by Prabhat Patnaik*

In his remarkable work The General Theory of Employment, Interest, and Money, John Maynard Keynes said that “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else.” His putting only these two disciplines— and such apparently dissimilar ones— as so decisive in human affairs seems intriguing at first sight; some may even see in it a defense of his own disciplinary turf. But, on closer examination, Keynes’s remark has a soundness that is worth exploring, as my book Beyond Liberalism hopes to do.
Political philosophy provides the basis for political praxis, whether such praxis takes the form of preserving laissez- faire, of constructing a social democracy, or of working toward mobilizations for yet more radical transformations that transcend capitalism. But this political philosophy is developed on the basis of an understanding of the working of society in which— in the complexity of modern times, at any rate— the economy is an extraordinarily significant component. An understanding of the economy is an indispensable element on the basis of which any political philosophy is built; thus, economics provides an important intellectual input for political philosophy, something that is especially true under capitalism. It is for this reason that economics as a discipline was developed in the first place, originally by philosophers concerned with political praxis. The philosopher Adam Smith wrote The Wealth of Nations with the purpose of putting across a political agenda. This was also central to the thinking of his friend, the philosopher David Hume, who provided an ingenious (though, in retrospect, not convincing) critique of mercantilism.
So far, I have mentioned three interrelated elements: political philosophy, economics, and political praxis— that is to say, two disciplines of theoretical inquiry, and the arena of human engagements that is always integrated with these disciplines of inquiry, serving both as a form of background motivation for the inquiry as well as a foreground field that marks the great relevance of the inquiry’s outcomes. Thus, the relationship between the three elements is complex, and part of the complexity is that it has a certain familiar dynamic. The development of each of these two theoretical disciplines of inquiry, with their myriad details and nuances, and the minutiae of individual arguments, tends to have the effect of giving them quite separate identities to a point where we might lose sight of their essential integrity or unity. We find ourselves recovering the unity, however, when, in the realm of praxis, a new political agenda comes to the fore. The proponents of such a new political agenda, which, like all political agendas, is founded on a political philosophy, seek vitally new intellectual inputs from economics, which in turn requires constructing new perspectives in economics and integrating them once again into the political philosophy.
Such was the case with the agenda of socialism as it emerged in the nineteenth century. Karl Marx, another political philosopher, felt the need to study political economy in order to provide a critique of classical political economy and, by doing so, constructed and presented an alternative analysis for working out the agenda of socialism. This makes clear that Marxism is all at once a political philosophy and an analysis of political economy, both geared to and motivated by an agenda of human engagement that we tend to call “praxis.” But ironically— conforming to the dynamic that I have mentioned— the process of refining and explicating particular arguments within Marxian political economy has given rise to a degree of specialization within it, to such an extent that it has obscured the nature of Marxism’s highly elaborate and detailed critique of the political philosophy of liberalism, which preceded it and to which it was, to a considerable extent, intended as both a theoretical and practical response.
The present work attempts to elaborate that critique in its detail. So I am, right at the outset, declaring my hand: the book will be essentially a Marxist critique of liberalism. The Marxism that is the source of this critique will be a considerable reconfiguration of some of the orthodoxies that have attached themselves to Marx over the last century and a half of commentary on Marx, a reconfiguration with two important features. First, it will make central to an understanding of Marxism the long history of imperialism that has been at the heart of capitalism since its inception. Second, it will see through the relevance of Marxism, so integrated with an analysis of imperialism, to the contemporary period of globalization— in particular, financial globalization. What I propose to do is to present a quite dramatic contrast between these two alternative doctrinal strands within economics— liberalism and Marxism (as I understand them)—each in sync with a particular political philosophy, and each advocating a particular political praxis.
It will come as no surprise that the dramatic contrast that I describe myself as presenting in the coming pages turns heavily on differential perspectives on the subject of individual freedom. Ever since one of the founders of liberal political philosophy and liberal economic theory, John Locke, was declared to have generated a notion of “possessive individualism” (Macpherson 1962) by critics of liberalism, this perspectival difference has been well known. Yet exactly how an outlook of individualism pervades in detail the great range of liberal economic arguments and assumptions in the centuries after Locke is not as widely noted as it needs to be and, so, will be carefully expounded in these pages.
But this very point about liberalism’s detailed pervasiveness in the context of the contrast with Marxist arguments and assumptions is prone to a common misconception, which it will be one of my briefs to correct. This is the belief that while liberalism is concerned with individual freedom, Marxism, and the socialist agenda it advances, is unconcerned about it, emphasizing instead a contrasting sphere of the collective. I will argue that liberalism and Marxism have very different analyses of the status of the individual within capitalism, that the Marxist analysis of capitalism leads to the conclusion that the freedom of the individual itself can be realized only through a transcendence of capitalism through collective action. One can already see, in this brief capsule of what is to come, a point I have been at pains to stress in this introduction: that economic theory, political philosophy, and an agenda for action are deeply integrated.
One last but very central point remains in making these introductory remarks, to give an advance sense of the overall direction of the book. I have declared a dramatic and integrated contrast between liberalism and Marxism as my subject, and it may seem as if I am ignoring a vast and familiar middle ground of social democracy in order to set up the starkness of that contrast. But, as the reader will see in the later reaches of my discussion of Keynesian economic and philosophical ideas, which are the most paradigmatic theoretical basis for the political agenda of social democracy, that middle ground does not do anything to undermine the overarching contrast that I take to be fundamental in the philosophical, political, and economic, disputes at stake. The Marxist analysis of the status of the individual differs not only from that of the pre-Keynesian strand of liberal economic theory represented by Hayek and other neoclassical economists— a difference that is widely acknowledged— but also from the Keynesian strand, adopted by postwar social democracy in its political program, that sees the individual coming into his or her own, not under conditions of laissez- faire, but in a capitalism marked by state intervention.
The Marxist critique, in short, covers not just capitalism as it is integrated with liberal democracy and without state intervention in the realm of the economy (what we might call “classical liberalism”), but also capitalism where social democracy has effected state intervention designed to push the system to full employment. Keynes ([1931] 2010) had coined the term “new liberalism” to express his political philosophy, as distinct from the old liberalism championed by pre- Keynesian economists of both classical and neoclassical persuasions. The Marxist analysis of the status of the individual under capitalism differs from both what classical as well as new liberalism envisage. Let me briefly elaborate these claims.

Classical Liberalism

“Liberalism,” as a doctrine, gets its most typical exemplification in what have come to be called “liberal democracies.” Though there is no doubt that liberal democracies have evolved considerably since their early inception in post- Westphalian Europe, throughout this evolution they were shaped by a guiding conceptual framework of ideas and principles (which, no doubt, themselves evolved in this process), and it is those ideas and principles that I have in mind when using the term “liberalism.” Moreover, the evolving liberal democracies were typically accompanied by the evolving economic formation of capitalism; the political ideas and principles that make up the doctrine of liberalism are, therefore, deeply integrated with economic ideas about the nature of capitalism. My objective is to look at the notion of “freedom” in the context of this integrated political and economic framework that we have come to call “liberalism.”
Liberalism is concerned with the freedom of the individual. Within liberalism, however, as already mentioned, there are two strands: one is what I call “old” or “classical” liberalism, which sees this freedom as being threatened by specific agents, either other individuals or the state, or even such economic aggolmerations as monopolies. It does not, however, see the functioning of the economic system as a whole, as distinct from specific agents, as being a constraint on individual freedom. By contrast, the second strand of liberalism, what I call “new” liberalism— borrowing the term from John Maynard Keynes, who had described his own views thus— recognizes that the system itself, and not just some specific agents, can also constrain individual freedom.
Since the state is required for protecting the freedom of the individual from being suppressed by other individuals, classical liberalism defends the role of the state in this regard. It also defends the role of the state as a bulwark against the oppression of the individual by monopolies and oligopolies. In short, it sees the role of the state as being confined to upholding and preserving “law and order” and the “rules of the game” of a competitive economy (however we define it). But it sees any intervention by the state that exceeds this limit as being inimical to individual freedom and, hence, a phenomenon to be opposed.
Classical liberalism’s perception of the threat to individual freedom does not per se entail the defense of a competitive capitalist economy. But the fact that it invariably approves of a competitive capitalist economy suggests that it does not see the employer– wage laborer relationship that is typical of capitalism as being inimical to individual freedom. From this it follows that if the employer– wage laborer relationship was not always the dominant form but came into prominence only at a certain time, then it must have been a voluntary arrangement that individuals entered into. It must represent, then, from the point of view of every individual, an improvement over his or her condition as it would have been in a competitive precapitalist economy, if that is supposed to have preceded competitive capitalism.
In short, every strand of classical liberalism, whether or not it says so explicitly, must believe that the emergence of capitalism— that is, of the employer– wage laborer relationship, in so far as it has a history (and has not been a dominant form for ever)— was a voluntary process. And, since it is a voluntary process based on the freely given consent of all individuals, a competitive capitalist economy represents the only economic system under which individual freedom can be fully realized.
Both classical and neoclassical economics can provide in different ways the economic theoretical basis for classical liberalism. Though there are major differences between the two, especially with regard to the notion of competition, the former believing in free competition (where the wage rate and the rate of profit are equalized across sectors) while the latter believes in perfect competition (where the rate of profit is zero), they both see the threat to individual freedom as arising, other than from oppression by other individuals (which is a “law and order” problem and can be ignored here), from the existence of monopolies, and from excessive state interference. This belief is sustained by their respective theoretical systems that are very different from one another, but, on the basis of either, it can be and has been sustained.
The second strand of liberalism, as we noted earlier, recognizes the possibility of individual freedom being constrained by the operation of the system itself, and, on this basis, it does not believe that laissez-faire capitalism is conducive to individual freedom. This is because laissez- faire capitalism is associated, as Keynes had argued, with large-scale unemployment, except for occasional “brief periods of excitement” (when investment rises to sufficiently high levels), and unemployment is destructive of individual freedom. True, the concept of freedom according to this second strand is not the same as according to the first, as we shall see, but it would be a travesty of any concept of individual freedom if the workers in a society characterized by large- scale unemployment are claimed to be enjoying individual freedom, or, put differently, the “negative liberty” of an individual in the sense of absence of interference from others (or other agents) that Isaiah Berlin had talked about is simply inadequate as liberty in any meaningful sense. Thus, the recognition that the constraints on individual freedom can arise not only from identifiable agents, such as other individuals, the state, or monopolies and oligopolies, but also from the working of the economic system itself has profound implications.
Overcoming such systemic constraints on individual freedom requires intervention by the state. Therefore, the state has to take on a far wider role than merely maintaining law and order and the rules of the game of competitive capitalism, even for promoting individual freedom. The interference by the state in economic affairs, far from being a constraint on individual freedom, is essential for it, which is why Keynes called his position “new liberalism.”

New Liberalism

It is not just with regard to unemployment that the state must intervene for promoting individual freedom. The functioning of the system can be associated with poverty, income inequality, hunger, malnutrition, and other manifestations that are inimical to individual freedom, understood not only in the sense of the individual being free to enter into what appear to be “nonoppressive” relationships with others, or the individual making the most of the situation in which he or she happens to be placed, but also in the sense of being able to realize his or her potential. Modern-day liberalism or “new liberalism” sees state intervention to be necessary for overcoming these deprivations of the individual that prevent the individual from realizing his or her potential. It thus redefines individual freedom and considers state intervention as essential for realizing it.
But this redefinition does not amount to an abrogation of the earlier definition; rather, it leads to a widening of the earlier definition so that it goes beyond the market outcome of competitive capitalism. “New” liberalism, therefore, also sees individual freedom as achievable only under capitalism, but a capitalism that is marked by state intervention.
Yet, if classical liberalism did not recognize the possibility that the functioning of the system could also place a constraint on individual freedom, new liberalism also does not recognize the possibility that the functioning of the system can place a constraint on the capacity of the state to intervene, and hence on the realization of individual freedom in the broader sense that it defines. It sees the state simply as a deus ex machina to overcome the limitations of the system, not as something that, too, is constrained by the system itself. This trait, which is obvious in Keynes, characterizes more or less all strands of new liberalism.
The ways in which the system constrains the state are multifarious and will be discussed later in this book, but the general point can be made by taking up just one specific instance— namely, when the domain of functioning of capital is much larger than the domain over which the state’s jurisdiction runs. This is exactly what happens in a regime of economic globalization when globally mobile capital, or what one may call “international capital,” exists in a world of nation-states.
For overcoming what Keynes had called “involuntary unemployment,” for instance, the state must expand aggregate demand through larger expenditure of its own. But this requires that such state expenditure must be financed either through a fiscal deficit (which means that larger state spending is not counterbalanced by any reduction in private spending) or by taxing those who save a part of their incomes, typically the rich (so that larger state spending is not counterbalanced by an equivalent reduction in private spending). Both of these avenues, however, are closed in a regime of economic globalization: globalization of capital entails above all the globalization of finance, and finance is invariably opposed to larger fiscal deficits (which is why most countries have enacted “fiscal responsibility” legislation, limiting the size of the fiscal deficit relative to gross domestic product). If the state did not obey the dictates of finance, then finance would flow out of its domain, precipitating a crisis. Likewise, any unilateral increase in taxes on the rich can also drive finance away from the country, causing a crisis, apart from driving productive investment away from the country to other shores, thereby lowering the country’s growth rate. (This is why nation-states vie with one another in providing tax- concessions to the capitalists, and the rich in general within a regime of globalization.)
Put differently, when the state remains a nation-state but capital is globalized, the nation-state must obey the dictates of capital willy-nilly, especially of finance, which can move across country borders at a dizzying pace. This makes fiscal intervention by any particular nation-state to augment employment within its borders almost impossible. As for monetary policy intervention, apart from the well- known infirmity of monetary policy in stimulating the level of economic activity, there is also the fact that, in a world with global mobility of capital, there are serious limits to the extent to which the interest rate can be independently fixed by a country.
Thus, in a world of nation-states where there is globalization of capital, including of finance, no individual nation-state can overcome involuntary unemployment, even if it wishes to. This is true even of the United States. Since its currency is generally considered “as good as gold” by wealth holders across the world, it may be thought that it should be less worried about financial outflows in the event of its state providing a fiscal stimulus. But a good deal of the demand generated by this stimulus would leak out abroad, increasing US external indebtedness for the sake of creating employment abroad, and this consideration provides a deterrent to the expansionary activism even of the US state.
Therefore, overcoming involuntary unemployment in a world where globalized capital coexists with nation-states would require, at the very least, a coordinated fiscal stimulus among several leading economies, so that finance is robbed of any incentive to move from one economy to another. This means, however, a confrontation between these coordinated states and globalized finance, which reduces the possibility of such coordination and also underscores the limitations of a particular nation-state in overcoming the constraints imposed by the functioning of the system on getting rid of involuntary unemployment.
Exactly the same conclusion can be drawn regarding the state’s ability to bring about an increase in economic equality, or to eliminate poverty, and so on. In short, the new-liberal faith in the ability of the nation-state to achieve individual freedom, simply lacks substance. Thus, if classical liberalism does not comprehend the possibility of the functioning of the system as distinct from particular agents, constraining individual freedom, new liberalism does not comprehend the possibility of the system constraining the ability of the nation-state to overcome the limits on individual freedom.

Marxist Critique of Liberalism: Classical and New

Marxism, while emphasizing along with new liberalism the constraints on individual freedom imposed by the spontaneous functioning of the system, differs from the latter in also recognizing the constraints on the state imposed by the system. It does so by making two points: first, the system has a logic to its functioning with which state intervention interferes and thereby renders the system dysfunctional. To take an example, the system’s functioning close to full employment, which is what Keynes had wanted, makes it prone to uncontrollable inflation and makes it dysfunctional. A pool of unemployed workers, or what Marx had called a “reserve army of labor,” is necessary under capitalism not only for keeping real wages below labor productivity and, hence, for making surplus value accrue continuously to the capitalists, but also for keeping money wages in check so that there is no inflationary push from the side of wages.

Therefore, a certain level of unemployment (not necessarily the entire unemployment that happens to prevail because of a deficiency of aggregate demand) is essential for the functioning of capitalism; if state intervention eliminates it, then the system becomes dysfunctional. In such a case, the choice before the state is either to push its intervention still further, leading, ultimately, to the transcendence of the system, or to pull back from whatever intervention it had undertaken. The state, too, then, is objectively constrained by the logic of the system. It is never a mere a deus ex machina, as new liberalism believes it to be.
The second point that Marxist economics makes against new liberalism is that situations like the one where the nation-state confronts globalized capital do not arise accidentally; they come about because of the immanent tendency of the system toward centralization of capital— that is, the organization of capital in larger and larger blocks. Centralization in Marx is what spurs accumulation: since it arises essentially because larger capital “eats up” or “devours” smaller capitals, there is a Darwinian struggle among all capitals to escape being small. This is what drives them to accumulate. Centralization is thus both the driving force and the end result of the process of accumulation of capital.
Centralization also keeps expanding the boundaries within which capital operates, and the globalization of capital is an end product of this process of centralization. Thus, escaping control by the nation- state, through the globalization of capital that is the end product of centralization, is inherent to the logic of capitalism; there can never be a stable system, complete with state intervention, as new liberalism envisages. Individual freedom, it follows, is impossible to achieve under capitalism; it requires a transcendence of capitalism and the ushering in of a new system, socialism, that is not driven by immanent tendencies but is malleable enough to permit state intervention and control.
Indeed, from the fact of the capitalist system being driven by immanent tendencies, Marxism derives an image of the system where individual participants play roles that they are coerced into playing by the impersonal logic of the system. Marx, for instance, called the capitalist “capital personified” (1967, 233). Competition tends to rob individual agents of their “agency”; they act not according to their own volition but under coercion exercised impersonally by the system. Escaping this coercion through “combinations” (trade unions) is what the workers attempt to achieve, and undermining such “combinations” is what the capitalist system spontaneously seeks to achieve. This dialectic reaches a final denouement with the overthrow of the system, and the ushering in of a new system that is not based on competition and, hence, is not spontaneous.
In the book, I develop this argument in detail. I first examine the political economy underlying the classical liberal position, then look at new liberalism’s critique of it, and then examine Marxist economics’ critique of both. Before doing so, I must remove certain misconceptions that have characterized the discipline and that stand in the way of a proper understanding.

Some Misconceptions in Economics

Economics as a discipline often proceeds on the assumption that the same terms used in two different theoretical frameworks stand for the same concept or mean the same thing. This is particularly true in the case of theories that are apparently close to one another or in theories in which one emerges via critical reflection on another. Marx has been especially misunderstood in this respect; because he took classical economics as his starting point, identical terms used by Marxian and classical economics have been presumed to have the same meaning, when they do not. As a result, while some differences between Marx and classical economics— for instance, with regard to the appropriation of surplus value and associated issues that Marx himself had emphasized— have been well recognized, other basic differences have remained unrecognized. In particular, what has not been recognized is the fact that there are two different, almost diametrically opposite, perceptions of capitalism in its totality, not just between classical and Marxian economics but between Marxian economics on the one hand and both classical and neoclassical economics on the other. Each of these perceptions is comprehensive, in the sense of permeating all aspects of the system, and each generates a different political agenda. One is what I have called the agenda of “classical liberalism,” which emanates from the perception of both classical and neoclassical economics (the differences between which are not as serious in this respect as usually made out), and the other is the agenda of socialism that emanates from the perception of Marxian economics, whose fundamental differences from classical economics are usually understated because of an inadequate understanding of the difference in their perceptions.

Contrasting Notions of Competition

Let me illustrate this point by taking some particular terms, on the basis of which we shall recreate the contrasting conceptual totalities. The first difference relates to the term “competition.” There are important differences between the classical and neoclassical conceptions of competition, but these are overshadowed by the difference between both these on the one hand and the Marxist conception on the other, of competition under capitalism. While classical economics talks of free competition, which entails an equalization of the wage rate and the profit rate across sectors through the free mobility of labor and capital, neoclassical economics visualizes perfect competition, where, additionally, there is free entry into the ranks of capitalists (presumably from the ranks of laborers— that is, free class mobility), which brings profits down to zero in equilibrium. While this is an important difference, one recognizing barriers to entry into the ranks of capitalists that the other does not, both visualize an equilibrium where there is full employment. In classical economics this happens through the adjustment of labor supply to labor demand, while in neoclassical economics this happens through the choice of techniques (the presumption being that there are lots of techniques along a production function and in equilibrium, given the flexibility of all prices, the economy produces by using the technique at which all “factors of production” are fully utilized).
The Marxian perception, however, visualizes the perennial existence of an excess supply of labor— a reserve army of labor. This reserve army plays a number of roles: by keeping real wages tied to some (historically given) subsistence level, it ensures a positive rate of surplus value. Joseph Schumpeter (1952) had believed that, since a capitalist economy tended to settle at a full employment equilibrium, surplus value would disappear at this equilibrium through capital accumulation. But the perennial existence of a reserve army of labor prevents this and always ensures a positive rate of surplus value. In addition, a reserve army also keeps the value of money intact by preventing accelerating inflation arising from competing claims over a given output (Patnaik 2009).
But a reserve army also gives a specific character to the nature of competition. The existence of unemployment in the form of the reserve army makes competition among the workers intense. It makes getting a job and holding it down a matter of life and death. This is what introduces, through the coercive threat of unemployment, work discipline and work ethics among the workers. It also means that capitalists, too, who get displaced from their position in the system and have to join the ranks of the workers, run the risk of remaining unemployed, which also disciplines them into behaving in a manner that does not expose them to such risk. This threat of unemployment thus introduces a Darwinian struggle into the system, where individual economic agents act not according to their own volitions but in a manner dictated by the logic of the system. This is the source of universal alienation under capitalism.
Capitalists accumulate not necessarily because they want to, but because not doing so would make them lose their position in the system by weakening their viability vis-à-vis other capitalists, who introduce technological progress along with their act of accumulation. In fact, Marx had called the capitalist “capital personified,” through whose actions the immanent tendencies of the system work themselves out.
By contrast, the notion of competition in a situation where full employment is reached in equilibrium does not entail any such coercive element. What it does is to ensure that all economic agents get their “appropriate rewards,” that relative wages among workers just compensate for the relative difficulties, skills, and lengths of training associated with particular occupations. This was Adam Smith’s idea, and it holds equally for neoclassical economics. Competition of this sort has nothing to do with work discipline (how capitalist economies inculcate work discipline remains unexplained by it— a point discussed later), or with any Darwinian struggle, or with acting as a coercive mechanism to make agents behave in a predetermined manner that has to do with the demands of the system rather than the individual’s volition.
While the classical and neoclassical views of competition ensure (in different ways) that all workers get their “appropriate rewards,” competition does not achieve “justice.” The capitalists’ rate of profit, according to classical economics, has nothing to do with any notion of “justice,” and distribution can be improved in favor of the workers if they change their breeding habits: as workers were believed to multiply in numbers whenever real wages rose above the subsistence level (a phenomenon underscored by the Malthusian theory of population), their wages remained stuck at this level. Even neoclassical economics only asserts that distribution is “appropriate” given the initial distribution of endowments among the economic agents, but not “just” in any normative sense. Competition in this sense is no different from cooperation among the producers.
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Excerpted from Beyond Liberalism by Prabhat Patnaik. Copyright (c) 2024 Columbia University Press. Used by arrangement with the Publisher. All rights reserved.
Italics added by the author; emphases added by the editor.
* Prabhat Patnaik has taught economics at the University of Cambridge and Jawaharlal Nehru University, where he is professor emeritus. His books include The Value of Money (2009), A Theory of Imperialism, with Utsa Patnaik (2017), and Capital and Imperialism: Theory, History, and the Present, with Utsa Patnaik (2021).

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