Against Capitalism

Jenny! If we can but weld our souls together, then with

contempt shall I fling my glove in the world’s face, then

shall I stride through the wreckage a creator!

—Karl Marx to his fiancée (Wilson 1940)

Karl Marx was possessed of demonic genius that was to

transform the modern world.

—Saul K. Padover (1978)

If the work of Adam Smith is the Genesis of modern economics, that of

Karl Marx is its Exodus. If the Scottish philosopher is the great creator

of laissez-faire, the German revolutionary is its great destroyer. Marxist

John E. Roemer admits as much. According to him, the “main difference”

between Smith and Marx is as follows: “Smith argued that the

individual’s pursuit of self-interest would lead to an outcome beneficial

to all, whereas Marx argued that the pursuit of self-interest would lead

to anarchy, crisis, and the dissolution of the private property–based

KARL MARX LEADS A REVOLT AGAINST CAPITALISM 65

system itself. . . . Smith spoke of the invisible hand guiding individual,

self-interested agents to perform those actions that would be,

despite their lack of concern for such an outcome, socially optimal;

for Marxism the simile is the iron fist of competition, pulverizing the

workers and making them worse off than they would be in another

feasible system, namely, one based on the social or public ownership

of property” (Roemer 1988, 2–3).

For all the horrors committed in Marx’s name, the German philosopher

has for more than a century struck an inspirational chord

among workers and intellectuals disenfranchised by global capitalism.

Malthus and Ricardo may have sown the seeds of dissension, but Karl

Marx (1818–83) broke the bonds of capitalism and tore asunder the

foundations of Adam Smith’s system of natural liberty. No longer

could the commercial system be viewed as “innocent” (Montesquieu),

“mutually beneficial” (Smith), or “naturally harmonious” (Say and

Bastiat). Now, under Marx, it was pictured as alien, exploitative, and

self-destructive. In Marx’s mind, emancipation came as people moved

away from the Adam Smith model.

His mark on the world is indelible and the evidence of a brilliant if not

disturbed mind. That Marx was a genius is not in dispute—he had a genuine

doctorate in Greek philosophy; spoke French, German, and English fluently;

could talk intelligently about science, literature, art, mathematics, and

philosophy; and wrote a classic book that created a powerful new model of

economic thinking. Never mind that he couldn’t balance a checkbook or

keep a job. A non-Marxist biographer called him a “towering, learned, and

extraordinarily gifted man” (Padover 1978: xvi). Martin Bronfenbrenner

deemed Marx “the greatest social scientist of all times” (1967: 624).1

Marx and Communism

Yet, like Cain in the Bible, Marx is cursed with a black mark in history.

His name will forever be associated with the dark side of communism. A

specter is haunting Karl Marx—the history of Lenin, Stalin, Mao, and Pol

Pot, and the millions who died and suffered under the “evil empire,” as

Ronald Reagan called it. Apologists say Marx cannot be held accountable

for his communist followers’ atrocities and even assert that Marx would

have been one of the first to be executed or sent to the Gulag. Perhaps.

For one thing, he vehemently opposed press censorship throughout his

career. Yet, without Marx, could there have been such a violent revolution

and repression? Did not Marx support a “reign of terror” on the

bourgeoisie? As one bitter critic put it, “In the name of human progress,

Marx has probably caused more death, misery, degradation and despair

than any man who ever lived” (Downs 1983, 299).

Marx Engenders Youthful Fanaticism

Among schools of thought, no other economist or philosopher engenders

so much passion and religious fever as Marx. Above all, Marx

was a visionary and a revolutionary idol, not just an economist. In

reading The Communist Manifesto, written over 150 years ago, one

cannot help feeling the passionate power, the pungent style, and the

astonishing simplicity of Marx and Engels’s words (1964 [1848]).

Youthful followers become true believers, and it usually takes

them years to grow out of their Marxist addiction. It happened to

Robert Heilbroner, Mark Blaug, Whittaker Chambers, and David

Horowitz. I even saw it among my students at Rollins College, a

decade after Soviet communism had collapsed and Marxism was

supposedly dead. In my class, “Survey of Great Economists,” I require

students to read a book authored by an economist. One student

chose The Communist Manifesto. After reading it, he came to me

and exclaimed with some emotion, “This is incredible! I must do

my book report on this!” pointing to his well-marked copy. It was

eerie. In my lectures, I did my best to counter Marxian doctrine, but

it didn’t matter. He was converted.

I can easily see how a young revolutionary could be swayed by

these unforgettable lines from the polemical Communist Manifesto:

A specter is haunting Europe—the specter of Communism. . . . The history

of all hitherto existing society is the history of class struggles. . . .

The bourgeoisie has pitilessly torn asunder the motley feudal ties that

bound man to his ‘natural superiors,’ and has left remaining no other

nexus between man and man than naked self-interest, than callous ‘cash

payment.’ . . .Veiled by political and religious illusions, it has substituted

naked, shameless, direct, brutal exploitation. . . . Let the ruling classes

tremble at the communistic revolution. The proletarians have nothing to

lose but their chains. They have a world to win. WORKING MEN OF

ALL COUNTRIES, UNITE! (1964 [1848])

Marshall Berman, a longtime Marxist living in New York City,

recounts how he, as a youth, encountered another book by Marx,

Economic and Philosophical Manuscripts of 1844. This book generated

the same kind of fanatic enthusiasm. “Suddenly I was in a sweat,

melting, shedding clothes and tears, flashing hot and cold” (Berman

1999, 7)—not from staring at Playboy magazine or trading a penny

stock for the first time, but from reading Marx!

In many ways, Marxism has become a quasi-religion, with its slogans,

symbols, red banners, hymns, party fellowship, apostles, martyrs, bible,

and definitive truth. “Marx had the self-assurance of a prophet who had

talked to God. . . . He was a poet, prophet, and moralist speaking as a

philosopher and economist; his doctrine is not to be tested against mere

facts but to be received as ethical-religious truth. . . . Marx was to lead

the Chosen People out of slavery to the New Jerusalem. . . . Becoming a

Marxist or a Communist is like falling in love, an essentially emotional

commitment” (Wesson 1976, 29–30, 158). A guidebook for youth was

published in 1935 entitled Teachings of Marx for Girls and Boys, authored

by protestant minister William Montgomery Brown, highlighted by pictures

on the cover of Marx’s “greatest pupils,” Lenin and Stalin.

Marx’s Contributions to Economics

Few economists break out into other disciplines as did Karl Marx.

There’s Marx the philosopher, Marx the historian, Marx the political

scientist, Marx the sociologist, and Marx the literary critic. He was

prolific and wrote unendingly about nearly everything. Even today a

compilation of the complete works of Marx and his colleague Friedrich

Engels has not been finished. The commentaries on Marx and

related subjects are so vast that it would take volumes to tell it all.

(On the Internet, Amazon.com lists over 4,000 entries on Marx and

communism, second only to Jesus and Christianity.) Thus, our chapter

on Marx must of necessity be limited largely to his economic contributions.

Even then, Marx the economist is not an easy subject.

Marx was probably the first major economist to establish his own

school of thought, with its own methodology and specialized language.

In creating his own school in his classic work, Capital (1976 [1867]),

he contrasted his system with that of laissez-faire—as espoused by

Adam Smith, J.-B. Say, and David Ricardo, among others. It was

Marx who dubbed laissez-faire the “classical school.” In developing

a Marxist approach to economics, he created his own vocabulary:

surplus value, reproduction, bourgeoisie and proletarians, historical

materialism, vulgar economy, monopoly capitalism, and so on. He

invented the term “capitalism.”2 Since Marx, economics has never

been the same. Today, there is no universally acceptable macro model

of the economy as there is in physics or mathematics—there are only

warring schools of economics.

Early Training: Marx’s Internal Contradictions

Who was this German philosopher? Who could have brought about

such passion, such devotion, such a powerful new model of economics

that would challenge the classical model of Adam Smith?

Karl Heinrich Marx was born on May 5, 1818, in an elegant townhouse

in Trier in the Rhine province of Prussia. Trier is the oldest town

in Germany. From crib to coffin, Marx was full of contradictions. He

railed against the petty bourgeois, yet grew up in a bourgeois family.

He lived years of his adult life in desperate poverty despite his

relatively well-to-do origins. He exalted capitalism’s technology and

material advances, yet damned the capitalist society. He felt deeply

for the working man, yet never held a steady job or visited a factory

during his adult life. His mother complained, “If only Karl had made

capital instead of writing about it!” (Padover 1978, 344).

Marx shouted anti-Semitic epithets at his opponents, yet was Jewish

from both sides of his family. In an essay published in 1843, “On the

Jewish Question,” Marx expressed anti-Jewish sentiments that were

common in Europe at the time. His language was vindictive: “What

is the worldly cult of the Jew? Schacher. What is his worldly God?

Money! . . . Money is the jealous god of Israel before whom no other

god may exist. Money degrades all the gods of mankind—and converts

them into commodities. . . . What is contained abstractly in the

Jewish religion—contempt for theory, for art, for history” (Padover

1978, 169). Marx’s racial slander never let up. He never retracted his

1843 defamation of the Jews. “On the contrary,” wrote biographer

Saul Padover, “he harbored a lifelong hostility toward them. . . . His

letters are replete with anti-Semitic remarks, caricatures, and crude

epithets: ‘Levy’s Jewish nose,’ ‘usurers,’ ‘Jew-boy,’ ‘nigger-Jew,’ etc.

For reasons perhaps explainable by the German concept Selbsthass

[self-hate], Marx’s hatred of Jews was a canker which neither time

nor experience ever eradicated from his soul” (Padover 1978, 171).

Prominent Marxists have denied Marx’s anti-Semitism, however. A

Dictionary of Marxian Thought states, “Although we know that Marx

was not averse to using offensive vulgarisms about some Jews, there is no

basis for regarding him as having been anti-Semitic” (Bottomore 1991,

275). Gareth Stedman Jones writes, “Marx’s alleged anti-Semitism . . .

cannot be understood except in the context of his hatred of all forms of

national and ethnic particularism” (Blumenberg 1998 [1962], x).

Marx suffered contradictions throughout his life. He cherished his

children, yet saw them die prematurely from malnutrition and illness

or drove them to suicide. Marx protested the evils of exploitation in the

capitalist system, and yet, according to one biographer, he “exploited

everyone around him—his wife, his children, his mistress and his

friends—with a ruthlessness which was all the more terrible because

it was deliberate and calculating” (Payne 1968, 12). Paul Samuelson

adds, “Marx was a gentle father and husband; he was also a prickly,

brusque, egotistical boor” (Samuelson 1967b, 616). In sum, Marx

ranted about the inner contradictions of capitalism, yet he himself

was constantly beset by inner dissension.

Marx’s Christian Faith

The most surprising irony is that Karl Marx—considered one of the

most vicious opponents of religion—was brought up a Christian

though many of his ancestors were rabbis.

His father, Heinrich Marx, overcame insuperable obstacles to

become a well-to-do Jewish lawyer. When he was faced with a

new Prussian law in 1816 prohibiting Jews from practicing law, he

switched from Judaism to the Lutheran faith. His mother, Henrietta

Pressborch, was the daughter of a rabbi, yet she also saw the social

value in converting to Christianity.

Karl, the oldest surviving son in a family of nine children, was

baptized a Christian and wrote several essays on Christian living while

attending gymnasium (high school). As a senior in high school, Karl

wrote an essay entitled “The Union of the Faithful with Christ,” which

spoke of alienation, a fear of rejection by God. He was mesmerized

by the story of a peaceful paradise in Genesis and the coming of a

dreadful apocalypse in The Revelation of St. John. Later, these first

and last books of the Bible would help formulate Marx’s doctrines

of alienation, class struggle, a revolutionary overthrow of bourgeois

society, and the glories of a stateless, classless millennial-type era of

peace and prosperity. His vision of a proletarian victory may have

come from this early training in Christian messianism. He was first

and foremost a millennial communist.

Many of Marx’s dogmas were not original. They came from the

Bible, which he twisted and changed to suit his purposes. As biographer

Robert Payne notes, “when he [Marx] turned against Christianity

he brought to his ideas of social justice the same passion for atonement

and the same horror of alienation” (1968, 42).

Marx Becomes a College Radical

Marx’s faith was challenged almost immediately upon attending the

University of Bonn, where he, like many college freshmen, spent more

time drinking and carousing than studying. He piled up bills, joined a

secret revolutionary group, and was wounded in a duel. Later he was

arrested for carrying a pistol, and jailed for rowdiness.

His father hoped to reform his eldest son by transferring him to

the renowned University of Berlin, where Marx spent the next five

years. But his undisciplined lifestyle continued. He read voraciously

and lived the life of a bohemian. He fancied himself a poet, translated

Greek plays, and filled his notebooks with dark tragedies and romantic

poetry. He joined the Doctor’s Club (Doktorklub), a small society of

radical Young Hegelians.

Fellow students described him as having a brilliant mind and being

ruthlessly opinionated, his dark excitable eyes staring in defiance.

KARL MARX LEADS A REVOLT AGAINST CAPITALISM 71

His black beard and thick mane of hair, his shrill voice and violent

temper, stood out. He was so exceptionally swarthy that his family

and friends called him “Mohr” or “Moor.” During his college years,

he was described colorfully in a short poem (Payne 1968, 81; Padover

1978, 116).

Who comes rushing in, impetuous and wild—

Dark fellow from Trier, in fury raging?

Nor walks nor skips, but leaps upon his prey

In tearing rage, as one who leaps to grasp

Broad spaces in the sky and drags them down to earth,

Stretching his arms wide open to the heavens.

His evil fist is clenched, he roars interminably

As though ten thousand devils had him by the hair.

The Influence of Radical German Philosophers

Two radical philosophers greatly influenced Marx during these college

years and soon after: G.W.F. Hegel (1770–1831) and a contemporary,

Ludwig Feuerbach (1804–72). From Hegel, Marx developed the

driving force of his “dialectical materialism”—that all progress was

achieved through conflict. From Feuerbach’s The Essence of Christianity

(1841), Marx rationalized his mythical view of religion and his

rejection of Christianity. God did not create man; man created God!

Engels described the liberating impact of Feuerbach’s book: “In one

blow it . . . placed materialism back upon the throne. . . . The spell

was broken . . . . The enthusiasm was universal: We were all for the

moment Feuerbachians” (Padover 1978, 136).

Marx’s parents were worried sick about their prodigal son who

wanted to become a writer and a critic instead of a lawyer. His letters

reveal the often harsh correspondence between him and his

parents. His father, Heinrich, was a classic liberal and a defender of

bourgeois culture, so one can imagine his despair over his son. His

letters charged Karl with being “a slovenly barbarian, an anti-social

person, a wretched son, an indifferent brother, a selfish lover, an irresponsible

student, and a reckless spendthrift,” all accurate accusations

that haunted Marx throughout his adult life. Heinrich Marx railed,

“God help us! Disorderliness, stupefying dabbling in all the sciences,

stupefying brooding at the gloomy oil lamp; barbarism in a scholar’s

dressing-gown and unkempt hair” (Padover 1978, 106–07). In another

letter, he accused Karl of being possessed by a “demonic spirit” that

“estranges your heart from finer feelings” (Berman 1999, 25). This

letter of Karl’s father would not be the only time Marx would be accused

of devilish behavior, however.

Marx’s Satanic Verses

One of the nightmarish aspects of Marx’s life was his fascination with

Goethe’s Faust, the story of a young man who is at war with himself

over good and evil and makes a pact with Satan. Faust exchanges his

soul (through his intermediary Mephistopheles) for a life of pleasure

and for the right ultimately to control the world through massive organized

labor. Goethe’s Faust was Marx’s bible throughout his life.

He memorized whole speeches of Mephistopheles, and could recite

long passages to his children. (He equally loved Shakespeare, whom

he also quoted regularly.)

While he was a student at Berlin University in 1837, Marx wrote

romantic verses dedicated to his fiancée, Jenny von Westphalen.

One of these poems, “The Player,” was published in a German literary

magazine, Athenaeum, in 1841 (reprinted in Payne 1971, 59). It

describes a violinist who summons up the powers of darkness. The

player, either Lucifer or Mephistopheles, boldly declares,

Look now, my blood-dark sword shall stab

Unerringly within thy soul.

God neither knows nor honors art.

The hellish vapors rise and fill the brain.

Til I go mad and my heart is utterly changed.

See this sword—the Prince of Darkness sold it to me.

For me he beats the time and gives the signs.

Ever more boldly I play the dance of death.

Marx Writes a Greek Tragedy

A pact with the devil was the central theme of Oulanem, a poetic play

Marx wrote in 1839. He completed only the first act, but it reveals a

number of violent and eccentric characters. The main character, OuKARL

lanem, is an anagram for Manuelo, meaning Immanuel or God (Payne

1971, 57–97). In a Hamlet-like soliloquy, Oulanem asks himself if he

must destroy the world. He begins,

Ruined! Ruined! My time has clean run out!

The clock has stopped, the pygmy house has crumbled,

Soon I shall embrace eternity to my breast, and soon

I shall howl gigantic curses at mankind.

And ends,

And we are chained, shattered, empty, frightened,

Eternally chained to this marble block of Being,

Chained, eternally chained, eternally.

And the worlds drag us with them on their rounds,

Howling their songs of death, and we—

We are the apes of a cold God.

Marx’s fixation with self-destructive behavior was prevalent through

most of his life. He even composed and published an entire book on

suicide while living in exile in Belgium in 1835. And he translated the

work of Jacques Peuchet detailing the accounts of four suicides, three

by young women. The focus is on the industrial system that would

encourage suicidal behavior (Plaut and Anderson 1999).

Marx Marries and Moves to Paris

Marx finally left Berlin on grounds that the university administration

had been taken over by anti-Hegelians. Fearing his Ph.D. dissertation

on Greek philosophy might be rejected, he submitted it to the

University of Jena, which accepted it without any attendance requirements.

In 1842, he worked briefly as editor of a German newspaper,

fearlessly defending free speech. He resigned when the censors made

it impossible for him to continue.

In 1843, Marx married his teenage sweetheart and neighbor, Jenny

von Westphalen, over objections from both families. Jenny, four

years older than Marx, was the daughter of Baron Johann Ludwig

von Westphalen, a wealthy aristocrat who represented the Prussian

government in the city council. After the baron died, the Marxes lived

off the baroness’s largess. Jenny was deeply devoted to Karl and his

revolutionary ideas. For the rest of their lives, they were inseparable

through poverty, illness, and failure. Their love was deep and lasting,

though not without heartache and trouble. They exchanged numerous

love letters. They had six children, although only two daughters

survived them.

In less than a year, Karl and his new wife moved to Paris, where

he became editor of a monthly German magazine. Karl and Jenny

Marx loved Paris and French culture. Here Marx had little interest

in associating with Bastiat and the French laissez-faire school—he

later labeled Bastiat the most “superficial” apologist of the “vulgar

economy” (Padover 1978, 369)—but fell in among the radical French

socialists, including Pierre Proudhon and Louis Blanc. He plunged

into oceans of books and would often go three to four days without

sleep (Padover 1978, 189). Seeing the class struggle firsthand, he wrote

eloquently of alienation and labor suffering under capitalism in The

Economic and Philosophical Manuscripts of 1844, a compilation of

articles not published until 1932.

Marx Meets Friedrich Engels

It was in Paris that Marx met his lifelong colleague in arms, Friedrich

Engels (1820–95). Five-and-a-half feet tall, blond, Teutonic-looking

with cold blue eyes, Engels had a critical eye for detail. Together Marx

and Engels started working on a book attacking their socialist rivals.

It would be a close collaboration that would last another forty years,

until Marx died in 1883.

Engels, the son of a wealthy German industrialist, hated his tyrannical

father and his “boring, dirty, and abominable” business, even as

he himself achieved financial success running a textile operation in

Manchester (though there is no evidence he improved the condition

of his workers). Engels was as fascinating as Marx: a gifted cartoonist,

an expert on military history, and a master of nearly two dozen

languages. When excited, he could “stutter in twenty languages”! He

was also a notorious womanizer.

Engels’s influence on Marx was twofold: His vast financial resources

allowed him to subsidize Marx for decades, and he played a

critical role in directing Marx’s thinking toward political economy.

Engels’s own work, The Condition of the Working Class in England

in 1844, had a profound impact on Marx, and it was Engels who converted

Marx to revolutionary communism, not the other way around.

He coauthored The Communist Manifesto but, in every other way,

lived in the shadow of the great philosopher.

Engels outlived Marx by a decade, corresponding with revolutionaries,

editing and publishing Marx’s books, and keeping the Marxist

flame ablaze.

The World’s Greatest Critic

The spiteful nature of Marx and Engels’s style was clear in the title

of their first collaboration: Critique of Critical Critique! (A more

palatable title, The Holy Family, was superimposed on the cover while

the book was being printed.) This emphasis on fault-finding reflected

Marx’s harsh hostility and his hot-blooded anger against his enemies.

“He denounced everyone who dared to oppose his opinions” (Barzun

1958 [1941], 173). He initiated the practice of “party purges,” which

would be perfected a generation later by Lenin and Stalin (Wesson

1976, 34). In 1847, responding to fellow socialist Proudhon’s The

Philosophy of Poverty, Marx wrote a caustic rejoinder, The Poverty of

Philosophy. If the Guinness Book of World Records listed the World’s

Most Critical Man, Marx would have easily won the award. Almost

every one of his book titles contained the word “critique.” He wrote

sparingly about the happy world of utopian communism, prodigiously

about the flaws of capitalism.

Marx Writes a Powerful Polemic

Marx’s life in Paris did not last long. He was expelled for inciting revolution

in Germany. He left for Brussels, the first stage of a life of permanent

exile. It was in Belgium that Marx and Engels were commissioned by the

London-based League of the Just, later renamed the Communist League,

to write their famous pamphlet, The Communist Manifesto.

The Communist Manifesto, the final version written by Marx, was

a forceful call to arms, a powerful reflection of the new machine age

and new hardships as men, women, and children moved to enormous

chaotic cities, worked sixteen hours a day in factories, and often

lived in desperate squalor. “The bourgeoisie, wherever it has got the

upper hand, has put an end to all feudal patriarchal, idyllic relations.

. . . It has left remaining no other bond between man and man than

naked self-interest, than callous ‘cash-payment.’” Consequently, “the

bourgeoisie has stripped of its halo every occupation hitherto honored

and looked up to with reverent awe. It has converted the physician,

the lawyer, the priest, the poet, the man of science into its paid wagelaborers.”

Further, “all that is solid melts into air, all that is holy is

profane.” Capitalism “has substituted naked, shameless, direct, brutal

exploitation” (Marx and Engels 1964 [1848], 5–7).

When the Manifesto was published in German in February 1848,

the timing could not have been better. By the summer, worker revolts

spread throughout Europe—in France, Germany, Austria, and Italy.

Images of the French Revolution a generation earlier dominated

the spirit of the times. However, the European revolts were quickly

quelled and Marx was arrested by Belgian police for spending his

inheritance from his father (6,000 gold francs) on arming Belgian

workers with rifles. He was released from jail in 1849 and moved to

Cologne, Germany, where he edited another journal. The last issue

was printed in red ink, the revolutionary color.

Hungry Years in London

Marx was constantly getting into trouble and continually on the run.

After being expelled from Germany in August 1849, and deeply depressed

by the failure of worker revolutions, he moved to London with

his wife and their three children. This would turn out to be his final

move. For the next thirty years, he would live, research, and write in

the largest bourgeois city in the world.

The first six years in London were trying times for the Marx family,

which suffered from serious illness, premature death, and desperate

poverty. Marx pawned everything to keep his family alive—the family

silver, linens, even the children’s clothing (Padover 1978, 56). While

the family was living in a small apartment in Soho, a Prussian police

spy came by in 1853 and made a detailed report:

Marx is of medium height, 34 years old; despite his relative youth, his

hair is already turning gray; his figure is powerful. . . . His large, piercing

fiery eyes have something uncannily demonic about them. At first glance

one sees in him a man of genius and energy. . . .

In private life he is a highly disorganized, cynical person, a poor

host; he leads a real gypsy existence. Washing, grooming, and changing

underwear are rarities with him; he gets drunk readily. Often he loafs all

day long, but if he has work to do, he works day and night . . . very often

he stays up all night. . . .

Marx lives in one of the worst, and thus cheapest, quarters in London

. . . everything is broken, ragged and tattered; everything is covered with

finger-thick dust; everywhere the greatest disorder. When one enters

Marx’s room, the eyes get so dimmed by coal smoke and tobacco fumes

that for the first moments one gropes. . . . Everything is dirty, everything

full of dust. . . . But all this causes no embarrassment to Marx and his

wife. (In Padover 1978: 291–93)

Marx, living in squalor and sorrow, was constantly broke and took

few work opportunities. What work he did was mainly as a part-time

journalist for the New York Daily Tribune and other newspapers.

He stubbornly refused to be “practical,” and at times Engels had to

ghostwrite his articles. Three of Marx’s young children died of malnutrition

and illness. Such was the life of this demonic genius and

his long-suffering wife.

Marx’s Personality Quirks

Keynes was fascinated by people’s hands, Marx by people’s skulls.

Wilhelm Liebknecht, one of Marx’s disciples, wrote that when he met

his leader for the first time at a summer picnic for communist workers

near London in the 1850s, Marx “began at once to subject me to

a rigid examination, looked straight into my eyes and inspected my

head rather minutely.” Liebknecht was relieved to have passed the

examination (Liebknecht 1968 [1901], 52–53).

Not everyone survived Marx’s skullduggery. Ferdinand Lassalle, a

German social democrat and labor organizer, was viciously attacked

by Marx, who called him “the Jewish Nigger” and a “greasy Jew.” “It

is now perfectly clear to me,” Marx wrote Engels in 1862, “that, as the

shape of his head and the growth of his hair indicates, he is descended

from the Negroes who joined in Moses’ flight from Egypt (unless his

mother or grandmother on the father’s side was crossed with a nigger).

This union of Jew and German on a Negro base was bound to produce

an extraordinary hybrid” (Marx and Engels 41, 388–90).

Marx was apparently taken in by the pseudoscience of phrenology,

the practice of examining a person’s skull to determine his or her character,

developed during the early 1800s by two German physicians.

Marx was not the only person who believed in phrenology. Queen

Victoria in Great Britain and the American poets Walt Whitman and

Edgar Allan Poe did as well.

Why Did Marx Grow Such a Long Beard?

Revolutionary followers often played on Marx’s vanity by comparing

him to the Greek gods. He was much pleased by an 1843 political

cartoon portraying him as Prometheus when his newspaper, Rheinische

Zeitung, was banned. Marx is shown chained to his printing press,

while an eagle representing the king of Prussia tears at his liver. The

editor looks defiant, hoping someday to free himself and pursue his

revolutionary causes.

While working on Das Kapital in the 1860s, Marx received a

larger-than-life statue of Zeus as a Christmas present. It became

one of his prized possessions, which he kept in his London study.

From then on, Marx sought to imitate the statue of Zeus. He stopped

cutting his hair and let his beard grow out until it assumed the shape

and size of Zeus’s bearded head. He pictured himself as the god of

the universe, casting his thunderbolts upon the earth. One of the last

photographs of Marx shows his white hair flowing everywhere in

magnificent splendor, reminding us of these lines in Homer’s Iliad

(Book I, line 528):

Zeus spoke, and nodded with his darkish brows,

and immortal locks fell forward from the lord’s deathless head,

and he made great Olympus tremble.

Cover-up: Marx Fathers an Illegitimate Son

In 1850–51, Marx had an affair with his wife’s unpaid but devoted

maidservant Helene Demuth, known as Lenchen, and fathered an illegitimate

son. The affair was hushed up by Marx, who begged Engels

KARL MARX LEADS A REVOLT AGAINST CAPITALISM 79

to pretend to be the father. Engels agreed, even though the boy, named

Freddy, looked like Marx. “If Jenny had known the truth, it might have

killed her, or at the very least destroyed her marriage” (Padover 1978,

507). Jenny may in fact have known; she and Karl allegedly did not

sleep together for years afterward.

Marx completely disowned this son. Finally, Engels declared the

child to be Marx’s on his deathbed in 1895. He was speaking to

Marx’s daughter Eleanor, who took the news hard (she later committed

suicide). The facts became public only in the next century

in Werner Blumenberg’s 1962 biography of Marx (Blumenberg

1998 [1962], 111–113). They proved to be an embarrassment to

Marxist apologists who had always maintained that Marx was a

good family man despite the premature deaths of three children and

the suicides of two daughters in adulthood. For decades, Robert

Heilbroner declared Marx a “devoted husband and father” in his

best-seller, The Worldly Philosophers (1961, 124), only later to

admit Marx’s indiscretion. Yet Heilbroner defended Marx, arguing

that the infidelity “could not undo a relationship of great passion”

(1999, 149).

Marx: Rich or Poor?

Things finally started looking up for Marx in 1856. Money from Engels

and a legacy from Jenny’s mother’s estate allowed the Marx family to

move from Soho to a nice home in fashionable Hampstead. Suddenly

Marx started living the life of a bourgeois gentleman, wearing a frock

coat, top hat, and monacle. The Marxes gave parties and balls, and

traveled to seaside resorts. Marx even played the stock market. He

speculated in American shares and English joint-stock shares, realizing

sufficient gains to write Engels in 1864, “The time has now come

when with wit and very little money one can really make a killing in

London.” Details of his speculations are lost, however (Payne 1968,

354; North 1993, 91–103).3

Sympathetic historians have always noted the poor conditions

under which Marx lived, but during most of his life it was not for

lack of money. Historian Gary North investigated Marx’s income

and spending habits, and concluded that except for his self-imposed

poverty of 1848–63, Marx begged, borrowed, inherited, and spent

lavishly. In 1868, Engels offered to pay off all the Marxes’ debts and

provide Marx with an annuity of £350 a year, a remarkable sum at the

time. North concludes: “He was poor during only fifteen years of his

sixty-five-year career, in large part due to his unwillingness to use his

doctorate and go out to get a job. . . . The philosopher-economist of

class revolution—the ‘Red Doctor of Soho’ who spent only six years

in that run-down neighborhood—was one of England’s wealthier

citizens during the last two decades of his life. But he could not make

ends meet. . . . After 1869, Marx’s regular annual pension placed him

in the upper two percent of the British population in terms of income”

(North 1993, 103).

Marx Writes Das Buch and Changes the Course

of History

Basically, Marx did not want to waste his time doing routine work

to support his young family. He preferred to spend long hours,

months, and years at the British Library in London researching

and writing. He would come home and tell Jenny he had made the

colossal discovery of economic determinism, that all society’s actions

were determined by economic forces. His work culminated

in his classic Das Kapital, published in German in 1867. Capital

(the English title) introduced economic determinism and a new

“exploitive” theory of capitalism based on universal “scientific”

laws discovered by Marx.

Marx considered his work the “bible of the working class,” and even

expected laborers to read his heavy pedantic tome. He saw himself

as “engaged in the most bitter conflict in the world,” and hoped his

book would “deliver the bourgeoisie a theoretical blow from which

it will never recover” (Padover 1978, 346). Marx viewed himself as

the “Darwin of society,” and in 1880 he sent Charles Darwin a copy

of Capital. Darwin courteously replied, begging ignorance of the

subject.

Only a thousand copies were printed and it sold slowly, primarily

because “Das Buch” was theoretically abstract and scholastically

dense, with over 1,500 sources cited. The reviews of Capital were

almost universally poor, but through the efforts of Engels and other

die-hard supporters, the work was translated into Russian in 1872 and

French in 1875. The Russian edition was a momentous publishing

event, luckily passing czarist censors as “nonthreatening” high theory.

It was studied heavily by Russian intellectuals, and eventually a copy

fell into the hands of Vladimir Ilich Ulyanov—V.I. Lenin. It was Lenin,

Marx’s most powerful disciple, who brought Marx to light. “Without

Marx there would have been no Lenin, without Lenin no communist

Russia” (Schwartzchild 1947, vii).

The English edition did not appear until 1887. In 1890, an American

edition became a best-seller and the print run of 5,000 sold out

quickly because Capital was promoted as a book informing readers

“how to accumulate capital”—a course on making money! (Padover

1978, 375).

Most economists wonder how such a “long, verbose, abstract, tedious,

badly written, difficult labyrinth of a book [could] become the

Talmud and Koran for half the world” (Gordon 1967, 641). Marxists

respond, “That’s the beauty of it!” Capital has survived and blossomed

as a classic in part because of its intellectual appeal. According to an

eminent socialist, the prestige of Capital owes much to “its indigestible

length, its hermetic style, its ostentatious erudition, and its algebraical

mysticism” (Wesson 1976, 27).

Marx Dies in Obscurity

Marx was only forty-nine years old when he published Capital, but

he refused to finish any more full-length books and instead read, researched,

and took notes on huge quantities of books and articles on

such wide topics as mathematics, chemistry, and foreign languages.

“He delved into such problems as the chemistry of nitrogen fertilizers,

agriculture, physics, and mathematics. . . . Marx immediately

wrote a treatise on differential calculus and various other mathematical

manuscripts; he learned Danish; he learned Russian” (Raddatz

1978, 236).

Marx had a hard time completing anything in his later years, es82

THE BIG THREE IN ECONOMICS

pecially with regard to economics. He never finished the next two

volumes of Capital, which exasperated Engels, who finally edited

and published them himself.

Marx was a sick man most of his life, constantly beset with chronic

illnesses—asthma attacks, prolonged headaches, strep throat, influenza,

rheumatism, bronchitis, toothaches, liver pains, eye inflammations,

laryngitis, and insomnia. His boils and carbuncles were so severe

that by the end of his life, his entire body was covered with scars. His

“eternally beloved” Jenny died of cancer in 1881; Marx was so ill

he couldn’t attend her funeral. His daughter, also named Jenny, died

of the same disease two years later. That same year, on March 17,

1883, Marx passed away sitting in his easy chair. Not surprisingly,

there was no will or estate.

Marx was buried at Highgate Cemetery in London along with

his wife Jenny, his housemaid Lenchen (in 1890), and other family

members. A twelve-foot monument with a bust of Marx was erected

in the 1950s by the Communist Party. The famous phrase “Workers

of all lands, unite!” is emblazoned on the monument in gold. At

the bottom are printed the words of Marx, “The philosophers have

only interpreted the world in various ways; the point, however, is

to change it.”

Engels conducted the service at Marx’s burial. He spoke eloquently

of Marx’s position in history, proclaiming him the Darwin of the

social sciences.4 “His name will live on through the centuries, and

so will his work.”

Indeed. In The 100 Most Influential Books Ever Written, by Martin

Seymour-Smith (1998), seven economists are listed: Adam Smith,

Thomas Robert Malthus, John Stuart Mill, Herbert Spencer, John

Maynard Keynes, Friedrich von Hayek . . . and Karl Marx.

The Living Marx: A Dismal Failure

Engels would have to wait until the twentieth century before Marx’s

influence would be felt. In 1883, it was merely a delusion of gran-

deur. At the time of his death, Marx was practically a forgotten man.

Fewer than twenty people showed up for his funeral. He was not

mourned by his fellow workers in the Siberian mines, as Engels had

suggested, and few remembered even The Communist Manifesto, let

alone Capital. John Stuart Mill never heard of him. At the end of his

life, Marx could recall with agreement the words of the Bible, “For a

testament is of force after men are dead: otherwise it is of no strength

at all while the testator liveth” (Heb. 9:17).

The fate of his family is sad to contemplate. It was a nightmare.

Marx was survived by only two daughters and his illegitimate son.

In 1898, his daughter Eleanor Marx, known as Tussy and a strongwilled

revolutionary like her father, committed suicide after learning

that Freddy was the illegitimate son of her father and that her

cynical Irish revolutionary husband was a bigamist. In 1911, Marx’s

surviving daughter, Laura, an eloquent speaker and a striking beauty,

consummated a suicide pact with her husband, a French socialist. In

sum, there was little joy in the last years of Karl and Jenny Marx and

their descendants. Engels, known as the “General,” died of cancer

in 1895.

Marx’s Exploitation Model of Capitalism

Let us now review Marx’s major contributions to economics and determine

what has had a lasting impact and what has been discarded.

In Capital, published in 1867, Karl Marx attempted to introduce

an alternative model to the classical economics of Adam Smith. This

system aimed to demonstrate through immutable “scientific” laws that

the capitalist system was fatally flawed, that it inherently benefited

capitalists and big business, that it exploited workers, that labor had

been reduced to a mere commodity with a price but no soul, and that

it was so crisis-prone that it would inevitably destroy itself. In many

ways, the Marxist model rationalized its creator’s belief that the capitalist

system must be overthrown and replaced by communism.

The Labor Theory of Value

Marx found the Ricardian system well suited for his exploitation

model. In many ways, David Ricardo was his mentor in economics.

As noted in chapter 2, Ricardo focused on production and how it was

distributed between large classes—landlords, workers, and capitalists.

Ricardo and his successor, John Stuart Mill, attempted to analyze the

economy in terms of classes rather than the actions of individuals.

Say and the French laissez-faire school (chapter 2) did focus on the

subjective utility of individuals, but Marx rejected Say and followed

Ricardo by concentrating on the production of a single homogeneous

“commodity” and the distribution of income from commodity production

into classes.

In Ricardo’s class system, labor played a critical role in determining

value. First Ricardo and then Marx claimed that labor is the sole

producer of value. The value of a “commodity” should be equal to the

average quantity of labor-hours used in creating the commodity.

The Theory of Surplus Value

If indeed labor is the sole determinant of value, then where does that

leave profits and interest? Marx labeled profits and interest “surplus

value.” It was only a short logical step to conclude, therefore, that

capitalists and landlords were exploiters of labor. If indeed all value

was the product of labor, then all profit obtained by capitalists and

interest obtained by landlords must be “surplus value,” unjustly extracted

from the true earnings of the working class.

Marx developed a mathematical formula for his theory of surplus

value. The rate of profit (p) or exploitation is equal to the surplus value

(s) divided by the value of the final product (r). Thus,

p = s/r

For example, suppose a clothing manufacturer hires workers to make

dresses. The capitalist sells the dresses for $100 apiece, but labor costs

are $70 per dress. Therefore the rate of profit or exploitation is

p = $30/$100 = 0.3, or 30%

Marx divided the value of the final product into two forms of capital,

constant capital (C) and variable capital (V). Constant capital repreKARL

MARX LEADS A REVOLT AGAINST CAPITALISM 85

sents factories and equipment. Variable capital is the cost of labor.

Thus, the equation for the rate of profit becomes

p = s/[v + c]

Marx contended that profits and exploitation are increased by extending

the workday for employees, and by hiring women and children

at lower wages than men. Moreover, machinery and technological

advances benefit the capitalist, but not the worker, Marx declared.

Machinery, for example, allows capitalists to hire women and children

to run the machines. The result can only be more exploitation.

Critics countered that capital is productive and deserves a reasonable

return, but Marx offered the rebuttal that capital was nothing

more than “frozen” labor and that, consequently, wages should absorb

the entire proceeds from production. The classical economists had

no answer to Marx, at least initially. And thus Marx won the day by

“proving” through impeccable logic that capitalism inherently created

a monstrous “class struggle” between workers, capitalists, and

landlords—and the capitalists and landlords had an unfair advantage.

Murray Rothbard observes, “As the nineteenth century passed its

mid-mark, the deficiencies of Ricardian economics became ever

more glaring. Economics itself had come to a dead end” (Rothbard

1980, 237). It was not until the work of Philip Wicksteed, the British

clergyman, and Eugen von Böhm-Bawerk, the influential Austrian

economist, that Marx was answered effectively, with a focus on the

risk-taking and the entrepreneurial benefits the capitalists provide.

But this topic must wait until chapter 4.

Falling Profits and the Accumulation of Capital

Marx had a perverse view of machinery and technology. The accumulation

of capital was constantly growing in order to meet competition

and keep the costs of labor down. “Accumulate, accumulate! That is

Moses and the prophets! . . . Therefore, save, save, i.e., reconvert the

greatest possible portion of surplus-value, or surplus-product into

capital!” pronounced Marx in Capital (1976 [1867], 742).

Yet this leads to trouble, a crisis in capitalism, all according to the

“law of the falling rate of profit.” For, according to Marx’s formula

for the profit rate, s/[v + c], we can see that adding machinery increases

c and therefore drives down profits. Big business becomes

more concentrated as the larger firms produce more cheaply, which

“always ends in the ruin of many small capitalists.” Meanwhile, workers

become all the more miserable, having less and less with which

to buy consumer goods. More and more workers are thrown out of

work, becoming increasingly unemployed in an “industrial reserve

army” earning a subsistence wage.

The Crisis of Capitalism

Lowering costs, falling profits, monopolistic power, underconsumption,

massive unemployment of the proletarian class—all these

conditions lead to “more extensive and more destructive crises” and

depressions for the capitalistic system (Marx and Engels 1964 [1848],

13). And all this is derived from the labor theory of value!

Marx rejected Say’s law of markets, which he labeled “childish

babble . . . claptrap . . . humbug” (Buchholz 1999, 133). There was

no stability in capitalism, no tendency toward equilibrium and full

employment. Marx emphasized both the boom and the bust nature of

the capitalist system, and that its ultimate demise was inevitable.

The Imperialism of Monopoly Capitalism

Marx was greatly impressed with the ability of capitalists to accumulate

more capital and create new markets, both domestically and abroad. The

Communist Manifesto described this phenomenon in a famous passage:

“The bourgeoisie, during its rule of scarce one hundred years, has created

more massive and more colossal productive forces than have all

preceding generations together.” The capitalists are engaged pell-mell

“by the conquest of new markets, and by the more thorough exploitation

of the old ones” (Marx and Engels 1964 [1848], 12–13).

Marxists ever after have characterized capitalism and big business

as inherently “imperialistic,” exploiting foreign workers and foreign

resources. The theory of imperialism and colonialism was developed

largely by J.A. Hobson and V.I. Lenin. Much of the developing world’s

anti-American and antiforeign attitudes during the twentieth century

came from Marxist origins, and the results of this anticapitalist attitude

have been devastating, resulting in retarded and even negative growth

in many parts of Asia, Africa, and Latin America.

Historical Materialism

So where was capitalism headed? Marx was heavily influenced by

George Wilhelm Hegel in developing his process of economic determinism.

Hegel’s basic thesis was “Contradiction (in nature) is the

root of all motion and of all life.” Hegel described this contradiction

in terms of the dialectic, opposing forces that would eventually bring

about a new force. An established “thesis” would cause an “antithesis”

to develop in opposition, which in turn would eventually create a new

“synthesis.” This new synthesis then becomes the “thesis” and the

process starts all over again as civilization progresses.

The diagram in Figure 3.1 reflects this Hegelian dialectic. Marx

applied Hegel’s dialectic to his deterministic view of history. Thus,

the course of history could be described by using Hegelian concepts—

from slavery to capitalism to communism.

THESIS

ANTITHESIS

SYNTHESIS

Figure 3.1 The Hegelian Dialectic Used to Describe the Course

of History

According to this theory, slavery was viewed as the principal

means of production or thesis during Greco-Roman times. Feudalism

became its main antithesis in the Middle Ages. The synthesis became

capitalism, which became the new thesis after the Enlightenment.

But capitalism faced its own antithesis—the growing threat of socialism.

Eventually, this struggle would result in the ultimate system of

production, communism. In this way, Marx was an eternal optimist.

He firmly believed that all history pointed to higher forms of society,

culminating in communism.

Marx’s Solution: Revolutionary Socialism

But while communism was supposedly inevitable, Marx felt that

revolution was necessary to bring it about. First and foremost, Marx

was a leading proponent of the violent (“forceful”) overthrow of

government and the establishment of revolutionary socialism. He

delighted in violence. Marx promoted revolutionary causes in The

Communist Manifesto in 1848, the First International in 1860, and the

Paris Commune in 1871. Although the German revolutionary failed

to reveal his plans in detail, The Communist Manifesto did include a

ten-point program (Marx and Engels 1964 [1848], 40):

1. Abolition of property in land and applications of all rents of

land to public purposes.

2. A heavy progressive or graduated income tax.

3. Abolition of all right of inheritance.

4. Confiscation of the property of all emigrants and rebels.

5. Centralization of credit in the hands of the state by means of a

national bank with state capital and an exclusive monopoly.

6. Centralization of the means of communication and transport

in the hands of the state.

7. Extension of factories and instruments of production owned

by the state; the bringing into cultivation of waste lands, and

the improvement of the soil generally in accordance with a

common plan.

8. Equal obligation of all to work. Establishment of industrial

armies, especially for agriculture.

9. Combination of agriculture with manufacturing industries; gradual

abolition of the distinction between town and country, by a

more equitable distribution of the population over the country.

10. Free education for all children in public schools. Abolition

of child factory labor in its present form. Combination of

education with industrial production, and so on.

It is difficult to imagine instigating some of these measures without

violence. But this was not all. Marx also advocated an authoritarian

“dictatorship of the proletariat.” He favored a complete abolition of

private property, based on his theory that private property was the

cause of strife, class struggle, and a form of slavery (1964 [1848],

27). He agreed with Proudhon that “property is theft.” Without private

property, there was no need for exchange, no buying and selling, and

therefore Marx and Engels advocated the elimination of money (30).

Production and consumption could continue and even thrive through

central planning without exchange or currency.

Marx and Engels also demanded the abolition of the traditional

family in an effort to “stop the exploitation of children by their

parents” and to “introduce a community of women.” The founders

of communism supported a program of youth education that would

“destroy the most hallowed of relations” and “replace home education

by social” (33–35).

What about religion? Marx noted that “religion is the opium of the

people.” “Communism abolishes eternal truths, it abolishes all religion,

and all morality, instead of constituting them on a new basis; it therefore

acts in contradiction to all past historical experience” (38).

Marx anticipated that revolutionary socialism would for the first

time allow the full expression of human existence and happiness. The

goal of “universal opulence” that Adam Smith sought would finally be

achieved under true communism. Marx was a millennialist at heart.

Heaven could be achieved on earth. Eventually the dictatorship of the

proletariat would be replaced by a classless, stateless society. Homo

Marxist would be a new man!

Marx’s Predictions Fail to Materialize

But all this was not to be. Marx’s predictions went awry, though not all

right away. As late as 1937, Wassily Leontief, the Russian émigré who

later won the Nobel Prize for his input–output analysis, proclaimed

that Marx’s record was “impressive” and “correct” (Leontief 1938, 5,

8). But Leontief’s praise was premature. Since then, as Leszek Kolakowski,

former leader of the Polish Communist Party, declared, “All

of Marx’s important prophecies turned out to be false” (Denby 1996,

339). To review:

1. Under capitalism, the rate of profit has failed to decline, even

while more and more capital has been accumulated over the

centuries.

2. The working class has not fallen into greater and greater

misery. Wages have risen substantially above the subsistence

level. The industrial nations have seen a dramatic rise in the

standard of living of the average worker. The middle class has

not disappeared, but expanded. As Paul Samuelson concludes,

“The immiserization of the working class . . . simply never

took place. As a prophet Marx was colossally unlucky and

his system colossally useless” (1967, 622).

3. There is little evidence of increased concentration of industries

in advanced capitalist societies, especially with global

competition.

4. Socialist utopian societies have not flourished, nor has the

proletarian revolution inevitably occurred.

5. Despite business cycles and even an occasional great depression,

capitalism appears to be flourishing as never before.

Update: Marxists as Modern-Day Doomsdayers

In The Communist Manifesto, Marx and Engels warned, “It is enough

to mention the commercial crises that by their periodical return put

on its trial, each time more threatening, the existence of the entire

bourgeois society” (1964 [1848], 11–12).

Following their leader’s footsteps, modern-day Marxists are constantly

predicting the collapse of capitalism, only to be rebuffed time

and again. In 1976, in the midst of the energy crisis and inflationary

recession, socialist Michael Harrington published a book entitled The

Twilight of Capitalism, which he dedicated to Karl Marx. He predicted

that the crisis of the 1970s would be the end of capitalism.

In the same year, Marxist Ernest Mandel wrote an introduction to

Capital, forcefully declaring, “It is most unlikely that capitalism will

survive another half-century of the crises (military, political, social,

monetary, cultural) which have occurred uninterruptedly since 1914”

(Mandel 1976 [1867], 86).

KARL MARX LEADS A REVOLT AGAINST CAPITALISM 91

Paul M. Sweezy, the Marxist professor at Harvard, was a longtime

pessimist. Since the 1930s, he forecasted that capitalism was on the

decline and that socialism, promoting higher standards of living, would

advance “by leaps and bounds” (Sweezy 1942, 362). He coauthored

a book entitled The End of Prosperity in 1977.

Yet, entering a new century, capitalism is even more dynamic than

ever before. The modern-day Marxists, always the pessimists, have

been proved wrong again.

The Curious Case of Nikolai Kondratieff

One famous Russian economist to contradict the official Marxist

prediction of capitalism’s inevitable demise was Nikolai Kondratieff

(1892–1938). In 1926, he delivered a paper before the prestigious

Economic Institute in Moscow, making the case for a fifty- to sixtyyear

business cycle. Based on price and output trends since the 1780s,

Kondratieff described two-and-a-half upswing and downswing “long

wave” cycles of prosperity and depression. Kondratieff found no

evidence of an irreversible collapse in capitalism; rather, a strong

recovery always succeeded depression.

In 1928, Kondratieff was removed from his position as head of

Moscow’s Business Conditions Institute and his thesis was denounced

in the official Soviet encyclopedia (Solomou 1987, 60). He was soon

arrested as the alleged leader of the nonexistent Working Peasants Party

and deported to Siberia in 1930. On September 17, 1938, during Stalin’s

great purge, he was subjected to a second trial and condemned to ten

years without the right to correspond with the outside world; however,

Kondratieff was executed by firing squad on the same day this decree

was issued. He was forty-six at the time of his murder.5

Criticisms of Marx

Why was Marx so terribly wrong after establishing what he insisted

were “scientific” laws of economics?

First and foremost, his labor theory of value was defective. In rejecting

Say’s law of markets, he also denied Say’s sound theory of value.

Say correctly noted that the value of goods and services is ultimately

determined by utility. If individuals do not demand or need a product,

it doesn’t matter how much labor or effort is put into producing it; it

won’t command value.

As historian Jacques Barzun noted, “Pearls are not valuable because

men dive for them; men dive for them because pearls are valuable”

(Barzun 1958, 152). And Philip Wicksteed, writing the first scientific

criticism of Marx’s labor theory in 1884, noted, “A coat is not worth

eight times as much as a hat to the community because it takes eight

times as long to make it. . . . The community is willing to devote eight

times as long to the making of a coat because it will be worth eight

times as much to it” (Wicksteed 1933, vii).6

And what about all those valuable things that keep increasing in

value even though they require little or no labor, such as art or land?

Marx recognized these were exceptions to his theory, but considered

them of minor importance to the fundamental issue of labor power.

The Transformation Problem

Marx also faced a dilemma that became known as the “transformation

problem,” known as the profit rate and value problem. A conflict

arises under Marx’s system because some industries are labor

intensive and others are capital intensive. (In Marxist language,

they have a higher organic composition of capital.) In volume 1 of

Capital, Marx insisted that prices varied directly with labor time,

concluding therefore that capital-intensive industries should be less

profitable than labor-intensive industries. Yet the evidence seems to

indicate similar profitability across all industries over the long run,

since capital and investment could migrate from less to more profitable

industries. Marx never could resolve this thorny issue, which

Rothbard called “the most glaring single hole in the Marxian model”

(Rothbard 1995b, 413).

Marx wrestled with this transformation problem his entire life,

promising to have an answer in future volumes of Capital. In the introduction

to volume 2 of Capital, Engels offered a prize essay contest

on how Marx would solve the dilemma. For the next nine years, a

large number of economists tried to solve it, but upon the publication

of volume 3 of Capital, Engels announced that no one had succeeded7

(Rothbard 1995b, 413). Eugen Böhm-Bawerk jumped on this singular

failure in Marxian economics; in the words of Paul Samuelson, “make

no mistake about it, Böhm-Bawerk is perfectly right in insisting that

volume III of Capital never does make good the promise to reconcile

the fabricated contradictions” (Samuelson 1967, 620).

The Vital Role of Capitalists and Entrepreneurs

Second, Marx blundered in failing to value the knowledge and work

of capitalists and entrepreneurs. As we shall see in the next chapter,

Böhm-Bawerk, Alfred Marshall and other great economists recognized

the huge contribution capitalists and entrepreneurs make in taking on

risk and providing the necessary capital (saving) and management

skills necessary to operate a profitable enterprise.

The Worker-Capitalist Phenomenon

One of the biggest problems facing Marxism today is the gradual

disintegration of economic classes. No longer is there is a clear division

between capitalist and worker. Fewer and fewer workers are

simply employees or wage earners. They are often shareholders and

part owners of the companies they work for—through profit-sharing

and pension plans, where they own shares in the companies they work

for. Many workers are self-employed and are part-time capitalists.

Today, over half of American families own stock in publicly traded

companies. Main Street has teamed up with Wall Street to create a

new mass of worker-capitalists, which has greatly diminished revolutionary

zeal within the labor markets.

Finally, Marx’s view of machinery and capital goods is perverse and

one-sided. Time-saving and labor-saving machinery does not simply

lay off workers or reduce wages. It frequently makes the job easier

to perform and allows workers to engage in other productive tasks.

Machinery and technology have done an amazing job in reducing or

eliminating the “worker alienation” Marx complained about so bitterly.

By cutting costs, machinery and technological advances create

new demands and new opportunities to produce other products. They

create other jobs, often at better pay, for workers who are displaced.

As Ludwig von Mises stated a century later, “there is only one means

to raise wage rates permanently and for the benefit of all those eager

to earn wages—namely, to accelerate the increase in capital available

as against population” (Mises 1972, 89). The evidence is overwhelming

that increasing labor productivity (output per man-hour) leads to

higher wages.

To sum up Marxist economics, Paul Samuelson years ago concluded

that almost nothing in the economics of classical Marxism

survives analysis (Samuelson 1957). And Jonathan Wolff, a British

professor sympathetic to Marxist ideas, recently concluded that while

“Marx remains the most profound and acute critic of capitalism,

even as it exists today, we may have no confidence in his solutions.

. . . Marx’s grandest theories are not substantiated” (Wolff 2002,

125–26).

Marx, the Anti-economist?

Michael Harrington claimed that Marx was the ultimate antieconomist

(1976, 104–148). Indeed, he may be right. Marx was a

naive idealist who failed profoundly to comprehend the role of capital,

markets, prices, and money in advancing the material abundance of

mankind.

The irony is that it is capitalism, not socialism or Marxism, that has

liberated the worker from the chains of poverty, monopoly, war, and

oppression, and has better achieved Marx’s vision of a millennium

of hope, peace, abundance, leisure, and aesthetic expression for the

“full” human being.

Could Marxist socialism create the abundance and variety of goods

and services, breakthrough technologies, new job opportunities, and

leisure time of today? Hardly. Marx was incredibly ingenuous in

thinking that his brand of utopian socialism could achieve a rapid rise

in the workers’ living standards. He wrote in the 1840s, “in communist

society . . . nobody has one exclusive sphere of activity but each

can become accomplished in any branch he wishes, . . . thus making

it possible for me to do one thing today and another tomorrow, to

hunt in the morning, fish in the afternoon, rear cattle in the evening,

criticize after dinner, in accordance with my inclination, without

becoming hunter, fisherman, shepherd or critic” (Marx 2000, 185).

This is sheer ivory-tower naiveté, a characteristic of the early Marx.

Marx’s idealism would take us back to a primitive, if not barbaric,

age of barter and tribal living, without the benefit of exchange and

division of labor.

Thus, as we enter the twenty-first century, Adam Smith—the father

of capitalism—is moving back in front of Karl Marx—the father of

socialism. In the first edition of The 100: The 100 Most Influential

People in the World (1978), author Michael Hart placed Marx ahead

of Smith. But in the second edition, written in 1992 after the collapse

of Soviet communism, Smith moved ahead of Marx.

Did Marx Recant?

Marx is said to have said, “I am not Marxist,” in the late 1870s,

but apparently it has been taken out of context. At times he was so

despairing over his son-in-law Lafargue’s socialist “theoretical gibberish,”

that Marx declared, “If that is Marxist, I am no Marxist.”

Biographer Fritz J. Raddatz concludes, “It is certainly not to be taken

as a recantation or deviation from his own doctrine but, on the contrary,

as a defense of that doctrine against those who would distort

it” (Raddatz 1978, 130). But while Marx may not have relinquished

his taste for violent revolution and his own theories, Engels appears

to have revised his views in later years. He conceded that workers

may earn more than subsistence wages, that other noneconomic

factors could play a role in society, and that legal political means

96 THE BIG THREE IN ECONOMICS

might achieve reform. “The one-time would-be dashing general of

revolution had almost become a Social-Democratic reformer,” writes

Robert Wesson (1976, 37–38).

What’s Left of Marxism?

If Marx’s economic theories and predictions have proved to be inaccurate,

is there anything salvageable from Capital and the rest of

Marx’s economic writings? Indeed, there is.

First and foremost is the issue of economic determinism. What

moves society—ideas or vested interests? In his “law” of historical

materialism, Marx countered the traditional view that religion

or any other institutional philosophy determined the culture of a

community. Instead, Marx contended the opposite, that the material

or economic forces of society determined the legal, political,

religious, and commercial “superstructure” of national culture. In

The Poverty of Philosophy, Marx explained, “the handmill gives

you society with the feudal lord, the steam-mill gives you society

with the industrial capitalist” (Marx 1995, 219–20). Today most

sociologists recognize the important role economic forces play

in society.

Second is the issue of classes in society. Marx’s theory of class

consciousness and class conflict has engaged historians and sociologists.

To what extent are behavior and thought reflections

of bourgeois or proletarian values? To what point does the ruling

class protect and advance its interests through the political process?

Does the group that owns or controls property and the means of

production dominate? Is it true that “law and politics are in the

service of industrial capital”? If so, asks Wolff, “why are trade

unions allowed? Why do universities have Arts Faculties as well as

Engineering (indeed, why allow the teaching of Marxism)? Why

don’t the multinationals win every one of their court cases?” (Wolff

2002, 59) If the state is under the thumb of the capitalist interests,

why did the Great Depression occur, since it severely harmed

them? Karl Popper ridiculed the all-knowing Marxist position: “A

Marxist could not open a newspaper without finding on every page

confirming evidence for his interpretation of history; not only in the

news, but also in its presentation—which revealed the class bias of

the paper—and especially of course in what the paper did not say”

(Popper 1972, 35).

Third, Marxists stress several contemporary issues that Marx raised:

• The problem of alienation and monotonous work in the workplace.

• The problems of greed, fraud, and materialism under a moneyseeking

capitalist society.

• The concerns over inequality of wealth, income, and opportunity.

• Conflicts over race, feminism, discrimination, and the environment.

David Denby, an essayist who read Marx as an adult in a college

classic literature course, discusses several modern-day issues frequently

raised by today’s Marxists. First, alienation. Denby states:

“Alienation is a loss of self: We work for others, to fulfill other people’s

goals, and often we confront what we produce with an indifference

bordering on disgust” (1996, 349). How do we deal with boredom and

meaninglessness in today’s business world? Yet what is the alternative?

Is a communal or socialist society any less boring or meaningless? A

capitalist society that gradually improves the quantity, quality, and

variety of goods and services offers less boredom and a greater chance

of fulfillment, often by providing shorter workdays that allow workers

to find fulfillment in avocations outside their work.

What about greed? Does the market system reduce human activity to a

complete focus on material things? Marx complained that the capitalism

of Adam Smith causes society to be a “commercial enterprise,” where

“everyone of its members is a salesman. . . . The less you eat, drink, and

buy books, go to the theater or the balls, or to the public-house, and the

less you think, love, theorize, sing, paint, fence, etc., the more you will

be able to save and the greater will become your treasure which neither

moth nor rust will corrupt—your capital. The less you are, the less you

express your life, the greater is your alienated life and the greater is the

saving of your alienated being” (Fromm 1966, 144).

Modern-day Marxists complain about today’s materialistic society.

“We go to work to earn money, and then go to shops to spend it. We

are people with tunnel vision,” contends Wolff. In her book, The Overworked

American (1991), Harvard economist Juliet Schor contends that

98 THE BIG THREE IN ECONOMICS

modern capitalism, especially since World War II, has forced Americans

to become workaholics.8 Denby writes, “Capitalism created envy and the

desire to define oneself through goods. Capitalism itself, in its American

version, bears part of the responsibility for low morals” (1996, 349). According

to this view, capitalism crushes the human spirit’s potential by forcing

us to think always of work. Thus, according to Marx, the marketplace

becomes a monster, the “universal whore” (Marx 2000, 118).

This argument is popular, but is countered by the thesis of Adam

Smith and Montesquieu, among others, that the business culture gradually

restrains fraud and greed (see chapter 1). Smith noted that man is

not simply a work machine: “It is in the interest of every man to live

as much at his ease as he can” (Smith 1965[1776], 718). Capitalism

also produces wealthy individuals who spend much time and effort

on spiritual, artistic, nonmaterial, nongreedy initiatives, providing

many benefits to society. It even allows individuals to drop out of

the material world, and engage in spiritual interests. Private surplus

wealth goes toward many good causes, including the arts, charities,

foundations, and programs to help the needy.

Denby’s college professor posed another Marxist criticism: “In

bourgeois society the relations between human beings imitate the

relations between commodities. . . . If cash is the only thing connecting

us, what keeps society together?” The yearning for community in

a highly individualistic market economy is a major concern. Do we

measure people solely by their income and net worth? Does the chasing

of the almighty dollar cause the tearing down of historic homes

and the building of high-rise apartments? Does capitalism pressure us

to work so long and hard that we don’t have time to develop relationships

outside the office? Denby warns, “In America, there seemed less

and less holding us together” (1996, 344–351).

There is no question that the fast-paced market economy makes us

live more independently from the community. The exchange of goods

and services often becomes anonymous and unfriendly. Undoubtedly

in a communitarian society, we would all know our neighbors and

local businesspeople better. But what are we giving up?

The Money Nexus

Beyond the issues of economic determinism, class consciousness, and

contemporary social issues, I find Marx’s commentary on the evolutionary

role of capitalism valuable in my own work as a financial economist.

In chapter 3 of Capital, he begins with a discussion of the barter of two

commodities, C and C´. The exchange takes place as follows:

C – C´

When money is introduced, the relationship changes to:

C – M – C´

Here, money represents the medium of exchange of two commodities.

Normally in the production process from raw commodities to the final

product, money is exchanged several times. The focus of the capitalist

system is on the production of useful goods and services, and money

simply serves as a medium of exchange—a means to an end.

However, Marx pointed out that it is very easy for the money capitalist

to start viewing the world differently and more narrowly in terms

of “making money” rather than “making useful goods and services.”

Marx represents this new business way of thinking as follows:

M – C – M´

In other words, the businessman uses his money (capital) to produce a

commodity, C, which, in turn, is sold for more money, M´. By focusing

on money as the beginning and end of their activities, it is very easy for

capitalists to lose sight of the ultimate purpose of economic activity—to

produce and exchange goods. The goal is no longer C, but M.

Finally, the market system advances one step further to the point

where commodities (goods and services) do not enter the picture at

all. The exchange process becomes:

M – M´

This final stage reflects the capital or financial markets, such as

money markets and securities (stocks and bonds). By now, it is easier

for commodity capitalism to become pure financial capitalism, further

removed from its roots of commodity production. In this environment,

businesspeople often forget the whole purpose of the economic system—

to produce useful goods and services—and concentrate solely

on “making money,” whether through gambling, short-term trading

techniques, or simply earning money in a bank account or from T-bills.

Ultimately the goal of making money is best achieved by providing

useful goods and services, but it is a lesson that must be learned over

and over again in the commercial world.

Thus, we can see how a capitalistic culture can lead to the loss of

both ultimate purpose and a sense of community. This tendency to move

away from the true purpose of economic activity constantly challenges

business leaders, investors, and citizens to get back to the basics.

In sum, Karl Marx cannot be entirely dismissed. His economic

theory may have been defective, his revolutionary socialism may have

been destructive, and Marx himself may have been irascible, but his

philosophical analysis of market capitalism has elements of merit and

deserves our attention.

Update: Marxists Keep Their Hero Alive and Kicking

Marxism has never made much of an inroad into economics, which

emphasizes high theory and econometric model-building. The few

Marxists on campus have included Maurice Dobb at Cambridge, Paul

Baran at Stanford, and Paul Sweezy at Harvard. Sweezy (1910–2004)

was the most fascinating, being the only economist I know who went

from laissez-faire to Marxism. (Whittaker Chambers, Mark Blaug,

and Thomas Sowell all went in the opposite direction.) Born in New

York City in 1910 to a Morgan banker, Paul Sweezy graduated with

honors from the best private schools, Exeter, and Harvard. Brilliant,

handsome, and witty, Sweezy left Harvard in 1932 as a classical

economist, went to the London School of Economics for graduate

work, became an ardent Hayekian, then briefly fell under the spell

of Harold Laski and John Maynard Keynes, and finally converted to

Marxism! From then on, the debonair Sweezy made every effort to

make Marxism respectable on college campuses.

Returning to Harvard as an instructor during the golden era of the

Keynesian revolution, he befriended John Kenneth Galbraith, tutored

Robert Heilbroner, and collaborated with Joseph Schumpeter on his

forthcoming Capitalism, Socialism and Democracy. Sweezy wrote his

most famous article on the “kinked” demand curve, helped organize

the Harvard Teachers’ Union, and published The Theory of Capitalist

Development (1942), an extremely coherent and compelling exposition

of Marxism (although the author overly committed himself to

citing Stalin). Like Schumpeter, Sweezy predicted at the end of his

book that capitalism would inevitably collapse and socialism would

“demonstrate its superiority on a large scale” (1942, 352–63).

His teaching at Harvard was interrupted when he joined the Office of

Strategic Services (the predecessor of the Central Intelligence Agency)

in 1942. After the war, Sweezy came up for tenure at Harvard, but despite

vigorous backing by Schumpeter, was rejected, never to have a permanent

academic position again. In 1949, he co-founded Monthly Review,

“an independent socialist magazine,” whose first issue made a major

splash by publishing “Why Socialism?” by Albert Einstein. (Einstein’s

essay is remarkably Marxist in tone.) Sweezy has been associated with

Monthly Review ever since, in addition to collaborating with Paul Baran

on writing Monopoly Capital (1966). Yet throughout his career, Sweezy

was known for taking “far-fetched and unreal” positions (his words),

such as his arch defense of Fidel Castro’s Cuba (a nation currently

ranked by the UN as the world’s worst human rights violator) and his

constant anticipation of capitalism’s imminent collapse (1942, 363). In

1954, during the McCarthy era, he was jailed for refusing on principle

to answer questions about “subversive activities” in New Hampshire;

in 1957 the Supreme Court overturned the verdict.

Other Radical Trends

Other radical journals and organizations emerged during the Vietnam

War: the journals Dissent and New Left Review, and the Union of Radical

Political Economists, or URPE for short. They all reached their

heyday in the protest days of the 1960s and the crisis-prone 1970s. It

was 1968 when several Marxists met at the University of Michigan

to establish the Union of Radical Political Economists and chose the

acerbic-sounding acronym URPE. The purpose of URPE is to develop

a “critique of the capitalist system and all forms of exploitation and

oppression while helping to construct a progressive social policy and

create socialist alternatives” (URPE website).

By 1976, Paul Samuelson reported that at least 10 percent of the

profession consisted of Marxist-style economists. Although Marxism

has had a far greater influence in sociology, political science,

and literary theory, some economics departments are known for their

radicalism, including the University of Massachusetts at Amherst, the

New School of Social Research in New York City, the University of

California at Riverside, and the University of Utah.

Since the collapse of the Soviet Union and the central-planning socialist

paradigm, the lure of Marxism has faded, at least in economics. Attendance

at URPE sessions at the annual American Economic Association

meetings is down, and URPE membership has fallen to around 800.

Marx and his followers have traditionally taken a dim view of the

future of capitalism. In the twentieth century, Marxists frequently

wrote of the “twilight of capitalism,” a favorite book title (William

Z. Foster in 1949, Michael Harrington in 1977, and Boris Kagarlitsky

in 2000). They all predicted the imminent collapse of the capitalist

system. However, Lord Meghnad Desai, an economist at the London

School of Economics, recently proposed the startling thesis that Marx

would have supported the resurgence of capitalism around the world.

The Communist Manifesto spoke eloquently about the “ever growing

… constantly expanding … rapid” advance of vigorous and vital capitalist

forces, reaching beyond natural borders to a world market (1964

[1848], 4). The old Marxists were premature in their dire predictions.

But what happens after global capitalism runs its course? Desai asks,

“Will there ever be Socialism beyond Capitalism?” (Desai 2004, 315).

Some Marxists, such as David Schweickart, suggest some form of

“economic democracy” will develop after the “current late decadent”

stage of capitalism plays itself out (Schweickart 2002).

The Rise and Fall of Liberation Theology

In the late 1960s and early 1970s, a Marxist-driven ideology developed

in Latin America, especially among Catholic priests who worked in

the barrios and favelas, known as “liberation theology.” While rejecting

the Marxist extremes of atheism and materialism, these political

activists sought to liberate the poor by combining Marxist doctrines

of exploitation, class struggle, and imperialism with the Christian

theology of compassion for the poor and underprivileged. Popular

books carried the titles Communism and the Bible and Theology of

Liberation, both published in English by Orbis Books, a subsidiary of

the Catholic ministry Maryknoll Fathers and Sisters. “Christ led me

to Marx,” declared Ernesto Cardenal, the Nicaraguan priest, to Pope

John Paul II in 1983. “I’m a Marxist who believes in God, follows

Christ and is a revolutionary for the sake of his kingdom” (Novak

1991, 13).

The father of liberation theology, Gustavo Gutiérrez, is a short,

mild-mannered professor of theology who wrote about his work with

the poor in his native city of Lima, Peru, in Theology of Liberation

(1973). Gutiérrez explained his “liberation theology” in Marxist terms

(McGovern 1980, 181–82):

I discovered three things. I discovered that poverty was a destructive thing,

something to be fought against and destroyed, not merely something which was

the object of our charity. Secondly, I discovered that poverty was not accidental.

The fact that these people are poor and not rich is not just a matter of chance,

but the result of a structure. It was a structural question. Third, I discovered that

poverty was something to be fought against…..[I]t became critically clear that

in order to serve the poor, one had to move into political action.

Marxist theologists blamed capitalism, and especially the “imperialistic”

United States and its multinational corporations, for this oppressive

atmosphere in Latin America. They expressed a radical hostility

to private property, markets, and profits as an “exploitive” process in

favor of the rich at the expense of the poor. And if the choice was between

revolution and democracy, revolution, even violent revolt, was

preferable. Their policies included nationalization, aversion to foreign

investment, and imposition of price controls and trade barriers.

Critics of liberation theology contend that these statist policies have

only made poverty and inequality worse in Latin countries. Michael

Novak sees the Latin American system differently from the Marxists:

“The present order is not free but statist, not market-centered

but privilege-centered, not open to the poor but protective of the rich.

Large majorities of the poor are propertyless. The poor are prevented

by law from founding and incorporating their own enterprises. They

are denied access to credit. They are held back by an ancient legal

structure, designed to protect the ancient privileges of a pre-capitalist

elite” (Novak 1991, 5).

What is the Adam Smith solution to poverty and inequality in Latin

America? The challenge, according to Novak, is to create genuine

private-sector jobs, the real solution to poverty. “Revolutionaries,” he

states, “seem mostly to create huge armies. Economic activists create

jobs.” To truly liberate Latin America, he and other disciples of Adam

Smith advocate open markets, foreign investment, low taxes, opportunities

for business creation and ownership of property by all citizens,

and political stability under the rule of law—a “liberal, pluralistic,

communitarian, public-spirited, dynamic, inventive” nation not unlike

the Asian tigers adopted in the recent past (Novak 1991, 32).9

Since the fall of Soviet communism and the socialist central-planning

model, liberation theology has lost its steam and most Latin

American countries have adopted a more open economy. Consequently,

Latin nations have grown rapidly and the percentage of poor

has declined. Orbis Books and the Maryknoll Fathers and Sisters

ministry no longer publish books on liberation theology.

The Next Revolution

Only a few years after Marx’s masterpiece, Capital, was published, a

new breed of European economists came on the scene. These economists

corrected the errors of Marx and the classical economists, and

brought about a permanent revolution. As noted earlier, the cost-ofproduction

approach to price theory had put economics in a box, a box

containing a bombshell that could annihilate the classical system of

natural liberty. It would take a revolutionary breakthrough in economic

theory to rejuvenate the dismal science and restore the foundations of

Adam Smith’s model. That is the subject of chapter 4.