Capitalism, Socialism, & Communism

Marx's Analysis of Capitalism:

In an attempt to discover the laws of motion of capitalism, and thus, recognize contradictions within the system, Marx applied his theory of history to the society and economy of his time. In his analysis, he created what are known as the Marxian laws of capitalism. These laws consist of the reserve army of the unemployed, a falling rate of profit, business crises, increasing concentration of industry into fewer firms, and increasing misery within the proletariat. Also in his analysis, Marx assumed: a labor cost theory explaining relative prices, neutral money, constant returns in manufacturing, diminishing returns in agriculture, perfect competition, a rational economic man, and a modified version of the wages fund doctrine. Marx rejected the assumptions of fixed coefficients of production, full employment, and the Malthusian population doctrine. Marx was very critical of capitalism, and his aim was to find faults and contradictions within it. For Marx, the capitalist system produces undesirable social consequences. He claimed that capitalism would fade away over time, as more and more contradictions manifested themselves.

Marxian Laws of Capitalism:

Marx's first law, the reserve army of the unemployed, was his vehicle to explain the existence of surplus value and profits. In Marx's model, as capital accumulation increases, the demand for labor also increases; which consequently raises wage rates. The reserve army of the unemployed keeps surplus value and profits from decreasing to zero. Marx's second law of capitalism, a falling rate of profit, is what he described as the thing that would eventually lead to the destruction of capitalism. Marx showed that as capital accumulation increased, demand for labor also increases, raising wages, thus, the rate of profit will fall. Marx's third law, business crises, had multiple ways of being portrayed or perceived. One of which was different than the others for the fact that it accepted Say's law. In Marx's model, a capitalist economy depends on the behavior of the capitalist. As the rate of profits continue to fall, the capitalists will reduce investment spending, causing a business crisis. Marx saw periodic fluctuations in economic activity as inherent within the capitalist system. He was also aware of the growing size of firms, the weakening of competition, and the growth of monopoly power. he believed these to be the result of increasing centralization of capital, his fourth law of capitalism. This phenomenon occurs when individual capitalists accumulate more and more capital.. Centralization of capital refers specifically to when existing capital is redistributed so that its ownership is placed in fewer and fewer hands. Additionally, there are three different interpretations of Marx's fifth law of capitalism, known as the increasing misery of the proletariat. First, absolute increasing misery of the proletariat happens when the real income of society decreases with the development of capitalism. Relative increasing misery of the proletariat means that the proletariat's share of the national income declines over time. However, the final interpretation has little to do with economics. It states that with the advance of capitalism, the quality of life diminishes as people become chained to the industrial process. 

Defining Capitalism, Socialism, and Communism:

We can see a clear representation of capitalism in our society here in America. It is a system that has worked well for our economy, but there are many different kinds of capitalism. The words capitalism and socialism have general, not really any precise meanings. They combine economic characteristics with ideology; to some they mean good and bad, and to others, they mean bad and good. It is possible to theoretically define these words with precision, but doing so would mean that any given society might not fit the criteria of one term or another, since there are many variations of each. The existing systems of both capitalism and socialism are different than the theoretical ideas of what they should be. Often times, arguments between believers of each system use the theoretical models, rather than existing systems to make their points. Louis Blanc (1811-1882) was one of the first people to use the term socialism, and he described it as an economic system in which all individuals had jobs paying fair wages. Blanc coined the phrase, "from each according to his ability, to each according to his needs." Defenders of capitalism argued against the idea of socialism, claiming that it was incompatible with freedom. One objector to socialism, F. A. Von Hayek, stated that an economic plan like socialism could not come about naturally because planners would have no way of knowing the preferences of everyone in society, and thus, they must necessarily "impose their scale of preferences on the community for which they plan." Even some who are sympathetic to socialism have expressed concerns that Marxist socialist governments fail to allow for political freedom. We have seen this throughout history, in Nazi Germany, Soviet Russia, and even now in North Korea; where socialism and communism take over and the governments become corrupt and the people suffer. What is not clear is whether or not this failure to promote freedom is inherent to socialism, or if it has occured for other reasons. 

In addition to capitalism and socialism, the term communism offers no one exact meaning. However, in the Marxian system, socialism and communism refer to stages in the historical process. One of the chief characteristics of capitalism, according to Marx, is that the means of production are not owned or controlled by the proletariat. Marx claims that this will change with the transition into socialism. Additionally, Marx points out that a remaining vestige of capitalism exists under socialism, that being the use of incentive systems in order to persuade people to labor. Thus, according to Marx, a new system will emerge from socialism in the same way, communism. In a communist society, people would no longer be motivated  to work by monetary or material incentives, and the social classes that existed under capitalism, and to a lesser extent under socialism, would disappear. Under socialism, each individual contributes to the economic process based on his/her ability, and receives an income based on their contribution. Under communism, each individual contributes based on his/her ability, but consumes only to his/her needs. Marx believes that human beings are perfectible and human goodness is being suppressed by the current state of affairs. He argues that markets alienate human beings, and this contradiction in capitalist society will ultimately lead to its overthrow and the institution of a new, non-alienating economic system.

The two opposite ends of the spectrum, while socialism lies somewhere in between.