The economic theories of Karl Marx, born 200 years ago, became unchallengeable doctrine in many countries for much of the 20th century. We take a look at which of his ideas were right — and which were wrong.

The doctrines

Marx’s core idea was that the whole of human history could be explained as a materialist struggle between classes, playing out a zero-sum game over control of the means of production and the distribution of what is produced.

He based this idea on his and Engels’ observation of the exploitation of the 19th century “proletariat,” or factory workers, by factory owners (industrialists), whom Marx termed “capitalists,” or owners of capital.

By “capital,” Marx meant the physical means of production, rather than money (financial capital), though he recognized that it was necessary to first own financial capital in order to buy physical capital.

Marx gave a fair bit of attention in “Das Kapital” to the question of how businessmen initially obtain enough money to buy factories. He termed this “the problem of primitive accumulation,” and showed that it was nearly impossible to acquire an initial fortune by saving up excess money from selling one’s labor.

He argued that the original sources of fortunes large enough to launch a person, or a family, into the capitalist class were almost always some form of theft, such as the seizure and privatization of public lands, acquisition of booty through war, colonialism, enslavement of workers, or financial fraud.

On that score, history shows innumerable examples confirming Marx’s hypothesis. The acquisition of great fortunes by Russian and Eastern European oligarchs who seized public property in the wake of the collapse of state communism is a recent case in point.

Surplus value

In Volume One of “Das Kapital,” Marx said that capitalists made “profits” unfairly, by seizing the “surplus value of labor,” which he defined as the difference between the factory owner’s costs and the money he was able to obtain by selling goods produced in the factory.

Since the workers produced the goods, Marx argued, it was they, not the capitalist, who had a moral claim on earning all the sales revenues. The capitalist was, in this view, essentially a parasite. This led directly to Marx’s fundamental political-economic prescription: The “proletariat” should seize the means of production.

Marx thought this would inevitably occur, in part because the proletariat was much more numerous than the capitalist class, and so would eventually win the “class struggle” — all it needed was sufficient “class consciousness” to recognize the nature of its predicament.

He also argued that in any given domain of industry, competition between capitalists would lead to overproduction, intense downward pressure on prices, and a consequent collapse in net profits.

This presumed tendency for the rate of profit to fall would inevitably lead to crises, because without profits, capitalists would be unable to continue financial accumulation. Capitalism, Marx and Engels thought, was systemically unstable. It would eventually collapse because of its “inherent contradictions,” and give way to socialism, in which the means of production would be owned by the producers (the workers).

The end stage of socialism would, in Marx’s model, be communism — a system in which private property disappeared altogether, and everything was owned in common. People would freely contribute according to their abilities, and take according to their needs. Marx never explored in detail how that was meant to work — and as it turns out, it didn’t.