Karl Marx Theory Of Instability

Economics Assignment

Introduction

This paper is about theories of instability with a critical discussion of the ideas that are set forth. Instability lies at the core of economics, therefore most economic thinkers, throughout time, have at some point – in one way or the other - touched upon the topic. Marxian theories of instability are, among a few others, considered to be the most influential. Therefore I see Marx as a good starting point for examining the factors behind the booms and busts in the capitalist market economy. To analyze and add to the views presented by Marx, I will present the theories developed by Schumpeter, who’s thoughts are, to some extend, building on Marx.

Karl Marx

According to Marx, all capitalists have profits,

Schumpeter’s contribution to instability lies in his description of the creative destruction and competition, and his formulation of the capitalist economy as a process of change,

“Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary” (Schumpeter 1994 p. 82) For him, capitalism was intrinsically dynamic, and that the essence of it was to invent, to innovate and to risk – and those who could do that, he found to be, the entrepreneurs. (Chang 2014 & Heilbroner 1953)

Despite being a believer in the dynamism of capitalism, Schumpeter was not optimistic about the future and growing scale of technological innovation in capitalist firms. As opposed to Marx he predicted that capitalism, in the future, would morph into socialism, rather than through a revolution, as predicted by Marx. Schumpeter argued that with the application of scientific principles in the technological innovation, the entrepreneurs would slowly make room for professional managers. Ultimately capitalism would lose its dynamism and the entrepreneur would lose his drive for making new

If solely seeing the question from a Marxian view, the simple answer would be yes. Marx believed that the capitalist system is inherently unstable and that excessive accumulation of capital will lead to economic crisis. The same goes for Schumpeter, however to him instability is necessary to maintain the creative process of capitalism.

Schumpeter argues that capitalism is driven by dynamism, which will at some point morph away into socialism. I argue that Schumpeter’s prediction has failed (or at least been postponed) and that its failure is caused by globalization. The innovation hasn’t slowed down; rather it has been globalized and multiplied. Firms need to, not only renew, but also to constantly invent new and better products, and the entrepreneurs are therefore still needed, for the firms to keep up with competition. Once another firm has copied an innovation, that firm might improve it. The first firm has to innovate themselves again, in order to keep their share of the