Seriously, Gugliemo Carchedi doesn’t know jack-shit about Keynesian economic policy

by Jehu

Here is how Gugliemo Carchedi defines Keynesian policies:

“To begin with, what are Keynesian policies? First, they are state-induced economic policies. Second, they can be redistribution policies or investments policies. Third, they should be capital financed and not labour financed. If labour-financed, they are neoliberal policies. Fourth, in the case of state-induced investment policies, they can be either civilian … or military. “

According to Carchedi then Keynesian policies are state induced, capital funded, civilian sector, redistribution and investment policies. Neoliberal policies differ from Keynesian policies only in that they are ‘labour-financed’, rather than ‘capital-financed’. Of course, this is not at all what Keynesian policies are and Carchedi should know it. Keynesian policies are a set of state economic policies designed to reduce the real wages of workers below the value of labor power. I am not sure why Carchedi defines Keynesian policies the way he does, but he is completely wrong.

eurozone-debt-crisis-By-Carlos-LatuffWhy do Keynesian policies aim to reduce the wages of the working class below the value of labor power? To prop up profits, of course. The argument Carchedi makes in his paper is that Keynesian policies do not and cannot restore profitability is, therefore, interesting. He demonstrates rather convincingly that Keynesian policies do not work through income redistribution or investment policies. Essentially, the distribution of the social product and the uses to which the social product is put no longer have any effect on profits.

This is an odd argument Carchedi makes, because it requires him to explain why this is now true. During the whole of the capitalist epoch, the mass of profits is increased by shifting the social product from wages to profits by investing in constant capital (machinery, etc.) rather than variable capital (wages). Carchedi is saying this process no longer works and no policies of the fascist state can make it work. This is a rather startling argument by a mainstream labor theorist because it suggests capitalist production has ended or is close to an end. If the fall in the rate of profit is not made up by an increase in the mass of profit, at some point capitalist production will halt.

Carchedi seems completely unaware of the implications of the argument he has just made. Nowhere does he state this implication explicitly He states instead:

“The thesis that state-induced redistribution and investment policies, possibly through state borrowing, could start a sustained recovery, provided the scale is sufficiently large, is not only theoretically invalid (see above) but also empirically unsubstantiated.”

In other words, nothing the state does will increase the mass of profits according to Carchedi. Is this true?

First, Carchedi conflates the circumstances of individuals capitalists with capital as a whole. It may be true that for capital as a whole nothing the state does will increase the mass of profits. At a certain point the rate of profit falls so low only the very biggest capitals remain profitable. Those capitals unable to remain profitable, must collapse or place their capital in the hands of the state or the very largest capitals. They lend this superfluous capital to the state or to the very largest capitals in return for some given share in the profits. This process was referred to by Marx as the concentration and centralization of capital, but appears nowhere in Carchedi’s discussion.

Second, we are not talking about one state, but a collection of states within the world market. Each of these nation states function more or less as the capitalist of their country within the world market and to this extent come under the law of value as national capitalists. What applies in the case of sub-national capitals — the capitals of a single state — also applies in the case of national state capitals. The national capitals are no less than non-state capitals subject to the laws of the capitalist mode of production.

This fact has repeatedly demonstrated over the past 80 years or so as one nation or another has gone bankrupt.

Thinking globally

Labor theorists are not predisposed to thinking in these terms because the scope of their investigation is typically a national economy. Within that scope, forces arising from world market competition have no direct role in the discussion. For example, in the case of the United States, Carchedi the post-war boom enjoyed by the US economy owes its origins to a post-war reconversion of military production, created during World War II to civilian purposes:

“The thesis that state-induced redistribution and investment policies, possibly through state borrowing, could start a sustained recovery, provided the scale is sufficiently large, is not only theoretically invalid (see above) but also empirically unsubstantiated. The example usually mentioned is the long period of prosperity that followed the Second World War, the so-called Golden Age of capitalism. Supposedly, government borrowing made it possible for the US state to finance Keynesian policies and thus to start the long period of prosperity. In reality, the US gross federal debt as a percentage of GDP decreased constantly during the Golden Age, from 121.7 percent in 1946 to 37.6 percent in 1970. The long spell of prosperity was due to reconversion, ie to the reconstitution of civilian capital, and to the liberation of pent-up purchasing power after the war.”

In this argument on the causes of the post-war boom, Carchedi overlooks the fact the conquered state capitals of Japan and Germany fell under the near-complete domination of the US. Their highly educated populations and what was left of their productive infrastructure essentially came under the domination of the US and remain so today. Moreover, all other major industrial competitors of the United States were destroyed in the war and became markets for American industry. All of this appears nowhere in Carchedi’s explanation — his sole focus is on his theory of the internal causes of US economic recovery.

If nothing the state does within the territory under its control will increase the mass of profits, the state must look beyond its borders. Is this not what happened in two world wars in the 20th century? Labor theory thus provides its own explanation for these two huge catastrophes that cost the lives of some 100 million persons. And it provides its own explanation for why the United States, the ‘winner’ in this catastrophe, experienced its ‘golden period’.

Labor theory suggest the law of the tendency toward a fall in the rate of profit has reached the level that not even the reorganization of the capitals of entire nations along state lines is sufficient to increase the mass of profits. Under these circumstances, the only national capitals that can remain profitable are those organized, like the United States, globally.