Marxism

As I continue reading Sylvia Nazar's "Grand Pursuit", I would like to share a couple of facts/thoughts that I have taken from the chapter on Karl Marx:

1. Capital is a product of Labor
When analysing behavior of a firm/factory in a market, modern microeconomic texts (here is a good free one) often treat the capital (K) and the labor (L) as two independent variables (meaning by the "capital" the factory equipment, the raw materials etc.) The labor and the capital are thus respectively the contributions of the workers and the factory owners to the production process, for which they are respectively rewarded by salaries and profits.

Marx's view was that the capital itself is a product of labor: for example, the factory equipment and the raw materials were also produced by workers elsewhere. Thus, the profit of the factory owners is a part of the workers salary that the owners unfairly expropriate.

This view encounters problems when trying to account for such things as technological innovation, salaries of skilled CEO's, advertizing, etc. - which also increase the firm's revenue. One way would be to include the engineers, who improved the technology, the CEO's and the advertizing specialists among the workers. This would probably save the Marxian point of view... but destroy the very class argument that the salaries of the engineers, the CEO's, and the marketing specialists are undeserved.

2. Diminishing salary
Labor market, like any market, implies equilibration of price between the labor suppliers (workers) and the labor consumers (firms). The price in this case is called "salary". Lowering salaries is problematic for obvious social reasons. There are at least two mechanisms to inexplicitly lower salary and bring in equilibrium labor supply and labor demand:

i) Not raising the nominal salary in conditions of inflation, which means that the real salary is lowered.

ii) Increasing the productivity of workers, i.e. making them produce more for the same salary. This is not necessarily achieved by forcing the workers to work harder: for example, the factory owner may install a conveyor line that would increase the productivity of the factory without the owner having to hire more workers or having to raise the nominal salaries. Thus, in Marx's view, the technological innovation necessarily leads to effective lowering of the workers salary and their standard of living - the process that must result in a Social Revolution.