MARXISM

1818 - 1883
KARL MARX - BIOGRAPHY

 1818 - 1883
 Graduated from universities Bonn, Berlin, and Jena
 No academic career possible
 Exiled: Germany – Paris – England

 Works:
 Manifest of the Communist Party (1848)
 Das Kapital (1867 Vol.1; Vol. 2-3 appeared posthumous)
THEORY OF HISTORY

 Forces of production:
 Technology, types of capital, skill level of labor
 dynamic
 Relations of production
 Rules, social relations, property relations
 static
 Superstructure reinforces status quo
 Art, philosophy, religion, literature, music, etc.

 Dynamic production forces will get in conflict with static

relations of production  Revolution
 New relations of production and superstructure
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THEORY OF HISTORY – IN PRACTICE

Under capitalism:
 Techniques of production become concentrated and
centralized
 Increasing unemployment and poverty cause workers to revolt
 Working class prevails and establishes dictatorship of
proletariat

Socialism:
 Private ownership allowed
 But capital and land are publicly owned
 Production planned, no profit motive and free markets

 Communism

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LAW OF MOTION OF CAPITALIST SOCIETY - 1

Labor theory of value:

- Use value: utility
- Exchange value: socially
necessary labor production
time

- Absolute labor time

determines value
- Capital or land owners do
not add value.
Idea that there is only 1
productive factor that adds
value comes from
physiocrats (there: nature
– agriculture; Marx: labor )

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LAW OF MOTION OF CAPITALIST SOCIETY - 1

Theory of exploitation

- Wage paid to workers =

minimum subsistence wage
- “Reserve army of
unemployed”

- Possibility to force long work

hours

Workers are the course of all

value, but labor does not get all
value
 surplus = productivity –
subsistence wage
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LAW OF MOTION OF CAPITALIST SOCIETY - 1

Capital accumulation

- Traditional economy: C-M-C

- Capitalist economy: M-C-M’
- Profit: M’ - M

- Capitalists’ profits are used

to further accumulate capital

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LAW OF MOTION OF CAPITALIST SOCIETY - 1

Falling rate of profit

due to drive for efficiency
- Mechanization and labor-saving
inventions

- Organic composition of
capital: more constant
capital (machinery) relative
to variable capital (wages)

- Since labor is only source of

value, profit rate
(= surplus / (labor + capital))
falls

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LAW OF MOTION OF CAPITALIST SOCIETY - 1

Business crises

- Lower profit rate , lowers

expansion.
- Depression lowers monetary
value of fixed capital
- Factory closures, prices fall

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LAW OF MOTION OF CAPITALIST SOCIETY - 1

Technological unemployment

- Labor employment
substituted by capital

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LAW OF MOTION OF CAPITALIST SOCIETY - 1

Centralization of capital and

concentration of wealth

due to dynamics of capital

accumulation and tendency for
recurring business crises

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LAW OF MOTION OF CAPITALIST SOCIETY - 1

Reserve army of unemployed

and immiserization of
proletariat

Due to crises and capital/labor-

substitution more people
became unemployed.

With more unemployed, wages

would be further depressed.

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LAW OF MOTION OF CAPITALIST SOCIETY - 1

Class conflict
- Workers unite and revolt
- State ownership of means of
production replaces private
ownership
- Exploitation of workers ends

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MAJOR TENETS OF MARXISM

1. Repudiate classicist notion of harmony of interests

2. Oppose to concept of laissez-faire
3. Reject Say’s law of markets
4. Advocate collective action and public of enterprise
ownership

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MAIN CONTRIBUTIONS OF MARXISM

1. Contributed to later establishment of theory of value in

economics
2. First to note phenomenon of business cycles
3. Accurately predicted growth of large-scale enterprises
and monopoly power
4. Highlighted substitution effect between capital and
labor
5. Dynamic analysis

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DISCUSSION OF MARXISM NOWADAYS

- Central forecast of impoverished working class did not

occur.

+ Emphasis on state ownership on the means of

production

+ Call for social programs

+ Analysis of monopoly power growth, problem with

income distribution and reality of business cycles

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ADDITIONAL LITERATURE (RECOMMENDED)

 Sandmo (2011), Economics Evolving – A history of economic

thought, Princeton University Press, Princeton, Ch. 6.

 To Marginalist School

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