Groucho Marxism

Which came first, the chicken or the egg? As we all know, this question has no answer, but it is instructive to think about why it has no answer. The reason, as we all intuitively understand, is that there isn’t a linear relationship between chickens and eggs; rather, there is a feedback loop between the two. As the number of chickens goes up, so the number of eggs goes up, and vice versa; similarly, as the number of chickens goes down, so does the number of eggs. This is an example of a feedback loop known as a reinforcing loop. A characteristic of reinforcing loops is exponential increase (or decrease). So why is the earth not covered in chickens and eggs? The answer, of course, or at least one of the answers, is that chickens have predators such as foxes.

As the number of chickens increases or decreases, the number of foxes moves in the same direction. However, as the number of foxes increases or decreases, the number of chickens moves in the opposite direction. Thus an decrease in the number of chickens leads to a decrease in the number of foxes, leading to an increase the number of chickens, leading to an increase in the number of foxes, leading to a decreasing the number of chickens, and so on. This is an example of a feedback loop known as a balancing loop. In the 1920s two mathematicians, Alfred Lotka and Vito Volterra, independently came up with a mathematical formulation of predator-prey systems such as the one just described. Their formulation has come to be known as the Lotka-Volterra equations, to which we will return shortly.

The models outlined above may seem very simple, but they encapsulate some key concepts of an approach known as Systems Thinking. In each case we have specified how a system’s constituent parts interrelate, including feedback loops, then used this to work out how the system will evolve over time. These models are arguably already more sophisticated than a lot of models used by economists, which are generally linear and static (i.e. they have no feedback loops and don’t predict how a system will evolve over time). Even the most sophisticated economic models tend to be based on the idea of equilibrium, which is fundamentally antithetical to Systems Thinking. To find economic models that are not based on equilibrium we generally need to look outside of the mainstream.

In the 1960s the economist Richard Goodwin derived a system of equations to model the interaction between wages and economic activity which is mathematically equivalent to the Lotka-Volterra system. The logic behind Goodwin’s model is that as economic activity goes up, so does employment, and as employment goes up, so does workers’ power to bargain for higher wages. These higher wages eat into firms’ profits, so firms have less money to invest, which results in a reduction in economic activity. This in turn results in reduced employment and bargaining power for workers, resulting in lower wages, increased profits for firms, higher investment, and an increase in economic activity; and so the cycle begins again.

This logic can be traced all the way back to Marx, who saw it as one of the key contradictions of capitalism: if workers do anything to improve their lot, ultimately it rebounds back on them through increased unemployment. In Marx’s view, this demonstrated that a capitalist system will always result in immiseration for the worker. In fact Goodwin’s model is often referred to as ‘Goodwin’s class struggle model’ as it neatly encapsulates the struggle between workers and capitalists. Since the model was developed in the 1960s, a significant amount of empirical evidence has been adduced to show that so-called ‘Goodwin cycles’ do actually occur in the real world. This can be seen as a clear vindication of Marx’s theory.

Marx would have come to this hypothesis through his use of Dialectics, and it turns out that there is a lot of overlap between Dialectics and Systems Thinking. Both approaches emphasize interconnectedness and dynamic change over linear, static thinking. Furthermore, there are correspondences between many concepts used under the two approaches. For example, the Dialectical concept of ‘interchange of cause and effect’ corresponds to the Systems Thinking concept of a feedback loop; and the Dialectical concept of ‘transformation of quantity into quality’ corresponds to the Systems Thinking concept of a phase transition. You could even go so far as to say that Dialectics and Systems Thinking are two different terms to describe essentially the same thing (although some might disagree).

This overlap between the two approaches is helpful, for me at least, because it helps to pin down exactly what is meant by the slightly slippery term ‘Dialectics’. It also potentially opens up Marxist ideas to the many scientists and engineers who may be unfamiliar with Dialectics but are familiar with Systems Thinking. Even economists schooled in equilibrium models are starting to realise that Systems Thinking is required to really understand how a capitalist economy works. It simply doesn’t make sense to model a complex, dynamic, interacting system like the economy using linear, static, equilibrium-based models. This demonstrates once again that Marx was on the right lines when he was writing about this stuff over 150 years ago.