Marx’s Capital – ‘scientifically erroneous and

without application to the modern world’?

by Michael Roberts
John Maynard Keynes reckoned Das Kapital was “an obsolete economic textbook which I
know to be not only scientifically erroneous but without interest or application for the modern
world.” Marx’s work was a ‘poor version’ of Ricardo and needed to be knocked away.

Was Keynes right about this? This paper will consider the logical consistency of Marx’s
value theory and its empirical relevance to modern capitalist developments. It will deal with
the differences of Marx’s theory as a critique of political economy to that of Ricardo and
Keynes.

In particular, the paper will consider the differences between the labour value theory of
Ricardo and Marx and the marginalist foundations of Keynes’ theory. It will also compare
‘the most important law of political economy’, namely Marx’s law of the tendency of the rate
of profit to fall, with the explanations of changes in profitability offered by Ricardo and
Keynes.

Empirical evidence will be provided to consider the relevance of Marx’s value theory and law
of profitability to developments in 21st century capitalism.

The paper is divided into four sections.

1. Labour theory of value versus marginal utility

2. Profit is unpaid labour or the marginal productivity of capital?
3. Crises: falling profitability and profits; or lack of demand and ‘animal spirits’?
4. The future: capitalism reformable or transient?

“Scientifically erroneous and a poor version of Ricardo”

“How can I accept the [Communist] doctrine,” Keynes wrote, “which sets up as its bible,
above and beyond criticism, an obsolete textbook which I know not only to be scientifically
erroneous but without interest or application to the modern world?

“How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat
above the bourgeoisie and the intelligentsia, who with all their faults, are the quality of life
and surely carry the seeds of all human achievement?

“Even if we need a religion, how can we find it in the turbid rubbish of the red bookshop? It
is hard for an educated, decent, intelligent son of Western Europe to find his ideals here,
unless he has first suffered some strange and horrid process of conversion which has
changed all his values.” Keynes1

“Economic prosperity is…dependent on a political and social atmosphere which is congenial

to the average businessman.” Unemployment, I must repeat, exists because employers have
been deprived of profit. The loss of profit may be due to all sorts of causes. But, short of
going over to Communism, there is no possible means of curing unemployment except by
restoring to employers a proper margin of profit.”~ John Maynard Keynes, “Proposals for a
Revenue Tariff,” The New Statesman and Nation (March 7, 1931), reprinted in Essays in
Persuasion.

1. The labour theory of value versus marginalism

Was Keynes right about Marx’s economic theories, namely that they were “scientifically
erroneous” and “without interest or application to the modern world”. As we commemorate
200 years since Marx’s birth, do we agree with Keynes that Capital is an “obsolete textbook”
used as “turbid rubbish” in “red bookshops”.

Marx’s Capital was a critique of the political economy of his time but it is also a searing
analysis of the nature of what we now call capitalism. Based on a labour theory of value,
Marx attempted to show how labour is exploited even though exchange in markets appears to
be one of equality. His theory of profit as unpaid labour also leads to the view that it is profit
that drives investment or the accumulation of capital not ‘scarcity’ or abundance. And his
law of the tendency of the rate of profit to fall attempts to explain recurring slumps in
production and investment. And it also suggests that capitalism has irreconcilable
contradictions that can only be reconciled by its replacement with production for need
through common ownership and control.

The labour theory of value was not Marx’s invention or discovery, as we know. The classical
economists, Adam Smith and David Ricardo, in the era of the rise of industrial capitalism,
first expounded it.2

I don’t propose in this paper to go over the whole history and genesis of the labour theory of
value. Suffice it here to compare the labour theory of value with that of mainstream
economics. Let us consider a very basic question: why does a car cost $10,000 and cup of
coffee just $1?3 The classical theory says that the value or price depends on the quantity of
time that it takes workers to produce all the elements that go into creating, supplying,
delivering and selling the car or the cup of coffee. Price or value can and should be measured
in the average labour time involved. 4

This was the view of the classical economists like Smith and Ricardo.5 Ricardo opens his
Principles with a section on value. “The value of a commodity, or the quantity of any other
commodity for which it will exchange, depends on the relative quantity of labour which is
necessary for its production, and not on the greater or less compensation which is paid for
that labour.” 6

The classical economists, as well as Marx, regarded the labour theory of value as a vital law
that governed political economy. Nature provides the materials, but it is labour that fashions
them into use-values and values. Nature provides us with materials for free, without any
value. It is human labour, through the expenditure of time and effort that serves to create
values.

As physical things, commodities are incommensurate; inputs are transformed into different
outputs through the production process. Therefore, they must share some other property than
their physical form that allows their common measurement or exchange, the labour required
for their production. This was the original premise for and the reason why David Ricardo
adopted a labour theory of value.

For the classical economists, the fundamental economic problem was not scarcity, for
commodities are manufactured and so not scarce, but rather distribution and production.7 This
must be so if there is a social division of labour beneath the physical production and
reproduction of things. The qualitative aspect of the labour theory of value means nothing if it
cannot determine the division of labour quantitatively or, more specifically, the actual
physical quantities of different inputs required to produce actual quantities of outputs. 8

But Smith held two contradictory theories of value. In places Smith holds to the idea that the
value of a commodity is determined by one thing and one thing alone: the quantity of labour
embodied in such a commodity. On many occasions, however, he proposed an ‘adding-up’
theory of value in which the various forms of revenue (wages, profits, rent) were held, in
their summation, to determine the value of the commodity. The conclusion of this latter
conception of value is, as Marx puts it, ‘that commodity value is composed of various kinds
of revenue, or alternatively “resolved into” these revenues, so that it is not the revenues that
consist of commodity value but rather the commodity value that consists of revenues’9.

For Marx, it was self-evident that the expenditure of labour power was the only basis of
value10. Marx delineated his difference with Smith’s value theory in this way: “If I define
the length of three straight lines independently and then make these lines ‘components’ of a
fourth straight line equal in length to their sum, this is no way the same procedure as if I start
with a given straight line and divide this for some purpose or other – ‘resolve’ it so to speak –
into three parts. The length of the line in the first case invariably changes with the length of
the three lines whose sum it forms; in the latter case the length of the three segments is
limited from the beginning by their forming parts of a line of given size.”11

TOTAL VALUE IN LABOUR TIME

ONE UNIT DIVIDED

WAGES PROFIT RENT
INTO THREE

THREE UNITS SUMMED

WAGES PROFIT RENT

TOTAL VALUE-
WAGES- = PLUS
PROFIT RENT
PLUS IN LABOUR TIME

Ricardo, unlike Adam Smith, attempted to use the law of labour value consistently. But he
provided no explanation of capital and no theory of surplus value. For Ricardo, value could
be divided into three destinations for distribution among classes; wages to workers, rents to
landlords and profits to capitalists. But the share going to profit was not determined by class
struggle between labour and capital, but between industry and land. The landlord controls the
subsistence of labour and thus wages rise because of increased costs of production of food
induced by higher rents, and this squeezes profit. Profit rises or falls according to the
movement of real wages and not to the creation of value as such.

TOTAL VALUE IN LABOUR TIME

ONE UNIT DIVIDED

WAGES PROFIT RENT INTO THREE

RENT AND WAGES

WAGES- PROFIT- RENT-PLUS SQUEEZE PROFITS
PLUS SQUEEZE

It's a biological explanation"Profits depend on high

or low wages, wages on the price of necessaries, and
the price of necessaries chiefly on the price of food."

For Marx, this was an inadequate explanation of value and price. For him, the essence of
process was to found in the socially necessary labour time to produce commodities during the
working day12.

TOTAL VALUE IN LABOUR TIME

PRODUCED BY 'LIVING LABOUR'

The working day X LABOUR

FORCE (3bn)
= TOTAL HOURS
OF LABOUR
DIVIDED INTO
VALUE OF
LABOUR POWER
PAID LABOUR = UNPAID LABOUR=
AND SURPLUS
VALUE OF SURPLUS VALUE =
VALUE
LABOUR POWER = PROFITS,INTEREST,
WAGES RENT

We can measure objectively the value created in labour hours: the working day (year) times
the number of labourers. The struggle over value then is not industry versus land (Ricardo)
but capital (surplus value) versus labour (value of labour power).
Marx’s value theory is a great advance on Ricardo because he recognised the difference
between new value created from living labour and past value stored and consumed in
production from the means of production. Thus the value of output is c+v+s, not just v+s
(value-added) as Ricardo assumed.

TOTAL VALUE IS NOT JUST LIVING LABOUR

'Dead Living labour

labour'
(means of unpaid
paid labour labour
production - (variable
constant (surplus
capital) = V value) = S
capital) = C

Ricardo gets it wrong

Marx not a 'poor Ricardo' but a better one!

The value of a commodity is not the labour time involved in producing it but is an abstraction
of all the labour time applied in an economy and expressed in exchange on the market.
Moreover this abstract labour must be socially necessary. That means it must be sold on the
market and so value becomes the abstract labour applied across the economy as a whole and
expressed in the market. This average is continually changing with the change in the
productivity of labour being socially expressed in the market.

Marx’s law of value enables him to show that value based on socially necessary labour time
can be reconciled or transformed into prices (of production), around which market prices will
fluctuate. All the classicals recognised that under competition in the market, capitalists
would direct investment towards sectors with higher profitability. Thus there was a tendency
for profitability to move towards an average, a continually moving average, but an average.13

Thus the values created in each sector and measured in labour time are modified through
competition into prices. The more efficient are able to gain more value than their workers
created from the transfer of value through the market. Thus values are transformed or
modified into prices of production expressed on the market.
 The transformation:
Relative prices are determined by the cost of capital advanced in the
producttion period plus an average rate of priofit as reached through
competition among capitals

Sectors c v s TV c v p TP
1 80 20 20 120 80 20 49 149
2 60 30 30 120 60 30 44 134
3 50 40 40 130 50 40 44 134
4 40 70 70 180 40 70 54 164
5 20 80 80 180 20 80 49 149
TOTAL 250 240 240 730 250 240 240 730
ARP
0.5

Marx’s solution of the transformation of value into prices was attacked from the word go by
mainstream economics, starting with Eugene Bohm-Bawerk up to the critique of the so-called
‘neo-Ricardians’ of the 1970s. But Marx’s solution has now been fully vindicated logically
by recent work by Marxist economists.14 Indeed, there is no transformation ‘problem’.

It is a different matter with mainstream explanations of value and price that Keynes accepted
in contrast to the ‘illogical and obsolete’ labour theory of value. Keynes accepted the
mainstream marginal utility theory behind the basic diagram of supply and demand as the
theory of price. The marginal argument is also supposed to be self-evident. As Stanley
Jevons put it: “Repeated reflection and enquiry has led me to the somewhat novel opinion
that value depends entirely upon utility…. If someone wants something badly, it has
considerable utility for that person; the more he wants it, the more he is willing to pay for it.
…Labour once spent has no influence on the future value of any article” 15
In the marginal utility of price, there are two lines, sometimes they are drawn slightly curved,
one is called the supply function, the other the demand function. The demand function rests
on the common sense notion that if something is cheap, people will buy more of it, so it
slopes down. The other line, called the supply function is shown sloping the other way. What
it purports to show is that as more is supplied, the cost of each item goes up. But what
determines whether the two curves cross at $1 or at $10,000? There is no explanation, except
through aggregating individual marginal utility curves.16

But subjective value cannot be measured and aggregated, so the psychological foundation of
marginal utility was soon given up, but without abandoning the theory itself. “Utility” now
referred not to the subjective evaluations themselves but to their manifestations in market
demand. Utility, it was now held, concerned not so much a particular commodity as the
number of commodities among which the buyer would be pleased to choose. This ordering or
preference scale of the consumer’s was represented graphically by so-called indifference
curves.
Thus economists now distinguished between the absolute (cardinal) magnitude of utility and
the relative (ordinal) utility, which was represented in the preference scale. The concept of
marginal utility metamorphosed into that of the marginal rate of substitution, the rate at
which the quantity of one good must increase to compensate for the diminishing quantity of
another. Maximum satisfaction could then be defined in terms of the marginal rates of
substitution between all pairs of goods. In other words, the buyer would so distribute his
money that all the goods he purchased were equally valuable to him, at which point his
choice behaviour would come to a satisfactory conclusion. Thus a price of a good is at a
certain level where an individual is ‘indifferent’ in his or her choice of purchase of it or
another good. This theory too failed for the same reason that each individual’s preference
scale differed and there is not way to aggregate these subjective scales.

So then came revealed preference, an equally failed project17. This concluded that a price
was at a certain level because the market revealed itself at that price. So the price is
explained (revealed) by the price!

As Engels summed up the utility theory alternative to the labour theory: “The fashionable
theory just now here is that of Stanley Jevons, according to which value is determined by
utility and on the other hand by the limit of supply (i.e. the cost of production), which is
merely a confused and circuitous way of saying that value is determined by supply and
demand. Vulgar Economy everywhere!” 18

As Paul Cockshott has argued, “a causal theory should be testable to see if it is true. For that
to work, the entities you use have to be measurable. But what testable predictions does the
neoclassical theory make about the structure of industrial prices in, for example, the US
economy? It can make none, since the supply and demand functions for the various
commodities are not only contingently unknown, but are in principle unknowable. The theory
says that the two functions uniquely define the price and quantity that will be sold on a
particular day, but there are infinitely many pairs of lines that could be so drawn as to
intersect at the point. It is no good trying to look at how the prices and quantities sold vary
from day to day, since the theory itself holds than any changes in price or quantity must be
brought about by ‘shifts’ in the functions. So the theory is unfalsifiable. It makes no specific
operational predictions about prices and quantities. It is true by definition and vacuous by
definition. It is not even wrong.19

Fred Moseley points out that Keynes was aware of the problem. “After having noted that
“two incommensurable collections of miscellaneous objects cannot in themselves provide the
material for a quantitative analysis”, he comes up with a truly astonishing consideration: this
“fact…need not, of course, prevent us from making approximate statistical comparisons”. As
if two incommensurable quantities could be “approximately” measured and compared! They
cannot, either exactly or approximately. The reason for this “oversight” is that no utility
theory can admit to this inconsistency; for to admit that there is a problem of
incommensurability would mean to admit that the whole theory is built on quicksand.20

Keynes stuck to a scientifically erroneous theory of prices and value and one which is
untestable, while rubbishing an objective and testable theory of value based on labour time
expended. In contrast, Marx’s value theory is both logical, testable and supported by
evidence.

Cockshott and Cottrell21 broke down the economy into a large number of sectors to show that
the monetary value of the gross output of these sectors correlates closely with the labour
concurrently expended to produce that gross output:

“If the labour theory of value is correct, these ratios should be fairly narrowly distributed.
Using United Kingdom input-output data we tested the candidate “value bases” oil,
electricity, and iron and steel, and found correlations against price of 0.799, 0.826 and 0.576
respectively, as compared with 0.977 for labour.7 For one can focus on the ratio of aggregate
price to labour-content (or alternatively labour-content to price) across the sectors of the
economy.”

Anwar Shaikh did something similar22. He compared market prices, labour

values and standard prices of production calculated from US input-output tables and found
that on average labour values deviate from market prices by only 9.2 per cent and that prices
of production (calculated at observed rates of profit) deviate from market prices by only 8.2
per cent.

And G Carchedi in a recent paper showed that the validity of Marx’s law
of value can be tested with official US data, which are deflated money prices of use
values. He found that money and value rates of profit moved in the same direction
(tendentially downward) and tracked each other very closely.23

2. Profits and production

Marx’s main message is simple: capitalist production is for profit. For Marx, capitalism is a
money-making economy. For Keynes, it is a monetary economy but one that is production
for useful things and services.

In Marx’s opinion, the tendency of the rate of profit to fall – a much discussed and disputed
question amongst the classical economists – was the ‘single most important law of political
economy’. This was so because it was the rate of profit which effectively regulated the
process of capital accumulation. In other words, profit was important not merely as one of
several forms of income within the capitalist system but as the source from which the means
for the further accumulation of capital could alone come.

Marx’s general notion of the falling rate of profit. Marx divides the total social capital into
three broad categories: (1) constant capital (c), equivalent to expenditure on machinery, raw
materials and heat, light and power. This capital was deemed constant in that it merely
transfers the value embodied in it and cannot be the source of new value. (2) variable capital
(v), the expenditure by capital on the purchase of labour power, variable because it is the only
source for the expansion of value. (3) surplus value (s), the increment in value accruing to the
owners of capital. The rate of profit is given by surplus value over total capital: s/c + v.

Now as capital accumulates, there is a tendency for the constant capital to grow more rapidly
than the variable portion of capital: this is the expression in value terms of the improvements
in technology associated with capitalism throughout its history.
The relatively rapid increase in constant capital as compared with the variable element of
capital Marx refers to as the tendency for the organic composition of capital (c/v) to rise.
Although an increase in the organic composition of capital will normally produce an increase
in the rate of surplus value (s/v), or at least its mass (s), there are definite objective limits to
such an increase, not least amongst them the actual physical limit to available working-time.
But unless s/v does rise with sufficient rapidity to compensate for the increasing organic
composition (c/v), then the tendency for the rate of profit to fall will assert itself in an actual
fall.
In the latter part of the 20th century, thanks to the work of several Marxist economists and the
availability of better statistics, evidence of the validity of Marx’s law of profitability has
accumulated.24 For example, here is my measure of the rate of profit in the post-war US
economy.
While for the marginalist approach, profitability is the result of falling ‘capital productivity’,
for Marx, capital accumulation leads to rising labour productivity, i.e. by the shedding of
labour inherent in greater labour productivity. But since only labour produces value, a
growing output of use values per unit of labour contains a decreasing quantity of value and
surplus value. The correlation between labour productivity and profitability is thus negative,
not positive, contrary to marginalism. This has been empirically verified by G Carchedi25 for
the US. tendentially, labour productivity rises and the ARP falls.

US productivity (($1,000 per labourer) and profitability (percentage level)

450 25
400
350 20

300
15
250
200
10
150
100 5
50
00 0
48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 14
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20

Productivity LHS ARP RHS Linear (ARP RHS)

3. Crises

For Marx, the driver of capital accumulation is profit. Profit calls the tune. And the tendency
for the rate of profit to fall eventually exerts downward pressure on the mass of profits,
provoking an investment strike by capitalists and the downward spiral into falling output,
employment and spending.

In contrast, Keynes, having denied that profits are the unpaid labour of the production
process, reckons that it is overall ‘effective demand’ that causes crises; in particular slumps in
investment and consumption that lead to reductions in employment wages and profits.26
Demand calls the tune.

• (NI) National income = (NE) national expenditure

•
• NI (Profits + Wages) = NE (Investment +
Consumption)
•
• So Profit + Wages = Investment + Consumption.
•
• Now if we assume that wages are all spent on
consumption and not saved, then
•
• Profits = Investment
For Keynes it is a fall in national income that will produce a drop in the level of employment.
But this merely raises a deeper, more fundamental question: what brings about the initial fall
in income? What is the inner (relatively hidden) source of this outer movement? It is this
question which, says Marx, any serious analysis of capitalism and its crises must seek to
answer. But it is a question ignored by Keynes and the mainstream.

Keynes does not even mention the movement of profit as relevant to crises. Much more
important for him was ‘human nature’, for “If human nature felt no temptation to take a
chance, no satisfaction (profit apart) in constructing a factory, a railway, a mine or a farm,
there might not be much investment as a result of cold calculation27
As Paul Mattick says, “what are we to make of an economic theory, which after all claimed
to explain some of the fundamental problems of twentieth-century capitalism, which could
declare: ‘In estimating the prospects of investment, we must have regard, therefore, to the
nerves and hysteria and even the digestions and reactions to the weather of those upon whose
spontaneous activity it largely depends’?28

Who is right? Well, again look at the evidence. If we analyse the changes in investment and
consumption prior to each recession or slump in the post-war US economy, we find that
consumption demand has played little or no leading role in provoking a slump.

It is investment that is the crucial swing factor. Take the last Great Recession. A downward
movement in corporate profits led investment and GDP by up to two years and the recovery
in profits did likewise on the period after 2009.
Keynes did see the fluctuation of the rate of profit—or the marginal efficiency of capital, to
use Keynes’s preferred terminology—as the main factor that determines the changes in the
phases of industrial cycle: “Now, we have been accustomed in explaining the ‘crisis’ to lay
stress on the rising tendency of the rate of interest under the influence of the increased
demand for money both for trade and speculative purposes. At times this factor may certainly
play an aggravating and, occasionally perhaps, an initiating part. But I suggest that a more
typical, and often the predominant, explanation of the crisis is, not primarily a rise in the rate
of interest, but a sudden collapse in the marginal efficiency of capital.29

But the collapse in the MEC is based on falling ‘marginal productivity’ due to the ‘abundance
of capital’ and on the psychological expectations of capitalists about the future. Keynes
wrote, “that marginal efficiency of capital depends, not only on the existing abundance or
scarcity of capital-goods and the current cost of production of capital-goods, but also on
current expectations as to the future yield of capital-goods. In the case of durable assets it is,
therefore, natural and reasonable that expectations of the future should play a dominant part
in determining the scale on which new investment is deemed advisable. But, as we have seen,
the basis for such expectations is very precarious. Being based on shifting and unreliable
evidence, they are subject to sudden and violent changes.” This is the best that Keynes can
do, limited as he is by marginalism.

This brings us to Keynes’ multiplier. If Marx is right about the ultimate cause of crises, then
after the depth of a slump, a rise in the profitability of capital should deliver higher
investment and higher real GDP and recovery (the Marxist multiplier). If Keynes is right,
then the movement in ‘effective demand’, as inspired by government spending to compensate
for the collapse in private investment and consumption, should restore growth and prosperity
(the Keynesian multiplier).

What is the evidence? Below is a correlation between the movement in profitability of

capital in European economies between 2010-5 and economic growth. The overall
correlation is positive and very high in the most depressed EZ economies.
And here is a comparison between the impact of the Marxist and Keynesian multipliers in
each slump and recovery in post-war US. The correlation is strongly positive for the Marxist
multiplier and non-existent for the Keynesian multiplier, particularly in the recovery from the
Great Recession.

US: Keynesian versus Marxist multipliers*

1.80
* Average real GDP growth as a Correlations:
1.61
1.60 ratio of average change in real Govt exp: -0.04
1.41 govt exp and as a ratio of change Net return
1.40 in net return on capital
on capital: +0.64
1.20
1.00 0.92 1.0
0.80
0.60 0.5 0.44
0.40 0.3
0.20 0.1
0.02 0.0
0.00
1971-80 1980-90 1990-00 02-07 08-14
ROP Govt exp

4. The future

Having dismissed Marx’s economic theories, Keynes was convinced that once the ‘technical
problem’ of a loss in effective demand was dealt with by monetary easing and fiscal stimulus,
then the long-term prospects for the capitalist economy were decidedly positive.

“I draw the conclusion that, assuming no important wars and no important increase in
population, the ‘economic problem’ may be solved, or be at least within sight of solution,
within a hundred years. This means that the economic problem is not – if we look into the
future – the permanent problem of the human race.” Keynes

In his speech to his Cambridge economics students (dangerously infected by Marxism in the
depth of the depression in 1031, Keynes made a very optimistic forecast. “Let us, for the sake
of argument, suppose that a hundred years hence we are all of us, on the average, eight times
better off in the economic sense than we are to-day. Assuredly there need be nothing here to
surprise us.”….“

According to Keynes, we should all be working a 15-hour week now with poverty and
inequality an irrelevance as we strive to use our leisure time to effect. “for the first time
since his creation man will be faced with his real, his permanent problem – how to use his
freedom from pressing economic cares, how to occupy the leisure, which science and
compound interest will have won for him, to live wisely and agreeably and well.”

Well, in 1930 the average working life in the main advanced economies was 100,000 hours.
In 2015 the average working life was…. 100,000 hours
Keynes reckoned world GDP would have jumped eight times from the 1930s to 2030.
Assuming a generous 3% growth in real world GDP from now until 2030, something that
many reckon will not be achieved, world GDP will be about $97trn then. That gives a per
capita level of $11770 compared to $1958 in 1940, or a rise of six times.

Like some other marginalists, Keynes saw the decline of the rate of profit not as pointing
toward a revolutionary transformation in the mode of production but rather as representing a
progressive softening in the antagonism between the capitalists and the working class. These
marginalists are saying that as capital becomes “less scarce” relative to “labor,” the rate of
profit will fall and real wages will rise. More of the total product will therefore go to the
working class and less will go to the capitalists. As the “scarcity-value” of capital vanishes,
according to Keynes, economic growth would peter out. Expanded reproduction would give
way to simple reproduction. Interest rates would fall to zero or very close to zero, causing the
gradual extinction of the hateful “money capitalists.” This would leave the industrial and
commercial capitalists, who carry out the labor of superintendence and who would be able to
earn a little extra profit by taking on “entrepreneurial” risks.

Now 200 years since Marx was born and 80 years since Keynes made his predictions, who
was right? Keynes reckoned that inequalities in income were disappearing. “Since the end of
the nineteenth century significant progress towards the removal of very great disparities of
wealth and income has been achieved through the instrument of direct taxation — income tax
and surtax and death duties — especially in Great Britain.”

Well, the level of inequality or wealth and income in the major economies has never been so
extreme.

A dominant core of 147 firms through interlocking stakes in others together control 40% of
wealth in the global network. A total of 737 companies control 80% of it all. This is the
inequality that matters for the functioning of capitalism – the concentrated power of capital.
Actually Keynes was in favour of inequality. “For my own part, I believe that there is social
and psychological justification for significant inequalities of incomes and wealth, but not for
such large disparities as exist today. There are valuable human activities which require the
motive of money-making and the environment of private wealth-ownership for their full
fruition. Moreover, dangerous human proclivities can be canalised into comparatively
harmless channels by the existence of opportunities for money-making and private wealth,
which, if they cannot be satisfied in this way, may find their outlet in cruelty, the reckless
pursuit of personal power and authority, and other forms of self-aggrandisement. It is better
that a man should tyrannise over his bank balance than over his fellow-citizens; and whilst
the former is sometimes denounced as being but a means to the latter, sometimes at least it is
an alternative. “

And in one of his last articles on the capitalist economy as the Great Depression ended and
the second world war began, Keynes returned to his marginalist roots. “Our criticism of the
accepted classical theory of economics has consisted not so much in finding logical flaws in
its analysis as in pointing out that its tacit assumptions are seldom or never satisfied, with the
result that it cannot solve the economic problems of the actual world. But if our central
controls succeed in establishing an aggregate volume of output corresponding to full
employment as nearly as is practicable, the classical theory comes into its own again from
this point onwards.

Free markets not socialism: “the result of filling in the gaps in the classical theory is not to
dispose of the ‘Manchester System’, but to indicate the nature of the environment which the
free play of economic forces requires if it is to realise the full potentialities of production.”

Keynes dismissed Marx’s analysis of capitalism; instead reckoning that capitalism would
deliver. So naturally, he opposed its replacement. Socialism “is, in fact, little better than a
dusty survival of a plan to meet the problems of fifty years ago, based on a misunderstanding
of what someone said a hundred years ago.”

“For the most part, I think that Capitalism, wisely managed, can probably be made more
efficient for attaining economic ends than any alternative system yet in sight, but that in itself
it is in many ways extremely objectionable. Our problem is to work out a social organisation
which shall be as efficient as possible without offending our notions of a satisfactory way of
life.” So “the class war will find me on the side of the educated bourgeoisie.”

Adam Smith was the economist of the transition to capitalism. David Ricardo was the
economist of the rise of capitalism. Keynes was the economist of the decay and decline of
capitalism. Marx was the economist of the future.
1
(Keynes, Laissez-Faire and Communism, quoted in Hunt 1979: 377).
2
Ïf all this has been established, it should be further known that the capital a person earns and
1

acquires, if resulting from a craft, is the value realized from his labor. This is the meaning of ‘acquired
(capital)’. There is nothing here (originally) except the labor, and (the labor) is not desired by itself as
acquired (capital, but the value realized from it).

Some crafts are partly associated with other (crafts). Carpentry and weaving, for instance, are
associated with wood and yarn (and the respective crafts needed for their production). However, in the
two crafts (first mentioned), the labor (that goes into them) is more important, and its value is greater.

If the profit results from something other than a craft, the value of the resulting profit and acquired
(capital) must (also) include the value of the labor by which it was obtained. Without labor, it would
not have been acquired.

In most such cases, the share of labor (in the profit) is obvious. A portion of the value, whether large or
small, comes from (the labor). The share of labor may be concealed. This is the case, for instance, with
the prices of foodÂstuffs. The labor and expenditures that have gone into them show themselves in the
price of grain, as we have stated before. But they are concealed (items) in regions where farming
requires little care and few implements. Thus, only a few farmers are conscious of the (costs of labor
and expenditures that have gone into their products).

It has thus become clear that gains and profits, in their entirety or for the most part, are value realized
from human labor. The meaning of the word ßustenance” has become clear. It is (the part of the profit)
that is utilized. Thus, the meaning of the words “profit” and ßustenance” has become clear. The
meaning of both words has been explained.” Khald¯un et al. [1969],Book 1, Chapter 5, Section 1

Ät all times and places, that is dear which it is difficult to come at, or which it costs much labour to
acquire; and that cheap which is to be had easily, or with very little labour. Labour alone, therefore,
never varying in its own value, is alone the ultimate and real standard by which the value of all
commodities can at all times and places be estimated and compared. It is their real price; money is their
nominal price only.” Smith [1974],Page 136
3
"It is admitted by everybody that demand and supply govern market price, but what is it [that] determines supply at a
particular price? cost of production." Notes on Malthus, Works, II,

4
Äs the exchangeable values of commodities are only social functions of those things, and have
nothing at all to do with the natural qualities, we must first ask: What is the common social substance
of all commodities? It is labour. To produce a commodity a certain amount of labour must be bestowed
upon it, or worked up in it. And I say not only labour, but social labour. A man who produces an article
for his own immediate use, to consume it himself, creates a product, but not a commodity. As a self-
sustaining producer he has nothing to do with society. But to produce a commodity, a man must not
only produce an article satisfying some social want, but his labour itself must form part and parcel of
the total sum of labour expended by society. It must be subordinate to the division of labour within
society. It is nothing without the other divisions of labour, and on its part is required to integrate them.
5
Marx
6
D. Ricardo, Principles of Political Economy and Taxation, p.55, Penguin edition.
7
Hilferding noted that “value in the Marxist sense is an objective, quantitatively determined
magnitude” (1975 [1904]: 159).
8
If we consider commodities as values, we consider them exclusively under the single aspect of
realized, fixed, or, if you like, crystallized social labour. In this respect they can differ only by
representing greater or smaller quantities of labour, as, for example, a greater amount of labour may be
worked up in a silken handkerchief than in a brick. But how does one measure quantities of labour? By
the time the labour lasts, in measuring the labour by the hour, the day, etc. Of course, to apply this
measure, all sorts of labour are reduced to average or simple labour as their unit. We arrive, therefore,
at this conclusion. A commodity has a value, because it is a crystallization of social labour. The
greatness of its value, or its relative value, depends upon the greater or less amount of that social
substance contained in it; that is to say, on the relative mass of labour necessary for its production. The
relative values of commodities are, therefore, determined by the respective quantities or amounts of
labour, worked up, realized, fixed in them. The correlative quantities of commodities which can be
produced in the same time of labour are equal. Or the value of one commodity is to the value of another
commodity as the quantity of labour fixed in the one is to the quantity of labour fixed in the
other.” Marx [1910],Section 6
9
11: 465

10
“Every child knows that any nation that stopped working, not for a year, but let us say, just for a few
weeks, would perish”, explained Marx. Broadly speaking, the things we need have to be produced in
certain quantities and then distributed according to the requirements of society. This constitutes the
economic laws of all societies, including capitalism. “And every child knows, too, that the amounts of
products corresponding to the differing amounts of needs, demand differing and quantitatively
determined amounts of society’s aggregate labour”, continued Marx. 3. Letter from Marx to
Kugelmann, 11 July 1868, MECW, vol.43, pp.68-69.

11
ibid.: 383)

12
“The reason for this reduction is that in the midst of the accidental and ever-fluctuating exchange
relations between the products, the labour-time socially necessary to produce them asserts itself as a
regulative law of nature. In the same way, the law of gravity asserts itself when a person’s house
collapses on top of him. The determination of the magnitude of value by labour-time is therefore a
secret hidden under the apparent movements in the relative values of commodities.” 11 K. Marx,
Capital, vol.1 pp.167-8.
13
“The reason for this reduction is that in the midst of the accidental and ever-fluctuating exchange
relations between the products, the labour-time socially necessary to produce them asserts itself as a
regulative law of nature. In the same way, the law of gravity asserts itself when a person’s house
collapses on top of him. The determination of the magnitude of value by labour-time is therefore a
secret hidden under the apparent movements in the relative values of commodities.” 11 K. Marx,
Capital, vol.1 pp.167-8.

14
The history of this is long, starting with Robin Murray in the 1970s, G Carchedi in the 1980s, Alan Freeman and Andrew
Kliman in the 1990s and culminating in Fred Moseley’s summary of the transformation issue in his book, Money and
Totality.
15
Jevons
16
Among others it was notably Gustav Cassel who strove for the abolition of the marginal utility theory
because of its vicious circularity. Although the theory was supposed to explain prices, prices were
made use of in the explanation of marginal utilities. As business is transacted in terms of measurable
quantities, money and prices, in Cassel’s view the analysis of those transactions required nothing but
price concepts, so that economics had no need of any theory of value. On the assumption that economic
relationships are determined by a general “scarcity,” Cassel saw the task of economics as the optimal
adaptation of people’s various wants to the insufficient means available for their satisfaction. The
derivation of prices from the scarcity of goods can of course only explain one price by another and
leaves the question of what lies behind prices unanswered.

17
Revealed preference theory, pioneered by American economist Paul Samuelson,[1] is a method of
analyzing choices made by individuals, mostly used for comparing the influence of policies
on consumer behavior. These models assume that the preferences of consumers can be revealed by
their purchasing habits. Revealed preference theory came about because existing theories of
consumer demand were based on a diminishing marginal rate of substitution (MRS). This diminishing
MRS relied on the assumption that consumers make consumption decisions to maximize their utility.
While utility maximization was not a controversial assumption, the underlying utility functions could
not be measured with great certainty. Revealed preference theory was a means to reconcile demand
theory by defining utility functions by observing behavior.
18
22 MECW, vol.48, p.136
19
[Woit, 2002].
20
Moseley on Keynes
21
Cockshott, W.P., and Cottrell, A., 1997a. Labour Time versus Alternative Value Bases: A research
note, Cambridge Journal of Economics, 21, pp. 545-9. Cockshott, W.P., and Cottrell, A.,
1997b. The Scientific Status of the Labour Theory of Value. In: Eastern Economic Association,
Fourth mini-conference on Value Theory. Washington, DC, United States, April 3-6l.
Available at: <http://www.wfu.edu/~cottrell/eea97.pdf>.
22
http://www.anwarshaikhecon.org/sortable/images/docs/publications/political_economy/1998/1-
labthvalue.pdf
23
http://gesd.free.fr/carchedi815.pdf
24
Authors
25
Carchedi
26
But see this. “Economic prosperity is…dependent on a political and social atmosphere which is
congenial to the average businessman.” “Unemployment, I must repeat, exists because employers
have been deprived of profit. The loss of profit may be due to all sorts of causes. But, short of going
over to Communism, there is no possible means of curing unemployment except by restoring to
employers a proper margin of profit.”~ John Maynard Keynes, “Proposals for a Revenue Tariff,” The
New Statesman and Nation (March 7, 1931), reprinted in Essays in Persuasion.
27
” (GT: 150).
28
https://www.marxists.org/archive/mattick-paul/1974/crisis/ch01.htm
Keynes: (ibid.: 162)
29
.