order but John Maynard Keynes out of dire necessity".
000 Keynes (left) with US Treasury Secretary Morgenthau at Bretton Woods, July 1944 - argued that "supply creates its own demand".
Keynes' rebuttal of this view paralleled Marx's insights seventy years earlier. His central point was that in a decentralised, anarchic capitalist economy, those demanding and those supplying goods are not the same people. Buyers and sellers make individual decisions and are then brought together by the social relationships
9 embedded in the market. Since the decision to produce is made without direct reference to purchasers, it is always possible that the goods that have been made will not be wanted; and as Marx writes "no-one can sell unless someone else purchases. But no one directly needs to purchase because he has just sold.... these forms therefore imply the possibility of crises."
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10
While Marx sketched this possibility in somewhat abstract terms, Keynes provided much more detail about the way in which products circulate under capitalism. His main argument was that if households and firms save more than firms want to invest in productive activity, then there will be an overall shortfall of demand; and in such circumstances, governments should fill the gap, either by spending more or by cutting taxes.
An alternative method of boosting demand, much discussed in Kevnes' time and subsequently, was the use of monetary policy to lower interest rates and boost investment. Keynes was sceptical about the impact of such policies. This was partly because he felt that investment was not primarily governed by interest rates, but rather by waves of optimistic or pessimistic expectations, which he termed 'animal spirits.
In addition, Keynes argued that in certain circumstances it would not be possible to lower interest rates because of speculative behaviour in the money markets. If everyone expects interest rates to rise in the future, which means that bond prices will fall, then speculators will refuse to buy the bonds which the central bank is trying to sell. Since central banks try to determine interest rates through buying and selling bonds, they will then lose any influence over rates. 2 How radical was
Keynes? Keynes' writing was notoriously complex and ambiguous, and this has led to continual debates about the extent to which he really posed a radical challenge to capitalism. On the one hand a group of so-called postKeynesian' writers, including Joan Robinson and Nicholas Kaldor, and largely comprised of academics based in Cambridge who had known Keynes himself, and their followers, have argued that Keynesian economics is extremely radical in its implications, and in many ways compatible with Marxism. In contrast to this, US academic economists in the years following World War 2 fashioned a version of Keynesianism which fitted comfortably with quite traditional free-market economics.
This division over the legacy of Keynes has its roots in two factors, aside from the difficulty of Keynes' work.
Firstly, Keynes occupied a very specific class position. Unlike Ricardo a century before, he was not simply a representative of bourgeois interests, but more of a freefloating intellectual who was closely involved with the workings of government, but who also maintained a critical distance - as manifested, for example, in his attacks on the Treaty of Versailles and on Churchill's decision to return to the gold standard in the 1920s.
Secondly, the interpretation of Keynes' ideas, and their transformation both into a doctrine of Keynesianism and into practical policies after 1945, differed in different countries according to the nature of relations between capital and labour. So, it is not surprising that Keynesianism in the USA took on a more conservative cast than Keynesianism in Britain or France.
This ambiguity comes across particularly strongly with regard to Keynes' ideas about a crucial issue: the socialisation of investment. In his book The General Theory of Employment, Interest and Money, published in 1936, he writes that "a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment".
However, in the same paragraph he also argues that "no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community" and that "the necessary measures of socialisation can be introduced gradually and without a break in the general traditions of society". Passages like these have allowed Keynes to be claimed simultaneously both by the left of social democracy and by the centre-right. 3 The weaknesses
of Keynesianism Keynes' criticisms of the freemarket orthodoxy of the 1930s were of great significance, and his analysis of the economic mechanisms which lead to demand shortages is of lasting importance.
However, from a Marxist perspective his work has crucial weaknesses, which It is necessary critically to appropriate what is valuable in Keynes' ideas, but also to move the debate on from those ideas to discussing the much richer and deeper analysis provided by Marx are shared by even his most radical followers. Three in particular are central: his concentration on exchange at the expense of production, his analysis of labour, and his account of money and finance.
Keynes traces out in great detail the impact of a particular expected rate of profit on investment demand and the level of output. Yet he has little to say about what actually determines the rate of profit itself beyond some rather general points about the evolution of investment opportunities over time. Both the objective' determinants of profitability, for example technological developments or monopoly power and the subjective' influences arising from class struggle at the point of production, are absent from his analysis.
During the 1930s, critics
RECESSION of Keynesianism argued that unemployment arose not from a shortage of demand, but from wages which were too high. The claim was that expectations of profits and consequent investment would be stimulated if workers were prepared to take wage cuts. Keynes attempts to answer this criticism in chapter 19 of The General Theory; but this chapter is very obscure and he never managed to use his framework of analysis to provide a convincing refutation of this argument.
Much of Keynes' early work concentrated on the theory of money, and this influenced The General Theory in two important ways.
Firstly it led to a strong emphasis on the psychological determination of economic developments. The role of speculation in money markets lends great importance to psychological factors in the sphere of finance. Keynes' account of such factors is very acute. But he also tends to attribute a determining role to phenomena such as uncertainty and expectations in the generation of crises at the expense of deeper structural changes.
Secondly, Keynes highlights the conflict between money capital and productive capital, while neglecting the divides between productive capitals and between capital as a whole and labour. This is encapsulated in his desire for "the euthanasia of the rentier". This aim is perfectly understandable, but it neglects the interpenetration of financial and industrial capital, which is apparent today and which had been theorised two decades prior to Keynes by Marxists under the heading of 'finance capital.
These weaknesses left Keynesianism vulnerable to the crises which engulfed the capitalist world in the 1970s. The neglect of production meant Keynesians had no clear response to the collapse of profitability in that decade. The weaknesses in the Keynesian analysis of labour led to an inability to theorise the rise in inflation,
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RECESSION which also occurred at that point; and to answer the claim that price rises resulted from greedy workers pricing themselves out of jobs.
In addition, the changes in capitalism in the post-war period made it increasingly difficult to follow the core Keynesian policy prescription of raising government borrowing in response to economic slowdowns. Two developments played a role here.
Firstly, financial deregulation and increasingly competitive financial markets meant that any attempt by the state to borrow money simply began to push up interest rates, worsening the recession it was meant to prevent.
Secondly, the internationalisation of both trade and finance both meant that extra spending would be more likely to leak abroad into imports and that government borrowing would push down the value of the
A century ago Argentina had a relatively
well developed
certainly compared to the rest of Latin
America. Capitalist development, though,
did not emerge through the growth of an
indigenous capitalist class but primarily
from foreign investment. Argentina's
railway system for example was developed almost exclusively with British
finance. In the late 19th and early 20th
centuries Britain was the main source of
foreign capital in the Argentine economy,
and Argentina was the major destination
for British investment abroad.
In other words, Argentina at the time
could have been described as a British
semi-colony. Much has changed since then,
the United States long having replaced
Britain as the main source of foreign
investment in the country. Throughout,
though, Argentina has always remained a
dependent capitalist country.
The Argentine government has been
forced to default on its debt on several
occasions. The most recent was the
economic crisis of 2001-2, when the
scale of the country's economic crisis
was such that the government limited
bank withdrawals to prevent
country's banks from going bust. The
savings of millions of Argentine citizens
were effectively wiped out, and as a currency, raising inflation and cutting into real incomes. Lacking convincing answers to these various problems Keynesianism fell prey to the monetarist precepts which underlay the Thatcher and Reagan governments. 4 Can Keynesianism
be revived! The triumph of monetarism was short-lived. The contradictions within it were at least as acute as those within Keynesianism, and by the end of the 1980s it was effectively abandoned. Since then, capitalist governments have followed a neo-liberal approach in which certain Keynesian ideas, such as running government deficits, have been seen as acceptable, provided they are definitively severed from any radical intentions, and reformulated around a notion of the interests of capital. capitalist economy,
the in bank accounts abroad
However, the ability of governments to put such ideas into effect has varied greatly, depending on their particular position with regard both to domestic capital and labour and to the international system. Under both Reagan and Bush the USA has been able to achieve a certain measure of growth through deficit spending. But when the Japanese government tried this in the 1990s it failed completely, resulting in growing stagnation.
What is significant about the current crisis is both the scale of the Keynesian measures being proposed, and also their concerted character, with all large capitalist economies currently undertaking both expansionary taxation and monetary policies.
While such policies may well have a short-term effect, sooner or later they are likely to face the inherent weaknesses of the Keynesian approach.