How Keynes’ smuggled Marx’s concept of labor power into his General Theory

by Jehu

In chapter 4 of his General Theory, Keynes is looking for a quantitative unit of measure that reflects his subject of inquiry: what determines the level of employment? He was looking for a unit of measure that was, in his words, “appropriate to the problems of the economic system as a whole”.

When I first read this statement, I was confused, since it seemed obvious to me that the currency was the unit of measure in bourgeois economics. In this sense, I thought, bourgeois economics differed from labor theory, because the latter’s unit of measure is some definite weight of a commodity money. Since bourgeois political-economy rejects the notion of value, I assumed it was left with only the currency.

It turns out that I was wrong. Keynesian economics does not use the national currency as its unit of measure at all. The reality is much more interesting.

According to Keynes, the units economists employed in their work was unsatisfactory on three counts: First, they defined the units of output in terms that were non-homogenous use values. (What, for instance, is common to shoes and rubber tires?) Second, net additions to capital equipment lack a quantitative basis for comparison, forcing the economists of Keynes time to smuggle in the concept of value. (Imagine trying to compare return when owing to the improvement in technology, typewriters were replaced by PCs in many firms.) Finally, what is meant of the term ‘the general price level’? Against what is this price level measured?

To bypass the inconsistencies of neoclassical theory, Keynes proposed that there are “only two fundamental units of quantity, namely, quantities of money-value and quantities of employment.”

“We shall call the unit in which the quantity of employment is measured the labour-unit; and the money-wage of a labour-unit we shall call the wage-unit.

In this way, Keynes was forced to smuggle into neoclassical theory a concept which those who are familiar with Capital will recognize under the term, labor power. Keynes’s fundamental unit of measure in his General Theory is labor power itself, but it appears in a distorted form. This labor power is composed of two variables: the use value, or what Keynes call the “labor unit” and its exchange value, or what Keynes calls the “wage unit”.

What has Keynes done here? First, he has, of course, reduced the mass of heterogeneous commodities produced by society to a single homogenous commodity, labor power. This reduction allows him to bypass the difficulty economists encountered by trying to compare apples and oranges. Basically, Keynes proposes a single homogenous use value, labor power, to fill in for labor theory’s concept of exchange value.

Needless to say, Keynes’ approach at first seems inexplicable and arbitrary even to Marxists. In his paper, “The theoretical and empirical credibility of commodity money”, the Marxist professor, John Weeks, discusses this aspect of neoclassical theory:

“The observed sum of transactions involves many commodities and many prices, and some of these commodities are inputs into other commodities. Over any discrete time period a commodity is likely to reappear subsumed within the price of another. This complication is eliminated by assuming there to be only one commodity.”

Weeks says of this specification in neoclassical theory:

“While the assumption of a single, composite commodity may seem absurd (which it is for most purposes), it is essential in the neoclassical monetary theory.”

In fact, the specification is not at all absurd once the logic of Keynes argument is properly grasped in terms of labor theory. The capitalist mode of production is not at all concerned with the production of a bewildering array of simple use values; rather, it is concerned with the consumption of a single capitalistic commodity, labor power, for production of surplus value.

Second, note Keynes also flips the discussion from production to consumption. Keynes does not discuss the production of labor power, but its consumption. And this for a simple reason: capital doesn’t actually produce its most important, absolutely essential, commodity. It simply consumes labor power in the course of production. This peculiar commodity, labor power, plays a special role in labor theory because it is the essential capitalist commodity. It is essential to the capitalist mode of production for the obvious reason that it is the only commodity whose consumption creates profit. Keynes thus proposes labor power as the fundamental unit of measure in his system, without ever acknowledging labor power as such. The consumption Keynes discusses is most decidedly not the consumption of ordinary commodities, but the consumption (employment) of the only commodity that can make real capital out of capital.

Thus, any aggregation of actively employed labor power (E) can be said to be composed of some definite quantity of labor units (N) and wage units (W), such that we get this equation:

E = NW

You can’t really call what Keynes did here extraordinary, because he really only reinvented the wheel. It is said that Keynes insisted he had never read Marx, so I guess we should take him at his word on this. Nevertheless, this passage shows the extent to which Keynes wasted a lot of effort, in effect, unlearning marginalism and acquainting himself with the Marx’s own critique of classical political-economy.

Keynes essentially reproduces Marx’s argument, but with  twist: he conveniently drops the concept of labor value in the course of this leap; substituting a homogenous use value, labor power, in its place.

Now why would Keynes have done that?