Capitalism, Marxism, and Labor Unions

Mr Way, Economics, 4-12-1212.4.1Understand the operations of the

labor market, including …the effects of unionization, the

minimum wage, and unemployment insurance.

12.4.4 Explain the effects of international mobility of capital and

labor on the U.S. economy

The Capitalist Cycle

1. Some people own capital.

2. They hire labor to use their capital to produce things.

3. They sell the things for more than they pay their workers (profit).

4. They use the extra profit to invest in more capital.

1. Repeat the cycle.

“Development”

• As the cycle of capitalism repeats, the country builds up more and more capital.

• More capital makes everyone more productive.

• More productivity makes everybody richer, on average.

• This accumulation of capital is called “development,” and has never stopped.

Capitalism’s Fatal Flaw

• People who were lucky enough to be born owning capital get richer forever.

• Workers are “exploited” – they aren’t paid as much as they produce.

• Even as productivity rises, there is no guarantee wages will rise for workers.

• This is generally seen as unjust or unfair in some way.

Marxism

• In 1848, Karl Marx published “The Communist Manifesto”

• He explained the accumulation of capital and the exploitation of workers.

• His solution: once enough capital is built up, the workers must all unite to overthrow the capitalists.

• Once in charge, workers will share all profits among the whole population.

Problems with Marxism

• “Workers of the world unite!” – unlikely.

• Bigger problem: when is “enough” capital built up? In 1848, Marx said “soon.”

• Profit is spent on workers’ consumption instead of investment.

• No investment means no growth.

Unions: A Compromise

• Labor Unions are half way to what Marx called for.

• The workers of an industry unite, and force capitalists to give up some of profits.

• However, some profit remains for owners to use for development of more capital.

• “Socialist” systems like this grow slower than pure capitalism, but faster than communism.

Summary Questions:

• Explain how the capitalist system leads to “development.”

• What problems did Marx see in Capitalism, and what was his solution?

• How are unions a “compromise” between capitalist and Marxist solutions?

Marxism Writing Prompt

• Do you think that The People of America could benefit from a Marxist workers’ revolution? Why or why not?