Dr. Judd Patton
Associate Professor of Economics, Bellevue University
The Bottom Line - Spring 1990 issue

     Breathtaking historical events are currently sweeping through the Soviet Union and many Eastern European nations. The Berlin wall has been razed! The Communist Party in Hungary voted itself out of existence! East and West Germany will soon be one nation. Even Soviet President Mikhail Gorbachev's economic reform perestroika is trampling on many time-honored tenets of Marxian socialism - central planning, state monopolies, and total government control.

     How can this be? After all, all dedicated socialists believe that capitalism must eventually crumble.  Socialism is the supposed heir apparent - the inevitable wave of the future. Socialist hero, Karl Marx, the father of communism, has so assured them.

     Nevertheless, many socialists are having second thoughts. One outspoken socialist economist shocked many when he stated, "Less than 75 years after it officially began, the contest between capitalism and socialism is over; capitalism has won." (1)

     Has capitalism really won? Are the 1990s a prelude to a 21st century capitalistic world? Has the Communist or Marxist-Leninist vision of a one world communist economic order, where each individual produces “according to his ability” and receives “according to his need,” been smashed by bitter experience?

     The future is forever veiled by the hand of God. Nevertheless, these questions can be addressed forthrightly. First, however, let's be sure we understand Marxian socialist ideology.


     Marxian socialism is best understood as a religious creed. While this may seem ironic, since Marx regarded religion as “the opium of the people,” it is nonetheless accurate.

     Marxism is a blind faith and devotion to the dogma that socialism, and its highest form communism, is bound to come “with the inexorability of a law of nature.” It is, according to Marx, the final goal to which mankind’s history is leading. (2)

     Neither logic not experience can prove or validate this proposition. Indeed, both logic and experience reveal the utter absurdity of socialism-communism as a rational, efficient economic system.  Moreover, Marxian ideology is grounded on a few premises that have long since been logically refuted.

     Thus the key to understanding Marxism, or socialist thought in general, is in its religious nature. According to a revealing article by Ernest L Tuveson, The Millenarian Structure of the Communist Manifesto, both Karl Marx and his compatriot Frederick Engels were strongly influenced by British millenarianism of the 1840s. (3) (Millenarianism is the biblically-based idea that this present evil age will end when the Messiah returns and establishes a 1000 year reign of peace and prosperity.) Instead of a Messiah that puts down evil, Marx theorized that a group of Communists would save the world. They would overthrow the capitalist bourgeoisie and thereby usher in a new age - the final age of history.

     In this view, Marxian communism is an atheized version of religious eschatology (doctrine of the end times). (4)


     Marx provided almost no details as to the implementation and operation of his millennial economy, communism. What he did do was spend a lifetime trying to discover the “laws of capitalist motion.”

     Marx's paradigm or foundation for his “laws” and economic reasoning rest on two fundamental propositions: (1) labor is the sole source of value; and (2) the iron law of wages, the idea that workers under capitalism are predestined to ever receive subsistence level wage rates. The first proposition posits that value and ultimately market prices are determined solely by the amount of labor time embodied in products. Thus, reasons Marx, capitalists (the bourgeoisie) hire laborers (the proletariat) and pay them a daily subsistence wage. For example, a capitalist may work laborers 12 hours a day, but pay them for only 8 hours. The difference is expropriated by capitalist employers as “surplus value” - profit.

     In the Marxian view of the world, capitalists are exploiting parasites! Profit, the engine of capitalism, is evil. It rightfully belongs to the proletariat.

     But won't competition force wage rates to rise? Not so, according to Marx. He argued that capitalism creates a large and growing reserve army of unemployed. This excess supply of labor keeps wages at the subsistence level. The conclusion, then, is obvious. The plight of laborers is hopeless, mired in grinding poverty. Even technological advance accures to capitalists as additional surplus value.

     Fortunately, Marx informs his followers, there is hope. Capitalism contains some inherent “contradictions” or “laws” that seal its doom. Marx’s economic scenario is as follows:
As capital accumulates, the capitalists' rate of profit declines (Contradiction #1: law of the falling rate of profit). To maintain their profit rates, capitalists work their employees longer and harder (Contradiction #2: law of increasing misery of the proletariat). But more production generates unsaleable, surplus products since laborers' wages stay at subsistence. Consequently, capitalists must cut back production (Contradiction #3: law of crises and depressions) and lay off additional workers (Contradiction #4: law of a growing reserve army of unemployed). A depression ensues until these surplus goods have been liquidated. As capitalism evolves, these crises and depressions (business cycles) become more severe. Cutthroat competition then develops among capitalists to stay alive (“capitalists kill capitalists”). Large capitalists take over smaller ones (Contradiction #S: law of increasing concentration and centralization of industry).  Finally, these monopoly capitalists are pressed to seek foreign markets for their surplus products. Using the power of the state, capitalists seek to subjugate other nations to unload their products (Contradiction #6: law of capitalist imperialism). But imperialism leads to wars that weaken the whole capitalist system. The proletariat is now finally in the position to seize power and establish a dictatorship of the proletariat, socialism). Eventually, Marx fantasized, all capitalists and their ideology is crushed by the Socialist state. Exploitation of workers ceases. The dictatorship of the proletariat then "withers away," since it has nothing to suppress, leading to the highest state of economic history, communism. Communism then ushers in a classless age of plenty and a “new man” without greed or selfishness!

     These six contradictions supposedly guarantee the death of capitalism and assure the ascendancy of socialism and ultimately communism. Such is the economics of Karl Marx.


     Marx’s premises, reasoning and prophecies are filled with fallacies. First, labor is obviously not the only source of value. Market prices are determined by supply and demand, and the supply of and demand for goods and services is determined by the subjective judgments of individual producers and consumers. Second, there is obviously no iron law of wages. Wages depend on the value of one’s productivity. As labor productivity has risen historically through saving and capital formation, wages have risen dramatically. Third, profit is earned by entrepreneurs for undertaking business ventures and successfully anticipating consumer wants. Profit is both the incentive and signal for entrepreneurs to employ resources (land, labor, and capital) in a way that pleases consumers. Without the profit and loss mechanism, a rational economic world would not be possible. (5) Rather than being exploitative, profit is the essential prerequisite for economic harmony and growth.

     It follows that since Marxian economic analysis is based on a few false premises, its conclusions built on them collapse as well. There are no laws of capitalist motion - no contradictions. Rather, under free-market capitalism, as history demonstrates, rising living standards for all people are the norm. Business cycles, unemployment, inflation and monopolies are features within capitalism caused by government (socialist) interferences and special privileges. Ironically, imperialism is a Marxist-Leninist policy that hopes to accelerate the “Day of the Proletariat.”

     For a comprehensive refutation and analysis of socialist thought, we recommend Socialism by Ludwig von Mises and The Exploitation Theory of Socialism-Communism by Eugen von Bohm-Bawerk. Both are available from The Foundation for Economic Education, 30 South Broadway, Irvington-on-Hudson, N.Y. 10533, or e-mail:


     In one sense, communism has been dead for decades. The rationale underlying it has been logically demolished and its fallacies exposed. Yet it grew in the 20th century to dominate about half the people on the earth.

     Recent experiences of communist economies suggest, however, communism is dying. If this is true, then one would expect Marxian ideology to be increasingly rejected by more and more people. What, for example, is the view of Mikhail Gorbachev, the leader of the socialist world? Answer, he candidly denies any inherent problem with socialism! He says, "Does perestroika mean we are giving up socialism? Every part of out program is fully based on the principle of more socialism and democracy… the difficulties and problems of the seventies and eighties did not signify some kind of crisis for socialism as a social and political system, but rather were the result of insufficient consistency in applying the principles of socialism, of departures from them and even distortions of them, and of continued adherence to the methods and forms of social management that arose under specific historical conditions in the early stages of socialist development.” (6)

     Perhaps the acid test of communism's imminent demise can be ascertained by the extent to which the ideas of Marxian socialism are being rejected by peoples of all nations: the idea of capitalist exploitation of labor; the idea of business cycles, unemployment, increasing concentration of business, and imperialism as features of capitalism; and the ideas embodied in The Communist Manifesto. The latter document is Marx’s and Engel's blueprint for spreading the socialist revolution. Notice their “Ten Commandments” of communism on page 3 and judge for yourself the extent to which these ideas are being rejected today.

     In the author's view, freedom, and its corollary free-enterprise capitalism are still not well understood. Democracy, to which many socialist nations are aspiring, is no guarantee that a market economy will prevail. The real question is whether their elected representatives will permit the establishment of private ownership in the means of production, and thereafter refrain from arbitrarily interfering in the peaceful, moral, voluntary exchanges of their people. The ideal of democracy is something people will fight for today, yet it is not clear whether people will do the same for free markets.

     Surely there is increasing evidence that freedom and free enterprise are on the ascendancy in the world. There are even some very staunch "free marketeers" in Soviet, Chinese, and Eastern European universities. Nevertheless, how many people grasp the utter futility of socialism of whatever variety? How many really understand Mises' classic statement:

     "Socialism cannot be realized because it is beyond human power to establish it as a social system. The choice is between capitalism and chaos. A man who chooses between drinking a glass of milk and a glass of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society.” (7)

     In our judgment communism is not dead yet. It is dying due to real world experiences. But a religion dies hard!


     Marxian socialism or communism is a religious creed. It is an empty vision built on fallacious premises. It cannot be supported by logic or experience. Nevertheless, it has been a dream for many people of a fairer, gentler world that supposedly is inevitable. That is why many have been attracted to it.

     History is not, however, inexorably leading to a stateless, classless, communist society. The truth is that communism must inevitably die. From a Biblical perspective, a Godly market-oriented economy is the wave of the future! No, the state will not "wither away" (Daniel 2:44). It will be an economy with private property (Micah 4:4), profit and loss (Matthew 25:14-30), liberty for all (Joel 2:28 and 2 Corinthians 3-17), peace (Isaiah 2:4; 11:6-10), and abundant prosperity (Amos 9:13).

     And yet Marx was right on one point, men and women will indeed acquire a new nature (Hebrews 10:16).


  1. This quote is by Robert Heilbroner in the April, 1989 New Yorker.

  2. Ludwig von Mises “The Marxian Theory of Wage Rates,” in The  Exploitation Theory of Socialism-Communism, by Eugen von Bohm-Bawerk (South Holland, Illinois: Libertarian Press, 1975), p. 148.

  3. See Tuverson’s article in The Apocalypse In English Renaissance Thought and Literature, ed. by C. Patrides and J Wittreich (Ithaca, N.Y.: Cornell University Press, 1984), pp. 324-341.

  4. Murray N. Rothbard, "Karl Marx: Communist as Religious Eschatologist,” in The Review of Austrian Economics, ed. by Murray Rothbard and Walter Block, Vol. 4 (Norwell, Mass.: Klawer Academic Publishers, 1990), p. 127.

  5. Ludwig von Mises, Human Action (Chicago: Henry Regnery Co., 1963), pp. 698-715.

  6. Mikhail  Gorbachev, Perestroika (New York: Harper and Row Publishers, 1987), pp. 36-37

  7. Mises, Human Action, p. 680.

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