Paul Samuelson on Marx
From the viewpoint of pure economic theory, Karl Marx can be regarded as a minor post-Ricardian.
I once delighted a southern university audience: my description of Marx as a not uninteresting precursor … of Leontief's input-output analysis … apparently had infuriated the local village Marxist.
Also, a case can be made out that Marx independently developed certain vague apprehensions of underconsumptionist arguments like those of the General Theory; …..
As long as I am being big about admitting small merits in Marx, I might mention a couple of technical suggestions he made about business cycles that are not without some interest: Marx did formulate a vague notion of 10-year replacement cycles in textile equipment as the determinant of cyclical periodicity, which is an anticipation of various modern "echo" theories. He also somewhere mentioned the possibility of some kind of harmonic analysis of economic cycles by mathematics, which with much charity can be construed as pointing toward modern periodogram analysis and Yule-Frisch stochastic dynamics. A much more important insight involved the tying up of technological change and capital accumulation with business cycles, which pointed ahead to the work of Tugan-Baranowsky (himself a Marxian), Spiethoff, Schumpeter, Robertson, Cassel, Wicksell, and Hansen.
Marx claimed in Volume 1 that there was some interesting economics involved in a labor theory of value, and some believe his greatest fame in pure economics lies in his attempted analysis of "surplus value." Although he promised to clear up the contradiction between "price" and "value" in later volumes, neither he nor Engels ever made good this claim. …
Marx… did not labor over a labor theory of value in order to give us moderns scope to use matrix theory on the "transformation" problem. He wanted to have a theory of exploitation, and a basis for his prediction that capitalism would in some sense impoverish the workers and pave the way for revolution into a new stage of society.
…a labor theory of value when combined with technological change is, on all but the most extreme assumptions, going to lead to a great increase in real wages and standards of living…
Here is the real Achilles' heel of the Marxian theory of distribution and its implied prophecies of immiserization of the working classes. Under perfect competition, technical change will raise real wages unless the changes are so labor-saving as to raise the rate of maintainable profit immensely; Joan Robinson and others have pointed out how contradictory is Marx's notion that both profit rates and real wages can fall once Marx jettisons Ricardo's emphasis on the scarcity of land and the law of diminishing returns.
….Marx … was a very bad econometrician of his times, not realizing how much real wages in Western Europe had been raised by new techniques and equipment; and he was a bad theorist because his kind of model would almost certainly lead to shifts in schedules that would raise labor's wages tremendously…
In brief, technical change was gold in giving Marx cyclical insights, and dirt in giving him secular insights or an understanding of evolving equilibrium states…
Technical economics has little to do with Karl Marx's important role in the history of human thought. …. Political economy in our sense of the word was the mere cap of Karl Marx's iceberg. Marx's bold economic or materialistic theory of history, his political theories of the class struggle, his transmutations of Hegelian philosophy have an importance for the historian of "ideas" that far transcends his facade of economics.
… Marx has certainly had more customers then any other one aspiring economist. A billion people think his ideas are important; and for the historian of thought that fact makes them important.
Genius or Crank?
The contradictions of capitalism," which Karl Marx saw everywhere, are as nothing compared to the contradictions of Marx himself. … Although Marx was a learned man, he shows all the signs of a self-taught amateur: overelaboration of trivial points, errors in logic and inference, and a megalomaniac's belief in the superiority of his own innovations. …
Evaluations of Marx show the same pattern of contradictions. Professor Bronfenbrenner, my colleague on today's platform, deems Karl Marx "the greatest social scientist of all times." Keynes consistently refers to the "turbid rubbish of the Red book stores" and dismisses the book we commemorate today as a "bible, above and beyond criticism, an obsolete textbook which I know to be not only scientifically erroneous but without interest or application for the modern world." This attitude Joan Robinson regards as rather a pity, saying: "Keynes could never make head or tail of Marx. . . . But starting from Marx would have saved him a lot of trouble [as it did Kalecki]." In my Presidential Address, I find Marx referred to as "from the viewpoint of pure economic theory,... a minor post-Ricardian... a not-uninteresting precursor of Leontief's input-output."
For better or worse, Marx is an important figure in the history of ideas. And much is known about him-... When a sizable audience knows much about a man-… facts about him become subject to the law of increasing marginal utility... Many a newly published fragment by Marx would be of no interest at all if known to be the work of some 1844 John Doe; the whole becomes greater than the sum of its parts… merely because of an antiquarian interest that becomes like a detective-story game.
Tableaux of Expanded Reproduction
…Marx did, in his posthumous Volume II, innovate two-sector models of reproduction and growth. These are useful anticipations of work done in our day by Harrod, Domar, Leontief, Solow, Robinson, Uzawa, Pasinetti, Kaldor, Findlay, and many others. I do not honestly think that modern developments were much influenced, directly or indirectly, by Marxian writings…. But still we all might well have benefited earlier from study of the Marx tableaux.
Second, there is a point made by Leontief himself. Many of these same Marxian models stressed the role of fixed capital in a way that the Austrian School generally did not. Because Bohm-Bawerk tied himself to simple arithmetic examples, his Positive Tkeory of Capital is almost always expressed in terms of circulating-capital models of goods-in-process. For Bohm, labor alone produces goods in the earliest stage of production-say wheat. Then labor and wheat produce dough. Then labor and dough produce bread. There is no explicit need for durable capital goods in this "hierarchical" structure of Austrian production. ...Marx on the other hand considered bread as being produced by labor and ovens; and ovens as being produced by labor and ovens. In Leontief's 1937 A.EA. address on Marx, this is rightfully hailed as an important innovation. … the Leontief flow of circular interdependence is more Marx-like than Austrian.
Marx's model of expanded reproduction is perhaps the first example of those golden-age paths of compound interest which Cassel, D. H. Robertson, Von Neumann, Harrod, Domar, and all the rest have made so fashionable in modern economics.
…On the one hand, he is the Ricardian critic of Malthusian underconsumptionist notions held by contemporary socialists like Rodbertus; on the other hand, he is hailed as a precursor of Keynes (and Major Douglas, Gesell, Hobson, Foster, etc.). Can a scholar have it both ways? In this respect, how can you be a precursor of Keynes without being a postcursor of Malthus? Perhaps being confused helps.
The Labor Theory of Value
Proposition 1. Adam Smith held a labor theory of value for about as long as it takes a grown man to turn two pages of his book. David Ricardo never shook himself free of this incubus, …
Proposition 2. From the standpoint of science, the labor theory of value breaks down even before complications of capital enter into the model. With land scarce and different goods varying in their labor/land intensity, already goods will exchange at relative prices that are not proportional to socially-necessary labor content.
Proposition 3. If Marx had intended to use the labor theory of value to lay bare the laws of motion of capitalism and if he had been barking up the right tree, then the inadequacies of the labor theory of value as exposited in Volume I of Capital would not really have mattered.
Let me explain what I mean. Most of Volume I would stand up if Marx stipulated, purely for expository simplicity, that the organic composition of capital (or as we would say, labor's fractional share of value added) were the same in all industries. By fiat the contradiction between equal rates of surplus value and equal rates of profit would disappear…
In summary, if labor-theory-of-value reasoning, as applied to an impeccable model of equal factor intensities, turned up new light on exploitation in an existing system or if it turned up new light on the laws of development of capitalism, it would be an invaluable tool even though not defensible as a general theory of markets.
If, and if. Let us see whether Marx was at all barking up the right tree.
Laws of Motion of Capitalism?
The usual claim for superiority of Marx's system … for insight into the laws of development of the capitalistic system. Its inferior statics can be forgiven considering its much superior dynamics. Such a claim, if it can be sustained, is indeed a weighty one.
Let us review the authorities. Leontief, in that same 1937 address, makes heavy weather of finding much to praise in Marx … Leontief is able to say: "However important these technical contributions to the progress of economic theory, in the present-day appraisal of Marxian achievements they are overshadowed by his brilliant analysis of the long-run tendencies of the capitalistic system. The record is indeed impressive: increasing concentration of wealth, rapid elimination of small and medium sized enterprise, progressive limitation of competition, incessant technological progress accompanied by the ever growing importance of fixed capital, and, last but not least, the undiminishing amplitude of recurrent business cycles-an unsurpassed series of prognostications fulfilled, against which modern economic theory with all its refinements has little to show indeed. Neither his analytical accomplishments nor the purported methodological superiority can explain the Marxian record of correct prognostications. His strength lies in realistic empirical knowledge of the capitalist system. "(A.E.R., Mar. sup., 1938, pp. 7, 8.)
Here Leontief is referring to the then recent work by Oskar Lange, …. In the 1935 Review of Economic Studies, Lange compares the merits of Marxian and modern economics and finds Marxian economics superior in specifying the institutional data out of which can be formed a theory of capitalistic development. Despite its outdated concepts, Marxian economics is believed by Lange to be able to explain what bourgeois economics has utterly failed to explain: "the fundamental tendencies of the development of the Capitalistic system the constant increase of scale of production leading to the present monopolistic (or rather oligopolistic) Capitalism; the substitution of . . 'planning' for laissez faire; . . . free trade to protectionism; . . imperialist rivalry among the principal capitalist powers; increase of economic instability leading to rebellion (Socialism or Fascism)."
You will notice that Leontief credits Marx with great prophetic powers but is noncommital as to whether Marx's economic theories helped him to arrive at these (possibly merely lucky) guesses. Lange attempts to make stronger claims for Marxian theories. He says they deduce that "the fundamental change occurs in production and that the 'necessity' of such a change can be deduced only under the institutional set-up specific to Capitalism. Thus a 'law of development' of the Capitalist system is established ... not a mechanical extrapolation of a purely empirical trend...."
So much for the claims. But is it so? … was Marx right as a prophet of the future of Victorian capitalism? The immiserization of the working class, which he thought to deduce from the labor theory of value and his innovational concept of surplus value, simply never took place. As a prophet Marx was collosally unlucky and his system collosally useless when it comes to this key matter. ….
Let's now move on to the growing monopolization under capitalism. For thirty years Marx seemed to have been right in this prophecy, even though for the next seventy years he does not seem to be borne out by the most careful of researches on industrial concentration. But suppose he (and numerous non-Marxian socialists) had been right in this view. Would such an extrapolation be deducible in any way from the surplus value ratios, S/ (V + C), of any of the volumes of Das Kapital? No one has yet shown how…
Who can blame someone for not having predicted in 1867 the successful development of the Mixed Economy, in view of the fact that so astute a philosopher as Joseph Schumpeter managed to miss foreseeing it as late as 1947....
Had Lange been writing in 1937, after Keynes, he might have added to the 1935 sentence "Marxian economics would be a poor basis for running a central bank or anticipating the effects of a change in the rate of discount" the sentence, "and it would be a poor basis for understanding the role of fiscal policy in maintaining high employment." What admissions! This is equivalent to saying, "Marxian economics is powerless to explain the 1937-67 developments of European and American economies.