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.