Capital Volume I: Class 11

Readings: Capital I, ch. 25; Capital III, ch. 5, 6, 13-15

“Finally, the law which always holds the relative surplus population or industrial reserve army in equilibrium with the extent and energy of accumulation rivets the worker to capital more firmly than the wedges of Hephaestus held Prometheus to the rock. It makes an accumulation of misery a necessary condition, corresponding to the accumulation of wealth. Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, the torment of labour, slavery, ignorance, brutalization and moral degradation at the opposite pole, i.e. on the side of the class that produces its own product as capital.” (Volume I: 799)

In his discussion of the general law of capitalist accumulation, Marx focuses on the implications this law has for the working class. He argues that, as capitalist accumulation develops, society becomes polarized between the capitalists at the top who hold all the wealth and the workers at the bottom who are immiserated, as eloquently stated in the above quote. Furthermore, as he describes in Volume III, accumulation eventually leads to crisis and potential collapse, as the rate of profit tends to fall. How does this all unfold?

First, he states that as accumulation develops in a mature capitalist society, the organic composition of capital, i.e. the ratio of constant capital to variable capital, grows over time. Accumulation, as we have seen, entails the reinvestment of surplus value into expanded production. In order to increase relative surplus value, capitalists competitively invest in labor-saving technology, increasing the organic composition of capital.

This process is accelerated by the concentration and centralization of capital, which gains momentum with greater and greater accumulation. By “concentration,” Marx means the proportional growth of individual capitals as the total social capital grows. With a small economy, there will be small individual capitals and as the economy grows larger, those capitals will become more highly concentrated. By “centralization,” Marx refers to the disproportionate growth of certain capitals at the expense of others as the more successful ones beat out the less successful: “It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals. This process differs from the first one in this respect, that it only presupposes a change in the distribution of already available and already functioning capital… This is centralization proper, as distinct from accumulation and concentration.” (Volume I: 777)

Marx provides the example of the joint-stock companies that built the railroads to show that centralized capital is able to increase productivity at a much greater rate than previously. Where productivity increases, so does the organic composition of capital.

The ultimate result of this process is a decrease in the demand for labor and the resultant rise of a surplus population or industrial reserve army, i.e. workers who are routinely thrown in and out of work as capitalist industries develop. As one industry sees its organic composition of capital increase, the workers thrown out of work are drawn into another industry with a lower composition. In this sense, capitalism needs the industrial reserve army as exactly that, a reserve of workers to apply when needed and to discard when not.

The other purpose this serves is to regulate wages. The size of the industrial reserve army tends to push wages up or down as its size decreases or increases. To this effect he states, “The appropriate law for modern industry… is the law of the regulation of the demand and supply of labour by the alternate expansion and contraction of capital, i.e. by the level of capital’s valorization requirements at the relevant moment, the labour-market sometimes appearing relatively under-supplied because capital is expanding, and sometimes relatively over-supplied because it is contracting.” (Volume I: 790)

But here is an important caveat: “The demand for labour is not identical with increase of capital, nor is supply of labour identical with increase of the working class. It is not a case of two independent forces working on each other. Les dés sont pipés. Capital acts on both sides at once. If its accumulation on the one hand increases the demand for labour, it increases on the other the supply of workers by ‘setting them free’ [by increasing productivity and firing those not needed], while at the same time the pressure of the unemployed compels those who are employed to furnish more labour, and therefore makes the supply of labour to a certain extent independent of the supply of workers. The movement of the law of supply and demand of labour on this basis completes the despotism of capital.” (Volume I: 793)

Marx states in the first section of this chapter that accumulation tends to increase the demand for labor and puts upward pressure on wages. Based on the quote above, we can see that capital counteracts this force by applying labor-saving technology and increasing the reserve army, which holds wages down.

Marx continues this train of thought in chapters 13-15 of Volume III, where he discusses the falling rate of profit. The argument here is that as the organic composition of capital increases, the rate of profit falls, because the latter is the amount of surplus value that a capitalist can extract from the total capital applied. If the amount of variable capital decreases, then so does the surplus value, pushing down the numerator of this ratio. The second part of this law is that there is a simultaneous growth in the mass of profit because accumulation increases the total amount of labor-power exploited.

The tendency for the profit rate to fall leads to instability and crises: “…a fall in this rate slows down the formation of new, independent capitals and thus appears as a threat to the development of the capitalist production process; it promotes overproduction, speculation and crises, and leads to the existence of excess capital alongside a surplus population.” (Volume III: 350)

Chapter 15, “The Development of the Law’s Internal Contradictions” is complicated, so I will need to draw on other resources to fully understand it. For now, I will emphasize one central point: the phenomenon of a rise in surplus capital alongside the surplus population. We have already discussed the source of the latter. The source of surplus capital, what Marx calls overproduction, results from the fall in the rate of profit. There is a point reached for capitalists where applying an additional amount of capital does not increase the mass of surplus value. The result is too much capital and this leads to “disruption and stagnation in the capitalist production process, crisis, and the destruction of capital.” (Volume III: 364)

It is worth noting that Marx here sets up the early-twentieth-century discussion on imperialism. He states, “If capital is sent abroad, this is not because it absolutely could not be employed at home. It is rather because it can be employed abroad at a higher rate of profit.” (Volume III: 364-5) So, one possible response to a fall in the rate of profit is the export of capital to regions of the world where it can get a greater return.

The bottom line for Marx is that capital accumulation leads to massive imbalances in society: overproduction of useful goods that get destroyed while masses of workers languish in destitution. The imbalances, while from a moral standpoint are a hideous outrage, also tend to lead to crises and recurrent systemic instability.