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The exact origins of the term "capitalism" in English are unclear, it appears that Karl Marx was not the first to use the word "capitalism" in English, although he certainly contributed to the rise of its use. While it's unclear whether either Thackeray or Marx was aware of the other's work, both men meant the word to have a pejorative ring. Still, there are some lessons that even modern economic thinkers can learn from Marx.
Though he was the capitalist system's harshest critic, Marx understood that it was far more productive than previous or alternative economic systems. He believed all countries should become capitalist and develop that productive capacity, and then workers would naturally revolt into communism. But, like Adam Smith and David Ricardo before him, Marx predicted that because of capitalism's relentless pursuit of profit by way of competition and technological progress to lower the costs of production, that the rate of profit in an economy would always be falling over time.
Like the other classical economists , Karl Marx believed in the labor theory of value to explain relative differences in market prices. This theory stated that the value of a produced economic good can be measured objectively by the average number of labor-hours required to produce it. In other words, if a table takes twice as long to make as a chair, then the table should be considered twice as valuable. It must mean, Marx concluded, that capitalists were underpaying or overworking, and thereby exploiting, laborers to drive down the cost of production.
While Marx's answer was eventually proved incorrect and later economists adopted the subjective theory of value , his simple assertion was enough to show the weakness of the labor theory's logic and assumptions; Marx unintentionally helped fuel a revolution in economic thinking. This underlies an often unappreciated aspect of economics: the emotions and political activity of the actors involved. A corollary of this argument was later made by French economist Thomas Piketty, who proposed that while nothing was wrong with income inequality in an economic sense, it could create blowback against capitalism among the people.
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Economics Behavioral Economics. Table of Contents Expand. Whereas Malthus presented an ahistorical theory of population growth, Marx offered a theory of how a relative surplus population in capitalism tended to push wages to subsistence levels. Marx saw this relative surplus population as coming from economic causes and not from biological causes as in Malthus.
This economic-based theory of surplus population is often labeled as Marx's theory of the reserve army of labour. Ricardo developed a theory of distribution within capitalism—that is, a theory of how the output of society is distributed to classes within society. The most mature version of this theory, presented in On the Principles of Political Economy and Taxation , was based on a labour theory of value in which the value of any produced object is equal to the labor embodied in the object and Smith too presented a labor theory of value, but it was only incompletely realized.
Also notable in Ricardo's economic theory was that profit was a deduction from society's output and that wages and profit were inversely related  : an increase in profit came at the expense of a reduction in wages. Marx built much of the formal economic analysis found in Capital on Ricardo's theory of the economy. Marx also criticized two features of "bourgeois economy" he perceived as main factors preventing full realization of society's production power: ownership of the means of production, and allegedly irrational operation of the economy, which leads to "disturbances" and surplus.
When society, by taking possession of all means of production and using them on a planned basis, has freed itself and all its members from the bondage in which they are now held by these means of production which they themselves have produced but which confront them as an irresistible alien force. Marx employed a labour theory of value , which holds that the value of a commodity is the socially necessary labour time invested in it. In this model, capitalists do not pay workers the full value of the commodities they produce; rather, they compensate the worker for the necessary labor only the worker's wage, which cover only the necessary means of subsistence in order to maintain him working in the present and his family in the future as a group.
This necessary labor is necessarily only a fraction of a full working day - the rest, surplus-labor, would be pocketed by the capitalist as profit. Marx theorized that the gap between the value a worker produces and his wage is a form of unpaid labour, known as surplus value. Moreover, Marx argues that markets tend to obscure the social relationships and processes of production; he called this commodity fetishism.
People are highly aware of commodities, and usually don't think about the relationships and labor they represent. Marx's analysis leads to the consideration of economic crisis. To resolve the bourgeois contradiction between the ownership of the means of production and the "social act" of production itself, Marx proposed socialization of the means of production. To remove the "disturbances" of capitalist economy, Marx postulated "rational management" of the economy, which would replace the "chaotic" market forces driven by a "sum of individual preferences".
If we conceive society as being not capitalistic but communistic the question then comes down to the need of society to calculate beforehand how much labour, means of production, and means of subsistence it can invest, without detriment, in such lines of business as for instance the building of railways, which do not furnish any means of production or subsistence, nor produce any useful effect for a long time, a year or more, where they extract labour, means of producton and means of subsistence from the total annual production.
Marx used dialectics , a method that he adapted from the works of Georg Wilhelm Friedrich Hegel. Dialectics focuses on relation and change, and tries to avoid seeing the universe as composed of separate objects, each with essentially stable unchanging characteristics. One component of dialectics is abstraction ; out of an undifferentiated mass of data or system conceived of as an organic whole, one abstracts portions to think about or to refer to. One may abstract objects, but also—and more typically—relations, and processes of change.
An abstraction may be extensive or narrow, may focus on generalities or specifics, and may be made from various points of view. For example, a sale may be abstracted from a buyer's or a seller's point of view, and one may abstract a particular sale or sales in general. Another component is the dialectical deduction of categories. Marx uses Hegel's notion of categories , which are forms , for economics: The commodity form , the money form , the capital form etc. This corresponds to Hegel's critique of Kant's transcendental philosophy.
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Marx regarded history as having passed through several stages. The details of his periodisation vary somewhat through his works, but it essentially is: Primitive Communism — Slave societies — Feudalism — Capitalism — Socialism — Communism capitalism being the present stage and communism the future. Marx occupied himself primarily with describing capitalism. Historians place the beginning of capitalism some time between about Sombart and some time in the 17th century Hobsbawm. Marx defines a commodity as a product of human labour that is produced for sale in a market, and many products of human labour are commodities.
Marx began his major work on economics, Capital , with a discussion of commodities; Chapter One is called "Commodities". The worth of a commodity can be conceived of in two different ways, which Marx calls use-value and value. A commodity's use-value is its usefulness for fulfilling some practical purpose; for example, the use-value of a piece of food is that it provides nourishment and pleasurable taste; the use value of a hammer, that it can drive nails.
Value is, on the other hand, a measure of a commodity's worth in comparison to other commodities. It is closely related to exchange-value , the ratio at which commodities should be traded for one another, but not identical: value is at a more general level of abstraction; exchange-value is a realisation or form of it. Marx argued that if value is a property common to all commodities, then whatever it is derived from, whatever determines it, must be common to all commodities. The only relevant thing that is, in Marx's view, common to all commodities is human labour: they are all produced by human labour.
Marx concluded that the value of a commodity is simply the amount of human labour required to produce it. Marx placed some restrictions on the validity of his value theory: he said that in order for it to hold, the commodity must not be a useless item; and it is not the actual amount of labour that went into producing a particular individual commodity that determines its value, but the amount of labour that a worker of average energy and ability, working with average intensity, using the prevailing techniques of the day, would need to produce it.
A formal statement of the law is: the value of a commodity is equal to the average socially necessary labour time required for its production. Capital, I, Chap I — p. Marx's contention was that commodities tend, at a fairly general level of abstraction, to exchange at value; that is, if Commodity A, whose value is "V", is traded for Commodity B, it will tend to fetch an amount of Commodity B whose value is the same, "V". Particular circumstances will cause divergence from this rule, however.
Marx held that metallic money, such as gold, is a commodity, and its value is the labour time necessary to produce it mine it, smelt it, etc. Marx argued that gold and silver are conventionally used as money because they embody a large amount of labour in a small, durable, form, which is convenient. Paper money is, in this model, a representation of gold or silver, almost without value of its own but held in circulation by state decree.
Some subjects of labour are available directly from Nature: uncaught fish, unmined coal, etc. Others are results of a previous stage of production; these are known as raw materials, such as flour or yarn. Workshops, canals, and roads are considered instruments of labour. Capital , I, VII, 1.https://abusdima.tk
Marx's Concept of Money: The God of Commodities
Coal for boilers, oil for wheels, and hay for draft horses is considered raw material, not instruments of labour. The subjects of labour and instruments of labour together are called the means of production. Relations of production are the relations human beings adopt toward each other as part of the production process. In capitalism, wage labour and private property are part of the relations of production. According to Marx, the amount of actual product i. It has tended to increase under capitalism.
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This is due to increase in the scale of enterprise, to specialisation of labour, and to the introduction of machinery. The immediate result of this is that the value of a given item tends to decrease, because the labour time necessary to produce it becomes less. In a given amount of time, labour produces more items, but each unit has less value; the total value created per time remains the same. This means that the means of subsistence become cheaper; therefore the value of labour power or necessary labour time becomes less.
If the length of the working day remains the same, this results in an increase in the surplus labour time and the rate of surplus value. Technological advancement tends to increase the amount of capital needed to start a business, and it tends to result in an increasing preponderance of capital being spent on means of production constant capital as opposed to labour variable capital.
Marx called the ratio of these two kinds of capital the composition of capital. Marxian economics has been built upon by many others, beginning almost at the moment of Marx's death. The second and third volumes of Das Kapital were edited by his close associate Friedrich Engels , based on Marx's notes. The Marxian value theory and the Perron-Frobenius theorem on the positive eigenvector of a positive matrix  are fundamental to mathematical treatments of Marxian economics. Much of the critique of classical Marxian economics came from Marxian economists that revised Marx's original theory, or by the Austrian school of economics.
Karl Marx (Stanford Encyclopedia of Philosophy)
Dmitriev, writing in ,  Ladislaus von Bortkiewicz , writing in —07,  and subsequent critics claimed that Marx's value theory and law of the tendency of the rate of profit to fall are internally inconsistent. The meaning of private property — apart from its estrangement — is the existence of essential objects for man, both as objects of enjoyment and as objects of activity.
By possessing the property of buying everything, by possessing the property of appropriating all objects, money is thus the object of eminent possession. The universality of its property is the omnipotence of its being. It is therefore regarded as an omnipotent being. But that which mediates my life for me, also mediates the existence of other people for me.
For me it is the other person. And what we take while life is sweet, Is that to be declared not ours? I tear along, a sporting lord, As if their legs belonged to me. Yellow, glittering, precious gold? No, Gods, I am no idle votarist! Thus much of this will make black white, foul fair, Wrong right, base noble, old young, coward valiant. Thou visible God! O thou touch of hearts! Think, thy slave man rebels, and by thy virtue Set them into confounding odds, that beasts May have the world in empire! Shakespeare excellently depicts the real nature of money. To understand him, let us begin, first of all, by expounding the passage from Goethe.
That which is for me through the medium of money — that for which I can pay i.
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The extent of the power of money is the extent of my power. Thus, what I am and am capable of is by no means determined by my individuality. I am ugly, but I can buy for myself the most beautiful of women.
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