by Michael Roberts
It’s 70 years to the week since John Maynard Keynes died. And
with 70 years gone, the copyright on all Keynes works has now expired.
Keynes is the most famous and influential mainstream economist ever.
And he has bred a whole school or wing of economics called
Keynesianism. And 70 years later, Keynesianism continues to drive the
economic thinking on the left of the labour movement internationally.
That was revealed again only this month by the latest lecture in the UK Labour opposition series of New Economics seminars – this time by Paul Mason.
Mason is a well-known British broadcaster, journalist and formally a Marxist of sorts. He is author of a book entitled Post-capitalism,
which critiques capitalism and suggests an alternative society ahead.
But Mason, the Marxist, in his contribution, presented a clearly
Keynesian view of the state of the British and world economy and offered
policy solutions that Keynes himself would have advocated had he been
there. Actually, he probably would not have attended as he was never a
supporter of the Labour party or the working class. For him, Labour was
“a class party and the class is not my class. The class war will find me on the side of the educated bourgeoisie.” (Skidelsky p371). For more on Marx and Keynes, see Contributions of Keynes and Marx
Mason presented a set of economic policies entirely in line with the views of the current left-wing leadership, including
government spending for investment, keeping the central bank
independent of democratic control and a people’s bank for investment
funded by printing money. Indeed, Mason favoured funding the private
capitalist sector to boost investment rather than by direct government
spending; “And in a highly marketised economy, targeted money drops
into the private sector can actually shape the structural reforms we
need better than targeted changes in state spending.” So the
capitalist mode of production is not to be replaced, but instead, we
must look for ways to make it work better. Keynesian economics and
policy options still rule some 70 years later, even among ostensible
To remember Keynes’ 70th birthday, some other Keynesians recently reminded readers of the British Guardian
newspaper (that bastion of Keynesian economic thought) that in 1944, a
year or so before Keynes died, he had led the British negotiating team
in reaching an agreement with the Americans and others on setting up a
new world economic order after the end of the war. That came to be
called the Bretton Woods agreement.
The authors of this Guardian piece, former advisers to the American
Democratic party, held up the Bretton Woods agreement as one of the
great successes of Keynesian policy in delivering the sort of global
cooperation that the world economy needs to get out of its current
depression. What is needed, you see, is for all the world’s major
economies to get together to work out a new agreement on trade and
currencies with rules to ensure that all countries work for the global
good. The aim of global cooperation now, as they put it, was to “steer
away from an economic system marked by rising inequality, environmental
devastation and a lack of accountability, we need to do what Keynes
tried to do 70 years ago: imagine a different kind of Bretton Woods.”
Clearly our two Democrat Keynesians are right that “The need for a
different kind of worldview has never been clearer. This is revealed by
a look at any of the problems of our age, from climate to inequality to
social exclusion… Designing a new global economic framework requires a
But is Bretton Woods an example of the way to achieve this world
order and can it be done when the very process of capitalism is one of
competition and rivalry between imperialist economic powers? I’m afraid
that this sort of utopianism is what we often get from Keynesians. It
was expressed in Mason’s contribution and that of Joseph Stiglitz in a previous lecture in Labour’s New Economics series.
Anyway, the idea that Bretton Woods is a model for global cooperation
on trade, inequality, currencies and economic welfare is ridiculous.
Even the Guardian authors admit that the 1944 agreement was nothing of
the kind. According to them, Keynes found that his “foresighted idea for a new institution to more equitably balance the interests of creditor and debtor countries was rejected”. Instead, the authors tell us that “What
we got instead was the IMF, structural adjustment policies and more
than half a century of largely unnecessary pain and suffering for the
world’s poorest countries.”
So not so great then. But the authors are also disingenuous. Keynes
did not lead the British delegation at Bretton Woods to achieve more
equality and greater cooperation among major economies for the benefit
of all, including the poor nations of the post-war world. He went there
to ensure that British capital’s national interests were protected in a
new world where America would rule.
As Keynes’ biographer, Robert Skidelsky, pointed out, Keynes’ aim was
to get the best deal for Britain, as a major borrower of capital funds,
from America, as the major lender of capital. “The British wanted a
scheme that enabled them to borrow without strings, the Americans one
which would lend with strings. Keynes presented the debtors perspective
and White (American negotiator) the creditors”. P671 Skidelsky describes the Bretton Woods negotiations as a grab for American funds: “what
the delegates did understand was that there was a cache of American
dollars available and they wanted as much as possible for themselves” p764. Yes, very idealistic.
Skidelsky sums up the outcome. Naturally, the Americans got their way
because of their economic power. Britain gave up its right to control
the currencies of its former empire, whose economies now came under the
control of the dollar, not sterling (p817). In return, the Brits got
credit to survive – but with interest charged. Keynes told the British
parliament that the deal was not “an assertion of American power but
a reasonable compromise between two great nations with the same goals;
to restore a liberal world economy”. P819. In other words, the capitalist economy. The other nations were ignored, of course.
Bretton Woods was no Keynesian success story but a benchmark for
American imperialist hegemony. America established its economic rule at
Bretton Woods. The dollar was fixed to gold and became the world’s
dominant currency for trade and credit. To control the new world
economic order, the IMF and the World Bank were set up under American
control and housed in Washington. American dollar capital poured into
Europe (Marshall Plan) and Japan in order to restore capitalist industry
there, so that these war-destroyed economies could buy American exports
But Bretton Woods did not save world capitalism indefinitely. The
agreement with its fixed exchange rates, dollar supremacy and
international institutions run by the US appeared to work during the
Golden Age of 1946-65 mainly because the profitability of American
capital after the war was very high, and also rose quickly in Europe and
Japan, with its cheap surplus labour and new American technology.
America’s economic hegemony began to slip as its relative trade and
growth superiority slid from the mid-1960s onwards in the face of the
cost of the Vietnam war, and Franco-German and Japanese trade success.
When the US economy no longer ran a trade surplus but instead a widening
deficit, the dollar came under pressure and eventually came off its
quasi-gold standard in the early 1970s, signalling the end of the
Bretton Woods era.
With the collapse of profitability of capital in the major economies
from the mid-1960s, everybody fought for trade share, devaluing their
currencies. The IMF had to try and force various governments with
financial crises to maintain fixed rates with the dollar through
austerity (‘internal devaluation’). In the ensuing neo-liberal era from
the 1980s onwards, trade tariffs were reduced to benefit America, but
‘globalisation’ of capital led to the rise of Japan, Korea and China as
competitors in world markets to the US and Europe. The Keynesian dream
of ‘two great nations’ organising global cooperation and a new world
economic order was no more than that: a dream.
The chart below shows that American exported capital globally in the
post war period. But eventually American capital had to fund it not by a
trade surplus, but by borrowing. American companies continued to
invest abroad profitably and Japan and Europe recycled their trade
surpluses into dollar bonds, thus keeping the cost of borrowing cheap
for America. This was a great way for the US to sustain profitability
through its dollar hegemony.
“Essentially, the US economy has been able to borrow cheaply from
the rest of the world, and then invest those funds in companies around
the world. The average return on equity over sustained periods of time
is higher than the return on debt. The gap has been between 2.0 and 3.8%
per year since 1973.” Pierre-Olivier Gourinchas discusses this pattern in “The Structure of the International Monetary System,”.
The reality that is not recognised by Keynesian economics when it
considers the world economy is that, under capitalism, development may
be ‘combined’ (globalisation, trade pacts etc) but it is also ‘uneven’
(inequality, credit monopoly etc), as the example of Bretton Woods
shows. The Guardian authors want a new kind of Bretton Woods along the
lines of the ideas of Keynes, they say. This is an illusion under
capitalism and one that even Keynes did not hold himself.
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