Paul Sweezy Was One of the 20th Century’s Great Economic Thinkers

The Marxist economist Paul Sweezy dedicated his life to understanding how capitalism works, and how it had changed since Karl Marx’s time. The big economic questions that Sweezy addressed are still fundamental for socialists today.

Paul Sweezy (R) and Paul Baran (L) coauthored Monopoly Capital, published in 1966. (Monthly Review Press)

Paul Sweezy was one of the most distinguished and most controversial Marxian economists of the twentieth century. Sweezy took up some of the most vital questions facing those who wanted to understand capitalism in order to surpass it. Although he played a significant role in popularizing the ideas of Karl Marx, he was not content to stop there and developed his own conceptual framework to explain the way that capitalist economies were evolving during the postwar decades.

His two most important books, The Theory of Capitalist Development (1942) and Monopoly Capital (1966), the latter coauthored with Paul Baran, provoked a huge critical literature, and were translated into many languages. The problems Sweezy faced in making sense of latter-day capitalism are still ones that the Left needs to grapple with today, and his influence continues to be felt today in the intellectual world of radical political economy.

Sweezy’s Path to Marxism

Paul Marlor Sweezy was born in New York City on April 10, 1910, the son of a Wall Street banker. He was educated at Phillips Exeter Academy and at Harvard University, where he graduated in 1931, having been taught absolutely nothing about Marx. In 1932–33, he was a graduate student at the London School of Economics, where he studied liberal economics under Friedrich von Hayek and Lionel Robbins, but also learned socialist political ideas from Harold Laski.

By the time he returned to the United States in 1933, Sweezy considered himself a Marxist, although as we shall see, this was not at all evident in his earliest academic publications. Back at Harvard, Sweezy taught a course on socialism with Edward S. Mason, and he worked on his PhD dissertation under the supervision of Joseph Schumpeter. Schumpeter knew a lot about Marxism, even if he was always profoundly critical of it.

In 1938, Harvard University Press published Sweezy’s doctoral dissertation on a long-standing cartel in the British coal industry. Between 1934 and 1942, Sweezy also worked for several federal government agencies, helping to implement Franklin Roosevelt’s New Deal, before joining the Office of Strategic Services (the forerunner of the CIA) to work as an office-based researcher for the duration of US involvement in World War II.

By the end of the war, the political pendulum in the United States was already swinging rapidly to the right, and Sweezy realized that he would not be granted tenure if he returned to his academic position at Harvard. Here his privileged family background proved useful, allowing him to resign from Harvard, move to the family farm in New Hampshire, and work as an independent radical scholar and journalist.

With his friend Leo Huberman, he set up the independent socialist journal Monthly Review, which he edited from its first issue in May 1949 until his effective retirement in March 1997. Sweezy never again held a full-time university position, although he was often taken on as a guest lecturer. He died at the age of ninety-three on February 27, 2004.

Early Contributions

Sweezy’s earliest academic publications had little or nothing to do with Marxism, but instead made significant intellectual contributions to the literature on mainstream economics. His first journal article was an extended and highly critical review of A. C. Pigou’s Theory of Unemployment, which explained unemployment in pre-Keynesian terms, as the result of excessive real wage claims by workers.

Sweezy soon revealed himself to be an enthusiastic Keynesian, advocating increased government spending financed by budget deficits in response to the “second depression” of 1937–38. He also established a microeconomic case for John Maynard Keynes’s theory of unemployment in a brief but original 1939 paper published in the Journal of Political Economy. An oligopolistic firm, Sweezy maintained, generally faced a kinked demand curve and hence also a vertical discontinuity in its marginal revenue curve. This would also apply to its marginal revenue product (labor demand) curve.

This was an impressive piece of original neoclassical economic theory, hinging on the idea that sales of the oligopolist’s product would fall much faster if the price went up than they would increase if the price was reduced. The same would apply, he suggested, to the firm’s employment levels if wages rose or fell. Under these conditions, real wage cuts would have no effect on employment. More jobs would come only from an upward shift in the product demand curve, which in the late 1930s required the implementation of Keynesian macroeconomic policies.

The Theory of Capitalist Development

The implications of the decline in competition in the advanced capitalist economies feature prominently in The Theory of Capitalist Development, published in 1942. It became a hugely influential exposition of Marxian economic theory. The book has four parts, the first three being devoted to an exposition of Marx’s ideas, and the final section to Sweezy’s own analysis of the monopoly stage of capitalist development.

In Part I, “Value and Surplus Value,” Sweezy begins by setting out Marx’s underlying methodology. He then provides a subtle and original account of the “qualitative” and “quantitative” value problems that Marx distinguished, with the former involving the relations between producers, and the latter the relations between their products. Questions of abstract labor and the fetishism of commodities arise in the former, and the determination of the relative exchange values of commodities in the latter.

Part II, “The Accumulation Process,” deals with Marx’s analysis of simple and expanded reproduction, focusing on the creation and constant replenishment of a “reserve army” of the unemployed, the tendency for the rate of profit to fall, and the transformation of labor values into prices of production. Sweezy is critical of Marx’s treatment of both the falling rate of profit and the transformation problem. While the qualitative value question remains fundamentally important, he suggests, the same cannot be said of the quantitative question: “The real world is one of price calculations; why not deal in price terms from the outset?”

In Part III, “Crises and Depressions,” Sweezy begins by endorsing Marx’s rejection of Say’s Law, according to which aggregate supply creates its own aggregate demand and thus an in-built tendency toward full employment. This leads him to emphasize the problems that capitalists have in “realizing” the surplus value contained in their commodities in the form of money profits, due to deficient aggregate effective demand.

He places great emphasis on Marx’s analysis of underconsumption crises, which are caused (as Marx himself put it), by “the poverty and restricted consumption of the masses.” Sweezy makes a detailed analysis of the reproduction models that Marx set out in volume II of Capital and adumbrates a formal mathematical model of underconsumption taken from the work of the Austrian theorist Otto Bauer.

He concludes, in Part IV, “Imperialism,” by assessing the prospects for capitalist prosperity in the latest stage of its development. According to Sweezy, monopoly capitalism is characterized by the increasing concentration and centralization of capital, the rise of giant corporations, and the growth of cartels, trusts, and mergers. Effective demand comes under great pressure, he maintains, as new investment is restricted to defend the rate of profit and real wage growth declines, strengthening the tendency to underconsumption.

However, there is also a strong tendency for various forms of unproductive consumption to rise, due to a huge increase in selling costs, and for state expenditure to grow. Here Sweezy draws on Vladimir Lenin’s work to explain the rise of nationalism, militarism, and racism in what the Soviet leader considered to be the final, imperialist stage of capitalism.

Sweezy and Baran

Sweezy continued to reflect and publish on these issues until the end of his life. In the process, he was responsible for a significant addition to the English-language literature on Marxian political economy. This was his 1949 edition of the classic texts on the transformation problem by Eugen von-Böhm-Bawerk, Rudolf Hilferding, and Ladislaus von Bortkiewicz. The criticism of the Marxists by the latter proved to be extremely influential.

Sweezy also published a careful and supportive account of the underconsumptionist views of Rosa Luxemburg. Meanwhile, his own ideas continued to evolve, under the influence of two important left Keynesians, Poland’s Michał Kalecki and the Austrian economist Josef Steindl. Kalecki and Steindl both analyzed the connections between growing monopoly power and increasing economic instability.

However, Sweezy’s own principal contribution came almost a quarter-century after the appearance of The Theory of Capitalist Development, with the publication of what was by far his best-selling work, Monopoly Capital, in 1966. His coauthor was a refugee from Stalin’s Russia, Paul Alexander Baran, who arrived at Harvard in 1939 with a letter of recommendation from the Polish economist Oskar Lange.

In the USSR, Baran had studied at the Plekhanov Institute, and almost certainly acquired his lifelong interest in the monopoly stage of capitalism from its director, Yevgeny Preobrazhensky. In addition to Preobrazhensky’s ideas, Baran brought something of his own to the Monopoly Capital project. Most important, the concept of the economic surplus — “the difference between what a society produces and the cost of producing it” — was his rather than Sweezy’s.

So, too, was the distinction between the actual and the potential surplus, which pointed clearly to the wasteful nature of advanced capitalism as the surplus that was actually produced fell further and further behind the maximum possible. This critical element, which probably owed something to Baran’s time in Germany studying at the Frankfurt School, allowed him to emphasize the cultural and ideological dimensions of capitalism, which are analyzed in the final eighty pages of Monopoly Capital.

Baran’s focus on the exploitation of the Third World was also sharper than Sweezy’s had been. He argued that the extraction of surplus from the backward areas of the world helped both to explain the passivity of the Western working class, which had been bought off with a small share of the proceeds, and to demonstrate the revolutionary potential of the peasantry in the colonial and ex-colonial territories.

Monopoly Capital

Sweezy published Monopoly Capital two years after Baran’s death. As the title implies, it drew heavily upon the literature on the contemporary giant corporation, which was able to eliminate price competition and widen profit margins. The consequence was a strong tendency for the surplus to rise as a proportion of total output, intensifying the underconsumption problem that Sweezy had focused on since 1942.

In the book, there follows an extended discussion of the ways in which the increased surplus might be absorbed, which include rising consumption and investment expenditure by capitalists, increased military spending, growth in civilian spending by the state, and greater military and imperialist activity more generally. The implicit macroeconomic model in Monopoly Capital is essentially Keynesian and relies heavily on the economic role of what came to be known as “military Keynesianism.”

For Sweezy and Baran, the political consequences of this analysis were stark: any hope for the world, they concluded, relied heavily on the “revolutionary peoples” of countries such as Vietnam, China, Cuba, and Algeria — that is to say, on the prospects for revolution outside the advanced capitalist nations. Sweezy’s views on socialism had thus changed significantly since 1942, when he was still a resolute supporter of Soviet Communism and hoped that something very similar would be established in the United States — although he never joined the US Communist Party, which he regarded as excessively dogmatic in its ideological stance.

Sweezy’s sympathies now lay with Maoist China rather than the USSR, since he believed that Mao had retained the revolutionary fervor that had been abandoned by Nikita Khrushchev and his Soviet associates. However, with the death of Mao and the victory of the “capitalist roaders,” first in China and then more widely after the disintegration of the Soviet Union in the early 1980s, he gave up his almost lifelong opposition to reformism and ended his life as he had begun it, as a left social democrat.

During the three decades after the publication of Monopoly Capital, Sweezy came to realize that its treatment of the financial sector had been inadequate. While he and Baran had assumed that corporate management was largely immune from financial market pressures, the capitalist system had since moved in a very different direction, with takeovers and the threat of takeovers exerting a profound influence on corporate thinking and behavior.

In his later writings, Sweezy admitted that his earlier analysis of capital accumulation had been one-sided and incomplete, paying too little attention to the interaction of its real and financial aspects. But he failed to engage with other streams of macroeconomic theory — for example, with the post-Keynesian “financial instability hypothesis” set out by Hyman Minsky — or to give serious consideration to the possibility that a new, competitive, neoliberal stage of capitalist development had begun in the 1970s, undermining monopoly power and casting doubt on the law of rising surplus.

A sympathetic assessment of Sweezy’s remarkable intellectual career, which extended over more than six decades, would thus have to conclude that it highlighted many of the dilemmas faced by twentieth-century Marxian political economists. In a 2004 essay I coauthored with Mike Howard, we ended our appraisal of Sweezy’s work by listing five of them:

What was the principal cause of economic crises: the production of surplus value or its realisation? Did the capitalist system face vigorous but unstable cyclical growth, or stagnation? Should it be analysed in terms of labour values or market prices? Could central planning completely replace the market under socialism? Was the capitalist state a class adversary or a potential agent of social reform?

These demanding questions still haunt the Left today, and Paul Sweezy’s failure to provide convincing answers to some of them is hardly surprising. It should not be allowed to discredit the life’s work of a truly remarkable socialist thinker.