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False consciousness is the Marxist thesis that material and institutional processes in capitalist society are misleading to the proletariat, and to other classes. These processes betray the true relations of forces between those classes, and the real state of affairs regarding the development of pre-socialist society (relative to the secular development of human society in general).
This is essentially a result of ideological control which the proletariat either do not know they are under or disregard with a view to their own POUM (probability/possibility of upward mobility). POUM (not to be confused with the Workers' Party of Marxist Unification, POUM) or something like it is required in economics with its presumption of rational agency; otherwise wage laborers would be the conscious supporters of social relations antithetical to their own interests, violating that presumption.
The concept flows from the theory of commodity fetishism – that people experience social relationships as value relations between things, e.g., between the cash in their wage packet and the shirts they want. The cash and the shirt appear to conduct social relations independently of the humans involved, determining who gets what by their inherent values. This leaves the person who earned the cash and the people who made the shirt ignorant of and alienated from their social relationship with each other. So the individual "resolves" the experiences of alienation and oppression through a false conception based on a "natural law" argument that there is a fundamental need to compete with others for commodities.
In Marxist terms, not only is there no such objective need separate from the formulation of the general problem of production and distribution for a given society, moreover, Marx said each against all competition is antithetical to the very concept of society and therefore sets up a contradiction or historical dynamic which over time is resolved in favour of the class with the greatest ability to act in its own rational self interest. Ruling elites, traditional or otherwise, suffer from false consciousness to the extent that they see the social orders they command as predetermined or inevitable.
Although Marx frequently denounced ideology in general, there is no evidence that he ever actually used the phrase "false consciousness." It appears to have been used – at least in print – only by Friedrich Engels 
Engels wrote  :
|–||Ideology is a process accomplished by the so-called thinker. Consciously, it is true, but with a false consciousness. The real motive forces impelling him remain unknown to him; otherwise it simply would not be an ideological process. Hence he imagines false or apparent motives. ...
It is above all this appearance of an independent history of state constitutions, of systems of law, of ideological conceptions in every separate domain, which dazzles most people. If Luther and Calvin –overcome– the official Catholic religion, or Hegel –overcomes– Fichte and Kant, or if the constitutional Montesquieu is indirectly –overcome– by Rousseau with his –Social Contract,– each of these events remains within the sphere of theology, philosophy or political science, represents a stage in the history of these particular spheres of thought and never passes outside the sphere of thought. And since the bourgeois illusion of the eternity and the finality of capitalist production has been added as well, even the victory of the physiocrats and Adam Smith over the mercantilists is accounted as a sheer victory of thought; not as the reflection in thought of changed economic facts but as the finally achieved correct understanding of actual conditions subsisting always and everywhere ...
Here Engels expresses semantic baggage associated with the term Ideology, i.e. that it implies a lack of objectivity, which the term had at the time of its introduction from German ( due in no small part to a reaction to Hegelianism). This has somewhat substantially been lost over the nearly two centuries since then as Ideology has come to be equivocated with World View or Philosophy. False consciousness is theoretically linked with the concepts of the dominant ideology and cultural hegemony. The idea of false consciousness has also been used by Marxist feminists and radical feminists in regard to womens studies.
The notion of false consciousness has been a focus for some critics of Marxism, because in this instance simplistic interpretations of Marxist theory can appear to be implicated in the worst cases of states such as the DPRK or former Soviet Union. Within the USSR, the state deployed the concept of false consciousness to justify authoritarian measures against the working class. Marxist critics of Stalinism, such as Trotsky and his followers, provide an account by which the theory is excused, on the basis that a corrupt regime is capable of perverting any theory.
The concept of ideology as false consciousness, even where it is accepted that Marx did not use the term, has tended to dominate interpretations of Marx's statements on ideology, although arguably this in fact involves a misunderstanding of Marx (see, for example, Joseph McCarney's essay "Ideology and False Consciousness").
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