Karl Marx

The Competition among the Capitalists




These are passages from the Economic and Philosophic Manuscripts of 1844. Marx puts forward some ideas that will be developed later on. For Marx "the sole defence against the capitalists is competition, which according to the evidence of political economy acts beneficently by both raising wages and lowering the prices of commodities to the advantage of the consuming public." At the same time, according to Marx, competition leads inevitably to monopoly as the best and the most ruthless prevail on the less able.

So, for Marx competition has this double aspect that has not been very well understood by many of his critics reproaching him of being against competition. A better and more appropriate critique would have been that competition does not lead necessarily to monopolism (unless the state intervenes granting patents and protection to the producers) and that true competition is not an aspect intrinsic to capitalism as it has been soon replaced by other practices. In other words, neither competition nor monopoly but oligopolies and a cosy relationship with the state. Capitalism becomes then corporativism and socialism statism. And this is the end of both of them as revolutionary ideas and practices.



The Rule of Capital over Labour and the Motives of the Capitalist

The consideration of his own private profit is the sole motive which determines the owner of any capital to employ it either in agriculture, in manufactures, or in some particular branch of the wholesale or retail trade. The different quantities of productive labour which it may put into motion, and the different values which it may add to the annual produce of the land and labour of his country, according as it is employed in one or other of those different ways, never enter into his thoughts. (Adam Smith, The Wealth of Nations, Vol. I, p. 335)

The most useful employment of capital for the capitalist is that which, risks being equal, yields him the greatest profit. This employment is not always the most useful for society; the most useful employment is that which utilises the productive powers of nature. (Jean-Baptiste Say, Traité d'économie politique, t. II, pp. 130-31)

The plans and speculations of the employers of capitals regulate and direct all the most important operations of labour, and profit is the end proposed by all those plans and projects. But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the decline of the society. On the contrary, it is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin. The interest of this class, therefore, has not the same connection with the general interest of the society as that of the other two.... The particular interest of the dealers in any particular branch of trade or manufactures is always in some respects different from, and frequently even in sharp opposition to, that of the public. To widen the market and to narrow the sellers' competition is always the interest of the dealer.... This is a class of people whose interest is never exactly the same as that of society, a class of people who have generally an interest to deceive and to oppress the public. (Adam Smith, The Wealth of Nations, Vol. I, pp. 231-32)

The Accumulation of Capitals and the Competition among the Capitalists

The increase of stock, which raises wages, tends to lower the capitalists' profit, because of the competition amongst the capitalists. (Adam Smith, The Wealth of Nations, Vol. I, p. 78)

If, for example, the capital which is necessary for the grocery trade of a particular town “is divided between two different grocers, their competition will tend to make both of them sell cheaper than if it were in the hands of one only; and if it were divided among twenty, their competition would be just so much the greater, and the chance of their combining together, in order to raise the price, just so much the less.” (Adam Smith, The Wealth of Nations, Vol. I, p. 322)

Since we already know that monopoly prices are as high as possible, since the interest of the capitalists, even from the point of view commonly held by political economists, stands in hostile opposition to society, and since a rise of profit operates like compound interest on the price of the commodity (Adam Smith, The Wealth of Nations, Vol. I, pp. 87-88), it follows that the sole defence against the capitalists is competition, which according to the evidence of political economy acts beneficently by both raising wages and lowering the prices of commodities to the advantage of the consuming public.

But competition is only possible if capital multiplies, and is held in many hands. The formation of many capital investments is only possible as a result of multilateral accumulation, since capital comes into being only by accumulation; and multilateral accumulation necessarily turns into unilateral accumulation. Competition among capitalists increases the accumulation of capital. Accumulation, where private property prevails, is the concentration of capital in the hands of a few, it is in general an inevitable consequence if capital is left to follow its natural course, and it is precisely through competition that the way is cleared for this natural disposition of capital.

We have been told that the profit on capital is in proportion to the size of the capital. A large capital therefore accumulates more quickly than a small capital in proportion to its size, even if we disregard for the time being deliberate competition.

Accordingly, the accumulation of large capital proceeds much more rapidly than that of smaller capital, quite irrespective of competition. But let us follow this process further.

With the increase of capital the profit on capital diminishes, because of competition. The first to suffer, therefore, is the small capitalist.

The increase of capitals and a large number of capital investments presuppose, further, a condition of advancing wealth in the country.

“In a country which had acquired its full complement of riches [ ... ] the ordinary rate of clear profit would be very small, so the usual [market] rate of interest which could be afforded out of it would be so low as to render it impossible for any but the very wealthiest people to live upon the interest of their money. All people of [...] middling fortunes would be obliged to superintend themselves the employment of their own stocks. It would be necessary that almost every man should be a man of business, or engage in some sort of trade.” (Adam Smith, The Wealth of Nations, Vol. I, p. 86)

This is the situation most dear to the heart of political economy.

“The proportion between capital and revenue, therefore, seems everywhere to regulate the proportion between industry and idleness; wherever capital predominates, industry prevails; wherever revenue, idleness.” (Adam Smith, The Wealth of Nations, Vol. I, p. 301)

What about the employment of capital, then, in this condition of increased competition?
“As stock increases, the quantity of stock to be lent at interest grows gradually greater and greater. As the quantity of stock to be lent at interest increases, the interest ... diminishes (i) because the market price of things commonly diminishes as their quantity increases. ... and (ii) because with the increase of capitals in any country, “it becomes gradually more and more difficult to find within the country a profitable method of employing any new capital. There arises in consequence a competition between different capitals, the owner of one endeavouring to get possession of that employment which is occupied by another. But upon most occasions he can hope to jostle that other out of this employment by no other means but by dealing upon more reasonable terms. He must not only sell what he deals in somewhat cheaper, but in order to get it to sell, he must sometimes, too, buy it dearer. The demand for productive labour, by the increase of the funds which are destined for maintaining it, grows every day greater and greater. Labourers easily find employment, but the owners of capitals find it difficult to get labourers to employ. Their competition raises the wages of labour and sinks the profits of stock.” (Adam Smith, The Wealth of Nations, Vol. I, p. 316)

Thus the small capitalist has the choice: (1) either to consume his capital, since he can no longer live on the interest – and thus cease to be a capitalist; or (2) to set up a business himself, sell his commodity cheaper, buy dearer than the wealthier capitalist, and pay higher wages – thus ruining himself, the market price being already very low as a result of the intense competition presupposed. If, however, the big capitalist wants to squeeze out the smaller capitalist, he has all the advantages over him which the capitalist has as a capitalist over the worker. The larger size of his capital compensates him for the smaller profits, and he can even bear temporary losses until the smaller capitalist is ruined and he finds himself freed from this competition. In this way, he accumulates the small capitalist's profits.

Furthermore: the big capitalist always buys cheaper than the small one, because he buys bigger quantities. He can therefore well afford to sell cheaper.

But if a fall in the rate of interest turns the middle capitalists from rentiers into businessmen, the increase in business capital and the resulting smaller profit produce conversely a fall in the rate of interest.

“When the profits which can be made by the use of a capital are diminished the price which can be paid for the use of it [...] must necessarily be diminished with them.” (Adam Smith, The Wealth of Nations, Vol. I, p. 316)

“As riches, improvement, and population have increased, interest has declined,” and consequently the profits of capitalists, “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. Money, says the proverb, makes money.” (Adam Smith, The Wealth of Nations, Vol. I, p. 83)

When, therefore, this large capital is opposed by small capitals with small profits, as it is under the presupposed condition of intense competition, it crushes them completely.
The necessary result of this competition is a general deterioration of commodities, adulteration, fake production and universal poisoning, evident in large towns.


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