Karl Marx's Theory of Socio-Institutional Transformation in Late-Stage Capitalism

Author(s): John E. Elliott

Source: Journal of Economic Issues , Jun., 1984, Vol. 18, No. 2 (Jun., 1984), pp. 383-391
Published by: Taylor & Francis, Ltd.

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J eI JOURNAL OF ECONOMIC ISSUES
Vol. XVIHl No. 2 June 1984

Karl Marx's Theory of

Socio-Institutional Transformation
In Late-Stage Capitalism

John E. Elliott

Economists in the institutionalist tradition from Thorstein Veblen to

the present have focused, in their analyses of socio-institutional evolution,
on the transformation from an earlier, small-business, proprietary, and
essentially laissez-faire capitalism to a later, big-business, corporate, and
which envisages a transformative process from feudalism through capital-
ism and on to a communist future, is broader than that found in most
institutionalist writings, the theme central to institutionalists was also fun-
damental to Marx. Consequently, an examination of Marx's theory of
evolution and transformation to and in what we shall call "late-stage cap-
italism" is interesting not only in its own right, but as a complement to
(and possibly a source of intellectual enrichment for) institutionalist per-
spectives.
Marx's interpretation of the transformation from early to late-stage
capitalism may be summarized conveniently around three overarching
themes, although, in the interest of brevity, major focus here will be on the
second. First, both capitalism's progressive and contradictory qualities
are rooted deeply in its socio-institutional structure. Second, socioeco-
nomic change under capitalism is a qualitative alteration in the techno-
logical, institutional, and attitudinal structure of the economic system,

The author is Professor of Economics, University of Southern California. This

article was presented at the Annual Meeting of the Association for Evolutionary
Economics, San Francisco, 28-30 December 1983.

383

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 384 John E. Elliott

arising endogenously out of the developmental process of capitalism itself.

Third, the qualitative changes to and in late-stage capitalism, though
themselves products of progressive and contradictory properties rooted in
capitalist socio-institutional relations, tend to elicit the growing obso-
lescence of those relations and thereby by capitalism itself. Thus, cap-
italism in a sense creates the basis for its own destruction.

Capitalism's Socio-Institutional Structure and Its Effects

To begin, we should recall Marx's dual perspective concerning cap-

italism. On the one hand, capitalism according to Marx is characterized by
economic contradiction, social conflict, and human degradation. Aliena-
tion, exploitation, and recurrent cyclical crisis and accompanying depres-
sion and mass unemployment are among its most salient features. On the
other hand, capitalism exhibits revolutionizing, industrializing, and uni-
versalizing qualities of development, growth, and progressivity that both
create a new civilization and propel the world system so created on toward
a post-capitalist future. Although Marx gave the nineteenth century's
most penetrating and provocative critique of the contradictory and de-
humanizing aspects of capitalism, he also provided the deepest and most
comprehensive account of its revolutionary and progressive properties.
Examination of these qualities of the capitalist system comprise much
of Marx's analysis. For present purposes, however, attention should be
focused on two central ideas. First, these seemingly disparate dimensions
of capitalism are, for Marx, intimately interwoven. Within the framework
of capitalist institutions, progressivity and economic expansion recreate
and extend ("reproduce") the socio-institutional bases for alienation, ex-
ploitation, and cyclical crisis. In the very process of producing commodi-
ties, capitalism reproduces the capitalist system itself. Consequently, the
expansion of capitalism increases the system's negative as well as positive
capabilities. The reverse for Marx is also true. The very contradictory
properties of capitalism are themselves instrumental in capitalist develop-
ment. Alienation, though discordant with the essential human qualities, en-
forces the labor discipline without which industrialization would have no
secure foundation. Exploitation, though in some fundamental (though
not a merely distributive) sense unjust and degrading, is capitalism's ve-
hicle for creating an economic surplus, distributing that surplus to a po-
liticoeconomic elite, and investing the surplus for economic development
and technological progressivity. Economic crises, though they generate
depression, unemployment, and mass misery, also, by destroying capital
values, forcing small and inefficient enterprises into bankruptcy, and stim-

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 Marx's Theory of Transformation 385

ulating cost-cutting economies, create the basis for resumption of capital-

ist growth on an enlarged scale [Elliott 1978-79].
Second, both the progressive and contradictory qualities of capitalism
are deeply rooted in its socio-institutional relations. For Marx, the leading
socio-institutional characteristics of capitalism are "the product as a com-
modity [and] the commodity as a capitalistically produced commodity"
[Marx 1967, III, p. 880]. To elaborate, (1) capitalism's products are
commodities, that is, are produced for market exchange; (2) labor power
or capacity to labor itself is a commodity, based on the worker's dual free-
dom (freedom to seek employment from and to sell labor power to any
particular capitalist employer desired; freedom from ownership of the
physical means of production, creating the economic necessity of selling
labor power to some capitalist); (3) in market exchange relations, work-
ers and capitalists interact as free and equal self-interested private prop-
erty owners; (4) within the "hidden abode of production" [Marx 1967,
I, p. 176], capitalist employers, based on a class monopoly of the physical
means of production, dominate workers and exercise a hierarchical con-
trol over production and division of labor, despite competition and "com-
plete anarchy" in processes of market exchange [Marx 1967, III, p. 881].
These basic features of economic structure are interwoven with and pro-
foundly affect other institutions, notably politics and ideology. Because of
their wealth and property power, capitalists exert an inordinate influence
over politics and public policy. The state, Marx and Frederick Engels ob-
serve [1948], is "an executive committee for managing the common affairs
of the bourgeoisie." The commodity mode of production, and a fetishist
perception of capital as a "thing" rather than a social relation, gives
workers an illusion of equality and liberty, thus blinding them to cap-
italism's dehumanizing qualities, and encourages both workers and capital-
ists to accept the need to adapt to impersonal (market) processes that
appear as alien forces beyond their control [Marx 1967, I, pp. 71-83; III,
chap. 48].
That capitalism's contradictory features are based directly, according
to Marx, on socio-institutional conditions may be illustrated by reference
to alienation. Market processes, universalized by capitalism, create aliena-
tion (for both capitalists and workers) in the form of hostile, impersonal
forces "which rule the producers instead of being ruled by them" [Marx
1967, I, p. 75]. Private property is conducive to alienation by contributing
to greed, separating human beings from one another and from an authen-
tic human community, and bifurcating society into private and public
realms. The capitalists' class monopoly of the physical means of produc-
tion is the presupposition for alienation of workers from control over their

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 386 John E. Elliott

means of livelihood and thereby o

output. Within capitalist productio
dominance of capitalist employers or their agents "as a ruling power."
Combination and division of labor are determined by the "powerful will"
of the capitalist, who "subjects [workers'] activity to his aim" and plan.
Hence, capitalist division of labor, at its best, is "foreign and external" to
the worker, "is alien to him and coerced from him" [Marx 1967, I, p.
331; 1973, p.470].
Similarly, capitalism's creative qualities emanate powerfully from its
socio-institutional properties. The capitalist "mania" for wealth, stimu-
lated by money and market exchange, yields a general development of
society's productive forces. Capitalist property relations and division of
labor give capitalists the freedom, power, and incentive to industrialize.
Competition among capitalists, beginning with competition for labor
power and extending to competition for markets, impels capitalists toward
the productive employment of labor and capital and technological inno-
vation. The bourgeoisie has created colossal productive forces, urbaniza-
tion, and world markets [Marx and Engels 1948]. Capitalist institutions
generate a "boundless drive" to overcome all obstacles to industrial de-
velopment [Marx 1973]. The very "historic mission" of capitalism is thus
capital accumulation and industrialization, and thereby preparation for
a post-capitalist civilization [Marx 1967, 111].
The ideas presented in this section are summarized in roughly the upper
third of Figure 1. The figure lists (in the first row) the fundamental socio-
institutional properties of capitalism. It then presents in schematic form
Marx's central propositions that (1 ) both capitalism's contradictory quali-
ties (alienation, A; exploitation, E; cyclical crisis, C) and progressive
propensities (here summarized as urbanization, U; industrialization, I;
and growth, G) stem from its socio-institutional conditions; (2) contra-
dictory and progressive proclivities are interactive (notably, A, E, and C
themselves contribute to U, I, and G).

Evolution and Transformation to and within Late-Stage Capitalism

The moral of the first section of this article is that, for Marx, institutions
and social relations matter-a lot! That discussion, however, focused es-
sentially on a relatively early stage in the evolution of industrial capitalism.
According to Marx, capitalist development is not confined to reproduction
of the system or to mere quantitative enlargement in the magnitudes of
economic variables within given technological, institutional, and motiva-
tional relations. Instead, Marx presents, like Veblen and Joseph Schum-

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 Marx's Theory of Transformation 387

private property-capital-labor < capitalist divi- .4- mar

relation sion of labor

A E C

labor discipline saving investment scapital values, resumption

cost economies, - - - X of G
bankruptcies

#C/V, #T credit, credit

L s institutions

*small business, farms

rlarge-scalebusiness|

C&C of L4frW.C. misery C&C of K, monopoly cyclical severity

W.C. organization, unions,

political parties

demolcracy W.C. con- required worker -04corporations

democracy sciousness mobility, cooperatives
adaptability 4

social legislation educational separation

reforms ownership &
management,
government
regulation

collective organiza ion O/L, automation, need for social coordination,

scientific labor control, and planning

tendency toward tendency toward tendency toward ten ency toward

obsolesence of 4*obsolescence of**obsolesence of 4-*obsolesence of
private property capital-labor capitalist di- market processes
relation vision of labor

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388 John E. Elliott

peter after him, a plausible topology or theoretical pattern of socio-insti-

tutional transformation-that it, qualitative alteration in the technology,
institutions, and attitudes of the economic system, arising endogenously
out of the developmental process of the system itself. This transformative
scenario contains two major, interwoven themes. One was an expecta-
tion of a growing intensity of capitalism's economic contradictions and
social conflicts associated with an evolutionary transformation from small
business, proprietary capitalism to big business, corporate capitalism. The
other was a process of transformation and socialization whereby capital-
ism, through its own internal dialectic, was perceived as both laying the
foundations for and giving hints of the communist future to come. The
following remarks identify the salient dimensions of these two themes.
Marx's expectation of growing intensity of capitalism's problematic
qualities was based on several factors, of which the following four were
considered especially significant. First, there is a tendency toward big
business and monopoly power. Economies of large-scale production
(which Marx presumed would increase with expanded technology) in-
crease the minimum size of business necessary for efficiency and thereby
encourage the "concentration" of capital, that is, an increased absolute
size or scale of enterprise. These same economies of scale, supplemented
by that "new formidable weapon in the competitive struggle-the credit
system," encourage, by merger and by the exit of small firms from the
market, a "centralization" of capital or concentration of capital and pro-
duction under a smaller number of larger capitalists, that is, an increase
in relative size of enterprise or monopolization [Marx 1967, I, pp. 682-
87].
Capitalists' growing monopoly power supplements their basic prop-
erty power and thereby extends the range of alienation and exploitation.
Monopoly is also interwoven with cycles. During depressions, small,
bankrupt businesses sell out to larger capitalists. By restricting entry, g
erating monopoly profits, and extending labor-saving inventions, monop-
oly increases cyclical severity. However, monopoly's extra surpluses and
large-scale operations facilitate big investment projects and technological
changes. Moreover, monopoly socializes work and production, reducing
the socioeconomic distance between mature capitalism and communism.
Second, Marx expected cyclical crises to become more widespread and
cyclical amplitude more severe. Growing wealth increases cyclical mag-
nitude, while growth of world markets makes cycles more widespread.
Credit expansion elicits overinvestment and speculative ventures in the
boom (and adds to the liquidity crisis after the ensuing downturn), while
greater durability of fixed capital lengthens the depreciation adjustment
process in depressions. Increases in the organic composition of capital

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 Marx's Theory of Transformation 389

(C/V) cause a relative decline in the demand for labor and thereby
higher unemployment.
Third, Marx expected working class misery to increase with capitalist
development, in response to growing alienation, exploitation, and cyclical
severity. These forces cause workers' real income to fall relative to the
expanding wealth, income, and power of the (smaller number of) capital-
ist propertied rich. This is consistent, however, with falling profit rates and
higher absolute real wages [Marx, in Elliott 1981, pp. 274-80].
Fourth, industrializing capitalism does not merely (re)create an urban
working class. It also raises workers' consciousness of their identity and
situation, stimulates their association and organization, and encourages
political action on their collective behalf. Growing concentration and
centralization of capital similarly concentrates labor. The growing sever-
ity of capitalist crises and exploitation stimulates the expansion of unions
as protective agencies for labor. As capitalism becomes national and in-
ternational in scope, its improvements in transportation and communica-
tion centralize the class struggle, expand its geographic scope, and give it,
through parties and other organizations, an increasingly political cast.
Working class organizations, themselves products of the capitalist devel-
opment process, contribute to the "socialist consciousness" of workers,
thereby changing them and, potentially, society itself [Marx and Engels
1948].
Paralleling these objective and subjective dimensions of growing eco-
nomic contradiction and social class struggle, according to Marx, is trans-
formation and socialization of capitalism's institutions in its process of
evolution. First, the corporation, emerging from capitalism's enlarging
appetite for investment funds and facilitated by credit expansion, divides
capitalists into "mere managers" and "mere money-capitalists," self-de-
structively abolishes "the capitalist mode of production within capitalist
production itself," establishes monopoly, and "thereby challenges the in-
terference of the state" [Marx 1967, III, pp. 436-38]. Workers' coopera-
tives similarly evolve out of capitalist industrialization, the factory system,
and economic concentration, are stimulated by growing working class
consciousness and a desire to overcome capitalist domination and ex-
ploitation (though in a limited way), and are facilitated by an expanding
credit system. Like corporations, cooperatives constitute a new, transi-
tional form of social property nurtured in the womb of developing cap-
italism itself [Marx 1967, III, p. 440].
Second, the expanding size and political organization of the working
class presses evolving capitalism not only to liberalize its political insti-
tutions, but to extend the suffrage and the political role of legislatures
(earlier and more widely in Great Britain and the United States, later

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 390 John E. Elliott

and more narrowly on the continent). Though political democracy does

not realize its full potential for radical change under capitalist auspices, its
expansion, under the stimulus of the class struggle, does yield pro-labor
legislative reforms that both reduce the distance between capitalism and
communism and thereby make the eventual transition to communism
easier, and that politically educate the working class and enhance its or-
ganization and solidarity and thereby make the transition more likely.
Factory legislation in England, for example, emantes from expanding
working class political agitation, an adroit alliance with the landed aris-
tocracy, and growing recognition by the more progressive members of the
ruling class that extension of the system requires short-run reforms. In
turn, it departs from laissez-faire, stimulates technological progressivity
and larger-scale production, and provides both practical benefits and edu-
cation in political struggle for the working class [Marx 1967, I, chap. 10].
Third, the expansion of science, technology, and automated machinery
and factories dramatically increases labor productivity, reduces the role
of direct, individual, and manual labor (relative to supervisory, social,
and scientific labor) in the production processes, and reduces the amount
of human labor required (though this appears in socially contradictory
forms, notably unemployment) [Marx 1973, pp. 700-709]. Moreover,
moderninzing capitalist technology, by constantly revolutionizing methods
of production and thereby the division of labor, necessitates "universal
mobility" of labor and the cultivation of "varied aptitudes." As a corollary,
educational reforms and provision of technical schools for working class
people become essential.
These ideas concerning intensification of capitalism's contradictions
and conflicts, and its increasing socialization and technological, institu-
tional, and ideological transformation are summarized in Figure 1. Com-
ments on the figure will be incorporated in the next, and concluding, sec-
tion of the article.

Growing Obsolescence of Capitalism's Socio-Institutional Relations

The final element in Marx's transformative scenario concerning late-

stage capitalism is that the very qualitative changes just described, brought
about by capitalism's creative and destructive qualities, by its progressiv-
ity no less than its contradictions and conflicts, and rooted in its underlying
socio-institutional properties, in turn tend toward the obsolescence of
those properties and thereby of capitalism itself.
This is summarized in Figure 1. Focusing first on the righthand side of
the figure we note that industrialization and growth lead to rising organic

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 Marx's Theory of Transformation 391

composition of capital (C/V), new technology (T), expansion of the

credit system, a growth in the scale of enterprise, and elimination of small
business and peasant proprietors. Expanding credit, scale economies, and
bankruptcies generate concentration and centralization of capital (C&C
of K), and thereby monopoly and increasing cyclical severity. The ex-
panding credit system also facilitates development of both corporations
and worker cooperatives. Corporations separate ownership and manage-
ment, create monopolies, and elicit government regulation. Monopoly,
corporations, greater cyclical severity, and expanded government regula-
tion (and social legislation) create a need for planned social coordination
and a tendency toward obsolescence of market exchange processes.
Turning now to the left-hand side of the chart, we observe that ur-
banization, industrialization, and growth bring concentration and cen-
tralization of labor (C&C of L), and extend working class (W.C.) misery,
which are interactive with concentration and centralization of capital,
growing monopoly, and greater cyclical severity. These forces, in turn,
stimulate working class organizations, unions, and political parties, which
enhance working class consciousness, worker cooperatives, and political
democracy, thereby yielding social legislation and educational reforms.
These tendencies extend collective organization and thereby constitute a
trend toward growing obsolescence of private property relations.
Examining the center of the chart, we see that revolutionizing technol-
ogy requires greater adaptability and mobility of labor and thereby neces-
sitates educational reforms. Industrialization, rising organic composition
of capital, and new technology also raise labor productivity (O/L), and
extend automation and scientific labor. These forces, in combination, tend
toward ever-greater obsolescence of the capitalist division of labor and,
indeed, of the capital-labor relation itself. In short, capitalism's socio-
institutional relations, through a complex dialectical process, eventually
cause their own obsolescence.

References

Elliott, John E. 1978-79. "Marx's Grundrisse: Vision of Capitalism's Creative

Destruction," Journal of Post Keynesian Economics (Winter): 148-69.
. 1981. Marx and Engels on Economics, Politics, and Society: Essen-
tial Readings with Editorial Commentary. Santa Monica: Goodyear.
Marx, Karl. 1967. Capital, Vol. I. New York: International Publishers.
. 1967. Capital, Vol. 1II. New York: International Publishers.
. 1973. Grundrisse (Introduction to the Critique of Political Econ-
omy). Translated with Foreword bv Martin Nicholaus. New York: Vintage.
Marx, Karl, and Frederick Engels. 1948. Manifesto of the Communist Party.
New York: International Publishers.

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