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T.N. Vance

An Amalgam of Marx and Keynes

John Strachey’s View of Contemporary Capitalism

(August 1957)

T.N.Vance, An Amalgam of Marx and Keynes, New International, Summer 1957, pp.170-179. (book review)
Transcribed by Ted Crawford.
Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

If capitalism (i.e. advanced capitalism such as Britain and America) can through the exercise of non-economic democratic political pressures be reformed or so controlled in its operations that progressively the average standard of living is raised, the capacity of the productive forces increased, and some type of peace maintained, then what is the need for any type of socialist movement? This question insistently intrudes itself after a reading of John Strachey’s Contemporary Capitalism [1], despite the fact that at the end of his Acknowledgments, the author states: “Contemporary Capitalism is the first volume of a projected series of studies on the principles of democratic socialism.”

In fact, so many projected studies are indicated in the course of this one volume, that one must wish Strachey an exceptionally long life in order that he may set forth in writing his magnum opus. For, despite numerous disagreements that this writer has with many ideas expressed by Strachey, he is discussing questions of fundamental importance in a serious manner. Moreover, Strachey is aware that capitalism through a process of mutation, as he calls it, has changed fundamentally. In addition, while rejecting many of Marx’s principles, others are accepted. There are far too few analyses of contemporary society from the standpoint of democratic socialism to ignore Strachey because his economics are based on a curious amalgam of Marx and Keynes or because his politics appear to be acceptable to Bevan.

Contemporary capitalism, according to Strachey, has succeeded in raising the average standard of living’ because of trade union and leftist (democratic) pressures. Now, however, with the stage of oligopoly having been reached, there is a conflict between capitalism and democracy. “Capitalism in its latest stage, when it is progressively outgrowing the forms of ownership which were once appropriate to it, threatens to turn upon what was once its own political counterpart, namely, democracy.” (p.344) It is the fact that capitalism through ever-increasing centralization constantly undermines the foundations of democracy that necessitates the struggle for socialism, according to Strachey It is his belief that only democratic socialists are the true fighters for democracy. The struggle for socialism is in reality the struggle for democracy. And, despite Strachey’s failure to distinguish clearly between democracy and democratic rights and between bourgeois and socialist democracy, it must be admitted that there is much truth in this dichotomy

If all classes in modern society before capitalist and Stalinist, were prepare to accept indefinitely the absence of democratic rights, then it is theoretically conceivable that a precarious international equilibrium could be maintained indefinitely. The apposition between capitalism and democracy is, in reality, the basic constructive theme of Strachey’s work. Among many quotable sentences of author’s thesis is the following

“Thus the continuance of effective democracy depends upon the protection of big capital’s control of the media of expression becoming absolute. And upon the continuance of effective democracy in two or three key societies of the world everything else will be found to depend.”

It is interesting to note Paul Homan’s evaluation of Strachey in a article in the June, 1957 issue of The American Economic Review, Socialist Thought in Great Britain:

Strachey has now taken time out for reflective thought; his book is a restatement of his philosophical position and a misinterpretation of the process of social change. The title is somewhat misleading, because the book contains very little on the institutional characteristics of contemporary – economic organization – in fact, hardly more than a stereotype of oligopoly. What he does, essentially, is to set up two abstract creatures, capitalism and democracy, put them in the prize ring and let them fight it out, while he cheers in the corner of democracy. Capitalism is a sort of brutal monstrosity – the apotheosis of every inhumane, anti-social pursuit of private self-interest. Democracy is the champion of all generous-hearted efforts to attain general well-being and communal interest. The complete victory of democracy, would usher in socialism.

The professor’s sarcasm is not well taken for Strachey does have an analysis of the laws of motion of contemporary capitalism. Even if one disagrees with Strachey, which this reviewer does in certain fundamental respects that will be set forth below, the fact of the matter is that Strachey in thinking about important problems, which is more than most professors of economics permit themselves to do these days.

Strachey is also to be commended for realizing the importance of theory. He knows that capitalism has altered in certain of its basic characteristics in certain aspects of its functioning. He is not content with superficial description of these structural alterations, important though they may be. He wants to know “why.” He wants to be able to predict. In short, he seeks a theory of the latest stage of capitalism that will serve as a guide to action. Again, the fact that Strachey has exchanged his prewar Stalinist theories for his current amalgamation of Marx and Keynes, is hardly justification for rejecting him out of hand. In fact, how immeasurably superior is Strachey’s crude analysis of contemporary capitalism to the apologetics of bourgeois professors!

Strachey’s beginning is most encouraging, for he realizes that the wholesale modifications of the market that have occurred in recent years have led capitalism into a new stage. As he says,

“The first and decisive reason why an economy of large and few units exhibits new characteristics is because at a certain point in the increase of their size and decrease of their number, the managers of the remaining units begin to be able to affect prices instead of being exclusively affected by them. It is impossible to exaggerate the importance of this transformation.” (p.22, italics mine – T.N.V.)

While he uses different terms, Strachey is aware of the development of state monopoly capitalism and the era of administered prices that it has ushered in, and to a certain extent of its consequences. For example (p.31):

“Accordingly, the State has come, in the advanced industrial nations, to feel that it must, and can, control such basic things as the pattern of the distribution of income between social classes and individual citizens, instead of leaving that pattern to the consequences of the play of the market.”

To examine each and every argument presented by Strachey, both those with which we concur as well as those with which we disagree, as well as to indicate significant areas of omission, would require a book rather than a review article. Suffice it to say that we believe Strachey to be fundamentally correct in his emphasis on the importance of prices now being administered in large measure, rather than determined competitively in the market. The “essence of the mutation,” as the author describes it, is (p.39):

“the ability of the producers in some, but not in all, of the spheres of production to affect prices, instead of merely being affected by them ... Thus the ability to influence prices will inevitably sap the automatic, self-regulating character of the economy. It will consequently provoke and require more and more State intervention, and will lead to an intensified struggle for the now all-important levers of economic power which will be in the hands of the State ... Thus the characteristics of the latest stage of capitalism both make possible a much higher degree of social control and at the same time make such control imperative.”

his is insight and understanding of a high order.

Strachey devotes an important section of his book to value theory in economics. While he accepts Marx’s analysis of the centralization of capital, accepting as he does the term “oligopoly” from modern bourgeois economists, he rejects the labor theory of value as faulty and the theory of ever-increasing misery as Marx’s cardinal error. Strachey notes that from Ricardo on increasing disparities occurred between the price and value of many commodities. He feels that the labor theory of value has neglected to take into account the role of capital in the determination of prices. He states (p.67):

In other words, in real life not only man-hours of socially necessary labor but also a reward of some sort for capital entered into the determination of the points round which prices fluctuated.” (Italic in original)

Why Strachey is under the mistaken notion that Marx ignored the role of constant capital in the determination of the price of production and henceforth of market price is a complete mystery, since he merely makes the assertion, whereas Marx devoted large part of Volume III of Capital to an explanation of these interrelationships in connection with capitalist production as a whole. The skeptics are referred merely to Chapter of Volume III, although Kautsky will serve as a good introduction. Consider just the following two paragraphs from the first chapter on Cost, Price and and Profit (Capital, Kerr edition, Volume III, pp.38-39)

However, the cost of this commodity to the capitalist, and the actual cost of this commodity, are two vastly different amounts. That portion of the value of the commodity which consists of surplus value does not cost the capitalist anything for the reason that it costs the laborer unpaid labor. But on the basis of capitalist production, the laborer plays the role of an ingredient of productive capital as soon as he has been incorporated in the process of production. Under these circumstances the capitalist poses as the actual producer of the commodity. For this reason the cost price of a commodity to the capitalist producer necessarily appears to him as the added cost of the commodity. If we designate the cost-price by k, we can transcribe the formula C=c+v+s into the formula C=k+s, that is to say, the value of the commodity is equal to the cost plus the surplus-value.

In this way the classification of the various values making good the values the capital consumed in the production of the commodity under the term one price expresses, on the one hand, the specific character of capitalist production. The capitalist cost of the commodity is measured by the expenditure of capital, while the actual cost of the commodity is measured by the expenditure of labor. The capitalist cost-price of the commodity, then, is a quantity different from its Value, or its actual cost-price. It is smaller than the value of the commodity. For since C=k+s, it is evident that k=C-s. On the other hand, the cost-price of a commodity is by no means a mere heading in capitalist bookkeeping. The actual existence of this portion of value continually exerts its practical influence in the actual production of the commodity, because it must be ever re-converted from its commodity-form, by way of the process of circulation, into the form of productive capital, so the cost-price of the commodity must always buy anew the elements of production consumed in its creation. (Italics in last sentence only mine. – T.N.V.)

How could the originator of the theory of the increasing organic composition of capital ignore the role of capital in the determination of price? Strachey ought to acquire his economics first-hand rather than through the courtesy of Joan Robinson. Implicitly, Strachey has fallen into the common bourgeois fallacy of “productivity of capital” as distinct from “productivity of labor.” And, if he thinks he can explain the origin of profit without recourse to the labor theory value, the bourgeoisie have been trying unsuccessfully for a hundred years to develop a theory that would both explain the origin of and justify profit, and at the same time correspond to reality. It might be added that the absence of a theory of profit creates numerous difficulties for Strachey, of which he seems to be totally unaware. He does understand that the accumulation of capital is the mainspring of capitalism (cf. Chapter 10), but why capital is accumulated or the laws governing its accumulation he doesn’t know because Mrs. Joan Robinson, his mentor, does not know.

It is sufficient to quote the following from p.247):

“What in the world, then, determines the level of investment? Mrs. Joan Robinson, in a striking passage (from her The Accumulation of Capital), declares simply that we do not know! She writes: ‘... as to what governs the level at which it’ (investment) ‘gets itself established we know very little ...’”

Mrs. Robinson is here feeling the need of some kind of summa, transcending, although including, economics and laying the basis of an inclusive science of human society, a summa at which Marxism is at present the sole attempt. She is confronted with the fact that her analysis has led her to conclude that the true prime mover of a capitalist economy – the decision to invest – is determined by causes which are largely outside the scope of economic analysis.

The absence of a theory, even a much-abused Marxist theory, leads to all kinds of difficulties. Above all, if the government, through fear of the electorate or whatever motivation one wants, decides that slumps must be avoided at all costs, and that consequently the decisions to invest (i.e. the determination of the rate and mass of capital accumulation) cannot be left in the hands of profit-seeking private capitalists, and if further this can be achieved under bourgeois democracy or under a “labor” government, then why is there a need for socialism?

Intuitively, Strachey feels that he must reject the labor theory of value, not because he (Strachey) does not understand it, but because he wishes to attribute to Marx an “iron law” or subsistence theory of wages as an out-growth of the labor theory of value, and hence a failure to allow for increasing productivity of labor and consequently to deny the possibility and the actuality of increasing the national product and the average standard of living. The original sin of the labor theory of value thus becomes the source of the disastrous theory of ever-increasing misery.

Strachey puts it this way (p.70): “Reckoning in terms of man-hours of socially necessary labor, the total national product is a given figure: all that can really be considered is its division between the social classes.” (Italics in original). Why this should be so when the amount of socially necessary labor required to produce the means of sustenance of labor or for labor to reproduce itself, i.e. the value of labor-power, is clearly dependent on the general historical and specific geographic environment, is not explained by Strachey. He merely asserts it. It is as if he never bothered to read Marx, for just reading the first few hundred pages of Volume I of Capital would have destroyed his entire fallacious attack on Marx’s development of the labor theory of value and surplus value.

Let Marx speak for himself (Volume I, pp.189-190):

The value of labor-power is determined, as in the case of every other commodity, by the labor-time necessary for the production, and consequently also the reproduction, of this special article. So far as it has value, it represents no more than a definite quantity of the average labor of society incorporated in it. Labor-power exists only as a capacity, or power of the living individual. Its production consequently presupposes his existence. Given the individual, the production of labor-power consists in his reproduction of himself or his maintenance. For his maintenance he requires a given quantity of the means of subsistence ... the value of labor-power is the value of the means of subsistence necessary for the maintenance of the laborer ... His means of subsistence must therefore be sufficient to maintain him in his normal state as a laboring individual. His natural wants, such as food, clothing, fuel, and housing, vary according to the climatic and other physical conditions of his country. On the other hand, the number and extent of his so-called necessary wants, as also the modes of satisfying them, are themselves the product of historical development, and depend therefore to a great extent on the degree of civilization of a country, more particularly on the conditions under which, and consequently the habits and degree of comfort which, the class of free laborers has been formed. In contradistinction therefore to the case of other commodities, there enters into the determination of the value of labor-power a historical and moral element. (Italics mine – T.N.V.)

In other words, since, by way of illustration, England is more civilized than, let us say, South Africa, and Strachey is accustomed to a greater degree of comfort than the South African miner, presumably the value Strachey’s means of subsistence (or of the British miner) exceeds that of the South African. And the value of the means of subsistence required for Mr. John Strachey today, or the British miner today, clearly is far greater than the value of the means of subsistence required for, say, Mr. Lytton Strachey some decades ago or that of a British miner a generation or more ago.

Marx was certainly guilty of many mistakes. He certainly didn’t foresee that capitalism would survive decades beyond the point where it clearly outlived its social usefulness. He also could not have been expected to have foreseen the Bolshevik revolution and the Stalinist counter-revolution. But surely before his basic thoughts are twisted and distorted, he has the right to assume that his critics (friendly they may be in the case of Strachey) will at least have made an effort to read and understand his works!

Strachey, however, is not concerned with what Marx wrote. He has a point to make:

“Therefore a subsistence theory of wages has always been, explicitly for Ricardo, explicitly for Marx, an essential part of labor theory of value. But wages have not remained at subsistence. Therefore one vitally important commodity namely, labor power, has not even tended to sell at its value. This formidable fact has driven a great hole, not only in the labor theory of but also in the associated Ricardian-Marxian diagram of what the distribution of the national product will be among the classes. It is the fact of rising real wages which has above all done the damage to the whole schema.” (Italics mine – T.N.V.)

It would be pretty difficult to crowd more errors into one short paragraph than Strachey does in the above. To be sure, the very next two sentences read (p.71): “Nevertheless we shall find that it has by no means destroyed its importance as an elucidation of would happen unless tireless and drastic steps were taken to prevent. That, I repeat, is one of the reasons why it is still indispensable to master the labor theory of value.” (sic) It is a pity that Strachey has not followed his own advice, for one thing he cannot be accused of is having mastered the labor theory of value.

In passing, it should be obvious Strachey’s attributing to Marx on an “iron law” of wages requires him also to ignore the fact that Marx developed the theory of the class struggle. To summarize Marx’s central message, as does Strachey (p.102): “This is the statement that wages will in all capitalist societies tend towards what is for that time and phase a subsistence level” – which implies the influence of historical forces upon the determination of wages – and to deny the influence of the class struggle upon the level of wages, is to perpetrate an absurdity. To be sure, the forces of the class struggle cannot drive wages up to the point where for any length of time the profits of the capitalist class disappear without at the same time destroying capitalism.

To assert that Marx ignored the possibility that the productivity of labor could alter or increase is enough to make Marx turn over in his grave. Marx even devotes an entire chapter of Volume I of Capital to Changes of Magnitude in the Price of Labor-Power and in Surplus-Value (Chapter XVII), wherein he considers as the three decisive forces in determining these changes:

“(1) the length of the working day, or the extensive magnitude of labor; (2) the normal intensity of labor, its intensive magnitude, whereby a given quantity of labor is expended in a given time; (3) the productiveness of labor, whereby the same quantum of labor yields, in a given time, a greater or less quantum of product, dependent on the degree of development in the conditions of production.” (p.569).

While Strachey pays homage to Marx for being the first to throw light on the business cycle, with his theory of crisis, Marx’s basic achievement was to analyze the conditions that led to, and to predict, the centralization of capital. His basic error was to assert the labor theory of value as a law rather than as a tendency. And the thing which destroys Marxism as a valid social theory is that from this labor theory of value, instead of merely asserting a tendency toward a polarization of classes, Marx predicted “ever-increasing misery” for the mass of the population. And it was this “ever-increasing misery” that would lead the masses to the revolutionary overthrow of capitalism.

Since, according to Strachey, in the advanced capitalist nations, the average standard of living has increased, there is no ever-increasing misery and, consequently, Marxism is outmoded as a scientific basis for socialism. There is, says Strachey, to be perfectly fair to Marx, atendency under capitalism for the entire increase in production to accrue to the benefit of the capitalist class,

“But this tendency has been overruled, in the advanced capitalist societies, but not elsewhere, by essentially non-economic forces, the existence of which Marx overlooked.” (Strachey’s emphasis, p.129.)

What Marx meant by the increasing pauperization of labor (a thought which cannot be found in Capital, but only in The Communist Manifesto and certain propagandistic works) is not quite as simple as Strachey thinks. The evidence would seem to indicate that Marx based this prediction on his basic law of capital accumulation; namely, that an increase in capital accumulation leads to an increase in the industrial reserve army (unemployment). That this tendency still exists, even under the Permanent War Economy, we have shown in our original series of articles on the Permanent War Economy (cf. The New International, Vol XVII). Nevertheless, as we have already demonstrated, the development of the Permanent War Economy stage of capitalism has altered Marx’s fundamental law of capitalist accumulation. To this extent, the doctrine of ever-increasing misery is in need of revision. Marx, so far as we can determine, never stated that the standards of living of the employed working class would deteriorate. He expected that the weight of the lazarus-layers of the working class (the unemployed) would carry down the average standard of living of the entire working class. Only in this sense is it proper to speak of ever-increasing misery.

And until the last decade, or until the development of the Permanent War Economy, it looked, as Strachey tacitly admits, that Marx was more or less correct. If, however, we are to admit that the average standard living of the employed working class is higher today than, let us say, it was two, three or four decades ago, we might try to include in this total evaluation, for surely it is part of total misery, the casualties of wartime, both in war and peace, and the psychological impact on want satisfactions on a world that lives under the constant threat of total annihilation. Moreover, as Strachey stresses, the major egalitarian trends that are truly significant occurred mainly during World War II.

As we stated at the outset, if capitalism can progressively raise average standards of living, and at the same time maintain a relatively peaceful international equilibrium, then it is still a viable historical system. We then need neither Marx nor Strachey but it is suggested that before everyone joins the capitalist band-wagon, we wait another decade, or even less to see if capitalism has really solved the problems of economic and political stability and progress.

The real significance of Strachey’s present volume is that he recognises that we have entered a new stage of capitalism, that capitalism no longer is self-regulating, that it is (and must in order to survive) be controlled. He gives Keynes great credit for recognizing that capitalism was no longer self-regulating. What he fails to see is that Keynes was the great bourgeois’ economist of the depression. His views on state intervention were acceptable only so long as the Great Depression prevailed. Once World War II and the ensuing Permanent War Economy developed, Keynes went into considerable decline, especially within American governmental circles.

It is interesting to note that Merchant’s View column in The New York Times of August 11, 1957 poses the question: “Can the national economy be controlled? It would appear that Government officials are experimenting with this problem in ways, perhaps, that appear to be baffling to the average business man.” Apparently, even The New York Times is not aware of the fact that the economy has been controlled for the past decade and more. The nature of the controls, their success and their impact on capitalism are necessarily subject of a future article. Suffice it to say, that we are of the opinion that under the Permanent War Economy, the capitalist state must control the economy. How long-lasting and successful this type of state intervention will be is a separate question. The permanent peace-and-prosperity school ought to wait a few years before they declare the present precarious equilibrium to be permanent.

After all, capitalist planning is not the same thing as socialist planning. Moreover, the capitalist world is in a curious dilemma with respect to the Stalinist sector of the world. Capitalism needs Stalinism to help maintain the existing international equilibrium and to provide a socially acceptable raison d’etre for the huge war outlays that alone provide the current decisive underpinnings of the entire economic system. Yet, the maintenance of Stalinism can lead to its strengthening, and the further whittling-away of the capitalist market, not to mention the ever-present danger that Stalinist political-military maneuvers will be successful and that, consequence, the physical dimensions of the capitalist world will be reduced still further.

Strachey would like to believe that a marriage of Keynesianism and social democracy can solve the problems of the world. In any event, he rejects any concept of the Permanent War Economy. He states (p.295 et sequitur):

There is another and less palatable reason why it would be a great mistake to dismiss the Keynesian techniques as illusory. As we noted, those Marxians [Stalinists?] who are unable any longer to deny that capitalism in the nineteen-fifties is behaving very differently from what it did in the nineteen-thirties, explain that this is simply due to vast expenditures upon armaments ...

The case of these – mainly communist – critics is, briefly, as follows: “No doubt it is true that if a capitalist government supplements the activities of its profit-seeking entrepreneurs by itself spending or investing sufficiently massive sums, it can sustain the economy at a level of full employment. But a capitalist government will be intensely unwilling to do this for peaceful purposes ... Such (military) government expenditure fits into the generally aggressive policies of capitalist governments of the latest stage. It is this kind of government expenditure and this kind alone which the capitalist governments have undertaken on a scale sufficient to be economically significant since 1945.” ...

Such an explanation is a crude caricature of the complex realities of the contemporary situation ... The American economy had, it is true, suffered a very shallow depression in 1948-49 ... But the figures show incontrovertibly (they will be given in a later part of this study) that this depression was over and the progress of full employment had been resumed before the outbreak of the Korean war and long before the American rearmament program began.

It is a pity that Strachey does not submit his figures on the American situation in the current volume, for the future of capitalism depends on the United States, not on Britain. This provides us with an opportunity, without any elaborate explanation, to present our latest figures on the relationship of war outlays to total output in the United States during the past ten years of the Permanent War Economy.

Direct and Indirect War Outlays, 1947-1956 and Their Relationship to Total Output
(Dollar Figures in Billions)




Ratio of War Outlays
to Total Production;
Col. (4) as % of Col. (1)






































































Source: July 1957 Survey of Current Business for net national product and direct war
outlays. Indirect war outlays calculated as explained in Part I of The Permanent War
(Jan.-Feb. 1951 issue of The New International and the March-April 1953
issue of The New International, pp.94-95.

While many of our prior actuals are herewith revised, the only important change is for the year 1947 where our present figures are considerably lower and the ratio of war outlays to total production is revised downwards from the previous 13.7% to the present 11.6%. It will be seen that in the year 1950, in the middle of which the Korean war broke out, the ratio declined below 10% to 9.8%. It should be remembered that at that point official unemployment statistics in the United States reached a total of 4,700,000. It was only the rapid increase in the ratio of war outlays to total production that prevented a serious unemployment situation from having far-reaching political effects; and, of course, it was the sharp rise in the war outlays ratio to a peak of almost 17% in 1952 and 1953 that reduced the level of unemployment to politically tolerable and relatively minor levels.

The gradual reduction and leveling off in war outlays in the post-Korean period has brought about a decline in the ratio of war outlays to total production. Attrition begins to set in. The big bourgeoisie demand a halt to inflation, or rather they use the concern of the working classes to prevent inflation as a device for getting the government to raise interest rates to place a squeeze on small and medium-size business. The “battle the budget” has all kinds of political motivations and overtones, but it is already clear that to the extent the government succeeds in halting inflation, the ratio of war outlays will continue to inch downward and unemployment will continue to creep upwards.

That the government is not entirely unaware of the economic implications of reductions in military outlays is graphically revealed by Marc Childs in his widely syndicated column of August 20, 1957, wherein he comments on “Jobs and Defense by stating, in part:

“The aviation industry is beginning to feel the effects of cutbacks in competing missile programs and in military aircraft production. The resulting unemployment when it is put together with pockets of joblessness, has raised the fear in the administration that the rising spiral of prices may eventually and sooner rather than later – bring deflation. As a result, Sherman Adams, the assistant to the President, instructed Clarence Randall, White House adviser on trade and economic affairs, to review every government cutback that might adversely affect a plant having more than 5,000 employees.

Randall is confident the economy can absorb this unemployment and continue at the present high level, but there are others not so optimistic”. Italics mine – T.N.V.)

We belong in the latter group, Strachey presumably would side with the optimists. In any case, it should already be clear (and, if not, it will become increasingly so) that contemporary capitalism, while a new stage (the Permanent War Economy), has achieved only the most precarious of equilibria, both domestically and internationally. The continual production of ever-increasing amounts of the means of consumption depends not only on constantly increasing production of the means of production, but on maintenance of the high level of production of the means of destruction. The impossibility of continuing to expand in all three departments of production will lead to a deteriorating economic situation and in the relatively near future to the beginnings of a first-rate political crisis.


T.N. Vance
August 1957


1. Contemporary Capitalism by John Strachey, 1956, published by Random House, Inc., 374 pp., $5.00.

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