On the Citadel of Marxian Political Economy; Lange 1935 again

Yesterday I digressed on the implied theory of exploitation in O. Lange (1935) “Marxian Economics and Modern Economic Theory,” Review of Economic Studies, II: 189-201. But in so doing I failed to convey the significance of the paper. In 1935 Lange was not yet known for his foundational work in welfare economics, nor his contribution to the socialist calculation debate (and the foundations of market socialism). He would go on to be professor of economics at The University of Chicago and, subsequently, minister of economics in Poland.

Before I get to that. As I noted yesterday, Samuelson (1967) treats the 1935 paper as evidence of Lange’s abandonment of the labor theory of value. This claim is echoed in Wikipedia (without supporting evidence, alas). I suggested that Samuelson was misleading in suggesting this because in his account of exploitation, Lange treats the labor of theory only as dispensable. For Lange show how the non-Orthodox Marxist (and non-Marxist) can have a notion of exploitation that is supposed to be equivalent to the one that accepts the labor theory of value. I still stick to that.

But I should have acknowledged more than I did that Samuelson is not wholly wrong in spirit. Lange also explicitly writes that “the labour theory of value cannot possibly be the source of the superiority of the Marxian over “bourgeois” economics in explaining the phenomena of economic evolution.” (p. 195) And that’s because Lange treats the labour theory of value as de facto identical to “a static theory of general economic equilibrium.” (p. 194) In fact, for Lange it holds “precisely only in a non-capitalism exchange-economy of small producers each of whom own his means of production (an exchange economy composed of small self-working artisans and peasant farmers, for instance; Marx calls it “einfache Warenproduction.”)” (p. 195)+

Lange’s stance may seem surprising. In my life I have encountered three purportedly devastating criticisms of Marxism as a theoretical edifice: (i) dialectics is a bunk scientific method;* (ii) the labor theory value has been debunked by Böhm-Bawerk; (iii) Hayek ‘won’ the socialist calculation debate.

This is not as how Lange sees the situation in 1935. First, he never mentions dialectics or the socialist calculation debate! (And to what degree Lange would have to concede Hayek’s point is something I will return to.) Second, there is no need to concede anything to Böhm-Bawerk. And he is fine with acknowledging limitations of the labour theory of value. In fact, in his conclusion he admits that the “superiority of Marxian economics in analysing Capitalism is not due to the economic concepts used by Marx (the labour theory of value),” (p. 201).

And, yet, for all the acknowledged limitations of Marxian economics, “Marxian Economics and Modern Economic Theory,” argues that Marxian economics is, in fact, superior in some non-trivial ways to its rivals. What rabbit is Lange pulling out of his cap?

The Marxist's claim to superiority for his economics is that "bourgeois" economics has utterly failed to explain the fundamental ten-dencies of the development of the Capitalist system. These tendencies are: the constant increase of the scale of production which by substituting large-scale for small-scale production has led to the transition from the free-competitive Capitalism of the nineteenth century to the present monopolistic (or rather oligopolistic) Capitalism; the substitution of interventionism and "planning" for laisser-faire; the transition from free trade to high protectionism and economic nationalism in international relations; the constant expansion of the capitalist method of production in non-capitalist countries, which as long as competition was free led to a relatively peaceful permeation of capitalist economy and Western civilisation through the whole world, but which with oligopolistic and interventionist Capitalism leads to imperialist rivalry among the principal capitalist powers; the increase of economic instability in the capitalist system, which by destroying the economic and social security of the population of capitalist countries, causes them to rebel against the existing economic system, whatever the ideology and programme underlying this rebellion (Socialism or Fascism). (p. 190)

Marxism predicts a variety of road-to-serfdoms for capitalism from free markets to imperialism and then fascism or socialism. (There is more than a touch of Lenin in Lange here.) And this inherent evolution toward concentration is something that mainstream economics “denied the existence of these tendencies or if they took account of them they never succeeded in explaining them by a consistent theory of economic evolution, but effectively offered no more than a historical description.” (p. 190) This strikes me as a fair interpretation of Schumpeter’s theory, by the way.

So, on Lange’s account, bourgeois economists twice (at the start of the 20th century and in 1929 and its aftermath) failed to explain the implosion of capitalism. Each time they had to appeal to the folly of policymakers. More sophisticated mainstream theories can do no more than this:

Such a theory can analyse why, if a disturbance of equilibrium has occurred, certain adjustment processes necessarily follow. It can also analyse the nature of the adjustment processes following a given change of data. But it cannot explain why such disturbances recur regularly, for this is only possible with a theory of economic evolution. (p. 196; emphasis added)

There are interesting issues lurking here on the nature of explanation of economic implosions that I will set aside today. For, it is by no means obvious whether the subsequently published Keynes’ (1936) General Theory or Friedman’s and Schwarz’s (1963) Monetary History really count as explanations in the desired sense (post 2007). But about that some other time.

Interestingly enough, while for Lange Marxian economics is superior in account for the “fundamental tendencies of the evolution of Capitalism” (p. 191) and in providing a “scientific basis for long range anticipations guiding the rational activity of a revolutionary movement directed against the very institutional foundations of the capitalist system,” (p. 191 n.1) he thinks it does a very poor job relative to mainstream economics at grasping “the phenomena of the every-day life of a capitalist manner.” (p. 191; see Klein (JPE 1947: 119-120) for a partial defense of Marx, especially on falling profits.) In fact, it provides “a scientific basis for rational measures to be taken in the current administration of the capitalist economy (monetary and credit policy, tariffs, localisation, monopoly prices, etc.).” (p. 191, n. 1) He then adds a remarkable concession:

But in providing a scientific basis for the current administration of the capitalist economy "bourgeois" economics has developed a theory of equilibrium which can also serve as a basis for the current administration of a socialist economy. It is obvious that Marshallian economics offers more for the current administration of the economic system of Soviet Russia than Marxian economics does, though the latter is surely the more effective basis for anticipating the future of Capitalism. In so far, modern economic theory, in spite of its undoubted "bourgeois" origin, has a universal significance. (p. 191, n. 1)

So, as a technique of administration the non-Marxian Marshallian mainstream is quite effective. Here Lange anticipates Foucault. (Lange sounds here also like a right-Libertarian critic of Milton Friedman!) But Marxism is fully vindicated for explaining how capitalism leads to serfdom. For Lange the real work is done here not by Marx’s economic theory proper, but by Marx’s theory of economic evolution and the adjoining theory of historical materialism.

Let me wrap up. As this post hinted, I think Lange’s stance helps explain why Eucken and Hayek thought it so important to offer alternative roads-to-serfdom theories. But it also tells us something more important: if you wanted to refute Marxian political economy in its theoretical citadel, the labour theory of value and the socialist calculation debate were, while non-trivial in all kinds of ways, actually side shows. The core issue — we see this in Lenin as much as in Lange — is the nature and status of monopoly capitalism. If this edifice stands, Marxism can prophecy capitalist doom securely. And before you protest that this is a lot to hang on Lange’s essay, Schumpeter saw it basically the same way in Capitalism, Socialism and Democracy (1942).

So, why could Samuelson, who knew Lange and studied with Schumpeter, ignore this a few decades later? I may I have an answer to that.

To be continued.

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+I actually think this means Lange’s distance from the labour theory of value should not be conflated with Sraffa’s grounds for doing so. (Cf. Gintis, Herbert, and Samuel Bowles. "Structure and practice in the labor theory of value." Review of Radical Political Economics 12.4 (1981): 1-26.) But that is for others to develop.

*Regular readers know that I have no interest in rehabilitating Marxism as such, but after going over the details of the debates, I am not so sure dialectics is useless when conceived as a revolutionary praxis.