Economics by Dummies Part II

So to Keynesianism and beyond

This is necessarily a thumbnail sketch, and I won’t be offended in the slightest if someone was to do the theory some real justice. I am not an economist, although I believe economics is central to our cultures.

John Maynard Keynes, 1883-1946 The link offers a bit about the man and his co-developers. Keynes and others developed a set of principles against a backdrop of, largely, Liberal and Socialist alternatives.

It is perhaps, because they were wary that harsh Liberalism might drive the masses to Socialism, capital reluctantly allowed Keynesianism a foothold. The First World War ushered in enormous social changes in Britain and her dominions, so the threat to capital was very real.

Keynes launched his career off the theory of the income-expenditure multiplier, which is still seen as a handy measuring tool, especially in growing regions justifying faster development.

But the key factor seems to be the inability of the then dominant systems to raise the ordinary toiler out of drudgery, life as a drone with no real hope of improvement.

It seems to me, central to Keynes’ approach is that personal and cultural incentive is vital to economic wellbeing. Liberalism, wherein capital controls the economy, fails to engage the toilers to the full benefit of society, nor does State controlled socialism. It could be argued, in fact, that both systems are socialist, particularly as Liberalism subsidises capital in practice.

So if we are going to marshal and use all our resources properly, (no pun intended) the system needs to be adjusted radically, opened up to allow real individual enterprise, not simply pay it lip services as Liberalism does.

Quote (from above link):

Among the revolutionary concepts initiated by Keynes was the concept of a demand-determined equilibrium wherein unemployment is possible, the ineffectiveness of price flexibility to cure unemployment, a unique theory of money based on "liquidity preference", the introduction of radical uncertainty and expectations, the marginal efficiency of investment schedule breaking Say's Law (and thus reversing the savings-investment causation), the possibility of using government fiscal and monetary policy to help eliminate recessions and control economic booms. Indeed, with this book, he almost single-handedly constructed the fundamental relationships and ideas behind what became known as "macroeconomics".

Keynes also condemned the liberal holy grail; laissez-faire economic policy. That is essentially a no holds barred, free for all. Which sounds good, until you realise that capital still owns the bulldozer. The enterprising toiler might be allowed to look at it, rent or hire it, but they would never be allowed to own it. Capital is still well in control.

He also advocated the use of public works to reduce unemployment and condemned the Treasury's fear of "budget deficits". Bear in mind the liberal tenet that government should not compete with business (capital). The fact is, both must compete for the same borrowings, so in a capital dominated system government musty be essentially free of debt.

That means that publicly funded schemes to provide work, as well as infrastructure, is anathema to liberalism. One of the worse tragedies of this policy is the current dearth of skilled trades, because, historically, governments have provided the bulk of apprenticeship training.

Then comes the WWII and a North American (born in Canada, operated in the US) John Kenneth Galbraith. Keynesianism has been an evolution, and Galbraith added a few more important aspects, put to practical application in the Marshall Plan.

There is plenty of documentation on the Marshall Plan, so I won’t go deeply into the subject. From my understanding the guiding principle was that post war reconstruction in Europe could be best achieved by full engaging the individual countries and their peoples. Give them the means, the guidance then let them get on with the job.

The result still stands in stark contrast to the concurrent Soviet Europe reconstruction and today’s Iraq reconstruction. The lessons are there to be seen and free, but capital obviously has other ideas for Iraq.

I’m not sure where this particular theory fits into pendulum swings. It has no particular power base, being a more diverse and equitable concept. I do know that economics students around the world fought loudly to have Keynesianism and other systems included in curricula, but I expect the dominant monetarism won that battle.

In fact I put it to a business economy lecturer, during Canada’s 2004 Federal election, that Keynesianism was far more efficacious than neo-liberalism. He readily agreed, then said: “But who is going to listen to you?”