Marxian theory of economic development

Presented by,
ASHA V K MENON
MSc GEOGRAPHY
GOVERNMENT COLLEGE CHITTUR

Karl Marx (1818 – 1883)
 A German philosopher,
economist, historian, political
theorist, sociologist, journalist
and revolutionary socialist.
 Father of Scientific Socialism
 Epitomized as ‘Marx the
Prophet’ and is ranked with
Christ and Mohammed if we are
to judge him by the number of
his followers

Marxian Theory of Economic Development
Gravest and the most penetrating examination of the
process of capitalist development
Major assumptions:
1. There are two principal classes in the society
a. Bourgeoisie
b. Proletariat
2. Wages of the workers are determined at subsistence
level of living.
3. Labour is the main source of value generation.

4. Factors of production are owned by the capitalist.
5. Capitalist exploit the workers.
6. Labour is homogenous and perfectly mobile.
7. National Income is distributed in terms of wages and
profit.
Marx contributed the theory in 3 respects:
a. economic interpretation of history
b. motivating forces of capitalist development
c. alternative path of planned economic development

4 Concepts
1. Materialistic Interpretation of
History
2. Surplus value
3. Capital Accumulation
4. Downfall of Capitalism

Materialistic Interpretation of History
All historical events are the result of continuous economic
struggle between different groups and classes in a society
Main cause of the struggle: conflict between the mode of
production and relation of production
Mode of production: particular arrangement of production
in a society that determines the entire social, political and
religious way of living
 Relation of production: relates to the class structure of the
society

MODE OF PRODUCTION RELATION OF
PRODUCTION

Primitive
communism
Slavery
Feudalism
Capitalism
Socialism

Primitive communal stage
 People lived in groups, worked on common lands with
common tools and all resource are used in common
 Equality in society
 The products they produced were shared equally
 It lead to the development of different crafts and occupation
 Barter system began
 With social division of labour, the clan began to break in to
families and development of private property
 This paved the emergence of ………………

Slave stage
 Slavery system was prevalent
 Land owners exploit the slaves
 Slave work in the land for his master
 Landlords acquired more wealth
 Later conflict b/w mode of production and relation of
production
 As a result the slaves rose against their enslavers which
ultimately lead………….

Feudal stage
 Kings and lords controls the land
 Aristocratic landowners were exploiting the serfs
 The serfs worked like slaves for the feudal lord
 Theocracy
 Unlike slave society the peasants can own a small portion
of land
They have to pay a part of their produce to the landlords
 Creation of a merchant class which led to the rise of a
group of capitalists ultimately resulting in the conflict b/w
the feudal class & the capitalists

Capitalist stage
 Entire economy is guided by market forces
 Profit motive rules the society
 Stage dominated by bourgeoisie and law protected their
interest
 The capitalist owns the means of production for individual
profit
 Worker is free to work and he does not have any means of
production
 Labour surplus
 Monopolistic tendencies
Capitalism leads struggle b/w the proletariat and bourgeoisie

Socialist stage
 Proletariat overthrows bourgeois state and control means
of production
 Proletariat allocates resources of society according to
people’s need
 Eventually the state disappears and democratic councils of
workers run society
 There is no class struggle –Neither the exploiter Nor the
exploited exist
 The reward of every person is determined on the
principle of –each according to his ability and each
according to his needs

Surplus Value
Economic basis of the class struggle under capitalism
Class struggle is simply the outcome of accumulation
of surplus value in the hands of few capitalists.
Labour is the sole source of value in a commodity
Capitalism is divided into two groups:
1. the workers who sell their labour power;
2. the capitalist who own the means of
production

 Marx calls the unpaid labour as surplus value
 The net output of the economy is given as:
c + v + s
c = Value of materials and machinery
v = Amount of labour used during particular period
s = Surplus value

Capital Accumulation
 Surplus value leads to capital accumulation
 The capitalist is always try to increase their profit in 3
ways
1.By increasing working hours
2.By diminishing no. of hours required to produce
labour’s subsistence
3.Increasing the productivity of labour

“Capital is dead labour, which
, vampire like, lives only by
sucking living labour and lives
the more, the more labour it
sucks”- Karl Marx

Downfall of capitalism
Replaces the workers by machines which leads to the
reduction in surplus value
Industrial reserved army is created
Poverty and limited purchasing power
Over production of commodities
Dump their products in market which results in the fall of
market price and leads to a ‘sharp decline of profit’
Finally capitalism falls and socialism replace capitalism.

Mathematical Interpretation
Proposition 1
Production Function
The production function is same as that of classical
theory…..
Q = f(L, K, N, T)
Where,
L = size of labour force
N = natural resources
K = stock of capital
T = level of technique
Q = output

Proposition 2
Technological Progress depends upon investment
i.e. T = T (I)
where, T = level of technological progress
I = investment
Proposition 3
Investment depends upon rate of profit
i.e. I = I(Ri)
where, Ri = rate of return on capital
I = investment

Proposition 4
The rate of profit is ratio of profits to the variable
capital plus constant capital
i.e. Ri = O-W = R
W+Q1 W+Q1
where, O = output
W = variable capital
O-W = R = profits
Q1 = constant capital
According to Marx, the increase in capital per worker must
result in a fall in the rate of profit.

Proposition 5
Wages depend upon level of investment
i.e. W = W(I)
where, W = wages
I = investment
Proposition 6
Employment depends upon level of investment i.e.
employment rises only if investment goes up. In other
words, employment and investment are directly
proportional.
i.e. L = I/Q
where, I = number of workers actually employed
Q = existing stock capital

Proposition 7
The consumption depends upon wage bill
i.e. C = C(W)
where, W = wage
C = consumption
Proposition 8
Profits depend upon the level of technology and level of
consumer expenditure
i.e. R = R(T,C)
where, R = volume of profit
T = level of technology
C = level of consumption

Critical Appraisal
 Materialistic interpretation of history is partial truth
 Theory of surplus value is unreal
 Marx- a false prophet
 Falling tendency of profits not correct
 Marx could not understand flexibility in capitalism
Cyclical theory wrong
Static analysis

Marxian theory of economic development

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