Marxian economics

Marxian economics are economic theories based on the works of Karl Marx. Adherents of Marxian economics, particularly in academia, distinguish it from Marxism as a political ideology, arguing that Marx's approach to understanding the economy is intellectually independent of his advocacy of revolutionary socialism or his belief in the inevitability of proletarian revolution. Adherents consider Marx's economic theories to be the basis of a viable analytic framework, and an alternative to more conventional neoclassical economics. Marxian economics do not lean entirely upon the works of Marx and other widely known Marxists; they draw from a range of Marxist and non-Marxist sources.

Marx's major work on political economy was Capital: A Critique of Political Economy (better known by its German title Das Kapital), a three-volume work, of which only the first volume was published in his lifetime (the others were published by Friedrich Engels from Marx's notes). One of Marx's early works, Critique of Political Economy, was mostly incorporated into Capital, especially the beginning of Volume I. Marx's notes made in preparation for writing Capital were published years later under the title Grundrisse.

Marx's response to classical economics
Marx's economics took as its starting point the work of the best-known economists of his day, the British classical economists. Among these economists were Adam Smith, Thomas Malthus, and David Ricardo.

Smith, in The Wealth of Nations, argued that the most important characteristic of a market economy was that it permitted a rapid growth in productive abilities. Smith claimed that a growing market stimulated a greater "division of labor" (i.e., specialization of businesses and/or workers) and this, in turn, led to greater productivity. Although Smith generally said little about laborers, he did note that an increased division of labor could at some point cause harm to those whose jobs became narrower and narrower as the division of labor expanded.

Marx followed Smith by claiming that the most important (and perhaps only) beneficial economic consequence of capitalism was a rapid growth in productivity abilities. Marx also expanded greatly on the notion that laborers could come to harm as capitalism became more productive. Additionally, in Theories of Surplus Value, Marx noted, "We see the great advance made by Adam Smith beyond the Physiocrats in the analysis of surplus-value and hence of capital. In their view, it is only one definite kind of concrete labour—agricultural labour —that creates surplus-value....But to Adam Smith, it is general social labour—no matter in what use-values it manifests itself—the mere quantity of necessary labour, which creates value.  Surplus-value, whether it takes the form of profit, rent, or the secondary form of interest, is nothing but a part of this labour, appropriated by the owners of the material conditions of labour in the exchange with living labour." Malthus' claim, in "An Essay on the Principle of Population", that population growth was the primary cause of subsistence level wages for laborers provoked Marx to develop an alternative theory of wage determination. Whereas Malthus presented an ahistorical theory of population growth, Marx offered a theory of how a relative surplus population in capitalism tended to push wages to subsistence levels. Marx saw this relative surplus population as coming from economic causes and not from biological causes (as in Malthus). This economic-based theory of surplus population is often labeled as Marx's theory of the reserve army of labour.

Ricardo developed a theory of distribution within capitalism, that is, a theory of how the output of society is distributed to classes within society. The most mature version of his theory, presented in On the Principles of Political Economy and Taxation, was based on a labor theory of value in which the value of any produced object is equal to the labor embodied in the object. (Adam Smith also presented a labor theory of value but it was only incompletely realized.) Also notable in Ricardo's economic theory was that profit was a deduction from society's output and that wages and profit were inversely related: an increase in profit came at the expense of a reduction in wages. Marx built much of the formal economic analysis found in Capital on Ricardo's theory of the economy.

Marx's theory
Marx employed a labour theory of value, which holds that the value of a commodity is the socially necessary labour time invested in it. Capitalists, however, do not pay workers the full value of the commodities they produce. The gap between the value a worker produces and her wage is a form of unpaid labour, known as surplus value. Moreover, Marx notes that markets tend to obscure the social relationships and processes of production, a phenomenon he termed commodity fetishism. People are highly aware of commodities, and usually don't think about the relationships and labour they represent.

Methodology
Marx was a revolutionary, and the principal purpose of his economic theories was to provide an explanation of capitalism that would be useful to the working class in overthrowing it and ushering in a more equitable system. Marx used dialectics, a method that he adapted from the works of Georg Wilhelm Friedrich Hegel. Dialectics focuses on relation and change, and tries to avoid seeing the universe as composed of separate objects, each with essentially stable unchanging characteristics. One component of dialectics is abstraction; out of an undifferentiated mass of data or system conceived of as an organic whole, one abstracts portions to think about or to refer to. One may abstract objects, but also — and more typically — relations, and processes of change. An abstraction may be extensive or narrow, may focus on generalities or specifics, and may be made from various points of view. For example, a sale may be abstracted from a buyer's or a seller's point of view, and one may abstract a particular sale or sales in general.

Marx regarded history as having passed through several stages. The details of his periodisation vary somewhat through his works, but it essentially is: primitive communism -- slave societies -- feudalism -- capitalism -- socialism -- communism (capitalism being the present stage and communism the future). Marx occupied himself primarily with describing capitalism. Historians place the beginning of capitalism sometime between about 1450 (Sombart) and sometime in the 1600s (Hobsbawm). A distinguishing feature of capitalism is that most of the products of human labour are produced for sale, rather than consumed by the producers or appropriated, essentially by force, by a ruling elite as in feudalism or slavery. (For example in feudalism, most agricultural produce was either consumed by the peasants who grew it, or appropriated by feudal masters. It almost never was sold for money.) Marx defines a commodity as a product of human labour that is produced for sale in a market. Thus in capitalism, most of the products of human labour are commodities. Marx began his major work on economics, Capital, with a discussion of commodities; Chapter One is called "Commodities".

Commodities
  "The wealth of those societies in which the capitalist mode of production prevails, presents itself as 'an immense accumulation of commodities,' its unit being a single commodity." (First sentence of Capital, Volume I.)   "The common substance that manifests itself in the exchange value of commodities whenever they are exchanged, is their value." (Capital, I, Chap I, section 1.)  

The worth of a commodity can be conceived of in two different ways, which Marx calls use-value and value. A commodity's use-value is its usefulness for fulfilling some practical purpose; for example, the use-value of a piece of food is that it provides nourishment and pleasurable taste; the use value of a hammer, that it can drive nails. Value is, on the other hand, a measure of a commodity's worth in comparison to other commodities. It is closely related to exchange-value, the ratio at which commodities should be traded for one another, but not identical: value is at a more general level of abstraction; exchange-value is a realisation or form of it.

Marx argued that if value is a property common to all commodities, then whatever it is derived from, whatever determines it, must be common to all commodities. The only relevant thing that is, in Marx's view, common to all commodities is human labour: they are all produced by human labour.  "This common 'something' cannot be either a geometrical, a chemical, or any other natural property of commodities. . . . If then we leave out of consideration the use-value of commodities, they have only one common property left, that of being products of labour." (Capital I, I, 1.)  Marx concluded that the value of a commodity is simply the amount of human labour required to produce it. Thus Marx adopted a labour theory of value, as had his predecessors Ricardo and MacCulloch; Marx himself traced the existence of the theory at least as far back as an anonymous work, Some Thoughts on the Interest of Money in General, and Particularly the Publick Funds, &c., published in London around 1739 or 1740. Marx placed some restrictions on the validity of his value theory: he said that in order for it to hold, the commodity must not be a useless item; and it is not the actual amount of labour that went into producing a particular individual commodity that determines its value, but the amount of labour that a worker of average energy and ability, working with average intensity, using the prevailing techniques of the day, would need to produce it. A formal statement of the law is: the value of a commodity is equal to the average socially necessary labour time required for its production. (Capital, I, I -- p 39 in Progress Publishers, Moscow, ed'n.)

Marx's contention was that commodities tend, at a fairly general level of abstraction, to exchange at value; that is, if I have a commodity A whose value is v, and I trade it for some other commodity B, I will tend to receive an amount of B whose value is the same, v. Particular circumstances will cause divergence from this rule, however.

Money
 "Paper money is a token representing gold or money." (Capital, I, Chap III, section 2, part c.)  Marx held that metallic money, such as gold, is a commodity, and its value is the labour time necessary to produce it (mine it, smelt it, etc.). Gold and silver are conventionally used as money because they embody a large amount of labour in a small, durable, form, which is convenient. Paper money is a representation of gold or silver, almost without value of its own but held in circulation by state decree.

Production
 "If, on the other hand, the subject of labour has, so to say, been filtered through previous labour, we call it raw material. . . ." (Capital, I, Chap VII, section 1.)  Marx lists the elementary factors of production as:
 * 1) labour, "the personal activity of man." (Capital, I, VII, 1.)
 * 2) the subject of labour: the thing worked on.
 * 3) the instruments of labour: tools, labouring domestic animals like horses, chemicals used in modifying the subject, etc.

Some subjects of labour are available directly from Nature: uncaught fish, unmined coal, etc. Others are results of a previous stage of production; these are known as raw materials, such as flour or yarn. Workshops, canals, and roads are considered instruments of labour. (Capital, I, VII, 1.) Coal for boilers, oil for wheels, and hay for draft horses is considered raw material, not instruments of labour. The subjects of labour and instruments of labour together are called the means of production. Relations of production are the relations human beings adopt toward each other as part of the production process. In capitalism, wage labour and private property are part of the relations of production.


 * Calculation of value of a product:
 * If labour is performed directly on Nature and with instruments of negligible value, the value of the product is simply the labour time. If labour is performed on something that is itself the product of previous labour (that is, on a raw material), using instruments that have some value, the value of the product is the value of the raw material, plus depreciation on the instruments, plus the labour time. Depreciation may be figured simply by dividing the value of the instruments by their working life; eg. if a lathe worth &pound;1,000 lasts in use 10 years it imparts value to the product at a rate of &pound;100 per year.

Labour
 At least, in fully capitalist society almost all labour is wage labour. In present Western society homemaking is clearly still a huge area of un-waged labour; however it is becoming increasingly commodified as women enter the workforce (not that we are arguing against women being empowered in that way). Convenience foods, day care, hired cleaners, replacing clothes versus mending them, disposable household products generally -- all represent subsumption of this formerly non-capitalist area of production into capitalism.  Labour in precapitalist societies is either performed to fulfill one's own or one's family's wants directly (eg. subsistence labour), or some form of forced labour, such as slavery or serfdom; only rarely is labour performed for a wage. In capitalist society it is the reverse: almost all labour is wage labour.

Since most labour in a capitalist society is labour exchanged by the worker in return for a price (her wage), it has the form of a commodity: something sold on the market for a price. Therefore Marx held that labour in a capitalist society is a commodity. Like any commodity it has a use-value and a value. Its use value -- the useful thing it provides -- is the actual accomplishing of some task: spinning, weaving, shovelling, babysitting, or whatever. Its value is determined by the same criterion as is the value of any commodity: its value is the amount of socially necessary labour time needed to create it. This is the amount of socially necessary labour time needed to create the food, housing, clothes, etc. needed to keep the worker alive and able to work: her means of subsistence. This amount must also include something to provide for the raising of the worker's children who will someday be needed to replace her. Marx noted that what is "necessary" for a worker is not merely determined by biological requirements; it is also socially determined: society creates some needs for the worker. For example, some clothing even in warm weather, and some furniture, are not biological necessities, but, in many societies, are necessities in the present sense.

(Technically, Marx contended that what is sold on the market is labour-power, the ability or capacity of a person to do work. The term labour in Marx, is the actual doing of some work. Whether the distinction is essential is debatable. In what follows we will write labour (-power) where Marx would have written labour-power. The reader can choose whether to read this as "labour" or "labour-power".)

Labour(-power) is unique among commodities in that it is the only commodity that both has value and creates value: all commodities have value, only labour(-power) creates value. The value created by labour(-power) is simply the time during which it was exerted. This follows from the labour theory of value's definition of value as embodied labour time.


 * Example:
 * Suppose I spend 3 hours creating some product; and suppose also that in the process I consume means of production that sometime in the past required 2 hours to produce -- ie., they have a value of 2 hours. The value of my product will be:


 * mp + lt  =   2 + 3   =   5     (in units of hours.)


 * It is apparent that I have increased the value that previously existed by 3 units; I have created 3 units of value. (This is assuming that my labour is of average quality, but more or less efficient labour can be accounted for simply by pro-rating the time: eg., if I work only two-thirds as fast as the average person, we could say that in 3 hours I create a value of only 2.)

The unique fact about labour(-power) -- that it both has value and creates value -- is of paramount importance because those two quantites are in general not equal. The difference between them is the source of profit to employers of labour and it is what drives the capitalist system. An employer (a capitalist) buys labour(-power) at its value (or tends to, at least). She receives from it the value it creates. If the latter is greater than the former -- if the value created by labour is greater than the wage -- the capitalist gains by using that labour. This difference between values, which the capitalist keeps, Marx called surplus value. The balance-sheet of the capitalist is this:


 * Expenditure:
 * = mp + lv      where lv is the value of the labour(-power).


 * Income:
 * = value of product
 * = mp + lt


 * Difference:
 * = lt - lv
 * = surplus value

There is a large moral element in Marx's treatment of surplus value because surplus value is un-earned. It may be that the capitalist does some work in the production of the product -- in an accounting capacity perhaps -- but in this capacity she is merely functioning as part of the work force and her labour contribution may be treated like any other. In particular, the time during which she labours herself on the product must be figured into its value, so the income becomes:


 * Income:
 * = value of product
 * = mp  +  lt (other workers)  +  lt (capitalist while she works)

She still makes money on the difference between lt (other workers) and lv (other workers).

Besides looking at surplus-value creation from the point of view of value, Marx sometimes looked at it from the point of view of time. This leads to the same process being described in alternate terminology, as explained in the remainder of this paragraph. The worker creates value continuously during the time she is working; the longer she works, the more value she creates. Suppose she is paid by the day. At some point during the day she has created enough value for the capitalist to pay her wage; the time she works beyond that point is time during which she creates value that the capitalist gets to keep -- surplus value. Marx thus divided the working day conceptually into two portions: the first portion, during which the worker creates enough value to just cover her wages (the value of her means of subsistence, if labour is paid at value) he called "necessary labour time"; and the rest, during which she creates surplus value for the capitalist, he called "surplus labour time".

Marx called the portion of capital spent on means of production constant capital, and that spent on labour(-power) variable capital. His reasoning for this was as follows. Recall the equations for the capitalist's expenditure and income:


 * Expenditure  =   mp + lv


 * Value of product  =   mp + lt

According to these two equations, the value of the means of production (mp) is simply transferred to the value of the product without alteration; the same term mp appears in the expenditure and the value of the product. Marx thus called capital spent on mp "constant" -- because the labour process doesn't change it. On the other hand, capital spent on labour(-power) "expands" during production because. Marx therefore called it "variable".

The ratio between the wages [the value of the labour(-power)] and the surplus value -- or, alternatively speaking, the ratio between the necessary and surplus labour time -- Marx called the rate of surplus value.

Marx held that the rate of surplus-value is determined by struggle between the working class and the capitalist class. The workers attempt to increase necessary labour time (by demanding higher wages) and/or decrease surplus labour time. Two of their main weapons are trade union activity and getting legislation passed to limit the length of the working day. The capitalists attempt to do the opposite, their main lever being the fact that a worker will starve if the capitalists refuse to hire her. Marx presents considerable amounts of data in Capital (eg. Volume I, Chap's X, XV) on wages and working conditions in England up to the late 1860s, and on the struggle via the Factory Acts to achieve legislated limits on the length of the working day for women and children. (Ca. 1833: limited to 12 hours for children, eight hours for those under 13; 1844: 12 hours for women, 6½ or seven hours for children; 1848: 10 hours for women and young persons. These applied at first only to parts of the textile industry; between 1845 and 1863 several other industries, notably baking, were brought under the purview of these acts.

Effect of technical progress
According to Marx, the amount of actual product (ie. use-value) that a typical worker produces in a given amount of time is the productivity of labour. It has tended to increase under capitalism. This is due to increase in the scale of enterprise, to specialisation of labour, and to the introduction of machinery. The immediate result of this is that the value of a given item tends to decrease, because the labour time necessary to produce it becomes less. In a given amount of time, labour produces more items, but each unit has less value; the total value created per time remains the same. This means that the means of subsistence become cheaper; therefore the value of labour power or necessary labour time becomes less. If the length of the working day remains the same, this results in an increase in the surplus labour time and the rate of surplus value.

Technological advancement tends to increase the amount of capital needed to start a business, and it tends to result in an increasing preponderance of capital being spent on means of production (constant capital) as opposed to labour (variable capital). Marx called the ratio of these two kinds of capital the composition of capital.

Current theorizing in Marxian economics
Marxian economics has been built upon by many others, beginning almost at the moment of Marx's death. The second and third volumes of Das Kapital were edited by his close associate Friedrich Engels, based on Marx's notes. Marx's Theories of Surplus value was edited by Karl Kautsky. The Marxian value theory is fundamental to much of mathematical economics, econometrics and macroeconomic models such as those pioneered by Leontief and now commonly used for forecasting purposes. Some economists draw on, or have drawn on, Marxian economics together with other theoretical perspectives, in an eclectic manner, or in order to synthesize them. Those who refer to non-mainstream, or heterodox, economics as a single entity often include Marxian economics within it.

Colleges and universities that either offer one or more courses on Marxian economics, or that teach one or more economics courses on other topics from a perspective that they designate as Marxian or Marxist, include the University of Utah, University of Massachusetts Amherst, University of Massachusetts Boston, University of Maine, New School University, University of Missouri–Kansas City, Colorado State University, University of Leeds, University of Manchester, University of Sheffield, School of Oriental and African Studies, University of Maastricht, and University of Bremen.

English-language journals include Capital & Class, Historical Materialism, Monthly Review, and Rethinking Marxism.

Criticism
V. K. Dmitriev, writing in 1898, Ladislaus von Bortkiewicz, writing in 1906-07, and subsequent critics have alleged that Marx's value theory and law of the tendency of the rate of profit to fall are internally inconsistent. In other words, the critics allege that Marx drew conclusions that actually do not follow from his theoretical premises. Once these alleged errors are corrected, his conclusion that aggregate price and profit are determined by, and equal to, aggregate value and surplus value no longer holds true. This result calls into question his theory that the exploitation of workers is the sole source of profit.

Whether the rate of profit in capitalism has, as Marx predicted, tended to fall is a subject of debate. N. Okishio, in 1961, devised a theorem (Okishio's theorem) showing that if capitalists pursue cost-cutting techniques and if the real wage does not rise, the rate of profit must rise. Real wages have risen, however, making this theorem undecisive to the real case.

The inconsistency allegations have been a prominent feature of Marxian economics and the debate surrounding it since the 1970s. Andrew Kliman argues that, since internally inconsistent theories cannot possibly be right, the inconsistency charges serve to legitimate the suppression of Marx's critique of political economy and current-day research based upon it, as well as the correction of Marx's alleged inconsistencies.

Critics who have alleged that Marx has been proved internally inconsistent include former and current Marxian and/or Sraffian economists, such as Paul Sweezy, Nobuo Okishio, Ian Steedman, John Roemer, Gary Mongiovi, and David Laibman, who propose that the field be grounded in their correct versions of Marxian economics instead of in Marx's critique of political economy in the original form in which he presented and developed it in Capital.

Proponents of the Temporal Single System Interpretation (TSSI) of Marx's value theory claim that the supposed inconsistencies are actually the result of misinterpretation; they argue that when Marx's theory is understood as "temporal" and "single-system," the alleged internal inconsistencies disappear. In a recent survey of the debate, a proponent of the TSSI concludes that "the proofs of inconsistency are no longer defended; the entire case against Marx has been reduced to the interpretive issue."

The Austrian School was the first group of classical liberal economists to systematically challenge Marxian economics. This was partly a reaction to the Methodenstreit, an attack on the Hegelian doctrines of the Historical School. Eugen von Böhm-Bawerk, a prominent member of the Austrian School, wrote extensive critiques of Marx in the 1880s and 1890s. Allegations of a "transformation problem" in Marx's argument that all profit under capitalism derives from the exploitation of workers may refer either to Bortkiewicz's allegation of an internal inconsistency in Chapter 9 of Volume III of Das Kapital or to Böhm-Bawerk's charge that the price theories of Volumes I and III are incompatible.