Did Karl Marx propose red markets in 3 stages of development to get to red socialism?

20 September 2016 26 3K Report

Just think about it…

Karl Marx was aware that production price equal to cost-price plus profit(KP = C + i) and he was not fan of where the profits were going and he knew that producing at an economic loss in the long-term is not a good plan, but a 3 stages development plan to achieve socialism at a profit or socially friendly capitalism in the long term may have crossed his head…..

Marx would not have encouraged a long-term red socialism production program at an economic loss, I think….Was somehow Karl Marx proposing red markets or socially friendly capitalism as the long term road to socialism, not the red socialism program at a loss implemented?....

For Karl Marx, C = Cost price and i = average profit

See if production price is KP = C + i , and

if C = SM + ECM, where SM = Social margin and ECM = economic margin.

Then;

KP = SM + ECM + i

The three stages of development to socialism at a profit can be stated as follows:

a) Stage 1: Red socialism as implemented

KP1 = SM

b) Stage 2: Red socialism at zero profit

KP2 = SM + ECM

c) Stage 3: Red socialism at a profit or red markets

KP3 = SM + ECM + i

With the understanding of capitalism Karl Marx had, this thought above would be consistent with his thought if he only had problems with where the profits were going and he wanted to redirect them to the state, not to private individuals.

Notice that since ECM + i = P = The traditional market price, then

KP3 = SM + P

The formula above is the formula of a red market or socially friendly capitalism or red socialism at a profit.

Was this what Karl Marx actually proposed?....That is where former red socialist countries including China arrived in 1991 when they shifted from red socialism to red markets….What do you think?

Yuri Yegorov

Dear Lucio, I am really not a specialist in mathematical Marxism. When I studied it, it was given without formulae and in dogmatic way (only citing what Marx was writing). I think that Marx did not build a consistent model comparable with mathematical complexity of neoclassical economics. He was not thinking even about utility.

The positive contribution of Marx is his theory about exploitation and emergence of antagonistic classes, while Engels has developed dialectical materialism (just recall his book about emergence of family and private property).

I think that idea about cooperatives (joint ownership of production capital by workers) is a good follow up of Marxism. Unfortunately, it was not implemented in the USSR to full extent. On one hand, such cooperative can get profit and use it for growth (recall neoclassical growth model based on split of profit into consumption and investment). In this case we avoid exploitation trap. On the one hand, such cooperative can be a self-organized unit, where workers join it till increasing returns to scale effect will end, and the left people will join another cooperative. Here we use self-organizing ideas and this also does not contradict the mathematical formalism of neoclassical economics. Some formalization you can find in my paper: https://www.researchgate.net/publication/272486894_Competition_of_Self-Organized_Groups

But on the other hand, joint ownership of capital (by state) in the case of large firms needs central planning and bureaucratic management. With the growing complexity of this task the interest of workers to maximize their utility with proper consumption was forgotten, and this was the main failure of the economic system in the USSR. It is not clear whether China will overcome this, but at present they have severe environmental problems and growing income disparity.

Conference Paper Competition of Self-Organized Groups

Mousumi Bhattacharya

Manifesto of the Communist Party

by Karl Marx and Frederick Engels

February 1848

Yuri Yegorov

Mousimi, this is completely non-mathematical book. I guess that Lucio is interested in mathematical Marxism. I doubt that Marx has left something more complex than a linear formula, similar to those provided by Lucio. And economics is much more complicated than that.

In one of my articles I make an attempt to integrate Marxism into neoclassical formula by adding altruistic term to the utility function. See the section 5 here: https://www.researchgate.net/publication/271500062_Econo-physics_A_Perspective_of_Matching_Two_Sciences

Article Econo-physics: A Perspective of Matching Two Sciences

Lucio Muñoz

Good day Yuri, thank you for your note,

Karl Marx did not use formulas or models to express his ideas, just the written word as that appears to be his preference, but it can be written into formulas as he is talking about markets and price mechanisms as I have done...simple ideas in simple formulas,,,,when you have a furmula it is easy to see the idea easier than when you have 100 pages....strenghs and weaknesses....

I think that the problem with Karl Marx's ideas has been that he did not completed his work, he did not write everything himselft, and during the process of completing his work or expanding his socialist/communist work his core idea got loss,,,a clear road by development stages towards sustainable socialism/communism....

How can a man with so much understanding on how markets, capitalist or not work, will lead red socialism/communism into a long-term production model to meet social goals at a total economic loss?.....This is unthinkable to me......He new selling at a loss is not a good plan, worse in the long term....So I think that the three stages I came out with would be consistent with Karl Marx's mind.....First decapitate capitalism, stage KP1/revolution, Second, let's be financially responsible and produce at zero profits/maturity, stage KP2; and third, let's reach the top, sustainable socialism and produce at a profit/world dominance....

Because the red socialist/communist world produced at a total economic loss accumutating capitalism deficits in the process they lost the old cold war.....

See in 1991 there was a shift from red socialism to socially friendly capitalism or red markets, that means the following shift took place:

Red socialism(K)--------> red markets(RM)

K = Abc----------> RM = Abc

KP1---------------->KP3

You see China and all former soviet countries missed the second stage of socialism/producing at zero profit/KP2 because of the paradigm shift....in red markets the goals of red socialism no longer work like “social selfsufficiency” as now it is a partnership model of society and the economy....red socialist ideas or communist ideas as well as traditional micro-economic theory and traditional macro-economic theory no longer work that the ideas of the previous paradigm are left behid and the new paradigm needs new ideas or fixed old ideas

I am about to finish two papers that will make it easier to see how red socialism as implemented fits in the evolution of development paradigms as they shift closer and closer to sustainability markets and provide the structure of the perfect red market...You can follow the progress here and I will share them as soon as they are done as food for thoughts....

Markets and Production Pricing: Using the sustainability Market Price to Point Out and Link the Production Price Structure of Partnership Based Paradigms and Deep World View Based Paradigms

https://www.researchgate.net/project/Markets-and-Production-Pricing-Using-the-sustainability-Market-Price-to-Point-Out-and-Link-the-Production-Price-Structure-of-Partnership-Based-Paradigms-and-Deep-World-View-Based-Paradigms

Beyond Both Red Socialism Thinking and Traditional Market Thinking: What is the Structure of the Perfect Red Market?

https://www.researchgate.net/project/Beyond-Both-Red-Socialism-Thinking-and-Traditional-Market-Thinking-What-is-the-Structure-of-the-Perfect-Red-Market

Lucio Muñoz

Yuri, just sharing here this paper unpublished as food for thoughts, you can see the red socialist model /Karl Marx and the Adam Smith model/traditional market in the first level of development thought, both views now gone....and replaced by partnership based models, red socialism(red markets) and green capitalism(green markets).

Have a nice day

Markets and Production Pricing: Using the sustainability Market Price to Point Out and Link the Production Price Structure of Partnership Based Paradigms and Deep World View Based Paradigms

https://www.researchgate.net/publication/308362720_Markets_and_Production_Pricing_Using_the_sustainability_Market_Price_to_Point_Out_and_Link_the_Production_Price_Structure_of_Partnership_Based_Paradigms_and_Deep_World_View_Based_Paradigms

Article Markets and Production Pricing: Using the sustainability Mar...

Yuri Yegorov

Lucio, China is different from FSU countries. China has correctly chosen slow transition to market economy even before FSU countries but under party control and thus had up to 10% annual economic growth for about 30 years. FSU countries (especially Russia) have accepted this idea of Big Bang transition, resulting in hyperinflation and GDP cumulative drop up to 50%.

There were big debates among practical Marxists about the role of small bourgeoisie (including peasants) who were not a threat for workers but nevertheless were supressed in the USSR in 1930s (collectivization and expelling to Siberia). However, in 1990s the state property was given in the hands of oligarchs (super-rich, who even did not earn their wealth) at the price well below the market. While all the population studied Marxism, nothing was done to prevent that.

Do you have comments as a Marxist? I think that we should ask ourselves empirical questions whether what is done is good for society. Marxism as an idea is not about losing in efficiency comparing with capitalism (why one needs to produce at negative profit rate? who will pay for that?) but about preventing exploitation and such social structure that gives higher overall utility (properly defined). It is a pity that Marx was not able to finish his work. It is even worse that his followers accepted this work as a dogma.

P.S. As for your article, I had a brief look. The ideas of social cost and environmental externality exists also in classical economic literature. It is utility based, equilibrium is based on demand-supply balance and thus is nonlinear. I guess that you are simplifying everything by going to linear equations. Maybe they are correct but incomplete.

P.S.2. I know some economists that work in mathematical framework of classical economic literature but are closer to Marxists by spirit. One is Samuel Bowles who writes articles about the role of altruism. Another is environmental economist Brian Czech who wrote the book "The supply shock" (2013).

Lucio Muñoz

Dear Yuri, thank you for commenting....

You should keep in mind, I am not a traditional economist/neoclassical or otherwise; and I am not in the Marxist's camp, I am an outside the box thinker looking from the outside at both paradigm shifts, the 1991 paradigm shift from red socialism to socially friendly capitalism/red markets/the end of the world of Karl Marx; and the 2012 paradigm shift from the traditional market model to green markets/the end of the world for perfect market thinking...

I can see things that those inside the box can not see as when there is a paradigm shift the knowledge base of the previous paradigm is left behind and no longer works in the new paradigm....

China was lucky in my view, they started allowing some capitalism, and even tried to advice the soviets in doing the same, and then when the soviet bloc fell they allowed more....because they allowed capitalism in a control manner and they allowed from starting at the bottom/local/assets they retain political power centrally.... and because the soviet bloc refuse to allowing capitalism in even in a controlled manner there was not choice after the 1991 soviet breakup other than allow capitalism to come in at force/little control....China keep political stability and the other former red socialist countries went into an initial period of economic chaos...

Point is:

All former socialist countries including China shifted from red socialism to socially friendly capitalism or economy friendly red socialism....in the new market...Marxist ideas do not work and traditional economic ideas, micro and macro, do not work either...therefore there is a red market or economy friendly red socialism knowledge gap right now....The same in all old capitalist countries the shift to green markets has created a green market knowledge gap as traditional economic theory do not work here, in green market you need perfect green market theory and green pricing....

Yuri you may find these articles interesting as food for thoughts:

a) China appears to have been doing the right moves to keep power since before the 1991 fall of soviet bloc....they have follow the principle of inverse action without knowing..."when you go from full nationalization to privatization you need to start allowing capitalism slow, from local assets/assets of no national relevance up to national assets/assets of national relevance"...until achieving a point of optimal nationalization...

Nationalization as Privatization in Reverse: Understanding the Nature of the Commons to Identify a Possible Point of Optimal Nationalization

https://www.researchgate.net/publication/281244564_Nationalization_as_Privatization_in_Reverse_Understanding_the_Nature_of_the_Commons_to_Identify_a_Possible_Point_of_Optimal_Nationalization

Adam Smith and Karl Marx Under the Sustainability Eye: Pointing Out and Comparing the Sustainability Gaps Behind these Two Great Simplification Failures

https://www.researchgate.net/publication/290607852_Adam_Smith_and_Karl_Marx_Under_the_Sustainability_Eye_Pointing_Out_and_Comparing_the_Sustainability_Gaps_Behind_these_Two_Great_Simplification_Failures

Adam Smith Vrs Karl Marx: Stating the Structure and Implications of the Paradigm Clash that Led to the Death of Karl Marx’s World, to the Fall of the Soviet Bloc, and to the Rise of Socially Friendly Capitalism.

https://www.researchgate.net/publication/292359802_Adam_Smith_Vrs_Karl_Marx_Stating_the_Structure_and_Implications_of_the_Paradigm_Clash_that_Led_to_the_Death_of_Karl_Marx%27s_World_to_the_Fall_of_the_Soviet_Bloc_and_to_the_Rise_of_Socially_Friendly_Cap

Karl Marx Vrs Sustainability Markets: Who would have won the cold war then? Would the World of Karl Marx Have Existed Then?

https://www.researchgate.net/publication/296849826_Karl_Marx_Vrs_Sustainability_Markets_Who_would_have_won_the_cold_war_then_Would_the_World_of_Karl_Marx_Have_Existed_Then

Paradigm Evolution and Sustainability Thinking: Using a Sustainability Inversegram to State Paradigm Death and Shift Expectations under Win-Win and No Win-Win Situations

https://www.researchgate.net/publication/298353982_Paradigm_Evolution_and_Sustainability_Thinking_Using_a_Sustainability_Inversegram_to_State_Paradigm_Death_and_Shift_Expectations_under_Win-Win_and_No_Win-Win_Situations

Have a nice day Yuri

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Yuri Yegorov

Thanks, Lucio, for comprehensive answer and references; I will have a look bit later. Now I see your point. I also do not accept any dogma like you, and can be critical to both Marxist and neoclassical economics. As for green paradigm, I also see a shift in this direction. However, the work is formally done mostly modifying neoclassical economics (I mean math) rather than adding to Marxism. I recommend you to read this book: https://supplyshock.org/ . It is critical to modern economic thought, analyses its history and give a lot of insights and policy advises.

As for China and former USSR, they made changes without thorough study of economics of transition, simply because such science does not exist. It should be a dynamical story about optimal transition. It is correct that only slow process can be adiabatic (term from physics) so that in every moment it is in quasi-equilibrium, and thus equilibrium theory of neoclassical economics can be applied, at least approximately. That is why China had great success comparing to Russia in its transition.

As for interaction with nature, it is more complex. I think that we should go back to the work of Meadows et al, see for example about this: http://donellameadows.org/archives/the-club-of-rome-and-sustainable-development/ . I also tried to derive a simple system of 3 nonlinear differential equations, see model 1 and graphs in the end of this paper: https://www.researchgate.net/publication/278110040_Low-Dimensional_Nonlinear_Dynamical_Systems_as_a_Tool_for_Socio-Economic_Modelling

I guess that it is very different from Marxism at mathematical level. However, there may be analogy at policy level. B.Czech also proves that more equal income distribution will allow the ecosystem of the Earth to serve higher population without destruction of natural subsystem.

Conference Paper Low-Dimensional Nonlinear Dynamical Systems as a Tool for So...

Lucio Muñoz

Dear Yuri, good day….

I am glad to see that you are also free in the way you approach the past(red socialism and bare capitalism) and the present(red markets and green markets) that is the only way to see what others may not be able to see because of the paradigm shift knowledge gap……

My intention is not to destroy socialist ideas or capitalist ideas, but to move them forward into the future by showing we started with the wrong foot in both camps, the assumption that there can be economy and environment externality neutrality in red socialism (Karl Marx) and the assumption that there can be society and environmentally neutrality in bare capitalism (Adam Smith) both were wrong: Were they proposing those views today they would not have flied……

Because red socialism was wrong in this economy neutrality assumption, it fade away in 1991, welcome to the world of perfect red markets; because bare capitalism was wrong in this environmental assumption it fade away too in 2012, welcome to the world of perfect green markets,,,..

The fall, transition, and promotion of these two new markets, red markets and green markets, took place and it is taking place under a deep paradigm shift knowledge gap….and this knowledge gap is providing cover to those running the red ship and those running the green ship to steer their markets away from perfect market thinking and towards dwarf markets, dwarf red markets and dwarf green markets……

In dwarf red markets you can make more money by moving away from social responsibilities held dear under red socialism….like the growing social disparity you mention in china, but I guess in all former soviet bloc countries …in dwarf green markets you can make more money by continue to treat environmental costs as externalities through carbon pricing or low carbon based markets instead of internalizing them in the price mechanism to deal with them under perfect green markets….That is our world today Yuri……

The 2012 paradigm shift came faster than the knowledge shift and the UNCSD/Rio + 20 formalized a shift toward green markets, green growth, green economy….and they had no perfect theory of the green market to guide them set up an efficient transition to a green economy based world…….Academics/capitalists did not even see it coming or they did not know what to do…and after the shift they kept and still keep acting like living in the past…Trying to use old economic knowledge in a green economy world without fixing it first or bring new economic ideas….that a paradigm shift behavior consistent with Thomas Kuhn/structure of scientific revolutions…

Now there is a theory of the perfect green market and it can be used among other things to identify dwarf green markets….

Beyond Traditional Market Thinking: What is the Structure of the Perfect Green market?

https://www.researchgate.net/publication/302025169_Beyond_Traditional_Market_Thinking_What_is_the_Structure_of_the_Perfect_Green_market

Perfect Green Markets vrs Dwarf Green Markets: Did We Start Trying to Solve the Environmental Crisis in 2012 With the Wrong Green Foot? If Yes, How Can This Situation Be Corrected?

https://www.researchgate.net/publication/305994500_Perfect_Green_Markets_vrs_Dwarf_Green_Markets_Did_We_Start_Trying_to_Solve_the_Environmental_Crisis_in_2012_With_the_Wrong_Green_Foot_If_Yes_How_Can_This_Situation_Be_Corrected

In 1991, even in China which was already acting on the capitalism internalization file…they shifted to red market territory without having a theory of the perfect red economy or the theory of the economy friendly red socialism to guide them…they went blindly……Scholars/socialists did not even see it coming or they did not know what to do…and after the shift they kept and still keep acting like living in the past…Trying to use old socialist ideas or old economic knowledge in a red economy world without fixing them first or bringing new ideas….again that a paradigm shift behavior consistent with Thomas Kuhn/structure of scientific revolutions……

In the coming months there will be a theory of the perfect red market published by me and it can be used among other things to identify dwarf red markets.

Yuri, all seems to make sense if you start from the point that both Adam Smith and Karl Marx sent us in the wrong development path from the beginning when they simplify the reality, SUSTAINABILITY(society, economy, environment, all are important), into two competing extreme simplifications of reality…..You may find the ideas in this article interesting Yuri as the direction of paradigm shifts seem to go towards sustainability, the point we should have started in the first place if Adam Smith would have proposed sustainabililty market theory instead of traditional market theory in his time:

Complex and Man-made Markets: Are We Currently Approaching Sustainability in a Backward and More Chaotic Way in Terms of Economic Thinking?

https://www.researchgate.net/publication/281277199_Complex_and_Man-made_Markets_Are_We_Currently_Approaching_Sustainability_in_a_Backward_and_More_Chaotic_Way_in_Terms_of_Economic_Thinking

Have a nice day Yuri

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Lucio Muñoz

Dear Yuri, the essense of this paragraph ibelow in your last posting s what I call "the red trickle down expectation"

" However, there may be analogy at policy level. B.Czech also proves that more equal income distribution will allow the ecosystem of the Earth to serve higher population without destruction of natural subsystem."....

Among the operational concpets on my articles about red markets and price structures and paradigm shifts are the following....

xxiv) Trickledown effect, the expectation that traditional markets and growth will sooner or later benefit the poor

xxv) Green trickledown effect, the expectation that green markets and green growth will sooner or later benefit the poor.

xxvi) Red trickledown effect, the expectation that red markets and red growth will sooner or later benefit the environment

Have a nice day

Yuri Yegorov

Dear Lucio, I think that nothing was wrong in both camps (Adam Smith, David Ricardo, Malthus et al – on one hand) and Karl Marx and F.Engels – on the other. But it was more than 100 years ago. That time, with the population of just 1 billion people, we were still far from today’s level of exploitation of Earth’s resources. Now the Earth cannot reproduce even renewable resources; the harvesting speed is higher. You can see this report: http://www.footprintnetwork.org/en/index.php/GFN/page/ecological_wealth_of_nations_en/ . Global fish stock and wood stock are in decline. I think this danger is higher than one of climate change.

What was wrong with Marxists? They did not build any mathematical theory. Even the evolution of capital and the growing tension between working class and capitalists were not modelled. They also have underestimated self-regulating force of the market. At the stage of early capitalism, when competition was high, this invisible hand still worked.

An interesting issue is evolution. Many revolutions wanted to distribute land equally across peasants. In 10 years, starting from equal conditions, they already had high disparity (example; former USSR in 1920s). Reasons; a) good/bad luck (not only weather), b) level of hard work, c) understanding the technology, d) high interest of banks on credit. Marxists should probably model all this as well.

The theory of markets was built by classical economists. The also developed the theory of public goods (see, for example, the book of J.Stiglitz, who is on the left side for sure), externalities and environmental economics.

The main problem, as I see it, is the lack of attention towards income and wealth distribution. Today even the followers of classical economics see that the richness of top 1% grows at critical level, and over the whole globe. However, neoclassical models still have a mistake to consider only a representative consumer, with average wealth and having both labor and capital. Thus, they can never approach to the core point of Marx – contradiction between classes. At the same time, Marxists are too dogmatic and cannot deal mathematically even with their problem.

What inequality is critical? If both lazy and hard-worker earn the same, what would be an incentive to work? But if disparity is too high and is perceived as not honest, then there is no stimulus for poor to work harder. Rather they would participate in the struggle of classes, as Marx was pointing out.

Yuri Yegorov

Lucio, I had a brief look at your paper (2016) about dwarf green markets. I would like to ask a question; how are you going to calibrate it and to measure externality? At present, we do not have even water price, although it is already a scarce good in many countries. I have the following paper related to this issue: https://www.researchgate.net/publication/228549496_Water_Spatial_Network_Pricing_45th_Congress_of_the_European_Regional_Science_Association

Another question. When we are taking resources from the ecosystem, are we going to pay to it? To all tigers, deer and trees? I know only the models about carbon pricing, but this is by far not the whole issue.

P.S. A comment to your last message. Poor can always have benefits from growth, if they have a state with redistribution system. Some EU countries are already "too socialist" in this sense.

Article Water: Spatial Network Pricing 45th Congress of the European...

Lucio Muñoz

Dear Yuri, good day.

For simplicity and clarity I have made specific questions covering all those topics: a) externality internalization in pricing mechanism; b) preservation/ conservation/ environmental services payments; and) the externality assumptions made by all different models(Marx, Smith...) and higher level models and how to correct them, please visit my reseachprofil and look at the 40 or so questions I have made so far where the answers and publications related to those questions and answers are shared....

I always try to make time to answer comments directly related to each of my questions to keep the focus on them as then you can expand in a consistent manner and we all learn from the exchange....