Marx and Keynes on the contradictions of capitalism

19 Feb, 2018 at 14:56 | Posted in Economics | 8 Comments

elsterEach capitalist, Marx noted, has an ambiguous relation to the workers. On the one hand, she wants the workers she employs to have low wages, since that makes for high profits. On the other hand, she wants all other workers to have high wages, since that makes for high demand for her products. Although it is possible for any one capitalist to have both desires satisfied, it is logically impossible for this to be the case for all capitalists simultaneously. This is a ‘contradiction of capitalism’ that Keynes spelled out as follows. In a situation of falling profit, each capitalist responds by laying off workers, thus saving on the wage bill. Yet since the demand of workers directly or indirectly is what sustains the firm, the effect of all capitalists’ simultaneously laying off workers will be a further reduction in profit, causing more lay-offs or bankruptcies.


  1. The worst is, however, that at least the EU states now undisputedly side with “the one hand” capitalists, those who want the salaries to be low – socalled “austerity”.

  2. This must be the case even for individual demand on a specific product that is when the trend changes e.g. values in many family systems changes in the same direction the demand curve should shift. but individual changes of taste cancel out according to the statistical law of big numbers.

  3. “the demand of workers directly or indirectly is what sustains the firm”

    r > g. Firms get higher returns from financial instruments insulated from aggregate demand changes. See for a St. Louis FRED graph of total commercial bank assets, which show a slight blip down after 2008 but recover and are now higher than ever, increasing faster than corporate profits. The commercial bank assets must be returning higher than corporations which are presumably primarily involved with supplying aggregate demand …

  4. 150 Years of Capital—with No End in Sight
    Unsystematic Remarks on a Never-ending Story
    by Michael Heinrich
    Michael Heinrich teaches economics in Berlin and is the author of An Introduction to the Three Volumes of Karl Marx’s Capital and The Science of Value: Marx’s Critique of Political Economy Between Scientific Revolution and Classical Tradition

  5. There is a contradiction here, because money circulates and consequently a poorly paid working class cannot afford to purchase a reasonable quantity of what it produces.

    Capitalism at work must be better understood because some badly informed economists include landlordism together with capitalism and this makes the amount of selfish investment in land (for speculation) and restriction of circulating money even greater than if the investment were only in the durable capital goods that are only present in man-made goods.

    When banks and landlords control so much of the way money is tied up, nobody has a chance to better invest or to earn as this investment is expressed in the limited production of the durables.

  6. “On the other hand, she wants all other workers to have *low wages*, since that makes for high demand for her products.”

    Shouldn’t this be high wages?

    • Thanks. Fixed 🙂

Sorry, the comment form is closed at this time.

Blog at
Entries and Comments feeds.