Introduction
As most people understand it, capitalism is a collection of economic theories that encourages private property and allows firms and individuals to collaborate to produce goods and services for money or profit. Marxists and other academics have challenged some of capitalism’s most important principles. Marx’s historical and economic theories are the only way to grasp Marxism’s fundamental beliefs. Many of Marx’s theories were influenced by the rapid changes brought about by industrialization and the advent of capitalism.
Capitalism arose from a commercial revolution in Western Europe in the 17th century, gained traction in the 18th century, and extended to the rest of Europe by the 19th century. However, the exact sequence of events is still debated. Capitalism was first used as a derogatory term by socialists who sought to organize society against capitalism and replace it with something else. Marx’s argument within these centuries was that the capitalist system was about to collapse.
Background
It is critical to understand Marx’s theory since it serves as the foundation for excellent execution. It is well known that capitalist economies are prone to frequent and severe economic downturns (Wall and Bollier, 2015). These negatively impact people’s lives and prevent humanity from progressing toward a society based on plenty rather than scarcity and labor.
Before capitalism, food shortages, natural disasters, and a lack of resources were the root causes of crises. People created them, but they appeared to be beyond human control with time. They became a fetish because people live in a capitalist culture where money comes first. Even if capitalism has helped employees become much more productive over the last 200 years, crises demonstrate that it is not a perfect system. Humanity requires a fresh start to grow or even survive as a species. Because of this, it is significant. Marx’s theory was based on this understanding, and he was convinced that humanity needed to be saved from the destructive capitalist system before it was too late.
Coherency of Marx’s Theory
Some people have suggested that Marx’s capitalism law does not sufficiently explain economic downturns. As an example, the law implies that the value of labor power (recruitment and associated costs) will decrease over time compared to the value of the means of production (tools and machines) (Vlados, 2019). This is what Marx dubbed the growing biological component of capital. Ultimately, the expense of investing in manufacturing machines and labor power will outweigh the benefit of labor power. Some critics of Marxism contend that this is predicated on an unrealistic assumption that the rate of surplus value will either stay the same or grow slower than the biological composition of capital.
There is no reason to make this assumption since an increase in human power will increase the surplus value rate. Assessment of the majority of articles shows that the above is a significant misunderstanding of what Marx meant by his theory. He meant that if the rate of surplus value remains constant while the biological composition of capital increases, then the rate of profit will fall (Therborn, 2018). However, this is just a tendency since there are other possible outcomes, such as a rise in the surplus value rate.
Other causes include an increase in international commerce and dishonest profits from financial speculation, as well as a decline in the value of the means of production relative to the value of labor. Marx claimed that these factors turn the norm into more of a tendency, one whose authority is restricted by factors that work against it (Therborn, 2018). They do not eliminate the law, but they make it less effective. Also, its effects are not easy to observe until a long time has passed, and even then, only in certain settings.
It is also obvious that the natural element of capital is expanding. Under capitalism, mechanization has considerably enhanced worker output. This encompasses anything from simple tools and machinery to huge structures like factories and space stations (Hill, 2019). Even though this may appear like more jobs for individuals already working, it is a way to lessen the demand for human labor. Even if a single unit of a new technology may be worth less than a unit of older technology, the old technology is usually replaced by a fully new technology or a new collection of technologies worth more overall.
Marx was right that increased capital investment would result in a high organic composition of capital over time. The value of machines and other means of production in the US has risen since 1947, compared to the value of workers’ labor, leading to increased production rates (Skidmore, 2021). As time goes on, capital’s organic composition is improving, labor productivity is increasing, and profits are going down. These results portray the principles of Marx’s law on capitalism; hence, the coherency is confirmed even in today’s capitalist environment.
Marx believed capitalism was doomed to collapse due to its inherent propensity to produce ever-larger booms and busts. He was certain that a popular movement would form and that a communist system that was both more efficient and more humanitarian would emerge. Such an environment continues to develop today, with technological tools and machines making the workplace less demanding. Additionally, the development of employment unions advocates for workers’ rights, ensuring employees get fair pay for their work.
Marx’s Anti-Capitalist Arguments
Exploitation
According to Marxists, capitalism is predicated on exploiting people. The concept of taking people’s work for money is central to the study of economic exploitation. According to Marxists, workers are exploited in a capitalist society because they are paid little for their labor. Marxists use the term “surplus value” to describe when someone works hard for little pay (Fine & Saad-Filho, 2004).
Workers are used in capitalism to generate greater surplus value, which leads to bigger profits for capital. This is usually accomplished by lowering worker wages. For their capitalist careers to go further, business owners compete with each other to develop innovative ways to create as much money and extra value as feasible. Most of the strategies adopted to achieve this initiative exploit workers even further. Marxists gave the term ‘the universal law of capitalist accumulation.’
Class Crisis
Marxists claim that the capitalist system has always had crises at regular intervals, that is, static and high unemployment rates. The cyclical nature of capitalist crises may be traced back to the inherent class conflict between the ruling capitalist elite and the working proletariat (laborers) (Ullah, 2022). Marxists consider the capitalists and the proletariat classes because they represent two groups at odds with each other.
Marxists claim that more and more people become proletarians because capitalists always want to make money and compete with each other. Because of this, most of the proletariat would be living in terrible poverty on the modest wages of a few capitalists. Marxists named this group of people who worked a job ‘the industrial reserve army’ (Ullah, 2022). Exploiting workers and the breakdown of the capitalist system contribute to class conflict because they make it easier for groups with diverse aims to band together to establish coalitions that have political power over the state and worsen workplace conflicts.
Marx’s ideas were first based on a model of how history changes through time. Class battles are the history of every culture in the past. He did not consider capitalism the final, stable, and natural way for people to live together. Instead, he regarded it as a stage in this long-term process.
Marx considered that freedom at the individual level was only good for the person; thus, he fought for freedom at the social level as the ultimate objective of history (Bryer, 2019). The past was largely about money, and it happened in a series of class fights triggered by changing economic interests as society moved through different eras with varied ways of manufacturing things. Marx stated that this meant that the manual mill led to a society with a feudal lord, whereas the steam mill led to a society with an industrial capitalist. In each case, beliefs, morals, and social standards were developed around how the economy worked. Even religious societies shared economic issues or aided people who were facing trouble. And when all of these difficulties ultimately came to a climax, capitalism was not the end of human history but the beginning of the next.
Alienation
Marxists claim that the capitalist system affects the relationship between employees and their labor instead of satisfying the needs of workers or spreading ideas. In a capitalist system, laborers do not feel close to the rich business owners who benefit from their labor (Xiaoping, 2022). Employees sense isolation at the workplace due to several workplace factors.
First, capitalism wastes people’s transformative efforts because employees do the same daily work. Employers are happy provided they make increased profits, even when it means monotony in assignments. A second difficulty is that the way the office is set up makes it hard for people to talk to each other. Workers compete with each other based on pay rather than developing their capabilities.
Third, since the products belong to the capitalists, employees do not care about what they make. They are most comfortable with the little they are paid, even when making large sums of profits for their employers. Because of this, workers lose touch with their productive obligations because they are not inspired to work to meet their demands.
Discussion
Recurring economic crises are an irrefutable reality of capitalism, yet economists usually treat each new crisis as a one-of-a-kind event rather than looking at the system as a whole. Conversely, Marxists argue that crises are a natural component of capitalist growth and demonstrate how capitalism is contradictory. However, no Marxist crisis theory has received widespread support.
Although the concept of crisis is important to Marxism, Marx never developed a detailed theory. He examined the reasons for the unavoidable revolution by focusing on long-term patterns in capitalist growth characterized by capital concentration, centralization, and class separation. By the 1850s, however, he had lost trust in the ability of economic crises to effect change (Heller, 2018). Marx never completed his theoretical explanation of credit and competition, which is critical for understanding economic crises.
When capitalists cannot sell their commodities enough to cover their investment expenses, a downward spiral of defaults and reduced profits begins. In theory, it is difficult to explain why so many markets have failed. The separation of purchasing and selling is a component of producing and exchanging products for money, increasing the chances of a crisis occurring. If many merchants keep their money instead of spending it, those commodities will sit on shelves unused. This would make no sense in political economics since consumption is the one objective and purpose of all production, and selling one product would just pay for purchasing another.
Marx believed that capitalist production’s single aim and purpose was to generate surplus value and capital rather than satisfy customers (Heller, 2018). For the capital accumulation process to continue, capitalists must sell items to convert their increasing capital back into money. While the capitalist may spend part of their hard-earned money on pleasures such as vacations and good eating, the majority of it will most likely be invested in new companies with a high return on investment. As a result, Marx agrees that the absence of such opportunities is an essential condition for a crisis. In other words, there is an increased chance of a crisis occurring if capitalists do not use money correctly.
A common question is, ‘When does it become difficult for investors to make a profit?’ According to Marx, these things are not true in the production domain. Surplus value can only be created through capitalist production, which demands a high level of labor productivity that allows workers to earn more than they need for existence and the need to sell their labor.
Marx does not include any of these criteria in the circulation field because an exchange is an area of freedom and equality where objects trade at their values without additional restrictions (Heller, 2018). The issue must stem from how production and circulation interact and how the extra value they generate is utilized. Situations in which direct exploitation occurs and situations in which it is accomplished are not the same. They are distinct not only because they live in different places and times but also because they have different ideas. While the first two are only constrained by how much a society can produce, the second two are also constrained by how much distinct regions of production and consumers can purchase. Overproduction relative to actual demand at a price that permits the surplus value to be realized leads to the current problem.
By facilitating the movement of capital between firms, political economy competition ensures that no surplus goods are manufactured. Overproduction on a global scale is not a phenomenon. Therefore, an imbalance is required for overproduction in one department while underproduction in another is possible. Capital will flow from the later branch to the earlier branch to restore profit rates and output to normal since the earlier branch’s profit rate will be lower than average, and the later branch’s profit rate will be bigger than usual. To keep the disparity continuing naturally, credit speculation must rise to the point of failure (Harootunian, 2015). As a result, a political economy crisis was primarily a financial issue created by the money authorities’ failure to enforce their regulations strictly enough.
Marx believed overproduction was more than simply a minor divergence from the trend of proportional increase that could be easily corrected through competition. Instead, he saw it as an important component of capitalist production. Overproduction is the primary cause and the final manifestation of economic rivalry (Harootunian, 2015).
Contrary to what economists may claim, capitalists generate money by not shifting capital from one area of production to another in reaction to tiny variations in profit rates. Instead, they generate money by devising innovative methods to do more with less. If a company’s production costs are lower than those of its competitors, the owner will make as much money as possible to gain a monopoly.
Prices fall as there is more supply than demand, and less developed capitalists must lower expenses to stay in business. When a corporation lacks the funds to invest in new machinery, it may opt to slash salaries. Supply and demand eventually balance when less successful business owners go bankrupt or give up the fight, leaving their employees helpless.
Overproduction is a feature of capitalism that forces business owners to try to generate more money by acquiring more clients at the expense of their competitors. Even though they put themselves in a dilemma, the most successful capitalists constantly develop new products and manufacturing methods. However, neither new products nor new business models are being developed to suit people’s demands or to make work easier.
Capital accumulation is characterized by an increase in the number of items people seek, a widening disparity between affluent and poor, and both too much and insufficient employment. Marx saw capitalism as progressive since it led to new ways of producing goods and creative ways of meeting people’s wants (Heller, 2018). However, he believed these advantages could only be fully realized in a society where people’s needs, rather than profits, drove production.
Speculative bubbles produce overproduction, which is sustained by credit expansion. According to Marx and Engels, this impacts the major areas of production and leads to universal crises that worsen over time. According to Marx and Engels, the cyclical nature of capitalist accumulation might explain why crises reoccur (Beatty, 2019). Marx and Engels opposed economists’ belief that supply and demand inevitably gravitate toward equilibrium because capitalists adjust production to market constraints. Marx and Engels believed equilibrium could only be restored forcibly and temporarily through recurrent crises.
How the proletariat evolves into a political force will depend on the long-term development patterns of capitalism. Capital concentration and centralization, the partitioning of productive and commercial capital, and the growth of the credit market are all outcomes of the abundance/deficit cycle. All of these factors exacerbate crises. Marx reworked the political economy’s premise that profit rates tend to fall with time. This attributes capital concentration, centralization, and the severity of crises because smaller capitals are more likely to be harmed by the trend. In comparison, larger capitals are better prepared to deal with it.
Theory of Crisis
Underconsumptionism
Engels was a devoted advocate of the underconsumption theory of crises, which holds that output growth usually outpaces consumption growth since the two are founded on completely distinct principles. Engels believed that the inherent propensity toward overproduction was the root of both economic stagnation and economic collapse periods.
Conversely, Marx said unequivocally that production and consumption did not adhere to completely autonomous rules because they were both parts of the capitalist reproduction process (Toporowski, 2022). It is not necessarily true that capitalism will fail to find a market for its ever-increasing product, corresponding to the ever-increasing mass of surplus value. This is because the surplus value can only ever be realized through capitalist purchases, either for their consumption or for purchasing labor and means of production to expand their capital further.
The German Social Democratic Party leaders agreed with Engels’ underconsumption argument that capitalism’s growth leads to long-term depression (Toporowski, 2022). Additionally, crises were generated by market anarchy, which simply amplified and deepened long-term trends of capitalist expansion and had no independent theoretical or political value. Nonetheless, most individuals felt that capitalism’s systemic breakdown was unavoidable, if not imminent.
With Eduard Bernstein’s revisionist challenge to the orthodoxy of the Second International, the concept of crisis grew to prominence. Bernstein was a devoted opponent of the notion that capitalism was doomed to fail, particularly Kautsky’s theory of the secular tendency toward overproduction (Garegnani, 2018). According to Bernstein, the problem of overproduction had been mitigated by increasing salaries and the expansion of imperialism. He also claimed that cartels and a more complex financial system had reduced the crisis risk.
Additionally, Bernstein added that Marxism had a disastrous theory of collapse, and Kautsky responded by reiterating the traditional underconsumption argument. Rosa Luxemburg supported the notion of catastrophism and stated that capitalist disintegration is the cornerstone of scientific socialism (Garegnani, 2018). Credit, according to Bernstein, may delay the inevitable crisis for a while, but according to Luxemburg, it exacerbates the catastrophe by encouraging people to spend more. Luxemburg distinguished between a terminal crisis, which occurred when the external market was depleted, and repeated crises induced by market anarchy, which frequently halted accumulation.
According to Luxemburg, it was necessary to eliminate all pre-capitalist production methods to create an external market that would facilitate capital growth. These historical figures came to a similar conclusion that after this destruction, the drive to become wealthy will be gone, and capitalism will enter a crisis from which it can never recover. Their findings and arguments are consistent with Marx’s capitalist theory, supporting the coherence of the law.
Underconsumptionist theories of crises have been formally refuted, most notably by Tugan-Baranowsky, who demonstrated that overproduction is impossible as long as the proper ratios between the various phases of production are maintained. As a result, a crisis is not triggered by overall overproduction. Instead, it results from overproduction in one sector of the economy due to its abnormally high pace of growth.
Underconsumptionists, on the other hand, claimed that Tugan’s reasoning was too formal and ignored the importance of consumption to the economy (Garegnani, 2018). Despite Marx’s opposition to this Smithian theory, all underconsumption theories are predicated on the idea that consumption drives capital accumulation. Hence, capitalist output grows regardless of market conditions. From this vantage point, the market is not an impediment to wealth accumulation but rather a strength test that must be passed. The solution to this problem is to increase the rate at which capital is reproduced.
Profit Loss
Despite its dubious links to the Marxist tradition, this theory has been widely accepted as the standard Marxist explanation of the continuous global economic crises since the 1970s. Even while it has long been known that profit rates drop rapidly during crises, this decline has typically been viewed as a symptom of the crisis rather than a cause (Heller, 2018). The long-term trend toward reduced profit rates was not considered to trigger crises. Instead, it was assumed that this trend resulted in more capital being centralized, increasing the frequency and severity of crises. In practice, the boom that precedes a calamity is frequently marked by an increase in the rate of profit. Because any profit is preferable to no profit for a capitalist, there is no theoretical reason why a decline in profit rate could halt investment and produce a crisis.
When people debated the Marxist theory of crisis in the 1970s, there was a lot of pressure but minimal understanding of Marx’s arguments. This is because none of the other ideas could explain why a decrease in profit rate would result in a crisis. The statistical examination of the profit rate was the most important outcome of this conversation. This was because it gave people the information required to evaluate various theories on specific crises.
Summary and Conclusions
Marx claimed that capitalist production methods are intrinsically incompatible and that periodic catastrophic crises that halt accumulation are only the most visible manifestations of this. However, capital accumulation is not managed competitively by capitalists, who are always correct about how the market will develop. Instead, it is accomplished through overaccumulation and crisis, which occurs when the desire to produce too much material collides with the barrier of a limited market.
As a result, the most significant aspect of Marx’s critique of political economics is his theory of crisis, which is more important than the traditional concept of competition, with which Marx and Engels began their investigation. Even though they are called crisis theories, Marxist theories have done more to advance Marxism’s ideology than its science. Although crises are inescapable in a capitalist society, their causes and consequences are determined by how capital is amassed at any given moment and place. When examining crises, it is critical to pay particular attention to how capital is currently arranged.
According to Marxism, the economy drives history, which played out in a succession of class warfare as different social groupings competed for their economic self-interests across different ages and ways of production. According to Marx, the manual mill resulted in a feudal lord society, but the steam mill resulted in an industrial capitalist society. He acknowledged that industrial capitalism was the source of globalization but claimed that it had transformed everything into a tradeable commodity. People’s interactions became cold and harsh, and all of the morality and certainties of the past vanished. As a result, workers were easily exploited for profit and treated as commodities.
Karl Marx’s ideas were founded on the premise that humans have improved over time. He claimed that class conflicts could be found throughout history. He did not regard capitalism as the ultimate and stable way for humans to coexist but as a stage in a long process. He believed that capitalism would crash solely with time, making societies classless.
Reference List
Beatty, A. (2019) ‘Marx and Engels, Ireland, and the racial history of capitalism’, The Journal of Modern History, 91(4), pp. 815-847.
Bryer, R., (2019) Accounting for history in Marx’s capital: The missing link. Rowman & Littlefield.
Fine, B and Saad-Filho, A. (2004) Marx’s Capital. London: Pluto Press.
Garegnani, P. (2018) ‘On the labour theory of value in Marx and in the Marxist tradition’, Review of Political Economy, 30(4), pp. 618-642.
Harootunian, H. (2015) Marx after Marx: History and time in the expansion of capitalism. Columbia: University Press.
Heller, H. (2018) A Marxist history of capitalism. Routledge.
Hill, I. E. (2019) ‘Monsterization, Mechanization, Contradiction: Marx’s Rhetoric of Technology’, Rethinking Marxism, 31(4), pp. 493-510.
Skidmore, T. E. (2021) ‘Workers and soldiers: urban labor movements and elite responses in Twentieth-Century Latin America’, In Elites, Masses, and Modernization in Latin America, 1850–1930 pp. 79-126. University of Texas Press.
Therborn, G. (2018) From Marxism to Post-Marxism? Verso Books.
Toporowski, J. (2022) ‘Introduction: Rosa Luxemburg and Polish Marxism’, In Polish Marxism after Luxemburg, 37, pp. 1-10.
Ullah, A.S.M., (2022) ‘An analysis of Marxism in industrial relations theory in light of capitalism, neoliberalism, and globalization: A petite critical review from Bangladesh’s RMG perspectives’, Middle East Journal of Business, 17(2).
Vlados, C. (2019) ‘Notes on the main analytical insufficiencies of the Marxist theoretical tradition for the comprehension of the contemporary global economy’, Journal of Economic and Social Thought, 6(3), pp. 132-155.
Wall, D., & Bollier, D. (2015). Economics after capitalism. University of Chicago Press Economics Books.
Xiaoping, W., (2022) ‘Marx’s Economic Analysis and Sociological Critique of Capitalism’, In Karl Marx on Socialist Theory and Practice, pp. 71-118.