UNIT 2 MARXIAN THEORY

Structure
2.1 Introduction
2.2 Marxian Philosophy
2.3 The Marxian Economic System
2.4 The Marxian Model of Economic Development
2.5 A Critical Appraisal of Marxian Theory
2.6 Let Us Sum Up
2.7 References and Selected Readings
2.8 Check your Progress - Possible Answers

2.1 INTRODUCTION
In the previous unit, you studied the classical theories of development. In
this unit, we concentrate on the Marxian theory of development. It was
! propounded by Karl Marx. Karl Heinrick Marx is among the most influential
thinkers, writers, philosophers, and economists of the 2 0 century.
~ He is the
- celebrated author of Das Capital. Marx's approach to understanding the
economy is intellectually independent of his advocacy of revolutionary
socialism. Adherents of Marxian theory consider Marx's economic theories
to be the basis of a viable analytic framework, and an alternative to more
conventional neo classical economics. Marx was the first person to predict
the inevitable doom of capitalism. He said, capitalism is destined to collapse,
not because of population growth, diminishing returns, or stagnation, but
due to sociological reasons, i.e., the class struggle. The concept of socialism
entered the main currents of economic doctrines because of Marx. The Marxist
1
school of thought challenged the foundations of classical theory.
ir
I After studying this unit you should be able to:
I
I
explain Marxian philosophy and the Marxian theory of capital
I accumulation;

I narrate the Marxian theory of economic development;

illustrate the theory of surplus value; and
I
I give a critical appraisal of Marxian theory.
1
' 2.2 MARXIAN PHILOSOPHY
11 Before going into the Marxian theory of development, it is essential to know
about Marxian philosophy. Marx's philosophy is known as Dialectical
1 Materialism. According to his philosophy, matter is the driving force of all
historical changes. By matter, he meant man's relationship to nature as
! characterized by the mode of production. Thus, Marx gave an economic
interpretation of history which can be summarized in two propositions:
I
I
Theories of Development i) The basic factor in the historical evolution of society is the mode of
production. It is the mode of production that explains the whole
superstructure of ideas and institutions.

ii) Society develops in accordance with the dialectical principle inherent in

its structure. Marx maintained that, historically, social change takes place
in a regular pattern.
The sequence of the Mamian stages of social evolution is: primitive
communism, slavery, feudalism, capitalism, and socialism. Marx attempted
to explain how contradictions in the capitalist system will lead to the downfall
of this system which will be replaced by socialism.
The two important constituents of Marxian philosophy are
i) Dialectical Materialism and
ii) Historical Materialism.
These are discussed below.
i) Dialectical Materialism
Marxian philosophy is termed Dialectical Materialism. Mam's philosophical
disposition was greatly influenced by, and at the same time vigorously opposed
by, the German philosopher, Hegel. The influence of Hegel is clear in Marx's
adoption of Hegel's Dialectical Method. Dialectical Method assumes a definite
logical position which maintains that we reach a higher concept by negative
judgments, which, because of the negation, is richer than the original one.
Any finite concept, when considered as a predicate of reality (thesis) will
lead us to its opposite (antithesis). But as the contradiction is repulsive to the
original, the cycle does not stop there. Society moves to the third stage,
synthesis, which reconciles the mutually opposed concepts, and provides a
better description of reality. Thus, in the dialectical process, the thesis and
the antithesis do not cancel each other, but are preserved and enriched in the
synthesis.
According to Hegel, the world is in the process of continuous development
I
and development takes place according to the dialectical formula. In this
respect, Marx, agrees with Hegel. However, he differs on the question of the
motive force of development. For Hegel, the motive force is a mystical
entity, i.e., spirit, which causes human history to develop according to the
dialectical process. Hegel's philosophy was Dialectical Idealism. Marx, on
the contrary, evolved a philosophy of Dialectical Materialism in which he
considered matter, and not spirit, as the driving force of historical development.
It is this philosophy of dialectical materialism on which Marx based his
materialistic interpretation of history.
ii) Historical Materialism
Now, let us discuss the historical materialism put forward for consideration
by Marx. Marx applied his philosophical ideas to society and gave an
economic interpretation of history. Historical materialism is the study of
society and the laws of its development. Historical materialism, as a
philosophy has the following features

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i) It is a philosophical study which deals with objective laws of social Marxian Theory
development. These laws are independent of man's consciousness. Like
the laws of nature, they are knowable and are applied by man in his
practical activity.
ii) It deals with social laws as distinct from the laws of nature. The laws
of nature reflect the operation of spontaneous forces, while the laws of
social development are always manifested through people who act as
intelligent beings. As society is inseparable from men, social laws
manifest themselves only through human activity.
iii) It stuQes the general objective laws governing the development of society.
It investigates the most general phases of world history and the objective
causes of their appearance and disappearance.
iv) It is more than a method of investigating social phenomena. It explains
historical tendencies. History proceeds from lower to higher forms of
social organization. The change to higher forms is inevitable, because
the old forms stand in the way of further progress.
The subject matter of historical materialism includes the study of
the mode of production
the dialectics of the mode of production
the historical evolution of society.
a) The Mode of Production
The mode of production has logic of its own. According to Mam, the
production of material wealth is the basis of human existence, and the mode
of production of wealth is the determining factor of social development.
Society as a distinct entity is a part of nature. It is inseparable from the rest
of nature, and constantly interacts with it. People cannot exist without food,
clothing, shelter, and other necessities of life. Nature, however, does not
provide things readymade. Thus, people must work to produce these things.
Labour, or productive activity, is, therefore, the basis of social life.
The mode of production, which determines the economic structure of society,
has two aspects: (i) the forces of production, and (ii) the relations of
production.
i) The forces of production: This refers to
the organization, skill and status of labour
the techniques and traditions of production
the geographical conditions and degree of knowledge to utilize materials
and resources.
The forces of production determine the relationship between man and nature.
Regardless of the form of society, the interaction between man and nature
consists in the unity of three elements
i) labour
ii) the objects of labour
iii) the means of labour.
Theories of Development Labour is productive human activity that is aimed at transforming natural
objects to satisfy human wants. The objects of labour are the things to which
human labour is applied. In the earth, all raw materials, is the universal
object of labour. The means of labour are the things used by man to act upon
objects of labour. They include all instruments of labour such as, machines,
tools, buildings, transport, etc. Objects and means of labour together are
called means of production. The means of production refers to the sum total
of material conditions, without which production is impossible.

ii) The Relations of Production This refers to a particular set of property

relations which determines the nature of society's class structure. The
relations of production, or the economic relations between people,
determine the relation between man and machine. These relations are
called production relations. According to Marx, production relations are
based on the form of ownership of means of production.

The form of ownership depends on

a) the position (dominating, or subordinate) of various social groups in

production

b) their relations (exploitative, or cooperative) in the production process

c) the distribution of wealth, i.e., mutual exchange of their activity.

The components of the mode of production are summarized in the following

chart

Mode of Production

Forces of Production Relations of Production

Ownership of
Production Means of Production

Object of Means of Position of Relation Distribution of

Labour Labour Social Groups between Social Material Wealth
Groups

b) Dialectics of the Mode of Production

Society develops in accordance with the dialectical principle inherent in its
structure. This means that the mode of production has a logic of its own. The
mode of production changes because of inherent necessity, and is not due to
any external force. The working of the mode of production is governed by
three laws:
 i) The Law of Unity: This law states that the productive forces and the Marxian Theory
production relations, taken together, determine the mode of production
of material wealth. They are linked by an inner unity, i.e., a specific
level of productive forces requires specific production relations.

ii) The Law of Correspondence: This law states that production relations
tend to correspond to productive forces. The changes in the productive
forces induce adjustment in the production relations. The correspondence
of production relations to productive forces operates only as an economic
tendency. It imposes no rigid mechanical dependence of the former on
the latter. It is not a 'law of obligatory correspondence'.

iii) The Law of Conflict: This law states that conflict stems from the
intrinsic nature of the two sides of the mode of production, i.e., the
forces of production, and the relations of production. This conflict is not
accidental. It is inherent in the mode of production. It brings development
in the mode of production.

c) Historical Evolution of Society

The relations of production form the economic basis of the society, while
political and legal views, and ideology and institutions make up its
superstructure. The superstructure is determined by, and acts on, economic
basis. The historical sum total of productive forces, economic basis, and the
superstructure make up the socioeconomic system. The totality of production
relations (property, peoples' relations, and distribution of wealth) constitutes
the economic basis of a society. The economic basis plays an important role
in the society. It serves as the real foundation of social superstructure, which
includes political, legal, philosophical, moral, religious, artistic, and their
corresponding relations, institutions, and organizations. Thus, the economic
basis is that aspect of the mode of production which directly moulds the face
of society, its ideas, and institutions. The superstructure plays a very significant
role in social development. According to Marx, the history of society consists
of the history of the sequence of socioeconomic formations, or the replacement
of one mode of production by another.

I According to him there are five different stages of social evolution

i) primitive communism

ii) slavery

iii) feudalism

iv) capitalism

v) socialism.

Class relations do change with the change in the socioeconomic structure of

each stage.

In this section you have read about Marxian Dialectical Materialism

and Historical Materialism. Now do the exercises given in Check Your
Progress 1.
25
Theories of Development Check Your Progress 1
Note: a) Write your answer in about 50 words.
b) Check your answers with possible answers given at the end of
the unit.

1) What are the main features of Dialectical Materialism?

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2) What are the dialectics of the mode of production?
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2.3 'THE MARXIAN ECONOMIC SYSTEM

In this section, you will study the Marxian economic system in the context
of development. The Mamian economic system is composed of four
components
a) The capitalist economic system
b) The labour theory of value
c) The theory of surplus value
d) The theory of capital accumulation.
' a) The Capitalist Economic System.
1
According to Marx, capitalism is an economic system with the following
elements

i) a capitalistic society is divided into two classes: the capitalists, and the
workers. The capitalists own the means of production, while the workers
do not. The workers sell their services, i.e., labour power, to the capitalists
for wages.

ii) a commodity forms the unit of production in a capitalistic society. A

commodity is defined as the carrier of use-value (utility) and exchange-
value (with other commodities).
iii) the growth of capitalism is based on the exploitation of labour. Labour
produces surplus value which is appropriated by the capitalist.
iv) All commodities are produced with a profit motive and the exchange
equation is m-C-M. The capitalist purchases commodity, C, (labour
26
 power) with money, m, with an intention to sell it (after production) for Marxian Theory
profit, M.

v) The motive force behind capitalism is profit. The capitalist always

reinvests the profit in his business to upgrade technology.
vi) Capitalists adopt labour saving machinery which creates a 'reserve army
of the unemployed'. It results in growing the misery of the working
class.

b) The Labour Theory of Value.

According to Marx, the value of a commodity is determined by the quantity
of labour required to produce it. One commodity has both use-value and
exchange-value. When commodities represent use-values, they are
qualitatively different due to the different forms of useful labour used in
them. Marx was an advocate of the labour theory of value and believed that
all production belongs to labour, because workers produce all value within
society. Marx predicted that capitalism would produce growing misery for
workers as competition for profit leads capitalists to adopt labour-saving
machinery. The Marxian 'industrial reserve army' concept is another way of
looking at 'technological unemployment'. It is not a biological law, but is an
essential feature of the capitalist system. For Marx, a surplus population was
largely the consequence of capitalistic tendencies of capital accumulation,
labour displacing technological change, and the concentration of capital. The
following points explain how the capitalistic process of production leads to
the creation of an ever increasing population.

i) Economic development under capitalism depends upon the accumulation

of capital, which in turn, depends upon surplus value (or, profits). As
long as there is profit, there will be continuous re-investment in the
production process.
ii) In static conditions, capitalists accumulate capital and reinvest it to
expand production, and to reap further profits. Since all round expansion
in production results in an increase in demand for labour (i.e., higher
wages), the surplus value has a tendency to fall. It provides additional
reason to accumulate more capital.
iii) Under dynamic conditions, the greater amount of surplus value goes to
those producers who are capable of producing advanced technology in
production. Technological progress, according to Marx, means adoption
of capital intensive and labour-replacing technology. Hence, the race for
capital accumulation among the capitalists raises the capital output ratio,
which, reduces profits. Ultimately, the capitalist suffers.

c) The Theory of Surplus Value

Labour power has the unique characteristic of being capable of producing
more than its own value when it is put to productive use. The excess of
value produced by labour power over its own value is called surplus value.
The aim of the capitalist is to, always, increase this surplus value. Surplus
value refers to the extra labour of the worker, for which he receives nothing
fiom the producer or employer. It is appropriated by the capitalist. This
implies exploitation of labour. It is the only cause of class conflict, or class
Theories of Development s t r u ~ l eMarx's
. theory of surplus value can be explained by the following set of
equations.

iv) 71: = S / (C+V) = s (1 - k ) *

Where: Y= total income, C= constant capital, V= variable capital, S = surplus
value, s = rate of surplus value, k = organic composition of capital (capital
intensity) and n = rate of profit.
This equation shows that 71: is directly related to s, and inversely related to k. It
means that the profitability of the producer depends, directly, on his capacity to
exploit labour, and, indirectly, on the organic composition of capital. Due to
severe competition, the capitalist tries to raise productivity. Therefore, the degree
of automation rises, and, in turn, the organic composition of capital grows. It
means that the rate of profit increases with the rise in exploitation of labour, and
falls with the rise in constant capital. Therefore, the capitalist suffas h m continual
reduction of his profit and profitability. Capitalism has a built in doom. It will meet
its natural death, eventually, in the long run.

* Proof: n = S l (C+V) = SV / V(C+V)

=sv + S C - SC = S ( C + V ) - S C
v (C + V) V(C + V)
= S - sc = ~ { l - ~ ) = s - k( ) l
v V(C+V) v C+V

6) The Theory of Capital Accumulation

Marx propounded the theory of capital accumulation. Marx contends that under
static conditions capitalists are compelled to accumulate due to two reasons

9 The emergence of surplus value in capitalist production induces the capitalist

to accumulate, and to re-invest.

i The mass effect of this all round expansion of production is an increase in

the demand for labour, rise in wage rates, and reduction in surplus value,
because surplus value is simply the excess of total produce over the subsistence
produce. This provides another reason for an individual capitalist to
accumulate.
A capitalist society is marked by continuous change. Under dynamic conditions
the larger share of surplus value goes to those producers who are able to introduce
the most advanced and efficient technology in production. The race for capital
accumulation among the capitalists', compel them to adopt new technology and
gain huge profits. Capital accumulation depends upon the ability of the capitalists
to raise the surplus value. Surplus value can be increased in three ways
9 by reducing the wage rates Marxian Tht

ii) by extending the working hours

$1 by increasing the productivity of labour.

The first method cannot be pursued for a long time as it curtails labour supply.
The second method can be relied upon only temporarily. Thus, Marx put more
emphasis on the third method of increasing productivity of labour. This involves
technological improvements. Capital intensive techniques increase the total output .
produced by a given labour force and, thus, increase surplus value.
Capital accumulation and technological progress leads to the following three
tendencies
1) The Concentration of Capital
Competition compels capitalists to reduce the price of their commodities.
This is done by increasing the productivity of labour through capital intensive
technology. But the small capitalists fail in this competition, so they are
compelled to exit from their business. Marx terms it as "expropriators are
expropriated".
This tendency of concentration has three effects

i) it results in a larger scale of production

ii) the polarization between capitalists and workers is more sharpened
iii) the capitalist production becomes social in nature, though in its property
relations, it is still private.
An individual worker is now a part of a large social productive process, and
an individual capitalist is the trustee of the society.
2) Immiserization of the Proletariat
Capital accumulation results in the growing misery of the worlung class. The
process of immiserization (i.e., increased unemployment, and reduction in
wages) of the proletariat operates in the following two ways

i) Capitalism produces an industrial reserve army, or surplus toiling class.

In other words, the capitalist system discards workers at a faster rate
than it hires them. This is because of two reasons

a) Under dynamic conditions, when labour saving technology is

adopted widely, the industrial reserve army has a tendency to grow

b) Due to the concentration of capital, larger capitalists prey on small

capitalists. Thus, small producers who cannot face the competition
from big producers also join the industrial army.

ii) The condition of the few workers who remain employed also deteriorates
because

a) Growing unemployment enables capitalists to reduce the wages to

subsistence levels
Theories of Development b) Capitalists also lengthen the working day and hours for more surplus

c) Capitalists resort to hiring women and children at still lower wages than
mea

3) The Falling Rate of Profit

Capital accumulation results in immiserization for the workers and falling rate of
profits for the capitalists. According to Marx, the falling rate of profit is the
consequence of two other basic tendencies

3 Extensive use of capital intensive technology tends to increase capital per

man, or the organic composition of capital (k). With capital accumulation,
capitalists try to get maximum production at minimum costs through the use
of capital intensive technology; and

) Marx assumes constant rate of surplus value (s). These two tendencies lead
to the third eventuality, i.e., the falling rate of profit. This can be easily
understood with the help of a fundamental equation, n = s (1 - k). This
equation implies that the rate of surplus value, the rise in organic composition
of capital (k) reduces the rate of profit.
After having read this section, now you are familiar with the Marxian Economic
System. On the basis of your understanding of this concept, answer the following
questions in Check Your Progress 2.
Check Your Progress 2
Note: a) Write your answer in about 50 words.
b) Check your answers with possible answers given at the end of
the unit.

1) What are the features of capitalism?

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2) Explain the essence of the Marxian theory of surplus value.

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2.4 THE MARXIAN MODEL OF ECONOMIC
DEVELOPMENT
In this section, you will study the Marxian model of economic development. '
According to Marx, secular economic growth at full employment is a
contradiction. There is a class struggle due to the impoverishment of the
30
toiling class. Capital accumulation results in an ever increasing capital-output ratio, Marxian Theory
and declining profits. This economic development path is self destructive. Marx's
theory of economic development is essentially an analysis of capital accumulation,
and it effects. According to Marx, in order to reap greater profits, and to ensure
their existence in the competitive economy, the capitalist producers tend to
accumulate more and more capital, and to introduce mechanization in the process
of production.
This tendency of capital accumulation and technological change has three effects
9 it leads to the concentration of capital in the hands of a few entrepreneurs,
and to the elimination of small entrepreneurs
ii) it leads to the growing pauperization of the working class, and to the
expansion of the industrial reserve army
iii) it leads to the tendency of falling rates of profit.
All these effects are collectively responsible for the eventual breakdown of
the capitalist system.
Marx has contributed to the theory of economic development in three ways

i) he formulated the materialistic interpretation of history

ii) he specified the motivating forces for economic development
iii) he suggested an alternative path for planned economic development
Symbolically, the Marxian theory of economic development can be
summarized by the following equation:
1) Total output (Q) depends on the size of labour force (L), amount of land
(R), stock of capital (K), and techgological progress (T).
Q = f (L, K, R, T),
2) Technological progress (T) depends on investment (I).
T =T (I)
3) Investment (I) depends on the rate of profit (n).
I=I(n)

4) The rate of profit (IT)

is the ratio of surplus value and capital.
= S l (C+V)
5) Wages (W) depend on the level of investment and employment.
w = w (I, L)
6) Labour employment depends on the level of investment.
L = L (I)
7) Consumption Expenditure (E) depends on wage bill (W).
E = E (W)

31
-
L

Theories of Development 8) Profits are determined by the level of technology and consumption.
n = n (T, E)
9) Total output (Q) is equal to profits (n) plus wages (W).
Q =n +w
10) The economy has two sectors: consumer goods and producer goods sectors.
So, the total output is the sum of consumer goods and producer goods
Q = Dg+Kg=E+I
The equation is determinate,because the number of equations and unknowns are
equal. Let us have a look at the system of equations in the Marxian model.

Where: E = consumption expenditure, n = profit, n = rate of profit, K= Capital,

W= wage bill, w = Wage rate, Dg= consumer good, Kg= capital goods, C=
Constant capital, V= Variable capital, S= surplus value, L = Employment
We can observe the circularity of the Marxian model. Let us start with profit as
the prime mover of the capitalist system. High profit -+ Competition -+ Capital
Intensive Technology -+ Capital-Output ratio -+ Profit fall. An increase in
profits brings an increase in investment, and in the stock of capital, which permits
capitalists to take advantage of the steady flow of improved technology. Intense
competition leads to unemployment and a rise in the capital output ratio, and
reduced profits.
In order to remain in the competitive race, capitalists must continually introduce
technological improvements, which means accumulating more and more capital,
and using more and more capital intensive techniques. As a result, capital stock
(K) increases relative to output. Under these conditions, the only way to maintain
the prevailing rate of profit (n) is to increz5e the difference between output per
man (q) and the wage rate (w).This objective can be achieved in the following
32 ways
 reduce the wage rate to the bare minimum level Marxian Theory

add more labour saving techniques which raises q and keeps w at the
minimum level
increase hours of work, which raises q without increasing w
strengthen the monopoly position, which raises prices without raising
wages.
According to Marx, all these measures to maintain the rate of profit prove
self defeating. In the short run, they produce economic fluctuations. In the
long run, these factors lead to the breakdown of the capitalist system. This
is illustrated in the diagram below. The OY axis represents income and the
OX axis represents time periods.
Fig. 2.1: Marxian Model

y a .
Income

0 Time Period X

The classical economists were not concerned with the gap between potential
and actual income. For them, the potential income would stagnate due to
population growth. But, according to Marx, the picture of capitalist growth
would be as shown in Fig. 1. There is growth in income until the downfall
of capitalism through a revolution of the working classes. The figure shows
that Yp is the upper limit of the growth process. It is stable, but Ya is
unstable. The gap appears between the trend of potential GNP and the trend
in actual GNP. But, this gap is the product solely of increasing amplitude of
cycles. Since the national income, in real terms, can not rise above full
employment levels, the increasing amplitude of fluctuations in real terms
means increasingly severe downswings, which brings the trend of actual
income further and further below the trend of potential income. In the short
term, they produce economic fluctuations. In the long term, they lead to the
breakdown of the capitalist system. Mam asserts that the capitalist system
will ultimately collapse because of the following reasons, the falling rate of
profit
over production (market glut) due to high technology
under consumption (low purchasing power) due to the irnmiserization
process
capital-intensive (labour-displacing)automations
class struggle (conflict) due to rising income inequality 33
Theories of Development The economic crises, according to Marx, will have the secular effect of producing
deeper and deeper depressions, and shorter and weaker booms. Despite the best
efforts made by the capitalists, the rate of profit will continue to decline. During
a boom, capital accumulations temporarily create 1 1 1 employment conditions and
bring a temporary increase in wages. An increase in wages causes the rate of
profit to fall, which leads to reduced investment and to depression. Everythmg that
the entrepreneursdo to maintain profits, which increases the misery of the working
class. Eventually, Marx predicts, the workers will not bear it, and, by sheer
strength of their number, they will overthrow the capitalist system throughrevolution.
Marx, however, refers to a number of offsetting factors which arrest the general
law of the falling rate of profit. These factors are

0 technological progress may reduce the cost of constant capital

) the capitalist keeps constant profit by increasing the rate of exploitation

@ intensified activities where weaker capitalists are expropriated

But, Marx f d y believed that these counteracting forces are temporary in nature
and do not nullify the general tendency towards economic collapse. Ultimately, the
expropriators are expropriated. The internal contradictions in the capitalist system
bring about its own collapse. Eventually, the success of capitalism is not sustainable.
Having read the Marxian model of economic development in detail, now try and
answer the following questions in Check Your Progress 3.
Check Your Progress 3
Note: a) Write your answer in about 50 words.
b) Check your answers with possible answers given at the end of the
unit.
A
1) How has Marx contributed to the theory of economic development?
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2) What is the essence of the Marxian Development Model?

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2.5 A CRITICAL APPRAISAL OF MARXIAN

THEORY
Marx's theory of economic development has been criticized on both theoretical
34 and empirical grounds, as follows
 Marxian theory makes a static analysis. Capitalist countries face different Marxian Theory
types of problems, which are not discussed by Marx. His analysis of
crisis is outdated.

The theory of the falling tendency of profit is not correct. Competition

raises capital productivity and improves efficiency which thwarts the
tendency of declining profit.

The empirical evidence does not support Marx's predictions.

Contrary to Marx's prediction, industrial concentration has increased

very little since the turn of the 20thcentury.

Undoubtedly, the capital intensity of production has increased, but,

at the same time, the rate of capital accumulation has been very
rapid. Technology does not create unemployment.

In the industrial capitalist world, the average real per capita income
of the worker has increased, and the working conditions have greatly
improved.

The cyclical fluctuations have not become severe and have not
increased secularly.

Marx's analysis is more indicative rather than definitive. It is correct to

say that technological change results in industrial concentration. However,
we cannot say much, with certainty, about the generation of other
tendencies.

It is uncertain that technical progress will increase the organic

composition of capital.

It is uncertain that technological change will lead to growth in the

industrial reserve army, or, to a fall in the rate of profit.

It is uncertain that both the growth of an industrial reserve army

and the falling rate of profit will prevail at the same period of time.

5) Marx's theory of technological changes is not complete. He did not

explain the response mechanism of the innovation process properly.

6) On the demand side, the excessive demand for capital during the capital
accumulation process will make capital a relatively scarce factor. So,
the p~oducersseek every opportunity to save capital. Marx did not
analyze capital saving technology.

7) It is wrong to assume a constant rate of surplus value along with a rising

organic composition of capital (k). A rise in k means an increase in
labour productivity, which results in a higher rate of surplus value.

8) It is wrong to conclude that a rise in the organic composition of capital

(k) leads to a fall in profit. Any rise in k leads to an increase in
productivity, and improvement in technology. Both these results tend to arrest
the declining trend of profit.
35
 In this unit we have analyzed Marxian philosophy and the characteristics of the
capitalistic economic system. We explained the Labour Theory of Value, the
Theory of Surplus Value, and the Theory of Capital Accumulation. Finally, we
studied the Marxian Model of Economic Development, and examined its validity,
today.

Adelman, I. (1961), Theories of Economic Growth and Development, Stanford

University Press.
Andrew, G (1987), "Marxist Economics," The New Palgrave: A Dictionary of
Economics, Vol. 3, pp. 390-95.
Angus, M. (1982), Phases of Capitalist Development. Oxford University Press.
Blaug, M. (1968), Economic Theory in Retrospect, Oxford University Press.
Desai, M. (1974), Marxian Economic Theory, London: Gary-Mills Publishing
Ltd.
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Cambridge: Cambridge University Press.
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Economic Literature, 28 (3): 1115-1 17 1.
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Keynesian Fallacies, Princeton, NJ: Van Nostrand.
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Blackwell.

2.8 CHECK YOUR PROGRESS - POSSIBLE

ANSWERS
Check Your Progress 1
1) What are the main features of dialectical materialism?
Answer: According to Marxian dialectical materialism, it is matter and not
spirit which is the driving force of historical development. Manr wrote his
36 materialistic interpretation of history on the the basis of dialectical materialism.
2) What are the dialectics of the mode of production? Marxian Theory

Answer: Society develops in accordance with the dialectical principle inherent

in its structure. This means that the mode of production has a logic of its
own. The mode of production changes because of inherent necessity, and is
not due to any external force. The working of the mode of production is
governed by three laws:
3 The law of unity
n The law of correspondence
1 The law of conflict.
Based on these laws it states that the mode of production changes because
of inherent necessity, and not due to any external force.
. -
Check Your Progress 2
1) What are the features of capitalism?
Answer: According to Marx, capitalism is an economic system which has
the following characteristics
a capitalistic society is divided into two classes: the capitalists and the
workers
the growth of capitalism is based on the exploitation of labour
I
the motive force behind capitalism is profit for reinvestment
capitalists adopt capital intensive technology which creates the 'reserve
army'
capitalism results in class struggle due to irnmiserization of the working
class.
2) Explain the essence of the Marxian theory of surplus value.
Answer: Surplus value is the excess of value produced by labour power
I
over its own value. It refers to the extra labour of the worker for which
he receives nothing from the producer. It is appropriated by the capitalist.
The theory of surplus value says that the rate of labour exploitation is
(s) = S / V, and the rate of profit (n)= S / (C+V) = s (1 - k)
where: C = constant capital, V= variable capital, S = surplus value,
k = organic composition of capital.
This equation implies that the profit of the producer directly depends on
his capacity to exploit labour, and indirectly on the organic composition
of capital.
Check Your Progress 3

1) How did Marx contribute to the theory of economic development?

Answer: Marx has contributed to the theory of economic development in
three ways
L

Theories of Development n by specifying the motivating forces of economic development

i by suggesting an alternative path of planned economic development.

2) What is the essence of the Mamian Development Model?

Answer: Marx's model says that capitalism grows on the profit motive.
It leads to the concentration of economic power. In the short run, this
tendency produces economic fluctuations. In the long run, it leads to the
breakdown of the capitalist system. The capitalistic system collapses
because of

a) the falling rate of profit

b) overproduction (market glut), due to advanced technology
c) underconsumption (low purchasing power), due to the
irnmiserization process
d) capital intensive (labour displacing) automations
e) class struggle (conflict), due to rising income inequality.

38