Are Keynes and Marx Compatible?

In the October 2010 issue of Monthly Review, John Bellamy Foster has an article that praises once again the work of John Maynard Keynes. In this article, Foster presents evidence that perhaps the most important ideas that distinguished Keynes of the “General Theory” from the traditional marginalist economists of the time were inspired by Karl Marx himself. Foster’s latest article has drawn criticism from some corners of the Internet to the effect that Foster and Monthly Review are advocating Keynesian ideas rather than Marxism.

This is not a new charge against the Monthly Review School. Paul Sweezy, the founder of Monthly Review, never hid the fact that he was strongly influenced not only by Marx but by Keynes. Foster’s article in the October 2010 Monthly Review―and other recent articles by Foster along the same lines―combine with two other developments that raise anew the relationship between the economic theories of Marx and Keynes.

The first of these developments is the expected sharp gains of the U.S. Republican Party in the congressional, state and local elections scheduled to be held on Nov. 2. Along the same lines is the recent string of large gains by far-right anti-immigrant parties in Europe.

The second development is the apparent decision of the world’s central banks, headed by the U.S. Federal Reserve System, to engineer a new increase in the quantity of token―paper―money, dubbed by the media “quantitative easing,” in a bid to jump-start the stumbling recovery from the “Great Recession.” In anticipation of a new surge in the supply of token money, the dollar price of gold has been surging on the open market. It seems that a new wave of inflation-breeding currency devaluations may have begun, though in late October 2010, apparently alarmed by the spike in the dollar price of gold, the governments and central banks appear to be making efforts to dampen a bit the speculation regarding a new wave of currency devaluations.

While I have already written on Keynes and his relationship to Marx in my main posts, questions by readers and events demand that I take another look at the relationship between these two economic thinkers. This reply is therefore the first in a series of monthly posts on this subject.

Political implications

How you view the relationship between Keynes and Marx has major political implications on how reformable capitalism is. If it is highly reformable, then it is at least possible that a long era of progressive reforms lies ahead of us. For example, is it possible to achieve “full employment,” or at least substantially “fuller employment,” if the capitalist governments and the central banks adopt the kind of policies advocated by Keynes and his present-day followers?

While as Marxists our aim is a society without private property in the means of production and without classes, we do not oppose reforms under the current system that are in the interest of the working class and other oppressed people. Indeed, we aim to be the most consistent and best fighters for such reforms. If Keynesian economic policies can substantially improve the conditions of the workers, the poor farmers and peasants, and the oppressed nations under the current system, we should support them without forgetting that our ultimate aim is a socialist society where class rule is abolished.

Only if and when Keynesian economic policies advocated by progressive-minded Keynesians have fully exhausted themselves would a revolutionary perspective become realistic. If Keynesian policies are now incapable of significantly improving the conditions of workers and the oppressed under the capitalist system, we have no choice but to prepare for much sharper class battles ahead leading toward the revolutionary seizure of political power by the working class.

Marxists and the progressives

Progressives and Marxists share many of the same goals. Like Marxists, progressives fight against racism, war, national oppression, Islamophobia and global warming. Many progressives, like Marxists, are working toward a revival of the trade union movement. Marxists and progressives alike want to see the end of male domination over women and all forms of anti-LGBT bigotry. (1) And like Marxists, progressives want to see the abolition of the scourge of unemployment.

Progressives and socialism

Some progressives think that social evils such as unemployment, poverty, national oppression, global warming, racism and anti-LBGT hatred and oppression can be abolished within capitalist society. Other progressives believe that in the long run, capitalist society will evolve through a process of progressive reforms into a socialist society. These socialist progressives differ from Marxists in that they see no need for the working class to seize power from the ruling capitalist class but believe that the problem of the domination of government by the rich can be overcome through the mechanism of (bourgeois) democracy. Democracy, they maintain, makes a political revolution led by the working class unnecessary.

Still other progressives are willing to leave the question of capitalism or socialism to the future and instead concentrate on the progressive struggles occurring in the here and now.

John Maynard Keynes, the economist of the progressives

Virtually all progressives who give any thought to economic questions look to the English economist John Maynard Keynes (1883-1946) for guidance. If Marx is the supreme economic theoretician to Marxists, Keynes plays the same role for progressives.

Unlike most of the bourgeois economists of his generation, Keynes finally realized that capitalism was prone not only to sharp periodic cyclical crises but also to protracted mass unemployment. In contrast to Karl Marx, however, he held that mass unemployment and violent cyclical economic crises were not inevitable under capitalism but could be eliminated within the framework of the capitalist system.

That is, crises and mass unemployment could be ended without the abolition of capitalism if governments and central banks followed appropriate policies. For this reason, Keynes has become the leading economist of non-Marxist progressives who believe the government has a major role to play in combating unemployment and cyclical crises.

Keynes and socialism

Keynes was never a socialist. But many of his followers have been socialists. The Keynesian socialists point out that Keynes broke decisively with the economic liberalism he had supported as a young economist. (2) Keynes came to the view that the state as the supreme representative of society must follow policies that guarantee that everybody who needs a job gets one. The kind of policies that Keynes came to advocate, his socialist followers argue, inevitably will involve a vast and growing role for government in the economy. In time, the socialist Keynesians expect the growing role of the state will cause private property and the capitalist class to gradually fade away. An example of a socialist Keynesian would be Joan Robinson, the famous English  economist and left-wing associate of Keynes.

Many of the socialist Keynesians are also “neo-Ricardians,” who differ from  Marxists in rejecting Marx’s―and Ricardo’s―law of labor value, as well as Marx’s theory of surplus value. Robinson, for example, is often grouped with the “neo-Ricardians,” whose views I examined in some of my replies.

Right-wing Keynesians

On the right, other followers of Keynes have advocated Keynesian policies as a way of saving capitalism. These conservatives Keynesians fear that if capitalist cyclical crises and the mass unemployment bred by them remain unchecked by  government and central bank interventions, capitalism will be so discredited    that it eventually will be overthrown. The late Paul Samuelson, perhaps best known as the author of a dreary college economics textbook that generations of students have had to struggle through, is an example of a right-wing pro-capitalist Keynesian.

The resurgence of the political right

Just two years have passed since the great panic of 2008 reached its peak. As I am writing this in October 2010, it seems likely that the U.S. Republican Party may very well win a majority in the U.S. House of Representatives and possibly though less likely in the Senate as well. (3) It is possible, though, that Republicans won’t make as many gains as the big business press is so eagerly―and hopefully―predicting. Soon after the publication of this reply, the results of the election will be known.

But unless the polls are completely wrong, the results of the U.S. mid-term elections will be nothing less than a disaster for U.S. progressives. These elections will be nothing like the mid-term elections of November 1934. Then, Roosevelt’s Democratic Party increased the majority it had in both the House and Senate. The election was a mass endorsement of the New Deal and a stinging rebuff to the Republican reactionaries. It took decades for the Republicans to recover.

Two years ago, progressives expected that the mid-term election of 2010 could well be a repeat of the November 1934 election. It would consolidate the gains won by the Democratic Party in the election of 2008, which U.S. progressives assumed would be their own victory. A new era, the progressives believed, of badly needed economic and social reforms would be initiated. Today, many progressives are in shock and badly demoralized. How could the Republicans be coming back after only two years? What went wrong?

The financial panic of 2008

The long-brewing economic crisis―now dubbed the “Great Recession”―broke out into the open in August 2007 as it became clear that the so-called “sub-prime mortgage problem” was not the “contained” and isolated problem the Federal Reserve chair Ben Bernanke claimed it was. Instead, the sub-prime mortgage crisis was the tip of the iceberg of a far more massive financial crisis. Starting in August 2007, U.S. credit markets began to seize up and economic growth soon ground to a halt across the capitalist world. After simmering for a year, the crisis came to a head in September 2008 when the powerful Wall Street investment bank Lehman Brothers collapsed.

Credit markets virtually ceased operating throughout the capitalist world. Global industrial production and world trade plummeted, while unemployment rose across the entire capitalist world. The “Great Recession” had arrived.

The neoliberal economic doctrines associated with Milton Friedman that had dominated professional economics for a generation were discredited seemingly overnight. Once again the ideas of John Maynard Keynes, the economist of the progressives, were back in fashion. The panic-stricken and suddenly demoralized capitalist class turned to the state―forgetting all their opposition to government intervention in the economy―to save their system from an almost complete economic collapse. Yet now, just two years later, with both the U.S. and the rest of the capitalist world well into a crisis of mass unemployment that followed the panic, the U.S. Republican Party, still spouting the same neoliberal clichés as if nothing had happened, seems poised to make massive electoral gains. How can this be?

The election and the panic

The November 2008 U.S. presidential and congressional elections were no ordinary elections. They were not only held at the height of a financial panic but saw the election of the first African American president in U.S. history. I admit that many of us of the older generation never expected to see such a development in our lifetimes. America was certainly changing, but where was this change leading?

To the progressives, the Democratic sweep seemed all the more impressive because unlike the Democratic majorities of decades gone by―such as those of the New Deal years of the 1930s―the Democrats’ majority did not include a bloc of openly racist Southern segregationists. These traditional “Jim Crow” Democrats were generally to the right of the Republicans not only on the “race question” but on other questions as well. They would often form blocs with the Republicans to stop any pro-trade union or other liberal legislation. But this time, the Democratic ticket was headed by an African American, Barack Obama. And the heirs of the old Jim Crow Democrats had long since departed for the Republican Party.

Obama even managed to carry a few states of the “upper South” such as Virginia and North Carolina, though the deep-seated racism of the American South―the terrible heritage of slavery―still prevented him from winning in the “deep South.”

And Obama is not just any Afro-American. He has an African name with a Muslim middle name, Hussein. Indeed, Obama has Muslims in his family, though he himself is a Christian. (4) The idea that a man with a Muslim name could win a U.S. election just seven years after 9/11 was as startling as the election of a Black president itself. Muslims throughout the world rejoiced, hoping that Obama would end the one-sided support of the U.S. for Israel, withdraw U.S. troops from Iraq and Afghanistan, and bring to an end George W. Bush’s anti-Muslim “war on terror.”

Overlooked in the joy of the moment was the Democrats’ promise to actually escalate the war in Afghanistan. Certainly, the progressives and many Muslims reasoned, the Democrats made this promise simply to win some wavering voters who were confused about the real nature of Bush’s so-called war on terror. But as it turned out―unlike Obama’s now broken promise to close down the U.S. concentration camp on the Guantanamo military base that the U.S. government maintains in Cuba against the will of the Cuban government and people―this was one promise Obama was destined to keep.

Within the United States, Muslims looked for an an end, at least at the federal level, to the wave of racist and Islamophobic frame-up trials where poor Muslim defendants―almost all people of color―were framed up on charges of planning terrorist attacks.

The FBI would send agent-provocateurs―frequently convicted criminals who were willing to do the FBI’s bidding―into a poor Muslim community. The provocateur would then draw impoverished young men into a “terrorist plot” that was invented by the FBI itself. The young men would then be indicted by grand juries―grand juries almost always do the prosecutors’ bidding―on charges of having planned the FBI-inspired “terrorist” attacks. (5) Legally this is known as “entrapment.” They would then be duly convicted by juries and given decades-long prison terms for violating the “anti-terrorist” laws.

Obama, at least on paper, has the authority to fire Robert Mueller―appointed FBI director under Bush―who bears responsibility for these illegal entrapment tactics in his capacity as FBI director. In addition, Obama has under the U.S. Constitution the power to pardon the victims of these provocations and judicial frame-ups, which would lead to their immediate release from prison and wipe clean their criminal records.

Instead, the Obama administration approved a raid by the FBI in September 2010 on activists associated with the Freedom Road Socialist Organization, anti-war organizations, and trade unions for violating a Clinton-era law that forbids Americans from giving any “material assistance” to organizations that the U.S. State Department deems “terrorist.” (6) These “terrorist organizations” included not so long ago the South African National Congress when it was headed by Nelson Mandela.

Organizations deemed “terrorist” by the U.S. State Department have no right to appeal this designation through any judicial process whatsoever. The policy is particularly hypocritical because the U.S. government has long supported so-called “special wars,” which are fought with terrorist methods such as assassinations of individual leaders, kidnappings and torture. According to reports in the U.S. media, the misnamed “war on terror”―fought with terrorist methods―has been greatly expanded under Obama.

Obama has refused Venezuela’s request for the extradition of Luis Posada Carriles, who has been implicated in the bombing of a Cuban airliner in 1976 that killed all 73 passengers on board. Nor has his administration moved to try Posada in U.S. courts. Instead, it has held five Cuban intelligence officers in prison―known as the Cuban Five―who were infiltrating these U.S.-supported terrorist organizations in an attempt to prevent more terrorist attacks on Cuba.

If the Obama administration wanted to fight a real war on terror, it could begin by either extraditing Posada to Venezuela or move to try Posada in U.S. courts. The president could also use his pardon powers to free the Cuban Five, allowing them to return to their families in Cuba. So far, Obama has shown no signs of moving in this direction. On the contrary, the terrorist Posada is walking around a free man while the Cuban Five languish in prison.

Obama refuses to allow President Aristide to return to Haiti

On Haiti, which is of special interest to the African American community, the Obama administration continues to block the return of elected Haitian president Jean Bertrand Aristide, who was illegally overthrown in a coup during the Bush administration. This despite overwhelming evidence that Aristide and his Lavalas party retain the support of the majority of the Haitian people. Indeed, elections are scheduled to be held in Haiti under a U.S.-dominated U.N. occupation in which Lavalas is specifically banned from running.

After the terrible January 2010 Haitian earthquake, which killed hundreds of thousands of people and injured hundreds of thousands more, Obama further insulted the Haitian people by appointing of all people George W. Bush, the man who bears primary responsibility for the kidnapping and overthrow of President Aristide, and Bill Clinton―himself no friend of the Haitian people―to head the U.S. post-earthquake “relief” effort.

The New Deal that wasn’t

If Obama’s foreign policies and civil liberties record differs little if at all from his predecessor―and is if anything arguably even worse―Obama’s domestic economic and social policies to the surprise of the non-Marxist progressives have not been much better.

Obama did launch a “stimulus program” of deficit spending at the federal level in an attempt to hasten recovery from the “Great Recession.” In a genuine parallel with Roosevelt’s New Deal, the increased spending by the federal government has just about offset the large cuts in government spending at the state and local levels but no more.

But unlike the New Deal years, the Obama administration has stubbornly refused to launch a Works Project Administration-type program where the federal government would hire unemployed workers directly and employ them on useful public works. This is despite the fact that Hurricane Katrina showed that such public works are desperately needed. Instead, Obama’s approach has been to hope that the increased effective monetary demand created by federal government deficit spending―and the Federal Reserve System’s inflationary monetary policy―will lead to a rise in the rate of profit for private businesses resulting in them rehiring some of the workers laid off during the “Great Recession.”

Therefore, Obama’s policy response to America’s huge unemployment crisis amounted to nothing more than to give the economy a gentle kick through fiscal stimulus, including more regressive tax cuts for business, in the hope of hastening the arrival of the next upswing in the industrial cycle.

The arrival of a purely cyclical upturn that the Obama administration is counting on will reduce the level of unemployment―until the next inevitable capitalist crisis of generalized overproduction of commodities sends unemployment soaring once again. This is not a serious program for combating the growing crisis of chronic mass unemployment, which is leaving tens of millions of people―particularly young people―without any prospect of ever getting a decent job.

Obama’s and Clinton’s policies toward unemployment

Obama’s policy on unemployment is a replay of the tactic followed by the last Democratic president, Bill Clinton. Clinton defeated George H.W. Bush largely due to the recession of the early 1990s―a recession far milder than the “Great Recession.” Clinton’s election also raised hopes among progressives that the already long years of Republican reaction were coming to an end―though not to the same extent as Obama’s election did. The slow recovery from the early 1990s recession enabled the Republicans to gain control of the U.S. Congress, later enabling the Republicans to gain control of all three official “branches” of the U.S. government―executive, legislative and judicial―plus the unofficial fourth branch, the Federal Reserve System, when the Republican-dominated Supreme Court handed the presidency to George W. Bush in 2000.

Right after the election of November 1994 that went so badly for the Democrats, the industrial cycle finally turned upward―not due to any policies of the Clinton administration but rather due to the operation of the internal mechanisms of the cycle that I examined in my posts. This didn’t prevent the Clinton administration from taking credit for an event that it had nothing to do with. This timely―for Clinton―purely cyclical upturn allowed him to win re-election in the November 1996 presidential election. Obama is hoping against hope that the industrial cycle will finally enter a strong enough upward phase over the coming two years to make possible his re-election in the November 2012 presidential elections. (7)

Health care

And what about health care reform? The U.S. is practically the only advanced capitalist country where health care is not considered a basic human right. Obama made clear that as soon as he assumed office he would work closely with the discredited and repudiated Republican Party on health care reform. He virtually offered to give the Republicans a veto over his health care proposals.

This, of course, put “single payer health care,” not to speak of genuine socialized medicine, off the agenda from the very start. Unfortunately, the progressives failed to build an independent movement to demand single-payer health care―not to speak of socialized medicine―to pressure Obama and the new Democratic Congress. Instead, they put all their hopes in Obama and the Democrats.

When the Republicans refused to support any health care reform whatsoever, Obama finally cobbled together a “reform” centered on the private for-profit insurance companies―who are the main cause of the health care crisis to begin with. Instead of providing universal single-payer health insurance similar to Medicare for seniors, the “reform” forces people to purchase insurance from the private for-profit insurance companies.

At first, Obama seemed to be considering a so-called “public option”―itself far short of single payer―that would compete with the private insurance companies. But when a few right-wing members of the Democratic Party complained, Obama dropped this proposal without a serious fight. This despite the fact that Democrats enjoyed massive majorities in both the House and Senate. The Obama reform excludes undocumented workers altogether, as well as aid for abortions. And the proposal doesn’t even go fully into effect until 2014.

The Republicans are indicating that if they emerge victorious in the election as expected, they will attempt to repeal Obama’s reforms altogether, or at least a significant portion of them, before they even go into effect.

Warning signs the progressives ignored

In fact, there were many warning signals even before he took office that Obama would follow policies that would differ little from that of his hated predecessor. As the financial panic reached its climax in October 2008, Obama, then a Democratic U.S. senator from Illinois, worked closely with the outgoing Bush administration and its secretary of treasury Henry Paulsen―former head of the powerful Goldman Sachs bank―in carrying out the unprecedented bank bailout. The bailout represented a record-breaking transfer of wealth from the U.S. taxpayers to the billionaire bankers whose speculative and predatory loans had poured gasoline on the spreading crisis of overproduction fire―especially in the home building industry.

Like other backers of the bailout, Senator Obama supported it on the ground that a severe recession and sharply rising unemployment would be prevented by the bailout. Therefore, workers would benefit indirectly by getting to keep their jobs. Despite these promises, unemployment promptly soared and millions of workers lost their jobs, and many were thrown out of their homes as well.

Later it was explained that what was really meant was that the bailout was necessary not to prevent a severe “recession”―that was unavoidable―but rather to prevent a full-scale repeat of the 1930s Great Depression―or maybe something even worse. These explanations came from the very same people who for years had been boasting about the great vitality of the “American free-enterprise system” and dismissing out of hand any suggestion that this system could ever again breed another serious economic crisis remotely like the 1930s.

About the only achievement that Obama and the Democrats can point to is that official unemployment is only a little over 15 million in the United States―about the same as the Depression in absolute terms but lower in percentage terms―instead of 30 or 40 million or so that would match or exceed the official percentage of unemployed workers during the 1930s. Needless to say, whenever Obama boasts of this “achievement,” his standing in the polls plummets.

Republican resurgence

As the Obama administration and the massive Democratic majority in Congress have continued with a few modifications the policies both at home and abroad of their reactionary Republican predecessors, the administration’s progressive supporters have become increasingly demoralized. Many of them are likely to sit out the mid-term congressional and state and local elections scheduled for early next month. Under the U.S. two-party system of heads I win tails you lose, this is equivalent to voting for the Republicans.

Other workers in frustration and shocked by Obama’s policies, which have failed to put a dent in the growing crisis of long-term mass unemployment, are planning to vote Republican in a protest against the Democratic Party’s policies. Needless to say, this kind of “protest vote” will accomplish nothing for the workers whether employed or unemployed.

The leaderships of the AFL-CIO union movement, the NAACP (the leading African American organization) and other progressive groups held a huge rally in Washington on Oct. 2. While avoiding a call for a vote for the now increasingly discredited Democratic Party in so many words―they didn’t dare to do that―they instead called on the demonstrators to come out to vote en masse in the approaching Nov. 2 elections.

The demonstration was called when it was already too late for the unions and other organizations representing working people to put up their own candidates, independent of the Democrats and Republicans, before the election. So the call to vote en masse was a shamefaced way of calling on the workers to turn out and vote once more for the Democrats.

The contradiction was best expressed in the speech given by the 83-year-old African American actor, musician and long-time supporter of all progressive causes Harry Belafonte. Unlike most of the speakers, Belafonte eloquently denounced the wars that are being fought by the U.S. government. But he still begged his listeners to turn out and vote on Nov. 2. But who are they supposed to vote for? Though Belafonte didn’t say so, he obviously meant they should vote for the Democrats, the very party that is carrying out the wars that he so eloquently denounced!

I have concentrated on politics in the United States, the country that I know best, but the political trends here seem to be similar to those in many other imperialist countries. In Europe, far-right-wing “anti-immigration” parties using themes similar to the Republicans in the U.S. are making alarming gains in elections, while the “left” parties are losing seats.

Progressives are blaming the debacle of the Obama presidency on the “timidity” of the Democrats and President Obama’s personal shortcomings as a leader. If only Obama was cut from the same cloth as Franklin Roosevelt, the progressives complain, and if only the Democrats had some “backbone,” everything would have turned out differently!

Marxists take a different approach than progressives when it comes to analyzing political trends. Marxism teaches us that in analyzing political events such as the current resurgence of the U.S. Republican Party and gains by the far right in Europe, we should not look at personal characteristics and failings of individual political leaders but rather to the underlying economic and class forces that are operating under the surface. What are the economic forces that are driving the U.S. back into the hands of Republican reaction just two years after the November 2008 election?

This brings us back to the question of the relationship of the economic ideas of Karl Marx and John Maynard Keynes that was raised again by John Bellamy Foster in the October 2010 issue of Monthly Review and his other recent articles praising Keynes.

Marx and Keynes

Deep divisions exist among different Marxist schools about the significance of Keynes and his work. All Marxists―including Foster―do agree that Keynes was a pro-capitalist or “bourgeois” economist. Where the differences begin is whether the economic theories of Keynes and Marx are compatible. Do Marxists have anything to learn from Keynes? Can elements of Keynes’s thought be incorporated into Marxist economic theory or even into the Marxist program? After all, Marx himself learned a great deal from bourgeois economists who came before him. Why can’t we enrich Marxism by studying a prominent bourgeois economist such as John Maynard Keynes, who happened to live after the time of Marx?

If Keynes’s economic theories are basically sound and in the interests of the great majority of the people, the prospects for carrying out the political and economic program of the progressives should be good provided that the progressives can find and elect leaders who are genuinely committed to progressive policies. A repeat of the betrayals by Obama and the other leaders of the U.S. Democratic Party in this case is not inevitable in the future.

But if Keynes’s economic theories are largely incorrect, then the entire progressive program is built on sand. In this case, Obama’s policies do not reflect his own lack of progressive convictions and commitment but rather the hopeless contradictions of the progressive political and economic program itself. John Bellamy Foster is therefore to be commended for raising the question of Keynes’s economic theories and their relationship to those of Marx, whether or not we agree with Foster’s conclusions.

Two families of Marxist crisis theory

In my main posts, I explained that Marxist crisis theories can be divided into two great fractions. One camp stresses the problems of producing surplus value. The basic cause of crises, the supporters of these schools hold, is that periodically the rate of profit defined in value terms is too low to maintain the level of capitalist investment necessary to maintain capitalist prosperity―or in Marxist terms, too low to maintain expanded reproduction. Investment slumps, factories close, workers are laid off and the economy is thrown into crisis.

Perhaps the most articulate and influential adherents of the schools that take this approach are the followers of Henryk Grossman (1881-1950), a prominent Marxist of Polish-Jewish background who wrote in the first half of the 20th century, and his follower Paul Mattick (1904-1981), a self-educated German worker who immigrated to the United States to escape Hitler and developed Grossman’s ideas during the second half of the 20th century. I will call these schools of Marxist crisis theory the “falling rate of profit” schools.

The second Marxist family of crisis theories emphasizes the problems of realizing surplus value once it has been produced. Let’s call this family of crisis theory the “realization of surplus value” schools. Almost all these schools are underconsumptionist. They believe that capitalist crises―or capitalist economic stagnation―is caused by a rate of surplus value that is too high for the workers to buy a sufficient share of the commodities they produce so that periodically the capitalists are unable to sell the growing mass of commodities produced.

The striking thing is that these two fractions of Marxist crisis theory have exactly opposite crisis theories! The falling rate of profit school claims that the only way the capitalists can get out of a crisis is to increase the rate of exploitation of the workers. If the rate of surplus value and thus the rate of profit is high enough, a rising rate of profit causes capitalist investment and the capitalist economy to recover. Or in Marxist language, the conditions of expanded reproduction are restored. Otherwise, the crisis drags on until either capitalism is overthrown by the workers or the capitalists finally succeed in increasing the rate of surplus value sufficiently to restore capitalist expanded reproduction.

The underconsumptionist schools draw the exact opposite conclusion. To get out of a crisis, the buying power and the consumption of the impoverished mass of the people must be increased! If it isn’t, stagnation and mass unemployment will drag on causing either permanent economic stagnation or world war.

Different attitudes toward Keynes by the two great fractions of Marxist crisis theory

The falling rate of profit school of Marxists holds that Keynesian measures are bound to fail because the cause of the crisis is that the rate of surplus value is too low to support a rate of profit high enough to encourage sufficient investment that alone can restore prosperity on a capitalist basis.

Therefore, the only way out of a capitalist crisis is either a socialist revolution or a defeat of the working class by the capitalists of sufficient magnitude that increases in the rate of surplus value finally restore the conditions of expanded reproduction. Therefore, according to the falling rate of profit school, reformist Keynesian policies, no matter how well meaning, that attempt to restore the buying power of the masses of people (effectively reducing the rate of surplus value) will only end up worsening the crisis.

If the falling rate of profit school is correct, the prospects for progressive policies under current economic conditions is bleak indeed. Unless the workers are prepared to make an immediate socialist revolution, the only way out of the current unemployment crisis is through the kind of reactionary economic policies that the U.S. Republican Party and other extreme right-wing parties in the other capitalist countries are advocating. Therefore, since the workers don’t seem ready to seize political power in the immediate future in any capitalist country, the prospects of struggle against right-wing capitalist reaction is bleak indeed.

The underconsumptionist Marxists―represented today largely by the Monthly Review School―believe on the contrary that a Keynesian program that restores the buying power of the masses can, if carried out on a sufficiently large scale, pull the economy out of depression and stagnation. They, in contrast to the first school, are highly sympathetic to Keynesian progressives and praise what they see as Keynes’s great contributions to economics.

Therefore, a Keynes-inspired progressive policy aimed at greatly reducing unemployment through government policies aimed at restoring the buying power of the people can work, at least in principle, according to underconsumptionist Marxists.

John Bellamy Foster is not optimistic about the possibilities of actually carrying out a progressive Keynesian policy of restoring “monetarily effective demand” under current political conditions. And if the Republicans do make substantial gains in the Nov. 2, 2010, elections, his optimism will hardly be increased.

Foster believes that resistance by what he calls “monopoly-finance capital”―the big financial interests―are blocking the road to a progressive Keynesian policy of restoring effective demand and employment. But Foster defends Keynes’s basic economic theories and holds that they are compatible with and indeed partially based on Marx’s own work. He therefore believes that a Keynes-inspired progressive solution to the current unemployment crisis without replacing capitalism with socialism is at least theoretically possible. But to achieve that solution, the resistance of the “monopoly-finance capitalists” must be broken—much as it was, according to progressive historians, during the New Deal days. The problem for Foster is that he sees no prospect of achieving this again within the foreseeable future.

A third approach

In my blog posts, I developed a third approach to crisis theory. First, I emphasized that surplus value must indeed first be produced before it can be realized, a fact downplayed by the underconsumptionists. But what the falling rate of profit schools tend to forget is that profit is not just surplus value, it is surplus value realized in money form.

After many long years of thinking about this question and studying the hopelessly contradictory explanations of crises given by the two fractions of Marxist crisis theorists―each with favorite quotes from Marx that seemed to back up their contradictory positions―I have come to the conclusion that periodically capitalist production runs ahead of the combined purchasing power of the capitalists and their dependents on one side and the working class that produces the surplus value on the other. Therefore, the problem of “monetarily effective demand”―the problem of the periodic inability of capitalist society to buy back all the commodities it produces―is a real one that cannot simply be reduced to the movement of the rate of profit in value terms.

In their proposals to combat crisis and mass unemployment, Keynesians aim at restoring the purchasing power of society without transforming capitalism into socialism. The Keynesians believe that if the right policies are followed by the government and central bank in the first place, the purchasing power of capitalist society―the combined purchasing power of the capitalist class, its dependents, and the working class―can be maintained and both acute cyclical crises and chronic mass unemployment can be avoided.

In my opinion, the Keynesians and their progressive supporters are grappling with a very real problem, but since the roots of the problem lie in the nature of the commodity relationship of production itself, they go much deeper than the Keynesian progressives realize.

For anybody who wants to study my proposed solution to the contradictory explanations Marxists advance to explain capitalist crises, they can read my blog posts. The approach toward capitalist crises developed in these posts will therefore form the foundation of my views on the relationship between Keynes and Marx that I will develop in my coming replies.

Next month I will examine John Bellamy Foster’s case for the basically compatible nature of the economics of Marx and Keynes.

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1 John Maynard Keynes was himself a gay man.

2 Economic liberals are free-market economists who advocate a minimal role for the state in economic affairs. In its purest form, economic liberalism would limit the state to defending private property in the means of production and enforcing contracts.

In the era after Keynes, neoliberals such as the late University of Chicago economics professor Milton Friedman revived the economic liberals’ advocacy of a minimal economic role for the state.

3 The U.S. federal government is organized under the 1789 Constitution as amended. It is one of the most archaic constitutions in the world.

Unlike modern constitutions, it gives equal power to the Senate, or upper chamber, and the lower chamber, the House of Representatives. The Senate is not a democratic institution nor was it designed to be. Each U.S. state has two senators regardless of population. Congresspeople serve two-year terms. Therefore, every two years, the entire House of Representatives is up for reelection. Senators serve six-year terms. Therefore, every two years only one-third of the Senate is up for reelection.

For this reason it is far more likely that the Republicans will win a majority in the House of Representatives, where all the representatives are up for reelection, than in the Senate, where only one-third of the Senators face reelection.

4 The U.S. far-rightists, who are generally supporters of the Republican Party, have claimed falsely that President Obama is actually a Muslim.

5 Grand juries are an example of the archaic nature of the U.S. Constitution. They hark back to times when private citizens, not just public prosecutors, could file criminal charges against their fellow citizens.

Grand juries, unlike petit juries, do not have the power to convict people of crimes. But they do have the power to indict―that is, charge―people with crimes. Their deliberations are carried out in secret behind closed doors. Grand juries have broad powers to subpoena witnesses. Witnesses called to testify before a grand jury do not have a right to be accompanied by a lawyer. Only the prosecuting attorney besides the grand jurors themselves is present.

While U.S residents retain their famous Fifth Amendment right not to testify against themselves when they testify before a grand jury, the prosecutor can offer a witness immunity against prosecution for the alleged crime under investigation. In that case, the grand jury has the right to jail a witness if he or she then refuses to testify by holding such a witness in “civil contempt.” Though such witnesses have not been convicted of a crime and acquire no criminal record for contempt of the grand jury, they can be jailed for the life of the grand jury, which can last for more than a year.

It is a favorite tactic of the FBI and the federal prosecutors to subpoena people to testify before a grand jury and then offer them immunity against prosecution. The subpoenaed persons then have a choice of testifying in secret against their associates or face being thrown in jail for a prolonged period for contempt if they refuse.

Since the U.S. Constitution requires that the government obtain an indictment from a grand jury before it can prosecute a person for committing a crime, it would require a constitutional amendment to abolish grand juries at the federal level. The Democrats and Republicans, who between themselves completely monopolize Congress and the state legislatures, have shown no signs of moving to pass such an  amendment, which would bring the U.S judicial system up to world standards by abolishing grand juries.

6 Though U.S. progressives who romanticize Roosevelt’s New Deal would like to forget it, the U.S. Federal Bureau of Investigation acquired its current name and much of its power in 1935 under Franklin D. Roosevelt. In those days, the FBI director was the ultra-racist J. Edgar Hoover, who later hounded virtually every African American leader, including Martin Luther King. The FBI also infiltrated with spies and agent provocateurs virtually all left-of-center organizations in the United States.

In addition, Hoover, who served until his death in 1971, kept files on virtually everybody in public life and was able to blackmail virtually anybody in government, including U.S. presidents. In this way, he made himself FBI director for life. To prevent this from happening again, FBI directors are now limited to 10-year terms. Despite his infamous record, the FBI headquarters in Washington, D.C., “proudly” bears the name “J. Edgar Hoover Building,” and various proposals to remove Hoover’s name from the building have gone nowhere.

7 In my main posts, I provide evidence that the upturn that followed Roosevelt’s assumption of office in March 1933 also had much more to do with the operations of the industrial cycle than the policies of the new administration.