Postscript to Marxian Economics

As a body of technical argument Marx's contribution to economic analysis was, in the first instance, a highly ingenious extension and modification of the work of the classical school. In Marx's hands, however, classical tools were reformulated in a manner that yielded sharper insights into some problems - in particular, those of monopoly and instability - than had the works of his predecessors and contemporaries.

Marx's unique place in the history of economic ideas rests on more than the re-orientation he gave to classical theoretical categories. From his perspective economic reality and society at large were inseparable. The task of the economic analyst was to interpret the social process as a whole, rather than to extract only those aspects which could be treated unambiguously as economic. Moreover, this interpretation depended on a grasp of the whole sweep of human history and was by no means limited to the subject matter observable at any single moment in time.

Whatever the deficiencies of Marx's single-minded deterministic account of the economic and social process, it had the clear merit of shaking the mood of confidence and self-congratulation about the consequences of economic progress that had settled over much Western thought by the middle of the nineteenth century. Marx's doctrines became the rallying point of political forces which have left an indelible imprint on subsequent history, but they also aroused and reinforced the social concerns of many who did not share his philosophical presuppositions. After all, Marx had at least alerted men to an awareness that the consequences of the economic process under capitalism might be more brutish than benevolent.

No less important is the stamp Marxian analysis has left on the subsequent development of other traditions in economic thought. Marx insisted that economic events could not be understood in isolation from their historical and sociological dimensions. The very sweep of his claims has meant that those who have rejected his conclusions and have wished to give economics a 'purer' and more restricted interpretation have been obliged to define their positions more precisely than would otherwise have been the case. In fact, much of the analytical shape of neoclassical economics was conditioned by an attempt to divert economic discourse from Marxian channels.

Later refinements within the Marxian tradition itself have been influenced, in large measure, by two questions that Marx himself did not address systematically: (1) how was the remarkable survival power of the capitalist system (combined with its ability to generate rising levels of real wages, rather than immiserization) to be explained? and (2) how could the categories of Marxian analysis be adapted to the problems of economic planning and administration in a post-capitalist society? The first of these questions was raised late in the nineteenth century when the revolutions expected in capitalist countries failed to material&. The second became urgent after the Soviet government acquired power in 1917.

Within the latter-day Marxist tradition a position approaching doctrinal unanimity has been developed to account for the unexpected longevity of capitalism. Lenin's theory of imperialism - which built on foundations laid by the British socialist, Hobson, and by two Marxian revisionists, Hilferding and Rosa Luxemburg - provided the framework for the orthodox solution to this problem. Capitalist countries, it was maintained, had managed to postpone (though not permanently to escape) violent destruction through investment in colonies. The expected fall in the rate of profit was thus arrested. Further, colonial outlets for the capitalist's accumulations meant that labour displacements proceeded at a slower pace and that the size of the reserve army of unemployed was substantially smaller than would otherwise have been the case. But the economic significance of empire did not end there. Inasmuch as imperial countries were interpreted as casting colonies in the role of suppliers of low-cost raw materials and foodstuffs, it was possible that the real income of the proletarian class in the imperial countries might actually improve with the resulting reduction in the cost of the components of subsistence.

This interpretation yielded conclusions somewhat different from the ones Marx had reached, but it could be readily assimilated into the original Marxian system. Indeed, hints of Lenin's argument can be found in Volume I of Das Kapital as well as in Mill's Principles. The Leninist modifications merely extended Marx's basic analysis from the case of an economy closed to international trade and investment to that of an open system. Capitalism was not, however, reprieved; the scope of class struggle had been widened and internationalized. Imperialism subjected colonies as a group to the process of exploitation and immiserization that the proletariat had earlier experienced in industrial countries. Ultimately, the revolutionary ferment among the exploited would rise to the point that the imperial chains would be thrown off. Contradictions and rivalries within the imperial system would hasten this day of doom. Imperial countries, though united as exploiters of backward peoples, were deeply divided on other issues. Each sought to swell its share of the imperial loot at the expense of its rivals - a situation calculated to breed hostility and war. This view, it may be noted, was not at all implausible at the time of the First World War.

More recently an alternative explanation of the remarkable survival power of capitalism led a brief but illustrious life. It was offered by Eugene Varga, a Hungarian by birth, who had compiled a distinguished record of contributions to Soviet economics - among them, a revised edition of Lenin's Imperialism in which the original thesis was buttressed with updated materials. The work for which history is most likely to remember Varga, however, was entitled Changes in the Economy of Capitalism Resulting from World War II. In this study he maintained that Marxist theoreticians would be well advised to revise their expectations about the downfall of capitalism on the grounds that the Second World War had changed the character of capitalist systems. The successful conduct of the war effort, he argued, had demanded extensive state intervention in economic life and, though the role of the state would diminish with the return to more normal circumstances, the lessons learned in war-time economic planning would not be completely forgotten. In his view, an active role for governments as regulators and stabilizers had come to stay and the day of unregulated capitalistic ‘anarchy' had passed. For these reasons Western capitalism could be expected to be more stable than Marxian theory had been prepared to allow. At the same time, the events of the war had altered the relationships between the imperial countries and their overseas colonies. A movement towards the non-violent transition to national independence had been set in tow and was likely to continue.

These views, though promulgated by a writer whose credentials in the Marxist tradition were well established, conflicted sharply with official Soviet doctrine. Following an extraordinary session of the Soviet Academy of Sciences in 1947, Varga was sharply censured and relieved of his official positions. From the perspective of orthodoxy he was guilty of the cardinal error of imputing to the state in a capitalist society both the will and the ability to act in the general social interest, even when its intervention ran counter to the interests of capitalists. He had exposed himself to the charge of committing another methodological sin when asserting that imperial connexions could be severed peacefully. In the era of high Stalinism, such heresies could not be tolerated.

In orthodox Marxian circles confidence in the ultimate crisis of capitalism has not been abandoned. To many the experience of the American economy in the 1950s - with a high-level 'stagnation' characterized by slow and uneven growth rates and a persistent unemployment problem - bears witness to the chronic and unresolvable contradictions within capitalism. In addition, it has been maintained that during this period other symptoms of decay expected by a Marxist diagnostician have been manifested: an intensification of industrial concentration and a widening gap in the distribution of incomes between the property and labour shares. In the view of one able American Marxist, economists schooled in other traditions of analysis have been blinded to these aspects of contemporary problems because 'no genuine trends - in Marxian terminology, no "laws of motion" - are conceded to exist, still less subjected to analysis’.1

With respect to the second outstanding item of business on the latter-day Marxist agenda - the organization of a post-capitalist economy - Marx himself offered very little guidance. From his sketchy comments on this matter it would appear that he expected the state (at least in the period immediately following the collapse of capitalism) to make several deductions from the social product - deductions not unlike the constant capital and surplus value shares under capitalism. It would be a part of the state's task to ensure that resources were set aside for replacement purposes and as reserves against contingencies. In addition, part of the social product would have to be earmarked for capital accumulation. He also recommended deductions to cover the general costs of administration as well as to provide for such community needs as education, public health, and the support of those unable to work. Ultimately, in the highest stage of social evolution - that of the communist society - economic life could be governed by the rule 'from each according to his abilities, to each according to his needs' and the state would then wither away.

These comments fell far short of providing a systematic blueprint useful to a planner confronted with practical problems on choices of priorities. In the light of this analytical vacuum, it is not altogether surprising that one modern Marxist commentator should describe Marxian economics as the 'economics of capitalism' and capitalist economics as the 'economics of socialism'. This judgement both draws attention to Marx's preoccupation with the analysis of the 'laws of motion' within a capitalist framework and suggests that, once private ownership of the means of production has been supplanted by social ownership, most of the impediments to an efficient allocation of resources through the price system would be removed. The market as a guideline for resource allocation could then come back into its own. Though this solution was rejected by those who initially held power in the Soviet state,2 no alternative theoretical rationale was readily available. Lenin, for example, seemed to have viewed problems of economic planning primarily as an organizational matter. The state in the new society, he argued, would replace the 'governance of men with the administration of things'. Managers trained under capitalism - at least those who could adjust themselves to the demands of the new order - could continue to perform the same functions and, on the production and distribution side, the economic system could more or less take care of itself.

A clearer direction for Soviet planning was ultimately set during the Stalin period when top priority was assigned to the build-up of heavy industrial capacity. Marxian economic theory provided no obvious justification for this choice, though an independent theoretical rationale for it could be developed - and was by an obscure Soviet economist named Fel'dman - with the aid of Marxian analytical categories. The basic insight of his argument can be summarized as follows: in a poor society in which economic expansion is an overriding concern, the capacity to suppress consumption in order to speed capital accumulation is limited. The risk that too much of the social product will be consumed can, however, be averted by directing a substantial share of an economy's resources and energies into producing outputs that literally cannot be eaten: i.e. into the production of capital goods. The physical form of these outputs precludes consumption and ensures capital accumulation.

The success of the Soviet economy in building a powerful industrial base from small beginnings has, quite naturally, attracted the attention of many underdeveloped nations. The formula for growth now offered to the underdeveloped world by Soviet advisers and Marxian theorists largely calls for the imitation of Soviet experience and recommends that the initial steps toward industrialization should give priority to the capital goods industries. One illustration of the application of modified Marxist analytical categories in the context of the underdeveloped world can be found in the planning framework developed by Professor Mahalanobis for the Indian economy. His model breaks the economy into 'departments' much as Marx did and argues that the growth of the economy as a whole is largely governed by the share of national output allocated to the department producing capital goods. Though similar conclusions about the desirable course for the Indian economy could be reached by other routes, Mahalanobis's analysis owes much to Marxian analytical categories and has much in common with the argument worked out in the 1920s by Fel'dman.

In two important respects, however, Marxian doctrine is inappropriate for the analysis of the current problems of the underdeveloped world. From the outset Marxian analytical categories were shaped to deal with the circumstances of industrial societies. Marx himself had little comprehension of the problems of agriculture, and particularly of traditional agrarian societies; as one critic has observed, Marx treated peasants as a 'bag of potatoes'. Yet the central fact about the underdeveloped world is the dominance of an agrarian structure. It is one of the ironies of history that Marxist doctrine has enjoyed its greatest political success in predominantly agrarian societies, even though the Marxian mode of analysis is not well suited to such environments.

For the purposes of understanding the problems of underdeveloped countries, the Marxian analytical scheme is further handicapped for another reason. Orthodox Marxism - from the days of Marx's vehement assaults on Malthusian teaching to the present - has refused to entertain seriously the possibility that population growth may present a formidable obstacle to economic improvement. The problems presented by the unprecedented growth of the populations of underdeveloped countries deserve hard-headed analysis. Though by no means the only distraction to clear thinking on demographic questions, Marxian teaching has undoubtedly impeded an adequate comprehension of these important issues.

An assessment of the place of Marxian economics within the family of ‘master models' should also recognize that, in a number of important respects, Marx inherited both the strengths and weaknesses of his classical forerunners. In both theoretical systems, the central analytical categories were moulded to illuminate the causes and consequences of long-period economic change and the relationships between economic growth and income distribution. The tools useful for these purposes were not, however, well adapted (nor were they intended to be) to a systematic inspection of other matters: e.g. the process through which market prices are formed and the implications of short-period economic fluctuations.

Marx's analysis, however, presents several puzzles that are peculiar to his mode of procedure. The first involves a problem in epistemology. On what basis, it may be asked, was Marx entitled to claim an infallible insight into the forces governing the economic system? Economic determinism, strictly interpreted, meant that all thought and all action were shaped by economic circumstances. If this position were consistently maintained, would it not follow that the views of the author of Das Kapital were no less class-conditioned - and held no higher claim to the status of objective truth - than those of the owners of the steel industry? Within the Marxian frame of reference, no satisfactory answer to this question can be offered. But another difficulty - one concerned with the propagation of ideas - also surrounds the premises of economic determinism. If human action is always socially determined, no place remains for individual decision and volition. Why then, if the decay and collapse of capitalism are inevitable, should it be necessary to form organizations and discipline cadres to hasten its downfall? What purpose would be served by revolutionary agitation if the historical outcome would be no different? Orthodox Marxists have normally hedged this question, arguing that militant organization acts as a midwife to hasten social change. This rejoinder, however, fails to dispose of the methodological problem. On these points rests the larger historical irony of Marxian teaching. As Marx's most distinguished intellectual biographer has observed:

It [Marxian theory] set out to refute the proposition that ideas govern the course of history, but the very extent of its own influence on human affairs has weakened the force of its thesis. For in altering the hitherto prevailing view of the relation of the individual to his environment and to his fellows, it has palpably altered that relation itself; and in consequence remains the most powerful among the intellectual forces which are today transforming the ways in which men think and act.3