Karl Marx for Investors

Have you read The Communist Manifesto or Das Kapital? You should consider reading at least a condensed version of these works, because they might actually make you a better stock investor. (Not what K.M. had in mind, but a legacy's a legacy.)

The bulk of Marx's writing can be boiled down to two Big Ideas:

  1. Capitalism would destroy itself. That's because price competition would keep forcing small companies out of business, reducing former owners and managers to blue collar status; and it would force companies to keep lowering their costs, including wages. The result would be a growing and increasingly desperate labor class, making a breaking point inevitable.

  2. The value of a product equals the amount of labor that goes into making it. For example, if a factory buys some wood for $50 and then uses $100 worth of labor to turn it into a table, the fair price for the finished table is $150. Any excess that the factory charges - any profit - is thus a theft from both workers and consumers; and as this stolen value accumulates, the factory owner gets to exploit society on an ever larger scale. Or as Marx puts it in his own high style, "Capital is dead labour, that, vampire-like, only lives by sucking living labour, and lives the more, the more labour it sucks."

Oooo-kay. Now for a little analysis.

The revolution never happened the way Marx predicted, but he may have been on to something with idea #1, as long as you remember he was talking about companies that sell commodity items, and have to compete on the basis of low price alone. Companies like that tend to have low profit margins, and are vulnerable to any competitor with cheaper financing or a better way of running their operations. Commodity companies can be bad news for proletarians and shareholders alike.

Idea #2 is just ignorant. Profit is the reward for doing a good job of giving consumers what they really want. Societies that have tried to abolish the profit motive always have inefficient markets: shortages, and a general failure for supply and demand to come together.

So what's here for investors? First of all, you might stay away from the commodity type companies, and look for companies with an "unfair advantage": a strong brand name, or a patent, or anything that protects them from competition and lets them keep their prices high. Second, since profits are the reward for satisfying customers, you might look for companies with a reputation for customer satisfaction.

In other words, once you give Marx a shave he starts to resemble Peter Lynch or Warren Buffett. (Finally - something really revolutionary.)

Read the Book:

     Karl Marx, Friedrich Engels
The Marx-Engels Reader

"A spectre is haunting Europe - the spectre of Communism." (Not.) This was certainly influential in its day, though, and even now many people can't say "capitalism" without embarrassment. At the very least you can learn a lot about business by analyzing exactly where Marx's wild logic goes wrong. This is a standard college text, with The Communist Manifesto and condensed versions of Capital and other writings. (The unabridged version would be excruciating, unless you're a diehard commie ratfink.)


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