This chapter focuses on the policy and practice of the remarkable post-WWII boom and its unravelling in the 1970s. According to many accounts, the period of managed capitalism and sustained growth and stability gives meaning to the term ‘Keynesianism’. Experience never matches theory exactly, but reconsidering whether or to what extent the long boom followed Keynes’s prescriptions can usefully inform an understanding of what happened in history and also how policy and practice might be changed today. The first section, concentrating on the experiences within leading rich-country economies, argues that much of economic history and policy is hard to square with Keynes’s ideas. The second section considers the international system in this period, identifying elements of which Keynes clearly would have approved, particularly in the implementation of controls on cross-border capital movements. But there were also strongly anti-Keynesian elements, particularly in the way the post-WWII Bretton Woods system disciplined trade-deficit but not trade-surplus countries. The third section considers the crisis of the 1970s and the abandonment of the Bretton Woods system. Policies that at least appeared to draw on Keynes were implemented without conspicuous success. Lacking the historical counterfactuals, it is hard to judge whether alternative policies – whether anti-Keynesian or more determinedly Keynesian – might have worked better. The crisis, however, was widely perceived as a crisis of Keynesianism, and the section considers its implications for Keynesian policy prescriptions and the meaning of Keynesianism.
Like the chapter on unemployment, this chapter and the next argue that there are problems and lacunae in Marx’s understanding of money and finance which a critical engagement with Keynes can help to address. Marxists agree with Keynes in insisting that money is not ‘neutral’. There is a specific financial moment which can impact on investment. Therefore, in as far as a Marxist analysis of money remains incomplete, so too does any analysis of the broader political economy. The chapter accordingly identifies three related areas where such a constructive dialogue can potentially enrich monetary analysis. The first involves thinking about money’s social relations and its material properties. Money has specific material properties, which both reflect and reflect on capitalist social relations, potentially taking them in new directions. The shift between different monetary systems – bimetal, gold, gold exchange, pure fiat money, electronic money – are neither simply policy choices nor the requirements of some abstract capitalist teleology, and they can have substantive economic repercussions. The second section argues that the non-neutrality of money means that money needs to be reintegrated analytically and that Keynes’s critique of the mainstream view that money does not matter, that money is neutral, usefully highlights the ineliminable importance of money, the specific financial and state monetary moments, and how these impact on the real economy. The third section continues that an engagement with Keynes’s concept of liquidity preference, extended and understood as a social and institutional phenomenon, can enrich Marxist monetary analysis.
This chapter builds on the basic arguments of the two previous chapters. Money is an inherently imperfect and shifting measure of value; it is endogenous to capitalism but this is not equivalent to seeing it as ‘non-state’, because the state itself needs to be conceived as within, not without, the capitalist system as a whole. Institutional forms change how money works, and the actions of these institutions, particularly of states, matter in the sense of making a real difference not only to monetary forms but to accumulation. The first section comments generally on debates around exogeneity, endogeneity, and the role of the state and other institutions in managing money. The second section illustrates this, drawing on important historical examples of the essential role of states and other financial institutions in monetary affairs and hence in capital accumulation. It is impossible to tell the history of money within the scope of a single short chapter, but six important examples emphasise the conceptual points. This section develops the earlier discussions about money and interest, particularly about the non-neutrality of money and the need to take this seriously in terms of its impacts on capital accumulation and to move from relatively abstract accounts to concrete depictions of institutional relations.
This chapter turns to questions of profit, interest and interest rates. The first section focuses on why the classics and Marx see profits in the wider economy as providing the basis for any adequate theory of interest. The financial sector can ultimately only appropriate a share of value created elsewhere. It is, however, necessary to go beyond this simple fact, and a critical engagement with Keynes can add valuable nuance. The second section therefore revisits Keynes’s critique of orthodoxy and his alternative depiction of interest rate determination through the interaction of liquidity preference and the money supply. It will be argued that starting within, and directing his critique towards, the will-o’-the-wisp that is conventional theory provides an insufficient basis for an effective alternative. Keynes can demonstrate the fallacies of his opponents’ priorities but cannot secure his own. The classics’ view can provide an anchor while at the same time, Keynes’s insights should provoke a constructive reform of the classics, as analysis moves from an abstract generality to concrete investigations of profit and interest and their relation. The third section argues that Keynes’s insights into liquidity preference and state power can be better reinterpreted as second-order effects, grounded in a classical/Marxist view of profits as the basis of interest but acknowledging questions of institutional power within finance, in the state and inter-state relations, from which both Marx and Keynes abstract. So reinterpreted, Keynes’s insight allows progress beyond the classics’ generalisations particularly in terms of understanding interest rate variability.
This chapter argues that a more adequate understanding of unemployment can be developed by building on Marx and Keynes. Both Marx and Keynes already theorise unemployment, but a better theory can be developed through a critical, Marxist appropriation of Keynesian insights. The first section identifies Marxist arguments around so-called ‘primitive accumulation’ and how the establishment of a ‘reserve army’ of labour is functional for capitalism. Suggesting that such functional arguments are useful but insufficient, the chapter accordingly continues by identify important arguments in Marx and Keynes by which agents’ motivations can be understood to reproduce unemployment. The second section identifies Marx’s depiction of imperatives to accumulate, which create alternative processes of labour recruitment and displacement, and the third section identifies how Keynes’s model of unemployment equilibrium points to situations in which entrepreneurs rationally fail to increase employment. Keynes’s model provides a potentially important ‘snap-shot’ of what need to be reconceived as dynamic and changing processes. The fourth section accordingly develops claims made by both Marx and Keynes that capital’s adjustments are uneven and hence conducive to reproducing unemployment. There are multidimensional, sectoral, temporal and spatial processes of uneven development which mean there are at most only a series of moving equilibria. The fifth section turns to states and economic policy, reiterating that states can and do act, pursuing more or less effective employment policies, and that unemployment remains a contested political achievement.
Citizenship is shown to be central to the reconstruction of the foundational economy on morally defensible grounds. This is because the foundational economy is, at heart, a system of social citizenship. Reversing the degradation of this system has to begin by linking the reform of the foundational to our present understanding of what is socially required to function as a fulfilled human person. It must also challenge the elision of citizenship with the entitlements of the current inhabitants within the jurisdictional boundaries of the nation state. Rebuilding the foundational economy has to do more, however, than concentrate on human persons. It has to recognise that the business institutions central to the foundational economy are juridical persons, and as such should operate under a developed system of both entitlements and duties.
The well-being of Europe’s citizens depends less on individual consumption and more on their social consumption of essential goods and services – from water and retail banking to schools and care homes – in what we call the foundational economy. Individual consumption depends on market income, while foundational consumption depends on social infrastructure and delivery systems of networks and branches, which are neither created nor renewed automatically, even as incomes increase. This historically created foundational economy has been wrecked in the last generation by privatisation, outsourcing, franchising and the widespread penetration of opportunistic and predatory business models. The distinctive, primary role of public policy should therefore be to secure the supply of basic services for all citizens (not a quantum of economic growth and jobs). Reconstructing the foundational has to start with a vision of citizenship that identifies foundational entitlements as the conditions for dignified human development, and likewise has to depend on treating the business enterprises central to the foundational economy as juridical persons with claims to entitlements but also with responsibilities and duties. If the aim is citizen well-being and flourishing for the many not the few, then European politics at regional, national and EU level needs to be refocused on foundational consumption and securing universal minimum access and quality. If/when government is unresponsive, the impetus for change has to come from engaging citizens locally and regionally in actions which break with the top down politics of ‘vote for us and we will do this for you’.
An overview of the book’s argument is provided, followed by summaries of the argument of the succeeding chapters. The post-1945 national practice of economic policy has been about making ‘the economy’ work to deliver jobs and growth of market income. In consequence, policymakers have neglected the social infrastructure underpinning everyday activities and practices which are vital to civilised existence and human well-being. This book is about two key advances: the creation of a networked infrastructure of pipes and cables, and the development of the modern welfare state. Together, they have effectively extended the entitlements of citizenship and added more than 25 years to urban life expectancy.
The foundational economy is a matter of everyday routines which depend on a social infrastructure of providential services like health, social care and education and the material networks of pipes and cables that connect every household. This cannot be understood on the assumption that there is a clear divide between a productive private sector and a resource-consuming public sector. The economy is not a system of wealth creation led by the private sector but a system of revenue circulation which is failing to deliver foundational welfare. This is because of underinvestment in systems and over-reliance on distribution of market incomes through employment. There are relatively few good jobs in the high-tech and knowledge intensive sectors; and too many badly paid, precarious jobs in mundane activities.