Keynes: The great saviour and his leftwinger converts
Capitalism is in terminal decline. So why, asks Jack Conrad, do so many on the left advocate not socialism, but increased government spending, deficit financing and Keynesian solutions?
John Maynard Keynes: no friend of the ‘boorish proletariat’
he carried the heavy responsibility of serving as shadow chancellor,
Ed Balls “cast himself as a latter-day John Maynard Keynes”.1
The TUC’s industrial investment, job creation and VAT-cutting
alternative budget proposals are quintessentially Keynesian.2
The same goes for the demands of the People’s Charter, promoted by
the Morning Star and supported by Aslef, RMT, FBU, GMB, Unite,
PCS, NUT and a range of other trade unions.3 The
assumptions, proposals and expectations of many other organisations,
campaigns and individuals on the left are either explicitly or
implicitly Keynesian too: Labour Representation Committee, Left
Economics Advisory Panel, George Galloway, Caroline Lucas, Gregor
Gall, Andrew Fisher, Owen Jones, Green New Deal, etc. All call for
deficit financing as a means of slashing unemployment and putting the
country back onto the high road to economic growth, as mapped out by
the “great saviour” (Robert Skidelsky).4
let us take a look at Keynes, the man, and the ‘ism’ linked to
his name. Born into a well-read, middle class family, he went from
Eton to Cambridge, and then, after a short stint at the India office,
he pursued a brilliant career: sometime academic, sometime government
advisor, sometime sage. Cultured, bisexual, confident, intellectually
gifted, he mixed easily with the high bourgeoisie. Soon he was part
of the inner circle of the British ruling class. Always an elitist,
he spoke strongly in favour of eugenics. Against the “boorish
proletariat” he upheld the white “educated bourgeoisie”.5
And Keynes did great things for his adopted class. He was one of the
leading architects of the Bretton Woods international monetary
system: in many ways it embodied his political economy. Ennobled, in
reward for services rendered, Keynes joined the Liberal benches in
the House of Lords. When he died in 1946, he was mourned by the
entire political, business and academic establishment.
to say, Keynes was no socialist. He upheld a boundless optimism about
technology, capital accumulation and expert knowledge. With the right
men at the helm, all problems could be solved within
capitalism. He contemptuously dismissed the writings of Karl Marx.
Eg, Capital was an “obsolete economic textbook”. The
“decent, educated, intelligent son of western Europe” will reject
it out of hand unless “he has first suffered some strange and
horrid process of conversion which has changed his values”.6
produced a string of influential studies: The economic
consequences of the peace (1919), A tract on monetary reform
(1923), The end of laissez-faire (1926), Treatise on money
(1930). But the most important by far was The general theory of
employment, interest and money (1936). This book, his magnum
opus, was published during the tail end of the great depression.
Because of it he has been credited with ushering in a “revolution”
in economic thought.
and a growing band of co-thinkers, challenged so-called “classical
economics”: eg, Say’s law and the notion that markets are
self-adjusting and supply will create its own demand. According to
the standard laissez-faire doctrine, unemployment had one
cause - wages were too high. The remedy was obvious: force through
pay cuts. Such an outlook suited capitalism in its heyday. While
capitalism expanded, it needed nothing more than crude apologetics
that ‘naturalised’ market forces.
subsequent events tore to shreds all notions of the self-regulating
market. World War I necessitated massive state intervention.
Government dictats substituted for market-determined allocation - and
not only in war industries. Each belligerent country ran up enormous
debts in order to sustain its killing machine. In the 1920s the
orthodox economic mantra was paying off accumulated debts and
balancing budgets. The intention was to return the system to the
halcyon days of the 19th century. However, the result was abject
failure. The victory of Henry Ford over Karl Marx proved to be the
“shortest-lived utopia on the historical record”.7
1929 crash was a defining moment in world history. Shares suddenly
became worthless. Unemployment soared. Prices sunk. Fortunes
vanished. The great depression that followed widely discredited Say’s
law, along with the fallacious theory of ‘marginal utility’
(ignoring social and historical factors, marginal utility insists on
taking individuals and their atomised decisions as its starting
point). With millions added to the dole queues, the assumption that
unemployment could only be “voluntary” or “frictional” stood
exposed for what it was - the ideological outlook of the complacent
bourgeois. Keynes readily acknowledged the existence of “involuntary”
with much fanfare, Stalin and the Soviet Union launched the first
five-year plan. Almost overnight unemployment was abolished and,
despite the widely acknowledged brutal measures. the USSR appeared to
be on the high road to industrialisation, prosperity and a “new
mainstream opinion in Britain, including big business and the
treasury, initially derided Keynesianism as the “raving of wild and
irresponsible extremists”,10 a rather strange mix of
political forces found “scientific” vindication. Eg, both
fascists in Nazi Germany and Fabian socialists in Britain
enthusiastically embraced Keynesianism, because it purported to offer
a cure for all the failings of capitalism, while leaving wage-slavery
intact (in fact it is probably the case that Keynes developed his
theory ex post facto - the Stalinite counterrevolutionary
revolution doubtless provided him with an example of what could be
done through the concentrated application of state power).
how did Keynes propose to lift capitalism out of crisis? Crudely put,
to save the system governments ought to greatly extend their remit
and purchase extra goods and services (paid for by printing money or
issuing bonds and other forms of borrowing). Eg, arms spending, which
soaks up unemployment, puts to use otherwise idle plant and thereby
boosts aggregate demand. According to Keynes, that would produce a
“multiplier effect” (the ratio between extra government spending
and the expansion of GNP - the concept was introduced into bourgeois
economics by Richard F Kuhn in 1931).11
levels of employment mean more in the way of private income within
the system in the form of wages. That in turn augments tax returns
for the government and simultaneously expands the “effective
demand” for the means of consumption. Profits are revived and that
too generates augmented tax returns. Flush with its additional taxes,
the government can then pay off debts.12 Deficit financing
therefore seemingly constitutes a virtuous circle, which, if
dutifully followed, supposedly eliminates, or at least substantially
ameliorates, the negative effects of capitalism’s periodic economic
became the orthodox theory within the core capitalist countries from
the 1940s till the mid-1970s. Not surprisingly Keynesianism was
closely associated with the post-World War II social democratic
settlement, economic growth and the expansion of the welfare state.
Almost without exception the contending fractions of the ruling class
accepted that capitalism boomed more or less uninterruptedly
following World War II because of the innovative managerial tools
provided by Keynes. The status of economists rose and rose
accordingly. With their mathematical models, impressively long
formulas, graphs and number-crunching, they were lauded as the
equivalents of nuclear physicists. The economy was seen as a machine
- typically a car. It did not matter whether the government was
Labour or Tory. As long as ministers listened to the experts, and
therefore pressed on the appropriate fiscal accelerator, or touched
the right monetary brake, the economy would be kept on a steady path
and full employment could be guaranteed.
Keynesianism was responsible for the long boom is doubtful, to say
the least. Nowadays, of course, bourgeois politicians, economists and
historians alike have considerable reservations about Keynesianism.
Marxists - authentic Marxists, that is - would first and foremost
look to the horrendous destruction of capital in Europe and Japan
during World War II and after that the replacement of British by
American hegemony. That surely explains the 25 years of economic
growth, not the “technical tricks” of Keynes.13
one thing is sure: after 1945 Keynesianism triumphed as an ideology.
It became common sense that the misery of unemployment, chronic
economic depression, grinding poverty and violent class conflict of
the 1930s had been banished forever. Hence it was claimed with
supreme self-confidence - and it was widely believed - that Marxism
had lost all relevance. All very well for the last half of the 19th
century; utterly irrelevant for the second half of the 20th. To
suggest otherwise was to guarantee condescending laughter (I well
remember). Indeed capitalism was either deemed to be crisis-free or
it was no longer capitalism. Amongst the bourgeois intelligentsia the
talk was of the universalisation of modern, industrial or
technocratic society: according to the wishful thinking of John
Kenneth Galbraith, a disciple of Keynes, the “ostensibly”
different systems of the Soviet Union and the United States were
converging.14 And, with uninterrupted economic growth,
material shortages, gross income inequality and the conflict between
labour and capital would soon be consigned to the pages of history.
Despite the imminent future being repeatedly delayed, the promise
remained. The world was about to enter the realms of unheard of
abundance; from then on, thanks to Keynesian economics, the only
remaining problem would be what to do with our ever-growing leisure
time. Or so we were told.
technocratic ideas were enthusiastically adopted by rightwing
Labourism. Thirty-five years before Tony Blair and New Labour, Hugh
Gaitskell - leader of the Labour Party from 1955 to 1963 - attempted
to rid himself of the old clause four in the name of “classless”
common sense, modernism and political wisdom.15 Though he
humiliatingly failed, in 1960 the Labour Party conference agreed to
support the so-called “mixed economy” - albeit through a
dominance of Keynesianism impacted on the left too. For the gullible
advocates of peaceful coexistence, for the programmatically
impatient, for those spellbound by technology, the ongoing economic
boom seemed to confound the predictions of Marx and the pre-World War
II Marxists that capitalism was undergoing its “death agony” (as
Leon Trotsky confidently wrote in 1938).17 Through state
intervention capitalism had apparently overcome all its main economic
contradictions. Dogmatists preserved what they saw as the
revolutionary faith by the simple device of closing their eyes to the
inconvenient truth. The ‘boom’ was put in quote marks or, if
admitted at all, was dismissed as fleeting. That was the position
maintained by Ernest Mandel in 1947.18 Needless to say, he
was not alone.
others - the overt opportunists, the revisionists - slowly or
quickly, reluctantly or eagerly, were drawn to Keynesian ideas.
Keynes had shown how, left to its own devices, capitalism produced a
recurring tendency towards chronic instability and devastating
crises. But, if Keynes had provided the tools needed to stabilise
capitalism, could not those same tools be used to go beyond
capitalism? For this reason, if no other, the economics of Keynes
have been flatteringly compared with the objective-idealist
philosophy of Georg Hegel. Keynes was a thorough-going bourgeois and
a loyal servant of British imperialism. But through a leftist
“interpretation” Keynesianism could perhaps realise
anti-capitalist goals.19 The pro-Stalinist economist, Joan
Robinson (1903-83), was the outstanding theorist of leftwing
to say, Keynesianism hit the buffers in the late 1960s. One of the
unintended consequences of Keynesianism was a decline in the role of
money (fundamental to capitalism). Furthermore, because of full
employment, social security benefits, council housing, the national
health service, etc, the system’s ability to discipline the working
class through what Marx called “commodity fetishism” was reduced.
Hence we can say that Keynesianism is a means whereby capitalism
manages its own long-term decline through increasing the role of
organisation, as against the role of the market. Markets, including
the market in labour-power, are retained, but are thoroughly
such circumstances, internal contradictions mount up. Economics is
politicised and objectively the power of the working class grows at
the expense of capital. Profit and growth rates begin to fall (in no
small part because of the organisation and militancy of trade union
power).20 Certainly in the 1970s, faced with a loss of
control, the bourgeoisie pulled the plug on full employment in order
to restore discipline over the working class. With the system visibly
malfunctioning, the ruling class, crucially in the Anglo-Saxon world,
broke with Keynesianism, downgraded productive capital and sought
salvation in financialisation. Inflation was allowed to run hand in
hand with the return of mass unemployment (an impossible combination,
according to Keynesian theory).
new bourgeois orthodoxy was put in place. Out went Keynesianism and
the social democratic settlement. In came monetarism, neoliberalism,
Milton Friedman, the Chicago school and Thatcherism. Paradoxically,
however, it was sections of the left, including those who called
themselves Marxists, who doggedly clung to Keynesianism.
by sleight of hand, ‘official communism’ went over to
Keynesianism in the 1970s. As the long boom of the 1950 and 60s
retreated into memory, Keynesianism became the model for the future.
In close collaboration with left Labourite allies the old CPGB
conceived, developed and finally gave birth to the Alternative
Economic Strategy. The AES was a classic example of
Keynesian-inspired nationalist reformism, which, given the needs of
the times, had on occasion to be dressed up as a “revolutionary
strategy”. Eg, the Eurocommunist, Sam Aaronovitch (1919-98),
excused the AES because he claimed it was designed to “advance
towards fundamental change in the class and property relationships in
fact what the AES proposed was the election of a reformist left
government committed to the democratisation of industrial relations,
widespread nationalisation and a large-scale investment programme.
Such measures, its advocates promised, would “regenerate Britain”
- crucially by stimulating aggregate demand.
the real world, the AES would necessitate, of course, imposing
draconian protectionist measures, such as import controls, and
“leaving” what was then the European Economic Community. In other
words, the AES was a reformist utopia, which, if put into practice,
could only but end in banal disappointment - that or social disaster:
ie, the flight of capital, national isolation, population exodus and
how far they have lost their bearings, we now hear similar
left-Keynesian nonsense spouted by individuals and organisations who
call themselves revolutionary Marxists. Hence we have Alex
Callinicos, abusing his considerable talents in order to fend off
criticisms of the Socialist Workers Party in Ireland (amongst
others). Its People Before Profit Alliance electoral front proudly
issued an “Alternative Economic Agenda” in April 2009.22
While some of its demands are eminently supportable, democracy, state
power and the aim of socialism are noticeably absent.
the AEA considerably overlaps with the old AES. Callinicos is honest
enough to admit as much. However, he says, those who want to
“dismiss” it on such grounds “ignore the radically different
context from that of the 1970s” - the comrade cites “deregulation”
and the “devastating economic slump”. Which is just to say that
the 2010s are not the 1970s. Recognising the weakness of that
non-argument, Callinicos latches onto the claims of his youth: the
old AES was “a reformist attempt to rescue capitalism”. True -
not that the ‘official communists’ ever openly admitted any such
last resort of the renegade is to invoke “transitional demands”,
as “understood by the early Communist International and by
Trotsky”. Then, almost by magic, “everything changes”: and
that, of course, is exactly what Callinicos does.23 Yet
Keynesianism remains Keynesianism, whether advocated by the Nazis,
Fabians or fake Marxists.
letting the cat out of the bag, Callinicos’s Irish comrades write
that they wish to “prevent the bulk of the pain of the economic
crisis falling onto the shoulders of the working class”. Moreover,
their AEA enviously looks to the “stimulus packages” in “the US
and some EU countries”, which are designed to “revive their
economy”.24 Ireland, they argued, should follow suit.
in 2008 and 2009 the financial system was bailed out in Keynesian
fashion. George W Bush twinned himself with Gordon Brown. The US
congress agreed a $700 billion package to purchase bad debts and
recapitalise the financial sector. Britain too poured in government
money. Banks and insurance companies were nationalised or
part-nationalised one after the other (eg, the Royal Bank of Scotland
and Lloyds TSB, and in America Goldman Sachs and Citigroup). Chrysler
and General Motors were also rescued from bankruptcy.
mainstream media, not least the conservative right, was full of
laughable accusations that Bush had gone over to “socialism”.
Thoroughly enjoying the humiliating ideological U-turn, Hugo Chávez
ironically called him “comrade”. The Venezuelan president
mockingly announced that “Bush is to the left of me now”.25
there was a grain of truth in the media accusations. Across the
world, but especially in North American and Europe, the huge losses
suffered in 2008-09 - at least for those concerns deemed ‘too big
to fail’ - were socialised. The total sums involved go into the
$trillions. Hence the subprime, banking and insurance crisis
metamorphosed into the sovereign debt crisis.
borrowing, as a proportion of GDP, is perfectly manageable, at least
for the core capitalist countries, and far from being unprecedented
historically - eg, the 1940s and 50s saw comparable debt levels - a
suffocating consensus has emerged. There is no alternative. Debts
must be reduced as soon as possible through swingeing cuts in
government spending programmes. So it is back to the future.
Osborne’s ‘age of austerity’ involves a savage package of cuts.
Benefits, higher education, local government, etc are being
butchered. Simultaneously, taxation levels, retirement ages and
pension contributions are being ratcheted up. There has been nothing
comparable since the ‘Geddes axe’ of the early 1920s. The then
coalition government of prime minister David Lloyd George was
determined to drive down the debt inherited from World War I. Eric
Geddes and his committee duly obliged by recommending cuts totalling
£87 million - about 10% of the country’s entire GDP at the time.
That translated into a 35% reduction in the number of civil servants
and the abolition of entire government departments, including
“labour, mines and transport”.26 As we now know, the
result could only but be a negative ‘multiplier effect’. The
early 1920s produced not a ‘land fit for heroes’, but wage cuts,
bitter class struggles and economic failure.
Osborne’s Con-Lib Dem austerity programme was welcomed by the
Confederation of British Industry, International Monetary Fund, Bank
of England, etc. Not that Labour was much different. While Ed
Miliband made much of the so-called ‘squeezed middle’ and how
plan A is not working, he too is committed to austerity. As he told
the TUC congress in Brighton, Labour will neither reverse the cuts
nor end the public sector pay freeze.
this austerity consensus now includes everywhere in the EU.
Take France - during the presidential election campaign François
Hollande sought to give the impression that he was the
“anti-austerity” candidate.27 And yet, now safely
ensconced in the Élysée Palace, his
government is committed to implementing the
EU’s fiscal pact, though it amounts to a “permanent
austerity treaty”. Meanwhile Hollande is
trying to persuade unions
to agree to reduced employment rights and wage cuts in line with
And, of course, Germany’s chancellor, Angela Merkel, is
insisting that Portugal, Ireland, Greece and Spain - “peripheral”
members of the euro zone - impose ever harsher austerity measures.28
What goes for the ‘pigs’ now, of course, goes for Italy. The
raison d’être of the technocratic government of Mario Monti
is cutting the country’s deficit, imposing cuts and rolling back
the social gains of the working class.
of the US? Barack Obama is now committed to $4,000 billion of cuts
over the next 10 years. Inevitably Medicare, Medicaid and social
security will be butchered. In other words, Obama’s soft
Keynesianism, inherited from Bush - and so admired by the Irish SWP -
has been ditched. And, of course, Mitt Romney is promising more cuts
… and faster.
to explain the austerity consensus? There are two main factors at
the financial crisis of 2008-09 proved to be a stunning shock for the
ruling class. For a moment they collectively looked into the abyss.
The general assessment is that the core capitalist countries now face
an indefinite future of anaemic growth or stagnation. The crisis has
not only been a blow to long-term expectations of capital
accumulation. Neoliberalism is a busted flush. As an ideology it no
longer works. However, the crisis was greeted in certain quarters as
a golden opportunity to further roll back the post-World War II
social settlement. In certain quarters the madcap dream is of
restoring a pristine capitalism. Nevertheless, working class living
standards - the share labour takes from the social product - can be
screwed down. Not only wages paid by employers, but the social wage
too. Necessarily that means constant, unremitting attacks on
negotiated terms and conditions and ever more authoritarian measures.
In short, the rate of exploitation is to be ratcheted up under the
patriotic rubric of balancing the nation’s books.
the capitalist class is increasingly irrational. Its leading sections
are acting in a way that not only hurts the majority of the
population, but also runs counter to their own interests. Galbraith
once remarked that, “whether a government [faced with the reality
of a depression] shall be Keynesian or not … comes to nothing more
or less than the choice of whether or not to commit political
suicide”.29 A worry clearly shared by the noted
Financial Times columnist, Martin Wolf. He darkly warns of the
“risk” of the “mother of all meltdowns”.30 In the
determination to exploit the debt crisis there is not only the danger
of the cuts and stagnation tipping over into a crash. There is also
the danger of a social explosion. Greece, Portugal, Spain, Italy and
France have all seen many angry mass demonstrations, leftwing votes
and protest general strikes. Only a hint of the change that is going
Marxist perspective - extreme democracy, rebuilding the basic
organisations of the working class from the top to bottom,
Europe-wide coordination, establishing a Communist Party of the EU
and sweeping away what is a moribund capitalism on a global scale -
is bound to become common sense amongst all advanced workers within
the next 10 or 20 years.
point not towards the illusory national solution of Keynesianism, but
global communism. The bourgeoisie has abandoned managing capitalism’s
decline in a relatively civilised manner. As a class it remembers the
1940s-70s and is agreed - never again. Do they really want to “commit
political suicide”? It seems so.
Financial Times January 22 2011.
JM Keynes, ‘A short view of Russia’ (1925) in Essays in
persuasion New York 1963, p324.
PA Baran The political economy of growth Harmondsworth 1973,
JM Keynes The general theory of employment, interest and money
New Delhi 2008, pxxi.
See S Webb and B Webb Soviet communism: a new civilisation?
London 1935. In subsequent editions the question mark was removed.
A Bullock The life and times of Ernest Bevin Vol 1, London
JM Keynes The general theory of employment, interest and money
New Delhi 2008, p102.
Of course, attempts to balance the budget through cuts in spending
reverse the multiplier effect.
WW Rostow The stages of economic growth Cambridge 1960, p155.
JK Galbraith The new industrial state New York 1971, p376.
R Miliband Parliamentary socialism London 1973, p348.
L Minkin The Labour Party conference Manchester 1980, p151.
L Trotsky The transitional programme for socialist revolution
New York 1977, p111.
PA Baran The political economy of growth Harmondsworth 1973,
See A Glyn and R Sutcliffe British capitalism, workers and the
profit squeeze Harmondsworth 1972.
S Aaronovitch The road from Thatcherism London 1981, p115.
International Socialism No129.
The Daily Telegraph October 16 2008.
K Grieves Sir Eric Geddes Manchester 1989, p104.
Financial Times March 12-13 2011.
JK Galbraith Economics and the art of controversy New York
Financial Times February 19 2008.