Three fundamental errors in the Marxist critique of Keynesian economic policy

by Jehu

Gugliemo Carchedi’s paper shows what I think are three fundamental flaws with the mainstream Marxist critique of Keynesian policies that must be addressed by labor theory scholars.

1. The dollar is not money, but a means of managing the national capital

First, the critique does not recognize that, after society removes gold from circulation, the state can indeed create dollars (not money, but means of exchange, tokens) out of nothing at will. The critique does not recognize the fundamental distinction between money and money-capital: capital is always in circulation, unlike money, and, therefore, always takes the form of tokens of money, not money itself. By gaining freedom over the issue of tokens of money, the state essentially takes control of the circulation of capital.

globalizationOnce the commodity money can no longer circulate as capital, credit money, the capitalist money-form, becomes a token of the dollar, not of money. The fascist state can manage the expansion of credit money by managing the quantity of dollars in circulation. This capacity is not a result of an act on the part of the state to seize the control of the circulation of money-capital, but is forced on it by society. Society itself removes commodity money from circulation because there is no longer any possibility for commodity money to become capital, i.e., because there are no profitable outlets for investment of this capital. This occurs because the profit rate has fallen to zero and any additional investment of capital produces just as much or even less surplus value than before.

All of what i have stated above is outlined by Marx in chapter 15 of Volume 3 of Capital. Building on this argument, Engels, in part 3 of Socialism: Scientific and Utopian, predicts this would force the existing state to take control of the productive forces of society and assume the role of national capitalist. The argument here should not be conflated with the actual seizure of the means of production — this may or may not happen, but it is a purely legal formality. The state assumes control of the production of surplus value; it does not necessarily physically seize the production of actual use values, i.e., assert ownership of the physical infrastructure of production. Assuming control of the production of surplus value can be effected simply by seizing control of what serves as money in exchange.

This is the difference between fascism and the Soviet system: under the Soviet system the state managed the production of use values directly. The fascist state is only concerned with the production of values, of surplus value, of profit, not the use values.

Engels argued the taking over of the process of production of surplus value would mean the process had entirely outgrown private capital and could only be managed socially. The rise of the fascist state would mark an advance in the mode of production that would solve the technical  problems of the transition to communism. Based on Engels’ argument, I conclude fascism is not, as is commonly assumed, an alternative to communism — a horrific dead end arrived at by a society unable to establish proletarian rule — but an alternate route to communism that must lead to the same destination as proletarian rule despite every effort by the bourgeoisie to avoid this result.

In the slogan, “Socialism or Barbarism”, the question raised is which class will control society’s transition to communism: the proletariat or the bourgeoisie. The slogan should not be interpreted to mean this transition is contingent on the outcome of the class struggle, but under the rule of which class this transition will take place. The political conflict between the two classes (democracy) culminates in a battle over which class will manage society’s transition to communism. The process itself, the replacement of precapitalist modes of production by communism, goes on no matter which class holds power. The conflation we have made is between the underlying process, on one hand, and the struggle over which class will hold power during this transition, on the other.

I know, from the standpoint of orthodox Marxist interpretation, this is a total heresy, and I am going to burn in hell for it. But I think it helps to know what is at stake as Marx and Engels saw it and what is entirely contingent. The working class being in power during this transitional phase was always entirely contingent on the outcome of the class struggle. It had nothing whatsoever to do directly with the transition itself, however.

Why is this important — absolutely critical — to understand right now, in our own context? Because we are now in a period where all the material conditions for the higher stage of communism to be realized fully and directly are now in place within society. From our present period, there is no necessary period of revolutionary transformation — all the conditions already exist. All the problem of class struggle which seem intractable are intractable precisely because they reflect an earlier stage of development. To put it simply: We are asking the wrong questions for our time.

The right questions haven’t even been formulated except in one important manner: All the wrong questions have no answers. We keep asking how many angels can dance on the head of a pin — which is to say, we keep asking how this crisis can be resolved through a class struggle and the political conflict between classes over which holds state power. And when we look at the streets of Athens, or Madrid, or Cairo, or London no answer can be found, i.e., no mass of individuals appear empirically prepared to play the role of providing an answer.

This is not just a problem of communist thinking, the apologists of present society experience this no less than we do. You can believe they are looking at each other and asking the very same question we ask: Why are the streets of Europe quiet? Why isn’t the working class in the streets trying to overthrow every government right now? And they are as unable to answer this as we are. If you don’t believe me, give this a quick read. The bourgeoisie are asking the same question you hear at any conference of communists anywhere: Where is the revolutionary subject?

This question has profound implications at present because, surprisingly, the biggest argument in bourgeois circles against austerity today is not that it cruel and despotic, but according to the IMF, despite the cruelty and despotism of austerity it is killing capitalism. Since there is no limit on the depravity of the capitalists in the streets of Europe, the capitalist class runs into its natural limit: that for the production of surplus value to increase the mass of labor power employed must also increase.

As the capitalists found in the Great Depression, under conditions of absolute overaccumulation you cannot render the mass of the working class superfluous to increase your profits without also rendering the mass of capital superfluous.

2. The proper focus of analysis is the world market

The second fundamental flaw of the Marxist critique of Keynesian policies that can be found in Carchedi’s paper is the purely national level of analysis.

By assuming control of the process of production of surplus value, of the total national capital, through its control of currency, the fascist state puts an end to the operation of the law of value at the national level. The state cannot assume control of the production of surplus value without, at the same time, transforming the whole of the national capital into a company town, into a factory floor operating under the despotic plan of a single national state capitalist. The law of value is replaced by the despotic plan of the state, allowing its economic policy to determine material activity.

On the other hand, the state itself is transformed into a national capitalist and, as such, itself falls under the operation of the law of value as one of a number of state capitalists within the world market.

Marxists, however, continue to treat the national state and the capital of a nation as two separate entities. This is the essence of the distinction between the Marxist critique of Keynesian policies and its treatment of neoliberalism and globalization. In the case of Keynesian policies, the state is assumed to be sovereign and can effect its policies arbitrarily, i.e. politically. In the case of neoliberalism, the state is subject to economic forces beyond its control arising from the world market. Marxists make a false distinction between these two assumptions and never disclose the relation between them.

In fact, the moment the state assumes control of the national capital it signs its own death warrant. The ‘withering away of the state’ (so to speak) is already clear to Marxists if the “state” in question is the proletarian dictatorship, but it is no less true of the bourgeois (fascist) state — it is progressively undermined by the expansion of the world market. The very same processes we encountered in chapter 15 of Volume 3 of Capital that formerly led to the state assuming control of  the total national capital through its control of the currency now operate on it as the national capitalist.

The capitalist relationship, as Engels explained in Socialism, Scientific and Utopian, is not done away with. The state becomes the direct exploiter of labor power, even if it does not, in any way, actually direct production of use values. The capitalist class is finally rendered entirely superfluous as a class even if it remains the legal owner of the national capital. These legal property relations are only fictions that continue in operation long after their real operation has ceased. In other words, the capitalist remains a capitalist only so long as he hands his money capital over to the state and satisfies himself with interest on bonds.

The actual management of the productive capacity of the nation is effected through a managerial stratum that moves effortlessly between ‘the private sector’ (capitals) and the various departments of the state machinery charged with overseeing their operation. The distinction between the fascist state and the total national capital is a formality, a hangover from earlier periods of development. This distinction has no more substance than does the purely legal ownership of the national capital by the capitalist class.

On the other hand, as the national capitalist, the fascist state faces other fascist states who each are, like itself, the capitalist  of their own nations. In character each of these national capitals is just like the other, despite whatever superficial national difference exist. Which is to say, these national fascist state capital are no more different in character than General Motors, General Electric and Exxon-Mobil. Since, in character all are the same, what matters is the relative size of their individual national capitals.

The relation between them is determined, on the one hand, by the size of their national capitals, and, on the other, by the positions they have conquered within the world market. The relations between the national capitals is determined solely by competition, as Marx argued, “depending on special advantages or previously captured positions”. The competition, in every case, is over which national capitals will continue to operate independently as national capitals and which will be forced to stand idle or destroyed altogether. At this stage in the development of the capitalist mode of production what is at stake is not simply the capital of one or another private capitalist, but entire national economies.

3. Neoliberalism is the Keynesian policies of one fascist state imposed on another

The third fundamental flaw, already hinted at, is the utterly false distinction Marxists make between Keynesian and neoliberal economic policies. This flaw arises from the fact Marxists make a wholly erroneous distinction between the so-called national economy and the world market.

As we already know, capital is a global mode of production from its very inception and accelerates the development of the world market. The practical distinction between the national economy and the world market forms only a stage in the development of the world market itself. This stage comes to an end once the state is forced to undertake the management of the production of surplus value. Which is to say, the moment the state begins to implement Keynesian economic management policies it already puts an end to these policies. The contradictions that call Keynesian economic management into existence also makes this management economically insufficient. As the state becomes absolutely essential to the realization of surplus value, of profit, this realization becomes impossible within the confines of a single state.

There begins a new round of conflict over which national capitals will continue to operate on their own as capitals and which must turn their capital over to larger. more powerful, national capitals. Since we are dealing with states in this case, it is obvious that this is at first settled on the battlefield, not in a boardroom. What Marxists stupidly define as neoliberal economic policies, in contrast to Keynesian policies, are nothing more than the Keynesian policies of one national capital imposed on less powerful national capitals.

Here, as in the case of national economies, money capital must assume the form of some token of money. Since we are dealing with a global condition of overaccumulation of capital, the circulation of money capital cannot assume the form of a commodity money and, thus, commodity money is abolished in this sphere as well. This happened in 1971 and constituted a world history. However, it is not just that commodity money was displaced by the dollar in the world market after the collapse of Bretton Woods, the collapse of Bretton Woods also brought the whole of capital within the world market under the management of the United States.

The rise of neoliberal policies, which many Marxists academics date from this period, is the expression of the extension of US-centric Keynesian policies to the whole of the world market. The emergence of the twin deficits in the United States — its trade deficit and its federal budget deficit — must be seen as the global expression of what Keynesian-infected Marxists like John Bellamy Foster call “expansive fiscal policy and deficit financing in a depression”. Which is to say, Washington has become for the world market, what the fascist state was for the national capital: the capitalist.

And this has implications:

First, it renders all other state capitalists superfluous from the standpoint of the mode of production. All of these state capitals, with their flags and anthems and currencies and central banks and state bureaucracies, have no more theoretical significance for analysis than General Motors, Exxon-Mobil, Apple or any other private capital. All of these symbols of national sovereignty have only legal or diplomatic standing, just as the Koch Brothers can point to their factory and declare, “We own this. It is our property”, meaning, by this, that they are entitled to some share in the total surplus value produced, so these national symbols are no more than a claim to a share of the surplus value produced throughout the entire world market. In fact the symbols as expression of sovereignty have no actual material significance whatsoever, they are hangovers from an earlier more primitive stage of development.

They are barbarous relics no less than commodity money itself.

This has to be clear: what I am describing here is NOT an artifact of US coercion — although there is plenty of that — but appears most importantly in the thinking of the states themselves. It is behind the thinking of such states as China, Russia, France or Venezuela every bit as much as Japan, Germany, Iraq and Afghanistan. How each may respond to this may differ but the superfluous character of national sovereignty is the implicit assumption of every nation that denominates the prices of its exports in dollars. These nations are denominating their exports in a currency over which they have no control and which plays no role in their national economy. The accumulation that results from these exports is, therefore, totally superfluous to these fascist states and must be placed at the disposal of Washington.

As in the earlier case of private capitals of a single state, to the extent the dependent fascist national capitals continue to function as capital at all, they do so only by placing their capital at the disposal of Washington in return for a share in the profits Washington realizes. The twin deficits of the United States — its trade deficit and its federal budget deficit — are only the artifact of the division of the world market into national states. It does not, as many commentators and pundits argue, have any material significance at all — the US is not going to go bankrupt, and cannot go bankrupt since it accumulates these liabilities in the form of its own valueless fiat currency.

Moreover the accumulation of US deficits is a specific product of the directly global mode of accumulation and does not in any way determine the mode. Which is to say if these lesser fascist states are to accumulate surplus value at all, this accumulation must take the form of dollars. In the present circumstances, it is not the deficits of the US that are unsustainable, but the national currencies of the lesser fascist states. (Unfortunately, in this instance, Robert Kurz, an otherwise brilliant thinker, got it completely wrong.)

In the present crisis from the point of view of barbarism, as Keynesians rightly point out, it is not the deficits of the US that are the problem, but their insufficiency: that they are too small to do the job of offsetting the contraction of the world market elsewhere. In all cases where the two come into conflict, the mode of exchange must always give way to the mode of production. Since the US deficits are absolutely necessary to accumulation at this point, the completely illusory differences between national economies, expressed, for example, by US deficits, on the one hand, and China surpluses, on the other, will be settled in a manner that allows the deficits to continue in whatever form becomes necessary. The forms the twin deficits of the United States take is purely contingent, but, in any case, these deficits must continue in some form.

Second, since the US now serves as the global capitalist, and since this does not in any way abolish capitalist relations of production, the US, having assumed this function, becomes the direct exploiter of the laborers of every country, no matter that, as a practical matter, national borders and the symbols of sovereignty remain intact. The separate national fascist states are transformed into so many subsidiary companies of a single global conglomerate, tasked with the project of turning their entire national economy into a profit center.  As Engels put it, the state, no matter what its form, is a capitalist machine, the ideal personification of the total national capital. This capitalist machine now functions exclusively as a subsidiary of Washington, producing exports denominated in dollars and turning these dollars over to Washington in return for its share of the total surplus value created. As the productive forces of the world market comes under the control of the fascist state headquartered in Washington, Washington actually becomes the capitalist within the world market exploiting not only the citizens of its own territory but also the citizens of the lesser fascist states.

On the other hand, the workers of every country are at last brought face to face with a single all-encompassing exploiter of wage labor and they must overthrow this exploiter all together and at once.