# The Theory of Capital Accumulation

Marx propounded the theory of capital accumulation. Marx contends that under static conditions capitalists are compelled to accumulate due to two reasons
i) The emergence of surplus value in capitalist production induces the capitalist to accumulate, and to re-invest.
ii) The mass effect of this all round expansion of production is an increase in the demand for labour, rise in wage rates, and reduction in surplus value, because surplus value is simply the excess of total produce over the subsistence produce. This provides another reason for an individual capitalist to accumulate.

A capitalist society is marked by continuous change. Under dynamic conditions, the larger share of surplus value goes to those producers who are able to introduce the most advanced and efficient technology in production. The race for capital accumulation among the capitalists’, compel them to adopt new technology and gain huge profits. Capital accumulation depends upon the ability of the capitalists to raise the surplus value. Surplus value can be increased in three ways

i) by reducing the wage rates
ii) by extending the working hours
iii) by increasing the productivity of labour.

The first method cannot be pursued for a long time as it curtails labour supply. The second method can be relied upon only temporarily. Thus, Marx put more emphasis on the third method of increasing productivity of labour. This involves technological improvements. Capital intensive techniques increase the total output produced by a given labour force and, thus, increase surplus value. Capital accumulation and technological progress leads to the following three tendencies

### 1) The Concentration of Capital

Competition compels capitalists to reduce the price of their commodities. This is done by increasing the productivity of labour through capital intensive technology. But the small capitalists fail in this competition, so they are compelled to exit from their business. Marx terms it as “expropriators are expropriated”.

This tendency of concentration has three effects
i) it results in a larger scale of production
ii) the polarization between capitalists and workers is more sharpened
iii) the capitalist production becomes social in nature, though in its property relations, it is still private.
An individual worker is now a part of a large social productive process, and an individual capitalist is the trustee of the society.

### 2) Immiserization of the Proletariat

Capital accumulation results in the growing misery of the working class. The process of immiserization (i.e., increased unemployment, and reduction in wages) of the proletariat operates in the following two ways

i) Capitalism produces an industrial reserve army, or surplus toiling class. In other words, the capitalist system discards workers at a faster rate than it hires them. This is because of two reasons

a) Under dynamic conditions, when labour saving technology is adopted widely, the industrial reserve army has a tendency to grow
b) Due to the concentration of capital, larger capitalists prey on small capitalists. Thus, small producers who cannot face the competition from big producers also join the industrial army.

ii) The condition of the few workers who remain employed also deteriorates because
a) Growing unemployment enables capitalists to reduce the wages to subsistence levels
b) Capitalists also lengthen the working day and hours for more surplus
c) Capitalists resort to hiring women and children at still lower wages than men.

### 3) The Falling Rate of Profit

Capital accumulation results in immiserization for the workers and falling rate of profits for the capitalists. According to Marx, the falling rate of profit is the consequence of two other basic tendencies:

i) Extensive use of capital intensive technology tends to increase capital per man, or the organic composition of capital (k). With capital accumulation, capitalists try to get maximum production at minimum costs through the use of capital intensive technology; and
ii) Marx assumes constant rate of surplus value (s). These two tendencies lead to the third eventuality, i.e., the falling rate of profit. This can be easily understood with the help of a fundamental equation,

$\mathrm{\pi }=\mathrm{s}\left(1–\mathrm{k}\right)$

. This equation implies that the rate of surplus value, the rise in organic composition of capital (k) reduces the rate of profit.