Socialist Studies
|
|
|
Marxian
Economics
in the Real World
Introduction
Economists
claim that they can get behind surface appearances and tell us what
really determines such things as prices, wages, profits, foreign exchanges,
market demand, unemployment and so on, and what will be the consequences
of developments in industry, or of government measures in the field
of taxation, currency and wage and price controls.
|
The test for any
economic theory is a practical one. Was Marx right, for example, in
denying the proposition that wage increases are useless because they
put up prices? Or was Keynes right in claiming that if governments
take certain action they can ensure continuous full employment? With
this practical consideration in mind the question presents itself:
have Marx's economic theories, elaborated over a hundred years ago,
any relevance today, or was Keynes right when he described Marxian
economics as "not only scientifically erroneous but without
interest or application for the modern world"?
Before
answering the question it is useful to note how and why the study
of Marxian economics has changed with the passage of time.
In
Britain and other countries in the "Western World"
interest in Marx's philosophical and political writings has never
been as great as it is now, as shown by the flood of reprints of works
by Marx. The Internet, for example, has the entire works of Marx readily
available to read and download.
Partly
this was the result of the "Cold War". In the 1960's
influential American politicians (among them Richard Nixon when Vice-President,
and Allen Dulles, Director of the Central Intelligence Agency) were
urging the need for schools to include the study of Marx in their
curriculum so that there would be a better understanding of the then
"enemy", Soviet Russia, its leaders and their policies.
The economist R.P. Wolff, for example, believes the University of
Massachusetts at Amherst "has the finest faculty of radical
and Marxian economists in the United States" although, if
his book "UNDERSTANDING MARX" (1984) is anything to go by
we should be asking "who should be teaching the teachers?"
since the book demonstrates a complete misunderstanding of Marx's
critique of political economy. Marx is treated as an academic economist
not a revolutionary socialist with applicable socialist ideas for
today's class struggle.
Unfortunately
for the US, a study of Marx by academics would have told them as much
about the policies of Russian state capitalism as a study of Darwin's
works would have told someone about Hitler's racial theories during
the 1930's. Look what happened. State Capitalism collapsed and the
Russian system was shown to have all the hallmarks of capitalism found
in the West: wage labour and its exploitation, trade, and the production
for profit of commodities for the world market. It was the Reconstituted Socialist Party of Great Britain (1991), using Marx's materialist conception of history
that, in 1918, showed that Russia could not be socialist and could
only at that stage develop on capitalist lines within a world market
system.
Russian
state capitalism had nothing to do with the ideas of Marx and this
is borne out by continued study of Marx's writings today, a decade
after the tearing down of the Iron Curtain. The interest in
Marx's ideas has survived the end of the "Cold War"
and the collapse of state capitalist regimes in Central and Eastern
Europe. Marx's place as an original thinker in the fields of history,
social science and anthropology is assured (one of the bestsellers
of 1999 was Francis Wheen's autobiography of Marx). Few 19th century
thinkers are held in such high esteem. And Marx's critics cannot leave
him alone. A week does not go by without an article being printed
trying to refute what Marx wrote. If Marx was so wrong why bother
wasting time with him?
But
interest in Marxian economics has followed a different course from
that of other Marxist studies. The twenty-year "Great Depression"
of the last quarter of the nineteenth century forced governments,
economists and capitalists to look for an explanation of the seeming
universal "overproduction" of commodities, an explanation
they could not find in the works of older economists, and Marx came
in for a great deal of attention if only to combat the growing interest
in him shown by dissatisfied workers and their organizations.
This
continued right into the years of the next acute depression in the
nineteen-thirties. Then the scene was drastically changed by Keynes'
rise to fame, based on his confident assertion that governments need
no longer put up with idle factories, falling profits and mass unemployment,
with all their devastating economic and political consequences.
In
the late 1950's the Keynesian, Paul Samuelson, wrote off Marx as a
"minor post-Ricardian" and an "autodidact"
(WAGES AND INTEREST: A MODERN DISSECTION OF MARXIAN ECONOMIC MODELS
American Economic Review 47:884-912). Samuelson believed, at
the time, that economic crises had been abolished by government management
of the economy on lines set out by Keynes in his General Theory. Samuelson
is still alive, an emeritus professor of economics and living through
yet another economic depression in the US. Samuelson's whole economic
life's work has been an utter waste of time. Yet Marx's explanation
of capitalism's repeated economic crises has proved to be true. Not
bad for an "autodidact". Marx puts Samuelson to shame.
Back to top
Keynes
Ousts Marx
The
effect of the post-war Keynesian upsurge on the study of and interest
in Marxian economics was striking, not only in the universities but
also in the political parties and trade unions. At the universities
further study of Marx became irrelevant-why waste time on reading
difficult works such as CAPITAL, that "obsolete textbook"
as Keynes called it? What happened was that Marx came to be regarded
as an example of discarded error. As Professor Robert Freedman put
it in 1961: "Most students of Marxian economics rarely read
the master, but are content to let his critics speak for him".
In
Britain, the Tory, Labour and Liberal Parties found common ground
as disciples of Keynes, or of what they (sometimes mistakenly) believed
to be Keynesian doctrine. The official Labour Party version in 1944
was in the following terms:
If
bad trade and general unemployment threatens, this means that total
purchasing power is falling too low. Therefore at once we should increase
expenditure, both on consumption and on development, i.e. both on
consumer goods and capital goods. We should give people more money
and not less, to spend.
The
trade unions were delighted to welcome the prospect that a future
Labour government (or even a Tory one) would encourage them to press
for higher wages. How much more pleasing this was to them than the
customary action of employers (backed by 19th century economists)
of seeking to restore profit margins in a depression by reducing wages;
or than the teaching of Marx that capitalism's periodic crises and
depressions happen anyway and neither higher or lower wages will prevent
them. The trade union enthusiasm for Keynes failed to notice that
what he was proposing to meet such a situation was to reduce the workers'
real wages by putting up prices instead of reducing their money wages.
One
effect of the Keynesian cult was that a number of people who had called
themselves Marxists recanted (John Strachey, for example, who took
office in the Attlee Labour Government was one) and the group of trade
union officials and Labour MPs who had studied Marxian economics became
silent. The Communist Party of Great Britain, which continued to urge
the study of Marxian economics by its members, had no difficulty supporting
the incompatible Keynesian doctrines of the unions and the Labour
Party. The Communist Party's political deceit has been taken over
by the Socialist Workers Party who tells workers to vote for Labour
at elections despite Labour's anti-working class policies.
Three
depressions in as many decades since the 1970's has meant that the
scene is changing once again and there is the beginning of a revival
of interest in Marxian economics although much of it is crude and
primitive. Marx, for example, has been favourably included in the
book FIFTY MAJOR ECONOMISTS (1999) by the American economist, Professor
Steven Pressman. This is because much of what Marx wrote about capitalism
and its anarchic form of commodity production has been proven by experience,
not necessarily because economists are accepting his ideas. Two areas
of experience have brought this about, the growing recognition of
the failure of full employment policy and the unprecedented and uncomprehended
rise in prices.
Because,
for other reasons, unemployment happened to be very low in Britain
and many other countries in the first decade after the second world
war, it was easy to represent this as a proof that Keynes was right,
but in Britain the steady climb of the peaks of unemployment since
1955 back at least to pre-1914 levels, has induced re-examination
of the problem. The rise of registered unemployed to over a million
in 1972 with probably another half-million not registered could not
be disregarded. By 1976, during the Callaghan Labour Government the
unemployment level had risen to 1,302, 000. In the next depression
under the Tories, the unemployment figure rose to 3,069,000 and rose
to over 3 million again in the depression under John Major's Conservative
administration during the early 1990's. Some, who had written Marx
off, are now wondering whether perhaps he was right and that capitalism
inevitably creates unemployment, low in boom times and rising in depressions
to peak levels.
Back to top
The
Decline and Fall of Keynesianism
Keynes
and Marx confront each other about the problem of unemployment and,
in an indirect way, about the problem of inflation. In this they are
also joined by the American economist, Milton Friedman whose theories
were adopted by capitalist supporting economists and politicians after
the abandonment of Keynesian policies in the late 1970's by the Labour
Government of the time. When Keynes formulated his theories in the
1930's unemployment was in the region of two million, but prices had
been falling for most of twenty years, so not high prices but high
unemployment was the preoccupation of governments and economists.
In
1944 when the three parties in the wartime coalition government issued
their joint Keynesian statement on post-war policy it held out the
prospect of full employment, steady growth of production and more
or less stable prices; much as Tony Blair's Labour Party today believe
they have sustainable growth which will avoid the "boom and
bust" of the Tory years. The problem they were then most
apprehensive about was unemployment but now successive governments
feverishly grapple with all three problems together. As prices are
more than five times what they were in 1938 and still rising, the
Chancellor of the Exchequer and the Bank of England declared inflation
to be public enemy number one.
To
the extent that Tony Blair's New Labour has formally abandoned Keynesian
economics can be seen with the Mais lecture Blair delivered in May
1995. There he praised Nigel Lawson, Thatcher's Chancellor of the
Exchequer between 1983 and 1989, for pursuing a failed economic policy
aimed at reducing inflation to a minimum by controlling public spending,
and declared:
"The
control of inflation through a tough macro-economic policy framework
is even more important than the Tories have said". (FINANCIAL
TIMES, 23 May 1995).
This
has its amusing side. In the course of the 1980's, Mrs Thatcher's
government persistently failed to achieve its monetary targets. The
Tories' policy instruments were unreliable guides to economic events
and in the 1987 budget the Chancellor of the Exchequer, Nigel Lawson,
announced, in effect, the demise of Monetarism as a credible set of
economic ideas useful for governments to control the rate of inflation.
Inflation
(like its reverse, deflation) finds most of the politicians baffled.
There are 13 economic definitions of inflation put forward by academic
economists, all of them wrong, including one supported by Christian
fundamentalist, Professor Griffith, sometime economic advisor to Lady
Thatcher, and by the late Enoch Powell, that inflation is "the
work of the devil". In their ignorance of inflation, economists
are forced to offer such childish explanations such as the general
price rise is caused by wage claims or by the greed of bankers, manufacturers
and retailers-as if trade unions were not doing their utmost to push
up wages and employers doing their utmost to push up prices in the
1920's when both prices and wages were falling fast in spite of all
their wishes to the contrary.
However,
it was Milton Friedman who did most to move the concern of economists
away from full employment to the question of inflation. In a paper
written in 1968, The Role of Monetary Policy (AMERICAN ECONOMIC
REVIEW, no 58. pp 4-17), he introduced the absurd concept of "the
natural rate of unemployment" in which he said that there
was an equilibrium rate of unemployment in the economy with the consequence
that not everyone will be able to have or retain a job and there will
always be some people in between jobs. He also said new workers entering
the labour market will not necessarily find work.
Friedman
was to the capitalist right what Keynes was to the capitalist left.
A symbolic figure rather than an economist of substance. Beware gurus,
they are usually charlatans.
Freidman
was feted for being the most influential post-war economist in the
world. His policy of monetarism was adopted by many governments of
the world. What of his theories? He first experimented in Chile when
he assisted Pinochet's military coup that had overthrown Allende.
The effects of his theory were insignificant. Chile went into a severe
depression with national output cut by 15% and wages to below pre-1970's
level. With Chile's government still pursuing Friedman's monetarist
theories the economy went into a second depression with unemployment
rising to more than 30%. Capitalism in Chile went its own way as though
Friedman's theories did not exist. Governments cannot control the
anarchy of commodity production and exchange for profit.
The
failure of Monetarism can next be seen in Britain and the US, two
countries that adopted monetarist theories. In 1979 Britain went into
a depression and unemployment more than doubled. Not because of Monetarism
but because of capitalism. There have been depressions with free-trade,
protectionism and with governments supporting Keynesian and Monetarist
policies. In 1986, the bank of England abandoned monetarism for a
hybrid DIY set of policies.
In
the US, events mirrored those in Britain until 1982 when the Federal
Reserve dumped Monetarism into the dustbin of economic history. Freidman
is even considered by many economists to being a fraud.
"Friedman
has been accused by many distinguished (sic) economists of tampering
with statistics and cutting corners to prove his points. For example,
he claims that the Fed exacerbated the Great depression by causing
the money supply to fall. In fact, the money supply fell because bank
runs caused 10,000 bank failures, leaving depositors with worthless
bank notes no longer backed by gold reserves" (OBSERVER 22.
9. 02).
Now,
some of Milton Friedman's supporters, like Professor Minford, took
the line that unemployment was the fault of workers. He believed workers
either priced themselves out of a job or did not want to work. This
totally ignored the fact, that in a depression, businesses go bankrupt
and workers find themselves redundant. So how could they be blamed?
Bankruptcy hits workers out of the blue. They leave employment Friday
night and find no job Monday morning. Yet economists like Minford
hold them responsible. Academic economics is a vindictive class politics.
Capitalism
causes unemployment not workers. Companies also introduce new technology
to get rid of workers as part of the class struggle over the intensity
and extent of exploitation. Between 1990 and 1996 about five million
workers lost their jobs.
The
consequence of monetarism being adopted as a policy, first by Labour,
then by the Conservatives, meant that politicians and their economists
had to concede to Marx that they could do nothing about periodic economic
crises, depressions or high levels of unemployment. This is an important
concession because it supports the Socialist case that capitalism
cannot be run in the interests of all society, notably in one of the
most important areas of people's lives, trying to secure a decent
living.
As
a result, Marxian economics has now recovered its ground from the
now discredited economic ideas first put forward by Keynes in his
General THEORY ON UNEMPLOYMENT, INTEREST AND MONEY (1936) and by Friedman
in his Monetarist doctrines. This has left a serious problem for capitalist
politicians. What can they find to replace failed economic theories
with, particularly when economics is held in such high contempt? Unable
to cope with capitalism in all its contradictions, economics has become
an exhausted dogma.
The
attitude of monetarists to the use and eventual abandonment of Monetarist
theory and policy by governments is rather similar to that of the
Keynesians following the demise of Keynes's ideas in the late 1970's.
Both schools of economists blamed politicians for bastardising the
pure academic theory with its pristine mathematical models and equations
(See D. Smith, THE RISE AND FALL OF MONETARISM: THE THEORY AND POLITICS
OF AN ECONOMIC EXPERIMENT, Pelican 1988). There is some truth to this.
However, economic theory constructed in a university and based upon
unsupportable assumptions about human behaviour, history and philosophy
cannot be imposed on the real world. You have to start with the real
world, as Marx did in CAPITAL. He began his study of Capitalism with
the words:
The
wealth of those societies in which the capitalist mode of production
prevails, presents itself as "an immense accumulation of commodities"
its unit being a single commodity. Our investigation must therefore
begin with the analysis of a commodity (CAPITAL, Vol. 1 p.43 Part1
Commodities and Money Moscow 1976).
Back to top
Forward
to Marx
Marx
in Capital provided a comprehensive explanation of the factors which
govern prices, including general rises of the price level caused by
an excess issue of inconvertible notes. It was an application of his
labour theory of value. He explained inflation with reference to money
as the "universal equivalent" in commodity exchange,
so that an excess issue of currency had the effect of raising price
levels, including wages - the price paid for labour power. Most economists
not only reject Marx's labour theory of value, which explains where
profits come from, but also see no need for any theory of value. Yet,
ironically, there is some proof that Keynes did take what Marx wrote
seriously although he arrogantly did not name him as a source.
Keynes'
exposition of inflation in his TRACT ON MONETARY REFORM reads like
a paraphrase of Marx, as indeed perhaps it was. Although Keynes advocated
a short-term deliberate increase of prices in certain circumstances
he was not a crude inflationist and had he lived into the great post-war
inflation it is probable that he would have disowned what was being
done in his name. Yet the responsibility was largely his because it
was he who influenced economists and through them governments to remove
any formal restriction on the note issues in the belief that it was
not necessary.
To
complete the comparison between Marx and Keynes it must be remembered
that while Keynes concluded from his studies that capitalism could
be controlled and managed in such a way as to avoid booms and slumps
and secure continuous full employment, Marx held no such view. Keynes
said that capitalism could and should be saved; Marx held that it
had outlived its role in human society and should be replaced by Socialism.
Marx
made many other valuable contributions to economic theory. His explanation
of the cycle of booms and depressions removes the mystery from the
superficial appearance that the working population sometimes seems
to be too small and at other times too large; and that in one phase
there appears to be "too much money" and at others
"too little", the reality being that in a boom the
capitalist wants to turn his cash into means of production and in
a slump wants urgently to turn his commodities into cash.
His
analysis showed how the periodical big expansions of production depend
on the existence of a "reserve army" of unemployed-something
being demonstrated at the present time throughout world capitalism
with millions unemployed including some 28 million on the continent
of Europe.
One
of the failings of modern economists is their confusion about what
constitutes an increase in productivity. The labour theory of value
shows the amount of labour needed to produce a commodity includes
the labour at all stages, not merely the final stage of the production
process. For a table or chair, for example, this includes the growing
and felling of the timber, it's processing and transportation as well
as the final process in the furniture workshop which meant that, an
increase of overall productivity per worker cannot be measured by
technical changes in the workshop alone. Appreciation of this would
have obviated the common wildly exaggerated estimates of the effects
of mechanization and automation. Marx also showed the fallacy of the
belief that bank lending creates booms; the expansions and contractions
of credit being not the causes but the symptoms of the trade cycle.
Back to top
Marx
and the Vulgar Economists
That
today's economics is in crisis is not new. In a paper written by the
Keynesian and sometime supporters of Mao's Cultural Revolution, Joan
Robinson, entitled Teaching Economics, (to be found in her
COLLECTED PAPERS, Volume Three), she wrote:
The
economic student begins to notice that he is being indoctrinated with
notions soaked in a prejudice of laissez-faire. The prestige of the
teachers and the books bears down on the serious student with a heavy
weight. He learns to distrust his native common sense and to curb
his generous impulses. He submits himself to a course of miseducation
and comes out, not "by the same door wherein he went" but
by another door, in the wrong street".
Professor
Robinson could have added Keynesianism and Monetarism to the prejudices
a poor economics student confronts in today's economics departments.
Marx at least expected the reader of CAPITAL to be someone capable
of "thinking for themselves".
Marx made a distinction between such men as Petty, Adam Smith and
Ricardo, and their successors. He wrote of the former that they devoted
their efforts "to the study of the real interrelations of
bourgeois production", while the latter were "content
to elucidate the semblance of the interrelations" and to
act in effect as apologists for the capitalists (CAPITAL Vol. 1, Allen
and Unwin edition p.55). His use of the terms "classical"
and "vulgar" to describe them was one of the very
few things that Keynes acknowledged having borrowed from Marx.
What
of the modern economists, now numbering many thousands? Few of them
claim to be serious students in the way that Smith, Ricardo, Marx
and Keynes were. The misnamed Adam Smith Institute, for example, rejects
Smith's insistence that the burden of taxation does not fall on the
working class and also rejects Smith's primitive theory of value.
To quote what Marx wrote of their predecessors, "they spend
their time in chewing the cud of materials provided by others",
and "proclaiming as eternal verities, the most trivial and
self-complacent notions which the agents of bourgeois production entertain
with regard to their own best of all possible worlds" (THEORIES
OF SURPLUS VALUE, Vol. III, pp. 500-502)..
Some
who do have a better understanding of capitalist problems complain
that they are talking to the deaf ears of politicians. Nothing written
by Marx about the vulgar economists of his day was harsher than criticisms
of modern economists made by Samuel Brittan, himself an economist,
and by the ECONOMIST.
Samuel
Brittan, no Socialist, contrasting modern economists with Smith and
Ricardo, had this to say:
Economists
do not exist mainly to promote enlightenment to discover how the economy
works or for other such vague and worthy purposes. Like other producers,
economists survive and prosper by studying the market and supplying
what it appears to want (FINANCIAL TIMES, 28th October 1971).
And
the ECONOMIST (2nd June 1973) in an unsigned editorial, also making
a comparison with Adam Smith, wrote:
If
economists today took more trouble to explain in simple language what
they are trying to prove and what relevance it might have, the gulf
between theory and practice might be closed somewhat. As it is, more
and more economists fill more and more pages of learned journals with
an endless stream of ill-written, verbose half-baked mumbo-jumbo,
which has as much value to policy makers as the chattering of starlings.
When
modern economists dismiss Marxian economics as difficult, unscientific
and without application to the real world it is fitting to bear in
mind who the people are who make this charge.
Back to top