Marx and modern microeconomics
Few economists doubt that Marx flunked economics, a judgement mostly predicated on his labour theory of value. But this column argues that Marx’s representation of the energy relationship between capital and labour in the firm can be an essential insight for understanding and improving modern capitalism. Indeed, this insight is incorporated into standard principal-agent types of labour and credit markets.
Economists, looking back, have not found much to admire in Karl Marx, the economist, the bicentennial of whose birth we commemorate the following month. John Maynard Keynes described Capital as “an obsolete economic textbook [that is] not merely scientifically erroneous but without interest or application to today’s world” (Keynes 1925). Paul Samuelson’s judgement – "From the viewpoint of pure economic theory, Karl Marx could be seen as a minor post-Ricardian” – was equally harsh, especially as he thought Ricardo was "the most overrated of economists”(Samuelson 1962).