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March 19, 2008


M Borgschulte

The fall of the Soviet Union and conversion of China to a pseudo-capitalist economy has, somewhat ironically, restored much of the relevance of Marx's critique of the global market economy. With over half of the world living on less than $2/day and a sixth of the world living on less than a dollar/day, it is hard to deny that the benefits of market exchange benefit some groups far more than others. I needn't describe the abundant wealth those of us at the top are surrounded by- if you are reading this, you are most likely thousands of times richer than the majority of the globe, for no other reason than the happenstance of your birthplace.

While Communism was alive as a political and economic system, it was possible to brush aside these disparities, especially because of the oppressive means of control employed by the Communist states, as compared to the relative freedoms of the capitalist systems. However, now that the world has largely turned to the capitalist model, we are once again confronted by the stark reality: wealth is based on a process of historical accumulation that shows little respect for justice, and those people who do not have access to capital have few, if any, options for accumulating the wealth needed to benefit from the global market economy. Working hard in the developing world does not carry with it anything like the returns one can earn in New York City, in large part because of patterns of historical exploitation experienced by the poorest parts of the globe.

Incidentally, Marx's critique bears some resemblance to modern public finance, though his grasp of basic concepts of labor markets and productivity should make any labor economist cringe. A large, unanticipated, one-time levy on existing wealth would be one of the best ways to raise government revenue without distorting the economy. Of course, this would never pass, politically, and we should worry about the moral hazard inherent in one-time schemes. Nevertheless, the idea of a one-time redistribution of accumulated capital would answer Marx's critique of capital as accumulated labor surplus, and sounds remarkably similar to the first few days of the revolution he envisions. (Of course, the PF people wouldn't abolish private property.)

Unfortunately, Marx quite blithely answers the critique of his position any modern labor economist would make- without markets to regulate labor, and coordinate the macro-economy, productivity would suffer, causing exponential losses in total income over any moderate to long period of time. Clark makes just such a point in his grandiosely-titled "Why Nations Fail." The failure of labor productivity to grow under the Communist system ultimately doomed Marx's vision, and still serves as a warning to any economist who thinks they have found a "magic bullet" to cure the world's problems. I believe we economists tend to focus on incremental policy changes, and marginal analysis, precisely because of the failure of Marx's grand utopian vision. This was surely not his intended contribution, but still a useful one for students to absorb. However, it does raise the question- are there reforms which may require dramatic societal changes, which we economists do not consider, because they smack of "revolution?"

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