The Theoretical Mistakes of the Narodnik Economists

Vladimir Ilyich Lenin

Written: 1896-1899.
Source: Lenin’s Collected Works, 4th Edition, Moscow, 1964, Volume 3, pp. 37-69
Publisher: Progress Publishers
First Published: First printed in book form at the end of March 1899. Published according to the text of the second edition, 1908.
Original Transcription & Markup:R. Cymbala (2000)
Re-Marked up by:Kevin Goins (2008)
Thanks to : Marxists Internet Archive
Public Domain: Lenin Internet Archive (2000). You may freely copy, distribute, display and perform this work; as well as make derivative and commercial works. Please credit “Marxists Internet Archive” as your source.


I. The Social Division of Labour 
II. The Growth of the Industrial Population at the Expense of the Agricultural 
III. The Ruin of the Small Producers 
IV. The Narodnik Theory of the Impossibility of Realising Surplus-Value 
V. The Views of Adam Smith on the Production and Circulation of the Aggregate Social Product in Capitalist Society and Marx’s Criticism of These Views 
VI. Marx’s Theory of Realisation 
VII. The Theory of the National Income 
VIII. Why Does the Capitalist Nation Need a Foreign Market? 
IX. Conclusions From Chapter I

The market is a category of commodity economy, which in the course of its development is transformed into capitalist economy and only under the latter gains complete sway and universal prevalence. Therefore, in order to examine basic theoretical propositions concerning the home market we must proceed from simple commodity economy and trace its gradual transformation into capitalist economy.

I. The Social Division of Labour

The basis of commodity economy is the social division of labour. Manufacturing industry separates from the raw materials industry, and each of these subdivides into small varieties and subvarieties which produce specific products as commodities, and exchange them for the products of all the others. Thus, the development of commodity economy leads to an increase in the number of separate and independent branches of industry; the tendency of this development is to transform into a special branch of industry the making not only of each separate product, but even of each separate part of a product—and not only the making of a product, but even the separate operations of preparing the product for consumption. Under natural economy society consisted of a mass of homogeneous economic units (patriarchal peasant families, primitive village communities, feudal manors), and each such unit engaged in all forms of economic activity, from the acquisition of various kinds of raw material to their final preparation for consumption. Under commodity economy heterogeneous economic units come into being, the number of separate branches of economy increases, and the number of economic units per forming one and the same economic function diminishes. It is this progressive growth in the social division of labour that is the chief factor in the process of creating a home market for capitalism. “…Where the basis is commodity production and its absolute form, capitalist production,” says Marx, “… products are commodities, or use-values, which have an exchange-value that is to be realised, to be converted into money, only in so far as other commodities form an equivalent for them, that is, other products confront them as commodities and values; thus, in so far as they are not produced as immediate means of subsistence for the producers themselves, but as commodities, as products which become use-values only by their transformation into exchange values (money), by their alienation. The market for these commodities develops through the social division of labour ; the division of productive labours mutually transforms their respective products into commodities, into equivalents for each other, making them mutually serve as markets” (Das Kapital, III, 2, 177-178. Russ. trans., 526.[2] Our italics, as in all quotations, unless otherwise stated).

It goes without saying that the above-mentioned separation of the manufacturing from the raw materials industry, of manufacture from agriculture, transforms agriculture itself into an industry, into a commodity-producing branch of economy. The process of specialisation that separates from each other the diverse varieties of the manufacture of products, creating an ever-growing number of branches of industry, also manifests itself in agriculture, creating specialised agricultural districts (and systems of farming)[1] and giving rise to exchange not only between the products of agriculture and industry but also between the various products of agriculture. This specialisation of commercial (and capitalist) agriculture manifests itself in all capitalist countries, in the international division of labour; this is true of post-Reform Russia as well, as we shall show in detail below.

Thus, the social division of labour is the basis of the entire process of the development of commodity economy and of capitalism. It is quite natural, therefore, that our Narodnik theoreticians, who declare this process to be the result of artificial measures, the result of a “deviation from the path,” and so on and so forth, have tried to gloss over the fact of the social division of labour in Russia or to belittle its significance. Mr. V. V., in his article “Division of Agricultural and Industrial Labour in Russia” (Vestnik Yevropy [European Messenger ], 1884, No. 7), “denied” “the dominance in Russia of the principle of the social division of labour” (p. 347), and declared that in this country the social division of labour “has not sprung from the depths of the people’s life, but has attempted to thrust itself into it from outside” (p. 338). Mr. N.–on, in his Sketches, argued as follows about the increase in the quantity of grain offered for sale: “This phenomenon might imply that the grain produced is more evenly distributed over the country, that the Archangel fisherman now consumes Samara grain, and that the Samara farmer supplements his dinner with Archangel fish. Actually, however, nothing of the kind is happening” (Sketches on Our Post-Reform Social Economy, St. Petersburg, 1893, p. 37). Without any data and contrary to generally known facts, the categorical assertion is bluntly made here that there is no social division of labour in Russia! The Narodnik theory of the “artificial character” of capitalism in Russia could only have been evolved by rejecting, or proclaiming as “artificial,” the very foundation of all commodity economy, namely, the social division of labour.


[1] For example, I. A. Stebut in his Principles of Crop Farming distinguishes farming systems according to the principal product marketed. There are three main farming systems: 1) crop growing (grain farming, as Mr. A. Skvortsov calls it); 2) livestock raising (the principal product marketed being livestock produce); and 3) industrial (technical farming, as Mr. A. Skvortsov calls it); the principal product marketed being agricultural produce that undergoes technical processing. See A. Skvortsov, The Influence of Steam Transport on Agriculture, Warsaw, 1890, p, 68 and foll. —Lenin


II. The Growth of the Industrial Population at the Expense of the Agricultural

In view of the fact that in the epoch preceding commodity economy, manufacturing is combined with the raw materials industry, and the latter is headed by agriculture, the development of commodity economy takes the shape of the separation from agriculture of one branch of industry after another. The population of a country in which commodity economy is poorly developed (or not developed at all) is almost exclusively agricultural. This, however, must not be understood as meaning that the population is engaged solely in agriculture: it only means that the population engaged in agriculture, also process the products of agriculture, and that exchange and the division of labour are almost non-existent. Consequently, the development of commodity economy eo ipso means the divorcement of an ever-growing part of the population from agriculture, i.e., the growth of the industrial population at the expense of the agricultural population. “It is in the nature of capitalist production to continually reduce the agricultural population as compared with the non-agricultural, because in industry (in the strict sense) the increase of constant capital at the expense of variable capital goes hand in hand with an absolute increase in variable capital despite its relative decrease; on the other hand, in agriculture the variable capital required for the exploitation of a certain plot of land decreases absolutely; it can thus only increase to the extent that new land is taken into cultivation, but this again requires as a prerequisite a still greater growth of the non-agricultural population” (Das Kapital, III, 2, 177. Russ. trans., p. 526).[2] Thus one cannot conceive of capitalism without an increase in the commercial and industrial population at the expense of the agricultural population, and everybody knows that this phenomenon is revealed in the most clear-cut fashion in all capitalist countries. It need hardly be proved that the significance of this circumstance as regards the problem of the home market is enormous, for it is bound up inseparably both with the evolution of industry and with the evolution of agriculture; the formation of industrial centres, their numerical growth, and the attraction of the population by them cannot but exert a most profound influence on the whole rural system, and cannot but give rise to a growth of commercial and capitalist agriculture. All the more noteworthy is the fact that the exponents of Narodnik economics completely ignore this law both in their purely theoretical arguments and in their arguments about capitalism in Russia (we shall deal at length with the specific manifestations of this law in Russia later on, in Chapter VIII). The theories of Messrs. V. V. and N.–on regarding the home market for capitalism overlook a mere trifle—the diversion of the population from agriculture to industry, and the influence exerted by this fact on agriculture.[1]


[1] We have pointed to the identical attitude of the West-European romanticists and Russian Narodniks to the problem of the growth of industrial population in our article “A Characterisation of Economic Romanticism. Sismondi and Our Native Sismondists.”—Lenin

[2] Karl Marx, Capital, Moscow, 1959, Vol. III, p. 622.

Throughout this book, references to Karl Marx’s Das Kapital are to the following German editions: Vol. 1–2nd edition, 1872; Vol. 2–1885 edition; and Vol. 3–1894 edition. References to the “Russian translation” of Capital are to the one by N. F. Danielson (1896).

III. The Ruin of the Small Producers

So far we have dealt with simple commodity production. Now we pass to capitalist production, that is, we presume that instead of simple commodity producers we have, on the one hand, the owner of means of production and, on the other, the wage-worker, the seller of labour-power. The conversion of the small producer into a wage-worker presumes that he has lost the means of production—land, tools, workshop, etc.—i.e., that he is “impoverished,” “ruined.” The view is advanced that this ruin “diminishes the purchasing power of the population,” “diminishes the home market” for capitalism (Mr. N.–on, loc. cit., p. 185. Also pp. 203, 275, 287, 339-340, etc. The same view is held by Mr. V. V. in the majority of his writings). We do not deal here with the factual data relating to this process in Russia—they will be examined in detail in later chapters. At the moment the question is posed purely theoretically, i.e., it relates to commodity production in general where it is transformed into capitalist production. The writers mentioned also pose this question theoretically, i.e., from the mere fact of the ruin of the small producers they deduce a shrinkage of the home market. This view is absolutely incorrect, and its persistent survival in our economic literature can only be explained by the romantic prejudices of Narodism (see the article referred to in the footnote). It is forgotten that the “freeing” of one section of the producers from the means of production necessarily presumes the passage of the latter into other hands, their conversion into capital; presumes, consequently, that the new owners of these means of production produce as commodities the products formerly consumed by the producer himself, i.e., expand the home market; that in expanding production the new owners of the means of production present a demand to the market for new implements, raw materials, means of transport, etc., and also for articles of consumption (the enrichment of these new owners naturally presumes an increase in their consumption). It is forgotten that it is by no means the well-being of the producer that is important for the market but his possession of money; the decline in the well-being of the patriarchal peasant, who formerly conducted a mainly natural economy, is quite compatible with an increase in the amount of money in his possession, for the more such a peasant is ruined, the more he is compelled to resort to the sale of his labour-power, and the greater is the share of his (albeit scantier) means of subsistence that he must acquire in the market. “With the setting free (from the land) of a part of the agricultural population, therefore, their former means of nourishment were also set free. They were now transformed into material elements of variable capital” (capital spent on the purchase of labour-power) (Das Kapital, I, 776). “The expropriation and eviction of a part of the agricultural population not only set free for industrial capital the labourers, their means of subsistence, and material for labour; it also created the home market ” (ibid., 778).[1] Thus, from the standpoint of abstract theory, the ruin of the small producers in a society of developing commodity economy and capitalism means the very opposite to what Messrs. N.–on and V. V. want to deduce therefrom; it means the creation and not the shrinkage of the home market. If the very same Mr. N.–on, who declares a priori that the ruin of the Russian small producers means the shrinkage of the home market, nevertheless cites the just quoted contrary assertions of Marx (Sketches, pp. 71 and 114), it only proves the remarkable ability of that writer to belabour himself with quotations from Capital.


[1] Karl Marx, Capital, Vol. I, Moscow, 1958, pp. 745 and 747.

IV. The Narodnik Theory of the Impossibility of Realising Surplus-Value

The next question in the theory of the home market is the following. We know that the value of a product in capitalist production resolves into three parts: 1) the first part replaces the constant capital, i.e., the value that existed previously in the shape of raw and auxiliary materials, machines and instruments of production, etc., and that is merely reproduced in a certain part of the finished product; 2) the second part replaces the variable capital, i.e., covers the maintenance of the worker; and, lastly, 3) the third part constitutes the surplus-value, which belongs to the capitalist. It is usually granted (we state the question in the spirit of Messrs. N.–on and V. V.) that the realisation (i. e., the finding of a corresponding equivalent, sale in the market) of the first two parts presents no difficulty, because the first part goes into production, and the second into consumption by the working class. But how is the third part—surplus-value—realised? It cannot, surely, be consumed in its entirety by the capitalists! So our economists come to the conclusion that “the way out of the difficulty” of realising surplus-value is “the acquisition of a foreign market” (N.–on, Sketches, Part II, § XV in general, and p. 205 in particular; V. V., “The Excess in the Market Supply of Commodities” in Otechestvenniye Zapiski [Fatherland Notes ], 1883, and Essays on Theoretical Economics, St. Petersburg, 1895, p. 179 and foll.). The writers mentioned explain the need for a capitalist nation to have a foreign market by the suggestion that the capitalists cannot realise their products in any other way. The home market in Russia, they say, is shrinking because of the ruin of the peasantry and because of the impossibility of realising surplus-value without a foreign market, while the foreign market’s closed to a young country that enters the path of capitalist development too late—and so, it is declared as proven that Russian capitalism has no basis, is still-born, a claim founded on mere a priori (and, moreover, theoretically incorrect) assumptions!

When expressing his views on realisation, Mr. N.–on evidently had in mind Marx’s theory on this subject (although he said not a single word about Marx in this part of his Sketches), but he absolutely failed to understand it and distorted it beyond recognition, as we shall see in a moment. This explains the curious fact that his views coincided in all essentials with those of Mr. V. V., who cannot possibly be accused of “not understanding” theory, for it would be the height of injustice to suspect him of even the slightest acquaintance with it. Both authors expound their theories as though they are the first to have dealt with the subject, and have reached certain solutions “all by themselves”; both of them most sublimely ignore the arguments of the old economists on the subject, and both repeat old errors that have been most thoroughly refuted in Volume II of Capital.[1] Both authors reduce the whole problem of the realisation of the product to the realisation of surplus-value, evidently imagining that the realisation of constant capital presents no difficulties. This naive opinion contains a most profound error, one that is the source of all further errors in the Narodnik theory of realisation. As a matter of fact, the difficulty of explaining realisation is precisely one of explaining the realisation of constant capital. In order to be realised, constant capital must be put back again into production, and that is directly practicable only in the case of that capital whose product consists of means of production. If, however, the product which makes good the constant part of capital consists of articles of consumption, it cannot be directly put back into production; what is required is exchange between the department of social production that makes means of production and that which makes articles of consumption. It is this point that constitutes the whole difficulty of the problem, a difficulty unnoticed by our economists. Mr. V. V. presents the matter, generally speaking, as if the aim of capitalist production is not accumulation but consumption, advancing the profound argument that “into the hands of a minority flows a mass of material objects in excess of the consuming power of the organism” (sic !) “at the given stage of their development” (loc. cit., 149) and that “it is not the moderation and abstemiousness of the manufacturers which are the cause of the superfluity of products, but the limitations and insufficient elasticity of the human organism (!!), which fails to increase its consuming power at the rate at which surplus-value grows” (ibid., 161). Mr. N.–on tries to present the matter as though he does not regard consumption as the aim of capitalist production, as though he takes account of the role and significance of means of production in regard to the problem of realisation; as a matter of fact, however, he has no clear idea whatsoever about the process of the circulation and reproduction of the aggregate social capital, and has become entangled in a host of contradictions. We shall not stop to examine all these contradictions in detail (pp. 203-205 of Mr. N.–on’s Sketches ); that would be too thankless a task (and one already performed in part by Mr. Bulgakov[2] in his book Markets Under Capitalist Production, Moscow, 1897, pp. 237-245), and furthermore, to prove the justice of the appraisal given here of Mr. N.–on’s arguments, it will suffice to examine his final conclusion, namely, that the foreign market is the way out of the difficulty of realising surplus-value. This conclusion of Mr. N.–on’s (essentially a mere repetition of the one drawn by Mr. V. V.) shows in most striking fashion that he did not in any way understand either the realisation of the product in capitalist society (i.e., the theory of the home market) or the role of the foreign market. Indeed, is there even a grain of common sense in this dragging of the foreign market into the problem of “realisation”? The problem of realisation is how to find for each part of the capitalist product, in terms of value (constant capital, variable capital and surplus-value) and in its material form (means of production, and articles of consumption, specifically necessities and luxuries), that other part of the product which replaces it on the market. Clearly, foreign trade must here be excluded, for dragging it in does not advance the solution of the problem one iota, but merely retracts it by extending the problem from one country to several. The very same Mr. N.–on who discovered in foreign trade “the way out of the difficulty” of realising surplus-value, argues about wages, for example, as follows: with the part of the annual product which the direct producers, the workers, receive in the shape of wages “only that part of the means of subsistence can be drawn from circulation which is equal in value to the sum total of wages” (203). How, the question arises, does our economist know that the capitalists of a given country will produce means of subsistence in just the quantity and of just the quality requisite for their realisation by wages? How does he know that in this connection the foreign market can be dispensed with? Obviously, he cannot know this, and has simply brushed aside the problem of the foreign market, for in discussing the realisation of variable capital the important thing is the replacement of one part of the product by another, and not at all whether this replacement takes place in one country or in two. With respect to surplus-value, however, he departs from this necessary premise, and instead of solving the problem, simply evades it by talking of the foreign market. The sale of the product in the foreign market itself needs explanation, i.e., the finding of an equivalent for that part of the product which is being sold, the finding of another part of the capitalist product that can replace the first. That is why Marx says that in examining the problem of realisation, the foreign market, foreign trade “must be entirely discarded,” for “the involvement of foreign commerce in analysing the annually reproduced value of products can…only confuse without contributing any new element of the problem, or of its solution” (Das Kapital, 11, 469).[3] Messrs. V. V. and N.–on imagined that they were giving a profound appraisal of the contradictions of capitalism by pointing to the difficulties of realising surplus-value. Actually, however, they were giving an extremely superficial appraisal of the contradictions of capitalism, for if one speaks of the “difficulties” of realisation, of the crises, etc., arising therefrom, one must admit that these “difficulties” are not only possible but are necessary as regards all parts of the capitalist product, and not as regards surplus-value alone. Difficulties of this kind, due to disproportion in the distribution of the various branches of production, constantly arise, not only in realising surplus-value, but also in realising variable and constant capital; in realising not only the product consisting of articles of consumption, but also that consisting of means of production. Without “difficulties” of this kind and crises, there cannot, in general, be any capitalist production, production by isolated producers for a world market unknown to them.


[1] Particularly astonishing in this connection is Mr. V V.’s audacity, which transcends all bounds of literary decency. After enunciating his theory, and betraying his utter unfamiliarity with Volume II of Capital, which deals specifically with realisation, he goes on to make the quite unfounded statement that “in building up my propositions I used” Marx’s theory!! (Essays on Theoretical Economics, Essay III. “The Capitalist Law (sic !?!) of Production, Distribution and Consumption,” p. 162.) —Lenin

[2] It will not be superfluous to remind the contemporary reader that Mr. Bulgakov, and also Messrs. Struve and Tugan-Baranovsky whom we shall quote rather often later on, tried to be Marxists in 1899. Now they have all safely turned from “critics of Marx” into plain bourgeois economists. (Note to 2nd edition.[4]) —Lenin

[4] Here and elsewhere, footnotes indicated as Note to 2nd edition are those written by Lenin himself when he prepared the second, 1908 edition of this work.

[3] Karl Marx, Capital, Vol. II, Moscow, 1957, p. 470

V. The Views of Adam Smith on the Production and Circulation of the Aggregate Social Product in Capitalist Society and Marx’s Criticism of These Views

In order properly to understand the theory of realisation we must start with Adam Smith, who laid the foundation of the erroneous theory on this subject that held undivided sway in political economy until Marx. Adam Smith divided the price of a commodity into only two parts: variable capital (wages, in his terminology) and surplus-value (he does not combine “profit” and “rent,” so that actually he counted three parts in all.)[1] Similarly, he divided the sum-total of commodities, the total annual social product, into the same parts and allocated them directly to the “revenue” of the two classes of society: the workmen and the capitalists (undertakers and landlords, as Smith calls them).[2]

On what did he base his omission of the third component of value, constant capital? Adam Smith could not fail to observe this part, but he assumed that it also is made up of wages and surplus-value. Here is how he argued on this subject: “In the price of corn, for example, one part pays the rent of the landlord, another pays the wages or maintenance of the labourers and labouring cattle employed in producing it, and the third pays the profit of the farmer. These three parts seem either immediately or ultimately to make up the whole price of corn. A fourth part, it may perhaps be thought, is necessary for replacing the stock of the farmer, or for compensating the wear and tear of his labouring cattle, and other instruments of husbandry. But it must be considered that the price of any instrument of husbandry, such as a labouring horse, is itself made up of the same three parts” (namely, rent, profit and wages). “Though the price of the corn, therefore, may pay the price as well as the maintenance of the horse, the whole price still resolves itself either immediately or ultimately into the same three parts of rent, labour and profit.”[3] Marx calls this theory of Smith’s “astonishing.” “His proof consists simply in the repetition of the same assertion” (II, S. 366).[6] Smith sends us “from pillar to post” (I. B., 2. Aufl., S. 612[4]).[7] In saying that the price of farming instruments itself resolves into the same three parts, Smith forgets to add: and also into the price of the means of production employed in the making of these instruments. The erroneous exclusion by Adam Smith (and also by subsequent economists) of the constant part of capital from the price of the product is due to an erroneous conception of accumulation in capitalist economy, i.e., of the expansion of production, the transformation of surplus-value into capital. Here too Adam Smith omitted constant capital, assuming that the accumulated part of surplus-value, the part converted into capital, is entirely consumed by the productive workers, i.e., goes entirely in wages, whereas actually the accumulated part of surplus-value is expended on constant capital (instruments of production, raw and auxiliary materials) plus wages. Criticising this view of Smith (and also of RicardoMill and others) in Capital, Volume I (Part VII, “The Accumulation of Capital,” Chapter 22, “Conversion of Surplus-Value into Capital,” § 2, “Erroneous Conception, by Political Economy, of Reproduction on a Progressively Increasing Scale”), Marx there states that in Volume II “it will be shown that Adam Smith’s dogma, inherited by all his successors, prevented political economy from understanding even the most elementary mechanism of the process of social reproduction” (I, 612).[8] Adam Smith committed this error because he confused the value of the product with the newly created value: the latter does indeed resolve itself into variable capital and surplus-value, whereas the former includes constant capital in addition. This error had been earlier exposed by Marx in his analysis of value, when he drew a distinction between abstract labour, which creates new value, and concrete, useful labour, which reproduces the previously existing value in the new form of a useful product.[9]

An explanation of the process of the reproduction and circulation of the total social capital is particularly necessary to settle the problem of the national revenue in capitalist society. It is extremely interesting to note that, when dealing with the latter problem, Adam Smith could no longer cling to his erroneous theory, which excludes constant capital from the country’s total product. “The gross revenue of all the inhabitants of a great country comprehends the whole annual produce of their land and labor; the neat revenue, what remains free to them after deducting the expense of maintaining; first, their fixed; and, secondly, their circulating capital; or what, without encroaching upon their capital, they can place in their stock reserved for immediate consumption, or spend upon their subsistence, conveniences, and amusements” (A. Smith, Wealth of Nations, Book II. “Of the Nature, Accumulation, and Employment of Stock,” Chapter II, Vol. II, p. 18. Russ. trans., II, p. 21). Thus, from the country’s total product Adam Smith excluded capital, asserting that it resolves itself into wages, profit and rent, i.e., into (net) revenue; but in the gross revenue of society he includes capital, separating it from articles of consumption (= net revenue). This is the contradiction in which Marx catches Adam Smith: how can there be capital in the revenue if there was no capital in the product? (Cf. Das Kapital, II, S. 355.)[10] Without noticing it himself, Adam Smith here recognises three component parts in the value of the total product: not only variable capital and surplus-value, but also constant capital. Further on, Adam Smith comes up against another very important difference, one of enormous significance in the theory of realisation. “The whole expense of maintaining the fixed capital,” he says, “must evidently be excluded from the neat revenue of the society. Neither the materials necessary for supporting their useful machines and instruments of trade, their profitable buildings, etc., nor the produce of the labor necessary for fashioning those materials into the proper form, can ever make any part of it. The price of that labor may indeed make a part of it; as the workmen so employed may place the whole value of their wages in their stock reserved for immediate consumption.” But in other kinds of labour, both the “price” (of labour) “and the produce” (of labour) “go to this stock, the price to that of the workmen, the produce to that of other people” (A. Smith, ibid.). Here we find a gleam of recognition of the need to distinguish two kinds of labour: one that produces articles of consumption which may enter into the “neat revenue,” and another which produces “useful machines and instruments of trade…buildings, etc.,” i.e., articles that can never be used for personal consumption. From this it is only one step to the admission that an explanation of realisation absolutely requires that two forms of consumption be distinguished: personal and productive (= putting back into production). It was the rectification of these two mistakes made by Smith (the omission of constant capital from the value of the product, and the confusing of personal with productive consumption) that enabled Marx to build up his brilliant theory of the realisation of the social product in capitalist society.

As for the other economists, those between Adam Smith and Marx, they all repeated Adam Smith’s error[5] and for that reason did not advance one step. Of the confusion that consequently reigns in the theories of revenue we shall speak later. In the controversy as to the possibility of a general overproduction of commodities that was waged by Ricardo, Say, Mill and others, on the one hand, and by Malthus, Sismondi, Chalmers, Kirchmann and others, on the other, both sides adhered to Smith’s erroneous theory, and consequently, as Mr. S. Bulgakov justly remarks, “in view of the false premises and the wrong formulation of the problem itself, these controversies could only lead to empty and scholastic wordspinning” (loc. cit., p. 21. See an account of this wordspinning in Tugan-Baranovsky’s Industrial Crises, etc., St. Petersburg, 1894, pp. 377-404).


[1] Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations, 4th ed., 1801, Vol. I, p. 75, Book I: “Of the Causes of Improvement in the productive Powers of Labor, and of the Order according to which its Produce is naturally distributed among the different Ranks of the People,” Chapter VI, “Of the component Parts of the Price of Commodities,” Bibikov’s Russian translation (St. Petersburg, 1866), Vol. I, p. 171.—Lenin

[2] Loc cit., I, pg. 78 Russ. trans. I, p. 174.—Lenin

[3] Ibid., Vol I pp. 75-76. Russ. trans, I, p. 171.—Lenin

[4] Vol. I, 2nd Ed., p. 612.—Lenin

[5] For example, Ricardo asserted that “the whole produce of the land and labour of every country is divided into three portions: of these, one portion is devoted to wages another to profits, and the other to rent” (Works, Sieber’s translation, St. Petersburg, 1882, p. 221.)—Lenin

[6] Karl Marx, Capital, Vol. II, Moscow, 1957, p. 373.

[7] Karl Marx, Capital, Vol. I, Moscow, 1958, p. 590.

[8] Karl Marx, Capital, Vol. I, Moscow, 1958, Chapter XXIV, Section 2.

[9] Karl Marx, Capital, Vol. I, Moscow, 1958, pp. 199-202.

[10] Karl Marx, Capital, Vol. II, Moscow, 1957, pp. 363-64.

VI. Marx’s Theory of Realisation

It follows automatically from what has been said that the fundamental premises on which Marx’s theory is based are the following two propositions. The first is that the total product of a capitalist country, like the individual product, consists of the following three parts: 1) constant capital, 2) variable capital, and 3) surplus-value. To those who are familiar with the analysis of the process of production of capital given in Vol. I of Marx’s Capital this proposition is self-evident. The second proposition is that two major departments of capitalist production must be distinguished, namely (Department I), the production of means of production—of articles which serve for productive consumption, i.e., are to be put back into production, articles which are consumed, not by people, but by capital; and (Department II) the production of articles of consumption, i.e., of articles used for personal consumption. “There is more theoretical meaning in this division alone than in all the preceding controversies over the theory of markets” (Bulgakov, loc. cit., p. 27). The question arises as to why such a division of products according to their natural form is now necessary to analyse the reproduction of social capital, when the analysis of the production and reproduction of individual capital dispensed with such a division and left the question of the natural form of the product entirely on one side. On what grounds can we introduce the question of the natural form of the product into a theoretical investigation of capitalist economy, which is based entirely on the exchange-value of the product? The fact is that when the production of individual capital was analysed, the question of where and how the product would be sold, and of where and how articles of consumption would be bought by the workers and means of production by the capitalists, was set aside as making no contribution to this analysis and as having no relation to it. All that had to be examined then was the problem of the value of the separate elements of production and of the results of production. Now, however, the question is: where will the workers and the capitalists obtain their articles of consumption, where will the capitalists obtain their means of production, how will the finished product meet all these demands and enable production to expand? Here, consequently, we have not only “a replacement of value, but also a replacement in material” (Stoffersatz.—Das Kapital, II, 389),[5] and hence it is absolutely essential to distinguish between products that play entirely different parts in the process of social economy.

Once these basic propositions are taken into account, the problem of the realisation of the social product in capitalist society no longer presents any difficulty. Let us first assume simple reproduction, i.e., the repetition of the process of production on its previous scale, the absence of accumulation. Obviously, the variable capital and the surplus-value in Department II (which exist in the form of articles of consumption) are realised by the personal consumption of the workers and capitalists of this department (for simple reproduction presumes that the whole of the surplus-value is consumed, and that no portion of it is converted into capital). Further, the variable capital and the surplus-value which exist in the form of means of production (Department I) must, in order to be realised, be exchanged for articles of consumption for the capitalists and workers engaged in the making of means of production. On the other hand, neither can the constant capital existing in the form of articles of consumption (Department II) be realised except by an exchange for means of production, in order to be put back again into production the following year. Thus we get variable capital and surplus-value in means of production exchanged for constant capital in articles of consumption: the workers and the capitalists (in the means of production department) in this way obtain means of subsistence, while the capitalists (in the articles of consumption department) dispose of their product and obtain constant capital for further production. Under simple reproduction, the parts exchanged must be equal: the sum of variable capital and surplus-value in means of production must be equal to the constant capital in articles of consumption. On the other hand, if we assume reproduction on a progressively increasing scale, i.e., accumulation, the first magnitude must be greater than the second, because there must be available a surplus of means of production with which to begin further production. Let us revert, however, to simple reproduction. There has been left unrealised one more part of the social product, namely, constant capital in means of production. This is realised partly by exchange among the capitalists of this same department (coal, for example, is exchanged for iron, because each of these products serves as a necessary material or instrument in the production of the other), and partly by being put directly into production (for example, coal extracted in order to be used in the same enterprise again for the extraction of coal; grain in agriculture, etc.). As for accumulation, its starting-point, as we have seen, is a surplus of means of production (taken from the surplus-value of the capitalists in this department), a surplus that also calls for the conversion into capital of part of the surplus-value in articles of consumption. A detailed examination of how this additional production will be combined with simple reproduction we consider to be superfluous. It is no part of our task to undertake a special examination of the theory of realisation, and the foregoing is enough to elucidate the error of the Narodnik economists and to enable us to draw certain theoretical conclusions regarding the home market.[1]

On the problem of interest to us, that of the home market, the main conclusion from Marx’s theory of realisation is the following: capitalist production, and, consequently, the home market, grow not so much on account of articles of consumption as on account of means of production. In other words, the increase in means of production outstrips the increase in articles of consumption. Indeed, we have seen that constant capital in articles of consumption (Department II) is exchanged for variable capital + surplus-value in means of production (Department I). According, however, to the general law of capitalist production, constant capital grows faster than variable capital. Hence, constant capital in articles of consumption has to increase faster than variable capital and surplus-value in articles of consumption, while constant capital in means of production has to increase fastest of all, outstripping both the increase of variable capital ( + surplus-value) in means of production and the increase of constant capital in articles of consumption. The department of social production which produces means of production has, consequently, to grow faster than that producing articles of consumption. For capitalism, therefore, the growth of the home market is to a certain extent “independent” of the growth of personal consumption, and takes place mostly on account of productive consumption. But it would be a mistake to understand this “independence” as meaning that productive consumption is entirely divorced from personal consumption: the former can and must increase faster than the latter (and there its “independence” ends), but it goes without saying that, in the last analysis, productive consumption is always bound up with personal consumption. Marx says in this connection: “…We have seen (Book II, Part III) that continuous circulation takes place between constant capital and constant capital…” (Marx has in mind constant capital in means of production, which is realised by exchange among capitalists in the same department). “It is at first independent of individual consumption because it never enters the latter. But this consumption definitely limits it nevertheless, since constant capital is never produced for its own sake but solely because more of it is needed in spheres of production whose products go into individual consumption” (Das Kapital, III, 1, 289. Russ. trans., p. 242). [6]

This larger consumption of constant capital is nothing but a higher level of the development of the productive forces, one expressed in terms of exchange-value, because the rapidly developing “means of production” consist, in the main, of materials, machines, instruments, buildings and all sorts of other accessories for large-scale, especially machine, production. It is quite natural, therefore, that capitalist production, which develops the productive forces of society and creates large-scale production and machine industry, is also distinguished by a particular expansion of that department of social wealth which consists of means of production….“In this case” (namely, the production of means of production), “what distinguishes capitalist society from the savage is not, as Senior thinks, the privilege and peculiarity of the savage to expend his labour at times in a way that does not procure him any products resolvable (exchangeable) into revenue, i.e., into articles of consumption. No, the distinction consists in the following:

“a) Capitalist society employs more of its available annual labour in the production of means of production (ergo, of constant capital) which are not resolvable into revenue in the form of wages or surplus-value, but can function only as capital.

“b) When a savage makes bows, arrows, stone hammers, axes, baskets, etc., he knows very well that he did not spend the time so employed in the production of articles of consumption, but that he has thus stocked up the means of production he needs, and nothing else” (Das Kapital, II, 436. Russ. trans., 333).[7] This “very good knowledge” of one’s relation to production has disappeared in capitalist society owing to the latter’s inherent fetishism, which presents the social relations of men as relations of products—owing to the conversion of every product into a commodity produced for an unknown consumer and to be realised in an unknown market. And as it is a matter of the utmost indifference to the individual entrepreneur what kind of article he produces—every product yields a “revenue,”—this same superficial, individual point of view was adopted by the economist-theoreticians in relation to the whole of society and prevented the process of the reproduction of the total social product in capitalist economy from being understood.

The development of production (and, consequently, of the home market) chiefly on account of means of production seems paradoxical and undoubtedly constitutes a contradiction. It is real “production as an end in itself”—the expansion of production without a corresponding expansion of consumption. But it is a contradiction not of doctrine, but of actual life; it is the sort of contradiction that corresponds to the very nature of capitalism and to the other contradictions of this system of social economy. It is this expansion of production without a corresponding expansion of consumption that corresponds to the historical mission of capitalism and to its specific social structure: the former consists in the development of the productive forces of society; the latter rules out the utilisation of these technical achievements by the mass of the population. There is an undoubted contradiction between the drive towards the unlimited extension of production inherent in capitalism, and the limited consumption of the masses of the people (limited because of their proletarian status). It is this contradiction that Marx records in the propositions so readily quoted by the Narodniks and which are supposed to corroborate their views on the shrinkage of the home market, the non-progressive character of capitalism, etc., etc. Here are some of these propositions: “Contradiction in the capitalist mode of production: the labourers as buyers of commodities are important for the market. But as sellers of their own commodity—labour-power—capitalist society tends to keep them down to the minimum price” (Das Kapital, II, 303).[8]

“…The conditions of realisation are limited by the proportional relation of the various branches of production and the consumer power of society….But the more productiveness develops, the more it finds itself at variance with the narrow basis on which the conditions of consumption rest” (ibid., III, 1, 225-226).[9] “The limits within which the preservation and self-expansion of the value of capital resting on the expropriation and pauperisation of the great mass of producers can alone move—these limits come continually into conflict with the methods of production employed by capital for its purposes, which drive towards unlimited extension of production, towards production as an end in itself, towards unconditional development of the social productivity of labour….The capitalist mode of production is, for this reason, a historical means of developing the material forces of production and creating an appropriate world market, and is, at the same time, a continual conflict between this its historical task and its own corresponding relations of social production.” (III, 1, 232. Russ. trans., p. 194).[10] “The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their outer limit”[2] (III, 2, 21. Russ. trans., p. 395).[11] These propositions all speak of the contradiction we have mentioned, namely, the contradiction between the unrestricted drive to expand production and limited consumption—and of nothing else.[3] Nothing could be more senseless than to conclude from these passages in Capital that Marx did not admit the possibility of surplus-value being realised in capitalist society, that he attributed crises to under-consumption, and so forth. Marx’s analysis of realisation showed that the circulation between constant capital and constant capital is definitely limited by personal consumption; but this same analysis showed the true character of this “limitedness,”[12] it showed that, compared with means of production, articles of consumption play a minor role in the formation of the home market. And, furthermore, there is nothing more absurd than to conclude from the contradictions of capitalism that the latter is impossible, non-progressive, and so on—to do that is to take refuge from unpleasant, but undoubted realities in the transcendental heights of romantic dreams. The contradiction between the drive towards the unlimited expansion of production and limited consumption is not the only contradiction of capitalism, which cannot exist and develop at all without contradictions. The contradictions of capitalism testify to its historically transient character, and make clear the conditions and causes of its collapse and transformation into a higher form; but they by no means rule out either the possibility of capitalism, or its progressive character as compared with preceding systems of social economy.[4]


[1] See Das Kapital, II. Band, III. Abschn.,[13] where a detailed investigation is made of accumulation, the division of articles of consumption into necessities and luxuries, the circulation of money, the wear and tear of fixed capital, etc. Readers who are unable to familiarise themselves with Volume II of Capital are recommended to read the exposition of Marx’s theory of realisation contained in Mr. S Bulgakov’s book quoted above. Mr. Bulgakov’s exposition is more satisfactory than that of Mr. M. Tugan-Baranovsky (Industrial Crises, pp. 407-438), who in building up his schemes has made some very ill-judged departures from Marx and has inadequately explained Marx’s theory; it is also more satisfactory than the exposition given by Mr. A. Skvortsov (Fundamentals of Political Economy, St. Petersburg, 1898, pp 281-295), who holds wrong views on the very important questions of profit and rent.—Lenin

[2] It is this passage that the famous Ed. Bernstein (famous after the fashion of Herostratos) quoted in his Premises of Socialism (Die Voraussetzungen, etc., Stuttgart, 1899, S. 67).[14] Our opportunist, of course, turning away from Marxism towards the old bourgeois economics, hastened to announce that this is a contradiction in Marx’s theory of crises, that Marx’s view “does not differ very much from Rodbertus’s theory of crises.” Actually, however, the only “contradiction” here is between Bernstein’s pretentious claims, on the one hand, and his senseless eclecticism and refusal to delve into the meaning of Marx’s theory, on the other. How far Bernstein failed to understand the theory of realisation is evident from his truly strange argument that the enormous increase in the aggregate surplus product must necessarily imply an increase in the number of affluent people (or an improvement in the living standard of the workers), for the capitalists themselves, if you please, and their “servants” (sic! Seite 51-52) cannot “consume” the entire surplus product!! (Note to 2nd edition.)—Lenin

[3] Mr. Tugan-Baranovsky is mistaken in thinking that in advancing this proposition Marx contradicts his own analysis of realisation (see article “Capitalism and the Market” in Mir Bozhy [God’s Earth ] 1898, No. 6, p. 123). Marx does not contradict himself at all, for the connection between productive consumption and personal consumption is also indicated in the analysis of realization.—Lenin

[4] Cf. “A Characterisation of Economic Romanticism. Sismondi and Our Native Sismondists.”—Lenin

[5] Karl Marx, Capital, Vol. II, Moscow, 1957, p. 394.

[13] Karl Marx, Capital, Vol. II, Moscow, 1957, pp. 351-523.

[6] Karl Marx, Capital, Vol. III, Moscow, 1959, pp. 299-300.

[7] Karl Marx, Capital, Vol. II, Moscow, 1957, pp. 438-39.

[8] Karl Marx, Capital, Vol. II, Moscow, 1957, p. 316.

[9] Karl Marx, Capital, Vol. III, Moscow, 1959, pp. 239-40.

[10] Karl Marx, Capital, Vol. III, Moscow, 1959, p. 245.

[14] E. Bernstein’s Die Voraussetzungen des Sozialismus und die Aufgaben der Sozialdemokratie (The Premises of Socialism and the Tasks of Social-Democracy), which revised the principles of revolutionary Marxism in the spirit of bourgeois reformism, appeared in 1899. Lenin received a copy of it when the first edition of his The Development of Capitalism in Russia had appeared, so that it was only in the second edition that he was able to include his remarks on Bernstein’s opportunist views.

Lenin calls Bernstein “famous after the fashion of Herostratos.” Tradition has it that Herostratos, a Greek who lived in the 4th century B.C., set fire to the noted temple of Artemis in his native town of Ephesus for the sole purpose of becoming known to posterity. The name of Herostratos has become an epithet applied to individuals who are ready to commit crime for the same of winning fame.

[11] Karl Marx, Capital, Vol. III, Moscow, 1959, pp. 472-73.

[12] Karl Marx, Capital, Vol. III, Moscow, 1959, p. 299.

VII. The Theory of the National Income

Having outlined the main propositions of Marx’s theory of realisation, we still have briefly to point to its enormous importance in the theory of national “consumption,” “distribution,” and “income”. All these problems, particularly the last, have hitherto been a veritable stumbling-block for economists. The more they have spoken and written about it, the greater has been the confusion caused by Adam Smith’s fundamental error. We shall cite here some examples of this confusion.

It is interesting to note, for example, that Proudhon repeated essentially the same error, except that he formulated the old theory somewhat differently. He said:

“A (which stands for all property owners, entrepreneurs and capitalists) starts an enterprise with 10,000 francs, and with them makes advance payment to the workers, who must produce goods in return; after A has thus converted his money into commodities he must, at the end of the production process, at the end, say, of a year, convert the commodities again into money. To whom does he sell his commodities? To the workers, of course, for there are only two classes in society—the entrepreneurs on the one hand, and the workers on the other. These workers, having for the product of their labour received 10,000 francs as pay, which covers their essential requirements of life, must now, how ever, pay more than 10,000 francs, that is, they must pay for the addition that A receives in the shape of the interest and other profits he counted on at the beginning of the year. The worker can cover these 10,000 francs only by borrowing, and, as a consequence, he sinks deeper and deeper into debt and poverty. One of two things must necessarily take place: either the worker may consume 9, although he produced 10, or he pays the entrepreneur only the amount of his wages, in which case the entrepreneur himself suffers bankruptcy and disaster, for he does not receive interest on capital, which he on his part, however, must pay.” (Diehl, Proudhon, II, 200, quoted from the compilation “Industry.” Articles from Handwörterbuch der Staatswissenschaften,[1] Moscow, 1896, p. 101.)

As the reader sees, this is the same difficulty—how surplus-value is to be realised—that Messrs. V. V. and N.–on are fussing over. Proudhon only expressed it in a somewhat specific form. And this specific character of his formulation brings our Narodniks still closer to him: they too, like Proudhon, consider the “difficulty” to lie in the realisation of surplus-value (interest or profit, in Proudhon’s terminology) and do not understand that the confusion they have acquired from the old economists prevents them from explaining the realisation not only of surplus-value, but also of constant capital, i.e., that their “difficulty” is in their not understanding the whole process of the realisation of the product in capitalist society.

Regarding this “theory” of Proudhon’s, Marx sarcastically observes:

“Proudhon exposes his inability to grasp this” (namely, the realisation of the product in capitalist society) “in the ignorant formulation: l’ouvrier ne peut pas racheter son propre produit (the labourer cannot buy back his own product), because the interest which is added to the prix derevient (cost-price) is contained in the product” (Das Kapital, III, 2, 379. Russ. trans., 698, in which there are mistakes).[7]

And Marx quotes the remark directed against Proudhon by a certain vulgar economist named Forcade, who “quite correctly generalises the difficulty put forward in so narrow a form by Proudhon.” Forcade said that the price of commodities contains not only something over and above the wages—the profit—but also the part that replaces constant capital. Hence, concludes Forcade in opposition to Proudhon, the capitalist is also unable to buy back commodities with his profit (not only did Forcade not solve the problem, he did not even understand it).

Neither did Rodbertus make any contribution to the solution of the problem. While laying particular stress on the thesis that “ground-rent, profit on capital and wages are income,”[2] he proved quite unable to arrive at a clear understanding of the concept “income.” Stating his view as to what the tasks of political economy would have been had it pursued “a correct method” (loc. cit., S. 26), he also speaks about the distribution of the national product. “It” (i.e., the true “science of the national economy”—Rodbertus’s italics) “should have shown how out of the total national product one part always goes to replace the capital consumed in production or worn out, while the other, as national income, goes to satisfy the direct requirements of society and of its members” (ibid., S. 27). But although true science should have shown this, Rodbertus’s “science” did nothing of the kind. The reader will see that he merely repeated Adam Smith word for word, evidently not even seeing that this is only the beginning of the problem. Which workers “replace” the national capital? How is their product realised? Not a word did ho say about this. Summing up his theory (diese neue Theorie, die ich der bisherigen gegenüberstelle,[3] S. 32) in the shape of separate theses, Rodbertus first speaks of the distribution of the national product as follows: “Rent” (by this, as we know, Rodbertus meant what is usually termed surplus-value) “and wages are, consequently, the parts into which the product resolves itself, in so far as it is income” (S. 33). This extremely important reservation should have suggested a very vital question to him: he had only just said that by income he meant articles which serve “to satisfy direct requirements”; hence, there are products that do not serve for personal consumption. How are they realised? But Rodbertus sees no unclarity here and soon forgets this reservation, speaking outright of the “division of the product into three parts ” (wages, profit and rent) (S. 49-50 and others). Thus Rodbertus virtually repeated Adam Smith’s theory together with his fundamental mistake and explained nothing at all regarding the question of income. The promise of a new, full and better theory of the distribution of the national product[4] proved to be just empty talk. As a matter of fact, Rodbertus did not advance the theory of this subject a single step. How confused were his conceptions of “income” is shown by his lengthy speculations in his Fourth Social Letter to von Kirchmann (Das Kapital, Berlin, 1884) about whether money should be included in the national income, and whether wages are taken from capital or from income—speculations of which Engels said that they “belong to the domain of scholasticism” (Vorwort to Vol. II, Capital, S. XXI).[5] [8]

Utter confusion on the problem of the national income reigns supreme among economists to this day. For example, in his article on “Crises” in Handwörterbuch der Staatswissenschaften (the afore-mentioned compilation, p. 81), Herkner, speaking of the realisation of the product in capitalist society (§ 5, “distribution”), expresses the opinion that the speculations of K. H. Rau are “sound,” although he merely repeats Adam Smith’s mistake by dividing the whole product of society into incomes. R. Meyer, in his article on “income” (ibid., p. 283 and foll.), quotes the confused definitions of A. Wagner (who also repeats Adam Smith’s error) and frankly admits that “it is difficult to distinguish income from capital,” and that “the most difficult thing is to distinguish between returns (Ertrag) and income (Einkommen).”

We thus see that the economists who have discoursed at length on the inadequate attention paid by the classical economists (and Marx) to “distribution” and “consumption” have not been able to give the slightest explanation of the most fundamental problems of “distribution” and “consumption.” That is understandable, for one cannot even discuss “consumption” unless one understands the process of the reproduction of the total social capital and of the replacement of the various component parts of the social product. This example once again proved how absurd it is to single out “distribution” and “consumption” as though they were independent branches of science corresponding to certain independent processes and phenomena of economic life. It is not with “production” that political economy deals, but with the social relations of men in production, with the social system of production. Once these social relations have been ascertained and thoroughly analysed, the place in production of every class, and, consequently, the share they get of the national consumption, are thereby defined. And the solution of the problem which brought classical political economy to a halt, and which has not been advanced a hair’s breadth by all sorts of experts on “distribution” and “consumption,” is provided by the theory which comes directly after those of the classical economists and which completes the analysis of the production of capital, individual and social.

The problem of “national income” and of “national consumption,” which is absolutely insoluble when examined independently, and has engendered nothing but scholastic speculations, definitions and classifications, proves to be solved in its entirety when the process of the production of the total social capital has been analysed. Furthermore, it ceases to exist as a separate problem when the relation of national consumption to the national product and the realisation of each separate part of this product have been ascertained. All that remains is to give names to these separate parts.

“In order to avoid unnecessary difficulty, one should distinguish gross output (Rohertrag) and net output from gross income and net income.

“The gross output, or gross product, is the total reproduced product….

“The gross income is that portion of value and that portion of the gross product” (Bruttoprodukts oder Rohprodukts) measured by it which remains after deducting that portion of value and that portion of the product of total production measured by it which replaces the constant capital advanced and consumed in production. The gross income, then, is equal to wages (or the portion of the product destined to again become the income of the labourer) + profit + rent. The net income, on the other hand, is the surplus-value, and thus the surplus-product, which remains after deducting wages, and which, in fact, thus represents the surplus-value realised by capital and to be divided with the landlord, and the surplus-product measured by it.

“…Viewing the income of the whole society, national income consists of wages plus profit plus rent, thus, of the gross income. But even this is an abstraction to the extent that the entire society, on the basis of capitalist production, bases itself on the capitalist standpoint and thereby considers only the income resolved into profit and rent as net income” (III, 2, 375-376. Russ. trans., pp. 695-696).[9]

Thus, the explanation of the process of realisation also made clear the question of income and removed the main difficulty that had prevented the achievement of clarity on this question, namely: how does “income for one become capital for another”, how can the product which consists of articles of personal consumption and resolves itself totally into wages, profit and rent, also include the constant part of capital, which can never be income? The analysis of realisation given in Capital, Volume II, Part III, gave a full answer to these questions, and in the concluding part of Volume III of Capital, which deals with “revenues,” Marx had only to give names to the separate parts of the social product and refer the reader to the analysis given in Volume II.[6]


[1] Dictionary of Political Sciences.—Lenin

[2] Dr. Rodbertus-Jagetzow, Zur Beleuchtung der sozialen Frage, Berlin, 1875, S. 72 u. ff. (On the Elucidation of the Social Problem, Berlin, p. 72 and foll. –Ed.)—Lenin

[3] –this new theory, which I set against those that have existed hitherto.—Lenin

[4] Ibid., S. 32: “…bin ich genötigt, der vorstehenden Skizze einer besseren Methode auch noch eine vollständige, solcher besseren Methode entsprechende Theorie, wenigstens der Verteilung des Nationalprodukts, hinzuzufügen.” (Ibid., p. 32: “…I am obliged to add to the present outline of a better method, a full theory, corresponding to this better method, of at least the distribution of the national product.”–Ed.)—Lenin

[5] That is why K. Diehl is absolutely wrong when he says that Rodbertus presented “a new theory of the distribution of income.” (Handwörterbuch der Staatswissenschaften, Art. “Rodbertus,” B. V., S. 448.)—Lenin

[6] See Das Kapital, III, 2, VII. Abschnitt: “Die Revenuen,” Chapter 49- “Zur Analyse des Produktionsprozesses” (Russ. trans., pp. 688-706). Here Marx also points to the circumstances that prevented the earlier economists from understanding this process (pp. 379-382. Russ. trans., 698-700).[10] —Lenin

[7] Karl Marx, Capital, Vol. III, Moscow, 1959, p. 822. Lenin’s remark on errors in the translation of Capital refers to the translation by N.–on (Danielson), 1896.

[8] Karl Marx, Capital, Vol. II, Moscow, 1957, Preface by Frederick Engels, p. 17.

[9] Karl Marx, Capital, Vol. III, Moscow, 1959, pp. 818-819. p. 64

[10] Karl Marx, Capital, Vol. III, Moscow, 1959, pp. 821-824.

VIII. Why Does the Capitalist Nation Need a Foreign Market?

Regarding the above-stated theory of the realisation of the product in capitalist society, the question may arise: Does not this theory contradict the proposition that the capitalist nation cannot dispense with foreign markets?

It must be remembered that the analysis given of the realisation of the product in capitalist society proceeded from the assumption that there is no foreign trade: this assumption has already been mentioned above and it has been shown to be essential in such an analysis. Obviously, imports and exports would only have confused the issue, without in the least helping to clear up the problem. The mistake made by Messrs. V. V. and N.–on is that they bring in the foreign market to explain the realisation of surplus-value: while explaining absolutely nothing, this reference to the foreign market merely conceals their theoretical mistakes; that is one point. Another point is that it enables them, with the aid of these mistaken “theories,” to avoid the need to explain the fact of the development of a home market for Russian capitalism.[1] The “foreign market” merely serves them as a pretext for obscuring the development of capitalism (and, consequently, of the market) inside the country—a pretext all the more convenient in that it also relieves them of the need to examine the facts which show that Russian capitalism is winning foreign markets.[2]

The need for a capitalist country to have a foreign market is not determined at all by the laws of the realisation of the social product (and of surplus-value in particular), but, firstly, by the fact that capitalism makes its appearance only as a result of widely developed commodity circulation, which transcends the limits of the state. It is therefore impossible to conceive a capitalist nation without foreign trade, nor is there any such nation.

As the reader sees, this reason is of a historical order. And the Narodniks could not escape it with a couple of threadbare phrases about “the impossibility of the capitalists consuming surplus-value.” Had they really wanted to raise the question of the foreign market, they would have had to examine the history of the development of foreign trade, the history of the development of commodity circulation. And having examined this history, they could not have, of course, depicted capitalism as a casual deviation from the path.

Secondly, the conformity between the separate parts of social production (in terms of value and in their natural form) which was necessarily assumed by the theory of the reproduction of social capital, and which is actually established only as the average magnitude of a number of continual fluctuations—this conformity is constantly disturbed in capitalist society owing to the separate existence of different producers working for an unknown market. The various branches of industry, which serve as “markets” for one another, do not develop evenly, but outstrip one another, and the more developed industry seeks a foreign market. This does not mean at all “the impossibility of the capitalist nation realising surplus-value,”—the profound conclusion so readily drawn by the Narodnik. It merely indicates the lack of proportion in the development of the different industries. If the national capital were distributed differently, the same quantity of products could be realised within the country. But for capital to abandon one sphere of industry and pass into another there must be a crisis in that sphere; and what can restrain the capitalists threatened by such a crisis from seeking a foreign market, from seeking subsidies and bonuses to facilitate exports, etc.?

Thirdly, the law of pre-capitalist modes of production is the repetition of the process of production on the previous scale, on the previous technical basis: such are the corvée economy of the landlords, the natural economy of the peasants, the artisan production of the industrialists. The law of capitalist production, on the contrary, is constant transformation of the modes of production, and the unrestricted growth of the scale of production. Under the old modes of production, economic units could exist for centuries without undergoing any change either in character or in size, and without extending beyond the landlord’s manor, the peasant village or the small neighbouring market for the rural artisans and small industrialists (the so-called handicraftsmen). The capitalist enterprise, on the contrary, inevitably out grows the bounds of the village community, the local market, the region, and then the state. Since the isolation and seclusion of the states have already been broken down by commodity circulation, the natural trend of every capitalist industry brings it to the necessity of “seeking a foreign market.”

Thus, the necessity of seeking a foreign market by no means proves that capitalism is unsound, as the Narodnik economists like to picture matters. Quite the contrary. This necessity demonstrates the progressive historical work of capitalism, which destroys the age-old isolation and seclusion of systems of economy (and, consequently, the narrowness of intellectual and political life), and which links all countries of the world into a single economic whole.

From this we see that the two latter causes of the need for a foreign market are again causes of a historical character. In order to understand them one must examine each separate industry, its development within the country, its transformation into a capitalist industry—in short, one must take the facts about the development of capitalism in the country; and it is not surprising that the Narodniks take the opportunity to evade these facts under cover of worthless (and meaningless) phrases about the “impossibility” of both the home and the foreign markets.


[1] Mr. Bulgakov very correctly observes in the above-quoted book: “Till now the cotton industry, which supplies the peasant market, has been growing steadily, so that the absolute diminution of popular consumption. ..” (which Mr. N.–on talks about) “…is conceivable only theoretically” (pp, 214-215). —Lenin

[2] Volgin, The Substantiation of Narodism in the Works of Mr. Vorontsov, St. Petersburg, 1896, pp. 71-76.[3] —Lenin

[3] Volgin–pseudonym of G. V. Plekhanov. The work here cited is included in Vol. IX of his Works.

IX. Conclusions From Chapter I

Let us now sum up the theoretical propositions examined above, which have a direct bearing on the problem of the home market.

1) The basic process of the formation of a home market (i.e., of the development of commodity production and of capitalism) is the social division of labour. This consists of various forms of processing raw materials (and various operations in this processing) separating from agriculture one after another and becoming independent branches of industry, which exchange their products (now commodities ) for the products of agriculture. Thus, agriculture itself becomes industry (i.e., produces commodities), and the same process of specialisation takes place in it.

2) A direct conclusion from the preceding proposition is the law governing all developing commodity economy, and the more so capitalist economy—the industrial (i.e., non-agricultural) population grows faster than the agricultural and diverts an ever-growing part of the population from agriculture to manufacturing industry.

3) The separation of the direct producer from the means of production, i.e., his expropriation, signifying the transition from simple commodity production to capitalist production (and constituting the necessary condition for this transition), creates the home market. The process of this creation of the home market proceeds in two directions: on the one hand, the means of production from which the small producer is “freed” are converted into capital in the hands of their new owner, serve to produce commodities and, consequently, are themselves converted into commodities. Thus, even the simple reproduction of these means of production now requires that they be purchased (previously, these means of production were reproduced in greater part in the natural form and partly were made at home), i.e., provides a market for means of production, and then the product now produced with the aid of these means of production is also converted into a commodity. On the other hand, the means of subsistence of the small producer become the material elements of the variable capital, i.e., of the sum of money expended by the employer (whether a landowner, contractor, lumber-dealer, factory owner, etc., makes no difference) on hiring workers. Thus, these means of subsistence are now also converted into commodities, i.e., create a home market for articles of consumption.

4) The realisation of the product in capitalist society (and, consequently, the realisation of surplus-value) cannot be explained without clearing up the point—1) that the social product, like the individual product, resolves itself in terms of value into three parts and not two (constant capital + variable capital + surplus-value, and not only into variable capital + surplus-value, as taught by Adam Smith and the entire school of political economy that came after him and before Marx), and 2) that in its natural form it must be divided into two big departments: means of production (consumed productively) and articles of consumption (consumed personally). By establishing these main theoretical propositions, Marx fully explained the process of realisation of the product in general and of surplus-value in particular in capitalist production, and revealed that it is utterly wrong to drag the foreign market into the problem of realisation.

5) Marx’s theory of realisation also threw light on the problem of national consumption and income.

From what has been said above, it follows automatically that the problem of the home market as a separate, self-sufficient problem not depending on that of the degree of capitalist development does not exist at all. That is why Marx’s theory does not anywhere or ever raise this problem separately. The home market appears when commodity economy appears; it is created by the development of this commodity economy, and the degree to which the social division of labour is ramified determines the level of its development; it spreads with the extension of commodity production from products to labour-power, and only in proportion as the latter is transformed into a commodity does capitalism embrace the entire production of the country, developing mainly on account of means of production, which occupy an increasingly important place in capitalist society. The “home market” for capitalism is created by developing capitalism itself, which deepens the social division of labour and resolves the direct producers into capitalists and workers. The degree of the development of the home market is the degree of development of capitalism in the country. To raise the question of the limits of the home market separately from that of the degree of the development of capitalism (as the Narodnik economists do) is wrong.

That is why the question of how a home market is being formed for Russian capitalism reduces itself to the following: How and in what direction are the diverse aspects of the Russian national economy developing? What constitutes the connection between and interdependence of these diverse aspects?

The next chapters will be devoted to an examination of data containing the answers to these questions.