Keynesian International

David Marquand

  • Controlling the Economic Future: Policy Dilemmas in a Shrinking World by Michael Stewart
    Harvester, 192 pp, £18.95, November 1983, ISBN 0 7108 0182 3
  • In Defence of the Mixed Economy by Andrew Shonfield, edited by Zuzanna Shonfield
    Oxford, 231 pp, £15.00, February 1984, ISBN 0 19 215359 5
  • The Welfare State in Crisis: Social Thought and Social Change by Ramesh Mishra
    Harvester, 208 pp, £15.95, December 1983, ISBN 0 7108 0240 4

As the name they gave their subject implied, the great political economists of the 19th century knew that the economy cannot be studied fruitfully in isolation from the polity. The notion that there is, or should be, a distinct and autonomous discipline of ‘economics’, whose practitioners are solely concerned with economic relationships, and for whom the corresponding political relationships are professionally irrelevant, would have seemed to them absurd, even shocking. By a curious paradox, however, the 19th-century tradition of political economy has fallen further and further into abeyance the more closely the economy and the polity have been intertwined in practice. Nowadays, in this country at any rate, economists study economics, while political scientists study politics. The result is that neither discipline has much to say about the central economic and political problems of our time.

For, as all these authors remind us in different ways, those problems are neither political nor economic. They are politico-economic. They spring from the interactions between the polity and the economy, and between different polities and different economies: from the way in which political and economic relationships impinge on each other, both within and across national frontiers. Of course, there is nothing new in interactions of these sorts. Wars and booms; empire and exploitation; inflation and instability; bad harvests and bread riots; tight labour markets and uppity wage-earners; national aggrandisement and protective tariffs; trade and the flag; blood and gold – the links between all these have been familiar for centuries. But the connections between the two domains are closer and more complicated than they used to be, and their policy implications more uncomfortable. In a sense which has not been true in the past, it is now a waste of time to look for economic solutions to our most pressing economic problems – or, for that matter, for political solutions to our most pressing political ones. What we need are politico-economic solutions – and we have forgotten how to think in politico-economic categories.

Hence the prolonged crisis of managed welfare capitalism in which the Western world has been engulfed since the early 1970s, and which has provoked a strange, atavistic neo-liberal counter-revolution against the Keynesian social democracy of the 1950s and 1960s. Socially and politically, the current crisis has much in common with the Great Depression of fifty years ago. Now, as then, millions of people have been condemned, through no fault of their own, to the half-life of involuntary unemployment. Now, as then, the victims retreat into a kind of numb despair, while the rest of us pass by on the other side. Now, as then, incalculable damage has been done to the cohesion of our societies, and therefore to their chances of sustained recovery. Now, as then, governments seem powerless to act.

Analytically, however, the contrasts are more significant than the similarities. Then, governments seemed powerless to act because they did not know how to act. They sat and watched the unemployment figures mount because they lacked the economic expertise to get them down. As A.J.P. Taylor once put it, they were like doctors before the invention of antibiotics. All they could do was to prescribe rest and liquids, and take their fee. Present-day governments are in a quite different position. There is no secret about what needs to be done. The difficulty lies in doing it. Since Keynes, everyone has known that the key to the level of employment lies in the level of demand. Everyone has also known that governments can stimulate extra demand if they want to. Though the British and American Treasuries sometimes give a different impression, that knowledge has not mysteriously vanished. The trouble is that we can no longer put it to work. Our inability to do so does not spring from imperfect economic understanding. It springs from imperfections in our institutions, attitudes and values.

There is, in fact, a terrible irony about the neo-liberal counter-revolution which is doing so much damage to the moral quality of our civilisation. The neo-liberals object to Keynesian economics. They have no quarrel with its underlying political assumptions. But Keynes’s economic teaching is still valid, and in turning our backs on it, we have turned our backs on one of the most hopeful intellectual constructs of the century. The reason his system has collapsed is that its political foundations have crumbled. Instead of abandoning the economics and sticking to the politics, we should be trying to revise the politics so as to make the economics workable again.

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