Monday, November 20, 2017

Marx's Law of Increasing Concentration of Capital

    To Marx, capitalism involved a large number of highly competitive companies, each with a desire to expand.  Profits would not be spent on luxury consumption; instead, profits would be ploughed-back into the company as investment (called accumulation). For Marx the drive for accumulation would cause companies to wish to hire more workers.  This would then drive up wages.  Both the existence of profits and the higher wages would lead capitalists to increase the amount of machinery used in production.  This process leads to what economists of today call “economies of scale”.  Since the costs of the machines are fixed, a company that produces a larger quantity of goods has an advantage over a smaller company.  (As an example, the cost of your classroom is fixed --- that is, the cost is the same regardless of the number of students.  If the classroom is full, the cost per student would be less than if the classroom were half-empty.)  Since larger companies can produce at a lower cost than smaller companies, they can charge a lower price and still make a profit.  With the lower price, the smaller companies cannot make a profit and therefore go out of existence. Their owners (the petit bourgeoisie) become part of the proletariat.  Ownership of capital becomes concentrated into fewer and fewer hands

     It may seem as though this statement of Marx was fulfilled.  A steel industry that once had hundreds of companies became dominated by six.  An automobile company that once had hundreds of companies became dominated by three.  The department store replaced the small store. The grocery chain replaced the “mom-and-pop” store.  After World War II, this concentration of capital occurred as Marx predicted; the proportion of total assets owned by the 50 largest companies grew significantly.  However, this was reversed beginning in the 1970s.  New technologies allowed smaller companies to be able to compete effectively with the larger ones.  In addition, the opening to foreign trade enhanced competition greatly.  This reversal was not predicted by Marx.  Marxists often refer to capitalism as “monopoly capitalism”.  But since the 1970s, the amount of competition has been increasing, not diminishing.

For more on Karl Marx and Marxism:

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