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by Michael Roberts
Was Keynes the great internationalist who aimed to make capitalism a stable system through macro management on a world scale? This is Ann Pettifor’s claim in her recent paeon of praise to Keynes. Keynes made his name in showing that the policies of penury on Germany after WW1 would be self-defeating for the interests of France and Britain. And he supposedly was the promoter of “the construction of the international financial architecture at Bretton Woods in 1944. Politicians and economists (if not bankers) had finally come round and endorsed his theory and policies.” (Pettifor).
Well, yes he wanted to set up ‘civilised’ institutions to ensure peace and prosperity globally through international management of economies, currencies and money. But these ideas of a world order to control the excesses of unbridled laisser-faire capitalism were eventually turned into institutions like the IMF, World Bank and the UN Council, mainly used to promote the policies of imperialism, led by America. Instead of a world of ‘civilised’ leaders sorting out the problems of the world, we got a terrible eagle astride the globe, imposing its will. Material interests decide policies, not clever economists. Keynes, the internationalist, gave us the IMF’s penury on struggling emerging economies.
Moreover, Keynes was always more a representative of the interests of the British empire than an internationalist. After all, he had been in the British civil service in India. The biographer of Keynes, Lord Skidelsky, entitles the third volume of his biography, Keynes: Fighting for Britain. At the post-war Bretton Woods meetings, he represented, not the world’s masses or a democratic world order, but the narrow national interests of British imperialism against outright American dominance. After the agreement, Keynes told the British parliament that the Bretton Woods 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”. Only two nations mattered, the interests of others were ignored.
Was Keynes an internationalist when it came to economics? He started off as a ‘free trader’ with the traditional neoclassical view that free markets in trade would benefit all. As an under-graduate he served as secretary of the Cambridge University Free Trade Association and argued for free trade in several debates. “We must hold to Free Trade, in its widest interpretation, as an inflexible dogma, to which no exception is admitted, wherever the decision rests with us. We must hold to this even where we receive no reciprocity of treatment and even in those rare cases where by infringing it we could in fact obtain a direct economic advantage. We should hold to Free Trade as a principle of international morals, and not merely as a doctrine of economic advantage.” By 1928, however, Keynes had altered his position by suggesting that “the free trade case must be based in the future, not on abstract principles of laissez-faire, which few now accept, but on the actual expediency and advantages of such a policy.”
The terrible experience of the Great Depression shifted his views further. In private evidence given in 1930 before the UK’s government-sponsored Macmillan Committee on Finance and Industry, set up to offer economic advice to the British government at the onset of the Great Depression, Keynes proposed import tariffs on foreign goods and subsidies for domestic investment. When asked whether abandoning free trade was worth the potential ameliorative effects of protection, Keynes replied, “I have not reached a clear-cut opinion as to where the balance of advantage lies,” but he saw the merits of tariffs as an alleviation of the slump. “I am frightfully afraid of protection as a long-term policy,” he testified, “but we cannot afford always to take long views . . . the question, in my opinion, is how far I am prepared to risk long-period disadvantages in order to get some help to the immediate position.”
Before long, he went further towards protectionist measures. In response to questions from the prime minister, Keynes indicated that he had “become reluctantly convinced that some protectionist measures should be introduced.” In a memorandum prepared in September 1930 for the Committee of Economists of the Economic Advisory Council, Keynes elaborated on the benefits of a tariff, which he now described as “simply enormous.” These benefits included solving the basic problem of the misalignment of money costs and the exchange rate: a tariff would raise domestic prices and reduce real wages toward their ‘equilibrium value’, while avoiding a disruptive fall in nominal wages (so real wages would fall without the working class noticing). A tariff would also “restore business confidence and create a favourable climate for new investment”, he stated, “but would not (unless poorly designed) trigger demands by trade unions for higher pay or have adverse employment effects.” Tariffs would thus help British capital against its competitors by squeezing the real incomes of British households. Keynes preferred devaluation of the currency but tariffs would also be necessary.
He now advocated ’beggar thy neighbour’ economic policies to help British capital against its rivals. By 1933 he wrote of his sympathy “with those who would minimise, rather than with those who would maximize, economic entanglements between nations. Ideas, knowledge, art, hospitality, travel-these are things which should of their nature be international. But let goods be homespun whenever it is reasonable and conveniently possible; and, above all, let finance be primarily national.” However, once the depression and war was over, Lord Keynes in his last speech returned to his support for the theory of ‘free trade’ when he said that “separate economic blocs and all the friction and loss of friendship they bring with them are expedients to which one may be driven in a hostile world where trade has ceased over wide areas, to be cooperative and peaceful and where are forgotten the rules of mutual advantage and equal treatment. But surely it is crazy to prefer that.”
I think what this tells you is that Keynes was an internationalist and free trader when he thought it was in the interests of British capital, but in favour of protection and beggar thy neighbour policies when he thought it was in the interests of British capital. For him, there were only two ‘civilised’ nations, the US and the UK (as junior partner), who could lead the world. Keynes never criticised the role of the British Empire, on the contrary, he saw it as a good thing and something to be preserved.
Europe as a rival to American imperialism came after Keynes’ death. With the rise of Europe, British capital began to move towards the continent, joining the Single Market and the EU. But British capital remained split about where to align. Within the psyche of the British ruling elite (mainly smaller and domestic-based capital), there has remained a nostalgia for the Empire and a look back across the Atlantic ‘pond’. With the demise of Europe’s economies after the Great Recession, the reactionary empire loyalists pushed for a break with Europe and a return to the ‘old order’ as junior partner to American imperialism that existed in Keynes’s day.
How would Keynes have reacted to this? In my view, as he was at the time of Bretton Woods, Keynes was generally in favour of freer trade and international capital flows, as he thought it would be to the advantage of Anglo-American capital. So he may have supported the UK’s entry into the EU, but not into the euro, because that would have taken away control over the currency and the option of devaluation. What would Keynes’ view have been on Brexit? Would Keynes have been a ‘leaver’ or ‘remainer’? Probably the former as that is where his nationalist inclinations lay. But maybe the latter, as according to his economic rival of the 1930s, Friedrich Hayek, Keynes changed his ideas like he changed his shirts. Keynes was an internationalist only as long as it did not conflict with the interests of British capital (or American imperialism) – pretty much the same position as Churchill.
Keynes was vehemently opposed to socialist internationalism. Keynes saw all his policies as designed to save capitalism from itself and to avoid the dreaded alternative of socialism. As he made clear: “For the most part, I think that Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organisation which shall be as efficient as possible without offending our notions of a satisfactory way of life.” So “the class war will find me on the side of the educated bourgeoisie.” Was he a fighter for greater equality? This is what he said. “For my own part, I believe that there is social and psychological justification for significant inequalities of incomes and wealth, but not for such large disparities as exist today. There are valuable human activities which require the motive of money-making and the environment of private wealth-ownership for their full fruition.“ This is Pettifor’s revolutionary.
Keynes reckoned that as capitalism expanded, it would, through more technology, create a world of abundance and leisure. Because of that abundance, the return on lending money to invest would fall. So bankers and financiers would no longer be necessary; they could be phased out (‘the euthanasia of the rentier’). Well, that does not seem to be happening. The followers of Keynes now argue that capitalism is being distorted by ‘financialisation’ and finance capital – and that is the real enemy. What happened to the gradual phasing out of finance in late capitalism a la Keynes?
In contrast, Marx’s theory of finance capital did not foresee a gradual removal of finance; on the contrary, Marx described the increased role of credit and finance in the concentration and centralisation of capital in late capitalism. Yes, the functions of management and investment become more separated from the shareholders in the big companies, but this does not alter the essential nature of the capitalist mode of production – and certainly does not imply that coupon clippers or speculators in financial investment will gradually disappear.
Keynes, the supposed radical opponent of neoclassical economics, according to Pettifor, reverted back. In one of his last articles on the capitalist economy as the Great Depression ended and the second world war began, Keynes remarked that “Our criticism of the accepted classical theory of economics has consisted not so much in finding logical flaws in its analysis as in pointing out that its tacit assumptions are seldom or never satisfied, with the result that it cannot solve the economic problems of the actual world. But if our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again from this point onwards.” So once full employment is achieved, we can dispense with planning and ‘socialised investment’ and return to free markets and mainstream neoclassical economics and policy: “the result of filling in the gaps in the classical theory is not to dispose of the ‘Manchester System’ (‘free’ markets – MR), but to indicate the nature of the environment which the free play of economic forces requires if it is to realise the full potentialities of production.”
Indeed, economically, in his later years, he praised the very laisser-faire ‘liberal’ capitalism that his followers condemn now. In 1944, he wrote to Friedrich Hayek, the leading ‘neo-liberal’ of his time and ideological mentor of Thatcherism, in praise of his book, The Road to Serfdom, which argues that economic planning inevitably leads to totalitarianism: “morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in a deeply moved agreement.”! And Keynes wrote in his very last published article, “I find myself moved, not for the first time, to remind contemporary economists that the classical teaching embodied some permanent truths of great significance…. There are in these matters deep undercurrents at work, natural forces, one can call them or even the invisible hand, which are operating towards equilibrium. If it were not so, we could not have got on even so well as we have for many decades past.” Thus the ‘(neo) Classical’ economics of the ‘invisible hand’ and ‘equilibrium’ returned after all – the opposite of what Keynesian followers now stand for. Once the storm (of slump and depression) had passed and ‘the ocean’ was flat again, bourgeois society could breathe a sigh of relief. So Keynes the radical turned into Keynes the conservative.
Yet the myth of Keynes, the radical and revolutionary, is preserved and promoted by the Keynesian left and continues to influence the labour movement (particularly its leaders) as the ‘alternative’ to neo-liberal, ‘austerity’ pro-market economics. Why is this? Well, there are theoretical reasons.
Keynesian macroeconomics assumes that capitalism works to develop the productive forces and meet the needs of people. The problem is that occasionally, there is a ‘technical malfunction’ (Paul Krugman). For some reason (loss of confidence, or animal spirits?), capitalist investment gets stuck in a ‘hoarding of money’ mode that it cannot get out of (liquidity trap). So it is necessary for government authorities to give it a ‘nudge’ with monetary and/or fiscal stimulus, and then all will be right again – until the next time! Keynes liked to consider economists as dentists fixing a technical problem of toothache in the economy (“If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid”). And modern Keynesians have likened their role as plumbers, fixing the leaks in the pipeline of accumulation and growth.
What the Marxist analysis of the capitalist mode of production reveals is that capitalism cannot deliver an end to inequality, poverty, war and a world of abundance for the common weal globally, or indeed avoid the catastrophe of environmental disaster (something ignored by Keynes), over the long run. That’s because capitalism is a mode of production driven by profit not need; exploitation not cooperation; and that generates irreconcilable contradictions that cannot be resolved by ‘technical macro-management’ of the economy. It can only be resolved by replacing it. In this sense, Marx, rather than Keynes, is closer to Darwin as a revolutionary in economics.
But there is another reason. Geoff Mann, in his excellent book, In the long run we are all dead, offered an explanation. Keynes rules on the left because he offers a supposed third way between socialist revolution and barbarism, i.e. the end of civilisation as ‘we’ (actually the bourgeois like Keynes) know it. In the 1920s and 1930s, Keynes feared that the ‘civilised world’ faced Communist revolution or fascist dictatorship. Socialism as an alternative to the capitalism of the Great Depression could well bring down ‘civilisation’, delivering instead ‘barbarism’ – the end of a better world, the collapse of technology and the rule of law, more wars etc.
So Keynes aimed for some modest fixing of ‘liberal capitalism’, to make capitalism work without the need for socialist revolution. There would no need to go where the angels of ‘civilisation’ fear to tread. That was the Keynesian narrative. This appealed (and still appeals) to the leaders of the labour movement and ‘liberals’ wanting change. Revolution is risky and we could all go down with it: “the Left wants democracy without populism, it wants transformational politics without the risks of transformation; it wants revolution without revolutionaries”. (Mann p21). But we shall indeed all be dead if we do not end the capitalist mode of production. And that will require a revolutionary transformation. Tinkering with the supposed malfunctions of ‘liberal’ capitalism will not ‘save’ civilisation – in the long run.
Podcast: Michael Roberts on Understanding Karl Marx and His Thinking on Capitalism
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