Greece: Keynes or Marx?

Keynes or Marx coll

Published: 14 March 2015
Author: Michael Roberts

The Greeks are now in a so-called four-month breathing space – an extension of the existing ?bailout? programme that was agreed by the previous Conservative-led government with the Troika (the EU Commission, the ECB and the IMF).
Of course, this breathing space is already narrow and closing as the Greek economy continues to suffocate (see my post

An interview with Costas Lapavitsas
But there is an opportunity to consider the way out for the Greek people when the four months are up. That?s what makes the recent interview in Jacobin with Syriza MP and Marxist economist, Costas Lapavitsas, a leading member of the Left Platform within Syriza, so interesting. (

Costas Lapavitsas
Costas Lapavitsas

Costas pulls no punches and spells it out like he sees it, taking no prisoners from the reformist left as represented by current finance minister Yanis Varoufakis or what he calls the ?ultra-left? of the KKE communists and Antarsya (as well as unnamed impractical Marxists).

Previously based at the SOAS college in London, Lapavitsas is not a member of Syriza (although he was elected on the party list) and is a newcomer to parliamentary politics. However, he has been a socialist activist for most of his life and is known for his incisive and challenging theoretical work on the political economy of money, credit and financialisation (see my post,

Lapavitsas has also worked with the Research on Money and Finance group in London to produce concrete analyses of the origins and trajectory of the European crisis and, most recently, published together with the German neo-Keynesian economist Heiner Flassbeck a kind of manifesto proposing a radical break from the euro.

It?s a long and thorough interview, excellently conducted by Sebastian Budgen, so I?ll just concentrate my comments on what I thought was key to understanding the state of the Greek capitalist economy and the policy objectives and alternatives open to Syriza and the Greek people. This post is still very long!

Lapavitsas criticises the position adopted by the Syriza leadership in its negotiations for an extension of the bailout. For him, what was wrong was not that Varoufakis and Tsipras did not stick to the Syriza aim of cancelling or renegotiating the debt, but that they capitulated to the Troika on this because they were not prepared to exit the euro. ?Syriza will attempt to lift austerity, reduce the debt ? restructure or write off the debt ? and change the balance of social, economic, and political forces in Greece and Europe more generally without breaking out of the monetary union and without coming into all-around conflict with the European Union. That?s clearly what this government signals.?

For Lapavitsas, it is impossible to end austerity and stay in the euro ? and that is what is wrong with Varoufakis? position. ?The government went into negotiations with an approach which, as I?ve already said, was critical to its composition, to creating it, which is that we can go into the negotiating room and we can demand and fight for significant changes, including the lifting of austerity and the writing off of debt, while remaining firmly within the confines of the monetary union.?

Lapavitsas is right to say that whether we consider Varoufakis a Marxist or not is unimportant (at this point in the interview, reference is made to my own analysis of Varoufakis? views ? see my post, As Lapavitsas, puts it, Varoufakis is a heterodox economist who has rightly ?rejected neoclassical economics?, but he has never been ?a man of the Left, revolutionary left? and was at one time an adviser to reformist George Papandreou. Lapavitsas is right on this: labels are not important: the correct analysis and policy prescriptions are what matters. And what is clear is that Varoufakis owes more to Keynes than Marx.

Keynes or Marx?
Now here comes the really interesting bit. Lapavitsas goes on: ?Let me come clean on this. Keynes and Keynesianism, unfortunately, remain the most powerful tools we?ve got, even as Marxists, for dealing with issues of policy in the here and now. The Marxist tradition is very powerful in dealing with the medium-term and longer-term questions and understanding the class dimensions and social dimensions of economics and society in general, of course. There?s no comparison in these realms. But, for dealing with policy in the here and now, unfortunately, Keynes and Keynesianism remain a very important set of ideas, concepts, and tools even for Marxists. That?s the reality. ?. I?ve also associated myself with Keynesians, openly and explicitly so. If you showed me another way of doing things, I?d be delighted. But I can assure you, after many decades of working on Marxist economic theory, that there isn?t at the moment.?

So it seems that Marxist economics is less than useful for the immediate problems of the Greek people. As Sebastian Budgen puts it, Lapavitsas wants to make ?a distinction between Marxism as an analytic tool and Keynesianism as a policy tool?. Costas spells it out: ?Marxism is about overturning capitalism and heading towards socialism. It has always been about that, and it will remain about that. Keynesianism is not about that. It?s about improving capitalism and even rescuing it from itself. That?s exactly right. However, when it comes to issues of policy such as fiscal policy, exchange-rate policy, banking policy, and so on ? issues on which the Marxist left must necessarily position itself if it is to do serious politics rather than denouncing the world from small rooms ? then you will rapidly discover that, like it or not, the concepts that Keynes used, the concepts that Keynesianism has worked with, play an indispensable role in working out strategy, which remains Marxist. That?s the point I?m making. Unfortunately, there is no other way. And the sooner that Marxists realize that, the more relevant and realistic their own positions will become.?

So Keynes is realistic and relevant to policy and Marxist economics is not? Now is this right? Is Marxist economics just an analytical tool or a long-term strategy for socialism but irrelevant or at least less relevant to the immediate tasks of government trying to repair a broken economy than the Keynesian categories of devaluation, public spending and monetary policy?

I find that surprising coming from a Marxist. The Syriza government now has the opportunity to campaign among the Greek people and implement socialist measures to replace Greek ?big capital? with a domestic economy controlled by the common weal. Instead, it seems both the wings of Syriza want to adopt Keynesian solutions (only); except one wing wants to do it within the euro (Tsipras/Varoufakis), while the other says that is impossible and wants to do it outside the euro (Left Platform).

Now I?m not opposed to using Keynesian prescriptions as part of any socialist measures for Greece: e.g. progressive taxation, government spending, labour rights, minimum wage (not sure the latter are even Keynesian). But such measures must be part of a programme to replace capitalism, not try to make it work ? in or out of the euro.

Lapavitsas is clear about his alternative: ?the obvious solution for Greece right now, when I look at it as a political economist, the optimal solution, would be a negotiated exit. Not necessarily a contested exit, but a negotiated exit.? This would involve a 50% write-off the debt owed to the EU and protection of the new Greek currency (devalued by just 20%) with liquidity from the ECB.

Lapavitsas reckons that this policy might even get support from Germans wanting to get rid of Greece from the Eurozone. As he says: ?Schäuble is on record, or at least Greek ministers are on record, stating that Schäuble offered an aided exit to the Greeks already back in 2011. I can see, from the perspective of the German power structure, why they might be tempted by this idea? And the IMF probably would support a debt restructuring. Devaluation would not have to be more than 20% because Greek labour costs have dropped so much already.

Lapavitsas poses the ?success? of the Argentine debt restructuring and devaluation of the peso in 2001 again as the example to follow. ?I hasten to add that in the case of Argentina (though by no means would I suggest that Argentina is a shining beacon for the Left), it is much-maligned and much-misunderstood. What was obtained in that country after default and exit was vastly better than what held before and vastly better than what would have happened had the country continued along the same path, for working people. Let us stress that: for working people. If you look at it in terms of employment and in terms of income, there?s just no comparison.?

Well, I?m not convinced. In a joint paper with G Carchedi we showed that the recovery in real incomes in Argentina after the 2001 crisis was more to do with the debt default and the recovery in profitability of Argentine capital (see pp 108-9, The long roots of the present crisis). And the apparent success of the Argentine case was shortlived at best (see my post, The breathing space created for Argentina by breaking the dollar peg does not seem to have restored the Argentine economy to stable growth. After a few years of a commodity-export led boom, the Argentine economy is back in crisis, despite Keynesian policies adopted by the government. There has been a 6% fall in per capita GDP since 2011.

Even if the Troika were to agree to such a ?negotiated exit?, which is a moot point; and even if the new Greek drachma only depreciated by 20% (extremely unlikely), the Greek economy would still be on its knees, unable to restore living standards for the majority. Devaluation and rising prices would eat into any gains made from cheaper exports. Lapavitsas seems to recognise this: ?Wages must rise, but even if they rise, you?re not going to go back to where you were. It?s just not feasible at the moment. We need a growth strategy for that.? Exactly.

Why stop there?
Whether Grexit was negotiated or not, as Lapavitsas says, the government would have to act to control capital flows (not illegal even within the euro). And the banks would have to be nationalised. ?Re-denomination would create a problem for the banks, and bank nationalization would obviously be immediately necessary. But bank nationalization is clearly a vital step for the Greek economy right now because the private banking system, or the banking system generally, has failed. So we?re not doing anything particularly shocking.?

So why stop there? Why not propose the replacement of ?big capital? with public ownership and workers control and a plan for growth? Apparently, that is something for the future, the medium-term, not now. ?I am very skeptical, though, about this in the context of Greece right now? These are medium-term questions. These are questions that one should knuckle down and begin to confront once the problem of debt, fiscal pressure, and the monetary union have been resolved.? But can the latter be resolved without the former?

Costas spells it out: ?I don?t think that Syriza should come out with a broad and wide nationalization program right now. What is necessary is to nationalize the banks, of course. And to make sure that energy privatizations stop, electricity in particular. That stops. And privatization of other key assets stops. To put a growth and recovery strategy in place immediately outside of the euro, and then to have a medium-term development plan.?

This last sentence is key for me (that?s why I have emboldened it). If I were Costas, I?d be advocating within Syria now for just such a broad and wide programme to replace capitalism. For me, the Marxist analysis of Greek capitalism leads to the policy prescription for its replacement now, in or out of the euro. But for Costas, a Marxist analysis is fine, but the policy prescriptions should be Keynesian ? because the latter is more practical?

And yet Lapavitsas recognises in the interview at one point that the problem for the Greek economy has not been being in the euro as such but the weakness of Greek capitalism, translated into its lack of competitiveness: ?the emphasis on the service sector means that Greece has become uncompetitive internationally because services are well-known for being not particularly competitive?.

As Frances Coppola spelt out in a recent blog post (, ?Greece?s problem has been competitiveness for a very long time. It has run a large and persistent trade deficit for the last half-century.?

She goes on: ?Greece?s debt overhang seriously impedes recovery, But it is not just public sector debt. The real problem is that both the public AND private sectors are over-indebted.? Post-Keynesian economist Steve Keen has recently pointed out, ?While Greece certainly had its own specific problems?especially with its current account?in general, its apparent boom before the crisis and the crisis itself had much the same cause as in the rest of the OECD: a private debt bubble that burst in 2008. Private debt grew rapidly before the crisis?on average by more than 10% of GDP per year.? Since during that time the government deficit did not grow, the private sector deficit was funded by external capital inflows. In other words, the private sector borrowed from foreigners to fund domestic investment spending, resulting in a worsening external balance.

Coppola sums it up: ?the story of the Greek crisis is not really one of fiscal profligacy resulting in a ?sudden stop?. It is one of PRIVATE sector profligacy fuelled by rising external debt, itself resulting from (or caused by) falling competitiveness.?

Greek capitalism failed. It failed to invest, particularly in the productive sectors of the economy. Foreign investment and capital dominated the Greek economy and left Greece in the lurch at the first sign of trouble (see the paper by Stavros Mavroudeas, 2015_001-libre).

Second-rate economics
Can we explain and measure that weakness? Well, the Marxist way is look at the movement and level of Greek corporate profitability. This has been abysmal.

And along with it, comes the low level of investment in productive sectors of the economy. Greek economic growth prior to the Great Recession was increasingly founded on speculation in property and construction, and on relying on foreign investment and euro subsidies.

The ultimate cause of the Greek crisis was falling and low profitability and the proximate cause was the huge increase in fictitious capital to compensate that eventually imploded in the Great Recession.

But apparently, according to Lapavitsas, this Marxist analysis is nonsense. And Costas wants to tell Jacobin readers this is so in no uncertain terms: ?The Marxist left in particular, over the last couple of decades, has unfortunately regressed in terms of its ability to analyze the political economy of modern capitalism. It has imbibed and absorbed a kind of second-rate economics that basically thinks and believes that Marxism and the Marxist analysis of capitalism pretty much can be condensed into the tendency of the rate of profit to fall. For many people in Europe and elsewhere, Marxist political economy pretty much amounts to interpreting everything in terms of the proportion of profits ? or what you measure as profits ? in relation to GDP. That ratio, for some of these people, tells you everything you need to know about the past, present, and the future of capitalism. That?s not Karl Marx, of course, and that?s not what the great Marxists did. There are people who today try to interpret what is happening in Europe according to the tendency of the rate of profit to fall. That?s nonsense. Manifest nonsense. It doesn?t serve any interests or any purposes. It doesn?t help anyone. Greece is not in a crisis because of the tendency of the rate of profit to fall. The tendency of the rate of profit to fall is important, but what is happening in Greece is not a periodic crisis caused by falling profit rates. The tendency of the rate of profit to fall is important, but it is terrible economics and a fetish. You cannot condense everything to the tendency of the rate of profit to fall. That?s just bad Marxism and bad economics.?

For Costas, it is not the weakness of Greek capitalism, as analysed by a Marxist analysis of profitability, that is the problem; it is the financial sector and the monetary union ? it is very simple. ?If we approach the crisis of the eurozone purely as a monetary thing, from the perspective of monetary theory, it would take you five minutes to resolve it. It is perfect obvious, perfectly simple. It?s actually almost trivial. As a monetary theory problem, it?s trivial. And in fact, it didn?t take me longer than a weekend back in 2010, when I first began to deal with the numbers, for it to become obvious. It?s a matter of a monetary union that is badly structured and that has evolved very badly in the course of its own lifetime and therefore is unsustainable. And that, to someone who is trained in monetary theory, and who understands money and finance, would be clearer and easier to see than to others who have worked in other areas of economics and of political economy.?

It?s a shame that we ?second rate? Marxist economists with no training in monetary theory and who don?t understand money and finance (this cannot apply to me, I think, as I have worked in investment banking for 30 years ? but maybe) fail to see that the problem for Greece is not its weak capitalist economy and its lack of profitability and investment. The problem is monetary union and the euro.

A Greek NEP
Costas wants to get Greece?s vast array of small businesses back functioning to provide jobs and incomes. ?Small and medium enterprises will come to life immediately if there was a devaluation?. It?s what he calls a NEP for Greece. He argues that ?econometric studies I?ve seen confirm it ? little doubt that small and medium enterprises will allow a return of Greece to a reasonable productive state within a very short period of time, a couple of years. That would also generate the capital and the savings for the medium term strategy.?

Actually, there is a lot of evidence that Greece?s heavy dependence on small businesses has kept its productivity and investment low. But nobody should be opposed to supporting small businesses and Marxist economics does not imply that the government should nationalise everything that moves. But why draw back from taking over the ?commanding heights? of the economy and the oligarchs that own them?

The Keynesian ?multiplier?, supposedly a measure of the likely boost to growth and incomes from public spending, does not work unless profitability is restored, as Carchedi and I have shown in our paper on the ?Marxist multiplier? ( So should Greeks wait until Keynesian policies have ?generated the capital and savings? for the ?medium-term? socialist strategy. Yet, as Lapavitsas says ?there are vast unused resources in Greece. Capital is not short in that regard. Capital has far more than cash in the bank. We have to think as Marxists here. Capital is a relation. There are vast unused resources across the country!? Yes, so a domestic plan for investment and growth based on the public ownership of big capital and integration of the banking sector and the major industries of shipping, pharma, agriculture etc could utilise these wasted resources of skilled labour and finance.

Lapavitsas says that ?The Left in Europe over the last few years has gone on an incredible trip. It is as if it has lost its critical senses. It has imagined that the process of European integration through the EU and the process of forming the European Monetary Union [EMU] is somehow internationalism in the way in which we on the Left understand internationalism. The Left at long last must begin to table ideas about genuine internationalism in Europe that reject these forms of capitalist integration. Not improve them. Reject them. That?s the real radical outlook for the Left, and that is what it should do.?

I?m not sure which ?Left? Costas is referring too here. But Marxist economics agrees that the EU and EMU do not offer real internationalism for labour. These are organs of capital, especially big capital; and they have exacerbated the uneven development of capitalism in Europe (see my unpublished paper, Euro crisis is a crisis of capitalism). That said, Greek capitalism is no position to turn things round with its own currency. Greek capital will be saddled with huge euro debts following devaluation and it won?t be able to export enough to stop the Greek economy dropping (further) into an abyss and taking its people with it. Grexit also means not just leaving the euro but also the EU and without any reciprocal trade arrangements that Switzerland has, for example.

Costas Lapavitsas and Yanis Varoufakis are economists who have become politicians and are now in the front line of the fight by Syriza to restore the living standards and rights of the Greek people in the face of an onslaught from European capital. It ain?t easy ? it?s certainly easier to criticise from well behind the lines. But if they read this, I hope they take it in the spirit of best intentions.

The issue for Syriza and the Greek labour movement in June is not whether to break with the euro as such, but to break with capitalist policies and implement socialist measures to reverse austerity and launch a pan-European campaign for change.

Michael Roberts publishes a blog entitled ?bogging from a marxist economist? which can be accessed at:

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