What It Means
Marxist economics is a branch of economic study based on the writings of Karl Marx (1818–83), a German philosopher, revolutionary, and economist. While largely dismissed by mainstream economists today, Marxist economic ideas have had a great impact on the world since the early twentieth century.
Marx is best known for providing the intellectual foundation for the various socialist ideologies (beliefs in redistributing wealth and property so that individuals share the fruits of the economy more equally than under other political systems) that rose to prominence in Russia, China, and Eastern Europe in the early twentieth century. Marx’s popular reputation rests largely on his coauthorship (with Friedrich Engels) of The Communist Manifesto (1848), which agitated for a revolutionary overthrow of the capitalist system (the dominant world economic system then and now, in which individuals, rather than the government, own property and are freely allowed to profit from their business ventures).
Many people are unaware, however, that Marx is one of the most important economists in history. His achievement as an economist rests on his thorough critique of capitalism in the three-volume work Das Kapital , the first volume of which was published in 1867 and the unfinished second and third volumes of which were published after his death.
In Das Kapital Marx outlined the concept of surplus value, which he and his followers considered capitalism’s fatal flaw. Essentially Marx argued that workers produce more value, through their labor, than their bosses pay them for and that this excess (or surplus) value is the source of business owners’ profits. This was a cornerstone of Marx’s belief that capitalism was unsustainable and would ultimately collapse, to be replaced by a system run by and for the working classes.
When Did It Begin
While living in London in the 1850s, having been exiled for political reasons from Germany, France, and Belgium, Marx spent much of his time studying economics at the Reading Room of the British Museum. Intending to critique capitalism using the existing economic theories of Adam Smith and David Ricardo, Marx produced a major work called A Contribution to the Critique of Political Economy in 1859 in which he argues that it was not “the consciousness of men that determines their existence, but their social existence that determines their consciousness.” The book examines the structures of society (law, politics, art, philosophy, and religion) and maintains that they are all dictated by economic forces. Marx devoted much of his life thereafter to working on Das Kapital , an even more ambitious analysis of the capitalist system. Volume 1 of Das Kapital , which was published in 1867, introduced the central concepts in Marxist economic theory, the most important of which is the principle of surplus value. Marx was not able to finish Das Kapital before his death in 1883, but his friend and colleague Friedrich Engels edited volumes 2 and 3 of the book and had them published in 1885 and 1894, respectively.
More Detailed Information
Marx’s economic theories were rooted in the ideas of Adam Smith and David Ricardo, the two most prominent economists of the late eighteenth and early nineteenth centuries. Smith had developed the idea of a labor theory of value. The labor theory of value holds that the value of any good is produced by the labor that went into its production. A pair of shoes that took 10 hours to make would, according to the labor theory, be more valuable than a pair of shoes that took 5 hours to make. Ricardo bolstered Smith’s labor theory by countering critics who believed that it was subject to too many objections to be valid.
Marx addressed further implications of the labor theory of value, namely the question “If labor produces all value, where do profits and interest (fees paid by people who borrow money) come from?” In other words, why does the economy reward people who do not contribute any labor?
Marx’s answer to this question was that workers were paid only as much as they needed to survive and feed their families. Their labor was rewarded at this level, no matter how much value they actually added to the products they made. Imagine a worker in a button factory. The worker might make X dollars worth of buttons, but he might only be paid half of X. Because value is a result, as Adam Smith argued, of the amount of labor that goes into a product, the other half of X (the factory owner’s profit) comes from the surplus value of the worker’s labor, or labor for which he was not paid.
Marx believed that this situation was unfair and resulted in an ever-present struggle between the working class and the employing class. This class struggle over surplus value is, in Marx’s view, a defining feature of capitalism.
Marx argued, moreover, that competition between business owners always tended to reduce profits and that falling profits would force some owners out of business, sending them into the ranks of the working class. This movement of former employers into the working class would mean that the number of people in the working class would grow, while ownership would be consolidated among fewer and fewer people. Thus, the conditions for the overthrow of capitalism (a large, impoverished working class and a small, unfairly enriched owning class) would emerge from the system itself.
Marx’s theories inspired the Russian Revolution of 1917, which led to the formation of a new communist state, the Soviet Union. V.I. Lenin (who governed the Soviet Union until his death in 1924) and Joseph Stalin (ruled 1924–53) were both committed Marxists, as was Mao Zedong, who in 1949 led the communists to power in China. Although these leaders interpreted Marx in different ways, each of them openly opposed capitalism and, by extension, the United States for much of the twentieth century. Most Americans, as a consequence, unthinkingly dismiss Marx’s theories today. The economic failure of both governments (the Soviet Union dissolved in 1991 because of economic crises, and China in 1978 began adopting capitalist economic policies) has been used as further evidence, among economists as well as ordinary people, that Marx’s theories are unsound.
In his writings, however, Marx had focused on highly developed capitalist economies (characterized by private ownership of property and businesses), such as those of England and France. He had predicted that the capitalist system in such countries would break down as a result of struggle between workers and the business owners who exploited them. When Russia and China adopted communist systems, they were not at an advanced stage of capitalism. Russia, for example, was still characterized by a strong aristocracy, an elite class of people who inherited their wealth and that had, until 1861, literally owned those peasants who lived on their land. The class struggle between workers and owners had not yet reached the stage at which Marx predicted crisis would ensue. Because of this many Marxists and socialists around the world worried that the revolution was premature. In fact, the major socialist party in England immediately declared, upon hearing about the revolution, that it was anti-Marxist.
Economists, meanwhile, acknowledge the significance of Marx’s critique of capitalism, even though some of his most important theories have not stood the test of time. Most crucially the concept of surplus value lost its validity among economists in the late nineteenth century, when the labor theory of value was no longer accepted as the best explanation for how prices were set. Instead of maintaining that a good’s price was determined by the amount of labor that went into its production, economists such as Alfred Marshall convincingly demonstrated that other factors, such as demand (the quantity of a good that buyers are willing to buy at a given price), can have an equally powerful effect on price. Despite the fact that Marxist economic thought lost much of its force due to this development, virtually all economists today acknowledge Marx’s importance as a critic of the capitalist system. Prior to Marx, economists primarily concerned themselves with understanding the workings of the economy. Marx showed that it was also important to consider the moral and social dimensions of economic phenomena.
Today there are economists who more openly identify themselves with Marx. They call themselves Marxian economists to distinguish themselves from those who used and abused Marx’s theories for political purposes. Marxian is intended to suggest that they are following in the wake of Marx’s theories without following those theories exactly, as Marxists aspired to do. Marxians draw on a wide range of sources in their examination of capitalism but are united by a tendency to view capitalism in moral terms.
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"Marxist Economics." Everyday Finance: Economics, Personal Money Management, and Entrepreneurship. . Retrieved March 26, 2019 from Encyclopedia.com: https://www.encyclopedia.com/finance/encyclopedias-almanacs-transcripts-and-maps/marxist-economics
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