Marxian Economics
What is Marxian Economics?
Marxian economics is the tradition built on Karl Marx's analysis of capitalism, centered on the labor theory of value, surplus value and class conflict.
Marxian economics analyzes capitalism as a system of class relations rather than as a set of exchanges among equals. In Marx's account the value of a good reflects the socially necessary labor time to produce it; workers sell their capacity to work for a wage, and the gap between the value they add and that wage is surplus value, which Marx identified as the source of profit. From that starting point the tradition predicts pressures toward accumulation, concentration of capital, and recurring crises, including a tendency for the rate of profit to fall as firms substitute machinery for labor. Mainstream economics broke with this framework by explaining value through marginal utility and scarcity, so a good is worth what the last buyer will pay rather than what it took to make.
Marxian Economics: a worked example
Take a workshop where one worker is paid $120 for a day and uses $60 of materials and machine wear to make goods that sell for $300. The labor adds $240 of value, because the goods sell for $300 and the inputs cost $60. The worker receives $120 of that, so the other $120 is surplus value in Marx's terms, and the rate of surplus value is $120 of surplus divided by $120 of wages, or 100 percent. Marx would say the worker covers the wage in the first half of the day and produces surplus in the second half. A neoclassical account of the same numbers calls the $120 a return to capital and to risk taking.
The mistake students make with marxian economics
Students usually treat Marxian economics as a blueprint for a planned economy like the Soviet Union's. Most of the work is an analysis of how capitalism operates, and Marx said very little about how a later system would be organized. A second slip is reading the labor theory of value as a claim that every price equals hours worked. The claim is about socially necessary labor time as the basis of value, with market prices moving around it.
Marxian Economics questions
Is Marxian economics the same as Marxist politics?
No, Marxian economics is the analytical framework for studying capitalism, while Marxist politics is a political movement built partly on that analysis. Economists often use 'Marxian' for the scholarly work and 'Marxist' for the political commitment. A researcher can use a concept such as surplus value without endorsing any party program.
Why did mainstream economics move away from the labor theory of value?
Mainstream economics replaced it during the marginal revolution, when William Stanley Jevons, Carl Menger and Léon Walras argued that value comes from the usefulness of the last unit consumed rather than from labor embodied in a good. That framework explained why water is cheap and diamonds are expensive without appealing to production time, and it fit the mathematics of constrained choice. Marxian economists reply that marginal analysis takes the ownership of capital as given, which is what they set out to explain.
What is the falling rate of profit?
The falling rate of profit is Marx's claim that as firms replace workers with machinery, the share of capital that generates surplus shrinks, pushing the economy-wide profit rate down over time. Marx listed counteracting forces as well, such as cheaper machinery and longer or more intense work, so he treated it as a tendency rather than a law. Whether the tendency holds is disputed, including among later Marxian writers.
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