What is purpose of Marxist Theory ?
Marxist theory is more concerned with philosophy. His theory shows the political and economic way of organizing a society. According to him, Socialism is the only way of managing a society where means of production are owned and controlled by the working class.
The basis of his theory is the ‘surplus value’. Surplus value refers to the difference between the value of total output and the supply price of labor, which is absorbed by the capitalist. The capitalist extract this surplus value from the worker by forcing them to work for longer hours at subsistence wages. Due to this exploitation, profits of the capitalist are much higher than the wages of the workers. Capitalist would invest these profits and result into capital accumulation and this would further raise their profits.
The relation between wages and profits can be formed by separating capital into Constant capital denoted by ’c’ (i.e. capital invested in raw material) and Variable capital denoted by ‘v’ (i.e. wages paid to workers) and the surplus value denoted by ‘s’.
So, the total value of the product:
y=c+v+s
Marx uses the term ‘Organic composition of capital’ for the ratio of constant capital to total capital (i.e. c/c+v) and ratio of surplus value to the variable capital is termed as rate of exploitation (i.e. s/v). Therefore, we conclude that profits depend upon both rate of exploitation and organic composition of capital. Any technological change will alter the organic composition of capital and hence change profits.
Competition among capitalist will force them to cheaper their products, as a result capitalist will moves towards labor saving machines. This capital accumulation increases constant capital and decline in variable capital. This process reduces the demand of workers and thus creates reserve army which will increase with the increase in capital. Due to lower demand of worker, wages move to semi-starvation level.
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