In this article we will discuss about Karl Heinrich Marx:- 1. History of Karl Heinrich Marx 2. Influences Sharing Marx’s Ideas 3. Theory of Capitalist Crisis 4. Marxism and Classicism 5. Characteristics of Marxism 6. Critical Estimate 7. Conclusion.

Biography of Karl Heinrich Marx:

Karl Heinrich Marx was born in Trier in Germany in 1818 in a middle class Jewish family. During his childhood, his family converted to Protestantism. Karl Marx studied Law, History and Philosophy in different German Universities (Bonn, Berlin and Jena) and received his Ph. D. degree at the age of 23.

After taking doctorate degree, he was influenced by Hegelian philosophy and took up revolutionary journalism. So he was expelled from Germany, Belgium and France. Finally, he came to London where he spent the last 30 years of his life.

In London, Marx spent most of his time in British Museum, the great library. His life was full of poverty and sufferings. His friend and disciple Engels helped him financially. Engels was also a collaborator in the development of Marxian thought. Both of them produced an impressive series of books. They had contact with radical groups everywhere.


His main works are: Introduction to a Critique of Hegelian Philosophy of Rights (1843); The Poverty of Philosophy – A Criticism of Proudhon (1847); Discourse upon the Question of Free Exchange (1848); A Contribution to the Critique of the Political Economy (1859); and the famous book “Das Kapital.” The first volume of this book was published in 1867, while the other two volumes were published by Engels after his death in 1885 and 1894.

Influences Sharing Marx’s Ideas:

Marx was influenced by his environment. The economic and political conditions of Germany mainly shaped his ideas. During his life time he had seen the economic development of three countries Germany, France and England. He drew inspiration from British industrialism and Trade unionism and also French Revolution. He was also inspired by utilitarianism, socialism and German radicalism.

Though he was much impressed with Hegelian philosophical ideas, at one stage he felt that it was too conservative to effect changes in the society. Marx was also influenced by the writings of Ricardo, Quesnay and other writers. Thus Karl Marx was the product of different influences, viz., classicism, materialism, Hegelianism etc.

Marxism or Scientific Socialism:

Before Karl Marx, there were different types of socialism, advocated by different socialist writers. But they were not able to put forth economic and scientific arguments to substantiate their concept of socialism. It was only with the coming of Karl Marx that socialism entered the main current of economic doctrines. Marxian socialism is called scientific socialism or Marxism.


Marxism is not merely a body of economic ideas; much more than that, it is a comprehensive system of thought embracing almost all the social sciences, such as philosophy, economics, history and politics. The chief merit of Marxism as a system lies in its organic unity.

Its different aspects are so closely knit and so logically connected that the act of separating one from the other cannot be accomplished without doing injustice to the later. This explains why a great difficulty is faced when one is engaged in the task of distinguishing Marxian economics from Marxism. Marxism has provided a new trend to the history of economic thought. It believes that theory and practice go hand in hand. Marxism has originality and initiative. It has a great degree of logical consistency.

In short, the following are the main characteristics of marxism:

(a) Marxism is international in character. It is different from state socialism which is national in character. To quote Haney, “With Marx, socialism took on a purely materialistic garb, and became international or cosmopolitan in its scope as contrasted with the National Industrialism or state socialism of his various predecessors.”


(b) Marxism scientifically demonstrates how capitalism will gradually give place to socialism.

(c) There is complete uniformity and full co-operation among all Marxian’s. If any conflict arises between labour and capital in one country, it is considered as part of international struggle.

(d) Marxism is purely a working class socialism. Marxian’s generally believe in violence to be used in the final struggle, if necessary. In this respect, Marxian communism is Fascism in technique and Totalitarianism in ideology.

Marx’s Theory of Capitalist Crisis:

Marxian analysis of the law of motion of a capitalist society brings out the conclusion that capitalism must dig its own grave because of certain inherent tendencies in the order which makes the occurrence of a crisis inevitable.

Among the strands of thought which bring Marx to this conclusion, the one that underlines the perennial want of co-ordination between the forces of production and those of consumption occupies a place of great importance.

The first proposition of Marx is the division of capitalist society into two classes—the capitalists and the workers. The second proposition is the labour theory of value which underlines the concept of exploitation of the workers. The conclusion which emerges out of these two propositions is the ever-widening gap between the capitalists and the workers.

The capitalists go on accumulating capital and undertake further investment in the hope of growing richer and richer. The workers get just enough to support themselves and their families. The subsistence level of wages makes it impossible for the workers to demand anything beyond the barest of their needs. Insufficiency of purchasing power with the workers leads to the phenomenon of under-consumption.


Overproduction and under-consumption are, in fact, the obverse and reverse of the same coin. Attracted by their initial success in the acquisition of profits, the entrepreneurs goon investing their savings. Little do they realise that poverty of the masses imposes a great restriction on their capacity to consume.

Such of the rich as do not have the incentive to invest, have a great propensity to hoard their savings, which, in effect, have a great propensity to hoard their savings, which, in effect, amounts to withdrawal of so much of money from circulation and a cut in demand of more than the same order. A chronic deficiency of demand is the result. Falling rate of profit is the direct outcome of the falling purchasing power of the masses. A crisis is inherent in such a situation.

Karl Marx conceived capitalist crises as those catastrophic events which are organic in the process of capitalist development. The capitalist society moves in cyclical manner with upswings and downswings and periodic crises.

The three volumes of Capital and three volumes of Theories of Surplus Values have references regarding the problem of repeated crises, but “there is nowhere to be found anything approaching a complete or systematic treatment of the subject in Marx’ writing”. There are scattered notes on the crisis, which have been extended by fellow Marxists and those notes have been systematized into complete theories of crises.


To Marx the following three theories of crises are attributed:

1. Law of Falling Tendency of Rate of Profit.

2. Crises arising from Disproportionality,

3. Crises arising from Under-consumption.

1. Law of Falling Tendency of Rate of Profit:


The rate of profit has a tendency to fall, as the accumulation of capital goes on.

Total Value = C + V + S.

Where, C means constant capital which “does not in the process of production undergo any quantitative alterations of value”. Constant capital remains constant as machine transfers its value to the product but does not increase in value.

V stands for ‘variable capital’ meaning thereby that the value of such capital increase in the process of production. Value of labour power “reproduces the equivalent of its own value, and also produces an excess, a surplus value which may itself vary, may be more or less, according to circumstances”.

Therefore, V is the value paid to labour, S is the surplus value—excess of the value produced over value paid to labour. Value paid to labour stands for subsistence wage. S is the value appropriated by capitalists and is called profit. The rate of profit would be equal to P. S/C+V,

where P is the rate of profit, C+V stands for the value invested by the capitalists.


Now S/V is the rate of exploitation or rate of surplus value appropriated. This may be denoted by

P. C/C + Vis the organic composition of capital, i.e., the ratio of constant capital to total capital. It may be represented by q.

P = P (2 – e).

As the accumulation of capital takes place, constant capital increases in relation to capital or q increases. With e remaining the same as q increases, p must fall. This follows from our equation. Hence, in the process of capitalist development, the rate of profit must decline. This is the falling tendency of the rate of profit. With a decline in the rate of profit, the capitalists struggle to regain their old rates of profit, and hence class conflict emerges.

Therefore, crises follow in the presence of this tendency of profit rate to fall. Marx has described that crises arising out of this tendency in Capital Volume III, in the chapter entitled “Unraveling die Internal Contradictions of the Law,” in the following words: “It (a fall in the rate of profit) protnotes overproduction, speculation, crises, surplus capital along with surplus population”.


Again he writes, “The barrier of the capitalist mode of production becomes apparent…. in the fact that the development of the productive power of labour creates in the falling rate of profit a law which turns into an antagonism of this mode of production at a certain point and requires for its defeat of periodical crises. Maurice Dobb in his book ‘Political Economy and Capitalism’ regards this law to be the sole cause of crises to the complete exclusion of other theories.

But before we lay the blame on this law we must note the following:

(a) First, there is a contradiction in this law. Marx assumes that the rate of surplus value (p’) remains constants or, in other words, the extra productivity due to capital accumulation is proportionately divided between labourers and capitalists. There is an increase in the wages (or value) paid to workers, according to this assumption, which contradicts with his other theory of subsistence wage to labour. If subsistence wage is to be paid to the labour, the whole extra output will go to capitalists and change the ratio to S/V.

The rate of surplus value would increase, if subsistence wage is paid, and the rate of profit may not decline as the Organic Composition of Capital rises. This can be seen in the equation

P = P’ (1 – q).

If q increases, p will decline provided p’ remains constant.


If q increases, p’ increases, p may or may not decline.

There is an inconsistency in Marxian law of falling rate of profits. Therefore, we cannot rely upon this law as a cause of crises.

(b) Secondly, with a fall in the rate of profits, the investment does not decline, as in Marxian system; the inducement to invest is the maintenance of capitalist position by each capitalist. If a capitalist diminishes his investment, he is driven out of the class of capitalists by sheer competitive forces. The higher or lower rate of profit has no impact on the rate of investment.

Therefore, the law of falling rate of profit cannot cause crises. The true significance of this law lies in aggravating the class conflict present in capitalist society. The Capitalists on finding that the rate of profit is declining attempt to increase exploitation and thus impinge severe measures on the workers. This law is just another contradiction in a capitalist society, which works for the doom of capitalism.

(c) Thirdly, rise in organic composition of capital is slow and hence the tendency of falling rate of profits is perceptible though inherent, only in the long run. The rate of profit falls over a very long period and this periodicity may not coincide with periodic crises (trade cycle) with which we are familiar today. But Marx had given the theory of capitalist development embedded with the periodic crises.

He believed that the capitalist development takes place in cyclical waves. Those cycles were caused due to exhaustion of reserve army of labour and re-creation of reserve army by technological changes. This type of cyclical revolutions resembles the trade cycles of today. As soon as the unemployed labour force is exhausted and they tend to get higher wages, the capitalists shift to more capital intensive methods, thus creating unemployment once more.


Therefore, the Law of Falling Rate of Profit cannot be the cause of crises. The above law assumed that all commodities sell at equilibrium values, but the decline in profit may be due to the fact that commodities do not sell at their values. The essential difficulty is that of realising the value, which is already in a physical sense embodied in finished commodities. The crises can arise for lack of realisation of values.

The under-consumption and disproportionality theories are theories of “realisation crises”. Paul M. Sweezy states the difference between realisation crises and crises arising out of the tendency of falling rate of profit, in the following words: “The practical capitalist is unlikely to see any difference; for him the trouble is always insufficient profitability from whatever source it may arise. But from the point of view of causal analysis, the two types of crises present divergent problems.

In the one case, we have to do with movements in the rate of surplus value and composition of capital, with the value system remaining intact. In the other case, we have to do with as yet unspecified forces tending to create a general shortage in effective demand for commodities, not indeed in the sense that it is insufficient to buy all the commodities offered, but that it is insufficient to buy them all at a satisfactory rate of profit.

The starting point of the crisis is in both cases a decline in the rate of profit, but what lies behind the decline in the rate of profit, in one case requires a very different analysis from what lies behind the decline in the rate of profit in the other”. We have discussed the crises arising out of falling rate of profit. Now let us pass on to the second group of causes.

2. The Theory of Disproportionality:

There can arise disproportionality between various branches of production, as each capitalist starts production and investment on rough estimates of the market. The capitalist system works on the basis of anticipated demand and hence it becomes difficult to maintain corrector proportions between different branches of production and, therefore, output of one or other industry is sold at prices less ox- more than its value and this tends to spread to other branches. Hence a general crisis in the economy emerges. The process of adjustment imposed by the forces of competition would not be smooth, but cause an all-pervasive disequilibrium.

Michael Tugan-Baranowsky (a Russian economist) and Hilferding (a German economist) accepted Disproportionality Theory as the only theory of crises advocated by Marx and popularized it. But Marx devoted little space to the discussion of this theory.

3. Under-Consumption Theory:

Consumption is the basis of production, but the social relations in a capitalist society are such as impede the expansion of consumption. This is the “Fundamental contradiction” of a capitalist society. The subsistence wage and the increasing proletariatisation of society keep the base for production narrow and restricted. Tugan and Hilferding were not correct in laying the blame for crises only on production, and thus wrongly interpreted that the lack of consumption is the cause of crises in a capitalist society. Karl Marx in Capital (Vol. III) writes, “But to the extent that the productive power develops, it finds itself at variance with the narrow basis on which condition of consumption rests”. The laws of distribution are antagonistic to the laws of production.

In the first place, the labour is paid subsistence age and under capitalism, the masses constitute labour. By flooding the market periodically with the reserve army, the capitalist system not only prevents the masses from participating in the benefits that increasing productivity offers but also prevents consumption from rising in proportion to aggregate output, thus threatening the system with under-consumption. The capitalist class shrinks and the proletariat class expands in numbers in the process of development. Therefore, increasing production creates a problem within itself of selling all the production at given values. The prices come down and a general crisis ensues.

Marx States in Capital (Vol. III):

“The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capital production to develop the productive forces in such a way that only the absolute power of consumption of the entire society would be their limit”.

Again he says, “This last named power (i.e., consuming power of society) is not determined either by absolute production power or by the absolute consuming power, but by consuming power based on antagonistic conditions of distribution which reduces the consumption of the great mass of the population to a minimum variable within more or less narrow limits. The consuming power is further restricted by the tendency to accumulate, the greed for an expansion of capital and production of surplus value on an enlarged scale”. Self-preservation forces the capitalists to expand the scale of output. “The market must, therefore, be continually extended”.

Disproportionality thesis considers lack of proportion in different individual branches (or industries) of production, but under-consumption theory takes disproportionality between production and consumption in consideration.

Karal Marx had devoted a few notes and scattered passages to under-consumption theory, but these can be grouped together to form a theory of crises. Lenin and Bukharin treated under-consumption as one aspect of disproportionality in a capitalist society, but they did not develop a complete theory of under- consumption. Marx laid greater stress on under-consumption as the course of crises.

Marxism and Classicism:

It has often been remarked that Marxism is essentially a product of classical influence, especially that of Ricardo. Even Marx himself acknowledged his debt to classicism. In “The Critique of Political Economy”, Marx clearly mentioned that he studied the classical political economy, while he was collecting material for his Das Kapital from the British Museum Library. It is a better proof to say that his economic theories are based on classical theories, “Marxism” remark Gide and Rist, “is simply a branch grafted on the classical trunk.”

According to Prof. Gide, “Marxian theories are derived directly from the theories of leading economists of the early 19th century, especially from Ricardo’s. Marxian theory of Value, analysis of conflict between profit and wages, theory of surplus value are derived from Ricardian theories. Again Marxian concept of natural laws shows close connection with classicism.

Marx’s abstract, deductive method is essentially Ricardian in nature. Marx made use of the same theoretical tools used by Ricardo. Marxian theory of value is essentially Ricardian in nature. Both Ricardo and Marx accepted that the value of a commodity is determined by the quantity of labour used for its production. For both, value is measured by the hours of work put in by a worker.

Similarly, the theory of industrial reserve army is based on the Ricardian concept of technological unemployment. Another similarity is the universal applicability of Marxian theories. So it is reasonable to conclude that Marxism is a new interpretation of classical theories.

The French Marxist Labriola says, “Das capital, instead of being the prologue to the communal critique, is simply the epilogue of the bourgeoise economics.” Sorel also meant the same thing when he observed, “Marxism is really much more akin to the Manchester Doctrine than to the Utopian.”

In-spite of all these similarities, there are certain differences between Marxism and classicism. There is ample difference in the language used, method of deduction and sociological implication. To a certain extent, Marxian analysis appeared to be an improvement over Ricardian analysis.

While the classical economists studied economic problems on the assumption that capitalism was fixed and permanent system, Marx regarded capitalism itself as a variable, subject to change. Marx considered it as a transitional stage. Again while the dominant note of classical writings is based on class harmony. Marx regarded class conflict and class struggle as a historical fact.

Characteristics of Marxism:

We are now in a position to enumerate the main characteristic features of Marxism:

1. Marxian socialism is international revolutionary socialism. It is different from state socialism which is national in character.

2. Marxism is a working class gospel. Marxists believe in the organisation of workers and class struggle to do away with capitalism. Prior to Marx, the struggle was for an equitable distribution and for the improvement in the working conditions of the workers. But in the Marxian doctrine, the struggle was given a new name “class war’-workers against the capitalists, the poor versus the rich. The phrase “Class war”contributed much to the success of Marxism.

3. Marxism is purely revolutionary in character. The revolution will be peaceful.

4. Marxism is purely materialistic and not idealistic. It attaches more importance to economic facts.

5. Marxism is scientific socialism which demonstrates how capitalism will gradually give place to socialism.

6. There is complete uniformity and full co-operation among Marxian’s. If a struggle starts in one country, it is considered a part of international struggle.

Critical Estimate of Karl Heinrich Marx:

As remarked by Lenin, “The Marxist doctrine is important because it is true. It is comprehensive and harmonious and provides man with an integral world outlook irreconcilable with any form of reaction or defence of bourgeosis suppression,” G.D.H. Cole himself admitted that he was greatly influenced by Marx.

Marx was a revolutionist in whose hands political economy became an instrument of political struggle. As a philosopher, he was an optimist. In the opinion of Seligman,” perhaps with the exception of Ricardo, there has been no more original, no more powerful, and no more acute intellect in the entire history of economic science.”

Marxian theories of value, surplus value, accumulation, crisis, capitalistic development etc. contain a high degree of internal logical consistency than those of many other post-classical theories.

As Eric Roll put it, “Marx has built for himself an independent sociological frame work”. His economic doctrines have a tremendous influence on the future socialist movements. Marxian economics influenced even the non-socialist thinkers. It contains immortal arguments against the evils of exploitation and crisis in a capitalist society.

Marx was a prophet. Marxism became something like a religion. It provided the ways and means, for the salvation of human beings. It contained a message for the millions of people. Even today, Marxian economics is a popular gospel for the working class and young men and radical thinkers.


The following are the weaknesses of Marxian economic thought:

1. Marx’s materialistic interpretation of history is inadequate and one-sided. History of man is moulded by many factors. Economic factors are only one of them.

2. The whole Marxian analysis is built on the theory of surplus value. However in the real world, we are concerned with tangible prices and not with value.

3. Marx has proved to be a false prophet. There is no increasing misery of labour in advanced capitalist societies as assumed by Marx. On the contrary, the real wages of workers have continued to rise.

4. Marx pointed out that the technological progress leads to unemployment and thereby rises the strength of industrial reserve army. This is an exaggerated view.

5. Marx failed to visualize that technological innovations may lead to capital saving.

6. Marx failed to understand the flexibility in capitalism.


In-spite of the above criticism, we should remember that Marx developed many insights into the problem of modern Industrialisation. The gifted and ingenious writer who called his system as scientific, must be regarded as a religious figure to rank with Christ or Mohammed. His monumental work-Das Kapital is, in fact, the Dooms day Book of Capitalism. To Loria, this book, “is a masterpiece where in all is great, all alike incomparable and wonderful.”