Why Marx Has Become Relevant Again
Since 2008 we talk the language of crisis; but instead we live in a chronic malaise. This difference between narrative and reality rears its head in multiple places; perhaps most prominently in the popular disillusionment with (above all the ideas of) the political class. My claim is that a turn towards an older grand theory, the one found in Karl Marx’s body of work, may help us to close this gap. Because his theory highlights how markets can go wrong because they are perfectly competitive, not despite, it gives a better guide to our time than many of its rivals.
A little known fact is that most of the economic analysis in Kapital starts from the assumption of perfect markets. Marx wanted to beat the classical economists, Adam Smith and David Ricardo, Jeremy Bentham and John Stuart Mill, at their own game. As such, his economic analysis had no role for trade unions, social security, minimum wages, capital controls, public education, anti-discrimination legislation or any other such interference with the free workings of markets. No wonder then, given the very real existence of all those, that his red lens produced no more than a blurred picture for much of the 20th century.
However, step by step, we have come closer to living in the world of Marx’s Kapital. Politically, the last forty years have seen the degrading of trade unions, a gradual whittling away of minimum wages, significant cuts to welfare, and the dismantling of obstacles to international capital (investment) flows. Technologically, we live in an age of rapidly falling transaction costs. As progress in information technology spreads into the capillaries of our economies, sand is removed from its gears, and we come closer to approaching the abstract model of perfect competition.
And so, as reality begins to approximate the assumptions of Marx’s model, three of his predictions begin to look prescient.
First, consider the predicted immiseration, the spiritual and physical impoverishment of the working class. Piketty and others have shown an immense increase in US income inequality beginning in the 1970s. Schlozman, Verba and Brady show that wages, adjusted for inflation, have actually fallen for the bottom 10 per cent between 1979 and 2009; looking at the bottom 20 per cent, household income has risen by no more than a smudge, from $15,300 in 1979 to $17,700 in 2007. Though different from absolute immiseration, this generates a powerful feeling of being left behind by an otherwise advancing society. The misery lurking beneath these figures is clearly visible in Case and Deaton’s recent finding of falling life expectancy among poor whites; driven by suicides, drugs and alcohol poisoning, they paint a picture of mental destitution.
Marx also claimed that widespread inequality would lead to under consumption. The riches of an immensely productive market economy would fail to find sufficient buyers. And indeed, just as Piketty has found that (historically) capitalism drives up inequality, so Taylor and Schularick have found that (historically) debt levels rise continually. Except for the atypical years between the two world wars, the level of credit measured as a percentage of GDP has risen continually across all advanced market economies since 1870. In other words, we must constantly pull in demand from the future, via borrowing, in order to keep unemployment low, and our factories and offices humming at capacity.
Third, anyone familiar with the iPhone, 3d printing, or machine learning knows that, malaise or no malaise, we also live in a time of technological wonder. But here, too, Marx has perceptive things to say: eventually, he claimed, the profit motive would become an obstacle to the full use of our productive potential. And indeed, zero marginal cost technologies are exceedingly difficult to ‘monetise’ in free markets, as many start-ups find out to their chagrin. We need not follow Jeremy Rifkin and Paul Mason, who in their respective recent books divine the end of capitalism in these developments, to see that this is a fascinating development that fits squarely within Marx’s concept of capitalism eventually becoming a fetter to the full development of our productive capacities.
Of course, when assessing Marx’s theory as a lens to comprehend the contemporary world, it is clear that there are lots of predictions that look fanciful at best: the tendency towards a falling rate of profit on the economic side, and ‘proletarian’ (as opposed to nationalist or religious) revolutions on the political side stick out especially. This is true enough and reminds us that no grand theory accurately describes reality. The question, though, is which grand theory least badly describes reality, and on this score, Marx is looking (perhaps worryingly) good today.
Before concluding, there is one further and more powerful critique that should be noted. It doesn’t aim at particular predictions made by his body of thought, but at one of the mainstays of the entire theory. Marx, the critique goes, looks at economics and technology, but what drives the fate of our societies are ultimately political decisions.
And indeed, this critique is precisely to the point: it is because of the political turn away from the embedded liberalism of the 1950s and 60s to a globally integrated free market economy since then that Marx’s theory has become relevant again.
This tells us that Marx’s theory is useful not as a deterministic guide to world history, but as a guide to political action: If we want to avoid another 19th century, complete with revolutions, the return of a true proletariat, and robber barons galore, we may want to consider making the premises of Marx’s theory as untrue again today as they were in the middle of the 20th century.