Welcome to Econ… A Q&A with Richard Wolff


This article originally appeared at Counterpunch.org

Recently, through an e-mail exchange I was able to ask Richard Wolff a few questions about economics and alternatives to capitalism. Dr. Wolff is a Professor of Economics Emeritus at the University of Massachusetts, Amherst and is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. His published work has included multiple scholarly articles and books, such as Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It and Democracy at Work: A Cure for Capitalism. His weekly radio program “Economic Update” is broadcast from WBAI 99.5 FM in New York City and is syndicated around the US, like in Houston at 90.1 KPFT on Friday mornings at 6 AM (when I am listening to it on the way to work).

My focus for the Q&A was on different schools of thought in economics, attempting to draw out an academic answer for a general audience. If you have been reading my articles, you may have noticed my focus on education and the need for people to understand their reality before they can affect it. This interview is a part of that larger project. Dr. Wolff has done an incredible job of distilling down very large theoretical constructs to digestible general ideas which can be used as a base to start learning. Dr. Wolff pointed out in our e-mail correspondence that the answers he has provided are brief and to the point. If you want a more systematic exposition of the ideas presented here, Dr. Wolff has recommended picking up a copy of Contending Economic Theories: Neoclassical, Keynesian, and Marxian by Richard Wolff and Stephen Resnick.

Andrew Smolski: What are the questions neoclassical economics wants to answer about how resources are distributed in society? Are all of these questions based on incorrect assumptions? Is some of the information derived from neoclassical economics useful? Do neoclassical economists still adhere to the idea of homo economicus in your opinion?

Richard Wolff: Neoclassical economics is focused on prices. They are what is key for that school because from prices they derive explanations for income distribution and most other economic questions of interest to them.

Neoclassical economics is also very narrowly determinist; that is, it seeks to explain prices and all else in/about the economy as the effects of three key determinants (or “givens”). Those three are individual preferences, technology, and the initial “endowments” or owned resources of all individuals. A great deal of neoclassical economics is devoted to showing and exploring how these three determinants literally cause prices to be what they are and thus explain income distribution, economic growth, and all that neoclassical economists find interesting in and about economies. The vast majority of neoclassical economists believe that determinism is “science” rather than one among alternative logics or scientific methods.

Neoclassical assumptions are neither correct nor incorrect; their assumptions reflect how they think economics ought to proceed and what issues it should theorize about. Alternative economic theories (e.g. Keynesian economics, Marxian economics, etc.) start with different assumptions that are likewise neither correct nor incorrect, but rather reflect the different conditions, contexts, political goals, etc. that distinguish them from neoclassical economists. Because the issue of theoretical assumptions is an old one with a huge literature (in the field of epistemology, a sub-discipline of philosophy) and because modern economics training, especially in the US, usually excludes study of that literature, most neoclassical economists never worry much nor interrogate their theoretical procedures, believing them to be “normal” or “universal,” neither of which they are.

Yes, some of the propositions derived from/in neoclassical economics are useful, although that is true for nearly all economic theories one way or another. Yes, the “homo economicus” idea remains important because it is a thoroughly determinist notion compatible with the determinist cast of neoclassical thought: reducing what happens in the economy to results determined by the “nature” of “homo economicus.”

AS: Could you explain the general properties of Marx’s political economy? What is the labor theory of value? Why does class conflict have a central role in Marx’s political economy? Is historical materialism deterministic?

RW: Marx’s political economy begins as a critique of capitalism (whereas classical political economy a la Smith, Ricardo, and Malthus was largely a celebration of capitalism as was neoclassical economics later). As an enthusiast for the French Revolution, Marx was deeply distressed that half a century later, in the 1840s, it was clear that capitalism’s overthrow of feudalism had not, as was promised, ushered in a society based on “liberté, égalité et fraternité.” He undertook to understand why capitalism had failed to bring those promised social changes. His studies persuaded him that capitalism was an obstacle rather than a means to achieve the goals of the French Revolution. The reason, he found, was that capitalism simply altered the exploitation of labor that characterized feudalism; it did not end exploitation. Where feudal serfs produced a surplus appropriated by feudal lords, Marx showed how in capitalism workers produced a surplus appropriated by their employers. The end of serfdom and the rise of “free” laborers and a “free” labor market had merely changed the kind of exploitation. Marx’s labor theory of value enabled him to show clearly and systematically how capitalist exploitation worked. Marx took the labor theory of value from Smith and Ricardo who had articulated that approach, changed it, and made it serve his purpose of showing how and why workers always produced more value than they received in return from their employers. That more – or the surplus – was appropriated by the employers and distributed by them to reproduce the capitalist system.

Marx’s labor theory of value does not affirm that labor is the only cause of commodity prices; it is rather a way of showing how labor and commodity price are connected so that one can deconstruct (look behind) commodity prices to show the processes of producing, appropriating and distributing surpluses involved in the production of those commodities.

Marx focused on class conflict as a feature endemic to capitalism and profoundly influential in and on its development. Marx did this not because class and class conflict are more important than other influential factors, but rather because the celebrants of capitalism ignored class and class conflict or argued that they did not exist. Historical materialism, like most concepts in the broad, rich and diverse Marxian tradition, has been differentially interpreted and hence debated inside and outside that tradition. There are deterministic interpretations and also non-deterministic interpretations. The most developed of the latter substitute the concept/term “overdetermination” to underscore their refusal of determinist reasoning. The French Marxist theorist Louis Althusser inaugurated the systematic use of “overdetermination” to support and build a non-determinist set of Marxian theories.

AS: What do you make of critiques of the labor theory of value, such as the idea that things/acts other than labor create value as well? Does this make fallible Marx’s political economy? Only part? Or is it an invalid argument?

RW: The Austrian economist E. von Bohm-Bawerk was one of many economists toward the end of the Nineteenth century devoted to rejecting, refuting, and dismissing Marx’s economics because it had grown and spread so dramatically across the second half of the nineteenth century, especially in German-speaking Europe. His approach was to argue that basic flaws attended Marx’s labor theory of value that Bohm-Bawerk assumed and asserted was a theory of price (since for mainstream economists then and now, value and price were treated as synonyms). But for Marx, value and price were not synonyms. Where prices were, for Marx, overdetermined by countless factors, value was one particular dimension of commodities, namely the dimension linking them to labor used to produce them. Marx did not reduce prices to values (a gross determinist argument), but rather theorized them as complexly related but different aspects of capitalist commodities. This kind of understanding has developed in the last 30 years of debates and discussions among Marxist economists across the world. They no longer bother to refute dismissals of Marx’s theory that accuse it of asserting that one cause (labor) explains prices, an assertion that renders Marx childishly simplistic. Such straw-man assertions satisfy many enemies of Marxian theory, but are not taken seriously by those genuinely engaged in working with Marxian theory.

Marxian theory, like all theories, has its particular blind spots and errors as it questions and transforms itself, often in response to criticism. Lack of familiarity today with its strengths, weaknesses and recent decades of renewed debate and development reflects chiefly the half-century of general exclusion, especially in the US, of Marxist economists. With few exceptions, they have been denied university positions and other platforms from which to present, argue and defend their theory’s understandings alongside those of other theorists and theories. The absence of a Marxian theoretical component in the teaching of economics and in economic discourse and practice generally reflects a costly legacy of the Cold War still very much alive and in place despite that War’s end.

AS: What questions does Keynesian economics answer about the economy and employment? Demand? Does Keynesian economics resolve the problems of capitalism? Why? Why not? How Keynesianism differ from neoclassical economics? How is it similar?

RW: Neoclassical economics believes and propounds that capitalism is a maximally efficient, self-healing mechanism that works best when left maximally free of “external” (read “governmental”) interference. Keynesian economics counters that without the right sort of government interference, capitalism will produce efficiency-destroying instability, repetitive business cycles, and will risk disaffecting the population (because of unemployment, wasted resources, etc.) to the point of ending capitalism itself. Keynes and his followers have developed and refined a set of monetary and fiscal policies for the government to deploy to enable capitalism to achieve its positive (for them) potential while avoiding its debilitating business cycles.

In point of fact, the final prevention of business cycles has not been achieved; monetary and fiscal policies failed to prevent capitalist instability. The crisis since 2007 is clear proof of that. Nonetheless, over the last 50 years, the major debate in mainstream economics has been between neoclassical devotees of laissez-faire and Keynesian devotees of government economic interventions. From the Great Depression through the 1960s, Keynesian economics prevailed and neoclassicals were marginalized. Since then the reverse situation has obtained. The crisis since 2007 shifted some influence back to the Keynesians, but the old debates continue. While both sides disagree on much, they do both endorse capitalism as “the best” economic system and they do both cooperate to exclude Marxian economists from their debates, discussions, journals, and campuses.

AS: Does Austrian economics have useful insights into the economy? If so, what are they? Can we divorce Austrian economics from its political economy prescriptions for society? Why? Why not?

RW: Austrian economics is a variant of neoclassical economics with some significant differences. It has its unique assumptions, context and political goals that generate its interpretations. An honest and open economics discipline would welcome Austrian economics alongside Marxian, institutional, neo-Ricardian and other excluded, marginalized paradigms as parts of the economics discipline and conversation. However, the dominant neoclassical school excludes them more totally than it manages to exclude the Keynesian school. This weakens the discipline, undermines economic education, and debilitates policy formation. It does, however, work to make economics basically an apology for laissez-faire capitalism and to provide comfortable jobs for neoclassical economists in and out of the academy.

AS: Could you define what a market is? If there are multiple definitions dependent on the analytical framework an economist uses, could you explain similarities and differences between definitions (conceptualizations) of what a market is?

RW: There is not much dispute about what markets are; disputes rather center on their economic consequences. A market is a mechanism of distribution of resources and products. It involves distribution by means of quid-pro-quo exchange: so many of one commodity will be provided in exchange for so many of another. When money enters into market exchanges, they involve a commodity on one side of the exchange and money on the other. Neoclassical economics is obsessed with trying to prove – often by means of mathematical modeling – that markets can be ideal. They have striven to show that if left free of external intrusions, markets will reach equilibrium points that are maximally efficient and maximally satisfactory to all participants. Neoclassical economics has had to concoct bizarre (e.g. Pareto-type) definitions of efficiency and “satisfactory” and insist on peculiar mathematical constraints in its models to reach that result. This has led some neoclassical economists to question the whole argument, to insist that markets can and do lead to other, less ideal results, and so the debate within neoclassical economics continues. Yet it does so within a generally shared presumption that markets are the best possible distribution mechanism – especially against notions of planning that are viewed as anathema (here again the intrusive legacy of the Cold War is obvious). In contrast to neoclassical economics, neither Keynesian nor Marxian economics obsess about markets nor make the grandiose claims for them that characterize neoclassical economists.

AS: What policies do you think would be central for supporting worker-owned businesses/cooperatives? Subsidies? Taxation? Regulation? Organizational regulations? On this question could you offer specifics?

RW: Few contemporary societies actually offer their citizens freedom of choice as between capitalist, hierarchical enterprises and workers self-directed enterprises – WSDEs. Their citizens are thus not free to work within one or the other, nor free to buy products from one or the other. For such freedoms to be achieved, policies would be needed to support a broad spectrum of WSDEs. These policies would include subsidies, tax law accommodations, regulations, etc. This set of policy supports for WSDEs parallels those that have always accompanied and sustained capitalistically organized enterprises when they became the socially prevalent form of productive enterprise.

For example, in the US we have had a Small Business Administration for many decades, a response to the demand that government subsidies, supports, etc. level the playing field as between small and big business. We ought, for quite parallel reasons, have a Cooperative Business Administration to create a level playing field (freedom of choice) as between capitalist enterprises and WSDEs.

Here is a specific example of a policy. In 1985, the Italian parliament passed the Marcora Law. Still on Italy’s lawbooks today, this law provides unemployed Italians with an alternative to receiving the weekly dole much like their US counterparts. That alternative is to obtain a lump sum of all their weekly unemployment payments if (a) a minimum number of other unemployed join them in making the same request, and (b) all their lump sums are pooled to serve as start-up capital for a cooperative business in which they all participate as equals. This creative approach to unemployment is part of the reason why cooperative enterprises are so much more a part of Italy’s economy than that of the US. Capitalist business groups in Italy have tried but so far failed to repeal the Marcora Law.

AS: How do you think the system would need to be constructed in order for cooperatives to compete with large capitalist enterprises? Is this possible in our current system? If not, what system would be necessary?

RW: With some general accommodations of the sort mentioned above, the existing system could allow for the growth and success of a WSDE component. The basis for that view lies in the history of Spain’s Mondragon Cooperative Corporation. From its origin with a 6-person coop in the Basque region in 1956, it has grown and successfully competed with countless capitalist enterprises. Today it employs nearly 100,000 persons in a family of over 200 cooperative enterprises, ranks in the top ten largest corporations in Spain, and has signed contracts with General Motors and Microsoft allowing scientists from those companies to work alongside Mondragon scientists in Mondragon’s advanced technology laboratories, etc. Workers in cooperative enterprises can be and often are more productive and more committed than employees in capitalist enterprises; since WSDEs usually have no shareholders, the prices they charge need not include a component to provide dividends to shareholders. In these and other ways, WSDEs have competitive advantages over capitalist enterprises.

Basically the problem is less providing supports for WSDEs (helpful and appropriate as that is) and more removing the exclusive supports capitalist enterprises have established for themselves.

I would like to thank Dr. Wolff for preparing these answers. Remember always, “Knowledge is Power”!

Be the first to comment

Please check your e-mail for a link to activate your account.

Become a Monthly



Sign Up!

Upcoming Events

Facebook Live Q&A with Prof. Wolff

When: Jan 25, 2017 07:00—08:00PM

Where: Democracy at Work Facebook page

d@w-Charlotte Meet & Greet

When: Jan 28, 2017 01:00—03:00PM

Where: Amélie's French Bakery & Café

What: Presented by Shawn McDowell

View All Events

Facebook Friends:

Which of your Facebook friends have joined


Connect to Find Out: