Last updated: February 19, 2019
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Marx Economics, Final Exam


1. First, explain carefully how Marx uses the concepts of labor and labor power to show how and why surplus value arises in capitalism.  Second, explain the connection of your answer to the concept of class exploitations.

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Marx explains labor and labor power by stating that all labor is worth the same amount, because all humans work together to produce things.  Therefore, all labor is human labor power (Marx states at the end of Section 1).  Marx also shows that the value of products changes depending on many different variables.  One of these variables is that if the quantity produced increases, the value of each item decreases.  This is one of the most important pieces of capitalism, the inverse value idea.  If all people are working, which Marx says is the only true productive labor, then there will be a surplus of items produced.  Different classes can be exploited because all of the people are working towards one common goal, producing the goods necessary for society.  Thus, the workers labor is not shown to be any different no matter how much they really work, or who works.  So, workers can work an incredible amount of time and the value of what they produce does not change.


2. What is Marx’s explanation for why different commodities equal one another in a certain ratio, e.g., why today one Mercedes Benz equals 50,000 toothbrushes.


Marx uses the example of 10 yards of linen vs. a coat.  The value of the coat is in its workmanship, the special productive activity that allowed it to be produced.  Marx points out that man made clothes for hundreds of years before tailors existed.  But tailors have specialized skills now and create with a purpose.  In the example given, producing the Mercedes Benz would require many more workers, with specialized aims, than producing toothbrushes.  The specialized work is multiplied amounts of simple labor, which is what would be used to create toothbrushes (the truth in today’s society is that many of the parts of the Mercedes would be handmade or at least hand-assembled, while the toothbrushes would be made almost entirely by machines).


3. Suppose one individual protects the property and person of another.  How would you determine whether that individual’s labor was productive or unproductive?


Marx defines useful labor as “productive activity of a definite kind and exercised with a definite aim.”  If the individual protecting the property and person of another was doing so because it was actually necessary, and on purpose to protect whatever that person had, then it would be productive labor.  If the person happened to protect the other by accident, without a prior arrangement or any intention, then it would be unproductive labor.  A person must intend to do what s/he is doing in order for productive labor to occur.

Productive labor is generally what a person is looking to do.  Without productive labor, nothing worthwhile has been produced, and it is not worth anything.  A person should not attempt to protect another person or property without a specific purpose in mind, or that labor will be useless.  One can determine how useful the action is by asking questions of the person doing the guarding.

For example, if a person is standing guard at the entrance to another person’s farm, making sure that no animals or people come onto that farm to destroy or take the raw materials that are growing there, then the person is doing productive labor.  They have a specific purpose (i.e. to prevent the loss of raw materials) and are doing an activity of a specific kind (guarding the area to make sure the loss doesn’t occur).  This type of activity would indeed be necessary and useful for a person to do.


4. Merchant, money, and industrial capital have in common a positive profit rate if and when they successfully expand their respective values.  Explain carefully how and why they differ from each other.


Money is a means of exchange with turns goods into commodities with specific value.  The money itself, therefore, is desirable.  Merchants want money in exchange for their goods, so that they receive some sort of trade for what they have produced.  Both are related in that they are both necessary for a transaction to occur.  Without a merchant, there would be no initiator of goods exchange, and without money, there would be no agreed-upon means to exchange with.  Merchants also buy in order to sell more, which changes their role in the exchange because they are doing more than one thing with the goods they are obtaining.  Both the money they use and the goods themselves have value.  Industrial capital is the initial good that is produced, like corn, wheat, etc. before it is changed into anything else.  These initial goods are sold for more than it cost to produce them, which brings about profit.  They can then be turned into the goods that merchants will buy and sell again at a profit.  Money is the means for value and exchange throughout the whole process.


5. First, use the equation K* + Y developed in the course to explain how and why an economic expansion affects the labor power and means of production markets.  Second, explain carefully how and why those affected markets can cause an economic decline.  Third, analyze the two affected markets explaining for each how changed conditions there need not produce the result in your second answer to this question, i.e. the result is not an economic decline.


Economic expansion affections labor power.  A person’s labor power may become more valuable as the market expands, because there is a greater need for labor to produce more goods and services.  It will also affect the means of production, because at some point, there would not be enough labor to produce the necessary goods at cheap enough prices (which would then result in an economic decline, because the money required to produce the goods would outweigh the profit that could be made from producing them).  Economic expansion can also cause companies to need to produce more goods at a cheaper rate, which will be difficult to do without other alterations.  It may also cause new companies to come into the market to produce the good, since there is a new need, resulting in further competition for the existing companies.  If the companies can compete, things may go well – but if they cannot, for various reasons, then things will not go well.

Economic decline will occur if enough labor cannot be gathered to produce the required goods.  The value of labor will have gone up, and so will the production costs.  To combat this problem, means of production can be changed.  That is, the use of machines or other automated processes could be introduced, or the owner of the production could find other ways to streamline the process so that less labor power is required to produce the larger amount of goods.  This will reduce the production costs and also lower the chance of an economic decline.  Producers must keep up with the market’s demands and continually lower production costs, especially as the demand increases in order to prevent economic decline.

In the case of additional companies coming onto the scene, companies must be able to compete with the new companies.  They must offer a better product, a cheaper product, or a more timely product.  However, if this is not possible, economic decline could result here as well.  Companies that are locked into super-competitive strategies are not always able to remain afloat in a market that is expanding.

Employees must look into AVS, or Absolute Value Surplus at this point.  If they can increase the length of their workers’ day in order to meet their production costs, then an economic decline can result.  Alternately, if they are looking into RSV, or Relative Value Surplus, they are increasing their employees’ productivity for the same reason.  Assuming that neither of these is possible, an economic decline will result.


6. Explain as fully as you can the connection between capitalist competition within an industry and the struggle over super profits there.  Your answer should include the connection between each firm’s subsumed class distributions and its competitive survival in the industry.


Competition occurs within every industry.  There are always multiple businesses that are vying for a position in the market, and for profits there.  Super profits would allow a particular business to control the market.  However, super profits come only at a price.  Firms can attempt to drive their production costs down via the use of more raw materials, longer (but cheaper) labor hours, or increased productivity.  However, this may result in an economic decline, as in the previous question.  Class distributions may also affect the business’s strategy, since it depends who the business is aiming at producing for, and who its employees are.  If a business has hired lower class, unskilled workers and is producing primarily for the same audience, then its production costs will be lower, because unskilled workers do not have to be paid as much as skilled workers.  However, it will also mean their profits are lowered, as well, because they also cannot charge as much for the final goods.

The companies also must remain competitive within their areas.  If the company charges too much, then it will go bankrupt because it will not be able to sell its goods and remain competitive in pricing.  However, if it charges too little, it may soon find that its profit margins are not as good as other companies, and it needs to sell far more goods to gain the same amount of profit as other companies do, which in turn increases its need for more productivity from the workers or more employees to produce the goods.  At a certain point the company would not even be able to break even due to employee salaries.  In looking for super profits, the company must weigh the benefits and drawbacks of certain strategies, including incredible lowering of prices.

Also, refer to the previous question.  More companies in the industry means competition is coming from more angles.  This means that companies have to evaluate more strategies and compete on more levels in order to stay in business.  While this type of competition is very good for the consumer, who will probably get cheaper products as a result, it may drive some of the businesses in the industry to lose profits and even shut down.


7. “In each industry, each capitalist’s firm’s struggle there to reduce its average costs via raising its organic composition of capital produces a falling rate of profit for all firms in that industry.  Hence intense competition within industries across the economy can lead to an economic recession.”  Explain fully this statement.


Every firm intends to make profits within their industry, and part of making profits is reducing the production costs.  The cheapest materials that can be used are ones that are produced naturally, i.e. wool, linen, etc.  These raw materials can then be turned into whatever type of good is being produced.  Firms may decide to increase their use of raw materials to cut production costs.

However, this can also cause problems in the industry.  If all the firms are constantly competing to see who can lower their production costs more, and therefore lower their selling costs (to drive business to themselves instead of their competitors), they will eventually find that they are forced to sell at such low prices that it is impossible to compete anymore.  This type of intense competition can actually lead to an economic recession as businesses are forced to accept lower and lower prices for their finished goods.  They will also come to a point where they cannot lower their initial production costs anymore, so this will not help them to recoup the money lost on the other end.

Firms may also attempt to recoup their losses by asking their employees to work longer days, i.e. looking for absolute surplus labor, in order to meet the industry’s demands.  However, if they have to pay their employees more for the longer work days (and they would), they may still continue to lose money, because the extra length of the workday is not producing enough goods to recoup the lost money from the other issues.  This will cause problems for the employers.

An economic recession will occur, then, as the companies are pressing their suppliers for lower prices on raw materials, and as they are being forced to accept lower profit margins when they sell to consumers.  Economic recessions cannot help but occur at this point.  Lower profits for everybody means that the industry cannot make as much money as it needs, and it will go into a decline.



8. “The notion of Relative Surplus Value (RSV) helps to explain why the value profit rate in the economy is pushed up, even as competitive forces also act to push it down.”  Explain fully this statement.

RSV occurs when employers are able to increase their production efficiency so that what once took ten hours to produce, for example, now takes nine.  That is, employees have a given set of costs they must cover daily: raw materials, factory operation, employee salaries, etc.  If the goods they produce that day do not equal the costs they have to cover, then they have lost money.  If the goods equal the production costs, then the factory owners break even.  But if it should happen that the goods exceed the costs, then the factory owners make a profit, and there is surplus labor involved.  RSV, in particular, occurs when this surplus labor happens because of increased productivity from individual workers.

This means that the employees’ production efforts are now worth more to their employees, because they are able to produce the same amount of goods in a lesser time, or a greater amount of goods in the same amount of time.  The value profit rate has risen, because the profits are actually worth more since the production time was less.

However, competitive forces intend to push the value profit rate down because there are still other businesses in the industry who can attempt to compete by also increasing their productivity and then decreasing their final costs in order to gain more of a market share.  This seems like a contradiction, but as labor ends up being more productive and costing companies less, it allows companies to compete more heavily with each other due to lowered production costs and lowered costs on the final goods.  Companies must be careful not to compete too heavily or the difference between the two will become too great.



9. “The notion of RSV helps to explain why workers’ rate of exploitation rose in the US, even though their real wages also rose.”  Explain fully this statement.


RSV is generally the idea that workers’ rate of productivity is increased, so they do not need to work as many hours to produce the same final value.  Employers need to recoup the costs they have spent on materials, wages, etc. by having the workers produce at least as much in terms of goods as they are costing the employers.  Any work time beyond this is considered surplus time (absolute surplus).  But if the rate at which the employee works changes, and the work that used to take ten hours can now be done in nine, as in Marx’s example, then this results in Relative Surplus Value, RSV.

This can explain why the workers’ rate of exploitation would rise even as their wages would rise.  Employers would raise wages for their employees as their production costs went down due to increased length of employee days, and/or increased productivity within the work days.  Once this occurred, though, the rise in wages may not be actually equal to the amount that employers were gaining in profits by having employees who worked longer hours or with greater productivity.  Thus, since the wages paid were not equal to what the workers were owed for their increased productivity, the workers were being exploited by the employers, who were basically reaping greater profits and not sharing enough of them with their employees.

To combat this, the employers should have raised wages proportionally with the increased value of the workers’ time.


10. Use what you have learned in this course to explain the historic connection between competition among capitalists located in different European nations and colonialism and imperialism around the world.

Competition occurs in many different areas of life.  It of course occurs in business, because there are many types of businesses that are necessary for survival, and many that do the same things.  There are two types of competition here: direct competition, say, between two companies that produce furniture.  There is also indirect competition between two companies that produce different but necessary products, say furniture and clothing.  Both items are necessary for life to some degree – one must have clothes to wear a bed to sleep on – but should one not have enough money to buy both at once, or at least not enough to purchase both at a particular level of quality, then one must make a choice about which companies to purchase with.

However, business is not the only way to compete.  European nations have been competing over colonialism and imperialism, too, for some time.  The nations wanted to expand their borders by acquiring new territories throughout the world.  By doing so, they became larger and more powerful nations.  They also maintained a larger “market share” with their new land mass and were more obvious to the other countries.  This led to imperialism, in which countries wanted to maintain control of these new colonies they had started.  This led to different wars when the colonies wanted to become independent.

These situations can be related, because if a European capitalist nation has colonized a new area, they can expand their existing businesses to these areas, and hire employees for potentially less money.  This is another reason why they may wish to keep control over the given areas.  However, as most know, this method of maintaining control was rarely successful.