Last week, we featured a post by Thomas Palley, “Breaking the Neoclassical Mold in Economics,” which provoked quite a lively discussion as to what mainstream economics was and wasn’t, and the uses and limitations of neoclassical economics.
Thus, I thought readers might find further grist for thought in this post from Robert Vinneau, who takes on neoclassical economics and argues that it became popular as a school because it “led to conclusions which were pleasing to the establishment.” In other words, its success results at least in part from its utility in political debates as a counterargument to Marxism (rather than, say, its explanatory power).
From Vinneau:
I should be able to find older citations and by non-Sraffians for this thesis. Nikolai Bukharin would be good to reread, or at least rebrowse. Neoclassical economics seems to be a type of vulgar political economy, as Marx labelled it. Are these ideas complementary with Mirowski’s account of neoclassical economics as an imitation of nineteenth century physics?
“What turned out to be so devastating was the social impact of [Marx’s] writings. The immediate practical effect of Marx’s call for a social revolution was to elicit a strong social reaction. The establishment of the Western nations, at the end of the nineteenth century, became scared by Marx’s revolutionary call. This by itself explains a lot of the fortune that in academic circles blessed marginalism in the 1870s, whose success was essentially analytical.
By simply going back to the pre-industrial age concept of wealth considered as a set of given endowments of scarce natural resources (a stock concept), the marginalists succeeded in reaching an analytical breakthrough, against which Classical economic theory had nothing to compare. They elaborated a formally sophisticated and elegant scheme capable of dealing with the problems of a simpler society – a society in which the more traditional concept of wealth, as consisting of a stock endowment of resources provided by nature in given and, for most components, scarce quantities, could be placed at the very centre of the whole investigation. Hence, not the dynamism of a changing society as, paradoxically, could be observed all around, but the problems of managing efficiently the wealth that existed already became the crucial subject of economic investigation, through the assumption of a perfectly rational behaviour of the single individuals, in a perfectly competitive, strictly atomistic stationary society.
In academic circles, this no doubt represented a radical change, but not in the strict sense of a scientific ‘revolution’, though some historians of economic thought later hastened to call it so (the ‘Marginal Revolution’). Conceptually, it was a ‘counter-revolution’, an anachronistic achievement, yet a beautiful one, reached with the most sophisticated tools of economic analysis (precisely what the Classical economists had lacked).
At the end of the nineteenth and the beginning of the twentieth century, marginal economic theory, marginal economic theory led to conclusions which were pleasing to the establishment, especially in terms of a splendid detachment from the hot social issues that were boiling up in the real world, and in terms of arguments that could easily be used for the advocacy of unrestricted laissez-faire policies, supposedly leading, in ideal conditions, to optimal positions…” — Luigi L. Pasinetti (2007).
“The labour theory of value was devised by Ricardo as a stick to beat landlords (rent does not enter into cost of production.) But later, having been advocated by Marx to beat the capitalists, it was necessary for the defenders of the present system to devise a new theory, the utility theory of value. As for Ricardo, it should not be thought that he was consciously biased in his theory, that he was the champion of the rising capitalist against the landlord. … As for Marx, the fact that the utility theory of value had been found several times before (by Dupuit, Gossen) and had fallen flat while when it was again almost simultaneously published by Jevons, Menger, and Walras in the years immediately following the publication of vol. I of Capital, found suddenly a large body of opinion prepared to accept it and support it is significant enough.” — Piero Sraffa (1927, quoted in Bellofiore 2008)
Sraffa references Ashley (1910).
References
Ashley (1910). “Present Position of Political Economy”, Economic Journal.
Ricardo Bellofiore (2008). “Sraffa After Marx: An Open Issue”, Sraffa or an Alternative Economics (Ed. by Gugielmo Chiodi and Leonardo Ditta), Palgrave Macmillan.
Nikolai Bukharin (1972). Economic Theory of the Leisure Class, Monthly Review Press
Luigi L. Pasinetti (2007). Keynes and the Cambridge Keynesians: A ‘Revolution in Economics’ to be Accomplished, Cambridge University Press.
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Robert Vinneau’s article is ridiculous. It is difficult for many to accept that Marxism was nothing more than a superstition. Historical and Dialetical Materialism. Don’t those words just evoke gails of laughter today?
Those who wish to be radical would do better to contemplate the “praxis” of the most significant American revolutionary of the 20th Century, namely Pablo Escobar.
Brilliant. Neoclassical econ only flourished because it was a counter-weight to Marxism? Sounds like somebody is reaching and reaching hard here. Here’s my theory on why Marxism wasn’t accepted widely:
1. You don’t have to be part of the establishment to recognize a dumb philosophy for what it is. As Frank Zappa said “Communism doesn’t work because people like to own stuff.”
2. Let’s suppose God came down and did us a favor by ordering society so that we have a system that facilitated “From each according to his ability, to each according to his need.” What is the over and under on how long it would take such a system to unravel (assuming God doesn’t interfere any further)?
I’d give it one month. The Russian s and Chinese found this out real quick after the revolution. They realized that human nature doesn’t operate the way Marx predicted so they assembled the secret police real quick to beat people into keeping up the facade.
I have no axe to grind here, but it seems to me that everyone loves to demonize Marx without even knowing his thought because experiments (ie communist states) devised after his death in the end did not work out.
Japan is actually very socialistic, and frankly, those socialistic tendencies probably enabled it to survive the collapse of its bubble (ie, pain was shared, you didn’t have a subclass falling into abject poverty as we did in our Depression). It’s 20 years later, and the Nikkei even at its highest level since then still hasn’t reached half of the level at its peak). I think if we had that much wealth destruction here, you’d see riots.
Just go to Wikipedia: “The American Marx scholar Hal Draper once remarked, ‘there are few thinkers in modern history whose thought has been so badly misrepresented, by Marxists and anti-Marxists alike.'”
I don’t know Marx’s writings, but some of his ideas, like the class struggle and commodity fetishism (which seems consistent with Veblen’s conspicuous consumption) have merit.
And I also note that both respondents gave a knee-jerk reaction rather than addressing the particulars of the critique. Have either of you read the economic literature from, say, the late 1800s to the mid 1900s to see how these debates played out? If not, you cannot say with confidence that what Vinneau says is not true, that neoclassical economics got a huge boost due to the need to find an alternative to the radical elements of Marx’s thought. The reaction I am reading is that it as if you both treat neoclassical economics as if it is a God given truth, as opposed to a framework, which like any other, should be judged by its explanatory power.
I read the article and see the citation, but am not clear what evidence is put forward to support the assertion.
The labor theory of value, at its core, is accurate. You can trace all good back to the initial labor which produced them. What is missed (and has later been included by plenty of savvy economists) is that capital is what happens when someone defers consuming the benefits of their labor (or “services” in the case of rented land). If I’m willing to invest my labor now and consume it later (or if I’m lending capital that I’ve been given, capital which is implicitly the stored labor of the gifter), I’m compensated for my patience.
Of course, to understand the theory fully, you have to expand the definition of “labor” from the manual activites that were once assumed to be the totality of labor.
1) Assume you have a shoe maker that makes excellent shoes. However, he spends all his time making shoes and literally zero time advertising, selling, or trading his shoes. The shoe maker gains no value from his “production”.
2) Ok now let’s assume that the shoemaker is mean and spiteful and anti-social but tries to sell shoes anyway. Some people put up with his nastiness because his shoes are so good, but many “on the margin” shy away. He creates value by DOING SOMETHING OTHER THAN MAKING SHOES. It’s not much, but this input was clearly necessary and valuable.
3) Now assume someone kinder sells, creating more value… then assume someone markets effective, creating more value… then someone takes responsibility for pricing and inventory, creating more value
It turns out that, in the real world, you create value not only by transforming physical resources, but by overcoming economic inefficiencies like information asymetry (noone knows about his shoes) and solving coordination problems.
Thus, we can recognize all time invested as labor… elements of the value creation process… and the labor theory of value (still adjusted by compensation for derferred labor) becomes whole and true.
… the problem was Marx’ mypic definition and the many faulty conclusions that he drew from it
Before someone blasts me, I should correct my statement… if we could accurately predict the future, this would all hold together as we would invest all resources to the margin (and thus the two theories would be comparable and compatible). As it is, some goods that are created are worth less than the labor invested… or deferred goods lose value.
Thus, in a more robust model, you would have to include some compensated factor like “risk” or the investment of goods in uncertain outcomes. But, I do like to give Marx credit for his systematic (though simplified) insights.
A few points.
Historical Materialism is widely accepted today and uncontroversial in the social sciences, at least for those that relate to the outside world in some way. Dialectical Materialism would be a term unknown to Marx both literally and philosophically.
Most comments plainly haven’t engaged in Marx’s ideas or writings, for example Clayton confuses exchange value with value; one of the more basic Marxist idea’s.
BP