Are Marx and Keynes Compatible? Pt 9

The aftermath of the crisis of 2007-09 is bringing in its wake a revival of workers’ struggles in many areas of the world. Last year, we saw a wave of demonstrations in Europe centering first in Greece and then in France, Portugal and Spain. In these countries, public-sector workers staged demonstrations and strikes supported by industrial and other workers as well as students who are facing massive cutbacks in education.

Then, starting in January, mass demonstrations beginning in Tunis against unemployment, soaring food prices and police-state rule quickly spread to other Arab countries under the rule of imperialist-supported monarchies and dictatorships. These demonstrations have now spread to U.S.-occupied Iraq.

Monetary Keynesianism and high world food prices

In the Arab world and other countries that are nationally oppressed by imperialism, the demand for governments to do something about the skyrocketing price of food has become an increasingly important issue. Rising food prices can be traced back to the “Keynesian monetary” policies that the U.S. Federal Reserve System has followed since the last global economic crisis entered its most intense phase in the fall of 2008. (1)

Under the prevailing dollar-centered international monetary system, any devaluation of the U.S. dollar forces even greater devaluations in the currencies of most nationally oppressed countries. The result of the devaluations is skyrocketing food prices in terms of local currencies. The rise in food prices is being fueled by speculators who are purchasing agricultural commodities as a hedge against still further devaluations of the dollar and its local satellite currencies.

Fight spreads to the USA

And now the struggle of the workers and their allies has suddenly flared up in the U.S. itself, beginning with the state of Wisconsin.

In the November 2010 Wisconsin elections, Republican candidate for governor Scott Walker was victorious. The Republicans also won control of both houses of the state legislature. The Republican sweep in Wisconsin was rooted in the failure of the Obama administration and the Democrat-controlled U.S. Congress elected in 2008 to launch the “new New Deal” that U.S. progressives had expected.

As a result, many progressive voters stayed home on election day and some workers voted Republican as a protest against the failure of either the Obama administration or the Democrat-controlled Congress to launch an effective attack against the massive unemployment crisis that was created by the economic crisis of 2007-09.

Republican governor Scott Walker, however, not only put forward a massive program of cuts in state services combined with cuts in wages and jobs for state workers. He and the Republican majority in the state legislature planned to pass a bill that would take away the right to collective bargaining from state workers.

This goes beyond mere job and wage cuts and other austerity measures. The right of workers to bargain collectively over their conditions of employment is a basic (bourgeois) democratic right. Walker had assumed that the state workers and the trade unions would limit themselves to a few ineffectual complaints.

Instead, unions throughout Wisconsin, including unions in the private sector, along with students who are seeing their chances of getting a decent education vanish, seized the state capitol building, in effect preventing the legislature from meeting and passing the anti-union, anti-democratic legislation.

The bosses attempted to rally the reactionary corporate-financed “Tea Party”
movement in a counter-demonstration. But at most only a few thousand bused in reactionaries showed up at the Capitol and were met by tens of thousands of workers. The struggle is now spreading to other Midwestern states, including Ohio and Indiana. Whatever the immediate outcome, the spirit of fight-back that first manifested itself among the Greek workers has now spread to the very center of capitalist reaction, the United States itself.

Does this growing wave of democratic and trade union struggle in both oppressed and imperialist countries indicate that a resumption of the world socialist revolution, which began in Russia in October 1917 but was largely pushed backed by capitalist reaction by the end of the 20th century, is approaching? Or will the new wave of struggles end with new defeats and an even more vicious wave of reaction?

A lot depends on whether the workers’ movement can learn the lessons of the revolutions of the 19th and 20th centuries. Or to put it in economist terms, will the working class follow Marx or will it follow Keynes?

The road of Marx means the workers must aim at first winning political power and then use that power to transform capitalist production into socialist production. The road of Keynes means giving capitalism yet another chance in exchange for promises that future capitalist governments will follow policies aimed at achieving “reasonably full employment.” (2)

Since the economic crisis broke out in 2007, Monthly Review editor John Bellamy Foster has not agitated for a revival of Marxist economics in the workers’ movement, as we would expect from the leading Marxist journal published in the United States. Instead, he has pushed for a revival of Keynesian economics in university economics departments.

In my last segment, I noted that the online publication Mrzine, supported by the Monthly Review Foundation, had republished a well-known article by the socialist economist Michal Kalecki, entitled “Political Aspects of Full Employment.” This article was written during World War II.

The Polish-born Kalecki wrote largely in Polish. He is said to have “discovered” Keynes’s “General Theory” independently of Keynes. Kalecki has arguably exercised more influence on the Monthly Review School than any other economist except Paul Sweezy himself. Sweezy often praised Kalecki’s work. As we will see below, Foster’s emphasis on reviving Keynesian economics in university economics departments actually makes a lot of sense if we accept Kalecki’s analysis of the problem of unemployment.

I have noted that Paul Sweezy is often considered a “Keynesian Marxist.” Throughout his long life as an economist, Sweezy emphasized the problem of realizing the value, including surplus value, of commodities. On this question, it is Sweezy who is in agreement with Marx and not the Marxists of the  Henryk Grossman-Paul Mattick school, who deny that the realization of value and surplus value is a problem.

According to these and other “anti-Monthly Review” Marxists, it is only the production of surplus value and not its realization that lies at the root of capitalist crises and unemployment. But unlike Marx, Sweezy during most of his life also believed that the problem of realizing the value and surplus value of commodities could be solved if the government were willing to spend, and if necessary print, money in sufficient quantities to achieve “full employment.”

Here Sweezy is in agreement with Keynes and not Marx. There is no evidence that I know of that Marx believed that the problem that capitalism periodically encounters in realizing the value—including the surplus value—of commodities could be solved by government spending or printing additional paper money. On this question, Kalecki was in agreement with both Keynes and Sweezy against Marx. (3)

Kalecki wrote: “If the government undertakes public investment (e.g. builds schools, hospitals, and highways) or subsidizes mass consumption (by family allowances, reduction of indirect taxation, or subsidies to keep down the prices of necessities), and if, moreover, this expenditure is financed by borrowing and not by taxation (which could affect adversely private investment and consumption), the effective demand for goods and services may be increased up to a point where full employment is achieved. Such government expenditure increases employment, be it noted, not only directly but indirectly as well, since the higher incomes caused by it result in a secondary increase in demand for consumer and investment goods.”

But where will the money that governments must borrow come from? “What happens,” Kalecki asked, “if the public is unwilling to absorb all the increase in government securities?” His answer: “It will offer them finally to banks to get cash (notes or deposits) in exchange. If the banks accept these offers, the rate of interest will be maintained. If not, the prices of securities will fall, which means a rise in the rate of interest, and this will encourage the public to hold more securities in relation to deposits. It follows that the rate of interest depends on banking policy, in particular on that of the central bank. If this policy aims at maintaining the rate of interest at a certain level [emphasis added—SW], that may be easily achieved, however large the amount of government borrowing. Such was and is the position in the present war. In spite of astronomical budget deficits, the rate of interest has shown no rise since the beginning of 1940.”

In plain language, Kalecki is saying that if there is not enough money in existence to finance the government deficits, the government or its “monetary authority”—the central bank—can simply print the difference and keep the rate of interest as low as it wants to right up to “full employment.”

Kalecki wrote “Political Aspects” during World War II. At that time, despite record budget deficits relative to the economy as a whole, and the full employment of the war economy, long-term interest rates remained at Depression lows. But during the 1970s and early 1980s, when government budget deficits were radically smaller relative to the economy as a whole, long-term interest rates soared to the highest levels ever experienced in the entire history of capitalist production.

Why couldn’t the “monetary authorities” simply print quantities of money to keep interest rates low as Kalecki was sure they could as long there were unused means of production and unemployed workers? The concrete economic history of capitalism since Kalecki wrote his “Political Aspects” during World War II shows that there is something very wrong with his analysis.

Why were interest rates so low during World War II? Kalecki overlooked the fact that WW-II was preceded by the worst depression—the Great Depression—in the history of capitalism. As a result, huge amounts of money had fallen out of circulation and accumulated in idle hoards in the banks—especially U.S. banks. In addition, commodity prices in terms of gold—and to a lesser extent in terms of devalued paper currencies as well—fell sharply as a result of the unprecedented Depression conditions. The fall in prices during the Depression decade greatly increased the quantity of money in “real” purchasing power terms.

In addition, the fall of prices in terms of money material—gold—during the Depression had increased the profitability of gold production—both relative to other industries and absolutely. The result was a major rise in gold production, and thus in the years immediately preceding the war a huge increase in the quantity of money material measured in terms of the weight of monetary gold.

Therefore, both in terms of real purchasing power and in terms of its quantity—the total mass of monetary gold measured in terms of weight—the amount of world money vastly increased in the years immediately preceding the war. The buildup of these vast hoards of idle money capital in the immediate pre-World War II years put massive downward pressure on the rate of interest.

The nature of war economy

Kalecki also ignored the fact that during the all-out war economy of World War II, capitalist expanded reproduction was suspended. Once the economy reaches full employment of the means of production and workers under conditions of all-out war, no further increase in production can occur. Real capital is not expanding but contracting as fixed capital is consumed and not replaced. In addition, in areas of military operations, a portion of the fixed capital is physically destroyed—for example, the bombings of factories.

As they used up their capital in the production of war “goods,” the industrial capitalists exchanged real capital for fictitious capital—government bonds—promises to repay with interest in the event of victory. Though gold production declined considerably during World War II, it did not drop to zero. Indeed, it remained at a level considerably higher than that of the decade that immediately preceded the Depression. Therefore, the ratio of money capital relative to productive capital actually increased as the war progressed. This is the exact opposite of what occurs during the boom phase of the industrial cycle. Interestingly enough, after the war ended and budget deficits were drastically reduced, interest rates began their long drift upward.

Limits of war economy

Contrary to what is sometimes claimed by Keynesian or Keynes-influenced economists, a war economy cannot be a model for a “full employment peacetime” capitalism. Capitalism can only exist—with occasional interruptions caused either by severe cyclical crises or all-out war—as expanded reproduction.

Expanded capitalist reproduction involves an expansion of the quantities of constant capital, variable capital, commodity capital as well as money material. During a war economy, such as occurred during World Wars I and II (4), the capitalists extend credit to their warring governments hoping that their government will be victorious in the war.

If their government is defeated, the value of the war bonds it issued will be effectively wiped out by inflation or be repudiated altogether. This is one of the reasons why the German capitalists supported the Nazi government until almost the end of the war, even after it had became virtually certain that Nazi Germany was a lost cause. The German capitalists realized that unless the Nazis somehow won the war they would lose a whole lot of capital—which they indeed did when the German Reich was defeated and the value of the Third Reich war bonds was wiped out.

If the capitalists of a warring nation lose all hope that their government will be victorious, they will move to preserve as much as possible of the value of their capital by selling off their government bonds for paper money, which they will then convert either into currencies of the victorious capitalist countries or into gold. These actions cause the devaluation of the currencies that lead to runaway inflation while interest rates soar.

As for their real capital, the capitalists of a country facing defeat will try to preserve its value by increasingly taking it out of production until the war is over, when they hope conditions for normal expanded capitalist reproduction will return. The increasing dumping of government bonds by the capitalists who have lost all hope in the victory of their government combined with the withdrawal of real capital from production causes the entire war economy to fall apart, hastening the inevitable military defeat.

This is exactly what happened in Russia just before and during the Russian Revolution of 1917. If a Russian capitalist couldn’t escape from revolutionary Russia and somehow succeeded in transforming his government bonds into potential money capital in the form of gold bars or coins buried in the ground, he and his descendants would have had to wait until the Gorbachev-Yeltsin counterrevolution finally restored the conditions of expanded capitalist reproduction more than 80 years later.

In the case of the capitalists of (West) Germany, the wait was much shorter, and normal conditions of expanded capitalist reproduction were restored as soon as the mark was “stabilized” with the currency reform of 1948. (5) Capitalist expanded reproduction then resumed with great vigor after years of crisis and war economy. This is what the (West) German “economic miracle” amounted to.

Kalecki accepted the view that there were no economic barriers to full employment under the capitalist system. However, this raised another question. Why if the solution to unemployment was so easily within their grasp—long before Keynes’s demands had been raised to fight unemployment through government spending and monetary inflation—hadn’t capitalist governments actually pursued “full employment” policies? And why did the capitalist governments allow mass unemployment to grow to such an extent in the 1930s that it threatened the very existence of the capitalist system?

Kalecki’s answer

“The maintenance of full employment,” Kalecki wrote, “would cause social and political changes which would give a new impetus to the opposition of the business leaders.” What would that impetus be? “Under a regime of permanent full employment, the ‘sack’ would cease to play its role as a ‘disciplinary’ measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow.”

Kalecki’s point about the class-consciousness of the workers growing under full-employment capitalism is open to question. True, full employment would encourage more strikes and greatly strengthen the unions. These struggles would tend to increase the purely economic class struggle of the workers. But experience has also shown that periods characterized by prolonged prosperity with low unemployment, though they have indeed encouraged the growth of trade unions and the workers’ political parties, have also led to the growth of conservative politics among the workers and their organizations.

One historical example of this would be the steady growth of “reformism”—the rejection of revolutionary politics—within the parties of the Second International during the great capitalist prosperity that occurred between 1896 and the outbreak of World War I. Another example would be the growth of conservatism among the trade unions and the workers’ political parties during the wave of capitalist prosperity after World War II.

If the material conditions of the organized workers are steadily improving as they generally were during both the pre-World War I “boom” and the post-World War II “boom,” workers see little reason to fight for the revolutionary transformation of capitalism into socialism, because the current system is “delivering the goods.”

But there is another far more fundamental problem with Kalecki’s analysis. “Profits would be higher,” Kalecki wrote, “under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests.” [emphasis added—SW].

The capitalist class is not interested in oppressing the workers for the sake of oppressing the workers. Capitalists as capitalists are interested in only one thing, increasing the rate and the mass of profit. This is not because they are as individuals necessarily greedy or personally nasty but because they are forced under pain of ruin to constantly increase their profit. If they fail to increase their profit, they will sooner or later lose their capital.

The bankruptcy and collapse of the “old” General Motors shows that this applies not only to small capitalists but the very largest, most powerful monopoly capitalists as well. For many, many decades the stockholders in General Motors, which long reigned as the largest industrial corporation in the world, were progressively enriched by their ownership of “blue chip” General Motors stock. But eventually, in 2009, those investors in General Motors who were not smart enough to bail out in time saw their investment in General Motors stock wiped out. Therefore, no matter how rich and profitable a monopoly capitalist corporation is at any point in time, it must increase its profits still more or it will share the fate of the old General Motors.

In order to achieve this, for the capitalists, absolutely necessary growth in profits, the capitalists have no alternative but to increase the rate of surplus value—or what comes to exactly the same thing, the amount of time the workers work without pay for the capitalists rather than for themselves. If full employment policies actually increased the profits of the capitalists like Kalecki believed, not only would the capitalists support such policies, they would insist on such policies. We would be living in a very different world.

Kalecki correctly realized that the capitalists desired unemployment, but he couldn’t understand why this was so. He sensed that the realization of the value of commodities was a problem, but he failed to understand exactly how the value of commodities is actually realized. He wrongly believed that the capitalist government could always guarantee the realization of the value of commodities if only it were willing to borrow, print and spend money right up to “full employment.”

Under “full employment,” Kalecki imagined that all the surplus value produced by the working class would be fully realized, maximizing the mass and rate of profit. Kalecki failed to fully appreciate that surplus value must be produced before it can be realized. In this respect, Kalecki’s analysis is inferior not only to that of Marx but even to that of Ricardo. Ricardo, since he accepted Say’s Law, believed that the problem of realizing the value and surplus value embodied in commodities did not exist.

But unlike Kalecki, Ricardo understood that, everything else remaining equal, higher wages will mean lower profits and not higher prices. (6) And as I mentioned above, economic history since World War II—especially the history of interest rates and not just the theoretical arguments of Ricardo and Marx—have thoroughly refuted Kalecki’s economic arguments in practice. And it is practice that is decisive.

Why then did the editors of Mrzine choose to republish Kalecki’s badly flawed article at this particular time? Is it because they are interested in the history of 20th century economic thought? There would be no objection to republishing Kalecki at this time if that were indeed their intention. We should and indeed must examine the mistakes of earlier generations of socialists if we are to avoid repeating them in the future. But could it be that they republished Kalecki’s badly mistaken article because it is in line with their hopes of a future “new New Deal”?

I am afraid the latter is the case.

In a universe far far away

Some theoretical physicists speculate that the basic laws of physics may be different in other universes. Suppose in one of these far away universes not only the laws of physics but the laws of economics are different. If we lived in a universe where “Kaleckian” rather than “Marxist” economic laws prevailed, how would this affect the relationship between the classes and thus politics itself?

Suppose that the capitalists in our alternate universe were still driven by their need to maximize both the mass and the rate of profit. But the laws that govern our alternative universe capitalism would not only allow capitalist governments to achieve long-term full employment but in this universe full employment would actually maximize profits. To maximize capitalist profits, however, the governments would have to follow full employment policies both in terms of fiscal as well as monetary policy.

Freed from the dead weight of the reserve army of the unemployed, the workers could only gain by full employment policies. But remember, in this universe so would the industrial and commercial capitalists, since their profits would be maximized only when the government pursues a full employment policy. Only the “rentier interests,” that section of the money capitalists who live off fixed interest income, would lose out because full employment would probably lead to higher prices caused by wage increases, eroding their fixed-interest income.

But in our Kaleckian universe, not all the money capitalists actually lose under a regime of “full employment.” All the money capitalists have to do to benefit from full employment is to invest in stocks rather than fixed-interest bonds. Remember, in the long run the price of stocks—leaving aside the swings due to speculation—are determined by capitalization of dividend income at the prevailing long-term rate of interest. Therefore, only those very timid money capitalists who don’t want to take the risk of owning stocks as opposed to fixed-income bonds would actually suffer under “full employment” monopoly capitalism. Here the Kaleckian laws of economics come to the rescue of the money capitalists.

As long as governments follow the correct Keynesian full employment policies, there should be no major economic crises. The lack of major economic crises would greatly reduce the risk associated in investing in common stocks. The above fits right into John Bellamy Foster’s analysis of what he calls “monopoly finance capital”—except that he applies it to our universe rather than our hypothetical far far away universe.

The problem as Foster sees it is that a section of the capitalist class, the “monopoly finance capitalists” (7), as opposed to monopoly industrial and monopoly commercial capitalists, have an interest in opposing “full employment.” Presumably, the monopoly finance capitalists oppose full employment because with full employment the higher rate of inflation that would likely be the consequence will erode their real interest income.

Applying “Kaleckian” economics, we find that the interests of “the monopoly finance capitalists” conflict not only with those of the workers when it comes to government economic policies of full employment but also with those of the monopoly—as well as the non-monopoly—industrial and commercial capitalists. Therefore, according to “Kaleckian” economics, unlike the “monopoly finance capitalists” the other capitalists share an interest with the workers in “full employment,” which can be achieved if the government follows the correct “Keynesian” full employment policies.

In Europe—or the equivalent of Europe in our far far away universe—this might take the political form of a coalition of labor parties—whether Labor, Social Democratic or the Communist parties that were once members of the Third International—with those bourgeois parties that represent the interests of the industrial and monopoly commercial capitalists. Since the 1930s, such governments have been called Popular Front or People’s Front governments.

In the U.S., the same alliance would most likely find expression through the pro-New Deal wing of the Democratic Party. Monthly Review had indeed hoped that the election of the Democratic Obama and a Democratic Congress would usher in the hoped-for new New Deal. But as we have seen, no “New Deal” materialized, leading to massive Republican victories in the most recent U.S. elections.

But if Kalecki’s economic analysis were correct, there would at least be a possibility that pro-New Deal forces within the Democratic party representing a coalition of powerful corporate interests—both industrial and commercial capitalists—with a resurgent trade union movement would be able to defeat the pro-monopoly finance capital faction within the Democratic Party. Then we might hope that the next time the Democrats are in control of both the executive and legislative branches of the U.S. government, they would actually follow full employment policies that would wipe out the scourge of mass unemployment once and for all.

If we lived in a “Kaleckian” universe, there would be no reason why this would not be a perfectly realistic prospect. In this case, John Bellamy Foster’s desire to win the university economics departments away from the neo-liberalism that has dominated them since the 1970s to Keynesian economics would make perfect sense.

While individuals can surprise us—and they can sometimes become “traitors to their class” as happened among more than one young economist in the 1930s, including Paul Sweezy—the prospects of winning over the leading professional economists who dominate university economics departments to Marxism do not appear at all promising. These strongly pro-capitalist professors who control the hiring and granting of tenure in university economics departments are both by their social background and personal financial interests strongly bound to the capitalist system.

But if we could convince them—or at least a considerable number of them—that Keynesian-style government polices could not only deliver and maintain full employment but in addition that full employment would increase and not decrease profits, their ears would prick up. For example, we might suggest to these professors that instead of investing in bonds with fixed returns they shift their portfolios toward common stocks. If they do this, even if higher money wages lead to inflation they would be more than compensated through higher dividends and the consequent rising values of their stock portfolios.

Therefore, if Kaleckian economics were true in our universe, the support of most university economics professors for neo-liberal as opposed to full employment Keynesian economics represents not their real material interest but mere ideological prejudice and honest mistakes. We must simply enlighten them on the brilliance and correctness of the economic ideas of John Maynard Keynes as opposed to von Hayek, von Mises, Milton Friedman et al.

This is indeed what Foster has been doing in his Monthly Review articles since the crisis broke out in 2007. As more and more professional economists are won over to Keynesian economics, they will in turn help leaders of the industrial and commercial corporations as well as the owners of smaller industrial and commercial enterprises to understand that their profit interests actually lie not with “neo-liberal” policies but rather with a new full employment New Deal.

Once the new New Deal and its counterparts in other capitalist countries eliminate unemployment through a skillful application of applied Keynesian economics, the desperate competition for jobs among the workers would disappear. And much of the racism and chauvinism that such competition for work breeds would disappear with it. We strike a major blow against racism.

Just as importantly, the danger of war among the capitalist countries would also be vastly reduced if not eliminated altogether. This would apply both to the wars of today that involve wars of imperialist countries—mostly the United States—against oppressed capitalist countries, but also against the danger of an eventual revival of warfare among the imperialist countries themselves. (8) Neither the developed nor the “developing” nations would have to fear that the accelerated development of other capitalist nations would mean a loss of markets for their own capitalists and thus an end to their own prospects for further capitalist economic development.

If “Kaleckian” economics were true, such full employment policies would be well within reach. We do not have to overthrow the capitalist class but simply elect more enlightened capitalist governments. Once this is achieved, a new day will dawn. It won’t be socialism. There will still be the exploitation of wage labor by private capital, but it will be a vast improvement over what exists today. If such a change is really possible—and if “Kaleckian economics” is correct—this is what we must actually fight for today.

Kalecki’s analysis and the prospects for socialism

According to historical materialism, socialism cannot come into existence until capitalism has exhausted all its historic possibilities. If a full employment Keynesian capitalism is possible, the possibilities of capitalism are far from exhausted. We can still support socialism as a personal ideal, but the struggle for full employment under capitalism is the real struggle of our time. Socialism will have to be left for a future that will arrive when and if “full employment monopoly capitalism” finally exhausts its potential for development. Perhaps this will be true when global warming reaches the stage where oceans are approaching the boiling point and threaten to transform our now living world into another version of the lifeless planet Venus. But that will be a struggle for another time and another generation.

The real solution to unemployment in our universe

Given that in our universe the economics of Marx apply and not those of Kalecki, how can the workers and their organizations—workers’ parties and the trade unions—effectively fight the global unemployment crisis?

I will not attempt to write a program on how to struggle against unemployment. That is the job of the workers’ parties and unions and their duly elected conventions and congresses. Here I will confine myself to some general principles that are based on Marx’s economic discoveries and my blog on crisis theory.

Virtually all non-Marxist economists agree that the key to reducing unemployment is to increase the rate of profit of the capitalists. Where the economists differ is how to achieve the necessary increase in profits. Progressive Keynesian economists say the key to making increased employment profitable to the capitalists is to increase the purchasing power of the mass of the people. That, they explain, will make it profitable for the capitalists to hire more workers until full employment is achieved.

Reactionary bourgeois economists, now often called “neo-liberals,” hold that the only way to increase profits is through union busting, wage cutting, cutting taxes on the capitalists, dismantling public benefits, and attacking and destroying the right of government workers to bargain collectively. This is the program that Wisconsin governor Scott Walker and the Republican majority in the Wisconsin state legislature are attempting to implement. When wages and benefits are lowered sufficiently, the neo-liberal economists claim, it will finally become profitable for the capitalists to hire the unemployed, leading to full employment.

Keynes himself actually had a foot in both camps. He emphasized that it was necessary to increase mass purchasing power in order to achieve “reasonably full employment.” But he also agreed that it was necessary to reduce real as opposed to nominal wages, which he thought could best be achieved through policies that encourage a rising cost of living that reduces real wages.

The capitalists like to present themselves as job creators. Yet the exact opposite is true. Throughout the capitalist world, there are many factories and other workplaces that are either idle or would need many more workers to operate if they were producing at their full potential. It is actually the capitalists as a class who are standing in the way of the unemployed being put to work.

Because it is not profitable for the capitalists to actually put the unemployed to work, the unemployed remain unemployed. This is not due to the ill will of individual capitalists. It is the inevitable consequence of the economic laws that govern the capitalist system. This is why John Bellamy Foster’s attempts to win over university economics departments to Keynesian economics as opposed to neo-liberalism is unlikely to help the unemployed very much if at all, despite Foster’s good intentions.

The working class if it is to fight unemployment effectively must reject the whole idea that increased profits for the capitalists are the necessary pre-condition to achieve full employment. Instead, we have to demand employment for the unemployed whether or not it is profitable for the capitalists.

If the capitalists increase employment because it is profitable, fine. But if it isn’t profitable for the capitalists to put the unemployed to work, that doesn’t in any way reduce the needs of the unemployed for employment. So it is the capitalist minority that should yield to the needs of the great majority. The workers will also be able to provide jobs for former capitalists who will need jobs themselves once they are no longer capitalists. No human being should suffer unemployment and its miseries ever again.

Public works

This does not mean that we oppose partial measures by capitalist governments that create additional employment, nor should we fail to point out that if capitalist governments were to spend more money on public works programs rather than wars and tax cuts for the wealthy, the level of unemployment would fall. In doing this, we should always insist that the cost of these programs fall on those who are able to pay, the rich, and not the workers or even the “middle class.”

Cutting the workweek with no reduction in pay

In the past, workers’ parties and trade unions have often demanded that the working week be shortened with no cut in pay. At times, these struggles have been victorious. In Volume I of “Capital,” Marx himself described the struggle of the English workers for a shorter working day in the 19th century.

The most radical form of the demand to shorten the workweek to fight unemployment is called the sliding scale of hours and wages. The sliding scale of wages refers to increasing wages in step with rises in the cost of living, an especially important measure when the cost of living is rising sharply, as it is now thanks to “Keynesian monetary” policies of the Federal Reserve.

If the productivity of human labor has reached the point that less labor is necessary to meet all reasonable human needs, the answer is to spread out the now reduced amount of work that needs to be done by cutting the workweek with no cut in pay. Indeed, Marx, Engels and other Marxists over the years have looked forward to a future when the workday will be so shortened that work will cease to be a necessary evil but instead become the most important human need. Then what Marx in the “Critique of the Gotha Program” called the “enslaving division of labor” will at last be overcome.

The need for workers’ governments

But even a shorter workweek with no cut in pay combined with the most progressive public works programs financed by progressive taxation cannot offer a lasting solution to the inevitable recurrence of unemployment-breeding general crises of overproduction as long as the private appropriation of the products—private ownership of the means of production—is combined with today’s massively socialized production.

To abolish crises and their associated unemployment, we must tackle the task of transforming capitalist production into socialist production. The absolute pre-condition for this necessary economic revolution is the transfer of political power from the rich minority to the working-class majority. Or as Marx and Engels put it in the “Communist Manifesto,” we must win the battle for democracy.

In this struggle, we cannot expect to find allies among significant layers of the capitalist class. (9) With important individual exceptions, all capitalists, whether money capitalists or industrial or commercial capitalists, will defend the system that allows them to live in great luxury without having to work.

To break the power of money over politics, the working class and its allies among the poor of both city and countryside must counter the power of money with the power of organization. This growing organization of the working class must lead to the creation of governments of the workers and their allies.

A warning

Hopefully, these governments can be created in a peaceful democratic way. But experience has indicated that rather than give up their political power and the economic system that allows them to live in great luxury without working, the capitalist ruling classes will attempt to organize “slaveholders’ rebellions.” (10). Unless workers’ governments deal with such rebellions in a decisive way, they will be overthrown and the scourges of unemployment crises along with the other evils of capitalism will continue.


1 Following the teachings of John Maynard Keynes, the U.S. Federal Reserve System in a bid to lower real wages of U.S. workers has allowed the dollar price of gold—which measures inversely the amount of gold each dollar represents on the world market—to rise from about $675 at the beginning of the economic crisis in the summer of 2007 to over $1,400 at times. According to Keynes, such inflationary policies lower real as opposed to nominal wages, increase the demand for “labor” on the part of the capitalists and thus reduce unemployment by raising the profits of the capitalists.

For relatively well-paid workers and members of the middle class in the imperialist countries, higher food prices mean a reduction in their standard of living, since there is less money left over for other commodities. This is especially true since the same Keynesian monetary policies that are behind the rising price of food are also causing a rise in the price of gasoline.

But for badly paid workers who live largely in the nationally oppressed countries, the situation is far worse. Higher food prices can mean real hunger and even starvation. A fine way to fight unemployment!

2 Perhaps the first modern revolution, in the sense that it occurred after the modern classes—the capitalist class and the class of wage workers—had formed, was the French revolution of February 1848 that overthrew the “bankers’ king” Louis Philippe. Under Louis Philippe, only a small portion of the French capitalist class—the financial capitalists—enjoyed political power; the industrial capitalists were largely deprived of power.

Therefore, both the industrial capitalists and the working class supported the February revolution that overthrew the Louis Philippe monarchy and established universal male suffrage—democracy for all French males. Like is the case with the current revolutions and unrest in the Arab world and elsewhere, the February revolution of 1848 was preceded by a global economic crisis—the crisis of 1847 and its associated depression, which continued into 1848. This crisis-depression sent unemployment soaring in France, making unemployment a key issue just like it is today.

The provisional government that emerged after the fall of Louis Philippe promised to establish the right to work—that is, to implement full employment policies through the establishment of government-financed workshops, a kind of proto-Keynesianism. In June 1848, however, the new government established by the February revolution with the support of both the industrial capitalists and the workers announced it was closing down the workshops. The workers of Paris then rose up to defend the workshops and the right to work.

These events are known as “the June days.” The bourgeois militia—called the National Guard, not to be confused with the National Guard of the Paris Commune of 1871—brutally put down the uprising. The people united in victory in February 1848 had split into hostile class camps in June.

“The right to work,” Marx wrote in an article that was later collected into the book “Class Struggles in France,” “is in the bourgeois sense, an absurdity, a miserable, pious wish.” This can be considered Marx’s definitive judgment on “Keynesian” full employment policies. His later work in economic science only reinforced these conclusions written several years after the February 1848 French revolution.

3 If the problem of realizing value and surplus value could be solved simply through government spending and printing paper money, it would hardly be a major contradiction of the capitalist system, since it wouldn’t be hard to develop government policies to guarantee the realization of the value and surplus value of all commodities. Were that the case, neither Marx nor Engels would have put so much emphasis on it.

4 Could there be an all-out war economy in the future? If the most powerful weapons that are now available were actually used, there would not be a war economy but the complete destruction of human civilization within hours if not minutes. In that case, the conditions for a resumption of capitalist expanded reproduction along with much else would be destroyed for decades or more likely forever.

5 In 1948 in Germany, the badly depreciated Reichmarks were exchanged for the new Deutschemarks in the U.S., British and French zones of occupation, and price controls were suddenly removed. Prices jumped but then quickly stabilized and profits and investments soared. The German capitalists had lost a lot of capital, but with postwar wages very low, the rate of profit was very high and they made up their losses relatively quickly. Still, they were not nearly as rich as they would have been if the Nazis had won the war. In that case, their government bonds would have been repaid in full in good money, and they would have had all of Europe, from the Atlantic to the Urals for starters, to plunder and exploit.

The 1948 German currency reform also forced the division of Germany between the capitalist Federal Republic of Germany, which occupied about 75 percent of the shrunken area of postwar Germany, and the socialist German Democratic Republic, which occupied about 25 percent of what remained of Germany.

6 Ricardo following Adam Smith ignored the existence of constant capital because he accepted Smith’s argument that constant capital can be reduced to variable capital in the final analysis. However, if we assume that constant capital is unchanged, Ricardo was right. Despite the claims of Keynes and Kalecki, higher wages will not mean higher prices but lower profits. When it came to understanding the nature and origins of profit, Ricardo was far superior to Kalecki.

7 John Bellamy Foster’s “monopoly finance capital” should not be confused with Lenin’s concept of “finance capital.” Lenin defined finance capital as the merger of banking and industrial monopoly capital and the formation of a “financial oligarchy” on that basis. If Lenin’s view is correct, the financial capitalists and industrial capitalist are increasingly the same people.

In this case, the hope of appealing to the interest of the monopoly industrial capitalists as against the monopoly finance capitalists is obviously futile. Foster, in contrast, sees monopoly finance capitalists as representing a separate group of people within the capitalist class who unfortunately now have most of the political power. According to Foster, they essentially are the owners and managers of banks and insurance corporations. This leaves the door open to appealing to the profit interests of the monopoly—and non-monopoly—industrial and commercial capitalists as opposed to the interest of the monopoly finance capitalists.

Rather than seeing the capitalist class as a whole as the barrier to full employment, Foster sees only one fraction of the capitalist class—the monopoly finance capitalists—as having interests that are in fundamental opposition to full employment policies.

Therefore, it should be possible at least in theory, he believes, to build an alliance that includes large sections of the capitalist class who share with the workers an interest in full employment polices against that fraction of the capitalist class that benefits from unemployment. This would form the social base of a future pro-full employment new New Deal administration in the U.S. and similar “progressive” governments in other countries.

8 Since World War II, one imperialist country, the United States, has maintained such overwhelming economic, financial, political and military dominance that no other imperialist country has had any chance of successfully challenging it militarily. However, the once overwhelming economic dominance of the United States has been eroding for decades. So far, the dollar system and with it the overwhelming military and political dominance of the U.S. has remained intact, preventing a serious danger of war among the imperialist countries. However, if U.S. economic power continues to decline, it will be only a matter of time before the dollar system collapses. If this happens, the overwhelming military and thus political dominance of the United States can be expected to fade and finally vanish.

While we can hope that the destructiveness of today’s weapons would deter an all-out inter-imperialist war, the history of imperialism warns us not to count on it. A future inter-imperialist war would likely grow out of more limited wars that would gradually escalate into a new world war. The only way to end the danger once and for all of a new inter-imperialist world war is to overthrow the capitalist system while there is still time.

9 Marx and Engels explained in the “Communist Manifesto” that as the ruling capitalist class begins to disintegrate certain members of the ruling class will come over to the side of the workers. Marx and Engels were by social origin themselves members of the bourgeois intelligentsia, not workers. Engels was even an active industrial capitalist. However, there is no section of the ruling class that as capitalists has an interest in genuine full employment policies.

As the contradiction between the needs of our species’ productive forces and capitalist relations of production continues to grow, the ruling class will continue to disintegrate. As this process proceeds, we can expect to see substantial numbers of young economists begin to question the capitalist system just like we saw in the 1930s. There will be more young Paul Sweezys out there, who very likely will advance Sweezy’s work and learn from Sweezy’s mistakes and limitations.

However, we cannot advance this process by struggling to win over young economists to Keynes rather than to Marx. If we win them over to Keynes, we will simply be turning them back into the ranks of the pro-capitalist economics professors. This is exactly what happened with many radicalized young economists of the 1930s who later evolved into pro-capitalist “neo-Keynesians” of the Cold War post-World War II years. Attempting to win over economists to the pro-capitalist, pro-imperialist Keynes only makes sense if we think that capitalism still has a progressive role to play, not only in underdeveloped countries that are still emerging from pre-capitalist relations but in the the imperialist countries as well.

10 Marx first used the term “slaveholders’ rebellion” to refer to the rebellion of the slaveholding states of the U.S. against the Republican administration of Abraham Lincoln, which had been elected in the 1860 U.S. presidential election. Lincoln had not run on a program of abolishing slavery but simply a program of opposition to the further spread of slavery and creation of any more slave states.

On this question, Lincoln refused compromise. Due to the wasteful mode of production of the slaveowners that quickly led to the exhaustion of the soil, the prohibition of the further spread of slavery would have condemned the slave-owning system to gradual extinction. Lincoln and his supporters hoped this would be a gradual and peaceful process. Their hopes, however, were not to be realized.

Rather than accept the result of this relatively democratic election—I say relatively democratic because neither free Northern Blacks nor women, not to speak of the Southern slaves who had the greatest interest in the outcome, had the franchise—the Southern slaveholding states staged a rebellion against the lawfully elected Lincoln administration and won over large sections of the U.S. military including its leading and most talented officer Robert E. Lee. The result was an exceptionally bloody civil war that led to the deaths of more than 600,000 Americans.

In Volume I, Chapter 10 of “Capital,” Marx referred by way of analogy to “pro-slavery rebellions” of English capitalists who illegally resisted the laws limiting the workday in 19th century England. Marx expressed the hope that in such relatively democratic countries as the United States and Britain the workers might come to power through peaceful methods. But he warned the workers against the danger that even in these countries the capitalists like the U.S. Southern slaveholders of 1861 might very well not accept the election of a workers’ government and instead would launch an illegal “slaveholders’ rebellion” in a last-ditch attempt to save the capitalist system.

5 thoughts on “Are Marx and Keynes Compatible? Pt 9

  1. I’ve been picking at random bits of this blog on and off for a few months now, and I have to say I’m impressed with what I’m seeing. One of these days I’ll actually try to take it from the top, though I’ll probably wait until I am a little further into Capital.

    That said, in the midst of my haphazard browsing, I couldn’t help but notice what could be something of a cynical or even skeptical attitude towards the efficacy of token money. For instance:

    “In his perfected law of labor value, Marx explained that the law of value requires a value form, or exchange value. The value form, or exchange value, means that the value of a commodity must be measured in terms of the use value of another commodity. This means that money, which is the universal equivalent that in its use value measures the value of all other commodities, must itself be a commodity.” (Are Marx and Keynes Compatible? Pt 3)

    Further, in “From Money as Universal Equivalent to Money as Currency,” you argue over the course of several paragraphs that ultimately a fiat monetary authority is limited in the amount it can issue (without devaluation) by the total quantity of gold extant in the world.

    I really enjoy the blog, overall, and find you to be interesting and well-read, though I don’t know that I find this particular argument convincing. Is there anything further you can use to substantiate it? What is the specific relationship between the gold supply and the fiat money supply that would act upon prices in the short run? Are there records illustrating said relationship?

    You yourself acknowledge that “the ideal money commodity[‘s] only use value would be to serve as money,” and indeed fiat currency has no other use. While it is, of course, not an object of capitalist production in and of itself and therefore is not, strictly speaking, a commodity… well, why is it so critical that it must be? It’s still got a use-value – indeed, the fact that it is the only form of payment the state will accept to discharge taxes and fines lends it a specific (and unique, within a given sovereign currency zone) use that makes its incumbency as a lytric unit utterly convenient. The resultant demand for it lends it its own gravity such that widespread currency revulsion is, despite metallists’ clamor, something that would take a revolutionary impetus in and of itself.

    As Marx notes: “Hence, in this process which continually makes money pass from hand to hand, the mere symbolical existence of money suffices. Its functional existence absorbs, so to say, its material existence. Being a transient and objective reflex of the prices of commodities, it serves only as a symbol of itself, and is therefore capable of being replaced by a token. One thing is, however, requisite; this token must have an objective social validity of its own, and this the paper symbol acquires by its forced currency.”

    So, “money as a creature of the state” can suffice on its own, but one could also make the somewhat fanciful case that said currency is still ‘backed’ in its own way, as it could be seen (in the very abstract) as being directly exchangeable for the social framework in which we all exist, or (in the somewhat more immediate sense) as being convertible to freedom from incarceration following tax day.

    Anyway, the reason I’m wondering about all of this is that I’ve been reading the work of some of the increasingly vocal “neo-chartalists” (often placed within the Post-Keynesian tradition), such as Bill Mitchell, L. Randall Wray, and Warren Mosler (Jamie Galbraith sometimes chirps in on the matter, too), and their description of the modern monetary system seems entirely sensible. To summarize some key points in a few words: sovereign issuers of currency are not revenue-constrained and cannot involuntarily default on debt denominated in their own currency, and taxation is not a tool for financing outlays but rather serves a fourfold function (perhaps best summarized by Beardsley Ruml in his address “Taxes for Revenue are Obsolete”). There’s more, involving vertical vs horizontal analysis and Godley-style stock-flow consistent modeling/accounting, but conceptually speaking it’s all pretty simple.

    Whereas you note that the Keynesian toolbox often includes using inflation to lower real wages, the principal thrust of their policy recommendations seems to be something different, at once focusing on full employment and price stability: a job guarantee program, with the state serving as an employer of last resort. When the state is not revenue constrained, we’ve unmoored ourselves from the immediate question of “how are we going to pay for that,” and they argue that this actually creates the optimal circumstance to implement something akin to Lerner’s “functional finance,” here in the form of the mother of all auto-stabilizers.

    Whereas this is becoming entirely too long already, I’ll cut to the chase: I was wondering, before we get away from the topic of Keynes, if you maybe had a minute to weigh in on all of this? I am inclined to agree that capitalism cannot be “tamed,” as Keynes’ followers often hope. However, it seems to me that there is unrealized potential within the above framework: if monetary primacy is not held by a commodity but by the state, and the state is democratic in nature (a stretch for the USA, I know, but just bear with me on this one), then doesn’t this represent the surest avenue for the evolutionary democratization of the economy, and thus the gradual implementation of socialism? To me, the job guarantee idea sounds like a pretty solid foundation for such a thing; could not the removal of the reserve army of the unemployed be a game-changer, even with globalization in full effect?

    Anyway, sorry to take up so much space, here. Hope I’m not just retreading ground already covered! (If you think I’ve botched my reading of Marx, please go easy on me; I am new at all of this!)

  2. Addendum: I should have read this last Marx & Keynes post more closely; I would have seen that you’ve already addressed the idea of “real” full-employment capitalism to an extent. Still, the idea that it need not necessarily be inflationary in and of itself (if taxes are leveraged according to Ruml’s first two propositions) is one that does seem to be gaining some momentum on the internet.

  3. Thanks for your time for posting “Are Marx and Keynes Compatible?
    Pt 9 | A Critique of Crisis Theory”. I reallywill absolutely be back for alot more reading and commenting here in the near future.
    Thank you, Concetta

  4. “There is no evidence that I know of that Marx believed that the problem that capitalism periodically encounters in realizing the value—including the surplus value—of commodities could be solved by government spending or printing additional paper money. ”

    Marx didn’t have much evidence at his disposal but he did have the US experience of the ‘greenback’ dollar which was disconnected from the value of gold during the American civil war. Afterwards the US Labor movement was generally in favor of keeping the fiat currency rather than returning the dollar to the Gold standard.

    In recent times we can compare the experiences of small countries like Ireland, Greece and Cyprus which have lost control of their own currency, albeit to the Euro rather than a gold standard, with countries that haven’t – like Iceland.

    The evidence is that, whilst not offering a permanent solution to “the problem that capitalism periodically encounters”, an increase in the money supply does at least offer some temporary respite – to the benefit of both workers and capitalists.

  5. Contemporary capitalist economics has moved on from Keynesian economics. The Keynsian notion of using government deficits as a ‘pump-primer’ to stimuate an economy in times of recession which can later be replenished from a government surplus as the economy improves clearly no longer applies in most developed capitalist economies. Currencies are no longer backed by anyhing tangible.They are just tokens or IOUs to be issued at will.

    There’s always a deficit -sometimes bigger , sometimes smaller. Government debts never get repaid they always increase.These are plainly observable facts.

    This is clearly not the economics that Marx analysed. He was almost certainly correct in arguing that capitalism would have collapsed under the strain of its own contradictions had nothing much changed, but that’s certainly not the case. Capitalism has evolved considerably during the course of the 20th century and later.

    The best analysis of 21st century capitalism is provided, IMO, by the Modern Monetary Theorists, Their theory does make sense of what is currently happening and they explain convincingly why government debts aren’t debts in the normal sense of the term and.are nowhere near as bad as they might seem at first sight.

    They argue that the situation is sustainable. I’m not sure about that though, and it is a question that modern Marxian thought needs to address.

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