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:
Marx's Dialectical Approach and Materialist Interpretation of History
Marx's Class Struggle
Marx on alienation and freedom
Marx's Value and Surplus Value theory
Marx on The Reserve Army of Labor / Unemployed
Marx on Contradictions of Capitalism
Marx on the Crises of Capitalism
Marx on the state
Marx on Imperialism
Marx on the Proletarian Revolution
Marx on the dictatorship of the Proletariat -
Summary of the Communist Manifesto
Summary of The German Ideology
Marx's Class Struggle
Marx on alienation and freedom
Marx's Value and Surplus Value theory
Marx on The Reserve Army of Labor / Unemployed
Marx on Contradictions of Capitalism
Marx on the Crises of Capitalism
Marx on the state
Marx on Imperialism
Marx on the Proletarian Revolution
Marx on the dictatorship of the Proletariat -
Summary of the Communist Manifesto
Summary of The German Ideology