By Martin Thomas
John Maynard Keynes posed many sharp questions about capitalism, often further developing ideas which Marx had sketched before him. He framed the whole issue as one of "safeguarding capitalism", but can "Keynesian" methods really do that?
This article (download as pdf, see "attachment" below) from Workers' Liberty 32, June 1996, surveys Keynes's insights and criticises bowdlerised "Keynesianism".
It discusses Keynes's ideas on the dichotomy between money and other commodities; on the possible "liquidity trap"; on the "multiplier"; on the falling tendency of the rate of profit; on the necessity for "a somewhat comprehensive socialisation of investment"; on Marxism, the working class, and trade unions; and on national economies and the global markets.
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Keynesian economics was sent to the dustbin because it failed in the 1970s? It's been totally discredited ever since then? Right? Dead wrong.
Paul Krugman of the Massachusetts Institute of Technology, probably the most famous economist of his generation, is an unrepentant Keynesian. This short book gives a crisp, readable and instructive account of the Asia-centred economic crisis of 1997-9. The key idea is Keynes's "liquidity trap" - where a general desire to hold cash (to provide safety against future troubles; to be ready for new industrial-investment openings when they arise, which is not yet; to fend off creditors pressing for their cash) makes it harder to get cash (you want to sell, but no-one with cash wants to part with it and buy), and the vicious circle spirals into a slump. Keynes himself gave credit to Marx for discovering this phenomenon earlier. Marx went much further than Keynes, I think, in showing the roots of the "liquidity trap" in the fundamental contradictions of capitalist production, but Keynes's exposition of the mechanics is far more developed than Marx's unfinished notes and fragments on the question.
Krugman, like Keynes, sees himself as a gadfly within the Establishment. His arguments that Japan should get itself out of its slump by deliberately creating inflation, and that Malaysia was right to reimpose capital controls, are too daring for most. But the mainstream is not so far away. No-one has argued for leaving Asia's crisis, for free-market mechanisms to fix it, nor denied the broadly "Keynesian" idea that the Japanese government should put "stimulus" into its economy.
Besides, Keynesian economics did not fail in the 1970s. It served the bourgeoisie well. It got them out of the sharp slump of 1974-5 quite fast, and enabled them to contain and tame the great working class militancy of that period. Thatcherism (economic rationalism, neo-liberalism, whatever) followed because the Keynesian policies had succeeded to the extent that the bourgeoisie felt confident about a counter-offensive. Its true pioneer, in fact, was not Thatcher but Pinochet in Chile after 1973 - proving that the precondition for "neo-liberalism" was not some intellectual discredit for Keynes's economics, but a confident ruling class avid for revenge.
For the "neo-liberal" offensive, however, the ruling classes were best served by people who believed in it as general doctrine, not just as an expedient for smashing down the working class. Hence, as Krugman has shown in an earlier book, Peddling Prosperity, at the start of the 1980s US government economic advice was dominated by outright cranks.
The nonsense-theory of monetarism was abandoned by the Tories themselves within a few years. The growl that remains from that Cheshire tiger is the idea of "no gain without pain" - that if capitalist crises do not exact their full toll of suffering, then "the economy" will not have had the proper "purge" which that crisis showed to be necessary, and any recovery will be "unsound". That idea is still widespread - and very useful to the ruling classes, though it also exists in perverse "Marxist-fatalist" variants. Krugman, though he is no radical or socialist, usefully shows its falseness.