Marxist or Keynesian macro? – Michael Roberts

Can we talk about Marxist ‘macroeconomics’? After all, macroeconomics is an invention of Keynesian economics through the development of the concept of gross domestic product and macro identities such savings equals investment etc.i Mainstream macroeconomics separated itself from microeconomics, the analysis of markets (supply and demand) or, to be more to the point, what is the value of a unit of production for sale. For the classical economists of the early 19th century capitalism, there was no distinction between the micro and the macro. The task was to analyse the motion and trends in ‘economies’ and for that a theory of value was a necessary tool but not an end in itself.

Microeconomics became an end in itself as a way of combating the dangerous development in classical economy towards a theory of value that implied the exploitation of labour and conflicting social relations. So the labour theory of value was replaced with the marginal utility of purchase by the consumer as a result.ii

Political economy’ started as an analysis of the nature of capitalism on an ‘objective’ basis by the great classical economists Adam Smith, David Ricardo, James Mill and others.  But once capitalism became the dominant mode of production in the major economies and it became clear that capitalism was another form of the exploitation of labour (this time by capital), then economics quickly moved to deny that reality.  Instead, mainstream economics became an apologia for capitalism, with general equilibrium replacing real competition; marginal utility replacing the labour theory of value and Say’s law replacing crises.

Macroeconomics appears in the 20th century as a response to the failure of capitalist production – in particular, the great depression of the 1930s. Something had to be done. John Keynesiii took marginalist theory from his mentor, Alfred Marshalliv, and dynamically moved it beyond supply and demand among individual consumers and producers onto the aggregate. Mainstream ‘bourgeois’ economics could no longer rely on the comforting theory that marginal utility would equate with marginal productivity to deliver a general equilibrium of supply and demand and thus a harmonious and stable growth path for production, investment, incomes and employment. The equality of aggregate supply and demand, Say’s law, was denied. It had to be recognised that capitalism was subject to booms and slumps, to (permanent) disequilibria, and thus to regular crises. And these crises had to be dealt with – to be ‘managed’. That required macroeconomic analysis.

In a sense, bourgeois economics had to put back the economic clock to classical economics – the study of aggregate trends – but without returning to ‘political economy’, which recognised that economics was really about social structure and relations and not a theory of things.

At first, it appeared that modern Keynesian macroeconomics had done the trick. In the ‘golden age’ of post-1948 capitalism, economic growth was strong, employment was full and incomes rose without significant increases in inequality (inequality was there, although, according to Thomas Piketty, it had been reducedv). So (macro) economics could provide policies to ‘manage’ capitalism successfully.

This turned out to be an illusion. The first simultaneous international recession of 1974-5 was followed by the deep slump of 1980-2 and growth slowed, unemployment rose and over the next three decades inequality of income and wealth rocketed. The final nail in the coffin of bourgeois macroeconomics was the Great Recession of 2008-9 and the subsequent Long Depression of low growth in output, trade, investment and wages for the last ten years.

Mainstream ‘bourgeois’ economics failed to spot the global financial crash and a slump that matched the crash of 1929 and the Great Depression. Mainstream economists considered a return of a similar crisis like the 1930s as impossible as most were stuck in the illusions of ‘demand management’ from the 1960s. Even worse, macroeconomics had suffered a reaction back to the ideas of general equilibrium and crises caused by ‘imagined shocks’. Dynamic stochastic general equilibrium (DSGE) models were the order of the day. Along with a revival of the equilibrium microeconomics of the marginalists and the Lucas Critiquevi, there developed a theoretical justification for deregulation, privatisation and weakening of the power of labour – wrapped up in the label of ‘neoliberalism’.

Recently, mainstream economists have been debatingvii why ‘economics’ was unable to see the global financial crash coming and/or provide effective policies to end it. Mainstream economists John Quiggin and Henry Farrell summed up the debateviii: some blame non-academic economists. Others blame prominent academics. Others still say that economic advice doesn’t really matter, because politicians will pay attention only to the advice that they wanted to hear anyway.”

But Quiggin and Farrell reckon the real reason that mainstream economics failed to be of any use was the lack of agreement among economists on what to do.  Economists could not agree on whether austerity was good or bad for the economy; or on whether economists had any influence over politicians.  And the reason for this lack of agreement was not due to differences on theory but to “sociology”.  By this they meant that mainstream economists are not pure objective ‘economists’ but are “deeply bound up with the political systems that they live within.”

Quiggin and Farrell explain that, “prominent academic economists, far more than other social scientists, are likely to go back and forth between universities and roles in the Treasury Department, Federal Reserve, International Monetary Fund and World Bank. This means that economics has far more political clout than other social sciences, but it also has reshaped the profession, turning external policy influence into an important form of internal disciplinary prestige.” 

In other words, economists with jobs in government and the central bank go with the flow (from the forces of capital): “So the world of economic politics and the world of economic thought are deeply intertwined. Channels of influence rarely flow only in one direction, as some economists have discovered to their dismay.”

This conclusion seemed to surprise as well as upset Quiggin and Farrell.  Yet, if they had read Marx, they would have expected nothing else.  As Marx pointed out 150 years ago, in a footnote to the chapter on Commodities and Money in Capital, while making the distinction between classical economics and vulgar economics“Once for all I may here state, that by classical political economy, I understand that economy which, since the time of W. Petty, has investigated the real relations of production in bourgeois society, in contradistinction to vulgar economy, which deals with appearances only, ruminates without ceasing on the materials long since provided by scientific economy, and there seeks plausible explanations of the most obtrusive phenomena, for bourgeois daily use, but for the rest, confines itself to systematizing in a pedantic way, and proclaiming for everlasting truths, the trite ideas held by the self-complacent bourgeoisie with regard to their own world, to them the best of all possible worlds”ix 

Even earlier, Frederick Engels had anticipated the trend of economics in his Outlines Of A Critique Of Political Economy in 1843: “The nearer to our time the economists whom we have to judge, the more severe must our judgment become. For while Smith and Malthus found only scattered fragments, the modern economists had the whole system complete before them: the consequences had all been drawn; the contradictions came clearly enough to light, yet they did not come to examine the premises and still accepted the responsibility for the whole system. The nearer the economists come to the present time, the further they depart from honesty”.

And in Theories of Surplus Value, Marx described the vulgar economists—by no means to be confused with the economic investigators we have been criticising—translate the concepts, motives, etc., of the representatives of the capitalist mode of production who are held in thrall to this system of production and in whose consciousness only its superficial appearance is reflected.  They translate them into a doctrinaire language, but they do so from the standpoint of the ruling section, i.e., the capitalists, and their treatment is therefore not naïve and objective, but apologetic.”x

In other words, all the obstruse theory presented by modern mainstream economics is presented as purely neutral, unbiased and logical, but in reality it is not “naïve and objective” but merely an apologia for the capitalist mode of production. “It was henceforth,” Marx wrote, “no longer a question whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. Pure, selfless research gave way to battles between hired scribblers, and genuine scientific research was replaced by the bad conscience and the evil intent of apologetic”.xi 

Recently, two mainstream economistsxii commented: “Any scientific enterprise needs to be grounded in solid empirical knowledge about the phenomenon in question. Milton Friedman put this well in his Nobel lecture in 1976: “In order to recommend a course of action to achieve an objective, we must first know whether that course of action will in fact promote the objective. Positive scientific knowledge that enables us to predict the consequences of a possible course of action is clearly a prerequisite for the normative judgment whether that course of action is desirable.” 

Sounds good, but unfortunately, they continued: “Many of the main empirical questions in macroeconomics are the same as they were 80 years ago when macroeconomics came into being as a separate sub-discipline of economics in the wake of the Great Depression. These are questions such as: What are the sources of business cycle fluctuations? How does monetary policy affect the economy? How does fiscal policy affect the economy? Why do some countries grow faster than others? Those new to our field or viewing it from afar may be tempted to ask: How can it be that after all this time we don’t know the answers to these questions?”  Indeed!

However, the authors remain optimistic. For them, the problem is not that economists are locked into an apologia for the capitalist system, but that it is difficult to ‘identify’ the right variables in any causal analysis. In other words, economics is a positivist science like physics but it is just behind in its understanding of ‘the economy’ compared to physics because of the extra difficulty in empirical work.

Economics could progress in the same way that ‘natural science’ has. Macroeconomics and meteorology are similar in certain ways. First, both fields deal with highly complex general equilibrium systems. Second, both fields have trouble making long-term predictions. For this reason, considering the evolution of meteorology is helpful for understanding the potential upside of our research in macroeconomics. In the olden days, before the advent of modern science, people spent a lot of time praying to the rain gods and doing other crazy things meant to improve the weather. But as our scientific understanding of the weather has improved, people have spent a lot less time praying to the rain gods and a lot more time watching the weather channel.“

Unfortunately for the authors, such progress towards the truth will not take place in economics. To think so is just naïve. To quote Milton Friedman as the epitomy of unbiased, objective positivist scientific analysis demonstrates that naivety. Friedman was the peer example of an ideologist for capital, including his job as an advisor for General Pinochet after his coup against the democratically elected government of Chile in the 1970s.

Yes, economics is a science, in my view.  More accurately, as Marx says, it is political economy, the study of the social relations of the capitalist mode of production. Yes, we need to test economic theories against the facts xiii by identifying the causal variables. Indeed, we should make predictions to test our theories.xiv

But do not expect the body of mainstream economics to do so in any systematic way.  It has been hopelessly distorted by the need to preserve and defend the capitalist system.  As the authors say: “Policy discussions about macroeconomics today are, unfortunately, highly influenced by ideology. Politicians, policy makers and even some academics have held strong views about how macroeconomic policy works that are not based on evidence but rather on faith.”

Ten years since the Great Recession, it is worth reminding ourselves of some of the lessons and implications of that economic earthquake.xv First, the official institutions and mainstream economists never saw it coming.  In 2002, the head of the Federal Reserve Bank, Alan Greenspan, then dubbed as the great maestro for apparently engineering a substantial economic boom, announced that ‘financial innovations’ i.e. derivatives of mortgage funds etc, had ‘diversified risk’ so that “shocks to overall economic will be better absorbed and less likely to create cascading failures that could threaten financial stability”.  Ben Bernanke, who eventually presided at the Fed over the global financial crash, remarked in 2004 that “the past two decades had seen a marked reduction in economic volatility” that he dubbed as the Great Moderation. And as late as October 2007, the IMF concluded that “in advanced economies, economic recessions had virtually disappeared in the post-war period”.xvi

Once the depth of the crisis was revealed in 2008, Greenspan told the US Congress, “I am in a state of shocked disbelief” He was questioned “in other words, you found that your view of the world, your ideology, was not right, it was not working” (House Oversight Committee Chair, Henry Waxman). “Absolutely, precisely, you know that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well”.xvii

The great mainstream economists were no better.  When asked what caused the Great Recession if it was not a credit bubble that burst, Nobel Prize winner and top Chicago neoclassical economist Eugene Fama respondedxviiiWe don’t know what causes recessions. I’m not a macroeconomist, so I don’t feel bad about that. We’ve never known. Debates go on to this day about what caused the Great Depression. Economics is not very good at explaining swings in economic activity… If I could have predicted the crisis, I would have. I don’t see it.  I’d love to know more what causes business cycles.”

Soon to be IMF chief economist, Olivier Blanchard, commented in hindsight that, “The financial crisis raises a potentially existential crisis for macroeconomics.” … some fundamental [neoclassical] assumptions are being challenged, for example the clean separation between cycles and trends” or “econometric tools, based on a vision of the world as being stationary around a trend, are being challenged.xix

As for the causes of the global financial crash and the ensuing Great Recession, they have been analysed ad nauseam since.  Mainstream economics did not see the crash coming and were totally perplexed to explain it afterwards. The crash was clearly financial in form: with collapse of banks and other financial institutions and the weapons of mass financial destruction, to use the now famous phrase of Warren Buffett, the world’s most successful stock market investor.  But many fell back on the theory of chance, an event that was one in a billion; ‘a black swan’ as Nassim Taleb claimed.xx

Alternatively, capitalism was inherently unstable and occasional slumps were unavoidable. Greenspan took this view: “I know of no form of economic organisation based on the division of labour (he refers to the Smithian view of a capitalist economy), from unfettered laisser-faire to oppressive central planning that has succeeded in achieving both maximum sustainable economic growth and permanent stability. Central planning certainly failed and I strongly doubt that stability is achievable in capitalist economies, given the always turbulent competitive markets continuously being drawn toward but never quite achieving equilibrium.  He went on, “unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible.  Assuaging the aftermath is all we can hope for.”xxi

Many saw only the surface phenomena of the financial crash and concluded that the Great Recession was the result of financial recklessness by unregulated banks or a ‘financial panic’.  This coincided with some heterodox views based on the theories of Hyman Minsky, radical Keynesian economist of the 1980s, that the finance sector was inherently unstable because “the financial system necessary for capitalist vitality and vigour, which translates entrepreneurial animal spirits into effective demand investment, contains the potential for runaway expansion, powered by an investment boom.”  Steve Keen, a follower of Minsky put it thus: “capitalism is inherently flawed, being prone to booms, crises and depressions.  This instability, in my view, is due to characteristics that the financial system must possess if it is to be consistent with full-blown capitalism.”xxii  

Of the mainstream Keynesians, Paul Krugman railed against the neoclassical school’s failings but offered no explanation himself except that it was a ‘technical malfunction’ that needed and could be corrected by restoring ‘effective demand’.xxiii 

But what about Marxist macroeconomics or to be more exact Marxian political economy? Were the practitioners of Marxism able to offer answers that the mainstream failed to do? My answer is short: in so far as Marxist economists adopted the macro analysis of Keynesian economics, they failed. In so far as they rejected Keynesianism and relied on Marx’s law of value (rejected by Keynes) and on his law of profitability (ignored by the mainstream), Marxist economists had something to say.

Most Marxists did not see the crash and the ensuing Great Recession coming either.  There were a few exceptions:  In 2003, Anwar Shaikh reckoned the downturn in the profitability of capital and the downwave in investment was leading to a new depression.xxiv And yours truly in 2005 said: “There has not been such a coincidence of cycles since 1991. And this time (unlike 1991), it will be accompanied by the downwave in profitability within the downwave in Kondratiev prices cycle. It is all at the bottom of the hill in 2009-2010! That suggests we can expect a very severe economic slump of a degree not seen since 1980-2 or more” xxv .

Very few Marxist economists looked to the original view of Marx on the causes of commercial and financial crashes and ensuing slumps in production.  Most Marxists accepted something similar to the Minskyite view, seeing the Great Recession as a result of ‘financialisation’ creating a new form of fragility in capitalism.xxvi

However, some did return to what Marx said and tried to make it relevant to now. One such was Guglielmo Carchedi, who summed that view up in his excellent, but often ignored Behind the Crisis with: “The basic point is that financial crises are caused by the shrinking productive base of the economy. A point is thus reached at which there has to be a sudden and massive deflation in the financial and speculative sectors. Even though it looks as though the crisis has been generated in these sectors, the ultimate cause resides in the productive sphere and the attendant falling rate of profit in this sphere.”xxvii Agreeing with that explanation, the best Marxist macro book on the crash remains that by Paul Mattick Jnr, Business as usual. xxviii

Marxist ‘macro’ has generally failed because it has been more Keynesian than Marxian; and it has been too easily attracted to the surface of things and not to the inner core of socio-economic relations under capitalism. The Marxian law of value has been regarded as irrelevant; the Marxian law of accumulation has been ignored; and the Marxian law of profitability denied. So Marxian macro has not developed a clear explanation of the causes of recent crises.

If we do not develop general theories then we remain in ignorance at the level of surface appearance.  In the case of crises, every slump in capitalist production may appear to have a different cause.  The 1929 crash was caused by a stock market collapse; the 1974-5 global slump by oil price hikes; the 2008-9 Great Recession by a property crash.  And yet, crises under capitalism occur regularly and repeatedly.  That suggests that there are underlying general causes of crises to be discovered.  Capitalist slumps are not just random events or shocks.

The scientific method is an attempt to draw out laws that explain why things happen and thus be able to understand how, why and when they may happen again.  Of course, it is difficult to get accurate scientific results when human behaviour is involved and laboratory experiments are ruled out.  But the power of the aggregate and the multiplicity of datapoints help.  Trends can be ascertained and even points of reversal. The Lucas critique was an attempt to deny this.

A general theory of crises also reveals that capitalism is a flawed mode of production that can never deliver a harmonious and stable development of the productive forces to meet people’s needs across the globe.  Only its replacement by planned production in common ownership offers that.

Marxist economics often seems divided between those who spend their time pouring over Marx’s works to understand their deeper meaning without relating it to contemporary events; and those who take empirical evidence without analysing through ‘the prism of value’ and so end up repeating the mistakes of bourgeois macro.

Interpreting Marx’s voluminous writings to ascertain what in his theory of crises is useful, but only to some extent.  Marx’s contribution must be the foundation of any effective and relevant theory of crises under capitalism.  But there can be many interpretations and Marx’s unfinished works lead to ambiguities that can exercise academics and scholars for a lifetime!  So there are severe limits on this type of research.  Even if we were to agree on what Marx’s theory of crises is (or even that he had one – because that is disputed), what if he were just wrong?

Moreover, it is 150 years since Marx developed his analysis of capitalism based on the main example of British capital in the mid-19th century.  The world and capitalism has moved on since then – in particular, it is the US that is now the dominant hegemonic capital, capitalism is now global and controlled even more than before by finance capital.  Thus a theory of crises must take into account these new developments.  Also, we have much more data and information to work on compared to Marx’s limited access.  The task now is not to keep analyzing and re-interpreting Marx, but to stand on his shoulders and raise our understanding. Marxian macro, like mainstream macro, faces the difficulties of empirical research, but that is no excuse for not trying.

For example, the difficulties of measuring the rate of profit from the view of Marxian categories are manifold.  First, we must use official statistics that are not accumulated in the best way to measure Marxian categories.  Indeed, some Marxist economists reckon that trying to measure the rate of profit using official statistics in money is impossible and pointless.  Others reckon that the data are so poor we cannot do it practically.  It is the job of any scientific analysis to overcome these theoretical and practical difficulties in measurement.  And many Marxist economists are doing just that.

On categories, should we measure the rate of profit of the whole economy, or just the capitalist sector, or just the corporate sector, or just the non-financial corporate sector, or just the ‘productive’ sector?  Should or can we include variable capital and circulating capital in the denominator?  Should we measure gross profit or net profit after depreciation?  Can we measure depreciation correctly?

Yes, there are big differences in the level of the rate of profit in different countries.  Theoretically, Marx’s law would suggest a higher rate of profit in so-called emerging economies where the organic composition of capital should be lower (more use of human labour).  And we would expect that, as these countries industrialise, the organic composition of capital would rise and the rate of profit would fall.  And the empirical work that has been done shows just that.xxix

Theoretically too, we would expect capital flows to be towards those economies with higher rates of profit.  There is some evidence to suggest this is the case – in the period of globalization, capital flows to the emerging economies rose sharply. But it is also the case that flows among the more advanced economies (Europe, US, Japan) are still larger.  That is perhaps due to trade and investment pacts and the huge stock of capital already in these areas.  Finance capital flows more efficiently and effectively there.  Also in the recent period of ‘financialisation’ and with falling profitability in productive capital, capital has flowed into fictitious capital markets (portfolio capital) and not into the more productive sectors. All these various measures are useful and possible.  The data are available for many major economies and many Marxist scholars have now made such measurements. 

What increases confidence in this work is that, by and large, whatever measure is used, it shows, for most countries, over time that the rate of profit has been fallingxxx, of course, not in a straight line because there are periods when the ‘counteracting factors’ dominate, if only for a while.  And each major slump produces a temporary recovery in profitability.  But these turning points are also broadly at the same time.  All this increases confidence that Marx’s law of profitability is valid and relevant to an explanation of recurrent crises under capitalism and also its eventual demise as a mode of production.

And yet Marx’s law is denied or ignored, not only by mainstream macro but also by the majority of Marxian economists. The reason that profitability is not considered in any discussion of crises is both ideological and theoretical. Mainstream economics has no real theory of crises anyway: crises are just chance, random events or shocks to harmonious growth under capitalism; or they are the result of the interference in competition and markets by governments, or central banks; or they are result of monopoly or financial recklessness or greed.  Mainstream economics also denies any role or concept of profit in its marginalist theories of production and demand. 

This is deliberate: there is no place for a theory of profit based on the exploitation of labour power (Marx’s value theory).  Diminishing returns on utility and productivity lead to no profit at the point of equilibrium. Also, heterodox/Keynesian theories deny the role of profit, as they too are based on marginalism and (im)perfect competition. Crises are therefore the result of a ‘lack of effective demand’ caused by an ‘irrational’ change in expectations (‘animal spirits’). It has nothing to do with the profitability of capital, apparently – or more precisely the exploitation of labour. And yet capitalism is a system of production for profit in competition.  So why is profit not a determinant in investment and production?  It is an ideological refusal to accept that.  Instead apparently, everybody gets their fair share according to their (marginal) contribution.  The mainstream finds no explanation of crises as a result; and the Keynesians look to ‘demand’ not profit as the driver of crises.

The mainstream view is understandable – as it represents the interests of capital, not labour and so denies the social contradictions involved. But it is less understandable why Marxian macro, on the whole, rejects profit and profitability as the underlying driving force of capital and thus regular and recurring crises of capitalism.

Take the most eminent Marxist economist today – with the widest popular appeal – David Harvey. Harvey has made it clear on numerous occasions that Marx’s law of profitability is irrelevant, wrong and even rejected by Marx himself (in his later years). So we must look away from the contradictions of the production of surplus value as the kernel of macroeconomic crises and instead consider the contradictions in other parts of the ‘circuit of capital’, namely the realisation and distribution of surplus value or profit.xxxi Harvey’s arguments are mainly theoretical and descriptive. There is little or no empirical work.

On the other hand, eminent Marxian economists, Gerard Dumenil and Dominique Levy base themselves very much on the data.xxxii D-L argue that the depression of the 1880s was a classic profitability crisis; that the crash of 1929 and the depression of the 1930s was not.  Instead it was one of rising inequality and debt, sparking a speculative slump.  The 1970s was another classic profitability crisis, but the global financial crash of 2008 and the Great Recession was similar to 1929 and the 1930s – a result of rising inequality and debt. Their main argument against the relevance of Marx’s law of profitability as an explanation of crises is the rise in profitability in the major economies from the 1980s.

But this development is explained by Marx’s law. Although profitability in the major economies stopped falling from the early 1980s up to the end of the 20th century due to counteracting factors, one of those counteracting factors was the switch from productive capital, where profitability did not recover, to financial and unproductive sectors like property.  Financial profits boomed and investment went into ‘fictitious’ sectors. 

Financialisation’ could be the word to describe this development.  But this buzz word in Marxist macro should not mean that finance capital is now the decisive factor in crises or slumps.xxxiii  Nor does it mean the Great Recession was just a financial crisis or a ‘Minsky moment’ (to refer to Hyman Minsky’s thesis that crises are a result of ‘financial instability’ alone).xxxiv Crises always appear as monetary panics or financial collapses, because capitalism is a monetary economy.  But that is only a symptom of the underlying cause of crises, namely the failure to make enough money! 

If Harvey and Dumenil-Levy are right, then we Marxists do not have a viable general theory of crisis as each major crisis under capitalism appears to have a different cause. So we may then have to fall back on the theories of the post-Keynesian/neo-Ricardians who look to a distribution theory, namely that some crises are ‘wage-led’ like the current one due to falling wage share resulting in a lack of wage demand; or ‘profit-led’, like the 1970s when wages squeezed profits.

But the evidence does not show that Harvey, Dumenil-Levy or the post-Keynesians are right.  All the major crises came after a fall in profitability (particularly in productive sectors) and then a collapse in profits (industrial profits in the 1870s and 1930s and financial profits at first in the Great Recession).  Wages did not collapse in any of these slumps until they started.

And Marx’s theory of crises does stand up to time. Marx’s law of profitability is intimately connected with Marx’s value theory as it rests on two assumptions, both realistic in Marx’s view.  The first is that all value is created by labour alone (in conjunction with natural resources) and that the capitalist mode of production and competition leads to a rising organic composition as a trend.  But capitalism is a monetary economy.  Capitalists start with money as the crystallised form of previously accumulated value, and then advance money to buy means of production and employ a labour force, which in turn produces a new commodity or service (new value) which is sold on the market for money.  Money leads to more money through the exploitation of labour.

Capitalism is a monetary economy but it is not a money economy (alone).  Money cannot make more money if no new value is created and realized.  And that requires the employment and exploitation of labour power.  Marx said it was a fetish to think that money can create more money out of the air.  Yet mainstream and some heterodox (even Marxist) economists seem to think it can.  When central banks expand the money supply through printing ‘fiat’ money or creating bank reserves (deposits), more recently so-called quantitative easing, this does not expand value.  It would only do so if this money is then put to productive use in increasing the means of production or the workforce to increase output and so increase value.  But, as Marx argued way back in the 1840s against the ‘quantity theory of money’, just expanding the supply of ‘fiat’ money will not increase value and production but is more likely to inflate prices and thus devalue the national currency, or inflate financial asset prices.  It is the latter that has mostly happened in the recent period of money printing.  Quantitative easing has not ended the current global depression but merely sparked new financial speculation. 

Unlike the Keynesians, the movement of personal consumption is not the driver of slumps, it coincides with them, and so is part of the description of a slump.  Indeed, personal consumption does not fall much in recessions (even in the Great Recession).  What does fall heavily is capitalist investment and this drops before the slump or any fall in consumption or employment.xxxv  So business investment is the driver not consumption.  Investment is part of ‘aggregate demand’ to use the Keynesian category, but it is led by profits and profitability – contrary to the theoretical view of Keynes-Kalecki who see investment as creating profit.  Their view is partly because Keynes and Kalecki accepted marginalism and rejected Marx’s value theory of profit as coming from the exploitation of labour.  Indeed, for Kalecki, profit is only ‘rent’ that comes from monopoly power replacing competition.  Thus we have loads of heterodox explanations of modern capitalism as one of ‘rent extraction’, monopoly capital, finance capital – but not plain capitalism making profit from the exploitation of labour.

If Marx’s laws of value, accumulation and profitability are invalid, either logically or empirically, then we would have to recognise that alternative macro theories may be right that imply capitalism can succeed, with or without ‘management’. And macroeconomic policies designed to ‘correct’ disequilibria can work.

Indeed, this is the message of many leftist heterodox economists that rely on a radical version of Keynesian theory. Keynes saw all his policies as designed to save capitalism from itself and to avoid the dreaded alternative of socialism. xxxvi For the most part, I think that Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organisation which shall be as efficient as possible without offending our notions of a satisfactory way of life.”  So “the class war will find me on the side of the educated bourgeoisie.”  

Keynes reckoned that as capitalism expanded, it would, through more technology, create a world of abundance and leisure.  Because of that abundance, the return on lending money to invest would fall.  So bankers and financiers would no longer be necessary; they could be phased out.  Well, that does not seem to be happening.  Indeed, the very ‘heterodox economists’ who claim that Keynes is a ‘progressive’ economist with great similarities to Marx now argue that capitalism is being distorted by ‘financialisation’ and finance capital – and that is the real enemy.  But what happened to the gradual phasing out of finance in late capitalism a la Keynes?

In contrast, Marx’s theory of finance capital did not foresee a gradual removal of finance; on the contrary, he describes the increased role of credit and finance in the concentration and centralisation of capital in late capitalism.  Yes, the functions of management and investment become more separated from the shareholders in the big companies, but this does not alter the essential nature of the capitalist mode of production – and certainly does not imply that coupon clippers or speculators in financial investment will gradually disappear.

So I reckon that the differences between Keynes and Marx are fundamental and any superficial similarities pale in comparison.  That is important because it is Keynesian macro that dominates in the labour movement, not Marxist macro, 200 years after his birth.xxxvii

vi The Lucas critique, named for Robert Lucas’s work on macroeconomic policymaking, argues that it is naive to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data https://thenextrecession.wordpress.com/2018/01/21/the-macro-whats-the-big-idea/

xxx See Carchedi and Roberts, A world in crisis: a global analysis of Marx’s law of profitability, Haymarket October 2018.

xxxiii file:///C:/Users/ToshibaT/Downloads/2ndWorldMarxismCongresspaper%20(1).pdf