Global fight for reforms

Mike Macnair concludes his article on the alternative to nationalistic Keynesianism

This is the second half of the expanded and edited version of my talk on Keynesianism at the CPGB’s January 22 school on political economy. In the first part I looked mainly at Keynes’s arguments in the General theory of employment, interest and money, and argued that they were both incoherent, because of the author’s commitment to the core of marginalist economics, and explicitly nationalist. I concluded, however, that there is a real argument for fighting for reforms, rather than saying nothing except the strategic truth that what we need is a global alternative to capitalism.

There is more than one kind of ‘fighting for reforms’. The first kind is to fight for selected immediate demands of a communist minimum programme, or ‘immediate demands’. These demands are formulated on the basis that the individual demands are consistent with the continued existence of capitalism as an economic order, in which there is wage labour and the accumulation of capital through exploitation, but that the adoption of the whole programme would amount to the overthrow of the political dictatorship of the capitalist class and the beginning of the class rule of the working class. All the more, success in winning individual demands of a communist minimum programme would strengthen the position of the working class as a class under capitalism.

The second kind of reforms is what was called ‘palliatives’[1] in the debates of the socialists before 1914 : improvements in things like state welfare provision, which improve the material position of workers, the unemployed, etc, while containing within them commitments to the continued political rule of the capitalist class, because they are to be provided by state paternalism.

The point of fighting for ‘palliatives’ is that they would provide some immediate relief from pain, and that there is more chance of winning them than of winning demands which are more threatening to capitalist power. More chance for two reasons. First: if the regime imagines that the alternative to ‘palliative’ reforms is a real threat to its power, such reforms may be granted. Second: ‘palliatives’ may be in the interest of some social group in the elite, which allows the working class to make a partial temporary bloc with this group to force through the changes.

The case for the particular form of ‘palliative’ represented by Keynesian proposals has two aspects. The first is that they are in the interest of industrial capitals as opposed to financial capitals. The second is that that they are in the interests of the state as such, as opposed to capital as such. Thus, for example, Bismarck promoted aspects of welfarism in the 1870s to undercut the German liberals; or the British state promoted welfarism partly because of shock at the unhealthiness of working class recruits to the armed forces in 1939-40.

The core of both these arguments for Keynesianism as such is that ‘we know from the “golden age” of the 1950s-70s that Keynesianism can work’. The question is, do we?

‘Golden age’

There was a set of real phenomena to which the ‘golden age’ idea refers, though we have to be careful not to overstate these. There were a series of reforms or concessions to the working class, particularly legalisation of strike action, development of the welfare state and so on. At the same time the period saw no really big serious financial crises with impact on the ‘real economy’ in the ‘advanced capitalist countries’ (US, western Europe and Japan).

That does not mean that there were no recessions, increases in unemployment, etc, in those countries. And it does not mean that there were no financial crashes globally, because in fact the cycle continued unabated in the capitalist ‘third world’ countries through that period, though the ‘crash’ phase tended to take the form of state defaults rather than bank runs.[2]

The question is, how far are these phenomena to be explained by governments using Keynesian policies during this period, and how far are they be explained by other phenomena? A range of different explanations can be or have been offered, in which different relative roles are played by economic cycles and by working class political action and geopolitics.

First: maybe the experience of 1939-45 had made the capitalist class scared of the working class, leading to what were no more than concessions to the working class in some - not all - countries. ‘Left Keynesian’ arguments tend to attribute the ‘golden age’ simply to the internal political pressure of mass workers’ movements. The turn to ‘neoliberalism’ in the late 1970s is then simply a counter-offensive of capital. The problem with this argument is that the existence of large mass workers’ movements did not before the ‘golden age’ produce this form of capitalist concessions.

More plausibly in my view, Tom May told me a couple of years back that the comrade who taught him communism said: “Your wage increases come from Uncle Joe [Stalin]”. There is actually a substantial element of truth in that. There was a perceived geopolitical threat of Soviet tanks in the middle of Germany rolling across western Europe, perhaps with backing from mass communist parties in France and Italy. The post-war international capitalist class, with US capital at its centre, was desperately concerned to keep the working class onside, at least in the ‘front-line’ states (western Europe and Japan). This policy was reflected in active US state financial subventions to the ‘non-communist left’ (meaning the right wing of the social democracy) - which continued till the late 1970s, when the US state redirected its funds towards supporting neoliberal think tanks and so on.

Second: maybe there are long ‘Kondratieff cycles’ which run on an approximate 50-year period - 25 years of upswing and 25 years of downswing. Then (as, for example, Arthur Bough argues), as long as you are in the upswing of a Kondratieff cycle, it works to use Keynesian demand-stimulus methods to smooth recessions. I personally do not buy this theory because I simply do not think the numbers and dating actually support the idea of Kondratieff cycles. The short business cycle is a definite recurrent feature of capitalism. There is perhaps a ‘Juglar cycle’ of around 20 years overlaid on that. The idea that there are cycles of 50 years (even approximately) seems quite problematic on the numbers.[3] The result of this problem is that supporters of the existence of Kondratieff cycles are not in or even near agreement as to the dates of the turning points, and therefore - for example - whether we are now in a Kondratieff upswing or a Kondratieff downswing.[4]

Third: irrespective of ‘long cycle’ arguments, it may be that World War II cleared accumulated contradictions in the global capitalist order. The reason for believing this is that the state and credit money are ‘endogenous’ to markets - not, as is commonly argued by both academic and Marxist economists, ‘exogenous’ or involving ‘external shocks’.

Global money

Comrade Hillel Ticktin made the point in his talk at the CPGB school that, as Marx said,[5] in order for money to be truly money in the capitalist sense of the word, it has to be world money.

Now in fact, although people talked about the gold standard in the 19th century, the reality is (and it was already the case in the 14th century) that there is not enough gold and silver in circulation to support the number of transactions. Even with a high velocity of circulation, the quantity of precious metals in existence is already insufficient to support the transaction needs of emergent proto-capitalism under late feudal conditions: all the more under developed capitalism. Hence, under late feudal conditions what develops is a set of interpersonal debt relations, which are totted up and balanced against each other to avoid the need to hold and transfer specie. You did not lay out two shillings worth of pennies to buy a pair of shoes. You bought a pair of shoes and then you owed the cobbler two shillings; the next time he wanted to buy something from you he owed you; and at the end of some period of time you totted up the balance.[6]

The transition from mutual interpersonal debt relations of this sort to capitalist money involves the state becoming a systematic borrower, which begins in some of the Italian city-states in the late middle ages, then in the Netherlands after the revolution of 1568-1609, and in England after the revolution of 1688 with the formation of the Bank of England. The state mortgages the tax revenues for the future to the people who have lent money to it. On that basis the central bank can issue paper money, and other people, too, can issue transferable debt securities of one sort or another, which can be used as means of payment. Hence interpersonal debt relations are replaced by impersonal debt relations in the form of bank notes, bills of exchange, etc.

The bank notes and so on are forms of what Marx called fictitious capital. We do not use commodity money, but fictitious capital, to make payments. The power of the state or central bank to issue money without it turning into waste paper like German marks in 1924 or Zimbabwean dollars in 2008-09 depends on its ability to borrow and the willingness of the lenders to believe the hypothecation of future taxes.

Hence, the ability of the state to engage in Keynesian demand-stimulus policies and so on is dependent on its credit-worthiness. This is in turn not just dependent on the underlying condition of the material economy (and in fact not even mainly on the underlying condition of the material economy). It is dependent primarily on the strength of the state relative to other states. When major losses are made in crisis in the financial markets of the ‘core’, the result is that credit - which is necessary to the continued functioning of both states and markets - is not ‘rolled over’ in countries further down the global hierarchy. As Ramaa Vasudevan has pointed out, the phenomenon was already visible to Marx.[7] We can see it going on before our eyes in relation to speculative losses made on New York and London financial markets, which have now been transferred to Ireland, Greece, Spain and Portugal.

‘Keynesianism’ was abandoned in most of the world in the late 1970s, but in the United States only in ideology, not in practice. After the deliberately induced ‘Volcker shock’ in the early 1980s, the US has continued to do deficit stimulus in every recession since, despite all the talk about monetarism and so on. What has happened is merely that the form of the deficit stimulus has shifted onto primarily arms expenditure and expansion of military bases on US territory, leading to sharp regional divergences of wealth and employment within the US, depending on the location of military facilities, etc.[8]

Why? The answer is that it has remained possible for the US to pursue demand-stimulus policies to the extent that losses are externalised on other countries, as they were on South America in the ‘Latin American debt crisis’, on Japan in the aftermath of the 1987 crash, and so on, and other countries do not pursue stimulus packages in the same way as the US.

During the 1950s-70s active state management of the business cycle produced a degree of resynchronisation of the business cycle between different countries. The state management was not just - as Keynes recommended - by deficit spending in recessions, but also by ‘cutting off’ booms from developing into bubbles by cutting credit availability, a policy Keynes opposed (General theory p322). This was the policy called in Britain ‘stop-go’; more widely practised without the name. When, in the 1970s, all the major capitalist states simultaneously pursued demand-stimulus, the result was an acceleration of wage offensives from the side of the working class, and of offshore operations from the side of the capitalists; the outcome was ‘stagflation’.

The US uses the levers it has through the IMF and World Bank, but also through the interpenetration of high US government with Wall Street (enabling coercive use of speculation against non-compliant governments), and US covert support to neoliberal parties, etc, to prevent a recurrence of the simultaneous pursuit of demand-stimulus by all capitalist governments. US politicians can publicly urge demand-stimulus, while the US state and its close financial sector allies privately act against it: this conflict between public statement and practical policy is the small change of political behaviour taught in the US political science schools. The net effect is to externalise losses made in US financial markets onto other countries.

This depends, of course, on the continued ability of the US to print dollars and run deficits without losing its ‘safe haven’ status. Why can it do so? The answer is that, though inward investment to the US is less profitable than direct investment in the ‘developing countries’, it is safer; and underlying this is the proposition that it is safer for US corporations to invest in ‘developing countries’ than for their foreign counterparts to do so (witness, for example, the fate of French and German investments in Ba’athist Iraq). The global top-dog status of the US originated in its higher productive capacity in 1939-45, yielding global military dominance. This in turn yields global reserve-currency status and ‘seignorage’ not just on currency transactions, but on global investment flows. This can continue long after dominance in productive industry is gone.

None of this is new to the US. The UK retained a closely analogous position (sterling reserve-currency status and seignorage in financial transactions and global investment flows) on the basis of its military superiority created in 1791-1815, long after the superior productive capability which permitted this military superiority had evaporated. British top-dog status even survived 1914-18 and meant that the 1930s depression was a lot less severe in Britain than in the US. It was only when Britain’s global military-strategic position collapsed in 1940 that the way was open for the US and the dollar to take over.

One effect of this inflow of surplus value to the top-dog state is that capitals in that state which are stuck with obsolete forms of fixed capital and would otherwise be bankrupted can persist through forms of direct and indirect state support. Examples are the British textile industry and aspects of the British rail and shipping industries in the later British empire; and the US car industry and aspects of the US oil industry.

The cyclical return of crisis in capitalism is a necessary process of readjustment of the overall quantity of capital demanding returns above the rate of interest, of the relationship of money to labour values, and of the proportionalities between different capitals. The effect of the preservation of the inflow of surplus value to the top-dog state has the result of postponing the necessary shake-out in values and, in consequence, leading to the continued accumulation of contradictions. Eventually, resolution of the accumulated contradictions requires destruction of the military power of the top-dog state and an associated devalorisation of the capitals associated with it. For the Netherlands the loss of naval supremacy happened in 1689-1713, but the loss of assets was deferred till the 1790s; for Britain 1940 was decisive.

Change in conditions

How all this relates to the ‘golden age’ is that it was made possible by the destruction of British power, and enormous destruction and devalorisation of capital, in World War II.[9] This overthrow made possible a strong expansion led by the US. The particular form of the expansion - ie, ‘Keynesianism’/welfarism was the product of the other outcome of World War II: ie, the survival and expansion of the Soviet regime and the demands of ‘containment’. But these policies would not have been possible without the prior destruction of British global power and the associated capital losses.

How does this relate to the underlying claims of Keynesianism? There are two aspects. First, go back to Keynes’s point that the wages are “sticky downwards” in money terms, but not in real terms. He says the same thing is true for different reasons of interest rates (ie, interest rates are “sticky downwards” in money terms and not real terms) (chapters 13 and 16). Hence, by running a certain amount of inflation you can get at the end of the day what he calls “the euthanasia of the rentier” (p376). That is, that it would be possible to minimise the marginal efficiency of capital by making capital super-abundant (pp220-21).

In reality of course, once the post-war arrangements began to come unstuck, which happened in the middle 1960s, the working class started to fight against inflation by what was called ‘wage drift’. At the same time, the rentier class also fought against inflation. Their method was a combination of offshore transactions (initially the ‘euro-dollar’ market), with law changes so as to allow rent to be raised annually on long leases, and ‘floating interest rates’ on loans, which means that the interest rate can be lowered or increased as it is convenient to the lender.

The effect is to contract out of the conditions which made Keynesianism apparently work. If Keynesianism worked, it worked provided there were fixed contractual interest rates and rents, and provided wages were not “sticky downwards” in real terms. The reality is that wages are “sticky downwards” because they cannot fall below the cost of subsistence, and the cost of subsistence includes rents, current prices and so forth. Equally, proletarianisation is an unattractive prospect for at least sections of the middle classes and threatening to the dictatorship of the bourgeoisie, so that rent and interest are also “sticky downwards” outside of an actual crash, devalorising capital assets. The “euthanasia of the rentier” was a utopian idea.

Another way of making the same point is the argument of Reinhart and Sbrancia.[10] That is, that Keynesianism worked in the 1950s and 1960s because there was “financial repression”. That is to say that there were systematic controls on the free movement of capital and systematic controls on the free movement of labour. Keynesianism worked in the sense that there were reforms and concessions in western Europe, in the front-line states and in the United States. It did not work in that sense in Latin America, Africa and much of Asia.

Hence the underlying political logic of Keynesian mercantilism was imperialism and the inequality of nations, and a world in which people imagined that the contradictions between states were more fundamental that the contradictions between classes. Of course, decolonisation (in most cases backed by the US), the apparent success of the USSR in industrialising outside capitalism and Maoism all contributed to this world. But without the system of concessions to the working class in the front-line capitalist states, financial repression and controls on the movement of capital and labour, these arguments would have remained implausible.

The conditions of the ‘golden age’ are gone, and they will not come back without the destruction of the global military power of the USA. This is true in the underlying dynamics - that the process of the US externalising losses puts pressures on other states making concessions to the working class, and in particular makes Keynesian demand management extraordinarily difficult, and that capital in spite of the immediate crisis does not feel under threat in the ways in which has in the periods when major concessions to the working class have, in fact, been granted.

It is also true in the more immediate sense that the global capitalist class, with a good deal of US (and British) state backing, found ways around the tools of ‘financial repression’ which enabled ‘Keynesian’ policies to work; but the turn to financial ‘globalisation’ is in fact in the state-mercantilist interest of the US (and all the more of its British satellite); so that no return to capital movement controls is likely (except as a temporary measure in response to a meltdown of the financial system) without the overthrow of US state power.

The consequence of what I have just argued is that there is no significant likelihood of either states or any politically significant section of capital backing a return to ‘Keynesianism’ in the sense of the political-economic conditions of the 1950s-60s. What is likely is something in some ways darker. States will turn to protectionism and the attempt to construct a degree of economic ‘autarky’. But this will require rearmament and the construction of bilateral relations with raw material suppliers - a policy on which China at least has already embarked.

Reform demands

Does this mean therefore that everything is bound to get worse and there is nothing we can say except ‘Make revolution now’? No. There can be reforms won within capitalism. It is just unlikely that there will be reforms won within capitalism through winning capitalist governments over to a Keynesian policy. What sort of reforms should we fight for? I can do no more than give examples.

First. The fundamental problem posed to the working class by capitalist crises and recessions is unemployment. The idea of Keynesianism is precisely that the state should invest with a view to promoting ‘full employment’. But the existence of unemployment is in reality posed because the high productivity of labour means that current production is capable of supporting the population with less than ‘full employment’. The point is stronger today than it ever has been: in the ‘global south’ unemployment is at heartbreaking levels; in the ‘global north’ many people are employed in make-work jobs.

The problem is that the capitalist incentive structure requires that ‘full employment’ be in ‘full-time’ jobs. In the 1730s early trade unionists were prosecuted for conspiring to refuse to work more than 16 hours a day, to the “great loss and damage” of their employers. The capitalists’ attitude to this has not changed. The Con-Dems are trying to change the tax credit system to force working tax credit recipients to work more hours.[11] The TUC leadership falls in behind to condemn “under-employment”.[12]

Suppose we demand a 30-hour week, or indeed a 20-hour week. This in no way involves a nationalist-mercantilist policy. It is a demand which can be applied across the board globally, and not a demand which involves forcing the state to spend more money. The 10-hour day was won in Britain under conditions far more difficult for the working class as a class than today’s. The demand for the eight-hour day formed the focus of the Second International’s global May Day campaign.

The same is true of defending the ‘health and safety’ regulations which the capitalist press hate so much. Despite the occasional stupidities perpetrated in the name of ‘health and safety’ (and usually blown out of all proportion by the press) every trade unionist knows they are worth defending. It does not require a deficit budget, and fighting for decent safety at work is plainly a global issue on which global common demands are possible.

Second. There can be demands made for the redirection of the existing budget. This is a point which Marx made in relation to education in the later years of the First International. The Proudhonists and Bakuninists argued that the working class should not demand public education. Marx said in the Critique of the Gotha programme that we do not want to demand education controlled by the kaiser. In the arguments in the First International, however, he argued positively for demanding public education, and castigated the opponents of this demand.[13] The difference is not about demands which require public expenditure, but about the central-state control of education (Thatcher’s ‘national curriculum’) which the Gotha programme seemed to demand ... of the Prussian absolutist state.

Third, we certainly defend welfare benefits, which are much older than Keynesianism. That does not mean uncritical support. Take, for example, the current controversy over the housing benefits cap. Unlimited housing benefit is in substance merely a state subsidy to private landlords and the provision of white-collar employment in the local councils. The left should be raising as an immediate demand the restoration of rent control. Our strategic demand is public ownership of the rentier interest in land; but rent control is a partial and limited movement in that direction. The tactics in face of the Con-Dems cutting benefits without cutting rents will sooner or later have to include collective rent strikes and mass (as opposed to small anarchist) squatting movements.

While we certainly defend people’s welfare benefits as far as we can, the reality is that our actual ability to force the state to spend money - short of overthrowing it and seizing power - is nearly as limited as our ability to stop the state going to war (also, short of seizing state power). The last 10 years have shown pretty clearly how limited this latter ability is (if 1914 did not already show it).

The consequence is that a central present question has to be the cooperative association of the working class itself: building cooperatives; building trade unions and their welfare and solidarity functions; building workers’ mutuals; and so on.

I said in the first article that Marx had disproved the Proudhonist idea of co-ops linked by the market. That does not alter the present value of cooperation as a form of workers’ self-defence. Moreover, cooperation does not have to be limited to single firms competing in the market: the creation of federated cooperative production can reduce market-dependence. Nor does activity of this sort have to be limited to the national scale. At least European-wide cooperation of trade unions and other workers’ organisations is immediately posed by the present European crisis.

To pursue this policy requires, alongside it, building workers’ independent political parties - independent not only of the capitalist parties, but also - unlike Labour - of the capitalist states and the capitalist media. The point of doing so is not the ‘little cog driving the big wheel’ beloved of much of the ‘Leninist’ left. It is that capitalists can and do intervene through parliament, the judiciary and the media against workers’ organisations or to bring them under control. A workers’ party, taking its stand on the general interests of the working class and the need for the working class to take over, can, by satire, exposures and so on, delegitimate the capitalist political order (for example, pointing out the extent of electoral fraud, the corrupt character of the advertising-funded media and of the ‘free market in legal services’). By doing so it can defend the workers’ organisations of immediate cooperation against capitalist attacks and interventions.

In summary, we can fight for reforms, and also - and most fundamentally, because the capitalist class and its state are set on rolling back the reforms of the past - we have to fight for working class self-help and cooperative organisation. But we do not have to fight for Keynesian policies in order to fight for reforms. On the contrary, fighting for ‘stimulus packages’ inevitably involves us saying we want the jobs to stay here and to be lost in Germany (as in the Bombardier affair). It is so because Keynesianism is a doctrine of mercantilist state action at the expense of other countries. It only appeared otherwise when it was a system of cold war management made possible by the outcome of World War II.




1. Googling the words ‘socialist’ and ‘palliatives’ will produce a variety of sources.

2. State defaults partly documented in CM Reinhart and KS Rogoff This time is different: eight centuries of financial folly Princeton 2009. A Marxist discussion of the period which avoids overstating the ‘long boom’ is offered by MJ Webber and DL Rigby The golden age illusion New York 1996.

3. Solomos Solomou Phases of economic growth 1850-1973 (Cambridge 1988) argues in considerable depth and elaboration that the ‘Kondratiev cycle’ in the 19th century is merely a statistical artefact, concluding that “the coincidence of the post-war boom falling within the Kondratieff time band is an exceptional event” and “significant growth variations have been shorter than the Kondratieff periodicity” (p169).

4. Eg, Arthur Bough sees the downswing as running from 1975 to 2000, so that we are now about 12 years into the upswing: ‘Kondratiev’s long waves’ (2008) http://boffyblog.blogspot.com/2008/06/kondratievs-long-waves.html. In contrast, A Korotayev and S Tsirel (cautiously) support Kondratiev cycles. They argue for the last Kondratiev downswing running 1968-84, with the upswing 1984-2008 and the 2008 crash marking the beginning of the downswing (‘A spectral analysis of world GDP dynamics’: www.escholarship.org/uc/item/9jv108xp#page-1).

5. Capital Vol 1, London 1976, pp240-41.

6. C Muldrew The economy of obligation London 1998.

7. ‘From the gold standard to the floating dollar standard: an appraisal in the light of Marx’s theory of money’ (2009) 41 Review of Radical Political Economics pp473-91.

8. For discussion of a relatively recent aspect of this see JK Galbraith and J Travis Hale, ‘American inequality: from IT bust to big government boom’ The Economists’ Voice October 2006.

9. An argument also made on a slightly different basis by Andrew Kliman in The failure of capitalist production (New York 2011).

10. ‘The liquidation of government debt,’ NBER working paper 16893, March 2011.

11. The Guardian February 11.

12. The Guardian February 14.

13. ‘Speech to the IWMA general council on general education’ (1869): www.marxists.org/archive/marx/iwma/documents/1869/education-speech.htm; ‘Political indifferentism’ (1873): www.marxists.org/archive/marx/works/1873/01/indifferentism.htm.