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Home Theories of Economic Growth Marxian Model of Economic Growth

 

Marxian Model of Economic Growth:

 

The traces of Karl Marxian model of economic growth are available in his famous book "Das-Capital". He rejects the salient features of classical model of economic growth. Afterwards, he presents his own theory which has a social and historical framework where the economic forces play an important role. Marx model rejected the law of diminishing returns. Marx says that the outcome of stationary state in classical model is not a natural process, rather it is due to human arrangements. He also rejects Malthusian theory of population.

 

Marx analyses the economic development from social and historical point of view and each stage of economic development is based upon the Heagle's philosophy where a thesis and then its anti-thesis have been presented, and then their contradictions have been mentioned. Marx says that in capitalism 'Social relationships of production' are more important than 'Distribution of goods'. Marx says that the productivity of labor is not a gift of nature rather it is the result of history which embraces thousands of centuries.

 

The concepts of relations of production is vague. In this concept he includes the 'Organic Whole' which is characterized by the labor organization and skill, the standing of the labor in the society, the technological and scientific knowledge and its use in certain environment. In Marx model those relations of production determine the socio-cultural setup of a society. Marx was of the view that the capitalism would not end up in a quiet classical 'stationary state', rather it would break up with a 'Bang' when the expropriators are expropriated.

 

In this Marxian model of economic growth, we shall just discuss the economic aspects, ignoring social and institutional aspects.

 

Marx model is based upon following dynamic laws:

 

(i) Law of Capitalistic Accumulation: According to this law the prime desire of the capitalist class is to accumulate more and more capital.

 

(ii) Law of Falling Tendency of Rate of Profit: According to Marx the profits have a tendency to come down and it plays an important role in the break down of the capitalistic economy.

 

(iii) Law of Concentration of Capital: Marx says that in a capitalistic economy the capital is concentrated and centralized in a few hands. In other words, with the growth of capitalism the cut-throat competition will develop amongst the capitalists. As a results, the big firms will throw away the small firms, monopolies will grow and power will be concentrated into few hands.

 

(iv) Law of Increasing Pauperization: According to this law as the capitalism grows the miseries and agonies of laboring class increase. It is because of the reason that the labor are given subsistence wages, and the number of unemployed which Marx calls 'Industrial Reserve Army of Labor' increase when the technical changes occur and capital is substituted for labor.

 

According to Marx, because of simultaneous inter-play of these laws such circumstances will rise whereby the class conflict between capitalists and workers or between 'have' and have-nots' will sharpen Eventually, the capitalism will face a violent death in the final confrontation when the expropriators will be expropriated. Hence, Marx gave the clarion call: Workers of the world, unite, as they have nothing to lose excepting their 'Chains'.

Now we describe the law of falling tendency of rate of profit. This law plays an important role in the whole process of change.

 

According to Marx, the value of commodity (w) is given by the sum of "constant capital" (c) or the plant and machinery used up in production plus the "variable capital" (q) which is paid to labor in the form of wages plus the 'surplus value' (s) which is earned by labor but it is pocketed by the producers. The concept of 's' is further explained as:

 

If the working day is consisted of 8 hours and only 4 hours are required to produce a commodity then for the remaining 4 hours the worker is producing a surplus which is expropriated by capitalists. It is expressed as:

 

w = c + q + s

 

If 'x' is used to represent rate of surplus value or the rate of exploitation and it is shown as:

 

x = s/q

 

Reference previous example:

 

x = s/q = 4/4 = 100 %

 

The rate of profit (p) in Marxian model is given as:

 

p = s/(q+c)

 

Dividing the numerator and denominator by q then:

 

p =           s/q         

                                                                              q/q + c/q

 

p =      s/q      

                                                                                1 + c/q

 

As x = s/q (rate of exploitation) and if c/q = j which he calls 'organic composition of capital', then putting them in the above equation:

 

p =      x     

                                                                                 1 + j

 

This equation shows that if 'x' remains constant, then there exists an inverse relationship between "p" and "j". As the capitalistic system grows the amount of organic composition of capital (j) increases. Moreover, whenever the wages exceed the subsistence wages the producers substitute capital for labor in order to maintain their profits. This situation promotes unemployment. On the other hand, due to cyclical fluctuations and fall in the rate of profit the capitalistic system faces crisis. The falling tendency of the rate of profit would lead to cut-throat competition amongst the capitalists. This would promote monopoly capitalism. But the conflict between 'Immiserized Proletarians' and the capitalists would toll the death knell of capitalism.

 

According to Marx the law of a tendency for the rate of profit to fall may not always be observed within an economic system. In other words, the tendency of fall in the rate of profit can be checked. It is shown as:

 

p =      x     

                                                                                 1 + j

 

Differentiating 'p' with respect to 't':

 

 

According to Marx if rate of exploitation of labor increases more than amount of capital, the rate of profit will increase. If amount of capital is more than the rate of exploitation whether it will lead to decrease the rate of profit or not, it depends upon the difference between dx/dt and p . dj/dt.

 

If p . dj/dt which is negative term exceeds the dx/dt, the rate of profit will decrease. But a fixed rate of exploitation and increase in capital intensity may not go together because a rise in organic composition of capital would raise productivity which would either raise the rate of exploitation or raise the real wages. But Marx says that instead of rise in real wages, there would be an increase in the rate of exploitation.

 

Criticism:

 

(i) On empirical basis Prof. Kaldor has concluded that in case of long run the proportion of wages to national income has remained constant in rich countries. Again, so many socialist countries which followed Marxian philosophy failed to remove poverty. The labor residing in socialist and communist countries were always found dreaming for the life standard enjoyed by their western counter-parts. Such all led to a reaction against socialism in Russia which culminated in disintegration of Russian Federation. The prosperity enjoyed by laboring class in US, Japan and European countries contradict Marxian law of increasing pauperization. However, Marxian philosophy of concentration of capital in few hands is available in case of both rich and poor countries.

 

(ii) According to Prof. Fellner in case of rich countries the ratio of capital to output has increased. This has not only promoted capital accumulation but the real wages of the labor have also gone up. Such all is against Marxian model.

 

(iii) Mrs. Robinson also rejects the Marxian law of declining of rate of profit. She says that the technical progress can be capital saving which would increase the productivity of labor. As a result, the rate of profit will increase, rather decreasing.

 

(iv) Marx failed to entertain that capitalism would be protected by democracy. It is the democracy which promoted social security, anti-monopoly laws and mixed economies. Such all contradicted Marxian philosophy of 'Self-Demise' of capitalism.

 

(v) According to Sehumpeter Marx model is based upon: (a) labor theory of value, (b) a modified version of subsistence wage theory. Both these are the instruments of constant situation. Thus, following Sehumpeter Marx model has been presented under constant circumstances. It fails to treat the matters dynamically.

 

(vi) According to Marx there exists a correlation between the growth of the average firm and increase in the degree of concentration. But this logic does not look appropriate. But, as far as unemployment is concerned it has increased both in UDCs and in DCs.

 

Inspite of these flaws Marx model of economic growth is of greater significance, it analyzed the role of technical growth, inventions and innovations and capital accumulation. He attributed the growth of capitalism to rate of profit. He considers the trade cycles something inevitable. He says that more and less wages as compared with production may influence the process of economic growth.

 

Relevant Articles:

 

Adam Smith's Model of Economic Growth
Ricardo's Model of Economic Growth
Classical Model of Economic Growth
Marxian Model of Economic Growth
J.E. Meade's Model of Economic Growth
Schumpeter Model of Economic Growth
Secular Stagnation - Hansen's Thesis
Kaldor - Mirrlees Model of Economic Growth
Golden Rule of Economic Growth
Neo-Classical Theory of Economic Growth
 

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Rent
Wages
Interest
Profits
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance

History of Money
 

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