# The Theoretical System of Karl Marx/Chapter 7

In the preceding chapters we have endeavored to show the purpose of Marx's inquiry into the laws of exchange-value, and how those laws furnish the key to the understanding of the workings of the capitalist system of production and distribution.
We have examined the capitalist system as it is, without going into the question of its origin, except to note the fact that it had an historic origin, that is to say, that it is not eternal or even immemorial in its existence but is a historical phenomenon having had its origin within the recorded memory of men.
We have examined some of the tendencies of its development, but only within its confines. We have examined some of the tendencies in the development and distribution of the mass of surplus-value produced in the capitalist system while it lasts. The question of its lasting, as to its extent and form, we have not touched upon. We might of course say, a priori, that since the capitalist system is only a historic phenomenon it will certainly not last forever. While this is true, it is of no importance whatsoever, unless we can say with some degree of certainty that the passing of this system is of such proximity that its end can be seen, and this is only possible if its end is so near that we can discern its form, or rather the form of the system which is to succeed and supplant it. This again can only be determined, if at all, from an examination of the tendencies of the capitalist system, and the laws governing it, followed out to their ultimate and logical results so as to see ​whether they lead beyond the capitalist system itself. And if so, whither are we drifting?
Should a careful and exhaustive examination of the tendencies of the capitalist system fail to lead to any beyond, then we must accept the capitalist system as unlimited in duration for all practical purposes. For the social system which is to succeed the capitalist form of society, must be born and developed within the bowels of capitalism, and it will come into existence only after the passing of capitalism shall come about as the necessary and logical result of the full development of the laws of its own being. And it will be long before the end of the old system, and the birth of the new one will come, that the signs of decaying old age and of the new germs of life will manifest themselves to the intelligent observer.
The examination which Marx made of the capitalist system has not only revealed to him the laws which govern the production and distribution of wealth within the system, but also the historical tendencies of its development which show its place in history with reference to its origin as well as its passing. His work, "Capital," is therefore not only an explanation of the workings of the capitalist system, but also an historical estimate, an appreciation thereof. The sub-title of the work, "A Critique of Political Economy," refers not so much to the theories of the political economists who preceded him with reference to the explanation of the actual workings of the capitalist system, as to their failure to appreciate the tendencies and the laws of capitalism which will lead to its ultimate passing away. According to Marx, the capitalist system of production and distribution is so full of inherent contradictions, that its own development, if the laws of its own existence are freely assert themselves, will lead to its ultimate and speedy destruction. For, not only are the laws of capitalism inherently contradictory, but the development of capitalism has already reached that stage where the contradictions upon which it rests make themselves felt to ​its own detriment, and the forces and elements which are to work its destruction and supplant it are maturing rapidly before our very eyes. So does the system which is to take the place of capitalism take definite shape and outline, so that its general form and appearance stand clearly before our vision inscribed: Socialism.
Before proceeding, however, any further with this examination, our attention is called to a question which might interfere with the progress of our inquiry unless answered right here. There is perhaps no question which leads to as much discussion, and as contradictory opinions, since the advent of Revisionism, as the question of the relation between the theory of value and socialism in the Marxian theoretical system. The cleavage of opinion is in the main along the lines of orthodox and revisionist Marxism, the former claiming an intimate relation and interdependence between these parts of the Marxian theory, and the latter denying it. This alignment on the present question is not very strict, however; and absolutely irreconcilable opinions on this subject are held by Marx-critics belonging to the same camp. A glance into the discussion of this subject will again reveal the almost hopeless state of ignorance of the Marxian theory which prevails even among the ablest of Marx-critics.
According to Tugan-Baranowsky (who agrees in this respect with most orthodox Marxists) Marx based his socialism entirely on what he thought to be the laws of capitalistic development resulting from the peculiarities of the law of value which forms its keynote. Oppenheimer and Simkhowitch, however, and a host of others, insist that Marx's theory of value has nothing whatever to do with his socialism.
​Curiously enough, Tugan-Baranowsky on the one hand and Oppenheimer and Simkhowitch on the other, all claim one and the same passage in Engels as authority in support of their respective positions; which adds no little to the bewilderment of the simple-minded reader. The treatment which this particular passage from Engels has received, and the uses to which it has been put, is very characteristic of up-to-date Marx-criticism, particularly of the Revisionist brand: Detached passages, sentences and phrases, from Marx and Engels are bandied about without the slightest attention being paid to the particular context or connection in which they were used, thus often making them yield an entirely different meaning from that intended by the author. The result is that everybody proves by Marx and Engels themselves whatever opinions he pleases to ascribe to them, a most fruitful field is provided for the adherents of the theory of evolution in Marxism, and a plentiful harvest is assured to the gatherer of Marxian contradictions.
V. G. Simkhowitch, who has to his credit one of the wordiest essays on Marxism, published in one of the most learned German magazines, says: "Marx's socialist demands and his theory of value are genetically related, but systematically considered there is no connection whatever between them. In saying this I merely repeat something which is self-evident to every philosophically educated person who has grasped the Marxian philosophy (Weltanschauung). Anybody who cares can find specific statements to that effect in Marx and Engels. So says Engels about the relation of Marx's socialism to his theory of value: Marx therefore never based his communistic demands thereon, but on the inevitable break-down of the capitalistic mode of production which we daily see approaching its end. And in the literature of Marxism this has always been insisted on."
At the risk of being accounted philosophically uneducated we shall have to disagree with our philosophic Marx-critic, along with others, for reasons which will presently appear. ​Just now however it is the passage quoted from Engels that interests us. We must say most emphatically that Engels never said any such thing as he is made to say by our philosophically educated critic. Not that the words quoted are not Engels'. The words were used by Engels, surely enough. But their meaning is entirely different. For Engels did not say this, "About the relation of Marx's socialism to his theory of value" as Simkhowitch (and Oppenheimer) seem to think, but about something else, which exactly reverses the meaning of the passage. In his preface to Marx's "Misery of Philosophy," Engels says that long before Marx some socialists attempted to base their socialism on the Ricardian theory of value, claiming that since, according to Ricardo, labor is the source of all value, the laborers are entitled to all the value produced, which means to the whole social product. And then he goes on to say:
"The above application of the Ricardian theory, namely; that to the workingmen, as the only real producers, belongs the entire social product, their product, leads directly to communism. This application is, however, as Marx points out in the passage quoted above, economically formally false, for it is simply the application of ethics to economics. According to the laws of capitalistic economics the greatest portion of the product does not belong to the workingmen who produced it. We may say: this is wrong, it must not be. But that has nothing to do with economics. We merely say by this, that this economic fact is opposed to our moral feelings.
"Marx therefore never based his communistic demands thereon, but on the inevitable break-down of the capitalist mode of production which we daily see approaching its end."
Our philosophically educated critic evidently got things somewhat mixed. Marx never based his communistic demands on the moral application of the Ricardian, or his own, theory of value. Nor on any morality for that mat​ter. Therein he differed from the utopian socialists who preceded him and from such of those who followed him, who, like Bernstein for instance, have returned to the moral application of economic theories. That is why Bernstein and the rest of the Revisionists do not see the connection between the Marxian theory of value and his socialism. Any theory of value will do for them as long as it permits, or they think it permits, the moral application which they are after. And as any theory might be made to yield such a moral to those who look for it, they have become indifferent to theories of value in general. Not so with Marx. His socialism is scientific, as distinguished from utopian based on moral applications, in that it is the result of "the inevitable break-down of the capitalistic mode of production." But this inevitable break-down can only be understood and explained by the aid of the Marxian theory of value. That is why his theory of value and his socialism are so intimately connected in his system. Marx based his socialism on his theory of value. But on its economic results, not on its moral application. And it is due to the lack of understanding on the part of his critics as to what Marx conceived to be the economic results of his theory of value, that the discussion of the relation between his theory of value and his socialism is still going on, and his and Engels' writings are still being put to all sorts of uses.
The law of value which lies at the basis of capitalism contains within itself, according to Marx, a mass of contradictions which lead in the development of capitalist society to the formation of a series of antagonistic elements which must ultimately result in its break-down. While these contradictions and antagonisms are developed by the same economic process, they are not all of a strictly economic nature, and may have results of what is usually considered a moral character.
While the facts themselves which will lead to the displacement of the capitalist system must be strictly economic in their nature, that is to say the capitalist mode of pro​duction and distribution must become a fetter upon production before it can be overthrown, the actual power which will overthrow it, or at least the form which this will assume in the consciousness of the men who will do this work, may be of a moral or ethical character. For man possesses the peculiarity of placing absolute standards on relative matters, and he calls moral everything that accelerates his progress on any road which he may be travelling, and immoral everything that retards this progress. When he finds, therefore, that any given arrangement is in his way he declares it to be immoral and fights it with all the force of his "moral nature."
He may, therefore, be depended upon to make a moral issue of, and lead a crusade against, anything that will stand in the way of his economic progress. It is to the economic facts of capitalism that we must therefore look for the basis of socialism.
In order to appreciate properly these facts, we must go back a little to the beginning of our examination of the capitalist system. We have there noted the difference between the wealth of capitalistic society and that of the forms of society which preceded it. We have noted that difference to be in the fact that capitalistic wealth is an aggregation of commodities. This, as was also already noted, is due to the circumstance that the purpose of capitalistic production is different from that of any former mode of production.
This difference in the purpose of production, production for the market instead of for use, has wrought a change in the process of distribution of the social product between the different social elements which are to share therein. Under former systems of production this process was a very simple one, and the persons engaged in it were conscious and well aware of what they were doing. It was an extra-economic process, in a way, the real economic process being confined to the process of production. It was in the capitalist system that the process of distribution first ​became an unconscious, "natural," and economic process, by the addition of the circulation-process to the production-process of commodities, as part of the general economic process of society, and that part of it in which the distribution of the produced commodities among those entitled to them is to take place.
From the capitalist standpoint the circulation-process of commodities is the most important of the economic processes. Not, however, because it is only by this process that the produced commodities reach their social destination, the consumers, but because it is in this process that all value, including the surplus-value, the cause and aim of capitalist production, is realized. Until realized in the circulation process, all value produced for the capitalist, "necessary" as well as "surplus," is only potential value, liable to be destroyed at any moment by some change in the social conditions of its production or distribution. In order that the capitalist class may obtain its surplus-value, the whole value must not only be produced but consumed, either absolutely or productively. And in order that the individual capitalist may obtain his share of the fund of surplus-value created for his class, the value in the production or circulation of which he is economically engaged must be consumed as far as he is concerned, that is to say, it must reach his immediate consumer.
This process of the realization of value and of the distribution of the surplus-value in the circulation-process of commodities is presided over by the God of capitalism—Competition—who, as all the world knows, is "the life of trade." The share of the surplus-value which each individual capitalist obtains depending on his success in this competition, the source of all surplus-value has been lost sight of, and the importance of the circulation process grossly exaggerated. It has, however, a real and vital importance to the capitalist class, for it is here that the surplus-value produced elsewhere is actually realized.
The essentials of capitalism are therefore three. Private ​Property; a free working class; and Competition. Private property in the means of production is, of course, at the foundation of the capitalist system as it is of all societies divided into classes. In this it does not differ from other class-societies which preceded it. Not so with the other two elements. They were almost unknown to the social systems which preceded it, but are absolutely essential to capitalism. We have already seen how important a role competition plays in the realization and distribution of the surplus-value among the members of the capitalist class. It also plays an important part in determining the relative amount of the surplus in all the values that are produced, as we shall have occasion to see later.
This however, depends on the third element, the free working-class. The working-class in order to serve as an efficient instrument of capitalist production must be absolutely free. "Free," as Marx says, both from personal bondage and from the ties of property. Were the workingmen to be burdened with property the whole edifice of capitalism would be impossible, for the commodity labor-power would then be absent from the market and the possession of the necessary and surplus-value would then be united in the same person, which would extinguish all difference between them. Production of commodities would also be next to impossible were the workingmen not free personally so as to be able to sell their labor-power to the highest bidder. Competition among the producers would then be impossible. For competition implies equality of opportunity, whereas under such conditions the opportunity of production would depend on the possession of workingmen. Besides, production or abstention from production would then depend not on the choice of the capitalist but on the number of workingmen he possessed. He could not produce if he possessed none, and would be compelled to produce if he possessed them. For it is of the essence of a slave that he must be fed, and consequently worked. The presence of these three elements together turns the ​means of production into "Capital," and gives the laws of capitalism free play. Hence, free trade is the typical policy of capitalism, as is the "free" employment of private property, personal liberty and right to contract, with all that it implies. And protection in any form, or the interference with property and liberty in any manner, is a sign of either an imperfectly developed capitalism, or of capitalism in a stage of decay and tottering to its fall.
What, then, are the tendencies of the development of these elements of the capitalistic system? How do they influence one another in the course of their development? And how is the production and realization of surplus-value, the aim and purpose of capitalistic economic activity, affected by the sum-total of these influences?
The growth of capitalism, in so far as it is not merely expansion over an increased area, but development of force and power, means the rapid accumulation of capital, more particularly of machinery of production and circulation. All our great accumulations of wealth consist of this machinery with the exception of some consisting of land, which, as we have seen, gets its value from the reflex action of this machinery. The accumulation of machinery does not mean, however, the mere piling up of machinery upon machinery; that is to say, it does not mean the mere addition of machinery of the same kind to that which already exists. The process of accumulation starts out, of course, by addition of machinery of the same kind. But it does not proceed very far in that way. The real spring of the process consists in the constant invention of ever newer and costlier machinery. The economic value of this machinery (that is its value as an economic force) consists in its labor-saving quality. It is of the essence of every new invention that it must be labor-saving in some way, otherwise it is useless to capital. This mechanical law of the accumulation of capital finds its economic expression in the law of the rising organic composition of capital.
The essence of all new machinery introduced in the pro​cess of accumulation of capital being its labor-saving quality, and the purpose of its introduction being the replacing of costly live-labor by a cheaper mechanical process, the accumulation of capital is only possible by the constant replacement of live-labor by machinery, by the ever-recurring forcing out of employment of great masses of labor. Thus, this mechanical law of the accumulation of capital, which, as we have seen, finds its economic expression in the rising organic composition of capital and therefore in the falling rate of profits, finds its sociological expression in the capitalistic law of relative over-population.
That is to say, that under capitalism a country may become over-populated with relation to the needs of capital or of the capitalist class in laborers, and large masses of its population may thereby lose their means of productive employment and therefore their means of subsistence, while the absolute needs as well as means of employment and subsistence are quite sufficient to provide for all its members. The Malthusian law, whatever else may be said of it, certainly has no application to the question of population under the capitalist system of society. For aside from the question whether there are any "natural" laws governing the growth of population and of the means of subsistence, such laws, if there be any, would be quite superfluous and inoperative under capitalism. For the very processes by which capital is being accumulated produce an over-population long before the natural limit of population could be reached, and that limit is therefore never reached under capitalism.
The laborers who are continually being thrown out of employment by the introduction of new, labor-saving; machinery, are thereafter absorbed in whole or in part by the process of production, when the new capital, or the old capital in its new form, has had sufficient time to expand and accumulate on the new basis so as to need new "hands." This process of absorption continues as long as the accumulation proceeds on this new (soon to become ​old) basis of production, and until it has sufficiently accumulated to require, and has actually found, a new basis of production in the further invention of some newer machinery. When this occurs there is a new "freeing" of a mass of workingmen from the bondage of employment, and the process begins all over anew.
This constant hunt for additional surplus-value, here by expanding the old processes of production by constantly employing more labor and here by changing the processes so as to narrow down its base of human labor, in short: the process of accumulation of capital, requires, not only a "free" but an elastic working class. It necessitates the existence of a "reserve" army of workingmen beside the active one. This it creates and augments by the repeated displacements of live-labor by machinery, and it makes use of it for the purposes of expansion when accumulation glides along smoothly until the next "fitful" explosion. The greater the accumulation of capital, the greater the "reserve" army which it needs and creates, as compared with the "active" army which it maintains. The "reserve" army is not identical with the "army of the unemployed," but the greater the "reserve" the greater the potential army of the unemployed.
The workingmen under capitalism being "free" and equal, there is no actual line of division between the active and reserve army of laborers. On the contrary they are in continual flux, men on duty and reservists continually changing place, and the same men sometimes being half active and half reserve. The existence of the reserve army and this relation between the active and reserve armies of the working class have the most deplorable effect on wages, and on the condition of the working class generally. Aside from the destitution caused by the introduction of new machinery among those workingmen who are thereby thrown out of employment and those directly dependent on them, the presence in the market of this superfluous mass of labor-power entering into competition with that part of the ​working class which does find employment reduces the price of that labor-power which is employed without thereby gaining any employment for itself. While the value of labor-power is determined by the amount of labor necessary for its re-production, that is, the amount of necessaries consumed by the workingmen, this amount is by no means a fixed quantity. It depends on the standard of life of the working class as it has developed in the course of its historical existence in a given country. But this standard, being a product of historical forces, may be raised or lowered. The existence of the "reserve" army, the process of the accumulation of capital which produced it, tends to lower this standard and it needs hard fighting to keep it up, not to speak of raising it. Besides, making, as it does, the workingman the sport of every turn of the fortunes of capitalistic production, absolutely insecure in whatever livelihood he does get by reason of the fierce competition of his fellow-workers, and therefore dependent on the whim and caprice of his capitalist employer, it tends to degrade his morale, break in him all manifestations of the spirit of independence, and to make of him a servile tool of his capitalistic master.
But right here in its influence on its first requisite, a free working-class, we encounter the contradictory nature of capitalistic development. The very processes which tend to reduce the workingman's wages, and to lower and degrade him, bring into life those conditions which enable him to forge the weapons by which he can not only successfully withstand the hurtful tendencies of capitalistic development, but which are destined to work the wonders of his salvation from wage-slavery,—the economic and political organization of the working class. The introduction of those very new machines which threw so many workingmen out of employment and so largely increased the "reserve" army, has laid the physical foundation for the organization of the working class by bringing great masses of workingmen together and by rubbing off all differences between ​them. It has also laid the mechanical foundation for the future greatness of the working class by changing the methods of production from their narrow individual foundation to a broad social base.
No less contradictory is the process of accumulation of capital in its effects on the capitalist class itself. As we have already seen, the accumulation of capital is accompanied by a falling rate of profit. This naturally tends to retard the progress of the process of accumulation, and works in the nature of an automatic brake. This, however, is not the only way in which the process of accumulation counteracts its own tendencies thereby checking the tempo of its growth. Every invention of a new machine, while an evidence of growing accumulation of capital, and itself a means to its increased accumulation, is at the same time the means of an enormous destruction of existing capital. As was already pointed out, our vast accumulations of wealth consist in aggregations of machinery. But every invention of a new machine makes useless the machine the place of which the new one is to take, and the capital invested in the old machines is thereby totally destroyed. The progress of accumulation of capital is therefore accompanied by enormous destruction of existing capital, which naturally retards the growth of the sum-total of capital. Besides, the invention of new machinery, by diminishing the time necessary for the production of commodities, and thereby lowering their values, lowers the value of all existing capital. This, again, has a tendency to retard the process of accumulation, that is the growth of the sum-total valuation of the machinery and other commodities of which the capital possessed by the capitalist class consists.
The capitalists as a class might regard with equanimity these retarding tendencies or automatic checks in the accumulation of capital, for the net result of the contradictory tendencies is still a rapid enough growth of the accumulated mass of capital to suit even the most exacting of capitalists. But the equanimity of the individual capitalists is disturbed ​by the details of the process which result from these contradictory tendencies, and by the way those details affect their individual fortunes.
For while the net result of the process, as far as the whole mass of capital is concerned, is a pretty rapid growth, this growth is not at all equally distributed among the different individual capitals. Quite to the contrary: the contradictions of the process manifest themselves largely by the extreme rapidity of the growth of some of the individual capitals, and the equally extreme rapidity in the shrinkage, or the total extinction, of some other individual capitals, due to the fact that the benefits derived and the losses incurred by reason of the contradictory elements of the process are not equally distributed among the individual capitalists. Under a system based on competition they could not very well be.
The general process of accumulation of capital, by reason of its mechanical basis alone, leads to the concentration of capital and production, that is to the formation of economic centers whereat are "run together" within comparatively small space and under one guidance large amounts of value in the shape of costly machinery and other means of production, and large numbers of workingmen. And the particular way in which this process works its way, by benefiting some capitalists at the expense of others, leads to the centralization of capital, that is the amassing of large amounts of wealth in the same hands, by transferring the capital of those capitalists who lose by the process to those that come out winners. This leads to an increase in the number of large capitalists, whose capital grows at the expense of the general body of capitalists, whose number constantly decreases. The few chosen capitalists fatten at the expense of their fellows.
These two processes—the concentration and the centralization of capital—accelerate each other. Particularly does the concentration of capital become a powerful factor in its centralization, by turning over to the control, and ​ultimate ownership, of the winners in the game whatever the losers manage to save from the wreckage, as well as the belongings of those who have managed to keep their wealth although they have lost their economic position. By reason of the concentration of capital, those capitalists who have saved part of their capital, and even those who have managed to keep their capital intact, are unable to maintain their independence and to continue in the economic process as independent operators. First, because by reason of the concentration of capital, that is to say, by reason of the fact that, owing to the introduction of improved machinery, a large outlay of capital is necessary in order to carry on production on the new basis, the capital which formerly enabled a capitalist to operate independently is now insufficient for that purpose. So that even the capitalist who still possesses the amount of capital which he formerly possessed is unable to continue as an independent capitalist. And secondly, even if the amount possessed by such capitalist should be sufficient for the technical needs of the production-process on the new basis, he would still be unable to maintain an independent existence for the reason that under the new circumstances, with the lower rate of profit which follows, his capital would not yield sufficient revenue to maintain him, and certainly not enough to permit him to further accumulate. This creates what might be called a "reserve" army of capitalists, or rather, half-way capitalists, whose capitals go to swell the funds of the real capitalists in time of the expansion of economic activity, and these latter get most of the benefit derived therefrom. These supernumerary capitalists also usually furnish the funds for all sorts of crazy speculative ventures, which in their turn also accelerate the centralization of capital. This "between the devil and the deep sea" class is receiving constant accretions from above owing to the constant squeezing-out process of the devil on top by the continued accumulation of capital, and its numbers are as constantly being depleted by its lower strata sinking into ​the deep sea of wage-slavery. If this process should be permitted freely to work out its tendencies, it would result in society being sharply divided into two unequal divisions: a few enormously rich capitalists on top, and the bulk of society at the bottom. A stage would be reached when, by reason of lack of numbers, the capitalists would really cease to be a social class, as a social class presupposes a certain minimum of numbers, and the loss in quantity would turn, for the capitalists, into a loss of the quality of their position as a social class.
Will this process work out these tendencies? And what will be its effect on the future of the capitalist system? According to Marx these tendencies of the capitalist system must run their fatal course, unless the system itself breaks down before the process is at its end. For the contradictions of the law of value which are at the basis of the capitalist system of production and distribution are such that, aside from the sociological results to which they must inevitably lead, enumerated by us above, its purely economico-mechanical existence is put in jeopardy by the laws of its own development.
The purely economico-mechanical breakdown of the capitalist system will result, according to the Marxian theory, from the inherent contradictions of the law of value, unless the development of capitalism is in some way arrested (or unless the system breaks down earlier for some other reason), in the following manner:
In the fight for the market among the individual capitalists under the rules laid down by the God Competition, each capitalist in order to survive and succeed must strive to be able to sell his goods cheaper than his competitors in the market, that is, he must be able to produce more cheaply than the others so as to be able to undersell them and still make a profit. There are various ways in which the cost of production can be lowered. They all reduce themselves, however, to one proposition: to make the share of the workingman in the product produced by him as small as possible. ​This may be accomplished by directly reducing the wages of the workingman, an expedient which cannot always be resorted to, for the reason that there is a limit beyond which the wages of workingmen cannot be reduced. The more usual way, therefore, is the one which we have already noted, that is by continually substituting machinery in the place of live labor, by inventing labor-saving machinery. The result, as far as the relation of the workingman to the product produced by him, is the same in both cases: his share therein becomes smaller. In the latter case perhaps more so than in the former. An additional reason why it is more often resorted to. Hence the constant rising composition of capital which we have already observed.
There is, however, another phase of this process which is lost sight of by the individual capitalist, but which may have dire results for the capitalist class and the whole capitalist system. Besides the desired result of cheapening commodities this process has the very undesirable result of making the purchasing power of the laborer smaller in proportion. In other words, the laborer ceases to be as good a customer as he was before, and, as the capitalist must have a customer to buy his products, whether cheap or dear, and can not sell his products unless he has a customer ready and able to pay for his products, he is evidently placed in this dilemma,—either he must give his workingmen a larger share of the manufactured product in the shape of wages (or at least refrain from cutting down the share which the workingmen receive) or destroy the purchasing power of the workingmen, that is, of his future customers.
This contradiction grows and is enhanced in potentiality with the development of the capitalist system, for the reason that the development of the capitalist system consists, as we have seen, in this very cheapening of production by the supplanting of the workingman through labor-saving machinery. As the capitalist system develops, that portion ​of capital which goes to pay the workingman's wages diminishes very rapidly in comparison with the whole capital employed for the purposes of production. The result of this is, as we have seen, first, a falling rate of interest; and secondly, a growing army of unemployed, a relative over-population. But the same law which creates a relative over-population, an over-production of men, also creates an increasing over-production of goods, as the larger the army of the unemployed the smaller is the army of workingmen purchasers. This will finally result in the disproportion between that portion of the manufactured product which goes to the workingman and the whole of the yearly product of society becoming so great that the surplus-product, that is to say, that part of the manufactured product which will find no purchasers, will clog the wheels of production and bring the whole economic machinery of society to a stop.
The stock argument against this position of Marx is that while the immediate effect of the introduction of machinery is to throw out of employment the workingman employed in the branch of manufacture in which the new machines are introduced, it at the same time of itself opens up new employments. When sifted down, this amounts to the contention that the workingmen who are thrown out of employment in the old industry wherein the new machinery is introduced, are re-employed in the machinery-producing industry wherein these very machines are produced. This contention is, however, evidently untrue for the following reasons: As we have already seen, the reason for introducing a new or improved machine is a desire to cheapen the manufacture of a product. This cheapening can be effected only by saving labor, and this saving must be a very substantial one in order to make it profitable to the capitalist to introduce the new machine, because this requires a large outlay of capital. Workingmen are usually paid by the week, so that the outlay in capital for the employment of a hundred workingmen will be the weekly wage ​of these one hundred workingmen. A new machine, however, which should dispense with the work of fifty of these one hundred men usually requires the expenditure of a large sum of money entirely out of proportion with the weekly allowance of the fifty workingmen whose labor is dispensed with. That is why modern capitalistic enterprises require such large amounts of capital properly to carry them on. The new machine must therefore not only cost in original price and expenses of keeping less than it would cost to employ the fifty men during the time of service of this machine, but it must also pay sufficient to warrant the large investment of capital involved in its introduction. In other words, the labor-saving quality of the\ machine must be a very substantial one. A mere small saving of labor will not warrant the introduction of costly machinery, requiring, as it usually does, an entire change of the system of production and large expenditures not only in the buying of the machine itself but also in its accommodation in buildings, etc., and involving as it does, the destruction of much old capital.
Now, if it were true that the workingmen who are thrown out of employment by this machine can be re-employed in the production of this very machine, that is to say, if it required as much labor to produce this machine as it was formerly required to produce the product which this machine is now to produce, there evidently will not only be, no cheapening of production, but on the contrary, production will become more expensive for it will require the same expenditure of work or labor (for the machine and the product together), and a larger outlay of capital. Evidently, this machine must not require in its production the same amount or even nearly the same amount of labor which would be required to produce the products which it produces.
Of course, the same number of people may be employed in producing this machine, but this machine should produce a vastly larger amount of product than was ever be​fore produced without it; but then, the question presents itself,—to whom shall this additional product be sold? The share of the workingman in this largely increased product must be much smaller in proportion to what his share was before the introduction of the new machinery, otherwise production will not have been made cheaper. There will, therefore, be a larger product to dispose of than there ever was before, and the difficulty of finding customers becomes insuperable.
It may be argued that the additional product which the workingmen will be unable to buy up will be taken up by the capitalists. This seems a very simple way out of it, and sounds very plausible. As a matter of fact, for long centuries this is the way things usually adjusted themselves. Under the old slave and feudal systems there never was such a problem as over-production, for the reason that production being for home consumption the only question that ever presented itself was: how much of the product produced shall be given to the slave or serf and how much of it should go to the slave-holder or feudal baron. When, however, the respective shares of the two classes were determined upon, each proceeded to consume its share without encountering any further trouble. In other words, the question always was, how the products should be divided, and there never was any question of over-production, for the reason that the product was not to be sold in the market but was to be consumed by the persons immediately concerned in its production, either as master or slave. There was no production for the market, and consequently no overstocking of the market. When, by chance, production increased out of all proportion, the product could simply be stored away, and it never interfered with the proper prosecution of the industries in the future.
Not so, however, with our modern capitalistic industry. It is true that all of the product with the exception of that portion which goes to the workingman goes, now as before, to the master, now the capitalist. This, however, does not ​settle the matter finally, for the reason that the capitalist does not produce for himself but for the market. He does not want the things that the workingman produced, but he wants to sell them, and unless he is able to sell them they are absolutely of no use to him. Salable goods in the hands of the capitalist are his fortune, his capital, but when these goods become unsalable they are worthless, and his whole fortune contained in the stores of goods which he keeps melts away the moment the goods cease to be marketable.
Who then, will buy the goods from our capitalists who introduced new machinery into their production, thereby largely increasing their output? Of course, there are other capitalists who may want these things, but when the production of society as a whole is considered, what is the capitalist class going to do with the increased output which can not be taken up by the workingman? The capitalists themselves can not use them, either by each keeping his own manufactures or by buying them from each other. And for a very simple reason. The capitalist class can not itself use up all the surplus products which its workingmen produce and which they take to themselves as their profits of production. This is already excluded by the very premise of capitalistic production on a large scale, and the accumulation of capital. Capitalistic production on a large scale implies the existence of large amounts of crystallized labor in the shape of great railroads, steamships, factories, machinery and other such manufactured products which have not been consumed by the capitalists to whom they have fallen as their share or profit in the production of former years. As was already stated before, all the great fortunes of our modern capitalist kings, princes, barons and other dignitaries of industry, titled and untitled, consist of tools and machinery in one form or another, that is to say, in an unconsumable form. It is that share of the capitalist profits which the capitalists have "saved," and therefore left unconsumed. If the capitalists would ​consume all their profits there would be no capitalists in the modern sense of the word, there would be no accumulation of capital. In order that capital should accumulate the capitalist must not, under any circumstances, consume all his profits. The capitalist who does, ceases to be a capitalist and succumbs in the competition with his fellow capitalists. In other words, modern capitalism presupposes the saving habit of capitalists, that is to say, that part of the profits of the individual capitalists must not be consumed but saved in order to increase the already existing capital.
As a matter of fact, this saving habit, of which the apologists of capitalism make such a virtue, is really enforced upon the capitalists. It is a sine qua non of capitalism itself. The very statement that improved machinery has been introduced in any industry already implies the fact that the capitalists of that industry have "saved" enough out of their share of the product manufactured by the old mode of production to be able to manufacture the new machinery or buy it from its manufacturers, and thereby increase the capital employed in their business. The same reason for "saving" which existed before the introduction of the new and improved machinery and which caused its introduction, namely, the competition of the market, which compels each capitalist to accumulate capital out of his profits, continues to exist and cause the further accumulation of capital and the further introduction of new and improved machinery. He cannot, therefore, consume all of his share in the manufactured product. It is evident, therefore, that neither the workingman nor the capitalist can consume the whole of the increased product of manufacture? Who, then, will buy it up?
* ↑ Michael Tugan-Baranowsky, Theoretische Grundlagen des Marxismus. Leipzig, 1905. Der Zusammenbruch der Kapitalistischen Wirtschaftsforschung. In Archiv für Sozialwissenschaft und Sozialpolitik. Vol. 19.
* ↑ Franz Oppenheimer, Das Grundgesetz der Marxschen Gesellschaftslehre. Berlin, 1903. V. G. Simkhowitch, Die Krisis der Sozialdemokratie. In Jahrbücher für Nationaloekonomie und Statistik (1899).