MARX & KEYNES ON CAPITALISM.   Term Paper ID:16648 Click to get this paper

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Paper Abstract: Compares views on social & economic elements, labor, money; advantages & disadvantages of each. Paper Introduction: INTRODUCTION The purpose of this research is to examine the views of Karl Marx and John Maynard Keynes, on capitalism, and to compare and contrast these views. Both the social and the economic aspects of the views of Marx and Keynes are considered. Capitalism, for the purposes of this research, is defined as a "politicoeconomic system, based on private property and private profit" (Baxter, 1984, p. 147). MARX ON CAPITALISM On a broad scale, Marx viewed capitalism as one stage in an evolutionary process, wherein the politicaleconomy would move from one of subsistence agriculture to an elimination of private property and the class structure (Baxter, 1984, p. 201). Marx shared his concept of an evolutionary process with the classical Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Keynes however, was proved correct on many of his contentions(Ekelund & Hebert, 1983, p. (1984). In R. (197 ). The loanable funds theory holds that the interest rate is determinedby the intersection of the demand schedule for loanable funds and thesupply schedule for loanable funds. New York: McGraw-Hill. Keynes, J. 225). 165-176). W. References Ackley, G. Second, heagreed that the transactions demand for money was related to income levels. 23-26). 2 3-217). Kalecki, M. 6 ).The real value of money was expressed in terms of the tangible products andservices money would buy. (1982). (1983). New York: BasicBooks. In R. The economics of John Maynard Keynes did not challenge neoclassicaleconomic theory, so much as it challenged classical economic theory. Kristol (Eds.), The crisis in economic theory. Capitalism and freedom. Marx contended that thisinstability would eventually lead workers to rebel, and thus, destroy thesystem. A guide to Keynes. A history of economictheory and method, second edition. CONCLUSION Marxian economic thought is theoretically close to classicaleconomics. Klein, J. (1971). 33-34). Rather, according to Marx, capitalist greedis a part of the system, in which entrepreneurs must strive foraccumulation, if they are to survive; "one accumulates or one getsaccumulated" (Heilbronner, 1982, p. Norton &Company. Classical economics, after all, was the economics of the age inwhich Marx developed his theories. 35). 419).He also challenged the view that unemployment could be effectivelyaddressed either through an inflexible approach to wages (holding wagesstationary or through the reduction of wages. First,Keynes' rejection of the notion of a static equilibrium, in effect, rejectstheir own model. New York: McGraw-Hill. (1984). Thus, in order to know whatthe level of disposable income is, it is necessary to first know what theinterest rate is, and vice versa. 448). 147). Cambridge, England: CambridgeUniversity Press. Marx postulated that the value of labor used established the exchangevalue for a commodity. (1982). M. Thus, the supply of loanable is affected as follows:the volume of commodities offered to be used as capital will increase asthe percentage reward or rate of interest increases. 233-234). In this scenario,"propertyless workers" would develop "a class interest to challenge theproperties bourgeoisie, . These theoriesare based on an assumption that the value of a commodity is related to thefunctions for which it may used (Ekelund & Hebert, 1983, pp. Labor theory of value. Thelabor theory approach to the analysis of value was the approach of theclassical economists, and it was the approach of Karl Marx. 66-95).Second are the labor theories. Cochrane, J. A treatise on money. 44). KEYNES ON CAPITALISM Keynes, as did Marx, recognized an inherent instability in capitalism(Barber, 1984, p. In this context, a primary area of disagreementwas with respect to the reason that money is held in an economy. 236). Tucker(Ed.), The Marx-Engels reader, second edition. Thus, Marx,without so designating it, incorporated the concept of the business cycleinto his view of capitalism (p. Friedman, M. 4. In return for the exchange value of labor, the owners ofcapital who use labor gain the utility value of labor. The loanable funds supply schedulevaries with the level of disposable income. 2 3). 17 -171). Smith believedthat the accumulation of capital permitted (1) the creation of plant andequipment to assist human labor, and (2) the full employment of labor.Smith believed that free competition was essential for the development ofan efficient economy. The liquidity preference schedule will shift up or down with changesin the real income level. Hansen, A. New York:McGraw-Hill. The four concepts and principles stated above permitted neoclassicaltheorists to develop the general equilibrium principle, which holds that aneconomy is always in equilibrium (Hausman, 1984, p. 413). Keynes further contended that the rateof interest is determined by the intersection of the supply schedule ofmoney and the demand schedule for money. Marx believed thatthe utility value of labor was greater than the exchange value of labor - acritical point in his theory. Many contemporaryeconomists continue to oppose this proposition (Friedman, 197 , p. London: Macmillan. Marx's empirical observation was that the worker gets only a smallpart of the total wealth created; typically, just enough to permit her orhim to continue working. (1978b). Hinsdale,Illinois: Dow Jones-Irwin. Heilbronner, R. Further, this theoryis unable to provide a satisfactory explanation between the value and therelative price of a product. 54). Barber, W. The sociallynecessary labor time required to produce workers is comprised of the inputsrequired to rear, feed, clothe, educate, and train workers. Both the social and the economic aspects of the views of Marx andKeynes are considered. (1954). M. Samuelson, P. Communist manifesto (1848). In R. Marx shared his concept of anevolutionary process with the classical economists, from which he developedmuch of his own theory (Barber, 1984, p. (1982). 177-181). 68). Patinkin, D. Keynes contended that preferences for holding money for reasons otherthan transactions would, in many instances, invalidate the neoclassicalexplanations of capital accumulation, savings, investment, and interestrates (Mundell, 1971, pp. The first was that an economy wasnot characterized by static equilibrium. Marx raised economic theory above a preoccupation with agricultureand stationary states (Marx, 1978b, p. Keynesian economic theory, withrespect to interest, was essentially a monetary theory. 153). The greatest portion of created wealth accrues tothe capitalist. Keynes also rejected some of thecentral tenets of neoclassical economics, which have evolved from classicaltheory. In this context, also, neoclassical theorists made adistinction between real and nominal values of money (Bell, 1981, p. Thus, in Keynesian analysis, given the totalmoney supply, it is not possible to determine what quantity of money willbe available to hold as an asset, unless the real income level (and hence,the transactions demand for money) is first known. First, he agreed that money washeld for purposes of transactions (Keynes, 193 , pp. Marx, K. New York: HarcourtBrace Jovanovich.----------------------- 15 Harmondsworth,England: Penguin. Atlanta:Scott, Foresman and Company. Further, Marx believed that thisvalue was both fundamental and immutable. Keynes, J. 1 2). Clower (Ed.),Monetary theory: Selected readings. F. Capital generation, thus, in Marxist economic theoryderived from labor. In this view, Keynes was inagreement. The labor theory approach to the analysisof value postulates that value reflects the cost of production, as thatcost is measured in terms of absorbed labor (Blaug, 1982, p. 2 1). The nominal value of money was expressed inmonetary units. Tucker(Ed.), The Marx-Engels reader, second edition. H. W. 133-134, 138-141). Bell, D. This same insight later led Keynes to an understanding thatpolicies based upon classical economic theory would not necessarilyextricate the world's industrial economies from the depression of the early193 s (Hansen, 1953, pp. The exchange value of labor, in turn, is determined by thesocially necessary labor time required to produce workers. C. J. 34). New York: McGraw-Hill. 95). (1978a). Marx, K. (1984). B., Jr., & Hebert, R. The utility approach to the analysis ofvalue postulates that the final increment in demand and supply determinesthe exchange value of commodities (Barber, 1984, pp. Where Adam Smith believed that the factors of supply and demand weremajor determinants of commodity prices (although the value of laborconsumed in their production provided a basis for the determination ofvalue), Karl Marx believed that: 1. H. The wealth of nations (1776). In the context of monetary theory, the early neoclassicists adhered tothe quantity of money theory (Ackley, 1983, pp. Macroeconomics before Keynes. Marxian theory is based on a distinctionbetween the exchange and use value of labor. Within this framework, one might expect that capitalists would seekout labor-intensive production processes, as surplus value is, according toMarx, created by labor. Marx considered the amount of capital required to pay labor to bevariable; however, he considered all other capital to be constant (Marx,1978b, pp. The neo-classicalloanable funds theory also failed as a tool of analysis, because it too wasindeterminate. The economic dynamic. Smith, A. This inherently unfair distribution will, according toMarx, lead to "a bitter struggle between capital and labor. He did not believe that the utility value of thecommodity altered the fundamental value of the commodity, which wasestablished by the amount of labor consumed in its production. David Ricardo refinedSmith's theory, to postulate that the use of labor in production providedthe basis for a rough determination of relative prices over the long-term(Eklund & Hebert, 1983, pp. The worldly philosophers, sixth edition. Marx brought four major insights toeconomic thought through his theories. The classical economistssaw the end as a stationary-state economy, while, for Marx, the end was acomplete collapse of capitalism (p. The capitalist does not behave in the manner described above becausehe or she is inherently evil. Capitalism, for the purposes of this research, isdefined as a "politico-economic system, based on private property andprivate profit" (Baxter, 1984, p. L. Although neoclassical economists recognized that purelynominal events could occur, which in turn, could affect the real value ofmoney, they believed that such effects were possible only in the short-run(Patinkin, 1982, pp. L. Thus, according to Marx, only labor can create asurplus value, or profit. In D. Evolutionary, to Marx,meant a move from feudalism to capitalism, a transition from capitalism tosocialism, and on down the line. He further contended that it was the relativeexpenditure of labor that mattered. Thus, capital-laborsubstitution through technological innovation will be sought by thecapitalist, because this action depreciates the cost of labor (Ekelund &Hebert, 1983, pp. New York: W. Hausman (Ed.), Thephilosophy of economics: An anthology. A second major insight brought to economic thought by Marx was thatvalue and growth was not inextricably associated with agriculturalactivity. (1953). (193 ). Blaug, M. In the formulation of economic theory,Adam Smith was principally concerned with the factors which led toincreased wealth in an economy. Hausman, D. The early development of the theory wasbased upon (1) the concept of utility (individuals act to maximize theirown utility), (2) the idea that consumers are not satiated (individualsgenerally prefer more to less), (3) the principle of substitution (if aunit of product one equal in value to a unit of product two, and, if 4 units of product one or 3 units of product two are available at the sameprice, consumers will prefer product one, regardless of what the twoproducts may be) and (4) the concept of diminishing returns (eachadditional unit of a product adds to one's utility, but does so at adiminishing rate) (pp. 2. (1981). Marx postulated that classstructures in societies, the political systems in societies, and societalcultures were the product of the ways in which societies produced theirgoods and services (Baxter, 1986, p. M. The key element in the process,in Smith's perception, was the accumulation of capital. Economic theory of interest. 442). New York: McGraw-Hill. The labor theory of valueoccupied a prominent place in the broader economic theory developed byMarx. The actions (described above)of the capitalists, leads to the development of two factors. Ekelund, R. 3. Norton &Company. His answer tothis problem was the regulation of the "excesses of capitalism" (p. 21, 29). Neoclassical theory emphasizes supply, and demand is viewed as afunction of supply. Second, Keynes' emphasis on macroeconomic aggregatesmoves away from the microeconomic theoretical systems so favored by theclassical and the neoclassical economists (Baxter, 1986, p. Keynes rejected much of classical economic theory, but he did so ondifferent grounds than those of Marx. The theory, however, states an opposite position. 111-113). Santa Monica, California:Goodyear Publishing Company. 229). INTRODUCTION The purpose of this research is to examine the views of Karl Marx andJohn Maynard Keynes, on capitalism, and to compare and contrast theseviews. J. Therewere areas, however, where Keynes disagreed with the conventional wisdom ofneoclassical economists. In R. ." (Ekelund & Hebert, 1983, p. Marx demonstrated that labor created value and fostered economicgrowth in activities other than those associated with agriculture. This theory fails to account for thecontribution to value of other factors of production. The owners of capital, paid wages which are determined by theexchange value of labor. In thisstruggle, the aim of the capitalist, who has all the advantages, is to keepwages at a minimum" (Ekelund & Hebert, 1983, pp. 414). The development of Keynesianeconomic theory represented an evolutionary movement from classical andneoclassical economics. Thus, the gross national product (GNP) in Marxisteconomic theory is the sum of constant capital, plus the labor wages fund,plus surplus value. In D.Bell, & I. In the development of economic theory,there have been three broad approaches to the analysis of value (Bannock,1984, p. 447). Thus, although theeconomic theories of Karl Marx are rooted in classical economic theory, andare often closely related to those of Adam Smith, Marx also built upon therefinements of theory developed by David Ricardo and other classicaleconomists. Economic history. Money and prices. Chicago: Universityof Chicago Press. 242-243). Classical economic theory, including the value theory of labor wasdeveloped and expanded upon in the 5 -year period between the appearance ofthe economic theories of Adam Smith and Karl Marx. 2 5). First, there are the general use theories. There was moreto the objections to the Keynesian model by the classical theorists thansimply defending one's own turf. (1983). The utilitytheories are the third approach. Harmondsworth, England:Penguin. 128-13 ). Some of the elements of the classicalmodel were valid, or at least explained some economic phenomena as well orbetter than did Keynes (Ekelund & Hebert, 1983, p. Thus, his liquidity preference theorywas a major departure from neoclassical economic theory. (1983). Neoclassical economic theory began to develop in the late-nineteenthcentury (Hausman, 1984, p. Keynesdid not disagree with the neoclassical economists with respect to twopoints concerning the holding of money. (1982). The major deficiency in Marxian economic theory is the contention thatthe quantity of labor used in the manufacture of a product determines thevalue of that product, and that such a value determination is bothfundamental and immutable. Adam Smith postulated that the relative value of labor provided abasis for the determination of commodity values. Classical and neo-classical monetarytheory. He contended that the cost of laborprovided the basis for the determination of the value of a commodity(Smith, 1983, p. 135-139; Ekelund & Hebert,1983, p. The general theory of employment, interestand money. Keynes, on the other hand, thought that the excesses of capitalismcould be effectively regulated, thereby preserving the system. The major point of agreement between Marx and Keynes on capitalism wasthat the system is inherently unstable. The Keynesianliquidity preference schedule includes both the transactions demand and theassets demand for money (Klein, 1982, p. Baxter, R. Smith believed that the size of an economy's output should be limitedonly by the size of markets - or demand. Harmondsworth,England: Penguin. Mundell, R. Most neoclassicists rejected Keynesian economic theory. Economic theory, third edition. Loanable funds are comprised ofthe money which is available for lending to individuals and institutions.The principal sources of such money are (1) the savings of individuals andbusinesses, (2) increases in the money supply through actions by governmentand financial institutions, and (3) dishoarding from idle balances(Kalecki, 1954, p. 241-242). In the context of the loanable funds theory, neoclassical theoristsappear to recognize preferences for holding money for other than immediatetransactions. Marx, however, believed that thequantity of labor used in the production process determined the actualvalue of the commodity being produced. New York: Simon and Schuster. A history of economic thought. NewYork: McGraw-Hill. Thus, they believed that in thelong-run, individuals sought to maintain real money balances. C. Assuming that thegeneral equilibrium principle was valid, most neoclassical economists ofthe day held that a prolonged economic depression was not possible (p. Marx contended, however, that the real motivationof the capitalist is to keep labor costs low. 147). New York: Harcourt, Brace and Company. Evolutionary development, however,may be (and usually is) much less dramatic. 441). Wage labor and capital (1849). The third major insight brought to economic thought by Marx was hisconception of economics as an evolutionary process. New York: W. The theory continued to hold that money was held only as needed fortransactions and that real, as opposed to nominal values of money,determined the amount to be held. 33). Thedifference between exchange and use values of labor was a surplus value,according to Marx. A. (1936). The last of the major insights brought to economic thought by Marx,was the concept of economics as a part of broader societal processes.Keynes agreed with this approach to economics. (197 ). First, theconditions of the workers become increasingly more miserable, and second,the capitalist system becomes unstable, being characterized cyclically bycrises and depressions (Ekelund & Hebert, 1983, pp. Keynes challenged the concepts of classical economics with his model.The adherents of classical theory rallied to its defense. (1982). A. . 482). Monetary theory. Unlike Marx, however, he did not think that thischaracteristic need lead to an inexorable destruction of the system (p.23 ). E. In the context of the quantity of money theory, andconsistent with the principal of substitution, the neoclassical theory heldthat money was held primarily for transactions purposes (Ekelund & Hebert,1983, p. He contended for example, that thebusiness cycle "was exacerbated by the saving and investment motives offinanciers and owners of business enterprises" (p. Keynes also contended however, that reasons other than transactionsexisted for the holding of money. It holdsthat in the long-run, "money did not matter" (Samuelson, 1982, pp. Marx, thus,regarded labor as a commodity, and the distinction between the labor valueof a commodity and the utility value of a commodity was critical in ananalysis of value, employing Marxist theory. Marx predicted that the end result of the workings of the capitalistsystem would be a revolution of the workers, which would end in thedestruction of capitalism (Marx, 1978a, p. In explaining capital accumulation, savings, investment, and interest,neoclassical economists developed and primarily relied upon the theory ofloanable funds (Cochrane, 197 , p. Marx contended that the exchange value paid by capitalists for laborwas less than the use value of labor obtained by capitalists. Bannock, G. Clower (Ed.), Monetary theory: Selected readings. MARX ON CAPITALISM On a broad scale, Marx viewed capitalism as one stage in anevolutionary process, wherein the political-economy would move from one ofsubsistence agriculture to an elimination of private property and the classstructure (Baxter, 1984, p. Macroeconomics: Theory and policy. London: Allen & Unwin. 415). Adam Smith was, effectively, the founder of classical economic theory,and the economic theory of Karl Marx is largely based in classical economictheory (Bannock, 1984, pp. 147). The loanable funds theory, therefore, isan indeterminate one with respect to its capability to permit the actualdetermination of interest rates before the fact. Central to Marx's views on capitalism was his labor theory of value(Ekelund & Hebert, 1983, p. (1986). Models and realities in economic discourse. 54). Introduction. The difference between the utility value of labor and theexchange value of labor was termed surplus value by Marx, who believed thatonly labor, among all of the factors of production, could produce surplusvalue. 2 1). If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.