Mises Wire

Karl Marx Was Not an Economist

Mises Wire Yash Dubey

Despite the massive intellectual feat that Marx’s Capital represents, the Marxian contribution to economics can be readily summarized as virtually zero. Professional economics as it exists today reflects no indication that Karl Marx ever existed.

—Thomas Sowell

If socialists understood economics they wouldn’t be socialists.

—F.A. Hayek

Karl Marx is a very popular name in social sciences. As a scholar of the nineteenth century, he is still a part of political discussions today. He was born in Germany and later shifted to London where he lived with his family in exile. Marx was a sociologist and philosopher, but some also see him as an economist. This article is a rebuttal to such thoughts.

Economics simply deals with the problem of the allocation of resources. As resources are scarce, they need to be allocated efficiently to the people in society who are involved in such activities. Economics is the science that deals with the problem of resource allocation in society, which makes it a social science. Nobody has the capability to allocate these resources; thus, it is best done by the market mechanism, the so-called invisible hand.

Most economists believe that the market mechanism allocates resources, and the works of Ludwig von Mises and F.A. Hayek in the calculation and knowledge problem play a big role in understanding that point. But Marx strictly didn’t believe in the market mechanism. His major problem was with capital, but ever since Adam Smith’s era or even before, the fundamental terms of economics include capital, saving, investment, prices, money, supply, demand, consumer, entrepreneurship, profit, etc., which Marx either criticized or ignored.

While Marx’s ideas would have been discussed in economics in an earlier era, today they are nowhere to be found. An economy needs profit and capital as these factors establish consumer sovereignty and enhance productivity. Marx saw profit as a rate of exploitation. According to Marx and his followers, the workers’ work and the profit are mostly taken by the capitalist just because he is the capital owner.

Marx clearly ignored the risk involved in a competitive market, as capital accumulation is uncertain and not all investments are converted into capital. It requires risk-taking and skill to be an investor in a competitive market.

Marx also says that an increase in technological advancements replaces the workers and increases the rate of profit for capitalists. This belief originated when computers were newly introduced in India, which led to mass protests by communists who went on to destroy the computers. Today, the service sector is a major contributor to the Indian economy, and the IT sector is booming and creating more employment opportunities. The IT sector contributes to the service sector both directly and indirectly. The computer that would once take away jobs is now a major hope for employment in India. Not only does it provide jobs, but it also provides better and more skilled jobs than were available earlier.

Technological advancement also increases productivity. When output increases, employment increases, not the other way around. Marx used a static model, and in such models, one can easily form equations or make predictions. But in reality, people aren’t static. Marx ignored the essence of entrepreneurship and consumers in the market. His focus was only on workers and the evil bourgeoisie, and he didn’t realize how consumer choice directs market processes.

What a person deserves to earn can’t be decided by anyone—certainly not a politician or an intellectual. It is assumed that a capital owner isn’t working, but their decisions need local knowledge of time and place which cannot be formed easily. Marx only saw one side of the coin, ignoring the fact that the owner of capital has a possibility of losses too.

But Marx’s complaint is only against profit. If an owner faces loss, then the worker would still be receiving his wages and can also change his workplace. Profit is uncertain, but the wages and salaries are certain; therefore, for the owner there is more risk and more gain. Hence, the subjectivity of these matters needs to be respected. The profits don’t come easily and when they do, a share of them is invested, which opens more job opportunities.

It is true that in the case of cronyism, there is unfairness. Despite being a capitalist system, the essence of competition and consumer sovereignty is lost. Marxists have been opponents to this, but unlike free-marketers, they prefer more regulation of the market. Their approach is unrealistic, which has already been proven by economists like Mises and Hayek.

The argument against socialism has developed from an incentive problem to a calculation and knowledge problem, as well as a self-interest problem. Not surprisingly, socialists have still not been able to deal with these arguments and rather try to escape them in name of “morality.”

Also, socialists haven’t developed their arguments from beyond the aesthetic feature of socialism, which, unfortunately, deceives laymen from looking at the big dark hole inside the ideology. It is sad that with more failures of socialism in history, there have been increasingly more followers of a figure like Marx. Marx’s theories might be part of discussions in political science or sociology, but his contributions to economics are next to none.

Economics deals with how things are, not how things should be. Karl Marx was a thinker, for which he is respected, and the fact that he was able to articulate his thoughts is commendable. After that, however, his conclusions were not true, and putting them into practice brought misery and death. Let nobody deceive you: Karl Marx cannot be considered an economist in this or any other era.

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