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Marxian economics

  A body of theory that seeks to provide an explanation of how an economy functions, derived from the political economy of Karl Marx (1818-83) and from its elaborations and extensions by Friedrich Engels (1820-95). The alternative body of theory is neo-classical economics, which forms the basis of the analysis usually accepted in the West, or the capitalist world.

The 1960s and 1970s saw a resurgence of interest in Marxian economics. What Marxists described as \'bourgeois economics\' appeared increasingly inadequate as a basis for understanding how a capitalist economy actually functions. Marxian economics provides an alternative and (for Marxists) more persuasive interpretation of how capitalism operates.

Marxian economics does not form a prominent component in conventional textbooks and courses in economics in the capitalist world. This has led to misunderstanding of what Marx was actually trying to do when he addressed himself to economic matters. Marxism is not merely a guide to revolutionary practice, though Marx did make some predictions concerning the demise of capitalism, nor does Marxian analysis offer a blueprint for the operation of a centrally planned socialist economy. The purpose of Marxian analysis is to provide a general historical perspective on economic affairs, focused particularly on laying bare the operation of the capitalist system.

Marxian economics and neo-classical theory share common roots in the so-called classical economics of the late eighteenth and early nineteenth century. The strongest link between Marx and the classical tradition is provided by the labour theory of value, and it is in the treatment of value that the fundamental difference between Marxian economics and the alternative perspective is to be found. In the classical labour theory of value, prices of all goods are seen as derived from the current labour input and from the labour input embodied in the materials of production. In neo-classical economics the role of value theory is similarly to explain relative prices, but with the explicit recognition that capital and land as well as labour make a contribution and are entitled to a return. For Marx, value theory was the key to understanding the nature of capitalist society as a historically specific form of economic organization. Whereas the neoclassical analysis sees value (reflected in prices and income distribution) arising from some almost mechanical process of market determination, Marxian economics uses the concept of value to expose the social (class) relations seen to be at the root of the inequality manifest under capitalism.

Marxian analysis is thus more of a general theory of society than an approach to economics. Indeed, to separate out those notions that might be labelled \'economic\' from the rest of Marx\'s work is contrary to the very spirit of Marxism, with its emphasis on the holistic perspective of political economy. What follows is a highly selective summary of the basics of Marxian analysis as applied to economic processes. Those seeking additional insight may refer to the Suggested Reading listed at the end of this entry, as well as to Capital and other writings of Marx himself.

The general perspective of Marxism is sometimes referred to as historical materialism. The emphasis is on identifying those relationships that are of fundamental importance in determining a social system\'s overall direction of movement and change, as unfolded in history. The economic base or mode of production is seen as the key to understanding the complex web of interconnections involving the institutions, patterns of behaviour, beliefs and so on that make up a society. The mode of production consists of the productive forces or capacity to produce (these are labour, resources and instruments of labour) and the relations of production whereby people participate in the productive process. The social relations involve class cleavages, as for example between landlords and peasants or capitalists and workers. The base or substructure of the mode of production is connected with the superstructure of religion, ethics, laws, mores and institutions via reciprocal cause-and-effect relationships, but the effect of economic base on superstructure is held to be dominant.

Historically, four successive modes of production are recognized before the advent of socialism: primitive communism, slavery, feudalism and capitalism. As the forces of production develop to increase productive capacity, conflict or tension arises within the prevailing relations of production, which threatens their self-perpetuating tendencies. For example, as long as feudal social relations remained it was impossible to take full advantage of the increased production capacities generated by technological advances that took place prior to the industrial revolution. The ties of apprentice to master and peasant to landlord prevented the redeployment of labour required for rapid economic growth. The resolution of this type of contradiction is the motive force for change, which can lead to the replacement of one mode of production by another — as in the transition from feudalism to capitalism, during which labour was gradually freed from its old obligations. Capitalist social relations, with the distinctions between labour on the one hand and capital on the other, facilitated the full development of the productive forces in an era of major technological change. This made possible rapid increases in production, and a rise in general living standards that would have been frustrated under feudalism. But capitalism brought its own contradictions, as Marx was able to demonstrate. Crucial to the resolution of contradictions between the forces of production and the social relations of production is the class struggle, under which the class controlling the means of production (i.e. the slave owners, feudal landlords or capitalists) is opposed to the mass of the working people (the \'proletariat\'). In Marx\'s analysis, the proletariat would eventually be driven to overthrow the capitalist ruling class, to create socialism and ultimately the classless communist society (cf. communism).

The rise of capitalism not only changed the status of labour but also began to divest it of the means of production (in the form of tools and the land), over which many feudal craftsmen and small farmers had direct control. To sustain itself, this \'freed\' labour had to offer its services to those who owned the new means of production — the capitalists. Whereas conventional economics views the sale of labour, like that of other commodities, as part of a system of exchange relationships, Marxian analysis uses the theory of value to reveal the exploitative social relationships of capitalism: the class relations hidden beneath commodity transactions.

This process may be explained by reference to some basic categories and relationships in Marxian economics. It is necessary first to distinguish two concepts of value: exchange value (or the value at which a commodity can be exchanged for other commodities) and use value (or the usefulness of commodities to their possessor). All economic systems produce things with use value to satisfy human needs; capitalism is distinguished by its emphasis on production for exchange and profit. Marx directed his analysis towards the determination of the exchange value of commodities. According to the labour theory of value, the basis of the exchange of commodities (i.e. their prices) should be the amount of labour time required to produce them under the conditions normally obtaining; the labour thus required is termed socially necessary labour. This theory applies to labour itself just as to other commodities: the exchange value of labour power (i.e. the commodity that workers sell) is determined by the socially necessary labour required for subsistence, or the cost of production (and reproduction) of labour itself. The exchange value of labour is thus (theoretically) decided independently of the specific job that the labourer might do. Once sold to capital, labour power may be employed to produce something that can be sold at a price greater than the cost of labour reflected in its price in the form of wages paid. Thus the use value of labour to the capitalist exceeds its exchange value. The difference is surplus value, which accrues to the capitalist and forms the basis for profit. It is ownership of the means of production that enables the capitalist to engage in exploitation, whereby part of the value of the product of labour is appropriated by the capitalist. Value and class relations are thus inextricable elements of the social practice of production under capitalism.

Labour enters into the production process in two forms. One is the direct living labour expended, which is variable capital (v) in Marxian terminology. The other is the past or \'dead\' labour embodied in the means of production (materials and machinery), known as constant capital (c). If surplus value is s, then the total value of a commodity ( y) is given by: y = c + v + s

The ratio of variable capital to surplus value defines the rate of surplus value (r), or rate of exploitation: r = s/v that is, the higher the surplus value (or difference between exchange value and use value of labour) in relation to exchange value (or wages paid), the higher the rate of exploitation. The rate of profit ( p) is: p = s/(c + v) which reveals the importance of surplus value itself to the capitalist seeking profits. A final relationship that occupies an important place in Marxian economics is the organic composition of capital (q): q = c/(c + v) which in conventional terminology is the capital intensity of production.

money plays a crucial part in the creation of surplus value, and this is explained by some further simple relationships that can be expressed symbolically. The capitalist advances a sum of money (M) for the commodities of materials, machines and labour power (C) and sells the final product for more money (M′). This may be represented by the simple cycle of M-C-M′. The commodities C may be subdivided into labour power (L) for which wages are paid and means of production (MP) purchased or rented from other capitalists, the total expenditure (M) being defined as productive capital (P). The production process now creates new commodities (C′) which can be sold for more money than the initial outlay. The source of the difference between M and M′ can only be the surplus value created by labour. The additional money or profits accruing to the capitalist can then be advanced again for a second round of production (see figure). At the end of each round, labour has \'reproduced\' itself; capital has accumulated wealth. The distinction arises from the inequality of power in capitalist class relations, manifest in the buying and selling of labour power — hence Marx\'s stress on value as a social relationship rather than as something merely associated with exchange relations. The Marxist critique of conventional (neo-classical) economics is that exploitive class relations are hidden beneath the technicalities of market pricing, resource allocation, production functions and so on, with the formal abstraction of mathematics obscuring social reality.

This framework for analysing the capitalist system helps to reveal certain imperatives for any economy. The process of material production carries with it certain necessary consumption, required to maintain the productive forces in the form of the producers themselves (met via wages) and the means of production (met via funds set aside for depreciation). However, discretion exists over the disposition of the remaining surplus, accruing as private profits under capitalism. This surplus could be returned to labour in the form of higher wages to support higher living standards. It could all be spent on luxury consumption, e.g. by an extravagant capitalist and landowning elite. Alternatively, it could be invested in new means of production or measures to enhance labour\'s capacity to produce, so as to develop the productive forces. The proportion that is reinvested (i.e. how much of M′ in the figure goes into the next round of production) governs the rate of economic growth. Marx\'s analysis of expanded reproduction, whereby society\'s productive capacity is increased by reinvestment, anticipated by almost a century the input-output growth model that became influential in conventional economics.

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Marxian economics

An important tenet of Marxian economics is that capitalism will eventually be destroyed by its own internal contradictions. The extraction of surplus value from labour is the starting point of the process of capital accumulation, whereby wealth piles up in growing quantities in the hands of the capitalist class while the working class remains living at a bare subsistence level. Some use must be found for the surplus capital, there being limits to the capacity of the capitalist class for the self-indulgence of luxury consumption. The capital can be recycled into new production, but the masses must have the purchasing power to consume what is produced; it is only when commodities are sold that the capitalist can realize surplus value in its money form. There is thus a basic contradiction under capitalism between the pressure to increase surplus value by keeping wages low and the need for people to purchase commodities from their wages so that surplus value can be realized. Capital can be used to produce more machines to replace living labour, but this contributes to unemployment and immiserization of the proletariat. The inherently competitive nature of capitalism squeezes profits, which creates further pressure to reduce labour costs or substitute machines for labour. As the most successful firms grow and the weak go to the wall, capital becomes steadily more concentrated, until major monopolies confront the impoverished working class. The exploited masses are finally driven to the revolutionary overthrow of capitalism.

While the contradictions identified by Marx are certainly important features of the dynamics of capitalism, the final revolutionary outcome in an advanced industrial society has thus far failed to materialize. Among the more obvious reasons for this has been the growing power of organized labour to bargain with capital for increases in real wages, which capital has been able to concede to some extent by virtue of the great success of the capitalist system in expanding the capacity to produce. It may also be the case that affluence, at least in the advanced capitalist world, has helped to diffuse working-class consciousness — a trend assisted by use of the mass media to stimulate materialistic values and reinforce the prevailing ideology of capitalism.

Contemporary Marxism is more concerned with dissecting the actual operation of capitalism in its modern form than with the veracity or otherwise of Marx\'s prediction of revolutionary change. Of special geographical interest is the general theory of uneven development that traces its origins to the works of Lenin and Rosa Luxemburg on imperialism. Whereas neo-classical economics suggests the convergence of territorial income levels via self-adjusting markets for factors of production, Marxian analysis points to the tendency towards spatial concentration of economic activity under capitalism and to a perpetuation and even exacerbation of spatial inequality. The spatial expansion of capitalism in the search for new investment opportunities, materials and markets has tied up much of the world into a web of interdependencies. Each nation or region plays a role in this international (or regional) division of labour, determined not by national interest or local need but by the capital accumulation process itself. The beneficiaries are the affluent of the advanced nations of North America and western Europe, together with the elites in the rest of the capitalist world. The losers are the masses of the Third World poor, together with the less affluent inhabitants of the richer nations. The multinational corporations are viewed as major instruments in this process, operating beyond the control of national governments but themselves subject to the imperatives by which the capitalist system operates. Local manifestations of uneven development, such as depressed regions and declining inner-city areas, can be related to the broader structural features of the national and international economy via Marxian economic analysis.

While the basics of Marxian economics are timeless, there have been some extensions and revisions. These include technical aspects of the \'transformation problem\' of calculating prices under the labour theory of value. Of more interest to geographers has been the exploration of the Kondratieff cycles, which are supposed to represent rather regular fluctuations of a capitalist economy over time and are influential in the study of uneven development, including world-systems analysis. The changing nature of the capitalist economy is reflected in attention given to the so-called Regulation school and to the concept of the regime of accumulation which remains relatively stable over a period of time, as well as to the notion of flexible accumulation which is supposed to capture important aspects of contemporary capitalism.

Geographical contributions to Marxian economics have been rare, such is the technical complexity of the field. Most distinctive has been some of the work of David Harvey (1982, 1996) and Neil Smith (1990), who have introduced aspects of the implications of space: a dimension largely ignored in Marxian economics as in neo-classical economics. These writers have also introduced nature, or an environmental dimension, similarly given little attention in mainstream economics.

The political-economy perspective derived from Marx and his modern interpreters offers the geographer a general theory in which historically and locationally specific events can be related to one another in a broader context. The danger with Marxian analysis is the tendency of some of its adherents to adopt an unduly dogmatic interpretation in the face of a changing world that requires flexibility on the part of any body of knowledge claiming to facilitate the understanding of human affairs as they actually unfold. The rise of \'new right\' thinking and of some strands of postmodernism, along with the demise of the socialist regimes in eastern Europe, is thought by some to side-line Marxian thinking, but this approach remains of interest to many geographers (see Marxist geography; post-Marxism). (DMS)

References and Suggested Reading Bottomore, T., ed., 1991: A dictionary of Marxist thought, 2nd edn. Oxford: Basil Blackwell. Cohen, G.A. 1986: Forces and relations of production. In J. Roemer, ed., Analytical Marxism. Cambridge: Cambridge University Press. Desai, M. 1974: Marxian economic theory. Oxford: Basil Blackwell and Totowa, NJ: Rowman and Littlefield. Harvey, D. 1982: The limits to capital. Oxford: Basil Blackwell. Harvey, D. 1996: Justice, nature and the geography of difference. Oxford: Blackwell. Fine, B. 1989: Marxist economics, 3rd edn. London: Macmillan. Kay, G. 1975: Development and underdevelopment: a Marxist analysis. London: Macmillan; New York: St. Martin\'s Press (published as Development, underdevelopment and the law of value: a Marxist analysis). Mandel, E. 1968: Marxist economic theory, 2 vols, trans. B. Pearce. London: Merlin Press; New York: Monthly Review. Mandel, E. 1978: Late capitalism, trans. J. de Bres, revised edn. London: Verso Editions; New York: Schocken. Marx, K. 1976: Capital, vol. 1. London: Penguin; New York: International Publishers. Sheppard, E. and Barnes, T.J. 1990: The capitalist space economy: analysis after Ricardo, Marx and Sraffa. London: Unwin Hyman. Smith, N. 1990: Uneven development: nature, capital and the production of space, 2nd edn. Oxford: Blackwell.



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