MARX AND KEYNES'S GENERAL THEORY

MARX AND KEYNES’S GENERAL THEORY I. Grounds of Comparison.

11. Keynes’s “General Theory.” 111. Marx’s Theory of Capitalism. IV. Comparisons and Contrasts.

I Recently there have been a number of essays written on

the relationship between Marxian economics and modern economic theory. A notable one by 0. Lange appeared in The Review of Economic Btudies about three years ago. Lange tried to show how Marx’s careful study of the institutional framework of capitalism enabled him to deduce laws and predict changes beyond the scope of the classical economists and their followers who dealt with a much narrower field. Of course, the professed followers of Marx have been writing voluminously, trying to impress on the world the truth of his theories, ever since the publication of Capital, but they have had very little effect on orthodox theory. They have generally been classed as special pleaders and so not worthy of serious consideration. The Marxians in their turn have generally returned the compliment and ignored the “bourgeois apologists.” With this state of affairs in existence there were few serious attempts to bring together Marxian and orthodox theory and work out the purposes of each so that the reason for the apparently irreconcilable rift between the two systems could be clearly seen. Whether we think Marx was right or wrong, we cannot ignore him, and the persistency of his teaching in holding the minds of not insignificant sections of the community, suggests that some benefit might be gained for economic theory generally by going back and looking over his approach once more. As Keynes points out in the preface to the lfelrerd Theory, economists have now to examine rigidly their assumptions.

The fundamental ground of comparison between Marx and Keynes is, I think, that both adopt a similar approach to the economic system. Marx, as he explains in his preface to the first German edition of Capital, set out to “reveal the economic law of motion of modern society”-mentially a dynamic approach. He meant to describe the fundamental institutional characteristics of capitalism, the conditions which brought it into

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being, and the factors which would lead to its dissolution. He regarded capitalism as inherently unstable, and after a certain stage, already reached when he wrote, permanently in a state of disease, with an army of unemployed, and recurrent crises of increasing severity. While Mill and his followers were writing to show how the economic system worked, or should have worked, granting their assumptions, Marx was trying to demonstrate why it did not and could not work for any length of time. Crises and unemployment were to Marx just as much a part of capitalism as its great productive power.

Keynes’s General Theory like Marx’s Capital is a study in economic pathology. It is meant to show why the economic system does not work, in the sense of maintaining the available labour and capital of society in full, or nearly full, employment. The economist writing on England has t o face the fact that there has been a constant army of unemployed, Marx’s relative over-population, since the war never numbering less than a million. He must also consider the fact that the post-war prosperity in the U.S.A. has been followed by an equally long period of depression, with a large army of unemployed. It is quite obviously irrelevant to explain how an economic system should work given certain assumptions, if those assumptions have little relation to the real world. And it is clear that the assumptions of classical economics, as Keynes points out, do not exist in the world we have to Eve in. This, I think, is the fundamental ground of comparison between Marx and Keynes. Both recognize that the system is in disease and that this must be explained, otherwise economic theory is unreal.

We must now tnrn to the question of how the explana- tions of this condition by Marx and Keynes compare. We shall &st of all deal with Keynes because he is most familiar and in doing so we simply want to summarize the essential parts of the Generd Theory. We shall not attempt to deal critically with the theory from the standpoint of modern theory, except in so far as this is brought out in comparison with Man, but simply to state it.

11 Keynes attempts to show why the economic system can

remain in a condition of relative stability with part of the factors of production, particularly labour, involuntarily unemployed. This could not be accounted for in the classical equilibrium theory, because it assumed that wages roughly

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equalled the marginal disutility of labour, so that the only kind of unemployment possible would be frictional, or voluntary in the sense that men were idle because they refused to accept the ruling wage. The classical theory concentrated on the equilibrium of supply and demand without dealing with the institutional and other factors which determined the supply and demand curves far capital and labour. Obviously the supply and demand for capital and labour will come to equilibrium at some point, but will that point be the one where full employment exists?

Here Keynes abandons the classical analysis to what he considers its proper function, namely, the determination of the distribution of a given product among the various factors of production, and branches out on an enquiry to find out what determines the total product to be distributed and the total employment. He now makes it a question of aggregates; not what is produced and why, but how much is produced; and not how employment is distributed between different occupations, but what determines the total quantity of employment.

Keynes’s analysis is based on the part that investment plays in determining the level of employment and output. That is not to say that investment is an independent variable, but that the effect of numerous factors, which react upon each other, is seen in the level of investment. This level is generally too low to produce full employment. The system is generally in a position where further investment is required to raise the level of employment to somewhere near its limit. We shall see later how Marx also regarded investment, or “accumulation” as he called it, 8s the central factor in capitalist development, and how he consiaered the system stood or fell with its ability to ensure greater and greater accumulation.

Three factors, in Keynes’s theory, determine the level of investment-the marginal efIiciency of capital, the propensity t o consume and the rate of interest. The marginal efficiency of capital, being the expected yield which a further increment of investment will produce, determines the entrepreneurs’ decisions to invest. Investment will be carried aproximately to the point where the marginal efficiency of capital equals the rate of interest. Further investment would result in loss. The propensity to consume is one of the central ideas of the General Theory. Briefly it is the proportion of a community’s income which is spent on consumption. Total employment is then made up of those producing consumption goods plus those producing

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capital goods. If full employment is to exist, then with the propensity to consume at a given level, there must be sufficient investment to employ the working population not engaged in the consumption goods industries. Variations in the propensity to consume affect the volume of investment required. If it decreases, that is, a smaller proportion of total income is spent on consumption, then theEe must be additional investment to take up the labour displaced from the consumption goods industries. Keynes takes it as a general principle that, as the real income of the community increases, the propensity to consume tends to fall so that more and more investment is necessary. I n his own words: “This simple principle leach to the conclusion . . . that employment can only increase pari passu with an increase in investment; unless indeed there is a change in the propensity to consume. For since consumers will spend less than the increase in aggregate supply price when employment is increased, the increased employment will prove unprofitable unless there is an increase in investment to fill the gap” (General Theory, p. 98). The propensity to consume need not actually decline, but so long as less than the amount of an addition to real income is spent on consumption there must be additional investment to maintain full employment. The wider the gap between total income and consumption, the greater the quantity of investment needed.

But consumption and investment are not divorced from each other, and the latter must depend on the former. Invest- ment must ultimately terminate in consumption. If the propensity to consume falls now, then the present level of employment can only be maintained by investment to provide fo r increased consumption in the future; but if this consumption is not forthcoming then this extra investment will prove unprofitable and employment will fall. “ Consumption”-to repeat the obvious-“is the sole end and object of all economic activity. Opportunities for employment are necessarily limited by the extent of aggregate demand. Aggregate demand can be derived only from present. consumption or from present provision for future consumption. The consumption we can profitably provide in advance cannot be pushed indehitely into the future” (p. 104). When, then, full employment requires further investment there must also be an increase in consumption in the future to make this profitable. If not, then the system will remain a t that level of employment and


output at which the marginal efficiency of capital is at least equal to the rate of interest.

The rate of interest in Keynes’s theory plays an independent role. It is fixed by the price people will pay for liquidity- it measures liquidity preferenceand does not depend on the marginal productivity of capital as in the classical theory. Being fixed independently means that i t is a cost to the entrepreneur which must be covered by the yield from his capital. If it is not covered, then the increment of investment, the yield of which would fall below this level, will not take place. The rate of interest is a limiting factor which fixes the point to which the marginal efficiency of capital can fall, and so the amount of investment that can take place. Once this point is reached, investment can only be carried further as the result of a fall in the rate of interest or a rise in the marginal eaciency of capital, which in turn might be brought about by a change in the propensity to consume.

This covers, I think, the significant points of the General Theory. It is an attempt to discover the factors which determine changes in the volume of employment and output; essentially a matter of aggregates. We are brought to the conclusion that by the combined operations of the marginal efficiency of capital, the propensity to consume, and the rate of interest, the economic system may rest in a position of relative stability with part of the factors of production involuntarily unemployed.

I11 We have already seen that Marx adopted a similar general

approach to Keynes in that he treated the system as being fundamentally at fault and not capable of self-adjustment. A second point of comparison is that he dealt in aggregates. He was not directly concerned with the problem of the apportion- ment of resources between different uses but with the conditions which determined the volume of resources used. He approached capitalism from an historical and sociological standpoint. He saw in it one of the social arrangements under which man had satisfied his economic needs. Many others had gone before and he endeavoured to show what changes had taken place to produce capitalism and what further changes wodd take place to produce its decay. He dealt thoroughly with the institutional framework of society because he saw that the existing relation- ships between individuals and classes, and changes in these, were not irrelevant to what were considered by orthodox


economists as the specifically economic machinery of society. For Marx, capitalism was not simply an exchange economy, but an exchange economy in which a relatively small class owned the means of production, while another much larger class simply sold their labour power. Classical economics would apply to any exchange economy. The favourite examples used in demonstratipg principles were drawn from the simplest of exchange economies, Robinson Crusoe and Friday. The market was the centre of classical economics but the institutional framework wdthin which the market operated was neglected. Marx worked in this neglected field and was able to deduce laws and predict changes quite beyond the power of the classical system, which could never produce anything but a picture of static equilibrium, and as no social order is completely static, it could have none but a momentary validity.

A third point of comparison between Marx and Keynes is that Marx also regarded investment-or as he called it, “accumulation”-as the crux of capitalist development. If accumulation could not continue, ever increasing, then the system would break down, leaving a large surplus population involuntarily unemployed. ‘ * The capitalist process of production is essentially a process of accumulation” (Capital, vol. 111, p. 255). The barriers to accumulation, Marx considered, were the causes of the breakdown of capitalism in crises of increasing severity. Keynes, as we have seen, also considered the barriers to investment ‘the cause of the fundamental disease of the system to-day. But what did Marx consider these barriers were ?

This part of Marx’s theory is contained in his analysis of the rate of profit. Profit, in Marx’s usage, means surplus value, and includes interest, rent and profit in the orthodox meaning. By the rate of profit, Marx means the ratio of the total surplus value to the total capital. Surplus value is, I think, the most important concept in Marxian economics. Generally, the emphasis is placed on his theory of value, and after demonstrating that it is not a tenable theory of market prices, the whole structure is jettisoned. It was never intended to be a theory of market prices and for our purposes need not be dealt with. Surplus value is simply the product of unpaid labour. Under feudalism, the lord, the legal owner of the means of production, secured surplus value by forcing the peasant to work a certain number of days per year free for him on his land, and to make s u n d r y additional payments. Under capitalism the owners of the means


of production secure surplus value by appropriating some of the product of social labour by the power of their position as owners of means of production, in relation to a class which must work in conjunction with these instruments in order to live. By this process the owners of the means of production can live on the labour of others, without performing any service. This is “exploitation,” a term signifying one of the essential features of capitalism. The feudal landlord class secured surplus value by reason of their monopoly of land ownership, and the capitalist class by reason of its monopoly of the ownership of capital.

Now the extraction of surplus value and its reconversion into capital (i.e. part of it being taken out in capital goods) so as to extract more surplus value is the chief purpose of capitalist production. “It must never be forgotten that the production of this surplus value-and the reconversion of it into capital, o r accumulation forms an indispensable part of this production- is the immediate purpose and compelling motive of capitalist production” (Cupitd, vol. 111, p. 285). Surplus value is extracted by means of the accumulation and use of capital and so long as this process continues, capitalism will develop and provide a high level of employment for the factors of production. But as soon as the extraction of surplus value begins to falter and further accumulation does not produce further surplus value, then the system stops, and accumulation falls back t o a level which Will yield a sufflcient rate of profit. This will leave a “relative over-population” in the form of involuntary unemployment. However, this runs ahead of the reasoning a little, and we shall have to stop to examine more closely Marx’s famous “law of the falling tendency of the rate of profit.”

Marx divides capital into two categories, constant and variable. Constant capital is the part which remains constant in value and is simply transferred to the commodity. This consists of fixed capital and raw materials, etc. Variable capital is the amount paid in wages and is so named because the commodity it purchases, labour power, is a value-creating agent and returns greater value than is given in exchange for it. This follows from Marx’s premiss that value leaving aside some mhor exceptions, is created by human labour. This point could be made the subject of a paper in itself, but we cannot say much about it here. However, it illustrates the point of departure between Marx and the Classical School. Marx was endeavouring to show how capitalist society was based on exploitation. “Look around you,” he would say, “and you


will see a great quantity of commodities and services. Without human labour they would not be there. Products can only be secured either by labour or by acquiring the fruits of someone else’s labour. Capital is produced by labour and is only a special way of using social labour. The owner of capital, as such, performs no service, he is simply in a position to demand toll for its use. This state of affairs arises when the ownership of the means of production falls into the hands of a relatively small class. They do not perform productive labour because finding the best way to exploit the labour of others is not ‘productive’ in the social sense. They acquire their incomes by expropriating some of the fruits of the only value-creating agency in society-human labour power. Capital, as a special way of using labour power is productive, but not the owner.” Marx assumed that labour would be directed towards useful purposes, but the classical economists took up their study at this point and concentrated on showing the factors which would determine what things were produced, and not the social and . economic significance of how these things were produced. We must leave this subject simply opened up, as it is a digression in a short study such as this, where there is only time to indicate a few underlying principles.

Human labour, therefore, according to Marx, being the sole source of value, surplus value, and profit, the rate of profit on thO whole social capital will depend on the ratio of the total surplus value appropriated to the total capital. Now as the tendency of capitalism is for h e d capital to become relatively more important compared with labour, or in Marx’s terms, of constant capital to become relatively more important than variable capital, an ever increasing amount of surplus value must be appropriated in order to keep up the rate of profit. This, Marx believed, was theoretically and practically impos- sible. Rather the increase in constant capital tended to out- strip the increase in surplus value by so much that the rate of profit would tend to fall. This was a long term tendency being continually interrupted, but gradually forcing itself through because of the continuously diminishing proportionate part being played by human labour in production.

The fact that there were counteracting causes led Marx to describe the law as a tendency. obvious counteracting cause was the increasing efficiency of labour as the result of mechani- sation. This enabled a greater mass of surplus value to be obtained from a given quantity of labour. But then more


surplus value led to greater accumulation and further pressure on the rate of profit. Marx thought accumulation would win the race eventually and then find itself checked by the falling rate of profit. This is all the time close on the lines of Hobson and Keynes, but it is obscured by Marx’s peculiar categories which were designed for a wider scope than orthodox economics. Another Counteracting cause was the cheapening of the elements of constant capital so that a greater amount of, and more efficient, machinery, could be used without increasing the outlay. Then there was the growth of luxury trades to employ the reserve army-tertiary production it seemeand the expansion of foreign trade whereby the labour of foreign countries could be exploited to keep up the rate of profit at home. But these counteracting cawes, Marx considered, were not sufficient t o prevent the eventual stagnation of the system because of the inability of the total stock of capital in the community to draw sufficient surplus value to provide a rate of profit sufficient to keep the factors of production fully employed. The marginal capital would go out of use and a reserve army of unemployed would remain.

Marx’s theory revealed another contradiction in capitalism almost exactly the same as the one Keynes points out as existing between the falling propensity to consume and necessity for increased investment. One makes necessary the other and yet prevents it. Marx expressed the contradiction as between the increasing production resulting from the process of accumulation and the narrow basis of consumption. On pp. 260-7 of vol. I11 of Capital Marx says, “The conditions of direct exploitation and those of the realization of surplus value are not identical. They are separated logically as well as by time and space. The first are only limited by the productive power of society, the last by the proportional relations of the various lines of production and the consuming power of society. This last-named power is not determined by the absolute productive power nor by the absolute consuming power, but by the consuming power based on antagonistic wnditions of distribution, which reduces the consumption of the great mass of the popdation to a variable minimum within more or less narrow limits. The consuming power is furthermore restricted by the tendency to accumulate, the greed for an expansion of capital and a production of surplus value on a large scale . . . to the extent that the productive power develops, it finds itself at variance with the narrow basis on which the conditions of consumption rests. ” Periodically


this contradiction leads to crises with the familiar phenomena of over-production. Hobson concentrated on this contradiction between productive power and consumptive power and considered it would be solved by higher wages. Marx also saw the contradiction but he would not have considered higher wages a solution. He divided the capitalist method of production into two sections, production and circulation. In the production section surplus value was obtained by expending variable capital in the purchase of labour power and securing from the worker a product greater than the outlay. So the greater the outlay the smaller the margin and the rate of surplus value and profit. In the sphere of circulation, surplus value was “realized” by the sale of products. Now, increasing purchasing power by raising wages would increase consumptive power but it would also raise the outlay of variable capital, and, other things being equal, lower the rate of surplus value. In more familiar language it would raise costs. The dilemma of the high wage solution is well known and is clearly brought out by Marx’s analysis. Notice also the sentence in the above quotation, “The consuming power is furthermore restricted by the tendency to accumulate.” This is exactly the factor which Keynes deals with as the principal drag on the propensity to consume. Both are dealing with the same thing.

There is still the matter of the rate of interest. Marx regarded interest as a part of surplus value, the part appropriated by the owners of money capital. When he said that the rate of profit would ultimately fall, he meant that all the sharers in surplus value would have to lose some of it. This would, of course, mean that a lower rate of interest would have to be accepted, or accumulation would be checked and unemployment created, until the value of capital had fallen to a level that would allow a rate of profit s f ic ient to stand the customary rate of interest to be made. Marx’s treatment was more general than Keynes’s and he did not deal with a position in which the owners of money capital, by demanding a certain rate of interest, would check investment at a relatively early point, but such behaviour of the owners of money capital would certainly produce this result in the terms of his theory.

Now, to sum up Marx’s theory of the development of capitalism, he considered that the system would ultimately break down, in the sense that it could not provide employment for the whole of society, because of the inability of the owners of capital t o appropriate enough surplus value to provide a rate L


of profit sufficient for them to accumulate further capital. With this cessation, or dowing down of accumulation, unemployment would follow because there would be a certain section of the working population the employment of whom would be unprofitable. There would be over-production of capital. This condition was caused by the growing pressure of accumulation, or fixed and circulating capital, on the source of profithuman labour-and intensified by the contradiction between productive power and consumption power ; the latter restricted by the very process which increased productive power-accumulation. These contradictions were the final outcome of an economic system built on a particular institutional structure in which one class owned the means of production and another sold its labour power. The contours of economic development were set by the conditions of the exploitation of labour power by the owners of the means of production.

rv As we have already pointed out in several places, Marx

anticipated Keynes in his general approach and in some parts of his analysis. He pointed out the importance of maintaining accumulation (investment) and how it was dependent on the rate of profit. Then again he showed how the capacity of society to consume the products of accumulation was essential to its maintenance and how this consumptive power was itself limited by the process of accumulation. In almost exactly the same way Keynes points out the necessity for suf3cient consumption to render investment profitable, and the contradictory tendency of the propensity to consume to fall with the tendency to save a greater proportion of income as income increases. Then Marx further developed the theory of relative over-population as the outcome of the failure of accumulation to keep up a suiEcient rate, which meant that a certain proportion of the working population was always unemployed. Keynes reached the same conclusion and called the condition under-employment.

Thus we see that because of their similar approach, Marx and Keynes have much in common in their pathology of capitalism, but there are also wide Merences in method. Marx’s categories of value and surplus value, constant and variable capital, by which he makes the distinction between the production and circulation spheres of capitalism are quite foreign to Keynes’s system. Keynes is still in the classical tradition in concentrating on the market as the point at which the determi-


nants of profit are concentrated. Marx’s division between the sphere of direct exploitation (production) and the realization of surplus value (circulation) is a fundamental division between his and orthodox economics. The reason for Marx’s peculiar categories is, of course, his endeavour to show how exploitation goes on under capitalism, and this is best done by leaving aside for a time exchange and concentrating on the relationship between wage worker and capitalist, and showing how in fact the former works a certain number of hours unpaid per day for the latter. The process is obscured by exchange, so for a time it is abstracted from this environment. Classical economics, of course, never regarded capitalism as a system of exploitation, and so concentrated on the market where services were bought and sold and no questions asked as to why they could command a price. It was assumed that the price paid was for a service and not, as Marx tried to show because of a monopoly position arising out of particular institutional conditions. So that while Marx approached the system in a similar way to Keynes, in one respect, in another he approached it in a completely different way and the result was a completely different technique of analysis. The. Marxian categories will not help us to predict changes in market prices, nor are they concerned with the effect of market prices on entrepreneurs’ decisions, nor of entrepreneurs’ decisions on market prices. They are meant to demonstrate the fundamental character of capitalist production, based, as Marx considered, on exploitation, and how this relationship leads to contradictions in economic development which cause the system to break down. I n so far as Keynes’s General Theory is one of the day to day working of the capitalist system in its “superiicial’’ aspects, it is Merent from Marx’s approach.

A fnrther point of difference, arising ultimately from the former, is in Keynes’s subjective analysis. He is concerned with the immediate determinants of entrepreneurs’ decisions and these are generally states of mind concerned with expecta- tions of the future. Marx was always completely objective. He was not concerned with the part entrepreneurs’ decisions played in determining how far a certain process would continue, but with the conditions which caused entrepreneurs to have to make such decisions. He considered the economic system as working according to definite laws which set limits within which the psychological reactions of individuals could operate. In Keynes’s own theory, ideas about the marginal efficiency of capital can only be based on certain facts about the increase or decrease in

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the yield from capital, and it ought to be the first duty of economics to show why this occurs in terms of objective economic laws. Psychological states of individuals can only operate within certain definite limits, and for the purposes of economics as a science are of secondary importance.

One thing cannot be denied to Marx, and that is his success in predicting the d&elopment of capitalism. From the classical system no predictions could be made about the future except t o assume that it would be the same as the present. Marx, on the other hand, predicted the restriction of competition by the growth of monopoly, the increasing scale of production, inter- national expansion, growing instability, and the appearance of a permanent army of unemployed. We shall not raise the controversial point about the growing misery of the proletariat, but the outlook for the standard of living in the capitalist world is not very bright for the future, and Marx was forecasting a long term trend. Such a list of predictions as these must command respect and suggest something fundamentally correct in Marx’s approach. ‘ Keynes’s theory does not allow for much prediction because he again leaves aside institutional factors. Marx’s great success has been due, as Lange points out, t o his thorough treatment of the institutional data and his recognition of its fundamental relevance to economic change. Anticipation is part of Marx’s theory because of the field it covers. To quote from Lange’s article, “The anticipation of the future course of events deduced from the Marxian theory is not a mechanical expropriation of a purely empirical trend, but an anticipation based on the recognition of a law of development and is, with certain reservations, not less stringent than an anticipation based on the static theory of economic equilibrium such as, for instance, the anticipation that a rise in prices leads under certain circumstances, to a decline of the amount of a commodity demanded. ”

But the final rift between Marx and Keynes, and between Marx and orthodox theory generally, is on the sociological point of the nature of capitalism. Marx’s categories apply to a theory which regards capitalism as based on exploitation. If this is not accepted then Marx’s categories cannot be reconciled with any theory produced on this basis. The point of comparison must be made where the conclusions of the two systems seem to coincide. This is the position between Marx and Keynes. Starting from a similar approach in some respects they reach similar conclusions but based on quite different methods of analysis.

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But the conclusions themselves are different when it is a matter of forecasting the future of capitalist society. Though here again Keynes, in his last chapter in anticipating further State intervention is on Marxian lines he does not go the whole way. Marx must be met on the ground of whether capitalism is based on exploitation, like feudalism, and if so whether his description of thq method is correct.

Here we are brought on to a wider subject which we shall not pursue. We have indicated some principal points of comparison between Marx and Keynes and also some points of difference. The subject still remains to be followed further, particularly with the aid of statistical analysis using Marx’s own concepts as far as possible.

University of Yelbourne. E. E. WARD.

SUMMARY OF DISCUSSION Dr. Walker: Hoped that the author would extend his

title to include the name of Keynes. His tendency to identify the “general theory” with Keynes might be called in question. The author had done a service, however, in working out this parallel between Marx and Keynes in so much detail. He thought the resemblance between Keynes’s suggestion that crises come through a collapse in the marginal efficiency of capital, and Marx’s idea that they are due to a falling rate of profit, was rather overdrawn. Marx’s description of the struggle for liquidity that emerges in the second phase of depression was the best anywhere in economic literature. The resemblance between these two theories gave an incentive to include the study of Marx within the study of modern economics, and the student should be encouraged to study the actual writings of Marx himself.

Mr. Ward’s stress upon the viedpoint and the method of Marx, rather than his detailed theory, was welcome. No theory of economic development was pdssible unless it took into account the general institutional background. While Marx’s prophecies have worked out fairly accurately in sQme respects, his succes8 was not due to accurate analysis. The belief that we were apt to hold since 1930-that depressions were likely to become worswou ld be explained by other factors than those to which Marx drew attention. The slowing up of population growth was a very important contributing factor.

Mr. Firth: Suggested that the author had underestimated the contrasts between Keynes and Marx. The details in some parts of the analysis were roughly parallel, but their conclusions generally failed to agree with the facts presented. Keynes simply presented a mathematical slot-machine. Lange had


expressed the idea that Keynes’s system was simply a slight improvement on Walras. Keynes’s system was based on a given framework (i.e., he estimated a given personal distribution of income; if this were to change Keynes’s functional classification would change) ; whereas Marx spoke of the “narrowness of the basis of consumption.”

Dr. Coornbs: Referred to the light which the paper threw on the place of ass)unptions in economic theory. It began by pointing out that production was carried on by the owners of property employing wage labour, which was Marx’s basic assumption. Classical economists, on the other hand, took exchange as the basic assumption of their analysis. The striking point was the wide scope for judgment in the choice of assumptions. The material before Marx and the traditional economists was the same. They examined the data and formed judgments on what was the most important characteristic from the point of view of determining causal factors. A similar difference arose in connection with the judgments on the importance of competition. Modern economists have found it necessary to change their judgment that the competitive character of capitalism constitutes its essential feature. The . paper demonstrated that perhaps the most important part of economic theory was in the original judgment as to what factors in the economic system were essential from the point of view of its development.

The author of the paper tended to emphasize the similarities rather than the differences between the Keynesian and Marxian theories, and to exaggerate the extent to which Keynes’s theory was dynamic. Keynes had not broken away from the method of analysis which implied equilibrium. Marx had offered a method of analysis which did not rely on equilibrium, and which did suggest a possibility of determining the dynamic factors in the economic system.

Economists, by their extreme simplifications, had fre- quently been over-satisfied as to their judgments of human psychology. If we could, by an examination of institutional factors, divide people up into significant groups, we might be able to lay down further generalizations about human behaviour which would be statistically acceptable for the purposes of analysis. If we were able to do that we would have gone a good deal further to predict the outcome of any given situation.

The institutional framework of capitalism had a causal influence on development, but that institutional framework was not constant. Economists might be misled because they were assuming a stability in the institutional framework which it did not possess. They needed to give more attention to the history of institutions. This would facilitate prediction of the lines of development of characteristic institutions of capitalism, and would perhaps enable us to carry further, or to correct, the search which Marx carried out into the laws of change of the capitalist system.


Mr. Ward: Admitted that the paper was more closely concerned with Keynesian theory than with “general” theory, and the title might be suitably modified. He wished to emphasize the importance of the study of Marx both for theoretical and for descriptive analysis. In several parts Marx was extra- ordinarily good. As Dr. Walker said, the struggle for liquidity was very well brought out. The relationship between savings and investment and the distinction between production and consumption goods were also treated remarkably well. Marx’s forecasts concerning the growth of monopolies had been amply fulfilled.

He thought it unfortunate that such stress had been placed, even by Marxists themselves, on the Marxist under-consumption theory, as it was really a very minor part of Marx‘s work. He agreed that Keynes did not take very much account of institutional changes, and the analysis was only partly dynamic. The authors had not devoted so much attention to the differences between Marx and Keynes as to their similarities, but this was due to lack of time and space.

Keynes had been compelled to deal with the day-to-day working of the system to a certain extent, for the purposes of the closer analysis which was needed to-day. The Common- wealth Bank, for example, could not profitably study Marx to-day in order to find out what it should do next week. Marx’s and Keynes’s conceptions of capitalism were quite different. The dynamics of the system were in the institutional framework from which Marx drew his assumptions. The influence of institutions should be stressed ; otherwise unreal conclusions might be drawn.

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MARX AND KEYNES'S GENERAL THEORY