Was Marx right?

Here is an NYT forum, involving myself, Michael Strain, Brad DeLong, and others.  My piece is here, excerpt:

Marx pointed out, again perceptively, that capitalism might be subject to a declining rate of profit, and indeed the rate of productivity growth generally has been lower since the 1970s. But why? I would cite energy price shocks, greater investments in environmental goods (which may well be optimal), political dysfunction, the difficulty of topping the amazing achievements of the early 20thcentury, a bit of cultural complacency, and a generally greater aversion to risk, failure and also the new NIMBY “not in my backward” mentality. Most of Marx’s analytical constructs are convoluted, replete with contradictions, and in any case not ideally suited toward analyzing those problems.

We should always be willing to learn from the past, and I do count Marx, for all his flaws, among the great economists. But we should not forget that he was in fact wrong about most things, not just about the totally impractical nature of his communist alternative.


Most of Marx’s analytical constructs are convoluted, replete with contradictions, and in any case not ideally suited toward analyzing those problems.
I do count Marx, for all his flaws, among the great economists

If he was wrong on most accounts - what is the reason to count him among the great economists? Where was he right - and which of his insights are worth learning about?

I'd say that it's not necessary to be right to make useful contributions. Ian McEwan recently put it this way in Edge.org's "What scientific idea is ready for retirement":

Truth is not the only measure. There are ways of being wrong that help others to be right. Some are wrong, but brilliantly so. Some are wrong but contribute to method. Some are wrong but help found a discipline. Aristotle ranged over the whole of human knowledge and was wrong about much. But his invention of zoology alone was priceless. Would you cast him aside? You never know when you might need an old idea. It could rise again one day to enhance a perspective the present cannot imagine. It would not be available to us if it were fully retired.

Aristotle would say this view hearkens too much to Plato's indivisible forms. Truth really is the only measure and science is the process of separating out the "right in parts" from the "most wrongs" from the "wrong in parts" from the "mostly rights".

I am not saying that he says anything particularly wrong-headed (or insightful, for that matter), but why would anyone ask Ian McEwan about his view of science?

neither philosophy nor economics is science

Neither is science

He defined the transformation problem. Whilst his solution is, by and large, not convincing, he did identify it as a sticking point.

Marxist macro follows straightforwardly from perennial layman confusions about macro; they still exist today. You can easily confuse an undergraduate class by challenging them to solve a version of the M-C-M+ cycle (appropriately translated to modern language). They, like Engels, will probably conclude that the system must be carrying out some kind of hidden extraction.

Likewise, you can bait undergraduates into accepting the labour theory of value by playing fast and loose in moving between partial and general equilibrium - indeed they will probably find the LTV more convincing, since the use of partial equilibrium in multiple industries does seem to be self-contradictory. The intuition of the LTV is far simpler than the opacity of the Cambridge capital debates and the resulting neoclassical determination of marginal labour productivity.

You can learn a lot by studying exactly where the wheels fall off the Marxist theory of the business cycle.

(warning: toying with the minds of larval economists, whilst endlessly entertaining, is probably not approved by your ethics board)

I would expect any intelligent undergraduate who works out a problem and comes to a conclusion to compare it with the real world. If the conclusion contradicts with the obvious empirical data, a smart individual immediately starts to question the theory behind the math.

Full disclosure: I'm an engineer.

The observed rate on interest on capital is positive. That's the empirics. The sole mistake of Marx is to reverse the direction of causation in theory; the empirics is faultless.

What is the Transformation Problem? It's the capstone contradiction concluding Marx's reductio ad absurdum of the Labor Theory of Value. This is his work, logically understood. Sadly, he has been more popularly appreciated for his distracting eschatological delirium and moralistic depraving of intelligence.

I would make an analogy to Freud, who is considered one of the great psychologists, even though his ideas have also been superseded by modern research.

That's harsh on Marx. Freud was merely a fraud and a charlatan - "not even wrong" as people like to say nowadays.

That's true about Freud, but he still brought to light few things worth researching. And the "not even wrong" fraud and charlatan is a glove that fits Marx's claws like a mold. And the gall to claim his musings to be some immutable Nature's laws? Pah!

Gosh, he could have been a great blogger.

Marx the economist = D-
Marx the sociologist = A

Interesting idea! Natural systems eventually reach equilibrium. For example, you don't see wolf populations growing without bound. They tend to oscillate. As global trade levels out prices, eventually there are fewer opportunities to "buy low and sell high", so maybe we could expect similar zero-net-growth oscillations to emerge in markets of the future?

Natural systems do not necessarily reach a stable equilibrium. It is always a "red queen game". When outside inputs are allowed, natural system are very often unstable.

Unless their is a bound on human knowledge and innovation, there is no limit to economic growth. Any new innovation interacts with all existing innovations creating further new possibilities growing at an N! rate (faster than an exponential). As most innovations who dominate are usually more energy and material efficient than what they displace, raw materials won't be limiting.

The factor that can slow the economic growth rate is regulations that also interact with all existing regulations creating an N! increase in delays and bottlenecks in developed countries. Both China's and India's rapid growth came from decreasing their internal regulations and allowing the creativity of the individuals to flourish.

A great economist in terms of being greatly wrong

Marx was a polemicist not an economist at all, much less a "great" economist.

As a para-religious prophet, he foretold paradise on earth for the masses as mankind progressed through the inevitable stages of societal structures. This fairy tale sold pretty well in the 19th/20th Centuries and is even still respectable at 21st Century American university economic's departments. Marx offered no proof for his theories /prophecies; essentially he relied on some mystical, personal insight about how mankind would necessarily advance through history.

You're an ignoramus, who has no idea what he's talking about.

If you are in a system where a constant share of 30% of the gdp goes to capital and 70% goes to labour, where growth is slow, labour is more taxed than capital income, the stock of capital is now 600% of gdp and 5-10% of the total income is saved every year, then a simple excel spreadsheet will show you that total stock of capital compared to gdp will increase and capital returns will decrease. Basic accounting...

Except accounting is the wrong lens to use here. You assume 30% of GDP constantly goes to capital, but then also that capital returns will decrease. That will tend to change the capital share of GDP.

I'm fond of saying that Marx was not wrong about everything. I think a fair bit of the error in modern political/economic thinking stems from an emotional aversion to anything that even hints of Marxism. The type of irrationalism that was injected into the blood stream of the humanities by Thomas Kuhn and Karl Popper will always be with us, I suppose.

That said, I don't think the decreasingly robust recoveries are what they appear. Pulling forward debt through credit is a more probable cause than anything Marx had in mind. Instead we may be reaching a point where efficiency gains are not enough to counter the friction that comes from government, taxes, regulation and a metastasizing population of unproductive humans.

Progress is about how much the smart fraction can carry, not how fast they can carry it. The slowing is either the result of a shrinking smart fraction or a burgeoning burden class.

I spot someone who's read David Stove :)

Big fan.

I made a mistake in my pre-coffee post. I meant to write "Pulling forward GDP through credit expansion is a more probable cause than anything Marx had in mind"

Yes but to me it does seem like debt is too inefficient to be used so much in a time where the rest of the economy is so efficient. All those bank buildings and employees cost money. I see two good positive uses for debt; moving some consumption earlier in life and enabling new businesses with better ways of doing things to grow faster but many old slow growing business have debt as do old people. Of course our tax system encourages some of this.

Why the emotional aversion to anything that hints of Marxism?

Your idea seem plausible, maybe even likely. But I can attest that in my own experience, the willingness of brilliant young people to latch onto one or two of the things Marx was insightful/not wrong on, and to take from that they are "Marxist" is something I've seen enough times to create an emotional aversion in me.

Fair or not, the one big idea coming from the Left is associated with Marx. It also resulted in 100 million deaths. OJ Simpson can speak eloquently against jury nullification, but no one will take him seriously simply because of who he is and what he did.

Capitalism has brought with it 400 yrs of murder, rape, slavery, slaughtering over 200 million people. And you're upset because the people are fighting back?

I really hope that's sarcasm. Poe's law... etc.

Listening to the modern Communist apologist is a bit like watching re-runs of old sitcoms from the 70's: They were at least amusing back in the day, but now they are irrelevant and embarrassing. They havent even come up with new rhetoric.

And Allan, news flash: Communism doesnt represent "The People". You dont represent "The People", so dont act like anything you say or do has anything to do with "The People" Thanks.

Communism led to the deaths of tens of millions in less than one-twentieth of that time. You were saying?

"I’m fond of saying that Marx was not wrong about everything. I think a fair bit of the error in modern political/economic thinking stems from an emotional aversion to anything that even hints of Marxism."

That statement is directly contradicted by the available evidence. Marx is quoted all the time and his thoughts are widely discussed. Nor is there any great emotional aversion to anything that even hints of Marxism. Clearly there is a general disdain for the practice of Marxism, but that's an obvious side effect of it's horrible track record.

Which is why I did not write, "all error in modern political/economic thinking..."

Fair bit != All

I understood you weren't blaming all errors in modern political/economic thinking on an emotional aversion to Marxism, but I still find your statement to be an exaggeration.

Yes, all economic growth and scientific achievement has come about due to low taxes and lax regulation. Do you honestly think there was a massive increase in "the friction that comes from government, taxes, regulation and a metastasizing population of unproductive humans" starting in the 1970s? If so, shouldn't we see various groups (countries or even cities) shedding such constraints and vastly outperforming their peers?

Where's the evidence?

Pittsburgh & Detroit would like to tell you a tale of two cities...

Given the extent of Jewish power and perfidy in the world, it would be more interesting to ask, 'was Hitler right?'

Not even on sausages.

I call mood affiliation.

Keynes is quoted as saying something to the effect that future historians will be astonished that such a "dull and illogical" theory as Marxism could have held sway over so many. Perhaps, that is Marx' "greatness."

And, Z truth: " . . . government, taxes, regulation and a metastasizing population of unproductive humans." They confiscate, regulate, tax and bust the market. Then, they blame the market for the bust and double down with more confiscations, regulations, taxes, and repeat ad infernum.

Marx's analysis and diagnostics are pretty accurate; however, his proposed policies (solutions) are quite bad and contrary to human nature. In everything there comes a point of diminishing returns, your old theories of low and high hanging fruit. The robotic revolution could however produce high increases of productivity, a kind of third industrial revolution.

A few years ago a large number of economists were suggesting Greece, Cyprus, Italy, Spain, Ireland and whatnot were going to leave the Euro. But that hasn't even come true for even the worst offenders.

Has anyone admitted that they were wrong about this? Did they make a killing in Italian bonds when no one was looking?

If modern economics can't understand things like that, why would Marx be able to understand things 100 years later?

Those decisions are much more political than economic.

Not only Marx, but also Smith and Ricardo, predicted the tendency of the rate of profit to fall. The reason is fairly straightforward: It is only possible to extract profit from a live human being; as machines replace humans the rate of profit must fall although the gross profit continues to rise. Even Keynes mentioned the declining marginal utility of profit.

The declining rate of profit inevitably leads to the concentration and centralization of capital into a few gigantic, world-dominating monopolies.
Which is exactly what is happening now.

Other Marx predictions: 1. capitalist crises every ten yrs or so (of course they are discreetly called 'contractions' and 'business cycles' now.) 2. a division of society into extreme wealth and extreme poverty. About 100 people now own more wealth than one-third of the world's population combined. In the U.S. the 99%-1% split is quickly becoming 99.9-.01. 3. Mass unemployment ("a vast army of the unemployed.")

Marx also predicted that the parasitic capitalist class would create, without knowing it, its own gravediggers. Marx would have found it hilarious that the gravediggers would use mechanical ditchdiggers, i.e. back hoes, for the job.

In the U.S. 99.9% of people are in extreme poverty? Ha

It does surprise me that someone would make such a comment on an economics blog, where one can probably assume that the average reader is actually self aware enough to understand basic economics. It's frankly ridiculous to imply that 99% of the American population is somehow subject to extreme poverty.

Haven't you heard? 47% of the American people have to live on govt handouts. One half of society on the dole. Welcome to the wonderful world of capitalism.

Wow, I'm astounded by those statements.

First, 100% of society lives on the dole in a pure socialist state. So, if you are comparing capitalism vs socialism, then by your own metric, capitalism would be better, assuming that living on the dole is considered a negative.

Second, the statements "47% of the American people have to live on govt handouts. One half of society on the dole. " are just wrong. It implies that 47% of Americans live entirely on wealth transfers, whereas, in reality many of those individuals are drawing social security (which is not "the dole") and very few of the rest get the majority of their income from wealth transfers.

Furthermore, 47% of Americans getting some form of wealth transfer has nothing to do with capitalism, but instead with the US being a mixed economy.

"In the U.S. the 99%-1% split is quickly becoming 99.9-.01. " -> "47% of the American people have to live on govt handouts"

This is a classic case of a poster moving the goal posts to attempt to defend a poor quality post, rather than just admit the underlying post was factually incorrect.

No %47 of Americans accept Govt handouts. That doesnt mean they *have to*.

You're only surprised because they never taught you basic economics.

Don't worry, we're getting there.

Allan, I think you need a redirect to Huffpo.

I'm not sure why the declining rate of profit inevitably leads to the concentration of capitalism into a few, gigantic monopolies. It's true that some businesses have economies of scale that allow them to operate on super-low margins when they get big (such as retail), but there are a lot more that need a fairly significant natural rate of profit or it's not worth doing (such as petroleum extraction, where companies are usually either highly profitable or unprofitable).

1. Eh, it's a business cycle - and it used to be a lot worse. If you look at Angus Maddison's data set on GDP growth before the Federal Reserve, the economy was incredibly volatile in the early 20th century. You'd get 6% GDP growth in one year, a 9% contraction the next year, and so forth. What we've been through is nothing compared to that level of volatility, or the massive drops that characterized the Great Depression.

2. It's not "extreme poverty" in any sense of the word. Most of the US population's incomes have merely not grown much while the top 0.1%'s have exploded. And for the much of the rest of the world, especially China, the past two decades have been a golden age of economic expansion and income growth.

3. We have dropping unemployment, and had 4% unemployment in 2007 and 1999. The real problem has been the relative sloth of government and the Federal Reserve to push for full employment measures out of fear of inflation.

Brad DeLong's commentary is quite good.


I thought he had the best comments overall.

Re: Marx. I recall Pope Benedict XVI's Regensburg lecture where he quoted a Byzantine emperor from 1391: "Show me just what Muhammad brought that was new and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached."

Re: diminishing returns. Read Tainter.

The cult that began on Rue St. Jacques produced one big idea. The result was a 100 million or so deaths at the hands of fanatics. The Mohammedan is a piker compared to that crowd.

'The Mohammedan'?


Was that before or after the Crusades?

I've always found Marx's complaints - particularly about capitalism in his own age more on the mark than his solutions, which were not very good, to say the least.

He wasn't completely right about much, but he broke a lot of new ground.

"Here is an NYT forum, involving myself..."

It should read "Here is an NYT forum, involving me..."

Allow myself to introduce ...

". . . . indeed the rate of productivity growth generally has been lower since the 1970s. But why?

" I would cite energy price shocks, greater investments in environmental goods (which may well be optimal), political dysfunction, the difficulty of topping the amazing achievements of the **early 20thcentury,** a bit of cultural complacency, and *** a generally greater aversion to risk, failure*** . . . "

Both productivity and productivity "growth" are significantly dependent upon the availability of accumulated resources (surpluses) and the actual deployment of surpluses for production. "Growth," as contrasted with expansion, of productivity is significantly dependent upon innovation and entrepreneurial actions (which bring together innovation and the means for its implementation). Both innovation and entrepreneurship derived from "imagination" which is a characteristic of individuality.

While it had begun somewhat earlier, commencing with the beginning of the 20th century, the control and determinations of deployments of the surpluses in more and more of the major segments of the developed economies, particularly in the United States, passed into the hands of a "managerial class" largely as a result of the dispersal of beneficial ownership of productive enterprises through "public ownership."

During the 20th century, the "managerial class" continued to evolve and developed layers of managers, such as asset managers, pension fund managers, and, yes, government regulators, in addition to those managers of direct operations which require the deployment of surpluses. Each of those layers of managers functioned in accordance with particular motivations and objectives. The net effects of those motivations have ranged from symbiotic to conflicting.

Among the effects of those motivations of the "managerial class" is the observable sequestration of surpluses that are not redeployed for objectives of increases in productivity. The impelling motives may include risk aversion, compatibility with, or defenses from, the motivations of other layers of managers. The emergence of Private Equity firms, and those similar to Berkshire Hathaway, which are devoted to the constant redeployment of surpluses have come as a so far insufficient response to the constraints on the growth of productivity that result from sequestration of surpluses. However, such enterprises, and the further development of "small business" (for the function of innovation) may continue to be effective enough to redirect the current trends in Managerial Capitalism.

Unfortunately, during the same period of time, in the same economies notably in the United States there has been an observable recession of individuality reflected in the popular accession to increased external authority in exchange for presumed benefits or ameliorations of burdens or imagined advancements of interests. Recession of individuality, depending upon its degree, may very well have effects upon the "rate" of innovation and entrepreneurship, that is observed in the economy affected.

Those are some suggested answers to Tyler's "why."
The rise, expansion and ubiquity of the managerial class and the effects of its motivations on the deployments of surplus needed for productivity.
The recession of individuality, which had been the source of increasing innovation and entrepreneurship, but is now in search of security, reduction of personal obligations and other burdens.

Not being a Marx scholar, without the labor theory of value (which is obviously wrong), what does or can Marx's economics claim?

PS do not read NYTimes comments

PPS *do* read the NYTimes comments, if only for the hilarity of seeing Brad DeLong attacked as a right wing shill.

Also be sure to read the leftist guy, who claims that proof of the declining power of labor is that "Take this Job & Shove It" was a hit in 1977 but would not be a hit today.

Why do the capitalist apologists never mention Adam Smith and David Ricardo's discussion of the labor theory of value? These two economists are supposed to be the great founders of capitalism. Yet their theories of the labor theory of value are completely ignored today? Why is that? Maybe because to admit that labor is the source of value is to admit that capital performs no productive work, it only exploits labor.

Because those aren't their lasting accomplishments, nor is the labor theory of value necessary for those accomplishments. You don't need the labor theory of value for the division of labor, comparative advantage, etc. And everyone agrees that they were wrong about the labor theory of value. There may be more of Marx that doesn't rest on the labor theory of value, hence my asking the question.

Whether they are "apologists" or not, many scholars to discuss these views of Smith and Ricardo.

Allan's post infers that capitalism is a "system" that has been "founded."
Capitalism as a label applied to various periods is a resulting condition, not a system.

There have been the conditions of Mercantile Capitalism, Industrial Capitalism, Financial Capitalism and the current Managerial Capitalism, each of which were resultant from the nature of the relationships of humans with one another and with the resources of their environments.

The principal elements observed have been the divisions of labor and the resultant necessities for exchanges in order to effect distributions of production and satisfaction of needs in consumption.

I get the sense, reading these comments, that relatively few people actually read Marx or can distinguish between him and Engels; the dude wrote a veritable mountain of material, often in extremely bombastic, angry, scattershot, and even self-contradictory fashion, and the publication history is spotty at best, with lots of stuff coming out posthumously or with multiple editorial interventions (see: Engels). All of this means that you can more or less find a textual excuse to blame him for just about anything. And people do. But I want to make a plea here for Marx's writing on technology, which often gets missed, in part because a lot of it didn't come out until after his death.

Marx strongly believed that technological transformations were drivers of societal change. The Communist Utopia makes a lot more sense if you think about it not as Soviet Russia, but rather as Star Trek--a world where super-advanced technology has to some degree rendered scarcity meaningless. I'm not myself a huge fan of Marx, but I think we too often impoverish his social and economic theory by reading it apart from his technological determinism. The one doesn't really work without the other.

I do recall that much, that is, capitalism is a necessary step to communism so that such means of production can be developed. So, does that mean communism requires a post-scarcity society? Does that also mean that Marx thought that the drive to innovate would be severely reduced under communism?

No. Communism is not a post-scarcity society; it is a society in which the people (remember them?), and not the .01%, control social resources. If anything, Marx believed that innovation would expand under communism. Social resources won't be spent, for instance, on finding new ways to trade fictitious stocks on Wall Street in micro-nano seconds.

In terms of the end goal, was Marx's vision any different from Krotopkin's? They analysed society in very different ways, but they both saw communal ownership of all property as something to be aimed for.

-- If anything, Marx believed that innovation would expand under communism --

And that is why he is so frequently dismissed. People who believe foolish things are often dismissed as fools.

He is still an amazing theorist and thinker, but frequently myopic in his bizarre beliefs. A failure- I would argue- which is common to that model.

The back of the cereal box version of communism.

There's no such thing - "the people" can not rule a society directly above a few hundred individuals, and even that's straining things in direct democracy. Power in societies larger than a few hundred people is always going to revolve back to a relative few, chosen by election, power, birth, money, or all four.

Marx lamentably did not absorb much of the political and history literature on checks-and-balances and why government-of-laws and democracy were so valuable. It's no wonder that the societies that drew upon its tenets turned into dictatorships - any societies without checks on power nor respect for the perpetual possibility of human venality and corruption always do.

Maybe that was because government of laws didn't seem to be doing so great at the time at enabling humane societies. There's quite a bit by Marx which communicates why he might have been skeptical of the ability of contemporary liberal orders to guarantee a humane order.

You're correct, few people have actually read Marx and he did write lots of stuff, much of it contradictory. The reason anyone knows his name is that he's a revolutionary symbol for the supposedly downtrodden, many of whom are or have been college students.

Marx tended to see the generation of wealth and prosperity as a kind of magic that happened when you mixed labor with technology/the "means of production", and didn't really understand how it was integrated with the overall systems of management, entrepreneurship, and investment that helped to generate it. That's where the idea that the capitalist is just a parasite who feeds off of the labors of workers who could just as easily do without him comes from. It's almost more appropriate as a description of pre-industrial agriculture, where you really did have a situation where the "means of production" (land) could be just as easily and productively worked by a democratic society of yeoman farmers as it could by a group of peasants under a feudal landlord.

That said, I'll give Marx his due for making the study of power an important element of studying economics. You can't really understand labor economics without understanding power relations, about how wages really depend heavily on how much the employer and employee can afford to walk away from the bargaining table.

Neither the guys who worship Marx nor the guys who abuse him have the patience to read his work and the enormous secondary literature about it. His worshipers merely presume he somehow proved capitalism will collapse while many of those who abuse him just presume he wrote nothing but junk. As someone said: there are two ways to get through life: to believe everything or to doubt everything. Both save you from thinking. Taking a stand without reading Marx or any other great economist saves us from thinking too. I would urge the blind critics to read at least the chapters on Marx in Schumpeter's "Capitalism, Socialism and Democracy" ( Schumpeter was a critic of Marx while admiring him as an economist) and following that with Joan Robinson's "Essay on Marxian Economics". Incidentally, though Robinson was sympathetic to Marx, fanatical Marxists hate that book

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