Keynes Attempts To Generalize Marginalist Theory

In previous chapters, we saw that Keynes denied that the unpaid labor of the working class produced surplus value. So, how does surplus value — profit, interest, and rent — arise, according to Keynes, if the working class does not produce it?

Ricardo and Marx vs. Keynes

Ricardo, unlike Adam Smith, attempted to use the law of labor value consistently. He sensed that this law applied not only to simple commodity production but also to capitalism proper. Ricardo was only partially successful in this, but he was on the right track. He realized that price is a relationship between the commodities whose price is being measured and the money commodity — gold — in which the commodity’s price is reckoned.

Keynes on the ‘Classical’ Marginalist Economists

In the second chapter of his “General Theory of Employment, Interest, and Money,” Keynes summarizes the theories of the “classical economists.” Keynes uses the same terminology that Marx uses and indeed borrowed the terminology from Marx. However, Keynes referred to the “classics” of marginalism, or rather, he lumped together the marginalists with the classical economists in Marx’s sense of the term.

The Origins of Keynes’s Views

Keynesian economics represented a major retreat from economic liberalism by bourgeois political economy under the blows of the Depression of the 1930s. But what was the doctrine that Keynesian economics reacted against?

Keynes and the Attempts to Mitigate Capitalist Crises of Overproduction

The Ideas of John Maynard Keynes

The ideas of the English economist John Maynard Keynes achieved their greatest influence during the 1960s and early 1970s. Keynes was widely credited by his followers among the economists and others in those days for saving capitalism.

Ricardo’s Theories of International Trade Challenged by the Crises of 1825 and 1837

In 1825, shortly after Ricardo’s death, the first global crisis of overproduction swept over Britain. A second global crisis erupted in 1837 with far more devastating results. It was followed by years of industrial depression and mass unemployment. Stormy class struggles broke out, from which came the Chartist movement, the first mass working-class political party. It was during the depression that followed the 1837 crisis that Marx and Engels were themselves radicalized.

The Ricardian Theory of International Trade

Our examination of the laws governing international trade begins with David Ricardo’s theory of comparative advantage. This theory has dominated bourgeois political economy as regards the theory of international trade for the last two centuries. It has survived the transition from his theory of value based on the quantity of labor socially necessary to produce a commodity of a given use value and quality to the modern marginalist theory of value. It has also survived the transition from the gold standard to the universal use of so-called fiat money.

Value, Price and Crisis

Marx noted that in the boom phase of the industrial cycle — the introduction of technical advances — state-of-the-art machinery will reduce the price of production while the general price remains stable or even rises. So prices tend to rise.

World Trade and Crisis Theory

In the last few chapters, we examined an ideal capitalist industrial cycle. To simplify, we assumed the capitalist world was a single country with a gold-bullion-standard currency system. Based on these assumptions, we saw that once capitalism developed to the point where it acquired the ability to carry out sudden expansions of industrial production, an industrial cycle with all its phases of crisis, depression-stagnation, average prosperity, and boom emerged.

The Boom Phase

The boom phase of the industrial cycle is of particular interest for crisis theory. It is only during a boom that capitalist expanded reproduction develops with anything approaching full force. But because it is developing vigorously, so too do its contradictions grow until they again find vent in a crisis.