Marxism: Marxian Economics

[Petros Agapetos]

Marxian Economics with Professor Richard Wolff
Worker Co-ops. Make business organize radically differently.
Replace competition with association.
Bring Democracy to the workplace. It is as important as where we live

The Labour Theory of Value
Marx makes a distinction between value and price. Nor is he the only major economist who did that. Smith and Ricardo also used the Labour Theory of Value. Marx adopted it. He tried to use his analysis of value to say whatever else a commodity is it is to be measured in terms of congealed amount of labour mesured in time (under usual conditions). Society has to make a decision, how much labour we allocate in making food versus spend on clothes, because we only have a finite amount of labour available to access. Every society allocates labour. The value = the amount of labour society has in order to allocate for the production of that good.There have been a lots of criticism of the Labour Theory of Value, but the Utility theory also has criticism; Utility is more difficult to measure, ex. "how much joy does that ice cream provide you?" Every economic theory starts from basic foundations; Marx's foundation in labour. Marx did not invent the Labour Theory of Value. Marx thanked Adam Smith and David Ricardo profusely for it.

[Petros Agapetos]

Great Interview of Dr. Richard Wolff on Marxism, Marxian Economics, and Capitalism

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Professor Richard Wolff Explains Socialism for beginners.

Democracy at work.
Liberte, Egalite, Fraternite.

Capitalism has failed to bring about these ideals.
Socialism is the system that will follow capitalism,
in bringing about these outcomes of Liberty, Equality and Fraternity.
Primitive Communism < Slavery < Feudalism < Capitalism < Socialism --> Communism

Capitalism brings about economic downturns/crises: recession, depression etc.
Exploits the worker, and causes the worker to be 'alienated' from the products of his labour. etc.
Ex. of a worker Co-op: 1 person 1 vote on 1. what to produce 2. where to produce it 3. what to do with the profits. etc. where the highest paid worker cannot receive more than 10 times the lowest paid worker's salary.

Capitalist corporations ship jobs overseas in order to make surplus value/profit; out of ego drive activity, rather than for the social good. Therefore, a worker-cooperative sector is to be available; spend some money and make room for worker co-ops.
The reality of this is not just a Utopian dream.

[Petros Agapetos]

[Petros Agapetos]

Marxian economics concerns itself variously with the analysis of crisis in capitalism, the role and distribution of the surplus product and surplus value in various types of economic systems, the nature and origin of economic value, the impact of class and class struggle on economic and political processes, and the process of economic evolution.

Marx's magnum opus on political economy was Das Kapital (Capital: A Critique of Political Economy) in three volumes, of which only the first volume was published in his lifetime (1867); 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 Das Kapital, especially the beginning of volume 1. Marx's notes made in preparation for writing Das Kapital were published in 1939 under the title Grundrisse.

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1. Fundamental Principles

(a) Stage-Theory of Economic and Historical Development:

From Slavery (Graeco-Roman) to Feudalism (Medieval) to Capitalism to Socialism and finally its highest form, Communism.

(b) Dialectical Materialism:

With its core the concept of Internal Contradictions, in turn based on the Hegelian concept that historical progress is achieved through the clash of opposites and their ultimate resolution in the form: THESIS + (vs.) ANTITHESIS -> SYNTHESIS. From this is developed the theory of the class struggle as the central historical dynamic explaining the transition from one stage to the next. In each stage the economic superstructure determines social classes and the nature of the ruling class; but from those economic dynamics develops the antithetical or opposing class which, through violent conflict, will inevitably bring about the destruction of that ruling class.

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The Labour Theory of Value: that labour is the sole source of value in production.

2. The Labour Theory of Value (Kapital, I, 41-55).

(a) Definition: 'That the exchange value of a commodity is determined by the quantity of socially necessary labour contained in it.'

(b) The Quantity of Socially Necessary Labour, as the common denominator determining the equality of exchange, is the average amount of time required for the production of a commodity under normal conditions, with an average degree of skill and intensity of labour, utilizing the contemporary, most advanced technology available. Thus: 'no more time than is socially necessary'; 'homogeneous congelations of undifferentiated labour'.

(c) Significance of Technology:



Marx clearly recognized that machinery, technological innovation directly enhanced the productivity of labour. Thus: 'the greater the productivity of labour, the less labour time is involved in the production of the commodity, and the lesser will be its value, or the lower will be the price of the commodity.' Or: 'The value of a commodity ... varies directly as the quantity [of labour] and inversely as the productiveness of the labour incorporated in it.'

(d) This labour-value of a commodity includes not only the current labour involved in the actual, or final manufacture of it, but also all the previous expenditures of 'labour power' that may be considered as 'congealed' in the production of the original raw materials, the machines and tools, etc. involved in all stages of production from extraction of the raw materials to the disposal of the finished product.

(e) Wages and the Market Value of Labour Power: (Kapital, I, 187 - 90)

i) the worker has only one commodity to sell: his labour power, which he is obliged to sell to the capitalist in the process of production, obliged in order to exist. That labour-power which he sells obviously has a definite exchange value. That value is no different from any other such exchange value: namely, the amount of socially necessary labour time required for the creation of that labour power, in terms of the subsistence (food, clothing, shelter, etc.) of the worker and his family and of his education. Such 'family' costs may be viewed as the necessary costs of the reproduction of that labour power.

ii) The only value or price that the capitalists are obliged to pay the workers for that labour-power is exactly this 'labour-value' as defined above. The market place, the competition of capitalists for labour and the competition of workers selling their labour-power, will [or should] determine that no more and no less than that will be paid.[Marx owed at least that to the Classical School of Economics.]

iii) Subsistence is not to be taken as some point just above starvation: it means a decently comfortable existence that will enable the worker and his offspring to be reasonably productive; indeed comfortable enough to permit the worker to raise a family, to reproduce labour-power.

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The Concept of Capital: Constant Capital and Variable Capital

The moneys or funds that a capitalist expends in the production of the commodities he himself sells constitute 'capital,' of two distinct kinds:

(a) Constant Capital [Non-Reproductive Capital], which Marx defines as: 'that part of capital represented by the means of production, the raw materials, auxiliary materials, etc., which does not in the process of production undergo any quantitative alteration of value.' That means the cost of raw materials and the cost of machinery, specifically the costs of interest and depreciation in utilizing that physical capital. These are simply consumed, used up, in the production process, and their congealed labour-values are simply transmitted to the product being manufactured; but this aspect of capital, this constant capital, does not in itself create or add any value of its own to the product.

(b) Variable Capital [Reproductive Capital], which Marx defines as: 'that part of capital represented by labour power, which both reproduces the equivalent of its own value and also produces an excess, or a surplus-value, which itself varies... This part of capital is continually being transformed from a constant into a variable magnitude.' In other words Variable Capital is labour-power pure and simple, or more specifically the funds expended in hiring that labour-power, which is, by the axiom previously stated, the sole source of value. As the sole source of value, thisvariable capital as labour-power not only transmits its own value [as defined above in 2.e], but creates an additional value called surplus-value. [See Kapital, I, 225-33.]

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The Concept of Surplus Value

(a) as defined by Marx: 'The consumption of labour power is at one and the same time the production of commodities and of surplus value.' [Kapital, I, 187-90]; 'The surplus of the total value of the product, over the sum of values of its constituent factors, is surplus of the expanded capital over the capital originally advanced [Kapital, I, 225-33.

(b) Surplus Value represents the Capitalist's PROFIT

i) Surplus Value is created solely by labour-power but is expropriated solely by the Capitalist because he has purchased from the worker all of his labour-power, and therefore has purchased the rights to the fruits of that labour-power, namely the surplus value he creates.

ii) 'PROFIT' in this Marxian sense is actually composed of three elements:

(1) interest on capital;

(2) rent on land and physical capital;

(3) and the entrepreneur's 'normal profit' or what is often called the 'wages of entrepreneurship.'

Marxian PROFIT also obviously includes what is known in economic theory as 'Economic Rent.' The distribution of these three constituent elements of Surplus-Value, of PROFIT, is not of direct concern here.

(c) Surplus Value arises normally in the following fashion:

i) the worker, using contemporary machinery and technology, performing that 'socially necessary quantity of labour' in the production process, is normally able to reproduce in value the cost of his own labour-power in a matter of a few hours a day: that is to say, the cost of his wages to his employer, representing the worker's cost of subsistence, etc.



ii) but the worker is hired not to work just, say, those 4 hours in which he reproduces the cost of his labour-power; but is hired to work for the full day of 8 hours. Thus, the worker, able to reproduce the cost of his wages, his labour-power, in 4 hours, has sold his labour-power for 8 hours to the capitalist, who thus is able to recover not only the cost of his wages but also the 'surplus value' produced in the remaining four hours. To quote Marx again: 'Labour realizes its exchange-value in its wages, but parts with its use-value;' and 'the value of labour-power (wages) and the value which the labour-power creates in the labour process are two entirely different magnitudes.'

(d) the rate of surplus value

i) equation: the rate of surplus value is: the amount of surplus value divided by the amount of variable capital

sr = s/v



ii) symbols: sr = rate of surplus value

v = variable capital [wages for labour]

c = constant capital

C = total capital

s = surplus value

C' = value

iii) equations to derive rate of surplus value

C = c + v [Capital = constant plus variable capitals]

C' = (c + v) + s [Value = constant & variable capitals plus the value created by the variable capital]

Since c, as constant capital, represents 'the value of the means of production actually consumed in the process and that value alone,' and since it adds nothing of itself to value, it can be reduced to zero for the purpose of these equations. Thus:

C' = (c + v) + s = v + s

sr = s/v

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Capital Accumulation and the Falling Rate of Profit

(a) All of the Classical School economists, from Adam Smith through David Ricardo and the Mills to Marx himself, maintained that the historical tendency of PROFIT (interest, rent, profit) was to fall, though each had his own theories as to why such profit must inevitably decline. [Examples of their writings on this issue are given in D.K. Fieldhouse, The Theory of Capitalist Imperialism (London, 1967), pp. 1 - 44: Smith, Malthus, Sismondi, Ricardo, J.S. Mill, Marx.]

(b) Marx's theory of the inevitable decline in the rate of profit followed logically from the preceding analysis. Thus as capital accumulated from the creation of surplus value in production, capitalists in competition with each other would normally re-invest more of that surplus-value into constant capital as machinery than into variable capital (i.e. hiring more labour). Thus as capital accumulated, the proportion of constant capital to variable capital will increase. The total value of v may continue to rise but not in proportion to total constant capital; and so the relative value will fall, and thus so will the amount of surplus value. To quote Marx (Kapital, I, 681-3): 'In the course of accumulation, a point is reached at which the development of the productivity of social labour becomes the most power level of accumulation;' and so the percentage of labour in production, as a proportion of the total means of production, must fall.