The notes below (merely five pages) are written for this book, though they derive mainly from my 2014 article ‘Marx’ macro-economie avant la lettre’ that appeared in the Netherlandic journal Tijdschrift voor Politieke Economie (TPE-digitaal), 8(3): 97–114.
Contents
Introduction
1 ‘The general law of capitalist accumulation’ (Capital I, Part Seven)
2 ‘The reproduction and circulation of the total social capital’ – the reproduction schemes (Capital II, Part Three)
References
Introduction
Some of the previous chapters alluded to the parts of Marx’s Capital where he adopts macrosocial and macroeconomic analysis and exposition of the capitalist mode of production: either in some detail or in passing.1 The current notes expand on some aspects. Although in light of the systematic of the current book these would belong in its Part A (on the three volumes of Capital) I decided against that, as this would have required too much detailed anticipation.
In his Capital Marx sets out important foundations for ‘macroeconomics’. However, because the term macroeconomics dates from 1933 (Ragnar Frisch), this relates to a macroeconomics avant la lettre. Lawrence Klein (1980 Nobel Prize winner for his work on macroeconometric models) wrote in 1947: “His [Marx’s] theory is probably the origin of macro-economics” (p. 154). I will refer subsequently to Marx’s Capital I theory of capital accumulation (§1), and his Capital II theory of reproduction of the total social capital (§2). Marx’s macroeconomic treatment can also be found in Capital III, especially its Part Three on the rate of profit cycle, that will be covered in the next part of the current book.
Because we are considering a nineteenth-century work, I will first say something about the terminology. Current key terms such as investment, unemployment and the business cycle hardly existed in Marx’s days. Investment was referred to by ‘capital accumulation’ and for unemployment Marx used the terms ‘redundancy’ or ‘reserve army’.2 Before Marx, the ‘business cycle’ was probably not even experienced as a phenomenon (according to Schumpeter – see §1). Marx uses several terms to indicate the phenomenon (such as: periodicity, periodic phases, cycle, alternate expansion and contraction, fluctuations).
1 ‘The general law of capitalist accumulation’ (Capital I, Part Seven)
Business cycles are an important part of current macroeconomic studies. Recall the following two elements of Capital I, Part Seven (chapter 9 above).
(a) Marx ‘lifts’ the accumulation of capital and technological change to a social level (in what I called the ‘acceleration triple’). He is in fact the first economist to introduce technical change at a macroeconomic level. Furthermore, Marx has been praised for connecting his theory of accumulation with the centralisation of capital.3
(b) He describes the course of capitalist development as a cyclical one (citations reproduced from Chapter 9 above).
The path characteristically described by modern industry, which takes the form of a decennial cycle (interrupted by smaller oscillations) of periods of average activity, production at high pressure, crisis, and stagnation, depends on the constant [beständigen] formation, the greater or less absorption, and the reformation of the industrial reserve army (…) Just as the heavenly bodies always repeat a certain movement, once they have been flung into it, so also does social production, once it has been flung into this movement of alternate expansion and contraction. Effects become causes in their turn, and the various vicissitudes of the whole process … take on the form of periodicity. (Marx, Capital I, pp. 785–6)
The appropriate law for modern industry, with its decennial cycles and periodic phases … is the law of the regulation of the demand and supply of labour by the alternate expansion and contraction of capital … It would be utterly absurd, in place of this, to lay down a law according to which the movement of capital depended simply on the movement of the population. (Marx, Capital I, p. 790)
Note that Marx here describes this cycle empirically, he does not go into the theoretical explanation of cyclical phases and their turns in terms of the ‘acceleration triple’. Schumpeter (himself a major twentieth-century business cycle theoretician) comments:
We find practically all the elements that ever entered into any serious analysis of business cycles, and on the whole very little error. Moreover, it must not be forgotten that the mere perception of the existence of cyclical movements was a great achievement at the time. Many economists who went before him had an inkling of it. In the main, however, they focused their attention on the spectacular breakdowns that came to be referred to as “crises”. And those crises they failed to see in their true light, that is to say, in the light of the cyclical process of which they are mere incidents. (…) Marx was, I believe, the first economist to rise above that tradition and to anticipate – barring the statistical complement – the work of Clément Juglar. Though, as we have seen, he did not offer an adequate explanation of the business cycle, the phenomenon stood clearly before his eyes and he understood much of its mechanism. Also like Juglar, he unhesitatingly spoke of a decennial cycle “interrupted by minor fluctuations”. … This is enough to assure him high rank among the fathers of modern cycle research. (Schumpeter 1943, pp. 40–1).
2 ‘The reproduction and circulation of the total social capital’ – the reproduction schemes (Capital II, Part Three)
The macroeconomic character of Marx’s ‘reproduction schemes’ was discussed in Chapter 11 above.4 This section adds some casual information.
The first is on Marx’s term “scheme”. In economics the term “model” came into fashion only after 1950. One major twentieth-century founder of macroeconomics and of model building, Tinbergen (the first Nobel Prize laureate in economics – in 1969), in his early work, used the term ‘schema’ for the later term ‘model’ (Boumans 1992, p. 39 ff.).
Marx’s schemes of reproduction (first published in 1885) played an important role in the development of (early) Marxian theory (e.g. works of Bauer, Luxemburg, Grossman, and Kalecki). The schemes also influenced non-Marxian theories of cyclical development – mainly through Tugan-Baranowski, the first author to take up the schema in his own work in 1894.5 Tugan-Baranowski, in turn, directly or indirectly influenced business cycle authors such as Aftalion, Cassel, Keynes, W. Mitchell, Spiethoff and Schumpeter (see Reijnders 1998 and Allisson 2021). Another major development from Marx’s schemes is that of ‘input–output analysis’, developed by Leontief (1941, 1953) – for which he was granted the 1973 Nobel Prize in economics.6
Klein (mentioned in the Introduction) remarks about Marx’s schemes: “Marx laid the groundwork for a complete equation system to determine the level of income (effective demand) but did not build the complete system” (1947, pp. 167–8). In 1974 Samuelson (economics Nobel Prize laureate 1970) writes: “On the basis of his schemes of reproduction one can claim immortal fame for Marx” (1974).
In some detail: ch. 11, §2.1-§2.2, §2.8 and conclusions; in passing: ch. 1, summary of §4; ch. 2, §5.3; ch. 9, §1.3; ch. 10, §1 and §4.
In the 600 pages of Smith’s Wealth of Nations (1776) the term ‘invest’ is used only once (in passing, at the end of the work); in Ricardo’s Principles (1817) the term does not occur. The term ‘unemployment’ emerges around 1895 and in 1911 it appears for the first time in the Encyclopaedia Britannica (Rodenburg 2006, p. 2).
See, for example, Landreth and Colander (1994, pp. 203–4). It was also one of the reasons why Marx (after Keynes and Smith) was quoted as number three in the top economists of the second millennium in a poll by Reuters of December 1999 among economists specialised in international economics (Friedman, Schumpeter and Galbraith held positions 4–6).
The chapter’s §2.1–§2.2, §2.8 and the conclusions.
Especially in the theoretical chapters of the 1894 work.
This analysis is used still today in the National Account Statistics of most OECD countries. For the link between Marx’s schemes and the Leontief input–output analysis, see Lange (1959, ch. 3).
References
Allisson, François 2021, ‘Tugan-Baranovsky and the West’, Russian Journal of Economics 7(1): 19–33. https://www.researchgate.net/publication/350527728
Boumans, Marcel 1992, A case of limited physics transfer: Jan Tinbergen’s resources for re-shaping economics, Amsterdam: Amsterdam: Thela Thesis/Tinbergen Institute.
Frisch, Ragnar 1933, ‘Propagation problems and impulse problems in dynamic economics’, in Economic essays in honour of Gustav Cassel, London: George Allen & Unwin, pp. 171–205.
Horowitz, David (ed.) 1968, Marx and modern economics, New York/London: Monthly Review Press.
Klein, Lawrence R. 1947, ‘Theories of effective demand and employment’, Journal of Political Economy, April; reprinted in Horowitz (ed.) 1968, pp. 138–75.
Landreth, Harry, and David Colander 1994, History of economic thought, 3rd edition, Boston: Houghton Mifflin.
Marx, Karl, Capital, volumes I–III, first published in German 1867, 1885 and 1894, English translation by Fowkes and Fernbach, Harmondsworth: Penguin Books, 1976 (from the 4th German edition), 1978 (from the 2nd German edition) and 1981.
Reijnders, Jan 1998, ‘Tugan-Baranowsky’s breakthrough in business cycle theory’, in History of Continental economic thought, edited by J. Glombowski, A. Gronert and H. Plasmeijer, Marburg: Metropolis, pp. 211–38.
Rodenburg, Peter 2006, The construction of instruments for measuring unemployment, Amsterdam: Thela Thesis/Tinbergen Institute.
Samuelson, Paul A. 1974, ‘Insight and detour in the theory of exploitation: a reply to Baumol’, Journal of Economic Literature 12(1): 62–70.
Schumpeter, Joseph A. 1943 1, 19544, Capitalism, socialism and democracy, London/New York, Taylor & Francis e-Library, 2003.
Smith, Adam 17761, 17916, An inquiry into the nature and causes of the wealth of nations, volumes I and II, London: Dent & Sons, 1933.
Tugan-Baranovsky, Mikhail 1894, Industrial crises in contemporary England, their causes and influences on national life, St. Petersburg: Skorokhodov (in Russian). [2nd Russian edition, 1900, 3rd Russian edition, 1914, German edition, 1901, French edition, 1913].