Inquest on Keynes (1968)

Book Review from the April 1968 issue of the Socialist Standard

In Keynes and After (Penguin Books, 5s.) Michael Stewart, until recently senior economic adviser to the Wilson Labour government, (not to be confused with the Minister of the same name), has given a very readable outline of Keynes’ theories and of their relation to those of the earlier economists, followed by an attempt to prove that Keynes revolutionised economics by providing the governments of industrialised countries with the means to control the economy and provide full employment. According to Stewart, most economists accept and most governments now apply Keynes’ theories and if unemployment sometimes rises above a low level this is by the deliberate action of governments –they could have full employment but choose not to have it.

Those who found it difficult to follow Keynes’ own statement of his views – and Stewart admits the difficulty – will find in Chapter 4 a lucid exposition. The same cannot be said of his scrappy, and in some respects, inaccurate summary of Marx’s views.

The starting point of Stewart’s book is an examination of the belief held by Ricardo, Say and other economists at the beginning of the 19th century that capitalism in its normal operation tends to produce full employment, any failure of a particular industry to sell its products being quickly offset by larger sales in other industries. This rested on the proposition “every seller brings a buyer to market”: meaning that the seller of an article then has the money to buy some other article and will do so.

In spite of evidence to the contrary this belief that unemployment could only be temporary and limited persisted right up to the 1930’s, when, according to Stewart, Keynes astonished the world by showing that the seller who comes into possession of money does not necessarily use it at that time to make a purchase.

Stewart is quite correct about the reception given to Keynes’ rebuttal of the Say doctrine. What he does not explain is why that part of Keynes’ work was treated as an original discovery. For Marx had examined in detail the way in which capitalism produces unemployment and had proved Say to be in error.

Stewart is at least partly aware of this for he expressly excludes Marx from the 19th century economists who were taken in, yet he also writes that it was “left to Keynes . . . to put his finger on the truth”. Not that Marx’s conclusions were the same as those reached by Keynes. For Marx it was a matter of showing how capitalism operates and how it needs unemployment; for Keynes it meant prescribing a remedy. He believed that by appropriate action, including government expenditure to create demand, full employment could be maintained.

Keynes presented his doctrines in 1936, in a book called The General Theory of Employment Interest and Money. Stewart maintains that the money and interest can be discarded “for the book is really about what determines the level of employment”. It is true that in his book Keynes said that we had not yet gone into the practical problems of a full employment society but that certainly did not mean that he attached little importance to the aspects that Stewart dismisses. It is, however, not necessary to prove the point because in the government White Paper Employment Policy, 1944, which Keynes helped to draft, the practical problems were considered and they went far beyond full employment; to include specifically the maintenance of a stable price level and a faster expansion of production.

One can guess why Stewart would prefer his version, for while he claims that the full employment aim has been achieved, he has to admit that the others have not.

The first question is whether in fact full employment can be and has been maintained by the use of Keynes’ methods. Stewart is confident that it has (except where governments did not want full employment). Other Keynesians are not so sure. Professor Alvin Hansen in his A Guide to Keynes (1953) writing about the low unemployment in the early post-war years said “full employment was, however, primarily the result of the war and post-war developments, not of conscious policy”.

And John Grieve Smith reviewing Stewart’s book in The Times of 22 January had this to say:

  Michael Stewart attributes the maintenance of high levels of employment…after the second world war mainly to the widespread acceptance of Keynes’ ideas. This is over-generous. Since 1945 there has been an inherent tendency towards full employment as powerful as the tendency towards heavy unemployment in the Twenties and Thirties. Initially this appears to have been an aftermath of the destruction of war, latterly, perhaps a result of the tendency towards higher public expenditure whether for military or civil purpose.

It should be noted that there is now a fairly clear trend towards an increase of the level of unemployment in Britain as compared with the early post-war years, and Stewart himself is disturbed by the quite sizeable unemployment that has persisted in America in spite of government declarations and policies.

Stewart claims that the first government to adopt Keynes was Roosevelt’s administration in 1933. He then has to explain why, eight years later, unemployment was still 10 per cent representing over 8 million unemployed. His explanation is that although Roosevelt was running a budget deficit of 4½ billion dollars a year (nearly £1,000m) to finance government expenditure on public works, it was not enough, he should have spent more.

It will be seen that Stewart has an answer for every situation. If the Keynes technique is not seen to cure unemployment this must be due either to the government not wanting full employment or to the medicine not being strong enough. It will however be recalled that on a particular occasion, Enoch Powell was able to show that although the recovery from a bout of fairly heavy unemployment did follow a Tory government statement of its intention to dispense financial medicine, the recovery took place without the medicine having been taken.

Having to admit that the other two aims have not been achieved Stewart in effect throws Keynes overboard. He writes that Keynes did not live long enough “to get to grips with the problem of achieving faster growth and more stable prices”and that “the management of effective demand along Keynesian lines, though a necessary condition for solving both problems, is not a sufficient solution of either of them”.

It was not only faster growth they thought they could organise, but continuous growth. In fact in the past twenty or so years what they got was the stop-go, the alternate expansion and contraction, much the same as it was before Keynes was born and when Marx described it in Capital.

Stewart has his own explanation for the rise of prices. It is that with near-full employment workers and employers are both in a monopoly position and have taken advantage of it to push up wages and profits and that this has caused prices to soar. It raises an interesting question. As prices in Britain have increased 250 per cent since 1938, compared with about 125 per cent in the USA and Switzerland, are we to believe that the British workers and capitalists are twice as demanding as the Americans and the Swiss?

As Keynes does not help him Stewart is forced to fall back on an incomes policy –“a policy that would prevent wages, profits and other incomes from being pushed up faster than production” (Stewart would no doubt be surprised to learn that Marx, a hundred years ago, described how wages in a boom rise faster than the production of consumer goods).

This dependence on an incomes policy, and the consequences that will flow from it bring us back to a basic difference between the analysis of capitalism made by Marx and that made by Keynes and Stewart. Marx saw that capitalism is not just an accidental assembly of economic activities, but a class system, with the means of production and distribution owned by one class and the other class, the workers, forced, in order to get a living, to sell their mental and physical energies for wage or salary.

In the inevitable class struggle the government is compelled, if it is to keep capitalism functioning, to come into conflict with the workers. Keynes thought that if he could find means to reduce unemployment to a very low level he could take the edge off the conflict. Yet at the end of the road we find Keynesian governments, Labour and Conservative, trying to impose wage restraint on the workers.

Governments may try for a time to enforce this with increased rigour, or may withdraw in face of opposition, or unemployment may rise to the point at which no incomes policy is necessary, but whichever way it goes they will be reminded of the class nature of capitalism –one of the facts of life they pretended no longer existed.

There is still another difference between Marx and Keynes. It was claimed for Keynes in the Thirties that he saved capitalism; that was certainly his declared intention. Marx of course sought to replace capitalism by Socialism (not, as Stewart thinks, by state capitalism on the model of Russia). The Keynesians, including the leaders of the Labour Party, are still trying to save capitalism. If any member of the Labour Party doubts this he should take note of the fact that Stewart in his book does not even consider the possibility that there is an alternative – Socialism.

Edgar Hardcastle