How John Milios even screwed up Keynes’ argument

by Jehu

Mikhail_Ivanovich_Tugan-BaranovskijIt seems to me that for John Milios to be correct in his argument, the following must be true:

  1. Bernstein must be correct that Marx never demonstrated there was an immanent economic necessity for socialism.
  2. Tugan-Baranowsky must have proved a fully automated capitalist economy was possible without a necessary intervening collapse of capitalism that Marx himself predicted.
  3. Keynes must have corrected (or at least completed) Marx’s flawed analysis of the capitalist mode of production.

According to Milios, Tugan-Baranowsky’s analysis of Marx’s theory can be used as a point of departure to correct an apparent defect in Marx’s theory. Milios suggests the necessary connection between Marx and Keynes will be found by asking how investment can provide the demand that might be lost owing to the restriction on the consumption of the working class majority:

“What determines net investment and what dictates that it should occur to the extent required for unimpeded reproduction? And, by extension, what is it that, even if only temporarily, influences it in such a way as to generate disproportionality, and therefore crises? These questions open the way for creating a theoretical relation between Tugan-Baranowsky’s analysis and the Keynesian concept of effective demand.”

Thus, according to Milios, the problem Tugan-Baranowsky’s analysis uncovered is how to expand the net investment required for expanded reproduction. But is this actually the connection between Marx and Keynes? Drawing on Marx’s own argument on capitalist development in Capital and Keynes’ own discussion of the causes of the Great Depression, we find that what the two had much more in common than the alleged problem of managing net investment. What the two really had in common was an identical explanation for the Great Depression itself.

The root cause of capitalist crises according to Marx and Keynes

Marx’s answer was that capitalist crises erupted, ultimately, because the profit rate falls and investment halts, however the fall in the rate of profit was not produced by either underconsumption or overproduction, but because less living labor is employed in the production of commodities. Capital generated crises because it constantly reduced the socially necessary labor time required for production of commodities:

“The rate of profit does not sink because the labourer is exploited any less, but because generally less labour is employed in proportion to the employed capital.”

Oddly enough, this was exactly the cause Keynes advanced in 1930 for outbreak of what we now call the Great Depression. According to Keynes the depression resulted from a reduction in the labor time required for production of commodities that now outstripped new investment:

“We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come—namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour. “

Thus, for both Marx and Keynes, the cause of the Great Depression was not to be found in overproduction of capital, underconsumption of society nor in the falling rate of profit, but in the accelerating pace at which the economizing on the employment of living labor in production of commodities outstripped new uses for labor.

As Michael Heinrich explains, in the Grundrisse, Marx predicts the breakdown (or collapse) of production on the basis of exchange value driven by the relentless development of the productive forces of capital and the consequent reduction of the labor time required for production of commodities. Note here that both theorists, Marx and Keynes, locate the cause of the crisis with the reduction in labor time materially required for production of commodities.

John Milios and the law of supply and demand

However, in his own paper on the subject, John Milios proposes the exact opposite mechanism for the crisis: the profit rate falls not because of a reduction of socially necessary labor time, but because of overproduction of commodities.

“An economic crisis can be described, therefore, as a conjunctural overaccumulation, i.e. a conjunctural production of commodities (means of production and means of consumption) in such quantities and prices, that they temporarily hinder the process of capitalist expanded reproduction.”

If we can get rid of all the academic gibberish, Milios basically is proposing that prices, (and therefore profits) fall because, for some unexplained reason, too many commodities are produced. The overproduction of commodities leads to a surfeit of supply of commodities in excess of demand for the commodities, which forces the prices of these commodities to fall. The falling prices depress the rate of profit, triggering the crisis.

Laughably, what Milios has provided as an explanation for crises is no more profound than a matter of imbalance between supply and demand for commodities. When supply of commodities exceeds the demand for commodities, prices fall, suppressing the rate of profit. And what causes the excess supply of commodities? Milios can only tell us it is “the outcome of the fusion of a variety of factors”. For Marx, the rate of profit falls because always less labor is employed in the production of commodities; while, for Milios, the rate of profits falls because of an imbalance between supply and demand.

Did Marx establish the immanent necessity for socialism?

Surprisingly, in his 1930 paper, when the outbreak of the depression was still fresh, Keynes carries his argument well beyond his initial statement that it is caused by a reduction of the labor time required for production of commodities. The Great Depression, says Keynes, did not just signal that technological improvement in the productivity of labor was threatening the working class with permanent unemployment, it was making a general reduction in hours of labor necessary and undermining the material and moral foundation of a society founded on relentless capitalist accumulation:

“There are changes in other spheres too which we must expect to come. When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession -as distinguished from the love of money as a means to the enjoyments and realities of life -will be recognised for what it is, a somewhat disgusting morbidity, one of those semicriminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease. All kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital, we shall then be free, at last, to discard.”

Which is to say, if Keynes himself is to be believed, by locating the genesis of the collapse of production on the basis of exchange with the technical improvement in the productivity of labor, Marx had indeed demonstrated there was an immanent economic necessity for socialism, i.e., a necessity to “rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years“, located precisely where Marx said it was: in the capitalist drive to constantly reduce the labor time required for production of commodities.