Commentary on Political Economy

Wednesday 26 October 2011

Keynes and the Rise of the Society of Capital

Keynes’s fundamental motive for undertaking the entire theoretical project of the General Theory is made quite explicit in chapter 24 of the work. The immediate and pressing need is to avoid the implosion and collapse of the liberal parliamentary democracies that seem now on an unavoidable course of conflict against the totalitarian dictatorships that have sprouted across Europe as a direct result of the human hecatomb, destruction and economic upheaval during and in the aftermath of the Great War. Keynes’s chief target is to maintain as near full employment as is possible for a liberal democracy with a State that safeguards the private property rights of its citizens, for he is convinced that it is the hopelessness and fear inspired by mass unemployment that foments the racial hatred and imperialist aggression that these regimes – whether fascist or communist – exploit to secure their supremacy. The aim is noble and admirable. But we must point out its fundamental flaws in the interpretation of the basic historical categories of the capitalist economy and therefore also the analysis of its operation.

The General Theory is remarkable at least in one respect as the first monumental attempt to conceptualise the capitalist economy as a Monetary Economy in which the overall co-ordination of the system of production based on the wage relation affects every aspect of social life and indeed the very reproduction of society. In other words, Keynes takes conscience of the fact that we have passed from a capitalist stage in which industrial capital is only a part of social reproduction to one in which capital has finally assumed the role of “social capital” through the real subsumption of all or most relevant and vital aspects of social reproduction. The passage from the “competitive capitalism” of the First Industrial Revolution from 1640 to the early 19th century to the phase of what Schumpeter calls “trustified capitalism” or “social capital” (prophesied by Marx, but note Schumpeter’s gracious acknowledgement of his astounding foresight) with the Second Industrial Revolution starting in the 1870’s after the Great Crisis – this “trans-formation” of capitalist industry and society as a direct of a Great “Crisis” is what inspired Schumpeter to write his own Theorie, and has been accepted almost universally by historians as a clear “periodisation” of the development of global capitalism.

Keynes takes conscience of this “trans-formation” of capitalist society, but unlike Schumpeter (who called Keynes “the father of stagnation”) he does not see the “innovative” side of capitalism, its revolutionary and trans-formational meta-morphoses: Keynes sees only this growing “discrepancy” or dislocation between the immediate productive decisions and “choices” of “free individuals”, on the one hand, and the growing and vital dependence of economic activity – or “output and employment”, as he calls them – on the “monetary” considerations of a vast and fast-growing intense network of financial intermediation between bankers and financiers and brokers and investors, and then finally “savers”, whose vital functioning depends almost entirely not just on the “expectations” of future income streams or “yields” from present investments, but also on the absolute need to ensure that these “expectations” do not turn “negative” and then, given the financial pyramid of “projections” on “expected yields or profits”, do not trigger a financial “implosion”, a panic that Irving Fisher had already described (1930) as a “debt-deflation” to describe the Great Crash of 1929.

Thus, Keynes notices a great dis-connection, a dis-location and dis-crepancy – a disintermediation – possible between the present and the future caused by the imponent overwhelming growth of finance capital (what Schumpeter called “the control room of capitalism”, and a subject that had already attracted works by Hilferding and Lenin [“Imperialism”]). Of course, money and finance themselves are a “bridge between the present and the future” (ch.21 of GT), but this does not prevent them also from being the reason for their own existence! Put differently, although money and finance are instruments that allow the capitalist to seek to plan the future by “abstracting”, by “divorcing” himself from the present act of physical production, at the same time money and finance catastrophically “separate” the activity of human beings from their “investment decisions”.  Social capital, as it were, “connects” every aspect of social life to the expanded reproduction of capital – but at the same time it subjects the “sociability” of human existence to the terrific threat of possible collapse by making social reproduction dependent on the antagonism of the wage relation, by substituting the “investment decision” based on “future profitability” for the “productive decision” based on the organic projection of democratically-agreed future needs of a non-antagonistic society!

To sum up, what Keynes is first to realize in the General Theory is that the very survival of capitalism depends on bridging the gap or chasm or hiatus introduced by money and finance between present production and future profitability! This is the awesome task of the General Theory: - first, to show theoretically the “need” for the decisive seizure of the future by the bourgeoisie through the State-Plan, and second to lay out a strategy of political transformation of capitalist institutions that reflect the “political” transformation occasioned by the transition from private or competitive or “mercantile” capitalism – to the much more imponent and ominous surge of social capital into finance capital and into “the society of capital”. The role of the State-Plan will be decisive in all this. Of course, Keynes the Treasury official, Bursar of King’s College, Cambridge, cannot say this in so plain a fashion. He needs to disguise his language; camouflage his ideological tools; sell his strategy. Thus, he casts his discourse, he mimetises his concepts with the old leopard-skin of Neoclassical Theory: nowhere more so than where “the wage” is concerned. Next, we will see how he does this.

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