Keynes and the left

“The theories of John Maynard Keynes provide the sound intellectual framework for the views which trade unionists had always instinctively held and known to be right” (TUC, 1968, p. 85)  

The ideas and theories of John Maynard Keynes still dominate the economic views and policy proposals of the leaders of the labour movement in the major capitalist economies.  Keynes is seen as offering a ‘third way’ between the pro-capitalist ‘free market’ economics that dominates the universities (and among the strategic advisers of government) and the opposite of dangerously revolutionary Marxian economics.  Keynes argued that, with a judicious range of policy measures, capitalism can be made to work better and can be managed so that it meets the needs of the many, without disrupting the social structure of society.

On this blog and elsewhere, I have developed a long and detailed critique of Keynesian economics.  But suffice it to say now that free market economics claims that prosperity will be achieved as long as capitalists are free of any regulations (environmental, safety, health etc) and of too much taxation, while markets are kept ‘competitive’ and free of monopolies, particularly in the ‘labour market’ ie. trade unions.  Then capitalists can compete freely to maximise profits and in doing so will invest in new technology to boost the productivity of labour and employ more workers, whose wages will then rise.  Everybody wins. 

The Keynesians retort that free market capitalism (‘laisser-faire economics’, Keynes called it) does not work because the market economy has faultlines that generate a chronic lack of ‘effective demand’.  Holding down wages to boost profits means capitalists cannot sell all their production and are periodically forced into laying off workers and unemployment ensues.  It is necessary for governments to intervene and raise wage levels and/or increase government spending to fill the gap in aggregate demand.  Then this will create enough demand for capitalists to sell their goods and make a profit.  So a judicious macro management of the market economy can work for all. 

The Marxist view is that it is not question of the lack of demand or low wages or inequality in the distribution of incomes, but a problem in the profit system of production itself.  The contradiction of capitalism is that, despite the efforts of capitalists, average profitability will fall over time. This causes recurrent and regular crises of production that cannot be resolved by the ‘free markets’ or Keynesian macro-economic management. 

This Marxist view carries little traction among economists and leaders of the labour movement. The dominance of the Keynesian thought among the ‘left’ and in the labour movement was expressed most clearly in the UK only last week in a report by the British Trade Union Congress (TUC) on the state of the UK economy and what to do about it. 

The report was authored and presented by Geoff Tily, a senior TUC economist.  Tily is a long standing and enthusiastic follower of Keynes, whose work he considers as being radical and pertinent to solving the problems of the 21st century capitalism.  His book ‘Keynes Betrayed’ is regarded as one of the most prominent in arguing that Keynes was a radical reformer of market economics and economies.

The TUC report offers a powerful account (with facts and figures) of the shocking failure of British capital.  The British economy is now not only regarded as ‘the sick man of Europe’ but of the G7 and indeed of the top 30 economies in the world , at least according to the IMF, which reckons it will be the only major economy to enter a slump this year.

The TUC report describes the UK economy as in a ‘doom loop’, a term used by the current Labour spokeperson on economics, Rachel Reeves: “This government has forced our economy into a doom loop – where low growth leads to higher taxes, lower investment, squeezed wages, and the running down of public services. All of which hit growth again”, Rachel Reeves, response to Autumn Statement, 17 Nov. 2022. According to the ‘doom loop’ argument, the vast erosion of around a third of the UK economy and the arrested standard of life for workers is a consequence of the fiscal ‘austerity’ policies in place since 2010.  The TUC report refers to former Marxist (now Keynesian)  Paul Mason who explains the loop: “supply is deficient, but the immediate cause of this deficiency is aggregate demand. This means that policymakers over 2022 and into 2023 are intensifying contractionary policy in the face of deficient aggregate demand.“

So the failure of British capital is down to the austerity policies since 2010 of cutting government spending creating a lack of demand.  What happened to British capital before 2010 is ignored.  The policy answer is to reverse austerity, raise government spending and wages and then aggregate demand will rise through what is called the Keynesian multiplier and so restore economic growth. “With these mechanisms identified, the lost prosperity can be restored.”  

The TUC report criticises those on the left who reckon the current crisis is due to supply constraints.  Instead, “what is wrong is that existing capacity and resources are being underused and not that we just need to invest for more capacity.”  The TUC report refers to a piece by James Meadway, who argues that “the core of a left strategy today – including its programme for the environment – is redistribution.”  (Meadway). It may not be Meadway’s meaning, but the TUC report wants to interpret this to mean that it is not necessary to replace the capitalism mode of production but just make the redistribution of income and wealth fairer and the economy will jump forwards.

The Guardian newspaper editorial described, in its paeon of praise, that the TUC report “draws heavily on the recent ‘New macroeconomics’ literature, that in turn recalls the historic contributions of J. A. Hobson (1858-1940) and J. M. Keynes (1883-1946). These emphasise the relation between a too high return to wealth and too low return to work, and theories of over-production and underconsumption. Rather than deficient supply, the underlying problem of the world economy is excessive supply in the context of deficient demand.”  Really – excessive supply! 

As the TUC report puts it, the problem is that the “excessive imbalance towards wealth from labour distorts economic activity through a dislocation between aggregate production and aggregate purchasing power. On the one hand, too low wages put goods and services out of the reach of workers. On the other hand, the massive resources of the wealthy do not compensate because they are relatively less interested in goods and services …. Consumption therefore falls short and overproduction is the result.”

Thus Tily presents us with an unvarnished theory of crises based on underconsumption.  As he says, the logic of his argument “leads to the vital conclusion that underconsumption and overproduction are relative conceptions: production is only excessive relative to deficient purchasing power and pay. It therefore follows that a better balance between labour and capital will permit higher production in an absolute sense. The analysis has always appealed to the left, above all motivating the 1945 Labour Manifesto:  over-production is not the cause of depression and unemployment; it is under-consumption that is responsible (my emphasis)”.

This crude underconsumption theory of crises was refuted by Marx 160 years ago and has been proven wrong empirically over time.  It is not even strictly Keynes’ theory.  But it is apparently the bedrock of the current TUC analysis. What is the cause of this chronic underconsumption?  According to Tily, it is that investment cannot expand capacity if interest rates, the cost of borrowing, are too high.  Keynes showed that it is high interest rates set by finance capital that weakens productive capital, not the underlying profitability of productive capital.  As Tily puts it: “The focal point of his analysis and much of his practical work was securing a permanent reduction in the long-term rate of interest.”  Indeed, ending the rule of finance capital altogether, “the euthanasia of the rentier” as Keynes called it. 

How this was to be achieved given the expanding role of finance capital in modern economies is not made clear.  Reforming the finance sector through ‘regulation’ is apparently the policy measure.  Good luck with that!  The TUC and Tily never advocate the public ownership of the big banks and the closure of speculative hedge funds and investment banks.  Such policies are taboo.

Moreover, how do we explain why the very low interest rates that Britain has enjoyed in the last 20 years have not led to faster investment and growth in the productive sector?  Tily’s answer is that “a distinction should be made between Keynes’s low interest rate polices and the manner of monetary policy over the past decade. Keynes sought low interest rates above all to strengthen fixed capital investment, and he envisaged domestic action in the context of capital control on the international domain.  Low interest rate policies today are in the context of an utterly deregulated global regime. Rather than foster domestic production, low rates have been recycled to earn high reward on more speculative terrain.”

Maybe so, but that still begs the question : why this time has cheap credit been ploughed by banks and big business into financial speculation and not into productive investment (as, according to Tily, it was in the Golden Age)?  The reason surely is that now it is more profitable to do the former than to do the latter.  In the golden age after WW2, profitability was high in the productive sectors and the financial sector was not dominant.  It is the fall in profitability that has led to the switch to financial speculation. 

Interestingly, Tily slightly retreats from his view that it is Keynes’ theory on interest rates rather than profitability that provides the explanation of crises, when he admits that “on theoretical grounds the (supply-side) idea of a falling rate of profit may still be persuasive and regarded as vindicated by productivity outcomes on a long horizon.” 

And Tily goes on to admit that Keynes was no radical reformer as he claims, being strongly opposed to Marxian economics.  “Keynes was on the record making stupid remarks, for example in his (1925) ‘A short view of Russia’: “How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement?” (CW IX, p. 258)   Indeed, Keynes refused to support the Labour party in the 1930s, siding with the Liberals because Labour was “a class party and the class is not my class. The class war will find me on the side of the educated bourgeoisie.”

As for supporting wage increases to solve crises, Keynes was not so keen on boosting wages as a solution to a slump.  “in general, an increase in employment can only occur to the accompaniment of a decline in the rate of real wages. Thus, I am not disputing this vital fact which the classical economists have (rightly) asserted as indefeasible.” Indeed, Keynes in his later years increasingly emphasised the correctness of ‘free market economics, what he called ‘classical economy’.  “I do not suppose that the (neo) classical medicine will work by itself or that we can depend on it. We need quicker and less painful aids. But in the long run, these expedients will work better and we shall need them less, if the classical medicine is also at work. And if we reject the medicine from our systems altogether, we may just drift on from expedient to expedient and never get really fit again.” Keynes 1940.

This is what Keynes said in his last years: “If our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again from this point onwards.” So once full employment is achieved, we can dispense with planning and ‘socialised investment’ and return to free markets and mainstream neoclassical economics and policy: “the result of filling in the gaps in the classical theory is not to dispose of the ‘Manchester System’ (‘free’ markets – MR), but to indicate the nature of the environment which the free play of economic forces requires if it is to realise the full potentialities of production.”

When arch free marketeer Friedrich Hayek published his book, The Road to Serfdom, which preached that state control would end ‘democracy’ and the freedom of the market economy, Keynes wrote to Hayek: “morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in a deeply moved agreement.”!

As he concluded: “For the most part, I think that Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organisation which shall be as efficient as possible without offending our notions of a satisfactory way of life.” The profit motive must remain: “The loss of profit may be due to all sorts of causes, but short of going over to communism there is no possibility of curing unemployment except by restoring to employers a proper margin of profit.” As Keynes argued that “Economic prosperity is…dependent on a political and social atmosphere which is congenial to the average businessman.”   These are hardly comments of a radical reformer.

Tily and the batch of Keynesian economists who spoke at the presentation of the TUC report always refer back to the golden days of the 1960s when supposedly Keynesian policies were working and a prosperous economy was being achieved through management of the economy. But this is a myth.  The 1970s saw rising unemployment and inflation, alongside falling profitability of capital.  How was that possible if Keynesian policies were so successful?

In contrast to Keynes, Marx said that the key to understanding the capitalist mode of production lay in the nature of production to sell commodities on a market for profit. Profit was the key. Now capitalists have to use some of that profit to pay interest on loans or rent on property and, if these ‘rentiers’ (bankers and landowners) squeezed the profit-holding capitalist too far, sure, they could cause a crisis in investment.  But even if interest rates are low or zero and even if rents are low or zero, there would still be crises, slumps and depressions. Why? Because rent and interest and profit come from surplus value, not the other way round.

Keynes and Tily say the crisis comes about through a lack of ‘effective demand’, namely an unaccountable fall in investment and consumption and this causes profits and wages to fall. Marx says: let’s start with profits. If profits fall, then capitalists would stop investing, lay off workers and wages would drop and consumption would fall. Then there would be a lack of effective demand, as Keynesians like to put it, but this would not be due to a drop in ‘animal spirits’, or ‘confidence’ (we often hear that phrase from economists, ‘a lack of confidence’), or even due to ‘too high’ interest rates, but because profits are down. The problem lies in the nature of capitalist production, not in the finance sector alone.

Policies designed to reduce interest rates, or even get some government spending going, namely Keynesian policies, would not avoid these slumps or even get recovery going. Indeed, more spending on welfare and unemployment benefits could drive up taxes and extra borrowing could drive up interest rates. And more government investment that replaced or encroached on private sector investment could be damaging to the profitability of capital. So Keynesian policies could even delay economic recovery.

Indeed, the austerity policies of most governments are not as insane as Keynesians think. Austerity policies are perfectly rational: they follow from the need to drive down costs, particularly wage costs, but also taxation and interest costs, and the need to weaken the labour movement so that profits can be raised. It is a perfectly rational policy from the point of view of capital, which is why Keynesian policies were never introduced to any degree in the 1930s.

Marx’s analysis shows that the capitalist system is not just suffering from a ‘technical malfunction’ in its financial sector (due to high interest rates), but has inherent contradictions in the production sector, namely the barrier to growth caused by capital itself. What flows from this is that the capitalist system cannot be reformed or corrected in order to achieve sustained economic growth without booms and slumps – it must be replaced. That is the ultimate policy action for the left.

26 thoughts on “Keynes and the left

  1. Almost all modern Keynesians either haven’t read The General Theory or haven’t understood it, which is the kinder conclusion since the GT is both unreadable and incomprehensible. Keynes, who actually didn’t study economic theory, was a massive intellectual snob, totally convinced that he was capable of comprehending everything with almost no effort. This is the main reason why the GT, even though it’s garbage, continues to evade proper criticism. Basically he says he’s cleverer than anyone else and if you can’t understand what he’s saying you are basically thick. His liquidity preference theory which argued that when interest rates fall to a v low level there is no natural tendency for investment to be stimulated naturally was comprehensively debunked by Pigou, a Cambridge economist who Keynes’ cruelly (but typically) rubbished. In order to escape from the intellectual vacuity of the GT, Keynes invented new concepts (who has ever used the term marginal efficiency of capital?) so he could use semantics to get out his empty theorizing. Keynes was an ardent disciple of Alfred Marshall, the foundational theorist of neoclassical economics and another mathematician turned economist with peculiar social attitudes (he believed women were inherently intellectually inferior) though he was a much nicer person than the deeply misanthropic Keynes (did anyone actually like him?) Most people who reverentially refer to Keynes don’t realise what strange person he was. If they did, they would be much less likely to cite him as cover for their own vacuous meanderings.

    1. The claim that Pigou proved there is a natural tendency for investment to recover after a slump most likely means, Pigou proved there are no long depressions/recessions. If the claim is Pigou proved something else, let us know please? Anyhow, this not only seems an amazing achievement that should have left Pigou far more famous than Keynes, but it doesn’t seem to me to fit the facts of economic history. The liquidity preference theory was meant to explain a real world observation, so far as I can remember from my fifty years ago reading of the General Theory, which by the way I don’t remember being unreadable and incomprehensible. Time seems to have rubbished Pigou pretty thoroughly and his major contribution of sorts seems to have been as the failure who proved Pareto optimality rather than satisfaction of needs and wants was the goal of welfare economics?

      The further claim that Keynes won the academic debate because he was so unpopular and baselessly arrogant seems peculiar at first glance. Frank Ramsey thought Keynes’ Treatise on Probability was worth criticizing, which is the math equivalent of Pauli thinking you were worth arguing physics with. Although later in life Keynes married a ballerina, he was homosexual and most certainly “liked”—-but this may be the real objection.

      1. The Pigou effect is the result of logical deduction which leads to the conclusion that lower interest rates will increase the real value of bonds and therefore also the wealth of bondholders who will then start investing/spending. Whether this theory is scientific or has empirical support is irrelevant. Keynes used almost no data in the General Theory and made no attempt to “prove” the General Theory was valid.
        There is plenty of support for the argument that Keynes misrepresented Pigou’s position in the GT.
        Paul Samuelson’s view of the GT: The General Theory “is a badly written book; poorly organized.… It abounds in mares’ nests of confusions.… I think I am giving away no secrets when I solemnly aver — upon the basis of vivid personal recollection — that no one else in Cambridge, Massachusetts, really knew what it was all about for some twelve to eighteen months after publication” (Samuelson [1946] 1948: p. 145; Hodge 1986: pp. 21–22).
        Professor Harry Johnson on the GT/Keynesianism’ “… The new theory had to be so difficult to understand that senior academic colleagues would find it neither easy nor worthwhile to study, so that they would waste their efforts on peripheral theoretical issues, and so offer themselves as easy market for criticism and dismissal by their younger and hungrier colleagues. At the same time, the new theory had to appear both difficult enough to challenge the intellectual interest of young colleagues and students, but actually easy enough for them to master adequately with a sufficient investment of intellectual endeavor. These objectives Keynes’s General Theory managed to achieve: … to escape from the slow and soul-destroying process of acquiring wisdom by osmosis from their elders and the literature into an intellectual realm in which youthful iconoclasm could quickly earn its just reward (in its own eyes at least) by the demolition of the intellectual pretensions of its academic seniors and predecessors. Economics, delightfully, could be reconstructed from scratch on the basis of a little Keynesian understanding and a lofty contempt for the existing literature — and so it was” (1978: pp. 188–89).
        Murray Rothbard on Keynes (1992); “John Maynard Keynes, the man — his character, his writings, and his actions throughout life — was composed of three guiding and interacting elements. The first was his overweening egotism, which assured him that he could handle all intellectual problems quickly and accurately and led him to scorn any general principles that might curb his unbridled ego. The second was his strong sense that he was born into, and destined to be a leader of, Great Britain’s ruling elite. Both of these traits led Keynes to deal with people as well as nations from a self-perceived position of power and dominance. The third element was his deep hatred and contempt for the values and virtues of the bourgeoisie, for conventional morality, for savings and thrift, and for the basic institutions of family life.”
        Keynes’ sexuality is irrelevant. However, in his diaries he comes across as a sex-abuser.

      2. I have read Murray Rothbard, which is why taking him seriously is so devastating to your case.

        However you value Rothbard, and quote “his deep hatred and contempt for….for conventional morality….and for the basic institutions of family life.”

        Ironically, your next sentences are, “Keynes’ sexuality is irrelevant. However, in his diaries he comes across as a sex-abuser.” I regard my suspicion as confirmed.

  2. The same way the SPD was always the Party of Lassalle and not of Marx, the postwar Western Left was always the political movement of Keynes and not of Marx. The only true inheritor of Marx that survived to this day, with all of its strengths and imperfections, is Marxism-Leninism.

    It is self-evident why the trade-unionist ideology/doctrine is naturally inclined to underconsumption crisis theories.

  3. This is really good! Thanks.
    Perhaps it would be possible to write an article on recent MMT inspired policies. Am I not following things well enough or are there, all of the sudden, not so many MMT-inspired policies left?

  4. One of your finest articles.

    It is important for your readers to know that Keynes did not invent the theory of underconsumption. It was economic dogma within the reformist movement for decades before Keynes wrote The General Theory of Employment, Interest, and Money, published in February 1936. Some called his work revolutionary, I call most of it plagiarism. Keynes became important only because the trade union and labour leaders doffed their cap to this eminent economist from the ranks of the bourgeoisie who talked their language except for the incomprehensible bits and did so in the halls of power.

    I came across this bit of correspondence between a worker and his or her employer. “Dear Sir, I am grateful that you gave me a job and in return can I suggest that if all the employers raised our wages then demand would go up, you would sell more and therefore make more money. Also the government would receive more sales tax. Yours truly…”

    In reply. “Dear Worker, I am replying to you for two reasons as normally I ignore my workers. Firstly, because you are grateful you have a job. There are other workers who think a job is a right. Unbelievable. Secondly, because the only money I am interested in is not how much money I receive from selling but how much money I am left over with. Currently I sell 2 million items each year priced at £2 which means the total money I receive is £4 million each year. In turn I have to pay my suppliers £1 million for my inputs and I pay my workers £2 million in wages. That leaves me with £1 million. This is the only money I am interested in because that is my profit. Now if I follow your advice and give my workers a 10% pay rise and all the other employers do likewise and all these extra wages are spent evenly on consumption, the following will happen. My wage bill will go up to £2.2 million representing the 10% pay rise. I will not factor in more workers as I am sure, that grateful for this pay rise, my employees will work harder. I will also pay out more for my inputs because their volume will have gone up costing me £1.1 million. All in all I will be paying out £3.3 million. On the other hand I will receive £4.2 million in revenue because an addition £0.2 million wages will be spent on my products. However, when I deduct the £3.3 million I pay out from the £4.2 million I receive, I am left with only £0.9 million in profit. You are better off but I am poorer by £100,000. So regretfully, I have to decline your well-meant suggestion because unlike Paul Mason you do not have a formal economic background. Yours insincerely, the Boss.” p.s. don’t bother me again as you are here just to work for me.

    1. It’s interesting that Marx had a fairly ‘naive’ quantity theory of money. Or maybe he was right, which would make the monetarists right too (only in relation to that). There does seem to be a heavy money supply correlation with inflation at the moment.

  5. Keynesianism is anachronistic. It was only possible because profit rates were high (period between 1945 and 1975). And the bourgeoisie was afraid of the socialist revolution. Michael Roberts repeats this truth time and time again, but the working people’s ears are deaf. Why?

    1. Many years ago, I read an essay in Counterpunch whose author pondered the notion that people have simply become too demoralised to do anything to rise above their current condition.

      More pragmatically, not long ago I was discussing with a friend a curious idea about how to tax corporations in a way they can’t engage in tax evasion: Dean Baker, who was peddling it, proposed that governments should seize a share in preferential stocks of all companies, and exact taxation in the form of dividend collection: if the company was to pay the shareholders, it would have to pay the government, too, regardless of where they chose to park their money.

      When I told my friend about it, he shrugged and said, “Sounds good, but it’s a non-starter because I feel at this point companies have honed the art of derailing legislation that harms them to the point it’s become a science. They simply know what they need to do so that this kind of tax measure will never make it into law.”

      More concretely, I was highly appreciative of a recent book by a Marxian thinker, “The Class Matrix”. The author, Vivek Chibber, makes an argument that class consciousness on the part of labour seldom translates as class activism. His arguments why are quite cogent.

      All in all, I think this answers your question: workers are too busy skulking down and make ends meet to throw away their shackles and start operating as a class to a magnitude that would actually get the levers of power to move.

  6. Personally, I agree that Keynes’ lack of a theory of profit is his version of Shakespeare’s Hamlet without the prince of Denmark. The part I’m not so sure about is, whether there are any significant policy makers, important politicians and central bankers in the key imperialist countries who are Keynesians, much less the modern versions who chat about jobs guarantees and play with the thought of price controls? Keynesian-ish economics may be guiding policy in Venezuela or Argentina or Brazil or possibly Turkiye, I suppose. Wouldn’t Biden say honestly, we are none of us Keynesians now?

  7. Chinese leaders, faced with a slowing economy, with a seeming inability to wean off massive unproductive investment in speculative housing, and with faltering global demand (having integrated their economy with the rest of global capitalism), have latched onto Keynesian-sounding pablum:

    “We will work to expand domestic demand and better leverage the fundamental role of consumption in stimulating economic growth and the key role of investment in improving the supply structure.” (Xi Jinping, Report to 20th Congress)

    Here we have yet another confirmation that the Chinese economy is capitalist through and through, not merely tolerating a private capitalist sector. And it is implicit acknowledgment that there is no planned socialist management of the economy.

    1. Xi Jinping spoke with very neuter terminology in your quote. I don’t see any hint of keynesianism in his speech, be it in this specific case, be it in general (I’ve read some, evidently not anything near all of them).

      I don’t know why this selective ignorance in the West about Xi Jinping. He literally has a book of his speeches, translated into English, easily found on the internet. An anglophone with access to the internet only doesn’t know about Xi Jinping if he/she doesn’t want it. Maybe this is a typical case of orientalism, where every East Asian must be, by definition, a mystical and mysterious figure?

    2. This nonsense is typical of the wretched perspectives on a variety of topics on the Marxmail listserv, founded by the late Trotskyist propagandist Louis Proyect, to which you contribute your fair share of nonsense.

  8. Another great class analysis by Michael Roberts. I found the quotations from Lord Keynes quite educational. I will pass this article along to my mates in the Australian Manufacturing Workers’ Union, Retired Members’ Division.

    In the political State of Australia now, unions are demanding as much as a 5% wage increase in the face of an 8.7% price increase for all the commodities they buy. Of course, the unions are dominated by the sort of careerists that have been around since Daniel DeLeon called them, ‘Labor Fakirs’. But, of course, most all workers are influenced by either left or right wing thinking, none of which calls into question the wage system itself. So, they are comfortable electing other workers who parrot the bourgeoisie and their opinion makers in academia, the media and governments which, of course, they elect in bourgeois democracies. Class rule and the political State go together and unfortunately, the workers remain under the thumb of ruling classes–they have no country.

    The Reserve Bank of Australia is run by bourgeois who use NAIRU as a policy guide. The idea is to keep devaluing the currency by about 2% a year. That means adjusting the interest rate at which the AUD can be borrowed. A low interest rate devalues the money commodity, the universal equivalent, making it so that more currency units are needed to purchase commodities, which may have the same value or even decreasing values because output per hour of labour has increased. Right now, the Reserve Bank is raising interest rates to bring the rate of inflation (devaluing the currency) down to the 2% NAIRU policy target. Of course, if the price of labour power is also cut along the way to achieving this goal, so much the better for the rate of profit for lower real wages in the face of higher labour productivity translate into higher rates of profit for the bourgeoisie.

    “The Fabians are a gang of careerists here in London who have understanding enough to realise the inevitability of the social revolution, but who could not possibly entrust this gigantic task to the raw proletariat alone and are therefore kind enough to put themselves at the head. Fear of the revolution is their fundamental principle. They are the “eddicated” par excellence. Their Socialism is municipal Socialism; not the nation but the municipality is to become the owner of the means of production, at any irate for the time being. This Socialism of theirs is then represented as an extreme but inevitable consequence of bourgeois Liberalism; hence their tactics of not resolutely fighting the Liberals as adversaries but of pushing them on towards Socialist conclusions and therefore of intriguing with them, of permeating Liberalism with Socialism, of not putting up Socialist candidates against the Liberals but of fastening them on to the Liberals, of forcing them upon them, or deceiving them into taking them. That in the course of this process they either are lied to and deceived themselves or else belie Socialism, they do not of course realise.”
    –Engels to Kautsky, September 4, 1892
    The Fabians, or a reasonable facsimile, are still around today. Do you notice them on career paths in the Australian Labor Party? Similar groups exist in the political State of America. One could say that this faction of social democratic Idealism has been around, getting jobs in the government and in the unions for more than a hundred years now.

    1. Engels’ observation still holds true in the UK, where the Labour Party historically fares a lot better on local elections (I think they call them “council seats”) than in the general elections — even when they’re trounced in the general elections, they tend to go well, if not outright win the local elections of the same year or season.

      The reason for that is very simple: the British people historically see Labour as very able domestic policy creators and administrators, but outright toxic and/or incompetent foreign policy leaders/politicians, whereas the Tories are seen as the opposite of that.

  9. It is extremely peculiar to find my basically anti-Keynesian argument warped into an argument for Keynesianism.

    To be very clear, I do *not* say, in the piece you link to, that capitalism is not a zero-sum game, as you claim here. I say that when growth is low, and unlikely to improve, capitalism *is* a zero-sum game. You have completely reversed my original argument.

    Worse, you seem to have also invented a quote from me, to support your claim I am a Keynesian. I did *not* say, anywhere that I can find, that Keynesian theory “reinforces the empirical judgement that there is vast underutilised potential that can be deployed through current as well as capital expenditures…. So the core of a left strategy today – including its programme for the environment – is redistribution.”

    The last sentence quoted is from the Substack piece you link to, where it is the conclusion to an argument *against* Keynesianism, rather than in favour of it. I have no idea where the first sentence comes from – it’s not in the Substack piece. Putting the two together leaves me saying something I have never said, and don’t agree with. (They don’t even make much sense together – if there was a “vast underutilised potential” lying around waiting to be exploited, redistribution would not be a priority.)

    Please could remove the invented quote as a priority. I would also appreciate it if you corrected the opening part of the paragraph where you claim that I think capitalism is not in a zero sum game, since it is the exact opposite of what I said.

  10. Thank you Michael. This paragraph should be posted on the study wall of every “macroeconoimist”:
    “…why this time has cheap credit been ploughed by banks and big business into financial speculation and not into productive investment (as, according to Tily, it was in the Golden Age)? The reason surely is that now it is more profitable to do the former than to do the latter. In the golden age after WW2, profitability was high in the productive sectors and the financial sector was not dominant. It is the fall in profitability that has led to the switch to financial speculation.” Totally on the nail.

  11. Mr Roberts

    Thank you for your continuing source of information.

    Yours sincerely

    Peter Cuypers ( 66 years old and retired 😊 but still combative and eager to learn )



  12. To stevenjohnson. Thank you. Murray Rothbard’s writing is very clear and stimulating and should be read on the grounds that you should be familiar with your opponents’ arguments. Keynes the Man is a reasonable starting point (quite short but v readable).
    Rothbard’s comment about Keynes’ attitude to family life is the least relevant of the three points he made about Keynes (which was included to make the whole passage comprehensible) even though there’s evidence this is in fact essentially true (something which can be said about Donald Trump by the way). And Keynes in his letters wrote about how he took pleasure in rape as Robert Skidelsky records in his Keynes biography. Finally (and most important), dig out your copy of the GT have a re-read and ponder how something so incomprehensible can be regarded as seminal. All the best.

  13. It is Rothbard who insists Keynes’ sex life is somehow relevant to economic theory. You claiming Rothbard was was admirable in general and right in his condemnation of Keynes as a person doesn’t make this one bit true. For that matter, condemning Keynes as convinced of his intellectual powers is properly answered, so what? Ludwig Wittgenstein had plenty of occasion to show up Keynes far more effectively than you and Rothbard. Keynes’ conviction that he was in the social circles responsible for empire is objectively factual, leaving you and Rothbard posthumously demanding the man live a life of fake humility. It is the Rothbards and their ultimate progenitors in the von Hayeks and von Mises who are the intellectual pretenders. Dig up your copy of Human Action to refresh your memory. My impression of Rothbard from my reading him was he thought he was the libertarian Lenin, albeit one conceived from a cartoon version of Bolshevism, where he and Lenin are incorruptible fanatics in doctrine and wholly without scruple in political practice, the champions both of the pure faith and dirty pragmatism.

    My lay interest in economics leads me to Marx, not Keynes. But if I want to confront Keynes, I read Paul Mattick’s Marx & Keynes first. I have a copy of that book but not the General Theory for a reason.

    I have no idea why you are sure Keynes was absolutely and plainly truthful rather than bragging and talking dirty in his letters. Nor do I know how you know that Keynes could repeatedly get away with rape, especially since you agree with Rothbard that Keynes was not a full-fledged member of the Establishment. I would have thought the Bursar of King’s College might count, even if he wasn’t a notably brilliant speculator.

    And of course being at Versailles certainly does count. Rothbard has nothing to match The Economic Consequence of the Peace, also certainly. Some sort of “demonstration” from Pigou against liquidity preference explanation of the failure of the standard policies to lead to recovery is rather like a “scientific creationist” picking out some flaw in natural selection while steadfastly ignoring the evidence for the multiplication of species. If you aren’t trying to explain how (which is very close to why, incidentally) things are, the question is, are you even trying to do science?

    1. PS By the way, so far as always being truthful in correspondence, which is not a legal deposition subject to perjury charges? Keynes’ profession of deep agreement with von Hayek, quoted above in the OP, certainly put Keynes in a bad light if taken at face value. (You admittedly would not agree that sucking up to the likes of von Hayek is worse in Keynes’ case.) But it’s not at all clear that the profession of agreement isn’t revoked when Keynes’ wrote “For the most part, I think that Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable.” The notion von Hayek found capitalism extremely objectionable or that economics would or should attempt to manage capitalism is not at all obvious points of agreement “philosophically and morally” with Keynes. I suspect a good bit of flattery by Keynes, who knew he was dealing with a skilled politician in von Hayek.

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