Karl Marx Theory of Labor, Essay Example

Karl Marx was one of the most renowned economists in history. His work laid the foundation for some of the most influential, and yet controversial, economic models in modern day history. Through his book “Capital”, he criticized the capitalist economic model by claiming that such a model would only lead to revolutions and chaos. He claimed that the capitalist model fails to consider the welfare of society by allowing capitalist to oppress the weak and vulnerable by allowing capitalists the power to dictate critical elements of the economy, including the price of labor (wages). He believed that having an economy that was society oriented, society would realize optimum efficiency in investment and social welfare. This formed the foundation of socialist thinking.

Section I

Adam Smith argued that the division of labor was a major, if not the pivotal determinant of economic growth through a continuous self-sustaining process that originated from the manner in whichlabor was distributed to units of labor within an economy. In his theory, the division of labor would result in the increase of output, resulting in technical improvement and the eventual accumulation of capital vital in continuing the process of division of labor. The division of labor arises from the need for players within an economy to exchange (Slavin, 2005). This exchange is limited by the market and factors within the market such as the level of skilled manpower and is driven by the need for each player in the market to satisfy and meet their individual interests. This individual interests drives the need for goods and/or services offered by other players in the market. In doing so, each player meets their own need while satisfying the general welfare of the whole system.

Another element that influences and drives the division of labor is the need to accumulate capital. Man is naturally driven to own or possess, and this is realized by the accumulation of capital. In order for each player within the system to realize growth and/or development, there is the need for an environment that is suitable for all players to coexist, each player realizing their individual interests, relative to the interests of other players within the system. As such, the system has to create legal, social and institutional frameworks within which there is a harmony of individual and collective interests. As such, certain regulations and limitation have to be put in place to govern activities within the system. This would eventually lead to a situation where resource allocation is optimal, leading to an efficient and nearly-flawless system.

Smith advanced the wage-fund theory that stated the value of wages within an economic system would only increase as far as capital would increase. Employers would only be willing to increase wages for employees if and only if capital meant for wages increases (Groenewegen, 2002). In such a case, the demand for labor would increase with the increase in capitals. This means that employers would increase wages when their disposable income increases.

David Ricardo

David Ricardo advanced a theory that was a modification of the labor theory of value. According to Ricardo based his system on the value of land as a result of its fertility. He believed that the amount of profit that can be realized by society is limited and subject to the amount of labor that is required and available to till or cultivate the most infertile land. Fertile land owners experience considerably higher yield compared to infertile land owners. As such, fertile land would attract higher rent rates as compared to infertile land. Infertile land would however realize little to no profits as they are consumed on costs of production and rent.

However, since population grows, and is bound to grow, there arises the need to increase production from all available land. This attracts even higher rates of interest for fertile land. In order for the economy to sustain the growing population, there arises the need to increase labor for infertile land (Bishop, Press, & Tauber, 2010). This causes an increase in the cost of rent even though output is diminishing. Profits then plunge as rent and costs increase. This causes a situation where the increase in population causes a decrease in profits. In this model, the interests of landowners is against the interest of the society.

Karl Marx

Karl Marx advanced a labor theory of value that is founded on the concepts advanced by David Ricardo. In his theory, the amount of labor hours required to produce a given good determines the good’s value. Marx believed that labor power determined the value of labor represented by compensation to labor (wages) (Amin, 2013). Labor power, the ability of a unit of labor to produce goods and/or services, depends on the amount of labor hours that are needed to cater for the basic needs of a given unit of labor so that they are capable of producing goods and/or services. A salient example would be; given that 4 labor hours are required to meet the basic need of a given unit of labor, and one labor hour is equivalent to $3, then the given unit of labor would realize $12 in daily wages.

Section II

Karl Marx advanced a planned economy theory while Adam Smith advanced a market economy. In Karl Marx’s theory, economies would be able to determine the value of labor by determining and defining the amount of labor hours required to meet the basis need of a given unit of labor. Karl Marx believed that the capitalist economy was largely flawed and would never realize a situation of full optimization in the labor markets. He advanced the notion that by having an economy that was fully planned, including the rate at which labor is compensated, the economy would realize its full potential by eliminating capitalistic elements. Such elements include profit, loss, private property rights and money.

Adam Smith advanced the theory of a market economy where the economy is dominated and directly influenced by the market forces of demand and supply. This model creates an economy where the compensation for labor (wages) is determined by the ability of a given unit of labor to seek after their own interests, relative to the policies, rules and regulations that all players have agreed to abide by.

Section III

Karl Marx advanced a planned economy theory while Adam Smith advanced a market economy. In Karl Marx’s theory, economies would be able to determine the value of labor by determining and defining the amount of labor hours required to meet the basis need of a given unit of labor (Amin, 2013). In this theory, since capitalists own the other factors of production apart from labor, they would determine the rate of wages required by each unit of labor, in essence enhancing their profits. This is the foundation of the socialist movement that is the pillar of the Chinese institutions of politics and power.

The Chinese economy depicts facets of both capitalist and socialist principles. A salient example would be the 2008/2009 great recession. As China largely depended on exports to capitalist economies, the recession significantly affected employment within the economy. However, since the communist foundations of the economy required the capitalist class, through the communist party, determine the level of wages, the economy experienced a significant increase in investment in the construction industry. This led to the creation of the 11.8 million employment opportunities for the Chinese economy, boosting expenditure by $13 million in 2009, a figure that matched its expenditure in 2008 (Amin, 2013). This socialist approach aided the Chinese economy amid global economic downturns.

In conclusion, the theory that is advanced by Karl Marx is fundamentally flawed as it postulates that the institutions of power and politics would serve the best interest of society by creating and efficient economy. However, individuals controlling these institutions would end up as the capitalists in the economy, oppressing the weak and vulnerable to their advantage by denying them fundamental rights.

Works Cited

Amin, S. (2013). Three essays on Marx’s value theory. New York: Monthly Review Press.

Bishop, M., Press, A., & Tauber, T. (2010). Economics. London: Profile.

Groenewegen, P. (2002). Classics and Moderns in Economics Volume I : Essays on Nineteenth and Twentieth Century Economic Thought. London: Routledge.

Slavin, S. L. (2005). Economics. Boston: McGraw-Hill/Irwin.