Can Capitalism Spend its way out of the Crisis?

The ideas of John Maynard Keynes and his followers reflect the main discussion within the left; whether capitalism can be reformed and operate in the interests of the whole of society, or whether it must be completely removed and replaced by an alternative system. Keynes himself made it clear his theories were aimed at preserving society against the danger a prolonged slump could pose to 'democratic values and institutions'. In effect his ideas were a retreat by capitalist economics, one which rejected the fantasies that have been revived with a vengeance in the neo-liberal period, that markets are 'in the long run' perfectible, that over time demand will always match supply and so on.

Just as the profound crisis of capitalism today makes nonsense of ideas such as 'we have ended boom and bust', or the blind fantasies of an infinitely expanding bubble economy, such ideas could not remain in Keynes' time against the backdrop of the great depression. After the 1929 crash the federal reserve allowed the full destructive might of the crisis to run amok, something that has not been repeated today in the US, although such impact was felt in Eastern Europe and in slow motion across the Eurozone.

Keynes drew into national and international economics a consideration of the issue of insufficient demand – when the people capitalism aims to sell products to cannot afford those products, this will be a problem for the capitalist system. He also pointed to the issue of so-called 'liquidity trap', where capitalists refuse to invest their profits and hoard them instead, and wait for a better moment to invest.

Both of these issues, lack of consumption demand from the working-class and refusal by capitalists to invest their profits, can be seen in the global economy today. Consumption, a major part of the UK and us economies for instance, has sunk back with a rolling in of credit, a squeeze on wages and job losses, and the results of austerity. It was the shock of the sub-prime crisis that sparked the credit crunch – and sub-prime was a way to boost the spending power of the lowest earners in the US. Underlying this was not an unprecedented spike in greed within society, even if greed and consumerism was encouraged above all else, but the stagnation and decline of the earning power of the working-class over the past thirty years due to the onslaught of neo-liberalism and the retreat of organised labour.

On the other hand recent studies have shown $20trillion is held in tax havens globally by the super-rich, while £750billion of idle wealth lies in the vaults of big business in UK alone. Keynes identified this as a crisis of confidence by 'investors' but largely satisfied himself with describing it as a 'propensity to save' rather than a result of a deeper crisis of the system.

Keynes therefore saw the economy as having short-circuited, like a massive case of the hiccups, and it needed to be 'set right' again, as you would a faulty but not broken machine. He suggested measures the state could take to stimulate the normal business cycle to operate again. Using funds through taxation or an expanded money supply to make public works, create jobs, maintain money backed demand, furnish infrastructure for private sector business activity and so on. In this way he aimed to overcome the hoarding of profits not being invested, increased employment and incomes of the working-class. A lot of arguments in the anti-cuts movement and trade unions point to this issue with austerity: that it weakens demand, in turn weakening the private sector that relies on demand.

The first issue with these ideas is that it relies on a capitalist class and state that is relatively far-sighted enough to recognise and act on these problems. Keynes seems to view money as something which is desired to facilitate production, whereas the view of capitalists, and of the capitalist state is that money is a goal in itself. The opposition from a finance sector four times larger than it was in 1980, which is capable of holding nations to ransom and which has largely fused its interests with those of the state can be seen in the modern day Keynesian reluctance to describe what taxation levels would be necessary to fund public works programmes suggested for the US today. The opposition of the capitalist system to the state playing such a role is greater now than previously, due to the expansion of finance in the wake of the triumphalism following the collapse of the soviet union. However even in Keynes' lifetime when some of his measures were adopted to suit the post-war world, it took a world war, the discrediting of the bourgeoisie of Europe, and the massive strengthening and extension of the soviet union, to convince capitalist governments to take certain Keynesian steps.

But it is false to claim that these measures led to the postwar upswing. Again, a certain economic nostalgia is held for this period by sections of the left, arguing that a return to this period could solve the problems of capitalism today. New technologies were bought into mass production during the war, capital was destroyed, fascism and postwar measures against the working-class reintroduced labour discipline. State measures taken as an extension of wartime control of the economy were aimed at removing bottlenecks in the economy. Cheap goods from the newly liberated colonial empire could drive production costs down. Political pressure from the strengthened and expanded soviet union meant a more far-sighted approach was taken, and along with the strengthened position of the working-class and trade unions a cycle of capital investment took place. Trade unions ensured a relatively higher and increasing wage for the working-class, ensuring demand, in return for productivity rises, the mass introduction of new technology created new markets, labour was available from abroad and the countryside, the military accounted for a large proportion of employment in the US especially and so on. The gains of this period were relatively limited to a section of a smaller capitalist world, and was run under the predominant role of US imperialism.

But even though state measures along Keynesian lines helped restore confidence, it was the historic conditions of that period that permitted an upswing in capital investment which allowed for the continuation of limited redistribution of wealth. It was the political and social fact of the soviet union, the break up of the old empires and the building of a new US one, the results of the mass destruction of the second world war and the new technologies it brought about, and it was the weakness of the European bourgeoisie that allowed for a cycle of capitalist expansion.

Of course these conditions could be repeated again but the world now is very different. Is there the threat of a world war? Is a developing superpower waiting in the wings like the US? Is there a social and political counterweight to capitalism? Etc. I have already spoken of the vastly increased social weight of big business, and the reluctance internationally to adopt anything but neo-liberal approaches and austerity. Even the shape of stimulus packages and the recovery, shows the predominance of big business, as in the US they took the form of tax cuts for the rich and measures such as mortgage relief failed to materialise.

In china the largest stimulus package ever of $586billion was thrown into capital projects. But the international position of china, whose growth has been based on the cheap labour especially of the 150million 'migrant' workers, has meant a failure to develop a domestic market by raising wages and domestic disposable income. Its export led economy is very sensitive to a global slowdown, already manufacturing has contracted for the 8^th consecutive quarter in June and key industries such as cars, shipbuilding,and steel all show overproduction. This shows another limit to Keynesianism or to capitalism spending its way out of crisis; the globalised economy precludes a national route out of the crisis – to coin a phrase 'you can't have Keynesianism in one country'. The extra investment in china and the fear of extra investment in Europe, UK, us etc., leads to a large debt burden because of the current lack of demand. That cannot be remedied due to the predominance of big business in the state.

In effect, the debt of a national economy (ignoring the results of bailing out the banks and the private debt accumulated in place of wage rises), the debt due to public spending, is the cost to capitalism of employing those bits of society which capitalism cannot employ profitably. It is the cost of capitalism's inability to successfully utilise the full potential of the economy; social pressure can force them to meet that cost, but currently capitalism is shaking it off despite the long term impact it will have on economic recovery.

Another area not considered by keynesians is why a liquidity trap will take place, or why capitalists will refuse to invest at certain points. Keynes describes the preferences of investors at various times in the business cycle, preference to hold cash or to invest, but he did not explain what lay behind that choice. What he and other keynesians are missing is the question of profitability; if a capitalist is not confident they can invest and receive enough of a profit they will refuse to invest. During a recession there is a destruction of wealth and an inability to sell to a working-class facing unemployment, pay cuts etc. if a capitalist feels they cannot get a good enough profit they will refuse to invest. Also, over the past 30 years there has been a decline in capital investment in many major capitalist countries, and a transfer of wealth into financial markets. This turn reflected the problems for capitalism at that time, faced with a militant working-class, a fall in productivity and a sudden slowdown in the conditions for the growth of the postwar period, the capitalists groped towards an outlet for their profits. A series of regulations aimed at controlling the banking and finance sectors were progressively lobbied against and removed, allowing for the toxic development of the finance sector that started to unravel in 2007. in short; this was not a bad policy choice, it was a result of the inner contradictions of capitalism.

Without new markets with sufficient demand behind them a new cycle of investment will not emerge. The alternative for capitalism is to dramatically reduce the burden of labour costs as well as the taxation burden in an effort to increase profits. In addition, privatisation is aimed at opening so-called 'protected markets' to private investment, providing an outlet for capital. So despite the strangulation of the economy that all this means, from the point of view of capitalism it makes sense, and what force is greater today than the point of view of capitalism?

The conclusion of Marxists is that capitalism cannot be reformed into a fair and sustainable system. It is prevented from doing so by its own nature, and the fact that the source of its profits is the unpaid labour of the working-class. Only phenomenal pressure can forces temporary and partial capitulation to the role of the state. Keynes argued that the choice was not between a controlled and a free economy, but between alternative forms of controlled economies, reflected the period of heightened class struggle. However we cannot underestimate the staying power of capitalism, and definitely cannot rule out an increased role of the state in bolstering a sick system, attempting to smooth out its worst aspects (at the cost of later problems) and acting against the workers movement. Already state intervention has prevented a full-blown depression, however it has not been overcome by bank bailouts, regulation, stimulus packages and quantitative easing.

Keynesian ideas and state intervention are not 'nothing', but they cannot overcome the inner contradictions of capitalism, making an increase of class struggle inevitable. Our task is to explain all of this to the working-class and build an organisation capable of seizing revolutionary opportunities when they arise.