Keynesianism


Also found in: Dictionary, Thesaurus, Financial.

Keynesianism

 

a bourgeois theory of state-monopoly regulation of capitalist economy. Keynesianism is used by bourgeois economists as a theoretical basis for the economic policy of capitalist states and as a means of ideological struggle against the revolutionary theories of Marxism-Leninism. Keynesianism took shape under the influence of the intensification of the contradictions of capital reproduction in the era of the general crisis of capitalism and the emergence of state-monopoly capitalism. The basic principles of Keynesianism were formulated by the English economist J. M. Keynes.

The essence of Keynesianism is the necessity of state control over the capitalist economy to ensure uninterrupted capital reproduction in the interest of the monopolies. In examining economic phenomena from a macroeconomic point of view, Keynesianism characteristically conceals the social essence of economic phenomena, ignores the historically transient nature of the objective economic laws of capitalism, and exaggerates the role of subjective factors—the psychology of people in the economic life of the society.

Under the influence of the crisis of the 1930’s, which generated mass unemployment, Keynes formulated principles of state-monopolistic control of the capitalist economy as a kind of “employment theory,” on the basis of which he worked out an anticrisis economic policy for the bourgeois state.

The main goal of Keynesian theory was to save the capitalist system of production from bankruptcy. This is evident in the principle of “effective demand,” which is the central point of Keynesianism. Effective demand was determined at a level capable of ensuring maximum profit for the capitalists. Rejecting Say’s law of markets, according to which the supplying of goods automatically generates the demand, and recognizing the possibility of the lack of coincidence between the total supply and total demand of goods, Keynes emphasized the necessity to increase the aggregate volume of total demand. However, Keynes avoided such means of the expansion of total demand as a price reduction and wage increase; that is, he proposed the preservation of the system of monopoly price domination as a condition for maximization of capitalist profits. The volume of effective demand depends, according to Keynes, on two groups of factors. One group is connected with the consumer goods market, the other with the market of means of production. Keynes maintains that the volume of consumer demand is determined by psychological factors, such as the “propensity to consume” and Keynes’ “psychological law.” The propensity to consume includes numerous elements that determine the share of national income going to personal consumption irrespective of the volume of national income itself. The influence of the volume of national income is expressed in the basic psychological law: according to Keynes, the psychology of society is such that personal consumption increases with the growth of national income but at a slower rate. As a result, the part of national income that is withdrawn from circulation and is saved increases, and the demand for consumer goods falls by this amount. In this way Keynes is forced to acknowledge that a distinctive feature of capitalism is the tendency to limit the market of consumer goods; however, trying to represent this tendency as an expression of certain psychological traits of human behavior, Keynes totally ignores the objective economic laws of capitalism that lead to the constriction of the consumer market. Thus an increase in wages is regarded as a cause of the relative reduction of the consumer market, whereas in fact the increase in wages is the major factor of the expansion of the market. According to Keynes, the market capacity for the means of production is determined by the correlation between the “marginal efficiency of capital” and the interest rate. The marginal efficiency of capital is the ratio of the prospective yield per unit of an invested “capital-asset” (actually, of fixed capital) to the replacement cost of this unit; that is, it is the predictable specific profitability of the fixed capital increase. The interest rate is interpreted by Keynesianism as a reward for refusal to keep wealth in monetary form. Interest, according to Keynes, is in reverse proportion to the amount of money in circulation. Thus, the essence of interest as a special form of surplus value connected with the functioning of loan capital is misrepresented, and the quantitative laws are misrepresented that determine shifts in interest rates. In reality the amount of the interest is determined by the ratio of demand and supply of the loan capital and does not depend directly on the quantity of money in circulation.

According to Keynes, the accumulation of capital tends to lead to a decrease in its marginal efficiency with the interest rate tending to remain stable. The difference between the marginal efficiency of capital and the interest rate, that is, the actual return to management, has a downward tendency. The decrease of the profitability of investments leads to a decrease in demand for means of production.

Keynes attached great importance to the role of investments in the economy. According to Keynes the size of the national income and consequently of the total demand is quantitatively dependent to a specific degree on the general volume of investments. Keynes expresses this quantitative connection in his theory of the income multiplier. In fact, although the growth of investments is important for an increase in national income, the influence is indirect through increases in the volume of the functioning means of production and in the labor force. In addition, investments are not a source of national income.

Keynes developed an economic policy program designed to expand effective demand and thus spur the capitalist economy. The basic tenets of the policy are the increase of state expenditure by every means possible, encouragement of inflation, the lowering and limitation of the wages of the workers, regulation of the level of unemployment, militarization of the economy, and development of public works.

The execution of the policy of increases of state expenditure is hindered because it is impossible to make a substantial increase in the effective demand this way, since the main source of funds of the capitalist states is taxes levied on the population. Effective demand can be increased only by the amount of state funds that mobilize unused (idle) funds. However, the share of this source of budget funds is rather small. In addition, loans lead to higher state debt and higher service charges on the debt. The increase in state expenditures in the absence of a solution to the problem of getting the money for the commodities in the first place ensures high profits for monopolies, especially those involved with the militarization of the economy.

Regarding the stability of the interest rate as an obstacle to activization of economic life, Keynes saw the solution in a system of state-monopolistic measures directed toward either an absolute or a relative increase of the amount of money in “business circulation” and a lowering of the interest rate. The absolute lowering would be accomplished through a so-called regulated inflation; the relative, through cutting the nominal wages of workers.

The policy of lowering and limiting the wages of workers, especially if compensated by an increase in expenditure by other sections of the population, leads in Keynes’ opinion to the growth of the marginal efficiency of capital and simultaneously contributes to the lowering of the interest rate and to the growth of profit by stimulating business activity. Keynes showed a special preference to the inflationary reduction of wages implemented through the “wage freeze” (the legislative fixing of nominal wages during a period of inflationary price increase), which is widely used in capitalist countries. In reality, however, the reduction of wages of workers is the most important factor contributing to the constriction of the market and the increase of profits received by the capitalists.

One of the cornerstones of Keynesianism is the regulation of employment. It has two aims: to reduce unemployment when it reaches a level dangerous to the existence of capitalism (Keynes identifies the means to reduce unemployment with measures to increase business activity) and to work out recommendations to use the “normal” level of unemployment (from 3 to 6 percent), which is called full employment, as a means to maximize capitalist profits. The growth of unemployment is often programmed by present-day capitalist governments when they are trying to reduce the wages of workers and subdue their resistance.

The militarization of the capitalist economy is widely propagated by the conservative Keynesians. History shows that the militarization of the economy promotes the unrestrained enrichment of the monopolies but in the end undermines stable economic growth, leading to the unproductive expenditure of national-economic resources. Public works, cyclical budget balancing, cyclical taxation policy, and similar measures at the present stage are advocated primarily by the left Keynesians (J. Robinson and K. Kurihara of Great Britain and L. Klein of the USA), who see such policies as the way of overcoming the inadequacy of effective demand, which they view as the cause of all the shortcomings of contemporary capitalism.

Keynesianism greatly influenced the practice of state-monopolistic control of capitalist production; however, it has been unable to solve the contradictions of capitalism. The basic concepts of Keynesianism underlie numerous apologetic theories of “transformed capitalism.” The ideas of Keynes were further developed by the neo-Keynesians.

REFERENCES

Lenin, V. I. Poln. sobr. soch., 5th ed., vol. 41, pp. 219–26; vol. 33, pp. 294–95.
Al’ter, L. B. Burzhuaznaia politicheskaia economiia SShA. Moscow, 1971. Chapters 13–15.
Osadchaia, I. M. Sovremennoe keinsianstvo. Moscow, 1971.
Bregel’, E. Ia. Kritika burzhuaznykh uchenii ob economicheskoi sisteme sovremennogo kapitalizma. Moscow, 1972.
Weintraub, S. A. Keynesian Theory of Employment Growth and Income Distribution. Philadelphia-New York, 1966.
Schumpeter, J. History of Economic Analysis. London, 1967.

V. S. AFANAS'EV

References in periodicals archive ?
Keynesianism 'had been at its highest between the G-20 summits in November 2008 and March 2009, when Gordon Brown, along with Strauss-Kahn, Obama and others were singing the praises of international co-ordinated fiscal policy to stave off global depression': Clift, 2012.
But what is significant is that the crisis and collapse of Keynesianism was rooted largely in the rebellion of sectors of the global working class that had been excluded from the institutional arrangements of tripartism, but that had been able to take advantage of the social wage.
There is surprisingly little disagreement among the lively conversationalists on the main propositions concerning the development of Keynesianism in America.
In the development of Mankiw's brand of new Keynesianism it is evident that dissatisfaction with older style Keynesian models emphasizing nominal wage rigidity played a crucial role.
Otherwise, it was social democrats themselves who were the first to abandon Keynesianism for monetarism, beginning with the Callaghan government in Britain.
Thus, vulgar Keynesianism, which purports to be an economic model or at least a coherent framework of economic analysis, actually excludes the very possibility of genuine economic action, substituting for it a simple, mechanical conception--the intellectual equivalent of a baby toy.
For instance, the McLeod Royal Commission in 1965 relied on presuppositions variously associated with Keynesianism in which the goal of tax policy was presumed to be to provide for those public goods desired by the community and which a steadily expanding state could be reasonably expected to provide.
While this new fiscal conservatism has done spectacularly well in this country over the past decade, it has run into the same problem that Keynesianism did: Its proponents have ceased to regard it as the proper corrective measure for a given set of conditions and started to regard it as an end-all, be-all remedy.
Yes, Keynesianism is back - and this blast from Labour's past might just come to the Government's rescue.
In fact, until the mid-to-late 1970s, Keynesianism was its economic orthodoxy.
Felix does not dwell on the theoretical failure of the Keynesian model, nor does he need to: Keynesianism won the day in making policy.
Additional chapters address topics of increasing importance but largely ignored in standard considerations of finance, such as limited ability, finance methodology, cooperative banking, Islamic banking, financial Keynesianism, flow of funds, bad banks, liquidity, credit cycles, the Icelandic crisis, capital controls, tax havens, the Asian monetary union, and financial fragility.