Economics and Karl Marx

History is economics in action.” – Karl Marx

The discipline of Economics has been improved upon by many individuals who have not been economists. One among them is Karl Marx (1818-83). Marx contributed to sociology, history, philosophy, literature and even arts. This article tries to bring out to the fore a few of his contributions and criticisms regarding Economics.

Marx’s theories revolved around the relationship between capitalist and worker. He posited that this relationship is an unstable one, as each sees the other as a rival. During his time, money and bargaining was associated with the Jews and they dominated the society. Marx suggested a reorganisation of society so as to do away with the evils of bargaining, which almost eventually resulted in the worker getting exploited.

The property owning middle class could win freedom for themselves on the basis of rights to poverty- thus excluding others from the freedom they gain- the property less working class possess nothing but their title as humanity. Such was Marx’s view of the exploited proletariat. Marx claimed that ‘total deprivation’ was a universal characteristic of the proletariat. [Singer 2006]

Marx began his critical study of economics in 1844. Marx criticised classical economic theories stating that they characterised worker as a commodity, the production of which is subject to the ordinary laws of supply and demand. [Singer 2006]

Marx contended that the main problems in the economy were caused due to the unequal ownership of private property. He wanted to abolish private property and to also regulate production. The solution he gave was ‘Communism’ in the ‘Communist Manifesto’ written jointly with Friedrich Engels. He also viewed the labourer and their labour as one. And one of the questions he posed was whether the labour was more important than the labourer.

Theory of Surplus value

Surplus-value is the social product which is over and above what is required for the producers to live.

The measure of value is labour time, so surplus value is the accumulated product of the unpaid labour time of the producers. In bourgeois society, surplus value is acquired by the capitalist in the form of profit: the capitalist owns the means of production as Private Property, so the workers have no choice but to sell their labour-power to the capitalists in order to live. The capitalist then owns not only the means of production, and the workers’ labour-power which he has bought to use in production, but the product as well. After paying wages, the capitalist then becomes the owner of the surplus value, over and above the value of the workers’ labour-power.

The capitalists may increase the amount of surplus value extracted from the working class by two means: (1) by absolute surplus value – extending the working day as long as possible, and (2) by relative surplus value – by cutting wages.

On Division of Labour

Marx talked about the ill effects of Specialization. He posited that increasing division of labour eliminates intellectual and manual skill and reduces the labourer to a mere appendage to a machine. [Singer 2006]

Looking at this statement, I feel it holds good even now. If a labourer could learn two or more trades, it is possible for him to perform efficiently in all the trades, except for the fact that, he would not be able to devote his entire time to a single trade. In this age, seldom do we come across people who are economists as well as physicists or historians as well as doctors, etc. ‘Specialization’ is said to be the need for the day.

Taking the case of a manual labourer in India, if he knows two trades, he would be better off. The labourer will be in a better bargaining position than otherwise.

Thoughts

Marx was of the view that we need to produce things for their use-value and not for their exchange-value. This is what he tried to achieve by Communism. But Communism rendered human inventions and innovations as useless. Though, people all had the basic necessities of life, they did not have the motivation or the zeal to bring out the best in them.

His insights of Classical Political Economy are laudable. A science progresses when it is criticized and when it gets defended.

Writings in Economics

1) Das Kapital
2) Critique of Political Economy
3) Grundrisse

References

1] Marx: A very short introduction-Peter Singer
2] Encyclopedia of Marxism

0 thoughts on “Economics and Karl Marx

  1. I’ve tried reading Marx and lost my way within a few days…you have explained the basics in a very simple way..good one.

    Individual innovation and intelligentsia’s contribution to the society did flourish in Bolshevik Russia. We see the best coming out of men in Cuba and Vietnam , you can cite achievements in health, education, sports, arts and technology. Bolshevik russia contributed the most, arguably, in the field of science during its seventy six yrs. So the human element was well taken care of in the model.

    I think the basic problem was in implementation of the marxist way. Individual freedom and a individual’s yearing for freedom is the most important thing in communism – thats what Marx meant when he said breaking the shackles. Maybe the Marxist ideology should have been first tried out with the Anglo-saxon race than the slavs in Russia. Oh i’m rambling :)

  2. ur article on Karl Marx is really worth reading.thank u .
    can u please explain me as to what is SCISSORS CRISIS.
    also i have a query .i m presently pursuing economics hons and want to pursue masters in the same sub for that i hv heard about AXIOM Coaching institute in delhi.and thinking to take correspondance coaching.do anyone has any idea about this coaching institute.please guide.

  3. Harsha,
    I have heard of a coaching center called ‘Prime Education’. But it does not offer correspondence for its entrance coaching. Could you please provide more details on AXIOM coaching institute?

    The Scissor Crisis was a name given during the New Economic Policy (NEP) in Russia in 1923 to the problem that the NEP was improving agricultural production faster than industrial production, leading to a disparity in prices (the name was coined by Trotsky after the scissors-shaped price/time graph). This meant that peasants’ incomes fell, and it became difficult for them to buy manufactured goods. As a result, peasants began to stop selling their produce and revert to subsistence farming, leading to fears of a famine. [Answers.com]

  4. well i myself dont know too much about this institute .i had seen an advertisement in the newspaper .it had the captions that they provide coaching for DSE\JNU entrance exam and its somewhere in rajendra nagar delhi.

  5. Harsha,

    I tried searching online, but didn’t find it. If you remember the date, do let me know.

    I haven’t gone through any books for Monetary Economics specifically, so i don’t know.

  6. I think most of what marx says was quite relevant then and seems more relevant,now what with we seeing that globalization does not work.

    Specially,the use value and the exchange value concept seems to be a practical concept,what with increasing consumption of harmful goods(e.g.cigarettes,alcohol).

    Instead if the soceity on the whole could concentrate towards growing goods of some utility(Here I define utlity)as usefulness.)For instance tobacco cultivation could be banned and focus could given on other less harmful cash crops or other food crops.Though on a micro level,certain people would be financially hit by the decision,but in the overall perspective the soceity would be better off atleast by leading a healthy life style.

  7. Rohan,

    Marx’s ideas still find weight in today’s world. Globalisation will only help those economies whose ‘public service systems’ are in proper order. Most of the developing countries face the difficult prospect of eliminating back logs, red tapism, bribes, etc in ‘this’ intermediary sector.

    The issue with the production of ‘harmful goods’ is that though it is a ‘social bad’, it provides utility to those consuming it.

    The society will be better off, as you said in leading a healthy life; but there would be rampant black marketing of such goods and people would be discontented. There is a significant trade-off involved.

  8. i came across a point in which it was stated that the prices should not remain constant but should rather keep on increasing gradually and not abruptly for the economy to grow. i could not understand it .can u please guide me if possible.

  9. Harsha,

    The Central banks and Government advocate a mild inflation to be healthy for the economy.

    A gradual increase in prices can occur due to basically 2 reasons
    1)Demand related effects
    2)Supply related effects

    When demand exceeds supply, it results in a rise in price. When people demand more (either due to lowering of prices or increase in income) than what is available in the market; it translates into an increase in production to meet the increased demand.

    As an economy grows, a ‘slow rise in prices’ is favourable.

  10. Slow rise in price is also good for other reasons. Clearly, some price in the economy need to go down while some up during a period. For example, real wages might require a downfall, but workers will obviously resist to any decline in nominal wage rate to achieve this decline. Increase in Price level comes in picture now. By keeping nominal wages constant, or letting them increase at a lower rate than prices, real wages can be lowered.

    So, prices act as a tool to change real variables, without tinkering with nominal ones.

    This argument was put forward by George Akerlof, William Dickens & Goerge Perry, quite recently in the 1990s.

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