Archive for April 5th, 2013

Anyone interested in learning more about the economics of Marxism might refer to a book published by Thomas Sowell back in 1985, called ‘Marxism: Philosophy and Economics‘.

In her review, Diana Hsieh discusses the main aspects of the book. As she points out, Marx’s crucial concept of “surplus value” was insinuated rather than explicitly established, either logically or empirically. Surplus value is simply defined as an “increment or excess over the original value” invested in production. And Marx quickly assumed labor to be the (only) factor responsible for this increment in value or of output. As Sowell notes:

It was an assumption deeply embedded in classical economics… [an assumption] devastated by the new conceptions and analyses introduced by neo-classical economics.

As a theoretical system, Marxian economics begins the story of production in the middle–with firms, capital, and management already in existence somehow, and needing only the addition of labor to get production started. From that point on, output is a function of labor input, given all the other factors somehow already assembled, coordinated, and directed toward a particular economic purpose.

[However,] once output is seen as a function of numerous inputs, and the inputs are supplied by more than one class of people, the notion that surplus value arises from [the] labor [of the proletariat] becomes plainly arbitrary and unsupported.

With his definition of surplus value, however, Marx completely neglects the roles of knowledge and risk in an economy: Since there are also failing firms which also hired workers, we see that there is no guarantee of receiving surplus value after hiring workers.

Sowell proceeds and explains how Marxism has been put into practice:

When economic incentives were drastically reduced or abolished in the heady egalitarian period following the Bolshevik revolution, the Soviet economy ground to a halt. Widespread hunger and a halt to vital services forced Lenin to resort to his “New Economic Policy” that restored the hated capitalist practices.

The later nationalizing of all industry under Stalin and his successors did not restore egalitarianism. Quite the contrary. There were highly unequal rewards to management, including whole systems of special privilege stores to which ordinary Soviet workers [had] no access.

This recognition of the fundamental failure of Marxian economics has later been described as

…mere betrayals of Marxist ideals, missing the more fundamental point that a crucial false assumption must be corrected in practice if people are to survive.

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