Marx and Keynes on Unemployment

[ECAS@xxxxxxxxxxxxxxxxxxx id <01HPU6OYF1E88XFRJ6@xxxxxxxxxxxxxxxxxxx>; Thu, 27 Apr 1995 16:34:13 +1000]

I tried sending this message a couple of days ago, but it seems it did not go
through (I'm still learning all the new technological configurations).

In response to my simple question to Paul D. or rather a challange to his
assertion that a persistent unemployment could occur only in a monetary economy
with money defined as a medium of short and long-run contract settlement, Jim
Devine (Hi, Jim!) gave me a minor lecture on macroeconomics suggesting that
there is no contradiction between Marx and Keynes. Now, I wasn't suggesting any
contradiction--though I have not made up my mind on this issue, I'm not so sure
that there is no contradiction (a close examination should suggest some
contradiction in my opinion)--my point was to basically suggest that one can
very well explain a persistent unemployment in a capitalist system without
giving money any special status in the theory. This does not mean that one is
claiming that capitalism is a non-monetary system or that wages are paid in
real terms etc. It only means that theoretically the whole analysis could be
conducted in real terms without a recourse to money. (So there you go Claudio
Sardoni!).

Now, one does not even have to go to Marx to find an explanation of
unemployment in labor-saving technical change. By 1821 Ricardo had become
convienced that a wide spread labor-saving technical change could cause
unemployment: "...if I'm right, that the same cause which may increase the net
revenue of the economy, may at the same time render the population redundant,
and deteriorate the condition of the labourer." (p. 388). Before Ricardo's
chapter on machinery in 1821 it was held (by Ricardo included) that though the
introduction of machinery may throw labor out of that sector, there will always
be enough variable capital released to absorb those laborers in other sectors.
That is, at best machinery could only cause "structural unemploymen"--as called
by macroeconomists now a days. Ricardo showed that this is not the case. The
former situation could hold only if the increase in productivity due to the
intoduction of machinery was so great that the concomitant increase in profit
would cause accumulation to increase so rapidly that all the laid off laborers
would be absorbed. However, there is no guarantee that this would happen and
the possibility of this is quite remote. On Ricardo's chapter on machinery,
Marx commented: "It is one of the great merits of Ricardo that he saw machinery
not only as a means of producing commodities, but also a means of producing a
'redundant population'."

It seems in Jim's understanding, Marx's type unemployment is identified with
"structural unemployment" (macroeconomists' term) plus a bit of "bargaining
power" unemployment. Now, as far as "structural unemployment" is concerned, it
is true that it is part and parcel of the "reserve army"; however, as Ricardo
had already shown (with which Marx agreed), the unemployment caused by
labor-saving technical change should not be identified with "structural
unemployment"--this would be theoretically wrong. As far as the "bargaining
power" unemployment is concerned, the meaning of this is not quite clear. My
guess is that Jim holds the same view as most of the Marxists do (including
Paul Sweezy), that is that it is Marx's doctrine that to conteract the workers
pressures to raise wages, the capitalists introduce labor-saving technical
change, and they maintain a "reserve army" of labor to maintain the low wages
(as a bargaining power devise). Though this position may be true for the
present day real world, this doctrine is not found in Marx's writing, at least
in *Capital*. The reason is simple--it does not fit-in in Marx's framework.
First of all, the idea that labor-saving technical change is introduced because
of an upward pressure of wages carries with it the neo-classical germ of
switching to relatively capital intensive technology in response to higher
wages-- and this kind of reasoning was quite foreign to Marx. This aside, For
Marx a labor-saving technical change is a long-run or secular tendency in
capitalism. Moreover, in his framework, the real wages as well as the value of
labor-power also have a secular falling trend. That is why the rationale for
labor-saving technical change had to be found somewhere else than in wage
pressure. For Marx, the cause of technical change in capitalism are the
intraindustry competition, where everybody is trying to reduce the cost of
production and beat the competitor, and control over the work process as well
as the desire to intensify labor process in the face of the fall in the length
of the working day. The system requires "reserve army of labor" because its
accumulation process is cyclical. There is no such thing as "bargaining power"
unemployment explanation in Marx.

Of course, in Ricardo the idea that capitalists introduce machines because of
the tendency of the value of labor-power to rise is present. Eventhough Ricardo
also held that the long-run trend of the real wage was declining, because of
the fall in land fertility, he held that the value of labor-power was rising.
Therefore, he could entertain the idea of a labor-saving technical change as a
response to the rise in the value of labor-power. However, for Marx both the
real wages and the value of labor-power are falling, and therefore, no such
substitution argument would be valid.

I agree with Caludio Sardoni that there can be unemployment without a technical
change if the rate of growth of population happens to be greater than the rate
of accumulation. As a matter of fact even on the neo-classical ground (without
any special staus of money) one could prove that there could be persistent
unemployment if we assume that real wages would not fall below a certain minimum
level and if the rate of growth of population is at least as large as the rate
of accumulation (see Joan Robinson's 'The production function and the theory of
capital'). And what is so terrible about assuming a minimum real wages? Why
would anybody offer to work if the wages are not even suficient for survival?

In the end, I agree with Steve Keen and Barkley Rosser's arguments.

Cheers, ajit sinha (I hope this time it goes!)