Slides from presentation given at the summer school of Jilin University on heterodox economics, 10 July 2018, Changchun,China

1. MARX, KEYNES, SCHUMPETER

2. SOME KEY WORDS
• Innovation
• Maverick
• Long Waves
• Self-restoration
• Centre of gravity
• Moonshine (‘nonsense’)
• Endogenous
• Exogenous

3. SCHUMPETER: AN AUSTRIAN WITH
EVOLUTIONARY CHARACTERISTICS
The central point of his whole life work
[is]: that capitalism can only be
understood as an evolutionary process
of continuous innovation and 'creative
destruction’ – Christopher Freeman
“

4. Citations of Keynes vs citations of Schumpeter

5. WHO WAS SCHUMPETER?
• Born in present Czech Republic but always identified as German
• Finance Minister of Austria 1919
• Originated theory of Innovation
• Promoted ‘Long Waves’ in capitalism; Originated ‘Creative
Destruction’
• 1925-32 University of Bonn; Harvard 1932
• Vigorous opponent of Keynes, denied professorship to Paul
Samuelson
• Wrote huge History of Economic Thought and Capitalism, Socialism,
Democracy

6. THE COMMON VIEW
• “Schumpeter and Marx had the same basic idea”
• “Schumpeter and Marx both believed in cycles”
• “Schumpeter and Marx both emphasized technology”
• “Schumpeter and Marx both stressed innovation”
• “Schumpeter praised Marx”
• “Keynes was very different from Marx”
• “Keynes was a reformist, Marx was a revolutionary”
• “Keynes thought you only need to tinker with demand”
• “Keynes ignored Marx”

7. I WILL ARGUE
• Schumpeter aimed to ‘save equilibrium from itself’
• The thesis of ‘Market perfection’ cannot be sustained in a ‘long, deep
depression’
• Schumpeter’s central idea was Capitalist self-restoration
• This is a variant of equilibrium
• ‘oscillation around a centre of gravity’
• He thought capital markets work like product markets
• Therefore ‘let the market have its way’

8. I CLAIM (BUT WILL DISCUSS LESS)
• Marx and Keynes had essentially the same view
• Crisis is caused by the failure of investment
• This is caused by accumulation itself
• State must intervene to override market in capital
• Differed on ‘class agency’
• Keynes believed problems could be overcome by the capitalist class
• Marx believed they required working class to be in power

9. WHY STUDY THESE PEOPLE?
Karl Marx: 1818 -1883
John Maynard Keynes: 1883 – 1946
Joseph Schumpeter: 1883 - 1950

10. ECONOMICS HAS FAILED TO IDENTIFY THE CAUSE
AND REMEDY OF GREAT DEPRESSIONS
The United States has experienced numerous cyclical ups and
downs. At the same time, we have avoided depressions – the
prolonged, cumulative slumps like those of the 1870s, 1890s, or
1930s. What has changed in the last 50 years? Primarily,
developments in macroeconomics now allow governments to take
monetary and fiscal steps to prevent recessions from snowballing
into a persistent and profound slump.
If Marxists wait for capitalism to collapse in a final cataclysmic crisis,
they wait in vain.
The wild business cycle that ravaged mature capitalism during its
early years has been tamed.
- Samuelson 1992
“

11. 0%
1%
2%
3%
4%
5%
6%
7%
1947
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Average Growth over cycle
5-year centred average
Source: US Bureau of Economic Affairs NIPA table 1.1.6 (quarterly) US GDP in chained 2005 USD)
'growth' refers to the growth of quarterly GDP compared to the same quarter in the previous year)
US growth of real GDP

12. THE PROBLEM OF METHOD

13. MAVERICKS
• Marx, Keynes, Schumpeter, Veblen, Polanyi, Kalecki
• Popular outside the profession
• A following within the profession
• ‘schools’ associated with them:
“Marxists”
“Keynesians”
“Schumpeterians”

14. ECONOMICS AS A BATTLE OF SCHOOLS
• Schools present ‘authorised version’
• They interpret ‘what Marx/Keynes/Schumpeter said’
• Really, they are presenting their own theories
• If a school is organised around a ‘guru’
• we lose sight of what was said
• we lose sight of what the real debate was about

15. SAMUELSON ON SCHUMPETER IN 1983
Like other students of Schumpeter and like his academic
colleagues and friends, I tended to regard as a bit comical his
…1939 fascination with the fol de rol of Kondratieff long waves…
Among us professionals the recent revival of Kondratieff
moonshine – in its disparate Rostow, Forrester, Shonihara, and
Christopher Freedman [sic] reincarnations – does not make us
look back more kindly on Schumpeter's Ptolemaic epicycles.
– Samuelson 1983

16. SAMUELSON: ‘WHIG HISTORY’
• ‘Whig History’ – Butterfield
• Whig party was the British party of ‘liberalism’
• Portrayed itself as the ‘party of progress’ and the ‘best you can have’
• Rewrote past history as ‘unsuccessful attempt at what we have done’
• Samuelson says ‘knowledge only moves forward’
• Therefore, no need to study Keynes, Marx, or history of thought

17. THE JOB OF THEORETICAL
RECONSTRUCTION
• Orthodox theory is disproven by the facts
• So it is not ‘the best you can have’
• Therefore we study the past to see what was wrongly thrown away
• To do this, we have to understand what was ‘really’ said
• Study ‘the real Schumpeter’, ‘the real Marx’, ‘the real Keynes’
• Not to make dogma but to grasp the essential issues at stake

18. NEED TO INTERPRET
• We have to know the theory of Schumpeter, Marx, Keynes
• Not because we believe it is necessarily true
• But in order to identify the real theoretical issues that
divided them
• Therefore have to interpret them

19. SCHUMPETER CLAIMS MARX: BUT
WHY?

20. SCHUMPETER ON MARX ON CYCLES
He [Marx] aptly says that ‘the superficiality of Political Economy shows
itself in the fact that it looks upon expansion and contraction of credit,
which is a mere symptom of the periodic changes of the industrial cycle,
as their cause.’ …
We find practically all the elements that ever entered into any serious
analysis of business cycles, and on the whole very little error.
Moreover, it must not be forgotten that the mere perception of the
existence of cyclical movements was a great achievement of the time.
Many economists who went before him had an inkling of it. In the main,
however, they focussed their attention on the spectacular breakdowns
that came to be referred to as ‘crises’. And these crises they failed to see
in their true light, that is today, in the light of the cyclical processes of
which they are mere incidents

21. SCHUMPETER ON EQUILIBRIUM
If we succeed in describing the economic system by means of a general
schema embodying certain properties of it, there is obviously some point
and much practical utility in asking the question whether the system, as thus
depicted, will by its own working produce booms or crises or depressions,
and if so under what circumstances.
Common sense tells us that the mechanism for establishing or
re‐establishing equilibrium is not a figment devised as an exercise in the
pure logic of economics but is actually operative in the reality around us
[W]hat causes fluctuations may either be individual shocks which impinge on
the system from outside, or a distinct process of change generated by the
system itself, but in both cases the theory of equilibrium supplies us with the
simplest code of rules according to which the system will respond. This is
what we mean by saying that the theory of equilibrium is a description of an
“
“
“

22. MARX ON INNOVATION
The value of the old industry is preserved by the creation of
the fund for a new one in which the relation of capital and
labour posits itself in a new form.
Schumpeter:
The fund creates the innovation
Marx:
Innovation creates the fund
“

23. MARX ON ‘EQUILIBRIUM’
“These contradictions, of course, lead to explosions, crises, in
which momentary suspension of all labour and annihilation
of a great portion of the capital violently lead it back to the
point where it is enabled [to go on] fully employing its
productive powers without committing suicide. Yet, these
regularly recurring catastrophes lead to their repetition on a
higher scale, and finally to its violent overthrow”
- There is no ‘normal’ state of capitalism
- It is inherently contradictory
- “Recovery” is partial and only prepares for the next crisis

24. LONG WAVES
ENDOGENOUS OR EXOGENOUS?
• 1924, Conjunctural Institute
• Kondratieff advances ‘Long Waves of Capitalist Development’
• Focussing mainly on price movements
• Schumpeter and others amplify into a theory of growth
• Supported by Marxists notably Mandel,
• C.Freeman, Perez (later change their minds and speak of ‘Great
Surges’)
• Agree with Schumpeter that driver of change is innovation

25. HOW CAN TECHNOLOGY AFFECT
GROWTH?
• Kondratieff bases himself mainly on price movements
• Long wave theory has evolved since then
• Schumpeter, Mandel, C. Freeman, Perez focus on technology
• ‘New’ technologies receive long inflow of capital
• This produces the phenomenon
• Prices fall rapidly in a particular sphere
• New technology becomes cheap
• New technology becomes very widespread
• Creates a new ‘type’ of society (Perez: socio-economic paradigm)

26. PERIODIZATION BY GROWTH
AND TECHNOLOGY
• First Industrial Revolution
• 1815-1848 decline
• 1848-1870 expansion (‘Second Industrial Revolution’)(Age of coal, iron and rail)
• 1870-1890 decline (‘Great Depression’)
• 1890-1926 expansion (‘Belle Epoque’) (Age of concrete, electricity and steel)
• 1926-1942 decline (‘Great Depression’)
• 1942-1974 expansion (‘Golden Age/Postwar Boom’)(Age of oil)
• 1974-present decline (”Third Great Depression”)
•  longest decline yet, no sign of expansion

27. EXOGENOUS AND ENDOGENOUS
CAUSES OF DECLINE AND RECOVERY

28. THE TROTSKY-KONDRATIEFF DEBATE
• Moscow Conjunctural Institute 1924-1929
• Kondratieff: ‘long cycle’ is like the short cycle
• Trotsky: there is no long cycle
• Kondratieff: statistical regularity proves automatic process at
work
• Trotsky’s reply: it is caused by political events
• recurrent or regular?
• Self-adjusting or provokes adjustment?

29. TROTSKY
One can reject in advance the attempts by Professor Kontrad’ev to assign to the epochs that
he calls long cycles the same ‘strict rhythm’ that is observed in short cycles …
The periodicity of short cycles is conditioned by the internal dynamic of capitalist forces,
which manifests itself whenever and wherever there is a market. As for these long (fifty‐year)
intervals that Professor Kontrad’ev hastily proposes also to call cycles, their character and
duration is determined not by the internal play of capitalist forces, but by the external
conditions in which capitalist development occurs.
The absorption by capitalism of new countries and continents, the discovery of new natural
resources, and, in addition, significant factors of a ‘superstructural’ order, such as wars and
revolutions, determine the character and alteration of expansive, stagnating, or declining
epochs in capitalist development.

30. KONDRATIEFF
L.D. Trotsky, in his article titled “Concerning the
Curve of Capitalist Development,” whilst not
denying the existence of long waves in
economic conditions, refused to recognize their
patterned, cyclical character, and regards them
as the result of adventitious (and, in that sense,
random) circumstances of an economic and
political nature

31. SCHUMPETER’S MECHANISM OF SELF-
CORRECTION
• The entrepreneur discovers a new product or method of production
• The financier lends him the money
• They share the proceeds
• This is a long, slow process because one technology is replaced by
another
• ‘the railways are more in competition with airlines than with each other’
[Innovation is] the outstanding fact in the economic history of capitalist society, or in
what is purely economic in that history, and … largely responsible for most of what
we would at first sight attribute to other factors. (p86)
“

32. SCHUMPETER VERSUS MARX AND KEYNES
• Schumpeter is opposed to state intervention
• ‘Save equilibrium theory from itself’
• Requires a concept of self-restoration
• Believes in the primacy of the financial market
• Argues that the financier will rescue capitalism
• If the financial market is given free reign
• Marx and Keynes agree on state
intervention
• ‘Save economics from equilibrium’
• Limits to self-restoration
• Financial market is parasitic
• Financier is the enemy of capitalism
• Required is the socialisation of investment
All reject Say’s fallacy and agree that money matters

33. POSTSCRIPT
DOES MARX DISAGREE WITH KEYNES?
• Both Marx and Keynes are ‘interpreted’
• ‘Bastard Keynesianism’ (Robinson)
• converts to equilibrium
• Focusses uniquely on demand management
• Keynes was more radical
• Called for ‘socialisation of investment’
• Called for ‘Euthanasia of Rentier
• Real difference was agency
• Marx: working class must control the state and forcibly suppress the capitalists
• ‘Despotic inroads into capitalist property’;
• Keynes: sought to persuade the capitalists to ‘save their system from themselves’