3.1. rate of profit

Marxism satisfies the same needs as religion and uses the same methods. The goal of any religion is to give hope and this goal is achieved best if the statements of the religion can't be questioned by reality.

In all religion for instance God can be angry and that is useful. If things go well, God helped, if they go wrong, God was angry and must be appeased, but in both cases he exists. A real problem only raises if God can't be appeased, because he doesn't exist.

From the scholastic nonsens of the middles ages there is direct line to marxism. Both are a reality sui generis that consists only of verbal constructions and as purely verbal construction it contradict reality.

The thesis of the existence of God can only be proved in the sense of Karl Popper the day of the Final Judgement, but until we get there, it still takes a lot of time. Concerning marxism it had already his final judgement, but due to the problems of the enemy of classes he is living a little resurrection right now.

As an economic theory marxism is completely irrelevant, because its concepts are completly confuse. Nowhere in the world it is part of economics studies and even in Cuba it is taught, see Facultad de Economía.

That leads to conclusion that the cubanians don't have the moral of steel characteristic for Germans. In Germany this nonsense was taught at all university, schools and any kind of public education until the very end, until the fall of wall. In Cuba we can read on any wall that capitalism is on decline, will soon collapse and communism will triumph, but nobody takes it seriously any more.

(Little advise from the author to the faculty of economics in Habana. The micro I and advanced micro is the same nonsense as marxism, see neoclassical theory. The problems of the world can't be resolved by copying. Every case is different and in order to resolve a problem we must think a bit. Did you get the message? You should never copy. Never, never, never. Perhaps it helps to read the essay of Miguel de Unamuno, see mi religión. By the way: We doubt sincerly that Fidel / Raúl Castro or Che Guevara read the three volumes of Karl Marx. There is no text on earth worse written than this book. In comparison to The Capital a text of the less inspired lawyer is an adventure novel.)

Marxism is not interesting from an economic perspective. From an economic perspective it is just nonsense. However it is interesting from a psychological point of view. Even if we assume that the time of ideologies is over, the analysis of the madness is interesting. Analysing the big madness, the marxism, allows a better understanding of daily madness. Marxism is the big madness and analysing something like the marxismus allows to analyse the little madnesses, for instance the Vilfredo Pareto abracadabra.

Ideologies are a curious phenomenon and hard to understand and most of the best known philosophers of the 20th century tried to understand it, for instance Hanna Arendt, Karl Popper or Th.W. Adorno.

The fall of the wall in Berlin in 1989 would had offered the possibility to study the problem more in detail, but this chance was not used. At the administration level there was kind of "purification", but not in public. The question why people believed 50 years in that marxism nonsense remains unexplained.

People believe in general that ideologies have to to with their content. That's obviously wrong. It was no problem to integrate the armee of East - Germany after the fall of the wall into the armee of the "enemy of classes". Soldiers of the armee of East-Germany had no problem to to change the side.

Hannah Arendt describes the mechanisms needed to allow ideologies to get and stay in power. The actual content of the ideology, capitalism, comunism, religion or whatsoever is irrelevant.

This is the basic error of Karl Popper. The ideological critiques, criticisizing the content, is useless. Popper believes that ideologies are an error of thinking. This is not the case. We will return on the topic in the chapter about

Marx was able to fill more than 3000 pages to explain a super simple concept whose fundamental error becomes obvious in the first 150 pages and given the fact that the basis of his argumentation is already wrong, it is obvious that the system that relies on this basis is wrong.

We can learn from marxism that people do a lot for an academic career, because reading these 3000 pages full of nonsense was prerequiste to become a professor of economics at a university in East-Germany. It is to assume that a lot of people tried their best to convince themselves that this nonsense makes any sense, because otherwise they wouldn't had got to the end. In other words, in order to get to the end, people must convince themselves that this nonsense makes sense. This is subtle. In order to break the people brute force was not necessary. It was enough to demand them reading this nonsense, by saying that only in this case they are really qualified for the job.

This mechanism still works today. The only difference is, that the canon is not actually imposed, but is a necessary requirement to become accepted by the "scientific" communtiy.

He tells us at the beginning that the value of a commodity is determined by the labour materialised in that commodity. That the same old story that is told as well by David Ricardo. He wants to tell us that a pound of coffee costs as much that 3 kilo of bananas because the same amount of labour is needed to produce them.

With that logic there are a lot of problems. The first problem is obviously that the value of a thing depends on the demand, see equilibrium at the short run and equilibrium at the long run. Summarizing: In a commodity can be incorporated just any amount of labour, if nobody buys it, the value is zero. Marx tried to overcome this problem introducing the exchange value and the value in use. He stated, that's correct, that without exchange value there is no value in use. In other words: Commodity with the same labour incorporated have the same exchange value given that they have a value in use as well.

This is not very helpful. The value in use is kind of boolean value. It is either true or wrong. That's not enough. It is well possible that two commodities have the same amount of labour incorporated and that both have a value of use, but their value is very different. Someone can produce in 10 hours a chair that he believes very pretty and another one produce in the same 10 hours a pair of trousers. Both things have a value of use, but if the other people can't see the genious design of the chair, they would pay only half the price of the pair of trousers.

This is not only a theoretical problem. It becomes a very concrete one when it comes to establish a concrete economic order, something Marx never thought about. Concerning the labour incorporated there is no difference between brown socks and blue socks. However it can happen that nobody wants brown socks and everybody blue socks. In a market economy that would quickly lead to a change of supply. Companies would have an incentive to produce the socks people actually want. In a planned society the companies, actually organs of the government and not companies in the sense of a market economy, have no incentive to change their offer.

The next problem is that this concepts suggests that labour is an homogeneous factor. It is well possible that in a cake as well as in a computer programm in C++ are materialised 20 hours of labour. However the value is very different. Marx makes a lot of efforts to resolve this problem by explaining us that qualified labour is only a multiplied simple labour. That's a way to consider the issue, but not very helpful in practice, because this way we will get to an infinitive number of multipliers. Beside that the value of the labour depends on the demand. Completely unskilled labour can have a higher market value than skilled labour, if this unskilled labour is scarce. A professinal translator french <=> english is highly qualified, but an unskilled worker at a car manufacturer earns more money.

It can even happen that in the course of time the market value changes. For Marx that is not a big problem, he just changes the multiplier, but than he has to admit that the multiplier depends on demand.

The author has no intention to help Karl Marx with his problems, however he could have argued in a little bit more intelligent way. IN THE LONG RUN there is certain tendency for labour becoming more homogeneous. If an unskilled worker realises that he earns less than a skilled worder or if someone realises that people with other skills earn more they will try to qualifiy themselves for new jobs and as tendency differences in qualification will diminish. But this tendency will be induced by the demand for certain skills.

This is something that actually happens in the course of history. Industrialisation wouldn't had been possible if people had not qualified themselves for new jobs, leaving the agricultural sector and find new jobs in the industrial sector.

The problem of Charly is, that he denies completely the impact of the demand and therefore the poor workers can do nothing else but waiting for the right multiplier.

Karl Marx shares with David Ricardo the idea that wages never exceed subsistence level. It is hard to see why people should adapt themselves to a change in the production structure if they dont't earn more after having stopped for some time in order to qualify themselves.

One could argue that for some time they earn more, until the "capitalists" can lower the wages again to subsistence level, because the competition between the qualified workers is strong enough to reduce the wages again. However arguing that way, he would admit that know how plays a fundamental role and it is unclear whether the capital accumulates in the machines and building or in the heads. If it is accumulated in the heads, the "capitalist" will never be the owner of this capital and the accumulation of capital will be proportinal to an increase of the capital in the heads. This is incompatible with the marxist idea that only and exclusively capital pushes the economic development.

And once again this is not pure theory, but has a very practical impact. If qualified labour is just simplified simple labour there is no steering mechanism. At a certain degree the wages fixed by the government takes into account different qualifications, but the differences are not high enough to induce people to improve their qualifications. Therefore another way to motivate people is needed. In Cuba for instance on any second wall people were ask to be like the CHE, in other words to fight altruistically for the socialist society. That is something that most people have as little intention to do than the church want to be like Jesus. (Al least in practice. In theory they are like Jesus, obviously.)

By the way: Neoclassical theory, normaly considered as the opponent of marxism, has the same problem. Neoclassical theory argues with a highly aggregated labour market in which there is only one wage (which corresponds to the (monetary) marginal output). This is actually the same logic we have in marxism. There is only one wage. The conclusion drawn by the neoclassical theory is different. In order to get back to full employment in case of unemployment wages have to decrease. However wages never has to decrease at a general level. What is needed is that the unskilled labour qualify itself in order to improve the (monetary) marginal output or an adaptation to the changes in the production structure. In order to reach this goal, differences in the wages are needed. The logic of neoclassical theory is that wages have to decrease in case of full employment. That never happened in history in the long run. In the long run the qualification imporved, the (monetary) marginal output improved and therefore the wages. This is not possible if the pillars of a market economy are denied, the price as a signal of scarcity and incentive to reduce the scarcity.

If the wage is assumed to be the same independently from the qualification, it is hard to see how the market mechanism can work in the labour market.

Everybody believes neoclassical theory is the opponent of marxism. For a lot of reasons this is not true. The pillars of a market economy are refuted by both lines of thinking, see as well methodological approach.

The texts of Karl Marx are the most horrible texts existing in german language. That makes them well suitable to become the basis of an ideology. To read such an amount of bullshit, one must have capitulated, even before start reading. Only true believers can get through. This means, that only people penetrated by this ideology can pass the necessary exams.

The author once taught fired professors of the Humboldt University in Berlin. These people were roaming cadavers.

Concerning the structure the texts of Karl Marx are similiar to the texts of Thomas Aquinas. He didn't resolve with a lot of effort inexisting problems. The value of use for instance is something qualitative, something that cannot measured in units. The exchange value is a something quantitative, that can be measured in units. Concerning the value of use we can't therefore say that 1 computer = 3 desks, but concerning the exchange value we can say that.

This is actually not a problem we are confronted with in practice. In practise we have a certain amount of money and we buy first the things we most urgently need. That's all. We don't care about the amount of labour materialised in a merchandise. We just buy what we need and can afford.

The basic problem with Karl Marx is that based on his false assumptions, we produces a lot of "problems". The exchange value depends exclusively on the value of use, to stick with his terminology, but the value of use is not a boolean variable with only two values, existing or not existing. We pay for the utilitiy, not for the "exchange value".

That doesn't mean that the other extreme, Carl Menger, is right. Carl Menger assumes, that the value of something depends exclusively on the utility. That is wrong as well. The truth is very simple. There is price that we can and are willing to pay depending on our preferences and needs. That's the first part of the story. The second part is whether someone is able to produce it for the price we can and are willing to pay. In other words: Things have no "value". They have a market price. The market price is the price, things are actually sold and bought. They are sold, if the market price covers the costs and they are bought, if someone is willing to pay the price and can actually pay it. That's all.

Karl Marx is a good example for the fact that the more abstruse the basic assumptions, the more weird the theory.

With the thesis that only labour creates a value the whole marxist rubbish collapses. Due to the fact that only labour creates a value, only labour produces an added value that allows the accumulation of capital.

[By the way: In an other context we can say that only "labour", in a large sense of the term, that includes innovation, successful research and development, qualification etc. we can say that only "labour" creates value. Keynes himself states that. If "capital" is actually nothing else than money, see interest rates, and money, not capital is needed to activate the idle productive resources only "labour" creates value. This is a pleasant perspective, but has little to do with the marxist trash. It is not supposed that the value of good depends exclusively on the "labour" materialised in that good, it doesn't suppose a accumulation of capital etc.. The opposite is true. If the central banks can produce in one night more money than all the workers on earth in fifty years, there is no need to squeeze out the added-value from the workmen.]

In the next paragraph he explains us that the value of any good can be expressed by the value of an other good. In his logic. If it take twice the work to produce a banana than an apple, than two apple have the same value as a banana. This very similar to the Léon Walras and Vilfredo Pareto Nonsense, if another expample was needed to illustrate the fact that marxism and it assumed opponent, the neoclassical theory, are two different versions of the same madness.

[The assumption becomes still more abstruse, if international trade was taken into account. Marx will stick to his opinion that the value of the labour necessary to harvest the bananas in Costa Rica is the same as the one needed to harvest the apples in Germany. But whatever he tells us, that is not true. It it were the case, Germans wouldn't be able to buy bananas.]

The following paragraph is nonsense from the beginning to the end. There is no value of use nor an exchange value. The only thing we have is a market price. Some people can pay a certain price and are able to pay it and other people can produce the merchandise and are willing to produce the merchandise for this price. (Or change it for this price.) In this case we have buyers and sellers. Anything else is pure fantasy. The value of use becomes shows up if someone puts money on the table. If an apple and a pear cost one dollar respectivly and the owner of this one dollar buys an apple, than the "value of use" of the apple is higher and he gets his apple, is someone can produce it for one dollar and / or is willing to sell it for one dollar. If this dollars covers all the costs, we see in the long run. If he goes bankrupt, the one dollar didn't cover all the costs or is subsidised. If he continues to sell apples, the one dollar covers at least all costs and a profit that allows him to make a living.

The problem is not that the marxist trash is nonsense. A lot of people produced a lot of trash in the course of history. The stunning phenomenon is that this trash was taught for 50 years in all socialist countries. It is not plausible to say that all these people were too stupid to see that is trash. It is more plausible to say that marxism is kind of brain washing.

Die einfache Wertform einer Ware ist enthalten in ihrem Wertverhältnis zu einer verschiedenartigen Ware oder im Austauschverhältnis mit derselben. Der Wert der Ware A wird qualitativ ausgedrückt durch die unmittelbare Austauschbarkeit der Ware B mit der Ware A. Er wird quantitativ ausgedrückt durch die Austauschbarkeit eines bestimmten Quantums der Ware B mit dem gegebenen Quantum der Ware A. In andren Worten: Der Wert einer Ware ist selbständig ausgedrückt durch seine Darstellung als "Tauschwert". Wenn es im Eingang dieses Kapitels in der gang und gäben Manier hieß: Die Ware ist Gebrauchswert und Tauschwert, so war dies, genau gesprochen, falsch. Die Ware ist Gebrauchswert oder Gebrauchsgegenstand und "Wert". Sie stellt sich dar als dies Doppelte, was sie ist, sobald ihr Wert eine eigne, von ihrer Naturalform verschiedene Erscheinungsform besitzt, die des Tauschwertes, und sie besitzt diese Form niemals isoliert betrachtet, sondern stets nur im Wert- oder Austauschverhältnis zu einer zweiten, verschiedenartigen Ware. Weiß man das jedoch einmal, so tut jene Sprechweise keinen Harm, sondern dient zur Abkürzung.

aus: Karl Marx, Das Kapital I, 1.Kapitel, Die Ware
The simple form of a merchandise is contained in its relationship to other merchandises or in the exchange relation in relationship to this merchandise. In qualitative terms the value of the merchandise A is qualitativly expressed by the exchange rate of the merchandise A for the merchandise B. In quantitative terms it is expressed by exchangeability of the quantity of the merchandise B with the quantity of the merchandise A. In other words: The value of a merchandise is completely expressed by its presentation as "exchange value". If we said at the beginning of this chapter, following common use, that a merchandise is value of use and exchange value it was, correctly speaking, wrong. The merchandise is value of use or an object of use and "value". Only when it is presented in a different from the natural presentation form, in the form of the exchange value, it appears in this double form, but isolated it has never this form. But if someone is aware of that, the way of saying is no problem, but an abbreviation.

What he wants to tell us is very simple, although wrong. A knife has a change of use, it can be used to cut something and an exchange value, it can be changed for something, for instance a spoon. The value of a knife can be expressed by the amount of spoons we get for it. This is completely wrong or better said irrelevant, because we are not interested in values, we are only interested in the market price. Everything beyond market price is philosophy.

However this is not the main problem. The main problem is, that he needed 75 (!!) pages to explain us this nonsense.

We have, as we already said, no intention to find any sense in this trash, but if we put aside for the moment that all his value abracadabra is irrelevant, a more logical argumentation would be that.

David Ricardo that's where he got his nonsense from, is a little bit more logical. If we assume, something that is not correct, but let's assume it for a moment, that every labour is paid the same wage, the subsistence level, than we can indeed say that labour is an objective measure. The weird logic with the complex work that is nothing else than multiplied simple work is not necessary in this case, although the accumulation rate will be different and not equal, as Marx assumed, depending on the qualification. Remains the enigm how the capitalist will get this qualified work, if they pay only the subsistence level.

What Karl Marx explains in the next paragraph is not really an improvement in comparison to David Ricardo. On the contrary, things become even more abstruse.

Wie nun in der bürgerlichen Gesellschaft ein General oder Bankier eine große, der Mensch schlechthin dagegen eine sehr schäbige Rolle spielt, so steht es auch hier mit der menschlichen Arbeit. Sie ist Verausgabung einfacher Arbeitskraft, die im Durchschnitt jeder gewöhnliche Mensch, ohne besondere Entwicklung, in seinem leiblichen Organismus besitzt. Die einfache Durchschnittsarbeit selbst wechselt zwar in verschiednen Ländern und Kulturepochen ihren Charakter, ist aber in einer vorhandnen Gesellschaft gegeben. Kompliziertere Arbeit gilt nur als potenzierte oder vielmehr multiplizierte einfache Arbeit, so daß ein kleineres Quantum komplizierter Arbeit gleich einem größeren Quantum einfacher Arbeit. Daß diese Reduktion beständig vorgeht, zeigt die Erfahrung. Eine Ware mag das Produkt der kompliziertesten Arbeit sein, ihr Wert setzt sie dem Produkt einfacher Arbeit gleich und stellt daher selbst nur ein bestimmtes Quantum einfacher Arbeit dar.

aus: Karl Marx, Das Kapital I, 1.Kapitel, Die Ware
What is true for the bourgeois society where the general and the bancer play a big role, but the single man a shabby one, is true as well for the human labour. It is the use of simple workforce that every huma being, without further development possesses in his body. The simple average work itself changes its charakter depending on the nation and culture, but is always given in a society. Complex labour is only simple work raised to higher power or multiplied simple work, so that a little amount of complex labour corresponds only to a greater amount of simple labour. Experience shows that this reduction always happens. A merchandise can be the result of very complex labour, but when it comes to determine its value, it can be measured with simple work and is therefore only a certain amount of simple work.


If we go back to the logic of David Ricardo and if we pay only the subsistence level, we can say that 200 hours of work are the same work everywhere. If it needs 100 hours to make a computer and 100 hours to pick 2000 apples, 2000 apples are worth a computer. This would be nonsense as well, because what actually counts is the market price, but at least we could find some logic. We could assume that in the long run the qualification will be the same of all kind of labour, although this is difficult to imagine, if all remain at subsistence level.

With Karl Marx things become still more weird. At one side he assumes, that the workers are only paid a wage at subsistence level, but at the other side we have simple labour and multiplied simple labour. We have to assume, that the multplied simple labour is more productive than the simple labour, although Karl Marx didn't mention it. In this cas, if we stick with our example, 50 hours of multiplied simple work materialised in the computers are equivalent to 100 hours materialised in our 2000 apples or equivalent to 75 hours, now we have to change the multiplier, materialised in 60 bycicles, or to 80 hours, once again a chance of the multiplier, materialed in 110 cakes and so on. We get an endless amount of multipliers, but the wage is always the same. If we adapt always the multiplier, the theory is, at least from a "philosophical" point of view, correct, but very irrelevant in the real world.

Karl Marx didn't understood not even the basics of economics. There will be no multiplied simple work if the wages are the same everywhere, because nobody would undergo training if he is not better off afterwards than before. If all earn the same, it is not even known which kind of labour is scarce. A central planning commission have to find out which qualifications are needed and oblige people to qualify for these jobs by brute force or by by appealing to their "socialist consciousness". This means that people get a lot of decorations in the form of sheet metal, as the ones on could by on the flea markets in Berlin after the fall of the wall.

If that is to theoretical for some reader, he can go to Cuba. The waiters with no cualification who guard the ruins in Havanna, sitting on a chair without being bothered, earn as much money as the construction workers, who are better qualified and do a hard job. The result is obvious. People prefere to guard the ruins to reconstructing them.

If the same wage is paid for a hard work than for a light one, people will prefere the light one and the only way to induce people to do the hard jobs is by brute force.

If abandon the thesis that the wage is everywhere the same, if approach to reality, hard and / or qualified work is better paid, we get to a wage which depends on demand.

Based on the marxist nonsense there is no way to establish working steering mechanisms, beside central planning. If we know the market price for a certain kind of work, we can calculate the "multiplier". Perhaps this is fun, although useless. But the theoretically assumed multiplier doesn't help us to find the market price for the different kinds of labour.

We can equally say that a car is only a multiplied bicycle, a tree is only a multiplied bush, a horse only a multiplied ant and so on. It is actually difficult to refute this thesis, if the goal of that definition is unclear.

The goal of Marx is clear. He wants to prove, that the capital pushes the economic development and the worker is exploited. This thesis would fail, if it is possible that the capitalist depend on qualified workers, but the workers don't need the capital. In order to be his theory true, Marx has to prove that labour at any qualification exists always in abundance. He can't accept that the workers can be in a position to ask and receive wages that exceeds the subsistence level, because the "capitalists" are competing for qualified workforce.

Therefore he has to affirm that qualified work is only multiplied simple work and that simple work exists always in abundance.

The marxist nonsense might had had a kernel of truth at the beginning of industrialisation. At the beginning of industrialisation we had indeed a certain tendency to split up complex works in simple works. At the beginning of car production some few workers had to screw together an whole car. This changed with the production of Tin Lizzy. Every worker did only some simple grips that could be learned in a few hours. There was no need to understand anything about technique. In this case we can eventually say that complex work is only multiplied simple work. What has done before by 1 worker was done now by 5 workers. However even in this case the logic is wrong. First because this effect only applies to some branches and second it is the result on a change in the productive structure. This is only possible if the productivity of the 5 workers doing a single grips is higher than the productivity of 5 workers screwing together half of the car or something like that.

In reality thinks are much more complicated. Labour competes with "capital". (The term "capital" is problematic, see interest rates. In the context here we understand by capital machines, tools, building, raw material.) Labour is competing with capital. If the same job can be done with a robot, the "capitalist" will have it done by a robot. In another words, the "capitalist" only employs workers it the (monetary) marginal output of a worker is higher than the (monetary) marginal output of "capital". However that doesn't mean that labour is not scarce and that the capitalist is not obliged to pay a wage much higher than the subsistence level. He will obviously never pay more than the (monetary) marginal output, but it is well possible that he pays the a wage at the level of the (monetary) marginal output if labour is scarce.

Karl Marx sticks to the idea of David Ricardo. Labour is always so abundant, that the competition between the workers reduce the wages to the subsistence level. We know that this is not true. Skilled workers are scarce and companies had to pay more than their competitors to get them.

Neoclassical theory affirms that the employees will employ people as long as they benefit from that. That means for example that in case of unemployment wages have to decrease, because more products can only be sold at lower costs of production. The problem with this affirmation is, that it doesn't mean a lot. This is compatible as well with a situation where the workers get only a wage at subsistence level. In this case the (monetary) marginal output and therefore the wage is at subsistence level.

The difference between marxism and neoclassical theory consists in the fact Marx assumes that the labour is never scarce and is therefore always paid a wage at subsistence level. Neoclassical theory affirms that wages reach the (monetary) marginal output. That includes the possibility that labour, especially skilled labour, can be scarce and that companies have to pay therefore a more than the subsistence level.

To be more precise: This includes that the (monetary) output of labour can be higher than the (monetary) output of "capital". In other words: That it includes that for a company it can be more beneficial to hire workers instead of buying a machine.

[We don't address here the fundamental problem of marxism that he shares with classical theory. "Capital" is actually money. In order to invest the added value squeezed out from the workers, the "capitalist" needs money and given a functioning banking system, the workers as well as the "capitalist" have access to this money and if they have the qualifications needed, they will get it, while the "capitalist", who is not an entrepreneur in marxism but is only characterised by the fact that he has "capital", doesn't have the required skills.]

We don't know how Karl Marx got to the conclusions that complex or hard work is only a multiplication of simple work. This statement in any case "Experience shows that this reduction always happens" is in any case courageous. Experience shows that unskilled labour is unemployed and is not incorporated in any product.

It is obvious that Karl Marx never found a job. We don't know if he considered his labour as a simple labour or a multiplied simple labour, but in both cases his statements are contradictory. In the case that writing The Capital is a simple labour, just anybody could had been able to write it, in other words, it was not necessary to write it, because everybody already knew how things work. If it is multiplied simple work, he should at least earn a living from writing it and wouldn't had been depending on Friedrich Engels, who inherited his money from his father. A multiplied simple labour is as useful as a simple labour if there is no demand for it.

With his method it becomes actually difficult to evaluate the value of a thing. If we consider a car for instance we have let's say 5 time complex work (the engineers who design it), 3 times less complex work (the test drivers), 200 times simple work, the workers who assemble the car and so on. If the equation doesn't yield the expected results, there is something wrong with the multipliers, what is not a big problem, because Karl Marx is the muster of the multipliers.

However if Karl Marx had to calculate the value of an appartment in case he wanted to buy one, we hove have based his decision on more objective data, in other words on the concrete market price.

Karl Marx has the same problem as Carl Menger, although with reverted signs. Carl Menger assumes that the demand only determines the value of a commodity and Karl Marx believes, that only the costs determines the value of an commodity. Both positions are true, but irrelevant.

For the buyer the value a commodity depends on its preferences. For some people a painting von Vincent Van Gogh is worth nothing and others pay several millions of dollars for it and others pay several millions of dollars for an oldtimer, something that other people are strange, because any normal car is three times faster than an oldimer.

For the seller of commodity the value is determined by the expenditures needed to produce it (or to buy it from someone else).

In the context of economics both positions are irrelevant. Relevant is only the market price. For a more detailed discussion see cardinal measurement of utility. Both Charlies have no clue of economics.

For Charly I, the one who wrote three big volumes full of nonsense, the whole world is a big enigm. (We repeat: Karl Marx himself is not the stunning phenomenon. The stunning phenomenon is, that such a nonsense was taught over 50 years in any socialist country. How it is possible that over such a long periond nobody became aware that it is completely nonsense. That's a really astonishing psychological fact.)

Ein Ding kann Gebrauchswert sein, ohne Wert zu sein. Es ist dies der Fall, wenn sein Nutzen für den Menschen nicht durch Arbeit vermittelt ist. So Luft, jungfräulicher Boden, natürliche Wiesen, wildwachsendes Holz usw.

aus: Karl Marx, Das Kapital I, 1.Kapitel, Die Ware
A thing can have a value of use without having a value. This is the case if its use for man is not mediated by work, as it is the case for air, virgin soil, natural meadows, growing wild wood.

No, not at all. Air, virgin soil, natural meadows, growing wild wood, water, sunlight etc. costs nothing as long as the supply is so abundant, that there is no need to pay for it. As long as there is as much wood that everybody can satisfy his needs, it is hard to induce someone to pay for it. Nobody will pay for something, he can get for free.

If it becomes scarce, a discrimination is needed. That means that the one with the best weapons get it, the government assign it to someone or some people can pay more than others. The amount of labour is completely irrelevant in this story. As long as soil is scarce, the sheperds can use it to graze their sheeps for free. If it becomes scarce, they have to pay for it, but in both cases there is no labour materialised in the soil.

The only thing that can be said is that from the moment on that something needs labour in order to be available, it is scarce in a certain sense, because it is not available in any amount and the labour needed must be paid, otherwise it will not be produced. But that doesn't mean that just any commodity where labour is materialised has a value, although it may be the subjective impression of the people who produce it that this is the case. If other goods were prefered or if there is no demand at all, it has no value or to more precise, no market price.

In general discrimination through prices is the most efficient system for two reasons. First a discrimination throug a lottery is possbile. The picture of Dégas would therefore go to the winner of the lottery, although he is not interested in painting at all still less in impressionism. If a price has to be paid, the one who pays the highest price will get it. That doesn't mean that he can appreciate it, but at least he recognizes that the painting has a value. The second point is more important: The fact that a price is to be paid guarantees that resources are used economically. If things are taken by brute force, there is a tendency to vaste resources.

For Charly the fact that there is a value relationship between the commodities is a mystery and the only way to explain this big mystery is by the labour materialised in these commodities. A bottle of vine is worth three bottle of Coca Cola because in a bottle of vine three times more labour is materialised than in a bottle of Coca Cola.

Reality is not so mysterious and enigmatic. In the real world we have market prices, not "values". And if the price for a bottle of vine is three dollars and the price for a bottle of Coca Cola one dollar, than we get three bottles of Coca Cola for one bottle of vine. It the price of a bottle of vine is fifty dollars, than we get fifty bottles of Coca Cola, even if in the first bottle of vine as much labour is materialised as in the second bottle. There is no mystery nowhere.

The only interesting point is the fact that the relationship of prices are based on experiences of the past. People who change 5 bottles of vine for 50 bottles of Coca Cola because the bottle of vines costs 10 times more than a bottle of Coca Cola in the present, assume that this will be the case as well in the future. Otherwise they will change based on the price they expect in the future.

We don't doubt that for Charly economic issues are a mystery. That's always like that. The more stupid someone is, the less he understands, the more mysterious things appear.

Das Geheimnisvolle der Warenform besteht also einfach darin, daß sie den Menschen die gesellschaftlichen Charaktere ihrer eignen Arbeit als gegenständliche Charaktere der Arbeitsprodukte selbst, als gesellschaftliche Natureigenschaften dieser Dinge zurückspiegelt, daher auch das gesellschaftliche Verhältnis der Produzenten zur Gesamtarbeit als ein außer ihnen existierendes gesellschaftliches Verhältnis von Gegenständen. Durch dies Quidproquo werden die Arbeitsprodukte Waren, sinnlich übersinnliche oder gesellschaftliche Dinge. So stellt sich der Lichteindruck eines Dings auf den Sehnerv nicht als subjektiver Reiz des Sehnervs selbst, sondern als gegenständliche Form eines Dings außerhalb des Auges dar. Aber beim Sehen wird wirklich Licht von einem Ding, dem äußeren Gegenstand, auf ein andres Ding, das Auge, geworfen. Es ist ein physisches Verhältnis zwischen physischen Dingen. Dagegen hat die Warenform und das Wertverhältnis der Arbeitsprodukte, worin sie sich darstellt, mit ihrer physischen Natur und den daraus entspringenden dinglichen Beziehungen absolut nichts zu schaffen. Es ist nur das bestimmte gesellschaftliche Verhältnis der Menschen selbst, welches hier für sie die phantasmagorische Form eines Verhältnisses von Dingen annimmt. Um daher eine Analogie zu finden, müssen wir in die Nebelregion der religiösen Welt flüchten. Hier scheinen die Produkte des menschlichen Kopfes mit eignem Leben begabte, untereinander und mit den Menschen in Verhältnis stehende selbständige Gestalten. So in der Warenwelt die Produkte der menschlichen Hand. Dies nenne ich den Fetischismus, der den Arbeitsprodukten anklebt, sobald sie als Waren produziert werden, und der daher von der Warenproduktion unzertrennlich ist.

aus: Karl Marx, Das Kapital I, 1.Kapitel, Die Ware
A commodity is therefore a mysterious thing, simply because in it the social character of men’s labour appears to them as an objective character stamped upon the product of that labour; because the relation of the producers to the sum total of their own labour is presented to them as a social relation, existing not between themselves, but between the products of their labour. This is the reason why the products of labour become commodities, social things whose qualities are at the same time perceptible and imperceptible by the senses. In the same way the light from an object is perceived by us not as the subjective excitation of our optic nerve, but as the objective form of something outside the eye itself. But, in the act of seeing, there is at all events, an actual passage of light from one thing to another, from the external object to the eye. There is a physical relation between physical things. But it is different with commodities. There, the existence of the things quâ commodities, and the value relation between the products of labour which stamps them as commodities, have absolutely no connection with their physical properties and with the material relations arising therefrom. There it is a definite social relation between men, that assumes, in their eyes, the fantastic form of a relation between things. In order, therefore, to find an analogy, we must have recourse to the mist-enveloped regions of the religious world. In that world the productions of the human brain appear as independent beings endowed with life, and entering into relation both with one another and the human race. So it is in the world of commodities with the products of men’s hands. This I call the Fetishism which attaches itself to the products of labour, so soon as they are produced as commodities, and which is therefore inseparable from the production of commodities.


Karl Marx supposed that he was the first to discover this mystery. The merchandises have an interior force, the exchange value, that can't be seen, but who reflects the social relationships. This mystery is still more mysterious than the processing of light by the eye, because in this case there are two bodies, the thing we see and the eye where the light waves are processed. This is very different than what happens with merchandises, because the fact they are related to each other cannot be seen.

It is to suppose that Charly was indeed the first one who discoverd this mistery, because only for him it is a mystery and an inexistent mystery can't be discovered.

From a commercial point of view the costs taken into account in a concrete situation depend on the decision to be made. If a company decide whether it produces a merchandise or not, all the costs are to be taken into accountn. If the the decision to produce the product is already been taken and all the equipment needed is already bought, only the costs with a direct impact on production are taken into account.

Let's say the production of the merchandise A) requieres an equipment that costs 1000 dollars and any unit of product A) produces costs of 10 dollars. Let's say the market price is 12 dollars. The contribution margin is therefore 2 dollars and the company has to sell 2500 units to reach the break even point, in other words, to recover the 5000 dollars spend on equipment. If they erred concerning the market price, if the market price is only 11 dollars, they will sell continue to produce it anyway, because at least the will recover part of expenditures for the equipment. What they are not going to do, at least if they have some training on costing, is to take the costs of equipment into account when it comes to decide a further unit. (We assume that selling it they get the scrap value for this equipment, in other words almost nothing.)

With some highly philosophical theories about the "value" nor a company nor a central planning commission can do anything and the concept was is irrelevant even in socialist countries, although it was taught at all levels. For some basic needs, basic food, housing, medical services etc. the government fixed a price, as it still happens in Cuba (for rice, bread, beans for instance).

This is not an efficient way to guarantee the access to basic needs. It is more intelligent to have the resources allocated by the markets and to redistribute the result of the market, see social market economy.

The whole theory of Charly is based on the assumption made on the first 100 pages of the first volume of The Capital. There is no need to read the whole 3000 pages, because the basis of th the theory is already wrong. Completely wrong, in any aspect including the ones we don't discuss here. Actually an even bigger problem are his assumptions concerning "capital". We don't address this topic here, because we have already discussed it several times in the chapter about classical theory, see for instance interest rates.

We are very happy to learn that a merchandise has to be useful for something, otherwise it has no value. Even in marxism it therefore not possible to produce completely useless things. However the term value of use is meaningless, because it knows only two states: useful or useless. That's all what Marx can tell us about the demand side and that is not enough. It is well possible that as much labour is needed to produce a flower as is needed to produce a kilo of potatoes, but if people are hungry, the buy potatoes. Both have a value of use, both have the same amount of labour materialised, but both aspects are completely irrelevant. The only relevant aspect is the market price and the market price depends on the cost of production and the demand, in other words on the preferences of the consumers.

Andrerseits müssen sie sich als Gebrauchswert bewähren, bevor sie sich als Wert realisieren können. Denn die auf sie verausgabte menschliche Arbeit zählt nur, soweit sie in einer für andre nützlichen Form verausgabt ist. Ob sie andren nützlich, ihr Produkt daher fremde Bedürfnisse befriedigt, kann aber nur ihr Austausch beweisen.

aus: Karl Marx, Das Kapital I, 2.Kapitel, Der Austauschprozess
At the other side they have to have a value of use before they can get a value, because the labour invested only counts if it has been used in a form that serves the needs of others and if it is suited to satisfy foreign needs. This becomes only proved if it is exchanged.

Marx realised, and that's a deep insight, that a farmer who grows potatoes will never know if someone wants his potatoes if he stays in his farm sitting on his potatoe sacks. He has to bring them to the market in order to know whether someone wants them. However that's all he has to find out. It his potatoes have a value of use, he can sell them for just any price. The best thing he can therefore do is to put as much work as possible in the growing up of this potatoes and to work as inefficient as possible, because that increases the value.

It is not really astonishing that Karl Marx never found a job, but if we follow the marxist theory, it is really astonishing that the agricultural sector became diminished in the last 100 year in comparison to GPD. Following Marx it would have been enough to increase the amount of labour in this sector in other words to be more inefficient. That would have increased the value of agricultural products.

In the previous chapter about the decreasing marginal utility, see Carl Menger, the author said that this concept is so simple and trivial, that even a five year old child understands it and that is actually true. However some people, as for instance Charly, don't understand it.

Let's repeat the issue in five sentences, for a more detailed discussion see Say's Law. The sloping downward demand curve can be explained in two different ways. The first explanation is based on the decreasing marginal utility. That means, that the amount sold can only be increased, if the costs of production and therefore the market price decreases. The second explanation assumes a competition between the alternatives of consumption. The cheaper a product, the better the changes that a competing alternative is kicked out.

What is to be said about the demand side is not very complicated, however it is a bit more complicated than just stating that a commodity must have a "value of use", because that doesn't explain what happens in the real world.

Before we learn how the objective economic laws of socialism leads inevitably to a situation where capitalism and capitalists fall as ripe fruit from the tree and the workers guided by marxist-leninist party take over the power we need to understand the role of money.

We already feared the worse, but it actually it is still worse. Charly suffered from a labour psychosis. He saw labour everywhere and behind everything.

Der Geldkristall ist ein notwendiges Produkt des Austausch-prozesses, worin verschiedenartige Arbeitsprodukte einander tatsächlich gleichgesetzt und daher tatsächlich in Waren verwandelt werden. Die historische Ausweitung und Vertiefung des Austausches entwickelt den in der Warennatur schlummernden Gegensatz von Gebrauchswert und Wert. Das Bedürfnis, diesen Gegensatz für den Verkehr äußerlich darzustellen, treibt zu einer selbständigen Form des Warenwerts und ruht und rastet nicht, bis sie endgültig erzielt ist durch die Verdopplung der Ware in Ware und Geld. In demselben Maße daher, worin sich die Verwandlung der Arbeitsprodukte in Waren, vollzieht sich die Verwandlung von Ware in Geld.

aus: Karl Marx, Das Kapital I, 2.Kapitel, Der Austauschprozess

Money is a crystal formed of necessity in the course of the exchanges, whereby different products of labour are practically equated to one another and thus by practice converted into commodities. The historical progress and extension of exchanges develops the contrast, latent in commodities, between use-value and value. The necessity for giving an external expression to this contrast for the purposes of commercial intercourse, urges on the establishment of an independent form of value, and finds no rest until it is once for all satisfied by the differentiation of commodities into commodities and money. At the same rate, then, as the conversion of products into commodities is being accomplished, so also is the conversion of one special commodity into money.


The weird style sounds very scientific, althought he tells nothing but nonsense. He wants to say that the price for three apples is one pen, because in one pen is materialised as much labour than in three apples. In his logic almost anything can serve as money. We can as well say that a computer has the same value as 1000 pens, a car has the value of 10 000 pens and so on. For practical purposes money was invented, first gold and silver coins, which were scarce by nature, and than fiat money, which is scarce because a governmental institution restricts the amount produced.

Actually this is nothing more than a variation of the quantity theory of money. Money is considered only as a means of payment. He assumes that commodities are converted in money (" also is the conversion of one special commodity into money..."). In reality it is the other way round. Money is converted into products. FIRST we have money and then the product.

To put it simple: If people get their money at the beginning of the month or at the end of the month before, the products they want to buy three weeks later don't exist at the moment they get the money. (To be more precise: A large part of them doesn't exist, but actually it is not necessary that they exist at the moment they get the money.) However the producers know from experience that people have money and will produce what they want to buy in three weeks.

That may sound ridicolous, but it is important. If we assume, that commodities are converted in money, than the only way to get money for investments is to produce something before. Without products, no money, without money, no investments. If the opposite is true we can produce money first and then the corresponding products. For a more detailed discussion see the little book downloadable from the startsite of this website or interest rates.

He sticks completely to the classical, neoclassical concept of money and capital. Besides all the other arguments already mentioned, it is therefore difficult to see why marxism is considered tha opponent of classical- and neoclassical theory. He shares with classical- neoclassical theory the same fundamental errors.

[We put aside Adam Smith. Adam Smith was well aware that money is not a pure veil, but he didn't see the consequences triggered by giving up this thesis. See balance of payment.]

The fun side of marxism is that just anybody can become a capitalist. No qualification is needed to become a capitalist. Some money is helpful, but not really necessary as we will see later on.

Let's assume that someone is unemployed. Let's assume that he needs 1000 dollars per month to survive, to reproduce his labour force, as Carlos calls it, or to buy the things he need. In order to get these 1000 dollars we assume that he had to work 100 hours a month. We employ him, but due to the fact that we are capitalists, we make him work 160 hours, although we pay him only 1000 dollars. That means, that in the commodities he produces are materialised 160 hours of labour, but he gets only 100 hours. The 60 remaining hours are the added value and this is for us, because we are capitalists.

It can be argued that it is not as simple as described here, because only in the case that we exchange the commodities, we get money for them. This is completely wrong. It is enough that the commodity has whatever value of use to get the whole 160 hours in cash. It is not even necessary that we have any qualification to become a capitalist. The capitalist doesn't have any. He is capitalist, because he decided to become a capitalist. That's all.

From now on we are capitalists. As long as our employee doesn't realise that he is exploited and decides therefore to become a capitalist himself, this system works perfectly. In order to get rich the decision to become a capitalist is enough.

Obviously we are not going to employ a dead worker, because a dead worker can't produce any added value. We have to read Karl Marx carefully before becoming a capitalist, otherwise we can make big mistakes in our capitalist career.

Der Wert der Arbeitskraft, gleich dem jeder anderen Ware, ist bestimmt durch die zur Produktion, also auch Reproduktion, dieses spezifischen Artikels notwendige Arbeitszeit. So sie Wert, repräsentiert die Arbeitskraft selbst nur ein bestimmtes Quantum in ihr vergegenständlichter gesellschaftlicher Durchschnittsarbeit. Die Arbeitskraft existiert nur als Anlage des lebendigen Individuums.

aus: Karl Marx, Das Kapital I, 2.Kapitel, 3.Kauf und Verkauf der Arbeitskraft

The value of labour-power is determined, as in the case of every other commodity, by the labour-time necessary for the production, and consequently also the reproduction, of this special article. So far as it has value, it represents no more than a definite quantity of the average labour of society incorporated in it. Labour-power exists only as a capacity, or power of the living individual. Its production consequently pre-supposes his existence.


We have to know that the labour force exists only if the workmen is alive. Dead workmen are worth nothing. This is something so important, that Charly put it still more clearly.

Der Eigentümer der Arbeitskraft ist sterblich.

The owner of labour-power is mortal.


That point must be clear. We never become capitalists if we employ dead workers.

The quality of the labour can be a problem. However qualified work, perhaps difficult to find, is only multiplied simple labour. If we don't find qualified labour, we employee simple labour and multiply it with the marxist multiplier, in other words, we employ more simple labour.

The marxist solution for the problem, invest labour in order to create multiplied labour, seems less inteligent. In this case the the added value would be accumulated in the head of the workers and they can go away and furthermore, why accumulate labour in the head of the people, if we can get to the same result by multiplying simple work?

Um die allgemein menschliche Natur so zu modifizieren, daß sie Geschick und Fertigkeit in einem bestimmten Arbeitszweig erlangt, entwickelte und spezifische Arbeitskraft wird, bedarf es einer bestimmten Ausbildung oder Erziehung, welche ihrerseits eine größere oder geringere Summe von Warenäquivalenten kostet. Je nach dem mehr oder minder vermittelten Charakter der Arbeitskraft sind ihre Ausbildungskosten verschieden. Diese Erlernungskosten, verschwindend klein für die gewöhnliche Arbeitskraft, gehn also ein in den Umkreis der zu ihrer Produktion verausgabten Werte.

aus: Karl Marx, Das Kapital I, 2.Kapitel, 3.Kauf und Verkauf der Arbeitskraft
In order to modify the human organism, so that it may acquire skill and handiness in a given branch of industry, and become labour-power of a special kind, a special education or training is requisite, and this, on its part, costs an equivalent in commodities of a greater or less amount. This amount varies according to the more or less complicated character of the labour-power. The expenses of this education (excessively small in the case of ordinary labour-power), enter pro tanto into the total value spent in its production.


Good news! First of all the costs of production of qualified labour is small, at least concerning simple labour. We would have a problem if the whole capital consists actually ONLY of human capital, it producing commodies is not a big problem, given that we are able to produce it. We therefore take only simple labour. Even with simple labour we can produce something with a value of use and if something has a value of use, we can sell it. The fact that the value of our commodity is less, because we used only simple work and the value of our commodity is therefore inferior to the value of a commodity where multiplied labour is materialised is not a big problem. We sell more of our simple labour and get to the same result. If a thing has a value of use, the demand is infinitive. States Charly.

One could argue that some money is needed to become a capitalist, because otherwise it is not possible to employ workers. But Charly has has already resolved this problem. The workmen are paid after the work is accomplished, not before. If we pay them at the end of the production process, we can pay them. Being a capitalist is the paradise on earth.

In allen Ländern kapitalistischer Produktionsweise wird die Arbeitskraft erst gezahlt, nachdem sie bereits während des im Kaufkontrakt festgesetzten Termins funktioniert hat, z.B. am Ende jeder Woche. Überall schießt daher der Arbeiter dem Kapitalisten den Gebrauchswert der Arbeitskraft vor; er läßt sie vom Käufer konsumieren, bevor er ihren Preis erhält, überall kreditiert daher der Arbeiter den Kapitalisten.

In every country in which the capitalist mode of production reigns, it is the custom not to pay for labour-power before it has been exercised for the period fixed by the contract, as for example, the end of each week. In all cases, therefore, the use-value of the labour-power is advanced to the capitalist: the labourer allows the buyer to consume it before he receives payment of the price; he everywhere gives credit to the capitalist.


Being perverse capitalists we will pay for the reproduction of capital only at the end. This is possible. Charly said it.

What complicates a little bit our career as capitalists is the fact that we don't have any capital, in other words nor capital C, machinery, tools, building, raw materials etc. nor variable capital to employ the workers we squeeze out like lemons. However we learned already that the lack of variable capital is not a big problem, see above. We pay at the end.

Charly actually doesn't say how much capital C is needed. We assume that an old computer we have already in the basement is enough. In front of that computer we put our employee who will do a simple work that we multiply afterwards. He will programm us a nice apps that delivers tourist information about the environment getting its position by GPS. If someone is for instance in front of the Puerta del Sol in Madrid he gets all the information about the puerta del sol. Furthermore it works a tourist guide. We will sell this app through any android store and the appel store. (It has undoubtly a value of use. We can therefore sell it any price at any amount. The simplified word is copied everytime someone downloads the app, so it never uses its value.)

We can therefore calculate our earnings using this formula.

C = c + v (capital = constant capital constante + variable capital)

Dies vorausgesetzt, kehren wir zurück zur Formel C = c + v, die sich in C' = c + v + m
und eben dadurch C in C' verwandelt. Man weiß, daß der Wert des konstanten Kapitals im Produkt nur wieder erscheint.

Karl Marx, Das Kapital I, 3.Kapitel, 7. 1. Der Exploitationsgrad der Arbeitskraft
Under these assumptions we go back to our formula C = C + v which becomes C'=c + v + m and this way C becomes C'. It is known that the value of the constant capital only reappears in the product.

C is the money invested in our computer. This money we don't get back. If we sell our app we only get back the money to subsitute the computer if it stops working. v is the money we invest in labour and this is the money that actually yield a profit, because the worker works more hours than would be needed to "reproduce its workforce". In simple terms, to satisfy his basic needs. The difference between what is needed to keep him alive and what he actually gets as wage and what he actually produces is m. (m = Mehrwert in english it is generally translated with s like surplus value.)

Let's say that our computer costs 720 dollars. (That's the value we declare in our tax declaration. Actually the computer is worth nothing.) In our case C is all the money or capital, for Charly the same thing, we need, beside the costs for the internet access and electricity.

Let's calculate the profit we get in one month. C is the constant capital, we only get back. That make, if we assume that our computer works three years, ((720:3)/12) = 20 dollars, 25 dollars for the access to the internet and 30 dollars electricity. v corresponds to the 1000 dollars we pay to our employee, the multiplied simple work.

The surplus is something completely independent from the demand. If our app has value of use, we can sell it for just any price. Modestly we fix the revenue at 2000 dollars. That means the surplus value is 100 percent.

We get therefore.

little c = 700 + 20 + 25 + 30
little v = 1000
m = 2000 - 1000 = 1000
therefore C = c + v ==> 1775 = 775 + 1000
and C' = c + v + m ==> 2775 = 775 + 1000 + 1000

And this is the end of the story. Without any qualification and without money we became capitalists. We have produced a surplus out of nothing and if we really wanted, we could had even earn more, because given a use of value, people pay just any price, demand is irrelevant.

In other words, Charly is completely mad. Marxism is not a critique of capitalism, it is song of praise for capitalism. Everybody can become a capitalist without any effort, qualification or capital and if we all become capitalists, all the problems are resolved. People who are exploited, just have to take the heroic decision to become a capitalist.

This "theory" is even worse than the theories of David Ricardo that at least sometimes contains a little bit of truth. With David Ricardo he shares the idea that th 'capitalist' doesn't have to pay his workers more than the subsistence level given that the competition between the workers is always strong enough to keep wages at the lowest possible level and that the product of labour is higher than what the workers get paid. As David Ricardo and almost all classical authors Karl Marx assumes that only labour creates a value.

That is even nonsense in a very philosophical and abstract sense. The value of something depends on the demand. Someone can lay on the beach somewhere and get a genious idea for a marketable product and he can earn millions of dollars with this idea. Someone can put one brick over the other and construct a house. Depending on the price of the house, he earns money. However the labour is of a very different kind.

If the thesis of Karl Marx were true, if the surplus were a constant rate, the economic development could indeed be predicted with some simple equations and would be steady. However economic development is characterized by unpredictible quantiative and qualitative leaps.

Furthermore innovations very often are the product of "brain" and there is no capital needed to produce them, but the result of these genious ideas can be protected by law and can therefore have a very concret economic value and this value belongs to individuals and not to the capitalist.

Last not least, even if the basic theory were true and the production structure is more and more concentrated on some view companies, what is not true, these companies can and are actually somehow "socialised". They belong to the stock holders. In theory it is not very difficult to reach a wider distribution of the stocks. The problem is, that the "opressed" workers don't want to have stocks, because that is too risky and if they invest money, they invest money in the construction of houses. Any other thing is too complicated for them and too risky.

It is not as easy as Charly assumes to become a "capitalist". There are a lot of entrepreneurs without capital, but there are very, very few capitalists without entrepreneurial skills. That is actually the big problem. More entrepreneurs are needed.

Summarising: The basic steereing mechanisms of a market economy should be understood and Karl Marx not only didn't understand them, but he believed that these issues are irrelevant. It was only after socialist regimes get to power, that socialist started to think about about the problem how to steer an economy.

It is often said, that in China and Japan governmental intervention was strong and that these economies are and were very successful. That is true, but these economies were competing with other economies and therefore there was a steering mechanism. If the "capital" belongs to the government or to stock holders, doesn't make a big difference. In both cases the companies were ran by managers, in other words by entrepreneurs without capital and there wages depended and depend on their success.

A governmental run companies can be controlled by competition and in this case this is not even a big problem. The problems beginn if there is no control a all, as it happens in the public administration, see preliminaries.

There are a lot of different perspectives from where "capitalism", actually free market economies, are critisized in the public debate and all of them are legitimate. However it should be clear, from what perspective it is criticized. If we mix everything with everything, a meaningful debate is not longer possible. For confuse reasons people are against "capitalism" and for confuse reasons, they are in favour of "capitalism".

"Capitalism" can be criticized from a sociological perspective. An economic order that is based on competition has a tendency to convert everything in an object, including the subject itself. There is for instance a tendency in the culture industry, movies, television, newspapers, radio etc. to deliver to the people what they "want" and what they want is obviously what the undestand without effort. They adapt themselves to the "demand". However cultural artifacts as well as information are only useful, if they contain a new message and what is new, requires an effort. Talking about the wheather requires no effort, but the conversation is forgotten the next day. Talking about The Waves by Virginia Woolf requires a lot of effort, but is never forgotten. Information about the love affairs of english princes are easy to consume, that's why they sell like bread. Information about the todays financial crises are difficult to understand, but have a crucial impact on the live of the people. If the culture industry gives to the people what they want, it defraud people, because the product doesn't contain what it suggests. For a more detailed discussion see Theodor Adorno.

The lack of "vision" can equally be criticised. This is even a problem for the people who criticise "capitalism". These people, for instance the Club of Rome, assume that an increase in economic growth lead to an increase of resources. That is hard to see. It is for instance possible, to give an example, that people invest more money in "personal services", culture, sports, learning etc.. That would lead to economic development as well, but the only resources needed are food and at least in industrialised countries we have to much of it. We will address this topic again in the chapter about Ernst Bloch.

And of course it can be criticised as well from a purely economic perspective. Classical - and neoclassical theory make two different statements. The first is about the steering mechanisms. This is never criticised, not even in marxism. It is simply ignored, but not criticised. The others statements concern the concept of capital, money, savings, interest rates. These concepts are completely, but really completely refuted by keynesianism. See the little book downloadable from the start site of this website.

Another perspective is the one taken by the austrian school and neoliberalism. They underline the relevance of the steering mechanisms imposed by a market economy, however the focus is different. In classical- and neoclassical theory these mechanisms guarantee the optimal allocation of resources. It is about efficiency. Neoliberalism and the austrian school is about freedom. In other words, even if market economies were less efficient, they would be preferable, because free market economies are the best guarantor for freedom. For a more detailes discussion see Friedrich Hayek and Milton Friedman.

Charly distinguishes between the added surplus rate and the profit rate. The difference is the denominator of the fraction. The denominator of the surplus rate is the variable capital v, which is the money spend for paying the workers. (m/v). In the case of the profit the denominator is the whole amount of capital or money (m/c+v)).

addeed surplus rate = m/v * 100
in our example
addeed surplus rate = 1000 / 1000 * 100 = 100

The profit rate corresponds more or less to what we would call today return on investment (earnings / total capital invested).

[In practise it is a little bit more complicated, because the abrasion must be calculated by depreciation.]

The problem with the marxist term is, that there no way to calculate m or s (m if we stick to the german term, s if we take the english term). m can actually only be something we know ex post, but never ex ante. In other words, although Marx denies it, what is actually relevant is the market price. m depends on the market price, not on the labour materialised in the products.

The term variable costs, v = variable costs, is misleading in this context. Variable costs depend on the output, in other words, in opposite to fix costs, they change if output is increased or decreased, but this is true for a lot of costs, for instance for the costs of raw materials.

Raw materials are attributed by marks to the constant costs, c, but only a part of the constant costs are really constant. In other words, he used the term he found in literature, but used them in a way that is incompatible with their original meaning.

[We are not going to enter in the details of costing and controlling. Actually the terms variable costs and fix costs are misleading when it comes to make commercial decisions. In a concrete situation only the costs have to be taken into account, that are relevant for this concrete decision.]

If we stick on with our example the profite rate is this.

profit rate = (m/(v + c)) * 100
with c = 720 Euro, 25 Euro access to the internet, electricity 30
profite rate = ((1000 /( 1000 + 775)) * 100 = 56 por ciento

Si se tomara el trasto marxista en serio, lo que nadie hace, se debería calcular esta plusvalía y para esto se necesitaría saber, cuál es el mínimo vital para una familia con por lo menos dos hijos, porque el concepto de la 'reproducción' no incluye solamente que potencial de trabajo se 'reproduce' sino también la cantidad de obreros. (Un obrero muerto no sirve para nada, como Carlos nos ha enseñado arriba.) Pero cuantas horas necesita un obrero para reproducir su potencial de trabajo y reproducirse a si mismo? Trabajan ambos, padre y madre, o solamente el padre?

There are an infinite number of mistakes in this formula. They are nonsense from the beginning to the end. The biggest error is perhaps, that the error Karl Marx shares with all classical authors, that he doesn't distinguish between capital and money.

There are a lot of jokes about socialism.

The seven miracles of socialism.

There is no unemployment in East - Germany.
However only half of the employees are actually working
Although only half of the employees are actually working
the economic plan was accomplished
Although the economic plan was always accomplished
it was impossible to buy anything
Although it was impossible to buy anything
everybody was happy
Although everybody was happy,
there were a lot of manifestations
Although there were a lot of manifestations
the government was always reelected with 99,9 percent of the votes

Some components of ideologies we have already seen in the chapter about Léon Walras. It seems that people get impressed by a confuse, little clear and obscure style. A style of this type sound very "scientific". People very often are not able to distinguish between a situation in which the author describes really complicated things and therefore difficult to understand and a simple concept described in a confusing way.

In the next paragraph he tells us, that companies employ people to produce something, that is useful. Who would had though that?

Der Gebrauch der Arbeitskraft ist die Arbeit selbst. Der Käufer der Arbeitskraft konsumiert sie, indem er ihren Verkäufer arbeiten läßt. Letztrer wird hierdurch actu sich betätigende Arbeitskraft, Arbeiter, was er früher nur potentia war. Um seine Arbeit in Waren darzustellen, muß er sie vor allem in Gebrauchswerten darstellen, Sachen, die zur Befriedigung von Bedürfnissen irgendeiner Art dienen. Es ist also ein besondrer Gebrauchswert, ein bestimmter Artikel, den der Kapitalist vom Arbeiter anfertigen läßt. Die Produktion von Gebrauchswerten oder Gütern ändert ihre allgemeine Natur nicht dadurch, daß sie für den Kapitalisten und unter seiner Kontrolle vorgeht. Der Arbeitsprozeß ist daher zunächst unabhängig von jeder bestimmten gesellschaftlichen Form zu betrachten.

Karl Marx, Das Kapital I, 5.Kapitel, 1.Arbeitsprozess
The capitalist buys labour-power in order to use it; and labour-power in use is labour itself. The purchaser of labour-power consumes it by setting the seller of it to work. By working, the latter becomes actually, what before he only was potentially, labour-power in action, a labourer. In order that his labour may re-appear in a commodity, he must, before all things, expend it on something useful, on something capable of satisfying a want of some sort. Hence, what the capitalist sets the labourer to produce, is a particular use-value, a specified article. The fact that the production of use-values, or goods, is carried on under the control of a capitalist and on his behalf, does not alter the general character of that production. We shall, therefore, in the first place, have to consider the labour-process independently of the particular form it assumes under given social conditions.

The added surplus rate m / v is constant, if we put aside what Karl Marx calls the extended production, this rate is constant. Furthermore Marx assumes that the part of c becomes bigger and bigger and therefore the profit rate must decrease. With that we obtain a contradiction which has the effect that in the third volume Karl Marx says exactly the opposite from what he said at the beginning.

added surplus rate: m/v
profit rate: m/(c+v)

It is obvious that the profit rate is smaller than the added surplus rate and the bigger c, the smaller the profit rate. He assumes that c increases in the long run and therefore the profit rate decreases, although the added surplus rate remains the same.

Dieselbe Rate des Mehrwert, bei unverändertem Exploitationsgrad der Arbeit, würde sich so in einer fallenden Profitrate ausdrücken, weil mit seinem materiellen Umfang, wenn auch nicht im selben Verhältnis, auch der Wertumfang des konstanten und damit des Gesamtkapitals wächst.

Karl Marx, Das Kapital III, 13.Kapitel, 1.Gesetz des tendenziellen Falls der Profitrate
This is how the same rate of surplus-value would express itself under the same degree of labour exploitation in a falling rate of profit, because the material growth of the constant capital implies also a growth — albeit not in the same proportion — in its value, and consequently in that of the total capital.

The problem of Karl Marx is, that this doesn't happen. His problem is that under his assumptions, that we are not discuss here, the profit rate must be different depending on the different organic composition of capital. That is not the case.
He admitts therefore himself in the third volume that the whole theory is wrong, although the explanation given for that is strange. Now all the capitalist together are a big stock corporation and the "capitalist" get paid as if they had shares in this very big company. In other words, every stock is paid the same dividend.

This is pure phantasy. The problem is this. In the course of history the profit rate in some branches will decrease, for instance in the clothing industry, to illustrate this with a prominent example, and in others it will increase, for instance in the computer industry. The average however will remain the same. This is completely compatible with market economies. The productive factors will be reallocated, following the demand. The average profit rate remains constant in the course of history, at least if there are enough innovations, but the single stock holders don't get an average dividend. They get very different dividends depending on the success of the companies.

Obgleich daher die Kapitalisten der verschiednen Produktionssphären beim Verkauf ihrer Waren die in der Produktion dieser Waren verbrauchten Kapitalwerte zurückziehn, so lösen sie nicht den in ihrer eignen Sphäre bei der Produktion dieser Waren produzierten Mehrwert und daher Profit ein, sondern nur so viel Mehrwert und daher Profit, als vom Gesamtmehrwert oder Gesamtprofit, der vom Gesamtkapital der Gesellschaft in allen Produktionssphären zusammengenommen, in einem gegebnen Zeitabschnitt produziert wird, bei gleicher Verteilung auf jeden aliquoten Teil des Gesamtkapitals fällt. Pro 100 zieht jedes vorgeschoßne Kapital, welches immer seine Zusammensetzung, in jedem Jahr oder andern Zeitabschnitt den Profit, der für diesen Zeitabschnitt auf 100 als den sovielsten Teil des Gesamtkapitals kommt. Die verschiednen Kapitalisten verhalten sich hier, soweit der Profit in Betracht kommt, als bloße Aktionäre einer Aktiengesellschaft, worin die Anteile am Profit gleichmäßig pro 100 verteilt werden und daher für die verschiednen Kapitalisten sich nur unterscheiden nach der Größe des von jedem in das Gesamtunternehmen gesteckten Kapitals, nach seiner verhältnismäßigen Beteiligung am Gesamtunternehmen, nach der Zahl seiner Aktien. Während sich also der Teil dieses Warenpreises, der die in der Produktion der Waren verzehrten Wertteile des Kapitals ersetzt und mit dem daher diese verzehrten Kapitalwert rückgekauft werden müssen, während dieser Teil, der Kostpreis, sich ganz nach der Auslage innerhalb der respektiven Produktionssphären richtet, richtet sich der andre Bestandteil des Warenpreises, der auf diesen Kostpreis zugeschlagne Profit, nicht nach der Masse Profit, die von diesem bestimmten Kapital in dieser bestimmten Produktionssphäre während einer gegebnen Zeit produziert wird, sondern nach der Masse Profit, die auf jedes angewandte Kapital, als aliquoten Teil des in der Gesamtproduktion angewandten gesellschaftlichen Gesamtkapitals, während eines gegebnen Zeitraums im Durchschnitt fällt.

Karl Marx, Das Kapital III, NEUNTES KAPITEL Bildung einer allgemeinen Profitrate (Durchschnittsprofitrate) und Verwandlung der Warenwerte in Produktionspreise

Thus, although in selling their commodities the capitalists of the various spheres of production recover the value of the capital consumed in their production, they do not secure the surplus-value, and consequently the profit, created in their own sphere by the production of these commodities. What they secure is only as much surplus-value, and hence profit, as falls, when uniformly distributed, to the share of every aliquot part of the total social capital from the total social surplus-value, or profit, produced in a given time by the social capital in all spheres of production. Every 100 of an invested capital, whatever its composition, draws as much profit in a year, or any other period of time, as falls to the share of every 100, the Nth part of the total capital, during the same period. So far as profits are concerned, the various capitalists are just so many stockholders in a stock company in which the shares of profit are uniformly divided per 100, so that profits differ in the case of the individual capitalists only in accordance with the amount of capital invested by each in the aggregate enterprise, i. e., according to his investment in social production as a whole, according to the number of his shares. Therefore, the portion of the price of commodities which replaces the elements of capital consumed in the production of these commodities, the portion, therefore, which will have to be used to buy back these consumed capital-values, i. e., their cost-price, depends entirely on the outlay of capital within the respective spheres of production. But the other element of the price of commodities, the profit added to this cost-price, does not depend on the amount of profit produced in a given sphere of production by a given capital in a given period of time. It depends on the mass of profit which falls as an average for any given period to each individual capital as an aliquot part of the total social capital invested in social production.



Suddenly all the capitalists are shareholders of a national stock company. The added surplus in the respective company has become irrelevant. The capitalists get the share that corresponds to the capital invested. That's nonsense. The return on investment is very different in each branche and the owner of this capital gets different dividends. That was the case in the time of Karl Marx, is the case today and will be the case in the future. There is no redistribution at this level and there was never a redistribution on this level. What is true indeed is that in the long run the productive resources will move to the sector where the (monetary) marginal revenue is higher with the effect, as a tendency, it is the same in all branches, see natural price. Even if we admitt that the shareholders of a national stock company serves only as an illustration, the basic idea is wrong.

He assumes that the "organic composition" of the capital becomes worse and worse, in other words that the part of c increases, what leads to a decrease of the profitrate, because only v creates an added value. If this part decreases, the profitrate must fall. However he assumes himself that this is not the case. He explains that by the fact, that the competition leads to an equalisation. He doesn't explain what he means by that, but it is possible that "capital", moves into branches where the "organic composition" is still better.

As in the theory of Adam Smith there is therefore a tendency for the equalisation of the productive resource labour, but the explanation is weird. In the work of Adam Smith it is the market price, that depends on demand, which leads to a reallocation of resources. Karl Marx affirms, that it is a change in the "organic composition" of capital, that leads to a reallocation. In other words, labour should go to the branches where the "organic composition" of capital is better. Unfortunately the opposite is true. Labour goes to the branches where the "organic composition" of capital is worse, because the "organic composition" of capital is completely irrelevant.

Marx assumes that in branches with a better "organic composition" of capital the profitrate is higher, because more labour is employed, relatively, and only labour produces an added surplus. Unfortunately the opposite is true. The worse the "organic composition" of capital, the higher the profit.

Infolge der verschiednen organischen Zusammensetzung der in verschiednen Produktionszweigen angelegten Kapitale; infolge daher des Umstandes, daß je nach dem verschiednen Prozentsatz, den der variable Teil in einem Gesamtkapital von gegebner Größe hat, sehr verschiedne Quanta Arbeit von Kapitalen gleicher Größe in Bewegung gesetzt werden, werden auch sehr verschiedene Quanta Mehrarbeit von ihnen angeeignet oder sehr verschiedne Massen Mehrwert von ihnen produziert. Demgemäß sind die Profitraten, die in verschiedenen Produktionszweigen herrschen, ursprünglich sehr verschieden. Diese verschiednen Profitraten werden durch die Konkurrenz zu einer allgemeinen Profitrate ausgeglichen, welche der Durchschnitt aller dieser verschiednen Profitraten ist. Der Profit, der entsprechend dieser allgemeinen Profitrate auf ein Kapital von gegebner Größe fällt, welches immer seine organische Zusammensetzung, heißt der Durchschnittsprofit. Der Preis einer Ware, welcher gleich ist ihrem Kostpreis plus dem im Verhältnis ihrer Umschlagsbedingungen auf sie fallenden Teil des jährlichen Durchschnittsprofits auf das in ihrer Produktion angewandte (nicht bloß das in ihrer Produktion konsumierte) Kapital, ist ihr Produktionspreis. Nehmen wir z.B. ein Kapital von 500, davon 100 fixes Kapital, wovon 10% Verschleiß während einer Umschlagsperiode des zirkulierenden Kapitals von 400. Der Durchschnittsprofit für die Dauer dieser Umschlagsperiode sei 10%. Dann wird der Kostpreis des während dieses Umschlags hergestellten Produkts sein: 10c für Verschleiß plus 400 (c + v) zirkulierendes Kapital = 410, und ihr Produktionspreis: 410 Kostpreis plus (10% Profit auf 500) 50 = 460.

Karl Marx, Das Kapital III, NEUNTES KAPITEL Bildung einer allgemeinen Profitrate (Durchschnittsprofitrate) und Verwandlung der Warenwerte in Produktionspreise

Owing to the different organic compositions of capitals invested in different lines of production, and, hence, owing to the circumstance that — depending on the different percentage which the variable part makes up in a total capital of a given magnitude — capitals of equal magnitude put into motion very different quantities of labour, they also appropriate very different quantities of surplus-labour or produce very different quantities of surplus-value. Accordingly, the rates of profit prevailing in the various branches of production are originally very different. These different rates of profit are equalized by competition to a single general rate of profit, which is the average of all these different rates of profit. The profit accruing in accordance with this general rate of profit to any capital of a given magnitude, whatever its organic composition, is called the average profit. The price of a commodity, which is equal to its cost-price plus the share of the annual average profit on the total capital invested (not merely consumed) in its production that falls to it in accordance with the conditions of turnover, is called its price of production. Take, for example, a capital of 500, of which 100 is fixed capital, and let 10% of this wear out during one turnover of the circulating capital of 400. Let the average profit for the period of turnover be 10%. In that case the cost-price of the product created during this turnover will be 10c for wear plus 400 (c + v) circulating capital = 410, and its price of production will be 410 cost-price plus (10% profit on 500) 50 = 460.


This sentence is actually strange: " These different rates of profit are equalized by competition to a single general rate of profit, which is the average of all these different rates of profit."

The problem is, that the basics of his theory are wrong. Charly doesn't explain us what he actually understands by "are equalized by competition." If he means that the prices and therefore the profits decreases, he admits that the profit has nothing to do with the the added surplus squeezed out from the workmen. There is no simple labour and multiplied simple labour. There is only a market price for labour that depends on supply and demand. He can stick to his thesis of the multiplied simple work, but the causal relationship in any case is this: First we have a market price and then the multiplier and not the other way round. In other words, the multiplier explains nothing.

If he means that a reallocation will happen until the "organic composition" is the same everywhere, he should had proved that by empirical data. The problem is, it can't be proved. There is a mouvement from the branches with a very good "organic compostion of capital" to branches from a bad "organic composition of capital" for instance from agricultural to industry and not the other way round. In other words, the "organic composition of capital" is completely irrelevant.

Actually the profit rate can increase or decrease in the long run. That depends on a lot of issues, but we don't have to discuss that here. The point is that Marx believed that it is constant what shouldn't be the case if his theory is true. He himself realised therefore that his theory is contradictory and tried to resolve that problem. However he didn't do that by questioning the basics of his theories, but by introducing more weird assumptions and that is perhaps something typical for economic thinking.

False assumptions leads to contradictions and in order to resolve this contradictions still more false assumptions are needed. That's how he got to more than 3000 pages.

But still more strange is this question: "The price of a commodity, which is equal to its cost-price plus the share of the annual average profit on the total capital invested (not merely consumed) in its production that falls to it in accordance with the conditions of turnover, is called its price of production."

The anual average profit is in any case the result of competition. He gets therefore after two thick volumes of trash to the formula we find in just any textbook about microeconomics.

profits = turn over - costs

This is obviously true, but 1 minute is enough to explain that.

In order to make his text look more "scientific" he adds another topic that is completely irrelevant in this context, the rotation of capital. If 10 dollars are invested and these 10 dollars come back in one year yielding 5 dollars the profit rate is 50 percent. If the the 10 dollars come back every 3 month and yield a profit of 5 dollars the profit is 200 percent. The problem is, that this makes it still more complicated to find the multiplier that converts simple labour in complex labour.

The problem is, that Charly has no clue of economics. In the next chapter he explains us, that the production price includes the profit. First of all, the term production price is nonsense. The price of commodity is what people pay for it if they buy it. The supplier have costs and if the market price is higher than the costs, he earns something and has a profit.

What is posible is that he has to pay interest rates for the capital he uses, in the case that he borrowed capital, or that he calculates with internal interest rates in case that he works with his own capital, but in both cases the interest rates are part of the costs and not of the price.

Der Preis einer Ware, welcher gleich ist ihrem Kostpreis plus dem im Verhältnis ihrer Umschlagsbedingungen auf sie fallenden Teil des jährlichen Durchschnittsprofits auf das in ihrer Produktion angewandte (nicht bloß das in ihrer Produktion konsumierte) Kapital, ist ihr Produktionspreis.

The price of a commodity, which is equal to its cost-price plus the share of the annual average profit on the total capital invested (not merely consumed) in its production that falls to it in accordance with the conditions of turnover, is called its price of production.

All the problems we find already in the theory of David Ricardo are radicalised by Karl Marx. The explanation given by David Ricardo for the decreasing profit rate IN THE LONG RUN, in the above chapter Karl Marx is talking about the phenomenon that the profit rate is the same everywhere at a given moment, is that the organic composition of the capital becomes worse, the percentage of c, that yields no added surplus, becomes bigger. The basic problem is, that there is no relationship between the "organic composition" of capital and the profits. Profits can be very hight with no constant capital at all, for instance in the software industry and with no variable capital at all, for instance if the whole work is done by computers.

The theory of David Ricardo is wrong as well, he assumes that it will become more and more expensive to produce food and therefore the "capitalists" has to pay higher wages. This is at least logically coherent, although wrong.

There are such a lot of errors in both theories, that it is impossible to discuss them all. Throughout this manual we have discussed already a lot of them, for instance all the problem related to the concept of capital, see interest rates. These problems they have in common with all the classical and neoclassical authors, see the little book downloadable from the start site of this website.

Compared to the classic- and neoclassical authors the main error is this. Both assume that only labour creates added surplus although they assume competition between the "capitalists". The problem is, that labour alone doesn't yield any profit in a situation of competition, because prices will decrease until all the profits have vanished.

Profits are only possible if some companies are more efficient than others. Given a certain demand a certain amount must be produced. That allows less efficient companies to enter the market. There will only one market price, but the cost structure is different and the more efficient companies will get a producer surplus, see equilibrium in the short run and equilibrium in the long run. This situation will not last eternally. In the long run the "marginal producer" will be as efficient as the others and the producer surplus will be reduced or even vanish completely.

We have throughout this manual very often criticised the neoclassical theory. We have said as well that the methodological approach is similar to the approach of Kark Marx, see methodological approach, but most of all the neoclassical authors shares with Karl Marx the wrong concept of capital, see interest rates. We have said as well, that the idea that the wage can never exceed the (monetary) marginal output is trivial, because that includes as well that a equilibrium on the labour market is even given if the wage is at subsistence level and below. We are more interested in raising the the (monetary) marginal output of labour than decreasing the wage. In both cases we reach an equilibrium on the labour market, but increasing the (monetary) marginal output is more comfortable, although beyond economic thinking.

However in comparison to marxism neoclassical thinking is more realistic. In marxism labour produces an added surplus independently from the market price. That leads to the problem that the profit rate is equal, although it should be different if the "organic composition" of capital is different. In order to explain this contradiction, Marx assumes competition between the companies without though explaining if they will reduce the price or reallocate their capital. However there is no need to puzzle what he actually meant, because the organic composition of capital is irrelevant for the profit.

Beside the problem that the value of labour depends on the demand, the concept of value of use can't substitute demand, see above, both, David Ricardo and Karl Marx, assume that labour or workers are never scarce. If they are scarce, they define the conditions under which they want to work and under this perspective neoclassic theory is more realistic.

It is true that companies will never pay a price that exceeds the (monetary) marginal output, but is true as well that the employ people until this point is reached. That doesn't mean that the pay less, but that doesn't mean either that they pay it. Only in the case that the demand is fixed, for instance in the cleaning industry, and the supply of workforce abundant, labour is paid with a wage at subsistence level.

Even if we assume, something that has proved to be wrong, in industrialised countries the population is decreasing, that the population increases, only under the special assumption of David Ricardo, lack of food, a decrease of the wage to subsistence level is plausible. Population can increase and labour can continue to be scarce, especially in some branches.

The whole theory of Karl Marx is based on the assumption that labour is always so abundant, in all branches, that competition reduces wages to subsistence level. There is no logical argument that can prove this thesis and most of all, there is no empirical evidence. If the workers get paid the whole value of their work, there is no added surplus for the capitalists, if there is no added surplus for the capitalists, there is no accumulation of capital.

The whole marxism is based on this assumption and this assumption is wrong.

The real problem of economics, who decides who produces, what, how for whom is ignored by both, David Ricardo and Karl Marx. This became a very practical issue after the russion revolution. All the productive means belonged to the people, but there was no steering mechanism. For a more detailed discussion see the little book downloadable from the startsite of this website.

Actually we didn't address in this chapter this chapter the more important problems with marxisms. The concept of capital, savings, money, interest rates. These errors marxism shares with all the other authors nowadays assigned to classical or neoclassical theory and therefore we address these issues in several other chapters, for intance in the chapter interest rates.

If the profit rate is decreasing, increasing or remains the same is irrelevant. The relevant question is whether the profit rate is higher or lower than the interest rates and the interest rate is determined on a completely different market, the money market. As long as the profit rate is higher than the interest rate, companies will invest, whatever the "organic composition of capital".

The really interesting question is how marxism was able to become the oficial religion in socialist states. The author doubts that we can learn anything about ideologies by analysing the content as Karl Popper assumes. Popper assumes that the problem is that someone believes to have an idea of the perfect world and to be in the possession of the eternal truth. Therefore he feels as little need for a democratic decision making process as a physician who had already proved cientifically that his theories are right.

The author would say that ideologies are a much more complex problem and that there are much more ideologies than the ones he mentioned in "The oben Society and its ennemies". Ideologies can't be analysed by their content, but by the mechanisms they use to get and stay in power. Even the methodological approach, independently from the content, can serve to stay in power.

If we abstract for instance from everything that can't be modeled mathematicaly, we get to the conclusion that in a situation of unemployment wages has to decrease in order to correspond to the (monetary) marginal output. The opposite, increasing the (monetary) marginal output points to variables that can't be mathematically modelled. To give an example. If we consider everything that cannot be mathematically modelled as unscientific, we serve the employers.

There is no empirical evidence for the theories of Karl Popper. If they were true the "elites" of socialist countries should had been been well acquainted with the marxist theory. Someone who believes that, doesn't know none of the relevant personalities of these countries and beside that marxism contains nothing about how to steer an economiy from a practical point of view. The general affirmation that "money is a crystal formed of necessity in the course of the exchanges, whereby different products of labour are practically equated to one another and thus by practice converted into commodities" is of no help when a central bank has to determine the amount of money needed.

After the fall of the wall in 1989 the authors of these lines gave lessons to ex professors of the Humboldt University of Berlin and these people had really no clue about marxism and beside that they were not interested in knowing anything about it. The author doesn't know what they have done for 50 years. Perhaps they taught the marxist jargon, but not the content.

The same thing happens on the other side, at the side of the market fundamentalists, as we can see by looking this video, Augusto Pinochet. Augusto Pinochet identifies with neo liberalisme or the austrian school, but its speach is pure emotion, nationalism and similar abracadabra.

The problem is that the chileans, similar to the germans after the fall of the wall, lost the opportunity to study the phenomenon of ideolgies. It is to assume that there is not a big difference between the secret police in Chile under the dictatorship of Pinochet and the secret police of Germany in East-Germany. The "values" they defended may had been different, but the mechanisms were the same.

The comments under the video shows, that people are overstrained by democratic decision making. That is a phenomenon we can observe all over the world. There is a tendency to simplify complex problems by focusing on persons which are the cause of the problems or the solution. Actually persons are never the problem. If poorly qualified person get to power or well qualified persons don't get to power we have a systemic problem.

Popper reduces the phenomenon of ideologies to a pure cognitive problem. He supposes that ideologist are simply misstaken and that it is possible to convince them with arguments. If this were true, we would have a discussion about the right economic order during the cold war. We didn't had it, because the content of an ideology, as far as it is the basis of a political regine, is irrlevant.

We will return on th topic in the chapter about Popper. However without going into detail it is quite obvious that Plato and Hegel had never been the basis of an ideology as the basis of a dictatorial regime, because beyond a very restricted circle, nobody read them and lines of thinking that are completely ignored, can't be the basis of anything, that is obvious.

Perhaps Karl Popper took Platon, Karl Marx and Friedrich Hegel only as examples, but even than it is wrong. Dictatorial regimes and especially totalitarian regimes, which try to controll the whole lives of the individuums, have always some kind of ideology, nationalism, religion, market radicalism, anti imperialism, socialism etc.. but the content doesn't play any role. It is useless to preach to a market radicalist that there are problems the market alone can't resolve as it is useless to preach to catholic fundamentalist that humanity doesn't inherited the original sin or to a islam fundamentalist that there are several Allahs and in some religions even a whole team of them.

The second mistake of Karl Popper is the assumption that democracy alone will lead to a better understanding of complex social processes. He compares democracies to an experiment in science. Someone has an idea how to resolve a problem, he convinces the majority that this is going to work, he puts his ideas in practice and by the result we know if the theory was right or not.

What we see in practise is something different. We don't deny that there is an improvement, but in a large part we see the "eternal recurrence of the same". People are unhappy with the "conservatives" and therefore the vote for the "socialists". Than they are unhappy about the "socialists" and the vote again for the "conservatives" and so on. The discussion is always never about errors in thinking, but on personalities.

Some discussions are older than the green hills of Africa. Right now for instance Marine le Pen, see Marine Le Pen sur Europe 1 Front National demands more protection for the french economy. In other words, the leader of the (extrem) right Front National demands the same thing as François Mitterand, the leader of the french socialist party twenty years before, without the positive results expected. The only effect of a protection of the national industry was and would be that the french consumers pay more. (We took Marine Le Pen as an example. Everybody can found hundred of similar examples in a few minutes.) It is to assume that Marine Le Pen knows that this is not going to work, but her clientel likes that, although they pay the bill. A progress would be if the french consumer would understand, that protection of the national industry is good for french companies and bad for the french consumer.

Karl Popper considers democracy as a systemic solution, similar to the market economy, where indeed the resources are allocated automatically in the optimal way, see allocation of resourcers. This is however misleading. The voter doesn't get an immediate benefit if he makes the right choice the day of election and he has therefore no incentive to get informed. Democracy is something that has to be promoted by the education system, the mass media etc.. See preliminaries. We will return on the topic in the chapter about Hayek.

The only systemic feature of a democracy is the fact that it only assign power for a restricted time. An abuse of power is therefore difficult, although not impossible. If all political parties agrees for instance silently in creating more and more bureaucracy, and they have good reasons to do that, then bureaucracies will increase until a new party appears. However democracy alone doesn't leads automatically to an improvement of a more qualified decision making. The qualitiy of democratic decision making is as good as the qualification of the voters allows it to be. Democracy means therefore something more than voting every few years. Democracy need active promotion.

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Marx refutes differences in the quality of labour and the importance of demand. By refuting this, he refutes as well the importance of a decentral information processing through prices. Actually from a practical point of view marxism is useless, because the problem how an economy should be steered is not even addressed.

In the first two volumes the value of a commodity depends already on the amount of the labour materialised in this commodity. In the third volume it depend on the costs generated by the production of this commodity and an added profit. This corresponds more or less to a market price and is not compatible with the preceding two volumes.

The fact that the profit rate is the same in a certain period everywhere contradicts his thesis that the profit depends on the organic composition of capital. The solution he founds for this problem is incompatible with the rest of his theory.

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