Throughout this course, we've been focused mostly on the Keynesian model of economics. Let's look at one of the biggest critiques to modern economic theories. It's the Communist Model developed by Karl Marx. So the Communist Model is one of the biggest critiques of the Free Market System. It's basically the extreme opposite of the free market system. It was developed by Karl Marx in the 1860s, and it was notably through his publication of Das Kapital, which was the name of his book where he studied this communist theory. Okay? So he studied mainstream economics, the classical model and he believed he understood what would happen in the long run of the free market system. He developed what he called the labor theory of value. And he thought that all value, all the value of a good or service is attributable to the labor involved in creating it. Okay? So this is the idea of the labor that goes into producing a product, that's where the value lies. So if you think about a T-shirt company, without the labor, they just have cotton. They just have a bunch of raw material with no final product, right? But the labor that goes into creating the product, that is what, that is where all the value is created in the product, right? The T-shirt, if there was no labor involved, would just be cotton. Okay? So he believes that all of the value comes from the labor. He believed that the owners of the business, the capitalists, added nothing of value. Okay? They just owned the machines. Right? All that the capitalists did, the people with the money, was to have the monopoly over the means of production. This is a big thing with the communist model: the means of production. Basically, the factories are owned by the capitalists, and they use this monopoly over the factories, over the places where the products get made, to exploit the workers. So the workers are exploited by the capitalist in this model, and the value added by workers, remember that the labor theory of value believes that all the values are derived from the labor. So the value added by the workers is much higher than their wage. Okay. The value added is much higher than their wage. They're being exploited for these profits by the capitalists. So, he believed that wages would eventually be driven down by the greed of the capitalists that increased profits, and increased profits would be eventually driven down to bear survival levels, okay? So the wages of the workers would just be bare survival where all the value they add would be profits of the capitalists because of their monopoly over the factories and owning the means of production. And over time, the control of production, the monopoly would get worse and worse and be consolidated by a few firms, so that only a few firms had all the power over, the means of production. And these firms would eventually have trouble selling their products to the penniless masses. So this is what he believed would happen in the long run of the capitalist system, right? All the power would be consolidated and then nobody would have any money to buy these products that are being produced, right? So finally, what would happen would be a rebellion where the working class seizes the means of production. And you may have heard of seizing the means of production. This is the final conclusion of the communist revolution here, and that they would establish communism. So the workers would now own the means of production rather than the capitalists themselves owning the means of production. However, so that's the big wrap-up of the communist theory. He believed that this is an inevitable end of the capitalist model is that communism will rise once the workers have their revolution. However, Marx died in 1883 without ever providing how a communist economy would work. Okay? He never said what would happen in a communist economy and how it would operate once the workers had the means of production. However, Communism was still attempted quite a few times in a few different countries. It was attempted by Russia by the Bolshevik party in 1917, and that's when the Soviet Union was formed. The Soviet Union ended up being a cruel dictatorship. It was very corrupt. So it's very corrupt. And it didn't really fit the communist model in the end. Okay? So, communism spread to other countries including China and Eastern Europe, but the Soviet Union collapsed in 1991. So, 1991, that was the end of the Soviet Union and that was pretty much the end of the communist model being used in practice. However, there still are 2 countries that still follow the communist model, mainly North Korea and Cuba are still known to follow this communist model in practice. And they don't tend to have the best reputation for their economies. So Communism has never really seen its true potential. And it's not thought to work practically in theory. Or practically in practice, right? It's always said to be ideal in theory but not in practice, okay? So that's the Communist model developed by Karl Marx and mainly focuses on that labor theory of value and the revolution of the workers to seize the means of production. Okay? So that's about it. Let's go ahead and move on to the next video.
24. Macroeconomic Schools of Thought
Communism and Karl Marx