Economy, Socialism

An Introduction to Marxist Economics

By Nathan Johnson

Nathan Johnson, a MADSA member, has written a short book on An Introduction to Marxist Economics.

This work will hopefully be informative for members in our chapter and beyond.

Here, we are publishing the preface and first chapter, but the whole book is available as a PDF at this link.

Preface

The main aspect which distinguishes this book from other introductions to Marxist economics is the empirical evaluation of indicators and trends which characterize capitalism over time. The focus is on the US as the most advanced contemporary capitalist economy. References in the endnotes enable interested readers to reassess the series as new data become available.

The first half of this book addresses foundational topics while the second half outlines the historical development of capitalism and concludes with principles of socialist economics. The emergence of capitalism and its earliest stages of development are briefly covered, in the interest of brevity, and subsequent stages of development are examined in greater detail.

This work draws upon the following recommended further reading: Marxist Economic Theory and Late Capitalism by Ernest Mandel and Capitalism: Competition, Conflict, Crises by Anwar Shaikh.

1. Class and Social Relations

A. The Relevance of Marxist Economics

In the words of one of Shakespeare’s rebellious characters: “thought’s the slave of life, and life time’s fool; and time, that takes survey of all the world, must have a stop.” Thought is preoccupied with life’s concerns, stamped by the times in which they arise. The way of life which prevails in any given time and place, no matter how ingrained and pervasive, inevitably comes to an end, either changing into something new or going extinct in the course of history. These basic insights ground the materialist approach to Marxist economics, which stresses the dynamics between historical contexts, economic processes, social relations, and mental conceptions.

Constructive economic theory must address matters ranging from the problems of everyday life to pressing international issues, shaped as they are by history, evolving over time. To this day much of human history develops blindly, without the purposeful control of the people who endure its repercussions. Transitioning from a defensive position of reacting to unfavorable socio-economic situations (such as monumental levels of inequality, impacts of global climate change, unrewarding corporate employment, etc.) to taking greater control over our lives and society ultimately requires nothing less than challenging and overcoming class relations. To have any chance of success, socialists must base their strategy on a principled understanding of class. Marxist economics exposes the roots of class and in the process provides a foundation for the political aspirations forming a socialist platform. In the simplest terms, this is the reasoning:

  1. Labor is the source of value.
  2. Profit is unpaid labor and capital is control over unpaid labor.
  3. Workers have an objective interest in ending exploitation and capitalists in perpetuating exploitation.
  4. The working class must independently organize economically and politically to effectively fight for its interests, end capitalism, and build a classless society.

Liberal and progressive politics do not strive to end class distinctions- at best they only attempt to make certain aspects less antagonistic. Apart from the socialist viewpoint, the centrality of class is generally unrecognized or denied. In mainstream discourse the concept of class is often imprecise and lacks substance (take for example political rhetoric paying lip service to an ill-defined middle class). On the rare occasions when the division of society into classes is openly acknowledged and considered, class is typically legitimized by conservative and libertarian politics which laud the role of the capitalist (invoking social Darwinism in one form or another, for instance). The insight Marxist economics provides by critiquing class relations enables socialists to set their sights on the difficult but necessary projects required to build a classless society.

B. Economics and Social Relations

Mainstream economics primarily focuses on technical problems (such as deriving supply and demand curves, marginal costs, and interest rates) and building models of how the economy would function if “perfect competition” prevailed, taking capitalist social relations for granted. In contrast, Marxist economics emphasizes the importance and mutability of social relations. To give one example, on the surface level money takes the form of coins, paper bills, and bank account balances. On a deeper level, money involves social relations leading people to accept and venture after these tokens, which in themselves are typically worthless, insofar as they confer the power to control labor and wealth. Cash would not function as money in the absence of these social relations (for instance in cultures which may only practice barter). On the other hand, social relations in turn are mediated through material dealings (for instance capitalist commerce, which props up social stratification, is unthinkable without the use of money and the exchange of commodities).

Mainstream economics considers capital to be the assets used by businesses and individuals for economic gain, including money, machinery, land, and even workers’ experience and skills in the guise of “human capital.” Marxist economics counters that the items which serve as money, the inputs of production, and produced goods are not automatically capital- they only function as such in the context of particular social relations. Money is not always used as capital (for instance in pre-capitalist societies) and the physical properties of gold do not make it intrinsically valuable or explain why it functions as a form of money under capitalism. As the experience of post-capitalist economies has already shown, it is possible for the means of production and distribution to be used according to a different logic instead of being used as capital. Commodities being sold in a store are part of the firm’s capital, but once those same commodities are purchased and become household items they no longer function as capital.

Mainstream economics idealizes competition and depicts perfect competition with these attributes:

  • An unlimited number of firms exist, each representing an infinitesimally small fraction of the market.
  • Firms passively conform to prices set by the market.
  • Businesses are always profitable.
  • Markets are automatically responsive to changes in supply and demand, such that production and distribution take place instantaneously.
  • Consumers are only interested in maximizing their personal utility, have complete knowledge of the market, and are perfectly rational.
  • Everyone in society harmoniously benefits from individuals pursuing their private interests. The market perfectly allocates resources and provides full employment to everyone looking for work.

When mainstream economics recognizes that the real world does not conform to the tenets of perfect competition, deviations from theory are blamed on imperfect competition. However, it is not because the world is imperfect that the theory of perfect competition fails to perform- rather the theory itself is imperfect. Instead of starting from the false premises of perfect competition, Marxist economics takes reality as its starting point:

  • There are a limited number of firms, some of which constitute a significant portion of the market.
  • Firms actively set prices calculated to maximize profit and ruin competitors, within a range determined through trial and error to be viable on the market (prices outside the range are punished on the market through weak sales or low profitability).
  • There is no guarantee firms will obtain a profit- they may lose money and go out of business.
  • Supply and demand are never perfectly balanced, routinely leading to buyer’s markets and seller’s markets. Imbalances may persist for lengthy periods since production and distribution take time to adjust (for instance during construction of additional capacity).
  • Consumers are not isolated selfish individuals, but social people with community connections, family ties, and traditions and cultural norms. They are influenced by the propaganda of marketing, have partial knowledge at best about markets, and make semi-rational purchasing and selling decisions.
  • While businesses manage their own affairs more or less efficiently to obtain the largest profit possible, in the process they exploit the working class and wreak havoc on the environment such that overall capitalism does not optimally allocate resources to meet society’s needs. Persistent unemployment is the result of labor-power being reduced to an expense to be economized.

Mainstream economics frequently portrays capitalists as small business entrepreneurs who succeed by the sweat of their brow, making breakthrough inventions and innovations for the good of humanity. This is essentially a myth. Being an entrepreneur, small business owner, and contributing to technological progress are not essential qualities of being a capitalist. The fundamental characteristic of the ruling class is ownership of capital to an extent that frees capitalists from needing to work.

C. The Class Structure of Capitalism

The billionaires, a few thousand people, own more wealth than billions of people making up more than half of the global population. How is it possible for capitalists to live without working and, on top of that, own far more wealth than those who do work? It is only possible for capitalists to live a life of leisure and abundance because they live off the labor of other people. Workers labor above and beyond what is required for their subsistence and capitalists acquire the fruits of this surplus labor. Capitalists live off the income of their property and use money to make more money, for instance putting money in the bank and collecting interest as the money grows. However, outside the context of expedient social relations money is only an inanimate object, incapable of spontaneously generating more money, any more than wealth springs into existence out of nothing. Tracing it back to its origins, unearned income always taps into the output of labor.

The capitalist class is maintained by the working class and in a sense these are the two fundamental classes of capitalism, without which it could not exist. In reality, there are additional social classes forming a hierarchy, as well as layers of stratification within each class which are often appreciable. For instance, workers earning minimum wage and skilled laborers earning considerably higher wages have very different standards of living, yet as members of the working class they have certain common interests. Economic disparities between classes are typically far more consequential than those which exist within classes.

An embedded class structure entails structural exploitation- the particular classes which predominate reflect the distinctive forms of exploitation which characterize a given mode of production. Class is not simply about who is relatively rich and poor (since this does not explain the emergence and disappearance of assorted classes throughout history as modes of production rise and fall). Instead, class is more meaningfully understood as mediating access to and ownership of the means of production and distribution, which determines who has to work for whom else, and who has control over working conditions. With this perspective, the principal classes found in capitalist society are:

  • The lumpenproletariat: the chronically unemployed and impoverished.
  • The proletariat: the working class, compelled to sell its labor-power for wages in order to survive, lacking ownership of the means of production; maintains the ruling class through the surplus it generates in the labor process.
  • The petty bourgeoisie: skilled professionals and small business owners, whose income is a combination of wages and profit.
  • The bourgeoisie: the ruling class of large business owners and wealthy elites free from needing to work; lives off the labor of the working class by appropriating the profit which ownership of capital confers.

Pre-capitalist social classes (such as the aristocracy and peasantry) may persist for a shorter or longer period before dissolving into the classes which characterize capitalism, as prior modes of production cannot sustainably compete against capitalism. Over time the remaining tribal people living in classless cultures are also drawn into contact with capitalist society and have few alternatives to joining the ranks of the proletariat and lumpenproletariat. The convergence of people into capitalist social classes, which are reproduced time and again, mirrors the consolidation of exploitation along specifically capitalist lines.

Capitalism affords relatively greater social mobility than prior class societies (for instance, under feudalism belonging to the ruling class was typically a matter of being born into the aristocracy). However, sociology proves over and over again what is painfully obvious: there are glaring social inequalities from childhood onward which largely determine any individual’s prospects of educational attainment, social advancement, life expectancy, and quality of life. Members of the bourgeoisie attend the best schools, have access to all the resources and experts money can buy, and have ample leisure time for pursuing their interests. On the other hand members of the proletariat and lumpenproletariat often receive substandard education, face obstacles imposed by poverty or limited means, and spend most of their time working and recuperating from work, or trying to find work.

It is not surprising then that most individuals remain for life in the class they were born into. This is especially true for historically disadvantaged groups including women and people of color. Indeed, the vast majority of people must belong to the working class under capitalism since millions of workers are needed to support the elite few. Even if everyone had the same opportunities (with no extra-economic obstacles regarding social mobility), capitalism would still maintain a capitalist class separate from the working class. Individuals may move between the social classes but the classes which characterize capitalism remain nonetheless.

Want to read more? The whole book is available as a PDF at this link.

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