Commentary on Political Economy

Wednesday 13 July 2011


The classical liberal State-of-Law that prevailed in the nineteenth century was brought down by the parallel capitalist processes of corporate “concentration” (external to the firm and leading to “oligopolies”) and of “rationalisation” (internal transformation of the labour process and of the managerial structure of the firm) producing goods for consumption in a “mass market”. These developments in capitalist industry led to the corresponding transformation of the whole of “society” into a “society of capital”, that is to say into a “social factory” where the old “liberal” “State of Law” (Rechtstaat) became a “Social State” (Sozialstaat) or “State-Plan” able to mediate effectively the relationship of the capitalist class with a “massified”, Taylorised, politically homogeneous and compact working class (politically represented by social-democratic or ‘labour’ parties).

The old liberal State-of-Law could still be theorised by Classical Political Economy and Liberal Political Theory as being a neutral, autonomous, “independent guardian” State watching over a “self-regulating market mechanism” responding to the “Law of Value” and tending to “equilibrium” with national monetary systems regulated under the Gold Sterling Exchange Standard. But it was the profound and irretrievable collapse of this liberal “State-Form” in the Great Depression under the weight of the capitalist developments we just described that led Keynes and Roosevelt to respond with the “New Deal Settlement” and the subsequent establishment of the new Gold Dollar Exchange Standard at Bretton Woods after World War Two. (On all these themes the supreme account is still K. Polanyi’s “The Great Transformation”.)

This Keynesian-Rooseveltian “State-Plan” was supposed to remedy the “crisis” created by the inability of “social capital” to deal with and contain the antagonism of the new political composition of the “mass worker” by providing a “bureaucratic” and “parliamentary” system of mediation of this antagonism through the upkeep of “aggregate demand” and social and welfare “planning”. – Hence, “State-Plan”. (The New Deal literature is vast. Search Prof. CS Maier’s work for a superb review.)

Keynes’s analysis was always aimed at State economic policies (fiscal and monetary) that would return the economy to full-employment “equilibrium”. Hyman Minsky had already drawn a clear distinction between different “capitalisms” or stages of capitalism, in order to stress the inherent “financial instability” of this latest “type” of capitalism (please refer to the links provided). Yet Minsky, in my view, failed to theorise the “dynamic” elements of this analysis and to go beyond a superficial “Keynesian” emphasis on “financial instability” and “disequilibrium” without seeking to enucleate the much more important antagonistic forces behind the process of capitalist “rationalisation” (technological and managerial innovation) designed as a specific “capitalistic USE of ‘crises’”. Neither Keynes nor Minsky considered a point at which the State-Plan could no longer mediate and remedy capitalist “crises” but would itself occasion a rising wave of fiscal crises, “systemic risks”, of “black-swan events” that have trans-formed it into a mere tool for “crisis management” – a “Crisis-State”: - which is precisely the condition of “fracture of the State-Plan” that I have described in this ‘wolfexchange’. (Please refer to my “Phantom” and “Inter-est” contributions.)[1],[2]

In sharp contrast to Keynes and Minsky, and in an inverted way (from the point of view of capital!), Schumpeter chose instead to focus precisely on this capitalistic USE of “crises” to re-launch capitalist industry toward an expansion of its command over living labour through “economic growth” and “technological development” by emphasising the “evolutionary” aspects of capitalist “crises” and “business cycles” as intrinsic features of capitalism.[3]

What Keynesians seem to fail completely to com-prehend is the blindingly-obvious, utterly irreparable “crisis of the Keynesian State-Plan”, of this “New Deal Settlement” which has been brought about not so much by Minskian “financial instability” (which is an effect rather than the cause) but by the growing antagonism of the wage relation that the “State-Plan” left unresolved and could never resolve. Indeed, there can be little doubt that Keynes himself was entirely pessimistic about the ability of the State-Plan to resolve class conflict and to avoid the tendency to stagnation of the capitalist economy “in the long run” (remember his aphorism, “in the long run we’re all dead”).

If you like, the problem with “Keynesian” approaches to the current “crisis” is that they approach it as just another “crisis”, another episode in the same chain of identical capitalist “crises”. Therefore, they fail to grasp what is “new” in “this crisis”, what sets it apart from the others, and what needs to be done to confront this “novelty”. Keynesians have forgotten (to put an ironic and reproachful twist on the recent book on “debt crises” by Rogoff and Reinhardt)….that “This Time IS Different”! This is the failure that I will attempt to remedy in the near future. Kindest Regards.

[1] (Minsky’s FIH)
[2] http://www.lesecho...s-cygnes-noirs.htm (on the rise of “systemic risks”, “black swans”)

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