"50 Economic Ideas You Really Need To Know," Excerpt

"50 Economic Ideas You Really Need To Know," Excerpt

by Edmund Conway

"A few years ago the British Broadcasting Corporation asked its radio listeners to vote for their favourite philosopher. As the votes poured in there were some obvious favourites from the start – Plato, Socrates, Aristotle, Hume and Nietzsche among them – but as the counting started it soon transpired that there was a clear winner for the title of Britain’s favourite philosopher: Karl Marx.

Marx’s key point was that societies are in the midst of a process of evolution from less sophisticated, less fair economic systems towards an ideal final destination. Having started off in feudal states and moved on through mercantilism to the modern system of capitalism, human society would naturally soon graduate to a fairer, more utopian system. That system, he argued, was communism.

In a communist society, property and the means of production (factories, tools, raw materials, etc.) would be owned not by private individuals or companies, but by everyone. Initially the state would own and control all companies and institutions, running them from the top down and ensuring companies did not oppress their workers. Eventually, however, the state would ‘wither away’. This, said Marx, represented the final stage of human society, when the class barriers that had stratified nations for thousands of years would dissolve.

Many forms of Communism had been proposed before Marx and his colleague Friedrich Engels took it up in "The Communist Manifesto" in 1848. For example, in 1516 English writer and politician Thomas More sketched out a society based on common ownership of property in his book "Utopia," and various communist communities had already cropped up in Europe and the United States by the early 19th century.

Marx’s point, however, was that communism would be adopted en masse as workers throughout the world revolted against their governments and overthrew them to institute a fairer society. His rationale for this was that the existing system of capitalism was patently unfair, the rich – with more capital (possessions) – becoming richer at the expense of the average worker. He claimed that human history was a history of class struggle, with conflict between the aristocracy and the rising bourgeoisie (the capitalist middle class, who increasingly owned the means of production) giving way to a new conflict between the bourgeoisie and the proletariat (the working classes who labour for them).

At the heart of Marx’s theories was the labour theory of value. This idea, laid out in "Das Kapital" (1867), states that a commodity is worth the amount of time it takes for someone to make it. So, for instance, a jacket that takes twice as long as a pair of trousers to stitch and sew ought to be worth twice as much. However, he argued, those who ran companies pocketed disproportionate amounts of the profits themselves. The reason bosses get away with this, Marx argued, is that they own the means of production and so are able to exploit their workers. There are question marks over how well the labour theory of value holds up. However, the broad thrust remains undiminished: that there is a major divide between the wealth and opportunity of those who own land and capital and of those who do not.

At one stage in the 20th century around half the world’s population lived under governments that claimed Marx as their guiding political light. However, by the end of the century only a couple of unreconstructed dictatorships remained pure communist nations. Why did the theory not stand the test of time? In part, because Marx was wrong about the eventual evolution of capitalism. It has not descended into a monopolistic system – at least not yet – thanks in part to government regulation and in part to the invisible hand. The world did not become overrun with the unemployed, and, although booms and busts have continued, government control is as much to blame for these as unbridled capitalist forces.

Few if any of the countries that embraced communism following socialist revolutions could strictly be said to fit Marx’s criteria – they were mostly agrarian, low-income, undeveloped nations, such as Russia and China. The 20th-century experiments with Marxism also underlined its inherent flaws. Most important of all, central control over an economy has proven immensely difficult to pull off – if not impossible. When the Iron Curtain fell in the 1990s and the former Soviet states were opened up to Western eyes, it became clear that, for all the bombast of the Cold War years, they were painfully underdeveloped. While the forces of supply and demand created dynamic economies that generated wealth at a rapid rate, the staid, centrally controlled systems in the Soviet Union and China stifled innovation. Without competition between companies – the fundamental driving force of free markets – the economy simply trundled along, pushed forward by bureaucrats. There was only one area where the Soviets truly excelled: military and aeronautic innovation. Tellingly, this was the only field in which there was outright competition – in this case with the West in the Cold War."

'50 Economic Ideas You Really Need To Know' by Edmund Conway (Quercus) is available
from Telegraph Books at £9.99 plus 99p p&p. Ring 0844 871 1514 or go to books.telegraph.co.uk
- http://www.telegraph.co.uk/finance/comment/edmundconway/6147797/
Marxs-theory-on-labour-still-has-capital.html

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