Tracing the Thoughts of Karl Marx - Essay Example

Tracing the Thoughts of Karl Marx INTRODUCTION Karl Marx was an economist, philosopher, journalist, revolutionary socialist and sociologist from German whose work had much influence. He was born on 5 May 1818 and died on 14 March 1883 after making several theories that were later adopted in different fields. His work in economics’ field is viewed as the basis for the modern understanding of labor. His work is also used in the linking labor to capital and other economic thoughts that exist. He published several books with the most common being “Das Kapital” and “The Communist Manifesto”. His theories in relation to politics, economics and society are commonly referred to as Marxism. Marxism argues that the progress of human society is through the conflict between the laboring and ownership class. He has been referred to be among the influential figures of all times despite criticism in some aspects of thought (Lecturer, personal Communication). MARXIAN VALUE Karl Marx viewed values as an approximation of the prices of commodities in the market. He however agrees that in unique occasions commodities can be sold at prices that are not equal to their value. In this case, the deviations are to be viewed as opposing the commodities exchange laws. He argues that the deviations are normally temporary and would change later to normal. The deviations are due to the disturbances in the market that happens in given occasions. According to Marx, surplus or profit values cannot be considered when to the inflation process. This is because no one gains for the cases of universal inflations (Baumol, 58). The lecturer states that the capability of goods and commodities to satisfy the wants of humans. Goods can be artificial or natural, simple like a diamond or compound as in the case of a bee hive in a tree. The Marxian value and abstract labor are both epistemically objective and ontologically subjective. Both of them can be created and shared by the minds of humans intentionally. Abstract labor explains the behavior of the substance or object that has value. The important form of value is its exchange value, which is the power to purchase another commodity. The exchange value can therefore be viewed in reference to two distinct ratios. In the monetary economy, it can be expressed in terms of gold. Labor power can be referred to as a commodity that is purchased and later sold in the labor market. Labor can be divided into two: one which is concrete and while the other is collectively shared. Marx refers to the concrete labor as the “useful labor”, while the collective one as the “abstract labor.” The “useful labor” produces useful values, for example surgery or carpentry. “Abstract labor” means the labor that is common in day to day activities. It entails the use of muscle, brain, nerves among other vital parts of the human body. “Abstract labor” that can be referred to as utility cannot be consumed thus doesn’t participate in the market exchange. Marx’s definition of value entails the use of equipment thus leading to the defining of Marxian Value (Lecturer, Personal Communication). Marx showed a clear distinction between prices and value and knew that not even transformation calculation could deduce any. He describes the “prices of production” as similar to “natural values” in the classical economics. Marx regulates price: “[i.e., via the transformation process] = the expenses of capital + the average profit . . . is what Smith calls the natural price, cost price, etc” (Baumol, 55). The classical authors used to deduce their price relationship without the use of Marxian Values. In Volume 1, Marx gives a critical explanation of the value theory. In this theory Marx shows his argument skills. The value theory by Marx aimed to elaborate on the total surplus value production. It also aimed to describe the economy’s activities in relation to that total. Marx’s idea that is not that much clear is in relation to the mobility of labor. This is despite the fact that he stresses it so much in Volume one of his work. In volume 1 he describes the mobility of labor as the requirement for the capitalist as a historical stage. This guarantees an element of equality in relation to the “surplus value per labor” in all the industries. But this means that the values must be measured in the form of labor (Baumol, 53). The standard interpretation of value can therefore described as done by Morishima (Baumol, 56). He argues that a group of “input- output equation” can be taken into consideration in the expression of each outputs’ value. This is expressed in terms of the summation amount of directly used labor and that which has been used up indirectly in capital form. The labor that is in capital form is what is referred to as congealed labor. The components of the indirect labor are determined by capital inputs in terms of values of the units. The Marxian values are determined entirely by the technological relationships that are both in classical and modern models. This modern and classical models share the concept under “simple fixed coefficient assumptions.” Marx’s volume III work (Part I and II) does address the issues that are associated with the law of value. Part I of the volume is entitled: “The Conversation of the Surplus value into Profit and of the Rate of Surplus value into the Rate of Profit”. Part II is entitled: “Conversion of Profit into Average Profit.” In this two parts, there is no mentioning of pricing but it does in Chapter IX. Part IX, Chapter IX tackles the issues to do with prices and therefore linked to Volume I. The Chapter in titled: “Formation of a General Rate of Profit (Average Rate of Profit) and Transformation of the Values of Commodities into Prices of Production.” The fact that this issue is placed toward the end of Marx’s work shows that it was not of priority to him (Baumol, 57). FROM EXCHANGE VALUE TO PRICE OF PRODUCTION: Transformation Problem The ‘labor theory of value’ sets the conditions under which the exchange value of commodities is fixed in the market. This is contrary to the argument that is given by Smith and Ricardo who laid focus on other machineries. Under the ‘Law of Value’, Marx argued that the only requirement that is needed for this circumstance is the adherence to the theory of ‘labor theory of value’. The needed things for the ‘Law of Value’ to hold are capital intensities. This means that the ratio of the machine to labor should be uniform in the sectors of economy production. Marx changes the arguments in Volume III of his work and drops the assumptions in relation to ‘Law of Value’. In Volume III, Marx is not able to prove the “proof of exploitation” in volume one. There are three things to be noted in this section: (i) labor power is the only producer of ‘surplus value’, since exploitation of machines is not possible. Machines value of production can’t be more than how it is made or designed. (ii) Marx had a ‘transformation problem’ of carrying forward the concepts of Volume I to Volume III. The problem entailed explanation of “…how exchange values and surplus value can be transformed, respectively, into prices of production and profits…” (iii) Lastly, the reason for “unequal capital composition” that was witnessed across industries which went against the ‘law of value’ (Lecturer, personal Communication, April 7, 2015). Marx argued that there was dissociation between prices and values, and cost prices based on investment returns distinct equality rates. Baumol argues that Karl Marx defined the “the role of value” in two different ways: “The first is that Marx originally intended his vales as equilibrium relative prices and only retreated from this position when he begun to realize it is unattainable, doing his best to explain away his retreat as a planned regrouping of his forces” (53). This showed that there was development in the thoughts of Karl Marx as he becomes more realistic. Karl Marx intended value theory to be the simplified approximation towards correct analysis. The works of Karl Marx developed over time with the appropriate corrections being made in Volume 1, 2 and 3. Karl Marx didn’t intend to portray the value theory as the theory of price as an inadequate analysis of the middle class economy. The value theory was intended to explain the production process that to Marx was so much fundamental (Baumol, 54). Marx didn’t intend to give the idea that commodity values can be used to give their prices in his work: transformation analysis. Marx knew very well that the market prices have to be derived from commodity values. He also knew that the commodity values cannot be used to determine the prices. Marx aim was to show that these two groups of magnitudes were independent in the real practice. Marx recognized them as distinct magnitudes that differ in systematic and substantial manner. The adjacent aim of the calculation in transformation was to find the deviations nature and its causes. The objective and the explanation in reference to pricing had little consequence on Marx. This is because the primary transformation “… was not from values into prices but…. From surplus values into the non- labor income categories …” These categories are recognized by economists as the rent, interest and profits. The idea that Marx had has been misinterpreted by many and different views are still held up to date (Baumol, 58). Marx’s transformation analysis that acted as a continuation of the value theory had no interest in pricing matters. It focus was rather to describe the production of the non- wage incomes. It also aimed to redistribute the aggregates: issues discussed in Volume 1 and Volume III. The first aggregate was the most important issues to Marx and the second is the “bourgeois economists” (Baumol, 52). According to Marx, the societies surplus is distributed from a central warehouse to it capital investment. This is done through a competitive process which ensures that each industry gets rent, profit and interest payment. The amount that s given to the industries is that which is proportionate to its capital investment. The main point of the transformation process is the change of the value that is surplus into rent, interest and profit. The industry takes from individuals according to their level of work force and returns to the individuals as to the total investment it has made. The conversation idea (from surplus value to average profit) is then a straight forward concept. Marx clearly shows that under certain circumstances, industries can withdraw excess of what they have contributed. Marx considered pricing an important element thus devoting much space and effort to part of the transformation problem. Marx’s focus seemed to be in relation to making clarity in a confusion that had occurred over a long period. Marx’s Volume I work was the cause of confusion in relation to pricing. Marx’s work had misled several people including laborers, capitalists, and considerable economists like Ricardo and even vulgar economists. Marx’s act can be compared to the economists that have been looking for justice in the turn of the 20th century (Baumol, 1974). The problem of transformation has been appreciated by many of the economists as seen in the case of Morishima. Morishima argues that: “...in the transformation problem Marx did not intend to establish a proportionality between values and prices but, on the contrary, to show that individual exploitation and individual profit are disproportional unless some restrictive conditions are imposed. ... Thus it is clear that the transformation problem has the aim of showing how the aggregate exploitation of labor on the part of the total social capital is, in a capitalist economy, obscured by the distortion of prices from values; the other aim is to show how living labor can be the sole source of profit” (Baumol, 60). MARX ADDITION TO RICARDO AND SMITH THEORETICAL CORPUS: the value of labor power, the conceptual key to the Marxian theory of exploitation. The Fundamental Marxian Theorem holds that the exploitation rate can only be positive if the rate of total profit is positive. According to the lecturer; “From the value of labor power to the distinction between necessary and surplus labor, the latter identically equal to surplus value, with the ratio of surplus labor to necessary labor or, equivalently, surplus value over variable capital equaling the rate of exploitation.” (Personal Communication). Ricardo argues that the theory of labor is an appropriate approximation of explaining the prices determination. This is an objective that was derived from the Marx work: The Transformation problem. Even though some people would argue that it was not in Marx argument, Ricardo viewed it in that manner. There are notable concepts in the labor theory of value that links Ricardo’s work to that of Karl Marx. Ricardo discusses the theory in relation to the durability of the capital and quantity role in price determination. This has made the labor theory to be openly proposed as the appropriate approximation for determining the competitive price. In this theory, Ricardo emphasizes on the “… cost of production theory of pricing, not to pure labor theory”. Despite this, Ricardo has got so much of praise as the author of the different form of labor theories. Only a few of the commentators saw the link of the work of Ricardo to the labor theory. The commentators include P. Sraffa and Marshall, J. Vinner with the likes of Hollander and Cannan not seeing the links (Baumol, 53). The Ricardo used Marx concepts in the explanation of his law of value in relation to labor. The Ricardian law holds that two capitals can employ similar labor that is paid equally. If all the conditions are equal, they will produce same surplus value and value or profit. The theory holds that this will happen in the same span of time. Employment of differing quantities of real labor, will lead to the production of unequal surplus values. According to Ricardo and those who use the concept, the surplus value can also mean profits (Baumol, 56). In reality, things occur in the exact opposite of the Ricardian law of value. In reality, equal capitals produce average profits that are equal regardless of the actual labor quantity. The profits that are produced through the process are made during the same time within the distinct industries. In this sense, the reality shows that the law of law is not applicable in the day to day life. Ricardo therefore shows that he agrees with this fact even though his school has never agreed to reconcile. Marx solved the contradiction in one of his manuscripts: “Critique of Political Economy”. The plan of “Capital” sees to it that the solution is tackled in Volume III. In Volume III, Karl Marx makes the solution public by analyzing the concepts that surround it. In this sense, Rodbertus cannot be referred to as the most powerful predecessor of Karl Marx since he has accomplished nothing. The Rodbertus school of thought can’t give the method through which an equal profit rate can be made. An attempt to do this will see that the law of value is violated. According to Smith, the wants of human are so limited compared to the capability of their labor supply. This leads to the production of the surplus commodities since he or she can’t take all of the produce. This means that all men live through the exchanging thus making the society a hub of commerce. The flow of goods and services on this occasion is determined by the occurrence of deficit on one end and surplus on the other (32). Smith argues that the word “value” has two distinct meanings in the world of commerce. It can be used to express the utility of a particular object or the purchasing power of the object (32). The former can therefore be referred to as “value in use” while the latter, “value in exchange”. The things with great “value in use” often have no or little “Value in exchange”. It is also right to say that things with “Value in exchange” have little or no “value in use”. For example, water is the most useful thing yet it purchases anything in scarce. Anything that is limited can be used to exchange for water which is of great ‘value’. On the other hand, a diamond, has “value in use” that is scarce, but goods of great worth can be used in exchange for it. This means that there are principles that govern the commodities’ exchangeable value. This can be proved through ensuring on how to measure the “exchangeable value” that entails the real price of each and every commodity. It is therefore also important to determine what the “real price” is made of. Smith also argues that the difference in circumstances plays a role in the fluctuation of prices (33). Some factors also affect the market price, which is the commodities actual price. This ensures that the commodities actual price do not coincide with the natural price as they ought to. PRIMITIVE ACCUMULATION OR ACCUMULATION BY DISPOSSESSION Marx had a distinctive claim in relation to primitive accumulation that tends to agree with the concept of Smith and Ricardo: “always and everywhere the founding act of a capitalism is a forcible rearrangement in the distribution of initial endowments … since otherwise a proletariat--a social class that owns nothing but its capacity to work, i.e. labor power--hence surplus value and profits could not emerge” (Lecturer, personal Communication). This was confirmed to e true in England in the 16th century. Marx used this as an example in Volume 1 of the Capital, Part 8 where he describes the concepts entailed. Marx explanation can be further understood through the understanding of the ‘Oligarchy’ of the post- socialite economies. Other areas that need consideration are: “born in the crisis of transition to capitalism and initial equal distributions of coupon claims to state property notwithstanding” (Lecturer, personal Communication). The Marx’s analysis can be described simply as industries’ aggregation that contributes to a storehouse. The storehouse is the sector in which all the total surplus of the industries are. Karl Marx therefore aimed to show that the surplus from the industries is accumulated at a given point by the owners. The contribution that is given to each industry is the total difference between its output and labor force consumption. This is how the surplus value of the society is produced in the dynamic and realistic markets. The use of labor units to measure the quantities will ensure that the contribution of industries to be equal o the labor quantity it uses (Baumol, 56). The process shows how money is changed into capital and how surplus value is made through capital. The existence of the surplus value also can lead to the formation of additional capital. The collection of capital is more that the surplus value, similarly, the surplus value is more than capitalistic production. The capitalistic production is also more than existing capital markets and labor power of producers. The whole movement is continuous thus forming a vicious cycle. Primitive accumulation that exceeds capitalistic accumulation therefore proves to be the only solution for the case of the vicious cycle (Madema and Samuels, 376). CONCLUSION The work of Karl Marx has been celebrated by many and the same time criticized for being unrealistic. His work in economics’ field is viewed as the basis for the modern understanding of labor. The view of Karl Max in relation to values was purely based on the market prices of the commodities. In this aspect he contradicted himself later on by agreeing that there are unique occasions in which the selling prices are not equal to the value of the commodity. In support of this controversy, Karl Marx argues that the changes are temporal since they occur in unique occasions. He defined the conditions that under which the exchange values are to be deemed fixed in the markets. In this case, he got an opposition from other economists like Ricardo and Smith that had parallel concepts. Some economists argued that Ricardo’s theory in reaction to ‘labor theory of value’ wasn’t new in any form. Rather it supported the previous works of Karl Marx thus making Karl Marx undisputable. The work of Karl Marx had also some aspect of contradiction within themselves: in reference to Volume I and Volume III. Marx himself seemed to agree with this and worked hard to correct the information that was in the Volume I of his work. Smith and Ricardo at given points agree with the work of Marx. This can be witnessed as they used the work of Marx as foundations for their arguments. References Baumol, William J. “The Transformation of Values: What Marx Really Meant (An Interpretation).” Journal of Economic Literature 12.1 (1974): 51-62. Pdf. Madema, Steven. G. and Samuels Warren J. History of Economic Thought Reader, Second Edition. London: Routledge, 2013. Print. Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations with a Life of the Author. Cambridge: Thomas Nelson, 1843. Print. Read More