The Journal of Interdisciplinary Economics, 2000, Vol. 11, pp.

xx

0260-1079/00 $10

© 2000 A B Academic Publishers

Printed in Great Britain

Game Theory, Marxism and the Foundations of Collective Action1

Bruce Philp1

Manchester Metropolitan University, UK*

ABSTRACT

This paper discusses the philosophical foundations of game-theoretic Marxism. Initially the reductionist pretensions of analytical
Marxism, which has practised game-theoretic Marxism, are considered and rejected. After advancing an anti-reductionist game-
theoretic formulation of Marx’s theory of surplus-value, in terms of bilateral monopoly, problems of collective action are examined.
It is recognised that during particular historical epochs instrumental rationality may capture the process through which individual
agents act. However, it is proposed that the instrumental view of rationality should not be assumed to be a trans-historical fact of
human nature and that alternative philosophical conceptions of rationality recently advanced within the game theory literature
provide a more satisfactory basis for social scientific investigation.

1. INTRODUCTION

Classical and Marxian political economy were both concerned with the distribution of income in class-terms. And,
while Marx sought to criticise classical political economy, this was a tradition with which he sought intellectual
engagement. The period since Marx’s death has not, by and large, been characterised by such engagement. For
example, a quarter of a century ago, Morishima noted: ‘It is our great misfortune that economists have for a long time
been divided between the “orthodox” and Marxian camps as a result of cliquishness … They are at daggers drawn and
describe each other as a society for reactionaries and a society for economists with lower I.Q.s’ (1973, p. 1). There are,
of course, exceptions such as analytical Marxism, practitioners of which have sought intellectual engagement with
modern mainstream theorists. Analytical Marxists have endorsed the application of the tools and methodology of
analytical philosophy and “positivist” social science to issues of theoretical interest to Marxian scholars. However, the
thrust of analytical Marxism is that Marxian social scientific methodology is deficient, and it is Marx’s theoretical
insights which are more profound. In this paper it is claimed that wholesale rejection of Marxian methodology, in
favour of reductionism, is problematic. Indeed, one of the features of Marxian social science is that analysis can be, and
is, conducted on a number of different “levels” (such as at the level of classes). This is a notion which mainstream
social science would do well to explore, where it has not already done so.

*
Department of Economics, Mabel Tylecote Building, Manchester Metropolitan University, M15 6BG, UK.

As a preliminary to discussion of the application of game theory to Marxism it may be useful to explain how game
theory is interpreted in this paper, and to indicate the potential benefit of such an approach to Marxian social science. It
is proposed here that game theory is thought of as an approach to social science in which individual agents or
institutions are assumed to interact strategically. More specifically, game theory provides a language and format (ie:
strategic and extensive form taxonomies) for communicating ideas and unifying theories. This language offers a
number of solution techniques which agents can adopt. These are useful if it is the theorist’s belief that the nature of
agents’ rationality or the method through which institutions act conforms to that which underpins the given solution
concept. It is argued in the next section that game theory need not be reductionist. To illuminate this an anti-
reductionist model of class conflict, based on the theory of bilateral monopoly, is outlined. In addition game theory
need not, although in neoclassical theory it frequently does, assume that agents or institutions (e.g. firms) act in an
instrumentally rational manner. This is discussed, paying particular attention to cases in which instrumental rationality
is self-defeating. It is by separating each of these elements of game theory as it has been practised within neoclassical
economics and analytical Marxism, that a truly distinctive Marxist view of game theory can be developed which will
enhance attempts to advance a materialist account of economic evolution and progress.

2. GAME THEORY AND REDUCTIONISM

It is predominately analytical Marxists who have explored applying the language and techniques of game theory to
Marxian social science (for example Roemer 1982, Elster 1982, 1985).2 Game-theoretic Marxism, as it has been
practised, has therefore often accepted many of the premises of neoclassical economics, such as methodological
individualism and instrumental rationality, leaving what are in principle separable philosophical positions conflated.3
Isolated scholars have advocated a Marxist approach to game theory, which is anti-reductionist. For example
Maarek (1979) has sought to use the theory of games to illuminate Marx’s theory of surplus-value while rejecting the
principle of methodological individualism. In addition, Lebowitz (1988) has argued that Marx’s approach is inherently
game-theoretic, although it is a collective game theory that Marxists should seek to develop with classes as the unit for
analysis. Such approaches are not antithetical to game theory, as it has been practised. While the field of non-
cooperative game theory does assume that groups or coalitions are only formed as the outcome of optimising decisions
on the part of individual human agents, the less developed field of cooperative game theory takes groups or coalitions
as the players in games of strategic interaction.
This raises philosophical questions concerning explanations, which have been considered in debates between
analytical and orthodox Marxists.4 The former, such as Van Parijs (1983) and Elster (1985) have generally asserted the
primacy of explanations based on micro-foundational analysis. In contrast, the latter, such as Lebowitz (1988, 1994),
reaffirm Marx’s claim that individuals should be understood as an outcome of social processes, and that units of
analysis other than individual human beings are indispensable for examining socioeconomic evolution and change.
Stated in terms of neoclassical economics, orthodox Marxist approaches to social science emphasise how the actions of
individual agents are influenced by structural factors (some of which may not be observable) which not only affect
constraints but also influence the preferences of agents. Thus societies create individuals who then reproduce and
transform that society.
This poses a problem for those social scientists that would wish to explain why and how classes function. If agents
are solely products of their circumstances then it is these circumstances and not the passions or reason of agents that lie
at the heart of generating social scientific explanations. Such arguments are teleological in that the direction of
evolution and change is determined independently of the goals and aspirations of individual agents. One way to
overcome the problem of teleology is to adopt methodological individualism as a social scientific method (Elster,
1985). However, many philosophers regard methodological individualism as an inappropriate methodological
assumption making an alternative approach desirable (for example Bhaskar, 1989; Garfinkel 1991). The approach
adopted in this paper is to recognise that social scientific explanation can be conducted on a number of different levels
and using classes as our units for analysis is legitimate.

3 SURPLUS-VALUE: A GAME-THEORETIC FORMULATION

It is possible to represent a number of Marx’s theories, such as that of surplus-value, in game-theoretic terms. Maarek,
for example, takes two agents which we shall, in this paper, recast as classes and whom we label C and W (capitalists
and workers). Following Maarek (1979, pp. 125–134), assume W possesses no capital and C has a stock of food for
two days plus the tools necessary for production. It is important to note that Maarek formulated the following problem
in terms of the size of the relative consumption bundles for the two classes. In contrast to Maarek, we will recast the
model to formulate the problem of distribution and bargaining in terms of the working day, thus adopting the notion of
necessary and surplus labour time, familiar from Marx’s Capital.5
Assume that the daily subsistence required by C and W is B for each, and that during the course of the working day
2B can be produced using the tools plus the labour of one class. It is apparent that W requires B to subsist during the
first day, and that use of the tools is required in order to produce the required subsistence for the next day. Since all W
has to exchange is labour, the question arises, for what proportion of the working day will W agree to work on C’s
behalf, in exchange for the use of the means of subsistence and production? What will be the magnitude of surplus
labour?6
Taking a working day (L), and a consumption bundle (B) which is necessary for the survival of each class, we
assume that the two classes negotiate to enable W to survive while both seek to minimise their labour input. The model
becomes one of bilateral monopoly. The payoffs are denoted SW for the worker and SC for the capitalist, and are
determined in this case by whether each class possesses the necessary consumption to survive, and by the number of
hours in the working day which each is compelled to work, denoted h(0≤h≤L), where performing labour causes
disutility. The payoff to each class is thus:

S=f(B,h) (1)

The disagreement point (S’W’S’C) is the payoff to each if no agreed bargain can be struck, and the equilibrium payoff is
S*W to the workers and S*C to the capitalists. The gains (Gw,Gc), in equilibrium, are given by:

∗
= ∗
 (2)
 If disagreement is the outcome, this implies W is unable to produce enough to consume, that is BW=0. We shall
assume that this is the worst possible payoff for the workers, giving a payoff of SW=–∞. Likewise, death is the ultimate
sacrifice for the capitalists, yielding a payoff of –∞. However, disagreement for C does not imply death, rather they will
be compelled to perform half a day’s labour each day to provide their own means of subsistence, if no agreement can
be reached. Reproducibility, in this model, implies hW+hC=L assuming a fixed intensity of labour.
Maarek identifies four conditions are necessary to produce a negotiated outcome in this case of bilateral monopoly.
In the formulation offered in this paper these four conditions are:

1. S*W >–∞ otherwise W would rather die of hunger.

2. G*C≥0 otherwise C would perform their own work.
3.
G*W maximises the gain to W, given S*C, otherwise W would adopt a different strategy. That is, the
equilibrium outcome for W is strategically stable.
4. G*C maximises the gain to C, given S*W, otherwise C would adopt a different strategy. That is, the equilibrium
outcome for C is strategically stable.

These conditions give a range of values for each of hw (0.5L≤hw≤L) and hC (0≤hC≤0.5L), where hW+hC=L. But,
other than predicting that the outcome will be in this range, bilateral monopoly theory can tell us little more. We know
that C will be better off, relative to their disagreement point, if they can get W to work anything greater than half a day.
The workers will be better off if they do not die, and they would be willing to work up to a full day to guarantee this
subsistence. The outcome cannot be uniquely determined in such a framework.
This model, in which each class labour-minimises and ends up receiving the same quantity of goods is, of course,
highly abstract. However, let us use this simple model to consider the relative strengths of the two classes. W can
threaten to perform no labour for C, above the half-day they would have to work with C’s equipment to produce their
own means of subsistence. If C refuses to comply, the outcome for W is death. C, knowing W’s threat to perform no
labour for C is not credible, will refuse to allow W to work anything less than the full day. C can threaten to use the
equipment to produce their own subsistence, and leave W to die. This is a more credible threat, since such an outcome
does not entail C dies. Accordingly, C can use this threat to force W to labour for the whole day, while C is a class of
leisure. A credible threat and the disagreement point together combine to make this a plausible outcome within this
model. Essentially because of the economic power which the capitalist class possess, given private property rights,
capitalists are able to secure decisions which favour their interests.
The essential point is that in “fair exchange” under capitalism, workers do not possess the means to bargain from a
position of equality relative to the capitalist.7 If we assume that the worker is a labour minimizer, ie: the worker wishes
to work as few hours as possible to obtain a fixed income, it follows that the existence of surplus labour time implies
the worker is working for longer than is socially necessary for their reproduction. Alternatively, if we assume the
worker is a wage maximiser, in the sense that they wish to maximise income for a given period of labour it follows the
worker is not receiving, in terms of goods, the full equivalent of what his or her labour produces.
Thus far we have considered this model using class as the unit of analysis, taking the capitalist and working class to
be the foundation of our system. However, problems may be encountered in coalition formation (or dissolution) when,
in particular, “divide and rule” characterises the organisation of workers. Thus in the next section we consider how a
coalition can be divided in such a way as to benefit the capitalist when agents are assumed to be instrumentally rational.
Thereafter we shall seek to offer alternative conceptions of rationality that show how such interaction structures can be
overcome through appealing to moral codes or historical processes of learning.

4. INSTRUMENTAL RATIONALITY AND SUB-OPTIMALITY

Neoclassical economics is frequently characterised as being developed on Humean philosophical foundations. It is,
however, important to recognise the complexity and extent of Hume’s philosophy. Accordingly, following Williams
(1979), we shall use the term sub-Humean to describe the elements of Hume’s philosophy to be considered presently.
The influence of passions and reason upon action was considered by Hume in his Treatise on Human Nature (Hume,
1985). Reason is conceived of as the way that we think about and solve problems and our passions are our desires or
goals. According to Hume: ‘Reason alone can never be a motive to any action of the will’ and ‘… reason is, and ought
only to be a slave of the passions’ (pp. 460–462). Sugden (1991) has attached considerable weight to this distinction
and recast Hume’s philosophical position, in modern form, in the context of neoclassical economics. For Sugden
passions are our preferences, and reason reflects the rational calculus which underpins decision-making.
Neoclassical economics almost always models preferences as exogenously determined and Roemer (1986) suggests
this is one element that makes neoclassical and Marxian approaches distinct. Such a sub-Humean view of rationality, as
applied in neoclassical economics, maintains the purpose of economic theory is to explain a given outcome as a
consequence of the application of rational calculus for given passions or preferences. The way such optimisation
problems are solved offers no scope for feedback such that when our preferences and the rational calculus conspire to
give an inefficient outcome, agent’s preferences can change. Thus, faced with problems such as the prisoner’s dilemma,
or public good provision, instrumental rationality offers no basis for moving us to an efficient outcome. One remedy for
this problem is to design mechanisms which rule out a conflict between instrumental rationality and efficiency a priori,
such as through legally enforceable contracts which allow agents to overcome prisoner’s dilemma-type problems.
The problem of the prisoner’s dilemma is not confined to neoclassical economics. Elster has maintained that: ‘As in
virtually any social theorist of some stature, one finds in his [Marx’s] work instances of the interaction structure known
as the prisoner’s dilemma’ (1985, p. 15). In Marxian analysis such structures are most often presented in class terms. In
the context of the problematic falling rate of profit theory an individual capitalist may introduce a technique which will
ultimately lower the rate of profit in a way which is individually instrumentally rational but collectively disastrous for
the capitalist class. Edel (1979) has sought to provide an explanation of collective action on the part of workers, based
upon the principle of the prisoner’s dilemma. Marx also realised that there exist instances of conflict between what we
would now describe as an individual’s instrumentally rational response and the “efficient” response for their class, and
this suggests that Marxists should not reject applying the principle of instrumental rationality, to yield social scientific
insight, with undue haste. Marx suggested of piece-work that ‘The piece-wage … has a tendency, while raising the
wages of individuals above the average, to lower this average itself’ (Marx 1976c, p. 671). And the organisation of
capitalism itself impedes the emergence of a collaborative response by presenting workers to each other as competitors
rather than as collaborators. Therefore, it is reasonable for Marxists to assume that instrumental rationality does capture
how competitive forces operate under capitalism. As Meszaros suggests: ‘Self-seeking egoistic fulfilment is the
straightjacket imposed by capitalist development on man, and the values of “individual autonomy” represent its ethical
glorification’ (1975, p. 258). But to recognise that agents may, on occasion, act in accordance with the principle of
instrumental rationality should not be taken to mean instrumental rationality is the only way agents act. Instrumental
rationality is thus a particular manifestation of a more general rationality and the former manifests itself only at
particular points in time, under particular modes of production. Thus instrumental rationality is not a trans-historical
fact of human nature and this has implications, to be discussed presently, for Marxists wishing to use game theory to
model the process of class struggle and social change. In applying game theory to Marxism it is quite plausible that the
“nature of man” is accurately captured by instrumental rationality at a particular location and point in time (this phrase
is taken from Geras 1983). However, this does not imply that this is a facet of “human nature”, ie: trans-historical or
biologically determined. Of crucial importance is consideration of the processes through which changes in the “nature
of man” are mediated.
Elster (1985, pp. 359–360) has suggested a number of factors that may contribute to collaborative responses in
cases where instrumentally rational, self-interested and economically motivated actions make agents worse off. For
example agents do not choose in isolation and there are externalities involved in non-cooperation, such as guilt or
shame. According to Elster agents may also be subject to informal social sanctions or make positive utility gains from
the gains of others, rationality. However, such cases do not necessarily challenge instrumental rationality. Rather, stated
in terms of neoclassical economics, utility is no longer solely a function of wealth, rather it is a function of wealth plus
other factors. In Elster’s framework agents still act to maximise utility given a more complicated utility function. What
may be important in order to provide an analysis of how collective action problems can be overcome, is to question the
validity of the instrumental rationality postulate itself and to consider historically how collaborative responses may be
forthcoming as preferences evolve in response to a historically- contingent form of reason.

5. ALTERNATIVE CONCEPTIONS OF REASON

Recent contributions to the game theory literature have challenged the instrumental view of rationality as a trans-
historical fact of human nature (Sugden, 1991; Varoufakis, 1993).8 In addition Petith (1990) has argued that game
theory does not seem to adequately express Marx’s sentiments. As an answer to the question of what binds the working
class together, ‘a moral obligation to one’s comrades is more in the Marxist spirit than calculating self-interest’ (p.
413). This relates to the plausibility and necessity of reduction and raises important questions of agency.
Sugden (1991) has suggested an alternative to the sub-Humean conception of rationality outlined previously. This
approach, if adopted, is not prone to sub-optimal outcomes such as in the sub-Humean approach. The alternative
approach alluded to by Sugden is founded on the philosophy of Kant. Parsons (1990) has argued that it is important to
distinguish between Kant’s philosophy and that of neo-Kantians. Kant rejected the empiricist claim that all knowledge
comes from experience. However, Kant did maintain a link, claiming knowledge begins with experience. Thus, for
Kant, judgements must be applied to objects of experience. In contrast, neo-Kantian approaches are concerned with the
validity of propositions or concepts. Parsons (1990, p. 297) suggests that neo-Kantians concentrate on the validity of
concepts which is not the same as the relationship between knowledge and experience which was fundamental to
Kant’s inquiries. Accordingly, following Hollis’s (1987) use of the term we shall describe Sugden’s formulation as sub-
Kantian.
Sugden views each individual as a moral being who is autonomous and capable of reason. When we reason we
must think of ourselves as capable of forming beliefs and of reaching conclusions that are not determined by outside
causes. Reason therefore provides laws, which are imperatives, objective moral laws of what ought to happen, as
distinct from laws of nature, which relate only to that which does happen. These objective moral laws provide a system
of precautions and self-examination founded upon self-discipline.
 At the centre of Sugden’s neo-Kantian approach lies the notion of the categorical imperative which states: ‘Act only
according to that maxim by which you can at the same time will that it should become a universal law’ (Kant, 1965, p.
39). That is the categorical imperative implores agents to act as they would desire other players to act thus encouraging
co-operation. Underpinning this approach is the notion that each individual agent is capable of moral autonomy,
however the implications are clear. In the instrumental account, faced with prisoner’s dilemma structures, players will
act such that a sub-optimal outcome will be generated. However, if the reason of both players can evolve, Sugden
maintains that it is possible for self-discipline to operate, and the agent’s preferences change to ensure collaboration.
The categorical imperative gives the moral guidance to the autonomous agent.
Sugden believes that if we work within a sub-Kantian framework ‘reasons may override desires: it may be rational
to do what one does not desire to do … [but] this line of thought threatens to undermine game theory’ (1991, p. 756).
However, it is not clear that the second statement follows from the first. Certainly game theorists do not presently adopt
a sub-Kantian position, but that is not to say that they cannot. And, if Sugden believes such a sub-Kantian approach has
some merit it would follow that it can enhance and not undermine the development of game theory if the purpose of
game theory is not simply to explain but also to indicate how agents ought to act.
The notion of the categorical imperative, applied to game-theoretic paradoxes has been subject to criticism from
Elster who has suggested: ‘The history of the working class shows, in my opinion, that cooperative behaviour typically
is conditional rather than unconditional—motivated by the concern for doing one’s share of a common task rather that
by the spirit of sacrifice or disregard for actual consequences characteristic of the Categorical Imperative’ (1982, pp.
468–469). In addition, there are instances where self-sacrificing action may do more harm than good and accordingly
‘Kant’s individualistic ethic is not appropriate for collective action’ (p. 469).
There are additional problems for a sub-Kantian approach in the context of the present discussion—ie: applying
game theory to Marxism. Marxism maintains the importance of class as an economic category and most Marxists
assume that class has an explanatory significance distinct from that provided by examination of the optimising decision
of individual agents. Agents within each class are ethically alike. However, members of the capitalist class differ from
members of the working class in one fundamental way; the former possess capital and the latter do not. Roemer (1982,
1994) has recast Marxian claims that capitalism is exploitative in terms of differential ownership of productive assets.
If we were to take the example of “respecting” property rights, this is plainly a moral position which depends on the
nature of the agent whose property is to be protected. A member of the working class may not wish another member of
the working class to steal from them and may use the moral guidance of the categorical imperative to justify their
respect for the other’s property. But what about “stealing” from the capitalist? Marx, in his account of primitive
accumulation suggested ‘conquest, enslavement, robbery, murder, in short force’ play the greatest part in the formation
of capitalist property relations (1976c, p. 873). Thus, Marxists would maintain that the categorical imperative cannot be
used as a basis for respecting private property rights under capitalism, and without private property rights you do not
have a capitalist system. Sugden’s perspective may, in certain circumstances, provide a useful moral guide within a
class, but it is unclear how the categorical imperative can be used as a universal moral guide to action when the
foundation of the system in which it is being invoked is unjust.
Thus far it has been argued that there are good reasons to be sceptical of instrumentalism (if assumed to be a trans-
historical fact of human nature), and there are also problems with the sub-Kantian approach of Sugden. Accordingly, in
developing an alternative Marxist game theory it is appropriate to consider alternative approaches to rationality. One
such alternative has been considered by Varoufakis (1993) and such an approach offers potential foundations for game-
theoretic Marxism. Although identified by Varoufakis as Hegelian, this approach is closely related to Marx’s in that it
is materialist, historically-contingent and socially-founded.
Varoufakis’s approach is materialist since agents are brought to the market as a means to their own ends and as a
result of external necessity (for a discussion of this in the context of Hegel see Wood, 1993). This external necessity
brings them into connection with other agents, which changes the ends individuals desire—passions change as a result
of historical process and social interaction. These individuals acquire social identities and may develop ethical interests
in the rights and well-being of others. Consequently they relate themselves not only to individual ends, but also to
shared or collective ends.9 The process through which this can arise is discussed by Varoufakis in the context of the
centipede paradox—a game in which instrumentalism gives rise to an inefficient outcome. This is relevant when
discussing how collaborative responses can come about in collective action problems.
In order to focus discussion let us consider a specific example intended to show one possible approach to “divide
and rule” in cases of collective action. This model is intended to demonstrate the role of the chronology of bargaining
in generating paradoxical outcomes, where “paradoxical” implies each coalition could secure a higher payoff were
cooperation guaranteed. However instrumentality on the part of coalitions produces a lower payoff than that which
would have been provided had agents adopted a collaborative strategy. Assume that there are two coalitions of workers,
the skilled (k) and the unskilled (u) who bargain over pay and conditions sequentially. Further, let the payoff or well-
being of workers be determined by two factors, the number of hours they work and the payment they receive (ie: their
real wage in this model) where this is given as before ie: S=f(B,h). Long working hours and/or low wages render
dissatisfaction. Assume that the real wage and hours worked are determined as a result of a process of bargaining or
conflict and the payoff for each respective coalition is given by Sk=fk (Bk,hk) and Su=fu(Bu,hu). If the coalition k
negotiates working hours first we shall assume, as in figure 1, that they may adopt a hostile (h) or a non-hostile (h)
strategy. Assume that support of coalition u is vital to the success of this hostile action. Thus u may adopt a supporting
strategy (s), or they may not support (s′), where this might involve deciding whether or not to cross a picket line, or
engage in secondary action. Refusing to work when another coalition is on strike involves a loss in wages and a
consequent reduction in levels of consumption. Thus, not only will striking exert a negative influence on the real wage,
but so will supporting another coalition. For simplicity we shall assume that supporting another coalition involves a
loss to the supporting coalition equivalent to that coalition engaging in hostile action itself. Assume an ordering of
payoffs 1>2>3>4>5. In this model it follows:

| |
> sj,  (3)

|  | 
> sj,  (4)

For coalition u and k the strategy s′ is dominant. That is irrespective of the strategy of the other coalition s′ always gives
a higher payoff than s. However it is plausible that:
   
> (5)

If the payoff forgone from adopting a hostile strategy in addition to that forgone from supporting the other coalition, is
greater than that gained from a reduction in working hours, it is not in the class interest to adopt hostile action.
However, if as in equation 5 the payoff gained from reduced working hours for both coalitions exceeds that lost from
the forgone wages for both hostility and support by each coalition, it follows it is in the class interest for each coalition
to adopt hostile strategies and support the other. There is a contradiction between what is the dominant strategy
equilibrium for an individual coalition and what is in their class interest.
Consider this using backward induction where the terminal nodes are considered first. Even if a promise to act
collaboratively by the coalition who is bargaining first has been struck with the coalition bargaining second this
promise may not be credible in that, if they have already received a payoff in terms of reduced hours, the coalition
bargaining first has no material incentive to now render support to the coalition bargaining second. Thus we can see
that the dominant strategy equilibrium in this game is for each coalition to adopt a non-hostile approach to bargaining
with the capitalist. If the capitalist is able to enforce such an institutional structure upon workers the chronology of the
game encourages a “divide and rule” outcome.
How might such a plausible structure be overcome? Marx suggested: ‘Competition separates individuals from one
another, not only the bourgeois but still more the workers, in spite of the fact that it brings them together. Hence it is a
long time before these individuals can unite … Hence any organised power standing over and against these isolated
individuals, who live in conditions daily reproducing this isolation, can be overcome only after long struggles. To
demand the opposite would be tantamount to demanding that competition should not exist in this definite epoch of
history, or that individuals should banish from their minds conditions over which in their isolation they have no
control’ (Marx, 1976b, p. 75). We can therefore, in this game, identify a dichotomy between the optimal response for
the working class as a whole and the instrumentally rational response of separate groups. But, in moving to an efficient
response it is relevant to consider the instrumentality assumption, and allow reason to evolve such that agents’
preferences can change. It is a case such as this for which Varoufakis seeks to provide philosophical foundations. In the
context of collective action in which instrumental rationality is self-defeating, reason both affects the agent’s
experience and, in contradistinction to the Humean conception of rationality, is affected by it. Given such contradictory
logics, these form a thesis and an antithesis which, through a dialectical process in which reason absorbs both logics,
endow agents with an understanding of the paradox which is a synthesis of the two.10 Thus, our understanding of the
dilemma was of a lower level of development until we encountered the paradox, and Varoufakis (1993) maintains that
reason develops as rational agents ‘struggle to come to grips with the maze of conjectures that social interaction …
creates. To use Hegelian language, rationality is not to be defined axiomatically but is to be understood as a process’ (p.
397). Therefore, Varoufakis advocates judging the rationality of social norms on the basis of historical analysis. And,
reason progresses in historical time—conventions that were a product of a previous set of social circumstances, while
relevant then, may not be relevant today. Varoufakis summarises: ‘While Hume’s philosophy does not allow us to pass
moral or political judgement on social conventions, Hegel’s does’ (p. 398).
 Figure 1. Sequential Bargaining and Divide and Rule

In Varoufakis’s neo-Hegelian account, emphasis is placed upon developments in thought emerging from agent’s
experience. As Marx suggests: ‘It has not, like the idealist view of history, to look for a category in any period, but
remains constantly on the real ground of history; it does not explain practice from the idea but explains the formation of
ideas from material practice’ (Marx, 1976c, pp. 53–54).11 Thus, it is through practice that agents may begin to
appreciate their class interest where this is conceived, not as a question of subjectively given desires, but rather in terms
of collective interest. Thus Marx writes that the emancipation of labour ‘is not a question of what this or that
proletarian, at that moment regards as its aim’ (Marx 1976a, p. 37). This implies that agents have deeper desires which
are distinct from those generated in conditions of capitalist alienation.
Recognition of the distinction between instrumentally rational behaviour and that based upon Varoufakis’s
Hegelian foundations is important for those who wish to develop Marxism through the medium of game theory. In the
neoclassical literature a number of alternative solution concepts, or tactics agents can adopt, have been discussed.
However, these approaches are ultimately founded on agents seeking to maximise their own payoff with no regard for
the well-being of others. The approach adopted here is thus more than just an alternative solution. Rather, following
Varoufakis, emphasis is on new interpretation of the problems game theory formalises. As agents develop through
practise they come into contact with one another in many different circumstances. Edel (1979) has placed emphasis on
collective action problems, and movement to a collaborative solution in prisoner’s dilemma-type games is an outcome
of iteration or a supergame. Thus, ‘solidarity is not irrational—it is one of the rational responses possible in any
repeated prisoner’s dilemma game’ (p. 758). The argument in this paper is that agents develop in the course of social
iteration which is multi-faceted and varied and which cannot be reduced to iteration of a single game. To summarise,
game theory enables Marxists to formulate cases of strategic interaction with precision. However, as Booth suggests,
‘solidarity of action based on non-neoclassical assumptions must also be considered in explanations of large group
collective behaviour’ (1979, p. 762). The approaches of Varoufakis and Sugden have developed the framework for
considering non-neoclassical philosophical foundations and it is here that Marxist game theorists should look for a
richer conception of agency.

6. CONCLUSION

It is possible to observe, in the real world, instances in which interaction between groups or individual agents involves
strategic planning. Wright (1994) has argued that if it is accepted that in some important social contexts (a) individuals
or social groups make conscious decisions, (b) when they make choices they take into account the expected
consequences of those actions, and (c) in formulating their expectations of the consequences of their actions they take
the actions of others into account, then it follows that game theory may contribute to the development, clarification and
dissemination of the theories of Marxian social science. In this paper an example is constructed which relates Marx’s
theory of surplus-value to the case of bilateral monopoly, and it is suggested that the notion of “credibility of threats”
provides an insight into how the respective power of each class influences the outcome. The approach adopted took
exogenously given classes as our units for analysis and cast the problem of distribution in terms of surplus and
necessary labour time. Thereafter the assumption that agents act in an instrumentally rational manner was challenged
and developed using a game-theoretic example of divide and rule. It was suggested that, in seeking to explain how such
interaction structures can be overcome, attention should be paid to philosophical foundations, and that Varoufakis’s
neo-Hegelian approach offers a preferable framework to those adopted in neoclassical economics.
The potential gains from the development of a game-theoretic Marxism are significant. In formulating and
understanding the process of class conflict, game theory gives us a methodology from which to understand how classes
and agents within capitalism could or do act strategically. It offers a taxonomy for formalising Marxian theories and for
understanding the limits of instrumental rationality. Not only are these useful developments for contemporary Marxists
to understand the functioning of capitalist socioeconomics, they also provide a language through which the theories of
Marx and Marxian economics can be communicated to a broader audience.
Of course, to appropriate game theory means more than simply adopting it. Instrumental rationality is not a trans-
historical fact of human nature and moral and historical evolution is possible. Alternative “levels” of analysis are
possible in which classes, rather than isolated human individuals, can serve as insightful units of analysis in the process
of social scientific investigation. Accepting such caveats however does not involve rejecting a distinctly game-theoretic
Marxism—at a particular moment in time when an individual agent, or a class acts in unison, and does so strategically,
such an approach is inherently game-theoretic.
Game theory has shown us that in some circumstances instrumental rationality can fetter economic development
and, from a neoclassical perspective, generate inefficient outcomes. Recognising this serves as a useful starting point
for further social scientific investigation. Neo-classical economists, anxious to account for these problems, have
focused upon the philosophical problems of knowledge and beliefs, assuming that there may exist “irrational” or
altruistic players. In this paper the core of the rationality assumption has come under scrutiny, and it is suggested if
Marxian economics is to develop and utilise the tools of game theory, it should first separate the formal logic from the
a priori assumption that agents are instrumentally rational. Indeed, this is a necessity since two things game theory has
shown us are the normative limits and the experimental inadequacy of such an assumption.
NOTES

1. I would like to thank Michael Williams and participants at the Economics Staff Workshop, Manchester
Metropolitan University, for comments on an earlier draft. Remaining errors are my own.
2. A useful discussion of the different terms used to describe analytical Marxism, including game-theoretic Marxism,
neoclassical Marxism, and rational-choice Marxism, is offered by Carling (1986). In contrast to Carling, in this
paper the term “game-theoretic Marxism” is not taken to refer to the work of analytical Marxists, but rather refers
to any attempt to apply the language and techniques of game theory to Marxian economics. Thus the game-
theoretic work of analytical Marxists is a subset of this more universal body of work which does not necessarily
presuppose methodological individualism.
3. Roemer’s position on this matter is unclear. In Roemer (1982) class location is modelled endogenously as an
outcome from instrumental optimising behaviour by individual, economically motivated, agents. Elsewhere
Roemer suggests: ‘Individual’s act as a member of a class, rather than individuals, should be taken as a theorem in
Marxian economics, not a postulate. Marx’s point is that despite the capitalist’s incarnation as a human being he or
she is forced by the system to act as an agent for the self-expansion of capital. Workers, similarly, may have their
individual yearnings and habits, but conditions of life force them to acquire a class consciousness and to act, at
times, as agents of the working class as a whole and not as their own agent’ (1981, p. 7; emphasis added).
4. In characterising Marxism thus it should be made clear that both analytical and orthodox Marxism are variegated
bodies of thought which are difficult to define unambiguously.
5. This raises epistemological questions concerning time. In framing the question of distribution in terms of the time
the labourer works we can readily extend investigation to consider conflict over the length of the working day and
the intensity of labour. Theoretical problems arise if we seek to provide micro-denominated labour values since
conventionally defined labour values may sometimes be negative in systems of joint production where profits are
positive (Steedman, 1977). Nevertheless, in spite of these problems, the claim that positive profits are possible
without positive surplus labour time is counter-intuitive, especially in aggregate models such as this. As King
suggests: ‘if the labour force spends less time at work than is required to produce its own means of subsistence,
even what Marx termed the “simple reproduction” of the economic system should be impossible, and there should
be no question of maintaining a non-producing class’ (1994, pp. 396–397).
6. We shall assume the existence of private property rights. Marx’s analysis of the production process under
capitalism takes labour power as a commodity, which the capitalist purchases and consumes productively. Thus,
the labour-time of the worker belongs to the capitalist under whose control he/she works, and the product of the
worker’s labour is accordingly the property of the capitalist. Marx’s analysis of the labour process, technically and
socially, concerns ‘a process between things the capitalist has purchased, things which belong to him’ (Marx,
1976c, p. 292).
7. Adam Smith recognised that capitalists possessed power over workers in determining the agreement over
remuneration. He suggested, ‘What are the common wages of labour, depends everywhere upon the contract
usually made between those two parties, whose interests are by no means the same … It is not difficult to foresee
which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other
into compliance with their terms’. Smith continues, ‘A landlord, a farmer, a master manufacturer, or merchant,
though they did not employ a single workman, could generally live a year or two upon the stocks which they have
already. Many workmen could not subsist a week, few could subsist a month and scarce any a year without
 employment’ (1970, p. 169). While Smith is to be credited it is important to note that he framed this conflict in
terms of remuneration, and this does not lend itself to consideration of conflict over the length of the working day
or intensity of labour, in the same way as Marx’s framework does.
8. Sugden and Varoufakis identify their perspectives as Kantian and Hegelian respectively. Since interest here is in
these modern interpretations and not in their origin we shall confine ourselves to this secondary literature.
9. One should note that Varoufakis’s starting point is one in which individuals come to the market, and this abstracts
from the social formation of these individuals’ reason and preferences. However, this would be consistent with the
behaviour of individuals alienated in a capitalist system where they are isolated in conditions daily reproducing this
isolation. Alienation is presupposed and for Marx alienation is transcended only if individuals reproduce
themselves as social individuals (Meszaros, 1975). In the context of collective action this view has been echoed in
Roemer’s early work, where he suggests: ‘the success of unions does not depend on coercion or side payments, but
on workers’ learning to discard the individualist model and adopting a collective rationality’ (1978, p. 154).
10. In examining the history of the working class, Thompson observed: ‘The ability to handle abstract and consecutive
argument was by no means inborn; it had to be discovered against almost overwhelming difficulties—the lack of
leisure … as well as educational deprivation’ (1980, p. 783).
11. It is relevant to note that Varoufakis views his approach as Hegelian. However, evolution of understanding comes
about through agents experiencing contradictions in the real world. Marx, in the postface to the second edition of
Capital I written in 1873, noted: ‘My dialectical method is, in its foundations, not only different from the Hegelian,
but exactly opposite to it. For Hegel, the process of thinking, which he even transforms into an independent
subject, under the name of ‘the Idea’, is the creator of the real world, and the real world is only the external
appearance of the idea. With me the reverse is true: the ideal is nothing but the material world reflected in the mind
of man, and translated into forms of thought’ (Marx, 1976(c), p. 103). If we accept this as an accurate
characterisation of Hegel’s thought it would seem that Varoufakis’s account, to be discussed presently, has more in
common with Marx’s dialectical process than Hegel’s.

BIBLIOGRAPHY

Bhaskar, R. (1989). Reclaiming Reality. London: Verso.

Booth, D.E. (1979). A Comment on Collective Action, Marxism and the Prisoner’s Dilemma. Journal of Economic
Issues, 13(3), 761–762.
Carling, A. (1986). Rational Choice Marxism. New Left Review, 160, 24–62.
Edel, M. (1979). A Note on Collective Action, Marxism, and the Prisoner’s Dilemma. Journal of Economic Issues,
13(3), 751–761.
Elster, J. (1982). Marxism, Functionalism and Game Theory. Theory and Society, 11(3), 453–482.
——— (1985). Making Sense of Marx. Cambridge: Cambridge University Press.
Garfinkel, A. (1991). Reductionism. Published in Boyd, R. et al. The Philosophy of Science. Cambridge (Mass.): MIT
Press.
Geras, N. (1983). Marx and Human Nature. London: Verso.
Hollis, M. (1987). The Cunning of Reason. Cambridge: Cambridge University Press.
Hume, D. (1985 [1740]). A Treatise on Human Nature. London: Penguin.
Kant, I. (1965 [1797]). The Metaphysical Elements of Justice. Translated by John Ladd. New York: Bobbs-Merrill.
King, J. (1994). Surplus Labour. Published in Arestis, P. and Sawyer, M. The Elgar Companion to Radical Political
Economy. Cheltenham: Edward Elgar.
Lebowitz, M. (1988). Is “Analytical Marxism” Marxism? Science and Society, 52(2), 191–214.
——— (1994). Analytical Marxism and the Marxian Theory of Crisis. Cambridge Journal of Economics, 18, 163–179.
Lukes (1974). Power: A Radical View. London: MacMillan.
Maarek (1979). An Introduction to Karl Marx’s Das Kapital. Oxford: Martin Robinson.
Marx, K. (1976a). In Marx, K and Engels, F. Collected Works Vol. IV. London: Lawrence and Wishart.
———— (1976b). In Marx, K and Engels, F. Collected Works Vol. V. London: Lawrence and Wishart.
———— (1976c [1867]). Capital I. Introduced by Ernest Mandel. Harmondsworth: London.
Meszaros, I. (1975). Marx’s Theory of Alientation. London: Merlin Press.
Parsons, S. (1990). The Philosophical Roots of Modern Austrian Economics: Past Problems and Future Prospects.
History of Political Economy, 22(4), 295–319.
Petith, H. (1990). Game Theory and the Class Struggle. European Journal of Political Economy, 6, 407–414.
Philp, B.M. (1996). Anti-Reductionism, Methodological Individualism and Analytical Marxism. Journal of
Interdisciplinary Economics, 7(4), 237–253.
Roemer, J.E. (1978). Neoclassicism, Marxism and Collective Action. Journal of Economic Issues, 12.
———— (1981). Analytical Foundations of Marxian Economic Theory. Cambridge: Cambridge University Press.
———— (1982). A General Theory of Exploitation and Class. Cambridge (USA): Harvard University Press.
———— (1986). Rational Choice Marxism: Some Issues of Method and Substance. Published in Roemer, J.
Analytical Marxism. Cambridge: Cambridge University Press.
——— (1994). Egalitarian Perspectives. Cambridge: Cambridge University Press.
Smith, A. (1970 [1776]). The Wealth of Nations. Harmondsworth: Penguin.
Steedman, I. (1977). Marx After Sraffa. London: Verso.
Sugden, R. (1991). Philosophy and Economics. Economic Journal, 101, 751–785.
Van Parijs, P. (1983). Why Marxist Economics Needs Microfoundations: Postscript to an Obituary. Review of Radical
Political Economics, 111–124.
Varoufakis, Y. (1993). Modern and Postmodern Challenges to Game Theory. Erkenntnis, 38, 371–404.
Williams, B. (1979). Internal and External Reasons. Published in Harrison, R., Rational Action. Cambridge: Cambridge
University Press.
Wood, A. (1993). Hegel and Marxism. Published in Beiser, F., The Cambridge Companion to Hegel. Cambridge:
Cambridge University Press.
Wright, E.O. (1994). Interrogating Inequality. London: Verso.