A Marxist Critic on the Keynesian analysis of the economic crisis | by Henri Houben

by Oct 24, 2011All Articles

John Maynard Keynes keeps a main influence on the current economic thinking. Even if the neo-liberal movement dominated over the last decades, the Keynesian ideas remain enduring, especially at times of recession.
When the subprime mortgage crisis started, it was clear that the liberal responses were inadequate. It was necessary to activate the State intervention and therefore be referred to Keynes to justify it. As a French economist wrote: “During the crisis, we are all Keynesian”.
Actually, the British economist theory is the main analytical alternative of the economic crisis compared with Karl Marx theory. Consequently, in this point of view, it’s interesting to consider if Keynes theory stands the test of realities and, eventually, to compare the two great solutions: Keynesian or Marxist.
1. The theory of an “enlightened” bourgeois
John Maynard Keynes was born in Cambridge in 1883, the year of Karl Marx death. His father was also an economist and a lecturer at the University of Cambridge. His family was unquestionably part of the Victorian elite.
This determined his life and choices. He was admitted to Eton College, one of the oldest1 and most expensive English public schools (every year, only twenty candidates are allowed getting into this British education holy of holies). He left Eton College for King’s College at the University of Cambridge. There, he passed the examination of mathematics. He was involved in several elitist groups, though they were critical of some capitalism moral principles at that time. Then he studied economics.
From 1911 Keynes was made editor of the Economic Journal, an influential periodical that promoted economic theory and had been published since 1891. He held down this job until 1937. He worked for the Treasury during the First World War, which allowed him attending the Versailles peace conference. He was disgusted of it and published a highly influential book: The Economic Consequences of the Peace.
Then he resigned and went into business. When he was a student, he had written in a letter: « I want to run a railway company or organize a trust. That’s so easy and so exciting being interested in these subjects. »2 After a first abortive attempt, he quickly became rich but went back to economic and political business.
From 1924 to 1929, Keynes tried to revive the dying Liberal party. He refused the membership of the Labour party. He explained this refusal: « To begin with, it is a class party, and the class is not my class. If I am going to pursue sectional interests at all, I shall pursue my own. When it comes to the class struggle as such, my local and personal patriotisms, like those of every one else, except certain unpleasant zealous ones, are attached to my own surroundings. I can be influenced by what seems to me to be justice ad good sense; but the class war will find me on the side of the educated bourgeoisie. » 3
When he visited the USSR in 1925 (his wife was a ballet dancer from Russia), he wrote: « How can I adopt a creed which, preferring the mud to the fish, 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? »4
At the same time, he became a member of some prestigious clubs and in 1929 he was made adviser to the Macmillan Committee. He was in charge of giving economic advices to the Labour government of Ramsay MacDonald. Then he began to be interested in the crisis that started with the Wall Street Crash of October 1929. He published two main works about this topic: Treatise on Money and above all, in 1936, The General Theory of Employment, Interest and Money.
During the Second World War, Keynes joined the Treasury Department again. He negotiated the Bretton Woods agreements on behalf of Great Britain. But Keynes was sick. He couldn’t correctly defend his theory at Bretton Woods. In 1937 he suffered a first mild heart attack. On 21 April 1946 a second attack was fatal to him.
His background, career and life show that he was a member of the bourgeoisie, as he wrote himself. What he wanted was perpetuating capitalism and eliminating what was excessive in its working.
His theory about the crisis reflects his thinking. He determined a macroeconomic analysis in which the national product is composed of consumption and investments. The first element is stable while the second is unpredictable. The hoarding and the speculation that prevent the economic activity from developing and generating wealth necessary for everyone disrupt the latest.
He wrote: « Savings is the fact of the individual consumer; it’s a negative act that consists in abstaining from spending all one’s everyday income in consumption. As for the investment, it’s the fact of a businessman whose role consists in making decisions that determine the unavailable production amount; it’s a positive act that consists in establishing or maintaining a production process or in settling stocks. It’s measured by the wealth net growth in the form of fixed, circulating or liquid assets. »5 Here are his conclusions about the crisis: « All the matter can be summarized telling that an economic boom comes from an investment surplus over savings and that a crisis comes from a savings surplus over investment. »6
His analysis can be illustrated with this little diagram in which, contrary to his introduction and analysis, the different situation between the workers (paid with a salary that mainly helps them to consume) and the capitalists (whose income is funded by the benefit and who are able to consume as well as save money) can be noticed.
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Consequently, the hoarding needs to be worthless and the money set in the financial markets needs to return to the profitable system in one way or another, otherwise there could be an imbalance.
Keynes suggests four macroeconomics solutions that aren’t expressed as such but can be found in his works. First, it’s necessary to consume and increase the consumption thanks to the incomes. Second, it’s necessary to organise the investments influx thanks to an appropriate monetary policy: low rates of interest allow using credit and therefore favouring it. Third, if the private investment is lacking, the State has to take responsibility for it. Fourth, the State has to regulate the financial markets to prevent them from having a troublemaker consequence.
2. Underinvestment or overinvestment?
For Keynes, the crisis main factor is therefore located at the investment level. If the capitalists adopted a long-term rational plan of production capacities increases, and therefore staggered over some time, perhaps there wouldn’t be any problem or problems anymore. But according to Keynes, they are the decisions to stop this process that cause the recession. There wouldn’t be any crisis if the businessmen went on investing. Consequently the problem results from a relative private “underinvestment”.
The crisis unquestionably appears with the blocking in the economic process directly related to the investment decisions. So the production is stopped and the salaried employees who are considered to be extra are booted out. But all this is not well specific about the true reasons of these dysfunctions. Keynes appeals either to the uncertainties that come into existence in the markets, or to the financial excess that cause excessive perspectives of benefit.
The problem is that it’s very difficult to empirically prove the Keynesian allegations. The data mainly show that the investments are extremely volatile and can highly vary from one period to another7. But the investments develop at the same time as all the GDP, which varies less highly because the consumption that represents from 55 to 70% GDP doesn’t have such fluctuations. So it’s difficult to show that the production process is blocked because the capitalists have decided to stop investing for reasons that Keynes is only able to mention, but certainly not to establish. Or is he out of for another reason and, effectively, have the capitalists stopped their investments?
On the other hand, you could be a little more disconcerted looking at the next diagram that has been comparing the annual growth8 of the real GDP (so without the prices increase consequences) and the real net stock of fixed assets in the United States since 1960. A positive annual variation of these assets therefore represents a real investment that was realized in the country productive basis, which indeed allows increasing the entire country production.
Graph 1. Annual Growth of the real GDP and the real net stock of fixed assets in the USA 1960-2009 (in %)
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It is the GDP level that undergoes important fluctuations and the investment that appears relatively stable. Noticing that the investments follow the activity evolution rather than they precede. In the sixties, the GDP growth only progressively boosted rising the accumulation rate of fixed assets. In the seventies, despite the jigsaw production results, the stock reached record levels (4,3% on average from 1964 to 1981 included). It decreased while the economy recovered in the eighties.
Afterwards the evolution was more similar. But there still was an activity evolution before the investments recovery. It was the case in the nineties. Then, in 2000, the GDP began to shrink before the stock of fixed assets did the same. It recovered from 2002, while the investment waited for 2004. With the subprime mortgage crisis, the investment only dropped in 2008, while the production struggled from 2007.
In these conditions, it seems risky to us to pretend that the recession mainly came from a lack of investments. It’s clear that, at the time of the crisis, the capitalists slowed down or stopped their outlays of fixed assets, probably because they understood they couldn’t sell anymore and that it was impossible to go on at this rate. And there was a slight adaptation delay, because some operations needed a large immobilization that was difficult to stop. When you decide to build a car factory somewhere and when the first car goes out from the production line, often two or three years have passed. This process is stopped or slowed down only when it’s really necessary, so when the crisis is really present and appears to last a long time.
Therefore it’s essential to understand not why the capitalists stop their investments, but why they aren’t able to sell their goods anymore. Here is again the little diagram that allows explaining where Keynes located the problem, simplifying it to the maximum.
The production is always distributed among incomes, i.e. salaries and benefits, which are used for the consumption and the investment. Now there is no distinction between the saving and the investment. The investments are used for increasing the production and therefore ensuring the economic growth. Keynes thinks this diagram is perfectly sound but corrupted by the hoarding or the speculation.
We think this mechanism is totally vitiated within a capitalist environment. Why? Because the production is run by capitalists whose objectives are increasing their profits and storing to earn more in the future.
Therefore, the business managers will be constantly increasing, in the incomes, the part of the benefits against the part the salaried employees receive. This is the subject of a class war. They won’t always achieve their ends, but their objective is this one. Similarly, with an increased benefit (or even without it), they will tend to increase the proportion they will devote to the investment, because this is the way to grow and become powerful, and if they don’t do that, the competition will force them to.
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On the one hand, the strengths to increase the production appear to generate the business profits, the shareholders’ incomes and the managers’ primes more and more importantly. But, on the other hand, they cause a relative decrease of the means devoted to consumption. This is made in two stages: firstly by cutting as far as the salaries that are used for consumption; secondly – we often forget it – by reducing the amounts relative to the capitalists’ consumption. All the means intended to consumption are restrained, while the production capacities are constantly rising. Inevitably, a large gap follows: the overproduction.
The example of the car industry, particularly the United States one, makes this subject clear. Here is a comparison between the growth of car sales and the production capacity set up since 1960.
Graph 2. Compared growth of the car sales and the production capacity in the automobile sector in USA 1961-2008 (1961 = 100)
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Source: Federal Reserve Statistics Release, Industrial Capacity, Motor Vehicles and parts:
You can notice some parallelism between the two curves until 1989, when they clearly differed. The capacity continued to rise, even at a greater speed than in the past. As for the sales, they settled down. This was logical because the car ownership rate was close to 75% (three persons out of four in the United States had a vehicle9). But the Japanese manufacturers firstly, then the Koreans and finally the Europeans absolutely wanted to get into the market and established new plants… even if the consequence was the complete bankruptcy of the specifically American sector. There were too many investments and not too few.
To get back to the Keynesian theory, the capitalists may hoard or speculate and the money invested in the financial markets may not come back to the usual economic circuit. This will cause more problems to the system. But, fundamentally, it’s in the heart of the system and its mechanism that the crisis is located, as Marx had noticed at his time.
It’s also obvious that the system isn’t either constantly going into recession, which our very simplified example could mean. Actually, the gaps or the malfunctions can easily be resolved by the mortgage: if consumers haven’t enough means to buy products, they can obtain them thanks to bank loans… until they become unable to pay back, as in the subprime case.
3. The State marginal tendency to get into debt
The Keynes analysis is mainly based on short-term concerns. According to an expression that remained famous, he had written (but under other circumstances, to criticize the traditional economic theory that was too focused on the abstract): « In the long run we are all dead »10. So why do we have to take an interest in it?
The problem is that he reproduced this diagram for his crisis analysis. Keynes estimated the private investment consequence, and the necessity, at some point, to substitute it for the State one, from the economic cycle, which others (Juglar or Schumpeter for example; also Marx moreover) had given importance to. According to him the extended recession is an unhappy blunder, linked to an excess of capitalism, but which authorities can counteract with a policy known as countercyclical. The investment that is lacking will be momentarily provided by the State, which will allow breaking the deadlock and boosting the economic engine. This is what Keynes wrote.
However, if the crisis is more important and can’t be resolved in the short-term, if the problem isn’t simply referred to a lack of temporary investment, the authorities invest from funds that dwindle because of decreasing incomes (due to the crisis), they persist, they widen budget deficits then they extend the public debt size. Yet, you can notice that this is what happens in every crisis.
Already in the thirties, it was the consequence of measures decided by different governments, first the Hoover’s that was far from being non-interventionist, then the Roosevelt one. Here is the growth of the State outlays in relation with the GNP (Gross National Product11) from 1920 to 1940, in the diagram below.
Graph 3. Growth of the State outlays in relation with the GNP in USA 1920-1940 (in %)
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Source: Office of Management and Budget, Historical Tables, Table 1.1—Summary of Receipts, Outlays, and Surpluses or Deficits (-)
After a first crisis in 1920 to restructure the war economy from the period 14-18, the government outlays went down again to the rate of 3% GNP. The first measures taken by the President Hoover brought the proportion to 8% and the New Deal programme brought it to about 10%. This was not much, if you have a look at the current situation (45% GDP before the beginning of the subprime mortgage crisis). Nevertheless, the amount used trebled in relation with the GNP and also trebled in absolute terms (the GNP in 1940 was roughly the same as in 1929).
Consequently, the public debt increased. This is what the diagram below is pointing out. We have reported it to the GNP to make a comparison.
Graph 4. Growth of the public debt in relations with the GNP in USA 1916-1940 (in %)
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Source: US Department of Commerce, Historical Statistics of the United States, Colonial Times to 1970, Gross National Product, Total and Per Capita, in Current and 1958 Prices: 1869 to 1970 (http://www2.census.gov/prod2/statcomp/documents/CT1970p1-07.pdf) and Net Public and Private Debt by Major Sectors 1916-1970, p.989 (http://www2.census.gov/prod2/statcomp/documents/CT1970p2-11.pdf).
The public debt that tended to settle in the twenties highly grew from 1929 to 1933. Actually, it was the conjunction of two facts: firstly, the GNP dropped by half between the two dates; secondly, the public debt rose by a third. From 1929 to 1940, the public debt doubled in absolute terms.
What happened afterwards? We will never know it precisely. Most economists admit that what permitted the United States to pull out this situation was the Second World War.
In the seventies, however, the problems repeated themselves. By 1973, the production stopped periodically. Governments tended to refer to Keynesian techniques: pump-priming policy by the authorities. It is unquestionable that this weakened the social and economic consequences of the emerging crisis. But the outlays quickly became unmanageable.
The diagram below shows the growth of the public debt in relation with the GDP in Europe and in the United States.
Graph 5. Growth of the public debt in relations with the GDP in Europe and in USA 1970-2009 (in %)
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Source: AMECO, European Commission, Economic and Financial Affairs: http://ec.europa.eu/economy_finance/ameco/user/serie/SelectSerie.cfm?CFID=1693359&CFTOKEN=6fcc0067b30521b7-80FBBD00-BC80-3030-39CC1124EEBD668B&jsessionid=24065e99f26533524e7f.
Note: The European Union is composed of fifteen Western Europe countries. Except from 1970 to 1976, for which we lack data with regard to France, the Netherlands and Portugal.
The growth of the public outlays has been almost continuous since 1977 with regard to Europe and since 1979 to the United States, despite Reagan and Thatcher. This lasted until the beginning of the nineties, with Clinton in America and the Stability and Growth Pact (or the Treaty of Maastricht in 1991) in Europe, whose objective was to get a public debt lower than 60% GDP. But the new crisis since 2007 has brought public deficits to a high increase.
And we haven’t presented Japan statistics that show an even more important growth. Extremely low in 1970 (11% GDP), the Japanese public debt rose to 72,5% GDP in 1983. It stabilized at this level until 1991. With the property market and the banking crisis specific to the island, the State launched many pump-priming plans that only had important effects to boost the country debt to incomparable peaks: 235% GDP in 2008.
The Keynesians can argue that the government programmes are badly targeted. It’s probably true, particularly in the present day12. Nonetheless, the Keynesian measures impact in case of recession is immediate on the public outlays, therefore on the debt, while it’s totally uncertain on the economic activity, since the measures only tackle to boost the economy and not to resolve the society basic problems. It happens the same when you give some drug to a patient declaring that it will permit him to emerge from his hell.
But as every doping substance it has undesirable side effects. The State debt is a money creation: it puts on the market money means that didn’t exist previously. Yet, if you have a constant production (or that only rises slightly with the recession), you put more money into circulation, which means a rise in the general level of prices, that’s to say inflation. This is what happened in the seventies. At the same time, the authorities money demand (which means debt) absorbs a part of this money at the expense of businesses that need it too. Yet, on a market, if the demand surpasses the supply, its price increases. In this case, it’s about the interest rate. In other words, this is a series of reasons for the capitalists to be dissatisfied.
In 1979, they were the American banks that asked the Federal Reserve, the central banking system of the United States, and his new President, Paul Volcker, to curb inflation. Volcker increased the interest rates so high that he caused an important recession at the beginning of the eighties, which stopped the prices growth, but at the expense of the salaried employees who either were unemployed or had their payments blocked. Today they are the financial companies influencing on the public debt purchase that damage the countries rating, fearing a non-payment, and force them to borrow at a more prohibitive rate.
Therefore, the Keynesian policies can be a short-term solution in view of economic blocking problems. But if they have to persist they lead to solutions that can be worse than the problem itself, because they don’t strike at the root of this problem. In this way, in the eighties the United States adopted a solution to the demand deficit and the income stagnation because of debt of most people. Consequently, they could boost the economy again thanks to consumption.
However, today the household private credit has so risen that he has become unmanageable. It has reached about 100% of the American GDP: in other words, people have already consumed the GDP that was to be produced next year. This is unbearable and banks require repayments, hence massive compulsory purchases, hence the growth of poverty, hence a half-hearted economy. Little time has been gained. But how much has it been? The crisis is inexorably coming back and it’s infinitely more powerful.
4. “Moral” capitalism
Keynes held a last ace in his sleeve: the moralisation of capitalism. Growing in an intellectual and critical environment, he integrated the concept of general interest. He couldn’t be reproached for. This led him to concepts of honesty, integrity, duty, etc., which was unquestionably better than authors who sing praises to capitalists’ greed.
However, his general interest concept is the capitalism’s. Therefore this one should necessarily work in good conditions, with the search of its self-interest, but in “harmony” with the search of the others, with the motivation of saving, but not regardless of its salaried employees’ and competitors’ situation. He wrote in 1923: « The economic doctrine of normal benefits, that is vaguely understood by everyone, is essential to the capitalism justification. The businessman is only tolerable as long as his savings can be considered as having some contact with what roughly corresponds to his activities usefulness for society. »13
This led Keynes to distinguish two categories within the capitalists, as many Keynesians analyse too: roughly the goodies and the baddies. The first are the ones who invest, the industrials, who care about the legality of their acts, and possibly who insert codes of ethics. The second are the speculators, the greedy managers, who don’t stop at nothing for a saving, who despise the laws, the others, the morality. Therefore the first ones have to be favoured. This is one of the State functions, itself composed of men of integrity and who are driven by this general interest. In words that Keynes didn’t use but that others wrote: favouring the industrial capitalism against the financial capitalism. In this way, the constant growth should be well insured.
Once again, the suitability of such analysis can be called into question. Firstly, the morality concept is often the prerogative of a well-established establishment. Indeed, when you are set up at the top you can think of being generous. It’s even a reasonable strategy, as it’s a way to secure the loyalty of customers who can be useful some time (in case of protest against the power, for instance). On the other hand, people who want to rise up the social scale should forget their scruples and possible ethics, because they will probably have to walk on bodies to succeed.
Consequently they are mainly the circumstances and the socio-economic position that determine the positive or negative way to work, and not the personal ideas (even if these can also play a part). But capitalism is firstly a system based on the proverb “might is right”, as slavery, feudalism or other social classes were. The power is the rule, in this case, not according to the individual strength, the family reputation or the declared luxury, but to the ability in amassing money (or capital). Such a system can’t be moral, ethical or generous in essence.
There can’t be normality. There is no acceptable profit. They are the people who most amass who impose their willpower; no matter the way they got their wealth (unless a competitor can operate the law system to contest its legality). If the rule is to casualize labour, to contract out to the maximum or to relocate in Mexico, Eastern Europe or East Asia, watch out for the capitalists who don’t conform to it! If the capital on stock exchange produces more than the capital industrially invested, watch out for the businesses that don’t have a financial department that runs money to take advantage of this godsend! What is the firm that, over the last years, didn’t buy back its own actions firstly to make rise the stock list and secondly because that represented in fact the most short-term profitable investment? Among the biggest businesses, they are very few and often, if they didn’t have recourse to, the reason was that they firstly had other problems to resolve or they were in a situation where such a practice wasn’t in common use (in Japan, for instance).
The Keynesians can recognize these facts and this greedy and inexorable side under capitalism. But precisely they appeal to the State to control, regulate and prevent the greed from ruling the world. The problem is that it’s not possible to escape the situation in which he is the banker who keeps an eye on the financing companies and the gendarme who examines the policemen behaviour. The politic leaders are provided with the same source that feeds the capitalists. They got the same education. They have got a similar ideology and today they find themselves in the same think tanks where great leanings for tomorrow society are discussed and developed. As Keynes, at his time, who was a member of many private clubs where the high society or the most influent members of the elite met.
In addition, many government members go, after their career “at the service of the State”, to the board of directors of a great company or another. Of course, all these people can have a high opinion on general interest, even without this being questionable. Therefore, this point of view is always, at best, the capitalism durability one. And they behave in this situation.
Finally, it’s convenient to name the bad and greedy capitalists as being responsible for the crises. The Keynesians don’t stretch to name the culprits. Instead they think it’s the system that is guilty. In the twenties there was a frenzied speculation that caused the 1929 Crash. This was a property frenzy that led to the subprime mortgage collapse.
The problem is that with this quite superficial interpretation – the speculation or the property escalation are immediately visible in a crisis and the recession starts in these sectors –, it’s not understood why it’s all the profitable activity that is brought to a halt. If the phenomenon were only a stock exchange one, it would be enough to close the financial markets and make the businesses financed by public banks. If it were only a property disaster, it would be possible to limit it and prevent it from corrupting the rest of the economy. It would probably be necessary to face particular interests opposed to this kind of measures. But if that goes for the general interest of capitalism…
As Marx said: “As is always the case, prosperity very rapidly encouraged speculation. Speculation regularly occurs in periods when overproduction is already in full swing. It provides overproduction with temporary market outlets, while for this very reason precipitating the outbreak of the crisis and increasing its force. The crisis itself first breaks out in the area of speculation; only later does it hit production. What appears to the superficial observer to be the cause of the crisis is not overproduction but excess speculation, but this is itself only a symptom of overproduction. The subsequent disruption of production does not appear as a consequence of its own previous exuberance but merely as a setback caused by the collapse of speculation.”14
That’s precisely the moment we know we have to reverse the perspective. The finance and the speculation aren’t developed as slides of a “normal” capitalism, but are developed because they meet needs or necessities of this system at some point. Today you can notice that the United States have been running on credit since the beginning of the eighties and that this private debt has caused all a financial mechanism increasingly complex, but which is essential to generate the country capitals and liquid assets. If this hadn’t exist, the American consumption would have been much less hard and, therefore, the growth would have been poor or even negative from that time.
It’s true that the crisis erupted in the most important speculative sphere. That’s the way it had to be, where the risks also were the highest. However, the recession was reflected in the other fields, because speculation had a specific function within the system: ensuring loans to homes for their consumption. Consequently, if the crisis erupts, it’s not the boom of a single bull that tarnishes the finances of some unlucky investors. It’s an entire mechanism and, therefore, the functioning conditions of the current capitalism that spiral downwards. The issue is all the system and not an ordinary excess, even if these ones also exist.
This brings us back to the diagram explained in the section 2. If the crisis is definitely generated by the two emphasized tendencies, that’s to say the tendency to relatively increase the benefits against the salaries and the tendency to invest rather than consume, this also shows the limits of a capitalism controlled, jugulated and cleared out of its eccentric slides. Indeed, can we influence the two natural tendencies of capitalism? That’s precisely this question we can have doubts about.
The first tendency is linked to the class war. Yet, in capitalism this one is often to the managers’ advantage. They have more means, including the State apparatus (government, justice, police, army…), to achieve their aims. Nevertheless, under certain circumstances, the workers might get wins, even important.
This was the case at the end of the Second World War. The situation was such that at that time in many countries the bourgeoisie adopted a very advanced social security system, highly developed mechanisms of progressive tax, and business nationalization and economy planning measures that had never been seen before. As a result, there was a quite long stability in distributions of incomes among the salaried employees and the capitalists, which certainly favoured the most important growth in human history for most countries, in particular in Europe, Asia and America.
Consequently this experiment proves that it’s possible, but only in exceptional conditions, to control this aspect. However, as soon as the balance of power inclines again towards the management, as it was the case at the end of the seventies, it can be noticed that this insecure compromise is immediately unsteady and the disparity naturally regains the upper hand.
On the other hand, it’s extremely difficult, not to say impossible, to get a regulation of the second tendency, that’s to say the tendency to constantly increase the investment and, therefore, the production strengths, to a degree that largely exceeds what people are able to buy.
For example, a journalist of the Belgian economic periodical Trends-tendances has pointed out the will of every car manufacturer to increase his market shares and, as a result, to adapt his production. He has written: “Yet, today you only need to add all the capacities in place to realize that the market should reach 115% or 120% compared with its current percentage to satisfy everyone”. He has asked how to face it to Alain Batty, Ford Belgium Director at that time, who has answered: “This overcapacity problem can also be tackled differently. If you remain at the global capacity level, you can make this calculation and tell that ten factories will have to cease trading. But ten factories, it’s also the size of a great manufacturer! This won’t happen like this. The overcapacity concept is not inevitable. The future will tell us, and the customers above all, when buying what is best for them. If you have a product that is attractive, and that’s precisely the true challenge, you won’t speak about overcapacity anymore and you can plan production rises even.”15
It’s interesting to consider how this manager understands the macroeconomic concept of the global overcapacities existence in an individual challenge to produce more and more. We are in the heart of the capitalist anarchy justification: the production is only justified by the individual research (for each business) of the benefit; it doesn’t matter the societal consequences like the overcapacities and the recessions they can cause or the loss of employment they can generate. This is what can’t be controlled, regulated, jugulated and this is why crises are inevitable and periodically appear in capitalism.
5. Conclusions
John Maynard Keynes unquestionably deserves credits. His analysis is one of the most remarkable and the richest of the theory of economy. If a programme of immediate boosting within the framework of the current capitalism were to be promoted, his work contains many suitable and often justified solutions. That’s a source of inspiration, but also of criticism.
Indeed, here is where the interest in his analysis stops. If you want to go further, to examine the crisis causes and origins in-depth and to find solutions that truly cure a patient, the Keynesianism is more limited. Yet, it seems to us that it’s in this direction we should go to in view of the current crisis, as the thirties’ one.
There is a real solution to the current recession only if the system ends and a society based on equality and solidarity is put in place, if the economy of this society is run by a State that guarantees the interests of most people, the ones who work, from a relatively centralized planning. In other words, that’s socialism. If this is not the way the humanity heads for, the results will be half-measures and solutions that might temporarily improve the most tragic consequences of recession, but that risk to make the difficulties worse. Today this is already the case: competitiveness policies that will possibly allow the people who follow them getting better, but at the expense of the others, which can only increase tensions, contradictions and, therefore, possibilities of conflicts.
Socialism or barbarity! And, in this perspective, Keynes tried to find to avoid the chaos, without having recourse to socialism. But everything shows that his theory, even more complex than the liberal movement theory, doesn’t permit what he hoped. Even with Keynes, capitalism is on the road to chaos and war.
1 Founded in 1440 by Henri VI. Eton is 40km from London, opposite Windsor Castle.
2 Robert Heilbroner, The Worldly Philosophers: The Lives, Times and Ideas of the Great Economic Thinkers, Simon & Schuster, 1953. Translator’s note: This is a translation from the French version.
3 John Maynard Keynes, « Am I a Liberal ? », 1925: http://es.paperblog.com/john-maynard-keynes-am-i-a-liberal-1925-357931/.
4 John Maynard Keynes, « A Short View of Russia », 1925, quoted by Edgar Hardcastle, Keynes and the Russian Revolution, Socialist Standard, May 1967.
5 John Maynard Keynes, Treatise on Money, chapter 12, 1930. Translator’s note: this is a translation from the French version.
6 John Maynard Keynes, « Theoretical Analysis of the crisis », Harris Memorial Foundation, Chicago, 26 juin 1931. Translator’s note: this is a translation from the French version.
7 In the United States and elsewhere, the most detailed calculations concern quarters of a year.
8 It’s impossible to have more precise data concerning the net stock of fixed assets.
9 Actually, some people had more, which explains these high numbers.
10 John Maynard Keynes, A Tract on Monetary Reform, 1923.
11 There were GDP assessments only from 1929.
12 In the 30’s, Keynes also said that the government measures are inappropriate.
13 John Maynard Keynes, A Tract on Monetary Reform, 1923. Translator’s note: This is a translation from the French version.
14 Karl Marx & Friedrich Engels, “Review: Ay – October 1850”, in Collected Works, volume 10: http://www.marxists.org/archive/marx/works/1850/11/01.htm.
15 Trends, May the 6th 1993.
Henri Houben, Institute of Marxist Studies, Brussels
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