How Marx Diagnosed Technology’s Hidden Transfer of Power

The Machinery of Inequality: How Marx Diagnosed Technology’s Hidden Transfer of Power

 

Prelude
In an age enamored with disruption and innovation, we rarely ask: Who benefits? Karl Marx, writing amid smokestacks and steam engines, saw what many still miss—that technology under capitalism is never neutral. It’s a lever, a weapon, a silent arbitrator of power. While wages may rise and gadgets proliferate, the share of societal surplus flowing to labor has quietly dwindled, especially since the 1980s. Marx didn’t predict dystopian pauperization; he diagnosed a subtler drift—relative disempowerment masked by material comfort. His insight wasn’t about machines replacing hands, but about capital restructuring society to extract more while conceding less. Today, as algorithms manage workers and AI reshapes industries, Marx’s 150-year-old analysis echoes with unsettling clarity. This isn’t a call to abandon progress, but to interrogate its direction. For technology, as Marx knew, is never just a tool—it’s a social relation.

 

In a world awash with dazzling gadgets, AI-powered assistants, and promises of a frictionless digital future, it may seem perverse to revisit the gloomy prophecies of a 19th-century philosopher who never saw a smartphone, let alone a self-driving car. And yet, every time a warehouse worker is replaced by a robot, or a journalist loses a job to an algorithm, or corporate profits surge while wage growth limps, Karl Marx’s ghost stirs—not as a failed prophet, but as a remarkably prescient diagnostician. His critique was never about the technology itself, but about the social logic that directs its deployment. “Machinery,” he wrote in Capital, “is a means of torture” not because it’s inherently cruel, but because under capitalism, it becomes a tool to reconfigure power in favor of owners and against workers.

This is not a story of technological determinism, nor is it a Luddite lament. It is about how progress—real, material, undeniable—can simultaneously enrich society and deepen inequality. Marx’s insight, sharpened by philosophical rigor, empirical observation, and historical imagination, was that technology under capitalism reallocates surplus, not just produces it. And in doing so, it shifts the balance of power—quietly, systematically, and often invisibly.

What follows is a dive into this nuanced, multi-dimensional issue: Marx’s diagnosis of the relationship between technological progress, surplus value, and labor’s declining share; how modern economics has rediscovered his insights under new labels like “capital-biased technological change” and “distributional asymmetry”; why his contemporaries missed the forest for the trees; and why, despite his flawed prescriptions, his analytical framework remains startlingly relevant.

I. The Engine of Surplus: Labor, Not Machines

To understand Marx’s argument, we must begin with his foundational concept: surplus value. In Marx’s view, only human labor creates new value. Machines, raw materials, and buildings—what he called constant capital—transfer their existing value into the product but do not generate new value. Workers, by contrast, sell their labor power—the capacity to work—for a wage that roughly covers the cost of their subsistence (food, shelter, reproduction of the next generation of workers). But during the working day, they produce far more value than this wage covers. That excess—the surplus—is what capitalists appropriate as profit.

Enter technology. When a factory installs a new automated loom, it can produce more cloth with fewer workers. Productivity rises. But here’s the rub: the source of value hasn’t changed. Only labor creates surplus. Machines merely amplify the output per unit of labor. So while total output may increase, the proportion of new value derived from labor shrinks relative to the total capital invested (which now includes the loom).

This leads to Marx’s second key concept: the rising organic composition of capital—the ratio of constant capital (machines, etc.) to variable capital (wages). As capitalism advances, firms compete by adopting labor-saving technologies. The result? Less labor per unit of output, more capital per worker. But since only labor generates surplus value, the system develops a contradiction: capital grows, but the fountainhead of profit—the working class—becomes a smaller and smaller part of the production process.

As economist Anwar Shaikh puts it: “Marx saw capitalist accumulation not as a harmonious process, but as one riddled with internal tensions. The very mechanism that boosts output also undermines the conditions of its own profitability.”

II. Relative Immiseration: Better Off, But Powerless

One of the most persistent misunderstandings of Marx is that he predicted absolute immiseration—that workers would become ever poorer. He did not. In fact, he acknowledged that real wages could rise, that living standards might improve, that workers might gain access to cheaper goods. His point was about relative distribution and power.

Even as workers become materially better off, their share of the total social product—the pie created by economic activity—tends to shrink. The capitalist, meanwhile, captures an ever-larger slice. This isn’t just about income; it’s about control over the labor process, bargaining power, and social weight.

Consider the modern gig economy. A delivery driver may own a smartphone and earn more than a 19th-century factory hand, but they have no say over their working conditions, no job security, and no collective leverage. The app—an algorithmic manager—sets the pace, monitors performance, and can deactivate them at will. Technology here isn’t neutral; it’s a tool of discipline and surveillance, designed to maximize extraction while minimizing worker autonomy.

Marx anticipated this dynamic with uncanny precision. He described how machinery “depresses the workman, by placing him on a level with the manipulator of the most simple engine.” In today’s language: deskilling. From Babbage’s observation that task decomposition allows unskilled labor to replace artisans, to Uber’s disruption of taxi medallion systems, the pattern holds.

As labor economist David Autor notes: “Technology doesn’t just replace hands—it reshapes hierarchies. And in doing so, it often weakens labor’s ability to claim its fair share of the gains.”

III. The Industrial Reserve Army and the Erosion of Bargaining Power

Closely tied to this is Marx’s concept of the “industrial reserve army”—the pool of unemployed or underemployed workers who keep wages in check. Technology amplifies this effect. Automation displaces workers; globalization sends jobs abroad; platforms turn full-time jobs into precarious gigs. Each wave weakens labor’s “outside option”—the ability to say “no” to exploitative conditions.

This is not a glitch; it’s a feature. As Daron Acemoglu and Pascual Restrepo argue in their work on “directed technical change,” firms don’t adopt technology just because it’s efficient—they adopt it because it shifts power. If labor is strong (thanks to unions, minimum wages, or tight labor markets), firms are more likely to invest in labor-complementing tech. But if labor is weak, they opt for labor-replacing tech.

The data bear this out. According to the OECD, the labor share of national income in advanced economies fell from around 66% in the early 1970s to roughly 60% by 2010. In the U.S., productivity grew by 254% between 1948 and 2019, while median hourly compensation rose by just 116%—a growing wedge that mirrors Marx’s prediction.

“The decoupling of wages from productivity isn’t an accident,” says Branko Milanović, “it’s the outcome of institutional choices that favor capital over labor—and technology is the vehicle.”

 

IV. Capital-Biased Technological Change: Marx in Technocratic Guise

Curiously, Marx’s insight has been resurrected—not in radical journals, but in the dry language of mainstream economics. The phrase “capital-biased technological change” now appears routinely in IMF reports and academic papers. Coined originally by John Hicks in 1932, it describes innovations that disproportionately increase the productivity (and thus returns) of capital relative to labor.

Where earlier theories focused on “skill-biased” change—arguing that tech favors the educated—newer research shows the bias runs deeper: toward ownership itself. Digital platforms, intellectual property, data networks—all exhibit high fixed costs and near-zero marginal costs, enabling massive scale economies that benefit asset owners, not workers.

Loukas Karabarbounis and Brent Neiman (2014) analyzed data from 59 countries and found a consistent global decline in labor’s income share since the 1980s, strongly correlated with falling prices of investment goods (i.e., cheaper robots, servers, software). In effect, as tech makes capital cheaper, firms use more of it—and less labor.

Thomas Piketty ties this directly to rising inequality: “When the rate of return on capital exceeds the rate of economic growth, inherited wealth grows faster than output and income. This is the central contradiction of capitalism.” And technology, by deepening capital intensity, accelerates this dynamic.

Yet none of these economists cite Marx. Why? Because his language—exploitation, class struggle, surplus value—is ideologically charged. The modern synthesis prefers neutral terms like “distributional asymmetry”—a phrase used by the World Bank to describe how growth benefits some groups far more than others, even when aggregate GDP rises.

As Dani Rodrik observes: “We’ve reinvented Marx’s wheel, but painted it in technocratic colors so it can roll through policy corridors without scaring the elites.”

V. Why Marx Was Alone in His Time

Was Marx truly ahead of his peers? Partially. Others noticed fragments of the puzzle.

David Ricardo, in a late addition to his Principles of Political Economy (1821), admitted that machinery could harm workers by reducing labor demand. But he treated this as a temporary deviation from equilibrium, not a systemic tendency.

Charles Babbage, the computing pioneer, wrote in On the Economy of Machinery and Manufactures (1832) about how machines and task division deskilled labor and reduced wages. But he saw this as managerial efficiency, not social conflict.

Andrew Ure, an ardent capitalist apologist, openly celebrated machinery as a way to “rescue” industry from “the tyranny of the workmen.” Marx quoted him approvingly—not because he agreed, but because Ure inadvertently confirmed capitalism’s class logic.

Early socialists like Sismondi and Owen lamented worker misery and economic crises, but their critiques were moral, not structural. They lacked a theory of value to explain why progress produced poverty.

Marx’s genius lay in synthesis. He combined:

• Classical economics (value, profit, rent),
• Hegelian dialectics (contradiction, historical process),
• Empirical rigor (factory reports, wage data).

He didn’t just observe—he theorized. He saw technology not as an exogenous force of progress, but as endogenous to capital accumulation, shaped by competitive pressures and class struggle.

As historian Eric Hobsbawm noted: “Marx was the first to treat capitalism not as a natural order, but as a historical system with a beginning, middle, and potential end.”

VI. The Golden Age That Masked the Tendency

From 1945 to the mid-1970s, Marx seemed wrong. Wages rose with productivity. Unions thrived. The labor share held steady. This “Golden Age of Capitalism” appeared to refute his predictions.

But as Thomas Palley argues, this wasn’t a refutation—it was a counter-tendency. Strong labor institutions, progressive taxation, capital controls, and the welfare state redistributed surplus. Technology’s bias was neutralized by politics.

Once those institutions eroded—under neoliberalism, globalization, and financialization—the underlying tendency reasserted itself. The data since 1980 tell a stark story: rising capital income, stagnant wages, soaring CEO pay, and a top 1% capturing most of the gains.

“Marx wasn’t wrong,” says Ha-Joon Chang. “He just underestimated how long capitalism could paper over its contradictions with institutional bandaids.”

VII. Where Marx Fell Short

To be fair, Marx wasn’t omniscient. He underestimated:

• The state’s redistributive capacity (e.g., Social Security, public healthcare),
• The rise of mass consumerism as a safety valve for discontent,
• The emergence of knowledge workers who capture rents (e.g., software engineers, consultants).

He also assumed capitalism would collapse under its own contradictions—a prediction history has not borne out.

But these are refinements, not refutations. As Wolfgang Streeck puts it: “Marx didn’t get the timing or the outcome right, but he nailed the direction of travel.”

His core insight—that technology under capitalism shifts surplus toward capital unless actively resisted—remains robust.

VIII. Why It Took a Century to Catch Up

Why did it take economists until the 2000s to validate Marx’s intuition?

1. Institutional camouflage: Strong labor institutions masked the underlying tendency.
2. Data limitations: National income accounts only emerged in the 1930s–40s.
3. Ideological resistance: Acknowledging that markets reflect power, not just efficiency, challenges liberal orthodoxy.

As Martha Nussbaum notes: “We prefer to believe in neutral progress because it absolves us of moral responsibility.”

Marx’s outsider status—exiled, impoverished, unaffiliated—was an intellectual advantage. Free from academic or state patronage, he could ask uncomfortable questions: Who benefits? Who loses? What power lies behind this ‘innovation’?

IX. The Enduring Lens: Technology as Social Relation

Marx’s lasting contribution isn’t a blueprint for revolution, but a way of seeing. He taught us to look beyond technical efficiency to ask: Whose interests does this serve?

AI, robotics, and big data aren’t inherently good or bad. But under current ownership structures, they are being deployed to maximize shareholder value, not human flourishing. Delivery drones don’t eliminate drudgery—they eliminate jobs. Algorithmic hiring doesn’t reduce bias—it codifies it.

As Kate Crawford warns in Atlas of AI: “Every artificial intelligence system is an extractive industry—extracting labor, data, and planetary resources.”

Marx would nod grimly. He always knew: technology is never neutral.

X. Conclusion: The Diagnosis Was Right—The Cure Is Ours to Find

Marx failed as a prophet, but succeeded as a diagnostician. He mapped the fault lines of capitalism with a clarity that still astonishes. His error wasn’t in identifying the disease, but in prescribing the wrong treatment.

Today, we don’t need dictatorship of the proletariat—we need democratization of technology. Worker co-ops that own their algorithms. Public data trusts. Innovation policies that prioritize labor-complementing over labor-replacing tech. Strong antitrust enforcement to break up digital monopolies.

As Marshall Steinbaum argues: “The problem isn’t technology—it’s who controls it.”

Marx gave us the map. It’s up to us to chart the route.

Reflection
Reading Marx today isn’t about reviving 19th-century revolution—it’s about reclaiming a critical lens. His genius lay not in prophesying collapse, but in exposing how capitalism turns innovation into a mechanism of control. Modern economics, draped in neutral jargon like “capital-biased technological change,” has validated his core observation: productivity gains no longer reliably lift worker incomes. Yet we’ve depoliticized this truth, treating inequality as a glitch rather than a feature. Marx understood that technology reflects power—who owns it, who designs it, who benefits. Today’s gig platforms, surveillance tools, and automated factories aren’t inevitable; they’re choices shaped by profit logic, not human need. The postwar era proved that strong institutions—unions, progressive taxes, public investment—can redirect technological dividends toward shared prosperity. Their erosion didn’t happen by accident but by design. Marx’s enduring lesson is this: progress without power-sharing is precarious. The challenge isn’t to stop innovation, but to democratize it—to ensure that the machines we build serve people, not just portfolios. In that spirit, Marx remains less a relic and more a mirror, reflecting our unresolved contradictions with sobering honesty.

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