Interview with John Bellamy Forster

Amandla spoke to Monthly Review editor john Bellamy Forster on John Maynard Keynes, his criticism of capitalism and the relevance of his views for dealing with the current global crisis.

Amandla: As governments across the world spend trillions to help private capital survive the global financial, is it not misleading to talk of a shift to Keynesian policies?
JBF: Keynes advocated expansive fiscal policy and deficit financing in a depression. All governments are now seeking to put such policies in place to some degree. But the real action is in the salvaging of financial capital. Private financial losses are socialised on a scale never before conceived. None of this has much to do with Keynesianism.
Keynesians of a sort today, like Paul Krugman and Joseph Stiglitz, would argue for a bigger fiscal stimulus, and would probably be less immediately responsive to financial capital. Such individuals are not in charge today in Washington. Keynesianism, even of the mild sort, is still on the outside.
This has to do with the shift in the nature of capitalism. The economic catastrophe is in many ways a crisis of financialisation (i.e. the shift in the centre of gravity of the economy since the 1980s from production to finance) overlaid on deeper problems of stagnation. Keynesianism, classically, was concerned much more with the production of goods and services (as measured by GDP). The centre of attention now is still on the financial implosion. Fiscal stimulus offershope of halting or slowing the collapse, but far greater sums are poured into what still seems to be an intractably insolvent banking system. Such policies are not Keynesian.
Amandla: You have spoken of the bastardization of Keynes ideas. What do you mean and who was the real Keynes?
JBF: During the Great Depression of the 1930’s Keynes became a critic of economic orthodoxy and of capitalism.However, he suggested that there were technical ways out that could save the system from its worst faults. He is thus an ambiguous figure. Keynes fought hard to free himself from the orthodox neoclassical economics. This required something of a revolutionary break which he never completed, leading to various interpretations of his theory.
The main group of Keynesians created the neoclassical Keynesian synthesis. Joan Robinson famously called this Keynesianis, since it jettisoned all of Keynes’ major criticisms of the system.
However, Keynesís critique of capitalism never ceased to be relevant. Paul Sweezy was right in saying that Keynes represented the last major scientific representative of bourgeois economics. Far from an apologist for
the system, he wrote in the Yale Review in 1933: The decadent international but individualistic capitalism, in the hands of which we found ourselves after the [first world] war, is not a success.It is not intelligent, it is not beautiful,it is not just, it is not virtuous ñ andit doesnít deliver the goods. In short, we dislike it, and we are beginning to despise it.í He did not follow his views totheir logical conclusion in the rejection of the system. Mainstream, bastardised Keynesianism retreated from his view.

Amandla: What was the essence of Keynes’ ideas and why are his ideas suddenly seen as relevant again?
JBF: Their essence was the demolition of Say’s Law (John Baptiste Say) of markets that argues that supply creates its own demand. Therefore there can never be an actual glut of production. Full employment is the natural tendency of the system.
Marx rejected Say’s Law from the beginning. But neoclassical economics was built on it and on the notion of a kind of barter economy model with money laid over the top like a veneer. Once monetary exchange instead was viewed as central to capitalism it became apparent that overproduction or insufficient effective demand could emerge. For Keynes the response was to increase government spending to compensate for a lack of consumption and investment demand to the point of reaching full employment.
Amandla: What was the substance of Keynes critique of capitalism and how does it differs from Karl Marx’s critique? What are the short-comings of Keynes’ critique?
JBF: The most important concept in Marxist economics is the rate of exploitation. For Keynes this is entirely missing. He pinpointed two outstanding faults of capitalism: an enormously unequal division of income and persistent, built-in unemployment, tending toward unemployment equilibrium where investments are depressed over the long run. As Joan Robinson wrote, Keynes showed that there is a natural tendency for an advanced capitalist economy to run into chronic stagnation, with permanent unemployment. Yet Keynes never provided an actual theory of stagnation. It was left to Marxist theorists to develop this further. Keynes also stressed that there were two price structures under capitalism, one related to GDP and one to speculation in asset prices. The correlation between the two was dependent upon unpredictable socio-psychological pressures. The socialist economist Hyman Minsky drew out the importance of Keynes’ critique in his famous theory of financial instability, explaining financial bubbles/crises.
Harry Magdoff and Paul Sweezy also drew on Keynes, and on his critique of speculation. But they understood that financial explosion was not merely a phase immediately prior to the peak of the business cycle but a process extending over multiple business cycles, thus analysing financialisation as a response to stagnation.
As Robinson said, Keynes represented the disillusioned defence of capitalism. He proposed various technical fixes, probably knowing that this would never be sufficient. He could never get himself to wage a full-fledged critique. But he went so far as to point to the need of a somewhat comprehensive socialisation of investment, the euthanasia of the entire lessening of income inequality, and limited controls on international capital flows. All of this meant that he remained a dangerous figure.

Amandla: Is it likely that as the crisis deepens there could be a shift to Keynesian policies especially if there is a new wave of struggle and resistance in the face of the bailouts.
JBF: There has been something of a switch toward Keynesian-style policies, out of sheer necessity. But there is resistance to this, and to Keynes’ ideas. Civilian government spending, like New Deal in the US, did not lift the economy out of the depression in the 1930’s. Rather the Great Depression ended when it merged into the Second World War. There is no historical case of an effective Keynesian response to conditions of depression.
A new revolt from below (similar to the rise of industrial unionism in the 1930’s) in the United States and other countries could produce programmes like the New Deal. Obama’s stimulus is far too small to have much of an effect, and 40% is taken up by tax cuts. In the US there has for 70 years been a ceiling on civilian government spending. Any attempts to increase that share in national output face strong resistance, as we are already now seeing.
In his introduction to the 2007 edition of Keynes’ General Theory, Krugman said that Keynes was wrong in thinking that the economic contradictions of the 1930’s would persist and that problems of stagnation would continue. Krugman and Stiglitz and some others level of criticism of the system is very much muted compared to Keynes.

Amandla: Can there be an exit from this crisis through a shift to green capitalism, i.e. massive investment in renewable energy, green technologies is a kind of green Keynesianism?
JBF: Theoretically, any increase in government spending can soften the downturn and even contribute to the eventual restoration of economic growth. As Keynes said, if the government simply put people to work by having them dig holes in the ground, it would help.
But dollars spent on investments in future technology are certainly less efficient in putting people to work immediately than work relief programmes. The bulk of green spending in the Obama plan is, I gather, directed at research and long-run technology and investment projects.
The closing of coal plants and their massive replacement by other forms of energy, or the establishment of a national carbon tax with 100% dividends to the public, as proposed by NASA’s James Hansen, are not done. Vested interests won’t allow it. Obama heavily committed himself during the presidential campaign to the continued support of big coal.
We are faced with a deep economic stagnation and the crisis of financialisation, which Keynesianism can do little to address. With regard to the environment, what is currently needed is an ecological revolution. This would necessarily be a social revolution, on a far more massive scale than anything yet imagined.