2017 marks the 150th anniversary of Marx’s publication of Das Kapital. Even though Marxism has been attempted all over the world for well over a hundred years, no country has ever managed to turn Marx’s ideas into a workable society. Yet every time there is a problem with the free-enterprise system, Marx’s ideas become popular among the population at large again. For example, during the financial crisis of 2007–2008, sales of Marx’s work soared to record highs. And in California, many people still believe that Marxism can be made to work.
The odd thing is that among academic economists, practically no one accepts any of Marx’s theories – even left-wing economists tend to agree that his take on economics is defunct. The ironic thing is that among the people who accept Marxism, many fault right-wingers for not accepting the science on climate change. Yet when it comes to economic theory, the same people happily ignore the consensus among experts.
Let’s just give one reason why Marxist economics are invalid. Marx believed that the value of a commodity was determined by the amount of labor that went into producing that commodity. This is also what a lot of 21st-century socialists believe. But it’s clearly wrong. For example, according to Marx’s theory, if it takes 10 hours to hunt and kill a rabbit, but five hours to hunt and kill a hare, one rabbit should be worth two hares on the market. But in reality, the value of a commodity is determined by its marginal utility, that is to say, its usefulness to the consumer. For example, if rabbits and hares taste almost the same, then the consumer will not be inclined to pay twice as much for the rabbit. Similarly, the value of something tends to decrease as you get more of it. You might be interested in buying, say, three hares, but there’s no way you’re going to buy a hundred. The price you’re willing to pay for a hare will therefore decrease as you acquire more hares. You might be willing to buy the first hare for 10 bucks, but if you already found yourself with a hundred hares on your hands, you would not be willing to pay very much for the 101st. In fact, you would probably be looking for people to sell hares to at whatever price they would pay – not going around looking for more hares to acquire.
This was already known among economists at the time when Marx wrote Das Kapital but – stubborn bugger that he was – he refused to take in these new insights and kept writing his works as if the older labor-based theory of value were true. In his mind, the labor theory of value was more objective, but the paradox is that this way of thinking about value is only more objective in the mind – in reality, it doesn’t work that way. Even one of the brightest Marxist theorists alive today, John E. Roemer, has admitted this, stating that Marx’s theory of value is essentially useless, given what we know today.
So how does this discredited theory of value impact Marx’s greater theory? If you asked most people what Marx’s theory was about – or if you asked most Marxists why they support Marxism – they will say that it’s about class exploitation. The rich exploit the poor, and that’s not fair. The factory owner pays his workers less than the true value of the product they are producing and pockets the profits himself. That’s exploitation!
But if the labor-based theory of value is wrong, then there is no objective value that the factory owner is stealing from the workers and hence there is no class exploitation – at least not as Marx envisioned it. If the marginal utility theory of value is true – as even left-wing economists agree that it is – then every time an investor hazards his capital by initiating the production of something, he is taking a risk and cannot know whether his product will turn a profit until it hits the market and interacts with customers who have differing and subjective priorities of marginal utility. You might argue that it is still more fun to be the capitalist than the worker in such a scenario, and you would be right. You might also argue that in a world where the workers in some countries don’t have basic rights, such as in China, there is still exploitation taking place. That would be right too. But without the labor theory of value, there is no exploitation in the sense postulated by Marx’s theory.
In other words, Marx’s theory is flawed at its root, and both left and right-wing economists understand this. But many people have an intuitive hunch that economic inequality is unfair, and since Marx’s theory seems to lend plausible support for that hunch, they end up supporting Marxism even though the theory doesn’t work.
The irony of all this is that every time a country couples a free-enterprise system with democracy and basic liberty, that country does noticeably better, yet people still hate that system. And every time a country turns Marxist, it ends in poverty and famine. Yet a lot of people excuse it as being “not true Marxism.” There is in other words a double standard that will keep some people believing in Marxism, no matter how many times his theory is discredited and fails.