A recent BBC documentary series entitled “Masters of Money” examined the ideas of three historical giants in economics: Keynes, Hayek, and Marx. In this article, we compare and contrast their ideas in the context of the current crisis of capitalism, to see if any of these figures and their writings really do have the answers to solve the problems facing society today.


The fact that a prime-time television series examining these three political economists and their ideas about economic crisis has been made is a very telling sign of the times that we are living in. The current crisis – the deepest crisis in the history of capitalism – has led people to question the entire economic system and to search for answers as to how we can escape the crisis.

For decades, the economic doctrines of “laissez-faire” capitalism and of government regulated capitalism were presented as the only alternatives, especially after the collapse of the planned economy in the USSR and the supposed “end-of-history”. This “alternative” has frequently been presented as a simple battle between two sides: those who want to regulate markets and those who seek to set them free. The name of Hayek is typically associated with those who sing the praises of the free market and preach of the need to unchain the invisible hand of capitalism. Meanwhile, Keynesianism is back in vogue with those who look for government stimulus and greater regulation of the economy. A “Keynes vs. Hayek rap” has even been created to explain this battle of ideas, gaining millions of hits and spawning a sequel.

Today we hear calls for “jobs, investment, and growth”; words that have become the mantra of the labour movement leaders who promise an “alternative to austerity”. But the dichotomy of “austerity vs. growth” is a false one. These words are presented as polar opposites, but in reality they simply represent two ideological wings of the same capitalist class –monetarism and the Keynesianism – neither of which has a real solution to the crisis – a crisis of capitalism.

The global crisis that began in 2007-08 – and which has continued and deepened ever since – has caused many commentators to revisit and examine the ideas of Hayek and Keynes in search of an answer to the question of what caused the crisis and, perhaps even more importantly, how we can get out of it. But as the crisis enters its fifth year, more and more people are beginning to realise that it is not simply a question of “free market vs. regulation” or of “austerity vs. growth”, and are instead questioning the entire capitalist system itself. As a result, the ideas of Marx are gaining in popularity and an increasing number are saying “Marx was right”.

Who was Keynes?

It is ironic that Keynesianism has today become the dominant ideology within the labour movement, as Keynes himself was open about his capitalist class interests, saying that “the class war will find me on the side of the educated bourgeoisie”. He was openly opposed to socialism, Bolshevism, and the Russian Revolution, and he was an economic advisor and lifelong member of the Liberal Party, the classic party of British capitalism in the 19th and early 20th centuries.

Like all economic and political figures, Keynes was a product of his times; a product of certain historical, material conditions. Earlier representatives of bourgeois political economy, such as Adam Smith and David Ricardo, were the product of a capitalism that was not yet fully developed and was still playing a progressive role. Within the context of this immature capitalism, these “classical” economists could only take the understanding and analysis of the capitalist system so far. It was only with the further development of capitalism, and the accumulated mass of evidence and experience that went with this development, including the experience of repeated booms and slumps, that Marx was able to uncover the true nature of capitalism, such as the real processes and relations lying behind value and crisis, as Marx himself explains in Capital:

“In theory, we assume that the laws of the capitalist mode of production develop in their pure form. In reality, this is only an approximation; but the approximation is all the more exact, the more the capitalist mode of production is developed and the less it is adulterated by survivals of earlier economic conditions with which it is amalgamated.” (Capital, Volume III, chapter 10; Marx)

In many respects, Ricardo was the high point of bourgeois political economists. Marx described those who followed Ricardo as the “vulgar” economists, due to the crude way in which they twisted and turned in their attempts to explain and resolve the contradictions of capitalism without breaking from capitalism itself. Marx had explained the contradictions within capitalism that led to periodic crises; any attempts to abolish these contradictions without abolishing capitalism itself were doomed to failure.

Rather than taking political economy forward and developing a greater understanding of capitalism, later economic theorists went backwards. In particular, with the historical development of finance capital and the increasing separation between the owners of capital and the actual production process – a process that Marx had already begun to explain in great detail in Capital Volume III –an extremely subjective view of economics emerged. This individualistic and idealistic economic theory, known as marginal theory, threw away almost everything useful from the theories of Smith and Ricardo – since a thorough, materialist analysis based on these ideas inevitably led to the conclusion that capitalism was riddled with contradictions, as Marx had concluded – and instead embraced a one-sided view of capitalism in which everything was determined by the “invisible hand” of the market and the forces of supply and demand. These ideas reflected the growing role of banking and speculation – the rentier economy in which the bourgeoisie no longer directly owned the means of production and managed their own businesses, but were now simply investors looking to maximise the return on their capital in whatever way possible.

Keynes despised this rentier economy, which he saw as being a great destabiliser of the whole economic system:

“With the separation between ownership and management which prevails to-day and with the development of organised investment markets, a new factor of great importance has entered in, which sometimes facilitates investment but sometimes adds greatly to the instability of the system.”

And later:

“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” (“The General Theory of Employment, Interest, and Money”, chapter 12; John Maynard Keynes)

For Keynes, the problem was not capitalism, but simply “laissez-faire” capitalism, in which unregulated markets and investors were left to pursue their own individual profit without any care for the rest of society, saying that:

“For my own part, I believe that there is social and psychological justification for significant inequalities of incomes and wealth, but not for such large disparities as exist today.” (ibid, chapter 24)


“For my part I think that capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable.” (“The End of Laissez-Faire”, chapter 5, Keynes)

Keynes desired a return to the “good old days”, in which the capitalist class were “responsible” industrialists who invested for the good of their communities and society as a whole. In other words, Keynes wanted to turn the wheel of history backwards to an imaginary time of “responsible capitalism”. In this respect, one can see the appeal of Keynes’ ideas to the modern reformist leaders of the labour movement, who have completely accepted capitalism and abandoned any idea of transforming society. (Keynes even suggested a financial transactions tax, a demand that has become a key point in the modern reformists’ programme.) The same phrases are frequently heard today from the mouths of these reformist leaders, who blame “neo-liberal”, “unregulated”, “feral” capitalism for the crisis. But this is the real nature of capitalism as it exists; all attempts to regulate capitalism to being about a “kind” or “responsible” capitalism are utopian, as we have explained previously.

What is Keynesianism?

Keynes’ ideas changed throughout his life in response to the events around him, something he took pride in, famously responding to criticism that his views were inconsistent by saying, “When my information changes, I alter my conclusions. What do you do, sir?” These days, however, Keynesianism typically refers to the ideas of Keynes in the 1930s, and in particular his “General Theory of Employment, Interest, and Money” (often referred to simply as the “General Theory”), which is the basis for much of modern day bourgeois macro-economics.

The ideas presented by Keynes in his General Theory were also very much shaped by historical events; in particular by the Great Depression and the scourge of mass unemployment that was seen across the industrialised world, with permanently high rates of unemployment in the region of 10-25%. Keynes sought to find the answer for this phenomena, and, importantly, to find a solution. Previous bourgeois economists had sought to try and justify capitalism theoretically; such people were mere apologists of capitalism. Keynes, however, painted himself as a “pragmatist”, who was no longer simply trying to justify capitalism theoretically, but was trying to save capitalism practically – to save capitalism from itself.

Keynes saw his role as a member of the “educated bourgeoisie”, and the role of the state in general, to intervene in the running of capitalism and to regulate it – not in the interests of ordinary working people, but in the interests of capitalism itself – to overcome the contradiction between the interests of various individual capitalists and the interests of the capitalist class as a whole. In other words, Keynes wanted capitalism without its contradictions.

Contradictions and Overproduction

This contradiction, which arises due to the private ownership of the means of production – which in turn means production for profit and competition between different private individuals in pursuit of this profit – is at the very heart of capitalism, and is responsible for both the great historical progressiveness of capitalism and its great destructiveness.

As the BBC series “Masters of Money” correctly pointed out, Marx (and Engels) were not blind to the achievements of capitalism, nor did they romanticise feudalism and rural life (in fact, in the Communist Manifesto, Marx and Engels described capitalism as having “rescued a considerable part of the population from the idiocy of rural life”). Under capitalism, the competition between individual capitalists in pursuit of profit leads to a large part of this profit being continually reinvested in new research and development, new science and technology, and new means of production, in order to reduce costs, undercut competitors, and gain a greater market share. In its early days, therefore, capitalism was immensely progressive in its ability to increase productivity, develop the productive capacity of society, and create tremendous amounts of wealth. As Marx and Engels stated in the Communist Manifesto:

“[Capitalism] has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals.”

But this process of private ownership and competition contains the seeds of its own destruction. It is in the interest of the individual capitalist to pay their own workers as little as possible in order to maximise profits. However, these wages – and the wages of the workers employed by other capitalists – also form the demand for the commodities that capitalism produces, i.e. the market. Each individual capitalist would like to pay his/her workers as little as possible in order to maximise profits; but at the same time, he/she would also like his/her fellow capitalists to pay their workers as much as possible so that these workers can buy the commodities that are being produced.

Each capitalist is, however, trying to do the same thing; therefore, as individual capitalists compete against one another, trying to maximise their own profits, they cut the wages of the working class as a whole, thus reducing the market and destroying the basis on which they can sell their commodities and realise their profits. It is this interactive process of competition between many individual capitalists – each making decisions that are completely rational from their own individual perspective – that leads to an overall process that is distinctly irrational for the capitalist class as a whole.

Marx had long ago acknowledged and explained this inherent contradiction within capitalism – the contradiction of overproduction, in which the expansion of production in the pursuit of profit at the same time leads to a reduction in the ability for this profit to be realised. Those who came after Marx and who tried to find a solution to crises within the limits of capitalism were forced to ignore him and his ideas as far as possible, and instead sought to explain crises by looking at only one side of the problem. For Keynes, the main problem was the question of demand – or “effective demand” – as he referred to it; for Hayek, the key issue was the question of supply – in particular of the money supply.

Say’s Law

In order to try and explain the phenomena of the Great Depression and mass unemployment, Keynes had to break with many established assumptions from classical economy. In this respect, Keynes is attributed with having caused a “revolution” in economic theory. In reality, there is nothing new in what Keynes said, and most of his ideas had been expressed far more precisely, clearly, and thoroughly in the works of Marx and Engels; Keynes merely packaged his ideas in a way that was more palatable to the bourgeoisie.

In particular, Keynes attacked what is known as “Say’s Law”, attributed to Jean Baptiste Say (although not originally “discovered” by him), a French classical economist of the late 18th / early 19th century. Say’s Law is commonly referred to in terms of the idea that supply creates its own demand; that every seller brings a buyer to the market. Nowadays this same “law” is the basis for the “efficient market hypothesis” – the theory put forward by the most ardent supporters of the free market – that suggests that, if left to its own devises, in the long run market forces will solve all problems and will always find an “equilibrium” in which supply meets demand. But as Keynes was keen to point out, “in the long run we are all dead.”

Marx disproved Say’s Law long ago. (In fact, the presence of periodic crises is all that is needed to disprove Say’s Law!) In Volume II of Capital, Marx explained the accumulation and reproduction of capital that occurs under capitalism by means of a set of schema, in which the economy is divided into two sectors: department one, in which the means of production – i.e. capital goods or “productive consumption” – are produced; and department two, in which consumer goods, for the consumption of individual workers (or capitalists) are produced.

Marx showed that in an abstract theoretical sense, Say’s Law is actually true – the economy should be able to achieve equilibrium. But Marx demonstrated that this equilibrium could only be achieved on the basis of the capitalist class continually reinvesting profits into new capital goods – i.e. machinery, buildings, and infrastructure. On the one hand, this process is what allowed capitalism to play a historically progressive role for a period of time – to develop the means of production, both qualitatively in terms of new science and technology (and thus increase productivity), and also quantitatively in terms of its ability to produce a greater total mass of wealth.

On the other hand, this process also contains inherent contradictions: the “equilibrium” is an inherently unstable and temporary one, since these new means of production that are created must be put to work to create a greater mass of commodities, which in turn must find a market (i.e. demand) in order to be sold and for profit to be realised. In other words, capitalism achieves equilibrium in the short term, but only at the expense of creating even greater contradictions in the long term, and thus paving the way for an even larger crisis in the future. Keynes himself acknowledged this, saying that:

“Each time we secure today’s equilibrium by increased investment we are aggravating the difficulty of securing equilibrium tomorrow.” (“The General Theory”, chapter 8; Keynes)

However, unlike Marx, Keynes was not a thorough materialist and a dialectician, and thus did not fully draw the conclusions of this statement, as Marx had done many decades earlier – the conclusion that overproduction is an inherent contradiction within capitalism, resulting from the private ownership of the means of production and its drive to produce for profit.

Dialectical Materialism

The accumulation and reproduction schema's outlined by Marx in Volume II of Capital are precisely that: schemas; generalised abstractions of a complex process; long term averages, which cannot be achieved through a process of slow, smooth, linear change, but only through a dynamic and chaotic process – i.e. a dialectical process of contradictions and crises. In other words, these “equilibria” are dynamic equilibria – constantly being established and then broken – resulting from an infinitely complex process, rather than the static equilibria conceived of by the supporters of Say’s Law, who imagine the economy as a simple mechanical system, moving along like clockwork.

Stephanie Flanders, presenter of “Masters of Money”, claims that Keynes, Hayek, and Marx all had one thing in common: “they understood both the genius of capitalism, and its inherent instability.” But whereas Keynes and Hayek thought that you could distil capitalism or regulate it in order to separate the “genius” elements from the general instability, Marxism – using the method of dialectical materialism – shows how the factors that give rise to capitalism’s initial progressiveness – i.e. competition and the reinvestment of profits into new technology and means of production in order to generate even greater profits – are the very same factors that lead to capitalism’s inherent instability.

The key to Marx’s analysis of capitalism is precisely in the way that this method of dialectical materialism is applied to the field of political economy. Capitalism’s anarchic nature – resulting from the individual, private ownership over the means of production and the competition for profit that this entails – means that changes in the economy must occur in a dialectical way, thorough crises, rather than in the smooth, gradual way that the proponents of market forces and “supply and demand” imagine.

The imbalances seen under capitalism – i.e. between production and consumption; between the ever expanding forces of production and the limits of the market for the commodities resulting from these productive forces – are an inherent part of this anarchic system, and are seen at all scales within capitalism, such as the disproportionality between the different departments of the economy and even within a single sector (hence bottlenecks in production). But the only way to rid the system of these imbalances is precisely to eliminate the anarchy of the capitalist system itself – i.e. to have a democratic and socialised plan of production under the conscious will of society, rather than leaving production up to the blind forces of the market – as Marx explains in Capital:

“Since the aim of capital is not to minister to certain wants, but to produce profit, and since it accomplishes this purpose by methods which adapt the mass of production to the scale of production, not vice versa, a rift must continually ensue between the limited dimensions of consumption under capitalism and a production which forever tends to exceed this immanent barrier. Furthermore, capital consists of commodities, and therefore over-production of capital implies over-production of commodities. Hence the peculiar phenomenon of economists who deny over-production of commodities, admitting over-production of capital. To say that there is no general over-production, but rather a disproportion within the various branches of production, is no more than to say that under capitalist production the proportionality of the individual branches of production springs as a continual process from disproportionality, because the cohesion of the aggregate production imposes itself as a blind law upon the agents of production, and not as a law which, being understood and hence controlled by their common mind, brings the productive process under their joint control.” (Capital, Volume III, chapter 15; Marx)

The limitations of the classical economists and of the modern day proponents of the free market – i.e. the monetarists – lie precisely in their undialectical treatment of the economy. For these economic theorists, the economy is a simple, mechanical system. Their explanations are either built on the “Robinson Crusoe” model of the economy, in which there exists a single individual on a desert island who is both the only producer and the only consumer, or are similar to those of a simple barter economy, consisting of the exchange of commodities between individual producers. In either case, by abstracting the economy to this level of the individual or of simple exchange between individual producers, the bourgeois economists remove all mention of the division of society into classes and the resultant struggle that arises from this for the surplus produced in society.

Rather than seeing the mathematical models of the economy as the generalised abstractions and approximations of an infinitely complex reality that they really are, modern bourgeois economists think that the equations are the reality and that the economy must conform to their models. Rather than making the theories fit the facts, the facts are forced to fit the theories. A similar idealistic tendency is often seen within modern physics, whereby the theories are judged by the beauty and simplicity of the equations, rather than by how well they fit the facts and explain the actual real life phenomena that exist.

In contrast to this idealistic approach, Marxist economics – based on a dialectical and materialist outlook – seeks to reach generalised conclusions by looking at the multitude of events and collective historical experience under capitalism (and of the economic systems of previous class societies), in order to draw out the laws and tendencies present within the complex system that is the economy. As Engels points out in his polemic against Duhring:

“...the principles are not the starting-point of the investigation, but its final result; they are not applied to nature and human history, but abstracted from them, it is not nature and the realm of man which conform to these principles, but the principles are only valid in so far as they are in conformity with nature and history. That is the only materialist conception of the matter, and Herr Dühring's contrary conception is idealistic, makes things stand completely on their heads, and fashions the real world out of ideas, out of schemata, schemes or categories existing somewhere before the world, from eternity — just like a Hegel.” (Anti-Duhring, chapter 3; Engels)

There is, however, also the opposite tendency within bourgeois ideology that seeks to deny the existence of any laws within capitalism. For these people, history and the economy are random processes, beyond the realm of scientific investigation. Such a concept is equally as idealistic as the mechanical view of the classical economists, but now arrived at from the opposite direction.

Economics and Science

Stephanie Flanders in the “Masters of Money” series highlights this tendency amongst Keynes and Hayek to see the economy as something inherently unpredictable. Both of these gentlemen sought to turn political economy into a serious science; but yet, according to Flanders, both men saw capitalism as a completely unpredictable system, due to its complex and chaotic nature. Such a view, which is both undialectical and idealistic, is incompatible with a genuine scientific – and Marxist – view, which sees order arising from chaos; predictability arising out of the unpredictable, as we have explained elsewhere.

Economics, of course, is not an exact science in the same sense as mechanics, due to the complexity of the system involved and the impossibility of isolating this system from the rest of the world. One cannot create repeatable laboratory experiments in the world of economics (although that has not stopped economists such as Milton Friedman of the “Chicago school” of monetarism – an extreme advocate of free markets and laissez faire capitalism – from trying to create social experiments for their economic theories, such as in Chile under General Pinochet); nevertheless, by observing the variety of events and process that occur, and by comparing these events against each other in terms of their outcomes, variables, and constants, one can identify the contradictions within the processes and formulate laws that describe – and predict – the basic behaviour of the system at a certain scale.

In this respect, economics is similar to medicine, meteorology, or geology. A doctor cannot always tell you exactly what disease you have or at what point death will occur; nor can weather forecasters or seismologists tell you exactly what the weather will be like next month or when the next earthquake will hit. Nevertheless, doctors, meteorologists, and seismologists can all make predictions –and often very accurate ones – at a certain scale, and the accuracy of these predictions is continually increasing as scientific understanding improves on the basis of experience and investigation.

An analogy can be drawn with that of thermodynamics. The behaviour of an individual, isolated gas molecule can be described using Newtonian mechanics; however, the behaviour of this individual particle becomes unpredictable as soon as we now examine a container of many hundreds or thousands of gas molecules, all interacting with one another. Nevertheless, out of this incredibly complex system, one can still draw simple, generalised laws that describe the behaviour of the volume of gas as a whole, including properties such as the temperature and pressure of the gas. From complexity arises simplicity; out of chaos arises order.

Similarly, whilst one cannot predict the exact outcome of an individual’s life, at the scale of society as a whole, generalised laws can be drawn and predictions can be made, such as the economic laws of capitalist crisis and the historical laws of the development of the means of production, class struggle, and revolution.

Ultimately, however, these generalised laws and economic theories, which are abstracted from this historical experience and investigation, must be applied to the concrete conditions facing us in order to gain a proper understanding of any given situation; these conditions include a whole host of political factors. It should never be forgotten that the economy is not a simple mechanical system that can be represented by abstractions and equations; it is a battle of living, breathing forces, and ultimately it is the balance of class forces that determine the given outcome of any economic situation.

It is to the credit of Keynes and Hayek that they, like Marx, sought to treat economics as a science, looking for the laws that governed the economy by a careful study of the facts. However, unlike Marx, neither Keynes nor Hayek were thorough materialists, nor were they dialecticians. As a result, their theoretical explanations frequently fall into the traps outlined above: either of idealism, only looking at one side of a many-sided, complex problem, and thus failing to provide a material explanation for phenomena; or of mechanical materialism, seeking to explain the economy as a simple clockwork system where cause and effect are linear and act in only one direction.