The common cause between Marx and Keynes is succinctly captured in the following words,
“…an aspect of common cause between Keynes and Marx. Specifically, the rhetorical task of persuading political economists to rethink capitalism’s inherent stability requires a refutation of classical theory’s thin concepts of money and the monetized nature of capitalist production. The antithesis is provided, of course, by the opposed political agendas: Keynes sought to theorize capitalism’s instability in order to find effective policy controls, while Marx aimed at showing that this instability is fundamentally beyond control.” (Rousseas, 1986)
When we scrutinize the objections raised by Marx and Keynes to the classical theory, we find many similarities in the way both of them treat “money, the motivation of production, and the conditions of crisis potential” (Mcdermott, 1993). It is also true that the taxonomic framework and its theoretical undercurrents to Marxist theory were eschewed in Keynes’ theories as well. In this sense Keynes’ contribution to modern economics is essentially an extension of Marx’s critique of capitalism.
In the neo-liberal capitalist international economy of the twenty first century, Keynes’ concern regarding the crisis potential of capitalist systems is highly relevant. Keynes believed that a monetary theory of production, one in which capital has “operational importance regarding motives to produce, is necessary in order to theorize the possibility of crisis”. Keynes was also right in pointing out how the classical economists’ theorization was devoid of the basic characteristics of a monetary production economy, “in which production is motivated by the desire for money-profit and not for use-values”. Keynes was also correct when he pointed out the central role of production, namely, “its organization, the motivation for embarking upon it, the conditions which must prevail if its object is to be realized, and the determination of the aggregate level of production” (Sardoni & Kriesler, 1999).
Such is the impact of Keynesian economics in the industrialized world that its ideas have helped shape the nature of the American economy. For instance, the success of the tax-cut program under Lyndon Johnson was seen by experts as a vindication of Keynesian thought. Of course, this has to be viewed alongside the recession and period of economic uncertainty that followed. Dissenting voices were heard in the 1970s when the Keynesian system apparently could not provide a solution to growing rate of inflation. But Nobel Laureate Lawrence Klein offers a different rationale for the inflation thus,
“In the 1970s, Keynesian stimulus was made the scapegoat for the rising prices. But we should remember that balancing fiscal and monetary policies is a problem. If you do just one thing, it is not necessarily enough–neither monetary policy alone nor fiscal policy alone, and neither tax cuts nor expenditure increases alone. You need to mix policy. By having the right balance, you can get high employment and stable prices” (Kellner, 1997).
Keynes’ emphasis on the importance of monetary policy was treated with scepticism as economists focused on fiscal policy. But as the events of the 1970s unfolded, it increasingly became clear that monetary aggregates such as M1 and M2 which were given un-due focus before, are not the key indicators.
Ever since its first publication in 1936, the General Theory has had an influence in the agenda and direction that modern macroeconomics would take. Its impact is so significant that many new economic terms were spawned by the interaction between Keynesian system and older systems based on business cycles and the quantity theory of money. Keynes’ rise to prominence was a significant achievement, for his theory had to find acceptance among his peers, who included Irving Fisher, R.G.Hawtrey, Robertson and Hayek. Before Keynes published Treatise on Money in 1930, Irving Fisher was the most prominent economist. Alongside A Tract on Monetary Reform, Keynes had written an impressive set of books that would challenge conventional assumptions of classical economic thought and would change forever the way in which fiscal and monetary policies are constructed (Kellner, 1997).