"Keynes Wrong" Admission (1969)

From the April 1969 issue of the Socialist Standard

Paul Fabra, Economics editor of the Le Monde, writing in The Times on February 11, joins the chorus of those who now realise that Keynes was wrong. Keynes, in preaching that capitalism could be rationally controlled, provided arguments for those who wanted to reform capitalism, to use against those who wanted to abolish it. In Britain the Labour Party and the Liberals, followed closely by the Tories, were soon won over to the Keynesian brand of reformism which has been official government policy since 1940, the year the great inflation started.

Writing about the problems facing the new Republican administration in America, Fabra points out:

  The Keynesian idea that in order to reduce interest rates one must increase the money supply . . .  has now been proved wrong and even harmful: by accelerating the expansion of credit one achieves not a fall in the cost of money as the supply increases but a fall in the value of the currency in circulation. This had already been demonstrated by Ricardo 150 years ago.

This point was made by Marx too (whom Keynes was supposed to have refuted) and can be understood only on the basis of the labour theory of value.

Fabra was showing in effect that Keynesian monetary policies are a typical reform: they deal with one aspect of the problem by intensifying another. He goes on to nail the lie spread by Keynesians about the results of trade union activity:

  Inflation is surely the result of an ill- considered credit policy. In asking for so-called ‘excessive’ wage increases the unions do not create inflation; they try to defend themselves against its effects.

Whether governments just do not understand monetary theory or whether they are deliberately causing inflation to cut workers’ living standards (as advocated by Keynes) is a moot point. Probably the former, at least in the case of the Labour Party who are notoriously ignorant of how capitalism works.