Aggregate return on capital (that too over a very long period of time) may be useful for accounting purposes and for general studies, it very much masks the social relationships and interconnections of capital. Hence a little elaboration on this matter will not be out of place.

Capital always exists as many capitals spread over different spheres and different countries giving different returns in the form of profit, interest, dividends, rents, royalties, etc. These capitals are always engaged in conflicts and co-ordinations among themselves. Due to uneven development of different economies/countries, and cross-border flow of capital, capital naturally flows to those sectors and countries where return is relatively high. Since the source of capital’s self-expansion is unpaid labor-time, capital is bound up with the laboring classes. Wages vary in different countries and in different spheres of economy. Labor-power and raw materials are cheap in under-developed and developing countries, and exploitation of cheap labor power and raw materials provides developed capitalist economies super profits. Many of these countries were part of the primitive accumulation of capital under the colonial system, and are still functioning as that source in different forms. Due to discriminatory wages, female work force and child labor generate extra profit for capital under horrible working conditions. Much of women’s productive work still remains unreported or under-reported. Similarly, there are a number of oppressed and depressed communities all over the world who were earlier traded as slaves or worked as serfs, and are still serving as a source of cheap labor – they are also victim of all sorts of racial and caste discriminations. And apart from all these, swindling, scams, tax evasions, theft, etc., continue to be the sources of capital accumulation.

Once we decompose aggregate return on capital, a whole world of inequalities comes out into the open. Data did not discover inequality. Inequality in its different dimensions has been the subject of study since the classical times. Inequality and exploitation have always been a well-known fact of life (‘a naked fact’, as Piketty himself mentions). For formulation of policies and programs, both ruling capitalist class and the oppressed working masses need such serious studies from time to time. Their importance cannot be underestimated.

Despite limited resources at their hands, some pioneering surveys and studies regarding horrible working conditions of male, female and child workers in different sectors of industrial economy were made in the very first half of the nineteenth century itself.

  • In 1815, while traveling in England, economist J B Say (1767-1832) declared that a worker with a family, despite efforts often of an heroic character, could not gain more than three quarters and sometimes only a half of what was needed for his upkeep.
  • In 1819, in the wake of speeches and publications of Robert Owen (1771-1857), an Act of Parliament was passed in the United Kingdom limiting the hours of work of children in cotton factories. “Robert Owen, soon after 1810, not only maintained the necessity of a limitation of the working-day in theory, but actually introduced the 10 hours’ day into his factory at New Lanark. This was laughed at as a communist Utopia; so were his ‘Combination of children’s education with productive labor’ and the Co-operative Societies of workingmen, first called into being by him. To-day, the first Utopia is a Factory Act, the second figures as an official phrase in all Factory Acts, the third is already being used as a cloak for reactionary humbug.”1
  • In 1835, Andrew Ure (‘Philosophy of Manufactures’) reckoned that in the manufacture of cotton, wool, linen, and silk in England there were employed 4,800 boys and 5,308 girls below 11 years of age, 67,000 boys and 89,000 girls between 11 and 18 years of age, and 88,000 men and 1,02,000 women above 18 years.
  • In 1840, in France, the great work of Dr Villermé (Piketty mentions his work) provided a complete description of the heart-rending life of the workers and martyrdom of their children. ‘In some establishments of Normandy, the thong used for the punishment of children in the spinner’s trade appears as an instrument of production.’
  • In 1845, Frederich Engels (1820-1895) published his ‘Die Lage der arbeitenden Klasse in England’ (Leipzig, ‘The Condition of the Working-Class in England’). In 1842, he settled in Manchester, the center of British industry, and entered the service of a commercial firm of which his father was a shareholder. ‘Here he wandered about the slums in which the workers were cooped up, and saw their poverty and misery with his own eyes. Apart from his personal observations, he read all that had been revealed before him on the condition of the British working class and carefully studied all the official documents he could get.’ This book was the result of these studies and observations. ‘How completely Engels understood the nature of the capitalist mode of production is shown by the Factory Reports, Reports on Mines, &c., that have appeared since 1845, and how wonderfully he painted the circumstances in detail is seen on the most superficial comparisons of his work with the official reports of the Children’s Employment Commission, published 18 to 20 years later (1863-1867). Here, then, little or no alteration had been enforced, by authority, in the conditions painted by Engels. I borrow my examples chiefly from the Free-trade period after 1848, that age of paradise, of which the commercial travelers for the great firm of Free-trade, blatant as ignorant, tell such fabulous tales. ..2

Contradictions inherent in this social relationship (i.e. capital) began to manifest in the early stage of capitalist development. Here is a summary of these manifestations, mainly from French and European history (supplemented with Marx’s brief observations).


This contradiction often led to trade wars and national/colonial wars throughout the eighteenth and nineteenth centuries, and to two world wars, and a host of local wars in the twentieth century. (Twenty-First Century is no exception in this regard.) One can collect the data on these wars and can calculate the immense loss of human lives and capital-values.

About a decade after the French Revolution (1789-1794), Napoleon I proclaimed in 1806 the Continental System and forbade the countries of the continental Europe to trade with Great Britain. The countries that participated in the Continental System were Spain, the Kingdom of Naples, The Netherlands, Prussia, Denmark, Russia, Austria and others. In retaliation, through a number of royal decrees of 1807, Britain ordered neutral countries to cease all trade with France and the states that joined the Continental System in order to strengthen the naval blockade of France and to deprive her of access to colonial goods.

Since then up to the current Doha round of the WTO negotiations, one can find a series of trade conflicts and co-ordinations, protectionism, sanctions and commercial wars during the last three centuries. Even a brief description of the series of wars – local, national and world wars – is out of question in this critique.


This contradiction too manifested itself in the initial years of the French Revolution. “During the very first storms of the revolution, the French bourgeoisie dare to take away from the workers the right of association but just acquired. By a decree of June 14, 1791, they declared all coalition of the workers as ‘an attempt against liberty and the declaration of the rights of man’, punishable by a fine of 500 livres, together with deprivation of the rights of an active citizen for one year.”3 The July Revolution of 1830 was followed by workers’ insurrection in Lyons (1831), and the February 1848 Revolution by the June insurrection of workers. And it was the Paris workers’ revolution of September 4, 1870 that led to the collapse of the Second Empire of Napoleon III like a house of cards and the republic was again proclaimed (the Paris Commune, 4 September, 1870 to 28 May, 1871). In the wake of the declaration of the Paris Commune, workers in Lyons, Marseilles and Toulouse staged revolutionary armed uprisings and set up communes in their respective cities.

Workers became a formidable political force in various European countries in the second half of nineteenth century under the leadership of various Social-Democratic and Socialist Parties. Here we cannot go into that history.

Six years before the outbreak of the world economic crisis of 1974-75 (and almost three years before the birth of Thomas Piketty), Paris students and workers revolted against the Keynesian economy of the post-war years, what they termed as bureaucrat capitalism. Actually the ‘Occupy movement’ owes its origin to this very Paris student revolt of May, 1968. It had a very modest beginning on March 22, 1968, when, following the arrest of six militants of the National Vietnam Committee, a crowd of students assembled quite spontaneously for a protest at Nanterre and decided to ‘occupy’ the administrative building. The movement that began with around 142 students only, soon swept across different cities of France and joined by hundred thousands of students and workers. Sorbonne was occupied, and on 14 May, workers occupied the Sud-Aviation Works in Nantes. This Occupy Movement spread rapidly and spontaneously – a host of other factories fell to the workers.4

A few years after the Great Recession of 2008-09, this occupy movement resurfaced in the United States, this time not against the Keynesian economy but against the neo-liberal supply-side economy.

No need to say that all these workers’ movements were suppressed brutally and drowned in blood claiming the lives of hundred thousands of workers.


This contradiction surfaced just after the ‘Declaration of the Rights of Man and the Citizen (1789)’ during the French Revolution. It is well-known that Mary Wollstonecraft (1759-1797) wrote his classic ‘A Vindication of the Rights of Woman’ (1792) in response to Charles Maurice de Talleyrand-Périgord’s 1791 report to the French National Assembly which stated that women should only receive a domestic education. Wollstonecraft forcefully asserted that women were not naturally inferior to men, that they should be treated as rational beings, and that men-woman equality can be realized only in a social order founded on reason.

In a letter to Kugelmann (December 12, 1868), Marx wrote, “Very great progress was demonstrated at the last Congress of the American Labor Union, inter alia, by the fact that it treated the women workers with full parity; by contrast, the English and to an even greater extent the gallant French, are displaying a marked narrowness of spirit in this respect. Everyone who knows anything of history also knows that great social revolutions are impossible without the feminine ferment. Social progress may be measured precisely by the social position of the fair sex (plain ones included). Ms Harriet Law (1832-1897), a leading figure in the atheist movement in England, was the first woman member of the General Council of the International Working Men’s Association (from June 1867 to 1872). She was also the member of the Manchester Section of the International (1872).5

Here, of course, there is no scope to go into the history of women’s movement during the last two centuries which has now (from the question of working hours, wage discrimination, voting rights, etc.) penetrated into all aspects of our life.


By the time of the French Revolution, France was already a pre-eminent colonial power along with Britain and Holland. These colonial capitalist powers indulged in a flourishing slave trade. At the time of ‘Declaration of the Rights of Man and Citizen’, there were in the English West Indies ten slaves for one free man, in the French fourteen for one, in the Dutch twenty-three for one.6 No wonder, the nascent revolutionary French Republic had to, first of all, face a formidable slave as well as national revolt in Haiti (earlier the French colony of Saint Domingue). The rebellion began with a revolt of African slaves in April 1791 and ended in November 1803 with the French defeat at the battle of Vertières. The Haitian Revolution (1791-1804) was the only slave revolt which led to the founding of a state – Haiti became an independent Republic on January 1, 1804. This revolt also culminated in the elimination of slavery – on February 4, 1794, the French Convention, in the background of this revolt, under the leadership of Maximiliēn Robespierre voted for the abolition of slavery.

Many western economists (Piketty including) still very much undermine the role of loot and plunder of colonial wealth in the making of capital.

Marx hailed the 1857 revolt in India as the ‘First War of Independence’, and on the Irish question, he, in a letter to Meyer and Vogt (April 9, 1870), wrote, “It is the task of the ‘International’ to bring the conflict between England and Ireland to the forefront everywhere, and to side with Ireland publicly everywhere. The special task of the Central Council in London is to awaken the consciousness of the English working class that, for them, the national emancipation of Ireland is not a question of abstract justice or humanitarian sentiment, but the first condition of their own social emancipation.”7


Contradiction between socialized capital and privatized profit: As we have already seen, accumulation of capital has been marked by periodic cycle of crisis claiming heavy cost in human beings and capital values. Piketty avoided delving into the history of the periodic cycle of crisis – although data on this score would have provided him with greater insight into the working and movement of capitalist economy.

The periodic cycle of crisis too began in the early decades of the 19th century, just after the end of the Napoleonic Wars and restoration of the Bourbons in France. In 1815, the first crisis shook the English market, throwing a number of workers on to the street and resulting in riots and machine-breaking. During the war period, the English manufacturers were forced to accumulate the stocks which they could not export, so that on the return of peace their supplies far exceeded the demands of the Continent. In 1818, a new commercial panic, followed by fresh riots, again paralyzed the English market. But the more serious crisis of 1825 was caused by the extensive credit given to the newly opened markets of South America, led to the failure of about 70 English provincial banks, bringing much ruin in its train, as well as a shock to several neighboring countries. Since then, during the whole of 19th, 20th and to the early decade of our own 21st century, similar phenomena have recurred with striking regularity, involving ruin to ever-widening areas – world crisis of 1857, Great Depression of 1929, world economic crisis (stagflation) of 1974-75, Great Recession of 2008-09 being some of the well-known milestones.

Regarding the growth of productivity, Marx, analyzing the commercial cycle of 1837 to 1847, and of 1847 to 1857, summed up his observations as follows (Mr Piketty should note): “The law is this – that if, by over-production and over-speculation, a crisis has been brought about, still the productive powers of the nation and the faculty of absorption on the market of the world, have, in the meantime, so much expanded, that they will only temporarily recede from the highest point reached, and that after some oscillations spreading over some years, the scale of production which marked the highest point of prosperity in one period of the commercial cycle, becomes the starting point of the subsequent period. ..”8

Further, regarding pauperism during the decennial epoch of 1849-1858, Marx observes, “The stationary million of English paupers is diminished only by 26,233 individuals. If we compare the years 1853, it has even increased by 109,364. There must be something rotten in the very core of a social system which increases its wealth without diminishing its misery. ..”9


Property is not theft, but theft, fraud, scams, etc. have always been part of capital accumulation. Again we can go into the history of fraud in France itself.

In 1716, a Scottish economist and financier John Law founded a private bank with the backing of French ruling circles, which was turned into a state bank. In 1720, Law was appointed Controller General of Finance. He withdrew metallic money from circulation and supported various speculative undertakings such as the opening of shady trading companies, the issue of fictitious shares, etc. All these activities finally culminated, at the end of 1720, in the final collapse of the bank and ‘Law’s system’.

In 1852, the Péreire brothers founded a joint-stock bank, ‘Société générale du Crédit mobilier’. It was notorious for its speculation. Closely linked with and enjoying the protection of Napoleon III’s government, the Crédit mobilier took an active part in building railways and setting up industrial enterprises. It went bankrupt in 1867.10

From Law’s bank in the 18th century to Crédit mobilier in the 19th century to Lehman Brothers and Rajat Gupta’s insider trading – fraud has been an integral part of capital all over the world during the last three centuries.

Above description (although very, very brief), I hope, brings out the social relationships bound up with capital, contradictions inherent in these relationships, and general features of capital accumulation, along with Marx’s brief observations on these points. Needless to say that this line of reasoning necessitates different set of data.

All these contradictions and features of capitalist economy, in different forms are still in operation – capitalist mode of production is incapable of resolving them. One can see some improvements; but, apart from technological factors and demands of capital accumulation itself, the main reason behind these improvements lies in popular movements and revolutions –  in workers’, women’s and oppressed masses’/communities’ innumerable movements, communist/socialist revolutions, national liberation movements and popular insurrections all over the world during the last two centuries.

However, in times of crisis, the ruling classes still try to snatch or curb the democratic rights and entitlements that the working masses have earned through protracted struggles and immense sacrifices. It has well been witnessed during recent popular movements and agitations.

These improvements, as we have noted earlier, do not necessarily signify decrease in inequality. Granting short-term fluctuations and regional specificities, they may as well indicate rise in inequality. Piketty’s data confirms this.

Before moving to the next topic, two things need to be clarified. During the period 1870-1900, due to the rise in wages, Piketty sees a comparable decrease in capital’s share. He misses following points:

  1. It was the heyday of colonialism. Partition of Africa was finalized in the Berlin Conference of 1884. Except Abyssinia (Ethiopia) and Liberia, entire Africa was divided among colonial European powers.
  2. It was also the period of second industrial revolution. Here, one example will be sufficient. Before the introduction of the Bessemer process, which makes steel from molten pig iron, there were hundreds of blast furnaces in the US. None produced more than 1 to 2 per cent of national output. With the diffusion of the Bessemer process, manufacturers were forced to increase scale. As a result, by 1880, the entire production of Bessemer steel came from just thirteen plants.11 Between 1869 to 1899, capital invested in the US nearly tripled in constant dollars. Total annual factor productivity (TFR) growth12, which had held steady at about 0.3% in the US throughout much of the 19th century, rose to 1.7% between 1889 and 1919. These unprecedented increase in industrial growth have been called the second industrial revolution.13
  • One of the features of this period was concentration and centralization of capital, resulting in the rise of monopolies. A classic example of such a monopoly firm was John D Rockefeller’s Standard Oil trust, formed in 1882 out of a previously loose alliance of the major kerosene producers and refiners. The alliance already held a monopoly and controlled over 90% of American refineries and pipelines. It was a way of centralizing control through ownership so that economics of scale could be realized. Refineries were shut, others reorganized, and new ones opened so that all the oil could be forced to pass through a few large refineries. While the average refinery in 1880 had a daily capacity of 1500 to 2000 barrels of kerosene, Rockefeller plants had a capacity of 5,000 to 6,500 barrels of kerosene. And in 1886, the trust chose to build a plant in Lima, Ohio, that could process 36,000 barrels a day! So while the cost of production for plants of average size in 1885 was 1.5 cents per gallon, Standard Oil’s cost was only 0.45 cent per gallon.14
  1. Working class movements in Europe gathered momentum and became a formidable force during this period. A part of colonial and monopoly super profits trickled down to workers of advanced capitalist countries, giving rise to the so-called labor aristocracy.

Piketty remembers Eduard Bernstein and his preparedness to become vice-president of the Reichstag, but forgets these vital developments and facts. In totality, this period marked a rise in global inequality.

Similarly, the period 1945-75 christened the Trente Glorieuses, was neither glorious nor peaceful. This period has in its background massive destruction of the Second World War (including the nuclear holocaust of Hiroshima and Nagasaki). And throughout this period, local wars from Korea to Congo, from Middle East to Vietnam, brutal suppression of national popular movements, CIA-sponsored regime changes, etc., continued unabated claiming millions of human lives.


Marx’s theory regarding the ‘tendency of general rate of profit to fall’ is linked with his concept of the ‘organic composition of capital’. “The composition of capital is to be understood in a two-fold 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 labor-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 labor-power. This latter composition is determined by the relation between the mass of the means of production employed, on the one hand, and the mass of labor 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, its organic composition is always understood.”15

“The progressive tendency of the general rate of profit to fall is just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labor. This does not mean to say that the rate of profit may not fall temporarily for other reasons. But proceeding from the nature of the capitalist mode of production, it is thereby proved a logical necessity that in its development the general average rate of surplus-value must express itself in a falling general rate of profit. Since the mass of the employed living labor is continually on the decline as compared to the mass of materialized labor set in motion by it, i.e., to the productively consumed means of production, it follows that the portion of living labor, unpaid and congealed in surplus-value, must also be continually on the decrease compared to the amount of value represented by the invested total capital. Since the ratio of the mass of surplus value to the value of the invested total capital forms the rate of profit, this rate must constantly fall. ..

The law that a fall in the rate of profit due to the development of productiveness is accompanied by an increase in the mass of profit, also expresses itself in the fact that a fall in the price of commodities produced by a capital is accompanied by a relative increase of the masses of profit contained in them and realized by their sale. ..

If we consider the enormous development of the productive forces of social labor in the last 30 years alone as compared with all preceding periods; if we consider, in particular, the enormous mass of fixed capital, aside from the actual machinery, which goes into the process of social production as a whole, then the difficulty which has hitherto troubled the economist, namely to explain the falling rate of profit, gives place to its opposite, namely to explain why this fall is not greater and more rapid. There must be some counteracting influences at work, which cross and annul the effect of the general law, and which give it merely the CHARACTERISTIC OF A TENDENCY, for which reason we have referred to the fall of the general rate of profit as a tendency to fall. ..

The following are the most general counter-balancing forces: i. Increasing intensity of exploitation; ii. Depression of wages below the value of labor-power; iii. Relative over-population; iv. Foreign trade (Is the general rate of profit raised by the higher rate of profit produced by capital invested in foreign and particularly colonial trade?); and v. Increase of the stock capital. .. The foregoing five points may still be supplemented by the following. .. With the progress of capitalist production, which goes hand in hand with accelerated accumulation, a portion of capital is calculated and applied only as interest-bearing capital. .. A fall in the rate of profit intensifies competitive struggle among capitalists, and hastens the concentration and centralization of capital through expropriation of minor capitalists. ..”16

I think, no further explanation is required in this regard.


  1. Marx, Karl; ‘Capital’, Volume I (details already mentioned in previous notes).
  2. Ibid. See also V I Lenin’s article ‘Marx-Engels’.
  3. Ibid.
  4. Cohen-Bendit, Daniel and Cohen-Bendit, Gabriel; ‘Obsolete Communism: The Left-Wing Alternative’, Andre Deutsch, London, 1968. Translated by Arnold Pomerans.
  5. Marx to Kugelmann, December 12, 1868. Marx-Engels Collected Works, Volume 29.
  6. Marx, ‘Capital’, Volume I.
  7. Marx to Meyer and Vogt, April 9, 1870. Marx-Engels Collected Works, Volume 29.
  8. Marx; ‘Manufactures and Commerce’, London, September 5, 1859. Marx-Engels Collected Works, Volume 16.
  9. Marx, ‘Crime and Pauperism’, London, August 23, 1859. Marx-Engels Collected Works, Volume 16.
  10. Marx-Engels Collected Works, Volume 29.
  11. Rajan, Raghuram and Zingales, Luigi; ‘Saving Capitalism from the Capitalists’, Crown Business, New York, 2003.
  12. Total Factor Productivity: It is a component of growth in the value of goods and services produced by an economy that is left over after accounting for the increased use of capital and labor. It is based on the theory of marginal productivity. TFP of any entity is the difference between what it produces and what it uses as inputs. For a country, output is gross domestic product (GDP) while inputs are the capital used, employed labor, the skill level of the employed labor, etc. For the past three decades the Centre for the International Comparisons of Production, Income and Prices at the University of Pennsylvania has been compiling internationally comparable data for a number of countries. Its latest data release is the PWT 8.0, which was released recently. For India, the data is as follows: Between 1960 and 1991, the economy grew at an average annual rate of 4.3%. This growth rate rose to 6.8% between 1991 and 2011. Correspondingly, TFP growth in India which averaged 0.65% a year between 1960 and 1991 almost tripled to 1.64% between 1991 and 2011. Put differently, while TFP growth accounted for about 15% of annual GDP growth during 1960-1991, it accounted for 24% of the higher GDP growth during 1991-2011. (The Times of India, May 7, 2014; article by Amartya Lahiri.)
  13. Rajan, Raghuram and Zingales, Luigi; ‘Saving Capitalism from the Capitalists’, Crown Business, New York, 2003.
  14. Ibid.
  15. Marx, ‘Capital’, Volume I. Marx: “I must remind the reader that the categories, ‘variable and constant capital’, were first used by me. Political Economy since the time of Adam Smith has confusedly mixed up the essential distinctions involved in these categories, with the mere formal differences, arising out of the process of circulation, of fixed and circulating capital.” The rate of profit [s/(c+v)] is always less than the rate of surplus value [s/v]. Where the organic composition c/v is 50/100, a rate of surplus value of 100% is expressed in a rate of profit of 662/3%, and at a higher stage, where c/v is 400/100, the same rate of surplus value is expressed in a rate of profit of only 20%. What is true of different successive stages of development in one country, is also true of different co-existing stages of development in different countries. In an underdeveloped country, in which the former composition of capital is the average, the general rate of profit would = 662/3%, while in a country with the latter composition and a much higher stage of development, it would = 20%.
  16. Marx, ‘Capital’, Volume III.

[This critique is divided in eight parts, tentatively titled as: i. Apocalypse and Exuberance; ii. Data and Dialectics; iii. Capital Social and Self-Expanding; iv. Wealth Inherited and Created; v. Century Twentieth and Twenty-First; vi. Yes Marx No Marx; vii. London Chicago Paris; and viii. Thank You Mr Piketty.]

August, 2014.




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