Chapter 7: Karl Marx and his Critique of Classical Economics

1. Chapter 7: Karl Marx and his Critique of Classical Economics Questions for Review, Discussions and Research 2, 5, 7

2. Overview • Marx was a philosopher who advocated a fundamental revolution in society • Expelled from Germany, France and Belgium • Later years in London and the British Museum

3. Theory of History • His economic theory focuses on the dynamic processes of change and is an application of his theory of history based on • Hegelian Philosophy • A never-ending chain of ideas of thesis, antithesis and synthesis with the latter representing a higher form of truth

4. Basis of Marx’s dialectical materialism that revolutionized the social sciences 2. French Utopian Thought 3. Classical Political Economy

5. Forces of Production • “Technology” manifested in • Labour Skills • Scientific Knowledge • Tools • (Real) capital • Inherently dynamic

6. Relations of Production • -“Rules of the game” that are historically determined and provide the institutional framework • Static

7. Social Superstructure • Cultural forms such as • Art • Literature • Music • Philosophy • Jurisprudence • Religion • Purpose is to maintain static relations of production • Contradictions within capitalism result in class struggle and a new set of relations eventually emerge

8. Closer Look at the Dialectic • Read pp. 191-96 on your own

9. Foundations of Marx’s Economic Theories • The fundamental determinant of the relations of production are the forces of production established in the early years of capitalism

10. Methodology • “Top down approach” where causation runs from the whole to the parts of a system • Modern economics is the reverse

11. Marx’s Theory of Value • Primary interest was not the development of a theory of relative prices • His interest rests in the distribution of income Overhead pp. 198

12. Marx’s Labour Theory of Value Overhead pp. 198 • Used the concept of socially necessary labour, ie. the time taken by an average worker • The costs of production were determined by socially necessary labour time

13. Problems • Little attention to the allocation of resources and formulation of prices • Influence of capital goods on relative prices • Influence of profits on prices

14. Concept of Surplus Value • Modern economies produce more goods and services needed to pay for the real social costs of production • Labour costs • Capital costs (depreciation of CCA in labour time equivalents)

15. Difference between a goods price and its (total) labour costs is surplus value • Similar to the Physiocrats of net product

16. Marx’s Analysis of 19th Century Capitalism • Primary purpose was to • Discover the laws of motion of capitalism • Identify contradictions between the forces and relations of production Overhead pp. 202 • The chief economic actor in Classical and Marxist model is the capital class

17. Other Topics • Reserve army of the unemployed in the labour force • Falling rate of profit • Origins of Business cycle • Cyclically recurring fluctuations

18. 5 Disproportionality of Crisis • Difficulty in coordinating the output of interdependent sectors 6 Overhead pp. 210 7 Concentration and centralization of Capital 8 Increasing misery of proletariat