I haven’t talked too much about Marx here - but those who have discussed economics and business with me offline are well aware that I think Marx had a lot of insight into the human condition, capitalism, and work. I posted once about his insights into the concept of the employee and want to expand a bit on my thoughts of what we can learn from Marx in the realm of behavior as it relates to finance and capitalism. This has been an increasingly popular topic now that Daniel Kahneman and the father of efficient market theory Eugene Fama opened the discussion on behavioral finance at this year's CFA conference.
Only continue reading if you are interested in learning something and have a bit of sociological imagination….
Marx’s view on capitalism is an interesting one; he takes a relatively close-minded viewpoint from the working class and outlines what is wrong with the system. In Marx’s diatribe on capitalism, he reviews several key components that are pieced together to support his main theme, that capitalism is a stain on society and it is time to move on. The key components he pieces together are the same as most economists labor, capital, and commodities then he adds a few others – namely alienation, exploitation, and class (which help to explain the situation in Greece). It is these later three that allow Marx to engender support from the working class and paint a picture about the evils of capitalism.
Marx takes the standard view of most economists on what is involved in capitalism, that there are people with money that is invested in the creation of more money through the combination of labor aggregation, commodity purchases, and cash flow. Marx also agrees with the viewpoint that this combination creates surplus wealth, in other words when all of these things are combined the value of the goods created is greater than the value of the goods when they started. Here is where the standard economic theory stops for Marx. Most economists would argue that the surplus that is created and split amongst the participants involved in the process of creation and the business owners, having taken the most risk, have a larger share. Marx on the other hand argues that because the laborers did all of the labor, all of the surplus should be split amongst them. We see this commonly in Greece today. This stance tugs at the heartstrings of all laborers and especially during the 1840s when those laborers were moving from farms to cities to participate in the industrial revolution, the heartstring tugs would have been particularly strong. For a laborer during that time, they saw commodities as the seeds they sowed in the ground, the labor they performed transformed those seeds into goods that could be sold, and the entire surplus was theirs. Marx evoked a variety of feelings from the laborers by attempting to transfer this line of thinking to that of an industrialized society. He skipped the new realities that the commodities and capital were not owned by the laborer and attacked the thinking that the surplus created was not given directly to the workers. Our sociological theory is that this is because of Marx’s dialectical approach that examined the conflict to explain how things work; however, Marx did not explain all of the components involved. Instead, he continued his attack against capitalism with the fact that workers were no longer doing the tasks that they chose and were doing tasks that were the will of the capitalists, this separation of working on things that one wanted to do and working on things that a capitalist wanted one to do was cleverly described as alienation. With these broad strokes, he painted a picture where the laborers were doing all of the work, yet the work was not what they wanted to be doing, and the capitalists were taking all of the profits. It is a sad picture to be looking at after a sixteen hour day at the factory, but Marx didn’t stop there, his final touch was a frame for the picture, one that he called class. The class component was the final frame for workers who had hope of getting out of the situation they were in. The class component was where Marx made the picture of alienated labor that did not result in a share of the profits one that would last endlessly for generations. The capitalists would continue to promulgate their class and create more businesses for which labor would be required and the laborers would continue to be the working class underneath this growing infrastructure of capitalists. While Marx did a great job describing the emotions of the working class and how they must have felt entering the work force from the fields, his work skipped a lot of the realities that existed at the time. The working class were moving to the city to earn better wages than was possible on their own in the fields, this meant that they were sharing in the profits in some regard. The capitalists were doing more than just using their money and exploiting labor, they were also taking more risks, negotiating low prices to buy commodities and high prices to sell finished products, and of course facilitating all of the components coming together as one to create finished goods. If Marx had accounted for these things in his diatribe, his thoughts may be more practical today. Instead they are only insightful into how society is and was organized in determining the basis for revolution and alternative thought within society.