Introduction
Rosa Luxemburgâs immanent critique of Karl Marxâs accumulation schemes is well known. In her book The Accumulation of Capital (1913), she not only gave an account of the rather spirited, but confused, debate that broke out among the European Marxists on the publication of Volume 2 of Capitalâespecially the last chapter on the scheme of expanded reproductionâbut she offered her own cogent critique and proposed a solution (Luxemburg, 1913; see also Desai, 1979: Chapter 15). Marxâs scheme appeared to offer a model of capitalist accumulation that guaranteed perpetual growth at a steady rate for both sectors (departments) and, indeed, has been characterized as the fastest converging two-sector balanced growth model by Morishima (Morishima, 1973: Chapter 10; see also Morishima, 1958). Marxâs model seemed to go against the vision of a permanently cyclical course for capitalist accumulation outlined in Part VII, Volume 1, of Capital. There were other inconsistencies between the two volumesâ portrayal of capitalist accumulation. In the scheme for expanded reproduction (SER) (i) there is no technical progress and hence the value per unit of physical output in both departments and the organic composition of capital are constants; (ii) the profit rate is computed in value terms rather than in money terms and differs between the two sectors; and (iii) the profit rate in each sector is constant and does not decline. Also. in terms of Volume 2 itself, while Part I laid out the three circuits of capital in terms of value, money and physical quantities, the SER is only in value terms. Prices and money play no role in the SER.
The SER generated a long debate. Was it a scheme for abstract study of how gross and net output are reconciled at the aggregate level, hence a pioneering exercise in national income accounting, or was it a realistic picture of how it was possible for a capitalist economy to grow? Was it a scheme for planning, as later proved useful in Felâdmanâs model for the Soviet Economyâs First Five Year Plan, or did it lay down conditions that made it impossible for a capitalist economy ever to achieve balanced growth if it relied on uncoordinated accumulation plans, as opposed to the accommodative behaviour postulated in the SER?1
Rosa Luxemburg criticized Marxâs model as inconsistent within its own logic, since the realization problem is not squarely faced but solved, as it were, by a sleight of hand. The limits to the supply of labour power are assumed away. Since each department does not have ready demand for its output before it can plan accumulation, where, she cogently asked, does each department get the money to place the order for the extra machines that dissolve the problem?
Where does the money come from? This question is loaded with dynamite. Marx had not tackled the circuit of money capital in the SER. Thus, the exchange of goods between the two departments seemed to occur outside the exchange nexus, in a gigantic book-keeping exercise for all capital...
