Running Head: Economic Principles of Karl Marx

Economic Principles of Karl Marx







The paper highlights the principles that underlie Karl Marx economics, Marx predicted a revolution by the workers that would replace the capitalist form of organizing the economy with the communist society. Marx stated that there are two groups in the economy and they include the capitalists and the workers who are in constant conflict, there will be capital accumulation by the capitalist who will replace variable capital with constant capital, this will result into a decline in profit levels, as the profits decline capitalist will try to increase their surplus levels by further oppressing workers through lower wage rates and this will trigger a revolution which will replace the capitalist with the communist form of society.

Economic Principles of Karl Marx


This paper discusses the economic principles of Karl Marx, some of the principles discussed in this paper include the stages of economic change predicted by Marx, labor value concept, constant and variable capital, surplus value and profits, declining profits and monopoly capitalism. The following is a discussion of some of these principles underlying Karl Marx economics.

Economic development stages:

This is one of the principles of Marx economics, according to Marx the economy consists of two major groups which include the workers and owners of means of production, he provided a historical description of economic development whereby he pointed out the major stage, the first stage was slavery, then feudalism, then capitalism and finally communism, he viewed communism as a form of economic organization that would emerge from the ruins of capitalism, according to him workers were oppressed and alienated and a revolution would take place that would replace capitalism with the communist form of society. (Benedetto, 1996)

This principle has been criticized by other scholars and some of the critics include the fact that capitalism has become widely accepted and also legal in many economies, it is also evident that economies that have adopted the communism form of society have failed to achieve economic growth and finally workers no longer strive to replace the capitalist form of society as he predicted. (Cunningham, 1993)

Economic Principles of Karl Marx

Labor value:

Labor value was also another principle of Karl Marx economics, labor value refers to the value of a product that is usually determined by the amount of labor utilized to produce the product. This means that he assumed that the value of products depended on the amount of labor used in the production of that product, he stated that the greater the productivity of labor then this means that less labor hours will be spent in producing the product and therefore the lower will be the value of the product. (Skousen,2007)

Regarding wages in the economy Marx pointed out that workers sold labor power to the owner of the production process, according to him the value of wages that prevailed were determined by the market forces which include the demand for labor by the capitalist and the supply of labor by workers, these forces determined the wage rates and given that the means of production were owned by only a few capitalist then workers were the majority and therefore labor supply was high. Wage rate in the economy however were sufficient to enable workers to reproduce labor power. (Skousen,2007)

Constant and variable capital:

Karl Marx distinguished two forms of capital as constant and variable capital, according to him constant capital referred to non reproductive capital, constant capital refers to the capital value that does not undergo any changes in its value in the production process example machinery and raw materials, according to him interest and depreciation costs were transferred to the cost of products and therefore these form of capital does not add value to the product produced.

Economic Principles of Karl Marx

(Karl Marx,1991)

The other form of capital according to him was variable capital, variable capital refers to the portion of capital that represented labor power, labor power produced value to the product that was equal to its value and also produced a surplus. Labor was the sole source of value of the product and this refers to the portion of capital that was spent in hiring of the workers. (Karl Marx,1991)

Surplus value:

From the above discussion it is evident that according to Marx the surplus value is the difference between the value of the product and the value of labor, the surplus value represents the profit gained in the production process, however Marx acknowledged other sources of profit which include interest on capital, rent and the normal profits earned by entrepreneurs. (Karl Marx,1991)

Declining profits:

With reference to his work he pointed out that profit values would fall in future, according to him due to surplus realized in the production process capitalist would invest more in constant capital such as machinery, this would lead to an increase in constant capital relative to variable capital, as a result the profits would fall given that the level of surplus gained from workers would

Economic Principles of Karl Marx

decline and therefore reduce profits. (Karl Marx,1991)

Despite his concept on falling profits Marx suggested ways in which this would be counteracted and this included an increase in exploitation of labor, increased in exploitation of labor refers to further reduction of wage rates in order to achieve desired surplus levels. The other way to counter falling costs will be through foreign trade where capitalist may opt to export their products to other economies in order to achieve surpluses, the other way will be to reduce the cost of constant capital and also the costs of raw materials used in the production process. (Benedetto, 1996)


Marx also pointed out the importance of technology in the production process, technology and machinery were important ingredients in the production process, and technology increased the productivity of labor given that reducing the time taken by laborers to produce his exchange wage value, therefore capitalists aimed at reducing the time spent by labor in the production process by introducing machines in the production process. (Benedetto, 1996)

Monopoly capitalism:

Marx also introduced the concept of monopoly capitalism, monopoly capitalism refers to the increase in surpluses that result into capital accumulation, this process would accumulate

Economic Principles of Karl Marx

capital in a few individuals in the economy and this is what he referred to as monopoly capitalism.

(Hollander, 2008)

He stated that monopoly capitalism would result into increased economies of scale and technology advancement that would reduce the cost of products. Due to this decline in prices of products smaller capitalist would exit the industry and only capitalist with large amounts of capital will remain in the production process, this will occur also as the larger firms purchase the smaller firms. (Hollander ,2008)

The capitalists will face falling profit levels and the only solution to this problem will be increased exploitation of labor, exploitation of labor will involve reducing wages in order to attain desired surplus values, there will be a rise in unemployment and this will be due to technology advancement and population growth, the high unemployment will increase labor supply enabling capitalist to further exploit labor. (Hollander, 2008)

Monopoly capitalist will lead to increased constant capital and as more and more workers become unemployed and due to further exploitation of labor through low wage rates there will be a revolution where the capitalist form of society will be replaced by the communist form of society. (Hollander, 2008)


The above discussion highlights the economic principles of Karl Marx, some of the principles include labor value, capital accumulation, surplus value, falling profits, monopoly capitalism and

Economic Principles of Karl Marx

the stages of economic development change, in general Marx criticized the capitalist society and advocated for the communist form of society


Economic Principles of Karl Marx

Benedetto Croce (1996) Historical materialism and the economics of Karl Marx, prentice hall press, New Jersey

John Cunningham (1993) Karl Marx’s economics: critical assessments. McGraw Hill Press, New York

Karl Marx (1991) Marx on economics, Black well press, New Jersey

Mark Skousen (2007)The big three in economics: Adam Smith, Karl Marx and John Maynard Keynes, McGraw Hill Press, New York.

Samuel Hollander (2008) The economics of Karl Marx: analysis and application, John Wiley and sons, New York.