as to what the humans’
method of working on nature is, that distinguishes it from that of other creatures.
The following three characteristics are undebatable.1
(i) When humans work upon nature, it is done consciously rather than impulsively
or instinctively;
(ii) It is also achieved through the utilization of means of labor that were not
created by nature but manufactured;
(iii) Humans also work on nature collectively and socially, instead of individually.
When carefully considered, these three characteristics reveal themselves to be
interdependent. When human beings engage in production activities consciously,
prior to taking action, they foresee the results and are guided by their imagery.
Namely, there is a certain plan. In order for humans to achieve this level of behavior,
it was essential for there to have been a certain development of the human cerebrum
and of its capacity for conceptualization through language. The development of
the cerebrum is related to the evolution of our upper and lower limbs, which then
led to the further evolution of our being able to assume the vertical position and
become omnivorous, both related to laboring with the use of tools. The creation
and development of language is also inseparable from the fact that our struggles
against nature have been a social effort, involving cooperation with others. In this
way, characteristic (i) assumes characteristics (ii) and (iii).
1 Engels [7, pp. 452–464].

2.1 The Characteristics of a Capitalist Economy 11
The same can be said of characteristic (ii). With the evolution of bodily members
such as hands and arms, feet and legs, nails, teeth, among others, human beings
developed instruments for labor, which they utilized to increase their power of control
over nature. Here we need to mention that using and producing labor instruments
require not only the development of the cerebrum above a certain level, but also the
presence of social activities of production. This is because the production of these
instruments requires not only cooperation with others, but also the guarantee of suste-
nance supplies during the production period, followed by a division of labor among
the members of society. Thus, characteristic (ii) is dependent on characteristics (i)
and (iii), from which we can conclude that the common denominator of all three is
that the production activities of humans are accomplished socially.
2.1.1.2 Production Relations
Human beings form various social relations regarding production as follows2 :

1. Cooperation and division of labor: When humans struggle against nature to
survive, they face it not individually but in concert with others. These mutual
relationships among people concerning production activities are cooperation
and division of labor.
2. Ownership of means of production: The essential feature of human labor lies
in production utilizing the means of production (labor instruments, objects of
labor), which are also produced by human beings. Therefore, these means play
a vital role in the production activities of human beings, in which ownership of
the means of production becomes a part of the relationships established among
humans. In other words, it is the distribution relation of the means of production
among the members of society.
3. Who works and who does not: Although production activities are essential to
human society to sustain itself, not all members in society always take part in
them. Therefore, each society has to decide in its own way who does the labor
and who does not. In other words, this is the distribution relation of labor among
members of society.
4. Decision making of production: Another characteristic of human production
activities is that labor is a conscious act and not an impulsive act. This means
that they make prior decisions and act accordingly. The decisions required are
as follows.
(a) Decisions on kinds and volumes of products: what to produce and how
much to produce?
(b) Decisions on production methods: how to produce the products?
(c) Decisions on replacement and accumulation: how to prepare for produc-
tion during subsequent stages?
These decisions must be made by someone, and who that someone will be is
another one of the production relationships among people.
2 Okishio [21, Part 2, Chap. 1, pp. 269–276].

5. Distribution of products: The results of productive activities must be distributed

to the members of the society. And it is obvious that this decision regarding who
will own how much of the products is one relation among people. This is the
relation of product distribution among members of society.
Among these forms of relations, which can be classified as fundamental? Here we
use the word “fundamental” in the following two senses. First, a fundamental relation
will characterize and distinguish a society from others. Second, it will determine
and give rise to other relations of production that characterize that society. Hence,
by finding out what the fundamental relation of production is, we will be able to
understand how one certain form of society—let us say, a capitalist society—emerges
then disappears, which then leads to understanding how social relations emerge and
disappear in any other form of society, and thus to understanding the fundamental
characteristics of that society.
In the sense mentioned above, the fundamental relation of production is the
ownership of the means of production. The rationale is as follows.
The first relation of production, i.e., cooperation in regard to labor, is not a funda-
mental form of one society, since it does not distinguish itself as a certain form
of society from others. From primitive times until now, human beings have always
performed production as a group and never alone. Therefore, both cooperation and
division of labor exist in any form of society, although the range of their applications
and their social characteristics are different; those differences are generated by the
other relations of production, and not by cooperation or division of labor themselves.
In this sense, cooperation is the most essential human relation in regard to produc-
tion, but not as fundamental as to give a certain society a particular character as we
are investigating here.
The rest of the forms of relations, as listed from 2 to 5, each characterize a specific
form of society. Who owns the means of production; who is in charge of labor; who
decides in matters of production; who owns the products—these are four questions
whose answers will determine the form of a particular society.
Among these four modes of productions, once it is decided who owns the means
of production, the other forms will be regulated and determined consequentially.
In order to understand this mechanism, let us consider a hypothetical situation
where person A owns the means of production X. This suggests that A can use and/or
dispose of X as he or she likes. Moreover, A will have the power not to be interfered
with or rejected by other members of society—let us call them B, C, and D—during
the course of using or disposing of X. Therefore, the relation where A owns X is
actually a human relation between person A and persons B, C, and D regarding the
means of production X, although at first glance it seems that the relation between
A and X is a relation between person A and object X. This relation of production
determines who is responsible for the labor, who decides in matters of production,
and who will own the products.
At the stage in human history when labor productivity was extremely low and
surplus products could not be produced, any member of society who was able to
work had no other choice but to work, and all members of the society collectively
owned the means of production. However, when labor productivity rose to a higher
level and surplus products began to be produced, the society did not require all the
eligible laborers to work in order to sustain its existence, which then led to the issue of
who works and who does not. And how this is determined depends on who owns the
means of production. In such societies where the means of production are not owned
collectively but exclusively by a handful of members, people who are excluded from
ownership have to work while the owners live off the surplus products. On the other
hand, in a society where the means of production are owned collectively, labor is a
role given to all eligible members.
As already discussed, the owners of the means of production are the ones who
make the decisions regarding the latter. Moreover, these decisions include decisions
about production, which signifies that the planning and decision making of how and
how much to produce is in the hands of the owners. Therefore, in a society where the
means of production are owned as private property, the decisions about production
are made as private affairs, and in a society where the means of production are owned
collectively, the decisions are to be made collectively.
The distributive relation of products is also determined by the ownership of the
means of production. When production is carried out, all the products belong to the
owners of the means of production. But the fact that people excluded from such
ownership and rather forced to labor, for example slaves and wage laborers, actu-
ally receive the living means necessary to reproduce their labor power seems at first
glance to contradict the fact that ownership of all the products belongs to the owners
of the means of production. However, this contradiction is only apparent. When
products have been produced, at first all of them belong to the owners of the means
of production, who then make the decision as to whether to distribute materials for
consumption to their laborers for the purpose of maintaining their labor power and
engaging it in future production. The fact that owners of the means of production
own products implies that they have control over the usage and/or disposal of prod-
ucts. The decision on reproduction of labor power and the replacement/expansion of
production facilities in order to maintain or enlarge future production thus rests with
the owners of the means of production.
2.1.1.3 Productive Forces and Production Relations
Each specific system of human society has its own particular relations of production.
However, could it be possible for a certain production relation, i.e., a capitalist one,
to establish and function under any level of productive forces? Or does it require
human productive forces to have particular features, and a certain level for such a
production relation to be established? This question is significant in the following
sense.
Let us suppose that any production relation can be established and function under
any productive forces. This means that human beings can select any production rela-
tion regardless of the level of productive forces. The fact that the dominant produc-
tion relation in the world throughout the nineteenth and twentieth centuries was a
capitalist production relation can be considered simply accidental, suggesting that
it might have equally existed under any other production relation, such as slave-
based, feudalistic or socialist. Furthermore, this will render as a simple coincidence
or mistake the fact that, during the course of human history (several thousand years
from slavery to capitalism), we maintained a production relation based on social
class. Such a hypothesis will lead us to conclude that we cannot talk about a general
law of human society or history.
Therefore, in order for a certain production relation to establish itself and then
function, the productive forces, namely our ability of control over nature, must hold
a particular characteristic and level. Following this, if we suppose that productive
forces must progress continually for human beings to survive, even if a particular
production relation is appropriate for the productive force in the beginning, and
it succeeds to establish itself and function, we can conclude that it is inevitable
that the production relation will fail after the productive force develops beyond a
certain critical point. And when the characteristics and level of the productive force
grow to be incompatible with an existing production relation, humans will stand
at a crossroads of decisions; they can, sooner or later, abandon the old detrimental
production relation and adopt a new production relation compatible with the current
productive force, or persist in the old production relation which would lead to their
own extinction.
This is in keeping with Marx’s thinking on historical materialism. Marx concluded
from the above reasoning that, as long as humans choose to exist, the development
of productive forces,3 the abandonment of an incompatible old production relation,
and the transition to a new production relation are inevitable. The two pillars of his
argument are: (1) in order to secure the existence of human beings, the development of
productive forces, namely the ability of control over nature, is absolutely necessary;
and (2) some particular production relation can only be established and function
under certain conditions of productive forces. Let us examine more closely these
two arguments in turn.
1. Existence of humans and development of productive forces

We must first understand that the development of our productive forces cannot
be discussed only quantitatively, (e.g., the increasing amount of products, or
the increasing ratio of products to labor), but should also be considered quali-
tatively. This relates to the reason why we often use the term “humans’ ability
to control nature” to describe productive forces in this book. While we owe our
existence to the means gained by working on nature and transforming it, nature
changes its forms in very complex ways. Take fuel oil, for example: when we
burn oil to produce electricity as a way to control nature, nature is impacted in
multiple ways, and long-term, through changes in atmospheric composition and
biological systems. The outcome of the development of productive forces and
control over nature is not limited only to obtaining more electricity by using
a certain amount of petroleum and labor, but also to gaining more effective-
ness in the control of our own existence, through a deeper understanding of the
complicated changes of nature caused by human activities.
3 Marx [2, Preface, pp. 262–264].

Therefore, it is quite simple to realize how the development of productive forces is

indispensable to secure mankind’s existence for the following reason. The existence
of humans is based on our intentional actions perpetrated on nature, that is to say,
our activities to control it. However, despite the old Chinese expression “as secure as
Mount Taishan”, nature is neither unchangeable nor is it just repeating a cycle. Nature
definitely undergoes irreversible changes.4 For one thing, we can point out long-
term temperature changes like glacial periods as examples of endogenous changes
by nature itself. Yet even greater changes are possible. As our power of control over
nature increases, our actions have brought about irreversible change. There are, for
instance, changes in atmospheric composition and deleterious effects of “artificial
materials” on ecological systems. Now, what if the way we control nature remains
constant while our object, nature, keeps changing irreversibly? The answer is found
in the fate of mammoths and other species that once lived and flourished on earth,
but are now extinct, or of our ancestors who once were very prosperous but now are
buried under a dessert. No matter how efficient a system to control or a system to
adapt is in the course of natural history, its virtues will become the cause of crisis to
the species’ existence in the next stage of natural history, should the species cling to
it.
To summarize, as long as nature continues making irreversible changes, the human
ability of control over nature must also develop to ensure the survival of humanity,
who can exist by living in and working on nature. This means deepening the under-
standing of nature and applying that to gain more effective control. However, there
can be a counterargument to this view of ours:The development itself of produc-
tive forces may cause nature to change in an unexpected way. There are even other
species that do not take such approaches to nature as humans, yet they have lived
since long before human beings. In view of these points, would it be better not to
develop productive forces, in the best interest of human beings to survive?5
We argue against this: it is not the development of our productive forces that causes
nature to change its course, which in turn causes a dangerous feedback to humans’
existence. It is the decisions, which are based on an insufficient understanding of
nature, to otherwise ignore the feedback of nature determined by a certain produc-
tion relation (e.g., capitalist relation). Therefore, the solution lies in developing our
control over nature further and/or abolishing unsuitable production relations, not in
suppressing and lowering our control ability. The fact that some species without
conscious control over nature, such as bacteria, have survived far longer than human
beings does not contradict our view. Firstly, their survival is heteronomous, depending
entirely on nature and in this sense the survival is only accidental. Secondly, human
beings have already reached an irreversible stage in biological evolution whereby
conscious working on nature is an indispensable condition of human existence. The
above counterargument ignores these two facts.
4 Engels [8, p. 303].

5 Refer to Hayashi [9].
2. The level and characteristics of productive forces that support certain production
relations
For a production relation to maintain itself and function, the productive force
must be bounded by an upper and lower limit. This fact becomes clear when we
think about, for example, a capitalist production relation; we will discuss this
in Sect. 2.1.2.2, while here we discuss class society in general as a broad form
of society that includes the capitalist system.
The basis of production relation in a class society is that the means of production
is exclusively owned by the ruling class, which consists of a small segment of society.
As a result, other classes that are excluded from ownership of the means of production
are left with no other choice but to work, while the ruling class determines the way
of distribution of the fruits of their labor. Then, within what range must the level of
productive forces operate in order for such a production relation to settle, function,
and maintain itself?
Firstly, let us look at the lower limit of the range: (a) It is quite easy to understand
that labor productivity must exceed the level which enables surplus production.6
In other words, net products must be greater than what is necessary for laborers to
reproduce their labor power. Otherwise, the ruling class that does not work and lives
off the surplus products cannot survive. Though the ruling class might be able to take
labor products from others by force or deception, even under circumstances where
no surplus products can be produced, it will not last for long. (b) It is necessary for a
class society, in order to exist, that the productive forces reach a high level wherein
the means of production play a vital role, requiring massive input of labor for their
actualization and maintenance.7 Else, the ruling class cannot be formed and exploit
laborers based on exclusive ownership.
Secondly, let us look at the upper limit which the productive force must not exceed
in order to sustain a class society. In a class society, the ruling classes are parasitic
on the fruits produced by direct laborers. However, if the ruling class is totally
uninvolved in any production activities that are the foundation of human existence,
such a society cannot be sustained. As already mentioned in Sect. 2.1.2.1 above,
our productive activities are conscious ones. Consequently, in any society, someone
must anticipate the results of production, process information, and make decisions.
In a class society, rulers hold the fundamental decision-making power regarding
production. In this sense, the ruling class plays an indispensable role, despite the fact
that its members do not take part in the actual production itself. To use an image, we
can say that, in a class society, the conscious facet of human beings is concentrated
in the rulers, and the laboring one in the non-ruling classes.
From the above argument, we can conclude that, in order for a class society to be
sustained, productive forces must be at a level where the ability to process information
6 As for precise definition of labor productivity, refer to Okishio [21, Part 1, Chap. 1, Sect. 2.2,
pp. 36–78].
7 Nagaoka [18, pp. 35–39].
must reside with one segment of the society. If productive forces exceed this level,
class societies become unstable and unsustainable sooner or later.
When productive forces are at a lower level, the amount of surplus product is
low, which means that there is not enough to be distributed to the direct laborers.
Hence, those with the ability to process information above a certain level will be
a limited number of members of that society, in other words, the ruling class. In
addition, when the level of productive forces is low there is no need to give direct
laborers the ability to process information. However, the development of productive
forces inevitably raises human abilities to process information. As already mentioned
repeatedly, human activities of production are conscious, and are always accom-
panied by information exchange and processing between them and nature. There-
fore, the improvement of our ability to process information is inseparably linked to
increasing our ability of control over nature. When productive forces grow, physical
conditions (e.g., measuring devices, computers, etc.) are improved and a minimum
level of ability to process information by direct laborers becomes necessary. As a
result, the ability to process information, which is the ability of decision-making
regarding production, extends to all members of the society. This will eventually
destabilize the class society.
At the historical stage where the ability to process information was held exclu-
sively by a certain group of people, these people were inevitably the ones holding the
power to make the decisions regarding production, which made the ruling class “use-
ful”. However, when this ability is diffused throughout society, it becomes extremely
difficult for a limited number of people to hold exclusively the power to make produc-
tion-related decisions. There is a counterargument to this view of ours: When the
productive forces increase, ability to process information becomes further exclusive
to an elite group rather than spread over society members. As a result, the class
structure in that society becomes stronger (Nakaoka [19]).
This argument seems to misunderstand that the basic decision-making regarding
production cannot be carried out by those of average ability, in other words, that
unless one masters advanced professional knowledge in particular fields of science,
one cannot participate in social decision making.
As shown in Fig. 2.1, we indicated that a particular production relation could be
established, function, and sustain itself only while the productive forces are within a
certain range. However, Fig. 2.1 should not lead to the understanding that productive
forces have only a quantitative dimension; rather, that what is important are the
characteristics of productive forces.
In addition, it should be noted that the range of productive forces that fits the
specific production relation A generally partly overlaps with another production
Fig. 2.1 Production Production

relations and productive Relations A
force
Production Productive
Relations Force
B
relation B, as shown in Fig. 2.1. Otherwise, we will not be able to understand the fact
that the history of human beings has transitional periods when multiple production
relations coexist.
2.1.2 Productive Forces and Production Relations

in the Capitalist Economy
So far we have looked at productive forces and production relations as well as their
mutual relation. In this section, we turn to the capitalist economy and discuss the
following matters: (1) What are the production relations that characterize a capitalist
society?, and (2) What are the characteristics and level of productive forces that
enable a capitalist economy to be established, function, and sustain itself?
2.1.2.1 Capitalist Relations of Production
1. Under a capitalist society, capitalists exclusively own the means of production,

and direct laborers are excluded from ownership. This is the fundamental char-
acteristic of the capitalist production relation. Here we must note that although
the capitalists own the means of production, it does not imply that the means
of production are owned collectively within a capitalist class, but rather that
they are owned in a dispersive and private manner. It is important to note that
it is the class common ownership, and not the dispersive and private one, that
defines a class society different from a capitalistic one. Based on our general
discussion in Sect. 2.1.1.2 above, given that the means of production are owned
by capitalists, other relationships are derived, as summarized below.
2. For those who are excluded from ownership of the means of production, the
only way to make a living is to sell their own productive forces as wage laborers
to the capitalists. This class thus carries out the labor, the fundamental activity
for the society to exist.
3. The decision-making regarding production is made by the capitalists in private
and dispersed ways. They make such decisions based on their own private profits.
4. The capitalists also own all the products produced from the use of their means
of production, entitling them to decide what to do with the products.
From the laborers’ standpoint, they are excluded from ownership of the means of
production, production-related decisions, or decisions regarding the resulting prod-
ucts. Furthermore, they are allowed to work only when the capitalists need them
to, under conditions imposed by the latter; if the capitalists do not need them, they
lose their livelihood. On the other hand, the capitalist class monopolizes the means
of production, the decision-making regarding production and the resulting products,
and forces the laborers to work and be exploited. But this does not mean that an
individual capitalist can always accomplish anything he or she decides. As already
stated in the previous section, a capitalistic system is a society where an extensive

social division of labor exists, and an individual capitalist’s decision-making is only
a small part of a large system. Therefore, whether a capitalist’s decision is enacted
or not depends on the decisions of other capitalists in and out of his/her sector of the
system, and apart from the resistance of the laborers. In a capitalist system, decision
making on production is not only private but also dispersive. Its aggregate produc-
tion is a result synthesized by activities based on those decisions, which is where the
anarchism of production in a capitalist society derives from.
The fundamental structure of a capitalist system is formed by the capitalist owner-
ship of the means of production and the capitalists’ resulting controls of decision
making on production. However, this may be counter-argued as follows.8 This funda-
mental structure will function in a society when corporations are managed by an
individual capitalist with his personal capital, but not in a modern society, where
joint-stock corporations are dominant. In these situations, the owners of capital and
the people in charge of decision-making are distinct; decisions are made based on
the corporation’s survival and growth, not on personal interests. The proponents of
this argument suggest that such logic is outdated, that ownership of the means of
production gives capitalists controls over production decisions, and their pursuit of
personal interests. Let us explain how unfounded this argument is.
First, we must make clear that by ownership of the means of production we
understand such ownership not in a legal sense, but in a factual one. When we
say that a person A owns X, what matters is whether A de facto stands to decide
exclusively about the use and disposal of X. Whether this is legally sanctioned or
not by the government does not matter at all.
Now, in the case of modern joint-stock corporations, it is obvious that there
exist some stockholders, such as minor stockholders, who do not participate in the
decision-making at all. Moreover, there may be rare cases where, in fact, all stock-
holders are excluded from decision-making. But such situations do not contradict our
argument, though it seems to represent separation of ownership and control. Regard-
less of the legal provisions for stockholders, if the stockholder cannot actually take
part in the fundamental decisions of the company, one cannot say that he or she is
the owner of the means of production. These stockholders are simply there to receive
some share of the profits or to endorse someone else’s decisions.
When a company with means of production runs production using them, there
must be a person in charge of making the production decisions. In order to identify
this particular decision maker, it is not sufficient to examine who makes the routine
decisions, since such decisions can often be delegated to a different person by the one
in charge of making the larger decisions. In such cases, finding out whose decision
dominates when opinions are in conflict is a way of identifying who the actual
decision maker is. We can only find out who the decision maker in a company is by
actually investigating individual cases. Sometimes this may be some stockholders,
main banks, or other companies with important transactional relations; therefore, it
is difficult to identify ex ante. Whoever this is, it is that person/organization who de
8 See Berle and Means [3, pp. 45–46].

facto owns the means of production of the company and has control over decisions.
And it is essential that the laborers be always excluded from such ownership and
decision-making.
To deny the fact that the criteria for decision-making under a capitalist system are
the pursuit of profits is either an intentional act of deception, or a case of being tricked
by a superficial observation. We can easily understand this by briefly examining the
so-called “social responsibility” of a company.9
The social responsibility of a company is described as the responsibility to serve
and provide as many benefits as possible for stockholders, laborers, and consumers.
Then, what is it that must be done by the company in order to increase the stock-
holders’ benefits? The answer is, needless to say, to pursue profits. In terms of
increasing the benefits for their laborers, various measures can be taken; for example,
an increase in labor productivity, enhancement of the company’s competitiveness,
or capital accumulation aiming at these two. Capital accumulation can be financed
by banks; however, even then, accumulation finance depends on increasing profits,
since a significant amount of retained profit is necessary to borrow enough funds. And
what is to be done to increase benefits for the consumers comes to the same thing.
In order to increase the consumers’ benefits, quality improvement of commodities
and/or price reduction is necessary; they are realized by introducing a new mass-
production system, which requires capital accumulation, and again, the pursuit of
profit.
In this way, this noble slogan of taking social responsibility comes down to one
fact: the company’s pursuit of profits. The capitalists’ act of putting their motives and
behaviors into beautiful words or giving them a moral veneer does not change this
fact. It is the fundamental fact of capitalist economy that decision-making criteria
are the pursuit of profits.
It is impossible for the capitalists possessing means of production to make deci-
sions regarding production without basing them on profit pursuing criteria. If a capi-
talist personally abandons the pursuit of profit, the result is simply a rejection of his
or her capacity as a capitalist, and he or she will lose the means of production. In
this sense, the criteria for decision making by capitalists are not at their discretion;
rather, they are regulated by a production relation whereby the means of production
are owned personally and/but dispersedly among capitalists.
2.1.2.2 Capitalist Society and Productive Forces
For the establishment, functioning and sustainment of this unique production

system that characterizes a capitalist society, as explained above, human produc-
tive forces must have a certain character and level. The general reason is explained
in Sect. 2.1.1.3. In this section we examine the characteristics of the lower limit and
upper limit of productive forces compatible with capitalist production relations.
9 Berle [4, Chap. 3, pp. 61–115].

The Lower Limit of Productive Forces

As a capitalist society is a form of class society, the general argument on the lower
limit of productive forces (see Sect. 2.1.1.3) in order for a class society to continue
also applies to capitalism. However, in a capitalist society this lower limit is much
higher. In fact, human beings’ productive forces attained the degree needed for a
class society to exist thousands of years ago. Yet it is only in the last 200 years that
we reached the level that allows a capitalist society to exist. Then what is the lower
limit of productive forces necessary for the existence of a capitalist society?
1. The labor productivity must be at a level high enough to produce a consid-
erable amount of surplus products. Although the fact that the capitalist class
cannot come to exist without surplus products can also apply to other class
societies, this is not enough to limit the degree. As will be discussed later,
the capitalist society is a special society where all products are produced as
commodities, which requires an ex post adjustment of the products market. This
adjustment cannot avoid creating some waste, be it from the degeneration of
unsold stock, or the wasteful circulation of commodities. Thus, sustaining a
capitalist society requires a high labor productivity that can create surplus even
after waste products are subtracted from the equation.
2. The productive forces must be at a stage where production goods, i.e., the
means of production produced by human labor, not only play an important
role in the process, but also where more than a certain amount of labor is
needed for the production of the production goods. As in other class societies,
in order for the capitalists to become the ruling class based on ownership of the
means of production, the latter must carry an important significance through the
production process.
In addition, under the capitalistic system, the following point is of great
importance. As already stated, commodity production is prevalent in a capitalist
economy. This means the abstract possibility for anyone to purchase produc-
tion goods through commodity markets. Therefore, the exclusive ownership of
production goods by the capitalist class must be protected against the possibility
of direct laborers being able to purchase the production goods.10 This is pred-
icated on a vast amount of labor necessary to produce the production goods,
which requires substantial funds for purchasing them.
3. The productive forces must be at a stage where the larger the scale of cooperation
is, the higher the degree of labor productivity becomes. The scale of cooperation
is supposed here to be measured simply by the number of people who work
under a single decision maker. Some readers may think that it is a matter of
course that, no matter at which stage the productive forces are, labor productivity
increases as the scale of cooperation increases. However, this is not so. Let us
examine the history of agricultural production, which is a good example of an
evolution through time. For a long time, labor productivity increased inversely
proportional to the size of the cooperation unit—from the whole community,
10 Refer to Sect. 2.4.1: Reproduction of Wage-labor Power and Real Wages.

to a large family, and to a single family. On the other hand, only a few hundred
years ago, the larger scale of cooperation became directly proportional to the
increase in productivity.
This is illustrated in Fig. 2.2. The arrow indicates the direction of historical
time. According to Fig. 2.2, in order for a capitalist society to sustain itself,
labor productivity must be above the level P. If it is below P, personal business
such as direct laborers’ management will be higher in labor productivity than
capitalist business, where the size of business is larger than that of personal
business. Therefore, capitalist businesses will lose in the competition against
personal businesses under commodity production. In addition, the owners of
the means of production will not have the incentive to hire wage laborers. Thus,
the capitalist society cannot be maintained in such a case.
4. The productive forces must be at a stage where the system of social division
of labor is prevailing, but the ability to process information is not high enough
to attain the unified control of the entire society’s production. If the social
division of labor is not dominant, neither will the commodity production be.
Unless commodity production has become dominant and people rely on money
to maintain their standard of living, it is not the case that people lose their own
business and sell their labor power to survive; hence, neither wage laborers nor
the capitalist who buys their labor come to exist; the capitalist system itself
is not founded. Moreover, without the ability to process information to control
multi-faceted production in a unified way, it is inevitable to hand over the produc-
tion decision at each part of the social division system to private decisions of
individual capitalists.
Fig. 2.2 Cooperation and productivity

The Upper Limit of Productive Forces

The production relations in a capitalist society cannot be maintained if the produc-
tive forces grow infinitely. Their functioning will encounter difficulties when the
productive forces evolve to the following characteristics and levels.
1. If labor productivity becomes extremely high, enough to produce a vast amount
of products in a shorter labor time. If the capitalist production relations are still
maintained after reaching such a stage, the society will face severe marketing
and unemployment problems, or constantly waste a high volume of products.
2. If the productive forces reach a stage where the minimum funds necessary to
control nature exceed the amount for private capitalists to finance. If the produc-
tive forces arrive at such a stage, the use of public funds becomes inevitable,
and the capitalist production relations that are principally based upon private
financing must change.
3. If the human activities to control nature result in not only local but also global
changes on nature. If the productive forces arrive at this stage, the capitalist
production relations that are characterized by the decision-making of private
capitalists will come to threaten the existence of human beings. This is because
if a production which can cause a global impact on nature is the result of deci-
sions pursuing private profits, the production may have a substantial and critical
impact on our existence. Moreover, when the outcome of human production
activities results in a global change in nature, it will be impossible to turn those
results into commodities.
4. If the human ability to process information reaches a stage of productive forces
high enough to control all social production in the unified ways. As already
explained in Sect. 2.1.1.3, the development of productive forces will inevitably
raise the ability to process information. However, if it becomes possible for the
system of social division of labor to exercise control in the unified ways and the
decisions can be made publicly, then the capitalist way, which examines the local
and private decisions ex post in the market, will not be inevitable. In addition,
as we already explained, the upper limit of productive forces in a generic class
society, at a stage where the ability to process information resides with most
members of the society, the production relations of a capitalist society based
upon the capitalist class’s exclusive control over decision-making will become
extremely unstable.
As explained above, capitalist production relations can settle and function appro-
priately only within the range determined by upper and lower limits of productive
forces. Thus, its production relations are regulated by the productive forces. Capitalist
production relations begin to function in society when the productive forces reach the
lower limit. Productive forces develop under the capitalist production relations, and
the productive forces get close to the upper limit beyond which a capitalist society
is not viable. The inevitability of their developments and the social consequences of
exceeding the upper limit are among the important issues in this book. Nevertheless,
it is clear that a capitalist system is, like other past social systems, such as primitive
communities, slavery, or the feudal system, a system that emerges and develops, then
eventually disappears in the course of human history.
2.2 The Conditions for Profit Existence
In a capitalist economy, capitalists own the means of production, thus they make
production decisions. Those decisions are based upon the criteria of profit pursuing.
In this sense profit is the Achilles’ heel, a linchpin of a capitalist economy. Therefore,
discussing the conditions as to how and reasons as to why profits exist is of the utmost
importance when studying the capitalist system.
However, in recent mainstream studies, “bourgeois economics,” such important
questions of profit existence have been omitted or denied. This is because the exis-
tence of profit and its key role in production are considered trivial, and probing into
its rationale not important; these studies focus rather on the explanation and analysis
of changes in the amount of profit.
Such attitude is by no means scientific. Since the existence of profit, as we will
clarify, is neither natural nor technological, but clearly has a social foundation, profit
exists if and only if certain social conditions are met. Therefore, to assume that profit
existence is self-evident means to ignore the temporary and transitional nature of the
social forms which are pre-requisites for the existence of profit. In other words, it
as if these studies treat capitalism as a perpetual social form. This is why they are
called “bourgeois economics”.
2.2.1 Various Vulgar Views
Even though, as we saw above, questioning the source of profit is ignored in the
recent bourgeois economics, the latter’s theoretical history contains various views
on this matter. Here we will review the major ones and explain why they are not
acceptable.
1. Some propose that profit is a wage for managers (managers’ wage theory).11
As wage is a payment for labor, according to this theory, profits will be the
payments to managers for their work. If we admit this theory, payment should
be proportional to the size of the labor input, yet this does not apply to profits.
In addition, when capitalistic enterprises grow sufficiently, the management
“labor” will be carried out by some employees, though they will not receive the
profits.
2. Some propose that profit is generated as products of capital (capital productivity
theory).12 If products of capital means the fact that capital can generate profits,
11 Marshall [13, Book 6, Chap. 7, pp. 596–608].

12 Clark [6, Chap. 12, pp. 173–187].
2.2 The Conditions for Profit Existence 25
it is only a tautology, which claims nothing. The discussion should be why

capital can “generate” profits. What if products of capital mean the physical
products of various means of production that constitute the material substances
of capital? There is no doubt that labor productivity is higher when employing
the means of production than when not doing so. However, can we immediately
derive the existence of profits from this fact? To begin with, it is practically and
theoretically possible to imagine a case where profit does not exist regardless
of high labor productivity using means of production. If the means of produc-
tion are owned collectively, not privately, the resulting surplus products are not
appropriated as private income, i.e., profit. In addition, even if the labor produc-
tivity is high, that in itself will not be a sufficient condition to generate surplus.
Moreover, however high labor productivity may be, there will be no surplus
if working hours are substantially reduced. And in a capitalist economy, if the
output price drops enough, then profits will gradually disappear even under high
labor productivity using means of production. Thus, high productivity is not by
itself a condition for profit existence.
3. Some propose that profit is grounded on the observable fact that production
needs time, and the psychological propensity of human beings for instant grati-
fication.13 Laborers supply labor and receive consumption goods. Yet in order to
produce the consumption goods through labor, a certain period of time must be
spent. Accordingly, the exchange of labor and consumption goods between the
laborers and the capitalists suggests the exchange of consumption goods being
produced today and in the future. However, given human nature, consumption
goods in the future will take second place to those in the present. So if, for
instance, laborers receive only three units of consumption goods in exchange
for 10 h of labor (which may produce, say, five units of consumption goods in the
future), then the two-unit difference is left as profit. True enough, carrying out
production indeed requires a certain period of time. However, it is doubtful that
the attitude of valuing present consumption more than future consumption is
grounded in human nature. It is possible to imagine a society where the attitude
of valuing the future more than the present is common. Still, let us suppose that
these attitudes of valuing the present more than the future can be presumed. The
matter remains as to whether one fact and one assumption discussed above can
form grounds for profit existence. Why does a laborer need to exchange his/her
labor (future consumption goods) for present consumption goods? If, he/she
had their own business, producing enough consumption goods to support their
livelihood during production, then it would not be necessary for them to engage
in such exchange, and profit would not exist in this case. Therefore, even if we
assume that production requires a certain amount of time spent, and that human
behavior has a certain way of valuing goods, profits cannot be produced unless
laborers are forced to exchange their labor power for living necessities.
13 Böhm-Bawerk [5, Book 4, Chap. 2, pp. 299–303].

4. Some propose that profit is generated by technological innovations (innovation

reward theory).14 If technological innovations do not occur and each capitalist
conducts production using existing technologies, competition among capitalists,
especially concerning sales, will drive down prices, and may result in profits
disappearing. However, if technological innovation is introduced, such inno-
vating enterprises can earn special profits in spite of falling prices. And if such
technologies are imitated by other capitalists and diffused broadly, these special
profits will disappear so that profit in general will fade away. However, then,
another introduction of a new technology will again generate new profits. Here
we must consider two points. First, this theory lacks an examination of the
social preconditions of the new technology bringing special profits to the capi-
talist. Second, when a new technology becomes generally imitated and diffused,
how can we conclude the disappearance of not only the special profits but also
profits in general? The reason why only that company that introduced the new
technology can receive the special profits is dependent on the fundamental struc-
ture of capitalism. As already discussed, the capitalist system is an exploitation
society based on commodity production. One of the aspects that arises from
commodity production is that any commodity of the same use-value is regarded
as equal in social labor, even if it requires different amounts of labor to produce.
This is because the means of production are owned privately, and production
decisions are made privately; production is carried out only as a private matter
and its products can only be socially valued afterwards through sales in the
market. If the private ownership system of the means of production is abol-
ished, labor will become directly social from the beginning, and the outcomes
of labor will no longer be measured by the products in principle. Capitalists are
able to earn special profits under the condition that they, as private owners of the
means of production, force laborers to produce commodities. And this is what
motivates capitalists to introduce new technologies under the capitalist system.
Special profits are generated from the social conditions under which they are
achieved, and not from the relative superiority of production technologies.
We must note that, regarding this second point, it is in a downward process
of the business cycle that capitalists in general are forced to imitate new tech-
nologies. When in an upward process, neither the competition among capitalists
will force them to imitate new technologies, nor will the price fall (specifically,
in relation to wage rates) to eliminate profits. Therefore, we cannot say that
profits will vanish through mere competition. To explain correctly why profit
may disappear in a certain phase of the business cycle in a capitalist economy,
where capitalists own the means of production and stand in the position of
exploiting laborers, we must make clear why economic crises occur, and the
cumulative downward process follows. Such a poor explanation as mere sales
competition is not sufficient; an economic crisis is a condensed expression of
fundamental contradictions in a capitalist economy.
14 Schumpeter [24, pp. 128–129].

5. Some propose that profit can be generated by raising prices.15 From an individual
capitalist’s viewpoint, this may seem a natural way of thinking since he/she can
generate the differential between price and cost by raising the selling price. Yet,
is it possible for all commodity producers to earn profits by raising their selling
prices? The selling price of one producer is the purchasing price to another,
and if that commodity is purchased in order to produce another commodity, the
purchase price will be counted as part of the latter’s production cost. In this
way, if every commodity producer raises their selling price, the cost of every
commodity will rise, and accordingly, profit gain will not be guaranteed from
the positive spread between cost and price. In case of a heterogeneous rate of
price increases, the producers with relatively higher price increases can earn
profits, yet, on the contrary, those with relatively lower price increases cannot,
so in the economy as a whole, they offset each other. For the above reasons, these
theories, which attribute profits to raising prices in the process of commodity
circulation, are not correct; they are called the theory of profit upon alienation.
The issue lies in the conditions where a wage laborer class exists, wherein
the selling price cannot raise while the price of other commodities rises, and
where the wage-laborer class is sacrificed for other commodity producers, i.e.,
capitalists, to gain profits. We must focus on clarifying under what conditions
of society and in what way these situations are created. However, the theory
of profit upon alienation adheres to a subjective assessment of capitalists and
remains only to express such myopic casual observation “theoretically”.
2.2.2 Casual Observations and the Question
Our aim in Sect. 2.2 is to elucidate the conditions of profit existence. In Sect. 2.2.1,
we surveyed several major theories concerning this issue and explained how all of
them fail to grasp the core of the matter. It was Marx who framed the right question
and answer to it.16 Our discussion in Sect. 2.2 is basically the same as that of Marx,
although we develop the discussions in the reverse order to Marx’s discussion in
Capital. Marx explained profit through the “ascending method,” by starting from
the most abstract definition, and gradually reaching real phenomena. We, on the
contrary, will start from casual observations that anyone could easily make, and then
analyze step by step the necessary conditions for profit existence, finally reaching a
clarification of its sources.
There are two reasons why we reverse the order of explanation: (a) We believe that
starting with casual observations will be easier to understand; (b) Marx began Capital
from the theory of commodities and explained the theory of surplus value assuming
exchange of equivalent (an exchange in proportion to the amount of labor bestowed
in the commodity). Many critics of Marx’s theory misunderstood this assumption,
or perhaps abused it intentionally. They maintained that the theory of surplus value
15 As for the criticism of Marx against this view, see Marx [15, Chap. 5, p. 113].
16 Marx [15, Chaps. 6–7, pp. 119–141].
could only be proved by presupposing equivalent exchange of commodities, and

that this occurred very exceptionally in the actual capitalist economy so that Marx’s
theory of surplus value was incorrect.
To advance the argument assuming equivalent exchange in order to reveal the
essence of surplus value theory is an effective and heuristic method. However, the
validity of the surplus value theory does not depend on this assumption. Thus, to
counteract such misunderstandings or malicious critiques, it is necessary to show,
without assuming equivalent exchange and starting from casual observations, that we
cannot avoid reaching the surplus value theory, regardless of equivalent exchange.
This is why we reverse the order of discussion in Sect. 2.2, adopting the “descending
method”.
2.2.2.1 Casual Observations
Anyone knows at least something about phenomena expressed by the word

“gaining”. With a little awareness, we can discern at least three connotations of
the word “gaining”.
(1) For example, let us say that a merchant receives 10,000 yen for selling a watch,
and says he “gained 10,000 yen,” or a laborer says “he gained 5,000 yen”
when getting paid 5,000 yen for a day’s work. Here, the word “gained” implies
amount of sales.
(2) Next, a rice farmer sells some rice and makes 500,000 yen. After deducting the
material cost of 200,000 yen for fertilizers and other farming tools, he says he
“gained 300,000 yen” by selling his rice. In this case, “gaining” means income
or value added.
Income = Amount of sales − Material costs
(3) Or, say, a company sells a certain amount of steel, and makes over 100 billion
yen in sales. After deducting total costs of 70 billion yen, including material
costs such as iron ore, oil, electric power, depreciation of equipment, and wage
payments for employees, the company keeps 30 billion yen as residual and
may say they “gained” 30 billion yen by selling steel. The word “gained” here
means profit, which is
Profit = Amount of sales − (Material costs + Wage payments) (2.1)
The profit that we argue for in this book is the third kind, above. Readers should
note that the company profit (gaining appropriated by the company before dividend
payments) is, in fact, smaller than the amount of (2.1). This is because other expenses
such as interests, rents, taxes, etc., must be deducted further from (2.1). Unless
specified, the issues brought up by these expenses will not be considered in this
book, thus (2.1) will imply company profit.
2.2.2.2 The Question
The issue to be probed is how a profit defined as (2.1) can exist. Some may say that it
is nonsense to consider such an issue, and that even a child knows that a profit such
as (2.1) exists. But, even if the occurrence of profit is familiar in our daily life, it is
not therefore scientifically meaningless to inquire as to the reasons for its existence.
If we had failed to inquire why objects drop or water boils just because they were
long-familiar phenomena, then the field of natural science would not have developed.
Reflecting further, the existence of profit is not grounded on self-evident reasoning.
In a capitalist society, the “gain” for wage laborers applies only to the first connotation
of “gaining”, while for independent farmers it applies to the first two. Only capitalists
are able to earn “gaining” as described in the third connotation, i.e., profits. Why is
this, then?
In addition, throughout human history, there were periods of time when “gaining”
did not occur in any of the above three kinds, or else when “gaining” existed in the
sense of the first and the second, but not the third. Nonetheless, nowadays in our
society there is “gaining” in the third sense, which is called profit and plays an
essential role in our politics and economy. In what historical and social conditions
do these phenomena occur? In other words, what social conditions must be removed
in order for these phenomena to disappear?
As profit plays a highly important role in the capitalist society, economics as a
science must by all means answer these questions thoroughly. Those who ignore these
questions for fear that their analysis will displease, or bring to light an inconvenient
result for the ruling class of the capitalist society, are absolutely erring.
2.2.3 The Conditions for Profit Existence
We will clarify rigorously the existence conditions for profit, which has been defined
as (2.1) in the last section.
2.2.3.1 Commodity Production
Let us look into the casual observation of profit (2.1), which everybody shall be
able to accept. First of all, we shall recognize that it is a mathematical Formula:
profit = amount of sales−costs. But as everybody knows, for this formula, x −y = z,
to make sense, x and y must have the same unit of measurement. If x and y are both,
say, centimeters or kilograms, z will also have the same unit of measurement. Then,
in the Formula (2.1), what unit of measurement do its terms share?
Again, as everybody knows, all terms in the Formula (2.1) have the monetary unit
of “yen” in Japan and “dollar” in the U.S.A. Expressed as physical materials, the first
term of the Formula (2.1) is, for example, an amount of steel, the second is that of
iron ore, heavy oil, coal or equipment, and the third is of labor input. And if we look
at the materials, i.e., use-value, each term will have different units of measurement,
such as tons, gallons, hours, which will be impossible to add to or subtract from
each other. However, the Formula (2.1) can start to make sense if we convert each
physical material, i.e., use-value, into a common monetary unit of “yen.” Thus, the
first condition for profit existence is to be able to convert all the use-value into the
monetary unit of “yen”. But we cannot stop our examination here. We must examine
further why all the use-values are converted into “yen” and what social condition
makes this conversion possible.
Let us take 1 kg of sugar that costs 350 yen as an example. The actual significance
of the conversion is the fact that 1 kg of sugar can be exchanged for money at 350
yen, as anyone knows. So, if all the use-value can be converted to “yen,” it means that
all use-value can be exchanged for money and will be measured by the exchanged
monetary unit of “yen.” As shown in Fig. 2.3, all use-values have exchange relations
with each other once they are exchanged for money and then expressed in monetary
units of measurement. In other words, any use-value can become exchangeable with
any other use-value through the mediation of money. All use-values are mutually
exchangeable so that they are commodities that assume being exchanged. Then, what
social conditions are necessary for all the use-values in a society to be exchanged as
commodities?
The larger parts of the use-value that support human life directly (as consumption
goods) or indirectly (as means of production) are the products of human production
activities. If each member of the society carried out production independently and
self-sufficiently, products would not become commodities. Products only become
commodities under a condition whereby the production of diverse use-value is carried
out through the social division of labor. In other words, in order for all the products to
Fig. 2.3 Exchange between

money and commodities 1
2 Money n
m
become commodities and for commodity production to be carried out predominantly,

the primacy of the social division of labor is a necessary condition. Yet, is the social
division of labor also a sufficient condition for the existence of commodity produc-
tion? In other words, if only the social division of labor existed, would commodity
production exist? And if the social division of labor vanished, would commodity
production be abolished? If this is true, we have to accept the following. As Adam
Smith first demonstrated, social division of labor is what remarkably improved the
labor productivity of society.17 For human society to develop while maintaining a
high labor productivity, it is probably impossible to abandon the social division of
labor. Then the conclusion is derived that commodity production can never be abol-
ished, being so inseparable from the social division of labor. Although commodity
production will create various economic difficulties due to its serious internal contra-
dictions, which we will gradually explain in this book, we will have no other choice
but to accept it.
The idea that, as long as the social division of labor exists, all production can
be carried out only as commodity production, is a misconception. We can actu-
ally provide some examples of social division of labor existing independently of
commodity production. As Marx stated,
we have one close at hand in the patriarchal industries of a peasant family that produces
corn, cattle, yarn, linen, and clothing for home use. These different articles are, as regards the
family, so many products of its labor, but as between themselves, they are not commodities.
The different kinds of labor, such as tillage, cattle tending, spinning, weaving and making
clothes, which result in the various products, are in themselves, and such as they are, direct
social functions, because functions of the family, which, just as much as a society based on
the production of commodities, possesses a spontaneously developed system of division of
labor.18
Another example is the case in which, even in a highly advanced communist society
with an extensive social division of labor, commodity production vanishes and the
products shared by its members are distributed, readied for replacements and prepa-
rations for later production without taking the round-about form of exchanging
commodities.19 These suggest that the existence of the social division of labor is
a necessary condition but not a sufficient one for commodity production.
For commodity production to occur, another social condition is required in addi-
tion to the social division of labor: the means of production must be owned privately.
As already mentioned, if the means of production are owned privately by members
of the society, decisions on production are also made privately, the resulting prod-
ucts are again privately owned, and the decisions regarding disposal and usage of
the products are made by the owners of the means of production. If such a situation
coexists with the social division of labor, products take only the form of commodi-
ties. The prevalence of the social division of labor means that production in each part
of the labor-division system is done for collective consumption within the society.
17 Smith [25, Book 1, Chap. 1, pp. 5–15].

18 Marx [15, Chap. 1, Sect. 2.4, p. 51].
19 Marx [16, p. 87].
And to ensure continuity of production, the products of other members are indispens-
able. Therefore, in a society where the social division of labor broadly prevails, it is
absolutely necessary for the members of society to work for each other. However, if
all means of production are privately owned, if decisions at each stage of the labor-
division system are privately made, and if their products are privately owned, working
for each other directly and consciously is impossible. Nevertheless, as long as the
social division of labor exists, each member must exchange their products for those
of others. Commodity is the form that enables those exchanges: products are brought
to the market as commodities and exchanged for other commodities. The relation-
ship between members of the society working with and for each other can be realized
only through the merchant-like relation, where products become commodities and
are exchanged through sales and purchases.
As the means of production are privately owned despite the existence of a social
division of labor, the following situations can occur.
Under a social division of labor, in order to maintain smooth reproducibility,
production should be correlative, i.e., the productions at the various parts of the
system must maintain a certain relationship, which we will define in detail later.
However, as a result of private ownership of the means of production, the decisions
on production at each part of the system are made privately. Therefore, it is difficult to
determine ex ante whether each production activity is meaningful from a social point
of view; this can only be assessed ex post in the market. In other words, the labor
under private decision-making is private labor, and it can only be accepted socially
and become social labor through monetary exchange in the market. However, there
are no guarantees, either that this exchange will be successfully accomplished, or for
the laborers’ labor to be considered as social labor fully; for example, 10 h of private
labor might count as only five hours of social labor, instead of 10 h of social labor.
A situation under the social division of labor, whereby productions at each part of
the system are related to the others, and the members of society are urged to collab-
orate, requires the entire production of the society to be carried out systematically,
based on shared ownership of the means of production. Nevertheless, the means
of production are privately owned and the decisions on production are privately and
dispersedly made at each part of the system. This is the fundamental contradiction of
commodity production. How this contradiction reveals itself in the capitalist society
dominated by commodity production is a matter we shall examine later on.
In summary, one of the necessary conditions for profit existence is the primacy
of commodity production; the dominance of social divisions of labor and the private
ownership of the means of production are sufficient conditions for commodity
production to prevail.
2.2.3.2 Wage Labor
Let us return to the casual observations on profit (2.1). We found that in order for
them to hold, it is necessary for products to be turned into commodities, and for all
commodities’ exchange value to be measured by a common unit, i.e., money. Yet
this condition is not sufficient. Even if all products become commodities, the sales
and the costs of products will simply be measured by a common unit, but the concept
of wage does not appear.
Not only products but also labor power must become commodities, as objects to
be traded, in order for the concept of wages to surface. It is because wage is the price
of labor power. For example, if the price of labor power for a person is 5,000 yen a
day in terms of money, and one working day is eight hours, the wage rate per hour
is 625 yen.
Therefore, what are the social conditions for labor power to become a commodity
(commoditization of labor)? The first condition for labor power to become wage
labor is that living necessities for our everyday life are commodities, and money
is required to purchase them. In a society where making a living requires money,
an act of sales is necessary for money to be obtained. Thus, we have our second
condition that turns labor power into a commodity. People who do not have their
own business or anything to sell except their own labor power, have no other choice
than to sell their own labor power in order to live. In this way, a laborer becomes
a wage laborer by losing their own business and being cut off from the means of
production or reserves of living necessities. However, if such laborers do not possess
personal freedom, for instance slaves owned by slaveholders, or serfs bound to the
land of their lords, they cannot trade freely as the seller of their own labor power.
Therefore, the third condition for labor power to become a commodity is not only
freedom from the means of production, but also personally free.
The above are the conditions for laborers to become wage laborers, i.e., vendors
of labor power, but in order for labor power to be sold and purchased, and for the
phenomenon of wages to be generated, it goes without saying that the existence of
capitalists, who are the buyers of labor power, is crucial. In addition, the existence
of a class that owns intensively the means of production and the reserve of living
necessities lost by the laborer is also required. The amount of means of production
this class accumulates is more than what they can utilize by themselves, and so it
is important, as one of the conditions, that they purchase others’ labor power in
order to put their excessive amount of means of production into use. Moreover, it is
imperative not only that ownership of the means of production be concentrated in one
class, but also for human society to have entered a stage of productive force whereby
cooperative businesses of a scale large enough to purchase others’ labor power, have
remarkably higher labor productivity than cooperative businesses of smaller scale,
where their own labor power is sufficient.
Nevertheless, in the labor power market, wage laborers take the role of vendors
of their labor power in order to survive without owning means of production, and the
capitalists take the role of buyers by accumulating means of production and living
necessities. This structure of trading is what creates the phenomenon of wages, by
which the labor input into production then will be calculated in terms of money
based on wages, and factored into cost. Therefore, we conclude that for the casual
observation of profit (2.1) to hold, the primacy of commodity production, the depri-
vation of means of production from direct laborers, and the accumulation of means
of production by capitalists are the absolutely necessary conditions.
Fig. 2.4 Production technology and prices
2.2.3.3 Surplus Labor
We analyzed the casual observations on profit (2.1) and found that the necessary
conditions for profit to be defined sensibly are a dominance of commodity production
and the existence of commoditized labor power. We pursue the conditions for profit
existence further.
The next problem is to determine under what conditions the following inequality
will be satisfied.
Amount of sales − (Material costs + Wage payments) = Profits > 0 (2.2)
What interests us are the conditions for (2.2) such that it would hold not for individual
capitalists, but for the capitalist class as a whole in a society.
Formulation of the Problem
We saw that, as far as profit is concerned, the existence of commodity production
and wage labor must be the minimum presupposed. Let us formulate the problem as
simply as possible while preserving these two conditions.20 We suppose that there
are only one each of production goods and consumption goods, and they play mutual
parts in the social division of labor. Thus, as is shown in Fig. 2.4, the capitalist
in the production goods sector inputs a1 units of production goods and τ1 units of
direct labor to produce one unit of production goods. Similarly, the capitalist in the
consumption goods sector inputs a2 units of production goods and τ2 units of labor
to produce one unit of consumption goods. The prices of production goods and
consumption goods measured in terms of money are p1 and p2 , respectively; and
the money wage rate, i.e., the monetary wage that wage laborers receive per working
hour, is w. If R is the quantity of consumption goods that can be purchased with the
money wage rate, R is the real wage rate that a laborer receives per hour. As we
20 For more generalized case, see Okishio [22, Chaps. 1–2].

know from Fig. 2.4, the production goods sector and the consumption goods sector
need each other in order to sustain their production.
Under these assumptions, the condition for the capitalists in both sectors to make
profits, i.e., the condition to satisfy the inequality (2.2), is obtained by interrogating
the necessary and sufficient conditions for the following simultaneous inequalities:
p1 > a1 p1 + τ1 w (2.3)
p2 > a2 p1 + τ2 w (2.4)
w = Rp2 (2.5)
to have solutions.
p1 > 0, p2 > 0, w > 0.
Here, of course, a1 , a2 , τ1 , τ2 and R are all positive.
The Necessary Condition
For (2.3)–(2.5) to have solutions p1 > 0, p2 > 0 and w > 0, because τ1 > 0 and
(2.3), it must be that:
1 > a1 (2.6)
Next, from (2.3), (2.5) and (2.6), we obtain
p1 τ1 R
> (2.7)
p2 1 − a1
And, considering a2 > 0, we have from (2.4) and (2.5)
1 − τ2 R p1
> (2.8)
a2 p2
Therefore, from (2.7), (2.8),
1 − τ2 R τ1 R
> (2.9)
a2 1 − a1
is obtained. As a result, the necessary condition for (2.3)–(2.5) to have solutions

p1 > 0, p2 > 0 and w > 0 are (2.6) and (2.9).
The Sufficient Condition

Here we show that, if (2.6) and (2.9) are satisfied, (2.3)–(2.5) have positive solutions.
Let us substitute (2.5) into (2.3) and (2.4) and consider the corresponding equations:
p1 = a1 p1 + τ1 Rp2 (2.10)
p2 = a2 p1 + τ2 Rp2 (2.11)
If (2.6) and (2.9) are satisfied, two straight lines obtained from (2.10) and (2.11)
can be drawn as in Fig. 2.5. Therefore, if we choose p1 and p2 in the shaded area
between these two lines, then (2.3), (2.4) and (2.5) hold, and we obtain p1 > 0
and p2 > 0. Then, from (2.5), w is also positive. Therefore, we find that (2.6) and
(2.9) are necessary and sufficient conditions for (2.3), (2.4) and (2.5) to have positive
solutions.
Condition for Net Production Possibility
In the preceding discussions, we obtained the necessary and sufficient conditions
for profits in both sectors to be positive by using mathematical reasoning. The next
question is what economic and social meanings these conditions have. We start from
condition (2.6). As Fig. 2.4 shows, a1 is the quantity of production goods required to
produce one unit of production goods. Condition (2.6) means that, although produc-
tion is an exhaustive activity on one hand, more than one unit of production goods
must not be exhausted for unit production of production goods. We call the residual
of production goods after deduction of the exhausted production goods needed for
this production net product, so the condition (2.6) requires the possibility of net
production. In fact, if this condition is not fulfilled, the more humans produce, the
poorer and more exhausted they become. Then we cannot say that this is a production
activity that sustains human existence. Therefore, (2.6) is a condition that must be
Fig. 2.5 Range of prices to

support positive profit
always fulfilled for human society to continue to exist. We call this Net Production
Possibility Condition.
Examination of Condition (2.9)
Next, let us examine the economic meaning of condition (2.9). Since a2 > 0, (2.9)
can be rewritten as:

a2 τ1
1− R + τ2 > 0 (2.12)
1 − a1
As we have already seen in Sect. 2.3.3.1, R is real wage rate, i.e., the quantity of
consumption goods that laborers receive per working hour. The question is what the
contents of the parenthesis in the second left term signify.
We shall investigate what dimension each of the two terms inside the parenthesis
has. The second term τ2 denotes the necessary amount of direct labor to produce a
unit of consumption goods, thus its dimension is [labor hour]/[unit of consumption
goods]. For example, if the unit of consumption goods is the liter, τ2 has the dimension
of hour per liter. And for the calculation in the parenthesis to be valid, the first term
a2 τ1 /(1 − a1 ) must carry the same dimension. This can be confirmed as follows. First,
a1 in the denominator is the quantity of production goods that is required to produce
a unit of production goods, so its dimension is [unit of production goods]/[unit
of production goods]; it is a number without dimension, which is a dimensionless
number, meaning (1 − a1 ) is a dimensionless number. Next, from the definition of
a2 , its dimension is [unit of production goods]/[unit of consumption goods], and
the dimension of τ1 is [labor hour]/[unit of consumption goods]. Therefore, the
dimension of a2 τ1 is [labor hour]/[unit of consumption goods], and both dimensions
of the first term and the second term are labor hour per unit of consumption goods.
From the above discussion, we can infer that the value in the parenthesis in (2.12)
implies the amount of labor bestowed per unit of consumption goods. Is this inference
legitimate?
The Abstract Human Labor
When the social division of labor is as shown in Fig. 2.4, how much bestowed labor
is directly and indirectly required to produce one unit of consumption goods? Here,
of course, we must count in τ2 , the directly required labor. And the question is how
we count in the labor required to produce the production goods, since we have to
exhaust the amount a2 of production goods per unit of consumption goods.
To solve this question, we must understand the distinction between concrete labor
and abstract human labor and its significance, as Marx did for the first time in
Capital.21 Our question here is to determine how much bestowed labor is required
to produce one unit of consumption goods. To answer this, we must first consider
two kinds of concrete labor: labor to produce consumption goods (e.g., labor to
bake bread), and labor to produce production goods (e.g., labor to mill the flour).
21 Marx [15, Chap. 1, Sect. 2.2, pp. 30–33].

Although both of these labors are measured in terms of labor hour, the dimensions
are not exactly the same. The former has a dimension of [labor hour of baking bread]
and the latter has a dimension of [labor hour of milling flour]. Furthermore, if we
pay attention to who does the labor, the former can be [Tom’s labor hour of baking
bread] and the latter [Mary’s labor hour of milling flour]; those are clearly different
dimensions. Therefore, we must not add them together. As long as we persist in the
concrete form of labor input and who did that labor, we cannot grasp the concept
of the bestowed labor required to produce products in a system of social division of
labor.
Regardless of labor forms or individual laborers, Marx insisted that we could solve
this problem only by abstracting them and by regarding them as general human labor
input. As abstract human labor, both Tom’s labor of baking bread and Mary’s labor of
milling flour are of the same quality, and have a common dimension which makes it
possible to add them together. Its philosophical significance is that we can understand
the concept of bestowed labor and, as will be shown later, we can find surplus labor
as a source of profit, only from the standpoint that every labor input is a part of total
labor done by the labor class regardless of who worked in which part of the social
division system.
The Amount of Bestowed Labor
Regardless of the sector to which the labors belong, they share a common dimension
as abstract human labor. Therefore, we can now evaluate the quantity of labor to
produce a2 of production goods that is required to produce one unit of consumption
goods, and add it to τ2 (quantity of direct labor). In order to do so, we must determine
the quantity of direct and indirect labor required to produce one unit of production
goods.
Denoting the quantity of bestowed labor to produce one unit of production goods
as t1 , and that of consumption goods as t2 , we can obtain t1 and t2 by the simultaneous
equations:
t1 = a1 t1 + τ1 (2.13)
t2 = a2 t1 + τ1 (2.14)
The first term of (2.14) shows the quantity of labor bestowed to produce production
goods required to produce one unit of consumption goods, and the second term shows
the quantity of direct labor to produce it. By summing them up, we have the quantity
of bestowed labor per unit of consumption goods. The meaning of (2.13) can be
obtained in the same way. As can be observed, the first and second terms on the
right-hand side of (2.13) and (2.14) have the same dimension, and therefore they can
be added together.
From (2.13) and (2.14), we can solve for t1 and t2 ,
τ1 a2 τ1
t1 = , t2 = + τ2 (2.15)
1 − a1 1 − a1
For t1 > 0, 1 − a1 > 0 must be satisfied; this is the condition (2.6) that we have
already obtained as the net production possibility condition. Thus, as long as the
net production possibility condition is satisfied, (2.13) and (2.14) determine the
meaningful quantities of bestowed labor.
Surplus Condition
Now, let us return to the condition (2.9), therefore to (2.12). The contents of the
parenthesis in (2.12), and (2.15) are clearly the same. Our inference that the contents
of the parenthesis in (2.12) might imply the amount of bestowed labor per unit of
consumption goods is correct. Therefore (2.12) can be rewritten as
1 − Rt2 > 0 (2.16)
Now it is not difficult to consider the meaning of conditions (2.9) = (2.12) =

(2.16). R is the real wage rate, which indicates the quantity of consumption goods
that a laborer can buy with their wage per unit labor hour, while t2 is a quantity of
labor that is bestowed in both production goods and consumption goods sectors, in
order to produce one unit of consumption goods. Therefore, their product Rt2 implies
the directly and indirectly required quantity of labor to produce consumption goods
that a laborer receives per unit labor. That Rt2 is smaller than 1 indicates that less
than one unit of labor is input to produce the amount of consumption goods received
by a laborer per unit labor. Hence this difference becomes surplus labor within a unit
labor hour.
From the above discussion we can conclude that laborers must carry out surplus
labor in order for profit to exist. This is what condition (2.16) suggests, and we will
call it the surplus condition.22 Inequality (2.16) can also be rewritten as:
T − Bt2 > 0 (2.17)
Here, T is the length of labor hour per day, and B is the quantity of consumption
goods that a laborer receives by selling his or her one day of labor power. The relation
is thus:
B
R= (2.18)
T
between T , B and real wage rate R. Inequality (2.17) means that profit cannot exist
unless a day’s labor hour T is extended over the value of consumption goods Bt2
that a laborer receives per day. Marx was the first to clarify this.23
22 Okishio [22, Chap. 2, Sect. 2.2, p. 49].

23 Marx [15, Chap. 7, Sect. 2.2, pp. 131–141].
Other Expressions of Surplus Conditions

Surplus conditions (2.16) and (2.17) can be expressed in various forms, such as
below.
1. Exploitation rate > 0
Marx called the ratio of surplus value to the value of consumption goods received by
a laborer in exchange for one day of labor power the rate of exploitation. It gives us
an accurate measure to understand how the capitalist class exploits the labor class.
Using our notations, the following is the exploitation rate:
T − Bt2
(2.19)
Bt2
The surplus condition, as the condition of profit existence, is equivalent to the positive
rate of exploitation.
Now, as is seen from (2.19), the level of rate of exploitation is determined
depending on the following three factors: (i) the length of working time per day
T , (ii) the quantity of consumption goods that the laborer receives per day (real
wage) B, and (iii) the amount of bestowed labor per unit of consumption goods t2 .
As can be easily seen, the longer the working day T is, or the smaller the real wage
per day B is, or the smaller the amount of bestowed labor per one unit of consumption
goods t2 (the higher the labor productivity) is, the higher the rate of exploitation.
2. Real wage rate < labor productivity
Condition (2.16) can also be rewritten as below:
1
R< (2.20)
t2
This gives the upper limit of the real wage rate for profit to exist. In other words, the
real wage rate R must not exceed 1/t2 , and profit exists only when it is below that.
Then, what meaning does this upper limit 1/t2 have? Since t2 is a quantity of direct
and indirect labor required for unit production of consumption goods, the reciprocal
of t2 gives us how many consumption goods can be produced by unit labor. That
is, it gives us labor productivity in the production of consumption goods. Here we
must note that the labor productivity for consumption goods does not mean how
many consumption goods are produced by unit of direct labor in the consumption
goods sector. That is to say, using our notations, labor productivity in the produc-
tion of consumption goods is not 1/τ2 , but 1/t2 . In fact, consumption goods cannot
be produced solely by the laborers in the consumption goods sector, i.e., without
cooperation from the laborers in the production goods sector. And as long as labor
productivity gives us a measure of human beings’ activities needed to perform a
certain transformation upon nature, labor productivity in the production of consump-
tion goods must be measured not by 1/τ2 , but rather by 1/t2 . And this gives the upper
limit that the real wage rate cannot exceed for the existence of profits.
3. The amount of bestowed labor < the amount of commanded labor

Using (2.5) , condition (2.16) can be rewritten as
p2
> t2 (2.21)
w
And from (2.3) and (2.13), we obtain

p1
> t1 (2.22)
w
where p1 /w and p2 /w mean the amount of commanded labor per unit of production
goods and consumption goods. Commanded labor means the quantity of labor which
can be employed (or bought) with money earned by selling one unit of commodity.
For example, if there is a commodity that is sold for 1400 yen and the money wage
rate is 700 yen, the commanded labor per unit of this commodity is two units of labor.
Therefore, (2.21) and (2.22) imply that, for profits to exist, the commanded labor
for each commodity must be larger than the amount of bestowed labor required to
produce that commodity. From the viewpoint of the laborer, this means that, in order
to buy back products that he or she produced by 5 h’ labor, he or she must work for,
say, 10 h. This is an expression of surplus labor from a circulation process standpoint.
It was Thomas R. Malthus who showed that this inequality, i.e., commanded labor
is larger than bestowed labor, is the condition for profit existence and the incentive
for capitalist production.24
In Sect. 2.2.3, starting from the casual observations of profit (2.1), we analyzed
them and clarified the conditions for profit existence. We conclude that the conditions
for profit existence are following three: (i) commodity production is dominant; (ii)
labor power is commoditized and becomes wage labor; and (iii) laborers are forced
to create surplus labor. All of these are based on the capitalist relation of production.
2.2.4 A Mechanism to Guarantee Profits
Surplus condition (2.16) must be fulfilled for profit existence. How is this condition
fulfilled in a capitalist society?
Condition (2.16) might seem to be fulfilled if labor productivity in the consump-
tion goods sector is sufficiently high. In fact, as we explained in Sect. 2.2.1, some
economists insist that positive surplus is based on high labor productivity. It is easily
seen from (2.16) or (2.20) that high labor productivity, which means that the amount
of bestowed labor t2 necessary to produce a unit of consumption goods is small,
cannot be a sufficient condition to generate surplus. This is because, however small
t2 may be, the surplus condition (2.16) is not fulfilled if R is large enough. From
24 Malthus [15, Chap. 2, Sect. 6, p. 120].

(2.18), as the length of labor time per day is shortened or as the amount of daily
necessities the laborer receives increases, the real wage rate R becomes high. There-
fore, surpluses cannot be generated when either the length of labor time is curtailed,
or the amount of necessities increases enough, regardless of high labor productivity.
If we say that the surplus condition is fulfilled merely by high labor productivity, it
means that we treat the existence of surplus as a natural (for example, land fertility) or
technological result, and also that we regard the length of labor time or the amount of
living necessities as constant. But these are variable amounts, for example, extension
of length of labor time, determined mainly by social conditions. We must note that
the existence of surplus is grounded not on natural or technological conditions, but
on social reasons.
As we have discussed, high labor productivity is not a sufficient condition for
the surplus condition to be fulfilled. However, we can say that labor productivity
being higher than a certain level is a necessary condition for the surplus condition.
Labor hours per day cannot be extended beyond a certain physiological limit Tmax .
And there also exists a minimum amount of consumption goods Bmin needed to be
consumed per day for reproduction of labor power. Therefore, from (2.18), there
exists a minimum level Rmin below which the real wage rate cannot fall:
Bmin
Rmin =
Tmax
Therefore, if labor productivity is lower than this limit, the surplus condition cannot
be fulfilled. In this case, surplus cannot be generated, no matter by how much labor
time is extended, or living necessities for laborers are reduced. In this sense, it is
a necessary condition for the existence of surplus that labor productivity be higher
than this lower limit.
In a capitalist society, labor productivity fulfills this necessary condition. In fact,
even in such societies with slavery and feudal systems, preceding the capitalist
system, labor productivity was higher than this minimum. This is why surplus existed
in these societies, enabling both the parasitic consumption of slave owners or feudal
lords as well as extended reproduction.
In a capitalist society, although labor productivity is higher than this minimum,
this is not sufficient for surplus existence, as already discussed. In order to generate
surplus, the real wage rate must be kept below the level of labor productivity; or, if
the real wage rate is a given, the labor productivity must increase above that level.
Then, what kind of mechanism is there that guarantees this in a capitalist society?
Under slavery and feudal systems, the non-economic compulsion based on direct
violence played an important role in compelling the direct laborers, i.e., slaves and
serfs, to produce surplus by extending the length of labor time and oppressing them
in terms of living necessities. But, in a capitalist system, such a compulsion based
on direct violence recedes from the surface, though not completely. And it becomes
a commonplace that the parties trade as “free” and “equal” contractors.25 Therefore,
25 Marx [15, Chap. 6, pp. 119–125].

the question here is why the real wage rate is kept below labor productivity, although
it results from such a “free” contract. The key to the answer is to examine whether the
exchange between laborers and capitalists is truly equal and free, despite appearances.
And what matters here is, again, not the de jure but the de facto relations.
As we discussed in Sect. 2.1, capitalists and wage laborers are not in an equal rela-
tion. Capitalists own not only the means of production but also a stock of consump-
tion goods, while wage laborers possess neither. As a result, wage laborers have
no choice other than selling their own labor power to the capitalists. Wage laborers
are compelled to do so for fear of starvation, though there is no physical violence
with whips or knives perpetrated. Therefore, the exchange between capitalists and
wage laborers is not a free transaction, contrary to how it may appear. Wage laborers
must sell their labor power in order to survive, while capitalists exercise power to
decide about what conditions, how much and by which techniques to operate their
own means of production. This means that the capitalists make the decisions on
employment; how much and what kind of labor power to be employed, and under
what conditions.
For wage laborers, their livelihood depends on the sales of their own labor power,
but whether this can be realized or not depends on the capitalists’ decisions. In
short, wage laborers’ lives depend on the capitalists’ decisions. However, capitalists
make these decisions based on the principle of profit pursuing. Herein lies the most
important foundation that keeps the real wage rate below labor productivity. In other
words, capitalists will not decide to produce by operating their means of production
and by employing laborers, unless they expect the real wage rate to be lower than
labor productivity, so that they can expect surplus.
The unequal positions of laborers and capitalists in the production relation, as
mentioned above, are the most important and ultimate ground for why the surplus
condition is fulfilled in a capitalist economy. Yet, for the following two reasons, it
is not sufficient to explain, based directly on this, why real wage rate is kept below
labor productivity, i.e., why laborers are compelled to generate surplus labor.
Firstly, capitalists are certainly in a much stronger position compared to laborers,
and it is at their discretion not to employ laborers unless surplus value is expected.
Still, there are more than one capitalist in society, and they have to compete with each
other. Before monopoly capital became dominant, the main weapon in their compe-
tition was price competition. The typical sort of price competition which damaged
small capitals was price reduction in relation to money wage rate, which meant a rise
in real wage rate. Therefore, to explain the realization of surplus conditions under
this competitive pressure, it is not sufficient to simply say that capitalists stand in a
strong position compared to wage laborers.
Secondly, when a capitalist decides on the money wage rate for a contract with
wage laborers, he or she decides to employ them only when profits can be expected.
Such expectations are predicated on product price. But there is no guarantee at
all as to whether the expected price, or even a higher one, can be realized. This
depends on the general developments in the economy, such as market conditions,
over which the capitalist can have little influence. The general developments in the
economy, of course, are generated as the aggregated results of individual capitalists’
private decisions, but each capitalist cannot know the results beforehand. There is a
serious gap between the capitalists’ decision to produce and employ only when these
activities are subjectively expected to generate surplus, and actual surplus being
generated. Thus, we cannot assume that the surplus condition holds, based directly
on the capitalists’ decision-making behavior. We need some complex intermediary
factors to mitigate.
We posed the question as to why profit exists in a capitalist economy, and first
clarified that profit is generated by surplus labor. Then, we investigated the mecha-
nism that guarantees the existence of surplus labor, and pointed out the ownership
of means of production in a capitalist society as its ultimate ground. Yet, as already
mentioned, it is still not sufficient to just point out this. We must further examine
the mechanism of the capitalist society that guarantees this condition by clarifying
the whole development of the economy that results synthetically from individual
decisions privately made by capitalists, who own the means of production and make
decisions on production. This is the question to be examined in Sect. 2.3.
2.3 Theories of Determination of the Real Wage Rate
In Sect. 2.2, we revealed that in a capitalist economy the real wage rate should be less
than labor productivity, which is determined by the “value” of consumption goods;
otherwise the capitalist economy could not generate profits. Then, we addressed the
issue of what kind of mechanism keeps the real wage rate under this critical level. We
showed the fundamental characteristics, i.e., the capitalists’ ownership of the means
of production and their power over production decisions, which must form the basis
for this investigation.
Answering the above question requires us to answer how the real wage rate is
determined and how it fluctuates. In other words, when we can answer how the
real wage rate is restricted into a specific range, we can answer how the surplus
condition is fulfilled continuously in the capitalist society. In order to do so, we must
be able to answer how the real wage rate is determined; after which, we can gain an
understanding of how it fluctuates. In Sect. 2.3, we first survey the existing theories
about the real wage rate determination and fluctuation.
2.3.1 The Reproduction Cost Theory
The reproduction cost theory states that, although the real wage rate may fluctuate
for various factors, the cost of reproduction which is necessary to sustain the lives
of laborers determines the center of the fluctuations. Regarding this view, there are
two issues that divide several schools.
The first issue concerns what kind of factors make the real wage rate converge to
the reproduction-cost level, i.e., the natural rate of the real wage. In considering
2.3 Theories of Determination of the Real Wage Rate 45
this matter, David Ricardo and Thomas Robert Malthus applied the population
theory.26,27 When the real wage rate is higher than the reproduction level, more
laborers may get married and have children, whereby the labor supply will increase
and the real wage rate will decrease; and vice versa. Marx criticized this kind of
view and argued that the population theory was erroneous.28 Even if we accept this
population theory, it can only explain the behavior of the real wage rate in the long
run, say, over twenty years. However, in reality, the real wage rate exhibits cyclical
fluctuations over shorter periods. According to Marx, the main factor that makes
the real wage rate converge to the reproduction level is not fluctuations in the labor
supply, but fluctuations in the labor demand by capitalists. When the real wage rate
is higher than the reproduction level, the rate of exploitation (and therefore the rate
of profit) will be lowered, then the labor demand by capitalists will decrease, unem-
ployment (reserved army of labor) will increase, and thus the real wage rate will
decline; and vice versa.29
The second issue concerns the manner in which the level of reproduction cost is
determined. Ricardo and Malthus first regarded the “natural rate” of real wage as
the subsistence level, i.e., the minimum living cost necessary for laborers to survive,
but later modified their view such that it is the cost of sustaining the traditional
living standard of laborers. In contrast, Marx considered the reproduction cost in
a qualitatively different manner (existing studies on Marxian economics have not
paid enough attention to this point). When discussing the reproduction cost of labor
power, Marx always considered the reproduction of wage-laborers. Thus, rather than
reproducing the labor power merely in the physical, cultural and social senses, it is
crucial that the natural wage rate be at such a level that would necessitate the labor
power to remain as a seller in the labor market.
Regarding the classical and Marx’s views, the following points must be stressed.
On the first issue, Marx’s critique against the classical economists is legitimate.
However, both Marx and the classical economists considered that the real wage rate
fluctuates depending on the demand–supply conditions in the labor market. As will
be discussed later in Sect. 2.3.3, this view is not acceptable. Nevertheless, Marx
made the important suggestion, that the capital accumulation process and the real
wage rate fluctuation should be examined in an integrated framework. Marx’s proof
of his exploitation theory, in my view, is completed finally at Volume I, Chap. 25
of Capital [15], where he analyzed the capital accumulation process. Agreeing with
Marx on this point, I made the relation between the issue of surplus and the capital
accumulation process the centerpiece of this book.
On the second issue, Marx’s idea of reproduction of labor power is definitely
superior to the classical economists’ view. Marx considered the capitalist system as
transitional and found its essence in the production relation, so that he could treat
26 Ricardo [23, Chap. 5, p. 94].

27 Malthus [14, Chap. 4, pp. 240–292].
28 Marx [15, Chap. 25, Sect. 2.3, pp. 446–447].
29 Marx [15, Chap. 25, Sect. 2.2, pp. 438–442].
laborers not only as laborers in general but also as wage-laborers with a capital-
istic character, considering their reproduction. We will discuss this point in detail in
Sect. 2.4.1.
2.3.2 The Marginal Productivity Theory30
In its plainest form, the marginal productivity theory asserts that the real wage rate is
determined by the marginal productivity of labor, where laborers receive fair wages
without exploitation. Such assertion is completely wrong.
The proposition that the real wage rate is equal to the marginal productivity of
labor can be expressed as
w
= X (N ) (2.23)
p
where w/ p and X (N ) denote the real wage rate and the marginal productivity of
labor, respectively. Here, w is the money wage rate; p is the price level; X (N ) is
the output where employment level is N ; and X (N ) denotes the derivative of X (N )
with respect to N .
First of all, it is clear that (2.23) cannot determine the real wage rate w/ p. Indeed,
this equation just shows that there exists a functional relationship between the real
wage rate and the employment level. The real wage rate cannot be determined by
this equation alone. To see this, consider how (2.23) is obtained. This equation is
derived from the capitalist behavior of maximizing profits:
p X (N ) − wN (2.24)
Differentiating (2.24) with respect to N and setting it equal to zero, we obtain (2.23).

(This is under the assumption that X (N ) < 0). In other words, (2.23) is nothing but
the capitalists’ labor demand function, which shows how the capitalists determine
employment level in order to maximize their profits under the given production
technology X (N ), money wage rate w, and price level p. Thus, it is not surprising
that (2.23) cannot determine the real wage rate. The claim that the real wage rate is
given by (2.23) implicitly assumes the following:
N = Labor supply (2.25)
This equation means that full employment is realized and there is no unemployment.
However, needless to say, this condition is hardly satisfied in the capitalist economy,
and even if the labor supply is assumed constant, the demand for labor can fluctuate.
30 Hicks [10, Chap. 1, p. 8].

Next, it is easy to show the groundlessness of the assertion that the real wage
rate given by (2.23) and (2.25) is fair, and that exploitation exists only if the real
wage rate is lower than this level. It is enough to recall that (2.23) indicates the profit
maximizing behavior of capitalists.
Consequently, the marginal productivity theory cannot explain the determination
of the real wage rate. It only describes the production and employment decisions of
capitalists under some limited presumptions.
2.3.3 The Labor-Market Theory31
This theory claims that the real wage rate is determined at the equilibrium of demand
and supply in the labor market. When there is excess demand in the labor market,
the real wage rate will rise; and vice versa. Indeed, for example, the price of steel
is determined at the equilibrium of demand and supply in the steel market, so that
excess demand for steel raises the price, while excess supply lowers it. Therefore, this
theory might appear to be absolutely correct. Is it true? A more careful consideration
reveals that the problem is not as simple as this theory might suggest.
It should be noted that the real wage rate is different from the money wage rate. The
real wage rate is defined as the amount of consumption goods that can be purchased
by wages per unit of labor (money wage rate). Hence, the real wage rate R is given
by
w
R= (2.26)
p2
where w and p2 are the money wage rate and the price of consumption goods,
respectively.
It is not the real wage rate but the money wage rate that would be directly
affected by the demand–supply conditions in the labor market. Even when the money
wage rate is determined, the real wage rate undoubtedly could change depending
on the consumption goods price. In addition, the consumption goods price is not
directly affected by the demand–supply condition in the labor market, but is mainly
determined by other forces.
It is now obvious that the deficiency of the labor-market theory is that it fails
to distinguish the real wage rate from the money wage rate. We should also note
that, in general, the money wage rate and the real wage rate may not move in the
same direction, unless a set of special conditions are satisfied. We will refer to those
conditions later.
If there is a large number of unemployed laborers, the money wage rate will drop
inevitably, unless the unemployed laborers fight against the wage cut effectively in
cooperation with the employed laborers. However, as has been shown, the real wage
31 Marshall [13, Book 6, Chap. 3, pp. 546–558].

rate is determined as the ratio of the money wage rate and the consumption goods
price. Therefore, we cannot talk about the direction of the real wage rate changes
without knowing how the consumption goods price moves when the unemployment
rate is substantially high and the money wage rate is falling. Suppose high unem-
ployment is caused by an overall production contraction because of a general over-
production in the capitalist economy. In this case, since the overproduction, i.e., the
excess supply, exists in the consumption goods market, the consumption goods price
will fall, unless the capitalists have a strong monopoly power, enough to maintain
their product price. This means that the behavior of the real wage rate is determined
by the relative declining rates of the money wage rate and the consumption goods
price. And, it could be the case that the consumption goods price falls faster than the
money wage rate, so that the real wage rate rises. In fact, this kind of real wage rate
rise is not only feasible but also highly possible. This is because, as is well known,
the profit rates in both the consumption and production goods sectors fall during an
overall production contraction that results from general overproduction. As proved
in the Mathematical Appendix, the profit rates and the real wage rate move in oppo-
site directions if the production technology remains constant. In other words, we
can consider that, assuming the constant production technology, the real wage rate
usually rises when the profit rates decline. Hence, we may accept the possibility that
when unemployment is caused by a production contraction due to general overpro-
duction, the consumption goods price could fall faster than the money wage rate,
which generates a rise rather than a fall in the real wage rate.
In the opposite case to the above illustration, we may again show the incorrectness
of the labor-market theory, which claims that the real wage rate is determined by the
equilibrium of demand and supply in the labor market. Suppose market conditions are
tight and a “labor shortage” is generated in the labor market. In such case, the money
wage rate would rise. However, to see if the real wage rate rises, we must consider
the changes in goods prices. For simplicity, assume that production technology is
constant. The excess demand for labor is usually caused by a strong demand for
goods during a boom phase of the business cycle. If this is the case, there probably
exists an excess demand in the goods markets, so that goods prices will rise. The
increase in goods prices probably exceeds a rise in the money wage rate. This is
revealed by the fact that the profit rate rises during the boom phase.
It would be now obvious from the above expositions that an inference about the
movement of the real wage rate based directly on the condition of the labor market is at
least incomplete. Many economists, including Marx, have considered that demand–
supply conditions in the labor market could explain fluctuations in the real wage rate,
probably based on the following observation: During a boom, when unemployment
decreases and the labor market becomes tight, the real wage received by the labor
class (or the real wage earned by each worker per day) is higher than wages during a
recession with high unemployment; thus, the living standard of laborers in a boom is
relatively high compared to that in a recession. It was probably the observation of this
fact that yielded the theory that assumes a direct link between the demand–supply
condition in the labor market and the movement of the real wage rate.
Readers must note that an increase (or decrease) in the level of the real wage
rate does not necessarily improve (or worsen) the standard of living of laborers. The
reason is as follows. It is the total real wage per day B that determines the living
standard of laborers. Of course, working hours per day T can also affect the laborers.
If T is exceedingly extended, laborers’ living standard would collapse regardless of
how large B is. On the other hand, the living standard of laborers is not necessarily
improved when the real wage rate B/T becomes higher. For example, consider the case
where prices of consumption goods are constant, so that the real wage is proportional
to the money wage. If a worker works three hours a day on average to receive 300
yen per hour, he or she earns 900 yen a day. However, even if the money wage rate is
150 yen per hour, he can get 1350 yen if he works nine hours a day on average. An
increase in the real wage rate always lowers the rate of exploitation under a given
labor productivity, but it does not always bring an improvement in the living standard
of laborers.
Consequently, we cannot accept the theory that claims that the level and movement
of the real wage rate are determined by the demand–supply condition in the labor
market. We should keep this conclusion in mind as relevant when we study the capital
accumulation process in a capitalist system.
2.3.4 The Commodity-Market Theory
This theory takes a critical stance towards the labor-market theory. The commodity-
market theory claims that the real wage rate is not determined by the equilibrium of
demand and supply in the labor market, but by that in the commodity market: excess
demand in the commodity market lowers the real wage rate, while excess supply
raises it.
To assess this theory, we need to examine three issues. The first issue is how we
evaluate the commodity-market theory in comparison with the labor-market theory.
The second is how we consider the relationship between the commodity-market
theory and the reproduction cost theory. The third is how we evaluate Keynes’ theory
specifically, rather than the commodity-market theory in general; we will discuss this
in the appendix to this section. Below we examine these three issues in turn.
First, let us compare the commodity-market theory with the labor-market theory.
We have already shown the reason why the labor market theory is unacceptable. The
fluctuation of the real wage rate is strongly affected by the demand–supply condition
in the commodity market. This may lead us to the following reflections. The real
wage rate is defined by the money wage rate and the commodity price. The money
wage rate is determined and fluctuated by the demand–supply condition in the labor
market, while commodity price is determined and fluctuated by that in the commodity
market. Therefore, the real wage rate is determined by the demand–supply conditions
in both commodity and labor markets. This line of thought may be correct as far as
it goes. However, when considering the determination of the real wage rate, is it
appropriate to put the same weight on the strength of the demand–supply condition
in the labor market as on that in the commodity market?
Again, consider the case in which unemployment prevails in the labor market and
there is excess supply in the commodity market. In this situation, the money wage rate
may fall, but it is inconceivable that capitalists will raise their labor demand so that
unemployment is reduced. The reason is that if capitalists increase employment to
expand the production level and increase the supply of the commodity, they cannot
sell that output under satisfactory conditions in this situation. Rather, prices will
fall in the commodity market, and thus the capitalists will reduce employment by
lay-offs, and lower the output and the capital-utilization rate. That is, the capitalists
will not equalize their employment level to the labor supply, but they will try to
adjust their production level (and therefore the employment level) according to the
commodity demand. In other words, whereas unemployment in the labor market will
not be an incentive for capitalists to change their employment and output levels, an
excess supply in the commodity market could be a critical factor that may affect the
capitalists’ employment and production decisions.
Furthermore, the demand–supply condition in the labor market mainly reflects the
condition in the commodity market, and not the opposite. The capitalists determine
employment level according to their production and commodity supply decisions, and
those decisions in turn depend upon the demand–supply condition in the commodity
market. J. S. Mill asserted that the demand for labor does not depend on the demand
for commodities, but on the existing amount of capital stocks.32 However, the level
of commodity demand obviously has a large effect on the demand for labor, because
capitalists do not employ laborers to produce a commodity for which there is no
demand. The existing amount of capital stocks may determine the employment level
only when there is sufficient demand for commodities such that the capital equipment
be fully utilized. In this case, the amount of capital stocks restricts the demand for
labor.
The above consideration reveals that it is not appropriate to put the same weight on
the labor market condition as on the commodity market condition, and that the former
is derived by the latter. In a capitalist society, where the capitalists own the means
of production and make all the employment and production decisions, the economic
forces act towards realizing a temporary equilibrium in the commodity market, and
not towards realizing an equilibrium in the labor market. Hence, employment, output
and the real wage rate do not move in the direction of an equilibrium between demand
and supply in the labor market, but in the direction of an equilibrium in the commodity
market. Thus, it is safe to say that the commodity-market theory on the determination
of the real wage rate points out an important fact.
Next, consider the relationship between the commodity-market theory and the
reproduction-cost theory on the determination of the real wage. We should note that
the equilibrium condition of the commodity market determines only the temporary
level of the real wage rate. It is just an “equilibrium” where the real wage rate clears
the commodity market at each moment in time.
32 Mill [17, pp. 419–420].

On the other hand, the reproduction-cost theory intends to provide not a temporary
but a long-term equilibrium level of the real wage rate. The reproduction-cost theory
is thus essentially different from the labor-market and commodity-market theories,
both of which deal with temporary determination and movement of the real wage
rate. As has been pointed out, the classical school explained temporary fluctuations
in the real wage rate based on the labor-market theory, and considered that those
fluctuations gravitate towards the reproduction cost of labor.
If we reject the labor-market theory and follow the commodity-market theory,
how can we relate it to the reproduction-cost theory? The labor-market theory states
that, when the real wage rate is higher than the reproduction cost of labor, it will
fall due to an increase in labor supply or a decrease in labor demand; when the real
wage rate is lower than the reproduction cost, it will rise because of a decrease in
labor supply or an increase in labor demand. In this way, the labor-market theory
may easily explain the cyclical motion of the real wage rate around its equilibrium
level that corresponds to the reproduction cost of labor.
If the real wage rate moves according to the demand–supply condition in the
commodity market, is it possible to explain the cyclical fluctuation of the real wage
rate? When the real wage rate is high, does the demand–supply condition in the
commodity market lower it? A high real wage rate occurs when the level of demand
in the commodity market is low; at that time, the production level and the utilization
rate of capital equipment is also low. If so, the demand for commodities probably
decreases further in the next period (a detailed account of this issue will be given
in Sect. 3.1). The reason is as follows. The demand for commodities is mainly
determined by the additional demand for production goods by capitalists, i.e., new
investment, in order to expand production. Hence, when the capital utilization rate
is low, capitalists are discouraged from making new investments, with the result that
the demand for commodities will be lowered. This means that prices of commodities
will fall further, and thus the real wage rate will rise rather than fall.
On the other hand, if the real wage rate is low, does the demand–supply condition in
the commodity market react to raise it? A low real wage rate occurs when demand for
commodities is high; at that time, the production level and the capital utilization rate
are also high. In this case, new investment demand by capitalists will increase in the
next period, and this will raise the demand for commodities. Therefore, commodity
prices will increase, and the real wage rate will be depressed further, rather than be
raised.
Thus, if we accept that the real wage rate mainly responds to the demand–supply
condition in the commodity market, it is not so easy to explain the cyclical behavior
of the real wage rate, as in the labor-market theory. The commodity-market theory
suggests that the real wage rate tends to diverge monotonically.
However, this does not mean that we should reject the reproduction-cost theory
in order to accept the commodity-market theory. If the real wage rate continues to
diverge monotonically from the reproduction cost of labor, then it becomes impos-
sible to sustain a capitalist society. Continual rise in the real wage rate will result in
a negative rate of profits, so that capitalists will not be able to exploit surplus labor.
Conversely, if the real wage rate continues to fall, it finally becomes lower than
the critical level that is needed to sustain laborers’ lives, and then production itself
becomes impossible. Therefore, the divergent movements of the real wage rate must
be reversed in order to sustain a capitalist society. How, then, can this be realized?
As has been discussed, an upward divergent process of the real wage rate corre-
sponds to a cumulative contraction process in production, while a downward diver-
gent process of the real wage rate derives from a cumulative expansion process in
production. Hence, a reversal of the divergent process of the real wage rate is gener-
ated by a reversal of the divergent behavior of production. This requires us to consider
how boom and prosperity turn into a crisis, and how crisis and recession turn into
recovery and boom.
In other words, when we integrate the commodity-market theory with the business
cycle theory, we can explain the cyclical movement of the real wage rate, and can
relate it to the level of the real wage rate—determined by the reproduction cost of
labor—around which it fluctuates.
Additional Note: Historical Notes on the Commodity-Market Theory
Malthus
We can find an early sign of the commodity-market theory in Malthus. Malthus
considered the “value” of commodities to be determined by demand–supply condi-
tions in the commodity markets. His concept of “value” is defined not as the bestowed
labor for commodity production, but as the “commanded labor” (see Sect. 2.2).
Letting w and p be, respectively, the money wage rate and price of a certain
commodity, then p/w is the commanded labor. That is, the commanded labor per
unit of the commodity is simply the reciprocal of the real wage rate evaluated by
that commodity. Therefore, the claim that demand–supply conditions in commodity
markets determine the “value,” i.e., the commanded labor of commodities, is equiv-
alent to saying that the real wage rate measured in those commodities is determined
by those conditions.
Thus, Malthus in effect accepted the commodity-market theory of real-wage deter-
mination. However, as already explained, he also supported the labor-market theory
and the reproduction-cost theory as explanations for determination of the real wage
rate.
As we have already discussed, the reproduction cost theory is closely related to the
labor-market theory in the history of economic thought: fluctuations in the real wage
rate were explained in terms of demand–supply conditions in the labor market, while
the long-run equilibrium level to which the real wage rate gravitated was determined
by the reproduction cost of labor. Hence, Malthus’ argument was consistent when he
supported both the reproduction-cost theory and the labor-market theory. However,
the latter theory is not compatible with the commodity-market theory. To exemplify,
let us consider the following problem.
If both labor and commodity markets have excess supply (and thus unemployment
and over-production prevail, respectively), how does the real wage rate move? We
must answer that the real wage rate will fall, based on the labor-market theory, but
based on the commodity-market theory, we must answer that it will rise (the “value”
of the commodity will fall). These results contradict each other.
From the viewpoint of the history of economic thought, it is very interesting to
investigate why Malthus failed to realize this contradiction and to solve it. However,
this question is beyond the scope of our study. It was Keynes’ General Theory
of Employment, Interest and Money that intentionally supported the commodity-
market theory, rejecting the labor-market theory of real-wage-rate determination,
and engaging with Malthus’ contradiction between the two theories.
Keynes
The essence of Keynes’ view33 on the commodity-market theory is as follows. It is the
money wage rate and not the real wage rate that is determined in the labor market. If
the real wage rate is given by the equilibrium in the labor market, “full employment”
of labor is attained. However, in a capitalist economy, full employment is realized
only in a very special situation. Full employment is hardly attained, because market
demand is not necessarily large enough that capitalists can sell the full-employment
level of output at desired prices.
When the demand for commodities is low, output and employment are below
than their full-employment levels, so that unemployment exists. In this case, the
real wage rate does not necessarily fall, while the money wage rate might decrease.
In fact, there are reasons for the real wage rate to be higher than the level satis-
fying full employment, i.e., the labor-market equilibrium condition. Keynes adopted
the marginal productivity theory in analyzing the production and employment deci-
sions of firms. Given a commodity price p and money wage ratew, the firm makes
production and employment decisions based on profit maximization. The following
conditions are derived,
w
X (N ) = (2.27)
p
X = X (N ) (2.28)
which determine employment N and production level X . Thus, the real wage rate
that realizes full employment is given by (2.27), (2.28) and
N = Ns (LaborSupply) (2.29)
where Ns denotes labor supply. On the other hand, the real wage rate determined by
the equilibrium condition of the commodity market is given by (2.27), (2.28) and
X=D (2.30)
33 Keynes [11, Chap. 3, pp. 28–30].

where D is demand for commodities. These alternative levels of real wage rate
coincide with each other if and only if the demand for commodities satisfies
D = X (Ns ) (2.31)
Of course, we cannot expect that this condition holds generally, so the real wage rate
(w/ p) F determined by the equilibrium condition of the labor market is different from
the real wage rate (w/ p)∗ determined by the equilibrium condition of the commodity
market. If the demand for commodities is not large enough for the full-employment
level of output,
D < X (Ns ) (2.32)
Then, we obtain
(w/ p)∗ > (w/ p) F (2.33)

The reason is that, assuming X (N ) < 0, from (2.27) and (2.28) the output
(commodity supply) level X decided by capitalists is a decreasing function of the
real wage rate. This is depicted in Fig. 2.6, where the locus S denotes the supply of
commodities for each level of the real wage rate.
As a result, in the Keynes’ system, the equilibrium of the commodity market
determines the real wage rate. In other words, the real wage rate is determined by the
factors that affect the demand–supply condition in the commodity market. Keynes
neither mentioned the factors that affect the supply side of commodities nor suggested
the policies that might change it. In his General Theory, he mostly concentrated on the
analysis of the amount of commodity demand and on the policies that may increase
the demand level.
Fig. 2.6 Supply behavior

A Critique of Keynes
Keynes failed to understand, under the fundamental production relation in a capitalist
society, that the real wage rate is determined by the demand–supply conditions in the
commodity markets. This point is substantially related to the foundation of Keynes’
theory. As we have seen in Sect. 2.1, the fundamental character of a capitalist system
is that it is a society with exploitation based on prevailing commodity production.
Because it is a society with exploitation, laborers are forced to provide surplus labor.
Letting N be the total labor input of a society, the total surplus labor of the society
M is given by
(1 − Rt2 )N = M
where R and t2 are the same as those in Sect. 2.2. In addition, since all the means of
production are owned by capitalists, employment N is determined by the capitalists.
Their decisions of employment and production depend upon the rate of exploita-
tion. Hence, if we assume that the labor productivity of consumption goods 1/t2 is
constant, we obtain
N = N (R), N < 0
because the rate of exploitation is a decreasing function of the real wage rate R.
These two relations yield
(1 − Rt2 )N (R) = M
This equation shows that M determines R. The implication of the above is as follows.
Suppose the capitalist class demands a certain amount of output (commodities
in a capitalist economy) produced by surplus labor. This demand may be either
consumption goods for their personal consumption or production goods to increase
their own stock of the latter. The capitalists must exploit enough surplus labor to
produce output that meets their demand. To attain this, they must force laborers to
provide the necessary amount of labor. However, the rate of exploitation (and thus
the real wage rate) should be at a level below which the capitalists can decide to
employ sufficient surplus labor to satisfy their demand for commodities.
If the capitalists’ demand for surplus labor increases, they must exploit a larger
amount of surplus labor in response, which requires a decrease in the real wage rate
under a given labor productivity.
Accordingly, behind the proposition that the real wage rate is given by the demand–
supply condition in the commodity markets, we can see the following: the amount
of surplus labor exploited from the laborers, and thus the rate of exploitation, is
determined in a special manner which is attributed to the capitalist system. In an
exploitation society without a commodity production, the exploitation of surplus
labor can appear directly, rather than via the roundabout of demand–supply conditions
in the commodity market, money wage rate, and price of consumption goods. If
the exploiters (for example, owners of slaves) desire a specific amount of output,
they may raise the rate of exploitation or increase the number of slaves in order
to coerce the necessary surplus labor that will satisfy their demand. The capitalist
society accomplishes the same thing through the demand–supply conditions in the
commodity markets, and the relative relationship between prices and wages.
Keynes only observed the phenomena in commodity markets, and could not grasp
the true social relation, i.e., class relation behind these phenomena. Economics as a
social science cannot provide scientific analysis unless it gets to the bottom of every
economic phenomenon pertaining to the production relations in society. Based upon
this criterion, it is obvious that Keynes was only a bourgeois economist.
Keynes treated the following fact as if it were a “natural law:” given labor produc-
tivity, the real wage rate decreases only when there is large demand for commodities,
and thus the employment level is high; conversely, it increases only when the demand
for commodities is low, and thus unemployment is high. If this is true, laborers cannot
obtain a higher level of real wage rate without cooperating with the capitalists to
increase labor productivity through rationalization. If they do not cooperate with the
capitalists, it is inevitable that some laborers will be dismissed. However, as we have
shown in the simple explanation above, this is not a “natural law.” It is generated by
the production relation in the capitalist system, and by the employment decision of
the capitalists based on that relation. Keynes’ theory conceals the fact that laborers
may change this production relation and the employment decision of capitalists that
is based on it.34
2.4 Mechanism of Determination of the Real Wage Rate
In Sect. 2.3 we examined existing theories on the determination of the real wage
rate, and through that discussion presented the outline of our own concept of the
determination and fluctuation of the real wage rate. On this basis, in this section
we examine the temporary determination, the fluctuation process, and the cyclical
movement of the real wage rate.
As it could be understood from the explanation in Sect. 2.3, the movement of
the real wage rate is intimately related to capital accumulation and the business
cycle. Therefore, in order to study the process of accumulation, we must necessarily
go into the fluctuation process of the real wage rate. As we will clarify further in
subsequent chapters, some theorists have fallen into error in their arguments regarding
the accumulation process and the business cycle, for lack of a proper understanding
of the real wage rate fluctuation. This is the reason why, in this book, a considerable
number of pages on the subject of “Accumulation” are devoted to the real wage rate.
In Sect. 2.4, we examine firstly the range within which the real wage rate must
stay in order that the capitalist society should be sustained and reproduced. We then
34 For a detailed discussion on this point, see Niino and Okishio [20].
2.4 Mechanism of Determination of the Real Wage Rate 57
consider the factors by which and the manner in which the level of real wage rate is
determined at a certain point in time. Lastly, we look at what sort of movement the real
wage rate takes when influenced by changes in those factors, as it fluctuates cyclically
inside the admissible range already clarified. In addition, we discuss the long-term
standard level of the real wage rate. Section 2.4 is also intended to present an outline
of the arguments regarding the accumulation process, which are to be developed
in subsequent chapters. Thus, with regard to certain issues, detailed discussions are
deferred to subsequent chapters.
2.4.1 Reproduction of Wage-Labor Power and Real Wages
As we have seen in Sect. 2.1, the basic relation of production in the capitalist society is
the private ownership of the means of production by capitalists. As a result of this, two
distinct classes come into existence: the capitalist class and the wage laborer class.
Wage laborers sell their labor power to capitalists. Capitalists buy the labor power
from wage laborers, and the latter become dependently involved in production by
operating the means of production provided by the capitalists. Therefore, production
is carried out in order for the capitalists to pursue their profits.
This being said, in order that the capitalistic relation of production be sustained
and reproduced recurrently, the aforementioned social relation must be maintained
year after year. Otherwise, even if the reproduction of material goods and labor
power is fulfilled (this will be discussed in detail in Sect. 3.1), the sustainability and
continuation of the capitalist society itself becomes impossible. While it is true that
the reproduction of a capitalist society is not possible without the reproduction of
material goods and labor power, this is only a necessary yet not sufficient condition
for the reproduction of a capitalist society.
The reproduction of mere labor power is still insufficient for the reproduction of a
capitalist society. It is absolutely necessary that labor power be reproduced as wage-
labor power. That is to say, the capitalist relation of production can be reproduced
only when it is guaranteed that laborers appear continuously in the labor power
market, and sell their labor power day after day. Then, within what range should the
real wages be confined in order that the laborers be obliged to appear as sellers in
the labor power market, that is, to become wage-laborers day after day? This is the
question addressed in Sect. 2.4.1. This matter is presumably what Marx intended
when he considered the determination of the value of labor power. For, as we saw
in Sect. 2.3.1, Marx thought that what determines the value of labor power is not
the reproduction cost of mere labor power, but of wage labor power. Therefore, the
argument in Sect. 2.4.1 can be developed on the basis of Marx’s conception. However,
a slight difference must be noted. While Marx considered the level of the real wages
necessary for the reproduction of wage labor power, we consider the admissible
range from which the real wages for the reproduction of wage-labor power must not
deviate. That is to say, we consider the lower limit below which the real wage for the
reproduction of wage-labor power must not fall, and the upper limit which must not
be exceeded. Once those limits are clarified, we then discuss the mechanism which
actually confines the real wage inside this range.
2.4.1.1 Lower Limit of Real Wages
If real wages fall below a certain level for a long period of time, then wage laborers
will cease to appear regularly in the labor power market. This level, i.e., the lower
limit, is determined by the following factors.
Lower Limit 1
Real wages must not fall below the minimum level indispensable for laborers’ liveli-
hood. If wages fall below this level, physiological reasons make it impossible for
the laborers to re-appear in the labor power market. Also, laborers will come to have
no incentive to sell their labor power to the capitalists, and therefore the latter will
become unable to obtain their wage laborers without resorting to violent compulsion.
The minimum living necessities we discuss here are determined not only by physio-
logical factors, but also by social factors. Therefore, as social standards of living and
culture change, the minimum level below which production of labor power becomes
impossible also changes, by increasing.
If the social standard of living is not above a certain level, the capitalist relation of
production cannot sustain itself. This is because, if living necessities were available
without any labor of long duration and without any special means of production,
people who have no means of production would not sell their labor power as wage
laborers, except when forced. Such a situation actually does occur in some societies,
where the standard of living is extremely low, and the natural conditions are so
amenable that living necessities are available without effort. Under such conditions,
the capitalist relation of production cannot persist, unless the capitalists resort to some
extra-economic compulsion, or artificially ring-fence the living necessities given by
nature, and charge a certain amount of money in exchange for them. Marx referred
to such a situation when he stated the following in Capital: “if the laborers could live
on air they could not be bought at any price.”35
Lower Limit 2
Real wages must not fall below the income available in micro enterprises. The micro
enterprises we are discussing here mean businesses that can be carried on with
scarcely any funds; for example, in Japan, the “peddlers” prevalent just after the
end of the Second World War, and the tenant farmers prevalent before the war. If
35 Marx [15, Chap. 24, Sect. 2.4, p. 421].

wages fall below this level, laborers would have no incentive to sell their labor power
in the market.
In the Japanese capitalist society before World War II, semi-feudal poor conditions
in rural areas contributed to pushing down the lower limit of real wages. In our times,
the ruling class is greatly interested in suppressing the amount of assistance aid within
the social security system. This is related to the suppression of the lower limit of real
wages.
2.4.1.2 Upper Limit of Real Wages
If real wages exceed a certain level for a long period of time, then the reproduction
of wage-laborers becomes impossible. Such an upper limit is determined by the
following factors.
Upper Limit 1
Real wages must not substantially exceed the living cost of laborers. Marx, too,
considered that the level of real wages must not be in excess of the level which “it
secures by the annihilation of the necessaries of life, the continued re-appearance of
the workman in the labor-market” in order that,
the laborer, on quitting the process, is what he was on entering it, a source of wealth, but
devoid of all means of making that wealth his own.36
The perennial re-appearance of laborers in the labor power market cannot be
guaranteed, unless the real wages received by laborers satisfy the following condition:
The necessary amount to be saved

Living necessities
Real wages < + in order to escape (2.34)
actually consumed
from the status of wage laborer
If the wages of laborers substantially exceeded the level of their living cost to the
extent that, by accumulating this margin for a certain period of time, the laborers
were able to buy the means of production and to become the owners of their own
businesses, or they were to live on that amount of money without selling their labor
power, there would be no guarantee that laborers would re-appear continually in
the labor power market. In such case, the reproduction of wage-laborers would
become aleatory. And it will become difficult to exclude direct laborers, who are the
foundations of the capitalist relation of production, from the ownership of the means
of production.
As is clear from the above inequality (2.34), in order that the real wages should
satisfy this condition, either of the following two situations is sufficient: either the
36 Marx [15, Chap. 23, pp. 405, 403].

laborers receive real wages on which they can barely manage to sustain their liveli-
hood, whatever level this might be, or the necessary amount to be accumulated in
order to escape from the status of wage laborer is prohibitively high. This condi-
tion also can be stated in other words as follows: either the laborers cannot extract
savings, or, even if they can, the amount required is so large that, by accumulating
their savings, they can neither become owners of their own businesses nor become
leisured people who can live without selling their labor power.
The capitalist economy fulfills this condition via the following routes. First, the
capitalist economy deprives laborers of the possibility to save money by suppressing
real wages. (A detailed discussion on its process is to be found in subsequent subsec-
tions.) Second, in the case where real wages rise, the capitalist economy compels
the laborers through social media such as propaganda and education to raise their
expenditure correspondingly, so that the laborers’ possibility of having savings might
be lowered. Third, the capitalist economy prevents wage laborers from becoming the
owners of the means of production by raising the minimum amount of money required
for an individual to become the owner of an independent business. (A detailed discus-
sion of this is to be found in Sect. 5.3.2) Among these three routes, the third has
played the most decisive role in capitalism. In fact, the industrial revolution sharply
raised the minimum quantity of money required for business so as to deprive the
laborers of the possibility of acquiring their own businesses by buying them up, and
consequently established the foundation of the capitalistic reproduction. In previous
eras, if they sold their labor power for a limited time as wage laborers, and saved
money from their wages, the means of production (for example, land) were relatively
easily obtained, such that laborers were able to have their own businesses. Therefore,
laborers did not always appear continually as sellers in the labor power market. In
this situation, capitalists could not get their wage laborers regularly through the usual
methods, so they bound their wage laborers compulsively to the labor power market
by violent means, or else prevented laborers’ land ownership by setting artificially
high prices on lands.
Upper Limit 2
Real wages rate must not be so high that the rate of exploitation might fall below the
standard level.
For the reproduction of the capitalist production relation, it is an absolutely neces-
sary condition that laborers appear recurrently as wage laborers in the labor power
market, and in order to realize this, their labor power must be purchased by capi-
talists. Otherwise, the labor power market itself could not exist; there is no market
where only sellers and no buyers exist. And for those who have been separated from
the means of production, there is no other way to live but to become wage laborers.
Therefore, the sales of labor power must be subject to the conditions under which
capitalists, the owners of the means of production, willingly decide to purchase labor
power and carry on production. Needless to say, it is not for charity that capitalists
purchase labor power from wage laborers; nor does the purchase of labor power for
the capitalists’ personal services play a major part. Purchasing labor power, allowing
the wage laborers to be engaged in production through their labor, and then selling
the products, are all carried out on the basis of the capitalists’ aiming for profits.
Therefore, capitalists never purchase labor power and carry out production unless
they can do so under conditions whereby they earn profits.
Apart from the above, do capitalists purchase labor power at any level of profit,
so long as profits exist? In this regard, Marx stated that, when wages rise, “all other
circumstances remaining equal, the unpaid labor diminishes in proportion. But as
soon as this diminution touches the point at which the surplus labor that nourishes
capital is no longer supplied in normal quantity, a reaction sets in.”37
As we have already clarified in Sect. 2.2.3, when the real wage rate increases, the
exploitation rate decreases. In fact, the exploitation rate can be expressed as
1 − Rt2
e=
Rt2
so that the exploitation rate e is a decreasing function of the real wage rate, as long as
the amount of bestowed labor per unit of consumption goods is constant. Accordingly,
it is necessary for capitalist reproduction that the real wage rate R not go up so high
that the exploitation rate falls below the critical level e∗ , at which capitalists consider
that production and employment are barely worth pursuing.
Thus, in order that capitalist reproduction be perpetuated, the real wage rate must
lie within the range expressed by Rmin ≤ R ≤ Rmax . Therefore, where within
this range is the real wage rate actually determined, and how does it fluctuate?
Furthermore, how is it reversed and reinserted within the admissible range, as it heads
towards the upper or lower limit? In order to clarify these mechanisms, as will be
revealed gradually further on, we must study the characteristics of the accumulation
process in a capitalist system. For there is an extremely close relation between the
analysis of the accumulation process and the issue of the real wage rate fluctuations.
2.4.2 Temporary Determination of the Real Wage Rate
At a certain point in time, there exist certain production facilities in the sectors of
production goods and consumption goods. They are the results of prior production
activities, and have a given volume at a specific point in time.
If these production facilities are operated normally, a certain amount of production
goods as well as consumption goods could be produced. However, from this fact alone
we cannot determine how many products will actually be produced. This is due to
the fact that capitalists, who determine to what extent the facilities available in both
sectors should be utilized, do not necessarily decide to operate them at normal rate all
the time. Therefore, at what level will the production in both sectors actually be set?
In other words, at what level will the operation rate of production facilities in both
sectors be aimed? Furthermore, at what level will the employment of labor power in
37 Marx [15, Chap. 25, Sect. 2.1, pp. 437–438].

both sectors be set? By answering these questions, we can find at what level the real
wage rate at a certain point in time is determined.
In order to solve this problem, let us divide it into the following three points, and
examine them in turn: (1) Capitalists’ behavior in regard to the determination of the
rate of utilization and the volume of production; (2) Demand for the products of both
sectors; (3) Temporary equilibrium points of supply and demand in both sectors.
Before discussing these points, it would be helpful to explain the major
assumptions we make, in order to avoid unnecessarily complex elaborations.
First, we assume that there are two basic sectors, i.e., the production goods and
consumption goods one, and that there is only a single product in each sector. Produc-
tion technologies in both sectors are expressed by (a1 , τ1 ) and (a2 , τ2 ), respectively.
Here a1 and a2 denote the amounts of production goods used up in order to produce
one unit of production goods and consumption goods, respectively, while τ1 and τ2
denote the amounts of direct labor required in order to produce one unit of produc-
tion goods and consumption goods, respectively. We abstract the issues concerning
fixed capital. The production goods produced in the present period shall be used for
production after the next period.
2.4.2.1 Capitalists’ Behavior in Regard to the Determination

of the Production Amount
Let us examine the behavior of a capitalist in the production goods sector. He or

she holds a certain amount of production goods. Suppose, if they utilize this fully,
that they can produce x1∗ amount of production goods. They will determine the
production amount x1 within the range x1∗ ≥ x1 ≥ 0. The determination of the
production amount, at the same time, entails a certain amount of demand for labor
power (the amount of employment).
Therefore, how will they determine this production amount? They will proceed
with production not in order to consume the products themselves, but in order to sell
them as commodities in the market. Therefore, the first factor capitalists consider as
they decide the production amount is how much demand exists for that commodity.
While it is true that capitalists produce their commodities in order to sell them,
they do not always produce commodities whenever demand exists. For the capi-
talist, production as well as sales are not an objective but a means. The objective of
production is the acquisition of profits. Therefore, capitalists do not always produce
and supply their commodities under whatever conditions as long as demand exists.
Accordingly, the second factor they consider as they decide the production amount
is under what conditions the commodities can be sold. This point is fundamental
to an examination of capitalist production. In “bourgeois economics,” however, this
fact is often neglected. For example, in the input–output analysis which has become
popular recently, when the government expenditure increases by a certain amount
for a particular industry, how much the production amount increases not only in that
industry but also in related industries is calculated.38 This analysis, however, ignores
the fact that the capitalists in the industrial sectors, who are the decision-makers in
regard to production, do not decide to produce merely because there exists demand,
but proceed with additional production only when their commodities can be sold
under acceptable conditions. Ignoring this fact, the calculation is performed under
the assumption that the increase in production in each sector is equal to the increase
in demand. As already mentioned, capitalists do not carry out production in order to
merely satisfy demand, so it is not obvious whether an increase in production equal
to the calculated amount will actually be realized in the capitalist economy.
Capitalists, when they decide on production, examine the sales possibility under
conditions that might bring satisfactory profits. Now, let us ask what the profit rate
in the production goods sector would be. The profit rate in this sector is defined as
follows39 :

w
p1 − (a1 p1 + τ1 w) 1 − a 1 + τ1 p1
r1 = =
a 1 p1 a1
Provided that the production technology (a1 , τ1 ) is given, r1 is a function of the real
wage rate in terms of production goods w/ p1 , and it is a decreasing function. In
other words, if the real wage rate in terms of production goods rises, the profit rate
in production goods sector will fall, and vice versa.
Now, capitalists in the production goods sector do not decide to produce unless
not only their commodity can be sold, but also they can earn considerable profits.
As they raise their production level, the uncertainty of sales possibilities increases.
If capitalists decide to undertake production up to the capacity limit in spite of this
uncertainty, they must be able to expect a considerably high rate of profit. Therefore,
as a first approximation, we may suppose that capitalists who own a certain capacity
of production decide their production level on the basis of the profit rate: they will
raise the production level when the profit rate is high, and lower it when the profit
rate is low. This relation is expressed as follows:
x1 = f (r1 ) f > 0 (2.35)
Now, if the production technology is constant, the profit rate in the production goods
sector r1 and the real wage rate in terms of production goods w/ p1 are in inverse
relation, so that (2.35) can be rewritten as follows:

w
x1 = x1 x1 < 0 (2.35 )
p1
38 Leontief [12, Part 4, pp. 139–148].

39 We define the profit rate in this way because we omit the ex-ante payment of wages. Please refer
to Additional Note to Sect. 3.3.2.1.
This expression states the behavior of capitalists in the production goods sector as
they decide the production level. It goes without saying that, however high the profit
rate may be, in other words, however low the real wage rate in terms of the price of
production goods may be, x1 cannot exceed the maximum production capacityx1∗ .
Now, what is the result, if we apply the above framework to the consumption goods
sector? The profit rate in the consumption goods sector is

p2 − (a2 p1 + τ2 w) 1 − a2 pw1 pw2 + τ2 pw2
r2 = =
a 2 p1 a2 pw1 pw2
Therefore, the profit rate in the consumption goods sector r2 is a function of

the real wage rate in terms of production goods w/ p1 on the one hand, and of the
real wage rate in terms of consumption goods w/ p2 (this is what we have called
the real wage rate so far) on the other hand. Of course, our discussion rests on the
assumption that the production technology of (a2 , τ2 ) is given. It is obvious from the
above expression that the profit rate in the consumption goods sector is an increasing
function of the real wage rate in terms of production goods, and a decreasing function
of the real wage rate in terms of consumption goods.
Suppose the production decisions of the capitalists in the consumption goods
sector are made on the basis of the profit rate in their own sector, in the same way as
those of the capitalists in the production goods sector; then the production level x2
decided by the capitalists in the consumption goods sector is expressed as follows:
x2 = h(r2 ) h > 0 (2.36)
If the production technology is constant, the above expression can be rewritten as

below:

w w ∂ x2 ∂ x2
x2 = x2 , w >0 <0 (2.36 )
p1 p2 ∂ p1 ∂ pw2
This is the function stating the behavior of the capitalists in the consumption goods
sector.
Additional Note: The Behavior of Capitalists Toward the Production Decision
We elaborate on why we adopt the supposition that the capitalists’ decision-making
behavior regarding production amount is represented like (2.35) or (2.36) as a first
approximation. If we consider an individual capitalist, the above decision-making
implies that this capitalist satisfies certain conditions.
This capitalist, who possesses only a small amount of production capacity, may
not lower the production level as long as the profit rate is positive, no matter how
low it is. This is because, as the means of production he or she owns are small and
occupy a small share of the market, the capitalist cannot affect market conditions
significantly by changes in his or her production. Leaving the case of negative profit
rate aside, as long as the profit rate is positive, the capitalist cannot expect to improve
market conditions by going a step further to decrease the level of production. On
the other hand, he or she will not expect a further downturn, such as a further fall
in prices and profit rate even if they raise production to full capacity and supply the
market. This is because the capitalist’s share of the market is negligible. In this case,
so long as the profit rate is positive, it would be more profitable for them to operate
at full capacity.
Therefore, from the viewpoint of an individual capitalist’s decisions on produc-
tion, our supposition does not hold unless the capitalist occupies a fairly large market
share, and their production decisions affect the supply and demand condition of the
market to a significant degree.
However, apart from an individual capitalist’s production decision, as long as we
direct our attention to the problems of how and what capitalists as a whole in some
production sector decide on production, our supposition becomes realistic. This is
because, in general, there are many capitalists in one sector, who produce the same
goods using different production technologies. Some use a superior technology, while
others use an inferior one. Suppose, in such a case, that the money wage rate rises
in comparison to the commodity price, in other words, the price falls relative to the
money wage rate. As long as production technologies are constant, the profit rates of
all capitalists will fall. However, the problem is that the profit rate for capitalists with
inferior technology, which is already lower than that of the other capitalists, might
be reduced further, such that it can even become a zero or negative value.
Even then, capitalists with zero or negative profit may not stop their production
activities immediately. In spite of the loss, they may await the next opportunity of
business recovery by maintaining operation. Yet, there is a limit to their perseverance.
If difficult times continue, these capitalists will be left with no choice but to stop
production. This is one reason why a fall in profit rate reduces the total products
produced by capitalists in one sector.
If, on the other hand, the commodity price rises relative to the money wage rate,
and the production cost does not increase proportionally, then the profit rate will
rise. Here, the production amount will increase; this does not include the increase in
production due to new companies being established or existing companies accumu-
lating and expanding their production. That is, we are focusing on the production level
in a certain period, wherein the increase in production over time due to accumulation
of production is not relevant.
Taking no account of the establishment and entry of new firms, or of the accumu-
lation by existing firms, there are good reasons to consider that production increases
when the profit rate rises. Firstly, there can be a resumption of production by the firms
that had stopped operation due to unfavorable market conditions. Secondly, there can
be an increase in production by operating firms whose concern about difficulties in
additional sales is mitigated by a rise in the profit rate. Thirdly, the capitalists may
decide to operate at excessive levels when they face a further price rise relative to
an increase in unit cost beyond the “normal” utilization rate, which we have not
considered thus far for the sake of simplicity.
As examined above, while the decision on production at a given period of time is

made by capitalists who privately own the means of production, it seems a reasonable
first approximation to presume that the total output is an increasing function of the
profit rate in that particular sector.
2.4.2.2 Demand for Commodities of the Two Sectors
How is the demand for commodities decided? It is out of the question to simply
consider deriving the demand from people’s desire for goods. The issue lies not in the
simple desire for commodities, but in the demands for purchasing them at prices satis-
factory for the capitalists. As we will explain further on, the demand for commodities
is fundamentally dependent on the production activities in various sectors. We will
examine the demands in the production goods sector and the consumption goods
sector in turn.
Most of the demand for the production sector comes from the capitalists. As we
have explained at various points, if the wage-laborers can demand production goods
and obtain their own business, then wage labor will cease to exist and the capitalist
system will end as a result.
The first part of the capitalists’ demand for the production goods sector is the
replacement demand. A replacement demand is a purchase of production goods to
replace the production goods exhausted in a current period. Accordingly, denoting
the production by capitalists in the production goods and consumption goods sectors
as x1 and x2 respectively, the replacement demand for production goods is equal to
a1 x 1 + a2 x 2 .
The other aspect of the capitalists’ demand for the production goods sector is the
accumulation demand, i.e., new investment demand. An accumulation demand is a
demand for production goods that exceeds the replacement demand by capitalists.
The capitalists’ demand for production goods in excess of the currently exhausted
production goods is for expansion of production in subsequent periods. Denoting the
accumulation demand for production goods by capitalists of the production goods
and consumption goods sector as I1 and I2 respectively, the sum of demand for
production goods is equal to
D1 = a1 x 1 + a2 x 2 + I 1 + I 2
How the accumulation demand by capitalists of both sectors is determined will

be discussed in Chap. 4. Here, we will simply state that capitalists determine the
accumulation demand based upon various considerations.
The demand for the consumption goods sector comes from the labor class. The
amount of their demand depends first on how much labor power they are able to
sell, and second on the conditions under which their labor power is sold. However,
the amount of labor power laborers have sold depends on how much production the
capitalists carried out for the current period. This means that the laborers’ consump-
tion demand is dependent on the current production activity and the real wage rate.
Suppose laborers spend all their current wage income on the current consumption
(refer to Sect. 2.4.1 and Additional Note to Sect. 3.3.2.1 for the implications of this
assumption), the consumption demand of the working class is equal to
w
(τ1 x1 + τ2 x2 )
p2
Here, τ1 x1 + τ2 x2 indicates the total amount of labor spent for the current production.
Thus, w(τ1 x1 + τ2 x2 ) is the total sum of wages. When divided by the price of the
consumption goods p2 , we obtain the amount of labor consumption for the current
period.
The demand for consumption goods also comes from the capitalist class. This is the
consumption demand by capitalists. Denoting the consumption demand by capitalists
in two sectors as C1 and C2 respectively, the sum of demands for consumption goods
is as below:
w
D2 = (τ1 x1 + τ2 x2 ) + C1 + C2
p2
2.4.2.3 Temporary Equilibrium Point of Supply and Demand in Two

Sectors
We outlined the capitalists’ behavior towards decisions on the production amount

in each sector, and the determination of demand for commodities in each sector.
Based on these, we will examine the supply–demand relation in two sectors, and the
temporary determination of real wage rate as a result.
Let us suppose that, if supply and demand do not match in a market, the produc-
tion amount and market price will quickly adjust, so that supply matches demand.
This supposition is not at all to plead for a “beautiful harmony” in the capitalist
system. The balance between the production amount decided by capitalists and the
demand for that product at a certain price does not imply that such “harmony” is
attained. Suppose that demand for a product is low, and the market price as well as
the profit rate drop in that sector. The capitalists are forced to lower their production
level, so that supply and demand match temporarily. Such a situation is far removed
from harmony. From the laborers’ perspective, the shrinkage of production leads
to employment reduction, resulting in some laborers losing their job. And from the
capitalists’ standpoint, reducing production leads to a drop in the rate of both oper-
ation and profit. There is nothing harmonious about this situation, save for the mere
fact that reduced production matches a low level of demand. The same could be said
about the opposite situation, whereby supply and demand are barely met temporarily,
with the capitalists’ operation exceeding its normal level, resulting from extremely
high demand level and profit rate. In such case, from the laborers’ perspective, the
real wage rate has dropped due to the rise in prices. And from the capitalists’ stance,
their production capacity is insufficient for that specific market condition. Therefore,
the very point of temporary equilibrium contains a contradiction, so it must change.
And it is the evolutions of this contradiction that cause economic fluctuations. The
analysis of this fluctuation process is one of our primary objectives in this book.
Let us now look into the temporary equilibrium of supply and demand in the
production goods sector. As already examined, the temporary decision on production
in the production goods sector as a first approximation is x1 = x1 (w/ p1 ). On the
other hand, the total sum of demand for the production goods sector is
D1 = a1 x 1 + a2 x 2 + I 1 + I 2
Therefore, the equilibrium in the production goods sector is given as below:

w w w w
x1 = a1 x 1 + a2 x 2 , + I1 + I2 (2.37)
p1 p1 p1 p2
However, the production amount and the level of the real wage rate cannot be
determined by the supply–demand equilibrium relation in the production goods sector
alone. In fact, even if a new investment demand I1 + I2 by the capitalists of both
sectors is made, without the production level in the consumption goods sector, the
demand for the production goods sector cannot be determined.
Therefore, let us look into the temporary equilibrium of supply and demand in
the consumption goods sector. As already expressed, the production amount in this
sector is x2 = x2 (w/ p1 , w/ p2 ), and the total sum of demand is
w
D2 = (τ1 x1 + τ2 x2 ) + C1 + C2 .
p2
Thus, the equilibrium of the consumption goods sector is given as below:

w w w w w w
x2 , = τ1 x1 + τ2 x2 , + C1 + C2 (2.38)
p1 p2 p2 p1 p1 p2
In this way, (2.37) and (2.38) determine the temporary equilibrium of supply and
demand in both the production goods and the consumption goods sectors. Mathe-
matically speaking, the unknown variables in these two simultaneous equations are
the real wage rate in terms of the production goods price w/ p1 , and the real wage
rate in terms of the consumption goods price w/ p2 . If the following are given: (1)
the new investment demand for production goods I1 + I2 ; (2) the capitalists’ demand
for consumption goods C1 + C2 ; and (3) the capitalists’ behavior in determining
production in both sectors, functional forms of x1 and x2 , then the real wage rates
w/ p1 and w/ p2 corresponding to the temporary equilibrium of supply and demand
in the two sectors are determined.
Fig. 2.7 Real wage rates

clearing all commodity
markets
However, there is no guarantee that there exists a situation that achieves such
a temporary equilibrium of demand and supply in the two sectors. This can be
easily understood with the following case example. Suppose that a capitalist’s new
investment demand on production goods is extremely high, and I1 + I2 > x1∗ . This
means that the new investment demand is so high that it cannot be fully supplied
even by operating all the equipment in the production goods sector. In this case,
supply and demand for the production goods cannot be brought into equilibrium,
even temporarily. However, here let us assume away such a case and suppose that
there exists a temporary equilibrium of supply and demand in the two sectors. Then,
the real wage rates w/ p1 and w/ p2 determined in (2.37) and (2.38) can be shown as
the intersection of two curves in Fig. 2.7.
Refer to the Mathematical Appendix at the end of this chapter for the reason
why the slope of curve (2.37) is steeper than that of (2.38), and the meaning of this
relation.
2.4.3 Factors that Determine the Real Wage Rate
In Sect. 2.4.2, we arrived at the understanding that the temporary equilibrium level
of real wage rates under which the supply and demand match in both the production
goods and consumption goods sectors is dependent on three factors. Let us now look
into how the temporary equilibrium level of real wage rates shifts when the three
factors shift, one by one. The following arguments can be deduced mathematically
by using Eqs. (2.37) and (2.38). Readers interested in mathematical reasoning may
refer to the Mathematical Appendix.
2.4.3.1 The Accumulation Demand by Capitalists
Suppose that the accumulation demand I increases in either sector. From (2.37) we
have learned that, in order for supply and demand to match in the production goods
sector, the amount of production of production goods x1 must increase (note that
1 − a1 > 0) or the amount of production of consumption goods x2 must decrease.
For this to hold under the behavior of capitalists regarding production decisions in
both sectors, the real wage rate measured by the price of production goods must fall.
When it falls, the profit rate in the production goods sector rises and consequently
the amount of production of production goods increases. At the same time, all other
factors being equal, the profit rate in the consumption goods sector drops and the
amount of production of consumption goods decreases.
In the consumption goods sector in turn, the increase in the production of produc-
tion goods will create employed labor in the production goods sector, given the
technology utilized, and, all other factors being equal, it will increase the demand for
consumption goods. In order for the supply and demand to match, either the produc-
tion of consumption goods must increase, or there must be a halt in the increase of
demand on consumption goods, with the drop in real wage rate measured by the
price of consumption goods, despite the increase of employment. In either case, the
real wage rate measured by the price of consumption goods must decline. This is
because, in order for the production in the consumer goods sector to increase, the
profit rate in the consumption goods sector must rise, and the only way for it to rise,
under the circumstances of a drop in the real wage rate measured by the price of
production goods, is through a rise in the price of consumption goods beyond the
money wage rate. Thus, the increase in the accumulation demand will raise the price
of both capital and consumption goods higher than the money wage rate and will
lower the real wage rate.
What we must be aware of here is that, when the accumulation demand increases,
the production amount of production goods x1 will definitely increase, but the produc-
tion amount of consumption goods x2 may decrease. The reason is as follows. When
the accumulation demand increases, as explained above, both production goods price
p1 and consumption goods price p2 rise relative to the money wage rate w. Yet, the
rate of their increase is not necessarily the same. When the production goods price
goes up higher than the consumption goods price, capitalists in the consumption
goods sector may experience a fall in profit rate r2 as a result of the production goods
price rising higher than the selling price of the capitalists’ own products, even if the
real wage rate R2 , measured by their own consumption products, is falling. In that
case, the production amount of consumption goods will decrease. At the same time,
the consumption demand of laborers throughout society will drop, due to the fall of
the real wage rate measured by consumption goods, and the leveling off of employ-
ment. In fact, the total sum of employment may decrease, in spite of the increase of
employment in the production goods sector, because of the decline of employment
in the consumption goods sector.
The fact that, when the accumulation demand increases, the drop in profit rate in
the consumption goods sector, the decrease in consumption demand, and the decrease
in aggregate employment can be realized, will play a fundamental role when it comes
to considering the issue of depression (Refer to Sect. 4.2.1.)
2.4.3.2 Personal Consumption by Capitalists
From (2.38), which represents a match in supply and demand for consumption goods,
if C1 + C2 increase, can have only three outcomes: production in the consumption
goods sector increases, noting 1 − wτ2 / p2 > 0; production in the production goods
sector decreases; or the real wage rate in terms of consumption goods price falls.
However, among the three, the second possibility, i.e., that the production goods
sector is reduced, which results in a decline in employment and then in a decrease in
the demand of laborers for consumption goods, is excluded. The reason is as follows.
If the production in the production goods sector were to decrease, it is clear from
(2.37) that the production in the consumption goods sector must decrease further
than that in the production goods sector, in order for supply and demand to match
in the production goods sector, given a constant accumulation demand by capital-
ists. Thus, production in the consumption goods sector would fall further than the
demand for consumption goods would, such that demand and supply in the consump-
tion goods sector would not match. Hence, it must be the case that production in the
consumption goods sector increases. If so, it must be also the case that the real wage
rate measured by consumption goods drops, because otherwise the capitalists in the
consumption goods sector would not increase their production. When the produc-
tion in the consumption goods sector increases, (2.37) reveals that the replacement
demand for production goods cannot be fulfilled, unless the production goods produc-
tion increases. In order for this to increase, the real wage rate measured by production
goods must fall. In this manner, an increase in the capitalists’ personal consumption
demand increases the demand and production in both sectors, and lowers the real
wage rate measured by both production and consumption goods.
2.4.3.3 Capitalists’ Supply Behavior
Lastly, let us look into how the change in capitalists’ supply behavior will affect
production volume and the real wage rate. Take the example of a capitalist in the
consumption goods sector who decides on regular-level production, but at a lower
profit rate, which can never happen except by force. As shown in Fig. 2.8, the real
wage rate measured by consumption goods will rise. Consequently, the laborers’
consumption demand will increase, along with the production amount of both produc-
tion goods and consumption goods. In this case, we must note that, unlike the case of
increase in the capitalists’ accumulation demand or personal consumption, the rise
in production level is not accompanied by a fall in the real wage rate, but rather by a
rise. In other words, the production level tied to the increase in laborers’ consump-
tion demand upsurges in such case. However, for this actually to be possible, it is
absolutely essential that the supply behavior of capitalists change. Keynes did not
Fig. 2.8 Shift of supply

behavior
even think to study or work out a policy regarding such a theory. This shows that, as
a bourgeois economist, he considered the behavior of capitalists, that is, the pursuit
of profits, as sacrosanct and immutable.
2.4.4 Movement of the Real Wage Rate
In Sect. 2.4.3 we determined that the level of the real wage rate in a certain period of,
if the production ability and technologies that exist in both sectors are at a fixed stan-
dard, depends on the decision-making behavior of the capitalists who own the means
of production, on their accumulation demand, and on their personal consumption.
However, in a capitalist society, among the three aforementioned causes of determi-
nation, the most variable, and the one impacting on the other causes, is the capitalists’
accumulation demand.
The personal consumption of the capitalist class plays the role of sustaining the
very existence of their class, and in this sense, personal consumption by the capitalists
also holds an important place in the class relations of a capitalistic system. Yet,
a capitalist society is not the society of an exploiting class ruling over laborers
only to achieve parasitical consumption. The capitalist class exploits surplus labor
that largely exceeds their own personal consumption, and this is appropriated as
capital to improve/increase their means of production, meaning capital accumulation,
because without this they cannot maintain their position in society as capitalists.
Such circumstances are generated because the capitalistic system is not a simple
exploitation society but is an exploitation society dominated by the commodity form.
Although the capitalists’ decision-making behavior regarding production can be
influenced by various factors, under a capitalistic system that which holds the most
influence cannot affect their behavior without breaking down the foundation of the
system. This is due to the fact that the capitalists hold the power of making decisions
regarding production and employment because they own the means of production, as
already discussed. Therefore, the struggle to make them change their decisions and
transform the system’s characteristics cannot be undertaken without aiming towards
the sublation of their ownership of the means of production. How such movements
are generated in the capitalistic system can be answered with inevitability by studying
what occurs and how the system will change, or what sort of tendency it will create
as the result of combining the various decisions on production made on the basis of
the capitalists’ ownership of the means of production. This is exactly the issue we
aim to raise in this book, and therefore we must carry out the discussion under the
presumption that the capitalists’ behavior is given by being defined by the production
relations.
In this manner, among the three causes defining the real wage rate of a certain
period, the capitalists’ accumulation demand appears to be the key factor. The size of
the accumulation demand decides the conditions of production capacity and produc-
tion technology that will be owned in each sector by the capitalist in the next period.
Therefore, the mechanism of the real wage rate determination in each period will
appear as in Fig. 2.9.
The height of the real wage rate in each period is decided on the relative relation the
capitalists’ accumulation demand has with production capacity. And that is why the
movement of the real wage rate is determined by how the relative relation transforms.
When the level of accumulation demand is higher than the production capacity,
the real wage rate drops, and when the level is lower, the real wage rate rises. We
must note that what determines how the real wage rate shifts is not the absolute size
of the accumulation demand, but its relative relation with the production capacity of
that period. For example, even if the absolute level of accumulation demand is large,
if the production capacity in that period is extremely high, the real wage rate will
also be high, and vice versa.
The production capacity in that period is decided by the production goods the capi-
talists own at that time, and the accumulation demand is the additional demand for
production goods in order to expand production in subsequent periods. Therefore, the
relation between production capacity and accumulation demand during that period
can be described by the ratio of the increase of production goods in the following
Real wage rate Real wage rate

in period t in period t+1
Production Capitalists’ Production Capitalists’

capacity and accumulation capacity and accumulation
technology demand technology demand
in period t in period t in period t+1 in period t+1
Fig. 2.9 Mechanism of real wage rate determination

period compared to the amount existing in the current period. Since these produc-
tion goods are the capital of capitalists, we shall call this ratio the rate of capital
accumulation (the increase rate of capital). Thus, it can be said that the changes in
each period’s rate of capital accumulation affect the change of the real wage rate.
In Sect. 2.4.1 we examined the upper and lower limit of the changes in the real wage
rate in a capitalistic system. For capitalistic production relations to be maintained and
to reproduce material wealth, the real wage rate must be kept in the range between
these limits, and we found that it is the change in the rate of capital accumulation
that answers the questions. At which point of this range is the real wage rate decided,
and how does this shift, or how would it reverse, when the real wage rate reaches the
upper or lower limit? Thus the main factor that decides the size of the real wage rate
in a certain period is the rate of capital accumulation. And how it shifts is dependent
on the change in the rate of capital accumulation. If the rate of capital accumulation
increases, the real wage rate will drop, and if the rate decreases, the real wage rate
will rise. Simply put, the rate of capital accumulation and the real wage rate are
inversely proportional. Thus, if the rate of capital accumulation keeps increasing, the
real wage rate will keep falling and eventually reach its lower limit. In order for this
to be reversed and for the real wage rate to be restored into the acceptable range, the
rate of capital accumulation must stop increasing and start decreasing. And the same
will occur vice versa.
Therefore, the fundamental problem of the capitalistic system’s existence, namely,
whether the real wage rate can be kept within the acceptable range for capitalistic
reproduction, returns to the cyclical movement of the rate of capital accumulation
and the trend movement deriving from it, in the end. We will discuss this further in
Chaps. 4 and 5.
Mathematical Appendix
Uniform Profit Rate and Real Wage Rate
Assume that the wage is paid ex post. We obtain the system for a uniform profit rate
as follows:
p1 = (1 + r )a1 p1 + wτ1 (2.39)
p2 = (1 + r )a2 p1 + wτ2 (2.40)
w = Rp2 (2.41)
Eliminating variables w, p1 , and p2 , yields the following equation:

Mathematical Appendix 75
(1 + r )[a1 (1 − Rτ2 ) + a2 Rτ1 ] − (1 − Rτ2 ) = 0 (2.42)
Let f (r ) be the left-hand side of (2.42)
f (r ) ≡ (1 + r )[a1 (1 − Rτ2 ) + a2 Rτ1 ] − (1 − Rτ2 ) (2.43)
It is then straightforward that function f (r ) is a monotonically increasing linear

function.
We obtain values of the function at r = 0 and at (1 − a1 )/a1 from (2.43), and the
labor value of a consumption good (t2 = a2 τ1 /(1 − a1 ) + τ2 ) is shown in (2.15) in
Sect. 2.2 as follows:
f (0) = −(1 − a1 )(1 − Rt2 ) (2.44)

1 − a1 a2 Rτ1
f = >0 (2.45)
a1 a1
According to the condition for net production possibility, 1 −a1 > 0, and the surplus
condition, 1 − Rt2 > 0, we find that function f (r ) is shown as Fig. 2.10. Therefore,
if the surplus condition holds, Eq. (2.42) has a root r ∗ satisfying as follows:
1 − a1
0 < r∗ < (2.46)
a1
Next, Eq. (2.14) is rewritten as follows:
Fig. 2.10 Determination of

profit rate
1
1+r = (2.47)
a1 + a2 τ1 1−Rτ
R
2
Since the second term in the denominator of the right-hand side is an increasing
function of the real wage rate, R, as follows:
dr
<0 (2.48)
dR
Moreover, we have a value of rmax at R = 0 and a value Rmax at r = 0 from (2.47)
1 1 − a1
rmax = −1= >0 (2.49)
a1 a1
1
Rmax = >0 (2.50)
t2
According to the preceding discussion, we find Fig. 2.11, which graphically illustrates
the relationship between the uniform profit rate and the real wage rate.
Next, we will analyze some effects of technical change (through (2.42)) on the
relationship between the uniform profit and real wage rates. Production technology is
denoted as τ1 , τ2 , a1 , and a2 . First, let us examine the resulting change from a change
in τ1 . Assume that (2.71) has r and τ1 as arguments. This yields f ≡ f (r, τ1 ) = 0.
By total differentiation,
∂f ∂f
dr + dτ1 = 0. (2.51)
∂r ∂τ1
Finding the partial derivatives of r and τ1 in (2.43),
Fig. 2.11 Relationship

between real wage rate and
uniform rate of profit
∂f
= a1 (1 − Rτ2 ) + a2 Rτ1 > 0 (2.52)
∂r
∂f
= (1 + r )a2 R > 0 (2.53)
∂τ1
It follows from (2.51), (2.52), and (2.53) that
dr
<0 (2.54)
dτ1
Inequality (2.54) says that a decrease in τ1 (dτ1 < 0) by technical change will result
in a higher uniform profit rate, with the proviso that real wage rate R is held constant.
We should note that rmax cannot increase because rmax depends on only a1 , as shown
in (2.49). Therefore, a decrease (dτ1 < 0) in τ1 results in an upward shift in the curve
that illustrates the relationship between the uniform profit rate and the real wage rate,
as shown in Fig. 2.12.
Second, let us examine the effect of τ2 . Consider that (2.42) has two variables, r
and τ2 , as is the case with τ1 . This yields f (r, τ2 ) = 0. The straightforward partial
derivative in τ2 is as follows:
∂f
= R[1 − (1 + r )a1 ] ≥ 0 (2.55)
∂τ2
We have equality only at r = rmax or R = 0. Then, this means that the effect of τ2
on function f is the same as the effect of τ1 . As is the case with τ1 , a decrease in τ2
results in an upward shift in the curve showing the relationship between the uniform
profit rate and the real wage rate.
Fig. 2.12 Effect of decrease

in labor coefficient in
production goods sector
Third, let us analyze the effect of a1 . By a similar procedure, consider (2.42) as

f (r, a1 ) = 0. Then,
∂f
= (1 + r )(1 − Rτ2 ) > 0 (2.56)
∂a1
This implies that we have the same effect of a1 as of τ1 and τ2 . Note that inequality
(2.56) can be satisfied, even at R = 0. Therefore, a decrease in a1 will result in an
increase in rmax . This is different from the effect of τ1 or τ2 .
Last, take the function f in (2.43) as a function of r and a2 . This yields f (r, a2 ) =
0. Therefore,
∂f
= (1 + r )Rτ1 ≥ 0 (2.57)
∂a2
We have equality only at R = 0. This means that the effect of a2 on function f is

the same as τ1 or τ2 .
Temporary Equilibrium of the Real Wage Rate
Supply Behavior of Capitalists
Let x1 (r1 ) and x2 (r2 )denote the supply behaviors of capitalists in the production
goods sector and consumption goods sector as a function of profit rate r1 and r2 ,
respectively.
x1 = x1 (r1 ), x1 (r1 ) > 0

x2 = x2 (r2 ), x2 (r2 ) > 0 (2.58)
Putting
w w
= R1 , = R2 (2.59)
p1 p2
Then, the profit rates of both sectors r1 and r2 are defined as follows:
1 = a1 (1 + r1 ) + τ1 R1 (2.60)
R2
1 = a2 (1 + r2 ) + τ2 R2 (2.61)
R1
We have already shown in Sect. 2.2.3 that the surplus condition,

1 − a1 −a2
1 − a1 > 0,
D≡ >0 (2.62)
−R2 τ1 1 − R2 τ2
is the condition for profit existence (r1 > 0, r2 > 0.)

By (2.60) and (2.61), r1 is a function of R1 and r2 is a function of R1 and R2 , then,
∂r1
= − aτ11 < 0
∂ R1
(2.63)
∂r2
∂ R1
= 1−R2 τ2
a2 R 2
> 0, ∂∂rR22 = − (1+r2aa22R+R
2
1 τ2 )
<0
Therefore, the simultaneous equations (2.58) result as follows.
x1 = x1 (R1 ); ∂∂ Rx11 ≡ f < 0

(2.64)
x2 = x2 (R1 , R2 ); ∂∂rR21 ≡ h > 0, ∂∂rR22 ≡ k < 0
Market-Clearing Conditions
Set I1 + I2 = I and C1 + C2 = C. We show the market-clearing condition in each

sector as follows:
x1 (r1 ) = a1 x1 (r1 ) + a2 x2 (r2 ) + I (2.65)
x2 (r2 ) = R2 [τ1 x1 (r1 ) + τ2 x2 (r2 )] + C (2.66)
By (2.64), the above equations are written as follows:
x1 (R1 ) = a1 x1 (R1 ) + a2 x2 (R1 , R2 ) + I (2.67)
x2 (R1 , R2 ) = R2 [τ1 x1 (R1 ) + τ2 x2 (R1 , R2 )] + C (2.68)
These simultaneous equations are depicted on the R1 − R2 plane, as shown in

Fig. 2.13. The following is the reason why the two curves have positive but different
slopes. By (2.67) we have the following:
[(1 − a1 ) f − a2 h]d R1 = a2 kd R2 (2.69)
By (2.68),

market equilibrium in terms (2.67)
of real wage rate of both
sector Excess supply in
production goods
Excess demand in
consumption goods
(2.68)
[h − R2 (τ1 f + τ2 h)]d R1 = [N − (1 − Rτ2 )k]d R2 (2.70)
where N = τ1 x1 + τ2 x2 . Then, all we need to do is compare the slope (d R2 /d R1 ) A

of (2.67) and the slope (d R2 /d R1 ) B of (2.68). By (2.62) and (2.64), 1 − a1 > 0,
1 − R2 τ2 > 0, f < 0, h > 0, k < 0. Therefore, we see from (2.69) and (2.70) that
both of the slopes are positive. Next, (2.69) and (2.70) yields

d R2 d R2 N [(1 − a1 ) f − a2 h] − k f D
− = (2.71)
d R1 A d R1 B a2 k[N − (1 − R2 τ2 )k]
Both the denominator and numerator are negative by (2.62) and (2.64). Therefore,
this results in the following:

d R2 d R2
> >0 (2.72)
d R1 A d R1 B
The intersection of the two curves is a temporary equilibrium point R1∗ , R2∗ . At any
points other than the temporary equilibrium point, either R1 or R2 (or both) would
change over time in the direction dictated by the arrows in Fig. 2.13, which lead to the
temporary equilibrium. We show the claim by the following discussion. The produc-
tion goods sector is in excess supply (demand) if the economy represented by point
(R1 , R2 ) is located in the region lying above (below) the curve (2.67). The reason is
as follows: Suppose there is an increase (decrease) in R2 , with the proviso that R1 is
held constant on the curve (2.67). By (2.64), this results in a decrease (increase) in x2 ,
which leads to excess supply (demand) in the production goods sector. Similarly, the
consumption goods sector is in excess supply (demand) if the economy represented
by point (R1 , R2 ) is located in the region lying above (below) the curve (2.68). The
reason is as follows: Suppose there is an increase (decrease) in R1 , with the proviso
that R2 is held constant on the curve (2.68). This leads, at first, to a decrease (increase)
in x2 by (2.64). Taking account of 1 − R2 τ2 > 0, the decrease (increase) in supply is

greater than the decrease (increase) in demand. Then, the consumption goods sector
has excess demand (supply). In general, excess demand will increase the price and
excess supply will decrease the price in each sector. Therefore, for any points in the
region above both of the curves, the consumption-goods price increases over time,
i.e., R2 decreases and the production-goods price increases; i.e., R1 decreases. Then,
it produces a south-eastward movement of (R1 , R2 ). Applying the same to any other
region, we find the directional arrows shown in Fig. 2.13. This concludes that point
(R1 , R2 ) can converge to the temporary equilibrium from any point on the R1 − R2
plane, as indicated by the directional arrows in the figure.
Temporary Equilibrium
We can see from (2.67) and (2.68) that the temporary equilibrium R1∗ , R2∗ depend
on the four exogenous variables; that is, (i) new investment demand of capitalists I ,
(ii) consumption demand of capitalists C, (iii) capitalists’ behavior in determining
production (i.e., capitalists’ supply behavior) in both sectors, that is, the type of
function xi , and (iv) the production technology ai , τi of each sector. In the subsequent
discussion we examine the effect of each change in (i), (ii), and (iii) on the endogenous
variables which are the real wage rate R1 and R2 , the production amount x1 and x2 ,
the amount of employment N and the profit rate r1 and r2 .
(i) Change in New Investment Demand of Capitalists I
First, let us take the derivative of R1 and R2 with respect to I in (2.67) and (2.68) to
find the effect of a change in new investment demand I on R1 and R2 .
[(1 − a1 ) f − a2 h] ddRI1 − a2 k ddRI2 = 1

(2.73)
[h − R2 (τ1 f + τ2 h)] ddRI1 + [(1 − R2 τ2 )k − N ] ddRI2 = 0
We rewrite (2.73) as the following matrix equation:

d R1
(1 − a1 ) f − a2 h −a2 k 1
dI = (2.74)
h − R2 (τ1 f + τ2 h) (1 − R2 τ2 )k − N d R2
dI
0
Applying Cramer’s rule,
d R1 (1 − R2 τ2 )k − N
= (2.75)
dI
d R2 R2 (τ1 f + τ2 h) − h
= (2.76)
dI
where

(1 − a1 ) f − a2 h −a2 k

=
h − R2 (τ1 f + τ2 h) (1 − R2 τ2 )k − N

(1 − a1 ) f −a2 k −a2 h −a2 k

= +
−R2 τ1 f (1 − R2 τ2 )k (1 − R2 τ2 )h (1 − R2 τ2 )k
− N [(1 − a1 ) f − a2 h]
= k f D − [(1 − a1 ) f − a2 h] (2.77)
By (2.62) and (2.64), we get the following:
d R1 d R2
> 0, < 0, <0 (2.78)
dI dI
Second, let us examine the effect on the amount of employment. Using (2.78),
N = τ1 x1 (R1 ) + τ2 x2 (R1 , R2 ) (2.79)
dN d R1 d R2 τ1 f k − N (τ1 f + τ2 h)
= (τ1 f + τ2 h) + τ2 k = (2.80)
dI dI dI
It follows from (2.64) and (2.80) that the sign of d N /d I can be positive, negative,
or zero. Third, let us examine the effect on the profit rate. By (2.63) and (2.78) we
obtain the following:
dr1 dr1 d R1
= >0 (2.81)
dI d R1 d I
dr2 ∂r2 d R1 ∂r2 d R2
= + (2.82)
dI ∂ R1 d I ∂ R2 d I
Again, the sign of dr

dI
2
can be positive, negative, or zero. Last, the effect on the
production amount in each sector is given by (2.58), (2.81), and (2.82), respectively,
as follows:
d x1 d x1 dr1
= >0 (2.83)
dI dr1 d I
d x2 d x2 dr2
= (2.84)
dI dr2 d I
Then, the sign of d x2 /d I can be positive, negative, or zero.

(ii) Change in Capitalists’ Personal Consumption Demand C

Take a similar procedure as for new investment demand. First, take the derivative
of and with respect to in (2.67) and (2.68). We rewrite it as the following matrix
equation:
d R1
(1 − a1 ) f − a2 h −a2 k 0
dC = (2.85)
h − R2 (τ1 f + τ2 h) (1 − R2 τ2 )k − N d R2
dC
1
Applying Cramer’s rule, yields the following solution:
d R1 a2 k
= <0 (2.86)
dC
d R1 (1 − a1 ) f − a2 h
= <0 (2.87)
dC
Second, let us explore the effect on the amount of employment. It is as follows:
dN d R1 d R2 k f [a2 τ1 + τ2 (1 − a1 )]
= (τ1 f + τ2 h) + τ2 k = >0 (2.88)
dC dC dC
Third, from (2.63) and (2.86), the effect on profit rate r1 is as follows:
dr1 dr1 d R1
= >0 (2.89)
dC d R1 dC
By (2.65), we have the following:
dr1 dr2
(1 − a1 )x1 = a2 x2 (2.90)
dC dC
Therefore, by (2.89), the effect on the profit rate r 2 is as follows:
dr2
>0 (2.91)
dC
Last, the effect on the production amount in each sector is as follows:
d x1 d x1 dr1
= >0 (2.92)
dC dr1 dC
d x2 d x2 dr2
= >0 (2.93)
dC dr2 dC
Fig. 2.14 Shift of supply

behavior in production goods
sector
(iii) Change in the Behavior of Capitalists Regarding Production Decisions

A change in the supply behavior of capitalists’ in the production goods sector is
shown Fig. 2.14.
Suppose that β1 is a positive constant (β1 > 0), which leads to a uniform upward
shift in the supply curve. This means that a capitalist in the production goods sector
provides the same supply at a lower profit rate. First, we examine the effect of a
change of β1 on R1 and R2 . Substitute x1 (R1 ) + β1 into x1 (R1 ) in (2.67) and (2.68).
Then, take the derivative of R1 and R2 with respect to β1 in (2.67) and (2.68),

d R1
(1 − a1 ) f − a2 h −a2 k a1 − 1
dβ1
= (2.94)
h − R2 (τ1 f + τ2 h) (1 − R2 τ2 )k − N d R2
dβ1
R2 τ1
Therefore,
d R1 N (1 − a1 ) − k D
= >0 (2.95)
dβ1
d R2 hD
= >0 (2.96)
dβ1
where we can obtain each numerator in the above equations as follows:

a1 − 1 −a2 k

R2 τ1 (1 − R2 τ2 )k − N

1 − a1 −a2
= − k + N (1 − a1 ) = N (1 − a1 ) − k D
−R2 τ1 (1 − R2 τ2 )

(1 − a1 ) f − a2 h a1 − 1 1 − a1 a1 − 1
= f + −a2 1 − a1 h = h D
h − R2 (τ1 f + τ2 h) R2 τ1 −R2 τ1 R2 τ1 1 − R2 τ2 −R2 τ1
Second, the effect on the amount of employment is as follows:
dN d R1 d R2 hN
= (τ1 f + τ2 h) + τ2 k + τ1 = [τ2 (1 − a1 ) + τ1 a2 ] > 0 (2.97)
dβ1 dβ1 dβ1
Third, by (2.63) and (2.95), the effect on profit rate is as follows:
dr1 dr1 d R2
= <0 (2.98)
dβ1 d R1 dβ1
Fourth, the effect on profit rate is derived from (2.65) as follows:

d x1 dr1 dr2
(1 − a1 ) + 1 = a2 x2 (2.99)
dr1 dβ1 dβ1
From (2.77) and (2.95),
d x1 dr1 d x1 d R1 dr1 d R1 N a2 h
+1= +1= f +1= >0 (2.100)
dr1 dβ1 d R1 dr1 dβ1 dβ1
then, (2.100) yields the following:
dr2
>0 (2.101)
dβ1
Last, by (2.100) and (2.101), the effect on the production amount in each sector is
as follows:
d(x1 + β1 )
>0 (2.102)
dβ1
d x2 (r2 ) d x2 dr2
= >0 (2.103)
dβ1 dr2 dβ1
Take a similar procedure as in β 1 to analyze the effect of a change β2 on the supply

behavior of capitalists in the consumption goods sector. First, we will examine the
effect of a change of β2 on R1 and R2 . Replace vector (a1 − 1, R2 τ1 ) on the right-
hand side of (2.94) with (a2 , R2 τ2 − 1). Then, take the derivative of R1 and R2 with
respect to β2 ,
d R1 N a2
=− <0 (2.104)
dβ2
d R2 fD
=− >0 (2.105)
dβ2
Second, by (2.77), (2.104), and (2.105), the effect on the amount of employment is
as follows:
dN d R1 d R2 f N [a2 τ1 + τ2 (1 − a1 )]
= (τ1 f + τ2 h) + τ2 k =− >0 (2.106)
dβ2 dβ2 dβ2
Third, by (2.104), the effect on profit rate r1 is as follows:
dr1 dr1 d R1
= >0 (2.107)
dβ2 d R1 dβ2
From (2.63), (2.104), and (2.105), the effect on profit rate r2 is as follows:
dr2 ∂r2 d R1 ∂r2 d R2

= + <0 (2.108)
dβ2 ∂ R1 dβ2 ∂ R2 dβ2
Last, by (2.58) and (2.108), the effect on production amount x1 in the production
goods sector is as follows:
d x1 d x1 dr1
= >0 (2.109)
dβ2 dr1 dβ2
From (2.65) and (2.109), the effect on production amount x 2 in the consumption
goods sector is as follows:

d x1 d x2
(1 − a1 ) = a2 +1 >0
dβ2 dβ2
Therefore,
d(x2 + β2 )
>0 (2.110)
dβ2
Table 2.1 summarizes the above conclusions:

Table 2.1 Summary of comparative statics

R1 R2 N r1 r2 x1 x2
I − − ? + ? + ?
C − − + + + + +
β1 + + + − + + +
β2 − + + + − + +
Chapter 3
Extended Reproduction in the Capitalist
Economy
Abstract This chapter describes the features of a capitalist society, which, essen-
tially, is a class society wherein production is governed by the commodity-economic
principle. To sustain such a society, reproduction is vital, and the value of a
commodity must be realized in the market. Without these, a capitalist society ceases
to exist. For reproduction to be feasible and sustainable, however, certain conditions
must be met. Specifically, physical reproduction necessitates the possibility of net
production, the proper composition of production, and having a real wage between
subsistence level and labor productivity. Additional conditions include the existence
of a distribution mechanism and the superstructures that support a capitalist society.
Interestingly, the resulting accumulation demand by capitalists accelerates and builds
up in a unidirectional and imbalanced manner as reproductions continue, pushing
production, the profit rate, the real wage rate, and the exploitation rate to disequi-
librium. Chapter 4 explains how this contradiction can be resolved, and Chap. 5
shows the inevitability that despite these resolutions, restrictions to reproduction in
the capitalist economy gradually increase.
3.1 Reproduction
In this section, we will clarify various conditions of reproduction to be satisfied for the
sustainability of any form of human society, and furthermore how these conditions
are realized under a capitalist society in its own way.
16-7905-6_7
90 3 Extended Reproduction in the Capitalist Economy
3.1.1 Reproduction in General1
As we explained in Chap. 2, human production activity is essential for the sustain-

ability and maintenance of human society regardless of its social form. Moreover,
for the sustainability and maintenance of the society, this production activity cannot
be a matter of once for all, but must be continued repeatedly. In this sense, there must
be reproduction for the sustainability and maintenance of a human society, and of
course the capitalist society cannot be an exception.
However, for the sustainability and maintenance of a capitalist society, it is not
sufficient that various products necessary for human life should be merely repro-
duced in every period repeatedly. Reproduction of material goods is an absolute
requirement, but it is not the sufficient condition. Indeed, if all the goods necessary
for human life are reproduced, then we can maintain our lives and the labor power,
and our society can sustain itself. In order for a capitalist society to sustain itself,
apart from a human society in general, human life and labor power must not only be
merely maintained, but also sustained in the form peculiar to the capitalist system.
The sustainability of a human society is definitely different from that of a capitalist
society. As long as humans exists, the sustainability of human society is guaran-
teed, but a capitalist society is merely just a transient form belonging to a particular
historical stage of human society.
For the sustainability of a capitalist society, its own particular production relation
as well as material goods must be reproduced in every period. The capitalist society
can maintain itself through such double reproduction. Let us start off by investigating
the common matters to be fulfilled in every form of society.
3.1.1.1 Reproduction of Material Goods
The following are indispensable for the reproduction of material goods no matter
the social system. When humans act for their existence or maintenance by working
upon nature, these two factors are absolutely necessary: human labor power and
the means of production used for labor. Production activity, in other words, is none
other than the consumption activity of the human labor power and the means of
production. Therefore, in order to repeat the production activities and to reproduce
material goods, it requires the replacement of this labor power and the means of
production consumed in the current production activity so that the next production
activity is possible.
Now let us dig into this a little further. The subject of our investigation is a human
society in general. Suppose, production goods as well as consumption goods are
homogenous respectively; the production of one unit of production goods requires
a1 units of production goods and τ1 units of labor; the production of one unit of
consumption goods needs a2 units of production goods and τ2 units of labor. If we
produce x1 and x2 amounts of production goods and consumption goods respectively,
then we have
1 Refer to Okishio [21].

3.1 Reproduction 91
Exhausted production goods = a1 x1 + a2 x2 (3.1)
Total amount of labor = τ1 x1 + τ2 x2 (3.2)
Suppose, L is the total amount of consumption goods necessary for the reproduction
of the labor power defined in (3.2). The result of the production activity must cover
the amount of labor power and the means of production, which are consumed and
must be replaced.
x 1 ≥ a1 x 1 + a2 x 2 (3.3)
x2 ≥ L (3.4)
If this is impossible, no society can be sustained. In this case, what conditions should
be satisfied to make it possible to have such cases as (3.3) and (3.4)?
Condition 1: As is clearly seen from (3.3),
1 − a1 > 0 (3.5)
is necessary. This means that the amount of the consumed production goods must be
less than the production amount of production goods, in order to make replacement
possible. This is what we have already shown as the conditions of net production
possibilities in Sect. 2.2.
Condition 2: Now we can express L as below:
L = l(τ1 x1 + τ2 x2 ) (3.6)
where the small letter l shows the required amount of the consumption goods per unit
hour of labor, which is equal to the consumption goods necessary for the reproduction
of labor power divided by the total amount of labor. Substituting (3.6) into (3.4), we
obtain
x2 ≥ l(τ1 x1 + τ2 x2 ) (3.7)
On the premise of (3.5), it is derived from (3.3) that the ratio of the production
goods production to the consumption goods production must satisfy the following
condition;
x1 a2
≥ (3.8)
x2 1 − a1
From (3.7), in order for the consumption goods production to replace the labor power,
we can also see that the ratio of the production goods production to the consumption
goods production must satisfy the following condition;
x1 1 − lτ2
≤ (3.9)
x2 lτ1
In order for both inequalities (3.8) and (3.9) to be consistent, the next condition must
be satisfied:
1 − lτ2 a2
≥ (3.10)
lτ1 1 − a1
This can be rearranged as follows:

a2 τ1
1−l + τ2 ≥0 (3.11)
1 − a1
Here, as we have already explained in Sect. 2.2, t1 and t2 , which are the amounts
of labor directly and indirectly necessary for the unit production of the production
goods and the consumption goods respectively, which can be determined by the
simultaneous equations shown below.
t1 = a1 t1 + τ1
t2 = a2 t1 + τ1
Solving these equations, we obtain

τ1 a2 τ1
t1 = , t2 = + τ2
1 − a1 1 − a1
So the condition (3.11) can be expressed as
1 − lt2 ≥ 0 (3.12)
This condition means that the amount of labor directly and indirectly necessary for
the production of consumption goods, which must be consumed for the reproduction
of labor power, must not exceed the unit labor. We shall call this the reproduction
condition for labor productivity. (We shall also note that this condition is less strict
than the surplus condition explained in Sect. 2.2.)
Condition 3: The above two are not sufficient for the reproduction of material goods.
Indeed, if these two conditions are satisfied, such production as satisfies (3.3) and
(3.7), in other words, such production as is able to replace production goods and
labor power, is possible. For example, if parameters take the following values,
1
a1 = , τ1 = 1
2
1
a2 = , τ2 = 2
4
3.1 Reproduction 93
3
l=
10
(3.3) and (3.7) are expressed as:
1 1
x1 ≥ x1 + x2 (3.13)
2 4
3
x2 ≥ (x1 + 2x2 ) (3.14)
10
In this example, if the production of production goods and the production of
consumption goods take the following values respectively,
x1 = 7 million units x2 = 6 million units
then (3.13) and (3.14) are satisfied. However, if they take the following values
x1 = 9 million units x2 = 6 million units
then, (3.14) is not satisfied. Therefore, the reproduction of labor power is impossible.
So even if the net production possibility condition (3.5) and reproduction condition
(3.12) are satisfied, the replacement of production goods and labor power is impos-
sible when the proportion of the production goods production to consumption goods
production takes an inappropriate value. Therefore, the following is necessary as
Condition 3.
1 − lτ2 x1 a2
≥ ≥ (3.15)
lτ1 x2 1 − a1
This means that the proportion of the production goods production to consumption
goods production, i.e., the composition of production, must be determined in such
a way so as to satisfy the above condition in order for the reproduction of material
goods.
Condition 4: If labor productivity can satisfy condition 1 and condition 2, and the
actual composition of production can satisfy condition 3, it can certainly replace
production goods and labor power with the produced amount of production goods
and consumption goods. However, needless to say, the produced production goods
and consumption goods cannot contribute to the reproduction in the following periods
unless they are actually put in use for the replacement of the consumed production
goods and the reproduction of the labor power. Here, we must propose condition 4,
whereby the products should be put into reproductive allocation in the society.
All these four conditions must be satisfied for the sustainment of any society.
Each society satisfies these conditions in its own peculiar way. In that case, in what
peculiar way would a capitalist society satisfy these general conditions? And what
contradictory phenomena would arise from that peculiar way? These are the questions
we must pursue.
3.1.1.2 Reproduction of the Production Relations
In any society, the reproduction of its production relations requires the following two
conditions:
As explained in Chap. 2, the most essential part of production relations that char-
acterize each social system is the form of ownership of the means of production in the
society. Therefore, by investigating the conditions necessary for the repeated main-
tenance, that is, the reproduction of its particular form of ownership of the means of
production, we can clarify the conditions by which the reproduction of its production
relations is guaranteed.
Condition 1: Reproduction of the material goods should be possible under its form
of ownership of the means of production so that the replacement of the means of
production and the labor power and the continuation of production are possible. If
not, the form of ownership must be replaced by some other forms, or, the human
society itself is obliged to discontinue its existence and sustenance.
As we saw in Chap. 2, the ownership of the means of production determines the
decision-makers of the production in the society as well as its criterion, and there-
fore it determines the results. Thus, the differences in the form of ownership cause
different results of decisions regarding production. But no matter how different their
results, that is, the ways of production may be, if the reproduction of material goods
is not possible, there can be no reproduction of the production relations themselves.
In other words, the social system can no longer be sustained.
The capitalist society is, of course, a specific social system of the human society
at a particular stage of history. It has its own peculiar production relation based
on its particular ownership of the means of production. As a result, as we have
already seen repeatedly, decisions of production are in the hands of the capitalists,
and their decisions are made on the basis of profit and are made privately. Hence,
there arise two characteristics: exploitation and anarchy. This chapter treats how the
above stated four conditions that guarantee the reproduction of material goods can be
satisfied with this way of production. Here, the issue is not whether the reproduction
of material goods is done regularly and steadily, but rather, it is necessary to consider
whether, in spite of many obstacles and fluctuations, it is carried out through them,
and to clarify the driving forces of the specific phenomena arising in this process.
Condition 2: There must be a certain mode of distribution adapted to its particular
form of ownership. As mentioned in Chap. 2, where we explained that the ownership
of the means of production constitutes the basis of the production relations, the form
of ownership of the means of production determines the mode in which the products
produced by the means of production is distributed. Conversely, one of necessary
condition for the form of ownership of the means of production to be sustained and
3.1 Reproduction 95
Ownership mode
Distribution mode
of means of
of products
production
Fig. 3.1 Ownership mode and distribution mode
reproduced is that the resulting mode of distribution is determined by and adapted

to the form of ownership of the means of production as shown in Fig. 3.1.
As for the significance of the mode of distribution of the products in the reproduc-
tion of the production relations, remember Sect. 2.4, where we treated the upper and
lower limits of real wage rate in the capitalist economy. To reproduce the produc-
tion relations in the capitalist economy, it is an absolute condition that laborers are
completely excluded from owning the means of production. For this to be secured,
it is necessary to put production goods beyond the reach of laborers. However, since
commodity production is dominant in the capitalist society, all people are “equal” in
the market. So, even laborers can purchase production goods as commodities, given
they can afford to pay a certain amount of money. In order to prevent this, the amount
of money paid to laborers must be kept under a certain standard, making it impossible
for them to become buyers of the means of production. In other words, the price of
their labor, which is the only commodity they can sell, that is, the wage, should be
forced down to the lowest possible level at which their labor power can barely be
reproduced. Without such a mechanism, the capitalist society can no longer sustain
its production relations.2
It is not a characteristic only of the capitalist society that the adaptation of the
distribution mechanism to the relation in ownership of the means of production is
converse to the condition for the relation to be sustained. This is a general matter,
which is true for any form of society. Let us have a brief look at a socialist society,
where the means of production are owned commonly. What mode of distribution
is necessary for the common ownership of the means of production to be sustained
and reproduced? It becomes immediately evident that among various products, no
production goods should be distributed among its individual members. If distributed,
it is evident that they can no longer maintain the common ownership. In that case, what
sort of mechanism will for certain prohibit the distribution of the production goods
to its individual members? In the capitalist society, all products are commodities and
anyone can obtain them with money. So, the manner to exclude the wage laborers
eternally from the ownership of the means of production is to prevent them from
getting enough money to purchase the means of production. In a socialist society,
no individual can purchase any means of production in the market, regardless the
amount of money he or she has. Therefore, there is no need to suppress the distribu-
tion of money to individuals for the purpose of preventing the means of production
from achieving individual ownership. Rather, in order to let its members accept the
common ownership of all means of production voluntarily and willingly and also to
2 Marx [15, Chap. 6, pp. 119–120, Chap. 26, p. 507].

let them behave continually to maintain it, the distribution of consumption goods to
its members must be at a higher level than in a capitalist society.
Condition 3: There should be a superstructure that serves to strengthen and maintain
the particular form of ownership. Here, the superstructure means political, legal,
ideological and other institutions and facilities, and their corresponding views on
politics, jurisprudence, religion, art and philosophy, among others.3
In order to maintain the form of ownership of the means of production in a certain
society, actions that deny this form must be excluded. If a society needs to maintain
private ownership of the means of production, it is required that the members of the
society who are excluded from ownership must be kept away from interfering in the
decisions by the owners of the means of production, or from taking steps toward
appropriating the decision-making itself for that matter. If another society needs to
maintain common ownership of the means of production, it is required to prevent any
person from private ownership of the means of production and its decision-making.
Herein there arises the necessity of mechanisms to exclude these obstructions
and negations by means of force or persuasion. The mechanism that plays such
a role is the superstructure, which serves the society. From the viewpoint of the
function to sustain the production relations of society, the apparatuses constituting
this superstructure are composed of following three elements: ideological apparatus,
legal apparatus, and apparatus of violence.
The ideological apparatus is the apparatus intended to infuse the members of
the society with an ideology that will justify or advocate the peculiar production
relation and ownership of the means of production, which is the basis of the produc-
tion relation. For example, schools, mass media, religious institutions, and also the
government that controls them all are included in this apparatus. Through these insti-
tutions and apparatuses, members of the society are continuously infused with the
ideology that induces them to “voluntarily” accept the specific production relation
of the society. Such specialists as philosophers, theorists, and priests play their own
roles for the creation and the development of the ideology.
The legal apparatus, aiming to defend the specific ownership of the means of
production, proclaims to apply social sanctions against any infringement of owner-
ship, and executes them. For instance, the courts and the ministry of justice, among
others, are included in this apparatus. The regulations imposed on members of society
that define any offense or infringement against the ownership of the means of produc-
tion as a crime may be formed by a statutory law, by custom, or by the “moral code.”
Such a law may be enacted based on the true or mere formal consensus of the members
or it may be enacted one-sidedly by the will of a small group of members. However,
despite the differences in form, they share the common feature of being the legal
apparatus to sustain the particular form of ownership of the means of production.
The apparatus of violence is the apparatus organized with the armed force, which
is prepared for the purpose of maintaining the ownership of the means of production
3 Marx [2, Preface, p. 263].

3.1 Reproduction 97
of the society. Military forces and the police are included in this apparatus. These
forces are sometimes exercised with a legal disguise, and sometimes directly.
Although these apparatuses support one another, it is the physical compulsion
by the third apparatus of violence that plays the role of the ultimate support for the
maintenance of the form of ownership of the means of production. Yet, when this
ultimate apparatus is isolated from the other two, losing “consensus” among the
social members and legal “legitimacy” for its exercise, the production relations of
that society become highly unstable.
3.1.2 Reproduction in the Capitalist Economy
Since the capitalist society is merely another form of society, it must carry out
the double reproduction explained above. We will outline how this reproduction
is performed in its own peculiar way in a capitalist society. In doing so, we will be
able to reveal the points to be investigated further in detail.
3.1.2.1 Reproduction of Material Goods in the Capitalist Society
We will investigate how the aforementioned four necessary conditions for material
reproduction are satisfied in any capitalist society.
Condition 1 assumes that the condition of net production possibilities is satisfied.
This condition states that, in the production of production goods, the amount of
production goods to be consumed in the production should be smaller than that to
be produced. If this condition is not satisfied, the production activity is no longer
productive in its true meaning; it becomes a mere consumption activity so that the
further the productive activities go on, the poorer the society as a whole becomes.
Therefore, as long as the continuance of human society is based on productive activ-
ities, this condition must be satisfied in any society. Of course, production in the
capitalist society satisfies this condition.
Condition 2 states that labor productivity should be at such a level as to satisfy the
condition of possible reproduction. Labor productivity must satisfy this condition in
order to replace the production goods and the labor power consumed in the production
activities. The labor productivity in the consumption goods production, denoted as
1/t2 , is measured with the reciprocal of the amount of labor directly and indirectly
necessary for the production of one unit of consumption goods. What is called the
condition for the possibility of reproduction requires that the labor productivity in
the consumption goods production is not less than the amount of consumption goods
necessary per working hour labor power to be reproduced, denoted as l. This condition
can be expressed as below:
1
≥l (3.16)
t2
Examining this condition in the capitalist society, we should recall the condition
for the existence of profit, which is considered in Sect. 2.2. It states that labor produc-
tivity for the consumption goods production must be larger than the real wage rate
per hour in terms of consumption goods, denoted as w/ p2 , which is expressed as
follows:
1 w
> (3.17)
t2 p2
Therefore, if the condition

w
≥l (3.18)
p2
is satisfied and if condition (3.17) is also satisfied, then condition (3.16) is necessarily
satisfied. Condition (3.18) means that the real wage rate must not be smaller than just
the level necessary for the reproduction of labor power. In a capitalist society, the
real wage rate may sometimes fall under the lowest limit. However, if the real wage
rate remains under this lowest limit, on average, in the long run, then reproduction
becomes impossible. Therefore, in that sense, condition (3.18) must be satisfied
in any capitalist economy. In any capitalist economy, capitalists own the means of
production and make decisions of production with these means of production. They
take decisions regarding production on the basis of profit. As a result, without the
existence of profit, the capitalistic production is impossible. The fact that the capitalist
system continues to work as a mode of production must mean that profit exists, on
average, in the long run. This implies that condition (3.17) must be satisfied. Hence,
it must be the case that the condition of the possibility of reproduction (3.16) is
satisfied in the capitalist system. In Sect. 2.4 we have examined the mechanism by
which the real wage rate is confined within the limits of the surplus condition (3.17).
Condition 3 showed that the composition of production, i.e., the ratio of the produc-
tion goods sector to the consumption goods sector, should be determined to make
reproduction possible. In a capitalist society, capitalists make decisions on produc-
tion as to (1) what to produce, (2) how much to produce, and (3) what technology
or method of production to use. There are several types of capitalists. Individual
capitalists make private decision only regarding their own production. The ratio
of production good sector to consumption goods sector as a whole society is deter-
mined by the synthetic result of private decision made by individual capitalists. There
is no conscious planning covering the whole social decision about the production
composition; that is to say, this is done in a state of anarchy.
Can production goods and labor power consumed in current production activity be
replaced under the composition of production resulting from individual capitalists’
decision in the state of anarchy? Even if such composition is possible, is it not merely
3.1 Reproduction 99
an accidental success? If the phrase “in a state of anarchy” means “without regularity,”
then the reproduction in a capitalist society is only an adventitious occurrence, and
there is no guarantee for its regular repetition. If this were the case, the capitalist
system would cease to be a self-sufficient form of society and would barely exist by
chance. However, this runs contrary to historical facts.
Despite experiencing many difficulties and disturbances, the capitalist society has
lasted for a certain period in human history. This fact proves that the capitalist system
somehow adopted the composition of production necessary for reproduction, even
being in a state of anarchy, but never out of law. Then why and how were the condi-
tions for reproduction satisfied on an average in the long run with the composition of
production determined as the synthesis of individual capitalists’ private decisions?
We shall investigate this problem furthermore in Sect. 3.3 as well as in Chap. 4.
Condition 4: Suppose composition of production is proper and both production and
consumption goods are produced in greater quantity than needed for the replacement
of production goods and labor power. If these products are not actually used for
the replacement, and no preparations are made for production in the next period,
reproduction will not be realized. This leads us to the question whether a capitalist
society has any allocation mechanism appropriate for reproduction.
In the capitalist system, at least in the ordinary cases, the amount of both capital
and consumption goods exceed the amount for replacement, and a surplus of both
goods is generated. Therefore, in the capitalist system, not only must the capital goods
and the consumption goods be applied to the consumable capital goods of production
in that period and to the reproduction of labor power, but also their surplus must be
applied to the expansion of reproduction in the next period, or to any consumption
other than reproduction. If not, the production will become worthless. So, how will
the products be appropriated to their reproduction under the capitalist system?
In the capitalist system where the production of commodities is dominant, this
appropriation for reproduction is accomplished through the following procedure:
each capitalist sells products as commodities, buys the capital goods for the replace-
ment for his or her own production, and also buys labor power. Then, laborers sell
their own labor power to purchase consumption goods for the reproduction of their
labor power. By buying additional capital goods exceeding the consumed productive
goods, capitalists attain the appropriation for the expansion of reproduction in the
next period.
How are these sales and purchases of commodities possible in the capitalist
society? Why has reproduction been possible on average in the long run despite the
obstacles? These are the problems we must answer. Marx tried to solve the former
problem with the reproduction scheme in Capital, Volume II [32], and the latter with
the crisis theory. We will treat the former in Sect. 3.3 and the latter in Chap. 4 in
detail.
3.1.2.2 Reproduction of Production Relations in the Capitalist System
We will now investigate, one by one, as to how the three conditions mentioned in
Sect. 3.1.1 are satisfied in the capitalist system in order to maintain its particular
production relation, especially the ownership of the means of production.
Condition 1 states that reproduction of material goods should be attained somehow
under the capitalist production relations. As we have already surveyed in Sect. 3.1.2.1,
the capitalist economy managed to reproduce material goods in its own way,
despite its own peculiarities and contradictions. The detailed investigation of various
problems arising in that process will be the task for this book from this point on.
Condition 2 means that the capitalist system should have its own suitable distribution
mechanism of products in order to maintain production relations. There are three
important points concerning this condition: the reproduction of wage-laborer’s labor
power should be possible, the laborers must be kept away from ownership of the
means of production, and the capitalists can impose surplus labor upon laborers.
Moreover, in order to satisfy these three conditions, the real wage rate must be kept
within a certain range. To keep the real wage rate within the range appropriate for
sustaining the production relation of the capitalist system, the cyclical character in
the accumulation process of the capitalist economy plays an important role. These
are the problems surveyed in Sect. 2.4.
Condition 3 states that, in order for the capitalist production relations to be sustained,
there should be a superstructure that serves its enhancement and maintenance. In a
capitalist society, the three apparatuses explained in Sect. 3.1.1 exist. The orga-
nization that covers those three apparatuses and that plays the specialized role of
maintaining the capitalistic ownership of the means of production is the state.
The capitalist state possesses the ideological apparatus, the legal apparatus, and the
violent apparatus. Among these three, the violent apparatus (military force, police,
prisons, and spies) is what constitutes the ultimate basis of the giant compelling force
over the social members of the state, especially over the wage-labor class. Therefore,
the enormous volume of products and the labor power consumed for the mainte-
nance of this apparatus is, from the mere viewpoint of the reproduction of material
goods, simply consumption irrelevant to reproduction, yet necessary consumption for
sustaining the production relations despite the internal contradictions. From the view-
point of the reproduction of capitalist production relations, this can be said to be the
consumption relevant to the reproduction. This point is important in understanding
the necessity of the existence of the violent apparatus in the capitalist system.
3.2 Various Theories on the Capital Accumulation
In the history of economic theories, various views on extended reproduction in the

capitalist economy were developed. It will be beneficial to review these views in order
3.2 Various Theories on the Capital Accumulation 101
to understand the problems inherent to the accumulation process of the capitalist

economy.
3.2.1 David Ricardo’s Point of View
Ricardo insisted that the capitalist accumulation process would eventually stagnate,
the economy would fall into a situation of simple reproduction, and the rate of profit
would converge to an extremely low level.4 Ricardo argued against the theory that
the more capitalist accumulation advances and the further extended reproduction is
carried out, the increased commodities will fail to find the market for sales, and society
will enter general overproduction. He followed Jean-Baptiste Say’s thoughts5 and
accepted Say’s Law, denying the possibility of general overproduction in a capitalist
economy.
According to Say’s Law, people’s motivation to sell commodities in the market
is to purchase other products with the money earned. So, as long as we consider the
various commodities in the society as a whole, the aggregate demand will always be
equal to the aggregate supply. And it is not possible for the demand to fall below the
supply in all sectors. So, if overproduction occurs in one sector, it means that there
must be underproduction (supply < demand) in some other sectors. It is not a general
overproduction, but a partial overproduction which is due to a lack of balance among
the production sectors, and not to overall excessive production. Such disequilibrium
can be resolved by shifting capital and labor from the excess-supply sector to the
excess-demand sector.
On what grounds did Ricardo insist on the stagnation of the capital accumulation
process and the fall of the profit rate? The gist of his opinion is as follows: the
capital accumulation results in a gradual increase in the scale of production, which
increases the demand for labor. According to Ricardo, if labor is in shortage against
the increased demands, the rate of real wages will rise, which in turn will cause a rapid
increase in the labor supply (see Sect. 2.3). Thus, if the temporary disequilibrium
is neglected, the labor input for the expansion of production increases, and the real
wage remains at a level that will support the laborers’ survival and breeding. As a
result, the consumption demand of laborers, which is equal to the product of the real
wage and the amount of labor input, continues to increase. However, the main object
of the laborers’ consumption is food stuff, i.e., agricultural products. Therefore, in
order to respond to the demands for agricultural products from the rising number of
laborers, food production in the agricultural sector must be enlarged. This requires the
cultivation of uncultivated lands or an additional input of capital in cultivated lands.
In either case, the amount of crops per additional labor decreases, as shown in the
law of diminishing returns. As a result, the price of agricultural products tends to rise
against the price of industrial commodities. Nevertheless, since Ricardo thought that
4 Ricardo [23, Chap. 6, p. 120].

5 Say [37, Chap. 15, pp. 136–137].
the real wage rate in terms of agricultural products is fixed in the long run, the money
wage rate increases according to the increase in the price of agricultural products.
Therefore, the money wage rate increases in comparison with the price of industrial
commodities so that the profit rate in the industrial sector falls. Moreover, the profit
rate in the agricultural sector will also fall due to diminishing returns, although the
price of agricultural products increases at the same rate as the money wage rate
increases. As the profit rate of each sector falls in such ways, the capitalists’ desire to
accumulate will be lowered. Thus, accumulation becomes stagnant and, at last, the
economy falls into a stationary state where mere simple reproduction is repeated.
This is the outline of Ricardo’s view on the long-run tendency of the capitalist
accumulation process. As we shall see later, it contains many flaws. However, his
view looks at some important points of which we must take account when we examine
the accumulation process in the capitalist society.
Let us examine Ricardo’s view from these two aspects, beginning with those
points we think should be criticized.
First Point: Denial of General Overproduction: Say’s Law
Ricardo denied the possibility of general overproduction on the ground that the sale
of a commodity necessarily is the purchase of another commodity. However, this is
not correct. As Marx6 made clear, a case in which the commodity supply necessarily
implies the demand for another commodity is possible only if money does not exist
and barter exchange is made instead. In the case of barter exchange, to supply a
commodity, say commodity A, is to demand another commodity, say commodity
B. Then, a supply of one commodity is necessarily accompanied by a demand for
another. However, if money comes into the picture, this direct linkage between supply
and demand is cut off. The supply of commodity A means the handing over of it
and the receiving of money. The money obtained by selling commodity A does not
necessarily need to be spent immediately on another commodity. Here, money plays
a role as storage of value. Therefore, it is possible that excessive supply occurs in
every sector, which in general is overproduction. That is to say, for example, if all
members of a society sell their commodities and get money from their sales, but do
not immediately spend the money for purchasing other commodities, then all the
commodities except money will be at overproduction. Some may argue that this is
a partial overproduction and not a general overproduction, because of the excess
demand for money, that is, the shortage in the supply of money as a commodity.
Certainly, there is an excess demand for money in this case. Yet, we cannot regard
this as partial overproduction. When supply exceeds demand in all the commodity
markets except the money market and a rush for money occurs, we call this situation
general overproduction. This is the situation in which all the members of the society
desire all the commodities to be exchanged for money, but the exchange of all of
them cannot be fulfilled.
Besides the direct linkage between sale and purchase, Ricardo presented another
reason for denying the possibility of general overproduction. That is, after deducting
6 Marx [15, Chap. 3, Sect. 2, pp. 76–77].

their own personal consumption expenditure, the capitalists necessarily spend their
residual profits on wage funds, to employ laborers necessary to extend the production
in the next period. If this holds true, the possibility of general overproduction can
be denied as follows. If we abstract away the landed class, the capitalist society is
composed of wage laborers and capitalists. According to Ricardo, wage laborers
receive just the amount of wages needed for their survival and breeding, which
obliges them to spend all their wages, and therefore they have no ability to stock
money. The capitalists, on the other hand, usually spend only a part of their profits
for their personal consumption. Therefore, “sales without purchase”, i.e., hoarding
of money by capitalists can occur if they do not spend money for another use. To
deny this possibility is the above-stated reason that Ricardo presented additionally.
Since after deducting their consumption expenditure, the capitalists always spend
all their residual profits on wages to employ laborers to extend production in the
next period. These residual profits eventually become effective demand so that the
amount to sell is equal to the amount to purchase as a whole.
The first reason for denying the possibility of general overproduction, i.e., the
direct linkage between sale and purchase, is an assertion based on an erroneous argu-
ment regarding commodity production in general, without referring to the specific
features of a capitalist system. In contrast, the second reason aims to show the overall
linkage between sales and purchases more concretely by taking account of capitalists’
behavior regarding accumulation.
Is this second line of reasoning correct? Our view is that it is also false in the
following two points. First, as Marx already pointed out,7 Ricardo falsely believed
that capitalists spend money only on wages for additional employment of laborers
in order to expand production in the next period. Ricardo neglected the need for any
additional production goods as well as any additional employment in order to expand
production. The fact that additional production goods are necessary for the expansion
of production and must be demanded by the capitalists, is an important factor in the
analysis of the accumulation process. We will examine this point further later. As for
now, the current issue is to depict whether or not the whole amount of the capitalists’
profit income is spent or if there are any guarantees that capitalists necessarily spend
all the residual of profits after deducting their own private consumption expenditure
for whatever use, in order to expand the production in the next period, either for
employing additional labor or for preparing additional production goods, which we
just pointed out that Ricardo neglected. In order to answer this question affirmatively,
we need to assume that as long as the capitalists have their funds for accumulation,
that is, profit minus personal consumption expenditure, they would always spend it
for preparing to expand their production in the next period, irrespective of however
low the profit rate is or however gloomy the expectation of the profit is. Yet, such an
assumption is groundless. It is true that the residual of profits after deducting their
personal consumption expenditure marks the upper limit of the capitalists’ own fund
available for accumulation demand. However, whether the capitalists actually spend
on accumulation demand or not depends on how they make decisions. To assume
7 Marx [15, Chap. 24, Sect. 2, p. 416].

that capitalists will definitely spend all of their funds on accumulation demand also
contradicts another assumption Ricardo put when he asserted that the accumulation
process in a capitalist system will eventually fall into stagnation and into a steady
state. That is to say, as already stated, Ricardo argued that a decrease in the profit
rate leads to a decline in the capitalists’ desire to accumulate. This means that the
amount capitalists spend on accumulation depends on the level of the profit rate, and
in case of a low profit rate, the capitalists will decide not to accumulate. Therefore, it
is incorrect to assume that capitalists will always spend their entire residual of profits
after deducting their personal consumption expenditure for accumulation demand.
Thus, Ricardo’s second line of reasoning does not hold either.
Here, for the convenience of our future argument, let us take note of some issues
concerning the relation between the capitalists’ accumulation demand and profits,
which is apt to be confused even today. When arguing that the accumulation demand
increases as the profit increases and vice versa, the following two issues must be
distinguished. First, as a result of increased profits, the possible amount of what is
spent for the accumulation demand is also increased. Second, also as a result of
increased profits, the capitalists’ profit expectations rise as well as their desire to
accumulate, and the intended amount of expenditure for their accumulation demand
increases. These two issues are different and, as it will be clarified later, it is important
in analyzing the accumulation process in a capitalist system to distinguish these two
issues.
Second Point: Tendency of Amount of Labor Employment to Increase
Ricardo thought that in cases of expanded production based on capital accumulation,
the employment of additional labor increases, leading to a growing demand for
food products, which will result in the stagnation of the profit rate and the rate of
accumulation itself in the end. Is it therefore correct to consider that the accumulation
process is also the increasing process of the labor employment? If yes, this will
mean that the pace of labor supply growth limits the pace of capital accumulation;
as the accumulation advances, the employment of labor must be increased, and if
labor supply does not increase, capital accumulation cannot advance. However, the
accumulation process in the capitalist system has its own pace of growth without
being restricted by labor supply. This again, was emphasized by Marx.8
Now, to clarify the problem, let us assume the labor supply is constant. In such
case, if the expansion of production is possible only by employing additional labor as
Ricardo stated, then it is possible to continue accumulation as long as there is unem-
ployment in the labor market. However, once the unemployment is absorbed, it will
become impossible to continue accumulation. Thus, in order to be able to continue
the expanded production beyond that point, the presumption that the expansion of
production is possible only by employing additional labor must be denied.
In order to expand production without employing additional labor, the production
must not be carried out by the currently used production technology. New technology
allowing more production with less labor input must be introduced.
8 Marx [15, Chap. 25, Sect. 3, p. 443].

Marx explained this process by introducing the concept of organic composition of

capital.9 Capitalists allot the larger part of additional capital to additional production
goods, and the lesser part to employ additional labor when they make investments.
The organic composition of capital is defined by the ratio of the part of capital that
is invested in the production goods, to the part invested for the wage payments of
laborers. Therefore, the organic composition of capital will rise.
Nevertheless, it is clearly indispensable to introduce new technology for the accu-
mulation process to advance without being restrained by labor supply. Yet, on closer
examination, we find there is more to consider. That is to say, even when the addi-
tional capital is invested for new technologies, it only makes the additional labor for
expanded production smaller compared to when no introduction of new technolo-
gies was made. In other words, the amount of labor employment must grow even at
a slower pace.
For the accumulation and expansion of production to advance without an increase
in the amount of labor employment it is not enough that new technologies are
embodied by additional capital, with a resulting rise in the organic composition
of capital and in labor productivity, but also the production with old technology
must be abandoned. In the case of additional production using new technology
while the production with old technology remains, the amount of labor employment
must increase. Plus, when the production with new technology takes the place of
and drives away the production using old technology, the aggregate production can
increase without an increase or possibly with a decrease in the amount of labor
employment. In such case, the organic composition of capital will rise significantly.
So, how is this process of abandonment of old technology through the introduc-
tion of new technology exerted? It can proceed by way of recovering the capital
embodied in old technology gradually, and by investing it in the form of new tech-
nology instead of old technology. It, however, takes a certain passage of time during
which the amount of labor employment inevitably increases. For more rapid and
massive demolition of old technology and production, equipment with old tech-
nology (whose capital is not fully recovered and which is not necessarily scrapped
yet in view of efficiency) must be forcibly scrapped. An economic crisis is the process
of massive and rapid scrapping. Marx also analyzed the economic crisis from this
viewpoint. We will explain this in detail in the later chapters.10
Nevertheless, Ricardo’s view is erroneous in neglecting the necessary relation
between the accumulation process and technological change. This misconception is
also seen in the next point.
Third Point: The Law of Diminishing Returns
Ricardo insisted that the labor productivity of the agricultural sector tends to decrease
gradually as a result of expansion of production in that sector. This implies that he
neglected the innovative technological change in the agricultural sector. Ricardo’s
agricultural sector is dominated by a capitalistic relation of production, and the
9 Marx [15, Chap. 25, Sect. 1, p. 434 and Sect. 2, p. 438].

10 Marx [33, Chap. 15, Sect. 3, pp. 177–178].
capitalist farmers hold the decision-making regarding production. Therefore, the

capital accumulation process in this sector inevitably involves technical innovation.
By neglecting the introduction of new technology, Ricardo concluded that a dimin-
ishing return leads to a fall in the profit rate, whereas Marx realized the necessity
of technical innovation in the accumulation process, and theorized that the law of
tendency–technological change causes a rise in organic composition of capital, which
then leads to a fall in the rate of profit. We examine this view further in Chap. 5.
Fourth Point: The Stagnation of Accumulation and Simple Reproduction
Ricardo thought that the decline in the capitalists’ volition to accumulate leads to the
stagnation of accumulation demand, eventually resulting in the capitalist economy
falling into a stationary state (= simple reproduction) as a result of the fall in the
profit rate. However, when accumulation demand stagnates, as Ricardo thought, will
the economy fall into a simple reproduction and continue production at the same
level in every period?
Remember what we explained in the latter part of the first point, where we criti-
cized Ricardo’s view. There are two different meanings when we say that a decrease
in the rate of profit leads to a decrease in accumulation demand. One is that, as profit
decreases, the residual of profit, from which the capitalists’ private consumption is
subtracted and therefore the expenditure for accumulation demand diminishes, and
the other is that, as a result, the capitalists’ intention to accumulate is weakened and
they will not invest any further regardless of the availability of investment funds.
In order for the accumulation to decrease eventually to zero and for the economy
to fall into a stationary state, where production is repeated at the same level in
every period, the decrease of accumulation must be as the first meaning mentioned
above. That is to say, in such case, the reason why the accumulation demand is
decreased is not because capitalists are unwilling to invest, but because, as a result
of decrease in profit, the investment funds are decreased however strong the capital-
ists’ desire to invest may be. In this case, all the residual of profit after subtracting
personal consumption expenditure is necessarily spent. Therefore, as all profit is
spent, there is no chance to cause a general overproduction in this case. As profit
continues to decrease and eventually reaches a minimum amount, which just suffices
for personal consumption expenditure, the profit is all spent for the capitalists’
personal consumption expenditure and accumulation comes to a stop. Only simple
reproduction prevails.
However, if a decrease in accumulation demand is of the second type, the situation
will differ. Now, suppose that the profit is decreased and the capitalists’ expenditure
for private consumption is assumed to be constant, then the residual from the profits
available for accumulation funds will decrease as well. We do not suppose here that
just because the capitalists have fewer funds for expenditures toward accumulation,
they spend a smaller amount for accumulation (this is the case of the first meaning).
Instead, we suppose that capitalists decide to stop accumulation because they expect
a low profit rate in the future and further accumulation to be unprofitable. When
capitalists stop accumulation in this way, the profit may be larger than the amount
of the expenditure for the capitalists’ personal consumption. Then a difficulty arises.
Although a part of profit will be spent for personal consumption, some amount of
profit that is not spent for purchasing commodities still remains, but is saved in
the form of money. Consequently, the aggregate demand becomes smaller than the
aggregate supply in the society as a whole, which will lead to general overproduc-
tion. Thus, to stop accumulation does not lead to simple reproduction, but actually
triggers an economic crisis, giving rise to the process of rapid and general decrease
of production.
Although Ricardo argued that a low rate of profit leads to a decline and then
to a halt in accumulation by the capitalists, the logical result ought to be, contrary
to Ricardo, a cumulative process of reproduction in a ceaselessly shrinking scale
instead of a simple reproduction in the same scale. The reason why Ricardo failed
to understand this is that he erroneously accepted the assumption that the amount
of profit after deducting personal consumption is always spent for accumulation, as
already pointed out.
One may argue against our view that, even as the desire to accumulate decreases
and the accumulation demand follows, the capitalists’ expenditure(s) for personal
consumption may increase to offset the decrease in accumulation demand, and thus,
all of the capitalists’ profits will be spent after all. Yet, we are not to agree with
this. Where the capitalists’ accumulation is decreasing, their personal consumption
cannot be considered to increase just enough to offset the decrease. We argue that
in such a case, the capitalist consumption expenditure must decrease, or otherwise
remains constant.11
When we examine economic crises and trade cycles, it is highly important to
know what effects are caused by an increase (or decrease) of accumulation demand
in the accumulation process. We will refer to this in Chap. 4.
We have assessed several key points of Ricardo’s view; yet, three important argu-
ments contained in his views remain, which we must not overlook in the study of
accumulation process in the capitalist system.
First Point: The Link Between Production and Demand
Ricardo denied the possibility of a general overproduction on the grounds of Say’s
Law. We already pointed out this error; however, therein lies an important under-
standing that demand for commodities are regulated by the production activities.
From everyday observations in individual markets, production is production, and
demand is demand, and both of these are different matters. The underlying relation
between them is not clear at first sight. Nevertheless, when we observe a society as
a whole, the production activity regulates the demand for commodities made by the
laborers and the capitalists. Without knowing this relation, one is unlikely to know
anything about the accumulation process of a capitalist society.
If this relation is neglected, then production and demand are considered as
completely separated, and consequently one may argue that accumulation is impos-
sible in the capitalist society (this argument will be examined later in Sect. 3.2). That is
to say, when the production increases due to accumulation, the meeting of production
11 Okishio [22, Chap. 4, Sect. 3, p. 184].

and demand will be only an occasional coincidence, because the market for increased
products has no relation with the production. As we will see later, the continuation
of the accumulation process is supported by the condition that production creates
its own market, or in other words, demand is an increasing function of production.
Therefore, the recognition of the relation between production and demand has to
do with the fundamental understanding about the existence and development of a
capitalist society.
Ricardo’s misunderstanding lies not in claiming a relationship between production
and demand, but in the assertion of direct equality between the two. The relation of
Aggregate demand = F(Aggregate production) F > 0
is correct. But Ricardo considered
Aggregate demand ≡ Aggregate production
where ≡ indicates an identity relation.

It was Marx who correctly resolved the problem of how the demand for commodi-
ties is regulated by production activity. Marx analyzed this using his famous
reproduction scheme.12
Second Point: The Profit Rate and Accumulation
Accumulation by capitalists is for the purpose of seeking profit, and therefore it is
a very important and fundamental fact for the understanding of the accumulation
process in the capitalist society. We understand that, when the rate of profit drops
drastically, the motivation to accumulate declines as well. When we say that a fall
in the profit rate results in a reduction of accumulation, it should be noted that this
is in the second meaning we have mentioned. It is also important to consider the
relation between a state where a fall in the profit rate reduces the accumulation, and
a seemingly contradictory state in which the individual capitalist tends to accelerate
the accumulation in order to pull through difficulties even alone. Marx treated these
two cases in his book Capital.13
Third Point: The Stagnancy of Accumulation
Ricardo forecasted that, theoretically, the accumulation process in a capitalist society
stops eventually, in the long run. As we already stated, there is a critical defect on
which his theory is based. The following two points thus deserve deep examination.
First, his vision is dialectical, assuming that the accumulation process itself makes the
continuation of accumulation difficult to be satisfied: the affirmation of a condition
leads to its nullification. Such way of recognition is indispensable for the analysis of
both short-run and long-run consequences of the accumulation process in a capitalist
society.
12 Marx [32, Chaps. 20–21, pp. 240–319].

13 Marx [33, Chap. 15, Sect. 3, pp. 180 and 182].
Second, the moment of self-negation of the capitalist accumulation process, as

Ricardo considered, is not a difficulty of commodity sales. As we examined in the
last part of our criticism on Ricardo, when accumulation stops for his reason, we
must conclude that the general overproduction and the capitalist economy shall
fall into a cumulative process of reproduction at an unceasingly shrinking scale.
However, in Ricardo’s view, this halt in accumulation is neither triggered by a general
overproduction itself, nor the difficulties of selling commodities.
In our view, general overproduction, at any rate, has a moment of pause or a stag-
nation of accumulation. We must explain this pause and stagnancy of accumulation
by other reasons than general overproduction. If not, we fall into a vicious circle
or tautology to explain the general overproduction by the general overproduction
itself. Ricardo’s argument is released from this tautology, as his was not based on
the general overproduction, even if many erroneous points are included.
3.2.2 Malthus’s View
Malthus thought that without unproductive consumers such as land owners, aristo-
crats and priests, the capitalistic accumulation process always falls into overproduc-
tion and will not function properly.14 His view contrasted Ricardo’s, and disputes
arose between them. Ricardo demonstrated the bourgeois conviction that capitalistic
accumulation process can develop harmoniously without overproduction problems
at least until its final stage. On the other hand, Malthus asserted that the capitalistic
accumulation process could not be maintained by the accumulation demand of the
bourgeoisie alone, and defended the existence and interests of the parasitic class
such as land owners, aristocrats, and priests by concluding that their unproductive
consumption is indispensable for its functioning.
By examining their views, we intend to clarify the issues in the accumulation
process of a capitalist economy; in fact, their views contain, in germinating forms,
most of the major issues that have been discussed in the history of economic thoughts
since then.
We shall begin by examining the theoretical grounds on which Malthus based
his assertion. What was it that made him think that overproduction would always
occur without expenditures on luxury goods by landowners, aristocrats, and priests?
In order to answer this question, we consider how effective the wage laborers and the
capitalists are as consumers in the market of the capitalist economy. Firstly, regarding
the consumption of wage laborers, their purchasing power is determined by the wages
paid by the capitalists. As stated in Sect. 2.3, Malthus’s theory of population shows
that their wages are limited to the level of subsistence and breeding; therefore, the
consumption demand of wage laborers could never be large enough to keep the
markets away from overproduction. Secondly, considering the capitalists’ demand
for commodities, they earn far more profits than wage laborers can receive, and this
14 Malthus [14, Chap. 7, Sect. 9, pp. 463–490].

allows them to purchase a large amount of consumption goods. Then again, being
absorbed with accumulation, they tend to spend a rather small fraction of their profit
on purchasing consumption goods. As a result, the total consumption demand of the
wage laborers and the capitalists is not large enough to clear the market. However,
after spending for their consumption, the capitalists allocate all of the residual of
profit to accumulate for expanding production. As production is expanded in every
period, despite the consumption demand not being large enough, overproduction
occurs in the market. In order to avoid overproduction, the parasitic class, which
receives rents, taxes and contributions, is indispensable, as they purchase a large
amount of consumption goods. It is this additional demand of theirs that expands
consumption, along with production growth, thereby avoiding overproduction.
This is the summary of what Malthus stated as the inevitability of overproduc-
tion, suggesting that capital accumulation would be impossible without unproductive
consumption. We criticize this view of his as follows:
First Point: Capitalist Accumulation and Effective Demand
It is correct to argue that the consumption demand of the wage laborers is at a low
level due to their low wages, while that of the capitalists is at a low level because they
consume only a small fraction of their profit, for which their total consumption level
is low? The debatable point here is that Malthus assumed as a matter of course that
the capitalists would spend the whole remaining profit after personal consumption
expenditure for accumulation demand, and that he drew his conclusion based on this
assumption.
Like Ricardo, Malthus thought that the capitalists invariably invest the rest of the
profit left after consumption to accumulation. When we examined Ricardo’s view
before, we already argued that this point of view is erroneous, and therefore we shall
not repeat the argument here again.
Yet, strangely enough, Ricardo and Malthus reached mutually opposing conclu-
sions from the same assumption, namely that the capitalists invariably invest the
rest of the profit left after consumption to accumulation. Based on this assumption,
Ricardo deduced that the aggregate demand and supply will be equal, and denied
the possibility of general overproduction. On the same basis, however, Malthus
concluded that a general overproduction occurs because the capitalists expand
production regardless of the insufficient consumption demand. What made them
draw different conclusions from the same assumption? Whose argument is correct
if we are to admit this assumption, Ricardo’s or Malthus’s? In order to state the
conclusion first in this case, Ricardo is correct, and Malthus is not.
Since Ricardo’s theory lacks an analysis of the reproduction process, we examine
the meaning of the above assumption by adding it as follows. The sales amount of a
commodity is given by:
Amount of production goods

Amount of sales = (1) + Wage(2) + Profit(3)
used to produce the commodity
Firstly, the amount (1) is spent as production goods demand because the production
goods used as input to produce the commodity need to be replaced for reproduction.
Secondly, the complete wages (2) are spent on consumption goods by the wage
laborers who received them, provided that savings are disregarded. Lastly, under the
assumption, profit (3) is appropriated to the purchase of either consumption goods or
any additional production goods. Now, since this equation holds for every commodity,
the total sales amount of the society coincides with the aggregated demand. Thus,
if the above assumption is admitted, we can conclude that there is no possibility
of general overproduction, although a partial disequilibrium could occur in some
markets.
Now, how did Malthus draw his incorrect conclusion on the possibility of general
overproduction from the same assumption? We need to examine his mistake here, as
similar mistakes have been repeated many times, up to now. In analyzing a capitalist’s
appropriation of a fraction of his profit to accumulation, Malthus focused only on the
aspect of production expansion in the following periods as a result of accumulation,
neglecting the aspect of its demand-expansion effect; that is, accumulation increases
demand for production goods as its direct effect, and for consumption goods through
additional labor demand. Moreover, when he considered the aspect of production
expansion, he took into account the extended production only for consumption goods.
These are the grounds for his view. Let us examine them in further detail.
When the capitalists invest, accumulation comes into existence in the form of
additional demand for production equipment at first; therefore, a high level of accu-
mulation for the time being means a high level of demand for the production goods.
Moreover, this expands the production of production goods and if it accordingly
increases the employment, then the demand for the consumption goods also increases.
If this effect of the accumulation on the demand side were neglected, one would
conclude that accumulation would never be possible in a capitalist economy, that is,
the economy would always be in crisis (stagnation theory), and it would be difficult
to understand the phases of boom and prosperity in its business cycles.
There may be counter arguments against the above, stating that although accu-
mulation takes the form of demand increase, it is mainly the increase in demand for
production goods and it cannot supplement the shortage of the demand for consump-
tion goods. Needless to say, the high-level demand for production goods itself does
not increase the demand for consumption goods; yet, we cannot simply conclude this
will immediately lead to a general overproduction. The situation where the demand
in the production goods sector is at a higher level than that in the consumption goods
sector means at most a partial overproduction or a partial underproduction. In case of
a rapid accumulation, a self-sustained development of the production goods sector
may continue throughout this disequilibrium.
Next, let us examine another undeniable aspect of accumulation; namely, accumu-
lation extends productive forces. Where does the demand that absorbs this extended
production come from? The answer to this matter is contained in the assumption
we tentatively admitted; that is, accumulation demand is identically equal to profit
minus the capitalists’ personal consumption. Under this assumption, however large
the level of production is, there always exists aggregate demand equal to the level of
production in the form of replacement demand for production goods, consumption

demand of laborers and capitalists, and accumulation demand of the capitalists. In
such an economy, there will be only a partial disequilibrium of demand and supply,
meaning that an overproduction in one sector will always signify underproduction
in another.
Some may ask whether a general overproduction can be avoided under the assump-
tion of strong volition to accumulate.15 The answer is yes. If so, will there not be a
general overproduction in the capitalist economy? The answer is no in this case. The
reason is that the “assumption” is broken periodically in a capitalist economy. Why
it is so? We aim to clarify this in Chap. 4.
In any event, it is evident that Ricardo was a better theorist than Malthus. In order
for Malthus to conclude a general overproduction, he ought to propose a ground that
denies Ricardo’s assumption itself.
Second Point: Unproductive Consumption and Overproduction
As the only way to avoid general overproduction, Malthus asserted the existence of
unproductive consumption by land owners, aristocrats, and priests, suggesting high
levels of consumption for them. He thought that the general overproduction can be
avoided by maintaining high levels of the parasitic class’s unproductive consumption,
but his view needs to be corrected. To intent a detailed examination of this kind
of fallacy is important, considering a similar view is asserted and practiced as the
Keynesian policy.
As shown in our examination of Malthus’s general overproduction theory, general
overproduction occurs when capitalists do not appropriate the residual of the profit,
after subtracting consumption expenditure, as accumulation demand. We do not need
to consider any further why the capitalists behave in such a manner. At any rate, we
shall let it be that the accumulation demand of the capitalists is not large enough that
a general overproduction occurs. On this subject, let us examine whether the increase
of unproductive consumption of the land owners, aristocrats and priests will solve
the issues of overproduction or not.
The first thing to be considered is what covers the increment of the parasitic
class’s expenditures, i.e., the source of their financial resources. If the increment is
covered at the expense of the labor class, their consumption demand decreases as
much. Therefore, even if all the money covered by the labor class is appropriated
by the parasitic class and this increase in their consumption demand emerges as the
market demand, this is far from leading to an increase in the aggregate demand. Next
is to consider what occurs if the increment of their consumption is covered by the
capitalist class. In such case, unlike the labor class, the individual consumption may
not decrease as much as the capitalists’ burden increases. Yet, even without this,
their accumulation demand being already low (for which there is overproduction) so
that their decreased profit would further decrease their volition for accumulation. As
a result, the reduction of their accumulation demand may cancel out the increased
15 Tomizuka [41, p. 94].

consumption of the parasitic class, and the aggregate demand may decrease even
more.
Considering this, it becomes doubtful that increased consumption of the parasitic
class increases the aggregate demand even to some extent. If it could be considered
to increase the aggregate demand at any rate, it would only be in the following case:
the parasitic class such as land owners, aristocrats, and priests, consume a larger part
of their income (e.g. rents, taxes and contributions) than usual, or consume more
than their incomes by means of borrowing, or by disposing of their assets.
If the consumption ratio to income of parasitic class increases, the consump-
tion demand increases. But then the accumulation demand of the capitalists, as we
suppose, is smaller than the residual of their profits after subtracting their consump-
tion. In this case overproduction cannot be avoided even if the consumption ratio
of the parasitic class becomes unity. This can be understood based on the following
relationship:

Amount of sales = (1)
Income of
+ Wage(2) + Profit(3) + (4)
the parasitical class
Part of profit (3) is not appropriated to the expenditure, and the aggregate demand is
short of the aggregate supply by the size of the unused part of the profit, even if the
parasitic class consumes all their income(s).
The next case is when the parasitic class consumes more than their income by
borrowing or by disposing of their assets. In this case, their consumption expenditure
increases more than their income(s), so the consumption ratio becomes more than
unity and the consumption demand of the society will increase. If the increment
is large enough, the possibility is undeniable that the aggregate demand increases
above the level at which overproduction is avoided despite the low level of capital-
ists’ accumulation demand. However, the problem is whether the borrowing and the
disposing of assets, which enables the increment of the parasitic class’s consumption,
is possible when there exists a general overproduction. With respect to borrowing,
would any lender provide a large amount of money for unproductive consumption,
or as for the disposing of assets, would anyone spend a large amount of money for
buying assets in such a situation? If this borrowing and disposing of assets occur
within the parasitic class, the amount might be limited. Thus, we ought to think
that it is impossible for such increased expenditures of the parasitic class to avoid
the cumulative contraction of both production and accumulation demand, which is
triggered by the occurrence of the general overproduction.
As shown above, Malthus’s view is not correct. However, his discussion contains
an important point to be examined. Let us consider this point as we did with Ricardo’s.
The important point in his view, which must not be overlooked, is that the
consumption demand of laborers alone could never solve the market problem in
a capitalist economy. Malthus’s view, like Ricardo’s, lacks the analysis of the repro-
duction structure in a capitalist economy. By making up for this, let us clarify the
rationality in his view. Let us return to the following relationship:

Amount of sales = (1) + Wage(2) + Profit(3)
Malthus attempted to explain that with only the replacement demand of production
goods (1)—the key to understand the reproduction structure that Marx solved but
which Malthus overlooked—and the laborers’ consumption demand determined by
wages, the aggregate demand will not reach the aggregate supply. In other words,
if the aggregate demand consists of only (1) and (2), the economy will face over-
production. Recognizing this structure is essential to understanding the capitalist
system, since it is directly related to the realization problem of profit. If there exist
only the replacement demand for production goods and the consumption demand of
laborers who were employed in the current period, and the market price of commodi-
ties falls to the level where aggregate supply meets the aggregate demand, the profit
will vanish, as shown in above relationship.
The existence of overproduction in a capitalist economy does not mean that there
is no demand, no matter the price, but that there is no demand for the price consisting
of the profit with which the capitalists are satisfied. Malthus called this price the
“necessary price.” In addition, as long as we assume sales at this necessary price,
an overproduction absolutely occurs without any demand except the consumption
demand of laborers and the replacement demand for production goods.
Understanding the above is essential when considering the market problems of a
capitalist system, for it is a form of the basic fact that the realization of profit is a
necessary condition to maintain production in the system.
3.2.3 Sismondi, the Narodniks, and Luxemburg’s View
Malthus argued that a capitalist society cannot solve the market problems as long as
society is formed by only the capitalists and the wage-laborers, and the accumulation
process would halt eventually due to overproduction. As we demonstrated in Chap. 2,
the fundamental classes of a capitalist society are the capitalist class and the wage-
labor class. Thus, if such a society, which consists of only these two classes, cannot
solve its own market problems, it denies that a capitalist society is one type of a self-
sufficient mode of production. Plus, it also means that deficiency of such a society
is barely complemented with some peripheral component, for example, the parasitic
class, i.e., land owners, aristocrats, and priests, as Malthus listed.
In the history of economic thought, many others besides Malthus claimed such
an “impossibility theory” of capitalist accumulation. Here we shall make a brief
examination on the views of Sismondi [38] in France, the Narodniks [28] in Russia,
and Luxemburg [31] in Germany. They all set up in the center of their argument
how the laborer class is in poverty because of the capitalists’ exploitation, and their
demand for consumption goods is only of a very small amount. They argued that
the shortage of demand was an outcome of laborers’ small consumption demand
that was restricted by their wage-income, and also of the capitalists’ small consump-
tion demand that was restricted not for the shortage of profits, but for the sake of
accumulation. Therefore, they assumed a capitalist society cannot solve its market
problems for itself inherently. In order to solve this, Sismondi recommended a rever-
sion to a simple commodity-production, where the laborers owned their means of
production and carried out the production by themselves. The Narodniks regarded the
foreign markets as absolute complements to capitalism, while Luxemburg regarded
the demand from the colonies’ people outside of the capitalist system as the comple-
ments. These three theories are the same type in an abstract level, yet their historical
and social roles are substantially different. Let us briefly overview this point.
Sismondi carried out the role of a critic against capitalism in the early nineteenth
century. Capitalism—which made its appearance breaking out of feudalism under the
slogan of “Liberty, Equality, and Fraternity”—was not a paradise at all; it was ripe
with downfalls of small commodity-producers, poverty among the wage-laborers,
and market overproduction leading to crises and unemployment. Facing such real-
ities, unlike Ricardo, Sismondi could not agree with the accumulation theory. He
accused capitalism from a standpoint of small producer and wage laborers. On this
point, Sismondi was on the opposite side of Malthus who spoke for the parasitic class
such as land owners, aristocrats, and priests, even though they set up similar theo-
retical frameworks. Malthus took the laborers’ poverty as granted; his main concern
was how much consumption demand would another parasitic class increase in order
to compensate and offset the shortage of the capitalists’ consumption demand, which
was caused by the capitalists appropriating only a short portion of their profits for
the consumption demand. However, for Sismondi, as the issue was that the laborers’
consumption demand was so restricted, his focus was on how the laborers could earn
more of the fruit of their production. It was, however, impossible to solve this issue
scientifically, only by praising the past in a Romanticist manner and by dreaming of
reversion to it. In fact, capitalism came about as the inevitable result of the simple
commodity-production, making it impossible to revert to the simple commodity
production. Even if we could, capitalism would, without fail, be generated.
It was until Marx that we had to wait to analyze Sismondi’s problem correctly,
and from the standpoint of the laborers. The objective course for the solution, namely
socialist revolution under the leadership of the laborers’ class, was only brought in
then.
On the other hand, the Narodniks in Russia failed to foresee the development of
capitalism in late nineteenth century Russia. Thus, the historical role of the Russian
laborers class was overlooked, which had been growing to become the leading class
of the revolution. Objectively, they played the role of the advocator of Russian capi-
talism. At that time in Russia, the stratum-differentiation of peasantry and the down-
fall of small commodity-producers had been propelled, impoverishing the peasantry
and the wage laborers. The Narodnik, i.e., “Friends of the People” members, consid-
ered that capitalism in Russia could not expand the domestic market because of
poverty, and it could develop only when it had foreign markets. However, since the
foreign markets had already been occupied by other advanced-capitalist countries,
they concluded that capitalism could not advance in Russia. They proposed that
Russia instead of implementing capitalism should build a community of peasantry
based on the collapsing-but-still-existing “village commune (obshchina)” system.
Such proposal was heavily criticized by Vladimir Lenin,16 who spoke from the
laborers’ standpoint. The points made clear by Lenin through this controversy are
very important. We will explain further in later chapters; here, we will highlight the
following three points.
Lenin’s first criticism is that the process of stratum-differentiation of peasantry
and the downfall of small commodity-producers and their transformation to wage-
laborers are the process of creation of domestic markets for capitalistic produc-
tion. The downfall of small commodity-producers and their transformation to wage-
laborers lead to gradual inclusion of their production into capitalistic production.
This implies that the wage-laborers have to sell their labor force and have to demand
consumption goods with their wage-income, because of which the ratio of commodity
to overall production is heightened and the market is extended. Also, the market can
be extended by capitalists’ replacement and accumulation demand for production
goods. Accordingly, it is possible to create markets by the capitalists in spite of
poverty of the general public.
The second criticism is as follows: they thought that foreign markets were indis-
pensable for the sustainment of capitalism. As trade with foreign countries cannot
be one-sided sales, foreign goods must be purchased eventually. Otherwise, foreign
trade cannot be continued. Therefore, the existence of foreign markets cannot be a
solution for the market problems.
The third criticism is that their attempt, which holds fast to the old-fashioned
“Land-Community system” and preserves small commodity production, cannot be
realized due to the economic law of capitalism developments, and hinders the
appearing revolutionary leadership of the laborers, which rises with the devel-
opment of capitalism. Consequently, they interrupt the fundamental forces from
concentrating and from overthrowing capitalism.
Although his reasoning was not correct, Sismondi played the historical role of
early critic against capitalism in its formation period. Marx then criticized capitalism
theoretically and also discovered the laborer class as major character to practically
criticize and sublate capitalism. Afterwards, the Narodniks in Russia made a denial of
Marx, spoke about the impossibility theory of capitalism romantically, and carried
out a reactionary role in history—contrasting Sismondi. Indeed, “history repeats
itself, first as tragedy, second as farce.”
Rosa Luxemburg in early twentieth century Germany, which, at the time entered
the imperialist stage of capitalism, tried to demonstrate that capitalism could not
continue without imperialistic enlargement and that paradoxically, it could not but
16 Refer to Lenin [27, 29, 30].

cease functioning because of this enlargement. She knew by intuition that imperialism
was the last stage of capitalism and the twentieth century was the age of socialist
revolution. Thus, she tried to build up a theoretical foundation for that.
The issue she proposed is legitimate, and we must respond to it when we consider
modern capitalism. Moreover, her accurate intuition was shown correct, practi-
cally, by a series of facts, namely, the Russian Revolution in 1917, followed by the
successive occurrence of socialistic revolutions and racial independent revolutions.
However, Rosa Luxemburg failed to solve this problem. She considered imperialism
mainly from the viewpoint of the market problem. That is to say, she posed the
problem where the demand for increasing goods comes from when accumulation
is in progress in a capitalist economy. After examining the consumption demand
by laborers, the replacement demand for production goods, and the consumption
demand by the capitalists, she found that those demands are insufficient to clear the
market. Her argument is correct up to this point. As long as demand is this much,
there is exactly a shortage equal to the rest that remains after subtracting private
consumption demand from the capitalists’ profits. Then, where does the demand
which fulfills this shortage come from?
It is not that Luxemburg did not consider whether the capitalists’ accumulation
demand could complement it, although she rejected this for the following reason.
Let this shortage be complemented by the capitalists’ purchase of additional produc-
tion goods that is going to expand production in the next period. Then, what should
we do about the “shortage”, which would be expanded by additional production
facility in the next period? If the capitalists would again complement this shortage by
purchasing additional production goods for the expansion of the subsequent produc-
tion, and if this process would continue, she said, “yet the upshot of all this is not
accumulation of capital but an increasing production of producer goods to no purpose
whatever.”17
Consequently, she concluded, so as to complement the demand shortage in capi-
talism, there was nothing but the demand from the people who were not included
by capitalism and made a living under simple commodity-production. Therefore, all
the capitalist powers struggle to dominate the non-capitalist world; they come into
conflict with each other, which is what causes imperialism. However, gradually, the
non-capitalist world is broken down by contact with the capitalist economy, and is
turned into capitalism. So, if the whole world would be covered entirely by capitalism
in this way, the capitalist accumulation cannot be maintained.
Readers will be able to criticize these theoretical faults as we previously investi-
gated other views. However, let us take a look at one point made by Luxemburg that
it is entirely meaningless from the standpoint of capitalists: it is that the process—
increasing products caused by accumulation are absorbed again by accumulation
demand—carries on. Is this process really meaningless from the “standpoint of capi-
talists” as she claimed? Seen from the “standpoint of wage laborers” who are in charge
of production, it seems an unreasonable process that products that were expanded
by accumulation are invested again to expand the next period’s production, and that
17 Luxemburg [31, p. 335].

such a process continues repeatedly. From the standpoint of wage laborers, it is an

unreasonable and meaningless process that their fruits of labor are appropriated not
for their living, but for additional means of production owned by the capitalists who
dominate the laborers. Moreover, it is unreasonable from the viewpoint of universal
significance of production itself for society. Production is the fundamental activity
for social sustainability because it contributes to existence, breeding, and the devel-
opment of social members. If, however, the large part of production capacity is used
not for production of daily necessities, but for increasing only potential production
capacity of daily necessities, and if this capacity will not be actualized, we must say
that this part of production does not play a universal role for society. Yet this does not
imply that the process is meaningless from the “standpoint of capitalists”. Actually,
in that process, the capitalists’ commodity is sold at a price, which brings sufficient
profits to them. In addition, their capital increases. For the capitalists, production
itself is not the goal, but the means, and their goal is profits—as long as pursuing
profit is carried out steadily, it does not matter what happens to any other aspects.
This is the great contradiction of capitalism. We will discuss this matter further when
we treat the view of Tugan-Baranovsky [42] in Sect. 3.4.
Although Luxemburg posed a legitimate issue, which is the inevitability of impe-
rialism and its fall, her theory to solve it was incorrect. Her theory includes the fallacy
that the accumulation process in the capitalist economy is impossible. Practically,
this led her to an extreme left situation-analysis and sectionalist movement. However,
how shall we solve her legitimate issue theoretically? Even though this problem is
beyond the scope of this book, it is definitely evident that we cannot derive the
inevitability of imperialism merely from the market problem alone.
The above is a rough survey of the historical roles and the arguments of Sismondi,
the Narodniks, and Luxemburg. Their arguments are in agreement on the theoret-
ical point with what we described as Malthus’s view. However, Sismondi’s argu-
ment includes another valuable point that plays an important role in this book later.
Therefore, we shall remark this point before we close Sect. 3.2.
As previously stated, the underconsumption by the laborers is the ground on
which Sismondi considered that the capitalist accumulation process always falls into
overproduction. However, independent of this, he also presented a different logic
as follows. His thinking is shown by the phrase “it is the income of the past year
which must pay for the output of this year”.18 In other words, from where does the
demand for commodities produced in this year come? If the commodities produced
in this year are sold, the sellers of the commodities can buy other commodities
by means of the money that they earned by selling the commodities. To buy other
commodities in this manner, the commodities produced in this year must be sold
in the first place. Here, we cannot consider that the demand for the commodities
produced in this year comes from the income that is earned in the production of this
year. This is because the income from production is received by the people only after
the commodities produced by them are sold. It is a vicious circle if we argue that the
sales of the commodities are realized by the demand appropriated from the income of
18 Sismondi [38, Book 2, Chap. 6, p. 104].

this year, which is realized through these sales. Sismondi, therefore, considered that
the demand for commodities produced in this year is appropriated from the income
that was earned as a result of last year’s production. Considering this way, he can
avoid the above-stated vicious circle at present.
If, however, we consider that the demand for commodities produced in this year
comes from the last year’s income, we must admit that the capitalist accumulation
process cannot avoid facing overproduction as long as the accumulation is carried
out. Let us discuss one detail of this argument: Sismondi’s thought concerning this
is confused since he neglected, as did Ricardo and Malthus, the issue of replacement
of production goods used as inputs for production, which is one of the keys to
understanding the reproduction process in capitalism. Therefore, we supplement his
argument with this issue and demonstrate the above-stated point. Suppose, as in
Eq. (3.19), that the commodities produced in the previous year have been sold out
at any rate (we will skip the discussion here on why it was possible), and the money
earned by the sales has been able to cover the expense of production goods used as
inputs for production, to cover the wage for laborers, and to realize profits for the
capitalists.
Total amount of Amount of Wage Profit

commodities produced = production goods used + in the + in the
in the previous year as inputs for production previous year previous year
(3.19)
Let us assume that all the money is expended entirely to purchase the commodities
produced in this year. In other words, the capitalists purchase the amount of produc-
tion goods to replace the production goods used as inputs for production in the
previous year; appropriate a portion of profits to purchase their private consumption
goods and the rest of profits for accumulation demand entirely; and laborers expend
the entire wage income in the previous year to purchase their private consumption
goods. Then, it holds from (3.19) that
Total demand for Total amount of

commodities produced = commodities produced (3.20)
in this year in the previous year
However, the production is expanded this year compared to the previous because of
the accumulation. As long as the prices do not fall, we get
Total amount of Total amount of

commodities produced > commodities produced (3.21)
in this year in the previous year
Accordingly, it must hold from (3.20) and (3.21) that

Total amount of Total demand for

commodities produced > commodities produced (3.22)
in this year in this year
This means that overproduction is inevitable.

As is clear from the above explanation, this conclusion holds even if the capitalists
entirely appropriate for accumulation the rest of their profits in the previous year after
subtracting private consumption demand. Now, if the above argument is correct, the
capitalistic accumulation process is impossible. What is the error in the Sismondi’s
reasoning?
The problem lies in (3.20). Suppose production is expanded compared to the
previous year. If the demand is equal to the amount of last year’s production in spite
of the expanded production, it is needless to say that the economy faces overpro-
duction. Then, where does the demand for commodities produced in this year come
from, besides the money that was earned by selling the commodities produced in the
previous year? Moreover, in order to earn their previous-year income that Sismondi
treated as a premise, people must have successfully sold their commodities produced
in the previous year. What guarantees these sales? The consideration as above tells
us that the issues Sismondi had posed are the ones that we must solve in order to
understand the capitalist accumulation process. We discuss these issues in the next
section. The point is that there must be “purchasing without selling”. In Sect. 3.3,
we clarify how this could be achieved.
3.3 Extended Reproduction in the Capitalist Economy
In Sect. 3.2, we learned that the views of the capitalist accumulation were roughly
divided into two: the capitalist accumulation can steadily progress without being
accompanied by a general overproduction crisis, and will not stagnate if only the
diminishing returns are avoidable by technical progress; the capitalist accumulation
is impossible without any external complements to capitalism, because it inevitably
gives rise to a general overproduction crisis at all times.
Referring predominantly to Marx, we revealed that both of these views are
misleading. The subject of this section is to show, by constructing a formal theory
that refers to Marx, that accumulation is possible and necessary for the capitalist
economy, and that it can only be carried on going through many difficulties and fluc-
tuations, but not along a steady path. In doing so, it is required to keep in mind the
issues that we pointed out in Sect. 3.1, that is, the points that came to surface when
we examined the peculiar manner in which the double reproduction, reproductions
of goods as well as relations of production, is attained in the capitalist society.
3.3 Extended Reproduction in the Capitalist Economy 121
3.3.1 Reproductive Replacement in the Capitalist Economy:

Simple Reproduction
In order for any society to exist and function, as we saw in Sect. 3.1, reproduction
must be carried out. The capitalist society cannot be an exception. For the sake of
reproduction, production goods and the labor power exhausted in production activ-
ities must be replaced. To satisfy this condition, as mentioned above, productivity
higher than a certain level and proper composition of production are indispensable.
Moreover, reproduction is impossible unless production goods and consumption
goods produced in each sector are allocated to each other. Since the capitalist society
is a society where the dominant form of production is commodity production, there
is no planning agent who consciously allocates the products of society to each sector
so as to maintain production in the following periods. The capitalist society must
accomplish this through sales and purchase among the capitalists. Nevertheless,
these mutual trades, which are absolutely necessary for capitalist reproduction, are
accompanied by two difficulties as follows.
The first is that if we assume, as Ricardo, Malthus, Sismondi and others did, that
the demand for commodities only comes from the income of society members, then
Amount of commodities = Amount of exhausted production goods

+ Wage + Profit
holds true also for the whole society. Nevertheless,
Amount of commodities > Total demand = Income
because
Demand = Income = Wage + Profit
This gives rise to the question as to how all of the commodities can be purchased
with income.
In order for a commodity to be sold, as Sismondi pointed out, someone must
purchase it, and the money needed for the purchase can be earned by sales. This
leads us to the following question: If, however, everyone tries to purchase others’
commodities with the capital achieved by selling his commodity, what will happen?
In such case, no one can sell their commodity. A similar example would be as follows:
if everyone tries to love somebody only when the latter loves him or her, no mutual
love shall be achieved. In order for the sales to be possible, someone must buy before
selling. Therein the question, who will do so, and how can he do so?
Now, let us begin with solving these two questions. It was Marx who proposed
these two questions clearly and solved them first.19 These questions do not require
19 Marx [32, Chap. 19, Sect. 2, pp. 221–237; Chap. 20, Sect. 1, pp. 240–242].
the consideration of the extended-reproduction, for we can face them even when we
assume productions are repeated in the same scale every period. For the purpose of
avoiding complexities, we thus assume simple reproduction.
3.3.1.1 The Question of “Total Amount of Commodities > Aggregate

Demand = Income”
This question relates to the error of the classical school named “the dogma of V +
S” by Marx.20 Under the assumption of
Aggregate Demand = Income = Wage + Profit
if continuous occurrence of general overproduction is to be denied, the equation
Total Amount of commodities = Wage + Profit
must hold. Marx named this idea that the price is only made of the wage and the profit
“the dogma of V + S”. This dogma, however, is obviously wrong. The following
equation is correct:
Total Amount of commodities = Amount of exhausted production goods

+ Wage + Profit
Therefore, if AggregateDemand = Wage + Profit, overproduction occurs. Thus, the

core of the problem is whether the assumption, AggregateDemand = Income is right
or not.
It is not sufficient for considering this issue to sum up all commodities with their
prices and to examine if the total amount of the production equals the aggregate
demand. We must examine the relations between supply and demand for the produc-
tion goods and for the consumption goods respectively. For, on considering the market
problem in Sect. 3.3, we are not asking only the possibility of sales, but also whether
the replacement of production goods and labor power necessary for reproduction
can be attained through markets. From this viewpoint, therefore, the division of the
production goods sector and the consumption goods sector is absolutely required.21
We use notations below in the same manner as in Sect. 3.1.
When the production capacity is normally operated in the production goods sector,
we can express the produced amount of production goods in monetary units as
p1 x1 = p1 a1 x1 + wτ1 x1 + π1 x1 (3.23)
20 Marx [15, Chap. 24, Sect. 2, p. 416].

21 Marx [32, Chap. 20, Sect. 2, pp. 242–243].
This shows that the amount of production goods is divided into the amount of
exhausted production goods needed for producing the production goods, the wage,
and the profit. Here, π1 is the profit per unit of production goods. Next, as to the
consumption goods produced under the normal operation of production capacity in
the consumption goods sector, we can similarly express:
p2 x2 = p1 a2 x2 + wτ2 x2 + π2 x2 (3.24)
We have to note here that the amount of production goods exhausted in the two
sectors does not form the income by any means.
Now, we consider the demands for production goods and consumption goods,
and the manner in which the replacement and supplement for reproduction can be
realized. Meanwhile, we ignore the question of how purchasers earn the money
necessary for purchase (we have to deal with this question in Sect. 3.3.1.2).
First of all, let us start with the demand for production goods. As we are assuming
simple reproduction, capitalists do not spend their profits on additional production
goods. Despite this, they must demand production goods, because the capitalists of
both sectors cannot help replacing the production goods exhausted in the current
period in order to keep the same scale of production in the next period. Their
replacement demand is summed up as
p1 a 1 x 1 + p 1 a 2 x 2
in monetary terms.
On the other hand, the demand for consumption goods is made of laborers’
wage income and private consumption of the capitalists. The capitalists expend
all their profits on consumption, under the assumption of the simple reproduction.
Accordingly, the aggregate demand for consumption goods comes to
wτ1 x1 + wτ2 x2 + π1 x1 + π2 x2
in monetary terms. When these demands go towards each sector, if the following
equations hold,
p 1 x 1 = p1 a 1 x 1 + p1 a 2 x 2
p2 x2 = wτ1 x1 + wτ2 x2 + π1 x1 + π2 x2
then, the supply equals the demand in each sector. Rewriting these equations, we can
get
x 1 = a1 x 1 + a2 x 2
w π1 π2
x2 = (τ1 x1 + τ2 x2 ) + x1 + x2
p2 p2 p2
We find that the composition of the production goods sector and the consumption
goods sector has to be as follows:
x1 a2
= (3.25)
x2 1 − a1
This reminds us of the lower limit for the ratio of the production goods sector to the
consumption goods sector required for satisfying the reproduction condition, which
we showed in Sect. 3.1.1.1.
The condition (3.25) that the sectoral composition between the production and
the consumption goods should satisfy for reproduction is the same one as
C2 = V1 + S1 (3.26)
which Marx showed in Volume II of Capital.22 Rewriting it with our notation
C 2 = p1 a 2 x 2
V1 + S1 = wτ1 x1 + π1 x1
and as
wτ1 x1 + π1 x1 = p1 x1 − p1 a1 x1
Equation (3.26) comes to
p1 a2 x2 = p1 (1 − a1 )x1
Thus, finally we get

x1 a2
= (3.25 )
x2 1 − a1
While the composition between the production goods and the consumption goods
sectors satisfies the simple reproduction condition (3.25 ), the commodities in each
sector can be sold for the price including profit; besides this, the replacement of the
production goods and the reproduction of the labor power can be realized. We are
assuming here that the real wage rate w/ p2 is at the level where the reproduction of
labor power is possible. The problem of how it can be brought out will be discussed
later.
22 Marx [32, Chap. 20, Sect. 3, pp. 243–246].

How did we achieve solving the question of realization and replacement as such? It
is because we discarded the erroneous idea of aggregate demand = income, which
the classical school maintained. The aggregate demand, as the above explanation
shows, is
Aggregate demand = Amount of exhausted production goods (A) + Income (B)
And in the case of simple reproduction, (A) is allotted to the demand for production
goods and (B) to the demand for the consumption goods.
The classical school, i.e., Ricardo and others, were not aware of the issue how the
capitalist reproduction could be attained. As they could not bring to light the problem
of replacement for reproduction, they failed to clearly grasp the idea of replacement
demand for reproduction. In order to pose the question of how reproduction can be
sustained in the capitalist system, it is necessary to regard capitalism as a transitional
society form in the history of human society. If not, capitalism cannot avoid looking
like a self-evident premise. It may be natural that the classical school, who regarded
capitalism as a permanent society, could not pose this question.
3.3.1.2 The Problem of Purchase Without Sales
We used an important assumption in the above discussion, namely that purchases

can be made prior to sales. We discussed that the capitalists in each sector purchase
production goods to replace the exhausted ones and purchase consumption goods,
or laborers purchase consumption goods. We did not go into detail how they obtain
the money needed for these demands before commodities produced in the current
period are sold. We assumed that the amount of exhausted production goods and the
profit, which would be realized after sales, were expended for the demand prior to
sales. What could such an assumption be based on?
What will happen if we discard this assumption? The difficulty mentioned above
is brought to light. If no one can purchase before sales, how can society members
sell their products? Since no one can purchase without selling, they must sell. There
must be a buyer in order for somebody to be able to sell. Nevertheless, the buyer
cannot become a buyer before making the sales, thus we fall into a vicious circle.
We cannot end this circle without assuming the existence of a buyer without sales.
Such a circle can be ended by assuming a money owner, “A”, who can make a
purchase without sales beforehand. That is, “A” buys the commodity sold by “B”;
“B” buys the commodity of “C” with the money that is received from “A”, and so
on. Through a process like this, commodities will be sold, and when the initial buyer
“A” sells any commodity, the money will flow back to “A”. If “A” is the only one
who can purchase without selling, this process will realize commodities one after
another until the money flows back to “A”.
Thus, for commodities to be realized in the capitalist economy, someone must
begin to purchase prior to selling. If not, realization is impossible. This renders it
necessary for someone to play this role in the capitalist society. Otherwise, the capi-
talist society cannot exist and maintain itself as a specific form of society. Either the
capitalists or the wage laborers, who constitute the fundamental classes of capitalist
society, must do that.
However, we cannot expect the wage laborer to play such role. For the wage
laborer, the sale of labor power poses an absolutely vital condition for his purchase.
A wage laborer can buy nothing without earning wages as the price for selling his
labor power. It is not appropriate to assume that a wage laborer spends his savings or
loan, for he can do so only when he has sold his labor power in advance, or only by
chance. Now, only the capitalist is left for consideration. Is he able to purchase before
sales, and does he have any necessity to do so? He surely does. He must purchase
prior to making sales, not because his commodities cannot be realized otherwise, but
because of the fact that he is the very capitalist.
To explain this, let’s examine the movement of individual capital. Marx showed
it with the formula23
M → C · · · P · · · C → M
Here, M, C, and P each denote money, commodity, and the process of production.
Capital, at first, exists as money-capital in the form of money. As long as it remains
in the form of money, however, it cannot proliferate; here, we ignore that capital
can expand by gaining interest as loanable capital. Accordingly, this money-capital
necessarily goes in the process of M → C, i.e., purchase. The capitalist buys labor
power and the production goods here. He makes these labor power and production
goods produce the commodity C . It passes through the process of C → M , i.e.,
sales. The money-capital M invested at the starting point returns to his hands as
M with the increment = profit M, because M = M + M. In this way, indi-
vidual capital starts the movement as money-capital, which begins its movement
with purchase. We find a purchase prior to sales here.
What happens with the wage laborer then? The formula of circulation for
reproduction of labor power is
L → M → C · · · L,
where, L denotes labor power here. The laborer owns only the labor power. Nonethe-
less, the labor power, as long as it remains at the same place, cannot work for
production. For he owns neither the means of production, nor the capital to purchase
it. Accordingly, his first behavior in the market must necessarily be L → M, i.e.,
sales. This corresponds to the first behavior of the capitalist M → C. Capitalists must
buy the labor power L with their money-capital. With the money gained by selling
their labor power, laborers buy the means of living. This is M → C. This corresponds
to a part of the sales by the capitalist C → M . Laborers reproduce their own labor
23 Marx [32, Chap. 1, Sect. 4, pp. 28–35].

power by consuming the means of living obtained in this way, thus returning to the
starting point L again.
In the above, we explained that purchase prior to sales is possible, and that it is
the capitalist who has the necessity to do so. The most important reason for it is that
the capitalist must buy labor power for the sake of self-proliferation of capital.
Next, taking into account that capitalists purchase before selling, let us examine
how commodities in the society can be sold and the replacement for reproduction be
satisfied.
Suppose that the production capacities in both the production goods and the
consumption goods sectors satisfy the condition of simple reproduction (3.25 ),
which we showed in Sect. 3.3.1.1, and that the equations
p1 x1 = p1 a1 x1 + wτ1 x1 + π1 x1
p2 x2 = p1 a2 x2 + wτ2 x2 + π2 x2
express the monetary amount of the production goods and the consumption goods,
which are produced in the normal operation of those capacities. The capitalists of
both sectors must at least have purchased the labor power needed for producing these
goods. If not, they could not make the wage laborers spend the labor to the amount
of τ1 x1 + τ2 x2 . Therefore, the laborers have earned the money to the amount of
w(τ1 x1 + τ2 x2 ) as the result of this purchase by the capitalists. The laborers must
purchase consumption goods with this money. Thus, out of the total amount of the
produced consumption goods p2 x2 , at least the amount of w(τ1 x1 + τ2 x2 ) is sold.
Yet, this is only a part of the commodities produced in the consumption goods
sector, and the whole of commodities in the production goods sector are left unsold.
How are these commodities sold? The capitalists of the consumption goods sector
have earned the money to the amount of w(τ1 x1 + τ2 x2 ) by selling the consumption
goods to the laborers. With this money, first of all, they can recover the money-capital
wτ2 x2 , which they invested at the starting point for paying the wage. Furthermore,
out of the amount of the production goods exhausted in the consumption goods sector
p1 a2 x2 , they can recover a part of it to the amount of wτ1 x1 . Namely, they will at least
purchase production goods with this money wτ1 x1 . This money will be transferred
to the capitalists in the production goods sector. With this money, the capitalists in
the production goods sector will demand the production goods in order to replace
the ones exhausted in their production. It may sound surprising that the capitalists of
the production goods sector purchase the production goods. Actually, however, there
are many kinds of production goods and they trade these production goods with each
other. At this phase, money circulates among the capitalists of the production goods
sector, and the production goods are the amount of p1 a2 x2 , which were exhausted
in the production goods sector, are sold in the end. As wτ1 x1 worth of production
goods had already been sold to the consumption goods sector, the production goods
taken together to the amount of p1 a1 x1 + wτ1 x1 were sold. As the result of this,
the capitalists of the production goods sector could recover the amount of exhausted
production goods as well as the money-capital wτ1 x1 they invested at the starting
point for paying wages.
So far, however, the capitalists of the consumption goods sector have only recov-
ered the wage and a part of the amount of exhausted production goods, and the
capitalists of the production goods sector have also recovered only the wage and the
amount of exhausted production goods. The capitalists of both sectors have not real-
ized any profits yet. Surely, the capitalists of each sector possess the money-capital
in the form of money to the amount of wτ1 x1 and wτ2 x2 respectively which were
invested at the starting point. However, the necessity for this money to be spent further
on purchasing commodities cannot be found in the reasoning developed hitherto.
As to the amount of exhausted production goods that has not been recovered
yet in the consumption goods sector, there is no necessity that the capitalist should
appropriate this amount of money to the replacement demand for the exhausted
production goods before the sales of the corresponding part. Speaking about the profit
part of commodities in each sector, which has not been realized yet, is it necessary that
capitalists should spend its equivalent amount of money on their private consumption
demand before those parts are sold and the profit realized?
Here comes into our sight again that dilemma with which we faced at the starting
point, that is, the vicious circle that purchasing and selling are conditioning for each
other. We expected the solution in the fact that the capitalists of both sectors purchase
labor power prior to selling their commodities, but it did not solve the question except
in part; thus the same dilemma appears in front of us again.
It is of no use to point out that a capitalist should purchase not only labor power, but
also production goods for his production. A capitalist will surely purchase produc-
tion goods before production and sales. However, it does not mean the purchase of
commodities resulting from the current production, which we are questioning now.
It is the purchase of production goods produced in the previous period. It is different
at this point from the purchasing of labor power, in that the money expended for the
latter appears as the demand for consumption goods produced in the current period.
We must again look for someone who will make the purchase prior to sales. Again,
that person must be a capitalist. The capitalists must not only invest their money in
purchasing the labor power and the production goods before production and sales,
but also demand consumption goods to consume for their own sake; there is no
accumulation demand since we are assuming simple reproduction. The capitalists
have the ability to do that. Even if they do not sell their commodities, unlikely the
laborers, they possess money to buy consumption goods, which allows their private
consumption prior to sales. However, even though the capitalists can spend on their
private consumption prior to selling their commodities, will they do so? And is it
done necessarily?
It was, as considered above, necessary for the capitalists to purchase labor power
and production goods before sales, but the situation in this case is different. In the
former case, there was such a necessity originated in the production, as the capitalists
could not help doing so in order to practice capitalist production. As to the capitalists’
private consumption, however, a necessity in such sense does not exist. However,
there is a necessity in a different sense. That is, the capitalist class cannot postpone
its consumption from the investment of money-capital until the actual realization of
profit; the realization takes a few months even if it goes on steadily. The capitalists,
so to speak, expect the profit in advance, and appropriate it to their consumption
demand.
As the result of the capitalist demands for consumption goods prior to the realiza-
tion of profits, the production goods and the consumption goods remaining unsold
yet will be sold up completely. In reality, if the capitalists of the production goods
sector buy consumption goods by spending money π1 x1 , combined with the laborers’
consumption demand, the total amount of sales in the consumption goods sector
comes out to w(τ1 x1 + τ2 x2 ) + π1 x1 . This equals to p1 a2 x2 + wτ2 x2 (remember
the condition (3.25 )), that is, the wage part and the amount of exhausted produc-
tion goods are recovered in full. Therefore, adding to the production goods already
sold for replacement, the remainder of replacement demand comes out for produc-
tion goods, and so the total amount of sales in the production goods sector reaches
p1 a1 x1 + p1 a2 x2 , that is, the production goods are sold out. Accordingly, the profit
π1 x1 is realized. Thus, the moneyπ1 x1 , which the capitalists in the production goods
sector spend for their private consumption flows back to their hands. Finally, the
consumption goods equivalent to profit of the capitalist of consumption goods sector
are still left. However, these will be realized by spending money and trading among
the capitalists of the consumption goods sector prior to the realization of their profit.
The money they spent flows back to the starting point then.
Commodities in each sector are sold up like this, and the replacement of the
exhausted production goods as well as the labor power is attained through it. At the
same time, the capitalist relations of production are also reproduced. We explained
above that sales prior to purchase were required for this to be attained, and if not, the
capitalist reproduction could not function.
So as far as the entire capitalist class is concerned, the proposition that it must itself throw into
circulation the money required for the realization of its surplus-value (correspondingly also
for the circulation of its capital, constant and variable) not only fails to appear paradoxical,
but stands forth as a necessary condition of the entire mechanism.24
Understanding this is very important also for studying accumulation (= extended

reproduction) later.
Here, we have to refer to a possible misunderstanding. That is the question that
if the capitalists throw their own money into circulation for the sake of realizing
profit, they can only recover what they expended; therefore, they exploit nothing.
The answer is self-evident from the above explanation. We want to leave its answer
up to you. The most important point which should be noticed at this moment, is, that
all the money that the capitalists expended is returned to their hands, and besides
they have privately consumed the consumption goods equivalent to the profit.
24 Marx [32, Chap. 20, Sect. 5, p. 256].

3.3.2 Extended Reproduction in the Capitalist Economy
We explained how reproductive allocation and replacement under the capitalist

system was attained on the assumption of simple reproduction. Based on this, we may
proceed to analyze the problem of extended reproduction in the capitalist economy.
Problems that must be solved have surfaced in Sects. 3.1 and 3.2.
The first problem is whether or not all products have proper markets for their
realization under extended reproduction. And, for that purpose, how must the sector
ratio (= composition of production) be?
The second problem is, how, in the event of extended reproduction, should
the problem of “purchase without sales”, which appeared in the case of simple
reproduction, be solved?
The third problem is whether or not extended reproduction, provided it is possible
under the capitalist system, can follow the steady course of development? If not, what
mechanism makes it possible for extended reproduction to progress despite certain
difficulties and disturbances? Let us have a look into these problems.
3.3.2.1 Extended Reproduction and Realization
When the production capacity of the production goods sector is utilized normally, the
amount of production can be expressed as follows by using the same mathematical
symbols as those used in Sect. 3.3.1:
p1 x1 = p1 a1 x1 + wτ1 x1 + π1 x1 (3.27)
The amount of production when the production capacity of the consumption goods
sector is utilized normally can be expressed as follows:
p2 x2 = p1 a2 x2 + wτ2 x2 + π2 x2 (3.28)
Now, what about demand for both sectors? Here, as in Sect. 3.3.1.1 of this chapter, we
may ignore the problem of how purchasers obtain money required for their purchase.
The problem ignored here will be analyzed in Sect. 3.3.2.2. Let us analyze first the
demand for the production goods sector. As in the case of simple reproduction, in
order to carry out production on at least the same scale as that in the current period (x1
and x2 ), the capitalists in both sectors must demand production goods for replacing
the production goods consumed in the production of the current period. This demand
can be expressed in money terms as follows:
p1 a 1 x 1 + p 1 a 2 x 2 (3.29)
This amount of the production goods, however, is insufficient for realizing extended
reproduction. If the production technology does not change (we ignore technological
change for a moment), the production goods in (3.29) would be sufficient to realize
only the same scale of production as in the current period. So, in order to expand
production in the next period, additional production goods would be necessary, which
should be demanded and appropriated. If the accumulation demand by the capitalists
in each sector is I1 and I2 , respectively, in terms of the volume of production goods,
their money amount would be p1 I1 and p1 I2 , respectively. Therefore, the aggregate
demand for production goods would be expressed as follows:
p1 (a1 x1 + a2 x2 + I1 + I2 ) (3.30)
Satisfying this total would mean that the production goods are replaced and also that
they are prepared for the expansion of production in the next period.
Now, let us look at the demand for consumption goods. Laborers are employed and
wages are paid to them in the total amount of w(τ1 x1 + τ2 x2 ) for the production (x1 ,
x2 ) in the current period. Laborers spend those wages on consumption goods. If this
consumption demand is satisfied, labor power is reproduced. In addition, demand for
consumption goods for the capitalists’ private consumption exists. Denoting the capi-
talists’ consumption demands in both sectors with C1 and C2 , respectively, the total
goods consumed are expressed as follows (refer to Additional Note to Sect. 3.3.2.1):
w(τ1 x1 + τ2 x2 ) + p2 (C1 + C2 ) (3.31)
Now, are the products from both sectors sold and can appropriation for extended
reproduction be made with these demands? In order for this to be attained, the
following equations should hold:
p1 x1 = p1 (a1 x1 + a2 x2 + I1 + I2 ) (3.32)
p2 x2 = w(τ1 x1 + τ2 x2 ) + p2 (C1 + C2 ) (3.33)
These equations can be rewritten as
x 1 = a1 x 1 + a2 x 2 + I 1 + I 2 (3.34)
x2 = R(τ1 x1 + τ2 x2 ) + C1 + C2 (3.35)
Now, let us analyze what sorts of conditions are necessary for simultaneous
realization in both sectors.
The first condition, as can be easily deduced by comparing (3.27) and (3.28) with
(3.32) and (3.33), is as follows:
π1 x1 + π2 x2 = p1 (I1 + I2 ) + p2 (C1 + C2 ) (3.36)

What does this Eq. (3.36) mean? This means not only that laborers spend their wages
on consumption goods and the capitalists demand production goods for replacement,
but also that the capitalists must spend the entire profits of the current period either on
accumulation demand or private consumption. This, in accordance with Ricardo’s
view, is the same as the condition that he thought should always be satisfied in
order to support Say’s Law25 ; we will later analyze whether this is always satisfied,
and what happens if it is not satisfied. This condition, when summed up for the
entire sector, is the condition for aggregate demand to be equal to the aggregate
production. Therefore, with this condition alone, a balance between the production
and the demand for each sector is not guaranteed.
The second condition relates to the ratio of each sector, which is analyzed below.
In order to match the production and the demand in both sectors, (3.32) and (3.33)
should hold, or (3.34) and (3.35) should hold. Now, we shall focus on (3.34) and
(3.35). Solving for x1 and x2 from (3.34) and (3.35)
(1 − Rτ2 )(I1 + I2 ) + a2 (C1 + C2 )

x1 = (3.37)
(1 − a1 )(1 − Rτ2 ) − a2 Rτ1
Rτ1 (I1 + I2 ) + (1 − a1 )(C1 + C2 )
x2 = (3.38)
(1 − a1 )(1 − Rτ2 ) − a2 Rτ1
Therefore, it is known that the ratio of the production goods sector to the consumption
goods sector should be as follows:
x1 (1 − Rτ1 )μ + a2
= (3.39)
x2 Rτ1 μ + (1 − a1 )
Here, μ stands for
I1 + I2
μ= (3.40)
C1 + C2
Let us analyze the meaning of this (3.39). When μ = 0, the sector ratio x1 /x2 will be
equal to the condition (3.25 ) obtained previously for the case of simple reproduction.
This is because the case of μ = 0 is equivalent to I1 + I2 = 0, which is a case where
there exists no additional demand for production goods, and the sector ratio should
naturally be equal to the production composition for simple reproduction. Now, if
μ = ∞, the sector ratio is as follows:
x1 1 − Rτ2
= (3.41)
x2 Rτ1
Also, as explained in Sect. 2.2, as long as the real wage rate R remains in the profit
existence range,
25 Ricardo [23, Chap. 21, pp. 291–292 and 296].

1
R< (3.42)
t2
In other words, as long as π1 > 0 and π2 > 0 are satisfied in (3.27) and (3.28),
1 − Rτ2 a2
> (3.43)
Rτ2 1 − a1
holds. Therefore, the sector ratio x1 /x2 , as μ moves from 0 to ∞, increases from
a2 /(1 − a1 ) to (1 − Rτ2 )/Rτ1 . Because μ becomes ∞ in the case where C1 + C2
comes near to 0, as shown in Eq. (3.40), it is a case where the capitalists hardly
make any private consumption. Therefore, it is known that the greater the weight of
the capitalists’ accumulation demand to their private consumption, the greater the
weight of the production goods sector in the production composition.
Also, x1 /x2 is shown to be related to the level of the real wage rate. As can be
easily confirmed from (3.39), the smaller the real wage rate R, the greater the share
of the production goods sector in the corresponding production composition.
The sector ratio, which guarantees that extended reproduction is carried out
steadily, depends on the following three factors: (1) production technology (a1 , τ1 ),
(a2 , τ2 ), (2) the ratio of the capitalists’ accumulation demand to the capitalists’ private
consumption μ, and (3) the real wage rate R. It should be noted that this also works
in the reverse way. That is, when the sector ratio between the production and the
consumption goods is given, in order for production and demand to match in both
sectors, the ratio of the capitalists’ accumulation demand to the capitalists’ private
consumption μ, and the real wage rate R, cannot take arbitrary values. For instance,
in (3.39), if the sector ratio x1 /x2 , production technology and real wage rate R were
given, the ratio μ would be uniquely determined.
Now, let us look at the following equation, which is Marx’s condition for extended
reproduction26 :
V1 + S1 = C2 + C1 + C2 (3.44)
Using the notations so far used, this equation can be written as follows:
V1 + S1 = wτ1 x1 + π1 x1
C 2 = p1 a 2 x 2
C1 = p1 I1
C2 = p1 I2
26 Marx [32, Chap. 21, Sect. 3, p. 315].

Thus, (3.44) becomes:
wτ1 x1 + π1 x1 = p1 a2 x2 + p1 (I1 + I2 ) (3.45)
From (3.27), this becomes:
p1 x1 = p1 (a1 x1 + a2 x2 ) + p1 (I1 + I2 )
This is equal to (3.32), which shows that the production and the demand match in
the production goods sector. Also, as Marx presupposes (3.36) for purely analyzing
extended reproduction, it is possible to deduce (3.33), which shows the balance
between the production and the demand of consumption goods, from (3.32) and
(3.36). Therefore, Marx’s condition actually implies (3.32) and (3.33).
Additional Note: On the Demand for Consumption Goods in Marx’s Extended
Reproduction Scheme
In Volume II of Capital [32], Marx developed the theory of extended reproduc-
tion scheme, in which the demand for the consumption goods sector is handled in
a way different from that used in this book. In this book (Sects. 2.4.2, 3.3.2 and
4.1.2), the demand for the consumption goods in a given period is considered, as in
Eq. (3.31) in Sect. 3.3.2, to be comprised of two factors: total amount of wages of
laborers employed for the production of the current period, and the capitalists’ private
consumption. By using the notation used by Marx, the demand for consumption
goods is expressed as follows:
V1 + V2 + S1k + S2k (3.46)
Here, V is the variable capital and Sk shows the portion which the capitalists spend
for their private consumption out of the surplus value. Suffixes 1 and 2 denote the
production goods sector and the consumption goods sector, respectively. However,
Marx thought that in addition to these two, the following are added to the demand for
consumption goods in the current period. That is, when production is expanded in
the next period beyond the current level, an additional input of labor is needed; thus,
the additional variable capital to be paid to laborers who are additionally employed
is added. He thought this capital is paid from the surplus value of the current period.
By using his notation, the demand for consumption goods is not expressed by (3.46),
but by the following:
V1 + V2 + S1v + S2v + S1k + S2k (3.47)
Here, Sv shows the accumulation on the variable capital that is additionally invested
out of the surplus value for extended reproduction.
Issues we must clarify there include the following three points: (a) why this
text analyzes in a way different from that of Marx, (b) how we can reasonably
understand Marx’s method, and (c) what can be said about the substantial difference
and comparison between Marx’s method and the method used in this text. Let us
analyze these three points now.
(a) The reason why we thought as in (3.46), and not as in (3.47).
We assumed that the laborers, who are employed for the production of period t,
receive their wage in period t, and spend it as consumption demand for consumption
goods produced in period t. However, thinking this way contradicts the way of
thinking in (3.47). The reason is that as Sv in (3.47) shows the wage for the laborers
to be added on in order to expand production in the following period, the following
equation holds:
S1v + S2v = V1 + V2 ,
where V shows an increase of V in the following period; therefore, the following

equation holds:

V1 + V2 + S1v + S2v = V1 + V1 + V2 + V2 = V1 + V2 ,

where V1 and V2 show V1 and V2 in the following period; then, (3.47) shall be:

V1 + V2 + S1k + S2k . (3.48)
In other words, thinking as in (3.47) would be the same as insisting that the consump-
tion demand for the consumption goods produced in the current period is the total of
the wage income of laborers who are employed for the next period, and the part of
the surplus value of the current period that is appropriated to the capitalists’ private
consumption. We assumed that the laborers to be employed for production in the next
period would receive their wage in the next period. Here arises the question why the
wage income to be received in the next period can be spent in the current period as
the demand for the consumption goods produced in the current period. This question
cannot be answered as long as one continues thinking that the laborers employed in
period t receive their wage in period t, and spend it in period t as the demand for
the consumption goods produced in period t. As in this text we supposed as quoted
above, which we refer to as supposition A, we could not follow (3.47), and adopted
(3.46).
(b) Justification of Marx’s method (3.47).
Some people try to justify Marx’s method (3.47) of handling the demand for consump-
tion goods under supposition A. These people may think along the following lines:
“Surely, the laborers who are employed for the production in the following period
only receive their wage in the following period; therefore, laborers themselves could
only spend that money in the following period. What laborers can spend in the current
period is only V1 + V2 . Nevertheless, it would be reasonable to believe that the capi-
talist either buys or stocks consumption goods by the amount of V1 + V2 for the
additional employment for the following period.” This opinion is hard to support.
Thinking that the capitalist buys consumption goods for the amount of V1 + V2
in the current period would only be possible if one presupposes the truck system,
that is, payment of wage in-kind. From the standpoint of pursuit of private profit
by the capitalists of the consumption goods sector, it is unreasonable to believe that
the capitalists of consumption goods sector stock for the additional laborers in the
following period in both sectors. As long as supposition A is followed, (3.47) has
no basis. In order for (3.47) to be reasonable, supposition A must be discarded, and
either one of the following two suppositions must be chosen.
Supposition B: The wage to be paid to the laborers who are employed for the
production of period t is paid in period (t − 1). The wage paid in period t is spent by
laborers in period t. The goods produced by labor in period t are put on the market
in period t.
Supposition C: The wage to be paid to the laborers who are made to work in period
t is paid in period t. The wage paid in period t is spent by laborers in period t. The
goods as the result of labor input in period t are completed in period (t + 1), and put
on the market in period (t + 1).
Supposition B differs from supposition A in the point that the capitalist pays the
wage to laborers in advance of contribution of their labor; supposition C differs from
supposition A in the point that products are put out only after one period passes from
input of labor. In either way, if supposition B or C is chosen by abandoning suppo-
sition A, (3.46) cannot be supported; Marx’s method (3.47) becomes reasonable. In
other words, in any case the consumption expenditure by the wage of laborers who
work in period (t + 1) becomes the procurement of the consumption goods produced
by labor in period t. If one chooses supposition B or C as for the period of payment
of wage and period of production, Eq. (3.35) in Sect. 3.3.2 as rewritten as

x2t = R τ1 x1t + τ2 x2t + C1t + C2t , (3.49)
where suffix t is omitted in Sect. 3.3.2 as there exist no time lags in the equations,
and should be replaced by the following

x2t = R τ1 x1t+1 + τ2 x2t+1 + C1t + C2t . (3.50)
(c) Comparison of (3.46) and (3.47).
The difference between (3.46) and (3.47) concerning the demand for consumption
goods was found to be due to the difference in how to suppose the time pattern in the
payment of wage and production. Marx seems to follow supposition B in Capital.
Under this supposition, for instance under the presupposition in Sect. 2.4.2, the profit
rate of the production goods sector should be defined as follows:
p1 − ( p1 a1 + wτ1 )
r1 = (3.51)
p1 a1 + wτ1
This is because p1 a1 + wτ1 constitutes the prepaid capital. In fact, the definition
of profit rate in Capital is made that way. Now, if supposition A is adopted, the
definition of the profit rate is not given by (3.51), but by the following:
p1 − ( p1 a1 + wτ1 )
r1 = (3.52)
p1 a 1
It is because wage payment is not included in prepaid capital.

Now, concerning the question of which is more realistic, supposition A or B or
C, we think that suppositions B and C are more realistic. The reason why this text
follows supposition A instead is that this case is mathematically simpler, thus more
likely to gain the understanding of the reader. If the context of this text is replaced
with suppositions B and C, the discussion would become a bit more complex, for
instance, as (3.50) compared with (3.49), but the main conclusions would remain
unchanged. The interested readers are welcome to take up the challenge.
However, due attention should be paid to the fact that when following supposition
A, as compared to suppositions B and C, the accumulation rate (g) or rate of profit (r )
becomes slightly larger if production technology, real wage rate, and the capitalists’
accumulation ratio remain the same. This is due to the fact that in supposition A, the
prepaid part is smaller.
3.3.2.2 Realization of Profit and the Capitalists’ Accumulation Demand
In order for products to be sold allowing the realization of reproductive allocation, a

purchase must be made first by somebody prior to sale, also in the case of extended
reproduction as in the case of simple reproduction. The only person able to do that
is the capitalist. This has already been explained in detail. Then, when studying
extended reproduction, what is the issue to be newly added?
For simple reproduction, we argued that a capitalist procures production goods
and labor force prior to the realization of a sale; he also purchases consumption goods
for his private consumption prior to the realization of profit. In the case of extended
reproduction, however, a capitalist pays not only for his private consumption, but also
for accumulation demand for the expansion of production in the following period.
This leads us to the question if the capitalist makes demands of additional production
goods out of profit, after his goods are sold and profit is wholly realized.
As for this issue, many researchers have often thought that a capitalist makes
accumulation demand out of the realized profit. However, as long as we think about
the capitalists in the society as a whole, this is wrong; it is a supposition that includes
a contradiction. Consider that, in the case of extended reproduction, the capitalists
in the society as a whole are to sell their commodities and realize profit. Then, as
it can be seen from (3.36), the capitalists’ accumulation demand is an absolutely
necessary component of demand. Without it, the realization of the commodities is
unattainable. Therefore, if accumulation demand is to be made out of profit only
after profit is realized, then there arises an insoluble dilemma and a vicious circle.
The reason why this dilemma arises is that one thinks that accumulation demand
in the current period is made out of the profit that is realized in the current period.
Some people might say that such a contradiction might not occur if one thinks
that the accumulation demand of the current period is paid out of the profit that is
realized prior to the current period, for instance, in the previous period. In fact, several
scholars think that way, although such a belief is the same as Sismondi’s analysis
which we examined in Sect. 3.2. It is bound to lead to the conclusion that extended
reproduction is impossible in the capitalist system, which is as follows: provided that
other conditions are equal, the size of profit that is realized in the previous period is
determined by the level of production in the previous period. However, the production
level of the current period should be larger than that of the previous period, since
extended reproduction is under way. Therefore, the size of profit to be realized out
of production in the current period should be larger than that of the previous period.
Now, in order for all the commodities to be sold in the current period, the following
condition, that is condition (3.36), must be satisfied:
Profit of Capitalists’ private consumption Accumulation demand

= +
this period in this period in this period
On the other hand, if private consumption and accumulation demand of the capitalists
in the current period are paid solely by the profit that is realized in the previous period
(where we assume for the previous period that profit is steadily realized, and thus is
equal to the profit produced), the following equation holds:
Private Consumption Accumulation demand Profit produced

+ =
in this period in this period in previous period
However, we have pointed out that extended reproduction implies
Profit produced Profit produced

>
in this period in previous period
Therefore, we inevitably have
Profit produced Private Consumption Accumulation demand

> +
in this period in this period in this period
Thus, it necessarily follows that
Aggregate production Aggregate demand

> .
of this period of this period
These considerations clarify that it is unacceptable to think that the capitalists’

accumulation demand in the current period is financed from the profit that is realized
in the current period, since it causes a contradiction. It is furthermore wrong to believe

that it is financed from the profit that is realized prior to the current period, since
it implies that extended reproduction is always bound to bear excessive production.
The only solution is to consider that the capitalists make accumulation demand by
expecting profit of the current period before it is actually realized, as we have analyzed
the capitalists’ private consumption in the part of our study of simple reproduction.
Additionally, it should be larger than the amount that can be appropriated by the
profit that is realized in the previous period.
Suppose that accumulation demand plus private consumption demand, which
exceeds the profit that is realized in the previous period, should be made in the
current period before profit is realized. How can it be financed? It is possible either
by payments with money owned by capitalists, by credit, or through supply from the
gold-producing sector, in which the products themselves are money.
The spending must be done in this way, and as we will elaborate in detail in the
next section, it is one reason why extended reproduction of the capitalist economy
cannot be steadily realized. Namely, the capitalist makes private consumption and
accumulation demand in the current period in an amount equal to the profit that
is produced in the current period; and, the capitalist must do it based on his own
expectations of the profit prior to realization of it. This is at least one of the important
conditions for the sale of commodities to be steadily realized in the current period.
As a result, there is no necessity for both to match; thus, the produced profit is either
larger or smaller than capitalists’ private consumption plus accumulation demand. If
larger, excessive production, price decrease, and unrealized profit result; if smaller,
deficient production, price increase, and subsequent profit increase result.
As explained above, the money for the capitalists’ private consumption and accu-
mulation demand is neither spent out of the profit from the previous period, nor it
is spent out of the profit that is realized in the current period. The capitalist spends
by expecting profit before profit is actually realized. Realizing this fact plays an
extremely important role in studying the issues of reproduction, and helps grasp the
difficulties and fluctuations, i.e., the business cycles that inevitably accompany it.
Why have so many researchers nevertheless overlooked this point and believed that
the capitalists’ private consumption and accumulation demand are financed from the
profit of the current period?
This is because they have confused two apparently extremely similar, but wholly
different, matters. These two matters are the following: First, when the capitalists
make private consumption demand and accumulation demand, where do they get the
money to spend for it? This is what we are analyzing now. Second, when the capital-
ists realize private consumption demand and accumulation demand, what makes it
possible for them to obtain the commodities that satisfy such demand? The answer
to the latter is clearly the surplus products made in the current period, which are
produced by the surplus labor of laborers, and their value is equal to the current
period’s profit. This is absolutely true.
To see it, note from (3.34) and (3.35) that the following equations hold:
x1 − (a1 x1 + a2 x2 ) = I1 + I2
x2 − R(τ1 x1 + τ2 x2 ) = C1 + C2
The left-hand sides of them represent the surplus products of the production goods
and the consumption goods, which satisfy the accumulation demand and consump-
tion demand of the capitalists, respectively. The only way to appropriate both the
capitalists’ accumulation demand and consumption demand is the current period’s
surplus. Confirming this is of the most possible importance for grasping the capitalist
economy. However, this is completely different from the misconception regarding
the first matter that the money for the current period’s accumulation demand and
the capitalists’ private consumption is prepared from the realized part of the current
period’s profit. It is a must to reconsider the difference between these two matters.
3.3.2.3 Difficulties and Stirs Around Extended Reproduction
As a result of the study above, it was found that certain conditions should be satisfied
in order for extended reproduction to progress steadily. What has been clarified in
Sect. 3.3.2.1 was:
(a) The relative ratio of production goods to consumption goods sectors should
satisfy the conditions set forth in (3.39).
(b) Besides realizing the replacement demand of consumed production goods,
private consumption demand and accumulation demand should be realized to
an amount equivalent to the total profit under the normal operation of each
sector’s production capacity in the current period.
In Sect. 3.3.2.1, we implicitly set forth the following conditions:
(c) The real wage of laborers is at such a level as to enable reproduction of labor
force and to allow realizing profit to the satisfaction of capitalists.
(d) The necessary labor force for extended reproduction can be obtained.
We think that these four conditions are not, by themselves, contradictory to the
capitalist system. Therefore, it is definitely clarified that the views held by Malthus
and others, who proclaim the impossibility of extended reproduction in the capitalist
economy, are incorrect, in principle.
How is Ricardo’s theory of harmonious accumulation? We have already stated
in Sect. 3.2 that it is flawed. By analyzing it based on the results so far obtained,
the following can be proposed: there is no guarantee for any of the four conditions
mentioned above to be always satisfied. Let us briefly look at this.
(a) As we have studied in Sect. 3.1, the production in each sector is realized on
the basis of the private decisions made by individual capitalists. As a result
of the synthesis of such decisions, the sector ratio of society are determined.
By following such an anarchic method, it is extremely hard to satisfy the rela-
tionship defined in (3.39). Equation (3.39) requires that the sector ratio should
keep a complex relationship with the following three elements: production tech-
nology, ratio of the capitalists’ accumulation demand to private consumption,
and the real wage rate of laborers.
(b) As we studied in Sect. 3.3.2.2, the capitalists cannot spend the entire profit
for their private consumption or accumulation demand after its realization.
They decide their private consumption or accumulation demand based on their
private forecast or expectations. Regarding accumulation demand in particular,
as will be stated in detail later, the capitalists determine the size of accumula-
tion demand based on an extremely inaccurate expectation of the future market
condition or on the pressure of competition. It is uncertain whether the size
of the private consumption and accumulation demand of each individual capi-
talist, thus determined anarchically, could match the size of profit when the
production capacity of each sector operates normally.
(c) The laborers’ real wage rate, as analyzed in Sect. 2.4, is determined by
extremely various and complex factors, in particular the level of accumula-
tion demand. Therefore, whether the laborers’ real wage rate remains at such
a level as to satisfy both labor force reproduction and profit gaining is largely
dependent on the entirely unstable accumulation demand of the capitalists, as
explained in (b).
(d) If accumulation is made at an extremely fast pace, labor demand rises unless
production technology changes, possibly leading to a situation in which labor
needed for further extended reproduction cannot be obtained.
Regarding these considerations, Marx posited “certain conditions of normal
exchange […] change into so many conditions of abnormal movement, into so many
possibilities of crises.”27 However, what happens if the conditions in (a) to (d) are
disturbed? We see these possibilities briefly as follows:
(a) Suppose that the production composition does not satisfy the conditions in
(3.39), but becomes
x1 (1 − Rτ2 )μ + a2
<
x2 Rτ1 + (1 − a1 )
In other words, the ratio of the production goods sector to the consumption
goods sector has become smaller than the equilibrium ratio. In such cases, even
if the capitalists make the accumulation demand or the consumption demand
so as to satisfy the conditions in (3.36), the supply and demand cannot match in
both production goods and consumption goods sectors. Deficient production
occurs in the production goods sector, while excessive production occurs in the
consumption goods sector. It is not easy for the inter-sectoral movement of the
capital to solve this disequilibrium. As will be explained in detail in Sect. 4.1,
the expansive movement for solving the deficient production in the production
27 Marx [32, Chap. 21, Sect. 1, p. 301].

goods sector may increase the additional demand for production goods, and
thus further strengthen excess demand.
(b) Suppose, in the current period the capitalists make private consumption and
accumulation demand whose sum is not equivalent to, but more than the
total amount of profit under the normal operation of each sector’s production
capacity. Then a situation arises in which aggregate production is greater than
aggregate demand; excess demand arises in certain, or all, sectors, leading to
above-normal operation (excessive operation) in those sectors, inviting a price
hike, or generating unsatisfied demand. This disequilibrium also cannot be
easily solved. As will be explained in Sect. 4.1, as the result of excess demand,
price hikes, and increase of profit rate in all sectors, the capitalists’ accumu-
lation demand may further increase, accelerating disequilibrium in the same
direction.
(c) Suppose the real wage rate rises as a result of the price decrease of various prod-
ucts, lowering the profit rate substantially. This prevents the steady extended
reproduction of the capitalist economy. However, this disequilibrium may also
have a cumulative nature. That is, if the rate of realized profit is extremely low,
the capitalists lower the accumulation demand or may abandon it. As a result,
aggregate demand shrinks, inviting a further drop in prices, a rise of real wage
rate, and a drop of the profit rate.
(d) Suppose the demand for labor force increases as a result of production expan-
sion, absorbing unemployment fully, and hitting the limit of labor supply. If
production technology, which allows further extended reproduction without
raising the total amount of labor input, could be introduced, the economy would
be able to continue normal expansion even if the supply of the labor force is
limited. Nonetheless, as stated in Sect. 3.2 where we examined Ricardo’s views,
it is impossible to expect such a steady introduction of new technology. First,
there exists the problem of whether new technology can be developed in such
good timing. Even if it is possible, the extermination of production with old
technology should be realized so that aggregate labor demand does not grow,
which means capital would be destroyed. The rapid and massive destruction
of capital is realized through an economic crisis.
From the above overviews, it is clear that there are reasons for the conditions (a)
through (d) that allow steady extended reproduction not to be satisfied; and, once
they are disturbed, there are insufficient forces to recover. On the contrary, there are
dominant forces to cumulate a disequilibrium monotonically. Thus, the following
important problem emerges: if disequilibrium is the ordinary state and it cumulates
itself, can the capitalist system realize extended reproduction? Malthus and others
considering it impossible were wrong in asserting that it was absolutely impossible;
but, in practice, as conditions (a) through (d) are almost always disturbed in an
anarchic capitalist system, the problem is whether accumulation in the end becomes
impossible.
The fact that the capitalist system continues as a peculiar social system proves
that reproduction has been made anyway in this system. Also, it is an undeniable
fact that since the outset of the capitalist system, there have always been expansion
and development of production capacity, production levels, and technological levels.
Thus, the problem boils down to how one can integrate the relationship between these
facts and the disequilibrium mentioned above together with its one-sided cumulation.
Some researchers, in order to emphasize the fact that extended reproduction has
been realized and will inevitably be realized in the capitalist system, advocate that
conditions (a) through (d) for extended reproduction are not just “equilibrium condi-
tions”, but should be defined as a “law”.28 This may mean that extended reproduction
will occur despite various difficulties and stirs. In this sense, it may be termed a “law.”
However, the problem remains of the basis on which it can be called a “law.” One
must demonstrate this by the careful consideration of the existence of disequilibrium
explained above [in order to understand disequilibrium, (a) through (d) mentioned
above should be considered also as conditions for equilibrium] and its cumulative
nature.
3.4 The “Equilibrium” Accumulation Trajectory
In Sect. 3.3, we analyzed extended reproduction in the capitalist economy from

the viewpoint of commodity demand at one period, that is to say we examined
for what use various commodities could be purchased in each period; for example,
replacement of production goods and labor power, or appropriation for expansion
of production in the next period. However, this investigation is not enough. In order
to fully analyze extended reproduction, we have to make clear the path of motion
of the economy through time. A simple reproduction or an extended reproduction
imply in themselves the inter-temporal relation between the current and the next
period. In Sect. 3.4, we examine the time path, i.e., the movement of the capitalist
economy, neglecting various kinds of disequilibrium disturbances that actually occur
in the real world. It is because the capitalist economy experienced in the past and
will continue the extended reproduction through disequilibria or disturbances in the
long run and on average. Therefore, we focus on the long-run time path, neglecting
any disturbances. Later, in Chap. 4, we take up in detail these disequilibria and
disturbances. In Sect. 3.4, we present a new concept of “equilibrium” accumulation
trajectory from the viewpoint of highlighting an accumulation path around, which
the capitalist economy must advance for its reproduction in the long run.
28 Yamamoto [43, pp. 95–96, 102].

3.4.1 Steady Extended Reproduction Trajectory
Suppose the economy satisfies all conditions for steady extended reproduction and
expands every period. What path of motion does the production in the economy
take? By the word “steady” we mean that production capacity in each sector is
utilized at a normal level, the commodities are all sold out at prices satisfactory to
the capitalist, and the replacement and appropriation for extended reproduction is
well accomplished. We keep assumptions for simplicity, which we already made,
especially no durable equipment assumption.29
If production goods held in both sectors, labeled K 1 , K 2 , are fully utilized, produc-
tion goods and consumption goods produced, x1 , x2 , match each demand, the market
equilibrium conditions in both sectors are
K 1t Kt
x1t = , x2t = 2 (3.53)
a1 a2
x1t = a1 x1t + a2 x2t + I1t + I2t (3.54)

x2t = R τ1 x1t + τ2 x2t + C1t + C2t (3.55)
Here I1 and I2 are the additional demand for production goods in both sectors.
Therefore,
K 1t+1 = K 1t + I1t , K 2t+1 = K 2t + I2t (3.56)
We assume further a constant ratio between the accumulation demand I1 + I2 and

the capitalists’ consumption demand C1 + C2 such as

I1t + I2t = μ C1t + C2t (3.57)
where μ is a given constant. If the equations from (3.53) to (3.57) hold in each
period, all conditions for the steady extended reproduction are guaranteed. What are
the characteristics of this accumulation trajectory?
As is already known from (3.39), we have the following equation from (3.54) and
(3.55):
x1t (1 − Rτ2 )μ + a2
= (3.58)
x2t Rτ1 μ + (1 − a1 )
The sector ratio, denoted by λ(≡ x1 /x2 ), in the process of the steady extended repro-
duction must be (3.58). The sector ratio λ must be constant, since we assume that the
29 As to the case where the fixed equipment is considered, refer to Okishio [35].
3.4 The “Equilibrium” Accumulation Trajectory 145
production technology, the ratio of accumulation demand to the capitalists’ consump-

tion demand μ, and furthermore the real wage rate R, are all assumed constant, where
we remove the last assumption later.
By substituting (3.53) and (3.56) into (3.54), we have
x1t = a1 x1t+1 + a2 x2t+1 (3.59)
Substituting again (3.58) into (3.59), we have

a2 t+1
x1t = a1 + x (3.60)
λ 2
The rate of change in x1 is given from (3.60) as
x1t+1 − x1t λ(1 − a1 ) − a2

g≡ = (3.61)
x1t
λa1 + a2
Substituting (3.58), we can rewrite (3.61) as:
(1 − Rt2 )μ(1 − a1 )
g= (3.62)
(1 − Rτ2 )μa1 + Rτ1 μa2 + a2
From this, we know the following characteristics relating to a “steady extended

reproduction trajectory”:
(i) The sector ratio of production goods in comparison to consumption goods
denoted by λ must be constant over time. Therefore, it follows from (3.58)
that production capacities and the production levels in both sectors must
grow proportionately.
(ii) From (3.58), under given production technology, the higher the accumula-
tion demand in comparison with capitalists’ consumption demand μ, and
the lower the real wage rate R, or in other words, the higher the rate of
exploitation, the sector ratio λ is higher, and vice versa.
(iii) From (3.62), as long as the exploitation rate is positive, namely 1 − Rt2 > 0,
and the accumulation demand by capitalists is not zero, the steady repro-
duction trajectory exhibits extended reproduction and the growth rate of
production levels in both sectors g becomes positive.
(iv) From (3.62), under given production technology, the growth rate of produc-
tion level g rises when μ increases and when R falls, and vice versa.
(v) Therefore, given (3.61), the higher the sector ratio λ becomes, the greater
the growth rate g is, and vice versa.
(vi) From (3.62), production capacities and the production levels in both sectors
must increase at a constant rate g over time.
(vii) The accumulation demand in both sectors I1 and I2 must grow at the rate g.
From (3.53), (3.54), and (3.56), we have

I1t = a1 x1t+1 − x1t , I2t = a2 x2t+1 − x2t (3.63)
As x1 and x2 grow at the rate g, so do I1 and I2 .

(viii) From (3.57) and (vii), the capitalists’ consumption C1 + C2 also increases
at the rate g.
What are the implications of these characteristics? The first is related to whether
the capitalists actually increase investment (or accumulation demand) at the rate g in
every period, which is needed for the steady extended reproduction of the capitalist
economy. If the accumulation demand grows faster than this rate g, excess demand
in the commodity market arises, while if they fall behind that rate, excess supply
occurs. Thus, for the steady extended reproduction to be realized, the very severe
condition is imposed on the capitalists’ accumulation decision-making. The magni-
tude g is determined jointly by fairly complex elements even in our simple model.
This suggests that it is unlikely that the capitalists actually increase accumulation
demand at a rate exactly equal to g.
The second implication is that, whereas the real wage rate remains constant for
the laborers, both the capitalists’ private consumption and their privately-owned
production goods grow at the constant rate g through extended reproduction under
the conditions we assumed. In fact, we find that the growth rate of production goods
(capital stock) owned by capitalists is

K 1t I1t a1 x1t+1 − x1t
= t = =g
K 1t K1 a1 x 1
in the production goods sector and, similarly,

K 2t I2t a2 x2t+1 − x2t
= t = =g
K 2t K2 a2 x 2
in the consumption goods sector. Thus, the production goods owned by the capitalists
in both sectors grow proportionately at the rate g. Let us refer to the growth rate of
production goods owned by the capitalists as the accumulation rate. Then, the accu-
mulation rate is g in both sectors. In other words, even in a steady accumulation path
of the capitalist economy, polarization evolves; that is, on one side, an accumulation
of wealth in hand of the capitalists arises while, on the other side, wage laborers
must constantly sell their labor power in the labor market. The relative difference in
economic conditions between the two becomes huge.
The third implication is that, if the ratio μ increases, that is, the capitalists consume
less and turn their demand more to accumulation, then, for steady reproduction to
be realized, the relative share of production goods λ must rise, the growth rate of
production g must also rise, and the accumulation demand must grow at a higher
rate.
The fourth implication is related to the labor force. Steady extended reproduction
does not mean full employment. It only satisfies the condition of normal utilization
of production capacity, as represented in (3.53), and the equilibrium of demand and

supply of the commodities in both sectors, as represented in (3.54) and (3.55), but
it does not guarantee the equilibrium of demand and supply of labor. Along this
steady path, the production levels in both sectors grow at the rate g and so does the
labor demand. Therefore, when the labor supply grows at a rate n, we conclude the
following for each of the cases:
>
g n.
<
(i) If g > n, the steady extended reproduction path cannot be maintained because it
eventually faces the constraint of labor supply, (ii) if g = n, the rate of unemploy-
ment remains constant continuously along this path, and (iii) if g < n, the rate of
unemployment is increased over time along this path.
3.4.2 The Equilibrium Accumulation Trajectory: A Constant

Technology Case
We examined the growth path where an extended reproduction is steadily realized

and showed that it is characterized by the certain sector ratio λ, the certain growth
rate of production, and thus the certain rate of capital accumulation g. As is already
shown, λ and g depend on (i) production technology, (ii) the ratio of the capitalists’
accumulation demand to their consumption μ and (iii) the real wage rate R. Under
given production technology, λ and g differ when the capitalists’ demand ratio μ or
the real wage rate take different values.
The next problem is to compare the several different steadily extended reproduc-
tion paths resulting from different values in λ and g under given technology. Let
us examine whether such steady paths are equivalently qualified for their sustain-
ability. A path which does not have a sustainable character cannot be a reference path
along which the capitalist economy moves on average in the long run. Only the path
with sustainability is the path along which the capitalist economy somehow goes on
average in the long run, as far as we presume reproduction and sustainment of the
capitalist system. We name them steady paths, which have a sustainable property as
the “equilibrium” accumulation trajectories.
Let’s compare steady paths, A, B and C in Fig. 3.2, which differ from each other
due to different sector ratio λ and different accumulation rates g. As we showed in
Sect. 2.4, we presuppose that the condition
1
Rmin ≤ R ≤ Rmax < (3.64)
t2
is satisfied in each case. The path with real wage rate outside this range is absolutely
unattainable in the capitalist economy. If so, the reproduction of labor power is
Fig. 3.2 Various steady

paths
impossible, or the normal profit necessary for the capitalist production activities is
not obtained. Even if we exclude paths with such extreme real wage rates, real wage
rate R can still take any level within the range (3.64). Only if Rmin = Rmax , R is
uniquely determined, but this is not a general case.
When a path is characterized with the low real wage rate R within the range
satisfying the reproduction condition (3.64), the corresponding sector ratio λ and
the accumulation rate g are high. On the other hand, in case of a path with high R
within the range (3.64), λ and g are low. Now consider a path with high λ and high
g and a path with low λ and low g. Are these two paths equivalent to each other as
to sustainability of each accumulation path?
As far as from the viewpoint of commodity realization or commodity sales, these
paths do not contain a self-contradiction that undermines a basis of the capitalist
economy. In both cases, the level of production grows each period and the resulting
products, both of the production goods and the consumption goods sectors, meet
with demand, so that they are completely sold out. Furthermore, the products are
sold at prices satisfactory for the capitalists. As was already stated, in order for these
paths to be actually realized, many restrictive conditions, such as a condition on the
capitalists’ accumulation decision-making, must be fulfilled. This makes it highly
problematic whether the actual capitalist economy meets these conditions. However,
this is not a problem here. If the economy were to move along these steady paths,
then a realization problem does not occur. This is true for paths with however high
the accumulation rate g and the sector ratio λ (see Additional Note to Sect. 3.4.2).
Of course, the condition (3.64) on the real wage rate is presupposed here.
The commodity realization problem does not occur on a steady extended repro-
duction path, irrespective of the level of the capital accumulation rate g or the sector
ratio λ. This is a tautology resulting from the steadiness of these paths. Is there any
difference as to the sustainability between a steady path with high accumulation rate
and one with low accumulation rate? The answer is yes. As we have seen at the end
of Sect. 3.4.1, under the given technology as is assumed here, labor demand must
rise at the same rate as the capital accumulation rate g.
Fig. 3.3 Various steady

paths and labor supply
Here, we face the following problem: thus far, we assumed that the amount of
labor needed for an extended reproduction was always available somehow. In reality,
however, labor supply is not boundless. Labor supply cannot automatically rise corre-
sponding to a rise in the capital accumulation rate. It depends on many factors in
both the current period and prior periods. Rather than investigating into those factors
deeper, we simply assume here that labor supply grows at the rate n in the long run.
The curve L in Fig. 3.3 depicts labor supply that grows at the rate n.
Among the steady accumulation paths, let’s consider the labor demand paths A,
B and C with respective value of capital accumulation rate g. Path A is sooner or
later constrained by the labor supply and so it will become unsustainable thereafter.
Paths B and C, however, can continue without facing such a boundary.
Thus, path A cannot be a central path around which the capitalist economy repeats
cyclical fluctuations and attains extended reproduction. Thus, we find that only a path
with
g≤n (3.65)
can be sustainable among the paths with various levels of accumulation rate. In
Fig. 3.3, paths B and C satisfy this condition.
Let us consider a path with g not greater than n such as B and C in Fig. 3.3. If the
economy advances along these paths, unemployment is unavoidable. If the following
equality holds,
g=n (3.66)
the rate of unemployment, which is the ratio of the unemployed to the labor supply,
remains constant in the long run. In fact, in this case, as labor supply is
L t = L 0 (1 + n)t
and labor demand is
D t = D0 (1 + n)t
the rate of unemployment becomes

L t − Dt D0 1 + g t
=1− (3.67)
Lt L0 1 + n
which is constant since g = n. This implies that unemployment grows at the rate g.
If the following inequality holds,
g<n (3.68)
unemployment rate rises over time, illustrated by (3.67), and it approaches 100%
as time advances. Thus, we must focus on a steady path satisfying condition (3.66)
when we examine the equilibrium accumulation trajectory in the capitalist society.
Otherwise, if g < n, the unemployment rate rises over time and the capitalist rela-
tion of production itself will not be sustainable. So, in this way, we succeeded in
determining the equilibrium accumulation trajectory in the capitalist society.
Additional Note: Tugan-Baranovsky’s “Strange Theory”
Tugan-Baranovsky’s “strange theory” proposes that however high the capital accu-
mulation rate g and the sector ratio λ may be, the realization problem does not
necessarily occur. Tugan-Baranovsky explained this in the following words:
Suppose that all laborers except one are substituted by machines; the last laborer operates
huge amount(s) of machines and produces new machines and the consumption goods for
the capitalists; the labor class disappears, but the process of creating surplus value is not
disturbed at all. The capitalists still receive a greater amount(s) of consumption goods and
all the products are directed for consumption and production purposes in the next year. It
does not provoke any problem in the accumulation process even if the capitalists constrain
their consumption. In this case, the production of means of the capitalists’ consumption
partly stops, and the still greater part of social products is used as the means of production,
which contributes to raising future production, for example steel and coal.30
Can a capitalist society exist under the situation in which only one laborer is
employed? Never. The rest of laborers who are unemployed will, without doubt,
overthrow such a capitalist society. Therefore, it is not the equilibrium accumulation
trajectory we defined in this section, but this is not the problem here. Moreover,
the introduction of technological changes, which we neglected in our discussion, is
not the problem here, either. What Tugan-Baranovsky wanted to emphasize is that,
however high g and λ may be, the realization problem does not occur if the capitalist
economy advances along the path which we had considered in Sect. 3.4.1.
30 Tougan-Baranowsky [42, pp. 216–217].

Consumption
Production goods
Goods
Fig. 3.4 Selling channel of production goods
Many criticisms to his argument are as follows: production is ultimately restricted

by consumption in any society. If the sector ratio of production sector to consump-
tion sector in the economy is increased and a vast amount of production goods are
produced, these products ultimately enhance the production capacity of consumption
goods. Therefore, under the constrained consumption demand, we have to face the
realization problem in the consumption goods sector.31
In my view, such a criticism to Tugan-Baranovsky is out of point. A strong point
(as well as a weak point) of Tugan-Baranovsky’s argument lies in the fact that it is
tautology. Tugan-Baranovsky explained his view using numerical calculation based
on Marx’s reproduction scheme. Marx’s reproduction scheme describes the condition
for the realization of production goods as well as for consumption goods. Therefore,
it is self-evident that the realization problem does not occur if the economy advances
perfectly, satisfying these realization conditions however high the sectoral share of
production sector may be. This is logically the same as an argument that if A, then
A. This argument is strong in that no one can deny it. If a critic accepts the Tugan-
Baranovsky’s clause “if the capitalist economy advances along the path …”, then
any attempt to derive an opposite conclusion that the realization problem occurs
necessarily fails. This tautology makes Tugan-Baranovsky’s argument strong.
The weak point of his argument lies in the fact that he did not accurately examine
the presumption in his tautology, that is “if the capitalist economy advances along
the path …,” and did not consider the matter of fact concerning what reason the
conditions for the presumption are fulfilled or not in the capitalist economy.
Many critics confuse the matter of fact with the matter of logic. If they admit
Tugan-Baranovsky’s if-clause they cannot conclude that a high sectoral share of
production sector and a vast amount of production goods will sooner or later lead to a
situation in which these production goods are used for the production of consumption
goods. As Fig. 3.4 shows, if we consider input relations between sectors only from
the technological point of view, there exists an input channel A, through which
production goods are used in the consumption goods sector. However, there also
exists another channel B, through which it is used in the production goods sector.
Tugan-Baranovsky presupposed that the capitalists continue to demand a vast amount
of production goods in order to expand the production of production goods, namely
via channel B.
Therefore, most production goods flow in channel B while a relatively small
amount of production goods flow in channel A due to the restricted consumption
31 Sweezy [39, Chap. 10, Sect. 2, pp. 182–183].

demand. So, Tugan-Baranovsky’s conclusion is inevitable if we admit his presump-

tion that the capitalists continue to demand additional production goods to extend
the production goods sector further.
There are critics who fail to understand this point and simply think that the produc-
tion goods inevitably flow into channel A because of production technology. They
are false. Marx’s proposition that “the aim and compelling motive of the capitalist
production is consumption”32 should be understood otherwise. Then how? We will
explain this later in Sect. 4.2.
To Tugan-Baranovsky we should say “your argument is a tautology. If all of
your assumptions are satisfied, your conclusion follows. However, your assump-
tions cannot be continuously satisfied. Especially the assumption that the capitalists
continue to demand a vast amount of production goods to invest in the production
goods sector cannot last permanently. If it is stagnant or interrupted, an excess supply
in the production goods sector occurs.” The crux of the criticism is to show the neces-
sity of stagnation or the necessity of interruption of the capitalists’ accumulation.
A constrained consumption demand will not suffice. Our full explanation regarding
this point comes in Chap. 4 (“economic crisis”).
3.4.3 The Implication of the Equilibrium Accumulation

Trajectory
What is the implication of the equilibrium accumulation trajectory, which we defined

in Sect. 3.4.2, for the analysis of the capitalistic accumulation process?
Needless to say, the actual accumulation process in the capitalist economy does
not proceed along with the equilibrium accumulation trajectory. As we have repeat-
edly stressed, the actual accumulation path must fulfill many demanding conditions
in order to proceed along with the equilibrium accumulation trajectory. These condi-
tions are hardly satisfied in the capitalist economy in which the capitalists make
decisions privately. Moreover, when the actual accumulation path diverges from the
equilibrium trajectory, the disequilibrium does not disappear by itself, but grows
cumulatively. In spite of these, this trajectory has an important meaning for the anal-
ysis of the capitalistic accumulation process. It shows how the capitalist economy
can reproduce itself on an extended scale in the long run, while the accelerated
disequilibrium process is turned back by economic crisis and recoveries. The accu-
mulation process shows such cycles as Fig. 3.5, where the line G stands for the
equilibrium accumulation trajectory. Having these remarks in mind, it is appro-
priate to answer a few questions the readers may have concerning the equilibrium
accumulation trajectory.
The first expected question is as follows. The equilibrium accumulation trajectory
is determined by g = n. Then, under the condition that the growth rate of supply of
labor n is zero, that is, supply of labor is constant, couldn’t the capitalist economy
32 Marx [32, Chap. 21, Sect. 2, pp. 305–307].

Fig. 3.5 Actual

accumulation path and
equilibrium accumulation
trajectory
reproduce itself on an extended scale? In the case in which the supply of labor is
constant and production technology is also constant, the capitalist economy cannot
reproduce itself on an extended scale in the long run. As shown in Fig. 3.6, extended
reproduction is certainly possible in booms or prosperities with high rate of capital
accumulation. However, it cannot continue because the process is interrupted by
an economic crisis, and reproduction on a contracted scale begins. In the long run,
extended reproduction is unattainable and, at most, simple reproduction is attained
through alternations of these two phases. Under the condition that the supply of labor
does not increase, technological progress is necessary in order for the extended repro-
duction to be realized in the long run. We will examine the equilibrium accumulation
trajectory with progress in production technology in Sect. 3.4.4.
The second question is as follows. The equilibrium accumulation trajectory is
determined by the equation g = n. As shown in Sect. 3.4.2, the rate of accumulation g
is a decreasing function of the real wage rate R under the condition that the production
technology and the ratio of the capitalist demand for accumulation to the capitalist
Fig. 3.6 Actual

accumulation path and
equilibrium accumulation
trajectory under stationary
labor supply
personal consumption μ are given. That is:
g(R) = n, g < 0 (3.69)
This means that the larger the rate of increase of the supply of labor n is, the lower
the real wage rate is. Is this not the same thought as the labor market theory of real
wage rate determination, which was criticized in Sect. 2.3?
The conclusion is, on a superficial level, certainly similar. This, however, does
not mean that the labor market theory of real wage determination is correct. The real
wage rate determined by (3.69), which corresponds to the equilibrium accumulation
trajectory, is realized as a center of the cyclical fluctuations of the capitalist economy
in the long run. The way in which this is realized is not such as the labor market
theory of real wage rate determination argues. It claims that the real wage rate is high
in booms, which is a decreasing process of unemployment, and low in depressions,
which is an increasing process of unemployment, and is determined as their average in
the long run. On the contrary, under the condition of constant production technology,
the real wage rate is low in booms, which corresponds to a high level of demand for
accumulation, and high in depressions, which corresponds to a low level of demand
for accumulation or disappearance, and is determined as their average in the long
run. Moreover, the real wage rate is lower in the long run and on the average in an
economy with a higher rate of increase of the supply of labor. It is because the rate
of capital accumulation g that is sustainable in the long run can be correspondingly
increased in case of a lower rate of real wage, other conditions such as production
technology and μ being equal.
The third question is as follows. The argument that the equilibrium accumulation
trajectory is determined by g = n is the same as the growth theory of the neo-classical
school.33 Why is the existence of unemployment assumed in the equilibrium accumu-
lation trajectory, whereas the neo-classical growth theory assumes full employment?
They are no doubt similar in so far as they both assume g = n. However, their basic
ideas are quite different. The neo-classical growth theory assumes full employment
from the beginning of their arguments, and concludes that since the demand for labor
is equal to the supply of labor, the growth rate of production g is equal to the rate of the
increase of supply of labor n under the condition of constant production technology.
We consider, however, that the rate of increase of production, which is equal to the
rate of capital accumulation, is equal to the rate of increase of the supply of labor. This
means only that the rates of increase of demand and the supply of labor are equal and
does not necessarily mean that their absolute levels are equal. Thus, we consider that
unemployment exists in the economy. The reason why argue this way is as follows:
we never imagine that in reality, the capitalist economy proceeds along with the
equilibrium accumulation trajectory. We think that the real path of capital accumula-
tion diverges cumulatively upward or downward from the equilibrium accumulation
trajectory and that their directions of disequilibrium motion are being reversed by
economic crises and turn-ups, so that the capitalist economy realizes the equilibrium
33 As for Neoclassical Growth theory, refer Okishio [36, Chap. 4].

accumulation trajectory in the long run and on average. Realizing the upward cumu-
lative divergence from the equilibrium accumulation trajectory needs reserves in the
labor force that enable it to happen in reality. Therefore, the path that is a long-run
center of cyclical movements of the capitalist economy is necessarily accompanied
with unemployment.
The fourth question is as follows. Although the equilibrium accumulation trajec-
tory is determined by the equation g = n, do the rate g that assures g = n and the
corresponding equilibrium accumulation trajectory exist, whatever value the growth
rate of the supply of labor n may be? To state the conclusion in advance, when
the growth rate of supply of labor n is larger than a certain limit, the equilibrium
accumulation trajectory that satisfies g = n does not exist, and therefore keeps the
unemployment rate at a constant level. The reason is as follows.
As already shown using Eq. (3.62) that determines g, the rate g is a decreasing
function of the real wage rate R in the case where production technology and the ratio
of the capitalist demand for accumulation to consumption μ are constant. Therefore,
the lower R is, the larger g is. However, even if R is decreased to R = 0, g cannot
become infinite but remains finite, as shown in Fig. 3.7. This finite value determines
the upper limit of g. Of course, it is never the case that g actually reaches this upper
limit, since the real wage rate cannot become 0 in reality. When R = 0, it follows
from (3.62) that
μ(1 − a1 ) 1 − a1 1 − a1
gmax = = a2 < (3.70)
μa1 + a2 a1 + μ a1
Therefore, however low the real wage rate and however high the rate of exploitation
might be, g cannot exceed (1 − a1 )/a1 even if the capitalists do not consume person-
ally and devote all their profit to accumulation, that is, μ = ∞. If we suppose the
growth rate of supply of labor n is larger than (1 − a1 )/a1 , g = n is impossible and
g < n is necessary, and the unemployment rate grows while accelerating. Therefore,
Fig. 3.7 Relationship

between real wage rate and
rate of accumulation
in order for the equilibrium accumulation trajectory to exist, the growth rate of supply
of labor n must be smaller than a certain limit.
Additional Note: Some Theories on the Equilibrium Accumulation Trajectory
The terminology “the equilibrium accumulation trajectory” was perhaps first used by
Ryouzou Tomizuka in Japan. Many scholars, including him, have heatedly discussed
the equilibrium accumulation trajectory.34 Let us briefly explain the differences
between their views and ours.
(1) Sustainability of Accumulation:
It seems that all theories, us included, agree with the following point. There are
various trajectories which satisfy two conditions at every period in both the produc-
tion goods and the consumer goods sectors: (A) normal utilization of production
capacity, and (B) market equilibrium. They are classified into two groups, one of
which faces a certain limit in due course and therefore cannot accumulate continu-
ously, and the other which does not have such a limit, for it can continue to accumulate.
We use the concept of the equilibrium accumulation trajectory as the latter.
(2) Constant Sector Ratio:
There is no disagreement between other scholars and us on thinking that the sector
ratio is constant on the equilibrium accumulation trajectory. Under the conditions
where the production technology, the rate of exploitation, and the ratio of accumula-
tion demand to the capitalist consumption demand are constant, the trajectory which
satisfies the two conditions (A) and (B) is determined by
x1t = a1 x1t + a2 x2t + I1 + I2 (3.71)
1
x2t = R τ1 x1t + τ2 x2t + (I1 + I2 ) (3.72)
μ

I1 = a1 x1t+1 − x1t , I2 = a2 x2t+1 − x2t (3.73)
using our notation.35

Letting λt ≡ x1t /x2t , from (3.71) and (3.72), we get
(1 − Rτ2 )μ + a2
λ= (3.74)
Rτ1 μ + 1 − a1
Since the production technology (ai , τi ), the real wage rate R, and the ratio of accu-
mulation demand to capitalist consumption demand μ are constant, it is obvious that
the sector ratio λ must be constant.
34 Tomizuka [41, Part 1, Chap. 2], Takasuga [40, Part 2, Chap. 4], Imura [26, Chap. 3, pp. 59–150],
among others.
35 Here, V in demand for consumption goods sector is neglected. As for this issue, refer Additional
Note in Sect. 3.3.2.

(3) Identification Problem of the Equilibrium Accumulation Trajectory:

Many researchers, including Tomizuka, focusing only on the two conditions which
we mentioned as A and B above, consider the equilibrium trajectory as any one
which satisfies the two conditions. As a logical result, we face the following: As
we have shown just above, when production technology, the rate of exploitation,
and the ratio of accumulation demand to the capitalist consumption demand are
given, the equilibrium sector ratio λ∗ is determined by (3.74). This means λ∗ varies
according to different production technologies, the rates of exploitation, and the
ratios of accumulation demand to the capitalist consumption demand, which are
assumed to be given. The higher the rate of exploitation (the lower the real wage
rate, under the conditions of the production technology being equal), and/or the
higher the ratio of accumulation demand to the capitalist consumption demand, the
larger the equilibrium sector ratio λ∗ will be as shown by (3.74).
We therefore have an infinite number of equilibrium accumulation trajectories
according to the rate of exploitation and the ratio of accumulation demand to the
capitalist consumption demand, which are assumed to be given. Many researchers
seem to think that the rate of exploitation is fixed at a certain level under the same
production technology. Although it is wrong, the ratio of accumulation demand to
the capitalist consumption demand can, of course, take different values. Therefore,
we must identify the equilibrium trajectory among these trajectories.36
(4) The Initial Value of the Sector Ratio:
Some researchers introduce the initial value of the sector ratio to identify a unique
equilibrium accumulation trajectory among the trajectories which satisfy conditions
(A) and (B) with constant sector ratio. They argue as follows: at a point of time,
the ratio of capital or production capacities between sectors are given as a result of
the past capitalist decisions. If we denote this ratio λ0 , the equilibrium accumulation
trajectory is the one which keeps λ at λ0 . Of course, it does not hold that any λ0
is acceptable. If λ0 is too high, equilibrium λ∗ may not exist, even if the real wage
rate is the social minimum, that is, the rate of exploitation is at a maximum, and
the capitalists spend all surplus value to accumulation without private consumption,
that is, μ = ∞. On the other hand, if λ0 is too low, equilibrium λ∗ may not exist
either, even if the real wage rate is maximum, that is, the rate of exploitation is
minimum, and the capitalists spend all surplus value to private consumption without
accumulation, that is, μ = 0. However, if λ0 exists between such extreme values and
there exist such R and μ, which keep λ∗ equal to λ0 , such a trajectory exists, which
keeps the sector ratio at λ0 and satisfies the conditions (A) and (B). They name it the
equilibrium accumulation trajectory.
(5) The Supply of Labor:
Is the trajectory defined above an equilibrium accumulation trajectory? The trajectory
which starts from the given initial conditions and satisfies conditions (A) and (B) in
every period seems to have no limit to expansion. We therefore have sustainability in
36 As for identification problem, refer Ohshima [34].

that sense, and can regard it as the equilibrium accumulation trajectory we search for.
However, this is not correct. Suppose the initial value of the sector ratio is relatively
large, but not as extremely high as we mentioned before. Then the equilibrium sector
ratio must be relatively large, and the growth rates of production of both sectors must
be large too, because from (3.61) we get
(1 − a1 )λ∗ − a2
g∗ = (3.75)
a 1 λ∗ + a 2
In view of our assumption that the production technology is the same, the demand
for labor must increase at the rate g ∗ . However, the supply of labor cannot increase
at any arbitrary rate. If we suppose the rate of increase of labor supply be n, such
trajectory as set
g∗ > n (3.76)
cannot be sustainable. On the contrary, on the trajectory which has a relatively low
initial value of the sector ratio, and therefore a low equilibrium sector ratio, g ∗ , and
therefore the rate of increase of the demand for labor, is comparatively low. If
g∗ < n (3.77)
then such a trajectory cannot be sustainable. This is because in this case, the unem-
ployment rate increases at every period and it becomes impossible to keep the wage
laborers at their status.
(6) The Equilibrium Accumulation Trajectory:
We have defined the “steady trajectory of extended reproduction” (in Sect. 3.4.1) as
the trajectory which satisfies only the conditions (A) and (B), regardless the demand
and supply of labor, to distinguish it clearly from the equilibrium accumulation
trajectory. The trajectory, which many researchers including Tomizuka regard as the
equilibrium accumulation trajectory, is exactly the same as the steady trajectory of
extended reproduction, which we defined in this volume. The steady trajectory of
extended reproduction is not necessarily the equilibrium accumulation trajectory.
We defined the equilibrium accumulation trajectory as such a steady trajectory of
extended reproduction that keeps unemployment rate at constant level, namely
g∗ = n (3.78)
The reason why is as follows: if (3.78) is not satisfied, even the steady trajectory
of extended reproduction cannot sustain itself due to a shortage of labor force or an
unemployment rate that is too high and thus exceeds the socially admissible limit.
(7) Capital Accumulation and the Supply of Labor:

To our argument, which defines the equilibrium accumulation trajectory by deter-
mining g ∗ , λ∗ and R ∗ by (3.78), (3.75) and (3.74), respectively, the following question
may be presented: “Your argument depends on the assumption that the rate of increase
of the labor supply is given exogenously, from outside of the system. In reality, n is not
exogenous, but determined by the capital accumulation. If so, your whole argument
collapses.” The rate of increase of the labor supply n is, without doubt, influenced
significantly by the capital accumulation process. The major causal channels are the
failures of small businesses, a change of working days, a change in the degrees of
labor intensity, and a change in the labor participation rate of women, children and
elder persons, as well as a change of the population, to name just a few. However,
this point does not damage the essence of our argument. If the influence of g on n
is expressed as n = n(g), the equilibrium accumulation trajectory is defined by g ∗ ,
which is determined in turn by

g∗ = n g∗ (3.79)
rather than by (3.78).

(8) Initial Conditions and the Equilibrium Accumulation Trajectory:
A further question which may be presented to our argument is as follows: “If g ∗
on the equilibrium accumulation trajectory is determined by (3.78) or (3.79), and
the equilibrium sector ratio λ∗ is determined as corresponding to g ∗ , there is no
necessity of λ∗ being equal to the actual sector ratio λ0 . Then there exists no such
equilibrium path, which starts from λ0 and reaches λ∗ . This means then the concept
of the equilibrium accumulation trajectory must be considered as a trajectory without
any realistic significance, an ideal result of abstract thinking.” It is certain that when
the steady trajectory of extended reproduction starts from λ0 , λ0 = λ∗ cannot reach
the equilibrium accumulation trajectory. Yet the equilibrium accumulation trajectory
is, from the beginning, not at all supposed to be one along which the actual capitalist
economy proceeds. It is the trajectory around which the capitalist economy has to
fluctuate in the long run and on average; repeating business cycles, which include
crises as one of their phases, as far as the capitalist economy reproduce itself and
continue. Therefore, it is quite natural that λ is not equal to λ∗ at a certain time.
(9) Marx’s View:
What did Marx think about the supply of labor when he developed his theory on
extended reproduction in Volume II of Capital? The only reference to the supply of
labor in the context of extended reproduction is the following passage:
We have explained at great length in Book 1 that labor-power is always available under the
capitalist system of production, and that more labor can be rendered fluent, if necessary,
without increasing the number of laborers or the quantity of labor-power employed. We,
therefore, need not go into this any further, but shall rather assume that the portion of the
newly created money-capital capable of being converted into variable capital will always
find at hand the labor-power into which it is to transform itself.37
It is clear that Marx takes account of only such a path that can sustain itself in the
sense that the demand for labor does not exceed the supply of labor as the equilibrium
accumulation path.
3.4.4 An Equilibrium Trajectory of Capital Accumulation

with Technological Progress
We have investigated an equilibrium trajectory of capital accumulation without tech-

nological progress. However, when there is no technological progress, extended
reproduction is impossible without any increase in the labor supply. Thus, the accu-
mulation process of a capitalist economy in the long run depends only upon the condi-
tions of the labor supply. The capitalist economy requires technological progress to
sustain extended reproduction irrespective of the conditions of labor supply. An indi-
vidual capitalist cannot be expected to introduce new production techniques for the
reason of taking this into consideration, but will do it for his own private profit.
Individual capitalists are competing with each other. Each capitalist has to supply
his products at a lower price than his competition in order to reach a higher market
share, beating his competitors. He needs to introduce new technology, which permits
him to cut the production costs of his products below his competitors’. By doing so,
his rate of profit remains the same even though he provides his products at a relatively
low price. If he finds rivals also introducing new technology, he is forced to take
some actions against them by imitating the new technology as soon as possible or by
introducing superior technology, otherwise he loses his profit. Thus, any capitalist has
the inevitable inducement to introduce new technology from his private standpoint.
If a capitalist has monopolistic power in a single sector, then the drive to adopt
new technology through price competition is weaker. However, not all the drive
will disappear. There remains competition with those who produce substitutable
commodities for the products in that sector, and most commodities have substitutes
from the point of view that any purchaser can choose something else to buy. Moreover,
there is another reason why the necessity to introduce new technology does not always
disappear: monopolistic capitalists are not always required to reduce the selling
price when the introduction of new technology leads to the reduction of production
costs. This means that they could raise the profit rate to a higher level through the
introduction of new technology.
In the capitalist system every capitalist has an inevitable inducement to intro-
duce new technology. We will make investigations into the steady path of extended
reproduction with technological progress and define the equilibrium accumulation
trajectory.
37 Marx [32, Chap. 21, Sect. 1, p. 305].

Several factors affect the choice and the timing of the new technology to be
introduced. We will refer to these in the following chapter. At present, without further
investigation into these, we precede our argument on the following extremely strong
and simplifying assumptions:
(1) There is no change in types of production goods, even if new technology is
introduced. This assumption is not realistic because the introduction of new
technology usually requires new types of production goods. However, taking
this into consideration leads to more complicated problems regarding obsolete,
old production goods and the production of new production goods by old
production technologies.
(2) Once a new technology is introduced, it will immediately diffuse all over the
economy. Without this assumption, more complicated problems caused by the
mixture of old and new technologies appear.
(3) New technology does not change the quantity of production goods required
to produce each unit of production goods and consumption goods a1 , a2 , but
it decreases the quantity of labor required to produce each unit of production
goods and consumption goods τ1 , τ2 at the same rate of α in both sectors.
This assumption means that the introduction of new technology reduces the
quantities of labor required directly and indirectly to produce each unit of
production goods and consumption goods t1 , t2 and at the same time that
it keeps the organic composition of production constant in both sectors. We
can easily confirm this, because the quantities of labor required directly and
indirectly to produce the production goods and consumption goods t1 , t2 is
determined by
t2 = a2 t1 + τ1
t1 = a1 t1 + τ1
therefore if a1 and a2 are constant and if τ1 and τ2 decrease at the same rate by,
say 10%, then t1 and t2 also decrease at the rate of 10%. The organic compo-
sition in each sector is defined as a1 t1 /τ1 and a2 t1 /τ2 respectively. Therefore,
if a1 and a2 remain unchanged and if τ1 and τ2 decrease at the same rate as t1 ,
the organic composition of the production in each sector cannot change.
(4) The rate of increase in labor productivity for each sector has the same constant
rate α, i.e., the rate of decrease in t1 and t2 . We could state as follows:
τ1t+1 = (1 − α)τ1t , τ2t+1 = (1 − α)τ2t , (3.80)
where (1 − α) > 0.
We now are in a position to examine the steady path of extended reproduction
with technological progress supposed above. When we investigated the steady path
of extended reproduction without technological changes in Sect. 3.4.1, we supposed
the real wage rate R as constant, but in the present case where we are to take the
technological progress into consideration, we suppose the rate of exploitation as
constant. In other words, we assume that the real wage rate grows at the same rate
as labor productivity.
The steady path of extended reproduction is determined by the following
relationships:
K 1t Kt
x1t = , x2t = 2 (3.81)
a1 a2
x1t = a1 x1t + a2 x2t + I1t + I2t (3.82)

x2t = R t τ1t x1t + τ2t x2t + C1t + C2t (3.83)
K 1t+1 = K 1t + I1t , K 2t+1 = K 2t + I2t (3.84)

I1t + I2t = μ C1t + C2t (3.85)
1 − R t t2t
=e (3.86)
R t t2t
t1t = a1 t1t + τ1t , t2t = a2 t1t + τ2t (3.87)
τ1t+1 = (1 − α)τ1t , τ2t+1 = (1 − α)τ2t (3.88)
From the assumptions concerning production technology, a1 , a2 and α are constant,

and the rate of exploitation e and the ratio of accumulation demand to the capitalist
consumption μ are constant.
From (3.82), (3.83) and (3.85), we have the sector ratio λt :

x1t 1 − R t τ2t μ + a2
λt = = (3.89)
x2t R t τ1t μ + 1 − a1
From (3.86), it is clear that R t t2t does not change. From (3.87), we obtain,

a2 τ2t t a2 τ1t
t2t = + t τ1 = + 1 τ2t
1 − a1 τ1 1 − a1 τ2t
and (3.88) leads to
τ1t+1 τ1t
=
τ2t+1 τ2t
Therefore, τ1 /τ2 must be constant. By the assumption that a1 and a2 remain

unchanged, R t τ1t and R t τ2t do not change if R t t2t remains constant. And from (3.89)
it follows that the sector ratio λt does not change over time.
To keep the sector ratio constant, the growth rate of production in the production
goods sector must be equal to that in the consumption goods sector. Denoting the
growth rate as g, we obtain

1 − R t t2t μ(1 − a1 )
g= (3.90)
1 − R t τ2t μa1 + R t τ1t μa2 + a2
As we stated above R t t2t , R t τ1t and R t τ2t remain constant if the rate of exploitation is
constant, hence g keeps a constant value over time.
The higher the rate of exploitation, the higher the sector ratio λ and the larger the
growth rate g becomes.
The rate of increase in aggregate demand for labor in both sectors d can be written
as
τ1t+1 x1t+1 + τ2t+1 x2t+1

1+d =
τ1t x1t + τ2t x2t
We know that τ1 and τ2 in each sector decrease at the same rate α and that x1 and x2
in each sector grow at the same rate g. Then we have
1 + d = (1 − α)(1 + g) (3.91)
On the sustainable path among steady paths of extended reproduction, i.e., the path
which keeps the unemployment rate constant, meaning the equilibrium accumulation
trajectory, the rate of increase in demand for labor d must be equal to the rate of
increase in labor supply n. Therefore, from (3.91), we have
n+α
g= (3.92)
1−α
Given the rate of increase in labor supply n and the rate of technological progress
α, the equilibrium accumulation trajectory is uniquely determined, and the rate g on
the trajectory must satisfy the above equation. We have already proved that g is a
function of the sector ratio λ, which is in turn a function of the rate of exploitation.
Thus, given n and α, the sector ratio λ and the rate of exploitation e are determined
corresponding to g and remain constant on the equilibrium accumulation trajectory.
We now conclude our analysis of the equilibrium accumulation trajectory in a
case of technological progress with several notes.
(1) The equilibrium accumulation trajectory in this case involves a fixed rate of
unemployment that is attributable to technological change.
(2) Even if labor supply is constant, extended reproduction is feasible on the equi-
librium accumulation trajectory with technological progress. This can be seen
by setting n = 0 in (3.92) to find that g still has the value of α/(1 − α).
(3) An “equilibrium” rate of exploitation is determined corresponding to the equi-
librium accumulation trajectory. This is parallel to the previous conclusion
that the real wage rate is determined corresponding to the equilibrium accu-
mulation trajectory in the case of no technological progress. Plus, if the rate of
increase in the labor supply is higher, the long-run and average “equilibrium”
rate of exploitation must be higher. In fact, it is evident from (3.92) that a higher
rate of n requires a higher rate of g, which makes λ, and therefore the rate of
exploitation, rise. The rate of exploitation is higher in the case of a higher rate
of increase in labor productivity as well. Yet, in this case, we should note that
the rate of increase in the real wage rate is also higher.
(4) On the equilibrium accumulation trajectory, the rate of exploitation is constant
and the real wage rate increases at the same rate as the labor productivity.
However, this does not imply at all that the real wage rate would actually
increase at the same rate as labor productivity over time in a capitalist economy.
The equilibrium accumulation process would be realized only on average in
the long run through the cumulative upward or downward movements and
the turn-about. The rate of exploitation would be increased in the phase of
upward movement, whereas it would be decreased in the phase of downward
movement. It is through such cyclical movements that the rate of exploitation
tends to have a certain level.
(5) We supposed that new technology is steadily introduced over time in the equi-
librium accumulation process. In reality, however, the introduction of new
technology, its diffusion, and the scrapping of old technology are carried out
through the upward or downward deviation from the equilibrium accumulation
trajectory and the turn-about. There is a very close relationship between the
introduction of new technology and the turn-about from the downward cumu-
lative process. A similarly close relationship exists between the scrapping of
old technology and the turn-about from the upward cumulative process, that
is, economic crisis. We will investigate them in detail in the next chapter.
(6) In our fourth question of Sect. 3.4.3 concerning the case without technological
progress, we found that if the rate of increase in labor supply n is beyond a
certain level, the equilibrium accumulation trajectory does not exist. It is also
true in the case with the technological progress where rate n is high enough, the
equilibrium accumulation trajectory requiring d = n does not exist. Then, it
holds that d < n, under which the unemployment rate will rise with increasing
speed.
(7) We investigated the equilibrium accumulation trajectory with a particular type
of technological progress in which a1 and a2 remain unchanged, and τ1 and
τ2 decrease at the same rate. Also, we concluded that the sector ratio, the rate
of exploitation, and the unemployment rate remain constant on the trajectory.
However, if the technological progress is not of this particular type, will equi-
librium accumulation trajectory exist? The answer is no. Suppose, for example,
although a1 and a2 remain unchanged, the decreasing rates of τ1 and τ2 , that

is, α1 and α2 , are different as
τ1t+1 = (1 − α1 )τ1t , τ2t+1 = (1 − α2 )τ2t , α1 < α2
In this case, since the organic composition of production in each sector is described
by
a1 t1t a1
=
τ1t 1 − a1

a2 t2t a2 τ1t a2 1 − α1 t τ10
= =
τ2t 1 − a1 τ2t 1 − a1 1 − α2 τ20
the organic composition of production is constant in the production goods sector given
the assumption that a1 remains unchanged, whereas it will rise in the consumption
goods sector by the assumption that α1 < α2 . As a result, the average organic
composition in the whole economy will increase. Then, for any rate of increase in
labor supply n, an equilibrium accumulation trajectory in which d = n is sustained,
does not exist. The reader is referred to Mathematical Appendix at the end of this
chapter.
Besides the above example, we can easily prove that no equilibrium accumulation
trajectory exists if a1 and a2 vary in one direction, or if α1 is different from α2 ,
that is, α1 > α2 other than α1 < α2 , as in the above example. The nonexistence
of the equilibrium accumulation trajectory implies that, however successfully the
capitalists could enforce exploitation and resolve the market problem, a sustainable
path on which the unemployment rate remains constant would not exist. Moreover,
this means that the capitalist production relations would be impossible to maintain
(see Sect. 3.4.2). It is thus unavoidable to keep the average organic composition of
production in the whole society more or less constant in order for the capitalist system
to be maintained. That is to say, what is critically important to the continuation of
a capitalist system is not only a rise in labor productivity through the introduction
of new technology, but the type of new technology. We will discuss these issues in
detail in Sect. 5.2.
We have now reached the stage to proceed onto investigation of the actual modes
of movements in the accumulation process of a capitalist economy in the following
chapter. There, we will make it clear that a capitalist system cannot expand the repro-
duction without taking contradictory forms, which in turn would finally bring about
the conditions for the decay of the capitalist system in the course of the reproduction
of the capitalist production relations.
Equilibrium Accumulation Trajectory and Sector Ratio
The equilibrium accumulation trajectory is defined as a trajectory that satisfies the

following three conditions in every period: (1) operation of production capacity at a
normal rate in both sectors, (2) clearance of the market (i.e., match between supply
and demand) in both sectors, and (3) a constant unemployment rate. We assume
that the production goods sector is greater than the consumption goods sector in the
organic composition of capital (a1 /τ1 > a2 /τ2 ) in every period and that the ratio
of accumulation demand to capitalist consumption demand μ is constant over time.
We assert that sector ratio λ, the growth rate of production gi in two sectors, and
exploitation rate e remain constant every period on the equilibrium accumulation
trajectory.
No Change in Production Technology
The three conditions for the equilibrium accumulation trajectory yield the following
system:
K 1t Kt
x1t = , x2t = 1 (3.93)
a1 a2
x1t = a1 x1t + a2 x2t + I1t + I2t (3.94)

x2t = R t τ1 x1t + τ2 x2t + C1t + C2t (3.95)
(1 − u)Nst = τ1 x1t + τ2 x2t (3.96)
and, by the assumption and definition,
K 1t+1 = K 1t + I1t , K 2t+1 = K 2t + I2t (3.97)

I1t + I2t = μ C1t + C2t (3.98)
Nst+1 = (1 + n)Nst (3.99)
where Nst is the labor supply in each period, n is the growth rate of Nst (n > 0), and
u is the unemployment rate.
The system has nine unknown variables, x1 , x2 , K 1 , K 2 , I1 , I2 , C1 +C2 , R, and Ns .

Since the system consists of nine equations, it has an equal number of equations and
unknown variables. Therefore, the system is self-contained, so it can determine the
time paths of the unknown variables. There are numerous attainable trajectories, each
of which satisfies the equations from (3.93) to (3.99). There are some trajectories
that satisfy the equations but lead to zero or a negative production amount for x1
or x2 as time goes. Those trajectories are not sustainable and cannot be qualified as
an equilibrium accumulation trajectory. We will demonstrate that the sector ratio,
the growth rate of production in both sectors, and the exploitation rate eventually
remain constant every period on the equilibrium accumulation trajectory, if we focus
on sustainable ones.
Let us insert (3.93) and (3.97) into (3.94).
x1t = a1 x1t+1 + a2 x2t+1 (3.100)
Also, inserting (3.93), (3.97), and (3.98) into (3.95), yields the following:

μx2t = μR t τ1 x1t + τ2 x2t + a1 x1t+1 − x1t + a2 x2t+1 − x2t (3.101)
From (3.96) and (3.99), we obtain the following:

τ1 x1t+1 + τ2 x2t+1 = (1 + n) τ1 x1t + τ2 x2t (3.102)
The system with three Eqs. (3.100) to (3.102) determines the dynamic movement of
three variables, x1t , x2t , and R t . We pay attention to two variables, x1t and x2t , hereafter.
Equations (3.100) and (3.102) provide the following characteristic equation:

1 − a1 β −a2 β

[(1 + n) − β]τ1 [(1 + n) − β]τ2 = 0 (3.103)
We assumed that the production goods sector is greater than the consumption goods
sector in the organic composition of capital every period. This means that

a1 τ1

≡ >0 (3.104)
a2 τ2
Also, note that if 1 > a1 , then characteristic Eq. (3.103) has two real roots as follows:
τ2
β1 = 1 + n > 1, β2 = >1 (3.105)

If β1 = β2 , the general solution of the system is as follows:
t
x1t = A1 (1 + n)t + B1 τ2
t (3.106)
x2t = A2 (1 + n)t + B2 τ2
where
A2
A1
= 1−(1+n)a1
(1+n)a2
(3.107)
B2
B1
= − ττ21
Case (i): 1 − (1 + n)a1 < 0

Suppose that β1 = β2 . From (3.107) and the assumption of this case, each pair, A1 ,
A2 and B1 , B2 have opposite signs from each other. Since either the first term or
the second term of (3.106) will become dominant with time, both x1 and x2 cannot
remain positive.
Next, suppose that β1 = β2 = β. A general solution is as follows:
x1t = (A1 + B1 t)β t

x2t = − ττ12 (A1 + B1 t)β t
Either one will be negative. Therefore, there does not exist an equilibrium path,
regardless of the initial values.
Case (ii): 1 − (1 + n)a1 = 0
It is easy to see that β1 = β2 . Then, we have a general solution from (3.106) and
(3.107) as follows:
τ2 t
x1t = A1 (1 + n)t + B1
t
x2t = − ττ21 B1 τ2
It follows from τ2 / > 1 + n that x1 must become negative with time, even if we
take an initial value satisfying B1 < 0. Therefore, there does not exist an equilibrium
path.
Case (iii): 1 − (1 + n)a1 > 0
In this case, we have τ2 / > 1 + n again. It follows from τ2 / > 1 + n and (3.106)
that either x1 or x2 must become negative with time, as far as we take any initial
value satisfying B1 = 0.
Next, suppose that B1 = 0. First we have from (3.106) and (3.107)
x1t = A1 (1 + n)t
(3.108)
x2t = 1−(1+n)a
(1+n)a2
1
A1 (1 + n)t
Therefore, both x1t and x2t keep taking positive values, if initial values x10 and x20 are
strictly positive. The supposition B1 = 0 implies from (3.108) that the initial value
of the sector ratio λt = x1t /x2t is as follows:
(1 + n)a2
λ0 =
1 − (1 + n)a1
The preceding discussion tells us that the sector ratio remains at a fixed value over
time on the equilibrium accumulation path,
(1 + n)a2
λt = = λ0 (3.109)
1 − (1 + n)a1
Second, the growth rate of production in both sectors,
xit+1 − xit
gi = (i = 1, 2)
xit
remain at a constant value over time.
git = n (i = 1, 2) (3.110)
Third, in order to see the movement of the real wage rate R t , rewrite (3.101) as

μ = μR t τ1 λt + τ2 + a1 g1t λt + a2 g2t
The real wage rate R t remains at a fixed value, R ∗ , every period because the sector
ratio λt and both growth rates of production g1t and g2t remain constant. As shown by
inserting (3.109) and (3.110) into the above equation, the sufficient conditions for
R > 0 are not only 1 − (1 + n)a1 but also,
μ(1 − a1 )
>n
μa1 + a2
Last, we get the rate of exploitation e as follows:
1 − R t t2
et =
R t t2
where t2 is given by the equations for bestowed labor,
t1 = a1 t1 + τ1 , t2 = a2 t1 + τ2 .
By constant technical progress and R t = R ∗ , the exploitation rate remains at a fixed

value every period. The positive growth rate of the labor supply, n, is a sufficient
condition for a positive fixed value of the exploitation rate, e, under the assumptions
and some of conditions that we made herein.
Even Technical Progress Between Two Sectors
Assume that the amount of labor necessary to produce one unit of a good will decrease
at the identical fixed rate α (0 < α < 1) every period in both sectors. Of the model
from (3.100) to (3.102) in previous case, (3.101) and (3.102) are rewritten as follows:

μx2t = μR t τ1t x1t + τ2t x2t + a1 x1t+1 − x1t + a2 x2t+1 − x2t (3.101 )

τ1t+1 x1t+1 + τ2t+1 x2t+1 = (1 + n) τ1t x1t + τ2t x2t (3.102 )
The system will become self-contained after we introduce two more equations:
τ1t+1 = (1 − α)τ1t , τ2t+1 = (1 − α)τ2t (3.111)
By (3.100), (3.102 ) and (3.111), we may have a characteristic function as follows:

1 − a1 β −a2 β

[(1 + n) − (1 − α)β]τ 0 [(1 + n) − (1 − α)β]τ 0 = 0 (3.112)
1 2
Since we assumed that the organic composition of capital in the first sector is greater
than that of the second sector, i.e., a1 /τ1t > a2 /τ2t , every period, then

a τt a τ0
t ≡ 1 1t = (1 − α)t 1 10 = (1 − α)t 0 > 0
a2 τ2 a2 τ2
and that 1 > a1 , the characteristic function (3.112) has two real roots that are greater
than 1.
1+n τ0
β1 = , β2 = 20
1−α
Therefore, if β1 = β2 , a general solution is as follows:

1+n t t ⎫
x1t = A1 + B1
τ20 ⎬
0 t
1−α 0
1+n t τ ⎭
(3.113)
x2t = A2 1−α
+ B2 20
where

A2 1+n 1+n
= 1− a1 a2
A1 1−α 1−α
B2 τ0
= − 20
B1 τ2
Let us take as similar procedure as in previous case. Suppose that 1 −

a1 (1 + n)/(1 − α) ≤ 0. There does not exist an equilibrium accumulation path
because either x1 or x2 must become negative over time for any initial value.
Conversely, assume that 1 − a1 (1 + n)/(1 − α) > 0 (or β1 < β2 ). At first, suppose
that B1 = B2 . Therefore, it is not the case that both x1 and x2 remain positive after
enough time passes. Then, there does not exist an equilibrium accumulation path.
Next, suppose that B1 = 0. First, the initial value of the sector ratio λt is as follows:
(1 + n)a2
λ0 = (3.114)
(1 − α) − (1 + n)a1
It is easy to see that the sector ratio remains at a fixed value every period on the
equilibrium accumulation path. Second, both growth rates git remain at fixed value
g∗,
n+α
git = (3.115)
1−α
over time. Third, to see the time path of the real wage rate, R t , rewrite (3.101 ) as
(3.111), (3.114) and (3.115) as follows:
1
R t+1 = Rt (3.116)
1−α
The real wage rate R t will increase at a fixed rate α/(1 − α) every period. Sufficient
conditions for R t > 0 are not only 1 − α − (1 + n)a1 > 0, but also
μ(1 − α − a1 ) − a2 α
>n
μa1 + a2
Last, we get the rate of exploitation e as follows:
1 − R t t2t
et = (3.117)
R t t2t
t1t = a1 t1t + τ1t , t2t = a2 t1t + τ2t (3.118)
It follows from (3.111) and (3.118) that,

τ1t τ1t−1
t2t = a2 + τ2 = (1 − α) a2
t
+ τ2
t−1
= (1 − α)t2t−1
1 − a1 1 − a1
By (3.116), we obtain the rate of exploitation e as follow:

1 − R 0 t20
et = = e∗
R 0 t20
Therefore, the exploitation rate remains at a fixed value every period. A positive
ratio (n + α)/(1 − α) > 0 is a sufficient condition for a positive fixed value e∗ of the
exploitation rate under the assumptions and some of conditions that we made herein.
Based on the preceding discussion, we may conclude that the sector ratio, the
growth rate of production in both sectors, and the exploitation rate remain at a fixed
value every period on the equilibrium accumulation path.
Uneven Technical Progress Between Two Sectors
Let us analyze a case in which the two sectors have uneven rates of technical progress,
α1 and α2 . The time path of x1 and x2 is determined by (3.100) and (3.102 ), and the
following:
τ1t+1 = (1 − α1 )τ1t , τ2t+1 = (1 − α2 )τ2t (3.119)
Since the first sector is greater than the second sector in an organic composition of
capital (or a1 /τ1t > a2 /τ2t ) every period, we assume for consistency that
1 > α1 > α2 > 0 (3.120)
Insert (3.100) into (3.102 ), and simplifying it into the following:
t x1t = τ2t x1t−1 − a2 N t (3.121)
where
t = a1 τ2t − a2 τ1t
N t = τ1t x1t + τ2t x2t
Let y be the ratio of the employment in the production goods sector to aggregate
employment.
τ1t x1t
y= (3.122)
N
Equation (3.121) is rewritten by (3.96), (3.99), and (3.122) as follows:

t t 1 − α1 τt
t y − y = − a1 y t−1 + a2 1t y t−1 − 1
t−1
(3.123)
τ2 1+n τ2
We now investigate an equilibrium path given by (3.123) for two cases

(1 − α1 )/(1 + n) − a1 ≤ 0 and (1 − α1 )/(1 + n) − a1 > 0.
Case (i) (1 − α 1 )/(1 + n) − a1 ≤ 0
If y satisfies 0 ≤ y ≤ 1, then the right-hand side of (3.123) is negative. The assump-
tion says that the coefficient t /τ2t of the left-hand side is positive. Then, this means
that y t − y t−1 < 0 or the ratio of the employment in the production goods sector to
aggregate employment y continues to decrease over time. This results in a negative
value with time.
Case (ii) (1 − α 1 )/(1 + n) − a1 > 0
Put
τ1t
a2 = ϕt (3.124)
τ2t
Let y = F(ϕ) be a demarcation curve that is the locus of (ϕ, y) (without the subscript
t) such that y t − y t−1 = 0 in (3.123). Function F is an increasing function of ϕ, as
shown in Fig. 3.8. It should be noted that variable ϕ decreases over time by (3.119)
and assumption (3.120).
Suppose that we happen to have a point lying above the demarcation curve y =
F(ϕ). Since the right-hand side of (3.123) is positive and coefficient t /τ2t is positive
by the assumption, y t − y t−1 > 0 or ratio y will increase and cross over the value of
1 with time, so the consumption goods sector has a negative amount of employment.
Conversely, we happen to have a point lying below the demarcation curve. Then,
ratio y will decrease and become negative with time if it does not cross the demarca-
tion curve. If ratio y crosses the demarcation curve from one region (or y t − y t−1 < 0)
to another region (or y t − y t−1 > 0), it will begin to increase and then cross over the
value 1 with time.
Fig. 3.8 Movement of

employment share of
production goods sector
From the preceding discussion, we have the claim that if both sectors have
uneven technical progress, there does not exist a sustainable equilibrium accumu-
lation trajectory because both x1 and x2 continue to be positive after enough time
passes.
Chapter 4
Accumulation and Crisis in Capitalist
System
Abstract This chapter explains how, given the context of the fundamental contradic-
tion uncovered in Chap. 3, it is necessary for a capitalist society to force an aggressive
reversal of the process of disequilibrium to continue its reproduction. Thus, cyclical
fluctuations with alternating economic crises and turnovers are characteristic of a
capitalist society. These cyclical fluctuations progress from an upward cumulative
process, resulting in disequilibrium, then to a halt, leading to an economic crisis, then
to a downward cumulative process of disequilibrium, then to a halt and a turnover,
and then back to an upward cumulative process, and so on. This cycle is also a process
of capital accumulation and destruction, whereby small capital with limited access
to resources necessary to survive is weeded out.
4.1 Cumulative Process of Disequilibrium
Since the capitalist society is a class society in which commodity production is

dominant, no single actor controls the whole social production. As a result, various
kinds of disequilibria occur. The goal of Sect. 4.1 is to show that certain disequilibria
become enhanced and cumulate, rather than being resolved by the price adjustment
mechanism, as often claimed in textbooks. It is significant to know that the root of this
cumulative tendency of disequilibrium lies in the capitalist relations of production—
knowing this, we understand the inevitability of economic crises and the nature of the
business cycle. In other words, without the cumulative tendency of disequilibrium,
neither economic crises nor business cycles would be inevitable.
16-7905-6_7
176 4 Accumulation and Crisis in Capitalist System
4.1.1 The Vulgar View
4.1.1.1 How Disequilibrium Can Be Resolved
In a capitalist society, a central planning authority does not exist, with the result that
numerous capitalists take decisions regarding production. Hence, the movement of
the economy as a whole is determined ex post through a synthesis of their private deci-
sions. Individual capitalists take decisions that maximize private profit. Therefore,
a disequilibrium, such as a mismatch between supply and demand or idle/deficient
production capacity, occurs. This leads us to the following question: how can this
disequilibrium be resolved?
The usual explanation goes as follows: individual capitalists make private produc-
tion decisions based on private profit expectations. The results of these decisions do
not necessarily match the conditions for social reproduction. Without this match,
however, commodities may remain unsold or can only be sold at an extremely low
price, so that private profit expectations are below their target. This would be the
market command of ex post production decision adjustments: capitalists consider
the market command and adjust their production decisions for the next period. With
this ex post adjustment mechanism, a force that induces production composition
to meet reproduction conditions clearly exists, despite individual capitalists taking
private decisions independently, and without social planning or decisions over the
whole society. The market price can be high or low, but with the ex post adjust-
ment mechanism mentioned above it converges to a standard level. In other words,
led by the “invisible hand” advocated by Adam Smith, capitalists’ selfish behavior
automatically recovers the social equilibrium.1
This explanation, however, is not sufficient. It is correct to point out that in capi-
talist systems the social validity of production is checked afterwards and that this ex
post check enables anarchistic capitalist system to reproduce itself. However, it is
insufficient for the following reasons: first, production composition made privately by
individual capitalists is checked regarding its social validity in the market afterward.
As a result, individual capitalists adjust production decisions, taking into consider-
ation this check by the market. While this is logical, how can it be postulated that
it will recover the social composition of production to the direction that meets the
conditions for reproduction? Here we have an issue.
Adjustment of production decisions in the next period will be made again in
private when outcomes of capitalists’ production decisions are checked in the market.
However, does the private adjustment always correspond to the necessary adjustment
for reproduction of the society? This question may seem to generate a problem where
there is none. Let us assume that a shortage or price increase in some market arises
due to excess demand when commodity was produced and taken to the market. What
happens next is that its individual producer increases production over the next period.
Although this adjustment is made by private decisions, the direction of the adjustment
1 The view that the supply–demand imbalance of commodities can be corrected by the price
adjustment mechanism can be found among self-admitted Marxian economists such as Uno [53,
pp. 338–341].
4.1 Cumulative Process of Disequilibrium 177
is at least toward being socially appropriate. As a result, our question above seems
redundant—or does it not?
As long as dealing with a certain commodity separately, the explanation above is
unproblematic. For example, when sugar demand is larger than its supply—in other
words, when there is excess demand, a disequilibrium arises and the price of sugar
increases. This gives an advantage to the sugar production, which consequently
increases production. Due to the high price of sugar, however, consumers might
reduce consumption, substituting it with beet sugar or artificial sweeteners, which
decreases the demand for sugar. As a result of these two factors, excess demand will
diminish, leading to a movement towards an equilibrium.
In the case above, we assume that the disequilibrium occurs only in the commodity
sugar and that only the sugar price increased. As a result, the demand for substitutes
such as artificial sweeteners increased, with prices remaining constant. However,
what happens if the disequilibrium arises for every commodity (sugar and substitutes)
and all prices increase due to excess demand? It is possible that the demand for
artificial sweeteners does not increase and that sugar production may not become
advantageous.
What interests us most is not the problem of disequilibrium adjustments that
occur in a certain commodity alone, such as the problem of disequilibrium described
above, but one that occurs in every sector that is relevant for society. We suppose that
the supply of commodities, produced in almost every sector based on capitalists’
private decisions, was too small in the market, so that the market price increased
or that a backlog of demand occurred. With this signal, based on the check in the
market, individual capitalist is likely to increase production in the next period. For
this production increase, capitalists are expected to expand the demand for production
goods, i.e., accumulation demand. Give that, what would happen in the next period?
While the production of commodities might increase in the next period, the price
increase or excess demand might surpass that of the current period, since capitalists’
accumulation demand would be greater. This gives reasonable ground to assume that
the ex post adjustment mechanism would not reduce the disequilibrium, but that it
increases the disequilibrium. A detailed analysis will follow in Sect. 4.1, but before
that, let us look at the outline.
Let us aggregate an individual sector’s supply–demand in the whole society and
examine it. Suppose that such disequilibrium arises
Supply < Demand
This, in general, leads to a price increase. As a result, will the equilibrium, Supply =
Demand, be recovered automatically? Let us examine the supply side first. The rise
in prices is beneficial for capitalists since it increases the profit rate and decreases
the real wage rate, unless the money wage rate increases to offset it. Capitalists
would upscale production and supply. However, in order to increase production for
the current period they have no choice but to raise the utilization rate of production
capacity—however, there is a limit. That is why they need to implement a demand
increase for the various production goods when trying to enhance their production
capacity in the coming periods.
Let us examine the demand side next. As repeated, the whole society’s demand
consists of the following four factors:
Replacement Laborers’ Capitalists’ Accumulation

Demand = + + +
demand consumption private consumption demand
However, as previously explained, the first and second factors are dependent variables
of production levels. So, as a consequence of the price increase, if production levels
rise, demand will increase as well; as laborers’ consumption demand is the product
of the real wage rate and employment, even if a production increase leads to an
employment increase, laborers’ consumption demand may not expand because there
is a fall in the real wage rate (cf. Sect. 2.4.3.3). However, since production levels
increase only if profits rise, it will be
Production Replacement Demand Laborers’ Consumption Demand

> +
Increase Increase Increase
Consequently, if we only look at the first and second factors of demands, excess
demand will be reduced by the production increase, which is caused by rising prices.
However, what happens if we take into account the third and fourth factors? It is
commonly argued that the third factor of capitalists’ private consumption demand will
not vary much. The problem is the forth factor of accumulation demand. As already
discussed, capitalists will increase the accumulation demand with the intention of
production capacity expansion in the following periods due to favorable market
condition. As a result, excess demand might be greater.
The movement of accumulation demand is most important when assessing
whether a disequilibrium is brought back to an equilibrium through the negative feed-
back function of price mechanism, or whether a disequilibrium grows bigger than
ever as the price mechanism generates a repercussion through positive feedback.2
4.1.1.2 Upward Phase of Business Cycle Is Also Disequilibrium
Even people following capitalist views will immediately recognize a downward phase
of the business cycle due to the disequilibrium. Such a situation is extremely unfa-
vorable for capitalists as both the profit rate and the utilization rate are considerably
low. However, they recognize an upward phase of the business cycle as equilibrium
itself. Commodities fly off the shelves at high profit rates and the production capacity
operates at higher levels than the normal utilization rate. However, this upward phase
is a sequence of the disequilibrium. It is apparent that there is a disequilibrium as
excess demand in the commodity market. Moreover, it is a disequilibrium in the
sense that there must be excess demand in labor market sooner or later if this upward
phase of the business cycle continues, because the increase rate of production is high
and naturally beyond the increase rate of labor supply.
2 As for the concept of feedback, see Iio [47, pp. 34–35].

Without recognizing that the upward phase of business cycle is due to a disequi-
librium, one cannot understand Marx’s meaning “the crisis is a process to recover
equilibrium violently”.3 If not understood correctly, Marx could be misinterpreted
that the economic crisis is the process of a disequilibrium and the upward phase of
the business cycle is an equilibrium. This faulty assumption seems to gain ground
especially because when the cumulative process of the upward disequilibrium is
turned around by an economic crisis, leading to a cumulative process of a downward
disequilibrium.
4.1.2 Importance of Accumulation Demand
Section 4.1 hopes to reveal why the process of disequilibrium proceeds monotoni-
cally and cumulatively. First, we examine how demand for commodities in all sectors
is determined. Without knowing what kind of demands make the market for the prod-
ucts, we cannot understand why a disequilibrium arises or cumulates. We examined
this in Sect. 3.3, where we also highlighted the importance of the kinds of demands
that are required to attain steady extended reproduction, rather than how the demands
are actually determined. In other words, we introduced the premise of normal utiliza-
tion of production capacity. However, in this part, we investigate how the production
capacity given at a time in each sector is utilized, pointing out that the demands are
key in determining utilization. Whether this corresponds to the normal utilization or
not is determined as ex post results in the market, leading to a disequilibrium.
We will examine the demands for production goods and consumption goods in a
certain period, but as highlighted in Sects. 2.4.2 and 3.3.1, demands are determined
by production activities. Thus, we have to examine these production activities first.
It is necessary to distinguish the actual production level, x1 , x2 , from the production
level that can be produced by normally utilizing the production goods, which is
the product of the previous period or prior, owned by capitalists in the production
goods or the consumption goods sectors, x1∗ , x2∗ . We call them normal production
capacity. x1 and x2 are different from x1∗ , x2∗ , and there is no guarantee that they
are equal. For example, if x1 is smaller than x1∗ , the production goods sector is in
overproduction. However, one needs to be careful with the word “overproduction”
as it does not only imply that a commodity produced is larger than the demand
(D1 < x1 ), but also includes the case that a commodity produced is equal to the
demand (D1 = x1 ) and yet its production level is below the normal production level
(x1 < x1∗ ). The gap between these two cases is not large. On the one hand, a part
of products becomes excess after production is implemented; on the other hand, the
production capacity becomes idle, as production is not implemented due to demand
shortage. We express the disequilibrium in the latter form. This is because in that case,
the relation between the actual production level and demand is clear and the state of
utilization of production capacity also can show whether it is in excess or insufficient.
From here we suppose that the actual production level is equal to demand.
3 Marx [33, Chap. 15, Sect. 2, p. 175].

Let us suppose that the production amount of the production goods and the
consumption goods is x1 , x2 , respectively. Thus, demand for the production goods is
a1 x 1 + a2 x 2 + I 1 + I 2
a1 x1 + a2 x2 is the replacement demand for the production goods and I1 , I2 are

capitalists’ accumulation demand, i.e., new investment, to enhance the production
in the next period in the sectors of production and consumption goods. Denoting the
real wage rate in terms of the consumption goods R and the consumption demand
of capitalists C, and assuming that the workers spend all their wage, the demand for
the consumption goods is
R(τ1 x1 + τ2 x2 ) + C
Assuming that the actual production is implemented at the level equal to the demands
for each commodity, it will be
x 1 = a1 x 1 + a2 x 2 + I 1 + I 2 (4.1)
x2 = R(τ1 x1 + τ2 x2 ) + C (4.2)
Having said that, how is the aggregate demand determined? The right side of
the equations above shows the demands. However, most demands, i.e., the replace-
ment demand for the production goods and the consumption demand of laborers,
depend on the production level. In reverse, the production level also depends on the
demands—they are interdependent. However, if we examine (4.1) and (4.2) care-
fully, it can be easily understood that some demands for the production goods and
the consumption goods do not depend on the production level in the current period.
These are the accumulation demands of capitalists I1 , I2 , and the capitalists’ private
consumption C. As we analyzed in Sect. 3.3, the capitalists do not decide their expen-
diture after realization of products, but instead spend their accumulation demand and
private consumption in anticipation of profits that will be gained by the production
in the current period. Therefore, it neither relates to the actual aggregate demand that
appears in the current period for each sector, nor to the actual production level that
is determined by aggregate demand in advance.
Thus, the relationship between the production and the demand is formalized as
follows:
Production = Demand(Production) + Independent Demand
The demand consists of two factors: one is determined by the current production and
the other is determined independently. These two factors determine the production
level that suits the demand. In this case, given the independent demand, the total
amount of production and demand are determined. Given the capitalists’ private
consumption and accumulation demand, the production levels of production goods

and consumption goods and the total amount of demands for them are determined.
Indeed, in (4.1) and (4.2), if we take the production technology and the real wage
rate as a given and if I1 + I2 and C are determined, x1 and x2 are
(1 − Rτ2 )(I1 + I2 ) + a2 C
x1 = (4.3)
(1 − a1 )(1 − Rτ2 ) − a2 Rτ1
Rτ1 (I1 + I2 ) + (1 − a1 )C
x2 = (4.4)
(1 − a1 )(1 − Rτ2 ) − a2 Rτ1
When net production possibility condition a1 < 1 and surplus condition 1 − Rt2 > 0
are satisfied, x1 and x2 take positive values.
Thus, aggregate demand and production levels are determined by the amount of (a)
production technology, (b) the real wage rate, (c) capitalists’ accumulation demand,
and (d) capitalists’ private consumption. It goes without saying that production does
not correspond to demand if the production level that is determined as described
above exceeds the maximum production capacity in both sectors. Now let us examine
how those four factors determine the aggregate demand and the production level, x1
and x2 :
(a) Change in production technology: as we saw from (4.3) and (4.4), x1 and x2
decrease when τ1 and τ2 decrease, other things being equal. It means that the
aggregate demand and the aggregate production level decrease. This is caused
by a decrease in employment.
(b) Change in real wage rate: as the real wage rate increases, x1 and x2 increase,
other things being equal. This is caused by an increase in workers’ consump-
tion. We will show later that when the real wage rate increases and other things
are equal, the profit rate falls and capitalists may not increase the production
corresponding to the demand increase.
(c) Change in capitalists’ accumulation demand: increase of capitalists’ accumu-
lation demand I1 + I2 increases x1 and x2 , other things being equal.
(d) Change in capitalists’ private consumption demand: this corresponds to the
previous explanation.
What is most essential about the above-mentioned four factors in a capitalist
system? We argue it is the capitalists’ accumulation demand, and it can be justified
as follows: among the four factors, change in production technology indeed has a
great impact on aggregate demand, but in order to introduce changes in production
technology, in many cases, it requires additional capital investment. In that sense,
introducing new production technology depends on new investment demand, which
equals accumulation demand. As for the change in the real wage rate, aggregate
demand will increase if the real wage rate increases (other things equal). However,
as we saw in Sect. 2.4, capitalists do not always produce when there is demand but
instead make a production decision based on profitability of the sales condition. Thus,
it is not an effective demand for capitalists when they see the real wage rate increase
and the profit rate decrease, even if there is a large demand. Let us examine the fourth
factor, capitalists’ private consumption. As previously explained, changes in capi-
talists’ private consumption can be made independently from the current production
level, but it does not move to fluctuate the aggregate demand widely. Unlike the
exploiting classes (slave-owners or feudal lords) of other exploitation societies, the
capitalists’ main motivation to force surplus labor on to laborers does not lie in the
fulfillment of their private consumption. They reinvest the profit in form of capital
and aim to have it reproducing itself (self-reproduction of capital). Without doing
so capitalists will not be able to maintain their social relations as capitalists. In any
case, capitalists’ private consumption is not the main factor that determines aggre-
gate demand in a capitalist system. Hence, accumulation demand of capitalists is the
biggest and prime factor determining aggregate demand.
Keynes showed that, as capitalists’ accumulation demand increases or decreases
by a certain amount, the aggregate demand increases or decreases in response by that
amount multiplied by a certain ratio greater than 1. He called this ratio “investment
multiplier”.4 As we can understand from Eqs. (4.3) and (4.4), other things being
equal, when the accumulation demand I1 + I2 changes by I , the change of x1 , x2
will be shown as below:
(1 − Rτ2 )
x1 = I (4.5)
(1 − a1 )(1 − Rτ2 ) − a2 Rτ1
Rτ1
x2 = I (4.6)
(1 − a1 )(1 − Rτ2 ) − a2 Rτ1
As we can see easily in (4.5), the coefficient of I is greater than 1.5 It means that
when the accumulation demand for the production goods sector increases by I , the
aggregate demand for the production goods sector will increase by greater than I .
This phenomenon is generated by the fact that when there is a production increase
in response to the accumulation demand I , that production increase generates a
corresponding replacement demand for the production goods.
It is important to stress the following point: it is unique to the capitalist system that
such a change in the accumulation demand has a “multiplier effect”, as Keynes called
it, on the levels of aggregate demand and aggregate output, and that especially when
there is a decrease in accumulation demand, aggregate demand and aggregate output
will contract greatly. As (4.5) shows, when the accumulation demand decreases by
I < 0, x1 will decrease by an amount bigger than that, other things being equal. The
point is why “other things being equal” when the accumulation demand decreases.
Suppose that the real wage rate R increases when the accumulation demand decreases
by I < 0. In addition, suppose that even if the real wage rate increases, that
is the profit rate decreases, goods are produced as long as there is demand. Then,
from (4.3) and (4.4), x1 and x2 might stay the same or even increase rather than
4Keynes [11, Chap. 10, esp., p. 115, 127–128, Chap. 18, p. 248].
5In (4.5), the surplus condition, if we premise 1 − Rt2 > 0, the denominator and the numerator will
be positive, x1 /I > 0. Moreover, the numerator is greater than the denominator, x1 /I > 1.
decrease. Why should a situation like this not happen? It is because in a capitalist
society, it is not possible to increase the demand of the labor class by raising the
real wage rate to a level that compensates the decrease in the accumulation demand
as the result that the means of production, and also production decisions, are held
by the capitalist class. If the real wage rate increases, capitalists will decrease rather
than increase production, for which we put forward the premise of fixed production
technology. Thus, the process in which the accumulation demand decrease leads to a
considerable contraction of aggregate demand is not inevitable. We will understand
this by looking into what happens in a socialist society. Suppose there was production
for additional production goods in order to expand production for a certain period.
And suppose all members of society came to a consensus and decided that they, at
some point, needed no more additional production goods. Later on, production goods
that were accumulated as mentioned above (which potentially include the entire
production capacity of consumption goods), will be diverted to the consumption
goods production. Therefore, the members of society will determine the increase
of laborers’ quotas of consumption goods per hour. As a result, the accumulation
trajectory will be shifted, and the aggregate demand and the aggregate production
level will not contract. Keynes was not clear about the capitalist character of the
“multiplier effect”, also because he was a bourgeois economist.
The accumulation demand of capitalists plays the most important role in deter-
mining the aggregate demand for all commodities. Fluctuations of capitalists’ accu-
mulation demand amplifies fluctuations of the aggregate demand and the aggregate
production level. Both root from the production relations of the capitalist system.
Understanding these three points is essential in order to grasp the main factor that
generates a disequilibrium in the accumulation process of a capitalist system, its
cumulative character, and the inevitability of its reversal.
The following steps characterize an upward process of disequilibrium in a capi-
talist system: abnormally high accumulation demand leads to abnormally high aggre-
gate demand, which then leads to underproduction. The cumulative character centers
on the spiral that underproduction leads to increasing accumulation demand and the
latter leads to the former. The reversal through economic crisis triggers retardation
and suspension of accumulation demand, leading to great contraction of the aggre-
gate demand, followed by overproduction. The downward cumulative process takes
the following spiral: overproduction leads to further contraction of the accumulation
demand and the latter leads to the former. The reversal begins with the re-emergence
of accumulation demand. Indeed, already Marx pointed out that “accumulation is
an independent variable.”6 This statement can be attributed to capitalist production
relations.
6 Marx [15, Chap. 25, Sect. 1, p. 437].

4.1.3 Capitalists’ Decision on Accumulation Demand
Accumulation demand is the main determinant of aggregate demand and the aggre-
gate production level at each phase, as well as of disequilibrium such as overpro-
duction and underproduction. How is the accumulation demand as an independent
variable determined and how does it fluctuate?
As repeatedly emphasized, in a capitalist society the capitalists own the means
of production and as a result, they take all decisions regarding production. Among
their decisions on production, the following three are important: (a) To what extent
production goods that they already own are utilized; (b) How much expansion in
production is expected over the next period and how much additional production
goods should be prepared for that; (c) What kind of production technologies should
be adopted in the next period. These three decisions need to be made in any society.
For instance, in a socialist society, based on co-ownership of the means of production,
they are made by social planning agencies, involving, to a certain extent, members of
society. However, in capitalist society, these decisions are taken by capitalists alone,
based on their private pursuit of profits.
The first decision on the rate of utilization naturally includes the decision regarding
the purchase of the labor power for it, as well as price-setting for the commodity.
These are the decisions regarding production during that period. Section 2.4 outlines
how capitalists take these decisions.
Both the second and the third decisions are concerning the next period and after,
and are interconnected. In order to decide the kind and volume of production goods
for the future periods, capitalists have to make forecasts on production expansion
and, at the same time, take decisions on the production technology to be applied
for production. Both concern decision-making on the accumulation demand: the
second one regarding the level of accumulation demand, and the third one about its
configuration.
However, for better understanding, let us discuss these two decisions separately.
First, let us examine the second problem, which is the problem of quantitative deci-
sion on the accumulation demand. In this case, additional demand for production
goods means those production goods embodying the existing technology. That is,
production good demands exceed the exhausted amount. This makes it easy to deal
with. We will analyze the capitalists’ behavior toward adopting new technologies
later in Sects. 4.4 and 5.2.
Now, how does a capitalist take a decision on the scale of accumulation demand?
As emphasized in Sect. 3.2, accumulation demand among a capitalist is not deter-
mined by the part of realized profit in the current and/or prior periods, which exceeds
his private consumption expenses. The realized profit in the current period is not
determined yet. In order to realize profit in the current period, there must be the
current period’s accumulation demand by capitalists. If he only makes the accumu-
lation demand with this amount after subtracting his private consumption from the
previous period’s realized profit, it inevitably generates overproduction as long as
there is production expansion in this period compared to the previous one. Some
scholars argue that taking not only the profit of the previous period but also the
profits of the prior periods into consideration, the total of unused portions among
the realized profits in those periods is spent for this period’s accumulation demand.
However, in that case, there should have been overproduction in those periods. In
any case, this explanation cannot account for the huge accumulation demand in the
prosperous periods.
It is necessary to distinguish the following two phenomena when examining how
the size of accumulation demand is determined: first, the extent of accumulation
demand capitalists make or are forced to make; second, how much funding is available
to finance the accumulation demand. These two things are completely different. It
becomes clear by considering the following cases: first, there are sufficient funds to
finance the accumulation demand but there are no incentives or forces for capitalists
to do so, so that they do not make accumulation demand. Second, there are strong
incentives or forces to make accumulation demand but there are no funds to finance
it so that the actual accumulation demand is restricted within the fund limits.
Let us put the problem of the fund for accumulation demand aside and examine
how capitalists intend to make accumulation demand (or are forced to do it), regard-
less of fund availability. As we tentatively overlook the problem of accumulation
demand for the production technology changes, we can ignore the forces for accumu-
lation which are generated through the following process: sales competition among
capitalists and the resulting price competition leading to production cost cuts by
introducing new technologies, which in turn increase accumulation demand. This is
one of the main factors to determine the size of capitalists’ accumulation demand.
Capitalists are forced to proactively or imitatively introduce new technologies so that
they are spared the downfall (cf. Sects. 4.3.3.3 and 4.4.2.5).
The competition forces for capitalists to accumulate profits are not limited to
the ones generated by this process of price competition, which leads to the intro-
duction of new technologies. Besides the introduction of new technologies, when
some capitalists expand their production capacity in a certain sector, other capitalists
follow them. This is because they have to prevent the capitalists who preceded in the
production capacity expansion from gaining market share, while maintaining and/or
expanding their own market share. However, this competition force works toward
promoting accumulation demand usually when the sector’s market condition as a
whole is more or less that of the seller’s market. This is because when excess supply
exists in the market, capitalists cannot increase their market share by a simple quan-
titative expansion with the existing technologies. Instead, they need an accumulation
demand for price competition through the introduction of new technologies. On the
other hand, in a seller’s market in which unsatisfied demands exist, capitalists can
increase their market share just by expanding production capacity.
Therefore, it can be argued that one of the factors that determine the size of accu-
mulation demand is the relation between production capacity and the actual produc-
tion level in the market for commodities, i.e., aggregate demand. Let us examine
the production goods sector as an example. Provided that the normal production
capacity produced by utilizing existing production goods in the production goods
sector was x1∗ and that the production determined by the actual demand was x1 , the
utilization rate in the production goods sector δ1 is δ1 = x1 /x1∗ . If the utilization rate
is 100%, normal operation is done; if it is over 100%, there is excess operation, and if
it is below 100%, it shows insufficient operation, in other words idle capacity. Thus,
we could consider the size of accumulation demand an increasing function of the
utilization rate in the sector. However, there are some cases that we need to examine
carefully.
Firstly, there is a slight contradiction in the assumption that the utilization rate in
the current period determines the accumulation demand in the same period. In other
words, the utilization rate in the current period is determined by relative relation
between the existing production capacity and the state of demand in the current
period. However, as seen in Sect. 4.1.2, the main factor to determine the state of
demand in the current period is the accumulation demand in the current period.
Thus, the utilization rate in the current period is only determined when the current
accumulation demand is given. This results in a vicious circle: capitalist have to
determine accumulation demand without knowing the current utilization rate, which
is complicatedly linked to their current demand. In a capitalist economy carried
on through the synthetic result of each private capitalist’s decisions, an individual
capitalist is neither able to accurately evaluate the impact of his accumulation demand
decision on the aggregate demand, nor to understand the demand in each sector. Thus,
he cannot determine the current accumulation demand based on such an evaluation.
A capitalist makes an accumulation demand to prepare for production expansion in
the next period at the earliest, but he has to make a decision on it without knowing
the state of demand either in the next period or in the current period. How does
he do it? It can only be based on his private expectation. When coming up with
expectations, he takes various factors into account, including the latest performance
record, which is most important for him, as this is the state of demand in the previous
period. Thus, let us assume that accumulation demand of capitalists in the current
period is the increasing function of the utilization rate of the previous period as the
first approximation. Then, the size of the production capacity in the next period will
be determined only by the market information of two periods before as shown in
Fig. 4.1. Here is one of the many reasons why the disequilibrium cumulates.
Secondly, it needs to be considered that the magnitude of the utilization rate
determines whether the level of accumulation demand I or the ratio of additional
production goods I to the existing production goods K , that is, the capital accumula-
tion rate I /K . For instance, consider the following two cases; in the first, a capitalist
has 100 units of production capacity and the utilization rate is 110%; in the second,
he has 20 units of production capacity and the utilization rate is also 110%. Would
he make the same amount of accumulation demand in both cases? In the first case,
10 units of excess utilization made production and in the latter case, it was 2 units of
State of Accumulation Production

demand demand capacity
in period t-1 in period t in period t+1
Fig. 4.1 Time structure of accumulation demand

excess utilization. It is unlikely that the same amount of accumulation demand exists
in the two cases. Therefore, we postulate that the utilization rate is not determined by
the level of accumulation demand, but by its ratio to the existing production goods,
i.e., the capital accumulation rate.
Thirdly, we need to specify the functional form how the utilization rate in the
previous period determines the capital accumulation rate in the current period. Let
us assume an approximation as follows: a capitalist expects that the state represented
by the utilization rate in the previous period will continue to be the same in the future.
Then, if the utilization rate is 100%, he will maintain the capital accumulation rate
from the previous period; if it is more than 100%, he will raise the rate compared
to the previous period, and if it is below 100%, he will reduce it. It is formulated as
follows:
It It−1
= + F(δt−1 )
Kt K t−1
F(1) = 0, F > 0
He increases or decreases the capital accumulation rate corresponding to the

utilization rate in the previous period.
Fourthly, just because the utilization rate was high, does a capitalist increase the
capital accumulation rate? Again, we have to remind ourselves that he does not simply
aim to satisfy production or demand, but hopes to maximize profit. A high utilization
rate in the previous period means that there was large demand for the commodity.
As repeatedly emphasized, he does not increase production or the utilization rate
just because there is demand. He must have decided to increase the utilization rate
because there was an incentive that would satisfy his pursuit of profit. Or, as the
result of price increase, it enables a capitalist to resume operation that is suspended
so far. In Sect. 2.4 we argued that the level of production in each sector determined
by a capitalist was an increasing function of the realized profit rate of that sector
as the first approximation. If we apply the same logic to the current argument, the
utilization rate of each sector is the increasing function of each sector’s profit rate r .
Therefore, the capitalist’s behavior toward accumulation demand can be shown as
follows:
It It−1
= + F(δt−1 (rt−1 )), δ > 0 (4.7)
Kt K t−1
Thus, the determination of the capital accumulation rate with a focus on the utilization
rate implies the determination of the capital accumulation rate with a focus on the
profit rate.
We have examined how a capitalist makes a decision on the size of the accumu-
lation demand. Now let us examine the problem of the fund to finance accumulation
demand. It is obvious that if we presume that the maximum amount of the fund
available for the current period is Ft , the accumulation demand is It and the current
price of the production goods is pt . Therefore, there we get this constraint:
Ft ≥ pt It
Then, if It determined by (4.7) is greater than this constraint, it needs to be reduced.

However, the opposite does not hold true. No matter how large Ft is, if It determined
by (4.7) is smaller, the actual accumulation demand is determined by (4.7) and it is
not related to Ft .
What kind of factors determines the upper limit of fund, Ft ? Is it not limited
by the amount of money that a capitalist has at hand? The purchase of production
goods does not require cash payments. A capitalist is able to pay for the additional
production goods with credit. This is why we need to examine the ceiling of credit to
understand the upper limit Ft . Here, the problem is not necessarily the upper limit for
loans from banks and other financial institutions. This is because capitalists can offer
each other credit. What determines the ceilings of the credits the capitalists offer each
other? It depends on the way how each capitalist’s commodities are realized. When
a capitalist makes an accumulation demand with credit, if he is able to realize the
sales of his commodities in the following period and to receive the amount of sales,
he will be able to repay his credit. Therefore, when the sales or the realization of
commodities are going well, the accumulation demand with the mutual transaction
of credit among capitalists can be expanded to any level. We can find a cyclical
relation here. If capitalists can maintain the accumulation demand in an appropriate
size with credit, they are spared the collapse of credit.
In this way, the ceiling of credit is dependent on the realization of commodities,
i.e., the state of the aggregate demand, and the aggregate demand is determined by
capitalists’ accumulation demand. It means that the ceiling of credit depends on the
accumulation demand itself.
Here again, the accumulation demand is an independent variable. The upper limit
of fund will be raised when extended reproduction is deviating to the direction of
excess demand.
Some argue that the upper limit of funds prevents the accumulation demand from
increasing and it triggers the stagnation of accumulation demand, which first leads
to lower aggregate demand, and then to overproduction. However, this is wrong. The
beginning of overproduction does suspend the increase in the upper limit of funding,
leading to a contraction and the collapse of credit. The suppression of accumulation
demand by the credit contraction is a phenomenon during the downward process that
has already started. It does not trigger general overproduction.7
4.1.4 Cumulative Process of Disequilibrium
Whether commodities are realized in the current period depends on the relative rela-
tion between the current states of production capacity of each sector, and on demand
for each commodity. However, the state of production capacity in this period depends
7 Tougan-Baranowsky [42, p. 272].

on the production capacity in the previous period, including its level of accumula-
tion demand as Fig. 4.2 shows; it may also depend on durable production goods
in the prior periods but we abstract them away for the sake of simplicity. It means
that the additional demand for the production goods in the previous period increases
the current production capacity compared to the previous one; it may increase the
production capacity in the later period with the long gestation period of production.
However, we assume that the gestation period is one period to keep the analysis
simple.
On the other hand, the state of demand for the commodities in the current period
depends on the level of the accumulation demand in the current period as seen in
Sect. 4.1.2 and in Fig. 4.3.
However, as seen in Sect. 4.1.3, the current period’s accumulation demand depends
on the utilization rate and the capital accumulation rate in the previous period.
The previous period’s utilization rate depends on the previous period’s produc-
tion capacity and the state of previous period’s demand, and the previous period’s
capital accumulation rate depends on the previous period’s production capacity and
the previous period’s accumulation demand. Therefore, in this sequel, the current
period’s accumulation demand depends on the previous period’s production capacity,
the state of previous period’s demand, and the previous period’s accumulation
demand as shown in Fig. 4.4.
Then, the state of the previous period’s demand depends on the previous period’s
accumulation demand as in Fig. 4.5, as the state of the current period’s demand does,
according to the reason mentioned in Sect. 4.1.2.
Let us combine these relationships in Fig. 4.6.
We can take into consideration the following definitions:
Accumulation demand
in period t-1
Production capacity Production capacity

in period t-1 in period t
Fig. 4.2 Determination of production capacity

demand in period t State of demand
in period t
Accumulation demand
in period t
State of demand
in period t-1
Accumulation demand Accumulation demand

Production capacity
in period t-1
Fig. 4.4 Determination of accumulation demand

demand in period t − 1 State of demand
in period t-1
Accumulation demand
in period t-1
State of demand State of demand

Accumulation demand Accumulation demand

Production capacity Production capacity

Fig. 4.6 Overall determination
Accumulation demand
Capital accumulation rate =
Production capacity
State of demand
Utilization rate =
Production capacity
The diagram can be rewritten as Fig. 4.7.

As we can tell from the above, the current utilization rates depend on the current
capital accumulation rate, and per contra, the capital accumulation rate in the next
Rate of utilization Rate of utilization

Rate of accumulation Rate of accumulation

Fig. 4.7 Determination of utilization rate and accumulation rate
period depends on the current utilization rate. Let us examine it further. When capi-
talists in both sectors utilize their production goods K 1 and K 2 normally, the amount
of production, i.e., normal production capacity, is as follows:
K 1t Kt
x1t∗ = , x2t∗ = 2
a1 a2
Denoting both sector’s utilization rate, i.e., the ratio of actual production level to
normal production capacity, δ1 and δ2 , we get
δ1t x1t∗ = x1t , δ2t x2t∗ = x2t
Thus, the utilization rate determined by both sectors’ supply and demand satisfies
the relationship
δ1t x1t∗ = a1 δ1t x1t∗ + a2 δ2t x2t∗ + I1t + I2t

(4.8)
δ2t x2t∗ = R t τ1 δ1t x1t∗ + τ2 δ2t x2t∗ + C1t + C2t
Let us assume the following, as highlighted in Chaps. 2 and 3:

I1t + I2t = μ C1t + C2t
Further, let us denote
I1t I2t K 1t
g1t ≡ , g2
t
≡ , k t
≡ (4.9)
K 1t K 2t K 2t
Then, (4.8) can be rewritten as
δ k = δ1t k t + δ2t + g1t k t + g2t

1 t t
a1 1 (4.10)
t τ1 t t τ2 t
δ
1 t
a2 2
= R δ
a1 1
k + δ
a2 2
+ μ1 g1t k t + g2t
Moreover, if we assume capitalists’ supply behavior in each sector mentioned in

Sect. 2.4.2.1, i.e., their behavior toward decision-making regarding the utilization
rate, the following equations hold:

δ1t = δ1 R1t , δ2t = δ2 R1t , R t (4.11)
R1 and R represent the real wage rates measured in terms of production goods
and consumption goods, respectively. As discussed in Sect. 2.4.2.1, the following
inequalities hold:
∂δ2 ∂δ2
δ1 < 0, > 0, <0
∂ R1 ∂R
Now, in (4.10) and (4.11), when the sector ratio of the existing amount of produc-
tion goods k, production technologies (a1 , τ1 ) and (a2 , τ2 ), ratio of capitalists’ expen-
ditures μ, and the capital accumulation rates in both sectors g1 and g2 are given, the
utilization rates in both sectors δ1 and δ2 , and the real wage rates measured in terms
of the production goods and the consumption goods R1 and R, are determined. We
are carrying an argument assuming production technologies and ratio of capitalists’
expenditures as given. The sector ratio of the existing amount of production goods
k = K 1 /K 2 is given as the result of capitalists’ activities in both sectors in the
previous period. Therefore, the capital accumulation rate g1 and g2 determines the
utilization rate δ1 and δ2 .
4.1.4.1 Conditions of Normal Operation in Both Sectors
Let us find the condition that the utilization rates in both sectors are equal to 1, and
both sectors are able to implement normal operation. If we substitute δ1 and δ2 in
(4.10) with
δ1 = δ2 = 1,
then we obtain
a1 (1 − Rτ2 )μ + a2
k= (4.12)
a2 μRτ1 + 1 − a1
R on the right-hand side satisfies δ1 (R1 ) = 1 and δ2 (R1 , R) = 1. In order for both
sectors to implement normal operation, the relative share of sectors of the existing
amount of production goods k cannot take an arbitrary value, but it must satisfy
(4.12). You may predict that this ratio of sectors is practically the same as the ratio of
sectors λ in a steady expanded reproduction path which we obtained in Sect. 3.4.1.
These two ratios, k and λ, satisfy the following relationship,
a1
k= λ (4.13)
a2
Here, readers should note that λ is the sector ratio of production amounts and k is
that of the existing amount of production goods.
From the definitions of k, g1 and g2 , we get:
1 + g1t t
k t+1 = k (4.14)
1 + g2t
In order for the sector ratio k to satisfy (4.12) in every period, the following equation
must hold:
g1t = g2t (4.15)
If we denote the above accumulation rate as g ∗ and calculate it from (4.10), the
following equation can be obtained:
(1 − Rt2 )μ(1 − a1 )
g∗ = (4.16)
{(1 − Rτ2 )a1 + Rτ1 a2 }μ + a2
Again, this equals the capital accumulation rate in a steady expanded reproduction
path. In order for both sectors to continue normal operation, the capital accumulation
rate determined by (4.16) must be maintained in every period.
4.1.4.2 Capital Accumulation Rate and Utilization Rate
When the sector ratio k and production technologies (ai , τi ) are given, if the capital
accumulation rates g1 or g2 change in either sector, how does it influence the
utilization rates in both sectors? We can show the utilization rates as follows from
(4.10)
{(1−Rτ2 )μ+a2 }(g1 k+g2 )
δ1 = a2
{(1−a1 )+Rτ1 μ}(g1 k+g2 ) (4.17)
δ2 = a1
Here, stands for the following,
kμ
≡ {(1 − a1 )(1 − Rτ2 ) − Rτ1 a2 }
a1 a2
Based on the surplus condition, it can be shown that > 0.

Now, as g1 or g2 increases, we can tell from (4.17) that, if the real wage rate R is
constant, δ1 and δ2 increase at the same rate. However, when g1 or g2 increase, we
cannot consider the real wage rate R to be constant. As we can tell from Sect. 2.4.3,
R falls when g1 or g2 increase; we can also derive this through calculations with
(4.10) and (4.11). Then, how do δ1 and δ2 change?
Compared to the case where R is assumed constant, the rates of increase in both
sectors’ utilization rates δ1 and δ2 are smaller. It is because what was multiplied
to g1 k + g2 in the right-hand sides of two equations (4.17) are both increasing
function of R. The increase in g1 or g2 is caused by the increase in the accumulation

demand, but as this is accompanied with the decrease in R, the real wage rate in
terms of consumption goods, the laborers’ consumption, is suppressed. As a result,
the demand for both sectors is compressed compared to the constant R case, which
results in a lower increase in the utilization rates.
However, even taking into account R decreases as g1 or g2 increases, the utilization
rate of the production goods sector δ1 definitely increases. Again, as examined in
Sect. 2.4.3, when accumulation demand increases, the real wage rate measured in
terms of the production goods R1 falls so that δ1 increases from (4.11).
It is not easy to understand what happens to the utilization rate of the consumption
goods sector δ2 when g1 or g2 increases. As examined in Sect. 2.4.3, as accumulation
demand increases, the real wage rates measured in terms of both production goods
and consumption goods R1 and R fall. Hence, the profit rate and the utilization rate
of the consumption goods sector can either increase or decrease.
4.1.4.3 Utilization Rate and Capital Accumulation Rate
As examined in Sect. 4.1.3, as a first approximation, we can formalize the decision-

making behavior of both sectors’ capitalists toward the capital accumulation rate as
follows:

g1t+1 = g1t + F δ1t
, F(1) = 0, F > 0 (4.18)
g2t+1 = g2t + F δ2t
It means, if the utilization rate in the period t is normal, the capital accumulation rate
is kept constant in the period t + 1, and if in the period t the utilization rate is greater
(or less) than normal, in the period t + 1, the capital accumulation rate will increase
(or decrease) compared to period t.
4.1.4.4 Steady Extended Reproduction
The motion of seven economic variables—both sectors’ utilization rates, capital

accumulation rates, the sector ratio, and the real wage rates in terms of production
goods and consumption goods (δ1 , δ2 , g1 , g2 , k, R1 , R)—are determined by the seven
equations of (4.10), (4.11), (4.14), and (4.18).
In case that the sector ratio in the initial period satisfies (4.12) and the level of
each sector’s capital accumulation rate satisfies (4.16), both sectors’ utilization rates
are normal from (4.10). As both sectors’ capital accumulation rates are the same,
according to (4.14), the sector ratio will not change in the next period. Moreover,
according to (4.18) that shows capitalists’ behavior toward accumulation, the capital
accumulation rate will not change in the next period either. Therefore, both sectors
will keep the normal utilization in the next period. In the same way, production goods
will be utilized normally in both sectors in each future period and production will
match demand. This is nothing but the steady extended reproduction trajectory that
we examined in Sect. 3.4.1.
4.1.4.5 Cumulative Disequilibrium
Suppose that the sector ratio in the initial period is given by (4.12) but that for some
reason, whose detail we can disregard at this moment, the accumulation rate in either
production goods sector or consumption goods sector becomes higher than the level
determined by (4.16). Then, from (4.10) and (4.11), the real wage rates in terms of the
production goods and the consumption goods fall together, and the utilization rates of
both sectors increase, which means excess utilization beyond normal. Let us proceed
without the case we already examined (that the utilization rate of consumption goods
sector may decrease). Then, from (4.18), the capital accumulation rate will become
even higher in the next period. Thus, the utilization rate in the next period will increase
even more, and the real wage rate will fall. In the same way, once a disequilibrium
(excess utilization in the above example) arises, it will not resolve itself but cumulate
more and more.
The above is the outline of proof that upward disequilibrium is cumulative. Please
refer to Mathematical Appendix at the end of this chapter for more accurate proof
of cumulative disequilibrium. In the same way, we can show that downward dise-
quilibrium is cumulative. Overproduction in both sectors arises and the utilization
rates drop, which leads to a decrease in capital accumulation rates, then to further
decrease in utilization rates, and the process continues. In this way, the cumulative
disequilibrium process will progress.
4.1.4.6 Capitalist System and Cumulativeness of Disequilibrium
Let us summarize the reasoning behind the cumulativeness of disequilibrium in a

capitalist system from its foundation. It is as follows:
(a) The capitalist society is an exploitation society based on commodity produc-
tion. If not, the product would not be commodities; hence, the realization
problem itself would not exist at all, let alone disequilibrium regarding the
commodity realization would not exist.
(b) In a capitalist system, the laborers are exploited, and their consumption demand
is restricted. If not, the difficulty of commodity realization would not exist, and
capitalists’ accumulation demand would not be a dominant factor to determine
the aggregate demand. In the case, it would not lead to a disequilibrium in
the aggregate demand in the face of the deviation of capitalists’ accumulation
demand from equilibrium.
(c) In a capitalist system, capitalists make decisions anarchically pursuing their
private profits. If not, even though the laborers’ consumption demand is
restricted, the quantity and direction of capitalists’ accumulation demand could
Capitalist Commodity
Production
(Exploitation based on
commodity production)
Restriction on
Anarchy of Production
Laborers’ Consumption
Disequilibrium and its

Cumulativeness
Fig. 4.8 Reasoning behind the cumulativeness of disequilibrium
be determined so that commodities would be realized smoothly, and that

additional production goods would be divided into production and consump-
tion goods sectors appropriately. Doing so, the difficulty of commodity real-
ization would be avoided. Even if a disequilibrium occurs, accumulation
demand moves in a direction toward equilibrium and the cumulativeness of
disequilibrium would not arise.
Thus, the reasoning behind the emergence of disequilibrium over realization in a
capitalist system and its cumulativeness comes from above three points. However,
as one can tell immediately, these three points are not paratactic, but (b) and (c) are
derived inevitably from (a). (a) comes from the fundamental contradiction of the
capitalist system, which is a contradiction of productive force and production rela-
tions in a capitalist system. Figure 4.8 sums the gist. In a nutshell, the cumulativeness
of disequilibrium arises from a fundamental contradiction of a capitalist system.
Additional Note: R. F. Harrod’s Instability Theory
Let us briefly comment on Harrod, who discussed the “instability of steady growth”,
which we examined as cumulativeness of disequilibrium in Sect. 4.1.8 He insisted
that when the economy deviates from “steady growth” in which production capacity
keeps the regular operation in every period, a cumulative and monotonic divergent
movement arises. His discussion captures one of the most important characters of
the capitalist economy, and in that sense, the author evaluates that this research by
Harrod is one of a few achievements in bourgeois economics after Keynes’ General
Theory of Unemployment, Interest and Money. However, there are some flaws in his
theory. As we have examined, cumulativeness of disequilibrium arises because of
the following two factors. Factor (1) is the capitalists’ specific behavior of decision-
making on the accumulation demand, i.e., new investment demand. Factor (2) is
the amplified fluctuation in the aggregate demand and production level in the same
direction of fluctuation in the accumulation demand. In fact, let us think of the
downward cumulative process, for instance: a decrease in the utilization rate leads to
8 See Harrod [44]. Regarding Harrod’s instability theory, refer Okishio [51].
a fall in the capital accumulation rate, leading to a further decrease in the utilization
rate. The first step, where a decrease in the utilization rate leads to a fall in the capital
accumulation rate, is caused by factor (1), and the second step, where the fall in
capital accumulation rate lead to a further decrease in the utilization rate, is caused
by the factor (2). However, Harrods did not clearly recognize that capitalists’ specific
behavior of decision-making on accumulation demand is among the causes of the
cumulative process. Additionally, as we commented in Sect. 4.1.2 on Keynes, Harrod
also did not understand that factor (2), showing that a decrease in accumulation
demand leads to a significant contraction of the aggregate demand and the aggregate
production, is based on capitalist production relations.
Both causes of cumulating disequilibrium, the factors (1) and (2), have their
root in the ownership form of means of production in the capitalist system. As a
result of ownership of means of production by capitalists, decisions on accumula-
tion demand and utilization rate are made exclusively by them. They make decisions
privately upon their pursuit of profits. As a result, they adjust the capital accumu-
lation rate responding to the market condition; this generates factor (1). Even if
demand increases with a higher real wage rate, despite a decrease in accumulation
demand, capitalists will not raise the utilization rate because of a lower profit rate;
this generates factor (2). Thus, in a capitalist economy, disequilibrium cumulates
monotonically; however, at least in order to extend reproduction, there must be a
turnover of this monotonic and cumulative process in the disequilibrium. It can be
traced back to the fundamental character of a capitalist society. Harrod, as a bourgeois
economist, would not see this point.
4.2 Theories on Economic Crisis
To date, many arguments have been brought up and controverted on why a sudden
general overproduction arises, followed by contracted reproduction in the capitalist
economy. Let us examine some major arguments and highlight the problematic points
in these arguments. Here, we will not mention the views already examined in Sect. 3.2.
One is by Ricardo and Say, who claim that general overproduction does not arise, in
principle, in the capitalist system. Another is the view of Malthus, Sismondi and Rosa
Luxemburg, who argue that with the capitalist system alone, the economy always
ought to be in a state of general overproduction and that extended reproduction is
impossible. We will not mention the bourgeois theories either, as they do not inves-
tigate the cause of economic crisis deeply in relation to the fundamental production
relation of the capitalist system, but regard it in phenomenal factors such as a decrease
in incentives to invest, shortage of money for lending, psychological error, durability
of production equipment, labor shortage, prolonged periods of gestation of produc-
tion, and low propensity to consume, among others. Those factors can be classified
into two groups. One is the group of factors that relate to the cause of the economic
crisis and which can be found rooted in the fundamental production relation of the
capitalist system if we delve into the grounds of their emergence. They are a decrease
in incentives to invest, low propensity to consume, shortage of money for lending,

and psychological error, among others. The other one is a group of those factors
that themselves have nothing to do with the cause of economic crisis but which are
related to economic crisis under the capitalistic production relation. They are, for
example, the durability of production equipment, prolonged periods of gestation of
production, and limits of the labor force. Both groups of factors only become worth
considering theoretically when we proceed to delve into the capitalistic production
relations. Therefore, first of all, we need to examine the arguments that attempt such
investigations, as proposed by Marxist economists.
We examine the following two theories: (1) a theory that claims the inevitability of
economic crisis, focusing on underconsumption by the labor class, and (2) a theory
that claims the inevitability of economic crisis, focusing on a decrease in the rate of
profit that the capitalist class realizes. Both try to explain economic crisis on the basis
of production relations in a capitalist society. That is, capitalists own the means of
production and, as a result, they exploit laborers based on this ownership. This causes
underconsumption by the labor class. On the other hand, capitalists make decisions
on production, based on profit. Hence, the state of profit determines the production
level. Both are fundamental matters of the capitalist system, which are rooted in the
production relation of the capitalist society.
4.2.1 Underconsumption Theory
In the capitalist system, the labor class is exploited, and the real wage rate for them is
lower than labor productivity. Otherwise, no profit would be yielded. As a result, the
level of consumption demand by the labor class is limited. Capitalists cannot help but
give themselves up to accumulation. Hence, their consumption demand is limited
despite its affordability. Some authors argued that given these affairs, the market
for commodities is limited in the capitalist system, so that general overproduction
becomes a regular state. Extended reproduction is impossible unless some third party
makes consumption expenditure. We already examined this theory in Sect. 3.2 and
concluded that it is incorrect. The most serious flaw of this theory lies in that it
overlooks the fact that demand for commodities is not only for consumption goods
but that capitalists also make additional demand for production goods when they carry
out accumulation. Therefore, despite the limits on demand for consumption goods,
if demand for accumulation is on a high level, extended reproduction is possible,
and sales of commodities are realized by increasing the ratio of the production goods
sector. Marx proved this with the reproduction scheme and Lenin’s criticism of the
Narodniks was also to point this out [27, 50].
Today, those who try to explain economic crisis by focusing on underconsump-
tion by the labor class do not advocate the impossibility theory of accumulation
as described above. What do they advocate instead? One of the most naïve is as
follows: in spite of the limits on consumption demand by the labor class, if accumu-
lation demand by the capitalist class is at a high level, commodities are realized in
4.2 Theories on Economic Crisis 199
the market, and even excess demand may arise.9 However, this process cannot last.
The reason is as follows: accumulation demand is additional demand for produc-
tion goods. Therefore, when they are purchased and must be utilized as production
capacity, the limitation of consumption of the labor class deters the utilization of this
increased production capacity. If it is to be utilized, it is impossible for all or part of
the commodities produced to find their market.
The underconsumption theory stated above immediately faces a counterargument.
This theory claims that when additional production capacity starts to be utilized, over-
production arises right away because of the underconsumption among laborers. This
theory cannot explain the upward process of the business cycle that lasts long to a
certain extent, which we often observe in reality in a capitalist society. If the above
naïve argument were to be correct, the capitalist system might avoid overproduc-
tion, at least initially, due to capitalists’ accumulation demand, despite the limitation
of laborers’ consumption. However, it would fall into overproduction as soon as
additional production goods that are purchased for accumulation demand start to
be utilized as production capacity. Therefore, it is almost the same as the classical
impossibility theory of accumulation.
In order to respond against counterarguments like this, the underconsumption
theory introduces the following factor: when accumulation demand is made, it
requires a reasonably long period of gestation until the additional production goods
start to be utilized as production capacity. The accumulation demand is made consec-
utively throughout this period. Therefore, the market is in excess demand in spite
of the limitation of consumption by the laborers. As a result, other capitalists also
make accumulation demand to enhance production. Thus, the accumulation demand
leads to excess demand; the excess demand then leads to an increase in accumula-
tion demand, and the increase in accumulation demand leads to an increase in excess
demand. This process may last for a relatively long time. Yet, it cannot last forever. The
enormous production capacity enhanced through this cumulative increase in accu-
mulation demand eventually ends up colliding against the market that is restricted
by the limitation of consumption by the laborer, and general overproduction arises
Hayashi [45, pp. 238–239].
While such a complex underconsumption theory was capable of explaining the
continuation of the upward process in the business cycle, the only explanation they
offer for its “unsustainability” was just that it ends up “colliding against the market
restricted by underconsumption”. It is not clear why it does end, eventually.
They might adopt the following theory: as the result of a downturn in capitalists’
accumulation demand, the aggregate demand and the aggregate production decrease;
consequently, the amount of employment and the amount of real wage paid decrease,
and overproduction in the consumption sector arises due to a decrease in demand for
consumption goods. This theory explains neither the inevitability of economic crisis,
nor its timing. It is true that the downturn in accumulation demand causes a decrease
in consumption demand and generates overproduction in the consumption goods
sector. However, this theory does not explain at all why and how the downturn in
9 Such views are voiced by Sweezy [39, Chap. 10, Sect. 2, pp. 162–189].
Increase in accumulation
demand
Increase in production
Downturn in laborers’
capacity in consumption
consumption demand
goods sector
Overproduction in
consumption goods sector
Downturn in accumulation
demand
General overproduction
Fig. 4.9 Underconsumption theory
accumulation demand arises. Revealing why accumulation demand turns downward

is the question to be answered by any crisis theories.
In order for underconsumption theory to explain the downturn in accumulation
demand, not to premise it, the logic ought to be as follows: even if, or because,
capitalists’ accumulation demand is at a high level, a collision between extended
production capacity in the consumption goods sector and the laborers’ demand for
consumption goods causes overproduction in the consumption goods sector and due
to this, downturn in accumulation demand and overproduction in the production
goods sector arise. This can be shown in Fig. 4.9.
Two problems arise regarding this argument: (1) Can we always allege that the
laborers’ demand for consumption decreases, despite the enhancement of production
capacity in the consumption goods sector when there is an increase in the capitalists’
accumulation demand? (2) When overproduction arises in the consumption goods
sector, accumulation demand for the consumption goods sector may decrease, but
can we allege that accumulation demand for the production goods sector always
decreases? These two problems are related to the necessity of relations highlighted
with the white arrows in Fig. 4.9.
4.2.1.1 Accumulation Demand Increase and Laborers’ Consumption
When there is a massive increase in labor productivity, laborers’ consumption

demand may decrease although accumulation demand increases. As a matter of fact,
considering relations,
Laborers’ consumption demand = Real wage rate × Amount of employment

,
Amount of employment = Production level/Labor productivity
due to accumulation demand increase, even the aggregate demand, hence the aggre-
gate production level increases, if labor productivity grows sufficiently more than
their growth rates, amount of employment cannot increase but it can even decrease.
Consequently, the laborers’ consumption demand may decrease.
Additionally, in case that labor productivity, i.e., production technology, does not
change, as examined in Sect. 2.4.3, even though an increase in capitalists’ accumu-
lation demand hikes production of production goods without fail, it does not always
hike production of consumption goods, but it may decrease. Therefore, as the result
of accumulation demand increase, the real wage rate falls; laborers’ consumption
demand may experience a downturn, and production of consumption goods may
decrease. There is a possibility that the utilization rate of production capacity in the
consumption goods sector decreases and idle capacity arises. It can be explained as
follows:
Resulting from capitalists’ increased accumulation demand for production goods,
the production goods sector experiences excess demand, and the price of production
goods increases more than the money wage rate. Consequently, the profit rate of the
production goods sector increases and the utilization rate of the production goods
sector is lifted to the level of excess operation. The total amount of wage for laborers
in the production goods sector also increases.
On the other hand, the profit rate of the consumption goods sector decreases due
to increased prices for production goods, unless the price of consumption goods
changes. When the utilization rate of consumption goods sector is lowered, excess
demand in the consumption goods sector arises. The price of consumption goods
increases compared with the money wage rate, and the real wage rate falls. However,
there is no necessity for the profit rate of the consumption goods sector to increase
above the previous level. Even if the price of consumption goods increases higher
than the money wage rate, the profit rate may remain below the previous level because
the price of production goods increases more than the money wage rate. Its increase
rate is higher than that of the consumption goods price. In this case, the utilization
rate of the consumption goods sector is lowered and there might be idle capacity.
Demand for consumption goods decreases as the result of the falling real wage rate,
despite the employment increase in the production goods sector. The same story
applies to the aggregate employment. As the result of the accumulation demand
increase, the profit rate in the consumption goods sector decreases. Despite the real
wage rate decrease, the employment in the consumption goods sector is contracted,
and the aggregate employment may decrease regardless of the employment increase
in the production goods sector.
These are just possibilities, and such a development is not always given. Due to the
decrease in employment by a significant increase in labor productivity in the upward
process of the business cycle, such an increase in labor productivity is highly unlikely
to happen. Even in the upward process, it is possible that new production technology
with high labor productivity is introduced. However, in the upward process, produc-
tion using new technology is only implemented additionally, and the labor demand
for the production using new technology is added to the employment using old tech-
nologies. Thus, even if the new technology requires little labor for production, the
amount of labor demand does not decrease but remains the same level. In order for
labor demand not to increase despite the production level increases, old technologies
must be discarded. At the same time, in the upward process, capitalists who have
inferior technologies can also continue profitable operation. Therefore, it is unlikely
that employment decreases through a labor productivity increase. This might be more
realistic if the capitalist economy enters the stage of monopolistic capitalism.
As we can understand if we look back at the argument in Sect. 2.4.3, it is only a
possibility that an increase in accumulation demand decreases the labor employment
and consumption goods demand. It does not necessarily happen. As a result of the
increase in accumulation demand, demand for both the production goods sector and
the consumption goods sector increases, which it is highly likely to lift the utilization
rate of the consumption goods sector.
Production relation of the capitalist society inevitably poses consumption restric-
tion on the labor class. Capitalists always exploit the labor class and the real wage rate
is always lower than the labor productivity of consumption goods. This, however,
does not mean that the labor class’ consumption demand (or its amount of increase)
is always lower than consumption goods sector’s production capacity (or its amount
of increase). Even when the real wage rate is comparatively low, i.e., the exploita-
tion rate is relatively high, and consumption of the labor class is hugely restricted,
the consumption demand of the labor class can exceed consumption goods sector’s
productivity. In this case, the sector ratio of production is extremely biased towards
the production goods sector, and surplus products in the form of a massive amount of
production goods are produced by surplus labor, which is exploited from the laborer.
4.2.1.2 Overproduction in Consumption Goods Sector

and Accumulation Demand
Is there always overproduction in the production goods sector when there is over-
production in the consumption goods sector, and is it is necessary to halt the accu-
mulation demand increase in the production goods sector? This is the big question.
Let us assume that, despite the current period’s accumulation demand increases in
both sectors compared to the previous period, overproduction in the consumption
goods sector arises by the laborers’ consumption restriction. The current period’s
production goods sector is to be in the state of excess demand. This means that for
certain periods, until the previous economy was in an upward process, we ought to
assume that it is consecutively in the state of excess demand. Thus, capitalists’ accu-
mulation demand in the current period should exceed the previous period demand, as
they recognized the previous period’s economic state favorable. Therefore, the level
of the current period’s demand for production goods is high. What happens in the
next period, though? As a result of overproduction in the consumption goods sector
in the current period, accumulation demand for the consumption goods sector will
decrease in the next period. What about the accumulation demand for production
goods sector? When the accumulation demand for production goods sector is deter-
mined based only on the information of the market condition in the production goods
sector, the accumulation demand for the production goods sector in the next period
will increase even more than in the current period. This is because the production
goods sector is in the state of excess demand in the current period. When capital-
ists determine the accumulation demand for the production goods sector based on
the market condition of both production and consumption goods sectors, the accu-
mulation demand for the production goods sector may decrease in the next period.
When the accumulation demand for production goods sector in the next period also
decreases, both the production goods sector and the consumption goods sector will
descend into overproduction, ending in general overproduction.
This development, however, is not inevitable. Let us reexamine the scale of accu-
mulation demand by the production goods sector in the next period. Since the produc-
tion goods sector is premised to be in the state of excess demand in the current period,
accumulation demand by this sector is highly likely to increase in the next period.
When capitalists in the production goods sector determine the accumulation demand
taking into account the overproduction of the consumption goods sector, we cannot
say there is no possibility that accumulation demand increases. It is because that
despite the downturn of the consumption goods sector, the accumulation demand is
determined after balancing against the state of the production goods sector. Now,
let us examine the case in which the accumulation demand by the production goods
sector increases in the next period. Since the accumulation demand by the consump-
tion goods sector is decreasing, it is not clear if the total amount of accumulation
demand increases in the next period, which sums up both sectors’ accumulation
demand. It means that despite the decrease in accumulation demand by the consump-
tion goods sector, the possibility for the total amount of accumulation demand to
increase is undeniable. It is especially true when the accumulation demand by the
production goods sector outweighs that of the consumption goods sector.
As we can tell from the above, this type of the underconsumption theory argues
that general overproduction triggers an economic crisis through the following causa-
tion process: consumption restriction of the laborers leads to overproduction in the
consumption goods sector, triggering a decrease in accumulation demand which then
leads to general overproduction. It is not correct to insist that economic crisis always
begins in this way, but it is correct to state that it is a possible case. If scholars
argue that such a process is inevitable, they are wrong. Therefore, this theory does
not demonstrate the inevitability of economic crisis, but merely reveals a possible
trigger for it (see also Sect. 4.3.2.1). Does this mean that the consumption restriction
of the laborers has nothing to do with the inevitability of economic crisis? It certainly
does not, but it is undeniable that they are essentially connected to each other in the
following two points.
4.2.1.3 Limits of the Laborers’ Consumption and Inevitability

of Economic Crisis
First point: The labor class is exploited, and its consumption is limited under these
circumstances. As a result, whether or not the total consumption of the labor class
increases, the sales of commodities cannot be realized, and general overproduction
is unavoidable as long as demand for commodities is the replacement demand for
exhausted production goods and the consumption demand of the labor class alone.
More specifically, as the result of capitalists’ exploitation, it holds that
Total value of commodities = Value of exhausted production goods

+ Wage + Profit.
However, if it is the case that
Aggregate demand = Value of exhausted production goods

+ Laborers’ consumption demand
it necessarily holds that
Total value of commodities > Aggregate demand,
since
Laborers’ consumption demand = Wage.
Therefore, it is impossible to sell commodities at a price that includes profits.

In the capitalist system, additional demand by capitalists is necessary for the
realization of sales of commodities. However, the private consumption of capitalists
is not a prime factor. Hence, in the end, the sales of commodities cannot be realized
without capitalists’ accumulation demand. Thereby, as examined in Sect. 4.1, the
production level and the aggregate demand in the capitalist system are determined
by the accumulation demand of capitalists.
Thus, whether or not the consumption of laborers increases, their consumption
demand is always insufficient (as they are exploited) for the realization of sales of
commodities, and hence the accumulation demand of capitalists acts as a determinant
of aggregate demand. The momentum of this accumulation demand generates the
business cycle and causes an economic crisis.
Keynes was aware that without the accumulation demand of capitalists, it is
impossible to realize the sales of commodities in the capitalist system. However,
he found the reason in the fact that the “propensity to consume” is smaller than
1.10 That is, people do not spend everything they earn, but save. Thus, the demand
10 Keynes [11, Chap. 8, p. 96].

and supply of commodities cannot be equalized by the consumption demand alone,

and demand is necessarily short of supply. Keynes then argues that the accumula-
tion demand of capitalists (new investment demand) is necessary to make up for it.
The accumulation demand of capitalists is an indispensable factor for the realization
of commodity sales, not because people tend to save, but basically because of the
laborers’ underconsumption.
Economic crisis is implicitly embedded in affairs for which the accumulation
demand acts as the determinant of the aggregate demand. The market cannot be
enlarged without significant accumulation demand. However, this massive accumu-
lation demand results in an extended production capacity. Therefore, solving market
problems through accumulation demand will cause more profound problems in the
successive periods. Solving these by further increasing accumulation demand, the
upward process can be continued. Nevertheless, once the increase in accumulation
demand turns infeasible, economic crisis becomes a reality.
If there is no underconsumption by the laborers, there is no economic crisis.
However, this means that it is not a capitalist system. Due to the underconsumption
of the laborers, the accumulation demand, which has a relatively unstable momentum,
acts as determinant of the aggregate demand and the production level, causing an
economic crisis.
Second point: As explained in Sect. 4.1, when the accumulation demand decreases,
general overproduction is caused and expands cumulatively. This has a fundamental
relationship with the fact of underconsumption among the laborers. The downward
cumulative process is shown in Fig. 4.10.
Underconsumption among laborers causes arrow A (or C), and a decrease in
accumulation demand causes overproduction. Even if the accumulation demand of
the capitalist decreases, when it is guaranteed that the consumption of the laborers
increases to offset it, the decrease in the accumulation demand never causes a decrease
in the aggregate demand, therefore never causing overproduction. Moreover, even
if overproduction arises at some point, it will not cumulate, so that the equilib-
rium recovers soon. However, in the capitalist system, as examined previously, an
increase in the accumulation demand may not increase the consumption demand
of the laborers, but decreases in the accumulation demand always decrease the
Fig. 4.10 Downward

cumulative process Decrease in accumulation demand
Overproduction
Further decrease in accumulation demand
More serious overproduction

consumption demand of the laborers. Therefore, the process shown by arrow A

must arise.
Thus, underconsumption among laborers is a necessary condition for the rise of
economic crisis. Marx proposed that “[t]he ultimate reason for all real crises always
remains the poverty and restricted consumption of the masses as opposed to the drive
of capitalist production to develop the productive forces as though only the absolute
consuming power of society constituted their limit.”11
4.2.2 Theory of Declining Profit Rate Due to Real Wage Rate

Increase
In the capitalist system, capitalists own the means of production and make decisions
on production. These decisions are based on the pursuit of profits. When the profit
rate falls to an unsatisfactory level, they decrease the accumulation demand and also
decrease utilization of production capacity and levels of employment. Consequently,
a decrease in accumulation demand first leads to general overproduction and then to
the start of a downward cumulative process. Therefore, several authors propose crisis
theories, insisting that crisis is inevitable because the profit rate eventually falls. Let
us examine this argument.
The argument that derives decline in the rate of profit from general overproduction
would not be a problem. More specifically, while general overproduction always
causes a decline in the rate of profit, the question posed is why general overproduction
occurs and whether it is triggered by the decline in the rate of profit, which leads
to a decrease in accumulation demand. Therefore, discussing the decline in the rate
of profit premised on general overproduction is fruitless. It is only helpful for the
argument as it explains the downward cumulative process of a disequilibrium that
has already started: general overproduction leads to a decrease in the profit rate,
which triggers a decrease in accumulation demand, resulting in the escalation of
overproduction. The underconsumption theory that we examined previously argues
that consumption restriction among the laborers causes partial overproduction in
the consumption goods sector, and then explains how the accumulation demand
decrease, triggered by a decline in the profit rate of the consumption goods sector,
leads to general overproduction. So far, no problem.
Several arguments try to explain the inevitability of the decline in profit rate due
to causes other than overproduction in either sector. One argument tries to explain
that the decrease in accumulation demand leads to general overproduction based on
the following ground: declines in exploitation and profit rates are caused by a real
wage rate increase, which is the inevitable result of the tightness of the labor market
during the boom.12 Let us examine this argument, but before going into detail, there
are a few things to mention.
11 Marx [33, Chap. 30, p. 347].

12 Hilferding [46, Chap. 17, p. 260] and Uno [54, pp. 81–84].
First and foremost, we argue that the following criticism often made against these
arguments is not reasonable. While economic crisis should be explained based on
the fundamental contradiction of a capitalist system, the above arguments belong
to an exogenous theory as it uses the restriction of labor supply that is external to a
capitalist system. However, this criticism is wrong. Labor power of the wage laborers
is the source of surplus labor and access to that is a matter of life or death to a capitalist
system. When it becomes unavailable, a relationship tolerable for capitalists between
production/accumulation and labor accessibility should be rebuilt in two ways, that
is, contraction of production or introduction of new production technology. This is
crucial for a capitalist system. Additionally, it is characteristic of a capitalist system
that capitalists decrease accumulation demand as the result of a profit rate decrease.
These are the outcome of capitalist production relations.
Those who argue that economic crisis is caused by an increase in real wage
rate through a profit rate decrease fail to understand that the decrease in accumu-
lation demand should be an intermediary between the decrease in profit rate and
economic crisis, and cannot explain well why a decrease in accumulation demand
triggers general overproduction (and often enhances it). Consequently, they could
not make clear that the consumption restriction of the laborers is the ultimate ground
of economic crisis as mentioned in Sect. 4.2.1. This is related to their claim that
the analysis of the reproduction scheme is unnecessary in the theory of economic
crisis. Accumulation demand plays a central role in realizing the capitalist system.
The movement of accumulation demand is an independent variable in the upward
disequilibrium cumulative process, economic crisis, and the downward cumulative
process. This cannot be understood scientifically without analyzing the reproduc-
tion scheme (Sect. 3.3). Advocates for this argument believe that the disturbance in
conditions determined by the reproduction scheme can be recovered by the compe-
tition among capitalists; however, as already examined in Sect. 4.1, it is not that
simple. Based on unstable movements of capitalists’ accumulation demand, a dise-
quilibrium arises, and its solution requires a form of business cycle accompanied by
economic crisis/reversal. Moreover, as we will discuss next, it is not well understood
that accumulation demand determines the state of commodity realization, with the
result that the movements of the exploitation rate and the real wage rate in the upward
cumulative process are misjudged.
Let us examine this argument, which proposes that when an industrial reserve army
is absorbed and the unemployment rate decreases, wage increases, and the profit rate
declines. The decline in profit rate decreases accumulation demand, causing general
overproduction. Several points are to be made.
First, they say that labor demand increases in an upward cumulative process. Some
critics highlight that even though the production level increases, labor demand may
not rise if labor productivity increases at a sufficient speed. Let us examine this possi-
bility. Against such criticism, those who advocate the wage rise theory try to defend
their argument by claiming that new technologies that raise the organic composition
of capital are not likely to be introduced in the upward process of business cycle.13
13 Uno [54, p. 66].

However, the author believes that both advocates and critics are wrong. First of all,
it is correct in abstracto that when labor productivity increases sufficiently, labor
demand may not be increasing but even decreasing despite an increase in produc-
tion level. However, we should thoroughly examine whether it does occur in an
upward process of the business cycle. New technologies that improve labor produc-
tivity considerably more than it can be introduced in an upward process as well. In
the downward process, capitalists are forced to introduce new technologies, but we
cannot say that there is no introduction of new technology in the upward process. It
is groundless to argue that there is old equipment already installed, or that capitalists
can do without introducing a new production process. In that point, the advocates’
arguments against critics are incorrect. In an upward process, new technologies that
have higher labor productivity can be introduced. However, in an upward process,
production capacity with newly introduced technologies is added to the production
capacities with existing technologies. This means production capacities increase,
which leads us to the following question: Even if old equipment keeps on being
utilized, and new technology with higher productivity is introduced in addition, the
labor demand cannot help but increase when the new equipment increases produc-
tion. In order for the labor demand to decrease, equipment with old technologies
must be discarded before fully depreciated, becoming replaced by new technologies.
However, this rarely happens in the upward process. Why is that? It relates to the
argument examined later; that is, the movement of real wage rate in the upward
process. For now, let us just say that the capitalists with inferior technologies can
keep operating with profit in the upward process.
Second point: In the case of a wage increase by the absorption of the industrial
reserve army, we should understand that it is referred to the real wage rate. It does
neither just refer to an increase in the total amount of wage paid, nor to a rise of
the money wage rate. When the amount of labor employment is increasing, the total
amount of wage can increase even when the wage rate is decreasing rather than
increasing. The increase in the total amount of wage paid does not necessarily mean
a decrease in the profit rate for capitalists. It matters how much they paid to the
laborers for a certain amount of labor, i.e., wage per unit of labor = wage rate. If
we look at an individual laborer, how much wage capitalists pay him for a day of
labor is not directly related to the exploitation rate. The exploitation rate is defined
as follows:
Working Time of a Day − Value of Wage Paid to Laborers
Value of Wage Paid to Laborers
So it becomes dependent on the following:
Value of Wage Paid to Laborers

= Value of Wage per Unit Labor
Working Time of a Day
If this increases, the exploitation rate drops. When we discuss the wage rate, the real
wage rate matters, not the money wage rate. In fact, it is
Value of wage Living materials Value of

= ×
per unit labor per unit labor living materials
Living materials received by laborers per unit labor means real wage rate, shown as
follows:
Money Wage Rate
Real Wage Rate =
Price of Consumption Goods
Third point: This depends on whether we can assert that as the unemployment rate
decreases, the real wage rate increases. This point is most vital for the criticism of
the wage rise theory. We already examined this assertion as the labor-market theory
when considering various views on determinants of the real wage rate in Sect. 2.3.
We also examined it when considering what kind of movement the real wage rate
makes in an upward cumulative process of disequilibrium in Sect. 4.1. The conclusion
there was that in an upward process of the business cycle, especially in a boom, the
real wage rate decreases in the case of constant production technology, and even
if it increases in the case of technological progress, it falls behind the increase in
labor productivity, so that the exploitation rate increases. We will not repeat what
was explained in previous sections; instead, we will examine how the advocates of
this theory defend themselves while at the same time assessing aspects that we have
treated adequately yet.
It is undeniable that when the unemployment rate decreases and the demand and
supply in the labor market become strained, even if the money wage rate increases,
the prices of commodities may increase more than that, causing the real wage rate to
fall. Advocates of this theory believe that it is the “speculative” demand that causes
these price hikes, which, however, cannot last, so that eventually, the money wage
rates will increase more than those prices.14
These arguments to defend the theory are incorrect. As seen in Sect. 4.1, the
main factor that causes price increases in an upward process of the business cycle
is the cumulative increase in accumulation demand of capitalists, which triggers
excess demand in all sectors. In considering the additional demand by capitalists
for production goods to enhance production, advocates of the theory often call it
“speculative”. In fact, if we use the word speculation not only for speculation activities
in commerce but in a broad sense, capitalists’ accumulation demand may indeed be
regarded as speculative demand. This is because the accumulation demand is the
purchases that capitalists make in order to realize sales aiming at an uncertain profit
in the future, based on their private anticipation or expectation about the future. So
far, there is no problem. However, why can this speculative accumulation demand
not last? This is the question. To answer this is to answer the essential part of the
question about why an economic crisis arises. It is, as we repeatedly argued, because
the decrease in accumulation demand causes a general overproduction, and still more
does the vanishing of it.
14 Uno [54, p. 79].

Cumulative accumulation
Decrease in accumulation
demand
Increase in money wage rate

Decrease in prices or
stop increasing
Increase in real wage rate
Decrease in profit rate
Decrease in accumulation
demand
General overproduction
Fig. 4.11 Theory of increase in real wage rate as trigger
However, when it comes to this reason, the advocates of this theory often tend
to be naïve or short-sighted. Most just argue that speculative demand does not last
because it is speculative. We have already admitted that if we take the meaning of the
word “speculative” in a broader sense, we may call capitalists’ accumulation demand
speculative. As long as the statement is concerned, there is no mistake in saying that
this demand will not last since it is speculative. It is obvious that accumulation
demand will eventually trip because it is not based on social and rational planning.
However, what makes it trip is the question. We cannot leave it unanswered by merely
saying that it is speculative.
Whatever the answer is, the logic of this argument is shown in Fig. 4.11.
Amongst the above relationships, why the process shown as white arrow occurs is
not explained, besides the aforementioned saying that it is speculative. Let us leave
it for now. The decrease in accumulation demand is a starting point from which
general overproduction begins. The successive flow of logic, shown as an increase
in real wage rate leading to a decline of the profit rate before reaching a decrease
in accumulation demand, is only an analysis of a downward cumulative process
which succeeds it. Therefore, this argument looks, at first glance, as a proof of the
inevitability of economic crisis by the flow of decrease in the unemployment rate
leading first to an increase in the real wage rate, and then to a decline of the profit rate.
However, it is actually not as it looks. The argument finds the cause of an economic
crisis in capitalists’ “speculative” behavior. Hence, this argument is a “speculation
theory” of economic crisis, and lacks all theoretical explanations.
People become a little skeptical about this theory’s logical inevitability, but those
who stick to this theory, trying to claim the following argument, advocate that it does
Fig. 4.12 Revised theory of

increase in real wage rate as Cumulative
accumulation
trigger
Increase in
Increase in prices
money wage rate
Increase in
real wage rate
not have an inevitable validity but that it explains one possible case.15 In the final
phase of the upward process of the business cycle, money wage rate and prices of
commodities increase concurrently. As a result, whether or not the real wage rate
increase is dependent on the relative relationship of both rates of increase, we cannot
go for either of them unambiguously. Thus, the argument that proposes that the real
wage rate increases has no inevitability. It is one possible case. In that case, it causes
the decline of the profit rate and a decrease in accumulation demand, which leads to
a general overproduction. It can be shown as Fig. 4.12.
Can this argument be supported? If yes, we can cite the wage rise theory as
an explanation for one possible cause of an economic crisis. However, the author
disagrees with this assumption. If it is just a matter of real wage rate increase in
the upward process of the business cycle, it surely can increase, as seen in statistics.
However, the question here is whether there is a sufficient increase in the real wage
rate to decrease the profit rate. In fact, even though the real wage rate increases, this
theory fails to be qualified as an economic crisis theory if the profit rate does not
decline due to an increase in labor productivity following a change in production
technology.
In the process where accumulation demand increases cumulatively, both the rate
of exploitation and the realized profit rate increase regardless of the development of
the real wage rate. Why is that? The central factor is that the commodities market
is in the state of excess demand, i.e., a seller’s market. Capitalists operate with
the over-utilization of production capacity and implement accumulation demand for
enhancing future production only if realized profits increase.
The following criticism could be expressed against our argument: it is too eye-
grabbed by the state of the commodities market. Not only is the commodities market
a seller’s market, but the same also applies to the labor market due to significant
absorption of unemployment. Thus, the money wage rate is increasing. However,
how can it be postulated a priori that this rate of increase cannot always be greater
than the rate of increase in commodities price so that it makes the profit rate fall?
It can be said not a priori but from the basic production relations of the capitalist
system. In order to consider this from another aspect, let us examine what will
happen when the tightness of demand and supply in the labor market makes the
money wage rate increase by a significant amount. We assumed that the markets for
15 For example, Kamisato [48].

commodities are in the state of excess demand as the result of the active accumulation
demand among capitalists. Now, when the money wage rate increases, the demand for
consumption goods by the labor class, in terms of money, increases. However, since
the demand for consumption goods is already in the state of excess demand, the price
of consumption goods increases until it drives down the demand for consumption
goods by the labor class to the previous level. How about the price of production
goods? If the price of production goods were unchanged despite the increase in the
money wage rate, the profit rate of the production goods sector would fall, for which
the capitalists of the production goods sector would reduce production. Nevertheless,
the demand for production goods will not decrease in this phase. Hence, the state of
excess demand in the production goods sector will become even more severe, and
this will make the price of production goods rise at least until the profit rate again
reaches the previous level. In this way, the rise in the money wage rate increases
prices. The scale of the increase is determined by the demand for commodities, and
in turn by the accumulation demand of capitalists that determines it. This happens
because capitalists take hold of production in all sectors and control the accumulation
demand. For the reasons stated above, the argument that a wage increase inevitably
leads to an economic crisis is incorrect.
We overviewed the arguments that try to explain the inevitability of economic
crises for the reason of a decrease in profit rate caused by a wage increase that
accompanies a decrease in the unemployment rate. Are there not any factors that
we must, without fail, take into account when considering an economic crisis in the
capitalist system? We think that there are, and that the argument above is incorrect,
but that it provides an important point in trying to seek a relationship between the
indispensability of wage labor for the existence of the capitalist system and the
inevitability of economic crisis. In Chap. 25 of Capital’s Volume I [15] (“the general
law of capitalist accumulation”), Marx explains how the capitalist society generates
an industrial reserve army, which is a critical condition for its existence, and also how
it forms, absorbs, and reforms this industrial reserve army through business cycles.
As we will examine in Sect. 4.3, the upward cumulative process in the capitalist
society is forced to be reversed when it is no longer able to obtain wage laborers
for the process to advance further, even if no other cause arises to reverse it. In the
downward cumulative process that is forced in this way, the capitalist society makes
preparations, that is, introduction and diffusion of new production technologies, in
order to continue a more significant upward cumulative process despite the limitation
of labor supply in the following cycle. Through these processes, the capitalist system
realizes extended reproduction that is full of mutual influence of opposites, namely
contradictions.
4.3 Economic Crisis
Section 4.3 aims to show that the economic crisis is inevitable. There, we need to
consider what kind of role it plays in the capitalist system. Note that although the
4.3 Economic Crisis 213
problem of what triggers an economic crisis and the problem of the inevitability of
economic crisis mutually relate to each other, they are different issues.
4.3.1 Inevitability of Economic Crisis
4.3.1.1 Meaning of Inevitability
If one wants to prove the inevitability of economic crisis in the capitalist system, he
only has to show that it is inevitable as long as the capitalist system exists. In order
to do that, one only has to prove the following two propositions: (1) In the capitalist
system, it is inevitable that a disequilibrium cumulates; (2) If the disequilibrium
cumulates unlimitedly, it will be impossible for the capitalist system to survive or
reproduce itself.
If those two propositions are proven, it follows from combining them that it is
absolutely necessary to reverse the cumulative process of disequilibrium in order for
the capitalist system to survive or reproduce itself. Since the cumulative disequilib-
rium is unavoidable in the capitalist system and the capitalist system would not last
without the reversal, whatever the trigger, the cumulative process of disequilibrium
must be reversed as long as we premise the continued existence and reproduction
of the capitalist system. The economic crisis is the event that the upward cumula-
tive process of disequilibrium is reversed and switched to a downward cumulative
process of disequilibrium.
Let us examine the above two propositions in sequence to prove the inevitability
of economic crisis.
4.3.1.2 Inevitability of Cumulative Disequilibrium
As mentioned in Chap. 2, a capitalist society is a class society in which the production

of commodities is dominant. Whereas production is made by the social division of
labor, decisions about each part are made privately by private individuals who own
the means of production privately, and there is no social decision or planning that
brings together the whole social production. Consequently, each private producer has
to make decisions on production capacity or direction/level of production without
knowing social demand in advance. Therefore, it is inevitable for a disequilibrium,
such as a gap between actual production and production capacity or the difference
between production and social demand, to arise.
However, even though a disequilibrium arises, it does not necessarily mean that
the disequilibrium cumulates or that it hinders the reproduction of society. For
instance, when the commodity production exists as a non-dominant mode so that the
commodity exchange is not necessary as a medium for production goods replacement
or labor reproduction, which are essential factors of reproduction, a disequilibrium
might arise in the commodity production, but it does not hinder the reproduction of
society. Besides, even if the commodity production exists broadly in society, when the
sole commodity production is implemented with one’s own labor using one’s private
means of production without wage laborers, private commodity producers’ charac-
teristic incentive is not profit pursuing but use-value acquisition through exchanges.
As a result, the gap between production and consumption for a whole society is
small, for which a partial disequilibrium might arise, but a general disequilibrium is
unlikely to happen.
In the capitalist system, not only is commodity production dominant, but also labor
becomes a commodity. Capitalist commodity production with two classes—wage
laborers and capitalists—is implemented. The capitalists make production decisions,
and their characteristic incentive is profit pursuit. Consequently, exploitation of wage
laborers by capitalists prevails. When there is exploitation, inequality always holds
for society as a whole.
X >C+V (4.19)
Here, X is the value of aggregate production, C is the value of production goods

exhausted to produce X , and V is value of consumption goods paid as wages to
the laborers employed to produce X . The inequality (4.19) shows that there exists
exploitation. In fact, (4.19) can be rewritten as the following formula.
X −C −V = N −V = S >0 (4.20)
Here, N is total labor in the current period that the laborers sold and S is surplus
labor. The inequality (4.19) shows that the aggregate production cannot be realized
at a price inclusive of profits only with the demand that replaces production goods
exhausted in the current period and the consumption demand of the laborers. In fact,
in the right-hand side of (4.19) C shows replacement demand for production goods
and V consumption demand of the laborers, but the total of those two is smaller than
X ; value of aggregate production.
That is why there must be some other demand besides replacement demand for
production goods and consumption demand of the laborers to realize commodities
smoothly in a capitalist system. Since the wage labor class is supposed to spend
their entire wage, this additional demand must come from the capitalists. The capi-
talists make consumption goods demand for private consumption. Let us denote it
Sk in terms of value. The demand is short even after this private consumption of the
capitalists is added so that we have the following inequality:
X > C + V + Sk (4.21)
It is because capitalists do not exploit the laborers only for their private consumption.
If so, the exploitation is bounded by their limit of private consumption, that is, the
size of their appetite. Unlike the ruling class in the class society before the capitalist
system, the capitalist class exploits not only for their own, private consumption, but
also for greater accumulation. Therefore, in a capitalist system, it holds always as
follows:
S > Sk (4.22)
Meaning, surplus value outweighs the private consumption of capitalists. If (4.22)

holds, (4.21) always follows because of (4.20).
Equation (4.21) shows that the aggregate production for a whole society outweighs
the sum of replacement for production goods, and the private consumption of laborers
and capitalists. It means that it shows the “contradiction between production and
consumption”. It can be understood from the explanation above that the contradiction
between production and consumption arises from (1) that laborers are exploited, and
(2) that the exploitation is made by capitalist not only for their consumption but also
for accumulation.
Now, despite the contradiction between production and consumption shown by
(4.21), there must be additional demand in order for aggregate production to be
realized: capitalists’ accumulation demand Sa . Capitalists try to increase production
capacity in the next period and after by demanding for more production goods than
what is exhausted for production in the current period. The question here is the size of
accumulation demand Sa . If the balance that deducts capitalists’ private consumption
from surplus value is always equal to the accumulation demand, that is
Sa ≡ S − Sk (4.23)
from (4.23) and (4.20),
X ≡ C + V + Sk + Sa (4.24)
the aggregate production and the aggregate demand for a whole society always match.
Therefore, even if there are disequilibria in individual sectors, those disequilibria
offset each other for the whole society, and no general disequilibrium arises.
However, in a capitalist system, (4.23) is not always guaranteed to be true. As
repeatedly emphasized, decisions on production level and production capacity are
made by private capitalists. Private capitalists have no choice but make decisions on
accumulation demand based on their private expectations, without general informa-
tion or control instruments on social production. Therefore, when his expectations
on the market conditions are not promising, a capitalist may not implement accumu-
lation demand in the amount that is equal to the residual of the gained profits after
subtracting private consumption. When his expectation is bullish, he may increase
accumulation demand with credit beyond the limitation of his gained profits.
What is more problematic is that, as explained in detail in Chap. 3, capitalists do not
implement accumulation demand after profits are realized. How much accumulation
demand they make as a whole determines the size of realized profits. Therefore, for
most capitalists, they do not implement accumulation demand with realized profits;
they have no choice but to expect profits and determine accumulation demand before
profits are realized. For that reason, (4.23) does not hold in a capitalist system so that
the aggregate production and the aggregate demand do not match and that a general
disequilibrium arises.
Even if the general disequilibrium arises, the cumulative movement of disequilib-

rium will not occur when the general disequilibrium is cleared by the price adjustment
mechanism. When the general disequilibrium arises in the commodity markets, for
instance,
X < C + V + Sk + Sa (4.25)
is the case, someone may think that the equilibrium can be recovered smoothly
with a production increase and demand contraction induced by a price increase.
He/she commits the mistake of applying the price adjustment mechanism in the
single commodity market to the whole society. As examined in Sect. 4.1, whether
the general disequilibrium moves toward equilibrium or away from it depends on
the movement of accumulation demand. For example, when there is disequilibrium
as (4.25), if accumulation demand Sa decreases, it converges to the equilibrium; on
the contrary, if it increases, the disequilibrium strengthens. When facing a general
disequilibrium, it is the personal decisions of private capitalists which determines
the adjustment direction of the accumulation demand. Private capitalists do not make
decisions based on what kind of adjustment of accumulation demand is needed in
order to recover the equilibrium of the whole society. They try to recover the private
equilibrium from their own private point of view. Most capitalists have problems
such as excess demand or shortage of production capacity when (4.25) is the case. In
this instance, to recover their private equilibrium, increasing accumulation demand
becomes urgent. Thus, the disequilibrium cumulates in the society as a whole.
As you can understand from the above explanation, in a capitalist system, (1)
although the production is implemented in the system of social division of labor,
its individual components depend on private decisions, (2) capitalists exploit wage
laborers, (3) capitalists exploit not only for their private consumption, but also for the
accumulation, and (4) private capitalists make decisions on accumulation privately
and dispersedly. As a result, a general disequilibrium arises, and the disequilibrium
must be cumulative.
4.3.1.3 Violation of Capitalist Reproduction
An economy is in the upward cumulative disequilibrium process when a general

disequilibrium exists and cumulates as a whole economy, in the way that aggregate
demand exceeds aggregate supply or that the actual amount of production exceeds
normal production capacity. The issue here is whether capitalistic production rela-
tions can be sustained if this upward cumulative disequilibrium process continues
unlimitedly. It should be noted in advance that the author does not claim here that the
upward cumulative disequilibrium process does continue unlimitedly. Our goal is to
present that the cumulative disequilibrium process cannot continue without limit as
long as a capitalist system is sustained, by showing that the capitalist system would
not be able to survive if it continued unlimitedly.
Capitalists regard the upward cumulative disequilibrium process not as disequilib-

rium, but as a continuous favorable situation. In fact, no matter how much production
they make, products fly off the shelves, and the profit rate is high. They cannot stop
laughing, literally. Yet, regardless of whether it is favorable or not for capitalists, this
is the cumulative disequilibrium process. As already examined, the main character-
istic of this process is that accumulation demand is increasing acceleratively. From
another point of view, it is the process in which the gap between production and
consumption is increasing fast. In fact, it is the process in which the larger part of the
aggregate production is absorbed for the enhancement of production capacity and
the smaller part that is left is devoted to private consumption. This can be found in
the increasing exploitation rate of the laborers in this process. The real wage rate of
the laborers must increase slower than labor productivity growth. It even absolutely
decreases when the increase rate of accumulation demand is exceptionally high, even
if there is an increase in labor productivity.
These situations are not explicit at the beginning of the upward cumulative dise-
quilibrium process. It is because that even if accumulation demand increases at an
accelerated rate, the aggregate production level can be increased relatively easily
when there are huge idle production capacity and unemployment. As long as the
increase in accumulation demand is absorbed by the increase in production level,
the gap between production and consumption increases absolutely, but it does not
necessarily increase relatively. That is, private consumption can also increase as
accumulation demand increases. Moreover, in that case, an increase in the exploita-
tion rate is not inevitable. If there is an increase in the exploitation rate or a fall of the
real wage rate, the real wage in terms of consumption goods that the laborers obtain
for labor per day will increase as the result of the rise in employment or labor hours
per day.
However, when idle production capacity is not left unutilized, and when unem-
ployment is absorbed to the extent in which it becomes difficult to enhance production
levels to satisfy increasing accumulation demand by extending operation, the contra-
diction between production and consumption becomes clear in an intense form.
Namely, at this stage of the process, it becomes unavoidable to squeeze private
consumption in order to cover increased accumulation demand. The gap between
production and consumption has to increase not only absolutely, but also relatively.
This relative compression of private consumption is realized through an increase in
prices of consumption goods and the compression of real wage rates. A slowdown of
the increase in real wage rates compared to labor productivity prevails clearly and,
furthermore, it causes even absolute levels of real wage rates to fall.
Thus, the cumulative disequilibrium process proceeds while compressing private
consumption both relatively and absolutely. What does it mean to the reproduction of
capitalist production relations? It is not our subject now that the gap between produc-
tion and consumption widens through the compression of private consumption, and it
may cause a difficulty of realization in the market. As we will examine in Sect. 4.3.2,
it is true that the gap between production and consumption causes overproduction
in the consumption goods sector and that this can be a momentum for the turnover.
However, this is not our focus right now, as we hope to reveal what kind of difficulty
it may cause to the sustainability of the capitalist reproduction if we assume that the
accelerating increase in accumulation demand proceeds unlimitedly while enlarging
the gap between production and consumption at an accelerating rate.
If the upward cumulative process of disequilibrium continues without limit, the
capitalist production relations become impossible to reproduce. As the gap between
production and consumption enlarges relatively and the increase in aggregate produc-
tion by extending the operation slows down, private consumption begins to decrease
and real daily wages of the laborers also have to decrease. Now, as we argued in
Sect. 2.4, there are upper bounds and lower bounds that real wages must satisfy
in order for capitalist production relations to be reproduced. To sustain capitalist
production relations, wage laborers must appear regularly in the labor market for
the sale of labor. For this to happen, real wages must not drop below a certain level.
In fact, when real wages drop below the lower limit at which the wage laborers
can barely meet their physiological neccesity or falls below the income that can be
earned by tiny enterprises that can be managed with little capital, the merit of being
employed is lost for wage laborers. When real wages fall below certain lower bounds
in these ways, wage laborers cease to appear in the labor market, and the foundation
of capitalist production relations will stumble. Violent enforcement can make wage
laborers work for wages for a while, but it cannot last forever.
Additionally, when the upward disequilibrium process continues unlimitedly, it
becomes challenging for capitalist production relations to reproduce itself due to
the following reasons as well: As the upward cumulative disequilibrium process
continues, soon or later, unemployment shrinks and full employment will be reached.
As long as the upward cumulative disequilibrium process continues, full employment
keeps going on. Now then, what does the continuance of full employment in the
labor market mean to the capitalist system? Supply and demand become tight in
the labor market, and consequently, the laborers’ bargaining power increases and
the money wage rate increases sharply. However, if this is the only case, as long as
accumulation demand increases at an accelerated rate, an increase in the price higher
than an increase in the money wage rate is possible, which drives down the real wage
rate, i.e., an increase in the exploitation rate can be maintained, despite the increase
in the money wage rate.
Continuance of full employment undermines the foundation of capitalist produc-
tion relations through other factors. In order for capitalist production relations to
continue, it has to be possible for the capitalist class to purchase the labor power
and make wage laborers work under capitalists’ private decisions. That is, it has to
be possible for them to make wage laborers work under the “discipline” of capital.
However, as full employment is ordinary, it becomes difficult. The capitalist class has
outstanding power over the wage labor class, and they are able to force them to work
under their discipline because capitalists can fire laborers and consequently, they can
take wage laborers’ means of living away, i.e., they have the “power of life or death”.
If the situation in which capitalists are not able to dismiss laborers continues, sooner
or later capitalists will not be able to make laborers work under their decisions. As
it becomes impossible for capitalists to enforce laborers to obey their discipline, the
capitalist class will no longer be able to keep on making decisions on production. It
is in this sense that the existence of unemployment is essential for the reproduction
of capitalist production relations. Unlimited continuance of the upward cumulative
disequilibrium process violates this condition.
4.3.1.4 Inevitability of Economic Crisis
In a capitalist system, the upward disequilibrium process that once emerged has a
cumulative nature. However, if this cumulative process proceeds unlimitedly, capi-
talist production relations become impossible to reproduce themselves. Therefore,
as long as a capitalist system is to continue, the upward disequilibrium process must
be reversed by whatever trigger. For that reason, an economic crisis is inevitable.
As one can understand from the above explanation, an economic crisis is inevitable
because the disequilibrium cumulates inevitably, and the cumulativeness of the
disequilibrium is inevitable because a capitalist system is a class society in which
commodity production is dominant. In other words, it is the fundamental character
of a capitalist system on which the foundation of the inevitability of economic crisis
is grounded.
4.3.2 Triggers of Economic Crisis
We showed the following in the previous section: In a capitalist economy, cumu-

lative disequilibrium is inevitable. Unless this cumulative disequilibrium process is
reversed, it will become impossible for a capitalist system to reproduce and sustain
itself. Therefore, as long as a capitalist system continues, it is vital for the disequi-
librium cumulative process to reverse its direction. It is the economic crisis which
reverses the upward disequilibrium cumulative process to a downward one. For that
reason, an economic crisis is inevitable as long as a capitalist system continues.
However, in Sect. 4.3.1, we did not discuss what kind of triggers cause an
economic crisis. We must not confuse the question as to why an economic crisis
is inevitable in a capitalist system with what triggers an economic crisis. Economic
crises can be caused by various kinds of triggers. There is no inevitability as to what
kind of trigger it ought to be. However, whatever the trigger is, the upward disequi-
librium cumulative process must be reversed and, once reversed, there has to arise a
downward disequilibrium cumulative process. This is a precondition.
The relationship between the two questions above is easy to understand as we
think about the following analogy: When thinking of human death, let us consider
the following two related, but different questions. One is whether or not human death
is inevitable; the other one is what kind of triggers bring about death to humans. The
answers to those two questions are entirely different. The former one can be answered
by humans’ characteristics as an organism or moreover, by some propositions of
thermodynamics. The latter one can be answered by listing all the triggers of death,
such as disasters, illness, or suicide. In the former sense, the inevitability of human
death can be proven, which the author believes is possible; but in the latter sense,
it is impossible to demonstrate its inevitability generally and abstractly. We cannot
assure that human always die from cancer or always die in a car accident. No matter
what kind of trigger is brought in, it is incorrect to claim that any human always dies
from that certain trigger. As for the latter question, we can only discuss either (1)
what kind of triggers’ probability is high in general, or (2) what kind of triggers are
inevitable for humans in the specific time, place and society.
We can say similar things about economic crises as well. On the general and
abstract presupposition that it is a capitalist society, whatever the trigger is, we can
make a case for the inevitability of economic crisis. However, trying to demonstrate
that every economic crisis is always caused by a specific trigger, e.g., overproduction
in the consumption goods sector or imbalance between supply and demand in the
labor market, from just a general and abstract characteristic of a capitalist system,
is flawed. What we can say about the triggers of an economic crisis from a general
and abstract definition of a capitalist system is to show what kind of triggers have a
high degree of probability in causing an economic crisis. That is all we can discuss
regarding the triggers of an economic crisis as this book covers the capitalist system
in general.
For instance, if the capitalist society in Japan enters an economic crisis and we
try to find out its trigger, though it is an important task, we should not (and cannot)
answer it just from the definition of a capitalist system in general. We ought to infer a
specific trigger based on detailed investigation and research of concrete international
and domestic conditions. This, however, is not the goal of this book. Nevertheless,
showing what can be listed as primary triggers when premising a capitalist system,
in general, will help more in-depth research.
4.3.2.1 Overproduction in Consumption Goods Sector
As already examined in Sects. 2.4.3.3 and 4.2.1, an extremely high increase in accu-
mulation demand, which characterizes the upward cumulative disequilibrium process
= upward process of business cycle, causes an increase of production goods price
compared to consumption goods price, and it may suppress the profit rate of the
consumption goods sector. On one hand, an increase in accumulation demand lowers
the real wage rate, and it may also suppress the laborers’ consumption demands. Thus,
an increase in accumulation demand squeezes the demand for consumption goods and
may lower profit rates and decrease production. When such situations are generated,
the accumulation demand in the consumption goods sector decreases. In such a case,
capitalists in the production goods sector become pessimistic and decrease accumu-
lation demand so that the whole accumulation demand in the society decreases, and
as a result, a downward cumulative process begins; the decrease in aggregate demand
leads to the contraction of production before it decreases employment.
In order for an economic crisis to be triggered as above, the following conditions
are necessary:
(a) When accumulation demand, which is mainly the demand for production
goods, is durable, the production goods price increases more rapidly than the
consumption goods price.
(b) This relative increase of production goods price has several negative impacts
on the profit rate of the consumption goods sector so that it cannot be offset
with a price increase in the consumption goods sector faster than the money
wage rate.
(c) A decrease in the profit rates and a reduction in production in the consumption
goods sector decrease accumulation demand in the consumption goods sector,
and the latter has a negative impact big enough to damp accumulation decisions
of capitalists in the production goods sector.
Whether or not those conditions are satisfied depends on various factors, such as
the pricing policy of capitalists in the production goods sector, weights of production
goods input in consumption goods production, movements of the money wage rate,
and weight of the consumption goods sector in accumulation decisions by capitalists
in the production goods sector, among others. Therefore, when the combination
of these factors does not satisfy the above conditions, an increase in accumulation
demand may not cause a decrease in profit rates and declining production in the
consumption goods sector. Even if they occur in the consumption goods sector, a
decline of the whole society may not be caused by the “run-away” of accumulation
demand in the production goods sector.
4.3.2.2 Underproduction in Production Goods Sector
Even if capitalists’ accumulation demand is high, when the maximum of production

capacity in the production goods sector is reached, capitalists cannot get as many
additional production goods as they demand. A bottleneck arises in the production
goods sector. Consequently, capitalists’ plans for production expansion in the next
period and after will be miscarried, and this may make capitalists’ accumulation
demand decrease. This is a possibility. However, when capitalists’ desire to accu-
mulate is extremely strong, it may not be foiled for this reason. They may expect
that production in the production goods sector will be expanded in response to the
remaining demand that is left unfulfilled in the production goods sector, and they
may carry through their plans for capital accumulation without decreasing the rates.
Another possibility is that if the sharp increase in the production goods price occurs
as a result of extreme excess demand in the production goods sector, it will lead to
a decrease in the profit rate in the consumption goods sector and then to a reduction
of production in this sector. This acts as a trigger, as explained in 3.2.1.
4.3.2.3 Limits of Availability of Labor Power
Along with the accelerated increase in accumulation demand, the levels of aggregate
demand and aggregate production also increase at a correspondingly rapid pace, and
as the demand for labor increases, unemployment decreases. Consequently, supply
and demand become tight in the labor market and it may reach a point where it is
difficult to obtain labor power, presuming that economic crisis does not occur by
some triggers before that. As a result, the money wage rate will increase. However,
as already examined in detail in Sect. 4.2.2, it is not correct to argue that it causes the
real wage rate to increase and the exploitation rate to fall, and that these then cause
a decrease in the accumulation demand so that an economic crisis occurs. Yet, the
difficulty of obtaining labor power can be one of the triggers for an economic crisis,
not through this path of an increase in the money wage rate leading to a decrease
in the exploitation rate and then to a decrease in accumulation demand, but through
totally different paths. This will be explained in the following:
(a) Similar to the case of a bottleneck in the production goods sector, the difficulty
of obtaining labor power may derail capitalists’ plans for production expansion
in the next period and after, and as it forces capitalists to adjust their accumu-
lation demand, it may lead to a decrease in accumulation demand, which may
become a trigger for a downward reversal. However, it does not mean this
always happens. Capitalists will make an effort to hire the labor away from
other capitalists, not being held back by the general tightness of demand and
supply of labor power. In addition, they may try to introduce so-called labor-
saving new technologies that are superior in labor productivity, and therefore,
they may increase accumulation demand for equipment and others even further.
(b) When facing the difficulty of obtaining labor power, a fierce battle for labor
occurs among capitalists. In the booming phase, in which accumulation demand
is increasing at an accelerated rate, capitalists in the consumption goods
sector may lose this battle. Then, there arises idle production capacity in the
consumption goods sector, while accumulation demand in this sector decreases.
This may become a trigger for an overall decrease in accumulation demand,
including the production goods sector, so that an economic crisis may occur.
The following reasons explain why the capitalists in the consumption goods sector
lose the battle for labor power. The main instrument of this battle is the increase in
the money wage rate. Capitalists who cannot match their rival’s high money wage
rate will lose labor power and cannot operate their equipment. The ability to raise
the money wage rate depends on the increase rate of the price of the commodity they
produce. During the booming phase, accumulation demand serves as the driving
force and increases the aggregate demand so that the prices of commodities increase.
Among them, the increasing rate of the price of production goods becomes higher
than the others. It is because accumulation demand is mostly demand for production
goods and the increase in the demand for consumption goods is induced by the
former. The price of consumption goods may increase more than money wage rate,
but the price of production goods becomes higher than that, so that, as mentioned in
Sect. 4.3.2.1, the profit rate in consumption goods sector worsens, and they lose the
battle. Note that this decrease in the profit rate in consumption goods sector is not
caused by a decrease in the exploitation rate, but by a relative increase in the price
of production goods.
The above reason explains why the unavailability of labor power may become a
trigger for economic crisis through the path of (b), but it does not necessarily cause
an economic crisis even when the profit rate decreases and idle equipment arises
in the consumption goods sector through that path. It is because the capitalists in
consumption goods sector, who fall in this “trap”, may try hard to get out of it and
make accumulation demand to introduce new technologies. Even if the accumulation
demand in the consumption goods sector decreases due to the “trap”, capitalists in
the production goods sector, who enjoy the excess demand, may implement more
accumulation demand. In that case, the labor power will be increasingly hired away
from the consumption goods sector, making it shrink, and upward the cumulative
process will continue.
4.3.2.4 Lower Limit of Real Wage
As emphasized in Sect. 2.4, as long as we assume that production technology is

fixed, when accumulation demand increases, the real wage rate decreases. Even
though new technology that improve labor productivity is introduced, if the increase
rate of accumulation demand is faster than productivity growth, the real wage rate
will decrease after all. The real wage rate decreases either through a decrease in life
materials that a laborer receive in a day, or through extension of labor hours per day.
Against them, there is a limit that cannot be crossed (cf. Sect. 2.4.1)—it is the social
and physiological lower limit for labor reproduction. If the real wage rate falls below
this limit, one of the following will necessarily happen: (1) withering and weakening
of the labor power; (2) disappearance of wage laborers in the labor market as they
would not see any benefits in selling the labor power and getting employed; (3) Revolt
of the wage labor class.
Assumed if the accumulation demand accelerated and the real wage rate reached
close to this lower limit, the increase rate of the money wage rate would be compara-
tively high. It should be noted that the upward cumulative process does not necessarily
go on until the real wage rate decreases to that lower limit; before reaching it, some
other factors may trigger a downward momentum. However, accumulation demand
is so strong that prices of commodities hike more. A severe spiral arises, money
becomes useless for capitalist’s calculation regarding future profits, and capitalists’
accumulation demand may decrease.16
However, that is not the sole possibility. Even if the real wage rate moves close
to the lower limit, the capitalist class may use government power to keep the money
wage rate low by compulsion and make the labor class accept it. Then, as mentioned
above, the weakening of the labor power will happen and laborers will lose the
16 Joan Robinson calls it “inflation-barrier”. See Robinson [52, Chap. 5, pp. 48–50].
benefits of going to the labor market and selling their labor power. In that case,
it might be possible to force them to work violently for a short period of time,
but it will undermine the foundation of capitalist production relations. Therefore,
when we premise the sustainment of capitalist system, sooner or later, a decrease in
accumulation demand will be inevitable. Consequently, reversal for the downward
process begins.
4.3.2.5 Exhaustion of Funds
As the result of fierce accumulation demand, a bottleneck may arise in funding,

which may lead to an increase in the interest rate and a difficulty in funding, and it
may cause cutting back or decreasing accumulation demand.
However, when the capital accumulation rate is increasing progressively, the real-
ized profit rate is high and also increasing; capitalists may not drive down the capital
accumulation rate even if there is some increase in the interest rate. A prohibitive
increase of the interest rate that decreases the capital accumulation rate arises only
when a general overproduction begins and people compete and rush for money from
commodities and bonds. However, general overproduction does not arise without a
decrease in the capital accumulation rate. Thus, an increase in the interest rate that
causes further drops in the capital accumulation rate is the result of a decrease in the
capital accumulation rate, and not its cause.
Furthermore, it is not true that the funds are fixed and that the capital accumu-
lation rate cannot exceed them when they are exhausted. The funds are to increase
cumulatively in the upward disequilibrium process when the capital accumulation
rate increases cumulatively. It means that mutual credit exchange between capitalists
increases in the state of general excess demand. This stops and collapses because of
general overproduction. General overproduction occurs because of the decrease in
the capital accumulation rate. In other words, the cumulative increase in the capital
accumulation rate is creating its funds by itself (cf. Sect. 4.1.3 “Capitalists’ Decision
on Accumulation Demand”).
4.3.3 Implications of Economic Crisis
4.3.3.1 Violent Resolution of Contradiction Between Production

and Consumption
In upward processes, the contradiction between production and consumption appears

in the form of excess demand for commodities and increases cumulatively. However,
what is actually behind the appearance is a process through which production capacity
in society exceeds consumption by the people, so that the gap expands cumulatively.
In spite of this expansion of the gap between production capacity and consump-
tion, not overproduction but excess demand arises in the commodity market, which
makes the gap expand further. This is made possible because the gap is absorbed by
the accumulation demand of the capitalist class. While restricting laborers’ consump-
tion, more parts of the expanding production capacity are allocated in every period for
increasing production capacity, which is capital owned by capitalists. There obvi-
ously lies the contradiction between production and consumption. Although this
contradiction does not become visible as overproduction, but becomes fierce as long
as capitalists’ accumulation demand increases progressively. However, when capital-
ists’ accumulation demand has to decrease due to certain triggers, this contradiction
reveals itself clearly. The gap between expanded production capacity and restricted
consumption ought to be reduced violently.
In order to understand this violent nature of equilibration, it helps to think of a
socialist society where private ownership of production means is eliminated, their
collective ownership is introduced, and production is carried under planning of the
whole society on the basis of the ownership. Imagine that for a certain period of
time, members of the society have agreed to allocate substantial parts of produc-
tion capacity for expanding the following period’s production capacity, which is a
shared means of production. And imagine that at some point, they slow down their
plan for expansion of production capacity. Then, what will become of the relation-
ship between the expanded production capacity and the consumption of members
of society? The solution there is obvious. They allocate more parts of the expanded
production capacity not for producing production goods but for producing consump-
tion goods, and the consumption goods thus increased are used for the increase in
consumption among members of society. These changes in compositions toward an
increase in the weight of consumption goods production and then toward an increase
in consumption per person are all made smoothly, according to plan.
On the other hand, in a capitalist system, this change is made through the process of
a decrease in production through idle production capacity and a decrease in consump-
tion by a decrease in the income of laborers. Why so? The solution by consumption
increase of laborers brings a great increase of the real wage rate and, moreover, keeps
employment and production at the same level. Yet, it is impossible. The profit rate
falls massively by doing so. Under such conditions, capitalists would not maintain
employment and production. Contraction of production and a decrease in consump-
tion is the only option when capitalists’ accumulation demand decreases. Why can it
equilibrate the gap between production and consumption? Because, in the shrinking
process of production and consumption, an increase in weight of consumption goods
production and an increase in real wage rate per hour are generated by compulsion.
The downward process triggered by an economic crisis is characterized by a
cumulative decrease in capitalists’ accumulation demand. Among comprehensive
contraction in production level as the result of it, what has to be most shrank is the
production goods sector (cf. Sect. 2.4). Contraction of the consumption goods sector
is induced by that. The extent of its contraction is smaller than in the production goods
sector because there is a decrease in employment, i.e., an increase in unemployment,
by the comprehensive contraction of production, as well as an increase in the real
wage rate in terms of consumption goods. The main reason for the increase in the
real wage rate is decrease in the profit rate of the consumption goods sector. While
the price of production goods falls more than the price of consumption goods, the
profit rate in the consumption goods sector decreases because the price of consump-
tion goods falls more than the money wage rate. The increase rate of real wage
rate becomes higher than that of labor productivity, and the exploitation rate falls.
This reduces the gap between production and consumption. However, it happens
through comprehensive contraction of production levels and the generation of mass
unemployment.
The proposition that Marx stated and Lenin elaborated on when criticizing Tugan-
Baranovsky, “the production is ultimately regulated by the consumption”17 holds in a
capitalist system under an outrageous form. Many argue that this proposition explains
why overproduction in the consumption goods sector is the trigger for an economic
crisis. This is incorrect—the proposition holds because of the economic crisis.
4.3.3.2 Equalization of Profit Rates Among Sectors
In the upward cumulative processes, the profit rate of the production goods sector
increases ahead of the consumption goods sector. An upward cumulative process is
induced by progressively increasing accumulation demand, and the degree of excess
demand is larger in the production goods sector than in the consumption goods sector.
Therefore, the increasing rate of the price of production goods is higher than that of
the price of consumption goods, and the increasing rate of the price of consumption
goods is higher than that of the money wage rate, that is,
Increasing rate of Increasing rate of Increasing rate of

> >
production goods price consumption goods price money wage rate
Consequently, although the profit rates of both sector increase, the increase in the
profit rate of production goods sector precedes that of the consumption goods sector.
Furthermore, this inequality of the profit rates in the upward cumulative process is
not resolved by the move of capital to the production goods sector. Since additional
demand for production goods is made for capital input to the production goods sector,
the cumulative process continues while making the profit rate of production goods
sector have a further lead.
The process of equalization of the profit rates among sectors is made in a rather
outrageous form, that is, through a downward cumulative process. Namely, in down-
ward processes, both sectors’ profit rates decrease, but here again, the production
goods sector goes ahead in the decreasing rate of profit. As a result, as Fig. 4.13
shows, the equality of the profit rates is realized in the long run, on average. The
process of equalizing the profit rates is never realized through a smooth process
of inflow and outflow of capital, which classical economists such as Adam Smith
and the advocates of equilibrium theories describe. It is realized as the result of the
17 Marx [32, Chap. 21, Sect. 2, pp. 305–307].

Fig. 4.13 Equalization of

profit rates through trade
cycles
offsetting effects that the two cumulative disequilibrium processes connected via
economic crisis have over profits.
4.3.3.3 Forced Scrapping of Old Technologies
As examined in Sect. 2.2, the value of commodities is determined by the amount of

directly and indirectly bestowed labor that is necessary to produce them. However,
the amount of bestowed labor to produce a commodity differs as production methods
differ. Their social value is determined by the necessary bestowed labor under the
socially standard production method, not by individual bestowed labor, i.e., indi-
vidual value. Let us assume that, to produce a commodity for a certain amount, capi-
talists adopt production technologies that are expressed by the following individual
values:
A : 100C + 50 = 150
B : 70C + 130 = 200
C : 50C + 200 = 250
Then, let us assume that the standard production condition in this sector is B. That
is, capitalists that have an average size of capital funds and standard information are
assumed to adopt production method B. Then, the social value of the commodity is
200. 70C represents the value of the exhausted production goods, and 130 represents
living labor.
Bestowed labor in production methods A and C is re-evaluated by this social value.

Under the commodity production system, labor is socially approved only through
commodities produced and thus, as far as commodities are the same, it is evaluated
as the same social labor even if the amount of individual bestowed labor is different.
Then, after re-evaluation, they become
A : 100C + 100 = 200

B : 70C + 130 = 200
C : 50C + 150 = 200
It means that living labor 50 in A is approved as 100 of social value, while living labor
200 in C is approved as 150 of social value. Here, we premise that the exhausted
production goods are measured by their social value. Hence, A obtains a special
surplus value of 50 = 100 − 50 and C has a negative special surplus value, i.e., an
extraordinary loss, of −50 = 150 − 200. This extraordinary loss seems to imply
that the capitalists in C have to suspend production and are obliged to move to B;
otherwise, they will go bankrupt.
However, this does not happen. In the upward cumulative disequilibrium process
there is excess demand for commodities, and their prices are at high levels compared
to the money wage rate. It means that the real wage rate is kept low. Consequently, the
value decompositions under production methods A, B, C may become the following,
for example:
A : 100C + 25V + 75S = 200

B : 70C + 65V + 65S = 200
C : 50C + 100V + 50S = 200
In this example, the exploitation rate in B is arbitrarily put as 100%. Given this
supposition, however, the value decompositions for A and C are no longer arbitrary
but determined as follows: When the exploitation rate is 100% in the socially standard
method B, the value of consumption goods that a laborer receives per hour, i.e., real
wage rate, must be 1/2 hour, calculated as 65/130 = 1/2. Then, assuming that the
real wage rate is the same for each capitalist, the wage payment to laborers in A as
measured by its value is 25 = 50 × 1/2, since the living labor in A is 50. In C it is
100 = 200 × 1/2.
Now, as is apparent in this example, when the value of laborers’ real wage rate
is 1/2, the capitalists who produce with inferior production method in this sector
can make profits. Further to that, if the value of the real wage rate decreases even
more and becomes, for instance, 1/5 of the upward cumulative process, the value
decompositions under production methods A, B, C will be
A : 100C + 10V + 90S = 200

B : 70C + 26V + 104S = 200
C : 50C + 40V + 110S = 200
and the capitalists who produce with production method C have a higher profit rate
than the capitalists who produce with A or B. In this case, although the capitalists
who produce with production method C suffer from an extraordinary loss of value
amounting to 50, they obtain as much profit as
110S = (200−40V)−50
as the result of fierce exploitation, where the first term on the right-hand side of the
equation represents the living labor and the third term represents the extraordinary
loss of value. They enjoy a high profit rate, owing to the low organic composition of
production.
In this way, in the upward cumulative process, production technologies that are
inferior, i.e., less productive or high in individual value compared to socially standard
production methods, are not forced to be abandoned due to the increase of the price
relative to the money wage rate. On the contrary, there arises a situation in which
those inferior technologies are even advantageous for capitalists.
It is in the downward cumulative process triggered by an economic crisis that
equipment with socially inferior production methods must be scrapped and even
socially standard production technologies themselves have to change. More specifi-
cally, in the downward process, as repeatedly explained, the real wage rate increases.
For instance, if the value of the real wage rate increases from 1/2 to 3/4 hour, the
above example A, B, C become
A : 100C + 37.5V + 62.5S = 200

B : 70C + 97.5V + 32.5S = 200
C : 50C + 150V + 0S = 200
and the capitalists with C are obliged to shift to B or A; otherwise, they go bankrupt.
That is how production methods below social standard are abandoned.
This is not the only phenomenon occurring in the downward process. As the real
wage rate progressively increases and the value of the real wage rate in terms of the
value determined by the social standard production method approaches 1 hour, the
profit of the capitalists with production method B gradually approaches 0. Conse-
quently, the capitalists either go bankrupt or shift to A or other production methods
with higher labor productivity. That is how B is to lose the status of a socially standard
production method, and A becomes standard.
Thus, in the downward process, shifts of the production method from C to B
and from B to A are forced, and a “value revolution” will be implemented. The
main factor in forcing them is an increase in the real wage rate. If the real wage
rate exceeds the labor productivity of C, C is abandoned; if it surpasses that of B, B
will be abandoned as well. What brings about an increase in the real wage rate is the
downward cumulative process. In this process, a huge amount of capital is destroyed.
Destruction of capital means that capital does not work as capital; that is, it bears
no more profits. Consequently, “excess capital” is scrapped, and labor productivity
in the whole society increases.
4.4 Reversal
We have examined that economic crisis is inevitable in a capitalist system. Let us

now examine the inevitability of, and the triggers for, the reversal of the down-
ward disequilibrium cumulative process that is triggered by an economic crisis in
Sect. 4.4. We derive the inevitability of the business cycle, which is composed of the
following phases: upward disequilibrium cumulative process, economic crisis, down-
ward cumulative process, reversal, and upward disequilibrium cumulative process
again. We also confirm the historical role of the business cycle.
4.4.1 Inevitability of Reversal
Economic crisis is a violent restoration process of disequilibria in a capitalist system.

However, at the same time, it causes the cumulative process for disequilibria to be
enlarged towards the opposite direction. This downward disequilibrium cumulative
process develops the possibility of violations against the reproduction conditions for
a capitalist system as the cumulative process continues and deepens. Therefore, as
long as we premise the sustainment of a capitalist system, the turnover of a downward
disequilibrium cumulative process is inevitable. Here, the reproduction conditions
for a capitalist system which are about to be violated are the following: (1) profit
existence conditions, and (2) sustainment condition for wage labor system. Let us
examine those in order.
4.4.1.1 Violation of Condition for Profit Existence
In the downward cumulative process, the profit rate decreases and approaches zero.
In the downward phase, commodities that are produced by exploited surplus labor
exceed the capitalists’ demands for them. A decreases in the aggregate amount of
surplus labor that is caused by a decrease in labor expenditure and employment
arises, and a decrease in profit rates, i.e., the exploitation rate that informs individual
capitalist as a market signal about the aggregate situation, occurs.
This becomes even clearer when we consider the extreme case: What would
happen if capitalists did not make private consumption nor accumulation demand at
all, if there was no demand for surplus products? Capitalists, as a whole, would never
4.4 Reversal 231
make profits. In that case, if the exploitation rate were to be positive, the accumulation
of unsold products would be inevitable, and they would not be able to make profits
by sales. If they tried not to accumulate unsold stock, the exploitation rate must have
been zero. In fact, when both the accumulation demand and private consumption of
capitalists were zero, the condition for the supply and demand balance in both the
production goods and the consumption goods sectors would be as follows, in the
same notations as above:
x 1 = a1 x 1 + a2 x 2 (4.26)
w
x2 = (τ1 x1 + τ2 x2 ) (4.27)
p2
Multiply p1 to (4.26) and p2 to (4.27) and add them together,
( p1 − p1 a1 − wτ1 )x1 + ( p2 − p1 a2 − wτ2 )x2 = 0 (4.28)
The left-hand side of the equation shows the profit for the whole society. That means
that the profit ought to be zero. Capitalists as commodity producers would make
sales competition trying to decrease unsold stock. With the decrease in consumption
goods prices, the real wage rate would increase until it becomes equal to labor
productivity, with the exploitation rate being zero. If we make the assumption that
capitalists neither make private consumption nor accumulation demand, this would
be the inevitable result.
Therefore, in the downward cumulative process, the cumulatively contracting
accumulation demand of capitalists is an approach to the extreme situation above.
Hence, the violation of conditions for commodity realization relates to the violation
of conditions for profits existence; this is capitalists’ Achilles’ heel.
The source of profits is surplus labor in the production process. Using our notation,
the total amount of surplus labor S is

w
S = 1 − t2 N
p2
In the downward cumulative process, the total labor spending N decreases. At the
same time, the real wage rate w/ p2 increases. If w/ p2 approaches labor productivity
1/t2 , surplus labor certainly approaches zero.
In a capitalist system, capitalists own the means of production and they have high
power over wage laborers. Why, however, do they become unable to draw surplus
labor from them? It is because a capitalist system is not just an exploitation society,
but it is an exploitation society based on commodity production as a dominant form.
That is why capitalists are unable to determine the aggregate employment N and
the sales price of commodity p arbitrarily. If they determine the price as they wish,
the sales amount has to be determined ex post in the market, and therefore the
production amount corresponding to N that they determined is not guaranteed to
coincide with ex post amount of sales. On the other hand, if capitalists determine N
as they wish, when they try to sell the product that is produced with N , the price they
have to accept is determined ex post in the market. Therefore, whether the capitalist
class can make the standard exploitation rate and exploitation amount is, although
they make a decision on production, dependent on the interactions within the whole
economy. That is because they are only a private decision-maker as a commodity
producer and the whole economy moves as its synthetic result.
In any way, in the downward disequilibrium cumulative process, the profits face
difficulty in realization, and generating profits itself hits a wall. This is expressed
in the increasing real wage rate. The real wage rate is to exceed the upper limit to
sustain a capitalist system.
Additional Note: “The Widow’s Cruse” Theory
We need to mention two incorrect arguments here. One of them is technological inno-
vation theory that we explained as one of the profit theories in Sect. 2.2.1. According
to this theory, without technological innovation, the price will fall as the result of
capitalists’ sales competition, and eventually, profit vanishes. Thus, the existence of
a special profit through the introduction of new technology is crucial to make profits.
However, this theory is incorrect. As long as there is private consumption and accu-
mulation demand of capitalists, prices will never become so low that profit becomes
zero; even if the price falls, excess demand arises, causing it to rise again. On the
contrary, even with new technology introduction, without private consumption or the
accumulation demand of capitalists, the realized profit of the whole society has to
be zero. Readers probably ask themselves why this is the case. The answer has been
already provided in this book.
Keynesian economists often propose another argument we have to mention. That
is an argument that asserts capitalists’ private consumption and accumulation demand
to generate profit. They call it “widow’s cruse” theory (Kaldor [49]). “Widow’s cruse”
is a fairytale in which money comes out from the cruse, one coin after another. In its
analogy that claims the more capitalists spend, the more profit is generated for the
whole society. This is wrong because they hide that the source of profit is surplus
labor. It is neither capitalists’ private consumption, nor the accumulation demand that
generates profit. Capitalists’ private consumption and accumulation demand mean
that they require exploitation of surplus labor to produce all the products they demand.
In response to their requirement, laborers are employed and exploited, surplus labor
is generated, surplus products are made, and profits are generated. The source of
profits is surplus labor and not the demand of capitalists for commodities made by
surplus labor. To put it in a nutshell: the scale of demand determines the scale of
production, but the demand does not generate any production at all.
4.4.1.2 Violation of Conditions for Sustainment of Wage Labor System
In the downward disequilibrium cumulative process, as the result of the cumulative

dismissal of laborers by capitalists, unemployment increases. Individual capitalists
4.4 Reversal 233
do not care whether laborers lose their jobs and are not concerned about their living
conditions; regarded from an extreme perspective, they also do not care if the laborer’s
family becomes homeless, maybe even dying or committing suicide. Capitalists
want to do something about the downward process not because they feel sorry for
laborers, but because their profits are decreasing and their equipment is idle. As for
unemployment itself, capitalists are pleased because it drives down the money wage
rate.
The fundamental classes of the capitalist society are the capitalist class and the
wage labor class. They are mutually indispensable. Without wage laborers, capitalists
cannot exist. Without capitalists, wage laborers cannot exist. Laborers can exist
without capitalists, but as wage laborers, the existence of capitalists is a necessary
condition. This is because one of the conditions for the existence of wage laborers
is the purchase of their labor by capitalists.
What if capitalists are unable to purchase the labor from wage laborers? Laborers
cannot make a living and thus suffer. However, it goes beyond this simple fact. When
capitalists cannot purchase labor, the capitalist class loses the chain on which the
capitalist class has bound the labor class. Capitalists are the ruling class because
laborers have to be employed by capitalists to make a living. Hence, when capitalists
cannot employ laborers, the labor class ought to seek ways to live without capitalists.
This means that keeping a wage-labor system becomes difficult. Thus, the labor class,
sooner or later, stands up for a fundamental reform of capitalist production relations.
Cumulative mass unemployment shakes the foundation of the capitalist system.
If the downward disequilibrium cumulative process goes on without limit, it causes
a deepening of disequilibria to the extent that capitalist reproduction itself becomes
impossible. As long as the capitalist system lasts as a specific society for a historical
phase, this downward cumulative disequilibrium process must be halted. The reversal
from downward to upward is inevitable.
4.4.2 Triggers of Reversal
As revealed in the previous section, in a capitalist system, the suspension or the

reversal of an upward disequilibrium cumulative process inevitably causes a down-
ward disequilibrium cumulative process. Without this reversal of the disequilibrium
cumulative process, sustainment or reproduction of a capitalist system would be
impossible. Therefore, as long as we premise the persistence of a capitalist system,
the downward disequilibrium cumulative process has to be reversed, and in this sense,
reversal is inevitable as examined in Sect. 4.4.1.
In Sect. 4.4.2, we examine the triggers for reversal; please be reminded of the
notes on triggers for an economic crisis, and that it is wrong to argue that reversal is
inevitable due to a specific trigger based on the general characteristics of a capitalist
system. What we can deduct from the general characteristics of a capitalist system
is only a list of several triggers that seem to be highly probable (Sect. 4.3.2). We will
not repeat the reasons here.
4.4.2.1 Resolution of Bottleneck
In the downward cumulative process, accumulation demand decreases at an acceler-

ated speed; therefore, demand for production goods, labor, and funds also contract.
Consequently, the difficulty of access to production goods, labor, and funds, i.e.,
the bottleneck that appeared in a favorable phase, is resolved. Excess production
capacity, unemployment in the labor market, and idle funds in the financial market
accrue. The resolution of these bottlenecks may trigger a reversal of capitalists’ accu-
mulation demand from decreasing to increasing. When the decrease of accumulation
demand that sets off the downward process arises, being repressed by difficulties
regarding access to production goods, labor, and funds despite capitalists’ strong
will for accumulation, the resolution of those bottlenecks may reverse the trend of
accumulation demand from the repressed to the increasing condition again.
However, when bottlenecks and difficulties in access to production goods, labor,
and funds are resolved, it does not always make capitalists’ accumulation demand
increase, failing to reverse the downward cumulative process. Even if production
goods, labor, and funds become excess supply, turning their markets into a seller’s
market, capitalists might not increase accumulation demand. The opposite is true: it is
more likely they may decrease even more. As the excess supplies of production goods,
labor, and funds come from a production decrease due to demand and utilization rate
decreases in the production goods and consumer goods sectors, the accumulation
demand may decrease further. This may accelerate the downward disequilibrium
cumulative process.
Others, however, argue that “excess supplies of production goods, labor, and funds
cause a fall in the production goods price, money wage rate, and interest rate. As a
result, the profit improves, capitalists increase the accumulation demand again, and
the business cycle is reversed to an upward process.” Suppose we apply the logic we
already criticized in Sect. 4.2.2: shortages in the labor market lead to an increase in
the real wage rate, which leads to a decrease in the exploitation rate and shrinking
accumulation demand. Their logic can be summarized as follows: moderation in
the labor market condition, i.e., an increase in unemployment, leads to a declining
real wage rate, which leads to an increase in the exploitation rate and an increase in
accumulation demand. Yet, as it is already apparent, this argument is incorrect. A
decrease in the money wage rate does not equal a decrease in the real wage rate. In
the downward process, commodity prices are falling, and as the result of the decrease
in accumulation demand the real wage rate increases, leading to a lower exploitation
rate.
Consequently, the profit rate decreases. In the case that commodity prices do not
decrease, an even greater unsold stock and idle capacity accrue, so that the realized
profit rate falls again. This makes accumulation demand contract even further.
4.4 Reversal 235
4.4.2.2 Boom in Consumption Goods Sector
An essential feature of the downward disequilibrium cumulative process is the accel-

erating decrease in accumulation demand. However, as already clarified in Sect. 2.4.3
and mentioned in the argument regarding the triggers of economic crisis, when
accumulation demand decreases (increases), the real wage rate in terms of produc-
tion goods and consumption goods always increases (decreases). The amount of
production goods production and the profit rate of the production goods sector
always decrease (increase), but the amount of production and the profit rate of the
consumer goods sector can increase (decrease). Although the real wage rate in terms
of consumption goods increases while the exploitation rate decreases, the profit rate
of the consumer goods sector can increase because the price of production goods
can decrease more than the price of consumption goods. In the downward process,
resulting from the decrease in accumulation demand, if the situation occurs as just
explained, so that the amount of production, i.e., the utilization rate and the profit
rate in the consumption goods sector increases, this can be one of the triggers for
reversal.
More specifically, if the capitalists in the consumption goods sector increase accu-
mulation demand in positive response to the increase in the utilization rate and the
profit rate, and if this improves the capitalists’ expectation regarding production
goods sector, of which the utilization rate and the profit rate have decreased, it might
increase the total amount of accumulation demand. This might halt and reverse the
downward cumulative process.
However, it is wrong to think that it necessarily causes reversal. If the utilization
rate and the profit rate increase in the consumer goods sector in the downward
process, the capitalists in the consumption goods sector may not immediately decide
to increase accumulation demand for the following reasons. In the downward process,
capitalists’ expectation becomes pessimistic. Even if the utilization rate and the profit
rate show a temporary increase, they might not implement accumulation demand
for enhancement of production capacity. Even if the capitalists in the consumption
goods sector increase the accumulation demand, the capitalists in the production
goods sector may strongly decrease the accumulation demand due to the decreasing
utilization rate or profit rate. Therefore, the total amount of accumulation demand
may continue to decrease.
4.4.2.3 Private Consumption of Capitalists
When the downward disequilibrium cumulative process proceeds and the accumu-
lation demand continues to decrease, the private consumption of capitalists supports
the demand. This may suspend or reverse the downward process because capital-
ists’ demand for private consumption is different from accumulation demand. It is
the demand that is less susceptible to the utilization rate and the profit rate, which
fluctuates according to the business cycle. In this regard, it goes opposite to the
laborers’ demand for private consumption because the latter is susceptible to their
wage income and the business cycle. Therefore, in order to meet this constant demand
for consumption by capitalists, a certain level of consumer goods production is neces-
sary. On the other hand, when accumulation demand not only decreases but also falls
to the negative level, replacement of exhausted production goods is not made so that
the production capacity gradually decreases. Sooner or later, excess demand will
arise in the consumption goods sector. Consequently, the capitalists in the consump-
tion goods sector will order production goods. The production of the production
goods sector will be revived, and this may cause an upward reversal. For that reason,
capitalists’ private consumption can be one of the triggers for reversal.
Capitalists’ private consumption being held at some minimum level regardless of
the business cycle phases, in the sense that the production level cannot fall below a
certain level, will certainly play a role to suspend the downward process. However, we
cannot assure that it can always cause a reversal from the downward to the upward
process. That is because even if the capitalists in the consumption goods sector
increase the demand for production goods, in case this is covered by a decrease of
unsold stock in the production goods sector, it will not generate a production increase
in the production goods sector. In addition, although this rise in demand may increase
production in the production goods sector, it may not increase accumulation demand
to a positive level.
4.4.2.4 Replacement Demand
Each fixed equipment has its own physical service life. Physical service life describes
the period in which fixed equipment can work physically in the production process.
So, fixed equipment can support the production capacity without replacement while
they have service life. In this point, it is different from non-durable production goods
such as raw materials that are exhausted and require replacement once they are
used for productive consumption. When fixed equipment is replaced, it generates a
sizable demand for the production goods sector. This replacement demand has the
same effect as the accumulation demand on the current supply and demand relations.
That is because the replacement demand for fixed equipment is greater than that for
the part that is worn out by the current production.
If replacement demand for fixed equipment appears in a downward process, the
market of the production goods sector improves directly while the consumption
goods sector improves indirectly. This can be a trigger of reversal through changes,
from a decreasing trend of accumulation demand to an increasing trend.
However, there is no guarantee that the replacement demand for fixed equipment
necessarily becomes a trigger to reverse from a downward process to an upward
process. First of all, even if some capitalists make replacement demands for fixed
equipment, other capitalists may not follow and continue to make negative accumu-
lation demands. As a result, the demand for production goods for the whole society
may not increase. Secondly, if all capitalists make only replacement demands for
fixed equipment, the demand for production goods increases only in the period when
the replacement demand is implemented; other than during that period, demand for
4.4 Reversal 237
fixed equipment remains low. This generates a so-called replacement cycle. However,
this cycle does not have an upward trend. Although some people misunderstand this,
the replacement cycle is different from the business cycle, and this cycle happens
only at the bottom that is reached in the downward process of the business cycle.
Please note that the replacement demand for fixed equipment does not necessarily
arise when physical service life comes to an end. It may arise earlier than its service
life, and it may not arise even when it passes. That is because firstly, even if the
physical service life is given—let us assume ten years, it is not necessarily profitable
for capitalists to continue to use the fixed equipment for these ten years.18 In fact, in
the downward process of a business cycle, as the real wage rate increases, the real
wage rate may exceed the labor productivity under production with the fixed equip-
ment. Then, even if the physical service life has, say, three more years left, they have
to abandon this fixed equipment in seven years. It means that the economic service
life becomes seven years. When it comes to the economic service life, replacement
demand may arise earlier; not for the fixed equipment with the same technology as
before, but for equipment embodied with higher labor productivity and new tech-
nology. Secondly, even though the physical service life (and thus the economic life)
of fixed equipment has already passed, replacement demand may not arise. Capital-
ists may decide not to maintain the current production capacity, but to decrease it by
creating negative accumulation demand. This is because they are pessimistic about
the future due to a decrease in the utilization rate and profit rate in the downward
process.
4.4.2.5 Introduction of New Production Methods
We examined the process that forces capitalists to switch to new technologies or to

go bankrupt in Sect. 4.3.3.3. The gist of our argument was that, as the result of the
increase in the real wage rate in a downward process, the force by which production
methods with low labor productivity must be abandoned forcibly starts. Capitalists
are forced to choose between bankruptcy or the introduction of new production
methods. This force is the most important trigger that makes the capitalist system
get out of the forced simple reproduction at low levels and turns upward. In order
to introduce new production methods, capitalists have no choice but to purchase
production equipment embodied with the new production methods. The amount of
money that needs to be spent on this is far higher than to depreciate the current
production. Thus, the demand for production goods, i.e., accumulation demand that
exceeds the scale of replacement demand, is generated again.
When we considered how capitalists make decisions on accumulation demand
in Sect. 4.1.3, we proposed that the capital accumulation rate, i.e., the proportion
18 Capitalists will not stop operating production equipment even when the sales price decreases
below the cost, including the depreciation of production equipment. That is because it is profitable
to operate as long as the sales price exceeds current expenses. Thus, they will not replace such
production equipment in a situation like the one just mentioned.
of accumulation demand to existing capital, is an increasing function of the utiliza-

tion rate or the profit rate. We argued that this plays an important role in giving a
cumulative nature to the disequilibrium. This nature of decision-making on accumu-
lation demand reflects the characteristic of capitalists’ decision-making and, there-
fore, that of the capitalistic production relation. However, if all capitalists took this
behavior in decision-making, under any circumstance, the downward cumulative
process would not stop but increasingly progress, and it would finally stop only
when it hits the floor that is supported by the capitalists’ private consumption, as
mentioned in Sect. 4.4.2.3. Moreover, it would not turn into the upward process
unless there arose factors such as a large increase in expenditure by states and others
for purposes other than reproduction. However, in the history of the business cycle
that we know, a downward process has never hit the above-mentioned floor, and
business cycles turned upward without increase in state expenditure, except for the
period after the Great Depression in the 1930s.19 This means the following: On one
hand, the way capitalists make decisions on accumulation demand has the nature
which we described in Sect. 4.1.3. On the other hand, it also has such nature that
capitalists increase the accumulation demand despite a low utilization rate and a low
profit rate, possibly as low as even below zero. They do so precisely because of the
low utilization rate and the low profit rate. Why do capitalists increase accumulation
demand for the very reason that the utilization rate and profit rate are extremely low?
It is because they are forced to go bankrupt, being not capitalists anymore unless they
introduce new production methods and increase labor productivity. This enforcement
is made by the increase in the real wage rate and is accompanied by the decrease in
the exploitation rate in the downward process.
Of course, not every capitalist takes such actions of forced introduction of new
technology and increasing accumulation demand. Firstly, those capitalists who have
already adopted production technology with higher productivity, mainly large compa-
nies, may feel less pressure from such enforcement than other capitalists, even in the
later phase of the downward process. Secondly, the capitalists with less fundraising
ability are unable to get funds to purchase the equipment for the introduction of new
technologies, even when they are forced to introduce new technologies. They have
no choice but bankruptcy. In any way, since some capitalists increase accumulation
demand to escape bankruptcy by responding to the enforcement in the downward
process, the capitalist system can reverse sooner or later and continue to reproduce
itself without depending on “external” factors such as state intervention.
As expressed above, an increase in accumulation demand for the introduction
of new production methods is one of the most important triggers to reverse the
downward process. However, this does not necessarily mean that a capitalist system
immediately begins an upward process. In this point, it is different from the case
in which a downward process begins as soon as accumulation demand decreases.
Under slightly improved market condition due to the emergence of accumulation
19 At the time of crisis 1929, the capitalist system was already at the stage in which relying on
“self-recovery” put the system on the verge of a crisis; that is to say, a general crisis. For this reason,
state monopoly capitalism was required and was established.
4.4 Reversal 239
demand, if the operation of production equipment hitherto suspended resumes, each

capitalist’s profit rate may not increase enough, or excess demand may not arise.
Then, accumulation demand may not continue to an increase, and there may be no
further accumulation demand in the next period. This process repeats: sales compe-
tition, joined by capitalists with newly established new technologies, lead to a halt
of production with inferior technologies, which leads to an enforced introduction
of new production methods. Consequently, the accumulation demand for the intro-
duction of new technologies raises the profit rate in the production goods sector and
reaches the level at which excess demand is generated in that sector. At this stage,
accumulation demands induced by high profit rates and favorable market conditions
arise. As a result, an upward disequilibrium cumulative process accrues, as examined
in Sect. 4.1.
4.4.3 Business Cycle
In Sect. 4.1 we explained that a cumulative process of disequilibrium always arises in

the capitalist system. In Sect. 4.3 we explained that the upward cumulative process is
reversed downward by a certain trigger. In Sect. 4.4 we explained that this downward
cumulative process, initiated by the turnover, is reversed upward by a certain trigger,
and the upward cumulative process starts. We explained that production in the capi-
talist system has to take the form of a movement called business cycle (trade cycle).
Thus, production forms a business cycle in the capitalist system. At any point in this
business cycle, the economy is in a state of either upward or downward disequilib-
rium. That is, the condition that smooth reproduction is carried out in the capitalist
system is not satisfied at any instant.
Nevertheless, the capitalist system realizes extended reproduction, and reforms
production technologies through the business cycle in a series of disequilibria and
reversals. In that process, the labor class is forced to provide surplus labor for capi-
talists under a high exploitation rate; they are thrown into the labor market as unem-
ployed. On the other hand, the capitalist class accumulates wealth while hoarding
their own capital at a high rate of capital accumulation, destroying each other’s small
capitals. This is the movement of the capitalist system.
Based on the above explanation, let us summarize what kind of cyclical move-
ments the exploitation rate, the profit rate, and the unemployment rate form in the
process of a trade cycle, and what kind of fates the labor class and small enterprises
face in that cyclical movement.
The exploitation rate makes a cyclical movement in the business cycle. It increases
in the upward phase of the business cycle and decreases in the downward phase. It
reaches the peak at the top of the upward phase, and hits bottom at the floor of the
downward phase. The increase in social and average exploitation rate in the upward
phase means that the rate of increase in the real wage rate falls below that in labor
productivity. It is not rare, under certain circumstances, that the real wage rate even
decreases. The decrease in the exploitation rate in the downward phase means nothing
but the increase in the real wage rate surpasses the increase in labor productivity.
Profit rate also makes a cyclical movement in the business cycle in a similar way to
the exploitation rate. It increases in the upward phase and decreases in the downward
phase.
What about the unemployment rate? Unemployment is absorbed in the upward
phase of the cycle. However, the exploitation rate increases in this phase, as explained.
When the unemployment rate of the labor class decreases, the exploitation rate is
strengthened. It is in the downward phase that the exploitation rate decreases in a
cycle—the unemployment rate increases in this phase. Thus, the exploitation rate
and the profit rate make a movement contrary to the unemployment rate in the cycle.
The fact that reproduction in a capitalist system always has to be made through
cyclical movement means that a part of the labor class is always in the state of
unemployment, in the long run, in a capitalist society.20 Unemployed laborers are
absorbed into employment in the upward process, and the laborers are expelled into
unemployment in the downward process. Consequently, on average, unemployment
always exists. For laborers who have no other means of living but selling their labor
force, this means death or having to ask for almsgiving.
The labor class receives a much higher level of real wage in the upward process of
the business cycle than in the downward process. Hence, their living conditions are
relatively eased compared to those in the downward process. However, this relatively
higher real wage level is obtained in exchange for far more labor spending. It means
that the real wage rate (real wage per hour) falls absolutely or relatively compared
to the increase in labor productivity, for which the exploitation rate increases. In
this phase, wage laborers obtain relatively more real wage, i.e., living materials by
excessive labor, whose impact on personal health and the livelihood of the laborers
we should not ignore.
In the downward process of the business cycle, the real wage rate increases,
and the exploitation rate decreases. However, this does not imply that the living
conditions of the labor class become easier. In this phase, mass unemployment and
forced shortening of working hours decrease their real wage level.
Thus, the fact that the living conditions of the labor class become more comfortable
in the upward process and increasingly harsh in the downward process is one of the
grounds that made people believe that in a business cycle a decrease in unemployment
causes a decrease in the exploitation rate. Furthermore, they believe that an increase
in unemployment rate causes an increase in exploitation rate. As repeatedly explained
here, the movement of the exploitation rate in a business cycle is the opposite.
20 Marx describes is with the following words: “it is capitalistic accumulation itself that constantly
produces, and produces in the direct ratio of its own energy and extent, a relatively redundant
population of laborers, i.e., a population of greater extent than suffices for the average needs of the
self-expansion of capital, and therefore a surplus population”. Marx [15, Chap. 25, Sect. 3, p. 443].
Marx provided two explanations on the inevitability of unemployment in the capitalist system in
Capital. One is, as mentioned here, an argument deduced from the fact that the development of the
capitalist economy must take cyclical movements. The other one is based on the rise of organic
composition. Both of them are analyzed in Capital Volume I, Chap. 25. As for the latter argument,
please refer to Sect. 5.2.2 of this book.
4.4 Reversal 241
How about small capitals such as small and medium enterprises? In the upward
process of a business cycle, as the result of an increase in the average exploita-
tion rate in society, even though new production methods are introduced at high
speed, production capacity that embodies old technologies is not scrapped forcibly;
it functions as capital making lots of profits along with new production methods.
In the downward process, because of the decrease in the exploitation rate, produc-
tion capacity that embodies production technologies with low labor productivity will
no longer function as capital. This is capital destruction. As a result, capitalists are
forced to go bankrupt or shift to new production methods. When the capitalist class
is forced to do so, not all of them can choose the latter. Only the capitalists who can
access necessary funds are able to. Financial arrangement of a capitalist depends on
the internal reserve of profits or externally raised funds. The latter takes the form
of borrowing or recapitalization. However, both are limited by its past profitability.
That is why small capitals cannot fundraise the increased minimum requirements for
the introduction of new production methods to increase labor productivity.
Capitalists who cannot introduce new production methods must go bankrupt as
prices become too low prices to make profits; they get kicked out of the capitalist
class and become the labor class, or live on accumulation from the past and wait for
an upward process in which the real wage rate decreases again so that operation with
old technologies can make profits. Other choices are stepping down as industrial
capitalists and live off the past accumulation as rentier.
Capitalists who cannot introduce new production methods but keep operation
sticking to the old production methods force their employees to work under harsher
conditions in order to decrease their losses. If they survive until the next upward
process, prices inflate in excess demand and the real wage rate decreases. Those small
capitalists’ production technologies typically have a lower organic composition of
production so that, even though their labor productivity is low, their profit rate can
increase more than those of the capitalists with higher organic-composition methods
(cf. Sect. 4.3.3.3). However, this phase does not last long, and when it turns to the
downward process, small capitalists’ profit rate decreases sharply, and the period of
loss appears again. When assessing the cycle on average, such capitalists’ profit rate
is relatively low and can take a negative value.
It seems that small capitals are forced to abandon capital or are put in an unstable
state because the real wage rate increases while the money wage rate of the labor
class does not decrease enough compared to the commodity price. Then, one may
think that the benefits of the labor class and that of small capitals conflict, so that there
is no economic basis for the unified struggle. Yet, this is not true. In the downward
process, when small capitalists are forced to scrap equipment and enter the period
of loss, parts of the labor class become unemployed. Small capitalists, like the labor
class and the small producers, are always tossed out in business cycles in the capitalist
system’s accumulation process. Just like the capitalist society cannot function without
generating mass unemployment, it cannot function without intensive and periodical
capital destruction. Both of them are implemented in the downward process that is
started by an economic crisis. Thus, the labor class and small and medium enterprises
are both suffering from the same phenomenon rooted in the same cause, i.e., capitalist
production relations.
The business cycle that inevitably occurs in a capitalist system undoubtedly plays
the following two historical roles, along with the above phenomena. One is the
improvement of the productive force, and the other is the unified struggle of working
people centered around the labor class, inclusive of small and medium enterprises.
In the downward process of the business cycle, the real wage rate increases,
forcing the abandonment of old production technologies and the introduction of new
production methods. In one cycle, it forces to scrap production capacity that embodies
old production technologies. In each cycle, production technologies change and labor
productivity increases. From the viewpoint of the introduction of new production
technologies and the abandonment of old technologies, one cycle can be described as
the following process: the introduction of new production technologies in the reversal
from the downward process leads to the stage where both new and old production
technologies function as capital in the upward process, which then leads to forced
scrapping of old technologies in the downward process. Through this process, human
productive force, i.e., its control power over nature, improves.
As already examined, in the process of the business cycle, above all in the down-
ward process, working people consisting of the labor class and small and medium
enterprises suffer from unemployment, decrease in the real wage level (not the real
wage rate), and bankruptcy. In the upward process as well, they experience an
increase in the exploitation rate, excessive labor, and business difficulties due to
increasing production goods price. Through these experiences, the labor class learns
to organize offensives, unifies not only the labor class but also small and medium
business owners and other kinds of working people, and all struggle together.
Cumulativeness in Disequilibrium
To provide a simple explanation of the cumulative process of disequilibrium we

make three assumptions: (1) Products are available as both investment goods and
consumption goods for laborers. Moreover, there is no consumption by capitalists. (2)
We assume away depreciation and obsolescence. Therefore, there is no displacement
demand. (3) There is an upper limit of production δ that is greater than the normal
production capacity.
Case: δ < δ
The model can be written as follows.

Match between supply and demand in products:
X t = Rt N t + It (4.29)
Definition of the profit rate:
X t = r t K t + Rt N t (4.30)
Production technology and utilization rate:
Nt = l X t (4.31)
X t = δt σ K t (4.32)
Definition of the capital accumulation rate:
It
gt = (4.33)
Kt
Capitalists’ behavior toward accumulation depends on the utilization rate as follows:
gt+1 = gt + β(δt − 1); β > 0 (4.34)
The utilization rate depends on the profit rate as follows:

δt = δ(rt ); δ > 0, δ r ∗ = 1 (4.35)
The model will become self-contained after we introduce the equation K t+1 = K t +
It .
Rewriting the equations from (4.29) to (4.33) as follows:
gt = rt (4.36)
δt σ = Rt lδt σ + gt (4.37)
Let us look for a steady state path that satisfies two conditions every period: normal
operation (or δ = 1) and matching between supply and demand. From (4.34), (4.35),
and (4.36), the capital accumulation rate and profit rate remain at the fixed rate
g ∗ = r ∗ over time on the steady state path. The real wage rate R ∗ satisfies, from
(4.37),
σ = g ∗ + R ∗lσ (4.38)
Next, let us investigate the process of cumulative disequilibrium. It is easy to see

from (4.34), (4.35), and (4.36), that
gt+1 = gt + β(δ(gt ) − 1) (4.39)
Take the derivatives of both sides of (4.39) with respect to gt
dgt+1
= 1 + βδ > 1 (4.40)
dgt
Therefore, we can depict a real line (gt , gt+1 ) that has a slope greater than 1, as
shown in Fig. 4.14. Suppose that the capital accumulation rate gt happens to deviate
from the equilibrium rate g*. Figure 4.14 tells us that the deviation will produce
further deviation upward or downward, which represents the cumulative disequilib-
rium process. It is easy to see by (4.35) and (4.36) that profit rate r and utilization rate
δ move in the same direction as capital accumulation rate g. By (4.35) and (4.36),
Eq. (4.37) is rewritten (without subscript t) as follows:
δ(g)σ − g
R= (4.41)
lδ(g)σ
Take the derivative of R in g as follows:
Fig. 4.14 Cumulative disequilibrium process

dR gδ (g)σ − δ(g)
= (4.42)
dg lσ δ 2 (g)
It is straightforward that the real wage rate moves in a direction opposite to capital
accumulation rate g (hence, the profit rate) if the elasticity of utilization rate δ with
respect to profit rate r (or gδ (g)/δ) is less than 1.
Incidentally, there is some period t0 such that the system cannot continue after
period t0 on the upward cumulative disequilibrium process because assumption (3)
says that there is an upper limit of production δ to which the utilization rate will go
up under the upward process. Then, we must switch to a new system, to be discussed
in Section “Case: δ = δ”.
Case: δ = δ
Let us maintain the assumption of matching supply and demand for products. Since
utilization rate δ stays constant at upper limit δ, it is not a suitable assumption that
the capitalists’ behavior in determining accumulation (i.e., the accumulation rate)
depends on the utilization rate. Therefore, let us switch to a new assumption: that the
capitalists’ behavior toward accumulation depends on the current period’s realized
profit rate rt . Assuming the rate of accumulation g increases as rt is high:

gt+1 = gt + γ rt − r ∗ ; γ > 0 (4.43)
Because we have (4.36), again by the maintained assumption, (4.43) is written as

follows:

gt+1 = gt + γ gt − r ∗ (4.44)
Therefore, the upward deviation produces further upward deviation and the capital
accumulation rate g goes up. Since the utilization rate δ remains constant at upper
limit δ, the elasticity of the utilization rate with respect to the profit rate is 0. Therefore,
the real wage rate shows a steady decline.
Chapter 5
Tendency Law in Capitalistic
Accumulation
Abstract This chapter considers what becomes of the capitalist society in the long
run. As the capitalist economy moves through the cycle described in Chap. 4, as Marx
and Lenin stated, the material productive forces of society come into conflict with the
existing relations of production. There come challenges in finding markets, in falling
profit rates caused by increases in productivity, in financing the basic production
sectors, in the use of public funds by private capital, in the increasing capacity to
manipulate nature and information, in worsening pollution, and in deepening unrest
in both the ruling and working classes. These changes in the economic foundation
lead to transformations in the superstructure, innovations in production technologies,
and a new social order: competition evolves into monopoly, and capitalism in the
imperialist stage progresses to the comprehensive socialization of production.
5.1 Arguments on Tendency Law
5.1.1 Counterarguments Against Tendency Law
As time progresses, a capitalist system must face the question as to what kind of
state it will converge into over the long term. Are there any laws as answer to this
question? Details may develop in a thousand ways, but in general, can we tell a
certain tendency as the law, or is the long-term tendency itself so indefinite that it is
impossible to recognize?
Several scholars deny the existence of a long-term tendency law. Let us examine
the following two arguments as primary examples: (A) Argument A proposes that the
laws of a capitalist system originate from treating them as if the system lasts forever,
and postulates that the verification of the validity of the law is only dependent on
its theoretical consistency.1 (B) Argument B proposes that it is impossible to predict
1 Uno [66, pp. 59–60].
16-7905-6_7
248 5 Tendency Law in Capitalistic Accumulation
Capitalist Peculiar
production economic
relations phenomena
Fig. 5.1 Relationship between production relations and economic phenomena
historical developments over the long term, as growth is affected by our knowledge
growth.2 It reasons as follows: the state of human society is dependent on human
behavior, but the latter is subject to influence by the growth of humanity’s knowledge;
however, it is impossible to predict how our scientific knowledge will grow in the
future. Let us examine those two arguments in sequence.
5.1.1.1 The First Argument
When we think of the law of a capitalist system, premising capitalist production

relations, we have to clarify what kinds of economic phenomena are inevitable and
how such economic phenomena maintain and reproduce the presupposed capitalist
production relations. By clarifying them, we can understand how the capitalist system
can sustain itself as a particular kind of society, as well as its peculiarity.
This means that, through cyclical interrelations like in Fig. 5.1, we show the
mechanism through which capitalistic production repeats and a capitalist system
reproduces itself. It is clear that such a mechanism exists, and, needless to say,
grasping it is a critical task. Marx was the first to demonstrate it, and one of the aims
of Capital was to analyze it.3 In this book, we pursue this task as an essential goal.
However, is it correct to consider this to be the only side that can be grasped as
law? Do particular economic phenomena rooted in capitalist production relations
not only maintain and reproduce the premised capitalist production relations, but
also generate all of the conditions that sublate and extinguish the premised capitalist
production relations? As explained in Sect. 2.1 of this book, if capitalist production
relations can only sustain themselves and function when the productive force has a
specific character and level, economic activity under capitalist production relations
may change the character and level of the productive force until it finally reaches a
critical point at which capitalist production relations cannot function. Furthermore,
among the classes that develop under capitalist production relations, a new entity may
come into the world that takes charge of shifting the existing production relations,
which are already inconsistent with the new productive force, to new production
relations. This means that through the reverse relationship depicted in Fig. 5.2, it
is essential to show, as law, the mechanism of the capitalist system that sublates,
extinguishes, sustains, and reproduces itself.
2 Popper [61, Preface, pp. v–vii].

3 Marx [15, Chaps. 24–25, pp. 410–505].
5.1 Arguments on Tendency Law 249
Certain level of Capitalist Peculiar

productive production economic
force relations phenomena
Fig. 5.2 Relationship among productive force, production relations and economic phenomena in
capitalist system
Marx seems to have implied the above argument by adopting the dialectic method
“because it includes in its comprehension and affirmative recognition of the existing
state of things, at the same time also, the recognition of the negation of that state,
of its inevitable breaking up; because it regards every historically developed social
form as in fluid movement, and therefore takes into account its transient nature not
less than its momentary existence.”4
Trying to find a law by “treating the capitalist system as if it repeats the same
movements and develops forever and showing its law of movements” is one-sided
as understood from above.5 There are no grounds to think that what does not repeat
cannot be grasped as law. In the repeating process, irreversible at first, quantitative
changes progress regularly. As those quantitative changes reach some critical point,
qualitative and morphological changes arise. Understanding this as a principle and
law of the capitalist system is necessary and possible. Marx attained this in Capital
and showed the general law of capitalist accumulation and the law of the tendency
of the profit rate to fall.
An argument that proposes that the “verification of validity of principle theory
depends on nothing but its logical consistency” is a fallacy, as it seeks the verification
of the economics proposition only in terms of logical consistency.6 It is just a neces-
sary condition to have logical consistency for the proposition that economics is an
empirical science, not a sufficient condition. Needless to say, it has to be consistent
with the facts.
5.1.1.2 The Second Argument
The state of human society depends on how people behave. Although it is undeniable
that knowledge influences behavior, the most crucial factor that determines behavior
is their social relationships. People’s criteria for action and attitude in choice are
determined by the position that they occupy in social relations. As to economic
behavior, production relations are the crucial determinant of behavior. Production
relations are determined by the characteristics and level of the productive force of
the people.
4 Marx [15, Afterword to the Second German Edition, (1873), p. 15].

5 Ibid., p. 15.
6 Uno [66, p. 141].
Productive Production Human

force relations behavior
Fig. 5.3 Relationship among productive force, production relations and human behavior in general
As shown in Fig. 5.3, Production relations and social relations determine human
behavior, including intellectual activity. Human behavior first affects and modifies the
productive force and then production relations. Only in this way can we understand
the long-term tendency of human society. We express the following view on this
long-term tendency: when particular production relations become incompatible with
the characteristics and level of human control over nature (i.e., the productive force),
they become extinct sooner or later. The extinction occurs in one of two ways. First,
the production relations that are incompatible with the productive force become
extinct by the human act of replacing them with compatible production relations.
Second, if the production relations that are incompatible with the productive force
fail to be substituted with more suitable production relations, human society becomes
extinct, which means the extinction of production relations. Therefore, as long as
human society continues to exist, production relations must be replaced with new
production relations when they become incompatible with the productive force.
As for the long-term tendency of the capitalist system, in particular, we need to
answer the following questions: is it inevitable for the productive force to develop
under a capitalist system? Does the direction of this development have characteris-
tics that are incompatible with the existence of the capitalist system? Does it have
characteristics that are not sustainable within the private corporate system? What
are new production relations that can replace the capitalist system when it becomes
incompatible with the productive force? Is there an entity that can execute a tran-
sition to these new production relations? These questions are highly relevant to the
development of humans’ scientific knowledge, as mankind’s scientific knowledge
has a close connection with human ability to control nature. However, the following
questions arise: what are the social relations in which humans can apply their knowl-
edge of time to control nature, and what are the social relations in which they can
develop this scientific knowledge? We cannot deny the significance of this question
by referring to the fact that we cannot predict the future development of our scientific
knowledge. As explained in Sect. 2.1, for humans to ensure their existence in nature,
it is essential that they develop their scientific knowledge and improve their ability
to control nature by applying it purposefully. For that, the transition to production
relations that are more suitable for doing so is also necessary.
5.1.2 Equilibrium Growth Theory
In recent years, neoclassical growth theory has gained popularity among bourgeois
economists.7 Their argument is as follows: when there is no innovative change in
production technologies because of the limits of the labor supply, the profit rate and
pace of capital accumulation will decrease until the economic growth rate becomes
as low as the increase rate of the labor supply. That is, although the amount of
employment increases as capital accumulates under constant production technology,
the amount of employment cannot possibly exceed the labor supply, and neither can
the pace of capital accumulation.
Bourgeois economists seek a way out from this unpleasant situation by intro-
ducing innovative production technology. When innovative production technology
is introduced, it can suspend, or even overturn, the effect of diminishing returns.
Moreover, there is no need to decrease the rate of capital accumulation, and it can
maintain the pace of employment growth below the pace of capital accumulation.
So, even if there is a limit to the labor supply, it can break through the limit and
maintain a high pace of capital accumulation, preventing the profit rate from falling.
According to bourgeois theory, the introduction of innovative production tech-
nology not only works in favor of the capitalist class in escaping from a decline in the
profit rate, but also brings desirable effects for the labor class. That is, when innovative
production technology is introduced, laborers’ real wages increase while employ-
ment does not decrease (thus, it does not generate unemployment). The reasons
behind their claims are as follows: capitalists determine employment and production
so that their profits are maximized at the point at which marginal productivity equals
the real wage rate. When innovative production technology is introduced, marginal
productivity usually increases. Consequently, the real wage rate increases. Further-
more, even if employment per capita decreases due to the introduction of innovative
production technologies, labor demand will not decrease with enough of an increase
in capital stock. This means that we do not have to worry about the market problem
of the goods that are produced operating the enhanced production capability. This is
because consumption demand will be increased with a rise in the real wage. If demand
is insufficient, an increase in the new investment demand among capitalists to make
more capital accumulation will compensate for it. And, if it is still insufficient, the
state could compensate for it with effective demand policy.
Thus, according to bourgeois theory, the introduction of innovative technolo-
gies can solve any problems of capitalism and make everyone—both capitalists and
laborers—satisfied.
In Volume I and Volume III of Capital [15, 33], Marx analyzed in detail the
effects of the introduction of innovative production technology on the labor class and
capitalist society. The capitalists introduce new production technologies that improve
labor productivity to gain extraordinary profits by lowering the individual value of
their products below the social value. Once new technologies are introduced, the skills
of the laborers engaged in production with conventional production technologies
7 For a typical neoclassical growth theory, refer Solow [65], Sato [64] and Samuelson [63].
become obsolete, so that they will be demoted or thrown out into the industrial reserve
army. Under the new production technologies, laborers become subordinate to the
means of production that the capitalists own, to a great extent, more than ever. The
capitalists who run small businesses with conventional technologies and are unable to
adopt the new production technologies will go bankrupt and be taken over. All in all,
the accumulation and centralization of large capital develops. The introduction of new
production technologies works as leverage through which the industrial reserve army
is replenished or created, and capital accumulation and centralization is enhanced.
Marx also demonstrated that the accumulation process is not only a process of
increasing labor productivity, but also a process through which the social nature
of production is strengthened. This means the following: the scale of cooperation
in a single capitalistic enterprise becomes larger as a result of the accumulation
and centralization of capital. In addition, as new technologies and new products are
introduced, many industrial sectors become separate and independent, while, at the
same time, these industrial sectors become closely connected. Science, which is a
social fruit by human beings, is widely applied purposefully and technologically.
The profits accruing from all of these are taken by a small number of monopoly
capitalists.
The history of capitalism has proven that Marx’s theory is correct. And, that is
not all. The conclusions that Marx derived have become reality in even enhanced
manners at the present time. Let us review the facts concerning the conclusion that
the social nature of production will be strengthened. First, today, the development
or introduction of new technologies in basic sectors, that is, electricity, transporta-
tion, iron, and steel, among others, requires investing such an enormous amount of
money that not only personal capital, but also private monopolies, cannot afford it or
hesitate to raise it. Because of this, funds are raised and invested by the power of the
state for private monopoly. Second, along with the advancements in the productive
force, human ability to change the natural environment in the production process has
become markedly enhanced. Consequently, production activities in a single produc-
tion process, which private capitalists own and determine, not only change the nature
within of the workplace, but also influence the nature and human body in spatially
and temporally broad ranges. This has caused the serious problem of environmental
pollution. Production activities that private capitalists carry out in pursuit of profits
have an extremely negative impact on people all over the world (including people
not yet born) and destroy the natural environment. Third, all industrial sectors have
become closely connected, and science and technology have developed, especially in
enhancing information-processing ability. This raises the possibility and feasibility
for carrying out production on the basis of planning. However, in capitalist society,
this ability is used by private monopoly capital to make plans privately for profits
by collecting information from branches around the world. Or, it is used for military
purposes and for the police.
All of these facts show that the social nature of production becomes preeminent,
and it extremely contradicts, and comes into collision with, the fact that owner-
ship and decision-making are private. Phenomena such as corruption, environmental
pollution, and war have the same root: most production means are owned by private
monopoly capital in spite of the social nature of production.
The accumulation theory of bourgeois economics hides the fact that the capital
accumulation process causes such qualitative changes and hides its historical signif-
icance. By historical significance, we mean that the productive force, with its
highly social nature formed by the capitalist accumulation process, prepares material
conditions for the construction of a socialist society.
The capital accumulation process is a process in which large monopoly capital
deprives small and medium capital, micro-enterprises, and farmers. Therefore, these
people generate the possibility and reality of joining a united front led by the labor
class. The capital accumulation process creates a monopoly, and when it comes to
the stage of state monopoly capitalism, monopoly capital begins to use the power of
the state for their private profits. Therefore, the laborers, farmers, micro-enterprises,
and small and medium capital are obliged to fight against monopoly capital, and the
power of the state that is subject to monopoly capital, to maintain and improve their
livelihood, or, in the worst case, protect their lives. This means that the conditions of
the people who sublate capitalism are to mature eventually.
5.1.3 Breakdown Theory
There are arguments that propose that capitalism automatically breaks down as time
passes. One of them is Rosa Luxemburg’s argument that we examined in Sect. 3.2
of this book. She argued that market problems are never solved within capitalism
itself, and for it to reproduce itself, it always requires the seeking of a non-capitalistic
market outside; yet, this non-capitalistic world decreases as it is taken in by capitalism
until it is extinguished, and then capitalism lapses into perpetual economic crisis and
breaks down. We already found a fallacy.
Let us examine another breakdown theory that is extremely different from Luxem-
burg’s theory above. It is extremely different because, while Luxemburg’s argument
seeks the cause of breakdown in the insolvability of market problems, Henryk Gross-
mann’s argument, which we will examine now, develops a breakdown theory of
capitalist system without considering the realization issues of commodities. The gist
of Grossmann’s theory is as follows: Grossmann used a numerical example, but let
us use a general formula here.8 Grossmann’s argument can be demonstrated by the
following five equations.
X t = Ct + Vt + St (5.1)
Ct
= zλt λ>1 (5.2)
Vt
8 Grossmann [55, Chap. 2, pp. 96–101]. See also Sweezy [39, Chap. 11, Sect. 10, pp. 209–213],
and Koga [56].

St
=e (5.3)
Vt
St = ct St + Ct + Vt (5.4)
Vt
=n (5.5)
Vt
Here, C, V , S, and X denote constant capital, variable capital, surplus value, and
total value, c denotes the ratio of capitalists’ consumption to surplus value, while e
and n denote the surplus value rate and growth rate of the labor supply. (5.1) shows
that total value is the sum of constant capital, variable capital, and surplus value;
fixed capital is ignored. (5.2) shows that the organic composition of capital increases
by the rate of λ − 1 > 0. (5.3) shows that the surplus value rate is constant in each
period. (5.4) shows that surplus value is divided into capitalists’ consumption and
accumulation (i.e., an increase in constant capital and variable capital). (5.5) shows
that variable capital increases at the same rate as the growth rate of the labor supply.
Therefore, (5.5) shows that the unemployment rate is constant in each period.
Now, dividing both sides of (5.4) by Vt , yields the following:
St St Ct Ct Vt
= ct + + (5.6)
Vt Vt Ct Vt Vt
Taking into account of (5.2) and (5.5), yields the following:
Ct Ct+1 Vt+1 zλt+1

+1= = = (1 + n)λ (5.7)
Ct Ct Vt zλt
Substituting (5.2), (5.3), (5.5), and (5.7) into (5.6), we get the following:
e + [1 − (1 + n)λ]zλt − n = ct e (5.8)
The value in the parentheses of the second term on the left-hand side is negative
because n ≥ 0 and λ > 1. Since e and n are constant, when time t exceeds some
point, the left-hand side becomes negative, and then ct has to be negative. That is,
as time passes, eventually capitalists’ consumption has to become negative, so the
capitalist system automatically breaks down. Using a numerical example, Grossmann
derived a “pleasant” conclusion: that capitalists would not be able to consume after
35 years, so that the capitalist system breaks down. The reason why the right-hand
side of (5.8) becomes negative as time passes, even if it is positive at the beginning,
is that λ > 1 and λt increasingly get bigger. λ > 1 shows from (5.2) that the organic
composition of capital continuously rises. As the organic composition of capital
becomes greater, it hits a point at which capitalists can no longer consume, and the
capitalist system breaks down, according to Grossmann.
It is easy to tell that this argument is incorrect.

For the organic composition of capital to continually rise, if one tries to increase
labor demand, which is proportional to variable capital when the exploitation rate is
constant, at the same rate with the labor supply growth rate n in each period, constant
capital must grow at the rate of (1 + n)λ − 1, as you can tell from (5.7). However,
as the growth rate of living labor is n, if we assume the exploitation rate is constant,
the surplus value only grows at the rate of n. Obviously, as the necessary growth rate
of constant capital is greater than that of surplus value (n < (1 + n)λ − 1), sooner
or later, even with all of the surplus value, it will not be possible to cover all of the
necessary increments of constant capital. So far, there are no logical mistakes. The
mistake comes after that, in arguing that capitalists put all of the surplus value into
the increment of constant capital, becoming incapable of consuming. The conclusion
that the capitalist system then breaks down is highly flawed.
Why do capitalists have to stop consumption? As you can tell from the above
deduction, unless they increase constant capital at the expense of stopping consump-
tion, they cannot keep the growth rate of labor demand equal to that of labor supply
when the organic composition is rising. Then, why do capitalists make the sacrifice
of decreasing (or even stopping) their own consumption just so that they can increase
labor demand to make it equal to the growth rate of the labor supply, and keep the
unemployment rate constant? Are they that thoughtful of laborers? They are not.
When Grossmann’s “35th year” arrives, capitalists will surely consume as much as
they want. This results in the fact that labor demand can no longer keep up with the
labor supply growth, and the unemployment rate increases.9
Whatever the theories are, arguing the inevitability of an “automatic” breakdown
of the capitalist system as time passes (i.e., without humans’ self-directed actions)
is wrong. Human society is capable of shifting to new production relations only by
human actions.
9 Grossmann’s breakdown theory is wrong. However, we cannot confound the outright error in his
conclusion and political judgments made from it with the rationality of his arguments, which is
when we assume that the advancement of organic composition is sufficiently made, conclusions
such as the absolute decrease in the labor demand and an increase in the unemployment rate always
follows. In fact, in (5.8), assuming that ct is constant, n changes with time, and denoting it as nt , it
becomes:
e + {1 − (1 + n t )λ}zλt − n t = ce
Here, if we assume nt as the increase rate of labor demand, not labor supply, and modify the above
formula, it becomes:

(1 − c)e + (1 − λ)zλt = zλt+1 + 1 n t
However, if λ > 1, when t becomes sufficiently large, the increase rate of labor demand nt always
has a negative value. The proposition—as the organic composition advances sufficiently, sooner or
later, labor demand definitely must decrease—is true without the assumption that exploitation rate
e is constant. Cf. Sect. 5.2.2.
5.2 Marx’s Tendency Law
In Capital, Marx advocated laws that appear in the long run and result from the
tendency toward the advancement of capital accumulation. The main laws are the
law of the tendency of the profit rate to fall and the law of the progressive production
of the relative surplus population. We will show, by examining the two laws, how
types of technology that are newly introduced play an important role in the persistence
of the capitalist system.
5.2.1 Law of the Tendency of the Rate of Profit to Fall
Marx showed the “law of the tendency of the rate of profit to fall” in Volume III of
Capital [33]. Its outline is as follows: the total value of commodities in each period
in the capitalist system is the sum of the total value of exhausted production goods
C and total of living labor; the total of living labor that laborers spent in the period
is split into the value of real wage V and surplus value S. The average profit rate of
the society is S/(C + V ). The average organic composition of capital of the society
is C/V , and the exploitation rate is S/V . Obviously, the profit rate in terms of value,
p is as follows:
S S/V
p = =
C+V 1 + C/V
so that the profit rate depends on the organic composition of capital and the exploita-
tion rate. In a capitalist system, capitalists are forced to introduce new production
technologies with higher labor productivity due to competition. However, the tech-
nology to improve labor productivity increases the organic composition of capital.
Consequently, the profit rate has to decrease in the end.
Marx demonstrated this using a numerical example and stated that if the rate of
surplus value was 100%, the profit rate will become as follows:

If C = 50 and V = 100 then p = 100/150 = 662 3%;
If C = 100 and V = 100 then p = 100/200 = 50%;

If C = 200 and V = 100 then p = 100/300 = 331 3%;
If C = 300 and V = 100 then p = 100/400 = 25%; and
If C = 400 and V = 100 then p = 100/500 = 20%.

5.2 Marx’s Tendency Law 257
Here, p is the profit rate in terms of value.10

Many critics of Marx criticized this view as follows. When the organic compo-
sition of capital rises, the profit rate will decrease, as long as we assume that the
exploitation rate remains at the same level or does not increase by very much.11
However, assuming that the exploitation rate will remain constant means assuming
that the real wage rate will increase at the same rate as labor productivity. This
assumption contradicts Marx’s idea that the labor class will become impoverished
in the process of capitalistic accumulation.
This criticism is wrong. Marx presents the ground for the claim that the profit
rate decreases, no matter how much the exploitation rate increases. That ground
is clearly shown in the above numerical example provided. Let us assume that the
five cases Marx demonstrated above are new technologies that will be introduced
to the capitalist system successively from the top. Suppose that, beginning with the
production technology shown as 50C + 100V + 100S and shifting successively to
those with higher organic compositions, the production technology now gets to the
fifth one shown as 400C +100V +100S. Under this technology, the profit rate cannot
exceed 50%, no matter how much the exploitation rate increases. Therefore, it must
decrease from 66 2/3% under the first production technology. Why is it impossible
for the profit rate to exceed 50%? Even if the exploitation rate is infinite, which
means that nothing is distributed to laborers, the surplus value can only be 200.
Namely, all of the labor spent becomes surplus labor in this case. Then, the invested
capital consists solely of 400C, whereas the wage part vanishes. Therefore, even if
the exploitation rate is infinite, the upper bound of the profit rate is rmax = 200/400
= 50%.
Let us explain this using a more general case.12 When a certain production
technology is adopted, the upper bound of the profit rate rmax is determined by
rmax = (S + V )/C. As you can understand easily, it is as follows:
S S+V
r= < = rmax
C+V C
This upper bound rmax is determined by dividing “living labor” (i.e., current labor
spent) by “dead labor” (i.e., labor materialized into production goods). This means
that it is determined by the inverse of what we call the organic composition of
production, that is the ratio of dead labor to living labor. Thus, the profit rate is
smaller than 1/(organic composition of production).
Marx thought that the introduction of production technologies to improve labor
productivity, that is, to decrease the unit value, would increase the organic compo-
sition of capital. This should be rephrased, more precisely, as it raises the organic
10 Marx [33, Chap. 13, p. 153].

11 Robinson [62, p. 38].
12 Okishio [22, Chap. 3, Sect. 3, pp. 119–122].
Fig. 5.4 Long run tendency

of profit rate
composition of production. Marx’s idea was that the introduction of production tech-
nologies to improve labor productivity increases the organic composition of produc-
tion. Consequently, as the upper bound of the profit rate decreases more and more,
the profit rate has to decrease, as shown in Fig. 5.4, in the long run.
Thus, the critics misunderstand Marx in arguing that although Marx assumed a
constant exploitation rate in his argument on the “law of the tendency of the rate of
profit to fall,” it would not hold without the assumption. As we demonstrated above,
if one premises that the organic composition of production tends to rise without
limitation, Marx’s argument leaves no room for objection.
Additional Note: Organic Composition and the Capital Coefficient
As is well known, Marx proposed at the beginning of Chap. 25, Volume I of Capital
that:
the composition of capital is to be understood in a two-fold sense. On the side of value, it is
determined by the proportion in which it is divided into constant capital or value of the means
of production, and variable capital or value of labor-power, the sum total of wages. On the
side of material, as it functions in the process of production, all capital is divided into means
of production and living labor-power. This latter composition is determined by the relation
between the mass of the means of production employed, on the one hand, and the mass of
labor necessary for their employment on the other. I call the former the value-composition,
the latter the technical composition of capital. Between the two there is a strict correlation.
To express this, I call the value-composition of capital, in so far as it is determined by
its technical composition and mirrors the changes of the latter, the organic composition of
capital.13
Marx thought that the organic composition of capital considered this way increases
as labor productivity increases.
13 Marx [15, Chap. 25, Sect. 1, p. 434].

So far, we have considered the increase in C/V as an increase in organic

composition. However, note the following:

C C S+V C S
= = +1 .
V S+V V N V
This means that C/V is determined by C/N and S/V . C/N is the ratio of labor C,
which is materialized by production means, and living labor N . S/V is the exploita-
tion rate. Therefore, when C/V increases, we have to be clear about which of the
following is the case; it is by an increase in C/N or an increase in S/V .
Here, we have to remind ourselves that Marx in the above citation made the
following restriction: “in so far as it is determined by its technical composition and
mirrors the changes of the latter.” This indicates Marx’s belief that the rise of C/V
resulting from the increase in the exploitation rate S/V , which reflects the class
relations, is not the rise of organic composition of capital. The rise in the organic
composition of capital, as Marx defines it, is the increase in C/V that results from
the increase in C/N .
The evidence that Marx considered this way can be found in many parts of Capital
other than the above citation. In Chap. 13 of Volume III he proposed that:
“[s]ince the mass of the employed living labor is continually on the decline as compared to the
mass of materialized labor set in motion by it,” “the aggregate mass of living labor operating
the means of production decreases in relation to the value of these means of production,”
and “the mass of materialized labor set in motion by living labor increases.”14
Therefore, when Marx refers to the rise of the organic composition, there is no
other way for us to take it than as meaning quite simply the increase in the following:
C C Materialized Labor by Production Means

= = .
N S+V Living Labor
The ratio between the materialized labor by production means (i.e., dead labor
and direct or living labor), C/N is approximately equal to the capital coefficient.
Namely, C is invested labor that is materialized by production means, and we can
express it as follows:
C = K ×t
Here, K is production means measured by value-in-use and t is bestowed labor per

unit of production means. The bestowed labor of the net product Y is equal to the
sum of direct labor N , that is,15
N = Y × t.
14Marx [33, Chap. 13, pp. 154–156].

15As for the sum of bestowed labor of the net production being equal to the sum of direct labor,
see Okishio [21, Part 1, Chap. 3, Sect. 1, p. 194].
Therefore, from the above two formulas, the ratio becomes as follows:
C K
= .
N Y
The right-hand side of the above formula is the so-called capital coefficient.16
5.2.2 The Law of the Progressive Production of the Relative

Surplus Population
Marx showed the law of “progressive production of relative surplus population”

in Chap. 25 of Capital, Volume I [15], and the outline is as follows: Assuming a
constant exploitation rate, the size of labor demand is proportional to the size of
variable capital V . However, as it is the following:
1
V = C
C/V
V has to decrease when the increase rate of the organic composition of capital C/V
is greater than the increase rate of constant capital C. Consequently, the relative
surplus population (i.e., the industrial reserve army) has to increase progressively.
Marx’ critics, however, argue as follows. No matter how the organic composition
of capital rises, if constant capital and total capital increase faster, labor demand keeps
increasing, and the relative surplus population will not increase progressively.17 This
criticism is similar in nature to that of the law of the tendency of the rate of profit to
fall, which we mentioned in Sect. 5.2.1. The criticism there was that if the exploitation
rate becomes high enough, the profit rate will not drop, in spite of the rise in organic
composition.
Let us show that such criticism is incorrect and that a progressive increase in
the relative surplus population is inevitable as far as we assume a sufficient rise in
organic composition.
5.2.2.1 Capital Growth Rate and Profit Rate
When proving that the rise of the organic composition causes an absolute decrease in
labor demand sooner or later, we first must see whether the growth rate of total capital
can rise indefinitely, or if it has some kind of upper bound. The growth rate of capital
is (C + V )/(C + V ), but as the value devoted for accumulation, C + V is
a portion of surplus value S (Capital, Volume I [15], Chap. 24, Sect. 4), which is
16 As for capital coefficient, refer to Miyazawa [59, p. 325].

17 Oppenheimer [60, Buch II, p. 25].
Fig. 5.5 Profit rate and

increase rate of capital stock
clearly S > C + V . Therefore, as one can tell, the following inequality holds:
S C + V
> (5.9)
C+V C+V
Basically, as the left-hand side is the average profit rate, the profit rate is greater than
the growth rate of capital. The growth rate of capital cannot exceed the average profit
rate. Here, we note that we are not thinking about an individual capitalist or a sector
but the whole society over the long term.
As shown in Sect. 5.2.1, as organic composition rises, although many factors work
in the opposite direction, the growth rate of total capital also has a declining tendency
in the long run, along with the declining tendency of the profit rate in the long run.
As one can tell from Fig. 5.5, if the profit rate has to decrease sufficiently, this
result is inevitable. Fig. 5.5 also shows that this does not prevent the growth rate of
capital to sometimes increase. This is literally the tendency to fall.
5.2.2.2 Tendency of Labor Demand to Fall
As we already know from Sect. 5.2.1, the following relationship exists:
Living Labor
> Profit Rate (5.10)
Dead Labor
From (5.9) and (5.10), we get the following very important relationship:
Growth Rate of Total Capital < Profit Rate

Living Labor
<
Materialized Labor in Production Means
Marx considered that, along with an increase in labor productivity, the ratio of living
labor to the labor materialized in production means would decrease. So, if this ratio
decreases sufficiently, the profit rate and the growth rate of capital also must also
decrease. Applying a similar logic, we derive the relationship as follows:
Living Labor
Growth Rate of Constant Capital <
Materialized Labor in Production Means
This is because the increment of constant capital C is obviously a portion of surplus
value S:
C < S
However, as previously mentioned, surplus value S is a portion of living labor N :
S<N
Therefore,
C < N
This means that the increment of constant capital C does not exceed the total
amount of living labor. This is why the following is apparent:
C N
<
C C
We can see that the growth rate of constant capital has an upper bound, N /C. Thus,
similar to the growth rate of total capital, if there is a sufficient rise in organic
composition (i.e., a sufficient decrease in N /C), the growth rate of constant capital
has to fall as a tendency, and it must become smaller and smaller.
Now, the volume of labor demand, N , can be expressed as follows:
N
N= C
C
Here, N /C falls as long as we assume that the organic composition increases.
Therefore, the direction of N is determined depending on whether constant capital
C increases at a higher rate than offsetting the decrease in N /C. However,
as shown above, the rate of the increase in constant capital C cannot exceed
(living labor/materialized labor in production means). Moreover, this upper bound
has a tendency to fall as a result of the rise in organic composition. Therefore,
constant capital C cannot keep increasing at a high rate. Thus, sooner or later, labor
demand N has to decrease.
This can be confirmed with the following simple calculation. Let α denote the
following:
C
α≡ .
N
Then, N can be expressed as follows:
C
N= .
α
If we denote the rate of change in N , C, and α as N̂ , Ĉ, and α̂ respectively, this

expression yields the following equation:
N̂ = Ĉ − α̂.
Now, it follows from the argument above that Ĉ has a tendency to fall. Ĉ converges
to 0 as C/N gets sufficiently large, and the above equation becomes N̂ = −α̂. Since
it is assumed that α̂ > 0, it can be concluded that N̂ < 0 holds after all.
The point of argument is that the rates of increase in total capital and constant
capital are bound from above by (living labor/materialized labor in production
means). This is a proposition that can be established immediately, once we admit
that surplus value is the part of living labor that laborers spend (S < N ), and that the
source of the increase in capital (i.e., accumulation) is surplus value (V +C < S).
The above argument establishes the following. As long as we assume that the
organic composition will rise sufficiently, labor demand inevitably decreases sooner
or later, and therefore, unemployment (i.e., the relative surplus population) has to
increase progressively.
Additional Note: Capitalists’ Choice of Technology and Organic Composition
As long as we assume a sufficient rise in the organic composition of production, we
show the law of the tendency of the rate of profit to fall and the law of the progressive
production of relative surplus population to hold inevitably. Let us now examine the
cases in which capitalists introduce new technologies that come with a remarkable
rise in the organic composition of production.
In doing so, it is convenient to separate the following two issues. First, what kind
of production technology is introduced by the capitalist who takes the lead, starting
earlier than his or her peers, in a certain sector? Second, in which case do capital-
ists introduce new technology first, cutting their sales price by taking advantage of
technology in price competition, and thus forcing other capitalists to adopt the new
technology?
The Case of Leading Introduction
In this case, the sales price has not yet fallen. How does a capitalist make the decision
on introducing new technology? Suppose that a production technology is adopted to
produce some amount of product in terms of value-in-use by the labor as follows:
60C + 120V + 120S = 300

Let us consider whether a capitalist adopts a new technology to produce this amount
of product with the following technology, if the real wage rate is constant, then
100C + 12.5V + 37.5S = 150 (5.11)
If a capitalist adopts such a technology, the organic composition of produc-

tion becomes 2 (= 100/50), therefore the maximum of the profit rate becomes its
inverse, that is, 50%, which is lower than the original level 120S/(60C + 120V) =
120/180 = 66 2/3%, and the profit rate decreases.
If a new technology, shown as (5.11), is adopted, labor productivity will double.
In fact, while the old technology requires 300 units of labor directly and indirectly,
the new technology only requires 150 units of bestowed labor. Thus, the value of
the product becomes halved. By the way, each term in (5.11), especially 100C, is
measured by the value of production goods after the increase in labor productivity.
We assume, for simplicity, that production and consumption goods have the same
increased rate of labor productivity (i.e., the same decreased rate of value).
When a capitalist considers whether to adopt new technology (5.11) or not,
he compares the unit cost of the new technology with that of the old technology,
60C + 120V . Then, by what value is the cost of the new technology evaluated? Is
it the current value derived by the old technology, or the new value after the new
technology becomes a social standard? When the capitalist introduces the new tech-
nology first, the social value of products is determined under the old technology.
Only after the other capitalists follow and the new production technology becomes
standard, is the social value determined by the new technology. Therefore, when a
capitalist introduces a new technology for the first time, the production costs of the
new technology and the old technology are compared on the basis of the old social
values.
If this argument is correct, capitalists do not switch from the old technology to
the new technology (5.11) unless the real wage rate increases significantly. This is
because the cost of production with the new production technology is higher than
with the old technology when they are calculated under the old social values. In fact,
the exhausted production goods whose value is calculated as 100C under new value
costs and 200C—twice as high—under the old value because labor productivity
has doubled. This means that the new value is just half of the old value. Then, the
following expression holds:
60C + 120V < 200C.
This means that even the part of exhausted production goods alone in the cost of
production with the new production method is higher than the cost of production
with old technology.
If the real wage rate increases, capitalists introduce new production technology
(5.11). Let us suppose that the real wage rate increases and the value-composition
under the old production technology changes to the following:
60C + 180V + 60S = 300.
This means that the real wage rate increases by 50% and, as a result, the wage part
increases whereas the surplus part decreases accordingly. In this case, the cost of
production with the old production technology is 60C + 180V = 240. However,
what is the cost of production with the new production method under the increased
real wage rate when measured according to the old value? The part of the exhausted
production goods is 100C × 2 = 200. The wage part is as follows:
180V 1 75
× 50 = 37 = .
180V + 60S 2 2
The latter is seen as follows: Under the old production method, a wage of 180V
is being paid for the labor of 180V + 60S = 240. This means that the wage per
labor unit is 180V divided by 240 when measured by the old value. Conversely,
producing the same amount of product with the new technology requires living labor
of 50 = 12.5V + 37.5S, as shown in (5.11). Therefore, the wage amount is the
value shown above. Thus, as the result of increase in the real wage rate, the relation
between the cost of production with the old production technology and that with the
new technology measured under the old value turns out to be the following:
1
60C + 180V > 200C + 37 V.
2
This means that the new production method will be adopted by capitalists.
As demonstrated above, it is only when the real wage rate increases that the
capitalist who first introduced the new technology adopts the technology with a high
organic composition of production, as Marx supposed.
The Case of Introduction by Followers
What about the capitalists who did not introduce the new technology first and who
are forced to imitate those already adopting it? Let us consider how such a capitalist
is forced to react. Usually, it goes as follows. The capitalists who adopted the new
production technology earlier start sales competition and cut their prices. Those who
stick to the old production technology are pushed into ruin because their production
cost is relatively high, while, at the same time, they cannot make profits at such a
low sales price. Thus, to survive, they are forced to adopt the new technology.
We consider that some capitalists are producing a certain amount of commodities
with the old technology under the situation as follows. Their individual value is as
follows:
60C + 120V + 120S = 300.
The following new technology is adopted to produce the same amount of the
commodity. It doubles labor productivity with a direct and indirect bestowed labor
amount of 150 instead of 300. Such adoption happens both for production in the
production and consumption goods sectors. The capitalists who introduce new tech-
nology start price competition and, for instance, cut both production and consumption
goods price in half. Yet, let us assume that the real wage rate stays constant. What
will happen to the capitalists who stick to the old technology?
In that case, although the bestowed labor is 300 to produce a certain amount of
a commodity with the old technology, it is evaluated as only 150 (= 300/2) as the
social value. This means that it falls below the production cost of 60C + 120V ,
which results in the loss of 30 (= 180 − 150). They thus seem to be forced to
abandon the old technology and adopt the new technology. However, is this really
true? We assumed above that the price is cut in half due to a competitive price cut
in both production and consumption goods by leading capitalists. If so, the cost
of the exhausted production goods in the total production cost becomes 30C from
60C as the result of the decrease in the production goods price. Moreover, from the
assumption of the fixed real wage rate, the cost of the wage is supposed to decrease
from 120V to 60V due to the decrease in the consumption goods price. Consequently,
the profit is 150 − (30C + 60V) = 60, and the profit rate can be at the same level
as the old level (66 2/3%). Thus, price competition due to the introduction of a new
technology does not necessarily force capitalists to switch to a new technology (cf.
Sect. 4.3.3.3).
Now, what is the force under which capitalists are obliged to introduce new tech-
nology? Again, it is an increase in the real wage rate. That is, the real wage rate
increases not when the price simply decreases, but when it decreases compared to
the money wage rate. Let us assume that the money wage rate stays the same as
before, but the prices of production and consumption goods are cut in half by the
leading capitalists. This is equivalent to assuming that the real wage rate has doubled.
What happens to the capitalists who stick to the old technology in that case?
Same as before, 300 of the labor bestowed to a certain amount of commodity
production is evaluated as only 150 as the social value. Conversely, the cost of the
exhausted production goods in total production cost decreases from 60C to 30C due
to the decrease in the production goods price. The issue is the wage. If the real wage
rate is constant, it decreases from 120V to 60V due to the decrease in the consumption
goods price. However, as we assumed that the real wage rate increases at the same rate
as the rate of price decrease, that is, a two-fold increase, it stays at 120V as before.
Consequently, profit becomes 150 − (30C + 120V) = 0, and the profit vanishes. To
make profits, the capitalists are forced to adopt new technology. Thus, we see that it
is the increase in the real wage rate that forces the follower-capitalists to adopt new
technology.
Now we know that for capitalists who introduce the new technology first, and for
the capitalists who follow them and adopt new technology, the increase in the real
wage rate is the absolute condition for introducing new technology.18
18For a more detailed explanation about real wage rate and choice of technology, refer to Okishio
[22, Chap. 3, Sect. 2, pp. 106–110 and Chap. 3, Sect. 3, pp. 136–139].
5.2.3 Implication of the Laws
Following the logic of Capital, as long as we assume that organic composition rises
sufficiently, the fall in the profit rate and the absolute decrease in the labor demand
are inevitable in the long term. In other words, we showed that Oppenheimer and
Robinson, who argued that no matter how high the organic composition becomes,
the fall in the profit rate and absolute decrease in the labor demand are not inevitable
when a rise in the exploitation rate or an increase in the capital offsets them, are
wrong.
What is the implication of Marx’s proposition? As you can tell from the argument
above, the fall in the profit rate, the decrease in labor demand, and the increase in the
unemployment rate resulting from a sufficient rise in organic composition never come
from the difficulty in the realization of a commodity. Moreover, they do not come
from the decrease in the exploitation rate for another reason. As long as we assume
that the organic composition rises sufficiently, no matter how much the exploitation
rate increases and effective demand is infused in a Keynesian way, they are inevitable
consequences. Therefore, they have an inevitable nature, even if monopoly capital
makes the state interfere heavily in the economy, strengthening their exploitation and
making effective use of all of the means to create markets.
When technological change that keeps the organic composition rising continues,
the “equilibrium” accumulation trajectory, which we defined in Sect. 3.4, does not
exist. This means, in the long term, on average, the capitalist system is unable to
follow a trajectory that manages to solve the realization problem and keep the unem-
ployment rate constant. Therefore, it ends up with an accelerated increase in the
unemployment rate or an absolute impasse of the realization problem, which busi-
ness cycles do not solve. This means that the capitalist system is no longer able to
reproduce or sustain itself.
The only way out from such a situation is to both prevent C/N from increasing
sufficiently and the ratio of living labor to materialized labor by production means
from decreasing sufficiently, which is the premise of this conclusion.
Marx postulated that the introduction of production technologies that increase
labor productivity will increase C/N . However, you should not interpret his thinking
as follows: A change in the production process that increases labor productivity,
always, without exception, and inevitably, increases C/N . In fact, we can find the
following passage in Marx:
This diminution in the variable part of capital as compared with the constant, or the altered
value-composition of the capital, however, only shows approximately the change in the
composition of its material constituents. […] The reason is simply that, with the increasing
productivity of labor, not only does the mass of the means of production consumed by it
increase, but their value compared with their mass diminishes.19
Thus, in the case in which the increase in labor productivity is so sharp that it lowers
the value of production means, C/N may not increase. Marx also argued that “outside
19 Marx [15, Chap. 25, Sect. 2, p. 439].

of a few cases (for instance, if the productiveness of labor uniformly cheapens all
elements of the constant, and the variable, capital)” the organic composition rises.20
Therefore, based on his recognition of this fact, Marx considered that changes to
increase labor productivity usually increase the organic composition. At the same
time, he was aware of the cases in which this did not apply. Paying attention to that
possibility is very important for us, too.
In fact, if any change that increases labor productivity were to necessarily increase
C/N , the only option that prevents the profit rate and labor demand from decreasing
would be to suspend the increase in labor productivity. However, this is made impos-
sible by competitive pressure among capitalists, and urges a relative surplus value to
be sought. Therefore, it can be concluded that there is no escape and that the capitalist
system has no choice but to dive right into the end automatically (breakdown theory,
cf., Sect. 5.1.3).
However, if it is possible to introduce new technologies that do not increase C/N
while increasing labor productivity, the capitalist class will be desperate to adopt
them. For this purpose, they even ask for full support from the state. In fact, we
should realize that this is actually happening in reality. The state cannot prolong the
capitalist system only with the market policies that Keynes prescribed. It is absolutely
necessary to develop technologies that increase labor productivity without increasing
C/N and save C so as not to increase C/N , even by sacrificing the lives of laborers
and residents.
This necessity for developing and introducing new technologies that increase labor
productivity while preventing the organic composition from rising is a problem of
critical importance for reproducing and sustaining the capitalist system. Has such
development and introduction of new technologies ever happened in a capitalist
economy? To answer this question, we must examine the past movement of the
organic composition in capitalist economies. As shown in the Additional Note to
Sect. 5.2.1, the organic composition of production C/N is roughly equal to the capital
coefficient calculated by government statistics. There are numerous estimations made
regarding the capital coefficient over the past 100+ years. None have shown the
tendency of a sharp increase. This fact highlights that the capitalist economy has
somehow succeeded to this date in introducing new technologies that prevent the
organic composition from rising while increasing labor productivity.
5.3 Capitalist Production Relations and Fetters

to the Productive Force
We haveto consider that all social forms present during every stage of the history
of human society have had a reason for existence and rationality in their historical
stages. Otherwise, changes in social forms in the history of humankind would not
have any principles. For instance, social forms could have changed from a capitalist
20 Marx [33, Chap. 13, p. 161].

5.3 Capitalist Production Relations and Fetters … 269
society to a society based on slavery, a primitive community, or a feudal society.

However, having a capitalist system at the beginning of human society is absolutely
impossible. This is because labor productivity is low in the beginning, and surplus
product is never enough to support an exploiting class, which hinders the development
of a social division of labor to produce commodities.
In addition, in each stage of history, all social forms can only exist when they
have a reason for existence and rationality; if their stage passes, they have to switch
to another social form suitable to the next stage of history. If they do not develop
and adapt, human society stagnates. Had the Japanese society maintained the social
form of a feudal system, Japanese society would have stagnated or even dissolved.
The new historical stage that makes human society switch to the next social
form is brought about by the social behavior of humans in the previous social form,
especially in terms of production activities. Otherwise, there would be no inevitable
link between the social forms that come in succession. Humans’ behavior under a
social form creates a new historical stage through which conditions for transition to
the next social form are built.
What characterizes a historical stage that determines a transition of social forms as
above? It is humans’ productive force. Humans are a biological species that emerged
in some stage of the history of nature. For this species to survive the fight against
the natural environment, they need to modify the environment. Fighting against
nature in a special way, they have a decisive difference from other living things (cf.
Sect. 2.1). The humans engaged in this fight have dramatically enhanced their ability
to control the natural environment (i.e., the productive force), compared to other
biological species. Humans’ production activity is the basis for the continuance and
development of society, and the productive force is its measure.
The most basic humans’ social relations in a social form are the social rela-
tions in humans’ production activity, that is, production relations (cf. Sect. 2.1).
Therefore, what is mentioned above can be rephrased as follows: Some specific
production relations have a reason for existence at a certain stage of the productive
force. Society improves the productive force under production relations. However,
the time will come when production relations prevent the enhanced productive force
from developing further. Thus, according to Marx, such production relations must
be destroyed.21
Under the capitalist system, human productive force has eminently increased in the
form of the productive force of capital. Of course, the increase in the productive force
in capitalist society has not been achieved through a smooth and harmonic process.
In capitalist society, the productive force has increased due to people’s grief and pain
caused by the following: the brutal exploitation of laborers in the production process,
the breakdown of small and medium-sized enterprises and old industries with old
technologies, banishment into the industrial reserve army, periodic economic crises,
imperial wars as a struggle among monopoly capital including massacres, and the
suppression of some ethnic groups, to name just a few. Although this is an irrational
process, at this stage of the productive force, labor productivity has increased in a
21 Marx [2, Preface, pp. 262–264].

way that is only possible under a capitalist system. Therefore, at this stage, we can say
that the capitalist system has played a historic role in increasing the productive force.
Even at this stage, there is a contradiction between private capitalist ownership of the
production means and the social character of production in the capitalist society.22
Yet, this contradiction has been temporarily solved, taking the form of commodity
production and the form of cyclical movement with periodic economic crises and
reversals.
However, as the capitalist system has increased labor productivity through periodic
economic crises in the long run, the stage at which capitalist society plays an active
role in history approaches its end. There are two reasons: (1) The productive force
reaches a new level and character that makes the capitalist system incompatible
with self-sustainment and functioning; (2) a new entity arises that generates new
production relations compatible with the level and character of the new productive
force by transforming the capitalist production relations that became incompatible
with the productive force. We will examine (1) in Sect. 5.3 and (2) in Sect. 5.4.
We will see the kind of phenomena that arise in a capitalist society when the
productive force increases and approaches a critical point under capitalist production
relations, as examined in Sect. 2.1.2. We must be careful not to simply look at this
issue from one side; we will try to comprehend its entire structure as much as possible.
5.3.1 Difficulty of Realization and a Fall in the Profit Rate

in Relation to an Increase in the Productive Force
Regarding the reasons why the capitalist production relations become malfunctioning
when the productive force reaches a certain level, the following two points are usually
made: (i) the increase in the productive force leads to market dysfunction, which leads
first to an economic crisis and then to general crisis of capitalism, or (ii) an increase
in the productive force leads to a rise in the organic composition, which leads first
to a decrease in the profit rate and then to general crisis.
(i) First point.
Certainly, when the productive force and exploitation rate increase, the contradiction
between production and consumption increases, suppressing personal consumption
relatively in comparison to the increase in production. However, even if an increase in
personal consumption is delayed relatively, as far as the increase in the accumulation
demand among capitalists offsets it, which is not assured to happen, the difficulty of
realizing this can be largely avoided. Simple under-consumption theory is incorrect
because it overlooks this point. However, to cover up the realization issue by such
accumulation demand among capitalists, that is, the demand for production goods, in
spite of the contradiction between production and consumption, the pace of capital
accumulation needs to be accelerated. As a result, if there is no change in production
technology, the demand for labor power also increases at an accelerated rate. Sooner
22 Engels [8, pp. 306–325].

or later, the accelerated accumulation hits the limit of labor supply, and it ends
up suspended. If accumulation demand decreases, the hidden contradiction between
production and consumption becomes apparent, and the economy faces the difficulty
of realization, ultimately generating mass unemployment.
Therefore, for the capitalist system to be able to accumulate and extend reproduc-
tion despite the relative suppression of personal consumption and a limited supply
of labor power, the introduction of new technologies that reduce labor is needed. In
addition, this also necessitates given capital and the suspension of production using
old technologies, including the scrapping of related equipment.
We have to be careful here; it is not only just the introduction of new technologies
that is required, but also the scrapping of old technologies. The introduction of new
technologies only decreases the additional necessary labor, but it cannot prevent
aggregate employment as a whole from increasing. To stop aggregate employment
from increasing, employment by operations with old technologies must be made
redundant and be released to the industrial reserve army.
If the relative demand shortage from the suppression of personal consumption
of laborers through exploitation is covered by capitalists’ accumulation demand or
unproductive consumption, and, if, at the same time, the introduction of new tech-
nologies and the scrapping of old technologies to raise the technological composition
of capital takes place, the capitalist system can accumulate and extend reproduction.
This is despite the suppression of personal consumption and the restriction of the
labor supply. Therefore, it is one-sided to grasp the “fetters of production relations
and productive force” in the capitalist system simply from the standpoint of the
difficulty of realization.
(ii) Second point.
The introduction of new technologies that reduce labor, combined with given capital,
raises the technical composition of capital. If it, in addition, increases the ratio of
“dead labor,” (i.e., materialized labor in production means) to “living labor,” which
approximately equals the “capital coefficient,” then the profit rate and pace of capital
accumulation cannot help but decrease (cf. Sect. 5.2.1). Here, we need to note that
this is caused neither by the restriction of the labor supply nor by the difficulty of
realization. Thus, the decrease in the pace of capital accumulation and rise in the
composition of capital together cause a decrease in employment and an increase in
unemployment.
The introduction of new technologies, raising the technical composition of capital,
is essential for keeping the pace of capital accumulation high, in spite of the restriction
of the labor supply. However, what we have to be careful about here is that such
technologies do not necessarily raise the ratio of “dead labor” to “living labor,” which
is nearly equal to the capital coefficient. Even if a certain technology drastically
raises the technical composition of capital, the ratio of dead labor to living labor
can remain constant or even decrease as long as labor productivity, in the process
of producing production equipment and materials that are necessary for production
with that technology, is increased to such a large extent that it exceeds the rise in the
technical composition of capital. Thus, the point is as follows. The capitalist system
may break through the restriction on the labor supply by means of technological
change. It may temporarily overcome the difficulty of market realization through
policies, including the so-called “effective demand policy,” and the expansion of the
tertiary sector of industry, among others. In spite of these actions, the capitalist system
must face a decrease in the profit rate, a slowdown in accumulation, and an increase
in the unemployment rate. The only way to resolve these problems is to develop and
introduce new production technologies that drastically raise labor productivity while
preventing an increase in the ratio of “dead labor” to “living labor,” and scrap old
technologies expelled by new technologies.
From the considerations above, we establish the following understanding: both
a relation through which the increase in the productive force leads to an economic
crisis, and a relation through which the increase in productive force leads to a decrease
in the profit rate, certainly exist. However, there also exist some measures that ease or
overcome these problems. Among them are the expansion of the market by promoting
accumulation demand, an increase in unproductive consumption, development and
introduction of new technologies, the scrapping of old technologies, and especially,
the development and introduction of new technologies that raise labor productivity
and prevent the increase in the capital coefficient. If one restricts his perspective of the
relation between the existence of the capitalist system and the increase in productive
force to the view of the two relations that we considered above, one will be easily
misled. Namely, one may overlook the measures that the capitalist system practices to
prolong its life, which we described above. Or, to the contrary, one may be captivated
by a certain degree of success of these measures, leading to the incorrect conclusion
that there is no upper bound to the productive force under which capitalist production
relations can function. This is why we must consider the relationship between the
increase in the productive force and the capitalist society in all of its aspects.
5.3.2 Increase in the Minimum Required Funds

and the Mobilization of Public Funds
An increase in human productive force raises the minimum required funds required to
be mobilized for such production activities and the development and introduction of
technologies. Can this fact prevail continuously under capitalist production relations?
The following are three different concepts: the rise in the organic composition
of production, the rise in the organic composition of capital, and the increase in the
minimum required fund.23 The following example explains them in detail.
Now, let us assume that there are three technologies as shown below. To adopt
each of them, at least C + V of capital must be invested.
A:400C + 50V + 50S
23 Marx [15, Chap. 24, Sect. 3, p. 417 and Chap. 25, Sect. 2, p. 44; 33, Chap. 13, pp. 157–158].
B:300C + 20V + 80S
C:500C + 100V + 100S
Among these three, technology A has the highest ratio of “dead labor” to “living
labor” (i.e., the highest organic composition of production) (400/100). Technology
B has the highest organic composition of capital (300/20). Yet, the minimum required
fund of technology C (600) is the highest. Moreover, if the amounts of commodities
that are produced when we invest capital to technologies A, B, and C are 200 units, 160
units, and 300 units, respectively, labor productivity is the highest with C (300/700).
In this case, if we adopt production method C, we must invest at least as much capital
as 600 (= 500C + 100V ).
We argued that the rise in the organic composition of production has an important
relationship to the long-run movement of the profit rate. However, what kind of
economic meaning does an increase in the minimum required funds have? It means
the downfall of small capitals and the completion of the expulsion of the labor class
from owning production means. As already explained in examining the relationship
between the upper limit of the real wage rate and the reproduction of the capitalist
production relations in Sect. 2.4, as a result of the increase in the minimum required
funds to introduce socially standard production methods, the labor class is no longer
able to acquire the required funds, no matter how high their income. Thus, the labor
class loses access to the private ownership of the production means. For them to
regain decisions on production, it is inevitable to eliminate private ownership of the
production means and to establish co-ownership of the production means.
As for the downfall of small capitals, the long-run increase in the minimum
required funds is also significant. When forced to choose between the downfall or
introduction of a new production method, not all capitalists can avoid bankruptcy
by introducing new production methods. Only capitalists who can raise the required
funds (i.e., more than the minimum required funds) are able to succeed. A long-term
increase in the minimum required funds for introducing new technologies, on the one
hand, expels small capitalists from owning production means with social and stan-
dard production methods. In addition, it inevitably leads to the expansion of the scale
of capital required to introduce new technologies. The savings and external procure-
ments of individual private capitalists will not be sufficient for raising capital. Mergers
of small capitals facing downfall and the concentration of funds of small capitals that
changed to small rentiers are conducted; the bank and joint-stock company system has
great significance in this respect. Moreover, a collection of precautionary savings of
the labor class and small producers, and the mobilization of state funds are conducted.
Thus, in the classical sense, the large capitals invest on a large scale by mobilizing
funds that do not belong to them, which renders them decision-makers on production.
Those large capitals become increasingly bigger, and when a few large capitals get
a hold of the basic parts of production in society, the capitalist system has reached
the monopoly stage.
Private capitals exploit wage laborers and gain profits while investing in capital
accumulation, expanding and cumulating capital. For them to expand their capital
at a faster rate than possible with this approach, they concentrate funds through
mergers and acquisition of other capitals. In addition, through financial institutions,
all kinds of idle funds in society are mobilized. The mobilization of funds with
stock issues makes it possible for private capitals to concentrate a huge amount of
funds. However, the procurement of private capital through these varied streams is
limited. For example, internal accumulation of profits is limited by the size of the
realized profits. Mergers and acquisitions are limited by the relative competitiveness
between corporations, among several other factors. Credits and stock issuance are
limited by revenue projections and financial situations. More important, however, is
that even if it is possible to procure the necessary funds with the methods mentioned
above, private capitals often tend to avoid it due to the fall in the profit rate caused by
greatly increased capital coefficients as well as the risks accompanying technological
development and production activity that require large investment.
Once huge funds that exceed the limit that can be procured or that are to be
procured by private funds have been mobilized for the global control over nature,
they are paid (partially or entirely) by the public funds mobilized by state power.
In fact, in capitalist societies, a large part of research and development costs are
subsidized by state funding, and infrastructure projects such as landfill, roads, ports,
and railways that are necessary for the construction of new factories of monopoly
capitals, are paid with public money. They are called “social capital” and make up a
sizable portion of state finances.
It is a serious contradiction that private capitals maintain their hold on produc-
tion decisions although public funds from government budgets occupy a signifi-
cant portion of the capital mobilization for production activities. This means that an
immense amount of public money is used for private profit. The very reason why all
decisions on production in a capitalist society are made by private capitals is that the
capital invested for production is their own capital. “Don’t interfere in how I use my
own money” seems to be the rule. However, this rule no longer has any basis when
the decisions over production activities are made privately and huge private profits
are gained while depending on public funding (it is not even a debt) for research and
development and for the arrangement of general production conditions, that is, the
basic conditions that realize the production activities of monopoly capitals.
When an immense amount of public funds is used for private profit, corruption
inevitably occurs. The capitalist system becomes unfair and parasitical when the
productive force increases and the economy reaches the stage at which the amount
of funds that must be mobilized for production activities exceeds the limits of private
procurement, but private capitals keep making decisions regarding production and
gaining private profits.
5.3.3 Global Control Over Nature and Environmental

Pollution
As already explained in Sect. 2.1, production activity is an activity of controlling

nature, and the productive force is the ability to control nature. As human productive
force increases, human control over nature has changed from local to global. When
we say that control over nature becomes global, we mean that as human ability to
work on nature improves, the range within which human changes to nature become
wider in space and longer in time. For example, it is said that the “Great Plan for
the Transformation of Nature” that the Soviet Union is working on in Siberia will
change climate conditions in places as far as Europe and America. Another example
is that radiation from releasing nuclear energy will affect the genetic inheritance of
living things, including human beings, far into the future. Now, can the capitalistic
production relations function properly when human activity in controlling nature
reaches the stage at which it has global effects?
Firstly, the capitalist system is a class society in which commodity production is
dominant. For products, which are the result of human control over nature, to take
the form of commodities, human activity to control nature should be local. Let us
take the example of medicine. By taking a certain medicine, people eliminate a
particular destructive bacteria from their bodies. Those who do not purchase the
medicine cannot take it and therefore the bacteria are not removed from their bodies.
In this case, taking medicine is an activity to control nature locally in the sense that the
medicine removes the destructive bacteria only locally in the bodies of the people who
take it. In contrast, an activity to eliminate the same destructive bacteria completely
from a certain area, for example, by building sewage systems and cleaning the air, is
an activity to control nature globally. It is difficult to let this activity take the form of
a commodity. This is because not only those who pay for the activity but also those
who do not pay can live under the aseptic condition as long as they live in the area.
Procedures that result in the control over nature or a means for controlling nature
are provided only to those who pay for them are possible only when the control over
nature itself is limited and local. Therefore, when humans’ ability to control nature
is already global, pushing it by force into the form of commodity requires a rather
wasteful “device”: transforming the valuable human ability to control nature globally
into a local one. For such an example of a “device,” we can think of the radio waves
that broadcasting companies send to radios and televisions. They turn radio waves
into commodities by supplying them to only those who pay for them and not to those
who do not.
Secondly, when the results of human activity toward nature does not end locally
but when it has a global impact on the natural environment, capitalist production
relations, which consign production activities (i.e., control activities over nature), to
the private and dispersive decisions that are made on the basis of private profit pursuit,
will be no longer able to function well. Let us assume that there are two methods
to produce a certain amount of goods. The first method requires 1 million hours of
labor, including labor that is necessary to produce production goods. The second
method only requires 0.5 million hours of labor in a similar sense, but it generates
some unfavorable substances, such as toxic gas. Suppose that it requires 0.8 million
hours of labor to control that unfavorable state. Which of the methods can be said to
have a higher productive force? If we simply focus on the relationship between the
production of goods and the required labor, the second method is superior. However,
in terms of human ability to exercise control over nature, we can immediately tell
that the first method is superior. Yet, if we leave the choice to private capitals, they
will choose the second method from the perspective of pursuing private profit.
When the human productive force was relatively low, the effects caused by human
production activities on the natural environment were local. Therefore, even though
such production activities were consigned to private decisions, it never had a serious
impact on the whole society. However, when human productive force improved and
reached the stage at which, even though human production activity is made locally, it
had a global impact on the natural environment, consigning such production activities
to private decisions on the basis of private profit pursuit is a great hazard to human
existence.
Although each part of the social division of labor is held by private producers
and production is made based upon private decisions, the capitalist society is able to
reproduce itself as a society due to the ex-post adjustment of the market mechanism.
Matching varieties and quantities of human production activities with social demands
could be attained by the ex-post adjustment indicated by the price and profit rate,
or the inventory and utilization rate, among others, although it comes with a lot of
waste. However, when human production activity has wide and serious impact on the
natural environment and human bodies, solving this with ex-post measures becomes
difficult, or even impossible. With the development of the human productive force,
the impact that human production activities have on the natural environment and
human bodies has become not only global, but also irreversible.
Humans’ control ability has become global, so production impacts the atmo-
sphere, the soil, the climate, and our oceans on a massive scale. Production also
alters biological genes and destroys ecosystems. Leaving production activities to
private and dispersive decisions on the basis of private profit pursuit, and barely
adjusting them with ex-post measures, is irresponsible. We have to predict the direct
and indirect effects that a production activity can have on the natural environment
and human bodies beforehand, and take them into account when making production
decisions.
This contradicts the principle of the inviolable right over private company manage-
ment that proposes “don’t interfere in how I use my own money.” To predict the
global results of production activities and make decisions in which they are taken
into account, the inviolability of private decisions based on private ownership must
be denied. At the historical stage in which human control ability was limited, the
mode of private and dispersive decisions had a raison d’être, but at the stage in which
it has become global, that mode has become anachronistic and antagonistic to human
continuance.
5.3.4 Information-Processing Ability and Its Monopoly
The increase in human productive forces always comes with an increase of humans’
information-processing ability. When humans try to control nature, they work on
nature, they process in their brains the information that is sent in form of a response
to nature and go on to the next action according to the conclusion drawn from it. This
ability to process information and the ability to control nature increase, stimulating
each other. When humans work on nature, they dramatically amplify their power
not only by depending on the innate ability of the human body, but also by using
labor instruments that are a product of humans. In a similar way, when human process
information, their ability dramatically improves and the speed, volume, and precision
of information processing is enhanced. The development of information processing
means started from primitive writing materials, and went through the development
of communication tools. Today, it has become much more powerful as represented
by the computer. The question is what is the raison d’être of capitalist production
relations at the stage at which humans’ information-processing ability has improved
immensely.
Firstly, under capitalist production relations, reproduction of society is made anar-
chically as the compounded result of private and dispersive decisions on production
by many private companies. In making these decisions on production, each private
capital can use only limited information about nature as well as society.
Let us examine the information about nature. As already described, as the produc-
tive force increases, private production activities have more of a global impact on
the natural environment and humans. At this moment humans have, although imper-
fect, to a great extent, the ability to access information regarding this global impact.
However, private companies, following the standpoint of private profit pursuit, do
not try to obtain such information, but even fear that such information could be
revealed publicly. Even if private companies obtained such information, they would
not consider it when making production decisions. Even if they are able to predict that
their production activities will have a serious impact on the larger natural environ-
ment and on human bodies, such information is disregarded when making decisions
on production—as long as they do not predict that the impact bounces back to the
costs they must bear.
Next, let us examine the information about society. When private companies make
decisions on production, they do not have comprehensive information on the current
and future supply and demand of society. It is not because humans’ information-
processing ability is poor, but because the capitalist production relations are restric-
tive regarding information use. Individual companies prevent information about deci-
sions on current production and expectations of the future from being disclosed to
the public, to keep them “trade secrets.” Moreover, social and comprehensive infor-
mation itself is a contradiction in a situation in which each private company makes
decisions on production. This is because if private companies obtained such informa-
tion, they would change their decisions and therefore change the state of the economy
itself.
As one can tell from above, if capitalist production relations are still main-
tained at the stage at which humans’ information-processing ability is well-advanced,
the realization and development of this ability becomes hampered. When humans’
information-processing ability is low, it is almost impossible to comprehensively
unify social production beforehand. As a result, people must leave production to
private decisions and adopt a mode of production that relies on ex-post adjustments
through the market. However, at the stage at which information-processing ability is
advanced, it is possible to build a social plan beforehand. This makes it is possible
to perform production activities based on global predictions, that is, production
activities that are properly expected from the ability to control nature globally.
The increased information-processing ability is used within the framework of
capitalist production relations by internal organizations of giant monopoly capital,
the military force, the police, and bureaucracy. For example, General Motors in
the United States (US) employs over 700,000 laborers, and its affiliated offices and
factories are spread over the world. Information processing is carried out every day
to control these offices and factories for private monopoly profits. Another example
is US military forces, which are dispatched and stationed around the world as a
reactionary “military police” and a network of bases. To some extent, they maintain
their function by making extensive use of today’s information-processing ability.
Humanity’s information-processing ability that is currently exercised fully only for
private profit or for invasion and killing can be used for society, making a priori
decisions on production activities. The objective conditions for this are fulfilled.
Thus, we can make use of human ability to control nature to secure the continuance
of humankind.
Secondly, another important relation between the increase in information-processing
ability and capitalist production relations comes with the increase of human produc-
tive forces. As already mentioned, an important condition for the development of
information-processing ability is the development of information-processing tools.
However, this ability is an ability that humans exercise and not one that the tools them-
selves display. Information-processing tools can be utilized for humans’ information
processing only via human actions in producing and using them. At the beginning
of this book, I stated that humans’ production activities are conscious activities, and
that this makes a crucial difference from the activities of other living things to control
nature. Humans conceptually predict the consequences of their working on nature
before actually starting them, and they conduct themselves according to the predicted
consequence. In this sense, humans’ labor always unifies two elements of labor,
that is, physical labor and intellectual labor. In intellectual labor, humans conduct
information processing such as prediction, choice, decision, and others concerning
production. In physical labor, humans work on nature as one of the forces in nature.
However, in a class society, those two elements are torn apart. The intellectual
aspect in production is monopolized by the ruling class. Decisions on production
and information processing for it become their sanctum sanctorum, and the ruled
people, including direct laborers, are decisively shut out from it. Direct laborers are
robbed of the intellectual element of their work to the extreme and required to work as
“material” under the rulers’ decision and command. Separation and conflict between
physical and intellectual labor appear in all class societies, without exception.
At the stage at which the productive force was low and human information-
processing ability was limited, such separation and conflict between physical labor
and intellectual labor were inevitable. When the productive force was low and surplus
product was little, only a few members of society could get the opportunity to enhance
their intellectual labor and information-processing ability. Such abilities are located
among a very small part of society; under this condition, class society has a stable
foundation.
However, the situation changes at the stage at which the productive force increases,
especially when the results of scientific research are consciously applied to the
process of production. At this stage, direct laborers are also required to have a
certain level scientific background. From the standpoint of capital, wage laborers
are required to have a certain level information-processing ability to implement their
jobs in the current production process. Many jobs of direct laborers in the production
process today are to manage information sent from monitors and control activities in
response. Today, in our country, the majority of people who complete primary educa-
tion receive secondary education, and many start higher education. This clearly shows
that information-processing ability is spreading to a wider segment of society.
As already described, at the stage at which the information-processing ability was
located among a very small part of society, there were objective conditions in favor
of separating physical labor and intellectual labor, excluding direct laborers from
interfering in production decisions. Yet, under the condition in which information-
processing ability spreads to a wider segment of society, it becomes difficult to
maintain the separation of physical and intellectual labor and exclude direct laborers
from production decisions.
Although the labor class starts to have decision-making ability, private companies
would want to exclude them from production decisions, and try to keep monopolizing
them. To do so, while they shut out the laborers from fundamental decisions on
production completely, they make laborers “participate” in the trivial and routine
“decision” processes, develop “loyalty to the company,” and perform other elaborate
ideological manipulations. The huge weight put on the ideological manipulation of
the labor class itself shows the fear of the rulers regarding the labor class’ increase in
intellectual elements and improvement in their information-processing ability, and
the likely social consequences.
5.4 Transformation of the Capitalist System
Even at the stage at which the character and level of the productive force become
incompatible with capitalist production relations, it by itself does not mean that new
production relations arise automatically. Society is made of humans and therefore
society does not change without human action. Let us examine whether or not an
entity that creates new production relations comes in the capitalist system to guarantee
the continuance of human society when the capitalist system becomes incompatible
with the productive force.
5.4.1 Rebellion of the Labor Class
As explained in Sect. 2.1, the capitalist system cannot exist without separating the
direct laborers from ownership of production means, putting them in a state in which
they cannot help but sell their labor power to the capitalists. The process of separating
direct laborers from the means of production and creating wage laborers marks the
start of a capitalist society in the process of primitive accumulation of capital.24
This process, on one hand, separates the direct producers from the production means
by destroying and depriving small producers and small businesses based on the
direct laborers owning the production means. On the other hand, it concentrates the
production means in the hands of the capitalists. This process of deprivation includes
not only economic principles in a feudal society, but also various violent methods.
Marx said that
they all employ the power of the State, the concentrated and organized force of society, to
hasten, hot-house fashion, the process of transformation of the feudal mode of production
into the capitalist mode, and to shorten the transition. Force is the midwife of every old
society pregnant with a new one. It is itself an economic power […].25
In other words, “capital comes dripping from head to foot, from every pore, with
blood and dirt.”26
The wage labor class that is generated gets exploited by the capitalists and is under
threat of unemployment. The rebellion of laborers against this was individualized
and dispersive at first. The first reason is that since the laborers were mostly from
small producers (mainly farmers), they could not eliminate the mentality of the small
producer, bearing the hope of becoming a small producer again. The second reason
is that the amount of capital owned by the capitalists who employed the laborers
was small; therefore, the number of laborers employed by each capitalistic business
was small and manual labor that varied between individuals was dominant. The third
reason is that the segmentation of the production process into industrial sectors,
the extent of specialization, and the capitalistic division system were not developed
widely enough. Those factors that made the rebellion of the labor class individual
and dispersive began to vanish as the accumulation process of the capitalist system
progressed.
Firstly, the possibility for wage laborers to go back to being small producers
tended to vanish due to the following reasons. Laborers are obliged to spend their
complete wages for their living expenses because they are exploited and paid a
24 Marx [15, Chaps. 26–32, pp. 507–542].

25 Marx [15, Chap. 31, p. 534].
26 Marx [15, Chap. 31, p. 538].
5.4 Transformation of the Capitalist System 281
low wage. The minimum funds required to start even a small business increased,
and the possibility for wage laborers to procure these funds vanished. The state of
living of small producers is getting increasingly unstable and worsens during cyclical
movements in the process of accumulation in the capitalist system. Consequently,
the wage labor class becomes objectively and subjectively the fundamental class that
conflicts with the capitalist class.
Secondly, although the capitalist society was built upon small and dispersive
capitals in the earlier stage, such character vanishes as a few large capitals come to
control the production process. It is conducted in various forms as follows: (1) capital
destruction, executed inevitably through the accumulation process of the capitalist
system; (2) the dropping out of very small companies because of the increase in
the minimum required funds to introduce new production methods; and (3) mergers
and acquisitions by large companies, to name just a few. Consequently, the amount
of cooperation within a capitalist business increases. This enables the labor class
to unite and rebel organizationally and systematically against the capitalist class.
Additionally, by innovating production technologies, the proportion of manual labor
that relies on the ability of individuals in the labor process decreases dramatically,
and cooperation in the machinery and equipment systems develops. As a result,
the labor class becomes homogeneous and collaboration among laborers develops,
which makes their rebellion more organizational and systematic.
Thirdly, in a capitalist society, the productive force develops based upon the
exploitation of the labor class and the bankruptcy of very small capitals. Such devel-
opment of the productive force leads to the creation of various new industrial sectors
[57]. This occurs due to the division and specialization of the production process
that was previously made within one company, and the introduction of new kinds of
production goods and consumption goods. Those sectors have close connections in
the production process. A standstill of production in one sector disturbs the produc-
tive activity of many other sectors. Consequently, the labor class is able to unite
beyond a company or an industry and struggle organizationally. Moreover, in the
accumulation process of the capitalist system, the capitalistic social division of labor
does not only deepen within an economy, but also expands extensionally. Countries
around the world follow the capitalistic division system. Consequently, an interna-
tional character of the capitalist system develops. The objective condition for the
labor class to unite internationally reaches maturity.
In the above way, the objective condition under which the labor class strengthens
class solidarity and rebels organizationally and systematically against the capitalist
class is built through the accumulation process of the capitalist system. For the rebels
who shake the foundations of the capitalist system to happen in reality by making
use of this objective condition, not only must the objective condition reach maturity,
but the labor class also must be trained in the accumulation process of the capitalist
system. The capitalist system has drilled the following things into the labor class by
education through experience: the wage laborers are suppressed by and subordinate
to the capitalists; wage laborers are exploited by capitalists; capitalists dismiss the
wage laborers and deprive them of their way of living, whenever they need to do so;
this tyrannical behavior by capitalists prevails because they own the capital; wage
laborers are shut out from owning capitals; wage laborers are poor even when the
economy is prosperous; a huge amount of productive equipment made by exploiting
wage laborers is cyclically destroyed by an economic crisis and with that, many
laborers are forced to be unemployed; every economic crisis makes large capitals
stronger; laborers never win if they fight against capitalists in an individual and
dispersive manner; state power suppresses laborers even with violence for the sake
of the capitalists; and while learning this from the experiences of their daily rugged
life and the fights in which they bled, the labor class has learned about the necessity
of solidarity and the importance of organizing themselves. The labor class has fought
without a break to defend and enhance their rights and economic benefits, and they
have strengthened their unity and organization through this fight.
However, as long as the organizational rebellion of the labor class is directed
solely at individual things that the capitalist system forces onto the labor class, it
will not shake the foundation of the capitalist system.27 This is because it does not
change the production relations of the capitalist system—rebels are just fighting
against its outcomes. For the labor class to organizationally rebel for the revolution
of the capitalist system itself, they must have their own political party. This party
must have a vision for the next social form based on a scientific analysis of the
capitalist system. The knowledge obtained in daily experience is insufficient for this
purpose. Economics from the standpoint of the labor class must be developed, that is,
economics that demonstrates the transience of the capitalist system and the necessity
for the emergence of the next social form. Marx is one scholar who did this. Now
that the labor class has a political party that arms itself theoretically with Marxism,
that is, the Communist Party, their rebellion against the capitalist system has reached
a new qualitative stage.
5.4.2 Realistic Direction of Human Continuance
For capitalist production relations to become established and function, the human
productive force must be above a certain level. If it exceeds another certain level, capi-
talist production relations become an obstacle to the development and manifestation
of the productive force. It then becomes an era in which production relations must be
transformed to realize the development of the productive force, which is a condition
for human continuance. We examined this with a focus on the relationship between
capitalist production relations and the following two factors under enhanced human
ability to exert control over nature. This nature-control ability became global and
surplus products increased remarkably; the information-processing ability became
extended and the separation of physical and intellectual labor became unneces-
sary and difficult. We furthermore outlined that, in all of those aspects, capitalist
production relations became a hindrance of the productive force.
27 Marx [58, Sect. 14, pp. 144–149].

5.4 Transformation of the Capitalist System 283
At such a stage of the productive force, the social form that can play a new historical
role must not be the capitalist system. As long as capitalist production relations are
maintained, the following inevitably happens: unrestrained management of social
production by private monopoly capitals, mass unemployment or mass unproductive
exhaustion, the suppression of ethnic groups, and wars. The nature-control ability
that humans have today has reached the stage at which it is dangerous and irrational
to leave it to private people and make production activities based on the private
pursuit of profits. It is necessary for all members of society to control the production
activities on which human continuance depends and make planned decisions ex ante.
To realize this, private ownership of production means must be abolished. This is the
only realistic way to make human continuance more definite.
When the social character of production was weak but at a certain level, there
was no other social form to increase the productive force of human society but the
capitalist form. However, in the current stage, it is possible to abandon this irrational
form and make progress of human society more rationally under a new social form:
the socialist system. A socialist system is a society in which basic production relations
are structured in the following way: control by the workers with initiatives among the
labor class, and state-owned production means to make production decisions from
the viewpoint of the whole society. Unlike the capitalist system, this society does
not have a contradiction between the private character of ownership of the means of
production and products and the social character of production.
However, the transition from a capitalist to a socialist society is a transition from
exploitation to a communal society. It requires a qualitative leap. Therefore, the ruling
class uses all the means, including violence by the military and police, to protect and
preserve the capitalist system. The monopoly capitalists that are the current rulers
of capitalist society take various measures globally, using state power, to preserve
capitalist production relations, even at the stage in which the private and dispersive
form of production decision-making is incompatible with the productive force. Let us
list a few major examples: huge military expense to support the market (armaments
are not only for creating sales routes, but also for playing multiple “roles” such as
procuring materials and labor, suppressing people, and attacking the socialist system),
massive creation of the service sector, development of new technologies funded by the
state, massive destruction of conventional technologies and industries, subrogation of
the anti-“pollution” costs upon the state, overseas migration of “polluting” industries,
discipline by the state in education and ideology, encouraging the labor class to “drift
to the right,” to name just a few.
Even with these measures—let me rephrase, because of them—the contradiction
between capitalist production relations and the productive force becomes more and
more acute. These phenomena appear as a constant war regime that threatens human
continuance, chronic inflation, a massive breakdown of business and industries with
conventional technologies, the institutionalization of public spending for monopoly
capitalists and the resulting corruption, a series of growing and deepening “pollution,”
worsening people’s misery, poverty in a new form, and many more.
The contradiction between the productive force and production relations today
has reached the point at which even conservative and reactionary writers point
out that “compared to the development of material civilization, spiritual culture

and social morals are far behind.” People suffering from this contradiction are the
laborers, farmers, small businesses, and suppressed ethnic groups. They are facing
the contradiction in terms of risking of their lives, instability, and mental misery.
This transformation must be promoted through the struggle between monopoly
capitalists that try to maintain production relations that are incompatible with the
productive force, using even violent measures (the military is its largest form), and
the majority of people centered around laborers, who are forced to live in misery
and whose lives are threatened under the incompatible production relations. In other
words, the realization of a socialist system rests upon how effectively the labor class
collects the force of not only other working people, but also small and medium
capitalists, and topples monopoly capitalists’ power.
To analyze how this struggle concerning the transformation of social forms
evolves, must learn how the capitalist system’s various phenomena, cyclical, and
tendency movements, have changed, what kinds of new contradictions have arisen,
and what corresponding countermeasures have been implemented after the capi-
talist system reached the monopoly stage. These are important for understanding
today’s problems; however, due to several constraints, we cannot develop them in
this volume. The author plans to write another book about them in the near future.
Chapter 6
A Vision Toward New Society
Abstract In Chap. 5, Prof. Okishio discussed the long-run tendency of capitalist

society and inevitability of transition to new production relations. Readers might
misinterpret that he defended the existing socialist economy. In fact, he was skeptical
about the actual socialist system. Here, translators add his essay on the new society
written in 1993.
The final chapter elaborates on the shortcomings of capitalist and socialist societies
as identified by Prof. Okishio. One of the criticisms of the socialist society is in the
actual practice of “social co-ownership” where only a small fraction of people make
production decisions while excluding the rest of the members of society. Next, are
two issues concerning continuation of the human race. First, there is the threat of
nuclear war: despite the nuclear arms reduction in the 1990s, nuclear arms are still
extant and decisions concerning their use are in the hands of a very limited number
of people. Another is the threat of global environmental pollution: private compa-
nies in the capitalist society and national administrators in the collapsed socialist
economy exclusively make decisions, and information on environmental problems
are ultimately ignored. If all members of society participate in production decisions,
these threats can be mitigated.
The world economy and politics have undergone substantial changes since I wrote
this book.1 I believe that it is my duty, for the readers of this book, to describe my
thinking on those changes. I will utilize this epilogue to briefly summarize my ideas.
At first, “socialism” collapsed in the countries that professed to adopt “socialism.”
I had been deeply skeptical on whether those countries were actually socialist. In my
thinking, socialism, which can overcome capitalism, is characterized by a production
relationship that ensures that all society members participate in production decisions.
I simply do not have many direct observations of the United Soviet Socialist
Republic (USSR) or China. I visited the USSR and the Eastern Europe on the route
to the United Kingdom in 1965, and visited China during the “Cultural Revolution”
1 This chapter is written as epilogue of Okishio [67].

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 285
286 6 A Vision Toward New Society
in 1966; both visits were less than one month long. However, based on various
information in addition to those direct observations, I could not find a decision system
that overcame capitalism in those nations. In the name of “social co-ownership,”
a small fraction of people made production decisions by excluding a majority of
society’s members. The excluded people were deprived of democratic rights, which
were available even in capitalist society. Societies with this kind of decision-making
system cannot be a socialist society that can overcome the various contradictions of
capitalism. Moreover, this kind of social form must collapse in due course because
of its own internal contradictions.
In capitalism, the means of production are privately owned by capitalists, and
production decisions are executed by that class in a private and dispersive way. It
results in exploitation, unemployment, the business cycle, war, and environmental
destruction. Transformation to a new social form is inevitable to secure the survival
of the human beings.
However, that “new social form” is not “socialism,” which collapsed in front of
us. The root cause for exploitation, unemployment, the business cycle, war, and
environmental destruction lies in the fact that production decisions are executed by
the capitalist class in a private and dispersive way. Therefore, in the “new society,” all
society members shall participate in production decisions. It must not be a society in
which, instead of capitalists, a small fraction of people exclusively make production
decisions as administrators of the production means, which are assumed to be co-
owned socially. In that kind of society, it inevitably creates exploitation, enormous
waste in production, war, and environmental destruction.
How it is possible to realize a large-scale society in which all members participate
in production decisions? Suppose it is possible, what kind of political and economic
phenomena would be generated? I discuss several concepts regarding these issues
in this book. However, I think that many issues still remain that require further
examination.
When I think about the issue of human continuance, I cannot forget about nuclear
war and global environmental pollution. I wrote a short piece on nuclear weapons in
1989. Since then, the situation surrounding them has significantly changed. The
USSR collapsed. Its leaders, who were in charge of its major decision-making,
promoted the expansion of a huge nuclear arsenal with an incorrect nuclear strategy—
nuclear deterrence and balance—which had put dead weight on its economy and
contributed to its collapse.
Russia and the United States (US) agreed upon the treaty to reduce not only
the tactical but also strategic nuclear weapons. In addition, the US abandoned the
Strategic Defense Initiative (SDI) plan.
Based on these developments, many have started to argue that “the nuclear weapon
issue has past the peak. The current issue is how to stop its diffusion.” I am deeply
concerned with this tendency. Even though the reduction treaty between the US and
Russia is fully enforced, more than 300 strategic nuclear warheads remain, and their
destructive force is larger than those of 200,000 Hiroshima-type atomic bombs. Why
do they exist? It used to be the case that the US and the USSR clamored against each
other’s threats. This does not make sense anymore. Then, why? The only reason why
6 A Vision Toward New Society 287
the US tries to keep a monopoly on nuclear weapon ownership involving the USSR
is to secure the position of “the world superpower” based on the threat of nuclear
weapons.
A very small number of people holds the switch of nuclear weapons while human
beings are scared of their threat. This means that the decision-making, which influ-
ences the persistence of the human beings, is in their hands. It is by no means fair
to request the non-proliferation of nuclear weapons under this situation. The only
assured way to stop the proliferation of nuclear weapons is to forge international
agreements on their abolition and to accumulate effort to eliminate economic and
political unfairness and inequality on earth. Japan can contribute a lot in this direction;
it has the ability do so.
Finally, let me discuss global environment destruction. It has become clear that
issues like ozone depletion and global warming are not only academic topics but also
urgent matters for everyone. I have been aware of these serious issues for quite some
time due to lectures by natural science and engineering researchers in environmental
conferences. However, I feel ashamed now; I thought they would become actual
issues in the distant future.
I examine the following two points on those issues; the first is, in addition to
direct outcome, what extent the humans consider indirect influence over the global
area and long-run period, when they make production decisions; the second is the
relationship between economic growth for mankind and the natural environment.
In the capitalist system, production decisions are made by private business and are
executed in pursuit of profit. As a result, the indirect influence of production activities
over the global area for the long run are neglected unless they are significant to
profit. In the collapsed “socialist” system, production decisions are made by national
administrators. Their economy is propelled with the task quotas that are given by
those administrators. Unless the influence on the natural environment matters to
attain the quota, they are neglected, again. In both cases, information on the neglected
influences and results are concealed as much as possible.
How about a society in which all members participate in production decisions?
One of the conditions that assures the participation of the all members in production
decisions is information disclosure for all members. Even though they know the
indirect influence of production activities over the global area for the long run, a
majority of social members might be attracted by direct and short-run results and
make reckless decisions, neglecting that information. There is no other option than
education and discussion to avoid such decisions.
Let us examine the relationship between economic growth and the natural envi-
ronment. The capitalist system is a society in which production decisions are made
in pursuit of profit. Except in some rare cases, the profit rate increases as the growth
rate rises. Thus, a capitalist economy cannot function well unless the growth rate is
sufficiently high. The collapsed “socialist” economy, in which production decisions
are made by national administrators, cannot function well unless the growth rate
is high enough, too. Otherwise, it would become difficult to convince most society
members that are excluded from decision-making.
288 6 A Vision Toward New Society
The human is a creature that is born and that grows in nature. If the economy
managed by this creature tries to grow infinitely,2 it inevitably collides with the
natural environment. As a result, the human’s survival is rejected or he or she is
forced to suffer from catastrophe through contracted reproduction. To avoid these
outcomes and secure human survival, I believe that we need to transform society
toward a form in which the economic growth rate is determined by a consensus of
society members at a level allowed by the nature. That level might be positive, zero,
or negative.
The core of decisions on the economic growth rate is the choice on how much of
society’s net products should be allocated for expanded reproduction. Conversely, it
is the choice of how much of society’s net products should be allocated for member’s
clothing, food, housing, healthcare, education, and international aid. The confronta-
tion on this choice and decision has important significance for the transformation
toward a new society.
2 This is true as long as the growth rate is positive.

Correction to: The Theory
of Accumulation
Correction to:
N. Okishio, The Theory of Accumulation, Kobe University
Monograph Series in Social Science Research,
https://doi.org/10.1007/978-981-16-7905-6
In the original version of the book, some belated corrections had not been incorpo-
rated: Global and typo corrections have been updated in Chaps. 2–5. The corrected
chapters have been updated with the changes.
The updated version of the book can be found at

https://doi.org/10.1007/978-981-16-7905-6
© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 C1
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Index
A B
Ability of control over nature, 14, 15, 17 Baranowsky, T., 1501, 188
Ability to process information, 16, 17, 22, Berle, A.A., 19, 20
23, 277 Bestowed labor, 37–39, 41, 52, 169, 227,
228, 259, 264–266
Abstract human labor, 37, 38
Böhm-Bawerk, E.V., 25
Accumulation and centralization of capital, Bourgeois economics, 24, 62, 196
252
Bourgeois economist, 56, 72, 183, 197, 251
Accumulation demand, 2, 4, 9, 66, 70–73, Breakdown theory, 253, 255, 268
89, 103, 104, 106, 107, 109–113, Build-and-scrap policy, 5
116, 117, 119, 128, 131–133, Business cycle, 26, 48, 52, 56, 111, 139,
137–142, 144–147, 156, 157, 162, 159, 175, 179, 199, 201, 204,
166, 177–189, 194–207, 209–212, 207–209, 211, 212, 220, 230,
215–218, 220–226, 230–232, 234–242, 267, 286
234–239, 270–272
Accumulation rate, 137, 146–149, 190,
193, 195, 245
C
Accumulation theory of bourgeois
Capital accumulation, 1, 20, 45, 49, 56, 72,
economics, 253
74, 100, 101, 104, 106, 110,
Additional demand for production goods, 147–150, 153, 154, 159,
51, 73, 132, 142, 144, 184, 198, 199, 160158–160, 175, 186, 187, 189,
226 190, 192–195, 197, 221, 224, 237,
Additional variable capital, 134 239, 243–245, 251–253, 256, 270,
Aggregate demand, 4, 101, 107, 110–114, 271, 274
122, 123, 125, 131, 132, 142, 163, Capital coefficient, 258–260, 268, 271, 272,
180–186, 188, 195–197, 199, 201, 274
204, 205, 215, 216, 220, 222 Capitalist class, 18, 21, 23, 34, 40, 55, 57,
Aggregate supply, 101, 107, 113, 114, 216 67, 72, 112, 114, 128, 129, 183, 198,
Amount of bestowed labor, 38–41, 61, 227 214, 218, 219, 223, 225, 232, 233,
239, 241, 251, 268, 281, 286
Amount of commanded labor, 41
Capitalist farmers, 106
Anarchism of capitalist society, 19 Capitalist production relation, 13, 16, 18,
Anarchy, 94, 98, 99 20, 22, 23, 60, 100, 165, 183, 197,
Average profit rate, 256, 261 207, 217–219, 224, 233, 242, 248,
© The Editor(s) (if applicable) and The Author(s), under exclusive license 293
to Springer Nature Singapore Pte Ltd. 2022, corrected publication 2022
Science Research, https://doi.org/10.1007/978-981-16-7905-6
294 Index
270, 272, 273, 275, 277, 278, Consumption goods sector, 34, 35, 39–41,
280–279, 282, 283 64, 66, 68–71, 78, 80, 81, 85, 86, 98,
Capitalist society, 1, 2, 4, 6, 9, 12, 18–23, 111, 122–124, 127–130, 132, 134,
29, 32, 41, 42, 44, 50–52, 55–57, 59, 136, 140, 141, 146, 148, 151, 156,
72, 89, 90, 93–100, 102, 103, 107, 163, 165–167, 173, 179, 194–196,
108, 114, 115, 120, 121, 126, 150, 199–203, 206, 2178, 220–223, 225,
176, 183, 184, 195, 197–199, 202, 226, 231, 235, 236, 266
212, 213, 220, 233, 240, 241, 247, Consumption other than reproduction, 99
251, 252, 269, 270, 272, 274, 276, Consumption ratio, 113
280, 281, 283, 285, 286 Contradiction between production and
Capitalist society and productive forces, 20, consumption, 215, 217, 224, 225,
269, 272, 281 270, 271
Capitalists’ personal consumption, 71, 83, Cooperation, 10–12, 21, 22, 40, 47, 281
106, 111 Corruption, 252, 274, 2843
Capital productivity theory, 24 Creation of markets, 116
Characteristics of productive forces, 165, 17 Credit, 139, 188, 215, 224, 274
Crisis theory of Marx, 99
Character of a state, 5
Critical point of productive force, 14, 248,
Choice of technology, 263, 266
270
Clark, J.B., 245 Cyclical movement of exploitation rate,
Class, 3–5, 14, 16–18, 21, 27, 29, 33, 56, 23940
57, 59, 67, 72, 103, 114–116, 126, Cyclical movement of profit rate, 2, 239,
182, 214, 233, 247, 248, 259, 269, 240
2798, 281, 283, 286 Cyclical movement of unemployment rate,
Class society, 2, 9, 16–18, 20, 21, 23, 89, 239, 240
175, 213, 214, 219, 275, 278, 279
Commanded labor, 41, 52
Commoditization of labor, 33 D
Commodity-market theory, 49–53 Dead labor, 257, 259, 271–273
Commodity production, 2, 9, 21, 22, 26, Decline in profit rate, 206, 207
310–34, 41, 52, 55, 95, 103, 115, Decreasing process of unemployment, 154
116, 121, 175, 195, 213, 214, 219, Destruction of capital, 2, 142, 230
228, 231, 266, 270, 275 Development of new technologies, 283
Common ownership of the means of Dialectic method, 248
production, 95, 96 Disequilibrium, 2–4, 89, 101, 111, 112,
Communist party, 282 141–143, 152, 154, 175–179, 183,
184, 186, 188, 195–197, 206, 207,
Communist society, 10, 31
209, 213–220, 224, 227, 228, 233,
Competition, 3, 22, 25, 26, 43, 141, 160,
238, 239, 242–245
185, 207, 247, 256
Disequilibrium cumulative process, 207,
Composition of production, 89, 93, 98, 99, 219, 230, 232–235, 239
121, 130, 176 Distributive relation of products, 13
Concrete labor, 37 Division of labor, 11, 12, 31
Condition for human continuance, 282 Dogma of V+S, 122
Conditions for profit existence, 24, 27, 29, Domestic market, 116
32, 34, 41 Double reproduction, 90, 97, 120
Constant capital, 254, 255, 258, 260, 262, Downward cumulative process, 2–5, 164,
263 175, 183, 196, 205–207, 210, 212,
Consumption demand, 67, 70, 71, 81, 101, 213, 220, 226, 229–231, 234, 235,
109, 110, 112–115, 117, 120, 128, 238, 239
129, 131, 135, 139–141, 144, 145, Downward divergent process of the real
151, 152, 156, 157, 166, 178, 180, wage rate, 52
181, 195, 198–202, 204–206, 214, Durability of production equipment, 197,
220, 251 198
Index 295
Durable equipment, 144 Foreign trade, 116

Full employment, 46, 53, 146, 154, 218
Fundamental contradiction of the capitalist
E economy, 3
Economic crisis, 2–4, 9, 26, 105, 107, 142,
152–154, 164, 175, 179, 183, 197,
198, 203–207, 209–213, 219, 220, G
222–227, 229, 230, 233, 235, 241, Gaining, 14, 28, 29, 126, 141, 185, 274
253, 269, 270, 272, 282 General overproduction, 48, 101–103, 106,
Engels, F., 10, 15, 270 107, 109–113, 120, 122, 188,
Environmental pollution, 252, 253, 275, 197–199, 203–207, 209–211, 224
285, 286 Gestation period, 189
Equalization of profit rates, 226 Gestation period of production, 189
Equilibrium accumulation trajectory, 147, Global control over nature, 274
150, 152–160, 163–167, 174 Gold-producing sector, 139
Equilibrium growth theory, 251 Government, 5, 19, 62, 96, 223, 268, 274
Equilibrium sectoral ratio, 157, –159 Grossman, H., 253
Equivalent exchange, 27, 28 Growth rate of capital, 260–262
Excess capital, 230
Excess demand, 47–49, 81, 102, 142, 146,
177, 178, 188, 199, 201–203, 209, H
211, 212, 216, 221, 223, 224, 226, Harrod, R.F., 196
228, 232, 236, 239, 241 Hayashi, M., 15
Excessive operation, 142 Hayashi, N., 199
Excess production capacity, 234 Hicks, J.R., 46
Excess supply, 47–50, 52, 80, 81, 146, 152, Hilferding, R., 206
185, 234 Historical role of the business cycle, 230
Exchange relations, 30
Existence of human beings, 14, 23
Exogenous theory, 207 I
Expectation, 43, 103, 139, 141, 186, 209, Ideological apparatus, 96, 100
215, 235, 277 Ideological manipulations, 279
Exploitation rate, 2, 40, 61, 89, 145, 166, Idle capacity, 186, 201, 234
167, 169, 172, 202, 207–209, 217, Idle equipment, 223
218, 222, 223, 226, 228, 230–232, Idle funds, 234, 274
234, 235, 238–242, 255–260, 267, Iio, K., 178
270 Imitative introduction of new technologies,
Exploiting society, 2 185
Ex post adjustment mechanism, 176, 177 Imperialist stage, 3, 116, 247
Extended reproduction, 42, 101, 129–131, Imura, K., 156
133, 134, 137–149, 153, 158–162, Incentives to invest, 197, 198
1643, 179, 194, 239 Increasing process of unemployment, 154
Extended reproduction in the capitalist Independent demand, 180
economy, 100, 130, 140, 143 Individual value, 227, 229, 251, 265
Extended reproduction scheme, 134 Industrial capitalists, 241
Extension of length of labor time, 42 Inevitability of economic crises, 175, 198,
Extreme left situation-analysis, 118 199, 203, 204, 210, 212, 213, 219,
220
Inevitability of overproduction, 110
F Inevitability of reversal, 230
Fetters of production relations and Inflation-barrier, 223
productive force, 271 Information about nature, 277
Feudal system, 243, 42, 269 Information about society, 277
Foreign markets, 115, 116 Innovating enterprises, 26
296 Index
Innovation reward theory, 256 Law of the tendency of the profit rate to
Input-output analysis, 62 fall, 249, 256
Instability of steady growth, 196 Legal apparatus, 96, 100
Interest rate, 224, 234 Lenin, V.I., 3, 116
Internal accumulation, 274 Leontief, W., 63
Introduction of innovative production Limitation of consumption, 199
technology, 251 Living labor, 227–229, 255–259, 262, 263,
Introduction of new production methods, 265, 267, 271–273
237–239, 241, 242 Loanable capital, 126
Investment multiplier, 182 Local control over nature, 275
Invisible hand, 176 Lower limit of productive forces, 20, 21
Lower limit of real wage rate, 58, 59, 95,
223
J Luxemburg, R., 1156, –117, 197, 253
Joint-stock company system, 273
Joint-stock corporations, 19
M
Malthus, R., 41, 45, 52, 53, 109–115, 118,
K 119, 121, 140, 142, 197
Kaldor, N., 232 Managers’ wage theory, 24
Keynes, J.M., 53, 182, 204 Marginal productivity, 46, 47, 53, 251
Koga, M., 253 Market price, 67, 114, 176, 177
Market problem, 113–118, 122, 165, 205,
251, 253
L Market share, 65, 160, 185
Labor class, 38, 40, 48, 66, 100, 112, 114, Marshall, A., 24, 47
150, 183, 198, 199, 202, 204, 212, Marx, K., 1, 3, 6, 14, 26, 27, 31, 37–39, 42,
214, 218, 223, 233, 239–242, 251, 45, 48, 57–59, 61, 95, 96, 99,
253, 257, 273, 279–284 102–106, 108, 114–116, 120–126,
Labor demand, 45, 46, 50, 51, 111, 141, 129, 133, 134, 136, 141, 152, 159,
142, 1476, 148, 149–150, 202, 207, 160, 179, 183, 198, 206, 212, 226,
208, 251, 255, 260–263, 267, 268 240, 248, 249, 251, 252, 259–262,
Laborers’ bargaining power, 218 265, 267–269, 272, 280, 282
Labor instruments, 11, 277 Material goods, 57, 90, 92–94, 97, 100
Labor-market theory, 47–49, 51–53, 154, Means, G.C., 19
209 Means of production, 5, 11–13, 16, 18–22,
Labor power, 4–6, 13, 16, 21, 22, 25, 24–26, 30–33, 43, 44, 50, 55, 57–60,
32–34, 33, 34, 39–43, 45, 57–62, 66, 64, 66, 72, 90, 91, 94–96, 98, 115,
67, 90–95, 97–100, 121, 122, 124, 118, 126, 150, 183, 184, 197, 198,
126–129, 131, 143, 146, 147, 184, 206, 213, 214, 225, 231, 252, 258,
207, 218, 222–224, 270, 271, 280 259, 267, 280, 286
Labor productivity, 12, 16, 20–22, 2423, Mechanism to guarantee profits, 41
25, 31, 33, 40–44, 49, 55, 56, 89, 93, Merger, 5, 273, 274, 281
97, 98, 105, 161, 162, 164, 165, 198, Micro enterprises, 58
200–202, 207–209, 211, 217, 222, Military expenditures, 4
223, 226, 229–231, 237–242, 251, Mill, J.S., 50
252, 256–258, 262, 264, 265, Minimum fund, 2, 23, 281
267–273 Mismatch between supply and demand, 176
Labor productivity in the production of Miyazawa, K., 260
consumption goods, 40 Mode of distribution, 94, 95
Labor shortage, 48, 197 Mode of production, 98, 114, 278, 280
Labor time, 232, 42 Money, 1, 6, 22, 30, 32–34, 41, 49, 53,
Law of diminishing returns, 101, 105 58–60, 95, 101–103, 107, 112, 113,
Index 297
118–121, 123, 125–131, 135, 139, P

140, 16059, 188, 196, 212, 223, 224, Parasitic class, 109, 110, 112–115
232, 237, 252, 274, 276 Partial overproduction, 101, 102, 111, 206
Money for lending, 197, 198 Partial underproduction, 111
Money wage rate, 4, 34, 41, 43, 46–50, 52, Popper, K., 247
53, 56, 65, 70, 102, 177, 201, 208, Positive feedback, 178
209, 211, 212, 218, 221–223, 226, Price competition, 43, 160, 185, 263, 266
228, 229, 233, 234, 241, 266 Price of labor power, 33
Monopoly capital, 5, 43, 252, 253, 267, Primitive accumulation of capital, 280
269, 274, 278, 283 Private decisions on production, 276
Monopoly price, 5
Private production decisions, 176
Monopoly stage, 273, 284
Production, 2–6, 10–13, 16–26, 29–37, 40,
Movement of the capitalist system, 239
41, 44, 46–48, 50–53, 55, 57–68,
70–73, 75, 76, 81–86, 90–94, 97–99,
101, 103–108, 110–124, 126–148,
N 150–163, 166, 167, 169, 172,
Nagaoka, Y., 16 175–187, 191–194, 196–199,
Nakaoka, T., 17 201–209, 211–218, 220–223223,
Narodniks, The, 114–116, 118, 198 225–229, 231, 232, 234–239,
Natural rate of real wage, 45 241–243, 245, 247, 248, 251–253,
Necessary price, 114 256–260, 262–267, 269–281, 283,
Negative feedback, 178 285–287
Neo-classical growth theory, 154 Production capacity, 64, 68, 73, 118, 122,
Net production possibility condition, 37, 123, 127, 130, 140–145, 1476, 1510,
39, 93, 181 156, 157, 166, 176–179, 181, 183,
Net products, 16, 36, 259, 288 185, 186, 188, 189, 196, 199–202,
New investment demand, 51, 66, 68, 69, 81, 205, 206, 208, 211, 213, 215–217,
83, 181, 196, 205, 251 221, 222, 224, 225, 235–237, 241,
Niino, K., 56 242
Non-capitalist world, 117 Production costs, 27, 65, 160, 185, 264–266
Normal production capacity, 179, 185, 191, Production goods, 21, 34, 36–39, 41, 55,
216, 242 61–64, 66, 68–71, 73, 74, 90–93, 95,
97–99, 103, 105, 111, 112, 114, 116,
117, 119, 121–132, 137, 140, 141,
O 143–146, 148, 1510–152, 156, 161,
Obshchina, 116 177, 179–189, 191, 192, 194–196,
Ohshima, Y., 157 199, 201, 202, 204, 209, 212–215,
Oppenheimer, F., 260, 267 220–223, 225–228, 231, 234–237,
Organic composition, 161, 165, 240, 255, 242, 256, 257, 264–266, 270, 276,
257–263, 267, 268, 270 281
Organic composition of capital, 105, 106, Production goods sector, 34, 35, 40, 48,
166, 167, 170, 172, 207, 254–260, 62–64, 66, 68–71, 77, 78, 80, 84, 86,
272, 273 98, 111, 122, 124, 127–130,
Organic composition of production, 161, 132–134, 136, 141, 142, 146, 151,
165, 229, 241, 257, 258, 263–265, 152, 163, 165–167, 172, 173, 179,
268, 272, 273 182, 185, 186, 194, 195, 198,
Overproduction, 48, 101, 102, 109, 110, 200–203, 212, 220–223, 225, 226,
112–115, 118–120, 122, 179, 235, 236, 239
183–185, 188, 195, 199, 200, 202, Production relations, 9, 10, 13–18, 20, 22,
203, 205, 206, 217, 220, 224–226 23, 43, 45, 55, 56, 73, 74, 90, 94–97,
Ownership of the means of production, 100, 183, 197, 198, 202, 211, 216,
11–13, 16, 18, 19, 21, 32, 33, 44, 57, 238, 248–250, 255, 268–270, 275,
59, 73, 94–97, 100, 184, 283 27980, 282–285
298 Index
Productive force, 2, 3, 9, 10, 13–18, 20–23, Replacement, 11, 13, 31, 66, 71, 90, 91, 93,
33, 111, 206, 242, 247–250, 252, 94, 99, 112, 114, 116, 117, 119,
253, 268–270, 272, 274–284 121–125, 127–130, 132, 140, 143,
Productive force and production relations, 144, 180, 182, 204, 213–215, 236,
196, 283 237
Profit, 2, 4, 6, 9, 18–20, 23–3029, 32–36, Reproduction, 2, 6, 21, 42, 44–46, 50–52,
39–41, 43–46, 51, 53, 57, 61–63, 65, 57, 59–61, 74, 90–95, 97–100,
67, 72, 76, 79, 94, 98, 101, 103, 104, 107–111, 114, 119–127, 129, 130,
106–115, 117–120, 122–126, 128, 134, 139–141, 1433, 145–147, 151,
129, 132, 136–142, 1478, 155, 160, 153, 160, 163, 165, 175, 176, 182,
176, 178, 180, 182, 184, 185, 187, 188, 192, 193, 195, 197, 198, 207,
195, 197, 198, 204, 206, 208, 209, 212, 213, 216–219, 223, 233,
211, 214, 215, 223, 226–234, 241, 238–240, 271, 273, 277, 288
251–253, 256, 258, 260, 263, 265, Reproduction condition, 93, 124, 148, 176,
266, 274–278, 283, 287 230
Profit expectations, 104, 176 Reproduction condition for labor
Profit maximizing behavior, 47 productivity, 92
Profit rate, 2, 9, 48, 63–68, 70, 71, 75, 78, Reproduction cost of labor power, 6, 45
81–83, 85, 86, 89, 101–104, 106, Reproduction cost theory, 44, 49, 52
108, 136, 137, 142, 160, 177, 178, Reproduction in a shrinking scale, 107, 109
181, 182, 187, 194, 197, 201, Reproduction in the capitalist economy, 2,
206–208, 210–212, 217, 220, 221, 89, 120, 130, 197
223, 225, 226, 229, 230, 234, 235, Reproduction of production relations, 100
237–241, 243–245, 247, 251, Reproduction of wage labor, 57
256–258, 260–262, 264, 266–268, Reproductive allocation, 93, 130, 137
270–274, 276, 287 Reserved army of labor, 45
Propensity to consume, 197, 198, 204 Reversal of disequilibrium cumulative
Property relations, 3 process, 230, 233
Public funds, 2, 23, 247, 272, 274 Revolutionary movements, 5
Purchase without sales, 125, 130 Ricardo, D., 45, 101–110, 112–115, 119,
121, 125, 132, 140, 142, 197
Robinson, J., 223, 257, 267
R
Rationalization, 56
Ratio of commodity, 116
Realization of profit, 114, 129, 137 S
Realized profit rate, 187, 211, 224, 234, 245 Sales amount, 110, 111, 231
Real wage, 21, 40, 44, 45, 48–50, 57–60, Sales competition, 26, 185, 231, 232, 239,
89, 101, 140, 154, 199, 217, 218, 265
223, 240, 242, 251, 256 Sales without purchase, 103
Real wage rate, 2, 9, 34, 37, 39, 40, 42–57, Samuelson, P.A., 251
61–64, 67–74, 76–79, 81, 89, 95, 98, Sato, R., 251
100, 102, 124, 132, 133, 137, 141, Say, J.B., 1091, 197
142, 1454–148, 153–157, 1621, 164, Say’s Law, 101, 102, 107, 132
169, 171, 177, 178, 180–183, Scale of cooperation, 21, 22, 252
192–195, 197, 198, 201, 202, Schumpeter, J.A., 265
206–211, 217, 218, 220, 222, 223, Scientific knowledge, 248, 250
225, 226, 228–232, 234, 235, Scrapping of old technology, 164, 227, 242,
237–243, 245, 251, 257, 264–266, 271, 272
273 Sectoral ratio, 124
Real wage rate measured by production Self-reproduction of capital, 182
goods, 71 Seller’s market, 185, 211, 234
Relative surplus population, 256, 260, 263 Separation between physical labor and
Rentier, 241, 273 intellectual labor, 279
Index 299
Service life of fixed equipment, 236 Sweezy, P.M., 151, 199, 253
Shortage of money, 197, 198
Simple commodity-production, 115, 117
Simple reproduction, 4, 101, 102, 106, 107, T
121–123, 125, 127, 128, 130, 132, Takasuga, Y., 156
137, 139, 143, 153, 237 Technologicaly development, 274
Simple reproduction condition, 124 Temporary determination of the real wage
Sismondi, J.C.L., 114–116, 118–121, 138, rate, 61, 67
197 Temporary equilibrium in the commodity
Slavery system, 243, 42 market, 50
Small and medium enterprises, 241, 242 Theory of population, 109
Small producer, 115, 241, 273, 280, 281 Theory of profit upon alienation, 27
Smith, A., 31, 176, 226 Theory of surplus value, 27, 28
Social capital, 274 Tomizuka, R., 112, 156, 158
Social division of labor, 198, 22, 23, 31, Trade secret, 2778
320–32, 34, 37, 38, 213, 216, 269, Trigger for economic crisis, 223
276, 281 Triggers of reversal, 233
Socialist revolution, 115, 117
Socialist society, 95, 183, 184, 225, 253,
283, 285, 286 U
Socialist system, 283–285 Underconsumption, 118, 198, 199, 205, 206
Underconsumption theory, 199, 200, 203,
Socially standard production method, 227,
206
229, 273
Unemployment, 7, 9, 23, 45, 46, 48, 50, 52,
Social nature of production, 252, 253
53, 56, 104, 115, 142, 147, 149, 150,
Social responsibility, 20
154, 155, 163, 196, 211, 217–219,
Social value, 227, 228, 251, 264, 266
222, 225, 226, 232–234, 240–242,
Solow, R.M., 251
251, 263, 271, 280, 283, 286
Source of profit, 24, 38, 231, 232
Unemployment rate, 48, 150, 155, 158,
Special profits, 26, 232 163–166, 207, 209, 210, 212, 239,
Special surplus value, 228 240, 254, 255, 267, 272
Speculation theory of economic crisis, 210 Uniform profit rate, 74, 76, 77
Speculative demand, 209, 210 United front, 253
Stagnation theory, 111 Unit of measurement, 29
State monopoly capitalism, 1, 238, 253 Uno, K., 176, 206, 207, 209, 247, 249
State power, 5, 274, 282, 283 Unpaid labor, 61
Stationary state, 102, 106 Unproductive consumption, 109, 110, 112,
Steady extended reproduction trajectory, 113, 271, 272
145 Unsold stock, 21, 231, 234, 236
Steady introduction of new technology, 142 Upper and lower limit of real wage, 74
Stockholders, 19, 20 Upper bound of the profit rate, 257, 258
Storage of value, 102 Upper limit of productive forces, 20, 23
Stratum-differentiation, 115, 116 Upper limit of real wage rate, 59
Superstructure, 3, 89, 96, 100, 247 Upward divergent process of the real wage
Surplus condition, 39–44, 75, 79, 92, 98, rate, 52
181, 182, 193 Use-values, 26, 29, 30, 214
Surplus labor, 2, 9, 38, 39, 41, 43, 44, 51, Utilization rate, 50, 51, 66, 177, 178, 186,
55, 56, 61, 72, 100, 139, 182, 202, 187, 189–197, 201, 202, 234, 235,
207, 214, 230–232, 239, 257 237, 238, 243–245, 276
Surplus products, 12, 13, 16, 17, 21, 25,
139, 140, 202, 230, 232, 269, 279,
2823 V
Sustainment condition for wage labor Value, 2, 6, 9, 26–, 28, 30, 32, 37, 39, 40,
system, 230 43, 44, 52, 53, 57, 65, 75, 76, 89, 92,
300 Index
93, 129, 133–135, 139, 147, 149, 228, 233, 236, 257, 258, 265, 266,
150, 155, 157, 158, 163, 164, 168, 280, 281
169, 171–173, 181, 192, 214, 215, Wage laborer, 13, 18, 22, 29, 33, 34, 43, 57,
227–229, 241, 254–260, 262–265, 58, 60, 61, 95, 103, 109–111,
267, 268 115–118, 126, 127, 146, 158, 207,
Value added, 28 212, 214, 216, 218, 223, 231, 233,
Value revolution, 229 240, 274, 279–282
Violent apparatus, 100 Wage laborer class, 27, 57
Wage-labor power, 21, 57
Wage labor system, 232
W War, 58, 59, 253, 269, 283, 285, 286
Wage, 6, 7, 21, 24, 26–28, 32–3433, 34, 39, Widow’s cruse, 232
41, 45–49, 52, 53, 56–61, 63, 66, 67,
74, 95, 100, 103, 105, 109–111,
114–116, 119, 122, 123, 126–129,
131, 132, 134–137, 180, 201, Y
207–209, 211, 212, 214, 218, 223, Yamamoto, F., 143

The Theory of Accumulation: Nobuo Okishio

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Kobe University Monograph Series in Social Science Research

More information about this series at https://link.springer.com/bookseries/16115

The Theory of Accumulation

Hideo Suehiro Hisao Hisamoto

ISSN 2524-504X ISSN 2524-5058 (electronic)

Professor Nobuo Okishio (1927–2003) is known in English-speaking countries as

Kobe, Japan Taiji Hagiwara

Kobe, Japan Nobuo Okishio

Yasuhiro Sakai (faculty of Economics, Kobe University). I sincerely appreciate the

Kobe, Japan Nobuo Okishio

3.2.1 David Ricardo’s Point of View . . . . . . . . . . . . . . . . . . . . . . . . . 101

5.2.3 Implication of the Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267

Fig. 2.1 Production relations and productive force . . . . . . . . . . . . . . . . . . . 17

Fig. 4.4 Determination of accumulation demand . . . . . . . . . . . . . . . . . . . . 190

Table 2.1 Summary of comparative statics . . . . . . . . . . . . . . . . . . . . . . . . . . 87

1.1 The Structure of This Book

information, an increase in pollution, deepening unrest in the ruling class and an

1.2 Various Issues Today

The state-monopoly capitalism in the present day is not a subject to be analyzed

1 Marx [2, Preface, p. 263].

economy? (c) Did it block the disequilibrium being cumulated downward

1.3 The Relationship Between Capital and This Book

2.1 The Characteristics of a Capitalist Economy

To elucidate the economic phenomena in a capitalist economy, it is necessary to

2.1.1 Productive Force and Production Relations

2.1.1.1 Productive Force

When we talk about the fundamental characteristics of a capitalist system, it is neces-

1 Engels [7, pp. 452–464].

2.1.1.2 Production Relations

Human beings form various social relations regarding production as follows2 :

2 Okishio [21, Part 2, Chap. 1, pp. 269–276].

5. Distribution of products: The results of productive activities must be distributed

2.1.1.3 Productive Forces and Production Relations

1. Existence of humans and development of productive forces

3 Marx [2, Preface, pp. 262–264].

Therefore, it is quite simple to realize how the development of productive forces is

4 Engels [8, p. 303].

Fig. 2.1 Production Production

2.1.2 Productive Forces and Production Relations

2.1.2.1 Capitalist Relations of Production

1. Under a capitalist society, capitalists exclusively own the means of production,

stated in the previous section, a capitalistic system is a society where an extensive

8 See Berle and Means [3, pp. 45–46].

2.1.2.2 Capitalist Society and Productive Forces

For the establishment, functioning and sustainment of this unique production

9 Berle [4, Chap. 3, pp. 61–115].

The Lower Limit of Productive Forces

10 Refer to Sect. 2.4.1: Reproduction of Wage-labor Power and Real Wages.

Fig. 2.2 Cooperation and productivity

The Upper Limit of Productive Forces

2.2 The Conditions for Profit Existence

2.2.1 Various Vulgar Views

11 Marshall [13, Book 6, Chap. 7, pp. 596–608].

it is only a tautology, which claims nothing. The discussion should be why

13 Böhm-Bawerk [5, Book 4, Chap. 2, pp. 299–303].

4. Some propose that profit is generated by technological innovations (innovation

14 Schumpeter [24, pp. 128–129].

2.2.2 Casual Observations and the Question

could only be proved by presupposing equivalent exchange of commodities, and

2.2.2.1 Casual Observations

Anyone knows at least something about phenomena expressed by the word

Income = Amount of sales − Material costs