After the fun of revolutionary politics in the 1840s Karl Marx settled down to write an economic treatise, Capital: a Critique of Political Economy. He took the basics of the classical economists and used it to prove that, indeed, the capitalist economy was horribly oppressive.
Today I am going to look at two of Marx's assertions: first, that capitalism leads to "immiseration" of the working class and the petit-bourgeoisie; second, that wage labor and production for profit are inherently oppressive.
First of all, "immiseration." Marx rightly understood, from the logic of markets, that profits get squeezed out of any industry, and that that the downward pressures on prices in a mature industry would necessarily cause a downward pressure on wages. If there are good profits to be made on capital invested in a particular industry, then everyone will crowd into this "good thing" until the goodness is all squeezed out of it. This is certainly true; it happens again and again as a once bright young industry matures and competition drives prices down. But it is not just the workers and the white-collar workers that suffer. The capital returns go down for the widows and orphans, and so does the remuneration captured by top managers. So Marx is wrong to say that the workers are uniquely immiserated by mature capitalism. Everyone suffers when an industry declines and falls.
Actually, what really happens in a mature industry is that the workers expect to keep their above-market wages, the managers expect to keep their above-market salaries and bonuses, and the stockholders expect to receive their customary dividends. Then one day the whole thing collapses, because too much debt, and everyone is out of a job or out of money.
But Marx was wrong in a bigger sense. Capitalism is an emerging phenomenon that constantly renews itself. Money is constantly looking for new opportunities; ambitious young men are constantly trying out ideas that they hope will become the next big thing; young workers naturally move to where the jobs are to get hired into growing, profitable industries. And, what nobody knew in the 1840s was that with the textile revolution and the railway revolution that had utterly changed the face of Europe, you ain't seen nothing yet. Because the next big thing was oil, then electricity, then automobiles, then electronics, then information.
Marx was also wrong in sneering at wage labor. His analysis was based on the understanding of value developed by the classical economists. They observed that there were two kinds of value: use value and exchange value. Some commodities, like gold, had a high exchange value, but little use value; while other commodities, like labor, were intrinsically useful, but with very low exchange value. Marx boiled this down into contrasting "production for use" against "production for profit." Well, yes, but if you don't make a profit on your production then your production is not very long for this world. For Marx, workers working for wages were basically exploited because they did not receive the full value added in their labor; the employer captured a good part of the "surplus value" added by labor.
True, workers don't capture the full value added. But in taking fixed wages, they are assigning a certain amount of risk away from themselves. Prices for products fluctuate; so if wages are kept steady then someone has to accept the risk that the wages may squeeze profits if product prices go down. The worker getting fixed wages is not necessarily at a disadvantage. Compare a factory worker with a peasant farmer renting land. The peasant has to face the full risk of fluctuating agricultural prices. But the factory worker has assigned to the factory employer the risk of fluctuating product prices. When you accept risk you have the opportunity for big gains -- and big losses.
It is not surprising that Marx got a bunch of things wrong in his Capital. That is the way the world works: two steps forward and one step backward. The problem is that you will read the work of a modern Marxist in vain to find any understanding of how our knowledge about the economy and markets has advanced since Marx wrote his great work.
For instance, the first volume of Capital was published in 1867. But in 1870, the marginal revolution was introduced by Menger in Austria, Jevons in Britain, and Walras in Switzerland. In marginal economics, value is set in the price "at the margin" at the latest sale on the market. That is all. You will look in vain to see marginalism dealt with in the works of the Marxists.
But the spirit of Marx lives on, that workers are especially vulnerable to exploitation; that there is something underhanded about "production for profit;" that there is something virtuous about economic activity outside the profit system in "production for use" and in cooperatives and non-profits.
Why has capitalism gotten such a bad rap over the years? I will try to address that in the last of this series.
Meanwhile stay tuned for Marx's War on the Bourgeoisie.
Today I am going to look at two of Marx's assertions: first, that capitalism leads to "immiseration" of the working class and the petit-bourgeoisie; second, that wage labor and production for profit are inherently oppressive.
First of all, "immiseration." Marx rightly understood, from the logic of markets, that profits get squeezed out of any industry, and that that the downward pressures on prices in a mature industry would necessarily cause a downward pressure on wages. If there are good profits to be made on capital invested in a particular industry, then everyone will crowd into this "good thing" until the goodness is all squeezed out of it. This is certainly true; it happens again and again as a once bright young industry matures and competition drives prices down. But it is not just the workers and the white-collar workers that suffer. The capital returns go down for the widows and orphans, and so does the remuneration captured by top managers. So Marx is wrong to say that the workers are uniquely immiserated by mature capitalism. Everyone suffers when an industry declines and falls.
Actually, what really happens in a mature industry is that the workers expect to keep their above-market wages, the managers expect to keep their above-market salaries and bonuses, and the stockholders expect to receive their customary dividends. Then one day the whole thing collapses, because too much debt, and everyone is out of a job or out of money.
But Marx was wrong in a bigger sense. Capitalism is an emerging phenomenon that constantly renews itself. Money is constantly looking for new opportunities; ambitious young men are constantly trying out ideas that they hope will become the next big thing; young workers naturally move to where the jobs are to get hired into growing, profitable industries. And, what nobody knew in the 1840s was that with the textile revolution and the railway revolution that had utterly changed the face of Europe, you ain't seen nothing yet. Because the next big thing was oil, then electricity, then automobiles, then electronics, then information.
Marx was also wrong in sneering at wage labor. His analysis was based on the understanding of value developed by the classical economists. They observed that there were two kinds of value: use value and exchange value. Some commodities, like gold, had a high exchange value, but little use value; while other commodities, like labor, were intrinsically useful, but with very low exchange value. Marx boiled this down into contrasting "production for use" against "production for profit." Well, yes, but if you don't make a profit on your production then your production is not very long for this world. For Marx, workers working for wages were basically exploited because they did not receive the full value added in their labor; the employer captured a good part of the "surplus value" added by labor.
True, workers don't capture the full value added. But in taking fixed wages, they are assigning a certain amount of risk away from themselves. Prices for products fluctuate; so if wages are kept steady then someone has to accept the risk that the wages may squeeze profits if product prices go down. The worker getting fixed wages is not necessarily at a disadvantage. Compare a factory worker with a peasant farmer renting land. The peasant has to face the full risk of fluctuating agricultural prices. But the factory worker has assigned to the factory employer the risk of fluctuating product prices. When you accept risk you have the opportunity for big gains -- and big losses.
It is not surprising that Marx got a bunch of things wrong in his Capital. That is the way the world works: two steps forward and one step backward. The problem is that you will read the work of a modern Marxist in vain to find any understanding of how our knowledge about the economy and markets has advanced since Marx wrote his great work.
For instance, the first volume of Capital was published in 1867. But in 1870, the marginal revolution was introduced by Menger in Austria, Jevons in Britain, and Walras in Switzerland. In marginal economics, value is set in the price "at the margin" at the latest sale on the market. That is all. You will look in vain to see marginalism dealt with in the works of the Marxists.
But the spirit of Marx lives on, that workers are especially vulnerable to exploitation; that there is something underhanded about "production for profit;" that there is something virtuous about economic activity outside the profit system in "production for use" and in cooperatives and non-profits.
Why has capitalism gotten such a bad rap over the years? I will try to address that in the last of this series.
Meanwhile stay tuned for Marx's War on the Bourgeoisie.
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