You are on page 1of 5

Marxian Macroeconomics: An Overview

Geert Reuten (University of Amsterdam, Department of Economics)

[2002]

in Brian Snowdon & Howard Vane (eds), Encyclopedia of Macroeconomics, Aldershot: Edward Elgar, 2002, 464-69
[Note: this is the text of the typescript; the final printed version can be textually more polished]

The Marxian approach in economics stems from Karl Marx's analysis of the working of the capitalist economy, especially in his main investigation Capital (three volumes, 1867, 1885, 1894). Although these works are interesting for the specialist, they can hardly serve as an introduction to current research in Marxian economics. For over a hundred years its research themes, methods and techniques have been in continuous revision (the same applies of course to Jevons and Marshall for the Neoclassicals, or Keynes for the PostKeynesians at some point, however, it is rewarding to read the classics). Since heterodox minority views in economics, including Marxian economics, are not generally taught in a large number of universities, several basic characteristics of Marxian theory should first be noted (for general introductory accounts of Marxian economics, see Foley 1986 or the earlier Desai 1979 and Fine & Harris 1979; for contemporary controversies and more advanced study one might turn to Bellofiore, ed., 1998). (1) Central to the paradigm is that the capitalist system is a historically specific mode of production, allocation and distribution. Capitalism is not merely an allocating and distributing market economy; more than that, each historically specific economic system necessarily operates through a specific social form as the dominant criterion and measure of production. For capitalism this is the monetary value-form; it not merely dominates market exchange but also the process of production. Hence techniques of production and technological trajectories are not naturalistic phenomena; for capitalism, they are determined by the value-form (see Murray 2002). (2) Key capitalist criteria of production deriving from the value-form are profit and the rate of profit (these two do not always move in the same direction). Together, they determine the (rate of) accumulation of capital the growth of capital that is the lever for more profits. Thus profit and the growth of capital, rather than other possible criteria, such as human needs and use-value, determine production. Note, however, that like with technology human needs are not naturalistic', they are themselves determined within and as part of a social formation, in case the capitalist system (see Campbell 1993). (3) Profit is the result of exploitation of labour (the product of labour is larger than its wages, profit being the difference). However, the level of the wage rate is only one of the two factors determining the distribution of income. The other factor is the labour process at the point of production, which entails a particular intensity of labour. Hence we see regular struggle between capital and workers, both over the wage and at the point of production (i.e. over working conditions). Many Marxists would add to the factual theses (1)-(3) normative judgements about each: the value-form, the profit criterion and exploitation. In principle, however, moral and political judgments about these can be separated from the analytical issues (1)-(3). Thus it is possible to accept the Marxian analytical apparatus as superior to the Neoclassical, for

example, without sharing the normative judgements. (Conversely, one might accept the analytical side of neoclassical apparatus whilst being vigorously opposed to the capitalist system.) We now move on to macroeconomics specifically. Although J.M. Keynes and his followers most influentially set out principles of macroeconomics, macroeconomics originates independently in Marx's Capital. Apart from a theory of money and a general critique of Say's Law early on in Capital I, this work contains three main macroeconomic building blocks. First, a model of the Circuit of Capital (Marx 1885, Part One). This model emphasises capitals continuous movement through four manifestations, or shapes, together constituting the macroeconomic circuit of capital. M E Cmp;lp P C* E (M+M) Starting with the monetary finance of capital. The shape of money capital (M), is transformed in the exchange process (E) into the shape of commodity capital (C), specifically means of production (mp) and labour power (lp); the latter work up the former in the process of production (). In production we have the shape of capital in process (P), which constitutes a metamorphosis again into the shape of commodity capital (C*), with C* different qualitatively from C, as well as quantitatively in value terms (C*>C). Finally, we have another market exchange (E) transforming the expanded commodity value C* into a monetary value equivalent M+M, the shape of expanded money capital. The process now resumes on an expanded scale. Note that in a sectoral break down of the macro conception, the exchange of M E C is at the same time for other capitals the exchange phase of C* E (M+M). (For more on this circuit, see Arthur 1998.) The second main building block is a Reproduction Schema of the capitalist economy (Marx 1885, Part Three). In modern terms it would be called a dynamic two-sector macroeconomic model of production and realisation (Marx was the first economist to develop such a model; up to about 1950 the term model was not used in economics; schema was a name adopted from Marx, e.g. Tinbergen). The first sector in the model produces means of production (investment goods) and the second sector consumer goods. On basis of the model Marx was able to specify a number of dynamic interconnections in the functioning of the capitalist economy. Particularly he showed that in the context of economic growth, proportionality, or balance, between the two major sectors of the economy is most unlikely. In other words, disproportional or disequilibrium growth, together with its potentialities for economic crisis, is the normal case. Over fifty years later, Harrod and Domar confirmed this result on the basis of their famous 'knife edge' models of economic growth. Empirically the Schema may explain the extreme volatility of investment (capital formation) that we perceive till today. (For more on this model, see Reuten 1998.) In the middle part of Capital II we find a long and tedious (and therefore difficult) treatment of turnover time a much neglected issue in economics generally (though not in financial accounting), but also in Marxian economics (see however, Mandel 1975 ch 7,

Smith 1998, and especially for its monetary aspects, Campbell 1998). The third main building block is not this turnover treatment, but rather that of the development of the average rate of profit (to be found in Capital III, Part Three). This particular theory is controversial amongst Marxian economists (for a recent appreciation, see Reuten 2002). Be that as it may, the evolution of the rate of profit remains central to any variant of Marxian macroeconomics an interesting contrast with mainstream economics where the profit rate plays hardly any role, or gets reduced to the interest rate. The most influential of Marx's economics on macroeconomics in the early 20th century was the Capital II reproduction model. One of the first authors to adopt it was the business cycle researcher Tugan-Baranowski writing around 1900. Via his work, the Capital II framework influenced a number of important non-Marxian economists of the first half of the 20th century - such as Spiethoff, Cassel, Aftalion, W. Mitchell, Schumpeter, J.M. Keynes and Leontief. The same Capital II model, sometimes combined with the third mentioned building block, also inspired the early 20th century macroeconomics of Marxists such as Otto Bauer, Rosa Luxemburg, Henryk Grossman, Maurice Dobb, Paul Sweezy, Michal Kalecki and to some extent also Joan Robinson. (See Howard & King 1989 and 1992 for a history of Marxian economics, with an overview of recent macroeconomic themes in ch. 16 of the latter book; the latter chapter might also be combined with the earlier 90 pages overview of Hardach, Karras & Fine 1978.) In current Marxian macroeconomics all three building blocks play a role, though variously developed. Increasingly this is coupled with macro-monetary and macro-financial matters. Marx's own work on this - in especially Capital III Parts Four to Five is sketchy, albeit he wrote some 350 pages on the issue (cf. Crotty 1985, Campbell 2002 and Reuten 2002). Although Hilferding developed Marxs analysis in his Finance Capital (1910) for long a standard text amongst Marxists it is really only from the 1970s onwards that these issues become more prominent in Marxian macroeconomics. For example, through the work of Susanne de Brunhoff (1976) and Michel Aglietta (1976), with an explicit link from Marx's circuit approach to finance made by Augusto Graziani (see, Bellofiore & Realfonzo 1997). On all of these matters a thorough connection from Marx to the present is Harvey (1982). Itoh & Lapavitsas (1999) provide a general introduction. A good starter for Marxian macroeconomics is Laibman (1997) which contains further references. From a macroeconomic perspective Brenner (1998) provides a theoretical and empirical record of capitalist development in the second half of the 20th century. Combined with Fine, Lapavitsas & Milonakis (1999), the Symposium on Brenner (1999) provides a pattern-card of current Marxian positions and debates as well as further references (contributions by W. Bonefeld, A. Callinicos, G. Carchedi, S. Clarke, G. Dumnil & D. Lvy, A. Freeman, C. Harman, M. Husson, D. Laibman, M. Lebowitz, F. Moseley, A. Shaikh, M. Smith, T. Smith, R. Walker, J. Weeks and E.M. Wood). Alternatively, one might move on from Laibman (1997) to the edited collection of Albritton et al. (2001) for papers on the long term development of capitalism, especially in the past five decades.

References Albritton, Robert, Makoto Itoh, Richard Westra & Alan Zuege (eds 2001), Phases of Capitalist Development; Booms, Crises and Globalizations, Basingstoke/New York, Palgrave Aglietta, Michel (1976; 1979), Rgulation et Crises du Capitalisme, Calmann-Lvi, Engl.transl. D. Fernbach, A Theory of Capitalist Regulation; The US Experience, London, NLB Arthur, Christopher (1998), The Fluidity of Capital and the Logic of the Concept, in Arthur & Reuten (eds 1998), pp 95-128 Arthur, Christopher & Geert Reuten (eds, 1998), The Circulation of Capital: Essays on Volume II of Marx's Capital', London/New York, Macmillan Bellofiore, Riccardo (ed. 1998), Marxian Economics: A Reappraisal, Two Volumes, London/New York, Macmillan Bellofiore, Riccardo & Riccardo Realfonzo (1997), Finance and the labour theory of value; toward a macroeconomic theory of distribution from a monetary perspective, International Journal of Political Economy, 27/2 Brenner, Robert (1998), Uneven Development and the Long Downturn: The Advanced Capitalist Economies from Boom to Stagnation, 1950-1998; or, the economics of global turbulence, New Left Review 229 (special issue): 1-265 Brunhoff, Susanne de (1976; 1978), tat et Capital, Engl.tr. The State, Capital and Economic Policy, London, Pluto Press Campbell, Martha (1993), Marx's concept of economic relations and the method of Capital, in Moseley (ed. 1993), pp 135-155 (1998), Money in the circulation of capital, in Arthur & Reuten (eds 1998): 129-58 (2002), The Credit System, in Campbell & Reuten (eds 2002): 212-27 Campbell, Martha & Geert Reuten (eds, 2002), The Culmination of Capital; Essays on Volume III of Marx's Capital', London/New York, PalgraveMacmillan Crotty, James (1985), The centrality of money, credit and financial intermediation in Marx's crisis theory: an interpretation of Marx's methodology, in S. Resnick & R. Wolff (eds), Rethinking Marxism, Brooklyn, Autonomedia, 45-81 Desai, Meghnad (1979), Marxian Economics, Oxford, Basil Blackwell Dumnil, Grard & Dominique Lvy (1993), The Economics of the Profit Rate: Competition, Crises and Historical Tendencies in Capitalism, Aldershot, Edward Elgar Fine, Ben & Laurence Harris (1979), Rereading Capital, London, Macmillan Fine, Ben, Costas Lapavitsas & Dimitri Milonakis (1999), Adressing the world economy: two steps back, Capital & Class 67, Spring, 47-90 Foley, Duncan (1986) Understanding Capital, Cambridge (Mas)/London: Harvard University Press Hardach, Gerd, Dieter Karras & Ben Fine (1978), A Short History of Socialist Economic Thought, London, Edward Arnold Howard, Michael C. & Jesse E. King (1989-1992), A History of Marxian Economics; Volume I, 1883-1929; Volume II 1929-1990. London: Macmillan Harvey, David (1982; 1999), The Limits to Capital, London/New York: Verso (478 pp)

Hilferding, Rudolf (1910; 1981), Finance Capital; A Study of the Latest Phase of Capitalist Development, London: Routledge & Kegan Paul Itoh, Makoto & Costas Lapavitsas (1999), Political Economy of Money and Finance, London etc, Macmillan Laibman, David (1997), Capitalist Macrodynamics; A Systematic Introduction, London, Macmillan (143 pp) Mandel, Ernest (1975), Late Capitalism, London, New Left Books Marx, Karl (186718851894; 197619781981), Capital, Vol.I [The Production Process of Capital] Vol.II [The Circulation Process of Capital], Vol.III [The Process of Capitalist Production as a Whole], Harmondsworth, Penguin Moseley, Fred (ed. 1993), Marx's Method in Capital'; A Reexamination, Atlantic Highlands, NJ, Humanities Press Reuten, Geert (1998), The status of Marx's reproduction schemes, in Arthur & Reuten (eds 1998): 187-229 (2002), The rate of profit cycle and the opposition between managerial and finance capital, in Campbell & Reuten (eds 2002): 174-211 Smith, Tony (1998), The Capital/Consumer Relation in Lean Production, in Arthur & Reuten (eds 1998): 67-94 Symposium on Brenner and the world crisis (1999); Part 1 by A. Callinicos, G. Carchedi, S. Clarke, G. Dumnil & D. Lvy, C. Harman, D. Laibman, M. Lebowitz, F. Moseley, M. Smith, E.M. Wood (in Historical Materialism 4, 1999, pp 3-179); Part 2 by W. Bonefeld, A. Freeman, M. Husson, A. Shaikh, T. Smith, R. Walker, J. Weeks (in Historical Materialism 5, 1999, pp 3-230) [2051 words] [version 27-02-2002]