MAKING MARXIST USE OF KEYNES

Bill Dunn
Paper for the Trans-Pennine Working Group, Manchester 28/10/16

1. Introduction

This paper is part of a broader project, trying to develop a Marxist critique of Keynes but a
critique that is not simply negative. The purpose is not to knock down Keynes but to enrich
Marxism through the appropriation and radicalisation of Keynesian insights.

The next section briefly sketches the understanding of Marxism informing this paper and its
critique of Keynes. It is necessarily superficial, largely sidestepping important controversies, but
it insists on an anti-determinist historical materialism, which nevertheless still distinguishes
conceptual priorities.

Even this sketch is sufficient to identify considerable tensions with Keynes’s approach,
discussed, in three parts, in the subsequent section. The first of these parts discusses Keynes’s
idealism and individualism, which combine in the invocation of a questionable psychology in
key explanatory economic variables. The second part considers Keynes’s views on knowledge,
uncertainty, indeterminism and on time. It includes a discussion of the General Theory’s static-
equilibrium approach. The third part considers Keynes’s conceptions of the ‘macro’, states and
the national economy, commenting on Keynes’s attitudes to money and finance. This bald list
suggests some fairly sharp antagonisms between Keynes and Marx.

At the very least, any synthesis seems likely to require some careful construction. Philosophical
differences militate against combination by the method of mixing-and-stirring (Mattick 1971).
We might be similarly wary of approaches which bracket Marx and Keynes as doing different
jobs and use one or the other according to the task in hand; perhaps ceding production to
Marx and money to Keynes (Hodgson 1982, Marglin 1990). Keynes, of course, was dismissive
of Marxism and it is tempting to reciprocate. In this vein there have been powerful rebuttals
(Eaton 1951, Pilling 1986). Keynes’s achievement was ‘only in substituting a new collection of
illusions for an older collection, which had become a little shop soiled’ (Meek 1956:19).

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‘Keynesianism merely reflects the transition of capitalism from its free-market to a state-aided
phase and provides an ideology for those who momentarily profit by this transition’ (Mattick
1971:333). ‘Keynes not only did nothing to overcome th[e] profoundly anti-historical character
of received economic theory; on the contrary, his example and prestige did much to
strengthen it’ (Sweezy 1964:312). He is a vulgar political economist, perhaps a more subtle and
plausible apologist for capitalism than the marginalist mainstream (Eaton 1951) but one with
equally little to offer to Marxists.

I think this dismissal is also a mistake and that Marxists can learn from Keynes. Since Marx, we
no longer have a relation comparable to that he made between the vulgar and the classical
school. Worse, it is possible to find vulgarity in Keynes. There are important respects in which
his advances from marginalism are a regression in relation even to pre-Marxist classical
political economy. But we do not advance or retreat evenly on every front and there are areas,
particularly in terms of the declared themes of the General Theory, that is on Employment,
Interest and Money, where Keynes’s analysis deals with issues which either the level of
abstraction of Capital or the concrete historical development of capitalism leave relatively
neglected in Marx’s analysis. Of course, any such underdeveloped in Marx’s own writings does
not mean we need Keynes to scale new heights. Marxists might insist on their self-sufficiency;
building upwards from pristine foundations. In principle, we may indeed be able to do without
Keynes. In practice, however, Marxist analyses at these levels remains thin and by engaging
with Keynes and the issues he tackles we might be able to move towards a better Marxist
understanding. Learning from non-Marxist sources has a pedigree which does not admit
capitulating to bourgeois political economy. Lenin’s (1965) analysis might have been led astray,
but he was not going soft, in using Hobson (2007) or in his praise for Keynes’s early work
(Turner 1969). If, for whatever reasons, the direct (Marxist) path to the summit is not being
taken, there seems little shame in climbing via a Keynesian detour. To show that this detour
might be accessible I want to argue that Keynes does not in fact construct impenetrable
methodological barriers between him and us. Typically, there is nothing at a methodological
level to sever important Keynesian arguments from re-integration into a dynamic Marxist
political economy. Keynes’s overall philosophical approach is subject to much controversy but
in each of these three parts here it is suggested that Keynes need not be read in ways radically
antithetical to the Marxist project.

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This means de-emphasising Keynes philosophical coherence. His The General Theory was less
than he claimed, indeed less than a general theory (Hodgson 2004). The book’s relative
specificity actually then allows it to offer much more than if it were more general. It is not the
perfect construction which collapses as soon as any particular philosophical foundation or any
particular part is shown to be unsustainable. Many of its specific claims become amenable to
transposition into an alternative, Marxist, framework. Keynes’s arguments are substantially
couched as a criticism of the mainstream and limited by this. They need to be ‘put in their
place’ through links to broader questions and often qualified in important respects. However, if
this can be done we should be closer to an adequate Marxist political economy than when we
started. In each of the three sections here, the point is illustrated by a discussion of specifically
Keynes’s concepts, which it is argued can be enriched and usefully ‘Marxified’.

Before going further I should briefly emphasise that this paper concentrates on Keynes’s own
ideas, particularly as they appear in the General Theory. The paper touches only selectively and
in passing on the vast subsequent Keynesian literature, some of which has sought to
incorporate Marxist insights from the other direction, as it were (Robinson 1966, Marglin 1990,
Harcourt 2004). My feeling is that the Keynes-Marx hybrids suffer from analogous weaknesses
to the Marx-Keynes varieties. Of course Marx fails - and fails to redeem economics - if the
object of value theory remains to provide a theory of relative prices (Robinson 1966). But these
works are not the subject of this paper, which also operates on a different terrain to the
numerous useful existing studies of Keynesianism as a social phenomenon or achieved policy
orientation (e.g. Wattle 1986, Clarke 1988, Hall 1989, De Angelis 2000).

2. A note on Marx’s methodology

There are, of course, disputes about Marx’s philosophy, of much greater age and complexity
than anything provoked by Keynes. It is beyond the scope of this paper to probe these too
deeply, and this section concentrates on presenting the interpretation taken here in order to
progress to the later parts of the paper and the critique of Keynes.

A central theme, to which the following sections return, is provided by Lukacs’s (1974)
insistence on the ‘methodological priority of the totality’. The ‘priority’ here is important,
immediately identifying that this does not involve a vacuous neo-Hegelian holism of the sort

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confronted by Keynes’s philosophical mentor, G.E. Moore, at Cambridge in the late 19th and
early 20th centuries. It also reminds us not to undervalue the parts and the differentiated
nature of that totality, countering hostile caricatures of Marxism as a crude determinism.

Three related themes inform what follows. Firstly, for the purposes here, I will simply assert
that Marx accepted the reality of both a physical and social world which worked ‘behind the
backs’ of those involved. In modern jargon, he rejects methodological individualism (but see
Romer 1982, Elster 1985). However, there is a mutual determination of structure and agency -
people make history albeit not in circumstances of their own choosing. Therefore, while
structural-functional arguments can play a role they cannot be sufficient and notions of human
agency underpin the transformative project at the heart of Marxism. Marx’s priority of social
being and of social structures over individual intentions and actions does not sanction a flip
into methodological collectivism. Secondly, we cannot fully ‘know’ the world in any absolute
sense but we can learn from it and learn from history. Marx understood social life in general
and capitalism in particular as characterised by dynamic change but this change is itself non-
uniform, with continuity also endemic to social life and vital to our attempts to understand it.
Thirdly, the relevant level of ‘society’, in concepts like the ‘socially necessary’ labour time, is
the whole, and therefore in principle global rather than national, however important the
differentiation of society, including into nations.

Marx’s avowed method involved working at different levels of abstraction and a movement
from the abstract and general to the concrete and specific. Most famously, in the Contribution
to the Critique of Political Economy (1970) and in the Grundrisse (1973) he sketched plans to
analyse capitalism first in abstraction from national boundaries before bringing-in nation states
and the international economy. Prospective further volumes of Capital, which would have
moved to these more concrete levels, remained unwritten. The method is not determinist and
each successive level is informed by what had gone before without being reducible to it, each
has a ‘moment’ of its own but what we (think we) know at the more general levels can both
inform and be tested by the subsequent ones.

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3. Keynes’s philosophy

There is considerable controversy over Keynes’s philosophical views and the extent to which
they influenced his economics. He wrote one major philosophical work, the Treatise on
Probability, to which he continued to refer, but left no substantial statement of his mature
philosophy. In his undergraduate days he was close, both personally and intellectually to
Moore. O’Donnell (1989) argues that Keynes’s undergraduate views remained unchanged in
their essentials. Keynes’s own 1938 memoir, ‘My Early Beliefs’, makes several statements that
support this reading. He thought his early ‘religion... remains nearer the truth than any other
that I know... It was a purer, sweeter air by far than Freud cum Marx. It is still my religion under
the surface’ (CW10:442). ‘I see no reason to shift from the fundamental intuitions of Principia
Ethica’ (CW10:444). There are, at least, continuities and connections between Keynes’s early
philosophy and his economic ideas (Fitzgibbons 1988, O’Donnell 1989, 1991, Dow 1996, Tabb
1999).

However, there are reasons to question this reading. As ever, Keynes said different things at
different times. Moggridge (1992) believes the Early Beliefs paper reports only Keynes’s very
early beliefs, abandoned even before he started work on probability, around 1905. Davis
(1994) suggests the early views, now also including those on probability, were abandoned and
proposes something of an epistemological break in Keynes’s thought under the influence of
Wittgenstein’s language philosophy. He also argues that Keynes’s avowed philosophy had little
direct influence on his economics. Here we could take as evidence the fact that in 1936 Keynes
depicts himself as having been a member of the classical school, ‘until quite recently’
(CW6:24), that is for at least three decades alongside the supposedly incompatible philosophy.

However, if ‘everyone is a philosopher, though in his own way and unconsciously’ (Gramsci
1971:323) Keynes was more self-consciously a philosopher than most. It seems worth
considerering this philosophical views, explicit or implicit, and what they mean for his
economic concepts. It is argued here that for Marxists there are problems and inconsistencies
in Keynes’s philosophy but that rather than this being simply a negative it actually allows the
critical appropriation of elements of his economics.

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3.1 Keynes’s inconsistent idealism

A strongly idealist strand runs through Keynes’s work. This can be traced to Moore (1993,
Passmore 1968) and Keynes repeatedly reemphasises the priority of ideas. Early on he thought
that ‘[i]nsufficiency of cleverness, not of goodness is the main trouble’ (cited in Moggridge
1976:42). The Economic Consequences of the Peace, suggests that ‘the power of ideas is
sovereign’ (CW? ch 6). The Tract on Money finds thoroughly idealist reasons for the retention
of gold. ‘Conservatism and scepticism join arms - as they often do. Perhaps superstition comes
into it too; for gold still enjoys the prestige of its smell and colour’ (1923:132). Keynes
attributes the resilience of laissez-faire to the ‘poor quality of its opponent[s] proposals -
protectionism on the one hand, and Marxism on the other’ (cited in Skidelsky 1992:225-6). In
1935 he writes that ‘we can be saved by the solution of an intellectual problem, and in no
other way’ (CW9:492). Perhaps most famously, the General Theory, insists:

[T]he ideas of economists and political philosophers, both when they are right and
when they are wrong, are more powerful than is commonly understood. Indeed the
world is ruled by little else…I am sure that the power of vested interests is vastly
exaggerated compared with the gradual encroachment of ideas. (1973:383)

It concludes ‘soon or late, it is ideas, not vested interests, which are dangerous for good or evil’
(1973:384). Here at least there is little ambiguity: Keynes’s ‘not’ is without qualification.

The idealism, in turn, seems to be of a thoroughly individualist bent. O’Donnell writes that ‘[t]o
the question, “Where do correct ideas come from” Do they drop from the skies? Are they
innate in the mind?”... Keynes’s response would have been that they are Platonic forms
discovered by the intuitive power of the mind’ (1989:90). Again Keynes follows Moore who
suggests that knowledge is available directly through private intuition. Moore’s Principia is
primarily a work of ethics, but says we know good from bad in essentially the same way we
know the material world. The standard example is yellow. There is no further referent, we just
know yellow when we see it and ‘you cannot, by any manner of means, explain to any one who
does not already know it, what yellow is, so you cannot explain what good is’ (Moore 1993:59).
Neither yellow nor good can be discovered from other properties of the world. As soon as we
attempt to define goodness or to explain it in terms of something else we end up either in
circularity or in what Moore terms the ‘naturalistic fallacy’. Elements of this individualist
idealism seem to inform Keynes’s notions of probability as subjective rather than objective.
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‘There is no direct relation between the truth of a proposition and its probability. Probability
begins and ends with probability’ (1921:356, but see also Lawson 1988). As Davis comments,
the human mind appears to have ‘some special non-sensory, cognitive facility for
apprehending this relation’ (1994:20). In his otherwise enthusiastic account of Keynes’s
philosophy, O’Donnell admits ‘Keynes’s epistemology clearly suffers shortcomings. Its
intuitionist component…has now been generally abandoned’ (1989:333).

Knowledge predicated on individual intuition also lends itself to a conservative elitism, which
pervades Keynes’s thought. Any epistemological uncertainties notwithstanding, ‘Keynes never
lost faith in the view that an intellectual group of moral scientists would light the pathway’
(Davidson 2009:4, see also Harrod 1951:331-2).

The individualist idealism reappears in Keynes’s economics. The idealist individualism fits with
the engagement with the mainstream on its own terms (Dobb 1956) but becomes amplified in
Keynes’s invocations of the important role played by expectations based on individual
psychology. ‘Effective demand is made up of the sum of two factors based respectively on the
expectation of what is going to be consumed and on the expectation of what is going to be
invested’ (Keynes CW13:439). Keynes begins by describing how the propensity to consume is
established by a variety of ‘objective’ and ‘subjective’ factors (1973:91-108). Quickly, however,
we find there is one crucial variable:

The fundamental psychological law, upon which we are entitled to depend with great
confidence both a priori from our knowledge of human nature and from the detailed
facts of experience, is that men are disposed, as a rule and on the average, to increase
their consumption as their income increases, but not by as much as the increase in
their income. (1973:96)

Meanwhile, individual entrepreneurs remain the (flawed) heroes of the narrative, with their
investment decisions again determined by individual expectations and willingness ‘to take a
chance’ over and above ‘cold calculation’ (Keynes 1973:150, see also Dow and Dow 2004).
Changes in the expectations of change are themselves the key cause of change (Keynes
1973:152, Davis 1994:138). Thus Keynes appears to be suggesting that ‘beliefs change
erratically without corresponding changes in their basis in conditions ...[this] leads to
autonomous variations in the aggregate of expenditure resulting from investment decisions’

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(Coddington,1983:53). These propensities to consume and to invest or not to do so are ‘truly
within the power of the individual’ (1973:65).

Fortunately, Keynes is an inconsistent idealist. Again it is worth going back to Moore and his
confrontation with neo-Hegelianism and its pragmatist opponents. Hegelianism in Britain had
became much more rather than less idealist than in Hegel himself. Moore rejected this. So
there is a pragmatism to Moore. Passmore comments that Moore is certain, ‘that the
common-sense view of the world – which he sets out in some detail – is true; he knows, for
example, that there are living human beings with whom he can communicate’ (1968:210).
There is no deep-seated ontological idealism. In the Treatise on Probability, ‘knowledge of a
proposition always corresponds to certainty of rational belief in it and at the same time to
actual truth in the proposition. We cannot know a proposition unless it is in fact true’ (cited in
O’Donnell 1989:86). Here the problem seems to be definitional and for Keynes it is simply that
‘new evidence would give us a new probability, not a fuller knowledge of the old one’ (Keynes
1921:31). Lawson writes of that although ‘Keynes does ascribe significant powers of a priori
reasoning to individuals ... throughout his total contributions he is explicit that such a priori
thought is considered always to be open to constant modification and correction through
continual interaction with experiences of the real world’ (Lawson 1988:56). Keynes himself
describes absolute intuition as ‘hardly a state of mind which a grown-up person in his senses
could sustain literally’ (cited in Hillard 1988:4). Even some of the ‘idealist’ assertions reported
above make clear that Keynes recognises the existence of an exterior physical and social
reality, in some more or less ill-defined relation with individuals’ ideas. Similarly, when Keynes
says of his early beliefs that ‘[n]othing mattered except states of mind, our own and other
people’s of course, but chiefly our own’ (CW10:436), this implicitly recognises the existence of
worldly matters but chooses to distain them. Keynes reflects on the classical ‘Ricardian’ victory.

That its teaching, translated into practice, was austere and often unpalatable, lent it
virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it
beauty. That it could explain much social injustice and apparent cruelty as an inevitable
incident in the scheme of progress, and the attempt to change such things as likely on
the whole to do more harm than good, commented it to authority. That it afforded a
measure of justification to the free activities of the individual capitalist, attracted to it
the support of the dominant social force behind authority. (1973:33)

Keynes’s ironical tone notwithstanding, there is little here with which a Marxist need disagree.

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If the idealism is inconsistent, in several places, Keynes seems to abandon individualism and to
privilege wholes. Winslow argues that after writing the Treatise on Probability Keynes ‘explicitly
abandons atomicism in favour of organicism as the metaphysical description appropriate to the
moral sciences generally and in economics particularly’ (cited in Rotheim 1988:87). In 1933
Keynes writes:

We are faced at every turn with the problems of organic unity, of discreteness, of
discontinuity - the whole is not equal to the sum of the parts, comparisons of quantity
fail us, small changes produce large effects, the assumptions of a uniform homogenous
continuum are not satisfied. (CW10:262)

Although there seems to have been a development in Keynes’s thought, this stress on organic
wholes can also be traced to Moore (1993:85) and by 1938 Keynes was also claiming it as part
of his early beliefs (CW10:436). I will return to Keynes’s treatment of time below but in this
context it is also worth noting that he continues that ‘I myself was always an advocate of a
principle of organic unity through time, which still seems to me only sensible’ (CW10:436).
Fitzgibbons writes of ‘Keynes’s intellectual search and evolution, beginning with the Treatise on
Probability and culminating with the General Theory, as an attempt to reconcile the spheres of
constancy and change’ (Fitzgibbons 1988:49). If Davis (1994) is right and the mature Keynes
becomes increasingly influenced by Wittgenstein’s language philosophy, this would also
support a social rather than individual construction of knowledge.

This importance of wholes has been seen as crucial to Keynes’s economics. It underpinned his
recognition of the interdependence of economic variables and a wariness of formal
mathematical presentation in preference for ‘ordinary discourse’ where ‘we can keep “at the
back of our heads” the necessary reserves and qualifications’ (1973:297). It is typically seen as
informing the macro analysis of the General Theory. O’Donnell (1989) particularly reads
Keynes’s repeated emphasis on fallacies of composition in this way. Individually rational
decisions need not sum to economically let alone socially advantageous outcomes. I am not
sure this as a necessary conclusion and, in operating on the terrain of orthodoxy, Keynes’s
arguments seem substantially compatible with individualism. Fallacies of composition do not
refute this methodologically. They are a staple, for example, of modern game theory. As many
later economists have insisted, the ‘macro’ can be built on micro foundations. Much of the
General Theory does operate at least as if Keynes accepted the mainstream’s individualism.

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Nevertheless, there is enough in Keynes to suggest that individualism should at least
substantially qualified and that the wholes and the parts can ‘get at’ each other.

The point here is that Keynes is right to insist that individuals and their ideas matter; right even
that at certain conjunctures their influence can be decisive. It is surely useful for political
economists to draw on psychology but that would require a genuine engagement.
Unfortunately, Keynes typically relies on assertion and provides few grounds for evaluating the
relative importance of individuals, ideas and social structures. He tends to bracket his
economic variables as either indeterminate or hanging on individual psychology without
identifying how we might get into the heads of the actors. We do not know ‘why people expect
what they expect’ (Schumpeter cited in Skidelsky 1992:577). Keynes invokes universal
psychological laws, but apart from an occasional invocation of Freud in explaining gold
fetishism (1923:132), does so almost wholly without reference to any psychological literature
(Hodgson 2004). Human motives are surely complexly social and changeable on more than
narrow economic grounds Keynes suggests (Skidelsky 1992:130). However, if Keynes’s
categories are posited as social constructions they become more plausible but also less
absolute and testable.

For example, claims that we need psychology to explain consumption decisions seem
reasonable but the evidence questions a consistent relation between income and consumption
and saving. This is especially clear in as far as Keynes envisages this as a key difference
between rich countries and poor (1973:31). Claims that consumer behaviour changes relatively
slowly in response to changes in income seem better supported (see e.g. Stewart 1972). This
alone might be sufficient for Keynes’s narrow purpose of undermining marginalism and Say’s
Law. Any change in the consumption function is sufficient to generate multiplier effects in the
sense that changes in (un)employment generate counteracting or amplifying forces. As Chick
writes, ‘the propensity to consume does not rise pari passu with the ability to consume. That is
sufficient to dispatch ‘the Classics’ (1983:111). Of course, to develop a positive political
economy we need more.

Investment too involves real decisions of both quality and quantity, worth studying critically.
This will be discussed below but the problems of beginning with individual psychology are

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amplified in Keynes’s conception of investment. Neither the imperatives firms face nor their
complex institutional character enter his depiction.

Similarly, for Keynes the public exercise ‘“a free choice” as to the proportion in which they
divide their increase of income between saving and spending’ (1973:82) and his important
category of liquidity-preference is again predicated on individuals’ (ir)rational expectations.
This belies his own awareness of income inequalities but also how the real uncertainties in
capitalist production, which Keynes recognised as inherently speculative, encourage, even
require, holding cash reserves. As with so much of the subsequent literature on finance,
Keynes provides little distinction between corporate and private savings and little sense of of
any role for financial institutions. Investigating the array of speculative motives and financial
power takes us away from Keynes but also onto terrain where more theoretically informed
Marxist research is needed.

3.2 The ambiguous status of knowledge, uncertainty and time in Keynes’s work

In considerable tension both with invocations of direct knowledge through intuition and with
hopes of successful economic oversight, Keynes at times seems to depict a radically
unknowable world. This has been stressed by some post-Keynesians as the key to
understanding his theoretical innovation. Instead of harmonious equilibrium, we have a theory
of disorder (Shackle 1972, Davidson 2009). Depictions of the dynamic and unpredictable
character of the capitalist economy challenge the essentially static representations of
mainstream economics and assumptions of stability. Davidson (2009) contrasts Keynes’s
approach with the ‘ergodic axiom’ where ‘the outcome at any future date is the statistical
shadow of past and current data’ (2009:31). In Keynes’s vision ‘the future is ontologically
uncertain’ (Davidson 2009:101). Now, if short-run expectations are disappointed, this affects
long period expectations (and vice-versa) (Kregel 1976). This is a vision where ‘sensible
decision makers “know” it will always be impossible to possess at any future date a complete
list of prospects’ (Davidson 2009:109). Decisions at one time destroy the environment in which
they themselves were made. So events are not replicable and no historical process of statistical
learning is possible (Carvalho 1998).

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The radically indeterminist reading relies quite heavily on extrapolating from Chapters 12 and
17 of the General Theory and an article the following year defending it. What Keynes says in
these is important but hardly seems sufficient as either the culmination or the basis for the rest
of the General Theory. At the very least, that book offers much else besides these insights.
Taken to their extreme, but possibly logical conclusion, they have serious, even nihilistic
consequences. Coddington identifies ‘problems of uncertainty in economic decision-making …
as an analytical issue it is - depending on how it is handled - either innocuous or else quite
indiscriminately destructive’ (1983:50, see also Dean 1980:22). Bateman argues that
‘[s]uggesting that Keynes felt that uncertainty makes economic analysis impossible explains
neither the years he put into producing The General Theory, nor the time he spent after its
publication attempting to clarify its meaning and importance’ (1987:117). Therefore, even if
cautious of the more radical indeterminism, we can recognise that Keynes raises important
epistemological issues.

Notions of uncertainty are important to Keynes and he is deeply sceptical about our ability to
know at least some aspects of our world and particularly about our ability to learn from the
past. Keynes distinguished between ordinal and cardinal probabilities but also identified a class
of radical uncertainty. Sometimes we simply have no basis for judgment even whether one
thing is more likely than another. Far from there being calculable trajectories, often we simply
do not know. Amongst other things, this provides a useful warning against a spurious
mathematical precision which already in Keynes’s times, and so much more today, dominates
mainstream economics. ‘There is no general presumption that the world is inherently
quantitative, or fundamentally isomorphic with the terms necessary for mathematical analysis’
(O’Donnell 1989:62). Keynes briefly refers to his earlier work on probability in the General
Theory and later affirms how unknowability becomes particularly relevant in terms of a distant
future.

By “uncertain” knowledge I do not mean merely to distinguish what is known for

certain from what is only probable…The sense in which I am using the term is that in
which the prospect of a European war is uncertain, or the price of copper and the rate
of interest twenty years hence…About these matters there is no scientific basis on
which to form any calculable probability whatever. We simply do not know. (cited in
Skidelsky 2009:87)

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However, in the short-run, people can often fall back on current experiences and convention as
a guide to action (Dostaler 2007). Keynes also sees ‘individuals [as] much more similar than
they are dissimilar in their reaction to news’ (1973:199). As a consequence, we find, for
example ‘[i]t might be more accurate, perhaps, to say that the rate of interest is a highly
conventional, rather than a highly psychological, phenomenon. For its actual value is largely
governed by the prevailing view as to what its value is expected to be’ (1973:203). Keynes
similarly writes that ‘[e]ffective demand always reflects the current expectation of actual
demand’ (cited in O’Donnell 1989:235). The difficulties securing investment are not reduced to
‘irrational psychology’ and ‘long-term expectation is often steady’ (1973:162). Carvahlo writes:

[A]lthough in the strictest sense the world changes continually, for practical purposes
there is enough continuity in social processes to allow some space to the principle of
induction. This certainly was Keynes’s view not only in the Treatise on Probability but
also in The General Theory. (1988:79)

‘We are merely (sic) reminding ourselves that human decisions affecting the future, whether
personal or political or economic, cannot depend on strict mathematical calculation’ (Keynes
1973:162). After the more drastic claims of unknowability this is quite an anti-climax; although
confidence in our apprehension does fade with the time horizon.

As early as 1923 Keynes had warned that in the long-run we are all dead and condemned an
economics which reckoned that an appropriate analytical time-frame. However, the virtues of
Keynes’s acknowledgement of time and uncertainty come with their own vices.

Firstly, in the General Theory expectations appear as data, ‘as autonomous influences that
come in from outside, not as elements that are moulded in the course of the process that is
being analyzed’ (Coddington 1983:88). Without addition, this can mean simply introducing
extra variables into what otherwise remains an essentially Marshallian framework (Clarke
1988). For example, notably in Hick’s IS-LM framework, radical uncertainty becomes caged in
the black box of liquidity preference and just another independent variable to be introduced to
the equations.

Secondly, at the risk of an excessive literalism, Keynes’s examples seem worth a brief
reflection. If we extrapolate the World Bank (2016) data for the price of copper from 1960 to
1995 over the subsequent twenty years, it can ‘predict’ a 2015 price of $3391 per metric
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tonne. We could even calculate statistical confidence levels and claim to be 99 per cent sure
that the price would lie somewhere between $2500 and $4051. By 2015 the price was actually
$6295. This confirms Keynes’s scepticism and reminds us of the folly of so much econometric
prediction (Tabb 1999). There was a quite unanticipated boom in the price of copper and other
commodities after 2003 (Wray 2008). However, such results hardly confirm radical uncertainty
in Keynes’s sense. At an order of magnitude level, the price of copper was quite predictable;
we were extremely unlikely to be measuring it in cents or in millions of dollars. Similarly,
interest rates have continued to fluctuate, but at least for the leading countries which were the
focus of Keynes attention, within rather narrow parameters. The case of European war is
somewhat different, and the binary makes it both essentially non-quantifiable and untestable.
Yet, for a statement written in 1937, Keynes’s claim is startling. It is surely at least possible to
identify developments making war more or less likely, to increase or decrease political
tensions. Some Marxist predictions here counsel caution, but we are hardly dealing with radical
indeterminacy.

Thirdly, Keynes’s emphasis on the short-run in the face of future uncertainties meshes neatly
with a conservative political philosophy he derives from Burke. It is not possible here to deal
with Keynes’s politics in detail but his debts to Burke were longstanding. Today Burke (1955)
often seems shockingly anachronistic. He repeatedly couches his opposition to change in terms
of its affront to the king and established religion. However, to concentrate on just one theme,
Burke makes an important claim about the relation between today and what may or may not
happen in the future. Contrasting the horrors of the French revolution with Greek tragedy, we
have ‘a principal actor weighing … in the scales hung in a shop of horrors - so much actual
crime against so much contingent advantage (1955:92). Again this line of thought also runs
through Moore but would be recurringly important to Keynes in the context of his views of the
uncertain long-run future. This informs Keynes’s explicitly political writing, for example his
support British re-armament and a peace policy, close to the official line of appeasement.

It is our duty to prolong peace, hour by hour, day by day, for as long as we can. We do
not know what the future will bring, except that it will be quite different from anything
we could predict. I have said in another context that it is a disadvantage of ‘the long
run’ that in the long run we are all dead. But I could have said equally well that it is the
great advantage of ‘the short run’ that in the short run we are still alive. Life and history
are made up of short runs. (CW18:62)

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Keynes’s own references to Burke emphasise the conservative potential of this maxim and
Keynes applied the same logic in his contempt for bold socialist plans for the future. However,
the principle seems susceptible to inversion, in ways that would have been anathema to Burke.
If hardship now cannot be justified in the name of (uncertain) future advantages, we might
equally seize current advantage (or eliminate current evils) at the expense of only contingent
future hardships. As far as I know, Keynes never explicitly invokes the principle in this sense but
such a rationale seems implicit in some of his economic proposals. It would be worth spending
our way out of crises, even at the cost of future indebtedness.

Fourthly, Keynes’s scepticism about our knowledge of the (distant) future encourages his
emphasis on short-run equilibrium analysis. Amongst other things, this means that for the vast
majority of the General Theory, much that is dynamic and changeable in capitalism is simply
accepted as ‘given’. In this Keynes’s analysis ostensibly mirrors the mainstream and contrasts
with the dynamic assumptions with which Marxists work from the beginning and which more
radical Keynesians like Robinson (1966) have accepted as a more appropriate starting place.
Keynes also mimics the mainstream in his focus on markets and his cursory treatment of
production. The limits of Keynes’s static treatment become particularly clear in thinking about
his production concepts of investment and the marginal efficiency of capital. Most startlingly
for Marxists, Keynes of course has no theory of profit. The General Theory repeats the
mainstream’s double-speak that profits are simply an element of capitalists’ costs (1973:161).
Workers remain passive, always allotted appropriate wages (Keynes 1973:5). Even a
substantially Keynesian analysis might acknowledge more variables and acknowledge that
levels of wages and employment are indeterminate (Chick 1983:162). In practice, as Chick
argues, wages and employment ‘are determined, partly by demand and supply broadly
interpreted and partly, as anyone with common sense would expect, by history’ (Chick
1983:162). Keynes also takes-over the mainstream view substantially unamended in seeing
investment as reducible to any marginal efficiency of capital schedule and whether or not this
exceeds the rate of interest. The inadequacies of this are clear both in terms of cause and
effect. The causes of investment lie in the dynamics of competitive accumulation and its
effects involve constant innovation and change. The realisation of profit and dynamic
processes of accumulation then pervade everything else; including the determination of the
rate of interest, the volume of employment and any propensity to save. Tsuru writes:

15
 [T]he Keynesian investment is defined mainly from the standpoint of its multiplier
aspect and subsumes all kinds of economic acts which may be quite dissimilar to each
other with respect to their productive activity...But when we try to incorporate the
productivity effect of investment into our theory, we immediately realize that we must
re-examine the concept of investment itself and make it theoretically a much more
abstract concept than when we use it in the multiplier analysis. Pyramid building, for
example, has to be deducted from it... For Marx investment has ‘the dual effect of both
creating effective demand and adding to productive capacity. (1994:25-26)

So here Keynes regresses from the classics with little to say about class, about relations
between capitalists or either the motives or effects of investment (Meek 1956).

However, it is important to understand what Keynes gains by his static analysis and this
remains potentially useful if conceived in its proper place. The static analysis at the core of the
General Theory serves a useful purpose in contesting mainstream assumptions that everything
moves towards equilibrium in which markets work ‘efficiently’. He shows there are situations
in which there are no incentives for individuals and firms to change behaviour, despite this
leading to socially and economically sub-optimal outcomes. So even as the idea of
unemployment equilibrium reflects Keynes’s engagement with mainstream economics on its
own terms and as such cannot provide the basis for a sufficient general theory it does help
identify the unemployment reproducing effects of individuals’ decisions at definite times and
in a discontinuous, heterogeneous and uncertain economy. Firms and individuals do make
decisions and act, if not precisely instantaneously more or less at given times at which the
variables, including technology can be taken as given. Firms do choose to operate today’s
technology at less than full capacity, to buy more of today’s capital goods, not those of
tomorrow or of five years’ time. Of course, an awareness of dynamic change also informs
decisions and actions but it seems reasonable to abstract from that change in analysing the
decisions themselves. We can learn much from the still photograph of the running horse,
sometimes more than we can from the moving film.

Keynes can also be read as providing a better account and explanation of what the mainstream
considers to be ‘frictions’. There is a real ‘inertia’ in the system. What for the mainstream are
just unfortunate obstacles or intrusions into the operation of free market are for Keynes an
intrinsic feature of its operation. There is much that as Marxists we would want to add but if
we stop at the point of recognising that the economy is essentially dynamic in ways that
Keynes’s never acknowledges, we miss both useful (positive) Keynesian insights and useful
16
arguments which come out of further constructive engagement. Employment and
unemployment do depend also on supply factors (discussed above) and on the rate of interest
and monetary arrangements (discussed below).

3.3 The ‘marco’ and the nation state: the importance and limits of state power

Keynes reinstates the importance of economic aggregates, inherent in classical political

economy and in Marx, but then lost. The General Theory is explicitly concerned with the whole
economy and Keynes identifies this as a secondary sense in which his theory is general. As early
Marxist commentators on Keynes were quick to point out, it is then possible to ‘translate’
many Marxist aggregate categories into Keynesian ones and vice versa (Tsuru 1994, Fan-Hung
1939). Moreover, while the discussion above about individuals and wholes suggested some
ambiguity, it seems fairly clear that Keynes sees this as a process of mutual co-determination.
The recent preoccupation with giving macroeconomics, micro foundation is misplaced.

For Keynes, the relevant level of aggregation is the nation state. This national orientation is
very prominent in earlier works like the Treatise on Money (2011) but it becomes more implicit
in the General Theory, where the analysis substantially abstracts from national boundaries and
the international dimensions. Here too there are parallels with Marx’s Capital. However, there
is a subtle difference. As above, for Marx, the methodological primacy of the totality can
reasonably be taken to imply that the relevant level of society - in concepts like the ‘socially
necessary labour time’ - is in principle global. Which is not to underestimate the importance of
the internal differentiation of the totality; not least into national economies. For Keynes,
society is understood primarily in national terms and the international is then comprised of
discrete interacting national entities. Of course, this is not to underestimate the interactions
and Keynes remains well aware of many limits to state autonomy, for example, seeing
multiplier effects as undermined by trade in an ‘open’ economy (1973:120). The limits to policy
inherent in an international system are therefore not in doubt and Marx and Keynes might
appear to be saying much the same thing. However, all of Keynes’s vital categories,
investment, the marginal efficiency of capital, the rate of interest, liquidity preference, the
quantity of money, the volume of employment, the propensity to consume, are all understood
in essentially national terms.

17
In relation to mainstream economics, Keynes quite appropriately highlights that states can and
do act. In particular, they can invest (and through multiplier effects stimulate further
investment) where private capital might be unwilling to venture. Here Keynes’s is quite aware
that states are not conjuring resources from nothing but provides grounds for rejecting
mainstream claims of ‘crowding out’. We might add that states also attenuate entrepreneurs’
‘uncertainties’ within corporate capitalism. However, Keynes’s view seems predicated upon -
and in turn helps reaffirm - his exaggerated faith in national autonomy and state power.
Keynes’s remarkable optimism in benign state oversight has led at least one recent writer to
explicitly link Keynes and Hegel in their shared belief in the state’s ability to overcome the
disturbances of civil society (Mann 2016). It is unnecessary here to labour a discussion of the
profound limits to what states can do. Even in Keynes’s own term, one might expect a
problem. For Coddington ‘since infallible knowledge of the future is unattainable, the decisions
to embark on capital projects must, in the nature of the case, be based on beliefs the
epistemological foundations of which are more or less flimsy’ (1983:50-1). Marxists can say
much more.

Keynes also reifies ‘the national’ level in the sense of eliminating other differentiations. We
have individuals and states and very little in between. A sympathetic institutional economist
like Galbriath identifies how Keynes remains orthodox in broadly accepting a competitive
market bleached of unions and corporate power (1995:224-5).

For all this, Keynes discussion of the state takes him into terrain, notably in relation to
monetary policy and thence to the determination of interest rates, into which Marx never
ventured far in Capital. Of course, there are important anticipations, notably in Marx’s (1976)
discussion of hoarding and criticisms of the Quantity Theory (Robinson 1966:68). However, the
role of states in managing monetary affairs is crucial to Keynes’s analysis and to any plausible
examination of the modern real world economy. So again, with qualifications, it may be useful
to build on Keynes. Against modern monetarism which sees prices responding to increases in
the money supply in a straightforward way (and also against Keynes’s earlier (2011) insistence
that all money is Chartalist), many post-Keynesians insist that money is ‘endogenous’.
Something similar might be taken from Marx: money as commodity money can be produced
privately like other commodities, while private banks can produce non-commodity money.
However, firstly, state intervention matters and affects monetary arrangements profoundly.

18
This becomes particularly obvious in an international context: it would hardly make sense to
see a small dollarised national economy as having endogenous money. Secondly, the strict
endogenous / exogenous distinction is a misleading reification of the separation between
economics and politics. Taken literally, the claim of ‘endogenicity’ implies that states are
outside the economy and our subject matter. In the General Theory, alongside the
psychological propensities and the wage bargain, Keynes sees the third fundamental variable
as ‘the quantity of money as determined by the action of the central bank’ (1973:246-7). For
Keynes, the monetary authority is a governor of prices but not the only influence (Skidelsky
1992:317). States matter and monetary policy is not something that could be read off narrowly
from the structures of capital. In relation to money, in contrast to any real investment, states
can increase resources more or less from nothing, for example to pay debts or their own wage
bills in their own currency. This is not to say, and Keynes nowhere suggests, that this is costless
but states’ control of money provides an important economic and policy tool with real social
consequences.

For Keynes, the state-determined quantity of money acts alongside market-determined

liquidity-preference to determine the rate of interest. Keynes then reads the determination of
investment (backwards) from this rate of interest. Of course, Marx is right to begin with the
rate of profit in seeing this as setting the maximum normal rate of interest. But there is a
mutual determination in which national policy decisions also matter. What is also clear is the
inadequacy of conceiving variables like liquidity-preference on a national basis and that cross-
border flows of savings as much as absolute levels can be crucial. Once again, the General
Theory was less than general. Keynes identifies important things about what states can do and
about the limits and problems of their interventions but these insights are limited by a
desocialised and national rather than global understanding of both states and economic
relations.

4. Conclusions: reinterpreting Keynes’s philosophy and using his insights

Marx and Keynes understood the world very differently and their political economies were
constructed to very different ends. It is misleading to imagine them providing alternative
versions of the same thing or to expect an easy synthesis. Keynes made big claims for the
General Theory; for its revolutionary and general character. His characteristic immodesty and

19
self-promotion notwithstanding, I think we can assume he believed what he was saying.
Keynes meant us to take his theory, including its methodological underpinnings, very seriously.
He was a sophisticated thinker, but he took what he wanted from philosophers, much as he
took from past political economists, in order to bolster his arguments. If in practice he
sometimes did so in a loose way, this is probably more in keeping with traditions of liberal
English eclecticism to which Keynes properly belongs than attempts to redraw his thought into
the style of grander continental philosophising. It was argued here that this means that
although parts of Keynes’s philosophy are problematic for Marxists, he never builds a
fundamental methodological barrier between us. Even at his most individualist, idealist and
indeterminist, the individualism, idealism and indeterminism do not run very deep at a
philosophical level. It remains possible for many Keynesian concepts to be developed by
Marxists when, as we should, we think about individuals, ideas and uncertainty. A rather
thoroughgoing conservative political philosophy and unwarranted faith in the state does not
invalidate a recognition of important aspects of state’s potential.

Keynes’s analysis is constructed through a sustained critical engagement with the mainstream
of his day and limited by this. His cavalier rejection of ‘the classics’ from Ricardo through to
Marshall and Pigou meant he did great injustice to the earlier traditions and lost much of their
insight while he framed his own analysis in substantially Marshallian, partial-equilibrium terms.
There are ironies here because the earlier ‘pre-Keynesian’ Keynes had already condemned the
mainstream in much broader terms (Keynes CW9:284-5) but in explicitly operating on the
terrain of orthodox economics, Keynes often at least appears to embrace their individualism,
albeit that utility maximising individuals need not sum to utility maximising social wholes. His
analysis is for the most part static and, in undermining the follies in complacent belief in long-
term equilibrium, it deliberately concentrates on the short-term. Keynes then takes as given
much that Marxists take as dynamically changeable. There is little hint of ‘power, class, social
conflict, political structures and institutions’ (O’Donnell 1991:8). If Keynes succeeds in
debunking the crude optimism and faith in free markets and full employment he substitutes an
equally implausible faith in the benevolent capacities of nation states.

However, none of this prevents Marxism from being enriched by a careful assimilation of
Keynesian insights. Marxism’s acknowledgement of an interaction of social processes or
structures and agents allows, even requires, a critical theorisation of agency and individual

20
action. Marxists should not defer the capacity for people to make history to distant
revolutionary days but integrate it into a theory of capitalism’s routine operation. Understood
in this light, Keynes’s insights can help explain capitalism and its contradictions at a higher level
of concreteness than Marx worked in Capital, in particular helping to explain accumulation’s
variable and often restricted character. We should address the questions, without accepting
the answers Keynes offers in terms of how state activity shapes the economy. Conversely,
there is no compelling epistemological imperative to sever Keynes’s individualist insights from
social foundations. Keynes, often perceives partial, specifically capitalist truths as timeless ones
(Sweezy 1956) but we can use and radicalise those partial truths.

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