Income Inequality: Application of Marx's Theory

• Cuneyd Sahin

History of Economic Thought

‘SOCIAL RELATIONS OF PRODUCTION AND INCOME INEQUALITY’

Karl Marx; in the primitive times of the humanity, it is said that everyone has to do the same work which is hunting-gathering in order to ensure a common living. The lack of private property and the division of labor back in those times attracts Marx. So there were not any classes or class exploitations. All members contributed and benefited according to their abilities. First exploitation system is introduced with the slaves who served to nobles. After that, land ownership and peasant relationship followed in feudal times. After the collapse of the feudal system the capitalist system (bourgeois-proletariat) develops. Marx believe that the capitalism until collapses, will spread all around world since it is almost a trading opportunity of everything for humanity. The belief that capitalism and industrialism will bring prosperity which only be granted to capitalists who will exploit the people in the society and use it for profitability. Marx analyzed the changes in social class structure in order to understand systems like capitalism by means of modes of production.

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Marx believed that social order is always based on the production of economic goods. What’s goods are produced, how they’re produced, and how they’re traded all determine the differences of people’s wealth, power, and social status in the society. The forces of production are the technology and the ways of working that people use to create the things they need. All social life depends on people’s ability to eat and drink, house themselves, and clothe themselves. When people meet their needs, they develop new needs. Industrialism is a force of production.

Capitalism is the social relationships that people form when then participate in economic life (these relationships are called relations of production). An important difference between relations of production in Feudal life and in Capitalism is that class structure plays a bigger role in Capitalism. In feudal life, serfs were servants to nobility, and their relationship was clear to both the serfs and the servants. But in Capitalism, there is an essential inequality between classes, even though it disguises itself as equality. Labor is sold by workers to capitalists in a free market (like work is sold by employees to employers), so it looks like the workers and the capitalists are equal. It looks like the workers and the capitalists are both freely choosing to take part in the economic exchange. But the worker does not freely choose to be part of the relationship with the capitalist for wage labor. The elements of the overall structure reflect the interests of the bourgeois. According to Marx, religion, law, and the state are all manifestations of the bourgeoisie’s power. Marx believed that the state was just an expression of the freedom of private property from the community. The state is the ordering of bourgeois relations of production. The law is the reflection of the bourgeois form of property. The most important thing to look for in an economic system is distribution of power between the various classes, and the relationships between the various classes. When forces of production change, the mode of production also needs to change, since each set of productive forces has its own set of appropriate class relations. Competition and unity can both characterize the same class, making completion very fierce among capitalists. The bourgeoisie acts as a whole to protect itself when property relations are threatened, and when the bourgeois class itself is threatened.

Marx’s social classes are characterized by conflict. Each class acts in its own interest, and in opposition to the other classes. When modes of production change, inequality shifts. Society can go from having one kind of class inequality to another type. It can also go from a society with classes and inequality to no classes at all. Individuals within a class are hostile towards each other, as they are competitors. They only share a common battle in fighting against each other (Giddens and Held, 1982). Power plays a huge role in these individual relationships. Power is defined as the ability of one group to get another group to take some desired action, usually by consent by sometimes by force (Holmes, Hughes & Julian, 2007). Karl Marx believed that individuals hold their own power in society, which is full of inequality caused by classes. Hurst (2000) said that individuals become enslaved when they are being controlled an outside force which benefits capitalism. In summary, while market exchanges may appear to be fair, they are actually conditioned by the differences in the relations of production. Capitalists do not really buy the labor of workers, but they buy worker’s skills and capacity to produce value. The worker receives wages in exchange for value-producing labor. The worker actually produces more value for their time than they receive money for that same time. Labor power produced value greater than itself. The result of a day’s worth of work has more value than the wages that the worker earns during that day. The excess value not accounted for by the wages earned by the worker is taken by the owner of the capital, or the employer, since he owns the means of production; this is what Marx called the exploitative nature of capitalist relations of production. Marx believed that those who own the means of material production also own the means of social relations of production, since their ideas “unintentionally reproduce the power that rules over them” (Holmes, 2007).

So this ambition to have power led to the days of the robber barons, wealthy corporations which ruled the nation and the society. For example; corrupt politicians were servants to the rich. In order to channel these power from selfish hands, there is needed a powerful institutions, laws and regulations by government. The Gilded Age is took its name by the material of life which is based on the many great fortunes created during this period. During the Gilded Age, between 1860 and 1900, the U.S. economy underwent tremendous growth. There was an explosion of new industrial and agricultural technology. On farms, agricultural productivity was increased by the invention of steam tractors and the cotton gin. In factories, steel production was radically increased by the invention of blast furnaces, which caused the cost of steel to lower and demand to increase. This led to the expansion of the American railroad network. The introduction of standardized rail sizes made building railroads more efficient, similar to how the invention of interchangeable parts revolutionized clothing and car industries. As production increased, so did the growth of industries, which generated goods for the growing urban markets. As more businesses were started, giant firms started taking over and competition increased. Prices fell, and there started being greater disparities in wealth. This was caused by new businesses forming “pools,” and trying to smooth out markets by agreeing on production levels and prices. The American rich kept getting richer and the poor get poorer. With the vast economic growth, large companies have grown in terms of shares, and they have worked to decrease their competition. Large corporations used cheap labor to their advantage, in order to increase their profits. Steel developed a significant role in the American economy, as its price dropped and demand rose. Material life has changed entirely. Industry kept expanding until the workers in the coal mines went on strike. There was a huge amount of employment in mining, even though it was very dangerous work. Big businesses restricted miner’s basic worker’s rights, as well as human rights, and they ignored the workers’ needs for higher profits. Marx stated that the ever-growing but heavily oppressed working class will, at some point, turn on their capitalist oppressors.

As a result the deadliest strike in American history is occurred, the reasons for the strike were difficult and unhealthy conditions for workers. The conditions in the mines affect not only the workers but also their families as well. At the end, more than %90 of the workforce has gone on strike. Hence without the workers in the mining sector, the economy was effected badly. The government played a couple different roles during the strike. The government started a fight with the coal miners which has led to many deaths and arrests for the workers also. Outcome of that it ended in the defeat of the unions. The other outcome of that there some workers were arrested and many were killed and injured during the strike. In the end, it was a disaster for the labors. First of all, the government should have taken action before the conditions that led to abuse of worker. Because at the end it led to the economy and the industry to suffer. Since workers have been working really in bad conditions, getting low wages, giving up on some of their basic human rights in order to make a living in a deregulated economy because of the capital flight out of the country and the rapid industrialization. So as we look to situation in the long run we can say for human rights it was an important milestone in order to implement labor rights and union rights. The real outcome is that it can be related to the idea that is against totally free markets which will eventually lead to monopoly. So it will be chaos in the end. So there should always be a power of control of the government in order prevent these kind of situations.

There was an act of developments in the economy in order to improve some conditions which was called Progressive Movement. The beginning of the Progressive movement slowly brought about improvement. In 1903, the Department of Commerce and Labor was established, which included a Bureau of Corporations to clean up corporations. The improvements made to economic and social problems are referred to as Progressivism. Progressivism provided people with education, safety, and more efficient workplaces. The Progressive Era spurred President Roosevelt to establish the Federal Department of Labor, in support of workers. Workers became more aware of their rights, and the media started spreading news about strikes and other movements. Labor productivity increased as circumstances improved. These and many other acts, reform worked in the short run to recognize what was going on, however in the long run it turned out the same as capitalist system to become powerful. After World War I and World War the ambition to have power got back to the way it always has been. The capitalists were the winner of this situation and continued to abuse worker in order to increase their profit rates. The income inequality increased and kept increasing significantly.

The chart above indicates how income earnings between 1975 and 2007 were in OECD countries by using the World Top Incomes Database. As you can see, in some countries like Denmark the vast majority of income gains went to the bottom 90 percent and distributed equally. However, nearly half of U.S. income gains goes to the richest one percent. As a result of this super-rich getting super-richer. The reason for this high percentage of income gains for top 1% is that it is expected for them to create job opportunities in the economy which called ‘trickle down’ system. But, it doesn’t appear like that the nation’s “wealth creators” are creating wealth not for anyone else but only for themselves. This is why the inequality gap between quartiles are increasing and the wealth is not equally distributed but gathered at the top 1-5% income earners in the country.

This is another graph above indicates the income of share of top 10% in US between the years 1917-2012. In this graph we can clearly see that the income of top 10% is higher except the Golden Era which is in between the years 1942-1977 incomes of top 10% is constant and there is low inequality. The graph also shows that capitalism has created inequality among society since it has based on profitability and to increase profit the costs have to decrease and it will result in decrease in wages and also exploitation of labor.

This graph on the other shows this exploitation better in which it can clearly be seen that over the years the real income of workers were steady and constant however their productivity tend to increase. This indicates that by less worker, capitalist achieves to get high labor productivity with the help of technology and capital accumulation. So the gap in between the real income and labor productivity goes directly to capitalists’ pocket as profits. As the gap widened the income inequality will rise and the poor is going to get poorer and rich is going to get richer. The ideology of Marx is based on equal society which is working together to accomplish everything, however the consequences of capitalism is far away from what Marx thought of.

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In conclusion, Marx aims to break down this class structure brought by capitalism. Everyone dreams up a system to meet their needs equally. Marx tried with all of his thoughts and actions in order to end the exploitation of the peoples to liberate the community throughout his life, he worked on behalf of freeing individuals by freeing society. The prediction about capitalism is that the existing relations of production will obstruct the ongoing development of industrial production and in the end, there will be no profit in their further exploitation though social need will remain. The ever-growing but heavily oppressed working class will, at some point, turn on their capitalist oppressors. When the working class does turn against the capitalists, a revolution will occur that will have the power to bring about the end of capitalism. Although no changes have happened yet, capitalism is getting stronger every day, working class is suppressing every day, union numbers are decreasing every day. Capitalists are earning higher profits by going overseas and exploiting labor. Marx’s dream of a perfect equal society without exploitation seems to be on hold for now.

REFERENCES

Giddens, A., & Held, D. (1982). Classes, power, and conflict: Classical and contemporary debates. Berkeley: University of California Press.

Hurst, D.E. (2000), the Janus-Faced Nature of Society. Living Theory: The Application of Classical Social Theory to Contemporary Life. Allyn & Bacon. Boston

Holmes, D., Hughes, K., & Julian, R. (2007). Australian sociology: A changing society. French’s Forest, N.S.W.: Pearson Education.

Piketty, T., & Saez, E. (2014). Inequality in the long run. Science, 838-843.

Organization for Economic and Co-operation Development, retrieved data from www.oecd.org on 23 June.

U.S Bureau of Economic Analysis, retrieved data from www.bea.gov on 23 June.