MARX AND KEYNES

An Outline of a Comparative Analysis

Guilherme da Fonseca-Statter

«Marx in May» Conference, Lisbon 2012

If Marx is considered by many to be a kind of «accursed prophet» and to have been «profoundly or completely wrong» about the future prospects of capitalism, Keynes, despite having only touched on the root causes of the crisis, has already been considered «the greatest economist of the 20th century».

Regarding Karl Marx, I believe that this is, above all, the genuine case of a genius who acutely understood the intrinsic logic of the capitalist system and its historical dynamics, yet was—for obvious reasons of ideological struggle—vilified, distorted, and, as far as possible, ostracised from teaching and scientific research in Economics. It is in this context that I believe this presentation  - on a possible comparison between these two authors  - at a conference dedicated to the work of Karl Marx, is justified. This brief text seeks to outline a comparative analysis between the approaches of John Maynard Keynes and Karl Marx regarding the functioning of the capitalist economy, against the backdrop of the systemic crisis we currently face, as well as the explanations being put forward for its emergence and continued persistence.

In this regard, it should be noted that, right at the onset of the systemic crisis, proponents of neoclassical ideology (disguised as "economic theory") attributed the blame for the multiple sovereign debt crises, experienced in various countries, to public deficits (of Keynesian origin, they claimed) and the State's "chronic tendency" toward "spendthrift" and the primacy of public investment as a way to address "demand deficiency."

In preparing this work, it is therefore important to begin by mentioning the context and relevance that help explain its development. We will now examine what various authors have to say about comparing Keynes's and Marx's approaches to the capitalist economy. We will then move on to a brief discussion of the different methodologies used by the two authors in their investigation of how the capitalist system functions, as well as an outline of the respective fundamental starting points for their investigations. In this context, it will also be important to examine the problems each author proposed to study, as well as any solutions they proposed. We will then examine some points of possible convergence and finally discuss the reasons for the inevitable (and radical) divergences.

Let us begin, then, with the context in which this communication is set. We are currently experiencing a systemic crisis that presents itself to us according to the diverse historical and political circumstances of each country within the capitalist world system. To some observers who are more distracted or less aware of the global dimension of the crisis, it may seem that the crisis affects only a few countries, while other regions of the globe appear to be doing well and continuing to grow. The fact is that this crisis is indeed systemic, has been going on for a long time, and if nothing is done about it, it will eventually reach all countries, including the so-called "emerging economies," notably the BRICS. It also happens that the initial onset of this crisis coincided with the apparent exhaustion of the allegedly Keynesian policies implemented after the end of World War II. At that time—the early 1970s—there was even talk of the crisis in economic theory, or even the end of economics. Until about four or five years ago (I'm writing this in May 2012), the system "held on" based on a gigantic cosmetic approach to credit, based on the far-fetched idea (among other justifications) that "real estate values" would never stop growing... In this context, it's important to reflect on the meaning and theoretical relevance of Keynesian thought in the history of economic thought, as well as its relevance for a possible exit from the crisis; all of this from a Marxist perspective, particularly considering that several authors have already sought to find common ground between Marxist analysis and the Keynesian approach. Thus, in the literature consulted, we came across the following excerpt:

"Academic theory, following its own course, has reached a point that bears considerable resemblance to Marx's system. In both, unemployment plays an essential role. In both, capitalism is seen as containing within itself the seeds of its own decay. Negatively, in opposition to orthodox equilibrium theory, the systems of Keynes and Marx stand side by side, and there is now, for the first time, sufficient common ground between Marx and Keynes to make discussion possible." Joan Robinson - cited by Pilling (1986), Feiwell (1989), and Wheen (2006).

Robinson was referring, of course, to the possibility of dialogue and some understanding regarding the economic policies to be followed to resolve the concrete problems of the economy of his time. Let's see then: according to the bibliography consulted, and according to what we have heard from various analysts who have studied Keynes's relevance to the history of economic thought, Keynes's main theoretical contributions were, firstly, the use of large economic aggregates as the pillars of a new form of economic analysis. In this regard, it should be noted that this alleged analytical primacy overlooks the (much older) contributions of authors such as François Quesnay and David Ricardo. Secondly, we would have the emphasis on the role of expectations (on the part of economic agents) as well as natural uncertainty regarding the consequences of any business decisions. Thirdly, one of Keynes's most important (and supposedly original) contributions would be the importance given to the preference for liquidity by economic agents (particularly in periods of uncertainty). Finally, and fourthly, we would have the so-called "principle of effective demand," and this principle is explicitly assumed by Keynes to have originated in the ideas of Malthus.

Caricaturing, one might then say that this principle of "effective demand" means that, for the capitalist system to continue functioning, the existence of some parasitic class is necessary to consume the surpluses produced by the system and not invested in accumulation. In Malthus's case, this "social function" would be that of the landed aristocracy; in Keynes's case, this function should be performed by the State. The authors found in the bibliography consulted point out some common points between Marxist analysis and the Keynesian approach, notably, and to begin with, the identification or recognition of the existence of a natural tendency toward crisis within the system. This recognition is also characterised by the refutation of Jean-Baptiste Say's infamous "law of the market." However, in Keynes's case, refuting this "law of markets" also implies a necessary critique of the theses of Alfred Marshall and Arthur Pigou regarding the explanations (and solutions) for the crucial problem of the crisis, namely the structural level of employment. Finally, it is important to note that Keynes was genuinely convinced that, with the publication of his General Theory, he would "demolish" the alleged "Ricardian foundations" of Karl Marx's work. A first observation worth making here, regarding the comparison between Keynes and Marx (developed by the various analysts consulted), is the constant conceptual overlap, on the part of these analysts, of an "analysis of the facts as they are" (let's call it "positive science") mixed with reflections on what would or would not result from certain economic policies, in a kind of "comparative social engineering." In other words, in almost all of the texts consulted, very few references are made to the analytical bases or foundations of the two authors in question here.

In this regard, it should be noted that both authors begin their analysis of the system by first considering the logic of the system as a whole, that is, by considering the interplay or interaction of "large aggregates." It is important to emphasise, however, that while Marx begins his analysis of the capitalist system based on a philosophy of history (permanent becoming), offering a thorough critique of the political economy of his time, Keynes begins his analysis of the capitalist system based on an empirical and/or phenomenological approach to the global economic crisis he witnessed at the time, seeking to understand why the explanations provided by the then-canonical "handbook" of economic theory, Alfred Marshall's "Principles of Economics," failed. Thinking academically today, another facet to consider in this brief comparison between Marx's analysis and Keynes's approach is the types of "scientific problems" each posed to themselves. Thus, while Marx sought to understand and explain the functioning of the capitalist system in its dynamics of accumulation and the intrinsic logic of its historical process, Keynes proposed to "merely" understand the reasons for the system's failure (the "crisis"!...), as well as the failure of conventional theory, which was supposed to explain the system's functioning and, therefore, allow for the prediction of crises. On the other hand, and as is natural, when one seeks the reasons or causes for the "crisis," one may very well arrive at least some reasonable understanding of the system's logic. Thus, while Marx presents himself to us as a scientist (in the purest sense of the word) and a philosopher of transformative action, Keynes appears to us rather as a "social engineer" who, based on empirical knowledge deemed sufficient, seeks to solve the problem of concrete unemployment that he was able to observe. It could also be said that Keynes placed himself in the natural position of advocating reform of the system in order to avoid "worse evils." In other words, and still within the context of points of some possible convergence, but already outlining some of the fundamental differences, while Keynes presents himself when faced with the problem of what we would call "social engineering" as a kind of "pre-Newtonian civil engineer," proposing some supervision and regulation (albeit at a distance...) and even state intervention in the economy (a bit in the "this is how it should work" way), Marx presents himself to us rather as a kind of "Newton" (or Copernicus, or Galileo...) of social and economic analysis, demanding that the working classes exercise what has been called "control of the past by the present." meaning that the economic and social policies of the holders of "living labour" should prevail over those of the holders of "dead labour." In these terms, considering Keynes's recommendation regarding the need for state intervention, as well as his policy of progressively eliminating purely "rentier" classes, it would seem that Keynes would be open to a possible "smooth transition" to some form of "socialism," provided that the working classes, through the political power of the state, exercise supervision, regulation, and even intervention in the economy, particularly in periods of stagnation. It was this approach or starting point that led some Keynesians to reach conclusions close to those proposed by Marxist authors. I am thinking especially here of the aforementioned Joan Robinson.

Two other aspects that the two authors seem to have in common are, on the one hand, the recognition of the existence of classes, something that is simply ignored or rejected by the neoclassical paradigm, and, on the other hand, the recognition of the eminently historical nature of the science that studies economic phenomena. This historical nature simultaneously assumes two distinct yet complementary facets: the capitalist system is "merely" a historical form of one of the modes of production adopted by humanity throughout its millennia-long evolution, and, on the other hand, the science that studies its behaviour must naturally be classified among the historical disciplines. In this sense, the scientific study of the political economy of capitalism also ends up being a transitional type of scientific knowledge. Another aspect to consider when comparing Marx and Keynes is their respective "starting points" for their research—in a sense, their respective world-views or even their basic academic and scientific training. In the case of Marx, we have the Hegelian philosopher who seeks to understand the system in order to better "transform the world." In this sense, his magnum opus is a study of the nature and dynamics (the "laws of motion") of the capitalist system. In the case of Keynes, we have the economist ("vulgar," Marx would say) with a conventional background, a civil servant, and a pragmatic politician who also seeks to understand the mechanisms of the capitalist system by studying what he considers to be the determining factors of production volume and employment. Regarding their respective class positions, the distinction that separates them is radical. While Marx sees himself as a student of the system who sides with an emerging "new class" (the proletariat), Keynes, for his part, clearly positions himself as a dilettante (albeit pragmatic) politician who, in the event of "war," would openly side with the "enlightened bourgeoisie."

From some apparent convergence to inevitable divergence or the question of the root causes of the crisis the question of periodic fluctuations in the rate of profit (as the main driver that keeps the system going) has usually been studied through the well-known "law of the tendency of the rate of profit to fall." I must point out that, as far as I'm concerned, much of the discussion on this subject suffers from some (or enormous...) ambiguity or misunderstanding. In this context, it's important to emphasise that this "tendency to fall" (or "decreasing tendency") of the rate of profit begins as an empirical law. That is, the more or less formalised description of a historical, systemic, and recurring phenomenon in the expansive evolution of the capitalist system. All the great classical authors of the 18th and 19th centuries (and more recently, and precisely, an author like Keynes) refer to it as something natural and inherent to the normal functioning of the system. Let's say that for these authors, the eventual tendency for the rate of profit to fall "is part of the nature of the system." In other words, over the decades, hundreds of authors have written thousands of pages seeking to demonstrate that Marx was right (or wrong, of course...) when he asserted the tendency for the rate of profit to fall. Ironically, it seems to me that this "demonstration" would be a bit like trying to demonstrate that stones tend to fall. This thing—the tendency for stones to fall—is a very banal empirical fact that anyone observes daily. What really matters is explaining the reason (the "final cause") for this tendency to fall... It also happens, and above all, that, more than affirming, Marx sought to explain (possibly incompletely or inconclusively?...) the reason for the tendency for the rate of profit to fall. While the classics suggest causes external to the logic of the system and Marx presents as the cause the logical contradiction inherent in the accumulation process, Keynes, in addition to noting (albeit implicitly) the tendency for the rate of profit to fall, limits himself to repeating the explanation put forward by Smith, also telling us (and here he repeats Malthus) that the crisis is due to the deficiency of effective demand, thus mistaking the effect for the cause.

Therefore, it would not be a question of demonstrating and confirming (or refuting...) the validity and application of that fundamental law of the capitalist economic system. What is truly at stake is providing a coherent explanation based on the system's own characteristics and operating logic, without resorting to ad hoc explanations external to the system. In any case, let us consider the explanation for that downward trend in the rate of profit in Keynesian terms. "But even worse. Not only is the marginal propensity to consume weaker in a wealthy community, but, because its capital accumulation is already greater, opportunities for further investment are less attractive unless the rate of interest falls at a sufficiently rapid pace." Or, later (in Chapter 11): "It then becomes obvious that the current rate of investment will be increased to the point where there are no longer any assets whose marginal efficiency exceeds the current rate of interest." In other words, the rate of investment will be increased to the point on the investment demand curve where the marginal efficiency of capital in general equals the market rate of interest. In fact, we could go further back and quote Adam Smith (one of the classic founders of political economy): "In course of time, the accumulated stock of capital becomes so large that it can no longer be applied at the old profit to that species of industry peculiar to it. This industry has its limits like all others; and the increase of the stock, by increasing competition, necessarily reduces the profit." ("The Wealth of Nations": 144-5)

 

However, it is precisely on this issue of the tendency to fall in interest rates that the two authors will encounter the greatest overlap, contradiction, and confluence of ideas. While Marx explains the tendency to fall in the rate of profit as a phenomenon inherent to the logic of the system, Keynes ultimately arrives at this conclusion when seeking explanations for the crisis and "stagnation" of the system. Thus, in Keynes's case, we have, on the one hand, the defence of an under consumption thesis (or the explanation of the crisis through the stagnationism inherited from Malthusian ideology and its defence of the necessity or functional interest of the existence of a parasitic class that would maintain the principle of "effective demand") and, on the other hand, the defence of a capital agglomeration thesis (or the explanation of the crisis through the "saturation" of the system, an ideological legacy of Adam Smith). Reading Keynes, one gets the idea that, for him, capitalism was the time of human society's maturity, and therefore, it was natural that the motivation (the profit incentive...) for the continued process of investment and job creation would become increasingly scarce. In Marx's case, however, we have instead the defence of the thesis of overproduction, whereas the "maturity" to which Keynes later referred would be, rather, and merely a point of "phase transition" where the contradictions of the historical process of accumulation and the corresponding incentive for the process of expanded reproduction become more acute. This difference in perspective clearly brings us back to the question of the dialectical approach as opposed to a perspective of comparative statics. At this point, it is important to note that Keynes was not (at all) a "Marx expert." Keynes's (gross...) error regarding Marx would have been his premise regarding the supposed "Ricardian foundations" of Marxist analysis. In this regard, it is important to note that the General Theory was developed by Keynes in a historical context of profound crisis in the economic system and the recent establishment of the first Marxist-inspired socialist state, which inspired natural expectations among the working classes of all the most industrialised countries. In other words, Keynes sought to respond to the "Marxist threat" not through a scientific discussion of the system's operating logic, but rather through the policies to be adopted to avert that "threat."

On the other hand—and here we have another (I would say) radical divergence—while Keynes, despite the aforementioned reference to the "large economic aggregates," bases his analysis on the observation of individual human psychology (of each economic agent), thus incurring the "analytical dangers" of methodological individualism, namely by ignoring the emergent logic at the level of the system as a whole, Marx bases his analysis on the observed nature of the "rules of the game" (external to the psychology of each economic agent) and in this sense is a pure methodological holist. In this sense, Marx can study and observe what actually occurs with the dynamics of the system following its own operating logic. In this regard, it is interesting to note that Keynes's reference to "large aggregates," while seeming to suggest that he was adopting a holistic methodological approach, has only the character of national accounting, of verifying facts, not of explaining them at the level of the system as a whole. Karl Marx, in this regard, does not deal with "national accounting," but rather with the logic of flows! Looking at the system as a whole.

Final Observations Regarding Imre Lakatos and Policies for Overcoming the Crisis Given Karl Marx's analysis, we can conclude that Keynes's problem (or that of the Keynesians, if you prefer...) is the rejection, in principle, of the lobar theory of value. Joan Robinson, for example, dismisses this theory, either for its alleged "metaphysical character" or for deeming it unnecessary (notably to explain labour exploitation). The theoretical and practical problem also lies in the fact that, by (consciously) ignoring labour theory, Keynesians overlook—ignore—the question of the logical contradictions of the system, explicitly rejecting the "Hegelian" and "dialectical" nature of those contradictions; the permanent becoming and the resolution of its contradictions through the overcoming and transformation of the system. In other words, for Keynes (if he had cared about it...) the search for "final causes" (to explain the behaviour of the capitalist system within itself, within the system's own logic) would be separate from metaphysics and "mere" philosophical speculation. These were, in fact, the conclusions reached by Joan Robinson, the Keynesian author who came closest to Marxist analysis. We can therefore conclude that, in contrast to the integrated, comprehensive, and coherent character of Marxist capitalist theory, the Keynesian approach ultimately presents itself as a "patchwork quilt"—a protective girdle—around a "hard core" of psychological foundation. This psychological basis (human behaviour postulated as natural, something given to us by Nature) takes us back to the "Naturalism" of 18th-century authors and serves, among other things, to justify the idea that "there will always be some richer and some poorer," because there will always be some "more entrepreneurial" and others "more passive." This idea also underlies the approach of the so-called "Austrian School," with its radical methodological individualism, particularly in the version of the thesis of "phraseology" (or the study of "truly human action"). In any case, and regardless of the theoretical differences and divergences (and there are many...), in terms of practical action, there will indeed be some possibilities for convergence between the Marxist and Keynesian approaches. At least in the short term. Indeed, while they continue to ignore Marx's fundamental ideas (the theory of value), recognising the inadequacy of the neoclassical paradigm (theory) to explain the crisis, recognising the inadequacy of the solutions presented by neoliberalism (economic policy), Keynesians (a bit like pre-Newtonian engineers...) seem, at least, to seek to "learn by doing" by proposing or experimenting with policies that, in the short and medium term, will certainly help to solve some of the most pressing problems of the crisis...

Bibliography

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