Economic theories of Marx and Keynes compared

Karl Marx and John Maynard Keynes

Karl Marx (1818-1883) and John Maynard Keynes (1883-1946) are two of the most important economists of modern times. While Marx's political philosophy and economic theories triggered some of the most significant revolutions in human history, Keynes was responsible for introducing a whole new concept of economic theory that came to be known as Keynesian Economics and influenced the economies of several non-communist countries after the Second World War. This paper presents the main economic theories and concepts of Karl Marx and his contribution to Communism. It also outlines the economic theories of Keynes and compares and contrasts his economic theories with those of Marx.

Economic Theories of Karl Marx

Materialist Concept of History: Karl Marx's philosophy is based on a "materialist" concept of history, which declares that human beings, throughout their history, have been motivated by material concerns such as the need to eat and survive rather than being motivated by grand ideas. Marx, thus, places economics at the center of human life and human history.

Marx first introduced the concept of historical materialism in the "Communist Manifesto," which he co-authored with Friedrich Engels in 1848 and elaborated the theory in his "Critique of Political Economy" in 1859. According to this theory, until the people worked as hunter-gatherers, they worked in unity and there was no concept of different "classes" among them. It was only when people developed agriculture that the concept of private property and thus classes arose. From then onwards, according to Marx, class conflict has driven human society and it has the driving force of human history. All of Karl Marx's subsequent economic theories are based on this materialist concept of history. (Cline)

Stages of History: Elaborating his materialistic concept of history, Marx explained that history progressed through a series of stages, each characterized by its mode of production or economic system. It had progressed from slavery to feudalism and, in the nineteenth century -- during Marx's lifetime, it was in the stage of Capitalism. Marx saw 'Capitalism' as a transitory stage of social development and described it as a sub-stage of Adam Smith's 'commercial age' in which the production of commodities is done by 'paid employees' of a small group of people (the capitalists) who owned all the tools, means of production, the raw material, as well as the finished product. Karl Marx analyzed this particular stage of social development in his book, "Das Kapital," (published in 3 Volumes from 1867 to 1895) and described how Capitalism would ultimately develop into the next stage of development called "Socialism" -- which Marx believed was a higher stage of human development. ((Kroessin, para on "Marxist Analysis of Economics.")

Theory of Surplus Value: Marx explains in Das Kapital that value can be added to a commodity only through the input of "labor" and the "profit" made by the capitalists is the difference between the value added by labor to a commodity and the wages paid to the worker. Marx was of the opinion that the Capitalist always pays the workers at a lower rate than the actual "worth" of their labor and hence accumulates wealth by exploiting them. The difference between the actual worth of labor and the rate at which the workers are paid is termed the "surplus value" by Marx. (Marx 24-25)

It could be argued that money (or profit) can be made without any value addition though labor by buying a commodity at a cheaper rate and selling it at a higher rate when the commodity becomes dear. But such a situation, according to Marx, is a zero-sum game whereby when someone makes a profit, someone else is losing money. Hence in such transactions the capitalists (as a class) would not be able to get richer over a long period of time. It is, therefore, necessary for value to be added to the commodity through labor.

Monopoly: The Marxist explanation of Capitalism is based on the surplus value provided by the laborer to the capitalist that lets him to accumulate capital and make his profit. The question, therefore, arises as to why the workers work for the capitalist instead of working for themselves and keeping the surplus value? The answer lies in the monopolistic control of the Capitalists over the means of production. In capitalist societies, the laborers' own equipment and other resources simply cannot compete with those of the capitalist. This is an example of the monopolistic tendency of the capitalistic system and it is not just restricted to the elimination of the "working class" from competing with the Capitalists but also extends to competition between the small and the big capitalists. The Marxist theory of capitalism maintains that some portion of the 'surplus' value of labor extracted from the production and distribution of goods and services is used to eliminate competition and/or to expand market share. In the modern context, the rich corporate firms tend to accumulate this wealth into ever fewer firms. In other words, big companies buy up or drive out small companies and the trend is evident in most Capitalist countries including the United States. (Marx 288)

Unemployment (Reserve Army): Another feature of Marx's economic theory is that capitalism tends to deliberately keep a large section of the population unemployed. This, in his opinion, is done to keep wages low and to have a "reserve army" of the unemployed ready for induction as laborers in his industries when the need arose. In this, Marxist theory is at variance with the view of other economists that increased rates of fertility among the poor results in excess population that keeps the wages low. Marx argues that the population becomes redundant to the needs of the economy because the capitalist uses less and less capital for the employment of labor, i.e., the ratio of variable capital (used to buy labor power) to constant capital (used to buy machines and other non-human means of production) keeps falling. (Marx 161)

Immiseration Theory: Marx theorizes that Capitalism results in concentration of wealth in fewer and fewer hands while the poor get poorer and poorer because the Capitalists tend to reinvest their profits in improving the means of production rather than in labor. This also gives rise to related problems such as concentration of power in the hands of the Capitalists to the extent that they wield enormous economic as well as political power and the progressive alienation of the working class.

Comparison of Karl Marx and John Maynard Keynes

Both Marx and Keynes were influential economists in their own rights. They are both similar to the extent that they realized the shortcomings of the 'laissez faire' and free market economy that was widely believed to be the solution of all economic problems during their times. Both of them also realized the necessity of fighting poverty and economic want and did not believe that the mythical 'invisible hand' of the free market economy would do so on its own. They were also common critics of at least some of the aspects of 'Classical Economics' such as the Say's Law. There, perhaps, the similarity between the two ends.

Being a conscious opponent of Trotskyism, Keynes was by implication a strong opponent of Marxism as well. He differed with the fundamental Marxist concept that the recurring crises of 'boom and bust' in Capitalism were due to structural contradictions in the Capitalist system arising from private ownership and production for profit. (Beams, para 3) He believed that such crises in Capitalism could be resolved by adopting the right economic policies within the system. In fact, Keynes was greatly concerned by the danger posed by Marxism to the Capitalist system during the prolonged failure of capitalist economies during the depression era. This is evident in a letter written by him to the incoming U.S. President Roosevelt in which he has expressed his apprehension that if FDR failed to correct the 'evils' in the economic system, revolution could occur. (Ibid) Keynes makes it clear in his "Essays in Persuasion" (published in November 1931) that the problem of "want and poverty" and "the economic struggle between classes and nations" was a transitory and unnecessary phenomenon that could be easily solved as the Western World had the "resources and techniques" to solve the problem. (Quoted by Beams)

The main difference between Marx and Keynes as economists was that Keynes believed in the Capitalist economic system and wanted to only change some of its existing 'evil' practices by some 'enlightened' policies. Unlike Marx, Keynes did not regard capitalism as doomed but was only interested in greater government intervention. He regarded government spending as 'priming the pump', which was no doubt an important departure from the existing laissez-faire understanding of economics at the time, but was by no means as revolutionary an idea as that of Marx expressed more than 70 years before Keynes presented his main economic thesis in "General Theory..." published in 1936. In the ultimate analysis, Keynes' objective was to achieve a 'controlled market economy' rather than a 'planned' one. Marx, on the other hand, was a revolutionary who believed that the Capitalist economic system was itself the 'root of all evil' and needed to be replaced completely.

Some of the similarities and differences in the economic philosophies of Marx and Keynes may be understood better if we consider the major philosophical influences on the two. Marx was greatly influenced by the German philosophers Friedrich Hegel and Ludwig Feuerbach. While Hegel is known for his philosophy of dialectical historicism, Feuerbach emphasized materialism. Combining the two philosophies Marx develop his own 'Materialist' concept of history. The major philosophical influences for Keynes were the analytical philosophy of G.E. Moore, and the pragmatic conservatism of Edmund Burke -- elements that are reflected in his economic theories. (Hall and Smith 245)

Conclusion

Marx and Keynes are without doubt, two of the most influential economists of the modern era. Marxism may have lost some of its luster in the wake of the Soviet Union's collapse but Marx's philosophy and economic theories about Capitalism cannot be ignored even if we do not agree with some of his radical conclusions. Keynesian Economics too seems to have fallen out of favor in the present-day emphasis on laissez faire and free markets; periodic economic crises around the world, though, continue to remind us about the validity of Keynes theory regarding the key role of governments in guiding the economic policies.