Chapter - Five

CHAPTER Five
THE RISE OF SOCIALIST

SCHOOL
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Outline
 Introduction
 Types of socialism
 Utopian socialism
 SAINT-SIMON; CHARLES FOURIER; SIMONDE DE SISMONDI;ROBERT OWEN
 State socialism
 LOUIS BLANC
 Christian socialism
 Anarchism
Samuel S. HET Woldia University,2015

Introduction
 This chapter focus on the class conflict between the

workers and capitalists and the theories that emerged
from this.
 The workers’ movement began with the great Luddite

social uprisings of 1808–20, involving France and
England.
 The movement was subdued with a great deal of

bloodshed in both countries.
Introduction
 But it burst out again, with a higher level of

organization and political awareness in the 1820s and
1830s.
 In England the movement was under objectives of:
 new Poor Laws,
 reform Bill,
 and the reduction of the working day for women and

children.
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Introduction
 In France it produced various armed insurrections at

the beginning of the 1830s, some of which gave the
final blow to the reign of Charles X, contributing to the
ascent to the throne of Louis-Philippe, ‘the bourgeois
king’.
 In both countries the movement pass on and of and

finally bursts to the 1948 great revolution.
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Introduction
 The following twenty years, initiated by the bloody

defeat the workers’ movement suffered, become years
of almost complete social peace in both countries, and
only in 1867–9 was there a sharp and massive
resumption of the workers’ struggle.
 Based up on this facts we classify the period into two, period

of acute conflict (1800-1848) and period of social peace
(1848-1868) .
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Introduction
 The years of sharp conflict gave birth to a great

number of new and more or less alternative socialist
theories,
 Utopian socialism
 State socialism
 Christian socialism.
 Anarchism
 While the period of social respite produced only the

great synthesis by Marx.
Utopian socialism
 This dates from about 1800, with Henri Comte de Saint

Simon, Charles Fourier, and Robert Owen as key
figures.
 They regarded the competitive market economy as
unjust and irrational.
 They preached universal togetherness rather than class

struggle and looked to the capitalists to cooperate with
and even finance their schemes.
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HENRI COMTE DE SAINT-SIMON
 He developed his ideas before the political movement

of the working class in France had taken shape.
 He Regarded idleness as sin, he made a religion of work
and industry.
 Saint-Simon alarmed the rich because he made production,

not property, the basis for his proposed society.
 The line he drew separated producers from non producers.
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SAINT-SIMON
 Saint-Simon’s synthesis tried to link an antiindividualistic

view of society with the cult of technological and
scientific progress, as if he wished to project into the
future, rather than the past, the ideal of a cohesive and
functional social organization.
 He constructed a model of a strongly hierarchical and

strictly meritocratic society.
 Despised the waste, parasitism, and anarchy of
capitalism—in other words, its imperfections
SAINT-SIMON
 His ‘socialism’ aspired towards a society of producers,

i.e. An industrial parliament, he wrote, should consist
of three chambers—invention, review, and execution.
 The first chamber, composed of artists and engineers,
would design public works.
 The second chamber, run by scientists, would examine

the projects and control education.
 The third chamber, consisting of the leaders of industry,

would carry out the projects and control the budget.
SAINT-SIMON
 Saint-Simon rejected the fundamental assumption of

classical economists that the interests of the individual
coincide with the general interest.
 He insisted that a new ethic was required to restrain

the antisocial egotism of the rich and to prevent an
anarchic uprising of the poor.
 His followers to oppose the laws of inheritance and to

urge the collective ownership of property.
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CHARLES FOURIER
 Unlike Saint-Simon, he disliked large-scale production,

mechanization, and centralization.
 Competition, he thought, multiplies waste in selling,

and businessmen withhold or destroy commodities to
raise prices.
 Commerce to him was pernicious and corrupt, and he

laid bare the moral poverty of the bourgeois world.
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CHARLES FOURIER
 Fourier’s solution to social problems was to remove the

artificial barriers to the harmonious interplay of the
twelve passions:
 Five senses, four group passions friendship, love, family
feeling, and ambition.
 Three distributive passions, planning, change, and unity.
 This could be accomplished by organizing cooperative

communities called phalansteries or phalanxes.
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CHARLES FOURIER
 Cooperative living was central to his thinking as the

way to change the environment in order to generate an
entirely new and noble type of person.
 The phalanxes would provide cradle-to-grave, or womb-to-
tomb, social security.
 For the early stages of his ideal society, Fourier advocated

“guaranteeism”—the assurance that every person would be
given a minimum subsistence, security, and comfort.
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CHARLES FOURIER
 Fourier objected to overspecialization, warning that

routine assembly line work warps and thwarts the
individual, although it greatly expands output.
 The Fourierist phalanxes, although ultimately failures,
influenced the labor movement at the time and inspired
much thought on how to eliminate the wastes of private
enterprise and promote a better economic system.
 The cooperative movement is in part a living monument to

Fourier.
SIMONDE DE SISMONDI
 Sismondi was less a socialist than a social critic and a

dissenter from classical theory.
 He made no fundamental attack on the institution of
private property, nor did he advocate communal
existence.
 He was the first economist to develop a theory of
under consumption based on the unequal distribution
of income.
 Thus Say’s Law does not work precisely because of the

unequal distribution of income.
SIMONDE DE SISMONDI
 This argument is similar to that put forward by

Malthus.
 Sismondi, however, proposed to solve the problem by

redistributing wealth, not from the capitalists to the
landowners, but rather from the capitalists to the
workers—an objective that could have been realized
through State intervention.
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SIMONDE DE SISMONDI
 Without the abolition of private property, Sismondi’s

socialism aspired to construct a society dominated by
small agricultural and craft producers, with an
industry which distributed its profits also to the workers,
land divided up into small plots, an efficient and
extensive social-security system, and sharply
progressive death duties. For these reasons Sismondi is
considered the founder of ‘social economy’.
Robert Owen (1771–1858)
 The philosophy of Robert Owen was inspired by a

pessimistic view of man.
 He did not recognize in humankind any natural

aspiration to liberty.
 On the other hand, he thought that the character of

man could be molded simply by modifying his living
conditions.
 He developed a system of social organization inspired
by educational objectives.
Robert Owen
 He tried it [the system] on his on factory.
 He considered the factory as the nucleus around which

society should be built.
 The factory should be co-operatively managed;

production should be increased by using the most up-to-
date machines; the goods should be exchanged on the
basis of embodied labor ; and society should provide not
only for the production planning but also for the
spiritual education of the producers.
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Robert Owen
 The ruling functions should be a prerogative of the old,

and the whole hierarchy of social relations should be
based on age differences.
 Gerontocracy is a common element of a great many of

the Utopias of order; as it seemed impossible to do
without a principle of authority, a power distribution
based on age seemed to be the most natural and the
least unjust.
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State socialism
 This involves government ownership and operation of

all or specific sectors of the economy for purposes of
achieving overall social objectives rather than profit.
 State socialism also can occur within a capitalist

framework.
 Historically, the state socialist considered the state to be

an impartial power that could be influenced to favor
the working class if the vote were extended and the
workers educated and organized.
State socialism
 Then the state could take over enterprises and become

the employer; or it could foster and subsidize
cooperatives (workers or consumers as owners).
 Louis Blanc was the chief early proponent of state

socialism.
Louis Blanc(1811-1882)
 Was a French social reformer, journalist, and historian

who came from a royalist family.
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Louis Blanc
 Universal suffrage would transform the state into an

instrument of progress and welfare.
 He believed capitalism and competition would ruin

both the laboring class and the bourgeoisie, he
nevertheless was opposed to the doctrine of class war.
 He condemned even trade unionism, because he saw
in strikes the futility of unprepared, isolated action.
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Louis Blanc
 The solidarity of the entire community would promote

state economic planning for full employment, the
development of welfare services, government capital
for getting national workshops started, and workers’
cooperatives financed and promoted by the
government.
 The state should become the “banker of the poor” by
establishing a publicly owned bank to distribute credit
to cooperatives.
Louis Blanc
 Capitalists could join the associations, receiving a fixed

rate of interest on their capital, as guaranteed by the
state.
 He believed that producers’ associations aided by the

state would attract the best workers and drive the
capitalists out of business through superior
competitive efficiency
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Anarchism
 With Pierre-Joseph Proudhon (1809–1865) as one of its

earliest proponents, anarchism held that all forms of
government are coercive and should be abolished.
According to Proudhon:
“Experience, in fact, shows that everywhere and always the

Government, however much it may have been for the people at
its origin, has placed itself on the side of the richest and most
educated class against the more numerous and poorer class;
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Anarchism
It has little by little become narrow and exclusive; and, instead

of maintaining liberty and equality among all, it works
persistently to destroy them, by virtue of its natural inclination
toward privilege…. We may conclude without fear that the
revolutionary formula cannot be Direct Government, not
Simplified Government, [but rather] that it is NO
GOVERNMENT.… Governing the people will always be
swindling the people. It is always man giving orders to man,
the fiction which makes an end of liberty.”
Anarchism
 Anarchists did not advocate that society have no order

but rather that society’s order arise out of self-governing
groups through voluntary or associate effort.
 Human nature, they contended, is essentially good if not
corrupted by the state and its institutions.
 Private property should be replaced by collective

ownership of capital by cooperating groups.
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Anarchism
 Mutual understanding, cooperation, and complete

liberty would characterize anarchist society.
 Individual initiative would be encouraged, and every

tendency to uniformity and centralized authority
would be effectively checked.
 Although the methods of achieving their goals

differed, the ideal community of the anarchists
resembled that of the utopian socialists.
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Other types of socialism developed
after 1848
 Marxian socialism
 Communism
 Revisionism
 Syndicalism
 Guild socialism
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life
 He turned to journalism, was exiled from Germany, and

went to Paris, where he studied French socialism and
English political economy.
 While there he met Engels, who was on a brief visit.
 Engels became Marx’s close friend, collaborator, and

financial supporter, and together the two wrote the
Manifesto of the Communist Party in 1848.
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Marx
Life
 Marx was born in Prussia to a Jewish family
 He studied law, history, and philosophy at the

universities of Bonn, Berlin, and Jena, and he received
the degree of doctor of philosophy at the age of
twenty-three.
 University positions were closed to Marx because of

his radicalism.
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life
 Starting from 1849 he lived in England.
 He spent his days and years in the reading room of the

British Museum exploring “the confounded ramifications
of Political Economy.”
 He organized and led the International Working Men’s

Association, the “First International,” which lasted from
1864 to 1876.
 In 1867 he published the first volume of his magnum opus,

Das Kapital (Capital).
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Intellectual Influences
 The Ricardian influence.
 Accepts Labor Theory of Value and rearranged in his term.
 The role of the socialists.
 He shared their moral outrage against contemporary

capitalism, their sharp criticism of classical political
economy, and their socialist vision of future society. The
Darwinian connection.
 Natural selection: as a scientific-natural basis for the
Samuel S. WLDU 2015 historic struggle of the classes.”
The Hegelian influence

 According to Hegel, historical knowledge and progress
occur through a process of conflict of opposing ideas.
 An existing idea, or thesis, gets confronted by an opposing

idea, or antithesis.
 The ensuing struggle between the ideas transforms each

into a new idea, or synthesis, which then becomes the new
thesis.
 The process then begins again.

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 Marx modified Hegel’s notion of the dialectical

process, using it to formulate his own theory of
historical materialism.
Feuerbach’s materialism
 Philosophical “materialism” refers to an emphasis on

“matter,” “real things,” or “the world of reality,” as
contrasted to “the realm of ideas” (idealism).
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 Feuerbach distinguished between the idealized versus the

real.
 People project idealized human attributes such as love for

others, perfect knowledge and understanding, the power to
effect change for the good of all, and so forth to “unreal”
deities.
 Individuals then worship these deities as if they were

supernatural or divine even though these gods, in reality,
are the product of human imagination.
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 To Feuerbach, history consists of the process through

which people come to know and accept reality through use
of their sense perceptions.
 Marx subscribed to a somewhat similar view of religion.
 In 1844 he wrote: “It [religion] is the opium of the

people. The abolition of religion as the illusory
happiness of the people is required for their real
happiness.”
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 More important, like Feuerbach, Marx emphasized

materialism the importance of material realities as
opposed to Hegel’s idealism.
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MARX’S THEORY OF HISTORY
 Marx combined Hegel’s dialectic with materialism to

develop his theory of history.
 In every historical epoch, the prevailing methods or forces of
production produce a set of relations of production that
support them.
 But the material forces of production (technology, types of

capital, skill level of labor) are dynamic; they are
continuously changing.
 This is to be contrasted with the material relations of

production (rules, social relations among people, property
relations), which are static and reinforced by the
superstructure.
 This superstructure consists of art, philosophy, religion,

literature, music, political thought, and the like.
 All elements of the superstructure maintain the status quo.

 For Marx, history is a process through which the static

relations of production (the thesis) come into eventual
conflict with the dynamic forces of production (the
antithesis).
 The result? Conflict revolutionizes the system so that new

relations of production (synthesis and new thesis) permit the
higher development of the forces of production.
 The mechanism for overthrowing old societies is the class

struggle.
 Marx saw society evolving through six stages:

1. Primitive communism
 There were no antagonistic classes, no exploitation, and no
class struggles.
 People held land in common ownership and jointly

cooperated to wrest a meager living from nature.
 The efficiency of production was very low, and thus workers

could not consistently produce a surplus beyond the
subsistence needed by themselves and their dependents.
2. Slavery
3. Feudalism [expletive]
4. Capitalism {most productive, saw its destruction

seeds}
5. Socialism [ dictatorship of the proletariat]
6. Communism [better stage]

THE “LAW OF MOTION” OF CAPITALIST
SOCIETY
 He did not deer to draw a blueprint for socialism; this was

not his objective. Rather Marx sought “to lay bare the
economic law of motion of modern society.”
 He sought to analyze the changing forces of production

within a capitalist society.
 He used a bout six interrelated important concepts to
construct his theory of capitalism.
 Starting from labor theory of value to class conflict.

Labor theory of value
 Marx’s starting point was the analysis of “commodities”

in capitalist society.
 A commodity, said Marx, is something produced for profit
and capable of satisfying human wants, whether the wants
“spring from the stomach or from fancy”.
 A commodity may satisfy these wants directly, as means

of subsistence, or indirectly, as means of production.
 Use values constitute the substance of all wealth.
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 In addition to use value, or utility, a commodity has

exchange value.
 What determines the value of a commodity? Marx’s

important answer:
 the socially necessary labor time embodied in the
commodity, considering normal conditions of production

and the average skill and intensity of labor at the time.

 The socially necessary labor time includes
 the direct labor in producing the commodity
 the labor embodied in the machinery and raw materials

that are used up during the process of production, and
 the value transferred to the commodity during this

process.

 A product’s value is measured in units of simple average

labor. Skilled work counts as multiple units of unskilled
labor.
 1 hour of an engineer’s productive effort might contribute
as much value to a commodity as 5 hours of simple labor.
 The marketplace equalizes the labor time of different

skills to one common denominator of unskilled labor.

Labor Theory Of Value
 The market also determines the prices that are based on

the underlying labor cost.
 Temporary fluctuations of supply and demand will

cause prices to deviate from true values, sometimes
rising above value and sometimes falling below.
 The continual oscillation of prices allows them to
compensate each other and reduce themselves to average
prices that reflect the values of commodities.

 Marx’s labor theory of value differed from Ricardo’s in an

important way:
 To Marx, labor time determines the absolute value of goods
and services;
 Ricardo believed that the relative values of different

commodities are proportional to the labor time embodied
within each.
 Marx believed that his LTV stripped away from the illusion that
owners of land and capital contribute to a commodity’s value. His
theory thus opened the door to a theory of exploitation of labor.
The Theory of Exploitation.. labor power
 Marx assumed in Volume 1 of Capital that all

commodities sell at their value.
 How, then, does the capitalist receive a profit?
 According to Marx, the answer is by purchasing the one

commodity that can create a value greater than its own.
This commodity is labor power.
 So what is labor power and what make it different from

concept of labor time?

The Theory of Exploitation.. Labor power
Labor power versus labor time.

 Labor power refers to a person’s ability to work and
produce commodities; labor time is the actual process
and duration of work.
 Labor power is itself a commodity that is bought and sold
in the market; it is what the capitalist needs to make
profits.

The Theory of Exploitation .. Labor power
 What determines the value of labor power?
 The answer, said Marx, is the socially necessary labor time

required to produce the cultural necessities of life consumed
by the laborers and their families.
 At this point we recognize two important facts
1. Employers pay workers wage equivalent to the worker’s

labor power; that is, they pay the going market
wage.

The Theory of Exploitation .. Labor power
2. Market wage is sufficient only to purchases the cultural

subsistence required for survival and perpetuation of the
labor force.
 For Marx, the reason for this subsistence wage is not

excessive population growth Malthus’s emphasized.
 Rather, Marx felt that capitalism produces a large “reserve

army of the unemployed” and that this excess supply of labor
dictates that over the long run the average wage will
remain near the cultural level of subsistence.
The Theory of Exploitation …Surplus value
Surplus value
 If the value of a day’s labor power is a day’s labor time,
the capitalist can not produce the surplus value.
 According to Marx, exploitation of labor arises only
when workers can produce more in a day than they

must consume in order to maintain themselves and their
families.

 Then employers pay the workers the full market value of

their labor power, but the daily pay equals only part of
the value the laborers create.
 Through their ownership of capital, employers possess
that which workers need to gain subsistence: jobs that pay
wages.
 Hence, capitalists are in a position to set the length of the

workday and in a sense say to workers, “Work the number
of hours that we set or choose not to work for us at all.”
 Necessity forces the workers to opt to work.
 But the labor time they spend during the workday creates
a larger sum of values than the value of their own labor
power, the costs of subsistence.
 The owners of the means of production garner a surplus

value.
 To understand this suppose the following example by

Marx

The Theory of Exploitation
 Suppose that 6 hours of socially necessary labor time are

embodied in the commodities that typical workers and
their families must consume each day. Then half the labor
of a 12-hour workday (then customary) forms the value of
a day’s labor power. If half a day’s average socially
necessary labor time is also required to produce the gold
contained in 3 shillings, then 3 shillings represents the
value of a day’s labor power. If this is the wage rate,
workers receive the full value of the one commodity they
sell: labor power.
 The capitalists employ the laborers, whom they supply

with the required machinery and raw materials. Suppose
that in 6 hours of labor time each worker converts 10
pounds of cotton into 10 pounds of yarn. Let us assume
that the cotton used up during the 6 hours of labor has a
value of 20 hours of labor, or 10 shillings.
 Finally, suppose that the wear and tear of the spindles

amounts to 4 hours of labor, or 2 shillings, during the half-
day of labor.
 6

 Thus, the total of the yarn produced in half a day is 30

hours of labor time: 6 for the labor power, 20 for the
cotton, and 4 for the used-up value of the spindles.
 Note from the leftward bar in Figure 5-1 that the total
money cost of production is 15 shillings: 3 for the labor
power, 10 for the cotton, and 2 for the used-up value of the
spindles. If profit does not arise from buying cheaply and
selling dearly and if all commodities sell at their value,
then the yarn must sell for 15 shillings.
 What would happens if labor is required to work 6 extra

hours?
 As seen in Figure 5-1, if the worker is required to work
another 6 hours each day, 10 more pounds of yarn will get
produced. These extra 10 pounds are also worth 15
shillings in the market, but they cost the capitalist only 12
shillings (0 for the labor þ10 for the cotton þ2 for the used-
up value of the spindles). Hence the capitalist makes 3
shillings of profit, or surplus value.
 It does not matter that part of the industrial capitalist’s

profit is turned over to the banker in the form of interest,
part to the landlord in the form of rent, and part to the
merchant capitalist in the form of mercantile profits.
 All property income arises from the unknowing

exploitation of labor in the productive process. Within
capitalism, said Marx, the appearance that all labor is
remunerated is an illusion.
 Capitalists are not evil people who rob the Workers:
 “It is a cheap sort of sentimentality which declares this
method of determining the value of labor-power, a method

prescribed by the very nature of the case, to be a brutal
method.”
 Rather they pay workers the market wage but fail to
understand the crucial truth that the source of their own

profits is exploited labor.

The Theory of Exploitation.. The rate of surplus
value
The rate of surplus value.

 Marx designated the part of capital invested in
machinery and raw materials as constant capital, c.
 The value of this capital is transferred to the final product
without any increase.
 The capital that goes for wages, for the purchase of labor
power, is variable capital, v.
 It produces a value greater than its own.
The Theory of Exploitation… The rate of surplus
value

The Theory of Exploitation … The rate of surplus
value
1. Use to develop the above example to show the rate the

surplus value in the above example?
2. What would happen to the rate of surplus if the labor

hour increases to 15 hours or decreases to 9 hours?
What is the proper length of the working day?

 “The capitalist maintains his rights as a purchaser when he tries to
make the working day as long as possible, and to make, whenever
possible, two working days out of one. On the other hand, the
peculiar nature of the commodity sold implies a limit to its
consumption by the purchaser,
value
and the laborer maintains his right as seller when he wishes to

reduce the working day to one of definite duration. There is here,
therefore, an antinomy, right against right, both equally bearing
the seal of the law of exchanges. Between equal rights force
decides. Hence it is that in the history of capitalist
production, the determination of what is a working day
presents itself as the result of a struggle, a struggle
between collective capital, i.e., the class of capitalists, and
collective labor, i.e., the working class.”
value
 Not only by increasing the length of working day but

also by increasing efficiency of production the surplus
value could be raised.
 An increase in efficiency implies a decrease in labor hour
to produce necessity which inter reduce the value of
worker’s labor power.
 Suppose the working day were shortened from 12 hours to 10;
but instead of being divided into 6 hours of paid labor for the
worker and 6 for the capitalist, it was divided into 4 for the
worker and 6 hours for the capitalist. What would be s’?

The Theory of Exploitation.. The rate of profit.

The Theory of Exploitation.. The transformation problem.
The transformation problem.
 Equation 10-2 helps clarify Marx’s “great contradiction”

or “transformation problem.” Consider the following
propositions
1. Marx assumed in Volume 1 of Capital that all
commodities are sold at their values.
2. Labor, v, in Equation 5-2 is the sole source of value.

The Theory of Exploitation.. The transformation problem
3. Following from Proposition 1, industries that employ a

relatively large amount of machinery and raw materials,
c, and a relatively small amount of labor, v, will have a
lower surplus value, s, and profit rate on their capital, p,
than industries that employ a small amount of constant
capital, c, and a large amount of labor, v. This is the case
because labor is the only commodity that can be exploited
for profit.

The Theory of Exploitation …
4. Proposition 3 contradicts what Marx knew from his own

observation: mechanized industries, using much capital
and little labor, have at least as high a rate of profit as
industries using little capital and much labor. Like the
classical economists, Marx knew that profit rates tend to
equalize among industries.
5. If profit rates are uniform and capital-to-labor ratios vary

among industries, then commodities will not sell at their
values as Marx assumed in Volume 1. This appears to be
a significant contradiction in Marx’s analysis.
value
 He concluded that the selling prices of commodities

produced in constant-cost, capital-intensive industries
will sell above their values, whereas labor-intensive
commodities will sell at prices below their true values.
 Thus, according to Marx, the labor theory of value still

holds, but only for the capitalist system as a whole.
Individual commodities will sell at prices above or
below their values in order to equalize rates of profit for
the whole economy.
Capital Accumulation and the Falling
Rate of Profit
 According to Marx, the rate of profit—p’ in Equation 5-

2—received by capitalists will tend to fall over the long
run.
 The reason is the drive toward increasing efficiency
through mechanization and labor-saving inventions.
 This raises what Marxists call the organic composition

of capital, shown in Equation 5-3 as Q. Notice that this is
the ratio of constant capital, c, to total capital, c + v.
Rate of Profit


Rate of Profit
 Therefore, as capitalists invest relatively more in machinery

and less in labor power, Q rises and p falls. This is of utmost
importance to Marx.
 Recall that capitalism faces internal contradictions that

hasten its demise. The drive toward the use of more
capital reduces the rate of profit; laborers are the source
of all value, including surplus value, and as relatively
fewer workers are used, the profit rate falls!
Rate of Profit
 But if value and profit are produced only by labor, won’t

capitalists have an incentive to use more labor and less
capital? For Marx, the answer was
 “No.” He believed that the dynamics of capitalism
inevitably lead to an increased organic composition of

capital. There are two reasons.

Rate of Profit
 First, the enterprise that leads in promoting efficient

production through the use of more and better constant
capital will temporarily receive extra profits by lowering
its costs of production.
 Eventually, product prices will fall to reflect the lower

costs, and the employer who lags behind the trend toward
mechanization in a particular industry will not survive.

Rate of Profit
 Second, the greater the efficiency of production, the lower the

value of labor power—the number of hours required to
produce the subsistence— and the greater the total amount of
profit produced per working day.
 The substitution of capital for labor has a second effect:

the size of the industrial reserve army of the
unemployed rises.

Rate of Profit
 Workers are thrown out of work by machinery or, stated

in contemporary terms, become technologically
unemployed.
 Also, the larger capital investments for each individual
establishment lead to “a growing concentration of

capital (accompanied by a growing number of
capitalists, though not to the same extent).”

Rate of Profit
 Marx perceived certain offsetting forces to the falling
rate of profit.
 First, the intensity of exploitation, s’, in Equation 5-4, can
be raised by forcing the workers to increase their pace of
work or by lengthening their working day.
 second, the constant capital may be cheapened. The ratio

of constant capital to labor is a value relationship, and as
machinery and raw materials become cheaper, the rise in
the organic composition of capital and the fall in the rate
of profit both become slower.
Rate of Profit
 Third, wages temporarily may be cut below their value.
 Fourth, growing population in relation to jobs and

increasing technological unemployment are conducive to
setting up new industries that use much labor and little
capital. The high rates of profits in such industries enter
into the average rate of profit for the system as a whole.
 Fifth, foreign trade raises the rate of profit by cheapening

the elements of both constant capital and the necessities of
life.
Rate of Profit
 Finally, the rate of exploitation is increased by reducing

the value of labor power through increased efficiency of
production.
 Note that several of these factors that partially offset the
falling rate of profit increase the rate of exploitation and

further “immiserize” the proletariat. Hence, class
consciousness is heightened, and the probability of
revolution is increased.
Capital Accumulation and Crises
 The falling rate of profit, said Marx, is but one of the

insoluble problems of capitalism. Another is the
tendency for increasingly severe business crises.
 Marx attacked Say’s law, stating that at best it applied only
to simple commodity production.
 Self-employed small artisans, seeking to acquire use

values, produce commodities in order to exchange them
for others they wish to consume.

 The weaver of linen sells it and uses the money to buy

food.
 The process can be represented by C → M → C, where the

Cs represent the commodities linen and food, respectively.
 These goods have equal exchange value and different use

values. Money, M, is simply the medium of exchange.
 But even under simple commodity production,

the possibility of crisis exists:
“Nothing can be more childish than the dogma, that because every
sale is a purchase, and every purchase a sale, therefore the
circulation of commodities necessarily implies an equilibrium of
sales and purchases. If this means that the number of actual sales
is equal to the number of purchases, it is mere tautology…. No
one can sell unless some one else purchases. But no one is
forthwith bound to purchase, because he has just sold.
Circulation bursts through all restrictions as to time, place, and
individuals, imposed by direct barter, and this it effects by
splitting up, into the antithesis of a sale and a purchase, the
direct identity that in barter does exist between the alienation of
one’s own and the acquisition of some other man’s product…. If
the interval in time between … the sale and purchase becomes
too pronounced, the intimate connection between them, their
oneness, asserts itself by producing—a crisis.”
 Under large-scale capitalist production, the process of

exchange becomes M → C → M, wherein people buy in
order to sell, instead of selling in order to buy.
 Money is changed into commodities such as labor power,

raw materials, and machinery. The products are then sold
for money.
 This process does not make sense, however, if the two Ms

are equal.
 Therefore, the correct representation of the capitalist

process is M → C → M’ where M’ is larger than M by the
amount of surplus value squeezed out of the productive
workers.
 This is the process of expanding investment. “Accumulate,

accumulate! That is the law of Moses and the prophets!”
 Rapid investment in capital and labor temporarily

increases the demand for labor and increases the wages
that capitalists must pay.
 But these higher wages reduce the rates of surplus value

and profit, ending the expansion and sending the
economy in the opposite direction.
 The depression that results destroys the monetary value
of fixed capital, enabling the larger capitalist to buy up

smaller ones at bargain prices.
 Also, some factories close, prices of commodities fall,

credit contracts, and wages fall.
 The rates of surplus value and profit thus get restored,

and investment increases once again.
“The present stagnation of production would have prepared an

expansion of production later on, within capitalist limits.”
 Each such business cycle, according to Marx, is of
greater magnitude than the previous one, adding to the

conditions that produce class struggle and social
revolution.
The Centralization of Capital and
Concentration of Wealth
 The dynamics of capital accumulation and the tendency

for recurring business crises centralize the ownership of
capital and concentrate wealth in fewer hands.
“Capital grows in one place to a huge mass because it has in another
place been lost by many…. The battle of competition is fought by
cheapening of commodities. The cheapness of commodities depends,
caeteris paribus, on the productiveness of labour, and this again on the
scale of production. Therefore, the larger capitals beat the smaller. It
will further be remembered that, with the development of
the capitalist mode of production, there is an increase in the minimum

amount of individual capital necessary to carry on a business under its
normal conditions. The smaller capitals, therefore, crowd into spheres
of production which Modern Industry has only sporadically or
incompletely got hold of. Here competition rages in direct proportion to
the number, and in inverse proportion to the magnitudes, of the
antagonistic capitals. It always ends in the ruin of many small
capitalists, whose capitals partly pass into the hand of their conquerors,
partly vanish. Apart from this, with capitalist production an altogether
new force comes into play—the credit system
In its beginning, the credit system sneaks in a modest helper of

accumulation and draws by invisible threads the money resources
scattered all over the surface of society into the hands of individual
or associated capitalists. But soon it becomes a new and formidable
weapon in the competitive struggle, and finally it transforms itself
into an immense social mechanism for the centralization of
capitals.”

Class conflict
 The concentration of wealth in the hands of fewer and

fewer capitalists and the absolute and relative
impoverishment of the workers together set the stage for
class conflict.
 The growing “misery, oppression, slavery, degradation,

exploitation” of the workers raise their sense of
solidarity and will to revolt. “The knell of capitalist
private property sounds. The expropriators are
expropriated.”
Class conflict
 The relations of production under capitalism come in

conflict with the forces of production, and the former are
“rapidly transformed.” The workers overthrow the
capitalists and establish a dictatorship of the proletariat.
 State ownership of the means of production replaces

private ownership, the rate of capital expansion is
stabilized, and the exploitation of workers is eliminated.
The workers in a sense become owners of the capital.
THE LAW OF MOTION OF CAPITALISM:
A SUMMARY
Contributions
 First, his struggle and others to develop theory of value

was an incentive for economists to explore other routes
for understanding exchange values.
 Second, Marx was one of the first economists to note that
business cycles are a normal occurrence in capitalist

economies.
 Third, Marx accurately predicted the growth of large-

scale enterprise and monopoly power.
Contributions
 Fourth, Marx highlighted the substitution effect as it

applies to labor-saving capital. Indeed, in some
circumstances, new capital can replace labor. He also
discussed the idea of labor-saving innovation in more
detail than had any of his predecessors.
 Finally, Marx contributed to economics through his

emphasis on dynamic, rather than static, analysis. The
dynamic approach was stressed later by institutional
economists, growth theorists, and Austrian economists.
Analytical Flaws
 Defects in the labor theory of value.
 Problems with Marx’s theory of exploitation.
 Shortcomings in Marx’s analysis of capital

accumulation.
 Problems with the idea of class conflict.

Chapter - Five

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CHAPTER Five

THE RISE OF SOCIALIST

 SAINT-SIMON; CHARLES FOURIER; SIMONDE DE SISMONDI;ROBERT OWEN

Samuel S. HET Woldia University,2015

 This chapter focus on the class conﬂict between the

 The workers’ movement began with the great Luddite

 The movement was subdued with a great deal of

 But it burst out again, with a higher level of

 In England the movement was under objectives of:

 new Poor Laws,

 and the reduction of the working day for women and

 In France it produced various armed insurrections at

 In both countries the movement pass on and of and

Samuel S. wldu 2015

 The following twenty years, initiated by the bloody

 Based up on this facts we classify the period into two, period

 The years of sharp conﬂict gave birth to a great

 While the period of social respite produced only the

 This dates from about 1800, with Henri Comte de Saint

 They preached universal togetherness rather than class

 He developed his ideas before the political movement

 Saint-Simon alarmed the rich because he made production,

 The line he drew separated producers from non producers.

Samuel S. wldu 2015

 Saint-Simon’s synthesis tried to link an antiindividualistic

 He constructed a model of a strongly hierarchical and

 His ‘socialism’ aspired towards a society of producers,

 The second chamber, run by scientists, would examine

 The third chamber, consisting of the leaders of industry,

 Saint-Simon rejected the fundamental assumption of

 He insisted that a new ethic was required to restrain

 His followers to oppose the laws of inheritance and to

 Unlike Saint-Simon, he disliked large-scale production,

 Competition, he thought, multiplies waste in selling,

 Commerce to him was pernicious and corrupt, and he

Samuel S. wldu 2015

 Fourier’s solution to social problems was to remove the

 Three distributive passions, planning, change, and unity.

 This could be accomplished by organizing cooperative

 Cooperative living was central to his thinking as the

 For the early stages of his ideal society, Fourier advocated

Samuel S. wldu 2015

 Fourier objected to overspecialization, warning that

 The cooperative movement is in part a living monument to

 Sismondi was less a socialist than a social critic and a

 Thus Say’s Law does not work precisely because of the

 This argument is similar to that put forward by

 Sismondi, however, proposed to solve the problem by

Samuel S. wldu 2015, HET

 Without the abolition of private property, Sismondi’s

 The philosophy of Robert Owen was inspired by a

 He did not recognize in humankind any natural

 On the other hand, he thought that the character of

 He tried it [the system] on his on factory.

 He considered the factory as the nucleus around which

 The factory should be co-operatively managed;

 The ruling functions should be a prerogative of the old,

 Gerontocracy is a common element of a great many of

 This involves government ownership and operation of

 State socialism also can occur within a capitalist

 Historically, the state socialist considered the state to be

 Then the state could take over enterprises and become