Afternoon Coffee: Relevance of Marx

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That's Karl Marx, not Groucho, I'm talking about today. I am Brad DeLong, and this is my afternoon coffee...

This week I asked my graduate students to write on the following question: whether--and how--Karl Marx is relevant to a twenty-first century neoclassical economist. They turned it around, and asked me to answer the same question. So here goes...

First, let me say that I am here to talk about Marx the economist. Marx did not divide himself into Marx the moralist-prophet, Marx the political activist, and Marx the economist. But we do. I'll talk about Marx the moralist-prophet and Marx the political activist some other time. But today I am interested only in Marx the economist, who I think is worth studying for five reasons:

First, Marx the economist was among the very first to get the industrial revolution right: to understand what it meant for human possibilities and the human destiny in a sense that people like Adam Smith did not.

Second, Marx the economist got a lot about the economic history of the development of modern capitalism in England right--not everything, but he is still very much worth grappling with as an economic historian of 1500-1850.

Third, fourth, and fifth, Marx made a three-fold critique of the capitalist economy he say developing. He believed, third, that a system that reduced everybody to some form of prostitute working for wages and wages alone--in which people viewed their jobs not as ways to gain honor or professions that they were born into or as ways to serve their fellow-man or expressions of their inmost essence as a species-being but as ways to earn money so that you can begin your real life when the five o'clock whistle blows--that such an economy is an insult, delivering low utility, and also sociologically and psychologically unsustainable in the long run.

Fourth, Marx believed that the capitalist economy was incapable of delivering an acceptable distribution of income for anything but the briefest historical epochs.

Fifth, Marx was among the very first to recognize that the fever-fits of financial crisis and depression that afflict modern market economies were not a passing phase or something that could be easily cured, but rather a deep disability of the system--as we are being reminded once again right now, this time with Ben Bernanke in the Hot Seat.

Now we modern neoliberals have parries to these latter three critiques.

On the business cycle, we respond that Keynesianism--or monetarism, if you prefer--gives us the tools to transform the business cycle from a life-threatening economic yellow fever of the society into the occasional night sweats and fevers: that with economic policy quinine we can manage if not banish the disease.

On the distribution of income, we respond that Beveridgism or Myrdahlism--social democracy, progressive income taxes, a very large and well-established safety net, public education to a high standard, channels for upward mobility, and all the panoply of the twentieth-century social-democratic mixed-economy democratic state can banish like bad dreams all Marx's fears that capitalist prosperity must be accompanied by great inequality and great misery.

On the cash nexus, we modern neoliberals shrug our shoulders and say that we are in favor of a market economy but not of a market society, and that there is no reason why people cannot find jobs they like or insist on differentials that compensate them for jobs they don't. And we go on to say that the demand for and forecast of utopia--that jumped-up monkeys with big brains be perfectly happy--is a demand and forecast that belongs in the Book of Daniel or of the Apocalypse, not something that has any place in a work of political economy relevant to this fallen world.

I am Brad DeLong. And this is my afternoon coffee.

Comments

[Jack]

From what I understand, historically the progress of establishing Keynesian economics had to be performed in the teeth of opposing forces, forces which have reasserted themselves today in a way that may have seemed all but impossible 40 years ago. Economic good sense is not a virtue of the Republican Party, the press is nearly completely uncomprehensive of economic matters, and popular pundits don't know what their talking about but think that they do.
All this means to me that Marx may have been wrong about the details but still possibly right about the outcome: contra Marx we theoretically know how to tame the beast of the free market and keep its excesses within more or less acceptable limits, but practically and politically we find ourselves continually hamstrung in our ability to accomplish this, both due to ideological opposition and the damage done by it to the effectiveness of government.
This is because, for some reason, the Republican Party has become a national party, and, unsurprisingly, inequality has increased, we suffer from chronic over-capacity, trade agreements which privelege the wealthy abound, and bubbles and their collapses constantly shock the system. But the forces that are not under our control are essentially political and not economic.

[jerry]

"or insist on differentials that compensate them for jobs they don't."

There's that tenure again, insulating you from the actual realities of the real job market. Renounce it, learn, study, and one day people will know of you as more than that crazy guy who comes barreling down the hills in his Prius gulping his lattes.

[Tomas]

Well, 1945-1975 (or however you want to deliniate the golden age of atlantic industrial capitalism) might turn out to be a passing phase in the history of capitalism, brought on by the exogenious shocks of 2 world wars and an economic depression of doom.

Maybe the redistributive policies that characterised the period were just a passing phase. Maybe the rich and powerful are truely incapable of realizing their long term economic, political and social interest in social democratic society. Maybe an economic historian writing in 2150 (or whatever they will do then - Holoblog?) will look back on that period and see that middleclass society as a brief period in the history of capitalism and see the raw and unequal version as the real trend.

[Slocum]

"...and all the panoply of the twentieth-century social-democratic mixed-economy democratic state can banish like bad dreams all Marx's fears that capitalist prosperity must be accompanied by great inequality and great misery."

What novel in the beginning of the 21st century is 'great inequality' and 'great misery' are no longer inextricably linked -- where it does not follow that because Google creates instant multi-billionaires, that others must live in conditions of material deprivation. Andrew Carnegie's wealth was not possible without the armies of miserable steel-workers in his factories. But not so Page & Brin -- in fact, as far as I know, Google employs no low-paid production workers of any kind.

Clearly we're still sorting out what this means -- those on the left pointing to rising inequality with alarm and those on the right pointing out the long list of material goods that most poor people now have but that were, quite recently, luxury goods reserved for the rich only.

[Cranky Observer]

----- On the distribution of income, we respond that Beveridgism or Myrdahlism--social democracy, progressive income taxes, a very large and well-established safety net, public education to a high standard, channels for upward mobility, and all the panoply of the twentieth-century social-democratic mixed-economy democratic state can banish like bad dreams all Marx's fears that capitalist prosperity must be accompanied by great inequality and great misery. -----

I know that Berkley is sometimes said to not be part of the United States, but even as a midwesterner I always thought that silly and insulting. But after reading this I start to wonder - has Professor DeLong not been living in Dick Cheney's United States for the last 7 years? Seriously, what do you think has been happening in this country recently?

Cranky

Hmmm... not even blockquote and italics in HTML?

[Ben Ross]

Did you perhaps notice that Beveridge and the Myrdahls were cabinet ministers, rather than ignored left-wing academics, only after the election victory of parties that had been organized, in part in one case and nearly in whole in the other, by followers of a certain K. Marx?

[JRossi]

Quinine was for malaria, not for yellow fever.

[Delicious Pundit]

"He believed, third, that a system that reduced everybody to some form of prostitute working for wages and wages alone--in which people viewed their jobs not as ways to gain honor or professions that they were born into or as ways to serve their fellow-man or expressions of their inmost essence as a species-being but as ways to earn money so that you can begin your real life when the five o'clock whistle blows..."

Well, I'm watching the NCAA tournament right now, and the ad for Buffalo Wild Wings restaurants is saying the exact same thing!

[kusaka]

> On the distribution of income, we respond that Beveridgism or Myrdahlism--social democracy, progressive income taxes, a very large and well-established safety net, public education to a high standard, channels for upward mobility, and all the panoply of the twentieth-century social-democratic mixed-economy democratic state can banish like bad dreams all Marx's fears that capitalist prosperity must be accompanied by great inequality and great misery.

Modern European social-democratic society was specifically designed to be an attractive alternative to Soviet Communism. It is neither natural nor permanent. For example, as the Soviet Union waned, British coal miners found that their mixed-economy social-democratic state had no work for them.

[baileyman]

"tools to transform the business cycle from a life-threatening economic yellow fever" It's not yet clear that the post WWII era was temporary.

"can banish like bad dreams all Marx's fears that capitalist prosperity must be accompanied by great inequality" It's not clear that a necessary prior catastrophe such as a Great Depression is not required to convince the owners to allow temporarily social democracy.

"there is no reason why people cannot find jobs they like" This could easily be stated "there's no reason there isn't a surplus of jobs", as finding one likable job requires surplus.

[Ponzi Q. Globalization]

The host entity wrote:

"Now we modern neoliberals have parries to these latter three critiques."
...
"On the distribution of income, we respond that Beveridgism or Myrdahlism--social democracy, progressive income taxes, a very large and well-established safety net, public education to a high standard, channels for upward mobility, and all the panoply of the twentieth-century social-democratic mixed-economy democratic state can banish like bad dreams all Marx's fears that capitalist prosperity must be accompanied by great inequality and great misery."

I thought one of the goals of neoliberalism was to destroy the bargaining power of labor so that such progressive legislation is not viable politically. In case you haven't noticed there's a rollback going on in the nations that did achieve such goals. The rollback is just beginning.

I suppose some of us would enjoy being mandarins who can grant favors to powerless supplicants who can never mess with the system. One can always argue that the system that is so beneficial to ones position in life is universally wonderful and messing with it will cause great harm. After all, there are complicated mathematical models that show this!

However, looking at it from the other side, if I had to choose between (a) relying on well-meaning academics who have no real stake in my well-being or (b) having real political power through confrontational unions or an existing economic system where such power is a given, I'd choose (b).

[Pete]

Ah, Marx the economist. Contrary to popular belief, it is possible to recommend some decent economic analysis in Marx's works. Here's a few I like: (1) Capital, vol I, discussion of the concentration and centralization of capital (essentially a further development of Smith on the division of labor but in the context of large-scale capital formation); (2) if nothing else, his circuit of capital discussion may have been the first time an analyst was able to separate sale of commodity from purchase of commodity (one of my teachers suggested that this was the first necessary step toward toward freeing the mind from Say's Identity, of fundamental importance later for Keynesian economics); (3) the schemes of reproduction are pretty damned dry but they do establish interindustry relationships (an advance for the time); (4) class-based analysis. On the last, I recommend this, if for no other reason then that it allows one to get away from thinking about the aggregate economy as simply a "representative household;" but, then again, all classical PEs had that going for them.

[Brett Dunbar]

Sir William Beverige wasn't a cabinet minister. He was briefly Liberal MP for Berwick-upon-Tweed (1944-45) and was later leader of the Liberal party in the Lords.

[Morvran Price]

Marx's fundamental critique of capitalism and the inevitability of vicious economic cycles rest on the idea of the contradiction between production and consumption.

Put simply:

1. The owners of capital will necessarily pay the workers less than the full value of their labour – fair enough, that is how capitalism works.

2. The workers will not be able to afford to fully purchase the product of their labour, hence the famous “crisis of over-production”

For the past 20-30 years the crisis of over production has been continuously postponed by the weakening of credit standards and loosening of monetary policy. The capitalists have been lending the accumulated surplus value back to the proletariat in order to accumulate further.

Finally the pyramid scheme of accumulation hit rock bottom with the sub-prime lending practices.

Neo-liberal economics in attempting to eliminate the business cycle has only exacerbated it.

That’s dialectics baby!!

Morvran Price

[lvtfan]

Henry George considered Marx the prince of muddleheads. He said some gracious things upon the occasion of Marx's death, but did not think Marx saw clearly at all. George's 1879 Progress and Poverty was a magnificent piece of work, which explained far more than Marx's writings and speeches managed to explain. The recognition that land is a separate factor of production from capital, and that capital is rightly privatized while the economic value of land should be shared -- socialized -- is something from which we would benefit today.

You might explore the implications of this at lvtfan.typepad.com