Marxian Economics - Marx's Response To Classical Economics

Marx's Response To Classical Economics

Marx's economics took as its starting point the work of the best-known economists of his day, the British classical economists. Among these economists were Adam Smith, Thomas Malthus, and David Ricardo.

Smith, in The Wealth of Nations, argued that the most important characteristic of a market economy was that it permitted a rapid growth in productive abilities. Smith claimed that a growing market stimulated a greater "division of labor" (i.e., specialization of businesses and/or workers) and this, in turn, led to greater productivity. Although Smith generally said little about laborers, he did note that an increased division of labor could at some point cause harm to those whose jobs became narrower and narrower as the division of labor expanded. Smith maintained that a laissez-faire economy would naturally correct itself over time.

Marx followed Smith by claiming that the most important beneficial economic consequence of capitalism was a rapid growth in productivity abilities. Marx also expanded greatly on the notion that laborers could come to harm as capitalism became more productive. Additionally, in Theories of Surplus Value, Marx noted, "We see the great advance made by Adam Smith beyond the Physiocrats in the analysis of surplus-value and hence of capital. In their view, it is only one definite kind of concrete labour—agricultural labour —that creates surplus-value....But to Adam Smith, it is general social labour—no matter in what use-values it manifests itself—the mere quantity of necessary labour, which creates value. Surplus-value, whether it takes the form of profit, rent, or the secondary form of interest, is nothing but a part of this labour, appropriated by the owners of the material conditions of labour in the exchange with living labour."

Malthus' claim, in "An Essay on the Principle of Population", that population growth was the primary cause of subsistence level wages for laborers provoked Marx to develop an alternative theory of wage determination. Whereas Malthus presented an ahistorical theory of population growth, Marx offered a theory of how a relative surplus population in capitalism tended to push wages to subsistence levels. Marx saw this relative surplus population as coming from economic causes and not from biological causes (as in Malthus). This economic-based theory of surplus population is often labeled as Marx's theory of the reserve army of labour.

Ricardo developed a theory of distribution within capitalism, that is, a theory of how the output of society is distributed to classes within society. The most mature version of this theory, presented in On the Principles of Political Economy and Taxation, was based on a labour theory of value in which the value of any produced object is equal to the labor embodied in the object. (Adam Smith also presented a labor theory of value but it was only incompletely realized.) Also notable in Ricardo's economic theory was that profit was a deduction from society's output and that wages and profit were inversely related: an increase in profit came at the expense of a reduction in wages. Marx built much of the formal economic analysis found in Capital on Ricardo's theory of the economy.