Marxism and the free market – a short explanation
The theoretical difference between Marxism and the free market.
(Note: An economic theory has to include a theory of value or price. Why do things have the value the do? Why are you willing to pay a a few bucks for a gallon of gasoline, but only a few pennies for a gallon of water? After all, you can live without a gallon of gasoline, although it would be a bother. You must have water in order to live.)
Marxist theory says the value of a product comes from the amount of labor expended in making the product. If I grow tomatoes and you grow corn, under Marxism we both exert ourselves equally and the value of our product is the same. Karl gets a little vague on how this is known. The value of the product is equal to the input of labor. Presumably we sweated the same amount under the noonday sun.
Since product value equals labor under Marxism, the only way the price of a product can be different from the sum of the effort expended in making it, is if the taskmaster somehow alienates some labor from the laborer by paying less in wages than the price of the product. According to Marx, profit is alienation of labor from its value.
The shortcoming of Marxist theory of value is pretty obvious. If a ditch digger uses his hands to dig, under Marxist economics, he would output the same value of ditch as someone using a shovel. The guy using his hands is certain to expend more effort than the guy with the shovel. How do bleeding fingers produce equally valuable ditch?
Marx explained the guy with the shovel was releasing the 'congealed labor' in the shovel. Karl realized that was a stupid explanation, but it was the best he ever published. He could never explain why anyone would invent a shovel. He fudged by saying it was the pressure of the capitalist effort to solve the problem of production, a sentence full of words but very little useful thought.
In the free market, for example, lets say I grow tomatoes, and you grow corn. We will both have a poor diet if we don't figure something out. So I exchange some of my tomatoes for some of your corn. Because we traded, we are both better nourished. Without any additional labor, other than the small amount of effort to make the actual trade, we both profit. In the free market, exchange is the source of profit.
The free market model assumes we both have enough intelligence to trade with some care. Neither one of us trades away all we have for a morsel of the other's product. After a trade or two, we learn a pretty close approximation of what the market price is. As the trading world is wide, we start trading with other people. Some of them make plows and shovels. We both become better farmers because we use tools from people who don't farm. In the free market, invention and specialization occurs naturally.
The free market assumes invention and specialization because people like to do what they are good at. Marxism lacks an explanation of why invention and specialization occur, since all labor is uniform. Thus a Marxist society requires directors to point society to some goal. You've heard of five year plans, Obama's czars, etc.
The actual function of directors in Marxist society is to require the people line up to socialist goals, and punish society both toward the achievement of those goals and for failure to achieve those goals.
To compare to the free market, in the free society, a person suffers only if he makes a mistake interacting with the market.
In Marxist socialism, the whole people must suffer pain all the time. The directors become oppressors of the people.