Economics Essay, Research Paper

Karl Marx is the most controversial economist in history. His writings are studied and debated. He is frequently linked with communism and that association has biased many people against him. Marx?s link to communism were formed because many of the socialist dictators such as Lenin studied Marx intensively, however it is erroneous to assume that Marx was a proponent of communism. He was however a critic of capitalism. He studied capitalism extensively and much of his writings focus on the problems with capitalism and specifically on the exploitation of the worker. By examining the origination of capitalism and the Marxist critique of capitalism, we can gain a better understanding of Marx?s viewpoints and separate Marx?s views from many of the misunderstandings surrounding Marx.

Marx spent a great deal of time examining the conversion of the feudal society to a capitalist society. Before the conversion to capitalism took place, England experienced an industrial revolution. This revolution took place from the 10th to the 14th centuries. Around this time, the Plaque that wreaked havoc on England and wiped out nearly half of its population was over. After the Plague ended, many people inherited a lot of wealth and spending on extravagant items became very common. Additionally, it was during this time that technological advances moved industry forward. The invention of the loom made it possible to create linens rapidly and inexpensively and England?s textile industry flourished. Soon after that came the invention of the printing press, which changed allowed for the efficient transfer of information. It was no longer necessary to learn how to do things directly through human contact. This spread of information made it possible for the people of England to organize themselves and to expand their knowledge in different areas of industry.

During the 16th and 17th centuries England experienced a turning point in its economic history. During the reign of Charles I, England was going through a period of economic shrinkage. Up until this time English monarchy favored an economic system that was monopolistic in nature. The reason for this is that it gave England greater control over profits and taxation. However, as the merchant class began to grow, England?s economic policies began to hinder further growth. The merchant class (referred to by Marx as the bourgeoisie) began to compete with the monopolies and England?s economy grew increasingly unstable. The rising bourgeoisie began to enclose their land and focused their efforts more and more and their own material gain. These economic factors were, in a large part, responsible for the eventual revolution and execution of the King of England, Charles I.

The conversion to capitalism took place over a large period of time, but the changes that took place affected every aspect of society. It changed not only industry, but also politics, religion, laws, and people?s social interactions. In feudalism, wealth was tied to the land. Society was based on agriculture and 90% of the people worked the land. If someone owned land they were wealthy; the society was divided into two classes, landowners and non-landowners. In feudalism, wealth was inherited. Land was passed on when the landowner died to his descendants and therefore it was impossible for serfs to move up. With capitalism this all changed. Wealth was linked to trade and production. For the first time, serfs had the ability to acquire some wealth because wealth was no longer based on lineage. Under this new system, owning a business became the major way to generate wealth, which created some opportunity for serfs that had a skill. Furthermore, land became a commodity that could be bought and sold. Previously, land did not change hands and the king could seize it at any time. In capitalism property was bought and sold and people could do with it whatever they wished. In feudalism profits were considered immoral, but under capitalism profits became the way to obtain a better life.

Capitalism is the separation of the economy and the state. It is a social system based upon private ownership of the means of production, which entails a completely uncontrolled and unregulated economy where all land is privately owned. Capitalism has been described as the ?a social harmony through the pursuit of self-interest.? This is because those who promote capitalism, believe in that by leaving the state of the economy unregulated, and by each individual left in pursuit of his own self-interests, the economy will automatically adjust itself so that is runs with maximum efficiency. Today in the United States we live in a capitalist society (although our economy is not purely capitalistic because it is not completely unregulated). Under this system a large and growing section of the population survives based on the condition that it works for the owners of the means of production.

Production became a key component of this new way of life. Marx defines social class as ?relations to means of production?. Society class structure changed. Instead of society being divided into the landowners and non-landowners, it was divided into those the capitalist and the worker. Capitalists built huge factories instead of small workshops and began to employee hundred of workers at a time. The capitalist owned the factory, the land, and the raw materials and instructed the worker on what to do. Then the goods produced were sold and the capitalist paid the worker a wage and kept the profits. At a time when 90% of England were poor, former serfs, capitalists found plenty of people willing to work for almost nothing. Although, a select few of the workers who were skilled earned a slightly higher wage, the majority worked to just enough money to sustain themselves. The capitalist paid as low a wage as possible and tried to sell their products for as high a price as possible. Most capitalists were very successful. They reinvested their money into new ventures and their wealth grew.

Marx recognized that Capitalism divides society into classes, whose interests are not only different, but are opposed to each other. According to Marx the relationship between the capitalist and the worker is inherently antagonistic. What one gains is lost to the other. Because of this he felt that it was inevitable that the worker would have to rise up against the capitalist.

Let?s take a closer look at the capitalist-worker relationship and how workers wages are determined. The same principles that determine the price of goods also determine the wages. Supply and demand and the competition for labor determine wages by the capitalists. This is what causes the cost of labor to fluctuate and the fluctuations revolve around the cost of producing labor. The costs can be described as the cost of maintaining and training the worker. The easier a worker is to replace or the less training required to educate a worker, the smaller his wage. If there is little or no training necessary, a workers wages will equal the subsistence wage (the minimum amount necessary for a worker to survive). In addition the subsistence wage the capitalist must also consider the cost of replacing worn out workers. The addition of this cost to the subsistence wage is the minimum wage. Although many workers do live and work for a wage below this level, the minimum wage correlates to the wages of the entire working class and this wage is the point about which wages of the workers fluctuates.

Understanding how wages are determined in the capitalist society we can now examine the relationship between labor and capital in more detail. The laborer receives wages in exchange for his labor. The laborer receives this wage which provides him a method of survival in that he can by food, clothes, and shelter. However, the subsistence wage will not provide the worker any means of economic progression. It will not provide him a way of moving up from the lower classes. An example of this would be a factory worker. He works for one day and is paid for his work ten dollars. The factory owner earns twenty dollars for the work put forth by the worker after subtracting the wage that he pays the worker. Therefore, the employer has created for himself twenty dollars by doing nothing more than giving the laborer work. The factory owner can then use the twenty dollars to reinvest in the factory or in another venture, increasing his wealth. The laborer on the other hand, earns his ten dollars a day, which is only sufficient for him to purchase necessities. It is often said that in capitalism it is in the best interest of the worker and the capitalist for the capitalist?s ventures to succeed. This is true in that if the venture does not succeed, the worker nor the capitalist will reap a reward. However, when it does succeed it is the capitalist who has the opportunity to increase his wealth and it is in the capitalist?s best interests that the worker not be given opportunity to earn more than the subsistence wage he is being paid.

The growth of the business under capitalism will logically benefit a select number of capitalists. The few who are fortunate enough to have wealth have the opportunity for their wealth to grow. However the worker is not as fortunate. Marx knew that a growth in profits for a firm did not help the worker as one might suspect. In fact, a growth in profits would imprison the worker. When profits increase, wages might also increase but not at the same proportion to profit. An increase in profits for a firm of 30 percent could translate roughly to an increase in wages of 5 percent. Even though wages rose, they rose proportionately less that profits. Therefore the relative wage has not increased, but in fact it has gotten smaller. As the few capitalists increase their wealth, the gap between the rich and the poor must widen. The size of the working class (Marx refers to them as proletariats) grows in number, but their individual wealth is stagnant. The relationship between the two classes is a control relationship of the capitalist over the worker. This is not a great improvement over the relationship between the feudal lords and the serfs. In the best case scenario a capitalist economy prospers to the point that wages are driven up. Even in this case, however, the gap that would develop between the rich and the poor is so unproportional that it would be impossible for the laborer to increase his standard of living in a pure capitalist economy. We can see that even the best possible situation for the working class does not improve their situation. The material position of the worker may rise slightly, but his social position continues to decline.

Marx refers to the manner in which a capitalist controls the worker and reaps the rewards of his labor as ?exploitation of the worker?. The capitalist exploits the worker by using him in the production of goods and using the profit that was generated by the worker?s labor for his own gain. We will look at how this is done, but first we need to understand how the value of a good or a commodity is measured. By gaining that understanding we can then look at the value added to a product by the laborer and what portion of that value is rewarded to him.

It had been a problem for economists to determine how the value of a good is derived. It had been determined that prices of all commodities including labor, are continuously rising and falling and that the price of the goods can rise and fall because of factors that had nothing to do with the production of the good itself. The determination of value was a problem that many economists tried to resolve. Marx was the first economist to investigate thoroughly the notion that the value of a good is determined by the labor put into producing the good. He believed that the value of a commodity was based on all labor, past and present, put into creating the good. This established a way of measuring the true value of good.

However this theory had some problems. How is the value of labor determined? How do we express the value of labor when labor itself is used to measure value? Classical Economists contrast these problems that were faced by Marx (as well as other economists such as David Ricardo), with another theory. This theory suggests that the value of a commodity is equal to its cost of production. Under this idea, the value of labor can be determined by the cost of sustaining him or the cost of replacing him.

Another way of looking at the exploitation of the worker is by examining the number of hours put into producing a product. The value of each product consists of three parts, according to Marx: the first part is the amount of constant capital put into a good, the second part is the amount of variable capital used to create the good (wages), and the third is the surplus value. The surplus value is the value of a good above and beyond the value that was paid to the worker in the form of wages. In fact by dividing the surplus value by the workers wages we are able to derive the Rate of Exploitation of the worker. So for example a worker?s wage might equal half of the value of the good he produced. The other half of the value that the worker added is the surplus value and the surplus value is taken for profit by the capitalist.

By looking at the relationship between the worker and the capitalist one thing is certain. The value of a good is determined either directly or indirectly by the worker. The value is either composed of the actual units of labor used to produce the product or the cost of labor is used as part the valuation of the good (in addition to the other costs such as materials and machinery). Regardless the worker is reduced to a tool used by the Capitalist and he is nothing more than a component in the production process. And that is what Marx felt would cause the strain and the inevitable rebellion of the worker.

It is important to note that despite the common misperception, Marx did not feel that Capitalism is all bad. He recognized that it ended feudalism which was far worse. In many ways he looked at Capitalism as a segue to something better. He believed that Capitalism was dynamic and constantly changing and this leads to the promotion of technology and spurs advances in science. He also knew that Capitalism was an efficient way of creating material wealth.

However, despite capitalism?s advantages, Marx could not over look its disadvantages. It divides people into classes, which in and of itself, Marx believed, creates problems. It produces wealth for few and unhappiness for many. He believed that a worker is not just selling his labor, he is selling his humanness. He believed that a Capitalist economy will grow for decades (although their will be periods of recession and depression), but the capitalist system can not flourish indefinitely because by isolating the worker and creating the tension that must exist between the capitalist and the worker, capitalism must fall. The workers will eventually organize themselves and overthrow capitalism and then capitalism will be regarded as feudalism is now, as a stepping stone to something better.

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