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Marx, Karl (1818–83)

Bom in Trier, he studied philosophy at Bonn University and at the Hegelian Centre at Berlin University, and took a doctorate at Jena. For a time, he was editor of Rheinische Zeitung, but the paper was suppressed, and in 1843 he fled to Paris. There he began his friendship and close association with Friedrich Engels, who encouraged in him an interest in political economy. After a brief return to Germany he was banished, and in 1849 he settled in London where he remained until his death in 1883. The Communist Manifesta, written jointly by Marx and Engels, was published in 1848. In 1859 the first fruits of his long, painstaking research at the British Museum appeared: the Critique of Political Economy. The first volume of Das Kapital appeared in 1867. The remaining volumes, edited by Engels, were published posthumously in 1885 and 1894.

Marx’s economics was essentially that of the classical school, especially of David Ricardo, to whom he owed a great debt. However, he lifted economics out of its preoccupation with agriculture and stationary states. For Marx, capitalism was a stage in the process of evolution, removed from the primitive agricultural economy and moving towards the inevitable elimination of private property and the class structure. Marx attempted a synoptic view of the development of the whole structure of human society. His economics was only a part, though a fundamental part, of his all-embracing sociological and political theories. Marx postulated that the class structures of societies, their political systems and, indeed, their culture were determined by the way in which societies produced their goods and services. Moreover, the whole structure was evolutionary. The dass structure of a capitalist state was a reflection of the split between owners and non-owners of capital, which division characterized the manner in which production was carried out, and which already had within it the necessary ingredients of change.

Marx developed from Adam Smith and David Ricardo their labour theory of value, which held the central place in his economic theory. For Ricardo, the amount of labour used in the production of commodities was a rough determinant of relative prices in the long run. For Marx, however, the quantity of labour used up in the manufacture of a product determined value, and this value was fundamental and immutable. He did not satisfactorily explain any connection with relative prices. Labour consumption determined exchange value, which differed from use value. The distinction between the two in the case of labour, regarded in itself as a commodity, was a vital one in Marx’s analysis. The capitalist pays wages which are determined by the exchange value of workers. This exchange value is, in turn, determined by the socially necessary labour time required to ‘produce’ the worker, that is the labour inputs required to rear, feed, clothe and educate him. However, in return the capitalist receives the labourer’s use value. The value of the labourer to the capitalist who uses him is greater than the value the capitalist paid in exchange for his services. This difference Marx called ‘surplus value'(s). Only labour yields surplus value. Other factors of production, such as plant and machinery and raw materials, only reproduce themselves in the productive process. (These ideas have some affinity with the physiocrats‘ ‘produit net’, although in their case it was land which was the only factor which produced a surplus.) The amount of capita! required to pay wages Marx called variable (v), and the remainder he called constant (c). Gross national product in the Marxian system therefore is given by c + v + s. The ratio of constant capital in total capital c/(c + v) he called the organic composition of capital.. The ‘exploitation rate’ was s/v. The rate of profit was s/(c + v). The desire for further wealth, coupled with competition and technical change, induced capitalists to invest from the surplus (which they expropriated from the workers) and in labour-saving machinery. The organic composition of capital therefore rose over time as more was spent on plant and machinery (c) compared with wages (v), with the result that, as only variable capita! produced surplus (and assuming that the exploitation rate remained constant), the rate of profit tended downwards. On the one hand, diminishing profits and stronger competition would lead to monopoly and the concentration of wealth in a few hands, and on the other hand there would be an increasing squeeze on the real incomes of workers by the capitalists in their attempt to maintain profits and the emergence of a large ‘reserve army of unemployed’ arising from mechanization. The class conflict would become increasingly acute until the environment was such that the change inherent in the economic structure would be made manifest by the overthrow of capitalism.

Reference: The Penguin Dictionary of Economics, 3rd edt.