The Theoretical System and Predictions of Karl Marx and Friedrich Engels:

A Compendium of Assumptions, Postulates and Predictions

By James M. Craven/Omahkohkiaaiipooyii

Presentation to the International Symposium on the Development and Innovation of Marxist Economics Center for Political Economy at Tsinghua University (CPET) and Editorial Department of Economic Research Journal at the Chinese Academy of Social Science (CASS) August 26-27, 2012

“If socialism doesn’t occupy the battlefront, capitalism surely will.”
Chairman Mao Zedong

“The Philosophers have only interpreted the world in various ways; the point, however, is to change it.” (Karl Marx 11th Thesis on Feuerbach and part of inscription on the grave of Karl Marx at High gate Cemetery in London)

“If the construction of the future and its completion for all time is not our task, all the more certain is what we must accomplish in the present; I mean, the ruthless criticism of everything that exists; the criticism being ruthless in the sense that it does not fear its own result and does not fear conflict with the powers-that-be.” (Karl Marx letter to Arnold Ruge 1843)

“Ce qu’il y a de certain c’est que moi, je ne suis pas Marxiste.’”
(Karl Marx- Letter to Bernstein, 1882.)


This paper, and presentation based upon it, explores the theoretical system of Marx and Engels as an integrated and largely coherent system of theory and praxis from which Marx made a compendium of definite and testable predictions about the logic, dynamics and trajectories of capitalism; it is important to be clear as to what Marx and Engels really wrote and argued. These predictions, one of the tests of theory and its application, are identified and sourced. Also presented in this paper and presentation are: a) some of the essential differences between Marxist versus Neoclassical or “mainstream” economics; b) some recurring and failed attempts to rescue Neoclassical economics from its own contradictions and failures in prediction and applications via policy; c) some suggestions on future approaches, modeling and projects in pedagogy and research in political economy based on Marxism and applied to the concrete conditions and realities of China. KEYWORDS: Marxist Economics, Neoclassical or Mainstream Economics, Compendium of Predictions, Pedagogy, Current Global Crises.

The Theoretical System and Predictions of Karl Marx and Friedrich Engels:

A Compendium of Assumptions, Postulates and Predictions

By James M. Craven/Omahkohkiaaiipooyii

Presentation to the International Symposium on the Development and Innovation of Marxist Economics Center for Political Economy at Tsinghua University (CPET) and Editorial Department of Economic Research Journal at the Chinese Academy of Social Science (CASS) August 26-27, 2012

“If socialism doesn’t occupy the battlefront, capitalism surely will.”
Chairman Mao Zedong

“The Philosophers have only interpreted the world in various ways; the point, however, is to change it.” (Karl Marx 11th Thesis on Feuerbach and part of inscription on the grave of Karl Marx at High gate Cemetery in London)

“If the construction of the future and its completion for all time is not our task, all the more certain is what we must accomplish in the present; I mean, the ruthless criticism of everything that exists; the criticism being ruthless in the sense that it does not fear its own result and does not fear conflict with the powers-that-be.” (Karl Marx letter to Arnold Ruge 1843)

“Ce qu’il y a de certain c’est que moi, je ne suis pas Marxiste.’”
(Karl Marx- Letter to Bernstein, 1882.)


The theories and predictions of Karl Marx and Friedrich Engels, constitute, although unfinished due to their deaths, a whole and remarkably internally coherent theoretical system. It is remarkable in its internal consistency and coherence in that only Volume One of Capital had been published and debated prior to Marx’s death in 1883. The theoretical system of Karl Marx and Friedrich Engels (for brevity only when I refer to Marx I mean also Engels in most cases), remains uncompleted to this day. This is the dynamic and self-challenging nature and mandate of all of real science, and Marxism itself, to challenge everything with facts. Marxism is also remarkable in that the core principles and “axioms” of Marxism were NOT developed a-priori, in abstract debate, parlor speculation or pure thought experiment, without any empirical support prior or inductive reasoning and support to the development of theory.

It stands in sharp contrast, epistemologically, and in terms of what science is supposed to be about, what science is supposed to do and how science is supposed to establish, support, apply and test its generalizations with a lot of Neoclassical and Mainstream Economics (MSE). Although there is more effort now among the adherents of ME in the areas of Behavioral Economics, Game Theory, Modeling and the like in attempting to provide empirical support for core axioms and assertions, most of their work appears to be cherry picking constructs and data to “prove” their core axioms that were developed and applied via what some call, such as Samir Amin have called forms of hypothetico Deductivism . They have been constructed and deductively , often through detached and imperial a-priori speculation as in Neoclassical and other forms of “Mainstream Economics and Political Economy” (MSEPE), rather through hard, real-world, praxis, observation and inductive reasoning and empirical support of generalizations that formed starting points for deductive the deductive side of overall reasoning.

The quote on Marx’s grave from his “Theses on Feuerbach” separates Marxism from “Mainstream Economics”, “Heterodox Economics” generic “Political Economy” and indeed “Marxian [academic] Economics”. “The Philosophers have only interpreted the world in various ways; the point, however is to change it” Workers of all Countries Unite.

Marxism says that theory and praxis are epistemologically and dialectically in unity, as praxis guides and tests theory. And Marxism does not teach the purpose of even developing theory at all, is, or can be, for tenure, an academic market niche or career promotions in academia; it is a guide and mandate to make real, effective and focused, theory to guide and test praxis in concrete struggles on concrete issues on behalf of certain social classes and not others. Marxism is not and can never be, “value free” in the sense of some kind of purported and ethereal “non-bias”. Marxism is not some tool box that is ready for use by the highest bidder. Marxism is reserved for the Working class and all oppressed and not developed or used in service of oppressors of the broad masses of the oppressed. That is why the second part of the inscription on his grave says “Workers of all Countries Unite”. Marxism also teaches not only to “seek truth from facts”, but that not all facts are equal; some are more salient and relevant to a given issue or phenomenon that others, some are context or stage-dependent and not universal.

Marxism says that there is no contradiction or paradox in class-bias on the one hand, and the objective and rigorous search for truth and liberation of the oppressed on the other. Marxism is not a utopian plan for the future; each social formation must find its own ways based on their own unique histories and conditions and survival imperatives. That is what Marx meant in his letter to Arnold Ruge that Marxists are not in the “prophecy” business; they are in the scientific forecasting and prediction (as one of the tests of theory along with application and internal coherence) business; and in the business of “ruthless criticism of everything that exists” as part of “interpreting” and “changing” the world. The criticisms must be being scientific, well developed, and constructive, to the point and in the spirit of constructive and not mean or vindictive or manipulative “criticism”, but aimed to make progress in the liberation of the oppressed. One cannot transform that which is not understood scientifically. The common metaphor in Marxism is that theory is to praxis as the compass is to the ship; the ship without a compass wanders with no direction; while the compass without a ship is sterile, untested and without real purpose on the water.

And finally, Marx was supposed to have meant several things when he said that “…je sais, je ne suis pas Marxiste”. Not only that individuals do not make history or the theory of it, it is the masses who make history, but also that Marxism itself will be and should be always open to challenge from facts, application and prediction, and even the “negation of the negation” (Marxism is an analysis of capitalism fundamentally not a utopian scheme of socialism). I suspect he also meant please do not associate me with some of those calling themselves Marxists and what they do and say in the name of Marxism because even then horrible crimes were being done in the name of Marxism.

Marxism is about the “Nature” and “Logic” of Capitalism; the ultimate yet transitory Capitalism; the real positives and negatives of capitalism at various stages of history. Marxism, unlike all other paradigms in ME (Mainstream Economics), deals with Location, “Space” and “Time” and “Process”, and not just “comparative Statics”; but also with “Place” (“Human-built Location and Space”), and context (history, politics and law, social stratification and culture, power, planetary to local, economics,) but also Geography in both Physical (Lithosphere, Hydrosphere, Atmosphere and Biosphere) and Human Geography. Marxism also deals with structures underneath the aggregates such as changing Structures of demand, supply, investment, employment, unemployment, saving, taxation,. income, wealth, etc. Often the structures underneath the aggregates are more critical than the pure aggregates themselves. And Marxism deals with the history and stages of a phenomenon and seeks to go below the surface to the essence and laws of motion of all phenomena across location, time, space, place and history.

Neoclassical and like-minded economists see capitalism in Newtonian terms: a) absolute undefined and constant “GIVEN” time and space; b) an ethereal pure economy detached from other dimensions of society; individual particles – owners, suppliers and demanders—driven by individual preferences, c) given resources, acting and interacting in various markets to produce successive punctuated static equilibriums, and potential general equilibriums; d) exogenous or external forces and shocks that trigger “endogenous” or internal morphostatic mechanisms restoring new equilibrium states; e) the axiomatic imposition of focus on equilibrium, where disequilibrium is the normal order of things under capitalism; f) derivative assumptions necessary for both mathematical formulations and cardinal-level predictions of static equilibrium states; g) supply and demand functions must assumed to be driven by separate and independent forces on the supply versus demand sides so that no co-determinacy between demand and supply (and thus no possible calculations of any discrete predictable equilibrium state) is possible; h) transportation, information and transactions cost are assumed as given or negligible; i) markets are assumed to be competitive with no friction of distance, asymmetrical information and power; j) no notion of power, market, asymmetrical or otherwise; k) no time-lags between when market forces shape price signals, transmit signals, receive and, interpret signals, make decisions and take actions and reactions, etc over time and space (all transactions instantaneous); l) no notion of historic-geographic, politico-legal, socio-cultural and global contexts that themselves are endogenously changed and interrelated, as well as being agents of “exogenous” forces and shocks between supply and demand; m) ultimate exogenous (independent) variables on the demand sides drive changes in supply and demand, that then cause shortages and surpluses in the short run, that rigger endogenous processes that lead to new equilibriums in linear and unidirectional chains of causality to final effects until the next exogenous variables shift. (See Appendix A); n) no money, debt or veil of money in transactions; o) no adaptive expectations;

Morphostatic (NC) versus Morphogenetic (Marxist) Views of Systems and System Dynamics

Source: Hazel Henderson Reprinted by permission under terms of Fair Use;

Methodology and Coherence in Marx and Engels’ Theoretical System and Predictions

The method of exposition of “Capital , of “Successive Approximations” is from the most abstract (and yet in dialectical terms the most concrete) “simple commodity” as a “cell form” or microcosm of the bourgeois mode of production as a whole. From the simple commodity, to “Capitalist Production (Vol. I); to, via removing simplifying assumptions, Capitalistic Circulation (Volume II); to Capitalistic Production as a Whole (Vol. III); deductively from the general and abstract to the specific and concrete (General to Specific). The expository structure is the opposite of the inductive structure of the specific processes of the research and construction of the work, that formed and supported the generalizations, principles, abstractions of the deductive side of the Marxist System of theory and praxis.

The core postulates and elements of Marxism form a system in the sense that:
a) the core general postulates, from which specific conclusions and hypotheses are deductively and derived (both Episteme and Techne bases and levels of knowledge involved that are asserted to be self-evident truths or “axiomatic”), are all mutually supporting and generally not contradictory;

b) The first-order or primary, second-order or secondary, and specific, predictions and conclusions of Marx, follow deductively and specifically (as tight logical derivatives ) from the core (or “primary”) and second-order (or “secondary”) and specific postulates of the theoretical system;

c) The primary and secondary predictions and conclusions are all interdependent, mutually supporting and not contradictory (with proper caveats about tendencies under assumed conditions rather than asserted iron laws and inexorable outcomes); d) The arrangements and publications of Volumes II, III and IV of Das Capital were made after Marx’s death and without his guidance and input except in the notes he left; these considerations must be noted as one of the limiting caveats in points a to c above.

To proceed to build upon the foundation and uncompleted system of Marxism, it is critical to have a firm understanding of what Marx and Engels actually wrote, actually argued, actually predicted and how and why these elements form an integrated system of theory and praxis from which to move forward.

The Teleological Imperatives and “Logic” of Capitalism embodied in Marxist Economics

The Core Imperatives “Logic” of Capitalism governing motion, crises, vicissitudes, trajectories and ultimate fate of capitalism

Marx and Engels’ Assumptions and Postulates (Value and Price)

1. The world of commodities is a world of exchange, and exchanges of commodities involve social relations between humans and only superficially (fetishized) relations between the commodities produced by those humans. (Capital, I. p. 83)

2. All commodities have two aspects or dimensions: use-value and exchange-value; use- values have no independent existence and serve only as ‘material depositories of exchange-value’ (Capital, I, p. 43) which, appears as a quantitative relationship between use-values of one sort exchanged for others of another sort (Capital, I p. 43) and is the essence of the commodity or the “fundamental law” of modern political economy (Contribution to Critique of Political Economy, CPE, p 62);

3. If a given commodity, say one-quarter of wheat can be exchanged for x blacking, y silk or z gold, etc, then wheat has not one but many exchange values and since x blacking, y silk and z gold are all exchangeable with one quarter of wheat, they must therefore logically, arithmetically and by definition be replaceable with each other or equal to each other (Capital, I. p. 43);

4. If one quarter of corn = x cwt of iron, then their equivalence means there must be something common to both of them such that they can be equated in some way. That “common substance” or “denominator” is that they are both products of labor. (Capital, I. p. 44);

5. All labor, no matter its nature, form or level—unskilled, semi-skilled or skilled—Involves, to varying degrees, the expenditure of human capabilities and energy—brain, nerves, muscles—(Capital, I. p. 82)

6. The exchange value of any commodity is but a material expression or manifestation of a specific form of social labor that produced it; and thus, by definition, and tautologically (Marx’s term), matter in a natural state has no exchange value since, or as, it has not been touched or altered by human labor (CPE, pp. 31-32)

7. Labor, embodied in all commodities, can be reduced to a common denominator of human labor in the abstract which can be measured in units of time, with value created only by socially necessary labor time (otherwise the more unproductive the labor the more value created) with varieties of labor (skilled, semi-skilled and unskilled) cardinally measurable in units of unskilled labor(skilled labor counts as compound unskilled labor) and which labor must satisfy some definite social want (Capital, I pp 45, 51-52, 54; CPE, p 25) The scales for conversion of various forms of skilled labor into compound unskilled labor are set by competition (Poverty of Philosophy, PP, p. 58);

8. When the amount of socially necessary abstract labor expended on a commodity changes, then also so does its absolute and relative exchange values (in relation to other commodities and in their exchange relations to it)change; thus exchange-value varies directly with the quantity, and inversely with the productiveness, of labor; and thus also, those factors affecting the productiveness of labor (efficiency of labor, state and effectiveness of use of technology, social organization of production) also affect value relations. (Capital, I, pp 46-47) These postulates, according to Marx, resolve Adam Smith’s water-diamond paradox if perceived utility is asserted as basis of value: water and air have high use value but low exchange value because of wide availability and thus no socially necessary labor time needed to extract and use them whereas the reverse is true for diamonds (low use value but high exchange value);

9. Purpose of all exchange is the realization of use-values (Capital, I, p. 117) The metamorphosis of the commodity is expressed in C—M—C1 where C and C1 represent different commodities with equal amounts of labor content. (Capital, I, p. 97) Producers produce use-values for others (nonuse-values for themselves) in order to accumulate the means (Money) to acquire via exchange, use-values for themselves. Production for exchange instead of for immediate consumption creates only potential use-values which may or may not be realized, but can only be realized, with the complete metamorphosis of the commodities (C—M or sale of one commodity by its producer; Capital, I, p. 119; and M—C1 purchase of another commodity that has use value for the producer of C; Capital, I. p. 123) Only transfer of commodity ownership is involved and no effect on exchange-value—all exchanges are of equivalents in labor content (Capital, I, p. 175);

10. The purpose of all sales is simply the monetization of exchange-value. The purpose of all purchases is the realization of use-value. In the process of circulation, each commodity maintains its exchange value while becoming a use-value;

11. Labor-power (capacity to work), not labor (the use of the capacity to work in production and distribution) is sold as a commodity. The “value” of labor-power, represented in the wage rate, is the amount of socially necessary labor it takes to produce the means of subsistence and for expanded reproduction of that labor-power on a consistent basis under given historically determined and varying (indifferent systems) conditions and levels of “civilization”. (Capital, I, pp. 174, 186, 189, 190);

12. Labor-power is unique as a commodity in that its use-value possesses the unique property of being a source of value and whose consumption (the consumption—use—of – labor-power is the embodiment and definition of “labor”) is the creator of value (Capital, I, p. 186); this uniqueness is understood only by the purchaser of labor-power the capitalist;

13. So far as the advance of capital (payment of wages) is concerned, labor-power counts as a value; in the processes of production, labor-power is turned into labor creating value beyond what was paid for the labor-power utilized to create it. (Capital, III, p. 41);

14. The purchase of labor-power is only for the purpose of utilizing the labor-power in production to control the laborers, their labor, and the products and value created by their labor (Capital, I, p. 206);

15. When the product of the labor-power re-enters the process of circulation, which it must for the whole purpose of paying for labor-power to create value in excess of it to be realized, the total metamorphosis of the commodity produced by labor can be symbolized in the ‘inverted form of exchange’: M—C—M’ where M = wages paid for labor-power, C = commodity created by labor-power (as inventory a form of capital or commodity capital) and M’ = the money equivalent of the exchange value of the product of labor power. (Capital, I, p. 186; Capital III, p. 402);

16. The extended process can be written combining the metamorphosis of the commodity that is the product of labor-power with the metamorphosis of the commodity labor- power: C—M—C’ + M—C—M’ = M—C…C’—M’ Where M = money advanced for labor-power, C = commodity labor-power, C’ = commodity produced by labor (utilized labor-power) and C…C’ = the process of production and C in the production process Marx calls “commodity capital” and M’ = money equivalent of the exchange value of the product of labor and finally M’ – M or delta M = Surplus value. (Gottheil p. 14);

17. “It is a commodity—capital, as distinguished from a simpler commodity, 1) because it is pregnant with surplus value, so that the realization of its value is simultaneously a realization of surplus value…2) It is a commodity-capital, because its function as a commodity is a process in its process of reproduction as capital (Capital, III, p. 402 cited in Gottheil p. 14);

18. Surplus-value is a product only of the process of production and not circulation. Surplus- value does not violate the so-called “Laws of Exchange” (of equivalents) and laborer not defrauded in sale of labor-power; Marx further postulates that: a) no relationship between sellers and buyers; b) seller is sole owner of capacity to labor (labor-power); c) the sale of labor-power is for a definite period of time; d) labor-power is considered by both parties as a commodity (Capital, I. p. 186);

19. The seller of labor-power, like the seller of any commodity, parts with its use-value in order to realize its exchange-value. One cannot be taken without the other. In the case of the use-value of labor-power, labor, belongs just as little to the seller as the use-vale of oil;

20. Labor-power belongs to the dealer who has sold it. The laborer receives the exchange-value equivalent of his or her means of subsistence, and the capitalist, after selling the product of labor C’—M’, realizes the exchange-value of a use-value that included both paid and unpaid labor time. (Capital, I, p. 216);

21. Commodity exchange-value, as a first or primary approximation and division of exchange-value, may be divided into paid and unpaid labor, labor and surplus labor, value and surplus-value. But, this is only a first approximation, Since a commodity is created via the application and utilization of labor-power (labor) being coupled with productive contexts and “means of production” (Capital, I p. 201), thus exchange-value involves living labor-power or variable capital (v) as well as past or dead labor embodied in the means of production or constant capital (c) (Capital, I, p. 232);

22. The only form of labor capable of creating value is from living labor power (v) being utilized (labor). The conversion of the means of production into the commodity transfers its own exchange value and no more and thus is called constant capital; the exchange value of the means of production is not determined by the process into which it enters but rather by the process out of which it came as a commodity itself and its exchange-value is only realized, like all commodities, and a means of production has use only, when it is employed in the production process as a use-value in conjunction with living labor (Capital, I, pp. 203-4, 229);

23. C = c + v + s where: C = composition of value; c = constant capital used up; v = labor-power costs; s = absolute quantity of surplus-value or value created by utilized labor-power or labor; this represents not only the value structure of a commodity, but also structures of processes of production on macro and micro scales; while the value of a commodity may remain constant, the ratios of c : v : s may well change. These changing ratios may be very revealing about the nature and dynamics of the economy but are hidden in the general value C or exchange value of the commodity or when labor is generally measured without regard to form (living v non-living, paid and unpaid, etc)

24. s= f (v); value produced = v + s; s/v = rate of surplus-value (Capital, I, p 239);

25. Necessary labor or necessary labor time = portion of a whole working day spent producing value to cover wages or costs of labor-power or costs of subsistence of the laborer; surplus labor or surplus labor time = rest of the working day spent producing value above wages or producing surplus-value. (Capital, I, p. 256);

26. s/v = surplus labor/necessary labor = rate (degree) of exploitation of labor (Capital, I, p. 241)

27. The division of the working day between necessary or paid and surplus or unpaid labor is depends significantly upon labor productivity, and is manifested in the organic composition of capital ( c /c + v ) measuring the relationship between value of capital and that of total capital outlay. The productiveness of labor varies directly with the organic composition of capital and inversely to the value of the commodity. (Capital, III, p. 248.) “The degree of the productivity of labor, in a given society, is expressed in the relative extent of the means of production that one laborer, during a given time, with the same tension of labor-power, turns into products.” (Capital, I, pp 681-82; quoted in Gottheil p 17);

28. Comparing prices of labor-intensive (handicrafts) versus capital-intensive products, Marx found empirically that the more the capital-intensive the production, the share represented by c or instruments of production, increases relatively but declines absolutely (Capital, I, p. 426);

29. Relation between surplus and total capital outlay is the rate of profit (s/c + v) (Capital, III, p. 55) note rate of profit is calculated on advance of capital not expenditure in production only when turnover rate is unitary do expenditures = advances;

30. In producing commodity C1 with a capital structure of 80c + 20v and a rate of surplus- value of 100%, then the exchange-value (if price = value) would be: 80c + 20v + 20s = 120. And the organic composition of capital would be c/ c + v or 80/80 + 20 = 80% and the rate of profit would be s/c + v or 20/80 + 20 = 20%;

31. Marx’s Simple Commodity Exchange Model: (C—M—C1 ) a) exchange of commodities with equal amounts of labor; b) commodity prices = exchange-values therefore relative prices = relative exchange-values = relative amounts of labor time in commodities; c) equal rates of surplus-value in all industries—s1/v1 = s2/v2 = s3/v3…sn/vn; ; d) and equal rates of profit due to competition: s1/c1 + v1 = s2/c2 + v2 +… sn/cn + vn; d) These assumptions of equal s/v and s/c + v in all industries also imply equal organic compositions of capital or equal c/ c + v. This is as a matter of internal consistency of the Marxist theory of price (that purports to relate commodity prices to their labor contents and if equal rates of surplus value and profit are assumed) and not empirical fact as Marx concedes different organic compositions of capital in different industries;

32. The identity between price and value in Marx’s simple commodity exchange model (via supposed or assumed competition-driven equalizations of rates of surplus-value (he was fully aware of different rates of surplus-value and the reasons for them in the real world), rates of profit, coupled with assumed equalizations of organic compositions of capital for internal consistency of the theory, is suspended as only an “approximation” in Marx’s more developed theory of price determination (Gottheil, p. 18);

33. Marx’s theory of price, as with his other theories, was presented in Capital via a series of “successive approximations”. Starting at the most abstract, first approximation level, under conditions of simplifying assumptions, and then, by progressively removing simplifying assumptions, getting closer to the reality being modeled; examining if this model had to be thus modified with the “noise” and “friction” of the real world. This classical method of successive approximations in his presentation, and that of Engels who edited the second and third volumes, was exactly the opposite of how he actually developed his theories via very serious research on totalities, not simply a-priori speculation, and then, via progressive adduction or induction, he was lead to and developed the abstractions, generalizations, principles, assumptions and postulates employed in his models and deductive reasoning;

34. Marx’s more developed theory of price determination is based upon: 1) his notions of ‘the scientific laws of value creation’; 2) how value and surplus-value creation appears to the typical capitalist. Where Marx saw commodity value as C = c + (v + s) with only v creating s, the capitalist sees C = (c + v) + s with surplus value a function of both c and s; (c + v) represents “total capital outlay” necessary to realize surplus-value to the capitalist and Marx calls profit that surplus-value resulting from total capital outlay (Capital, III, p. 49) which he does not distinguish between v and c (Capital, III, p. 47-48) and the capital advanced to produce that profit cost-price (k) (Capital, III, p. 39);

35. Thus for the capitalist, the value of the commodity is made up of the sum of cost-price (k) plus profit (p) and the relation between cost-price and profit (p/k) Marx calls the rate of profit (s/c + v) and thus s/ c + v = p/k;

36. Marx is fully aware of differing organic compositions of capital in different industries (what Marx calls “spheres of production”) and not only concedes them in reality, but differing organic compositions of capital are said to be the primary basis for deviations of prices from values (labor contents) or fundamental exchange values which act as centers of gravity around which deviations occur;

37. Marx assumes that under given conditions, the compositions of v and c in total capital are functions of technical and value considerations. Technical refers to a supposed requirement that: “a given quantity of labor-power, represented by a definite number of laborers, is required for the purpose of producing a definite quantity of products, for instance in one day, and thereby to consume productively, by setting in motion, a definite quantity of the means of production, machinery, raw materials, etc. A definite number of laborers corresponds to a definite quantity of means of production, so that a definite quantity of living labor corresponds to a definite quantity of materialized labor in means of production.” (Capital, III, p 181);

38. In development of price theory from first to second approximations, Marx assumed that in all spheres of production: equal rates of surplus-value; constant and equal working days; equality of wages; perfect mobility in all product and factor markets; competitive markets; unitary rates of capital turnover (Capital III, p. 181);

39. On the basis of the assumptions of point 37, rates of profit resulting from equal investments of capital in spheres of production A and B depend upon their respective organic compositions. If say in sphere A the rate of surplus value is 100%, C = 90c + 10v + 10s = 110; but if in sphere B the organic composition is C = 10c + 90v + 90s = 190, then the rate of profit in one case would be 10% and in another case 90%. Marx rejects that such sustained deviations from an average rate of profit could be sustained under capitalism as capitalists are only concerned with ROIs and not organic compositions as the cost-price makes no distinctions between c and v and thus competition will drive any deviations around and towards equalization and/or a long-run average rate of profit (Capital, III, p. 182-86);

40. The contradiction between equalization of rates of profit on the one hand, and differing organic compositions of capital on the other hand, is resolved via transforming actual rate of profit to average (or general) rate of profit (Capital, I. p. 671 and III, p. 185) and value to price of production and assumption of an average of varying organic compositions of capital. Total capital outlay only equals cost-price if total constant capital were completely used up in production and, if not, then the resulting cost-price (k) would be less than the capital advanced (this has no bearing according to Marx on determination of the general rate of profit);

41. Prices or (P) “arise by drawing the average of the various rates of profit in the various spheres of production and adding this average to the cost-prices of the different spheres of production.” (Capital III, p. 185);

42. Now Marx distinguishes between s/c + v or a special rate of profit in a given sphere versus a general or average rate of profit that is a sort of center of gravity for equalization of various specific rates of profit;

43. While capitalists recover their total capital outlays in sales of their commodities: “they do not secure the surplus-value and consequently the profit created in their own sphere by the production of these commodities, but only as much surplus-value and profit as falls to the share of every aliquot part of the total social capital out of the total surplus value, or social profit produced by the total capital of society in all the spheres of production.” (Capital, III, p. 186-87);

44. The value-price transformation at second approximation: Commodity Value C = c+ v + s = (c + v) + s and: Prices of production = k + p = k + p’k When the specific organic composition of capital = the social composition of capital then: s= p; p’ =
s/ c + v; C = P

45. Note on transformation problem. Marx’s value to price conversions affects later development of capital reproduction. The simple reproduction equilibrium scheme in Volume II of Capital, deals with intra-class exchanges on the basis of values and not prices. In this context, had values been converted to prices, then the simple reproduction equilibrium solutions could not have been achieved. Attempts to reconcile the value-price transformation within the simple-reproduction model are referred to as the “Transformation Problem”;

46. When the specific > social composition of capital then: s

s/c+ v; C < P (2nd approx) and vice-versa when specific composition market value and surplus or > average profits create new entries; and when weak demand, market price < market value, actual Cs, and thus the capitalist’s profit would be less than normal or S = Cs – (ci + vi) (Capital, III, p. 210) ;

34. Stability of market exchange-value = f (Market Supply and Demand conditions and movements.) If Demand falls then the effect is the same on surplus value as if the individual capitalist had expended more labor time than socially necessary. (Capital, I, p. 120); Where capitalists produce under favorable conditions and/or if demand increases, then profit produced would be greater than normal which Marx calls extra surplus-vale or extra-profit or Se and thus since Cs > Ci, then Se = Cs – Ci and total profit or surplus value under such favorable conditions would be S = Sn + Se;

35. Innovations (Marx uses the terms ‘change in technique’, ‘new method’, invention’ and technological applications of science’ interchangeably are of three forms: 1) labor-saving with increasing organic compositions of capital; 2) capital-saving with decreasing organic compositions of capital; 3) neutral with no effects on organic compositions of capital; The labor-saving and thus displacing innovations are central in the Marxist dynamic model and all have the result of reducing the labor-time required to produce a given volume of commodities (Capital, III, p. 751-52);

36. In Capital III, p. 752, Marx assumes that commodity exchange value is equal to the price of
production (c1 = p1) and that all innovations, whether labor or capital-saving or neutral, reduce the labor-time necessary to produce commodities or Cs > Ci ;

37. Assuming: S = Sn + Se; C1 = P1; P1 = k1 + p’k; k1 = 100 and p’ = 15% thus P1 = 115; Assuming conditions more favorable than normal k2 = 90 and therefore: P2 = k2 + p’k2 or 103 1/2 = 90 + 15% (90) since S = Sn + Se, therefore S = 15%(90) + (115 – 103 1/2) = 13.5 + 11.5 = 25 and thus: Se = Cs – Ci (but only under conditions of less than perfect competition; in cases of perfect completion, the real or social commodity value (Cs) is lowered to the individual commodity value (Ci) thus eliminating any extra surplus-value;

38. Exceptional profits or surplus-value occur when machinery is first introduced and a ‘sort of monopoly’ sets up a form of “innovating profit” which depends upon the initial advantages of the monopoly-type market structures (Capital I, p. 444); Market- price movements from Cs to Ci depend upon: 1) effects of innovator’s increased supply on existing market supply and demand conditions; 2) how rapidly the innovation may be imitated by competitors (Wage-labor and Capital, pp. 44-45 and Capital, III, p. 755) who are compelled to match and introduce the innovations that reduce the ratios of variable to constant capital (Capital, III, p. 311);

39. Innovators are not only capitalists; in fact the most significant innovators come from the best minds drafted out of the ranks of the ruled classes into service of the ruling classes and the more the ruling class is able to draft and utilize the best and brightest minds of the ruled classes, the more dangerous its rule (Capital, III, pp. 705-06);

40. Effects of innovations are cumulative to the internal and external conditions of an industry as well as on the quality of internal parts and overall integration of those parts to form the overall quality of the overall machines invented and innovated (Capital, I, p. 442); Marx implies the distinction between invention (first prototypes) and innovation (improved, refined, and applied from prototypes into actual operational uses) notes that costs of machinery fall steadily from first innovations and that the most ruthless and useless capitalists use and benefit from the real innovators and inventors and “universal labor” of the human mind (Capital, III, p. 124);

Marx and Engels’ Assumptions and Postulates (Interest and Rent)

1. Interest is that portion of ‘profit’ or surplus value paid by industrial capitalist to money capitalist for use of money in the productive process (Capital, III, p. 398);

2. Interest arises from the separation of ownership of the means of production from ownership of the loanable funds required for financing the development of those means of production and if no such separation existed, forming distinctions and strata between industrial and money capital, no interest or rate of interest would exist (Capital, III, pp. 412, 443);

3. Only money capital has the unique property of possessing dual use-values: universal equivalence in commodity exchange and serviceability in the production process (Capital, III, p. 399) and thus when capitalist advance funds, they do not advance money per se but capital (Capital, III, p. 410);

4. Interest is NOT the price of money capital (an irrational expression, Capital, III, p. 417); Money capital is essentially a sum of money (distinguished by its ultimate use not as a means of exchange and measure of price and value) so any value of money capital is, by definition its own price. (Capital, III, p. 413);

5. Interest payments do express the self-expansion of money capital and thus appear as a price received by the lender (Capital, III, p 413); there is no implication of any productiveness of money capital but simply the outcome of a legal agreement between buyer and seller (Capital, p. 410); The money capitalist could not exist without the industrial capitalist and the money capitalist is impelled by the imperatives of competition and accumulation, and opportunity costs, to lend either to interest-bearing property or in industrial capital; (Capital, III, p. 443); The person with money capital either invests directly and becomes an industrial capitalist and earns profit as his return, or, finds industrial capitalists willing to borrow and then commands interest, and remains a money capitalist but in either case, interest comes only from surplus-value which originates in production. (Capital, III, p. 443-44);

6. Ma – Mb — C ….. C — M’b — M’a Where: M’a – Ma = Property of the money capitalist and magnitude of interest; M’b—Mb = Property of the industrial capitalist; The contract between borrower and lender is represented by Ma—Mb and M’b—M’a; while industrial profit or net return to the industrial capitalist is reduced by that value of (M’—Mb) to [ ( M’b—M’a )—Mb ] Here, according to Gottheil (p. 49), Marx quotes from The Economist that ‘The relation between the amount paid for the use of capital to this capital itself expresses the rate of interest, measured in money’ (Capital, III, p. 421) so the rate of interest I’ can be expressed as: i’ = M’a – Ma/ Ma;

7. Magnitudes of interest depend upon: prevailing rate of profit in the economy and supply and demand conditions for loanable funds (Capital, III, p. 419); The maximum limit on interest would be the total surplus value produced from the use of the money capital in which case interest would coincide with surplus value or profit (Capital, III, p. 437) and the minimum limit is indeterminable in the abstract and may be zero. S greater or equal to I greater or equal to 0;

8. Relationships between industrial and financial capitalists are antagonistic as more interest means less net profit and vice versa; where surplus-vale determined by general laws in the production process, interest determined by bargaining powers and supply-demand market conditions of the lenders and borrowers and similar to determination of commodity prices around exchange values; Supply of loanable funds = f (size of money capitalist class, level of development of credit and banking systems, community savings, international flow of precious metals, traditions and customs—institutions and risk) (Capital, III, pp. 425, 511, 573, 674-75, 707-09, 733, ); heavy focus by Marx on supply sides of loanable funds and commodities in determining actual interest rates and prices; liquidity of bills of exchange also influence interest rates;

9. Creation versus conversion of capital funds from one form to another; discounting of bills of exchange only conversions of forms of capital (Capital III, p 503); Creation occurs through the discounting process when the banking system extends credit on the basis of non-existent commodity capital or fraudulent bills of exchange called “fictitious capital” (Capital, III, pp. 481-88)and “capitalizing” (Capital, III, p. 548); Certificates of indebtedness, Government debt, which command an annual fixed income for indefinite periods of time, have market values which are determined by the market rate of interest and the fixed income per period. And thus: CV = y/I’ where CV = capitalized value and I’ = interest rate and y = fixed income per period of time;

10. Interest-bearing certificates (government securities, bonds, treasury notes etc) compose an element of banking capital; (Capital, III, pp. 489, 545);

11. To a large extent, government securities and the national debt they finance compose a large element of this “fictitious capital” (Capital, III, p. 546);

12. Landed property based on monopolization of use of land in limited supply (Capital, III, p. 722) and capitalist production in agriculture like that in industry and based on separation of original owners of means of production from their ownership, control and use of property originally theirs (Capital, III, p. 721);

13. Agricultural production based on three classes: 1) tillers of the soil or wage-earning workers; 2) capitalist-farmers; and 3) landowners of soil worked by tillers and exploited by capitalist farmers;

14. Ground rent is return to landowner for use of property no matter for agriculture, mining, fishing grounds, forests, building lots etc. (Capital, II, p. 725); there are three forms of ground rent: 1) Differential Rent I (from extensive land cultivation); 2) Differential Rent II (from intensive land cultivation); 3) Absolute Rent (from monopoly of land);

15. What appear to be qualitative gradations in soils (land material) may well be merely manifestations of qualitative differences of fixed capital (land capital) applied to the land by the capitalist farmer or land owner due to: 1) transient such as chemical applications of fertilizer; 2) permanent, such as drainage canals, irrigation works, leveling and farming buildings; these returns on these types of investments “appear” as rent and landlords claim returns from these investments due to land tenure and contracts with capitalist farmers;

16. Marx notes that during the time periods of the contracts between landlords and capitalist farmers, the returns from enhanced soil due to transient and permanent investments by the farmers belong to them but when the contracts expire, the returns from soil improvements that have become embodied in the soils, now belong to the landlords as returns from improvements that have become inseparable parts of the land (Capital, III, p. 726); in subsequent contracts, with the same or new capitalist farmers, the landowner leases improved soil (material soil plus land capital) which commands a higher ground rent (former ground rent plus interest on the land capital incorporated in the soil with the absorption of interest on the land capital by the landlord most obvious in the case of permanent types of investments in buildings to be leased to capitalist farmers and these differences explain the desire for landowners for short-term leases and for capitalist farmers for long-term leases Capital, III, pp. 728, 789); Marx calls these types of additions to ground rent “foreign ingredients” in ground rent (Capital, III, p. 732);

17. Aside from the return on land capital, deductions from the capitalist-farmer’s profit and the tiller’s wages constitute additional forms of foreign ingredients;

18. Marx shows the strong parallels between manufacturing-capitalists and farmer- capitalists but they also differ in levels of risk and social position with the lower returns on investment of the capitalist farmer compensated for with lower risk and higher social standing as part of the landed classes; Small capitalists earn less than average profit due to tradition, education, training and competition (Capital, III, p. 734);

19. “The determination of ground rent, like the determination of innovating profits, depends upon the difference between social and individual value (or price) in a particular sphere of production. This difference we have seen, depends upon the introduction of a new technique into a production process which reduces the cost of production below that considered socially necessary.”

20. In the formation of ground rent the “technique” is explicitly defined as the “natural force” or a ‘natural power’ (like water with no cost or exchange value and thus no need to be paid an equivalent) to be used with a labor-consuming factor of production, resulting in the individual cost of a commodity falling below its socially necessary labor time cost (Capital, III, p. 753); Marx uses example of water wheel (no constant capital required for construction or variable capital to attend it), versus a steam power that does require c and v ) in producing water power: Since the commodity produced by water wheel with no c and v sells at the market price (social value) it realizes extra surplus value Se = Cs – Ci and the stability of such extra surplus-value depends upon the extent to which production techniques using natural cost-free power become incorporated widespread to all producers and if so, then extra surplus-value disappears rapidly as social values of commodities fall rapidly to individual values of commodities; (Capital, III, p. 755); in this case the increased productiveness of labor is due to monopolized natural power and not to v or c and extra surplus value only exists when the natural power cannot be imitated and when its source is monopolized (Capital, III, pp. 755-57);

21. If all capitals had access to the sources of natural power and were able to effectively use them, then Cs and Ci values would fall along with any extra surplus-value (Capital, III, p 754); Private ownership of land holding this natural power does not create that portion of value that has been transformed into surplus-profit but merely enables the landowner to coax surplus-profit away from industrial capital;

22. Thus: Se = GR (Ground Rent) = Differential Rent (a differential between market price and individual cost in production) or GR = p1 – p2 or GR = f (p1 – p2) where p1 and p2 are prices fixed by technical factors. THUS GR IS NOT PART OF THE PRICE BUT DETERMINED BY IT (Capital, III, p. 757);

23. Differential Rent Type I: With equal quantities of land cultivated and land capital employed, occurs as a function of production inequalities that themselves are functions of 1) natural soil fertility (a function of climatic conditions, chemical composition of top soil, and transient and permanent land-capital improvements in soils Capital, III, p763) and 2) soil location (a function of state of development of the economy’s communication and transportation systems; Capital, III, p 762)

24. Where lands are equal distances from market, most fertile lands bought and used first but where unequal distances of lands from market then less fertile lands will be bought and used first if lower transport costs offset cost differentials as a function of fertility differentials (least total cost solutions);

25. In contrast to West, Malthus and Ricardo, who saw differential rents occurring as lands were developed and utilized in descending order of fertility (from best to worst with ever decreasing productivity in agriculture) Marx assumed that the succession of land cultivation that gives rise to Differential Rent I may descend from most to least fertile lands or ascend from least to most fertile lands (Capital, III, p 772); And, assuming that demand for agricultural commodities steadily increases as more areas brought into cultivation, commodity prices remain constant with inferior lands and increase with superior lands as demand increases for commodities;

26. Magnitude of Differential Rent I = f (production and demand functions in the economy: number of soils under cultivation, productivity differentials between soils, general demand conditions) and GR = f (productivity differentials) (Capital, III, p. 768) assuming market prices constant;

27. Improvements in total and individual soils impact on GRs = f (distributions of improvements—differentials—among the soils): a) with proportional increases in productivities of/among soils total and individual GRs will increase; b) greater increases in productivities of more fertile soils then differential rents particularly on the superior soils would increase; c) greater productive increases on less fertile soils then GRs on superior soils would fall as differentials as between fertility levels among soils fell (Capital, III, p. 769);

28. This also applies to the extension of lands under cultivation where the effect of expansion depends upon the role played by each particular soil type in the expansion scheme: a) proportional expansion of all soils then differential rents increase in same ratio as lands cultivated increase (doubling of lands cultivated doubles differential rents); b) where expansion of cultivated lands is concentrated on the less fertile soils, differential rents per acre decline; c) where expansion of cultivated lands is concentrated on more fertile soils, differential rents per acre increase (see tables in Capital, III, p. 775);

29. Differential Rent II (intensive) occurs not only as a function of land-capital investments on lands with unequally productive soils, but with investments in land-capital concentrated (intensive) on one specific soil type or level of fertility (Capital, III, p. 790); “…It is evident…that differential rent No. II is but a different expression of differential rent I, but that it coincides with it in substance” ( Capital, III, p. 792 quoted in Gottheil, op cit. p. 65); Marx assumes also price flexibility up and down;

30. Money Rent (MR) = GR x P (price of grain) As land-capital investment increases, overall labor productivity increases putting downward pressure on market prices which impact upon MRs depending if increases in agricultural demand keep pace with increases in supply: Assume investment in a specific area without affecting magnitudes of MRs then: MR1 = GR1 x P1 = MR2 = GR2 x P2 or P1/P2 = GR2/GR1; but if P1/P2 > GR2/GR1 then MR declines and if P1/P2

31. Variants on the discussion on differential rents include fluctuating prices (falling, constant and rising) and productivities (falling, constant and rising per “capital investment” on cultivated areas with varying soil fertilities); e.g. Variant II (falling prices and falling productivity of the additional investment of capital) became the rule for Europe that led to the ruin of landlords (Capital, III, p. 842);

32. Distinctions between DR I and II are purely analytical as they both result from differentials in prices and productivities of areas under cultivation and the least fertile land-capital investment, however, where intensive cultivation occurs, GR per acre is higher than in the extensive case; Marx illustrates with how the capital investment took place (successive outlays on a limited area (intensive) commands higher rent per acre and land price than if more coordinated outlays upon a wider area (extensive) of land Capital, III, p 809);

33. While differential rent (DR) is determined by price and not a determinant of it, Absolute Rent (AR) is the reverse: it is a determinant of price and not a derivative of it;

34. Pb –Pa = d; Where: Pb = Price of commodity produced on least productive soil; Pa = cost of production of commodity produced on more productive soil and d = resulting differential rent; The modification of the agricultural price determination to include a constant or absolute rent r does not affect the magnitude of differential rent d (Capital, III, p. 868); (Pb + r) – ( Pa + r) = d
and thus the emergence and imposition of absolute rent is dependent upon the institution of private property (Capital, III, p. 871); and r is passed on to consumer in higher market prices; P + r;

35. The determination of r depends upon: a) lower-than-social organic composition of capital; b) cultivated lands held in hands of landlords; c) market rigidities;

36. Commodity prices versus values were result of difference between individual surplus-value and average profit where commodities sold at market prices—cost plus average profit—because of assumed competitive product and factor market structures; Absolute rent emerges with the absence of a competitive factor market structure and the private ownership of land; Inter-sphere competition between capitals is limited and migrations of capital into agriculture (where surplus value is greater than average throughout the whole economy) is limited by private ownership of land (Capital, III, pp. 882-888); landlord and the private ownership of land that supports him is like a “foreign power” to the capitalist (Capital, III, pp. 884-85);

37. The maximum limit to r = difference between surplus-value received by investment in the agricultural sphere versus average surplus-value received by an equal investment in the nonagricultural sphere: r = s – P (Capital, III, p. 888);

38. Marx defines price of agricultural products as a monopoly price (Capital, III, pp 885, 887), the maximum limit of r as surplus-value (agriculture) vs. average surplus value “profit” (non-agriculture) with the prevailing r conditioned by: a) the quantity of additional land-capital investment on OLD lands which will increase differential rent at the expense of r and b) extent of competition between landlords (Capital, III, pp. 789-90) and c) the wants and effective demand of consumers (Capital, III, pp 80-87);

39. Because the value of a commodity depends upon its socially-necessary labor content, the value or price of land is theoretically zero (Gottheil, p. 69); While the notion of the “price of land” is irrational in Marxist terms, it nevertheless represents a real economic relation (Capital, III, p 720); Like interest on capital bonds, ground rent can be capitalized and the capitalized value of such rent gives the appearance of being the “price of land”: CV = y/I’ where CV = computed value of land, i’ = interest rate and y = GR or fixed annual return; so if a capitalist buys land yielding rent of 200 pounds on 4,000 pounds paid for the land, then he draws an average interest of 5% on capital as if he had invested in interest-bearing papers or loaned it out at 5%. Thus the “price of land” appears to rise and fall inversely with the rise and fall of the interest rate if we assume GR as a constant magnitude; If the ordinary rate of interest should fall from 5% to 4%, then the annual ground rent of 200 pounds would represent the self-expansion of a capital of 5,000 pounds instead of 4,000 pounds (Capital, III, p. 730-31);

40. Rents in the Marxian system are both price-determined and price-determining; Differential rents result from inequalities in land fertilities and distances to market while absolute rent is derived from differences in social composition of capital and capital compositions in agriculture; in both cases the rents are the property of the landowner; Cost of production on the least fertile soil determines market price which may appear as an inconsistency with labor theory of value until it is resolved with the notion of land monopoly which allows any surplus earned over average profit in the non-agricultural spheres to be taken by the landowners and not the capitalists and thus the averaging-out of total agricultural surplus among capitalists is effectively eliminated;

41. Marx’s analysis of absolute rent also requires an additional assumption that all uncultivated lands cannot yield a surplus as large as average profit as it would pay the landowner to lease the land as rent would be greater than zero. This assumption is implied in the assumption that the least fertile soil determines price, assumption employed in the analysis of differential rent. In Marx’s treatment of differential rent and showing its origin even if moving from least fertile to most fertile soils (A to B to C to D) if demand for agricultural commodities continues but Marx did not explain why the least fertile soil would be used when more fertile soils were available.

Marx and Engels’ Assumptions & Postulates (Circulation/Accumulation of Capital)

1. Theory of capital circulation forms an essential part of Marx’s general theory of commodity valuation, determination of aggregate surplus-value and theory of economic dynamics; time variable introduced to distinguish capital advanced for production versus capital actually employed;

2. M—C….C’—M’ and: Ma—Mb—C….C’—M’b—M’a;

3. Capital circulation refers to repeated movements of capital through the spheres of production and circulation (also used by Marx interchangeably are the terms capital rotation, movement and flow); Four forms of capital in circulation are: a) Money Capital (M and M + m) Capital in possession of the industrial capitalist before and after actual production; b) Commodity Capital (Clpm and C + c) productive factors and finished products; c) Productive Capital (P) or Capital in process of transformation from factor to product form; d) Industrial Capital: the generalized form of money capital, productive capital and commodity capital as distinct from money capital in the hands of the money capitalists

4. M—Clpm……………P……………. (C + c) + (M + m) Where: a) P = Productive Capital; b) Clpm……. (C + c) = Commodity capital; c) M………. (M + m) = Money Capital; d) Whole exchange chain M……m = industrial capital;

5. Exchange structure divided into two processes: a) period of production covering production processes P; and b) periods of circulation, [ M—Clpm] and [(C + c)—(M + m) ] which compose four distinct markets: 1. M—Cl the labor-power market; 2. M—Cpm the capital-goods market; 3. C—M the commodity market for the original commodity value; 4. c—m the commodity market for surplus production; Only in the periods of circulation is the relationship between industrial and merchant capital expressed; production on a large scale is for other industrial and merchant capital;

6. Continuous production depends upon continuous scale; Capital rotation depends upon coincidences of market capacities and productive capacities. When factor shortages arise in the M—Cpm markets, money capital stays idle (a “hoard” Capital, II, p. 60); Where the consumption capacity of the market cannot absorb total amount of commodities produced, commodity capital (inventories) accumulates producing a “glut” (Capital, II, p. 60) either hoards or gluts obstruct the normal rotation of capital;

7. Simple rotation or reproduction occurs when surplus money capital m is removed from the industrial sphere as money spent by capitalist for consumption and in simple reproduction, the magnitude of industrial capital in circulation remains constant (Capital, II, p. 76);

8. Accumulation of progressive reproduction or expanded reproduction occurs when a portion of the surplus, m, is turned into more industrial capital regulated by a minimum capital requirement for production which is determined by the existing state of technology (Capital, II, p. 89);

9. Marxian system assumes discontinuous production functions which form the basis of “latent capital” with its magnitude determined by the difference between surplus accumulated and minimum requirements for its incorporation into production (Capital, II, p. 89);

10. Commodity value depends upon embodied labor time or what Marx calls “time of production” (t) which includes not only time of production (tp) but also time of circulation (tc); Thus t = tp + tc (Capital, II, p. 147);

11. Industrial capital during the phase of circulation results in no surplus-value but as circulation is time-consuming, the surplus value that industrial capital can cause to be produced depends upon the allocation of t between tp and tc or, s = f ( tp/tc) (Capital, II, p. 142)

12. Kc = costs of circulation which, although part of the total costs of creating surplus-value do not create value or add to surplus-value: “any more than the work done in a civil process increases the value of the object of contention.” (Capital, II, p. 142 cited in Gottheil, op. cit, p. 74); Cost-price includes both production and circulation costs: k = kp + kc and P = p’(kp + kc);

13. Not all of circulation costs can be added to price: out of costs such as a) ‘genuine’ costs of buying, selling and bookkeeping, b) storage and inventory, and c) and transportation to market, only storage and transportation are added to price (Capital, II, pp 147-51); Costs of a) assumed as fixed;

14. Both marketing and bookkeeping costs assumed relatively fixed and vary as a percentage of total costs inversely with the organic composition of capital; to provide for continuous commodity production, storage and inventory costs (using both c and v) of factors of production and some finished goods (commodity capital greater than average sale or demand for normal rotation of industrial capital; Capital, II, p. 168) are necessary (inventory stock, buildings, warehouses, protection against perishability (Capital, II, p. 157); costs of storage of factors of production and commodity inventory vary directly with the development of capitalist production and inversely to the number and size of suppliers and the level of development of transport systems (Capital, II, p. 162); transport costs not value-creating but add to price except when they are part of the total production process that requires transport processes as part of total production processes and not part of circulation in which case v or labor-power used in transport adds to value; (Capital, II, p. 170-71);

15. Time of production = working period versus working day; working period = number of working days to finish a product; product of each working day only a portion of the total work product and period (Capital, II, p 262); includes advancement of wages, sufficient stocks of raw materials, necessary capital equipment (Capital, II, p. 264) and extension of the working period reduces capital turnovers per year as does the time of circulation; time of production of a specific capital outlay = f(employment of machinery in production, levels and forms of cooperation, level of development of a credit system, level of development of markets and transport systems);

16. When working period is shortened, this increases amount of capital advanced in shortened time so that amount of capital/time increases as time decreases (Capital, II, p 268); Thus tp = f(1/Ko); advanced capital becomes a substitute for time with time in circulation spent in marketing and varies with changing market conditions (Capital, II, p 385, 364); Improvements in transport systems may cut time in established markets yet prolong circulation time overall with introducing new and more distant markets (Capital, II, p. 287);

17. Total period of production (t) or time of turnover (Capital, II, p. 176) = complete rotation or cycle of a given quantity of industrial capital;

18. Total period of production = time of circulation + time of production which Marx assumes is one year time period; number of turnovers of capital per year = n = 1/t where n= number of turnovers of a particular capital and t = turnover time measured as fraction of a year of the given industrial capital;

19. Industrial capital for Marx = cKo (circulating capital transferred from factor to product or capital used up in production) + fKo (fixed capital or the amount of capital remaining in the factor state during the time of turnover or the production and sale of the commodity (Capital, II, pp. 178-80); while in the long-run all capital is circulating, the distinction between circulating and fixed capital is relevant during a given capital turnover period (Capital, II, p. 190);

20. The relationship between the amount of capital advanced per year in producing, Ko, and the amount of capital employed per year in production Ke, depends upon the capital advance is in the form of fixed or circulating capital: Ke/Ko = f (cKo/fKo) so that capital employed in production varies with number of capital turnovers per year: Ke = n(cKo); and if the total capital advanced produced a set of commodities which were sold at the end of a year’s production then: Ke = cKo = Ko and Marx notes, according to Gottheil, that capitalist production is not characterized by this coincidence (Capital, II, p. 209);

21. Annual production of both commodity value and surplus-value is calculated by the employment (not advanced) of variable capital (Capital, II, p. 346) Where Ke = n(cKo), thus the employment of capital and the annual mass of surplus-value S vary directly with the capital turnover rate (number of times capital rotates per year); the proportion of total surplus-value produced in one year to the value of advanced variable capital and the number of capital turnovers; Marx calls the annual rate of surplus-value (S’) (Capital, II, p. 350) so that the annual surplus value is measured by the rate of surplus value, the variable capital advanced and the number of capital turnovers so that S = sn and then S’ = s’n (Capital, II, p. 338);

22. With development of capitalist mode of production and associated transportation systems, circulation and production times are reduced, annual turnover or capital reproduction rates increase and annual surplus-value increases; merchant capital an unproductive agent in the economy;

23. Rate of economic growth = f (magnitude and use of economic surplus);

24. Conversion of economic surplus (property of capitalist) into capital is defined as accumulation (Capital, I, p. 634); complete conversion of surplus into consumption is defined as simple reproduction (Capital, I, p. 621) and analysis of simple reproduction is used by Marx a as first approximation in treatment of capital accumulation;

25. Department I = production of capital goods; Department II = production of consumer goods (Capital, II, p. 457); in each department it is composed of varying proportions of variable and constant capital; Social capital (K) is defined as sum of capital outlays of the two departments: K = (K)1 + (K)2 = (c + v)1 + (c + v)2 and thus total production in the economy (C) = commodities produced during a given period by both departments: C = C1 + C2 = (c1 + v1 + s1) + (c2 + v2+ s2); and the difference between total annual product and total cost of production is defined as total annual surplus (S) = C – K = (s1 + s2);

26. Marx’s Simple-reproduction Model of Input-output Matrix:
Dept. I Dept. II Total
Dept I c1 (v1 + s1) c1 + v1 + s1
Dept II c2 (v2 + s2) c2 + v2 + s2
Total (c 1 + c2) (v1 + s1) + (v2 + s2) C

Assuming: a) constant relative prices; b) constant organic compositions of capital in both departments; c) equality in rates of profit; d) capitalist surpluses in both departments spent on commodities of Department II; e) constant size of the working class and wages > subsistence; f) gross investment or (c1 + c2) = real depreciation so that the capital stock is maintained. Total value of capital goods produced by Department I = (c1 + c2); Total value of consumption goods produced by Dept II = (v1 + s1) + (v2 + s2); Interdepartmental transactions include: 1) purchases of capital goods (c2) from Dept. I by capitalists of Dept. II; 2) purchases of consumer goods from Dept. II by capitalists and laborers of Dept I; and intradepartmental transfers include: 1) purchases of consumer goods by laborers and capitalists of Dept. II (Capital, II, pp 460-64); the stability of simple reproduction can be seen as equal to or = c2 = v1 + s1

27. If : Dept. I 4000c + 1000v + 1000s = 6000C ; Dept, II 2000c + 500v + 500s = 3000C Total Annual Product = 9000C: Then subsistence of capitalists and laborers of Dept I financed with sales of capital goods to Dept II to meet capital requirements of 2000c in exchange for which Dept. II exchanges 2000 units of consumer goods for 2000 units of capital goods, and the 4000 units of capital goods remaining in Dept. I are then used to maintain its capital stock of 4000c and the 1000 units of the 3000 units of consumer goods of Department II are used for subsistence requirements of laborers and capitalists of Dept. II. And at the end of the period the capital requirements of both departments are maintained and the stability of the system defined in the equation c2 = v1 + s1 would not only be totally coincidental depending upon utility functions of the social classes (Capital, II, p. 578) but that this scheme ( simple reproduction is when I (v + s) = IIc) is totally at odds with how capitalism operates and its core imperatives for accumulation at least on par with population growth although in an odd year or over a 10-year what appears to be simple reproduction or less than simple reproduction may accidently occur (Capital, II, p. 608); Marx noted that with population growth, simple reproduction could only take place with an increasing number of unproductive servants would partake of the 1500s or aggregate surplus-product (Capital, II, p. 608);

28. Marx introduced into simple-reproduction a qualitative differentiation between necessary consumer goods and luxury goods (consumed only by capitalists and composing a definite percentage of their total consumption ) produced in Dept. II but it had no effect on this basic model (Capital, II, p 467 and Gottheil p. 83);

29. Accumulation (a) emerges with surpluses allocated for capital formation or a = g(s); “Capitalist is merely personified capital” (Capital, I, p. 648) The motive for capitalist production not conspicuous consumption but incessant gain of surplus-value and its capitalization (accumulation) (Capital, II, p 588);

30. Marxian growth model assumes: a) relative prices constant; b) profit rates in each department constant; c) All surpluses held by capitalists; d) a given percentage of surplus in Dept. I converted to capital or a = gs1 (g = constant %); e) adequate labor-power supply to match accumulation rates; f) technology is constant; g) form of the surplus comprises elements of new capital; h) net investment to expand scale of production over replacement;

31. Given the value of g, ‘accumulation resolves itself into the reproduction of capital on a progressively increasing scale. The circle in which simple reproduction moves, alters its form, and, to use Sismondi’s expression, changes into a spiral.’ (Capital, I, pp 636-37);

32. Expansion of capital can be expressed: Kt = K ( 1 + p’g)t where Kt = amount of capital in time period t; Ko = original capital; p’ = rate of profit; g = % of surplus-value converted into net investment; capital accumulation in this two-department model traces intra and inter=departmental transactions to show spiral increases of capital accumulation; Note: K1 = Ko + p’Kog = Ko(1 + p’g) and K2 = K1 + pK1g = K1(1 + p’g) = Ko (1+ p’g)2 ; Kt = Ko(1 + p’g)t

33. Transaction between [v1 + s1 – a (= gs1)] and c2 where v1 + s1 – a = total consumption of capitalists and laborers in Dept. I; a is decomposed into elements of capital for Dept. I , e.g. (ac1 + av1); to provide for av1, transaction occurs between av1 (capital goods) and s2 (consumer goods) where s2 = av1; c2 in the course of these interdepartmental flows, increased to [c2 + dc2 ( = av1)] and in order to maintain capital composition in Dept. II, v2 is necessary to offset the increased c2 and is provided from s2;

34. Following the accumulation process with constant g and s1 > 0, system becomes explosive with rate of accumulation an independent variable (Capital, I, p. 679); material means of accumulation are drawn from surpluses of Depts. I and II with the former in Dept. I determined by g and in Dept II by the consumer goods necessary to complement increase in constant-capital formation; Since net investment is provided by surplus, then the surplus consumed by the capitalists [s(c)1 + s(c)2] must be less than the surplus produced by the process (s1 + s2); After several periods of accumulation, capitalist consumption surpasses that under simple reproduction with all surplus consumed because of compounding;

35. The magnitude of surplus consumed in any period of time, depends upon the rate of accumulation and organic composition of capital in both I and II;

36. Since accumulation or capital formation in any time period is the conversion of surplus into capital during that time period, the magnitude of capital investment or capital accumulation may be expressed as: Kt = ( [v1 + s1(1-g)-c2] + [av1/c1 + v1] + [v2/c2] [v1 + s1(1-g) – c2] + [v2/c2(av1/c1 + v1)] + s1[1-g] )t; in the simplified case we have: Kt = [ (1 + v2/c2)(av1/c1 + v1) + s1(1-g) ] t

37. Capital concentration (related but not the same as Economic concentration in neoclassical theory) is defined by Marx as growing accumulation of capital in the hands of individual capitalists (Capita, I, p. 685); this process compounds individual holdings as well as adds new capitals through divisions of family inheritances ; the division of social capital into individual holdings (concentration) is counteracted by centralization, a process driven by competition and availability of credit, where larger capitals swallow the smaller via economies of scale and price competition and credit discrimination (Capital, I, pp. 650, 687); Bigger capitals get bigger and small get weeded out;

38. Capital accumulation is linked with increasing organic compositions of capital; Accumulation à Capitalism à Accumulation… (Capital, I, pp. 684-85); This is an assumption of the model;

39. Under Kt = Ko(1+ p’g)t the expansion of capital assumed a constant state of technology but this assumption is contradicted when concentration and centralization of capital are introduced into the analysis; centralization implies increasing organic compositions of capital, but the rate of profit is inversely related to the organic composition of capital and therefore when technology develops, the rate of profit (p’) in the expansion of capital equation above falls and the value of Kt becomes indeterminate; Marx, however refers to increasing organic compositions of capital as increasing productivity (Capital, I, p. 684). To assume that s = f (c/c + v) is, inconsistent with the assumption of a constant rate of exploitation;

40. Marxian models of accumulation: a) assume constant state of technology and constant rate of accumulation in which case the model is explosive; b) accumulation under conditions of changing technology and rates of accumulation in which case the rate of economic growth depends upon relative rates of technology and accumulation;

41. All models on simple reproduction and capital accumulation based on values and not prices. Had values been converted to prices, the simple-reproduction model could no longer develop the equilibrium he assumed to develop from the model and its assumptions; the selection of value instead of price also damages the capital accumulation model. In Marx’s model on economic growth with Departments I (capital goods) and II (consumer goods) Marx assumes different organic compositions of capital and thus rates of profit in the two departments must differ; yet Marx, in his second approximation to price theory, assumes that in the capitalist system the rate of profit in all industries is equal. Although Marx assumes that the accumulation of capital occurs at an increasing rate, no conclusions about the growth rate of capital can be made from the model if the rate of profit is permitted to fall; the incorporation of increasing technology into the model by definition implies a fall in the rate of profit.

42. Marx’s theory of economic growth is also a theory of economic decay. ]

43. The capitalist system contains within it the seeds (contradictions) of its own demise;

44. Super-profits, generated by innovation are wiped out by competitors imitating the innovations thus causing more innovation; innovations under socialism and communism exceed those under capitalism thus the critical determinant of innovation is the general environment’s favorability to science;

45. Primary determinants of the rate of profit (p’ or s/c + v) are the rate of surplus value (s/v) and the organic composition of capital (c/c + v) and capitalist’s pursuit of higher rates of profit compel increases in organic composition of capital which, if rate of surplus-value is assumed constant, then rate of profit will fall; but Marx did understand that the rate of surplus value is also dependent upon the organic composition of capital, but Marx’s assumption of constant s/v in Volumes I and part of II was to underscore the organic composition of capital as a principle determinant of the rate of profit. And thus his assumption of constant s/v was part of his overall method of successive approximations and Marx predicted that the rate of profit would decline no matter what the rate of surplus-value; Marx does note however that although constant capital does not create value, it does affect laborer productivity and that portion of the working day for the laborer’s subsistence and thus affects the amount of absolute surplus and thus the rate of surplus-value; organic composition of capital à productivity of the laborer à amount of surplus à rate of surplus-value (Capital, I, p. 422; Capital, III, pp. 111, 178, 257, 261, 269, 290); There are limits to the extent to labor-displacing nature of capital formation and technology;

A Compendium of the Predictions of Marx and Engels

Primary Predictions (Falling Rate of Profit)

1. Capitalists and capitalism cannot exist without continually revolutionizing technology, the instruments and relations of production and thus the whole relations of society (Communist Manifesto, p. 13, Capital, I, p. 491, Capital, III, p. 311,);

2. The general rate of profit will tend to decline (Capital III, p. 255, 274, 275-77, 297) ;

Secondary Predictions Derived From Falling Rate of Profit

1. The productivity of labor will expand in a geometrical progression (Capital, III, p. 308)

2. The value of labor-power (per individual family member) will decline (Capital, I, pp 431-32, 534);

3. Labor will be equalized and reduced to the most basic or common skills(Communist Manifesto, p. 18, Capital, I, p. 459, 461-63);

4. Labor mobility and the imperative for mobility will increase (Capital, I, p. 459);

5. The labor of men will be superseded by that of women and children (Capital, I, pp. 431-32);

6. Modern industry will destroy the individual economy and with the traditional institution of the family and reduce the family to a mere money relation (Capital, I, p. 513, Communist Manifesto, p. 32, German Ideology, pp. 17-18, Letters to Americans, p. 24 );

7. Modern industry revolutionizes educational institutions forcing the predominance of technical and vocational training (Capital, I, p. 534);

8. The value of moral capital depreciation (dm) or capital obsolescence will increase ( Capital, I, pp. 282, 442);

9. The working day will be prolonged (de facto even when not de jure) (Capital, I, pp 290, 445);

10. The prices of raw materials will decline (Capital, I, p. 682, Capital, III, pp 126-27);

11. The average rate of capital turnover will increase (Marx-Engels Correspondence p. 242; Capital, II, pp. 210, 267-68, 291);

12. Market-driven population migrations, globalization and redistributions of laboring populations geographically will result in mega urban agglomerations in space and time (Communist Manifesto, p. 15; On Britain, p. 375; Capital, II, p 288; Capital, I, p 387);

13. Marketing functions will increasingly separate and specialize from production processes (Capital, III, pp. 330, 343);

14. Distributions or divisions of surplus-value among classes earning property incomes (profit, interest, rents, dividends) will continually change (Capital, III, pp 424-45, 731; Economic and Philosophic Manuscripts of 1844, p. 127);

15. The general rate of interest will decline (Economic and Philosophic Manuscripts of 1844, p. 127; Capital, III, pp. 424-25, 731);

16. The rates of return to landowners will decline (Capital, III, pp. 252, 882, 897);

17. Gaps between organic compositions of capital between agriculture and non-agriculture will narrow (Capital, III, pp. 842-43, 897; Capital, I, pp. 553-54);

18. The production and value of production of luxury items as a percentage of total production will increase (Capital, III, p. 297);

19. The rentier class will increase initially, and eventually decline and disappear with the growing wealth of the nation (Capital, III, pp. 252, 882, 897);

20. As large capitals acquire/absorb smaller capitals, large landed estates will acquire and absorb smaller landed estates (Economic and Philosophic Manuscripts of 1844 p. 58);

21. The landowning class will ultimately disappear completely (Economic and Philosophic Manuscripts p. 60);

22. There is enough uncultivated land in the underdeveloped regions to ruin the large and small landowners of Europe (Specific Prediction; Capital, III, pp 842-43);

23. With the development of steam power, trans-oceanic steamboats and the railway, the distance between England and India will be reduced to eight days and Indian will be annexed to the Western world (Specific prediction, On Britain, p. 387; Capital, II, p. 288);

Primary Predictions (Globalization and Capitalism)

1. The development of capitalism among various national economies creates integrated global markets and capitalism (Communist Manifesto, pp. 14-15; Capital, III, pp. 140, 230, 392; Marx-Engels Correspondence, p. 117; Wage Labor and Capital, pp. 44-47);

2. All national economies under threats of competition and extinction will eventually adopt the capitalist mode of production as the dominant mode of production within their social formations (Communist Manifesto, pp. 14-15; Capital, III, p. 392; Ibid);

3. A global division of labor among nations will develop with different geographic areas and nations playing different roles within it (Capital, III, pp. 140, 230, 270, 278, 392);

Secondary Predictions (From Primary Prediction No. 1)

4. Falling rates of profit in the industrialized economies will force capital migrations from relatively low to relatively high average profit rates (Capital, III, pp. 140, 279);

5. The falling rate of profit in industrial economies will cause the development of specialized export industries and international commodity exchanges (Capital, III, p. 278) ;

6. The globalization of capitalism, capital migration and commodity exchange will be driven and facilitated by the development of credit institutions (Capital, I, p 688; Capital, II, p 287);

7. Transportation and Communications systems must be continually globalized and revolutionized to increase overall profitability of international trade (Capital, I, pp 493, 688; Capital, II, p. 287);

8. As consumption levels of capitalists increase, luxuries command larger portions of their budgets and shares of total social production (Capital, I, pp. 651-52);

9. New technologies cause production > consumption à new markets (Capital, III, 302);

Secondary Predictions from Primary Prediction Number 3

10. The development of the capitalist mode of production as dominant within the social formations of the colonial nations will cause changes in relations of production and overall changes in politico-legal, social, cultural and economic institutions (Capital, I, pp. 158, 493, 792; On Britain, pp. 386-87));

11. The incessant demand for relatively secure and cheap raw materials coupled with continually revolutionized technology will drive capitalists to develop the colonial economies overall and as appendages to the metropolitan economies (Capital, I, pp. 483, 493, 782; Wage, Labor and Capital, p 16; Marx on China, pp. 3, 35, 59; Marx-Engels Correspondence, pp. 10, 229);

12. The labor-skills needed to complement advanced technology will be met from labor-power surpluses of migrating unemployed in the metropolitan economies and through the development of strata of native skilled workers and professionals through education controlled and structured by the metropolitan powers (Capital, I, p. 493; On Britain, pp. 386-90);

Specific Predictions

13. Global market expansion will end with the colonization of California and Australia, and the opening-up of Japan and China (Specific prediction, related to Primary prediction No. 1; Marx-Engels Correspondence, pp. 117-18; Marx on China, p. 4);

14. Russia and England will always be antagonists in the East (from Primary prediction No. 2; Wage, Labor and Capital, p. 16; Marx-Engels Correspondence, p. 10);

15. Russia will break the monopoly on Britain on China products with the completion of the Russian railway (specific prediction, related to Primary No. 2; Marx on China, p. 35; Revolution and Counter-revolution, p 5;)

16. The U.S. would soon break the monopoly of Western Europe and England (Specific prediction related to Primary No. 2; Capital, I, p 158; Civil War in the United States, pp. 25, 66-67, 150, 225, 237; Marx-Engels Correspondence, p 14);

17. England will successfully destroy Asiatic society and regenerate India on the foundations of Western society (Specific prediction related to No. 2; Capital, I, pp. 492-93, 782; Marx-Engels Correspondence, p. 226; Communist Manifesto, p 103; On Britain, p. 386);

18. The railway system will lead industrial development in India (Specific prediction related to Primary No. 2; On Britain, pp. 386, 389-90)

19. Modern industry and capitalism will destroy all hereditary divisions of labor like the caste system of India and thus destroy the impediments to progress of India (Specific prediction related to Primary No. 2; On Britain, pp. 389-90);

20. Without the acquisition of Louisiana, Missouri, and Arkansas by the U.S. slavery would have been wiped out in Virginia and elsewhere (Specific prediction related to Primary no. 2; Civil War in the United States, p. 67);

21. The expansions and inevitable conflicts of the northern and southern regional economies of the U.S. will lead to civil war in the U.S. and The North will ultimately win (Specific prediction related to Primary No. 2; Civil War in the United States, pp. 66-67, 81, 225-26, Selected Essays, “Moralizing Criticism” p. 145);

22. Without slavery in America, America would be transformed into a patriarchal land (Specific prediction related to Primary No. 2; Marx-Engels Correspondence, p. 14);

23. If foreign trade with Japan leads to money rents, then Japanese agriculture will be radically transformed (Specific prediction related to Primary No. 2; Capital, I, p. 158);

24. The separation and independence of Ireland from England is inevitable (Specific prediction related to Primary No. 2; Marx-Engels Correspondence, pp. 224, 230);

25. The English landed feudal aristocracy will be destroyed by international competition in agricultural markets (Specific prediction related to Primary No. 3; Economic and Philosophic Manuscripts of 1844, pp. 58, 60)

26. The destiny of Ireland is to become “that of an English sheep walk and cattle pasture” (Specific prediction related to Primary No. 3; Capital, I, p. 782);

27. Once independent, Ireland will resort to protectionism (Marx-Engels Correspondence, pp. 228, 230);

Primary Predictions (Increasing Volatility, Concentration and Centralization of Production and Finance)

1. The capitalist economy generates industrial cycles [‘a series of periods of moderate activity, prosperity, overproduction, crisis and stagnation] are, and will be, the exclusive feature of the capitalist system (Capital, IV, p. 380 and Capital, I, p. 495) Note: Marx puts focus on aspects of overproduction and crisis with all cycles they are: multi-determined; essentially endogenous; recurring; of increasing intensity;

2. Concentration and centralization of wealth are inexorably both causes and effects of the development of capitalist production and competitive markets lead to their self-negation and non/anti-competitive nature;

Secondary Predictions Related to Primary Prediction No. 1

1. Sources of overall crisis are, and will be, various sometimes interrelated and sometimes relatively independent sub-crises: Department I (capital goods) and II (consumer goods) imbalances; credit crisis; falling-rate-of-profit crises; innovation crises; replacement crises; under-consumption crises; crises of ‘disproportions’ of capitalists and their consumption on the one hand, versus accumulation of their capitals in various branches (individual production processes aggregated into capital and consumer goods departments) on the other hand (Capital, III, p. 568);

2. Increases in market capacity (levels and structures of consumption) cannot
keep pace with increases in production capacity (Capital, III, p 286-87;

3. Generation and expansion of credit makes crises more volatile and violent than in non-credit economies; (Capital, III, p. 565, 574);

4. Credit must grow as a share of the total value of production and with increasing distances of markets; the development of processes of production extend credit and vice-versa, extension of credit leads to extensions of commercial and industrial operations (Capital, III, p. 565);

5. Increasing separation of commodity production and circulation is both temporal and functional;
intermediary merchants increasingly separate production from ultimate consumption and consumers, leading to periodic overproduction and excess inventories, leading to crises caused by intermediaries forced into discounting fraudulent bills of exchange, etc to clear inventories and merchants repaying their suppliers (Capital, III, p 359-60, 478-80, 569, 674);

6. Business is always appears sound before crises set in and become evident (Capital, III, p. 569);

7. Effects of mistaken banking legislation may well intensify monetary crises, but no legislation will ever abolish them (Capital, III, pp. 575, 607);

8. Even with prolonged accidental coincidences between aggregate production and consumption, crises may still occur due to falling rates of profit below target minimum acceptable rates of profit(Capital,III,p.283);

9. Crises may occur due to too rapid and too aggregated (bunched-up) innovations, leading to declining commodity values and prices, leading to falling rates of profit; the more rapid the new innovations, the more competition forces introduction of new machinery before the old is worn out, and, the more increasing the organic compositions of capital, the more difficult for capitalists to adjust to new sets of falling capital values and thus the more likely the crises (Capital, IV, p. 388; Capital, II, p. 194);

10. For a crisis to become generalized, it is sufficient that the principal articles of trade be gripped. (Capital, IV, 393);

11. Credit aids the expansion of production [and the expansion and intensity of crises when contracted or withdrawn] by: reducing time necessary to acquire start-up capital; reducing time of circulation (time to convert commodity capital into money capital; promotion of entirely new production processes; As capitalism develops the percentage of new capital formation financed by credit increases as do the processes wholly dependent upon credit advancement (Capital, III, p. 574);

12. Credit must grow in volume with the increasing volume of value in production, and it must grow in the matter of time with increasing distance of markets [reproduction necessitates immediate exchange, or the transformation of commodity capital into money capital, banking institutions intercede by discounting bills of exchange and extending credit to finance continuous production. (Capital, III, p. 565); development of production à credit à expansion of commercial and industrial operations (Capital, III, p. 565);

13. Reproduction of fixed capital takes place only after full depreciation (Capital, II, p. 209) turnover of fixed capital is a function of the organic composition of capital, and for a large part of the production processes, values produced exceed values demanded on the market (only at time of replacement of fixed capital does market demand exceed supply; the moments of prosperity are to periods of crisis and stagnation in the ‘true proportion’ of 3 to 10 (Poverty of Philosophy, p. 113) and the duration of at least one aspect of the industrial cycle is determined by the timing of replacement capital (approx every 10 years or longer with increased organic composition of capital); also see Capital, I, p. 695; Capital, II, p. 211);

14. Real crises occur when production capacities exceed market capacities (Capital, III, p. 568); But simply increasing worker shares of product not the answer as crises generally are preceded by a period in which wages rise generally and the working class actually get a larger share of the product intended for consumption (Capital, II, p. 475-76);

15. Rates of profit after crises and insolvencies increase (Capital, III, p. 299); In such periods capitalist strive to innovate further with ‘new machines, new and improved working methods, new combinations’ (Capital, III, p. 299); These techniques are introduced to reduce individual values below their social values, thereby creating surplus profits (Capital, III, p 303-04); A crisis is always a starting point for a large amount of new investment (Capital, II, p. 211);

16. More intense exploitation of old markets and conquest of new ones lead to general increased production (Communist Manifesto , p.17); The industrial cycle is of such a character that the same cycle must periodically reproduce itself once the first impulse has been given (Capital, III, p. 299, 574; Capital, I, p 695); Effects become causes and the varying incidents of the whole process, which always reproduces its own conditions, take on the form of periodicity (Capital, I, p 695);

17. Capitalists get over crises by paving the way for more intense and more destructive crises and by diminishing the means by which crises are prevented (Communist Manifesto, p. 17);

18. Crises become progressively more frequent and more violent as means of escaping crises become less and less available with contracting and over-exploited work markets and large-scale production exhausts mainsprings of credit (Wage, Labor and Capital, p. 51);

19. All economies export and import too much (Capital, III, p. 577); As the capitalist mode of production expands, industrial cycles must become increasingly globalized and interdependent, and a crash in one country is transmitted to others;

20. Crises and instabilities in the raw-materials-producing economies become more severe and frequent than in the manufacturing economies once the capitalist mode of production is introduced into the underdeveloped countries and swings in demand for raw materials from the manufacturing countries create even more violent swings in derived demand in the raw materials branches of production in the underdeveloped countries that are more violent than swings in commodity markets; (Capital, III, pp. 141, 144);

Secondary Predictions Related to Primary Prediction No. 2

21. Centralization (concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into a few large capitals; Capital, I, p. 686) will increase with the expansion of the capitalist mode of production, driven primarily by the competitive market structure and the credit system (Wage, Labor and Capital, p. 24; Capital, I, pp 686-87);

22. Forces of competition operate in three distinct spheres: 1) among buyers tending to inflate price; 2) among sellers tending to depress price; 3) among buyers and sellers tending to set price (Wage, Labor and Capital, p., 24);

23. The process centralization is cumulative: Big fish more easily survive and swallow small fish and get bigger; smaller fish live on the margins and easily get swallowed; (Capital, I, p. 688);

24. Competition was originally engendered by feudal monopoly and thus competition was originally the opposite of monopoly not monopoly the opposite of competition, so that modern monopoly is not a simple antithesis; it is, on the contrary, a true synthesis (Poverty of Philosophy, p 169);

25. Centralization is inevitable in all markets, production, finance etc (Capital, III, p. 641); During crises and periods of stagnation, industrial security prices decline, individuals with money can take advantage and acquire assets and securities cheaply, when the storms are over, paper values rise again unless there are failures and swindles, thus depreciation in times of crisis is a potent force in centralizing money (Capital, III, pp. 509, 550-51, 641);

26. Centralization à Joint-stock companies à Centralization…(Capital, III, p. 519); Functions of ownership and control separate with industrial capitalist becoming a mere manager and the owners are mere money capitalists (Capital, III, p. 516-17); “little fish are swallowed by the sharks and the lambs by the wolves (Capital, III, p. 521); The separation of private ownership from control is defined by Marx as the transition from private to social capital (Capital, III, p. 519);

27. Rational agriculture is incompatible with the capitalist mode of production (Capital, III, p. 144);

28. Joint stock companies produce a new aristocracy of finance, the nominal director.

Specific Predictions Related to Primary Prediction No. 1

29. England’s attempt to penetrate China will result in manufacturing capacity outstripping Chinese market capacity (Marx on China, pp. 4, 52, 62, 69);

30. Cyclical fluctuations in England will occur every 10 years (Capital, I, p 695);

31. If China were to legalize Opium planting, trade relations among the U.S. Australia, England, India and China would collapse and an international crisis would follow (Marx on China, p. 81);

32. The crisis on the European continent always originates in England (Class Struggles in France, pp. 134-35);

33. The Chinese rebellion will produce a crisis in England (Marx on China, p. 4);

Primary Predictions (Proletariat and Class struggle)

1. The misery of the proletariat increases with development of the capitalist mode of production; upward and downward movements of wage rates are subject to restraints (upper limit = f (minimum acceptable rate of profit) and lower limit = f (size of industrial reserve army, state of economy) (Capital, I, pp. 680, 699, 707-09);

2. The class struggle between the proletariat and the bourgeoisie will intensify;

Secondary Predictions Related to Primary Prediction No. 1

1. The development of the capitalist production leads to and requires the development of an industrial reserve army; higher forms of technology or increasing organic compositions of capital under conditions of constant capital outlay are labor-displacing: dIRA = K1[(c/K)2 –(c/K)1]/w; Where: K1 = total capital outlay; (c/K)1 and (c/K)2 are organic compositions of capital before and after technological change, w = prevailing wage rate and d IRA = change in IRA; with K1 constant (only first approximation), increases in organic compositions of capital displace workers from production; with accumulation of capital and substitutions of higher for lower organic compositions of capital, additional profits are forthcoming and capital accumulation from this source is: a = g(s2 – s1) where a = accumulation; g = portion of profits not consumed; (s2 – s1) = change profits (from advanced technology); Thus: d = a(v/K)2/w d = additional demand for labor; – (v/K)2 = inverse of the organic composition of capital; w = prevailing wage rate; Marx assumes both changing technology and capital accumulation and thus the industrial reserve army is stable only if K1[(c/K)2 – (c/K)1]/w – a(v/K)2/w = 0 and under this condition the prevailing wage rate remains unchanged; Where > 0, IRA expands and w declines, absolute as well as relative surplus population appears and vice versa in opposite situation.

2. Entire sections of the ruling class are drawn into the ranks of the proletariat (Communist Manifesto, p. 22);

3. As the interest rate falls with increasing capital accumulation, small investors can no longer live on incomes and are forced into the proletariat; (Wage, Labor and Capital, p. 51; Discourse on Free Trade, pp 17-18);

4. The misery of the agricultural worker increases relatively more than that of the industrial worker (Capital, I, pp 256, 739, 740);

Secondary Predictions Related to Primary Prediction Number 2

1. The proletariat increases its numbers and strength with developing class consciousness (Communist Manifesto, pp. 18-19; Marx-Engels Correspondence, p. 375);

2. What it took capitalists centuries to establish with miserable roads, the proletariat can attain in a few years with railways: class cohesion; (Communist Manifesto, p. 21);

3. The international proletariat emerges with the establishment of the world market; (Communist Manifesto, p. 54);

4. The first attempt of workers to ban together takes the form of combinations; (Poverty of Philosophy, p. 194);

5. At every stage of the development of capitalism, there will develop a corresponding political organization; when the world market is established, the International will supersede all forms of political organization; (Class Struggles in France, p. 43);

6. The international proletariat can only come into existence with the development of an international bourgeoisie; (Communist Manifesto, p. 54);

7. Utopian socialism will pass from the proletariat to the petty bourgeoisie with the development of the world market; (Marx-Engels Correspondence, pp. 189, 315; Class Struggles in France, p. 126; Communist Manifesto, p. 49);

8. As class struggle develops the proletariat substitutes political objectives for economic objectives; (Class Struggles in France, p. 45; Marx-Engels Correspondence, pp 318-19; Poverty of Philosophy p. 195);

9. Unless proletariat train for political activity, they will never succeed (Ibid.);

10. The proletariat will never get anywhere without a really bloody encounter with the ruling powers; (Marx-Engels Correspondence, p. 213);

11. The development of the Industrial Reserve Army has both positive and adverse effects on the development of class consciousness (Communist Manifesto, p. 21);

12. Proletariat grows in numbers, becomes more concentrated in masses, its strength grows and it feels its strength more causing a cumulative effect with feedbacks effects on further growth of the numbers of proletariat ( Communist Manifesto, p. 20);

13. Five-stage blueprint for the evolution of the proletarian class: I) Pre-capitalist era the primary struggle between original owners of means of production and the expropriators is on a personal level between individual owner and worker; II) Factory level of little workshops run by little masters, struggles carried out at factory level; III) Concerted activity on the part of the proletariat mostly protectionism against imports and fights for status; at this level consciousness trade and locale centered; IV) Development of transport, mass communications and capitalist markets brings together workers dispersed in space and time to establish a national proletarian class; V) Globalization and internationalization of the capitalist mode of production and development of international class consciousness a function of complementary modes of production and after proletariat settle matters with its own bourgeoisie (Communist Manifesto, pp. 10, 18-21, 24, 54);

14. The modern subjugation of the worker to capital strips him of every trace of national character; Law, morality and religion are now merely bourgeois prejudices (Communist Manifesto, p. 54);

15. The development of a system of Socialist sects and that of a real worker’s movement are inversely related and in inverse ratio to each other So long as sects are historically justified, the working class is not yet ripe for an independent historic movement. (Communist Manifesto, p. 50; Marx-Engels Correspondence, p. 315);

Specific Predictions Related to Primary Prediction No. 2

17. The English working class will never do anything decisive in England, as a class, until it separates its policy toward Ireland in the most clear-cut way from the policy of the ruling class (Marx-Engels Correspondence, pp. 278, 289-90);

18. Unless French national chauvinism and Bonapartism among the working class is put to rest, there will be no peace between France and Germany and workers in France will not advance (Marx-Engels Correspondence, pp. 245-46);

Primary Predictions (Proletarian Revolution)

1. The proletariat cannot rise without upsetting all existing relations of production. (Communist Manifesto, p. 24; Selected Essays, p. 119);

2. The proletarian revolution evolves from the class struggle. (Revolution and Counter-revolution, pp. 4, 8; Selected Essays, pp. 33-34, 134, 137, 161; Capital, III, p. 309);

3. The proletariat will ultimately defeat the bourgeoisie. (Communist Manifesto, p. 25; Civil War in France, p. 62);

4. After victory, the revolutionary dictatorship of the proletariat will assume political power only to transfer the means of production from the private to the public domain and to suppress any attempt at reactionary counterrevolution. (Communist Manifesto, pp 36-37; Critique of the Gotha Programme, p. 45);

5. Following the period of dictatorship of the proletariat and abolition of the bourgeoisie, the proletariat will become the only class, and consequently the class structure will disappear and classless society emerges. (Communist Manifesto, p. 37);

6. The State will wither away. (German Ideology, p. 59);

7. Production under communism will be planned (Capital, III, pp 221, 521);

8. Distribution under communism will be according to needs (Capital, II, pp. 361-62);

9. There has never been a serious revolution which had not been preceded by serious financial and commercial crises and private and public credit are the ‘thermometer’ by which the intensity of the revolution can be measured and to the same degree that they fall, the glow and generate force of the revolution rise (Marx on China, pp. 7, 9; Class Struggles In France, pp. 137-38);

Secondary Predictions Related to Primary Prediction No. 2

1. The working class can never achieve independence or anything of lasting importance until the bourgeoisie has consolidated its position in political power; (Marx-Engels Correspondence, pp. 57,290);

2. No proletarian revolution can take place until the basic material conditions and foundations for revolution have been created with the development of capitalism; (Selected Essays, p. 137);

3. The measures employed by proletariat to overthrow bourgeoisie will vary in different countries; (Marx on China, p 9; Communist Manifesto, pp. 36-37);

4. Social reform will always be utopian until proletarian revolutions occur all over the world on a world-wide scale( Selected Essays, pp. 134 “Moralizing Criticism”, 161; Marx-Engels Correspondence, p. 57)

5. The proletarian revolutions will become progressively larger; (Civil War in France, p. 62);

6. Revolutions will be initiated during periods of industrial crisis (Capital, III, p. 309; Marx on China, p. 9);

7. When most of the population is unemployed, revolution is inevitable; (Capital, III, p. 309);

8. The intensity of the revolution will vary inversely with the magnitude of credit available; (Class Struggles in France, p. 46);

9. During the revolution, part of the bourgeoisie will break away from the ruling class and join the proletariat; (Civil War in France, p. 62);

10. The Lumpenproletariat will join the proletariat but are essentially reactionary; (Communist Manifesto, p. 23; Class Struggles in France, pp. 50, 62);

11. The Lumpenproletariat will be ‘shaken off’ after the revolution (The Civil War in France, p. 50);

12. The salvation of the peasant will occur only after the revolution as they are dispersed over large areas and difficult to concentrate into cohesive political action; (Civil War in France, pp. 50, 71, 120);

Secondary Predictions Related to Primary Prediction No. 4

13. The centralization of credit will be taken over by the state bank; (Communist Manifesto pp. 36-37);

14. Free education will be made available to all children; (Ibid);

15. Children’s factory labor will be abolished; (Ibid);

16. Distinction between town and country will disappear; (Ibid);

17. State industrial armies will be established;(Ibid);

18. A state factory system will emerge; (Ibid);

19. A heavy progressive tax will be imposed;(Ibid);

20. All rights to inheritance will be abolished; (Ibid);

21. Emigrant and rebel property will be confiscated; (Ibid);

22. Landed property will be abolished and rents applied for public purposes; (Ibid);

23. The transition to communism occurs as an act by people all over the world all at once; (German Ideology, p. 25);

Secondary Predictions Related to Primary Prediction No. 5

24. Individualism can only be expressed under communism; (Critique of the Gotha Program, pp. 43-44; German Ideology, p. 78);

25. All religions will disappear; ( Capital, I, pp. 91-92);

26. The bourgeois family will be abolished; (Communist Manifesto, p. 33);

27. Wage labor will be abolished; (Value, Price and Profit, p. 128);

Secondary predictions related to Primary prediction No. 7

28. Society will make the allocation decisions on investment and consumption; (Capital, III, p 521);

29. Production processes under communism will be worker’s cooperatives; (Ibid; Civil War in France, p. 44);

30. Communist society will not be subject to cycles; (Capital, II, p. 361-62);

31. Industrial discipline becomes superfluous; (Communist Manifesto, p 30-31)

32. Market prices for agricultural commodities will be measured by actual social costs of production; (Capital, III, pp. 773-74);

33. There will be a different scope for the employment of machinery; (Capital, I, p. 429);

34. Income, except for six necessary deductions for economic stability and growth will be distributed directly to productive labor; (Capital, III, p 987; Critique of Gotha Programme, pp. 27-28);

Specific predictions related to primary prediction No. 2

35. England will be forced to join the Continental revolution (in 1885); (Marx-Engels Correspondence,p.118);

36. When English forces with draw from Ireland, an Irish agrarian revolution will displace the English feudal aristocracy now in power in Ireland; (Marx-Engels Correspondence, p. 288);

37. The English revolution will get nowhere until the Irish revolution is accomplished setting the stage for destroying the power of the English landowning class and setting the conditions for proletarian revolution; (Ibid.);

38. If the Russian revolution occurs, this may signal for European revolutions in which case Russia may join in and advance directly from primitive capitalism to communism without the tortuous developments of capitalism; (Communist Manifesto, p. 104);

39. If Russia continues the path she has followed since 1865, she will lose the finest chance ever offered by history to a nation not to undergo all the fatal vicissitudes of the capitalist regime; (Marx-Engels Correspondence, p. 353);

40. The European revolutions (1871) will originate in the East; (Marx-Engels Correspondence, p. 349)

41. The Franco-Prussian War will lead inevitably to a war between Germany and Russia; (Marx-Engels Correspondence, p 301);

42. The Russo-German War will act as a midwife to the inevitable social revolution in Russia; (Marx-Engels Correspondence, p 301); 17 years earlier Marx predicted reverse with Russia lagging behind other nations in revolution (Marx-Engels Correspondence, p. 124);

43. The proletarian revolutions in England, America and Holland may be attained by peaceful means; (Marx to 1872 Congress of the Hague Congress of the International quoted in Gottheil, op cit, p. 177);

44. The next French revolution (after 1871) will smash the bureaucratic-military machine; (Marx-Engels Correspondence, p. 309);

45. The English Established Church will more readily pardon an attack on 38 of its 39 articles than on 1/39 of its income; (Capital, I, p. 15);




Presentation at Tsinghua Aug 2012


1. Gottheil, Fred M. Marx’s Economic Predictions, Northwestern University Press, Evanston, Il, 1966;

2. Boudin, Louis The Theoretical System of Karl Marx, Monthly Review Press, N.Y. 1967;

3. Marx, Karl Capital, A Critique of Political Economy, Vol. I: The Process of Capitalist Production Edited by Engels, Friedrich; Translated from Third German Edition by Samuel Moore and Edward Aveling; Revised according to the Fourth German Edition by Ernest Untermann, Chicago, Charles H. Kerr & Co. 1908; (for pagination references);

4. Marx, Karl Capital, A Critique of Political Economy Vol. II: The Process of Circulation of Capital; Edited by Engels, Friedrich, Translated from the Second German Edition by Ernest Untermann, Chicago, Charles H. Kerr & Co, 1933; (for pagination references);

5. Marx, Karl Capital, A Critique of Political Economy. Vol. III: The Process of Capitalist Production as a Whole; Edited by Engels, Friedrich; Chicago, Charles H. Kerr & Co, 1909;

6. Marx, Karl Theories of Surplus-Value (Capital, Vol. IV) Translation by Bonner, G.A and Burns, Emile, N.Y. International Publishers Co. 1952 (for pagination references); Theories of Surplus-Value Parts I-III, Moscow, Progress Publishers, 1971;

7. Marx, Karl Capital Volumes I – III, Moscow, Progress Publishers, 1978;

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9. Marx, Karl A Contribution to the Critique of Political Economy; Translated from German edition by Stone, N.I., Chicago, Charles H. Kerr & Co. 1940; (pagination for references);

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11. Marx, Karl The Class Struggles in France, N.Y. International Publishers Co. 1934 (pagination);

12. Marx, Karl, Critique of the Gotha Programme, N.Y. International Publishers Co. 1933

13. Marx, Karl The Discourse on Free Trade Pocket Library on Socialism, No. 50, Chicago, Charles H. Kerr and Co. 1907 (pagination);

14. Marx, Karl Economic and Philosophic Manuscripts of 1844, Translated by Milligan, Martin, Moscow, Foreign Languages Publishing House, 1959 (pagination);

15. Marx, Karl Letters to Dr. Kugelmann, N.Y. International Publishers Co. 1934 (pagination);

16. The Eighteenth Brumaire of Louis Bonaparte, N.Y. International Publishers Co. 1924 (pagination);

17. Marx, Karl Marx on China: Articles From the N.Y. Daily Tribune, London, Lawrence and Wishart, 1951. (pagination);

18. Marx, Karl The Poverty of Philosophy, Moscow, Foreign Languages Publishing House, 1956 (pagination);

19. Marx, Karl Revolution and Counter-Revolution, or Germany in 1848; Edited by Eleanor Marx Aveling, London, George Allen and Unwin, 1937 (pagination);

20. Marx, Karl Selected Essays, Translated by Stenning, H.J., N.Y. International Publishers Co. 1926 (pagination);

21. Marx, Karl Value, Price and Profit Ed. By Eleanor Marx Aveling, Chicago, Charles H. Kerr & Co. 1913; (pagination);

22. Marx, Karl Wage-labor and Capital , Moscow, Foreign Languages Publishing House, 1947 (pagination);

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24. Marx, Karl and Engels, Friedrich The Civil War in the United States, Ed, by Enmale, Richard, N.Y. International Publishers Co, 1937 (pagination)

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34. Marx, Karl, Capital, Vols 1-3, London, Penguin Classics, London, 1994


About jimcraven10

About jimcraven10 1. Citizenship: Blackfoot, U.S. and Canadian; 2. Position: tenured Professor of Economics and Geography; Dept. Head, Economics; 3. Teaching, Consulting and Research experience: approx 40 + years all levels high school to post-doctoral U.S. Canada, Europe, China, India, Puerto Rico and parts of E. Asia; 4. Work past and present: U.S. Army 1963-66; Member: Veterans for Peace; former VVAW; Veterans for 9-11 Truth; Scholars for 9-11 Truth; Pilots for 9-11 Truth; World Association for Political Economy; Editorial Board International Critical Thought; 4.. U.S. Commercial-Instrument Pilot ; FAA Licensed Ground Instructor (Basic, Advanced, Instrument and Simulators); 5. Research Areas and Publications: International law (on genocide, rights of nations, war and war crimes); Imperialism (nature, history, logic, trajectories, mechanisms and effects); Economic Geography (time and space modeling in political economy; globalization--logic and effects; Political Economy and Geography of Imperialism); Indigenous versus non-Indigenous Law; Political Economy of Socialism and Socialist Construction; 6. Member, Editorial Board, "International Critical Thought" published by the Chinese Academy of Social Sciences; International Advisory Board and Columnist 4th Media Group, (Beijing); 7. Other Websites publications at;;; 8.Biography available in: Marquis Who’s Who: in the World (16th-18th; 20th; 22nd -31st (2014) Editions); Who’s Who in America (51st-61st;63rd-68th(2014) Editions); Who’s Who in the West (24th- 27th Editions);Who’s Who in Science and Engineering (3rd to 6th, 8th, 11th (2011-2012) Editions); Who’s Who in Finance and Industry (29th to 37th Editions); Who’s Who in American Education (6th Edition). ------------------- There are times when you have to obey a call which is the highest of all, i.e. the voice of conscience even though such obedience may cost many a bitter tear, and even more, separation from friends, from family, from the state, to which you may belong, from all that you have held as dear as life itself. For this obedience is the law of our being. ~ Mahatma Gandhi
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