Economic Marxism in Today’s World
By: Alex Lago
Tags: Money, Economics, Marxism, Capitalism, Work

In 1759, Adam Smith introduced the concept of the invisible hand in The Theory of Moral Sentiments. In Smith’s 1776 book, The Wealth of Nations, revolutionary ideas about the division of labor were made.

Smith’s most famous example is with pins.

He asserted that ten workers could produce 48,000 pins per day if each of eighteen specialized tasks was assigned to particular workers. Average productivity: 4,800 pins per worker per day. But absent the division of labor, a worker would be lucky to produce even one pin per day…(Adam Smith, biography from the Concise Encyclopedia of Economics).

A simpler example can be made with a car. Imagine one person trying to build a car from scratch. Isn’t it easier to just have some people work on the engine, others work on the windshield, and the rest work on the tires? Using this method, production can be significantly increased.

Specialization: the beacon of classical liberal economics

The benefits don't end there — the division of labor also leads to specialization. This means that now since there are people focused on making components of certain products, they become more efficient at their task and find new ways of doing it that save time, effort, and money.

This further extends to nations and contends that countries should specialize in what they are better at and trade with other countries for what they would've produced otherwise.

In this system, technology continues to get created and productivity is constantly increasing. Gross Domestic Product inevitably rises as more goods are produced and the workforce continues working the same hours with this increase in efficiency.

Marxism: a continuation of Adam Smith

However, there are a few issues with this. First off, it is incorrect to assume that there are infinite resources. The way that our productivity is growing is unsustainable. This where Karl Marx comes in.

Marxism is a method of explaining our financial systems and social structures that expands off of liberal economics. Adam Smith believed that specialization would eventually lead to a mundaneness in human labor — but he believed this would eventually be remedied by the free market. Marx believed that the increase in productivity and technology would eventually replace the need for laborers and create unemployment. More laborers vying for tighter jobs would push wages down and create difficult conditions.

So where was this productivity going, if not to the laborers? Marx said that it was going to the owners of capital who gained this “surplus labor” from underpaying and overexerting their laborers. Marx believed in the labor theory of value, which says that the value of something is based on the time of necessary labor used to produce it. In this, capitalists do not pay workers the entire value that the labor produces, they only pay the necessary

Marx sees Capitalism as a great inefficiency despite the claims of free-market champions. Capitalism claims to be the most efficient system, but there is an argument that it doesn't lead to the best distribution and outcomes for society. Marx chalked this up to the owners of Capital who own all the materials to produce but don't do any of the actual labor.

Capitalism continues to make advancements in productivity and efficiency but because there are a few who own the capital, these extra profits go into the hands of the owners of capital and not the workers. This along with the lower demand for labor as a result of technology replacing jobs creates the perfect recipe for ever-increasing income inequality. The worst part about this is the inability of the majority of society to use the resources that are being produced. There is severe underuse of resources and this is inefficient.

Many who support Capitalism, including Adam Smith would argue that the owners of capital (the rich) will outspend efficiency and constantly want more goods. Hobson, in his book Imperialism, refutes this by saying that “the rich will never be so ingenious as to spend enough to prevent overproduction” (Hobson 89). This notion is shared by Marx and many who would try to implement Marxism, like Vladimir Lenin.

So to summarize, Under Capitalism, we have a falling rate of profit and plenty of underused and wasted resources.

Is Marxism a sound Economic model?

Being based on classical liberal economics, Marxism uses all the same premises but makes a different conclusion. This conclusion is important because it says that Capitalism will not lead to a completely beneficial outcome for society.

One good measure is the labor force participation rate. In 2000, it was at about 67% compared to now at 61.7% (BLS.gov). This shows a clear reduction in work with an obvious increase in productivity and technology because in 2000 our GDP was 10.25 Trillion compared to it being 20.54 Trillion in 2018.

Smith, Marx, and Hobson are correct in assuming that technology and production will become more specialized and reduce the labor force.

The next assumption about the effects of Capitalism is the underuse of mass-produced resources in favor of the wealthy class.

“In the United States, food waste is estimated at between 30–40 percent of the food supply” (USDA).

But oddly enough,

“In 2019, 34.9 percent of households with incomes below the Federal poverty line were food insecure” (USDA).

This makes Marxism as a theory seem more plausible. We have mass agricultural production, yet we see that a certain monetary class of people have difficulty gaining access to these basic resources. Similar comparisons can be made with pharmaceuticals and other important goods across the economy. Marxism simply states that we will overproduce goods and many people will not have access to these goods. This is inefficient because we are wasting resources when they could be allocated to people who need them.

However, it must be taken into account that the United States has methods to deal with the ill effects of Capitalism and keep demand high. For over a hundred years, the United States has had a problem with farmers. They get paid relatively low and have no incentive to stay in and farm. To solve this the United States has burned and destroyed agricultural produce to keep demand up for farmers and get them paid more. Subsidies are also paid to farmers to keep them in the industry. However, agriculture is 1% of the United State’s economy and underuse of resources and low demand would be harder to fix in other industries.

With all this taken into account, Economic Marxism seems like a solid attempt at explaining the world (It is different from Marxism, and is only a method for explaining our current economy). Regardless, under this idea, the current world is unsustainable and we will eventually run out of capital that can be exploited.

“In the words Hobson borrowed from James Mill, imperialism is ‘a vast system of outdoor relief for the upper classes.’ Redistribution of income would put factors of production to more profitable use” (Kenneth Waltz).

It is obvious that Marx and Hobson suggest a form of socialism as a remedy. But how will we get a good system without leading to the disastrous authoritarian socialism that the Soviet Union suffered? Democratic and libertarian systems of socialism may hold the key — but that is a different conversation altogether.