Karl Marx born in Germany, has his prominent contribution in the Economic Theories.

Famously known for the book written in 1867 by the name of “Das Kapital” makes Marx
work very eminent in the field of Economics and its basis. Marx earned his doctorate from
Berlin University in Philosophy and was seen as the active member of the extreme leftist
group called the Hegelians; which might have set the image of economic System as per his
leftist understanding. Then getting exiled to London made Marx to study the way the
economic system of Europe worked and then he was able to come up with the famous works.

This report mainly focuses upon the theory of capital accumulation, which according to Marx
is connected with capitalism and its development. The core part of the formation of Capital
development comes from the concept of surplus value and how it relates to profits earned by
Capitalists and the exploitation of labour which results in class struggle within an economy.
Similar to Adam Smith and Ricardo, Marx explains the labour theory of value as the total
labour time required to produce the good. As per Marx labour generates more value and the
equipment along with raw materials does not contribute to any of the value produced. The
value of Labour Power is determined by the contribution of labour into the cost of
production, this cost is expected to be set at the subsistence level. As we have seen that the
wage is set to the subsistence level and labour gives more value product than its cost, this
relationship of labour theory of value and concept of the labour power results in the income
distribution in capitalistic economy.

The minimum wage and the more value put in labour results in the formation of Surplus
which is expropriated by the Capitalists as they own means of production such as capital
equipment, land and raw materials. So, this surplus value forms the profits for the Capitalists.
Marx criticizes this function and states that this extraction of unjustifiable profits from labour
will result into labour exploitation which is only beneficial for Capitalists and this is why
Marx was mostly seen in favour of Socialism over Capitalism. Thus, the share of profits in
the total value of output depends upon the magnitude of surplus value extracted from it. Prof.
Patterson rightly remarks, “The notion of surplus value is crucial to the Marxian theory of
income distribution; surplus value is the source of profits and thus the amount of surplus that
can be expropriated by the capitalist class will determine the relative share of profits in the
income total.” (J, n.d.).
Importantly, the Marxian Analysis revolves around three major elements: Labour Wage
denoted as V, the value of capital which is constant and denoted as C, lastly, surplus value
created by labour denoted as S. Thus Total Value Output = C+V+S

We can further work on this equation and if Y represents the net national output then it will
be equal to the “V+S” which is also equivalent to the Surplus Value. Marx also introduced
the degree of exploitation which is shown the ration of S/V. This ratio shows the exploitation
of labour and its increases and decreases will tell us the profit share fluctuations. Marx has
provided the Profit to be the ratio of Surplus(S) to the total capital (V+C).

P= S/V+C

Marx suggested that the rate of Profit can be attained at higher values if the Surplus generated
is more and this is only possible through maximising exploitation which can be achieved by
higher rates of profits as compared to increase in wages . In addition, Marx also believed that
with economic development and increased use of technology less labour force would be
required causing huge dents in profits which could only be kept up if surplus value increases.
However this, will result in the exhaustion of labour and rise in wages; but it’s because wages
will be kept till the subsistence level instead resulting in “immiseration of workers" causing
social upheaval at the cost of class conflict between the owners and the workers and a decline
in profits.

Now if this surplus value is not reinvested to formulate more capital, capitalism would be at a
stagnant state hence for growth, it is pertinent to utilise the surplus value for gaining more
means of production. As Marx explains, this “employment of surplus-value as capital, or its
reconversion into capital, is called accumulation of capital” (Boothe, 2014). Implying the
creation of a vicious cycle where money makes more money. And here we see primitive
accumulation (which was either the consequence of bloodbaths and wars resulting into
private ownership or distributed naturally) be converted into the accumulation of capital by
the social production relationships between the owner and the worker. As a consequence we
now see that money is redistributed and circulated in even fewer hands than before as after all
the worker only gains the minimum possible wage to survive (Castel-Branco, 2016).

It was believed by Marx that technological progress is the only sustainable way that the
capitalists could increase their surplus value compared with extending working hours or
increasing work intensity. In order to become more competitive each capitalistic firm would
try to accumulate and reinvest more in order to further increase their surplus value. Resulting
in an overall increase in employees being let go off as well as exploitation of those who are
working while at their expense profit increases. Not only will this serve as an incentive to
cause crises in terms of social relationship conflicts and resentment between worker and
firm, but also crises with in the capitalistic market. As the increase in competition would
either mean dissolution of firms of a relative smaller size into large conglomerates and
monopolies or over accumulation?

As earlier implied with the worsening conditions of the working class who are only paid
enough to survive, it is realised that the demand for the commodities produced also falls.
Which is why we see that the capitalists may suffer huge losses in their attempts to increase
surplus, maximise capital accumulation and in turn invest to gain more. The great depression
is an embodiment of this concept as we see that people had no purchasing power while there
was an excess of goods being produced in masses. Marx was also convinced that eventually
with increased capital accumulation, profits tend to fall. As technological investments are
made, there would eventually come a point where capital would increase at a much faster rate
as compared to the exploitation which is what produces the surplus value and profit (Clarke,
1990/1991).

To summarise we understand that capitalism contained within itself the tendency to collapse
due to how it was formulated. And Marx believed that what initially caused it to flourish
would be the eventual reason why it would inevitably fail.

However, we see that today capitalism dominates the world and what Marx considered to
eventually collapse still prevails opposing Marx's predictions, mainly because the conditions
of the working class improved relatively. Instead of the revolutionary upheaval of a socialist
society that Marx proposed would emerge from advanced capitalistic societies the world saw
the emergence of communism advocating a stateless society and realizing true equality and
freedom and interestingly so, these movements were seen emerging first in societies far less
advanced as well. As Communism became a global movement unfortunately Marx’s vision
failed to materialize instead it became a source of tyranny and reduced its subjects to penury
and slaughtered them in masses. What Marx had predicted or hoped for in terms of his
socialist revolution failed miserably due to gross misinterpretation by leaders like Stalin
(Russia and China).
Still many of Marx’s theories and criticisms have been proven to be accurate. The disparity
between the rich and poor is very evident despite the emergence of new middle classes in
advanced capitalist societies mediating differences, the world again is leading towards
polarity (the slow elimination of the lower middle class). His theory of capital accumulation
is still very much valid as we see that after the 2008 recession caused mainly because of
overproduction of goods and increased debt resulted in staggering increases in
unemployment, causing even more disparity. He also foresaw that capitalism would generate
expansion and contraction economics (post-soviet transition, pesos crisis and financial crisis),
capitalism still leads to the birth of business cycles and despite attempts from other
economists such as Keynes to manipulate it with the help of policies and self-adjusting
mechanisms and deem it essential for sustaining the system (Gurley, 1984). Marx predicted
that capitalism would induce globalisation. And looking for emerging markets and cheaper
labour by outsourcing to other countries was one of its driving factors today. This also further
strengthens Marx’s idea of capitalism dependent on the reserve army of the unemployed to
control wages and profits. He was also right that about the concentration and centralization of
capital as only a few number of firms now have huge market dominance closely behaving
like monopolies (Apple, Microsoft, Amazon, and Google) small firms and start-ups are
increasingly acquired by monopolies and we still see that these firms hold majority of the
means of production resulting in wealth being accumulated in fewer and fewer hands making
the rich getting richer and the poor staying poor. However he was not able to recognise the
ability of capitalism facilitating everybody by making the overall goods cheaper (McElwee,
n.d.). Improving the general conditions of the people this could be attributed to the 600
billion people in China who exited poverty and emerging south East Asian economies. He
also was not able to predict the ability of capitalism to evolve and self-correct itself by
redistributing income through the emergence of welfare states through taxation. Nevertheless
this does not indicate that present capitalism which is predominated by severe polarity and
hazed with financial crises has prevailed.
 References
Boothe, A. (2014, october 31). Marx's Capital: Chapters 23-25 - Accumulation. Retrieved
from Socialist Appeal: https://www.socialist.net/marx-s-capital-chapters-23-25-
accumulation.htm

Castel-Branco, C. ( 2016, November 21). Capital Accumulation and Crisis. Retrieved from
Researchgate:
https://www.researchgate.net/publication/310983775_Capital_Accumulation_and_Cri
sis

Clarke, S. (1990/1991). The Marxist Theory of Overaccumulation and Crisis. Science &
Society, 54(4), 442-467.

J, A. (n.d.). Marx’s Theory of Capitalist Development | Economics. Retrieved from

economicsdiscusion: http://www.economicsdiscussion.net/economic-theories/marxs-
theory/marxs-theory-of-capitalist-development-economics/30173

McElwee, S. (n.d.). Marx Was Right: Five Surprising Ways Karl Marx Predicted 2014.
Retrieved from Rolling Stones : https://www.rollingstone.com/music/music-
news/marx-was-right-five-surprising-ways-karl-marx-predicted-2014-237285/