By Archie Ryan (Economics Correspondent)
Edited by Ollie Lycett (Economics Editor)
Rarely has a writer been so thoroughly criticised and equally praised as Karl Marx. The German economist’s dissection of the capitalist mode of production sparked revolutions, both in thinking and in economic practise. However, with the fall of communism in Eastern Europe now thirty years behind us, and the prevalence of a prosperous middle class in modern western society, the relevance of Marx’s writing has become increasingly questioned. Therefore, it seems appropriate that we explore why, regardless of the economic, societal and political changes that have manifested themselves over 138 years since his death, Marx’s theories remain relevant.
The first concept discussed in his magnum opus, “Das Kapital”, the labour theory of value (LTV) is fundamental to Marxian economics. The LTV states that human labour, aside from mother-nature herself, is the sole creator of value. The character of labour is twofold, claims Marx: “On one hand, all labour is […] an expenditure of human labour power, and in its character […] it creates and forms the value of commodities. On the other hand, […] it produces use-values” (Marx, 1867). Consequently, Marx draws the conclusion that the value of a commodity is determined by the labour socially necessary for its production (socially necessary being defined by Marx as “that required to produce an article under the normal conditions of production”) (Marx, 1867).
Today, the LTV is considered by many to be outdated – replaced by the theory of supply and demand, as it can seem as though Marx took no notice to the power of demand within markets – simply assuming that the productivity of labour is the only force driving price. Carl Menger – the famed founder of the Austrian school of economic thought – has, himself, made this mistake in criticising Marx’s theory. In his work “Principle of Economics”, Menger details how “There is no necessary and direct connection between the value of a good and whether, or in what quantities, labour and other goods of higher order were applied to its production (Menger, 1871)”. Menger goes on to state that a diamond’s value would not change whether it was “found accidentally or was obtained from a diamond pit with the employment of a thousand days of labour” (Menger, 1871) . Much of “Das Kapital” is structured solely around the existence of the LTV. If Menger’s statement is to be true, therefore, a large amount of Marxist economic theory is discredited at once, however, this is not the case, as what the theorist misunderstands is that the labour theory of value is not the labour theory of price. Market price is not involved in Marx’s theory – instead, Marx used the LTV as a way of explaining why the capitalist mode of production is exploitative through the concept of surplus value: the value extracted from the worker, the creator of value, through wages with the purposes of crystallising a profit. To argue that this is wrong due to the existence of market forces is to misunderstand his theory altogether. If a criticism is a mere misinterpretation of ideology, it ceases, everywhere and always, to be a criticism in and of itself. The LTV has survived the test of time and remains a key component of understanding Marxian economics and capitalism alike.
Class theory is an economic and social theory which aims to examine class relations, antagonisms and their roles in driving inequalities. In Marxist theory, the determinant of one’s position in the class hierarchy is their role in the production process. Marx and Engels identified two separate classes in modern industrial society – the proletariat and the bourgeoisie. In the 1888 English edition of the Communist Manifesto, Friedrich Engels describes the proletariat as “the class of modern wage-labourers who, having no means of production of their own, are reduced to selling their labour-power in order to live” (Engels, 1888). The bourgeoisie, on the other hand, are described as “the class of modern capitalists, owners of the means of production and employers of wage-labour” (Engels, 1888).
Nowadays, this view may be seen as reductionist. At the time Marx and Engels were writing, laissez-faire capitalism ran rampant. Wealth disparities were vast, child labour was commonplace and labour laws were few and far between. Today, we have the safety nets of social democracy, a prevalent middle class and a wide range of labour laws dictating what firms can and cannot do. Such measures lead many today to believing that this distinction between employee and employer is therefore irrelevant. This should be rejected as there remains a clear disparity between the money gained from the ownership of capital and the money gained from income. This may be observed when considering the capital/income ratios of eight developing nations (see figure 5.3) (Piketty, 2013)
As we can see from Piketty’s graph, an extract from his book “Capital in the Twenty-First Century”, the ratio between the money gained from private capital and the national income of eight different developed economies is characterised by a positive trend (with the exception of Japan). In 2010, aggregate wealth was worth between four and six years of national income in all eight industrialised countries. Through this examination, we may acknowledge that the distinction between those who own capital and those who do not continues to be explicit. By consequence, irrespective of our new middle class, the proletarian class and bourgeois class remain prominent today.
The ultimate conclusion of this article – that Marxist theory is, today, more relevant than ever – is reinforced through another graph of Piketty’s (see figure 5.8) (Piketty, 2013)
Here, we are presented with a prediction from Piketty derived from his “second fundamental law of capitalism”: (where = the capital/income ratio, S = savings and G = the growth rate (Piketty, 2013). From Piketty’s prediction, we can see that this growth in the capital/income ratio, discussed in my analysis of Figure 5.3, is not simply a short term trend – it is the ultimate result of sustained economic growth (implied through the sharp decline during the period between 1910 and 1950, an era defined by war and economic depression). From this data, we may therefore make the ultimate Marxist conclusion that not only is Marxian class theory relevant, it is becoming more important than ever and, based on Piketty’s projection, shall continue to do so.
Perhaps the most important Marxian economic theory at this day and age is the concentration of capital. The reason wealth concentrates is relatively simple; those who are wealthy are able to invest their wealth at a rate of return greater than the rate of increase in the country’s overall wealth (R > G)* (Piketty, 2013). Wealth’s tendency to place itself into fewer and fewer hands as growth increases is a phenomenon we can see vividly today. Simply consider how in the UK, there are only three supermarket chains with over 1,000 stores; there are sixteen prominent chains in total (Wikipedia , 2021). These stores have outcompeted smaller businesses through accumulated market power. In the twenty-first century, we see with clarity, as described best by Marx himself, the “expropriation of capitalist by capitalist, transformation of many small into few large capitals” (Marx, 1867). Therefore, the current state of modern society evidences Marx’s criticisms of the accumulation of capital.
Throughout this article, I have argued in the favour of three separate theories – the labour theory of value, class theory and the concentration of capital. Under this argumentation laya fundamental belief of mine: that Marxist theory is more relevant today than ever before. The LTV has stood the test of time and surplus value continues to be extracted for the heart of capitalism to keep on beating; Piketty’s data maintains that there still exists a society split between two conflicting classes; recent data and our own physical reality presents to us a present and future of continued wealth concentration. These three observations satisfy my overall argument and therefore allow my original thesis statement, in accordance with the thought and philosophy of Karl Heinrich Marx, to persist.
*This equation and overall theory is derivative of Piketty alone, not Marx. Although Piketty is not a Marxist himself, I nevertheless saw his personal discoveries, displayed with brilliance in his book “Capital in the Twenty-First Century”, as a way of explaining Marxist ideas more thoroughly.
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