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1. Classical Economics, Lecture 5
Marxism

2. Marx’s Theory of History
• Marx says that history is determined by the
growth of the forces of production.
• It’s isn’t entirely clear what Marx meant by this. A
plausible view is that it means the technology that
exists at a particular time.
• Rothbard here follows Mises, who in turn took
this view from the Russian Marxist G.V.
Plekhanov, The Development of the Monist View
of History (1895)

3. Relations of Production
• As the forces of production develop, they
determine the relations of production.
• “Relations of production” is also not clearly
defined. It basically means the way
production is organized, especially the
division into classes.
• This includes legal relations.

4. The Superstructure
• Every society has a system of beliefs,
based on the interests of the ruling class,
that support the way production is
organized.
• This system of beliefs doesn’t aim at truth.
It is ideological.
• This view raises a problem about the status
of Marx’s own theory. Is it ideological too?

5. Progress in History
• The forces of production have a tendency to grow
continually.
• The relations of production are those best suited to
develop the forces of production at that time.
• As the forces of production grow, the system that
formerly best developed the forces of production
stops being the best system. The old system
becomes fetters on the development of the forces
of production.

6. Progress Continued
• The systems just mentioned are
• Slavery---The Ancient World
• Feudalism-The Middle Ages
• Capitalism-The Modern World
• Each of these systems is characterized by
class conflict.
• There is also an initial stage of primitive
communism.

7. Oriental Despotism
• Marx also recognized another system, the Asiatic
mode of production. This involved slavery, but it
was highly centralized under a monarch.
• Particular economic features of society, especially
centralized control of water and irrigation, made
this system possible.
• Karl Wittfogel, in Oriental Despotism, used the
Asiatic mode to analyze Communist rule.

8. More Progress
• A future system, socialism, will be
established through a revolution. Class
conflict will no longer exist, after the
dictatorship of the proletariat stamps out
opposition.

9. What’s Wrong With the Theory?
• Mises and Rothbard both point out that the forces
of production don’t grow by themselves. Only
individuals act.
• The growth in the forces of production depends on
ideas that people have. Institutional and legal
relations will also be important.
• Marx has the direction of causation wrong:
changes in the relations of production cause
changes in the forces of production.

10. What’s Wrong Continued
• Also, Marx never explained how the forces of
production are supposed to determine the relations
of production. Why should a particular invention,
e.g., the hand-mill, cause an entire social system?
• If the issue is, what system would best develop the
forces of production, isn’t the answer always
capitalism? The answer doesn’t vary at different
times.

11. Classes
• For Marx, what is important for capitalism
is the division of two classes, bourgeoisie
and proletariat. Why should be the only two
classes that matter? There are all sorts of
ways people can be classified.
• Why would someone follow his class
interest over his individual interest, the
interest of his family, or other interests?

12. Classes Continued
• Rothbard makes a deeper criticism of Marx on
class.
• In the free market, the relations between capitalists
and workers aren’t antagonistic. People engage in
exchange for mutual benefit.
• Antagonistic class relations arise only when the
State enables one group to prey on another. This is
a system of castes rather than economic classes.

13. Classes
• The French classical liberals Charles Comte,
Charles Dunoyer, and Augustin Thierry developed
this libertarian theory of class.
• Marx was familiar with it and sometimes used it,
e.g., in The Eighteenth Brumaire.
• Franz Oppenheimer and Albert Jay Nock
extended the libertarian theory in the 20th
century.

14. Raw Communism
• Rothbard follows Robert Tucker in saying that
Marx realized that when capitalism was
overthrown, the initial situation would be worse
than it was under capitalism.
• Workers would be dominated by envy for the
possessions of others and by hostile feelings.
• This has been suppressed in Marx’s later writings.

15. The Labor Theory of Value
• Marx’s analysis of capitalism rests on the
labor theory of value.
• Marx argues that exchange between two
commodities implies that the two
commodities are equal.
• The equality can’t be in the use values of
the commodities; these are all different.

16. Labor Theory Continued
• The commodities, if they are equal, must be
equal to a third thing.
• This third thing can only be labor.
• If so, the value of a commodity depends on
the number of labor hours required to
produce it.

17. Problems with the Labor Theory
• An exchange does not require an equality
between the commodities that are traded.
• To the contrary, a double inequality is
required.
• If an equality were required, it wouldn’t
follow that the equality would have to be
one of labor.

18. Further Problems
• Some labor is more efficient than other
labor. If it takes me longer to make a
bookcase than it would take a trained
carpenter, it doesn’t follow that my
bookcase would be worth more.
• Also, how can you compare different types
of labor?

19. Marx’s Answer
• Marx answered the first point by saying that it was
the socially necessary labor time required to
produce a commodity that determined its value.
My bookcase wouldn’t be worth more than a
bookcase that was more efficiently produced.
• Different kinds of labor can be compared with
each other by the use of the market. The solution
to both of these problems is circular. The labor
theory is supposed to explain market prices but it
presupposes them.

20. The Point of the Labor Theory
• Marx thought that the labor theory was the means
for understanding the “laws of motion” of
capitalism. Note the Newtonian reference here.
• The capitalist starts with money. He buys and
rents land, labor, machinery, etc. and engages in
production. He then sells what he has produced.
Unless he has made a mistake, he earns a profit.
• In symbols, we have M—C—M´. How is this
increase possible?

21. Profit
• The worker is selling the capitalist his labor
power. That is, the capitalist gets a certain number
of hours of labor time, during which the worker
can produce goods of economic value for the
employer.
• He doesn’t pay the worker the full labor value of
what the laborer produces. What does he pay him?
This is determined by the labor theory of value.

22. Profit Continued
• He pays him the labor cost required to
produce the worker’s labor power. More
simply, he pays what is required for the
laborer to live.
• In other words, labor earns a subsistence
wage. Rothbard thinks that this should be
interpreted strictly. If taken this way, the
theory is obviously false.

23. Böhm-Bawerk’s Problem
• If this is how profit arises, then the rate of profit
depends only on how much labor is employed.
Additions to capital don’t add to profit.
• If this is true, then those in industries with a lot of
labor and little capital should earn a higher rate of
profit.
• In fact, the average profit for each industry tends
to be the same.

24. Problems Continued
• Böhm-Bawerk pointed out that Marx was unable
to explain this contradiction.
• As capital increases, the rate of profit will fall.
This has not been borne out by the facts.
• Marx also thought that the workers’ position
would keep getting worse. If they earn subsistence
wages, how can it get worse?