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PART III THE ALLEGED INEVITABILITY OF SOCIALISM
SECTION II The Concentration of Capital and the Formation of Monopolies as
Preliminary Steps to Socialism
1 The Concentration of Establishments as the Complement of the Division of Labour
The Concentration of Establishments
The concentration of establishments comes automatically with the division of labour.
In the shoemaker's workshop the production of footwear, formerly carried on in each
individual household, is united in one single establishment. The shoemaking village,
the shoe-manufactory, becomes the manufacturing centre for a large area. The shoe
factory that is organized for the mass-production of footwear represents a still
wider union of establishments, and the basic principle of its internal organization
is on the one side, division of labour, and, on the other side, concentration of
similar work in special departments. In short, the more the work is split up, the
more must similar labour processes be concentrated.
Neither from the results of the census undertaken in various countries to verify
the doctrine of the concentration of productive units, nor from other statistical
evidence of changes in the number of establishments, can we learn all there is to
be known about them. For what appears in these enumerations as a unit is always,
in a certain sense, a unit of business, not a unit of production. Only in certain
cases do these investigations count separately works which, whilst united in locality,
are conducted separately inside a single enterprise. The conception of the establishment
and its evolution has to be elaborated from a point of view other than that which
lies at the basis of trade statistics.
The higher productivity of the division of labour results, above all, from the specialization
of processes which it makes possible. The more often a process has to be repeated
the more does it pay to install a specially adapted tool. The splitting up of labour
goes farther than the specialization of occupations, or at least than the specialization
of enterprises. In the shoe factory shoes are produced by various part processes.
It is quite conceivable that each part process might take place in a special establishment
and in a special enterprise. In fact, there are factories which make only parts
of shoes and supply them to the shoe factories. Nevertheless, we usually consider
as one productive unit the sum of part processes combined in a single shoe factory
which itself produces all the component parts of shoes. If to the shoe factory is
joined also a leather factory or a department for producing the boxes in which the
shoes are packed, we speak of the union of several productive units for a common
enterprise. This is a purely historical distinction which neither the technical
circumstances of production nor the peculiarities of business enterprise suffice
by themselves to explain.
When we regard as an establishment that totality of process involved in economic
activity which businessmen regard as a unity, we must remember that this unit is
by no means an indivisible thing. Each productive unit is itself composed of technical
processes already horizontally and vertically combined. The concept of an establishment,
therefore, is economic, not technical. Its delimitation in individual cases is determined
by economic, not by technical, considerations.
The size of the productive unit is determined by the complementary quality of the
factors of production. The aim is the optimal combination of these factors, i.e.
that combination by which the greatest return can be produced economically. Economic
development drives industry to ever greater division of labour, involving at once
an increase in the size and a limiting of the scope of the unit of production. The
actual size of the unit is the result of the interaction of these two forces.
2 The Optimal Size of Establishments in Primary Production and in Transport
The Law of Proportionality in combining the factors of production was first formulated
in connection with agricultural production, as the Law of Diminishing Returns. For
a long time its general character was misunderstood, and it was regarded as a law
of agricultural technique. It was contrasted with a Law of Increasing Returns, which
was thought to be valid for industrial production. These errors have since been
The Law of the Optimal Combination of the factors of production indicates the most
profitable size of the establishment. Net profit is greater according to the degree
to which its size permits all factors of production to be employed without residue.
In this way alone is to be estimated the superiority which the size of one particular
establishment gives it over another establishment—at the given level of productive
technique. It was a mistake to think that enlargement of the industrial establishment
must always lead to an economy of costs, a mistake of which Marx and his school
have been guilty, although occasional remarks betray the fact that he recognized
the true state of affairs. For here, too, there is a limit beyond which enlargement
of the establishment does not result in a more economical application of the factors
of production. In principle, the same may be said of agriculture and mining; the
concrete data only differ. It is merely certain peculiarities of the conditions
of agricultural production which cause us to regard the Law of Diminishing Returns
as primarily affecting land.
The concentration of establishments is primarily concentration in space. As the
land suitable to agriculture and forestry extends in space, every effort to enlarge
the establishment increases the difficulties that spring from distance. Thus an
upper limit is set for the size of the agricultural unit of exploitation. Because
agriculture and forestry extend in space it is possible to concentrate the establishment
only up to a definite point. It is superfluous to enter into the question—often
raised in discussion of this problem—whether large or small scale production is
the more economical in agriculture. This has nothing to do with the Law of the Concentration
of Establishments. Even supposing large scale production to be superior, one cannot
deny that there could be no question of a Law of the Concentration of Establishments
in agriculture or forestry. The fact that land is owned on a large scale does not
mean that it is worked on a large scale. The great estates are always composed of
This appears even more clearly in a different branch of primary production, mining.
Mining enterprise is tied to the place where the ore is found. The establishments
are as large as these separate places permit. They can be concentrated only to the
degree in which the geographical position of the separate beds of ore make concentration
seem profitable. In short, one can see nowhere in primary production any tendency
to concentrate productive units. This is equally true of transport.
3 The Optimal Size of Establishments in Manufacturing
The process of manufacture out of raw materials is to a certain extent free from
the limitations of space. The working of cotton plantations cannot be concentrated,
but the spinning and weaving works may be united. But, here too, it would be rash
to derive without further consideration a Law of the Concentration of Establishments
from the fact that the larger plant generally proves superior to the smaller.
For in industry too localization is of importance, quite apart from the fact that
(other things being equal, i.e. at a given level of the division of labour) the
economic superiority of the larger productive unit exists only in so far as the
Law of the Optimal Combination of Factors of Production demands it and that consequently
no advantage is to be gained by enlarging the establishment beyond the point where
the instruments are most efficiently utilized. Each type of production has a natural
location, which depends ultimately on the geographical distribution of primary production.
The fact that primary production cannot be concentrated must influence the subsequent
process of manufacture. The power of this influence varies with the importance attaching
to the transport of raw materials and finished products in the separate branches
A Law of the Concentration of Establishments operates therefore only in so far as
the division of labour leads to progressive division of production into new branches.
This concentration is really nothing more than the reverse side of the division
of labour. As a result of the division of labour numerous dissimilar establishments,
within which uniformity is the rule, replace numerous similar establishments within
which various different processes of production are carried out. It causes the number
of similar plants to decrease, whilst the circle of persons, for whose needs they
work directly or indirectly, grows. If the production of raw materials was not geographically
fixed, a circumstance which acts counter to the process initiated by the division
of labour, one single plant only would exist for every branch of production.
Vogelstein, "Die finanzielle Organisation der
kapitalistischen Industrie und die Monopolbildungen," Grundriss der Sozialökonomik,
Pt. VI (Tübingen, 1914), pp. 203 ff. Weiss, "Abnehmender Ertrag," Handwörterbuch der
Staatswissenschaften, 4th ed., Vol. I, pp. 11 ff.
See Alfred Weber, "Industrielle Standortslehre,"
Grundriss der Sozialiökonomik, Pt. VI (Tübingen, 1914), pp. 54 ff. The remaining factors of
localization can be passed over, as the present, or the historically transmitted,
distribution of primary production ultimately determines them.
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