Marxist Economics

Marxist economics is a school of thought in economics which has developed from the writings of Karl Marx (1818-1883). It is very different to orthodox economics, providing a critical analysis of capitalism and identifying its essentially conflictual and exploitative nature. This is not to say that it is a homogeneous body of work. There is considerable diversity and debate over the interpretation of Marx's work and the validity of the different ways it has been developed. The intellectual and social turmoil since Marx's death, the problem of seeking connections between Marxist theory and practise, the differing political and economic conditions and the development and demise of practical manifestations of (supposedly) Marxist systems, have all contributed to the variety of Marxist thought. Nevertheless, there are common strands and themes which reflect the particular method of analysis developed by Marx.


Marx was innovative and influential in all of the social science but he was influenced by previous thinkers. In particular the philosopher Hegel. Hegel had argued that history was not a random process but comprehensible and governed by objective laws. This did not mean that you can control it but that you can understand it. For Hegel the development of reason or the spirit was the primary factor in human social development and human consciousness was embodied in institutions. This was not a uniform process but dialectical and at each stage there were inherent contradictions and conflicts. When Hegel died his followers split into two schools the old Hegelians who saw the Prussian state absolute monarchy as the ultimate development and the new Hegelians who considered reason to still have along way to develop. Marx was one of the latter. Marx was then influenced by Fuerbach a materialist who criticised Hegel, replacing idealism with human 'essence' and arguing that it was the development of human needs that led to consciousness.

There were many socialist thinkers before Marx and he was clearly influenced by them in particular the French and British. He was also critical of what he called the utopian socialists who argued that capitalism could be made to be fair and non exploitative. For Marx capitalism is inherently exploitative and a socialist society or communism could only be achieved by ending capitalism, by changing the social relations of production

Marx's economic analysis was developed from the work of the British political classical economists, mainly Smith and Ricardo. This approach differed fundamentally from the neoclassical economics which is dominant today. It was concerned with explaining the production and distribution of surplus, rather than the marginalist theories of the neoclassicals with their focus on markets and exchange relations. An important aspect of this approach was the labour theory of value, which saw the labour expended on commodities giving them value which would determine their long run prices. Market prices were short run prices which would not necessarily reflect values as they could be affected by events such as wars, droughts etc. There were some problems with the theories presented by Smith and Ricardo and Marx developed this approach to overcome them. For Marx the value of a commodity was determined by the socially necessary labour time used to produce it, measured in terms of abstract homogeneous labour in which different levels of skill had different values. Thus a commodity would have a value determined by the labour time required to produce it on average.


From these influences Marx developed a method of analysis which was innovatory and the major characteristic of the many facets of Marxist economics. It emphasised first, the distinction between the appearance of things and their essence. That is Marx saw that social and economic systems develop a set of ideas and ways of seeing them (ideology) which are self justifying. He argued that it was necessary to go beyond the way things present themselves and to identify the underlying reality. For example capitalism appears to be based on free labour but is actually based upon exploitation and a monopoly of the means of production. Workers cannot work without the means of production, their freedom is in reality the opportunity to work or starve. This meant Marx wanted to explain many of the concepts economists simply took for granted as a starting point for their analysis, but he also emphasised the treatment of economic processes as historical and social. For Marx economic laws were historically specific, in contrast to the classicals search for universal laws. As mentioned Marx also used dialectical analysis, with its emphasis on crisis and contradiction, with a materialist interpretation.

These last two aspects are best seen in Marx's materialist conception of history, the best exposition of which is in "Contributions to a Critique of Political Economy". In this Marx considers humans to be was distinguished from animals by the fact of production (conception and execution). Organising production means entering into relations with each other, relations which are independent of choice but are historically determined, that is specific to a mode of production and the basis on which the whole of society is constructed. The economic base thus determines the superstructure and is self justifying. The development of the economy over time is a then a process of conflict and change. The relations of production develop less slowly than the technological ability to produce (the forces of production) and become fetters on them. Attempts to accommodate the changed forces of production lead to a breakdown of the existing relation of production including the old superstructure. This then leads to a crisis with the final outcome depending upon the nature and outcome of class struggle.

Capitalism is thus seen as a phase in human history the key elements of which are. That commodities are produced for exchange, not for use, that 'free' or wage labour has emerged, together with a class monopoly of the means of production. Labour then becomes increasingly homogenised as technical progress removes skilled workers and introduces machines which need only unskilled workers. Labour power, the work undertaken by workers, itself becomes a commodity, allowing exploitation, and what are relations between people (the exchange of products of their labour) becomes seen as a relation between things (an asocial exchange of commodities). This is what Marx called commodity fetishism. Under capitalism workers become alienated in that they are no longer in control of their environment, the product of their labour, and this is reflected in society as a whole.

The capitalist system is inherently unstable moving through phases of growth and depression. The unregulated nature of capitalism means that there is no coordination between demand and production, meaning that overproduction or underconsumption can occur. The result will be unsold commodities, unrealised values, bankruptcies and crisis. Individual capitalists are forced by competition and the fear of going bust to increasingly exploit workers and to introduce more productive machinery to realise economies of scale. In crises firms go out of business and others grow leading to concentration and firms take each other over (centralisation). The result is an increase in concentration both of capital and labour and labour saving technology. At the level of the economy as a whole the growth of capital intensity, or the reduction of labour content per commodity, has the contradictory impact of reducing the profit rate. This law of the tendency for the rate of profit to fall provides the background to the continuing crisis ridden development of capitalism. There are countertendencies acting to increase profit which means that at any particular time profits may not be falling but over time the tendency remains.

There is still considerable debate over the relative importance of these features, in particular the importance of Hegel's influence and the role of the dialectic. While many Marxists emphasise its importance the 'rational choice marxists' have recently argued that it is a burden preventing Marxism becoming a modern social science which they argue it would require it to embrace methodological individualism and rationality, that is using the tools of neoclassical economic analysis.


Much of the early academic debate over Marx's economics concerned his value theory. In much of his work Marx had assumed that there was no problem in moving from values to prices. In fact there was and Marx's solution to the so called 'transformation problem' was shown to be wrong, suggesting that his whole theory of profits and exploitation was flawed. Numerous contributions have failed to lead to any consensus, but suggested alternative solutions to the transformation problem have created different schools of thought, such as that based on the work of Sraffa. Recent contributions have provided very technical solutions in the spirit of that presented by Marx, while others have argued either that Marx was right but misunderstood.

Some of the most influential work of marxist economists has been in bringing in more recent developments to Marxs analysis. When Marx was writing capitalism was young and really only established in Britain and while Marx predicted many developments that did occur his work does still reflect his times. One obvious deficiency was his neglect of international economic relations. He was planning to cover it but failed to do so. It was left to Lenin to develop a Marxist theory of Imperialism which explained why capitalism expanded abroad and into less developed areas in the pursuit of markets and profits. Later writers such as Amin and Emmanuel argued that trade had led to an underdevelopment of the less developed countries. Another deficiency was Marx's focus on competition and relatively small firms. In the postwar period the rise of large companies and the creation of multinational and transnational firms has changed the nature of industry and markets. The work of Baran and Sweezy in 'Monopoly Capitalism' which analysed the post war US has led to a body of work inspired by Marx but dealing with the production of observable surplus (profits) rather than surplus value in a world characterised by monopoly power rather than competition. Mandel has provided an analysis closer to Marx's original analysis. A considerable body of work has analysed the role and development of the state in capitalism. Since Marx wrote the state has grown and its involvement in production and society has increased, it has both helped capitalism to survive through overcoming its contradictions and preventing excesses but it has also reformed aspects of the capitalism system. Debates over this changes have created a body of work which contribute much to our understanding of modern capitalism. An important and influential component of this work being the development of an understanding of the determinants and economic effects of military spending.

Another area in which Marxist economics has had considerable influence is on the analysis of the labour process. Marx work was very much concerned with production and the changes taking place in industrialising Britain. Capitalists exploited labour by having a monopoly of the means of production and by controlling/managing labour. Machines increased this control by reducing workers autonomy and skill. Harry Braverman applied this analysis to post war capitalism and started a new field of study. He analysed how capitalism separated conception from execution in work and used machinery and organisational methods, such as assembly lines and scientific management to increase control over the nature and pace of work. This led to deskilling and the development of Fordist systems of mass production with their assembly line and large factories. More recently it has been argued that things are changing in production that there is a move to more flexible methods of production, smaller runs and workers undertaking a number of task. This has been termed Postfordism.

Most of the recent developments in Marxist economics can be seen as part of a revival in the interest in the subject due to changed economic circumstances in the 1970s. In the 'Golden Age' of the post war economic boom the Marxist analysis of the development of capitalism with its crisis and conflict seemed old fashioned and irrelevant. There was a belief that the economy could be controlled through Keynesian demand management to maintain steady growth. The crises of the 1970's engendered by the oil price shocks changed all of that and led to something of a revival of interest in marxist economics which seemed to fit much better with the renewed economic turbulence. There followed a number of influential studies of the 'Golden Age' and its demise, with Marxists seeing the economic problems as heralding the unravelling of a particular regime of accumulation in the international capitalist system and the fall into crisis. Unlike the orthodox economists who blamed the oil price shocks for the problems, the marxists saw them as only the final straw. They also analysed the likely form any new growth path might take. The 'Regulation' school in France and the 'Social Structures of Accumulation' school in the USA speculating what a 'post fordist' regime of accumulation, for the former, or an accord between capital and labour, for the latter, might look like.

Marxist economics has thus developed Marx's analysis to deal with the realities of capitalism this century. There are considerable debates from different perspectives and interpretations, but this reflects the vitality and potential of the approach and a rejection of the Stalinist orthodoxy and dogmatism of previous years. Clearly, marxist economics will continue to make important contributions to our understanding of the nature and development of capitalist society.