Capital III, Chapter 15 - Part 14

The fact that the falling profits appeared to be a problem arising from too much profit being accumulated led some to suggest that the solution was for a larger proportion of the profits to be simply consumed. Malthus was certainly one of those who felt that the capitalists should concentrate on the business of production, whilst a large portion of the surplus value, pocketed by the landlords, whose interests he reflected, could be left to be consumed by them unproductively. But, Marx also refers to the work of Thomas Chalmers in that respect. But, Chalmers, Marx says, confuses cause with effect. It was not that profits were falling because too much of them was being invested. On the contrary, the more that was accumulated, the greater the mass of profit that would be produced, even as the rate of profit fell.

“However, this requires a simultaneous concentration of capital, since the conditions of production then demand employment of capital on a larger scale. It also requires its centralisation, i.e. , the swallowing up of the small capitalists by the big and their deprivation of capital. It is again but an instance of separating — raised to the second power — the conditions of production from the producers to whose number these small capitalists still belong, since their own labour continues to play a role in their case.” (p 246)

This process of concentration would lead to a collapse of capitalist production were it not for forces operating in the other direction. In Capital I, Marx sets out some of those, as the splitting up of capitals as different members of these big private capitalist families established their own businesses, whilst others expanded their existing businesses into related lines of production. Moreover, particularly at times of boom, when the rate of profit is high, new capitals are always being formed as managers and even workers try their luck with establishing new businesses.

But, also as socialised capital, in the shape of the joint stock company or co-operative, itself expropriates the expropriators, the ownership of productive-capital becomes diffused.  It is by definition no longer the private property of individuals, but the collective property of the business itself, i.e. as Marx puts it, of the associated producers within that business.

"The capital, which in itself rests on a social mode of production and presupposes a social concentration of means of production and labour-power, is here directly endowed with the form of social capital (capital of directly associated individuals) as distinct from private capital, and its undertakings assume the form of social undertakings as distinct from private undertakings. It is the abolition of capital as private property within the framework of capitalist production itself."

(Capital III, Chapter 27)

The ownership of this productive-capital, by these associated producers is quite separate from the ownership of share capital by shareholders, who are merely lenders of money-capital to the business.

"A company is an entity distinct alike from its shareholders and its directors.” (Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113 by Greer LJ.

As Engels put it in his Critique of the Erfurt Programme,

“Capitalist production by joint-stock companies is no longer private production but production on behalf of many associated people. And when we pass on from joint-stock companies to trusts, which dominate and monopolise whole branches of industry, this puts an end not only to private production but also to planlessness.”

Moreover, the ownership of share capital itself becomes diffused via share ownership (though the shares (fictitious capital) themselves then become concentrated in a few hands), the potential thereby of establishing “new lines” of production becomes much greater.  Even if the mass of profits in one area is low, or low in relation to the need for productive-capital, this is no longer a restriction, because, so long as the mass of profits within the economy is high, it can be mobilised via the issuance of new shares, in those areas where it is required.

But, this creates further contradictions, as Marx and Engels describe later, because now, profits can be diverted into stock market speculation, rather than into productive investment.  For example, in 1847, the financial crash was partly the result of massive speculation in railway shares that diverted large realised profits in the rest of the economy, away from the businesses that created those profits, and into stock market speculation.

“This is the abolition of the capitalist mode of production within the capitalist mode of production itself, and hence a self-dissolving contradiction, which prima facie represents a mere phase of transition to a new form of production. It manifests itself as such a contradiction in its effects. It establishes a monopoly in certain spheres and thereby requires state interference. It reproduces a new financial aristocracy, a new variety of parasites in the shape of promoters, speculators and simply nominal directors; a whole system of swindling and cheating by means of corporation promotion, stock issuance, and stock speculation. It is private production without the control of private property.”

(Capital III, Chapter 27)

And, this in turn creates further contradictions, separate from those which exist within the realm of production.

“Since property here exists in the form of stock, its movement and transfer become purely a result of gambling on the stock exchange, where the little fish are swallowed by the sharks and the lambs by the stock-exchange wolves. There is antagonism against the old form in the stock companies, in which social means of production appear as private property; but the conversion to the form of stock still remains ensnared in the trammels of capitalism; hence, instead of overcoming the antithesis between the character of wealth as social and as private wealth, the stock companies merely develop it in a new form.”

(ibid)

As Marx and Engels describe later, older capitalist societies tend to have a larger number of people who have accumulated wealth, and for whom the risks and stresses of active involvement in productive-investment is no longer attractive. They have sufficient loanable money-capital to be able to live off the interest on it, in the shape of coupon-clipping. The objective laws, which apply to the accumulation of productive-capital, do not apply to the ownership of this fictitious-capital. There is no reason, why its owners will not engage in the kind of speculation referred to above, rather than the provision of money-capital for productive investment. In fact, the very nature of speculation as providing large, rapid capital gains, mitigates against its use for productive investment.  It leads to the process of capital "eating itself" described by the Bank of England's Andy Haldane recently, whereby an increasing proportion of realised profits is used unproductively to boost share prices, to pay out as dividends or other forms of returns to shareholders, which thereby slows the accumulation of capital, and potential to expand the mass of profits, and so to pay dividends and interest.  In a world where capitalist competition depends upon businesses continually innovating to produce new commodities and to improve the quality of existing commodities, a failure to do so, may also lead to the kind of cheating that has been seen with VW recently.

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