See « A note on Duncan Foley’s circuit of capital » Gérard Duménil and Dominique Lévy in

To the 50 % of American workers and employees whose average earning has stagnated around $ 16 000 a year since 1980 and with almost no savings while the « Top 0.1% now holds as much wealth as Bottom 90% combined ». See: Capitalism in America: How a Dismal Decimal is Robbing Americans Blind, by Jon Hellevig for The Saker Blog in



1 ) Introduction

2 ) Origin of another fallacious Marxologists’ problem

2 a ) Rosa Luxemburg and Book II of Capital

2 b ) Circuits vs. Simple and Enlarged Reproduction

3 ) The laughable homothetic presentation of « circuit of capital » by Duménil & Lévy

3 a ) Model vs. the object or investigation or Reality

3 b ) « The basic circuit of capital model with a commodity money » : no more than a useless paid academic game.

3 c ) The pseudo-problem of realization taken from Duncan Foley and « resolved » by these two.

3 d ) A word on classical and speculative credit.

4 ) Conclusion: some paid academics should learn to read and think before pretending to comment on Marx.



The above outline has been followed scrupulously. However, to avoid boredom by restraining myself to the above mentioned two authors’ intellectually barren thesis on realization, I took the opportunity to widen the scope of my refutation. I did this interpolating in my demonstration my critiques of most of the other pertinent bourgeois works on the subject. The usefulness of the result should be that much greater.

1 ) Introduction

The great epistemologist Louis Althusser underlined the fact that of the four volumes of Karl Marx’s Capital only Book I was published and edited by Marx himself. I have demonstrated how Marx’s two main contributions have been falsified with recourse to the usual dominant casts’ and classes’ method which consists in either occulting science or in obscuring it. The aim of this falsification is to deprive the masses of the theoretical and practical (1) tools needed to apprehend reality and to change it in order to fit their own Human needs.

Marx’s first main contribution consists in his elaboration of the Triptych of Human Emancipation, that is to say the historical and logical conclusion of the critique of exclusivism without which no democracy and no emancipation are possible. Theories of Natural Law had preceded this understanding. They took their modern scientific form with Vico’s notion of « diritto delle genti » and their republican form with the powerful refutation of Tradition –according to Ed. Burke et al. – by Thomas Paine’s Rights of Man. (2)

Marx’s second main contribution consists in laying the ground for the scientific basis of economic science with his impeccable investigation and exposition of the labor law of value, a gigantic endeavor which we can admire in many of his works and more particularly in Capital. From the very beginning Marx was the object of vicious attacks, for instance those exposed by Marx himself in his Herr Vogt (3)

The main falsification was due to Böhm-Bawerk. From his bureaucratic position and thanks to his ties with Menger and other highly placed officials in Austria and Germany, he followed closely the publication of Marx’s work. This was especially the case after the publication of Book I of Capital, which Marx himself had intended as a scientific exposition of the political economy field equivalent to Darwin’s magnum opus on evolution. This had created lots of distress among the highest dominant circles and their lodges. Hughes even referred to Max Weber’s bout of quasi-madness after his reading of Book I, a depression that he, interestingly, cured during a trip in Italy where he was probably taught Nietzsche’s falsifying method of which he was soon to give his own sociological version. (Hughes, H. Stuart, Consciousness and Society, The Harvester Press, 1979.)

I personally suspect that Böhm-Bawerk was not ignorant concerning the choices of drafts managed in the back of an aging Engels mainly by Kautsky and Bernstein for the posthumous editions of Books II, III and IV of Capital. Apparently many past and present analysts and editors of Marx’s works are either unaware of the problem or too busy misinterpreting him consciously or not. Be it as it may, when Book III of Capital was published Böhm-Bawerk was already prepared to raise his – self-fabricated – paean of victory. Book III contained drafts where Marx spoke of an average rate of profit imposed by the mobility of capital, one that would lead to the transformation of exchange values as formulated in Book I into « prices of production ». If that were the case, obviously Böhm-Bawerk would be right in claiming that Book III – not edited by Marx himself – does contradict Book I and therefore Marx’s labor law of value could not claim to be scientific.

The first published definitive refutation of this cooked-up ineptitude appeared in my Tous ensemble (1998). I have shown that the origin of the fake problem laid in the choices of manuscripts for Book III. These show a Marx that was still dealing with Smith’s and Ricardo’s concepts. Consequently, most refer to an investigation process that chronologically came earlier than the magisterial exposition laid down in Book I. Few others were work in progress in preparation for the other books of Capital. They were still exploratory. For instance, the tragically misread chapter on the supposed « tendency of the rate of profit to fall » a chapter immediately followed by another chapter on the counter-tendencies …

In these drafts, Marx was still using Smith’s concept of « simple labour » and he was still enmeshed in Ricardo’s differential and absolute rents. Much later, for instance with the M. Rubel’s peculiar edition for La Pléiade, some crucial letters from Marx to Engels dealing with the prices of production « problem » were published in French. Given that the Prussian, English and many other polices networks were actively opening all his mails, it would not be surprising that Böhm-Bawerk was in the known. These letters replaced the so-called problem of transformation of exchange values into prices of production in the framework of economic reproduction which is the specific object of the manuscripts that went into Book II.

These letters still represent a investigation stage entrapped into Smith’s and Ricardo’s thinking. But typically, as is often the case with Marx, they provide the analytic framework in which the problem needs to be resolved, namely within the constraints of Reproduction. I have shown how the problem is resolved once we replace Smith’s « simple labor » with Marx’s scientific concepts of « abstract labor » and « socially necessary labor ». This led me to formulate the Marxist Law of productivity which is at the core of the extraction of surplus-value in a Capitalist Mode of Production (CMP).

Two examples can be used to illustrate the problem and its scientific resolution. From his monumental investigation of economic reproduction – Sismondi ‘s annual revenue, Quesnay Tableau and many many more – Marx was able to formulate a scientific function of production – a microeconomic function of production, in mainstream parlance. It contained the necessary and sufficient number of sectors needed to apprehend it. The function of production: c + v + pv = p where c = constant capital plus v = variable capital or already reconstituted labor ready to be expounded in the immediate production process, plus pv = living labor producing surplus-value, equals p the product. Simple or Enlarged Reproduction – stationary and dynamic general equilibrium in mainstream parlance – can be reduced to a Sector 1 of Means of production (Mp) sending one back to constant capital c and a Sector II of Means of consumption (Cn) that sends one back to the consumption basket that enters into the reconstitution of labor power. As I have shown, one can subsume all sub-sectors into these two main sectors and even statistically recompose intersectoral filières.

Let us first consider the prices of production schema. We take C = (c + v) = 100 and, as Marx does, a rate of profit pv/(c + v) different in SI and SII.

SI c (80) + v (20) + pv ( 20) = Mp (120) rate of profit 20/100

SII c (60) + v (40) + pv (10) = Cn (110)   rate of profit 10/100

Of course, through the mobility of capital an average rate of profit would eventually be imposed thus leading to the equalization of the rates of profit. Hence’ we would get:

SI c (80) + v (20) + pv ( 15) = Mp (115) rate of profit 15/100

SII c (60) + v (40) + pv (15) = Cn (115) rate of profit 15/100

Böhm-Bawerk rightly points out that in a Reproduction schema the second round would have to use (c +v ) in prices of production hence the illogical fallacy between exchange values and prices of production.

Note that this averaging of the rate of profit would be redundant because the mobility of capital and labor already insures its consequences at the level of the function of production. The concept of « abstract labor » means precisely that the internal division of labor within the enterprise prevails and, in this sense, one does not need to refer to Adam Smith’s primitive concept of « simple labor ». This is based on the idea that the pin factory would have deconstructed all crafts and trades to recompose them in generalised simple tasks. In a Capitalist Mode of Production – CMP – competition, which represents the rule of the socio-economic legalised game, plays again at the level of the market price but this process is over-determine by social demand which is scientifically formalised by the SR-ER Equations. Marx had already pointed it out in his Parisian manuscripts of 1844 adding that market oscillations average out and therefore the scientific explanation for exchange value laid elsewhere. The definitive demonstration is found in the pertinent chapter of my Synopsis of Marxist Political Economy, freely accessible in my old Jurassic site

When one reworks Marx’s problems respecting the Marxist labor law of value exposed in Book I, as well as the important critiques contained into the chapter « The last hour of Senior » – an anticipated refutation of Marginalism –, and when one does that in the framework of Simple and Enlarged Reproduction where the coherence of the solution must be retained both in quantitative and qualitative terms, one reaches the Marxist theory of productivity which I alone was able to demonstrate.

This implies an organic coherence of the main ratios of the function of production, namely the organic composition of capital v/C where C = (c + v), the rate of exploitation pv/v and the rate of profit pv/(c + v). In Marx’s formulations as they appear in the letters send to Engels these ratios are not respected. However, and most importantly, Marx had devised a coherence checking method by inserting the problem to be resolved within the tight constraints of Simple Reproduction. The reader is sent back to my Tous ensemble for a full exposé. The English reader will find a pertinent summary in my Keynesianism, Marxism, Economic Stability and Growth (2005) freely accessible in my old Jurassic site .

In short, the main ratios of the functions of production cannot be given haphazardly because the organic composition of capital (v/C) and the rate of exploitation (pv/v) evolve in a proportionally inverse fashion according to the Marxist productivity law. Looked at form the angle of Simple Reproduction, Productivity is the ability to produce more of a specific product, or of one with a great degree of elasticity, during the same amount of time with the same investment (c + v) and the same v expressed in use value terms – but not the same number of physical workers – hence with an exchange value per unit of product proportionally lower. We can assume full-employment at this stage so that exchange values and market prices remain the same.

Marx’s Equations of SR as summarized by Bukharin are :

c2 = v1 + pv1

M2 = (v1 + pv1) + (v2 + pv2)

M1 = c1 + c2

An example being worth one thousand words we would get the following – the example is copied and pasted from my Tous ensemble:

« In each sector productivity implies a proportionally inverse relationship between v/C (where C = (c +v) and pv/v. Assuming an initial Simple Reproduction system in which SI and SII share the same v/C and the same pv/v, we would get in initial system A :

c1:80€           v1:20€              pv1:20F       = M1:120€

80Mp/80h       20Mp/20h       20Mp/20h   = 120Mp/120h


c2:40€           v2:10€               pv2:10€       = M2:60€

40Cn/40h       10Cn/10h         10Cn/10h      = 60Cn/60h

Here a Cn is worth a Mp and the productive conditions are identical thus labor is naturally homogenous labor according to the terminology used by Arghiri Emmanuel – what Marx called « abstract labor » – and thus immediately commensurable. Let us show that this remains the case when productivity defers in one sector provided that the rules governing productivity are respected.

Let us assume the SR system A’ such as productivity would rise ¼ in SI. We would have:

c1:84€               v1:16€             pv1:20€       = M1:120€

105Mp/84h     20Mp/16h         25Mp/20h  =   150Mp/120h


c2:36€            v2:9€            pv2:9€          = M2:54€

36cn/36h         9cn/9h         9Cn/9h       =   54cn/54h                   (45Mp)

Here a Mp = 0,8€ ; and a Cn = 1€ »

Coherently reinserting a scientific theory of productivity in the SR system disposes of the fallacious « transformation problem » and provides a system that is fully elucidated in values, prices, hours and products quantity terms something no other theory, less of among them bourgeois and Marginalist theories, could ever dream of. Another way of saying it is to note that all bourgeois theories, Marginalism included, are incapable of reconciling micro and macroeconomics. I have shown ( ) that this ex ante/post hoc problem falsely imputed to Marx by the pitre Böhm-Bawerk, in reality applies squarely to the Supply and Demand curves. To draw the Demand curve one needs to give a table of possible supplies in prices, and inversely to draw the Supply curve one needs to provide the Demand table in price terms, then you cross both curves and Voilà! You get the miraculous « market price » and if you persevere you are on track to earn a Nobel Prize – Hi-Ha! – at least if you know how to tow the line.

This is only the most fundamental falsification of Marx’s scientific work. A brief history of the main falsifications is given in my Methodological introduction freely accessible in the Livres-Books section of my old Jurassic site

This scientific clarification allow us now to turn to the analysis of two more falsifications that need to be debunked in order to grasp Duménil’s and Lévy’s useless « circuit of capital » little academic game. Their starting point is the theory of capital circuits proposed by Duncan Foley (note the plural here whereas the two authors use the singular … ) Foley, in turn, started form his understanding of Rosa Luxemburg’s critiques of Book II of Capital. We must therefore start with a brief exposition of Rosa Luxemburg’s critiques.

                  2 ) Origin of another fallacious Marxologists’ problem                                                                              

 2 a ) Rosa Luxemburg and Book II of Capital

The pertinent works of Rosa Luxemburg, both the The accumulation of capital and The accumulation of capital: an anti-critique are readily available here : A shorter reformulation of the main critique is provided in Tony Cliff, « Rosa Luxemburg The Accumulation of Capital » in The rest of the article is well-intentioned but erroneous. This is because like most academic Cliff does not know my scientific contributions or, like others, he chose to ignore them. As we all know academics are paid and most do tow the dominant narratives lines especially when dealing with Marxism and social sciences.

As for Rosa Luxemburg she had the dubious honour to live in Vienna where, together with her comrades, she contributed to instil rigorous scientific analysis into the study and furthering of Marxism. Like all great Marxists she admired Marx but still read him with a critical mind as Marx had demanded. Janek Wasserman spoke of Red Vienna and Black Vienna. Despite long-lasting rivalries, German and Austrian politics were closely netted if only because of the substitution of the republican regime in both countries after the WWI. Unfortunately his analysis of Red Vienna starts after 1919 hence after the savage murders of Communist revolutionaries by the German Weimar Republic, most notably Karl Liebknecht and Rosa Luxemburg. In so doing he missed the main point about both Red and Black Vienna: with Austro-Marxism, the dominant Imperial and later « Republican » circles including Böhm-Bawerk, Menger and the rest of the so-called Austrian School or Marginalists, the dominant classes were able to control both the dominant ideology and the dominant opposition. Jewish over-representation as a group mediating within the various nationalities of the Austrian Empire goes a long way to explain this. Unfortunately, the intra-dominant classes cleavages took the form of the opposition between the Austrian version of philo-Semite Nietzscheism – including Freud – and the Catholic Wagnerian interpretation. The latter was still aggravated by Imperialist contradictions between the great European Powers and, for the sake of the argument that concerns us here, by the contradictions between Wagner and Chamberlain. This exclusivist cleavage will take a deadly form with the affirmation of Black Vienna that is to say of Fascism and Nazism.

The falsification of economics by the Austrian School had started before Rosa Luxemburg’s death but really flourished soon after her savage murder. It mainly rests on two ideological lines of thought. First the critique of Marx’s work as unscientific thanks to the academic accreditation of Böhm-Bawerk’s original falsification,. This was immediately followed by the subjective falsification that lies at the heart of the concepts of « utility » and « marginal utility ». The opposition between the more historically inclined German School, led mostly by Gustav Schmoller, pointed out that the Austrian Marginalist efforts were bound to fail simply because no scientific method could rest on subjective theories. The Austrian School, through their ready access to State circles and therefore to the power to control syllabuses together with the selection process imposed on academics and students, fought back with the pretention that the capitalist mentality – the « acquisitive mind » already criticised at birth by Hobbes and many others – was diachronically and synchronically universal! It followed for instance that there is no difference between feudal, potlatch and capitalist societies. Falsified ethnologist and anthropological theories were thus allowed to flourish as well as falsified psychoanalytical theories. The worst of them all being Freud’s philo-Semite Nietzschean reversed plagiarism of Vico’s work on human becoming mainly carried out in his Scienza nuova as I have demonstrated in the second part of my Pour Marx, contre le nihilisme (2002) ( See a partial translation in English in the Livres-Books section of my old Jurassic site )

Coming back to Rosa Luxemburg, she was a true Marxist and a true International Communist. Although she was not able to re-establish the scientific labor law of value as we did – see above – she clearly saw that Book II contained contradictions. She soon felt obliged to criticise the Gotha of Austro-Marxists from Kautsky to Bernstein to Otto Bauer and to Hilferding, even before Lenin accused them of being « renegades » for their support to the war waged to share the World among imperialist powers. Traveling in the footsteps of Ferdinand Lassalle, the Austro-Marxists tried their best to deprive the working class of their own voice just as Freud did for Ida, alias Dora, the sister of Otto Bauer. ( )

She understood that they were eviscerating Marxism of its scientific spirit and methodology and she did not hesitate to say it out loud, refuting their criticism rather brilliantly. And that, more than anything else, did probably cost her her own life. She could not prove that the drafts retained in the published Books II, III and IV were, as I think, the result of a planned forgery carried out through the selection of the drafts chosen for publication, but she revealed the contradictions emerging from them. One can deplore that she attributed these contradictions to Marx without differentiating clearly between the investigation and the exposition stages; however she did not deduce from this the necessity to abandon the labor law of value but instead to contribute to the furthering of scientific Marxism. Indeed, from the contradictions she pointed out in Book II as published by Kautsky et al., she derived a brilliant and fittingly descriptive theory of Imperialism that kept Marxism alive despite the fact that the falsified transformation problem invented by Böhm-Bawerk remained to be clearly refuted.

The theory of circuits of capital proposed by Duncan Foley serves as a starting point for Duménil’s and Lévy’s inquiry. It initiates with a presumed problem of realization which Rosa Luxemburg saw in the drafts that were selected for the publication of Book II of Capital. The problem disappears once productivity is coherently integrated in the SR-ER Equations. But we must understand the crux of Rosa Luxemburg’s reasoning. As Marx explains exchange value has to be realized to exist as a merchant or capitalist reality. In a capitalist society this realization takes the form of money, the privileged form of the accumulation of capital within the CMP. But money is only a general equivalent though a very convenient one. Realization could also be effectuated through a particular commodity used as a means of exchange, that is a particular equivalent. In the end, realization needs to rest on the exchange value of the labor force, the universal equivalent. But forms and mediations are important.

Rosa Luxemburg knows the difference between the simple exchange between commodity A and commodity B where in money terms A = B. She also knows that the circulation of capital in its money form (M), its commodity form (C) and its production form (P) is based on the extraction of surplus-value so that the circuit M – C … P … C’- M’ produces an accumulation of exchange value or capital (M’>M). She also knows that the analysis of these two complementary forms of circulation needed to arrive at the realization stage are summarised in the Equations of Simple and Enlarged Reproduction proposed in Book II. Unfortunately, the drafts retained in Book II are not finished drafts. Bukharin was able to formalise in three lines the Equations of Simple Reproduction, although this brilliant exposition appeared as a special case restricted to SI and SII sharing the same v/C and pv/v until I solved the so-called transformation problem. Indeed, it is perfectly coherent when all ratios (v/C and pv/v ) are kept identical in Sector I and Sector II. As soon as the ratios change the most incredible confusion ensues. I have demonstrated that this is the case only when the Marxist law of productivity is not coherently integrated within the SR-ER Equations.

That was not the sole problem Rosa Luxemburg faced. The few draft pages dealing with Enlarged Reproduction in Book II are fragmented at best and use arbitrarily chosen examples. The greatness of Rosa Luxemburg consists in reading Marx as an honest Marxist and in pointing out the contradictions in order to propose a way out, namely her theory of the relationships of capitalism with other modes of production which led to her theory of imperialism.

Rosa Luxemburg proposes a theory of money in her Accumulation of capital. But it is very sketchy – and, in reality, wrong. It boils down to saying that one needs to introduce a sufficient amount of money to ensure the realization of the whole production without specifying was this would be. She is tempted to follow Tugan-Baranovsky in introducing a third sector of money but does not develop this to endorse the (Marginalist) absurd position which consists in equating the amount of production with the amount of money necessary for circulation and realization. This would have abolished the role of what Marx calls « rotations » of money particularly those of the salary masses. Her reading of Marx’s schematic formulations of Simple and Enlarged Reproduction pushes her back to her main problem which she sums up in one sentence: « What has to be explained is the great social transaction of exchange, caused by real economic needs. » (in ). In the end when each Mp and Cn can be exchanged as is the case in the SR Equations no realization problem would arise independently to the recourse of the money form. But this was not the case with Enlarged Reproduction as portrayed by the drafts used for Book II. As she understood it there was an amount of production that could not be realised within the CMP with the available amount of money, hence imperialism, necessarily violent, was understood as the necessary opening of new markets where surplus production could be sold and realized.

Tony Cliff, who is not helpful in the rest of his article because he does not understand productivity, sums up this critique rather neatly. See the full quote below.

We can synthesize further presenting the SR Schema followed by the ER Schema at t0 and at t1.

SR Schema:

S I        4000c     +     1000v     +     1000s     = 6000 We have c/v= 4; v/C= 0,2; pv/v = 1

S II       2000c     +       500v     +       500s     = 3000 We have c/v= 4; v/C= 0,2; pv/v = 1

Here Marx SR Equations apply. They mean that the total production of Means of production (Mp) must cover the total Mp needed in c1 and c2. Similarly the total production of Means of consumption (Cn) must cover the consumption needs of the labor power and of the capitalist – assuming here that the surplus-value is totally consumed by the capitalists. Finally c2 must be equal to v1 plus pv1. This last condition is the key of the SR equilibrium although it is less obvious.

c2 = v1 + pv1 was derived by Marx from his critical analysis of the stocks and flows of reproduction analysed by various classical authors, mainly by Sismondi – annual revenue – and in Quesnay’s Tableau. To understand this it is important to keep in mind that SI produces Mp so that pv1 is first available to the SI capitalist as Mp or as a fraction of the total product of his specific sectoral production. This transforms into Cn only through the series of exchanges or circuits of capital between SI and SII which are summarised by the SR Equations. In the framework of the CMP characterised by the mobility of capital from industries to industries and sector to sector. This is all that is needed for so-called competition to enforce its rule. But behind this competition mediated by exchange value, or prices, are the technical conditions of production and reproduction which over-determine the reproduction process through the two main social demands, that for Mp and that for Cn.

Here is the ER Schema at t0 that pretends to provide the starting conditions.:

S I       4000c     +     1000v     +     1000s     = 6000 We have c/v= 4; v/C= 0,2; pv/v = 1

S II       1500c     +       750v     +       750s     = 3000 We have c/v= 2; v/C= 0,33; pv/v = 1

Notice here that the necessary condition for c2 = v1 + pv1 is broken. It is assumed that ½ of pv1 is consumed by the capitalist and the other half is reinvested proportionally in c1 and v1. Of course, given the starting assumption concerning c2, it does not help to extend the ER Schema from t0 to t1 to t2 and tn. This will only reproduce and aggravate this initial error.

We expand SI calling pv1c the part that is reinvested in c1, pv1v the part reinvested in v1 and pv1a the part that is consumed:

SI = 4000 + 1000 + [(400 + 100) + 500 ]= 6000

From this would follow:

c1 + pv1c = 4000 + 400 = 4400

c2 + pv2c = v1 + pv1a + pv1v

= 1000 + 500 + 100 = 1600

Here would be the first round or t1:

S I        4400c     +     1100v     +     1100s     =   6600

S II       1600c     +       800v     +       800s     =   3200

Rosa Luxemburg rigorously follows the investigation drafts published by Kautsky and others in Book II and analyses the results of ER after a few rounds. (For the full presentation see the note below). She rightly concludes that there would be an increased disequilibrium between both Sectors. She attributes this to the invisible hand propelled by the capitalist profit motive and arrives at her theory of the relationships between various modes of production with the CMP, hence at her theory of Imperialism.

In reality the SR Equations must underline the ER Equations taking into account the rate of accumulation or re-investment. Both social demands for Mp and Cn must be covered: the profit motive or capital mobility would ensure this. Hence, we should have:

ER Schema at t0:

SI = 4000 + 1000 + [(400 + 100) + 500 ]= 6000

SII = 2000 + 500 + 500 (this is given by pv/v = 1 and we do not need to develop it here)

ER at t1 where SI reinvests ½ of pv1. We get:

SI = 4400 + 1100

pv1/v1 = 1 hence we deduce that M1 or total production of Mp = 6600 Mp

As we said above c2 must be equal to (v1 + pv1) because this is enforced through the series of exchanges imposed by the mobility of capital and summarised in the SR Equations in a framework in which the conditions of production, namely the organic composition of capital and the rate of extraction of surplus-value are said to remain identical.

We have:

SI = 4400 + 1100

SII = 2000 +   500

This in turn means that in order to maintain an equilibrium – the SR Equations – both sectors must reinvest at the same pace.

Of course, the invisible hand, contrary to socio-economic planning, does lead to this result only through recurrent crisis characterised by expansion in some industries that are accompanied by contractions in others. We already said elsewhere that there always is a capitalist equilibrium, but it is always an ex post equilibrium which is never a socially optimum equilibrium. The Capitalist Mode of Production is inherently wasteful and the purges that unfold during the inevitable recurrent crises are but one dramatic illustration. The most damning and enormous waste induced by the CMP is a systemic and silent one, it is based on the fact that only solvent demand is met by a supply. The process involves a massive disregard for the environment as explained in my theory of Ecomarxism exposed in the Introduction and Appendix of my Keynesianism, Marxism, Economic Stability and Growth. (2005) This explains why, within the CMP, most essential social needs are not satisfied and must therefore be abstracted from the reach of the « animal spirits » of capitalism and be entrusted to national public companies.

Rosa Luxemburg is very sarcastic when she rules out Otto Bauer’s attempt to confute her argument about disequilibrium. Pointing to the arbitrary set of equations provided by Bauer she concludes:

« The capitalists in Bauer’s first department ‘want’ to reinvest 12,500 of their surplus-value. Why so much? Because Bauer needs this figure for his calculations to work out.

« Bauer comes along and casually hurls Marx’s entire analysis to the ground by ‘transferring’ the commodities backwards and forwards from one department to the other without exchange, and flying about in the rigorous model like a wild goose in the sky, to use a Polish proverb. » in »

She was particularly sensible to the washing away of class struggle at the domestic level and of global imperialist contradictions that characterised all the so-called Austro-Marxists which Lenin called « renegades » when the outbreak of the First WW unmasked them. In the end, she noted that Bauer could not reconcile his diagrams without exogenously introducing an adjustment variable, that is to say demography. But she was right only by default. She was even more caustic when she dealt with Tugan-Baranovsky’s remark pointing to the necessary intersectoral proportions needed to maintain a systemic equilibrium. She denounces it as a useless tautology. However, Tugan-Baranovsky had something else in mind, namely the resolution of the so-called « transformation problem » or, to put it simply, the incoherence of the SR Equations when a productivity increase – or a change in the initial v/C and pv/v – happens in only one sector.

This is the crux of the question. Referring back to the ER (false) Equations dealt with above – with c2 + pv2c = v1 + pv1a + pv1v – we notice that, once we correctly take the organic composition of capital as v/C instead of c/v, not only the equations sets appear arbitrary, as Rosa Luxemburg rightly pointed out, but more importantly they are incoherent. And given that the Marxist law of productivity imposes a determinate relationship between the organic composition of capital v/C and the rate of extraction of surplus-value or rate of exploitation pv/v, the Schemas are utterly wrong.

The capitalist socio-economic disequilibria do exist but they must be scientifically analysed respecting the necessary SR Equations which must underline the ER dynamic. For instance, productivity increase « frees » labor power leading to unemployment, thus raising the underlying problem of overproduction and under-consumption, hence the problem raised by imperialist mediations. Free labor cannot always be absorbed into new or intermediary sectors – which are now increasingly capital intensive – at least not without recurrent general Reduction of the Work Week. The Reserve army of the proletariat is also at the heart of the scientific understanding of money and of inflation/deflation.

Marx famously said that analysis was the microscope of thought. Aside from the Equations of Reproduction in other drafts he proposed a method to clarify the formulation of the problem of comparing functions of production, namely using C = (c+v) = 100. The main ratios are v/C, the organic composition of capital; pv/v the rate of exploitation and v/(c+v) the rate of profit.

If we reformulate the above we would get for the SR starting point:

SI   = c1 (80) + v1(20) + pv1 (20) = Mp (120) where v/C = 0,2 and pv/v =1 and v/(c+v) = 0,2

S II = c2 (40) + v2 (10) + pv2 (10) = Cn (60) where v/C = 0,2 and pv/v = 1 and v/(c+v) =0,2

If we reformulate the above we would get the following for the ER starting point:

SI   = c1 (80) + v1(20) + pv1 (20) = Mp (120) where v/C = 0,2 and pv/v =1 and v/(c+v) = 0,2

S II = c2 (30) + v2 (15) + pv2 (15) = Cn (60) where v/C = 0,33 and pv/v = 1 and v/(c+v) = 0,33

In the second round (just considering SI for short where ½ of the pv1 is reinvested ) we would get:

SI = c1 (88) + v1 (22) and so on for SII and for successive rounds as shown by Rosa Luxemburg.

At a glance we see what is wrong. It is not only, as pointed out by Rosa Luxemburg, that the examples are arbitrary but that they are not coherent. The discrepancy in the main ratios from SI to SII will become the nest of crabs know as the (forged ) transformation problem necessitating an average rate of profit to get at (forged ) prices of production. Which was the real problem to solve …

This disequilibrium is the basis of what she sees as a realization problem and the driving force of imperialism.

Let us take another look at our own formulation.

Starting Schema A:

c1:80€           v1:20€              pv1:20F       = M1:120€

80Mp/80h       20Mp/20h       20Mp/20h     = 120Mp/120h


c2:40€         v2:10€               pv2:10€       = M2:60€

40Cn/40h       10Cn/10h         10Cn/10h     = 60Cn/60h

Let us assume a SR system A’ such as productivity would rise ¼ in SI. We would have:

c1:84€             v1:16€            pv1:20€       = M1:120€

105Mp/84h     20Mp/16h         25Mp/20h   =   150Mp/120h


c2:36€             v2:9€                 pv2:9€               = M2:54€

36cn/36h         9cn/9h                 9Cn/9h         =   54cn/54h                   (45Mp)

Here a Mp = 0,8€ ; and a Cn = 1€ »

Since the main ratios v/C and pv/v in both the A and A’ Schemas remain coherent, the initial Schema A can no longer be considered as special case. In fact, this coherence explains why the SR Schema was used so powerfully by the initial Bolshevik – i.e. Stalin’s – planning. Stalin underlined the need to always introduce the greatest productivity possible. And to adjust things along the way to deal with the discrepancies introduced. The process was considerably eased by two elements: a ) wage equality, aside from the so-called material emoluments; and b ) the accounting in terms of the so-called Material Net Product, that is to say in use value terms.

On that basis, as demonstrated in my Synopsis of Marxist Political Economy – freely accessible in the Livres-Book section of my old Jurassic site –, it is easy to apprehend Enlarged Reproduction. To keep the dynamic system in a harmonious equilibrium one needs to plan a symmetrically proportional reinvestment rate in both SI and SII. This is the object of public credit which is the anticipation in monetary form of growth. Failing that, for instance with private credit, speculative or not, the system induces expansions in one sector or industries and contractions in others, namely cyclical crisis.

As Marx specified many times that the coherence problem must be dealt with first at the SR level, where parametric constraints are tight and straightforward.

Referring to my own examples above, we notice that when we respect the needed coherence – the relationships between the main ratios – if productivity goes up in SI only, SII continuing to produce with the same ratios, SII is forced to adjust. In Tous ensemble I called this process the SR Effect. That Effect can also be traced in the adjustment of labor power « v » since, in exchange value terms, total active labor power amounts to 25 Euros (translating into 25 Cn) compared to 30 euros (for 30 Cn) in the starting schema. Giving the numbers in hours terms shows that, as expected, the rising of productivity « frees » a determinate amount of hours of labor. This is the origin and illustration of the process that creates the Reserve Army of the proletariat, corresponding to the 5 hours missing (30 hrs to start with and 25 hrs when the productivity increase has been introduced in SI.)

When the coherence between the main ratios are respected in SI and SII, the real problem is no longer the disequilibrium in real terms between SI and SII because it has been organically resolved by the coherence imposed by the ratios. This sends us back to the organic equalizing of conditions enforced by the mobility of capital from one sector to another and from branches to branches. The real discrepancy lies in the creation of the Reserve Army which sends us back to the main contradictions which characterise all modes of production and particularly the CMP, namely the contradiction between the relations of production and the evolution of the productive forces which take the forms of cyclical and structural crises.

Moreover, given the organic coherence imposed by the law of productivity – or coherence imposed by the main ratios, which is the same thing – we can now see clear in the circulation and realization processes. The secret of any mode of production is the advance made by the laborer – any kind, peasant, worker, salesperson etc – to the production process in the form of living labor– see Tous ensemble. The « worker » comes to the production process as past labor or reconstituted labor – worth the consumption basket that keeps her/him alive and able to work, i.e., « socially necessary labor ». As living labor it is able to produce a surplus – surplus-value – that is then pocketed by the Owner of the Means of production. That advance in real – use value – terms or in monetary terms – exchange value of the labor power or salary mass – is all it takes to effectuate all the exchanges necessary for SR and ER. The worker advances his/her labor power but his salary is always paid at the end of the labor process.

However one can ask how the system deals with the « maintenance » of the Reserve army.

(Note: The rather « mechanical » term « maintenance » was used in the original Tennessee Valley Authority’s reports that were the starting point of Kuznets’s statistical work so vital to the management of the modern capitalist economy with fallacious concepts such as GDP etc. This Marginalist national accounting rests on value added and does not account for the essential contribution to real national and social growth contributed by public services such as Health-Care etc. It is utterly absurd because the expenses for public services are counted in the public debt but not in the GDP and this in a speculative monetarist context in which a absurd « fiscal consolidation path » is ferociously imposed on these terms. Public services are the main contributors to macroeconomic competitiveness which, in turn, is the main support for microeconomic productivity. For instance, universally accessible public health-care necessary for the maintenance of the working force costs around 9 % of GDP, but it costs more than double that number for the private American system which leaves close to 40 million citizens without coverage! Idem for pension regimes: not so long ago GM and the US auto-industry had to be bailed out at a gigantic public cost because, due to the attrition of their labor force, they were no longer able to honor its in-house pension scheme. A fraction of this public money could have erased the presumed problem of the mid and long term financing of the US Social Security deficit … Nevertheless, the Tennessee Valley Authority managed to show that after 2 years of unemployment the labor force was victim of physiological lacunae and was bound to lose its professional efficiency and thus became incapable to work without retraining. From these irrefutable facts followed the post-WW II concept of Social Security, including UI and professional retraining, as collectively financed fundamental social rights instead of ad hoc, means-tested and often confessionnally and morally stained assistance programs.)

The monetary management of the Reserve Army of the proletariat that should distinguish between a real salary mass and a social salary mass, is the source for the understanding of the quantitative theory of money – to be distinguished from credit, of which more later.

2 ) Origin of another fallacious Marxologists’ problem                                                            

2 b ) Circuits vs. Simple and Enlarged Reproduction

We saw above that Rosa Luxemburg had realised that, in the end, the so-called realization problem had to be dealt with in the Schemas of Simple and Enlarged Reproduction. This explains why her analysis of circuits of capital and of money is rudimentary. The solution is quite simple: The fully understood Marxist circuits of capital are summed up in the Equations of Simple Reproduction, namely a two-sector model in which the main ratios (v/C and pv/v and v/(c+v) ) are identical in both sectors:

SI = c1 (80) + v1 (20) + pv1 (20) = M1 (120)

SII = c2 (40) + v2 (10) + pv2 (10) = M2 (60)

Here, with implied full-employment, the real salary mass (v1 + v2) which is necessary and sufficient to allow all economic exchanges through rotations is identical to its monetary expression or social salary mass.

To repeat the SR Equations are:

c2 = v1 + pv1

M2 = v1 + pv1 + v2 + pv2

M1 = c1 + c2

I have shown that when the Marxist law of Productivity, which I have demonstrated following Marx, is coherently reinserted in the SR or ER Schemas, the fundamental Equations do not change. With Enlarged Reproduction one only needs to decompose pv1 into two parts, pv1a that is consumed and pv1b that is reinvested proportionally in c1 and v1. Idem for pv2. If the re-investment is symmetrically proportional in both SI and SII, the ER System – or dynamic equilibrium – is harmonious in socio-economical terms. Otherwise, the over-expansion in one sector is accompanied by contractions in the other, hence unemployment and crisis.

For instance, assuming a productivity increase of ¼ in SI we would get:

SI = c1 (84) + v1 (16) + pv1 (20) = M1 (120 euros/150 Mp)

SII = c2 (36) + v2 (9) + pv2 (9) = M2 (54 euros/54 Cn)

In this situation, the real salary mass ( v1 + v2) goes from 30 Euros to 25 Euros. Therefore 5 « workers » or units of labor power are unemployed. During the early days of liberal capitalism « freed labor » survived either going back to the countryside or resorting to the informal economy or, more likely, it relied on the enlarged family which, up until the post-WW II, operated as a safety net. After that the Capitalist State reorganised its management of social relationships. Suffices here to say that the active force is called upon to finance the inactive force. This is mainly done through the Central Bank emission of the portion of the money necessary to sustain the unemployed and inactive. It can take the form of institutionalised saving contributions levied on the gross paycheck.

This solidarity is effectuated in a moralising and means-tested logic which implies that the 5 unemployed in our example would receive much less that the lower paid active worker, say ½. The Central Bank provides these extra 2.5 Euros which added to the real salary mass brings us to the social salary mass. The capitalist redistribution of the share of wealth allocated to the active and inactive working classes is simply effectuated through this invisible monetary exchange mechanism. Which in turn is the cause of what I called the structural rate of inflation – there are other kinds, for instance imported inflation etc.

One would need to multiply each parameter – c, v, pv, M – by that structural rate of inflation to get what I called in Tous ensemble , not the « prices of production » – it has nothing to do with this forgery – but « the value-price equilibrium ». This I called a civilisational equilibrium because, while it is true that a return to full-employment is the only measure that would equate the real and social salary masses, it is equally true that a complex dynamic system needs some mediations to function smoothly. This particular monetary mediation is not really harmful if it is contained – i.e., insuring minimum unemployment – and if it is scientifically understood, thus allowing to needed corrections. It would also facilitate the formulation of correct indexes that would not be as lunatic as those imagined by Irving Fisher and now universally accepted. For a discussion of the essential difference between inflation or purchasing power and standard of living see : )

Leaving these considerations aside we can see that the discussion can be conducted within the most essential SR Schema with identical sectoral ratios transforming it into a ER Schema in which we only deal with the different allocation of surplus-value. It is clear that if the reallocation happens in SI only, SII will have to adjust. If – as could be possible with central or socialist planning- both sectors reinvest in a symmetrical proportional fashion, then the dynamic growth becomes harmonious again. And this dispels the logical contradiction of ER that Rosa Luxemburg formulated, although it should lead to the reworking of her always illuminating theories specially those which deal with crisis and with the relationship of coexistence and dominance of various modes of reproduction with the CMP, namely here theories of imperialism. Against Otto Bauer’s laughable Reproduction Tables, she is right to point out that the « invisible hand of the market » driven by the profit motive cannot reach such a socio-economically harmonious equilibrium. As we all know, capitalist economic equilibrium is always ex post including in times of crisis; more often than not is a cemetery equilibrium.

Let us now turn to the circuits of capital. We have already underlined the fact that the culmination of the circuits are the series of exchanges needed by economic reproduction such as formalised by the Equations of SR-ER. However, the discussion of SR in Book II is complete. Bukharin was able to summarise the SR Equations brilliantly as we indicated before. However, this is not the case for ER: the drafts written by Marx are short and incomplete. As Rosa Luxemburg indicated they were based on « arbitrary » figures and, I might add, they did not include the necessary proportionally inverse relationship between v/C and pv/v which is necessary to maintain the systemic coherence – and to avoid the fallacy of the procedure used to arrive at the prices of production. In other words, these drafts were still at the stage of investigation. But they still testified to Marx’s incomparable rigor.

However, the presentation of the SR-ER Schemas in Book II is preceded by long developments on circuits of capital before their confluence into the SR-ER Equations. Marx distinguishes between two types of circuits mediated by money. The first is a simple exchange of commodity A for commodity B. The commensurability of both takes a monetary form but this is only a social convention. One remembers that Capital Book I starts with Aristotle’s unresolved economic – or rather chrematistics – question, namely how can we exchange a tripod for a bed? Book I presents a brilliant scientific exposition on the fundamental distinction between particular, general and universal equivalents. Any commodity, be it potatoes or Virginia tobacco, can act as a numerary or monetary unit of account, in its quality of a particular equivalent used to mediate economic exchange. But this would be rather cumbersome. Gold, paper currency etc are easier to handle and are therefore used as a general equivalent. But they too are commodities which must be measured against a universal standard, namely against the only economic measuring stick that exists, the exchange value of labor power. The exchange of money (M) for a commodity C is an equality and it would be the same economic equality than that established by the direct exchange A = B . We remain here at the level of the circulation of commodities.

Different economic circuits specifically linked to the circulation of capital were investigated. We might sum them up in one main chain – at least, if we consider only money as distinct from credit. The capitalist mode of production is based on the accumulation of capital driven by a specific form of extraction of surplus-value, namely productivity which is a structurally defined intensity of work. Pre-capitalist modes of production were based on the extraction of absolute surplus-value based on the duration of work. Socialism is based on what I called « social surplus-value » because it will further develop productivity but ensure that the fruits of the labor process is shared collectively and allocated in an egalitarian fashion. Conjunctural intensity is proper to all modes of production but is occasional.

The Welfare or Social State was invented to counter the revolutionary threat posed by the communist Revolutions; it experimented for a while with modest versions of the « social surplus-value » mainly through the extension of the individual capitalist salary with the differed salary – paycheck contributions levied to finance pensions schemes and UI etc – as well as with the tax area that would presumably come back to households in the form of universal access to public infrastructures. I called this the « global net revenue » of the households not to be confused with the Marginalist « disposable income » which abstracts from institutional social safety nets and access to public infrastructures. The neoliberal and monetarist philo-Semite Nietzschean State is now reversing to the sole individual salary causing a domestic and global race to the bottom. It embodies an unprecedented social and ethico-political regression which is now enshrined in domestic laws as well as in the current anti-dumping definition implemented by the WTO. This definition excludes from the calculation of the anti-dumping any reference to labor’s rights – even in their minimal ILO form – and to environmental criteria …

Noting money as (M), commodity as (C) , the process of production where surplus-value is extracted as (P) and the new and more valuable commodity that comes out of the production process as (C’) – for instance C is wood and C’ is that wood transformed into a chair – and noting M’ the greater amount of money gained by the sale of C’, we get the comprehensive circuit:

M – C … P … C’- M’ and so on and so forth.

When dealing with this Marx does not make the distinction between money and credit – however credit is distinct from money because it is an anticipation of production. His litmus test is realization. What does that mean? Simply that a commodity and money itself as a commodity being specific social relations – here specifically capitalist relations – all commodities must exchange in that main circuit in a rigorous fashion. Each must find an equivalent in the system to « realise » itself as an economic reality. If one decomposes the main circuit in a money circuit and in a commodity circuit one can analyse that specific part of the chain better but, in the end, one would be forced to come back to the main circuit given above. If the process were left at that, it would be totally unhelpful.

But Marx does not lose sight of the fact that he is dealing with the reproduction of the entire economic system. He has a vast knowledge of the way this problem was dealt before him and most notably Sismondi’s annual revenue which formalise the idea of a system that can be defined as a temporally-bounded system, but one which can be refined further by the incomparably rigorous critical analysis which Marx deducted from Quesnay’s Tableau.

Despite the drafts that were retained by the notorious renegade Kautsky and others of that ilk to form the published Book II, this is what we can still read in that Book- the translation is mine:

« Over and above the qualitative division of the sum of commodities realised by A, A-M (M decomposing in v and Mp still represents a very quantitative relationship between the sum disbursed for the labor power v and the one invested in means of production Mp; this relationship is from its origin determined by the sum of surplus labor contributed by the number of workers » in Book II, La Pléiade ed., 1968, p 515 .


« The apparent autonomy of the monetary form of the exchange value of capital in the first figure of his circuit disappears as soon as in his second figure it is reduced to its real content : the specific mode of existence of value as a creator of value. This explains why Dr. Quesnay essentially opposes in his Tableau économique this form II – which we give in III – to the mercantilist system. However, he does not present it in its pure expression; he mixes with it concretes determinations, in turn obscured by some misunderstanding as to their process of valorisation » in idem, p 335.

In other words the realization problem needs to be solved in real terms namely by the coherence given by the SR-ER Equations because, as the quotes indicate, the Commodity C takes two distinct use value forms, namely Mp and Cn. Rosa Luxemburg toyed with the money aspect of realization but quickly realised that the problem had to be solved in real terms. She sums up her stance in one sentence: « What has to be explained is the great social transaction of exchange, caused by real economic needs. » (in )

She never provided a Marxist theory of money and did not solve the problem posed by the productivity changes introduced in the SR-ER Schemas. But she rightly pointed out that the realization problem had first to be assessed dealing with the contradictions emanating from the ER drafts published in Book II of Capital. From this she developed a very powerful descriptive theory of Imperialism, for instance her brilliant rendering of the triangular opium-based trade between India and China organised and imposed through military force by the British empire.

In her major work The accumulation of capital when she was still dealing with the role of « money » Rosa Luxemburg noted critically that Marx dealt with the role of gold but finally decided to place the production of gold into the Sector I of Mp. (see note below) In so doing she overlooked Marx’s exposition of the crucial distinction between particular, general and universal equivalents to measure the commensurability of all commodities, including the commodity used as an economic measuring stick. Furthermore, like Marx when he was still dealing with the circuits of capital, she does not make any distinction between money and credit. We know that later on, Marx spend many years following the events of the economic crises of 1853-58 and 1873-78 to arrive at the Marxist concept of credit later refined by Paul Lafargue – and by me. In the volume Economie II, La Pléiade 1968, M Rubel cite Marx on credit and on the development of the stock-exchange (p LXXXVIII) during the first mentioned crisis. He equally shows how Marx let aside the work on Capital Book II and III to fill-up voluminous notebooks on Russia and on the financial-economic crisis of 1873-78.

At this stage of our critique, it would be useful to briefly inquire into the influence played by Tugan-Baranovsky. Not only because of his influence on Rosa Luxemburg but more ominously on all bourgeois economists after him. The fallacious reasoning of simultaneous resolution offered by Tugan-Baranovsky is found in Léo Walras. It took the form of the puerile equilibrium reached on the « market of the markets ». Imagine each market – microeconomics disconnected from macroeconomics – being determined by the silly crossing of Supply and Demand curves, this being synthesized in an overall « market of markets » plagued with the same ex ante-ex-post Supply/Demand procedure!!! It was even worse for all other Marginalists most specifically for what came to be known as neoliberal economists or « Keynesians bastards » according to the phrase used by economists from Cambridge UK such a Joan Robinson.

This was particularly the case of poor Hicks who tried to generalise Marshall two-commodity system into a three and n commodities system. But he had the misfortune to publish his book just after Keynes’s General theory of employment, interest and money (1936) Unfortunately Hicks’s was indirectly very influential through the so-called economic synthesis widely pedaled by various pitres – many Americans among them – such a Samuelson and Solow. (For my critique of Solow see my draft Hi-Ha! : The bourgeois economist’s donkish visual hallucinations (2009) Basically in his ludicrous 1956 Nobel-winning article, in order to get to his razor-hedge reasoning – which by the way rests on a fallacious stable physiological level for the labor force – and their households ? – Solow gets rid of Keynesian reasoning by positing a phony function of production Y = f (K,L) where L is employment independently of the level of unemployment … In this way he sat the stage for the evacuation of the main determining variable in Keynes’s set of interconnected variables namely full-employment. In one of her always refined songs Coralie Clément warns that once one falls on the ground, one can still dig she/his way down … As the average longevity of 40-42-Year of our ½ billion Dalits comrades show, the physiological level can be very elastic, especially once the philo-Semite Nietzschean mentality succeeds in blowing away all ethical and civilisational limits to exploitation … )

Either consciously or not, Tugan-Baranovsky was the prey of Böhm-Bawerk’s initial falsification known as the « transformation problem » of exchange values into prices of production as reformulated by the statistician Bortkiewicz. To solve the problem Tugan-Baranovsky proposed the following Equations of Reproduction :

c1 + v1 + s1 = c1 + c2 + c3

c2 + v2 + s2 = v1 + v2 + v3

c3 + v3 + s3 = s1 + s2 + s3

They substituted Marx’s SR Equations, namely the SR Schema:

SI = c1 + v1 + pv1 = M1 (Mp)

SII = c2 + v2 + pv2 = M2 (Cn)

Such as:

M1 = c1 + c2

c2 = v1 + pv1

M2 = (v1 + pv1) + (v2 + pv2)

We immediately notice the third line which for Tugan-Baranovsky represents gold. In so doing Tugan-Baranovsky simply plays a little trick. Adding gold and using it as a unit of accounting he gets the same number of equations as of variables and is thus able to provide a simple algebraic simultaneous resolution of the transformation problem, which is supposed to represent economic equilibrium. The problem is that it has nothing to do any longer with the economic field of enquiry and even less with Marx!

Nonetheless, many attempts were made to understand equilibrium in these terms. The well-intentioned but dramatically wrong Oscar Lange used it in his attempt to provide a so-called Marginalist theory of socialist planning. (See Oscar Lange’s knew of the transformation problem and he took it seriously. To repeat, I was the first and only one to solve this fallacious problem re-establishing the Marxist labor law of productivity and re-inserting it coherently into the SR-ER Equations. His argument was that since Marginalism claimed to be scientific, it had to apply universally, hence it also had to apply to socialist planning. The great classical Walrasian economist Maurice Allais later came up with a different version of Marginalism as science. He based himself on Auguste Walras’s advice to his son Léon never to forget that the inputs of his « economic science » or equations must come from social economy. But this would not be enough as I demonstrated in my critique to Allais in the « Note** » of my Book III entitled Keynesianism, Marxism, Economic Stability and Growth. As we know Schumpeter transformed this into an ontological dichotomy in order to preventively evacuate any discussion on this crucial subject. Any sensible person – perhaps note « economists » – does understand that this dichotomy hides the ex ante/ex post problem that plagues both the supply and demand curves as well as the impossibility for all brands of bourgeois economics to coherently reconcile micro and macro-economy.

In the hands of capitalist roaders and revisionists such as Liberman and Khrushchev this Marginalist socialism led to the self-destruction of the USSR. ( See: ) On the contrary, Stalin had relied on the coherent SR Schema and used it to correct the divergence that fatally ensued when introducing the highest productivity everywhere possible, as he demanded. In so doing, Stalinist planning was extraordinarily efficient and more so since the economic calculus relied on a basically equal salary – with some material emoluments – and on use values or quantitative accounting known as the Material Net Product.

In retrospect, we can see that Lange relied on very pragmatic solutions to overdetermine the needed supply and demand curves. For instance, warehouses would keep track of their shelves and send orders as soon as the productive or consuming demand would threaten to deplete them. Notice that this is exactly what capitalist business accounting does, at least if one also adds the credit part of the trade. Ironically, it was Hayek, in his role as guard dog of the self-proclaimed elected race and affiliated groups, who came up with a criticism to Lange’s socialist Marginalism. He intended it as a criticism to simultaneous calculus as a planning tool: he wrongly but plausibly advanced that a modern economy is made up of millions of goods and services and, since each exchange implied a simultaneous resolution, this was impossible. He never said however how this argument is different for his own Marginalist supply-demand curves – the ex ante-ex post problem which extends into the contradiction which plagues all bourgeois economy between micro-economics and macroeconomics – For a critique see my Note on socialist planning 2 available here . In the end as we know, Hayek would quickly trade the supply/demand logic for his own authoritarian brand of anomism, badly known a libertarian ideology. Mises was even worse on this score.

Sraffa was also heavily influenced by Tugan-Baranovsky in his attempt to rehabilitate the classical economic labor theory, in particular that of Smith and Ricardo. Let us just say here that in so-doing his matrices have no clue about the productivity problem, they are thus arbitrary. And because no necessary relationships is established between the organic composition of capital and the rate of profit, that rate of profit ends up provided in an exogenous fashion! Economically speaking this is meaningless. Sraffa knew Marx and the role of « socially necessary labor » which he re-baptised in a reified form as a consumer basket for the workers. The title of his major work, namely « the production of commodities by way of commodities », clearly indicates this. In so doing, he evacuates the role of living labor and of labor exploitation, if you will, the essential role of extracted surplus labor – in use value terms – forming the surplus-value – in exchange value terms – which is the basis for capitalist profit.

At this point, we should perhaps mentioned the influence of Tugan-Baranovsky’s approach on Irving Fisher’s so-called « quantitative theory of money ». It is a pure tautology because it equates the national revenue Y to the amount of money needed for all economic exchanges – Rosa Luxemburg would say for the commodities to be realised without contradictions … He adds some circulation to it but basically this changes nothing as circulation is a primitive concept that sends back to the management of money by the central bank, not to Marx’s rotations. Originally this circulation involved the retirement of old metallic or paper money replaced by new. The amount needed remains tautological and this explains why the conscious economic forger Fisher spends so much time in laughable pages to explain that this tautology is not a tautology. He also makes a forced detour into Menger’s proposal to treat the supply of money like any other commodity and through this route you eventually end up to the Marginalist monetary aggregates used by bourgeois central banks, aggregates which happily confuse money, credit and speculative credit and have no clue whatever about inflation as admitted by poor Janet Yellen ( ) Note that with the dominance of speculative credit or « credit without collateral » – see – the FED does not even bother to measure M3 any longer …

Of course, Irving Fisher was not a dupe. He was a chosen disciple of Böhm-Bawerk who was instrumental in pushing him into the economic field because of his alleged mathematical inclination. In fact, Fisher used the same falsifying method used by Böhm-Bawerk against Marx’s Capital. Whereas his master had falsified Book II with the invention of the so-called transformation problem, Irving Fisher sat out to falsify the reasoning of Book III. In Book I Marx had exposed the theory of the labor law of value and the forms of extractions of surplus-value. In Book II he had exposed the logic of Simple and Enlarged Reproduction. In Book III Marx was therefore ready to address the redistribution of the wealth produced and reproduced, an eminently political process. Hence, Book III proposed to illuminate the unfolding of class struggle in that specific context on the basis of three revenues corresponding to the three main social classes present in the Capitalist Mode of Production of his time, namely salary, profit and rent. Marx’s historical writings, in particular those dealing with France, are the perfect illustration of how the historical materialism method can be used for concrete historical analysis. Althusser rightly spoke of a « grille d’analyse ».

To evacuate any investigation into the origin of these revenues and into class struggle, Fisher simply proposed to merge all three in his ludicrous « income stream » which all economic agents – capitalists, workers, salespersons, etc and housewives – are supposed to manage according to universally valid psychological principles, namely risk preference and time preference both being linked to the plainly inept idea according to which a long-term investment needs a higher return. If, as was done in Europe – let alone in Communist countries – the investment is done through public credit, this is obviously false. Public credit only needs to provide for its administrative costs and for some provisioning, it does not need to extract profits or pay dividends. Public credit is therefore always affordable at a very low rate provided it corresponds to real economic needs and to real anticipated socio-economic growth. In particular, when public credit finances the public debt the latter remains very low because, almost by definition, it corresponds to the anticipation of growth which transform credit into real economic value.

However, as we know, the Austrian School had to pretend that the specifically capitalist psychology was valid for all times and space or else their subjective theoretical crap could not pretend to any scientific status. If you select the academics and their students and screen their publications, you might have a chance to impose such a plain ineptitude as a universal truth. However you still need to control the publication of your potential adversaries creating the clique of so-called Austro-Marxists and other such renegades. (Verification of this method: the modern crews all ignored my unparalleled scientific contributions in the field, which is contrary to any deontology and amounts to a social-intellectual crime.) As we saw Rosa Luxemburg was not duped and that caused her and her comrades their lives at the hand of these dirty and criminal crews.

As we said, Irving Fisher knew exactly what he was up to. This is also evidenced by his obsession with indexes. Narratives rely on plausibility to fool the masses as well as the « useful idiots » among the dominant classes, especially the Weberian middle classes employed in bourgeois education and public and private bureaucracies. To maintain the plausibility of the main narratives recurrent corrections are needed, but they must be presented as further scientific developments not as corrections, and they must be granted the full weight of Authority. Just like the old Inquisition did with its Index and its selection and its persecutions. Bourgeois Nobel Prizes play this specific role and no other, particularly in the « dismal science ».

As far as Fisher is concerned, one intuitively grasps the fact that his money theory is good for nothing and moreover it cannot lead to any scientific understanding of inflation or deflation. To put it simply, it confused inflationary indexing with the objective evaluation of standard of live. The complete argument is presented here .) In the end and fittingly, Irving Fisher was a true « pitre » in the conceptual understanding of the term presented in my Marxist Theory of Psychoanalysis ( see the excerpts in English in the Livres-Books section of my old Jurassic site )

Irving Fisher’s monetary tautologies are widely used today including by the capitalist Central Banks. Hence the recurrent crises always managed on the back of the workers. But his name is rarely mentioned. One reason for this is that Fisher was systematically wrong in all his economic predictions including the Great Depression and later in 1936-37 the so-called Recession in the Depression. Comically, he started as a rich heir and ended-up ruined. As a ruined pitre thinker, he ended up preaching in favour of the 100 % Money theory. We leave it at that, mentioning only that current theorists of the lunatic Modern Theory of Money should perhaps do some historical work before proposing recipes especially when they intend to finance Green Speculation …; and they probably would gain something by taking a look at my Quantitative Marxist Theory of Money and Credit – See for instance in English in the same old Jurassic site my Synopsis of Marxist Political Economy. )

A word on Keynes is here in order. Keynes lived in a world in which the contradictions of capital led to dramatic crises transforming colonialism into aggressive imperialism. Inter-imperialist rivalries led to two World Wars waged, as Lenin rightly pointed out, in an attempt to divide the World among imperialist powers. But the First World War equally saw the rise of the USSR and its highly successful egalitarian economic planning. It did rapidly transform its underdeveloped land mass into a superpower which was eventually able to defeat, by itself, the powerful industrial and military machine of Nazi Germany. The birth and development of the Welfare or Keynesian State has rightly been presented, for instance by Fred Block, as a defensive capitalist strategy to co-opt its working class. Keynes’s work cannot be understood outside of this context. His purpose was to save private property even if this implied reigning in the capitalist « animal spirits » through State intervention and going as far as lowering the work week to 15 hours, a idea he borrowed, as usual without acknowledgment, from a Marxist thinker, in this case from the great Paul Lafargue.

Like all other original bourgeois thinkers, Keynes tried to falsify Marx in a plausible bourgeois fashion. Many people knew that he was well appraised of Marx’s work, much more than he ever admitted. In my Tous ensemble (1998) I wrote :

« Despite these slags and with a few precautions, the macroeconomic foundations of Keynesianism remain largely valid. Besides, the complete publication of Keynes’ works (The Collected writings of John Maynard Keynes, Cambridge University Press) made it possible to confirm that the source of Keynesian macroeconomics lays, in addition to thinkers like Emile Pacault and the heterodox economists identified in a chapter of the General Theory, in the Marxist cycles M-P-M ‘and A-P-A’ transmitted to Keynes via Sraffa (despite the late claims of Mr. Maurice Dobb). »

The obscuring of this essential influence was long-lasting. In fact, these Keynesian Marxist connections were not made officially public before the publication of the last two volumes of the Collected writings … It also took the form that is usually used by pseudo-aristocrats and elite members. This consists in disparaging the work of authors considered as class enemies but who are nonetheless at the core of all their intellectual and political worries, enquiries and endeavors. These people pretend to despise Marx as being unscientific but they spend their life fighting against him and anything that sounds authentically Marxist – i.e. escaping from their falsification. It is a very old strategy. But we know the ropes. Sometimes it is laughingly used by plain imbeciles who cannot even answer when asked and who are not even able to grant a right to respond, for instance Ugeux who would pretend that Marxism is degree zero of economics!!! See here : « Négation de mon droit de réponse : odieuse censure philosémite nietzschéenne en France et au journal Le Monde » in As underlined in my Book III « A few years ago Susan George noted that the austerity plans unflinchingly imposed to Latin-America had produced close to half a million dead in Peru alone, within the space of few years. » What is the score, for instance in Greece, for pitres such as Ugeux, Dallara and the rest of them? ( See Body Economic: Why austerity kills in )

In this respect Michael Roberts has provided this beautiful quote:

« Keynes’s ‘socialism’ was openly designed as an alternative to the dangerous and erroneous ideas of what he thought was Marxism.  State socialism, he said, “is, in fact, little better than a dusty survival of a plan to meet the problems of fifty years ago, based on a misunderstanding of what someone said a hundred years ago.”  Keynes told George Bernard Shaw that the whole point of The General Theory was to knock away the ‘Ricardian’ foundations of Marxism and by that he meant the labour theory of value and its implication that capitalism was a system of the exploitation of labour for profit. He had little respect for Karl Marx, calling him “a poor thinker,” and Das Kapital “an obsolete economic textbook which I know to be not only scientifically erroneous but without interest or application for the modern world.” » in Keynes: socialist, liberal or conservative? MICHEAL ROBERTS BLOG, June 5, 2019,

Things are rather easy to understand. Keynes’s General theory of employment, interest and money – 1936 – is a bourgeois reworking of Marx’s SR Equations as formalised by Bukharin. And this explains precisely why his system remained stationary. It was left to the Oxford economist and Keynes’s first biographer Harrod to make the system dynamic, smoothing he did taking his cues from the Soviet planning of his time, namely that influenced by so-called « Marginalist socialism » but as it was reformulated in the hands of Liberman.

Keynes’s total output is M1 the total production of the Mp in Sector I. Keynes’s effective demand is M2, the total production of the Cn in Sector II. His essential argument about State intervention concerned mainly investments or the necessity to maintain the equality of ( c1 + c2 ) = M1. Of course, following Beveridge’s emphasis on social fundamental rights as necessary counter-cyclical – economic and political – safety nets, the demand of households had to be considered but this was done through socialised or institutionalised savings. In the immediate post WW II, this socialisation was a vigorously « contested terrain » of class struggle and it finally ended-up leaving the management of social contributions accrued in public pension funds and unemployment insurance funds into capitalist hands – with some marginal input from unions, most of them controlled by the post-WW II CIA controlled Alf-Cio. This, as we know extended to Europe and internationally with the extension of the so-called international free unions.

Keynes’s failure laid in his inability to distinguish between money and credit. Following Marx, he understood the difference between formal monetary exchange in which money is a simple mean used to ease the exchange of a commodity against another. And this is the basis of his criticisms addressed to the so-called Fisherian Quantitative theory of money. He knew that the modern world and modern capitalist crises were rooted in the inadequacy of – speculative – credit which was nevertheless vital for productive investments. However, he needed to maintain the Marginalist pathetic narrative – marginal productivity – to push aside any direct reference to the classical labor law of value, which immediately poses the question of exploitation to explain profit. Following Menger et al., he equally applied marginal productivity to « money », hence fatally ending up with the inept equality of « money » and national income induced by the supply-demand logic. To reconcile this understanding of money with the economic regulation needed to control speculative crises and to grant priority to productive investment – Keynes famously spoke of the « euthanasia of the rentier » – he imagined a centralised management through the rate of interest.

To do this Keynes used what he called « rules of thumb » that is to say impressionist sets of existing statistics. The development of the national account statistics was closely linked and fed by the few decades of Keynesian hegemony over socio-economic Western national policies. They were adjusted to fit changes such as imposed, for instance, by the progressive dismantling of national tariffs through Gatt. For instance we transited form GNP to GDP . Lately transnational firms and their « global private governance » have decided that they have no more need for macroeconomics – ex., the illogical pitre Jean Tirole – that is to say for domestic or national traditional economic statistics. They are pushing for simple National Revenues – NR- statistics which beg the question of the persistent need to finance the neoliberal and monetarist « minimal State » if only as a collective population control and surveillance Apparatus. NR is needed for Tirolian and others’ unilateral microeconomics dominated by few transnational firms like the GAFAM. This does fit their peculiar idea of « imperfect competition » being managed by global free trade with minimal norms and State intervention but with some residual formal «guarantees » for the consumers and clients such as those applied by Facebook and Google etc in their gathering, free-of-charge, of personal information: one can refuse only to do without the service proposed!!!

If you make abstraction of the underlying SR Equations, that is to say of the essential, here is a rather clear formulation of Keynes’s economic mechanisms that you would end-up with. This exemplary one is offered by M. Agarwal’s essay entitled « Keynes’s Version of Quantity Theory of Money – Explained ! » in

The fatal flaw in Keynes’s theory, namely his confusion of money and credit, came to the fore with a vengeance in the late Sixties and early Seventies with the so-called Stagflation. The whole logic of management through the rate of interest, even in the context of Glass Steagall Act type of functional segregation between deposit and investment banks, was blown away. Especially as the international parameters for credit expansion were being changed within a fractional banking framework – the Regulation Q, followed by Connally-Nixon Surtax in August 15, 1971, the expansion and Kissenger- recycling of Petro-dollars in 1973, the official ending of the Bretton Wood System at the Jamaica Summit of 1976, etc.

But the fatal blow came from the privatisation of credit soon followed by the privatisation of the public debt and of public enterprises. This happened with the Pompidou-Giscard-Rothschild 1973 privatisation of the Bank of France and the 1981-83 privatisation of the Central bank of Italy: in both cases, the public debt exploded inexorably after these dates. This deregulation-privatisation movement was thought to be necessary to open up new frontiers to the accumulation of capital instead of deepening the Welfare State as Keynes might have chosen to do. It was later followed by the opening of the former Soviet bloc to the unbridled accumulation of capital and now by the last dismantling of surviving social programs in the EU, for instance the 330 billion annually garnered by the Public pension repartition scheme in France.

The a-social and anomic philo-Semite Nietzschean theory of Mises, Hayek, Friedman and all this sorry crew became dominant and enforced its rules with the Volcker-Reagan monetarist counter-revolution – see my « The socio-economic consequences of MM. Volcker, Reagan and Co » in the Category « Another America is possible » in . This neoliberal and monetarist cycle reached its pinnacle with the repeal of the Glass Steagall Act in 1999 which soon led to the subprime crisis, that is to say to the greatest capitalist crisis since 1929 – thanks also to inept Jean Tirole’s and his Harvard colleague Mathias Dewatripont’s proposal in favor financial deregulation in their book « The prudential regulation of banks » , 1993.

I have already mentioned the duality of Keynes’s work, for instance in my Book III entitled Keynesianism, Marxism, Economic Stability and Growth – 2005, freely accessible in the Livres-Books Section of my old Jurassic site As far as I know this was the only book that announced what became known as the subprime crisis, to verify this allegation one only needs to use the term « montage » with the Search function.

In the end, Keynes died knowing he had failed. This was acted at the Savannah conference of March, 1946, which gave birth to the Two Twins located in Washington in front of the FED (!), the IMF and the World Bank. Moreover, Keynes knew that Cornell Hull would win eventually doing away with the British Imperial preferences though the establishment of the Gatt – Havana – that is to say, with the slow but inexorable dismantling of the trade and economic parameters necessary for Keynesian economic regulation. Indeed, Labour and Keynesians governments in the UK were soon brought to their knees through the devastating speculative attack launched by Washington against the Pound on September 19, 1949. Keynesians programs were fought as rearguard battles in the UK until Prime Minister Wilson.

Nevertheless as explained in my Book III, there was a way to restore decent economic growth notably through an economic regulation based on the General Reduction of the Working Week and the rehabilitation of public credit and public enterprises. Of course, as detailed in my Appeal – see – in order to stabilise things globally while furthering global fair trade, a new anti-dumping definition is now necessary at the WTO, one that would protect all three components of the « global net revenue » of the household – not to be confused with the eviscerated Marginalist concept « disposable income » – namely net individual salary, differed salary – public pensions, UI etc – and what returns to households under the form of universal access to public infrastructures paid by a progressive fiscal system. Dismantling public services – pension regimes, health-care etc – and public infrastructures inexorably leads to social, economic, cultural and ethico-political regressions and disaster. This is exactly the program of self-elected scoundrels – to use the term Stalin used for Yeshov … – in particular Jewish fascist Ludwig Mises and his sorry clique of neoliberal monetarists.

3 ) The laughable homothetic presentation of « circuit of capital » by Duménil & Lévy      

3 a ) Model vs. the object or investigation or Reality

Why on Earth would any sensible person lose his/her time with Duménil & Lévy? Simply because their shibboleth is presented in some quarters as the New Interpretation of Marxism perhaps even the New interpretation Plus, given how certain files go. This is what a candid Italian theoretician Ernesto Screpanti writes while peddling a wheelbarrow full of worn-out clichés about authentic Marxist authors, especially Lenin and the Bolsheviks.

« On the theory of value, the only interesting novelty that has emerged in the last forty years is the so-called New Interpretation, advanced by Duménil, Foley and others. It consists of proposing a particular numerary for prices of production. If these are measured in units of the average product per employee, it appears that the national income will be equal to the level of employment, so that its distribution in profits and wages can be expressed in terms of division into surplus labor and necessary labor, and the rate of exploitation can exist measured as the relationship between these two quantities of labor. It is a valid single system approach, in the sense that it is based on the only correct evaluation system, that consisting of prices of production, and does without the system based on the labor content. This simple “innovation”, which however had been albeit elliptically proposed by Sraffa in 1960, allowed Marxists to continue talking about exploitation even after having renounced the theory of labor value. » in Imperialismo e gendarmi sociali. Intervista ad Ernesto Screpanti in

Note that the reference to a « theory of value » that has « renounced the theory of labor value » and that considers « prices of production » without referring to « a system based on the labor content » is a strange Beast far removed from anything that could be called Marxism. At a minimum it deals with meaningless units called « prices » that hang on thin air having no quantitative support. As we know this falsification was the long work of the so-called Austrian School alias the Marginalists. Only a subjective utility would exist and it would be « universally » (sic !) apprehended through a subjective calculus of « joys and pains. » But Screpanti does not stop there: he credits the New interpretation for doing away with exploitation, which is kind of nice, don’t you think? This is done by summing the average product of employees in prices term to assess the national income which then depends of the level of employment, « so that its distribution in profits and wages can be expressed in terms of division into surplus labor and necessary labor, and the rate of exploitation can exist measured as the relationship between these two quantities of labor.»

Any school boy would notice that one cannot arrive at these profit and wages magnitudes without providing some logic for the extraction of the surplus labor. If you leave aside the Marxist theory of exploitation which shows a necessary relationship between the organic composition of capital and the rate of exploitation, you are forced either to exogenously posit a rate of surplus extraction or to work backwards from the prices of the sold production given by the market, from which you would then deduce the prices or values of the capital and labor expanded in the production. This second option would not even be acceptable on empirical terms since, as Marx had already noted in the Parisian manuscripts of 1844, these prices expressions oscillate and by themselves cannot scientifically explain anything. They are no more than market epiphenomena. However, as Marx noted, they average out in the mid and long terms forcing one to find a different explanation. The first option is even worse although it is true that it was used by Sraffa: it simply consists in providing a rate of profit exogenously. It is pure crap. But as we will see it is exactly the crap used by Duménil and Lévy’s so-called New interpretation.

But it goes even further. As we will show thanks to the analysis provided in their summarising article entitled « A note on Duncan Foley’s circuit of capital », in, the two authors Gérard Duménil and Dominique Lévy resort, either consciously or worse yet unconsciously, to the usual trick which consists in substituting a simple mathematical presentation, which already contains the answers they are looking for, to the object of study, that is to say here the economic reality to be analysed. In their case rather laughingly they use homothetic calculus but we will see that the presentation could be rewritten in simple arithmetic equations, a procedure they eschewed probably because it would have displayed the whole ineptitude of this approach. As we saw above, this kind of substitution is not new in the discipline. Bortkiewicz-Tugan-Baranovsky’s brand did create lots of damages until I was able to reset the clock.

Before entering in the details of their homothetic narrative, it would be useful to point out once again the origin of this almost universal if predictable academic wandering out of the Marxist scientific requirements. This is something that no Bolshevik thinkers including Gramsci – see my Althusser essay – or Rosa Luxemburg ever did. It all originated with the invention by Böhm-Bawerk of the so-called « transformation problem ».

It might be of interest to point out here the role of the great American Marxist Paul Sweezy. Faced with the problem, he started gathering – and publishing – the necessary articles that dealt with it. He then proceeded in his attempt to solve it. He was not successful; however he developed a « Marxian » concept of economic surplus based on the exploitation of labor power. His approach was simple: whatever the contradiction between exchange values and prices of production, for anthropological, empirical and methodological reasons labor power remained the only conceivable originator of new exchanges values, hence of profit. ( See ) Smith’s paradox remained valid as well as Marx’s solution to it, namely the personal labor power of the Owner of the Means of production could not explain the extent of the profit pocketed by him. As Smith wrote in his Wealth of nations – Sutherland ed., 1993, p 49 – « the capitalist loves to reap where he never sowed ». Marx Book I of Capital shows scientifically that profit is nothing else that the surplus labor extracted from living labor. The greatest epistemologist of the XX Century, Louis Althusser, reached the same conclusion. (See my essay on Althusser available in Download now, Section Livres-Books of; for an example of his demanding epistemological and methodological approach see Part Six. On the Materialist Dialectic On the Unevenness of Origins in

This should have enticed people to scientifically study Marx’s work with Marx’s scientific spirit in order to solve remaining problems, for instance those which Rosa Luxemburg had pointed out in her rigorous and honest analysis of Book II. In the end, my contributions close the debate and uphold Marx’s unmatched work on social sciences and on the critique of classical political economy. But this is too demanding for paid academic who internalise rapidly how to tow the line.

No one will be surprised with the dominant classes obsession for economic « surplus ». The Rosicrucian Leibniz « candidly » expresses their general understanding of the issue.

« It is similar with Cournot since he too searched for ways to establish scientific bases for economic analysis (positivists basis, in reality, but he does not seems to be able to make the difference. Later Bergson, still immersed in religion, will also attempt to extract philosophy from its scientificity, qualifying the latter as « geometrical » in a clear attacks to Descartes, Kant and Marx and to their « atheism », especially when the latter assumes the form of a spiritual egalitarianism.) Cournot did so in two manners: first, he eliminated the use value (that of labor power in particular) so as to retain only the exchange value re-baptised « utility», but a non-defined albeit hierarchical utility (as we know this is similar to the subjective version of the « calculus of joys and pains » proposed by Menger, von Mises and the whole Austrian School.) Second, he based himself on Leibniz: Technology, wrongly understood as the fruit of the elites, is said to produce the surpluses necessary for both the elites and for the sustenance of their subordinated people, which clearly amounts to a rather stale and self-righteous rhetoric churned out to defend class privileges. No doubt, Leibniz was a great thinker; he also contributed an approach to proportions which, via the forgotten contribution of Marx, led to derivatives. He thus contributed linear calculus and probabilities as approaches to reality which, at least in his own mind, were not to be confused with a well-rounded scientific demonstration as the pitres from the CERN now do, in particular with their « boxon », this spelling seeming to me much more adequate for Higgs, being a pseudo-particle reached according to the initial level of energy, so that for each level you get a new « boxon ». Quite simply, modern physics knew the electron only indirectly as a probability, hence it could be here and there simultaneously (!), so that as the Model became more mathematically abstruse as it turned round and round upon its own artefacts, and at the end the Model sloppily got confused with reality. (Added in November 2013: Probably remembering Fermi as Le Monde rightly recalled, the Cern got the Nobel Prize not for the boson, which now seems infinite in potential quantity, but instead for having used an interesting « mechanism » … Nonetheless, the ignorant and servile media, ignoring all about Leibniz’s monadology and fed by both ignorant and self-satisfied insider experts, still talk about the particle of god … gosh! ) Many savants nowadays do suffer from a very bad false consciousness: As this experience did cost dozens of billions, no one dare say a word about the fiasco; quite the reverse, everyone makes an effort to the contrary and ask for more financial resources: And therefore, for each level of energy input we will most certainly obtain a new « boxon » – but no boson of Higgs always offered in its probability form. Elsewhere I had pointed to the origin of what now looks as a more pitric drama than the end of Nietzsche « pitifully » suspended on the neck of the wounded horse: the electron was at the beginning the mere theoretical result of a probabilistic approach. Yet, today, scientists are able to track the path of a photon and others are now able to follow the paths of clouds of electrons: The Schrödinger’s cat and his fallacious uncertainty principle, supposedly non-determinist though always unable to define this term in a non-ambiguous fashion, is thus demolished in practical terms. Perhaps these boxons could be quoted on the Stock market to self-finance themselves without diminishing the resources allocated to the TGV or to the domestic consumption of electricity, although I doubt these people would dare take the risk despite their faith in the « market »… Self-sufficiency of the elites, indeed. The situation is worse in economics but this has nothing to do with its presumed social science status. The fact is that the division between hard and soft sciences is dated, wrong and ill-intentioned: Marxist dialectics unifying the dialectics of nature and the dialectics of History in the Overall Dialectics demonstrates why, as is summed up briefly below. As it stands today modern physic cannot account for 90 % or more – no one is really sure – of its own object of study: Which, no doubts, makes it the paradigmatic model for bourgeois social sciences to follow … )

It remains that capitalism rests on social relations heavily backed by the reliance on productive forces and machines and, in particular, at its beginning, on the steam engine. Yet, the steam engine did not result from the inventiveness of the elites as Leibniz would have it, but instead from that of two tradesmen, Denis Papin first and later the English blacksmith Thomas Newcomen (see Science et Vie, September 2012, p 111), the inventor of the « pompe à feu ». Today, as noted by Althusser, the inventions originate with teams, very few are still the result of isolated individuals who, in any case, owe their knowledge and knowhow to a previously accumulated social knowledge. (As we know, the Romans already knew the steam engine but restricted its use to their children’ toys, they could rely on an abundant cheap chattel of slaves: Production relations always have priority over technology.) » (excerpt from my Synopsis of Marxist Political Economy, freely accessible in the Livres-Books section of )

To conclude this interpolation on Leibniz I should quote a book entitled Lost in math: How beauty leads physics astray, Basic books, NY, June 2018 written by a professional physicist Sabine Hosenfelder. What seems to surprised her is not so much the failure to find suzy or supersymmetry but the will of the physics establishment to continue as before. She writes : « Just keep in mind that whenever physicists refer to particles they actually mean a mathematical object called a wave function, which is neither a particle nor a wave but has properties of both. The wave function itself does not correspond to an observable quantity, but from its absolute value we can calculate probabilities for the measurements of physical observables. That is the best we can do in quantum theory – except in specific circumstances, the outcome of a single measurement cannot be predicted. » (p 50) Karl Popper spoke of « fertility »: this probably explains the fact that most groundbreaking theoretical and practical innovations now come from relatively small laboratories … This wave function seems to me as non-dialectically scientific as the one-sided Marginal « utility ». It is a matter of ontology and methodology. Empty talk about Beauty plays the same ideological role as it does with Gödel’s silly « incompleteness » in logics or « market price » in mainstream economics.

Let us now come back to the task at hand. In the following two graphs you have the Homothetic Model of this pair.


Source: See « A note on Duncan Foley’s circuit of capital » Gérard Duménil and Dominique Lévy in p 2 and 3

We might start noticing that the pair speaks of « circuit of capital » in the singular but, following Marx in appearance, they use three of them. Furthermore in Figure 1, they use the French symbols A for argent P for production and M for marchandise while Figure 2 uses the English symbols M for money, P for production and C for commodity. Presumably it is a didactic trick meant to force you to be alert as to what may follow. Notice also in Figure 2 on the vertical axis the starting values assigned to the symbols. Everyone will have already understood that this silly homothetic presentation substitutes an academic game to the analysis of the real economic World.

Let us now deal with their analysis.

3 ) The laughable homothetic presentation of « circuit of capital » by Duménil & Lévy,        

3 b ) « The basic circuit of capital model with a commodity money » : no more than a useless paid academic game.

1 ) In the Homothetic Model only one commodity exists. It is a strange beast described as an atom of « capital » (p1) and as such undifferentiated. This atom cannot even be taken as the « unit » of the system. Neither in qualitative nor in quantitative terms. Already from page 1 you know that any theory derived from this kind of joking will be less useful than a Monopoly game. This is even worse than the Marginalists’ subjective « utility » given in money form.

Of course, this kind of single-handed « value » without any objective support is a pure fancy that cannot allow any real scientific treatment. If you do not take into account the duality of value in use value and exchange value, not only your accounting of exchange value will be hanging up in the thin air but, aside for the lethal ex-ante/ex post contradiction inherent in the supply/demand curves, you will not be able to account simultaneously for the qualitative – prices – and quantitative – products – aspects of production. In other words you cannot reconcile micro and macroeconomics. Moreover, you will not be able to integrate a money theory coherently with your « general equilibrium ».

We quoted Marx above showing that his analysis of the circuits of capital – in the plural – reached full scientific status when Marx formalised the SR-ER Equations on the basis of the differentiation of the Commodity C into its two main concrete forms, namely Mp and Cn. Note that Mp corresponds to constant capital « c » and Cn to variable capital « v », and this allows Marx’s scientific function of production correctly written as : c + v + pv = p, the product which can be either Mp or Cn. This function of production then leads to the Schema of Reproduction with two main Sectors, SI for Mp and SII for Cn. All subsectors can be logically subsumed under these two.

This Model exposed by Marx is scientific in the rigorous sense that, like the Labor law of value on which it stands, it is not based on an empirical generalisation but on a rigorously derived « concrete in thought » with universal validity for the Universe considered – see my Methodological introduction on this subject; it is freely accessible in the Livres-Books section of

2 ) The Homothetic Model abstracts from wages. This derives from point one since the Atom of capital in its C form cannot be decomposed in its Mp and Cn forms. « We abstract from the payment of wages. (The consumption of wage-earners is treated as a component of the consumption of inputs in production ») (p 1) This means at best that the first two elements of the function of production (c + v ) are treated as one, namely as an undifferentiated atom of capital. With Marx these two elements are crystallised labor. Hence, variable capital v is the reconstituted labor power ready to enter into a new round of production as living power capable of producing the socially necessary means of consumption – Cn – needed to reconstitute its labor power plus a surplus work that translates into the a surplus-value or profit pocketed by the Owner of the Mp. Our twosome call this « surplus-value » probably because they want to pass for Marxists – and apparently do succeed in the eyes of scholars such as Screpanti …

3 ) Money as a commodity. You know that is is hard to break the cognitive biases of the so-called dominant « mind set ». Many do know about G. Simmel’s psychological phraseology about « money » but very few about Mephistopheles’s clear understanding that who that controls the printing of money can destroy the World, as Goethe does express it at the beginning of his Faust. But by now you expect people like our twosome to confuse money and credit and to ache for an equivalence between money – or gold, given Tugan-Baranovsky’s inspiration and gimmicks – and the annual product. And therefore we are told: « In this section, money is a commodity such as gold » and further : « At time t = 0, one unit of capital – note that they mean an « undifferentiated « atom », but never mind – is under the form of money » ( p 1)

The big problem which Foley and those two derived from Rosa Luxemburg’s analysis is realization, of course. It never comes to the attention of these people that if equilibrium is given by the amount of money and by the amount of the product, the equilibrium will simply re-establish itself automatically through the level of prices independently of their respective magnitude. But never mind, as Rosa Luxemburg often says about Otto Bauer’s silly statements we will forget this and go along with the rest of the argument.

4 ) Now for the circuit(s). We are given Money capital (M); Production capital (P); and Commodity capital (C). Each account for a period. The complete circuit from the initial M to the new M to which the surplus-value is added – let us call it here M’ – last 3 periods.

5 ) Figure 1 provides the illustration starting at t0

T0 M              —à t1 P                    —àt2 C                     —à t3 M

1 unit              1 unit                           still 1 unit                   1 + q where q is the surplus-value

6 ) q = surplus-value? Never mind, it is just phraseology. But try to understand this : « A surplus-value, q, has been extracted during the production process and, at time t = 3, the atom of capital is worth 1 +q. (Account is taken of the surplus-value after the commodity has been sold.) Note that q is here a rate of margin on total cost, neither a rate of margin on variable capital nor a profit rate. » (p 2)

The atom of capital is not differentiated in « c », constant capital, or in variable capital « v ». Therefore take any Marxist ratio out of your thinking; this includes the rate of profit which, in any thinkable events, needs to be the surplus-value over the total capital expanded for production, at least the part « used-up » in it. The rate of profit would be v/(c + v). But OK we will go along with q being some kind of surplus-value. But we are still obliged to note that the production process P at t1 must contribute something which should materialise in the commodity C produced. It does not. And this is specifically due to the fact that they need to hide this and still show some phony realization problem in t3.

In fact, they have also missed an important step in circuits analysis, namely the fact that M at t0 is of no use in t1 P. To be of any use it has first to transform through a pure formal exchange for the same amount into a commodity, say wood, this wood would be used in the production process which adds something transforming it, for instance, into a chair i.e., a new material object or use value before it starts dancing its one commodity dance when transmuting into the money form on the market – or during the social exchange –, a dance which is at the heart of Marx’s mostly misunderstood chapter of Book 1 on reification. When it is not misunderstood it is falsified into a void psychological concept of alienation abstracted from labor exploitation by people like Lukacs and all that sorry clique, one that has already been debunked by Althusser. As the worker is treated like a merchandise it is forced to dance the capitalist dance despite his will, transforming him into a simple dehumanised commodity force to dance the commodity dance on the labor market and forced to be tanned during a production process s/he does not control in the least. The real exploitation underlying the reification process is powerfully expressed by Marx for instance in this quote:

« This sphere that we are deserting, within whose boundaries the sale and purchase of labour-power goes on, is in fact a very Eden of the innate rights of man. There alone rule Freedom, Equality, Property and Bentham. Freedom, because both buyer and seller of a commodity, say of labour-power, are constrained only by their own free will. They contract as free agents, and the agreement they come to, is but the form in which they give legal expression to their common will. Equality, because each enters into relation with the other, as with a simple owner of commodities, and they exchange equivalent for equivalent. Property, because each disposes only of what is his own. And Bentham, because each looks only to himself. The only force that brings them together and puts them in relation with each other, is the selfishness, the gain and the private interests of each. Each looks to himself only, and no one troubles himself about the rest, and just because they do so, do they all, in accordance with the pre-established harmony of things, or under the auspices of an all-shrewd providence, work together to their mutual advantage, for the common weal and in the interest of all.

On leaving this sphere of simple circulation or of exchange of commodities, which furnishes the “Free-trader Vulgaris” with his views and ideas, and with the standard by which he judges a society based on capital and wages, we think we can perceive a change in the physiognomy of our dramatis personae. He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but — a hiding. », Capital Book I, You can use the name « Bentham » in the Search function to read the quote in the original (in See Volume 17 in

7 ) Now the twosome need to insert the surplus-value q into a dynamic system. This is what happens as illustrated by Figure 1 : Here is the last part of the last quotation dealing with q as a rate of margin « One fraction, p, of this surplus-value, a total qp, is kept within the circuit ( that is accumulated ), and added to the original atom of 1. The remainder (1-p)q, is paid out to the capitalist and consumed. »

Figure 1 shows it graphically. But it also show something more, namely that the part consumed by the capitalist gets out of the circuit which goes on, bringing you to t5 = 1+ qp and so on and so forth.

They go on:

« A growth rate is implicit in the sequence of events is described above. Between time t = 0 and time t = 3, the capital involved in the circuit grew from 1 to 1 + pq. The grow rate, g, per period (over a sequence of three periods ) is determined by the following equation:

(1 +g)3 = 1 + qp that it 1 + g = (1 +qp)1/3 »

Intuitively everyone senses that something is wrong with a circuit that keeps growing while something it taken out at each turn. One might say that it could still depend on the magnitude of the growth rate. But this is not what our twosome have in mind. Either consciously or not they are dealing with three separate circuits M, P, C that are not organically related. And they overlook the distinction between c + v transforming these two essential components into an undifferentiated atom of capital given as 1, which is meaningless except to allow the puerile pseudo-mathematical presentation. One way to show this clearly is to consider their undifferentiated circuit of capital P as the social capital in the Marxist SR-ER Equations :

Suppose I start with Marx’s Schema for SR-ER

SI                 = c1 + v1 + (q (1-p) + 1 +qp) 1 = M1

SII                = c2 + v2 + (q (1-p) + 1 +qp) 2 = M2

Social capital = c   + v   + (q (1-p) + 1 +qp)   = (M1 + M2)

If I consider Social capital only, the starting point for the second round will be (c + its share of accumulated qp ) + ( v + its share of accumulated qp). We can note them c’ + v’. As we keep the same surplus-value rate the illusion is created. You just assume (c’+ v’) = 1 and you add q, the surplus-value which contains both parts of it, the first consumed and the second re-invested!!!

The system seems to be working logically, at least if you are paid as two academics, with all the other emoluments, research and publication grants, secretarial, conference and travel expenses, sabbatical year etc .

However, if you re-establish the two basic use values needed for any economic system as Mp and Cn, thus referring to the underlying SR Equations of Marx, then the whole ineptitude of a grow system tending to self-anihilation is exposed. Indeed, to maintain economic stationary equilibrium – the SR Equations -:

1 ) c2 must be equal to v1 + (q (1-p) + (1 +qp) 1 and

2 ) M2 must be equal to (v1 + (q (1-p) + (1 +qp) 1) + v2 + + (q (1-p) + 1 +qp)2 ).

The same is true for the ER Equations with one part of surplus-value reinvested since the SR Schema must underline the ER schema of reproduction. But as Rosa Luxemburg said, we will still go along with the argument because we want to check their realization problem.

3 ) The laughable homothetic presentation of « circuit of capital » by Duménil & Lévy,        

3 c ) The pseudo-problem of realization taken from Duncan Foley and « resolved » by these two.

Let us now examine the crux of the matter at hand for our twosome, namely the … problem of realization! Let them speak for themselves – this refers to the « circuit(s) » given in Figure 2 reproduced above):

«The stock of money within the circuit grows form 1 to 1 + g as well as the money paid out to households. A first problem is, therefore, posed concerning the origin of new money, still a commodity.

There is no sufficient purchasing power to buy the commodities supposed to be sold in each period … In other words, the supply supported by the atom of capital Cap1 is structurally larger than demand. This demand is the sum of the purchase of productive capital by Cap3 and the consumption of capitalist households:

Purchasing power (or demand) : 1 + q(1-p)/(1+g)3 = 1+q/(1+g)3 (Note (1+g)3 = 1 + qp)

Supply   = 1+q/1+g)2

The two issues are tightly related since the demand in period 1 is equal to the total stock of money within the circuit and outside at time t = 0. With a money commodity, the supply in period 1 must include the additional money stock, that is the production of the appropriate amount of gold. »


What do they mean by « realization problem »? As the quote above shows Supply is greater than Demand.

More precisely and ludicrously Supply is P and Demand M, hence S > M

There would be more products than money to buy it. Remember that money M is for them gold. Suppose that one considers t3 where the surplus-value has been added to the initial commodity C, then any sensible person – may be not « economists » – might expect the price level to adjust. Problem closed? Well you would need to do lots of explaining on that one, for instance about the origin of money and of inflations or deflation etc. They are not concerned, so we leave it at that – sending one back to my Synopsis of Marxist Political Economy for a scientific treatment. The price level will adjust things for any quantity of money and of goods and services, but this will not be the case when concrete Mp must exchange for concrete Cn, even if this exchange is mediated by money.

We note however that albeit unconsciously they are analysing the realization problem not as a monetary problem as they think but as a problem of exchange between real economic magnitudes. In their case, the amount of gold has to be equal to the amount of production. We already saw this fallacy above, in monetary form it is a plain and useless tautology and an erroneous one at that. However, as we saw above when we discussed the realization problem as seen by Rosa Luxemburg, we equally saw that her questioning it is at the origin of the problématique developed by Foley and through Foley by our twosome. It suffices, as Marx does, to replace the problem of realization in its right reproduction setting involving at least two kinds of commodities, Mp and Cn, to understand that the realization problem is rigorously a problem of economic general equilibrium, i.e., the amounts of Mp and of Cn needed to obtain either a stationary or a dynamic equilibrium.

At this stage the paper should go into the dustbin. However, some prophylactic work is needed because these twosome pretend to speak of Maxism and of post-Keynesian economic analysis. That cannot be allowed.

We must therefore quickly puncture their pretentious and gratuitous so-called homothetic calculus presentation.

First note that if M is gold, since the growth rate is the same over three periods, the logic of this Capitalist Cap3 (M) should be the same as that of Capitalist Cap 1 (C). Therefore, since they start and develop in the same fashion from t0 to t3, they should end-up will equivalent amounts. The realization problem would have evaporated in thin air! It is only because in their phony pseudo-homothetic presentation they start with different values for M, P an C that they get the result they need. It is pathetic, to say the least.

What of credit in their formulation? Admitted that you have a discrepancy S > M then you introduce credit to bridge the hiatus … using a longer set of these ludicrous and useless pseudo-formula. There no more than this.

Why do we say « pseudo-formula »? First, if we define C = (c +v) why would they need to transform this into an undifferentiated atom of capital assigning it a value of 1? It simply makes their pseudo-mathematical manipulations easier – putting away all the real problems as they go along, for instance the fact that « c2 » must cover the renewal of « v » and of the surplus-value – but their atom of capital conceals « v ». Likewise M2 must cover the renewal of « v » and surplus-values in both Sectors I and II. But this too is concealed and cannot be recovered in any possible shape or form in their scholarly presentation. This equilibrated necessity to meet economic needs sums up the specific economic problem, the need for Man to reproduce in Nature and in Society, but it does not matter here. Who cares at their level?

Finally note that if they had stuck to the normal, might I say « ordinary » Roman letters and Arabic numbers like Marx and his brilliant disciple Rosa Luxemburg – remember her making fun of Otto Bauer adding Greek letters in his diagrams so as to travel in them « like a wild goose in the shy »? – this is what they would have gotten, forcing them to see the problems at hand with more clarity:

C + (pva +pvb) = 120 p Where C = (c +v ) = 100 and where pv = (pva +pvb) = 20 and p is the product

Following these twosome we suppose that pva (consumed ) = 15 and pvb (accumulated ) = 5

We have :

Demand: 1+ q(1-p)/(1 + g)3 = 1 +q/(1 + g)3 that is to say: Total production/accumulated capital (1 + qp), that is to say:120/105 = 1,043

Supply                                       = 1+ q/(1+g)2 that is to say : 120/110 = 1,09

And so S > M . Big deal! See above …

Some remarks are in order:

a ) When you think about it, that fabricated realization problem has always the same roots it had with Tugan-Baranovsky or, in a more ludicrous and simplistic fashion, with Menger and Irving Fisher and tutti quanti when they want to determine the necessary amount of money – including credit – by a supply and demand graph hence equating the necessary amount of money to the amount of the total production in money prices!!! They pose C = M

b ) Demand is given as the atom of capital + q the surplus-value. Why would you call this Demand? If the atom of capital is given as 1 this Demand will be in « money » terms.

c ) Supply is P. But it is again the atom of capital plus q.

Ergo, if you do not input it a t0, the difference between S and D does not exist. Furthermore, when talking about « money », even assuming a difference at t3 between C and M, the price level would automatically adjust. The problem is that all this gibberish makes abstraction of the real problems raised by monetary reality, namely the necessary and sufficient magnitude of money needed to insure all the economic exchanges to allow at least a stationary reproductive equilibrium. It also makes abstraction of the rotations of this available amount of money despite the fact that any formal exchange is always bilateral.

I wonder what these twosome have to say about the economic role of full-employment and about the active destruction of the Labor code everywhere, for instance with the Jobs Act in Italy and the Loi travail in France, a « deconstruction » of one of the main social conquests equally enshrined in the definition of anti-dumping at the WTO. As we know it excludes any reference to labor rights even in their ILO’s minimal formulation as well as any environmental criteria …

3 d ) A word on classical and speculative credit.

We saw above that the advance made by the worker in term of living labor capable to transform his natural, institutional and conceptual world is the key to any economic system which always need to ensure the reproduction of the worker and the society s/he leaves in. This advance expressed in money term understood as a general equivalent provides the necessary and sufficient amount of money needed to insure all the exchanges implied by the SR-ER Equations or in mainstream parlance stationary or dynamic equilibrium. From this and from the SR Equations can be deduced the minimal number of rotations implied.

Primitive pre-capitalist accumulation took the form of merchant capital. Since the Sumerians this included forms of loans hence of interests as well as various forms of credential letters imagined to ease the exchange process without having to transport loads of gold, silver or other precious metals etc. This pay-the-bearer system was famously applied across the Atlantic by Rothschild during the Napoleonic wars and ended up establishing Rothschild’s long-lasting domination over the British public debt and over its management by the Central Bank of England.

Merchant capital took another form under the CMP because now the accumulation process was not geared to simple thesaurization but instead to the unceasing process of capitalist accumulation without which the capitalist form of capital would cease to exist. Classical interest was still calculated in the same way but was part of a different overall productive circuit. In practice, credit now acted as an anticipation of production although the « invisible hand » of capitalist reproduction ensured over-expansion in some industries and contractions in others. These are the root causes of the Trade cycles. The contradictions inherent in the capitalist reproduction process were mediated by the expansion of the CMP to the whole World thus accelerating the growth in the so-called Center as distinct from the Periphery and Semi-Periphery, to borrow from Galtung’s terminology. Recurrent crises were historically amplified by the transition from the dominance of merchant capital, to industrial capital and to financial capital. The class struggles ushered by these transitions are brilliantly illustrated by Marx’s essays on France and for financial capital by the work of Hobson, Hilferding, Rosa Luxemburg and Lenin. These stages were followed by the internationalisation of productive capital embodied by the MNCs.

In all these stages classical capitalist interest prevails. It is conceptually and technically deduced form profit. This lead to a certain acrimony between industrial and banking capital fractions as evidence by H. Ford’s critique of the Morgan banking house. (See H. Ford in ). Classical interest relied on banking and financial investments eased by the banking fractional system – including the development of the stock-exchange already analysed by Marx – and driven by the « invisible hand ». Attempt were made to regulate the recurrent crises most notably through the segregation of deposit and investment or commercial banking institutions. The most famous being the 1933 Glass Steagall Act. Its abrogation by the Gramm-Leach-Bliley Act of 1999  quickly led to the subprime crisis, the worse financial-industrial-economic crisis since the Great Depression.

Speculative capital is a totally different beast. It attempts to establish its hegemony not as a financial intermediary sector which mediates the anticipation of growth but as a specific economic sector. In so doing speculative interest takes the legal aspect of profit. This constitutes an unsustainable attack on the real economy. In effect, the hegemonic financial sector now accounts for roughly 9 % of US GDP. Its « rate of profit » cannot be matched by industry or other economic endeavors relying on a greater amount of fixed capital. In legally passing as legitimate profit since 1999, speculative interest triggers the logic of productivity as it enforces itself organically on all sectors – SI and SII as can be checked in the examples given above for changes in productivity. The highest productivity rules the industry, the sector and the inter-sectoral productive conditions because it determines the whole relative price structure. Not only the real economy is strangled but in its stock-market financialisation form it soon tends to feed upon itself while equally destroying the fiscal policy of the State. This is patently illustrated by recurrent QE in a system that does not allow any reset except through a huge purge of the liquidity excesses, which is the function of capitalist trade cycle, and even more patently by the autosarcophagy embodied by gigantic buybacks … Add to this the pretense of speculative transnational to do away with macroeconomic State management in order to impose the dominance of their anomic micro-economy enforced by their « global private governance ».

Public credit would still play the role of anticipating productive investments within the framework of a planned SR-ER System. In so doing it would eliminate speculation by definition because the credit anticipation of growth transforms for some 60 % in a new salary mass and for the rest in fixed capital and other costs of production. In other word credit transform into real use and exchange values. If this anticipation is done symmetrically and proportionally in all Sectors, trade cycles would be eliminated. With full-employment structural inflation would be at its lowest and would, in effect, be confined to the rate of invalidity. As new sectors and new intermediary sectors are no longer labor-intensive recurrent cycles of Reduction of the Work Week would unfold to reabsorb the labor force « feed » by increasing productivity – A. Sauvy’s « déversement ». This would be done in the rigorous respect of the possibility granted by the micro-economic productivity and macro-economic competitiveness that characterise the insertion of the national Social Formation within the International Division of Labor. No SF can live above its means for too long …

None of this can be understood with the academic pseudo-Marxist gibberish of our twosome. (On speculative capital see my Synopsis as well as the essays here .)

4 ) Conclusion: some paid academics should learn to read and think before pretending to comment on Marx.

Just to keep high spirits, I should add that they are in good company. Here is another take on paid academic Marxology that I happened to run across lately. Two quotes will suffice:

A ) “Marx would never have tried to explain Greek or Roman society from the category of value and its form of manifestation the value of change, or of labor as a substance of value as an abstractly human work.” P 4 B) “Seen from the side of production relations, this means that Greek and Roman slaves cannot gain extra value, while their work is not a producer of value. In other words, in the technical sense of the term they are not “workers.” » p 4

In « Entrevista a César Ruiz Sanjuán sobre Historia y sistema en Marx (I)

“Marx inauguró una nueva disciplina teórica, una nueva forma de ciencia social. Ante un edificio teórico de semejante magnitud, solo pudo llegar a poner los cimientos.”, Salvador López Arnal, El Viejo Topo

Here are some brief but essential comments. Concerning these two quotes we know that in Capital Book I Marx exposes the distinctions between use value and exchange value. He also beautifully exposes the distinction between the extraction of absolute surplus-value and relative surplus-value. The first is based on duration of work all other variables remaining constant. It survives in the CMP for instance with overtime but as the dominant form of extraction it applies to all pre-capitalist modes of production. Not that innovations were absent before the CMP but they were generalized and long lasting, for example, mastering the lunisolar calendar, fire, domestication of animals, culture of cereals etc. Relative surplus-value rests on the intensity of work which can be conjunctural thus applying to all modes or structural which is then called productivity. The latter is the dominant form under the CMP. The Marxist law of productivity was formulated by me and coherently integrated in the SR-ER Equations. To this must be added what I called « social surplus-value » which will be the dominant form of extraction of surplus-value under socialism. With it micro-economic productivity and macro-economic competitiveness are mutually optimised by Marxist planning. It can be seen in germ in planned and regulated advanced capitalist economies such as the Anglo-Saxon Welfare State or the European Social State. It mainly informed a transition from the individual capitalist salary to mitigated form of capitalist « global net revenue » of the households. This followed a belated recognition that the worker is not a factor of production like any others simply because s/he needs to reproduce as a Human Being in an household whose size differ. Concerning Greece, Rome but also Asia and Russia, Marx used this scientific understanding to launch in a comparative study of modes of production. This did not escape Rosa Luxemburg. When dealing with her « realization problem » she analyzed the contradictions emerging from the coexistence of various modes, which she applied to her theory of Imperialism.

Marx’s analysis of forms of extraction of surplus-value dispel many sophisms for instance the silly affirmation that the slave does not produce surplus-value! More dramatically overlooking the origin of the Social Fund described by Marx in his fundamental Critique of the Gotha program some early Bolsheviks believed that socialism would do away with exploitation meant as the end of extraction of surplus labor and the end of money. This error was costly both in term of hyperinflation and in term of economic growth. The extraction of surplus-value will not cease under socialism, only it will be more efficient in the form of « social surplus-value » because it would maximize both macro-competitiveness and micro-productivity and it will not amount to class exploitation because the process will be controlled collectively through egalitarian economic planning. For more details the reader can check my Synopsis of Marxist Political Economy.

I have always been amazed by the fact that we are too often obliged to state the obvious. This is because the establishment of the political supremacy of neoliberals and monetarists relies on the crass over-representation of over-paid and numerous philo-Semite Nietzschean crackpots, obedient followers of Mises, Hayek, Friedman and many others of that same ilk. Gramsci spoke of hegemony but did not deal with this peculiar selection cast and class process. Nor did he – like all other Marxists included the Comintern – understand the specific philo-Semite Nietzschean character of all European reactionary regimes at least since Julius Cesar – divine right etc – and specifically, of Fascism and even of Nazism at its early beginning, due to the generalisation of the secular State. Following Thomas Paine and others, the young Marx had elucidated the dirty secret of all these violent regressions pointing to Exclusivism as the nemesis of any Human equality and of any demo-cracy. A soft version of this philo-Semite Nietzschean exclusivism is unfolding again today, a dangerous process because of the destructive logic of opposed exclusivist pretentions. Soft philo-Semite Fascism complete with Walls and Apartheid practices has no future. In different times, even under bourgeois rule, we would have expected deontology and intellectual honesty and seriousness to rule.

We leave it at that except for a last note to underline that academics, even in so-called private institutions, are paid out of the public purse. Do they earn their keep? I remember Hobbes, one of the father of the so-called « acquisitive mind » asking the question, still addressed by Adam Smith in his questioning of the origin of profit: « What is the worth of a man? »

Paul De Marco, former professor of International Relations – International Political Economy.

Copyright © Déc. 22, 2019- January 27, 2020.

San Giovanni in Fiore



1 ) Althusser went to great lengths to elaborate on the importance of « theoretical practice ». Gramsci similarly had stressed the importance of « praxis ». Vico’s had specified that Objective reality comprises nature, social institutions and what he called fictions or conceptual reality. Borrowing from Diltey we could say that the last two are objectified social realities. Of course, Marx had formulated the scientific elucidated basis of this approach in laying down what he termed « historical materialism ». See, for instance, my essay on Althusser in Download Now in the Livres-Books section of my old Jurassic site . in the same section see my Methodological introduction.

2 ) This sends us back to the so-called Young Marx usually eviscerated by useless academics and many others as the author of the psychological concepts of reification and alienation. As we all know these concepts cannot be understood without referring to the specific form of exploitation in various modes of production. Althusser made the point at length when distinguishing between generic and soporific Humanism and equality as seen by historical materialism. In this sense the Mature Marx exposing the scientific labor law of value lends the full foundation for the alienation theory of the Young Marx. It is a matter of degree not of kind. Perhaps the best way to understand this is to refer to Vico’s Autobiography namely the first scientific exposition of the development of concepts and theories understood in their full material, institutional and intellectual context. The Triptych of Human Emancipation sends one back many to Marx’s The Holy Family which includes the Jewish question, see Volume IV in .

For the specific psychological aspect see my definitive critique of Freudism and of bourgeois theory in my Pour Marx, contre le nihilisme in the Livres-Books section of . The section include, in English: « Excerpt from For Marx, against nihilism/Pour Marx, contre le nihilisme, Part Two: For a Marxist psychoanalysis theory. The irrational, Freud and human becoming. »

3 ) Karl Marx on Herr Vogt in


Excerpts from the Accumulation of capital an anti-critique

«The required money for this process, of course, comes out of the capitalists’ pockets – as every employer must lay out the money capital in advance – and returns into the pockets of the capitalist class after the exchange on the market has taken place. »

« Two basic structures are characteristic of the capitalist mode of production. Firstly, a general exchange of goods, i.e. nobody receives anything from the social stock of commodities without the means of purchase – money. »

« Not only do all these social and productive forms co-exist, and co-exist locally with capitalism, but there is a lively intercourse of a specific kind. »

She giving an initial amount of money needed to realize production. Now of course if the amount to be realized grows and not the amount of money!!! It is ridiculous. It is Tugan-Baranovsky.

Ch 2 « It would appear that – as we have assumed up until now – at least the aggregate amount of commodities which contain the profit can grow in this way, and the only difficulty lies in supplying the money, which is perhaps only a technical question of money circulation. But only apparently, superficially. The aggregate amount of commodities will not increase, expansion of production cannot take place, because in capitalist production the essential precondition for this is conversion into money, the universal realization of profit. The sale of increasing amounts of commodities, and the realization of profit, from A to B, B to C and C back again to A and B can only take place if at least one of them can in the end find a market outside the closed circle. If this does not happen the roundabout will grind to a halt after only a few turns.»


Here is Tony Cliff summary:

« To analyse simple reproduction Marx divided industry as a whole into two basic departments: that producing means of production (Department I) and that producing means of consumption (Department II). Between these two departments a certain proportionality must obtain for simple reproduction to take place. It is clear, for instance, that if Department I produced more machines than this department together with Department II needed, machinery would be over-produced, production in Department I consequently paralysed, and a whole sequence of events would follow from this. Similarly, if Department I produced too few machines, reproduction, instead of repeating itself on the same level, would retrogress. The same would apply to Department II if it produced more or less means of consumption than the combined wages bill, or variable capital, and surplus-value (v + s) in both departments. [79] The proportion between the demand for means of production and that for means of consumption in the economy as a whole depends on the ratio between the portion of capital devoted to the purchase of machinery and raw materials, i.e. on the constant capital (c) of the whole economy on the one hand, and that portion of capital expended on paying wages, v, plus the profits of the capitalists in the whole economy.

In other words, the products of Department I (P1) must be equal to the constant capital of Department I (c1) plus the constant capital of Department II (c2):

P1 = c1 + c2.

Similarly, the products of Department II (P2) must be equal to wages and surplus-value in both departments together:

P2 = v1 + s1 + v2 + s2.

These two equations can be combined in one equation:

c2 = v1 + s1.

In other words, the value of machinery and raw materials, etc, needed by Department II must be equal to the wages plus surplus-value of workers and capitalists in Department I.

These equations are for simple reproduction. The formulae for enlarged reproduction are more complicated. Here part of the surplus-value is expended on the personal consumption of the capitalists – this we shall denote by the letter r – and part is accumulated – this we shall denote by the letter a. a itself is divided into two portions: part serves to buy added means of production, i.e. is spent on adding to available constant capital – ac – and part goes to pay wages to workers newly employed in production – av.

If the social demand for means of production under simple reproduction were expressed by the formula c1 + c2, enlarged reproduction would be expressed as c1 + ac1 + c2 + ac2.

Similarly the social demand for consumer goods, from

v1 + s1 + v2 + s2


v1 + r1 + av1 + v2 + r2 + av2

Hence the conditions necessary for enlarged reproduction can be formulated thus:

P1 = c1 + ac1 + c2 + ac2

P2 = v1 + r1 + av1 + v2 + r2 + av2


c2 + ac2 = v1 + r1 + av1 [80]

Now for Rosa Luxemburg’s criticism of Marx’s schemas. [81] Rosa Luxemburg showed that a comparison of the formula for simple reproduction with that for enlarged reproduction produced a paradox. In the case of simple reproduction c2 must be equal to v1 + s1. In the case of enlarged reproduction, c2 + ac2 must be equal to v1 + r1 + av1. Now v1 + r1 + av1 are smaller than v1 + s1 (as ac1 is deducted from s1). So that if equilibrium were achieved under conditions of simple reproduction, the transition to enlarged reproduction would demand not only non-accumulation in Department II but the absurd position of disaccumulation.

And it is no accident, she said, that when Marx used diagrams to illustrate enlarged reproduction, he gave a smaller figure for c2 than the one he used to illustrate simple reproduction:

Diagram of simple reproduction

I       4000c     +     1000v     +     1000s     = 6000

II       2000c     +       500v     +       500s     = 3000

Total     = 9000

Initial diagram for accumulation on an expanded scale

I       4000c     +     1000v     +     1000s     = 6000

II       1500c     +       750v     +       750s     = 3000

Total     = 9000 [82]

Thus the constant capital of Department II is 500 smaller in enlarged than in simple reproduction.

Marx goes on to elaborate the diagram of enlarged reproduction and he shows that, assuming that in Department I as well as in Department II no change in the organic composition of capital (i.e., in the ratio of constant capital to variable capital) takes place, that the rate of exploitation remains constant, and that half the surplus-value in Department I is capitalised, then the reproduction of capital will result in the following progression:

First year

I       4400c     +     1100v     +     1100s     =   6600

II       1600c     +       800v     +       800s     =   3200

Total     =   9800

Second year

I       4800c     +     1210v     +     1210s     =   7260

II       1760c     +       880v     +       880s     =   3520

Total     = 10780

Third year

I       5324c     +     1331v     +     1331s     =   7986

II       1936c     +       968v     +       968s     =   3872

Total     = 11858

Fourth year

I       5856c     +     1464v     +     1464s     =   7986

II       2129c     +     1065v     +     1065s     =   4259

Total     = 13043

Fifth year

I       6442c     +     1610v     +     1610s     =   9662

II       2342c     +     1172v     +     1172s     =   4686

Total     = 14348 [83]

Analysing the above diagram, Rosa Luxemburg correctly points out a peculiarity they show:

While in Department I half the surplus-value is capitalised every time, and the other half consumed, so that there is an orderly expansion both of production and of personal consumption by the capitalists, the twofold process in Department II takes the following erratic course:

First year 150 are capitalised, 600 consumed

Second      240                            660

Third        254                             626

Fourth      290                             678

Fifth          320                             745

And she adds:

Needless to say, the absolute figures of the diagram are arbitrary in every equation, but that does not detract from their scientific value. It is the quantitative ratios which are relevant, since they are supposed to express strictly determinate relationships. Those precise logical rules that lay down the relations of accumulation in Department I seem to have been gained at the cost of any kind of principle in construing these relations for Department II; and this circumstance calls for a revision of the immanent connections revealed by the analysis. [84]

Here there is no rule in evidence for accumulation and consumption to follow; both are wholly subservient to the requirements of accumulation in Department I. [85]

As regards the progress of the enlarged reproduction, if we assumed that in Department II as well as in Department I there was an orderly expansion of both capital accumulation, and of the personal consumption of the capitalists, there would then have appeared an increasing disequilibrium between the two departments. » in


If we add a diagrammatic representation of the annual production of gold as the substance of money to the two departments of social production, we get the following three sets of figures:

  I. 4,000c +  1,000v + 1,000s = 6,000 means of production

II. 2,000c +    500v +    500s = 3,000 means of subsistence

III.      20c +        5v +        5s =      30 means of exchange

This quantity of value of 30, chosen by Marx as an example, obviously does, not represent the quantity of money which circulates annually in society; it only stands for that part which is annually reproduced, the annual wear, and tear of the money substance which, on the average, remains constant so long as social reproduction remains on the same level. The turnover of capital goes on in a regular manner and the realization of commodities proceed sat an equal pace. If we consider the third line as an integral part of the first one, as Marx wants us to do, the following difficulty arises: the constant capital of the third department consists of real and concrete means of production, premises, tools, auxiliary materials, vessels, and the like, just as it does in the two other departments. Its product, however, the 30g which represent money, cannot operate in its natural formulas constant capital in any process of production. If we therefore include this 30g as an essential part of the product of Department I (6,000 means of production) the means of production will show a social deficit of this size which will prevent Departments I and II from resuming their reproduction on the old scale. According to the previous assumption – which forms the foundation of Marx’s whole diagram – reproduction as a whole starts from the product of each department in its actual useform. The proportions of the diagram are based upon this assumption; without it, they dissolve in chaos. Thus the first fundamental relation of value is based upon the equation: I(6,000) equals I(4,000) + II(2,000). This cannot apply to the product III(30g), since neither department can use gold as a means of production [say, in the proportion of I(20c) + II(10c)]. The second fundamental relation derived from this is based upon the equation I(1,000v) + I(1,000s) = II(2,000). This would mean, with regard to the production of gold, that as many consumer goods are taken from Department II as there are means of production supplied to it. But this is equally untrue. Though the production of gold removes concrete means of production from the total social product and uses them as its constant capital, though it takes concrete consumer goods for the use of its workers and capitalists, corresponding to its variable capital and surplus-value, the product it supplies yet cannot operate in any branch of production as a means of production, nor is it a consumer good, fit for human consumption. To include the production of money in the activities of Department I, therefore, is to run counter to all the general proportions which express the relations of value in Marx’s diagram, and to diminish the diagram’s validity. » in

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