Marxists believe that all of history can be interpreted as resolutions to contradictions emerging from the competing interests of people in different economic classes. These interpretations are rooted in dialectical analysis, a method originated by the idealist philosopher, Georg Hegel.

According to Hegel, every concept or thesis has meaning only when pitted against its opposite, or antithesis. Thus, the idea of long means nothing until contrasted with short, and rich means nothing without poor. Clashes between a thesis and its antithesis yield a synthesis---new knowledge about an evolving reality. Thus, the notions of rich and poor yield the concepts of income and wealth, syntheses that advance our grasp of the human condition. Hegel believed history to be dominated by dialectical changes in ideas. Marx rejected Hegel's focus on ideas, insisting that dialectical processes among material interests are the keys to historical change. This is why Marxism is sometimes called dialectical materialism.

If cause and effect relationships embedded in dialectical processes never change, then precise explanation of the past permits perfect prediction of the future. Marx thought he had unveiled basic historical laws in the perception that social and cultural changes are determined by juxtaposing thesis and antithesis in how we produce, exchange, distribute, and consume goods. These contradictions (from the Marxist jargon) are rooted in conflicts between different socioeconomic classes.

According to Marxists, class warfare is an inevitable step in the historical process that facilitates economic progress.

For example, the Marxist view of the Industrial Revolution is that it pitted an aggressive new class of manufacturers against vested agricultural interests throughout Europe, but especially in England. The rise of industrialization led to entirely new government policies, including a resurgence of British imperialism. Laws were adopted that evicted most peasants from their land so that they were forced to work in factories. Exploited workers were then pitted against industrial magnates, whom they would eventually displace during a short but bloody revolution.

The Dialectics of Economic Development

Karl Marx viewed history as following an unabated course of progress and development. (Almost all other optimists about the human prospect are increasingly convinced that he was wrong about the specifics.) Marx's prognosis, based on dialectical analysis, was that every society goes through six major stages of history, culminating in an ideal state.

1.Prehistory. Prior to the dawn of civilization, humankind consisted largely of self-sufficient but nomadic hunters/scavengers/foragers. Gradually, these random groups evolved into

2.      Primitive culture. Extended families and tribes emerged during this period. Agriculture began to bind small groups to specific territories, but animal herding and hunting continued to be important. As claims to exclusive territories became more extensive, some families were more successful than others in establishing their rights to land, resulting in a system known as

3.      Feudalism. The offspring of successful warlords became wealthy landholders, who were titled but most of whom owed their ability to protect their turf to a king. Kings typically extracted "protection" tributes from lesser royalty; however, the actual production on the manors held by the minor lords was done by peasants, who owned no land and paid a share of their crops to the titled landowners. (The sharecropping system continues to this day in many regions.) This chain of exploitation governed the social and economic behavior of all members of society from the highest-born prince to the humblest peasant. Industrialization and the gradual evolution of shopkeepers into powerful merchants slowly eroded the powers of feudal royalty, although some merchants and feudal lords became industrial magnates during the transition to

4.      Capitalism. The Industrial Revolution and growth in commerce were facilitated by urbanization. Dispossessed peasants streamed into the cities. They owned no resources except their own labor, because their income was held at subsistence levels. According to Marx, capitalists accumulated enormous wealth during this period through the expropriation of a surplus value equal to the difference between the total value of production and the subsistence wages paid to workers. In Marxist jargon, all rents, interest payments, and profits are surplus values. Marx predicted that ever-growing disparities between the wealth of capitalists and the impoverishment of labor would generate class conflict and the triumph of a workers' revolution. The successful revolution would lead to a transition period called the

5.      Dictatorship of the proletariat. During this period, all basic industries and productive resources would be nationalized, which means that revolutionary governments would seize them from capitalists and hold them in trust for the workers, or proletariat. Each worker would receive compensation only for his or her own production to ensure an absence of capitalistic exploitation. There would be a highly progressive income tax and a confiscatory inheritance tax. Gradually, all material wants would be satisfied, and the need for government would fade---leading to the ultimate state of

6.      Communism or socialism. In this highest stage of economic development, basic human needs and wants would be met according to the Marxist principle, "From each according to his ability to produce, to each according to need." And everyone would live happily ever after.

Marx viewed this sequence as inevitable. In dialectical terms, thesis (feudal agricultural interests) met antithesis (industrial entrepreneurs---the bourgeoisie), leading to synthesis (the triumph of industrialization) within which there was a contradiction (wretchedness of the working masses). This synthesis became the new thesis (industrial capitalism), which, in confronting its antithesis (workers, known as proletarians, resent exploitation), leads to a new synthesis (the dictatorship of the proletariat).

In Marxist analysis, each stage of development is necessary, and collapses only when it reaches maximum efficiency, paralleling the larvae-pupae-cocoon-adult maturation of a butterfly. Thus, Marxists declare that "capitalism contains the seeds of its own destruction." But why should the chain of events leading to the overthrow of capitalism be inevitable? Answering this question requires digging deeper into Marxist doctrine.

Wages and Value

What makes something valuable? Most modern economists use market forces to explain the relative prices of goods. Marxists view this as superficial and argue that a good's value is proportional to the labor socially necessary for its production. For example, if golf balls require twice the labor needed to produce ballpoint pens, then balls are worth twice as much as pens. This labor theory of value was the standard explanation of prices from the time of John Locke until late in the nineteenth century.

But what is "socially necessary labor," and what roles do land and capital play in production? Marx defined socially necessary labor to include not only direct labor time but also the labor used to produce the equipment used in production. Marxists view all commodities and capital as embodied labor. Thus, production that uses up capital simply transforms the labor embodied in capital into a different form of congealed labor.

Interestingly, Marxists perceive only "hands-on" working time as labor. Service workers and pencil pushers are not regarded as providing real labor. (Adam Smith had similar reservations about managers and service workers.) Nor is all hands-on work socially necessary. For example, your labor is not socially necessary if you make mud pies no one wants. This is basically a supply approach to value, but by specifying that only "socially necessary labor" counts, Marxists allow demand in through the back door.

If prices are proportional to the amounts of direct and embodied labor in products, what determines wages? Karl Marx relied on the subsistence theory of wages developed by earlier thinkers to answer this question. This theory holds that wages will barely cover biological needs, with minor adjustments to meet the social and customary needs of workers. Unlike most classical economists, Marx believed that unemployment, not population pressures, forces wages toward subsistence levels. When workers produce more than is required to meet a payroll, capitalists exploit workers by paying them less than the value of their production. These differences are termed surplus values in the Marxist idiom. Marxists view all payments of interest, rent, and profits as surplus value.

Surplus Value and Capital Accumulation

According to Marxist dogma, mature industrial societies divide people into two basic classes: capitalists and workers. Workers, also known as the proletariat, own nothing but their own labor. Capitalists control working conditions and hours. A "reserve army of the unemployed" will take the jobs of workers unwilling to accept the working conditions laid down by capitalists. Competition from this surplus labor compels workers to accept subsistence wages. By setting longer working hours than those necessary to cover the subsistence wage, capitalists "appropriate" surplus values from workers. For example, if a worker can produce the subsistence wage in 5 hours but is forced to work 10 hours, a capitalist employer can appropriate surplus value equal to 5 hours of labor time.

 

Workers cannot save because they only receive subsistence wages. Capitalists, however, receive more than is necessary for their subsistence and convert most of this "stolen" surplus value into capital. This exploitation enables capitalists to accumulate capital to protect their privileged positions and to avoid exploitation themselves. (Big fish eat little fish.) Because capital accumulation facilitates economic growth, capitalism is viewed as a necessary stage of development. Once society has accumulated sufficient capital, however, the capitalist "robber barons" are dinosaurs on their way to extinction.

Class Warfare

The proletarians have nothing to lose but their chains. They have a world to win. Workingmen of all countries unite!

Karl Marx and Friedrich Engels

The Communist Manifesto (1848)

Marxists view ever-greater capital accumulation and then concentration of its ownership as inevitable results of competition among capitalists for surplus values. Marx believed that capitalism was plagued by a number of contradictions. Concentrated wealth creates one contradiction: Who will buy the goods produced by growing stocks of congealed labor? Workers can afford little from their subsistence wages, while capitalists spend far less than the surplus values they appropriate as their incomes. This leads to "underconsumption" and declining rates of profit. In Marxist theory, this contradiction yields capitalist business cycles.

 

Orthodox Marxists believe that capitalism is dynamically unstable. This means that each cyclical decline will be worse than the previous one, while successive economic booms accelerate at unsustainable rates. This occurs, according to Marx, because some capitalists will be wiped out during each depression and will be forced to join the proletariat. Thus, capital will be controlled by a shrinking pool of entrepreneurs. The final stage predicted by Marxists, monopolistic finance capital, involves an incredible concentration of economic power held by financial trusts. During this stage, imperialist wars rage among capitalist nations. Finally, massive unemployment will trigger short but violent revolutions during which workers will seize control over the resources stolen from them over many generations.

Marxist Predictions

The works of Marx and his collaborator, Engels, were written well over a century ago. At that time, the evils of the factory system seemed blatant, and the aroma of revolution wafted throughout Europe. Marx and Engels were not alone in predicting revolutions to overthrow the existing order. Their "dialectical materialism" did, however, generate several specific predictions about the road to revolution:

1.         Ever greater unemployment and "immiseration" of workers.

2.         Declining rates of profit.

3.         Explosive business cycles.

4.         Rising concentrations of economic power.

5.         Increasingly aggressive imperialistic policies.

6.         Bloody revolutions as capitalistic economies reach maturity.

 

Mature capitalism would fall to communism like rotten fruit. Class struggles would end when the proletariat overthrew capitalists and their middle-class lackeys, the petit bourgeoisie. A short "dictatorship of the proletariat" would follow, during which workers would share the full values of production (subsistence wages plus surplus values). Then government would wither away, as outdated as an adult's baby tooth. Communism would evolve as the final synthesis, characterized by a classless society in which people would live and work under the condition, "from each according to ability, to each according to needs." And everyone would live happily ever after. In the end, the communist ideal resembles More's Utopia.

Most Marxist predictions seem way off target. Unemployment rates vary over the business cycle, but there is no discernible upward trend over the past century, even though growing percentages of the world's people have moved into the industrial labor force. The purchasing power of wages has risen dramatically over time. Are workers increasingly miserable, when most have color televisions and paid vacations? As Joan Robinson, a modern Marxist, conceded, " "You have nothing to lose but the prospect of a suburban home and a motor car' would not have been much of a slogan for a revolutionary movement."

Average rates of profit have varied widely over the past century, but without discernible long-run trends. Sporadic booms and busts have plagued capitalism, but with decreasing severity during the past half century. Marx was, however, almost alone in correctly predicting greater industrial concentration. Economic power did become more concentrated from 1850 to 1930, but more recent evidence of increased industrial concentration is hard to glean from the data.

Increased roles for government, including the development of the modern welfare state, apparently have placed a safety net under the living standards of the poor, dampened business cycles, and diminished the growth of concentration. Most of the evils of capitalism identified by Marxists have been at least partially cured by a broad role for government in the market system. Marx's assertion that "the state is nothing but the organized collective power of the ruling classes" is almost certainly wrong.

 A significant rebuttal of Marxist predictions is that communist revolutions bypassed most industrialized capitalist nations, occurring instead in feudal agricultural economies. The USSR, China, Cuba, Vietnam, Kampuchea, and other underdeveloped countries "went communist." Eastern Europe was largely industrialized before succumbing to Marxism after being destabilized during World War II. Imperialistic wars started by major capitalist nations largely ended around the turn of the last century. More recently, communist governments suffered enormous reversals, being widely replaced by more democratic governments that tend to privatize much of government activity.

One famous Marxist slogan is, "Religion is the opiate of the masses." Paul Samuelson, a Nobel Prize winner, has paraphrased this as, "Marxism is the opiate of the Marxists." No matter how brutal some socialist regimes are (e.g., the USSR under Stalin or Cambodia under Pol Pot) or how poorly Marxian predictions fare, many Marxists persist in believing that worldwide communism is desirable.

 

Have ideal societies been implemented where Marxists gained control? Marx and Engels wrote thousands of pages on capitalism's ultimate collapse, but less than a hundred pages even hint at specific mechanisms to replace markets. When communist revolutions succeeded in feudal rather than industrialized countries, the new leaders were on their own. Alternatives to markets as ways to answer “What? How? and for Whom?” had to be invented. None of these alternatives fostered prosperity. In the Chapter addressing Comparative Economic Systems, we examine how the two most powerful Marxist countries, the USSR and China, ultimately launched reforms that rely heavily on market mechanisms.