Economic Systems

Lecture Notes

MARXISM

To Full Graphics

 

down  up Accumulation and concentration of capital

 

 

If the capitalist wants his profit to grow he must save and reinvest part of it. This is called accumulation of capital. Suppose that the initial capital of some capitalist is $100 and his rate of profit is 10% bringing him $10 of profit. If he/she consumes all of $10 then the next period's capital remains to be $100 bringing again only $10 of profit. If, however, half of the profit is saved and reinvested the next period's capital will be $105 bringing $10.5 of profit. If the capitalist continues to accumulate the same way for 10 periods his capital will grow steadily.

downupModel of capital accumulation

Variables

Parameters

capital

Kt

Initial capital

K1

profit

Zt

profit rate

r

investment

It

saving rate

s

consumption

Ct

 

equations

profit:

Zt = r Kt

investment:

It = sZt

capital:

Kt+1 = Kt + It

consumption:

Ct = Zt - It

 

   

down


 

Capitalist A

parameters

Initial capital

KA1 = 100

profit rate

rA = .1

saving rate

sA = .5

equations

profit:

ZAt = .1 KAt

investment:

IAt  = .5 ZAt

up

    

 

 

Capitalist B

parameters

Initial capital

KB1 = 1000

profit rate

rB = .15

saving rate

sB = .7

 

equations

profit:

ZBt = .15 KBt

investment:

IBt   = .7  ZBt

time

capital

profit

invest.

consum.

 

KA

ZA

IA

CA

1

100.00

10.00

5.00

5.00

2

105.00

10.50

5.25

5.25

3

110.25

11.03

5.51

5.51

4

115.76

11.58

5.79

5.79

5

121.55

12.16

6.08

6.08

6

127.63

12.76

6.38

6.38

7

134.01

13.40

6.70

6.70

8

140.71

14.07

7.04

7.04

9

147.75

14.77

7.39

7.39

10

155.13

15.51

7.76

7.76

time

capital

profit

invest.

consum.

 

KB

ZB

IB

CB

1

1000.00

150.00

105.00

45.00

2

1105.00

165.75

116.03

49.73

3

1221.03

183.15

128.21

54.95

4

1349.23

202.38

141.67

60.72

5

1490.90

223.64

156.54

67.09

6

1647.45

247.12

172.98

74.14

7

1820.43

273.06

191.15

81.92

8

2011.57

301.74

211.22

90.52

9

2222.79

333.42

233.39

100.03

10

2456.18

368.43

257.90

110.53

downEverything growths

by 5% rate of growth
 

gA = rA sA  = (.1)(.5) = .05

up
Everything growths

by 10.5% rate of growth.
 

gB = rB sB  = (.15)(.7) = .105
 

 

From accumulation of capital Marx proceeded to deduce that over the time larger and larger share of the total capital would become concentrated in the hands of a smaller and smaller group of richest capitalists. He called this process concentration of capital. His conclusion is based on two assumptions:

  • bigger capitalists save and reinvest much larger proportion of their profits and they can still consume more than smaller capitalists.

  • larger and especially faster growing capitals can innovate faster than smaller and slowly growing capitals and, consequently, they are likely to achieve higher rates of profit.

 


down up  Now suppose that in the whole economy there is one big capital B growing at the rate 10.5% and 10 identical small capitals A all growing at the rate 5%. Clearly the share of the big capital in the total capital will increase as shown in the following table

 

down

time

one KB

ten KA

total K

KB /K %

1

1000.00

1000.00

2000.00

50.00

2

1105.00

1050.00

2155.00

51.28

3

1221.03

1102.50

2323.53

52.55

4

1349.23

1157.63

2506.86

53.82

5

1490.90

1215.51

2706.41

55.09

6

1647.45

1276.28

2923.73

56.35

7

1820.43

1340.10

3160.52

57.60

8

2011.57

1407.10

3418.67

58.84

9

2222.79

1477.46

3700.24

60.07

10

2456.18

1551.33

4007.51

61.29

20

6666.28

2526.95

9193.23

72.51

30

18092.81

4116.14

22208.95

81.47

40

49105.35

6704.75

55810.10

87.99

50

133275.90

10921.33

144197.23

92.43

60

361721.57

17789.70

379511.27

95.31

70

981741.58

28977.55

1010719.12

97.13

80

2664526.01

47201.37

2711727.38

98.26

90

7231739.00

76886.06

7308625.07

98.95

100

19627524.32

125239.29

19752763.61

99.37

up

 

down

up

down   up This process of concentration of capital would be further accelerated by the fact that many small capitalists would not withstand competition with the big capitalist and would bankrupt. In addition to that, the new forms of the 'centralization' of capital are emerging to help implementation of new technologies requiring very large scale production. By centralization of capital Marx meant amalgamation of existing smaller capitals through the banking system and joint stock companies.

The modern mass-production technology substitutes labor with capital and causes large scale and permanent unemployment. This in turn pushes wages down bellow the subsistence level causing immiseration of the proletariat. Increasing capital/labor ratio (organic composition of capital) causes declining tendency of the profit rate which undermines incentives for investment and slows down the overall rate of economic growth. The economy becomes more and more unstable. As the time passes depressions become longer and deeper. Concentration of capital and production in a few huge production units causes monopolization and consequently a failure in market coordination. It also slows down technological progress, because monopolies are not under the pressure to innovate. Society is polarized with most of the wealth concentrated in the hands of few super rich and with masses of poor living in misery on the other end. Class struggle is intensified to the point of violent revolution. This is the mechanism which according to Marx leads necessarily to a social revolution which would destroy capitalism and create a new socio-economic system socialism.

 

downupFrom
The General Law of Capitalist Accumulation

(Marx: Das Kapital, Vol.I, Ch.XXV)

 

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, develop 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 lazarus-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. 

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

(Das Kapital, Vol.I, Ch. XXV)

"Along with the constantly diminishing number of the magnates of capital, who usurp and monopolize all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working-class, a class always increasing in numbers, and disciplined, united, organized by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralization of the means of production and socialization of labor at last reach a point where they become incompatible with their capitalist integument. Thus integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated." (Das Kapital, Vol.I, Ch. XXXII)up

 

downup

LINKS X X X X

 

 

 

OK Economics was designed and it is maintained by Oldrich Kyn.
To send me a message, please use one of the following addresses:

okyn@bu.edu --- okyn@verizon.net