Marx and Keynes (1972)

Book Review from issue number 2 (1972) of The Western Socialist

Marx & Keynes — The Limits of the Mixed Economy by Paul Mattick. Published by Extending Horizon Books, Boston. Mass. 364 Page, $6 95)

In the last quarter or the 19th Century capitalism went into one of its periodic "recessions,” affecting in different degrees all the world market countries. Unemployment rose to high levels, discontent and riots were rife and many Marxists were hopeful that this would be the end of capitalism and the triumph of socialism.

In Britain it was particularly acute and prolonged. Maurice Dobb in his "Studies in the Development of Capitalism" (1946) wrote of it: "What has become known as the Great Depression, which started in 1873 and, broken by bursts of recovery in 1880 and 1888, continued into the middle nineties." Frederick Engels, in his 1886 Preface to Capital put forward the view that capitalism was in a "permanent and chronic depression" and wondered just how soon the unemployed would "take their fate into their own hands.” In such circumstances, he wrote, surely the voice of Marx ought to be heard. And, indeed, the study of Marxian economics received great encouragement in working class circles. (Incidentally capitalism recovered from that depression without the help of Keynes.)

After the First World War the spread of Marxian ideas continued and, increasingly, political and industrial organizations of workers were looking to Marx for an explanation of crises and depressions. But then the interest in Marxian economics declined. The universities, while taking up to some extent Marx the philosopher, had no time at ail for Marx the economist. The British trade unions, following the lead of the Labor Party, (which had never been Marxist) swallowed whole the new conception that capitalism can be "managed" in such a way as to produce a continually rising standard of living, freedom from crises and a permanently very low level of unemployment. As the man responsible for this change of direction was J. M. Keynes, Marxists cannot afford not to know about Keynes' theories, especially now that, in Britain for example, the six-year rise of unemployment, first under the Labor Government and, since 1970, under the equally Keynesian Tories is bringing the whole body of doctrine into disrepute. Even dedicated Keynesians cannot just shrug off their fiasco of the past six years — production rising by barely 2 per cent a year; registered unemployment up from 383,000 to over a million (with perhaps another 500,000 not registered); and retail prices (including rents) up by 40 per cent.

Mattick's book is a Marxian criticism of Keynesian economics. Chapters 2-10 deal with Marxian economics. chapters 11-17 with the so-called mixed economy and chapters 18-22 with national state capitalism and the backward countries.

Mattick places the falling rate of profit at the center of his version of the Marxian theory of crises and the so-called collapse of capitalism.

Crises break out, he says, when the factors offsetting the latent tendency for the rate of profit to fall (due to the rising organic composition of capital) fail to prevent the rate from actually falling. Capitalism recovers from a crisis, he goes on, because the resulting devaluation of capital assets again raises the rate of profit. Accumulation proceeds until it is again checked, though at a higher level. As Mattick puts it:

“Despite intermittent periods of depression, each upswing brings capital production to a higher point and wider extension than its previous level of development. Capital develops in a manner that may be described as three steps forward and two steps backward. This type of locomotion does not hinder the general advance; it only slows it."

This is a good description of capitalist development, even though Mat- tick has little space for unbalanced growth arising out of the anarchy of capitalist production.

Marx, says Mattick, recognized that there were theoretical limits to capital accumulation. It can be demonstrated mathematically that it is physically impossible for a rising rate of surplus value (s/v) to forever prevent a declining rate of profit (s/c—v) given an ever-rising organic composition (c/v). But although Marx once or twice used the term "collapse" in this context, this is not really a theory of the collapse of capitalism because in practise the point of no accumulation is never likely to be reached. It would presuppose, for a start, a fantastically high degree of capital accumulation, automation and labor productivity (which would mean, as Marx once pointed out. that the price system would break down because commodities would be so cheap that they ought to be given away free). This theory was meant as Marx’s contribution to the problem of the threat of stagnation which had worried classical economists like Adam Smith. Ricardo and John Stuart Mill. Marx was pointing out that if this stage was ever reached it would be due to an economic factor like falling profits rather than a natural one like diminishing returns from agriculture.

Mattlck is undoubtedly right in stating that "Marx's theory is not a theory of underconsumption" and in placing profits rather than markets as capitalism's big problem.

Keynes, too, held a theory of capitalist stagnation. He felt that as capital became more and more abundant, the rate of profit (its “efficiency," as he called it) would fall, thus discouraging investment. His policies were meant to combat this state of stagnation towards which "mature" capitalism was tending.

Mattick’s criticism of the theory of Keynesianism is quite good. He points out that all government spending must be financed from the present and future profits of capitalist industry. Government spending to combat slumps would thus be a redistribution of profits from one section of capitalists to another (those who sold to the government or who received government subsidies). It would be a cost which, by maintaining what Mattick calls a "non-profit sector." reduces the overall rate of profit. The limits of Keynesian policies are the profits of private industry. If these are discouraged then more government spending would be needed to avoid the slump and so on, with full national state capitalism as the logical outcome. Since the capitalists do not want this, says Mattlck, they seek to keep government spending within limits.

Mattick does seem to imply that the "state of stagnation" of both Marx and Keynes had begun to appear and that government spending has been consciously undertaken to combat it. This is open to challenge on a number of counts.

First, Marx’s theoretical state of stagnation is nowhere near. Second, government spending has been undertaken not so much to avoid slumps as to provide essential services for the capitalist class as a whole (education. health, defence), though this has Incidentally affected the overall level of production and employment and has been financed out of profits and by inflation. Third, Mattick is saying in effect that Keynesian techniques have saved capitalism, at least temporarily. This is not true because hitherto they have never really been tried properly, except perhaps as inflation to reduce real wages; and the clearest conscious attempt to try them out — the experience of Britain in the present recession — has proved a failure.

Mattick also deals with economic development, the backward countries and Russia. Although he describes Russia as state-capitalist (because it is still based on wage-labor), he views the national state capitalism practised there and in a number of other countries as a quite different social system from Western-type capitalism.

Indeed, he sees it as more advanced and one towards which the West is heading, too, under the ideology of Keynianism. This does not mean that he supports it. National state capitalism. he says, is no solution to the problem of the backward countries, only world socialism is. And Mattick is quite clear that socialism means the end of money, wages, profits, interest, etc.

On a number of points Mattick come quite close to us and wrote for The Western Socialist during the fifties. In fact, parts of chapters 1, 2. and 12 of this book appeared in the WS article ‘Marx and Keynes' Mattick wrote in November-December, 1955. Unfortunately, his book assumes a high level of acquaintance with the theories of both Marx and Keynes which makes it difficult to follow for beginners.