Marxism

Marxism is the body of economic, social and political thought developed by Karl Marx (1818–1883) and Friedrich Engels (1820–1895). It analyses capitalism as a historical system in which the owners of the means of production, the capitalist class, earn profit by appropriating part of the value created by workers, and it argues that conflict between these classes drives history and will eventually lead to socialism and then communism.

As economics, Marxism grew out of a critique of classical economics, especially David Ricardo's version of the labor theory of value. Its key texts are The Communist Manifesto (1848) and Capital, whose first volume appeared in 1867; Engels edited the second and third volumes from Marx's notes (1885 and 1894). Marxism inspired revolutionary movements and the governments of the Soviet Union, China and others, but the term also covers many academic schools that have no link to any state.

Imagine a workshop where the owner provides the building, tools and materials, and the workers do the making. At the end of the week the furniture sells for more than the cost of the wood, the wear on the tools and the workers' pay. Marx asked where that extra comes from, and answered that it comes from the workers' labor, kept by the owner because the owner controls the workshop.

He believed this arrangement creates two groups with opposing interests, owners and workers, and that the tension between them, along with recurring booms and slumps, would eventually lead workers to take collective ownership of the workshops themselves.

• Historical materialism. The way a society produces its living shapes its laws, politics and ideas, and history moves through stages such as feudalism and capitalism.
• Class struggle. Classes are defined by their relation to the means of production, and conflict between them drives change.
• Exploitation and surplus value. Workers sell their capacity to work for wages worth less than the value they produce; the difference, surplus value, is the source of profit, interest and rent.
• Accumulation. Competition forces capitalists to reinvest and mechanize, concentrating capital in fewer hands and creating a "reserve army" of unemployed workers that holds down wages.
• Crisis. Marx argued capitalism is prone to recurring crises of overproduction and to a long-run tendency for the rate of profit to fall, deepening the business cycle.

Marx split the value of a product into three parts:

• $W$ is the total value of the output.
• $c$ is constant capital: materials and wear on machinery, whose value is passed on unchanged.
• $v$ is variable capital: the wages paid to workers.
• $s$ is surplus value: the new value workers create above their wages.

The rate of profit is then:

Example: a firm spends 60 on materials and machinery and 20 on wages, and workers add value of 40, so $s = 20$. Output is worth 100, the rate of surplus value $s/v$ is 100%, and the rate of profit is $20 \div 80 = 25\%$. Marx argued that as mechanization raises $c$ relative to $v$, the profit rate tends to fall unless exploitation rises.

After Marx's death his ideas shaped socialist parties and trade unions across Europe. Vladimir Lenin's Bolsheviks took power in Russia in 1917, and Marxism-Leninism became the official ideology of the Soviet Union, China after 1949 and other states, which used central planning and nationalization. Elsewhere, Western Marxist thinkers developed the theory in philosophy, sociology and history, and Marxian economists continue to study crises, inequality and globalization. Interest in Marx revived after the 2008 financial crisis.

• The value theory. Eugen von Böhm-Bawerk of the Austrian school argued in 1896 that Marx could not reconcile labor values with actual prices (the "transformation problem"); mainstream neoclassical economics explains prices through marginal utility and supply and demand instead. Marxian economists have proposed several solutions, still debated.
• Predictions. Critics note that real wages in industrial countries rose strongly, and revolutions came in mainly agrarian societies, not advanced capitalist ones as expected.
• Planned economies. Austrian and liberal economists argue Marxist-inspired planning could not price resources rationally; the Soviet bloc stagnated and collapsed by 1991, and famines under Stalin and Mao caused millions of deaths. Many Marxists reply that these states departed from Marx's ideas.
• Method. The philosopher Karl Popper argued that Marxism was adjusted to fit evidence rather than tested by it. Defenders reply that its analysis of class, power and crisis remains useful whether or not its predictions held.

• Karl Marx, Capital, Volume One (Marxists Internet Archive)
• Karl Marx and Friedrich Engels, Manifesto of the Communist Party (Marxists Internet Archive)