CHAPTER

8
KARL MARX'S THEORY
1. INTRODUCTION

Karl Marx all historical events have been

influenced by
Das Kapital (1818 1883) famous for his
-

economic conditions. This concept conveys that

(1867) is one of the book
the few thinkers in the foundations and evolutionary causes of all
history, who had a direct and social life are closely connected with economic
no e on
hundreds of millions of
persuasive
people. It is circumstances, legal, and institutional structure
exaggeration to say that his followers
him in hold of the society. The economic forces are vital in
high esteem and he is
tributes to respected
shaping the structure of a society.
prophet. Paying the
real
as a
Marx, Schumpeter wrote "Marxismpersonality
To an orthodox is a
of
religion. the
The theory of historical materialism starts with
simple truth that man must eat to live. The
in error, but in Marxist, an opponent is not merely survival of man
sin." Marx is an depends upon the capacity with
He is
regarded as the author of "angry genius." which he can
produce the commodities he needs.
history, who
prophesized
a
philosophy
the inevitable decline
of Production is important of all human
activities to
of
capitalism
basis of this
and advent of socialism.
It is on the
secure necessities of life. It
is a matter of common
philosophy that he is experience that man does not produce all what
the people world
over. His followers respected by he needs, and the
struggle for his survival starts.
his message with a carry out The struggle involves
tenacity akin to religious zeal. past, efforts to
stresses and strains. In the
2. MAIN IDEAS OF secure necessities of life were
KARL MARX grouped into four
stages-primitive communist or
We are not to discuss asiatic stage,
whole of Marxian ancient or
slávery
and capitatist stage. Under the stage, feudal stage
philosophy in this
chapter. We will concentrate first
only
are
on
related
those Marx's ideas and
to thoughts, which
factors of
production are owned and stage, the
by the community and the controlled
development. His main ideas about individuals
requirements according to their needs. get their
development are
(1) The materialistic interpretation of way represents a classless This, in a
society.
history. stages, the class that controls In other three
(2) Theory of class struggle. production also controls the the factors of
(3) Theory of surplus value. stages, there are two society. In these
and groups of
(4) The concept of reserve army. of depressed.
It is the
people over the
people-dominant
domination of one
(5) Economic development under tension and conflict. other that creates group
capitalism. In all these
a state of
Now we discuss these points so as to
have a
evolution, the forms stages of human
clear perception of Marx s contribution determine the social or conditions of production
theory of development.
to the in turn structure. The social
moulds the structure
attitudes, actions
civilisation. To quote Marx, and
(1) The Materialistic Interpretation of History and intellectual "All the social,
The materialistic
interpretation of history
relations,
systems, all the theoretical all
religious andpolitical
legal
explains the application ot the principles of
in the course
of outlooks,
which emerge
dialectical materialism to the growth of a material conditionshistory, are derived
from the
This term has been used by Marx to society.
explain that economic environmentof life." In short, it is the
the structure of that influences
and shapes
1. J.A. Schumpeter, Capitalism, Socialism and Democrae
a
society.
2. Robert Heilbroner, The Worldly Philosophers, New
York 10s 3,P.5.
 KARL MARX'S THEORY
109
According to Marx, the course of history is
For Marx, history of the existing society is
influenced and shaped by economic factors. Man the history of class struggle. At every stage of
can change the direction of economic
system, but
history, society is divided into two classes. There
ultimately the character of life is influenced by
has always been "Free man and slave,
the economic system. It is the system of and patrician
plebian, lord and sert, guild master
production, exchange and distribution which journeyman, an oppressor and oppressed. and
serves as the basis of social structure. In Clash of interest has been the main feature of
every
society, the social life is dependent upon what is class-war. The capitalist class owns the means
produced, how is it produced and how are the
goods exchanged ? The final cause of all social
of production and exploits the working class.
Exploitation accentuates when new techniques,
and political changes is the mode of new methods of production, new machines are
production
"and distribution Edward Aveling has expressed introduced. These changes hardpress the
similar views regarding materialism. exploited class and lead to discontentment and
According
to him, "the materialistic concept of history is dissatisfaction. The class struggle leads to
revolution, which gives birth to new social order
that the main and fundamental factor in the
development of any nation or society, is the called socialism or the dicta torship of the
proletariate. Marxists, thus, look upon class
economic
factor that is, the way the nation or the struggle as the mechanism of social change-a
society produces and exchanges its commodities."3
change for the betterment of working class.
According to Seligman, "We understand by Under the new social order, economic conditions
the
theory of economic interpretation of history are improved and a satisfied labour-class
not that all history is to be explained in economic emerges which works for the progress and
terms alone, but that chief considerations in human development of the society. Class-war in the
progress are the social considerations, and that Marxian system is considered a mechanism of
the important factor in social changes is the social change and economic progress.
economic factor. Economic interpretation of history
(3) Theory of Surplus Value
means not that the economic relations exert an
exclusive influence, but they exert a preponderant Theory of surplus value is an other
influence in shaping the progress of important component of Marxian economic
society4 theory. t has been used as the framework by
The concept of historical materialism has been Marx to build his theory of capitalistic
stated by Dr. Engels in these words: "According development. Marx took the clue from the
to this concept, the ultimate causes of all the social classical economists like Adam Smith and David
changes and political revolutions are to be sought Ricardo, who had evolved the labour theory of
not in the minds of men,in their increasing insight value. According to Sahine, "Theory of surplus
into external truth and justice, but in the changes value was professedly an extension of the labour
in the mode of production and exchange ; they theory of value already stated by Ricardo and
are to be sought not in the philosophy, but in the the classical economists. "" The labour theory

economics of epoch concerned." explains that labour is the sole source of value
The sum and substance of historical In a commodity. In short time, value of a
materialism is that economic activities form the commodity is determined by the forces of demand
basis of social structure. Now, we discuss the ana suppiy. But in the long-run, value is

development ie., etermined by the amountof labour spent in

second element of capitalistic the
theory of class-war.
of production a
commodity. Marx defines
commodities as "Congealed labour" and value
as the
(2) Theory of Class-War "Crystallised labour." The question
how does the surplus value arise and how is is
it
The theory of class struggle is a corollary to
the economíc interpretation df the history. appropriated by the capitalist class?
to Marx, society is divided into two
Society comprises two classes of people -
According workers or labourers and capitalists or employers.
classes-the rich and the poor, the exploiters and
the exploited. There can be no love and In a capitalist society all the means of production
the two classes. are owned by a smal group of people called
cooperation between
3. Edward C. Aveling, The Students Marx, 1892.
4. E.RA. Seligman, The Economic
.
Interpretation of History, 1924.
Fredrich Engels, Anti Dubring, translated and reprinted in E. Burns, A Hand Book of Marxism, p.279.
 110 KARL MARX'S THEORY

capitalists. Those who sell their labour to the inlensive, the organic compositionrises through
capitalists, are called workers. The capitalists time, and as it does so the rate of profit falls unless
to the
produce the commodity by combining labour surplus value rises. While there is no limit
(active factor of production) with machinery and rise in C/V, however there is a limit to S / .
raw material (passive factors of production). The of these ratios is considered
The study of the
production of commands a value in
commodity
the market. The wages paid to important in the context of future progress
workersare less to decide how
the value of the SOciety. It is upto the planners
than market commodity.
The these ratios can be maximised for the betterment
difference between market value of the output, of society and progress of the economy.
and wages paid to the workers constitutes the
profit or surplus value. This, surplus valueis (4) Concept of Reserve Army
apprepriated by the capitalist class, while The main motive of capitalist is to maximise
according to Marx, it ought to have gone to the profit. The maximisation of profit depends upon
workers. This is pure and simple exploitation of the maximisation of surplus value. With
working class, says Marx. Larger the surplus value, the capitalist can raise the
greater is the exploitation. Rate of surplus value
technological progress
surplus value. Technological progress by and large
indicates the degree of exploitation. To quote involves labour-saving devices. The introduction
Marx, "Capitalists are not interestedin producing of labour-saving devices results in surplus
those goods, which are useful and needed by the
manpower and Marx calls it industrial
reserve
society but in extracting as much- surplus value With
army o r relative surplus population.
as possible." So exploitation is the source of surplus advances in technological development, the ratio
value and its reinvestment ensures the progress of reserve army increases, but wage-bill falls.
of a society under capitalism. The competition among the members of reserve
Marx has divided the value of output into army for securing employment further depresses
three cofmponents. the wage-rate. The falling wage-rate raises the
surplus value and further encourages the use of
Constant capital (C) represents the value The existence of
of materials and machinery or plant used up in
capital-intensive techniques.
reserve army (via technical progress) keeps the
production wage-rate at the subsistence level and
progressively raises the surplus value and capital
n Variable capital (V) represents the amount formation and hence development.
of labour used during a particular period ie, the
wgge bil1
(5) Capitalistic Development
(iin) Surplus value (S) represents the profit or
Economic development, under the Marxian
the degree of exploitation. system, depends upon accumulation of capital
The value of output is the aggregate of these which in turn depends upon the surplus value.
componentsie., C+V + S. These components Large surplus value would induce entrepreneurs
have been used by Marx to explain the following to go in for bigger investment, which in turn would
boost capital formation and development. Surplus
threeratios value is an essential element in the Marxian theory
(a) The rate of surplus value: The ratio of surplus of development.
value (S) to variable capital (V) is called the rate To raise surplus vlaue, the capitalists can resort
of surplus value orthe rate of exploitation. to tollowing three ways:
Symbolically S, =S/V where S, is the rate of
surplus value.
(i) By increasing working hours
(i) By lowering wages below the subsistence
The ratio of the surplus
(b) The rate of profit: + yariable
level.

value to the totai capital (constant capital (iit) By improving efficiency and productivity
rate of profit. Symbolically,
capital) is called the of the working class. This requires an improvement
P S/(C+ V), where P is the rate of profit. in the state of technology.

() The organic conposition of capital:

The ratio Of the three, Marx favours the last option.
He surplus value
argues that best way to increase
of constant capital to variable capital 1.e., C/V1s
As the is to improve the productivity of labour class.
called organic composition of capital, The other two options i.e., lengthening of working
become more capital
techniques of production
 KARL MARX'S THEORY
111
hours and reducing the wages below
the analysis. Still the secular decline in rate of profit
etthsistence level, have their own limitations. These can be
explained with organic composition of
iwo options may be feasible in short period, but capital. The
in the long-run they could be relationship between the rate of profit
counter-productive.
The feasible way to raise economic
and the organic
composition of capital can be
surplus is to derived as
follows:
introduce new techniques of production. The
capitalists, who take lead in introducing new We know that
machinery or new
production instruments would P S/C+ V)
gain advantage over their competitors. They
would be in a position to secure Multiplying the numerator and denominator
larger econonmic on the R.H.S. with V, we get
surplus and hence initiate capitalist development.
Having discussed the role of surplus value SV
P VC+ V)
(capital accumulation) in the Marxian framework
ofdevelopment, we proceed to analyse the relation ladding and
subtracting SC in the numerator]
between investment and technical
progress. SV+SC-SC
Investment and technical progress are
interdependent and there is two-way relationship VC+ V)
between them. While investment is needed to
promote technical progress and technical
SC+SV-SC
in turn
provides opportunities for
progress VC+V)
investment. Technical progress, therefore, is the
profitable
S(C+V) SC
cause and effect of investment and
formation. capital VC+V) VC-V)
Marx in his analysis has
of economic
highlighted the role
surplus in development process. To
-Ce
increase the volume of surplus
he advises = S-S.Q
"Accumulate, accumulate! that is the Moses and P S , (1-)
the prophets." Capital accumulation, thus, serves
as a cradle for development. It shows that rate of
S,S/V;Q= C/C+V)]
Like classical economists, Marx
predicts profit (P) depends upon
the rate of surplus value (S,)
disintegration and decay of capitalism. J.A. minus organic multiplied by one
Schumpeter holds the same views. Marx believes composition of capital (1-Q).
that capitalist development is a discontinuous This equation shows that there is an inverse
process ie., cyclical fluctuations are the integral relationship between the rate of profit and
parts of development process. It is not a smooth organic composition of capital. The increase in
and regular process. Marx's explanation of the organic composition of
fall in the rate of profit. capital lead will to
development process is essentially an explanation It is
understandable
of cyclical fluctuations and these views are shared that variable and fixed
capital (which are the
by Schumpeter components of
organic composition of capital)
increase in the long
Crisis: At the very outset, it should be clearly two period. The increase in these
types of
understood that Marx did not evolve any scientilic increase in the capital brings about a similar
theory of economic crisis. His disCussion about The increase in organic composition of capital.
crisis is only sketchy. His writings reveal that leads to fall in theorganic composition of capital
rate of profit.
there are three causes of economic crisis: () falling
rate of profit, (ii) unbalanced growth of different Another reason for decline in the rate of
sectors, and (ii) underconsumption. A brief P S the rise in wages. In short period, the
discussion of these factors is necessary TOr capitalists can exploit workers by paying tne
understanding the phenomenon of crisis. subsistence wage,
Supsistence wage, thereby
thereby increasi
increasing the surplus
) Falling rate of profit : The Value. The increase in the surplus value leads to
between secular decline in rate of connection increase in the capital accun
economic crisis is not very clear inprofit and accumulation increases, t evel,and forlabour labour
Marxian rises. the
Upto full-employment
is level, labour is
6. Karl Marx, Das Kapital, (1867), 652.
p.
 112 KARL MARX'S THEORY

hired at subsistence wage by the capitalists. After
that point increase in the capital accumulation
pushes up the wage rate and thereby, decreases
the profit rate. The decline in profit rate slackens
the rate of capital accumulation, which brings
about economic crisis.
(i) Unbalanced
growth of different
sectors: The second reason for the decline in
the rate of profit is the unbalanced growth of
different sectors. In a capitalist society, the
production is carried on in an independent
manner and very often capitalists make errors
consumption expenditure to increase and it
remains more or less stable. Total consumption
will be deficient. This
expenditure of two classes
explains the phenomenon of underconsumption.
Under-consumption causes overprod uction,
which breeds economic crisis.
Revival : When capitalists are caught in
the web of economic crisis and find that their
profits are shrinking and demand for their
products is falling, they would try to discover
and explore new markets in foreign countries,
because home markets are not capable of

in estimating the future trend of the markets. absorbing whole of the output produced by them.
When capitalists succeed in exploring new
Their knowledge about market conditions may
markets that would stimulate foreign trade, and
not be perfect. They may fail to anticipate the
capitalists would be able to sell their products.
behaviour of their competitors. The imperfect
the past had
knowledge of investors about future market
trends leads to overproduction. Over-production
The opening up of foreign trade in
led to the establishment of colonial empires.
colonialism
Marx maintains that
causes
causes of commodities in the market and
glut
producers are unable to sell their output at exploitation of resources and markets of the poor
nations.
countries tor the benefit of capitalist
remunerative prices which ultimately depresses when colonialism gets firmly rooted in poor
the level of profit. The probiem of o v e r - flooded with the
production in one sector affects adversely the
countries, their markets are
other sectors and this precipitates economic products
produced in developed countries. The
competition offered by domestic producers is
crisis. undone and ways are found to eliminate the
(iin) Underconsumption: Underconsumption is competing products, and destroy the industries
another factor of economic crisis. "Perhaps Max's that produce those products. Developed countries
most celebrated crisis theory is his under- capture the poor countries' markets and establish
theory." Marx does not believe their dominance. Flow of capital to the backward
consumption
in Say's law of market that "supply creates its countries fetches higher profits. Export of goods
demand." He rather makes critical remarks and capital to backward countries lessens the
own

about this law. "Nothing can be

more childish tendency of stagnation in the capitalist society
sale 1s a and pressure of over-production is minimised.
than the dogma that because every One should not, however, jump to the
a sale, therefore
purchase, and every purchase conclusion that export of goods and capital will
circulation of commodifies necessarily implies doom of From Marx's
of sales and purchases..
t the
prevent the capitalism.
an equilibrium the doom. The
interval in time between the
two complementary point of view, it merely postpones the clue
of a
behaviour ot the modern world provides
phases of the complete metamorphosis
between that revival of capitalism does not last long.
The
commodity becomes too great,
if the split nations who
modern world is dominated by rich
becomes too pronounced,
the sale and purchase with each other in an effort to capture
connection between them, their compete markets because they provide
the initial crisis." poor countries
goods and capital.
a
asserts itself by producing for their
oneness,
of underconsumption sale outlets w a r starts.The two World Wars
The phenomenon of mperialistic direct outcome of this
of 20th century were the
propensity
that the consumption World Wars finally,
explains its purchasing power of capitalism. The
class is limited by tendency It is a
working the extent of poverty
and the decay of capitalism.
determined by of brought about as
and is propensity ohistorical
consumption propersity evidence that Russia emerged
The consumption
for capital because of the First World
exploitation. greed country
is limited by their to c o u n t r i e s of
Eastern
capitalist class and many other
accumulateommunist

tries
Capitalist hina to capitalism.
as a reaction
Europe became red
accumulation. industrial
monarch.

m o r e to
become
allow the These historial evidences
bear out the vaA
m o r e and
more and nto he ddoes not allow
o e s not
he
History, Policy, 1957, p.60.
endeavour

In this Development: Theory,

Economic
nd R.E. Baldwin,
 KARL MARX'S THEORY
113

In most of the countries

vision for destruction of capitalism and possibility of class war.
is
emergence of socialism. workers' participation in management
and
ensured. Under this policy, employers
and
employees consider themselves as partners
3. CRITICAL APPRAISAL
trustees of social wealth. This new approach
Marx's analysis of development has been refutes, Marx's theory of class war. Marx s
his ideas are of capitalism has
variously assessed. For communists
his ideas are Prophesy about disintegration
gospels. To the capitalists, come out to be wrong. One must understand
His philosophy has changed the of class war was based on
revolutionary. that Marx's theory
face of the world. Though his writings are read ot history and he could not
by millions in every nook and corner of
in every of the world.he
the wotld past experience
be blamed for not anticipating the future
by millions
yet there are contradictions and inconsistencies
in his ideas, which are discuSSed below:
correctly.
(iii) The theory of surplus value is
Concept of historical materialism is open
defective : The doctrine of surplus value is
to objection: The concept of historical materialism considered the weakest point in the philosophy
or economic interpretation of history conveys that of Karl Marx. Critics have pointed out that it is
human activities are largely influenced by not the sacrifice of earners alone which
wage
economic factors. A critical examination of this creates value in the commodity. There other
are

concept would reveal that human activities are factors of production like land, capital and
not influenced by economic factors alone. Non- labourers to
enterprise who cooperate with thñe
economic factors also play their part. This concept produce the commodity. Workers alone cannot
ignores the role of non-economic factors, and claim to have created value in the commodity, as
undermines their importance. Human passions, the creation of value is result of combined efforts
sentiments, emotions and religious influence shape of all the factors of production. It is, therefore,
the structure of social and human activities. As not correct to say that the labourers are exploited
Bertrand Russell has remarked, "Larger events in if their wages are less than the value of the
our political life are determined by the interaction
human-passions. Itcommodlty.
material conditions and
Owould Again, it should be understood that
be unjustified to ignore the role of non-
capitalist class is the moving-force of capitalist
economic factors in human activities. It is now
knowledged by all that both material and non- development. It is the capitalist, who takes the
initiative to start the enterprise; it is he, who
material factors play an important part in the
takes the decision and gathers the factors of
economic activities.
production. It is he, who hires the labour and
ii) The theory of class war is criticised: The pays them wages and earns profit. Again, it is
theory of class war as propounded by Marx has he who makes the investment of his profit to
also been criticised. It is pointed out that the accelerate production. Such a laudable role of
class war is not only bad, but it is harmful too. thecapitalist could not be underestimated. If
This theory teaches hatred, ill-will, suspicion and capitalist is deprived of his due share of profit,
creates feelings of antagonism among the
members he cannot provide the lubricating oil to the
of the society. It creates an atmosphere of tension wheels of
and rivalry among different sections of society development.
The theory of surplus value is based the
and development activities receive a setback. 1he idea that the labourers are
on

theory of class war, therefore, is antithesis to paid subsistence

wages and they are thus exploited by the
develoment. Social progress requires industrial
peace, social amity, and political stability etc. capitalists. Underthe modern capitalist system,
the labourers are more well-off than under
Again, Marx believed that capitalistic other economic
any
development would take capitalists and workers system. The labourers under
in the capitalist system, receive higher wages and enjoy
opposite camps.
Such a thingis now
better amenities of life. They have benefited fromn
regarded a matter of past. Marx did not
the fruits of prosperity ushered in by the
anticipate the emergence of new group of capitalist svstem of production. In UoA 1
capitalists, new class of managers, technocrates
and technical advisers who could
foster the
example, the labourers receive higher wages, and
feelings of fraternity and brotherhood between enjoy better amenities of life than the upper
Classes of people in UDCs. In capitalist countries,
employers and employees and minimise the and coal-miners oWn cars.
even the sweepers
 114
KARL MARX'S THEORY
Theory of surplus value does not appear to be profits go side by side in the modern capitalist
convincing in the modern capitalist system. system.
Marx has proved to be a false
prophet. (w) Analysis of crisis is out-dated : Marx
(io) Effects of technological progress considers the business cycle as an integral part
exRggerated: Marx appears to have exaggerated of capitalist
the etfect of technical
He has pointed
development. But his analysis of
out that
progress. business-cycle lacks precision. According to
increasing technological progress leads him, the "falling-rate of profit and
to
technological unemployment and raising the
strength of industrial reserve army. This underconsumption" are the causes of crisis. His
to be an appears analysis of crisis is based on the nature of
exaggerated view. In some occupations, capitalist
unemployment may be possible due to and fiscal factors. A production rather than on
monetary
technological progress. But the overall net effect theory crisis that ignores
of
of
technological progress has been to increase monetary and fiscal factors is considered
employment opportunities in the incomplete and inadequate
The investment associated with long period. of crisis at the most can be theory.
His analysis
technological regarded suggestive
as
progress raises aggregate demand, income, rather than analytical.
output and employment. The improved Marx also
techniques of production, even if they may be are the causes ofbelieves
crisis
that production errors
in
labour-saving, can shower immense benefits on The a
capitalist economy.
the labourers. production errors lead to the problems of
Another effect of
over-production and underproduction. But critics
technological progress as
envisaged by Marx is that it
Point out that these tendencies do not explain
leads to fall in the sutfiCiently the general downward trend of the
rate of
profit, even this contention is not tenable. business cycle
Marx believes that as
there development proceeds, Another factor
occurs increase in the
an
organic responsible for crisis,
composition of capital i.e., C/(C + V). AS
according to Marx, is the tendency of
explained earlier, there is an inverse relationship
between
underconsumption
demand. He argues that
or lack of
consumption
rateof profit and
of capital. The increase in organic composition of the workers is limited consumption demand
of capital brings about a organic composition low
by their poverty and
Marx failed to visualise
fall in the level of profit. purchasing-power and those of capitalists,
that by their greed for more profit. This reasoning
innovations can be technological1
capital-saving to0. Capital does not
appear to be convincing. As
saving devices lower ratio and development proceeds, the purchasing-power
raise the productivity capital-output
of capital, which in of the workers
raises the rate of
profit. It
turn generally rises. Large investment
that technological
is not correct to Outlays
say will associated with development activities,
progress
The fallacy with Marx's reduces profit rate. have a
multiplier effect on output and
argument is that, he income and would raise the
looked upon technological
of capital-intensive rather thanprogress in the form of all sections of society. purchasing power
So there is little
device. labour-intensive possibility of deficiency of consumption demand.
It is also
Marx als0 maintains that rate
of profit falls, of a argued that consumption demand
when real wages are
higher than
capitalist is generally stable. But it should
level. Even this argument is not subsistence be remembered that the propensity to consume
is imporlant to convincing. It of the capitalists is not stable. Under the impact
note that technological of national
development requres large capital investment. effect and and international demonstration
As capilal investment hcreases, other factors, the
ratio rises and labour becomes more capital-labour function of consumption
the capitalists is bound
The increase in labour productivity raises productive. would be paradoxical to to rise. It
output. talk of
The increased underconsumption of capitalists. Marx's
The outpu
wockers. The capitalistsded between
receive interpretation of crisis in terms of
higher profits and labourers higher wages
is, therefore, not correct to Say that higher wages
underconsumption is, therefore, tound wanung
lead to fall in the rate ol prott. The Conclusion
logical
proposition is that higher Wages and higher Meier and
about Marxian Baldwin have made comments
model of
development:
"In
 KARL MARX'S THEORY
summary, as a formal nmodel, Marxian economics
is weak. The internal contradictions are more
those of the Marxian system iteself than they
are of capitalism.. Most of the reasonings about
the so called long-run and cyclical laws of
capitalist behaviour do not stand up to the raising production and transforming the
analytical scrutiny and historical experience. "9
Nevertheless, no anti-Marxist needs deny that
Marx has contributed important insights
the study of development.
into
His views that
development process occurs in an uneven and
discontinuous fashion is apprecia ted by
contemporary economic thinkers. Despite the
fallacies and untenable conclusions, Marxism
must be understood.
4. MARX-A FALSE PROPHET
Marx's analysis contains valuable insights
into the functioning of capitalism, but his
predictions, like the predictions of his
predecessors, have not proved true. There seem
to be two basic reasons. The first is that there
is a confusion in Marx's work between money
wages and real wages. When surplus labour
disappears a rise in money wages does not
necessarily mean a rise in real wages; but in
any case, the rise in real wages could be offset
by a rise in productivity, leaving the rate of profit
unchanged The second reason is that just as
other classical economists underestimated the
rate of technical progress in agriculture as an
offset to diminishing returns, so Marx
underestimated the effect of technical progress
in industry on the productivity of labour. It has
been explained above that rate of profil (P)
depends on S/(C+V) or
: From this
relation, it can be seen that even if C/V is rising,
the rate of profit can remain unchanged if
technical progress exceeds the rate of wage
growth by the samne
output (O) is determined by labour force (L),
amount. Technical progresS capital stock (K),
also means there is no necessary clash between
available (N) and the
real wages and the rate of profit. Both can rise.10
to be noted here, is
technology (T). The point
that Marx considers the
5. MODEL AND DEVELOPING COUNTRIESTelattonship between
115
including India. To achieve balanced growth,
subsistence sector could be modernised, to make
it a surplus yielding. Progressive land reforms
and rural development programmes would
provide necessary incentives to the tillers for
subsistence sector into the commercial one.
An analysis of national development plans
of underdeveloped countries (including India),
reveals that plans formulation bear the imprint
of Marxian theory. Simultaneous growth of
different sectors, priority allocation decisions by
governments, balance in public and private sectors
are some of the strategies which have been stressed
in the national plans. These plans have largely
been influenced by the success of the plans in
socialist countries like Russia. It can thus be
concluded that Marx's theory of economic
development provides guidelines to developing
economies for development.
6. MATHEMATICAL INTERPRETATION
The mathematical interpretation of the model
is based on equations, constructed on its basic
propositions. Some of the propositions and
equations of this model are the same as that of
the classical model. The notations and symbols
used in the classical model, are also used in this
model and connote the same meaning. Now, we
proceed to discuss the main propositions of this
model.
Proposition 1: The production function.
The Marxist idea about the
production
function is the same as that of the classicists.
Therefore, the equation of production function of
the classical model has been restated here.
O-fL, K, N, T) (1)
This
production function implies that total
quantity of natural resources
investment and

For rapid economic development, Marx has technological progress as a two-way tratfic, 1e.
advocated the strategy of investement is needed for technological progress,
unbalanced
growth ie, and technological progress in turn
the
disproportionality in the growth of different creates
sectors. This strategy of
development has been OPportunities for investment. L refers to number
wOTkers actually employed andand the growth
not
adopted in most of the developing
countries of population. population
O population. The employment
The employme
9. G.M. Meier and RE.
Baldwin, Economic Development Theory, History, Policy, 195/, Po
b6.
10. A.P. Thirlwall, Economics
of Development, 2011, p. 140.
 KARL MARX'S THEORY
116

growth are not the same thing for the purpose variable capital (W) rises. The capital costs rise
relative to labour costs, which in turn, raises
of this model.
the capital-output ratio and the capital-labour
Proposition 2: Technological progress depends ratio. The rise in capital-output ratio means, fall
on investment.
in the productivity of capital and fall in profits.
This proposition is the same as that of the
This is how, Marx has explained the tendency
classical model. It states that the technological
of profits to fall in the long period.
progress of a country depends upon the level of
investment. The relationship between these two Proposition 5: Wages depend on the level of
factors has been expressed as: investment.
T-f) .(2) Like classical theory, this model explains
that wage bill depends on employment and wage
Proposition 3 : lnvestment depends on tihe rate rate. The total wage bill is the product of
of profit wage
rate and employment. Th wage bill in the
In this model, the term 'profit means the Marxian systèm constitutes the variable capital
surplus value, and it is the difference of total and it in turn,depends upon
output and total wage bill. In classical model, the functional relationship investment.
between wage The
and
profit is a part of the capitalist's income and, investment is
investment depends on profit, whereas in this expressed as under
model, investment depends on the rate W f)
or the rate of return on
of profit 5)
capital or rate
calue. If the rate of return on
of surplus Proposition 6 : Employment depends on the
capital
by R the functional relationshipisbetween
denoted level of investment.
investinent and rate of profit can be Like wage bill,
as
expressed on investment.
employment also depends
The point to be noted hereis
that, Marx considers scientific
I =f (R')
3) innova tions the
discoveries and
Proposition 4: The rate of profit is
labour-saving devices and
as

the
profits to the variable capital plus constant capital. labour-saving
ratio of devices result în technological
unemployment. As investment expands, the level
In proposition 3, it of
the rate of
has been made clear that employment increases, but each addition to
profit is ihe rate of the capital stock would result in the displacement
it is the difference of total surplus value and of technical or industrial
the tolal wage bill. Marx national income and workers. In other words,
has divided capital into he proportion of "reserve army'" increases with
two parts, variable addition to stock of capital. On this basis, it
or working capital, and
or fixed
capital. The variable capital refersconstant
to the
be concluded
thaemployment
can
can rise only whe
armount of money paid as
Briefly, working capitaf is wages to the workers. investment increases in relation to the existing stocx
rolls, and
the total wage bill or of capital. This has been expressed in the form o
pay is
it denoted by W. The constant anequation:
capital
ís denoted by Q'. It
means the capital
goods and inventories are used to produce national L=f(/O) .6)
output (O). The rate of profit R' is calculated as flere, L refers to the number of workers
under: actually employed, I for investment and Q foOr
the
O-W R existing stock of capital.
R W+ W+ 4) Proposition 7: Consumption depends upon the
wage bill.
Here, R stands for the total profit and R,
the rate of profit. Marx believes that
According to
Marx,
rale of orofit or rate turnover, that
ol
it is the of the underconsumption
factors responsible for the decline is
one

o e l of investment determines
(as eXplained in capitalist system. He also believes that capl
Proposition 3). goods and consumption goods sectors
arkets for each other Pror
Another point to be note n this context is Dalanced growth. For product and pave way ro
that Max believes that prolits lave a tendency Browth,
the promotion of economic
consumption goods sector has to De
to fall. The downward tendency o plot has been expanded alongwith the capital goods sector. 1ne
explained like this When tec y makes expansion of the consumer goods sector depena5
ratio of constant capital t ) to the on the size of the wage bill. Briefly, it can De
 KARL MARX'S THEORY
stated that consumption is a function of wages.
The functional relationship between the two can
beexpressed as
C-f(W) .7)
Proposition 8: Profits depend o the levels of
techmology and consumption expenditure.
The levels of technology and
consumption
expenditure are two important determinants of
profits Improved technology helps in raising
profits in the long-run. The. consumption level
determines the extent of màrket, which in turn
determines profits. Thus, profit_determining
equation can be expressed as
R f(T, C)
.(8)
Here, R is the volume of profits and not the
rate ofprofit, T and C refer to levels, of technology
and consumption respectively. It should be
dearly understood that Marx stressed on the rate
of profit (ie., rate of return on capital) rather than
the volume of profits, as a factór determining
the capitalist's behaviour. It is the rate of profit
which has a tendency to fall in the long-run.
117
Closing the system: To make Marxian
system determinate, three identities are
introduced. The first identity explains that total
output is equal to total profits plus total wages.
O R+w 9)
The second identity is based on the division
of economy into two sectors, consumption goods
and capital goods sectors. The total output is the
sum of consumption goods and investment goods.
Therefore,
O = C+I .(10)
The third identity shows that, there is a fixed
relationship between the current capital costs
Q' and the stock of capital (Q). The relationship
between Q' and Q is denoted by u ie., "user cost
(the added cost of using capital to produce goods
and services rather than keeping it idle), the
equation expressing the relationship between the
two can be written as:
Q' =uQ .(11)
The system is now determinate, as there are
eleven equations and eleven unknown variables.

QUESTIONS
1. Explain the main components of Marxian theory of development and discuss how these are related to
development.
2. Critically examine Marx's theory of development.
3. Discuss the relevance of Marx's theory of development in the context of developing countries like India.
4. Critically evaluate the arguments which Marx used to prove that capitalism was doomed.
5 Give an assessment about the Marxian theory of crisis in a capitalist economy.
6. Explain and examine Marx's theory of surplus value.

SELECT REFERENCES
1. Bauer, P.T, Dissent on Development, 1971.
2. Higgins, B., Economic Development: Problems, Principles and Policy, 1959.
3. Mehta, J.K., Economic Development: Principlesand Problems, 1971.
4. Meier, G.M. and RE. Baldwin, Economic Development: Theory, History, Policy, 1957.
5. Nag, DS, Problems of Underdeveloped Economy, 1968.
6. Schumpeter, J.A., Ten Great Economists, 1961.
7. Singh, V.B, Theories of Economic Development, 1971.
8. Thirlwall, A.P., Economics ofDevelopment, Ninth Edition, 2011