Karl Marx(1818-1883)

History of Economic ThoughtBoise State University

Spring 2015Prof. D. Allen Dalton

“Socialist” TraditionTwo Elements

•Labor is the source of all value•Payments to capitalists and landlords are deductions from the value created by labor

Origins in Classical Liberalism/Classical Economics

Adam Smith

• An Inquiry into the Nature and Causes of The Wealth of Nations, 1776.

Book I, chapters 5 – 8

Wealth of Nations• In rude society, quantities of labor determine

relative prices, and the whole produce of labor belongs to labor

• Accumulation of stock means value which workers add resolves itself into wages and profits; Whole produce of labor no longer belongs to laborer, but part is shared in profits due to advanced wages and furnished materials; Labor no longer regulates relative prices

Wealth of Nations

“As soon as the land of any country has all become

private property, the landlords, like all other men, love to reap where

they never sowed.”

David Ricardo

• The Principles of Political Economy and Taxation, 1817.Chapter 1 : On ValueChapter 5 : On Wages

Principles of Political Economy and Taxation

• The relative prices of reproducibles depend upon the relative quantities of labor expended in producing them; Relative quantities of labor need to be adjusted for qualities, intensity, and skill of labor

• Labor embodied in tools must be accounted for in determining different quantities of labor; When capital equally durable across production, quantity of labor alone determines relative prices

Principles of Political Economy and Taxation

• Capital not equally durable – as a result changes in value of labor also affect relative prices– Value of labor and profits vary inversely– Rise in value of labor/reduction in profit

leads to increase in price of commodities that are labor-intensive

• Small effect relative to quantity of labor

Thomas Hodgskin• Labour Defended Against the

Claims of Capital, 1825 (1831).

Controversy surrounding Parliamentary legislation banning “worker’s

combinations” (trade unions)

Labour Defended…• Better treatment of labor requires an

appeal to principle for how labor ought to be paid

• Wages vary inversely with profits– Share of national produce– Rent obtained from surplus fertility of soil– Capital engrosses whole product except

subsistence of labor

• Who produces the capital?

Labour Defended…• Circulating capital

– Food, clothing, housing (necessaries of subsistence) consumed by labor

– Labor agrees to work because of confidence that they will be paid money to obtain necessaries

– Necessaries not produced beforehand, but produced as other labor works to produce goods

Labour Defended…“It is labour which produces all things as they are wanted, and the only thing which can be

said to be stored up or previously prepared is the skill of the labourer.”

“…the success and productive power of every different species of labour is at all times more

dependent on the co-existing productive labour of other men than on any accumulation of

circulating capital.”

Labour Defended…• Fixed capital

– Tools and instruments that labor works with

– Adds to the productive power of man• What produces fixed capital?

– Labor!– Fixed capital does not obtain usefulness

from being “stored up” but from being used by current labor

Labour Defended…1. The effects of circulating capital result

from co-existing labor.2. Fixed capital is produced by the skill

of the laborer.3. Both are produce of labor, but both

give the owner of them a profit.

Labour Defended…From where does the ability to claim a

share of labor’s produce come?

Middleman Activites and Saving

“…all political economists agree… [t]he labourer cannot save; the landlord is not disposed to

save; whatever is saved is saved from profits and becomes the property of the capitalists.”

Labour Defended…• Compound interest means that labor

must give over a greater quantity of labor to the capitalist than necessary to produce goods, because labor is paid out of saving

“…the cause of the poverty of the labourer is the engrossing nature of

compound interest.”

Labour Defended…“…whatever labour produces ought to

belong to it.”

“…the whole produce of labour ought to belong to the labourer.”

“…the question is, how much of this joint product should go to each of the

individuals who produce it?”

Labour Defended…• Free labor and unprejudiced attitudes toward

different labor would produce just wages settled by “higgling” of market; Current labor is not free

• Labor includes the skills of the draftsman, the engineer, the knowledge and skill of the manufacturer (including knowledge of state of markets, skill in buying and selling)

• The wages of the master or employer has been blended with profit.

Karl Marx(1818-1883)

Friedrich Engels (1820-1895)

The Place of Marx in HET• As a social philosopher, Marx’s place in

the history of economic thought is second, if to anyone, only to Adam Smith.

• As an economist, Marx’s contributions to modern economic analysis are minimal.– Vast literature on “Marxism” – Difficulty of presentation (successive

approximation); idiosyncratic vocabulary; foreign philosophical and economic frameworks

Marx’s Life• Born May 5, 1818 to ethnically Jewish lawyer Heinrich

Marx– (née Herschel Mordechai)– convert to Prussian state religion of Lutheranism, though his

philosophy was liberal deism• Studied at Universities of Bonn and Berlin

– Heavily subsidized by his father– Associates with Young (or Left) Hegelians

• Doctoral thesis accepted at University of Jena (1841)– Democritus, Epicurus and Greek atomistic theory

• 1843, married Jenny von Westphalen, daughter of prominent Prussian civil servant– Westphalen’s father

• Undertakes career in journalism– Emigrates to Paris in 1843 to escape Prussian censorship– seeks out Friedrich Engels after reading Engels’ “Outlines of a

Critique of Political Economy”

Marx’s Life– Expelled from France in 1845, moves to Belgium– expelled from Belgium during 1848 Revolution, returns to

Prussia– expelled from Prussia in 1849, move to London– Becomes foreign correspondent of New York Daily Tribune

in 1851• Remainder of life spent working on polemics and his

economic and philosophical treatises– Subsidized by his family and friends, especially Engels– Marx’s “income” in 1863 would have put him in the top 5% of

British income earners; yet he was throughout his life battling creditors

• Delegate to First International at London in 1864 as representative of German workers– disagreement with Bakunin splits International and leads to

move of General Council from London to New York

Marx’s Major Works• Economic and Philosophical Manuscripts (c. 1844,

pub. 1932)

• Critique of Hegel’s Philosophy of Right (1843)

• The Poverty of Philosophy (1847)

• The Manifesto of the Communist Party (1848)

• Contribution to a Critique of Political Economy (1859, pub. 1941)

• Capital: Critique of political economy, (1867, 1885, 1894)

• Theories of Surplus Value, (1862, pub. 1905-10)

Understanding Marx• Keys to understanding Marx

– (1) his writing bears a strong resemblance to eschatology

• interpreted in this light, he is a pre-millenialist– (2) he is an advocate of an exploitation

theory of labor • What is the content of that theory?• Did he hold a labor theory of value?

– (3) his writing makes use of the language of Hegelianism

Understanding Marx• G.W.F. Hegel, The Phenomenology of

Mind (1807)– Idealist philosopher, tradition of Plato– Traces the development of Mind from its

first appearance as conscious individual minds (alienation) to the status of universal Mind, free and fully self-conscious

• Historically necessary process determined by the logic of relational contradictions

• As individual minds, Mind is “alienated” from itself

Understanding Marx• Young Hegelians put a “materialist” spin on

this argument– Mind becomes human self-consciousness– Liberation of humanity becomes the goal of

history• Ludwig Feuerbach was the first to advance

the Young Hegelian cause– The Essence of Christianity (1841) – Religion is a form of alienation; what we believe

about God is merely humans projecting their attributes in purified form onto an “other,” thereby reducing ourselves

Understanding Marx• Marx adopts Feuerbach’s program but

sees in commercial society the chief form of human alienation:“Money is the universal, self-constituted

value of all things. Hence it has robbed the whole world, the human world as well as nature, of its proper value. Money is the alienated essence of man’s labor and life, and this alien essence dominates him as he worships it.”- On the Jewish Question (1843)

Understanding Marx• Private property, competition, and greed are

historically contingent• Free and conscious productive activity is

the essence of human life• “Alienated labor and alienated humanity” –

under both slavery and wage-employment workers do not control what they produce and production (in accumulated form) is used against them

• Capitalism is a (dynamic) system of unintended (uncontrolled) consequences due to private property and alienation

Understanding Marx• The role of the proletariat – property-less,

their only attribute is their humanity• The goal of history is the liberation of

humanity; the elevation from its alienated status under the regime of private property to the enjoyment of true freedom under communism

• True freedom consists of conscious control of one’s activity– Rousseau’s influence – “forced to be free”

Understanding Marx• Keys to understanding Marx (cont.)

– (4) he views economics and history in dynamic terms

– (5) Marx is presenting an analysis of what he identifies as the capitalist system

– (6) Marx does not present, in any of his writings, an analysis of the workings of socialism

Marxist Economics• Purpose of Capital is to understand the

“laws of motion” of the capitalist mode of production.

• The capitalist mode of production consists of laborers creating value but being employed by capitalists; labor has become an “alienated” commodity.– In a capitalist society, the objective is to produce surplus

exchange value (M – C – M’); in contrast, simple commodity production (C – M – C) is governed by use value.

Marxist Economics• Capital and labor-power co-exist and are

co-dependent.– Labor-power is the source of all value.– Capital is “stored-up” labor power.

• As a consequence of the workings of the capitalist mode of production, the relative situation of laborers to capitalists will deteriorate.

• Intermittent “crises” exhibit the contradictions of capitalism and lead to revolution.

Marxist Economics• The central problem of capitalism is an

allocation problem – the allocation of labor-power to the production of commodities.– Those who demand are not those who produce;

production is for the market and not for use.• The “law of value” is the process by which

the economy allocates labor-power to the components of total output.– This process is an undirected, competitive

process of price and quantity adjustments in different sectors; in this process capital is directed and redirected to different ventures in search of profits.

Marxist Economics• Disproportionality in production of different

commodities lead to crises.– Inherent in capitalism because production is

divorced from demand (producers can’t accurately forecast consumers wants).

– Critical of Malthus, Sismondi, Say and Ricardo– Financial panic, increased money demand and

credit contraction as result of selling at loss leads to spreading of crisis to entire economy. Prices correct imbalances but in ways that lead, rather than prevent crises.

• Problem of growing sectors; why is credit collapse general?

– Ever-widening (not deepening crises) increases size of impoverished proletariat.

Marxist Economics• Does Marx have a labor theory of value?• What is the nature of the contradictions of

capitalism?• What is the nature of economic crises?• Does the rate of profit fall over time under

capitalism?• What is the nature of the increasing misery

of the working class and why does it occur?• Will capitalism collapse or be overthrown?

Evaluating Marx• If he held a labor theory of value, Marx

failed to solve the transformation problem.• Fundamental error: special nature of labor

as source of value and relation to standards of living.– APL > w.

• As an economist he is a “minor Post-Ricardian.”

• His impact remains strong, continuing to captivate intellectuals, who like Marx himself, believe they are undervalued by commercial society.