Marxian Political Economy versus Neo-Classical Political Economy

INTRODUCTION

My paper mainly focusses on the contrast between Marxian Political Economy and Neo-Classical Political Economy. Each of these two theories, has a distinct pattern of understanding how economies work and how it interacts with polity and society.  These are two entirely distinct theories, about the economic part of the society. It is imperative to understand, that the base of both these theories, will usher in individuals, families, polity and society in an altogether different direction.

There are vast theoretical differences between the neoclassical school and the Marxian school of Political Economy. The Neoclassical School attaches, basic importance to three economic acts that are attributed to all individuals: owning, buying and selling. It assumes that all goods and services are privately owned by individuals, who seek to maximize their satisfaction from consuming the aforementioned goods and services. Neoclassical theory outrightly based on presumptive human nature, it celebrates the idea of the free market, which it thinks of as a self-regulating mechanism.

On the other hand, the Marxian School of Political Economy, stresses on class exploitation, and the struggle to counteract it. It elucidates “class” as a process whereby some people in society engage in active production of goods and services, for others but not being equally remunerated for the same, it is different from the neoclassical school, as the latter is about presumptive human nature, but in the Marxian School, it is about presumptions regarding social relationships, which defines and justifies human actions in a society. The analysis of social relationships corresponds with the interwoven patterns of individual behavior, either in society or in the market. The class difference and division of society into the exploiters and the exploited, the haves and the havenots, is not at all justified, as far as Marxism is concerned. It is opposed to the idea of the Neoclassical School, where the ideas of free markets and ownership of property by private individuals are celebrated, as it hides and preserves “class injustice”.

     

Marx’s critique of Political Economy: Analyzing “Grundrisse” as a centerpiece of understanding Marxian Political Economy

According to Marx, Capital can take a number of forms. It can be a social relation; or a self-increasing value. For the Neoclassicists, it is either capital goods for investment such as machines, the funding required for their purchase, or their ownership. The thinking of dialectical materialism means that capital have a variability of sense. One of the key features of capitalism is the widespread production of produces for sale. Under capitalism, commodities are sold at their exchange value but they wouldn’t have been sold if they lacked a use value, which is found in their intake. The labour theory of value is the sole basis of understanding the Marxian definition of Capitalism. Workers are paid a wage by the Capitalist, without access to the means of production, they are forced to sell their labour in order of a means of subsistence.

The value power is same as the exchange value of the concerned worker. The capitalist, who has acquired the labour power, will obtain the use value of the worker, which is labour, the skill of the worker to manufacture goods of value which is greater than the wage. Only labour yields surplus value. As capitalism progresses, the need for commodities seemingly increase. This can be clearly perceived during the history of consumption under capitalism.

Marxian Political Economy as an agency of Economic Freedom: Understanding Amariglio’s argument as opposed to Julie Matthaei’s concept of the Labour Theory of Value as ‘antithetic’

According to Julie Matthaei,  the Marxian labor theory of value is "antithetical" to the concept of "choice" and cannot theorize the freedom that economic agents have in the market place to choose consumption bundles and work activities. (Amariglio.1986)

Marxian Theory of Value is fully well-matched with choice in the market and with varied political and cultural identities, Matthaei, however, does not note the arrival of readings of Marx's theory of value that begins to develop a non- conformist discussion of diversities within the working class. Marxian theory of Value must not suppress the monetary character of the wage. Marxian theory of Value indeed strains this monetary character when it is suitable for it to do so, e.g. when deliberating the process of buildup - as, in general, it pressures the monetary character of all exchanges through the dissimilarity between use-value and exchange-value. According to Marx, "in a given country, at a given period, the average quantity of the means of subsistence necessary for the laborer is practically known" and that, therefore, the theoretical assumption of a given value of labor-power can be translated into an assumption about a given quantity of use values containing a given sum of exchange value. (Marx, 1967, p. 171) Thus, in Marxian theory of Value, the supposition of a given wage bundle is a matter of model building and not an affirmation about how the wage bundle is at any time, historically determined. Matthaei does not see that, for Marxian theory, the actual, historical, behavior of workers in the market place is not constrained by the procedures of model building. Having established that the value of labor-power is introduced in Marxian theory as the datum of a model and not as a historical constraint, In this context, it is important to recall that Marx was critical of the Classical Political Economists, whom he in other ways very much respected, for their assumptions that economic agents, individuals, were possessed of a worldwide economic rationality.  It was partly in opposition to this classical commencement of the bases of economic behavior that Marx developed a theory of value and a theory of the dynamics of capitalist society that formulated economic "laws" in terms of the class production and distribution of surplus-labor and that concentrated only on market relations through which production and distribution of surplus-labor and that concentrated only on market relations through which production and distribution of surplus-labor is directed in a capitalist society. Marx created all market relations as historically strong-minded. It is exactly for this motive that he did not diminish and could not constantly have reduced, all dealings that take place in and through the market as just expressions of a given, non-traditional, non-political, economic rationality. In Marxian discourse, the differences that exist among workers with respect to consumption bundles have to be explained in terms of the varied cultural, political, institutional, and historical forces that have impacted on different groups of workers.

The Neoclassical-Keynesian Synthesis: Understanding Post-War Unemployment in the West

The "Neoclassical-Keynesian Synthesis" refers to the Keynesian Revolution as interpreted and formalized by British Economist John Hicks in the early post-war period. The centerpiece of the Neoclassical-Keynesian Synthesis, tended to yield the neoclassical result of "full employment". As a result, in order to generate an "unemployment equilibrium" as a solution to this system of equations, the Neoclassical School appealed to rigid money wages, interest-inelastic investment demand, income-inelastic money demand or some other imperfection to this system. Thus it is referred to as a "synthesis" of Neoclassical and Keynesian theory in that the conclusions of the model in the "long run" or in a "perfectly working" Neoclassical System, but in the "short-run" or "imperfectly working”.

The Neoclassical-Keynesian Synthesis was wildly fruitful and dominated macroeconomics in the post-war period. For a long time, the Neo-Keynesian system was identical with the "Keynesian Revolution" and was highly powerful in both theoretical, applied and policy work. Abba Lerner in 1944 was among the first to identify the insinuations of the Keynesian system for government macroeconomic policy: by appropriate fiscal and monetary policies, a government could "steer" the economy away from extremes and thus smooth out the business cycle. This policy-effectiveness was given an enormous boost by the new econometric model-building techniques and optimal policy design criteria developed by Jan Tinbergen (1952), James E. Meade (1951),

The Neo-Keynesian system came under continued attack in the late 1960s and early 1970s. In 1968, Leijonhufvud claimed that the Neo-Keynesians had totally disenchanted the meaning of J.M. Keynes's General Theory. Following Clower in 1965, Leijonhufvud proposed that as a substitute of trailing "unemployment equilibrium" in a flawed system, they should be analyzing "prolonged disequilibrium" in a system without inflexibilities.

Reactions to Keynesian Model and Criticism of Neoclassical Theory

“A sizable shift in the aggregate demand, will still cause an increase in real income and employment, but the size of the multiplier will be diminished, the more important the induced price rise becomes owing to the expansion of demand” (Wolff.119)

This gives us an understanding of how actually the Keynesian Model works. Although the rate of income and employment increases, the price of commodities will rise directly proportional to the increasing demand. There may be significant employment, but without State funding (Multiplier), it will not be affordable for the working gentry to purchase goods and services, i.e. their purchasing power rapidly decreases, the market as a self-regulating body will balance but the class parity still ensues.

The Neoclassical Theory as a whole is entirely unjust for the working class, the proletariat. It gives an inadequate explanation of large companies wielding an exorbitant amount of power in all the markets. The Neoclassical Theory omits from its explanation, the very “visible” hand of the state in so many aspects of our lives, the behavior of the agents of the state must be understood in all their complex effects if we are trying to specify the mechanism of supply and demand in the economy.   Neoclassical economics is also criticized for being extremely normative, in this view, it gives a utopic idea rather than to comparatively analyze varying economic trends. According to Hobsbawm, the Neoclassical Political Economy is all about "to demonstrate the social optimality if the real world were to resemble the model", not "to explain the real world as observed empirically".   The beginning of a "Keynesian" theory of income distribution after Roy Harrod's model of growth is then recollected together with the astounding resurrection of the neoclassical theory. The neoclassical theory of income distribution lacks logical consistency and has shaky foundations, as has been revealed by the severe critiques.

References

Amariglio, Jack, and Antonio Callari. “Marxian Economics and Freedom: A Comment.” Eastern Economic Journal, XII, no. 2, 1986, pp. 1–9.


Hoaas, David J., et al. “Economics: Marxian versus Neoclassical.” Southern Economic Journal, vol. 55, no. 2, 1987, p. 95., doi:10.2307/1059131.


Gomes, Leonard. “Early Neoclassical Contributions.” Neoclassical International Economics, 1990, pp. 10–27., doi:10.1057/9780230371552_2.


Dumenil, Gerard, and Dominique Levy. “Marxian Political Economy: Legacy and Renewal.” World Review of Political Economy, vol. 1, no. 1, 2010, pp. 7–22.


Nowicki, Florian. “The Theory of Production from Grundrisse and Its Implications for Marxism.” Nowa Krytyka, vol. 40, 2018, pp. 93–116., doi:10.18276/nk.2018.40-04.


“What Is (Wrong with) Neoclassical Economics?” Real-World Economics Review Blog, 30 Jan. 2018, https://rwer.wordpress.com/2018/01/31/what-is-wrong-with-neoclassical-economics/.


Ussher, L. “The Neoclassical-Keynesian Synthesis.” NEOCLASSICAL-KEYNESIAN SYNTHESIS, https://cruel.org/econthought/schools/synthesis.html.