Home » Economy » Karl Marx Makes a Comeback — And That’s Okay

Karl Marx Makes a Comeback — And That’s Okay

by John Rubino on April 30, 2014 · 16 comments

A perfect sign of the times is the unexpected success of a 700-page economics text called Capital in the 21st Century by French college professor Thomas Piketty. As of April 30, it is the best-selling book in the world and is generating the kind of controversy that one would expect for what is reportedly an updating of Marxist theory for the Internet age.

I haven’t read it, so can’t comment on the book itself. But the subject is a good springboard for a look at the actual tragedy of Karl Marx, which is that his ideas got tried out in the real world.

There are two parts to Marx’s main theory. One is a critique of capitalism as a system in which the guys who own factories and hire workers coalesce into an international class with a very specific set of goals: to drive workers’ wages down to just enough to keep them alive, to accumulate as much wealth as possible and to use that wealth to take over the political as well as the economic system. Eventually this process reaches a point where the 1% own pretty much everything, the 99% own virtually nothing, and the latter finally get fed up and take it all back for themselves. You get either a violent revolution or a political process that results in massive wealth taxes and comprehensive social programs to redistribute the capitalists’ ill-gotten gains.

So far, so good. This pretty much describes the period since 1971 when the world stopped basing their currencies on gold and began pouring trillions of newly-created, totally-unbacked dollars into a banking system that evolved from supporting real wealth creation to basically running everything for its own benefit. Bankers and their corporate and political allies accumulated vast fortunes while the rest of the world was pushed ever-further down the economic ladder. And now comes the revolution, with rising taxes and massive new entitlements in the developed world (see Obamacare in the US and a doubling of the sales tax in Japan) and violent revolutions in much of the developing world.

So Marx got this right and would be seen as a prophet if he’d stopped there. Unfortunately, he went on to predict that the revolt of the 99% would result in a “dictatorship of the proletariat” in which workers of the world abolished private property and ran things so wisely that government would just fade away.

This is of course crazy, and when it was tried in the 20th century it failed with catastrophic consequences for the Soviet Union, China, and a long list of smaller but no less tragic countries. In case the reasons for this failure aren’t obvious, here are the two big ones:

1) You can’t eliminate ownership of property. If it exists, someone has to own it, and if private individuals don’t, then government does. Governments are run by people and people are infinitely corruptible, so giving politicians and bureaucrats the infinite power of total ownership necessarily, always and everywhere, produces dictatorship. You just end up replacing rapacious but creative international bankers with brutal and uncreative political hacks.

2) This economic vision is static. It says that today’s factories represent society’s “wealth” and that running them right and distributing the proceeds equitably produces a happy world. But a modern economy is dynamic. Today’s factories are constantly being surpassed by tomorrow’s, as entrepreneurs come up with better ways of doing things. This creative destruction is the real source of wealth and the reason that capitalist societies progress — in terms of product quality and cost, if not necessarily in good sense and compassion. Compare today to 1950 and, well, there’s no comparison. One would have to be insane to go back to a time before smart phones, stem cell therapies and the Internet.

To freeze progress by putting bureaucrats in charge of everything is, in effect, telling creative individuals not to bother working 16 hours a day and taking big risks to revolutionize biotech or microchips or solar power because even if they can get their ideas past the people who would be made obsolete, they (the inventors) won’t be rewarded for their efforts in any tangible way. So, as Ayn Rand explained in Atlas Shrugged, the creative class goes on strike and society stagnates.

The result: brutal dictatorships and the eventual dismissal of the Marxist ideas on which those societies are founded.

Which is too bad, because Marx’s critique of the modern world was right-on, and the first half of his scenario is playing out just as he predicted. Now the challenge is devising a monetary/financial reset that brings the 99% back into the game without producing a stagnant dictatorship. It will help if we understand why it’s happening.

  • Dan

    If you want to inject democracy into the work place than WSDE’s, Worker Self Directed Enterprises are the way to go. Democracy in the work place creates harmony between the workers that Capitalism cannot produce, and will never produce since the root word capital will always prevail over labor. Capitalism leads to fascism and democracy in the work place leads to democratic rule in the body of politic.

    America after the war let Germany and Japan into their markets so that they would not evolve into warrior states allowing them to be mercantilists and us the American worker the patsies for their inclusion. The crowning touch came letting the mercanitlist Chines into the party and the results are we are now one of the poorest developed countries in the world, and getting poorer as the neoliberals in both parties continue the attack on the middle class claiming tax breaks for the wealth will bring back capitalism.

  • Matt_Holbert

    I’m not convinced that “smart phones” add anything to quality of life. My wife and I visited family in Canada this past week and the younger members were hard to engage as they stumbled around constantly poking and gazing at their iphones… I’m glad I retired from corporate life before electronic tethers became a requirement. I’m heading out on a bike ride in a few moments sans tether.

  • Johan Rebel

    Do not agree with your summary of Karl Marx. In the first place he did think dynamically, trying to put economics on a scientific basis by looking at it the subject empirically in terms of identifiable stages of developments in social organization. This in contrast to a lot of political economy then (and still today) which thinks of economics dogmatically in terms of laws. He did not view capitalism as a bunch of owners getting together, but as the most advanced form of social organization and production up until then. It was the very dynamics of accumulating capital in order to invest it in new means of production which dictated severe competition for cheap labour but also dictated that one re-invest surplus capital. The capitalist was subject to the same dynamics as the workers, and would be run over by others if he consumed the surplus production instead of re-investing it in more efficient means of production. But there is obviously no point to such a rat-race if nobody benefits.
    Marx in fact did anticipate today’s “financial capitalism” with his “roving cavaliers of credit” although he anticipated banking would be made subservient to industrial progress and regarded unproductive finance as contrary to the logic of progress. Marx did not so much abhor property as that he considered it irrational and ultimately unsustainable that the dividends accruing to progress in the means of production should flow only to the “owners” and not to the rest of society without whose legacy and input there could be no production. A different system of stewardship for society’s capital seemed a logical development to him.

    The fact that so many people still argue for completely hierarchical and oligopolical control of society’s means of productive capacity within a “democratic” society makes no sense in an age where production (AND services) are becoming increasingly automated. There is an inherent contradiction between democracy and heirarchical control of productive capacity and natural resources. There is no creative or productive “class”, and the choice proffered between psychopath kleptocrats or corrupt bureaucrats who stifle progress begs for more more creative developments in our social organization.

  • Mark Brophy

    OK, obviously Marx has made a great comeback but why is that OK? It looks like this is an unwelcome development.

  • David Zuniga

    Being essentially atheist, Marx forced humanity into the wrong categories. Prehensile and rapacious folk are found among all economic classes, top to bottom.

    Some very successful folk are generous — though most, it is true, are Scrooge-like. But the very same can be said, perhaps to an even greater extent, of the very poor. As to good works and generosity, it is mostly found among the ‘middle class’.

    As explained in this monograph, ‘Can Americans Stop the Cartels?’ — these nefarious arrangements are found in every era, every land. Arguably since before the ratification of the U.S. Constitution, cartels have had — and inexorably increased — control of Washington D.C. to a far greater degree than the ‘electorate’ could hope of wielding.

    http://www.americaagainnow.com/can_americans_stop_the_cartels

    Books such as Ferdinand Lundberg’s 1980’s book ‘Cracks in the Constitution’, and Kenneth Royce’s more recent work, ‘Hologram of Liberty: The Constitution’s Shocking Alliance With Big Government’ beg the question of abdicating sovereigns. Lundberg may be excused (his work came before the Information Revolution), but neither author allows for today’s reality. In this Internet age, humanity has unprecedented opportunity to level the field — and no one more than we Americans.

    The linked monograph above, explains the solution. True, Great Depression II will most likely have to be well underway before this solution will be hailed by the masses — but because it is law enforcement rather than a political mechanism, it is obtainable even if only a tiny minority (ca. 1%) runs with the ball.

  • B

    The error in your logic is that Karl Marx was not just “theory”, but also “practice.” Practice is the “dialectic” in dialectical materialism. Marxists don’t waste time on predictions, they work to make the prediction happen. It’s like saying the tree in your front yard is going to fall and then going out every morning and putting a saw mark to it. For example, why wouldn’t you create a wealthier refrigerator company, when you promote immorality and rebellion, which creates more divorce, which creates the need for 2 refrigerators? A revolution has never occurred naturally that would overthrow a patriarchal structure and replace it with a dictator ruling over collectivism. They are two entirely different paradigms. No, collectivism has always been facilitated like a culture in a petri dish.

  • ditkofan

    Sorry Mr. Rubino, it’s not okay for Karl Marx to make a comeback.

    Mr. Rubino is wrong about thinking Karl Marx being a explainer of capitalism or prophet of what it would lead to. All of Marx’s major predictions never happened. Here is Marx’s biggest flop as a prophet: He expected the communist revolution and what others called the subsequent “dictatorship of the proletariat” to occur in the most industrialized nations of the world such as England, Germany and America. Why? Because modern capitalism was invented in those countries and that is where the capitalist ruling class was most entrenched and rapacious and had therefore supposedly accumulated the largest number of desperate and impoverished workers ready for revolution. The only communist revolutions however happened in countries that had mostly agricultural economies with most of the people being peasant farmers, like Russia in 1917 and China in 1947. There were very few capitalist owners and industrial workers in Russia in 1917. And of course the common people in Russia and China and all other communist countries never benefited from communism like Marx said they would once he evil capitalist were expunged. The only people who benefited were the new communist government rulers who used Marxist ideology as an excuse to seize power.

    You don’t have to take my word for any of this. The Austrian School economists long ago correctly debunked Marxist theory.

    Marx wasn’t wrong about every detail of his analysis of capitalism to be fair. It is true that he was correct about some capitalist owners being ruthless and greedy, hardly an original observation by him. But that fact didn’t translate into 1% of the wealth being concentrated into the hands of the capitalists with the other 99% having almost nothing as Mr. Rubino says. The historical record shows otherwise: Marx’s essay “The Communist Manifesto” was published in 1848 and his big book “Das Kapital” was published in 1867. What happened to the industrial workers of the world after 1848? Did their life get worse and worse under capitalist oppression making them prone to revolution as predicted by Marx? No. Their standard of living increased slowly but steadily over time. Why? Because free market capitalism is such a powerful productive force that it creates an ocean of wealth that lifts all boats, owners and workers alike. German, British and American workers were far richer in 1900 than they were in 1848 and richer still for years to come as long as the capitalist golden goose was laying the eggs.

    Capitalist owners have to compete for workers in a free economy which drives up high skill workers’ wages. Even many low skill workers made pretty good money (Henry Ford paid his auto workers 5.00 a day in the early 20th Century which was good money in those days.) A low skill worker in a factory in the middle 19th Century was still better off than his grandparents living as impoverished peasants in a feudal society before capitalism was invented. And the children and grandchildren of those early factory workers were better off still, mostly due to free market capitalism which created the factories that paid the wages that were better than what could be earned pushing a plow 12 hours a day on a dirt farm owned by the feudal lord. Marx never saw or understood any of this. He also did not foresee the rise of a prosperous middle class created by capitalism that benefited the workers and forestalled any potential revolution. He was a total flop as a prophet. Oh, you say it was government redistribution programs like Social Security that created the middle class, not capitalism. Nope. Most of America’s social welfare programs came from taxes on a rich economy created by capitalism. So it was capitalism that undergirded and supported our welfare programs, at least until 1971 when the government went off the gold standard allowing it to just print money for its welfare state instead of taxing it from the economy.

    Mr. Rubino is right about the standard of living for many people slowly backsliding in America since 1971. But that backsliding has nothing to do with Marx being right about the alleged pernicious effects of capitalism. The current eroding middle class and economic concentration of power into the hands of fewer and fewer rich people isn’t due to the capitalist eating each other up with only a handful of the strongest as survivors, the rest being hurled down into the proletariat as Marx predicted. Our current problems come from the reduction of the amount of free market capitalism in America and its replacement by “crony capitalism.” Crony capitalism is what we have had since partly since 1933 and more so after 1971. We now have a big quasi-socialist government that picks winners (its cronies) and losers in the marketplace and strangles the formerly free productive economy with endless government rules that restrict the free market; America’s version of the “dictatorship of the proletariat” if you will.

    Mr. Rubino is correct in a sense with his quote about the “actual tragedy of Karl Marx, which is that his ideas got tried out in the real world.”

    Marx’s life was indeed a tragedy for the human race. Marx was a poor academic egghead who spent much of his life in the book section of the British Museum misreading economic and history books. From this he cooked up his screwy economic theories like “surplus value” and such that don’t that fit in or explain the real world. None of this would have done any harm and he would would be forgotten today except that bloodthirsty revolutionaries like Vladimir Lenin bought into Marx’s quackery. Lenin needed some fancy nice sounding theories about capitalist exploitation to provide a rallying point for his take over of Russia. All of the millions of people murdered and enslaved in Russia and other communist countries since 1917 are indeed the long delayed but inevitable victims of Karl Marx. And the tragedy of Marxism touches we Americans also. All of the Leftist politicians, government bureaucrats, college academics and fellow travelers who have been building America’s quasi-socialist economic system since 1933 can trace much of their collectivist spiritual lineage back to Karl Marx.

    All of the observations by Mr. Rubino in the rest of his essay which explain the disastrous failures of the “dictatorship of the proletariat are spot on correct.

    Lewis Forro

    Virginia Beach, VA

  • misterkel

    “If it exists, someone has to own it.”

    Lost me there, John. Who owns the sun? or the air? Sorry, ownership is not a baseline reality of the universe. It’s a construct of the mind.

  • http://PeterPalms.com/banking Peter Palms

    It is inspiring to read unanimous comments by the following 20 or more readers who all agree with your conclusions are unjustified and illogical. I spend 10 hours per day these past 5 years on internet websites and alerts to news. This is the first such occurrence.
    Brilliant and hope inspiring that American may yet recover control of their government

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  • Augdog

    The air “exists”, so does water, so does the Earth. Does someone “have” to own those too? Also, I think anyone who thinks the internet, stem-cell therapy (which so far as only really benefited those 1%’s), and smart phones have actually made the world better is insane.

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  • Pim

    Well Mr Rubino, your interpretation of Marx is totally wrong. You say: “There are two parts to Marx’s main theory. One is a critique of capitalism as a system in which the guys who own factories and hire workers coalesce into an international class with a very specific set of goals: to drive workers’ wages down to just enough to keep them alive, to accumulate as much wealth as possible and to use that wealth to take over the political as well as the economic system. Eventually this process reaches a point where the 1% own pretty much everything, the 99% own virtually nothing, and the latter finally get fed up and take it all back for themselves.”

    Capitalism or a free market doesn’t work this way. Marx was totally wrong in his analysis of capitalism and his prediction that workers would be expropriated. Under capitalism a middle class was formed which is unprecedented. So, its totally the other way around. Capitalism brings prosperity for all and it makes social mobilization possible. .

  • johnmerryman

    The money is not “not backed by anything.” It is backed by public debt. The fallacy of capitalism is that money is a contract which we treat as a commodity. A debt is a promise, a contract. Given everyone, rich and poor alike, want to accumulate as much as possible, there is overwhelming pressure to create as much notational value as possible. The problem is the basis of this currency is the health, wealth and productivity of the country issuing it. Since the only way to store this wealth is either to remove it from circulation, or to invest it in some way that will at least produce a return commensurate with the risk, this creates two unhealthy processes. If it is removed from circulation, then more must be issued in order to keep the system functioning. Also investing eventually creates bubbles and pyramid schemes, as the amount of productive forms of investment are limited by physical circumstance, so the ‘greater fool’ method of speculation takes over.
    We have alleviated some of this by having the government borrow up enormous amounts of this capital, but that is creating an ever larger bubble which will potentially destroy the currency on which all these other forms of financialization are based.
    Consider that when Paul Volcker ‘cured’ inflation, he did so by restricting the flow of fresh money into the system, with higher interest rates and selling debt used to create the money in the first place. The problem is that higher interest rates reward supply and punish demand and since the problem is oversupply of capital, this is counterproductive. It only seemed to work by 1982, by which time the Federal government was borrowing upwards of 200 billion a year and that was real money in those days. It was this extra borrowing that provided the demand for capital that finally dried up the surplus and brought inflation under control.
    Remember that when the Fed sells debt to draw in excess capital, it is selling to those with a surplus in the first place, so by this logic, excess capital is in the hands of those with an excess, not what is being used to lubricate the economy. Obviously those with an excess would prefer not to think of it this way and so having the government borrow it up for any number of uses, such as extraneous wars and large militaries, works just fine. The problem is that these are not productive investments that will produce a return on the money, yet the public still has to pay them off, which serves to siphon value out of the economy in general and thus weaken the basis for the currency.
    Now if we were to truly treat money as the contract between a community and its constituents, that it is, we need to understand how it all functions. It is an economic medium, like a road system, or blood in the body, or water in a convection cycle. As such it is most productive and effective when it is most evenly distributed and large reservoirs do not overwhelm the system, such as hundreds of trillions in derivatives etc, on a world economy valued in the tens of trillions. Now one of the primary reasons most people save money is for time when they need extra, so other systems have to incorporate these needs as a form of shock absorber. For one thing, we often view social relations and environmental resources as sources of value to be mined. Yet if we understood the monetary medium as a form of public utility and do not actually own these notational units, anymore than we own the section of road we might be using, there would be far greater reluctance to sacrifice tangible, near term relations and resources to convert into currency. So such things as education and care for the young and old become much more of a social function that doesn’t need nearly as much monetary input, or possibly forms of local currencies would grow up to serve these local needs. Conversely, those caught hoarding or otherwise abusing the system would have their store of notes penalized and this would further encourage alternate stores of value.
    Then banking would be much more of a local and civil function and as it developed foundational strength, then broader regional cooperatives could develop, with the understanding the structures can only be as big as the foundations can support and blowing up enormous functionally illusionary bubbles, even if they seem all sweet and inviting to begin with, are to be viewed with concern regarding structural weakness they might be hiding.
    This might all seem far fetched at the moment, but even bubbles as big as the one we are currently experiencing, do eventually pop and then we will have to start over again, without nearly as much raw materials as last time.
    Regards,
    John Merryman


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