Marxian Economics
in comparison with Neoclassical Economics
Duong Duc Dai
FTU, June 3rd 2022
1.
2.
3.
4.
5.
6.
Introduction
Labor Theory of Value
Law of Value
Theory of Capital and Surplus Value
The Accumulation of Capital and its effects
Key differences from Neoclassical Economics
2
1. Introduction
• Marxian economics, particularly in academia, is
distinguished from Marxism as a political ideology as
well as the normative aspects of Marxist thought, with
the view that Marx's original approach to
understanding economics and economic development
is intellectually independent from Marx's own
advocacy of revolutionary socialism.[2][3] Marxian
economists do not lean entirely upon the works of
Marx and other widely known Marxists, but draw from
a range of Marxist and non-Marxist sources.[4]
 A Marxian Economist # a Marxist
3
1
Source: 1986 Duncan Foley, Understanding Capital:
Marx’s Economic Theory, Harvard University Press
•
•
•
•
Leo Model Professor
of Economics at the
New School for
Social Research
External Professor at
the Santa Fe Institute
[was] Associate
Professor of
Economics at MIT
and Stanford, and
Professor of
Economics at
Columbia University
PhD 1966, Yale
University
4
•
-
Marxian economics: the study of capitalism
Class struggles
Inequality
Injustice
Workers’ wellbeings
Market economy
Unemployment
The orgirin of surplus value
Uneven economic development
…
5
2. The Labor Theory of Value
• Investigation of Commodity  reveal the
relations of Labor, Value, and Money
6
2
Systems of Production
- Commodity production: Production and
distribution of goods are organized by
exchange
- Commodity production exists in multiple
modes of production and plays an essential
role in capitalism.
7
Systems of Production
- Conditions for the emergence of commodity
production:
+ Social division of labor
+ Economic independence of commodity
producers: Producers decide entirely what, how,
how much effort of labor to produce, and for
whom?
 Force to exchange!
8
Owner of
Firm 1
Worker A
planting
separated
Worker B
raising
Not separated
Owner of
Firm 2
Worker C
planting
Work D
raising
Not separated
9
3
Commodity
+ meet
needs of
human
beings
+ produced
by labor
commodity
+ be
exchanged on
markets
10
The Dual Nature of Commodities
• Use-value: commodities are directly useful to
users.
- Shows itself in consumption
- Is used for and be evaluated by consumers,
not producers.
11
The Dual Nature of Commodities
• Value:
- Created by the expenditure of human labor in
production process  labor time is the
substance of value contained in the
commodities  The labor theory of value.
12
4
Labor value
Common in exchange?
"Whenever, by an exchange, we
equate as values our different
products, by that very act, we
also equate, as human labour,
the different kind of labour
expended upon them. We are not
aware of this, nevertheless we do
it."
1 shoes
5kg potatoes
Karl Marx
Capital, Volume I - Chpt. 1: Section 4
Value
Equally embodied labor
5h
13
The Dual Nature of Commodities
• Value:
- Exchanged commodities have exchange value (the
proportion in which one commodity is exchanged for
other commodities)
- Is abstract  Expressed/measured by money  price
(# exchange value)
- Is socially determined because commodities are
produced under a system of production organized by
exchange.
- Varies over time and space
- Implies the relations of commodity producers.
14
The labor theory of value
• Labor creates value which shows itself in the form of
money.
Example: USA, early 1980s, the aggregate national value
added = $3 trillion (3.000.000.000.000)
Total labor time spent ~= 100.000.000 laborers *
40hours/week * 50 weeks = 200.000.000.000
1 hour of labor added/represented by roughly $15
1$ represents 1/15 hour of social labor  the value of
money (how much labor time the monetary unit
represents)
The value of money varies because of changes in the
expenditure of labor and in the prices of all commodities.
15
5
Which labor creates value?
- Two aspects of labor:
+ Concrete labor (how to
produce?)  produces usevalue
+ Abstract labor (how much
labor power are spent to
produce?)  produces value
16
Which labor creates value?
- Only social labor (which is spent for the
production of commodities actually
exchanged), not private labor, produces
value
 Value is regulated by socially necessary
labor time (the amount of labor time
performed by a worker of average skill and
productivity, working with tools of the
average productive potential, to produce a
given commodity.)
17
Value # Price
• The amount of socially necessary labor
time vs the money represents such amount
• A price may represent more or less the
amount of social labor time embodied in
the commodity  “The ratios at which
commodities actually exchange depend on
the bargaining power of the buyers and
sellers” (Foley, 1986,p.21)
Value
Price
18
6
Things That Have a Price but Contain No Labor?
•
-
Price of renting land
Not price of producing land
Price of not being excluded from the land.
“the rent of land reflects primarily the struggle
over the distribution of control over the
product of social labor” (Foley, 1986,p29)
19
3. Law of value
A general regulative principle that production and exchange of
commodities is dictated by the average amounts of human
labor-time which are currently socially necessary to produce
commodities.
In production: Private labor time ≤ Socially necessary labor time
In exchange: Commodities with equal amount of socially neccesary labor
time are exchanged
Quạt mo
# ba bò và chín trâu;
Quạt mo = nắm xôi ????
# ao sâu cá mè;
# một bè gỗ lim;
# con chim đồi mồi
20
• Operating mechanism: The fluctuations of price around value 
regulates the relation of supply and demand.
• There is no long-run tendency to equilibrium in the market.
value
Price
Cases
Buyers
Sellers/producers
Price < Value
Price is relatively cheap
  ↑buying
  ↓ selling/producing
Price > Value
Price is relatively expensive
  ↓ buying
  ↑ selling/producing
Price = Value


 The relation of price and value predicts the relation of supply and demand
21
7
Impacts of The Law of Value
• Regulating production and exchange of commodities
• Motivating technological innovation, managerial
improverment, labor productivity enhancement, and
price reduction.
• Socially stratifying producers to the poor and the rich
22
Why theory of value is important?
• Plato regarded value as inherent in a commodity
• Aristotle attributed value to a commodity's utility: the
standard of value lies in wants
• Marx: the value of a commodity tends to be the "amount of
labor time socially necessary" to produce it (the amount of
labor required to produce a thing under the normal
conditions of production at a given time). value depends on
the labor embodied in a thing.
• the Austrian theory (Neoclassical): value/price is subjective
value is revealed in particular transactions, no “market value”
 Value as the key determinant of PRICE – the most
essential signal of market
23
4. Theory of Capital and Surplus Value
24
8
Capital
General formula of capital:
M
–
C
–
M
Money – Commodity - Money
In this movement, the point of departure and the point of arrival
coincide at a qualitative level (the capitalist has money at the
beginning and money is what he or she recovers at the end).
The movement would make no sense if there were no quantitative
change involved (more money at the end than at the beginning). Thus
the purpose of the circulation in this case is an increase in value; hence
the general formula can be expressed in the following manner:
M - C - M’
Capital
#
regular money
Value
vs
use-value
25
What is the origin of surplus value ?
- Exchange (Selling + Buying) adds no value to commodities
 Surplus value does not emerge from exchange  Surplus value must be
created outside the sphere of exchange!
M– C – M’
 M – C1 … C2 – M’ (C1 # C2 because M # M’)
C1 : production inputs: means of production + labor-power
C2 : production outputs: commodities
- M must be spent to buy a special commodity that is able to produce surplus
value: labor-power as a commodity
26
Labor-Power as a Commodity
• Labor-Power: the capacity or potential to do
useful labor in production
• Labor: The actual expenditure of human energy
with the aim of achieving a productive end.
 Labor-Power # Labor
27
9
• Conditions for the commodification of labor-power
The worker must be free to
dispose of his or her own laborpower.
 Be able to sell labor-power
The worker is denied access
to means of production
 Cannot exercise laborpower on her own behalf
 Reluctantly sell labor-power
to someone
 Two contidions emerge pervasively in capitalism
28
DIFFERENCE
Surplus Value
Value created in labor process
Value of labor-power (Means of Consumption + Education cost)
The appropriation of surplus value = the exploitation of labor
29
Appropriation of surplus value
• Exploitation of labor # Violence, cheating
• Workers are exploited because they are paid less
than the amount of value that they produce
30
10
– Division of working day
A
v (wage)
B
m (surplus value)
C
AC: A working day
AB: Necessary labor time  v
BC: Surplus labor time  m
32
Mean of
production
M
27$
–
C
…produce.....
27$
C’
–
30$
Labor power
M’
30$
Production
Exchange
Exchange
m does not appear in exchange
m cannot appear without exchange
33
Hypocrisy of Capitalist’s argument
• Wage is the equitable payment for workers
because they get what they contribute to the
production process.
• Higher wage = higher contribution.
• REALLY????
• Do you pay 20 million VND/month for a
worker who can produce an equivalent value
of 20 million VND/month?
34
11
•
Fact: The application of better machines brings higher profit for capitalists, given
that labor input is the same
•
Can it be concluded that such machines create more value for capitalists?
•
In Marxian economics: NO!
•
Better machines HELP improving labor productivity  reduce the expenditure of
labor-power in production  reduce private labor value while producers are still
selling at the price that is equivalent to regular value  better machines help
bringing more profit/value, not add more value to commodities.
35
5. The Accumulation of Capital
• The accumulation of capital is the addition of
part of the surplus-value to capital or the
conversion of surplus value into capital.
36
Accumulation of capital
m1 = 500  consume
Year 1: 4000c + 1000v  4000c + 1000v + 1000m
capitalized m
m2 = 500  accumulate
Year 2: 4400c + 1100v  4400c + 1100v + 1100m
 Initial capital is just a drop in the river of accumulating capital
Surplus-value becomes the source of capital accumulation.
The exploitation of the working class makes capitalist class wealthier
Capitalist relations of production are reproduced at expanding scale
37
12
The consequences of accumulation of capital on
uneven development of capitalism
• Increase organic composition of capital
• Increase agglomeration and concentration of
capital
• Impoverish workers  proletariat
38
• Increase organic composition of capital
1
– Organic composition of capital (c/v): The ratio that
divide total capital into constant capital (c) and variable
capital (v) in the way that both means of production and
labor-power are used efficiently and effectively
– c/v increases while capital is accumulating????
 Potential unemployment
0.
3
7
9
Năm Năm
1
10
c
v
39
• Increase concentration and centralization of capital
- The concentration of capital: The expansion of individual capital by capitalizing
surplus value
year 1
year 2
year 3
year 4
- The centralization of capital: The fusion of a number of capitals into a smaller number
Capital A
Capital B
Capital D
Capital C
40
13
• The accumulation of capital strafifies the levels of income between
capitalists and workers, relatively and absolutely  impoverish the worker
class
$
profit
wage
t
41
6. Brief comparison of
Marxian Economics – Neoclassical Economics
• Different topics of analysis
Marxian: value, surplus value critical analysis of capitalism 
Advocate for a change of society toward better living condition of
people.
Neoclassical: marginal utility, supply, demand…
 Justify the current situation as a normal state
 Accept capitalism as the finest mode of production.
 Propose a benign adjustment rather a revolutionary change even
when it is necessary.
42
6. Brief comparison of
Marxian Economics – Neoclassical Economics
• Different theories of value
Marxian: price based on value, income based on labor (labor
power + surplus value)
Neoclassical: Wants (utility) and scarcity (given technical
production functions and resource endowments) combine to
determine prices and incomes, income = revenue - cost
43
14