The Day Capital Became Snowball: Capitalism, 19th Century

The Day Capital Became Snowball: Capitalism, 19th Century

The accumulation of capital proceeds on the basis of a cycle M-C-M' in which money returns to more money via commodities. Unlike C-M-C for mere consumption, the very movement to multiply value becomes the objective, and the more the reinvestment is repeated, the more surplus value is frozen into new capital. The key point here is that the logic of multiplication is not an accident of the market, but is inherent in the circular structure of capital itself.

The progression of accumulation simultaneously promotes concentration, which is an increase in size within individual firms, and centralization, which is the aggregation of ownership through mergers, acquisitions, and the credit system. Marx depicted the process of competition weeding out the weak and concentrating capital in the hands of the winners as inseparable from the relative overpopulation of labor and the rise in efficiency due to mechanization. In the second half of the nineteenth century, these two dynamics accelerated with the maturation of factory-based carpentry, and capital was organized into larger and larger blocks as industry and finance became more closely linked.

Behind this process was an innovation in the legal system. In the United Kingdom, the Limited Liability Act of 1855, which allowed limited liability for ordinary joint stock companies, and the Companies Act of 1862, which established the procedures for incorporation, led to the mass production of joint stock companies as vessels for absorbing capital from a wide range of investors. Limited liability separated the personal assets of investors from corporate liabilities, dramatically facilitating the mobilization of capital.

In the U.S., Standard Oil, a petroleum refiner, controlled 90% of domestic refining in the 1880s and strengthened its control in the form of a trust in 1882. Such massive expansion also led to social protests, leading to the enactment of the Sherman Anti-Trust Act of 1890. The Gilded Age at the end of the nineteenth century was also an era of unprecedented accumulation of capital and the birth of laws to regulate it.

In continental Europe, the German universal bank financed and controlled heavy industry for a long time, and a network of inter-corporate directors was formed to financially support the centralization of capital. This was the core of German-style development in the second half of the nineteenth century, when stock markets and bank credit complemented each other, and determined the speed and scale of industrial restructuring.

In short, the more the cycle of surplus value being converted into capital through reinvestment turned, the more economies of scale, the credit system, and the corporate legal system synergized to create a snowball effect of capital. Capitalism thus tends toward a highly concentrated and centralized order, and the dynamics of society gravitate toward the gravity of a few capital blocs. This historical trend is the real picture of the nineteenth century as depicted in "The Theory of Capital.