Before you read on: where did Karl Marx say an employer's profit comes from?
Marx argued that the value made beyond what covers the wage goes to the employer. Many mainstream economists see profit as a reward for waiting, taking risks and organising production.
- Lived
- Born 5 May 1818 in Trier, Prussia (now Germany); died 14 March 1883 in London
- Nationality
- Born in Prussia (now Germany); lived in London from 1849 until his death
- Work
- Radical newspaper editor; fled to Paris in 1843 and settled in London in 1849, relying on Friedrich Engels for money
- Key works
- The Communist Manifesto (1848, with Engels); Capital, volume 1 (1867). Engels edited volumes 2 and 3 (1885 and 1894)
- School
- Marxism, the body of thought his writings founded, which Engels helped to develop
What Marx was reacting to
Marx studied philosophy at Bonn and Berlin and took a doctorate in 1841. He engaged closely with the ideas of G.W.F. Hegel, then worked as a radical journalist.
His economics grew from a close study of Adam Smith and David Ricardo. Both had held versions of the labour theory of value, the idea that a good's value depends on the labour needed to make it. Marx used it to answer a question he thought earlier writers had left open: how does capitalism as a whole make a profit?
Marx's key ideas
Can you name Marx's four key ideas?
Marx held that a good's value is set by the labour time needed to make it at average skill and pace. A wage pays for only part of the working day. The value made in the rest, surplus value, goes to the employer. In his view this is the source of all profit, and he called it exploitation.
Can you think of an example?
If a worker's daily needs take four hours to make, Marx's account says the first four hours of a ten-hour shift cover the wage and the other six produce surplus value.
Marx divided capitalist society into the bourgeoisie, who own the means of production such as factories, and the proletariat, who must sell their ability to work. In his view, history moves through conflict between such classes.
Can you think of an example?
The Manifesto traced the same conflict through earlier societies: patrician against plebeian in Rome, lord against serf under feudalism.
Competition forces capitalists to keep investing in new methods. Marx predicted that this would concentrate wealth, keep a reserve army of unemployed and bring recurring depressions. He also predicted a falling rate of profit as machines replaced labour, since in his theory only labour creates value.
Can you think of an example?
A mill owner who skips the newest looms is undercut by rivals who buy them. As every mill mechanises, Marx's theory says each pound invested yields less surplus value.
In his early writings Marx argued that capitalism cuts workers off from the product they make, from control over their work, from other people and from their own human nature.
Can you think of an example?
A warehouse picker follows a route set by software and owns none of the goods. Marx would say she is cut off from both the product and the work.