Otto Bauer’s Answer to Rosa Luxemburg

Of all the Social Democrats that criticized Rosa Luxemburg’s “Accumulation of Capital,” the most important contribution was that of Otto Bauer (1881-1938). Bauer was a leader of the Austrian Social Democratic Party and became the party’s top leader in 1918.

In order to refute the breakdown theory that Rosa Luxemburg presented in her “Accumulation of Capital,” Bauer developed a diagram of expanded capitalist reproduction that, unlike Marx’s, included a rising organic composition of capital and consequently a falling rate of profit.

Bauer set himself the task of proving that even in the face of a falling rate of profit, expanded reproduction could not only proceed smoothly, it could do so at an accelerating pace. An accelerating rate of accumulation—a rising rate of economic growth—would be necessary if full employment was to be maintained in the face of the rising labor productivity implied in Bauer’s diagram.

Bauer’s diagram of expanded reproduction does illustrate some of the fundamental laws of motion of the capitalist system that Marx’s own diagrams do not. Unlike Marx’s diagrams, Bauer’s diagram includes the rising organic composition of capital, a falling rate of profit, a rising mass of profit, and the faster development of Department I—the department that produces the means of production—relative to Department II—the branch that produces the means of personal consumption.

Bauer’s diagram therefore illustrates some basic laws of motion of the capitalist system that Marx developed only in volume III of “Capital” and therefore, according to Marx’s method of presentation, is unknown in volume II. Not only the quantitative growth of the productive forces but also their qualitative growth are illustrated in Bauer’s diagram of expanded capitalist reproduction.

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