| Marx had the good fortune, combined, of course, with
the necessary genius, to create a method of inquiry that imposed
his stamp indelibly on the world. We turn to Marx, therefore,
not because he is infallible, but because he is inescapable.
Everyone who wishes to pursue the kind of investigation that Marx
opened up, finds Marx there ahead of him, and must thereafter
agree with or confute, expand or discard, explain or explain away
the ideas that are his legacy.
- Robert Heilbroner, Marxism: For and Against
|
Karl Marx (1818-1883) helped shape much of 20th century thinking
about the nature of capitalism, the interrelationship of society
and technology, even the very way in which we understand history.
This chapter, after a brief introduction to some of the critics
of capitalism who preceded Marx, will examine the major elements
of Marxist thought as it applies to economics and to economic
history. It will also explore some of the differences between
Marxian economics and what has become mainstream thought in economics.
Finally, from the perspective provided by more than 125 years
of capitalism since the first volume of Capital was published
(1867), we will evaluate some of the predictions that stemmed
from Marx's theories.
The excesses of the early industrial revolution bred critics. Child labor, poverty and insecurity seemed the only reward for those not fortunate enough to be capitalists or landowners. Some social visionaries of the early 19th century searched for ways to overcome the horrors of the industrial revolution.
Robert Owen improved working conditions in his own textile mill, New Lanark, near Glasgow. He provided clean housing for mill families and schools for their young children - although children started working over ten hours a day once they turned eleven. After failing to convince Britain's Parliament to create similar communities all over Britain, he sold New Lanark and tried to establish utopian communes in the United States. While none of his communes survived, Owen did launch the successful consumer cooperative movement in Britain.
Other visionaries, including Henri de Saint-Simon and Charles Fourier in France tried to launch similar movements. Many of the schemes of these Utopian Socialists shared a number of notions:
Karl Marx was cut of different cloth. He saw the tremendous industrial power unleashed by capitalism as a force that would free humankind from want and misery. And, although he often satirized the capitalists as "Mr. Moneybags" and characterized the lesser economists as "vulgar economists" and their work as "trash," Marx did not argue for the abolition of capitalism on moral grounds. Instead, he analyzed capitalism and identified a number of elements of capitalism that would lead to its eventual self-destruction. Capitalism would be replaced by a new economic system - about which Marx wrote very little - which would be as superior to capitalism as capitalism had been to feudalism.
We need to look at Marx the same way we look at any of the major economists: with a goal of understanding his theories and their implications. Unfortunately, there are a lot of preconceptions about Marx that make this more difficult than with other economists. Some of these preconceptions stem from the former USSR calling itself "Marxist." Some stem from Marx's use of ponderous philosophical terminology, much of which does not translate from German to English very gracefully. And some stem from the very fact that Marx's ideas were rarely given serious consideration by Western economists.
First, Marx is surrounded by a great deal of controversy. We should keep the following in mind: Marx, a German who did most of his work in London, died in 1883, 34 years before the Russian Revolution. Marx never expected that revolutions in his name would be carried on in backward countries like Russia, and he never provided a "plan," political or economic, for using socialism to institute an industrial revolution. However, Marx was far from an armchair philosopher/economist. He was not just trying to understand the economic system - he was trying to change it. As Marx put it: "The philosophers have only interpreted the world, in various ways; the point is to change it." [1]
Second, Marxism's underlying philosophy is called Dialectical Materialism. "Materialism" is used here in its philosophical sense - the idea that matter precedes mind, rather than in its current common usage implying being driven by greed for material objects. "Dialectical" refers to the interplay of opposites that Marxists claim underlies history - for example, capitalism not only creates capitalists, but creates the opposing force - an industrial working class - that will eventually overthrow capitalism.
Third, the Marxist branch of economics is still relatively undeveloped. Marxist economists were not usually welcome in the universities of the capitalist countries - although by the 1960s many large economics departments in the U.S. had a token Marxist. In the USSR Marxism came very close to being a state religion - which precluded the free inquiry that is necessary to develop any branch of social science. It seems that nearly everyone has a strong opinion about Marx's ideas, but very few have made much effort to find out what these ideas are. Joan Robinson encountered these strong but unfounded opinions when she began to look into Marx's economics:
I began to read Capital, just as one reads any book, to see what was in it; I found a great deal that neither its followers nor its opponents had prepared me to expect....The academics did not even pretend to understand Marx. It seemed to me, apart from prejudice, a barrier was created for them by his nineteenth-century metaphysical habits of thought, which are alien to a generation brought up to inquire into the meaning of meaning. I therefore tried to translate Marx's concepts into language that an academic [economist] could understand. This puzzled and angered the professed Marxists, to whom the metaphysic is precious for its own sake. [2]
Marx changed forever the way we think about history. Before Marx, history was mostly biography - in fact history was primarily the biographies of kings, prime ministers and popes. The deeper thinkers (Hegel, for example) concentrated on the history of ideas.
Marx emphasized the material foundations of society. Government, culture, philosophy - even religion - were built on a material foundation. This foundation put definite limits on human activity. To take an extreme example, it would be impossible - even if some political philosopher could come up with the idea - to create a parliamentary democracy within an estate-based feudal economy.
While Marx's particular model of historical change is still quite controversial, his focus on material life is not. Many historians now pay as much attention to what people ate, how they built their houses, what they bought and sold in their markets and how the production of textiles was organized as they do to who ruled and what wars they fought.
Marx did not ignore government, law or religion - he attempted to explain their forms by examining the system of production:
I was led by my studies to the conclusion that legal relations as well as forms of state could neither be understood by themselves, nor explained by the so-called general progress of the human mind, but they are rooted in the material conditions of life.In the social production which men carry on they enter into definite relations that are indispensable and independent of their will; these relations of production correspond to a definite stage of development of their material powers of production. The sum total of these relations of production constitutes the economic structure of society - the real foundation, on which rise legal and political superstructures and to which correspond definite forms of social consciousness. The mode of production in material life determines the general character of the social, political and spiritual processes of life. It is not the consciousness of men that determines their existence, but, on the contrary, their social existence determines their consciousness. [3]
Marx used these concepts to explain the major changes in human society. Our productive capacity at any point in time, the forces of production, depends on our technology (our knowledge about production) and our tools. But we do not produce as individuals - production is social. So every society has a set of rules and beliefs that affect production (even if they are not always directly about production). The forms in which property is held or owned, religious beliefs about correct and incorrect behavior, legal or customary relationships between laborers and other members of society, land tenure institutions, etc. all comprise the social relations of production. A particular level of development of the forces of production combines with social relations of production appropriate to that level of development to comprise a mode of production, or economic system. The slave-based economy of much of the ancient world, feudalism, capitalism and socialism are all modes of production.
Change of the mode of production normally starts with the forces of production. Humans are inherently inventive. Since much of our time and attention is dedicated to maintaining our material life, we are particularly inventive when it comes to tools and methods of production. Until capitalism evolved, however, the social relations of production did not usually encourage inventiveness applied to production. But our inventiveness is much like a weed. You can pave a piece of land, you can spray it with chemicals, but eventually some weeds are going to break through the asphalt.
Since the social relations of production are usually slower to change than the forces of production, a tension gradually develops between the advancing forces of production and the limits imposed by the social relations of production. For example, as merchants in the 1500s invented new ways to expand their trade by organizing production into a greater division of labor, the hold of the guilds on skilled labor and the hold of the landed estates on unskilled labor delayed the application of these new organizational principles. Western Europe was saddled with social relations of production that were no longer appropriate to the higher level of development of the forces of production.
Now comes the class struggle. The old ruling groups (landlords, bishops and guild masters) would have preferred that the social relations of production not change. After all, they were the beneficiaries of the system. The new ascending class (merchants and merchant/capitalists) needed a new form of social organization - labor that is 'free' of guild restrictions or feudal obligations; a system of contractual law; social stature determined by money rather than by birth; etc. The harder the old ruling classes tried to hang on to their power, the more they refused to compromise with the new ascending class, the more explosive was the eventual change.
And change is the one constant in the Marxian vision of history. No sooner did Britain's capitalists eliminate the last vestige of power of the landlords with the abolition of the Corn Laws [4] in 1846 than they began to confront the increasing power of the working class. The class struggle shifted from Capitalists vs. Landlords to Workers vs. Capitalists.
But, in Marx's analysis, capitalism was much different than the modes of production that had preceded it. In previous economic systems, the technology of production changed - slowly - in spite of efforts to repress such changes. Capitalism was the first mode of production in which the ruling class gained and held power through purposely introducing new technologies of production. The productive capacity of humankind was expanding at a rapid rate:
The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of nature's forces to man, machinery, application of chemistry to industry and agriculture, steam navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalization of rivers, whole populations conjured out of the ground - what earlier century had even a presentiment that such productive forces slumbered in the lap of social labor. [5]
Unfortunately, the capitalists' purpose was to expand their own wealth and power, not to improve the material life of society. The industrial working class - which would become the vast majority - would have to scrape by on a subsistence income in spite of the tremendous volume of goods and services that they were now capable of producing. There would usually be enough idle potential workers seeking employment - what Marx called the reserve army of unemployment - that the supply of labor would exceed the demand. And if wages should increase, the capitalists would speed up the pace of introduction of new technology until they could produce more goods with fewer workers, once again increasing unemployment and driving wages back down to subsistence. Note that in Marx's model it is technology which pushes wages to subsistence, not population growth as in the theories of the earlier classical economists.
From Say (1803) and Ricardo (1817) through Pigou (1933), most mainstream economists believed that economic crises were always caused by particular non-economic events - wars, crop failures, etc.- and that the self-adjusting nature of markets would quickly return an economy to normal growth. William Stanley Jevons, one of the early developers of the now-dominant Marginal Theory of Value, seriously proposed that economic downturns were caused by sun spots (1870s). It took the Great Depression and John Maynard Keynes (1936) to bring a theory of business cycles into mainstream economics.
Had mainstream economists taken Marx more seriously, they could have been sixty years ahead on business-cycle theory. Marx did not quite develop a complete theory of business cycles. He did not offer a theory of overall demand (which is the core of Keynesian theory). His theory does not easily explain long periods of unbroken growth. But it does explain crises. And it is not as difficult to add a theory of demand to Marx's "laws of motion" of capitalism as it is to integrate Keynesian theory into the mainstream of conservative economics. [6]
Realization Crises Marx identified a number of types of economic crises. The easiest to understand are what Marx called "Realization Crises," or crises based on the failure of capitalists to realize their expected profits. Remember the capitalist cycle of M - C - M'. A realization crisis occurs when any significant number of capitalists are not able to sell their products at a price that reflects their value. In some cases, the final M' returned to the capitalists is less than the M they began with.
Some realization crises are rooted in what Marx called "the anarchy of capitalist production." There is no planning board to decide how many automobiles should be produced or how many office buildings should be built. A high rental rate for office space might lead to a spasm of overbuilding. The price system will eventually 'correct' this by driving down rents until it is no longer profitable to build office towers. In the meantime, many capitalists are stuck with a 'C' that is worth far less than the 'M' they borrowed to build them. If this occurs in an industry that makes up a large portion of the total economy, it can lead to a general economic downturn. [7]
Underconsumption Crises Another type of realization crisis stems from the tendency of capitalism to continually increase productivity. If productivity increases faster than wages, but production continues to be concentrated in the types of goods normally bought by wage-earners, we can have an underconsumption crisis. Capitalists will no longer be able to sell all the wage goods they can produce at a price which provides a profit - so they will cut production and send the economy into a downward spiral.
But realization crises and underconsumption crises, while disruptive, do not have to be fatal. Capitalism can reduce the frequency and depth of crises rooted in the anarchy of capitalist production by eliminating competition, forming cartels or forming large vertically-integrated units (Toyota could buy a steel mill, a tire company and a finance company, for example). Crises of underconsumption can be limited by government measures to change the distribution of income or by government buying the surplus production of capitalists just as many governments now buy the surplus production of farmers. [8]
Imbalances of Capitalism Part of the problem lies in the precarious balance that must be maintained if growth is to proceed smoothly. Chart 1 is a schematic representation of Marx's understanding of the difficulty of maintaining this balance. Start with the box labeled PRODUCTION. Two types of goods are produced: consumer goods and capital goods. The workers, of course, are paid for their labor in both of these sectors of the economy. However, the workers only spend their wages on consumer goods.
Two conditions must hold if this cycle is to proceed smoothly. First, the sale of consumer goods to workers must realize enough profit to allow the capitalists to purchase the capital equipment they want in order to expand their production. Second, the capitalists must spend their total profits on capital accumulation in order for there to be enough wages to purchase all of the consumer goods that are produced. Note that Marx, like the other classical economists who preceded him, assumed that wages would normally be at a subsistence level, so there is little possibility of the workers not spending all their wages.
But it is likely that there will be times when the capitalists do not spend all their profits on capital accumulation. If competition is reducing prices - and profits - capitalists may become pessimistic about the possibility of realizing a profit from new investment, so they stop or slow investment for a time and let their profits accumulate as money in bank accounts. Since a reduction in capital accumulation means there will be fewer workers employed in the capital goods sector, a capital accumulation crisis will deepen as spending on consumer goods falls. Spending on new capital will pick up again once bankruptcy has eliminated enough firms to make it possible for the surviving firms to earn profits. Note that the existence of a banking system makes it possible for capitalists to spend an amount even greater than their profits on expansion.
More fundamental to Marx's analysis of capitalism is the crisis-generating nature of the tendency of the profit rate to fall. If there is something inherent in the nature of capitalism that leads to lower profit rates over time, then capitalism is doomed. All types of crises will get progressively worse. Marx claimed that there is and identified it as a law: the Law of the Tendency of the Profit Rate to Fall. This tendency was not based on a disparity between market price and value - as are realization crises - rather it is based on value itself falling relative to the amount of capital that capitalists need to invest. This tendency is, according to Marxian theory, capitalism's fatal disease.
Marx's formulation of the labor theory of value was presented in Chapter 6. Recall that Marx identified labor as the source of all profit, or surplus value in Marx's schema. The capitalist had to pay other capitalists the value of the intermediate goods and equipment purchased from them. But the worker was only paid the value of the goods and services that a working-class family needed to consume to get by. This was considerably less than the value that the worker imparted to the product. The capitalist starts with a capital in the form of a sum of money, purchases raw materials (and/or intermediate goods) and labor, paying the value of each, then sells the product at its value.
If it took 40 hours of labor to produce the raw materials, intermediate goods, and depreciated equipment (all the things the capitalist purchased from other capitalists) and 30 hours of direct labor (labor hired by the capitalist) to produce the product, its value will be the equivalent of 70 hours of labor. But the worker puts in a 10-hour day even though it only takes 6 hours of the labor of others to produce the goods and services that the working-lass family consumes in a day. In this case, the capitalist's profit (surplus value) comes to the equivalent of 4 hours out of each 10-hour shift of labor hired, or the value of 12 hours of labor. Based on an investment of the equivalent of 58 hours, the profit rate - if we assume the period of production to be a year - is 20.7%.
The capitalist, of course, is always trying to reduce the cost of the product. The normal way to do this is to replace labor with capital - to increase the capital-intensity of the production process, or, in Marx's terms, to increase the organic composition of capital. Let us develop a new production process for the same product. The capitalist now purchases goods and equipment from other capitalists for the equivalent of 50 hours of labor which are worked on by his direct labor for 10 hours. The value of the product is now only 60 hours. The worker still receives the equivalent of 6 hours of goods and services for a 10-hour day. So the capitalist's investment is now 56 hours, but the profit has fallen to the value of 4 hours. What has happened to the profit rate? It fell to 7.14%.
Marx's argument, expressed in current terminology, is that as production becomes more capital-intensive the profit rate falls. Since increasing capital intensity (replacing labor with capital) was the normal method of reducing the cost of production, it is also an inherent tendency of capitalism. And - in the long run - there is nothing the capitalists can do about it. Competition among them leads to increasing mechanization of production in a never-ending attempt to push costs down. Moreover, even brief periods of rising wages during shortages of labor speed up the process of mechanization as a way of reducing the amount of labor in the product.
Death by this fatal disease can be delayed, but not overcome. Marx noted that there were also some counter-tendencies. Capitalists can temporarily overcome this tendency by either lengthening the working day without increasing pay or by actually decreasing pay. This is accomplished today by shifting production to low-wage countries. Or the capitalists can be bailed out by new technologies. Not by the normal accretion of productivity-enhancing technical changes that is endemic to capitalism, but by sweeping new technologies that drastically reduce the cost of capital and/or raw materials as well as reducing the cost of labor. The railroad was such a technology. By making food cheaper in the cities it reduced the cost of labor itself. [9] It reduced the price of industrial raw materials as well. Perhaps the microchip will turn out to be such a technology, but it is too soon to tell.
Marx's discovery of the "laws of motion" of capitalism provided a powerful tool for predicting the major trends within this economic system. One hundred and twenty five years have passed since the publication of the first volume of Capital - providing us with a vantage point from which to assess the predictive ability of Marx's theories.
Capitalism expands in two ways: the geographic expansion of bringing more of the world into the capitalist sphere, and expansion by invading areas of production once dominated by small business or even household production.
Both tendencies were apparent when Marx was writing. Marx and Engels provided a powerful image of the geographic expansion of capitalism in The Communist Manifesto:
The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere.The bourgeoisie has, through its exploitation of the world market, given a cosmopolitan character to production and consumption in every country. To the great chagrin of reactionaries, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilized nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. [10]
And both tendencies are still with us. Big capital is contesting the corner gas station for the oil-changing business and contesting household production for the child-care business. When China began to reopen to Western trade and investment after a three decade period of development on a socialist model that was mostly closed to trade, Western firms regarded the opportunity as something of a gold rush. One Procter & Gamble executive referred to China as "two billion armpits."
Another of Marx's predictions was the disappearance of the independent small business sector and self-employed professionals. This was not so apparent when Marx was writing. The England of Marx's time was known as a "nation of shopkeepers." Now England, like the rest of the capitalist economies, is a nation of employees. In the U.S. in 1948, small business owners, self-employed professionals and farm owners received 20.2% of U.S. income. By 1989 the income share of this - now much smaller - group had shrunk to 9.6%.
One of the implications of this trend, according to Marx, was that fewer and fewer people would identify with the interests of the capitalists; that capitalism would suffer from political weaknesses as the number of its supporters diminished. However, the disappearing middle class of Marx's time was replaced with growing high and high-middle income sectors composed of managers and professionals working for large firms and government agencies. For the most part salaried, they are not a middle class in the classical economists' sense. But income itself seems to have a powerful formative influence on social attitudes. So far, at least, most of the high and high-middle income groups have supported the retention of capitalism.
Although Marx was writing just as the age of big business had only really begun, he was able to predict that firms would grow in both size and market power (portion of the total market that a firm controls). This prediction was based on several factors that are inherent to capitalism:
...when it comes to home building, this isn't an equal-opportunity recession. The slump has stopped many small and midsize builders dead in their tracts, but it is allowing the better-financed large builders to improve their position. As their smaller competitors go under, the large, well-capitalized home-building companies grab more and more of the market...For consumers, the reduced competition is apt to translate eventually into higher prices and less choice. [11]
There have been 28 recessions or depressions in the United States since 1865, or one about every 4 1/2 years. Every time there is a long period of expansion, as from 1961 to 1970 or from 1983 to 1990, economists and politicians announce the "end of the business cycle."
Certainly the business cycle was altered. The effect of the "anarchy of capitalist production" was diminished by the organizational changes that swept capitalism in the late 19th century - the rise of the giant trust which was followed by the oligopolistic market structure that limited price competition. And the underconsumption tendencies of capitalism were modified by the Keynesian demand-management policies that were put into place after World War II. From then until the early 1970s recessions were short and shallow; but the 1975 and 1982 recessions both set post-Depression records for unemployment and the 1991 recession, while mild in itself, was not followed by the usual post-recession spurt of economic growth. Economic instability seems to be a constant feature of capitalism, just as Marx had recognized.
There have certainly been cyclical declines in the rate of profit, but there is not yet any evidence of the long-run decline in profit rates predicted by Marx. Declining profits were to have been capitalism's fatal disease. That there is no such visible long term trend indicates a weak area of Marx's theory of long-run capitalist dynamics. At the very least, it indicates that the day of reckoning for capitalism is still far in the future.
We can certainly identify one major flaw in Marx's analysis of this trend. Marx calculated the organic composition of capital - capital intensity of production in today's terminology - in value terms, that is in terms of the amount of labor used. While Marx had definitely put his finger on one important tendency, the replacement of labor with capital, his vision of technology was bound by the technology of the era in which he was writing. Marx correctly foresaw that it would take less and less labor to produce, say, a bolt of cloth. But the power looms and other machinery of Marx's time were essentially hand-made by skilled craftsmen. Thus as the amount of direct labor in a bolt of cloth continued to fall, the capital equipment would make up an ever-increasing proportion of the capitalist's total costs. Thus the increasing organic composition of capital and consequently decreasing profit rate.
Marx's logic is fine. But his vision of technology was too limited. Once productivity began to improve in the making of capital equipment, there was no longer any reason to assume that the composition of costs would change. When the mass-produced electric motor and diesel motor began to replace the hand-made steam engine, there was no reason that the value of capital - again, in Marx's labor terms -could not itself fall in proportion with the fall in the value of the product. Moreover, capital does not only replace labor, it sometimes replaces capital. For example, the advent of containerized cargo did not just save labor: by reducing the turn-around time of a ship it significantly increased the ton-miles of cargo that a ship of a given size could transport in a year.
The standard of living of workers in Britain began to rise about the time Marx was finishing the first volume of Capital. The same process occurred in a number of other countries. By the 1960s the idea that each generation of workers would be better off than their parents had taken hold throughout the advanced capitalist countries. Ever-rising "mass-consumption" was heralded as evidence of the viability of capitalism.
A caution must be noted here. Workers in the advanced capitalist countries are only between 15% and 20% of the world's labor force. Brazil, Mexico and other parts of the third world also have capitalist economies. And the working-class districts of the industrial cities of the third world provide no evidence of increasing standards of living. It is possible that they are just a century or so behind the advanced countries and will soon enter the path of rising wages. But it is also possible that they are stuck. [12]
To Marx and his followers, the state was the "executive committee of the ruling class." As such, law and other government functions would reflect the interests of capitalists, not workers. Workers would have to seize the state - probably through revolution, but possibly through political action in some countries - in order to turn the apparatus of government toward their own ends.
Marx's view of the state was partially due to the times in which he wrote. When Marx and Engels wrote The Communist Manifesto in 1848, the only place in the world where average workers could even vote were the northern part of the United States and some parts of Switzerland.
Marx's theory of the state is related to his prognosis for working-class living standards. Capitalism and democracy cannot coexist for long if most of the population stays impoverished. In such a case, either democracy will prevail as the populace votes out a system that has left them in poverty, or the capitalists will suspend the mechanisms of democracy in order to preserve capitalism.
Today's Latin America provides an example of the incompatibility of capitalism and democracy in economies in which the workers do not enjoy much economic advancement. Many Latin American countries try a form of electoral government for a while, until too many politicians from the anti-capitalist parties get elected, then the military officers step in and restrict democracy in order to save capitalism.
Have the economic trends of the last 125 years - particularly the astounding improvement in the standard of living of workers in much of North America, Europe and Japan - rendered Marx obsolete? In a word, no. It is certainly possible to explain these trends using Marx's theories. This is still a long way from indicating that Marx's theories are correct, but it does show that we cannot totally reject the Marxian theory of capitalist development.
The most serious difficulty with Marx's analysis is his Law of the Tendency of the Rate of Profits to Fall. The prediction of a rising organic composition of capital, which would cause profits to fall, is premised on some demonstrably incorrect assumptions about technology. And if there is no such law, the Marxian argument for the inevitability of the eventual collapse of capitalism is severely weakened. But this does not rule out the possibility of a capitalism in which the living standards of the vast majority cease to grow or even drift downward over time.
Marxian theory does not rule out an improvement in living standards, it just makes it unlikely. Living standards for average workers can improve if : 1) there is a long period of relatively full employment; 2) there is no new "reserve army of the unemployed' to draw workers from; and 3) if productivity improves fast enough to let wages increase without reducing profits but not so fast that unemployment rises. These conditions existed in much of what are now the rich capitalist countries from the 1860s through the 1960s (with the exception of the 1930s).
By the mid 1970s, however, wages stopped growing in the United States, unemployment increased in Europe, and the trend toward more even distribution of income was reversed in both the U.S. and Britain. With the richest fifth of families enjoying 42% of all British income while the poorest fifth receive 8%, Britain's income distribution in 1991 had slipped back to where it was in 1949. [13] The richest fifth of US families saw their share of total income grow from 40.4% in 1967 to 44.6% in 1989. Over the same period, the poorest fifth of US families saw their share fall from 5.5% to 4.6%.
One reason for this reversal of trends might be the recruitment of two large reserve armies of unemployment. As women began to enter the labor force in large numbers, wages stopped growing. Then the application of new technologies to transportation and communication made it easier for firms to shift production to low-wage countries. The continuing improvement of communications technology plus the vastness of the potential workforce in low-wage countries suggests that workers in the rich countries are not likely to see wage increases again for at least half a century, if at all. Additionally, computer-based production technologies may increase productivity faster than demand can grow, which will lead to increasing unemployment.
The social relations of production Marx saw in 19th century England have been modified in modern capitalism throughout the advanced countries. These modifications include child labor laws, minimum wages, free public education, unemployment compensation, social security, legalization of labor unions, and many others. These all represent piecemeal compromises between labor and capital.
Or do they? Labor laws might instead be seen as analogous to game laws - the state is merely a game warden, assuring future capitalists that the pool of exploitable workers will be preserved for generations to come. Social security and other transfer payment systems help provide the income that supports mass consumption and thus business profits.
Even if the state has become a mediator between the interests of capital and the interest of labor, the power of the state has diminished in recent decades as capital has become more fully global. Any legislative gains made by workers in the advanced countries may now be offset by capital "escaping" to countries with low wages and few labor laws.
Karl Marx dedicated most of his life to the analysis of capitalism One of the major questions which he addressed was whether or not capitalism would improve the material life of the working majority of the world's population in any measure proportional to capitalism's obvious ability to increase our productive capacity. His conclusion was that it would not, or at least that it would not do so directly; only indirectly by setting the stage for socialism.
A century after Marx finished Volume I of Capital, it seemed that much of his analysis was wrong. His labor theory of value did not work, at least it did not work as a theory of prices of production. His law of the tendency of the profit rate to fall was premised on the incorrect assertion that productivity would increase rapidly in consumer-goods production but not in the production of capital equipment and intermediate goods. The working class was getting a share of the rapidly growing productive power - at least in the most advanced capitalist economies. And - again in the most advanced capitalist economies - the working class had won the right to vote and had used its political and economic power to win social security, unemployment compensation, the right to collective bargaining, a minimum wage and many other protective labor laws.
Still, we cannot so easily dismiss the possibility that Marx, in the main, was correct. He did, after all, change the way we think about history. His theory of capitalist crises was not improved upon for over fifty years. The concentration of business power unfolded in much the way Marx had predicted. We must keep in mind that the classical political economists, Smith and Ricardo as well as Marx, mistakenly turned their observation of wages during the century in which they wrote into a theory - even a 'law'- of subsistence wages. Perhaps we have done something similar: observing rising real wages in the leading capitalist economies for about a century, we now assume that 1) productivity will continue to grow, and 2) that workers as well as capitalists will benefit from this growth. Perhaps the major relevance of Marx's theories to today's capitalism is that they stand as a warning that we might just possibly be wrong; that our much vaunted standard of living is primarily the result of a century of spectacularly fortuitous circumstances.
1. What was the cause of the tendency for profits to fall, according to Marx? What is the major weakness in his analysis of this tendency?
2. Can government still be characterized as "the executive committee of the ruling class"? Or does modern government, at least in the advanced industrialized countries, mediate between the interests of capital and labor?
3. Can capitalism survive if the small-business sector is absorbed or driven to bankruptcy by big business?
Terms Introduced in this Chapter
Anarchy of Capitalist Production
Dialectical Materialism
Forces of Production
Law of the Tendency of the Profit Rate to Fall
Mode of Production
Organic Composition of Capital
Realization Crisis
Reserve Army of Unemployment
Social Relations of Production
Surplus Value
Underconsumption Crisis
Utopian Socialists
Parallel Readings
History of Economic Thought - The Worldly Philosophers, Chapter v, "The Visions of the Utopian Socialists," Chapter vi, "The Inexorable System of Karl Marx."
Economic Theory - Economics Explained, Chapter 2, "Three
Great Economists."
Further Reading
Marx's works, along with those of his friend, editor
and sometimes co-author Engels can be found at
the Marx/Engels Archive.
These two were prolific writers so it will be awhile before
the archive is complete, but it grows daily. The archive includes
an excellent search mechanism, photographs and other biographical
material. This is an exceptionally well-organized website.