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Monopoly Capitalism

This essay is from The New Palgrave Dictionary of Economics, edited by John Eatwell, Murray Milgate, and Peter Newman, copyright © 1987 by Palgrave Macmillan and reprinted with their permission.

Among Marxian economists “monopoly capitalism” is the term widely used to denote the stage of capitalism which dates from approximately the last quarter of the nineteenth century and reaches full maturity in the period after the Second World War. Marx’s Capital, like classical political economy from Adam Smith to John Stuart Mill, was based on the assumption that all commodities are produced by industries consisting of many firms, or capitals in Marx’s terminology, each accounting for a negligible fraction of total output and all responding to the price and profit signals generated by impersonal market forces. Unlike the classical economists, however, Marx recognized that such an economy was inherently unstable and impermanent. The way to succeed in a competitive market is to cut costs and expand production, a process which requires incessant accumulation of capital in ever new technological and organizational forms. In Marx’s words: “The battle of competition is fought by cheapening of commodities. The cheapness of commodities depends, ceteris paribus, on the productiveness of labor, and this again on the scale of production. Therefore the larger capitals beat the smaller.” Further, the credit system which “begins as a modest helper of accumulation” soon “becomes a new and formidable weapon in the competition in the competitive struggle, and finally it transforms itself into an immense social mechanism for the centralization of capitals” (Marx, 1894, ch. 27).

There is thus no doubt that Marx and Engels believed capitalism had reached a turning point. In this view, however, the end of the competitive era marked not the beginning of a new stage of capitalism but rather the beginning of a transition to the new mode of production that would take the place of capitalism. It was only somewhat later, when it became clear that capitalism was far from on its last legs that Marx’s followers, recognizing that a new stage had actually arrived, undertook to analyze its main features and what might be implied for capitalism’s “laws of motion.”

The pioneer in this endeavor was the Austrian Marxist Rudolf Hilferding whose magnum opus Das Finanzkapital appeared in 1910. A forerunner was the American economist Thorstein Veblen, whose book The Theory of Business Enterprise (1904) dealt with many of the same problems as Hilferding’s: corporation finance, the role of banks in the concentration of capital, etc. Veblen’s work, however, was apparently unknown to Hilferding, and neither author had a significant impact on mainstream economic thought in the English-speaking world, where the emergence of corporations and related new forms of business activity and organization, though the subject of a vast descriptive literature, was almost entirely ignored in the dominant neoclassical orthodoxy.

In Marxist circles, however, Hilferding’s work was hailed as a breakthrough, and its pre-eminent place in the Marxist tradition was assured when Lenin strongly endorsed it at the beginning of his lmperialism, The Highest Stage of Capitalism. “In 1910,” Lenin wrote, “there appeared in Vienna the work of the Austrian Marxist, Rudolf Hilferding, Finance Capital….This work gives a very valuable theoretical analysis of ‘the 1atest phase of capitalist development,’ the subtitle of the book.”

As far as economic theory in the narrow sense is concerned, Lenin added little to Finance Capital, and in retrospect it is evident that Hilferding himself was not successful in integrating the new phenomena of capitalist development into the core of Marx’s theoretical structure (value, surplus value and above all the process of capital accumulation). In chapter 15 of his book (“Price Determination in the Capitalist Monopoly, Historical Tendency of Finance Capital”) Hilferding, in seeking to deal with some of these problems, came up with a very striking conclusion which has been associated with his name ever since. Prices under conditions of monopoly, he thought, are indeterminate and hence unstable. Whenever concentration enables capitalists to achieve higher than average profits, suppliers and customers are put under pressure to create counter combinations which wiI1 enable them to appropriate part of the extra profits for themselves. Thus monopoly spreads in all directions from every point of origin. The question then arises as to the limits of “cartellization” (the term is used synonymously with monopolization). Hilferding answers:

The answer to this question must be that there is no absolute limit to cartellization. What exists rather is a tendency to the continuous spread of cartellization. Independent industries, as we have seen, fall more and more under the sway of the cartellized ones, ending up finally by being annexed by the cartellized ones. The result of this process is then a general cartel. The entire capitalist production is consciously controlled from one center which determines the amount of production in all its spheres….It is the consciously controlled society in antagonistic form.

There is more about this vision of a future totally monopolized society, but it need not detain us. Three quarters of a century of monopoly capitalist history has shown that while the tendency to concentration is strong and persistent, it is by no means as ubiquitous and overwhelming as Hilferding imagined. There are powerful counter-tendencies—the breakup of existing firms and the founding of new ones—which have been strong enough to prevent the formation of anything even remotely approaching Hilferding’s general cartel.

The first signs of important new departures in Marxist economic thinking began to appear toward the end of the interwar years, i.e., the 1920s and 1930s; but on the whole this was a period in which Lenin’s Imperialism was accepted as the last word on monopoly capitalism, and the rigid orthodoxy of Stalinism discouraged attempts to explore changing developments in the structure and functioning of contemporary capitalist economies. Meanwhile, academic economists in the West finally got around to analyzing monopolistic and imperfectly competitive markets (especially Edward Chamberlin and Joan Robinson), but for a long time these efforts were confined to the level of individual firms and industries. The so-ca1led Keynesian revolution which transformed macroeconomic theory in the 1930s was largely untouched by these advances in the theory of markets, continuing to rely on the time-honored assumption of atomistic competition.

The 1940s and 1950s witnessed the emergence of new trends of thought within the general framework of Marxian economics. These had their roots on the one hand in Marx’s theory of concentration and centralization which, as we have seen, was further developed by Hilferding and Lenin; and on the other hand in Marx’s famous Reproduction Schemes presented and analyzed in volume 2 of Capital, which were the focal point of a prolonged debate on the nature of capitalist crisis involving many of the leading Marxist theorists of the period between Engels’s death (1895) and the First World War. Credit for the first attempt to knot these two strands of thought into an elaborated version of Marxian accumulation theory goes to Michal Kalecki, whose published works in Polish in the early 1930s articulated, according to Joan Robinson and others, the main tenets of the contemporaneous Keynesian revolution in the West. Kalecki had been introduced to economics through the works of Marx and the great Polish Marxist Rosa Luxemburg, and he was consequently free of the inhibitions and preconceptions that went with a training in neoclassical economics. He moved to England in the mid-1930s, entering into the intense discussions and debates of the period and making his own distinctive contributions along the lines of his previous work and that of Keynes and his followers at Cambridge, Oxford and the London School of Economics. In April 1938 Kalecki published an article in Econometrica (“The Distribution of the National Income”) which highlighted differences between his approach and that of Keynes, especially with respect to two crucially important and closely related subjects, namely, the class distribution of income and the role of monopoly. With respect to monopoly, Kalecki stated at the end of the article a position which had deep roots in his thinking and would henceforth be central to his theoretical work:

The results arrived at in this essay have a more general aspect. A world in which the degree of monopoly determines the distribution of the national income is a world far removed from the pattern of free competition. Monopoly appears to be deeply rooted in the nature of the capitalist system: free competition, as an assumption, may be useful in the first stage of certain investigations, but as a description of the normal stage of capitalist economy it is merely a myth.

A further step in the direction of integrating the two strands of Marx’s thought—concentration and centralization on the one hand and crisis theory on the other—was marked by the publication in 1942 of The Theory of Capitalist Development by Paul M. Sweezy, which contained a fairly comprehensive review of the prewar history of Marxist economics and at the same time made explanatory use of concepts introduced into mainstream monopoly and oligopoly theory during the preceding decade. This book, soon translated into several foreign languages, had a significant effect in systematizing the study and interpretation of Marxian economic theory.

It should not be supposed, however, that these new departures were altogether a matter of theoretical speculation. Of equal if not greater importance were the changes in the structure and functioning of capitalism which had emerged during the 1920s and 1930s. On the one hand the decline in competition which began in the late nineteenth century proceeded at an accelerated pace—as chronicled in the classic study by Arthur R. Burns, The Decline of Competition: A Study of the Evolution of American Industry (1936)—and on the other hand the unprecedented severity of the depression of the 1930s provided dramatic proof of the inadequacy of conventional business cycle theories. The Keynesian revolution was a partial answer to this challenge, but the renewed upsurge of the advanced capitalist economies during and after the war cut short further development of critical analysis among mainstream economists, and it was left to Marxists to carry on along the lines that had been pioneered by Kalecki before the war.

Kalecki spent the war years at the Oxford Institute of Statistics whose director, A. L. Bowley, had brought together a distinguished group of scholars, most of them émigrés from occupied Europe. Among the latter was Josef Steindl, a young Austrian economist who came under the influence of Kalecki and followed in his footsteps. Later on, Steindl (1985) recounted the following:

On one occasion I talked with Kalecki about the crisis of capitalism. We both, as well as most socialists, took it for granted that capitalism was threatened by a crisis of existence, and we regarded the stagnation of the 1930s as a symptom of such a major crisis. But Kalecki found the reasons, given by Marx, why such a crisis should develop, unconvincing; at the same time he did not have an explanation of his own. I still do not know, he said, why there should be a crisis of capitalism, and he added: Could it have anything to do with monopoly? He subsequently suggested to me and to the Institute, before he left England, that I should work on this problem. It was a very Marxian problem, but my methods of dealing with it were Kaleckian.

Steindl’s work on this subject was completed in 1949 and published in 1952 under the title Maturity and Stagnation in American Capitalism. While little noticed by the economics profession at the time of its publication, this book nevertheless provided a crucial link between the experiences, empirical as well as theoretical, of the 1930s, and the development of a relatively rounded theory of monopoly capitalism in the 1950s and 1960s, a process which received renewed impetus from the return of stagnation to American (and global) capitalism during the 1970s and 1980s.

The next major work in the direct line from Marx through Kalecki and Steindl was Paul Baran’s book, The Political Economy of Growth (1957), which presented a theory of the dynamics of monopoly capitalism and opened up a new perspective on the nature of the interaction between developed and underdeveloped capitalist societies. This was followed by the joint work of Baran and Sweezy, Monopoly Capital: An Essay on the American Economic and Social Order (1966), incorporating ideas from both of their earlier works and attempting to elucidate, in the words of their introduction, the “mechanism linking the foundation of society (under monopoly capitalism) with what Marxists call its political, cultural, and ideological superstructure.” Their effort however, still fell short of a comprehensive theory of monopoly capitalism since it neglected “a subject which occupies a central place in Marx’s study of capitalism,” that is, a systematic inquiry into “the consequences which the particular kinds of technological change characteristic of the monopoly capitalist period have had for the nature of work, the composition (and differentiation) of the working class, the psychology of workers, the forms of working-class organization and struggle, and so on.” A pioneering effort to fill this gap in the theory of monopoly capitalism was taken by Harry Braverman a few years later (Braverman, 1974) which in turn did much to stimulate renewed research into changing trends in work processes and labor relations in the late twentieth century.

Marx wrote in the preface to the first edition of volume I of Capital that “it is the ultimate aim of this work to lay bare the economic law of motion of modern society.” What emerged, running like a red thread through the whole work, could perhaps better be called a theory of the accumulation of capital. In what respect, if at all, can it be said that latter-day theories of monopoly capitalism modify or add to Marx’s analysis of the accumulation process?

As far as form is concerned, the theory remains basically unchanged, and modifications in content are in the direction of putting even greater emphasis on certain tendencies already demonstrated by Marx to be inherent in the accumulation process. This is true of concentration and centralization, and even more spectacularly so of the role of what Marx called the credit system, now grown to monstrous proportions compared to the small beginnings of his day. In addition, and perhaps most important, the new theories seek to demonstrate that monopoly capitalism is more prone than its competitive predecessor to generating unsustainable rates of accumulation, leading to crises, depressions and prolonged periods of stagnation.

The reasoning here follows a line of thought which recurs in Marx’s writings, especially in the unfinished later volumes of Capital (including Theories of Surplus Value); individual capitalists always strive to increase their accumulation to the maximum extent possible and without regard for the ultimate overall effect on the demand for the increasing output of the economy’s expanding capacity to produce. Marx summed this up in the well-known formula that “the real barrier to capitalist production is capital itself.” The upshot of the new theories is that the widespread introduction of monopoly raises this barrier still higher. It does this in three ways.

(1) Monopolistic organization gives capital an advantage in its struggle with labor, hence tends to raise the rate of surplus value and to make possible a higher rate of accumulation.

(2) With monopoly (or oligopoly) prices replacing competitive prices, a uniform rate of profit gives way to a hierarchy of profit rates—highest in the most concentrated industries, lowest in the most competitive. This means that the distribution of surplus value is skewed in favor of the larger units of capital which characteristically accumulate a greater proportion of their profits than smaller units of capital, once again making possible a higher rate of accumulation.

(3) On the demand side of the accumulation equation, monopolistic industries adopt a policy of slowing down and carefully regulating the expansion of productive capacity in order to maintain their higher rates of profit.

Translated into the language of Keynesian macro theory, these consequences of monopoly mean that the savings potential of the system is increased, while the opportunities for profitable investment are reduced. Other things being equal, therefore the level of income and employment under monopoly capitalism is lower than it would be in a more competitive environment.

To convert this insight into a dynamic theory, it is necessary to see monopolization (the concentration and centralization of capital) as an ongoing historical process. At the beginning of the transition from the competitive to the monopolistic stage, the accumulation process is only minimally affected. But with the passage of time the impact grows and tends sooner or later to become a crucial factor in the functioning of the system. This, according to monopoly capitalist theory, accounts for the prolonged stagnation of the 1930s as well as for the return of stagnation in the 1970s and 1980s following the exhaustion of the long boom caused by the Second World War and its multifaceted aftermath effects.

Neither mainstream economics nor traditional Marxian theory have been able to offer a satisfactory explanation of the stagnation phenomenon which has loomed increasingly large in the history of the capitalist world during the twentieth century. It is thus the distinctive contribution of monopoly capitalist theory to have tackled this problem head on and in the process to have generated a rich body of literature which draws on and adds to the work of the great economic thinkers of the last 150 years. A representative sampling of this literature, together with editorial introductions and interpretations, is contained in Foster and Szlajfer (1984).


Baran, P. A.The Political Economy of Growth. New York: Monthly Review Press, 1957.

Baran, P. A. and Sweezy, P. M. Monopoly Capital: An Essay on the American Economic and Social Order. New York: Monthly Review Press, 1966.

Braverman, H. Labor and Monopoly Capital: The Degradation of Work In the Twentieth Century. New York: Monthly Review Press, 1974.

Burns, A. R. The Decline of Competition: A Study of the Evolution of American Industry. New York: McGraw-Hill, 1936.

Foster, J. B. and Szlajfer, H., eds. The Faltering Economy: The Problem of Accumulation Under Monopoly Capitalism. New York: Monthly Review Press, 1984.

Hilferding, R. Das Finanzkapital (1910) Trans. M. Watnick and S. Gordon as Finance Capital, ed. T. Bottomore. London: Routledge & Kegan Paul, 1981.

Ka1ecki, M. “The Distribution of the National Income,” Econometrica, April 1938.

Lenin, V. I. Imperialism, The Highest State of Capita1ism. 1917.

Marx, K. Capital. Vol. 1. Moscow: Progress Publishers, 1867.

Marx, K. Capital. Vol. 2. Moscow: Progress Publishers, 1885.

Marx, K. Capital. Vol. 3. Moscow: Progress Publishers, 1894.

Steindl, J. Maturity and Stagnation in American Capitalism. Oxford: Blackwell, 1952.

Steindl, J. “The Present State of Economics,” Monthly Review, February 1985.

Sweezy, P. M. The Theory of Capitalist Development. New York: Monthly Review Press, 1942.

Sweezy, P. M., 1966. See Baran and Sweezy, 1966.

Veblen, T. The Theory of Business Enterprise. New York: Charles Scribners’ Sons, 1904.

2004, Volume 56, Issue 05 (October)
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