Pluralism in economics: mainstream, heterodox and Marxist

Last weekend’s Rethinking Economics conference on Pluralism in Economics was excellent.  The organisers at Greenwich Rethinking Economics did a great job in getting together a range of top speakers on many aspects of modern economic ideas: money, inequality, imperialism and gender issues.  They even managed to persuade top economist, Michael Kumhoff at the Bank of England to speak on pluralist developments in economics.  And the turnout for the whole conference rivalled that of more well-known gatherings of radical economics.

But for me the most encouraging development was a separate session on the contribution of Marx to modern economics. Rethinking Economics national and internationally has aimed to widen the scope of economics beyond the mainstream neoclassical orthodoxy which has so signally failed to predict, explain or solve the global financial crash and the ensuing Great Recession.  But up to now, Rethinking’s alternative has been dominated by Keynesian and post-Keynesians with Marxian economics generally absent.

So it was great that I had been invited to present the case for the contribution of Marxist economics, along with Carolina Alves, the Joan Robinson fellow at Girton College, Cambridge. In my presentation (see my PP here The contribution of Marxian economics), I outlined the differences in theory and policy, both micro and macro between mainstream neoclassical economics, the heterodox alternatives (Keynesian, post-Keynesian, institutional and Austrian) and the Marxist.

I see this as three ‘schools’ of thought – something that some participants from the heterodox wing found strange.  Why was Marxian economics not subsumed within the heterodox?  For me, the answer was simple.  There was one thing that unites the mainstream and the heterodox (in every form) and one thing in which Marxian economics stood out: namely the labour theory of value and surplus value.  The neoclassical and all the heterodox from Keynes to Kalecki, Robinson, Minsky, Keen and the MMTers deny the validity and relevance of Marx’s key contribution to understanding the capitalist system: that is it is a system of production for profit; and profits emerge from the exploitation of labour power –  where value and surplus value arises.  Value does not come from marginal utility (individual satisfaction) or marginal productivity (return on factor input) but from exploitation, realised in the sale of commodities for a profit.

Capitalism is a monetary economy where production is for profit, not need.  This glaringly obvious reality is denied by the mainstream (where there is no profit “at the margin”) and also by the heterodox who either accept marginalism or reckon profit comes from ‘monopoly’ or ‘power’ or from ‘financialisation’ – but not from the exploitation of labour power.

For me, Marx’s explanation is not only correct in reality, it is also necessary in order to clarify the very process of accumulation and endemic crisis within capitalism – all other schools of economics fall short on this.  In the session on Marx, Carolina Alves also emphasised the other key aspect of Marx’s contribution to understanding society, namely the materialist conception of history.  ‘Social being determines consciousness’ not vice versa, and technology (the forces of production) and social relations (the ownership of the means of production) determine class struggle and forms of social organisation and ideology.  Contrary to Keynes’ idealist view that bad economics is held in the grip of some defunct economist’s idea, mainstream economics is reduced to an apologia for the status quo of capitalism because economists ultimately work for the material interests of capital, at expense of science.  Thus Marx’s main aim was a ‘critique of political economy’ – to use the subtitle of Capital.

Criticism of Marx’s theory of value, at least as expressed from the audience at the Marx session, was that Marx is outdated: he was okay in explaining the industrial economies of the 19th century and even the exploited labour of the emerging economies now, but he had no relevance to modern service hi-tech worker economies of the advanced capitalist economies.  My answer was: tell that to workers in Amazon.  More generally, exploitation rates in advanced economies are rising, not falling.  The other critique was that Marx could tell us little about what happened in the Soviet Union or China – that’s true to some extent, but then Capital is about capitalism and a critique of political economy, not post-capitalist economies.

That Marx’s value theory is ignored or rejected just as much by heterodox economics as by the mainstream was revealed in the session on the role of money and finance in modern economies.  Jo Michel, a post-Keynesian economist from the University of West of England, gave an excellent and clear account of the role of money. But when he was asked whether any theory of money and credit required the backing of a value theory, he replied (after some hesitation) “probably not”.

Thus money and finance are to be separated from value and commodities and have an autonomous (or even determining) role in capitalism rather than the production of value and surplus value.  This, of course, is exactly where modern monetary theory (MMT) also ends up – divorced from the anchor of value and profit and denying the social relations of capitalist production. The private ownership of the means of production and the exploitation of those who own noting but their labour power is ignored by heterodox, post-Keynesian-MMT analysis. As Jo Michell said, you cannot fix climate change or inequality through monetary action.  I would add, you cannot avoid regular crises in capitalism with just monetary or financial measures.

In the same session, Frances Coppola, a heterodox economics blogger, argued that crises were really the product of too little money chasing too many goods (referring to Irving Fisher’s comment during the Great Depression of the 1930s).  But she reckoned that monetary injections from central banks along the lines of quantitative easing after the Great Recession have failed to get capitalist economies going because banks won’t lend.  There is ‘fear and uncertainty’, which stops banks lending, companies investing and people spending.  This argument rings of the Keynesian idea of low ‘animal spirits’.  Crises and the long depression are the result of changes in the ‘psychology’ of investors and consumers and has nothing to do with the profitability of capital. When asked that, if crises were due to fear and uncertainty, what could we do to get rid of these fears?, she responded that we just have to wait until ‘confidence’ comes back!

Coppola too rejected the need for a theory of value or profit.  Instead Coppola reckoned money was controlled by ‘power structures’ (financial institutions?) and was not related to value.  Indeed, in a previous event organised by Rethinking Economics some years ago, Coppola did a session on value theory where she outrightly rejected Marx’s theory of value in favour of the marginal utility theory of the mainstream.  It seems to me that heterodox schools, in denying Marx’s value theory or the need for any theory of value, end up adopting neoclassical marginalism.

I also attended a session on dependency and imperialism where Ingrid Harvold from the University of York outlined all the variations of so-called dependency theory, namely that the peripheral ‘emerging’ economies are so dependent on the imperialist centre that they cannot develop and grow in any significant way.  There are many variations on the causes of this dependency from falling terms of trade due the different productivities, monopoly control of finance and technology by the imperialist economies, and lower wages and super-exploitation of the ‘south’.

Tony Norfield, author of The City, a book that I have reviewed before, presented his definition of imperialism as monopoly power by top states backed by international institutions like the IMF, World Bank and the UN.  This monopoly power gives the imperialists states better financial access and control of technology.  Norfield demonstrated with his ‘imperialist power index’ that there are really just ten or so countries that can be considered as imperialist with the rest just also-rans.  But he cautioned against the view that finance is all.  Financial power flows from productive and technological power.  Financial crises are a symptom of an underlying crisis in capitalism, when debt gets out of line with the production of value.

Yes, that was my key take-away from this excellent conference.  Marxist political economy stands separate from the mainstream and from heterodox theories because it is grounded on a theory of value based on the exploitation of labour power. This is the key, both to social relations of production and the role of money, but also to the causes of crises and imperialist domination.  Profit is the driving force of investment and production in a capitalist economy and so what happens to profits and the profitability of capital is the determining factor in crises.  Thus crises cannot be permanently expunged from modern economies until the profit-driven capitalist economy is replaced.  Trying to ‘fix’ finance through regulation; or slumps through fiscal or monetary stimulus, as the heterodox focus on, is doomed to failure.

15 thoughts on “Pluralism in economics: mainstream, heterodox and Marxist

  1. “Criticism of Marx’s theory of value, at least as expressed from the audience at the Marx session, was that Marx is outdated: he was okay in explaining the industrial economies of the 19th century and even the exploited labour of the emerging economies now, but he had no relevance to modern service hi-tech worker economies of the advanced capitalist economies.”

    One of the factors some people think this — specially people from First World countries — is because that, with the development of productive forces in capitalism, the level of alienation of labor also rises.

  2. That organ of the American capitalist class, on August 21, 2009, The Wall Street Journal, reported that “…many scientists say deep emissions cuts are necessary … to prevent … dangerous consequences of global warming,” and also reported that, “Getting from here to there would require a massive economic shift.”

    What this massive economic shift entails is the most despotic inroads into capitalist private property relations, otherwise humanity will perish. So Marx seems to offer the only alternative economic thinking that challenges the economic ideologies that are hurling humanity towards extinction. If this perspective is not ‘up to date’ I do not know what is. If one were to see a conference headlined “Is Malthus out of date?” or ”Is Ricardo out of date?” one would suspect a joke(cf “David Ricardo: Notes on Malthus’s Measure of Value” Cambridge, 1992). I appreciate at such conferences Michael has to exercise a degree of decorum, but I think it does not at all lead to intellectual clarity to counterpose “Marxist ” economics to ”mainstream ” or ”heterodox” economics; rather to counterpose bourgeois economics to socialist economics, the latter having been put on a scientific basis by Marx. Otherwise, it presents socialist economic thinking as if it were some kind of personal deviance from scientific enquiry. I should then urge Michael and all other socialist economists not to mince words but to follow Marx by designating our opponents as ‘bourgeois’ or to quote the great man ‘hired prizefighters.’

  3. “Capitalism is a monetary economy where production is for profit, not need. This glaringly obvious reality is denied by the mainstream ..”.

    Oh go on: mainstream economists have alway recognised the blindingly obvious point that in a free market, entrepreneurs are out for profit and that if the old, sick etc are to be looked after, that has to be done by the state.

    1. They use the term colloquially, in spoken language, and only in certain circles. But there’s no vulgar “theory” that has profit in it.

  4. Michael, I am extremely disappointed. You have seriously misrepresented what I said both in this conference and in 2015. I have never discussed Marx’s labour theory of value, let alone dismissed it in favour of marginal utility theory.

    My comment in this conference was about the search for certainty in an uncertain world. Attempting to “fix” value to any anchor, including labour, is a matter of faith rather than economics. Humans traumatised by a major shock either cling to the familiar – to the point of wanting to bring back things that have caused them harm in the past – or reject it entirely in favour of completely untried new ideas. This has nothing to do with marginal utility theory and everything to do with having your faith in the essential stability of the economy shattered.

    1. Frances, If I misrepresented you, then I apologise. But on the question of value theory, do you accept Marx’s or do you have one of your own or not at all? When you spoke at Rethinking in June 2015, as I remember, you posed, against Adam Smith’s labour theory of value, a scarcity theory of value based on the usual (infamous) diamond-water example. But maybe I read too much into that example of marginal utility theory.

      In the second paragraph of your rejoinder comment here, you say that “attempting to fix value to any anchor including labour, is a matter of faith not economics.” So I take this to mean you do not accept the labour theory of value and instead look to individual psychology (uncertainty) as the driver of the value of commodities and services and what and how much will be produced or spent. Fair enough, but I don’t agree. This difference is key to what distinguishes Marx’s objective social approach based on abstract labour time and the psychological approach of utility theory. From this, flows differences on the theory of money; capital and crises.

      1. Coppola accuses marxists of an act of faith in basing value, under capitalism, on human labor. Yet is she herself being rational in making a fetish of “uncertainty” by rooting it in the minds of bourgeois actors operating within their “free market,” which is conceptually idealist, boding all sorts of rational actors, quintessential equilibrium certainties?

        Of course, the happy democratic but bodiless commodities dripping between of the hermetically sealed free market alembics of the bourgeois alchemists have no substantive value, only an ideologic, deodorizing one.

    2. Except for the fact that labor is not an anchor for value in Marx’s theory; it is value itself (substance of value).

      Labor only appears as value in the capitalist society (appearance and substance are different categories, but are both concrete in the Marxian system). That’s the logical leap vulgar economists can’t make — and I blame this in the decaying quality of Western education since the end of the 19th Century. Nobody learn Logic in school or college anymore.

    3. “I have never discussed Marx’s labor theory of value, let alone dismissed it… Attempting to ‘fix’ value to any anchor, including labour, is a matter of faith rather than economics.” Uhhhh what?

  5. ”Attempting to ‘fix’ value to any anchor including labour is a matter of faith not economics.” The economics of which class? There is another Roberts who blogs on matters economic, namely Paul Craig Roberts, former Assistant Secretary to the Treasury under Reagan, but who seems to have moved to the left. He has just reproduced an evocation of western capitalism as ”“a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” This what bourgeois economists defend.

  6. “profit comes from ‘monopoly’ or ‘power’ or from ‘financialisation’ – but not from the exploitation of labour power.”

    Without superior bargaining power through private ownership of the means of production (money capital and land), how could the bourgeois class exploit the working class? The relations of production in capitalism imply power relations, power of owners over non-owners.

    Listen to Marx on Wakefield
    “Wakefield discovered that in the Colonies, property in money, means of subsistence, machines, and other means of production, does not as yet stamp a man as a capitalist if there be wanting the correlative — the wage-worker, the other man who is compelled to sell himself of his own free will.”

    The big difference between Marx and other economists comes down to M-C-M’ versus C-M-C. Other economist not only miss a theory of profit, they don’t even have a theory of capitalism. Production of capital goods is not essential in their model. For them we could have a full employment equilibrium where we all exchange consumptions goods, investment is not required. That’s why for them reaching the zero bound of the profit/interest rate is just a technical problem, “magneto trouble”. They don’t get that the ultimate limit of capitalism to be overcome is capital itself.

  7. Dear Michael,

    I was the one who asked Jo Michel about the relation between value and money, Keynes and Marx, at the conference.

    Regarding Marx’s value theory and its relevance today, I’m curious to know your opinion on this approach, which is now published in the Oxford Handbook of Karl Marx:

    The PDF can be found here:

    Click to access 19448%20Rotta%20and%20Teixeira%202018%20Commodification%20of%20Knowledge%20and%20Information%20200618%20GPERC%20wp3.pdf

    best regards,
    Tomas Rotta

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