List of top five Marxian economic theories:- 1. Law of Fetishism of Commodities 2. Labour Theory of Value 3. Theory of Surplus Value 4. Theory of Capitalist Exploitation 5. Law of Capitalist Accumulation.
Marxian Economic Theory # 1. Law of Fetishism of Commodities:
Fetishism means the mystical character and contradictory nature possessed by the commodities. Every commodity has two values-use value for the consumer and exchange value for the owner. According to Marx, a commodity was a mysterious one because the social character of labour presented in the commodity appeared to the producer as an objective one.
To quote Marx, “This fertishism of commodities has its origin in the peculiar social character of the labour that produces them”. To Marx, this social character of labour demanded that the product must be not only useful to him, but useful to others. It should have a common quality i.e., Value.
Marxian Economic Theory # 2. Labour Theory of Value:
Marx considered the labour theory of value a necessary step to arrive at the theory of surplus value which explains the exploitative nature of the capitalist society. In a capitalist society, a commodity is defined as a carrier of use value and exchange value. As a carrier of use value, it satisfies the human wants. As a carrier of exchange value, it possesses a quantitative relation with other commodities.
Along with this double character of a commodity, there is a corresponding two-fold nature of labour. The one is useful labour, and the other is ‘abstract’ human labour. Useful labour produces commodities that satisfy human wants.
Variety of human wants requires variety of use values. But labour alone cannot produce use value. Matter provides a material on which labour is to be exercised. Besides, a thing may possess use value, but may not require labour to produce it. Air, water, soil are some examples.
If a thing is to be called as commodity, it must have exchange value and to have exchange value, it should have “something common”. In Marxian economics, this something common is “The abstract human labour”. The value of every commodity is simply the amount of crystallized human labour which it contains, and commodities differ in value according to the different quantities of labour which are socially necessary to produce them”. By “Socially necessary labour”, Marx meant “labour- time necessary to produce any use-value with the given normal conditions of social production and the social average degree of skill and intensity of labour”.
Further Marx emphasised that the value of a commodity would remain constant, if the labour-time required for its production also remained constant.
This theory has been criticised on the following grounds:
(1) The argument that, value is the product of human labour is rather wrong because labour is not the only factor which determines value. All factors are necessary to produce a commodity.
(2) According to Marx, the exchange value of a commodity depends upon the amount of labour put in its production. He ignored the dominant role played by demand.
(3) It has been pointed out that Marx did not take into consideration the difference in the qualities of labour.
(4) Marx argued that any commodity which does not involve human labour will not have exchange value. But we find that in practical world, due to scarcity, good lands derive more exchange value.
(5) Critics argue that identical commodities may represent different amounts of labour. For example if old methods of production are employed, the amount of labour involved would be greater. Hence value would not be the same.
(6) It is purely an objective theory. It explains total value only.
(7) This theory is considered half-hearted. For if a chair made after 16 hours of hard labour cannot be used, it will have no value. Hence if labour is misdirected, the commodity will have no value.
Marxian Economic Theory # 3. Theory of Surplus Value:
The theory of surplus value is the corner stone of Marxian economic theory. It provides the framework on the basis of which Marx has built up his theory of capital accumulation. To Marx, in capitalism, production was not simply production of commodities, but was production of surplus value.
The worker produces not for himself but for the capitalist. From capitalist point of view, that labourer alone is productive who produces a surplus. Under capitalism, labour power itself becomes a commodity and is bought and sold in the market. The main aim of the capitalist is to maximise profit. It is possible for him because labour power has the peculiar character of being able to create more value than is needed for its own production.
In other words, the worker can produce more in a day’s labour than is needed for his own subsistence. The capitalist pays only those wages with which the latter can purchase the means of subsistence. Thus Marx divided the labour into two kinds-necessary labour and surplus labour.
For example, let us assume that if a labourer works for eight hours a day to produce a commodity, it is sufficient to maintain himself. Then the exchange value of the product should be equal to 8 hours labour. But if the wages paid to the labourer are equal to four hours labour-this labour is the necessary labour and the remaining four hours is known as surplus labour.
It creates surplus value which goes to the capitalist. Thus surplus value is the difference between the selling price of the commodity and the actual wages paid to the labourer. In a capitalist society the workers are thus exploited by the capitalists.
Marx classified capital as constant capital and variable capital. Capital invested in stocks or raw materials or equipment’s which directly assist the productivity of labour was called by Marx as constant capital. Capital spent for the purchase of labour power in the form of wages was called variable capital. According to Marx, it was only the variable capital which was capable of creating surplus value.
There are three components of the value of commodity:
(a) Constant capital,
(b) Variable capital and
(c) Surplus value.
Suppose ‘C’ stands for constant capital, ‘V’ for variable capital and ‘S’ for surplus value, then the total value=C+V+S. The rate of surplus value will be S=S/v.
The annual rate of surplus value can be measured by multiplying the surplus value by the number of turnovers of the variable capital in a year ‘n’. Thus the annual rate of surplus value (as’) will be
as’ = Sn/V
The rate of profit is equal to the ratio of surplus value to total capital. It is S/C+V.
Marx showed the relation of profit to the rate of surplus value as:
P1 + S1V/C+V in which
P1 stands for the rate of profit,
S1 for the rate of surplus value,
C for constant capital and
V for variable capital.
Marx also distinguished between absolute surplus value and relative surplus value. Absolute surplus value results from an increase in the number of working hours and the relative surplus value from reducing the real wages.
The extent of surplus value can be increased by raising the rate of exploitation.
The capitalists can raise the rate of exploitation by the following ways:
(i) By increasing the working days of labourers,
(ii) By increasing the productivity of labour and, iii) By reducing real wages.
The Marxian theory of surplus value has been critiqued on the following grounds:
1. Marxian theory of surplus value is derived from the labour theory of value. But there is no proof that labour alone creates surplus value.
2. In the real world, we are not concerned with values, but real tangible prices
3. Marxian theory ignores the demand side.
4. Marx exaggerated the scope of exploitation.
5. Critics have pointed out that the rate of profit is not only related to variable capital, but also depends on the demand and supply of commodities.
Marxian Economic Theory # 4. Theory of Capitalist Exploitation:
According to Marx, in a capitalist society, there are two classes of people-capitalists and workers. In a capitalist society all the means of production are owned by the capitalists. The workers, on the other hand sell their labour power to the capitalists.
The capitalists produce the commodity with the application of labour to machinery and raw materials. Large scale production creates more employment opportunities to the workers. The act of production creates surplus. When the wages are paid less than the market value, exploitation arises.
But over production is another characteristic feature of capitalism in which goods are produced for the market. So when the market contracts, unemployment of workers emerges. Again when market expands, labour power is required again. So such labourers who are temporarily employed form an industrial reserve army. In the industrial reserve army, the farmers who are expelled from land also join.
It should be noted that in Marxian economics, capital means money used for exploitation. In a pre-capitalist society the producer sells his commodities for money. With that money, he buys the commodities of other producers for consumption purposes. So the cycle is C-M-C.
Here money simply performed the medium of exchange function. It was not used for the exploitation of any one. But under capitalism, production is done for profit. So the equation of exchange is M-C-M1 in which M stands for money or capital, C for commodity and M for money.
The difference between M and M1 constitutes profit or the degree of exploitation. Thus the capitalist system grows. According to Marx, the capitalist is a vampire which thrives upon the blood of others and becomes stouter and broader the more blood it gets. But very soon in the very root of its expansion are the seeds of destruction.
Marxian Economic Theory # 5. Law of Capitalist Accumulation:
According to Marx, it is the surplus value that creates capital accumulation. Capitalists choose the method of increasing the productivity of labour to maximise their profit. In order to make improvements in the productivity of labour, the capitalists save the surplus value. They reinvest it to acquire a large stock of capital and thus accumulate capital. In this Marx commented,” Accumulate, accumulate it, That is Moses and the Prophets.”
The accumulation of capital gives rise to the following evil effects:
(1) Large scale production is controlled by a few persons.
(2) There is concentration of rural population in towns which leads to an increase in the number of proletariat.
(3) As a result of capital accumulation, there is a declining trend in profits.
(4) Since in a capitalist system, there is no balance between production and consumption, an industrial crisis occurs. In order to compensate the falling profits, the capitalist try to increase the production, but consumption does not increase at the same rate. So there is over production and under consumption.
(5) There is growth of unemployment and pauperism. With the accumulation of capital, technological improvements take up which reduces the demand for labour. So the labour class forms an industrial reserve army. Thus there exist a large mass of casual labourers and paupers.
(6) The developments of joint stock companies and banking and credit facilities fasten the growth of concentration of capital.
Thus the General law of Capital Accumulation shows a cumulative process the higher the degree of accumulation, the greater the wealth of society, the greater the industrial reserve army, the greater the concentration of power in a few hands, and the greater the accumulation of misery.