Keynes and the crisis

by Radhika Desai & Alan Freeman

A Case of Mistaken Identity

A spectre has returned to haunt the left—the spectre of Keynes. The Left kept it at bay in the 1950s and 1960s by pretending that “reformist” and “ineffectual” “Keynesianism” was Keynes. But it was so far removed from Keynes’ profound critique of the doctrine and reality of capitalism that one eminent economist called it “bastard Keynesianism.” After neoliberalism dispatched Keynesianism in the 1970s, the left was relieved of the need to confront Keynes. But as neoliberalism self-destructs in capitalism’s greatest crisis since the Great Depression, neoliberals and “third way” economists conjure up Keynesianism anew in their attempts to salvage it. Yet their new doctrine also misconstrues Keynes, seeing crises—which he held to be systemic—as minor aberrations, exonerating rentiers and speculators he would have indicted, and promoting a “bankers’ recovery” he would have opposed. It is a fatal mistake for the Left, in opposing this “contingent” Keynesianism, to fall once again into the Right’s trap by equating it with Keynes. We therefore take issue with Gonick and Wolff’s recent contributions in Canadian Dimension to try and promote a long-overdue reckoning with the true, hidden, Keynes.

Keynes’ own thinking was too radical to be of much use to capitalism. The “Keynesianism” of postwar policy and textbooks was already de-clawed and de-fanged by self-professed Keynesians. They reconstructed Keynes’ disequilibrium analysis as an equilibrium model. In it crises became temporary disequilibria—to be resolved by fiscal and monetary fiddling with aggregate demand. This reconstruction, popularized in Paul Samuelson’s phenomenally successful textbooks, was so influential that even the left came to regard it as “the” definitive presentation of Keynes’ ideas. Gonick’s article would be better entitled “The Return of Professor Samuelson.” This Samuelsonian discourse obscures deep affinities between Keynes and Marx. Neither took a narrowly “economic” view; both were moral, political and historical thinkers. Their respective critiques of economics were also similar in key resects. Most importantly, both trenchantly criticised the doctrine economists know as “Say’s Law.” This Panglossian outlook debilitates economics even today, incorporating in its purest form the neoliberal, equilibrium assumption that markets are inherently perfect. For Keynes and Marx, who were temporalists, economic processes took place in real time. Outcomes were uncertain and expectations could fail to be realized, resulting in disequilibria and crises. They were endogenous to capitalism, contrary to classical and neo-classical economics in which they could only result from external shocks.

Finally, while most theories of money focused on the market, seeing money merely a means of circulation, for both Marx and Keynes money reflected the reality of capitalism. It could be hoarded and accumulated and therefore also acted as a store of value and a means of settling debts. These roles lay at the root of crises, disequilibria, and unemployment. Criticism comes from within.

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