Abandoning Keynes: Australia’s Capital Mistake


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At most, the economic liberals will concede that unions benefit some workers at the expense of other workers.

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And workers who lack skills can only build up their skills by working. The liberals—or conservatives in the American sense—hold that unemployment insurance and other forms of social insurance and minimum wage laws, along with unions, are all to blame for chronic unemployment and the poverty it brings. Since the unskilled cannot find work, they cannot improve their skills. This, according to liberal economists, is the vicious circle of poverty.

What then is the solution to chronic unemployment and poverty proposed by the liberal economists? Why bust unions, get rid of unemployment and other forms of social insurance, and repeal all minimum wage laws. Chronic poverty and unemployment will, the neoliberals promise, then disappear. In the closing decades of the last century, these were the theories and policies associated with Ronald Reagan and and British Prime Minister Margaret Thatcher, who did the best they could to put them into effect.

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Due to the resistance of the workers and their unions, Reagan and Thatcher were able only to implement a part of the neoliberal program. Nor should it concern itself with the plight of the unemployed and destitute. Assuming neither unions nor pro-labor legislation opposed by economic liberals, such as unemployment insurance, minimum wage laws, and so on, get in the way, anybody who really needs a job will always be able to quickly find a job.

If they lack skills, the liberals argue, their wages will initially be low, since their labor will create very little value. Unskilled labor is, after all, much less scarce than skilled labor. But over time, they will tend to become more skilled and their wages will rise. If any of these long-term unemployed really needed a job, they would always be able to find one, though perhaps initially at low wages corresponding to their lack of skills.

The only real legitimate function of the state, according to liberal doctrine, is therefore to serve as a police force. The rise of economic liberalism as an ideology coincided with the the transition from early capitalist production, based on manufacture using artisan methods handed down from pre-capitalist times, to machine production with steam as the main motive power. This new stage of capitalism, which began to take hold beginning in Britain in the latter part of the 18th century, is called industrial capitalism.

Before the rise of steam-powered industry, it was the commercial capitalists—the capitalists who deal in commodity capital rather than productive capital—who dominated the capitalist world. But under industrial capitalism, it was the industrial capitalists who emerged as the dominant section of the rising capitalist class.

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The focus was shifting from the accumulation of money capital in the form of gold and silver to the accumulation of industrial capital. Just like a person goes through the stages of infancy, childhood, youth, mature middle age, and finally old age, so does bourgeois political economy. In its youth, in the hands of the classical economists, the law of labor value was developed and the origin of surplus value in the sphere of production, as opposed to the sphere of circulation, was discovered.

And it was the classical economists who first realized that capitalist society is divided into three classes: landlords, whose income take the form of rent; capitalists, whose income takes the form of profit; and workers, whose income takes the form of wages. And so with the industrial revolution—the time of Ricardo—classical political economy reached its climax. Any further development of the Ricardian theory of value would inevitably emphasize the origin of surplus value in the unpaid labor of the working class.

Therefore, the whole concept of labor value had to go. Economics on a bourgeois basis had reached its end as a science. The further development of the Ricardian theory of value and of economic science itself was therefore surrendered by the bourgeois economists to the representatives of the working class—first to the Ricardian socialists, as they were called, and then to Marx.

With the end of the Ricardian period, around , which was not long after the first worldwide economic crisis of overproduction in , economic liberalism was already leaving behind its youth when it had been able to afford the luxury of actually exploring the economic laws of the rising capitalist system. There could be no more Ricardos. Classical political economy was a weapon in the hands of the capitalist class to fight feudal reaction as well as the working class. Marginalism, on the other hand, is only useful for fighting the working class.

Since, according to marginalist theory, value ultimately arises from scarcity, there is no possibility of general overproduction of commodities. At most, there could be disproportionate production that would quickly be eliminated through free competition, but no general overproduction. According to the marginalists, while the central banks such as the Bank of England would be expected to lower interest rates during periods of economic stagnation, any attempt beyond that by government to combat a crisis would do more harm than good.

Therefore, basic marginalist theory implies, recessions will never happen, but if they do anyway, the government should take no measures to either create jobs or otherwise help the unemployed. Any measures to help the unemployed will only lead to long-term involuntary unemployment, since the unemployed workers might prefer to collect unemployment insurance rather than build up their skills.

Sure, even the marginalists admit there are always workers looking for jobs. But this is, after all, a very good thing. The government has no right to interfere with the free choices of individuals in a free society, after all. However, just as the neoclassical marginalist system was being developed in the universities, free competition was beginning to break down in practice.

Especially after the economic crisis that began in , cartels and trusts began to grow within countries. Beginning about , however, world capitalism entered into a period of accelerated growth and rising prices that was destined to last to the eve of World War I. But after World I, economic liberalism—especially in Britain, the country that dominated political economy—was undermined by chronic mass unemployment. Unlike the United States, in Britain this mass unemployment began with the recession of It did not wait until This created a fundamentally new situation.

It was against this background that the General Strike of broke out, the biggest movement of the British working class since the days of Chartism. Then came the crisis of itself.

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Mass unemployment was no longer confined to Britain and the countries that had been the losers in World War I. It now spread to the leading capitalist country, the United States. And the United States, with its very weak trade union movement and lack of any social insurance, was exactly the type of country that according to the tenets of marginalism should have virtually no unemployment problem. The collapse of the booming U. Even some of the scions of the ruling-class families who were studying economics in American and British universities began to turn towards Marxist ideas.

Even as the crisis of was raging, the marginalist professors were teaching a doctrine that explained why what was happening in the real world could not occur! And unlike many other intellectuals radicalized in the s, Sweezy remained a socialist throughout the rest of his long life. But in order to do this, Keynes was forced to lead a retreat away from economic liberalism. His father, John Neville Keynes, was, like his more famous son, also an economist. After receiving an education at Eton, a school open only to sons of the ruling class, the young Keynes had planned to study mathematics at Cambridge University.

But since Keynes was interested in politics as well as mathematics, Alfred Marshall, considered the leader of British marginalism, convinced him to study economics instead. In economics, Keynes could combine his interest in mathematics with politics.

Neoliberalism - Wikipedia

A many-sided intellectual, Keynes had interests in literature and art as well as mathematics and economics. At Cambridge, Keynes mastered neoclassical marginalist economics. A man with this background would not have been expected to become a champion of the working class, and Keynes proved no exception.

I should note, however, that Keynes did belong to one oppressed group. He was gay. No open homosexual would have been been able to play a role in public affairs. Indeed, this sorry situation lasted until the rise of the modern gay liberation movement that followed the Stonewall Rebellion in New York City. I am sorry to say that, in the United States at least, there were socialist organizations that banned open gays from membership as late as the s. How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeoisie and the intelligentsia, who with all their faults, are the quality of life and surely carry the seeds of all human achievement?


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Even if we need a religion, how can we find it in the turbid rubbish of the red bookshop? It is hard for an educated, decent, intelligent son of Western Europe to find his ideals here, unless he has first suffered some strange and horrid process of conversion which has changed all his values. Still, he does let slip his class attitudes and class loyalties. According to Ben Leach, writing in the Oct. In his dreams of breeding a master race, however, Keynes was hardly that unusual among the scions of the British ruling class.

Such racists ideas were actually quite commonplace among the ruling classes of Europe and America. Hitler differed from these common ruling-class ideas only in the extremes to which he took them in both theory and in practice, and his willingness to apply them within Europe as opposed to Africa, Asia and Latin America. But Keynes was not a stupid reactionary.

He was an intelligent one. He opposed the punitive provisions of the infamous Treaty of Versailles, for example. Starting in the s, Keynes got together with the leader of the British Liberal Party Lloyd George to advocate a program of public works to combat mass unemployment. The proposal for public works by George and Keynes was an attempt to undercut the new British Labor Party. During the 19th century, Britain had a two-party system consisting of the Conservative Party, also known by its nickname the Tory Party, and the Liberal Party.

The Conservatives had traditionally been the party of the large landed interests, while the Liberals had represented the industrial capitalists. The British trade unions had historically supported the Liberals, much like the U. But after World War I, the trade unions had shifted their support to the new Labor Party, a party based on the trade unions.

Though this party was in deeds if not always in words pro-capitalist and pro-imperialist, it was still a historical step forward for the British working class. One of the reasons why British workers enjoy a socialized health care system, under which health care is a right and and not a privilege for those able to pay as is still the case in the United States, is the existence of the Labor Party. The abandonment of the Liberal Party by the working class had left that party without its mass electoral base.

Lloyd George and Keynes hoped to win this base back with their public works proposal. For Keynes, however, there was a problem. Yet it plainly did. The mathematical and trained Cambridge economist Professor John Maynard Keynes was, unlike some of his more obtuse colleagues, plainly bothered by the glaring contradiction between marginalist theory and reality. The somewhat different use of these terms in the United States reflects the divergent history of the United States and Europe.

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But the United States lacks a true feudal past. These policies include deficits in the trillions of dollars and the virtual doubling of the supply of token money over a period of a few months. Over the next few years, the world will learn the consequences of these policies.

Abandoning Keynes: Australia’s Capital Mistake Abandoning Keynes: Australia’s Capital Mistake
Abandoning Keynes: Australia’s Capital Mistake Abandoning Keynes: Australia’s Capital Mistake
Abandoning Keynes: Australia’s Capital Mistake Abandoning Keynes: Australia’s Capital Mistake
Abandoning Keynes: Australia’s Capital Mistake Abandoning Keynes: Australia’s Capital Mistake
Abandoning Keynes: Australia’s Capital Mistake Abandoning Keynes: Australia’s Capital Mistake
Abandoning Keynes: Australia’s Capital Mistake Abandoning Keynes: Australia’s Capital Mistake
Abandoning Keynes: Australia’s Capital Mistake Abandoning Keynes: Australia’s Capital Mistake
Abandoning Keynes: Australia’s Capital Mistake Abandoning Keynes: Australia’s Capital Mistake

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