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Karl Marx postulated many economic theories throughout his life culminating in the theory of value. Born to Jewish parents in 1818 in Prussia province, Rhineland, currently called Trier, Marx studied history and philosophy at the University of Bonn, obtained a law degree from Jena University, and later obtained a PhD from the prestigious University of Berlin, Germany, at the age of 23. He later turned to radical journalism becoming a newspaper editor after he failed to secure an academic career due to his radicalism (Cohen, 1978, p.27).
However, the Prussian authorities censored the newspaper that he was an editor, after his continued attacks on the Prussian leadership, forcing him to relocate to Paris in 1843. In Paris, he again established a radical journal, which was also suppressed by the authorities later on. In 1845, French authorities expelled Marx forcing him to move to Brussels, where together with his friend, Frederick Engels, founded the Communist League with a Communist Manifesto in 1848.
The founding of the Communist League by Karl Marx and Engels coincided with the1848 revolutionary upheavals across Europe. However, following the unsuccessful revolution in 1848, Marx was again routed from Germany and the extremist newspaper he edited in Cologne banned.
Subsequently, Marx moved to London in the same year where he eventually settled for the rest of his life (Cohen, 1978, p.41). In London, Marx lived in poverty with his family supported by the little proceeds from occasional journalism and financial assistance from his long time friend, Engels. It was during this time that Marx developed major works on capitalism culminating on a systematic theory on capitalism.
Throughout his life, Marx involved himself in social criticism of leadership particularly in Germany. His first involvement came in 1832 when he became a member of ‘young Hegelian’, strong critics of German idealist philosopher, Georg Hegel’s political philosophy. After Hegel’s death in 1832, this radical movement continued to flourish eventually leading to the 1848 revolution.
Hegel political philosophy revolved around his belief that every idea produced an opposed idea resulting in a conflict or struggle (Cohen, 1978, p.52). Marx, later, reposed on Hegel’s philosophy to explicate how the then class warfare would result in a harmonious society. Hegel’s philosophy was based on the belief that ideas influenced history. In contrast, Marx, being a materialist, believed that society was greatly influenced by economic dynamics.
Although both of Marx’s parents were Jewish by religion, Marx remained indifferent towards religion; actually, he coined the phrase, “religion is the opium of the poor people” (Cohen, 1978, p.49) in one of his philosophical essays. After he moved to Paris in 1843, Marx dived into radical economic thinking reaching a conclusion that the industrial revolution that characterized Europe in the 19th Century only benefitted the capitalistic employers at the expense of poor laborers.
In 1844, he wrote his first volume on capitalism where he criticized the capitalist system of injustice by exploiting the workers while enriching their capitalist employers. He then suggested that proletarians would subvert the capitalist system of individual ownership of property and substitute it with a communist economic system, which would allow them to share the wealth they created and own property jointly.
The Communist Manifesto
While in Brussels, Marx and his friend Engels formed a small group of radical workers, which they later named the Communist League in 1847, followed by the authorship of its Communist Manifesto in the same year. In the manifesto, Marx described the historical scientific and economic developments and explained how the future would unfold. He attempted to show that historically, the society is under constant class struggles and that one economic class always oppresses the other.
However, he noted that the suppressed class finally stands up, disputes the existing systems, and institutes a new system. At the time, Marx was referring to the rich industrial class that suppressed and victimized the majority workers. He called this class, the bourgeoisie; a wealthy class that used its wealth power to control and exploit workers.
From his economic perspective, the value of a product was determined by the amount of labor input during its manufacturing process. However, he pointed out that, under the capitalist system, the workers least benefitted from their labor while their employers became wealthier. In Marx’s perspective, the capitalists made profit, “surplus value”, on the products sold, thus, overworking the workers. As a result, the employers enslaved the workers.
Marx argued that the exploitation would lead to a new class struggle between the wealthy and the working class with the proletariat becoming unified to overthrow the current system and take control of leadership. The revolution, which Marx termed, the “socialist phase” would climax into a new government comprising of the oppressed class that would take control of all the industries, farms, factories, and businesses and use them for the benefit of all the workers.
After the working class has subverted the wealthy, Marx projected that class struggles would end. The main purpose of the class struggles would be to dispatch the private possession of property and means of production and in the process eliminate economic and social divisions. Furthermore, Marx believed that through a socialist system, the worker productivity would increase leading to greater economic development.
As the social and economic divisions disappear following the communistic revolution, Marx envisioned that, the need for capitalistic rule would also disappear. He expected this revolution would first occur in Germany and then spread to the rest of the world.
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In concluding the Communist Manifesto, he warned the then ruling class to prepare for a communist revolution involving the proletarians, who had nothing to lose, against the wealthy ruling class. However, the capitalist governments destroyed the revolutionary Communist League, its members prosecuted, and others exiled to foreign nations.
After publishing the Communist Manifesto, followed by worker revolts in Germany and other European nations, Marx, together with his family, relocated to London, where he wrote many essays criticizing the existing system (Engels, 1969, p.71). In 1867, Marx promulgated the first volume of ‘the Capital’, which dealt with the economic aspects of capitalism. In the ‘Capital’, Marx drew the many contributions of capitalism towards economic and technological development.
However, he pointed out that capitalism was likely to fail. He explained that capitalism allowed monopolies to flourish and encouraged rivalry among them, which would eventually result to a decrease in workers’ wages (Engels, 1969, p.74).
This would lead to a class struggle involving the majority workers and the rich powerful capitalists and eventually result to communism replacing capitalism. Marx, in his last writing of 1882, targeted the upcoming industrialist state of Russia, where he noted the peasants were beginning to revolt against the capitalist rule.
The Foundations of Marx’s Monetary Theory
Marx disapproved the common notion that money arose as a convenient medium of exchange to commodity exchange or barter system of trade (Marx, 1970, p.51). He instead argued that, money is not the result of agreements between the buyer and the seller but arose as a medium of exchange spontaneously during trade (Marx, 1970, p.49). This was the focus of his labor theory of value, where he explained why, and how money evolved as a medium of exchange in capitalisms.
For several years, Marx’s theory of value was considered to deal with pricing of commodities. However, in one of his essays in 1868, Marx notes that, it is important that societies embrace a common mechanism that would measure the various types of productive activities of the economy (Marx, 1967, p.73). Marx felt that, if the economic welfare of the society is to be promoted, the present productive activities must be unified by a universal and durable system.
Of the most significance is Marx’s explanation of how money operates in a capitalistic society by coordinating and integrating production activities. He suggests that private exchange of products in capitalist societies links together independent producers (Marx, 1967, p.74). Thus, in his theory of value, Marx undertakes to understand what makes independent forms of qualitative human labor to be exchanged at a specified quantitative value through the exchange of commodities.
In responding to this problem, Marx through his theory of value describes how the production processes are linked in capitalistic societies. Additionally, the theory explains that money is essential as means of coordinating the labor processes. He further argues that the “definite quantitative proportions by which commodities are exchanged implies the existence of some qualitative aspects of commodities” (Marx, 1967, p.39).
In relation to the exchange rate amongst commodities, Marx poses the question, “what makes objects exchangeable against each other?” (1967, p.30). He then explains that the exchange is not determined by their degree of utility alone. “What is the identity of commodities that makes them exchangeable at particular proportions with each other?” (Marx, 1970, p.144), he further questions.
After explaining that the value of commodities cannot be based on the principle of utility, Marx reveals that “commodities have only one common property; that is, they are derived from human labor … commodities are all products of abstract human labor or Marx’s ‘values’” (Marx, 1967, p.38).
This answers Marx’s question as to what makes commodities exchangeable. He termed the equivalence relationships between different commodities as “value relation” (Marx, 1970, p.74). According to Marx, value indicates the mutuality between independent producers in goods producing economies.
In this regard, Marx explains that value expresses the relationship between independent producers in the society, a form of reciprocal relationship in the society. Marx further explains that the value of a commodity can be historical; that is, it develops with other historical forms in the society such as social labor (Marx, 1970, p.207).
More precisely, commodity value stands for the abstract social labor that is convertible directly or indirectly for other goods produced in the society. In this regard, the commodity exchange coordinates independent producers in a commodity producing society. This means that, in any society, the commodity value must have an independent form of expression as no commodity can set its own value.
Thus, the exchange-value of a commodity represents “a form of social expression of value derived from abstract labor and hence a necessary form of expressing value” (Marx, 1978, p.138). Indeed, it is necessity of developing an independent exchange-value or abstract labor that stimulates the development of money (Marx, 1970, p. 51).
In contrast with other theories, Marx’s theory of value attempts to explain how the circulation of commodities stimulates the evolution of money. In the third volume of the ‘Capital’, Marx explains the evolution of money. He explains that, in a society reliant on commodity production and exchange, the value of one commodity can be determined against equivalent commodities (Marx, 1967, p.70). In the event that no commodity forms an equivalent of another commodity, then the value of each commodity will be expressed differently.
Obviously, the exchange system for commodities will have no unity of value. In this kind of system, every commodity can be viewed as money from the producer’s perspective (Marx, 1969, p.145). Therefore, the generalized process of production and exchange requires that one commodity plays the exclusive role as a universal equivalent to the rest.
The commodity against which the “exchange value for the rest is determined represents an embodiment of abstract human labor value” (Marx, 1968, p.69). Thus, money represents an ecumenical social pattern of determining exchange-value or price of goods and subsequently convertible for all goods and abstract human labor.
In his theory of value, Marx attempts to explain how the evolution of money proceeds simultaneously with the development of commodity production and exchange. Eventually, money becomes the system that unifies and coordinates the diverse human labor and production in capitalist society (Marx, 1970, p.157).
The Social Nature of Money
In accordance with Marx’s theory of value, money mediates commodity production in the society. It allows producers to equate the value of their products based on the abstract labor input leading to price determination. Thus, money is a store of value, which allows individuals in capitalist economies to become wealthy. In addition, money, being a universal form of expression of value, “mediates economic cooperation between nations reflecting economic interrelationships between states” (Marx, 1967, p.145).
In capitalist economies, the accumulation of money into capital demonstrates the domination and control of human labor and production in these economies. In addition, the accumulation of money into capital is the basis of modern financial systems and institutions (Marx, 1967, p.72).
Unlike other neoclassical monetary theories, Marx’s theory of value explains that, while money enhances social cooperation within the society, it can be the source of economic crises in capitalist states at the same time. He explains that the phenomenon of division of labor common in capitalist economies raises the possibility of disrupting production and commodity exchange.
More importantly, in capitalist states, individuals can cache money as a depot of value or capital and in the process affect the process of commodity production and human labor. Marx points out that the use of money, as a medium of coordinating production activities in capitalistic societies is likely to cause economic crises and political instability (Marx, 1967, p. 70). In this way, Marx points out as to the limitations of using money as a medium of exchange and in production in capitalist societies.
Cohen, G. (1978). Karl Marx’s Theory of History: A Defence. Oxford: Oxford University Press.
Engels, F. (1969).The Condition of the Working Class in England. London: Panther Books.
Marx, K. (967). Capital: 3 Volumes. New York: International Publishers.
Marx, K. (1968). Theories of Surplus Value: Part II. Moscow: Progress Publishers.
Marx, K. (1970). A Contribution to the Critique of Political Economy. New York: International Publishers.