A Marxist Guide to Capitalist Crises
“A Marxist Guide to Capitalist Crises,” an eBook created from the key posts on the Critique of Crisis Theory blog, is currently in production. We’ll be sharing the completed chapters between our regular postings.
Section 5: Keynes and the Attempts to Mitigate Capitalist Crises of Overproduction
The Ideas of John Maynard Keynes
The ideas of the English economist John Maynard Keynes achieved their greatest influence during the 1960s and early 1970s. Keynes was widely credited by his followers among the economists and others in those days for saving capitalism.
The story told by the Keynesian economists went something like this. In the dark days of the Depression of the 1930s, capitalism, to all appearances, was approaching the end of its road. When the Depression began, the traditional liberal – neoclassical – economists, who dominated the economics profession, claimed that capitalism would quickly recover from the Depression without government intervention. Therefore, these economists urged the government to do virtually nothing to encourage economic recovery.
After all, the traditional economists argued, this had always worked in the past. Recovery had always followed a recession. However, the Depression of the 1930s, the story goes, was different. The economy was showing no signs of recovering on its own. As a result, many young people, including a certain number from the ruling capitalist class – for example, the young Paul Sweezy – were turning toward Marxist ideas. The replacement of capitalism by socialism seemed increasingly likely.
Then Britain’s leading economist, John Maynard Keynes, explained that capitalism could last indefinitely under the new conditions if certain traditional policies of the capitalist governments and central banks were changed. Looking back on the Depression years from the vantage point of the booming 1960s, the Keynesians smugly concluded that socialism was not coming after all.
To save capitalism, the Keynesians claimed, all the government had to do was run a sufficiently large deficit to make up for any shortfall in spending by the private sector. If this were done, unemployment would give way to “full employment,” by which most Keynesians meant just enough unemployment to keep the trade unions in check.
To prove their point, the Keynesian economists pointed to the enormous deficits that enabled both industry and the younger generation of the working class to be fully mobilized for the mass slaughter of World War II. The huge armies of unemployed that characterized the Depression years gave way to armies in the literal sense of the word, and unemployment vanished.
In the years that followed the war, there was widespread fear that the Depression would return. Would all those returning soldiers be able to find jobs? Or if they did, wouldn’t the Depression return once the reconstruction boom that would follow the war had run its course? The Keynesians of the 1960s claimed that the Depression would likely have returned if governments had not adopted the new policies advocated by Keynes and his supporters during the 1930s.
Keynesian economists held that government spending during the 1950s prevented Depression and mass unemployment on anything like the scale of the 1930s. However, according to these economists, the conservative Eisenhower — in the American sense of the word conservative — had only half-heartily adopted Keynesian policies. As a result, a series of recessions occurred that could have been avoided if full-blooded Keynesian policies had been in effect.
During the 1960s, the Democratic administrations of John F. Kennedy and Lyndon B. Johnson fully embraced Keynesian theory in a way that the Republican Eisenhower administration had not. For example, instead of raising taxes to finance its escalating war against Vietnam in the middle 1960s, the Johnson administration pushed a huge and highly regressive tax cut through the U.S. Congress. Johnson’s Keynesian economic advisors held that the tax cut would increase effective demand and end the high level of unemployment that had marked the U.S. economy since the recession of 1957-58.
By the middle of the 1960s, the U.S. and world capitalist economies were again booming, and U.S. unemployment levels were falling toward lows not seen since the Korean War of 1950-53. In the future, the Keynesian economists claimed, not only would major depressions be banished, but even “milder” recessions such as those of the 1950s could be avoided as long as the government made proper use of the “tool chest” of fiscal and monetary policies that the new Keynesian economics provided.
Keynesian doctrines were not only embraced by the U.S. Democratic Party. They were adopted by virtually all the major political parties of Western Europe and Japan, whether on the left or the right.
On the left, the Social Democratic and Labor parties and, increasingly, the Communist parties replaced Marx with Keynes. Parties on the right, such as the various Christian Democratic and Liberal parties in Europe, including the Conservative Party in Britain, also adopted Keynesian economics.
In the United States, even the Republicans were coming around. No less a right-wing Republican than President Richard Nixon is said to have declared, “We are all Keynesians now.” Even if Nixon didn’t exactly say this, it shows the spirit of the times.
If the economy started to slow, the reigning Keynesian doctrines held, the slowdown would be nipped in the bud by increased deficit spending by the central government backed up by interest rate cuts by the central bank. If inflation were threatening, the government would balance the budget or at least reduce deficits by slowing down the growth rate of spending and raising taxes. If necessary, the central bank would help out by raising interest rates.
Many, if not all, Marxists of those times seemed to concede the main Keynesian claims. However, these “Keynesian Marxists” pointed out that much of the Keynesian government spending was for war, such as the war against Vietnam and the Cold War against the Soviet Union and its allies, rather than on peaceful public works and public housing programs that would benefit the working class.
Postwar prosperity attributed to military spending
Starting as early as the late 1940s or early 1950s, when Keynesian ideas had already gained considerable influence, sections of the socialist press explained that postwar prosperity that was frustrating hopes for a radicalization of the working class in the imperialist countries was caused by enormous military expenditures of the early Cold War and the hot war in Korea.
These socialists claimed that the massive military expenditures were stirring up purely artificial prosperity. If the capitalist governments had not engaged in such expenditures, these socialists argued, the Depression would have returned, and with it, the expected radicalization of the trade unions and the working class. According to these Marxists, capitalism was still bankrupt since it was only preparation for war that was holding off a return to Depression levels of unemployment.
Naturally, these were merely assertions, and no proof was offered. To the extent workers read these socialist papers, they would have been led to believe that as long as war with the Soviet Union threatened and military spending remained high, depression and unemployment would be kept at bay. But if real peace ever broke out, there would be Depression and mass unemployment! Indeed, bourgeois papers and magazines were making similar claims as they scrambled to build support for the anti-communist crusade of the Cold War.
Though few of us who grew up during the 1960s boom knew it, the capitalist economists had declared victory over the “business cycle,” or trade cycle as the English call it, many times before. For example, in the last chapter, we saw how the authors of the British Bank Act of 1844 claimed that the reform would end capitalist economic crises.
Nor was the notion that war spending was the key to capitalist prosperity new. No less than Ricardo’s chief opponent among the English economists, the arch-reactionary Thomas Robert Malthus had advocated massive government spending, including military spending, to counteract the danger of “general gluts” of commodities and the resulting mass unemployment.
In the following chapters, we will examine the real significance of the ideas of Keynes and put them into a historical perspective. Are Keynesian ideas more pro-working class than the traditional economic liberalism they challenged? What is the relationship between Keynes’s critique of economic liberalism and Marx’s critique of bourgeois political economy? And was spending on arms the key to the post-World War II prosperity, as many American and British socialists even today believe it was?
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