Lecture 3

Marxist Theory

Karl Marx

Karl Marx (1818-1883) was a philosopher, author, social theorist, and economist. He is
famous for his theories about capitalism, socialism, and communism.

Marx, in conjunction with Friedrich Engels, published The Communist Manifesto in 1848;
later in life, he wrote Das Kapital (the first volume was published in Berlin in 1867; the
second and third volumes were published posthumously in 1885 and 1894, respectively),
which discussed the labor theory of value.

KEY TAKEAWAYS

• Karl Marx was a prominent thinker who wrote on topics related to economics,
political economy, and society.
• Born in Germany, Marx spent much of his time in London, where he wrote many
famous works including The Communist Manifesto and Capital (Das Kapital).
• Marx often collaborated with long-time friend and social theorist Friedrich Engels.
• Marx is known for his revolutionary writings favoring socialism and a communist
revolution.
• While Marxism and Marxian economics has been largely rejected by the mainstream
today, many of Marx's critiques of capitalism remain relevant today.

Early Life and Education

Born in Trier, Prussia (now Germany), on May 5, 1818, Marx was the son of a successful
Jewish lawyer who converted to Lutheranism before Marx’s birth. Marx studied law in Bonn
and Berlin, and at Berlin, was introduced to the philosophy of G.W.F. Hegel.

He became involved in radicalism at a young age through the Young Hegelians, a group of
students who criticized the political and religious establishments of the day. Marx received
his doctorate from the University of Jena in 1841. His radical beliefs prevented him from
securing a teaching position, so instead, he took a job as a journalist and later became the
editor of Rheinische Zeitung, a liberal newspaper in Cologne.

After living in Prussia, Marx lived in France for some time, and that is where he met his
lifelong friend Friedrich Engels. He was expelled from France and then lived for a brief
period in Belgium before moving to London where he spent the rest of his life with his wife.

Marx died of bronchitis and pleurisy in London on March 14, 1883, and was buried at
Highgate Cemetery in London. His original grave was nondescript, but in 1954, the
Communist Party of Great Britain unveiled a large tombstone, including a bust of Marx and
the inscription "Workers of all Lands Unite," an Anglicized interpretation of the famous
phrase in The Communist Manifesto: "Proletarians of all countries, unite!"
Marx's Theories

Marx was inspired by classical political economists such as Adam Smith and David Ricardo,
while his own branch of economics, Marxian economics, is not favored among modern
mainstream thought. Nevertheless, Marx's ideas have had a huge impact on societies, most
prominently in communist projects such as those in the USSR, China, and Cuba. Among
modern thinkers, Marx is still very influential in the fields of sociology, political
economy, and strands of heterodox economics.

In general, Marx claimed there are two major flaws inherent in capitalism that lead to the
exploitation of workers by employers: the chaotic nature of free market competition and the
extraction of surplus labor. Ultimately, Marx predicted that capitalism would eventually
destroy itself as more people become relegated to working-class status, inequality rose, and
competition would lead the rate of corporate profits to zero. This would lead, he surmised, to
a revolution where production would be turned over to the working class as a whole.

Exploitation and Surplus Value

While many equate Karl Marx with socialism, his work on understanding capitalism as a
social and economic system remains a valid critique in the modern era. In Das
Kapital (Capital in English), Marx argues that society is composed of two main classes:
Capitalists are the business owners who organize the process of production and who own the
means of production such as factories, tools, and raw materials, and who are also entitled to
any and all profits.

The other, much larger class is composed of labor (which Marx termed the "proletariat").
Laborers do not own or have any claim to the means of production, the finished products they
work on, or any of the profits generated from sales of those products. Rather, labor works
only in return for a money wage. Marx argued that because of this uneven arrangement,
capitalists exploit workers.

This exploitation is the reason, according to Marx, that employers are able to generate profits:
they extract a full day's worth of effort and production from workers but only pay them a
smaller fraction of this value as wages. Marx termed this surplus value and argued that it was
nefarious.

Labor Theory of Value

Like the other classical economists, Karl Marx believed in a labor theory of value (LTV) to
explain relative differences in market prices. This theory stated that the value of a produced
economic good can be measured objectively by the average number of labor hours required to
produce it. In other words, if a table takes twice as long to make as a chair, then the table
should be considered twice as valuable.

Marx understood the labor theory better than his predecessors (even Adam Smith)
and contemporaries, and presented a devastating intellectual challenge to laissez-
faire economists in Das Kapital: If goods and services tend to be sold at their true objective
labor values as measured in labor hours, how do any capitalists enjoy profits? It must mean,
Marx concluded, that capitalists were underpaying or overworking, and thereby exploiting,
laborers to drive down the cost of production.1
While Marx's answer was eventually proved incorrect and later economists adopted
the subjective theory of value, his simple assertion was enough to show the weakness of the
labor theory's logic and assumptions; Marx unintentionally helped fuel a revolution in
economic thinking.

Historical Materialism

Another important theory developed by Marx is known as historical materialism. This theory
posits that society at any given point in time is ordered by the type of technology used in the
process of production. Under industrial capitalism, society is so ordered with capitalists
organizing labor in factories or offices where they work for wages.

Prior to capitalism, Marx suggested that feudalism existed as a specific set of social relations
between lord and peasant classes related to the hand-powered or animal-powered means of
production prevalent at the time.

Marx's Written Works

During his lifetime, Karl Marx wrote and published no less than least fifteen complete multi-
volume books, along with numerous pamphlets, articles, and essays. He could often be found
writing at the reading rooms at London's British Museum.2

Perhaps his most famous work, The Communist Manifesto summarizes Marx and Engels's
theories about the nature of society and politics and is an attempt to explain the goals of
Marxism, and, later, socialism. When writing The Communist Manifesto, Marx and Engels
explained how they thought capitalism was unsustainable and how the capitalist society that
existed at the time of the writing would eventually be replaced by a socialist one.

Das Kapital (in English, Capital: A Critique of Political Economy) was a full and
comprehensive three-volume critique of capitalism. By far the more academic work, it lays
forth Marx's theories on commodities production, labor markets, the social division of labor,
and a basic understanding of the rate of return to owners of capital. Marx died before the third
volume was finished, which was published posthumously by Engels based largely on Marx's
notes. Today, many of the ideas and critiques of capitalism remain relevant, such as the
emergence of monopolistic mega-corporations, persistent unemployment, and the general
struggle between workers and employers.

The exact origins of the term "capitalism" in English are unclear, and it is certain that Marx
was not the first to use the word "capitalism" in English, although he contributed to the rise
of its use and interest in the concept.1

According to the Oxford English Dictionary, the English word was first used by author
William Thackeray in 1854, in his novel The Newcomes, who intended it to mean a sense of
concern about personal possessions and money in general. While it's unclear whether either
Thackeray or Marx was aware of the other's work, both men meant the word to have a
pejorative ring. Adam Smith also famously wrote about the capitalist economic system in his
1776 masterpiece, The Wealth of Nations, and Marx was well aware of Smith's writings.

Contemporary Influence
Marx's work laid the foundations for future communist leaders such as Vladimir Lenin and
Josef Stalin. Operating from the premise that capitalism contained the seeds of its own
destruction, his ideas formed the basis of Marxism and served as a theoretical base for
communism.

Nearly everything Marx wrote was viewed through the lens of the common laborer. From
Marx comes the idea that capitalist profits are possible because the value is "stolen" from the
workers and transferred to employers.

Marxist ideas in their pure form have very few direct adherents in contemporary times;
indeed, very few Western thinkers embraced Marxism after 1898, when economist Eugen
von Böhm-Bawerk's Karl Marx and the Close of His System was first translated into English.
In his damning rebuke, Böhm-Bawerk showed that Marx failed to incorporate capital
markets or subjective values in his analysis, nullifying most of his more pronounced
conclusions. Still, there are some lessons that even modern economic thinkers can learn from
Marx.

Though he was the capitalist system's harshest critic, Marx understood that it was far more
productive than previous or alternative economic systems. In Das Kapital, he wrote of
"capitalist production" that combined "together of various processes into a social whole,"
which included developing new technologies.3

He believed all countries should become capitalist and develop that productive capacity, and
then workers would naturally revolt, leading communism whereby the workers would
become the dominant social class and collectively control the means of production. But, like
Adam Smith and David Ricardo before him, Marx predicted that because of capitalism's
relentless pursuit of profit by way of competition and technological progress to lower the
costs of production, that the rate of profit in an economy would always be falling over time.

Economic Change to Social Transformation

Dr. James Bradford "Brad" DeLong, professor of economics at UC-Berkeley, wrote in 2011
that Marx's "primary contribution" to economic science actually came in a 10-paragraph
stretch of The Communist Manifesto, in which he describes how economic growth causes
shifts among social classes, often leading to a struggle for political power.

This underlies an often-unappreciated aspect of economics: the emotions and political

activity of the actors involved. A corollary of this argument was later made by French
economist Thomas Piketty, who proposed that while nothing was wrong with income
inequality in an economic sense, it could create blowback against capitalism among the
people. Thus, there is a moral and anthropological consideration of any economic system.
The idea that societal structure and transformations from one order to the next can be the
result of technological change in how things are produced in an economy is known as
historical materialism.

What Is Karl Marx's Main Theory?

Karl Marx’s theories on communism and capitalism formed the basis of Marxism. His key
theories were a critique of capitalism and its shortcomings. Marx thought that the capitalistic
system would inevitably destroy itself. The oppressed workers would become alienated and
ultimately overthrow the owners to take control of the means of production themselves,
ushering in a classless society.

What Is Karl Marx Best Known for?

Karl Marx is best known for his theories that led to the development of Marxism. His ideas
also served as the basis for communism. His books, Das Kapital and The Communist
Manifesto formed the basis of Marxism.

Marxism vs. Communism

Marxism is a system of socioeconomic analysis, while communism is a form of economic

production that extends to government or political movements. Marxism is a broad
philosophy developed by Karl Marx in the second half of the 19th century that unifies social,
political, and economic theory. It is mainly concerned with the battle between the working
class and the ownership class and favours communism and socialism over capitalism.

The Bottom Line

Karl Marx remains controversial, but his writings still remain relevant today. Even as
mainstream economics has relegated Marxism as a heterodox school of thought, Marx did
have a lot to say about the capitalistic system of production and roundly critiqued it for
generating social and wealth inequalities, negative externalities, and class struggle.
Ultimately, Marx's predictions about the impending collapse of capitalism and the communist
revolutions that would follow proved incorrect. This has led many to discount Marx and
Marxian thought. Still, Marx's insights remain influential and inspiring to others.

Friedrich Engels was a German philosopher, writer, and social scientist. Collaborating with
Karl Marx, Engels helped to define modern communism.

Key Concepts
1) The labor theory of value (LTV)- an early attempt by economists to explain why
goods were exchanged for certain relative prices on the market.

2) Political economy-a branch of the social sciences that focuses on the

interrelationships among individuals, governments, and public policy.

3) Socialism is an economic and political system based on public or collective

ownership of the means of production that emphasizes economic equality.

4) Marxism is a set of social, political, and economic theories created and espoused by
Karl Marx that became a prominent school of socialist thought.

5) Communism is an ideology that advocates a classless system in which the means of

production are owned communally. (Brock and Schmitt 2021)

Source: https://www.investopedia.com/terms/m/marxism.asp
 Exercise 1
1) Read this extract
2) Make notes on the following:
a) The life of Karl Marx
b) 8 key concepts (define each in your own words)
c) The main assumptions of Marx’s theory of capitalism
d) In your own words write two criticisms against Marx’s overall theory of
capitalism
e) Explain two reasons why Marx’s theory of capitalism remains relevant today.