Awhile back, Charles Brown wrote: >>> Doesn't it seem likely that [the lack of] depressions (in the US) since the 30's is due to government application of economic science ? <<<
I said: >> A little. But mostly it was a passive matter: it was the balance wheel on the economy that the large government budget (warfare/welfare state) creates. In addition, financial reforms such as the creation of bank deposit insurance (along with strict banking regulations) in the 1930s helped stabilize the economy.<< CB: > I'm in the habit of thinking of the welfare spending as Keynesian > fiscal policy (?) or an application of "economic science". Increasing > effective demand is a point of overlap of Keynesianism and Marxism; or > at least, Marxist understanding of capitalism would expect that > Keynesian welfare spending that increased mass consumer/working class > spending would ease/help avoid recession, no ? So, Marxists would see > welfare spending as a reform measure that not only relieves poverty, but > one that is likely to ameliorate the business cycle downturns. To me, > this is the main progressive aspect of Keynesianism. Though there's no official definition of "Keynesianism" (nor will there ever be one), the way I see it is as the idea that a market economy has a major coordination problem: there is nothing in the system that makes sure that the markets operate at full employment (contrary to Say's "Law"). Actions of either the central government or the central bank are needed to solve this problem, subbing for the inadequate efforts of the highly decentralized businesses. (In some ways, K's theory is a version of the disproportionality theories of an earlier era.) Though British Keynesians used to interpret this as saying that a welfare state (or better, redistribution to the poor and working classes) is needed to stimulate demand, in practice it works out that the warfare state does a damn good job. Tax cuts for the rich can do it to, though they aren't as efficient as more "progressive" efforts. In other words, there are lots of interpretations of Keynesianism. It can be reactionary or progressive. Some argue that Hitler's economic policies during the 1930s were "Keynesian" (building autobahns, building up the military) but then again so were social-democratic-leaning Sweden during the same period. (Note that this is a market economy: Keynes didn't really describe capitalism as (say) Marx might describe it. He was not proposing getting rid of capitalism (though maybe he favored getting rid of rentiers, totally passive financial capitalists). However, that doesn't mean that K was totally wrong.) > In Capital Vol. III ... Marx > says the ultimate cause of recessions is that the total number of > commodities produced is as if the mass consumers/workers have enough > wages to buy them all ( obviously my rough paraphrase). The idea is that > since workers are not paid for everything they produce, they don't have > enough money to buy all they produce. The capitalist who takes the > surplus isn't going to buy all the commodities for personal consumption. This isn't Marx's theory. Frankly, Marx did not have a specific theory of crises, though he had a lot of good ideas. You can point to high wages as a possible cause of crises -- or low wages. Or you can point to wages being too far away from the "best" level (for the economy's operations) causing one kind of crisis or another. Or you can cite Marx as saying that the normal (immanent) tendency of technical change is toward increasing the degree of mechanization of production, which (all else equal) reduces the rate of profit and slows the economy, encouraging stagnation and/or recessions. I've tried to develop a synthesis of Marx's various ideas, but I can't claim that I represent his opinion or that his ideas were totally finished on the questions of crises. (Simon Clarke's 1993 _Marx's Theory of Crisis_ (London: Macmillan) convinced me of the latter point.) > The capitalist isn't going to buy the surplus product of 20,000 cars, or > pairs of shoes or hamburgers. In other words, exploitation of surplus > value creates the basic contradiction that makes recessions inevitable. Suppose that the surplus product includes 10,000 trucks along with 10,000 cars. The capitalist class as a whole might well buy both. The trucks might be purchases as investment goods (means of production) because capitalism is typically a growing (accumulating) system. In addition, the capitalists might buy the cars because they like having a lot of luxury goods. In volume II of _Capital_ (the one that almost nobody reads), Marx showed that it's quite possible for the system as a whole to grow despite the fact that workers produce a surplus. He didn't see smooth growth as _likely_ but he did see it as possible. As I read Marx, this tells us that we have to change our focus away from inadequate consumption by workers to capitalist accumulation (and, to a lesser extent, luxury spending). Inadequate worker's spending can be compensated for by abundant accumulation and luxury spending. But, going beyond Marx, I argue in my 1983 article in the _Review of Radical Political Economics_ and my 1994 article in _Research in Political Economy_, that abundant accumulation and luxury spending makes the economy grow -- but it's increasingly unstable, i.e., prone to recessions. Then, after a recession, it's possible that the depressed consumer spending by workers can make the economy even more depressed -- because accumulation (normally buoyant, aggressive) can be blocked by a combination of excessive corporate debt, unused factories (and other means of production), and pessimistic expectations . The parts of this unholy trinity can interact with each other, making each worse. On the other hand, in a period such as that of the 1950s and 1960s, the normal progress of capitalist accumulation can pull wages enough so that there are no underconsumption problems at all. Instead, we might see profits being squeezed -- and spiraling stagflation. > Credit can paper it over for a while. "Underconsumption" , inability to > consume all the commodities produced because the masses don't have > enough money to buy all the commodities of personal consumption produced > is the ultimate cause of all recessions. So, welfare payments can > ameliorate this some, because basically welfare is giving some of the > surplus value ( which is paid in taxes) to some of the mass consumers, > who then buy some of the commodities "piling up in the warehouses" , so > to speak. (1) capitalists use credit, too. It's not just workers. (2) to a large extent, "welfare" programs are paid for entirely out of wages, so there's little or no redistribution between classes. However, they are a form of insurance that keeps wages from falling too much. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.
