John Maynard Keynes was by far the most insightful bourgeois economist of the 20th century. He could not afford to be a mere apologist of the system, since he was writing in the midst of the Great Depression and in the aftermath of the Bolshevik Revolution. To pretend at such a time that all was well in the capitalist system would have been the greatest harm he could have done to the system he loved so much. So the best hope for saving the system, for him, was to be honest about its flaws and try to fix them.
The main flaw Keynes detected was that the system was almost invariably struggling with mass unemployment, which he feared would lead to its rejection and therefore its replacement. The reason for mass unemployment was that, since investment decisions were made privately and separately by a group of capitalists, the total investment could never be large enough on the whole (except during certain “short periods of time). excitation ‘) to cover the difference between production at full employment and the consumption that would occur if that production were actually produced. This is what caused an insufficient aggregate demand for the production of full employment and therefore prevented the achievement of full employment (since the production achieved in any isolated capitalist economy must equal consumption plus investment).
Thus, Keynes suggested that if investment decisions could be socialized, that is, if the state could insure on behalf of “society”, through a combination of policies, including monetary and fiscal policy. , that, on the whole, investment decisions were always such as to cover the difference between the production of full employment and the consumption of that production, then the system could function properly.
The socialization of investment within the capitalist system itself, he believed, was therefore sufficient to overcome its shortcomings; the socialization of the ownership of the means of production, namely socialism, was unnecessary. In the words of Keynes: “It is not the ownership of the instruments of production that it matters for the state to assume. If the state is able to determine the overall amount of resources devoted to increasing the instruments and the base rate of the reward for those who own them, it will have accomplished all that is necessary.
Even at the time Keynes was writing, many authors belonging to the Marxist tradition had pointed out that its remedy was insufficient, that the socialization of investment within a capitalist system, even if such socialization of investment could to operate, was not enough to overcome mass unemployment. Since his time, we also have years of practical experience, which amply proves it.
Mass unemployment under capitalism is not just due to insufficient demand. A minimum of mass unemployment, or what Marx called the “reserve army of labor”, is necessary to keep the system going. Mass unemployment under capitalism is not just a flaw; it’s a part of his operating mode.
Certainly, the enormous unemployment observed during the Great Depression of the 1930s or even the usual level of mass unemployment that one finds in a capitalist economy can be reduced by stimulating aggregate demand by the state. Indeed, classical capitalism, as Polish Marxist economist Michael Kalecki has pointed out, is a “demand-driven system”. But if we keep increasing demand, once unemployment drops somewhat, there will be massive inflation. The reason is as follows.
An important role of the reserve labor force in a capitalist economy is to reduce the bargaining power of workers so that they do not demand higher wages. A reduction in mass unemployment below a certain level therefore prevents this role from being fulfilled. Workers’ bargaining power improves and they demand higher nominal wages (higher than the rate of labor productivity growth) in order to improve their share of output. But the capitalists, unwilling to admit an increase in the share of workers in production, raise prices, so that there is no increase in the share of wages. This gives rise to inflation, and if the workers persist in their effort, then inflation becomes continuous; and if workers anticipate inflation and therefore factor it into their wage demands, then inflation accelerates over time.
Mass unemployment can therefore never be eliminated under capitalism; it can never go below a certain level without rendering the system dysfunctional by an acute inflationary crisis.
All of this is not just an empty theory. This is precisely what ended the post-war boom. In the post-war years, it should be remembered, the policies advocated by Keynes had been followed in most of the capitalist countries which increased demand, lowered unemployment and, owing to the high level of demand, stimulated employment. investment by capitalists, resulting in high levels of growth.
This period has therefore been called the “golden age of capitalism”. But prolonged and low unemployment rates eventually gave rise to an irreconcilable conflict over the division between wages and profits, which manifested itself in the form of sharp inflation. For this reason, capitalism returned to high levels of unemployment under Margaret Thatcher in the UK and Ronald Reagan in the US.
But before the restoration of high unemployment, an effort was made to save the Keynesian view by imposing a “price and income policy”. The idea was to control inflation by having an agreement between workers and capitalists on their respective shares, so that increases in wages and prices were controlled.
But a price and income policy can never work in a capitalist economy. Indeed, even if workers and capitalists come to an agreement in each particular industry, since the rate of growth of labor productivity will differ from industry to industry, the rate of growth of real wages resulting from such agreements will also differ. Thus, workers in industries where labor productivity is low or stagnant will experience stagnant real wages without their being responsible (after all, they do not decide the growth of labor productivity); and a division will begin to occur among workers, with some seeing a rapid increase in real wages and others a stagnation of real wages. Therefore, such agreements will inevitably be broken.
The alternative is to have a nation-wide agreement between the representatives of the workers and the representatives of the capitalists on the share of wages and to let real wages everywhere increase at the same rate as the average rate of productivity growth of the country. job. But, in such a case, the profit share will increase in some industries (where labor productivity growth is higher) and decrease in others. This is why such a deal, too, will inevitably collapse, with capitalists in declining profit-sharing industries revolting against it. Thus, a price and income policy is impossible to achieve in the capitalist economy.
Consider by contrast a socialist economy. Since all industries are owned by the state, the distribution of profits among industries no longer matters, since all profits ultimately go to the public purse. Therefore, an agreement that all workers experience an annual rate of growth in real wages equal to the average rate of growth in labor productivity will not create any difficulty. (Of course, average wage growth may exceed average productivity growth if there is agreement on increasing the wage share, and may be lower if there is agreement on reducing the wage share. wage share). A socialist economy, in short, can easily follow a policy of prices and incomes, and maintain full employment, as indeed the existing socialist countries had done before.
Thus, Keynes’ prescription of the 1930s can at best eliminate only one flaw in the functioning of a capitalist economy; but the operating mode of the system itself is flawed, in the sense that it is based on class antagonism. To believe that the system can be saved from its malfunction is therefore a pipe dream.
Typically, however, when acute inflation occurs under capitalism, there is an effort to resolve it at the expense of the small producer suppliers of Third World raw materials and wage goods (primary commodities), who generally act as as “price takers” with little bargaining power. They constitute a large group of input suppliers for the capitalist metropolis who cannot even maintain their share in production, which is why an inflationary surge will eventually settle at their expense.
Indeed, an important role of imperialism is to ensure that they remain “price takers”. But given the history of the squeeze on their share that they have already suffered, this share has now fallen so low that controlling inflation in the metropolis by compressing it further, has now become almost impossible. Moreover, to believe that metropolitan capitalism can stabilize itself forever at the expense of other nations is both odious and unrealistic.