2. The economic theory of Marxism is clearer than
the theory of historical materialism, and events have
more clearly invalidated it by negating its specific
predictions especially the pauperization of the working
classes, and the continuous decline in the rate of profit.
The theory failed to predict the rise of what has been
called the “new middle class” of the service industries
as well as the economics of the totalitarian state, on
the one hand, and of the welfare state, on the other.
Even before events invalidated the Marxist economic
assumptions, the theoretical structure of Marxist eco-
nomics never recovered from Eugen Böhm-Bawerk's
searching critique in the 1890's of its inconsistencies.
Much more successful were the Marxist predictions
about the historical development of capitalism, even
though they did not uniquely follow from his theory
of value and surplus value. The Marxists foresaw the
growth of monopolistic tendencies, the impact of sci-
ence on industrial technology, the periodic business
cycle (although mistaken about its increasing magni-
tude), and imperialistic expansion in quest for foreign
markets. Although Marxists anticipated progressive and
cumulative difficulties for the capitalist system, as
Joseph Schumpeter and others in the twentieth century
have pointed out, they failed to see that these difficul-
ties resulted from the successes of the system rather
than from its failures.
