Was Marx right?

 Economics
Aug 232011
 

Discuss (politely, please)

 Posted by Richard Murphy at 8:59 am

  11 Responses to “Was Marx right?”

  1. ahmed desai says:
    August 23 2011 at 9:42 am

    It’s welcome that intelligent thinkers like Roubini are willing to acknowledge the salience of Marx, although academics like him might do well also to explore the way in which Marx built on insights from Smith and Ricardo.

    But Marx was not primarily a catastrophist, as presented here. His relevance is that capitalism, which is transorming the world leads periodically to crisis because its motor force is profit. When profits decline, or are expected to be lower than previously, capitalists respond by not investing; hoarding money. This is exactly what is happening now and is leading to renewed crisis.

    He also argued that this proves that captalism is a barrier to the development of productive forces and needs to be overthrown. But if we can get lots of people to recognise the wisdom of the first contention it would be a big step forward.

  2. PhilJoMar says:
    August 23 2011 at 12:15 pm

    Well…interestingly (for me that is) I’m reading Capital at the moment and Marx is quite willing to admit debts to all those he owes debts too. He’s very scathing of both Malthus and Smith at times for plagiarizing without attribution and his opinion of Smith is not high because he thinks he owes much more to people like James Steuart than he ever lets on. If you simply read Capital you find references to a lot of Italian economists, to Sismondi, to Petty and Davenant, to Say and many others. To assume his debt is only to British political economy is not borne out by his intellectual reach and cosmopolitanism.
    The Marx that is really interesting to me though is the Marx who was aware of how the continual search for profit disrupts natural systems on which we all depend. Marx has been considered a promethean (by many Greens) who advocated only greater and greater mastery of nature but there’s lots in Capital about farmers robbing their soil of fertility to feed the city etc. John Bellamy Foster’s work Marx’s Ecology is pretty good (as far as I can tell) on bringing out this side of Marx (and Engels).
    What bugs me is that most right-wing people will not let Marx’s contribution be discussed without the usual smearing. If those on the right really are aiming to benefit all by the free market system then they at least have something in common with Marx who wanted a similar outcome but by different means. However it’s hard not to read the conditions in the early factories, as Marx lays them out, and not come to the conclusion that capital-ism had no interest in people and their flourishing but treated them as a bearer of a commodity to be put to use for someone else’s gain (20 hour day anyone?). For 19C factory conditions read 21C financial chicanery, bank fraud of all types, triple AAA for sub-primes, vulture funds, IMF structural adjustments, civil wars for precious metals for our mobile phones, oil spills, people-trafficking and so on. The scale has changed but the impulse behind it is the same.
    I think that’s been polite but I ain’t no economist so you don’t need to demolish me…pick on the other guy…

    • Michael says:
      August 24 2011 at 1:12 pm

      I’m no economist either. Perhaps that’s why I wholeheartedly agree with you?

      The ‘capitalist exploitation’ that Marx and Engels observed may have mutated into a different form, but it’s still exploitation. And still just as damaging to society.

      Having sympathy with Marx’s analysis doesn’t necessarily make one sympathetic to how communist states work(ed), but it does make one ache for control over the rabid economy. Invisible hands can’t control wild dogs.

  3. harry_w says:
    August 23 2011 at 4:06 pm

    His transcript in the WSJ interview may be useful alongside the video:

    Businesses are not doing anything. They’re not actually helping. All this risk made them more nervous. There’s a value in waiting. They claim they’re doing cutbacks because there’s excess capacity and not adding workers because there’s not enough final demand, but there’s a paradox; a Catch-22. If you’re not hiring workers, there’s not enough labor income, enough consumer confidence, enough consumption, not enough final demand. In the last two or three years, we’ve actually had a worsening because we’ve had a massive redistribution of income from labor to capital, from wages to profits, and the inequality of income has increased and the marginal propensity to spend of a household is greater than the marginal propensity of a firm, because they have a greater propensity to save, that is, firms compared to households. So the redistribution of income and wealth makes the problem of inadequate aggregate demand even worse. Karl Marx had it right. At some point Capitalism may destroy itself. You cannot keep on shifting income from labor to Capital without having an excess capacity and a lack of aggregate demand. That’s what has happened. We thought that markets worked; they’re not working. The individual can be rational. The firm, to survive and thrive, can push labor costs more and more down, but labor costs are someone else’s income and consumption. That’s why it’s a self-destructive process.

    http://www.twitlonger.com/show/cd2dn6

    I think Marx’s view was that this propensity towards crises and periodic reform would necessarily lead to it’s eventual destruction; that alienated working class labour would revolt against bourgeois capital and it’s political structures, leading to a socialised political economy which would initially embrace many of the old economic structures under new management.

    Roubini’s right to credit Marx with identifying that self-destructive force, but his point seems to be more Keynesian — that rational actions by the individual and the firm may in aggregate be destructive (hence the necessity for demand management by the state). I suppose that would fit within Marx as among the internal contradictions of the ‘free market’ under capitalism.

    Also the remarks he excerpted from his most recent opinion piece Global Financial Crisis 2.0: How to Rescue Capitalism, which relate this to particular political events such as ”riots from the Middle East to the UK and massive popular demonstrations in Israel”:

    Capitalism in Danger

    So, the painful process of the deleveraging of households, banks, financial institutions, highly leveraged corporates, local and central governments has barely started and debt reductions will become necessary if countries cannot grow or save or inflate themselves out of unsustainable debt problems.

    In this sense, Karl Marx was partially right in arguing that globalization and financial intermediation run amok and the redistribution of income and wealth from labor to capital could lead to capitalism self-destructing (he was only partially right as his view that socialism would be a better economic system than capitalism turned out to be utterly wrong). Indeed, if there is not enough labor income given rising income/wealth inequality, there is a structural lack of aggregate demand especially when debt burdens don’t allow households to borrow to bridge the gap between anemic incomes and spending goals. And recent riots from the Middle East to the UK and massive popular demonstrations in Israel (and rising popular anger in China) and soon enough in other advanced economies and EMs (if advanced economies were to double dip) are all driven by the same issues and tensions: Rising income and wealth inequality, poverty and unemployment and hopelessness in both the working class and even the middle class, which are feeling the squeeze of falling incomes and opportunities. In the U.S., we are now back to a second Gilded Age as income and wealth inequality is as high as in 1929 at the onset of the Great Depression after the Gilded Age of the 1920s. And after five rounds of unsustainable tax cuts in 2001-10, federal tax revenues are now at a 60-year historical low of 14% of GDP, when the U.S. historical average is 19%

    http://www.twitlonger.com/show/cd31km

    It would be fairer if he simply said Marx was right about the relentless globalising nature of capitalism, it’s financial characteristics, along with its exploitation and alienation of labour. Disagreeing with Marx on the merits of an alternative political economy seems beside the point — other than distancing himself politically from the implications of embracing fundamental aspects of Marx’s analysis.

    Global Financial Crisis 2.0: How to Rescue Capitalism offers some laudable Keynesian proposals on how to rescue capitalism: fiscal stimulus on productive infrastructure; progressive taxation; short-run fiscal austerity with fiscal discipline in the medium/long terms (which seems contrary to infrastructure spending); easier monetary policies and central banks providing lender-of-last-resort support to sovereigns and banks; reducing debt burdens of insolvent households and other agents (i.e. banks?); investment in skills, productivity, new emerging sectors; regulation of the financial system; investing in human capital and skills to increase productivity. by reducing income/wealth economy sufficient to raise aggregate demand. Almost all laudable, except extending wealth redistribution to zombie banks, but he appears to advocate contradictory fiscal policies and even all together they are insufficient.

    A more appropriate response might be to reduce the debt burden of ‘other agents’ through bankruptcy and socialising financial capital, banks as publicly owned utilities and investment as co-operative ventures. i.e. to socialise banking and finance, as Marx might suggest, and pegging the free movement of capital to the free movement of labour.

  4. Strategist says:
    August 23 2011 at 4:09 pm

    >>>For 19C factory conditions read

    …present day 21st century factory conditions in China, Vietnam, never mind the sweatshops of Bangladesh.

    >>20 hour day anyone?

    Look at what happens in the factory making i-phones.

    This is one aspect of globalisation – the worldwide search for the maximum possible rate of labour exploitation

  5. harry_w says:
    August 24 2011 at 1:40 am

    I think it’s worth going beyond Roubini’s rhetorical embrace of Marxist economic analysis, whilst he appears to shun the political and economic implications of that by offering a Keynesian policy prescription.

    Marx appears to have been precisely right about the nature of ‘fictitious capital’ [credit, shares, debt, speculation and various forms of paper money] and its role in the most recent crisis of capital, the ‘credit-crunch’ in western finance:

    Capital Vol.III: Chapter 30. Money-Capital and Real Capital.

    In a system of production, where the entire continuity of the reproduction process rests upon credit, a crisis must obviously occur — a tremendous rush for means of payment — when credit suddenly ceases and only cash payments have validity. At first glance, therefore, the whole crisis seems to be merely a credit and money crisis. And in fact it is only a question of the convertibility of bills of exchange into money. But the majority of these bills represent actual sales and purchases, whose extension far beyond the needs of society is, after all, the basis of the whole crisis. At the same time, an enormous quantity of these bills of exchange represents plain swindle, which now reaches the light of day and collapses; furthermore, unsuccessful speculation with the capital of other people; finally, commodity-capital which has depreciated or is completely unsaleable, or returns that can never more be realised again. The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values. Incidentally, everything here appears distorted, since in this paper world, the real price and its real basis appear nowhere, but only bullion, metal coin, notes, bills of exchange, securities. Particularly in centres where the entire money business of the country is concentrated, like London, does this distortion become apparent; the entire process becomes incomprehensible; it is less so in centres of production.

    It should be noted in regard to imports and exports, that, one after another, all countries become involved in a crisis and that it then becomes evident that all of them, with few exceptions, have exported and imported too much, so that they all have an unfavourable balance of payments. The trouble, therefore, does not actually lie with the balance of payments. [...]

    It then becomes evident that all these nations have simultaneously over-exported (thus over-produced) and over-imported (thus over-traded), that prices were inflated in all of them, and credit stretched too far. And the same break-down takes place in all of them. The phenomenon of a gold drain then takes place successively in all of them and proves precisely by its general character 1) that gold drain is just a phenomenon of a crisis, not its cause; 2) that the sequence in which it hits the various countries indicates only when their judgement-day has come, i.e., when the crisis started and its latent elements come to the fore there.

    I have yet to read anything that comes close to capturing the specific nature of this ‘credit crisis’ in finance capital that broke out in June 2007 with the abortive liquidation of two Bear Stearns funds. It even anticipates, and rejects, the policy responses we’ve seen the G7 employ by various means.

    What the US Fed, BoE and ECB have tried to achieve with QE/ZIRP and sovereign guarantees, is what Marx argued would be beyond their capacity to remedy. He was writing in an age when currencies were convertible to gold, but central banks and states are using their control of fiat currencies and state treasuries to have the “entire artificial system of forced expansion of the reproduction process … remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values.”

    Marx versus Bernanke, Trichet & King? I wouldn’t bet on the central bankers, not even in their own fiat currencies. They can create money but not value, and as they do so at near zero interest for banks they devalue fiat money and trigger ferocious inflation any commodities of intrinsic use value (foodstuffs, fuels) and transfer wealth from those reliant on money as wages or savings to those invested in assets (housing, shares, etc).

    What Marx does is relate systematic and broadly sound economic analysis to the class politics and this is what I think makes him politically taboo. Giving just a nod to Marx’s analysis is considered newsworthy for a public opinion-former, but must always be accompanied by a disavowal of the political component of the analysis:

    It follows from the above that commodity-capital [i.e. raw materials or products], during crises and during periods of business depression in general, loses to a large extent its capacity to represent potential money-capital. The same is true of fictitious capital, interest-bearing paper, in so far as it circulates on the stock exchange as money-capital. Its price falls with rising interest. It falls, furthermore, as a result of the general shortage of credit, which compels its owners to dump it in large quantities on the market in order to secure money. It falls, finally, in the case of stocks, partly as a result of the decrease in revenues for which it constitutes drafts and partly as a result of the spurious character of the enterprises which it often enough represents. This fictitious money-capital is enormously reduced in times of crisis, and with it the ability of its owners to borrow money on it on the market. However, the reduction of the money equivalents of these securities on the stock exchange list has nothing to do with the actual capital which they represent, but very much indeed with the solvency of their owners.

    In our post-modern, fiat money era the ‘gold drain’ seems to have been replaced by the bond spread between AAA sovereigns and others.

    Marx clarifies the political significance of QE/ZIRP and guarantees/bailouts (TARP etc) are essentially a new form of class war declared by the state on behalf of of finance capital against labour. I say war because the debts transferred to the state only seem comparable to the debts amassed by participants the World Wars, and the bill is to be paid by liquidating remaining public services, currency devaluation plus inflation and increased taxation of the subject population.

    This is finance capital and its political allies (both Thatcherite fundamentalists and Third Way converts) discarding 30 years of neo-liberal, deregulated ‘free-market’ rhetoric in exchange for a corporatist pact which commits the state to extract and transfer even more of the value produced by labour to a privileged and protected financial oligarchy. That transfers a credit crisis originating in finance capital over to states now facing sovereign debt-crises, and creates the kinds of internal contradictions that generate crises of political legitimacy.

  6. Howard Reed says:
    August 24 2011 at 9:26 am

    I’m no expert on Marx but it’s certainly worth reading the UCLA Marxian economist Robert Brenner’s work in this context (particularly “The Boom and the Bubble” and “The Economics of Global Turbulence”.) Brenner believes that chronic overcapacity in the Western economies has been a problem since at least 1975, and was only disguised until 2008 by bubbles in stocks, housing and other assets…

    • Richard Murphy says:
      August 24 2011 at 9:33 am

      I’m no expert either but these selective quotes are insightful

      No doubt the right will no jump up and down and denounce me (and you)

      But Marx was beyond doubt a massively important economist

    • Teresa Harding says:
      August 24 2011 at 6:14 pm

      Deregulation of the banks and the subsequent increase in debt has undermined our economy. Thank you for suggesting the works of Robert Brenner, I will be purchasing one of his books to improve my knowledge of Marxist economic analysis.

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