“Crass Keynesianism”

That’s how the German Minister of Finance, SDP member Peer Steinbrück, has described Gordon Brown’s attempt to spend Britain’s way out of the Depression that’s already started. He’s right. It is. But at least Brown is trying to carry out the policy the Labour Party, heavily influenced by Keynes, adopted at its 1944 Conference:

“If bad trade and general unemployment threatens, this means that total purchasing power is falling too low. Therefore we should at once increase expenditure, both on consumption and on development, i.e. both on consumer goods and capital goods. We should give people more money and not less, to spend. If need be we should borrow to cover government expenditure. We need not aim at balancing the budget year by year." (Full Employment and Finance Policy).

The trouble is that when the last Labour government tried this in the slump of the mid-1970s it didn’t work and the Labour Prime Minister of the time, James Callaghan, had to declare that it was no longer an option. It didn’t work either when President Mitterrand of France tried it to get France out of the slump of the early 1980s. All it led to was “stagflation” (recession + inflation) and to the devaluation of the currency (which has already begun this time here).

Brown is justifying his policy on the grounds that the money the government is spending is coming from borrowing. Not quite, according to Anatole Kaletsky, the financial journalist and commentator, writing in The Times (11 December):

“Where will the money come from? As the US Congress prepares to vote on a multibillion auto bailout and governments around the world pledge sums running into trillions to prevent a 1930s-style economic collapse, this obvious question is being asked by taxpayers and opposition politicians everywhere, from David Cameron's Tories to Trotskyites in France.

For the next year or two, the money for the British fiscal stimulus will come from the Bank of England's printing works in Dedham. In the case of the far bigger job-creation schemes and industry bailouts planned by Barack Obama, the money will come from the Washington and Fort Worth facilities of the US Bureau of Engraving and Printing, an institution rejoicing in the most succinctly descriptive internet address I have encountered: www.moneyfactory.gov.

There is nothing wrong with printing money – and plenty of it – in a period when prices are falling, property and stockmarket values are collapsing, banks are paralysed and the only assets that savers are willing to invest in are pieces of paper issued by the government.
Printing money and spending it on public works or on tax cuts, far from being profligate or imprudent in such conditions, is the only responsible thing for politicians to do. This is what Keynes demonstrated in 1936 in his General Theory of Employment, Interest and Money, which is one of the main reasons why there has not been a genuine depression in any capitalist economy since he published that revelatory book.”

The claim in the last sentence is very much open to question (otherwise, why the slumps of the 1970s, 1980s and early 1990s) and it can be doubted if Keynes really was that “crass” a Keynesian. He was, however, in favour of trying to prevent the general level of prices falling in a slump by inflating the currency. But what is not open to challenge is that “printing money – and plenty of it” has been the main cause of the non-stop rise in the general price level that has gone on in Britain since the first Keynesian budget was adopted in 1940.

Gordon Brown imagines that he’s saviour of the world, but he’s likely go down in history not only as the man who vainly boasted to have ended the boom-bust-slump cycle but as yet another leader who tried and failed to spend the way out of slump. Capitalist production will only begin expanding again when the possibilities for making a profit out of it return. For this to happen stocks must be cleared, inefficient businesses go to the wall and wages fall as a result of growing unemployment. That’s the way capitalism works and there’s nothing governments can do about it – except making matters worse, or as Marx put it, “Ignorant and mistaken bank legislation . . . can intensify this money crisis. But no kind of bank legislation can eliminate a crisis” (Capital, Volume III, chapter 30).

ALB