Sunday, July 17, 2011

Joan Robinson on Keynes, Marshall, Marx, and Ricardo

Tyler Cowen points us to a letter from Joan Robinson to a Marxist named Ronald Meek. There's a lot at the beginning criticizing Marxists for not understanding their own theory, but I found this section at the end particularly interesting. It presents a little bit of Robinson's understanding of Keynes's place in the history of economic thought:

"Ricardo existed at a particular point when English history was going round a corner so sharply that the progressive and the reactionary positions changed places in a generation. He was just at the corner where the capitalists were about to supersede the old landed aristocracy as the effective ruling class. Ricardo was on the progressive side. His chief pre-occupation was to show that landlords were parasites on society. In doing so he was to some extent the champion of the capitalists. They were part of the productive forces as against the parasites. He was pro-capitalist as against the landlords more than he was pro-worker as against capitalists (with the Iron Law of Wages, it was just too bad for the workers, whatever happened).

Ricardo was followed by two able and well-trained pupils – Marx and Marshall. Meanwhile English history had gone right round the corner, and landlords were not any longer the question. Now it was capitalists. Marx turned Ricardo’s argument round this way: Capitalists are very much like landlords. And Marshall turned it round the other way: Landlords are very much like capitalists. Just round the corner in English history you see two bicycles of the very same make – one being ridden off to the left and the other to the right.

Marshall did something much more effective than changing the answer. He changed the question. For Ricardo the Theory of Value was a means of studying the distribution of total output between wages, rent and profit, each considered as a whole. This is a big question. Marshall turned the meaning of Value into a little question: Why does an egg cost more than a cup of tea? It may be a small question but it is a very difficult and complicated one. It takes a lot of time and algebra to work out the theory of it. So it kept all Marshall’s pupils preoccupied for fifty years. They had no time to think about the big question, or even to remember that there was a big question, because they had to keep their noses right down to the grindstone, working out the theory of the price of a cup of tea.

Keynes turned the question back again. He started thinking in Ricardo’s terms: output as a whole and why worry about a cup of tea? When you are thinking about output as a whole, relative prices come out in the wash – including the relative price of money and labour. The price level comes into the argument, but it comes in as a complication, not as the main point. If you have had some practice on Ricardo’s bicycle you do not need to stop and ask yourself what to do in a case like that, you just do it. You assume away the complication till you have got the main problem worked out. So Keynes began by getting money prices out of the way. Marshall’s cup of tea dissolved into thin air. But if you cannot use money, what unit of value do you take? A man hour of labour time. It is the most handy and sensible measure of value, so naturally you take it. You do not have to prove anything, you just do it.

Well there you are – we are back on Ricardo’s large questions, and we are using Marx’s unit of value. What is it that you are complaining about?

Do not for heaven’s sake bring Hegel into it. What business has Hegel putting his nose in between me and Ricardo?"

The bolded section was very strange to me and I had to look back to Keynes's chapter on the choice of units. He says pretty clearly that he's using two units - "labor units" and "money value". Now perhaps she just means that in applications he divides one by the other, in which case that's OK. But the way she says it (particularly what she says at the end) sounds an awful lot like she's suggesting Keynes is using a labor theory of value.


  1. I think she's right about Ricardo's motivations, and Marx and Marshall's directions.

    She's wrong though about the marginalist revolution. Yes, it did distract from macro, even Mises laments that. But, it wasn't all that complicated. Algebra is hardly needed unless you want it.

    Keynes in my view at least tries to be marginalist in most cases. He may not always succeed, but he tries. He doesn't use the labour hour in anything like the same way as Marx.

  2. Sort of weird that she doesn't discuss Mill. Mill's "Principles of Political Economy" was the text du jour for decades.

    Anyway, Keynes tried to become a aficionado of every other bunk idea in economics, why not the labor theory of value too?

  3. Hmm... I guess you were right when you said Keynes in some way returned to classical economics (even I thought that sounded weird and I have read a little about the history of economics). As a more institutional economist I'm not sure how the theory of value tells us everything we need to know about rent, profit, etc. I think some neoclassicals just see economic value as something that can be sold in the market. If I can sell my Xbox s-video cable on e-bay, a place where things are purely demand determined, it has economic value. If i can't, it has no value (as it turns out that's one of the few things I was never able to sell on e-bay, even though I had original packaging and instructions0.

    And the theorems are not "simple algebra" -- they are based on mathematics involving trigonometry etc. and include abstract mathematical techniques. The early economists had difficultly proving their theorems applied to the economy as a whole but they were later proven by others in the twentieth century.

    The marginalism where you have the idea that maybe I'll spend my time studying economics versus playing tennis, because I value studying economics at $30 and playing tennis at $20 an hour, but maybe after an hour I'll think that studying economics is only worth $15 and start playing tennis, is just a fiction and it would be bad economics in fact to take this seriously. You have to include this type of analysis with your preferences and conditions and so on.


  4. But the way she says it (particularly what she says at the end) sounds an awful lot like she's suggesting Keynes is using a labor theory of value.

    That's more or less how I understood Keynes.

    "In dealing with the theory of employment I propose, therefore, to make use of only two fundamental units of quantity, namely, quantities of money-value and quantities of employment. The first of these is strictly homogeneous, and the second can be made so. For, in so far as different grades and kinds of labour and salaried assistance enjoy a more or less fixed relative remuneration, the quantity of employment can be sufficiently defined for our purpose by taking an hour’s employment of ordinary labour as our unit and weighting an hour’s employment of special labour in proportion to its remuneration; i.e. an hour of special labour remunerated at double ordinary rates will count as two units." pg 41.

    Furthermore, I'm astonished she thinks that it was Marshall and the neo-classical school that was busy with price theory. This had been answered already by Menger and the beginning marginalists.

  5. I don't think Keynes used the labour theory of value even implicitly. That's not the problem with his capital theory for example.


    What is this application of trigonometry you're talking about?

  6. Mattheus -
    1. What ever gave you the impression Keynes had a labor theory of value???

    2. Uses of the term vary, of course, but a large majority of people consider Menger to be part of the Neoclassical School.

  7. I brought it up on my blog, but I really suggest reading Boettke's "What Went Wrong with Economics". It talks about the Austrians and the Neoclassical schools.

  8. This (I believe) is what Jonathan is referencing:

    It's a good read, although it's got a lot of the pitfalls of broad critiques of "mainstream economics". The pattern you see a lot with these critiques is (1.) trump up exactly what the mainstream claims for itself w.r.t. modeling, and then (2.) fault them for not achieving a standard which I don't personally think was ever the goal in the first place. I'd certainly agree that perhaps intellectual resources have been misdirected, but I wouldn't go as far as Boettke does here.

  9. It's very simple to get Keynesian conclusions from the labour theory of value.

    If people are unemployed then that means they are not inhering value into goods. That is a waste of potential labour hours. That can be solved by the state spending money buying goods and services so that these people do inher value into goods.

    This is wrong. But it's also not what Keynes says.

  10. Just to be clear what I mean in the post above is that Keynes could have supported his policy conclusions in a much simpler way if he did believe in the labour theory of value. That he chose a *much* more complicated course shows to me that he didn't.

  11. Current - those are good points. And on top of that he does provide a teensy bit of praise for Marx. And what does he praise in him? Not his value theory - but a half-baked version of effective demand continuing along in the "underworld" of economics. When Keynes took the opportunity to remark positively on Marx, it certainly wasn't for value theory.

    Indeed - how could one have a demand-centric theory of any consequence if one had a labor theory of value? Concerns about effective demand practically imply a subjective value theory.

  12. I don't think Keynes was complimenting Marx in grouping him with Major Douglas. I think Keynes, in his notes for the General Theory, expressed appreciation for Marx's distinction between the C-M-C' and M-C-M' circuits.

    Marx rejected Say's law and expressed concerns about effective demand. I like to look at these issues within the Volume 2 schemes of simple and expanded production. One should also be aware of the Marxist "realization problem".

    So investigation of these theoretical issues seems to be perfectly consistent with Marx's theory of value, at least in Marx's understanding.

    I don't recognize cogent reasoning in Current's outline of how to get Keynesian conclusions from a LTV.

  13. Robert,

    What's wrong with my argument?

    I'm talking about a simple version of LTV here.

  14. 1. What ever gave you the impression Keynes had a labor theory of value???

    His decision to homogenize labor in his analysis a la Marx put me a little on edge. I suppose I don't think he held a LTV, just that his understandings of labor are really primitive.

    Uses of the term vary, of course, but a large majority of people consider Menger to be part of the Neoclassical School.

    Back then they may have. I don't see it that way anymore. I think the Neoclassical school finds its start with Walras, JB Clark, and particularly with Marshall and Pigou.

  15. re: "Back then they may have. I don't see it that way anymore. I think the Neoclassical school finds its start with Walras, JB Clark, and particularly with Marshall and Pigou."

    This is actually backwards. Back then they used "neoclassical" to differentiate the British and Austrian schools. Now Jevons, Walras, and Menger has been rightly recognized as three peas in a pod and Menger is firmly considered part of the neoclassical tradition. He's got marginalism, subjective value, a senes of optimization even though he doesn't do it as formally. He's got "neoclassical" written all over him, Mattheus!!

  16. I find important the remark about Hegel, arguing that talking about Value would sooner or later abandon materialism and deep into metaphysical questions.


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