HIST363: Global Perspectives on Industrialization

Marx argued that this alienation of human work (and resulting commodity fetishism) is the defining feature of capitalism. Prior to capitalism, markets existed in Europe where producers and merchants bought and sold commodities. According to Marx, a capitalist mode of production developed in Europe when labor itself became a commodity - when peasants became free to sell their own labor power, and needed to do so because they no longer possessed their own land or the tools necessary to produce a living.

People sell their labor power when they accept compensation in return for whatever work they do in a given period of time (in other words, they are not selling the product of their labor, but their capacity to work). In return for selling their labor power they receive money, which allows them to survive. Those who must sell their labor power to live are "proletarians". The person who buys the labor power, generally someone who does own the land and technology to produce, is a "capitalist" or "bourgeoisie". (Marx considered this an objective description of capitalism, distinct from any one of a variety of ideological claims of or about capitalism). The proletarians inevitably outnumber the capitalists.

Marx distinguished industrial capitalists from merchant capitalists. Merchants buy goods in one place and sell them in another; more precisely, they buy things in one market and sell them in another. Since the laws of supply and demand operate within given markets, there is often a difference between the price of a commodity in one market and another. Merchants, then, practice arbitrage, and hope to capture the difference between these two markets. According to Marx, industrial capitalists, on the other hand, take advantage of the difference between the labor market and the market for whatever commodity is produced. Marx observed that in practically every successful industry, input unit costs are lower than output unit prices. Marx called the difference "surplus value" and argued that this surplus value had its source in the exploitation of laborers, i.e., through paying them "survival wages" rather than what they were entitled to receive.

The capitalist mode of production is capable of tremendous growth because the capitalist can, and has an incentive to, reinvest profits in new technologies. Marx considered the capitalist class to be the most revolutionary in history, because it constantly revolutionized the means of production. But Marx argued that capitalism was prone to periodic crises. He suggested that over time, capitalists would invest more and more in new technologies, and less and less in labor. Since Marx believed that surplus value appropriated from labor is the source of profits, he concluded that the rate of profit would fall even as the economy grew. When the rate of profit falls below a certain point, the result would be a recession or depression in which certain sectors of the economy would collapse. Marx believed that during such a crisis the price of labor would also fall, and eventually make possible the investment in new technologies and the growth of new sectors of the economy.

Marx believed that this cycle of growth, collapse, and growth would be punctuated by increasingly severe crises. Moreover, he believed that the long-term consequence of this process was necessarily the enrichment and empowerment of the capitalist class and the impoverishment of the proletariat. He argued that if the proletariat would seize the means of production, they would encourage social relations that would benefit everyone equally, and a system of production less vulnerable to periodic crises. In general, Marx thought that peaceful negotiation of this problem was impracticable, and that a massive, well-organized, and violent revolution would in general be required, because the ruling class would not give up power without violence. He theorized that to establish the socialist system, a dictatorship of the proletariat - a period where the needs of the working-class, not of capital, will be the common deciding factor - must be created on a temporary basis. As he wrote in his Critique of the Gotha Program, "between capitalist and communist society there lies the period of the revolutionary transformation of the one into the other. Corresponding to this is also a political transition period in which the state can be nothing but the revolutionary dictatorship of the proletariat".

Marx saw evil originating in in social relations, or social structure, rather than in human beings. As such, he failed to foresee the selfishness of those in the working class, who after seizing "the means of production" would develop a totalitarian system.