Karl Marx

Who is looking for more information about Karl Marx will find them, who would have expected it, on wikipedia: see Karl Marx.

It can be said that economics as it is taught today has as well an ideological character, but this is only the light version. But marxism is a different kind of beast. Normally ideologies are more subtle. In socialist countries marxism has a constitutional rang.

Se puede opinar que también la economía que se enseña hoy en día tiene un carácter ideológico, pero esto siempre es la versión ligera. El marxismo es otra categoría, porque sirvió como fundamento ideológico, para no decir religión, en cantidad de estados, por ejemplo en la ex Alemania del Este.

Verfassung der Deutschen Demokratischen Republik vom 6. April 1968 (in der Fassung vom 7. Oktober 1974)

Artikel 1

Die Deutsche Demokratische Republik ist ein sozialistischer Staat der Arbeiter und Bauern. Sie ist die politische Organisation der Werktätigen in Stadt und Land unter der Führung der Arbeiterklasse und ihrer marxistisch-leninistischen Partei.
Constitution of the Democratic Republic of Germany of 6th of april, 1968 (in the version of the 7th of ocober, 1974)

article 1

The Democratic Republic of Germany is a socialist nation of workmen and farmers. It is the political organisation of the workmen in the town and on the land under the guide of the working class and the marxist-leninist party.

There is little space for possible misunderstandings. Other parties can exist, and actually existed, but all of them were guided by the marxist-leninist party.

And similar in the constitution of Cuba.

artículo 5o.- El Partido Comunista de Cuba, martiano y marxista-leninista, vanguardia organizada de la nación cubana, es la fuerza dirigente superior de la sociedad y del Estado, que organiza y orienta los esfuerzos comunes hacia los altos fines de la construcción del socialismo y el avance hacia la sociedad comunista. article 50: The comunist party of Cuba, martian and marxist - leninist, organised vanguardia of the cuban nation is the guiding force of the society and the government, that organises and guides the all the efforts aiming to reach the construction of socialism and the advance towards a comunist society.

It is hard to believe that Che Guevara or Fidel Castro had ever read Karl Marx and still less that they were able to compare marxism with other ecnonomic theories what would be the basis of choice. If someone only knows one theory, he can't chose between several theories. We can even say, he is not free, because freedom includes the possibility to take conscious decisions between several alternatives.

This is a manual about ECONOMICS and not about HISTORY. We have therefore no intention to analyse all the historical errors of the United States committed in Cuba and in South America and there is little doubt that the situation in Cuba and in other south american nations was unacceptable. The question is however if a redistribution of the national income is only possible through a redistribution or socialisation of the means of production or if it is not easier to enhance the human capital of the underprivileged and excluded, by improving the access to schooling, founding universities etc.. Marx and all the movement inspired by Marx believed that qualification follows "capital". (More precise: Qualification is not a big issue in marxism, as we will see later on.) Actually it is the other way round. "Capital" follows qualification. It is much easier for qualified people who can run a company to find capital than it is for capital to find profitable investments if there are no qualified people. We will return on the topic in the chapter about Joseph Schumpeter.

By qualification the author understand the real capacity to produce marketable product. A lot of economists or lawyers are not helpful. The first ones will move curves around on sheets of paper assuming that companies exists, will therefore abstract from the real problem, the inexistence of companies. The second has the ability to resolve legal problems that would eventually raise with increasing economic activity, but doesn't exist in reality if there is none.

Really fascinating is the article 9 of the constitution of the now vanished Democratic Republic of Germany.

Artikel 9

Die Volkswirtschaft der Deutschen Demokratischen Republik beruht auf dem sozialistischen Eigentum an den Produktionsmitteln. Sie entwickelt sich gemäß den ökonomischen Gesetzen des Sozialismus auf der Grundlage der sozialistischen Produktionsverhältnisse und der zielstrebigen Verwirklichung der sozialistischen ökonomischen Integration.

article 9

The economy of the Democratic Republic of Germany is based on the socialist property of the means of production. It develops following the laws of socialism on the basis of the socialist relationships of production and the goal-oriented realisation of the economic socialist integration.

We have already said that for a lot of reasons neoclassical theory and marxism is actually the same thing, although they believed themselves to be opponents. Neoclassical theory, especially Léon Walras, believed that the economy is steered by laws as strong as the laws that makes turn the moon around the earth and the earth around the sun. That's the same thing in marxism. The economy develops "following the laws of socialism".

If the economy follows universally valid laws human beings can do as much to change its course as they can do to change the course of the planets. The only thing that can be done is sit, observe and wait. The economist has the same role as astrophysics. They can observe the universe, but there is no way to change it.

It is therefore nothing astonishing that words like entrepreneur, decision, risk, incentive etc.. don't appear nor in the works of Karl Marx nor in the work of the Léon Walras. Karl Marx name his book The Capital, not The Capitalist and obviously not The Entrepreneur. Capital is a force that pushes history to an end with the same security that gravity pushes a stone back to earth.

One can ask oneself why we need a socialist mouvement, if the end of history is as sure as the fact that a stone rolls down the hill. That is something we learn if we read articles from university professors of economics of the now vanished Democratic Republic of Germany.

Nur wenn die Zielstellungen des menschlichen Handeln auf wirtschaftlichem Gebiet den objektiven ökonomischen Gesetzen entsprechen, stimmen die tatsächlich erreichten Resultate mit den Zielen überein. Insofern gilt, was F. Engels, bezogen auf die Naturgesetze, feststellte: "Nicht in der geträumten Unabhängigkeit von den Naturgesetzen liegt die Freiheit, sondern in der Erkenntnis dieser Gesetze, und in der damit gegebenen Möglichkeit, sie planmäßig zu bestimmten Zwecken wirken zu lassen." Auch im Sozialismus bestimmt nicht der gesellschaftliche Überbau, bestimmt nicht der Wille der Menschen die Produktionsverhältnisse. Eine solche, dem dialektischen und historischen Materialismus widersprechende Auffassung ermöglicht nicht, sondern verhindert die Ausschöpfung der großen Vorzüge des Sozialismus, die in der bewußten Verwirklichung der objektiven Gesetze liegen.
Only if the objectives of human activities in the context of the economy correspond to the objective laws the results actually obtained complies with the goals. To this extent it is true what F.Engels stated in relationship to the natural laws: "Freedom doesn't consist in a dreamed independence from the natural laws, but in the knowledge of these laws and the resulting possibility to use them in a planned way for a certain purpose." In socialism as well it is not the social superstructure, not the will of man that determines the productive relationships. Such an opinion, contradicting the dialectical historical materialism, does not allow the exhaustion of the big advantages of socialism, that rely in the conscious realisation of the objectiv laws, but impede it.

What he wants to say is this. If we want to send a probe to the Saturn, we can make use of the gravity to give swing to our probe, but we can't work against gravity. A socialist government can therefore doing nothing but accelerate the process to a socialist country a little bit, but it would happen anyway.

This is actually very similar to neoclassical thinking. In neoclassical thinking the productive factors, labour, capital and land get paid with their (monetary) marginal output and any attempt to change that are useless, because it is impossible to fight against objective economic laws.

Therefore the difference between what was taught at the faculties of economic in socialist countries and what is taught nowadays is not very different. Both lines of thinking has nothing to do with reality. There is actually no need to prove that. It is obvious.

The real difference between neoclassical theory and marxism is the fact, that neoclassical theory is something that remains in the academic sector, but has little or no impact outside this sphere.

Before we continue: There is mixture in public debate between purely "political" issues and economics. We are not going to discuss all the conflicts in the third world and elsewhere after world war II, nor the role played by the Soviet Union in the Prague Spring or the Hungarian Revolution of 1956, nor the role played by the United States in the deposing of the President of Guatemala in 1954 or Nicaraguan Revolution or other several hundreds events of this kind. These events can perhaps be explained by a lack of economic knowledge, but can't be assigned to a certain line of thinking. We are only analysing economic theories from a logical point of view.

Neoclassical theory never was relevant outside the academic sphere. Marxism is a different kind of beast. In a civilised society nobody would take the marxist nonsense seriously, but if it is taught everywhere and if the domination of the marxist jargon is condition for any kind of career everybody will end up believing that a rectangle is round.

There are millions of texts like that. What this chap dominates is the jargon, the content is actually irrelevant. "Conscious realisation of the objectiv laws" doesn't mean anything in this context. It is quite obvious that an engeener has to take into acount the natural laws, otherwise his machine will not work, but as a steering mechanism the "objective laws of socialism" are meaningless and actually there are none.

Karl Marx "explains" us that the economy will get more and more monopolised until the "expropriators are going to be expropriated". However he doesn't tell us what is going to happen than.

[We put aside the little problem that actually the expropriation of the expropriators can happen at any time, there is no theory needed to do that, expecially if we don't have a clear definition of "expropriator". Is only Chrysler an expropriator or already the baker with two employees? And what if the employee at Chrysler earns three times more than the baker and the baker wants to be exploited by Chrysler?]

Marxism only "explains" that at the end the means of production are "socialised", in other words belongs to the "people", although it is unclear who are the people in this context. In practice the means of production belonged to the "government". This is all the "objective laws of socialism" are about, but that means actually nothing.

It is perfectly conceivable that the means of production belong to the people and the economic order is "capitalistic", in other words steered by the mechanisms of free market economies, see optimal allocation of resources. This would be for instance the case if all companies where stock companies and the stocks were owned by the people and not by the government. In this case the companies would be run by managers without capital, who had an interest in outperforming competing companies, whose shares are hold as well by the people, or by a steering company inside the company, who would have as well an interest in outperforming competing companies.

There is actually no relationship between the question to whom the means of production belongs to and the the economic order and there are indeed very big companies, which belongs entirely or in part to the government, for instance VW in Germany, in part, or Renault in France, completely, although they behave like "capitalistic" companies.

Concerning the crucial questions of any economy, who decides what is produced, how it is produced and for whom is produced there are no "objective socialist laws". The question is not even adressed by marxism.

If we want to summarise the story marxism assumes that once all the expropriators have been expropriated and the means of production have passed to the "government", all the workers and farmers don't need any incentive to work, because they work altruistically for the general interest and a wise governmental steering commission knows best how things should be produced and adaption to a change in productive structure happens at speed of light. After the expropriators have been expropriated all economic problems are resolved.

It seems that then scarcity and the allocation of resources will no longer be a problem or that the "objective economic laws of socialism" guarantee that the scarce resources are used in an optimal way.

The problem with marxism is obvious. In a democratic society it is not a big problem to "socialise" the productive means. There are even different methods to do that and actually different methods are discussed, some of them are even very intelligent.

The restructuring of the energy sector, substituting the nuclear power plants by renewable energy, in Germany for instance is very, but very expensive and the question is how to finance that. A possible way would be to issue shares and to guarantee that poor people can afford buying them. People would then not only pay the electricity bill, but would as well earn money.

Some central industries, for instance water supply, are actually almost ever owned by the "government", by the national government, by the federal state or by the community.

When it comes to practise, marxism is completely meaningless. Expropriate the expropriators means nothing in terms of the real world and beside that the basic economic problems, who produces, what and how for whom are in no way resolved this way.

Marxism like scholastic theology is a pure word formation with nothing corresponding in the real world. The Capital of Karl Marx is 3000 pages full of meaningless trash written in a horrible style. We find in this chef d'œuvre sentences of a surrealistic beauty.

Die Nützlichkeit eines Dings macht es zum Gebrauchswert. Aber diese Nützlichkeit schwebt nicht in der Luft. Durch die Eigenschaften des Warenkörpers bedingt, existiert sie nicht ohne denselben.

Karl Marx, Das Kapital I, 1. Abschnitt, Ware und Geld
The utility of a commodity assigns it a value of use. But this utility is not floating in the air. Because of the specific characteristics of the body of the commodity, it doesn't exist without it.

What he wants to tell us it, that something that is useless is useless. That's true!! If you want to cut something, you need a knife. You don't have the body of the commodity, the knife, and the capacity of cutting something is floating in the air. No, that doesn't work like that!!

However the sentence " Because of the specific characteristics of the body of the commodity, it doesn't exist without it" is wrong. The fact that the knife has the needed characteristics is the effect, not the cause. We can cut with a knife, because it has the needed characteristics. To put it the other way round, it has the needed characteristics because we can use it to cut something, is wrong.

But we have learned such a lot of things by this sentence, that we overlook such minor details.

The stunning fact is that. In normal live we would say that people like Marx are mad. But if the madness is taught everywhere, people start to believe that the madness makes sense. That remindes to the absurde theater play Rhinoceros of Eugène Ionesco.

From a literary point of view, Karl Marx is better than Eugène Ionesco. Eugène Ionesco showed absurdity on the stage of a theater, Karl Marx showed it in reality. For fifty years at any level of the education system in socialist countries students learned sublim sentences like that and reproduced them in exams.

Der Gebrauchswert verwirklicht sich nur im Gebrauch oder der Konsumtion.

The value of use is only realised in the consumption.

That means that it is not enough to bake bread. In order to have bread a value of use one has to eat it!! If people just throw it in the can, it has no value of use!! That is true!! But if someone were aked in an exam a question like "what is needed to a commodity for having a value of use" nobody would answer "consumption". That is tricky. Nonsense has to be learned.

Every one reading the marxist trash asks himself after 50 pages of gossip for what this trash is needed given that the practical value of use is zero.

We never said economics as presented at the universities is optimal, however, if we put aside Vilfredo Pareto and Léon Walras, who belong the categorie Karl Marx, is at least sometimes in touch with reality.

Marx is a surrealistic gossip from the beginning to the end. Marx is able to write 50 (in words fifty) pages about the distinction between exchange value and value of use. This can be said in two sentences. The concept would be wrong anyway, but at least it would be shorter. We can change one bread for one apple because both contain the same amount of labour, this is what Marx believes.

Anything, provided that it has any value of use, can be changed by something else that contains the same amount of labour. The concrete value of use becomes more and more irrelevant in trading. In money for instance the value of use is completely inexistent. With a one dollar note we can do nothing concrete.

[Actually the whole theory is wrong. Money can be everything that is scarce, by nature as gold, or by law as fiat money. If people use this money, whatever it is, as a means of payment, they will spend it following their needs and preferences. Therefore we will get MARKET PRICES, values are irrelevant, an equilibrium between the supply side, determined by the costs of production and the supply side, determined by the preferences and needs. The relationships between the different prices reflect the supply side as well as the demand side. It is as simple as that.]

For Karl Marx prices are a mystery.

Sieht man nun vom Gebrauchswert der Warenkörper ab, so bleibt ihnen nur noch eine Eigenschaft, die von Arbeitsprodukten. Jedoch ist uns auch das Arbeitsprodukt bereits in der Hand verwandelt. Abstrahieren wir von seinem Gebrauchswert, so abstrahieren wir auch von den körperlichen Bestandteilen und Formen, die es zum Gebrauchswert machen. Es ist nicht länger Tisch oder Haus oder Garn oder sonst ein nützlich Ding. Alle seine sinnlichen Beschaffenheiten sind ausgelöscht. Es ist auch nicht länger das Produkt der Tischlerarbeit oder der Bauarbeit oder der Spinnarbeit oder sonst einer bestimmten produktiven Arbeit. Mit dem nützlichen Charakter der Arbeitsprodukte verschwindet der nützliche Charakter der in ihnen dargestellten Arbeiten, es verschwinden also auch die verschiedenen konkreten Formen dieser Arbeiten, sie unterscheiden sich nicht länger, sondern sind allzusamt reduziert auf gleiche menschliche Arbeit, abstrakt menschliche Arbeit.

Karl Marx, Das Kapital I, 1. Abschnitt, Ware und Geld
If then we leave out of consideration the use value of commodities, they have only one common property left, that of being products of labour. But even the product of labour itself has undergone a change in our hands. If we make abstraction from its use value, we make abstraction at the same time from the material elements and shapes that make the product a use value; we see in it no longer a table, a house, yarn, or any other useful thing. Its existence as a material thing is put out of sight. Neither can it any longer be regarded as the product of the labour of the joiner, the mason, the spinner, or of any other definite kind of productive labour. Along with the useful qualities of the products themselves, we put out of sight both the useful character of the various kinds of labour embodied in them, and the concrete forms of that labour; there is nothing left but what is common to them all; all are reduced to one and the same sort of labour, human labour in the abstract.

Charly didn't understand that commodities don't have a "value", nor from the supply side, as assumed by David Ricardo, nor by the demand side, as assumed by Carl Menger. Commodities have a market price. If Charly wants to by something, he has to pay the market price. He can argue with the seller that the price is to high in relationship to the labour materialised in the commodity, but the seller will not be convinced. It is even possible that he has to pay for something where no labour at all is materialised. If he wants for instance put his towel on the beach of Copacabana he has to pay for that, albeit no labour is buried in the sand. The seller at the other side can't say that the price should be higher because more labour is materialised in the commodity. If the buyer is not willing to pay this price there is very little he can do.

Only if both side of the market are taken into account, we can determine the "value", the market price. See cardinal measurement of utilitiy.

The market prices can change all the time, they can increase, decrease and increase again, independently from the labour materialised in the respective commodity. Marx will always say that the simple labour had become a more complex labour or the other way round, see profit rate, that the simple reproduction had become an extended reproduction or something like that, but there is no need to discuss all that, because it is irrelevant.

Even Charly could have been aware that the labour accumulated in food are not the reason of the changes in the price for wheat and other food. Food prices depends on climatic conditions. The labour "materialised" in the food is always the same, but the supplier will realise after a bad harvest that demand exceeds supply and that they can therefore raise the prices.

We will see later on that in the third volume, see profite rate, Marx himself refutes the thesis that labour alone determines the value of a commoditiy and the only productive factor that produces an added surplus. If these were true, a worse composition of capital should lead to a falling profit rate. However there is no relationship between the composition of capital and the profit rate. The percentage of the capital spent in labour can be high, but profits low (agriculture) or it can be low but profits high, nuclear energy plants. A relationship between the "organic composition of capital" and profits doesn't exist. Marx argues with averages, but that is not helpful, if he want to prove that the higher the part of capital spent in labour, the higher the profit rates.

[Beside that: Even if we take the average profite rate, the theory is not true. In the course of history the percentage of the capital spent in labour dimished, however the profit rate increased. Marx would sag that this is due to the "expanded reproduction" or something like that. This is kind of an immunisation strategy.]

The whole theory of Karl Marx is based on this simple assumption. Only labour creates added surplus. If that is nonsense, and it is nonsense, the rest of the theory is super nonsense.

We can therefore consider Karl Marx as a variation of classic theory, because he shares all the fundamental errors concerning capital, savings, money with the classical and neoclassical authors.

[We put aside Adam Smith, see balance of payement. Adam Smith was well aware that investments are financed with money, not with not consumed income of the past, as assumed by Karl Marx and the classical authos and concerning this point, the marxist theory is even more contradictory than the neoclassical theory. Neoclassical theory assumes full employement. In a situation of full employement savings are actually needed, consumption has to decrease, because in this situation there is a trade off between the production of consumption goods and the production of capital goods. The production of consumption goods is only possible at the expense of capital goods and the other way round, because all productive factors are already employed. Financing investments with money, would lead to a reallocation of resources, as Schumpter points out, but as well to inflation. However Karl Marx assume UNDEREMPLOYMENT. He assumes that the competition between the workers keeps wages at subsistence level. In other words, with a certain amount of capital, a certain amount of labour could be employed. (A concept we find already in Wealth of Nations.) But in this case, underemployment, there is no trade off between tha production of capital goods and consumption goods. All the workers can be employed immediately by printing money, at least under the assumption of Karl Marx, where any kind of labour can be employed in a productive way. Savings will happen in the FUTURE, when the loans are paid back and the money previously generated will be destroyed again. For a more detailed discussion see interest rate.]

It is actually true that Keynes as well stated that labour is the only productive factor, but the argumentation is completely different. We have two production factors, land can be neglected, labour and capital. Capital is a production factor if it is scarce and it is scarce, if people relinquish to consumption, in other words, if they save money. In the case of full employment this sacrifice is needed and therefore a reward for this sacrifice, the interest rate. People relinquish to consumption in order to be able to consume more in the future. But what happens if this sacrifice is not needed, because the trade off between the production of consumer goods and the production of consumption goods doesn't exist? In this case only money is needed to activate the idle resources and there is no sacrifice needed to produce it, it can be printed. But if there is no sacrifice needed to produce it, why pay a price for it? Actually the interest rate can be zero. Only in the case that we reach full employment, an interest rate is needed to stop further investments, because in this case there will be a trade off. Further investments are only possible, if people make a sacrifice and this sacrifice needs a reward. That's why in a situation of full employmente there is no difference between keynesian theory and classical theory. That's why Keynes called his theory a GENERAL THEORY OF EMPLOYEMENT, INTEREST AND MONEY. It fits with both situations, underemployment and full employement.

However: If we have only two production factors and one of them requires no recompensation, the whole added surplus depends on "labour" in the broad sense of the word which includes as well innovation, know how, organisational structure, training etc..

This theory fits well con historical data. Even after complete destruction of the economic structure a nation reaches very quickly and without any savings to the economic level that corresponds to its know how. Only 8 years after world war II Germany reached again the living standard it had before 1929, the start of the economic crisis and that was not due to the European Recovery Plan, because the sums were too small to have a big impact. To put it simple: We can pay any amount of money to someone not able to do what we want him to do, but if he is not able to do it, he can't do it. After the fall of the wall West-Germany transferred 1 billion euros to the former East-Germany. They did with this money what they could do, reconstructing buildings, roads etc.. but they were not able to create competing industries. The same thing is true for development aid. Developing countries need transfer of know how, not transfer of money or "capital".

As all classical and neoclassical authors Marx assumed that "capital", actually money, "capitalists" invest with money, is backed by product produced in the PAST. Actually money is based by products produced in the FUTURE. This is still more true for capital goods than for consumer goods. The "capitalist" "accumulate" their capital by buying capital goods. However these are specialised machines and will be produced only if someone orders them. The "capitalists" can borrow this money from the banks, but the banking system don't rely on savings for lending money. The banking system can generate money itself or borrow it from the central bank, who prints it. That's not the problem. But if nobody can produce the machines the "capitalists" want, then the specialised machine, whatever added surplus had been squeezed out from the workers before, will not be produced. To put it more simple: If we get our money at the beginning of the month we don't get the right to buy breads already produced and that wouldn't be very interesting either. We get the right to buy a bread at the end of the month that has not been produced at the moment we get our money. That's trivial, no doubt, but sometimes one can heave the impression that is is needed to say it sometimes.

From all the classical authors Marx took the weakest as a model: David Ricardo. Under special conditions, for instance if the demand is fixed and the labour supply for this kind of work abundant, for instance in the cleaning industry, we can actually assume that wages are kept at subsistence level. (If the demand is not fixed and the work needed specialised, wages are higher than the subsistence level. This is the normal case.) Normally, following the neoclassical theory, wages will fall until full employment is reached and workers will be paid with the (monetary) marginal output, that can be higher than the subsistence level. It is well possible that in this case the (monetary) marginal product is only at substistence level, but it is not necessarily like that.

But lets assume that in our special branch the wages are at subsistence level as it happens following David Ricardo and Karl Marx. Then the question is how the capitalists can put a market price allowing them to get a value surplus? In a situation of competition the prices should decrease until the added surplus vanishes away. Karl Marx admitted in the third volume that this problem actually exists, see profit rate. In the third volume competition makes the profit rate decrease.

That means the fundamental pillar of the theory of Adam Smith, see homo oeconomicus, is missing in the theory of David Ricardo and Karl Marx. This pillar is not refuted by arguments, but simply ignored. Adam Smith as well as Jean Baptiste Say assumes that competing companies will get a natural profit paid for the capital, see natural price / market price, and something benefit for their activities as entrepreneurs, but not more. (However this natural profit can be very low, even zero, or even negative, as it happens today in 2015, if there are no savings needed for investments.)

The last problem is, that only in the case of full employment we need savings. The added surplus used to "accumulate capital" is nothing else than savings used for investments. However under the conditions of David Ricardo and Karl Marx there are no savings needed. In their logic any idle labour can be productive, in other words if there is unemployment, a productive use of the idle resources is possible.

[In general: This is a problem we have in the whole economic thinking. If we work with aggregated numbers, for instance the aggregated labour supply, we assume that labour can be used in a productive way and we abstract from structural problems. We put aside this problem at the moment.]

The problem is: In case of unemployment there is no trade off between the production of consumer goods and the production of capital goods and therefore nor savings are needed nor sacrifices and provided that the workers do something useful, something that allows to pay back the loans and destroy therefore the money freshly printed by the central bank any amount of workers can be employed until we reach full employment.

What is going to happen once full employement is achieved is difficult or even impossible to say without the knowledge of the concrete aggregate production function. If the (monetary) marginal output of capital, machines, is higher than the (monetary) marginal output of labour, the entrepreneur will invest more in machines than in labour and if the opposite is true, in labour. Given full employment, they compete with other companies and therefore wages will raise. Marx would say that they are exploited anyway, but the problem is, that people working for google don't have the impression that they are exploited.

Marx had a certain talent to discuss extensively irrelevant issues with the result that the relevant issues are overlooked. He follows the the management rule "if you can't convince them, try to confuse them."

From a practical point of view marxism is irrelevant and it served in socialist countries only as a somehow "scientific" looking ideology. The question whether the productive means belongs to the working class or to the "capitalists" is actually irrelevant. In a democracy the income can be redistributed through social transfer, subsidies or by the tax system to name only some possible measures.

It can be argued that due to specific structure of the mass media, see prelimaries, democracy doesn't work and this may be even true to a certain extent, but that has little to do with a conflict of classes. The problem is that without transparency politics, the mass media, bureaucracy and lobby groups can succesfully enforce their interests by other means than competing successfully on the market.

The basic problem, who produces what and how for whom is not even addressed by Karl Marx and this question is independent from the question whom the productive means belong to. The basic question is how the allocation of resources is steered, the allocation of resources. This problem is not addressed by Karl Marx. He assumed that once all the expropriators are expropriated all economic problems will be automatically resolved. That's not the case.

There are can be put forward a lot of arguments in favour of some kind of "planification". We will mention only some. Some prices are not "correct" in the sense of a market price. This is the case for instance with the external costs. In this case a third party pays part of the production costs and therefore the final product is too cheap. That happens for instance if polluted water is dumped in a river or the see without being purified before. That makes the production less expensive, but the costs are paid by someone else. In this case the government can for instance impose a tax, the so called Pigouvian tax, that reflects these costs.

Another example of this kind are public goods. Public goods are goods whose consumption once produced can't be impeded with the result that nobody would produce them, because everybody would expect someone else to produce them. One of the most prominent example for that is the police. The existence of this infrastructure reduces the risk of being victim of a crime even if we don't pay for it.

A more difficult case are the so called merit goods. In this case a the government or some politicians believe that people don't consume enough of this commodity or service and in order to promote the consumption it is subsidized. Operas and theaters for instance are very often subsidized, with the result that their production costs are much higher as they would be if the costs were to be covered by the ticket prices. The city of Berlin for instance subisidises its theater and operas with 500 000 euros EACH NIGHT. If one would invest this money by promoting musicians playing in the streets, that would have a much, but much greater impact and would be much more fun.

If we want, we can say that subsidies for research and development are of this kind as well, but this case is more complicated. For a more in depth discussion see research and development subisidised by the government. It is more complicated because it is nearer to investment than to consumption.

It is often argued, especially in China and Japan, that governments are more able than private companies to concentrate resources on strategic important branches and are therefore more efficient. The author would say that this is only true, in developping countries where technologies can be copied and that it is no longer true for innovations.

At first glance it seems strange for instance that Chrysler, Ford and General Motors invent the same technologies three times. At first glance it seems more logical that they join their efforts on research and development. However in practise that is not the case. A governmental run car factory like the one that existed in East-Germany produced the same car for 50 years with no innovation at all.

The next argument are the economies of scale. If the fix costs are very high, as it is the case in the car industry, water suppy or power plants costs per unit will eternally decrease with the amount produced. This was a central argument for the creating of the european market in 1989. The Cecchini Report expected, that small companies will disappear and will be substituted by greater ones what should lead to a higher productivity. We saw actually a reduction in some sectors, for instance in the car industry, however the argument is not very convincing. With the size of a company increases as well the interneal transaction costs or the costs of coordination. Instead of just taking a price as the result of competition, a company must plan the production process. Bureaucracy increases. What we actually can observe in industry is a tendency to outsource services and products.

If the company is very big in other words if the whole national industry is steered, planned and controled by a central planning commission, as it happens, actually happened, because Cuba and North Cora economies of this kind doesn't exist any more, in socialist countries, we have no objective prices that can give a hint how much a product would actually cost if produced in a situation of competition.

Marx would say that this is not needed, because we know the amount of labour that is materialised in a commodity. However this is not very helpful, because the companies has an incentive to work as inefficient as possible in order to get the maximum of workers assigned in order to have as little stress as possible. If the central planning commission tells them that actually less workers were needed to do the job, companies will find thousand reasons that proves that even more employees and workers were needed. Who ever worked in a public administration knows that.

The discussion ends only if there is a company who does the same job with less workers. That proves objectivly that it can be done with less workers. If there are no competing companies there will be an endless discussion, wether is is possibel to produce in a more efficient way or not.

[We are not going into the details here, but the introduction of controlling systems in the public administrations is based on this idea. The costs of the public services are calculated with the commun methods of direct costing in different regions, for instance register at the register office, register a business or a car, legal fees etc.. The respective entities will then get the average costs (or the median costs) multiplied with the amount. In other words: Some will get more money as they actually need and can spent if for something else and others will get less.]

The central planning commission in socialist states were confronted with the problem that they never got a feedback from the companies in case that they could do more than the goal fixed by the central planning commission, because that would had the consequence, that the goal would have been more ambitious in the following years as well, with the risk to get sanctioned if they were not able to reach this goal in the following years.

Socialist economies didn't know competition, therefore nobody actually knew what would be the cost if production were organised in an efficient way and there was no incentive to strive for efficiency, because that was only risky, but not awarding. Therefore it was necessary to introduce the "socialist competition". In other words, heros of the working classes were awarded with decorations made of tinplate.

The most profound sense of marxism is of religious character. Similar to christians who expect the Last Judgements where the evils and heinous will be punished, marxism espects the day where the "capitalists", the car factory as well as the cobbler will pay for their sins and similarly to the Last Judgements the day when that will happen was undefined and therefore hope couldn't be deceived.

The inevitable end of capitalism was constitutive for the way the socialist governments saw themselves. Karl Marx didn't present an alternative to "capitalism", he only tried to prove that i won't work and that was enough for him.

Due to the financial crises, we are still in 2015, we see, at least in Europe, a revival of marxism. The crisis of a system doesn't lead necessarily to new answers, but to a fall back to answers that has already proved to be wrong. That way democracy as an exploring process, see Karl Popper, can't work, although we see that a lot of progress in this sense has been made, at least in Europe, after world war II. In Europe we have seen a lot of innovative answers after world war II.

The pros and cons of a market economy are obvious. Market economies resolves best the problem of allocation, see optimal allocation of resources, although they have an inherent tendency to eliminate the necessary ingredients, in other words competition. This problem is addressed by Walter Eucken, although it is nothing new. Adam Smith was already well aware of this problem. However the answer of Walte Eucken, impeding any kind of trusts, monopolies, price agreements etc. is not very convincing, because it is a minor problem, addresses only an existing economic structure. A much bigger problem is the fact that hindrances to market entry can be very high. It is well possible that there are competing companies, which works all based on a certain business modell, but there is no way to change this modell completely.

It intensity of competition between the banks for instance may be sufficiently intense, but competitors outside the banking system could for instance offer a cheaper way to transfer money. Services like Pay Pal and Money Bokers succeded in enter this market, but very often that is not the case. Normally it is only after an outsider destroyed an existing structure, Amazon and self publishing is an another example, that we realise that there was a hindrance to market entry, because it is only after someone has proved successfully that things can be organised in a different way, that we become aware that it can be organised in a different way.

Market economies distribute the national income corresponding to the contribution of the productive factors. The general problem is not, as Marx assumed, that labour in general remains on subsistence level, but some kind of labour remains on subsistence level. The basic answer to this question is the social market economy. This means, that the allocation of resources is left to the market, but the result of the market process is redistributed afterwards by social transfers and similar means. However this is not the only way to resolve the problem. It is possible as well to improve the access to schooling and universities by a wide range of measures. Furthermore a government has always an easier access to the capital market and can take loans a low interest rates for very long periods. He can therefore reduce the costs of living by constructing houses. We will return on the topic in the chapter aobut Keynes.

The next problem of market economies is more fundamental. To put it short: Classical and neoclassical theory assumes that employment rate is determined on the labour market. If people are unemployed, wages will decrease, if wages decrease, more people will be employed. However in this game we have to distinguish two effects. Considered isolatedly the fact that wages decrease means only that demand will decrease as well, companies will earn less and if the fix costs per unit increase prices will even increase. This effect alone can't resolve the problem. However the amount of employees can increase so much, that the first effect is overcompensated. The total amount of wages paid to all workers increase, although the single worker earns less. If we put aside extreme situations, wages are so low that the workers die, in this case unemployment is obviously reduced because dead workers are not unemployed, it is highly questionable, for other reasons as well, that we get back to full employment if wages decrease.

The equilibrium on the LABOUR MARKET determines in the classical and neoclassical theory the equilibrium on the MARKETS FOR GOODS and the this market determines the equilibrium on the CAPITAL MARKET.

Keynes put it the other way round. The capital market doesn't exist, there is only a MONEY MARKET. The equilibrium interest rate on the MONEY MARKET is somehow arbitrary and has little to do with the real markets, but a lot with speculations. This arbitrary interest rate determines the equilibrium on the MARKETS FOR GOODS, because it has an impact on investments and the equilibrium on the MARKETS FOR GOODS determines the equilibrium on the LABOUR MARKET. In other words, the LABOUR MARKET depends on a big casino. The advice given by Keynes is therefore easy to understand and straigthoforward. The interest rates have to decrease until we reach full employement on the labour market. We will discuss this topic again in the chapter about Keynes.

Against any kind of governmental intervention, be it keynesian or aiming to redistribute the national income there is a fundamental and more "political" opposition. For Friedrich Hayek and Milton Friedman efficiency of market economies is secondary. Even if central planning were more efficient, market economies were to preferred, because governments are considered to be a menace to freedom. The remembers a little bit the the american tea party mouvement.

We have therefore a wide range of aspects that have to be taken into account. All of them relevant and the problem consists in balancing these aspects, although in practice there are other aspects to be taken into accounts and more options than suggested by all these authors.

A mouvement like the american tea party is actually stunning: "The Bill of Rights is a fundamental piece in securing our freedoms and every American possesses the right to free speech, the freedom of religion, freedom of the press, the right to peaceably assemble, and the right to petition our government." (see

They fight with furiously for rights they already have, but that's not the problem. The problem is that the mass media, the press, delivers what people want, that's like that all over the world, but what they want is not necessarily what they need. What they need are valuable information and not entertainment and information about things the mass media have easy access. The really important information are the information someone has an interest not to deliver and this kind of information is difficult to obtain. This is worse that Don Quijote. Don Quijote fought against inexistent enemies, dreaming a live full of adventure. The tea party fights as well against inexistent ennemies, but that's impede them to see real risks.

Besides strange mouvements like the tea party, whose arguments are older than the green hills of Africa, that exist everywhere, we can say that at least in Europe these aspects are taken into account by most of the political parties. The times of black and white thinking is over. This is especially true for Europe, where different countries with different political alignments have to coorporate. Perhaps this is the price to pay for a bureaucracy monster with little or none democratic justification.

In South America it is over, because the different nations learned the hard way, by social unrest and civil war, that nor socialism nor neoliberalism nor nationalism resolves any problem. A lesson that Europe learned before world war II the same way and the arabic world and Africa is still in a learning process. An introduction to the pros and cons of every line of thinking would be useful, although it is not very plausible that people can be convinced by arguments. Normally they learn only the hard way and we can't really say that this is necessary, because the fundamental aspect to be taken into account are not really difficult to understand.

It is a curious fact that lines of thinking, schools or tendencies like neoliberalism, austrian school, keynesianism, ordoliberalism, monetarism, marxism etc. etc. exist only in economics. Something like that doesn't exist in physics, chemistry, mathematics etc.. Schools of thinking seems to be a phenomenon that exists only in areas where some things are simply believed and cannot be proved. If it were possible to prove the correctness or incorrectness some schools of thinking would disappear once their incorrectness is proved.

A school in physics that affirms that the fall speed depends on the mass would for instance disappear at the latest if an astronaut on the moon let fall a steel ball and a feather. (The experiment can be done as well on earth, see Brian Cox visits the world's biggest vacuum chamber.) However in economics and in religion that is not possible, therefore several schools can coexist eternally.

However putting it like that we would reduce the problem to a pure problem of understanding. We would make the same error as Karl Popper.

Extreme ideologies like the marxism are more present in public by the veneration of their idols than by their theoretical concepts. The last ones are actually, if we take for example the vanished away East-Germany, completely irrelevant. Everywhere in East - Germany were a statue of Karl Marx, although nobody really knew what the theory exactly is about.

The goal of an ideology is not to convince by arguments, but to reach a blind identification, something purely emotional. An ideology doesn't want to convince, an ideology wants to be venerated.

We can find million of texts of this kind. A detailed study of this kind of texts, if we knew more about the authors and their position in society and what they did after the fall of the wall would allow us perhaps to understand better the role of ideologies and similar phenomenon, but that is far beyond the possibilities of these manual. If we really want to understand the phenomenon it would be necessary as well to study the people who resisted. What are the characteristics that allow some people to keep on thinking with their own head, even in a position where they are completely cut off from any information that affirm their point of view.

In the next paragraph we learn what imperialism is about, but the only reason given for these affirmation is the fact that Lenin said it.

(The text is only an example. Thousands of similar texts can be found without any effort.)

Als Lenin den historischen Platz des Imperialismus in bezug auf den Kapitalismus überhaupt bestimmte, schrieb er: „Der Imperialismus ist ein besonderes historisches Stadium des Kapitalismus. Diese Besonderheit ist eine dreifache: der Imperialismus ist: 1. monopolistischer Kapitalismus; 2. parasitärer oder faulender Kapitalismus; 3. sterbender Kapitalismus.“

aus: Der Platz des Imperialismus in der Geschichte
When Lenin defined the place of imperialism in relationship to capitalism he wrote: "Imperialism is a special historical phase of capitalism defined by three characteristics: Imperialism is 1. monopolistic capitalism; 2. parasitarian or rotting capitalism; 3. dying capitalism."

The place of capitalism in history

The only profe given is the fact that Lenin said it. No other argument is needed. In the veneration of an idol ideologies reaches their climax. No arguments are needed and therefore it doesn't make any sense to criticise ideologies questioning the content as Karl Popper does. The content is irrelevant. Ideologies are a completely irrational phenomenon.

It is a psychological interesting phenomenon that could had been studied already several times, but that never happened. A study of this type had been carried out by Adorno during world war II, see the authoritarian personality.

Thousands of books have been written about any type of authoritarian or totalitarian regimes, most if not all from a historical perspective. The result is exactly zero. That's not the right methodological approach. It is a psychological problem and have to be studied with the methods used in psychology, starting by analysing the individuums envolved in this kind of processes.

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Ideologies are not characterised by their content

The critique of Karl Popper focuses on the content of ideologies, however the content is not constitutive for ideologies


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