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Examine three (3) of Karl Marx’s contributions to economic theory and determine how they still impact contemporary economics Answer

Examine three (3) of Karl Marx’s contributions to economic theory and determine how they still impact contemporary economics.

Karl Marx’s contributions to economic theory

1) An ideal economic system would involve exchanges of equal value for equal value, where value is determined simply by the amount of work put into whatever is being produced. Capitalism interrupts this ideal by introducing a profit motive — a desire to produce an uneven exchange of lesser value for greater value.

2) A laborer might produce enough value to feed his family in two hours of work, but he keeps at the job for a full day, in Marx’s time, that might be 12 or 14 hours. Those extra hours represent the surplus value produced by the worker. The owner of the factory did nothing to earn this, but exploits it nevertheless and keeps the difference as profit.

3) In this context, Communism thus has two goals: First it is supposed to explain these realities to people unaware of them; second it is supposed to call people in the labor classes to prepare for the confrontation and revolution.

Karl Marx contributed to economic theory the centralization of capital and concentration of wealth. He stated the falling rate of profit is but one of the insoluble problems of capitalism (Brue & Grant, 2007) . Second the tendency for increasingly sever business crises. (Page 182) He also contributed his theory of “The Law of Motion of Capitalism” and the labor theory of value. He argues that labor is the source of all value and is the starting point to his theory. Marx’s approach to the tendency of the rate of profit to fall was unique. It is rooted in his distinction between constant capital, which merely conserves its existing value—hence the term constant capital—and variable capital, which not only reproduces its existing value but produces surplus value, the sole source of profits and rents including interest and all the secondary incomes that derive from them. There are various forces that counteract the fall in the rate of profit. The rise in the productivity of labor tends to lead to a rise in the rate of surplus value that counteracts the fall in the rate of profit. Second, as the productivity of labor rises, the elements—the commodities—that make up the constant capital, also fall in value.


Deepankar Basu, Panayiotis T. Manolako (2007). Is There a Tendency for the Rate of Profit to Fall? Econometric Evidence for the U.S. Economy. University of Massachusetts – Economics Department Working Paper Series Economics.

Karl Marx appeared to have very similar ideas as it relates to the rate of falling profit. He appeared to agree with not only Ricardo but also Adam Smith and Mill to some extent. Karl Marx believed that the potential destruction of capitalism would be due to a falling rate of profit. Ricardo, Smith, and Mill also predicted that a rate of profit would also fall but over an extended period of time. Marx recognized that under capitalism wages were determined by labor markets, Marx concluded that wages would at first increase and reduce profits, but that capitalists would then eventually use laborsaving technology to to put human workers in competition with machines, thereby driving back down the price of labor.

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