Jonathan Portes is a leading mainstream Keynesian economist. Formerly head of the British economic think-tank, the National Institute of Economic and Social Research, he is now senior fellow and professor of Economics and Public Policy, Kings College, London. Late last year Portes wrote a short book on Capitalism: 50 ideas you really need to know.

Some of the points in that book were repeated up in Portes’ article in the centre-left British journal, The New Statesman, entitled ‘What Marx got right’. This sounds promising from such an eminent mainstream ‘centre-left’ economist. However, it soon becomes clear that what Marx got right was not much, and mostly he got things wrong – according to Portes.

Portes starts with defining a capitalist. “Are you a capitalist? The first question to ask is: do you own shares? Even if you don’t own any directly (about half of Americans do but the proportion is far lower in most other countries) you may have a pension that is at least partly invested in the stock market; or you’ll have savings in a bank. So you have some financial wealth: that is, you own capital. Equally, you are probably also a worker, or are dependent directly or indirectly on a worker’s salary; and you’re a consumer. Unless you live in an autonomous, self-sufficient commune – very unusual – you are likely to be a full participant in the capitalist system.”

But for Marx, you are not a capitalist if you do not get your income predominantly from surplus-value (profit or dividends, interest and rent). And only a very tiny percentage of people of working age do. Indeed, Marxist economist Simon Mohun has shown that less than 2% of income earners in the US fit that bill. Nearly 99% of us have to work (sell our labour power) for a living. Even if some of us get some dividends, or rent, or interest from savings, we cannot live off that alone. Yes, we workers ‘interact’ in the capitalist system but only through the exploitation of our value-creating (for capital) labour power. We are not a ‘full participant’ in capitalism, except in that sense.

Portes goes on to tell us that capitalism is constrained by laws and the state on our behalf: “property rights are rarely unconstrained…. This web of rules and constraints, which both defines and restricts property rights, is characteristic of a complex economy and society.”

However, the idea that the state just arbitrates between capitalists and between capitalists and workers to ensure a ‘level playing field’ is an illusion. The state needs to control outright conflict between classes and individuals (over property rights), but its primary role is to deliver the needs of the ruling elite (“the executive committee of the ruling class” – Marx). In the case of capitalism, that means the interests of capital and the owners of the means of production.

But what did Marx get right?, according to Portes. “Marx had two fundamental insights. The first was the importance of economic forces in shaping human society. For Marx, it was the “mode of production” – how labour and capital were combined, and under what rules – that explained more or less everything about society, from politics to culture. So, as modes of production change, so too, does society.”

Yes, social relations are determined by the mode of production – although, for Marx, labour and ‘capital’ only exist as real social categories in the capitalist mode of production. ‘Capital’ is not just the physical means of production or fixed assets, as Portes implies and as mainstream economics thinks. For Marx, it is a specific social relation that reveals the form and content of exploitation of labour under capitalism.

Portes goes on: “The second insight was the dynamic nature of capitalism in its own right. Marx understood that capitalism could not be static: given the pursuit of profit in a competitive economy, there would be constant pressure to increase the capital stock and improve productivity. This in turn would lead to labour-saving, or capital-intensive, technological change.” Yes, Marx saw capitalism as a dynamic mode of production that would drive up the productivity of labour through a rise in the organic composition of capital, as never seen before (contrary to Piketty’s view that Marx expected productivity to fall to zero)

But Portes significantly leaves out the other side of the coin of capitalism, namely that, while competition may drive capitalists to invest and boost the productivity of labour, there is a contradiction between the ‘dynamism’ of capitalism and private profit. A rising organic composition of capital tends to lead to a fall in the profitability of capital. Capitalism is not a permanently ‘progressive mode of production’, as Portes implies, but is flawed and ultimately fails at the door of sustaining profitability.

Portes says that Marx’s critique of capitalism is based on the idea that the wages of labour would be driven to subsistence levels and this is where he waswrong. “Though Marx was correct that competition would lead the owners of capital to invest in productivity-enhancing and labour-saving machinery, he was wrong that this would lead to wages being driven down to subsistence level, as had largely been the case under feudalism. Classical economics, which argued that new, higher-productivity jobs would emerge, and that workers would see their wages rise more or less in line with productivity, got this one right.”

Portes claims that “so far, it seems that increased productivity, increased wages and increased consumption go hand in hand, not only in individual countries but worldwide.” Really? What about this gap in the advanced economies?

Actually Marx never had a subsistence theory of wages. On the contrary, he criticised fiercely such a view, as expressed by reactionary ‘classical’ economist Thomas Malthus and socialist Ferdinand Lassalle. Unfortunately, Portes accepts this common distortion of Marx’s view on the relation between wages and profits.

What Marx said was that wages cannot eat up all productivity, because profits must be made for capital. But the degree of the distribution between profits and wages is not fixed by some ‘iron law’ but is determined by the class struggle between workers and capitalists. That is a question of distribution of the value created in production. But it is in the production of value that Marx finds the key contradiction of the capitalist mode of production: namely between the productivity of labour and the profitability of capital.

Portes says, because Marx got it wrong when he thought wages would be driven to subsistence levels, “in turn, Marx’s most important prediction – that an inevitable conflict between workers and capitalists would lead ultimately to the victory of the former and the end of capitalism – was wrong.” He goes on to argue that “thanks to increased productivity, workers’ demands in most advanced capitalist economies could be satisfied without the system collapsing.”

Well, the system may not have ‘collapsed’, but it is subject to regular and recurring crises of production, and sometimes long periods of economic depression that sap the incomes, employment and future of billions. And have “workers demands in most advanced capitalist economies” (Portes leaves out the billions in other economies, just as Keynes did) been “satisfied”? What about the poverty levels in most advanced economies, what about employment conditions, housing, education and health? What about huge and increasing levels of inequality of wealth and income in ‘most advanced capitalist economies’, let alone globally?

Portes admits that there was huge inequality “in the late 19th and early 20th centuries”. However, “not only did this trend stop in the 20th century, it was sharply reversed … after the Second World War the welfare state redistributed income and wealth within the framework of a capitalist economy.” But this ‘golden era’ of reduced inequality was a short-lived exception, something that the work of Thomas Piketty and others have shown.

Portes knows that after the 1970s inequality rose again but he accepts the argument that “the chief story of the past quarter-century has been the rise of the “middle class”: people in emerging economies who have incomes of up to $5,000 a year.” Actually, the reduced level of ‘global inequality’ between countries and between income groups is down solely to ending of poverty for 600m people in China. Exclude China and global inequality of wealth and income is no better, if not worse, than 50 years ago. Capitalism has not been a success here.

Portes recognises the rise of China and its phenomenal growth. His explanation for this appears to be some idea of ‘mixed economy’ capitalism where the state plays a role in constraining unregulated capital. “Access to capital still remains largely under state control. Moreover, though its programme is not exactly “Keynesian”, China has used all the tools of macroeconomic management to keep growth high and relatively stable.” Portes notes that “China is still far from a “normal” capitalist economy.”

For Portes, what is wrong with capitalism is not its failure to eliminate poverty or inequality or meet the basic needs of billions in peace and security, as Marx argued. No, it is excessive consumption. “Although we are at least twice as rich as we were half a century ago, the urge to consume more seems no less strong…. we strive to “keep up with the Joneses”. But excessive or endemic ‘consumerism’ is not an issue for the billions in the world or even millions in the UK, Europe or the US – it’s the opposite: the lack of consumption, including ‘social goods’ (public services, health, education, pensions, social care etc).

Portes does recognise that capitalism is not harmoniously dynamic and that it has crises. However, apparently all that is necessary is to regulate the financial sector properly and all will be well. He “would prefer a more wholesale approach to reining in the financial system; this would have gained the approval of Keynes, who thought that while finance was necessary, its role in capitalism should be strictly limited.” But what if “there is a more fundamental problem: that recurrent crises are baked into the system?” Then we need to “make sure that we have better contingency plans next time round.”

But is the explanation of crises under capitalism that go back 150 years or more to be found in the lack of regulation of finance? Marx had more to say on this with his law of profitability and the role of fictitious capital. And if Marx was right, ‘better contingency plans’ to ‘regulate’ finance will not be (and have not been) enough to avoid more slumps.

Portes finishes by saying that “There is no viable economic alternative to capitalism at the moment but that does not mean one won’t emerge.” But he is vague: “The defining characteristic of the economy and society will be how that is produced, owned and commanded: by the state, by individuals, by corporations, or in some way as yet undefined.” Indeed “ just as it wasn’t the “free market” or individual capitalists who freed the slaves, gave votes to women and created the welfare state, it will be the collective efforts of us all that will enable humanity to turn economic advances into social progress.”

Portes is implying the need for socialism, namely a collectively-owned and democratically-run economy of super-abundance that eventually ends the ‘economic question’ itself. That was Marx’s vision too – but it would only be possible by the ending of the capitalist mode of production, not by ‘regulating’ it.