The 'theory of compensation' proposed by bourgeois economists—that machinery automatically releases capital to employ displaced workers—is mathematically and economically false.

By Karl Marx, from Le Capital : Critique de l'économie politique

Key Arguments

  • When machinery is introduced, variable capital (wages) is converted into constant capital (machinery), meaning capital is 'locked up' rather than set free
  • The total capital employed often decreases or remains the same, but with a lower proportion dedicated to labor power
  • Even if new capital is created or 'set free', it is insufficient to employ the same number of workers because the construction of machinery requires fewer workers than its application displaces

Source Quotes

6. THE COMPENSATION THEORY, WITH REGARD TO THE WORKERS DISPLACED BY MACHINERY A whole series of bourgeois political economists, including James Mill, MacCulloch, Torrens, Senior and John Stuart Mill, assert that all machinery that displaces workers simultaneously, and necessarily, sets free an amount of capital adequate to employ precisely those workers displaced. Let us assume that a capitalist employs 100 workers at £30 a year each in a carpet factory.
The variable capital, instead of being one-half, is only one-quarter of the total capital. Instead of being set free, a part of the capital is here locked up in such a way as to cease to be exchanged for labour-power; variable has been changed into constant capital. Other things being equal, the capital of £6,000 can now employ no more than fifty men.
Can this be regarded as compensation for the carpet-makers who have been thrown on the streets? At best, the construction of the machinery will still employ fewer men than its application displaces. The sum of £1,500, which previously represented the wages of the dismissed carpet-makers, now represents in the shape of machinery, (1) the value of the means of production used in the construction of that machinery, (2) the wages of the mechanics who constructed it and (3) the surplus-value falling to the share of their ‘master’.

Key Concepts

  • assert that all machinery that displaces workers simultaneously, and necessarily, sets free an amount of capital adequate to employ precisely those workers displaced
  • variable has been changed into constant capital
  • part of the capital is here locked up in such a way as to cease to be exchanged for labour-power
  • At best, the construction of the machinery will still employ fewer men than its application displaces

Context

Marx refuting the assertions of James Mill, MacCulloch, and others regarding the economic consequences of technological displacement