THE HOLISM OF MARX S ECONOMIC CRISIS THEORY --COMMENTS ON CIRCULATION CAPITAL AND CIRCULATING CAPITAL IN THE COURSE OF EDITING CAPITAL V2 BY ENGELS

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1 THE HOLISM OF MARX S ECONOMIC CRISIS THEORY --COMMENTS ON CIRCULATION CAPITAL AND CIRCULATING CAPITAL IN THE COURSE OF EDITING CAPITAL V2 BY ENGELS Research Group of the Grand Social Science Project of Education Ministry, PRC, Capital and its Manuscripts Yan Pengfei (Chief scholar of the project) Zeng Hongyan (member) Abstract: The latest economic crisis has created a chance for revival of Marxist economics and Western leftist scholars have tried to reconstruct the thinking framework of Marxist political economy by change the problem domain and research methods. Marx s economic crisis theory is one kind of Holism. Marx s mature and relatively systematic theory of economic crisis can be found scattered in three volumes of Capital and its manuscripts. The three volumes of Capital together constitute a system of economic crisis research. Circulation Capital is a term that connected closely to economic crisis. When Engels created the German terminology in the process of editing the second volume of Capital, he actually made a contribution to it. Key words Economic crisis Holism Circulation Capital MEGA I INTRODUCTION The American subprime crisis in 2007, followed by international financial crisis starting from 2008, and the European debt crisis, by their nature, is Capitalist economic crisis. Different with many other economic crisis theories, which believe that financial and debt crisis are problems of policies and technologies in circulation, Marx s theory of economic crisis is holistic theory. It pays attention to the political area of production and distribution and the power structure (the structure of ruling order-obeying relation-obeying through possession of material that is possession of means of production), which is the basis of institution. The scientificalness of Marx s economic crisis theory lies in its richness. There are many perspectives about economic crisis from Capital and its manuscripts, which have relatively independent value, however, to say it by a metaphor, they are not This article is supported by the Grand Social Science Project of Education Ministry of People s Republic of China No. 11JZD004. 1

2 trees isolated with each other, but forest consisting of many kinds of trees. Its rigorous logic combines the perspectives one by one into a indivisible whole. II A NEW FRAMEWORK The global financial crisis triggered by the US subprime mortgage crisis in the fall of 2007 is by no means an accidental individual phenomenon, but a cumulative consequence of financial crises occurring continuously during the 20th century. so this crisis is just a proof of that the previous economic theories has become obsolete, and previous economic assessment system is no longer useful and thus people who want to get out of this crisis must first put forward a new economic theory and construct a new "economic framework". There is a an idea of "economic framework" in the discussion of this crisis proposed by the American economists Carmen M. Reinhart and Kenneth S. Rogoff in their book This Time Is Different, which has gain universally recognition among contemporary political thinkers, economists, philosophers. They believe that these financial crises which have occurred in different types can become materials for the construction of a new framework of economics. From this point of view, they promoted the popular concept in today's Western world - "this time is different" - to a new thought framework, in order to further the theoretical analysis of the crisis, and then propose new economic ideas. They believe that the nature and the most prominent feature of this crisis is its globality and this nature and feature is a cumulative result of regional or periodic crises continuing to occur during 20th century, and therefore, this crisis is but the overall performance of the world economy, politics and cultural identity of century. In this historical inspection, "this time is different" as the connotation of a framework for thinking came out, that is to see financial crises as structural crises, and to see financial crises at different times, different countries as certainly the result of fracture of complex social structures composed of economic, political and cultural of a certain time and country and therefore, financial crisis must be of different types due to differences of its internal structure and specific historical condition. This framework broke the previous framework explaining crisis with single economic factor or several economic factors. Western leftist scholars have accepted the idea of new framework mentioned above, however, they are not simply applying it to the analysis of "the crisis", but to transform it and absorb it for the reconstruction of Marxist political economy paradigm from the Marxist critique position of political economy. The first task they do is to change the research problem domain of Marxist Political Economy. This shift in theoretical form is achieved by changing the reading perspective of Marx's "Das Kapital". In the past, people read Marx Das Kapital based on the theory of surplus value in the first volume as the cornerstone of Marxist political economy, and around it to read theory of distribution and circulation of 2

3 capital in the second and third volumes, and regard the surplus value segmentation in volume 3 as all aspects developed from the production of surplus value. This formed the problem domain in which production of surplus value is as the core. With the development of financial capital, Western leftists come to realize that the problem domain in which production of surplus value is as the core can only explain the economic movement in laisser-faire capitalism era, which is impossible to explain the economic movement in monopoly capitalism era. To achieve this shift, by means of Rosa Luxemburg s capital accumulation theory, Western leftist scholars reread Capital volume 1 and 3 from the perspective of volume 2, which highlights the core status of implementation of surplus value and issue of money demand. Rosa Luxemburg and the Critique of Political Economy chief edited by Riccardo Bellofiore published on 2009 is an example of this kind of discussion. The second job they do is to change method for Marxist political economy research through analyzing the nature of this crisis. In the western leftists point of view, previous Marxist political economy research methods, especially the method of the Second International except Rosa Luxemburg are mechanistic. More specifically, firstly, they changed the dimension of Marx empirical analysis method and proposed research topics of the internal mechanism of contingency in historical development of the world. A fundamental feature of Marx empirical analysis method is to choose those countries or nations that are typical in the process of modernization as historical prototypes, by scientific criticism, revealing laws that hidden behind human history. This constitutes an inevitability framework of thinking of World History. In fact, in this framework, modern multi-paths were thrown into a phenomenon level, which is but different manifestations of nature of modernization. It is actually excluded the problem of contingencies of world history from the vision research field of world history, surely, not to mention the inherent mechanism study of the contingencies of the world history. In the discussion of this crisis, Western leftist scholars like Marx also select several historical prototypes, among which the most important are: the European Union and Eastern Europe, China and Japan, South Africa and Latin America. However, in the research dimension, Western leftist scholars chose to investigate capitalist societies from the dimension of capitalist crisis and from the relationship between the internal movement of financial capital and its external environment, revealing the internal mechanism of the capitalist crisis. Secondly, they re-interpreted the connotation of Marx s methodology from concrete to abstract and proposed internal and external dialectic mode. The reality of the economic crisis does provide a good chance for a revival of Marxism. Western leftist scholars have tried to take advantage of new framework of economics to reconstruct Marxist thought, which is very desirable. In fact, in this framework, the necessity of the world history has been broken, what presented in front of people is the contingency of the development of world history. Thus, a new framework of thinking should be established which reveals the internal mechanism for contingency of development of world history and analyzes contingency for different historical prototypes. Just as Engels said in Anti-Dühring : Political economy 3

4 is therefore essentially a historical science. It deals with material which is historical, that is, constantly changing; it must first investigate the special laws of each individual stage in the evolution of production and exchange, and only when it has completed this investigation will it be able to establish the few quite general laws which hold good for production and exchange in general. 1 III FORM 5-SECTIONS PLAN TO 6-BOOKS PLAN THEN TO FOUR VOLUMES OF CAPITAL From the second half of 1940s on, Marx began to study the necessity and periodicity of capitalist economic crisis. After experiencing the revolution of 1848 and then exiled to London In summer 1850, Marx deepened his knowledge of economic crisis. He wrote: Jedenfalls aber ist gewiß daß die Handelskrise zu den Revolutionen von 1848 unendlich mehr beigetragen hat,als die Revolution zur Handelskrise. 2 (But in any case is certain that the commercial crisis has contributed to the revolutions of 1848 infinitely more than the revolution to commercial crisis 3 ) From this, we could see that economic crisis became an important part in his study of political economy. Between August and the middle of September 1857, in Introduction to A Contribution to the Critique of Political Economy, he proposed his 5-sections plan: The disposition of material has evidently to be made in such a way that (section) one comprises general abstract definitions, which therefore appertain in some measure to all social formations, but in the sense set forth earlier. Two, the categories which constitute the internal structure of bourgeois society and on which the principal classes are based. Capital, wage-labour, landed property and their relations to one another. Town and country. The three large social classes; exchange between them. Circulation. The (private) credit system. Three, the State as the epitome of bourgeois society. Analysis of its relations to itself. The 44 unproductive classes. Taxes. National debt. Public credit. Population. Colonies. Emigration. Four, international conditions of production. International division of labour. International exchange. Export and import. Rate of exchange. Five, world market and crises MEGA 2, Band I/10, Dietz Verlag Berlin, 1977, S English version translated by the authors 4 4

5 In 1859, in the Preface of A Contribution to the Critique of Political Economy, the first line, he wrote: I examine the system of bourgeois economy in the following order: capital, landed property, wage-labour; the State, foreign trade, world market. 5 Since then, he officially announced his research plan of political economy, which is called 6-books plan. This plan states the position of economic crisis in the system of political economy, clearly sees world market and crisis as the most concrete definitive property of capitalist economic relations. However, Marx conceived another plan in writing economic manuscripts from 1861 to 1863, i.e. publishing 4 volumes of Capital (This plan has been revealed in Marx s letter to Engels at July 31th 1865). He then put his energy in writing Capital. The 5-sections plan or the 6-books plan is not finished by Marx, consequently, the section or the book specifically studying economic crisis is not started on. What s the relationship between the unfinished 5-sections plan or 6-volumes plan and the three volumes of Capital, of which the first volume published by Marx and the second and third volumes edited by Engels in terms of Marx s thought of economic crisis. We hold that Marx s mature and relatively systematic thought of economic crisis can be seen scattered in the three volumes of Capital. When Marx realized that he cannot finish the 6-books plan in his lifetime, he put his thought of economic crisis in Capital and its manuscripts. The essence of his economic crisis theory is that he sees the fundamental contradiction of capitalism and its concrete embodiment in every layer as the root of capitalist economic crisis, which is inevitable. IV THE THREE VOLUMES OF CAPITAL TOGETHER CONSTITUTE A SYSTEM OF ECONOMIC CRISIS RESEARCH Marx himself cherished his structure of his work Capital very much. In July 31th 1865, after the majority of Capital V1 has been done, he wrote to Engels about the structure of his Capital: Whatever shortcoming they may have, das ist der Vorzug meiner Schriften, daß sie ein artistisches Ganzes sind. 6 (Whatever shortcoming they may have, they have a advantage, that is they are a artistic whole 7 ). It is not true that Marx like western economists only discuss economic crisis when it comes to financial problems, which is in several chapters in the third volume MEGA 2, Band III/13, 2002, Akademie Verlag, S English version translated by the authors 5

6 of Capital. Marx s research on economic crisis is throughout his entire system of economics. The three volumes of Capital together constitute a system of economic crisis research, which conducted a holistic analysis on how capital moves. The analysis of economic crisis can be found in the analysis of production, distribution, exchange and consumption that comprise a system of holism. The problem of economic crisis has been paid great attention to in the discus of process of production, of circulation, and the process of capitalist production as a whole. In order to study economic crisis, one should first study the process of production. The capitalist production process, on the whole, contains circulation process and the overall process of distribution and consumption. In adaptation with this characteristic of capitalist production process, people in a capitalist economy, generate not only a certain relationship in the process of immediate production, but also specific relationship in the process of circulation. Study on Economic crisis involves all these relationships. Therefore, Marx used the method from abstract to the concrete to thoroughly study the economic crisis and explained all of the production relations in process of production and distribution of capitalist society. Capital V1 mainly discusses the capitalist production process, however, it focus not only production but also distribution, exchange and consumption and combines production with distribution, exchange and consumption as a scientific research architecture in order to analyze production, thus, reveals the root of the causing of economic crisis in the research on production process, laying the most important theoretical foundation on issues of economic crisis, which is the theoretical system on production process in the holism of economic crisis. This system and perspective of production process recognizes that there is a civilized and progressive character in capitalism and capitalism process is certainly a huge driving force in the development of social productive forces and promotes unremitting exploration in finding new ways on labor-saving and new needs and new sectors to develop people's unlimited creative ability. However, at the same time, this system and perspective also shows that the how development of this unique form of capitalism unleashes a lot of potential and inhuman power of "crazy" (that itself becomes the target) technology, machines and exchange value. The process of Capitalist production subordinates people to machine, rather than liberates people from the burden of mechanical duplication of work through the use of machine. It makes all social activities subordinate to requirements of keeping chasing personal wealth, rather than makes social life adapt to rich personality and development of social relations. Contradiction between use value and exchange value which is inherent in each commodity fully develops in contradictory nature of capitalist machine, for which capitalist society continues to trigger the economic crisis. It begins in the third volume of Capital with: In Book I we analysed the phenomena which constitute the process of capitalist production as such, as the immediate productive process, with no regard for any of the secondary effects of outside influences. But this immediate process of production does not exhaust 6

7 the life span of capital. It is supplemented in the actual world by the process of circulation, which was the object of study in Book II. 8 However, it is worth mentioning that, Capital v2 not only talks about circulation without production, in fact, it studies capitalist process of production and process of circulation as a synthesis. He said: In the latter, namely in Part III, which treated the process of circulation as a medium for the process of social reproduction, it developed that the capitalist process of production taken as a whole represents a synthesis of the processes of production and circulation. 9 In the second volume, from the system and perspective of circulation Marx noted that the organic links between departments of socialized large scale production, as well as the influence of certain parts on the rest in the entire economic structure, and was aware of the influence of local or sectoral crises or fluctuations on the entire economic fluctuations. He profoundly explained the balance of two departments of social reproduction under normal conditions required for the production of commodities. The analysis of balance includes both the use value, i.e. physical aspect, and value and also includes both static analysis of simple reproduction which is relatively stable and dynamic analysis of expanded reproduction which relatively more complicated. This analysis is applicable to the study for contemporary economic crisis. If the ratio of the two social departments cannot maintain properly in social reproduction, social production will be led to imbalance caused by differences in the structure proportion and growth, resulting in big fluctuations and crises. The second volume is confined to extensive investigation of the synthesis with no respect to each specific form of capital movement. Therefore, although the second volume is raised a step in analysis of the process of capitalist production, but still not fully reflects the whole picture of capitalist relations of production. Thus, the third volume is needed as a complement. Marx then wrote: Considering what this third book treats, it cannot confine itself to general reflection relative to this synthesis. On the contrary, it must locate and describe the concrete forms which grow out of the movements of capital as a whole. In their actual movement capitals confront each other in such concrete shape, for which the form of capital in the immediate process of production, just as its form in the process of circulation, appear only as special instances. The various forms of capital, as evolved in this book, thus approach step by step the form which they assume on the surface of society, in the action of different capitals upon one another, in competition, and in the ordinary consciousness of the agents of production themselves Ibid. 10 Ibid. 7

8 Capital v3 illustrates economic crisis from the perspective and system of process as a whole, is the part nearest to the surface of capitalist economy running in Marxist theory of economic crisis and also most problematic part for direct study of the economic crisis. The title of the Capital v3 is the process of capitalist production as a whole, as the name suggests, the object of study from the system and perspective of process as a whole, is the synthesis of the process of production, circulation and distribution, which has a unique function and significance. This perspective, first studied the conversion process from surplus value to profit, from the rate of surplus value to the rate of profit, the process of average rate of return, the falling tendency of the average rate of profit and commodity values into the production price, and then studied various specific forms of capital, to see how they are in accordance with the law of general movement of capital to carve up the surplus value - profit. These statements indicate that under the action of internal contradictions in production of such a capitalist commodity, impossible to possess both of them is the condition of the smooth realization of the value of commodities and thus the nature of the root of the economic crisis is completely revealed From this we can see that V3 just like V2 investigates processes of capitalist production and distribution as a synthesis. The difference is that V2 is limited to a " extensive investigation of this synthesis" and v3 rose by step to demonstrate various specific forms of capital which grows out of the synthesis, thus, from Capital v2 to Capital v3 is a process rising from the abstract to the concrete. The three volumes of "Das Kapital" is the system that Marx built to investigate capitalism relations of production according to the his study that capitalist production process is a synthesis of processes of production and distribution and the logical link of capitalist production relations by use of abstraction method, which is from abstract to concrete, from the simple to the complex. This system studies economic crisis scientifically only because it is a reflection of objective reality. V WHY ENGELS CREATED A NEW TERM CIRKULATIONSKAPITAL? The economic crisis is mainly a problem in circulation and production of capital, where it involves a concept of "circulation capital". We know that in the editing of the second volume of "Das Kapital", Engels created a term that does not exist in Marx s manuscripts Cirkulationskapital. Why Engels created this word? Now, we can use the materials of MEGA 2 for a further research of "Marx and Engels' issues, the following is a research from Dr. Zhao Yulan of our group members. This term appears in the second part of the second volume, "The Turnover of Capital " which involves the interpretation an analysis for fixed capital and circulating capital. Specifically, Engels inserted the word in 10 places in the edited manuscript, among which, the first one appears in Chapter 8, "Fixed Capital and Circulating 8

9 Capital"( Fixes Kapital und zirkulierendes(flüssiges)kapital.(anlagekapital und Betriebskapital), the rest appears in Chapter 10 Theories of Fixed and Circulating Capital: The Physiocrats and Adam Smith (Fixes Kapital und zirkulierendes(flü ssiges ) Kapital. ( Anlagekapital und Betriebskapital). Let s look at the first appearance in Chapter 10 for Chapter 8 brings up incidentally of circulation capital. After a passage quoted from Smith, Marx wrote: Was A. Smith hier als cirkulirendes Kapital bestimmt, ist cirkulirendes Kapital, als dem Cirkulationsprozeß (Formwechsel respectiv durch den Austausch Stoffwechsel u. Händewechsel) angehörige Form des Kapitals (Waarenkapital u. Geldkapital) in der Cirkulationssphäre processirendes Kapital im Gegensatz zu seiner dem Produktionsprozeß angehörigen Form, der des Produktiven Kapitals. 11 (What Adam Smith here defines as circulating capital is circulating capital, a capital in a form (commodity and money) pertinent to the process of circulation( changes of form respectively through a change of substance and change of hands)- capital in circulation process- distinguished from its form pertinent to the process of production, that of productive capital) 12 Engels edited: Was Adam Smith hier als cirkulirendes Kapital bestimmt, ist das, was ich Cirkulationskapital nennen will, Kapital, in der dem Cirkulationsproceß, dem Formwechsel vermittelst des Austausches (Stoffwechsel und Händewechsel) angehörigen Form, also Waarenkapital und Geldkapital, im Gegensatz zu seiner dem Produktionsproceß angehörigen Form, der des produktiven Kapitals. 13 (What Adam Smith here defines as circulating capital is what I want to call capital of circulation, capital in a form pertinent to the process of circulation, to a change of form by means of exchange (a change of substance and change of hands), hence commodity-capital and money-capital, as distinguished from its form pertinent to the process of production, that of productive capital. 14 ) As can be seen above, in Marx s manuscript, "cirkulirendes Kapital" has two meanings, both representing the flow of capital defined by Smith and capital pertinent to process of circulation, namely commodity capital and money capital. of Two concepts or two meanings with expression of the same terminology, which is 11 MEGA2,Band II/11,S English version translated by the authors 13 MEGA2,Band II/12,S

10 obviously confusing. Thus, in Engels edited manuscript, after the sentence " Was Adam Smith hier als cirkulirendes Kapital bestimmt ist ", the text was changed to " was ich Cirkulationskapital nennen will". The term "Cirkulationskapital here Engels created specifically refers to two forms of capital pertinent to process of circulation - commodity capital and money capital, meanwhile, he gives the" cirkulirendes Kapital" a definitive and unique significance, that is, circulating capital, distinguished from fixed capital pertinent to the process of production So, why did Engels change "cirkulirendes Kapital" to "Cirkulationskapital"? On the surface, the reasons for the change should be traced back to Marx, for avoiding confusion of terms, but in fact, the root of this ambiguity exists in Smith's theory of circulating capital In Chapter 10, Marx carried out a detailed critique of Smith's theory of fixed capital and circulating capital, in which Smith s theory of circulating capital is the focus. In Smith, where the flow of capital is expressed by the term "circulating capital", Marx translated it in German into "cirkulirendes Kapital" when he was in writing. 15 Then how many meanings in "cirkulirendes Kapital" in Smith? Firstly, it refers to circulating capital as opposed to fixed capital. As cited in the original text of Smith by Marx, Different occupations require very different proportions between the fixed and circulating capitals employed in them 16 Obviously, here, circulating capital is opposed to fixed capital. Accordingly, its German translation "cirkulirendes Kapital" also means the flow of capital opposed to fixed capital. However, in Smith, it is clearly not the only meaning of circulating capital. Secondly, it refers to the circulation of capital in the form of - commodity capital and money capital, which in fact, corresponds essentially the same term Engels created Cirkulationskapital. Let s cite a section of t Smith s original saying: The goods of the merchant yield him no revenue or profit till he sells them for money, and the money yields him as little till it is again exchanged for goods. His capital is continually going from him in one shape, and returning to him in another; and it is only by means of such circulation, or successive changes, that it can yield him any profit. Such capitals, therefore, may very properly be called circulating capitals. 17 Obviously, corresponding with Smith's "circulating capital", "cirkulirendes Kapital" here does not mean the flow of capital in the field of production as opposed to fixed capital, but rather refers to capital in the form pertinent to process of circulation. Marx observed keenly this confusing. Just after the above quotation, 15 MEGA2, Band II / 11, S MEGA2, Band II/11, S MEGA2,Band II/11,S

11 Marx pointed out that what Smith called here circulating capital (cirkulirendes Kapital), is change of forms inside circulation of commodity, i.e. transformation from the form of commodity to money and from the form of money to commodity. So,Marx wrote the following passage: Es folgt daher, daß cirkulirendes Kapital hier absolut nichts meint als den nicht mehr in der Produktionssphäre, sondern in dem Cirkulationsprozeß functionirenden Kapitalwerth mit seinen successiven u. stets wechselnden Formen v. Waare (Waarenkapital) u. Geld (Geldkapital). Dieß ist aber ein Gegensatz v. cirkulirendem Kapital (in seinen beiden Formen) gegen Produktives Kapital, keineswegs ein Gegensatz v. cirkulirendem Kapital u. fixem Kapital. 18 Here, Marx clearly shows the ambiguity of Smith's "circulating capital" (cirkulirendes Kapital): on the one hand, "cirkulirendes Kapital" indicates the form of capital in circulation as opposed to productive capital; on the other hand, "cirkulirendes Kapital" also represents form of capital in production opposed to fixed capital. This same term contains two distinct meanings. For Marx, it is highly inadvisable that Smith puts two very different meanings under the same term, therefore, an important task of his critique of Smith s circulating theory is to liberate the two meanings from one and the only term cirkulirendes Kapital. Obviously, when editing Marx s manuscripts, Engels also saw this task. Thus, on the one hand, he retained the meaning "cirkulirendes Kapital" of the flow of capital, on the other hand, created with a new term "Cirkulationskapital" to indicate that capital form in circulation. Thus, two senses expressed by "cirkulirendes Kapital" once in Smith gain independent status. PS. Yan Pengfei Professor of school of Economics & Management, Wuhan University yanpengfei1023@163.com Zeng Hongyan Ph.D candidate of school of Economics & Management, Wuhan University zenghongyan90@163.com 18 MEGA2, Band II/11, S