Karl Marx and Keynes

Karl Marx and Keynes

In terminating our formal study of Marxism, we will examine an issue that has drawn attention over the past three decades. What is the rela­tionship between Marxian and Keynesian economics—the latter now generally accepted by Western economists? As is often found in studying economic institutions, there are no clear-cut answers. The theories of John Maynard Keynes seem to be neither "socialism-Marxism," as one group in the United States would have us believe, nor the purely "non-Marxian manifesto" that some defenders of Keynes categorically claim. In fact, there are areas of both similarity and conflict in the two schools of thought.


From the beginnings of their careers, both Marx and Keynes showed hetero­dox tendencies with respect to accepted economic doctrines of their times. Both were appalled by the inability of accepted doctrines to explain serious problems of the real capitalist world in which they lived. Hence, each attempted to formulate an economic theory fitting the way the econ­omy actually functions. Marx violently rejected the abstract "vulgar eco­nomics" of Ricardo, Nassau Senior, and John Stuart Mill, for he felt that these "classical economists" did little to explain the harsh reality of in­dustrial capitalism during the period 1840-1880. Keynes felt that the bases of the later neoclassical economics, which was accepted with little question before 1929, "happen not to be those of the economic society in which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience."

The common ground between the two schools goes further. Both explicitly repudiate one special classical assumption, embodied in "Say's law of markets"—that aggregate production (supply) equals aggregate in­come (demand) and that as a result there can be no sustained lack of overall demand for the output of the entire economy, since production itself automatically creates demand. An increase in output supposedly always generates a sufficient increase in income, purchasing power, and spending to clear the market of the extra goods. Before Marx, little heed was paid to Malthus' warnings of "ineffectual demand" and a "general overproduction glut"—Say's law had proved that to be "impossible." Marx pointedly noted the "childish" reasoning of Say's "dogma that ... the cir­culation of commodities necessarily implies an equilibrium of sales and purchases," and claimed that "if the split between the sale and the pur­chase becomes too pronounced, [this] . . . asserts itself by producing— a crisis."" Keynes also built his theories on a refutation of Say's law as being "not the true law relating the aggregate demand and supply functions. . . ." Both men, in rejecting Say's law, firmly established explana­tions for the existence of recession and crisis in the capitalist system. Instead of the "equilibrium" situations of stable production and full em­ployment that the neoclassicists in particular postulated after 1870, Marx and Keynes envisioned a capitalist system whose norm was instability. This might take the form of dynamic growth cycles of prosperity and crisis, raising national product over the long run but bringing about the ulti­mate collapse of the system through a final breakdown (Marx), or of a tendency toward irregular patterns of growth, slump, or even stagnation, depending chiefly on the level of private capital investment (Keynes). But regardless of the precise sort of instability, the mere emphasis on instabil­ity as a fact led both men to reject the optimistic view that free market capi­talism naturally brings about a harmony of all economic forces and an automatic adjustment ensuring long-run stability and full employment. Neither Marxists nor Western Keynesian economists in general accept such preestablished harmony as normal under laissez-faire capitalism.

Why did rejection of Say's law carry with it such assumptions of capitalist instability? The main reason is that if aggregate demand and supply are not in balance, and if there are no automatic forces in a capi­talist economy to right the balance, then there can be cases of aggregate error. One result might be market gluts, if overall demand is insufficient to take up all goods supplied. Another might be aggregate money demand in excess of production, leading to inflation. Both Marx and Keynes hold that capitalism has an inherent tendency to develop the first kind of crisis— overproduction stemming from lack of effective demand. Marx wrote that lack of purchasing power resulted from exploitation of the working masses by capitalists, who paid laborers only subsistence wages. Keynes believed that lack of effective demand would be caused principally by the inability of private investment to absorb growing quantities of savings produced by highly developed capitalist economies.

Finally, the arena in which Marx and Keynes saw these develop­ments taking shape was far removed from the classical microeconomics of price, value, and individual firms. They look at the capitalist system essentially as an aggregative whole, one that calls for the study of the total social product, its composition, and the forces determining it (Marx) or of the determination of national income and its components of consump­tion, savings, and investment (Keynes). Thus, along with the idea that capitalism would not automatically gravitate toward an "ideal" equilib­rium, the modern concern with the aggregate level of economic perform­ance, or macroeconomics, is a legacy of both schools.


On the simplest level, the economics of the Marxian and Keynesian theories are wholly different. Marx adopted many of the accepted mid-nineteenth-century classical economics tools, such as the labor theory of value and the subsistence wage, to deduce drastically new conclusions regarding capitalism as a system. Keynes thought little of such tools. His own analysis owes much to the post-1870 neoclassical school; he wrote that "if our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the [neo] classical theory comes into its own from that point onwards. To Marx such hope would have seemed futile.

However, the more important differences are broader in scope. Keynes was motivated by the desire to preserve capitalism insofar as pos­sible, and to this end he formulated a theory that he hoped might be used to construct a reformed, "liberal" capitalism. He was a conservative who desired to extend the life of capitalism rather than to replace it by an­other economic system. The contrast with Marx is striking. Marx wrote works that were passionate, bitterly critical, and destructive. His sole in­terest was to prove how capitalism had already fulfilled its historical mis­sion and had consequently outlived its usefulness. For Marx, all thought of reform was either pointless or at worst reactionary, since capitalism was doomed by the progressive forces of history. In short, "Keynes wanted to apologize and conserve, while Marx wanted to criticize and destroy."

It is true that Keynesian theories regarding the weaknesses of capi­talism have been used by socialists to promote their own cause. This must be regarded as somewhat ironic, because Keynes made his personal dis­taste for socialism quite clear. That he was strongly opposed to widespread nationalization of industry, to collectivism, and to the economic system of the Soviet Union was well known. Perhaps only his often-stated low opin­ion of Karl Marx surpassed his dislike of any alternative prospect to capi­talism. In his General Theory Keynes even relegated Marx to the "under­world" of economics, along with such minor and forgotten figures as Silvio Gesell and Major Douglas. The future predicted by Marx filled Keynes with consternation; he had no desire to live in a society dominated by "the boorish proletariat."

Another difference just as great exists in the social bases of the two schools. The Keynesian system, despite its desire to preserve capitalism, is socially indifferent in its analytical structure. Its aggregate variables can be used to study economic activity in any country at all, whatever its economic institutions. In the eyes of Marxian economists, "The Keynesians tear the economic system out of its social context and treat it as though it were a machine to be sent to the repair shop, there to be overhauled by an engineer state."16 For Marx, economic systems cannot be separated from the social, cultural, political, and psychological institutions to be found with them at any given stage of history. He believed that economic theory cannot be treated apart and alone, as Keynes, the neoclassicists, or the classicists do. Marxism purports to be a complete historical sys­tem that explains all material phenomena, not only the economic.