Should-Read: Paul Samuelson (1962): On Karl Marx

Should-Read: Paul Samuelson (1962): On Karl Marx: “Marx, like any man of keen intellect, liked a good problem; but he did not labor over a labor theory of value in order to give us moderns scope to use matrix theory on the “transformation” problem…

…He wanted to have a theory of exploitation, and a basis for his prediction that capitalism would in some sense impoverish the workers and pave the way for revolution into a new stage of society. As the optimism of the American economist Henry Carey shows, a labor theory of value when combined with technological change is, on all but the most extreme assumptions, going to lead to a great increase in real wages and standards of living. So the element of exploitation had to be worked hard…. Marx might have emphasized the monopoly elements of distribution…. Marx might have kept wages dismal by virtue of biological conditions of labor supply…. [But he] tried to demonstrate the same dramatic minimum character of real wages by means of his concept of the “reserve army of the unemployed”

Here is the real Achilles’ heel of the Marxian theory of distribution and its implied prophecies of immiserization of the working classes. Under perfect competition, technical change will raise real wages unless the changes are so labor-saving as to raise the rate of maintainable profit immensely; Joan Robinson and others have pointed out how contradictory is Marx’s notion that both profit rates and real wages can fall once Marx jettisons Ricardo’s emphasis on the scarcity of land and the law of diminishing returns…