Marxian Macroeconomics: An Overview
Geert Reuten (University of Amsterdam, Department of Economics)
The Marxian approach in economics stems from Karl Marx's analysis of the working of the
capitalist economy, especially in his main investigation Capital (three volumes, 1867, 1885,
1894). Although these works are interesting for the specialist, they can hardly serve as an
introduction to current research in Marxian economics. For over a hundred years its
research themes, methods and techniques have been in continuous revision (the same
applies of course to Jevons and Marshall for the Neoclassicals, or Keynes for the
Post-Keynesians – at some point, however, it is rewarding to read the classics).
Since heterodox minority views in economics, including Marxian economics, are not
generally taught in a large number of universities, several basic characteristics of Marxian
theory should first be noted (for general introductory accounts of Marxian economics, see
Foley 1986 or the earlier Desai 1979 and Fine & Harris 1979; for contemporary
controversies and more advanced study one might turn to Bellofiore, ed., 1998).
(1) Central to the paradigm is that the capitalist system is a historically specific mode
of production, allocation and distribution. Capitalism is not merely an allocating and
distributing market economy; more than that, each historically specific economic system
necessarily operates through a specific ‘social form’ as the dominant criterion and measure
of production. For capitalism this is the monetary value-form; it not merely dominates
market exchange but also the process of production. Hence techniques of production and
technological trajectories are not ‘naturalistic’ phenomena; for capitalism, they are
determined by the value-form (see Murray 2002).
(2) Key capitalist criteria of production deriving from the value-form are profit and the
rate of profit (these two do not always move in the same direction). Together, they
deter-mine the (rate of) accumulation of capital – the growth of capital – that is the lever for
more profits. Thus profit and the growth of capital, rather than other possible criteria, such
as human needs and use-value, determine production. Note, however, that – like with
technology – human needs are not ‘naturalistic', they are themselves determined within and
as part of a social formation, in case the capitalist system (see Campbell 1993).
(3) Profit is the result of exploitation of labour (the product of labour is larger than its
wages, profit being the difference). However, the level of the wage rate is only one of the
two factors determining the distribution of income. The other factor is the labour process at
the point of production, which entails a particular intensity of labour. Hence we see regular
struggle between capital and workers, both over the wage and at the point of production (i.e.
over working conditions).
Many Marxists would add to the factual theses (1)-(3) normative judgements about
each: the value-form, the profit criterion and exploitation. In principle, however, moral and
political judgments about these can be separated from the analytical issues (1)-(3). Thus it
is possible to accept the Marxian analytical apparatus as superior to the Neoclassical, for
example, without sharing the normative judgements. (Conversely, one might accept the
analytical side of neoclassical apparatus whilst being vigorously opposed to the capitalist
system.)
We now move on to macroeconomics specifically. Although J.M. Keynes and his
followers most influentially set out principles of macroeconomics, macroeconomics
originates independently in Marx's Capital. Apart from a theory of money and a general
critique of Say's Law early on in Capital I, this work contains three main macroeconomic
building blocks.
First, a model of the Circuit of Capital (Marx 1885, Part One). This model emphasises
capital’s continuous movement through four manifestations, or shapes, together
constituting the macroeconomic circuit of capital.
Starting with the monetary finance of capital. The shape of ‘money capital’ (M), is
transformed in the exchange process (–E–) into the shape of ‘commodity capital’ (C),
specifically means of production (mp) and labour power (lp); the latter work up the former
in the process of production (...). In production we have the shape of ‘capital in process’ (P),
which constitutes a metamorphosis again into the shape of ‘commodity capital’ (C*), with
C* different qualitatively from C, as well as quantitatively in value terms (C*>C). Finally,
we have another market exchange (–E–) transforming the expanded commodity value C*
into a monetary value equivalent M+ΔM, the shape of expanded ‘money capital’. The
process now resumes on an expanded scale. Note that in a sectoral break down of the macro
conception, the exchange of M ––E–– C is at the same time for other capitals the exchange
phase of C* ––E–– (M+ΔM). (For more on this circuit, see Arthur 1998.)
The second main building block is a Reproduction Schema of the capitalist economy
(Marx 1885, Part Three). In modern terms it would be called a dynamic two-sector
macroeconomic model of production and realisation (Marx was the first economist to
develop such a model; up to about 1950 the term ‘model’ was not used in economics;
‘schema’ was a name adopted from Marx, e.g. Tinbergen). The first sector in the model
produces means of production (investment goods) and the second sector consumer goods.
On basis of the model Marx was able to specify a number of dynamic interconnections in
the functioning of the capitalist economy. Particularly he showed that in the context of
economic growth, proportionality, or balance, between the two major sectors of the
economy is most unlikely. In other words, disproportional or disequilibrium growth,
together with its potentialities for economic crisis, is the normal case. Over fifty years later,
Harrod and Domar confirmed this result on the basis of their famous 'knife edge' models of
economic growth. Empirically the Schema may explain the extreme volatility of
investment (capital formation) that we perceive till today. (For more on this model, see
Reuten 1998.)
In the middle part of Capital II we find a long and tedious (and therefore difficult)
treatment of ‘turnover time’ – a much neglected issue in economics generally (though not
in ‘financial accounting’), but also in Marxian economics (see however, Mandel 1975 ch 7,
Smith 1998, and especially for its monetary aspects, Campbell 1998).
The third main building block is not this turnover treatment, but rather that of the
devel-opment of the average rate of profit (to be found in Capital III, Part Three). This
particular theory is controversial amongst Marxian economists (for a recent appreciation,
see Reuten 2002). Be that as it may, the evolution of the rate of profit remains central to any
variant of Marxian macroeconomics – an interesting contrast with mainstream economics
where the profit rate plays hardly any role, or gets reduced to the interest rate.
The most influential of Marx's economics on macroeconomics in the early 20th
century was the Capital II reproduction model. One of the first authors to adopt it was the
business cycle researcher Tugan-Baranowski – writing around 1900. Via his work, the
Capital II framework influenced a number of important non-Marxian economists of the
first half of the 20th century - such as Spiethoff, Cassel, Aftalion, W. Mitchell, Schumpeter,
J.M. Keynes and Leontief.
The same Capital II model, sometimes combined with the third mentioned building
block, also inspired the early 20th century macroeconomics of Marxists such as Otto Bauer,
Rosa Luxemburg, Henryk Grossman, Maurice Dobb, Paul Sweezy, Michal Kalecki and to
some extent also Joan Robinson. (See Howard & King 1989 and 1992 for a history of
Marxian economics, with an overview of recent macroeconomic themes in ch. 16 of the
latter book; the latter chapter might also be combined with the earlier 90 pages overview of
Hardach, Karras & Fine 1978.)
In current Marxian macroeconomics all three building blocks play a role, though
variously developed. Increasingly this is coupled with macro-monetary and
macro-financial matters. Marx's own work on this - in especially Capital III Parts Four to
Five – is sketchy, albeit he wrote some 350 pages on the issue (cf. Crotty 1985, Campbell
2002 and Reuten 2002). Although Hilferding developed Marx’s analysis in his Finance
Capital (1910) – for long a standard text amongst Marxists – it is really only from the 1970s
onwards that these issues become more prominent in Marxian macroeconomics. For
example, through the work of Susanne de Brunhoff (1976) and Michel Aglietta (1976),
with an explicit link from Marx's circuit approach to finance made by Augusto Graziani
(see, Bellofiore & Realfonzo 1997). On all of these matters a thorough connection from
Marx to the present is Harvey (1982). Itoh & Lapavitsas (1999) provide a general
introduction.
A good starter for ‘Marxian macroeconomics’ is Laibman (1997) which contains
further references. From a macroeconomic perspective Brenner (1998) provides a
theoretical and empirical record of capitalist development in the second half of the 20th
century. Combined with Fine, Lapavitsas & Milonakis (1999), the ‘Symposium on
Brenner’ (1999) provides a pattern-card of current Marxian positions and debates as well as
further references (contri-butions by W. Bonefeld, A. Callinicos, G. Carchedi, S. Clarke, G.
Duménil & D. Lévy, A. Freeman, C. Harman, M. Husson, D. Laibman, M. Lebowitz, F.
Moseley, A. Shaikh, M. Smith, T. Smith, R. Walker, J. Weeks and E.M. Wood).
Alternatively, one might move on from Laibman (1997) to the edited collection of
Albritton et al. (2001) for papers on the long term development of capitalism, especially in
the past five decades.
References
Albritton, Robert, Makoto Itoh, Richard Westra & Alan Zuege (eds 2001), Phases of
Capitalist Development; Booms, Crises and Globalizations, Basingstoke/New York,
Palgrave
Aglietta, Michel (1976; 1979), Régulation et Crises du Capitalisme, Calmann-Lévi,
Engl.transl. D. Fernbach, A Theory of Capitalist Regulation; The US Experience,
London, NLB
Arthur, Christopher (1998), The Fluidity of Capital and the Logic of the Concept, in Arthur
& Reuten (eds 1998), pp 95-128
Arthur, Christopher & Geert Reuten (eds, 1998), The Circulation of Capital: Essays on
Volume II of Marx's ‘Capital', London/New York, Macmillan
Bellofiore, Riccardo (ed. 1998), Marxian Economics: A Reappraisal, Two Volumes,
Lon-don/New York, Macmillan
Bellofiore, Riccardo & Riccardo Realfonzo (1997), Finance and the labour theory of value;
toward a macroeconomic theory of distribution from a monetary perspective,
International Journal of Political Economy, 27/2
Brenner, Robert (1998), Uneven Development and the Long Downturn: The Advanced
Capitalist Economies from Boom to Stagnation, 1950-1998; or, the economics of
global turbulence, New Left Review 229 (special issue): 1-265
Brunhoff, Susanne de (1976; 1978), État et Capital, Engl.tr. The State, Capital and
Economic Policy, London, Pluto Press
Campbell, Martha (1993), Marx's concept of economic relations and the method of Capital,
in Moseley (ed. 1993), pp 135-155
–– (1998), Money in the circulation of capital, in Arthur & Reuten (eds 1998): 129-58
–– (2002), The Credit System, in Campbell & Reuten (eds 2002): 212-27
Campbell, Martha & Geert Reuten (eds, 2002), The Culmination of Capital; Essays on
Volume III of Marx's ‘Capital', London/New York, Palgrave–Macmillan
Crotty, James (1985), The centrality of money, credit and financial intermediation in
Marx's crisis theory: an interpretation of Marx's methodology, in S. Resnick & R. Wolff
(eds), Rethinking Marxism, Brooklyn, Autonomedia, 45-81
Desai, Meghnad (1979), Marxian Economics, Oxford, Basil Blackwell
Duménil, Gérard & Dominique Lévy (1993), The Economics of the Profit Rate:
Compe-tition, Crises and Historical Tendencies in Capitalism, Aldershot, Edward
Elgar
Fine, Ben & Laurence Harris (1979), Rereading Capital, London, Macmillan
Fine, Ben, Costas Lapavitsas & Dimitri Milonakis (1999), Adressing the world economy:
two steps back, Capital & Class 67, Spring, 47-90
Foley, Duncan (1986) Understanding Capital, Cambridge (Mas)/London: Harvard
University Press
Hardach, Gerd, Dieter Karras & Ben Fine (1978), A Short History of Socialist Economic
Thought, London, Edward Arnold
Howard, Michael C. & Jesse E. King (1989-1992), A History of Marxian Economics;
Volume I, 1883-1929; Volume II 1929-1990. London: Macmillan
Harvey, David (1982; 1999), The Limits to Capital, London/New York: Verso (478 pp)
Hilferding, Rudolf (1910; 1981), Finance Capital; A Study of the Latest Phase of Capitalist
Development, London: Routledge & Kegan Paul
Itoh, Makoto & Costas Lapavitsas (1999), Political Economy of Money and Finance,
London etc, Macmillan
Laibman, David (1997), Capitalist Macrodynamics; A Systematic Introduction, London,
Macmillan (143 pp)
Mandel, Ernest (1975), Late Capitalism, London, New Left Books
Marx, Karl (1867–1885–1894; 1976–1978–1981), Capital, Vol.I [The Production Process
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Moseley, Fred (ed. 1993), Marx's Method in ‘Capital'; A Reexamination, Atlantic
Highlands, NJ, Humanities Press
Reuten, Geert (1998), The status of Marx's reproduction schemes, in Arthur & Reuten (eds
1998): 187-229
–– (2002), The rate of profit cycle and the opposition between managerial and finance
capital, in Campbell & Reuten (eds 2002): 174-211
Smith, Tony (1998), The Capital/Consumer Relation in Lean Production, in Arthur &
Reuten (eds 1998): 67-94
Symposium on Brenner and the world crisis (1999); Part 1 by A. Callinicos, G. Carchedi, S.
Clarke, G. Duménil & D. Lévy, C. Harman, D. Laibman, M. Lebowitz, F. Moseley, M.
Smith, E.M. Wood (in Historical Materialism 4, 1999, pp 3-179); Part 2 by W. Bonefeld, A.
Freeman, M. Husson, A. Shaikh, T. Smith, R. Walker, J. Weeks (in Historical Materialism
5, 1999, pp 3-230)