A Comparison of Keynes, Marx, and Hobson's Crisis Theory

Both Marx and Hobson believed that the principal cause of depression was the insufficient ability of capitalists to find sufficient investment opportunities to offset increased savings generated by economic growth. Keynes uniquely contributed to this view by showing how the relation of savings to income could lead to a stable economy but with a depressed level of income and widespread unemployment.

Marx believed the disease was incurable. Hobson suggested reducing saving by equalizing distribution of income. This solution was highly implausible, however, since those who hold political power were those who have all the wealth and they would never willingly sacrifice their wealth for the benefit of all, including the stability of the system. Interestingly, even in 1925, the top 200 corporation made more profit than the other 299,800 combined, and the top 5% of the population owned virtually all of the stocks and bonds and dominated politics.

Keynes's solution to depression was more realistic. Whenever savings exceeded investment, government could intervene, borrow the excess saving, and spend the money on projects that would not increase productive capacity or decrease investment opportunities (i.e. not to add to the capital stock). Hence, increased government spending above and beyond their tax revenue stream could offset the leakage of saving and restore the economy back to a condition of stable full employment equilibrium. Projects that would not add to the capital stock (productive capacity) could include building pyramids (that is what the Egyptians did), construction of schools, parks, hospitals, or other public works.