Wednesday, October 28, 2009

What It Takes to Make Keynes Work

John Ross wrote in the Guardian ("No Secrets to China's Success," 18 August 2009):
Keynes noted in the final chapter of his General Theory, in a point highly relevant to a situation where mass unemployment is again soaring, that "a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment".

That "somewhat comprehensive socialisation of investment" is impossible in a private sector-dominated economy. The decisive advantage China has in the present crisis is that it does not have to rely only on indirect means (reduction of interest rates, budget deficits etc) to attempt to reverse the plunging investment that is the driving force of this as with every major recession. China can use its large state-owned company sector to increase investment and instruct its state-owned banks to lend. That is why its economy is growing, while Alistair Darling is still pleading ineffectually for UK banks to increase their lending and while UK investment in housing and transport is plunging by 30% and more.
A good point.

The thing about Keynes is that you can make Keynes work but not under a normal capitalist state in a normal capitalist market economy. It takes something like (1) China's one-party state or (2) war economy (of not capital-intensive wars like today's Afghanistan and Iraq wars but labor-intensive wars of total mobilization subordinating capital and labor alike to the state, like WW2) or (3) the working class so awesomely powerful that it might as well go ahead and do socialism instead of Keynes.

That's what typical Keynesians and typical anti-Keynesians (either of the Marxist or of the capitalist liquidationist kind) don't understand.


Jim F. said...

Many years ago, the Kenynesian-Marxist economist Michal Kalecki argued that under normal circumstances, capital would be resistant to the adoption of Keynesian-style full-employment policies, even if it was manifestly clear that such policies would boost business profits. That's because, according to Kalecki, such policies would less the social status of businessmen and weaken their political power. Capitalists, in Kalecki's opinion, feared the loss of social status and political power even more than they feared the loss of profits. Hence, their tendency to form political alliances with rentiers (whose incomes would be directly threatened by such policies) in order to oppose full-employment policies. See his famous 1943 paper, "Political Aspects of Full Employment" can be found online here.

Paul Sweezy echoed Kalecki's arguments in his early book, The Theory of Capitalist Development. Later on, both Kalecki and Sweezy pointed out how, what may be called, military Keyensianism provided a way to make Keynesianism work in a way that would be acceptable to capitalists.

And of course we should ignore the example of fascism, which, especially under the Third Reich, was able to make Keyensian-type policies work quite successfully in a manner that was acceptable to capital. It seems that that German big business was willing to tolerate from Hitler economic policies, that they would have strenously opposed under the Weimar Republic, because Hitler had first smashed the trade unions, along with the social democrats and communists. Hitler could pursue full-employment policies in Germany without making capital feel threatened by them.

Yoshie said...

Seeing that aspect of MR, typical Marxists say MR is "basically Keynesian"! They are still looking for capitalism to FROP on its own, after all these years. :-0

Jim F. said...

The Keynesian influence on Sweezy has always been a bone of contention for other Marxists. Back in the late 1960s, Paul Mattick wrote a critique of Keynesianism, in which Sweezy, was at least by implication, one of his targets. Marc Linder et al. in their book Anti-Samuelson, while primarily (as the title suggests) targeting Paul Samuelson's brand of Keynesianism, also took time out to critique Sweezy precisely for his Keynesianism. And more recently, James Heartfield has simiarly criticized Seezy

Of course as Sweezy's economic thought matured, the problem of monopoly loomed larger and larger. But here too, his thinking was both congruent with and indeed influenced by what contemporary left Keynesians like Joan Robinson and Michal Kalecki were doing in that area. And Joan Robinson had famously rejected the thesis that Keyensianism could be reconciled to neoclassical economics in the way that people like Samuelson were

I remember once discussing this with Mike Lebowitz on the Marxmail List. He seemed a bit reluctant to acknowledge the extent of Keyensian influence on Sweezy, even though some of his own writings concerning Sweezy make clear that the influence was quite substantial.

Yoshie said...

I'll have to look up the Farmelant-Lebowitz correspondence. Anyway, I do agree that there's probably ambivalence over Keynes among people writing for MR. The ambivalence has its source in the secret longing for "a terminal crisis of capitalism." Most MR writers would flatly reject the idea that capitalism would collapse on its own if they get specifically asked about it, but a lot of them probably do get all too excited about major downturns like the one we are in.

Personally, I think that it's the MR school of Marxism's strength, rather than its weakness, to have gotten Keynes right -- righter than Keynes himself, not to mention typical Keynesians today, whose predilection for technocracy has prevented them from seeing what we can and cannot do with Keynes' best insights.

Getting both Marx and Keynes right, in my opinion, would lead one to the conclusion that "it's politics and culture, stupid!" But economism dies hard.

Jeff Rubard said...


Tell me about it.

CEJ said...

What did the US do to end the high unemployment of the Great Depression? Entering WW II put something like 18 million men and several million women directly onto the government payroll. And then what about all the women going to work for defense contractors and suppliers?