Tuesday, March 28, 2017

Chris Dillow — Keynes' flaws

Michael Roberts reminds us of something important – that Keynesian economics has severe shortcomings. I agree.
For me, the problem with Keynes was what he didn’t say. He was largely silent about three related issues: class, power and profits, or least he dismissed them lightly:
the problem of want and poverty and the economic struggle between classes and nations, is nothing but a frightful muddle, a transitory and an unnecessary muddle. (Preface to Essays in Persuasion)
It’s no accident that it should have been so easy to find a Keynesian-neoclassical synthesis, as both schools of thought ignored these matters.
This omission, however, has had several baleful effects....
Stumbling and Mumbling
Keynes' flaws
Chris Dillow | Investors Chronicle


NeilW said...

Nowhere near as many as the flaws in marxist thinking - in particularly thinking that ever increasing levels of democracy solves everything.

Keynes was too much of a managerialist with rather too much faith in the managerial class - and that is why post war cyclical management failed. Rather too centralised.

But ultimately any management process relies upon a set of people doing the right thing, however many checks and balances you try to put in place.

It will not arise naturally.

Dan Lynch said...

I agree with Neil about the importance of good management -- in any type of economic system.

Post-war Keynesianism broke down in the 1970s in part precisely for this reason: full employment squeezed profits (pdf) which choked off growth.

Meh. In hindsight, the West did not know how to handle the OPEC oil shock. Workers were blamed for oil-induced inflation while oil imports created a demand leakage that was not compensated for. The Sauds ramped up production about the time the Chicago school came to power, making it appear that the Chicago school had succeeded where Keynesians had failed.

In fairness to Keynes, let's remember that he called for nationalizing transportation and housing, and chided FDR for not doing nearly enough. Keynesianism as practiced in the U.S. was always half hearted except for military Keynesianism.

Magpie said...

After a while reading critics of Marxism, one starts recognising patterns. I call "The Crossfire" one of the most successful ones. The "damned if you do, damned if you don't" probably would be better, but it's longer. It goes something like this:

Very Serious Critic 1 thunders "Marxism is A", where A is something bad. That's the "damned if it does" bit.

Very Serious Critic 2 roars "Marxism is not A", where not A is something bad. And that's the "damned if it doesn't" bit.

Neil Wilson exemplifies that to a T:

Neil Wilson said...

Nowhere near as many as the flaws in marxist thinking - in particularly thinking that ever increasing levels of democracy solves everything.

For some, Marxism is totalitarian and anti-democratic. Damned if it does. For Neil Wilson, the main flaw in Marxism is "thinking that ever increasing levels of democracy solves everything". Damned if it doesn't. :-)

Why don't critics decide which of them is right and then formulate the criticism? :-)


Seriously now. Wilson, you did notice, didn't you, that Chris Dillow didn't write about democracy in general, but about worker democracy. You're just pulling our legs, right?

Or maybe not, maybe you're being Very Serious. So breath deeply and count to ten. Then go back to Dillow's post and you'll see he even added links to that.


Which is not to say I agree with everything Dillow wrote in that post, or that I'm going to defend him. No siree.

I suppose one could say Dillow is an Analytical Marxist. AM was relatively popular in the 1980s-1990s. Since then it reached a dead end and only some, like Dillow, still cling to it.

Basically, it was an attempt to translate Marxist economics into a neoclassical microeconomic framework: utility, production functions, and such.

It wasn't much of a success. Bottom line, for AM, as for neoclassical microeconomists, in the long-run, workers and capitalists in a perfectly competitive market (given some additionl assumptions: information symmetry, for instance) get what they contribute to production. The problem is that not all markets are perfect and those additional assumptions don't always hold true. In those cases, and only in those cases, capitalists get more than they contribute. This tends to be the general case.

As it happens, Joan Robinson worked on oligopolies and monopolies. If she knew maths, perhaps she would have reached conclusions quite similar to AM.

Maybe Keynes knew the maths, if he knew economics, perhaps he could have learned from Robinson.

It didn't happen.

At any event, while capitalists take advantage of market imperfections to increase their profits (to get what some call "superprofits" and you people call "rents"), the point of Marxist exploitation is that even if one managed to correct those market imperfections, even if markets were perfectly competitive, capitalists would still get a profit: surplus value.

Prof. Ruccio explains that here:

Dillow is right to highlight this:

Secondly, Keynes “paid even less attention to monopoly power than some of his neoclassical colleagues.”* The possibility that capitalists or bosses would use this power to extract massive rents eluded him. (Again, of course, Kalecki was his superior on this point).

But it's wrong to blame Keynes for that. In Keynes' behalf I'd add that even if he had paid due attention to monopolies and oligopolies and managed to solve them, it would not have solved the problem of exploitation.

Magpie said...


I find it useful and not too misleading to call Analytical Marxists neoclassical Marxists. But that's me.

Tom Hickey said...

Robert Paul Wolff

The Connection Between Expropriation And Exploitation, Part One

The Connection Between Expropriation And Exploitations, Part Two

Magpie said...

Which one explains the Crossfire? Or they are about worker democracy?

Magpie said...



And concludes (go back to his post to make sure you see it this time):

Which is to say:

(RPW's bold type)

What does that tell you?

Magpie said...

Come on, Hickey, I'm awaiting. Punch right here. I know you want it. Go ahead, gimme your best shot. Don't be afraid to hurt me. :-)

Tom Hickey said...

@ Magpie

You wrote:

But it's wrong to blame Keynes for that. In Keynes' behalf I'd add that even if he had paid due attention to monopolies and oligopolies and managed to solve them, it would not have solved the problem of exploitation.

I cited Wolff to show that the problem of exploitation arise from expropriation. Marx called expropriation "primitive accumulation."

In themselves money and commodities are no more capital than are the means of production and of subsistence. They want transforming into capital. But this transformation itself can only take place under certain circumstances that centre in this, viz., that two very different kinds of commodity-possessors must come face to face and into contact; on the one hand, the owners of money, means of production, means of subsistence, who are eager to increase the sum of values they possess, by buying other people’s labour power; on the other hand, free labourers, the sellers of their own labour power, and therefore the sellers of labour. Free labourers, in the double sense that neither they themselves form part and parcel of the means of production, as in the case of slaves, bondsmen, &c., nor do the means of production belong to them, as in the case of peasant-proprietors; they are, therefore, free from, unencumbered by, any means of production of their own. With this polarization of the market for commodities, the fundamental conditions of capitalist production are given. The capitalist system presupposes the complete separation of the labourers from all property in the means by which they can realize their labour. As soon as capitalist production is once on its own legs, it not only maintains this separation, but reproduces it on a continually extending scale. The process, therefore, that clears the way for the capitalist system, can be none other than the process which takes away from the labourer the possession of his means of production; a process that transforms, on the one hand, the social means of subsistence and of production into capital, on the other, the immediate producers into wage labourers. The so-called primitive accumulation, therefore, is nothing else than the historical process of divorcing the producer from the means of production. It appears as primitive, because it forms the prehistoric stage of capital and of the mode of production corresponding with it.

The economic structure of capitalist society has grown out of the economic structure of feudal society. The dissolution of the latter set free the elements of the former.

The immediate producer, the labourer, could only dispose of his own person after he had ceased to be attached to the soil and ceased to be the slave, serf, or bondsman of another. To become a free seller of labour power, who carries his commodity wherever he finds a market, he must further have escaped from the regime of the guilds, their rules for apprentices and journeymen, and the impediments of their labour regulations. Hence, the historical movement which changes the producers into wage-workers, appears, on the one hand, as their emancipation from serfdom and from the fetters of the guilds, and this side alone exists for our bourgeois historians. But, on the other hand, these new freedmen became sellers of themselves only after they had been robbed of all their own means of production, and of all the guarantees of existence afforded by the old feudal arrangements. And the history of this, their expropriation, is written in the annals of mankind in letters of blood and fire.
[Emphasis added]

Karl Marx. Capital Volume One, Part VIII: Primitive Accumulation, Chapter Twenty-Six: The Secret of Primitive AccumulationKarl Marx. Capital Volume One, Part VIII: Primitive Accumulation, Chapter Twenty-Six: The Secret of Primitive Accumulation

Tom Hickey said...


This what defenders of capitalism like Keynes ignore. It's not just about the rent extraction. It's the foundations of the institutional arrangements as Marx observed. The only way to resolve this is by acknowledgement of enclosure of the commons by force and expropriation of workers by denial, and restitution.

A good example now is the homeless. They don't even has space to sit or lie down. In many places those who are homeless and out of work have to keep walking and hope that some gives them the wherewithal to eat. In some places it is illegal to feed the homeless, the plan being to drive them out. This is happening is some places in the US today.

Magpie said...

Tom Hickey said...

I cited Wolff to show that the problem of exploitation arise from expropriation. Marx called expropriation "primitive accumulation."

If you say so, I'm happy to apologise. I misunderstood. We don't need to play Fight Club.

On my partial defense, I'd say it's difficult to judge your intention from the mere titles of Wolff's posts.

Tom Hickey said...

My apologies. I intended to post more but was rushed at the time and decided to go with that.

BTW, I don't agree with all of Wolff views on Marx, but I am not a Marx scholar either, so I won't argue it. I do think he is right on exploitation arising from expropriation as the Marx quote above shows. This is really the basis for a continuation from feudalism to capitalism of class and power structures underlying ownership of so-called private property. So-called private property was the basis for expropriation and primitive accumulation.

I say "so-called" private property in that Locke attempted to ground property rights in natural law through a just-so story based on use that ignores the actual history of enclosure of the commons and subjection of workers by force.

Private property was initially based on conquest and enclosure of the commons enforced by class structure and power relations that came to define feudalism. These were established in custom and then codified into law in the transition to capitalism, which depended on the law of contracts.

This process is still going on in the emerging world in the process of modernization under neoliberal globalization, which is a continuation of colonialism and imperialism in a way similar to the development of capitalism out of feudalism.

Calgacus said...

Meh, I like John Henry's idea of Marx-Veblen-Keynes being the basis of real econ. Wray probably lifted that hyphenization from him. :-) The truth is that they were triplets separated at birth. For Keynes liked an MMT Job Guarantee, which Marxists who have read Marx - who probably got it from reading JG Fichte - know will explode capitalism into socialism. But noticing that the JG is a nucular weapon (in the hands of the mighty proletariat to destroy bourgeois oppression) is something that only a man of the 19th century (something I've been called in amused criticism and approval) can see, I guess. But I think the people of the 21st shouldn't have trouble with the concept.

TofuNFiatRGood4U said...

I went looking for a paper by Henry discussing his MVK idea, but could not find much--only this:

Chapter 6: Sismondi, Marx and Veblen: Precursors of Keynes

Do you know of other works by Henry where he discusses this idea?
Thanks for your help.

Tom Hickey said...

The JG address expropriation, the basis of exploitation according to Marx. See above quote, March 28, 2017 at 11:23 PM

Here is a quote from The Global Reserve Army of Labor and the New Imperialism by John Bellamy Foster, Robert W. McChesney and R. Jamil Jonna

In sharp contrast, we shall develop an approach emphasizing that behind the phenomenon of global labor arbitrage lies a new global phase in the development of Marx’s “absolute general law of capitalist accumulation,” according to which:

The greater the social wealth, the functioning capital, the extent and energy of its growth, and therefore also the greater the absolute mass of the proletariat and the productivity of its labour, the greater is the industrial reserve army….

"But the greater this reserve army in proportion to the active labour-army, the greater is the mass of a consolidated surplus population, whose misery is in inverse ratio to the amount of torture it has to undergo in the form of labour. The more extensive, finally, the pauperized sections of the working class and the industrial reserve army, the greater is official pauperism. This is the absolute general law of capitalist accumulation." [Karl Marx, Capital, vol. 1, 798]

“Nowadays…the field of action of this ‘law,’” as Harry Magdoff and Paul Sweezy stated in 1986, "is the entire global capitalist system, and its most spectacular manifestations are in the third world where unemployment rates range up to 50 percent and destitution, hunger, and starvation are increasingly endemic. But the advanced capitalist nations are by no means immune to its operation: more than 30 million men and women, in excess of 10 percent of the available labor force, are unemployed in the OECD countries; and in the United States itself, the richest of them all, officially defined poverty rates are rising even in a period of cyclical upswing." [Harry Magdoff and Paul M. Sweezy, Stagnation and the Financial Explosion (New York: Monthly Review Press, 1987), 204.]

The new imperialism of the late twentieth and twenty-first centuries is thus characterized, at the top of the world system, by the domination of monopoly-finance capital, and, at the bottom, by the emergence of a massive global reserve army of labor. The result of this immense polarization, is an augmentation of the “imperialist rent” extracted from the South through the integration of low-wage, highly exploited workers into capitalist production. This then becomes a lever for an increase in the reserve army and the rate of exploitation in the North as well.

A JG would reverse this pattern by removing the expropriation or worker that results in emiseration aka immiseration (poverty, destitution).

Calgacus said...

I was inspired by browsing through (mainly the preface of) Tae-Hee Jo, Frederic Lee - Marx, Veblen, and the Foundations of Heterodox Economics: Essays in Honor of John F. Henry - Routledge (2016). It points to many relevant works, and other essays there discuss his ideas but I think it much more a plan, an outlook, "prenotes" than a finished work. Wray has given the same triad or similar ones as the basis of some MMT theories in papers and old NEP blogs.

Here is an odd selection of some of the more obscure but accessible references to give some ideas.