KARL MARX

• Karl Heinrich Marx was born on

May 5, 1818 in Trier, which is in
the German Rhineland.

• Studied philosophy and

economics in Berlin

• Earned his living (badly) as a

journalist

• He was a German philosopher

who believed in idea of
Communism.

• He is well known for writing his

pamphlet, Manifesto of the
Communist Party.

• He passed away on March

14th, 1883 having only written
3 of the planned 8 volumes of
Das Kapital.
Marx’s Theory of Capitalism
• Marx propounded that a new
form of class inequality, called
capitalism, characterized the
society at the time of his
writing.
• All societies are divided into
two groups
– Owners are bourgeoisie
– Workers are proletarians
• As capitalism emerges, there
is an accumulation of capital
(wealth) by the bourgeoisie
(the capitalists) and the
creation of a free (i.e., not
serf) labor force, the
proletariat.
• It sets up two classes which
must eventually conflict.
Marx’s Theory of
Capitalism
 His theory implied that there would have to be a revolution that
would destroy capitalism.

 Marx was not saying that capitalism would collapse because it

was immoral or because it was inefficient.

 He was saying that capitalism would collapse because of the

unalterable rules of social change that invariably destroy
economic systems marked by class inequality.

 The eventual replacement would be communism.

 Communism would create a classless society and, therefore, it

would be the final and permanent state of society.
Marx argued that the only source
of a firm’s profit is the labor it
employs.
 Marx based his view on an application

of the Labor Theory of Value.

 Simply put:
 Machines without workers are useless.
 Workers without machines, on the other hand, are not
useless because the workers can make the machines
that they need to do their work.
 Therefore, in the end, all production is done by labor.
Irrational Capital
Accumulation
 However, the capitalists who own the firms have an
irrational belief that profits come from the capital
goods (that is, machines) they employ in their firms.
Each firm is in cut-throat competition for each other’s
business.
 Driven to gain temporary competitive advantage over
others.
 The way to do this is to introduce labor saving
innovations.
- that is, replace labor with capitals.
 As a result, they obsessively strive to accumulate
capital goods.
 This increases their
expenses but, alas,
not their profits,
because only labor
can generate profit

Their rate of
profit
declines
 Crises
• But when the overall rate of profit is low,
smaller firms are especially vulnerable to
business crises.
• They get taken over by larger firms.
• This concentrates power in the hands of
fewer and fewer firms.
• Moreover, the middle class capitalists who
sell their small firms to the big firms then
become new members of the working
class.
 Exploitation
• When big firms
become bigger and
even more powerful,
they try to boost their
profits by increasing
the pressure on
workers to, for
example, work longer
hours, work for lower
wages, etc.
 Revolution
The stage is set for revolution
– Labour class swelling and is
increasingly exploited
– Capitalist shrinking and becoming
increasingly cut-throat
– the labour rises up in revolt, replacing
the capitalists as the dominant class
and creating the new socialist order
• At some point, the
growing but increasingly
oppressed working class
turns on their capitalist
oppressors.

• This unleashes a
revolution and brings
about the end of
capitalism.