Karl Marx is enjoying a bit of a revival and for good reason. Capitalism is not working particularly well these days, especially on the distribution front, and people want to know why. Marx provides some useful tools for thinking about this.
But how to separate the wheat from the chaff so to speak? This is not easy. Marx was, after all, wrong about a great many things.
Marx argued that the basic economic dynamic of capitalism leads to the immiseration of workers and, eventually, to systemic crisis and the failure of growth, as the rate of profit falls and capital becomes concentrated in fewer and fewer hands. Only socialism could correct this situation.
Marx was certainly on to something in linking the underlying logic and tendencies of capitalism to serious economic and social problems. However, in most of his specific claims he was wrong and very much a prisoner of the times in which he wrote. Most notably, the immiseration of the working class did not last and worsen as he thought it would, based on his observations of the early stages of the Industrial Revolution in England. Ironically, by the time he published his first volume of Capital in 1867, these early stages were over and real wages and living standards in England and other capitalist countries were rising and would continue to do so , albeit at considerably varying rates, to our present day. Marx simply did not anticipate how technological improvements and ongoing, durable rises in productivity could translate into elevated living standards for workers, nor, of course, did he foresee how government intervention and welfare state measures could help sand off capitalism’s rough edges and channel more benefits to workers. In this sense, Marx’s theory did a good job of predicting the past, but was too tied to that past to be much of a useful guide to the future of workers under capitalism.
Not only did the immiseration of the proletariat fail to continue, but his predictions of systemic collapse also failed to obtain. The rate of profit did not continue to fall leading to anarchic inter-capitalist competition and squeezed workers in mass revolt. The capitalist system certainly lurched and faltered at times but fell well short of the apocalyptic ending Marx anticipated.
So what is left then, that is truly useful? Branko MIlanovic to the rescue! In a characteristically insightful post on his blog, he identifies four ways in which Marx continues to be helpful and, indeed, essential.
1. "The most important of Marx’s influences on people working in social sciences is, I think, his economic interpretation of history. This has become so much part of the mainstream that we do no longer associate it with Marx very much. And surely, he was not the only one or even the first to have defined it. But he applied it most consistently and most creatively.
Even when we believe that such an interpretation of history is common-place today, this still is not entirely so. Take the current dispute about the reasons that brought Trump to power. Some (mostly those who believe that everything that went on previously was fine) blame a sudden outburst of xenophobia, hatred, and misogyny. Others (like myself) see that outburst as having been caused by long economic stagnation of middle class incomes, and rising insecurity (of jobs, health care expenses, inability to pay for children’s education). So the latter group tends to place economic factors first and to explain how they led to racism and the rest. There is a big difference between the two approaches—not only in their diagnosis of the causes but more importantly in their view of what needs to be done."
2. "The second [of] Marx’s insights which I think is absolutely indispensable in the work on income and wealth inequality is to see that economic forces that influence historical developments do so through “large groups of people who differ in their position in the process of production”, namely through social classes. The classes can be defined by the difference in the access to the means of production as Marx insisted but not only by that.....
[C]lass analysis is absolutely crucial for all students of inequality precisely because inequality before it becomes an individual phenomenon (“my income is low”) is a social phenomenon that affects large swathes of people (“my income is low because women are discriminated”, or because African Americans are discriminated, or poor people cannot access good education etc.)....
This is also where the work on inequality parts ways with one of the scourges of modern micro- and macro-economics, the representative agent. The role of the representative agent was to obliterate all meaningful distinctions between large groups of people whose social positions differ, by focusing on the observation that everybody is an “agent” who tries to maximize income under a set of constraints. This is indeed trivially true. And by being trivially true it disregards the multitude of features that make these “agents” truly different: their wealth, background, power, ability to save, gender, race, ownership of capital or the need to sell labor, access to the state etc. I would thus say that any serious work on inequality must reject the use of representative agent as a way to approach reality."
3. "The third extremely important Marx’s methodological contribution is the realization that economic categories are dependent on social formations. What are mere means of production (tools) in an economy composed of small-commodity producers becomes capital in a capitalist economy. But it goes further. The equilibrium (normal) price in a feudal economy, or in a guild system where capital is not allowed to move between the branches will be different from equilibrium prices in a capitalist economy with the free movement of capital. To many economists this is still not obvious. They use today’s capitalist categories for the Roman Empire where wage labor was (to quote Moses Finley) “spasmodic, casual and marginal”.
But even if they do not realize it fully, they de facto acknowledge the importance of institutional set up of a society in determining prices not only of goods but also of the factors of production."
4. "The last among Marx’s contribution that I would like to single out—perhaps the most important and grandiose—is that the succession of socio-economic formations (or more restrictively, of the modes of production) is itself “regulated” by economic forces, including the struggle for the distribution of the economic surplus. The task of economics is nothing less than global historical: to explain the rise and fall not solely of countries but of different ways of organizing production: why were nomads superseded by the sedentary populations, why did Western Roman Empire break into a few large feudal-like demesnes and serfs, while the Eastern Roman Empire remained populated by small landholders, and the like. Whoever studies Marx can never forget the grandiosity of the questions that are being asked. For such a student then using supply and demand curves to determine the cost of pizza in his town will indeed be acceptable, but surely will never be seen as the prime or the most important role of economics as a social science."
My hearty agreement with all four, particularly the last one. Economics frequently asks small questions and gets small answers. Marx (and Milanovic) encourage us to think bigger--much bigger.