In 2009, UC Berkeley Economics Professor and former Clinton adviser Brad DeLong took a potshot at David Harvey on his blog. Headlined “Department of ‘Huh?’,” and beginning “Why neoclassical economics is an absolutely wonderful thing,” the post quotes eleven straight paragraphs from a Harvey essay, which DeLong proceeds to ridicule.
For DeLong, the essay is contentless waffle. It strings together economic concepts without making an economic argument. He would call it “intellectual masturbation,” except it “does not feel good at all.” Only in the eleventh paragraph does he find “the suggestion of a shadow of an argument.” Here Harvey argues that the US stimulus package is bound to fail because the deficit needs to be financed by foreign powers, and the amount of Treasury bonds it will be able to sell to the likes of the Chinese central bank will not fund a big enough stimulus. DeLong responds that this is a question that requires a theory of the bond market and interest rates, which Harvey does not provide: “The question is thus not can government deficit spending be financed . . . the question is at what interest rate will financial markets finance that deficit spending.”
I would have thought that in a profession dominated by neoclassical and increasingly neoliberal theory these last thirty years, that there might have appeared at least some sliver of humility. They have collectively provided us with no guidance on how to avoid the current mess and now, when faced with a crisis, they can only say, as Marx long ago presciently noted, that things would not be so if the economy only performed according to their textbooks. Maybe it is time to revise if not change the textbooks.
He goes on to bring up Sraffa and the “Cambridge capital controversies” of the 1960s, which, he argues, showed that “all of neoclassical theory is based on a tautology”. DeLong’s argument was “a bit of casual empiricism about the current low and seemingly stable rate of return on long-term treasuries”. “Why bother” with neoclassical economics at all, he asks.
Many will already be laughing and mocking along with Harvey. And perhaps DeLong deserves no better. Yet on the point at issue, he was right — it is a question of interest rates, not of the number of bonds that can be sold. When Harvey went on to clarify his argument, it was only with some casual empiricism of his own. He noted that he was hardly the only one to be making the argument that East Asian central banks could stop collecting US Treasuries, so that “the track of long-term treasury interest rates may go the way of the housing market data in just a couple of years (if not months).” This was an argument you could read in mainstream business pages; there was nothing particularly Marxist about it. Now that we are more than a couple of years down the track, DeLong still looks right: the yields on long-term Treasury bonds are, as I write in July 2011, about the same as they were in February 2009, when the exchange took place. The limits to stimulus have been political, not financial.
Many Marxists see mainstream economics as a degenerate mirror image of what they think Capital provides for them: a systematic model of capitalism built up from first principles. The main difference is that mainstream economics is ideological and apologetic, hopelessly inadequate for understanding the true nature of capitalism. So for Harvey the ultimate charge he can throw is that it is “based on a tautology”: a logical flaw was discovered in the 1960s that should have spelled its end; everything since is “casual empiricism.”
There really are neoclassical economists who insist on building a system from axioms, who believe, among other things, that no macroeconomics is worthwhile until it has been grounded in the “micro-foundations” of formally modeled rational individual action. But this is a minority, academic pursuit that has little to do with the pragmatic economics involved, for example, in analyzing the relationship between the US federal government’s deficit and long term interest rates. Criticism of the incoherence or unrealistic assumptions of neoclassical economics can be easily deflected — most economists will freely admit they are simply heuristics and would be quite happy to be considered pragmatic “casual empiricists.” Textbook epigraphs and departmental websites quote Keynes:
The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions.
There are generations of economists who would call themselves Marxists, or admit Marx as a major influence, who have taken a similar approach. They have engaged with other strands of economic thought and folded them into their worldview, have worried little about dropping from their analyses those aspects of Marx’s argument they believed to be wrong or unhelpful, and have felt no need to pepper their writing with appeals to authority in the form of biblical quotations.
But in each generation, there are others who have defended an “orthodox” Marxian economics as a separate and superior paradigm, which can only be contaminated by absorbing ideas from elsewhere. The pugnacious Andrew Kliman, for example, opens his Reclaiming Marx’s Capital with the line “The economists have changed Marx, in various ways; the point is to interpret him — correctly.” Accordingly, he unabashedly spends a chapter on hermeneutic method, and the book is devoted to proving the internal logical consistency of a method for transforming the values of Volume I into the production prices of Volume III. This, at least, is more sophisticated than what we might call Frankenstein Marx — the stitching together of an argument from authority by stringing together famous quotations torn out of context. Criticizing Frankenstein Marxism is like campaigning for motherhood and apple pie — no one will disagree.
What I call Zombie Marx is different — the reanimation of a corpse which still holds organically together in some way. This is the reconstruction of Marxist economics as a coherent body of thought, not a collection of quotations. That this work is dogmatic is not my complaint. As Thomas Kuhn suggested in The Structure of Scientific Revolutions, a little dogmatism is important to most science, maintaining the coherence of a community of researchers and organizing its research agenda. Mainstream academic economics is very dogmatic about its theoretical core — methodological individualism and the general equilibrium apparatus. It is unfair to single out Marxists. Rather, it is scholasticism that is the problem — the need to ground everything in a 140-year-old text. It would be wrong to say that the likes of Kliman are dogmatic in the sense that they demand unthinking acceptance of everything in Capital — it is obviously a lot of intellectual hard work to “interpret Marx correctly.” It cannot be taken for granted that Marx was right; it must be proven anew with each generation, against both rival interpretations and the revisions the previous generation had found necessary to make.
Reanimating Marx can be very fruitful at times, and who has shown this better than David Harvey? His Limits to Capital is a masterpiece of social theory drawing on nothing but Capital and the secondary literature around it. This groundbreaking work is original mainly in the way it reorganizes Marx’s work, but in his analysis of the geography of capitalism Harvey proved that Capital had still not finished giving. However, Limits is a book written at the high tide of Marxian intellectual confidence, in the wake of a flowering of radical political economy. It could admit frankly in its first chapter that the “critics of value theory have mounted a quite successful campaign against traditional interpretations” of the “labor theory of value”, and the rest of the book was a testament to how little that mattered.
Thirty years on, that intellectual confidence has receded. The fundamentalist “back to the text” movement is the downswing of a familiar cycle in the history of Marxian economics. It is a pattern, I think, that has more to do with the social conditions of its reproduction than anything inherent in its content. Modern neoclassical economics is the overwhelmingly dominant paradigm in a mature, prestigious academic discipline. Students are introduced into a system of thought as a physics student might, proceeding through textbooks, with exercises at the end of each chapter, with each section building on the ones before, and with each year’s textbooks adding complications and refinements to what was learned the previous year. The history of the received wisdom leaves traces only in the names attached to various concepts: “Pareto optimality,” “the Slutsky equation,” “Okun’s law.” In contrast, Marxian economics is united mainly through shared adherence to a political tradition — a very fractious political tradition. It is academically marginal, with few institutional supports — its theorists tend to lead isolated scholarly existences, in a pocket of like-minded thinkers at best. Instead, its history shows a succession of writers, occasionally coalescing for a time into schools, who have developed in one direction or another, only to be ignored or rejected by those who came after. There is a tendency for productive debates, which drive analysis forward, to peter out and be forgotten as the tradition repeatedly circles back to its founding text, its only common ground. Interpretation of a text has trumped interpretation of the world.
Back to the 1860s
But there is a problem in taking Capital as a fully-formed alternative to modern economics — the dominant political economy Marx engaged with in his critique was a very different beast. Capital is a work of the 1860s, through and through. No matter how fundamental the critique, both form and content are shaped by the object of criticism. Classical political economy leaves its traces in Capital both in the questions Marx believed needed answers and his approach to answering them. More than 140 years later, reading Capital without much knowledge of its intellectual context, it is easy to misidentify what exactly its novelties were. Holding a fundamentalist reading of Capital against modern economics often involves anachronistically defending the concerns and framing of mid-Victorian political economy rather than any particularly radical criticism of economics past or present.
One example is Marx’s critique of “supply-and-demand” analysis. It is easy to find passages in his writing where he dismisses such theories of value, on the grounds that imbalances in supply and demand may explain fluctuations of market price around prices-of-production, but cannot explain the point at which supply and demand balance. For example:
If two forces act in opposing directions and cancel one another out, they have no external impact whatsoever, and phenomena that appear under these conditions must be explained otherwise than by the operation of these two forces. If demand and supply cancel one another out, they cease to explain anything, have no effect on market value and leave us completely in the dark as to why this market value is expressed in precisely such a sum of money and no other. [Capital, vol. III: p. 291 of the 1981 Penguin edition]
This seems very clear-cut, and is quoted in many places as Marx’s knockdown argument against neoclassical theories of value. (See, for example, Harvey[2006: 9—10].) But it is not, because the marginalists who inaugurated today’s neoclassical analysis meant something quite different by “supply and demand.” They thought in terms of supply and demand schedules or curves — this is precisely what constitutes the marginalist revolution and separates the neoclassicals from the classicals of Marx’s day. In neoclassical analysis, supply and demand were no longer conceived as “forces,” as Marx puts it, but as complexes of counterfactuals stating what quantity of a commodity would be offered or purchased at different prices, given certain other factors like income and the prices of other related goods.
By “supply and demand” most classicals referred simply to quantities supplied or demanded, and in this context it makes perfect sense for Marx to complain that “supply and demand” settled nothing, and that the real question was what determined the levels of supply and demand. But the marginalists’ apparatus of supply and demand schedules was a framework for answering this question. Marx could not be expected to have engaged with this literature in the 1860s, for the simple reason that it did not appear widely until the 1870s (the inevitable isolated forerunners aside).
Ironically, though, for those who quote the above passage from Capital against marginalist analysis, it appears in the middle of a section of Volume III in which Marx develops the beginnings of an argument that looks distinctly like the neoclassical concept of the elasticity of demand with respect to income and price. For example:
It appears, therefore, that there is a certain quantitatively defined social need on the demand side, which requires for its fulfilment a definite quantity of an article on the market. In fact, however, the quantitative determination of this need is completely elastic and fluctuating. Its fixed character is mere illusion. If means of subsistence were cheaper or money wages higher, the workers would buy more of them, and a greater “social need” for these kinds of commodity would appear . . . [Marx, 1981: 290]
Elsewhere in the same volume, he writes:
It is evident . . . that the expansion and contraction of the market depends on the price of the individual commodity and stands in inverse relationship to the rise or fall in this price. It happens in fact, therefore, that a rise in the price of raw material does not lead the price of the manufactured product to rise in the same proportion, or to fall in the same proportion when the price of the raw material falls. [ibid: 203]
I could go on. My point here is not to say “Aha! — Marx anticipated Alfred Marshall.” These are scattered fragments not developed into a coherent statement. Neoclassical concepts could actually be a tool to deal more systematically with this kind of problem, which Marx evidently felt was worth engaging with. But more broadly, my argument is that there is perhaps not such a gulf between Marx and certain aspects of neoclassical analysis as is often implied. Marx believed Ricardo’s labor theory of value was a great advance over Adam Smith’s eclectic “adding-up” theory of value, which neglected the interdependence of wages, profits and rent. Ricardo’s critique was, in a sense, a primitive general equilibrium critique of Smith’s partial equilibria. But the labor theory of value had problems of its own, most prominently the awkwardness involved in modifying labor values to take account of differences in capital intensity. Both Ricardo and Marx were well aware of the problem, but it is hard to avoid seeing Marx’s “transformation” solution as ad hoc in the manner of Ptolemy’s epicycles, even if put in a logically coherent form.
I have suggested that there are elements in Capital that point beyond the labor theory of value and towards supply-and-demand analysis, and I believe that any adequate theory of value needs to do this. It is not such a challenge to the basic results of the labor-value analysis as it may seem, either. Alfred Marshall himself argued in an appendix to his Principles of Economics that his marginalist analysis did not undermine Ricardo’s theory of long-run value, because in the long run producers shift between sectors chasing abnormally high and fleeing abnormally low returns to their investments, so that supply conditions determine price. Demand matters in the long run only to the extent that the quantity produced and sold affects the cost of production, due to economies of scale, inputs whose supply can be increased only at increasing cost, etc. That demand or “social need” could influence socially-necessary labor time and therefore value, Marx was fully aware.
There is little for Marxists to fear from importing the concepts of supply and demand schedules. The critical importance of labor time does not disappear, but can actually be put on a firmer footing, because it makes possible (1) a more elegant treatment of relative prices than the classical multistage analysis in which the impact of labor, capital and land are dealt with sequentially; and (2) a framework for dealing with relative prices in both the short and long run, and the relationship between them, whereas the classical analysis generally neglects or leaves the short run indeterminate.
Another example, which I will not go into in so much detail, is Marx’s criticism of the quantity theory of money, which held that the quantity of money in circulation determined the price level. Marx reversed the direction of causation, arguing that the price level determines the quantity of money in circulation. Much of his criticism of the classical quantity theory remains valid. But as a positive theory of the price level, it is bound to the historical conditions of the gold standard, in which convertibility anchored the price level in the long run.
Marx was well ahead of his time in developing a theory of monetary income-expenditure flows with his reproduction schema, and even a monetary theory of interest rates and the business cycle. But these monetary dynamics were completely divorced from his theory of prices. They are separate questions in Marx’s system: when he comes to discuss flows, he takes value for granted, and vice versa. Inflation was simply not seen as an independent phenomenon worthy of analysis, as it would become in the 20th century when the gold anchor loosened and dropped away. It was enough to know that the anchor would assert itself eventually. The problem for the state or central bank was not the value of money per se, but the convertibility of particular monies. But in our world of chronic, if low-level, inflation and floating exchange rates, we need different things from our monetary theory. We have no choice but to engage with new questions Marx could not have imagined — and here the reference point should be Keynes and the post-Keynesians.
The Spirit and the Corpse
If we are to engage in these ways with modern economics, what, if anything, makes our analysis distinctively Marxist? It is the two-fold project behind Capital as a critique of political economy: first to demonstrate the social preconditions that lie beneath the concepts of political economy, and especially their dependence on class relationships; and second, to demonstrate these social relations as historical, not eternal.
These two strands of Marx’s thought are as valid as ever. The way to apply them today is not to maintain the form and content of Capital as a complete, separate way to approach economics, as if we are superior because we begin from superior principles. Instead, I think it is to approach modern economics as we find it and ask the same kinds of critical questions: what are the social conditions that make economic phenomena appear the way they do? It is to deal not only, not even mainly, with economic high theory, but also with the applied economics produced every day in the reports and statements of central banks, Treasuries, the IMF, etc., and ask, what are the implicit class relations here? Why are these the driving issues at this point in history? What are the deeper social contradictions lying behind them? The pursuit of a separate system of economics as something wholly other from mainstream economics isolates us from the political and ideological space where these things take place: better, instead, to fight from the inside, to make clear the social and political content of the categories.
A side effect is that we learn to think for ourselves again about how capitalism works, to be able to answer the kinds of question DeLong raised against Harvey, no longer lost without the appropriate quotation. We come to meet the challenge Joan Robinson posed to a Marxist friend in her 1953 “Open Letter from a Keynesian to a Marxist”:
What I mean is that I have Marx in my bones and you have him in your mouth . . . Again, suppose we each want to recall some tricky point in Capital, for instance the schema at the end of Volume II. What do you do? You take down the volume and look it up. What do I do? I take the back of an old envelope and work it out . . .
As undead Marxes go, I would rather have the kind of Marx in Joan Robinson’s bones than either a Frankenstein Marx pieced together from scraps of quotations, or a Zombie Marx, embalmed in the 1860s and reanimated whole. That is a spirit that might haunt again.