Saturday, April 16, 2016

Marx’s Capital, Volume 1, Chapter 25: A Critical Summary

Chapter 25 of volume 1 of Capital is called “The General Law of Capitalist Accumulation” and deals with the law that Marx thinks governs capitalist accumulation.

Marx divides the chapter into five sections:
(1) The Increased Demand for Labour-Power that accompanies Accumulation, the Composition of Capital remaining the Same.

(2) Relative Diminution of the Variable Part of Capital simultaneously with the Progress of Accumulation and of the Concentration that accompanies it.

(3) Progressive Production of a Relative Surplus-Population or Industrial Reserve Army.

(4) Different Forms of the Relative Surplus-Population. The General Law of Capitalistic Accumulation.

(5) Illustrations of the General Law of Capitalist Accumulation.
A section by section critical review follows.

(1) The Increased Demand for Labour-Power that accompanies Accumulation, the Composition of Capital remaining the Same.
Marx examines the extra demand for labour caused by accumulation of capital, and this is related to changes in the composition of capital (Marx 1990: 762).

Marx now defines two concepts as follows:
(1) the value composition of capital which is the ratio of the constant to variable capital c/v expressed in values (Brewer 1984: 72), and

(2) the technical composition of capital (Marx 1990: 762).
Marx describes the distinction between these two concepts as follows:
“The composition of capital is to be understood in a twofold sense. On the side of value, it is determined by the proportion in which it is divided into constant capital or value of the means of production, and variable capital or value of labour-power, the sum total of wages. On the side of material, as it functions in the process of production, all capital is divided into means of production and living labour-power. This latter composition is determined by the relation between the mass of the means of production employed, on the one hand, and the mass of labour necessary for their employment on the other. I call the former the value-composition, the latter the technical composition of capital. Between the two there is a strict correlation. To express this, I call the value-composition of capital, in so far as it is determined by its technical composition and mirrors the changes of the latter, the organic composition of capital. Wherever I refer to the composition of capital, without further qualification, its organic composition is always understood.

The many individual capitals invested in a particular branch of production have, one with another, more or less different compositions. The average of their individual compositions gives us the composition of the total capital in this branch of production. Lastly, the average of these averages, in all branches of production, gives us the composition of the total social capital of a country, and with this alone are we, in the last resort, concerned in the following investigation.” (Marx 1906: 671–672).
We cannot, however, measure the technical composition of capital in homogenous quantitative units because the means of production and labour are heterogeneous elements.

For Marx the organic composition of capital is the value composition of capital “in so far as it is determined by its technical composition and mirrors the changes of the latter” (Marx 1906: 671). So the organic composition of capital is the value composition but considered only when v and c change owing to physical productivity changes (Harvey 2010: 264).

So the simple value composition of capital can change owing to factors other physical changes in productivity (Harvey 2010: 264).

The average composition of capital is the average throughout the whole economy or total social capital of a country.

When accumulation of capital occurs with added demand for labour-power given a constant composition of capital, real wages can rise:
“Growth of capital involves growth of its variable constituent or of the part invested in labour-power. A part of the surplus-value turned into additional capital must always be retransformed into variable capital, or additional labour-fund. If we suppose that, all other circumstances remaining the same, the composition of capital also remains constant (i.e., that a definite mass of means of production constantly needs the same mass of labour-power to set in motion,) then the demand for labour and the subsistence-fund of the labourers clearly increase in the same proportion as the capital, and the more rapidly, the more rapidly the capital increases. Since the capital produces yearly a surplus-value, of which one part is yearly added to' the original capital; since this increment itself grows yearly along with the augmentation of the capital already functioning; since lastly, under special stimulus to enrichment, such as the opening of new markets, or of new spheres for the outlay of capital in consequence of newly developed social wants, &c, the scale of accumulation may be suddenly extended, merely by a change in the division of the surplus-value or surplus-product into capital and revenue, the requirements of accumulating capital may exceed the increase of labour-power or of the number of labourers; the demand for labourers may exceed the supply, and, therefore, wages may rise. This must, indeed, ultimately be the case if the conditions supposed above continue. For since in each year more labourers are employed than in its predecessor, sooner or later a point must be reached, at which the requirements of accumulation begin to surpass the customary supply of labour, and, therefore, a rise of wages takes place.” (Marx 1906: 672).

“The reproduction of a mass of labour-power, which must incessantly re-incorporate itself with capital for that capital's self-expansion; which cannot get free from capital, and whose enslavement to capital is only concealed by the variety of individual capitalists to whom it sells itself, this reproduction of labour-power forms, in fact, an essential of the reproduction of capital itself. Accumulation of capital is, therefore, increase of the proletariat.” (Marx 1906: 673).
It seems clear from Marx’s later comments in this chapter (apart from one curious statement) that such a rise in real wages will not be sustained nor continuous, however.

Moreover, the rise in real wages that Marx is imagining here is based on the assumption that the “increase of capital occurs along with a constant technical composition of capital” (Marx 1906: 681).

Under such conditions, if real wages of workers rise, then a “larger part of their own surplus-product, always increasing and continually transformed into additional capital, comes back to them in the shape of means of payment, so that they can extend the circle of their enjoyments; can make some additions to their consumption-fund of clothes, furniture, &c, and can lay by small reserve-funds of money” (Marx 1906: 677).

But such a higher level of real wages cannot last:
“A rise in the price of labour, as a consequence of accumulation of capital, only means, in fact, that the length and weight of the golden chain the wage-worker has already forged for himself, allow of a relaxation of the tension of it. In the controversies on this subject the chief fact has generally been overlooked, viz., the differentia specifica of capitalistic production. Labour-power is sold to-day, not with, a view of satisfying, by its service or by its product, the personal needs of the buyer. His aim is augmentation of his capital, production of commodities containing more labour than he pays for, containing therefore a portion of value that costs him nothing, and that is nevertheless realised when the commodities are sold. Production of surplus-value is the absolute law of this mode of production. Labour-power is only saleable so far as it preserves the means of production in their capacity of capital, reproduces its own value as capital, and yields in unpaid labour a source of additional capital. The conditions of its sale, whether more or less favourable to the labourer, include therefore the necessity of its constant re-selling, and the constantly extended reproduction of all wealth in the shape of capital. Wages, as we have seen, by their very nature, always imply the performance of a certain quantity of unpaid labour on the part of the labourer. Altogether, irrespective of the case of a rise of wages with a falling price of labour, &c, such an increase only means at best a quantitative diminution of the unpaid labour that the worker has to supply. This diminution can never reach the point at which it would threaten the system itself. Apart from violent conflicts as to the rate of wages (and Adam Smith has already shown that in such a conflict, taken on the whole, the master is always master), a rise in the price of labour resulting from accumulation of capital implies the following alternative:

Either the price of labour keeps on rising, because its rise does not interfere with the progress of accumulation. In this there is nothing wonderful, for, says Adam Smith, ‘after these (profits) are diminished, stock may not only continue to increase, but to increase much faster than before. ... A great stock, though with small profits, generally increases faster than a small stock with great profits.’ (1. c. ii., p. 189.) In this case it is evident that a diminution in the unpaid labour in no way interferes with the extension of the domain of capital.—Or, on the other hand, accumulation slackens in consequence of the rise in the price of labour, because the stimulus of gain is blunted. The rate of accumulation lessens; but with its lessening, the primary cause of that lessening vanishes, i.e., the disproportion between capital and exploitable labour-power. The mechanism of the process of capitalist production removes the very obstacles that it temporarily creates. The price of labour falls again to a level corresponding with the needs of the self-expansion of capital, whether the level be below, the same as, or above the one which was normal before the rise of wages took place. We see thus: In the first case, it is not the diminished rate either of the absolute, or of the proportional, increase in labour-power, or labouring population, which causes capital to be in excess, but conversely the excess of capital that makes exploitable labour-power insufficient. In the second case, it is not the increased rate either of the absolute, or of the proportional, increase in labour-power, or labouring population, that makes capital insufficient; but, conversely, the relative diminution of capital that causes the exploitable labour-power, or rather its price, to be in excess. It is these absolute movements of the accumulation of capital which are reflected as relative movements of the mass of exploitable labour-power, and therefore seem produced by the latter’s own independent movement. To put it mathematically: the rate of accumulation is the independent not the dependent, variable; the rate of wages, the dependent, not the independent, variable. Thus, when the industrial cycle is in the phase of crisis, a general fall in the price of commodities is expressed as a rise in the value of money, and, in the phase of prosperity, a general rise in the price of commodities, as a fall in the value of money.” (Marx 1906: 677–679).
This is a very interesting passage.

First, this analysis is dependent on the untrue assumption that commodities exchange at true labour values, so that a rise in real wages via an increasing money wage eats into surplus value extracted by the capitalist. But once it is admitted that commodities do not exchange at true labour values, both real wages and surplus value can rise as commodity prices rise. Marx, however, rejects this, because he assumes that the law of value holds.

Secondly, Marx seems to say in his final remarks that the rising real wage cannot occur in a progressive and sustained way in capitalism because it will cause a crisis in capitalist accumulation and cause the real wage to fall again. As Marx says, the “price of labour falls again to a level corresponding with the needs of the self-expansion of capital, whether the level be below, the same as, or above the one which was normal before the rise of wages took place” (Marx 1906: 679).

The only point of difficulty is this passage:
“… a rise in the price of labour resulting from accumulation of capital implies the following alternative:

Either the price of labour keeps on rising, because its rise does not interfere with the progress of accumulation. In this there is nothing wonderful, for, says Adam Smith, ‘after these (profits) are diminished, stock may not only continue to increase, but to increase much faster than before. ... A great stock, though with small profits, generally increases faster than a small stock with great profits.’ (1. c. ii., p. 189.) In this case it is evident that a diminution in the unpaid labour in no way interferes with the extension of the domain of capital.” (Marx 1906: 678–679).
But it cannot be that Marx is saying here that real wages can rise in a sustained way in the long run, because his whole theory would fall apart. If real wages rose and rose with each expansionary phase of the business cycle and did not fall back towards their equilibrium subsistence wage level in recessions, then eventually exploitation would disappear as surplus value and profits would be eliminated and workers were paid for their full unpaid labour time.

Marx appears, then, to envisages three possibilities, as real wages rise:
(1) a rising real wage will provoke a struggle over wages as capitalists attempt to reduce them (“violent conflicts as to the rate of wages”);

(2) a rising price of labour can happen in a way that “does not interfere with the progress of accumulation,” presumably as the mass of capital employed by capitalists increases and more workers employed creates a greater mass of surplus value, even if the rate of surplus value is falling (cf. Harvey 2010: 268). However, it seems unlikely that this can increase indefinitely, because it would entail long run rising real wages and sustained rising living standards, contrary to Marx’s theory;

(3) a rising real wage (over and above the subsistence wage) will eventually halt the process of capitalist accumulation and cause a crisis in which real wages are driven back to the subsistence wage, or even below it or sometimes slightly above it, in an type of equilibrium process.
So in (3) Marx means that real wages might rise until accumulation halts and a recession drove them back to the previous level.

Marx even has a crude analysis of the business cycle here:
“To put it mathematically: the rate of accumulation is the independent not the dependent, variable; the rate of wages, the dependent, not the independent, variable. Thus, when the industrial cycle is in the phase of crisis, a general fall in the price of commodities is expressed as a rise in the value of money, and, in the phase of prosperity, a general rise in the price of commodities, as a fall in the value of money.” (Marx 1906: 677–679).
According to this theory, in a boom wages rise and inflation occurs eventually causing a crisis of accumulation and recession and deflation.

Marx concludes the section by making clear that the very “law of capitalist production” is to set limits to the rising real wage since capitalism requires unpaid labour time:
“The law of capitalist production, that is at the bottom of the pretended ‘natural law of population,’ reduces itself simply to this: The correlation between accumulation of capital and rate of wages is nothing else than the correlation between the unpaid labour transformed into capital, and the additional paid labour necessary for the setting in motion of this additional capital. It is therefore in no way a relation between two magnitudes, independent one of the other: on the one hand, the magnitude of the capital; on the other, the number of the labouring population; it is rather, at bottom, only the relation between the unpaid and the paid labour of the same labouring population. If the quantity of unpaid labour supplied by the working-class, and accumulated by the capitalist class, increases so rapidly that its conversion into capital requires an extraordinary addition of paid labour, then wages rise, and, all other circumstances remaining equal, the unpaid labour diminishes in proportion. But as soon as this diminution touches the point at which the surplus-labour that nourishes capital is no longer supplied in normal quantity, a reaction sets in: a smaller part of revenue is capitalised, accumulation lags, and the movement of rise in wages receives a check. The rise of wages therefore is confined within limits that not only leave intact the foundations of the capitalistic system, but also secure its reproduction on a progressive scale. The law of capitalistic accumulation, metamorphosed by economists into a pretended law of nature, in reality merely states that the very nature of accumulation excludes every diminution in the degree of exploitation of labour, and every rise in the price of labour, which could seriously imperil the continual reproduction; on an ever enlarging scale, of the capitalistic relation.” (Marx 1906: 680).
Fundamentally, all Marx’s remarks here on rising wages must be qualified by the understanding that he is talking about conditions in which there is a given a constant composition of capital. Marx now turns to conditions where productivity increases and there is a changing organic composition of capital.

(2) Relative Diminution of the Variable Part of Capital simultaneously with the Progress of Accumulation and of the Concentration that accompanies it.
Now Marx turns to accumulation of capital under conditions where productivity growth occurs or where the technical composition of capital changes (Marx 1990: 772–773).

But “given the general basis of the capitalistic system, then, in the course of accumulation, a point is reached at which the development of the productivity of social labour becomes the most powerful lever of accumulation” (Marx 1906: 681).

As productivity increases, the total amount of means of production employed by each worker increases, but the total amount of living labour decreases (Marx 1990: 773).

So changes in the composition of capital occur:
“This change in the technical composition of capital, this growth in the mass of means of production, as compared with the mass of the labour-power that vivifies them, is reflected again in its value-composition, by the increase of the constant constituent of capital at the expense of its variable constituent. There may be, e.g., originally 50 per cent, of a capital laid out in means of production, and 50 per cent, in the labour-power; later on, with the development of the productivity of labour, 80 per. cent, in means of production, 20 per cent, in labour-power, and so on. This law of the progressive increase in constant capital, in proportion to the variable, is confirmed at every step (as already shown) by the comparative analysis of the prices of commodities, whether we compare different economic epochs or different nations in the same epoch. The relative magnitude of the element of price, which represents the value of the means of production only, or the constant part of capital consumed, is in direct, the relative magnitude of the other element of price that pays labour (the variable part of capital) is in inverse proportion to the advance of accumulation.” (Marx 1906: 682–683).
However, even as the relative magnitude of variable capital falls in relation to constant capital within an industry, capitalist accumulation may mean total labour employed increases over time (Marx 1990: 774).

The capitalist process sees the growth of each individual amount of capital employed in a business over time (Marx 1990: 776).

But capitalism also involves centralisation:
“Every individual capital is a larger or smaller concentration of means of production, with a corresponding command over a larger or smaller labour-army. Every accumulation becomes the means of new accumulation. With the increasing mass of wealth which functions as capital, accumulation increases the concentration of that wealth in the hands of individual capitalists, and thereby widens the basis of production on a large scale and of the specific methods of capitalist production. The growth of social capital is effected by the growth of many individual capitals. All other circumstances remaining the same, individual capitals, and with them the concentration of the means of production, increases in such proportion as they form aliquot parts of the total social capital. At the same time portions of the original capitals disengage themselves and function as new independent capitals. Besides other causes, the division of property, within capitalist families, plays a great part in this. With the accumulation of capital, therefore, the number of capitalists grows to a greater or less extent. Two points characterise this kind of concentration which grows directly out of, or rather is identical with, accumulation. First: The increasing concentration of the social means of production in the hands of individual capitalists is, other things remaining equal, limited by the degree of increase of social wealth. Second: The part of social capital domiciled in each particular sphere of production is divided among many capitalists who face one another as independent commodity-producers competing with each other. Accumulation and the concentration accompanying it are, therefore, not only scattered over many points, but the increase of each functioning capital is thwarted by the formation of new and the subdivision of old capitals. Accumulation, therefore, presents itself on the one hand as increasing concentration of the means of production, and of the command over labour; on the other, as repulsion of many individual capitals one from another.

This splitting-up of the total social capital into many individual capitals or the repulsion of its fractions one from another, is counteracted by their attraction. This last does not mean that simple concentration of the means of production and of the command over labour, which is identical with accumulation. It is concentration of capitals already formed, destruction of their individual independence, expropriation of capitalist by capitalist, transformation of many small into few large capitals. This process differs from the former in this, that it only presupposes a change in the distribution of capital already to hand, and functioning; its field of action is therefore not limited by the absolute growth of social wealth, by the absolute limits of accumulation. Capital grows in one place to a huge mass in a single hand, because it has in another place been lost by many. This is centralisation proper, as distinct from accumulation and concentration.” (Marx 1906: 685–686).
There is a three-fold process at work in capitalism: (1) accumulation, (2) concentration (accumulation over time) and (3) centralisation of capital.

Marx notes that a major effect of competition is the falling prices of commodities:
“The battle of competition is fought by cheapening of commodities. The cheapness of commodities depends, ceteris paribus, on the productiveness of labour, and this again on the scale of production. Therefore, the larger capitals beat the smaller. It will further be remembered that, with the development of the capitalist mode of production, there is an increase in the minimum amount of individual capital necessary to carry on a business under its normal conditions. The smaller capitals, therefore, crowd into spheres of production which Modern Industry has only sporadically or incompletely got hold of. Here competition rages in direct proportion to the number, and in inverse proportion to the magnitudes, of the antagonistic capitals. It always ends in the ruin of many small capitalists, whose capitals partly pass into the hand of their conquerors, partly vanish.” (Marx 1906: 686–687).
Marx is essentially referring here to what we would now call increasing returns to scale and falling average unit costs of large enterprises designed to have excess capacity utilisation.

But there is an important related point which Marx neglects: as the prices of commodities fall, so too would the prices of means of production (constant capital, whether fixed or circulating capital).

Marx thinks that the value composition of capital and the organic composition will rise over time in capitalism, but if the value of constant capital c also falls, this is not at all clear (Brewer 1984: 74; Harvey 2010: 265).

Marx sees a new element driving industrial capitalism: the credit system (Marx 1990: 777–780). Money finance now allows increased competition:
“Apart from this, with capitalist production an altogether new force comes into play—the credit system.

In its beginnings, the credit system sneaks in as a modest helper of accumulation and draws by invisible threads the money resources scattered all over the surface of society into the hands of individual or associated capitalists. But soon it becomes a new and formidable weapon in the competitive struggle, and finally it transforms itself into an immense social mechanism for the centralisation of capitals.

Competition and credit, the two most powerful levers of centralization, develop in proportion as capitalist production and accumulation do. At the same time the progress of accumulation increases the matter subject to centralisation, that is, the individual capitals, while the expansion of capitalist production creates the social demand here, the technical requirements
there, for those gigantic industrial enterprises, which depend for their realisation on a previous centralisation of capitals. Nowadays, then, the mutual attraction of individual capitals and the tendency to centralisation are stronger than ever before.” (Marx 1906: 687).
Centralisation can occur even if there is no increase in the total magnitude of social capital (Marx 1990: 779).

Its logical conclusion would be as follows:
“This is the particular distinction between centralisation and concentration, the latter being but another expression
for reproduction on an enlarged scale. Centralisation may take place by a mere change in the distribution of already existing capitals, a simple change in the quantitative arrangement of the components of social capital. Capital may in that case accumulate in one hand in large masses by withdrawing it from many individual hands. Centralisation in a certain line of industry would have reached its extreme limit, if all the individual capitals invested in it would have been amalgamated into one single capital.

This limit would not be reached in any particular society until the entire social capital would be united, either in the hands of one single capitalist, or in those of one single corporation.” (Marx 1906: 687–688).
Whether Marx thinks that real world capitalism will actually eventually result in one monopoly capitalist owning everything is unclear.

Concentration results in destruction of individual capitalist enterprises and, paradoxically, in greater planned or organised businesses:
“The increased volume of industrial establishments forms everywhere the point of departure for a more comprehensive organisation of the co-operative labor of many, for a wider development of their material powers, that is, for the progressive transformation of isolated processes of production carried on in accustomed ways into socially combined and scientifically managed processes of production.” (Marx 1906: 688).
Concentrated industry can undertake much greater productive investment, such as railways (Marx 1906: 688).

Centralisation of capital, accumulation with greater use of constant capital and joint-stock companies in particular greatly increase productivity and reduce the amount of human labour required in production (Marx 1990: 780):
“… the additional capital formed in the course of accumulation attracts fewer and fewer labourers in proportion to its magnitude. On the other hand, the old capital periodically reproduced with change of composition, repels more and more of the labourers formerly employed by it.” (Marx 1906: 689).
(3) Progressive Production of a Relative Surplus-Population or Industrial Reserve Army.
In this section, Marx demonstrates why a relative surplus-population or industrial reserve army is a necessity for capitalism, and how this industrial reserve army is the crucial factor which holds down real wages to the subsistence level.

Accumulation and concentration of capital induce more use of constant capital and reduce variable capital:
“The accumulation of capital, though originally appearing as its quantitative extension only, is effected, as we have seen, under a progressive qualitative change in its composition, under a constant increase of its constant, at the expense of its variable constituent.

The specifically capitalist mode of production, the development of the productive power of labour corresponding to it, and the change thence resulting in the organic composition of capital, do not merely keep pace with the advance of accumulation, or with the growth of social wealth. They develop at a much quicker rate, because mere accumulation, the absolute
increase of the total social capital, is accompanied by the centralisation of the individual capitals of which that total is made up; and because the change in the technological composition of the additional capital goes hand in hand with a similar change in the technological composition of the original capital. With the advance of accumulation, therefore, the proportion of constant to variable capital changes. ...

Since the demand for labour is determined not by the amount of capital as a whole, but by its variable constituent alone, that demand falls progressively with the increase of the total capital, instead of, as previously assumed, rising in proportion to it. It falls relatively to the magnitude of the total capital, and at an accelerated rate, as this magnitude increases. With the growth of the total capital, its variable constituent or the labour incorporated in it, also does increase, but in a constantly diminishing proportion. The intermediate pauses are shortened, in which accumulation works as simple extension of production, on a given technical basis. It is not merely that an accelerated accumulation of total capital, accelerated in a constantly growing progression, is needed to absorb an additional number of labourers, or even, on account of the constant metamorphosis of old capital, to keep employed those already functioning. In its turn, this increasing accumulation and centralisation becomes a source of new changes in the composition of capital, of a more accelerated diminution of its variable, as compared with its constant constituent. This accelerated relative diminution of the variable constituent, that goes along with the accelerated increase of the total capital, and moves more rapidly than this increase, takes the inverse form, at the other pole, of an apparently absolute increase of the labouring population, an increase always moving more rapidly than that of the variable capital or the means of employment. But in fact, it is capitalistic accumulation itself that constantly produces, and produces in the direct ratio of its own energy and extent, a relatively redundant population of labourers, i.e., a population of greater extent than suffices for the average needs of the self-expansion of capital, and therefore a surplus-population.” (Marx 1906: 690–691).
However, the complex is process:
“Considering the social capital in its totality, the movement of its accumulation now causes periodical changes, affecting it more or less as a whole, now distributes its various phases simultaneously over the different spheres of production. In some spheres a change in the composition of capital occurs without increase of its absolute magnitude, as a consequence of simple centralisation; in others the absolute growth of capital is connected with absolute diminution of its variable constituent, or of the labour-power absorbed by it; in others again, capital continues growing for a time on its given technical basis, and attracts additional labour-power in proportion to its increase, while at other times it undergoes organic change, and lessens its variable constituent; in all spheres, the increase of the variable part of capital, and therefore of the number of labourers employed by it, is always connected with violent fluctuations and transitory production of surplus-population, whether this takes the more striking form of the repulsion of labourers already employed, or the less evident but not less real form of the more difficult absorption of the additional labouring population through the usual channels. With the magnitude of social capital already functioning, and the degree of its increase, with the extension of the scale of production, and the mass of the labourers set in motion, with the development of the productiveness of their labour, with the greater breadth and fulness of all sources of wealth, there is also an extension of the scale on which greater attraction of labourers by capital is accompanied by their greater repulsion; the rapidity of the change in the organic composition of capital, and in its technical form increases, and an increasing number of spheres of production becomes involved in this change, now simultaneously, now alternately. The labouring population therefore produces, along with the
accumulation of capital produced by it, the means by which itself is made relatively superfluous, is turned into a relative surplus.” (Marx 1906: 691–692).
The industrial reserve army is a necessary consequence and necessary condition of capitalism:
But if a surplus labouring population is a necessary product of accumulation or of the development of wealth on a capitalist basis, this surplus population becomes, conversely, the lever of capitalistic accumulation, nay, a condition of existence of the capitalist mode of production. It forms a disposable industrial reserve army, that belongs to capital quite as absolutely as if the latter had bred it at its own cost. Independently of the limits of the actual increase of population, it creates, for the changing needs of the self-expansion of capital, a mass of human material always ready for exploitation. With accumulation, and the development of the productiveness of labour that accompanies it, the power of sudden expansion of capital grows also; it grows, not merely because the elasticity of the capital already functioning increases, not merely because the absolute wealth of society expands, of which capital only forms an elastic part, not merely because credit, under every special stimulus, at once places an unusual part of this wealth at the disposal of production in the form of additional capital; it grows, also, because the technical .conditions of the process of production themselves—machinery, means of transport, &c.—now admit of the rapidest transformation of masses of surplus product into additional means of production. The mass of social wealth, overflowing with the advance of accumulation, and transformable into additional capital, thrusts itself frantically into old branches of production, whose market suddenly expands, or into newly formed branches, such as railways, &c, the need for which grows out of the development of the old ones. In all such cases, there must be the possibility of throwing great masses of men suddenly on the decisive points without injury to the scale of production in other spheres. Over-population supplies these masses..” (Marx 1906: 646).
Marx is incorrect in thinking that such an industrial reserve army is the very “condition of existence of the capitalist mode of production.” In the Keynesian era of full employment, where there was very low unemployment and indeed labour scarcity, capitalist continued and thrived – indeed we now call it the “Golden Age” of capitalism.

Marx sees 19th century capitalism as characterised by 10-year business cycles:
“The course characteristic of modern industry, viz., a decennial cycle (interrupted by smaller oscillations), of periods of average activity, production at high pressure, crisis and stagnation, depends on the constant formation, the greater or less absorption, and the re-formation of the industrial reserve army of surplus population. In their turn, the varying phases of the industrial cycle recruit the surplus population, and become one of the most energetic agents of its reproduction. This peculiar course of modern industry, which occurs in no earlier period of human history, was also impossible in the childhood of capitalist production. The composition of capital changed but very slowly. With its accumulation, therefore, there kept pace, on the whole, a corresponding growth in the demand for labour. Slow as was the advance of accumulation compared with that of more modern times, it found a check in the natural limits of the exploitable labouring population, limits which could only be got rid of by forcible means to be mentioned later. The expansion by fits and starts of the scale of production is the preliminary to its equally sudden contraction; the latter again evokes the former, but the former is impossible without disposable human material, without an increase in the number of labourers independently of the absolute growth of the population. This increase is effected by the simple process that constantly ‘sets free’ a part of the labourers; by methods which lessen the number of labourers employed in proportion to the increased production. The whole form of the movement of modern industry depends, therefore, upon the constant transformation of a part of the labouring population into unemployed or half-employed hands. The superficiality of Political Economy shows itself in the fact that it looks upon the expansion and contraction of credit, which is a mere symptom of the periodic changes of the industrial cycle, as their cause.” (Marx 1906: 694–695).
Marx’s business cycle theory as presented here, then, hinges on a naive focus on technological unemployment, although admittedly his earlier analysis has a role for rising real wages squeezing profits as a secondary cause in some instances as well.

In the French edition of Capital, Marx made a further prediction:
“‘But only after mechanical industry had struck root so deeply that it exerted a preponderant influence on the whole of national production; only after foreign trade began to predominate over internal trade, thanks to mechanical industry; only after the world market had successively annexed extensive areas of the New World, Asia and Australia; and finally, only after a sufficient number of industrial nations had entered the arena- only after all this had happened can one date the repeated self-perpetuating cycles, whose successive phases embrace years, and always culminate in a general crisis, which is the end of one cycle and the starting-point of another. Until now the duration of these cycles has been ten or eleven years, but there is no reason to consider this duration as constant. On the contrary, we ought to conclude, on the basis of the laws of capitalist production as we have just expounded them, that the duration is variable, and that the length of the cycles will gradually diminish.’” (Marx 1990: 786, n.).
So Marx predicted that the duration of cycles would diminish as capitalism approached its final crisis. We now know that the duration of business cycles was shorter in the 19th century than in the more developed capitalism of the 20th century: the average duration of post-1945 expansions was 50 months. By contrast, the average duration of expansions from 1854 to 1919 was 27 months, and the average from 1919 to 1945 was 35 months (Knoop 2010: 13).

The Classical Political Economists, Marx notes, recognised the need for a surplus population in capitalism, but capitalism needs a much larger surplus population than can be accomplished by natural population growth (Marx 1990: 786–787).

Productivity increases throw more workers out of work (Marx 1990: 789) and the intensification of the labour of employed workers reduces the need for employing unemployed workers:
“The over-work of the employed part of the working class swells the ranks of the reserve, whilst conversely the greater pressure that the latter by its competition exerts on the former, forces these to submit to over-work and to subjugation under the dictates of capital. The condemnation of one part of the working-class to enforced idleness by the over-work of the other part, and the converse, becomes a means of enriching the individual capitalists, and accelerates at the same time the production of the industrial reserve army on a scale corresponding with the advance of social accumulation.” (Marx 1906: 698).
In a crucial passage, Marx now states that the industrial reserve army is what governs the movement of wages:
“Taking them as a whole, the general movements of wages are exclusively regulated by the expansion and contraction of the industrial reserve army, and these again correspond to the periodic changes of the industrial cycle. They are, therefore, not determined by the variations of the absolute number of the working population, but by the varying proportions in which the working class is divided into active and reserve army, by the increase of diminution in the relative amount of the surplus-population, by the extent to which it is now absorbed, now set free. For Modern Industry with its decennial cycles and periodic phases, which, moreover, as accumulation advances, are complicated by irregular oscillations following each other more and more quickly, that would indeed be a beautiful law, which pretends to make the action of capital dependent on the absolute variation of the population, instead of regulating the demand and supply of labour by the alternate expansion and contraction of capital, the labour-market now appearing relatively under-full, because capital is expanding, now again over-full, because it is contracting. Yet this is the dogma of the economists. According to them, wages rise in consequence of accumulation of capital. The higher wages stimulate the working population to more rapid multiplication, and this goes on until the labour-market becomes too full, and therefore capital, relatively to the supply of labour, becomes insufficient. Wages fall, and now we have the reverse of the medal. The working population is little by little decimated as the result of the fall in wages, so that capital is again in excess relatively to them, or, as others explain it, falling wages and the corresponding increase in the exploitation of the labourer again accelerates accumulation, whilst, at the same time, the lower wages hold the increase of the working-class, in check. Then comes again the time, when the supply of labour is less than the demand, wages rise, and so on. A beautiful mode of motion this for developed capitalist production! Before, in consequence of the rise of wages, any positive increase of the population really fit for work could occur, the time would have been passed again and again, during which the industrial campaign must have been carried through, the battle fought and won.” (Marx 1906: 699).
So for Marx the “general movements of wages are exclusively regulated by the expansion and contraction of the industrial reserve army.”

We can thus see here the theoretical completion of Marx’s endorsement in Chapter 19 of the Classical view that wages fluctuate above and below an equilibrium value: the “necessary price” or “natural price” of labour, which for Marx is the value of the maintenance and reproduction of labour-power, a subsistence wage. This is clearly how Friedrich Engels understood Marx’s theory in Herr Eugen Dühring’s Revolution in Science (1894; first published in 1878), where Engels argued that industrial capitalism, driven by means of automation and use of machines, “restricts the consumption of the masses at home to a famine minimum and thereby undermines its own internal market” (Engels [1894]: 308).

Importantly, at the end of this section Marx also attacks and rejects Malthusian population theory (Marx 1990: 790–792).

For Marx, the industrial reserve army is the driving factor in the wage equilibrium process, and so Marx substitutes the industrial reserve army for Malthusian population theory as the major causal factor inducing capitalism to drive wages to a subsistence level (Howard and King 1985: 94).

Marx further clarifies the manner in which industrial reserve army governs wage movements:
“If, e.g., in consequence of favourable circumstances, accumulation in a particular sphere of production becomes especially active, and profits in it, being greater than the average profits, attract additional capital, of course the demand for labour rises and wages also rise. The higher wages draw a larger part of the working population into the more favoured sphere, until it is glutted with labour-power, and wages at length fall again to their average level or below it, if the pressure is too great. Then, not only does the immigration of labourers into the branch of industry in question cease; it gives place to their emigration. Here the political economist thinks he sees the why and wherefore of an absolute increase of workers accompanying an increase of wages, and of a diminution of wages accompanying an absolute increase of labourers. But he sees really only the local oscillation of the labour-market in a particular sphere of production—he sees only the phenomena accompanying the distribution of the working population into the different spheres of outlay of capital, according to its varying needs.

The industrial reserve army, during the periods of stagnation and average prosperity, weighs down the active labour-army; during the periods of over-production and paroxysm, it holds its pretensions in check. Relative surplus-population is therefore the pivot upon which the law of demand and supply of labour works. It confines the field of action of this law within the limits absolutely convenient to the activity of exploitation and to the domination of capital.”
(Marx 1906: 700–701).

“Capital works on both sides at the same time. If its accumulation, on the one hand, increases the demand for labour, it increases on the other the supply of labourers by the setting free of them, whilst at the same time the pressure of the unemployed compels those that are employed to furnish more labour, and therefore makes the supply of labour, to a certain extent, independent of the supply of labourers. The action of the law of supply and demand of labour on this basis completes the despotism of capital. As soon, therefore, as the labourers learn the secret, how it comes to pass that in the same measure as they work more, as they produce more wealth for others, and as the productive power of their labour increases, so in the same measure even their function as a means of the self-expansion of capital becomes more and more precarious for them; as soon as they discover that the degree of intensity of the competition among themselves depends wholly on the pressure of the relative surplus-population; as soon as, by Trades’ Unions, &c, they try to organise a regular cooperation between employed and unemployed in order to destroy or to weaken the ruinous effects of this natural law of capitalistic production on their class, so soon capital and its sycophant, political economy, cry out at the infringement of the ‘eternal’ and so to say ‘sacred’ law of supply and demand.” (Marx 1906: 702–703).
To complete the analysis here, we can turn to Value, Price and Profit (a series of lectures Marx delivered in 1865 and first published in 1898). In this, Marx, endorsing union struggles, still argued that trade unions could not raise wages in a continuous, effective and successful way, but instead he held that organised labour can only retard the “downward movement” of real wages but not change its direction.

Finally, Marx’s theory that the industrial reserve army – or the mass of unemployed workers – kept real wages at a subsistence minimum was proven false even in 19th century Britain (see here and here).

(4) Different Forms of the Relative Surplus-Population. The General Law of Capitalistic Accumulation.
In this section, Marx distinguishes four subdivisions in the industrial reserve army as follows:
(1) the urban floating surplus-population;

(2) the latent surplus-population (rural reserve army);

(3) the stagnant reserve army, and

(4) paupers living in poverty.
Marx describes the urban floating surplus-population:
“In the centres of modern industry—factories, manufacturers, ironworks, mines, &c.—the labourers are sometimes repelled, sometimes attracted again in greater masses, the number of those employed increasing on the whole, although in a constantly decreasing proportion to the scale of production. Here the surplus population exists in the floating form. In the automatic factories, as in all the great workshops, where machinery enters as a factor, or where only the modern divisions of labour is carried out, large numbers of boys are employed up to the age of maturity. When this term is once reached, only a very small number continue to find employment in the same branches of industry, whilst the majority are regularly discharged. This majority forms an element of the floating surplus-population, growing with the extension of those branches of industry. Part of them emigrates, following in fact capital that has emigrated. One consequence is that the female population grows more rapidly than the male, teste England. That the natural increase of the number of labourers does not satisfy the requirements of the accumulation of capital, and yet all the time is in excess of them, is a contradiction inherent to the movement of capital itself. It wants larger numbers of youthful labourers, a smaller number of adults. The contradiction is not more glaring than that other one that there is a complaint of the want of hands, while at the same time many thousands are out of work, because the division of labour chains them to a particular branch of industry.

The consumption of labour-power by capital is, besides, so rapid that the labourer, half-way through his life, has already more or less completely lived himself out. He falls into the ranks of the supernumeraries, or is thrust down from a higher to a lower step in the scale.” (Marx 1906: 703–704).
From rural areas there is a flow of unemployed workers to the cities, but also a latent rural surplus-population who remain in the countryside and who live in poverty (Marx 1990: 796).

The third group – the stagnant reserve army – consists of people suffering underemployment or very irregular employment:
“The third category of the relative surplus-population, the stagnant, forms a part of the active labour army, but with extremely irregular employment. Hence it furnishes to capital an inexhaustible reservoir of disposable labour-power. Its conditions of life sink below the average normal level of the working class; this makes it at once the broad basis of special branches of capitalist exploitation. It is characterized by maximum of working time, and minimum of wages. We have learnt to know its chief form under the rubric of ‘domestic industry.’ It recruits itself constantly from the supernumerary forces of modern industry and agriculture, and specially from those decaying branches of industry where handicraft is yielding to manufacture, manufacture to machinery. Its extent grows, as with the extent and energy of accumulation, the creation of a surplus population advances. But it forms at the same time a self-reproducing and self-perpetuating element of the working class, taking a proportionally greater part in the general increase of that class than the other elements. In fact, not only the number of births and deaths, but the absolute size the families stand in inverse proportion to the height of wages, therefore to the amount of means of subsistence of which the different categories of labourers dispose. This law of capitalistic society would sound absurd to savages, or even civilized colonists. It calls to mind the boundless reproduction of animals individually weak and constantly hunted down.” (Marx 1906: 705–706).
Finally, there are the body of paupers:
“The lowest sediment of the relative surplus-population finally dwells in the sphere of pauperism. Exclusive of vagabonds, criminals, prostitutes, in a word, the ‘dangerous’ classes, this layer of society consists of three categories. First, those able to work One need only glance superficially at the statistics of English pauperism to find that the quantity of paupers increases with every crisis, and diminishes with every revival of trade. Second, orphans and pauper children. These are candidates for the industrial reserve-army, and are, in times of great prosperity, as 1860, e.g., speedily and in large numbers enrolled in the active army of labourers. Third, the demoralized and ragged, and those unable to work, chiefly people who succumb to their incapacity for adaptation, due to the division of labour; people who have passed the normal age of the labourer; the victims of industry, whose number increases with the increase of dangerous machinery, of mines, chemical works, &c, the mutilated, the sickly, the widows, &c. Pauperism is the hospital of the active labour-army and the dead weight of the industrial reserve-army. Its production is included in that of the relative surplus-population, its necessity in theirs; along with the surplus-population, pauperism forms a condition of capitalist production, and of the capitalist development of wealth.” (Marx 1906: 706–707).
Marx sees an absolute general law of capitalist accumulation:
“The greater the social wealth, the functioning capital, the extent and energy of its growth, and, therefore, also the absolute mass of the proletariat and the productiveness of its labour, the greater is the industrial reserve-army. The same causes which develop the expansive power of capital, develops also the labour-power at its disposal. The relative mass of the industrial reserve-army increases therefore with the potential energy of wealth. But the greater this reserve-army in proportion to the active labour-army, the greater is the mass of a consolidated surplus-population, whose misery is in inverse ratio to its torment of labour. The more extensive, finally, the lazurus-layers of the working-class, and the industrial reserve-army, the greater is official pauperism. This is the absolute general law of capitalist accumulation. Like all other laws it is modified in its working by many circumstances, the analysis of which does not concern us here.” (Marx 1906: 707).
So for Marx the more productive and wealthy a capitalist society is, the “greater is the industrial reserve-army.” This is another dogmatic communist myth that has been disproven by the history of the past 150 years, for there is considerable evidence that unemployment on average was much higher in the 19th century than in more developed and wealthier 20th century capitalist economies.

Since Marx did not understand that the long-run tendency of capitalism, even in the 19th century, was to massively increase the real wage, he failed to understand that the growing real wage and rising disposable income even of workers in capitalism also allowed a massive capacity for production of new commodities and new opportunities for employment (e.g., especially in services and middle class employment).

Marx presents his caricature, apocalyptic vision of the development of capitalism:
“The law by which a constantly increasing quantity of means of production, thanks to the advance in the productiveness of social labour, may be set in movement by a progressively diminishing expenditure of human power, this law, in a capitalist society—where the labourer does not employ the means of production, but the means of production employ the labourer—undergoes a complete inversion and is expressed thus: the higher the productiveness of labour, the greater is the pressure of the labourers on the means of employment, the more precarious, therefore, becomes their condition of existence, viz., the sale of their own labour-power for the increasing of another’s wealth, or for the self-expansion of capital. The fact that the means of production, and the productiveness of labour, increase more rapidly than the productive population, expresses itself, therefore, capitalistically in the inverse form that the labouring population always increases more rapidly than the conditions under which capital can employ this increase for its own self-expansion.

We saw in Part IV., when analysing the production of relative surplus-value: within the capitalist system all methods for raising the social productiveness of labour are brought about at the cost of the individual labourer; all means for the development of production transform themselves into means of domination over, and exploitation of, the producers; they mutilate the labourer into a fragment of a man, degrade him to the level of an appendage of a machine, destroy every remnant of charm in his work and turn it into a hated toil; they estrange from him the intellectual potentialities of the labour-process in the same proportion as science is incorporated in it as an independent power; they distort the conditions under which he works, subject him during the labour-process to a despotism the more hateful for its meanness; they transform his life-time into working-time, and drag his wife and child beneath the wheels of the Juggernaut of capital, But all methods for the production of surplus value are at the same time methods of accumulation; and every extension of accumulation becomes again a means for the development of those methods. It follows therefore that in proportion as capital accumulates, the lot of the labourer, be his payment high or low, must grow worse. The law, finally, that always equilibrates the relative surplus-population, or industrial reserve army, to the extent and energy of accumulation, this law rivets the labourer to capital more firmly than the wedges of Vulcan did Prometheus to the rock. It establishes an accumulation of misery, corresponding with accumulation of capital. Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation, at the opposite pole, i.e., on the side of the class that produces its own product in the form of capital.” (Marx 1906: 708–709).
Capitalist apologists, Marx notes, present this state of affairs as a law of nature (Marx 1990: 800–801), when it is but part of a contingent or historical system of production.

(5) Illustrations of the General Law of Capitalist Accumulation.
In this section, Marx makes cites various statistics and evidence to prove his case. While Marx naturally can cite numerous examples of poverty and the suffering of the working class, nevertheless his overall theories in this chapter on the long-run tendency of capitalism have been proven to be false.

(a) England from 1846–1866.
Marx attempts to prove by various statistics that the British working classes remained in poverty down to 1867 despite the soaring wealth produced by capitalism.

(b) The badly paid Strata of the British Industrial Class.
Marx here cites statistics showing the malnutrition and starvation wages of the lowest part of the British working class and the bad conditions of housing.

(c) The Nomad Population.
Marx discusses the conditions of itinerant workers of the following type:
“We turn now to a class of people whose origin is agricultural, but whose occupation is in great part industrial. They are the light infantry of capital, thrown by it, according to its needs, now to this point, now to that. When they are not on the march, they "camp." Nomad labour is used for various operation of building and draining, brick-making, lime-burning, railway-making, &c. A flying column of pestilence, it carries into the places in whose neighbourhood it pitches its camp, small-pox, typhus, cholera, scarlet fever, &c. In undertakings that involve much capital outlay, such as railways, &c, the contractor himself generally provides his army with wooden huts and the like, thus improvising villages without any sanitary provisions, outside the control of the local boards, very profitable to the contractor, who exploits the labourers in two-fold fashion—as soldiers of industry and as tenants.” (Marx 1906: 728–729).
He ends by discussing the conditions of miners.

(d) Effect of Crises on the best paid Part of the Working Class.
Marx looks at the poverty to which even those normally employed are reduced by recessions here.

(e) The British Agricultural Proletariat.
Marx examines the poverty of the agricultural workers here.

Marx is quite clear in this section that the lot of agricultural labourers is a subsistence wage:
“The continual emigration to the towns, the continual formation of surplus-population in the country through the concentration of farms, conversion of arable land into pasture, machinery, &c., and the continual eviction of the agricultural population by the destruction of their cottages, go hand in hand. The more empty the district is of men, the greater is its ‘relative surplus-population,’ the greater is their pressure on the means of employment, the greater is the absolute excess of the agricultural population over the means for housing it, the greater, therefore, in the villages is the local surplus-population and the most pestilential packing together of human beings. The packing together of knots of men in scattered little villages and small country towns corresponds to the forcible draining of men from the surface of the land. The continuous superseding of the agricultural labourers, in spite of their diminishing number and the increasing mass of their products, gives birth to their pauperism. Their pauperism is ultimately a motive to their eviction and the chief source of their miserable housing which breaks down their last power of resistance, and makes them mere slaves of the landed proprietors and the farmers. Thus the minimum of wages becomes a law of Nature to them.” (Marx 1906: 761–772).

“The temporary or local want of labour brings about no rise in wages, but a forcing of the women and children into the fields, and exploitation at an age constantly lowered. As soon as the exploitation of the women and children takes place on a larger scale, it becomes in turn a new means of making a surplus-population of the male agricultural labourer and of keeping down his wage. In the east of England thrives a beautiful fruit of this vicious circle—the so-called gang-system, to which I must briefly return here.” (Marx 1906: 762–763).
Marx ends by examining the “gang” system of agricultural labour which he sees as an “ingenious method of keeping … labourers well below the normal level, and yet of always having an extra hand ready for extra work, of extracting the greatest possible amount of labour with the least possible amount of money, and of making adult male labour ‘redundant’” (Marx 1906: 766).

(f) Ireland.
Marx ends by analysing the condition of Ireland.

Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.

Engels, Friedrich. [1894]. Herr Eugen Dühring’s Revolution in Science (trans. Emile Burns from 1894 edn.). International Publishers, New York.

Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

Howard, Michael Charles and John Edward King. 1985. The Political Economy of Marx (2nd edn.). Longman, London and New York.

Knoop, T. A. 2010. Recessions and Depressions: Understanding Business Cycles (2nd edn). Praeger, Santa Barbara, Calif.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

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