13. The Marxian System, II: The Economics of Capitalism and its Inevitable Demise

0:00Chapter 13. The Marxian System 2. The Economics of Capitalism and Its Inevitable Demise 1. The Labour Theory of Value We have seen that for the latter half of his life, Karl Marx, exiled in Britain far from the political or possible revolutionary fray, spent the last years of his life searching for the mechanism by which the economics of capitalism would inevitably and ineluctably give rise to its own revolutionary overthrow. In short, the mechanism by which the capitalist class would be expropriated by the revolutionary proletariat, which would then proceed to usher in the various stages of communism.

0:49Marx found a crucial key to this mechanism in Ricardo's labor theory of value, and in the Ricardian socialist thesis that labor is the sole determinant of value, with capital's share or profits being the surplus value extracted by the capitalist from labor's created product. Capital was merely frozen labor, so that any possible contribution to the product devolves on Labor as well. But in order to arrive at the labor or quantity of labor hours theory of value, Marx, in his systematic work Capital, had to dispose of other subjective claimants to determining value.

1:34He also had to demonstrate that value was somehow objectively embodied in the product, A material good, of course, since Marx, with Smith, had dismissed immaterial services as unproductive. He attempted to perform this feat at the very beginning of Volume 1 of Capital, and how he did it is highly instructive. Marx begins Capital by concentrating on the commodity, an object, as we have seen, a material Substance, which has utility for satisfying human wants. In this way, like Ricardo, he leaves immaterial services out of the picture, and also omits studying the value of non-reproducible products, which have no ongoing costs of production.

2:25Like Ricardo, Marx also begins with the necessity of utility, but like his master, he quickly dismisses this basic fact as of little or no use in explaining exchange value, the proportion in which commodities exchange for one another on the market. As in Smith and Ricardo, therefore, use-value and exchange-value, or price, of commodities are sundered from each other. How then explain exchange value? How, in short, explain the proportions by which commodities exchange for each other on the market? Marx adds that, superficially, it seems that exchange values are relative, that they fluctuate in relation to each other, and that therefore there is nothing objectively intrinsic in the product that determines its value.

3:20Marx then sets out to correct this alleged error. Here is the crucial paragraph. Let us take two commodities, for example, corn and iron. The proportions in which they are exchangeable, whatever these proportions may be, can always be represented by an equation in which a given quantity of corn is equated to some quantity of iron. For example, one quarter corn equals x hundred weight of iron. What does this equation tell us? It tells us that in two different things, in one quarter of corn and x hundred weight of iron, there exists in equal quantities something common of both.

4:06The two things must therefore be equal to a third, which in itself is neither the one nor the other. Each of them, so far as it is exchange value, must therefore be reducible to this third, of which thing they represent a greater or less quantity. Thus Marx inserts his crucial error at the very beginning of his system. The fact that two commodities exchange for each other in some proportion does not mean that they are therefore equal in value and can be represented by an equation. As we have learned ever since Bourdain and the Scholastics, two things exchange for each

5:19Why in the world did either of them take the time and trouble to make the exchange? Marx's concentration on the commodity threw him off from the very start. For the focus should not have been on the thing, the material object, but in the individuals, the actors, doing the exchanging, and deciding whether or not to make the trade. If there is no equality in value, then there is clearly no third something to which these values must be equal. Marx compounds his original error with another, assuming that if there were an equality of value, there is therefore necessarily some third tangible thing to which they must be equal, and by which they can be measured.

6:09There is no warrant for this leap from equality of value to measurement of an objective third entity. The implicit and fallacious assumption is that value is an objective entity like weight or length, which can be scientifically measured against some third external standard. Having made two egregious and fatal mistakes in one paragraph, Marx presses on inexorably to his conclusion, emphasizing by mere assertion that utility can have nothing whatever to do with exchange values, a point crucial to his case. He claims that use values have nothing to do with exchange values or prices.

6:56This means that all real attributes of goods, their natures, their varying qualities, etc., are abstracted from, and can have nothing to do with, their values. By tossing out all real-world properties from the discussion, Marx is perforce left with goods as the embodiment of pure, abstract, undifferentiated labor hours, the quantity of allegedly homogeneous labor hours embodied in the product. This of course sees that there are great problems with this approach. What about the scholastic thrust? Is the market expected to cover the costs, the enormous number of labor hours needed to make a product in an obsolete way?

7:45If a book is printed or hand-scripted, is the market going to cover the payment for the enormous number of labor hours needed in the hand-copying process? Is the market expected to pay the labor costs of carrying goods across land as compared to shipping them by sea? Marx's way of disposing of these awkward questions was to create the concept of socially necessary labor time. The determinant of the value of a good is not any old labor time spent on or embodied in its production, but only labor time that is socially necessary. But this is a cop-out and evades the issue by begging the entire question.

8:31Market value is determined only by the quantity of socially necessary labor time. But what is socially necessary? Whatever the market decides. So a crucial ingredient of explaining market value is market decisions, market values themselves. To elaborate further, Marx defines labor time socially necessary as that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time. This brings up a corollary problem, how to meld a myriad of different qualities and skills of labor into one homogeneous abstract labor hour.

9:21Here, taking up a hint from Ricardo, Marx inserts the concepts of average and normal. It all averages out. But how is this average obtained? It is done by weights, with higher quality, unusually productive labor, weighted more heavily in quantity labor time units than is the labor of an unskilled worker. But who decides the weights? Once again, Marx's crucial question-begging methodology comes into play, for Marx acknowledges that it is the market, its relative prices and wages which determines the weights. That is, which labour is more productive or higher in quality and in what degree than some other forms of labour.

10:11So market values, prices and productivities are being used to try to explain the determinants of those Same Values and Prices, Profit Rates and Surplus Value Marx proceeds with his model in a Ricardian socialist manner. In contrast to Ricardo, however, land and rent are simply assimilated into capital, since man's labor allegedly created all land anyway, and since the importance of land and and feudalism allegedly disappears as capitalism proceeds on its way. Values and prices of land, therefore, need not be treated or explained.

10:58There are, then, two mighty classes under capitalism. The homogeneous laborers, the proletariat and the capitalists. As in Smith and Ricardo, there are, of course, no entrepreneurs. All is in slowly moving long-run equilibrium. But the values of goods are the sole creation of quantities of labor hours. Capitalists, by some sort of coercion, by their imposed set of property relations, extract by force a profit from the product of the exploited workers. This profit is surplus value, the value seized by capitalists out of total value produced Profit for Marx is derived only from exploiting labor.

11:49It is the surplus value over the wages necessary for the subsistence of labor. Profits on the other hand have nothing to do with the amount of capital invested. For capital is only dead matter, stored or frozen labor, and can therefore no longer be exploited to provide current profits. Only living labor, then, can be used to provide profit for the capitalist. But if the amount of profit is extracted solely from labor, this means that any accumulation of capital will necessarily reduce the rate of profit earned by the capitalist. Thus, suppose no capital, or in Marxian terms, constant capital, is used, and investment is made solely in the form of variable capital used to pay wages. Suppose that profits from production of the good are $100 and total variable capital or wage payment is $1000.

12:53In that case, the profit rate is 10%. On the other hand, suppose that there is investment in Capital Goods Amounting to, say, another $1,000. Total capital investment is then $2,000, but since profits are only derived from labor, they are still the same $100, so that the profit rate has now fallen to 5%. What determines wages, the amount grudgingly accorded to the The Workers by the Capitalist Class Here Malthus and the Iron Law of Wages make their vital appearance, determining wages at all times at the means of subsistence. Marx of course hastens to clear his future Communist utopia from any Malthusian problems by asserting that Malthus and the Iron Law only hold sway under Capitalism and would certainly not apply under Communism.

13:54It must be emphasized that the iron law is crucial to Marx's entire system. For Marx, the value and price of every good is determined by its cost, that is, the quantity of labor hours embodied in its production. Marx believed that on the market, capitalists pay workers the value of their labor power, By which he meant, of course, not their productivity or marginal productivity, but the cost of producing and maintaining the labor, that is, the cost or the quantity of labor hours needed to produce the laborer's means of subsistence. Professor Conway, in his generally excellent survey and critique of Marxism, claims that Marx's theory of surplus value does not require the iron law of wages, since the capitalists could still extract some surplus value even if wages were higher than the subsistence wage.

14:58Very true, except that then wages in the Marxian system would be undetermined, and indeed there would be no reason to assume that surplus value exists at all, or that it is large enough have to have any importance in the economy. Besides, if wages are not locked into the bare means of subsistence, then the plight of the workers under capitalism might not be so pitiable after all. And what if there were then very little substance to spur the workers into the revolutionary overthrow of capitalism that Marx insisted was inevitable? Thus, in the Communist Manifesto, Marx and Engels proclaimed emphatically that the average wage is always the minimum wage, that is, that quantum of the means of subsistence, Lebensmittel, which is absolutely requisite, notwendig, to keep the labourer in bare existence as a labourer.

15:58What, therefore, the wage laborer appropriates by means of his labor merely suffices to prolong and reproduce a bare existence, and Engels, in his late work, Anti-During, 1878, asserts that large-scale industry restricts the consumption of the masses at home to a starvation minimum. There are great problems in Marx's model. His theory implies that since profits are only derived from the exploitation of labor, profit rates are necessarily lower in heavily capitalized than in labor-intensive industries. But everyone, including Marx, is forced to acknowledge that this manifestly does not hold true on the market.

16:48The tendency on the market, as Smith and Ricardo well knew, is for rates of profit to tend toward equality in all industries. But how so, if profit rates are necessarily and systematically higher in the labor-intensive industries? Here is surely the most glaring single hole in the Marxian model. Marx acknowledged that in the real world, profit rates clearly tend toward equality, or, as Marx termed it, an average rate of profit, and that real prices or exchange values in capitalist markets therefore do not exchange at their Marxian quantity of labor values. Marx admitted this crucial problem and promised that he could solve the problem successfully in a later volume of Capital.

17:40He struggled with this problem for the rest of his life and never solved it. Perhaps one of the main reasons that he stopped working early on capital and never published the later volumes. In the first edition of his Great History of the Theories of Capital and Interest, published in 1884, the year after Marx's death, the outstanding Austrian theorist Eugen von Boehm-Bawerk, in his Critique of Marx, pointed out that Marx himself became aware of the fact that But there was a contradiction here, and found it necessary, for the sake of his solution, to promise to deal with it later on. But the promise was never kept, and, indeed, could not be kept.

18:25Boehm-Bawerk later noted that the growing legion of Marxian adepts continued to maintain their faith that the master would eventually come up with a solution to this grave and and apparently ineradicable flaw in the Marxian system. Then, in the preface to Marx's posthumous second volume of Capital, Friedrich Engels teasingly and rather childishly declared that in a forthcoming volume Marx would solve the famous profit rate and value problem, and invited all Marxian and other economists to to a kind of prize-essay contest to guess how Marx was going to solve this seemingly insoluble contradiction.

19:10In the ensuing nine years until the publication of the climactic Volume 3 of Capital, a surprisingly large number of economists tried their hands at this little game. In the preface to the long-awaited Volume 3, published in 1894, a year before his own Death, Engels was able to demonstrate triumphantly that none of these economists had come close to winning the prize. Thus, Engels was far less cautious than Marx in being willing to go public and trumpet a solution that Marx had apparently not felt worthy of being published. Volume 3 was subjected to detailed, withering, thoroughgoing demolition two years later A century later, by Boehm-Bawerk, in his extensive review essay, Carl Marx and the Clothes of his System.

20:03A century later, Boehm-Bawerk's devastating refutation of the Volume 3 solution, and therefore the Marxian system, remains definitive. It swept the boards in professional economics and has remained dominant ever since, successfully inoculating economists at least against the Marxian virus and certainly against the labor theory of value. Unfortunately Boehm-Bawerk's point was too technical to have much impact outside the ranks of economists and since then Marxism has held its greatest attraction in the ranks of sociologists, historians, the literati and others who tend to be economically ignorant. Boehm-Bawerk in some posed the grave inner contradiction of Marxian theory plainly and starkly.

20:55Marx claimed that goods exchanged on the market in proportion to the quantities of labour embodied in them, that is, that their values are determined by the quantity of labour hours needed to produce them, and yet also conceded that the rates of profit on all goods tended to be equal, And yet, if the first clause is true, the rates of profit would be systematically lower in proportion to the intensity of capital investment, and higher in proportion to their labor-intensiveness of production. Marx promised to resolve this insoluble contradiction in Volume 3, and to reconcile these two fundamentally contradictory propositions.

21:43In Karl Marx and the close of his system, Boehm-Bawerk demonstrated that Marx's proffered solution was a sham, and that actually what Marx did was to throw in the towel and admit that on the capitalist market profit rates were equal, and therefore that prices were not proportional to or determined by the quantity of labor hours in the production of goods. Instead, Marx in effect embraced standard Ricardian theory, and admitted that prices were actually determined by the costs, or in his terminology, prices of production, plus the average rate of profit. In this way, while pretending to have saved his theory by talking grandly about competition transforming values into prices of production, Marx had actually abandoned the labor theory of value altogether and had therefore scuttled his entire system.

22:46Boehm-Bawerk then goes into a systematic critique of various Marxian arguments attempting to save the phenomenon, including nonsense about total value being equal to total prices of all products. It is instructive to note the reaction of Marxists to Volume 3 and to Boehm-Bawerk's exposure and demolition of their system's grave inner contradictions. Too often they reacted in the manner of religious cultists and not honest scientists. That is, when their system is caught in egregious fallacies or contradictions, or makes grossly The Faulty Predictions, cultists save their theory by changing the terms of the argument.

23:31That is, they assert that the theory said something quite different, or that the prediction had really been different. Similarly, the extremely popular Millerite movement in the early 1840s had confidently forecast the exact date of Jesus' second advent in 1843. When Jesus did not arrive on the predicted date, the Millerites characteristically claimed a slight error in their calculations, and postponed the happy date for another few months. When Jesus failed to arrive once more, most Millerites dispersed. But some of the hardcore faithful changed the terms of the argument by insisting that Jesus had indeed arrived on the expected date, but that his advent was invisible.

24:20The more visible second part of the second coming to arrive at some future date. This latter group became the Seventh-day Adventists. And so the fallback position of the Marxian apologists was the outrageously false claim that Marx never meant his labor-determined values to determine, or in any way affect, market prices. Marx, they asserted loftily, had no interest in such petty matters as market price. His labor-quantity-created values were simply embodied mystically into market commodities, presumably then to have no relevance whatever to the real world of market capitalism. Thus Paul Sweezy asserted that Marx was not dealing with prices at all, but really in About what today might be called economic sociology, G. D. H. Cole tried to claim in his What Marx Really Meant, that for Marx, in contrast to other economists, value had nothing to do with determining prices, but was essentially, by definition, the quantity of labor hours embodied in a product.

25:35Alexander Gray leveled a witty and devastating critique of Cole. But the identity of value and embodied labor was surely something that Marx thought he had proved, and which therefore required proof in the opening pages of Capital. If the identity of value and labor is a matter of definition and assumption, then at least we know the meaning Marx attaches to value. But in that case the pretended proof in the opening chapter is mere eye wash, since one states but does not prove definitions. Also in that case it is to be feared that the whole of capital, resting on an arbitrary definition which implies the conclusion to be reached, is an example of wandering vainly in a circle, even more than the most critical critics had thought possible.

26:30If on the other hand the identity of value and labor is a matter of proof and not of definition, we are still left to grope for the meaning Marx attaches to value. While official Marxists have all taken this escape hatch, saving the labor theory of value by rendering it irrelevant, the only full-scale Marxist attempt to rebut Boehm-Bawerk was As that of the Austrian Marxist, Rudolf Hilferding, 1877-1941, Boehm-Bawerk's Critique of Marx, published in 1904, with the English translation being published in 1920, Hilferding's apologetics, taking the fallback line that Marx never meant values to determine prices, is a clumsy and garbled work.

27:22It is interesting that Hilferding's friend and fellow leading Austro-Marxist theoretician Otto Bauer dismissed Hilferding as never having truly understood the nature of the problem. Bauer enrolled in Boehm-Bawerk's great seminar at the University of Vienna in order to learn enough to be able to refute Boehm-Bawerk's celebrated critique. In the end, Bauer gave up the task, virtually admitting that the Marxian labor theory of of Value was indefensible. Most modern Marxist scholars hold the labor theory of value to be an embarrassment, and sophisticated Marxists have dropped it altogether, unfortunately without also giving up the system of which it is a crucial and necessary part.

28:09A curious case of Marxist apologetics is a book widely and extravagantly touted as the definitive critique of Marxism. In his Marxism, Professor Thomas Sowell takes the Hilferding line and adds further errors of his own. Thus, he berates Boehm-Bawerk for having repeatedly misunderstood Marx, when the meticulous Boehm-Bawerk understood Marx all too well, and Sowell follows Hilferding in erroneously claiming that Boehm-Bawerk and other critics wrongly held that Marx identified values with prices. On the contrary, Boehm-Bawerk and the others were fully aware that labor-created values were supposed to determine, but not be the same as, exchange values, or prices.

29:01It is also ironic that an author who makes a big point of castigating well-known economists who write on Marxian economics without once citing Marx, should yet make the egregious Marx's and Pompous' claim that Marx referred nowhere to a theory of value, despite a numerous and undocumented interpretive literature to the contrary. As a reviewer of Sowell points out, such a reference by Marx can easily be found in volume three of Capital. Although orthodox Marxists, of course, do not acknowledge it, the Hilferding fallback position, while indeed saving the equalization of profit in the real world, does so at the grave cost of abandoning the labor theory of value, or what is the same, leaving it as an empty and meaningless shell.

29:55But if there is no labor theory of value, then there is no surplus value, no exploitation, and no reason for the proletariat to rebel against a world in which their product is is not being systematically confiscated by the capitalist class. The most interesting and flamboyant case of an ardent Marxist who behaved honorably when confronted with the stark contradiction between volumes 1 and 3 of Capital was the Italian economist Achille Luria, 1857-1943. For Luria, the first volume of Capital had been a masterpiece, wherein all is great, all alike, incomparable and wonderful.

30:41Yet to Luria, volume 3 was a grievous death blow to Marx's own system. Luria, in fact, did not need to wait for Boehm-Bawerk's critique. In his own review of volume 3, Luria attacked the book as a mystification instead of a solution. Maria denounced the book as the Russian campaign, a la Napoleon, of the Marxian system, its complete theoretical bankruptcy, a scientific suicide, and the most explicit surrender of his own teaching. Let Alexander Gray have the perceptive and hilarious last word on Marx's value theory. To witness Boehm-Bawerk, or Mr. HWB Joseph, carving up Marx, is but a pedestrian pleasure.

31:32For these are but pedestrian writers, who are so pedestrian as to clutch at the plain meaning of words, not realizing that what Marx really meant, Cole, has no necessary connection with what Marx undeniably said. To witness Marx surrounded by his friends is, however, a joy of an entirely different order for it is fairly clear that none of them really knows what Marx really meant. They are even in considerable doubt as to what he was talking about. There are hints that Marx himself did not know what he was doing. In particular, there is no one to tell us what Marx thought he meant by value. And indeed, what all these conjectures reveal is somewhat astounding and, one would like to think, unique.

32:21Marx's scroll is, in one sense, a three-volume treatise, expounding a theory of value and its manifold applications, yet Marx never condescends to say what he means by value, which accordingly is what anyone cares to make it as he follows the unfolding scroll from 1867 to 1894. Nor does anyone know to what world all this applies. Is it to the world in which Marx wrote? Or to an abstract, pure capitalist world existing ideally in the imagination and nowhere else? Or odd as the suggestion may appear, was Marx probably unconsciously thinking in terms of medieval conditions? Wilbrant?

33:07No one knows. Are we concerned with Wissenschaft, slogans, myths or incantations? Marx, it has been said, was a prophet. And perhaps this suggestion provides the best approach. One does not apply to Jeremiah and Ezekiel the tests to which less inspired men are subjected. Perhaps the mistake the world and most of the critics have made is just that they have not sufficiently regarded Marx as a prophet, a man above logic, uttering cryptic and incomprehensible 3. The Laws of Motion 1. The Accumulation and Centralization of Capital Thus Karl Marx had established, to his own satisfaction at least, the labor theory of value and the reconciliation of the theory with the tendency of profit rates toward equality.

34:09But Marx was not particularly interested in explanatory laws for the workings of the capitalist system. He was interested in pressing on to what he called the laws of motion, a revealingly mechanistic term of the capitalist system, that is, in its inevitable march towards the victory of revolutionary communism, a march that would proceed with the inexorability of the laws of nature. How and where, then, was capitalism bound to move? One crucial aspect of the inevitable doom of capitalism is the inescapable law of the falling rate of profit. The extant uniform equilibrium rate, according to Marx, was doomed to keep falling.

34:55Both Smith and Ricardo had theories of a falling rate of profit, each fallacious and each arrived at in completely different ways. To Smith, the rate of profit or interest is determined by the stock of capital. The greater the amount of capital accumulated, the lower the profit rate. Ricardo, in contrast, was worried about the increasing squeeze of the economy by the landlords as inexorable population growth puts ever more inferior lands under cultivation. Marx's falling rate of profit follows from the accumulation of capital over time, but in a way different from Smith's or Ricardo's.

35:48As we have seen, for Marx, capital is dead weight and provides no profit to the capitalist. All his profit comes from the exploitation of living labor, and therefore amassing more capital necessarily lowers his rate of profit, the ratio of his total profit divided by his total capital invested. And since the hallmark of capitalist development is continuing accumulation of capital, this means that capitalism is doomed to ever-falling rates of profit. But, one may well ask, if the accumulation of capital necessarily slashes profits, why do capitalists, who are clearly motivated by a search for higher profits, rather than lower profits, insist on continuing to accumulate?

36:39Why do they persist in cutting their own throats? One Marxian answer to this riddle is competition, and Leninists in particular like to explain find the allegedly later development of monopoly capitalism and of imperialism as attempts by capitalists to form cartels or find investment outlets abroad as attempts to stave off the dread consequences of competition. But the mere citation of competition is scarcely an adequate answer. It is true, for example, that a new discovery or a new industry will cause very high profits at the beginning, and that in the pursuit of these profits, new competing firms will eventually bid down the rate of profit in the industry.

37:28But in the short run at least, and before equilibrium arrives, these capitalists are still making high and above normal profits. But in contrast, the Marxian businessman who accumulates capital loses profits at each Marx's ultimate answer to this riddle is deceptively simple. Capitalists accumulate despite the immediate and future fall in their profits because, Well, they have an irresistible, irrational urge or instinct to do so.

38:16This of course is no explanation at all. It abandons any genuine explanation under the cloak of a high sounding but ultimately meaningless label such as drive or instinct. It makes the same error as the legendary attempt to explain why opium puts people to sleep by Solemnly intoning that opium has dormative power. Note the leitmotif of irrationality in Marx's analysis of why capitalists accumulate in Volume 1 of Capital. Accumulate, accumulate, that is Moses and the prophets, therefore save, save, that is re-convert the greatest possible of surplus value or surplus product into capital.

39:05Production for Accumulation's Sake, Production for Production's Sake, not for the sake of profits. And a similar theme appears in Marx's earlier essay, Wage Labor and Capital. That is the law which again and again throws bourgeois production out of its old course and which compels capital to intensify the productive forces of labor, because it has intensified them. The law which gives capital no rest and continually whispers in its ear, go on, go on. There was, of course, another way by which Marx and the Marxists could salvage the rationality of the accumulation of capital, and that was to take the fallback Hilferding route and abandon the labor theory as a doctrine relevant to the real world.

39:59Capitalists indeed took this road, as well as claiming a mystical urge to accumulate for its own sake. In this manifestation, or face of Marx, capitalist innovators do indeed make an initially high profit above the uniform average rate prevailing in the market. These pioneers make high surplus profits, followed by imitators and competitors, until Until the profit rate is eventually driven down to the equilibrium, or average, rate. All well and good. And in this variant, at least, reality again wins out. However, once again, the price of acknowledging reality is prohibitive. For if this sort of thing happens habitually on the market, why does the rate of profit have to fall at all?

40:50Much less present us with an inexorable continuing tendency. Once again, as in the Boehm-Bawerk-Hilferding-Embroglio, Marxists can only embrace reality by abandoning the Marxian system. Unfortunately they, of course, do not acknowledge this surrender and continue to proclaim that reality has only required a slight adjustment to the true doctrine. Whichever course the Marxists take, it is crucial for them to salvage the continuing accumulation of capital, since it is through such accumulation that increased productivity and particularly technological innovations take place and are instituted in the economy. And we must remember that it is through technological innovation that capitalists dig their own and Grave, for the capitalist system and capitalist relations become the fetters that block technological development.

41:48Some technological method that capitalism cannot encompass, which Marx, late in life thought would be electricity, would provide the spark, the necessary and sufficient base for the inevitable overthrow of capitalism and the seizing power by the final historical class, the proletariat. To Marx, two consequences followed necessarily from the alleged tendency to the accumulation of capital and the advance of technology. The first is the concentration of capital, by which Marx meant the inexorable tendency of each firm to grow ever larger in size, for the scale of production to enlarge. Certainly there is a great amount of expansion of scale of plant and firm in the modern world.

42:39On the other hand, the law is scarcely apodictic. Why may not the accumulation of capital be reflected in a growth in the number of firms, rather than merely in increasing the size of each? And while many industrial processes grow by increasing the optimal scale, others flourish by being relatively small and flexible in size. Henry Ford's massive automobile factories were economic and profitable for a while, But later, by the 1920s, they inevitably led to severe losses, because such massive investment proved inflexible in meeting changes in the nature and form of consumer demand. And while automobile plants are large-sized, automobile parts plants and firms are typically small in size.

43:30Furthermore, new and small firms have typically out-competed large behemoths in introducing Building Inventions and Technological Innovations, the very area that most interested Marx. Large-scale firms tend to become bureaucratic, hidebound and mired in intellectual and financial vested interests in existing plants and ways of production. Time after time, only new small firms can carry out the cutting edge of technological innovation. If Marx's law of the concentration of capital is by no means certain, then his next thesis, the law of the centralization of capital, is in even shakier shape.

44:15Here Marx asserted an inevitable law by which smaller firms in each industry go to the wall and are absorbed in fewer and fewer giant firms. In short, a tendency toward the monopolization of industry. For one reason, competition always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors and partly vanish completely. For a second reason, for his law, Marx pointed to the recent invention of the joint stock company or corporation and its ability to concentrate masses of small capital into one organization. But this process of centralization or monopolization can be and has been counteracted by such developments as the growth of new processes, as we have seen above, and by the spread of geographical competition.

45:11Thus, in addition to small innovators we have mentioned, the alleged dominance of the big three automobile firms in the United States has been eradicated by the growth of foreign competition, Japanese, West German, etc. competition. Furthermore, while small family retail groceries were superseded, the alleged monopolization of the retail grocery business by A&P in the 1930s was pulverized by the growth of the new technology of supermarkets. In the meanwhile, the small groceries have returned in the new form of convenience or 24-hour stores. In New York City in recent years, larger supermarkets have been outcompeted in the quality and variety of fruit and vegetables by small 24-hour Korean-American family stores.

46:03In late 19th and early 20th century America, the standard oil monopoly of petroleum refining was rocked by its bureaucratic failure to perceive that the new Texas and Oklahoma oil Oil fields were the wave of the future in crude oil, and by its backwardness in seeing that kerosene would rapidly be giving way to gasoline as the dominant petroleum product. This muscle-bound failure left room for small and vigorous new entrepreneurs such as Golf and Texaco to leap in and eliminate standards dominance in oil. A final instructive example of excessive scale of firm and unprofitable monopoly was the result of the vast merger boom of 1899 to 1901, in which literally scores of industries following the lure of monopoly profits merged into one monopoly firm and almost invariably lost heavily and were forced to give way to strenuous multi-firm competition.

47:07Thus, no one can predict which way the winds of competition, of creation and decline, of innovation and decay, will blow. Certainly, one of the tendencies of capitalism is a greater variety and spectrum of quality of product, and this tendency promotes decentralization rather than Marxian centralization. Suffice it to say that there is no evidence, despite the numerous attempts of the federal government to give artificial impetus to centralization, that American industry is any more centralized now than it was at the turn of the 20th century. Finally, there is another side to the rise of corporations that Marx naturally leaves out.

47:53The very instrument by which the joint stock company can raise otherwise unavailable masses of capital has transformed the economy from one of a small number of capitalists to a modern world in which every person, be he or she ever so small, can and does become a capitalist. That is, virtually everyone owns a few shares of stock, or owns shares of pension funds Stressing this point leaves one subject to ridicule by Marxists and left liberals, who point out, obviously enough, that an individual capitalist owning a few shares of stock exerts little power in the corporate world.

48:48But such ridicule is ignorant and misplaced, since the point is that in this sense, stockholders are like consumers. The individual consumer has little say over the types and amounts of goods and services produced, but the mass of consumers together exert total economic power. Similarly, the man who owns one share of stock may have little say in corporate decisions, But the disaffection of even a relatively small minority could have costly consequences for the large shareholders if the disaffected sell their stock and send the values of shares plummeting. Large stockholders will exert direct control of a corporation, but far more indirect power lies in the hands of the mass of small shareholders, as the ultimate economic power over each firm is wielded by the mass of consumers in their decisions on whether and how much to buy of the firm's product.

49:52To return to Marx and his laws of concentration and centralization of capital, we are now beginning to see the lineaments of why, for Marx, capitalism is inevitably rushing to its appointed doom. First, of course, Marx must rely on his absurd monolithic two-class model, all of society being increasingly squeezed into two uniform classes, each with common interests, the capitalists and the proletariat. But the law of the centralization of capital means that the ranks of the capitalists are continually diminishing, as we have seen, running in the teeth of the virtual universalization from the Development of Capital Markets and Corporations Indeed, the ever smaller number of ever wealthier and more powerful capitalists succeed by expropriating their fellow capitalists and driving them downward into the ranks of the proletariat.

50:54Since in Marx's two class schema, there is no other place for them to go. Before even bringing the workers themselves into the picture, After we can see that the ranks of the capitalists as they dwindle necessarily become more beleaguered. The genuine absurdity of this picture was unwittingly revealed by the German Marxist Karl Kautsky, dubbed by Engels in apostolic succession the next Pope of the Marxian movement. Kautsky simplistically pursued the logic of his master. As Cotsky summed up this process in his book on the Erfurt Program, capitalist production tends to unite the means of production, which have become the monopoly of the capitalist class, into fewer hands.

51:43This evolution finally makes all the means of production of a nation, indeed of the whole world economy, the private property of a single individual or company, which disposes of them arbitrarily. The whole economy will be drawn into one colossal undertaking in which everything has to serve one master. In capitalist society, private ownership in the means of production ends with all except one person being propertyless. It thus leads to its own abolition, to the lack of property by all and the enslavement of all. And what is more, we are advancing toward this state of affairs more rapidly than most people believe.

52:28It's as if Cotsky can now glimpse a bit of the absurdity of the position into which the logic of the Marxian system has placed him. Lest we be tempted to sit back and wait for the one goldfinger worth umpteen quadrillion dollars who holds the entire world of impoverished slaves in his thrall, Cotsky hastens to assure assure us that the world will not have to wait for the entire process to work itself out. Instead, the mere approach to this condition must increase the sufferings, conflicts and contradictions in society to such an extent that they become intolerable and society bursts its bounds and falls to pieces. Koutsky, however, did not succeed in drawing back before inadvertently revealing how preposterous Perhaps the Marxian model really is.