The 21st Century World Crisis - A Keynes Moment

8/13/2019 The 21st Century World Crisis - A Keynes Moment

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26 INTERNATIONAL JOURNAL OF POLITICAL ECONOMY

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International Journal of Political Economy, vol. 42, no. 1, Spring 2013, pp. 26–39.© 2013 M.E. Sharpe, Inc. All rights reserved. Permissions: www.copyright.com

ISSN 0891–1916 (print)/1558–0970 (online)DOI: 10.2753/IJP0891-1916420103

ALAIN PARGUEZ AND SLIM THABET

The Twenty-First Century World

Crisis: A Keynes Moment?A True Systemic Crisis Fitting Keynes’s Prophecy

Abstract: Orthodox economists, whatever their vintage, are puzzled: How could

the current deep recession triggered by the 2008 financial crisis be worsening

despite the efforts being made to return to stability? For a brief moment after

the crisis, Keynes became fashionable, but his ideas have again been forgotten.Technocrats and politicians do not find an answer in Keynes for the cause of the

crisis, or as to the policies that they should implement. Again there is widespread

fear that being too Keynesian could generate a collapse of the system. In this

paper, we intend first to explain why the ongoing crisis is not a recession but a

structural crisis of the capitalist system. The system’s decline started well before

2008 and clearly reflects the core message of the General Theory , namely, that the

capitalist system has a fatal tendency to decay. A fresh reading of Keynes provides

the answer as to what finally transformed the tendency into an accelerating

process that is destroying the pillars of capitalism. It also indicates what shouldbe done immediately to prevent chaos and the restoration of a backward social

and economic system. The authors address the remaining question of why so few

Keynesians of the first generation and many new post Keynesians do not recognize

Keynes’s prophecy.

Keywords: Keynes, long-run tendency, Marx, money, multiplier, systemic crisis

Alain Parguez is Professor Emeritus of economics at the University of Franche-Comté,Besançon, France. Slim Thabet is a lecturer and researcher at the University of PicardieJules Verne, Amiens, France. They are grateful to Riccardo Bellofiore, Ali Bouhaili, Euge-nia Correa, Tom Ferguson, Alicia Giron, Joseph Halevi, Wesley Marshall, Warren Mosler,Daniel Pichoud, Louis-Philippe Rochon, and Alexandre Wolff for fruitful discussions. Theusual disclaimers apply.



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Like Marx, Keynes was deeply convinced of the extreme fragility of capitalism as

a social organization that determines the way in which production is generated and

real wealth is accumulated. Both were explicit: The system has a long-run tendencyto decline because of its inherent contradictions.

The difference was that, for Marx, capitalism will vanish due to the relent-

less race toward both greater capital accumulation and profit seeking generated

by what may be called the real-wealth value cycle. For Keynes, capitalism will

eventually die because of its metamorphosis into a pure rentier economy rooted

in a value cycle, whose principal goal is to accumulate fictitious wealth—that is,

to accumulate financial capital from money creation without having to hire labor

and engage in production. Finally, after its metamorphosis, capitalism will become

a purely parasitic or predatory system. This theoretical tendency becomes realitywhen capitalists start to accumulate wealth because labor’s income or value has

declined, entailing an increase in the rate of exploitation generated by the rise in

effective unemployment.

Because of competition and an increasing fear of the future, real investment

collapses. To sustain profits, capitalists implement a solution to the contradiction

of a declining rate of accumulation and falling profits. Marx and Keynes had the

following in mind: Because the fall in consumption has a negative impact on in-

vestment, and thus on real profits, why not seek refuge from production and try to

accumulate wealth purely through money creation—that is, by investing in purelyfinancial assets? This is the moment when the dynamics of the economy is ruled

by speculation, with nonfinancial and financial corporations engaged in the same

game and thus overlooking the threat of constantly rising uncertainty about the

future. The impact of this behavior on society is disastrous: Unemployment rises

beyond any sustainable limit, income drops, and poverty spreads despite apparent

wealth. Sooner or later, so great is the discrepancy between fictitious wealth and

real wealth that, because all anchors have been removed, a small shock, like the

subprime crisis, generates a total reversal of expectations. In the process, fictitious

wealth starts to vanish, capitalists react by no longer using borrowing to financereal investment expenditures, and banks’ net worth can become negative. This is

the pre-recession collapse phase. How can the recession itself be halted?

This model of the Keynesian crisis fits the current crisis remarkably well. The

flight from productive expenditures started long before 2008, perhaps as early as the

1970s: 2008 was only when the system that had replaced productive capitalism—

namely, the rentier system—collapsed. A careful reading of the General Theory

(hereafter, GT ) reveals that Keynes always had this model in mind, especially in

chapter 17, which is consistent with the last chapter, in which Keynes offers conclu-

sions drawn from the entire book. Indeed, the model in chapter 17, the last chapter,is part of the prophecy that has been misunderstood because of a literal interpreta-

tion. Keynes’s analysis has traditionally been perceived as a variation on portfolio

theory, with no connection to circuitist theory or modern money theory. However,

we believe that his analysis must be read from another perspective: Keynes’s belief




in capitalism’s tendency to decay. The leading factor contributing to this tendency—

and explaining Keynes’s ultimate conclusions—is the continually rising concern

about the future. Herein lies the dilemma faced by great minds obliged to expresstheir prophecy of a distant future doomed to collapse without being able to create

their vision’s conceptual framework because of the constraints generated by the

dominant conceptual analysis. We believe, however, that this dilemma provides the

opportunity to follow the semiotic philosophy of Jacques Derrida (see Derrida and

Rorty 1996) and, to the extent the text clearly reflects the prophecy, read it with the

modern conceptual context in mind.1

Let us start with capitalists, who have privileged access to credit money because

of their accumulated assets, which are the collateral of bank loans. We also have

banks, pure financial capitalists whose goal is a rise in their net worth. As capital-ists accumulate real wealth thanks to the bank credit advances, they become more

and more afraid of future losses. Keynes invented the concept of liquidity prefer-

ence to provide a measure of the anxiety over the unknown future. Over time, this

anxiety rises both for potential borrowers and banks. It could be deemed Keynes’s

equivalent of Marx’s law of the falling rate of profit.

In a first phase, the tendency toward a rising preference for liquidity induces an

equal rise in the rate of return on real assets (see GT , ch. 16).2 This could in turn

lead to a rise in the value of assets (because of an increase in the rate of exploita-

tion), which is then reflected in the rise in the targeted share of profits, the latterbeing determined by the expected ratio between the long-run flow of profits and

labor income.

In Keynes’s vision, nonbanking and banking corporations share this objective,

required rate of interest, which rises over time. From this, it follows that, in a purely

private sector–led capitalism, the rate of interest becomes endogenous. Its growth

over time accelerates the flight from new investment because, in addition to increas-

ing anxiety,3 no investment can procure even an equal rate of profit. The sustained

decline in investment, and thus in aggregate demand through the multiplier process,

triggers more anxiety and a continued rise in liquidity preference. It is in this contextthat the solution to this race against time appears: the financialization of all corpora-

tions, including banks themselves. Indeed, capitalists formerly engaged in productive

activities now borrow money from banks to buy purely financial assets that are issued

by speculators and have no connection to the real economy. Gain on those assets

is generated by the hope of selling them quickly to other speculators, who will pay

with additional new loans. Banks are key players because the loans that they extend

enable them to accumulate assets that generate potentially unchecked growth of net

worth. Finally, chapter 17 well describes the metamorphosis of capitalism into a purely

parasitic rentier system that generates unlimited wealth for capitalists (previouslyengaged in productive activity) and unbearable poverty for the workers or former

workers, that is, the population at large.

This new system is by its nature self-destructive, and Keynes’s model of the

rentier economy explains the 2008 crisis well. In fact, left to its own devices, a



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rentier or speculation-led society is doomed because the ratio of fictitious wealth

to real wealth can rise indefinitely. However, as soon as doubts about the future

appear, managers’ anxiety becomes absolute and precipitates the collapse.

The Role of the State in Keynes’s Doomsday Prophecy

A major difference between Marx’s and Keynes’s laws that capitalism tends to

decline as a viable economic system is that, in Marx’s model, the state is absent

while in Keynes’s model, the state plays a critical role for better or worse. We are

certain that what transformed a potential crisis into an actual crisis was the meta-

morphosis of the role of the state, which began in the early 1970s and continued

during and after the financial collapse in 2008. We believe that our interpretationis highly consistent with Keynes’s harsh critique of the Treasury View widely held

in Britain during the interwar period on the supposed negative effect of public

spending on economic activity.

Without the state, capitalism could not have survived for so long. The state

is the anchor, the cornerstone of the system because, by its very nature, it is free

from the yoke of the preference for liquidity. State net expenditures, which resulted

largely from the New Deal and the sharp rise in war and postwar spending, saved

the system from the structural crisis—the system’s first—that followed the 1929

crash. Keynes, acting on his first revelation, had advised Franklin D. Rooseveltwhen he came into office in 1932 to reinforce his program of recovery from the first

financial crisis, understanding that this crisis was merely the outcome of private

capitalism’s tendency to decline (Thabet 2009).

Keynes also understood that the state is an abstraction. It embodies the ruling

ideology of the capitalist class as long as true democracy has not been achieved.

Keynes’s emphasis on the role of ideology could be compared to Marx’s critique of

the German Ideology (Engels and Marx 1967). For both authors, those who rule the

state have no possibility of accessing reality. This is a core philosophical principle

put forth by the German philosopher Edmund Husserl (1970), who created theschool of phenomenology. We know reality only through the veil of our dominant

beliefs, the state of science, and the view of what is the best for our survival. Like

Marx before him, Keynes was deeply worried by the contradiction between the

objective nature of the system and the ideology of the capitalist class. He was also

worried about state leaders.4

The state will act for the worse when its ideology is spontaneously the same

as that of the ruling class—that is, when it believes in the absolute necessity of

protecting asset values from the rising anxiety about the future. State policy be-

comes misguided when government policymakers believe in the impossibility offighting the underlying tendency toward the decline of the system. Keynes’s last

words (1936: 393) clearly reflect his concern over this looming tragedy. Ultimately,

ideology rules the system and helps to convince people that nothing can be done

to save them from their dark fate.5




This explains what happened at the inception of the crisis in the early 1970s

in the United States, Europe, and Japan. The earlier constraints had vanished (the

cold war and peaceful reconstruction of society), and the old ideology was fullyrestored. From a Keynesian perspective, this situation made it possible to instill

the most dangerous beliefs, including that the state’s role should be reduced

because its long-run net public expenditures have resulted in budgetary deficits.

Indeed, the war against state net expenditures became more intense in the 1970s

than during the first system crisis. Rising deficits were identified as a mark of

inflation and accelerated the anxiety-led flight from investment. At the same

time, the dismantling of the post–New Deal, “war economy” state was a sign

that full employment was no longer a priority. Blinded by their ideology, state

leaders endeavored to restore market laws (through a slow disengaging of thestate from economic activity) to allow a rise in the share of profits, which would

increase the value of assets. Dropping Keynes’s warning against the return of

prewar ideology from policy discourse was a successful tactic because, contrary

to Marx’s prophecy, Keynes’s prophecy had not had the least echo. Those who

pretended to be Keynesian never understood that, like Marx’s Capital, the GT

addressed the very long-term future of capitalism. American Keynesians and

Cantabridgians alike (with the exception of Joan Robinson) drew from Keynes

some very short-run equilibrium models that they incorporated into their general

equilibrium theory. They dealt with automatic stabilizers of which Keynes neverspoke and endorsed the pseudo-fact that there was an inverse relationship between

unemployment and inflation. Growth models like those of Harrod and Tobin

ignore money or deal with money as a capital asset. For instance, in the Tobin

growth model, capitalists have a choice between investing in money or in real

assets. It is rooted in a literal interpretation of GT chapter 17, and it precipitated

the disaster that became a catastrophe in 2008, disregarding Keynes’s warnings

forever. The IS-LM model, the Phillips curve, and the search for the “classical”

microeconomic foundations ensured the death of any possible understanding

of Keynes’s message. The seeds of the incoming collapse were burgeoning andfully flowered in 2008.

What aggravated the situation, thereby serving to hasten the end of capitalism

was the reaction of the policymakers to the financial crisis. The worst effects of the

crisis were felt in the eurozone, where it revealed the truth of Keynes’s conclusion:

An absurd ideology will generate policies that hasten the collapse. The intention

was to save the rentier-speculative economy at the expense of what remained of the

economy’s capacity for creating real wealth. How? By striving to allow asset holders

to benefit from the improved expectations of financial returns of both nonbanking

corporations and banks. Policymakers operated according to an ideology that, fly-ing in the face of reality, commanded them to impose scarcity—if not impoverish-

ment of the real economy—to raise the value of existing assets ad infinitum. The

crusade against state deficits and the growth of public debts began. In the United

States, this movement was rather mild. In the eurozone, the ideological crusade



SPRING 2013 31

was so extensive that it was worthy of the early Crusades to free Jerusalem. These

develpments are easy to explain from Keynes’s perspective.

In the United States, the metamorphosis was not complete and technocrats andhigh officials remained more cautious than their European counterparts. They were

not as enslaved as the Europeans were to a totalitarian ideology that promoted a

new system whose pillars were the permanent tightening of public expenditures

and the dismantling of the state. Nor were they simultaneously promoting an au-

thoritarian system designed to institute a bizarre new ultracapitalism with strong

neomedieval aspects including the transfer of sovereign powers to independent

unelected technocratic authorities.

Those policies of fiscal retrenchment reinforced the systemic crisis, and

the ratio of fictitious wealth to real wealth has become untenable because ofthe tendency to force a continuous decrease in the creation of new real wealth.

Therefore, to be a true Keynesian nowadays is to believe that the twenty-first-

century crisis was caused and made worse by misguided quasi-religious policies

that are destroying the system’s infrastructure and superstructure, because all

socially sustainable order, democracy, and hope for the future seem to have

been shattered.

How Keynes’s Prophecy Led Him to a Long-Term Salvation

Agenda for the Future

Keynes has also been misunderstood with respect to the restoration of hope. His

famous phrase “in the long run, we are all dead” is a sarcastic reference to the

classical and neoclassical ideology that preaches inaction because, automatically,

sooner or later, the system will be restored to long-run equilibrium. Thus why bother

about the future? What Keynes really meant was that a commitment to altruism

is required: Yes, we will not see the benefit of our actions unless we act now. As a

moral philosopher, Keynes was horrified by the selfishness, if not the cruelty, of the

ruling class. His long-term agenda cannot be understood if one overlooks the factthat he was an artist ruled by imagination and always pushed by the bold dream of

a society free from the sanctimonious rationing preached by overpaid high priests

of austerity and capitalist parasites.

Keynes’s prophecy explains his salvation agenda, which, no less than Marx’s

model, wished to resuscitate a capitalism that was already dead. This agenda relied

on three important pillars:

1. The socialization of investment,

2. The socialization of finance, and3. The intertemporal dynamic multiplier.

Today they all constitute keys to finding the policy road to a desirable future.

Their timeliness is clear.




The Socialization of Investment

The word “socialization” should be read as investment equally benefiting allmembers of free society so as to allow everyone to enjoy the maximum possible

welfare, which includes true and long-term full employment. By “investment,”

Keynes meant all expenditures that generate a permanent increase in real wealth,

the real “means of welfare.” For Keynes, “investment” is not investment according

to conventional accounting models. It includes the creation of a constantly growing

stock of both tangible and intangible real capital, including expenditures on health

care, education, research, and culture, while all constraints are lifted and to improve

the natural environment. Robert Eisner (1994) is one of very few who paid tribute to

Keynes for this bold definition of investment, which gives mankind some directionin its search for the best life possible. Hence Keynes never dealt with the stock of

capital as an independent factor of production. Too many Keynesians, whatever the

generation, are unaware of the fact that Keynes (like Marx) rejected the neoclassi-

cal production function and dealt with labor as the sole factor of production. The

role of investment is to realize the wealth-creation potential of labor or, in modern

parlance, to enhance its productivity.

From the general tendency of private investment to decrease rapidly, Keynes

drew the following conclusions that went far beyond the conventional wisdom

found now (in 2013) in the midst of the social system’s total collapse. The first isthat only the state may provide society with increased investment because it has

nothing to fear about the future, provided that it escapes the ideology of austerity

and rationing. The state’s true role according to Keynes is merely to be motivated to

generate the best possible future for society. The genuinely social, benevolent state

is free of anxiety about the future and escapes the general preference for liquidity.

It does not want to extinguish individualism and bold entrepreneurial spirit, for

which the state is the sine qua non.

Public investment must form the majority of overall investment for a very long

time, even after the anxiety of private investors has been assuaged because increas-ing the share of investment, especially in human beings, into the very distant future

will vastly reduce the possibility of uncertainty in the rate of return. In chapter 12

of the GT , Keynes scorns the enslavement of investment to a calculus of probability

of returns. His position on this issue is of crucial relevance today, when business

schools and doctrines of pseudo-management determine what constitutes a sound

investment. However, it may be argued that the issue of what a sound investment

is arises only if there has been a dramatic collapse of labor income.

It should be obvious that in his role as moral philosopher, Keynes envisioned a

new system free of authoritarian hierarchy and a ruling class. His vision involveda total cultural revolution and therefore deep but peaceful change in the political

structure. This is why we need to heed Keynes’s prophecy now that we are in

the midst of the collapse of the capitalist system and its heir, the parasitic rentier

economy. But this is not an agenda the socialist parties of the past could accept,



SPRING 2013 33

and the social democrats of this century are not ready to accept it either.6 Like their

ancestors in Marx’s time, they swallow the ruling ideology of sacrifice to keep

unmitigated pessimism at bay.

The Socialization of Finance

The problem is how socialized investment is to be financed. There is no obvious

answer in the GT. But here is the major proof that Keynes was constrained by the

conceptual context of his time and desperately strove to forge a theory of public

finance consistent with his prophecy.

He emphasized that the state will never face a shortage of money for its agenda

and that state investment should not squeeze consumption. He always wrote thatbecause savings are created by investment, savings cannot finance investment.

Together those propositions imply, first, that taxes cannot finance government

programs, as this would contradict the key precepts of Keynes’s theory that

saving, even if forced, cannot finance expenditures that generate the income on

which taxes are based and that private consumption must rise enough to generate

that income flow. This is the essence of his theory of the multiplier. Second, they

imply that investment expenditures, like all public expenditures, are in essence

financed by money creation accomplished by the state through the state bank,

that is, the central bank.7

Keynes was, therefore, very close to the modern theory of public finance (Parguez

2002). He was so close that he explicitly rejected all exogenous limits on deficits,

even in the long run, as do some left-wing neo-Marxist or heterodox economists (see,

e.g., Michl 2013). For Keynes, in the long run the deficit must reflect the amount

of desired public investment. Starting with the breakup of today’s economic ice

jam, the rentier economy, public investment would have to rise until spending on

research, culture, and health care no longer improves social welfare. This would be

some sort of end of history in a future so distant that it cannot even be imagined.

Deficits would have to rise at the same rate. The logical consequence of the similarsituation in the 1930s is that Keynes rejected the “public debt barrier” that haunts

modern society. Indeed, Keynes would today have withdrawn completely from the

debates over the size of the deficits, regardless of the participants in it—hawks,

doves, even owls.8

The Treasury issues debt only to comply with the accounting principle, with the

main borrower being the “socialized” central bank. The interest rate on bonds is

fixed by the Treasury, and logically this rate could be zero. Banks are keen to buy

public debt because they know that such debt is the safest, most liquid of all assets

endowed with real value, namely, the value of the stock of public capital, whichin turn reflects the rising labor value. Because the policy to restore growth frees

banks from any speculative tendency and anxiety about the future, government

bonds provide them with income and therefore net wealth, which allows them to

be free of the temptation to ration funds to private borrowers. The consequence




is that interest charged on lending to risk-taking private borrowers falls.

In modern terms, that is, from the perspective of monetary circuit theory, which

encompasses the modern monetary theory school (Mosler 2010), Keynes’s revolu-tion is based on three fundamental propositions, which, if understood, could end

the new structural crisis:

1. Money is perfectly endogenous but the state is the leading factor in this

endogeneity;

2. The rate of interest is ultimately set by the state and fixed at a low and constant

level to maximize the return on private innovations;

3. Banks must be forbidden to finance speculation and the acquisition of

assets.

In some ways, Keynes’s grandiose plan for a new system requires socializing

banks (see Bougrine and Seccareccia 2013).

The Intertemporal Dynamic Multiplier

Because the goal of Keynes’s anti-crisis program is the reconstruction of a dynamic

private system that contributes to the welfare of society, it is dependent on the

impact of public investment on private investors’ long-run expectations, as these

determine their investment decisions. To estimate this impact, one must analyze howconsumers and investors will react to public investments that continue to increase

over a period long enough to achieve results.

It is in this context that we can understand the intertemporal dynamic multiplier

(IDM) to represent the impact of consumption on private investment (GT, ch. 16).

Ultimately, this impact is the ratio of the aggregate increase in the stock of public

capital to the aggregate real income or labor income, since, following Keynes, ag-

gregate real income is equal to total employment in money terms multiplied by the

real-wealth creation potential of labor. The time horizon must be long enough to

encompass the metamorphosis of private expectations and the progressive disap-pearance of anguish about the future, which means a tendency toward zero liquidity

preference. The IDM also measures the ratio between the growth of public debt

and the growth of aggregate real income. Keynes himself dealt with this multiplier

in a strange way. Taking a single-unit period, he wished to prove that new public

investment had an impact on consumption, whose expenditures generate aggregate

income equal to the public investment multiplied by the inverse of the propensity

to save. He did not take into account the induced rise of private investment, and he

also assumed a constant propensity to save. What made a paradox of this definition

is that the role of the multiplier was to adjust saving to public investment. Keynesrelied on the equation I = S , while he proved later that I (investment) and S (saving)

are identical, thereby always and instantaneously equal. How can we reconcile this

narrow definition with his long-run program?

Here again we believe that one can rely on the Derrida principle as mentioned




context of his very long-run restoration of a stable and dynamic society. The nega-

tive impact on inflation currently being caused by the orthodox anti-crisis agenda

is the plague of today’s crisis. Instead of falling while the real economy is dying(as Marshallian theory would predict), prices are rising, thereby reflecting true

inflation. Central banks are powerless with regard to inflation, and monetary policy

is irrelevant. All that matters is fiscal policy, which is consistent with Keynes’s

beliefs. Transforming capitalists into rentiers will do nothing to calm their fears

about the future or their preference for liquidity. Quantitative easing, namely the

discretionary buildup of reserves in the banking system, has not had the slightest

positive impact on the real economy.10

One concern remains: In the context of a global economy, is this truly a Keynes

moment? Why does being Keynesian in spirit lead to firmly saying, “no”? Global-ization is just a desperate effort on the part of corporate production units to save the

value of their assets by exporting their production to areas where labor costs a bare

minimum. The secret of the game, of course, is then to export their production to their

home countries, to sell them at a price well above production cost and enjoy profits

above their normal level. What is the conclusion of the anti-Keynesians? The IDM

will eventually be negative because of the total collapse of domestic production. The

critique is not convincing because this flight from production in the home country

cannot be sustained forever. There will come a time when there will be a lack of

income at home to absorb the exported output from the subsistence-wage countries.Effective profits will become negative, as will the value of assets. Modern globaliza-

tion merely reinforces the decline of the capitalist system as a whole.

However, Keynes’s program can handily compensate for this desperate effort

to save asset values. By continually creating new activities that generate new

commodities embodying the most advanced technology, the state is both able to

generate domestic expenditures and abolish incentives to export production. In

the socialized economy that Keynes had in mind, there must be a transformation

of the structure of consumption. Ultimately, even if managers of what remains of

industry still strive to generate profits by exporting production, it does not matter.True full employment and the highest welfare would be achieved.

For the same reason, a trade deficit should not be feared. The Keynesian program

would create rising demand for new commodities, tangible or not, which reflects a

rise in exports and in the terms of trade. Therefore the program would increase the

terms of trade.11 Ultimately, Keynes’s model is needed more than ever to survive

the globalization of capital. It explains why globalization has no negative impact

on the IDM, which is a pleasing conclusion that early Keynesians and many post-

Keynesians overlooked because of their static models.

There Is No Alternative: Keynes or a Bottomless Crisis

Contrary to Marx, Keynes is more reliable than ever. Keynes’s model gives both

an interpretation of the twenty-first-century crisis and the best program to protect



SPRING 2013 37

society from long-term stagnation. This is indeed an important Keynesian moment,

perhaps the last chance to apply Keynes’s long-term program before a new col-

lapse of the system. We face the following prospect: We follow Keynes’s program,or society is doomed to chaos, with a gloomy system rising from the ashes of the

old one.

Ultimately, this would be the end of the road for a very lonely prophet who left

the narrow-minded Cambridge of Marshallian economics. Without any contact

with the outside world, he started his long march to open up a world of freedom

for society. This explains the apparent lack of consistency in the book: chapters 1

to 3 were written by a pilgrim who had not yet freed himself from the Marshal-

lian church. This is why we believe that there is only one Keynes on this march

to intellectual emancipation and that one cannot expect much from the principleof effective demand (chapter 3), which he unfortunately develops within a purely

microeconomic Marshallian equilibrium framework using a “representative” firm

that charges a rate of “quasi-rent” on prime costs, a measure of the productivity of

capital. This narrow version is inconsistent with the true general theory of capital-

ism emphasized in chapters 12, 16, 17, and, of course, 22 and 24.

Notes

1. This offers an explanation of our interpretation of chapter 17, which differs fromParguez and Seccareccia (2000). Both interpretations are right; the difference lies in whetherwe apply the Derrida principle.

2. This is because it determines an equal rise in the real rate of interest. Keynes assumesthat the real rate of interest reflects the required rate of profit.

3. Anxiety about the future as the explanation of action is a concept invented by theDanish philosopher Soren Kierkegaard. The English translation of Kierkegaard’s book(first written in French) has as its title The Concept of Anxiety (1980), but we believe thatthe term “anguish” is perhaps more appropriate than “anxiety” to express Kierkegaard’sphilosophy.

4. Including technocrats, major economists, and the politicians whom they advise.

5. In the concluding chapter of his GT, Keynes, like Marx before him, opposed ideologywith science, which is required to tear away the veil with which belief in the old teachingshide the truth, the teaching of old masters.

6. No more than the few remaining believers in orthodox economics and perhaps someneo-Marxists like Michl (2013), who do not understood that Marx wrote in another era. IfKeynes were reborn today, we are certain that he would admire the bold, totally democraticKeynesian revolution.

7. Keynes struggled against the intellectual straitjacket of his time, as shown by theambiguous statement in GT, chapter 10 , in which he characterizes the public investmentincluded in overall deficit spending as “loan expenditures financed by borrowing from theindividuals” (1936: 88). This statement is in complete contradiction with his core theory.

Who are these “individuals”? From a modern perspective, net savers are those whosenet savings are created by the state deficit! The fundamental accounting identity show-ing that private individuals cannot save without a preexisting deficit was still foreign toKeynes’s conceptual apparatus because Keynes, as the lonely prophet, was unaware ofMichal Kalecki’s writings.

8. Hawks, like Robert Barro, want zero deficits and a zero public debt. Doves, like




Paul Krugman, accept a rising deficit until some particular limit. Owls are a new speciesnamed after the sacred bird of the goddess Pallas Athena. They accept a deficit until fullemployment is achieved. But there are also new, right-wing owls that wish to maintain thedeficit and the public debt at the level acceptable to the financial markets, and their godis Goldman Sachs. They never invoke any logical reason, simply claiming that, wrong ornot, the financial markets deeply dislike public debt. Their conclusion is that to be a truepost-Keynesian one must return to austerity as soon as “prosperity” returns (see, e.g.,Seidman 2012).

9. One must not neglect society’s trust in the political leadership that starts the program.Roosevelt inspired such confidence that the IDM was amazing between 1933 and 1937,reaching 5 or 6 according to prudent estimates (Parguez 2011).

10. One cannot escape the fact that the contradiction between Keynes’s theory of pricesand his theory of the value of money mirrors Marx’s inability to reconcile his value theory

with his price theory. In Marx, as in Keynes, there is a transformation problem that hidesa paradox, because neither of them believed that there were market laws governing a self-adjusting system that would prevent a global crisis!

11. Keynes’s model could even lead to an appreciation of the currency—that is, a rise inthe real exchange rate relative to countries that follow an austerity program or depend onglobalization. Keynes’s model does not require fixed exchange rates.

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To order reprints, call 1-800-352-2210; outside the United States, call 717-632-3535.



C o p y r i g h t o f I n t e r n a t i o n a l J o u r n a l o f P o l i t i c a l E c o n o m y i s t h e p r o p e r t y o f M . E . S h a r p e I n c .

a n d i t s c o n t e n t m a y n o t b e c o p i e d o r e m a i l e d t o m u l t i p l e s i t e s o r p o s t e d t o a l i s t s e r v w i t h o u t

t h e c o p y r i g h t h o l d e r ' s e x p r e s s w r i t t e n p e r m i s s i o n . H o w e v e r , u s e r s m a y p r i n t , d o w n l o a d , o r

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The 21st Century World Crisis - A Keynes Moment

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