Marx against Keynes

Almost without exception, the bourgeois media have been forced to come round to the view that the current capitalist economic crisis is going to be at least as serious as that which started in 1929.  Ambrose Evans-Pritchard, International Business Editor of the Daily Telegraph, contemplating the effects of the economic downturn in Germany and Spain quotes Jacques Cailloux of RBS as saying that “the pace of contraction in Europe is now disturbingly close to levels seen in the Great Depression … Even the worst case scenarios people talked about now look too optimistic”.  But, he adds, “at least the authorities have done enough to prevent the vicious downward spiral from accelerating.  We haven’t seen the sort of run on bank deposits or mass bankruptcies that occurred in the 1930s”.

The reason we have not done so (although there is still time!) is the massive government interventions that have saved major banks from the ignominious collapse that overtook Lehmann Brothers.  The repercussions of that collapse acted as a lifeline for other insolvent banks and brought national governments rushing to the rescue.  As a result, “We are all Keynesians now”, to quote the words of Richards Nixon uttered 3 decades ago when he was President, words that are echoing everywhere in bourgeois circles today.

The phrase rings truer today than at any time since, as governments seize on John Maynard Keynes’s idea that fiscal stimulus – public spending and tax cuts – can help dig their economies out of recession.

“The sudden resurgence of Keynesian policy is a stunning reversal of the orthodoxy of the past several decades, which held that efforts to use fiscal policy to manage the economy and mitigate downturns were doomed to failure. Now only Germany remains publicly sceptical that fiscal stimulus will work ….[1]

“The incoming administration of Barack Obama is preparing a two-year fiscal stimulus package with a reported price tag of $675bn-$775bn, which many Washington-based analysts believe could swell to $850bn (£580bn, €600bn) or even $1,000bn – between 5 per cent and 7 per cent of national income.

“Gordon Brown, UK prime minister, told reporters in late December that if monetary policy was impaired – in large part because of problems within the financial system – ‘then governments have to use fiscal policy, and that has been seen in every country of the world’.

“Launching France’s fiscal stimulus, President Nicolas Sarkozy said: ‘Our answer to this crisis is investment because it is the best way to support growth and save the jobs of today – and the only way to prepare for the jobs of tomorrow.’ ” (Chris Giles, Ralph Atkins and Krishna Guha, ‘The undeniable shift to Keynes’, Financial Times 31 December 2009).

Even impeccable right wingers like Roger Bootle, Managing Director of Capital Economics and economic adviser to Deloittes now proclaims:

We now find ourselves in Keynesian conditions. So this is the time for Keynesian solutions. What are the implications? There is nothing anti-Keynesian about trying to get out of the current position through lower interest rates. For anyone who believes in markets and is wary about state action, this must be the first resort. But don’t be surprised if this does not work.

“In that instance, don’t be shy about allowing huge increases in government borrowing to stave off depression. Finance must not be confused with economics. Debt has to be serviced all right, and this has costs, but idle men and machines are real costs which are never recoverable and hence are borne forever” (‘We now face Keynesian conditions and need truly Keynesian solutions’, Daily Telegraph, 28 October 2008).

President Obama has jumped right on the Keynesian bandwagon:

Obama has explicitly drawn on folk memories of FDR’s New Deal, telling television viewers to “keep in mind that in 1932, 1933 the unemployment rate was 25%”.

“Obama is probably right to assume that those same memories have it that the massive state interventionism of the New Deal triumphantly restored America to full employment. That’s why he felt comfortable in asserting, on the eve of the launch of a $2 trillion (or so) injection of taxpayers’ money, ‘There is no disagreement that we need . . . a recovery plan that will help to jump-start the economy’ ” (Dominic Lawson, ‘Obama’s new deal is the same old blunder, Sunday Times, 15 February 2009).

Let us not forget our own Gordon Brown who has been hailed as the saviour of the western world through his advocacy of a worldwide coordinated return to Keynes:

In a panel discussion [at Davos] of less than an hour, Mr Brown did something that had seemed impossible only minutes before – he offered a way out of the crisis. While the oracles and lemming-leaders were unimpressed by Mr Brown’s message, the lemming-followers had adulation written on their faces as they filed out of the Congress Hall.

How did he do it? First, Mr Brown explained that recessions were a natural feature of capitalism and that they rarely lasted for more than a year or two. But surely this recession felt different? Yes, but mainly because this one was “the first crisis of the global age”. As a result, global solutions were required. He added that a certain British economist had explained why such recessions happened and how they could be overcome. His name was John Maynard Keynes, and the Prime Minister described poignantly how he had seen a document in the Treasury archives in which the young Keynes’s proposals for saving Britain from the Great Depression were dismissed by the Chancellor in only three scribbled words: ‘inflation, extravagance, bankruptcy’. Finally, Mr Brown moved on to a three-stage response from governments around the world. The first stage was to stabilise the financial system and prevent bank failures. After Henry Paulson’s catastrophic blunder in bankrupting Lehman, this had been achieved. The second stage, now in progress, is to counteract the collapse of private economic activity triggered by the near-failure of every bank in the world with huge doses of monetary and fiscal stimulus. The third stage will be to restore the growth of credit by forcing banks to increase their lending” (Anatole Kaletsky, ‘Why I would back the Prime Minister for a Nobel Prize, The Times, 2 February 2009).

What exactly IS Keynesianism?

Roger Bootle (op.cit.) has usefully summed up Keynes’ major conclusions in the following terms:

I can reduce Keynes’ view to seven essential propositions.

“1. The [capitalist] economic system is naturally prone to periods of depression.

“2. When one occurs, the system is not necessarily self-correcting.

“3. Such depressions are not the result of individual choice. On the contrary, individuals en masse can become trapped in a depression which is in no one’s interest but which, as individuals, no one can counter-act.

“4. This represents pure waste. Unemployed workers want to work, and businesses want to use their productive capacity. If they did, then the things they produced would be available for all to buy, and the incomes they received would enable them to purchase the products of others.

“5. For individuals it may be appropriate to react to difficult times by saving more. Yet collectively this is a disaster. One man’s saving is another man’s reduced income. Extra borrowing by the Government, if it encourages more output, can be self-financing.

“6. The key is aggregate demand. In normal circumstances it is possible to influence this by changes in interest rates. But there is a level below which interest rates cannot go and at that point conventional monetary policy is powerless. Moreover, even if interest rates can be lowered this may have no effect if people cannot or will not borrow.

“7. At this point, aggregate demand can only be boosted by the Government borrowing more, either to spend directly or to give to others to spend via tax cuts or the like.”

To answer this question in more depth, however, and in order to understand Keynes’ underlying assumptions, we have drawn on a pamphlet by the erstwhile CPGB’s John Eaton, written in 1950 and entitled Marx against Keynes.

The pre-Keynesians argued that every product that went to market created a purchasing power corresponding to its value, since production costs and other incomes generated in the processes of production and distribution (wages, cost of materials, rent, interest, salaries, profit, etc.) exactly equalled the total value of the product sold.  (This doctrine is generally known as ‘Says’s Law’…

“Keynes opposed the view that the capitalist system necessarily generated enough purchasing power, or … effective demand … to keep all factors of production employed.” (pp.30-31)

And further: “The Keynesian theory of employment runs as follows:

“Expenditure takes two forms – investment expenditure and consumption expenditure.  The latter depends upon (i) incomes received, coupled with (ii) the extent to which these incomes are spent or saved; for example, if incomes totalling, say, £10 billion are paid out and of these 90% is spent on consumption and 10% is saved, effective demand arising from consumption is £9 billion.

But, says Keynes, the mere fact that people aim at saving 10% of their incomes does not mean that this balance of ‘unspent’ or ‘saved’ incomes … is forthwith and necessarily spent on investment goods.

“In fact, the decision to spend income on consumption is quite separate and distinct from the decision to increase expenditure on capital equipment, etc.  This latter decision is taken by the capitalist …; and it is taken in the light of the prospects of making a profit.

“The essence of the Keynesian theory of employment is then this: the level of employment is determined by the total effective demand, which means total purchasers of consumer goods plus investment expenditure.  In so far as income not spent on consumption fails to be matched by expenditure on investment goods, there is a falling off of total demand and therefore of output and employment as a whole, which, of course, brings with it a reduction in incomes.” (pp. 33-34)

Also: “It follows from this line of reasoning that to maintain full or high employment and output it is necessary to maintain investment expenditure at the right level.  If this is not done, economic activity falls, incomes paid out in the form of profits and the wage bill dwindle.  In short, effective demand in the form of consumption expenditure falls short of the level necessary to maintain full employment and output.

“Full employment can, however, be maintained – says Keynes – if the State takes special steps to keep investment expenditure at the right level; this, he says, it may do by (a) controlling the rate of interest; (b) itself undertaking investment or public works expenditure; (c) exercising some general control – about which Keynes is nowhere very precise – over all forms of investment.” (page 38)

And “Keynes … also advocates measures designed to increase the ‘propensity to consume’. These measures include (i) increasing purchasing power … and (ii) taxation designed to redistribute incomes in favour of the lower income groups (who save less).  However, the emphasis on the second group of remedies is less marked.” (Page 39).

Keynes’ fatal flaw

The fatal flaw in Keynes is that, having failed correctly to identify the cause of the crisis, his ‘solutions’ amount to nothing more than the blind treatment of symptoms.  His remedies do not avert crises – at best they ‘manage’ them in such a way as to enable the bourgeoisie to maintain control over the indignant masses whose livelihoods are being destroyed.  Saving the banks, for instance, is not just a question of handouts to disgustingly rich bankers.  It is also, and above all, a question of ensuring that ordinary masses continue to receive their wages from their employers’ bank accounts so long as they remain employed, and are in turn able to withdraw these wages from their own accounts when they wish to spend them.  It is fair to say that if bank account holders in their millions suddenly found themselves cut off from the cash that funds their everyday existence, riots would certainly ensue.  It remains to be seen, however, whether the rescues will work in the long term.

Keynesianism is based on false premises, and cannot therefore lead to consistently correct predictions.  As Eaton says on page 29-30:

Keynes does not abandon the basic bourgeois premises.  He accepts the subjective value theory of his bourgeois predecessors (the ‘marginal utility theory’) and rejects the labour theory of value of Adam Smith, Ricardo and Marx.

“The essential point of the subjective value theories is that they focus attention on buying and selling – the process of exchange and distribution –and fail to explain the relationship of men in the process of production. Whereas the labour theory of value shows how, before goods enter exchange, value has already been embodied in them by the expenditure of productive labour [a value expropriated by the capitalist], according to the subjective theories goods acquire their value only in the process of exchange…

“The practical value of the bourgeois value theories and in particular their application in the bourgeois wages theory, is, then, that they hide the nature of capitalist exploitation.

What is this ‘marginal utility’ theory that Keynes adopts, and why does it matter that he rejects the labour theory of value?

Keynes agrees with the laissez faire economists that “the wage is equal to the marginal product of labour”. … The theory … seems to say that the worker is paid for what he produces.  If this were so, then the argument that the worker is exploited would fall to the ground …

On closer examination, however, we find that the ‘product’ in the expression ‘marginal product’ has not got the plain meaning of ‘produced by labour’.  The bourgeois economist argues that a number of ‘factors of production’ contribute to the productive process, such as machinery, money at the bank, stocks of materials, the enterprise and imagination of the board of directors, the factory building, the land on which it stands, as well, of course, as the workers.  …  The reward that each unit of each factor of production gets, says the bourgeois economist, equals the marginal product, which is the additional output that would result from adding one unit (the ‘marginal’ unit) of one factor of production…

“Some bourgeois economists have said in so many words that this marginal productivity theory shows that the worker gets paid the due value of what he produces.  This is playing with words, for the activity of producing in the economic sense of the term is nothing but the activity of the human being engaged in production, namely labour.  If labour were really rewarded with the full value of what it produces, nothing at all would go to the owners of Capital and Land. …” (p.44-45)

In other words, the ‘marginal utility’ theory, by refusing to accept that value is exclusively produced by labour and that capitalist profit arises from the expropriation of a part of the product of that labour, completely obliterates the antagonistic contradiction between the bourgeoisie and the working class – between profit and wages.

This enables bourgeois economists to ignore the fact that the greater the profits expropriated by the bourgeoisie, the lower the wages (and therefore the lower the consumption power) of the working-class masses.

The result of this?

In the period of monopoly capitalism the contradiction between productive capacity and the purchasing power of the masses becomes more and more acute, for three basic reasons: (1) accumulation … becomes progressively greater; (2) wages and middle class incomes are squeezed by rising prices; (3) average technique and intensity of work (that is, output per man) is high and tending to rise, so that the workers’ share in what they produce in terms of goods tends to fall.  Markets are insufficient.

“This leads to desperate struggles between the monopoly groupings which attempt to establish monopoly domination on a world scale.  Two world wars have resulted from their antagonisms” (p.100-101).

And naturally the bourgeois economists are unable to see that “The cause of crisis is the contradiction in capital itself, the contradiction, inherent in the worker-capitalist relationship, between social production and capitalist appropriation of the product.”(p. 104-5)

Because of this, “Keynes in effect argues that there is no necessary connection between production for profit and economic crisis.  The Marxist standpoint by contrast is that economic crisis is inseparably bound up with the profit system.

The basic cause of crisis is that the personal incomes received by the masses of the people are continually being reduced relatively to the expansion of production capacity which takes place in the course of every boom.” (p.87-88)

As a result of Keynes’ basic theoretical errors – entirely dictated by the bourgeois class interests he serves – Keynes has no real answers to capitalist crisis.

Where Keynesian ‘remedies’ have been applied in the past as a cure for crisis, invariably inflation has intervened, causing the decimation of the purchasing power of wages, savings, pensions.  The winners were the indebted who found their debt burdens lightened.  Generally for the masses of people, however, living standards fall regardless of the application of Keynesian remedies.  The fact is that:

More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. The sorry facts bear this out. The unemployment rate in the US was still 19% in 1939 [as opposed to 25% in 1933]. Over the following four years the number of unemployed workers declined dramatically, by more than 7m. This had a very particular reason: the number of men in military service rose by 8.6m.” (Dominic Lawson, op.cit.).

Nevertheless, Keynes is still flavour of the month with the bourgeoisie and its politicians who, like Obama, have all kinds of reasons for ignoring inconvenient lessons of the 1930s and for rewriting history, even if it is just an example of the triumph of hope over experience.

The expansion of the boom years has under capitalism to be balanced by contraction in the recession years.  The only problem is that not a single bourgeois can afford to carry on in business at a reduced scale, allowing losses to eat away at his profits.  Not a single capitalist can resist trying to maintain some profitability, or at least reducing his losses, by dismissing as many of his workforce as possible.  If the bourgeois state gives these people employment, not a single bourgeois is willing to pay taxes to finance the state to employ them, leaving the state with only the options of printing money (leading to inflation) or borrowing money (leaving it to future generations of taxpayers to repay the debt – at the expense of their ability to spend money on consumption and investment alike and therefore delaying the possibility of economic recovery).

Keynesian remedies theoretically could facilitate a more orderly recession but in practice contradictions between different sectors of the ruling class and between different imperialist and capitalist powers become so acute that they develop into antagonisms, principally because of the uneven impact of crisis on different capitalists and imperialists.

In a capitalist boom such as we have been going through, great disproportions develop between the department of industry devoted to production goods and that devoted to consumption goods and also between the various industries in each of these departments.

“The production goods sector is very often developed far beyond the point that is necessary to supply all the varied sectors of industry with new equipment.  This flows from the fact that the economy is not centrally planned and the extent to which the various sectors of industry have expanded depended on the rate at which profits could be made, capitalist speculations, the availability of supplies to enable expansion to take place in various industries, and other chance factors.

“These disproportions remain concealed as the boom develops.  It is only when the boom is collapsing that their extent is revealed.

“When these disproportions have been carried to extreme lengths in the production goods section, no amount of juggling with purchasing power – or any other central controls – will induce the capitalist class to place sufficient orders to employ those industries to full capacity.” (Eaton, p.129).

In these circumstances, the bourgeoisie finds it impossible to sing from the same hymn sheet.  No company that is capable of surviving the crisis is willing to have its profitability reduced by measures designed to save businesses (and their associated employees) that are less fortunate.  In fact every bourgeois wants there to be high spending capacity so he can sell his products, while paying his own workers as little as possible and reducing his workforce to the greatest possible extent.  Every bourgeois would like the state to increase its spending – providing jobs and therefore enhancing workers’ consumption powers, as well as distributing profitable contracts to bourgeois concerns – but not if that means he has to provide the state with the finance to do so through higher taxes!

So while every bourgeois clutches eagerly at the increased consumption that Keynesian remedies promise to provide, they universally baulk at paying the cost.  As a result:

Unfortunately, even among those enlightened enough to see the need for a powerful stimulus, there are internal disagreements between those who emphasise the monetary and financial side and those who emphasise fiscal policy. And there are divisions within divisions. There are divisions between those who emphasise interest rate cuts followed by so-called quantitative easing and those who call for a reconstruction of the banking system. Among those who favour a fiscal stimulus there are divisions between those who urge more public spending and those favouring tax cuts.”  (Samuel Brittan, ‘Economic dominoes are still falling’, Financial Times, 14 February 2009).

This contradiction between what every bourgeois wants for himself and what he wants for others also explains the agonising of Joseph Stilgitz in ‘Give us more bangs for our bailout bucks’, The Times, 27 January 2009:

A strong stimulus is one that delivers a big bang for the buck – and quickly. Tax cuts work quickly but, in times like these, are relatively ineffective. With an overhang of debt and asset values declining, most of last February’s US tax cuts were not spent. Yet, remarkably, some are arguing that a substantial fraction of the Obama stimulus should take the form of a tax cut. The first focus should be on preventing further spending cutbacks; with states and localities limited to spending what they receive in revenues, and with tax revenues falling precipitously, making up for this shortfall is the natural place to begin.

“Second, spending should have as positive a long-run impact as possible. To be sure, the spending will lead to a rise in indebtedness. But if it creates an asset, whether human capital, infrastructure or new technologies, then the nation’s balance sheet may even be improved. Tax cuts aimed at promoting consumption simply increase liabilities, with no asset to match.

“Carefully designed business tax cuts, linked to higher investment, can provide a big bang for the buck and raise productivity. Unfortunately, some of business tax cuts being discussed in the US are likely to have minimal effect on investment.

It is remarkable how countries can be so penny-wise and pound-foolish. Politicians squabble for weeks over how or whether to spend a relatively small amount. Yet, in almost a blink of the eye, a $700 billion blank cheque was given to bail out banks. We need to put that in proportion: it is greater than all of the foreign aid from rich to poor countries for seven years. It could put US social security on a sound footing for a century.

The hundreds of billions given to the banks have not done what was promised. Credit is not flowing. Part of the reason is that the bailout was not well thought through. As we were pouring money into the banks, they were pouring money out…”

At the end of the day, the Keynesian ‘stimulus’ has to be paid for.  The US stimulus being promoted by Obama “will be expensive, more expensive than the Iraq and Afghanistan wars combined and Nancy Pelosi, Senate majority leader [sic], has called it a mere ‘down payment’” (Christopher Caldwell, ‘Is the stimulus Obama’s Iraq, Financial Times, 31 January 2009).

The bourgeoisie does not want to pay for the stimulus.  The alternatives are to borrow money and make the working class repay the loans through a programme of high taxation on low incomes – cutting future consumption – or printing money (or “quantitative easing”, to use the current fashionable euphemism).  Indeed, to ‘allow’ a moderate amount of ‘controlled’ inflation seems to Tim Leunig (‘Coordinated inflation can bail us all out’, Financial Times, 16 February 2009) the ideal answer:

It would help government finances by inflating away 10 per cent of total government debt. This lowers the interest burden for future taxpayers. Since taxes are levied primarily on income, this has both equity and efficiency benefits. It is (more) equitable as the cost of recession will be borne by wealth holders as well as income generators, and it is (more) efficient in that it reduces the extent of incentive-reducing tax rises on income in the future.

“Companies will benefit in two ways. First, a portion of their debt will disappear, with the benefit being the largest for those companies that have debts with fixed interest, such as corporate bonds.

“Second, while real wages seem to be downwardly flexible, nominal wages are less so. Higher inflation allows more companies and workers to agree to real wage cuts than would otherwise be the case. This is both useful for those firms that are currently uncompetitive, and preferable for society, because wage cuts are more equitable than unemployment.

“A rise in inflation also means that declines in real house prices translate into less negative equity, freeing up the housing market. This is beneficial for labour mobility and helpful to the real economy because additional house sales spur economic activity.

“Banks would gain in three ways. Inflation reduces future bad debts by making debt servicing easier. It makes defaults less costly because real collateral is more likely to exceed nominal debt. Finally, it makes existing bad debts less onerous on the balance sheet. This reduces the need for government recapitalisations and “bad banks” and increases the ability of governments to sell recently acquired banks. This, in turn, reduces the debt burden on future taxpayers.

“An extra 2 points of inflation for five years is not a “get out of jail free card”. Bank shareholders, rightly, will still lose greatly from their managers’ decisions. Future taxpayers will, inevitably, still bear most of the cost of counter-cyclical government spending.

“It is not costless. Regrettably, prudent savers will see their assets reduced. That might be the price society has to pay to keep the banking system afloat without crippling future taxpayers.”

Tim Leunig’s proposals, however, would certainly draw howls of rage from companies that are managing to turn a profit despite the recession, who will certainly not want to find that profit reduced or annihilated by inflation – not to speak of millions of those living on fixed incomes such as pensions.

Enhanced contradictions lead to war

The bourgeois economists of today, while no longer as triumphalist as at the time of the collapse of the USSR and the eastern bloc of erstwhile socialist countries, while no longer as foolish as to jubilantly pronounce the death of Marxism as they then did, are still unable or unwilling to accept the truth that it is impossible to get rid of the crises of overproduction while capitalism lasts.  Under this system of production, the expansive force of modern industry comes up against the resistance offered by the limited capacity of consumption, by the limited capacity of the market to absorb the products of industry, owing to the impoverishment of the masses.  As the expansion of the markets cannot keep pace with the expansion of production, collision becomes inevitable and, failing the overthrow of the capitalist system, these collisions become periodic.  This has been the case since 1825, the year when the first general crisis of capitalism broke out.

Neither Keynesianism nor monetarism, neither inflation nor deflation, offer any solution to the problem of the crises of overproduction under capitalism.  They merely offer temporary palliatives, which, far from being the cure they are presented as by the bourgeoisie and its intellects, only make the malady worse by “paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented” (Marx and Engels, The Communist Manifesto, p.38).

Neither Keynesianism nor monetarism is able, in the final analysis, to do away with the continuing impoverishment of the masses under capitalism – an impoverishment which serves to undermine consumer spending and economic growth, thus inevitably bringing to a shuddering halt any recovery engineered through a combination of monetary and fiscal tricks and precipitating yet another crisis, for the “…last cause of real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces as if only the absolute power of consumption of the entire society would be their limit” (K Marx, Capital, Vol III, p.484).

The crisis of capitalism is propelling various imperialist countries, on the one hand to wage wars for domination against the oppressed countries, as for instance in Iraq, Afghanistan and Palestine, and on the other hand it is serving to intensify inter-imperialist contradictions to a new pitch.  In the end, these contradictions, which in the final analysis boil down to a struggle for the redivision of the world, cannot be resolved amicably and peacefully.  The leading powers involved in this life-and-death struggle are bound, unless stopped by a series of proletarian revolutions, to come to blows with each other.

Capitalism by its very nature is inextricably bound up with crises of overproduction and with war.  Neither crises in industry nor wars in politics can be eliminated without the overthrow of capitalism.

The productive forces of modern industry long ago outgrew the capitalist mode of using them.  Only the proletariat, through the seizure of state power, the transformation of the socialised means of production into public property, the organisation of “socialised production upon a predetermined plan”, can free the means of production from their character as capital, and thus rid society of the tyranny of the periodically-recurring crises of overproduction and imperialist wars.  “To accomplish this act of universal emancipation,” to quote the never-to-be-forgotten words of Engels, “is the historical mission of the modern proletariat.  To thoroughly comprehend the historical conditions and thus the very nature of this act, to impart to the now oppressed proletarian class a full knowledge of the conditions and the meaning of the momentous act it is called upon to accomplish – this is the task of the theoretical expression of the proletarian movement, scientific socialism” (Anti-Dühring, p.395).

If any proof be needed of the above analysis of Marx and Engels, it is furnished by a comparative study of the economies of the leading capitalist countries, on the one hand, and that of the socialist USSR, on the other hand, during the Great Depression, which started in 1929 and lasted more than 10 years – well into the Second World War.  Between 1929 and 1933, the US economy shrank by a third.  Only in 1937 did the physical volume of production reach the levels of 1929 – only to slide again.  In the 10 years between 1930-1940, only once (in 1937) did the average number of US jobless during the year drop below 8 million.  In 1933, a quarter of the labour force (13 million) in the US were out of work.  The rest of the capitalist world too was in the grip of an unprecedented depression, suffering from similar levels of economic contraction and rising unemployment.

In comparison with the doom and gloom, despair and despondency engulfing the entire capitalist world, the USSR, the land of socialism, alone stood as a shining beacon of rising production, rising employment and working class power, beckoning the world proletariat, by its sheer existence, to overthrow capitalism.  As the capitalist crisis wreaked havoc on the economies of all the major capitalist countries, year by year the USSR registered world-historic increases in industrial production.  From 1929 to 1933, Soviet industrial production more than doubled, while unemployment disappeared completely, never to return while the USSR lasted.

In the end, imperialism could find no way out of the crisis other than through the horrors of the Second World War, which brought untold destruction and wiped out 55 million workers and peasants, including 27 million from the USSR, which led, and made the greatest sacrifices in, the successful fight against Hitlerite fascism.


It can be seen that Keynes based his belief that crisis could be averted on false premises and failure, or more correctly unwillingness, to understand the antagonism between wages and profits, let alone the necessary implication of this, which is the relative impoverishment of the working masses and of the oppressed countries, which will erect a barrier that will sooner or later prevent the bourgeoisie from selling the products of their ever expanding industries.  John Eaton’s book referred to above explains all this very well, although he in turn exhibits traces of erroneous understanding in that he seems to believe that Keynesianism is incapable of increasing the share of the working class in the national wealth – at least temporarily.  From the end of the Second World War to the mid-1970s, however, what is known as the ‘Keynesian consensus’ in fact delivered a higher proportion of national wealth to the working masses, in the form, for instance, of free education and health services and unemployment and welfare benefits – however grudgingly conceded.  It is the extraction of superprofits by imperialism from the oppressed countries of the world that has made this largesse even possible – and it was the imperialist bourgeoisie’s fear of proletarian revolution as long as the living successes of Soviet Russia and other socialist countries were threatening to lead the working masses to revolution that motivated the bourgeoisie to distribute that largesse.  Even today in the midst of crisis, benefits still accrue to the working masses in imperialist countries that are certainly not available to the exploited and oppressed masses of the third world.  In the context of Eaton’s book, this is not a very important point; but in the wider context of understanding the strength of opportunism in the working-class movements of the imperialist countries and resisting its call, then the error is potentially fatal.  Even at the time of writing, John Eaton was unable to see the treacherous and reactionary role of the ‘left’ wing of the Labour Party, although he was still capable of seeing that the only way out of recurrent crisis was to overthrow capitalism and establish a socialist planned economy under the aegis of a working-class state – ideas that his party, the CPGB, were gradually to abandon.

With these reservations, however, we do not hesitate to recommend his pamphlet to the modern reader who will find there many arguments extremely relevant to the present situation, to explain the attempts by the bourgeoisie to put Keynesian remedies into effect and to arm the working class against being deceived into believing that these will safeguard their interests.  Our job is to ensure that Keynesianism is not used to draw the working masses into pursuit of a futile reformism and away from the road to proletarian revolution – their only salvation.


[1.] Notwithstanding its sceptical public stance, the German government too has poured in a lot of money to prop up and bail out its bankrupt financial institutions.

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