By Michael Roberts
Keynesian economics dominates on the left in the labour movement. Keynes is the economic hero of those wanting to change the world; to end poverty, inequality and continual losses of incomes and jobs in recurrent crises. And yet anybody who has read the posts on my blog knows that Keynesian economic analysis is faulty, empirically doubtful and its policy prescriptions to right the wrongs of capitalism have proved to be failures.
In the US, the great gurus of opposition to the neoliberal theories of Chicago school of economics and the policies of Republican politicians are Keynesians Paul Krugman, Larry Summers and Joseph Stiglitz or slightly more radical Dean Baker or James Galbraith. In the UK, the leftish leaders of the Labour party around Jeremy Corbyn and John McDonnell, self-proclaimed socialists, look to Keynesian economists like Martin Wolf, Ann Pettifor or Simon Wren Lewis for their policy ideas and analysis. They bring them onto their advisory councils and seminars. In Europe, the likes of Thomas Piketty rule.
Those graduate students and lecturers involved in Rethinking Economics, an international attempt to change the teaching and ideas away from neoclassical theory, are led by Keynesian authors like James Kwak or post-Keynesians like Steve Keen, or Victoria Chick or Frances Coppola. Kwak, for example, has a new book called Economism, which argues that the economic faultline in capitalism is rising inequality and the failure of mainstream economics is in not recognising this. Again the idea that inequality is the enemy, not capitalism as such, exudes from the Keynesians and post-Keynesians like Stiglitz, Kwak, Piketty or Stockhammer, and dominates the media and the labour movement. This is not to deny the ugly importance of rising inequality, but to show that a Marxist view of this does not circulate.
Indeed, when the media wants to be daring and radical, publicity is heaped on new books from Keynesians or post-Keynesian authors, but not Marxists. For example, Ann Pettifor of Prime Economics has written a new book, The Production of Money, in which she tells us that “money is nothing more than a promise to pay” and that as “we’re creating money all the time by making these promises”, money is infinite and not limited in its production, so society can print as much of its as it likes in order to invest in its social choices without any detrimental economic consequences. And through the Keynesian multiplier effect, incomes and jobs can expand. And “it makes no difference where the government invests its money, if doing so creates employment”. The only issue is to keep the cost of money, interest rates as low as possible, to ensure the expansion of money (or is it credit?) to drive the capitalist economy forward. Thus there is no need for any change in the mode of production for profit, just take control of the money machine to ensure an infinite flow of money and all will be well.
Ironically, at the same time, leading post-Keynesian Steve Keen gets ready to deliver a new book advocating the control of debt or credit as the way to avoid crises. Take your pick: more credit money or less credit. Either way, the Keynesians drive the economic narrative with an analysis that reckons only the finance sector is the causal force in disrupting capitalism.
So why do Keynesian ideas continue to dominate? Geoff Mann provides us with an insightful explanation. Mann is director of the Centre for Global Political Economy at Simon Fraser University, Canada. In a new book, entitled In the Long Run We are all Dead, Mann reckons it is not that Keynesian economics is seen as correct. There have been “powerful Left critiques of Keynesian economics from which to draw; examples include the work of Paul Mattick, Geoff Pilling and Michael Roberts (thanks – MR)” (p218), but Keynesian ideas dominate the labour movement and among those opposed to what Mann calls ‘liberal capitalism’(what I would call capitalism) for political reasons.
Keynes rules because he offers a third way between socialist revolution and barbarism, i.e. the end of civilisation as we (actually the bourgeois like Keynes) know it. In the 1920s and 1930s, Keynes feared that the ‘civilised world’ faced Marxist revolution or fascist dictatorship. But socialism as an alternative to the capitalism of the Great Depression could well bring down ‘civilisation’, delivering instead ‘barbarism’ – the end of a better world, the collapse of technology and the rule of law, more wars etc. So he aimed to offer the hope that, through some modest fixing of ‘liberal capitalism’, it would be possible to make capitalism work without the need for socialist revolution. There would no need to go where the angels of ‘civilisation’ fear to tread. That was the Keynesian narrative.
This appealed (and still appeals) to the leaders of the labour movement and ‘liberals’ wanting change. Revolution was risky and we could all go down with it. Mann: “the Left wants democracy without populism, it wants transformational politics without the risks of transformation; it wants revolution without revolutionaries”. (p21).
This fear of revolution, Mann reckons, was first exhibited after the French revolution. That great experiment in bourgeois democracy turned into Robespierre and the terror; democracy turned into dictatorship and barbarism – or so the bourgeois myth goes. Keynesian economics offers a way out of the 1930s depression or the Long Depression now without socialism. It is the third way between the status quo of rapacious markets, austerity, inequality, poverty and crises and the alternative of social revolution that may lead to Stalin, Mao, Castro, Pol Pot and Kim Jong-Un. It is such an attractive ‘third way’ that Mann professes that it even appeals to him as an alternative to the risk that revolution will go wrong (see his last chapter, where Marx is portrayed as the Dr Jekyll of Hope and Keynes as the Mr Hyde of fear).
As Mann puts it, Keynes reckoned that, if civilised experts (like himself) dealt with the short-run problems of economic crisis and slump, then the long-run disaster of the loss of civilisation could be avoided. The famous quote that makes the title of Mann’s book, that ‘in the long run we are all dead’, was about the need to act on the Great Depression with government intervention and not wait for the market to right itself over time, as the neoclassical (‘classical’ Keynes called it) economists and politicians thought. For “this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past, the ocean is flat again” (Keynes). You need to act on the short term problem or it will become a long-term disaster. This is the extra meaning of the long run quote: deal with depression and economic crises now or civilisation itself will come under threat from revolution in the long run.
Keynes liked to consider the role of economists as like dentists fixing a technical problem of toothache in the economy (“If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid”). And modern Keynesians have likened their role as plumbers, fixing the leaks in the pipeline of accumulation and growth. But the real method of political economy is not that of a plumber or dentist fixing short-run problems. It is of a revolutionary social scientist (Marx), changing it for the long term. What the Marxist analysis of the capitalist mode of production reveals is that there is no ‘third way’ as Keynes and his followers would have it. Capitalism cannot deliver an end to inequality, poverty, war and a world of abundance for the common weal globally, and indeed avoid the catastrophe of environmental disaster, over the long run.
Like all bourgeois intellectuals, Keynes was an idealist. He knew that ideas only took hold if they conformed to the wishes of the ruling elite. As he put it, “Individualism and laissez-faire could not, in spite of their deep roots in the political and moral philosophies of the late eighteenth and early nineteenth centuries, have secured their lasting hold over the conduct of public affairs, if it had not been for their conformity with the needs and wishes of the business world of the day…These many elements have contributed to the current intellectual bias, the mental make-up, the orthodoxy of the day.” Yet he still really believed that a clever man like him with forceful ideas could change society even it was against the interests of those who controlled it.
The wrongness of that idea was brought home to him in his attempts to get the Roosevelt administration to adopt his ideas on ending the Great Depression and for the political elite to implement his ideas for a new world order after the world war. He wanted to set up ‘civilised’ institutions to ensure peace and prosperity globally through international management of economies, currencies and money. But these ideas of a world order to control the excesses of unbridled laisser-faire capitalism were turned into institutions like the IMF, World Bank and the UN Council used to promote the policies of imperialism, led by America. Instead of a world of ‘civilised’ leaders sorting out the problems of the world, we got a terrible eagle astride the globe, imposing its will. Material interests decide policies, not clever economists.
Indeed, Keynes, the great idealist of civilisation turned into a pragmatist at the post-war Bretton Woods meetings, representing not the world’s masses, or even of a democratic world order, but the narrow national interests of British imperialism against American dominance. Keynes told the British parliament that the Bretton Woods deal was not “an assertion of American power but a reasonable compromise between two great nations with the same goals; to restore a liberal world economy”. Other nations were ignored, of course.
To avoid the situation where in the long run we are all dead, Keynes reckoned that you must sort out the short run. But the short run cannot be sorted to avoid the long run. Deliver full employment and all will be well, he thought. Yet, now in 2017, we have near ‘full employment’ in the US, the UK, Germany and Japan and all is not well. Real wages are stagnating, productivity is not rising and inequalities are worsening. There is a Long Depression now and no end to apparent ‘secular stagnation’. Of course, the Keynesians says that this is because Keynesian policies have not been implemented. But they have not (at least not fiscal spending) because ideas do not triumph over dominant material interests, contrary to Keynes. Keynes had it upside down; in the same way that Hegel had it upside down. Hegel reckoned that it was the conflict of ideas that led to conflict in history, when it was the opposite. History is the history of class struggle.
And anyway, Keynes’ economic prescriptions are based on fallacy. The long depression continues not because there is too much capital keeping down the return (‘marginal efficiency’) of capital relative to the rate of interest on money. There is not too much investment (business investment rates are low) and interest rates are near zero or even negative. The long depression is the result of too low profitability and so not enough investment, thus keeping down productivity growth. Low real wages and low productivity are the cost of ‘full employment’, contrary to all the ideas of Keynesian economics. Too much investment has not caused low profitability, but low profitability has caused too little investment.
What Mann argues is that Keynesian economics dominates the left despite its fallacies and failures because it expresses the fear that many of the leaders of the labour movement have about the masses and revolution. In his new book, James Kwak quotes Keynes: “For the most part, I think that Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organisation which shall be as efficient as possible without offending our notions of a satisfactory way of life.” Kwak comments: “That remains our challenge today. If we cannot solve it, the election of 2016 (Trump) may turn out to be a harbinger of worse things to come.” In other words, if we cannot manage capitalism, things could be even worse.
Behind the fear of revolution is the bourgeois prejudice that to give power to ‘the masses’ means the end of culture, scientific progress and civilised behaviour. Yet it was the struggle of working people over the last 200 years (and before) that got all those gains of civilisation that the bourgeois is so proud of. Despite Robespierre and the revolution’s ‘devouring of its own children’ (a term used by pro-aristocrat Mallet du Pan and adopted by the British conservative bourgeois, Edmund Burke), the French revolution opened up the expansion of science, technology in Europe. It ended feudalism, religious superstition and inquisition and introduced Napoleonic laws. If it had not taken place, France would have suffered more generations of feudal profligacy and decline.
As we note that it is 100 years this month since the start of the Russian revolution, we can consider the counterfactual. If the Russian revolution had not taken place, then Russian capitalism may have industrialised a little, but would have become a client state of British, French and German capital and many millions more would have been killed in a pointless and disastrous world war that Russia would have continued to participate in. Education of the masses and the development of science and technology would have been held back; as they were in China, which remained in the grip of imperialism for another generation or more. If the Chinese revolution had not taken place in 1949, China would have remained a client comprador ‘failed state’, controlled by Japan and the imperialist powers and ravaged by Chinese war lords, with extreme poverty and backwardness.
Keynes was a bourgeois intellectual par excellence. His advocacy of ‘civilisation’ meant bourgeois society to him. As he put it: “the class war will find me on the side of the educated bourgeoisie.” There was no way he support socialism, let alone revolutionary change because “preferring the mud to the fish, it exalts the boorish proletariat above bourgeois and the intelligentsia who, whatever their faults, are the quality in life and surely carry the seeds of all human advancement?”
Indeed, economically, in his later years, he praised the very laisser-faire ‘liberal’ capitalism that his followers condemn now. In 1944, he wrote to Friedrich Hayek, the leading ‘neo-liberal’ of his time and ideological mentor of Thatcherism, in praise of his book, The Road to Serfdom, which argues that economic planning inevitably leads to totalitarianism: “morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in a deeply moved agreement.”
And Keynes wrote in his very last published article, “I find myself moved, not for the first time, to remind contemporary economists that the classical teaching embodied some permanent truths of great significance…. There are in these matters deep undercurrents at work, natural forces, one can call them or even the invisible hand, which are operating towards equilibrium. If it were not so, we could not have got on even so well as we have for many decades past.”
Thus classical economics and a flat ocean returns. Once the storm (of slump and depression) has passed and the ocean is flat again, bourgeois society can breathe a sigh of relief. Keynes the radical turned into Keynes the conservative after the end of Great Depression. Will the Keynesian radicals become mainstream conservatives when the Long Depression ends?
We shall indeed all be dead if we do not end the capitalist mode of production. And that will require a revolutionary transformation. A tinkering with the supposed faults of ‘liberal’ capitalism will not ‘save’ civilisation – in the long run.
The article originally appeared on Michael Roberts Bolg on March 27, 2017.