This series of articles aims to provide a brief overview of the evolution of Economic thought through the lens of some of the key contributors to the discipline. Using Adam Smith’s Wealth of Nations as a jumping-off point, through John Maynard Keynes’ General Theory, Karl Marx’s Das Kapital, and the more recent contributions of Joseph Schumpeter and Milton Friedman. The series will conclude with an evaluation of modern-day Economic consensus.
The History of Economic Thought series consists of 6 main articles:
3. History of Economic Thought: Karl Marx
4. History of Economic Thought: Joseph Schumpeter
5. History of Economic Thought: Milton Friedman
6. History of Economic Thought: Modern Day
History of Economic Thought: Karl Marx
An Introduction to Marx
This article is designed to serve as an introduction to the broader body of work produced by German Philosopher, Political Theorist, and Economist Karl Marx and specifically detail his overall contributions to the field of Economics. Before reading, please bear in mind that Marx is an incredibly dense, rich subject of intellectual discourse. The title of this series being “a brief history of economic thought”, it will be a very practical impossibility to condense all of Marx’s ideas into a circa 1000 word compendium. This article, therefore, will focus primarily on Volume I of Marx’s “Das Kapital”, with some reference to his much briefer treatise “The Communist Manifesto”.
Figure 1: Karl Marx, Philosopher, Economist, Political Theorist, Socialist Revolutionary, and one of the most influential figures in all of human history.
Marx commences his examination of what he terms “Capitalist Society” by describing it as "an immense accumulation of commodities" (Marx, 1859, as cited in Marx, 1867). A commodity here means “an object outside us, a thing that by its properties satisfies human wants of some sort or another” (Marx, 1867, p. 41). In further explanation, he cites as basic examples paper and iron.
Commodities, by default then, are seen as items that hold some form of intrinsic, or as Marx puts it, “use-value”. Their value is inherently tied to the utility (satisfaction or happiness) that can be extracted from them.
This use-value translates in turn into what Marx terms “exchange value”. Meaning that said commodities can be traded or – exchanged – for others. They can also be employed as “material depositories”, with the vital distinction that they can thus be stored and accumulated. They can, on this basis, be seen as forming the “substance of all wealth” in a capitalist society (Marx, 1867).
Figure 2: Marx is regarded as the conventional founder of Communism. Whether he would have approved of the behaviours of future Communist regimes is a more open-ended assertion
Money and Price
As it is a difficult task to arbitrarily distinguish the precise use vs. exchange value of individual commodities, writer example – “I’ll trade you three ingots of iron for your coat. A sheet of linen for that loaf of bread”. Some form of common language is required in order to facilitate the trading of goods.
It fulfils this function by providing what Marx terms a “universal measure of value”. The money thus forms the language by which the value of individual commodities is set, with prices being the medium through which it is spoken. The price of a commodity is not distinguished by the cost of the raw materials it is composed alone, however, but rather by these costs in combination with that of the process through which the final product is actualised.
“Price is the money-name of the labour realised in a commodity” (Marx, 1867, p. 114).
The Transformative Power of Labour
While Marx may have believed in the fundamental equality of humankind, resenting what he felt to be the elitist nature of capitalist society. He did not apply the same principle to commodities. Using the example of a sheet of linen as raw material vs. a coat as a functional, wearable object. He demonstrates an effective hierarchy of “use-values” amongst commodities.
By virtue of granting greater utility to its bearer, the coat must be worth more than a sheet of linen of comparable size. The transformative tool that reshapes the value of a said commodity is labour. The coat itself represents the accumulated value of both the linen itself and the labour employed to create it.
“…the magnitude of the coat's value is determined, independently of its value-form, by the labour time necessary for its production.” (Marx, 1867, p. 64).
Marx elaborates further on this concept, declaring that said rise in value will be determined by the degree of labour necessarily employed to create the end product.
“Magnitude of value expresses a relation of social production; it expresses the connection that necessarily exists between a certain article and the portion of the total labour-time of society required to produce it.” (Marx, 1867, p. 114)
Surplus Value and the Exploitation of Labour
Surplus value, according to Marx, constitutes the amount of additional labour produced by a given worker after they have already produced an amount of work equivalent in value to the sum of money they require to live. Meaning in effect, that a worker keeps in wages only a very small portion of the financial worth of their labour.
“The rate of surplus-value is therefore an exact expression for the degree of exploitation of labour-power by capital, or of the labourer by the capitalist.” (Marx, 1867, p. 241)
Under this assumption, workers are required to work for more than an amount that may be termed fair or justifiable. Marx goes so far as to offer the view that the only difference between actual slavery and capitalist market practices is the degree of “surplus labour” that is produced by the worker in question and how it is extracted (Marx, 1867).
Figure 3: Capitalism by its nature, according to Marx, requires heavy exploitation of the worker class
No Worker Exploitation, No Party.
The fundamental underpinning of Capitalist society for Marx thus revolves around a perpetual cycle of worker exploitation. If a Capitalist, here effectively meaning business owner, were to reap only the equivalent of the sum they’ve invested, then no surplus-value would be generated. If they were to pay their workers anything like what Marx deemed a fair or equitable wage, they would not profit from their endeavours.
…he desires to produce a commodity whose value shall be greater than the sum of the values of the commodities used in its production, that is, of the means of production and the labour-power, that he purchased with his good money in the open market. (Marx, 1867, p. 207).
The Iron Law of Wages revisited
Marx’s interpretation of worker compensation levels aligns with the Iron Law of Wages discussed previously in this 101 series under Adam Smith. While Smith also saw wages as defaulting to what he termed a “subsistence” level, Marx was slightly more decisive in expressing his personal feelings on the matter in the following passage:
The minimum limit of the value of labour-power is determined by the value of the commodities, without the daily supply of which the labourer cannot renew his vital energy, consequently by the value of those means of subsistence that are physically indispensable. (Marx, 1867, p. 192)
Under the functions of this wage dynamic, workers would be paid just enough to ensure they can meet their own basic needs for sustenance. From the employer's perspective, their wage target is to ensure they have enough physical energy to complete the tasks appointed to their role.
No more, no less.
The Importance of Collective Action
While the Classical School of Smith and Ricardo focused on the importance of the division and Specialisation of Labour. From a productivity perspective, Marx was primarily focused on the importance of Collective action.
The sum total of the mechanical forces exerted by isolated workmen differs from the social force that is developed, when many hands take part simultaneously in one and the same undivided operation, such as raising a heavy weight, turning a winch, or removing an obstacle. (Marx, 1867, p. 357)
Without organised, collective action, the impact of individual labour would be greatly reduced.
In such cases the effect of the combined labour could either not be produced at all by isolated individual labour, or it could only be produced by a great expenditure of time, or on a very dwarfed scale. (Marx, 1867, p. 357)
It is this knowledge of the vitality of combined worker co-operation and application to the functioning of the Capitalist system which so enraged and energised Marx.
Figure 4: Marx' legendary rallying cry; “WORKERS OF ALL COUNTRIES, UNITE!” (Marx & Engels, 1847, p. 32).
Which famously ends his and Engels’ landmark text “The Communist Manifesto”, is a sentiment that continues to reverberate through the ages.
Marx is, of course, most famously associated with the rise of Communism as a Political and Economic doctrine. For Marx, Capitalism is a system based upon the separation of others. Of exploitation and clearly defined socio-economic classes, an elite vs. a subordinate. Marx’s dream for a communist society was thus one of true equality. Free from the, as he perceived it, inherent inequality and class-based oppression of a Capitalist societal structure.
Communism deprives no man of the power to appropriate the products of society; all that is does is to deprive him of the power to subjugate the labour of others by means of such appropriation. (Marx & Engels, 1847, p. 16)
Communism, in Marx’ and Engels’ own words, could thus be boiled down to one simple idea:
“In this sense, the theory of the Communists may be summed up in the single sentence: Abolition of private property.” (Marx & Engels, 1847, p. 14)
While the idea itself may be relatively straightforward, the practical consequences of it being implemented are difficult to contemplate, let alone quantify.
Figure 5: Marx immortalised alongside his Communist Manifesto co-conspirator and friend Friedrich Engels
The Inevitable Fall of Capitalism
While increased competition is commonly regarded by Free Market Economists such as Adam Smith, and more recently Milton Friedman, to be one of the greatest attributes of a free market system. Driving innovation, alongside lower prices and higher quality goods and services. A belief that still serves as the foundational tenet of US economic policy to this day (Boushey and Knudsen, 2021).
Marx believed that this intense competition, amongst the capitalist class specifically, would ultimately serve as the downfall of the Capitalist system.
One which, grounded in a perpetual state of inequality and exploitation, would ultimately collapse under its weight - manifesting in the inevitability of a socialist revolution that would overthrow the conventional order (Prychitko, 2021). By now, the world has seen many socialist revolutions succeed, and prevail.
Though, Marx’s much-anticipated fall of capitalism has as yet, failed to materialise.
Co-Operation, not Confrontation
One crucial consideration that Marx may have missed was the potential for more flexible interaction between the Worker and Capitalist classes. While Marx clung steadfastly to his theory of surplus-value, he effectively ignored the possibility of mutual gain. The idea that workers could benefit from surplus-value production did not appear to occur to him readily.
The modern labour market employs a great deal of shared incentive mechanisms that serve as dual motivation and reward for dedicated employee performance. Incentivised work schemes, performance-related bonuses, and share options help as a handful of examples of the worker and capitalist's proto-amalgamation of the worker and capitalist classes that Marx did not anticipate.
Figure 6: In wider society, Marx represents one of the few counterculture Economists
Marx in Practical Application
Many of Marx’s ideas on how an ideal society should function have proven too radical to be fully implemented, his influence can be seen in the functioning of many modern economies and the sphere of contemporary economic debate.
While private property rights remain firmly entrenched – albeit to varying degrees – in every established society on earth, state ownership and the re-purposing of land and assets for public purposes is an equally well-established phenomenon.
Having advocated, alongside Friedrich Engels for “A heavy progressive or graduated income tax”, the percentage rate of tax a given individual pays rises in tandem with their income level. Many – mainly developed – modern-day economies apply income tax systems precisely this nature.
The outright “abolition of all rights of inheritance” (Marx & Engels 1847) may seem an extreme notion, the idea that a meaningful inheritance tax should be implemented is one that has gained significant traction in recent years in the ongoing debate around global income inequality.
The level of influence of Central banks in most major economies has also grown significantly since Marx’s time and continues to do so. Child labour has been outlawed most of countries and has seen colossal reductions in global levels, as has the level of free education and the prevalence of public schooling.
The above are specific objectives or goals of a communist system outlined by Marx and Engels in their seminal 1847 work, The Communist Manifesto. Some form can be seen in practice today, almost 200 years later, in economies as diverse as the United States and North Korea. While some of Marx’s more radical ideas such as industrialised agricultural armies and the confiscation of emigrant property may never be realised. It’s safe to say that his influence lives on.
Legacy and Conclusion
Though Marx’s views on the fall of Capitalism have yet to be fully realised, his critique of the inequities of a Capitalist system of governance remains as vital and pressing as ever. In the broader economic narrative, Marx represents a critical counterpoint to the traditional free-market notions of the economy. His vision of a “Marxist” society, founded on the societal values and system he so passionately and eloquently espoused, is similarly awaiting fulfilment beyond the intellectual plane. As his works inspire social and political movements worldwide, Marx remains a phenomenon whose influence and reach are truly global.
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Figure 1: Roger Viollet/Getty Images, (1870). Karl Marx. Metro
Figure 2: OpenClipart, (2013). Communism. Pixabay.
Figure 3: Macrovector, (n.d.). Total control. Freepik.
Retrieved from https://www.freepik.com/free-vector/total-control-businessman-puppet-string-authority-marionette-leadership-manager-people-doll-worker_10701207.htm#query=worker%20exploitation&position=2&from_view=search
Figure 4: Party9999999, (2011). Workers World Poster. Deviant Art
Figure 5: Jens Junge, (2014). Karl Marx, Friedrich Engels. Pixabay.
Figure 6: Wal_172619, (2020). Karl Marx, Graffiti. Pixabay.