Why Did Karl Marx Believe That Capitalism Would Eventually Collapse?

Karl Marx (1811 – 1883) was one of the most influential men that had ever lived on the planet. His Communist Manifesto (1848) led to the Russian Revolution and the Chinese Cultural Revolution resulting in millions of deaths. The question is, why did Karl Marx believe that capitalism would eventually collapse?

The Bourgeoisie and The Proletariat

In order to explain the eventual collapse of capitalism, Karl Marx distinguished between two groups of people, the bourgeoisie and the proletariat. Karl Marx used the term the bourgeoisie to refer to the capitalists who were the people owning capital. In other words, the bourgeoisie were the haves. In economics, capital refers to physical capital which includes factories and machinery rather than financial capital which refers to the money needed to start a business. The distinction between physical capital and financial capital can be learned in economics tuition. An experienced economics tutor can easily help you distinguish between physical capital and financial capital. There are a few experienced economics tutors in Singapore who provide high quality economics tuition. Examples include Mr. Clive Foo who is the economics tutor at Econs Actually and Mr. Gilbert Lee who is the principal economics tutor at Learners’ Lodge. By the proletariat, Karl Marx was referring to the people who did not own capital and therefore had to provide labour to the bourgeoisie. In other words, the proletariat were the have-nots. Competition is the cornerstone of capitalism. However, Karl Marx believed that competition in capitalism would eventually lead to the demise of the capitalist economic system.

Competition

According to Karl Marx, competition in capitalism would force the bourgeoisie to cut prices in order to increase price competitiveness. However, in economics tuition, we learn that a fall in prices, other things being equal, will lead to a fall in total revenue. Assume that total cost remains the same, a fall in total revenue will lead to a fall in profit. Karl Marx argued that in an attempt to cushion the effect of the fall in revenue on profit, the bourgeoisie would cut costs by cutting the wages they paid to the proletariat. However, a fall in wages would reduce the purchasing power of the proletariat which would force them to decrease the demand for goods. The decrease in the demand for goods would lead to a further fall in the prices resulting in a further decrease in the total revenue of the bourgeoisie. The relationship between demand and price, along with the relationship between supply and price, will be taught in economics tuition. In order to cushion the effect of the fall in the total revenue on the profit, the bourgeoisie would further cut costs by cutting wages resulting in a further reduction in the purchasing power of the proletariat. When this happened, the demand for goods would fall further which would lead to a further fall in the prices resulting in a further fall in the total revenue of the bourgeoisie and hence a further cut in the wages of the proletariat, and so on. Karl Marx believed that this vicious cycle would eventually denied the proletariat the means to purchase basic necessities, at which point, would overthrow the bourgeoisie resulting in a collapse of capitalism. Karl Marx referred to the 1789-1799 French Revolution as an example of why capitalism would eventually collapse.

Embourgeoisiement

At first thought, the prediction of Karl Marx seems to make perfect sense which makes one wonder why his prediction has not come true. The reason is because Karl Marx failed to consider embourgeoisiement which refers to the rise of the middle class. Embourgeoisiement will be discussed in a later article and in economics tuition.

Christopher Lau

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