Marxian Economics

Our work aims to research a modern development of Marxian economics, primarily at the theoretical level and make clear how do Marxs’ “laws of motion” of capitalism relate to Schumpeter’s views of imperialism. ” Marx was a German journalist, exiled in London, who combined significantly different intellectual traditions in order to explain economic systems, including German philosophy, French political theory, and English political economy. Joseph Schumpeter was an Austrian scholar who was very critical of, yet much taken with, his predecessor, Karl Marx, whose focus on historical analysis he admired and emulated.
They both believed that capitalism is a stage of economic development in which the potential of humankind cannot fully develop. Both came to the study of economics questioning the fundamental assumptions of existing economic theory, and thus each took more of economic theory to be problematic than did most economic theorists. Both conceptualized the capitalist system as a whole, yet with the realization that the economic realm hardly constitutes the totality of human experience and thought.
The real issue, which may indeed appear to have its scandalous aspect, arises when great economists direct their attention to what I shall call the cosmological problem of economics—namely, the social configurations of production and distribution (if you will, the macro and micro patterns) that ultimately emerge from the self-directed activities of individuals. What is remarkable about Marx and Schumpeter is that they are among the very few who have proposed solutions to this problem of an imagination and scope comparable to that of Smith, but that their resolutions differ from one another almost totally.

In Marx’s schema the system is destined to pass through successive crises that both alter its socioeconomic texture and gradually set the stage for a final collapse. Marx described his view of capitalism in “The Communist Manifesto” (1848), a social vision that, as Schumpeter points out, underlies Marx’s life-long research program. In the introduction to his “Contribution to the Critique of Political Economy” (1850), Marx gave the clearest and most succinct description of his method of historical analysis, referred to by others as historical materialism.
According to Marx, historical development is a progression of epochs, each distinguished by a particular mode of production, a “way of life,” based on the level of technology and division of labor (the forces of production) and a corresponding set of class (social) relations of production. For any epoch, any mode of production, according to Marx, the development of the forces and relations of production forms the foundation of social life. With the production of surplus over subsistence, classes emerge and develop, divided conceptually by Marx into producing and non-producing (exploiting) classes.
Social change is propelled by class conflict, that is, the struggle related to the contradictions between the developing technical forces of production and the existing class relations which act to impede this development. Socioeconomic development involves the transformation of class relations, which in turn enables the new dominant ruling class to exert control over resources and productive labor. Marx claims that the transition from one mode of production to the next is fundamentally revolutionary because the new mode of production is a qualitatively different social formation organized around new laws of development.
Furthermore, the transition is one of violent, wrenching changes in social status, power, and legal rights. “The history of all society that has existed hitherto,” Marx firmly asserted, “is the history of class struggles” (1904 : 45). For instance, Marx describes the transition from the feudal to the capitalist mode of production as a long period of conflict and bloodshed in which old class relations give way to new ones, a period in which primitive accumulation creates capitalists and expropriation creates a mass of wage-workers.
Class-divided society proscribes the satisfaction of “truly human” needs because production is based on exploitation of the producing classes by the non-producing classes. Emancipation of humankind requires an end to this exploitation which, according to Marx, becomes possible with the development of the capitalist mode of production, which polarizes society into a small capitalist ruling class and a working class of exploited wage-workers who make up the vast majority of the population.
Marx defines capitalism as a system of commodity production—production for exchange and profit—based on a system of wage-labor. Capitalists own the means of production and hire workers who must sell their labor power because they have no control over the means of subsistence or means of production. Capitalist development is dominated by capitalist control over production to accumulate capital. Capitalists are interested in production for profit rather than for use.
This motivation means that the system as a whole operates to expand exchange value, market value, the money capitalists receive for the commodity production they control. According to Marx, this motivation to accumulate capital, that is, exchange value, creates contradictions in a system of unregulated market exchange because commodities are a unity of opposites. They are both useful objects to be consumed in the process of reproducing the material needs of the society and exchange values representing part of the socially produced value created through the social division of labor.
This “value,” that is, embodied labor, “objectified abstract homogenous labor,” regulates the exchange value or price of each commodity. Commodity prices reflect the magnitude of value, of “socially necessary” labor used to produce the commodity. Each commodity is a “social product” in that its production is dependent on a complex social division of labor that determines its labor cost, the amount of socially necessary labor time that goes into producing it.
Marx sees contradictions in capitalism because, for the system as a whole to create a steady accumulation of capital over time, it must also create just the right combinations of different use values, specific useful products, to generate the growth in capital year to year. Marx recognizes capitalism as the most productive mode of production in history, because capitalists control the surplus product over and above the needs of simple reproduction of the existing level of output, and they use the surplus mainly to expand production and to increase productivity.
Marx characterizes capitalism thus: the ascendance of industrial capitalists whose profits are based on exploitation of wage workers through the extraction of surplus labor; revolutionary changes in the forces of production (technology and the division of labor) and therefore dramatic, continuing increases in productivity; capital accumulation fed by a growing mass of surplus value controlled by capitalists; increasing subordination and dependence of workers on capital; continual deterioration of workers’ working and living conditions; and increasing competition for available jobs from a growing reserve army of unemployed workers.
Other characteristics of a capitalist system for Marx include a tendency toward a declining average rate of profit; expansion of nonproductive but necessary commercial and financial capital; new forms of monopoly; extension of the capitalist mode of production to create a world market and worldwide capitalist system; uneven development of capitalism geographically so that at any time the existence of newly developing capitalist sectors provide fresh opportunities for capitalist exploitation; periodic trade cycles; and less frequent convulsive general crises of the system.
In selling their labor power, wage-workers give up any right to the output they produce so that in capitalist production, objectification, the production of material objects, becomes alienation. Furthermore, in alienating their labor, the workers produce commodities that become capital, that is, the capitalists’ source of power over the workers. Thus in capitalism, alienation brings about reification. Also, workers give up control over the labor process and therefore over their own productive activity, so much so that labor becomes a burden, and workers work to live instead of live to work.
The accumulation of capital, representing the realization of man’s essential powers, becomes for the wage-workers a loss of their reality, which for Marx connotates sociality. Marx shows that alienated labor means alienated man, devaluation of life, loss of human reality. Only the working class can bring about this fundamental change because only workers gain this insight through their historical-social situation. According to Peter Drucker (1983: 125), Schumpeter considered himself the “son” of Marx.
Schumpeter devoted himself to promoting scientific progress in economics, through theoretical, historical, and statistical contributions, on the one hand, and teaching and critical analysis of economic doctrine on the other. In his History of Economic Analysis (1954) Schumpeter‘s epistemology may be summarized as follows: 1. He had great faith in science, which he defined as “technique” and “tooled knowledge. ” 2. Schumpeter was a great advocate of mathematical and econometric methods in economics. 3.
In his History of Economic Analysis, Schumpeter had already outlined the major points of the Popper/Kuhn/Lakatos debate: the tension between conservatism and change that is inherent in scientific revolutions; the usefulness of both tendencies. 4. Schumpeter was a positivist, but he accepted both verification and falsification as tests of a theory. 5. Schumpeter was anti-instrumentalist. He did not see the purpose of science as simple prediction but believed that the truth of assumptions does matter. 6.
Schumpeter appears to have held contradictory views of the impact of ideology on economic analysis. He considered the intrusion of politics and ideology in economics as the major cause of “misconduct” in science. These apparently contradictory views represent, in my opinion, a defense of economics against Marx’s evaluation of it as “bourgeois ideology. ” Schumpeter agrees with Marx and credits him with the discovery that ideas tend to be historically conditioned, reflecting the class interest of the writer.
Schumpeter claims, however, that ideological bias is not solely caused by the economic element in class position, and that social position is not shaped entirely by class interest (1954:10). Thus, despite the fact that ideology affects the focus and the content of economic writings, analysis is not bourgeois ideology. Thus, Schumpeter believed that even Marx and Marxists contribute to progress in economic analysis. It was important to Schumpeter to acknowledge his debt to Marx, and apparently crucial to him that he refute the revolutionary basis and purpose of Marx’s work.
Schumpeter adopts what he takes to be Marx’s research program and, like him, attempts to uncover the laws of motion of capitalist development. His purpose is clearly to defuse Marx’s theory of revolution by converting it to a theory of evolution. Schumpeter accepts the structure and some of the content of Marx’s economic sociology (the theory of origins and transitions) and economics (the theory of markets and mechanisms). Schumpeter’s social vision as depicted in the Theory of Economic Development rejects—in fact inverts—important relationships of Marx’s social and economic vision.
In “The Communist Manifesto in Sociology and Economics” (1949b), Schumpeter paid homage to Marx’s contribution to economic sociology, which he considered to be the prescientific theorizing necessary to the research program they both pursued. In this article, he also suggests the theoretical basis for his revision of Marx. Schumpeter analyzes the scientific content of the Manifesto, which contains Marx’s social vision, and he then identifies three of Marx’s important contributions (however “warped by ideological bias”) to economic sociology.
Schumpeter points out that Marx identified the necessary theoretical ingredients of the economic sociology in which to embed an economic theory of capitalist development: (1) a theory of history (which for Marx, according to Schumpeter, was an economic interpretation of history); (2) a theory of class (in which, for Marx, social classes and class relations become the pivot of the historical process); and (3) a theory of the state (which Schumpeter says shows Marx’s understanding of the state even though Schumpeter believes that Marx recognized these tendencies only in the bourgeois state) (p. 09).
Schumpeter criticizes Marx for his attachment to his social vision, his inability to revise his social vision in the light of contradictory scientific evidence. Clearly, it was Schumpeter’s intent to counteract Marx and serve science by converting Marx’s program into positivist science. This required building economic analysis on a social vision that is scientifically acceptable. In accepting a Marxian research program (analysis of the historical development, the internal dynamics, of capitalism), Schumpeter also had to use the structure of Marx’s economic sociology.
He needed a theory of history, of social class, and of the state to describe the development of the economically relevant institutions. But Schumpeter rejected much of the content of Marx’s theory, including what he considered to be Marx’s economic determininism, that is, the analysis of change in social structures in terms of economic change alone; Marx’s theory of class relations, that class conflict is the motive force behind economic and social change; and Marx’s critique of the state, which was directed only at the bourgeois state.
Also Schumpeter rejected Marx’s class conflict and revolutionary theory. He could hardly envision the working class becoming a revolutionary class, that is, becoming the subjects of history, the major actors and motive force for change. Instead, he substituted his own theory of class and class relations based on his ideas about leadership and followership in which entrepreneurs carry out the “new combinations” that promote capitalist development. Schumpeter accepted Marx’s materialist, dialectical view of history, the view that people create their own history through choice, concerted action, and struggle.
He also recognized that history must be dialectical if it is evolutionary. Human subjects react to and change history. Change occurs through opposition and adaptation and learning. He objected to Marx’s purely economic definition of class based on individuals’ relations to the means of production, a definition he believed to be at the basis of Marx’s economic determinism. Schumpeter paraphrased Marx’s theory thus: “the social process of production determines the class relations of the participants and is the ‘real foundation’ of the legal, political, or simply factual class positions attached to each.
Thus the logic of any given structure of production is ipso facto the logic of the social superstructure” (1949b: 206). Schumpeter also rejects Marx’s view that class relations are exclusively antagonistic, and that antagonisms among groups are exclusively based on distinctions of economic classes. He believes that there are multiple classes in capitalist society, just as there were in earlier epochs. There is a strong family resemblance here to Schumpeter’s vision of capitalism as an evolutionary process of creative destruction. The innovative function certainly plays a vital role in Marx’s laws of motion.
This bring Marx into the picture in a way that attempts to minimize the distance between him and Schumpeter and which is consistent with Schumpeter’s well-known admiration for Marx. They are both concerned with the dynamics of development, and although they come from the opposite ends of the political spectrum, their similarities are profound and stand as an affront to the modern theory of static equilibrium in the Walrasian tradition. In the vision of capitalism as a dynamic process, Marx and Schumpeter share common ground, not just in their appreciation of capitalism, but also in their attempt to construct a truly dynamic economics.
Marx and Schumpeter set the economic process into historical time. This is more than just adding a “t” subscript on all the variables of a model, and it is clearly different from producing a growth model, although a growth model may be a useful aspect of a dynamic analysis. It means that the analysis does not violate the fundamental reality of time that the future follows the present and is unknowable, while the present has a past that is knowable and has caused the present to be what it is. In such a world disequilibrium and/or equilibrium-destroying events would be the central concern of the theorist.
Thus, for both Marx and Schumpeter, capitalism has a past and is tending toward a future that is imminent in the configuration of forces at work in the present (Schumpeter, 1962: 43). To illustrate, it was capitalism’s similarity with feudal and slave relations of production that led Marx to search for an explanation of how exploitation occurs under capitalism. Moreover, it was the vision of historical transformation that supplied the basis of his critique of classical political economy based on the latter’s tendency to assume that capitalist production relations were fixed and external.
It is important to note that Schumpeter misses, misunderstands, or rejects Marx’s value theory and the basis for Marx’s theory of revolution Private property and capital represent a class relation in which wage workers, by selling their labor power, create the capitalist’s private property. Furthermore, not only do they create a product that becomes a power over them, but also, by submitting to a work process organized by the capitalist for his own profit, they alienate their life activity, their work. They work to live rather than live to work.
They become more and more dependent on the cash nexus of market transactions for their survival and for their satisfactions. They become alienated from their species life, the essence of the life of the human species which is human social development through creative work. Marx’s basic argument, which is also an argument about logic, is that for truly human life to be possible, it is necessary (but not necessarily inevitable) for the wage-workers, for the exploited, to revolt. Schumpeter’s class theory and theory of value together eliminate the possibility of revolt.
It may be true that there is a high correlation between belief in the efficacy of the free market as an allocator of resources and protector of individual freedom and the method of static equilibrium theory to explain the operation of the market. However, as Schumpeter himself stressed many times, the deductions of economic analysis do not logically imply any particular ideological position. Static equilibrium theory no more proves the desirability of the free market than the labor theory proves the desirability of socialism.
The fact that Marx and Schumpeter ascribed to radically different ideologies but each believed in the central importance of the evolutionary approach is itself sufficient proof that holding to a conservative, liberal, or radical ideology does not force one into the static equilibrium mold. In his works Marx wrote about substratum of abstract labor which was an “essence” of concrete labors. Schumpeter in his “Imperialism and Social Classes” thought about social process regulated by a hierarchy of talents, organized in social classes (Schumpeter, 1955: 137, 160). In this process bourgeois class must provide the leadership role.

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