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Although capitalism has been the dominant form of economic system globally in the past 50 years, its success in allowing individuals to self-thrive has been constantly criticized (Meltzer, 2012). Karl Marx’s Volumes I, II, and III of Das Kapital, published in 1867, 1885, and 1894, respectively, famously theorizes the collapse and self-destruction of capitalism. Capital, known as being “a bible of Communism”, gave rise to what is considered modern economics, and underlines issues regarding the absence of equality and productivity within capitalism, with Marx blaming the system for creating the division between the capitalist bourgeoisie and the proletariat (Marx and Levitsky, 2012, pp. 5). Even though inequality is still an issue in modern society, modern economists argue that Marx’s lack of understanding of basic economic concepts and cherry-picked arguments led to a false impression and misanalysis of capitalism. Furthermore, the development of capitalism since Capital’s publication has allowed for an increase in people’s quality of life, showcasing the positive aspects of capitalism Capital fails to explore. Therefore, this essay will argue that while some of the elements of capitalism still hold in modern society, they contain misleading interpretations of capitalist concepts and logically flawed arguments, rendering the criticism valid.
To discern the criticism’s validity, we must first understand the basics of the economic analysis Marx brought up in Capital. Due to length limitations, this essay will critique and base the criticism’s validity on three of Capital’s acclaimed theories. Capital showcases Marxian economics, a new methodology of political economy with “epistemological apparatuses of Hegel”, including Marx’s labor theory of value (Levine, 2008). Marx suggests that while within capitalism labor is viewed as a factor of production and value is unjustifiably determined through supply and demand, the value of commodities should instead be measured according to the amount of labor put into producing it (Econlib, 2019). This, in Marx’s perspective, not only demonstrates the dehumanization of workers but also interlinks with the theory of surplus value which Marx considers his “most important…economic analysis” (Ernestmandel.org, 2019). Marx analyzes this theory as a result of unpaid surplus labor and blames the ruling class, or those with the means of production, for enjoying the monetary profits which otherwise should fall to the workers. This injustice interlinks with Marx’s theory of exploitation, in which Capital explains how the ratio of labor power to surplus value determines the rate of exploitation in capitalism (Elster, 1986). Marx explains in Capital how this rate is proportionate to the rate of wealth accumulation for the ruling class and thus the inherent inequality (Marx and Levitsky, 2012). To determine the criticism’s validity, each of the mentioned theories must be looked at in greater depth to identify any logical flaws and/or lack of understanding of economic concepts.
Starting, Capital’s labor theory of value presents a foundation for Marx’s criticisms of the free market; thus critiquing this theory should provide a clear indication of the criticism’s validity. Despite how Marx’s analysis is valid from a proletariat’s perspective in identifying that capitalists’ profit is the outcome of labor and thus should be rewarded for their skills, Marx’s labor theory of value has been subject to criticisms rendering the theory flawed and full of fallacies. To begin, Marx’s theory assumes that labor is the sole determinant of value, and disregards consumer desires or the contextual nature of value. In Volume I of Capital, he writes that commodities “which contain equal quantities of labor…[have] the same magnitude of value” (Marx, Paul and Paul, 1930, pp. 11). Then, if Marx’s theory holds if the same amount of labor was put into producing a crate of wine 50 years ago, a bottle sold then and a bottle sold now should be valued at the same price. However, this is not the case, as Marx fails to incorporate the basic economic concept of elasticity. Given there is now a presumably lower supply of that specific wine, this causes an inelastic supply, thus leading to a higher exchange value, or what Marx considers the monetary expression of value (Sperber, 2013). Taking this example even further, Don Ernsberger, a modern economist, argues that Capital ignores the disparities of value in different contexts – in a society with much leisure time, wine could be considered to have more value, compared to a society with strict religious beliefs (Ernsberger and Wollstein, 1988). Essentially, Marx focuses solely on the supply side, ignoring the demand side of the economy, which is logically incorrect, as a successful, growing economy must balance the needs of both supply and demand (Rooney et al., 2012). Furthermore, the labor theory of value presents a value-effort fallacy, as it assumes all effort produces value. Even though Marx disputes that only “necessary, simple, social, and abstract labor” creates value, this flawed argument mainly theorizes about the concepts of rewarding productive labor but fails to explain justified, quantifiable ways of rewarding workers, or distinguishing differences in skill (Foley, 2009, pp. 106). Accordingly, Marx’s economic analysis of deriving value from labor is flawed, making the criticism valid for this theory.
As Capital insists that profit stemming from the worker’s labor is contemplated as stealing from the workers, it is suitable that we investigate Marx’s theory of exploitation next. Marx explains that exploitation arises when a worker is called upon to produce additional, unpaid, unnecessary labor and that the labor generated does not create value for the laborer himself (Marx, Paul, and Paul, 1930, page 212). Marx terms this as surplus labor, and by contextualizing the poverty existing in the Victorian era Marx was living in, there was undoubtedly exploitation, from low worker safety to child labor. Even though Marx’s theory still holds in modern society as exploitation is still evident, the analysis behind the theory is the main focus of this essay. Nowadays, there are well-established internationalized institutions and regulatory systems to support workers. Although the legal institution, especially employment and contract law, would help refute Marx’s theory as it would not allow for unpaid labor, that is beyond the scope of this essay. Instead, what modern economists establish as the basic economic concept of the role of the government can be considered, given that current economies are mixed economies, between a free market and a government-controlled one (Saunders and Gilliard, 1995). This concept helps emphasize how Marx’s outdated theory within Capital fails to recognize the government’s prominent role in managing the economy. A well-known example of government regulation is the national minimum wage, which was first introduced in 1938 to prevent exploitation and reduce poverty (Draca, Machin, and Van Reenen, 2011). Even though such regulations were implemented after Marx’s time and may be deemed unjustified to base the validity of the criticism on this argument, additional arguments help highlight flaws within capitalism.
For instance, Marx’s logical flaw in his argument consists of how it does not capture the cause for the disparities in income level, such as the capitalist’s importance in the production process. Capital fails to evaluate that worker’s wages are advanced payments for the products of their labor – house workers build would not be sold in one day, yet the workers never invest in land, equipment, risks, or other factors involved in the production – the capitalists do (Salerno, 2011). This undermines Marx’s argument, as capitalists are not exploiting the workers, they are merely receiving returns on their investments, with any additional profit utilized as an incentive to continue the business. Additionally, this example helps pinpoint the fatal flaw in Marx’s argument, of his inability to grasp that a social actor may play more than one role – a worker is also a consumer, and in this case – how the capitalist is also a worker. Analysis from this perspective helps exemplify how profit may not serve as just incentives or a return on investments, but instead, could be the capitalist’s labor-value (Asatryan, 2013). Connecting this back to the basic concept of incentives which Capital degrades, surplus labor done by the workers can be viewed as an incentive for ensuring future employment opportunities. As incentives act as a foundation for economics, Marx misanalyzed that workers would have only wrath towards the capitalists, as they may also want the capitalist’s business to expand, as this ensures job security – a determinant in motivation and satisfaction (McCaffrey, 2014). Marx’s omission of analysis from the capitalist’s perspective is the basis of flawed arguments and overlooked economic concepts, supporting the validity of the criticism.
Connecting the previous two theories, the theory of capital accumulation is what Marx believed is capitalism’s demise, and thus is the final theory this essay will critique. Volumes 2 and 3 of Capital explain that by reinvesting profits derived from surplus labor back into production, the reconversion into capital is what constitutes capital accumulation. Marx blames the capitalist system itself and concludes that the endless cycle of reinvestment for the sake of profit leads to concentrated wealth in a few capitalist’s hands, resulting in the collapse of capitalism. (Booth, 2019). While economists agree that capital accumulation is present in modern society, most disagree that the collapse of capitalism is imminent. It is suggested that Marx’s analysis is underlined by materialistic bias, as he is focused on the fact that capital, in the form of money, stems solely from the production process (Sweezy, 1974). Within Capital, Marx fails to acknowledge other institutions or factors that cause accumulation, such as the dynamic of power existing between different groups of social actors. Nitzan and Bichler argue that Marx built his argument from the bottom-up, revolving his entire argument around individual labor inputs, while realistically, this logically flawed theory is impossible (Nitzan and Bichler, 2000). In modern society, labor values have become useless in studying accumulation, as intangible and non-quantifiable factors such as social relations – connections with authoritative figures or state institutions can dictate the rate of profit, and thus the rate of accumulation. Additionally, Marx seems to misinterpret investment in his analysis, as he does not mention the positive relationship between investment and economic growth. Despite Marx’s prediction that accumulation of capital will lead to the downfall of capitalism, Capital does not acknowledge how accumulation contributes vastly to GDP, thus affecting both the level of output per worker and the long-run growth rate of the economy (Bond, Leblebicioǧlu and Schiantarelli, 2010). As a growing economy is commonly associated with increased living standards, reinvesting not only redistributes wealth to other capitalists and workers but also fundamentally stimulates jobs and lowers unemployment – characteristics that ultimately enable the capitalist system to thrive. Given the identified logical bias within Marx’s analysis, it is apparent that Capital has bypassed economic aspects of the theory, procuring the validity of the criticism.
Capital still serves as a prominent economic analysis of capitalism, helping to identify weaknesses within the current economic system. Despite Marx’s merit in understanding the disadvantages of capitalism through a cynical perspective, modern economists are right in criticizing that his theories are logically flawed and lack the understanding of basic economics. Starting from his flawed labor theory of value, the relevance of other factors contributing to the exchange value of products, including the price elasticities, is completely ignored. Furthermore, Marx conjugated an additional concept – the theory of exploitation, which failed to appraise the role of the state institution in regulating labor hours or the capitalist’s role in the production process. Marx seems to misevaluate how incentives affect social actors and how they can have more than one societal role. Finally, although Capital’s analysis of the theory of capital accumulation contains merit, Marx’s prediction of the collapse of capitalism is incorrect – instead, the process of reinvestment leads to sustained economic growth and job security. By inadequately basing his theory mainly on labor inputs, Marx misses out on the importance of social factors, thus highlighting flaws in his argument. While Marx’s economic analysis contains merit, the misinterpretation of multiple economic concepts along with flawed, biased arguments renders the criticism valid.
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