Are Marx and Keynes Compatible? Pt 5

Keynesian economists blame their failure on the trade unions

Keynesian economists in general—and some Marxists influenced by them—blame the failure of the Keynesian policies of the 1970s on the trade unions. Basing themselves on Keynes, they falsely blame the inflation of the 1970s not on the inflationary monetary policies of the central banks that were so strongly supported by Keynesian economists at the time but on the trade unions.

These economists claim that by achieving raises in money wages during the inflation, “over-strong” unions were responsible for the inflation of the 1970s. Supposedly, a “wage-price spiral” pushed money wages relentlessly higher forcing the central banks to periodically raise interest rates to prevent even worse inflation, which in turn led to the recessions and unemployment of the 1970s and early 1980s.

However, in reality it was the trade unions that found themselves increasingly on the defensive as both inflation and unemployment rose during the 1970s and into the early 1980s. What the Keynesian economists call the “wage-price spiral” of the 1970s was really a “price-wage spiral.” The unions were only reacting to the ongoing inflation in their attempts to maintain—not entirely successfully—the living standards of their members.

Are Marx and Keynes Compatible? Pt 4

The Keynesian revolution in economic policy

Before Keynes, neo-classical marginalist economists believed that capitalism was stable if left to its own devices. These economists held that a capitalist economy tended strongly toward an equilibrium at full employment of both workers and machines. Therefore, if a recession were to occur the response of the authorities should be pretty much confined to having the central bank lower the discount rate. Otherwise, the government should stay out of the way. As long as it did, the marginalists claimed, the capitalist economy would quickly move back to its only possible equilibrium position, “full employment.”

The events that followed World War I, especially the U.S.-centered Great Depression of 1929-1941, discredited this view. Under the influence of Keynes—and more importantly the Depression itself—most of the new generation of (bourgeois) economists believed that it was now the duty of the capitalist government to actively intervene whenever recession threatened.

Bourgeois economics split in two. One branch, purely theoretical, is called “microeconomics.” Microeconomics is simply the old marginalism. The branch that emerged from the Keynesian revolution is called “macroeconomics.”

Macroeconomics tries to explain the movements of the industrial cycle. More importantly, it seeks to arm the capitalist governments and “monetary authorities” with “tools” that will keep the capitalist economy from sinking again into deep depression with the resulting mass unemployment. The new stance of the bourgeois economists was that if the capitalist governments and their monetary authorities use the “tool chest” provided them by macroeconomics correctly, they should be able to maintain “near to full employment with low inflation.”

Full employment was defined by this new generation of (bourgeois) economists not the way workers would define it—everybody who desires a job can quickly find one—but rather as a level of unemployment sufficiently high to keep the wage demands of the workers and their unions in check but low enough to prevent wide-scale unrest that could lead to working-class radicalization and eventually socialist revolution.

Are Marx and Keynes Compatible? Pt 3

In the October 2010 edition of Monthly Review, John Bellamy Foster wrote that John Maynard Keynes demonstrated that ”the economy did not automatically [emphasis added—SW] equilibrate at full employment.” (“Notes from the Editors”)

Here Foster does not in any way distinguish his own views from those of Keynes. He seems to assume that Marx as well held the view that while capitalism does not automatically equilibrate at full employment it can be made to do so if the government and the monetary authorities follow policies designed to achieve full employment. This was indeed Keynes’s opinion. But did Marx agree? Is it really possible to achieve full employment under the capitalist system?

Are Keynes and Marx Compatible? Pt 2

John Bellamy Foster’s Case for Keynes

I explained in last month’s reply that John Maynard Keynes is the leading economist of non-Marxist progressives. Marxists themselves are sharply divided on the nature and usefulness of Keynes’s work and its relationship to Marxism.

As a rule, Marxists who support the Grossman-Mattick school or other schools that blame capitalist crises on the periodic inability of the capitalists to produce sufficient surplus value to maintain capitalist prosperity are quite hostile to Keynes’s work. According to these schools, the only way out of a capitalist crisis within the limits of the capitalist system is to increase the rate of surplus value―the rate of exploitation of the workers―and thus restore an “adequate” rate of profit for the capitalists.

Any attempts by a government inspired by Keynes’s theories to restore the purchasing power of the people during a capitalist crisis only makes it more difficult for the capitalists to restore an adequate production of surplus value. Therefore, the “not enough production of surplus value” schools of Marxist crisis theory hold that Keynesian policies only make a capitalist crisis worse. By spreading dangerous reformist illusions about the possibility of improving the condition of the working class and its allies within the capitalist system, these schools of Marxists claim the “Keynesian Marxist” tendencies such as the Monthly Review School build support for opportunist reformist tendencies within the workers’ movement.

Are Keynes and Marx Compatible?

In the October 2010 issue of Monthly Review, John Bellamy Foster has an article that praises once again the work of John Maynard Keynes. In this article, Foster presents evidence that perhaps the most important ideas that distinguished Keynes of the “General Theory” from the traditional marginalist economists of the time were inspired by Karl Marx himself. Foster’s latest article has drawn criticism from some corners of the Internet to the effect that Foster and Monthly Review are advocating Keynesian ideas rather than Marxism.

This is not a new charge against the Monthly Review School. Paul Sweezy, the founder of Monthly Review, never hid the fact that he was strongly influenced not only by Marx but by Keynes. Foster’s article in the October 2010 Monthly Review―and other recent articles by Foster along the same lines―combine with two other developments that raise anew the relationship between the economic theories of Marx and Keynes.

The first of these developments is the expected sharp gains of the U.S. Republican Party in the congressional, state and local elections scheduled to be held on Nov. 2. Along the same lines is the recent string of large gains by far-right anti-immigrant parties in Europe.

The second development is the apparent decision of the world’s central banks, headed by the U.S. Federal Reserve System, to engineer a new increase in the quantity of token―paper―money, dubbed by the media “quantitative easing,” in a bid to jump-start the stumbling recovery from the “Great Recession.” In anticipation of a new surge in the supply of token money, the dollar price of gold has been surging on the open market. It seems that a new wave of inflation-breeding currency devaluations may have begun, though in late October 2010, apparently alarmed by the spike in the dollar price of gold, the governments and central banks appear to be making efforts to dampen a bit the speculation regarding a new wave of currency devaluations.

While I have already written on Keynes and his relationship to Marx in my main posts, questions by readers and events demand that I take another look at the relationship between these two economic thinkers. This reply is therefore the first in a series of monthly posts on this subject.

Bichler, Nitzan and Hudson versus Marx

Reader B asks what I think of the views expressed in two articles.

Article one is by two professors of political economy, Shimshon Bichler and Jonathan Nitzan. Bichler teaches at colleges and universities in Israel, and Nitzan at York University in Canada. Article two is by U.S. economist Michael Hudson.

These two articles actually cover quite a lot of ground. Our reader correctly notices an echo of the views of the 19th-century American reformer Henry George. We can also see in these articles the influence of the Monthly Review School. The article by Bichler and Nitzan contains a long and I think revealing self-critical quote by Paul Sweezy that points straight to the weakness of the Monthly Review School.

Therefore, in these two articles we are dealing with three tendencies. One tendency represents the views of Shimshon Bichler and Jonathan Nitzan . A second tendency is the viewpoint of Michael Hudson, and a third the Monthly Review School of Baran and Sweezy and their successors at Monthly Review magazine. Of the three tendencies, only one, Paul Sweezy and his Monthly Review School, is considered a tendency within Marxism. Neither Bichler, Nitzan nor Michael Hudson are Marxists.

Andrew Kliman and the ‘Neo-Ricardian’ Attack on Marxism, Pt 2

Marx, Okishio and Kliman and the rate of profit

The more interesting part of Kliman’s book “Reclaiming Marx’s ‘Capital’” is actually not his non-treatment of the transformation problem but rather his treatment of the laws that govern the rate of profit. Of special concern for Kliman is the so-called Okishio theorem, which supposedly refutes Marx’s law of the tendency of the rate of profit to fall.

The Okishio theorem, which was clearly inspired by the “neo-Ricardians,” is named after the Japanese economist Nobuo Okishio, who developed it. Okishio began as a bourgeois marginalist mathematical economist but evolved toward Marx. Unfortunately, somewhere along the way he seems to have fallen into the “neo-Ricardian” swamp, which the Japanese economist perhaps confused with Marxism—apologies to Ricardo, who developed the law of labor value as far as he could rather than scrap it like the misnamed “neo-Ricardians” have done.

According to the Okishio theorem, as long as the real wage remains unchanged it will never be in the interest of an individual capitalist to adopt a method of production that will cause the rate of profit to fall. Marx showed that the real wage—the use values of the commodities the workers buy with the money they receive in exchange for their labor power—is determined by what is necessary to reproduce their labor power.

Marx explained that the real wage consists of two fractions. One is an absolute minimum that is required to biologically reproduce the workers’ labor power. The real wage can never fall below this level for any prolonged period of time. If it did, the working class would die out and surplus value production would cease. The second fraction is the historical-moral component, which depends on the history of a given country and the course of the class struggle. The latter fraction of the real wage enables the workers to a certain extent to participate in the fruits of the development of civilization.

By contrast, Okishio assumed that the real wage of the workers would never change. Okishio then went on to prove mathematically that assuming this unchanged real wage it would never be in the interest of an individual capitalist to adopt a method of production that would actually lower the rate of profit. Assuming this unchanged real wage, the only innovations that would be adopted by the capitalists would be those that would raise the rate of profit.

Making these assumptions and using a “neo-Ricardian” model, Okishio drew the conclusion that Marx’s law of the tendency of the rate of profit to fall was internally inconsistent and therefore invalid. Okishio’s conclusion is very disturbing to Andrew Kliman, because Kliman’s theory of crises depends entirely on a falling rate of profit and not on the problem of realizing surplus value. Therefore, from Kliman’s point of view, if the Okishio theorem cannot be disproved, capitalism should be able, at least in theory, to develop without crises.

Notice to Readers

Dear Readers,

Several people have offered to help translate the posts and replies into the Spanish language. This is a great idea.

A project such as represented by this blog and the planned ebook should ideally be as international as today’s capitalism and its global crises—that is, the system it is attempting to describe.

Andrew Kliman and the ‘Neo-Ricardian’ Attack on Marxism, Pt 1

[The following is the first of a two-part reply to a reader’s question. Since the reply had to be broken into two parts due to its length, part 2 will be posted two weeks after this part appears. My plan is to return to a monthly schedule after that.]

A while back a reader asked what I thought about the work of Andrew Kliman. Kliman is the author of a book entitled “Reclaiming Marx’s ‘Capital,’” published in 2007. In this book, Kliman, a professor of economics at Pace University, attempts to answer the claims by the so-called “neo-Ricardian” economists that Marx’s “Capital” is internally inconsistent. According to the “neo-Ricardians,” Marx was not successful in his attempts to solve the internal contradictions of Ricardo’s law of labor value.

The modern “neo-Ricardian” school is largely inspired by the work of the Italian-British economist and Ricardo scholar Piero Saffra (1898-1983). But elements of the “neo-Ricardian” critique can be traced back to early 20th-century Russian economist V. K. Dmitriev. Other prominent economists and writers often associated with this school include the German Ladislaus von Bortkiewicz (1868-1931) and the British Ian Steedman.

The Japanese economist Nobuo Okishio (1927-2003), best known for the “Okishio theorem”—much more on this in the second part of this reply—evolved from marginalism to a form of “critical Marxism” that was strongly influenced by the “neo-Ricardian” school.

In the late 20th century, the most prominent “neo-Ricardian” was perhaps Britain’s Ian Steedman. While Sraffa centered his fire on neoclassical marginalism, Steedman has aimed his at Marx. His best-known work is “Marx after Sraffa.” The “neo-Ricardian” attack on Marx centers on the so-called transformation problem and the Okishio theorem.

The Okishio theorem allegedly disproves mathematically Marx’s law of the tendency of the rate of profit to fall. The transformation problem is more fundamental than the Okishio theorem, since it involves the truth or fallacy of the law of labor value itself. I will therefore deal with the transformation problem in the first part of this reply and the Okishio theorem in the second part. However, Andrew Kliman seems to be more interested in the Okishio theorem for reasons that will soon become clear.

I have already dealt with the transformation problem in an earlier reply. But here I will take another look at it in the light of Kliman’s work.

Notice of New Schedule and eBook Project

I think the point has been reached to reduce the reply schedule to a monthly basis. However, questions and criticisms are still welcome, though the writing and posting of replies will be monthly instead of every other week.

Some time ago a reader suggested that the posts in this blog be converted to pdf format, in effect transformed into an ebook. I think the time has come to act on that suggestion.