Part Three — The Reproduction and Circulation of the Total Social Capital Chapters 18–21. The two departments of social production, the reproduction schemas, and the conditions of simple and expanded reproduction.

This is the summit of Volume II and one of the most consequential passages Marx wrote. Having analysed the circuit and turnover of the individual capital, Part Three shifts to the total social capital — the sum of all individual capitals — and asks how the annual social product is reproduced, in both its value and its material form, so that production can begin again. The answer is the reproduction schema: society's total output is divided into two great departments, Department I producing means of production and Department II producing means of consumption, and reproduction is possible only if the products of each can find their needed buyers in the other. Chapter 18 defines the object; Chapter 19 clears the ground by settling accounts with the classical economists, above all Adam Smith's dogma that the whole product resolves into revenue; Chapter 20 builds the schema of simple reproduction and derives its fundamental condition, that Department I's variable capital plus surplus-value must equal Department II's constant capital; Chapter 21 extends the analysis to reproduction on an expanded scale, where accumulation requires that Department I's output exceed what simple replacement demands. The reproduction schemas are the charter's capture-target for this volume, and they are the direct ancestor of input–output analysis, of the crisis and realization debates from Luxemburg onward, and of the disproportionality theory of crisis. The brief lays out Marx's own construction and holds the interpretive debates in view without adjudicating them.

Marx defines the new object. The movement of the total social capital is nothing but the interlocking totality of the individual turnovers, but analysing it requires including what the study of the individual capital could set aside: the consumption of the whole society, both productive and individual.

But each individual capital forms only a fraction of the total social capital, a fraction that has acquired independence and been endowed with individual life, so to speak, just as each individual capitalist is no more than an element of the capitalist class. The movement of the social capital is made up of the totality of movements of these autonomous fractions, the turnovers of the individual capitals.

Marx, Capital II, page 426.

The decisive addition is that the total annual product must be traced not only in value but in its natural form: means of production must be replaced by means of production, means of consumption consumed and replaced. The question is no longer whether an individual capital returns enlarged, but whether the aggregate product contains, in the right proportions and the right physical shapes, everything needed to replace what was used up and to feed and employ the population — so that the same scale of production can resume. This is a question about the material composition of the product, not just its value, and it is what the schema is built to answer.

Before building his own account, Marx surveys the field. He credits Quesnay's Tableau économique as a work of genius — the first attempt to represent the annual reproduction of a whole nation's capital as a circuit of flows between classes — while noting the limits imposed by the Physiocrats' belief that only agriculture is productive. The bulk of the chapter is a sustained attack on Adam Smith's dogma, the error that blocked all subsequent analysis of reproduction: that the price of the entire annual product resolves without remainder into revenues — wages, profit, and rent.

Adam Smith's dogma that the price or 'exchangeable value' of every single commodity – and thus of all the commodities comprising the annual social product (he correctly assumes capitalist production everywhere) – is composed of, or 'resolves itself into', the three 'component parts' wages, profit and rent, can be reduced to the thesis that commodity value = v + s, i.e. is equal to the value of the variable capital advanced plus the surplus-value.

Marx, Capital II, page 438. The page anchor is to the discussion in Chapter 19; the wording is confirmed against the EPUB.

The dogma omits the constant capital c. If the whole product resolved into v + s (income), there would be nothing to replace the used-up means of production — and yet society must replace them or production halts. Smith could not say where the value that reconstitutes constant capital comes from, because his dogma had spent the entire product as revenue. This is precisely the gap the two-department schema fills: it shows how the constant capital of the whole society is reproduced in kind through the exchange between the departments, something a one-dimensional "adding-up" theory of value can never display.

Marx now builds the schema. The total social product is divided into two departments by the natural destination of the goods produced: Department I makes means of production, Department II makes means of consumption. He assumes a rate of surplus-value of 100 per cent and abstracts (provisionally) from the part of fixed capital not replaced within the year. The figures may be read in millions of any currency.

Simple reproduction means the whole surplus-value is consumed unproductively and production resumes on the same scale. For that to be possible, three great exchanges must balance. Within Department I, the 4,000c is means of production already in the right physical form to replace Department I's own used-up constant capital, so it can be exchanged internally. Within Department II, the 500v + 500s is means of consumption that Department II's own workers and capitalists consume directly. The pivot is the exchange between the departments: Department I's workers and capitalists (the 1,000v + 1,000s) need means of consumption, which only Department II produces; Department II needs means of production to replace its 2,000c, which only Department I produces. Reproduction is possible only if these two match.

In department I, the collective capitalist has already paid the workers £1,000 … for the v-component of the value of a product of department I … The workers use this £1,000 to purchase means of consumption of the same value from the capitalists in department II, and thereby transform half of department II's constant capital into money. The capitalists in department II, for their part, use this £1,000 to buy means of production to the value of 1,000 from the capitalists in department I; as a result of this, the variable capital value, = 1,000v, which existed as a part of department I's product in the natural form of means of production, is transformed back again into money.

Marx, Capital II, page 474. Ellipses drop the parenthetical noting the money-form notation and the identification of the product as means of production.

Tracing the surplus-value component the same way, the whole inter-departmental exchange resolves into the fundamental condition of simple reproduction: the sum of Department I's variable capital and surplus-value must equal Department II's constant capital.

If this equality holds, every element of the annual product finds its place: the means of production reproduce the constant capital of both departments, the means of consumption feed both departments' workers and capitalists, and production begins again at the same scale. If it fails — if the two sides do not match in value and in physical composition — reproduction is disrupted. Marx then reintroduces the money that mediates these exchanges (showing the capitalists themselves supply it, as Chapter 17 argued) and, in the chapter's difficult later sections, the replacement of fixed capital, where the fact that some capitalists are replacing worn-out machinery in a given year while others are only setting aside depreciation as a money hoard introduces a standing possibility of imbalance between the two flows. Even simple reproduction, Marx shows, is a knife-edge of proportions that nothing guarantees the market will hit.

Under accumulation, part of the surplus-value is not consumed but converted into additional constant and variable capital, so production must expand. Marx works from a starting schema in which the proportions differ from the simple-reproduction case, because expansion is only possible if Department I produces a surplus of means of production over what mere replacement requires.

The fundamental condition now shifts. In simple reproduction, Department I's variable capital plus surplus-value exactly equals Department II's constant capital. Under accumulation, it must exceed it, because Department I retains part of its own surplus product to enlarge its own constant capital, and must also furnish the additional means of production that Department II needs to expand.

It is self-evident that, on the assumption of accumulation, I(v+s) is greater than IIc, and not equal to it as in simple reproduction; since (1) department I incorporates a part of its surplus product into its own productive capital and transforms five sixths of this into constant capital, so that it cannot simultaneously exchange this five sixths for means of consumption II; and (2) department I has to supply the material for the constant capital needed for accumulation within department II out of its surplus product.

Marx, Capital II, page 589.

Marx then works the accumulation through several years, showing that if the two departments accumulate in the right proportions the schema expands smoothly, each year's enlarged output providing exactly the additional means of production and means of consumption the next year's expanded production requires. The demonstration is that expanded reproduction is possible — that capitalist accumulation need not break down for lack of a market, provided the proportions between the departments are maintained. But the proportions are exacting, and nothing in the anarchic decisions of individual capitals guarantees they will be met. Marx leaves the manuscript unfinished here, and it is precisely this gap — whether the required proportionality is a normal outcome, a happy accident, or a systematically violated condition — that Rosa Luxemburg, Bukharin, and the later disproportionality and underconsumption theorists fought over. The schema does not by itself decide the crisis question; it supplies the framework within which the crisis question can be posed with precision, which is why it stands as the analytical foundation for everything that follows in the Marxist theory of accumulation and reproduction.