Capitalism-and-Its-Critics-A-History-From-the

Where does the reserve army come from? In The Condition of the Working Class in England, Engels had written, “every improvement in machinery throws workers out of employment, and the greater the advance, the more numerous the unemployed.”53 Marx developed this argument. He noted that job destruction wasn’t confined to artisans. As factory owners invested in labor-saving machinery, they displaced many factory workers, too. “Capital acts on both sides at once,” Marx wrote. “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’ … The movement of the law of supply and demand of labour on this basis completes the despotism of capital.”54

This discussion of the impact of technical progress inevitably evokes the Luddites and foreshadows contemporary fears about AI. In a long chapter titled “Machinery and Modern Industry,” Marx referred to Ludditism explicitly, noting the “large-scale destruction of machinery which occurred in the English manufacturing districts during the first fifteen years of the nineteenth century.”55 He also wrote: “World history offers no spectacle more frightful than the gradual extinction of the English hand-loom weavers.”56 Like many observers, Marx portrayed the Luddites as protesters lacking an overarching ideology and critique of the new economic system responsible for their woes, which wasn’t entirely accurate. “It took both time and experience,” he wrote, “before the workers learnt to distinguish between machinery and its employment by capital, and therefore to transfer their attacks from the material instruments of production to the form of society which utilises those instruments.”57

To Marx, who had long recognized the immense productive power of industrial capitalism, there was a vital distinction between the science of mechanization and its economic manifestation. He had no desire to halt technical progress. He wanted to change how it was used and how the wealth it generated was distributed. In his view, capitalism, even as it created the technological basis for material abundance, prevented the great majority of people from sharing in its fruits. Modest increases in workers’ wages, and modest expansions in their ability to purchase consumer goods, “in no way alter the fundamental character of capitalist production,” he wrote.58 “[These] things no more abolish the exploitation of the wagelabourer, and his situation of dependence, than do better clothing, food and treatment, and a larger peculium, in the case of the slave.”59

In many ways, Marx insisted, capitalism was becoming even more exploitative. Capitalists were speeding up production, introducing laborsaving machinery, and subjecting their employees to tougher discipline. This intensification of the work process ensured that workers’ productivity rose faster than their wages did, which created new surplus value for the capitalists to appropriate. (The surplus value that was produced in this manner Marx referred to as “Relative Surplus Value.”) But the process of exploitation went beyond the value extraction at the heart of the cash nexus. Evoking his earlier writings on alienation, Marx also emphasized the social and psychological impact of employers’ never-ceasing efforts to raise productivity and profits. He said that these efforts:

distort the worker into a fragment of a man, they degrade him to the level of an appendage of a machine, they destroy the actual content of his labour by turning it into a torment; they alienate from him the intellectual potentialities of the labour process in the same proportion as science is incorporated in it as an independent power; they deform the conditions under which he works, subject him during the labour process to a despotism the more hateful for its meanness; they transform his life-time into workingtime, and drag his wife and child beneath the wheels of the juggernaut of capital.60

This was Marx the thunderer. Since these harms were inseparable from the process of creating surplus value, he went on, “it follows therefore that in proportion as capital accumulates, the situation of the worker, be his payment high or low, must grow worse…”61 “Accumulation of wealth at one pole is  … at the same time accumulation of misery, the torment of labour, slavery, ignorance, brutalization and moral degradation at the opposite pole.”62

★ ★ ★

Actually, in highlighting the chasm between the two ends of capitalist society and the increasing degradation of the workers, Marx was making a more nuanced argument than the one he and Engels had put forward in The Communist Manifesto. Indeed, one interpretation of volume I of Capital is that it replaced the Manifesto’s theory of absolute immiseration with a theory of relative immiseration that focused on rising inequality. In the second half of chapter 25 of Capital, which often gets ignored, he examined the path of wages, profits, and poverty in Britain from 1846 to 1866. At the end of this period, unskilled laborers in London earned about £1 a week and artisans earned about £1.75, or about £90 a year.63 As a counterpoint, Marx reproduced some figures from the Inland Revenue, the British tax agency, which showed how, in 1865, 107 of the country’s richest business owners made, on average, £103,526 in annual profits (equivalent to about £10.7 million in today’s money).64

After he had laid out the huge income gaps that characterized Victorian England, Marx quoted the liberal politician William Gladstone, who had recently remarked: “While the rich have been growing richer, the poor have been growing less poor.” “How lame an anti-climax!” Marx continued. “If the working class has remained ‘poor,’ only ‘less poor’ in proportion as it produces for the wealthy class ‘an intoxicating augmentation of wealth and power,’ then it has remained relatively just as poor. If the extremes of poverty have not lessened, they have increased because the extremes of wealth have.”65 In other words, relative immiseration has increased.

Another empirical tendency that Marx highlighted was the rise of big businesses and large-scale production. During the railroad mania of the 1840s, George Hudson, “the Railway King,” had united many of the tracks linking London to the north of England into a single company. (Hudson’s dubious financial practices eventually led him into bankruptcy.) In 1856 the industrialist John Brown had consolidated his Sheffield steelworks into a site that covered thirty acres and produced many different heavy goods, including railroad tracks, steel springs, and armored plate for warships.

“The battle of competition is fought by the cheapening of commodities,” Marx wrote. “The cheapness of commodities depends  … on the productivity of labour, and this depends in turn on the scale of production. Therefore, the larger capitals beat the smaller.”66 To expand in size, businesses could build larger production plants—a phenomenon Marx referred to as “concentration” of capital—or take over weaker rivals and their factories, which Marx called “centralization” of capital. Both tactics led to the same outcome: the emergence of large capitalist enterprises organized along increasingly technocratic lines.

In Marx’s day, most British companies were self-financed; they used their own profits to pay for investments. But another notable new development, particularly prevalent in France and Germany, was the emergence of banks, such as Crédit Mobilier and the Darmstadter Bank, that provided long-term financing to growing businesses. Marx commented that this new credit system has the effect of “drawing into the hands of individual or associated capitalists by invisible threads, the money resources which lie scattered in larger or smaller amounts over the surface of society; but it soon becomes a new and terrible weapon in the battle of competition and is finally transformed into an enormous social mechanism for the centralization of capitals.”67 How far could this process go? “In any given branch of industry centralization would reach its extreme limit if all the individual capitals invested there were fused into a single capital,” Marx commented. “In a given society this 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.”68

Since Marx claimed that rising inequality, concentration of capital, and financialization were all endemic features of industrial capitalism, each of them can be regarded as one of his laws of motion. In his presentation, however, they appeared within his lengthy exposition of the general law of accumulation. But for all the acute insights that these passages contained, they didn’t explain why industrial capitalism was doomed. Some of them seemed to highlight its ability to evolve and adapt. In his penultimate chapter, “The Historical Tendency of Capitalist Accumulation,” Marx sought to resolve this tension by introducing the same deus ex machina that he and Engels had relied on in the Manifesto. As the centralization of capital proceeds along with the “entanglement of all peoples in the net of the world market,” an ever-smaller group of “capitalist magnates” come to “usurp and monopolize all the advantages of this process of transformation,” he wrote. “The mass of misery, oppression, slavery, degradation and exploitation grows; but with this there also grows the revolt of the working class, a class constantly increasing in numbers, and trained, united, and organized by the very mechanism of the capitalist process of production.”69 This arrival on the scene of a revolutionary proletariat signals that the end is nigh:

The monopoly of capital becomes a fetter upon the mode of production which has flourished alongside and under it. The centralization of the means of production and the socialization of labor reach a point at which they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.70

★ ★ ★

When Capital was published, some readers noticed that Marx’s prediction of capitalism’s demise didn’t include a timeline. Others raised theoretical objections. Engels, on seeing the page proofs, inquired of Marx why, if the application of labor power was the only source of surplus value, and fixed capital didn’t generate any surplus value, capitalists would continue to invest in labor-saving machinery.71 Marx replied that this was merely an initial volume and he had deliberately kept the analysis simple. In a followup volume, he would clear up any ambiguities, he said.

But in fact, Marx didn’t publish any further economics books during his lifetime. In working on Capital in the early 1860s, he had prepared extensive notes for a second volume devoted to how capital circulates in the economy, and a third volume about the level and distribution of profits. However, apart from reworking some of this material in the 1870s, he made little concerted effort to turn it into book form. Shortly before his death, which came in 1883 as a result of bronchitis, he told his youngest daughter, Eleanor, that it would be Engels’s responsibility to “make something of it.”72 As Marx’s executor, Engels edited his notebooks for publication as Capital: Volume II and Volume III. But these volumes didn’t resolve all the issues that the first volume had raised. In some instances, they further complicated them.

Volume II, The Process of Circulation of Capital, which was published in 1885, presented a mathematical model of an economy divided into two sectors. One of them—“Department I”—produces capital goods, such as machinery; the other sector—“Department II”—produces consumer goods, such as clothes and toys. Using this bare-bones framework, Marx analyzed whether a capitalist economy could reproduce itself from year to year (“simple reproduction”) and grow (“expanded reproduction”) in a stable manner. In intellectual terms, this toy economy represented a significant advance and is still of interest to economic theorists. But it didn’t explain how capitalism would come to an end. In fact, it seemed to raise the prospect, under certain conditions, of the capital stock and economic output continuing to rise indefinitely in a process of eternal growth.

Volume III of Capital, The Process of Capitalist Production as a Whole, wasn’t published until 1894. Unlike the previous two volumes, it did provide an economic explanation for an eventual capitalist breakdown: “the Law of the Tendency of the Rate of Profit to Fall.”73 This was the same law that Marx had written about in the Grundrisse but hadn’t found space for in the first volume of Capital. Like the labor theory of value, it was another idea that Marx inherited from the classical economists and developed in his own way. Adam Smith had said the profit rate would eventually decline because businesses would run out of rewarding investment projects. David Ricardo’s explanation was based on the notion that population growth would eventually lead to a shortage of land, which would drive up farmers’ rents. Rising rents would then lead to higher food prices and higher subsistence wages, which, in turn, would crimp profits.

Marx’s explanation rested on the labor theory of value and the fact that the capital intensity of production increases as capital accumulation proceeds. In layman’s language, machinery takes the place of labor. But since labor power is the only source of value, the amount of surplus value falls relative to the amount of capital that businesses use, which is another way of saying that the profit rate declines. To illustrate this argument, Marx ran through an arithmetical example involving two countries at different stages of capitalist development: a less developed one with a low capital-tolabor ratio, and a more developed one with a high capital-to-labor ratio. His arithmetic showed that the profit rate in the first country would be 66⅔ percent, compared to a rate of just 20 percent in the second country.74

Marx was at pains to point out that a falling rate of profit didn’t necessarily translate into a decline in the total amount of profits. He acknowledged that as productivity and capital intensity rose, the absolute level of profits would continue to rise as well. The progress of capitalism would result “on the one hand in a progressive tendency for the rate of profit to fall and on the other in a constant growth in the absolute mass of the surplus-value or profit appropriated.”75 The law of falling profits was therefore “doubled-edged.”76 It also applied over the long term. Marx devoted an entire chapter to “Counteracting Factors” that could slow or arrest the decline. They included more intense exploitation of labor, wage cuts, a bigger reserve army, and foreign trade.

Ultimately, however, Marx believed that the tendency of the profit rate to fall would prevail. In the Grundrisse, he had described this as “in every respect the most important law of modern political economy.”77 In the third volume of Capital, he didn’t repeat this claim explicitly, but he portrayed falling profit rates as one of the central contradictions of capitalism. As capitalists sought to raise their profits by accumulating more and more capital, their efforts ended up having the opposite effect. Marx concluded: “The true barrier to capitalist production is capital itself.”78

★ ★ ★

During the decade and a half following the publication of volume I of Capital, Marx spent much of his time engaging in politics and political commentary. After the establishment, in 1864, of the First International, a federation of leftist workers’ groups from Britain, France, Germany, and other countries, he served on its central committee and as its chief theoretician—roles that enmeshed him in factional discord. At the start of the 1870s, the Franco-Prussian War and the establishment of the Paris Commune consumed Marx’s attention. In June 1871 he published The Civil War in France, a short but biting polemic that was his most widely read work during his lifetime.

For Marx and other revolutionaries, the crushing of the Commune was a bitter blow. In Britain, meanwhile, there was still no sign of a workers’ uprising. The Trades Union Congress, which was founded in 1868, focused on demands for higher wages and a shorter workday. In Germany, which Otto von Bismarck had unified in 1871, the Social Democratic Workers’ Party (SAPD), a socialist body founded by two associates of Marx, William Liebknecht and August Bebel, met in the town of Gotha, in 1875. It adopted a political program that demanded universal suffrage and labor rights but stopped short of calling for a workers’ revolution. An outraged Marx dismissed the Gotha Program as “the old familiar democratic litany.”79 Its promulgation raised anew the question of where and how the ultimate crisis of capitalism would arise.

The onus of answering this question shifted to Engels, who, following his retirement from Ermen and Engels, had moved to London and bought a house near Marx. Unlike his old friend, he was still in good health. In 1878, Eugen Dühring, a University of Berlin philosophy lecturer, published a book that criticized Capital and described Marx as a “scientific figure of fun.”80 Engels wrote a response that, in leftist circles, became known simply as Anti-Dühring. It glossed over many of the nuances in Capital and presented capitalism’s coming demise as the inevitable consequence of a progressively more intense series of economic slumps. “Most people are too lazy to read stout tomes such as Das Kapital and hence a slim little pamphlet like this has a much more rapid effect,” Engels remarked.81 That judgment turned out to be correct. In 1880, a version of Engels’s essay was republished under the title Socialism: Utopian and Scientific. For many Marxists around the world, it became the catechism.

Outside the socialist movement, Marx’s analysis, and the classical economics on which he based it, eventually came to be seen as an anachronism. After 1890, when Alfred Marshall, a professor at Cambridge, published his Principles of Economics, most economists used supply and demand curves, rather than the labor theory of value, to explain how market prices get determined. In 1925, John Maynard Keynes dismissed Capital as an “obsolete economic textbook.”82 It would be more accurate to describe it as a mixed bag.

Marx certainly got some things wrong. Arguably, his biggest error was a failure to grasp that as capital accumulation proceeded and workers were equipped with more and more machinery, their wages would gradually increase along with their productivity. In Marx’s economic model, wages are determined by the cost of reproducing labor power. Since that doesn’t increase very much over time, neither do earnings. Capitalists appropriate virtually all of the economic surplus. Obviously, it’s hard to reconcile this theory with the upward trend in wages since 1870. History suggests that productivity growth sets an upper bound for wage and profit growth, and the actual distribution of the surplus depends on a range of factors, including the strength of labor unions, the level of unemployment, and the extent of competition in product markets. Marx wrote about all these things, but his subsistence theory of wages, which he shared with other classical economists, ultimately led him astray.

Despite his errors, though, his overall conception of capitalism as a system of incessant expansion and change roiled by class conflict and technological advances was a powerful one. And he certainly highlighted some important features of the system that persist to this day. The role that the reserve army of jobless workers plays in disciplining the wage demands of the employed is one example. Others include the tendency for capital to become more concentrated and the gaping chasms in income and wealth that have endured despite a steady rise in overall living standards. The labor theory of value, too, can’t be entirely dismissed. Although the volume of labor inputs provides a poor guide to day-to-day price movements, but over the long term—which is what Marx was primarily interested in— competition tends to keep prices close to the average costs of production. And since wages are the largest single cost that many firms have, the prices of many goods do, in fact, gravitate toward labor costs. Anwar Shaikh, an economist at the New School for Social Research, first documented this tendency in the 1980s.83 A more recent paper from two of Shaikh’s former students confirmed it. In 2021, Baki Güney Işıkara, of New York University, and Patrick Mokre, an economist at the Austrian Federal Chamber of Labor, published a paper showing that prices tended to follow labor costs in a dataset covering forty-two countries over the period from 2000 to 2017.84

Marx was mistaken in portraying the exploitation of labor as the only enduring source of profit. History has demonstrated that technological innovations, when backed with government patents, can bestow upon businesses sufficient market power to generate monopoly profits for long periods. But exploitation of workers is also an all-too-common reality. In the absence of strong labor laws, businesses can often exploit their market power over their employees to pay low wages. In some labor-intensive industries, paying poverty-level wages and mistreating workers remains a central feature of the capitalist business model, which is, of course, consistent with the Law of Surplus Value.

That said, considering the earnings of all workers in capitalist countries, the theory of absolute immiseration didn’t hold up to history. In the century and a half from 1867 to 2015, according to recent research, average weekly wages in Britain rose almost tenfold on an inflationadjusted basis.85 But the theory of relative immiseration—large agglomerations of income and wealth piling up at one pole of the system as many workers and their families still struggle to get by—proved much more durable.

And even Marx’s biggest detractors can’t deny the basic assertion in his Law of Accumulation: a continual rise in capital stock, and the amount of capital per worker, is now regarded as a basic datum of capitalist economies. During the period 1867 to 1913, Britain’s gross fixed capital stock, which includes machinery, buildings, ships, and vehicles, more than doubled in size.86

Finally, the Law of the Tendency of the Profit Rate to Fall, which has also generated a great deal of debate. In theoretical terms, Marx’s demonstration of how this tendency arises from the labor-saving investments in machinery and other forms of fixed capital that capitalists make was far from watertight. Using algebra, it’s straightforward to show that the relationship he highlighted is an equivocal one. Under some circumstances, rising capital intensity can be associated with a decline in the profit rate, but in others it can be associated with a rise. The outcome can go either way. As the German scholar Michael Heinrich put it in his useful introduction to the three volumes of Capital: “A long-lasting tendency for the rate of profit to fall cannot be substantiated at the general level of argumentation by Marx in Capital.”87

The empirical evidence is also ambiguous. In his book Marx 200, Michael Roberts, a British economist, included a chart that shows the rate of profit in the United Kingdom falling from about 14 percent in the 1860s to about 8 percent in 2009.88 In a 2014 paper, Esteban Maito, an economist at the University of Buenos Aires, found a similar downward trend for fourteen countries.89 There have been contradictory findings, however. Ivan Trofimov, an economist at KYS Business School in Malaysia, examined data from twenty-one advanced countries for the period from the early 1960s to the early 2000s. In some places, including the United States, Trofimov identified a negative trend; in others, including Greece and Norway, there was a positive trend. In a third group of countries, including Australia and Sweden, there was no clear trend. “Overall, the behavior of profit rates was proven to be rather diverse, therefore it is unlikely that universal profit rates’ laws hold, or that only one hypothesis is correct,” Trofimov concluded in his 2017 paper.90 That wasn’t the final word, though. In a 2022 working paper, a group of economists associated with the University of Massachusetts at Amherst and St. Francis College constructed a world profit rate based on data from dozens of countries and found that it “displays a strong negative linear trend for the period 1960–1980 and a weaker negative linear trend from 1980 to 2019.”91