Wednesday, January 27, 2016

What are the Useful Insights in Marx’s Capital?

It is not difficult to identity them:
(1) the use of a proto-effective demand theory by Marx;
(2) endogenous money theory;
(3) Marx’s rejection of Say’s law;
(4) the notion of a monetary production economy (also developed as a theory by Keynes); and
(5) a conflict theory of the distribution of income, and the recognition that workers and capitalists have unequal power.
However, the trouble is that none of these insights prove that Marx’s overall theory was right: far from it.

There are many deeply rotten and false things in Marx. The labour theory of value is rotten to the core, and the version in volume 1 of Capital was all but abandoned by Marx by volume 3 where he adopted Classical prices of production as the anchors for the price system.

Marx’s theory of wages – that wages would tend towards subsistence and reproduction of workers – was wrong. Marx made many disastrously wrong predictions derived from his theory (see here). His historical materialism was claptrap. His view that there is an eternal tendency for the rate of profit to fall is highly dubious.

Worse still, Marx was also a die-hard metallist in his monetary theory, so has more in common with libertarian metallists than Keynesians on that point! Marx was an adherent of the flawed, false metallist theory of money. He thought – wrongly – that money always needed to be tied to metals like gold.

Moreover, there are issues about Marx’s originality. Take Marx’s understanding of endogenous money. This was an insightful theory for his time, but endogenous money theory was already well known to the Banking school well before Marx’s ramblings in Capital.

Marx took and incorporated fundamental ideas on endogenous money right from the work of Thomas Tooke (see Smith 2004: 62–65).

Moreover, demand-side explanations already appeared in Malthus too (e.g., Keynes took great inspiration from Malthus). Even more, the Birmingham School already had a proto-Keynesian analysis of markets. And Thomas Attwood and even Marshall understood quite well what we now call debt deflation. They deserve as much credit as Marx for making highly insightful contributions to economic theory, perhaps more so.

Finally, there is also an irrational desire that some heterodox Keynesians have to pretend that Marx was “essentially right,” often because they want to pay lip service to Marx or because they are former Marxists themselves and still have an emotional attachment to Marxian theory. But this will not do. Marx was fundamentally wrong, not right.

All in all, whatever insights Marx did have need to be balanced by his disastrous errors and the fact that his whole theory was based on a rotten foundation: the labour theory of value.

BIBLIOGRAPHY
Smith, Matthew. 2004. “Thomas Tooke’s Legacy to Monetary Economics,” in Tony Aspromourgos and John Lodewijks (eds.), History and Political Economy: Essays in Honour of P.D. Groenewegen. Routledge, London. 57–75.

26 comments:

  1. No doubt, but Schumpeter's brilliant essay on Marx in Chapter 3 of C,S&D repays re-reading.

    It is a dazzling assessment of Marx, which does not shrink from setting out all his faults. But Schumpeter rates Marx highly in two respects:

    - as a business cycle theorist: "the phenomenon stood clearly before his eyes and he understood much of its mechanism .... This is enough to assure him high rank among the fathers of modern cycle research";

    - as a theorist of economic history: "He was the first economist of top rank to see and to teach systematically how economic theory may be turned into historical analysis".

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  2. "Marx was an important and influential thinker, and Marxism has been a doctrine with intellectual and practical influence. The fact is, however, that most serious English-speaking economists regard Marxist economics as an irrelevant dead end." - Robert Solow

    http://www.nytimes.com/1988/03/20/books/the-wide-wide-world-of-wealth.html?pagewanted=all

    In general, whatever "useful insights" Marx had in regards to economics are basically ignored. From my understanding based on casual conversations with some friends and acquaintances that it is not necessary to ever go over a single sentence of Marxian theory to acquire a PHD in economics and that at most perhaps 10-15 minutes of an entire students career may be spent discussing or reading Marx.

    To my knowledge Marx had virtually no impact on mainstream economics in the west, his influence cannot be found outside of small heterodox circles.

    "Economists working in the Marxian-Sraffian tradition represent a small minority of modern economists, and that their writings have virtually no impact upon the professional work of most economists in major English-language universities"

    Stigler, George J. (December 1988). "Palgrave's Dictionary of Economics". Journal of Economic Literature (American Economic Association

    In the Western world, unless you take a class on the history of economic thought you will need to attend a relatively obscure college like the New School to study Marxian economics.

    The most important and relevant aspects of the Marx and Engels are philosophical and sociological. Similarly to how Adam Smith( Marx's main influence) was a philosopher who became the de facto founder of modern economics Marx was a philosopher who became the de facto founder of sociology. In any sociology class you will here about him, the same goes for many philosophy classes, especially ones concerned with political philosophy. That is where Marx has had a lasting impression in the west, far left political circles.

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    1. Karl Marx is the most assigned economist in U.S. college classes:

      http://www.marketwatch.com/story/communist-manifesto-among-top-three-books-assigned-in-college-2016-01-27

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    2. "Karl Marx’s classic receives a count of 3,189 and a score of 99.7. It doesn’t actually show up under economics texts, either, as it is generally taught along with philosophy texts such as “The Social Contract,” by Jean-Jacques Rousseau; “Leviathan,” by Thomas Hobbes; and “On Liberty,” by John Stuart Mill. “’The Communist Manifesto’” is widely taught as a work of social theory,” rather than as an economics text, Karaganis said. He added that when Marx is taught in economics classes, professors generally assign “Capital” (or “Das Kapital”), which received a count of 1,447 and a score of 94.6."

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  3. No, Hedlund, you're not spamming the blog with a long comment containing lies.

    You accuse me of attributing to Marx the Classical "iron law of wages". In fact, I do no such thing, and have already pointed out here that Marx, strictly speaking, rejected this.

    If you want further comments published here cut out the lies.

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  4. Errm... sure. I've marked off the requested change with "+++" below. Let me know if there's anything else I can do to help.

    ***

    The labour theory of value is rotten to the core

    A rigorous approach to this discussion founded on the principle of charity or the principle of scientific exegesis laid out by Stigler in 1965 would compel us to acknowledge that, given the existence of at least one interpretation under which the theory is fully consistent, it is not rotten to the core.

    the version in volume 1 of Capital was all but abandoned by Marx by volume 3 where he adopted Classical prices of production as the anchors for the price system.

    This interpretation, as I have expressed in the past, is only made possible by omitting multiple passages of volume 1. Taking into account the full text illustrates that the same theory obtains in both volumes, albeit in more abstracted form in the first (consistent with the book's stated aims in the preface).

    Marx’s theory of wages – that wages would tend towards subsistence and reproduction of workers – was wrong.

    This claim is incorrect. +++Per LK's request, I must indicate that the above description ("wages would tend towards subsistence and reproduction of workers") is totally different from the "Iron Law of Wages," which holds that real wages always tend, in the long run, toward the minimum wage necessary to sustain the life of the worker and his ability to work. These, I am being made to say, are two completely different things; to say that they express the same thing is a "lie." Please direct any queries on this matter to LK.+++

    The downward tendency Marx identifies is merely the inherent result of the workings of capital, but nowhere does he deny that organized labor and related factors can improve wages above subsistence. Such efforts on the part of unions and the like are effectively exogenous to his analysis of capital, but never denied; after all, he himself spent much of his life fighting these battles.

    Marx made many disastrously wrong predictions derived from his theory (see here).

    Reliable prediction of events is by its nature impossible in the social sciences. Keynes predicted we'd have a 15-hour workweek by now. A negative result should refine our thinking, not discredit a theory a priori; indeed, even Popper rejected so naive a falsificationist doctrine.

    His historical materialism was claptrap.

    It's a method, not a theory, and one with a great deal of explanatory power. But without a specific criticism, there isn't much more to say.

    His view that there is an eternal tendency for the rate of profit to fall is highly dubious.

    "Eternal" is a mischaracterization. It’s historically specific to capitalism, for one thing, and countervailed by the restoration of profitability by crisis. Thus, Marx held that there is no such thing as a "permanent crisis." Finally, a secular decline in average profitability since the great depression has been well established empirically, even appearing in mainstream analysis.

    Marx was also a die-hard metallist in his monetary theory

    Marx's theory of money is more complex than this; as you admit, he also draws heavily from the Banking School. Instead, he recognizes multiple types of money with different origins, behaviors, and functions. The most basic and fundamental to the perspective of capital is commodity money, but obviously he also discusses other sorts.

    Moreover, there are issues about Marx’s originality.

    The act of building upon other theorists' work with proper attribution is called "scholarship," not unoriginality. You needn’t cite Matthew Smith as evidence that Marx was influenced by Tooke; cite the *entire chapter* in Capital volume 3 dedicated to the latter.

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    1. (1) "given the existence of at least one interpretation under which the theory is fully consistent, it is not rotten to the core."

      Your "interpretation" is deliberate dishonest, cult-like misrepresentation of what Marx said in vol. 1:

      “It is true, commodities may be sold at prices deviating from their values, but these deviations are to be considered as infractions of the laws of the exchange of commodities, which, in its normal state is an exchange of equivalents, consequently, no method for increasing value.” (Marx 1906: 176).

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    2. (2) "This interpretation, as I have expressed in the past, is only made possible by omitting multiple passages of volume 1."

      hahaha.. the same lie. We've already been through this: there are but 2 statements tucked away in obscure footnotes in Chapters 5 and 9 of vol. 1 (that probably most readers never read anyway) that blatantly contradict what Marx says elsewhere throughout vol.1.

      And you can't even cite any of these "multiple" statements can you apart from the 2 footnotes, you laughable clown?

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    3. (3) " but nowhere does he deny that organized labor and related factors can improve wages above subsistence."

      Nor did I say he did, idiot. However, he did not think this sort of union activity would overcome the downward pressure on wages to a level for maintenance and reproduction of labour:

      “These few hints will suffice to show that the very development of modern industry must progressively turn the scale in favour of the capitalist against the working man, and that consequently the general tendency of capitalistic production is not to raise, but to sink the average standard of wages, or to push the value of labor more or less to its minimum limit. Such being the tendency of things in this system, is this saying that the working class ought to renounce their resistance against the encroachments of capital, and abandon their attempts at making the best of the occasional chances for their temporary improvement? If they did, they would be degraded to one level mass of broken wretches past salvation. I think I have shown that their struggles for the standard of wages are incidents inseparable from the whole wages system, that in 99 cases out of 100 their efforts at raising wages are only efforts at maintaining the given value of labor, and that the necessity of debating their price with the capitalist is inherent to their condition of having to sell themselves as commodities. By cowardly giving way in their every-day conflict with capital, they would certainly disqualify themselves for the initiating of any large movement.

      At the same time, and quite apart from the general servitude involved in the wages system, the working class ought not to exaggerate to themselves the ultimate working of these every-day struggles. They ought not to forget that they are fighting with effects, but not with the causes of those effects; that they are retarding the downward movement, but not changing its direction; that they are applying palliatives, not curing the malady. They ought, therefore, not to be exclusively absorbed in these unavoidable guerilla fights incessantly springing up from the ever-ceasing encroachments of capital or changes of the market.”
      (Marx 1913: 124–126).

      Clearly, Marx thought that capitalism drives wages towards a level that is made up of (1) the “physical element” (maintenance and reproduction of workers) and (2) whatever additional commodities that a “historical and moral element” in some countries might add to a bare physical minimum even under capitalism (but not that much). However, it is clear that he thought wages would still tend towards this level and not rise continuously over time in line with productivity growth to make workers enjoy a rising standard of living.

      Marx was WRONG even in the 19th century (when unions were by and large still weak) as we see in the graph here:

      http://socialdemocracy21stcentury.blogspot.com/2015/12/engels-on-subsistence-wages.html

      And he's certainly wrong in the 20th century.

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    4. (4) "Keynes predicted we'd have a 15-hour workweek by now."

      Except that prediction was made BEFORE the GT and not on the basis of any theory in Keynes' GT.

      By contrast, Marx's huge and major predictions at the end of vol. 1 come **on the basis of theory** and are derived from it:

      http://socialdemocracy21stcentury.blogspot.com/2015/12/the-failed-end-of-capitalism-prediction.html

      Yet they were disastrously wrong. Only Marxist crackpots would say this does not badly discredit the theory.

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    5. (5) If you think the movement of history is governed by mysterious and mystical laws and that socialism is inevitable, then the burden is on you to show why, not me. History teaches us this is rubbish.

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    6. (6) On profit rate you first pretend "It is just a tendency but doesn't necessarily happen in the real world!" making the "tendency" a total joke, since a tendency that can't even be falsified is not even scientific: it's just like Russell's' teapot.

      Then you claim that there has been studies showing such a tendency since WWII, but these Marxist studies are disputed, especially how they massage their definition of the profit rate to get the results they want.

      Anyway, if we look at the long run, profit rates go and up and down historically. There is no clear trend, as you would expect in a world of complexity.

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    7. (7) He was a metallist. His theory was false. You are too stupid and too irrational to admit he was wrong.

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    8. (8) you concede that some of his supposed insights were not original. My point vindicated.

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  5. "workers and capitalists have unequal power"


    If people aren't equal, what's the problem of having unequal power (unless the inequalities are imposed, of course, but that's not true for any modern Western country, where equality of opportunities exists)?

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  6. Any opinion on Jean Charles Léonard de Sismondi? I think Aggregate Demand may have first came about by his writings, but I'm not sure.

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  7. LK, how can you tell which footnotes are "obscure" and therefore safely ignored, and which ones are ordinary?

    I ask because I'm reading a book right now with a couple hundred original footnotes per chapter, and it would be great to know which ones are obscure up front, to save myself some time.

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    1. If you have done any serious research as an academic, you'd know many people only skim footnotes, if they read them at all.

      As for the footnotes in Chapters 5 and 9 of vol. 1, even if you read them, you'd see they blatantly contradict what Marx says elsewhere in vol. 1.

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    2. Correction: footnote 24 in Chapter 5 and footnote 9 in Chapter 9 in vol. 1.

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    3. Well, properly speaking, they only contradict a highly particular reading of the text adopted by LK, which is not shared by any Marxist scholar I know of.

      This is an important point, for the following reason:

      Let's assume for a moment LK's reading is correct. Let's assume Marx intended for certain parts of his text to be ignored, and that his other theoretically consistent writings that appear before, during, and after the composition and publication of Vol I do not express the same theory. Basically, let's say he suffered a concussion while delirious from poison and illness and wrote V1 while in a fever dream, and then never corrected it in the following decades. With me so far?

      Even then, the entire field of Marxist economics is saying something different than LK's version of Marx. Whatever narrative we use to explain this (theoretical evolution, mass illiteracy among heterodox theorists, what have you), it leaves open the point that any argument LK makes with respect to this matter has no bearing on anything actual Marxist economists argue.

      In most cases, this would be considered a "straw man." In LK's case, we're all just so blinded by his brilliance that we have no choice but to transform into liars and fell, demonic cultists, and ply our wicked ways to lead humanity to its ruination.

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    4. (1) “they only contradict a highly particular reading of the text adopted by LK, which is not shared by any Marxist scholar I know of.”

      lol… no Marxist ever has ever said that exchange values of commodities equal SNLT at any point in human history?? Even though Engels and Marx in later writings certainly applied it at least to the pre-modern world of commodity exchange?

      (2) “Let's assume Marx intended for certain parts of his text to be ignored, and that his other theoretically consistent writings that appear before, during, and after the composition and publication of Vol I do not express the same theory.”

      His whole set of writings throughout his life aren’t consistent. His views developed and shifted, especially in polemical debates. We know this from his arguments with Pierre-Joseph Proudhon.

      Yours is the view of a true cultist: Marx the cult leader was consistent in everything he said ever!!

      (3) “Even then, the entire field of Marxist economics is saying something different than LK's version of Marx.”

      Translation: a lot of modern Marxists retreated from the dogmatic LTV in vol. 1, because they know it’s rubbish. I’m well aware of this. The sad history of the Marxist cult and its responses to its refutation and historical failure can be read in Alexander Gray’s The Socialist Tradition: Moses to Lenin. Longmans, Green and Co., London and New York, 1946.

      That doesn’t change the fact that vol. 1 has a “law of value” different from vol. 3.

      (4) “but to transform into liars and fell, demonic cultists, and ply our wicked ways to lead humanity to its ruination.”

      hahaha.. I don’t need to do that: every time Communists get into power they create mass murdering lying tyrannies without help from anyone else.

      Do the millions of victims of Marxism ever give you pause, Hedlund?

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    5. (1) Non sequitur. Nothing you say here even resembles anything I'm claiming.

      (2) Also nothing I've claimed. I say Marx's position on the role of organic composition of capital in mediating price and value was consistent from the end of his life to at least as far back as 1859. Your takeaway: "Marx never changed his mind on ANYTHING!!1" You argue like a child.

      (3) Well, modern Marxists retreat from the thing you SAY is the volume 1 theory. Many scientists concerned with rigor tend to shy from poorly supported, cherry-picked interpretations.

      (4) Totalitarianism, in any coherent, non-polysemic understanding of the word, is the tendency associated with total warfare, regardless of economic system. Yes, it gives me pause, as it should any person of conscience.

      Were many socialist states (certainly not "every" one) draconian? Of course. As were many of their capitalist counterparts under similar conditions. The difference is, whereas capitalism has an internal drive towards imperialism and thus colonialism and the genocidal behavior it has historically entailed, socialism operates on a different set of laws and tendencies, omitting any such drive.

      I'd love to discuss this matter in greater depth, but a solid year of your pigheaded refusal to engage with sources and arguments has sapped my hope that good-faith discourse is part of your oeuvre. Discussing the history of socialism with a dyed-in-the-wool Cold Warrior completely beyond the reach of evidence or reason? Sorry, not a fruitful use of my time.

      Some have suggested my continued willingness to argue theory with outs me as a glutton for punishment, but there are some rocks even Sisyphus will not touch.

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    6. "The difference is, whereas capitalism has an internal drive towards imperialism and thus colonialism and the genocidal behavior it has historically entailed,"

      So communism is superior because it limits its mass murdering, genocidal tendencies to millions within own population? Some argument.

      As for imperialism, this is stupid. Any great power with a large economy and interests will almost inevitably be drawn into imperialism, Communists states included.

      You're such a dumb bastard you forgot Trotsky's imperialist views on how to spread communism (for fortunately for Europe never prevailed), or the Soviet Union's record of imperialism in its reconquest of the Tsarist empire, Eastern Europe and its invasion of Afghanistan.

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    7. Yeah, see this? This is what I'm talking about. You're well past the point of self parody, and you're not even capable of recognizing it.

      A reasoned discussion with you is simply impossible; you'll miss no opportunity to prevaricate, ascribe strawman positions, hurl insults, and parrot the neoliberal line on history.

      I frankly don't know how you can ever hope to combat neoliberalism going forward when you uncritically accept its control of the past.

      (also, lol Trotsky)

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    8. I know when you are a Marxist cultist it is difficult to see the truth, Hedlund.

      Do you have evidence that the Soviet Union didn't reconquer the territories of the old Tsarist empire? Any evidence it didn't communise Eastern Europe?

      That it didn't invade Afghanistan?

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    9. Was Soviet rule over the non-Russian Caucasus and central Asia just a myth? lol.

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