"The tranformation, through the division of labour, of personal powers (relationships) into material powers, cannot be dispelled by dismissing the general idea of it from one's mind, but
only by the action of individuals in again subjecting these material powers to themselves and abolishing the division of labour."
I was confused about what material powers meant but I think what is being said here is that in order to create an economically prosperous, united community, the people must give up their personal relationships and only be concerned with working for the greater prosperity of the State, in which they will be unified.
This site that I went to really helped explain the ideas of Marx and Engel and explained many terms that I hadn't heard of in a number of years, so it was a great site to refresh my memory!
http://www.marxists.org/reference/subject/philosophy/help/marxism.htm
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Capitalism created a low income class that had a historical leading to make all classes and because classes were constrained by economic structure. I agree with your interpretation of giving up your personal relationship to gain economic prosperity because the class one is in will determine one's individuality.
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