Economic Update: The Contributions of Karl Marx - Part 3

Part 3 of 4 

Professor Wolff takes a deeper look at the life and work of Karl Marx in celebration of the 200th anniversary of his birth.  The full four-part series is available on Patreon:

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Welcome to Part III of this four-part series on the work and contributions of Karl Marx.

Once again, let me remind you that the point in purpose here is not to have you agree or disagree with what Marx wrote, but to become aware of what the perspective of the leading critic of capitalism is, what insights he may have discovered that we can make use of now to improve the economy for all of us. The point is not to agree. The point is to understand and learn from something we should have been studying for the last 75 years but were mostly afraid to do.

Where we left off was on Marx’s basic economic theory—the way in which capitalism as a system reproduces the very dichotomy of a mass of people producing a surplus for a minority of people gathering it into their hands and deciding what to do with it. And that was true of slavery and that was true of feudalism. And it turns out, as Marx teaches us, that it’s also true in capitalism. I want to pick up by asking and answering the question. When a mass of employees produces surplus, that shows up in the hands and rests in the hands of the employers, a very small part of the population, how does it exactly happen and what—here’s the big one—what do the employers do with that surplus delivered to them?

Well, the surplus takes many forms, but the closest word we have to capture the idea is “profit”. In some sense, every business involves revenues—earning money—from selling the fruits of human labor. But by having that revenue be larger than the cost of what we paid the workers and what we spend for the raw materials and the tools and equipment; the revenues, in short, are greater than the costs in a profitable business. And that profit, what’s produced by the workers in that situation, is received by the employers. What do the employers do with it? And how does that produce the kind of society that capitalism exhibits? I’m going to give you a few examples. You’ll be able to supply them yourselves once you get the hang of it.

Let’s start with one I like always to start with. It’s called dividends. Most business in modern capitalist society is done by an entity called the “corporation”. The corporation has shareholders, people who have enough money and wealth to buy one or more shares of that company. They are owners thereby of that company. And how big is their ownership depends on how many shares they can afford to buy. In many large corporations, a part of the surplus—this extra, this profit that the mass of workers has produced, that flows into the hands of the employer—a portion of that is distributed to the shareholders. Now, what’s that distribution called? It’s a dividend. That’s the name we give to it. Let’s be real clear. What contribution has been made by the person who owns a share? What contribution did that man or woman make to producing the surplus in that corporation? The answer is none. They weren’t there. I have no idea how any of it works. They didn’t spend one minute that year in that factory, in that office, in that store. But they got a portion of the surplus produced by workers who did labor delivered to them four times a year by means of a check. That’s a use of this surplus. Why is that done? Well, that’s the reward for those people buying a share. By buying a share they showed a confidence in the company. They showed that they were wealthy enough to buy a share. And the company rewards them. It has the interesting consequence of saying to wealthy people, “Here’s a way for your wealth to grow.” But of course, to use the word “grow” implies that the wealth comes out of itself like a plant as a seed and another plant comes out of that seed. This isn’t that way at all. What these wealthy people have is the means to get a piece of the surplus other people are producing. They get that delivered to them. So now, at the end of the year, they have not only the shares they bought, the wealth in the form of those shares, but they have the addition of the dividends paid to them. How nice for them. The workers, who produced the surplus, they don’t get it. The workers, who produced the surplus watch it being distributed by their employer to people they don’t know, who had nothing to do with the production process. Remarkable.

Here’s another example. The employer can decide to take a big fat portion of that surplus and give it to top executives of the company—the CEO, for example—and give him a pay package of $20, $40, $60, $100 million dollars—not at all uncommon these days in the United States for sure. That’s an interesting way to use the surplus. Let’s be real clear. The massive people produce a surplus. If that surplus were distributed to all of them, they could rise up out of their working conditions and their wealth conditions and become wealthier. But that’s not what happens. The wealth, surplus they produce, doesn’t get distributed back to them, it goes into the hands of the employers and they use it to satisfy themselves to keep themselves in the position of doing what they’re doing. And by giving themselves dividends as shareholders, by giving themselves high pay packages, they make sure they’re wealthy enough to keep being in the position of getting pieces of the surplus. In other words, in capitalism, if you’re getting a piece of this surplus and accumulating wealth, that’s the way to keep getting surplus and the cumulative wealth. Or to say the same thing in the language that masses of people have understood for as long as capitalism has been around: the rich get richer and the poor don’t.

That’s how the system works. There should be no surprise, no shock at all to discover that capitalism is a system that produces inequality. The system is as efficient in producing wealth, at one pole, as it is efficient in producing poverty at another. Every 20 years in every capitalist society, along comes a novelist, a sociologist, a statistician to remind us that there’s an awful lot of poor people around the world, an awful lot of poor people around the United States or wherever else. That anyone who has an illusion that this society makes us all equal, you know, the idea of liberty, equality, fraternity and democracy that we talked about in an earlier segment—those ideas are delusions.

This is a system that produces inequality, because it’s set up to do that. It’s nobody’s mistake, it’s nobody’s cruelty, it’s the way the system works. And that’s a very fundamental understanding that Marx achieved. It led him to the conclusion that if you want, finally, to get rid of the gross inequality that capitalism has always produced, you’ve got to face the difficult, the awkward, even the scary reality that to overcome inequality capitalism itself has to go.

You have to do better than that. As long as you leave the employer–employee division, you’re going to have the same kind of inequality among people that we know, characterized slavery that we know, characterized feudalism and is with us today. “Hint, hint.” But we don’t need to hint, because Marx explains to us, which is why it’s interesting, that we are stuck in a system that keeps reproducing the very thing we say—so many of us—we don’t want.

Marx is also interested in pointing out another feature of capitalism. And here it goes—it’s a wonderful insight of his, comes, in fact, out of his teacher, the philosopher in Germany, named Hegel, who taught that everything is contradictory. Everything about life that we know is a bundle of conflicting ideas, needs, forces, pressures on us. That to be free of contradiction is to be free of life itself. This is an idea that Marx plays with. And he shows us how capitalism illustrates the contradiction. And I’m going to give you that as an example. Marx explains to us that every capitalist is trying to get as much surplus out of his workers as possible. Because the more surplus he has, the more dividends he can pay to keep his shareholders happy, the more high salaries he can give his executives, the more he can keep this system going, because he uses the surplus to reinforce his dominance. So he wants always to get more surplus.

One of the ways you do that is have the workers not work for, as in my example, $20 dollars an hour, but maybe get them to work for, I don’t know, $15 dollars an hour. You get the same amount of output from them, but you give them less, which leaves more for you—the capitalist. And you all know how capitalists do that. Some of them do it by bringing immigrants into the country, whom they can pay less money to. Others do it by employing children or women, who are not used to the higher salaries that men have been able to get in these societies, and so, they’re exploited in that way. Others move to a poor country, where they can get away with paying lower wages. Whatever it is, a good capitalist graduated from a Master of Business Administration program, knows that you’re clever and your good and your successful as a capitalist, if you economize on your labor costs. There are many capitalists, who do that by replacing people with machines, with automation—a computer, a robot—something that is cheaper to get the work done than hiring a worker.

So, capitalists are always looking for implementing, competing over ways to save on labor. It’s the way the system works. And then Marx smiles and says, “Here is the poor capitalist. No sooner are they successful in paying lower wages or no wages at all, then they discover,”—oh my goodness—“the workers, the mass of people don’t have as much money as they used to precisely because we are lowering the wages or replacing them with machines. And when they have less money,”—it comes the punchline, folks—“they can’t buy the very stuff we’re producing to sell. We will have been clever to reduce our labor costs only to discover that we’re driving writing on the stone wall of insufficient demand, insufficient purchases, not enough of a market for what we sell, which can be as destructive of our success as it would have been to pay higher wages.” The system is a contradiction. The very logic imposed on the capitalist undermines the success of the capitalists. And again, Marx’s punch line, “You don’t escape from this contradiction by a law, or a rule, or a regulation, or a behavior pattern, or anything else. This is how the system works.”

And if you don’t want to have periodic collapses of the economy, when capitalists, who’ve been so successful in saving on wages, discover they have no market that people can’t afford to buy it. So then they don’t... can’t sell, and then they lay off workers, because you’ve no point in hiring a worker, if you can’t sell, what the worker helps you produce. And then you fire those workers and, of course, then they have no income and they can buy even less than they could before. And you have that downward spiral we call recession and depression. The system is unstable. Every 4 to 7 years, capitalism, wherever it has come in the history of the world, has produced on average an economic downturn: workers thrown out of work, businesses going out of business—real suffering until the system gets back up again. I like to tell the story that if you lived with a person as unstable as capitalism, you would have moved out long ago.

Marx’s point, “Capitalism is a system that produces and reproduces inequality and capitalism is a system that produces and reproduces instability.” Those two reasons alone, Marx suggests to us, are reasons to question, to challenge, why we should accept a system that works this way. “We could have and we should have,” says Marx, “gone beyond capitalism.” Recognized, as he has figured them out and found them, the contradictions, the inadequacies, and the injustices that this system has bequeathed to us. It’s not that the original ideas of liberty, equality, fraternity, and democracy had anything wrong with him—not at all. Marx was entranced by them as a young person and never gave up on his commitment. What’s remarkable about Marx is that he located in capitalism itself the obstacles to realizing those objectives. And therefore, became the critic to show us what those obstacles were, so we would understand, what kind of changes need to be undertaken to free us from the inequality and the instability that this system cannot escape.

In the fourth and final segment of this four-part series, we will talk about what kinds of changes Marx’s work points to. That might get us out of the failure of capitalism to deliver on liberty, equality, fraternity, and democracy.

Thank you very much. We’ve come to the end of Part III of this four-part series on Marx’s contribution. I hope you have found it of interest. And I ask you, as I always do, please join us. Join the Patreon community we’re a building by going to for the final installment and indeed for several of these installments of this series on the contribution of Karl Marx. Please also note that you can follow us on Facebook, Twitter, Instagram, and through our two websites: and


Transcript by Aleh Haiko
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