Excerpts from

The Significance of Marxian economics
for Present-day Economic Theory

Wassily Leontief

‘Proceedings of the 50th Annual Meeting
of the American Economic Association, 1937’: 

American Economic Review Supplement,



The modern theory of prices does not owe anything to the Marxian version of the classical labour theory of value nor can it in my opinion profit from any attempts towards reconciliation or mediation between the two types of approach.
There exists, however, in the value controversy one point which apparently did not attract sufficient attention. ….Marx raised against the ‘vulgar’ ... economists the accusation of ‘fetishism’. Instead of looking for the ultimate deep-lying price-determinants, they operate, according to Marx, with superficial, imaginary concepts …these subjective concepts acquire in the mind of acting economic individuals the quality of independent, tyrannically dominating forces, …This typically Hegelian observation is strikingly correct. Is, however, the theoretical conclusion which Marx seems to draw from it actually justified?…


Marxian economics. … the three volumes of Capital helped more than any other single work to bring the whole problem into the fore­front of economic discussion.  
The two principal variants of the Marxian explanation of business cycles, or rather ‘economic crises’, are well known. One is the theory of under-investment based on the famous law of the falling rate of profits, the other is the theory of under­consumption. Both might contain some grain of truth. Which business cycle theory does not?  
Here is a curious example of this kind — an excerpt from a letter to Friedrich Engels, dated May 31, 1875:"…You know the tables representing prices, discount rates, etc., in the form of zigzags fluctuating up and down. I have tried repeatedly to compute these ‘ups and downs’ [ the English expression is used by Marx]  — for the purpose of business cycle analysis —as irregular curves and thus to calculate the principal laws of economic crises mathematically. I still believe that the task can be accomplished on the basis of a critically sifted statistical material."  


Thus it appears that towards the end of his life Marx actually anticipated the statistical, mathematical approach to the business cycle analysis.
….economic fluctuations must be based on some kind of a theoretical model revealing the fundamental structural characteristic of the existing economic system. In this field the original contributions of post-Marxian economics are rather uncertain.


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
 Modern economic theory limits itself to a much narrower set of problems than that which is included in the scope of Marxian economics. Many items treated as data in the first system are considered to be in the group of dependent variables in the second. In so far as the general methodological principle is concerned any effective extension of a theoretical system beyond its old frontier represents a real scientific progress.  


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.
Repeated experiments have shown that in their attempts to prognosticate individual behaviour, professional psychologists systematically fall behind experienced laymen with a knack for ‘character reading’. Marx was the great character reader of the capitalist system. As many individuals of this type, Marx had also his rational theories, but these theories in general do not hold water. Their inherent weakness shows up as soon as other economists not endowed with the exceptionally realistic sense of the master try to proceed on the basis of his blueprints.  
The significance of Marx for modern economic theory is that of an inexhaustible source of direct observation. Much of the present-day theorizing is purely derivative, second-hand theorizing. We often theorize not about business enterprises, wages, or business cycles but about other people’s theories of profits, other people’s theories of wages, and other people’s theories of business cyles. If before attempting any explanation one wants to learn what profits and wages and capitalist enter­prises actually are, he can obtain in the three volumes of Capital more realistic and relevant first-hand information than he could possibly hope to find in ten successive issues of the United States Census, a dozen textbooks on contemporary economic institu­tions, and even, may I dare to say, the collected essays of Thorstein Veblen.





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