William J. Blake: An American Looks at Karl Marx
Accumulation and Demand for Labor-power; Organic Composition of Capital as Given
Marx now takes up his most important social theme, the fate of the working class as a result of the growth of capital. For him, the most significant factor is the composition of capital, constant and variable, as it is affected by the process of accumulation. As labor-power is paid by variable capital, this composition is fundamental to the workers’ interests.
Technical and Organic Composition Distinguished
As value, capital is either constant or variable. As material, it is either means of production or living labor-power. The latter ratio is that of the mass of means of production to the mass of labor employed on them. The value composition is the name given the first division, the technical composition the second. Both are aspects of organic composition. Between the two there is a strict correlation. Therefore, it is best to state that insofar as the value composition reflects the technical it can be called organic composition. These terms should be retained; they are key-themes. The organic composition of capital is considered as an average, since individual capitals vary considerably.
Wages Can Rise for Short Periods
The growth of capital must involve the growth of its variable part invested in labor-power. Let us assume that the composition of capital remains the same, that is, that a definite mass of production requires a definite mass of labor-power, all other things being equal except that production is advancing. In that case the demand for labor would increase in the same proportion as capital itself grew.
Since capital is added by the reinvestment of surplus-value, and since there are special stimuli to enrichment, such as new markets for goods or new possibilities for sales of goods, resulting from changes in social needs, it follows that the pace of accumulation might suddenly be greatly quickened.
It might be extended by several means. A change in the proportion of surplus-value put into capital instead of spent as revenue is highly probable, for that would be productive of future profits, under such favorable conditions. The requirements of the capitalist for an accumulation might be such that his present supply of laborers does not suffice and he may have to increase the numbers of those he employs.
With such a demand for labor, and with no change in the composition of capital, between constant and variable, and with a gaining business—a boom, in fact—this demand for labor might lead to a rise in wages.
For surely, if the accumulation of capital, as a social total, continues for some years, a point must be reached where it will increase faster than the available supply of labor can increase.
Sometimes, in the earlier stages of manufacturing, prior to capitalism, this state of affairs lasted a considerable time. The first half of the eighteenth century was such a period. The whole of the fourteenth century in England was a really happy time for labor, the period enshrined in folk memory, in glees and catches. But the relation is somewhat different, for under capitalism even an increase of wages must conform to the deeper necessities of the system.
Conditioning of Wage-Rises
As simple reproduction constantly reproduces the capital relation itself, that is the relation of capitalist to laborer, so reproduction on an extending basis, on the accumulation of capital, reproduces the relations of larger capitalists on the one hand and more workers on the other. The working class, even with wages improving, must reproduce a mass of labor-power, they must incorporate their surplus-labor with capital, they must supply the entire expansion of capital. Any accumulation of capital must increase the working class, the proletariat.
But while the wage level rises and the mass of wages increases, the yoke of capital is tolerable and even compatible with some prosperity for the worker. For, under the conditions given, the employment of labor does not become more intensive, but rather extensive, that is, there are more workers. A larger part of their own surplus product enables them to live better and to save a certain small sum.
But their class relation is not altered, not even in the slightest. Labor-power is bought by the capitalist to produce commodities that contain more labor than he pays for. He must receive a few hours of unpaid labor. The conditions of the sale of labor-power must always allow of the means of production preserving their value as capital, and yield an additional capital, as well as provide for the revenue of the capitalist.
Wages, since they express the value of labor-power (which is always less than the product), imply this relation. Leaving aside the fact that higher wages often conceal a lower price for labor (that is, the productivity of the worker has increased more than his wages), or that the cost of his means of subsistence expressed in money might be more than the gain in wages, even if these negative aspects do not occur, still, such an increase in wages at best means that the worker has reduced only slightly the amount of unpaid labor. This sounds like a mere dogma, or prejudice, but the reasons are pervasive.
How Wage Rises Are Terminated
Either the price of labor keeps on rising because its rise does not interfere with accumulation of capital (for even with diminished profits capital may gain because its greater quantity may permit a greater mass of profits even at a slower rate) or accumulation slows down just because of the rise in wages, because the stimulus of profits has been reduced by the shortage of labor. Once the rate of accumulation slows down, the cause of that slowing down vanishes, that is, the disproportion between capital seeking labor-power and the supply of labor-power.
The price of labor must fall to a price corresponding with the need of capital for expansion, and that level may be a trifle above, at, or below the level at which the extra demand for labor-power began. To sum up:
Capital was in excess of the supply of exploitable labor-power. It was the relative diminution of capital to labor-power that caused the price of exploitable labor-power to rise. But it is the absolute movement of capital which appears to be a relative movement of the labor-power and so seems to have been brought about by labor’s own independent action. That can be put mathematically.
The rate of accumulation of capital is an independent variable, the rate of wages the dependent variable. Naturally an absolute movement of capital may become relative to labor factors. But it is primary and, as soon as the relative situation interferes with its absolute movement, it shakes off the dependent variable, labor, and reveals exactly where the movement started from. This is important because the theory that it is the fluctuating supply of labor and not the needs of capital that determines the rise and fall of wages, leads to the so-called population theories of wages.
Once it is seen that the real variation here is between the unpaid and paid parts of labor-power’s production, which is all that variations in wages mean, then the labor-supply is seen as merely an increase of the amount of paid and a diminution of the unpaid labor during a boom. But as soon as that unpaid labor is reduced, so that capital’s expansion into more capital is threatened, it stops. The rise of wages not only must leave capitalism intact, but it must leave its expansion possibilities extant. The social relation of classes is the basic one; any diminution of unpaid labor is a special and temporary phase of that relation. And that is the best situation labor can ever attain.
The previous description is valid only for the most exceptional circumstances, rare moments when accumulation may take place without a change in the organic composition of capital.
Organic Composition of Capital Growing
Now we come to the characteristic and almost unbroken tendency which capitalism really exhibits, a changing organic composition, or, more definitely, an increasing organic composition in which constant capital is forever growing in proportion to variable capital that is, more capital is steadily put into means of production and relatively less into wages. This section is worth more concentration than any other since the original exposition of value, for the dynamics of the capitalist system is here revealed.
Any change of technique must disturb the organic composition of capital. The words “change in technique” mean a change in machinery or chemical process, on the one hand, or, on the other, a different organization of work, so as to get more out of labor, and, in either case, they must mean the relative diminution of wages to means of production.
Even the classic economists, before Marx, held that it was not the actual social wealth nor even the quantity of capital actually used that determined the growth of wages, but rather the constant gains in accumulation and the speed of those gains.
We have seen, too, that the first need of capitalism is to obtain relative surplus-value, and that what is called technical progress is but a physical name for the economic activity of increasing relative surplus-value.
Competition drives every capitalist on to reduce what he terms his “cost of production.” Hence, to increase the productivity of labor in every way, including increasing its intensity, is the most important weapon of capitalism. Without it, even the devices we have described for obtaining a greater elasticity of treatment of labor would be ineffective.
A reduction in the value of labor-power is of vital interest to its buyer, the capitalist, in the way that cheaper goods are the need of any buyer. And that points to a relative diminution of labor costs, since what the capitalist wants is that with these smaller labor costs he can transfer the value of more raw material and instruments of labor—in simple language, produce more.
Apart from natural variations such as the fertility of the soil or the skill of exceptional producers (shown rather in quality than quantity, and altogether exceptional in capitalism), the degree of productivity of labor is expressed in the relative quantity of the means of production that any laborer, in a given time, turns into products. The mass of the means of production (constant capital) that he transforms into other use-values increases with the productiveness of his work. These means of production now play two parts.
First, with the division of labor, and the use of machinery, more raw material is worked up in the same time, and therefore a greater mass of raw material and other substances enter the labor-process. This is the consequence of an increasing productivity of labor.
Secondly, the mass of machinery, equipment, tools, plant, etc., is a cause of the greater productivity of labor.
Both aspects have one result, that the labor factor in adding to value becomes of less consequence compared with the former labor that has been transformed into commodities.
In this way a factory that begins, say, with constant capital and variable capital equal, soon reaches a point where the ratio is 4 to 1 for constant capital. That is the law of organic composition. This principle is confirmed by an analysis of commodity prices. Relatively, the quantity of price of goods that constitute constant capital is in direct proportion to the means of accumulation, while the mass of wages of labor is in inverse proportion to the advance of capital accumulation. This is confirmed, further, as follows:
Let us say that organic composition of a cotton mill today is ⅞ constant and ⅛ variable capital. It was formerly ½ and ½. This means that the means of production utilized by labor has risen far more than that proportion would indicate. Because, with the increasing productivity of labor (of which that altered proportion is the witness) not only does the mass of the means of production consumed increase, but the value of those means of production are less compared with their mass. That was the object of capitalism, to make each item cheaper and therefore the mass of items in the means of production also cheaper. Their value rises absolutely but not in proportion to their mass. This means that the increase of the difference between constant and variable capital is much less than the increase of the difference between the mass of production and the mass of the labor-power that converts it. The difference does increase between constant and variable capital but it does not increase as much as the difference of their masses increases.
Rationale of Increasing Proportion of Constant Capital
Now, since that is very recondite, let us simplify. Where more means of production are used steadily than labor-power, for any given product, the total price of those means of production must be increasing to correspond with the increase in capital accumulation. But as less labor-power is used, the reverse is true.
Relatively to the means of accumulation (to the new capital produced) the contribution of the total labor employed diminishes. But if the means of production used are cheaper than they were formerly, then their physical quantity will be relatively greater than their value, for there was less labor-time incorporated into each item of the means of production than had previously been the case.
In other words, as production grows more and more efficient, the quantity of labor incorporated into each article that makes up the means of production is less, so that its value is less. That means that the value of dead labor is smaller, relative to that of living labor, for each unit employed, but this is more than counteracted by the greater proportion of this dead labor, as a quantity, to the living labor that uses it and transforms it.
This, then, is Marx’s meaning when he says that the difference increases steadily between constant and variable capital, but that the differences in their quantities become far greater than the differences in their values.
Absolute Magnitude of Variable Capital Increased
But if the progress of capital accumulation lessens the relative magnitude of variable capital, it does not stop its absolute magnitude from growing. A capital of $100,000 is composed of $50,000 constant, $50,000 variable. It rises to $300,000, $240,000 constant and only $60,000 variable. But now it will take four times the constant capital to employ the same amount of labor! And thereby hangs a tale.
The Concentration of Capital
The capitalist mode of production requires both the accumulation of capital and that capitalist accumulation raise that mode of production to a greater development. These two factors in the compound ratio of their impulses reciprocally given each other, compel the increase of accumulation of constant capital, and the relative growth, therefore, of capital advanced as wages.
Every individual capital must be considered as a concentration of larger or smaller means of production and as commanding a small company or a large regiment of workers. The growth of social capital is brought about by the varying growths of many individual capitals.
There are, however, two kinds of development. First, there is the employment of new capitals. Fathers have sons who want to go out for themselves; there are quarrels between partners in business and they split up; inheritance subdivides concerns. Secondly, there are always some members of the non-capitalist class who accumulate some money, by gambling or professional skill or true saving, and engage in new businesses.
Hence, with the accumulation of capital, the number of capitalists at first grows, irregularly, and less and less as more capital is required to enter business. But this is merely a numerical aspect. And it leads to the conflicts that follow.
There are two features of the concentration that grow directly out of, or rather, are another expression for the accumulation of capital.
First, the increasing concentration of the social means of production in the hands of capitalists has a limit, the degree of the increase of social wealth.
Second, in each industry, capitalists fight each other as competitors. The increase of each capital is thwarted by the formation of new capitals or the division of old capitals.
Accumulation has two faces: One requires more capital to acquire the ever increasing constant capital needed in business. At the same time, that capital must watch the limitations of its maneuvering due to the limits of gains in social wealth, and it must provide for its collision with competitors. This combination of an increasing need for larger capitals and for warding off the constant attacks of businesses on each other, in a given market, leads to the characteristic features of modern concentration.
The Centralization of Capital
Within the limits of the growth of social wealth a conflict between capitals leads to the defeat of a certain number, their destruction or their absorption. Capital grows in one enterprise because it has been lost in another, or, as is more usual, in many others. This is centralization. It is distinguished from concentration. The latter is due to fewer and fewer capitals being engaged (because of the growing demands of constant capital investment) and to accumulation, which is the growth of individual capitals already in the field. But centralization presumes a fairly mature concentration in the business units it absorbs, controls, or annihilates.
Although we shall develop the law of centralization in another section, here are its present implications. The battle of competition is conducted by way of price. Cheapness of commodities is the weapon. The cheapness of commodities depends on the productivity of labor (all other factors being equal), and the extent to which labor can be made most productive on the amount of means of production provided per worker, which means that it depends on the scale of production.
Therefore larger capitals beat smaller capitals. The beaten smaller capitals crowd into spheres of production where modern industry is incompletely developed, where less investment in means of production is required.
The smaller capitals have to pay out more in variable capitals. They are numerous, weak, and run at great expense. They die like flies. Part of their assets fall to their larger competitors or creditors, part vanish.
We are not considering here, as we shall later, the effect of credit. The larger businesses with adequate capital and ample resources enjoy all the facilities of large credit and cheap financing. The smaller ones, whose reserves against disaster are less and whose competitive costs are high, enjoy little credit, and for what credit they get are burdened by high charges. Competition and credit combine for their deadly work.
The technical requirements of new or of expanded capital restrict the possibility of economic investments to previously centralized capitals.
Public Financing
These centralized capitals have another advantage: they can get their money from the public. If General Motors wishes to acquire new enterprises the company issues, say $10,000,000 of four per cent preferred stock, and the public will give it the money. Mr. John Smith, who has a capital of $100,000 and is in the same industry in which the corporation is expanding, might obtain at best a few thousand dollars from his bank, and then only for a short term, with specific guarantees and at great cost.
Marx Prophesied the Trusts
Marx predicted in 1867 this tendency toward an immense centralization of capital. It is the one prophecy of his for which all critics unite in bestowing on him the mantle of the seer.
We know that there are trusts, billion-dollar corporations. We know that hundreds of thousands of men are employed by single corporations which are no longer businesses but really local governments.
We know that a thousand important corporations, between them, and with their financial connections, dominate the whole industrial life of the country. Here and there someone points to the numerous small businesses surviving, but no one disputes the proportion of social capital in large hands.
But when Marx, by his profound studies of relative surplus-value and its concomitant, the increasing proportion of constant capital, startled the economic world with their projected consequences, he was considered to have exaggerated, if not to have been downright wrong. The largest companies in the advanced countries, then, never employed as many as 10,000. Krupp in Germany had got to 7,000, and some of the new American railroads, like the Vanderbilt system, were passing 10,000. But compared to total labor employed they were unimportant.
Now they are representative forms of capital, the others are the exceptions. Their centralization is far greater than appears on the surface, as a result of cunning legal devices whereby their too challenging power is veiled.
Capital is centralized in numerous styles. There is amalgamation, absorption during crises of the weaker by the stronger, sellouts, etc. These are merely forms; it is the Marxian essence which is seen through them. The consequence of business requiring an ever increasing constant capital to employ labor is concentration, which is the daughter of accumulation. The increased volume of establishments causes a more comprehensive organization of labor, that is, a progressive transference of isolated processes of production into socially combined and scientifically managed processes of production. This social feature, this tendency more and more to manage large enterprise more nearly like the totality of society, is the reason Marx sees in the inherent laws of development of capitalism the foundations of the socialist system which he believes will take its place.
Centralization Ends Gradual Accumulation
We saw that accumulation reproduced capital as a spiral form by constantly allocating parts of surplus-value to new means of production and variable capital. But centralization, at one bound, passes these step-by-step processes.
Centralization does not wait for accumulation. It calls up the savings of millions by stock promotions. It utilizes the entire social capital in its service. It does not build ten miles of railroad and then add two miles a year. It mobilizes all accumulations and directs them quickly into new channels. It suddenly builds a thousard miles of railroads; it conjures up a new cellophane industry in a few months.
It wipes out age-old accumulations by immediately employing a single new technical device, on a ready-made gigantic basis. It smashes phonographs and installs radios within a year or two. It increases the fluidity of enterprise and more and more imperils the old ease of life that went with “safe investment.”1
It organizes socially, but it transforms in a revolutionary sense. It does this by shifting the quantitative grouping of parts of the total social capital. By intensifying the hitherto slow process of accumulation, it speeds up the changes in the technical composition of capital: the ratio of constant capital to wages paid rises to unprecedented ratios, to previously unimaginable heights.
Here is another illustration of Marx’s favorite thesis: a change in the size of capital changes the ordinary quality of accumulation, stops its orderly movement, and now advances by leaps! This is dialectical materialism as opposed to the usual evolutionary philosophy.
1. About 1925 it dawned on the pundits of Wall Street that “investment” was a questionable policy in some aspects. The deduction drawn by many experts was, gamble in stocks (spec-vestment) of large monopolies and ride like a fly on the nose of the monopolist ox. Those who followed that advice were shaken off in the panic when the ox stumbled too!