“The ghost of John Maynard Keynes, the father of macroeconomics, has returned to haunt us,” Martin Wolf, Financial Times economic commentator.

The appeal for a return to Keynesianism has met with a negative response from the capitalist class.  The main reason is that Keynesianism is associated with a specific period of capitalist development and does not fit the needs of capitalism as it is today.   In the post WWII period there were unique conditions – the massive destruction of capital during the war that laid the basis for long term growth; the unrivalled dominance of US capital; the high demand for US goods and services around the world; and the organisation of economies on a national basis in terms of both capital and labour – that favoured Keynesian-type policies.  There were also political imperatives for these policies such as the existence of an alternative to capitalism in the form of the Soviet Union (albeit in a distorted form) and the existence of strong trade unions and left parties that sought reforms within capitalism.  The capitalist class was prepared to pursue Keynesianism so long as it was effective in maintaining both profitability and political stability. 

The Keynesian consensus was starting to come under attack by the late sixties when changes in the structure of world capitalism served to undermine its foundations.   The most important factor was the shifting of production from a national to a global level and the opening up of new sites for investment and sources of labour.  This offered the capitalist class the opportunity to increase profitability and to weaken the working class in the centres of capitalism in North America and Western Europe.   The transfer of production overseas and the re-introduction of mass unemployment at home gave the capitalists a powerful weapon with which to beat back the workers movement.   Over the past twenty years this process of globalisation has advanced even further with the integration of the former Soviet bloc and China into the world capitalist economy.  Within this context there is no longer a basis for Keynesian policies that largely rest upon the actions of national states.  There also no political pressure on the capitalist class to concede anything as organised labour is still on the retreat and there is no existing alternative to capitalism.

Keynesianism has not just been rendered obsolete by historical changes.  It was flawed right from its inception as an economic theory.  While Keynes did represent a break from the orthodoxy of his day, refuting such notions as a market driven economy always finding an “equilibrium” or that “supply creates its own demand” (Say’s Law), he remained firmly within a capitalist framework.  He did recognise that capitalism was prone to crises – that there was overproduction and unemployment – but he did not root these within the nature of production under capitalism.  Keynes instead gave a largely psychological explanation of capitalist crisis based on the proposition that a person’s rate of consumption tends to rise at a slower rate than their income (what he called “propensity to consume”).  In this theory under-consumption is the driver of recession and state spending, to increase demand and thereby close the gap between production and consumption, is the means to overcome it. 

Another feature of Keynes’ theory is the absence of any idea of class conflict or class interests.  For Keynes “the problem of want and poverty and the economic struggle between classes and nations, is nothing but a frightful muddle, a transitory and unnecessary muddle”.   He believed that any economic problems could be resolved within a capitalist system that was “wisely managed”.    In this schema the ideal path of development for capitalism is one of high employment, high wages and high growth.  However, there is no reason to assume that the expansion of capitalism is bound up with rising wages and employment.  There is no theoretical or material reason why capitalism can’t expand within an environment of falling wages and high unemployment.  Indeed, from an historical perspective, capitalism has more often than not risen on the back of misery than prosperity. 

Keynesian ideas fitted (and still do fit) with the approach of trade unions and social democratic parties who saw their role as negotiating reforms within capitalism.   But they have also infected parties of the left, with new formations (such as the NPA in France and the ULA here in Ireland) that have emerged in Europe over the recent period adopting essentially Keynesian policies as their basic programme.   The problem is that Keynesianism is a flawed programme for the revival of capitalism, which even in it most left wing form is an alternative rather than an aid to socialism and class struggle.