I am pleased to announce that my entry on “capitalism” has been included in the print version of the third edition of Keywords for American Cultural Studies, edited by Bruce Burgett and Glenn Hendler.
The new essay is a revised version of the entry that appeared in the second and first editions of their keywords collection.
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (here, here, here, here, and here) will serve as the basis for Chapter 1, Marxian Economics Today. The next six (here, here, here, here, here, and here) are for Chapter 2, Marxian Economics Versus Mainstream Economics. This post (following on four previous ones, here, here, here, and here) is for Chapter 3, Toward a Critique of Political Economy.
The necessary disclosure: these are merely drafts of sections of the book, some rougher or more preliminary than others. I expect them all to be extensively revised and rewritten when I prepare the final book manuscript.
Finally, because of a contractual commitment (which limits the amount of the draft of the book I am allowed to publish on this blog), this will be the last book-related post for a few months.
Toward Marx’s Critique of Political Economy
There is no necessary trajectory to Marx’s writings, no reason his earlier writings had to lead to or culminate in Capital. However, as we look back from the vantage point of his critique of political economy, we can see the ways his thinking changed and how the elements of that critique emerged.
In this section, we take a quick look at some of Marx’s key texts prior to writing Capital: the Economic and Philosophic Manuscripts of 1844, the Theses on Feuerbach, the German Ideology, the Grundrisse, and A Contribution to the Critique of Political Economy. Together, they will give us a sense of how Marx’s ideas developed over time.
We will also see two themes emerge over the course of these texts: the role of critique and a focus on social context. First, Marx doesn’t start (in these texts or, for that matter, in Capital) with a given approach or set of first principles. Instead, his method is to engage with ideas and problems that were “out there,” in the intellectual and social worlds he inhabited, and to formulate a critique, thereby giving rise to new ways of posing issues and answering questions. Second, Marx’s concern is always with social and historical specificity, as against looking for or finding what others would consider to be given and universal. Thus, for example, Marx eschews any notion of a transhistorical or transcultural “human nature.” Instead, in his view, different human natures are both the condition and consequence of particular social and historical circumstances. Much the same holds for his method of engaging economic issues.
Once Marx left Germany and found his way to Paris, he met Engels for the first time (thus initiating, following on their previous correspondence, a life-long collaboration) and also began what he considered to be a “conscientious critical study of political economy,” the mainstream economics of his day. The result was a series of three manuscripts (often referred to as the Economic and Philosophic Manuscripts of 1844 or the Paris Manuscripts, which were written between April and August 1844 but only finally published, to considerable interest, in 1932).* What readers will find in the manuscripts is, having “proceeded from the premises of political economy” (meaning “its language and laws,” the assumption of “private property, the separation of labor, capital and land, and of wages, profit of capital and rent of land,” and so on), Marx arrives at conclusions and formulates new terms that run directly counter to those of Smith, Ricardo, and the other classical political economists. In particular, Marx argues that, under capitalism, as workers become reduced to commodities, what they produce confronts them as “something alien.” Therefore, their labor (using terms borrowed from Feuerbach’s critique of Hegel) becomes “alienated” or “estranged.”
it is clear that the more the worker spends himself, the more powerful becomes the alien world of objects which he creates over and against himself, the poorer he himself – his inner world – becomes, the less belongs to him as his own. It is the same in religion. The more man puts into God, the less he retains in himself. The worker puts his life into the object; but now his life no longer belongs to him but to the object. Hence, the greater this activity, the more the worker lacks objects. Whatever the product of his labor is, he is not.
He then demonstrates that the taken-for-granted assumptions of classical political economy—private property, wages, and so on—are themselves the products of estranged labor. Thus, the distinctions made by the mainstream economists of Marx’s time—between profit and rent, between both and wages, and so on—are rooted not in the nature of things, but in particular social and historical circumstances. They are, in other words, peculiar to capitalism.**
As we saw in a previous section, Marx then (in 1845) developed a critique of Feuerbach. Over the course of his eleven short theses, Marx rejects the idea of a single anthropology (the “essence of man” or human nature) and focuses, instead, on the ensemble of “social relations,” the “historical process,” and “social humanity.” The result is social practice, that is, the goal of not just interpreting the world, but of changing it.
The next year, Marx coauthored with Engels a long set of manuscripts (like the 1844 manuscripts, only published in 1932) in which they challenge the one-sided criticisms of Hegel by Bruno Bauer, other Young Hegelians, and the post-Hegelian philosopher Max Stirner. There, in their attack on German philosophy for having been obsessed with religion (and therefore self-consciousness or the realm of ideas), Marx and Engels announce for the first time what they call the “materialist conception of history,” with an alternative starting-point: “real individuals, their activity and the material conditions under which they live, both those which they find already existing and those produced by their activity.” This focus on social production means Marx and Engels can transform consciousness itself into a “social product,” which develops historically and changes according to particular forms of society or social relationships.***
Later, once Marx had settled in London, he spent much of his time in the British Museum (a national public museum, which contained both natural history objects and a massive library) studying the texts of the classical political economists. The result were a set of notebooks, called the Grundrisse (literally outlines or plans), which are often considered to be first draft of Capital.**** While the topics Marx covered are wide-ranging, from value and labor to precapitalist forms of economic and social organization and the preconditions for communism, what is of interest here is his announcement of where he thinks the critique of political economy should start: with “socially determined individual production.”
Why is this important? Because it represents Marx’s break from the notion of natural production, and therefore from the mainstream economics of his day (as of our own). In classical political economy (as in neoclassical economics), capitalism and other economies are considered to be natural, because they are finally reduced to and can be explained by certain given or exogenous factors, such as population, technology, and resources (to which neoclassical economists add given preferences). Also, they take individuals as their point of departure (the most famous example being Robinson Crusoe, a story that is repeated even today in mainstream economic textbooks).
Marx’s alternative view is that economics should start with social individuals, “individuals producing in society,” not given individuals outside of particular historical and social contexts. Moreover, the focus should be on “social production”—different, socially determined ways of producing goods and services—not on any kind of production in general (which students today will recognize in the technical apparatus of isocost and isoquant curves).
Marx also demonstrates his debt to Hegel, in discussing the relationship among production, distribution, exchange, and consumption. Where the classical political economists posit that the goal of production is consumption, and many of the critics worry about distribution, Marx sees them in terms of a “dialectical unity.” In its most general form,
A definite production thus determines a definite consumption, distribution and exchange as well as definite relations between these different moments. Admittedly, however, in its one-sided form, production is itself determined by the other moments.
It’s a distinction that shows up today in the debate about distribution (through free markets) versusu redistribution (through government programs). What the participants in that debate forget about is the initial distribution related to production (and all that entails for consumption, distribution, and exchange), that is, society produces itself through its initial distribution. It’s that initial distribution that is taken as given in mainstream economics, then as now.
Marx also announces his break from existing ways of carrying out economic analysis, whether starting from abstract first principles (and deducing the rules that govern reality) or from empirical reality (whereby certain “laws” are extracted). Instead, he argues, the method he proposes is a movement from the abstract to the concrete. In other words, economic analysis is itself a process of production—one that starts from relatively abstract notions and, adding more and more determinations or circumstances, arrives at a relatively concrete notion (“the way in which thought appropriates the concrete, [which] reproduces it as the concrete in the mind”). It is not a question of bridging the gap between thought and reality (in terms of some kind of validity criterion) but of producing within thought a particular conception of economic and social reality. The implication, of course, is that different economic theories will lead to different, incommensurable conceptions of capitalism and other economic systems.
Finally, in 1859, Marx published A Contribution to the Critique of Political Economy. There, he designates his break from the philosophies of both Hegel and Feuerbach with what has become one of his most famous expressions:
It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.
This is Marx’s critique of both Hegel’s notion of the Absolute Spirit and of Feuerbach’s alienated consciousness. It’s not an issue of individual consciousness or virtue within existing social order but the conflict-ridden social order itself. Another way of putting this in terms of contemporary debates is: you can’t just have a semblance of freedom (which often means blaming the victims) but you need real freedom, that is, economic and social change that makes the exercise of freedom possible. It’s the same idea that has motivated many working-class political movements, from the nineteenth century onwards, which have demanded an end to poverty and access to decent housing, healthcare, and so on for the majority of people by identifying and seeking to eliminate the economic obstacles to what they consider to be fundamental human rights.
Marx then appends a quotation from Dante Alighieri’s Divine Comedy, which can also serve as a warning to readers as we embark, starting in the next chapter, on a detailed study of Marx’s critique of political economy:
Qui si convien lasciare ogni sospetto
Ogni vilta convien che qui sia morta.*****
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*The Economic and Philosophic Manuscripts of 1844 was first published in Germany by the Institute of Marxism-Leninism in Moscow in 1932, in the language of the original. In English, this work first appeared in 1959, published by the Foreign Languages Publishing House in Moscow, translated by Martin Milligan.
**Marx also presents in those manuscripts his critique of “piecemeal social reformers,” including the French socialist Pierre-Joseph Proudhon, “who either want to raise wages and in this way to improve the situation of the working class, or regard equality of wages,” for not going far enough, because they accept the existence of private property and estranged labor. In this sense, they want to improve, but not eliminate and move beyond, capitalism. And, in the third manuscript, Marx credits Hegel with understanding the importance of labor as the source of alienation; but then criticizes Hegelian philosophy for focusing entirely on “abstractly mental labor” (as a question only of “self-consciousness”) and therefore overlooks (just like the classical political economists) economic and political alienation.
***They also announce what, at least at this stage, what they mean by “communism”: “not a state of affairs which is to be established, an ideal to which reality [will] have to adjust itself. We call communism the real movement which abolishes the present state of things. The conditions of this movement result from the premises now in existence.”
****The seven notebooks were written during the winter of 1857–58 but were only published in 1939. The first English-language translation (by Martin Nicolaus) appeared in 1973. The publication of the Grundrisse was important not only for readers of Capital (and much discussion has ensued about the overlaps and differences between the two), but also for other fields, especially for the new field of cultural studies (in the work of, among others, Stuart Hall and the famous Center for Contemporary Cultural Studies at the University of Birmingham).
*****The lines are from Canto III of “Inferno” (as Virgil’s reply to Dante, who has just read the inscription over the Gates of Hell). The translation is: “Here one must leave behind all hesitation; here every cowardice must meet its death.”
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (here, here, here, here, and here) will serve as the basis for Chapter 1, Marxian Economics Today. The next six (here, here, here, here, here, and here) are for Chapter 2, Marxian Economics Versus Mainstream Economics. This post (following on three previous ones, here, here, and here) is for Chapter 3, Toward a Critique of Political Economy.
The necessary disclosure: these are merely drafts of sections of the book, some rougher or more preliminary than others. I expect them all to be extensively revised and rewritten when I prepare the final book manuscript.
Capitalism
As we’ve seen in previous sections, we have to understand three major theoretical and political currents—classical political economy, Hegel’s philosophy, and utopian socialism—in order to understand the path Marx traversed in his writings prior to working on Capital. We also have to keep in mind the larger context, the development of capitalism in the nineteenth century.
It was during the “age of capital,” as the illustrious British historian Eric Hobsbawm aptly called it, that Marx formulated his critique of political economy. By the time he landed in London (in 1849), where (after leaving Germany and spending short periods in first Paris and then Brussels) he would remain based for the rest of his life, England had become the epicenter of capitalism.
Today, we think of capitalism as encompassing the entire world.* That certainly wasn’t the case in the first half of the nineteenth century, when most economic and social life around the globe was organized along decidedly noncapitalist lines. In England, however, by the end of the first Industrial Revolution, capitalism was well established, especially in the burgeoning cities (such as London, Liverpool, Manchester, and Birmingham). More or more, both consumer goods and producer goods (from textiles to machinery) were being produced in capitalist factories. In other words, they had become capitalist commodities, created by laborers who received a wage working for the capitalists who owned the mills and workshops.**
Elsewhere, the transition to capitalism, while less advanced than in England, was also taking place and leaving its mark on the existing social order. For example, the conditions and consequences of capitalism were quite evident in France and Belgium, much more so than in Germany; while the United States, as it slid toward civil war, was also creating a hothouse for capitalist industry, especially in the northeast. In all those places, enormous fortunes (accumulated through local and global trade, owning large estates, lending money, putting slaves to work, and so on) were utilized to purchase the ability to labor of workers (many of them former feudal serfs, self-sufficient farmers, artisans, and slaves) as well new technologies and machinery (from the power loom and cotton gin through steam power and iron-making to new modes of transportation, such as canals and railroads).
The age of capital was nothing less than a project for remaking the world, in every dimension. It was a revolution in industrial production that, as Engels wrote in his classic study of The Condition of the Working Class in England, was changing the whole of civil society—from politics and culture to class structure and the organization of work.
Then as now, the captains of industry and supporters of capitalism were confident about their project. It promised to create general prosperity and to universalize the bourgeois individual guided solely by self-interest and rational calculation. And, in many ways, it succeeded. The development of capitalism created gigantic factories, titanic temples of industrial production, and colossal cities, occupied by an escalating number of native and immigrant workers. Traditional ways of life and meaning were cast aside and new habits acquired, with an eye (at least among the middle and upper classes) to accumulate individual wealth and extol the virtues of free and expanding markets.
But, by the same token (and no different from today), the new capitalist order was itself fragile—subject to fits and starts and periodic downturns, and characterized by obscene levels of inequality and widespread misery. The bulk of the population experienced a decline in their living standards, with wages that didn’t keep pace with the prices of necessary consumer goods, plus poor sanitation, inadequate housing, and precarious access to clean water. Moreover, their jobs and skills were threatened by the combination of technological change, embodied in the new factory machinery, and the more detailed divisions of labor that could be instituted once they were collected to labor in one place. In many instances, workers became mere appendages of the machines they once managed. That meant more profits for their employers but, in relative terms, less for their wages.
It should come as no surprise, then, that the capitalist project was contested wherever it took hold. Many readers will have heard of the Luddites, a radical faction of English textile workers that attempted to destroy factory machinery as a form of protest. To be clear, they were not hostile to machinery per se, but were angry with manufacturers who introduced the machines in what they called “a fraudulent and deceitful manner” to get around standard labor practices. This period also saw the resurgence of other labor organizations, especially trade unions (such as Robert Owen’s short-lived Grand National Consolidated Trades Union) and the demand for more democracy (a working-class suffrage movement led by the Chartists)—which, in their growing influence, led to the repeal of laws that had made any sort of strike action illegal.
The development of capitalism led to even more widespread political upheavals, culminating in 1848, during what Hobsbawm refers to as the “springtime of the peoples.” That year was painted with the colors of revolution across continental Europe (except England and Russia) and beyond. Government after government was overthrown and, in the end, over 50 countries—from Sweden to Colombia—were affected. The revolutions were informed by diverse ideologies, including various forms of liberal democracy and socialism, their banners carried by the new social classes created by capitalism, including members of the grand bourgeoisie, their intellectuals, and the middle classes to the masses of rural landless laborers, urban artisans, and industrial workers. In the end, while the revolutions eventually failed and the old regimes restored started in 1849 (Marx argued, in various speeches and newspaper articles, the revolutions were betrayed by many of the liberal intellectuals, who sought an accommodation with the monarchs and governments on their own terms), it was clear that all that was considered solid was melting into thin air.***
It was in the maelstrom of this age of capital—of the widening and deepening of capitalism and of the revolutionary upheavals it provoked—that Marx pursued his “ruthless criticism of everything existing.”
In the next section, we look at some of his best-known texts of that period, prior to the writing of Capital.
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*That’s certainly how mainstream economists and many others think of capitalism, as characterizing the entire economy in pretty much all places around the globe. As we will see in a later chapter, what they forget or overlook is that many parts of contemporary society, in rich and poor countries alike, include various forms of noncapitalism. Consider for the moment one prominent example: how many households, where of course a great deal of labor is performed on a daily basis, are based on a capitalist mode of production?
**As we will see later in this book, not every commodity is a capitalist commodity. Goods and services can be bought and sold in markets without the existence of capitalism. It all depends on how they are produced. Thus, there can be communist commodities, slave commodities, feudal commodities, and so forth. The mistake mainstream economists make is to presume that markets are synonymous with capitalism.
***This is a paraphrase from one of the most famous texts of 1848, The Manifesto of the Communist Party, which Marx and Engels were commissioned to write by the Commiunist League and originally published in London just as the revolutions of 1848 began to erupt:”All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind.” We will discuss the Communist Manifesto in more detail in chapter 9.
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (here, here, here, here, and here) will serve as the basis for Chapter 1, Marxian Economics Today. The next six (here, here, here, here, here, and here) are for Chapter 2, Marxian Economics Versus Mainstream Economics. This post (following on two previous ones, here and here) is for Chapter 3, Toward a Critique of Political Economy.
The necessary disclosure: these are merely drafts of sections of the book, some rougher or more preliminary than others. I expect them all to be extensively revised and rewritten when I prepare the final book manuscript.
Utopian Socialism
The third major influence on Marx’s critique of political economy (in addition to and combined with classical economics and Hegel’s philosophy) was utopian socialism.
During the early to mid-nineteenth century, socialist ideas were sweeping across Western Europe—starting in France and Britain—and traveling from there to many other parts of the world. They provoked extensive discussions and debates, a wide variety of plans to ameliorate the ravages of capitalism and to replace it with something better, and not a few attempts to create a radically different economic and social order.
The idea of utopia can be traced back to to the sixteenth century, to Thomas More’s famous text of that name. But socialist versions of utopia came much later, in response to the frustrated promises of the French Revolution. The crises of the Ancien Régime, caused by obscene levels of social and economic inequality, provoked a demand for liberty, equality, and fraternity. But for all the upheaval in France—the breaking-up of the feudal order (including the stripping-away of the privileges of nobility and the breakup of large Church-owned estates) and the creation of radically new social and political institutions (such as the institution of universal [male] suffrage and the abolition of slavery in the colonies)—the initial revolution and the subsequent restoration, which combined to enshrine individual rights and private property, served to clear the way for capitalism and thus new forms of inequality.
Socialist ideas sprung up in response, inspired both by the utopian promises and by the failures in practice of the Revolution. They served as a counterpoint to the other utopia being offered at that time, that of the classical political economists, which celebrated the emergence of capitalism. The utopian socialists, in contrast, were critical of capitalism and its negative effects on workers and the wider society. The most interesting and influential of this latter group were, in France, Henri de Saint-Simon and Charles Fourier, and, in Britain, Robert Owen.
Saint-Simon claimed that the needs of the industrial class, which he also referred to as the working-class, needed to be recognized and fulfilled to have an effective society and an efficient economy.* He argued, in consequence, that the direction of society should be in the hands of scientists and engineers (not the “idling class,” who produce nothing but live off the labor of others), in order to allow for the rapid development of technology and industry (Industry, which appeared in 1816-17), and that religion “should guide the community toward the great aim of improving as quickly as possible the conditions of the poorest class” (The New Christianity, published in 1825).
Fourier, for his part, presented a more radical critique of the existing order and plan for creating a new kind of economic and social organization. Not only did he attack poverty as one of the principal disorders of society (which could be solved by raising wages and providing a basic income for those who could not work), he argued that labor itself (indeed, all creative endeavors) could be transformed into pleasurable activities (see especially Le nouveau monde industriel et sociétaire, ou Invention du procédé d’industrie attrayante et naturelle distribuée en séries passionnées [“The New Industrial World”], originally published in 1829).** The primary mechanism for this would be the formation of “phalanxes” (based upon buildings called phalanstères or grand hotels) that would encourage the cooperation of different kinds of labor (based on jobs chosen according to the interests and desires of their members), which would both raise productivity and create social harmony.
In Britain, it was Robert Owen who became best known for attacking the deplorable conditions in which factory workers lived and labored—blaming the conditions, not on workers themselves, for their plight. He then sought to change those conditions: first, in the New Lanark Mills in Scotland, which he owned and managed and where he improved working conditions as well as providing youth education and child care; and then on a much larger scale, as an avowed socialist (A New View of Society: Or, Essays on the Formation of Human Character Preparatory to the Development of a Plan for Gradually Ameliorating the Condition of Mankind, published in 1816), Owen advocated radical social reform (such as the formation of trade unions and the provision of free education for children) and proposed a model for the organization of self-sufficient communities to serve as the basis for a “new moral world” (which was also the name of a newspaper he started in 1834, which carried the subtitle “A London Weekly Publication. Developing the Principles of the Rational System of Society”).
During the first half of the nineteenth century, when Marx was developing and then extending into new areas his “ruthless criticism of everything existing,” and beginning his lifelong collaboration with Engels, these were the socialist ideas that were “in the air,” discussed and debated by a wide variety of thinkers and activists (socialism also became, then as now, the pejorative epithet that was attributed to any criticisms and suggestions for economic and social change their opponents wanted to stop).
They weren’t just critical ideas and lofty plans. The utopian socialists and their followers also sought to go beyond writing books and giving speeches by creating communities based on those ideas. This was particularly true in the United States, where more than 30 Fourierist phalanxes were established in the 1840s (two of the most famous being Brook Farm, in Massachusetts, and the Wisconsin Phalanx, in Ceresco). Owen himself financed and founded the community of New Harmony, in Indiana, based on his principles (where the Working Men’s Institute, Indiana’s oldest continuously operating public library, still exists).***
Eventually, as we will see in a later chapter, Marx and Engels developed a critique of the ideas put forward by the utopian socialists. But they also expressed a great deal of admiration for these initial socialist thinkers, and were certainly influenced by them during their steps toward the development of a critique of both mainstream economic theory and capitalism.
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*To be clear, Saint-Simon’s definition of the working-class was not restricted to the contemporary meaning (according to which it consists of blue-collar workers or those without a college education), much less the Marxist notion (which will analyzed in detail in a later chapter), but included all people he considered to be engaged in productive work that contributed to society, such as industrialists, managers, scientists, and bankers, along with manual and skilled laborers.
**Fourier also criticized the repressive family structure, in which men treated their spouses as if they owned them and worked only for them and children had little freedom to express their deepest sentiments. He believed that humans should create more equitable relationships between the sexes and that equality could exist only if people were freed from the constraints of marriage. He thus advocated free love and the collective raising of children within the community.
***Hundreds of other “intentional communities,” many of them short-lived, proliferated during this time, especially in the United States (but also as far flung as Australia, where Herrnhut was founded in 1855). Only some of them were directly inspired by utopian socialism. The others often looked to religious leaders and principles of community for inspiration. In fact, the longest-lasting experiment with communism in the modern age was not as is generally presumed the Soviet Union (which lasted from 1922 to 1991), but the Shakers (from its first settlement at Watervliet, New York in 1774 to when the leaders of the United Society of Believers in Canterbury Shaker Village voted to close the Shaker Covenant in 1957).
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (here, here, here, here, and here) will serve as the basis for Chapter 1, Marxian Economics Today. The next six (here, here, here, here, here, and here) are for Chapter 2, Marxian Economics Versus Mainstream Economics. This post (following on a previous one) is for Chapter 3, Toward a Critique of Political Economy.
The necessary disclosure: these are merely drafts of sections of the book, some rougher or more preliminary than others. Right now, I’m just trying to get them done in some form. They will all be extensively revised and rewritten in preparing the final book manuscript.
Hegel
It is difficult to fully understand the Marxian critique of political economy without some understanding of Hegel. No less an authority than Lenin wrote that “it is impossible completely to understand Marx’s Capital, and especially its first chapter, without having thoroughly studied and understood the whole of Hegel’s Logic.” Marx himself wrote “I therefore openly avowed myself the pupil of that mighty thinker, and even here and there, in the chapter on the theory of value, coquetted with the modes of expression peculiar to him.”
Those are the two major reasons for keeping Hegel in mind: because Marx, like many young German intellectuals in the 1830s and 1840s, started with Hegel; and because, many years later, Marx’s critique of political economy was still influenced by his theoretical encounter with Hegel.*
But, of course, that makes understanding the movement toward the Marxian critique of political economy a bit difficult for contemporary readers, who generally aren’t familiar with Hegel’s writings. So, in this section, I want to present a brief summary of Hegel’s philosophy. But, I caution readers, this should not be taken to be a presentation of all aspects of Hegel’s thought. We only want to examine Hegel to the extent that it aids our comprehension of Marx’s theoretical journey and his later critique of political economy.
In his twenties, Marx, along with other young German intellectuals (including Ruge, Bruno Bauer, and Ludwig Feuerbach), formed a loose grouping called, variously, the Young Hegelians or the Left Hegelians. In their discussions and debates, these young thinkers sought both to draw on Hegel’s philosophy and to radicalize it, aiming their attacks especially at religion and the German political system.** Later, they turned their radical critique on Hegel’s philosophy itself.
So, what was it in Hegel’s thought that was so influential for Marx and the other Young Hegelians? One area is particularly important: the theory of knowledge and, closely related, the philosophy of history.
On the first point, Hegel’s view was that the two previous traditions—of René Descartes and Immanuel Kant—got it wrong. Descartes argued that it was impossible to know things as they appear to us (phenomena) but only things as they are in themselves (noumena). Experience was deceptive. Hence, his focus on reason, which alone can provide certainty about the world. Kant posited exactly the opposite—that it was possible to know things as they appeared to us but not their essences, things as they are in themselves. Therefore, science was only capable of providing knowledge of the appearances of things, of empirical experiences and observations about nature; morality and religion operated in the unknowable realm of things in themselves.
Hegel’s great contribution was to solve the problem and affirm what both Descartes and Kant denied. For him, history was an unfolding of the mind (Absolute Spirit) coming to know itself as phenomenon, to the point of its full development, when it is aware of itself as it is, as noumenon. In other words, the consciousness of things as they appear to us leads to knowledge of the essence of things. At the end of the process, when the object has been fully “spiritualized” by successive cycles of consciousness’s experience, consciousness will fully know the object and at the same time fully recognize that the object is none other than itself. That is the end of history.
How does this historical process work? How does the mind or Absolute Spirit pass through successive stages until it reaches full awareness? That’s where the dialectic comes in. According to Hegel (especially the Phenomenology of Mind), human understanding passes through a movement that is characterized by an initial thesis (e.g., being) that passes into its opposite (e.g., nothingness), which entails a contradiction that is resolved by a third moment (e.g., becoming), which is the positive result of that opposition. For Hegel, this process of thesis-antithesis-synthesis (or, as it is sometimes referred to, abstract-negative-concrete) is both a logical process (the development of philosophical categories) and a chronological process (the development of society), which leads to greater understanding or universality (in both philosophy and in social institutions such as religion and politics), eventually leading to complete self-understanding—the end of history.
What Marx and the other Young Hegelians took from Hegel was a method and language that allowed them to challenge tradition and the existing order: a focus on history and a stress on flux, change, contradiction, movement, process, and so forth.
But they also turned their critical gaze on the more conservative dimensions of Hegel’s philosophy. For example, Feuerbach (in The Essence of Christianity, published in 1841) argued that Hegel’s Absolute Spirit was nothing more than deceased spirit of theology, that is, it was still an inverted world consciousness. Instead, for Feuerbach, God was the outward projection of people’s inward nature. Men and women were “alienated” from their human essence in and through religion—because they cast all their human powers onto a deity, instead of assuming them as their own. The goal, then, was to change consciousness by becoming aware of that self-alienation, through critique.
Marx, in particular, considered Feuerbach’s critique to be an important step beyond Hegel. Ultimately, however, he rejected the way Feuerbach formulated the problem (as individuals separated from their human essence, outside of society) and settled his account with the eleven “Theses on Feuerbach,” the last of which has become the most famous:
The philosophers have only interpreted the world, in various ways; the point is to change it.
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*Even though I insist on the idea that a basic understanding of Hegel is necessary for understanding Marx’s theoretical journey, it is also possible to overstate the case. Marx’s method is neither a straightforward application nor a simple reversal of the Hegelian dialectic. But the time he wrote Capital, Marx had criticized and moved far beyond Hegel’s philosophy.
**At the time (beginning in 1840), Germany was governed by a new king, Frederick William IV, who undermined his promise of political reform by curtailing political freedom and religious tolerance. For the Young Hegelians, this was a real step backward in terms of following the rest of Europe (especially Britain and France) in modernizing political institutions and expanding the realm of freedom. And it was key to their eventual break from Hegel, since according to Hegel’s philosophy the Prussian state represented the fulfillment of history. (The contemporary equivalent is Francis Fukuyama’s famous book The End of History and the Last Man (1992), in which he argued that “not just. . .the passing of a particular period of post-war history, but the end of history as such: That is, the end-point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.”
Cornelia Mittendorfer, Double Alienation (2012)
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (here, here, here, here, and here) will serve as the basis for Chapter 1, Marxian Economics Today. The next six (here, here, here, here, here, and here) are for Chapter 2, Marxian Economics Versus Mainstream Economics. This post is a draft of the first section of Chapter 3, Toward a Critique of Political Economy.
The Marxian Critique of Political Economy
In the first two chapters, we looked at some of the major differences between Marxian economics and mainstream economics, both in Marx’s time and in our own.
But where did Marx’s critique of mainstream economics come from? It certainly did not emerge in one fell swoop, as a ready-made theory of capitalism. And it wasn’t produced in isolation, independently of the society within which it was first produced and then further elaborated.
Quite the opposite: we can trace the development of Marx’s critique through a variety of texts—many of them now quite famous, even if they are rarely mentioned or discussed within economics. There, we can see Marx’s ideas developing and changing, until he began to work on his critique of political economy, finally presented in Capital.
Moreover, Marx’s critical appraisal of both mainstream economic theory and capitalism was, like all theories or discourses, a product of its time—of the economic and social structures as well as of the ideas that were prevalent when he was writing. In turn, once they were produced, Marx’s ideas participated in changing that same intellectual and social environment—as they continue to do, right up to the present.
In this chapter, we will examine some of the influences on Marx’s critique of political economy. These include the larger economic and social environment of capitalism in the middle of the nineteenth century as well as Marx’s intellectual heritage, especially the politics of utopian socialism and the philosophy of G. W. F. Hegel—in addition to classical political economy. Without having a basic sense of those moments, it is impossible to understand where Marx’s critique came from.
The task is even more germane because those influences are so different from those of our own own time, when you are reading this book. Capitalism has changed a great deal in the intervening period, and the ideas we take to be relevant today are quite different from those that influenced Marx’s work. How many of us, for example, know about or read Hegel today? Instead, in recent decades, postmodernism has been much more of an influence on contemporary interpretations of Marxian economics.
Once we have accomplished that goal, we will turn our attention to some of Marx’s most famous writings before Capital. These include such texts as The Economic and Philosophical Manuscripts of 1844 and The German Ideology, as well as the copious notebooks, the Grundrisse, Marx kept as he first started delving into classical political economy.
For a Ruthless Criticism of Everything Existing
So, where to begin? Perhaps the best place is one of the letters Marx wrote to his friend Arnold Ruge.
Marx was 25, just two years beyond completing his Doctor of Philosophy at the University of Jena. He had recently married Jenny von Westphalen—but, seeing that working in his native Germany was becoming increasingly difficult, he was already planning to leave and move to France. Police reprisals had forced Marx to resign from the editorship of Rheinische Zeitung (Renish Newspaper). During that time, Marx corresponded with Ruge, and their eight-letter exchange was eventually published in the Deutsch-Französische Jahrbücher (German-French Annals), which appeared in Paris in 1844.*
The most relevant piece of that correspondence is the letter Marx composed in September 1843, which eventually acquired the title “For a Ruthless Criticism of Everything Existing.”** With those words, Marx announced the task confronting him and other “young Hegelians” at that moment:***
the ruthless criticism of the existing order, ruthless in that it will shrink neither from its own discoveries, nor from conflict with the powers that be.
In one sense, there’s nothing remarkable about Marx’s formulation of their task. It’s part and parcel of modernity, the “tradition of no tradition,” defined by self-criticism, openness to novelty, suspicion of authority, questioning of the existing common sense, and much else. It is, in short, what modern intellectuals (including students) are supposed to do: follow ideas wherever they may go, without being afraid of their consequences or, as we say these days, of “speaking truth to power.”
In another sense, Marx formulated his project of “ruthless criticism” in a novel fashion. He ties it to socialism and communism—and therefore a radical transformation of the world. He was, even at that young age, a radical thinker and acivist.
However,
This does not mean that we shall confront the world with new doctrinaire principles and proclaim: Here is the truth, on your knees before it! It means that we shall develop for the world new principles from the existing principles of the world. We shall not say: Abandon your struggles, they are mere folly; let us provide you with true campaign-slogans. Instead, we shall simply show the world why it is struggling, and consciousness of this is a thing it must acquire whether it wishes or not.
Therefore, Marx explains, he does not believe in nor is he in favor of holding up any kind of “dogmatic banner.”
That, in a nut shell, is how Marx understands his project—a “ruthless criticism of everything existing”—which, as we will see in this chapter, passes through various stages on his way to composing the critique of political economy in Capital.
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*The aim of this chapter is not to present the details of Marx’s life. The focus here, as in the book as a whole, is on the development of Marx’s ideas as well as their conditions and consequences. For interested readers, the classic biography is Franz Mering’s Karl Marx: The Story of His Life (published in 1918). A recent film directed by Raoul Peck, The Young Karl Marx (2017), is an excellent historical drama about Marx and his relationship to Friedrich Engels. It also emphasizes, perhaps for the first time, the important role played by their respective wives, Jenny von Westphalen and Lizzie Burns.
**Most of Marx’s texts cited in this chapter can be found in the second edition of The Marx-Engels Reader, edited by Robert C. Tucker.
***”Young Hegelians” refers to the influence on Marx of Hegel’s philosophy, which will be discussed in the next section.
James Sanborn, Adam Smith’s Spinning Top (1998)
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (here, here, here, here, and here) will serve as the basis for chapter 1, Marxian Economics Today. The text of this post is for Chapter 2, Marxian Economics Versus Mainstream Economics (following on from the previous posts, here, here, here, here, and here).
Classical Political Economy
Marxian economists have been quite critical of contemporary mainstream economics. As we saw in Chapter 1, and will continue to explore in the remainder of this book, Marxian economists have challenged the general approach as well as all of the major conclusions of both neoclassical and Keynesian economics.
But what about Marx, who wrote his critique of political economy, let’s remember, before neoclassical and Keynesian economics even existed?
Marx, writing in the middle of the nineteenth century, trained his critical eye on the mainstream economic theory of his day. He read Adam Smith’s Wealth of Nations and David Ricardo’s Principles of Political Economy and Taxation, as well as the writings of other classical political economists, such as Thomas Robert Malthus, Jean-Baptiste Say, and John Stuart Mill.
Marx’s critique of political economy can rightly be seen as both an extension of and break from the work of those late-eighteenth-century and early-nineteen-century mainstream economists. So, in order to understand why and how Marx proceeded in the way he did, we need to have a basic understanding of classical political economy.
Before we begin, however, we have to recognize that Marx’s interpretation of the classical economists was very different from the way they are referred to within contemporary mainstream economics. Today, within non-Marxian economics, the classicals are reduced to a few summary ideas. They include the following: a labor theory of value (which mainstream economists reject, in favor of utility), the invisible hand (which, as it turns out, Smith mentioned only three times in his writings, once in the Wealth of Nations), and comparative advantage (but not the rest of Ricardo’s theory, especially his theory of conflict over the distribution of income).
We therefore need a good bit more in order to make sense of Marx’s critique of political economy.
Adam Smith
Let’s start with Adam Smith, the so-called father of modern economics. The author of, first, the Theory of Moral Sentiments and, then, the Wealth of Nations, Smith asserted that people have a natural “propensity to truck, barter, and exchange one thing for another.” In other words, according to Smith, the ability and willingness to participate in markets were natural, and not social and historical, aspects of all humanity.
That’s not unlike contemporary mainstream economists’ insistence on presuming the existence of markets, and thus writing down supply and demand functions (or drawing them on a graph), without any further evidence or argumentation. They’re presumed to be natural.
Smith then proceeds by showing that the division of labor (such as with his most famous example, of the pin factory) has two effects: First, it leads to increases in productivity, and therefore an increase in production. Second, the extension of the division of labor within factories propels a division of labor within capitalism as a whole, as firms specialize in the production of some goods, which they can then trade with other producers in markets. In turn, the expansion of markets leads to more division of labor and higher productivity, thus increasing the wealth of nations.
Again, the parallel with contemporary mainstream economics is quite evident, which is recognized in the “classical” portion of the name for neoclassical economic theory. Using Gross Domestic Product as their measure of the wealth of nations, contemporary mainstream economists celebrate capitalism because higher productivity results in more output, which is then traded on markets. This is the basis of contemporary mainstream economists’ definition of development as an increase in GDP per capita, that is, more output per person in the population.
However, unlike contemporary mainstream economists, Smith analyzed the value of commodities in terms of the amount of labor it took to produce them. With increasing productivity, more goods and services could be produced and sold in markets, each containing less labor—and therefore available at lower prices to consumers. The nation’s wealth would therefore grow, especially as the number of workers grew.
Still, Smith worried about whether capitalist growth would persist in an uninterrupted fashion. The division of a nation’s production into “natural” rates of wages, profits, and rent to workers, capitalists, and landlords was not sufficient. What if, Smith asked, a large portion of capitalists’ profits was used to hire more “unproductive” labor, that is, the labor of household servants and others that did not contribute to increasing productivity? Purchasing labor involved in what we now call conspicuous consumption represented, for Smith, a slowing of the accumulation of additional capital. Therefore, it created a problem, an obstacle to future capitalist growth.
David Ricardo
David Ricardo picked up where Smith left off. He extended the celebration of capitalist markets to international trade. His argument was that if nations specialized in the production of commodities for which they had a relative advantage, and traded them for goods from other countries (his most famous example was British cloth and Portuguese wine), both countries would benefit. Their wealth would increase.*
That’s the only reason Ricardo’s work is cited by contemporary mainstream economists. However ironically, they ignore the fact that Ricardo made his argument based on the labor theory of value—just as they never mention Ricardo’s concern that conflicts over the distribution of income might slow capitalist growth.
In particular, Ricardo was worried that, as capitalism developed, the profits received by capitalists would be squeezed from two directions: an increase in workers’ wages and a rise in rent payments to landlords. Lower profits would mean less capital accumulation and slower growth—and, in the limit, capitalism would grind to a halt.
We can see how this might happen in the chart above. At a certain point (a level of population P, which is the pool of workers), total output (the red line) would be divided into workers’ wages, capitalists’ profits, and landlords’ rent).
It is easy to see that, at any point in time, if the wage rate paid to workers increased (which would mean an increase in the slope of the blue line), that would cut into profits (the vertical distance between the blue and green lines would decrease). That’s the major reason Ricardo supported free trade (and thus a repeal of the so-called Corn Laws): so that cheaper wheat could be imported from abroad, thus lessening the upward pressure on workers’ wage demands.
Even if the rate paid to workers remained the same over time (and thus the total amount of wages rose at a constant rate, with an increase in population), capitalists’ profits would be squeezed from the other direction, by an increase in the rents paid to the class of landlords (the vertical distance between the green and red lines). Basically, as agricultural production was moved to less and less fertile land, the rents on more productive land would rise, siphoning off a larger and larger portion of profits.
At a certain point (e.g., at a level of population P*), the entire output would be divided between workers’ wages and landlords’ rent, and nothing would be left in the form of capitalists’ profits. As a result, capitalists would be forced to stop investing and capitalist growth would cease.
Other Classicals
The Reverend Thomas Malthus was, if anything, more pessimistic than Ricardo. But he foresaw capitalism’s problems coming from the other direction, from the working masses. In his Essay on the Principle of Population, he argued that population would likely grow faster than the expansion in food production, especially in times of plenty. With such an increase in the supply of workers and a rise in the price of available food, workers’ real wages would inevitably fall and poverty would rise. The only solution was for capitalists and landlords to hire all the additional labor, and for workers’ wages to be restored to their “natural” level.
If Malthus focused on the up-and-down cycles of population and wages, and both Smith and Ricardo the potential limits to capitalist growth, the French classical economist Jean-Baptiste Say emphasized the inherent stability of capitalism. Why? Say’s argument was that the production of commodities causes incomes to be paid to suppliers of the capital, labor, and land used in producing these goods and services. And because the sale price of those commodities was the sum of the payments of wages, rents, and profit, the incomes generated during the production of commodities would be used to purchase all the commodities brought to market. Moreover, entrepreneurs were rewarded for correctly assessing the needs reflected in markets and the means to satisfy those needs. The result is what was later coined as Say’s Law: “supply creates its own demand.”
Finally, it was John Stuart Mill who added utilitarianism to classical political economy. Extending the work of Jeremy Bentham, especially the “greatest-happiness principle” (which holds that one must always act so as to produce the greatest aggregate happiness among all sentient beings), Mill argued that the greatest happiness and the least pain could be achieved on the basis of free markets, competition, and private property—with the proviso that everyone should be afforded an equal opportunity, however unequal the actual results might turn out to be. In particular, Mill defended the profits of capitalists as a just recompense for their savings, risk, and economic supervision.*
Marx’s Critique of Mainstream Economics
That, in a nutshell, is the mainstream economic theory Marx confronted while sitting in the British Museum in the middle of the nineteenth century. Marx both lauded the classical political economists for their efforts—especially Ricardo, who in his view “gave to classical political economy its final shape” (Critique of Political Economy)—and engaged in a “ruthless criticism” of their theory.
In this sense, Marx took the classical political economists quite seriously. Even as he broke from their work in a decisive manner, many of the themes of Marx’s critique of political economy stem directly from the issues the classicals attempted to tackle. That’s why the overview provided in previous sections of this chapter is so crucial to understanding Marxian economics.
Still, the question remains, how does Marx’s critique of the mainstream economics of his day transfer over to contemporary mainstream economists? As we will see, although neoclassical and Keynesian economists reject the labor theory of value and other crucial elements of classical political economy, both the basic assumptions and conclusions of their approach are so similar to those of the classicals as to make it a relatively short step from Marx’s critique of the mainstream economic theory of his day to that of our own.
However, before we look at that theoretical encounter, in the next chapter, we will see how Marx’s critical engagement with classical political economy emerged over the course of his writings before, in the mid-1860s, he sits down to write the three volumes of his most famous book, Capital.
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*Mill did defend various redistributive tax measures, in order to limit intergenerational inequalities that would otherwise constrain equality of opportunity. Moreover, he argued in a later edition of his Principles of Political Economy in favor of economic democracy: “the association of the labourers themselves on terms of equality, collectively owning the capital with which they carry on their operations, and working under managers elected and removable by themselves” (Principles of Political Economy, with some of their Applications to Social Philosophy, IV.7.21).
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (here, here, here, here, and here) will serve as the basis for chapter 1, Marxian Economics Today. The text of this post is for Chapter 2, Marxian Economics Versus Mainstream Economics (following on from the previous posts, here, here, here, and here).
Limits of Mainstream Economics Today
Keynes’s criticisms of neoclassical economics set off a wide-ranging debate that came to define the terms of—and, ultimately, the limits of debate within—mainstream economics.
On one side are neoclassical economists, who celebrate the invisible hand and argue that markets are the best way to efficiently allocate scarce resources. On the other side are Keynesian economists, who argue instead for the visible hand of government intervention to move markets toward full employment.
That tension, between the theories and policies of neoclassical and Keynesian economics, is the reason why in most colleges and universities the principles of economics are taught in two separate courses: microeconomics and macroeconomics. Moreover, the tension between the two schools of thought plays out within every area of economics, including (but certainly not limited to) microeconomics and macroeconomics.
One way of understanding the differences between the two approaches is to think about them as conservative and liberal interpretations of mainstream economics. Conservative mainstream economics tend to presume that the basic assumptions of neoclassical economics hold in contemporary capitalism, while liberal mainstream economists think they don’t.
Let’s consider two examples. First, within microeconomics, conservative mainstream economists (such as the late Milton Friedman) believe that individuals make rational decisions within perfectly competitive markets. Therefore, if markets exist, they should be allowed to operate within any regulations; and, if a market doesn’t exist, it should be created. Liberal mainstream economics (such as Joseph Stiglitz), on the other hand, see both individual decisions and markets as being imperfect—because individuals have limited or asymmetric information, some firms have more market power than others, and so on. Therefore, they argue, markets need to be guided to the best outcome.
The second example is from macroeconomics. The view of conservative mainstream economists (such as Thomas J. Sargent) is that capitalism operates at or close to full employment (where, in the chart above, aggregate demand intersects the vertical portion of the aggregate supply curve), whereas liberal mainstream economists (such as Paul Krugman) believe that unregulated markets often lead to considerable unemployment (where aggregate demand intersects the horizontal portion of the aggregate supply curve, at level of output less than full employment).*
To attempt to reconcile the two competing views, many mainstream economists argue for a “middle position”—somewhere between the opposed neoclassical and Keynesian views. There (in the red portion of the aggregate supply curve), mainstream economists find a tradeoff between increases in output and changes in the price level, that is, between inflation and unemployment.
And the predominant view within mainstream economics shifts back and forth between the two poles. Sometimes, as in the years before the crash of 2007-08, mainstream economics moved closer to the neoclassical approach. That’s when policies such as deregulation, privatization, the reduction of government deficits, welfare reform, and so on were all the rage, within both academic and political circles. After the crash, when the neoclassical approach was said to have failed, mainstream economics swung back in other direction. That’s when there were calls for more government intervention and fewer worries about budget deficits and the like.
In the midst of the Pandemic Depression, much the same kind of debate between advocates of the two poles of mainstream economics has been taking place. On one side, conservative mainstream economists have argued in favor of rescuing banks and corporations, such that an economic recovery would “trickle down” to workers and their households. Liberal mainstream economists, on the other hand, have favored direct payments to workers who were furloughed or laid off—an idea that was attacked by their conservative counterparts, because such payments were seen as providing a “disincentive” for workers to return to their jobs.
Every time capitalism enters into crisis, the same kind of debate breaks out between conservative and liberal economists (and, of course, between different groups of politicians and voters).
If mainstream economists are so divided between the two approaches, what in the end unites them into what I have been calling mainstream economics? Like all such labels, it is defined in part by what it includes, and in part by what it excludes.
What mainstream economics includes is the idea that neoclassical and Keynesian approaches establish the limits within which theoretical and policy debates can and should take place. Together, they define what is in the “economic toolkit,” and therefore what it means to “think like an economist.” Moreover, the two groups of economists argue that capitalist markets are the way a modern economy can and should be organized. They may disagree about the relevant approach—for example, the “invisible hand” of free markets versus the “visible hand” of government intervention. But they all agree on the goal: to create the appropriate institutional environment so that capitalist markets work properly.
They also share the view that the only way capitalism operates falls below its general equilibrium, full-employment potential is because of some external “shock.” In other words, all economic downturns, such as recessions and depressions, are due to external causes, not because of anything internal to the normal workings of capitalism.
What the definition of mainstream economics excludes is any approach, such as Marxian economics, that is based on a theoretical approach that lies outside the protocols of neoclassical and Keynesian economics. So, for example, the idea of class exploitation is generally overlooked or ignored within mainstream economics. Similarly, imagining and creating ways of allocating resources other than through capitalist markets are pushed to or beyond the margins by mainstream economists.
Together, the inclusions and exclusions contained within the definition of mainstream economics serve to define what mainstream economists think and do in their theoretical practice as well as in the policy advice they offer.
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*As many contemporary Post Keynesian economists have noted, when neoclassical and Keynesian were combined in a single approach to economics (for example, in the “neoclassical synthesis” in the decades following World War II), many of the critical aspects of Keynes’s writings—including the notion of uncertainty and the idea that much stock market investment was merely speculation and added little to the productive capacity of the “real” economy—were downplayed or ignored altogether.
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (here, here, here, here, and here) will serve as the basis for chapter 1, Marxian Economics Today. The text of this post is for Chapter 2, Marxian Economics Versus Mainstream Economics (following on from the previous posts, here, here, and here.)
Keynesian Economics
Once it was created as a new theory of capitalism, neoclassical economics expanded its influence—in its original countries as well as elsewhere.* Not surprisingly, it was also criticized, for example, by the so-called institutionalists (such as Thorstein Veblen, the author of The Theory of the Leisure Class: An Economic Study of Institutions) and by economists who challenged various of its assumptions, including the presumption of perfect competition (especially at Cambridge University, in England, by the likes of Piero Sraffa and Joan Robinson).**
Within mainstream economics, the most far-reaching critique occurred during the Great Depression of the 1930s, when, against one of the main conclusions of neoclassical economists—that capitalism would aways tend toward full employment—millions of workers were thrown out of their jobs and the rate of unemployment soared to over 25 percent.
British economist John Maynard Keynes is the most famous of those critics. He challenged two major features of government policy at that time, measures that were consistent with neoclassical economics: first, that a decrease in wages would restore full employment, and, second, that government budget deficits should be avoided at all costs. Instead, Keynes argued, lowering wages would merely lead to less spending, and therefore more unemployment, and budget deficits during economic downturns were actually a good thing, as they were a way for governments to stimulate private spending in order to move capitalist economies back toward full employment.
In 1936, Keynes wrote and published his magnum opus, The General Theory of Employment, Interest and Money, which provided the theoretical basis for his attacks on austerity measures and his alternative program of government deficit spending.
One way to see the impact of Keynes’s theoretical innovation is to use the contemporary model of aggregate supply and aggregate demand.*** Basically, neoclassical economists conclude that a capitalist economy will always be at full employment (at a level of output Y FE, where Y is inflation-adjusted national output, measured in terms of Gross Domestic Product, and FE is full employment) at the intersection of downward-sloping aggregate demand (AD*) and perfectly vertical aggregate supply (AS) curves. Therefore, any attempt to raise aggregate demand (e.g., to AD2), will only raise prices (an increase in the price level, on the vertical axis) and leave the level of output (and therefore employment) unchanged.****
Keynes, in contrast, argued that, during economic downturns, aggregate demand would decline (e.g., to AD1) and, with a perfectly elastic aggregate supply curve at less than full employment (the horizontal section of AS), output would fall to less than full employment (Y1). Moreover, there were no automatic mechanisms within capitalism to restore full employment. Without the visible hand of government intervention—for example, deficit spending—the economy would operate at a level of output below full employment. Finally, Keynes argued, aggregate demand could be increased without provoking inflation (again, a general increase in the price level), an idea that economists and politicians opposed to deficit spending argued then and continue to claim today.
How did Keynes arrive at conclusions that ran so much against the neoclassical grain? Keynes did not reject all aspects of neoclassical economics—especially its theory of income distribution or its celebration of capitalism. But he did criticize some key assumptions, especially the idea that capitalism should be analyzed starting from individual decisions based on utility-maximization and complete knowledge. Instead, Keynes placed a great deal of importance on mass psychology and the limits to knowledge or uncertainty.
Mass psychology and uncertainty are particularly important when it comes to capitalists’ investment decisions, which are an important component of aggregate demand. For Keynes, working-class households were expected to use for consumption a large and relatively stable share of their income (what is often referred to as the consumption function). Investors, however, engaged in a much more volatile set of decisions, and that’s because in many instances they had no rational knowledge about the future. They simply could not know.
So, given their uncertainty, how could capitalists make investment decisions? Much to the chagrin of other mainstream economists, then as now, Keynes argued in the General Theory that investors were guided by “animal spirits”—an urge to act that could not be understood in terms of quantitative benefits and probabilities.
So, if capitalists couldn’t make rational decisions, and were propelled instead by their “animal spirits,” what guide could they follow? Keynes turned to mass psychology, a kind of herd mentality, according to which capitalists looked at what everyone else was doing and followed suit—sometimes in a positive vein, other times in a negative direction.
That made investment demand, the other key component of aggregate demand, quite volatile—and could often (as during and after the stock market crash of 1929) initiate a downward spiral. Capitalists would stop investing, thereby decreasing production and destroying investor confidence, which would lead to even less investment and production, in a kind of capitalist freefall. Moreover, since private decisions in markets only worsened the initial downturn, there was no mechanism within capitalism to turn things around. The invisible hand failed.
That’s why Keynes argued—first in letters to government leaders, including Franklin Delano Roosevelt, and then in the General Theory—that the only thing that would save capitalism would be for the government to step in with aggressive fiscal policy (deficit spending) and an accommodating monetary policy (such as lowering interest rates), to raise aggregate demand (from AD1 back toward AD*, in the chart above). In other words, the solution Keynes proposed was the visible hand of government intervention.
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*The second generation of neoclassical economists included the following: in England, Philip Wicksteed, Francis Edgeworth, and Alfred Marshall; in Switzerland, Vilfredo Pareto; and, in Austria, Eugen Böhm von Bawerk and Friedrich von Wieser. Neoclassical economics also found fertile ground in the United States, early on in the work of such economists as John Bates Clark, Fred M. Taylor, and Frank William Taussig. Later, especially after World War II, with the rise of U.S. hegemony, both economically and intellectually, neoclassical economics was spread throughout the world.
**Many contemporary readers, including students of economics, will not recognize the names of Veblen, Sraffa, and Robinson precisely because of the predominance of neoclassical economics.
***While Keynes introduced the concepts of aggregate supply and demand in chapter 3 of the General Theory, a model based on aggregate supply and demand as a way of representing and teaching mainstream macroeconomics wasn’t common until the 1990s. Today, it is ubiquitous. The problem is, in many principles and intermediate-level economics texts, aggregate supply/aggregate demand analysis has had the effect of misleading students into thinking that the analysis of the aggregate economy is essentially the equivalent to market equilibrium analysis. While we don’t need to go into detail here, the underpinnings of aggregate supply and aggregate demand have nothing to do with the way we market supply and demand are determined, such as in the section above on neoclassical economics.
****Therefore, the only way to raise output and employment in the neoclassical model is to increase (push out to the right) the vertical aggregate-supply curve. That can only happen if the exogenous determinants of aggregate supply change—for example, through an increase in labor, capital, and land or an improvement in technology.
In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (here, here, here, here, and here) will serve as the basis for chapter 1, Marxian Economics Today. The text of this post is for Chapter 2, Marxian Economics Versus Mainstream Economics (a short addendum to a previous post on Economic Theories and Systems).
The relation between economic theories and economic systems is even more dynamic. The various economic theories of capitalism are not just different ways of making sense of that particular economic system. They emerge, develop, and change over time as capitalism itself changes—and, in turn, they have effects back on capitalism.
The history of economic thought shows that both mainstream economics and the Marxian critique of mainstream economics first appeared—and then grew or declined in influence, were debated and questioned, gave rise to new concepts and methods, and so on—as capitalism first came into existence and then changed over time. Thus, for example, after the crash of 2007-08, mainstream economics was widely questioned: because its theories and policies, in part, created the conditions that led to the crash; because it failed to include even the possibility of such a crash in its models; and because, once the crash occurred, it had little to offer in the way of effect remedies.
At the same, there was a resurgence of interest in theories that presented criticisms of mainstream economic theory and capitalism, including Marxian economics. Many people, inside and outside the academy, went back to ideas, including those associated with the Marxian critique of political economy, to make sense of what was going on. Precisely because they didn’t find answers to such pressing questions as capitalist instability, the role of finance, growing inequality between the top 1 percent and everyone else, a wide variety of professors, students, activists, and pundits questioned the theories and policies of mainstream economics and expressed renewed interest in Marxian and other non-mainstream approaches to economics that had been sidelined or ignored in recent years.
But the relation between economic theories and economic systems doesn’t go in only one direction. The ideas of different schools of thought within economics also have an impact on the economic systems they’re designed to analyze. This is what is often called the “performativity” of economics. The ideas that are produced by professional economists (as well as noneconomists, inside and outside the academy) often lead to changes in capitalism itself.
This is particularly true, as neoclassical economist Milton Friedman famously wrote, in times of crisis.
Only a crisis‐—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable. (Capitalism and Freedom, xiv)
Economic theories are not just out there, as a matter of academic curiosity and endeavor (or, sometimes for students, a necessary evil to be learned and recited on an exam). They often lead to changes in capitalism, especially if they influence the way people think about their role in capitalism and attract the attention of influential economic and social groups who run capitalism’s key institutions.
In fact, economic theories are designed to do exactly that. When, for example, mainstream economists argue that free markets are the best solution to various economic and social problems—whether budget deficits or poverty or unemployment—they are saying that the world should have more of such markets. And, when changes are made to introduce more markets, mainstream economics has performed its role.
The Marxian critique of mainstream economics also has that performative dimension—with one key difference: whereas mainstream economists want to create a world of which their theory is a better representation, Marxian economists want to do exactly the opposite. They want to contribute to the project of eliminating capitalism, and when that happens, Marxian economics will no longer have a reason to exist.
The performativity of the Marxian critique of political economy is precisely to be its own grave-digger.
occasional links & commentary 