Why Nouriel Roubini and all of us are wrong about Karl Marx

August 15, 2011

“Before I speak, I have something important to say.”

–Groucho Marx


In a clip from a longer interview with WSJ’s Simon Constable, Dr Nouriel Roubini claims Karl Marx was right about capitalism eventually destroying itself. While not quite yet at the breaking point, Roubini observes, we are headed down the road to disaster as predicted by Marx.

Roubini echoes my view that debt reduction and restructuring is the only way to restore real growth to the US and other economies. Breaking up a few zombie banks and cartels probably would not bother him either. But let’s focus on Roubini’s somewhat provocative comment that Marx correctly predicted the present global debt bust and economic deflation.

When I hear people talking about Marxism in reverent tones it makes me nauseous. Marx was not right at all about class being the key determinant of human action. Yet despite America’s pretensions to being a free market, democratic society, the Marxian world view won the battle for ideas in the 20th Century. The New Deal and Great Society efforts to increase the scope of government in America all stem from the socialist ideas of FDR and his political heirs in both parties.

So much of our economic discourse in America today is entirely Marxist in nature — a reference to both Karl and Groucho Marx, as noted above. The legacy of FDR and the two world wars was to kill the American republic and put in its place a cheap imitation of France with platonic regulators pretending to moderate the bad old ways of greedy private business.

The Cold War in particular left Americans more Marxist in their economic thinking than we care to admit. We discarded the focus on individual liberty and the rule of law espoused by Thomas Jefferson and Andrew Jackson as the drivers of economic activity in a free, democratic society. Instead we have modern day robber barons, faceless corporate managers openly allied with corrupt politicians in Washington and guarded by phalanxes of vicious lawyers.

The fact of our intellectual reliance upon the work of Karl Marx to benchmark our economic success show humans to be creatures of habit, not reason. Marx embarked from a position of dialectical mysticism borrowed from Hegel and then attacked the classical economists, the enlightenment thinkers such as John Staurt Mill and Adam Smith who elevated the role of the individual. Those who laud Marx disparage all things American.

Ludwig von Mises writes in his book Human Action, that Marx stigmatized the economists as “the sycophants of the bourgeoisie.” He notes that Marx was “the son of a well-to-do lawyer,” and Engles, “a wealthy textile manufacturer, never doubted that they themselves were above the law and, notwithstanding their bourgeois background, were endowed with the power to discover absolute truth. It is the task of history to describe the historical conditions which made such a crude doctrine popular.”

Not only was Marxism crude, but it missed most of the major developments of the 20th Century. Revolution occurred not in bourgeois Germany but in brutal, backward Czarist Russia. More important, the class-centric view of Marxism proved incorrect in a world of greater openness, mobility and individual choice. The act of conscious choice driven not by greed, but the desire for betterment; of human action as von Mises coined the term, rejects Marxist class determinism.

But with the world facing global recession or worse, and the children of the New Dealers demanding blood and higher taxes from the greedy capitalists, the question put to Roubini still comes: has the growth possibility of the “capitalist” world, as we inaccurately label the socialist western economies, reached a logical limit as predicted by Marx? I do not believe so.

Nations which adopted Marxist or other types of authoritarian systems have performed abysmally, while nations that focused on individual freedom and openness thrive. The US and EU have lessened their prospects through over-reliance on government and public debt. The answer in both cases is debt reduction and restructuring, and shrinking the size of the public sector.

Since the end of WWI, the nations of the global economy have faced a difficult paradox: the greater openness of trade and finance have created serious economic imbalances, shortfalls in employment and growth in public debt. John Maynard Keynes was no free trader, as we have discussed previously in this blog, precisely because he feared the destabilizing influence of large trade and financial flows.

The fact that advances in technology cause unemployment in older industries has nothing to do with Marxism or any of the political narratives of the 19th or 20th Centuries. Nor does the fact of global over-capacity confirm the Marxist dialectic as to the inevitability of world socialist revolution. What these ills do point out is that the world needs to revisit not tired Marxism, but the Keynesian concept of a competitive currency system and thereby better govern global flows of capital and commerce.

All nations, regardless of supposed economic creed, now face a more basic series of choices: how to balance employment and economic stability with economic openness and the relentless pressure of competition and new technology. The future is not about class warfare as Marx predicted, but is about maximizing the potential and opportunities for every individual.


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Mr Walen,
Think about it, there are 7billion people in this world, 1.5 no, say 5 million people make all the iphones/ipads droid phones 500 m- 1 Billion Million in making cars tractors, general manufacturing. 1 Billion Farmers !billion are too old or too young. Computers keep taking away more jobs. That’s 4 Billion people with not much income. Now tell me how the rich are going to escape the pitchforks and guillotines? as much as you would like to disparage Marxs, he was spot on. Only way is for the rich to give a bit and the poor to feel they are a part of the system, otherwise it won’t be pretty and history is littered with the carcasses of failed empires who could not get this simple fact!

Posted by Dyota | Report as abusive

Mr Whalen has either been hiding under a rock, or has not been an observant market watcher just this past week, where “capitalism” if you can call it that was in full colour. Stocks up 5% down 5%, no sanity exists on Wall Street any longer greed is the order of the day!

No amount of hard work, opportunity or “American exceptionalism” can match Wall Street’s unparallelled ability to destroy wealth. Its only a matter of time before the pitchforks come out. Inevitable ? you bet!

Posted by Dyota | Report as abusive

Reuters please add an approval/disapproval ie vote up or down, system to comments like yahoo has on their boards,

Posted by Gillyp | Report as abusive


I’ll tell you why capitalism has failed (and conversely why their where riots in London – and why the US is headed down a dangerous road that may dwarf those riots) – because the simple fact is no matter how hard many work, there is NO

Posted by FoxxDrake | Report as abusive

he says, “Nations which adopted Marxist or other types of authoritarian systems have performed abysmally, while nations that focused on individual freedom and openness thrive.”. But then it seems that Germany which is a lot more “authoritarian” the US is doing way better than the US

Posted by Pedro07 | Report as abusive

One wonders what planet Mr. Whalen is living on. Why is a “class struggle” as carried out in America through politics wrong? It is a perfectly sane alternative to back breaking toil in the fields, mines, or factories, or revolution and anarchy.

One would have to be blind not to see the “dictatorship of the bourgeoisie” with money channeled into the political process in America. The examples of corrupt policies to serve big business from banks to energy to healthcare and education are endless. So such influence is OK, but voting is not?

We are at this juncture today precisely because we don’t have a free market, thanks to such “dictatorship.”

If Mr. Whalen had his way, we would still be living with slavery, child labor,monopolies, and poverty and destitution levels that existed in the past here in America, and still do in many parts of the world.

In the end societies better themselves by bettering the whole, and this betterment does not come from the largess of those who can rely on the levers of the state to serve themselves.

America has done well, and it is only through democratic means that it will repair that which is broken. America is about “we the people” and trying to make it otherwise by relying on self-serving interpretations of long dead political philosophers is useless.

There are no successful model countries with complete free markets, else I am sure Mr. Whalen would have moved there. And I doubt Mr. Whalen would prefer to live in 18th or 19th century America instead of today’s America with all its problems.

I also have a sneaky feeling that Mr. Whalen’s financial advisory business (which he is often seen promoting on TV and other media) must have customers. And that he does not offer his talents and services for free but most likely charges a pretty penny for his expertise. How’s that for “free markets” Mr. Whalen?

Posted by XRayD | Report as abusive

Mr. Whalen,
Roubini did not endorse Marxism : he merely pointed out that one of Marx’s ideas , namely, that capitalism will destroy itself is valid. Your spiel is, therefore, totally irrelevant to what Roubini said.
Unfortunately, the likes of you have a tendency not to listen until its too late. I suggest that you go without food for a week and then start THINKING.

Posted by Biscayne | Report as abusive

Ha! Bet you never read either.

914 827 9272

Thanks Mr. Whalen for your reply via email to my earlier comment.

“Anybody the uses or references Ludwig von Mises to discuss Karl Marx’s ideas has already lost. It’s the equivalent to discussing Hilter using quotes from Stalin’s or the reverse.”

I have actually taken the time to read, study and write about both Marx and von Mises.

Posted by AndersonW | Report as abusive

It’s not capitalism that has failed, it’s solely the corruption of the system. We have elected a leader whose scorn for America is reflected not only in his rhetoric, but in his preacher’s, his wife’s , his Attorney General’s, and his Czar’s. The American people DID NOT vote in Healthcare….it was crammed down their throats, with their true feelings truly expressed in a subsequent Massachusetts election. He introduces his Health Care Bill in the wee hours of the night, and calls for an early vote the following morning. Transparency….Days to read each and every bill…absolutely NO PORK on my watch….I think not. Touting wealth redistribution, and his wife carries a $20,000 purse and the family, friends, tasters, basketball partners, “beasts” all travel to India (unscheduled and unplanned) in a very costly manner, the day after the Republicans win another victory. We spend hours over the cost of Sarah Palin’s wardrobe, when states are showing 120% registration of legal voters. He meets with George Soros weekly (well, who really knows now that his legal team have insured that the roster of who is visiting the White House will not be revealed until YEARS past his presidency), who has claimed that his last great feat will be to destroy the US, and the best way to begin the destruction is with a costly Stimulus Bill. Obama is so green that he won’t allow off-shore drilling in our country, but gives millions to Brazil to drill off shore, and SHOCK, Soros owns the oil company awarded the contract, and all of the oil and gas produced is promised to China, although we were the bank roll. Soros and other liberals own controlling interest in ABC, NBC, MSNBC, and CBS, and he recently purchased the two largest journalism schools in the US. No cause for concern…we simply need to shut down that right-wing, terrorist Fox News for their lone voice of foul play. And we are sitting by, being civil, watching the capitalist country that has provided more hope and opportunity to individuals in world history than all the Marxist countries combined. Our universities are filled with Roubini’s, not teaching all views and allowing thought and discussion, but requiring agreement with their radical, Marxists views.

Posted by KLSW | Report as abusive

A lot of people are pointing to China’s Capitalism, look for what happens when American’s stop gorging on China’s products, Egypt and the Middle East spring comes to mind. Its human nature, the rich have to be willing to give a bit to make the poor feel they are part of the system, and have hope that they too will be rich someday. Otherwise out come the pitchforks. Look around History is littered with the carcases of empires that did not understand or adhere to this simple fact. Witness UK and what the Media/Political corruption has wrought

Posted by Dyota | Report as abusive

If class is not the key determinant of human action, then the billions of dollars corporations are spending to sink the unions is–for what? Class has always taken a second seat in the American consciousness as identity politics–gender, race, sexual identity–are pushed by politicians. But identity politics cannot get to the root of America’s problems–it’s corporate power and greed, and that’s a class issue! So, the right wing can continue to stoke the flames of identity politics with their anti-gay marriage and anti-women talk, but Americans are beginning to see through the red herring. It’s class warfare in America–and has always been.

Posted by Medusa | Report as abusive

Conversations about the pros and cons of pure Marxism vs pure capitalism are theoretic and have no bearing on reality. But I think that history shows that a system more closely modeled after capitalism does a better job of feeding, educating and giving it’s people a better quality of life. But the question in my mind these days is not about quality, but about longevity. Despite the better track record, the current global economic system is unsustainable and will reset at some point. If that is the price we have to pay for not living in a system more modeled after Marxism then so be it.

Posted by WayneL | Report as abusive

Mr WALEN is a proponent of the ultra diehards of “free market”, ….as long he’s standing on the rich side.

As “Biscayne” said :
Unfortunately, the likes of you have a tendency not to listen until its too late. I suggest that you go without food for a week and then start THINKING.

I would complete it with : and work for 16 hours on the field under the burning sun…. for 1 dollercent/hour.

Good luck to you

Posted by flurk | Report as abusive

I enjoyed this article. Thank you very much.

Posted by TheDogtor | Report as abusive

interesting, above the average economist dictum, but missing of course the ‘big facts’; this crisis is far deeper than suspected because it is both financial, physical and ‘metaphysical’. We evolve and reproduce machines in corporations and now electronic machines are so evolved that they reproduce money in inordinate amounts (hence the e-money crashes of 2001 and 2008 we forecast decades ago), we produce and evolve robots, the new blue collar workers and soldiers, and we evolve software suites and pcs, the new white collar workers. The Industrial R=evolution of machines is entering now the robotic, organic age and we, humans are increasingly obsolete as workers and soldiers.
in other words, Marx had it half wrong, ‘capital and machines will multiply and expel all workers till they rebel’… the end is what is not happening, it is more like a terminator/matrix solution: capital and machines, pv=mt, will make us obsolete, substitute us and then we will be put on jail if we protest, as the middle class of corporations will be those blue collar robots and white collar pcs… Witness china, that was the only country competing with low blue collar labor with them: this month foxconn, the biggest world employer announces it will create one million new ‘robojobs’,( and throw out most of his workers): productivity = capital/labor, the less labor the most productivity and yet that is hwat our corrupted economists and politicos gave us as solution: to extinguish labor, automate companies and increase profits. Yes, capitalism is healthy, it is life and mankind what will be crushed.

Posted by esenzia | Report as abusive

Citing Marx as crude while categorizing the entire presidency of FDR as a Socialist knockoff of France…

You’ve omitted the Great Depression — for which those policies were much needed medicine for the 1920s Capitalism we’ve since returned to. These free-marketeers won’t get it until they’re standing in bread lines again.

Posted by JasonBoss | Report as abusive

Isn’t part part of Marxian theory is that producers–capitalists–will suppress worker’s wages to the point that workers are unable to afford what is produced by the capitalists?

Posted by carolinian | Report as abusive

Whalen writes: “Yet despite America’s pretensions to being a free market, democratic society, the Marxian world view won the battle for ideas in the 20th Century… The New Deal and Great Society efforts to increase the scope of government in America all stem from the socialist ideas of FDR and his political heirs in both parties…” Mr Whalen is presenting contradictory views which makes it difficult to follow his curious rant. It seems to represent, as one commenter correctly perceived: “part of the Ayn Rand Brigade”, a badly distorted view of the political & economic world that engulfs us.

Posted by ocorrain | Report as abusive

No opinion that I have read in these columns has drawn so much readers’ ire as this one.It is not so much due to lack of substance but because of confused justification.I feel ashamed for the apologetic s and proponents of the free and unfettered marketplace that exists as there is no such thing as that and the one as defined by Smith and Keynes could not exist in the ideal state perpetually.

Posted by cosmicinsight | Report as abusive

When are we going to finally realize that we have obsoleted a good share of humanity out of the workforce and need to get on with the task of finding a way to occupy them? We’re finally able to produce all that we need with few hands. Yay! Let’s find a way to enjoy the bounty instead of making each other miserable!

Posted by josefski | Report as abusive

Unfortunately Whalen has it wrong. First, Marx’s analysis was anything but crude. I wonder if Whalen has ever picked up a copy of Capital? So many detractors never have… Marx’s analysis was off on many things: historical materialism, class as the prime mover of politics, etc… but he had the most insightful analysis of capitalism yet. I’ve used a basic Marxian framework, some of it borrowing from Japanese economist Moroshita, to predict every major market downturn for 20 years… and I’ve made a pile of cash doing so… Second, I have read Mises and Hayek, and they weren’t really economists either, more philosophers, and Mr. Whalen’s approach here, like so many enamored with the Tea Party, Schumpeter, the Austrian School, and Libertarianism, is not economic, but philosophical. Third, the Marxist states of the USSR and Eastern Europe never really applied anything even remotely resembling what Marx might have suggested, in fact, just the opposite; what they were instead were totalitarian party states hell bent on keeping power. I could go on, but I don’t have time to keep punching holes in such a poor, hackneyed, and purely ideological analysis by Mr. Whalen.

Posted by nuabk | Report as abusive

Stop your liberal whining! Go look at his interview on The Daily Ticker – Yahoo on 9/12/11 and listen! We are suffering under the effects of the corrupt corporate statism of the entrenched elites. They have screwed up the free enterprise system for their personal gain and riches, the people be damned!
Common Sense from the Heartland – http://howardwemple.com

Posted by HarleyHoward | Report as abusive

The link below uses a word cloud – like a clickable version of Wordle – to summarize the comments on this article. Check it out…


Posted by creekbear | Report as abusive