The followers of Keynes believe that when there is a considerable amount of unemployment of workers and machines, the government and the “monetary authority” can create whatever additional purchasing power is necessary to achieve “full employment” by providing a replacement market for otherwise overproduced commodities.
If this is true, the general overproduction of commodities can only arise because of either policy mistakes by governments and central banks or because the governments and central banks deliberately wish to create unemployment. Therefore, according to this view, it is perfectly possible to avoid the periodic mass unemployment created by crises of generalized overproduction without abolishing capitalist production.
If, on the other hand, crises of generalized overproduction occur because the industrial capitalists periodically produce more commodities than can be purchased by the combined purchasing power of the working class, the capitalist class, the middle class, and the state and its dependents, long-term “full employment” is impossible under capitalism.
In order to examine the question of to what extent if at all the capitalist state can create a replacement market for commodities that otherwise cannot find buyers requires an examination of government finance in light of Marx’s fundamental discoveries involving the nature of value, price and money.
It is pretty obvious how the production of commodities can exceed the purchasing power of provincial governments—including the national governments of the euro zone countries—state governments, and local governments—none of which has the power to issue its own currency. During downturns in the industrial cycle, tax revenues of the governments decline. If they spend more than they take in, they must borrow. If the recession is persistent, their debts will grow so that sooner or later they will be forced into bankruptcy, just as happens with private individuals and individual corporations.
But what about the case of governments that can issue their own currency—most famously the U.S. government, whose currency, the U.S. dollar, is widely accepted as a means of payment, not only in the United States, where it is “legal tender for all debts private and public,” but throughout the world? Why can’t the government make up for any gap between the ability or willingness of the “private sector” to purchase commodities and the ability of the industrial capitalists to produce them?