on June 14, 2014
On Karl Marx I read enough on his own books to reach the conclusion that he created what seems to the superficial observer to be an impressive, integrated system of thought, explaining economy, world history, and even the workings of the universe. In reality, he created a veritable tissue of fallacies.
There are great problems in Marx’ model. His theory implies that, since profits are only derived from the exploitation of labour, profit rates are necessarily lower in heavily capitalized than in labour-intensive industries. But everyone is forced to acknowledge that this manifestly does not hold true on the market. The tendency on the market is for rates of profits to tend toward equality in all industries. But how so, if profit rates are necessarily and systematically higher in the labour-intensive industries ?
Here is surely the most glaring single hole in the Marxian model. Marx acknowledged that, in the real world, profit rates clearly tend toward equality (or, as Marx termed it, and “average rate of profit”), and therefore the real prices or exchange-values in capitalist markets do not exchange at their Marxian quantity- of-labour-values.
Marx admitted this crucial problem, and promised that he could solve the problem successfully in a latter volume of Capital. He struggled with this problem for the rest of his life, and never solved it, perhaps one of the main reasons that he stopped working early on Capital and never published the later volumes.
Marx himself became aware of the fact that there was a serious contradiction here, and found it necessary for the sake of his solution to promise to deal with it later on. But the promise was never kept, and indeed could not be kept.
What Marx actually did was to throw in the towel and admit that, on the capitalist market, profit rates were equal and therefore that prices were not proportional to or determined by the quantity of labour hours in the production of goods.
Eugen von Bohm-Bawerk’s devastating refutation of Marxian system remains definitive. It swept the boards in professional economics, and has remained dominant ever since, successfully inoculating economists against the Marxian virus.
Marxian labour theory of value is indefensible.
Most modern Marxist scholars hold the labour theory of value to be an embarrassment, and sophisticated Marxists have dropped it altogether, unfortunately without also giving up the system of which it is crucial and necessary part.
There are more contradictions of course. Many books could be written. But it is instructive to note the reactions of Marxists to Bohm-Bawerk’s exposure and demolition of their system’s grave inner contradictions.
Too often, they reacted in the manner of religious cultists and not honest scientists. That is, when their system is caught in egregious fallacies or contradictions, or makes grossly faulty predictions, cultists save their theory by changing the terms of the argument. That is, they assert that the theory said something quite different, or that the prediction had really been different.
Karl Marx created what seems to the superficial observer to be an impressive, integrated system of thought, explaining economy, world history, and even the workings of the universe. In reality, he created a veritable tissue of fallacies.
I also recommend reading the chapter on Karl Marx's masterful and documented book "Intellectuals" by Paul Johnson and found out some interesting details surrounding his life and work, also the kind of person he was.
The lie can prevail for a while. But ultimately the truth prevails because it is overwhelming.
The lie does not exist by itself and truth it does.
on March 25, 2013
It should be stressed for the novice to this subject, all three volumes of Capital provide a scientific explanation, as Marx put it, of how the Capitalist system works from the perspective that labor is the underlying essence of all value. If one accepts the basic assumptions made early in Chapter 1 of Capital, Volume 1--that abstract labor is the source of value(1)--Marx's logic flows well, not only through Volume 1, but all the way through Volume 3.
If one is looking to fault Marx's economics based on the works of Capital, one will come up empty not only because Marx's logic is flawless, but as economist and former Marxist Thomas Sowell says, " ...Marx considered the idea of proving a concept to be ridiculous. Moreover, Engels had asserted...that one only proves one's ignorance of dialectics by thinking of it as a means by which things can be proved."(2)
However, there was one instance where Marx let his dialectical guard down, allowing for an empirical objection that would consign all of Marx's works for naught. Sowell himself touches upon the specific passage where Marx cornered himself, but doesn't appreciate the full ramifications of Marx's observation.
In the "The Poverty of Philosophy" (1847) Marx says, "In acquiring new productive forces men change their mode of production; and in changing their mode of production, in changing the way of earning their living, they change all their social relations. The handmill [a productive force] gives you society with the feudal lord, the steam-mill [a productive force], society with the industrial capitalist."(3)
Sowell argues regarding Marx's handmill/steam-mill analogy, "If read literally, these words suggest a one-way causation and explanation of given states of being rather than of transformation. But that is clearly inconsistent both with Marx's and Engels' own treatment of history and with the dialectical conception of reciprocal interaction. These words are perhaps best read as epigrams-and of the dangers of misunderstanding inherent in that writing style."(4)
Is Sowell correct? Was Marx merely being terse with his handmill/steam-mill analogy?
While Sowell is indeed correct that Marx and Engles viewed the unfolding of history as a "dialectical conception of reciprocal interaction", that observation does not answer the question: What comes first? The machinery, or new social relations, derived from machines, that interacts with the old social relations to produce the new hybrid social relations? Marx was emphatic that machines came first, then all else followed them. In his retort to Pierre-Joseph Proudhon's observation that the use of machines was a consequence of the division of labor,(5) Marx writes:
"Thus it is slapping history in the face to want to begin by the division of labor in general, in order to get subsequently to a specific instrument of production, machinery.
Machinery is no more an economic category than the bullock that drags the plough. Machinery is merely a productive force. The modern workshop, which depends on the application of machinery, is a social production relation, an economic category."(6)
The problem with this empirical observation is that before there was a steam mill there already existed an industrial capitalist society that not only contained the requisite industrial capitalist mode of production that manufactured the necessary constituent parts that went into the creation of the steam mill (there were many companies involved in the problem-solving for and manufacture of components that went into a steam engine), but this pre-steam mill society also contained an already sophisticated industrial capitalist labor force that made the constituent parts for the steam mill, not to mention built the steam mill itself. Contemporaneous with the industrial capitalist production of steam engines, there existed the production of the machines that the steam engines would power. In other words, the steam mill presupposes an already functioning industrial capitalist society! Marx's rebuke to Proudhon is a tautological response that also fails to recognize that a steam engine is made up of independently manufactured parts that predates the manufacture of a steam engine with those independently manufactured parts! Marx fails to mention this double inconsistency with his material "productive forces" empirical observation.
Simplified, Marx is speaking of the root cause for industrial Capitalism...the steam engine, but that beginning of industrial Capitalism only exists to the extent of (1) the already existing industrial Capitalist division of labor that manufactured the component parts for the steam engine; (2) the already existing industrial Capitalist capital goods/intermediate goods industries that manufactured the constituent parts that went into the construction of the steam engine; (3) the already existing industrial Capitalist capital goods/intermediate goods industries that manufactured the machines that the steam engine powers; and (4) an already existing industrial Capitalist division of labor that manufactures those machines powered by the steam engine!
When the first steam-mill was completed supposedly, according to Marx, 'giving' a society with industrial Capitalism, in fact industrial Capitalism, and an industrial Capitalist division of labor, already existed, and would have to already be in existence otherwise there could be no steam-mills and the machines they were created to power!
Marx behaves like a child throwing a tantrum: Machines come first, then all else follows. Why? Because Marx said so, even though the historical record says otherwise!
In fact, and unknown to Ricardian economists or Marx, industrial Capitalism couldn’t have emerged without the conscious decision of nations to allow for the rise of interest rates to free market heights, abandoning low interest rates policies, such low interest rates policies making possible the Mercantilist pre-industrial Capitalist era. Only with higher, market-based, interest rates is it possible to accumulate the necessary large quantities of capital for industrial enterprise.
During the Mercantilist era low interest rates ensured that only consumption-based investments could take place, such investments requiring relatively little capital expenditures, such low capital expenditures being a function of the expected return on the investment, which return is based on the low interest rate policy being followed by Mercantilist nations. Industrial ventures, on the other hand, require large expenditures of capital, such amounts only made possible by a higher rate of return that can recoup the larger capital outlay, a higher rate of return that is made possible only with higher, market-based, interest rates.
We therefore see that not only was it necessary to already have an existing industrial Capitalist division of labor before machines made their appearance, there also needed to be in existence the requisite financing for the new machines to come into existence, meaning a new industrial Capitalist financial setup (where market-based, higher, interest rates are the norm) was a necessary precursor for the emergence of industrial Capitalism.
(see first comment for available links to titles cited)
1. Capital, Karl Marx, p.27.
2. Marxism: Philosophy and Economics, Thomas Sowell, p.109
3. The Poverty of Philosophy, p. 122 (takes into account the changes and corrections introduced by Marx into the copy presented to N. Utina in 1876).
4. Marxism: Philosophy and Economics, Thomas Sowell, p.56.
5. “Division of labor, then, is the first phase of economic evolution as well as of intellectual development: our point of departure is true as regards both man and things, and the progress of our exposition is in no wise arbitrary.” – The Philosophy of Poverty, Pierre-Joseph Proudhon (1847).
6. The Poverty of Philosophy, p. 149 (takes into account the changes and corrections introduced by Marx into the copy presented to N. Utina in 1876).
Revised Addendum: Formulated on February 25, 2014, 10:30 AM EST
Proof that Marx's Law of Value (which posits that labor is the sole source of value, imputing that value into commodities) is in error:
If all the machines created throughout the history of man were to have been kept within the confines of the minds of their creators, that is never manufactured, would such machines be imputed with value in a Marxist sense? Yes, they should equal the POTENTIAL value of their labor.
Now, since actual labor is required for there to be potential value, and there is no actual labor to speak of, then the potential imputation of labor value into machines/commodities is zero, and therefore Marx's Law of Value is in error.
In fact, the proof affirms that imputation of a commodity's value can't be anything physical, it must be subjective...that is in the mind of the observer.
Addendum (July 18, 2014):
The following nicely illustrates how net (new) investment (productivity increases) took place before medium of exchange, while (1) also illustrating how such net (new) investments spurred trade between separated communities; and (2) clarifying Marx's confusion as to what came first to alter social relations, (i) machines; or (ii) something else preceding machines...
Tribe A saved more by looking for food less, placing that saved time into creating a net that would increase the catch of fish. We can say that Tribe A has a greater productive edge than does Tribe B, whose members are still using sharpened sticks to catch fish--very laborious and relatively unproductive.
Now Tribe A decides, due to its higher productivity/wealth, it can afford to save more time, adding this saved time to the saved time it used for making fishing nets, and build a boat that will allow their nets to catch even more fish. Being busy building boats, Tribe A allows Tribe B to build the nets--a less productive venture than the new boat-building venture is. Tribe A's greater productivity thanks to fishing boats (and greater wealth thanks to fishing boats) allows for more children, increasing the tribe's population, allowing for a larger labor supply in the near future that will be available for procuring other innovative, labor-saving inventions.
In the modern economy the money we save is the "saved time" that Tribe A used to construct nets/boats, but since the rate of interest is being intentionally kept low by the Federal Reserve, the Bank of England, the European Central Bank and the Bank of Japan, there can be no new capital formation (money that's used for new long-term productive investments) in Western economies (nor Japan) for new productive ventures, because the lure for such new investments--the higher rate of return that higher, market-based, interest rates offer--is non-existent; the central bank mandated low interest rate policy won't cover the loan on the massive outlay of capital that net (new) productive projects require.
By the way, notice what comes first in the above illustration, contradicting Marx's claim that the "material productive forces" (machines) are the INITIAL venue by which societies alter their values/relationships...people had to "save time" FIRST by curtailing their quest for food.* Now in the modern economy, where money is used, FIRST comes the necessity of market-based interest rates that allows for the accumulation of capital that THEN produces the labor-saving machines! The higher the market-based interest rate, the better for capital accumulation.
*Incredibly, Marx was unaware (or more likely, deluded himself into unawareness) of this critical sequence.
on July 14, 2003
First off, this was a difficult read and I would only recommend this book to people who really have a strong background in literature or who read every day. Secondly the ideas in this book are horribly inaccurate, the examination of the world economies and social standings has been proven wrong in many cases. The ideas are moral ideas about fairness and equality but unfortunately, for all of us, the world is an unfair place and we can not impose fairness on the world. At the time of Karl Marx the world was in shambles depression and world conflicts had made the world a very nasty place to live. His ideas were revolutionary at the time and were seized upon by extremist around the world. Anything people could do to make their lives a little better was fare game regardless of the long term impact. Time and again we can see the lack of foresight Karl had about the danger of giving total control of a society to one governing body. People who get into power will always take advantage of that power in every society, the difference with Marxism is that you have no alternatives to choose from and speaking out can get you killed. The United States is going down the road of big government were the people are loosing their voice more and more each day. This is the result of Marxist ideas in the government and if it continues the US will become Marxist and shortly after fall into complete chaos as most Marxist societies do.
What Karl also failed to take into consideration when speaking about equality in the realm of personal wealth and property is each individual's ability or lack of ability to be equal. Why should a person with more stamina, skill and strength work hard as a laborer if he could make the same living as a librarian? While someone who isn't as skilled does his manual labor job less efficiently than it could be done. In a free market there is plenty of incentive for the labor to excel at the trade for which his skills and talents allows for. Personal wealth and a higher standard of living are the rewards for excelling at the occupation that you are talented or skilled at. People who belong to a system that gives them everything with little or no incentive to excel will in most cases become dependant on that system and will have no desire to better themselves or their society.
A friend of mine in high school had a rich uncle who died and left his family with a large inheritance, once my friend turned 16 his mother used that wealth to buy her son a brand new car for his birthday. He did nothing to earn the car and had little respect for the new car. I had to get a job and bum rides from my sister to and from work until I earned enough money for half a car, my parents sported the second half of the car. Six months after my buddy got his car it had been in three accidents and was driven with no care for its maintenance and was heading for the scrap yard. While my car although modest and much older was running like a champ and lasted me about three years until I could afford something newer. The point of the story is when you have to earn something and it belongs to you, you take care of it and make sure it last. Conversely, if you are given things and have to do little or nothing to earn them you have no incentive to take care of them and why should you? My friend went out a bought another new car about a week after his first one was being towed away to the scrap heap and his mother paid for it.
If you don't own anything why should you take care of the possessions the government has so kindly allowed you to use? In a Marxist society you are given hand outs by the government, if the government decides they are needed elsewhere then you are out of luck. The moral bandwagon that Karl and many, many other Marxist have been on for decades has gone nowhere except bankruptcy, lose of liberty, and death for centuries, isn't it time to get off the Marxist bandwagon? The book tries to take the moral high ground and I think we, as a people, should try to take the moral high ground but Karl's lack of foresight makes this book a good history lesson that moral ideas come with a price and sometimes that price is too high to pay.