Keynes or Marx?

16 Jun, 2012 at 18:44 | Posted in Economics | 1 Comment

Michael Roberts is not impressed by neither Keynes or his followers. According to Roberts, Marx’ analysis is a better alternative. He writes:

Well, I’m going further. I think it is a serious deficiency for those fighting for labour against capital and needing to find the right policies to rely on Keynesian theory and policy. Why do I say that? Well, let me start with the kernel of Keynes’ contribution to economics: his emphasis on the macro economy, the original focus of the classical economists of early industrial capitalism (Smith, Ricardo, Malthus), rather than the micro economics of the behaviour of individual economic ‘agents’ (firms and consumers) beloved of the neo-classical school that dominates now.

Keynes wanted us to focus on the macro economy through his key national accounting ‘identities’. National income = national expenditure – that’s easy. National income can then be broken down to Profit + Wages; and National expenditure can be broken down to Investment + Consumption. So Profit + Wages = Investment + Consumption. Now if we assume that wages are all spent on consumption and not saved, then Profits =Investment. So far, so good.

But here is the rub. This identity does not tell us the causal direction that can help us develop a theory. For Keynes, the causal direction is simply that investment creates profit. But what causes investment? Well, the subjective decisions of individual entrepreneurs. What influences their decisions? Well, ‘animal spirits’, or varying expectations of a return on investment etc. Already we are back into the subjective approach of the neoclassical school.

Anyway, the idea that profits depend on investment is back to front. For Marxists, it is the other way round: investment depends on profit. And profit depends on the exploitation of labour power and its appropriation by capital. Thus we have an objective causal analysis based on a specific form of class society, not based on some mystical psychoanalysis of individual human behaviour. The Keynesian causal direction leads to a cockeyed understanding of the laws of motion of capitalism.

The main problem with this description is that I – as a historian of economic theories – do not recognize the Keynes I have come to know from reading his books and articles. 

Did Keynes really want us “to focus on the macro economy through his key national accounting ‘identities’”? I don’t think so. To me the kernel of Keynes’ theory – as I have described it in my book John Maynard Keynes (SNS, 2007) – is his perception of the role that genuine uncertainty plays in modern economies. Real actors can’t know everything and their acts and decisions are not simply possible to sum or aggregate without the economist risking to succumb to “the fallacy of composition”. Instead of basing macroeconomics on unreal and unwarranted generalizations of microeconomic behaviour and relations, it is far better to accept the ontological fact that the future to a large extent is uncertain, and rather conduct macroeconomics on this fact of reality. The real macroeconomic challenge is to accept uncertainty and still try to explain why economic transactions take place – instead of simply conjuring the problem away by assuming uncertainty to be reducible to stochastic risk.

Although on a deep philosophical level I find much of Marx analysis interesting and convincing  (to call it, as Robert do, “objective” in contradistinction to Keynes “subjective” analysis, however, is rather unwarranted), but I am far from convinced that to understand and explain modern economies – or present policy prescriptions – it would pay to redirect our aspirations and analytical endeavours in the direction of Marx.

One of the biggest problem with Marx categories is that they are very difficult to operationalize. And although Marx is one of the greatest economists of all times, it is also a fact that his analysis was developed 150 years ago and in a society with many other structures, relationships and features in situ than today. To me, Keynes analysis from the 1920s and 1930 simply seems more relevant and easy to apply to the vicissitudes of the modern capitalism of today.

1 Comment

  1. Du känner säkert till Steve Keen och hans analys av den ekonomiska krisen. Han lyfter blicken mot den privata skulden, finansektorns tillväxt och banksystemet som distrubutionskanalen för det hela. Frågan om bankernas roll har därmed blivit central. I artikeln Jag länkar till beskriver Marx banksystemet på ett sätt som jag tror att Steven Keen skulle hålla med om.Kapitalism5.0 Bankerna och penningsystemet är ju i det närmaste ett icke önskvärt samtalsämne bland ekonomer av facket. Frågan är dock inte om utan när de skall tvingas plocka denna peta potatis upp uir mörkret.


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