5 Keynes vs Marx
Roberts
On this blog and elsewhere, I have developed a long and detailed critique of Keynesian economics. But suffice it to say now that free market economics claims that prosperity will be achieved as long as capitalists are free of any regulations (environmental, safety, health etc) and of too much taxation, while markets are kept ‘competitive’ and free of monopolies, particularly in the ‘labour market’ ie. trade unions. Then capitalists can compete freely to maximise profits and in doing so will invest in new technology to boost the productivity of labour and employ more workers, whose wages will then rise. Everybody wins.
The Keynesians retort that free market capitalism (‘laisser-faire economics’, Keynes called it) does not work because the market economy has faultlines that generate a chronic lack of ‘effective demand’. Holding down wages to boost profits means capitalists cannot sell all their production and are periodically forced into laying off workers and unemployment ensues. It is necessary for governments to intervene and raise wage levels and/or increase government spending to fill the gap in aggregate demand. Then this will create enough demand for capitalists to sell their goods and make a profit. So a judicious macro management of the market economy can work for all.
The Marxist view is that it is not question of the lack of demand or low wages or inequality in the distribution of incomes, but a problem in the profit system of production itself. The contradiction of capitalism is that, despite the efforts of capitalists, average profitability will fall over time. This causes recurrent and regular crises of production that cannot be resolved by the ‘free markets’ or Keynesian macro-economic management.