From the February 1966 issue of the Socialist Standard
Socialists have always held that the boom-slump cycle and periodical unemployment are inherent features of the system of production for the market with a view to profit i.e. capitalism. But, say the critics, there has been full employment in Britain for over 20 years; there has been no slump on the scale of the 1930's. Man, they say, has been proved wrong. Capitalism has changed, thanks to the theories and policies of John Maynard Keynes.
Keynes was a British economist who died just after the last war. He wrote a number of widely-read books on economic and political matters and held various government posts. His theories on how to get full employment and avoid slumps are to be found in his General Theory of Unemployment, Interest and Money which appeared in 1936.
The economic doctrines Keynes attacked in this book taught that capitalism automatically led to the full and most efficient use of productive resources. These doctrines said that unemployment was to be explained either by overpopulation or by restrictions on production and trade, such as trade unions. State interference and tariffs. Overproduction was impossible as "supply creates its own demand". This last dogma was known as Say's Law after a French economist of the early 19th century. Say argued that as every sale was a purchase and vice versa a shortage of purchasing power was impossible.
Keynes denied that laissez-faire capitalism automatically led to full employment and went on to show how overproduction and unemployment could occur: since all that was produced in a given period wasn’t all consumed in that period there was a gap between productive capacity and what Keynes called Consumption. This gap was filled by the making of means of production or Investment. However as Investment depends on what businessmen think are the chances of making profits there is no guarantee that this gap will be filled. And if it is not filled then there will be idle resources and unemployment.
Keynes suggested ways of overcoming this condition. The State should first try to encourage Consumption and Investment. As the poor tend to spend a larger proportion of their income than the rich, one way of encouraging spending, Keynes suggested, was to redistribute some of the income of the rich to the poor. Low interest rates might encourage businessmen to invest so a policy of reducing the price of money by increasing its supply was called for. Keynes believed that although these measures were useful they would not be enough. In the end the State itself would have to increase its own spending and even take steps to control Investment directly.
In overthrowing Say's Law, Keynes was doing nothing new. Marx had done this before when he pointed out that, although Say was right about every sale being a purchase because the buyer and seller were different people, the seller could interrupt circulation if for any reason he didn't re-spend the money immediately. Thus both Marx and Keynes showed how overproduction was possible under capitalism. Marx went further and showed how it was also inescapable.
The basic proposition of the Keynesians comes to this: steady growth at full employment level can be kept if the State controls spending and investment so that when a boom is developing it cuts down, and when a slump threatens it increases its spending.
Keynes had been a critic of laissez-faire for a long time before he wrote his General Theory. He was a member of the Liberal Party and sympathetic to the kind of State capitalist schemes the Fabians pushed. When he wrote this book he already had an international reputation as a leading economist. His book was given wide publicity because in it a well-known economist provided a theoretical justification for policies already being tried in the 1930's. Keynes's theories and policies—equalizing taxation, cheap money. State control—were eagerly spread by the Labour Party and "progressives’' generally. After all, this was what they—and Keynes himself, for that matter—had long been advocating. Helped by these partisans Keynesian economics has become the dominant theory. In Britain it completely conquered the universities and government departments. In America some conservative economists are still fighting a rearguard action on behalf of laissez-faire against Keynes' theories which they see as State Capitalism (to them "socialism").
It is true that Keynesian economics is a theory of State Capitalism. It is a theory that Capitalism can be managed by professional economists from Government departments. It is Fabianism in a new guise: capitalism run by "experts".
In Britain the first Keynesian budget was that of 1940 so the "experts" have been in charge for over 25 years How have they fared? Have they been able to control capitalism?
Under capitalism the market is the king; it decides what is produced and when. After the last war there was an expansion of the world market which, with a few minor upsets, has continued ever since. It is this expansion of the world market rather than State control which has been the major factor in the relatively full employment in some parts of the world.
This particular combination of circumstances has allowed the Keynesians to claim as the benefits of their “economic management" what in fact are the results of world market conditions favourable to the capitalists of the countries concerned. The world market has not expanded at a steady rate; it has done so in fits and jerks. This, of course, is the boom-slump cycle. In Britain the figures of unemployment, industrial production and trade have gone up and down with the world market—and the "experts" have been unable to do anything about it. Indeed far from these “experts" controlling capitalism it is the other way round: the Keynesians seated in their government offices have had to take orders from the world market. Given a contraction of the world market on a large-sale the emptiness of the claims of the Keynesians to control capitalism. and especially its boom-slump cycle, would become apparent immediately.
Nor have the "experts" been able to end unemployment. In many parts of the world unemployment is widespread, in the Caribbean and Mediterranean areas to mention just two. Keynesians have been unable to do anything about this. Some of their thinkers have admitted this and call the unemployment in these areas "Marxian" as opposed to the “Keynesian" unemployment they an cure. Very clever! as if this unemployment wasn’t connected with the relatively full employment elsewhere. For these unemployed are the reserve army of labour Marx talked about. They are drawn on by industries in the dominant capitalist countries as and when required to produce for the world market.
Keynesian economics—a combination of a policy of “inflation" and the rule of economic "experts"—is not at all what it is made out to be. It has not, and cannot, control capitalism in the ways that it claims.