Comments to Karl Marx’s Theory of Capitalism by Guillermo J. Escudé

Víctor A. Beker[1]

Guillermo J. Escudé is a distinguished economist who has followed the path of leading Argentine theoretical economists such as Julio H. G. Olivera and Rolf Mantel. The book we comment is dedicated to the memory of the former (Guillermo J. Escudé. Karl Marx’s Theory of Capitalism. Exposition, Critique, and Appraisal. ISBN 978-620-4-18468-5. 2021 LAP LAMBERT Academic Publishing, 590 pages).

Escudé endeavors to make an exhaustive exposition of Karl Marx’s theory of capitalism as it is presented in Capital, correcting some imprecision and approximations owing both to Marx’s lack of mathematical training and to the inexistence in his time of some mathematical tools –such as the theory of Perron and Frobenius on non-negative square matrices– that facilitate a clearer exposition of his theory.

After an introduction to the philosophical and methodological foundations of Marx’s works in Part I, including an exposition of his ‘materialist conception of history’, Escudé dedicates the 15 chapters of Part II to a detailed presentation of Marx’s theory of capitalism.

The author covers a large portion of the themes addressed in Capital, such as Marx’s theory of labor-value and its relation with exchange values and prices, his monetary theory, his theory of surplus value, his theory of “primitive accumulation”, the turnover of capital, the roles of financial capital, commercial capital, and ground rent, and the “laws” of capitalist accumulation.

In Part III, which comprises the following 3 chapters, Escudé develops his critique of Marx’s theory, especially to his theory of surplus value and his interpretation of entrepreneurial work. He dedicates a whole chapter to the comparison between the basic structures of Marx’s theory of capitalism and Walras’ theory of general equilibrium under “perfectly free competition”. For this he imposes restrictions on the generality of Walras’ setup so as to adapt it to the class structure of Marx’s theory and puts it in the same type of dual matrix equations setup he uses to express Marx’s various models: a “quantities system” that includes the quantities of commodities produced and the populations of the social classes involved, and a “prices and incomes system” which is its dual. Whereas Marx (and Classical economists) used exogenously given consumption baskets, Walras was able to make them endogenous by finding a way to model preferences, enabling him to include landowners and their rents very neatly. However, Escudé highlights that the advantages of Walras’ theory were compensated by some disadvantages since Marx outlined a more general framework for certain fundamental aspects that escape “general equilibrium”. This appears when he models Marx’s theory of the industrial cycle. There, unemployment (or the “industrial reserve army”) is normally positive and varies inversely with capitalists hoarding, i.e., the portion of the capital they own but do not invest, keeping it as a reserve of value that they move with discretion and are prime movers of the cycle. Escudé suggests that Keynes would have profited by a better understanding of Marx’s theory (and by referring to Capital instead of the theories of Silvio Gesell in his General Theory).

Finally, the two chapters of Part IV of the book address the political praxis of Marx and Engels and contain both an exposition and a critique of their political project. A last chapter is dedicated to some final reflections.

Among the contributions of Escudé is how he deals with the so-called “transformation problem”, i.e., how to relate the labor-values of commodities –used throughout Book I of Capital merely as a simplifying assumption– to the production prices developed in Book III (which are the equilibrium prices before the introduction of absolute ground rent, which would require a “modification” to such production prices. Escudé shows that Marx did not get to formalize this “modification” although he did point to the need to do so. He also shows that Marx’s approximate formulas for production prices and global profit rate are a first step in an algorithm that quickly converges to the true production prices and global profit rate given by the correctly formulated equation system of prices and incomes.

As previously mentioned, Escudé critically analyzes Marx’s way of addressing the capitalist entrepreneur. He finds a contradiction between the fact that Marx recognizes in his textual analyses the directing and planning work of the entrepreneur, on the one hand, and the absence of this labor in his analytical apparatus, on the other, both in his theory of surplus value (to which Escudé refers to as the “esoteric” portion of Marx’s theory) and in his model of equilibrium prices and wages (the “exoteric” portion of Marx’s theory). Thereby, he discards the theory of surplus value as erroneous in its basic assumptions and shows how the “exoteric” part of the theory can be modified if the work of the entrepreneur (or corporate executives) is included, as well as the retribution he receives on account of not only his (planning, organizing, commanding and controlling) work but also for his bearing non-quantifiable (and hence non-insurable) risk due to the uncertain environment he works in. Escudé shows that this was reflected in the ideas of economists such as Cantillon, Turgot, and Ramsay, of which Marx was well aware of but discarded before they were not compatible with his theory of surplus value. Of course, such modifications lead to conclusions diametrically opposite to those of Marx: “Once we formally recognize that capitalist entrepreneurs make a (fundamental) contribution to the productive process through their exertion, the idea that they can be dispensed with is destroyed, as well as the conception that the income of entrepreneurs and owners is based on an unpaid portion of the labor of wage workers (p. 445).”

As a complement to this analysis, Escudé dedicates a whole chapter of his book to the analysis of the treatment of entrepreneurial work in the history of economic thought, starting with the previously mentioned authors (Cantillon, Turgot, and Ramsay), as well as Smith and Ricardo, and also Walras, Edgeworth and Cassel, to conclude with Schumpeter, Knight, Berle and Means, Coase, and Scitovsly. This entails a notable and original contribution to the history of economic thought, sinking the scalpel in each of these authors’ works and extracting his ideas on the economic role of the entrepreneur.

Finally, the author analyzes how “Marx’s millenarian and utopian conception” was applied in the Russian and Chinese revolutions of the 20th centuries. His main conclusion is that “in the exclusively state-run economy there tends to predominate a logic of political bureaucratic competition between cliques that is only held in check by an even tighter hierarchical control that weakens initiative and in the long run is no match for the flexibility attainable by Capitalism” (p. 573). According to the author this explains the reintroduction of capitalism (i.e., private capital and wage labor in private firms) both in Russia (and other countries that formed the Soviet Union) and in China. This leads him to conclude that “The desideratum of the 21st century is no longer Capitalism vs. Communism but what kind of Capitalism and what kind of popular participation in the political process (democracy) is to exist” (p. 573).

In summary, we are in the presence of a book that dissects Marx’s theory of Capitalism by combining a masterly handling of analytical economics with a profound knowledge of the contributions of the majority of scholars that have shaped economics, a combination that is rarely seen and that does not fail to impress the reader.



[1] Professor of Economics at the University of Buenos Aires and the University of Belgrano.

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