Marx and Engels – the Theory Errors

Marx and Engels – the Theory Errors

Karl Marx and Friedrich Engels lived in London, at the epicenter of the industrial world in 1848. If you read the section on depressions and revolutions you know that the economic conditions were awful at that time. They had been researching living conditions of the industrial workers through the 1840s which had become abysmal when revolutions erupted in Sicily and spread throughout Europe. The workers on the bottom rung are always the people who get the worst end of the really severe economic downturns. It was from this vantage point that Marx and Engel’s developed a radical new political philosophy. I say philosophy because they never described how too actually instantiate, organize or run a communist economy, much less an entire state government. Those actions would come later in Russia and with some others. Marx and Engel’s work was so closely intertwined that all of the political theory developed must be attributed to both of them.¹ Not just Marx.

1848 Projecting the demise of Capitalism

In 1848 they theorized that the economic anchor of capitalism was industrial production. They hoped that capitalism would ultimately destroy itself. They extrapolated that the planless nature of production would lead to greater and greater entropy. They thought that it was constantly out of step, over producing one good while under producing others. They only focused on over production in an effort to tie their philosophy into economic theory from their day. The reason was at that time economic theory was new and largely incorrect. Jean-Baptiste Say (1767-1832) proclaimed he was inventor of an old incorrect economic saw, Say’s law. Say’s Law stated that supply creates its own demand. Meaning if you make something, demand followed simply by producing it. Today this is laughable but the world was very different in the 1800s. In Marx and Engel’s day Say’s law was cutting edge economic theory. This is why they focused on the means of production.

They noted that production had become more organized and integrated since the onset of the Industrial Revolution. They felt that factories necessitated social planning due to the increasing complexity of production. But since the factories were on private property they felt social planning would never be possible. Because of this they came to the conclusion that capitalism could be the vehicle to change the world of their day through its ultimate demise. The failure of capitalism answered the question as to how Marx and Engel’s hoped to change the world they were living through in the 1840s. In their political philosophy they cultivated an expectation that capitalism was sowing its own demise as it was creating a new class of citizenry who were becoming incredibly well trained and disciplined. Capitalism would produce its own downfall in creating this new “proletariat” class.

Second major question – why?

However the second major point in the thesis was founded upon a world which existed at that time. This was a world where the aristocracy controlled the emerging Industrial Revolution, like Engels parents.² In the 1580’s Queen Elizabeth I began selling monopolies to generate revenue which the monarchy could control and spend as they saw fit. Unlike other national monarchies the English monarchy had always been very weak financially since the signing of the Magna Carta.³ In selling monopolies the English monarchy had inadvertently unleashed a method to fund the start of the Industrial Revolution. The continuous development of capitalism as a system only dates back to the start of textile automation in the English cloth industry from the 1700s. What Marx and Engel’s were addressing was the rise in wealth and power of the monarchies at the expense of the working class due to iron clad caste system.⁴ Marx and Engels were unable to foresee how the yoke of the church and the nobility could ever be displaced. In their defense the Europeans had developed the caste system of nobility and the church being on top and reaping all the rewards from the labor of the workers since the onset of Feudalism dating all the way back to the 800s. Therefore they imagined a new class which could free the 95%. As the movie character George Bailey would frame their sentiments in the holiday classic It’s a Wonderful Life; “they do most of the working and paying and living and dying around here.” The aristocracy and church as “free riders” was the principal driver why Marx and Engel’s created their political philosophy in the first place.

In 1848 Marx and Engels would publish the Communist Manifesto pointed at the revolution which they both earnestly desired capitalism to be heading towards. “What the bourgeoisie produces, above all, are its own grave diggers. Its fall and the victory of the proletariat are equally investable.” Ironically he wrote nothing of what the new society might be like. The Communist Manifesto did not provide an explanation for their logic. For this we have to read the tome Das Kapital.³ Walking a bit farther into the philosophy via Das Kapital we can also clarify how they came to the new class saving the world.

In their philosophy all capitalist value was derived from one very specific source – labor. Human labor and machine automation saving human labor. The labor provides the value for the products and the factory owner(s) reaped the unpaid work increment Marx termed “surplus value.” We call it profit. Since he noted that capitalism is hyper competitive, capitalists wouldn’t be able to raise prices and therefore they will have to automate to keep wages down. Since they were studying labor in the factories, this was not a prediction. This is what had actually unfolded right before their eyes. From their wildly incorrect imaginations however, they were unable to conceptualize that these machines could never be sold for less than the labor they would save on the factory floors. As more automation is introduced the surplus value would ultimately decrease to zero due to the automation equaling the labor they had displaced. They then supposed that unemployment would spiral and destroy the economy creating civil unrest, which had been almost everywhere in mainland Europe throughout 1848. Each technology surge would be worse than the previous one until capitalism fell. Don’t forget they were trying to imagine how economic collapse could potentially become the vehicle to dethrone the monarchy and the church. It was not an economic prediction. It was the only political way they could see the proletariat removing the shackles of a thousand year old caste system.

A Lulu of a BooBoo

They believed only through living labor could profits be realized. Now we won’t even bother to address their lulu of a logic booboo. Namely, even if the proletariat owns the factories, their profit would not be immune to the decrease in the value falling to zero stemming from their original flawed logic. The theory was purely a method to create a classless society headed by the proletariat owning the factories. But just how society would “own” its factories; what was meant by “society”; whether there would or could be bitter antagonisms between managers and the managed; between the political chieftains and the rank and file – none of this did they discuss.⁵ Clearly they were philosophers and not economic visionaries.

I read from the number one ranked booked in comparative economics (in sales) The Worldly Philosophers, that Marx accurately predicated some things such as that the larger companies would destroy small business (well only at times small business still continues to thrive). Or that they noticed how technology obsoleted older technology creating tremendous pressure in the capitalist system. With what was going on in 1848 these weren’t exactly keen insights. For me they fall into a similar category as someone like a Nostradamus. They made vague and wild predictions to address problems from their time. However given what was transpiring in Manchester five years before Kapital was published: “the average work week for a period of six weeks was 84 hours. For the prior 18 months it had been 78.5 hours!”⁶ Marx and Engels ire resulted from tangible hardships the industrial workers were actually living through. Why we care is because he was among the first to try and research crises and depressions in capitalist economies. Despite the fact he was only doing so to find a way to show capitalism as a failure, he was one of the first to look at capitalism. Just not in unbiased or scientific way.

Set aside the argument for the apocalyptical landscape. The theory was based in thinking from the 17^th century standing on flawed logic. But he was writing in a real economic depression as awful as The Great Depression (1929) or the Great Recession (2009). Therefore he was describing the great crashes which continue to occur with capitalist business cycles. No country should try to deploy a Marxist communist government. The logic was irrevocably flawed and is decrepit as it is almost 200 years old. Conversely a totally unregulated capitalist economy doesn’t work either. Looking back at 18th century models from the 21st century is a fools errand, the complexity of the economics can not be applied across the centuries. Ayn Rand in Atlas Shrugged essentially proposed what Marx and Engels had in the Communist Manifesto.  Unique capabilities and knowledge within a new class of labor formed the core of the capitalist economy for both of these oversimplified extremist views. Though Marx and Engels were angry lefties while Rand was an angry right-winger, moving in an increasingly radical direction they both arrived at the same conclusion. That labor will become so intrinsically valuable that the society will crater if these highly skilled and disciplined workers march away. In Marx and Engels prediction they will form an International brotherhood of labor. In Rand’s prediction labor walks off the job and no one is capable doing what they had as they form a secret society hiding away in a fictional mountain. Both predicted the total failure of the economy and all governments. What a shock, extremist predictions are totally off the mark and this is the case here as well. Their conceptions of labor as some form of special intrinsic valued “uber” class were based on the old caste system which was alive well into the 20^th century, particularly in Soviet Russia. Rand was born in Russia when her father’s pharmacy had been nationalized as her family nearly starved to death and fled to area temporarily controlled by the White army during the civil war against the Bolsheviks. Her hatred of communism was based on real experiences just as Marx and Engels anger was based on having seen and experienced real suffering as well.  

Setting aside the emotions of both Rand and Marx, their fantasies of an “uber” class as the fix for the problems of their days, they both cloak a deeper seated fear. A fear that most of us have shared in our working lives. The fear is that our skills would become obsolete and therefore we would become a commodity. Given that innovation is the fuel which propels the economy forward this fear will likely never disappear. The rise of the Tea party a decade ago and the current worldwide rise of radical populism underscore this cyclical reality. However, emotional diatribes and over simplification of economic problems and fixes, as well as vilification of competing ideas, are never ever a viable way forward. The authors in the book Why Nations Fail list countless examples of nations that unraveled as a direct result of emotional rather logical responses.  

I realize the last paragraph was a bit of a personal op-ed piece but getting back on point, the reason why I raised this issue is because Marx and Engels were experiencing the grapes of wrath because of where they were in history within the second Great Surge. Today we have cleared another market crash a decade+ ago. What we now understand is that any successful modern industrialized nation has to manage their markets to one degree or another. The extremes of pure capitalism or communism no longer exist on earth. Why? Aside from these being conceptions of much simpler economies from the 18th century, all governments recognize there has to be some oversight of their markets as they have to fund the fixing the crashes. Also that the resulting populist surges can change government overnight and in some cases damaging nations. Without any oversight in the US, the Great Recession of 2009 would have become a replay of The Great Depression of the 1930s. The Long Depression which ran in the US from 1873 to 1896 had been called the Great Depression. It was only renamed to The Long Depression after the 1929 worldwide market crash was much worse. Large investors like JP Morgan stepped in to blunt the impact of the 3rd Great Surge but the economy was bigger in the 4th surge and even with what FDR did, it was not enough. That’s why regulation, oversight, and market management by governments is necessitated. Much more on this later in Perez Great Surges section. Today every country has a central bank which works to reduce the length of recessions and to blunt depressions. Neither can really be stopped due to structural fundamentals inherent to the Great Surges. Let us now return to the history of Great Surges. This link that brought you here was through a new browser instance. Close this window to return to the Great Surge history page.

The Footnotes

1. Friedrich Engels gathered up Marx’s notes after his death and filled in the missing gaps and then published both the 2nd and 3rd volumes of Das Kapital. He discussed with Marx the ideas they both had nurtured and jointly published in the Communist Manifesto. Ironically he was the son of wealthy minor aristocrats. He was also a businessman throughout his life. Didn’t really practice much of what he preached to be sure. ↩︎
2. Engels parents owned large cotton-textile mills in Salford England near Manchester. The worlds first industrialized city. Engels parents were devout Calvinists and raised their children accordingly—he was baptized in a Calvinist Reformed Evangelical Parish. ↩︎
3. The Magna Carta was a document signed in 1215 that established the principle that the king and his government were not above the law: The Magna Carta was written by English aristocracy to protect their rights and property from King John, who was seen as tyrannical. They demanded that traditional rights be recognized, written down, and confirmed with the royal seal. This also constricted the English monarchy from raising taxes. Henry VIII greatly curtailed the Constitution of England citing the divine right of kings. This is enabled him to break with the Catholic church, primarily over finance controls and papal authority.  ↩︎
4. The European caste system had three common classes. The first class was the aristocracy. The second was the church and the third class was everybody else, about 95% of the population at that time.  ↩︎
5. The Worldly Philosophers: the lives, times and ideas of the great economic thinkers. Robert Heilbroner. Touchstone Press 1999. Pages 161-2. ↩︎
6. IBID Pages 161-162. ↩︎