Reproduction (economics)
In Marxian economics, economic reproduction refers to recurrent processes. Michel Aglietta views economic reproduction as the process whereby the initial conditions necessary for economic activity to occur are constantly re-created. Marx viewed reproduction as the process by which society re-created itself, both materially and socially.
Economic reproduction involves:
- the physical production and distribution of goods and services,
- the trade of goods and services,
- the consumption of goods and services.
- the reproduction of voluntary and involuntary social relations, involving competition and cooperation.
Marx distinguishes between "simple reproduction" and "expanded reproduction". In the former case, no economic growth occurs, while in the latter case, more is produced than is needed to maintain the economy at the given level, making economic growth possible. In the capitalist mode of production, the difference is that in the former case, the new surplus value created by wage-labour is spent by the employer on consumption, whereas in the latter case, part of it is reinvested in production.
Ernest Mandel additionally refers in his two-volume Marxist Economic Theory to contracted reproduction, meaning production on a smaller and smaller scale, in which case business operating at a loss outnumbers growing business. Reproduction in this case continues to occur, but investment, employment, and output fall absolutely, so that the national income falls. In the Great Depression of the 1930s, for example, about one-quarter of the workers became unemployed; as a result of the 2008–9 slump, the unemployed labour force increased by about 30 million workers.
Theoretical approach
As an approach to studying economic activity, economic reproduction contrasts with equilibrium economics, because economic reproduction is concerned not with statics or with how economic development gravitates towards an equilibrium, but rather with dynamics—that is, the motion of an economy. It is not concerned with the conditions of a perfect match between supply and demand under ideal conditions but rather with the quantitative proportions between different economic activities or sectors that are necessary in any real economy so that economic activity can continue and grow. It is concerned with all the conditions for that, including the social and technical conditions necessary for the economic process. Reproduction economics does not assume that society is kept in balance by market mechanisms.Wassily Leontief developed Marx's idea further in his input-output economics. However, there is a major difference between Leontief and Marx. By treating gross profit as a "factor input" as well as a factor output, the respective total values of the input and output in Leontief's model are always exactly equal. In Marx's model, the output in an accounting period is normally always higher in value than the input. This is what Marx believed capitalists to be in business for: to produce a product sold at a higher value than the sum of input costs, thus generating profit. The profit in Marx's theory is not an "input", but a business result, the yield of capital on an investment.
In Marx's view, economic reproduction in any society has five main features:
- the production of reproducible products replacing, maintaining, or adding to the stock of society's physical assets
- the physical maintenance of the population and their dependents through household consumption
- the reproduction and growth of the total population, including procreation and childrearing
- the reproduction, enforcement, and maintenance of social relations, in particular the relations of production that characterize the social hierarchy, and property rights
- the maintenance and reproduction of trading and distribution relations
Marx's argument is that by producing an output value the equivalent to their own labor cost plus a surplus value appropriated by capitalists, waged workers accomplish many of the processes involved at the same time. Part of the role of the state is to secure those general conditions for the reproduction and maintenance of society that individuals and private enterprise cannot secure by themselves for one reason or another. Ecologists would nowadays probably add as a "reproduction condition" good stewardship for the physical environment. Sustainable development cannot occur if the natural environment is constantly depleted without being restored. The recycling of wastes and waste materials can be considered as a necessary and integral part of society's reproduction process.
Each of these six features is the subject of much political controversy in society. Many different opinions exist about their relative importance and their effects on each other. Economists and businesspeople are often primarily concerned with the economic effects, but other intellectuals and workers are often more concerned with the non-economic effects for the health, security, and well-being of citizens. Thus, governments usually have both economic policies and social policies, population policies, environmental policies, and so on.
Economic reproduction in capitalism
According to Marx, in a capitalist society, economic reproduction is conditional on capital accumulation. If workers fail to produce more capital, economic reproduction begins to break down. Therefore, economic reproduction in capitalist society is necessarily expanded reproduction and requires market growth. Capital must grow, otherwise the whole process breaks down. Thus, economic growth is not simply desirable but also necessary in capitalism, not just because of population growth, but for commercial reasons.In this light, the ecological vision of a "zero-growth society" appears rather utopian; or, at the very least, its achievement would require the abolition of capitalism. Some would argue that population growth makes economic growth absolutely necessary. Others argue that population growth must be restricted with birth control methods because otherwise there will be too many people for the available resources. The real argument, though, is not about growth or the lack thereof, but rather about the kind of growth that is best for the reproduction of the human species as such. Ecologists may validly argue that some types of growth undermine important conditions for human survival in the longer term without invalidating other kinds of growth that are beneficial. However, there is much dispute about which kinds of economic growth are beneficial or harmful.
Capital accumulation can occur either by producing a net addition to the stock of capital assets or by transferring wealth from one owner to another. In the former case, the total stock of capital grows. In the latter case, the accumulation of one owner occurs at the expense of the other, there is no net growth. These two ways are usually combined, meaning that all or most owners make gains, but in unequal amounts. In considering the economic reproduction process as a whole, one therefore has to consider both the production of new resources and the transfer of resources. As a corollary, supposing that there is no net growth of output and capital, capital accumulation can continue only if some people and organizations get richer while other people and organizations get poorer. Typically, if output growth slows down, socio-economic inequality increases.
Nine factors not theorized by Marx
There were nine main factors that Marx disregarded in his construction of reproduction schemes when he modelled the circulation of capital. These omissions have been noted by various Marxist and non-Marxist authors.In assessing the effect of these "omissions", one ought to keep in mind that when Marx discussed the intertwining of the circulation of capital with the reproduction processes that occur in any kind of society, he was primarily concerned with the functional requirements of the capitalist mode of production and not with the reproduction of the whole of society. At any time, a fraction of the population is not working or "economically active", and assets are maintained or accumulated that are unrelated to the sphere of production. These were generally outside the scope of Marx's analysis, even if he occasionally mentioned them.
Economic reproduction, economic equilibrium, and economic crises
Marx's models of economic reproduction in capitalism have often been interpreted as stating the conditions for economic equilibrium, or balanced economic growth. After all, there are certain "necessary proportions" between different branches of production, which have to adjust their output levels to each other. If those proportions do not reach a minimum acceptable level, then products remain unsold or producers cannot obtain the inputs they require, in which case production begins to slow down or break down. So there are necessary proportions between production, distribution, and consumption that must be maintained if society is to survive and grow. In this sense, Marx distinguishes between the production of means of production, consumer goods, and luxury goods, and he considers the commercial interactions between the sectors producing them.If the growth of different sectors of production occurs very unevenly, bottlenecks can occur, so that a supply or demand cannot be met. In the worst case, an interruption in the normal reproduction process triggers a sequence of disturbances, a chain reaction, which spreads from some branches of production to the whole economy, meaning that products are left unsold and that producers receive insufficient income to pay their bills. The result is rising unemployment, idle productive capacity, and a drop in output and productive investment. This in turn means lower economic growth.
- Disproportionality theories. This idea was the basis for numerous Marxist crisis theories devised in the first three decades of the 20th century, most famously by Rudolf Hilferding, Rosa Luxemburg, Nikolai Bukharin, Otto Bauer, and Henryk Grossmann. The argument is that balanced economic growth is only a temporary phenomenon, because a private enterprise economy is incapable of sustaining the necessary proportionalities required. It cannot do so because there is no overall, conscious coordination of production activities in an economic system in which producers compete to cut costs, increase sales, and increase profits. There has been much dispute about which disproportionalities exactly are of decisive importance and why those specific disproportionalities would occur and recur, but all these theorists agree that some disproportionalities must necessarily occur, making recurrent crises inevitable.
- Uneven development theories. Other theorists such as Ernest Mandel and Roman Rosdolsky argued that capitalist economic development is always an "imbalanced" rather than "balanced" development in space and time. At most, an approximate balance of supply and demand is achieved in particular areas. In that case, an economic equilibrium never exists in reality; it is only a theoretical abstraction. There are constant market fluctuations as producers adjust to each other without being able to determine how much others will produce for sale. At most, one could say that in times of strong economic growth, when markets strongly expand, all producers can make gains from increasing output, even if the gains are unequal. But after a certain time, productive investment will "overshoot" a now saturated market demand, causing the economy to spiral into crisis again.
- Financialization theories. A third, more recent interpretation is that the reproduction process has become completely dominated by capital finance. Hence, to explain economic crises, critical disproportions between the developments of branches of production, or unutilized capacity ought to be viewed as emerging out of specific financial and monetary regimes pursued by financial institutions and the state. The large funds commanded by these organizations are thought to shape the whole character of the reproduction process. As analysts like Michael Hudson like to point out, ordinary consumers in developed countries today have little in common anymore with how economists portray them in their models, because in reality consumers are using the majority of what they earn to pay interest, premiums, rent and debt principal to the financial industry. Consumers spend less than a quarter or less than 20% of their earnings on actual goods and services. Just as Marx noted a progression from natural economy to a "money-economy" and then a "credit economy", it is argued that the reproduction process has now become dominated by the supply, demand, or withdrawal of credit-money. However, there is much theoretical controversy about exactly how the relationship between the "real economy" and the "financial economy" should be understood. There is not much consensus about the effects of different financial policies by government and business on the economy, or how one could prove what the effects are.
- Definition of capitalism. Scholars often confuse Marx's idea about what is required for the reproduction of the capitalist mode of production with what is required for the reproduction of capitalist society as a whole. Abstractly, it is assumed that the economy consists only of capitalist production and that the capitalist economy is equal to capitalist society. But in reality this is not the case. Capitalist society contains all sorts of non-economic processes and non-capitalist processes as well. It remains a society of human beings, who have certain requirements or needs that cannot easily be met through a commercial business. And the majority of capital assets in developed capitalist countries are, even though they attract profit, not physical means of production, but financial assets or non-productive physical assets such as real estate or durables. This can be easily verified from national capital stock and asset inventory data.
- Physical/social distinction. Scholars often conflate the physical reproduction of goods and services necessary for human survival with the reproduction of capital. They assume that a certain market balance or market proportionality is essential for an equilibrium growth path. In fact, Marx never argued that capitalist society is "held together" or "balanced out" by the market itself, and he denied that equilibrium ever existed anywhere, other than as a momentary coincidence. Instead, "what held society together" was the compulsion to produce and reproduce for a living, given a system of property rights enforced by the state. Marxists call this viewpoint Marx's historical materialism.
This might seem strange, since food is a basic requirement of human life. But, as Marx would presumably argue, what makes a profit is not necessarily what people really need, and therefore the possibility exists that profit making may undermine the most basic conditions for economic reproduction, including the supply of food and clean water, sanitation, adequate shelter, schooling, health care, and the like. These conditions are undermined not because capitalists dislike investing in these things—they might love to invest in them, if they could—but rather because it is difficult to make a secure profit from doing so. The required investments may be very large and long term, tying up capital for many years, but either there is no possibility for profit or it is uncertain whether a sufficient profit can and will be made. If, for example, foreign investors invested in a country's essential infrastructure, a falling currency exchange rate some years later might wipe out the profits they could get. Therefore, such investments could occur only if foreign or local government authorities subsidized them, or if financial institutions could find sufficient financial insurance to protect the value of investment capital through terms that reduce financial risk to investors.
Reproduction of labor power
Reproduction can also refer to the worker's daily reproduction of his or her own labor power. This consists of the tasks of everyday existence—food preparation, laundry, and so forth—that maintain the worker and his or her ability to work. Since roughly the 16th century, much of this domestic labor has been made the responsibility of women, through various developments put in motion by powerful institutions in the transition period from feudalism to capitalism. Adding to the process of social degradation of women in that period was the devaluation of the reproduction of labor. As Silvia Federici notes, "In the new monetary regime, only production-for-market was defined as value-creating activity, whereas the reproduction of the worker began to be considered as valueless from an economic viewpoint and even ceased to be considered as work". Thus it is of particular interest in feminist economics. For example, it was reported in 1988 that the paid work done by both men and women outside the home in West Germany totalled 55,000 million hours a year, earning them a total of $335 billion; but housework done by women inside the home totalled 53,000 million hours a year, which earned them no salary at all.One of the principal inventors of modern national accounts, Simon Kuznets, did at one time suggest that the value of household labour should be estimated as a standard measure, even just for the sake of objectivity about the economy, but that argument was rejected. He stated:
Later, the economist Robert Eisner tried to estimate the value of "non-market outputs". His calculations suggested that in the United States, the value of unpaid household work declined from about 45% of conventional Gross National Product in 1945 to about 33% in 1981.