Zombie Marx and Modern Economics: or, how I learned to stop worrying and forget the transformation problem

There are two versions of this piece: one, here, a conference paper, and the other in the new edition of Jacobin. The Jacobin piece is shorter and stripped of its academic accessories, and much of the section on the value of money, but it’s not entirely an abridged version – I changed the tone a little, and added a Joan Robinson quote someone reminded me of. I’ve had a lot of responses to this, so a follow-up will hopefully follow.

In 2009, UC Berkeley Economics Professor and former Clinton adviser Brad DeLong took a pot shot at our David Harvey on his blog. Headlined ‘Department of “Huh?”’, and beginning “Why neoclassical economics is an absolutely wonderful thing”, the post quotes 11 straight paragraphs from a Harvey essay, which DeLong proceeds to ridicule.

For DeLong, the essay is contentless waffle. It strings together economic concepts without making an economic argument. He would call it “intellectual masturbation”, he writes, except that it “does not feel good at all”. Only in the eleventh paragraph does he find “the suggestion of a shadow of an argument”. Here Harvey argues that the US stimulus package is bound to fail because the deficit needs to be financed by foreign powers, and the amount of Treasury bonds it will be able to sell to the likes of the Chinese central bank will not fund a big enough stimulus. DeLong responds that this is a question that requires a theory of the bond market and interest rates, which Harvey does not provide: “The question is thus not can government deficit spending be financed… the question is at what interest rate will financial markets finance that deficit spending.” [DeLong, 2009]

[More: Zombie Marx and Modern Economics (pdf)]

Published in: on 17 July, 2011 at 3:29 pm  Comments (1)  

Inflation and the making of macroeconomic policy in Australia, 1945-85

Everything you always wanted to know but were afraid to ask…

My PhD thesis is now available here.


This thesis traces the impact of inflation on the making of macroeconomic policy in Australia between the end of World War II and the mid-1980s. I take issue with accounts of policy change that focus primarily on ideological change on the part of policymakers. Instead, I present policy as strategic activity within a complex, evolving economic system which is not centred on policy, and in which, therefore, policy does not have a monopoly on initiative.

I draw on Marxian state theory and Tinbergian theory of economic policy to explore why counter-inflationary policy emerged as an imperative for the capitalist state and how it came to play a dominant role in organising macroeconomic policy in general. I also focus in detail on the development of central banking in Australia, drawing on post-Keynesian structuralist monetary theory. The body of the thesis is divided into two parts, one dealing with ‘the long 1950s’ and the other ‘the long 1970s’. Both are treated as periods of transition, rather than of stable policy regimes.

In the ‘long 1950s’ macroeconomic policy was brand new, and the authorities had to build an effective system of macroeconomic management, sometimes against the active opposition of other groups. A contradiction developed between full employment and price stability, and the latter was prioritised because of limits set by the balance-of-payments under the Bretton Woods international monetary system.

The ‘long 1970s’ was a period of crisis and distributional class conflict. The break-up of Bretton Woods and the movement towards flexible exchange rates changed the form of constraint but continued to impose a counter-inflationary imperative. Monetarism provided an organising and legitimating principle for extremely restrictive macroeconomic policy and the abandonment of full employment as a policy goal, even though policymakers were sceptical of its propositions. Finally, I discuss the movement towards deregulation as something which strengthened rather than undermined the central bank’s power to pursue monetary policy.

Pessimism of the will

I’ve reviewed Eric Hobsbawm’s How to Change the World in the new issue of Jacobin:

It is a little bright spot at the end of the penultimate, gloomiest chapter of Hobsbawm’s history of Marxism: at least the albatross of “really-existing socialism” might not hang around the neck of the latest generation to turn to Marx. “… [E]ven today only those in their thirties and above have any memory of the actual years of Cold War.” The idea that Marx was “the inspirer of terror and gulag, and communists… essentially defenders of, if not participants in, terror and the KGB” was no more valid than “the thesis that all Christianity must logically and necessarily lead to papal absolutism, or all Darwinism to the glorification of free capitalist competition.” Most “really-existing communists” in the West had been critics of Stalinism since 1956 (yes, says Hobsbawm, who stayed in the British Communist Party into the 1980s, even “by implication” within Moscow-line parties). But the line that socialism meant Stalin and Mao was always an effective rhetorical strategy for anti-communists, always a way to change the subject whenever socialists were in the conversation. As the Soviet Union and the Great Leap Forward recede into history, surely the shadows they cast over the very idea of a post-capitalist society will lighten. […]

Published in: on 16 March, 2011 at 8:07 am  Leave a Comment  

Law as unifier of the state

The Poulantzas project 2

Bob Jessop’s book on Poulantzas [Nicos Poulantzas: Marxist theory and political strategy, 1985, Macmillan] helpfully summarises some of the early papers I can’t read as I don’t know French. There’s some useful background on his view of the law which is highly condensed in the translated papers. This, in particular, is useful in clarifying his view of the nature of the ‘internal’ logic of law discussed in the last post:

One of the most pervasive and fascinating influences within modern legal theory has been the neo-Kantian positivism of Hans Kelsen (and the so-called ‘Vienna School’) with its concept of a purely internal Normlogik. This argues that an effective legal order must be hierarchically unified under a fundamental legal norm (Grundnorm) and backed up by effective coercive sanctions. It also declares the state and law to be identical and insists that in any one society only one sovereign, coercive legal order is possible. Indeed Kelsen argued that in any real, ‘sociological’ state there will be many authorities, multitudinous relations of domination, numerous acts of commanding and obeying: only the unity of the legal order justifies us in considering the state as a single system of domination. For the same reason Kelsen denied that the state is a subject which exercises power – its power is simply that of a valid and effective legal order. At best he was prepared to concede that the machinery of state (‘the bureaucratic apparatus’) is the material personification of the broader formal legal order within a nation-state. He also suggested that the division between public and private law is ideological and simply serves to dissimulate private law as located beyond politics… (more…)

Published in: on 11 October, 2010 at 8:19 pm  Comments (1)  

Not, in fact, where we might choose to begin

The Poulantzas project 1

Nicos Poulantzas in his final book, 1978:

The constructivist image of ‘base’ and ‘superstructure’, which is supposed to allow the determining role of the economic sphere to be visualised after a fashion, cannot in fact provide a correct representation of the articulation of social reality, nor therefore of that determining role itself. It has proved to be disastrous in more ways than one, and there is everything to be gained from not relying on it. For my own part, I have long ceased to use it in analysis of the State. [Poulantzas, 1978: State, Power, Socialism, Verso, p. 16] (more…)

Published in: on 10 October, 2010 at 9:57 pm  Leave a Comment  

The Poulantzas project

Nicos Poulantzas in days before smoking in the office was structurally selected against

Now that I have some spare time on my hands, one of my medium-term projects is to do a proper engagement with Poulantzas, with the aim of sorting out my own theory of the capitalist state, and of economic policy in particular. I draw on Poulantzas a bit in my thesis, borrowing useful ideas without dealing with his vision as a whole. Now I want to go back and sort out exactly what I think. Poulantzas is one of those theorists who is incredibly helpful even when I disagree with points or even think the framing itself is misguided. He asks the right kinds of questions, and shows what a theory of the capitalist state has to do, even when his own particular constructions (which he kept radically revising throughout his short career) are problematic. Thirty or forty years on, he is still the person to engage with in Marxian state theory – a tradition that reached its high-water mark in the late 1970s, and never died but faded away.

Poulantzas is also difficult to read, and I don’t think it’s the translation. He adopts the language of other theoretical systems – first Sartre’s, then Althusser’s – of which he simply assumes knowledge. So there are a lot of sidetracks to do in dealing with him. On the other hand, once the language is understood, he is a very clear and systematic writer. And the fact that most of his exposition takes place through engagement with other writers is a good thing – in dealing with Poulantzas, you are also dealing with the Marxian ‘classics’, with Gramsci, Sartre, Althusser, Ralph Miliband, Perry Anderson, and Foucault.

The book Paradigm Lost: state theory reconsidered, edited by Aronowitz and Bratsis [2002], has some great chapters on why Poulantzian state theory – along with the work of Miliband, which I’ll also discuss – receded as a research program and why it deserves to be revived. (It also makes clear why Poulantzas and Miliband – their names linked mainly by the polemics they directed against one another – can be seen as part of the same program.) Leo Panitch, in his chapter, “The impoverishment of state theory”, stresses that there was substance and systematicity to the state theory of the 1970s that was new to both social science and the Marxian tradition, especially in its attempts to deal with modern advaced capitalist democracies:

It needs to be stressed today that we did not at all see ourselves as falling back on a prefabricated Marxism; the new theory of the state had Marxist roots but it was founded on the notion that nothing like an elaborated and coherent theory of the capitalist state (in contrast with the complex array of concepts and tendential laws that constituted Marxian economics and historical materialism) had been fashioned either by Marx himself or by his successors—up to and including Gramsci. And the new theory was concerned to displace the narrowly ideological official Marxism of the Communist parties. [p. 90]

My plan, then, is to work through Poulantzas’s major essays and books and some of their reference points – with particular attention to his theory’s relevance for the development of economic policy in the twentieth century. Economics is sometimes said to be a weak point for Poulantzas – but that gives me something to do.

Published in: on 16 September, 2010 at 12:54 pm  Comments (3)  

Supply and demand and anachronistic Marxology

This comes from a long post I wrote on the LBO-Talk list a few weeks ago. (See it in context here.) It came out of a discussion about the embarrassing tendency for discussion among Marxists to degenerate into biblical exegesis. I wasn’t criticising Marxology as such. It’s a legitimate part of the history of thought if nothing else, and since Marx’s work still speaks pretty directly as a critique of capitalist society, it’s more than that. I also think it’s uncontroversial that appeals to authority are not legitimate arguments in anything other than disputes about what the particular authority said. My point was rather that the form and content of Marx’s political economy were partly determined by the political economy of his time, and therefore:

“the worst thing about so much Marxology is that many people who can quote the text itself back-to-front know very little about the early-to-mid-19th-century political economy that is its context and even so much of its content. If your economic methodology is to rip selections from the text 150 years out of that context, you’re often anachronistically defending the concerns and framing of Georgian and Victorian political economy rather than any particularly radical criticism of economics past or present. The ‘labour theory of value’ is a case in point – Marx’s theory points the way out of the labour theory, but thanks to the conservatism of exegesis-based economics, which freezes analysis at an earlier stage of its development, it’s become synonymous with it! Close the hermeneutic circle, people!”

Someone asked me to elaborate on the claim that Marx pointed the way out of the labour theory, and that generated my own exercise in Marxology.

Ricardo’s labour theory of value – that the rate at which commodities exchange depends on the labour-time that goes into producing them (modified by capital intensity and skill, etc) – was set up in opposition to the idea that price is determined by adding up labour-time multiplied by the wage rate plus the necessary capital times the rate of profit. (Leaving aside the complications of rent.) Adam Smith presented eclectic theories of the determination of the wage and profit rate that were basically about supply-and-demand in the markets for labour and capital. These were each plausible in themselves, but they led to a mess together because they neglected the joint determination of wages and profit. For example, you could get the impression that if wages rose, because of a rise in demand for labour, the price of each commodity would rise to the extent of the labour used to produce it, while the rate of profit would remain the same.

Ricardo emphasised that that’s impossible because given the quantity of stuff produced in a period, if the real wage rises, so that workers are getting more of the stuff, capitalists must be getting less, and given the same value of capital, the rate of profit must fall, and there would be no general rise in prices because money, the measure of value, is a commodity too. (Relative prices would change, however, because of different capital intensities.) It was basically a long-run general equilibrium critique of partial equilibrium – that you need to follow the disturbance all the way through the whole chain of effects and not just limit yourself to supply and demand in the market of the original disturbance.

And when you do this, the system actually appears simpler rather than more complex – you can cut through all the eclectic bullshit and relate relative prices to simply the labour time and capital intensity of each commodity’s production. It can seem arbitrary as to whether you consider capital intensity to ‘warp’ the field of value determined by labour time, or labour time to ‘warp’ the field of value determined by capital intensity. But Ricardo believed differences in capital intensity (and rate of turnover) between different commodities would only have a minor impact on relative prices compared with differences in labour time – as George Stigler put it he had a “93% labour theory of value”. So it made more sense to say labour-time determines value but capital intensity modifies it.

Marx fully accepted all this as an advance on Smith and was often dismissive of mere ‘supply and demand’ analysis, which he portrayed as just determining short run fluctuations around long-run prices-of-production – again, it’s essentially a general equilibrium criticism of partial equilibrium analysis. He was much more specific than Ricardo about all the qualifications – insisting, e.g., on ‘socially necessary’ labour time – and I doubt Ricardo would have disagreed with this.

But from Ricardo’s time and Marx’s time the labour theory was pretty controversial – Ricardo dominated English political economy, but as a polariser rather than as someone everyone agreed with. And there were a lot of legitimate problems – most notably, the awkwardness in saying relative labour-time determines relative value, but then that relative capital intensity modifies the relationship. (Partial equilibrium) supply-and-demand analysis continued to be refined, and could take into account effects of one market on another and so on – it was much better at picking holes in the Ricardian theory than building a full alternative system. John Stuart Mill’s 1848 texbook presented a synthesis of Ricardo and these developments and superseded Ricardo’s Principles as the basic text of political economy until Marshall.

Marx was full of contempt for Mill and stayed old-school, which essentially meant prioritising long-run general equilibrium over short-run partial equilibria. His presentation made the ‘transformation’ from labour-time determined values to prices-of-production modified by relative capital intensities seem even more awkward – since he hardly mentions the need for this until Volume 3. Engels urged him to make it clearer from the start, and it’s debatable why he didn’t (his reply to Engels was flippant – that he deliberately wanted to piss off ‘vulgar’ economists).

I think it’s because of his method of presentation – he needs a basic concept of value to build the concept of capital, and can’t present the effects of capital back upon value until capital is fully ‘constructed’. Also there’s an awful lot you can say about distribution and fluctuations at a macro level without worrying about relative prices – Keynes would use labour-time as his basic unit of value at a macro level too. But if that’s the case, it follows from the Volume 3 analysis of competition that as far as relative prices are concerned, the (socially necessary) labour time values of Volume 1 are epistemological devices, _not_ ontological – i.e., labour-time value – in the microeconomic sense of relative prices – doesn’t exist in real capitalist economies, ‘under the surface’ or otherwise. Wherever labour-values are used in this microeconomic sense in Volume 1, you can go back after Volume 3 and read ‘prices-of-production’ instead.

But ‘the transformation’ is basically a restatement of Ricardo. The interesting thing is where the analysis of competition and prices-of-production in Volume 3 goes way beyond the ‘transformation’. In my opinion this is where Marx really points the way out of the Ricardian labour theory of value. It becomes clear that supply and demand – as modern economics conceives them – actually do play a role in establishing long-run values and prices-of-production, not merely the fluctuations around them. Marx’s problem with supply and demand analysis _as he knew it_ was that it didn’t explain what determined supply and demand at any given price. In modern neoclassical terms, the answer is supply and demand schedules which relate demand and supply to the range of possible prices.

Marx more-or-less develops the idea of supply and demand schedules in the chapters on competition in Volume 3. It follows naturally from his emphasis that value depends on ‘socially necessary’ labour time. ‘Socially necessary’ has a dual meaning. On the one hand, for single kinds of commodities, it refers to the fact that thanks to competition between producers, those commodities produced with relatively inefficient production processes obviously don’t sell for more. On the other hand, it refers to society’s allocation via the market of labour to different kinds of commodity in proportion to society’s needs (ultimately determined by who can pay, of course – and Marx emphasises the dependence of demand on distribution in Vol. 3, Ch. 10 – p. 282 of the Penguin edition).

Now, thanks to economies of scale etc., the amount of labour necessary to produce a particular commodity depends on how much of the commodity society demands. For example, it’s way more expensive per unit of steel to produce 100 tons of steel a year than it is to produce 1,000,000 tons of steel. So ‘socially necessary’ in the first sense depends on ‘socially necessary’ in the second sense – that is, the cost of steel depends on the demand for steel. But at the same time, the amount society demands of a particular commodity depends on its price relative to substitutes – so the demand for steel depends on the cost of steel. The only way to resolve this dilemma is to think in terms of supply and demand schedules – and this is in effect what Marx does.

For example, in explaining how the rise in price of a raw material affects the profit rate of the producer, Marx explains that it depends on how much the capitalist will raise his own price, which depends on his calculations of how it will affect demand – in other words partly on the price elasticity of demand for his product:

It is evident… that the expansion or contraction of the market depends on the price of the individual commodity and stands in an inverse relationship to the rise or fall in this price. It happens in fact, therefore, that a rise in the price of raw material does not lead the price of the manufactured product to rise in the same proportion, or to fall in the same proportion when the price of the raw material falls.” [vol. 3, ch. 6, p. 203 in the Penguin edition]

Another example from vol 3 ch 10 (p. 279 of the Penguin) where Marx basically edges towards the concept of demand (in)elasticity:

At a given price, a species of commodity can only take up a certain area of the market; this area remains the same through changes in price only if the higher price coincides with a smaller quantity of commodities and a lower price with a greater quantity. If the demand is so strong, however, that it does not contract when price is determined by the value of commodities produced in the worst conditions, then it is these that determine the market value.

The point of these quotations is not to say, ‘aha, Marx anticipated Marshall’. These are fragments that are not developed into a coherent statement, and the section is unfinished. It is, rather, to say

(1) that Marx himself recognised, at least implicitly, that determination of relative price by labour-time cannot be causally prior to demand in the market, because the size of the market for a commodity enters into the determination of the labour time necessary to produce it (due to economies of scale, etc); and

(2) that Marshallian (neoclassical) concepts can be a useful tool for dealing with this kind of question more systematically than Marx did.

Now, there’s also a debate in the literature about the extent to which John Stuart Mill anticipated Marshallian demand and supply curves. It certainly wasn’t only Marx that was groping in this direction. It’s generally accepted that Marshall got the idea from Cournot rather than Mill – but the point is it was in the air of Victorian political economy. Many of the early neoclassicals defined themselves as anti-Ricardians, arguing especially that he neglected the influence of demand. But Marshall argued in an appendix to his Principles that Ricardo did in fact implicitly incorporate it and even anticipated the distinction between marginal and total utility. He understood that the purpose of Ricardo’s labour-time theory was to go beyond the immediate supply-and-demand in the market – because if high demand raised a price and thereby profits, capital would move into that line and bring labour with it – so that ultimately labour-time, as a cost that enters into every commodity, regulates relative prices in the long run. Marshall believed this still to hold, although because of economies of scale etc, labour-time would be affected by the demand schedules for each product, just as Marx recognised.

In other words, the labour theory of value was thus a step towards equilibrium theory and a real advance over vulgar supply-and-demand theory. But conceptualising demand and supply as schedules opened the way to superseding vulgar labour-value theory in turn. When Marxists stick to the letter of Capital and quote Marx’s dismissals of supply and demand as determining nothing, and think this holds against neoclassical conceptions of supply and demand, they are falling into anachronism. Even if the neoclassical vision is problematic, the fact remains that it’s not what Marx was dismissing, and they therefore miss the opportunity to engage productively.

Published in: on 7 September, 2010 at 11:08 am  Comments (5)  

Rundle on Zizek

I’m more of a fan of Guy Rundle than Slavoj Zizek. Now the former has reviewed the latter’s First as Tragedy, Then as Farce. It’s a generally positive review – it’s good as motivational literature apparently – but it makes the following point about a certain brand of philosophical Marxism that has been pretty fashionable these last few years, a point I think is spot on:

The question Žižek perhaps does not face is whether invoking the idea of communism for the relatively unspecified transformation he suggests acts as a form of focus, and a renewal of possibility, or a slaking-off of energy by taking on the glamorous role of spectre, the – hushed tones – ‘communist’. It is not ridicule that is the greatest risk, but an easy resort to an historically given role, which not only refuses to connect to current struggles or movements, but on whose ideal content one is equally silent.

If you start worrying about what you are going to call a movement, before you actually get on with building it, are you firing your guns too early? After all, it is potent movements – from Methodism to Big Bang physics to Marxism itself – which have been named by their enemies, a moment of recognition of their real status. Meanwhile it is the most ephemeral and/or dated movements – Theosophy, Christian Science, fissiparous late Trotskyism – that wasted so much energy arguing over names.


Since the act of self-describing is rhetorical anyway, its only criteria of judgement is whether it gets some sort of effect – or whether it instead rushes to get a dividend from a process of getting people to think otherwise what, at this stage, needs to be more concrete and particular, albeit not fragmented and ungrounded in postmodern fashion.

Published in: on 2 December, 2009 at 7:31 pm  Comments (8)  

All that is solid melts into liquidity (and then sometimes freezes)

What follows is a descendant of the paper I presented at Historical Materialism in London about a year ago. It’s an attempt to introduce a post-Keynesian conception of liquidity into Marx’s theory of credit-money. It has gone through a few versions. After the conference I was invited to present a longer version as a seminar at SOAS to a bunch of post-Keynesians, including the eminent Victoria Chick, Emeritus Professor of Economics at the University of London, whose work I love and draw in the paper. I reworked it quite a bit: at HM I was explaining what I thought Marxian economics can get from Keynes, this time I reversed it to explain what Marx does that Keynes doesn’t. Back in Sydney I reworked it again to turn it into a thesis chapter, which is why you see references to other chapters, etc. I have been meaning to clean it up and submit one version or another to a journal at some point, but thesis has taken over. I’m putting it up here now because what it deals with came up in conversation over at Duncan Law’s blog.

Commodity money, state money, capitalist money

5306. If there should not be currency to settle the transactions at the clearing house, the only next alternative which I can see is to meet together, and to make our payments in first-class bills, bills upon the Treasury, and Messrs Smith, Payne, and so forth.’ — ‘5307. Then, if the government failed to supply you with a circulating medium, you would create one for yourselves? — What can we do? The public come in, and take the circulating medium out of our hands; it does not exist.’ — ‘5308. You would only then do in London what they do in Manchester every day of the week? — Yes.’

– Chapman, a banker, testifies before the Bank Acts Committee in 1857, quoted in Marx [1981: 671]

In some respects, Marx and Keynes appear at opposite poles of monetary theory. Marx is the theorist of commodity-money, for whom “the money-form is merely the reflection thrown upon a single commodity by the relations between all other commodities” [Marx, 1976: 184], and “gold confronts the other commodities as money only because it previously confronted them as a commodity” [ibid: 162]. Keynes, on the other hand, is patron saint of modern cartalists, writing that “the Age of Chartalist or State Money was reached when the State claimed the right to declare what thing should answer as money to the current money-of-account – when it claimed the right not only to enforce the dictionary but also to write the dictionary.” [Keynes, 1930: 5] Commodity-money versus state-money: this disagreement does indeed stem from deeper, fundamental differences of vision regarding the place of the state within capitalism. (more…)

Published in: on 1 November, 2009 at 3:11 pm  Comments (3)  

The Art of War by Sun Tzu AND The Communist Manifesto by Karl Marx

Dear Amazon.com Customer,

As someone who has purchased or rated books by Karl Marx, you might like to know that The Art of War by Sun Tzu AND The Communist Manifesto by Karl Marx is now available.  You can order yours for just $9.95 by following the link below.

Product Description
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I’m actually pretty sure I never purchased or rated any books by Karl Marx from Amazon, by the way. But they certainly do make a good argument.

The Art of War by Sun Tzu AND The Communist Manifesto by Karl Marx
Published in: on 9 September, 2009 at 10:10 pm  Comments (3)