Amazingly he was right about some things and wrong about the big one

We’re at the 200th anniversary of Karl Marx’s birth – also the 201 st of Ricardo’s publication, the 242 nd of Smith’s Wealth of Nations. And it has to be said that the latter two were more perceptive analysts of the human condition and also contributed vastly more to human knowledge and happiness. Most of the bits that Marx got right in economics were in fact lifted from those other two. The one big thing he got wrong was not to believe them about markets.

We can find, if we look properly, Marx’s insistences of how appalling monopoly capitalism would be in Smith. They’re both right too, it would be appalling. But we do have to understand what they both mean by this. In modern terms they mean monopsony, more specifically the monopoly buyer of labour. What is it that prevents this? Competition in the market among capitalists for access to the labour they desire to exploit. That very competition decreasing the amount of grinding of faces into the dust they’re able to do. Henry Ford’s $5 a day is an excellent example of this very point.

Ford wanted access to the best manufacturing labour of his time. He also wanted to have a lower turnover of that labour, lower training costs. So, he doubled wages (actually, normal wages plus a 100% bonus if you did things the Ford Way) and got that labour. At which point all the other manufacturers had to try and compete with those higher wages in order to get that labour they wanted to expropriate the sweat of the brow from. Marx did get this, he pointed out that exactly this sort of competition, in the absence of a reserve army of the unemployed, is what would raise real wages as productivity improved.

Smith also didn’t like the setting of wages as it precluded just such competition and such wage rises.

Where Marx went wrong was in not realising this power of markets. He knew of them, obviously, understood the idea, but just didn’t understand their power to ameliorate, destroy even, that march to monopoly capitalism.

BTW, modern Marxists who start insisting that markets tend towards monopoly, just look, look! There are only half a dozen large car companies, monopolies in search like Google, see, see! They’re missing that very point Marx was making. He just wasn’t on about monopoly in production, he was about it in buying labour. Unfortunately the word monopsony hadn’t been coined at that time so he couldn’t use it. Just as Smith never did say capitalist, the word not existing at the time he wrote.

One fun aside, the only place which did end up with monopsony was the Soviet Union and satellites. And didn’t Stalin et al grind the workers into the dust in order to generate more capital?

All of which is the thing you really need to know as others consider this 200th anniversary:

European Commission President Jean-Claude Juncker says German philosopher Karl Marx shouldn’t be judged for the crimes that his followers committed decades after his death.

Juncker spoke Friday at an event commemorating the 200th anniversary of Marx’s birth in the western German city of Trier.

Alluding to the crimes committed by social revolutionaries in Russia, China and elsewhere, Juncker said “Marx isn’t responsible for all the atrocity his alleged heirs have to answer for.”

Entirely true, all we have to do is shout names at those who don’t understand the power of markets, as Marx didn’t. Well, and, obviously, reject those who would kill all the bright people and enslave the rest even if they do like markets as well. You know, obviously.

A central thesis of Marxism is that capitalism has given rise to two hostile classes: the workers, who in order to survive must exchange their labor for wages; and the bourgeoisie, who own the businesses that pay the workers. The bourgeoisie generate profit by paying their workers less than the entire value of the goods that they produce, keeping the rest for themselves.

This extraction of “surplus value” from workers, say Marxists, produces a fundamental contradiction. Employers must maximize profits by keeping wages as low as possible, but they must also continue to sell products, which becomes increasingly difficult as workers’ buying power is limited by low wages. From a employer’s revenue standpoint, the ideal would be to have poorly paid workers and highly paid customers, but that ideal becomes unattainable when pursued by everyone. The system, according to Marxist theory, inevitably feeds upon itself.

And it is that market competition for the labour which can be so exploited which raises wages as profits rise. That is, the central contradiction has already been answered – competition in markets. Keep having that, don’t allow monopsony purchase of labour, and we’ll be just fine.

The collapse of this petrified orthodoxy has revealed that Marx was a much more interesting man than his interpreters have implied. His grand certainties were a response to grand doubts. His sweeping theories were the result of endless reversals. Toward the end of his life he questioned many of his central convictions. He worried that he might have been wrong about the tendency of the rate of profit to fall. He puzzled over the fact that, far from immiserating the poor, Victorian England was providing them with growing prosperity.

Well, yes, a kick in the realities does always concentrate the attention, doesn’t it?

The thing we really need to know on this bicentenary about Karl Marx is that he was wrong. He just never did grasp the power of markets to disrupt, even prevent, the tendencies he saw in capitalism. Specifically, and something we all need to know today, the power of competition among capitalists as the method of improving the lives of all us wage slaves. You know, that’s why we proletariat today, exploited as we are and ground into the dust, are the best fed, longest lived and richest, in every sense of the word, human beings who have ever existed. Something which is, if we’re honest about it, not a bad recommendation for a socio-economic system really. You know, actually working? Achieving the aim of improving the human condition?

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  1. So Marx should not be judged for his followers, eh?

    No doubt the same criteria will be applied to Alfred Rosenberg, Gabriele d’Annuzio, Francis Galton and all the others with distasteful theories. No? Only Marx, apparently.