Karl Kautsky

The Economic Doctrines of Karl Marx


Part III.


(1) The “Iron Law of Wages”

THE Malthusians used to assert that, in consequence of their “thoughtless habits,” the workers increased more rapidly than the available means of life, or more strictly speaking, the variable capital. In this way over­population arises. More workers offer themselves to the capitalists than the latter can employ, the available means of life is not sufficient for all the existing workers, and consequently, so long as limits are not placed on the increase of the workers, unemployment and hunger and all the vices and poverty which flow therefrom, are necessarily the lot of at least a part of the working class.

Thus the Malthusians. Let us now follow Marx in investigating the real shape of the correlations between the growth of capital and the increase of the working class.

“The most important factor in this inquiry,” says Marx, “is the position of capital and the changes it undergoes in the course of the process of accumulation.

“The position 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 means 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, organic composition is always intended.”

This is different with individual capitals. In the following discussion we assume the average composition of the social capital of a country.

After these preliminary remarks let us proceed with our investigation.

In the first place let us assume the simplest case. Accumulation proceeds without any alteration in the composition of capital, that is, a definite mass of the means of production always requires the same amount of labour-power to set it in motion. As an example, we will take a capital of £5,000, which consists as to two-thirds of constant and as to one-third of variable capital. If the surplus-value of £1,000 is added to the original capital, the additional capital is divided, according to our assumption, in the same proportions as the initial capital; the total capital will now consist of £4,500 constant and £1,500 variable; the latter has grown in the same ratio as the former, by 20 per cent. If, however, the additional capital is to expand, it will require extra labour-power. The accumulating surplus-value of £1,000 can only become capital in our case if the number of wage workers at its call increases by 20 per cent.

If, with an unvarying composition of capital, the wage workers do not increase as rapidly as the latter, the demand for workers grows more quickly than their supply and wages rise.

The Malthusians have this case in mind when they recommend the limitation of the increase of the workers as the “solution of the social question.” In so doing, they overlook the fact that the relation of capital, the relation between capitalists and wage-workers, is not thereby abrogated. The accumulation of capital signifies the reproduction of the capital relation upon an extended scale, signifies the growth of capital and of the mass of surplus-value, of unpaid labour, on the one hand, and the increase of the proletariat, on the other hand.

Even when the accumulation of capital raises the price of labour, this is not possible without a simultaneous increase of the proletariat, and without an extension of the dominion of capital.

Wages, however, can never rise so high as to jeopardise surplus-value. Under the capitalist mode of production, the demand for labour-power is produced by the need of capital for self-expansion, for the production of surplus-value. Consequently, capital will never buy labour-power at a price which would exclude the production of surplus-value.

If wages rise in consequence of the accumulation of capital, two things are possible: either the progress of accumulation is not disturbed by the rise in the price of labour-although the rate of surplus-value may fall, the mass of surplus-value may simultaneously increase in consequence of accumulation.

Or else accumulation is retarded, and checks the cause which sent up wages. The latter fall in consequence until they reach a level which is consistent with capital’s need for expansion. “The mechanism of the process of capitalist production removes the very obstacles that it temporarily creates.”

We perceive here a peculiar interaction between paid and unpaid labour.

“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 capitalized, 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 fluctuations in the accumulation of capital, which keep wages within certain limits, appear to the bourgeois economists as fluctuations in the number of wage-workers offering their services. They therefore labour under a delusion similar to that which besets the people who believe that the sun moves round the earth while the latter stands still. Marx says:–

“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. The so-called currency school concludes from this that with high prices too little, with low prices too much money is in circulation. Their ignorance and complete misunderstanding of facts are worthily paralleled by the economists, who interpret the above phenomena of accumulation by saying that there are now too few, now too many wage labourers.”

If the accumulation of capital slackens, it gives the appearance that the labouring population is growing quicker than usual; if the former proceeds at a more rapid pace, it appears as if the working population is decreasing or grows more slowly than usual. In reality, as most of our readers may be aware, the phenomenon that wages fluctuate without being ever able to overstep certain limits is responsible for the so-called “iron law of wages”; that is to say, a rise in wages results in a rapid increase of the working population, and the augmented supply of labour depresses wages, while a fall in wages brings about greater poverty and higher mortality among the working class, which diminishes the supply of labour-power, and thus causes wages to rise again.

This contention is contradicted by the simple fact that, as every one knows, wages fluctuate within much shorter periods than from generation to generation. We shall return to this point later.

(2) The Industrial Reserve Army

So far we have assumed that accumulation proceeds without any changes in the composition of capital. But such changes necessarily take place from time to time in the course of accumulation.

The technical composition of capital is affected by every alteration in the productivity of labour. Other circumstances remaining equal, the mass of the means of production which a worker converts into products increases with the productivity of his labour. The quantity of raw materials which he transforms grows, as does also the number, of instruments of labour which he employs. With the productivity of labour, therefore, grows the quantity of the means of production in proportion to the labour-power incorporated in them, or, what comes to the same thing, the amount of labour employed declines in relation to the means of production which it sets in motion.

This alteration in the technical composition of capital is reflected in its value composition. It appears here as a relative decrease in the variable and increase in the constant portion of capital. The changes in the value composition of capital, however, do not exactly correspond to the changes in its technical composition, as with the growth in the productivity of labour, an increase in the mass of the means of production which it utilises is accompanied by a fall in their value, although this fall is not directly proportionate to their quantitative increase. At the beginning of the nineteenth century, for example, the capital-value employed in spinning was one-half constant and one-half variable. The quantity of raw materials, instruments of labour and so on which a spinner to-day uses up with the same expenditure of labour is many hundred times greater than formerly; the value relation between constant and variable capital has, however, altered much less; the ratio of constant to variable capital in spinning is now perhaps as seven to one.

But in any case the growth in the productivity of labour signifies, under the capitalist mode of production, a relative decrease of variable capital.

The productivity of labour and the accumulation of capital, however, are closely correlated with each other.

It is a condition of commodity production that the means of production are private property. But the development of the social productivity of labour presupposes co-operation on a large scale, ample working accommodation, great quantities of raw materials and instruments of labour and so on. Now the ownership of such gigantic means of production by individuals is only possible under the régime of commodity production provided individual capitals have been accumulated to a sufficient extent. “The basis of the production of commodities can admit of production on a large scale in the capitalistic form alone.” A certain level of accumulation of capital is therefore a prerequisite for a certain level of the productivity of labour. But under the capitalist mode of production, every method for raising the productivity of labour becomes a method for the augmented production of surplus-value, and thereby facilitates an increase in accumulation. The latter, in its turn, effects an extension in the scale of production, which again is the most powerful incentive to a further heightening of the productivity of labour. The accumulation of capital and the productivity of labour, therefore, continuously assist each other by action and reaction.

The influence of the growth of individual capitals through accumulation is counteracted by the simultaneous division of old capitals, as for example, through the division of inheritances, and the disengaging of new independent capitals. This tendency to neutralise accumulation is, however, more than overcome by centralisation, the unification of capitals already in existence, which is more particularly brought about by the absorption of small capitals by large capitals. This centralisation effects an increase in productivity, a change in the technical composition of capital just as accumulation does. On the other hand, accumulation promotes centralisation, and contrariwise. The larger the capital I have accumulated, the easier it is to compete with and absorb the small capitals. The more small capitals my capital has absorbed, the greater the productivity of the labour which it keeps employed, and the more extensive is the accumulation.

The concentration of gigantic masses of capital within a few hands does not merely develop productivity in the branches of labour that are already dominated by the capitalist mode of production. A number of small capitals, ousted from the large branches of industries, are forced into branches of labour in which capitalist methods have not yet gained a firm footing, in which a small capital is still able to compete, and thus prepare the ground for the incorporation of even this branch of industry into the domain of capitalism.

Thus we see the capitalist mode of production is in a constant state of technical revolution, the consequences of which are the progressive augmentation of constant capital and the relative diminution of variable capital.

And the relative decline of variable capital proceeds considerably faster than accumulation. The capital that is newly formed in the course of accumulation employs an ever smaller number of additional workers in relation to its magnitude. Simultaneously with accumulation, however, there proceeds the revolutionising of the old capital. If a machine is worn out, it is not replaced by a similar machine, assuming that technical progress has taken place in the meantime, but by an improved machine, the employment of which will enable a worker to supply more products than formerly. The old capital is produced anew in an increasingly productive form; in consequence of which more workers are dismissed.

Centralisation is one of the most powerful levers for this transformation of old capital.

The quicker the centralisation and technical revolution of old capital proceed, the more the accumulation of new capital must be accelerated, if the number of workers employed is not to decline. But the quicker accumulation proceeds, the greater is the impulse given to centralisation and technical revolution.

The Malthusians tell us that “over-population” is due to the fact that the means of life (or, more strictly speaking, the variable capital) grows in arithmetical progression, in the ratio of 1 : 2 : 3 : 4 : 5, and so on, whereas the tendency of population is to increase in geometrical progression, as 1 : 2 : 4 : 8 : 16, and so on. The increase of population is therefore always in advance of the increase of the means of life, with the natural consequences of vices and poverty.

But what really advances progressively is the decline in variable capital simultaneously with the growth of the total capital. If it was originally one half of the total capital, variable capital progressively becomes only, ½, ¼, 1/5, 1/6, and so on of the total capital.

“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 the 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.”

The change in the composition of the total social capital does not proceed uniformly in all its parts. In one case capital grows through accumulation, but the latter does not immediately alter the existing technical foundation, and therefore absorbs additional labour-power in proportion to its growth. In another case the composition of capital changes without any increase in its absolute magnitude, merely through the increment of old capital in a more productive form – and the number of workers employed falls both relatively and absolutely. Between these two extreme cases innumerable combinations are interposed, determined by the interactions of accumulation, centralisation, and the transformation of old capital into a more productive form, all of which cause either the direct dismissal of workers, “or the less evident, but not less real, form of the more difficult absorption of the additional labouring population through the usual channels.”

The working population is thus kept in a constant state of fluidity, here absorbed, there ejected, and this movement becomes all the more violent the quicker the change in the composition of capital, the greater the productivity of labour, and the more massive the accumulation of capital.

Marx quotes statistics from the English Census to prove the relative and frequently absolute decline in the number of employed workers in numerous branches of industry. From more modern statistics we extract the following two examples of an absolute decrease in the number of workers employed simultaneously with an expansion of production.

The first example shows us the British cotton industry 1861 and 1871.










Steam looms






We see that simultaneously with the decline in the number of workers employed, there has been a decline in the number of factories and an increase in the number of spindles and machine looms; indications of a centralisation and accumulation of capital.

From 1895 to 1904 the consumption of cotton in England increased from 1,550 millions of pounds to 1,700 millions, while at the same time the number of workers in the cotton factories decreased from 593,000 to 523,000.

A similar picture is presented by many branches of the German textile industry: a substantial decrease in the number of workers, which is, however, restricted to small-scale business. The large undertakings and their workers increase-thus there is a strong centralisation and accumulation of capital, with a simultaneous setting free of workers. We find, for example, in the German silk weaving industry:


Small Business
up to 5 Workers

Medium Business
6 to 50 Workers

Large Business
over 50 Workers


No. of

No. of

No. of

No. of

No. of

No. of






















Increase + or
Decrease –







Similarly in linen weaving:


Small Business
up to 5 Workers

Medium Business
6 to 50 Workers

Large Business
over 50 Workers


No. of

No. of

No. of

No. of

No. of

No. of






















Increase + or
Decrease –




–   12



The number of workers in silk weaving and linen weaving together decreased by 60,540 during 25 years, but the decline was wholly due to the decay of the small-scale businesses, the numbers of which, in both branches of production, decreased by 88,868, or 80 per cent., whereas the number of workers employed therein fell by 110,959. On the other hand, the large-scale businesses increased from 142 to 420, or almost trebled, and the number of workers employed therein increased from 21,123 to 76,896, or more than trebled.

We have hitherto assumed that the increase or decrease of variable capital exactly corresponds to an increase or decrease in the number of workers employed. This, however, is not always the case. If the manufacturer prolongs labour-time, while the price of labour remains unaltered, he will pay out more wages; the variable capital will grow, without necessarily involving the employment of more workers, whose numbers may even fall at the same time.

Let us assume that an employer employs 1,000 workers, the working day amounts to 10 hours, and the daily wage 2s. He proposes to invest additional capital in his business. He could do this by extending the business accommodation, procuring new machines and engaging more workers. But he could also employ the additional capital, so far as it is not required to obtain further raw material, by prolonging the labour-time of the workers already employed. Let us suppose he prolongs it by 5 hours; the price of labour remains the same; the daily wage will then amount to 3s.; and, other circumstances remaining equal, the variable capital will be increased by 60 per cent., while the number of workers will remain unchanged. It is, however, to the interest of every capitalist to effect an increase of work rather by the prolongation of labour-time or the augmentation of the intensity of labour than by increasing the number of workers, as the amount of constant capital which he has to expend grows much more slowly in the former case than in the latter. And this interest is all the stronger the larger the scale of production. Its force increases therefore with the accumulation of capital.

If, for example, the worker’s instrument of labour is a spade, which costs 2s., the employer would hardly offer any resistance to increasing output through a corresponding increase in the number of workers. The case is different when the worker operates machinery which costs £5,000.

But the accumulation of capital is not only accompanied by the efforts of the capitalists to obtain an increase in output without a corresponding increase in the number of workers; there is also a diminution in the strength of the working class to offer resistance to this tendency. The redundant workers produced in consequence of the accumulation of capital diminish, by their competition, the power of resistance of the employed workers. The latter are thus compelled to submit to work overtime; the working overtime again swells the ranks of the redundant labouring population. The unemployment of the one determines the overwork of the other, and vice versa.

We see that the accumulation of capital, with its concomitants and consequences, the centralisation of capitals, the technical transformation of old capitals, overwork, and so on, has the tendency to diminish sometimes even absolutely the number of employed workers in relation to the total amount of capital engaged.

But at the same time it increases the number of workers offering their services and remaining at the disposal of capital to an extent that goes far beyond that of the increase of population generally.

In the second part of this book we have seen how manufacture and even more modern industry, in the course of their development, make use of unskilled labour-power in place of skilled; the apprenticeship of the worker shrinks to a minimum, the worker is the sooner placed in a position to be employed by capital, the period of his reproduction is shortened. At the same time adult male labour is supplanted in many branches of labour by women and children. Not only does this directly increase the labour army to an enormous extent, but it results in the economic independence of girls and young people, causes them to work together, creates the possibility of the children contributing to the family support in their early years, encourages early marriages, and likewise shortens the period of reproduction for the working class.

A further powerful cause of the rapid swelling of the labour army comes into operation as soon as the capitalist mode of production dominates agriculture. Here the increase in productivity results as a matter of course, not merely in a relative, but in an absolute decline in the number of employed workers. In Great Britain the number of workers engaged in agriculture in 1861 amounted to 2,210,449; in 1871 only to 1,514,601, a decrease of almost 700,000. The workers who are made redundant are attracted to the industrial districts, so far as they do not emigrate, and there swell the ranks of the labour army offering its services to the capitalist.

Lastly, we must not forget the effect of railways and steam ships, which render it possible for capital to draw new masses of workers from industrially-backward countries – Ireland, Poland, Slovakia, Italy, China, etc.

Thus the working population increases with uncommon speed, quicker than the need of capital for employable labour-power, and the consequence is a relative over-population, which, as we have seen, is created by the accumulation of capital; not by the decline in the productivity of labour, as economists asserted, but by the growth in its productivity.

The existence of so-called over-population, the existence of an industrial reserve army, does not, however, impede the development of capital, but at a certain stage forms one of its preliminary conditions.

As we know, capital is an elastic magnitude. The more the capitalist mode of production develops, the more violent and comprehensive will be its periodical expansions and contractions. As was indicated in the second part, modern large-scale industry moves within a cycle which is peculiar to itself, which until 1873 repeated itself in periods of about ten years; a jog-trot progress of business quickly develops into a gallop; a trade boom sets in; there is a sudden colossal extension of production, a fever of production – then the crash, the deflation of business life, until the market correspondingly extends and has absorbed the superfluity of products, whereupon a period of recuperation supervenes, and the old game begins again on an extended scale.

Thus it was when Marx composed his Capital, which first appeared in the year 1867. Thus it was when he wrote the preface to the second edition of his Capital (on the 24th January, 1873), in which he declared that the general crisis was on the march.

We all know how soon and how exactly this prophesy was verified.

But with the crisis which began in 1873, the capitalist mode of production seemed to have entered upon a new phase. Whereas up till then the productivity of modern industry developed so rapidly that at times it grew more quickly than the extension of the world market, it seemed now that, in consequence of the colossal progress of technology and the enormous extension of the dominion of capitalist production-to Russia, America, East Indies, Australia – the time had come when the world market would only exceptionally and temporarily be able to absorb the products of world industry; instead of a cycle of ten years, of which the successive phases were moderate activity of economic life, feverish energy of production, crash, deflation, revival, wince 1873 we had chronic business stagnation and permanent depression in the economic sphere, which was only interrupted in 1889 by an improvement of trade, a brief flaring up of the spirit of speculation, which was soon over, giving place to a still more severe depression in economic life. It seemed as if a big trade boom would never come again.

This assumption was, however, erroneous. From 1895 to 1900 we had again a period of economic prosperity, which was of such dimensions that it led not a few optimists to the opposite assumption, viz., that the period of crises had passed away.

This assumption was from the outset untenable, as an economic boom under the capitalist mode of production must necessarily end in a crisis, which in the case in point promptly enough supervened.

In this connection, however, we are only concerned with the temporary expansions and contractions of capital, which take place during the chronic business depression, just as they did in the decennial cycle of crisis and economic boom.

Such a periodical expansion of capital creates a great need for labour-power. How is it met? Wages rise, and, according to the theory of the economists, this brings about an increase of population-after twenty years the working class will have become numerous enough to enable capital to exploit the boom. But each time the boom lasts only a few years, often only a few months! Fortunately for capital, the state of affairs is in reality different from that according to the “iron law of wages.” As we have seen, the capitalist anode of production artificially creates a redundant working population; and this is the reserve army, from which capital at any moment can take as many additional workers as it requires; without it the peculiarly jumpy development of capitalist large industry would be impossible. Where would German industry have been, if at the beginning of the ’seventies and likewise in the middle of the ’nineties it had not found so many hands which were “free” and at its service, whole reserve armies, which could be flung on the railways, in new coal mines, smelting furnaces and so on? This reserve army not only renders possible the sudden expansion of capital; it also exerts a pressure on wages, and as it can hardly be entirely absorbed when business is most flourishing, it has the tendency to prevent wages from exceeding a certain level in times of greatest activity in production.

What appears as fluctuations in the number of the population is in reality only the reflection of the periodical expansion and contraction. When the Malthusians exhort the workers to regulate the increase in their numbers according to amount of employment that exists, it means that they should adapt their numbers to the temporary requirements of capital.

Malthusianism is based on a confusion of capital’s very changeable production requirements with the productive powers of the existing means of production; the absurdity of this confusion has been most apparent during the last two decades. On the countryside of Europe there has been over-population in consequence of superfluity of the means of life, over-population in consequence of the competition of American, Indian, and Australian meat and cotton.

Absurd as this sounds, the demands of Malthusianism are only the corresponding expression of the position which the worker to-day occupies towards capital: he is only an appendage of capital; during the process of production he does not employ, but is employed by, the means of production; moreover, after the working-day he also belongs to capital, as we have seen; if he consumes, if he maintains and propagates himself, he has to do so in a manner that best corresponds to the interests of capital. The worker is subjugated by his own product, which enlists in its service not only his labour-power, but all the activities of his personality.


Last updated on 22.11.2003