Marx and Hayek on “Real” Versus “Less Real” Explanations for the Fragility of Capitalism

Karl Marx’s (1818–1883) analysis of the capitalist system in Capital, Vol. I memorably inferred that the system’s fragility is rooted in “real” causes. Marx also analyzed significant contributing causes entrenched in the banking and financial spheres in Capital, Vol. III and other writings. The paper utilizes recently available drafts not previously accessible to shed light on Marx’s evolving ideas concerning “real” versus “less real” causes for fragility in the system. The paper contrasts the studies of fragility by Marx and Friedrich von Hayek (1899–1992) who, unlike Marx, was a dedicated supporter of capitalism. Hayek argued that the fragility of the capitalist system was rooted in “monetary” causes, i.e., in “less real” causes rather than in “real” ones. The paper reviews the two scholars’ divergent explanations of fragility, emphasizing a focal point concerning possible remedies to the fragility. Marx, as is well known, argued that there was no such remedy. Hayek, who blamed the banking sector for the fragility, argued in his 1930s theory of business cycles that more passive banks and central banks could provide an answer to the fragility. However, it was not until the mid-1970s that Hayek supported a radical reform which would leave the monetary system to be ruled by “free banking.”