Capital I, Chapter 25 - Part 2

2) Relative Diminution of the Variable Part of Capital Simultaneously with the Progress of Accumulation and of the Concentration that Accompanies it

“Once given the general basis of the capitalistic system, then, in the course of accumulation, a point is reached at which the development of the productivity of social labour becomes the most powerful lever of accumulation.” (p 582-3)

The more the productivity of labour increases, the more means of production are processed in a given period.

“But those means of production play a double part. The increase of some is a consequence, that of the others a condition of the increasing productivity of labour. E.g., with the division of labour in manufacture, and with the use of machinery, more raw material is worked up in the same time, and, therefore, a greater mass of raw material and auxiliary substances enter into the labour process. That is the consequence of the increasing productivity of labour. On the other hand, the mass of machinery, beasts of burden, mineral manures, drain-pipes, &c., is a condition of the increasing productivity of labour. So also is it with the means of production concentrated in buildings, furnaces, means of transport, &c.” (p 583)

In either case, the increasing productivity of labour means relatively less of it is employed compared to the means of production. That means there is a change in the technical composition of capital. In turn, that is reflected in a change in its value composition, raising the proportion of constant as opposed to variable capital. But, the change in the value composition is always much smaller than the change in the physical amounts of each.

“The reason is simply that, with the increasing productivity of labour, not only does the mass of the means of production consumed by it increase, but their value compared with their mass diminishes. Their value therefore rises absolutely, but not in proportion to their mass. The increase of the difference between constant and variable capital, is, therefore, much less than that of the difference between the mass of the means of production into which the constant, and the mass of the labour power into which the variable, capital is converted.” (p 584)

Although less labour is employed, relative to means of production, that does not mean that less labour is employed absolutely. If a capital is divided into 50% constant and 50% variable capital, and becomes 80% and 20%, the amount of labour employed can still be greater if the total capital is large enough. If it was originally £1,000 constant, and £1,000 variable, and the total capital rises from this £2,000 to £10,000, this would mean that constant capital would now be £8,000, and variable capital £2,000 i.e. twice its former amount. Its not unreasonable or a cheat to make this point, because it is precisely the increase in the size of the total capital through accumulation, which has resulted in the increase in the organic composition of that capital.

Pottery manufacture was the archetypal
kind of artisan production.  Then Wedgwood's
Etruria Factory became one of the largest
in the country, and used more steam power
than any other of the time.

But, where previously a doubling of the total capital was enough to bring about a doubling of the labour employed, now it requires a five fold increase in the total capital.

Capital develops on the basis of widespread co-operation of labour that creates the conditions for production on a larger scale, the use of scientific methods, to economise on the means of production etc. This early stage of “Primary Accumulation” sees capital increase extensively as more and more individual capitals are formed, and more and more means of production are transformed from artisanal handicraft and manufacture into capitalist production.

But, this capitalist production creates the conditions for the same methods to be used for accumulation. In other words, rather than capital increasing extensively it also increases intensively.

“With the accumulation of capital, therefore, the specifically capitalistic mode of production develops, and with the capitalist mode of production the accumulation of capital. Both these economic factors bring about, in the compound ratio of the impulses they reciprocally give one another, that change in the technical composition of capital by which the variable constituent becomes always smaller and smaller as compared with the constant.” (p 585)

Every accumulation of capital creates the conditions for an even larger accumulation, and thereby creates the conditions for an ever greater concentration of capital in the hands of a few capitalists. By the same token, this concentration widens the basis of production on a large scale and capitalist basis.

Social capital increases, as more individual capitals are created. At the same time, each of these individual capitals increases, as concentration increases with accumulation. Alongside this concentration, the accumulation also sees parts of some individual capitals separate off to form new capitals themselves.

“Besides other causes, the division of property, within capitalist families, plays a great part in this. With the accumulation of capital, therefore, the number of capitalists grows to a greater or less extent. Two points characterise this kind of concentration which grows directly out of, or rather is identical with, accumulation. First: The increasing concentration of the social means of production in the hands of individual capitalists is, other things remaining equal, limited by the degree of increase of social wealth. Second: The part of social capital domiciled in each particular sphere of production is divided among many capitalists who face one another as independent commodity-producers competing with each other.” (p 586)

There used to be hundreds of different motor
manufacturers in the world.  Today, 80% of all
car sales are controlled by just 5 big companies.

So, there is a contradictory process under way. Firstly, there is accumulation and concentration, but at the same time, this process is undermined by the continual splitting up of these individual capitals, and the competition in each sphere of one capital with another.

“This splitting-up of the total social capital into many individual capitals or the repulsion of its fractions one from another, is counteracted by their attraction. This last does not mean that simple concentration of the means of production and of the command over labour, which is identical with accumulation. 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.” (p 586)

The first process is a process of concentration of capital as accumulation brings about an increase in total social wealth. But, this latter process is not at all dependent upon accumulation or an increase in social wealth. It is rather a process of centralisation, whereby existing social wealth is redistributed by the expropriation of some capitalists by other capitalists.

Big Capital is not interested in some types of business.
Some small and very small capitals, crowd into them,
they make small profits, and competition between them
makes their existence always tenuous.

“The laws of this centralisation of capitals, or of the attraction of capital by capital, cannot be developed here. A brief hint at a few facts must suffice. The battle of competition is fought by cheapening of commodities. The cheapness of commodities depends, caeteris paribus, on the productiveness of labour, and this again on the scale of production. Therefore, the larger capitals beat the smaller. It will further be remembered that, with the development of the capitalist mode of production, there is an increase in the minimum amount of individual capital necessary to carry on a business under its normal conditions. The smaller capitals, therefore, crowd into spheres of production which Modern Industry has only sporadically or incompletely got hold of. Here competition rages in direct proportion to the number, and in inverse proportion to the magnitudes, of the antagonistic capitals. It always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, partly vanish.” (p 587)

In addition, alongside capitalist production comes the credit system. It first seems to be a means of mobilising scattered resources for productive use, but it also becomes a powerful means of centralisation of capital, as these small capitals find themselves unable to repay their loans.

In the 1960's and 70's, GEC was a classic example,
in Britain, of the process of centralisation described
by Marx.  It brought dozens of smaller companies
under its control.

“Commensurately with the development of capitalist production and accumulation there develop the two most powerful levers of centralisation — competition and credit.” (p 587)

Accumulation creates the growth in the number of firms, which is a precondition for them being centralised. The expansion of capitalist production creates the extensive market and technology that makes these ever larger enterprises both necessary and possible.

“Today, therefore, the force of attraction, drawing together individual capitals, and the tendency to centralisation are stronger than ever before. But if the relative extension and energy of the movement towards centralisation is determined, in a certain degree, by the magnitude of capitalist wealth and superiority of economic mechanism already attained, progress in centralisation does not in any way depend upon a positive growth in the magnitude of social capital.” (p 587)

Capital grows large in one place via centralisation, because elsewhere many small capitalists have been destroyed, their capital passing into other hands.

“In a given society the limit would be reached only when the entire social capital was united in the hands of either a single capitalist or a single capitalist company.” (p 588)

That single company can be owned by a collective of capitalists, for example, a Trust or large limited company, or it can be owned for all capitalists collectively by their State. Engels notes,

“The latest English and American “trusts” are already striving to attain this goal by attempting to unite at least all the large-scale concerns in one branch of industry into one great joint-stock company with a practical monopoly.” (Note 1, p 588)

Centralisation and concentration both bring about the same result. The increased scale of production and the drawing together of separate productive forces.

“Everywhere the increased scale of industrial establishments is the starting point for a more comprehensive organisation of the collective work of many, for a wider development of their material motive forces — in other words, for the progressive transformation of isolated processes of production, carried on by customary methods, into processes of production socially combined and scientifically arranged.” (p 589)

The difference between the two is speed. Concentration is slow, centralisation fast.

“The world would still be without railways if it had had to wait until accumulation had got a few individual capitals far enough to be adequate for the construction of a railway. Centralisation, on the contrary, accomplished this in the twinkling of an eye, by means of joint-stock companies. And whilst centralisation thus intensifies and accelerates the effects of accumulation, it simultaneously extends and speeds those revolutions in the technical composition of capital which raise its constant portion at the expense of its variable portion, thus diminishing the relative demand for labour.” (p 588)

New individual capitals provide experiments in the use of new inventions and methods. To the extent they are effective, these new capitals employ relatively less labour. But, the existing capital, at some point, also needs to undergo a renewal – especially if its existing technology and methods are threatened by those of the new capitals. The other, older, larger capital then renews itself top to bottom, introducing all of these now proved new technologies and methods, with a consequent shaking out of large amounts of now redundant labour.  That is what happened in the print industry, for example in the 1980's.

Its important, to emphasise, however, that Marx is describing a contradictory process here. The overall trend is to fewer, larger enterprises. But, as he says, this same process leads still to an extension of the number of capitals being formed, but also of existing capitals being broken up. Many Liberal and Marxist economists opposed to Monopoly, have tended to neglect this latter aspect of the process. But, it is important in relation to both the Tendency for the Rate of Profit to Fall, and for Marx's theory of crises of overproduction.

If existing large capitals are broken up, for example, by a portion of that Capital being devoted to some new branch of production then this can itself act as a countervailing factor against the falling rate of profit. Frequently, new types of production have low, sometimes very low organic compositions of capital. For example, when the computer industry started, it relied heavily on very skilled labour, rather than on large amounts of constant capital. Similarly, when this industry developed into the personal computer industry, it was again highly educated and skilled workers that were the most important factor, and today with companies like Apple, that is still the case.

The more these kinds of industries are developed, with their lower organic composition of capital, the more this lowers the average organic composition for the economy as a whole. This development of new industries with lower organic compositions of capital occurs on a regular periodic basis linked to the Long Wave.

But, also the process of concentration and centralisation is not one that simply results in monopoly and a reduction in competition. Marx was extremely prescient in that regard. In response to Proudhon, Marx emphasises that monopoly leads to competition, which leads to monopoly, which in turn leads to competition at a higher level. In the Poverty Of Philosophy Marx writes,

“In practical life we find not only competition, monopoly and the antagonism between them, but also the synthesis of the two, which is not a formula, but a movement. Monopoly produces competition, competition produces monopoly. Monopolists are made from competition; competitors become monopolists. If the monopolists restrict their mutual competition by means of partial associations, competition increases among the workers; and the more the mass of the proletarians grows as against the monopolists of one nation, the more desperate competition becomes between the monopolists of different nations. The synthesis is of such a character that monopoly can only maintain itself by continually entering into the struggle of competition.”

And that was precisely what Marxist economists rediscovered in the 1980's. Increasing concentration and centralisation led not to a diminution of competition, but to it being raised to new heights as huge companies sharpened their competition not just within national borders, but on a global basis. Increasingly, it became a competition based not on the kind of price competition relevant to the small scale capitals of the 19^th Century, but competition based on continual improvements in quality, and increased profits due to the continual revolutionising of production, and reduction of production costs.

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