Theory: Marxist economics

Marxist economics

The economic system we live under today is capitalism: based on competition, private ownership and the production for profit. Karl Marx revolutionised our understanding of the capitalist system. With his vast collection of economic writings – including the three volumes of Capital – Marx stripped away the mysticism surrounding capitalism, uncovering and explaining its inner processes, emergent laws, and intrinsic contradictions.

Marx built upon the work of his ‘classical’ predecessors – in particular the British economists Adam Smith and David Ricardo. These enlightenment thinkers had attempted to examine capitalism on a scientific basis. In doing so, they hit upon the idea that labour was the source of all new value within society.

By developing this ‘labour theory of value’, Marx was able to explain an enigma that had eluded the classical economists: that of profit. This, Marx demonstrated, arises from exploitation – that is, from the surplus value produced by the working class. Simply put, the capitalists’ profits are obtained from the unpaid labour of the workers.

But this fact, in turn, led Marx to an even more shattering conclusion: that the capitalist system is inherently prone to periodic crisis of overproduction – crises that break out and paralyse the entirely of society, as the forces of production crash up against the narrow limits of the market.

This is the picture we find ourselves in today, as workers and youth are forced to pay for the crisis of capitalism. Armed with the ideas of Marxism, we can see that there is no way out of this crisis within the confines of capitalism. The only solution is socialist revolution.

Capitalism is a chaotic system of production beyond the contol of humanity. It is doomed to plunge society into ever greater crises. But why does it enter a crisis and what is the alternative?

The world economy has been mired in a deep crisis since 2007. The bourgeois have tried everything to climb out of the crisis, from quantitative easing, to zero interest rates, to the socialization of banking losses, but all to no avail. Why is it that a modern-day version of Keynesianism cannot work?

What is value? This question has perplexed the human mind for more than 2,000 years. The classical bourgeois economists grappled with the question, as did Marx. After much deliberation, they correctly concluded that labour was the source of value. This idea then became a cornerstone of bourgeois political economy, beginning with Adam Smith. On this question, there was common ground between Marx and the classical bourgeois economists.

The Marxist analysis of history – that is, the dialectical and materialist analysis of history – explains that the main motor force in history is the need for society to develop the productive forces: to increase our knowledge of and mastery over nature; to reduce the socially necessary labour time needed to produce and reproduce the conditions of life; to improve lifestyles and raise the standards of living.

[The following article was originally published in the summer issue of our theoretical magazine In Defence of Marxism] In the last issue of the In Defence of Marxism magazine we polemicized against the theory of “under-consumption” as an explanation of capitalist crisis. In this issue, we wish to look at Marx’s law of the tendency of the rate of profit to fall.

A recent BBC documentary series entitled “Masters of Money” examined the ideas of three historical giants in economics: Keynes, Hayek, and Marx. In this article, we compare and contrast their ideas in the context of the current crisis of capitalism, to see if any of these figures and their writings really do have the answers to solve the problems facing society today.

Marx & Engels

“What did Marx mean by the contradictions of capitalism?” asks Samuel Brittan, the right-wing economist writing in the Financial Times. “Basically, that the system produced an ever-expanding flow of goods and services, which an impoverished proletarianised population could not afford to buy. Some 20 years ago, following the crumbling of the Soviet system, this would have seemed outmoded. But it needs another look, following the increase in the concentration of wealth and income.” 1

Assistant Secretary, U.S. Treasury, Harry Dexter White (left) and John Maynard Keynes, honorary advisor to the U.K. Treasury at the inaugural meeting of the International Monetary Fund's Board of Governors in Savannah, Georgia, U.S., March 8, 1946.

“We are all Keynesians now.” So said Richard Nixon, the Republican and former President of the USA, in 1971. Forty years later, it seems that John Maynard Keynes is back in fashion, especially amongst the leaders of the British Labour movement. The reformist leaderships of the Labour Party and the trade unions cling to the Keynesian idea that the economy can simply be “stimulated” back in growing. But as the Marxists have explained before, the current economic crisis is not just part of some boom-and-slump, but is an organic crisis of capitalism, and growth cannot simply be created at will.

The crisis that has shaken the world economy since 2008 has pushed bourgeois ideologists to desperately seek a solution. They are looking for alternative ways of running their system, seeking to square the circle and maintain capitalism without its inevitable contradictions. As Asia, and China in particular, is doing so well, there is a burgeoning literature about the Chinese model, just as in the past there was so much made of the “Japanese miracle”. In Part One of this article Luca Lombardi looks at the experience of Taiwan.

When the 1929 Crash broke out it affected the Italian economy dramatically. Italy had just been through a serious monetary crisis, from which it had not yet recovered when the world crisis broke out. In this situation the capitalists desperately turned to the State for help.

The classical view of how capitalism develops is that within feudal society a class emerges made up of merchants, bankers, early industrialists, i.e. the bourgeoisie, and that for this class to be able to develop its full potential a bourgeois revolution is required to break the limits imposed by the landed feudal aristocracy. That is how things developed, more or less, in countries like France and England, but not in Japan.

“Now we must expect the opposite: profound, long, and painful crises, while the upward movements are weak and short-lived. If the old cycles were the mechanism of a broad upward movement, the new ones can only be the mechanism of capitalist decay.” Written almost 80 years ago, but extremely relevant to today’s situation.