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If the rich are getting richer, and the poor, if they are not getting poorer in real terms are not seeing their fortunes rise at comparable rates, this would seem to mean that the increasingly opulent consumption by the rich will have as its counterpart the increasingly austere consumption by the poor, and even by the now shrinking middle class. Eventually, the newly poor will not be able to earn enough to maintain their previous levels of consumption. Consequently, some goods produced will not be consumed, thus there will be fewer goods produced, there will be fewer producers or workers, there will be fewer goods consumed, and so on.

Karl Marx called this "immiseration." Its never actually happened.

It does mean, however, that our government will have to tax American citizens more in order to finance its debt.

But instead they cut taxes and this guy still complains about it. Some people you just can't please.

Joe,
I think that a key Marxist theory is called the labor theory of value. Marx added the feature of "exploitation" that the rich exploited the poor, driving down real prices.

Further, Marx believed that the more advanced the capitalist economy becomes, the greater these contradictions and conflicts. The more capitalism creates wealth, the more it sows the seeds of its own destruction.
Marxism
by David L. Prychitko

More than a century after his death, Karl Marx remains one of the most controversial figures in the Western world. His relentless criticism of capitalism, and his corresponding promise of an inevitable, harmonious socialist future, inspired a revolution of global proportions. It seemed that—with the Bolshevik revolution in Russia and the spread of communism throughout Eastern Europe—the Marxist dream had firmly taken root during the first half of the twentieth century.

Now we witness the utter collapse of that dream in Poland, Hungary, Czechoslovakia, East Germany, Romania, Yugoslavia, Bulgaria, Albania, and the USSR itself. What was it about Marxism that created such a powerful revolutionary force? And what explains its eventual demise? The answers lie in some general characteristics of Marxism—its economics, social theory, and overall vision.

Labor Theory of Value

The labor theory of value is a major pillar of traditional Marxian economics, which is evident in Marx's masterpiece, Capital (1867). Its basic claim is simple: the value of a commodity can be objectively measured by the average amount of labor hours that are required to produce that commodity.

If a pair of shoes usually takes twice as long to produce as a pair of pants, for example, then shoes are twice as valuable as pants. In the long run the competitive price of shoes will be twice the price of pants, regardless of the value of the physical inputs.

The labor theory of value is demonstrably false. But it did prevail among classical economists through the midnineteenth century. Adam Smith, for instance, flirted with a labor theory of value in his classic defense of capitalism, The Wealth of Nations (1776), while David Ricardo later systematized it in his Principles of Political Economy (1817), a text studied by generations of free-market economists.

So the labor theory of value was not unique to Marxism. Marx did attempt, however, to turn the theory against the champions of capitalism. He pushed the theory in a direction that most classical economists hesitated to follow. Marx argued that the theory is supposed to explain the value of all commodities, including the commodity that workers sell to capitalists for a wage. Marx called this commodity "labor power."

Labor power is the worker's capacity to produce goods and services. Marx, using principles of classical economics, explained that the value of labor power must depend upon the number of labor hours it takes society, on average, to feed, clothe, and shelter a worker so that he or she has the capacity to work. In other words, the long-run wage that workers receive will depend upon the number of labor hours it takes to produce a person who is fit for work. Suppose that five hours of labor are needed to feed, clothe, and protect a worker each day so that the worker is fit for work the following morning. If one labor hour equaled one dollar, the correct wage would be five dollars per day.

Marx then asked an apparently devastating question: if all goods and services in a capitalist society tend to be sold at prices (and wages) that reflect their true value (measured by labor hours), how can it be that capitalists enjoy profits? How do capitalists manage to squeeze out a residual between total revenue and total costs?

Capitalists, Marx answered, must enjoy a privileged and powerful position as owners of the means of production and are, therefore, able to ruthlessly exploit workers. Although the capitalist pays workers the correct wage, somehow—Marx was terribly vague here—the capitalist makes workers work more hours than are needed to create the worker's labor power. If the capitalist pays each worker five dollars per day, he can require workers to work, say, twelve hours per day—not uncommon during Marx's time. Hence, if one labor hour equals one dollar, workers produce twelve dollars' worth of products for the capitalist but are paid only five. The bottom line: capitalists extract "surplus value" from the workers and enjoy monetary profits.

Although Marx tried to use the labor theory of value against capitalism by stretching it to its limits, he unintentionally demonstrated the weakness of the theory's logic and underlying assumptions. Marx was correct when he claimed that classical economists failed to adequately explain capitalist profits. But Marx failed as well. Therefore, the economics profession rejected the labor theory of value by the late nineteenth century. Mainstream economists now believe that capitalists do not earn profits by exploiting workers (see Profits). Instead, they believe, capitalists earn profits by forgoing current consumption, by taking risks, and by organizing production.