# Marxian economics

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Marxian economics, or the Marxian school of economics, is a heterodox school of economic thought. Its foundations can be traced back to the critique of classical political economy in the research by Karl Marx and Friedrich Engels. Marxian economics comprises several different theories and includes multiple schools of thought, which are sometimes opposed to each other, and in many cases Marxian analysis is used to complement or supplement other economic approaches. [1] Because one does not necessarily have to be politically Marxist to be economically Marxian, the two adjectives coexist in usage rather than being synonymous. They share a semantic field while also allowing connotative and denotative differences.

Heterodoxy is a term that may be used in contrast with orthodoxy in schools of economic thought or methodologies, that may be beyond neoclassical economics. Heterodoxy is an umbrella term that can cover various schools of thought or theories. These might for example include institutional, evolutionary, Georgist, Austrian, feminist, social, post-Keynesian, ecological, Marxian, socialist and anarchist economics, among others.

Political economy is the study of production and trade and their relations with law, custom and government; and with the distribution of national income and wealth. As a discipline, political economy originated in moral philosophy, in the 18th century, to explore the administration of states' wealth, with "political" signifying the Greek word polity and "economy" signifying the Greek word "okonomie". The earliest works of political economy are usually attributed to the British scholars Adam Smith, Thomas Malthus, and David Ricardo, although they were preceded by the work of the French physiocrats, such as François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781).

Karl Marx was a German philosopher, economist, historian, sociologist, political theorist, journalist and socialist revolutionary.

## Contents

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.

Crisis theory, concerning the causes and consequences of the tendency for the rate of profit to fall in a capitalist system, is now generally associated with Marxist economics.

Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labor, voluntary exchange, a price system and competitive markets. In a capitalist market economy, decision-making and investments are determined by every owner of wealth, property or production ability in financial and capital markets, whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.

Surplus product is an economic concept explicitly theorised by Karl Marx in his critique of political economy. Marx first began to work out his idea of surplus product in his 1844 notes on James Mill's Elements of political economy.

Marxian economics, particularly in academia, is distinguished from Marxism as a political ideology as well as the normative aspects of Marxist thought, with the view that Marx's original approach to understanding economics and economic development is intellectually independent from Marx's own advocacy of revolutionary socialism. [2] [3] Marxian economists do not lean entirely upon the works of Marx and other widely known Marxists, but draw from a range of Marxist and non-Marxist sources. [4]

Normative generally means relating to an evaluative standard. Normativity is the phenomenon in human societies of designating some actions or outcomes as good or desirable or permissible and others as bad or undesirable or impermissible. A norm in this normative sense means a standard for evaluating or making judgments about behavior or outcomes. Normative is sometimes also used, somewhat confusingly, to mean relating to a descriptive standard: doing what is normally done or what most others are expected to do in practice. In this sense a norm is not evaluative, a basis for judging behavior or outcomes; it is simply a fact or observation about behavior or outcomes, without judgment. Many researchers in this field try to restrict the use of the term normative to the evaluative sense and refer to the description of behavior and outcomes as positive, descriptive, predictive, or empirical.

Revolutionary socialism is the socialist doctrine that social revolution is necessary in order to bring about structural changes to society. More specifically, it is the view that revolution is a necessary precondition for a transition from capitalism to socialism. Revolution is not necessarily defined as a violent insurrection; it is defined as seizure of political power by mass movements of the working class so that the state is directly controlled or abolished by the working class as opposed to the capitalist class and its interests. Revolutionary socialists believe such a state of affairs is a precondition for establishing socialism and orthodox Marxists believe that it is inevitable but not predetermined.

Although the Marxian school is considered heterodox, ideas that have come out of Marxian economics have contributed to mainstream understanding of the global economy. Certain concepts developed in Marxian economics, especially those related to capital accumulation and the business cycle, have been fitted for use in capitalist systems (for instance, Joseph Schumpeter's notion of creative destruction).

Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form of profit, rent, interest, royalties or capital gains. The process of capital accumulation forms the basis of capitalism, and is one of the defining characteristics of a capitalist economic system.

The business cycle, also known as the economic cycle or trade cycle, is the downward and upward movement of gross domestic product (GDP) around its long-term growth trend. The length of a business cycle is the period of time containing a single boom and contraction in sequence. These fluctuations typically involve shifts over time between periods of relatively rapid economic growth and periods of relative stagnation or decline.

Joseph Aloïs Schumpeter was an Austrian political economist. Born in Moravia, he briefly served as Finance Minister of Austria in 1919. In 1932, he became a professor at Harvard University where he remained until the end of his career, eventually obtaining U.S. citizenship.

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.

Das Kapital, also called Capital. A Critique of Political Economy, is a foundational theoretical text in materialist philosophy, economics and politics by Karl Marx. Marx aimed to reveal the economic patterns underpinning the capitalist mode of production in contrast to classical political economists such as Adam Smith, Jean-Baptiste Say, David Ricardo and John Stuart Mill. While Marx did not live to publish the planned second and third parts, they were both completed from his notes and published after his death by his colleague Friedrich Engels. Das Kapital is the most cited book in the social sciences published before 1950.

The Grundrisse der Kritik der Politischen Ökonomie is a lengthy, unfinished manuscript by the German philosopher Karl Marx. The series of seven notebooks was rough-drafted by Marx, chiefly for purposes of self-clarification, during the winter of 1857-8. Left aside by Marx in 1858, it remained unpublished until 1939.

## Marx's response to classical economics

Marx's economics took as its starting point the work of the best-known economists of his day, the British classical economists Adam Smith, Thomas Robert Malthus and David Ricardo.

Adam Smith was a Scottish economist, philosopher and author as well as a moral philosopher, a pioneer of political economy and a key figure during the Scottish Enlightenment, also known as ''The Father of Economics'' or ''The Father of Capitalism''. Smith wrote two classic works, The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776). The latter, often abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics. In his work, Adam Smith introduced his theory of absolute advantage.

Thomas Robert Malthus was an English cleric and scholar, influential in the fields of political economy and demography.

David Ricardo was a British political economist, one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill.

In The Wealth of Nations (1776), Smith argued that the most important characteristic of a market economy was that it permitted a rapid growth in productive abilities. Smith claimed that a growing market stimulated a greater "division of labor" (i.e. specialization of businesses and/or workers) and in turn this led to greater productivity. Although Smith generally said little about laborers, he did note that an increased division of labor could at some point cause harm to those whose jobs became narrower and narrower as the division of labor expanded. Smith maintained that a laissez-faire economy would naturally correct itself over time.

Marx followed Smith by claiming that the most important beneficial economic consequence of capitalism was a rapid growth in productivity abilities. Marx also expanded greatly on the notion that laborers could come to harm as capitalism became more productive. Additionally, Marx noted in Theories of Surplus Value: "We see the great advance made by Adam Smith beyond the Physiocrats in the analysis of surplus-value and hence of capital. In their view, it is only one definite kind of concrete labour—agricultural labour—that creates surplus-value... But to Adam Smith, it is general social labour — no matter in what use-values it manifests itself — the mere quantity of necessary labour, which creates value. Surplus-value, whether it takes the form of profit, rent, or the secondary form of interest, is nothing but a part of this labour, appropriated by the owners of the material conditions of labour in the exchange with living labour".

Malthus' claim in An Essay on the Principle of Population (1798) that population growth was the primary cause of subsistence level wages for laborers provoked Marx to develop an alternative theory of wage determination. Whereas Malthus presented an ahistorical theory of population growth, Marx offered a theory of how a relative surplus population in capitalism tended to push wages to subsistence levels. Marx saw this relative surplus population as coming from economic causes and not from biological causes (as in Malthus). This economic-based theory of surplus population is often labeled as Marx's theory of the reserve army of labour.

Ricardo developed a theory of distribution within capitalism—that is, a theory of how the output of society is distributed to classes within society. The most mature version of this theory, presented in On the Principles of Political Economy and Taxation (1817), was based on a labour theory of value in which the value of any produced object is equal to the labor embodied in the object and Smith too presented a labor theory of value, but it was only incompletely realized. Also notable in Ricardo's economic theory was that profit was a deduction from society's output and that wages and profit were inversely related [5] : an increase in profit came at the expense of a reduction in wages. Marx built much of the formal economic analysis found in Capital on Ricardo's theory of the economy.

Marx also criticized two features of "bourgeois economy" he perceived as main factors preventing full realization of society's production power: ownership of the means of production, and allegedly irrational operation of the economy, which leads to "disturbances" and surplus. [6]

When society, by taking possession of all means of production and using them on a planned basis, has freed itself and all its members from the bondage in which they are now held by these means of production which they themselves have produced but which confront them as an irresistible alien force.

## Marx's theory

Marx employed a labour theory of value, which holds that the value of a commodity is the socially necessary labour time invested in it. In this model, capitalists do not pay workers the full value of the commodities they produce; rather, they compensate the worker for the necessary labor only (the worker's wage, which cover only the necessary means of subsistence in order to maintain him working in the present and his family in the future as a group). This necessary labor is necessarily only a fraction of a full working day - the rest, surplus-labor, would be pocketed by the capitalist as profit.

Marx theorized that the gap between the value a worker produces and his wage is a form of unpaid labour, known as surplus value. Moreover, Marx argues that markets tend to obscure the social relationships and processes of production; he called this commodity fetishism. People are highly aware of commodities, and usually don't think about the relationships and labor they represent.

Marx's analysis leads to the consideration of economic crisis. "A propensity to crisis—what we would call business cycles—was not recognised as an inherent feature of capitalism by any other economist of Marx's time," observed Robert Heilbroner in The Worldly Philosophers , "although future events have certainly indicated his prediction of successive boom and crash." [7] Marx's theory of economic cycles was formalised by Richard Goodwin in "A Growth Cycle" (1967), [8] a paper published during the centenary year of Capital, Volume I .

To resolve the bourgeois contradiction between the ownership of the means of production and the "social act" of production itself, Marx proposed socialization of the means of production. To remove the "disturbances" of capitalist economy, Marx postulated "rational management" of the economy, which would replace the "chaotic" market forces driven by a "sum of individual preferences". [6]

If we conceive society as being not capitalistic but communistic the question then comes down to the need of society to calculate beforehand how much labour, means of production, and means of subsistence it can invest, without detriment, in such lines of business as for instance the building of railways, which do not furnish any means of production or subsistence, nor produce any useful effect for a long time, a year or more, where they extract labour, means of producton and means of subsistence from the total annual production.

Karl Marx, Capital, Lawrence & Wishart, London, 1957, p. 314-315

### Methodology

Marx used dialectics, a method that he adapted from the works of Georg Wilhelm Friedrich Hegel. Dialectics focuses on relation and change, and tries to avoid seeing the universe as composed of separate objects, each with essentially stable unchanging characteristics. One component of dialectics is abstraction; out of an undifferentiated mass of data or system conceived of as an organic whole, one abstracts portions to think about or to refer to. One may abstract objects, but also—and more typically—relations, and processes of change. An abstraction may be extensive or narrow, may focus on generalities or specifics, and may be made from various points of view. For example, a sale may be abstracted from a buyer's or a seller's point of view, and one may abstract a particular sale or sales in general. Another component is the dialectical deduction of categories. Marx uses Hegel's notion of categories, which are forms, for economics: The commodity form, the money form, the capital form etc. have to be systematically deduced instead of being grasped in an outward way as done by the bourgeois economists. This corresponds to Hegel's critique of Kant's transcendental philosophy. [9]

Marx regarded history as having passed through several stages. The details of his periodisation vary somewhat through his works, but it essentially is: Primitive CommunismSlave societies – FeudalismCapitalismSocialismCommunism (capitalism being the present stage and communism the future). Marx occupied himself primarily with describing capitalism. Historians place the beginning of capitalism some time between about 1450 (Sombart) and some time in the 17th century (Hobsbawm). [10]

Marx defines a commodity as a product of human labour that is produced for sale in a market, and many products of human labour are commodities. Marx began his major work on economics, Capital, with a discussion of commodities; Chapter One is called "Commodities".

### Commodities

"The wealth of those societies in which the capitalist mode of production prevails, presents itself as 'an immense accumulation of commodities,' its unit being a single commodity." (First sentence of Capital, Volume I.)

"The common substance that manifests itself in the exchange value of commodities whenever they are exchanged, is their value." (Capital, I, Chap I, section 1.)

The worth of a commodity can be conceived of in two different ways, which Marx calls use-value and value. A commodity's use-value is its usefulness for fulfilling some practical purpose; for example, the use-value of a piece of food is that it provides nourishment and pleasurable taste; the use value of a hammer, that it can drive nails.

Value is, on the other hand, a measure of a commodity's worth in comparison to other commodities. It is closely related to exchange-value, the ratio at which commodities should be traded for one another, but not identical: value is at a more general level of abstraction; exchange-value is a realisation or form of it.

Marx argued that if value is a property common to all commodities, then whatever it is derived from, whatever determines it, must be common to all commodities. The only relevant thing that is, in Marx's view, common to all commodities is human labour: they are all produced by human labour.

Marx concluded that the value of a commodity is simply the amount of human labour required to produce it. Thus Marx adopted a labour theory of value, as had his predecessors Ricardo and MacCulloch; Marx himself traced the existence of the theory at least as far back as an anonymous work, Some Thoughts on the Interest of Money in General, and Particularly the Publick Funds, &c., published in London around 1739 or 1740. [11]

Marx placed some restrictions on the validity of his value theory: he said that in order for it to hold, the commodity must not be a useless item; and it is not the actual amount of labour that went into producing a particular individual commodity that determines its value, but the amount of labour that a worker of average energy and ability, working with average intensity, using the prevailing techniques of the day, would need to produce it. A formal statement of the law is: the value of a commodity is equal to the average socially necessary labour time required for its production. (Capital, I, Chap I – p. 39 in Progress Publishers, Moscow, ed'n.)

Marx's contention was that commodities tend, at a fairly general level of abstraction, to exchange at value; that is, if Commodity A, whose value is "V", is traded for Commodity B, it will tend to fetch an amount of Commodity B whose value is the same, "V". Particular circumstances will cause divergence from this rule, however.

### Money

Marx held that metallic money, such as gold, is a commodity, and its value is the labour time necessary to produce it (mine it, smelt it, etc.). Marx argued that gold and silver are conventionally used as money because they embody a large amount of labour in a small, durable, form, which is convenient. Paper money is, in this model, a representation of gold or silver, almost without value of its own but held in circulation by state decree.

"Paper money is a token representing gold or money." (Capital, I, Chap III, section 2, part c.)

### Production

Marx lists the elementary factors of production as:

1. labour, "the personal activity of man." (Capital, I, VII, 1.)
2. the subject of labour: the thing worked on.
3. the instruments of labour: tools, labouring domestic animals like horses, chemicals used in modifying the subject, etc.

Some subjects of labour are available directly from Nature: uncaught fish, unmined coal, etc. Others are results of a previous stage of production; these are known as raw materials, such as flour or yarn. Workshops, canals, and roads are considered instruments of labour. (Capital, I, VII, 1.) Coal for boilers, oil for wheels, and hay for draft horses is considered raw material, not instruments of labour.

"If, on the other hand, the subject of labour has, so to say, been filtered through previous labour, we call it raw material. . . ." (Capital, I, Chap VII, section 1.)

The subjects of labour and instruments of labour together are called the means of production.  Relations of production are the relations human beings adopt toward each other as part of the production process. In capitalism, wage labour and private property are part of the relations of production.

Calculation of value of a product (price not to be confused with value):
If labour is performed directly on Nature and with instruments of negligible value, the value of the product is simply the labour time. If labour is performed on something that is itself the product of previous labour (that is, on a raw material), using instruments that have some value, the value of the product is the value of the raw material, plus depreciation on the instruments, plus the labour time. Depreciation may be figured simply by dividing the value of the instruments by their working life; e.g. if a lathe worth £1,000 lasts in use 10 years it imparts value to the product at a rate of £100 per year.
 ${\displaystyle value=mp+lt}$, Where: ${\displaystyle value}$ is the value of the product; ${\displaystyle mp}$ is the value of the means of production; ${\displaystyle lt}$ is the labour time.

### Effect of technical progress

According to Marx, the amount of actual product (i.e. use-value) that a typical worker produces in a given amount of time is the productivity of labour. It has tended to increase under capitalism. This is due to increase in the scale of enterprise, to specialisation of labour, and to the introduction of machinery. The immediate result of this is that the value of a given item tends to decrease, because the labour time necessary to produce it becomes less.

In a given amount of time, labour produces more items, but each unit has less value; the total value created per time remains the same. This means that the means of subsistence become cheaper; therefore the value of labour power or necessary labour time becomes less. If the length of the working day remains the same, this results in an increase in the surplus labour time and the rate of surplus value.

Technological advancement tends to increase the amount of capital needed to start a business, and it tends to result in an increasing preponderance of capital being spent on means of production (constant capital) as opposed to labour (variable capital). Marx called the ratio of these two kinds of capital the composition of capital.

## Current theorizing in Marxian economics

Marxian economics has been built upon by many others, beginning almost at the moment of Marx's death. The second and third volumes of Das Kapital were edited by his close associate Friedrich Engels, based on Marx's notes. Marx's Theories of Surplus Value was edited by Karl Kautsky. The Marxian value theory and the Perron-Frobenius theorem on the positive eigenvector of a positive matrix [12] are fundamental to mathematical treatments of Marxian economics.

The Universities offering one or more courses in Marxian economics, or teach one or more economics courses on other topics from a perspective that they designate as Marxian or Marxist, include Colorado State University, New School for Social Research, School of Oriental and African Studies, Maastricht University, University of Bremen, University of California, Riverside, University of Leeds, University of Maine, University of Manchester, University of Massachusetts Amherst, University of Massachusetts Boston, University of Missouri–Kansas City, University of Sheffield, University of Utah, and York University (Toronto). [13]

English-language journals include Capital & Class , Historical Materialism , Monthly Review , Rethinking Marxism , Review of Radical Political Economics , and Studies in Political Economy.

## Criticisms

Much of the critique of classical Marxian economics came from Marxian economists that revised Marx's original theory, or by the Austrian school of economics. V. K. Dmitriev, writing in 1898, [14] Ladislaus von Bortkiewicz, writing in 1906–07, [15] and subsequent critics claimed that Marx's value theory and law of the tendency of the rate of profit to fall are internally inconsistent. In other words, the critics allege that Marx drew conclusions that actually do not follow from his theoretical premises. Once these alleged errors are corrected, his conclusion that aggregate price and profit are determined by, and equal to, aggregate value and surplus value no longer holds true. This result calls into question his theory that the exploitation of workers is the sole source of profit. [16]

Whether the rate of profit in capitalism has, as Marx predicted, tended to fall is a subject of debate. N. Okishio, in 1961, devised a theorem (Okishio's theorem) showing that if capitalists pursue cost-cutting techniques and if the real wage does not rise, the rate of profit must rise. [17]

The inconsistency allegations have been a prominent feature of Marxian economics and the debate surrounding it since the 1970s. [18]

Among the critics pointing out internal inconsistencies are former and current Marxian and/or Sraffian economists, such as Paul Sweezy, [19] Nobuo Okishio, [20] Ian Steedman, [21] John Roemer, [22] Gary Mongiovi, [23] and David Laibman, [24] who propose that the field be grounded in their correct versions of Marxian economics instead of in Marx's critique of political economy in the original form in which he presented and developed it in Capital. [25]

Proponents of the Temporal Single System Interpretation (TSSI) of Marx's value theory claim that the supposed inconsistencies are actually the result of misinterpretation; they argue that when Marx's theory is understood as "temporal" and "single-system," the alleged internal inconsistencies disappear. In a recent survey of the debate, a proponent of the TSSI concludes that "the proofs of inconsistency are no longer defended; the entire case against Marx has been reduced to the interpretive issue." [26]

Large part of the criticism of the Marxian economics comes from contradictions observed in countries declaring allegiance to the Marxist economical and political doctrine in the 20th century. János Kornai analyzed the widespread scarcity of goods in these countries and prevalence of second economies (black markets) for very basic goods, coining the term "shortage economy". Dembinsky pointed out at inconsistent approach of Marx to determining "labor value", a central concept in the labor theory of value, which led to significant decline of effectiveness of these economies. [6]

### Relevance to economics

Marxist economics was assessed as lacking relevance in 1988 by Robert M. Solow, who criticized the New Palgrave Dictionary of Economics for over-sampling articles on Marxist themes, giving a "false impression of the state of play" in the economics profession. Solow stated that "Marx was an important and influential thinker, and Marxism has been a doctrine with intellectual and practical influence. The fact is, however, that most serious English-speaking economists regard Marxist economics as an irrelevant dead end." [27]

"Economists working in the Marxian-Sraffian tradition represent a small minority of modern economists, and that their writings have virtually no impact upon the professional work of most economists in major English-language universities", according to George Stigler. [28]

## Neo-Marxian economics

The terms Neo-Marxian, Post-Marxian, and Radical Political Economics were first used to refer to a distinct tradition of economic thought in the 1970s and 1980s.

In industrial economics, the Neo-Marxian approach stresses the monopolistic rather than the competitive nature of capitalism. This approach is associated with Michal Kalecki, Josef Steindl, Paul A. Baran and Paul Sweezy. [29] [30]

## Footnotes

1. Wolff and Resnick, Richard and Stephen (August 1987). Economics: Marxian versus Neoclassical. The Johns Hopkins University Press. p. 130. ISBN   0801834805. Marxian theory (singular) gave way to Marxian theories (plural).
2. "The Neo-Marxian blood Schools". The New School. Archived from the original on 2008-04-29. Retrieved 2007-08-23.
3. Munro, John. "Some Basic Principles of Marxian Economics" (PDF). University of Toronto. Retrieved 2007-08-23.
4. Described in Duncan Foley and Gérard Duménil, 2008, "Marx's analysis of capitalist production," The New Palgrave Dictionary of Economics , 2nd Edition. Abstract.
5. Schefold, Bertram (1992). The Relation between the Rate of Profit and the Rate of Interest: A Reassessment after the Publication of Marx’s Manuscript of the Third Volume of Das Kapital. Springer Link. pp. 127–129.
6. Dembinsky, Pawel H. (1991). The Logic of The Planned Economy. Oxford: Claredon Press. pp. 22–23. ISBN   0198286864.
7. Heilbroner 2000 , p. 164.
8. Screpanti & Zamagni 2005 , p. 474.
9. See Helmut Reichelt, quoted in: Kubota, Ken: Die dialektische Darstellung des allgemeinen Begriffs des Kapitals im Lichte der Philosophie Hegels. Zur logischen Analyse der politischen Ökonomie unter besonderer Berücksichtigung Adornos und der Forschungsergebnisse von Rubin, Backhaus, Reichelt, Uno und Sekine , in: Beiträge zur Marx-Engels-Forschung. Neue Folge 2009, pp. 199–224, here p. 199.
10. Angus Maddison, Phases of Capitalist Development. Oxford, 1982. p. 256, note.
11. Capital, Vol I, Chap I (p. 39 in the Progress Publishers, Moscow, edition).
12. Fujimori, Y. (1982). "Modern Analysis of Value Theory". Lecture Notes in Economics and Mathematical Systems. Springer.
13. Schools. HETecon.com. Retrieved on: August 23, 2007.
14. V. K. Dmitriev, 1974 (1898), Economic Essays on Value, Competition and Utility. Cambridge: Cambridge Univ. Press.
15. Ladislaus von Bortkiewicz, 1952 (1906–1907), "Value and Price in the Marxian System", International Economic Papers 2, 5–60; Ladislaus von Bortkiewicz, 1984 (1907), "On the Correction of Marx’s Fundamental Theoretical Construction in the Third Volume of Capital". In Eugen von Böhm-Bawerk 1984 (1896), Karl Marx and the Close of his System, Philadelphia: Orion Editions.
16. M. C. Howard and J. E. King. (1992) A History of Marxian Economics: Volume II, 1929–1990, chapter 12, sect. III. Princeton, NJ: Princeton Univ. Press.
17. M. C. Howard and J. E. King. (1992) A History of Marxian Economics: Volume II, 1929–1990, chapter 7, sects. II–IV. Princeton, NJ: Princeton Univ. Press.
18. See M. C. Howard and J. E. King, 1992, A History of Marxian Economics: Volume II, 1929–1990. Princeton, NJ: Princeton Univ. Press.
19. "Only one conclusion is possible, namely, that the Marxian method of transformation [of commodity values into prices of production] is logically unsatisfactory." Paul M. Sweezy, 1970 (1942), The Theory of Capitalist Development, p. 15. New York: Modern Reader Paperbacks.
20. Nobuo Okishio, 1961, "Technical Changes and the Rate of Profit," Kobe University Economic Review 7, pp. 85–99.
21. "[P]hysical quantities ... suffice to determine the rate of profit (and the associated prices of production) .... [I]t follows that value magnitudes are, at best, redundant in the determination of the rate of profit (and prices of production)." "Marx’s value reasoning––hardly a peripheral aspect of his work––must therefore be abandoned, in the interest of developing a coherent materialist theory of capitalism." Ian Steedman, 1977, Marx after Sraffa, pp. 202, 207. London: New Left Books.
22. "[The falling-rate-of-profit] position is rebutted in Chapter 5 by a theorem which states that ... competitive innovations result in a rising rate of profit. There seems to be no hope for a theory of the falling rate of profit within the strict confines of the environment that Marx suggested as relevant." John Roemer, Analytical Foundations of Marxian Economic Theory, p. 12. Cambridge: Cambridge Univ. Press, 1981.
23. Mongiovi, Gary (2002). "Vulgar economy in Marxian garb: a critique of Temporal Single System Marxism". Review of Radical Political Economics. 34 (4): 393–416. doi:10.1177/048661340203400401. Archived from the original on 2006-05-06. "Marx did make a number of errors in elaborating his theory of value and the profit rate .... [H]is would-be Temporal Single System defenders ... camouflage Marx’s errors." "Marx’s value analysis does indeed contain errors." (abstract)
24. "An Error II is an inconsistency, whose removal through development of the theory leaves the foundations of the theory intact. Now I believe that Marx left us with a few Errors II." David Laibman, "Rhetoric and Substance in Value Theory" in Alan Freeman, Andrew Kliman, and Julian Wells (eds.), The New Value Controversy and the Foundations of Economics, Cheltenham, UK: Edward Elgar, 2004, p. 17
25. See Andrew Kliman, Reclaiming Marx's "Capital": A Refutation of the Myth of Inconsistency, esp. pp. 210–11.
26. Andrew Kliman, Reclaiming Marx's "Capital", Lanham, MD: Lexington Books, p. 208, emphases in original.
27. Robert M. Solow, "The Wide, Wide World of Wealth, "New York Times, March 28, 1988, excerpt (from a review of The New Palgrave: A Dictionary of Economics , 1987).
28. Stigler, George J. (December 1988). "Palgrave's Dictionary of Economics". Journal of Economic Literature. American Economic Association. 26 (4): 1729–36. JSTOR   2726859.
29. Baran, P. and Sweezy, P. (1966). Monopoly Capital: An essay on the American economic and social order, Monthly Review Press, New York
30. Jonathan Nitzan and Shimshon Bichler. Capital as power: a study of order and creorder . Taylor & Francis, 2009, p. 50

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In 20th-century discussions of Karl Marx's economics, the transformation problem is the problem of finding a general rule by which to transform the "values" of commodities into the "competitive prices" of the marketplace. This problem was first introduced by Marx in chapter 9 of the draft of volume 3 of Capital, where he also sketched a solution. The essential difficulty was this: given that Marx derived profit, in the form of surplus value, from direct labour inputs, and that the ratio of direct labour input to capital input varied widely between commodities, how could he reconcile this with the tendency toward an average rate of profit on all capital invested?

Use value or value in use is a concept in classical political economy and Marxian economics. It refers to the tangible features of a commodity which can satisfy some human requirement, want or need, or which serves a useful purpose. In Karl Marx's critique of political economy, any product has a labor-value and a use-value, and if it is traded as a commodity in markets, it additionally has an exchange value, most often expressed as a money-price.

Marxism is a method of socioeconomic analysis that views class relations and social conflict using a materialist interpretation of historical development and takes a dialectical view of social transformation. It originates from the works of 19th-century German philosophers Karl Marx and Friedrich Engels.

Surplus labour is a concept used by Karl Marx in his critique of political economy. It means labour performed in excess of the labour necessary to produce the means of livelihood of the worker. The "surplus" in this context means the additional labour a worker has to do in his/her job, beyond earning his own keep. According to Marxian economics, surplus labour is usually uncompensated (unpaid) labour.

The law of the value of commodities, known simply as the law of value, is a central concept in Karl Marx's critique of political economy first expounded in his polemic The Poverty of Philosophy (1847) against Pierre-Joseph Proudhon with reference to David Ricardo's economics. Most generally, it refers to a regulative principle of the economic exchange of the products of human work, namely that the relative exchange-values of those products in trade, usually expressed by money-prices, are proportional to the average amounts of human labor-time which are currently socially necessary to produce them.

The tendency of the rate of profit to fall (TRPF) is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Capital, Volume III. Economists as diverse as Adam Smith, John Stuart Mill, David Ricardo and Stanley Jevons referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, yet they each differed as to the reasons why the TRPF should necessarily occur.

Criticisms of Marxism have come from various political ideologies and academic disciplines. These include general criticisms about a lack of internal consistency, criticisms related to historical materialism, that it is a type of historical determinism, the necessity of suppression of individual rights, issues with the implementation of communism and economic issues such as the distortion or absence of price signals and reduced incentives. In addition, empirical and epistemological problems are frequently identified.

The temporal single-system interpretation (TSSI) of Karl Marx's value theory emerged in the early 1980s in response to renewed allegations that his theory was "riven with internal inconsistencies" and that it must therefore be rejected or corrected. The inconsistency allegations had been a prominent feature of Marxian economics and the debate surrounding it since the 1970s. Andrew Kliman argues that since internally inconsistent theories cannot possibly be right, the inconsistency charges serve to legitimate the suppression of Marx's critique of political economy and current-day research based upon it as well as the "correction" of Marx's inconsistencies.

Capital, Volume III, subtitled The Process of Capitalist Production as a Whole, is the third volume of Capital: Critique of Political Economy. It was prepared by Friedrich Engels from notes left by Karl Marx and published in 1894.

Criticisms of the labor theory of value affect the historical concept of labor theory of value (LTV) which spans classical economics, liberal economics, Marxian economics, neo-Marxian economics, and anarchist economics. As an economic theory of value LTV is central to Marxist social-political-economic theory and later gave birth to the ideologically motivated concepts of exploitation of labour and surplus value. LTV criticisms therefore often appear in the context of economic criticism, not only for the microeconomic theory of Marx, but also for Marxism, according to which the working class is exploited under capitalism.

Throughout modern history, a variety of perspectives on capitalism have evolved based on different schools of thought.

In Marxist theory and Marxian economics, the immiseration thesis is derived from Karl Marx's analysis of economic development in capitalism, implying that the nature of capitalist production stabilizes real wages, reducing wage growth relative to total value creation in the economy, leading to worsening alienation in the workplace.

Constant capital (c), is a concept created by Karl Marx and used in Marxian political economy. It refers to one of the forms of capital invested in production, which contrasts with variable capital (v). The distinction between constant and variable refers to an aspect of the economic role of factors of production in creating a new value.

In Karl Marx's critique of political economy and subsequent Marxian analyses, the capitalist mode of production refers to the systems of organizing production and distribution within capitalist societies. Private money-making in various forms preceded the development of the capitalist mode of production as such. The capitalist mode of production proper, based on wage-labour and private ownership of the means of production and on industrial technology, began to grow rapidly in Western Europe from the Industrial Revolution, later extending to most of the world.

"Surplus value" is a translation of the German word "Mehrwert", which simply means value added, and is cognate to English "more worth". Surplus-value is the difference between the amount raised through a sale of a product and the amount it cost to the owner of that product to manufacture it: i.e. the amount raised through sale of the product minus the cost of the materials, plant and labour power. It is a central concept in Karl Marx's critique of political economy. Conventionally, value-added is equal to the sum of gross wage income and gross profit income. However, Marx uses the term Mehrwert to describe the yield, profit or return on production capital invested, i.e. the amount of the increase in the value of capital. Hence, Marx's use of Mehrwert has always been translated as "surplus value", distinguishing it from "value-added". According to Marx's theory, surplus value is equal to the new value created by workers in excess of their own labor-cost, which is appropriated by the capitalist as profit when products are sold.

In Marxist theory, the socialist mode of production refers to a specific historical phase of economic development and its corresponding set of social relations that emerge from capitalism in the schema of historical materialism. The Marxist definition of socialism is an economic transition. In this transiton, the sole criterion for production is use-value. Therefore, the law of value no longer directs economic activity. Marxist production for use is coordinated through conscious economic planning. Distribution of products is based on the principle of "to each according to his contribution". The social relations of socialism are characterized by the proletariat effectively controlling the means of production, either through cooperative enterprises or by public ownership or private artisanal tools and self-management. Surplus value, thus, goes to the working class and hence society as a whole.

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