The financial crisis has, justifiably, enhanced the reputation of Karl Marx as an economic thinker. Marx was the first economist to treat crises and panics as an inherent feature of capitalism rather than as an inexplicable, but fortunately temporary, departures from a natural equilibrium.
Unfortunately, most of his analytical effort, and even more, that of the school of thought that followed him, was devoted to pointless exercises in value theory[1]. Marx’s theory of crisis rested mainly on the idea of the falling rate of profit which seemed at the time to be both a theoretical inevitability and an observable trend. But with technological progress, there’s no necessity for the rate of profit to fall consistently, and it hasn’t. There are other ideas in Marx that might be developed to yield a better theory of crisis, but if this has been done, I haven’t seen it.
And, in the current crisis, Marxian economics seems to be pretty much Missing in Action. I haven’t seen much and what I have seen hasn’t added anything, in analytical terms, to the standard left-Keynesian analysis. Perhaps the problem is that just about everyone expects capitalism, in one form or another, to survive this crisis, contrary to the orthodox Marxist view where crises become ever more severe and eventually precipitate the revolutionary overthorw of the entire system. But it’s equally possible that I haven’t been looking in the right places. Can anyone recommend a good Marxian analysis of the current crisis?
fn1. If I get time, I’ll write a longer post on this point. In short, the idea underlying debates about value theory was that since the sale proceeds of production are divided between the owners of inputs to production (labour, capital, and land in the C19 division) there must exist some natural way of determining the share of the value of output for which each group is responsible. This is essentially an idea about average values, since averages added across a group are equal to the total for that group. But, as the neoclassical revolution of the 1870s showed, prices are determined by marginal costs and marginal rates of substitution and these don’t equal averages. Subsequent attempts to rescue a substantive role for value theory as opposed to price theory by Marxians, Austrians and Sraffians, not to mention the marginal productivity ethics of JB Clark and others, have gone nowhere.
John Quiggin 
If Y=Y(L+delta.Lk) does not apply to Marxist theory, in what sense is it a labour theory of value?
If the above production function doesn’t hold and the marginal product of of indirect labour embodied in capital goods exceeds the depreciation rate, then capital generates surplus value and investment in it need not reduce the rate of return on capital or surplus per unit of labour.
What is the theory of firm pricing that generates the prisoners dilemma?
Are you familiar with constant elasticity of demand production functions? Under perfect competition, the factor whose supply increases the fastest will see its income share fall; so such a result, if true, does not necessarily imply that a Marxist model is correct.
Quiggin’s post appears to breech normal scholarly decorum and introduces devices of denialism rather than presenting rigorous argument. Anyone who tries to tag value theory with ‘pointless exercise’ either display their own capacities or are engaging in Windschuttle rantings.
I get fed up with silly mathematical statements such as:
“This is essentially an idea about average values, since averages added across a group are equal to the total for that group” [Quiggin].
Unfortunately this has nothing to do with averages because ANYTHING added across a group will always equal the total for that group.
The rest of Quiggin’s understanding is of the same quality.
Sales of production are not divided as Quiggin notes, because the controlling aspect is “surplus value” and the politics created to enforce it. This just shows how little our ‘economists’ understand ‘political economy’.
Its not clear what Quiggin understands as value theory (under Ricardo) and as under Marx. In general, at the point of social production, the relevant value is ‘exchange value’. Marx’s value theory is sound and very brief – at least for those scholars who have enough rigor to reference primary materiuals. According to Marx
It is not clear that Marx ever had any meaningful general “Value” theory, seperate to his use value and exchange value scenarios. In any case whatever this value was, Marx indicated this was its so-called natural price, when supply and demand equilibriated (an exchange function surely?).
The interplay between average cost and marginal cost is interesting and I have spent some time looking at it. If Quiggin wants to try then he should examine how it would work under a capitalist market and then under a socialist market. The socialist case is easy as output is sold at natural prices at equlibrium. The capitalist case requires increasing per capita debt (so no average ‘centrre of economic gravity exists’).
Quiggin notes that he may right a longer post? As he was schooled by Samuelson (at ANU) this task may be beyond his capacities.
Judging by the ignorance of many and the fanciful expressions of other comments (above), maybe the blogosphere is not the right place for such ventures that require deeper effort.
@James
You say that Marx actually ackowledged that capital produces surplus value. Where did he say this?
I contend that capital produces _more_ surplus value than labour. This is because a unit of labour costs W while a unit of labour embodied in capital goods costs W(1+R). If, as you say, investment is a prisoners dilemma game, then the capitalists would have no incentive to play “defect” and invest in capital goods unless the rate of surplus was at least (1+R) times the rate of surplus on direct labour inputs.
@Tim Peterson
1) Marx’s argument was, as I said, that under capitalist competition, although the profit of any one particular firm no longer depends on its extraction of surplus labour, the profit generated across the whole of the economy does so. This surplus labour=profit was “shared out” among capitalists according to their capital contributions. Whether or not this was a valid solution has come to be known as the “transformation problem” and the literature on it is vast and frequently turgid. A turning point in the debate is probably Samuelson (1971), which in combination with Steedman (Marx after Sraffa, 1977) induced a lot of Marxists to become neo-Ricardians instead.
The remaining ones have generally decided, broadly speaking, that either a) the postulate of an equal rate of profit in fact does not hold, even approximately, and that real capitalist economies do generate prices and profits according to labour content (the Farjoun & Machover statistical/empirical Marxist school) or b) the fault is in the method of simultaneous equations used to “solve” the transformation functions and if account is taken of the change in prices over a production period generated by the change in productivity and labour invested, the problem goes away (the Temporal Single System interpretation school). These schools hate each other.
2) Marx’s idea was that the contention that because any one capitalist can generate extra-normal profits by mechanising, they all can, is a fallacy of composition. Capitalist A can, for a while, make widgets more efficiently than all the rest and hence make a bigger profit, because he can undercut Capitalists B, C and D; but as soon as they all get the more efficient machinery A’s gross profit drops back to a new (and, according to Marx, lower average), except that the price of widgets is lower and he is carrying more debt (and, those who read Marx as a proto-Keynesian would argue, a bunch of widget-making-workers are now out of work and hence there is a lower effective demand).
3) Sorry, I don’t understand theories of firm pricing well enough to answer your question.
4) Only vaguely, but isn’t this idea that factor prices neatly reflect supply/demand what the CCC disproved? (It’s occasionally been pointed out, eg by Samuelson, that simple aggregate production functions and simple marxist models actually give the same results under various conditions, e.g. at zero profit rates which I have the impression is what perfect competition produces).
5) Marx didn’t say this. Keen says that Marx’s dialectical model of the commodity actually produces this result, but that Marx failed to apply his own model consistently. Keen’s idea has not been very popular among Marxists.
6) See 2. This comes back to the Volume 3 idea that the equality between profit and surplus labour only holds in the aggregate.
I get what you are saying about the fallacy of composition, but doesn’t that depend crucially on the pricing theories you are vague on?
You say that the first-mover firms can generate non-expropriative profits (eg their investment generates surpluses that are non-exploitative, but arise from the investment itself). Surely, what happens when all the other firms jump on the bandwagon is that markups fall and income gets redistributed from capital to labour! The fallacy-of-compsition emergent behaviour is the opposite of Marx’s model of increasing immiserisation of labour with the reduction in the ‘organic’ composition of capital.
I was under the impression that the immerisation result stemmed from the assumption that (a) the net productivity of investment was zero (period by period output equal to depreciation), (b) firms misteriously want to invest in capital and (c) market forces push markups up instead of down as firms try to generate a return on their (unproductive) capital. The capital producting sector is a black hole that sucks away the capitalists profits and the labourers wages.
To me, (c) is just as weak as (b); it smacks of Galbraiths notion of administered prices, which I can’t see happening in the private sector. If firms could make a bigger profit by increasing markups without the extra capital, they would do so anyway. So much for the transformation problem.
And why isn’t it possible to get a stable growth trajectory with Harrod neutral growth and stable factor shares? Wouldn’t this result stem from, eg markup over marginal cost or average cost pricing?
@James
If, as you suggest, Marx believed that capital generated a surplus, in what sense is his theory a labour theory of value?
@Tim Peterson
Tim if you are asking about Marx and surplus value as if you dont know what this means or where he said it …you seriously need to actually read Marx. Its patently obvious you have not.
@Tim Peterson
Which basically means Tim Peterson – all your interpretations of Marx are indirect.
@Ikonoclast
Ikono – I tend to agree with you on that…when capitalism breaks down, the guarantee could just as easily be a new dark ages, a new feudalism, a new oppression as it could be a revoluntionary overthrow. Overthrow yes. But what exactly will replace it, neither Marx nor any of us know.
Yet I will say this (much to the annoyance of the right wingers in here) – Marx was one of the most prescient of all economists for his predictions on the process of capitalist development. Im sorry the denialists cant see the problems of capitalism that loom in the future, but I believe that they are there and are happening already. Further, I dont believe man has the inherent capability of foresight, and is able to manage our current system of production….so Marx will be proved correct. The crises of capitalism will force us to remedy our production methods.
@Alice
I haven’t read Das Kapital but have flipped through the Communist Party Manifesto; I am genuinely interested in what Marx had to say about surplus – I got the Marxist production function from an economics dictionary – hence my question to James about it.
I studied a bit of Ricardo at uni: surplus value means output in excess of subsistence wages and depreciation (where the former is determined sociologically rather than being pure subsistance). Many of the folks at Sydney uni were broadly sympathetic towards the neo-Ricardian tradition of Sraffa and Robinson (this was about 15 years ago).
@Tim Peterson
Then you had better read the real thing Tim.
Marx didn’t believe that capital generated a surplus. Steve Keen says that one aspect of Marx’s theory actually implies that it does, i.e. Marx was mistaken about his own theory.
Marx’s idea of how the initial increased profits from mechanisation worked was more like the idea that prices are set by labour content (which for him were not significantly different from prices of production – he recognised that they didn’t sum to the same amount but thought the difference negligible. Sraffa, Samuelson, Steedman et al have sharply disagreed). The first adapting capitalist reduces the labour content of his product, by substituting machinery for labour, but the price continues to be set by the average labour content; so the first adapter pockets the difference. As the innovation spreads the price drops to reflect the new, lower labour content.
Alice writes, “Further, I dont believe man has the inherent capability of foresight.”
With regard to large historical processes (outside of predictable physical effects like increasing CO2 levels with fossil fuel use), I agree with Alice.
The course of human history is unpredictable in terms of its detail and its qualitative outcomes. Some large quantitative outcomes may be predictable. The latter is why I predict that limits to growth theory, resource depletion theory and almost any “blind growth to disaster” theory will all be vindicated.
An interesting (to me) corollary of all this is that humanity is clearly not in control of its own destination. We never can have nor will have sufficient information to predict the myriad unintended consequences. Chaos theory (at least in its popularised form) would no doubt salivate at the opportunity of pointing out the unpredictability nature of where the burning of the first lump of peat or coal has led us. Even when we do finally do have enough information in specific cases (resource depletion, climate change) we still fail to act due to individual, institutional and sectional interest resistance not to mention the enormous momentum of a physical production system committed to a high level of consumption and population growth.
So really, we cannot plan where we are ultimately going, at least not in any command sense. In a group intelligence and evolution of civilization sense we can only combine to take the path of proximal least resistence at each point in time ie practicable survival solutions for the short to medium term.
This is a kind of semi-fatalist view to be honest. A colloquial way to express it would be “keep plugging away, try to make local changes and even national for the better and hope like heck that we can survive somehow”.
Measured by this insight, firm beliefs in indefinite capitalistic and techncial progress or in the inevitable success of socialism are simply religions.
@Tim Peterson
Its pretty easy to do these days on Wikipedia…but why not read Marx himself? For the Marxist concept of surplus value see here (you cannot ignore the link to the value of labour).
http://en.wikipedia.org/wiki/Surplus_value
@Ikonoclast
Ikono – I agree. We can only try….but it doesnt look good that we will collectively be able to organise production in such a way as is the best outcome for the majority.
@Tim Peterson and Alice for that matter,
To be honest I find that trying to read long stretches of “Capital” puts me to sleep, so I’m rather sympathetic to Tim here 🙂 I guess I’m a lazy scholar because I rather prefer reading the current work in the field.
As a postcript, I will say that I think of lot of religious, ideological and even political economy theory is about giving us illusions of safety, certainty, knowability and boundedness and thence the illusion of control.
@James
Try reading Marx’s and Engels communication to each other..these are interesting .google letters to Engels or something like that… if you cant stomach Capital.
Here is a link
http://www.marxists.org/archive/marx/letters/index.htm
Tim Paterson
Marx produced his theory of “socially necessary labour” theory of value.
Marx did not support the pre-existing “labour theory of value” as espoused by Adam Smith.
In my view most of Marx’s categories are social categories. This introduces/explains the political element.
@James
James – on that link I gave you – start around 1870.
James ….sorry start around 1840 plus for the most interesting letters…
I find this comment so interesting Ill post comment and lnk
“In an advanced society and because of his situation, a petty bourgeois becomes a socialist on the one hand, and economist on the other, i.e. he is dazzled by the magnificence of the upper middle classes and feels compassion for the sufferings of the people.”
Marx could be so cruel.
http://www.marxists.org/archive/marx/works/1846/letters/46_12_28.htm
Low grade comments such as:
should disqualify such people.
In general, the (so-called) current work in the field is weak and unproductive.
The fact that Quiggin noted there is no current Marxist analysis of the GFC, is a pointer to the uselessness of this modern or Western academic Marxists.
However Samuelson’s 1971 paper on the “Marxian Concept of Exploitation ….” J. Ec. Lit., 9(2) presents even worse gibberish and misrepresentation.
I can find no worthwhile Marxists analysis of the GFC, and no capitalist explanation either. Capos’ seem to think it has been solved by debt and future population growth.
From Kevin Drum’s Mother Jones blog
Paper of the Day — By Nick Baumann Wed Jan. 6, 2010 2:15 PM PST
Economist James Galbraith, an occasional Mother Jones contributor, has an interesting new article [PDF] in Thought & Action, the journal of the National Education Association. It’s about economists who saw the financial crisis coming, and why you never hear about them:
[T]he lines of discourse that take up these questions have been marginalized, shunted to the sidelines within academic economics. Articles that discuss these problems are relegated to secondary journals, even to newsletters and blog posts. The scholars who betray their skepticism by taking an interest in them are discouraged from academic life—or if they remain, they are sent out into the vast diaspora of lesser state universities and liberal arts colleges. There, they can be safely ignored.
While Galbraith will no doubt be slammed by the trolls for not heaping praise on the Austrians, his whole essay is well worth a read. After all, it’s not every day you see “the Marxian view” of economics taken seriously.
Rocco
That pointer [to pdf_Here ]was very useful and readable.
The GFC was predicted by most professional economists but have been trained to be coy in their public utterances.
The EIU “Heading for the Rocks” paper (circulated in DEST) is an example.
The Bank of International Settlements (2005) said “Growing domestic and international debt has created conditions for global economic and financial crisis”. [BIS 75 Annual report – cited: Ann Pettifor(2006]
I think everyone should read Pettifor’s “The Coming First World Debt Crisis (2006)”.
OECD staff depicted the general long-run tendency for crisis at p40-41 of isbn0710206003.
All real economists knew the crisis loomed, and they all know (even if repressed) that the next one will be much much greater.
Their only solution is to increase exponentially the usual countervailing tendencies:
– exploit the third world
– increase per capita debt
– increase population
– cut wages and pensions.
I feel sorry for economists who now vainly seek for “explanations” of the crisis. Its too late.
Maybe there is no “economic” explanation because the crisis is caused by politics not economics.
Presumably a market socialist economy would be crisis free.
@Chris Warren
So I’m to be “disqualified” for my tongue in cheek comment and my interest in current Marxist debates as opposed to reading everything Marx/Engels ever wrote, am I? You sound like a Stalinist.
It’s a plain fact that Capital (along with other important books that started/crystallised broad social movements, such as the Bible, or (I gather, not having read it) the General Theory of Employment, Interest and Money) is a book that often seems to paint a clear picture in a broad sense, but can be very vague and contradictory when interrogated about specific details or specific questions.
Since any attempt to turn these documents into a course of action results in answers to these specific questions being needed (and since the vagueness will be the point which the enemies of the broad doctrine attack) various schools of thought arise which attempt to derive precise answers consistent with the broad doctrine and to defend it against attack. In doing so, they come up with their own interpretations of what the broad doctrine “really” means, which are often at variance with each other.
Remaining wilfully ignorant of the state of play and saying “just read Capital” is no different from a protestant fundamentalist saying “It’s all in the Bible!”. What such a person really means is that their personal interpretation is the correct one and should be accepted as such without examination. They are unwilling, for whatever reason, to explicate their interpretation as an interpretation and defend it from attack.
Case in point on why to keep up with current debates: if you think a market socialist economy will be crisis free, you should read this. If you disagree, as I guess you will, you need to be able to explain why.
James
I do not engage in low quality rants about “Stalinism” and I do not respond to falsified quotations as “Just read capital”.
I also do not respond to dumb comments associating Capital with the Bible.
As this was practically the entire content of your post, it seems there is little that can be done to assist you.
If you want to raise Cockshott – try making a specific point – not some lazy general gratuitous reference.
This is the OECD in mid-2007:
gerard, yes, your quote supports strongly your argument that the OECD has a serious problem with macroeconomic predictions, even in the short term. Further, I am very sympathetic with those who say the OECD should be held accountable for its role in the institutional changes and its advice to governments during the past 25 years or so. However, I am not sure this is the right thread for your quote. The thread is headed: Marxian economics.
@James
James – no economy is crisis free and living under Stalin in Russia had much more in common with fascism than communism. But anyone here you says someone else “sounds like a Stalinist” should get the most irritating comment award.
you above should read who
@Rocco Weglarz
James …son of John Kenneth Galbraith. decency and honesty runs in the family.
Thanks Ernestine, your ability to remind people of the thread heading is impressive and I hearby nominate you as thread-sherrif.
I was actually just responding to Chris Warren’s reference to the OECD staff’s superior foresight (a couple of pages out of a book from the mid 80s).
Galbraith highlights the issue; Marxists are (as a very rough generalisation) focused away from mainstream economic analysis, and they aren’t particularly engaged in any incremental mainstream policy response.
Hahnel stirred a few on znet recently when he commented:
“we socialists need to look to ourselves. Had we done our work well the human species would have abandoned capitalism and the false illusion that commodification is the solution to all economic problems long before”
“But the last time I checked, participatory eco-socialism had yet to replace global capitalism, and pretending it has does not yield effective policy responses in the world we live in.”
@gerard
Well there isn nothing wrong with Ernestine being a thread sherriff Gerard. The reason why JQ posts a thread is so that we have a topic to discuss (bless his interesting soul). The number of times we veer off (me very culpa too) is amazing and thanks to JQ for not closing us down!
I swim laps with other people and we have lap counter sherrifs, rest period sherrifs, swimmer order sherrifs, obey the coach sherrifs and dobber sherrifs for when you cheat. It works fine. I just do what Im told and try to stay out of trouble (the last bit not always easy for me).
@gerard
gerard, I can see your point about your post in question in relation to Chris W.’s post. When reading the bottom of the thread, your post looked misleading – as if the OECD used a Marxist model.
that’s what I was thinking Ernestine – as if 🙂
I can’t comment on the theory side of things, but I have come across two books from a marxist economic perspective that predicted the crash in a fair amount of detail, and both picked up on something I have not seen widely discussed elsewhere – that the US has had major financial crises every 3-4 years over the last 30, starting with the S&Ls – and the total amount of money lost is quite staggering (and larger each time).
I’d be interested if anyone knows of some analysis that matches this with the 1880s to 1914 period, when Europe threw huge amounts of money away on Turkish/Peruvian/Mexican/Argentine/Russian loans/mines/railways – almost as if desperate to get rid of it.
My idle mind also wondered if a connection with the growth of the state made sense – declines on return in private capital being compensated for by greater central direction of savings into social and physical infrastructure (I saw some work by an analyst with the Boston Federal Reserve years back that showed that public investment had a consistently higher rate of return than private investment).
There is this link
http://rethinkingmarxism.org/cms/node/1293
Do you mean that Marx held that prices were set by the _direct_ labour content of production? If capital is sterile, as you suggest Marx held (eg output net of depreciation is zero) then the increase in capital costs for every unit saved is W*(1+Pi)*(1+R+delta),
where W is the wage rate, Pi the markup on wage costs of the capital producing department, R is the real interest rate and delta the depreciation rate.
This for a reduction in direct labour costs of W – which is smaller than the increase in capital costs.
If Marx held that the labour saving investment is productive, eg the increase in the amount of indirect labour used in producing the labour saving machines is less than the reduction in direct labour resulting from using that machine, then we have surplus generated by the capital investment.
In other words, if capital produces no surplus, there is no incentive to invest in it, and if it is profitable to invest in, then it produces a surplus over labour costs and depreciation.
I meant to say “then the increase in capital costs for every unit _of labour_ saved is W*(1+Pi)*(1+R+delta)”
@Tim Peterson
The answer to your question is in Weekend reflections.
hmmm.
I suggest David McNally’s contribution, here: http://marxandthefinancialcrisisof2008.blogspot.com/2008/12/david-mcnally-from-financial-crisis-to.html
Generally on Marx. I think the attempt to fit Marx into economics causes much of the problem in interpretation. The ‘transformation problem’ for example only works if we try to fit what he says into the assumptions of equilibrium theory (which is obviously only one argument in economics). So for equilibrium theorists the transformation doesn’t work if, when a capital value begins its cycle, input values are x but when it finishes they are y. But this begs the question of why values should be equal a two separate points in time: how can we know in march how well sales of a given commodity are going to go in June? For instance, Ian Steedman explicitly formulates equilibrium prices to force prices at the two points to meet in his supposed refutation of Marx. But for Steedman values refer to physical inputs whereas for Marx they are ‘purely social’. In short, Steedman moves outside Marx’s assumptions to refute his (Steedman’s) own idea that values are derived from physical quantities of things produced. (This also denies the composition of capital that Marx returned to repeatedly. It in effect says that the physical make up of a capital determines its value, rather than its position in a network of social relations, or in the market.) Finally, it should be noted that half of Steve Keen’s rebuttal of Marx in Debunking Economics relies on this absurd method; ironically on the denail of time.
The difficulty is that Marx’s theory of value isn’t a theory of the way x hours of labour equal y value. Marx rather argues that when economists say ‘value’ they are referring to alienated labour, those hours of work that are performed without any mass of use-values as an equivalent (expressed in their wage). Capital is misunderstood when it is seen as an economics manual and not a proof that (rightly or wrongly) capitalism is a society where one group dominates another through the alienation of the latter’s labour (which for Marx is their life activity). For example the whole point of the reproduction schemes at the close of volume two is to shows that the material reproduction of society is determined by this relationship. So I think the confusion (extremely widespread – especailly among his admireers) of Marx’s theory of value – that derives somewhat from Hegel’s organicism – with the theory developed by Ricardo – derived somewhat from Smith’s positive economics – makes Marx not make sense. This is why John Quiggan is right to say that most of what passes as Marx’s though is no really Keynes’s. It is not Marx’s analysis that is MIA, but his whole mode of thought.
sorry very fast typing and bad keypad at work. last lines should read: “This is why John Quiggin is right to say that most of what passes as Marx’s thought is really Keynes’s. It is not Marx’s analysis that is MIA, but his whole mode of thought.
@Jonathon
“The ‘transformation problem’ for example only works if we try to fit what he says into the assumptions of equilibrium theory (which is obviously only one argument in economics). So for equilibrium theorists the transformation doesn’t work if, when a capital value begins its cycle, input values are x but when it finishes they are y. But this begs the question of why values should be equal a two separate points in time: how can we know in march how well sales of a given commodity are going to go in June? For instance, Ian Steedman explicitly formulates equilibrium prices to force prices at the two points to meet in his supposed refutation of Marx. ”
With reference to Jonathon’s statement, it seems that Steedman (and Keen) are not familiar with Debreu (1959), which contains a fully described general equilibrium model with complete commodity markets. There are not ‘capitalists’ in this model and there is no social hierarchy. The only institutional assumption is complete commodity markets (the implicit moral assumptions on the agents in the model are very strong). Unless Jonathon identifies the general equilibrium theory, (name of author, date of publication), his assertion regarding ‘the assumption of general equilibrium theory’ is wrong.
I know that that Ian Steedman and other post-Sraffians are quite familiar with the Arrow-Debreu model and have good reasons for rejecting it. Steedman and others arguing about the transformation problem are operating in different (and better) paradigms. My name links to an example based on some work by Eatwell from about the same time as Steedman’s justly famous book (among informed economists).
FWIW at this late stage, Marx was a 19th century thinker who provided some very useful insights that were drowned in the (sometimes explicitly political) reaction of marginal economics. If Keynes hadn’t been such an ‘original’ Englishman, he’d have found germs of many of his own ideas in Capital – indeed we know that Sraffa (who was very familiar with Marx’s writing) was a key figure of Keynes’ Circus (what today would be called a lab). But for Keynes, and others since, Marx took on the character of a bogeyman, so he only read Malthus’ half-baked underconsumption theory. In reality, the theory that the rate of profit would fall inexorably was a creation of later Austrian Marxists (especially Otto Bauer). Marx regarded crisis as a way of renewing capitalism’s dynamic movement – of destroying ‘over-produced’ capital so that production could become profitable again. He did think that crises would become ever more severe, leading to political crisis. You could say that’s what happened in the 1930s when Keynesianism came along and, besides saving capitalism, created a new economic system in which capital was subjected to quite severe regulation.
As anarcho pointed out above, Smith and all the classical political economists made the distinction between long-term/equilibrium values and short-term market prices. The former is essential for understanding dynamics (structural change), the latter is fine if all you’re interested in is statics.
Nobody pays attention to Smith these days unless for ideological purposes. If economists had put half the effort into coming to terms with Marx’s critique of capitalism that they put into celebrating marginalism and making Marx an ideological bad boy, we’d understand a great deal more about crises than we do now.
How do you get paragraphs to work in this comment section? I used but got no breaks!
I mean ‘br br’ with brackety things around them.
@melanie
Melanie – I dont yet think Marx’s crises have arrived but I do think they will arive in increasing volatility in markets. The road for capitalism is rocky ahead. I think Marx foresaw more than many give him credit for…Im just still not convinced by the revolutionary overthrow and the vision of all history by the workers (after the blindness of having their thoughts controlled by the borgeoisie). Sounds more like civil unrest to me but could just be being framed in the reference of hia era and surroundings and common thought. Haiti could be an example.