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CAPITALISMYESTERDAY AND

TODAY

by

MAURICE DOBB

MlMONTHLY REVIEW PRESS

New York

Copyright 1962 byMonthly Review Press

333 Sixth Ave.

New York 14. N. Y.

Library of Congress catalog card number: 62-13649

MANUFACTURED IN THE UNITED STATES OF AMERICA

CONTENTS

I What Is Capitalism? 19

II How Capitalism Came Into Being 33

III Competition And Monopoly 41

IV Falling Profit-Rate and Labour's Share .... 57

V Economic Crises 65VI Since the Second World War 75

Note to the ReaderFirst English Printing, 1938

The writer's aim has been to direct this pamphlet to-wards those in the Labour movement interested in thefacts of the world we live in rather than in theoriesabout it. Yet it is not always easy to form a clear pictureof the world around us, and one cannot separate the pic-ture we form from general ideas. To pretend that wecan talk about the facts without introducing generalideas would be foolish, and no such pretence is madehere. However, an attempt has been made to reduce toa minimum the technicalities, and still more the jargon,of economic theoryI hope not too unsuccessfully,with the exception of Chapter IV where it seemed im-possible to avoid them entirely. The reader who wishesto avoid technicalities altogether may hke to know thathe can skip Chapter IV without losing any essentialthread in the argument.

Note to the ReaderThird English Printing, 1961

This booklet was written in 1958, and the concludingparagraphs must be read with this date in mind. In thepresent reprint these, hke the rest of the booklet, havebeen left as they were, since, although dated, nothing inthem has been substantially quahfied by subsequentevents. Perhaps one should add, however, that the de-pression of 1957-58 did not prove to be long-lived (stillless become "another dramatic 1929"); it was, in fact,superseded by a mild recovery in the second half of1958 (in U.S.A.) and in 1959 (in Britain and WesternEurope). But this recovery, in turn, was to prove quiteshort-lived; it was not to last to the end of 1960, bywhich time there were abundant signs of yet another"downturn" on the way.

13

Note to the ReaderFirst American Printing, 1962

In expressing a welcome to the American edition ofthis booklet, I should perhaps add a word of explana-tion for American readers. Written and published inEngland in 1958, it was designed as a simple and popu-lar summary primarily for the British Labour move-ment (simultaneously with the first edition a specialedition was issued for the South Wales Area of the Na-tional Union of Mineworkers). Examples and statistics(e.g. about the distribution of capital and of income)were accordingly chosen in the main from data relatingto Great Britain. It has not been thought worthwhileto substitute American data for this in the present edi-tion, since to do so would have entailed considerablerewriting in places and the use of material with whichthe author is much less familiar than he is with materialrelating to his own country. For good or ill, therefore,the booklet remains in its original form. At the end ofChapter VI, however, some additional material has beenadded, summarising events since 1958, and making spe-cial reference to what has happened in the United States.

It may possibly interest American readers to knowthat since its first appearance. Capitalism Yesterdayand Today has been published in translation in Polishin 1960, Czech in 1961, Japanese in 1958, Arabic in1961, and in an Indian edition (by the People's Pub-lishing House in Bombay).

M.H.D.December 1961

15

CAPITALISM YESTERDAY Sc TODAY

IWHAT IS CAPITALISM?Capitalism is something which everyone talks about

nowadays whether he be of the Right or of the Left. Yetit is a word that those using it employ in a variety ofsenses, with no little confusion and talk-at-cross-pur-poses as a result. There are some even who deny thatit can be given precise meaning at all (these are prob-ably a quite small minority, mainly consisting of thosewho suppose that a good way of defending a systemfrom its critics is to deny that it can really be called asystem at all). Yet others, surprisingly enough, speak ofit as something lying in the past: a state of affairs thathas ceased to exist, or at any rate is already in processof transformation, here and now, into something else.To start this pamphlet with a tedious discussion of

definitions would be to invite the reader to give up atthe first paragraph. On such a discussion I do not intendto enter. At the same time I can scarcely refrain alto-

19

gether from saying (in as few words as possible, I hope)what I am going to mean by the term capitalism in whatfollows; and I feel sure that I should be blamed by many,if not most, readers if I refrained from doing so. ThisI can do the more easily because the sense in which Iam going to use it is one that has been common usageof the Socialist and Labour movement the world overfor the past century; and it is, I believe, the sense in-tended by a large majority of those who use the term. Imean a system in which the instruments and appliances,structures and stocks of goods with which production iscarried onin a word capitalare predominantly inprivate or individual ownership (including in this in-dividuals grouped together as joint-owners in the formof a joint stock company or business corporation, whereeach person's ownership is separately distinguished inthe form of shares). This is sometimes more loosely de-scribed as a system of 'private enterprise'. In slightlymore technical language Marx spoke of it as a mode ofproduction in which the means of production are ownedby capitalists who constitute a distinct class in society.

It may be noted that this latter way of putting it addssomething that was lacking in our more general descrip-tion of capitalism as a system of individual ownership.A society where everyone is an individual owner is notinconceivable; and something approaching it has exist-ed at various places and times in history in the shape ofcommunities of small peasant farmers or artisan-produc-ers. Here there is no separation of 'Capital' and 'La-bour' and hence no Capital-Labour conflict, since theowner of the implements of his craft (and/or of his land)at the same time works with his own hands. To recreatesuch a society has, indeed, been the object of manyUtopians, some innocently, some as a political decep-tion like the Tory talk about a 'property-owning de-mocracy' in our own day. Evidently such a state of af-fairs is only possible where the instruments of production

20

are small-scale and primitive. In modem society, withits elaborate and costly technique and productive proc-esses conducted with intricate speciahsation and mech-anisation, it is impossible for every man to run his ownproductive process. To start production needs capital invery large amountsamounts quite out of reach of any-one who has not already accumulated quite a pile (orat least is in a position, socially and economically, todraw other capitalists into partnership with himas ev-eryone knows, nobody lends to the man who has noth-ing at all).What this amounts to is that in modem society a sys-

tem of individual ownership of means of productionmust mean at the same time a concentration of suchownership into relatively few hands. This very fact ofconcentration implies its opposite, the lack of owner-ship on the part of othersin fact, of the majority ofthe population. Thus some own and some work for thosethat ownindeed are obliged to do so, since owningnothing and having no access to means of productionthey have no other means of livelihood. This is the basisfor the so-called conflict between Capital and Labour.Actually it is a conflict or stmggle of basic interests be-tween two main classes into which capitalist society isdividedbroadly speaking beween owning capitalistsand workers who hve by hiring themselves out for awage. It is this class struggle that forms the historicalbasis of the Labour movement, with its trade unions andother forms of working-class organisation. In such a so-ciety it is generally the case that you can only be rich(in the sense of enjoying a large income) if you firsthave capital, and the only quick road to economic ad-vancement is to acquire capital with which to put othersto work for you. This I have said is generally, or typical-ly, the caseit is tme with the exception of a few spe-cially scarce human skills and talents or of cases whereindividuals can command high fees or a high salary

21

mainly because of their social background or the socialprestige that they enjoy.

For this condition of things to prevail, it will, I think,be obvious that two circumstances must exist in the firstplace. Firstly, for a whole class of persons to be able toearn an income simply by owning and not working(whether or not they happen to work as well as own isfor this purpose immaterial) there must be some formof compulsion, direct or indirect, on others to work forthem, since without work nothing can be produced. Aswe have seen, the consequence (perhaps we should saythe complement, or the other side) of ownership beingconcentrated in the hands of some is that others are leftwithout property. If this is so, this very fact constitutesan economic compulsion on the latter class of persons(the non-owners) to hire themselves out to the former(the owners), i.e. to become wage-workers for a capi-talist. Secondly, for some to live (and to live handsome-ly) by owning, it must follow that others by their pro-ductive activity must produce more than they earn. Inother words, from the sum total of what is produced bythose who do the work of society there must be a deduc-tion in order to provide an income for those who ownland and capital. This was how the matter was put bythe man who has been called 'the father of PoliticalEconomy', Adam Smith. Putting it the other way round,those who provide the work of society must produce asurplus over their own earningssurplus-value Marxcalled itin order to provide a source, the only possiblesource, of income on property (profit or interest on cap-ital and rent of land). Property-income therefore comesby appropriating part of what is produced by the realproducers.

The first of these two propositions has never, I be-heve, been seriously denied by economists. Indeed theearly economists of a hundred or more years ago, whomwe call the classical economists, said this in so many

22

words;* although their modern descendants may haveconveniently forgotten it or hidden it from view (exceptwhen it bobs to the surface in some incautious statementlike: "We need some unemployment to keep labour inits place"). But the second proposition they have con-tested, and many economists would do so stoutly today.They would say that it is either a meaningless statement,which could equally well be turned upside down so asto describe wages as a 'surplus', or else that it sins inattributing 'productivity' exclusively to labour, therebyignoring the fact that capital contributes to productionas well as labour. Now, no one could deny that machin-ery etc. (which is what the economists in question meanhere when they speak of 'capital') is productive in thesense that labour working with machinery can producemore than labour working without, or that the productiv-ity of labour is largely dependent on the level of tech-nique. But this would remain true in whatever form themeans of production were owned, and is no reason forattributing part of the product to the capitahsts, asthough some act of theirs had created it, which is whatthis productivity-argument of some economists illicitlydoes.Some economists, however, have had another string to

their bow. One can attribute this extra product to thecapitalists (they say), because without their willingness tolend their capital, the machinery in question or the mod-em technique could not have come into existenceor,alternatively, could not have done so without the 'absti-nence' or 'waiting' whereby the capital was saved-up andcreated in the first instance. Since this is not a workabout economic theory, we cannot debate such issuesfully here. We must be content with the remark that inits first form this 'explanation' could equally well be

Indeed, it formed the crux of an early theory of colonisationin the first half of the 19th century (that of Gibbon Wakefield).

23

used in the case of any monopoly right, such as the rightto levy a toll or the exclusive ownership of some sourceof supply (like a scarce well in a desert); and in its sec-ond form (that capital is the creation of some human ef-fort or pain of 'abstinence' or 'waiting') it would be ad-vanced today, I think, by very few economists of anyschool of thought as a serious answer to a 'deduction' or'surplus' theory of profit on capital. Capital, historicallyspeaking, just wasn't created in this way. And who woulddare to say that it is the Lady Dockers of the worid or theoil magnates today who notably suffer painor abstinencein the interests of their investments? When one is speak-ing realistically of the sphere of human activities and re-lations, it must surely be clear that those who performsome kind of active work essential to the productiveprocess* can alone be said to participate in productionin the usually accepted meaning of those words.

Of course, one must not suppose that everything isquite so clear-cut as for brevity it has here been repre-sented. Those who own property may sometimes performan active role in production as well (e.g. in managementor direction), and those who work and whose main sourceof income is a wage or salary may also own something(some saving-certificates or a house or an allotment).Social classes, as distinct from social castes, are seldomseparated by hard and fast dividing lines, and tend toshade off into one another (as do colour-bands in a spec-trum) at the edges. There may be sections of the wage-earning class who have privileged positions among theirfellows, owing to bargaining-power, a favoured posi-tion in a prospering industry, or scarcity (temporary orpermanent) of their particular type of skill. On the other

Interpreting this reasonably broadly to include movingthings about and storing them (where this is necessary) orhelping to arrange and organise the productive process aswell as actually making things.

24

hand, there may be small capitalists as well as large,with interests that in some degree and on some occasionsconflict with those of the latter, for reasons that will bementioned below. There are intermediate groups noteasy to pigeon-hole as either capitalists or wage-workersvarious middle strata to give them an ugly but con-venient name*; there are even some survivals of theowner-worker type that we mentioned earUer, called"workers on own account" according to the British cen-sus classification, which records them as composingabout 5 per cent of the occupied population (a classwhich bulks larger in other capitalist countries, both inEurope and America, than it does here).To say that a system is predominantly one of indi-

vidual ownership and private enterprise is not to say thatsuch ownership-rights are entirely limitless and unfet-tered: in varying degrees they will be bounded by leg-islation and by the demands of fiscal policy, and 'privateenterprise' will be subjected in varying degrees to Statecontrol (if only in order to give some coherence and sta-bility to the system as a whole). Thus considerable dif-ferences in the actual functioning of capitalism may befound at different times and stages of its growth and indifferent countries, despite a basic similarity in those gen-eral features of which we have spoken. Thus it would bewrong to identify capitalism with the complete absenceof State controls over economic life: all States, of course,in varying degrees and in different ways try to exert con-trol over economic life. While any high degree of devel-opment of such controls is exceptional under capitalism,it is found nonetheless, especially in conditions such asa modern war presents or when the system is sufferinga severe shock as in the 'thirties. (It has to be remem-

*Andrew Grant in his recent book Socialism and theMiddle Classes estimates that they compose in this countryabout 17 to 18 per cent of the occupied population.

25

bered that the interests of a class as a whole may comeinto conflict with the separate interests of individualmembers of it, as well as different sections of it having attimes divergent interests.) As we shall see later, theremay even be a fairly substantial sector of State enterprise(nationalised industries etc.) within a capitalist system;and while the former may to some extent affect the work-ing of the system, its mere existence does not change theessential character of the system.

But when we have taken account of such qualifications,does our description of this essential character of cap-itahsm still fit the facts? We described this as consistingof such a concentration of ownership of capital as to re-sult in a 'polarisation' of society into a class of ownersand a class of non-ownersthe former a comparativelysmall class and the latter constituting (in a country likeBritain) the great majority of the nation. That it does sofit the facts becomes, I think, abundantly clear when weset it against the available statistics about the distributionof income and the distribution of property. Figures of thelatter are more difficult to come by than the former. Thebest known and most widely quoted estimate of property-distribution in Britain before the war is that made byDaniels and Campion and published in 1936 under thetitle of The Distribution of the National Capital. Thisshowed that between the wars more than half of the totalcapital of the country was concentrated in the hands of1 per cent of the population (aged 25 and over), andsome 80 per cent of the capital was concentrated in thehands of little more than 5 or 6 per cent of the popula-tion. This, surely, is concentration indeed!A more up-to-date estimate has been made along sim-

ilar lines for the post-war period, and is given below. Thisshows that in 1946-47 a half of the capital was still con-centrated in the hands of scarcely more than 1 per centof the population (aged 25 and over), and 80 per centof the capital was owned by 10 per cent of the popula-

26

tion. At the other end of the scale were two-thirds of thepopulation who, if they owned anything at all, held lessthan .100 and on the average no more than .60 each.Thus these small owners or small savers (whose existenceis so much advertised by those who wish to deny the ex-istence of a class-stratified society) had quite negligibleamounts as regards any income that their 'property'would yield them to live on, which all told accountedfor less than one-twentieth of the total capital of thecountry.

Amoukt of Capttal and Number of Persons (aged 25 and over) inEACH Capital Group in England and Wales in 1946-7*

Capital groupaccording to

ize of holding

for the middle-fifties show. They show that about one-fifth of all personal income goes to under one-twentiethof income receivers, and one-tenth of it to scarcely morethan one-hundredth of them.

DBnuBimoN op Pbmonal Incxjiibs, 1954^

Cumulative Percentages of Distributed Personal Income andUndistributed Profits in 1947*

Before we finish with the main features of capitalism,there is one thing more that should perhaps be said. In-dividual capitalists or firms are free (within limits) to dowhat they liketo produce what they like, to investtheir capital where and how they like. Thus it is an un-planned system. This is what is meant when the term*anarchy of production' is used for it; implying not nec-essarily that it operates quite arbitrarily and chaotically,but that it goes without central direction. It is to this thatEngels was referring when he spoke of the growing con-tradiction between the increasingly social character ofproduction and the fact of individual ownership. If itruns thus 'anarchically', with each individual firm orbusinessman seeking to do what he expects will yield himthe highest profit, some explanation is needed as to howit functions as a system at all.

The answer is that the co-ordinating mechanism ofsuch a system is the market and price-movements onmarkets. Every individual businessman takes his deci-sions about what and how much to produce, where to in-vest, how much labour to employ and how large stocksof raw material etc. to hold, on the basis of the marketprices confronting him (modified doubtless by guessesas to how such prices are Hkely to change)prices ofoutput and prices of the various constituents of inputthat make up his costs. But the sum total of such indi-vidual actions exerts in turn an influence on these prices,so that price-changes occur, bringing in their train ap-propriate ^revisions' in the actions of individual firms;and these price-changes continue until some kind of*fit' is achieved (or approached) between the myriad ofindividual decisions, taken separately and 'atomistical-ly'. (Of course, there are some situations where no such*fit' is possible and prices just go on fluctuating.) It isin this sense that the upshot is not what any individualor group of individuals has consciously willed or de-signed, but what happens to result from the working

30

of market tendenciesin this sense that the system issaid to be ruled by 'objective forces' or by the 'law ofvalue', acting 'independently of man's will'. To say thisis not just a piece of mystification as some have sup-posed.From this a number of consequences follow, of which

we must be content here with singling out two. Firstly,the market-mechanism will exhibit wide and extensivefluctuations of price (which in some circumstances, aswe have just said, will have a tendency to converge upona point of 'equilibrium', but in others will be self-per-petuating and even tending to get cumulatively greater).These fluctuations of price, and of output and employ-ment together with price, levy a heavy toll both in hu-man suffering and in terms of strictly economic cost andeconomic waste. Such fluctuations may be of particularcommodities and their markets, affecting particular in-dustries or regions. But they may also take place on thescale of the system as a whole, as is exemplified in therecurrent crises or periodic fluctuations of total produc-tion, investment and employment that have character-ised the history of capitalism, and to which we shall re-turn in Chapter V. Secondly, in all those casesandthey are very numerouswhere maximum profit to theindividual capitalist firm or business stands in conflictwith the interests of society as a whole, it is the formerconsideration that will dominate and the latter that willgo by the board. This will apply particularly to the ne-glect of the welfare of the mass of the population whodo the work of the system for a wage; since in a systemruled by the market it is the Power of the Big Purse thatmatterswhich exerts the pull that decides what shallbe produced and who is to get first pick of what is going.AH this amounts to saying that capitalism is a form of

market-system, or a system of commodity-production asMarx put it (meaning by 'commodities' goods produced,not for direct use by the producer, but for exchange on

31

some market). It does not follow, however, that cap-italism is the only form of market-system or commodity-production. In history there have been earUer forms ofsociety that rested (in part, at least) on commodity-pro-duction and exchange while not being capitalist (for ex-ample, 'petty commodity-production' of the owner-pro-ducer type); and a sociahst economy may utilise themarket, and be influenced by the laws of commodity-production, even though not being governed by them(since a sociahst economy is essentially a planned econ-omy). Lenin simimed up the difference very terselywhen he said that "capitalism is commodity productionat the highest stage of development when labour-poweritself becomes a commodity/'

32

II

HOW CAPITALISM CAME INTOBEING

There have been other forms of class society besidescapitalism, where a ruling class lived off the surplus la-bour or surplus product of the working producers: no-tably slavery and serfdom. Very few even among pro-fessional economists would, I think, be prepared to denythat slave-owners appropriated to themselves the sur-plus labour of their slaves over and above what wasnecessary for the slaves' maintenance; or that significanteconomic meaning could be given (moral overtonesapart) to the statement that the serf-owner of mediaevaltimes exploited his serfs by exacting from them a pro-portion of their produce or of their labour-time. Indeed,it is difficult to see how one could realistically depictthe economic essence of these systems without such acharacterisation. Yet those same economists, many ofthem, would stoutly deny that any analogous statementcould be made about capitalism, simply because underit the worker is under no legal compulsion to yield uphis surplus labour to a master, and the compulsion uponhim to do so is, as we have seen, purely economic.

33

The process by which capitaHsm developed out of apreceding form of class society (mediaeval feudalism)and the serf-labour of the previous mode of productiondeveloped into wage-labour was both long-drawn-outand complex. The precise mode and stages of transitionhave been the subject of a good deal of controversywhich cannot be entered upon here. The lines of transi-tion were by no means clear-cut, and important politicalchanges (in the class-content and policy of the State)were involved in it. There has been discussion as to therespective roles played in the downfall of feudalism indifferent countries by an economic and political revolu-tion 'from above' (e.g. by large merchants in alliancewith sections of the landed aristocracy) and by revolu-tion 'from below' headed by small capitalists risen them-selves from the ranks of small producers in revolt againstfeudal exploitation (e.g., the contrast between countrieslike Prussia and Japan, on the one hand, and the 'classicroad of transition' in England on the other*). Whatevermay have been the main dissolving force of feudal soci-ety, however, two main stages in this transition can bedistinguished.

In the first of these stages the small producer securedhis emancipation, partial or complete, from the feudalobligations laid upon him. In the second he was separ-ated from his property in the means of production (hissmall holding of land, his cattle and implements of hus-bandry or of a handicraft) and was made dependent ac-cordingly on wage-labour for a livelihood. This was theprocess that Marx described as one of 'primary accumu-lation' (or 'original accumulation') with its creation of a

Anyone interested in following up this discussion maycare to refer to The Transition from Feudalism to Capital-ism, a Symposium by Paul Sweezy, M. Dobb, H. Takahashi,Rodney Hilton, Christopher Hill (a reprint of articles whichoriginally appeared in Science and Society of New York).

34

proletariat. The essence of the process was much thesame whether this took the form of direct eviction (aswith enclosures of land and the eviction of cotters in ourown history), of impoverishment and indebtedness lead-ing to eventual distraint for debt or (as in some regions)of a growth of population greater than could secureholdings on the available land. In the first two of theseforms the creation of a proletariat was the reverse sideof that concentration of ownership of which we spokein the last section, both being part of the same conjointprocess. A crucial element in this development was thesocial and economic disintegration of the community ofsmall producers: a process which was itself aided by theemancipation of this community from dependence onfeudal overlordship and by the growth of production fora market wider than that of the village, and hence thegrowth of monetary exchange. This disintegration tookthe form, on the one hand of the emergence of an upperlayer of richer peasants, adding field to field, accumu-lating a little capital and taking to trade and usury, onthe other hand of the creation of an impoverished lowerlayer, forced by poverty and debt to work for a morewell-to-do neighbour, to mortgage and eventually to sur-render their holdings.

The crucial phase in the rise of capitalism is usuallylocated in the so-called 'industrial revolution', when aseries of technical innovations harnessing mechanicalpower (first water-power, then steam) to productiontransformed the production process by transferring itfrom the home or the handicraft workshop to the fac-tory and rendering it a team-process of dozens orscores, and later of hundreds, of workers, in place of thepetty, often individual, production of one man or of amere handful of men with hand-operated tools or mech-anisms. This was the crucial change that American writ-ers of today, seeking topical metaphors and spurningthe word revolution, are wont to speak of as the 'take-

35

off' into industrialisation, after which capital accumula-tion and economic expansion acquired a momentum oftheir own.

This crucial change could not have occurred, how-ever, as the result of technical innovation only. Thereadiness among capitalist pioneers (frequently men ofsmall capital at the outset) to adopt these innovationsand to adapt them to the purpose of production and themarket, as well as the readiness of others to extendthem, depended on the maturing of a series of preced-ing developments extending over a long time. One pre-condition was the existence of a class of men used toemploying capital in trade and industry, even if on aquite small scale. Another was the existence of moresubstantial merchant capitals able to extend credit andto provide trading outlets. Moreover, there had to bealready-existent markets, as well as channels of tradeand means of communication, and above all an avail-able and mobile (not to say fairly cheap) labour supply.

Capitalist relations of productionby which I meanrelations of wage-labour to capitalhad in fact beenmaturing for two centuries or more before the industrialrevolution. Already in the 16th century there had beentechnical improvements in some industries which hadlaid the basis for something Hke factory-scale produc-tion. Improved pumps permitted deeper mining, andhence led to mining enterprises with fairly considerablecapitals (even if not what we should call large today).New methods of salt-making, paper-making, sugar-re-fining, the invention of gunpowder, new methods ofsmelting iron in primitive blast-furnaces, of copper-smelting and wire-drawing laid the basis for concentratedproduction and for enterprises with capitals running in-to thousands of pounds. Thus the end of the reign ofQueen Elizabeth I saw powder-mills and paper-millsbased on water-power, copper and wire works, not tomention fulling mills in textiles which had appeared on

36

the scene much earlier still. That is to say, there wereimportant changes in the forces of production even atthe dawn of capitalism while it was still growing 'withinthe tegument' of a predominantly feudal society.As yet, however, these were rather isolated examples,

often handicapped by lack of labour (at times relyingon impressed or forced labour, e.g. of convicts, especial-ly in mining), sponsored by landowners or by substan-tial merchants and sometimes relying on the grant ofmonopoly-rights from the Crown (to obtain which influ-ence at Court was needed). The most common form ofproduction, especially in textiles, was still essentiallyhandicraft in basis. Consequently it could be carried onin small workshops or in the home by persons who stillretained a plot of land and combined smallholding cul-tivation with handicraft as a bye-employment. Capitalwas of course needed to advance the raw materials andto organise the marketing (and sometimes the finishing)of the product; and this was provided by a merchant(a merchant-manufacturer he came to be called) whoput out the work to be done by craftsmen in villages orin the suburbs of trading towns, organised such divi-sion of labour as there was between stages of produc-tion (e.g. spinning, weaving, finishing) and arranged thesale of the final product. Hence the terms 'domestic orcottage industry', sometimes the 'putting-out system',have been variously used to describe what was the mostcharacteristic form of production in this early, pre-in-dustrial-revolution stage of capitalism, which Marxcalled the stage of 'mawwfacture' to contrast it with thelater 'mac/imofacture' ushered in by the industrial rev-olution.

But why speak of this as a stage of capitalism at all?The workers were generally not proletarianised: that is,they were not yet separated from their instruments ofproduction, nor even in many cases from occupation ofa plot of land. Production was scattered and decentral-

37

ised and not concentrated. The capitalist was still pre-dominantly a merchant who did not control productiondirectly and did not impose his own discipline upon thework of artisan-craftsmen, who both laboured as indi-vidual (or family) units and retained a considerablemeasure of independence (if a dwindhng one).

While it is true that at this date the situation wastransitional, and capital-to-wage-labour relations werestill immaturely developed, the latter were already be-ginning to assume their characteristic features. In thisputting-out system the employer-employed relation wasclearly discernible, and the price the domestic craftsmanreceived for his product came increasingly to resemblea piece-wage for the work done. The artisan-craftsman'sindependence and hold upon his instruments of produc-tion were rapidly losing anything but a nominal char-acter. The process of 'disintegration' within the pettymode of production that we mentioned above was atwork in the ranks of the domestic handicraftsmen:many, falling into economic difficulties, were losing theirindependence and becoming semi-proletarianised; themore prosperous were accumulating some capital andbecoming employers to their poorer neighbours, so thatincreasingly those who financed and organized industry(and also pioneered improvements), instead of beingprimarily merchants, came to be rising capitalists fromthe ranks of the producers themselves. In hosiery, fol-lowing the invention of a more complicated knitting-frame, it became common in the second half of the 17thcentury for these frames (too expensive for small mento buy) to be hired out to domestic craftsmen, a specialCompany being even formed for this purpose; and inthe following century there were frequent complaintsof exploitation of the craftsmen by drastic increases inthese frame-rents. Something similar occurred in somecases in cloth-weaving, where the loom came to beowned by the 'employer', either because it had been

38

distrained for debt or because the craftsmen were toopoor to buy one originally. In the miscellaneous metaltrades (including nailmaking and toolmaking) somecapitalists assembled craftsmen under their own roofsinstead of putting out work for them to do in their homes.Iron production in the 18th century was becoming in-creasingly concentrated, and in agriculture there was asimilar tendency towards concentration of landowningand of farming*.

With the more widespread technical changes of thelate 18th and 19th centuries these processes that hadbeen going on over the previous two centuries or sowere greatly speeded up and carried a crucial stage fur-ther. Compared with what had gone before, the tempoof development became exceedingly rapid. Even so,one should not exaggerate the speed with which thetransformation to factory industry, with its concentrationof production and its direct employing-capital-to-wage-labour relationship, was established. This transforma-tion was very uneven, and remnants of the period of'manufacture' continued well into the second half ofthe 19th century. Nevertheless by the middle of the19th century what we know as the modem capitahstfactory-type of production-process had become predom-inant and typical in British industry. A rapidly growingproletariat, recruited partly from the surplus popula-tion of the countryside (product of enclosures and ofthe decay of village handicrafts) and partly from nat-ural increase of population (which was much more rap-id from the last quarter of the 18th century onwards,only to slacken again towards the end of the 1 9th) sup-plied the labour force for an expanding industry and afield of investment for growing accumulation of capital.

Details of such developments at this period can befound in Chapter Four, section I, of the writer's Studies inthe Development of Capitalism.

39

Ill

COMPETITION AND MONOPOLYOnce it had got into its stride, the process of capital

accumulation could proceed very rapidly, simply by pil-ing-up and ploughing-back into industry the profits thatwere currently reaped. Along with capital accumula-tion and investment marched continuous improvementsin technique. In this respectin constantly revolution-ising its own methods of productioncapitalism wasvery much more progressive, at least in its heyday, thanany previous mode of production in history had been;even though the growth-rates achieved by capitalism,even in its boom periods, are moderate compared withthose achieved by socialist planned construction in thesocialist sector of the world in recent decades. Through-out most of the 19th century capitalism was highly com-petitive, in the sense that individual firms were fairlysmall (generally family concerns or partnerships) andnumerous in each industry; no one was large enough toexercise a perceptible influence over its market; andprice-agreements between them, although they were byno means unknown especially in local markets, were

41

less common than they are today. Free trade and freecompetition were the watchwords of the hour, and eachbusinessman knew that if he was not on his toes, con-stantly finding means to cheapen his product, he wouldbe shouldered out of the market by his competitors.Innovation thus became the key to success. Capital wasaccumulated in order to provide the wherewithal to in-novate; and at the same time innovations in techniqueafforded a field and outlet for capital, even when capitalwas accumulating faster than the supply of wage-labourgrew (as it tended to do).Why, it may be asked, if capital accumulated thus fast,

so as to outrun even the high rates of population-in-crease of the 19th century, should not the competitionfor labour thereby created bid up wages (the price oflabour-power) so greatly that the basis of capitalism asa profit-making, surplus-value-creating system was un-dermined? This was certainly a question that was pres-ent in the minds of both capitalists and their economist-advisers in the 19th century and caused them no Httleconcern. The latent tendency of this to occur can besaid to be one aspect of a basic contradiction of cap-italism; and it was something to which Marx paid a gooddeal of attention. The reason why (he declared) thistendency never became actual (except temporarily) wasbecause the industrial reserve army of unemployed orcasually employed was continually being recruited andswollen by the occurrence of technical change with alabour-saving bias. Indeed, the very operation of thetendency produced its counteraction: as capital accumu-lation, out-running the natural increase of the labourforce, depleted this reserve army and raised wages atthe expense of surplus-value, a bias was imparted tomechanical improvement to produce the same or agreater output with less labour, with the result that theindustrial reserve army was automatically swollen again.Thus labour-power acquired the peculiarity of being a

42

commodity that (save exceptionally) was in a state ofsurplus-supply, and unemployment or under-employ-ment became a chronic condition of the system. In theearher stage of capitalism, of which we spoke in the lastsection, a reserve army had been created by the processof primary accumulation; in the full maturity of cap-italism it was kept replenished by the constant revolu-tionising of technique with the special bias that undercapitalism this tended to acquire.With more rapid capital accumulation and the revolu-

tionising of technique that went with it, the process ofconcentration of which we have several times spokenwas carried an important stage further. This was concen-tration at two levels. Firstly, it was concentration at thelevel of the production-unit. With more complex me-chanical technique, carrying with it a more complex di-vision of labour and separation of distinct processes andstages within the factory, came the economic necessityfor larger production-units. Instead of the primitiveforge, the modem battery of blast-furnaces and the in-tegrated unit of blast-furnaces, coking plant, steel-works and rolling mills ; instead of the toolmaking work-shop, the modern heavy engineering plant. To start upproduction now required initial capital running intohundreds of thousands, even millions, instead of a fewthousand only; and the sphere of independent actionof the small capitahst tended to be narrowed. Secondly,at the level of the firm or the company there was alsoconcentration and centralisation: there were larger con-centrations of capital in individual ownership and therewere aggregations of many distinct capitals to form themodem joint stock company or business corporation (asin America such aggregations are called).

But this competitive stage of capitalism by nurturingthe process of concentration was undermining the veryexistence of competition, at any rate in its old form ofsmall businesses cheapening commodities as the way of

43

stealing a larger share of the market (price-competition,as this has come to be called). Concentration was doingso by laying the basis for monopoly in its various forms.Although the original meaning of the word monopolyis sole seller of something, monopoly has come to meanin economic writing the power of appreciably influenc-ing the supply and hence the price of a commodity. Thisis of course a matter of degree and need not be absoluteto be economically important. If a capitalist firm issufficiently large for its output-policy to exert a signifi-cant effect on the market-situation and hence on themarket-price, it may operate a considerable degree ofmonopoly-power, even though the number of other(small) firms competing with it in the same line of busi-ness is quite large. While domination of the market isthe criterion of monopoly-power, this of itself is no morethan the means, the instrument, whereby the ultimateaims of monopoly are pursued. And since the motiveand driving-force of capitalism is profit, the aim of mo-nopoly is to enlarge its own profit by restricting outputand raising price.One way of dominating the market that is much in

vogue today is to create a 'specialty product', maybe inthe form of a new style or model or maybe just some-thing with a new label or trade-mark, and by salesman-ship and advertising (coupled perhaps with some exclu-sive or preferential agreement with selling agencies)to cajole or bully buyers into accepting it, thereby cre-ating a preferential market for this product. Anotherdevice is to carve up the market into protected 'terri-tories' for each of the main sellers, either by a tradeagreement among the firms involved or else by thestronger firm or firms threatening to make it hot foranyone poaching on their 'territory', so that smaller andweaker competitors feel it safer to keep away. Some-thing like this happens in the market situation that hascome to be known as the 'price leadership' case, where

44

a large firm (or a group of large firms) co-exists in anindustry with a considerable number of smaller firms.There is no expUcit agreement between them and thelatter remain independent competitors; yet the formeris able to fix the price at what is most profitable to it-self, and the latter do not undercut this price, but arecontent to take whatever share of the market is left tothem rather than risk a price-war with their strongerrival.

Thus monopoly does not exclude competition in allsenses of the word: there is still competition in the senseof rivalry and conflict between firms, each of whichpossesses a high degree of monopoly and wishes to in-crease it, and also between such firms and smaller firms.The point is that the form of competition changes. In-stead of the price-competition of the 19th century type,there are advertising wars and selling-campaigns (thebattle between rival brands of detergents may come tomind); competitors as well as consumers are bludg-eoned into fine by methods hke the boycott and the ty-ing-contract made with distributive firms, not to men-tion agreements to enforce resale price-maintenance andto outlaw the cut-price seller. Finally there may be theuse of political influence to secure preferential alloca-tion of contracts or fiscal protection against incursioninto the home market. This does not mean that price-cutting never occurs. Certainly there are outbreaks ofprice-war, of which there are several instances in thehistory of the oil monopolies. But these are apt to be tem-porary interludes between periods of truce or agree-ment.

The most complete form of monopoly is the amalga-mation or merger by which rival firms agree to com-bine into one, or the largest of them swallows up therest. Less complete than this is the combining of firmswhich retain their separate identity, while their inter-ests are linked by an exchange of shares or what is

45

called 'interlocking directorates' or some 'community ofinterest' agreement (interessengemeinschait in the Ger-man) between them; or again the holding companywhich has a controlling interest in a number of satellitefirms. At times the latter has been used in connectionwith a device called 'pyramiding' to give one man orgroup, with a comparatively small capital-holding in theparent company, control over an empire of companieswith several hundred times the capital all told (as withthe notorious empire of the American financier InsuUwho came to grief in the financial crash of 1929). Thereare then looser forms of market agreement, which leavefirms independent as producing units, but bring aboutsome measure of co-ordination of their marketing. Bestknown of this type is the Cartel, which in its completeform is a selling syndicate formed to take over or con-trol the marketing of the output of member firms. Inorder to maintain price there is generally a system ofoutput-quotas allotted to each firm in order to ensurethat total output shall be consistent with the desiredminimum price.

If output is restricted, however, it follows that exten-sion of productive equipment (in the shape of plant andmachinery) must be restricted also. This has to be doneby putting obstacles in the way of new firms setting upin the industry in question: if they did in any numbersthen, of course, the monopoly position of those alreadyestablished in the industry would before long be under-mined. Thus it is not only the danger of price-cuttingfrom firms already in the industry that has to be elim-inated, but also from newcomers attracted by the pros-pect of sharing the high monopoly profits. Sometimes,of course, this is what happens, especially in the loosertypes of monopolistic agreement, and in industrieswhere it is not difficult for firms with small or mediumcapitals to set up and get a footing in the market. Then,even if there is no serious under-cutting of the monop-

46

oly price, the long-run result may be the attraction intothe industry of so large a number of firms that none ofthem is able to work at full capacity (i.e. not with thesize of the market limited by the prevaihng swollenprices and profit-margins). In many industries, how-ever, it is not economically feasible to start productionon less than a large scale (because of the nature of thetechnical process and the costly initial installations thathave to be made). Here entry to the industry is nec-essarily hmited to those possessing large initial capitals,and already-established firms have the great advantageof having got in first and of security against intruders.Yet again firms may be deterred from setting up inrivalry with those already established, not only by theinitial costs of starting up but also by the risk of lossinvolved in getting a foothold at the expense of the es-tablished.

Even where, however, a monopoly is secure againstthe challenge of new competitors, it is itself faced witha serious problem: namely, that if expansion of produc-tive capacity is to be curbed, it is debarred from rein-vesting its own monopoly profits in its own industry.Where then is it to invest them? The higher monopolyprofits in the monopoly industries should make forheightened accumulation of capital; and it is a notablefeature of the present stage that large concerns accumu-

late capital in the form of company reserves, and thata major part of investment is financed from this cor-porate 'internal accumulation'. Hence the urge to invest,if not in monopoly industry itself then somewhere else,is strengthened.

This would seem to be a central contradiction of cap-italism in its monopoly-stage. In so far as rivalry con-tinues between the big concerns, and the impulse to getbigger and more dominant is uppermost, the tendencyis probably to reinvest within the industry or monopolysector itself. To the extent that this is done, excess pro-

47

ductive-capacity is created beyond what can be fullyused; and despite the high profit-margins* this will tendto depress the rate of profit per 2 is here used to mean the amount of profitearned on each unit (or piece) of output produced and sold,to distinguish this from (a) total profit (which will dependon the amount produced and sold), (b) the rate of profitwhich is total profit in relation to the total capital invested.

48

most advanced capitalist countries is linked with thateconomic and political penetration (leading to eventualdomination) of undeveloped countries which goes bythe name of modem imperialism. The closing decadesof the 19th century were marked by the 'scramble forAfrica', whereby most of that continent was carved outas exclusive colonial territories by the leading GreatPowers within the space of litde more than ten years.About the same time came the renewed interest, especial-ly of Britain and Germany, in securing 'concessions' inChina; Germany's Drang nach OstendnwQ throughthe Balkans into the Middle East; and round the turn ofthe century the quick if retarded rise of 'Dollar Diplo-macy', with its similar interest in economic and politicalpenetration of Latin America and the Pacific. By thetime of the First World War British capital abroadamounted to between a quarter and a third of all cap-ital in the possession of the British capitalist class; sothat as far as British capitalism was concerned, especiallyBritish monopoly-c2i^\idX\sm, the British Isles were nomore than the metropolis of a far-flung, dependent eco-nomic and political empire. Britain had never, of course,relinquished her hold on India, a colony of an earlierperiod (so-called Mercantilism during capitalism's firststage); now she showed renewed economic interest notonly in India but also in Egypt and the Sudan, Eastand West Africa and also the Far East.

Foreign investment was not, of course, anything new.In the case of Britain, foreign issues had figured quitelargely on the London capital market earlier in the 19thcentury, being sponsored by the large 'merchant bank-ers' of the City which specialised in this line of business.These foreign issues were largely government or gov-ernment-sponsored loans; and although creditors likeRothschilds doubtless imposed conditions upon the bor-rowers, such loans did not involve direct exploitationand control. British capital participated largely in the

49

financing of railway development both in Europe andAmerica during the mid- 19th century. What gave exportof capital in the new epoch of imperialism a qualitativedifference was that it increasingly took the form of di-

rect business investment in mining and plantations, pub-lic utilities and later manufacturing concerns. Compa-nies were specially established on the colonial territories,

as sister-companies or subsidiaries of companies athome and commonly enjoying extensive monopoly priv-ileges there.

There have been many works written on this new im-periaHsm (including well-known works by J. A. Hobson,Leonard Woolf and Rudolph Hilferding); but the onethat has probably had the most widespread influenceall over the world has been Lenin's Imperialism: theHighest Stage of Capitalism, written at the time of theFirst World War. His characterisation of its main fea-tures is worth quoting in summary:

"(1) The concentration of production and capitaldeveloped to such a high stage that it created monop-olies which play a decisive role in economic life. (2)The merging of bank capital with industrial capital,and the creation, on the basis of this 'finance capi-tal', of a financial oligarchy. (3) The export of capi-tal, which has become extremely important, as dis-tinguished from the export of commodities. (4) Theformation of international capitalist monopolieswhich share the world among themselves. (5) Theterritorial division of the whole world among thegreatest capitahst powers is completed." (Chap.VII).The statement that there is export of capital to the

colonies and direct investment there by big businessand financial institutions in the home country must notbe misunderstood. The claim is often made that imperi-alism plays a progressive role in developing the col-onies. But what needs emphasising is the large extent

50

to which this investment goes into developing produc-tion for export and the small extent to which it developsproduction for the home market in the colony. In manycases, if it goes beyond primary production (mining,plantations etc.), the industry it creates constitutes an

'island' in the colonial area that is linked with the eco-nomic system of the imperial country rather than withthat of the colonial country as a whole. (Venezuela isoften cited as an outstanding example of this; also oilcountries of the Middie East). That most foreign capitalwent into export industries seems to have been true inthe case of British investment in the 19th century; butthis is particularly true of American investment in thepresent century (e.g. in the 'twenties and since 1945).One estimate shows that of American foreign investmentin the three post-war years, 1947-9, more than nine-tenths was direct business investment and nearly four-fifths was in colonial or semi-colonial countries; yet ofthe latter as much as nine-tenths was in oil. Of all Amer-ican capital already invested abroad at the end of the1940's, about half was in developed capitalist countriesand a half in underdeveloped regions of the world; andof this latter half nearly two-thirds was in primary, orextractive, industries producing mainly for export.*To return to the effect which the development of

monopoly capitalism has on the home country, stand-ing at the metropoUs of empire: how is one to sum-marise the general effect these developments have hadon capitalism as an economic system?

See Professor R. Nurkse, Problems of Capital Forma-tion in Underdeveloped Countries, pp. 82-3. The authorconcludes: "Foreign capital, instead of developing the do-mestic economies of low-income countries, has served toharden and strengthen the system under which these coun-tries specialised on the production of raw materials and food-stuffs for export" (p. 84). Also see Paul Baran, The PoliticalEconomy of Growth, pp. 173-200.

51

We have seen that the monopoly groups through theirdominance of the market and their monopoly-price pol-icy can enjoy a larger total profit than would otherwisebe the case. Unless this is offset by the growth of ex-cess capacity, the monopoly sector will also enjoy ahigher rate of profit per

slower than the latter to appreciate that they are being

exploited).But there is also another possibility: the monopolists

may gain at the expense of capitalists in the still-com-petitive (or more competitive) sector of industry. Inother words, there may be a redistribution of the totalsurplus-value created by capitalisma redistributionwithin the capitalist class in favour of the monopolists.To this extent the tendency for surplus-value to be aver-aged out in a (roughly) equal rate on all capital, whichoperated under competitive capitalism*, is replaced (orat least modified) by the prevalence of a different rateof profit in the monopoly sector and in the competitivesector (where it will be equivalently lower). This is, ofcourse, to give a very simplified picture, since we haveseen that there is no sharp line of distinction betweencompetition and monopoly; monopoly-power being amatter of degree. Yet this simphfied picture embodiesan essential element in the situation, since such differ-ences in the rate of profit may be the ground for im-portant fissures and conflicts within the capitalist classitself at this stage of capitahsm.

Finally one must remember that an important ele-ment in the higher profit-rate of the monopoly sector(and to some extent in the profit-rate of the imperialistcountry as a whole) is the additional profit (or 'super-profit') derived from economic relations with colonialregions. Such relations may take a variety of forms: ex-

*The reason for this is that as long as there are dif-ferences in the profit-rate, there will be a tendency for cap-ital to move from where it is low to where it is high, andas capital moves this tends to level out the rate (lowering itin industries into which capital moves and raising it in thosefrom which it moves). But once movement of capital ceasesto be free because entry of new capital into some industriesis obstructed, this tendency ceases to operate or at any rateto operate fully.

53

port of capital to enjoy a higher profit-rate there; thesecuring of so-called 'concessions' granting monopoly-rights and privileged conditions of direct exploitation(as with oil companies in the Middle East); favourabletrading relations that enable trade to be conducted onadvantageous terms (buying cheap and selling dear)*favourable terms of trade which may accrue in higherprofits to the monopoly trading companies concernedand/or more widely to capitalist firms in the home coun-try which buy imported colonial products or export tocolonial (and semi-colonial) markets. Some crumbs fromthe table may even fall to the working class of the im-perialist country, sometimes quite substantial crumbs.

Generally the effect of monopoly is restrictivetorestrict output in the interests of price-maintenance, toaggravate the problem of excess capacity by putting thebrake upon price-cutting to 'clear the market', to bluntthe drive toward constant cheapening of production bytechnical innovation, of which we spoke earlier in thissection as one of the hallmarks of capitahst competition.One would expect monopoly to sabotage technical prog-ress (in order to maintain the values of capital sunk inolder methods) and not to pioneer it. There are indeedexamples of monopolies buying up patents in order tosabotage their use. However, if we look at the past halfcentury as a whole, we do not see much, if any, evi-dence of a slackened pace of technical innovation incapitahst countries. The period of and after the twoworld wars has witnessed some striking revolutions intechnique and the rise of new industries, products andprocesses. Some economists** have used this as a reasonfor claiming that monopoly results in more, and not less,

*This is what the Soviet textbook on Political Economyrefers to as "non-equivalent trade" (p. 301).

'Notably the late Joseph Schumpeter.

54

**i

innovation than does competition, because it can mo-

bilise capital on a larger scale, take risks more boldly

and plan both research and the application of its re-sults more effectively because on a larger scale. It can

be argued that the crucial revolutions in technique were

a by-product of war and the overriding of ordinary cap-italist motives by the instrument of State control andthe needs of a war economy. To some extent this maybe true. Yet may not the simple answer to the riddle bethat technical progress has come despite and not be-cause of monopolythat the very concentration of pro-duction (Engels' "increasingly social character of pro-duction") on which capitahst monopoly is based tendsin the direction of more rapid change, whereas monop-oly per se as a form of capitahst control and motivationis purely restrictive?* Also we have to remember thatmonopoly is seldom complete, and there remains intenserivalry between monopolists as a factor in the situation.One cannot close this section without emphasising

that monopoly, since it imphes a concentration of powerwithin capitalism as a whole, results in a much strongerand closer political control over society and over gov-ernment policy. Thus the State comes to express, notmerely the interests of capitalism and of the capitahstclass as a whole, but the interests of the dominant mo-nopoly groups within capitahsm, furthering the interestsof the latter even if this be at the expense of other sec-

*One may recall Lenin's statement that the result ofmonopoly is "immense progress in the socialisation [i.e. so-cial character] of production" and that "the process of tech-nical invention and improvement becomes socialised"; andagain that in the stage of imperialism "it would be a mis-take to believe that this tendency to decay precludes the pos-sibility of the rapid growth of capitalism . . . capitalism isgrowing far more rapidly than before." (Imperialism, Chaps.I and X).

55

tions of capitalists. This has to be borne in mind whenwe speak of the growth of State Capitalism, as we shalldo in the final section. On the eve of the SecondWorld War the United States Senate appointed a specialCommission to investigate what came to be called "theconcentration of economic power"; and two well-knownAmerican investigators (Berle and Means) in the inter-war period found that approximately one-half of all non-banking corporate wealth in the U.S.A. was at the timecontrolled by 200 companies and that these giant cor-porations had been growing between twice and threetimes as fast as all other corporations*. These investiga-tors summed it up by saying: "The rise of the moderncorporation has brought a concentration of economicpower which can compete on equal terms with the mod-em State . . . (and which) the future may see possiblyeven supersede it as the dominant form of social or-ganisation."

*In 1947 a survey of the U.S. Federal Trade Commis-sion found that 135 manufacturing corporations, or underhalf of 1 per cent of all, controlled 45 per cent of the netcapital assets of them all. (Review of Economics and Sta-tistics, Nov. 1951).

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IV

FALLING PROFIT-RATE ANDLABOUR'S SHARE

One sometimes hears it said that socialist forecasts iabout the future of capitaHsm have not been borne out, Iand that accordingly there is no reason to suppose thatcapitalism will progressively fail as an economic system

j

and be replaced by sociahsm. Marx is held to have fore-|

cast simultaneously a steady fall in the standard of life

of wage-earners and a progressive dechne in the rate Iof profit on capital, neither of which has in fact oc- (curred. i

It would indeed be surprising if an economist writing /^a century ago turned out to be right in everything he fventured to forecast about the state of the world today.Some might even think it surprising and significant ifany substantial part of the things he had said happenedin fact to come to pass. In Marx's case there were doubt-less many things he did not foresee about our present-day worldsome that he would never have pretendedto be able to forecast, others about which he sketchedtentative forecasts which subsequent history has not

57

confirmed (or has only partially confirmed). Yet withregard to main tendencies such as the economic con-centration of which we have been talking, the classstruggle and the growth of the organised working-classmovement, the arrival of socialism on the historicalscene with a much bigger potential for economic growththan capitalism, how abundantly right he wasmuchmore so than any other 19th-century economist!As regards a falling profit-rate tendency, it is worth

noting that a common obsession of economists of allschools of thought in the early and middle 19th cen-tury was what they called the approach of a 'stationarystate', in which profits had fallen so low as to sap themotive for further capital accumulation; and some ofthem envisaged this as only a little way ahead*. Manyof them were fairly pessimistic also in their belief in thetendency for wages to fall to a subsistence-level when-ever the demand for labour ceased to expand faster thansupply (they were living, of course, in a period whentrade union organisation was weak or non-existent). Itmay well have been that Marx, sharing in at least somerespects the current climate of opinion, took for grantedthat such things would indeed come to pass within thefairly near future. But it has to be remembered that inspeaking of the "tendency for the rate of profit to fall"he spoke of this as no more than a tendency to whichthere were a number of "counteracting tendencies"which he explicitly stressed in detail. To put it in a nut-shell, the reason he saw for this tendency was thattechnical progress would tend to raise the ratio of 'stored-up labour' (plant and structures) to 'living labour' inproduction; and two among the counteracting tenden-cies he mentioned were the simultaneous effect of tech-

*One of them was J.S. Mill, who thought that only thelarge foreign investments of that time had precluded its ar-rival already.

58

nical progress in cheapening the production of machin-ery etc. itself, and in raising the amount of surplus-value produced by each worker in a given time as a re-sult of raised productivity.

It is commonly supposed that Marx forecast a steadydecline of real wages as capitalism developed, and thathe has been proved wrong. This I believe is a misun-derstanding. I do not know of any passage in whichMarx says this in so many words; and the context of hismuch-quoted references to "progressive impoverish-ment" and "increasing misery" (in Chapter XXV ofVol. I of Capital, entitled "The General Law of Accumu-lation", sections 3 and 4) makes it clear that he hadprincipally in mind the industrial reserve army of un-employed or chronically under-employed (the pauper-ised "lazarus layers"), and that he included in their "lot"such things as insecurity, loss of status and of pride ofcraft, "mental degradation" and "ignorance", as well aslack of the material means of livelihood. At any rate, tothis tendency also there were counteracting factors; andat the close of section 3 of this very chapter he is vaunt-ing the ability of trade unions "to destroy or to weakenthe ruinous effects of this natural law of capitalist pro-duction on their class". Elsewhere Marx himself ex-pressly repudiated the so-called 'iron law of wages'(often wrongly attributed to him, whereas the phrasebelonged to Lassalle), and emphasised that not onlycould trade unions for a time raise the 'market price'of labour-power above its 'value', but that a "social andhistorical element", differing at different times andplaces, entered into this 'value' (or 'normal level'), andaccordingly rendered the latter subject to historicalchange.

At any rate, what mattered for Marx was less the pre-cise way in which such tendencies worked out than thecontradictions and hence social conflicts which theycradled. As we have said, these have by no means been

59

mollified since the last century, even if they may havechanged their form. On the contrary, they have in manyways grown more acute. Class struggle over the divi-sion of the national income between wages and profitsis more extensive and sustained, and backed by strongand continuing organisations. To the guerilla-skirmishesof market competition has been added the tougher andmore deadly warfare of big monopoly groups. As forimperialismthe new 'dollar diplomacy' of which peo-ple wrote and talked earlier in the century has gradu-ated into the ruthless 'atom diplomacy' of today. The in-ter-war period witnessed about the deepest and mostdevastating economic crisis and slump on record, whichrevived talk even among academic economists of thearrival of an era of economic stagnation. True, in theprolonged 12-year boom of the post-war period it hasbecome fashionable to treat such stagnation-talk as anhistorical curiosity of the 'thirties. Yet events at the timeof writingthe new so-called 'recession' in U.S.A. andwhat the American left-wing economist Paul Sweezyhas called (Monthly Review, June 1958) the prospectof "creeping stagnation"makes this sunshine talk ofthe past decade highly dubious, to say the least. One issharply reminded of the nemesis that awaited similartalk about 'the era of American prosperity' in the'twenties.

The facts, however, about these much-debated tend-encies are fairly clearor at least as clear as the statis-tics available to us can make them. The chief groundof Marx's faUing-profit-rate tendency, as we have seen,was the rise in the ratio of the fixed capital element(machinery etc.) in what he termed 'constant capital' tolabour. This certainly has occurred. In Britain it hasbeen estimated that real capital per worker between1870 and 1938 nearly doubled: "the equipment withwhich the average man worked was twice as great in1938 as in 1870 if we reckon it in units of brick and

60

steel".* In U.S.A. since 1870, with the exception of thedecade of the 1930's, capital has increased persistentlyfaster than the labour-force, in some decades twice asfast.** Among the counteracting tendencies mentionedby Marx was what he termed "increase of relative sur-plus value" (i.e. of the share of surplus value in total out-

put) due to higher productivity of labour.*** There isno doubt that productivity of labour has increased alongwith the advance of technique (it approximately dou-bled between 1870 and 1938 in this country; and inmanufacturing it rose nearly 40 per cent between 1 924and 1937). Moreover, this increase applied in large de-gree to goods consumed by workersto so-called 'wagegoods'. At the same time, however, real wages haverisen since 1870 instead of remaining constant; themain reason for this evidently being the increasingstrength of working-class organisation (although it hasto be borne in mind: (a) that increased productivityand its tendency to raise 'relative surplus value' hasmade it possible for capitalism to allow labour to parti-cipate in the increase without retarding effect on the proc-ess of capital accumulation; (b) that an appreciable partof the rise in real wages in this country was due to im-

*Prof. E. H. Phelps Brown and Bernard Weber in Eco-nomic Journal, June 1953, p. 266. It should be noted, how-ever, that since productivity per worker had risen by aboutthe same amount, this does not necessarily mean that capi-tal per worker in value-iQims has risen.

**W. Fellner, Trends and Cycles in Economic Activity(New York, 1956), p. 242.

***Higher productivity in itself operated so as to lowerthe value of the product. To have the effect in question,this cheapening had to apply to goods consumed by work-ers, and hence (with real wages constant or rising less thanproportionately) lower wages in terms of money (of un-changed labour-value).

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proved 'terms of trade' with colonial and semi-colonialareas due to a relative cheapening of agricultural im-ports, as notably in the 1870's and 'eighties and againbetween the two wars).

So far as available estimates go,* there are signs of atendency for the rate of profit to fall in U.S.A. priorto the turn of the century. After that there is some con-flict of evidence; one authority** claiming to find a risesince about the end of the First World War, another***to detect a continuing, if small, fall since 1900. In Brit-ain the rate of profit in the industrial sector is estimatedto have fallen from about 16 to 17 per cent in the 1870'sto 14 per cent just before the First World War, and toan average of around 1 1 per cent in the inter-war pe-riod (when, of course, special depressive factors oper-ated).****

*Such estimates are not so easy to come by as might atfirst appear. For this purpose it is not sufficient to take sim-ply the current yields on current share values, since themarket tends to adjust the latter to any changes in the for-mer that are thought likely to last. To be significant for thepurpose in hand, current profit-earnings have to be relatedto the original value or cost (or alternatively to the replace-ment cost) of the capital; and this is not always easy to do,and even when done the result is apt to be rough and ap-proximate only.

**Joseph Gillman, The Falling Rate of Profit, pp. 55-7and Appendix 3. Dr. Gillm.an suggests that the 'organic com-position of capital' may have stopped rising and even fallenafter about 1920 (pp. 55-7 and 77-81).

***Fellner, op. cit., pp. 254-6. The fall in the ratio of'property income' to capital stock he estimates at about 15per cent between 1870 and 1900 and about 15 per centagain between 1900 and the present day.****!Phelps Brown and Weber, loc. cit., p. 272. This fall-ing trend was, however, not observable for all capital, i.e.for both industrial and other forms of building and equip-ment.

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As regards the percentage share of wages in (home-produced) national income, statisticians tell us that thishas changed remarkably little since around 1870: inthe U.K. this was about 38.6 per cent in 1870, 36.6per cent in 1913, 38.3 per cent in 1939 and 41.9 percent in 1950.* Bowley's estimate of the share of wagesin total national income is shghtly different, but givesthe same general picture: 37?2 per cent in 1880, 35-36per cent at the end of the century, and 3VA per centagain in 1913**. It may be that the constancy of thispercentage share is rather less rigid than the figures sug-gest at first glance. But they indicate at any rate thatthere cannot have been any very marked change in theshare, and seem enough to suggest that there operatesin capitahsm some pretty strong resistance-mechanismto any enlargement of labour's relative share in grow-ing output even under favourable circumstancesthatthere is a fairly rigid ceiling on any encroachment ofwages upon surplus-value.

If the ratio of capital to labour (nearly but not quitethe same thing as Marx's 'composition of capital'), isdivided by the productivity of labour in terms of out-put, you get the capital-output ratio, which has beentalked about quite a lot recently. According to statisti-cians this too has shown no uniform trend over the pastcentury. In U.S.A. up to the First World War it seemsto have been rising, but since then to have shown signsof falling again until in 1950 it was approximately thesame as in the 1870's.*** In Britain it has been suggest-ed that, after falling between 1870 and the 1890's, itrose again until by the eve of the First World War it wasa little higher (but only a little) than it had been in the

* Phelps Brown and P. E. Hart in Economic Journal,June 1952, pp. 276-7.

**A. L. Bowley, Changes in the Distribution of the Na-tional Income 1880-1913, p. 25.***Fellner, op. cit., p. 244.

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1870's, and that it was at roughly the same figure againjust before the Second World War (being somewhathigher apparently here than in U.S.A.).* There is someindication in these figures and in one of the rival esti-mates of profit-trends that the period around the FirstWorld War may have represented something of a cli-macteric. But the indications are far from clear; nor if sois it clear exactly why.

*Phelps Brown and Weber, he. cit., p. 266.

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ECONOMIC CRISESWe mentioned earlier (in Chapter I) that a leading fea-

ture of capitalism was the 'anarchy of production' (i.e.its lack of central planning and direction) and that thiscreates the possibility of development being uneven andleading to periodic disruption of the market-Hnksthrough which the constituent atoms of the system areheld together. In some countries, especially underdevel-oped ones, this anarchy of production is a reason whydevelopments which require coordination of a numberof parallel and simultaneous processes do not take place,and economic stagnation or even dechne supervenes.In developed countries it is a reason for periodic eco-nomic crises.

Throughout its history (certainly since the industrialrevolution and perhaps to some extent before) capital-ism has shown striking unevenness of development, notonly in the sense that different sectors and regions havegrown at different rates, but in the sense that the systemas a whole has shown a marked rhythm of fluctuationbetween alternating periods of expansion and of retar-

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dation and contraction. So regular has this fluctuationbeen in its periodicity as to cause many people to speakof it as the 'decennial cycle', because during the 19thcentury breaks in the boom or expansion-phase used tooccur roughly every ten years (sometimes a year or twoless, sometimes a year or two more). It was also a fea-tiire of these cycles that (with one or two exceptions)they coincided approximately throughout the capitaUstworld.

Of these crises that of 1929-31 in U.S.A. (which hadby then become the most advanced country of the cap-italist world) was in major respects the most severe onrecord. Between the peak of the boom in 1929 in Amer-ica and the summer of 1932 industrial production fellby a half; unemployment rose to 13 million, or aboutone in four of the labour-force; and unused capacity ofindustrial plant was estimated at 50 per cent. While insome European countries a moderate recovery tookplace in the middle and late 'thirties, partly under thestimulus of rearmament, in America production tookabout eight years to recover to the pre-crisis level, onlyto relapse in the fresh setback of 1937-8; while un-employment did not drop below eight million until1940, save for a short period during 1937. It is hardlysurprising that there was widespread talk at the time ofcapitalism having reached a stage of chronic stagnation,when in Marx's famous phrase capitalist ownership hadbecome a fetter upon the further development of theproductive forces.

There have been all kinds of theories propoundedto explain why all this happenstheories which I donot intend to examine here. For our present purposewe must confine ourselves to this general statement(with which many if not most of these various theorieswould agree): that this cycle is to be regarded as essen-tially a cycle in the process of capital accumulation, andthe periodic breakdown occurs because the continual

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urge towards the accumulation and investing of capitaloutruns the conditions that determine what profit theincreased capital can earn. This is what Marx meantwhen he spoke about expansion of capitalist productioncoming into contradiction with the conditions for ex-tracting and realising surplus-value.

Let us suppose that the processes of production weregoverned purely by social aims, namely the increase inmaterial welfare of the whole of society. Then of coursean all-around expansion of production would have noHmit short of the complete satisfaction of human wants.Investment of labour and resources in an expansion andimprovement (in a technical sense) of the means of pro-duction would go on so long as there was room for rais-ing productivity and for more products. Until this pointhad been reached, a market could always be found formore production either by lowering selling prices or byraising money wages. It is true, of course, that certainproportions would have to be observed; and there mightbe difficulties at any one time because expansion hadgot out-of-line and had gone too far in some directionsand not far enough in others. But this would be a rea-son for some marking time while others caught up, notfor a general arrest of expansion all along the line, letalone for a contraction.

But under capitalism, investment of capital in newmeans of production takes place under the expectationof a certain rate of profit. If it happens, when expan-sion has been going on for a time, that this expectedrate of profit fails to be realised, new investment willfall off, perhaps altogether; and as expansion stops, therewill be a stoppage of orders for new machinery etc.,and there will be unemployment and under-capacityworking in those industries which make machinery andso-called capital goods (means of production), whichwill spread the shrinkage of demand to the productsof other industries, thereby making the decline general

MI

and cumulative. Said Marx: "The capitalist mode of pro-duction meets with barriers at a certain scale of pro-duction. ... It comes to a standstill at a point deter-mined by the production and realisation of profit, notby the satisfaction of social needs."To see how the process works, let us look a little

closer at what happens during an ordinary boom. In or-der to do so it is convenient to make use of the distinc-tion made by Marx between two main Departments ofindustry, one producing capital goods or means of pro-duction for use both by itself and by other industries,the other making consumer goods for eventual salethrough the shops to individual consumers. These hecalled respectively Departments I and II. (One could,of course, complicate this by dividing these into vari-ous sub-departments: for example, dividing I into (a)production of capital goods for use in I itself, e.g. ma-chine-tools to make machine-tools, (b) production ofcapital goods for use in II, e.g. spinning and weavingmachinery or shoe toe-lasters; also dividing II into (c)making consumer goods for wage-earners, (d) makingluxury goods for consumption by capitalists and theirhangers-on. But the simple division into two sectors willdo for our purpose, at the level at which we are talkingabout things.)

During the boom investment increases, and with itthe demand for products of Dept. I. With greater de-mand goes greater employment, and both total wagesand total profits grow, which in turn reinforces demandfor the products of both Departments. As, however, theincreased capital goods produced by Dept. I. are de-livered and installed in the form of new plant and equip-ment, the productive capacity of both sectors of indus-try is increasedand is the more increased the moreintense has been the investment boom. At this stagea number of things may start happening, one of whichis that this increase of productive capacity outruns the

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increase of demand. As soon as this happens, the rateof profit (i.e. profit per . of capital invested) will startto fall; and as soon as the profitability of new invest-ment falls, new investment will decline and with it thedemand for the products -of Dept. I, thereby starting thedownward spiral of falHng demand, employment andoutput.

Evidently this must happen at some point, since con-sumers' demand can scarcely go on growing indefinite-ly and is bound to slacken at some stage, for the reasonthat the growth of demand of which we spoke just nowwas due to increased employment (and hence increasedwages and profits) and such an increase has its limits.At some stage it must bump up against the ceiHng offull-capacity working or full employment. Actuallymost booms come to an end before full employment isreached.* Even if wages rise in face of rising demandof labour, this will tend to raise costs as much as itboosts demand, and so will not of itself serve to raiseprofitability, which is the crux of the matter.Now this is one way, possibly a very frequent way,

in which the boom is hahedby productive capacityin Dept. II outrunning demand for products of Dept.II. It is sometimes expressed in the statement that theboom breaks because productive power outruns con-suming power. Now if 'consuming power' is taken hereto mean personal consumption by individual wage-earn-ers (with their famihes) and capitalists and others, thenthis does not tell the whole story. The boom may breakin this way, and probably often does (e.g. some thinkthe 1929 crisis in the U.S.A. came in this way), but itneed not always do so. The statement about 'produc-tive power outrunning consuming power' is only com-

*Although not necessarily before various kinds of 'bot-tleneck' in productive capacity or in supplies appear in par-ticular places.

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plete if we take 'consuming power' in the sense in whichwe have spoken of 'demand' above, meaning demandfor products of both Departments. * In other words, wehave to look at what is happening in Dept. I as well asin Dept. II; and the expansion of the former is not nec-essarily limited by what is happening in the latter, evenif it is generally influenced by the latter a good deal.

About Dept. I, making capital goods, two questionsarise: (1) Could it not happen that all, or a major part,of the investment on which a boom is built goes into ex-panding Dept. I, and not at all (or very little) into Dept.II; in which case productive power in the latter wouldnot outrun demand from individual consumers, andthere would be no excess capacity in Dept. II to checkthe boom? (2) Could not investment then go on smooth-ly for quite a long time, maintaining the boom at asteady rate by keeping up the demand for capital goodsand hence employment and activity in Dept. I? If em-ployment were kept up in Dept. I, the demand of thoseemployed there for consumer goods from Dept. IIwould also keep the latter ticking-over quite happily, andthere would be nothing to start a downturn.

The position could be depicted thus. In the first casewe were considering things went in this way:

^/invertmenO

ExpansionfOEPl

iW^SEPin

The early economists, including Marx, in fact used theterm 'productive consumption' to refer to demand for Dept.I, as well as personal consumption (^demand for Dept.II); although it is doubtful whether, when he spoke of 'con-suming power', Marx meant in all contexts both of thesethings.

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But in the second case about which we have just beentalking it would be like this:

Although it is difficult to imagine such a process con-tinuing indefinitely, it is quite true that this kind of thingcan happen for a time and can be an influence prolong-ing a boom. There must presumably be some solid rea-son why investment plumps for Dept. I if the processis to go on at all long: capitahsts must have some rea-son for expecting the demand for capital goods to con-tinue to expand. Such a reason might be a crop of newinventions or a technical revolution, opening the pros-pect of extensive replacement of plant and equipmentby new within the space of a few years, boosting thedemand for capital goods so long as such innovationlasts. But for this boost to demand for Dept. I to lastvery long, there would need to be, not one technicalrevolution, but a continuing (and cumulative) series ofthemnot just a once-for-all step-up in demand for cap-ital goods but a continuing rise in this demand; other-wise investment in expanding Dept. I would quicklyreach a limit and begin to taper off. Clearly the chanceof such a self-expansion of Dept. I exerting more thana fairly short-lived influence on the cycle is very small.

It is this possibility to which Lenin was referring whenhe pointed out (in his Development of Capitalism inRussia, Chap. I) that the expansion of Dept. I was notlimited by the demand for Dept. II (personal consump-

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tion), but could proceed to a certain extent independ-ently of the latter; further that