A Brief Overview of Marxian Economics and its Merits
By Matthew Hodder
Many people are familiar with the famous socialist teachings of Marx and Engels in ‘The Communist Manifesto’, foretelling the fall of capitalism and the emergence of a new, Socialist mode of society that will eventually give way to a communist society. Underpinning this new organisation of society, found in ‘Das Kapital’, is an alternative source of economic thought that differs slightly from the classical economic thought at the time as provided by the likes of Adam Smith, David Ricardo, and Thomas Robert Malthus. In this article, we will use Barber’s account to lay out a basic outline of Marxian economics and then we shall evaluate its merits over time.
The historical context in which ‘Das Kapital’ emerged featured heavy industrialisation which Barber (1967, p.117) says “would have astonished… Smith”. Unfortunately, accompanying the huge rise in factories and industry were appalling conditions for the working class. Long workdays and dangerous conditions lead to certain exploitations of the working class. This was great news for the capitalists, who were able to enjoy much higher profits from a much more productive working class. We can define this ‘productivity’ as generally producing much higher levels of output with the same levels of inputs or using fewer inputs to produce the same amount of inputs. In the United States, one example of this is the cigarette machines that could produce up to 100,000 rolled cigarettes a day, compared to much, much less by the workers who produced them by hand. Against this historical context, Marx proposed a new view of social classes. This went from three classes: Landlords, Capitalists, and Workers, to two. The source of the division, Marx says, that “the use of machine techniques created a sharp cleavage in society” (Barber, 1967, p.127) which – familiar to many – was between those who owned the means of production and those who used the means of production to produce output. It is these unresolvable tensions that would lead to the demise of capitalism, according to Marx (Barber, 1967, p.127).
For the economic source of these tensions, we turn to the concept of the ‘exploitation’ of the proletariat. In order to fully understand this, we look briefly at Marx’s account of the value of commodities, which is simply that “The value of labour-time is determined… as in the case of every other commodity by the labour-time necessary for the production” (Barber, 1967, p.130). This explains why all commodities are exchangeable and commensurable; because they are all produced by labour inputs.
It is no surprise that workers had to earn enough to subsist on, and to do this they were forced to sell their labour to the capitalists since they did not own the means of production themselves. The problem, for Marx, is that the subsistence wage required for the workers to survive accounts for only a small portion of the working day say four hours. The rest of the day, say, the seven remaining hours are not paid into their wages but are left to the enjoyment of the capitalists. This refers to the ‘surplus value’ that is the output that is not paid to the workers, but it appropriated by the capitalists. There is a simple ratio to describe this, which we may call the exploitation ratio.
The S refers to the surplus value that is generated (that is the unpaid section, again, the seven hours that the proletariat is not paid for) and the V is the value that is produced during that day (so the necessary labour time of four hours plus the seven hours unpaid labour time).
Now let us discuss the merits of the Marxian strain of economic thought. Lange (1935, p.192) comments that a “characteristic feature of Marxian economics… is that it provides not only a theory of economic equilibrium but also a theory of economic evolution”. This suggests the merit of Marxian economics is that it can predict the future of capitalist economics that collapse based on the tensions between the proletariat and the workers. In evaluation however, it is important to remember that Marxian economics does not offer substantial economic answers to “monopoly prices… [or]… monetary and credit theory” (Lange, 1935, p.191), therefore it is far from a perfect system of economic thought. Microeconomics of recent times model adequately the impact of monopoly prices using marginal cost, average cost and marginal revenue curves, but that is beyond the scope of this article. It is surely valuable, on some level, to consider economic evolution and how the contemporary system could come to collapse. It seems that Marx provides a tangible strain of thought, at least at the theoretical level. The historical conditions of the working class were not sustainable, with up to fourteen-hour workdays (Barber, 1967, p.118), and the tensions caused by the exploitation is believable, inevitably causing a huge reorganisation as history progressed.
Historically, however, these conditions and tensions seem to have at least partially been resolved. The conditions, thanks to regulation, have gotten much better for much of the west and the rise of Unions, especially in the US around the 1890s, has pushed for the eight-hour workday, which aimed to divide the 24-hour day equally between rest, work and free time to pursue one’s own interests. This, combined with rising wages, has helped to somewhat alleviate this struggle of exploitation.
In conclusion, Marxian economics has taken its place as an interesting and somewhat accurate strain of economic thought. It begins with a cleavage in society based on the means of production, where the proletariat are excluded from the full value of the output, they produce which is based on the labour-input. The exploitation rate is based on the full working day totally much more than that which the worker is paid as a necessary wage to live on, and further exudes discontent. Marx’s work is no doubt highly influential to many people but has lost part of its relevance due to some economic questions that it is unable to answer, in spite of the merits it has of explaining a course of economic development. There has been little evidence to suggest that the current capitalist society is even close to its purported downfall as predicted by Marx, in spite of severe shocks, such as 2008, that have caused economic chaos. There are, as we have seen, some evident merits to Marxian economics.
Barber, W. J. 1967. A History of Economic Thought. Penguin Books: New York
Lange, O. 1935. “Marxian Economics and Modern Economic Theory”. The Review of Economic Studies. 2, (3): pp.189-201