{"id":6813,"date":"2019-11-05T15:08:07","date_gmt":"2019-11-05T15:08:07","guid":{"rendered":"https:\/\/progressiveeconomyforum.com\/development\/?p=6813"},"modified":"2019-11-05T15:35:20","modified_gmt":"2019-11-05T15:35:20","slug":"principals-of-macroeconomics-3-marx-on-accumulation-and-instability","status":"publish","type":"post","link":"https:\/\/progressiveeconomyforum.com\/development\/blog\/principals-of-macroeconomics-3-marx-on-accumulation-and-instability\/","title":{"rendered":"Principals of Macroeconomics: 3. Marx on Accumulation and Instability"},"content":{"rendered":"\n

Few economists have\nbeen as misrepresented as David\nRicardo<\/a>. Fewer still have been vilified as much as Karl Marx, almost always\nfor the wrong reasons. Yet Marx produced a wealth of key concepts and analysis\nthat would lay the basis for modern macroeconomics, albeit not in the original\nterminology Marx used. These are found in the three volumes of Capital<\/em>, only the first of which Marx\nlived to edit in its final form. <\/p>\n\n\n\n

When most people think\nof Marx, a theory of labour \u201cexploitation\u201d usually comes to mind, that workers\nare paid less than the value of what they produce. Marx carefully develops his\ntheory of exploitation in the first few chapters of volume one of Capital, the\nmost sophisticated version of the analysis that workers receive less than the\nvalue of they produce. However, the idea of exploitation was not unique to\nMarx. Until the mid-19th<\/sup> century this theory of distribution was\nendorsed by all major economists including Adam Smith, David Ricardo and John\nStuart Mill. <\/p>\n\n\n\n

Marx made important\ncontributions to macroeconomics that do not require endorsing the labour theory\nof value.*<\/a> The most important of these are 1) the\ndistinction between economic expansion and accumulation, 2) theory of technical\nchange, and 3) causes of recessions and depressions.<\/p>\n\n\n\n

His analysis of the aggregate\neconomy begins with the insight that in a market economy production is for\nsale, initiated by capitalists with the intention of generating profit. His\naggregate economy has two products, consumption goods and producer inputs,\naggregated by calculating the labour time required to produce them. One need\nnot adopt the labour input measure to develop his analysis. An equally valid\nsimplification would be to ignore inflation and aggregate with market prices.<\/p>\n\n\n\n

In Marx\u2019s schema\ncapitalists initiate production by hiring workers and purchasing material inputs.\nThey exchange money for commodities that makeup the inputs of production (M\u2192C). These inputs pass through production to\nbecome a different set of commodities (M\u2192C\u2026P\u2026C\u02b9), and the new commodities have a greater value than the inputs\n(C\u02b9 is greater than C due to the value added by labour). These newly produced\ncommodities must be sold, or \u201crealised\u201d to use Marx\u2019s term. Thus, we have the circulation\nof \u201ccircuit of capital\u201d:<\/p>\n\n\n\n

            M\u2192C\u2026P\u2026C\u02b9\u2192M\u02b9<\/p>\n\n\n\n

This simple flow of\nmoney into more money provides the basis for the analysis of economic expansion\n(C to C\u02b9 and M to M\u02b9), and technical change. The latter occurs in the\nproduction process through improved machinery that reduces the labour input. In\nthis flow, economic expansion without technical change is strictly equivalent\nto Keynesian national income equilibrium which I discuss in the next article. As\nfor Keynes, whether the economy expands to a higher equilibrium depends on\nwhether net fixed investment is zero or positive. <\/p>\n\n\n\n

A central issue is\nwhether total demand is sufficient to ensure that everything produced is sold. Detailed\nanalysis of matching demand to production appears in the second volume of Capital<\/em>, which few people read, not even\nMarx\u2019s most enthusiastic fans. It is often quipped that that if one wants to\nhide something from a Marxist, tuck it into volume II of Capital<\/em>.<\/p>\n\n\n\n

Marx was the first\neconomist to address seriously the problem of sufficient aggregate demand\n(\u201cdemand failures\u201d), though it appears in Thomas Malthus famous work, Essay on the Principle of Population<\/em>\n(1798) in a prominent but non-systematic way. One of Marx\u2019s insights was to\nspecify the fundamental source of the aggregate demand problem, which is the\nseparation of the production process from the distribution and sale of that\nproduction.  <\/p>\n\n\n\n

Capitalists organise\nproduction and have ownership of it. They must transfer, sell, those goods and\nservices to other capitalists (in the case of inputs, business services and\nmachinery) or to workers and other capitalists (for consumption commodities). Workers\u2019\nincomes come as the direct consequence of capitalists hiring them, epitomised\nin the famous quotation from Joan Robinson that \u201cthe misery<\/a> of\nbeing exploited by capitalists<\/a> is nothing<\/a> compared\nto the misery of not being exploited at all\u201d; that is, being paid less than\nwhat one produces is better than being unemployed.<\/p>\n\n\n\n

Therefore, all sales are driven by capitalists\ninitiating production. The more robustly capitalists spend to initiate\nproduction the greater are profits and wages, thus total demand. This argument\nby Marx is captured in another quotation from Robinson, \u201cworkers spend what they get,\nand capitalists get what they spend\u201d (which she attributed to Michal Kalecki). The\ndriving force of capitalist investment anticipates Keynes\u2019 treatment of\nconsumption and investment as induced and autonomous variables.<\/p>\n\n\n\n

The nature of capitalist circulation creates separation of production and sale. Production is matched or united with its sale by business expenditure. It remains to account for why business expenditure fluctuates, generating \u201cbusiness cycles\u201d. Marx explained the systematic instability of business investment through his theory of technical change. The discussion of aggregate demand in volume II has the purpose of demonstrating that in the absence of technical change the circuit of capital tends to repeat itself at the same or an expanding level until disrupted. <\/p>\n\n\n\n

Marx\u2019s\nexplanation of the causes of disruption that result in recessions and\ndepressions is disarmingly simple. Introduction of new techniques undermines\nthe market value of the capital stock of companies using older production\nmethods. As a result, many businesses find it increasingly difficult to service\nthe loans that purchased the older technologies. This is a striking argument, which\ntreats the dynamism of a capitalist economy in which technical change is\ninherent as simultaneously the source of the recurrent recessions and\ndepressions.<\/p>\n\n\n\n

The conviction that capitalists expansion undermines itself led many Marxians into rather unenlightening \u201cbreak-down\u201d theories, which predict and anticipate a coming crisis that will destroy capitalism and bring on socialist society. Not such mechanical break-down arguments appear in Marx\u2019s own writings. The closest he comes to a teleological prediction of capitalist collapse is his argument that the tendency of capitalist production to concentrate workers in large production facilities raises their class consciousness.<\/p>\n\n\n\n

Marx\nleft an extremely important contribution in his analysis that instability is\ninherent in market economies. How that instability might be managed to prevent\nsevere recessions and depressions would await the work of Keynes, the subject\nof the next article.<\/p>\n\n\n\n

\n\n\n\n

*<\/a> In a\nletter to his collaborator and patron, Frederick Engels, Marx wrote, \u201cThe best\npoints in my book [Capital Volume I] are: 1) the two-fold character of\nlabor,<\/em> according to whether it is expressed in use value or exchange\nvalue. (All<\/em> understanding of the facts depends upon this.)\nIt is emphasized immediately, in the first <\/em>chapter; 2) the\ntreatment of surplus value independently of its particular<\/em> forms\nas profit, interest, ground rent, etc.” I discuss these in Chapter 3 of Capital, Exploitation and Economic Crises<\/em>\n(first\nedition<\/a> here) and the ones I develop here derive from those two points.<\/p>\n","protected":false},"excerpt":{"rendered":"

Professor John Weeks, PEF Council Coordinator, writes on the contributions of Karl Marx to the field of macroeconomics.<\/p>\n","protected":false},"author":11,"featured_media":6817,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"site-sidebar-layout":"default","site-content-layout":"default","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[1],"tags":[197],"class_list":["post-6813","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-economic-history-and-thought"],"acf":[],"authors":[{"term_id":151,"user_id":0,"is_guest":1,"slug":"prof-john-weeks","display_name":"John Weeks"}],"_links":{"self":[{"href":"https:\/\/progressiveeconomyforum.com\/development\/wp-json\/wp\/v2\/posts\/6813","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/progressiveeconomyforum.com\/development\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/progressiveeconomyforum.com\/development\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/progressiveeconomyforum.com\/development\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/progressiveeconomyforum.com\/development\/wp-json\/wp\/v2\/comments?post=6813"}],"version-history":[{"count":4,"href":"https:\/\/progressiveeconomyforum.com\/development\/wp-json\/wp\/v2\/posts\/6813\/revisions"}],"predecessor-version":[{"id":6820,"href":"https:\/\/progressiveeconomyforum.com\/development\/wp-json\/wp\/v2\/posts\/6813\/revisions\/6820"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/progressiveeconomyforum.com\/development\/wp-json\/wp\/v2\/media\/6817"}],"wp:attachment":[{"href":"https:\/\/progressiveeconomyforum.com\/development\/wp-json\/wp\/v2\/media?parent=6813"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/progressiveeconomyforum.com\/development\/wp-json\/wp\/v2\/categories?post=6813"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/progressiveeconomyforum.com\/development\/wp-json\/wp\/v2\/tags?post=6813"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}