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The Mises Review

Edited and written by David Gordon, senior fellow of the Mises Institute and author of four books and thousands of essays.


Marx's Revenge: The Resurgence of Capitalism and the Death of Statist Socialism

Meghnad Desai

3 2002
Volume 8, Number 3


Marx the Capitalist 


Fall 2002
Marx's Revenge: The Resurgence of Capitalism and the Death of Statist Socialism 
bu Meghnad Desai 
(Verso, 2002, xi + 372 pgs.) 

Professor Desai has given us two books in one: a new interpretation of Marxism, and a history of twentieth-century capitalism. I propose to concentrate, with one exception, on the first of these, owing to its revolutionary thesis: Desai presents Marx as a supporter of capitalism.

How can this be? Has Desai never read the closing lines of the Manifesto: "Working men of all countries, unite"? Of course our author, a distinguished Marxist economist, has done so; and he needs no instruction from me on Marx's revolutionary activities. But this just deepens our paradox: how can he possibly say that Marx defended capitalism?

Just in this sense. Marx, like Adam Smith before him, believed in what Desai calls a "stadial" theory. History proceeds in stages: in Marx's account, these are primitive communism, slavery, feudalism, capitalism, and socialism. Each stage best develops the forces of production—roughly speaking, the technology—available at the time.

Now we can resolve our difficulty. Marx indeed hoped for the onset of a socialist order. But socialism cannot arrive except in its proper sequence in the progression of stages: capitalism must precede the New Jerusalem. At once, then, a new question arises: how can capitalism be brought to an end as soon as possible, so that we can reach the glorious consummation of history?

If this question must be addressed, though, does this not deepen our paradox? Marx wished to get through the capitalist stage by the most rapid means; he can hardly then be called a supporter of capitalism.

But we have so far left out a key part of Marxism that entirely changes the picture. Marx believed that no stage of history ever ends before the productive possibilities of which it is capable develop fully. Desai quotes a famous passage from the preface to the Contribution to the Critique of Political Economy: "No social order ever disappears before all the productive forces for which there is room in it have been developed; and new higher relations of production never appear before the material conditions of their existence have matured in the womb of the old society itself. Therefore, mankind only sets itself such tasks as it can solve" (p. 44, quoting Marx).

Given this doctrine, we can at last understand Desai's argument. In order to bring capitalism to an end, it must be developed as much as possible. Hence a socialist must be, for the indefinite future, a supporter of capitalism. Our author claims, "Practically all the commentary on Marx, particularly since 1917, has been an attempt to deny this" (p. 44).

Desai's argument as so far presented seems incomplete. Suppose Desai is correct in what he has so far claimed. A socialist will want capitalism developed to the maximum extent possible. But this is quite consistent with thinking that capitalism will soon come to an end. Perhaps the productive potential of capitalism has been fully realized, and the task remaining for socialists is simply to topple the system over. Indeed, did not Marx claim in Capital that ever more severe crises doom capitalism to destruction? The considerations advanced by Desai do not suffice to turn Marx into a precursor of Mises.

Our author has anticipated this response. He contends that in the second volume of Capital, Marx devised a model in which capitalism results in stable growth, possibly for hundreds of years. In essence, there need be no problem of general underconsumption. Capital goods can be shifted to the production of other capital goods, should demand for consumption goods decline. In this model, "[t]here are no cycles, no crises, no problems. Capitalism grows forever, without any cycles but in steady-state growth" (p. 73).

But does this not prove too much? If Marx believed that capitalism would last "'til the sun grows cold, and stars are old," then he was not a socialist at all. And this is absurd. Once more, our author has an escape.

Desai does not contend that Marx fully committed himself to the indefinite expansion model. Elsewhere, Marx suggests that a long-term tendency for the rate of profit to fall may eventually bring capitalism to an end. Even here, though, this tendency takes effect only after a very long time. Capitalists have several resources to delay the fall.

One of these is to seek out foreign markets, where the rate of profit may at least temporarily be high. Readers will of course see here the germ of Lenin's theory of imperialism. But what is less well known is Marx's attitude toward this phenomenon. According to Desai, Marx not only supported capitalism: he was an imperialist as well.

Desai sets forward the evidence for his surprising thesis: "Marx had welcomed the British East India Company's role in destroying the old precapitalist institutions in India; his only complaint was that they had not finished the job properly in 1857. . . . He and Engels had approved of France's takeover of Algeria. In Marx's view, capitalism was a progressive force which had to destroy older modes even if this destruction was effected by a colonial power" (pp. 154–55). Desai draws attention in this connection to a book I have long admired, Bill Warren's Imperialism, the Pioneer of Development (p. 330, n.12).

In further support for his unusual interpretation of Marx, Desai notes that the founder of scientific socialism said almost nothing about the sort of society that would eventually replace capitalism. For Marx, socialism stood for little more than a cipher representing a better world to come. But our author does Marx one better. He thinks that Hayek won the socialist calculation argument. 

Desai believes—wrongly, in my view—that Oskar Lange and Fred Taylor successfully solved the calculation problem as Mises originally posed it. (He also speaks favorably of linear programming as a way to compute prices.) But he maintains that the Lange-Taylor solution is in practice useless because of a problem posed by Hayek. Of what use are the equations of Walrasian equilibrium when the economy is never in this state of affairs? The real problems of the economy are of an entirely different order. 

Desai, then, is a socialist of an unusual type: "Hayek was undermining the entire basis of equilibrium theorizing as it was—and still is—taught in economics, yet his ideas were ignored at the time. An entire generation came to believe that capitalism and socialism were symmetrical; markets and planning were the same thing. . . . The idea that an economy is a self-organizing process . . . was forgotten. The point was not that a socialist planner could not compute all those equations. The point was that even making the most extreme assumptions, it is impossible to centralize knowledge" (p. 198).

Our author's strategy is ingenious, but I cannot think it altogether succeeds. Faced with the brutal tyranny and utter economic failure of twentieth-century communism, how can any rational person remain a Marxist? Simple, Desai answers. One merely says that Marx was not a socialist and in fact anticipated the major criticisms of that doctrine advanced by critics such as Hayek. Thus, the idea that market participants act on the basis of local knowledge was one "that Marx shared with Hayek" (p. 198).

Desai's strategy suffers from a basic flaw. Suppose that he is right: at least for the indefinite future, Marx favored the full development of capitalism. All well and good; but why is Marx an important economist, worth studying today?

True enough, Marx's model of stable growth under capitalism ranks as an important contribution. (Desai might also have noted that, to an extent, it anticipates the Austrian view of the structure of production.) But not even Desai's earnest advocacy suffices to rescue the linchpin of Marx's economics, the labor theory of value. He is constrained to admit that Marx failed to establish the central claim of that theory. "One can accept that prices are proportional to [labor] values, but still refuse to say that all profits come from the exploitation of labour" (p. 65). Pierro Sraffa and his student Ian Steedman were "able to show up anomalies in Marx's argument. One could have negative surplus-value, yet positive profits" (p. 264). Paul Samuelson once famously dismissed Marx as a "minor post-Ricardian." Does Desai's tour de force, if successful, do anything but reinforce Samelson's verdict?

At the outset, I mentioned one exception to my plan of concentration on Desai's account of Marxism. Our author makes an important historical observation that cannot be ignored. He notes that much of "development economics" copies the ideas of Nazi Germany. "The subsequent history of the war and the Holocaust has so totally destroyed the National Socialists' reputation that few today would admit that much of the planning in developing countries after 1945—in India, for example—drew on ideas from this experiment. The Soviet Union was claimed as a model more often, but wherever capitalism and planning have coexisted, the original model has been the German one" (p. 165). Readers of Mises's Omnipotent Government will not be surprised. We will make an Austrian of Desai yet! On page 163, the name of the Nazi finance minister, Count Schwerin von Krosigk, is misspelled. 
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