Even closer to the truth
Why we ought to read Keynes with Marx in mind, and why doing so can help us learn – from Keynes. A response to Michael Roberts
To many who subscribe to Marx’s theory and critique of political economy, the economist John M. Keynes is a provocation: aside from Marx, hardly any other scholar so fundamentally challenged the predominant economic theory of his time.
It is no surprise then that many believe Keynes should either be measured against Marx or be thought of as a good supplement. This explains the two predominant approaches in dealing with these two theorists. Some would like to place Keynes and Marx together in the same theoretical toolkit. Others believe Keynes is nothing but a wolf in sheep’s clothing: someone who averted capitalism’s downfall after the great crisis of 1929, who reconciled capitalism once and for all with both the working class and social democracy, but who was also as far from fundamentally questioning it as as he sided outspokenly with the bourgeoisie. According to this view, Marx is closer to the truth, as history has proven, since clever management has not been able to stabilize capitalism.
Focusing on this front alone would soon leave us with nothing more to say; we would end up learning little to nothing – even if much that is true has been said and published. For yes, Keynes can be criticized for many of his ideas – Keynesianism is not necessarily left-wing – but unfortunately, critiques rarely reach deeper than that. Like classical political economy, which Marx analyzes in detail, Keynes too fails to reflect on the assumptions shaping his theory – which affects his theoretical understanding of the interconnectedness of his categories.
Keynes agrees with Marx: The »foundation« of value is labor.
Keynes’ reliance on the categories constituting the object of political economy (e.g. money, capital, profit and interest) is entirely superficial. He seems to treat them as suprahistorical and natural facts instead of accounting for them on the basis of specific social relations. For while Keynes agrees with classical political economy that the »foundation« of value is labor (thereby distancing himself from neoclassical economics), he does not ask why commodity-producing labor must express itself in the form of money and capital (as Marx puts it in Capital) – a question that radically sets apart Marx’s research program and perspective not only from that of classical political economy, but from Keynes as well. It is also a question that allows Marx, in contrast to Keynes, not only to claim the constitutive relevance of money for capitalism, but also establish it.
Marx is concerned not only with illustrating how the labor and production process is effectively a process of exploitation. He is also concerned with outlining the social forms within which this process occurs. Marx distinguishes between the concrete-material dimension of the process of social reproduction on the one hand and the historical determination of its form on the other. This is why he is able to demonstrate that the dominance of the capitalist mode of production leads to money becoming the instance through which privately expended labor-power is necessarily socialized. It is only through money that privately expended labor-power becomes part of aggregate social labor – money did not have this status in every society. It is the decoding of the fetishized and inverted expressions of the social metabolism that constitutes the genuine radicality of Marxian theory.
A comprehensive critique of Keynes still needs to be formulated.
Marx would probably have found more than a few words of praise for Keynes. But it is important to recall: The authors Marx heaped praise upon are precisely the ones he also exposed to harsh criticism. And yet: A comprehensive and fundamental critique of Keynes in the Marxian sense has not been formulated – and it can only be rough-drafted here.
Marx criticizes classical political economy for its failure to grasp the systematic interrelationship between commodity production and monetary phenomena (money). While Keynes also takes note of this, his critique remains limited as he does not lay out why there has to be money alongside commodities and why the capitalist economy cannot function without it. Like classical political economy, Keynes does not advance to the point of formulating a distinction that Marx considered the »pivot« of his own critique, namely the distinction between the formal determination of commodity-producing labor as abstract labor on the one hand and labor as concrete and useful on the other – the distinction between the social determination of form and material appearance. Keynes addresses this only in passing.
This theoretical deficit runs through Keynes’ entire body of work. Thus Keynes is unable to explain why under capitalism actors are necessarily plagued by uncertainty. Corporations cannot know with certainty and in advance whether the capital they deploy will be valorized or whether they will be facing bankruptcy. This uncertainty is not, however, a quasi-natural characteristic of the economy. The main reason why Keynes is unable to explain in detail the speculative character of every capitalist transaction is that he fails to see that the capitalist mode of production, in its drive to continually expand the forces of production, constantly revolutionizes economic relations – in ways that often cannot be anticipated. Thus the uncertainty inherent in investment decisions or the sale of commodities is not something natural that one simply needs to come to terms with – which is why Keynes considers money an »ingenious device«; rather, it is an outcome of specifically capitalist relations.
Much the same is true of the category of interest. Keynes cannot explain how it is even possible that a certain sum of money can yield interest – a task that Marx tackles in the third volume of Capital. Keynes considers the credit relation the dominant economic relation. Production begins with an advance of money, a credit received at a certain interest rate. This forces capital to achieve a certain minimum valorization of the advance. So far, so good. What remains unclear, however, is why capital borrows in the first place. It is only the purpose of production, profit and the social necessity of valorizing value, that encourage it to take up credit: on the one hand in order to thrive in the face of competition, on the other, which would be the ideal scenario, to make the most effective use of opportunities for profit. This is why Marx can say that credit is always also the most powerful lever of overproduction.
The work in progress Marx has left behind can be taken further by means of a critique of Keynes.
The critique outlined here shows that Keynes remains bound to what Marx describes as fetishism and inversion – and this is not without its consequences. This could be illustrated by pointing out a number of examples, such as Keynes’ naive faith in progress and his glorification of technology, which went hand in hand with his faith in science and his naturalization of competition and inequality. This critique of Keynes should not, however, allow us to overlook the fact that the great work in progress Marx has left behind can only be taken further by means of a critique of Keynes and others.
This potential emerges clearly, for example, from Marx’s engagement with the critique of Ricardo formulated by Samuel Bailey (1791–1870). Marx considered Bailey a »vulgar economist«, and pulled his work to pieces. But Marx did recognize that Bailey had pinpointed a weakness in Ricardo’s theory. Bailey demonstrated that Ricardo was unable to provide a convincing conceptual distinction between value and exchange value: value, he argued, could not be absolute (value) and relative (exchange value) at the same time. Against the backdrop of Bailey’s critique of Ricardo, Marx was able to formulate a more precise analysis of the value form – although he saw in Bailey nothing but a »verbal wiseacre«.
Who is closer to the truth? Wrong question!
So what does this have to do with Keynes and the debate over whether Marx or Keynes is closer to the truth? This is simply the wrong question. Marx set himself a different task, and ours should therefore be to read Keynes, a deeply bourgeois economist, with Marx in mind.
Marx did not read »his classics« with superficial political interest (an approach he considered a »vulgar« form of scientific criticism); rather, he was interested in learning what genuine phenomena these authors were grappling with and why they had either failed to contextualize their observations or had based their work on certain implicit assumptions they simply left unquestioned. Thanks to his lead, followers of Marx ought to consider ploughing through the works of Keynes (as well as those of Hyman P. Minsky or the neo-Ricardian Piero Sraffa, for example). After all, political economy has evolved since Ricardo, and an up-to-date critique of political economy needs to do more than merely point out that Keynesianism has failed or accuse Keynes of standing on the wrong side of the barricade – in particular since Marx’s critique of political economy is anything but a completed project.
The second and third volumes of Capital were edited by Engels, and the manuscripts have only been fully available since 2012. The excerpts Marx produced in the course of his project have still not been fully published. The critique of political economy is a major work in progress; it has gaps and constructional errors, a fate Marx’s work shares with Keynes’. In his case too, the original text has been subject to revisions. Manuscripts discovered in Keynes’ country house in the mid-1970s show that while he was working on his General Theory, Keynes sketched the outlines of a »monetary theory of production«, for which he drew, among others, on Marx. This means there is a lot of material awaiting critical assessment and reappraisal, in particular because the texts were published at a time when Keynes had been marginalized by the neo-classical mainstream (and a number of Marxist critiques of Keynes had already been formulated). For Keynes early suffered a fate similar to Marx: He was absorbed by a Keynesianism that ultimately had little in common with its namesake. In the words of Minsky: »The popular semi-mathematical statements of The General Theory […] transformed […] into a nice, polite interdependent equilibrium system. […] Keynes’s theory was transformed into a system that sought and sustained equilibrium: Keynes’s theory was stood on its head.«
What then can we learn from Keynes?
The overall process of capitalist production
Keynes begins his analysis of the capitalist production process as a whole where Capital leaves off – and Marx finds himself confronting a number of problems. Marx’s manuscripts for the second volume of Capital show that he was struggling with his material. It is only in the seventh manuscript (written between 1878 and 1880) that he addresses the monetary mediation of the reproduction process. While his overcoming of the »perspective of the monetary veil« (with regard to the circulation process of capital) marks a breakthrough, it also raises many questions that Marx did not address, e.g. concerning the implications of this breakthrough for what he had argued previously and, most importantly, for the reproduction process of aggregate social capital. After all, interest-bearing capital and credit are not addressed until the third volume, the manuscripts for which were, however, written during an earlier period (1863 to 1867). Moreover, the third volume lacks the analysis of aggregate social capital concluding the first two volumes.
The functions of money
Keynes enables us to advance our analysis of the functions of money, e.g. the motives for holding money. In the first volume of Capital (chapter three), Marx addresses hoarding, which seems like a placeholder, since here money is withdrawn from circulation and valorization, and thus made dysfunctional: under capitalism, hoarding makes no sense, and so once the money market and the credit system have been included in the picture, hoarding as a category ought to dissolve. Keynes’ concepts of the liquidity premium, precautionary balance and idle balance allow us to address the holding of money as something that results from the logic of the capitalist reproduction process itself (even though Keynes can not explain why the capitalist mode of production systematically produces uncertainty; these concepts therefore have a certain psychologistic bias – see above).
The hierarchy of currencies
The analysis of money can moreover be extended to currencies, which Marx did not have the time to address, and therefore considered gold to be the global currency – even though the British pound had already assumed this role in his day. After all, money is not simply money. It is always a currency, and as such, it does have a price, unlike what Marx claims in the first volume of Capital: it always has an exchange rate as well as an interest rate. Money capital invests in some currencies more than in others, with one currency situated at the top of the hierarchy of currencies as world money. This is something that can be grasped on the basis of Keynes, and it is vital for the analysis of what Marx calls the world market (cf. the work of the post-Keynesians Paul Davidson and Hansjörg Herr).
The hierarchy of markets
In Keynes, the centrality of money is the basis for a hierarchy of markets: wage-earners receive money from employers, who in turn access it via the capital market in the form of credit. Thus the money and capital market assumes a dominant role vis-à-vis other markets. This is an idea that Marx formulates, but does not elaborate on. It is not without reason that he returned to the subject years later.
Trajectories and forms of economic crisis
During the 1870s and 1880s, Marx developed a renewed interest in the money and capital market, crises, currencies and the central bank. He wanted to understand the development of crises in detail before putting his analyses to paper, and even considered fundamentally revising the first volume of Capital. His reasons for this are content-related, And they are just as rarely discussed as the fact that bourgeois economists such as the post-Keynesian Minsky have much to say about money, monetary crises and the trajectories of crises. Their insights ought to be critically appropriated into the research program that is the critique of political economy (on the most recent crisis, see e.g. Bellofiore/Halevi).
In other words, given the many unresolved issues Marx has left behind, an even closer reading of his works will hardly help us – just as little, in fact, as holding on to the self-satisfied conviction that it is Marx’s position, rather than Keynes’, that we should trust.
John Maynard Keynes, The General Theory of Employment, Interest and Money, London: Macmillan,1936.
John Maynard Keynes, »A Monetary Theory of Production« (1933), in: Collected Writings, vol. 12, London: Macmillan, 1973, pp. 408–411.
John Maynard Keynes, »Towards the General Theory« (1932–1935), in: Collected Writings of John Maynard Keynes, vol. XXIX: The General Theory and After. A Supplement, London: Macmillan, 1979, pp. 35–162.