“I recently met up with an old friend, a staunch Marxist, at a traditional Viennese café to catch up and talk about our political differences. After hours of discussion, he admitted, ‘Well, ultimately, it’s a question of faith.'”
he ultimate test for any theory is whether it works in practice. Wherever implemented, Marxism has led to unfreedom, inhumanity, and economic devastation. Modern-day Marxists blame human failure for these shortcomings. According to them, true Marxism has yet to be implemented, as followers past have invariably corrupted the doctrine by adopting quasi-capitalist policies. Rather than reevaluate their position, they refuse to learn the painful lesson that “a key assumption of Marxian economics is false,” as the economist and social theorist Thomas Sowell puts it in his analysis.
What did Marx get wrong? In his book More from Less, the MIT scientist Andrew McAfee offers a useful starting point: “[W]hen Marx wrote in 1867’s Das Kapital that ‘as capital accumulates, the situation of the worker, be his payment high or low, must grow worse,’ events were showing just how durably wrong that statement was.” McAfee elaborates:
“Perhaps the single most unfair, inaccurate, and ignorant critique of capitalism is that it is bad for the workers who help create it. Karl Marx was confident that workers under capitalism would be trampled and impoverished until they threw off their shackles and embraced communism, but…this is not what happened. Despite its many flaws, the Industrial Era increased the prosperity and quality of life for average people more quickly than ever before.”
This trend has continued into the present—“progress in many important areas has sped up in recent decades as capitalism and tech progress have both spread around the world,” writes McAfee. In short, one of Marx’s key predictions, the increasing immiseration of the proletariat under capitalism, has not come true, suggesting a fundamental flaw in his theory.
The Labor Theory of Value
Let’s start with two central Marxian concepts: exploitation and surplus value. Marx saw the latter as a distillation of the former, an “increment or excess over the original value” invested in production, as described in Das Kapital. That increment was assumed to be a function of labor. Marx drew a distinction between value as an intrinsic property of the commodity itself, determined by “socially necessary labor time” (the average amount of time it takes to produce a commodity), and exchange value, defined in Das Kapital as “the mode of expression, the ‘form of appearance’, of a content distinguishable from [value].”
Not only does this analysis, known as “the labor theory of value,” ignore the fundamental role of supply and demand in determining the economic value of commodities (including labor); it also suggests that profit always comes at the expense of the workers, whose labor power is being “exploited” by capitalists, the people who own “the means of production.” To quote the economist Steven Horwitz, “The argument that capitalism exploited workers depended crucially on the view that labor was the source of all value and that the profits of capitalists were therefore ‘taken’ from workers who deserved it.”
According to Sowell, the problem with this hypothesis is that it “begins the story of production in the middle—with firms, capital, and management already in existence somehow, and needing only the addition of labour to get production started. From that point on,” explains Sowell, “output is a function of labour input, given all the other factors somehow already assembled, coordinated, and directed toward a particular economic purpose.” However, “[w]here there are multiple inputs, the division of output by one particular input is wholly arbitrary.”
Marx sought to preempt this criticism by asserting that what he called “constant capital” (machinery, raw materials, and so on) was, in fact, not a contribution of capitalists but of past labor. As he wrote in Das Kapital, there is “not a single atom of its value that does not owe its existence to unpaid labour,” and so “the labourer himself creates the fund out of which the capitalist pays him.” This achieves nothing more than to “push back into the past the key question of the source of capital,” argues Sowell. And that, he concludes, “leads to infinite regress, not evidence or proof.”
By beginning the story of production in the middle, Marx was able to gloss over such risks, essentially excluding failed businesses from his core analysis. But focusing only on survivors leads to a skewed understanding of the processes and dynamics at play.
Nor does the labor theory of value factor in non-physical non-labor inputs, or mental capital, such as expert knowledge, managerial skills, and other entrepreneurial competencies and contributions; to say nothing of risk-taking. Successful entrepreneurs must be able to correctly anticipate consumer demand, and they must be prepared to bear the associated risks. Much like competition, these risks are inseparable from economic innovation and growth, which, in turn, help society progress.
By beginning the story of production in the middle, Marx was able to gloss over such risks, essentially excluding failed businesses from his core analysis. But focusing only on survivors leads to a skewed understanding of the processes and dynamics at play. What would our understanding of evolution look like if we ignored species which have succumbed to evolutionary selection pressures? The point is that failing businesses also hire and “exploit” workers. So just as breathing is not a guarantee for evolutionary success nor is labor the decisive factor ensuring economic prosperity.
“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 labour becomes plainly arbitrary and unsupported,” writes Sowell. “The empirical implication of a special or exclusive productivity of labour would be that countries that work longer and harder would have higher outputs and higher standards of living.” The reality, however, is “that countries whose inputs are less labour and more entrepreneurship tend to have vastly higher standards of living, including shorter hours for their workers.” Indeed, GDP (PPP) per hour worked, a measure of labor productivity normalized to purchasing power parity, is much higher in such countries, as are real average wages. Both measures have increased over time.
Also worth mentioning here is the decoupling of economic growth from natural resource use, a development chronicled expertly in McAfee’s More from Less. These findings are important because they demonstrate that—contrary to popular belief—capitalism does not require ever-increasing inputs of labor and raw materials in order to consistently produce surplus value.
Nor is output value determined solely, or even primarily, by inputs. On the contrary, according to Horwitz, “the value of a good emerges from human perceptions of its usefulness for the particular ends that people had at a particular point in time.” In other words, “[v]alue is not something objective and transcendent.” Rather, “[i]t is a function of the role that an object plays as a means toward the ends that are part of human purposes and plans.” It’s a fallacy to assume that “the value of outputs [is] determined by the value of the inputs like labor.” In fact, argues Horwitz, “it’s the other way around: the value of inputs like labor [are] determined by the value of the outputs they helped to produce.”
Because economics is fundamentally about the allocation of scarce resources that have alternative uses, the value of labor, expressed in wages, is also determined by scarcity. The skill sets needed to perform menial tasks, for example, are much easier to come by than those needed to successfully manage a business or organization. Not all labor is created equal. So, all things considered, the idea that “socially necessary labor time” provides an absolute measure of what a commodity is really worth can safely be dismissed. Indeed, for economists like Horwitz, “the labor theory of value holds roughly the same validity as the geocentric view of the universe.”
Also dubious is Marx’s concept of “primitive accumulation,” which attempts to show that capitalist production, indeed capital itself, is deeply rooted in historical injustices such as slavery and colonialism. Marx writes:
“The discovery of gold and silver in America, the extirpation, enslavement and entombment in mines of the aboriginal population, the beginning of the conquest and looting of the East Indies, the turning of Africa into a warren for the commercial hunting of black-skins, signaled the rosy dawn of the era of capitalist production. These idyllic proceedings are the chief moments of primitive accumulation.”
Intended to explain the historical origins of industrial capitalism in England, Marx’s account raises more questions than it answers. For instance: What explains the technological superiority that had enabled certain countries to become colonial powers in the first place? And why didn’t they all industrialize? Indeed, if raw materials from overseas had been the decisive factor for the Industrial Revolution, why had no such event occurred in any of the resource-rich regions where they originated? Nor can slavery, a near-universal for most of history, explain such differences.
The economist Noah Smith offers an alternative explanation: “The UK…was able to industrialize because its citizens invented power looms and steam engines and other technologies, and because its people worked very hard at factories and plants that used those technologies.” The result was an enormous increase in economic growth and prosperity. That’s not to say that natural resources from overseas played no role in the Industrial Revolution. What it is to say, however, is that the value of a given resource largely depends on who has it and how it is put to use. In short, it’s a matter of culture and “human capital”—the skills, knowledge, and expertise possessed by a country’s population.
But this leaves unanswered the question of the historical origins of the labor force required for industrial production. After all, the most consequential event in “the history of primitive accumulation,” according to Marx, was the creation of the industrial proletariat—“when great masses of men [were] suddenly and forcibly torn from their means of subsistence, and hurled as free and ‘unattached’ proletarians on the labour-market.” In Das Kapital, he identifies the “expropriation of the agricultural producer, of the peasant, from the soil” as “the basis of the whole process.” Left unexplored is the possibility that many a peasant, in search of better prospects, may have sought work in the newly emerging industrial towns to escape the extreme hardships of peasant life. In any case, it is unwise to assume a single-factor explanation for a multifaceted process.
However, even if we grant that Marx was historically correct, it doesn’t follow that the current distribution of capital is a result of “primitive accumulation.” Historical capital has changed hands or has been destroyed over the centuries, while a huge amount of new capital has been generated, increasing the total amount of capital in the world. Capitalism is, after all, a positive-sum game. But “even if all capital were assumed to have had unproductive retrospective implications,” states Sowell, “this would still leave untouched the prospective policy issue as to whether private or public ownership would be more efficient for an economy and its people.”
It is often said, based on Marx’s theoretical analysis, that capitalism is especially prone to crisis. The question, as always, is: compared to what? And how might a socialist economy be expected to perform better in this regard? If, as Marx suggests, economic crises are primarily the result of disproportionate sector output, then, argues Sowell, no economic system “in which the efficiencies made possible by specialization and division of labour separate the consumer from the producer” is immune to this problem. And that includes socialism.
Capitalism, however, provides the ability to “transmit these inherent disproportionalities—rapidly and accurately—through price fluctuations,” says Sowell. A planned economy, in which decisions are made by a central authority rather than by market participants, lacks this crucial mechanism. Such an economy may, however, be better equipped to cover up crises by fixing prices. But shooting the messenger does not solve the problem. If anything, it makes it worse.
The fact that capitalism is not immune to crisis does not imply that society would be better off without it. For all its flaws, capitalism allows vast numbers of people to efficiently meet and communicate their individual preferences, using the language of price to indicate supply and demand. In an economic system based on collectivism and central planning, on the other hand, production is, by definition, detached from people’s individual needs and wants. By enforcing a planned economy, a system reduces not only individuals’ “freedom from” (negative liberty) but also their “freedom to” (positive liberty) by needlessly limiting their choices. Yet, Marx saw this as a step toward a future society based on the credo “From each according to his ability, to each according to his needs.” As he wrote in his Critique of the Gotha Program:
“In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and therewith also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life’s prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly—only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!”
Although specialization and division of labor explain much of the efficiency of production in modern economies, Marx assumed that eliminating these would, somehow, lead to a more abundant flow of wealth.
Marx regarded specialization and division of labor as a source of alienation: the processes by which workers are separated from the fruits of their labor in a capitalist economy. As he put it in his Notes on James Mill: “Presupposing private property, my work is an alienation of life, for I work in order to live, in order to obtain for myself the means of life. My work is not my life.” Why this would be alleviated under public ownership—that is to say, under state ownership—is not clear. It may have something to do with the “withering away of the state” (the eventual transformation of socialism into “full communism”) prophesied by Marx’s collaborator Friedrich Engels. Marx imagined that:
“… in communist society, where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticize after dinner, just as I have a mind, without ever becoming hunter, fisherman, herdsman or critic.”
Although the division of labor constitutes, in Sowell’s words, “one of the great advantages of civilization over primitive society,” the conclusion here seems to be that capitalism is inherently at odds with workers’ real interests and desires—as conceived by Marx. Their individual choices and preferences are thus interpreted as reflecting not their own free will but their alienation. According to Marx, “the individual considers as his own freedom … the movement of his alienated life elements [but] in reality, this is the perfection of his slavery and his inhumanity.” Another way of looking at it, however, is that alienation, rather than being an internal condition, is really just an esoteric concept projected onto the working class from outside.
Furthermore, the idea that history unfolds like a natural metamorphosis, similar to a caterpillar’s transformation into a butterfly, suggests that it can only go in one direction.
Human choice plays little role in the philosophy of Marx, particularly in his materialist conception of history, known as historical materialism. Marx saw historical development—that is, the transition from one social system to another—not as a result of human ideas and intentions, but as a nomological metamorphosis driven by internal contradictions which relate to changes in the mode of production. According to this view, human consciousness is itself determined by the material conditions underlying social relations. In Marx’s words:
“The mode of production in material life determines the general character of the social, political, and spiritual processes of life. It is not the consciousness of men that determines their existence, but, on the contrary, their social existence determines their consciousness. At a certain stage of their development the material forces of production in society come into conflict with the existing relations of production…”
Implying an inevitable revolution, this materialistic-deterministic view of history, which is sometimes referred to as dialectical materialism, is central to Marxian metaphysics. Rather than provide compelling empirical evidence, however, it tends to act as a substitute for such evidence, giving aspiring revolutionaries a false sense of being on the right side of history.
Furthermore, the idea that history unfolds like a natural metamorphosis, similar to a caterpillar’s transformation into a butterfly, suggests that it can only go in one direction. The historical evidence, however, shows that societies can retrogress calamitously. Not incidentally, some of the worst examples in modern history were linked to Marxist revolutions.
These calamities cannot be divorced from the fact that class conflict—“the antagonism of oppressing and oppressed classes” (Manifesto of the Communist Party)—plays a central role in Marx’s dramatic view of social history. As the cognitive psychologist Steven Pinker argues in The Blank Slate, “The ideology of group-against-group struggle explains the similar outcomes of Marxism and Nazism.” Though Marx characterized the conflict between the proletariat and the bourgeoisie, between labor and capital, in impersonal terms, these categories nevertheless related to real people, millions of whom ended up in communist death and labor camps. In fact, Marx’s detached abstractions provided the rhetoric for the dehumanization of so-called class enemies.
Nor did he or Engels reject political violence per se. On the contrary, in their 1850 “Address of the Central Committee to the Communist League” they wrote, “Far from opposing the so-called excesses—instances of popular vengeance against hated individuals or against public buildings with which hateful memories are associated—the workers’ party must not only tolerate these actions but must even give them direction.” While they may not have approved of the mass murders committed in their names, Marx and Engels saw “force” as “the midwife of every old society pregnant with a new one.” As they put it in their Manifesto of the Communist Party, “the violent overthrow of the bourgeoisie lays the foundation for the sway of the proletariat.”
Revolutionary rhetoric aside, much of the appeal of Marxism comes from the fact that it offers religious certainty in scientific terms. I recently met up with an old friend, a staunch Marxist, at a traditional Viennese café to catch up and talk about our political differences. After hours of discussion, he admitted, “Well, ultimately, it’s a question of faith.” A question of faith? Marxism seeks nothing less than to alter the entire institutional structure of society. One would assume that a project with such momentous aspirations would be based on a more solid foundation. But with Marx, facts and evidence take a backseat to his grand narrative and vision. The resulting fallacies and misconceptions, many central to his theory, explain Marxism’s disastrous track record.
Gerfried Ambrosch is an author and writer and holds a Ph.D. in literary and cultural studies.