Anarchy of production:
Marx’s law of value regulates the anarchic capitalist system
Capitalist production is unplanned & therefore partial crises of under & overproduction are theoretically possible in various branches of production.
Mainstream economics has the cobweb theory for agriculture, where wrong price signals sent from market cause prices to move more & more from equilibrium.
Relationship between Departments I & II:
Dept I is the production of means of production.
Dept II is the production of means of subsistence.
Marx’s reproduction schema was at the end of Volume II, before he had developed the concept of prices of production, or the tendency of the rate of profit to fall. Therefore, he is assuming that commodities sell at prices that are directly proportional to their labour values.
So the schema do not prove that there is no realisation problem.
They did form the basis of a ‘breakdown’ debate in the first half of the 20th century.
Many economists from Marx to Keynes saw in the periodic replacement of fixed capital a material basis for the length of the business cycle.
The equilibrium condition is constant capital in Dept II must equal the sum of variable capital plus surplus capital in Dept I: cII = vI + sI
If cII > vI + sI, then Dept II would not fully realise the value of its commodities in terms of the use-values of the commodities of Dept I. There would be a crisis of overproduction in Dept II & underproduction in Dept I. Dept I would realise super-profits & Dept II would get below the average rate of profit.
By leaving out money we leave out the possibility of a general overproduction of commodities affecting both departments.
As long as we abstract out money we remain stuck in Say’s Law.
Social democrats thought that capitalism was becoming more organised & so more stable. Capitalism would gradually transform into a planned economy, e.g. Tugan-Baranovsky’s schemas.
Bauer extended Marx’s schemas & showed that accumulation was still possible with increases in the organic composition of capital (Dept I growing > Dept II) & a falling rate of profit. This may have influenced Luxemburg’s argument about the ‘sun burning-out’ before the falling rate of profit put an end to capitalism.
In 1923 Bukharin attacked Luxemburg’s breakdown theory, arguing that a pure capitalist society would have no problem realising surplus value if the dept proportions were correct.
Grossman extended Bauer’s schemas to show a breakdown was possible.