Chapter 7: Karl

Marx and his

Critique of
Classical
Economics

Questions for Review,

Discussions and Research
2, 5, 7

Overview

Marx was a philosopher

who advocated a
fundamental revolution in
society
Expelled from Germany,
France and Belgium
Later years in London
and the British Museum

Theory of History

His economic theory

focuses on the dynamic
processes of change and
is an application of his
theory of history based
on
1. Hegelian Philosophy

A never-ending chain
of ideas of thesis,
antithesis and
synthesis with the
latter representing a
higher form of truth

Basis of Marxs
dialectical materialism
that revolutionized the
social sciences
2. French Utopian Thought
3. Classical Political
Economy

Forces of
Production

Technology
manifested in
I.
Labour Skills
II.
Scientific Knowledge
III.
Tools
IV.
(Real) capital
Inherently dynamic

Relations of
Production

-Rules of the game that

are historically
determined and provide
the institutional
framework
Static

Social
Superstructure

Cultural forms such as

Art
Literature
Music
Philosophy
Jurisprudence
Religion
Purpose is to maintain static
relations of production
Contradictions within
capitalism result in class
struggle and a new set of
relations eventually emerge

Closer Look at the

Dialectic

Read pp. 191-96 on your

own

Foundations of
Marxs Economic
Theories

The fundamental
determinant of the
relations of production
are the forces of
production established in
the early years of
capitalism

Methodology

Top down approach

where causation runs
from the whole to the
parts of a system
Modern economics is the
reverse

Marxs Theory of
Value

Primary interest was not

the development of a
theory of relative prices
His interest rests in the
distribution of income
Overhead pp. 198

Marxs Labour
Theory of Value
Overhead pp. 198

Used the concept of

socially necessary labour,
ie. the time taken by an
average worker
The costs of production
were determined by
socially necessary labour
time

Problems
1.

2.

3.

Little attention to the

allocation of resources
and formulation of
prices
Influence of capital
goods on relative prices
Influence of profits on
prices

Concept of Surplus
Value
Modern economies
produce more goods
and services needed to
pay for the real social
costs of production

I.
II.

Labour costs
Capital costs
(depreciation of CCA in
labour time equivalents)

Difference between a
goods price and its
(total) labour costs is
surplus value
Similar to the
Physiocrats of net
product

Marxs Analysis of
19th Century
Capitalism

Primary purpose was to

1.

2.

Discover the laws of

motion of capitalism
Identify contradictions
between the forces and
relations of production

Overhead pp. 202

The chief economic
actor in Classical and
Marxist model is the
capital class

Other Topics
1.

2.
3.
4.

Reserve army of the

unemployed in the
labour force
Falling rate of profit
Origins of Business
cycle
Cyclically recurring
fluctuations

5 Disproportionality of
Crisis

Difficulty in coordinating
the output of
interdependent sectors

6 Overhead pp. 210

7 Concentration and
centralization of Capital
8 Increasing misery of
proletariat